Capita plc Annual Report 2022 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
CEO’s
review
Our
people
Read more about our business
model on pages 6 and 7.
Read more from our CEO
on pages 10 to 25.
Read more about our people
on pages 33 to 36.
Strategic report
Corporate governance
Financial statements
66 Chairman’s report
69 Board members
71
Corporate governance
statement
Directors’ responsibility
statement
84
85 Committees
86
88
90
99
Nomination Committee
ESG Committee
Audit and Risk Committee
Directors’ remuneration
report
2022 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
Public Service
16
Experience
20
24
Portfolio
26 Chief Financial
Officer’s review
33 Our people
36 Responsible business
at a glance
37 Responsible business
46 Non-financial information
statement
47 Stakeholder engagement
49 TCFD
54
Risk management
64 Viability statement
This Annual Report, other
corporate publications,
our latest news and
announcements, and more
information about us is
available on our website,
www.capita.com
124 Independent auditor’s report
142 Consolidated financial
statements
147 Notes to the consolidated
financial statements
215 Company financial
statements
217 Notes to the Company
financial statements
228 Additional information
228 Shareholder information
229 Alternative performance
measures (APMs)
Cautionary statement
The directors present the Annual Report for
the year ended 31 December 2022, which
includes the strategic report, corporate
governance, and audited accounts for this
year. Pages 1 to 122 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.
Welcome to the Capita plc Annual Report 2022Capita plc Annual Report 2022
Strategic
report
2022
highlights
Capita plc
Annual Report 2022
1
Our performance
In 2022, we delivered a turnaround in financial performance with
accelerated adjusted revenue growth, a step change in profitability
and positive free cash flow. Capita is now a business focused on two
core divisions with strong positions in attractive and growing markets,
underpinned by a strengthened balance sheet. Our priority continues
to be on improving performance for all our stakeholders.
Financial highlights and KPIs
Non-financial highlights and KPIs
Reported revenue
£3,014.6m
(2021: £3,182.5m)
Adjusted revenue1
Reported profit
before tax
£61.4m
(2021: £285.6m)
Reported free
cash flow3
£24.5m
(2021: £(264.3)m)
Adjusted profit/(loss)
before tax1
Free cash flow before the
impact of business exits3
£2,845.8m
(2021: £2,777.8m)
£73.8m
(2021: £(122.8)m)
£29.0m
(2021: £(218.6)m)
Reported earnings per
share (continuing ops)
Adjusted earnings/loss
per share2
4.47p
(2021: 13.33p)
6.20p
(2021: (7.74)p)
Read more in the Chief Financial Officer’s review on pages 26 to 32.
1. Capita reports results on an adjusted basis to aid understanding of business performance.
Refer to alternative performance measures (APMs) on pages 229 to 231.
2. Refer to note 2.7 to the consolidated financial statements.
3. Refer to note 2.10 to the consolidated financial statements.
Points swing in
employee net
promoter score
+15pts
(2021: -22pts)
Employee
engagement
index
65%
(2021: 56%)
Points swing in
customer net
promoter score
+6pts
(2021: -3pts)
Diversity: gender
M/F
Suppliers paid
within 60 days4
Total shareholder
return (TSR)
99%
(2021: 98%)
(33.5)%
(2021: (6.9)%)
Reduction in
carbon footprint6
(location-based)
CO2 emissions
(location-based)
Scope 1,2 and 37
51/49%
(2021: 51/49%)
57%
(2021: 52%)
39.0m
gross tonnes
(2021: 43.6m gross tonnes)
Voluntary
employee turnover
Diversity:
ethnicity5
Reduction in carbon
footprint6 (market-based)
30%
(2021: 30%)
37/24%
(2021: 56/19%)
71%
(2021: 61%)
4. Data includes invoices paid through Capita UK companies.
5. White/Black, Asian and minority ethnic. 39% of people chose not to respond or not to specify.
6. Reduction in carbon footprint based on emissions per headcount from 2019 baseline. See pages 42 and 43 for more information.
7. Scope 3 for business travel only. See pages 42 and 43 for more information.
Strategic
report
At a glance
Capita plc
Annual Report 2022
2
About us
Capita is a leading
provider of business
process services, driven
by data, technology
and people.
Everything we do is underpinned 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, digitally enabled
solutions to transform and simplify the
connections between governments and
citizens, businesses and customers.
We partner with clients and provide them
with the insight and technologies that allow
them to focus on what they do best and
make peoples’ lives easier and simpler.
We operate across two core divisions –
Public Service and Experience – in the
UK, Europe, India and South Africa; a
third division, Portfolio, comprises our
remaining non-core businesses being
prepared for disposal.
The Turing Scheme, which provides global
opportunities in education and training for
students, will see a record 38,000 students
participate over the 2022–23 academic year.
What we do as a business
We have secured a five-year
agreement with ScottishPower to
deliver customer support services.
Consult
We work collaboratively
with clients as partners,
drawing on our practical
experience and deep
sector knowledge
Capita
Capita is a leading provider
of business process services,
driven by data, technology
and people
We deliver training to the Royal Navy to provide
motivated and experienced personnel to deal
with challenges in the future.
Deliver
We provide business
process services and
operations, and software
and networks, often under
multi-year contracts
Transform
We create innovative,
digitally enabled solutions
to transform businesses
and services
Strategic
report
At a glance
continued
Capita plc
Annual Report 2022
3
Capita’s structure in 2022
Two divisions focused on distinct market and client needs;
a third division of non-core businesses.
Capita Public Service
The number one2 strategic supplier of
business process services (BPS) and
technology services to the UK Government.
Capita Experience
Experience is one of western Europe’s
leading customer experience businesses.
It is the market leader in the UK3 and ranks
fifth in Germany3 and Europe3.
Capita Portfolio
Remaining portfolio of valuable but non-core
businesses, targeting sale by half year 2023,
depending on market conditions.
Main verticals: Education & Learning;
Local Public Services; Health & Welfare;
Defence, Fire & Security; and Justice,
Central Government & Transport
Main verticals: Telecoms, Media
& Technology; Multi-industry; and
Financial Services
Pillars: People; Software; Business
Solutions; Travel; and Fera
Sold during 2022: Technology, Property
See page 16 for further information.
See page 20 for further information.
See page 24 for further information.
Adjusted revenue1
contribution
Adjusted divisional
operating profit1
contribution
Adjusted revenue1
contribution
Adjusted divisional
operating profit1
contribution
Adjusted revenue1
contribution
Adjusted divisional
operating profit1
contribution
51%
(2021: 51%)
63%
(2021: 91%)
40%
(2021: 41%)
26%
(2021: 9%)
9%
(2021: 8%)
11%
(2021: 0%)
1. Refer to APMs on pages 229 to 231.
2. TechMarketView.
3. NelsonHall.
Divisional financial performance: (see also pages 19,
23 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 229 to 231.
Divisional details and performance can be found on
pages 16 to 25.
Strategic
report
Our purpose
and strategy
Capita plc
Annual Report 2022
4
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.
Capita ‘creates better outcomes’ for all
its stakeholders:
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 free cash flow
and returns
Number of people
in 2022
50,000
Customer net
promoter score
(cNPS) in 2022
+35pts
Supplier payment
compliance in 2022
99%
Share price
movement in 2022
(12.2)p
Society by acting as a
responsible business for
the communities we serve
Reduction in carbon
footprint in 2022
4.6m
gross tonnes
Everyone at Capita strives to create better
outcomes for all our stakeholders by living
our values of being:
Open
Collaborative
Ingenious
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
report
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.
• A focused business with strong positions and
growth potential
Simplify
• Using common, scalable capabilities
• Empowering our people to deliver
• Streamlining our cost base
Strengthen
• Winning more of the right work
• A stronger balance sheet through improving
cash generation and disposal proceeds
• Addressed the pension deficit
• Investment in technology and people
• Purpose-led, responsible business
• Innovative and creative
Succeed
• Accelerating revenue growth
• Delivered positive free cash flow1 in 2022
Measured through our KPIs:
Financial
Adjusted revenue2
£2,845.8m
(2021: £2,777.8m)
Free cash flow before the
impact of business exits2
£29.0m
(2021: £(218.6)m)
Non-financial
Employee NPS points swing
+15pts
(2021: -22pts)
Customer NPS points swing
+6pts
(2021: -3pts)
Adjusted earnings/(loss) per
share2
Suppliers paid within 60 days
6.20p
(2021: (7.74)p)
99%
(2021: 98%)
Net financial debt (pre-IFRS 16):
adjusted EBITDA2
0.5x
(2021: 3.7x)
1. Free cash flow = reported free cash flow excluding the impact of disposals.
2. Refer to APMs on pages 229 to 231.
Capita plc
Annual Report 2022
5
Aligning with our
performance-based
remuneration:
Annual bonus for the
executive directors
determined by:
Free cash flow
Revenue
Profit before tax
Strategic/personal objectives
Read more in the directors’ remuneration report
on pages 99 to 122.
Strategic
report
Our business
model
Capita plc
Annual Report 2022
6
How we
create value
At Capita, we provide business process services,
driven by data, technology and people.
Our markets
We operate in large and growing markets, at scale and
often with significant market share.
Public Service
BPS spending growing at c.5% per annum
Government spending in the UK with private organisations
is around £176bn and spending on BPS is growing at
around 5% per annum. As Capita has won and delivered
more digital transformation and IT contracts across the
public sector, the UK Government now regards us as a
digital service provider alongside delivering traditional
outsourcing scopes of work.
(Source: TechMarketView)
Experience
Outsourced market growth of c.5% per annum
The global customer experience market is valued at around
£277bn and the outsourced element is expected to grow at
around 5% per annum. 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.
(Source: Everest)
Our expertise and resource
What we do as a business
Market expertise
We have deep understanding of our clients
and their markets; we are organised in market
verticals that reflect our client expertise.
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 50,000 skilled and committed
employees who have deep understanding
of our clients’ markets and needs.
International infrastructure
We have an international delivery platform,
with more than 18,000 people providing
technology solutions and customer
engagement services such as call centres
and customer support, principally in Europe,
India and South Africa.
Capita is a leading provider of
business process services, driven
by data, technology and people.
We are focused on creating better
outcomes and value by working
collaboratively with our clients
as partners.
We provide consulting, transformation
and professional delivery services,
drawing on our practical experience;
and 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 deep sector knowledge.
Transform
We create innovative solutions to
transform businesses and services.
Deliver
We provide digitally enabled
services and operations, often
under multi-year contracts.
Our consultants:
• Work collaboratively with clients as
trusted, long-term partners.
• Proactively identify opportunities to
improve our clients’ 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 digitally enabled services:
• Help simplify clients’ services.
• Assist better decision making.
• Contribute to process acceleration.
• Improve end-customer experiences.
Strategic
report
Our business
model continued
Capita plc
Annual Report 2022
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 2022, approximately
76% (2021: 77%) of Group adjusted revenue1
was underpinned by long-term contracts,
with around 15% (2021: 15%) from short-term
contracts. Our order book at 31 December
2022 was £5.8bn.
Transactional services
Approximately 9% (2021: 8%) 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 2022, this
represented £244.8m 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 2022, our operating
profit margin improved from a negative 2.8%
to positive 3.6% through efficiencies from the
business structure we implemented in 2021,
reducing the cost of poor quality 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 2022, we delivered
positive free cash flow before the impact of
business exits1 of £29.0m compared with
negative free cash flow before the impact of
business exits1 of £218.6m in the prior year,
reflecting the non-repeat of one-off cash
payments made in 2021, including pensions
and VAT, and cessation of our significant
restructuring programme.
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 free
cash flow and returns.
Society by acting as a responsible
business for the communities we serve.
1. Refer to APMs on pages 229 to 231.
Strategic
report
Chairman’s
introduction
Capita plc
Annual Report 2022
8
Making good progress,
driven by our purpose
We delivered on our commitment of improving
financial performance and moved towards the
completion of the disposal processes in our
Portfolio division.”
David Lowden, Chairman
In 2022, Capita made further progress as a
simplified and more focused organisation, built
around two core divisions with strong positions
in attractive and growing markets, and driven by
its purpose.
The patience and ongoing support of our
shareholders is very much appreciated and,
looking forward, we remain committed to
improving long-term value creation for them
and all our stakeholders.
The macroeconomic backdrop for all
businesses including Capita, and our
employees, remained challenging – despite
the waning threat of the Covid pandemic – amid
political uncertainty and inflationary pressures.
Despite the difficult external environment, we
delivered on our commitment of improving
financial performance and moved towards the
completion of the disposal processes in our
Portfolio division.
Strategy and performance
While 2021 marked the completion of Capita’s
transformation, 2022 saw us embedding
the new corporate structure, stabilising the
business, and building on the platform
for growth.
We are now fully oriented towards our clients
and their own organisational and commercial
requirements, rather than approaching business
from our previous, product-focused perspective.
Aligned to our purpose, the welfare and
wellbeing of our tens of thousands of people
remained a top priority.
It was very important, especially amid the
cost-of-living crisis, to continue to support
and care for our employees, particularly the
lowest paid.
I would like to thank all our colleagues for their
hard work, professionalism and commitment
over the last year.
With our structural transformation done, the
senior leadership team and the business are
now very focused on the needs of our clients
and customers.
At the same time, we recognise that our
investors have yet to see the financial benefits
of the company’s improved performance.
We are committed to providing a consistently
high quality of service delivery in order to
delight our clients and customers – and,
through this, will create more opportunities,
and accelerate and increase growth.
This has been reflected in our contract
renewal rate which has remained very high,
and our continuingly positive customer net
promoter scores.
In 2022, we increased our adjusted revenue –
with growth higher than it has been for seven
years – and produced adjusted profit and
positive free cash flow.
The progress and growth have been
most visible in our Public Service division,
with Experience still somewhat behind in
its evolution.
Strategic
report
Chairman’s
introduction
continued
Capita plc
Annual Report 2022
9
Focused investment on
digital is the way forward and,
backed by clear strategic
plans, will be the main driver
of growth for us.”
But that division has stabilised its revenues,
and we are confident of seeing growth come
through successfully.
In 2022, we started to concentrate even more
on our digital transformation capabilities;
processes, standardisation and automation
are all being improved.
Focused investment on digital is the way
forward and, backed by clear strategic plans,
will be the main driver of growth for us.
We have now also sold a significant proportion
of our non-core Portfolio businesses, which
has helped strengthen the balance sheet
and materially reduce our debt, and enabled
us to address other responsibilities such as
additional contributions to the pension fund.
The Board and governance
It was my privilege to step up to become
Chairman of Capita in 2022.
On behalf of the Board, I would like to thank my
predecessor Sir Ian Powell for his outstanding
leadership over the previous six years.
He successfully steered the organisation
through challenging times, overseeing the
structural transformation and the return to
adjusted revenue growth.
Matthew Lester, non-executive director, also left
the Board in 2022 and I would like to thank him
for his five years of service.
As Chair of the Audit and Risk Committee, he
enhanced our focus on financial controls and
helped identify and manage the material risk
factors that Capita continues to face.
Another non-executive director, John Cresswell,
has recently announced his intention to step
down from the Board at the end of March 2023;
and I would also like to thank him for his
professionalism, commitment and valuable
contribution during his seven-year tenure.
In June, we welcomed Brian McArthur-Muscroft,
a highly experienced chief financial officer and
board director, as a non-executive director.
Brian has taken over Matthew’s role as head of
the Audit and Risk Committee, and will continue
to focus on the increased discipline that has
been brought to bear across the organisation.
On the Board, we are committed to making
sure we have the necessary skills, expertise
and diversity to help support the delivery of
Capita’s strategy.
Our first ever employee directors, Lyndsay
Browne and Joseph Murphy, stepped down
in June at the end of their three-year tenures.
I would like to thank them both for the significant
contribution they made to the Board, providing
fresh insight and a vital new perspective.
We were delighted to welcome Janine
Goodchild, a clinical trainer in our healthcare
team, as our new employee director.
I would like to thank all members of the Board
for their commitment, continued support and
hard work.
Culture and sustainability
At Capita, we remain committed to our
purpose of creating better outcomes for
all stakeholders – our people, clients and
customers, suppliers and partners, investors,
and society.
As part of that, for the past three years, we have
been proud to support thousands of our lowest
paid people as an accredited payer of the real
living wage – and have recently invested to
continue that important commitment.
As a responsible business, we continued
to make progress on delivering on our
environmental, social and governance (ESG)
objectives – and driving towards our target to
be fully net zero on carbon emissions by 2035.
To enhance how we serve and respect our
stakeholders, including society and the
environment, we have also introduced
an ESG committee to the Board.
Looking forward
We live and work in uncertain times, which
will continue to present challenges, but which
will also provide opportunities – and we need
to consider how we respond to those as
a business.
We are committed to continuing to improve
performance on behalf of all our stakeholders.
We have also embedded our virtual first
hybrid working model, introduced an employee
leadership council, and continued to work on
increasing diversity and inclusivity across the
organisation, and addressing our pay gaps.
We have to drive, not just towards increased
revenue growth, but to profitable growth with
improved, cash-backed margins. Increased
digitalisation and greater transformation
capabilities should enable that to happen.
But to be able to delight stakeholders, including
clients and customers, also requires an
engaged workforce, who like and want to
continue working for the organisation.
So, while we are pleased to have seen a rise
in both our employee net promoter score and
engagement index, we must continue to focus
on the welfare and needs of our colleagues.
There is still more to be done at Capita and
challenges remain. But I am confident of
further progress towards long-term revenue
growth – and of securing a sustainable future
as a profitable business, delivering positive
free cash flow.
David Lowden
Chairman
Strategic
report
Chief Executive
Officer’s review
Capita plc
Annual Report 2022
10
An important year
of stabilisation
and acceleration
Our strategy is delivering and we achieved a
turnaround in our financial performance in 2022.”
Jon Lewis, Chief Executive Officer
Summary
Following the completion in 2021 of the Group’s
transformation, 2022 was an important year of
stabilisation for Capita and we are pleased to
report that the Group delivered an acceleration
in adjusted revenue growth, an improvement
from last year’s adjusted loss before tax to
a profit of £74m following cessation of
restructuring spend, and positive free cash
flow in line with expectations.
At the start of 2022, we set out our six corporate
priorities: to live our purpose; invest in our
colleagues; grow the business; deliver for our
clients; deliver sustainable free cash flow; and
reduce net debt. We made progress against
each of these priorities which has provided
a firm foundation for the success of the
business moving forwards. Our strategy is
delivering and we achieved a turnaround in
our financial performance in 2022.
The Group’s organisational structure now
prioritises client needs alongside operational
delivery, and we were pleased to have seen
a six-point increase in customer net promoter
score (cNPS) over the year to +35 points.
We are also creating a more compelling
working environment for our colleagues, with an
increase of 15 points in our employee net
promoter score (eNPS). But there is still more to
do in this area, and we have a comprehensive
plan to deliver further progress in 2023.
We are on a path to sustainable free cash flow
generation, having delivered positive free cash
flow in 2022 and having continued to strengthen
the balance sheet following the completion of
further disposals of non-core businesses,
achieving gross disposal proceeds of c.£485m,
which has substantially reduced our net debt.
Market conditions and dynamics have
changed significantly over the past year, for
both businesses and consumers. But we
believe Capita remains a resilient business,
notwithstanding the challenging macroeconomic
environment, as we use our know-how, digital
tools and process expertise to deliver cost-
effective solutions to clients and customers.
I would like to thank our colleagues throughout
the organisation for their continued hard work,
commitment and professionalism.
The foundation that Capita now has in place,
following our transformation and stabilisation
phases, will allow us to accelerate our growth
further in 2023 and beyond.
Living our purpose
Creating better outcomes for all key
stakeholders is Capita’s purpose and is our
licence to operate. It underpins everything we
do as a business.
We align ourselves to the five principles of a
purpose-driven business within the Blueprint for
Better Business. These include being honest
and fair with clients and suppliers, being a good
citizen, being a responsible and responsive
employer, being a guardian for future
generations, and having a purpose which
delivers long-term sustainable performance.
Globally, we have introduced purpose-related
remuneration metrics and objectives, to embed
further our purpose-driven behaviours across
Strategic
report
Chief Executive
Officer’s review
continued
Capita plc
Annual Report 2022
11
We are committed to helping
our employees navigate the
cost-of-living crisis.”
the Group; these are set by the new ESG
Committee of the Board and approved by
the Remuneration Committee prior to final
Board approval.
Diversity was a key focus during 2022 and, as
a Group, we have set multi-year targets for
gender and ethnic equality, diversity and
inclusion in senior leadership. The Group is
ahead of these targets with 42% female senior
leadership (globally) and 14% ethnic diversity
in UK senior leadership, including 3% Black
representation at the end of 2022.
In addition, our Board and Executive
Committee are both currently 44% female and
22% ethnically diverse, well above the diversity
levels of most UK boards and executive teams.
Employee engagement and investing in our
colleagues was a corporate priority in 2022. We
paid specific attention to better communication,
investment in training, and development of the
career path framework. We have a compelling
employee value proposition and we saw a +15
point improvement in eNPS in 2022.
We are committed to remaining a virtual-first
organisation. Our hybrid working model allows
a large proportion of our colleagues to work
remotely all or part of the time. This has helped
improve employee recruitment, while unlocking
career opportunities for the economically
inactive and supporting the UK Government’s
Levelling Up agenda. In 2022, 85% of
employees gave our hybrid working model
as a reason to stay with Capita, and we have
seen a positive effect on both productivity
and absenteeism.
However, similar to our competitors in the
outsourcing market, colleague attrition remains
a key challenge for the Group. We are working
to identify the drivers of attrition and take
meaningful action to reduce it to a sustainable
level. This year we introduced the career path
framework to both help employees’
development and shape their future progress,
creating long and fulfilling careers at Capita.
The rollout of the career path framework across
the Group will be completed in 2023.
Attrition rates have improved in a number
of areas such as within our Technology
and Software Solutions (TSS) function and
Public Service, but there are still some parts
of Experience where they remain high.
Addressing and reducing attrition across
the Group represents a significant future
cost-saving opportunity.
We are committed to helping our employees
navigate the cost-of-living crisis, particularly our
lower-earning colleagues. We have confirmed
our commitment and retained our status as a
real living wage accredited employer in the UK;
and, through our 2023 annual salary review
process, pay rises will be heavily weighted
towards the lower earners in the organisation,
with the highest earners being asked to forgo
a basic pay increase.
Capita has launched the business’s first employee leadership
council. This comprises 11 individuals, drawn from different
parts of the company, who have been identified as potential
future leaders within the organisation
Strategic
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continued
Capita plc
Annual Report 2022
12
cNPS remains high
+35pts
(2021: +29pts)
For colleagues based outside the UK, we have
a similar and fair approach, paying colleagues
in line with our global pay principles. In order to
support our colleagues further, we have also
launched a number of financial wellbeing
initiatives including direct financial support,
such as salary advances, and the Level app
which provides support for financial budgeting.
During 2022, we continued to develop and
embed our health, safety and wellbeing policies
and standards for all our colleagues within the
divisions and business units. We are driving
assurance programmes around our
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
our employees. In 2022 our annual employee
wellbeing index improved by 4%, we also
introduced SafetyNet, providing guidance
and support to teams dealing with complex
issues related to wellbeing, safeguarding
or vulnerability.
2. TechMarketView.
3. NelsonHall.
Elsewhere within the Group, we launched
Project Compass to provide ex-offenders with
meaningful employment upon leaving prison.
We also joined forces with a social impact firm
to assist military veterans with finding jobs to
help fill the UK’s digital skills gaps on their
return to civilian life. We were pleased to retain
our status as a gold award employer under the
Armed Forces Covenant.
Outside the UK, we made a donation at the
start of the Ukraine war to the Red Cross,
while our colleagues in Poland have supported
refugees with donations and hosted refugee
families. In South Africa we funded a learners
programme to help underprivileged groups to
tackle digital exclusion.
More widely, across our contract bids, we have
seen our clients placing a greater emphasis on
ESG in their tender appraisal processes. This is
an area where we typically score well, reflecting
our success in transforming Capita into a truly
purpose-driven, responsible business.
We previously outlined our plans to take our
carbon footprint to net zero by 2035, ahead of
the UK Government’s target of 2050. Our
three-phased approach aims to see us reach
Scope 1 net zero by 2025 and Scope 2 and 3
net zero by 2030. During the year, the Science
Based Targets initiative verified the Group’s
2035 net zero target as compliant with the
highest standards of target-setting methodology
and Capita was awarded a climate change A list
award by the Carbon Disclosure Project (CDP).
We reduced our Scope 1 and 2 emissions by
45% compared with our 2019 base line. We are
pleased to be certified as ESG low risk by
Sustainalytics, a leading independent ESG
and corporate governance research, ratings
and analytics firm. Our newly created ESG
Committee provides additional strategic
oversight, accountability and guidance to
ensure we maintain our high standards.
Our performance on supplier metrics has been
maintained; for example, 99% of all suppliers
were paid within UK Government guidelines of
60 days, a one percentage point increase from
2021. We were also slightly ahead of our 33%
target spend with SME suppliers.
Markets and clients
We are a leading provider of business process
services (BPS), driven by data, technology and
people. Both our Public Service and
Experience divisions have strong positions in
their markets – as the UK Government’s largest
IT outsourcing supplier2 and as the UK’s
leading customer services provider3.
Both markets are growing at around 5%2,3 per
annum. Some sub-sectors within the markets
are growing at much higher rates, as both the
public and private sectors invest in digital
transformation to drive efficiency, amid
economic uncertainty and fiscal strain, and
deliver better citizen and customer service. Our
overall value proposition remains strong in the
current macroeconomic climate where we can
drive efficiency and productivity for the benefit
of customers and citizens.
Our deep sector process knowledge and
market vertical divisional structure, combined
with the breadth and depth of the Group’s client
base, provide stability and resilience. The
divisions, led by our dedicated client partners,
are also generating a better-quality pipeline,
enabling us to accelerate revenue growth.
We are taking a proactive approach to
mitigating the pressures of rising inflation and,
in 2022, we believe this resulted in no material
profit impact from inflation on the Group. To
provide future protection, we have focused
efforts on ensuring we have robust contractual
protection in place against inflation. Where
protection does not currently exist, we have
seen success from commercial dialogue with
clients to ensure we are being fairly
remunerated in changing market conditions.
We also have embedded cost-reduction
programmes across the Group to help offset
inflationary pressures.
Digital transformation
There is a major market opportunity across
both core divisions to be more cost effective
and win more business, as we improve our
digital capabilities.
Both core divisions are highly ranked by
TechMarketView and Information Services
Group for their client delivery. We remain on
a journey in which we are transitioning from
providing traditional business process
outsourcing (BPO) to BPS, where services and
process delivery are digitally enabled.
In 2022, the UK Government published its
roadmap for digital and data, outlining its
intention to spend up to an additional £8bn
by 2025 on digital, data and technology
transformation. As our mix of work shifts
from traditional BPO to digital BPS, we see
incremental margin opportunity from processes
Strategic
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Chief Executive
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continued
Capita plc
Annual Report 2022
13
becoming standardised and repeatable,
with greater contract stickiness. Previous
investments are starting to yield benefits,
with the UK Government, for the first time,
regarding us as a digital service provider
alongside delivering complex outsourcing
scopes of work.
To support our digital offerings, we continue
to embed our TSS capability. With 4,200
employees, TSS brings a single resource
pool to deliver secure, resilient and predictable
digital solutions for Capita’s businesses
and clients. We view this as the digital heart
of Capita.
We have aligned TSS partners with divisional
Service Delivery Managers to ensure greater
insight into our clients’ requirements, while
ensuring we have a pan-Capita digital roadmap
with broader capabilities across the Group.
Our TSS capabilities contributed to client
satisfaction improvements across Capita Public
Service and Experience in 2022. The new
shared-service structure has also seen a strong
improvement in TSS employee engagement in
2022, with attrition rates halving.
Operationally, the creation of a shared service
technology delivery function facilitated a
significant step-up in new daily software
releases, delivering 33% more releases
compared with 2021, and helped reduce the cost
of service-credits across the contract portfolio.
Our strengthened balance sheet underpins our
ability to increase investment in digital solutions.
This year we invested in a new pensions
platform in our Financial Services vertical to
facilitate wider user self service. Within Public
Service, our digital technology stack will be an
area of continued investment in 2023 and
beyond, positioning us for improved
opportunities going forwards.
To underpin the Group’s increase in digital BPS;
in 2023 we will be investing in a number of
areas, including consolidation of our networks,
improving our automation tools, and growing
our cloud and hosting capabilities, data
analytics and software engineering. This will
enable us to meet the demands of clients, help
deliver user-centric solutions and accelerate
benefit delivery.
The Group continues to strengthen digital
capability within our client offerings, as we
invest in our technology stack and capabilities.
We have partnered with world-leading
technology providers such as Amazon Web
Services (AWS), Salesforce and Microsoft
to support the build of standardised scalable
platforms, improving our ability to deploy
automation, AI and analytics, and, in turn,
delivering better customer service outcomes.
Growing our business
In 2022, the Group won contracts with a total
contract value (TCV) of £2,853m (2021: £3,420m)
the reduction reflecting the scale and lumpy
nature of timing of contract award phasing in
Public Service, partially offset by a strong
performance in Experience.
Experience had a particularly strong year, with
a 71% increase in TCV sold, reflecting very high
levels of contract retention and growth with
existing clients. The book to bill ratio for the
division was 1.2x, the highest it has been for
a number of years. New contract wins included
broad customer experience support provision
for ScottishPower for five years, which uses AI
conversational technology and data analytics
to deliver better outcomes and efficiencies.
Renewed contracts included a five-year
renewal with the BBC (providing TV licensing
collection, management and administration),
a seven-year contract extension with freenet
AG (providing customer services support for
the German telecommunications and digital
services company), and multiple contracts
within the financial services industry, reflecting
our strength in that area. The renewal rate in
In August 2022, Capita joined
forces with a social impact
firm to help military veterans
fill the UK’s chronic digital
skills gap
the division remains extremely high at 99%
of all renewals bid for.
Public Service saw a 50% reduction in TCV
sold, compared with the prior year, following the
£925m win of the Royal Navy training contract
in 2021. Our client renewal rate remains very
high at 91% across renewals bid for. There was
Strategic
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Chief Executive
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continued
Capita plc
Annual Report 2022
14
Developing a more agile
workforce has enabled us
to increase our ability to
meet resource demands.”
success in the year in each vertical, including
renewals with NHS England, Barnet Council
and with the Department for Work and
Pensions. We also secured growth with existing
clients, including TfL Road User Charging and
the Royal Navy on the Submarine Training
Centre. The book to bill for the division for the
year was 0.8x.
Wider market conditions across 2022, including
changes within the UK Government, resulted in a
number of significant contract tender processes
seeing timeline slippage, particularly in areas of
new business. Across the year, more than £3bn
of TCV opportunities saw their closing date move
from 2022 to 2023. Our 2023 unweighted
pipeline is £7.5bn, with 70% of this reflecting new
clients and new business. The weighted pipeline
for 2023 is £2.2bn, split broadly 50:50 between
Experience and Public Service.
The remaining businesses within Portfolio
contributed £264m of TCV, which was a slight
increase from that signed in 2021 on a like-for-
like basis. The book to bill for the division
remains above 1.0x.
1. Refer to APMs on pages 229 to 231.
At 31 December 2022, the Group’s order book
stood at £5,805m, reducing £310m from 31
December 2021 with £2,110m order book
additions, indexation and scope changes,
£2,132m revenue recognised and £288m from
business disposals and contract terminations.
Delivery for our clients and
cost efficiency
Consistently delivering for our clients is
the cornerstone of our success. Effective,
efficient client delivery and getting it right first
time, reduces excess cost and allows us to
grow revenue.
Our cNPS improved in 2022 by six points,
with the overall score now at +35 points. We
saw improvements in all divisions, reflecting
our efforts to deliver for our clients and their
customers throughout the business. In a few
cases where KPI performance was not met
consistently we actively engaged in remediation
actions. This has helped improve our overall
external stakeholder reputational scores, where
we saw the highest annual score the Group has
achieved since tracking began three years ago.
To allow more consistent delivery across both
core divisions, we have established a flexible
and agile workforce, which can be scaled up
and down. We have created a single delivery
organisation in each division, with common
technology stacks and processes with a high
level of agility. We are applying the same
digital technology to our clients and ourselves
to drive cost reduction and consistency of
service delivery.
We had a strong and predictable operational
performance in 2022, hitting customer KPIs
consistently across the year. There were
a number of notable achievements across
the contract portfolio, including:
• Maintaining our 100% success delivery
record for both time and cost on the Royal
Navy training contract. The strength of this
partnership has allowed us to bid for
additional scopes of work such as the
Submarine Training Centre.
• A smooth start to our work on the new
ScottishPower contract in June, transferring
400 people to Capita from the previous
service provider with no impact on
operational performance.
• Flexible scaling of service delivery teams in our
Experience division around client peak
demand periods for retail sales across the year.
The challenging market conditions, and higher
levels of employee attrition in some areas,
increased cost pressure for the Group over the
year, but developing a more agile workforce
has enabled us to increase our ability to meet
resource demands, and we have seen an
improvement in our eNPS.
We are experiencing one of the tightest
labour markets of all time, but managed to
recruit a significant number of people in 2022
to meet market demand. We now have the
appropriate resources to grow and maximise
revenue opportunities.
More broadly, we see margin opportunity in
improving commercial terms on our existing
contracts and from solutions that have a higher
digital underpin and are more scalable.
Our property portfolio and usage are a
continued area of focus for management as we
maintain our virtual first working model. In 2022,
we permanently closed 19 properties and
consolidated an additional 19, resulting in
a 23% reduction in our total square footage
over the past two years, reducing our annual
lease payments by £22m.
Financial results – revenue and profit
Adjusted revenue1 growth accelerated in 2022
to 2.4% across the whole year with 4% growth
in the second half as we delivered adjusted
revenue1 of £2,845.8m (2021: £2,777.8m). New
contract wins included the Northern Ireland
teachers IT device refresh contract and the
Turing Scheme, as well as the annualised
benefit of the Royal Navy training contract and
price increases/indexation. The impact of these
new awards was partially offset by prior-year
losses, and reductions in contract scope and
volume, mainly in the Financial Services vertical
in Experience. Portfolio performed well, as
businesses recovered from the Covid-19 related
activity restraints of 2021.
Reported revenue declined by 5% to £3,014.6m
as the core business growth was more than
offset by the disposal of non-core businesses.
Adjusted profit before tax1 increased to £73.8m
(2021 loss: £122.8m). The improvement in profit
reflected the cessation of major restructuring
spend in 2021 (£147.5m), the non-repetition of
Strategic
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Chief Executive
Officer’s review
continued
Capita plc
Annual Report 2022
15
Financial results – free cash flow
and net debt
We delivered positive free cash flow before the
impact of business exits1 of £29.0m (2021
outflow: £218.6m) and free cash flow was
positive at £24.5m (2021 outflow: £264.3m).
The swing to positive free cash flow generation
reflected a reduction in pension deficit
payments from £155.5m to £38.6m and
deferred VAT repayments from £104.1m to
£14.9m, together with an underlying
improvement in operating cash flow conversion.
Net debt reduced further to £482.4m in 2022
(2021: £879.8m), as we continued to strengthen
the balance sheet. Pre-IFRS 16 net financial
debt reduced to £84.9m (2021: £431.4m). The
reduction was achieved through our successful
disposals programme, with c.£485m of gross
proceeds received in 2022 from the sales of
Pay360, the Technology and Property pillars,
and Capita Translation and Interpreting, as well
as those announced in 2021.
Our disposals programme has enabled us to
meet £440m of debt maturities in 2021 and
2022. We continue to reduce other financial
obligations, including in respect of our pension
deficit through additional contributions, and our
property footprint which yielded a further
reduction in lease liabilities of £40m.
While market conditions have been challenging
in some areas, we continued to see good
interest in the businesses remaining to be sold
within Portfolio. Operationally, we have
maintained our strong delivery for clients in this
area. The division now has £249.8m revenue
and £26.9m of profit, before the allocation of
Group overheads in 2022.
The closed book Life & Pensions business
unit, which sits in Experience, continues to
negatively affect the Group’s cash performance,
as the costs of servicing a small number of
legacy contracts significantly outweigh client
cash receipts. The cash outflow from this
business unit is forecast to remain broadly
unchanged. However, we continue to deliver
operationally well for these clients and, while
we support those that remain core to our
Financial Services vertical, these contracts are
an area of continued focus from management,
as we look to reduce the adverse cash flow
impact on the Group.
Outlook
While the current economic and broader
political environments create some uncertainty,
we believe that the transformation of Capita
that we completed in 2021, and the financial
turnaround of the business we delivered in
2022, places the business in a strong position
to deliver successfully, moving forwards.
We expect that our market positioning,
transformed business model and focus on
opportunities in the digitally enabled BPS
space will enable us to continue to accelerate
revenue growth into 2023 and to deliver profit
growth and positive free cash flow over the
medium term.
Jon Lewis
Chief Executive Officer
Capita’s Fire Service
College has launched its
new Aviation Firefighter
Programme – with London
Oxford Airport confirmed
as its first customer – in a
significant investment in
the college’s civil aviation
training offering
1. Refer to APMs on pages 229 to 231.
the closed book Life & Pensions provisions
booked in 2021 (£43.1m) and the benefit from
revenue growth and cost efficiencies over the
year. This was partially offset by the Group’s
commitment to repay £4.9m of furlough income
received in 2021.
Reported profit before tax decreased,
principally reflecting the reduction in disposal
gains, following the ESS and Axelos sales
completed in 2021 (2021 gain: £285.6m). In
2022, we made a disposal gain of £166.9m,
primarily from the sale of Pay360. We
recognised a £169.0m (2021: £11.5m) non-cash
goodwill impairment in respect of businesses
within the Portfolio division.
Strategic
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Chief Executive
Officer’s review
continued
Public
Service
Capita plc
Annual Report 2022
16
Capita Public Service
Capita Public Service is the number
one2 strategic supplier of Software
and IT Services (SITS) and business
process services (BPS) to the
UK Government.
Public Service is well positioned,
benefiting from its breadth of
coverage, domain understanding
and scale.”
Alistair Murray
CEO, Capita Public Service
Adjusted revenue1
Adjusted revenue by type (%)
Revenue by market (%)
£1,445.3m
(2021: £1,410.4m) 2.5%
Adjusted operating profit1
£91.5m
(2021: £93.2m) (1.8)%
3
2
1
1 80% Long-term contractual
2 16% Short-term contractual
3 4% Transactional
5
4
1
3
2
1 16% Education & Learning
2 18% Local Public Services
3 17% Health & Welfare
4 20% Defence, Fire & Security
5 29% Justice, Central Government
& Transport
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Cash generated from operations before business exits1 (£m)
Order book (£m)
2022
2021
Change %
1,445.3
91.5
6.3
130.0
95.4
2,985.0
1,410.4
93.2
6.6
138.7
66.5
3,286.3
2.5
(1.8)
(6.3)
43.5
(9.2)
1. Refer to APMs on pages 229 to 231.
2. TechMarketView.
Business units
• Education & Learning
• Local Public Services
• Health & Welfare
• Defence, Fire & Security
• Justice, Central Government & Transport
Employees
• 11,700
Client distribution
• UK
Major contract wins and renewals
• A three-year extension to our Primary Care
Support England contract, worth £94m
• £85m additional growth and scope, including
the Submarine Training Centre on the Royal
Navy training contract
• An extension to the current 10-year Barnet
contract, worth up to £57m over three years
• Appointment as an HMRC automation
partner, which over four years could be worth
up to £20m
Competitors
• Fujitsu
• Atos
• DXC Technology
• BJSS
• Sopra Steria
• Cap Gemini
• CGI
• TCS
• Cognizant
• Accenture
• Kainos
• Serco
• Maximus
Strategic
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Chief Executive
Officer’s review
continued
Public
Service
continued
Capita plc
Annual Report 2022
17
Capita 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.
Our markets and growth drivers
Government spending in the UK with private
sector organisations is c.£176bn2. Our current
core addressable market is c.£13.9bn2 growing
at c.5%2 per annum. Digital BPS is a fast-
growing area, while BPO is currently shrinking,
reflecting the Government’s focus on digitally-
enabled transformation.
While broader market dynamics and
macroeconomics are expected to continue to
be challenging during 2023, Public Service is
well positioned, benefiting from its breadth of
coverage, domain understanding and scale,
together with sales and delivery capabilities in
each vertical, offering efficient solutions and
cost savings during times of fiscal strain.
In 2022, the UK Government published the
Roadmap for Digital and Data outlining its
intention to spend up to an additional £8bn by
2025 to accelerate digital, data and technology
transformation in order to better respond to
future macroeconomic challenges.
In 2022, we reinforced our
position as an important
strategic supplier to the
UK Government
2. TechMarketView.
Our placement on digital frameworks and the
shift in the BPS market to become more digital
and data-enabled provides an opportunity as
the Government seeks more cost-efficient and
effective services, while improving overall
citizen experience.
Across the variety of services that Public
Service provides, we compete with a number
of other providers within this fragmented market
including but not limited to Fujitsu, Atos, Sopra
Steria, CGI, TCS, Cognizant, Accenture, DXC
Technology, BJSS, Cap Gemini, Kainos, Serco
and Maximus.
Our strategy
Our strategy is to create better outcomes, using
our consult-transform-deliver approach.
Public Service is executing on a digital strategy
transformation programme, materially investing
in our digital capabilities to create a preferred
technology stack and IT ecosystem, alongside
our traditional BPO business. This investment
will underpin our ambition to transform the way
we work, in line with the UK Government’s
evolving demand for digital solutions.
We look to leverage our vast experience of
delivering and integrating end-to-end processes
by deploying our digital capability in partnership
with our UK Government clients to help them
increase their operational efficiency and
improve the outcomes for UK citizens.
In 2022, we reinforced our position as an
important strategic supplier to the UK
Government, reflecting continuous
improvements in our delivery and strengthened
balance sheet. As Capita has won and
delivered more digital transformation and
IT contracts across the public sector, the
Government now regards us as a digital
service provider alongside delivering traditional,
complex outsourcing scopes of work.
Our strength is in understanding our clients’
needs and problems with our deep sector
knowledge and client partners in our chosen
verticals working with relevant Government
departments. We have invested in our coverage
on Government frameworks, through which
companies are able to bid for Government
contracts, and we are now included on
frameworks representing market access
of up to £9.5bn.
We are working with the Government to
understand how it expects the transition
to digital delivery to be completed, with
opportunities in our Health & Welfare,
and Defence, Fire & Security, and Justice,
Central Government & Transport verticals.
We saw success in this journey across
a variety of contracts in 2022. In May, we were
appointed as HMRC’s new automation and
innovation partner to develop, deploy and
support robotic software and other automation
tools in order to simplify processes and drive
operational efficiency.
Strategic
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Chief Executive
Officer’s review
continued
Public
Service
continued
Capita plc
Annual Report 2022
18
Our operational delivery
remained consistently
strong across the contract
portfolio
Utilising our internally developed GrantIS
platform, we successfully accelerated funding
applications with the Department for Education
for the 38,000 applications on the Turing
Scheme and the product remains in use on a
contract with the Department for International
Trade. We believe there are a number of further
applications for GrantIS within the grant
management and wider distribution market.
During the year, we set up a client advisory
board to improve our understanding of
Government bid processes and requirements to
help us become an even more effective service
provider. In the long term, we expect this to
improve win rates, our origination of bids,
and our cNPS, as we see further alignment
in our offerings.
Growth
Across the year, we intensified our customer
focus through client partnering, with a
professionalised sales force, to deliver high
growth alongside strong operational outcomes.
Public Service won contracts with £1,218m
(2021: £2,422m) TCV. The total TCV won
decreased from the prior year reflecting the
somewhat lumpy nature of the Government
large contract sales pipeline and, in particular,
the benefit in 2021 from the £925m Royal Navy
training contract award. We saw certain
material bid timelines pushed into 2023,
particularly in the second half of the year,
following a number of changes within the UK
Government. As a result, the division’s weighted
pipeline has increased by £419m to £1,652m,
and the 2022 book to bill ratio was 0.8x.
At 31 December 2022, the total unweighted
pipeline was £7,858m, a decrease of £291m
from December 2021, reflecting the TCV won
in the year and the number of additions to the
pipeline across the year.
We continue to see strong performance on
contract renewals with a 91% win rate across
renewals bid for, with extensions with NHS
England, Barnet Council, the Department for
Work and Pensions, and the Northern Ireland
Education Authority. On all opportunities bid for,
we saw a success rate of 67%.
The order book at 31 December was £2,985m,
a decrease of £301m since 31 December 2021,
as revenue recognised was not offset by order
book additions in the year.
Cost and operational excellence
Across the year, we focused on further
embedding the operating model introduced in
2021 to ensure it met our clients’ needs across
a broad range of services with improved
cross-sell opportunities. There have been
natural efficiencies from the division’s matrix
operating model and we are now looking at the
digital tools and investments to reduce future
costs, as we enhance the scalability of solutions.
The division’s standalone cNPS improved by
nine points from 2021 to an overall score of
+33, including many of our key clients,
reflecting the commitment to client delivery and
consistent outcomes achieved during the year.
In 2022 our operational delivery remained
consistently strong across the contract portfolio,
with strong performance against all contract
KPIs; for example, we delivered on all the key
milestones on the Royal Navy training contract
and have now started running the Royal Navy’s
maritime composition training system. In
addition, we launched the Aviation Fire
Programme at the Fire Service College, while
the Job Entry Targeted Support contract
delivered in 18 months more than 1.5x the
target number of job starts. Within our Smart
DCC subsidiary there are now 10 million first
generation meters connected to the DCC
secure nationwide network.
In April 2022, Capita
secured a two-year contract
extension with Northern
Ireland’s Education
Authority to continue to
deliver the managed IT
service for all of Northern
Ireland’s 1,100 schools
Strategic
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Chief Executive
Officer’s review
continued
Public
Service
continued
In 2022, we delivered on all the key milestones of
our Royal Navy training contracts, and have now
started running the Navy’s maritime composition
training system
1. Refer to APMs on pages 229 to 231.
Capita plc
Annual Report 2022
19
restructuring spend in 2021 (£5m) and margin
from contract wins and increases in volumes.
The division also benefited from the mutual
conclusion of the Electronic Monitoring Service
transformation programme in 2021, which
resulted in £9m of costs being incurred in
the prior year.
Cash generated from operations before
business exits1 increased by 43.5% to £95.4m,
reflecting the working capital benefit from
contracts moving into the operational phase,
offset by utilisation of customer contract
provisions in 2022. The 2021 cash flow was
impacted by the repayment of deferred VAT
from 2020.
Outlook
In 2023, we expect accelerated revenue
growth, particularly in our Education &
Learning, and Defence, Fire & Security
verticals, as volumes on existing contracts and
transactional revenue increase.
Improvements in the division’s operating margin
are expected to be achieved, as we continue to
win work at appropriate rates of return and
efficiencies are realised from our simplified
organisation and technology investment.
This consistent performance has reduced the
financial burden on the division, with the major
contracts now delivering improving profit and
cash flow, alongside growth opportunities such
as the Submarine Training Centre and with our
TfL Road User Charging contract.
We have now commenced investment to
underpin efficient operations in future years,
automating common operational activities, with
financial payback expected from 2023. We are
increasingly using shared service centres to
provide resourcing flexibility and to ensure we
service our contracts consistently.
Financial performance
Adjusted revenue1 increased by 2.5% to
£1,445.3m, reflecting the annualisation of the
Royal Navy training contract and additional
growth opportunities within the contract and
wins such as the Northern Ireland teachers
IT refresh contract. Revenue also benefited
from additional volumes in the Justice, Central
Government & Transport vertical and the
running of the first full test cycle of primary
school curriculum assessments in England
for the Standards and Testing Agency (STA),
following cancellation of the previous year’s
test cycle due to Covid restrictions. There were
contract handbacks in the year within our Local
Public Services vertical, as well as the cessation
of our contract with The Pensions Regulator.
Adjusted operating profit1 decreased by 1.8%
to £91.5m, reflecting the mix of work and
reduced margin on the British Army Recruiting
Partnering Project (RPP) contract as it moved
into the next phase of service delivery. This
was offset by the non-recurrence of significant
Strategic
report
Chief Executive
Officer’s review
continued
Experience
Capita plc
Annual Report 2022
20
Capita Experience
Capita Experience is one of western
Europe’s leading customer experience
businesses. It is the market leader
in the UK4 and ranks fifth in Germany4
and Europe4.
Our service-delivery options
across different geographies
offer our clients flexibility and
provide a growth opportunity
going forward.”
Corinne Ripoche
CEO, Capita Experience
Adjusted revenue1
£1,150.7m
(2021: £1,140.9m) 0.9%
Adjusted operating profit1
£38.5m
(2021: £8.9m) 332.6%
Adjusted revenue by type (%)
Revenue by market (%)
2
3
1
1 86% Long-term contractual
2 13% Short-term contractual
3 1% Transactional
3
1
2
1 39% Telecoms, Media
& Technology
2 21% Multi-industry
3 40% Financial Services
Business units (new split from 2023)
• Telecoms, Media & Technology
• Financial Services
• Energy & Utilities
• Retail
Employees
• 31,000
Client distribution
• UK, Ireland, Germany and Switzerland
Delivery centres
• UK, South Africa, India and Poland
Major contract wins and renewals
• A five-year contract extension worth £456m
to administer the TV licence fee on behalf
of the BBC
• Extensions worth up to £40m across our
Plusnet and Samsung contracts
• A new logo win with ScottishPower worth
up to £63m over five years
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Cash generated from/(used by) operations before business exits1 (£m)
Order book (£m)
2022
2021
Change %
• Atento
• T-Tech
Competitors
1,150.7
38.5
3.3
113.4
30.7
2,526.7
1,140.9
8.9
0.8
93.2
(4.8)
2,271.8
0.9
332.6
21.7
n/a
11.2
• Teleperformance
• Sykes Enterprises
• Webhelp
• Accenture
• Concentrix
• Firstsource
• Majorel
• In-sourcing trend
1. Refer to APMs on pages 229 to 231.
4. NelsonHall.
Strategic
report
Chief Executive
Officer’s review
continued
Experience
continued
Capita plc
Annual Report 2022
21
Experience is now
structured around four
core industries: Financial
Services; Technology
Media & Telco (TMT); and,
following the separation
of our Multi-industry
vertical, Energy & Utilities
and Retail.
Our markets and growth drivers
The global customer experience market is
worth £277bn5 a year and the outsourced
element is expected to grow at c.5%
per annum. Around 28%5 of the market
is currently outsourced.
We are the largest provider of customer
experience services in the UK and Ireland,
with a market share of around 12%4. Our
competitors within the customer experience
segment are mostly global and include peers
such as Teleperformance, Webhelp, Concentrix
and Majorel.
The market continues to trend towards self-
service and automation, with clients looking
to utilise omni-channel offerings, with increased
multilingual capabilities and capacity, and
agents working remotely both on and offshore.
The changing economic landscape poses an
opportunity for Experience, particularly within
our Financial Services and Energy & Utilities
industry verticals, as institutions in these
sectors have a key role to play in helping
vulnerable customers through periods of
uncertainty, and empathetic human intervention
is required for those who need it most.
4. NelsonHall.
5. Everest.
Renewal rates continue to
remain high for the division,
with 99% of bids successful
Capita Experience digital ecosystem
Voice customer
services
Web and email
services
Dynamic
data
Robotic
processing
automation
(RPA)/
automation
Conversational
AI
Managed
service
Cloud
shoring
Data
insight
and
analytics
Experience
capabilities
Agent
hubs
Digital
and AI
Agent
assist
Cloud
omni-channel
AWS connect
Working from
home (WFH)
and workforce
management
Workflow
management
Assisted
customer
conversation
Our strategy
The long-term strategy of the core business is
to be a leading customer experience service
provider delivering better outcomes for our
clients through a consultative approach
underpinned by data and technology.
Experience has an extensive blue-chip
customer list and we have increasingly seen
our customer base diversify, with wins this year
in the FinTech sector.
In 2022 we introduced a single divisional
operating model, with more consistent
leadership and improved rigour across the
service delivery process. Using our matrix
operating model, we are able to meet
resourcing needs with an agile and flexible
workforce available to serve across various
contracts as demand requires, such as for peak
sale periods. Our operating model helps us stay
competitive within the market and allows us to
manage resources around client demands with
an end-to-end delivery model.
Strategic
report
Chief Executive
Officer’s review
continued
Experience
continued
Capita plc
Annual Report 2022
22
We are a trusted partner and adviser for clients,
with omni-channel delivery options allowing for
both self-service and human-contact options
based on the nature of the experience required.
The division has an advanced toolkit of services
including speech analysis and real-time
feedback to ensure customers get the best
outcomes seamlessly.
Our service-delivery options across different
geographies offer our clients flexibility and
provide a growth opportunity going forward.
In 2022, alongside expanding our operations in
India and Durban, South Africa, we expanded
into additional cities in Poland to support
delivery of our services in 35 different
languages with 24/7 support. These sites
will be important strategic hubs for our
future growth and further expansion of our
multilingual capabilities.
Growth
At 31 December 2022, the total unweighted
pipeline was £4,082m, a decrease of £1,388m
from 31 December 2021. The division won TCV
of £1,371m, an increase of 71% from 2021.
Significant wins in the year included renewals
with the BBC (providing TV licensing collection,
management and administration) and with
freenet AG (providing customer services
support for the German telecommunications
and digital services company) within our
international business in TMT. There were
multiple wins within the Financial Services
vertical, reflecting our strength in this area.
The weighted pipeline at 31 December 2022
stood at £1,114m (2021: £1,566m) reflecting the
TCV won during the year. The divisional book to
bill was 1.2x, an improvement from 0.7x in 2021,
an important milestone on the division’s
business-improvement journey.
Renewal rates continue to remain high for the
division, with 99% of bids successful as we
continue to deliver operationally for clients.
Renewals are important in order to maintain
a consistent revenue base, but we are also
focused on revenue growth from new scopes
of work and growth on account where our
historical win rates have not been as strong.
Our win rate in the division was 52% across
all opportunities. Our 2023 pipeline is diverse,
with a mixture of new scopes of work and
growth on account.
Challenged end-markets meant that we saw
a number of significant deal timelines slip into
2023; these included a number of new clients
in the TMT vertical and renewals within our
Energy & Utilities and Retail industry verticals.
The order book at year end was £2,527m, an
increase of £255m since 31 December 2021,
reflecting the contract wins in the year which
more than offset revenue recognised in the year.
Cost and operational excellence
Throughout 2022, our matrix structure delivered
operational excellence while delighting clients,
as evidenced by our consistent KPI performance
and +10 point improvement in cNPS, to an
overall score of +19.
As with many competitors in our markets,
employee attrition remained high, and we
adapted our business model across the year,
while taking action to address the higher level
of attrition. We moved to using a demand-led
resource model, allowing us to resource all
full-time employee requirements on our
contracts. Attrition will remain a key area of
focus in 2023, as well as being an area of
further cost-reduction opportunity, as we reduce
attrition levels and improve employee retention.
We delivered well for our clients during the year;
for example, after winning the ScottishPower
contract in June, we transferred 400 people
from the previous service provider to Capita
Experience with no impact on functionality or
service delivered to customers. Working with
another client in the energy sector, we more
than doubled the existing team to improve
customer service, responding to the additional
volume requirements during the ongoing
energy crisis, reducing response times by 30%
and improving quality scores by 10%.
Capita has secured a five-
year agreement to deliver
frontline customer support
services for ScottishPower
customers across the UK
Strategic
report
Chief Executive
Officer’s review
continued
Experience
continued
Capita plc
Annual Report 2022
23
We have seen further volume attrition within our
closed book Life & Pensions business unit, in
line with our expectations. The business unit is
forecast to be loss-making with a consistent
cash outflow in future years, with a provision
held reflecting this. We continue to deliver
operationally well for these clients but remain
focused on resolving the structural challenge
in this area to reduce ongoing cash losses.
Elsewhere in the regulated services business,
Pensions Administration continues to perform
well and activity levels improved further in 2022.
Within the Financial Services vertical, we
invested in our mortgage business to create a
customer-focused IT platform and ecosystem,
allowing an end-to-end service to clients, which
supports our growth ambitions in this area.
Financial performance
Adjusted revenue1 increased by 0.9% to
£1,150.7m, reflecting price increases and wins
in the year including ScottishPower and
international wins in Germany and Switzerland
which offset the final-year impact of prior-year
losses. The division saw lower volumes with
continued attrition within the closed book Life
& Pensions contracts.
Adjusted operating profit1 increased by 332.6%
to £38.5m. The result in 2021 was impacted by
the recognition of provisions and impairments in
our closed book Life & Pensions business
(£43m) and completion of the Group’s
significant restructuring where the division
incurred £12m of expense in 2021.
As revenue growth becomes
more established, operating
leverage is expected to drive
further margin improvement
Cash generated from operations before business
exits1 increased by £35.5m to £30.7m, with an
improvement in working capital benefiting the
division’s operating cash conversion. The
division’s cash performance in 2021 was
impacted by the repayment of deferred VAT
from 2020 together with restructuring spend
and recognition of contract-related provisions.
Outlook
While improvements were made during 2022,
Experience continues to lag behind Public
Service in its business-improvement journey.
In 2023, we expect revenue to be broadly in line
with 2022, reflecting continued reductions from
contract losses and volume attrition within the
closed book Life & Pensions, offset by growth
from new wins and growth on account delivered
across our market verticals. As we have
simplified our go-to-market offering and
become more efficient and effective, we expect
to deliver mid single-digit growth over the
medium term.
As revenue growth becomes more established,
operating leverage is expected to drive further
margin improvement.
Capita has secured a five-year contract extension to
continue to administer the TV licence fee in the UK
In addition, we worked with Marks & Spencer
deploying conversational AI, outperforming the
previous incumbent with a 10% increase in
customers able to self serve. We also worked
with an existing customer on a consulting
basis to categorise all incoming calls across
their entire estate and use data analytics to
improve and add value to the overall customer
experience. This type of consulting engagement
is an important growth area for the division,
as we boost our BPO and BPS services, while
improving the end-customer journey.
1. Refer to APMs on pages 229 to 231.
Strategic
report
Chief Executive
Officer’s review
continued
Portfolio
Capita plc
Annual Report 2022
24
Portfolio
Portfolio comprises the remaining
non-core businesses which the
Group is looking to exit.
We have made significant
progress with the Portfolio
disposal programme, helping
us simplify and focus the Group
for future growth.”
Chantal Free
CEO, Capita Portfolio
Adjusted revenue1
Adjusted revenue by type (%)
£249.8m
(2021: £226.5m) 10.3%
1
2
Adjusted operating profit1
3
£16.2m
(2021: £(0.1)m) n/a%
1 13% Long-term contractual
2 15% Short-term contractual
3 72% Transactional
Business units
• People
• Property (sold during 2022)
• Technology (sold during 2022)
• Software
• Business Solutions
• Travel
• Fera
Employees
• 3,000
Client distribution
• UK
Major contract wins and renewals
• A renewal with an energy company within the
People pillar worth £5m
• There were a number of new clients and
renewals within the Retain business with
total TCV won over £7m
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Cash generated from operations before business exits1 (£m)
Order book (£m)
2022
249.8
16.2
6.5
35.6
17.1
293.5
2021
Change %
226.5
(0.1)
–
24.3
21.2
557.32
10.3
n/a
46.5
(19.3)
(47.3)
1. Refer to APMs on pages 229 to 231.
2. Includes businesses subsequently disposed of in 2022
Strategic
report
Chief Executive
Officer’s review
continued
Portfolio
continued
Capita plc
Annual Report 2022
25
Since the division was
formed in 2021 we have
made significant progress
with the Portfolio disposal
programme, helping us
simplify and focus the
Group for future growth.
This year the division
raised more than £330m
gross proceeds from
completed disposals.
1. Refer to APMs on pages 229 to 231.
We are working to ensure ongoing cost
efficiency in the division ahead of the
completion of the disposal programme,
through successful vacancy management
and redeployment of employees across the
wider Group.
Financial performance
Adjusted revenue1 increased 10.3% to £249.8m
as pillars within Portfolio continued to recover
from subdued trading during the Covid-19
pandemic, particularly within our Agiito and
Enforcement businesses.
Adjusted operating profit1 increased from break
even to £16.2m, reflecting revenue growth
and the benefit from the non-repeat of £2.3m
significant restructuring costs incurred in 2021.
This more than offset the cost of operational
investment in some pillars.
Cash generated from operations before
business exits1 decreased by 19.3% to £17.1m
driven by working capital requirements as the
division recovers from Covid-19, which more
than offset the improvement in EBITDA.
Outlook
We are targeting for the majority of the
remaining businesses within Portfolio to
be disposed of during the first half of 2023,
depending on general market conditions.
Our markets and growth drivers
Portfolio is made up of a range of businesses
which service public and private sector clients
across multiple, generally mature, markets
and sectors.
We enjoy strong positions in many of the
markets where we operate, with strong brands
and positive client perception of our services.
Our strategy
The division is organised into pillars comprising
businesses of similar characteristics: People,
Software, Business Solutions, Travel, and the
Fera joint venture with the UK Government, to
allow for efficient management and to facilitate
smooth transaction processes.
During 2022, we successfully completed the
disposal of the Technology and Property pillars,
as well as Capita Translation and Interpreting
within the Business Solutions pillar, together
with those announced in 2021, achieving gross
proceeds of c.£330m from these disposals.
Cost and operational excellence
The pillars within Portfolio continue to deliver
a strong operational service for clients and
the division has seen its fourth consecutive
improvement in its annual cNPS score.
During the year, our travel business, Agiito,
won a number of awards, including being
recognised in the Top 50 Business Travel
Agencies. Within our Fera business, we opened
an expert insect bioconversion research and
development facility to support the needs of
global clients across the industry.
Fera Science launched a
£1m laboratory for insect
bioconversion in York
Strategic
report
Chief Financial
Officer’s review
Capita plc
Annual Report 2022
26
A turnaround in
financial performance
Accelerated revenue growth, a step change
in profitability and positive free cash flow.”
Tim Weller, Chief Financial Officer
Overview
Improved adjusted revenue1 growth was in line
with our expectations, with an acceleration
across the year from 1% in the first half to 4%
in the second half. This was driven by strong
growth in the Public Service and Portfolio
divisions and stabilisation of revenues in the
Experience division.
revenue was impacted by significant prior year
contract losses, offset by new wins, including
those in International and with ScottishPower.
Growth in our transactional business was
mainly driven by Portfolio, including the
Travel and Enforcement businesses,
which continued their recovery following
Covid-related constraints.
Public Service revenue growth was
underpinned by new wins such as the Northern
Ireland teachers IT refresh contract and
annualisation of the Royal Navy training
contract offset by revenue reductions in some
Local Public Service contracts. Experience
From 1 January 2022, the Board has limited the
items excluded from the adjusted results to
business exits, amortisation and impairment of
acquired intangibles, impairment of goodwill
and certain fair value adjustments which impact
net finance income/expense. This presentation
Summary of financial performance
Financial highlights
Reported results – continuing operations
Adjusted1 results – continuing operations
31 December
2022
31 December
2021
Reported
YOY change
31 December
2022
31 December
2021
Adjusted
YOY change
Revenue
Operating profit/(loss)
EBITDA
Profit/(loss) before tax
Earnings/(loss)
per share
Cash generated from/
(used by) operations*
Free cash flow*
Net debt
Net financial debt
(pre-IFRS 16)
£3,014.6m £3,182.5m
£(86.6)m
£222.3m
£285.6m
13.33p
£(79.6)m
£235.7m
£61.4m
4.47p
(5.3)% £2,845.8m £2,777.8m
£(77.7)m
£102.9m
£143.0m
£238.8m
£73.8m £(122.8)m
(7.74)p
8%
6%
(79)%
(67)%
6.20p
2.4%
n/a
67%
n/a
n/a
£117.8m £(148.5)m
n/a
£116.5m £(109.7)m
n/a
£24.5m £(264.3)m
n/a
£(482.4)m £(879.8)m £397.4m
£(84.9)m £(431.4)m £346.5m
£29.0m £(218.6)m
£(482.4)m £(879.8)m
n/a
£397.4m
£(84.9)m £(431.4)m £346.5m
* Cash generated from operations adjusted results and free cash flow adjusted results are free cash flow before business exits and
cash generated from operations before business exits respectively (refer to note 2.10)
1. Refer to APMs on pages 229 to 231.
Strategic
report
Chief Financial
Officer’s review
continued
provides a more representative measure of
the underlying performance of the business
following completion of the Group-wide
transformation. The comparatives have been
re-presented on the same basis, with significant
restructuring (£147.5m), contract-related
provisions and impairments (£43.1m) and
certain litigation and claims (credit £2.3m) now
included within adjusted results for the year
ended 31 December 2021.
The increase in adjusted profit before tax1
reflects the above change in presentation,
and therefore benefits from the reduction
in restructuring costs and contract-related
provisions and impairments, as well as the
benefit of revenue growth. In 2021, the
Group received £4.9m of funding under the
coronavirus job retention scheme made
available by the Government to help ease the
employment impact of Covid-19. In May 2022,
we announced the Group’s intention to repay
the 2021 furlough-related income at the end of
the Group’s publicly stated disposal programme
and no later than the end of June 2023. An
accrual has been recognised for this repayment
in the year ended 31 December 2022.
The decrease in reported profit before tax
arose as the increase in adjusted profit before
tax1 was more than offset by an increase
in impairments of goodwill, a reduction in
operating profit from business exits and a
lower gain on the sale of businesses.
From 1 January 2022, the Board considers free
cash flow and cash generated from operations
before business exits each to be alternative
1. Refer to APMs on pages 229 to 231.
performance measures that provide a more
representative measure of the sustainable cash
flow of the Group following completion of the
Group-wide transformation.
Cash generated from operations before
business exits1 increased by £226.2m to
£116.5m benefiting from the improvement in
adjusted profit1 explained above, a reduction
in repayments in respect of the Government’s
VAT deferral scheme and a £43.6m reduction
in pension deficit contributions as the Group
reverts to the agreed deficit contributions set
as part of the 2020 triennial funding agreement
with the pension scheme trustees.
Free cash flow before business exits1 for the
year ended 31 December 2022 was an inflow
of £29.0m (2021: £218.6m outflow). The
improvement primarily reflected the above
increase in cash generated from operations
before business exits1, and a reduction in net
interest paid in respect of leases and private
placement loan notes.
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 the year we
completed the disposal of eight businesses,
realising total proceeds net of disposal costs of
£463.4m (including settlement of intercompany
balances on completion) with net cash proceeds
of £387.9m reflecting the cash held in the
disposed entities on completion.
These disposals form part of the Board-
approved disposal programme. The sale
processes have been launched for the
remaining pillars in the Portfolio division. The
Group expects to use the proceeds from this
disposal programme to repay debt, to make
accelerated deficit reduction contributions to
the Group’s defined benefit pension scheme
and to invest in driving growth in the remaining
core businesses. During the year, we repaid
£226.7m of private placement loan notes and
made pension deficit contributions of £38.6m
(£30.0m regular contributions and £8.6m
acceleration of agreed contributions triggered
by disposals).
Liquidity as at 31 December 2022 was
£405.2m, made up of £288.4m of the undrawn
element of our committed revolving credit
facility (RCF) and £116.8m of unrestricted cash
and cash equivalents net of overdrafts. In July
2022, we extended the RCF to 31 August 2024.
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
Capita plc
Annual Report 2022
27
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 2021 comparatives have
been re-presented to exclude 2022 business
exits. As at 31 December 2022, the following
businesses met this threshold and were
classified as business exits and therefore
excluded from adjusted results in both 2022
and 2021: ESS, AXELOS, Life Insurance and
Pensions Servicing business in Ireland, AMT
Sybex, Secure Solutions and Services, the
Speciality Insurance business, Trustmarque,
Real Estate and Infrastructure Consultancy,
Optima Legal Services, Pay360 and Capita
Translation and Interpreting.
Reconciliations between adjusted and reported
operating profit, profit before tax and free
cash flow before business exits are provided
on the following pages and in the notes to the
financial statements.
Strategic
report
Chief Financial
Officer’s review
continued
Capita plc
Annual Report 2022
28
Adjusted revenue
Adjusted revenue1 growth of 2.4% was in line
with expectations. The adjusted revenue1 was
impacted by the following:
Adjusted profit before tax
Adjusted profit before tax1 increased in 2022.
The adjusted profit before tax1 was driven
by the following:
• Public Service (2.5% growth): growth from
contract wins, including a contract to supply
laptops to teachers in Northern Ireland as well
as the annualised benefit of the Royal Navy
training contract, increased growth in existing
contracts in Central Government, and
completion of a full test cycle on STA,
offsetting handbacks in Local Government;
• Experience (0.9% growth): stabilisation in
revenue, with the impact of significant prior
year contract losses offset by positive
revenue contributions in particular from
new client wins in International and with
ScottishPower; and
• Public Service: benefits from the wins in
2022, the annualised benefit of the Royal
Navy training contract and the non-recurrence
of Electronic Monitoring programme costs
in 2021; offset by a reduction on the British
Army recruitment contract (RPP) resulting
from transition to the next phase of
service delivery;
• Experience: flow through of prior year losses
including 3UK, William Hill and in the closed
book Life & Pensions business. 2021 was
impacted by provisions and impairments in
the closed book Life & Pensions business
and completion of significant restructuring;
• Portfolio (10.3% growth): growth in
• Portfolio: benefits from post Covid-19
transactional revenue mainly from Travel
and Enforcement following the turnaround
in these Covid-19 impacted businesses.
Order book
The Group’s consolidated order book was
£5,805.2m at 31 December 2022 (2021:
£6,115.4m). Additions from contract wins, scope
changes and indexation in 2022 (£2,110.2m),
including the BBC and freenet AG extensions
within Experience, and Personal Independence
Payments and TfL Road User Charging within
Public Service, were offset by the reduction
from revenue recognised in the year
(£2,132.3m), contract terminations (£8.1m)
and business disposals (£280.0m).
recovery in transactional businesses and
the non-repeat of 2021 restructuring costs;
offset by operational investment in certain
businesses; and
• Capita plc: benefits from the end of the
transformation programme (2021 included
£128.0m of significant restructuring) and
efficiencies realised; offset by the effect of
the announced intention to repay the 2021
furlough-related income.
Cash generated from operations and
free cash flow
Adjusted EBITDA1 increased by 67% reflecting
the improvement in adjusted profit1 explained
above and the significant reduction in
1. Refer to APMs on pages 229 to 231.
Adjusted revenue1 bridge by division
Year ended 31 December 2021
Net growth
Year ended 31 December 2022
Public
Service
£m
1,410.4
34.9
1,445.3
Experience
£m
1,140.9
9.8
1,150.7
Portfolio
£m
226.5
23.3
249.8
Total
£m
2,777.8
68.0
2,845.8
Adjusted profit before tax1 bridge by division
Year ended 31 December 2021
Net growth/(reduction)
Year ended 31 December 2022
Public
Service
£m
93.2
(1.7)
91.5
Experience
£m
Portfolio
£m
8.9
29.6
38.5
(0.1)
16.3
16.2
Capita
plc
£m
(224.8)
152.4
(72.4)
Total
£m
(122.8)
196.6
73.8
depreciation, amortisation and impairment of
property, plant and equipment and intangible
assets, largely driven by the Group’s property
rationalisation programme.
Cash generated from operations before
business exits1 benefited from the improvement
in adjusted EBITDA1, a lower working capital
outflow compared with 2021, materially lower
deferred VAT repayments and pension deficit
contributions; offset by a reduction in non-cash
and other adjustments.
The lower working capital outflow arises from
contracts moving into the operational phase
and increased utilisation of non-recourse trade
receivables financing in 2022.
The reduction in non-cash and other
adjustments reflects utilisation of customer
contract provisions in 2022 compared with
provision recognition in 2021, and the utilisation
of the remaining restructuring provision.
Free cash flow before business exits1 for the
year ended 31 December 2022 was an inflow
of £29.0m (2021: outflow £218.6m). The
improvement reflected the above increase
in cash generated from operations before
business exits1, a reduction in capital
expenditure, and net interest paid in respect
of leases and the Group’s private placement
loan notes.
Adjusted operating cash conversion1 increased
to 68% (2021: 48%).
Strategic
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Chief Financial
Officer’s review
continued
Capita plc
Annual Report 2022
29
Reported results
Adjusted to reported profit
As noted above, to aid understanding of our
underlying performance, adjusted operating
profit1 and adjusted profit before tax1 exclude
a number of specific items, including the
amortisation and impairment of acquired
intangibles and goodwill, and the impact
of business exits.
Impairment of goodwill
In preparing the half-yearly condensed
consolidated financial statements at 30 June
2022, and these consolidated financial
statements at 31 December 2022, the Group
undertook detailed impairment reviews.
At 30 June 2022 a goodwill impairment of
£92.5m was recognised in respect of the
People and Property CGUs, and at 31
December 2022 a further goodwill impairment
of £76.5m was recognised in respect of the
People, Travel and Business Solutions
CGUs, in the Group’s Portfolio division. The
impairments reflected the difference between
the expected net proceeds at disposal and the
cash flows the Group had previously projected
it would generate if it held these businesses into
perpetuity. The difference has arisen due to the
potential for acquirers factoring in additional
investment and costs required to run the
businesses on a standalone basis, coupled
with general macroeconomic conditions.
Refer to note 3.4 to the consolidated financial
statements for further details.
Business exits
Business exits include the effects of businesses
that have been disposed of or exited during the
period and the results of businesses held-for-
sale at the reporting date.
In addition, business exits include 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 2022.
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 2021 comparatives have been re-presented
to exclude the 2022 business exits.
Adjusted operating profit to free cash flow before business exits1
Adjusted operating profit/(loss)1
Add: depreciation/amortisation and impairment of property, plant and
equipment and intangible assets
Adjusted EBITDA1
Working capital
Non-cash and other adjustments
Operating cash flow before business exits1
Deferred VAT repayment
Pension deficit contributions
Cash generated from/(used by) operations before business exits1
Net capital expenditure
Interest/tax paid
Free cash flow before business exits1
Reported to adjusted1 profit bridge
2022
£m
102.9
135.9
238.8
(32.7)
(44.7)
161.4
(14.9)
(30.0)
116.5
(43.6)
(43.9)
29.0
2021
£m
(77.7)
220.7
143.0
(113.6)
38.6
68.0
(104.1)
(73.6)
(109.7)
(51.2)
(57.7)
(218.6)
Reported
Amortisation and impairment of acquired
intangibles
Impairment of goodwill
Net finance costs
Business exits
Adjusted
Operating profit/(loss)
Profit/(loss) before tax
2022
£m
(79.6)
5.1
169.0
—
8.4
102.9
2021
£m
(86.6)
7.7
11.5
—
(10.3)
(77.7)
2022
£m
61.4
5.1
169.0
(3.4)
(158.3)
73.8
2021
£m
285.6
7.7
11.5
1.4
(429.0)
(122.8)
1. Refer to APMs on pages 229 to 231.
Strategic
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Chief Financial
Officer’s review
continued
Capita plc
Annual Report 2022
30
Free cash flow to free cash flow before business exits1
Free cash flow
Business exits
Pension deficit contributions triggered by disposals
Free cash flow before business exits1
Net debt
Opening net debt
Cash movement in net debt
Non-cash movements
Closing net debt
Remove closing IFRS 16 impact
Net financial debt (pre-IFRS 16)
Cash and cash equivalents net of overdrafts
Financial debt net of swaps
Net financial debt/adjusted EBITDA1 (both pre-IFRS 16)
Net debt (post-IFRS 16)/adjusted EBITDA1
2022
£m
24.5
(4.1)
8.6
29.0
2022
£m
(879.8)
438.2
(40.8)
(482.4)
397.5
(84.9)
177.2
(262.1)
0.5x
2.0x
2021
£m
(264.3)
(36.2)
81.9
(218.6)
2021
£m
(1,077.1)
232.1
(34.8)
(879.8)
448.4
(431.4)
101.5
(532.9)
3.7x
4.1x
At 31 December 2022 business exits primarily comprised:
Business
AMT Sybex
Secure Solutions and Services
Trustmarque
Speciality Insurance
Real Estate and Infrastructure Consultancy
Optima Legal Services
Pay360
Capita Translation and Interpreting
Disposal completed on
1 January 2022
3 January 2022
31 March 2022
29 April 2022
22 September 2022
30 November 2022
1 December 2022
29 December 2022
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 2022 and,
accordingly their trading results are included
within adjusted results.
Further detail of the specific items charged in
arriving at reported operating profit and profit
before tax for 2022 is provided in note 2.4 of
the consolidated financial statements.
Taxation
The reported income tax credit for the year of
£14.6m (2021: charge £61.5m) and the adjusted
income tax credit for the year of £31.8m (2021:
charge of £4.0m) reflect the recognition of
additional deferred tax assets of £36.7m (net of
a £16.7m change in the deferred tax asset
estimate due to the reduction in future taxable
profits on disposal of taxable entities, reflected
1. Refer to APMs on pages 229 to 231.
in the tax arising on business exits). 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.
Free cash flow to free cash flow before
business exits
Free cash flow was lower than free cash flow
before business exits1 principally reflecting
pension deficit contributions triggered by the
disposal of Trustmarque and AXELOS, offset
by free cash flows generated by business exits.
Movements in net debt
Net debt at 31 December 2022 was £482.4m
(2021: £879.8m). The substantial reduction
in net debt reflects the benefit of the Group’s
positive free cash flow generation, the proceeds
from disposals, coupled with the impact of
the ongoing programme of leased property
estate exits.
Strategic
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Chief Financial
Officer’s review
continued
Capita plc
Annual Report 2022
31
Net financial debt (pre-IFRS 16) reduced by
£346.5m to £84.9m at 31 December 2022,
resulting in a net financial debt to adjusted
EBITDA1 (both pre-IFRS 16) ratio of 0.5x. Over
the medium term, following the completion of
our Portfolio divestment programme, we will
be targeting a net financial debt to adjusted
EBITDA1 (both pre-IFRS 16) ratio for Capita
of ≤1.0x.
The Group was compliant with all debt
covenants at 31 December 2022.
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, revolving credit facility (RCF),
leases and overdrafts.
In July 2022, the Group signed an extension
of the £300m forward start RCF with its
lending banks for a further twelve months to
August 2024. The new facility commenced on
31 August 2022 upon the expiry of the previous
RCF and provides the Group with committed
liquidity for the cash fluctuations of the business
cycle and an allowance for contingencies, and
incorporates provisions such that it will partially
reduce in quantum as a consequence of
specified transactions. The RCF was not drawn
upon at 31 December 2022 and had a total
committed value of £288.4m.
In addition, the Group has in place a non-
recourse invoice discounting facility, utilisation
of which has become economically more
1. Refer to APMs on pages 229 to 231.
favourable than drawing under the RCF as
prevailing interest rates have increased. As
such, the Group has increased its use of the
facility across the year with the value of invoices
sold under the facility at 31 December 2022 of
£44.4m (2021: £16.4m).
At 31 December 2022, the Group had £177.2m
of cash and cash equivalents net of overdrafts,
and £285.5m of private placement loan notes
and fixed-rate bearer notes. These debt
instruments mature over the period to 2027,
with repayment of £66.3m of maturities in 2023
which are expected to be funded through the
Group’s existing facilities, cash and cash
equivalents and from the proceeds of the
Group’s ongoing 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.
Going concern
The Board closely monitors the Group’s
funding position throughout the year, including
compliance with covenants and available
facilities to ensure it has sufficient headroom
to fund operations. In addition, to support the
going concern assumption, the Board conducts
a robust assessment of the projections,
considering also the committed facilities
available to the Group.
The Group and Parent Company continue to
adopt the going concern basis in preparing
these consolidated financial statements as
set out in section 1 to the consolidated
financial statements.
Liquidity
Revolving credit facility (RCF)
Less: drawing on committed facilities
Undrawn committed facilities
Net cash, cash equivalents net of overdrafts
Less: restricted cash*
Liquidity
2022
£m
288.4
—
288.4
177.2
(60.4)
405.2
2021
£m
385.7
(40.0)
345.7
101.5
(54.8)
392.4
* Restricted cash includes cash required to be held under FCA regulations and cash held in foreign bank accounts.
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 64.
Pensions
Contributions during the year to the Capita
Pension and Life Assurance Scheme (the
Scheme) have been in line with the contribution
schedule agreed with the Trustee of the Scheme
following the 31 March 2020 triennial valuation.
This includes the acceleration of deficit
reduction contributions (£8.6m) triggered due to
the disposal of Capita entities during the year.
The net defined benefit pension position for
accounting purposes moved from a small net
asset at the start of the year (£5.8m) to a larger
net asset by 31 December 2022 (£39.6m). The
main reasons for this movement were the
£38.6m of deficit funding contributions paid into
the Scheme (plus a net £0.2m deficit funding
contribution in respect of other schemes). Both
the value attributed to the pension liabilities and
the value of the assets fell materially over the
year predominantly due to the material increase
in the yields available on both long-dated
Government and corporate bonds. Due to the
investment strategy adopted by the Trustee of
the Scheme the impact of these changes has
been broadly hedged so that the value of the
assets has moved to a similar degree to the
value of the liabilities. Despite the economic
events in Q3 2022 that led the Bank of England
to purchase Government bonds, the Scheme’s
Fiduciary Manager confirmed that the Scheme
had sufficient liquid assets to meet collateral
calls to maintain its hedged positions
throughout the year, as well as confirming
that there is sufficient buffer against future
adverse movements.
Strategic
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Chief Financial
Officer’s review
continued
The net defined benefit
pension position for
accounting purposes
moved from a small net
asset at the start of the
year (£5.8m) to a larger net
asset by 31 December 2022
(£39.6m)
Capita plc
Annual Report 2022
32
The valuation of the Scheme liabilities (and
assumptions used) for funding purposes
(the actuarial valuation) are specific to the
circumstances of the Scheme. It differs from the
valuation and assumptions used for accounting
purposes, which are set out in IAS 19 and
shown in these financial statements. The
main difference is in assumption principles
being used based in the different regulatory
requirements of the valuations. Management
estimates that at 31 December 2022 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
2022) was approximately £40.0m (2021: net
asset £40.0m) on a technical provisions basis.
The Trustee of the Scheme has also agreed
a secondary more prudent funding target to
enable it to reduce the reliance the Scheme
has on the covenant of the Group. On this
basis, at 31 December 2022, the funding level
was around 96% (or a net liability of £50m).
The deficit of £50m is expected to be met by
a mixture of the remaining deficit contributions
and asset outperformance.
The next triennial valuation of the Scheme is
due as at 31 March 2023, where the Trustee of
the Scheme and the Company will review the
contributions being paid to the Scheme. The
2023 triennial valuation is expected to be
completed in 2024.
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
2022 gave a value for the Group that exceeded
the market capitalisation at that date, and
supported the parent company net assets.
An impairment test was performed at
31 December 2022 in respect of the parent
company’s investments in subsidiaries and
amounts owed by subsidiary undertakings.
A £7.0m impairment was identified in respect
of the parent company’s investments in
subsidiaries, and an impairment of £30.1m
was recognised in respect of amounts owed
by subsidiaries.
Consolidated balance sheet
At 31 December 2022 the consolidated net assets
were £352.7m (2021: net assets £296.5m).
The movement is predominantly driven by the
gain on the sale of businesses offset by the
goodwill impairment recognised during the year,
and the increase in the net pension asset
referred to above.
Parent company balance sheet
The company’s market capitalisation was
significantly less than the net assets of the
parent company at 31 December 2022 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
Strategic
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Our people
Capita plc
Annual Report 2022
33
Creating a compelling
people experience
While 2022 presented many challenges for so many businesses and their people,
including a cost-of-living crisis and a very tight labour market, we remained
focused at Capita on delivering an increasingly positive and consistent employee
experience, which delivered improved engagement metrics.
Workforce
50,000
people employed in 11 different countries
In 2022, despite all the challenges, our focus
remained on making Capita a place that people
want to join and where they want to stay – a
workplace that delivers on our four employee
value proposition (EVP) themes: be yourself;
make an impact; expand your horizons; and
shape our future. We were, therefore,
particularly pleased to see improvements in our
employee net promoter score (eNPS), our
engagement index, and our wellbeing and
inclusion indices. While we know we are still on
a journey to create a compelling and fully
consistent experience for every employee
globally, we believe we are making significant
progress towards this goal.
2022 saw the promotion of a new Chief People
Officer, Scott Hill, demonstrating the success
of our continuing focus on internal mobility and
succession planning. We also increased the
remit of our People function, moving both
the internal and external communications
and responsible business specialisms into
the function.
Our commitment to consistency in 2022
underpinned many of our headline activities,
including the launch of our career path
framework, our focus on equitable opportunities
through diversity and inclusion, the expansion
of our central employee relations hub and the
significant increase in the use of digital training
modules. We also continued our support of
flexible, hybrid or remote working wherever
possible, and saw an extremely positive
response from employees.
However, we must acknowledge that, like many
of our peers, attrition and attraction remains
a key challenge, as does the macroeconomic
climate and the subsequent impact on our
employees – particularly those who are lowest
paid. We are continuing to work to support our
people however we can, including through our
commitment to the real living wage, and via
ongoing financial wellbeing support across
the business.
We expect attrition to remain a key focus area
throughout 2023, and we will continue to adapt
and evolve our practices as required to ensure
we continue to meet the needs of our clients
and other stakeholders.
While we know we are still
on a journey to create
a compelling and fully
consistent experience for
every employee globally,
we believe we are making
significant progress
Strategic
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Our people
continued
Capita plc
Annual Report 2022
34
Our commitment to flexible,
remote working
In a market where many companies are now
expecting all employees to return to the office
post-Covid, we took a clear stance at Capita to
offer flexible and remote work wherever client
and business needs allow as part of a virtual-
first working approach.
We believe offering this flexibility will help us
attract and retain high-quality and increasingly
diverse talent. For the first time, we asked about
working arrangements in our annual people
survey, and the data showed us that those who
work in a hybrid model, or from home, are on
average 11% more engaged than those who
work solely from an office or the field. 85% of
these individuals also say it is a key motivator
for them to remain working at Capita.
However, we do acknowledge that fully remote
working does not suit everyone, and we
encourage colleagues to book a desk in a local
office when needed, or to get together for team
events. We will continue to evaluate the impact
of this approach in 2023.
Building an engaged workforce
In order to live our purpose and delight our
customers, we know that we need a highly
engaged workforce. Therefore in 2022 we
introduced a pulse survey, on top of our annual
employee survey, to better understand how our
employees are feeling, and ensure we are
listening to, and acting on their feedback. We
were pleased to see that in our annual people
survey, completed in October by more than
30,000 employees globally, 82% of
respondents said their manager had both
shared and acted on survey results. We will
work to continue increasing this score in 2023.
In overall engagement, we saw positive
movement in 2022: our eNPS increased by
15 points, while our employee engagement
index increased by 9%.
In addition, 2022 was the fourth year in
which employees were able to rate their line
manager’s performance against our managers’
commitments. These commitments set out
the additional behaviours we expect from all
our leaders and managers and affirm our
commitment to be a values-driven organisation.
For the past year, across all 10 commitments,
more than 92% of respondents agreed that
their manager demonstrated our values and
behaviours. The feedback is fed into annual
development discussions and can inform
managers’ objectives.
Investment in apprenticeships at all levels continued
to grow and is providing ongoing opportunities to
build the skills required for our future business
success and for serving our clients successfully
in support of growth
Strategic
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Our people
continued
Capita plc
Annual Report 2022
35
Performance and development
During 2022, our focus was on the development
of our career path framework (CPF). This is
a Capita-wide tool designed to enable our
colleagues to plan and develop their career.
It provides a map of the whole organisation
enabling colleagues to view the role they
are in, behavioural, leadership and technical
competencies for each job across the
organisation and identify what they need to
do to progress and move to another role in
the organisation. This framework forms the
foundation of many of our development and
people processes.
Aligned to our CPF, we provide a global
academy approach to learning that gives
individuals access to self-directed development
that enables growth in them and for the business.
Capita Academy
For the Academy, 2022 was a year of engaging
with colleagues and highlighting our resources
across Capita. We continued to build a solid
resource bank within the Academy through
the introduction of the Capita e-library, which
provides colleagues with a suite of accessible
learning to support their ongoing development.
We introduced a self-assessment tool
‘My Compass’ for colleagues to assess their
current knowledge and skills level against
their aspirational level with suggested learning
to support in-role development. Our focus
continued to be on management development
through our newly launched managers
passport programme and on growth through
our Sales Academy.
We continued to see positive levels
of engagement with our learning
resources over the past year, eg:
c.569,000
digital learning modules completed – an
increase of more than 492,000 on 2021
c.356,000
mandatory training modules completed
c.10,360
managers passport digital modules
completed – an increase of more than 3,060
on 2021
606
colleagues attended live development
workshops delivered by the Capita Academy
c.44,000
of applicable colleagues completed our
newly introduced Code of Conduct training
(since its launch in April 2022)
c.45,500
resources have been accessed as part of
Capita’s e-library, including e-books, audio
learning and virtual classrooms
We continued to support wellbeing initiatives
offering a suite of digital modules, which in
addition to specialist speakers, provided
practical tools and techniques for personal
wellbeing. We amended and enhanced the
communication on our Speak up whistleblower
policy, providing colleagues with a safe and
secure mechanism to report anonymously
any activity that does not meet the values that
we strive to achieve at Capita every day. We
also introduced our Code of Conduct digital
learning, which has been completed by 97%
of applicable employees.
In 2022, our global learning teams collaborated
to remove duplication and continuously improve
our learning offering. This has been recognised in
Capita India where our Learning & Development
team won two awards, the L&D Excellence
Award & The Innovation in Learning Award at
Future of L&D Summit and Awards 2022.
Looking forward, we will continue to focus on
simplification, 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
year. At the same time, the development of
our managers remains a significant priority,
and last year we aligned our Accelerate,
Advance and Ascent programmes to our
managers passport to upskill our line
managers. We currently have 173 managers
on one of these development pathways.
Investment in apprenticeships at all levels
continued, and is providing ongoing
opportunities to build the skills required for our
future business success and for serving our
clients successfully in support of growth. As an
extension of our apprenticeship offering and in
alignment with our social value and responsible
business activity, we pledged to gift more than
£1.4m in 2022–23 to help charities and SMEs
invest in skills development.
Supporting future leaders
In 2022, we enhanced our approach to internal
mobility through succession and progression.
Succession planning is an integral process
helping us to identify potential in individuals and
develop future talent to support organisational
effectiveness and success. We conducted a
comprehensive succession process for our
Executive Committee and top 100 leadership
roles, challenging ourselves on the diversity
and inclusion of our talent pipelines. 42% of this
population who were identified as high potential
and suitable for succession are female.
We offer 64 different professional development
programmes across England funded by our
apprenticeship levy. We have more than 600
learners on the apprenticeship programmes
and 186 learners who successfully completed
their professional development programme this
To improve diversity at senior levels, we also
continue to support high-potential women
and individuals from underrepresented
groups through cross-company mentoring
opportunities. In 2022, 80 colleagues were
enrolled in these programmes. We are
Strategic
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continued
Capita plc
Annual Report 2022
36
delighted to win the Moving Ahead Mentor
of the year for 2022 and Moving Ahead
Most Dedicated Programme Partner of the
year awards.
Talent acquisition and turnover
Despite an extremely tight global talent market,
Capita continued in 2022 to attract large
volumes of applicants, with more than 27,000
new starters in the year. International headcount
also increased, notably in South Africa where
it grew by 139% to more than 4,900.
Given the challenging external economic
backdrop, our focus in 2022 was on employee
retention initiatives, ensuring the best talent was
nurtured and developed. Our strengthened
‘Capita first’ policy saw more than 3,200 roles
filled internally, 11% of total recruitment.
Voluntary turnover remained high and
continues to be a challenge due to external
market conditions. In 2023 we will continue to
build on our internal mobility strategy, and focus
on retention activities.
Over the course of 2022 the resourcing function
implemented a new target operating model and
held a series of levelling-up roadshows to
embed our candidate-focused approach. We
also continued to work on the refresh of our
employer brand, developing new campaign
material and capitalising on our EVP to attract
and retain talent.
HR operations
In 2022, we continued to focus on simplifying
and centralising key human resource functions,
delivered through improved technology and
processes. To do this we launched a dedicated
onboarding team to deliver excellence in our
new joiner experience; evolved our reward
hub to improve consistency in the application
of global compensation and benefits; and
introduced a global mobility team to support
complex international movement when
required. We also centralised the majority of our
employee relations activity, delivering improved
efficiency, consistency and reporting which will
allow us to be more proactive in employee
relations management going forward.
Our People Hub, which provides direct support
to all employees, continued to deliver excellent
results, with 99% of calls being answered
within 10 seconds. Our internal chatbot, Herbot,
can now manage high volume multi-functional
transactional queries from employees, on
demand and across time zones. Across our
People Hub channels, we successfully
managed more than 500,000 enquiries,
incidents, and data transactions throughout
the year. As a reflection of our progress, we
were awarded best Shared Services Team
of the year 2022 by UBS forum.
Reward
Our fair pay agenda continues to underpin
all our remuneration decisions. That means
ensuring that we are recognising the
contributions of all our colleagues, junior and
senior, supporting and paying all colleagues
fairly for the work they do. You can read
more in our annual fair pay report, published
alongside our Annual Report. We also
published our UK pay gap figures and
a narrative explaining them. We continued
to support our lowest paid employees by
being a real living wage employer.
Responsible business at a glance
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.
Our people – see pages 33 to 36 for more information. Also read our fair pay report and UK pay
gap reporting online.
We want to make Capita a place that people want to join and where they want to stay – a workplace
that delivers on our four employee value proposition themes: be yourself; make an impact; expand your
horizons; and shape our future. We launched our inaugural Capita employee leadership council in
2022 with 11 colleagues from across the Group. We recognise the contributions of all colleagues, junior
and senior, supporting and paying them fairly for the work they do. We are a real living wage employer.
Key metrics
eNPS (points)
Voluntary turnover (%)
Employee engagement index (%)
People survey response rate (%)
2022
-9
30
65
72
2021
-24
30
56
68
Our customers and clients – see pages 44 and 47 for more information. Also read our supplier
charter and human rights policy online.
Our reputation depends on delighting our customers and clients. We are committed to working with our
supply-base to ensure that together we can achieve wider social, economic and environmental benefits.
Key metrics
cNPS (points)
Supplier payment within 60 days (%)
2022
+35
99
2021
+29
98
The environment – see pages 42 to 44 and the TCFD section for more information. Also read
our achieving net zero report online.
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.
Key metrics
Reduction in carbon footprint (gross tonnes)
2022
4.6m
Our investors – see page 48 for more information
Input and feedback from our investors forms an important element of our decision making.
Key metrics
TSR (%)
Share price movement (pence)
2022
(33.5)
(12.2)
2021
11.6m
2021
(6.9)
(2.7)
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Capita plc
Annual Report 2022
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Creating better for all
our stakeholders
The commitment to being a purpose-led, values-driven and
responsible organisation is now part of Capita’s DNA.
UK, our science-based climate targets (we
intend to be net zero by 2035), the significant
progress towards our diversity goals, the launch
of our Capita Leadership Council, our continued
commitment to having an employee director
on the Board, and our socially responsible
resourcing programmes, including one that
provides paid internships to ex-offenders.
However, we also now need to respond to
a rapidly changing external environment
that includes an increasing understanding
of the impact of climate change, a difficult
economic situation and a cost-of-living crisis
for our employees.
We are, therefore, in the process of refreshing
our responsible business strategy to ensure
it focuses on the areas of greatest concern
and effect.
We will publish our updated strategy and
responsible business report later in 2023
(www.capita.com/responsible-business). We
know that to ‘create better’ we must constantly
adapt, evolve and respond, and, through our
current and future activities, we are committed
to this ongoing challenge.
The commitment to being a purpose-led,
values-driven and responsible organisation
is now part of Capita’s DNA. This means a
constant, Group-wide focus on how we can
deliver better for all our stakeholders –
employees, shareholders, clients, end-users
and communities.
In 2022, we further demonstrated this
commitment through the creation of a new
ESG (environmental, social and governance)
Committee of the Board, focusing on
responsible business issues, and providing
additional strategic oversight, accountability
and guidance.
Our responsible business strategy, which was
originally developed in 2019, has ensured that
we remained focused on supporting the United
Nations’ Sustainable Development Goals
(UNSDGs) as well as addressing the issues
where we can have the biggest impact –
through our own operations, and the products
and services we provide to our clients.
In 2022, our activities focused significantly on:
building a more inclusive organisation and
supporting our colleagues’ wellbeing; tackling
economic inequality and increasing digital
inclusion; reducing our environmental impact
and operating responsibly. Among the
significant range of activities delivered, we are
most proud of our continuing commitment to be
a real living wage accredited employer in the
Strategic
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Responsible
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continued
We are addressing the
global challenges of
importance to our
business and society.
Capita plc
Annual Report 2022
38
People
Community
Planet
Operating responsibly
Delivering our strategy themes
Building a more inclusive
organisation
Goals
• Ensuring our workforce reflects
the diversity of the communities
we serve and is inclusive
Driving greater
social mobility
Enabling better
digital access
Reducing our
environmental impact
Operating responsibly for
our stakeholders
• Empowering 100,000 young people
• Seeking to reduce our carbon
• Seeking to integrate environmental,
in the communities we serve to
progress into the world of work by
the end of 2023
• Equipping 10,000 people in
our communities with the digital
skills required for today’s world by
the end of 2023
footprint and supporting our clients
to do the same
social, ethical and governance
considerations across our
business operations
Areas of focus
• Prioritising our colleagues’ wellbeing
• Tackling youth unemployment
• Tackling environmental challenges
• Client relations
• Engaging with our colleagues
• Promoting digital skills
• Reimagining our workplaces
• Building an inclusive organisation
for all
with clients
• Improving our environmental
performance
• Adapting to climate change
• Supplier engagement
• Ethical business
Supporting the UNSDGs
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Annual Report 2022
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We secured a place in the
100 Best Companies for
Women in India, as well
as being one of the 2022
Exemplars in Most Inclusive
Companies Index in India
Strategic
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Addressing our
global challenges
People
Building a more inclusive organisation
At Capita, we are committed to creating an
environment where diversity is valued,
respected and included in everything we do,
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 better for our
clients and end-users, but because we believe
it’s the right thing to do.
During 2022, we continued to build on our
previous work to create a more inclusive
workplace for all our people. This included:
• Growing and supporting our eight global
employee network groups. We currently have
more than 15,000 network members.
• Continuing in our commitment to be a real
living wage employer in the UK.
• Expanding the use of personal pronouns on
Workday, Outlook and Teams to ensure our
colleagues are represented and supported
in the way they wish to be recognised.
• Launching a new ‘life leave’ policy, to support
employees with paid time off for fertility
treatment, early pregnancy loss and more.
• Running an ongoing lunch and learn series
to build awareness and understanding of
our similarities and differences. In 2022 this
included topics such as: menopause; faith
and wellbeing; debunking the myths behind
ADHD; baby loss awareness; and more.
• This was in addition to our ongoing
celebration of awareness events, including
(but not limited to) Pride, International
Women’s Day, International Men’s Day, Racial
Equality Week, Black History Month, Mental
Health Awareness week, and International
Day of People with Disabilities.
• Celebrating our Black colleagues with our
second annual Black Employees Awards,
held during Black History Month.
• Continuing to review employee survey results
by protected characteristic and working with
each of our employee network groups on
results relevant to their area of focus.
• Developing a number of programmes
to support the career progression of
underrepresented groups.
• Our RISE (reduce inequality strive for
equality) and RISE for Women programmes
are specifically designed for Black, Asian &
minority ethnic and female colleagues to help
start them on a transformational journey that
will give them the practical mechanisms to
drive their careers forward.
We were extremely pleased that two Capita
leaders – Kathy Quashie, Chief Growth Officer
and Eileen Lewis, Social Responsible
Resourcing Lead – were named in the global
2022 Empower Ethnic Minority Role Model Lists.
We were highly commended by the Employers
Network for Equality & Inclusion for our approach
to intersectionality, and recognised as a ‘Leading
Light’ by the UK Social Mobility awards.
We also secured a place in the 100 Best
Companies for Women in India, as well as
being one of the 2022 Exemplars in Most
Inclusive Companies Index in India, which
is testimony to our diversity and inclusion
commitments and practices.
In 2022 we continued with our three diversity
focus areas: women in senior leadership; ethnic
diversity in middle and senior leadership; and
supporting colleagues with a disability. We are
pleased to say that:
• We exceeded our 2022 targets for women
in senior roles. Our workforce is 51% female,
and in our senior leadership roles 42% are
female. In addition, both our Board and
Executive Committee are 44% female.
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Board
2
1 5 (56%) Male
2 4 (44%) Female
1
Executive Committee
1 5 (56%) Male
2 4 (44%) Female
2
1
Senior management*
2
1 73 (74%) Male
2 25 (26%) Female
1
All employees
2
1
1 24,240 (49%) Male
2 25,350 (51%) Female
* Senior management includes directors of subsidiary legal
entities as per requirements of the Companies Act section
414C(8)(c)(ii) and 414C(10)(b).
• We exceeded our 2022 targets for ethnic
Supporting our colleagues’ wellbeing
diversity in leadership roles. Our workforce
is 21% ethnically diverse, including 7% Black,
and our senior leaders are now 14% ethnically
diverse (in the UK) and 3% Black. In 2023
we will be working on targets for additional
geographies. In addition, both our Board
and Executive Committee are each 22%
ethnically diverse.
• In 2022 we were recognised as Disability
Confident Employer (level 2) status across the
Group and we are working to achieve level 3
status in 2023. We are particularly proud of
the work we did with the Capita ability network
to support our colleagues with a disability,
such as the launch of our adjustments
passport to ensure that reasonable adjustments
follow our employees throughout their career
in Capita. We also increased our disability
declaration level by 8%.
We will continue to build on these figures in
2023, while also introducing an additional focus
on how we measure and track social mobility
within the organisation.
Focusing on the wellbeing, safety and health
of all Capita employees continues to be a top
priority. In 2022, we particularly focused on
mental health and financial wellbeing, as the
cost-of-living crisis intensified.
We are not afraid to tackle difficult subjects
and also launched suicide awareness initiatives
and new guidance relating to domestic abuse.
We also launched our Group menopause
procedure, supported with our first ever virtual
Menopause Café.
Through the advancement of our wellbeing,
safety, and health focus, our colleagues
reported improved feelings of health and
wellbeing, with a Wellbeing Index rating of 71%
in our annual people survey (up 4% from 2021).
We introduced new mandatory safeguarding
training with 98% completion for level 1 and
99% for level 2, which exceeds our internal
compliance targets of 95%.
We also enhanced and expanded our
SafetyNet initiative, which provides guidance
and support to human resources representatives
and business managers dealing with
employees with complex issues related
to wellbeing, safeguarding or vulnerability.
As a multidisciplinary group, SafetyNet
provides an independent view and advice,
recommends additional interventions, and
supports managers and colleagues through
extremely difficult situations. In 2022,
SafetyNet has supported 219 colleagues
since it started in 2021.
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We also completed the transition to our new
provider, Health Partners, and launched
a series of proactive occupational health
interventions in the UK, building on the
activities already in place in some of our
international locations.
Reimagining our workplaces
We continued to transform and simplify our
property footprint with further consolidation
during 2022 with 19 locations closed globally.
We continue to look to invest, 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.
We also internally recycle as much quality
furniture and equipment as possible from
the sites we closed, with 36 locations benefiting
from more than 5,200 items. As part of our
responsible business commitment, we also
donated more than 2,300 items of furniture to
12 schools, three NHS Trusts and six charities.
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We also continued to work with Good Things
Foundation, the digital inclusion charity, to
inspire senior leaders in England to set
ambitious strategies to tackle digital inequality.
The aim of this work is to ensure people from
all backgrounds, including the disadvantaged,
have access to devices and the skills necessary
to use them. Our partnership engaged several
combined authorities in England to help them
develop their approaches to digital inclusion
and led to the creation of a roadmap providing
practical ideas for digital inclusion strategies
aimed at tackling digital inequality.
Capita colleagues also volunteered their time
during the year to take part in Business in the
Community’s ClickSilver Connections scheme,
providing mentors to help older and vulnerable
people to connect with friends and family,
source essential items, find information and
gain digital confidence.
Helping to support and
grow strong communities
in the current economic
climate is a key priority for
Capita; and, we believe,
an obligation for all
businesses globally
Community investment
c.£1m(2021: c.£0.9m)
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continued
Community
Tackling economic inequalities
Helping to support and grow strong
communities in the current economic climate
is a key priority for Capita, and, we believe, an
obligation for all businesses globally. We are
therefore proud that we not only renewed our
commitment to be a real living wage employer
in 2023, but we also joined Business in the
Community’s cross-industry cost of living
taskforce, which launched in December 2022.
Capita was one of the first organisations to sign
up to the UK Government’s Kickstart Scheme.
From the start of 2021 to end of 2022, we
offered 59 Kickstart placements, with the
majority being delivered virtually. 95% of our
Kickstarters successfully completed the
programme with 53% securing roles in Capita
afterwards. 17% gained roles externally and 8%
returned to full time education. Of the 53% that
were retained after the programme, 90%
remain within Capita.
In 2022 we pledged to gift more than £1.4m of
our apprenticeship levy to support charities and
SMEs to invest in skills development. We
continued to support our employees to
fundraise more than £60,000 and were pleased
to donate more than £16,000 in matched charity
funding. We also raised more than £180,000
through payroll giving.
At the start of the Ukraine war, our colleagues
in Krakow collected clothes, food and money
to support the refugees and some of our
colleagues hosted refugee families. We have
since raised further resources and bought a
generator to provide power to a water plant
which pumps to local hospitals in Ukraine.
All our employees globally are granted one
day per year for volunteering activities, more
than 7,800 hours of volunteering were
requested in 2022.
We also continued our sponsorship of the UK
Social Mobility Awards and were delighted to
be awarded a ‘Leading Light’ award.
We were also particularly pleased to see the
progress of our Compass programme,
delivered in partnership with Project Remake,
supporting ex-offenders into meaningful work.
You can watch interviews with some of our
Compass interns at www.capita.com/our-
thinking/creating-better-outcomes-internships-
prison-leavers. We hope to grow this
programme further in 2023.
Digital inclusion
In 2022, Capita invested in WithYouWithMe, a
workforce technology platform that finds
employment for military veterans and other
overlooked groups through delivering innovative
aptitude testing and digital skills training. With
them, we launched ‘15,000 Futures’, an initiative
to support former members of the UK armed
forces and their partners to find employment in
the technology and digital sectors after leaving
the military, encouraging organisations to fill 5%
of available digital roles with reskilled veterans.
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We are working 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
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continued
Planet
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.
We have already achieved our 2025 and 2030
near-term science-based targets apart from
those relating to Scope 1 which we expect to
achieve by 2024.
Fighting climate change
The Science Based Target initiative (SBTi) has
verified Capita’s 2035 net zero science-based
target as follows:
Near-term targets
Capita has committed to reduce absolute
Scope 1 and 2 greenhouse gases (GHG)
emissions and absolute Scope 3 GHG
emissions covering business travel by 46% by
2030 from a 2019 base year. Capita has also
committed to 50% of its suppliers by spend –
covering purchased goods & services and
capital goods – having science-based targets
by 2025.
Long-term targets
Capita has committed to reducing absolute
Scope 1 and 2 GHG emissions, and absolute
Scope 3 GHG emissions (covering purchased
goods & services, capital goods, business-
travel and employee commuting) by 90% by
2035 from a 2019 base year.
We set out our ambitious and far-reaching
roadmap to take us to net zero in 2021. We
are committed to these challenging targets
at every level of our organisation, setting
decarbonisation as our overarching objective.
Our goal is for all residual emissions to be
neutralised in line with SBTi criteria to reach
net zero emissions.
In 2022, as part of our business planning
process, each division and function submitted
its own net zero targets for 2023 and issued
plans to achieve longer-term net zero
milestones. Successful submission of these
plans and reduction targets, together with
demonstrable reduction in carbon emissions,
forms part of 2022 management bonus plan
criteria. 2023 incentives will focus on
achievement of target, and reporting of
performance against target will form part of the
company-wide management reporting cycle.
Following our commitment to be net zero by
2035, the challenges we believe will be most
difficult to address are: the decarbonisation of
our heating systems; and collecting, monitoring
and managing the reduction of emissions from
more than 19,000 suppliers.
Driving down GHG emissions
Following the onset of the Covid pandemic,
we significantly reduced business travel. While
there was an increase over lockdown levels,
travel bounceback in 2022 has been mitigated
by our virtual first meeting strategy and remains
less than 25% of pre-pandemic levels. Our
electricity emissions also reduced, through
efficiency, sourcing more renewable power
and reducing the property portfolio.
Work to improve the accuracy of our monitoring
of Scope 3 emissions will accelerate in 2023.
Across the Group we will develop our low
carbon transition plan to ensure transparency
to stakeholders across all areas of our carbon
reduction planning, responding to climate-
related risks and opportunities, and our
contribution to economy wide transition.
With more than 50,000 colleagues across
the globe, we are all too aware of our own
internal responsibilities. We therefore launched
a new environmental standard, setting out
Capita’s environmental commitments and
responsibilities and incorporating an
environmental training module for all employees
to support the environmental standard and net
zero commitment.
In 2022 we published our third disclosure
statement against the recommendations of
the Financial Stability Board’s Task Force on
Climate-related Financial Disclosure (TCFD),
see page 49.
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Annual Report 2022
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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
Our disclosures cover sources of our GHG
emissions from our operations in the UK,
Ireland, Central Europe (Poland, Germany,
Switzerland and Bulgaria), 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.
Methodology
We measure our environmental performance
by reporting our global 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 and business travel 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
opposite with an *) 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.
Annual GHG emissions
Scope 1 (tCO2e)
Scope 2 (tCO2e) (location-based)
Scope 2 (tCO2e) (market-based)
Scope 3 (tCO2e) (business travel and waste)
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 short-term targets
Scope 1 (tCO2e)
Scope 2 (tCO2e) (market-based)
Scope 3 (business travel and waste)
Progress against SBTi verified short-term engagement target
Scope 3 supply chain spend covered by science-
based targets %
Other metrics
100% renewable power progress (as % of total power)
Transition from internal combustion to low emission
vehicles:
Diesel
Hybrid electric
Pure electric
Average CO2e
Fleet vehicle energy source
2022
12,049*
21,137*
4,083*
6,101*
39,287
22,233
13.03
0.79
2022
actual
12,049
4,083
6,101
2022
actual
50%
2022
85%
2021
15,021*
24,088*
10,328*
4,500*
43,609
29,848
13.70
0.73
2022
target
14,506
24,167
26,869
2022
target
32%
2021
80%
2020
18,980*
28,359*
23,526*
7,881*
55,219
50,386
16.60
0.85
2030
target
10,201
14,876
16,540
2025
target
50%
2020
68%
47%
48%
4%
96g/km
62%
32%
5%
96g/km
77%
19%
4%
98g/km%
Notes:
Total gross tonnes of CO2e/£1m revenue (location-based) in 2022, 2021 and 2020 has been calculated using statutory revenue.
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.
Capita plc
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cNPS score for 2022
+35
Spend with direct suppliers in 2022
in
£1.98bn
69
countries
Strategic
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continued
Operating responsibly
Operating responsibly means ensuring we keep
our purpose – to create better outcomes for all
stakeholders – at the core of everything we do.
In 2022, we maintained our focus by: continuing
to support clients and communities in recovery
from the Covid pandemic; engaging and
working closely with our suppliers;
understanding our colleagues needs; and
dealing with wider societal challenges, such
as the cost-of-living crisis.
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 2022, we received feedback from 585
individuals across 392 clients. This enabled us
to achieve a 49% response rate and the results
give Capita a cNPS score of +35 for 2022
which is an increase of +6 on 2021.
Our two core divisions (Public Service and
Experience) received feedback from 403
individuals across 250 clients providing a 52%
response rate. The results give the two core
divisions a combined cNPS score of +24, an
increase of +8 on 2021.
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 effect that the
current economic situation is having on many
of these suppliers, with varying demand for
products and services often severely affecting
their cash flow. Consequently, we strive as
a business to prioritise and ensure payment
to terms with our vendors at all times
where possible.
We spent more than £1.98bn in 2022 with more
than 19,000 direct suppliers in 69 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.
Business aligned objectives are in place for
2023 which are fully supported by the Board,
in order for us to progress to meet our net zero
goals for Scope 3 emissions. Our 2025 goals
are that 55% of our suppliers by spend will have
committed to having science-based targets
(SBTs) in place and, by 2030, 85% of our
suppliers by spend will have committed to
having SBTs in place.
As signatories to the Prompt Payment Code, we
report our payment practices and performance
to the UK Government every six months; 99%
of our suppliers were paid within 60 days.
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Capita plc
Annual Report 2022
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Valuing the employee voice
Targeting bribery and corruption
As a people-centric business, we believe
listening to, and involving, our colleagues in the
highest levels of our strategic decision making
is critical to our success. Our first two employee
non-executive directors completed their terms
in the summer of 2022, and we recruited a
new employee director, Janine Goodchild,
who joined the Board on 1 July 2022. We are
proud of the exceptional contribution and fresh
perspective that our employee directors make
to Board-level governance in the organisation,
and we would encourage other organisations
to consider doing the same.
Building on this employee-oriented success,
we launched our inaugural Capita Employee
Leadership Council in 2022. The council
comprises 11 individuals, drawn from different
parts of Capita, who were identified as potential
future leaders within the organisation. The
council acts as an advisory group, representing
the perspective of employees directly to the
Executive Committee, the business’ senior
leadership team. It has also contributed to
strategic projects.
Each council member’s tenure is two years,
during which they will benefit from learning
and development opportunities designed to
enhance their leadership skills. This will occur
through projects the council is asked to deliver
and a rotating programme of mentorships which
will be provided by members of the executive,
including our CEO, Jon Lewis.
We do not tolerate bribery or corruption in any
form. 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 are committed to playing our role in
global society by ensuring that through our
management and operations we have the
systems, policies and processes in place to
identify any potential instances of exploitation
and, if found, eradicate modern slavery in all
its forms from our business and supply chain.
Our updated 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, and upholding the principles of
human rights in their operations and supply
chains. We are taking appropriate steps to
ensure that everyone who works for Capita
benefits from a working environment in which
their fundamental human rights are respected
Members of our tech solution delivery team
competed in a charity plane pull to raise funds
for Action for Children
Strategic
report
Responsible
business
continued
and anyone that we do business with also
upholds these principles. If any client,
employee, supplier or other stakeholder
becomes aware of any potential breach of
human rights (or any other ethical concern) they
may report this confidentially to our Speak Up
hotline. This hotline is externally managed for
independence and confidentiality.
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.
Capita plc
Annual Report 2022
46
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 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)
• Environmental standard (I)
• Responsible business: fighting climate change
pages 42 and 43
Employees
Human rights
Social matters
Anti-corruption
and anti-bribery
Due diligence
and outcome
Business model
Non-financial KPIs
• Code of conduct (E)
• Health, safety and environmental policy (E)
• Diversity and inclusion policy (E)
• Wellbeing policy (E)
• Employee handbook (I)
• 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)
• Speak Up policy (E)
• Safeguarding policy (E)
• Community and charity policy (E)
• Community and charity standard (I)
• Volunteering FAQ (I)
• Matched funding FAQ (I)
• Fundraising FAQ (I)
• Our people section pages 33 to 36
• Responsible business: building an inclusive
workplace pages 39 and 40
• Responsible business: diversity data page 40
• Responsible business: operating responsibly –
supplier engagement page 44
• Responsible business: community – tackling
economic inequalities page 41
• Responsible business: operating responsibly –
upholding human rights page 45 and 46
• Responsible business: digital inclusion page 41
• Responsible business: community – tackling
economic inequalities page 41
• Code of Conduct: Anti-bribery and
• Responsible business: targeting bribery and
corruption policy (E)
• Financial crime policy (E)
• Risk management framework
• Annual internal audit plan
• Risk register
• Audit and Risk Committee report
corruption page 45
• Risk management framework pages 55 and 56
• Audit and Risk Committee report pages 90 to 98
• Business model pages 6 and
• Non-financial KPIs page 1
• Responsible business pages 37 to 45
I – Group policies, guidance and standards published internally; E – Group policies, statement and reports published externally.
Strategic
report
Engaging with
our stakeholders
Capita plc
Annual Report 2022
47
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.
See page 75 for more information.
Our people
Clients and customers
Why they are important
Outcomes and actions
Why they are important
Outcomes and actions
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 on the
Capita plc Board
• Employee focus groups and
network groups
• Workforce engagement on
remuneration
• Leadership Council
• Regular ‘breakfast’ sessions
with the Executive Committee
for our colleagues
Topics of engagement
• Creating an inclusive workplace
• Speak Up policy
• Health and wellbeing
• Directors’ remuneration
• Acting on survey feedback
The 2022 employee survey showed
improvement across all metrics. We
are developing and delivering a
range of action plans, including
ensuring our leaders feel confidence
in, and ownership of Capita’s
strategy, plans and successes,
developing inclusive opportunities
for internal career mobility.
We developed a global career path
framework which defines career
levels, career job content, and
reward framework and introduced
mentoring schemes.
We introduced our first employee
leadership council, comprising
11 individuals, drawn from different
parts of Capita.
We refreshed our Speak Up policy.
Risks to stakeholder
relationship
• Our ability to recruit due to the
national and global labour market
demand for resources
• Our ability to retain people,
impacting our quality of service
• Our ability to evolve our culture
and practices in line with our
responsible business agenda
Key metrics
Employee NPS, Employee
Engagement Index and people
survey completion level.
Further details
Our people section on pages 33 to
36. Responsible business section
on pages 37 to 45. Directors’
remuneration report on pages 99
to 122.
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; and
responsible and sustainable
business credentials.
How we engaged
• Client meetings and surveys
• Regular meetings with
government stakeholders
and annual review with the
Cabinet Office
• Creation of Customer Advisory
Boards
• Created a senior client
partner programme giving
an experienced single point
of contact for key clients
and customers
Feedback provided to business
units to address any issues raised;
client value proposition teams
supporting divisions with
co-creation ideas; direct customer
and sector feedback; 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 that our clients and
customers want
• Damage to reputation by not
delivering to the requirements
of our clients and customers
Key metrics
Customer NPS; specific feedback
on client engagements.
Topics of engagement
Further details
Chief Executive Officer’s review on
pages 10 to 15.
• Current service delivery
• Capita’s digital transformation
capabilities
• Possible future services
• Co-creation of client value
propositions
• Ongoing benefits of hybrid
working on client services
Strategic
report
Engaging with
our stakeholders
continued
Capita plc
Annual Report 2022
48
Suppliers and partners
Investors
Society
Why they are important
Outcomes and actions
Why they are important
Outcomes and actions
Why they are important
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, suppliers committing
to SBTs.
Risks to stakeholder
relationship
• Environmental issues
• Commitment to tackling SBTs
• Supply chain resilience
Key metrics
99% of supplier payments within
agreed terms; SME spend
allocation; and supplier diversity
profile.
Further details
Supplier engagement section on
page 44.
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
• Responsible Business
• Science based targets (SBTs)
• Supplier Charter
They own the business and provide
essential capital; and their input
and feedback is considered when
making decisions.
What matters to them
Reporting on strategic, operational
and ESG factors; financial
performance; directors’
remuneration, access to the Board
and senior management; and
regular communication.
How we engaged
• Financial and other reports and
trading updates
• Regular investor programme with
the Board, including meetings
with the Chairman and
Remuneration Committee chair
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
• Disposal programme
• Medium term targets and outlook
• Social: attrition and engagement
• Balance sheet and liquidity
• Governance: remuneration
• Environmental: net zero target
Frequent market communication;
and active engagement with largest
shareholders including with the
Chairman and Remuneration
Committee chair.
Hybrid arrangements for the 2022
annual general meeting to allow
shareholders to attend both
physically in-person and remotely.
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; valuation; and
AGM voting.
Further details
Shareholder engagement section
on page 44.
Principal decisions table on
page 75.
Capita is a provider of key services
to government impacting a large
proportion of the population.
What matters to them
Social mobility; youth skills and
jobs; digital inclusion; diversity
and inclusion; climate change;
business ethics; accreditations
and benchmarking; and cost of
living crisis.
How we engaged
• Membership 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
• Promoting digital inclusion
• Workplace inequalities
• Diversity & inclusion
• Climate change
Publication of net zero plan and
verification during 2022 of Science
Based Targets; continued
commitment and accreditation as a
real living wage employer; youth and
employability programme; Capita’s
investment in WithYouWithMe,
a workplace technology platform
that finds employment for military
veterans and other overlooked
groups through delivering innovative
aptitude testing and digital skills
training; highly commended by the
Employers Network for Equality
& Inclusion for our approach to
intersectionality; recognised as
a ‘Leading Light’ by the UK Social
Mobility awards; and joined the
Cost-of-living Taskforce.
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
Responsible business: Planet
section on pages 42 to 44.
Greenhouse gas emissions section
on pages 79 to 81.
Strategic
report
Task Force on Climate-related
Financial Disclosures
Capita plc
Annual Report 2022
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Task Force on Climate-related
Financial Disclosures (TCFD)
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 2022,
executive remuneration is linked to the
achievement of Capita’s climate targets
during 2022.
• The newly formed ESG Committee has
senior level oversight of climate-related
issues and is chaired by the Chairman
of the Board.
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. Work closely with the Group Risk
and Compliance functions, particularly
around the climate change principal risk.
Strategy
To identify, assess and manage climate
risks and opportunities, Capita conducted
an in-depth climate scenario analysis (CSA)
in two phases.
Phase 1, a qualitative risks and opportunity
assessment, was completed in 2021, while
phase 2, the quantification of climate risks,
was completed in 2022.
This analytical work has allowed Capita to
understand the range of possible impacts
arising from different long-term climate
change scenarios to inform the overall
business strategy, build resilience and
mitigate climate risk impacts.
Climate risks and opportunities are
assessed across short-term (0–3 years),
medium-term (4–9 years), and long-term
(10+ years) time horizons to reflect the
longer-term impacts from climate change.
Strategic
report
Task Force on Climate-related
Financial Disclosures
continued
Phase 1 (completed in 2021): qualitative
risk & opportunity assessment
In 2021, Capita completed the first phase of
its climate scenario analysis by qualitatively
assessing climate risks and opportunities
over forward-looking scenarios.
Phase 2 (completed in 2022):
quantitative modelling of five key
climate risks
As a result of the qualitative CSA, Capita
identified five risks likely to affect its operation
in different climate scenarios:
The qualitative assessment consisted of:
• water stress (physical risk);
• carbon pricing (transition risk);
• supply chain pass-through costs
(transition risk);
• energy pricing (transition risk); and
• carbon credit pricing (transition risk).
While Capita’s exposure to the risks was
modelled on a global level for the transition
risks, the water stress risk was modelled at
site level.
• A 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.
Capita has used the 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
hothouse world (for limited action resulting
in significant warming).
Physical risks
Exposure modelling
All of Capita’s sites were screened for exposure
to water stress in the baseline using publicly
available projections; 20 highly exposed or
strategic sites were taken forward for detailed
modelling. The modelling was used to provide
an exposure rating for each of Capita’s sites.
Scenarios used and timelines modelled are
outlined in the risk table.
Vulnerability workshop
To understand Capita’s vulnerability to water
stress, an internal cross-functional workshop
was conducted. The discussions and output
from this workshop provided an understanding
of site operations which was used to provide
each site with a vulnerability rating.
Overall risk rating
The exposure and vulnerability risk ratings were
multiplied together to understand the overall
risk of water stress to each of the modelled
sites. Results and mitigation measures are
outlined in the risk table.
Capita plc
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50
Transition risks
Exposure modelling
Three transition risks (carbon pricing,
supply-chain pass through costs and energy
pricing) were modelled, using publicly available
projections in a low carbon <2°C scenario.
Carbon credit pricing was modelled using
a bespoke offset modelling system based on
offsetting project type and market fluctuations.
All scenarios and timelines are outlined in the
risk table.
Carbon pricing, supply chain pass-through
costs and energy pricing were all modelling
under two internal emissions/energy
consumption projections: business as usual
(BAU) and net zero.
BAU: assumes that Capita’s emissions or
energy consumption remains constant from
a 2019 baseline.
Net zero: assumes that Capita’s emissions and
energy consumption decrease in line with the
SBTi verified near-term targets and 2035 net
zero target.
Vulnerability
To understand Capita’s vulnerability to the
modelled transitional risks, an internal cross-
functional workshop was conducted. The
discussions and output from this workshop
provided an understanding of Capita’s financial
planning, strategy and current mitigation
measures. The outputs of the workshop and the
exposure modelling were assessed to provide
an overall potential impact rating for each risk,
outlined in the risk table.
Strategic
report
Task Force on Climate-related
Financial Disclosures
continued
Capita plc
Annual Report 2022
51
Risk table: we modelled five risks in terms of the scenarios and time horizons used, their potential
impact and the current/potential mitigation actions.
Risk description
Climate scenario
and time horizon
Potential impact
Mitigation actions
Climate scenario
and time horizon
Potential impact
Mitigation actions
Supply chain pass-through cost
Costs from direct taxation
on suppliers’ emissions
passed through to Capita
and indirect costs from the
low carbon transition on
Capita’s supply chain.
Scenario: IEA net zero and
NGFS divergent net zero
(low carbon <2°C)
Time horizon: 2019–2050
(short, medium and long
term)
• Focus on emissions
reductions, particularly for
Scope 3, and ensure that the
net zero and near-term
reduction targets are met
• Engage with supply chain
• Implement an internal price
of carbon
• Build costs into financial
planning and strategy
Potential minor impact on
Capita from an explicit carbon
tax but the implicit cost of
carbon could have a greater
impact if not considered in
financial planning.
Main impacts identified:
• Increased pass-through
costs from supply chain as
carbon intensive parts of
the supply chain are impact
by increasing carbon prices.
BAU projections show
significantly greater impact
than from emissions reducing
in line with net zero target.
Capita’s current strategy is
showing much greater
resilience to risk from carbon
pricing due to implemented
carbon-reduction strategies
and targets compared with
the BAU scenario.
Risk description
Water stress
Ratio of renewable water
supply to water demand.
Increased water stress
implies higher competition
among users and reduced
availability of, as well as
increased costs of, water.
Scenario: SSP3 RCP8.5
(high carbon)
Future time horizon: 2040
(long term)
Baseline: 1960-2014
Carbon pricing
Costs associated with tax
on Capita’s Scope 1 and 2
emissions and indirect costs
to operations from taxing of
emission sources.
Scenario: IEA net zero and
NGFS divergent net zero
(low carbon <2°C)
Time horizon: 2019–2050
(short, medium and
long term)
Seven sites in two locations
were found to have potential
major impact from water
stress due to high exposure
and vulnerability to water
stress-related power issues.
The other modelled sites
were found to have no
potential impact to moderate
potential impact.
Main impacts identified:
• Power outages
• Water, sanitation and
hygiene facility maintenance
• Increased cost and volatility
of water supply
• Leasing agreements can
provide flexibility and
mitigation if water stress
is considered
• Include water stress risk into
longer-term contracts
• Integrate water stress risk
into site location
considerations
• Utilise flexible working
arrangements, including
work from home protocols
• Consider potential carbon
emissions from mitigation
techniques (eg diesel
generators)
• Focus on emissions
reductions across all scopes
and ensure that the net zero
and near-term reduction
targets are met
• Engage with supply chain
• Implement an internal price
of carbon
• Build costs into financial
planning and strategy
Potential minor impact to
Capita from an explicit carbon
tax but the implicit cost of
carbon could have a greater
impact if not considered in
financial planning.
Main impacts identified:
• Increased costs of operations
and energy procurement
BAU projections show
significantly greater impact
than from emissions reducing
in line with net zero target.
Capita’s current strategy is
showing much greater
resilience to risk from carbon
pricing due to implemented
carbon-reduction strategies
and targets compared with the
BAU scenario.
Strategic
report
Task Force on Climate-related
Financial Disclosures
continued
Climate scenario
and time horizon
Potential impact
Mitigation actions
Risk description
Energy pricing
Projections of costs of
different energy sources
split by country.
Scenario: Enerbase (high
carbon) and Energreen
(low carbon <2°C) from
Enerdata projection.
Time horizon: 2019-2050
(short, medium and
long term)
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Planned actions in 2023:
• Integrate results of 2022 quantitative CSA
into Group-wide risk matrix and assess
requirements for mitigation.
• Establish which identified risks would be most
beneficial to assess quantitatively or assess
on a more granular level.
• More detailed analysis of potential
opportunities afforded to Capita by the
low-carbon transition.
• Develop climate transition plan to Gold
Standard in line with UK Taskforce on
Transition Plan recommendations.
Climate transition plan
Capita is committed to achieving net zero by
2035, with near-term and long-term science-
based targets validated by the SBTi. Further
details on our targets and 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 electric vehicles 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.
• Detailed analysis of energy
consumption
• On-site renewable
production
• Focus on energy efficiency
and usage reduction
• Ensure all programmes
are considered in
capex planning
Exposure to high energy
pricing is greater in a
low-carbon scenario than a
high-carbon scenario.
Main impacts identified:
• Increased energy price
volatility
• Increased energy costs
due to carbon taxation
Capita is already closely
monitoring energy costs,
implementing energy
efficiency measures and
buying on a contract basis,
thereby mitigating against
potential price volatility and
making strategy more
resilient.
Potential moderate impact
due to high costs of spot
purchases after Capita’s net
zero target year of 2050.
Main impacts identified:
• Additional cost of offsetting
to reach net zero target
Risk could be higher if the net
zero target or near-term
targets are not met
• Introduce a carbon credit
purchase strategy
• Integrate carbon credit
purchases into longer-term
financial planning
• Invest early in offsetting
projects
• Continued focus on
emissions reduction
Carbon credit pricing
Cost of purchasing carbon
credits to offset Capita’s
residual emissions in line
with our net zero targets.
Scenario: N/A
Time horizon: 2019-2050
(short, medium and
long term)
Strategic
report
Task Force on Climate-related
Financial Disclosures
continued
Capita plc
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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 subject
to oversight by the ARC and Board, and
ownership is assigned to the Group Head
of Environment. Risk identification and
assessment process: since establishing climate
change as a principal risk, Capita has held
several internal interviews to understand how
risks and opportunities manifest for different
divisions and functions. A longlist of risks and
opportunities was developed and cross-
referenced against both a peer review and
TCFD resources, and was qualitatively
analysed in 2021.
In 2022, five key climate risks were
quantitatively modelled and analysed. The
results will be integrated into Capita’s Group-
wide risk management framework.
Assessments into required mitigation actions
will be carried out in 2023 and integrated into
Capita’s investment planning and strategy. 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
(a third party legal register service provider) 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.
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 business travel; and ongoing
monitoring of health, safety and environment
legislation. These controls and their
effectiveness are reviewed regularly.
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, see page 43 and our full value
chain emissions via CDP’s climate
questionnaire, in accordance with the
GHG Protocol’s methodology.
• Exposure to climate related risks: the climate
scenario analysis conducted under strategy
informs the amount of potential financial
exposure to material climate impacts.
• Revenue from climate related opportunities:
in 2023, 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.
Climate-related targets:
• Capita has set a range of ambitious targets
to reduce the company’s impact on global
warming, and its exposure to climate-related
risks. The SBTi has verified Capita’s 2035
net zero science-based target.
• 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 reviewed in 2023–2025.
• Internal carbon price: Capita is exploring how
a bespoke internal carbon price can be used
in the capital allocation process to support
the business case for investment in low
carbon initiatives.
• Proportion of executive remuneration
assigned to climate considerations: Capita
incorporated performance against Capita’s
climate targets in remuneration policy
in FY2022.
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.
Overall net zero target
Capita commits to reach net zero greenhouse
gas emissions across the value chain by 2035
from a 2019 base year.
Near-term targets
Capita commits to reduce absolute Scope 1
and 2 GHG emissions and absolute Scope 3
GHG emissions covering business travel 46%
by 2030 from a 2019 base year. Capita also
commits that 50% of its suppliers by spend
covering purchased goods & services and
capital goods will have science-based targets
by 2025.
Long-term targets
Capita commits to reduce absolute Scope 1
and 2 GHG emissions, and absolute Scope 3
GHG emissions covering purchased goods &
services, capital goods, business travel and
employee commuting 90% by 2035 from a
2019 base 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.
Strategic
report
Risk management
and internal control
Capita plc
Annual Report 2022
54
Risk management
and internal control
We manage risks proactively
At Capita, we recognise that effective risk management and internal control is fundamental
to helping us achieve our strategic objectives. Our ability to identify, assess and manage
risks successfully enables us to continue to protect shareholder value and allows us to
pursue potential opportunities for growth.
Impact of cost of energy, elevated
inflation, rising interest rates and global
economic weakness on Capita
In 2022, inflation rates in the UK and around the
world rose to their highest levels since the early
1980s. While there is no single reason for this
rapid rise in global prices, a series of events
worked together to increase inflation to such
high levels, including recovery from the
Covid-19 pandemic (as demand outpaced
supply) and Russia’s invasion of Ukraine with
resulting sanctions and supply chain disruption
that have led to price increases in oil, gas and
food across the world.
In November 2022, the Bank of England
warned that the UK was facing its longest
recession since records began, with the
economic downturn expected to extend well
into 2024 and unemployment likely to double
to 6.5% during the country’s two-year slump.
Whilst the latest economic projections in the
Bank of England’s February 2023 Monetary
Policy Report anticipate a less severe
downturn, there remains considerable
uncertainty about the strength of the economy
and Capita will continue to monitor the impact
on our principal risks.
Internal control and risk management
We continuously seek opportunities to enhance
our risk management and internal control
environment and introduce greater rigour and
standardisation in our processes and controls.
The Board recognises that Capita’s control
effectiveness remains dependent on
management intervention and that
inconsistencies in control documentation can
lead to process variability across the Group.
The Board and the Audit and Risk Committee
(the ARC) 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 2023 to enhance and improve the
standardisation and overall effectiveness
of the Group’s internal control framework.
Key control questionnaire
The key controls questionnaire (KCQ) is an
annual management attestation process where
business leaders testify to the effectiveness of
key controls and adherence with group polices
within their functions, divisions or business
units. The results from the KCQ process inform
the development of action plans for control
improvement during the subsequent year.
The KCQ reinforces accountability and
increases business leaders’ awareness of
their responsibilities in maintaining an effective
control environment. The status of KCQ
corrective actions arising from the exercise
are reported to the executive risk and ethics
committee (EREC) throughout the year.
Minimum control standards
The senior finance team undertake an annual
self-assessment of financial controls across the
Group against a specified set of Minimum
Control Standards focused on identifying areas
to strengthen controls of improve efficiency.
Any material issues are dealt with through
mitigating activities to ensure the effectiveness
of the existing controls over financial reporting.
During 2022, the Finance function continued to
enhance the self-assessment process across
the whole organisation to obtain assurance
over the operation of key financial controls.
It is intended that this process will continue
to operate in 2023, in parallel with new and
existing control initiatives such as the finance
control framework project, which will focus on
strengthening key system access controls;
refining key finance policies and standards
and continuing to simplify and standardise key
financial controls.
Risk oversight and governance
A risk-focused culture and tone is expected
across all levels at Capita, reflecting the tone at
the top set by the Board. The Board is ultimately
accountable for providing strategic governance
and stewardship of the company. Throughout
2022, 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 or 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
effectively at all levels of the Group. As part
of this commitment, a regular review of the
principal risks 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 ARC, which has
delegated responsibility from the Board for
reviewing and assessing the risk management
and internal control systems, is responsible for
overseeing the Group’s principal risk profile and
management’s risk mitigation strategy.
Strategic
report
Risk management
and internal control
continued
In 2022 the ARC 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 EREC is responsible for identifying,
assessing, overseeing and challenging
principal risks across all Capita’s unregulated
businesses and provides regular updates to
the main 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 regulatory risks
associated with those businesses, which is
provided by the financial regulated entities
oversight committee (FREOC). The FREOC
is chaired by an independent non-executive
director, supported by specialist risk and
compliance professionals and provides regular
updates to the ARC.
On a day-to-day basis, divisional and functional
leaders, senior leadership and business unit
teams identify, 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
the organisation’s defined risk appetite.
Capita’s risk governance framework is
illustrated opposite.
Capita plc
Annual Report 2022
55
Risk governance structure and assurance lines
Independent
assurance
Risk
oversight
Ownership and
management
of risk
Bottom
up
Board
Audit and Risk
Committee (ARC)
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
• Internal Audit reports directly to the Board and
ARC 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
Risk management process
The risk management framework ensures that
ownership and responsibility for identification,
assessment and management of key risks and
opportunities are embedded throughout
Capita. The Board sets the context for risk
management through defining the strategic
direction and risk tolerances 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 and risk reporting at the established
risk governance committees. Key risks in the
registers have assigned risk owners who review
them regularly, and report on them at least a
quarterly basis, as part of the risk reporting
process. The strength of existing controls is
Strategic
report
Risk management
and internal control
continued
The impact on our
risk profile of the rapid
deterioration in the global
economy, potential
prolonged recession in
the UK and cost-of-living
challenges is being
closely monitored
Capita plc
Annual Report 2022
56
Risk appetite
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.
A regular cycle of reassessment and reporting
of the principal risks is undertaken within the
remit of the EREC and the ARC.
For more details on the challenges faced and
actions taken to address them, please refer
to the Chief Executive Officer’s review on
page 10.
The Board sets the Group’s risk appetite, as
proposed by the EREC, to ensure that it reflects
current external factors 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 risk management maturity
programme, risk owners, supported by Group
Risk, have been developing risk appetite
statements for their respective principal risks.
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.
Emerging risks
The identification of emerging risks is carried
out by both the divisions and 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 did not identify
any emerging risks during 2022. However,
the impact on our risk profile of the rapid
deterioration in the global economy, potential
prolonged recession in the UK and cost-of-
living challenges is being closely monitored.
evaluated to determine whether any additional
mitigation actions are needed to manage the
risk level to within the risk tolerances and
appetites set by the Board.
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
Capita. The assessment of impact includes
finance, customer & client, technology, people,
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
divisions, functions, the EREC and the ARC.
During 2022 standard terms of reference,
agenda and data points were developed at
each governance level to ensure risk
management is consistently reported and
understood across Capita.
Our risk management processes continued
to operate effectively throughout 2022. The
progression of Capita’s disposal programme
and external influences such as: the potential
UK recession; rapidly increasing inflation and
interest rates; and the associated cost-of-living
challenges – were all reviewed and considered
for their impact on Capita’s principal risk profile
by the executive team.
Capita plc
Annual Report 2022
57
During the year, the likelihood
of principal risk 3, failure to
innovate and develop new value
propositions for clients and
customers, reduced when
compared with the previous year.
We now have a dedicated strategy
team working on effectively
managing existing propositions
and working in collaboration with
our sector, growth, consult and
transform teams to identify
opportunities to create new
propositions for our clients. We
have also developed stronger
strategic partnerships with our key
technology providers to enable us
to better leverage their products to
serve our clients.
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 Board also
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 opposite and, for each risk,
we disclose key mitigations and future
actions to further manage the risk
and improve internal control.
Strategic
report
Risk management
and internal control
continued
The Capita principal risk profile as at
31 December 2022, is illustrated below
t
n
a
c
fi
n
g
S
i
i
1
7
12
t
c
a
p
m
I
4
11
6
3
5
9
13
2
8
10
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, resource and execute 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 purpose and strategy
r
o
n
M
i
Rare
Key: Level of risk
Critical
Imminent
6 Data
protection
Failure to protect data, information and
IT systems
Likelihood
7 Contracts
Failure to secure new/extend existing
contracts and services
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 2021
year end
8 Delighting
clients
Failure to delight clients and customers
and deliver contractual obligations
9
Internal
control
Failure to maintain a risk-based system of
internal control
10 Geopolitical
climate
Failure to plan for, influence and respond
to potential changes in the geopolitical climate
11 Financial
stability
Failure to maintain financial stability and
achieve financial targets
12 Wellbeing,
health &
safety
Failure of Capita to protect the wellbeing,
safety and health of all Capita’s employees,
the people we work with and our service users
13 Climate
change
Failure to adapt Capita and its services to the
impacts of climate change
Strategic
report
Risk management
and internal control
continued
Capita plc
Annual Report 2022
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
1
Failure to live
our purpose
and failure
to change
stakeholder
perception
so that we are
seen to live
our purpose
Accountable
officer: CEO
• misalignment
between the
strategic
objectives and
the purpose of
the business
• 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
Cost of living and inflation impacts may cause us to have more challenging
decision points in terms of being a purpose-led business. For example,
where the needs of different stakeholders’ conflict.
2
Mitigation actions in 2022
• Established a Board level ESG committee, to oversee our ESG initiatives
• Centralised ESG strategic oversight into the Group People function to
ensure a globally consistent approach
• Developed a refreshed approach to how we deliver social value, and how
this complements our core service offerings
Future actions
• Refresh our corporate responsibility business strategy to ensure
maximum impact and alignment with our evolving business
• Continue to build external visibility of activities related to our purpose,
values, behaviours and ESG credentials
• Further develop our approach to social value delivery in order to align
to our overall ESG principles
Failure to
define,
resource and
execute the
right medium-
term strategy
Accountable
officer: CEO
This risk is managed through regular review, challenge and update of
divisional strategies at least annually with Executive Committee and Board
approval, ensuring alignment to Capita’s corporate strategy.
Mitigation actions in 2022
• Embedded the operating changes and focused on growth in our areas
of core competencies
• Continued to dispose of portfolio businesses at the right price to reduce
debt and improve liquidity
• Reviewed the divisional medium-term strategies, including market and
competitor analysis, which were also presented to the Board and
Executive Committee
• Investment provided to develop and implement the first stage of Public
Service divisions’ digital strategy
• Operational optimisation plan prepared within the Experience division
for delivery throughout 2023
• Strengthened its commercial model with more stringent pricing discipline,
given the macroeconomic backdrop
Future actions:
• Focus on growth in our areas of core competency
• Execute and deliver Public Service division’s digital strategy
investment programme
• Embed Experience division’s operating model changes to drive more
effective operations and delivery
• Review and enhance Capita’s strategic partnerships ecosystem
• misalignment
between Group
and divisional
objectives
• inability to evolve
strategic
objectives
eg adapt to a
changing market
environment/
client
expectations/
competitor
action/policy
• difficult to
articulate and
optimise
investment case
for investors
• ineffective
prioritisation of
capital
investment/
investment
decisions with
sub-optimal
returns versus
competitors
Strategic
report
Risk management
and internal control
continued
Capita plc
Annual Report 2022
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
• inability to grow
and develop into
new markets
• failure to
Within the Strategy function, we have a dedicated team working on
effectively managing existing propositions and working in collaboration with
Sectors, Growth, Consult/Transform and the digital transformation programme
to identify prioritised opportunities to create new propositions for our clients.
5
Failure to
change the
culture and
practices of
Capita in line
with our
in line with our
purpose and
strategy
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
Cost of living and inflation impacts may cause engagement challenges in
specific parts of the business, particularly where our employees are in a
lower pay bracket, and therefore are significantly more affected by increases
in the cost of living. This could cause reduced engagement and cultural
impacts, specifically related to employee confidence in Capita as a
purpose-led business.
Mitigation actions in 2022
• Implemented a mid-year employee survey to improve employee
engagement to identify further improvements
• Continued to work with over 15,000 colleagues in our expanded employee
network groups to deliver a range of policy and procedural changes based
on employee feedback. We saw a resulting increase in our global inclusion
index
• Launched the Capita leadership council to provide more diverse employee
input into Group-wide strategic decision making, as well as demonstrating
our commitment to growing diverse, internal future leaders in line with our
commitments as a purpose-led employer
• Continued to work on the embedding of our employee value proposition
throughout the full employee lifecycle, therefore working to create a
consistent, purpose-led and values driven experience for every employee
from attraction to exit
Future actions:
• Deliver our employee listening programme, acting at all levels on the
feedback received via our surveys
• Work with our employee network groups to drive positive cultural
and policy changes
• Work with our leadership council, to bring constructive challenge
and diverse thinking to our executive
3
4
Failure to
innovate and
develop new
value
propositions
for clients and
customers
Accountable
officers:
divisional CEOs
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
• 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 2022
• Horizon scanned new customer value propositions
• Developed stronger strategic partnerships with key technology providers
to enable us to better leverage their products to serve our clients
• Explored opportunities to invest in the innovation and product teams to
build future capability
• Rolled out the governance product lifecycle
Future actions:
• Improve definition of propositions, and related communications and
marketing material
• Match our integrated capabilities to client and market demand
• Standardise and integrate our digital capabilities to deliver more efficient
solutions for our clients
• Align innovation within the overall governance across the product lifecycle
to develop scalable, monetizable, global client value propositions
• Leverage market insight to identify opportunities to develop innovative &
client centric value propositions with unique selling points
• Align country led go to market strategies, as the north star to drive central
and in-country innovative solutions
The cost of living challenges and inflationary environment are having
a significant impact on the UK labour market and our attrition levels.
Unprecedented recruitment activity is being driven by job seekers looking
for alternative employment, across sectors.
Mitigation actions in 2022
• Further developed our people proposition and attraction strategy
to respond to market labour challenges
• Continued focus on ensuring competitive pay and reward packages
• Introduced a demand planning methodology to enable
proactive recruitment
• Improved the onboarding process to rationalise and reduce onboarding
time for candidates
• Developed a career path framework enabling employees to plan
and develop their careers
Future actions:
• Further develop our people proposition and attraction strategy to
respond to market labour challenges
• Continue to review pay and reward packages to ensure that they
remain competitive
• Roll out the career path framework to enable employees to plan
and develop their careers
• Implement technology to enhance candidate journey and reduce
time-to-offer
Strategic
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Risk management
and internal control
continued
Capita plc
Annual Report 2022
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
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
TSS was created in August 2021 as an IT and Software shared service
to deliver products and services to Capita’s colleagues and clients.
This consolidation of resource and capability into TSS, enables Capita to
better manage and continually improve the IT and cyber resilience posture,
standardise toolsets and create repeatable and scalable products and
services, and to simplify how we operate as a business.
Mitigation actions in 2022
Established the technology strategy for TSS as a wider business to
introduce standardisation and harmonisation of Capita’s IT landscape.
Strategy created on the back of having completed industry, market led
and client analyses of Capita’s technology domains.
• Consolidation of over 4,000 IT resources into a shared service to drive
efficiencies and improve service levels
• Improved stability of IT environments
• Migration from legacy hosting into a Tier 3 industry standard for improved
data centre performance, removal of end-of-life systems
Identified a clear road map for technology to ensure full foresight of any
upcoming technology obsolescence.
Future actions:
• Enhance our understanding and reassessment of the technology risk
profile by creating a centralised risk register
• Continue to evolve our cyber security posture
• Create a pan-Capita IT disaster recovery shared service to consolidate
and simplify the capability and enhance resilience
• Continue to invest in our capabilities and people
• Invest in enhancing digital capability in the identified priority tech domains
• IT Asset Management to enhance visibility of the estate
7
Failure to
secure new
contracts/
extend existing
contracts and
services
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 for and win new contracts that we are confident we
have the resources and proven track record to deliver. Continued focus
on maximising the benefit of our operating model will ensure our
competitiveness in our principal markets. Coupling this with our deep
sectoral understanding through the industry verticals in our core divisions
should enable us to maximise our market opportunities.
Mitigation actions in 2022
• Refreshed the contract review committee policy and deal review process
• ‘Solution briefcase’ relaunched in Public Service
• Public Service commercial playbook develop and embedded
• Delegation of authority matrices updated to reflect new ways of working
• Coordination between Pursuit, Programme and Performance
teams improved
• Go to market strategies to influence market trends and solutions approved
by the Board
• Focused on our technology and digital assets in collaboration with TSS
and our Products and Customer Value Proposition teams
Future actions:
• Investment in digital propositions to enhance attractiveness to the market
• Fortify the strategic deals team to support high value multi-year contract
opportunities
• Deploy clear focus on growth across geographies with specialisation
across go to market value propositions
• Leverage the new organisation and operating model to enhance market
penetration via land and expand opportunities
• Recalibrate pre-sales to delivery process, including governance across
quality of deals, with focus on margins and profitability
Strategic
report
Risk management
and internal control
continued
Capita plc
Annual Report 2022
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
8
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 deliver services that are vital to the success of our clients; Capita will
take all reasonable steps to ensure it meets contractual obligations and
deliverables. Performance against deliverables is regularly and rigorously
monitored through several governance forums.
Mitigation actions in 2022
• Continued development of the divisional operating environment to drive
simplification and strengthening of service delivery
• Increased automation of Development Operations
• Improvements undertaken to operational performance reporting, to
support earlier identification of potential performance concerns
• Risk reduction operational maturity assessments undertaken to identify
opportunities to deliver better outcomes for our clients
• Commonality identified in failures or issues across divisions, and
addressed through coordinated action
• Rolled out foresight demand planning tool to better predict and manage
recruitment pipeline and mitigate attrition risk across the business
• Introduced a new customer success framework
9
Failure to
maintain a
risk-based
system of
internal control
Accountable
officer: CFO
Future actions:
• Project Accelerate to review, transform and strengthen current capabilities
(incl. operational excellence plan 2023)
• Continue top lessons learned activity to maintain learning from experience
• Continued review/development of ’function’ through the future Capita
operating model work to drive consistency and standardisation
• Focus on data-led, technology-driven and people-enabled business
model, keeping our clients at the forefront of all our initiatives
• Leverage Lean 6 Sigma capabilities to drive operational excellence
across delivery platforms globally
• Deploy continuous improvement insights and analytics to deliver
solutions that drive enhanced customer experiences for our clients
and their customers
10
Failure to plan
for, influence
and respond
to potential
changes in the
geopolitical
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
• unable to
respond rapidly
and effectively
to new political
priorities which
change the
regulatory
environment and
public sector
customer
priorities
Our internal controls effectiveness has historically been dependent on
management experience and intervention. A multi-year control improvement
programme is underway with progress being made in establishing and
communicating standards, automating system access controls, and
standardising control activities across the Group. The implementation of
efficient processes and controls is key in reducing effort, duplication and
costs to mitigate the impact of inflation on the Group.
Mitigation actions in 2022
• Established a programme to standardise finance processes and controls
• Further improved the coverage of financial policies and associated
standards
• Refreshed and updated the delegation of authority document following the
implementation of the new divisional structure
• Deployed software which has automated reviews of access to key
finance systems
Future actions:
• Continue to standardise finance processes and controls
• Review and refresh the framework that ensures consistency and quality
of Group wide policies and standards
• Further documentation of our key business processes to enable
additional standardisation and automation of our key business processes
and controls
We may encounter changes in government priorities as we approach
a period of political turbulence in the run-up to a UK general election.
We continue to monitor, engage and communicate with government
stakeholders to understand emerging policy and contribute to consultations
where appropriate. 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 2022
• Continued engagement with UK Government and others to promote
and protect reputation
• Continued monitoring of policy developments including emerging plans
for governmental strategic objectives including levelling up
Future actions:
• Engage with Government and elected reps from all main UK political
parties, including the devolved parliaments and assemblies to
communicate Capita’s delivery performance and capability, and our
commitment as a responsible business
Strategic
report
Risk management
and internal control
continued
Capita plc
Annual Report 2022
62
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
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
The impact of the challenging economic environment on the trading
performance of the Group is outlined in the Chief Financial Officer’s
review. The Group’s materially reduced level of net debt, pension deficit
reduction, prudent approach to balance sheet management and focus
on delivering against our financial objectives all serve to mitigate the risk
of financial instability.
Mitigation actions in 2022
• Completed the disposal of several key businesses including the
Trustmarque business, Pay360, and the real estate and infrastructure
consultancy businesses
• Agreed an extension to the Group’s RCF to August 2024
Future actions:
• Completion of remaining planned disposals of businesses
• Review the Group’s capital structure on completion of disposals
• Continued focus on resources in the two core divisions and reductions
in Group overheads with the aim of delivering sustainable material free
cash flow
The cost-of-living crisis and rising inflation have increased financial and
social concerns for many Capita colleagues with significant potential
consequences for their day-to-day lives. These types of social, financial,
and practical/day-to-day impacts are known to have potential negative
effects on wellbeing in general and mental health in particular.
Mitigation actions in 2022
• Developed and implemented a culture of ownership and accountability
for the wellbeing, safety and health of our people by Group, Divisional,
and business leadership
• Assessed and validated Capita’s legal and statutory wellbeing, safety
and health requirements
• Embedded CRC HSE & Safeguarding risk assessments for new contracts
• Updated the approach and process to wellbeing, safety and health
incident and near-miss reporting, management and analysis
Future actions:
• Complete detailed pan-Capita wellbeing assessment
• Develop a pan-Capita mental health plan including alignment
• Initiate new mandatory HSE training programme
• Expand proactive occupational health intervention programme in
Capita UK
• Review and confirm health screening policies for all Capita business units
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
and Company
Secretary
• 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
Capita plc
Annual Report 2022
63
Strategic
report
Risk management
and internal control
continued
Principal risk and risk level Potential impact
How we manage the risk
The global economic downturn has contributed to lower-than-expected
delivery against commitments made at COP26, which may lead to an
increasingly disorderly low carbon transition. Scenario analysis of climate
risks and opportunities point to a greater threat of disruption from disorderly
transition, requiring immediate action to minimise the impact to Capita, its
stakeholders and wider society.
Mitigation actions in 2022
• Linked objectives and management bonus to net zero initiatives
• Reviewed the HSE policy to include specific environmental factors and
creation of a new environmental standard
• Engaged with suppliers and customers to ensure resilience to transitional
and physical climate risk, developing low carbon business solutions
supporting net zero commitments
• Introduced further efficiency, renewable energy, and travel reduction
programmes
Future actions:
• Integrate climate culture and practice into Capita business as usual
• Progress against targets reported in divisional performance reporting
from 2023
• Continue to improve understanding and management of Scope 3 emissions
• Increase accuracy and maturity of supply chain emissions reporting
and extend scope of supply chain engagement
• Develop and implement net zero plans and low carbon transition plan
• Further develop our emissions database, analysis, insights, and
associated actions to minimise climate risk
13
Failure to
adapt Capita
and its
services to the
impacts of
climate change
Accountable
officer: Chief
General Counsel
and Company
Secretary
• 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
report
Viability statement
Capita plc
Annual Report 2022
64
Viability
statement
In accordance with provision 31 of the UK
Corporate Governance Code 2018, the Board
has assessed the viability of the Group and
Parent Company over the three-year period to
31 December 2025, 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 created
the platform for sustainable improving financial
performance which underpins the viability of
the Group and Parent Company. The Board
particularly notes the following:
• 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
continued revenue growth and delivery
of efficiency savings.
• Adjusted revenue growth in 2022 of 2.4%.
• A significant reduction in the Group’s cost
base, with cumulative savings during the
transformation programme of £428m.
• The ongoing successful execution of the
non-core business disposal programme
which has realised net cash proceeds
totalling c.£1.3bn since 1 January 2018,
used to repay maturing debt, to make further
deficit reduction contributions to the Group’s
main defined benefit pension scheme and
to invest in driving growth in the remaining
core businesses.
• The repayment of £1.7bn of debt, including
lease liabilities, since 1 January 2018.
• The extension during 2022 of the Group’s
revolving credit facility (RCF) to 31 August
2024 and in February 2023, the Group
entering into a committed bridge facility
of £50m with three of its relationship
banks providing additional liquidity from
1 January 2024.
• The payment of c.£350m of deficit reduction
contributions to the Group’s main defined
benefit pension scheme since 1 January
2018, and the commitment to a further
c.£70m of deficit reduction contributions
across 2023–2024, which should enable the
scheme to reduce its reliance on the covenant
of the Group.
The foregoing elements provide the backdrop
to the three-year business plan approved by the
Board in January 2023 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:
• Further adjusted 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.
• Completion of the portfolio disposal
programme during 2023.
• The refinancing of the Group’s RCF prior to
its maturity in August 2024.
The most material assumptions from a
viability assessment perspective, relate to
the continuation of adjusted revenue growth,
operating profit margin expansion, and the
refinancing of the RCF. Capita 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 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 in line with
those considered in the severe but plausible
downside case for the going concern
assessment and from the crystallisation of
specific risks including those set out in the
principal risks section of the 2022 Annual
Report and Accounts (refer to section 1 of
the consolidated financial statements).
The risks applied have not been probability
weighted but rather consider the impact should
each risk materialise by applying a ‘more likely
than not’ test. These wide-ranging risks are
unlikely to crystallise simultaneously and
there are mitigations under the direct control
of the Group, including reductions in capital
investment, substantially reducing and (or
removing in full) bonus and incentive payments
and significantly reducing discretionary spend,
that can be actioned to address a combination
of risk crystallisations that may occur under
a severe but plausible downside. These
have been considered in the Board’s
viability assessment.
Based on this assessment and reflecting the
Board’s confidence in the platform for improving
financial performance resulting from completion
of the transformation plan, and the Group’s
ability to refinance, 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
Chief General Counsel and Company Secretary
2 March 2023
Capita plc
Registered in England and Wales No.2081330
Corporate
governance
Capita plc
Annual Report 2022
65
Corporate governance Corporate
governance
Chairman’s
report
Capita plc
Annual Report 2022
66
Chairman’s report
On behalf of the Board, I am pleased to introduce the Company’s
corporate governance report for the year ended 31 December 2022,
which is my first report as your Chairman.
Capita is committed to creating an environment
where diversity and inclusion are valued and
respected, and where we benefit from all
colleagues sharing their different perspectives.”
David Lowden, Chairman
Corporate governance
The corporate governance report sets out how the Company has complied with the 2018 UK
Corporate Governance Code. It also aims to explain the work and activities of the Board, and the
work of its committees, and details the annual evaluation process for the year under review.
Capita is a purpose-led business, and 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. The Board is committed to ensuring Capita’s governance structure aligns with this
and operates to the highest standard – this is one of my principal objectives as your Chairman.
In June 2022, the Board established an ESG (environmental, social and governance) Committee,
a forum not affected by the time pressures of the wider Board agenda. This enables ESG matters
to be properly considered and helps support the work being undertaken by the business to tackle
them, including our commitment to achieve net zero across our value chain by 2035. I am proud
that in 2022 Capita was, for the first time, included in the Carbon Disclosure Project ‘A’ list, a
universal global measure that scores companies and cities based on their journey through
disclosure and towards environmental leadership.
As a Board, we were also kept fully informed of the Company’s refreshed mandatory Code of
Conduct training and the relaunched Speak Up policy, which is overseen by the Audit and Risk
Committee. Both initiatives are pivotal to our commitment to ensuring we remain true to our values
and, by complying with the Code of Conduct we demonstrate our commitment to creating better
outcomes across Capita.
The Group’s Board and committee structure, including the new ESG Committee, is outlined below.
Further information on the ESG Committee and its remit is provided on pages 88 and 89, with
further information on Capita’s responsible business focus provided on pages 34 to 45.
Board composition
There were several changes to the Board during 2022.
Matthew Lester stepped down on 30 June 2022, having served as a director for five years. On
behalf of the Board, I would like to thank Matthew for his hard work, commitment and wise counsel,
and especially for his leadership as Chair of the Audit and Risk Committee.
Lyndsay Browne and Joseph Murphy, our first employee directors, resigned on 30 June 2022,
having served their three-year terms. I would also like to thank them for their commitment and
professionalism. Their contribution to the Board was significant and provided fresh insight and
a vital new perspective.
Corporate
governance
Chairman’s
report
continued
Capita plc
Annual Report 2022
67
Female representation
31 December 2022
44.4%
Board time allocation (%)
We welcomed Nneka Abulokwe and Brian McArthur-Muscroft to the Board as independent
Non-Executive Directors on 1 February and 1 June 2022 respectively. Nneka has a wealth of
experience gained within both entrepreneurial and corporate environments. Her expertise has
already been of great benefit to the Board, as Capita continues to develop digital innovation to help
execute our growth strategy.
Brian, who also took over the responsibilities of Audit and Risk Committee Chair on 1 July 2022, is
a highly experienced chief financial officer and board director. Janine Goodchild joined the Board on
1 July 2022, as our new Employee Non-Executive Director and has already provided great insight.
I joined the Board as a Director on 1 January 2021 and was appointed as Senior Independent Director
on 1 March 2021. Sir Ian Powell stepped down as Chairman at the conclusion of the Company’s
AGM on 10 May 2022, and I was pleased to accept the Chairman appointment, having been
appointed as Chairman designate on 22 March 2022 as part of the Board’s succession planning.
Sir Ian had, since his appointment as Chairman in 2017, provided outstanding leadership and
strategic guidance to the Board during a period of significant change for the business.
On 3 February 2023, we announced that John Cresswell, independent Non-Executive Director had
decided to step down from the Board with effect from 31 March 2023. I would like to thank John for
his commitment and valuable contribution to the Board during his seven year tenure as a director.
Capita is committed to creating an environment where diversity and inclusion are valued and
respected, and where we benefit from all colleagues sharing their different perspectives. The Board
will continue to lead by example through its own approach to inclusion and diversity across its
composition. As at the date of this Annual Report, 44% of the Board is female, exceeding the FCA’s
target of 40%, including our Senior Independent Director. Our ethnic diversity continued to improve
with the appointment of Nneka Abulokwe. Further details of Board appointments during 2022 can
be found in the Nomination Committee report on pages 86 and 87.
Company purpose and culture
The Board recognises that it has ultimate responsibility for ensuring an appropriate culture is in
place across Capita to underpin how the business behaves towards all its stakeholders. Our culture
provides the foundation to drive our purpose and delivery of our strategy.
As a Board, we spend time focused on ensuring our culture enables us to build the organisational
capability required to deliver on our commitments to our people, clients and customers, suppliers
and partners, society and our investors. The Board receives regular reports on 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
5
4
3
2
1
1 50% Strategy, transformation
and growth
2 30% Executive reports
3 5% Governance
(incl. Board evaluation)
IR / brand / reputation
4 5%
5 10% Full and half-year results
The time allocation chart
is provided for guidance
only and other matters
were also considered by
the Board.
Board directors: length of tenure
David Lowden (Chairman)1
Jon Lewis (CEO)
Tim Weller (CFO)
Georgina Harvey2
John Cresswell
7 years
Neelam Dhawan
Nneka Abulokwe3
Janine Goodchild4
Brian McArthur-Muscroft5
5 years
2 years
2 years
3 years
2 years
1 year
8 months
9 months
2015
2018
2022
1. Joined the Board on 1 January 2021, appointed as Senior Independent Director (SID) on
1 March 2021 and as Chairman on 10 May 2022 when he ceased to be SID
2. Joined the Board on 1 October 2019 and as SID on 1 July 2022
3. Joined the Board on 1 February 2022
4. Joined the Board on 1 July 2022
5. Joined the Board on 1 June 2022
Corporate
governance
Chairman’s
report
continued
Capita plc
Annual Report 2022
68
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 33 to 36 and 37 to 45, respectively.
Metric
Movement in employee net promoter score (a measure of employee satisfaction)
Employee engagement index (a measure of employee engagement)
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)
2022
2021
+15 points
-22 points
65%
72%
90%
30%
56%
68%
87%
30%
The Board was pleased to note that, in 2022 scores increased in almost all areas of the people
survey at a Group level and there is a general trend towards positivity. However, the Board
recognises that we are still behind the benchmark in certain areas. A plan is being developed to
deliver a range of action plans from Group level down to team level and this remains a key focus
for our CEO, Jon Lewis, and the senior management team. The Board, through its ESG Committee,
will continue to receive regular updates from management on the progress made against these
action plans.
Board evaluation
The Board carries out effectiveness reviews annually. Due to the changes in Board membership,
and an external evaluation being undertaken in 2021, the 2022 evaluation was undertaken internally.
Key findings of the evaluation performed in 2022 are set out below, together with actions taken during
the year in response to the 2021 external evaluation performed by Independent Board Evaluation.
Finding from 2021 evaluation
Action 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.
The Nomination Committee reviewed the skill set of the Board,
and agreed a skills matrix aligned to the Group’s redefined
strategy. During the year, Nneka Abulokwe was appointed as a
non-executive director. Her skillset will assist with the Board’s
strategy to develop digital innovation as part of the Group’s
growth strategy. David Lowden was appointed as
chair designate on 22 March 2022 as part of the Board’s
succession planning, being appointed as Chairman on
10 May 2022. Brian McArthur-Muscroft was appointed as a
non-executive director on 1 June 2022, he brings additional
and current financial expertise to the Board given his role
as chief financial officer of Qontigo, a financial management
and investment management business.
Finding from 2021 evaluation
Action in 2022
Strategy – the 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.
Regular presentations from the CEOs of Experience and
Public Service are scheduled into the Board’s annual calendar,
together with presentations on the Group’s growth strategy,
which include both divisions. In September 2022, the Board
held a strategy day where these matters were discussed in
detail.
The 2022 Board evaluation, and the evaluation of the committees, was undertaken by the
completion of a questionnaire by each director, followed by a one-to-one meeting with the
Chairman. The Board received a report from the Chairman on the outcome of the evaluation,
including formal recommendations which were discussed and approved by the Board. Committee
feedback was presented to the relevant committee chair. The Chairman was assisted in this
process by Claire Denton, Chief General Counsel and Company Secretary.
The evaluation concluded that the performance of the Board was viewed positively. A particular
strength of the Board was found to be a culture with honest and open debate. 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.
Finding from 2022 evaluation
Proposed actions in 2023
Strategy – although noting the regular presentations from the
CEOs of Experience and Public Service, additional focus
was sought from the Board on the divisions’ strategic focus
on digital solutions and margin improvements.
Additional presentations have been included in the Board’s
annual calendar, these include a strategic focus on digital
solutions to meet client requirements and margin improvement
from Experience and Public Service.
Stakeholders – the Board noted that further interaction with
both clients and senior management would be beneficial.
Visits to clients will be organised for the Board. In addition
more members of the senior management team below the
Executive Committee will be asked to present and meet with
the Board in both a formal and more informal setting.
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.
David Lowden
Chairman
2 March 2023
Corporate
governance
Board members
Capita plc
Annual Report 2022
69
Board members
Chairman
Executive Directors
Key to committees
A Audit and Risk
N Nomination
R Remuneration
Committee chair
E Environmental, Social and Governance (ESG)
Independent Non-Executive Directors
David Lowden
N E
Jon Lewis
N
Tim Weller
Georgina Harvey
N R E
Chairman
Appointed: January 2021 (independent
Non-Executive Director); March 2021
(Senior Independent Director); May 2022
(Chairman)
Independent at appointment: Yes
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 PageGroup plc and
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; and Senior Independent
Director of Morgan Sindall plc.
Chief Executive Officer
Appointed: December 2017
Chief Financial Officer
Appointed: May 2021
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
Worldwide plc and Petrofac. He spent his
early career at KPMG, where he trained
to become a Chartered Accountant,
becoming a partner in 1997.
Senior Independent Director
Appointed: October 2019 (Non-
Executive Director); July 2022 (Senior
Independent Director)
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.
Board responsibilities: overall control
and responsibility for all financial aspects
of the business’s strategy.
Other current appointments: Non-
Executive Director of Superdry plc and
McColl’s Retail Group plc.
External appointments: Non-Executive
Director of The Carbon Trust.
Brian
McArthur-Muscroft
Appointed: June 2022
A N R
Key skills and experience: Brian was
formerly the Group Chief Financial
Officer at Micro Focus International plc,
a FTSE 100 global infrastructure
software company. Prior roles include
CFO at Paysafe Group plc leading the
business to a FTSE 250 listing on the
LSE Main Market in 2016 and Group FD
at Telecity Group plc. Also a restructuring
specialist, he was interim CFO on the
successful turnaround of MCI Worldcom
EMEA. Prior to joining Capita he was a
Non-Executive Director at Robert Walters
plc. Brian holds a law degree and
qualified as a chartered accountant with
PricewaterhouseCoopers in London.
Other current appointments:
Chief Financial Officer of Qontigo,
a financial intelligence and investment
management business.
Corporate
governance
Board members
continued
Capita plc
Annual Report 2022
70
Independent Non-Executive Directors
Key to committees
A Audit and Risk
N Nomination
R Remuneration
Committee chair
E Environmental, Social and Governance
Employee Non-Executive Director
Nneka Abulokwe OBE
N R E
John Cresswell
A N E
Neelam Dhawan
A N R
Janine Goodchild
A E
Appointed: February 2022
Appointed: November 2015
Appointed: March 2021
Appointed: July 2022
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: Chair of
J Murphy and Sons Ltd; Chair of Bio4gas
Holdings Limited and an Operating
Advisor with Lazard Asset Management.
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 Officer of the Order
of the British Empire (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: Neelam has
c.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.
Neelam recently stepped down from the
Board of Skylo Technologies Inc. and
as a member of Koninklijke Philips NV
Supervisory Board, having served for
the maximum term of 10 years.
Other current appointments:
Non-Executive Board Member of ICICI
Bank Limited and Yatra Online Inc. She
mentors and advises young startup
companies and is on the board of
Capillary Technologies.
Key skills and experience: Janine
is a registered adult nurse and lead
clinical trainer in the Capita team which
assesses personal independence
payment claims on behalf of the
Department for Work and Pensions.
Janine joined Capita in January 2016.
Janine’s previous experience includes
working in the banking industry
within corporate actions, asset
reconciliations and within employee
training and development.
Other current appointments: None.
Directors who served during the
year 2022
Sir Ian Powell stepped down from the
Board on 10 May 2022 at the conclusion
of the Company’s 2022 AGM.
Matthew Lester, Lyndsay Browne and
Joseph Murphy retired from the Board
on 30 June 2022.
On 3 February 2023, the Company
announced that John Cresswell had
decided to step down from the Board
with effect from 31 March 2023.
Corporate
governance
Corporate governance statement
Capita plc
Annual Report 2022
71
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:
• 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 (ARC)
until 30 June 2022) and Lyndsay Browne (member of the Remuneration Committee (RemCo)
until 30 June 2022), were both non-executive employee directors and therefore not considered
independent. However, the Board considered that the value of the employee perspective brought
by Lyndsay and Joseph to Board meetings should be replicated on those two committees. Lyndsay
and Joseph resigned from the Board on 30 June 2022, having served their three-year term.
• Provision 12 (appointment of a senior independent director). Following David Lowden’s
appointment as Chairman on 10 May 2022 and until the appointment of Georgina Harvey
as senior independent director (SID) on 1 July 2022, the Company did not have a SID.
• Following the appointment of David as Chairman, and the establishment of the ESG Committee,
the Nomination Committee undertook a review of Committee membership and considered who
should be appointed as members of each Committee and who should be appointed as SID. The
Nomination Committee considered the skillset of each Director, to ensure that each committee
has the appropriate skillset, balance of experience and diversity and that all members have
sufficient time available to devote to the committees of which they are members. This review
culminated in the appointment of Georgina Harvey as SID on 1 July 2022, given her experience
as RemCo chair and her engagement with shareholders in this role, and the Committee
membership which is detailed on page 85.
• The RemCo comprises solely independent non-executive directors, while the ARC, which
is chaired by Brian McArthur-Muscroft, comprises John Cresswell and Neelam Dhawan, all
non-executive directors, and Janine Goodchild, employee non-executive director. The formal
appointment of Janine to the ARC continues to demonstrate how the Group values diversity of
perspective and that this is considered more important than a purely compliance-driven approach
to the Code. Janine was not appointed as a member of the RemCo recognising the strong views
of shareholders relating to the independence of RemCo members given the more than 20%
of votes cast against the re-election of Lyndsay at the 2022 AGM, as detailed on page 76.
Except for Janine’s membership of the ARC, which does not comply with provision 24 of the Code,
the Company currently complies with all relevant provisions of the Code set out in sections 1 to 5.
Board changes during the year
Nneka Abulokwe and Brian McArthur-Muscroft were appointed as independent Non-Executive
Directors on 1 February and 1 June 2022 respectively. Sir Ian Powell stepped down as Chairman and
David Lowden was appointed as his successor on 10 May 2022. Georgina Harvey, was appointed
as SID on 1 July 2022. Matthew Lester, chair of the ARC, resigned from the Board on 30 June 2022.
Lyndsay Browne and Joseph Murphy non-executive employee directors resigned from the Board on
30 June 2022 having served their three-year term. Janine Goodchild was appointed Employee
Non-Executive Director on 1 July 2022. Further information on Board changes is set out on page 87.
Board changes after year end
There have been no changes to the Board since 1 January 2023.
On 3 February 2023, the Company announced that John Cresswell had decided to step down
from the Board with effect from 31 March 2023. John joined the Board in 2016 and has made
a significant contribution during this period.
Board composition
Composition of the Board at 31 December 2022 and at the date of this report is shown in the
following table.
Board composition at 31 December 2022
Executive directors
Jon Lewis
Tim Weller
Independent non-executive directors
David Lowden1
Georgina Harvey
Brian McArthur-Muscroft
John Creswell2
Neelam Dhawan
Nneka Abulokwe
Employee non-executive director
Janine Goodchild
1. Independent on appointment in accordance with the Code.
2. On 3 February 2023, the Company announced that John Cresswell had decided to retire as a director and would step down from the Board with
effect from 31 March 2023.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
72
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
ESG Committee
• Approval of ESG
• Board and committee
• External audit
• Remuneration policy
strategy
composition
• Financial reporting
• Remuneration
• Oversee and monitor
• Succession planning
• Risk management
principles
• Diversity
and internal controls
• Incentive design and
Capita’s net zero
emissions strategy
• People strategy
• Internal audit
setting of targets
• Executive and senior
management
remuneration
Read more on page 86.
Read more on page 90.
Read more on page 99.
Read more on page 88.
Role of the directors
Chairman
Non-executive directors
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.
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.
Employee non-executive directors
Employee non-executive 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
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
73
Board meetings and attendance
During 2022, the Board held seven scheduled meetings. Additional ad hoc meetings were held as
required. In 2022, this included meetings to approve the disposal of Pay360 Limited and the related
shareholder circular.
Attendance of the directors at Board and committee meetings is shown below; the maximum
number of meetings a director could attend is in brackets.
Any director’s absence from Board or committee meetings was previously agreed with the
Chairman of the Board or relevant committee and the CEO. Where possible the Chairman or
committee chair will contact the director who is unable to attend the meeting to obtain their
comments on Board and committee papers prior to the meeting.
During 2022, the following formal director meetings took place:
• The Chairman held one-to-one individual review sessions with each executive director and each
David Lowden1
Jon Lewis2
Tim Weller
Georgina Harvey
Brian McArthur-Muscroft4
John Cresswell3
Neelam Dhawan3
Nneka Abulokwe4
Janine Goodchild5
Sir Ian Powell6
Matthew Lester7
Lyndsay Browne6
Joseph Murphy6
Audit and
Risk
Committee
Board
Remuneration
Committee
Nomination
Committee
ESG
Committee
7(7)
7(7)
7(7)
7(7)
4(4)
6(7)
7(7)
6(6)
2(3)
3(3)
4(4)
4(4)
4(4)
2(3)
n/a
n/a
3(3)
4(4)
6(6)
5(6)
6(6)
2(3)
n/a
3(3)
n/a
3(3)
1(3)
n/a
n/a
6(6)
3(3)
3(3)
6(6)
5(5)
n/a
n/a
2(3)
3(3)
n/a
6(8)
0(3)
n/a
8(8)
4(4)
8(8)
8(8)
7(7)
n/a
3(4)
3(5)
n/a
n/a
3(3)
n/a
n/a
3(3)
n/a
3(3)
n/a
3(3)
2(3)
n/a
n/a
n/a
n/a
1. David Lowden was a member of the ARC and RemCo, until his appointment as Chairman on 10 May 2022. He recused himself from one
Nomination Committee meeting which considered the appointment of a successor to Sir Ian Powell as Chairman due to his interest in the
matter. He also recused himself from one RemCo meeting which considered his remuneration as Chairman.
2. Jon Lewis was appointed as a member of the Nomination Committee on 1 July 2022. However, due to prior scheduled business commitments,
he was unable to attend three meetings.
3. John Cresswell was unable to attend one Board meeting and Neelam Dhawan one committee meeting due to a prior commitment.
4. Nneka Abulokwe, Brian McArthur-Muscroft and Janine Goodchild were appointed to the Board on 1 February, 1 June and 1 July 2022
non-executive director.
• The non-executive directors met without executive directors.
• The 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 David Lowden
as Chairman and responsibility for the running of the Group’s business by Jon Lewis as CEO.
David Lowden as Chairman has held meetings comprising solely the non-executive directors.
Both David and Georgina 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:
respectively.
5. Janine Goodchild was unable to attend one Board, ARC and RemCo meeting due to Capita-related and other commitments made prior to her
appointment.
• the likely consequences of any decision in the long term
• the interests of the Company’s employees
6. Sir Ian Powell stepped down from the Board on 10 May and Matthew Lester, Lyndsay Browne and Joseph Murphy resigned from the Board on
30 June 2022.
7. Matthew Lester was unable to attend one RemCo and two Nomination Committee meetings due to prior commitments.
• the need to foster business relationships with suppliers, clients and others
• the impact of the Company’s operations on the community and the environment
Meetings held outside the normal schedule need to be flexible and are often held by telephone
or videoconference.
• 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.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
74
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.
Stakeholder interests and the matters listed above are factored into all Board discussions and
decisions. For more information, please refer to the stakeholder engagement section on pages 47
and 48.
• 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.
• 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
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 77. 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, David Lowden met the criteria
of independence as outlined in the Code.
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 experience and breadth of tenure of
the non-executive directors means the Board is well positioned to advise, challenge and support
executive management as the Group progresses its growth strategy.
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 77.
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.
Board of directors’ induction and training
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:
• 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 Nneka Abulokwe, Brian McArthur-Muscroft and
Janine Goodchild to ensure they were properly equipped to fulfil their roles.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
75
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, Nomination and ESG committees.
Claire will meet regularly with the Chairman of the Board and the Chairs of the ARC and RemCo,
and brief them on areas of governance and committee requirements.
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. David Lowden also met with existing institutional shareholders both prior
to and following his appointment as Chairman on 10 May 2022.
Georgina Harvey, Chair of the RemCo, engaged with shareholders to discuss remuneration prior
to the 2022 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.
Principal decisions
Principal decision*
Disposal of Pay360
Limited: following a
strategic review the
Board decided to
dispose of its Pay360
payments solutions
business, a non-core
business. The disposal
of Pay360 required
shareholder approval
which was sought at a
general meeting held on
1 November 2022.
Appointment of David
Lowden as Chairman
Establishment
of Board ESG
Committee
Impact on long-term
sustainable success
Strategy: the disposal of
Pay360 was expected to allow
the Company to strengthen its
balance sheet by reducing its
indebtedness, improve the
Group’s liquidity and pension
funding position and support
the Group’s strategy to build a
more focused sustainable
business for the long term.
Principal risks: the
strengthening of the Group’s
balance sheet as a result of the
disposal has assisted in
reducing two of Capita’s
principal risks: (i) to execute its
medium-term strategy; and (ii)
maintain financial stability.
Governance: the chairman is
critical in ensuring the
effectiveness of the board in all
aspects of its role.
Principal risks: the
appointment of a chairman with
the appropriate skills and
attributes is essential to the
delivery of our strategy.
Strategy: to provide additional
and strategic focus on ESG
matters.
Principal risks: the ESG
Committee will have an
increased focus on people,
attraction and retention,
culture, wellbeing, health and
safety, and climate change.
Stakeholder considerations
Further details
Our people, customers and
suppliers: the strengthening of the
Group’s balance sheet has supported
the Group’s strategy to build a more
focused sustainable future providing
more stability for our colleagues,
customers and suppliers.
Investors: the disposal of Pay360,
a non-core business, has contributed
to the ability of the Group to focus on
its core business and to progress its
growth strategy by strengthening the
balance sheet and improving liquidity.
The Company believes that this will
improve the prospects of the Company
and will benefit shareholders.
Shareholders voted 99.99% in favour of
the disposal of Pay360 at the general
meeting held on 1 November 2022.
All of our stakeholders: all of our
stakeholders have an interest in the
delivery of our strategy and the way it
is delivered. David Lowden, Chairman
has a critical role in ensuring that our
strategy is delivered in line with our
purpose and values.
pages 30
and 171.
Nomination
Committee
report on
page 87.
Our people, customers, suppliers,
investors: all of our stakeholders are
concerned by the issues that will
receive increased focus by the ESG
Committee on behalf of the Board.
ESG
Committee
report on
pages 88
and 89.
* Principal decisions are those that are material to the Group and/or significant to any of our key stakeholder groups.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
76
Shareholder meetings
Shareholders are encouraged to attend the AGM. However, given the situation with the Covid-19
pandemic at the beginning of 2022, the Company understood that many shareholders would not
wish to attend the 2022 AGM in person. Consequently, the 2022 AGM was held as a combined
physical and electronic meeting.
It is intended that the 2023 annual general meeting will be held as a physical meeting only and the
Board looks forward to meeting and welcoming shareholders to the meeting. Directors, including
chairs of the various committees, are expected to be present at the 2023 AGM, and will be available
to meet with shareholders and answer any questions.
The Chairman and SID are normally available to meet with Capita’s significant shareholders.
2022 voting outcome
At our 2022 AGM, the Board was again pleased that the majority of resolutions were passed with a
high level of support from shareholders. The Board has considered the votes against resolution 11
the re-election of Lyndsay Browne (24.36%). Lyndsay was appointed as an employee non-
executive director in July 2019 and was a member of the RemCo. As an employee non-executive
director Lyndsay was not considered independent. In order to better understand the reasons for
these votes against, the Board contacted shareholders who voted against this resolution and
considered the views of proxy voting agencies as to voting recommendations (where these had
been made available to the Company).
In addition, following the establishment of a Board ESG Committee in June 2022, the Board
reviewed the membership of all committees to ensure that each committee has the appropriate
skillset, balance of experience and diversity and that all members have sufficient time available
to devote to the committees of which they are members.
Lyndsay resigned as an employee non-executive director on 30 June 2022, having served her
three-year term. Recognising shareholders’ views with regards to independence, Janice Goodchild
who was appointed as an employee non-executive director on 1 July 2022, was not appointed as
a member of the RemCo. However the Board continues to believe in the importance of bringing the
contributions of its employees into committee meetings and considers that the value of the employee
perspective brought by Lyndsay was of considerable value to this committee. Consequently, Janine
may be invited, at the discretion of the RemCo Chair, to attend meetings and contribute to discussions.
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 Group, 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 shareholderenquiries@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 UK 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 engaging with stakeholders section on pages 47 and 48.
Remuneration Committee
Details of the RemCo and its activities are given in the directors’ remuneration report on pages 99
to 122.
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 ARC 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 54 to 56.
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
emerging and principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity. A description of those principal risks, what
procedures are in place to identify emerging risks, and an explanation of how these are being
managed or mitigated, is set out on pages 54 to 63.
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 2022 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 64. Details of the Group’s business goals, strategy and business model are on
pages 2 to 7.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
77
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 71 to 84.
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 64 comprise the management report.
Post-balance sheet events
The following events occurred after 31 December 2022, and before the approval of these
consolidated financial statements, but have not resulted in adjustment to the 2022 financial results:
Committed bridge facility
In February 2023, the Group entered into a committed bridge facility of £50m with three of its
relationship banks providing additional liquidity from 1 January 2024. The committed bridge facility
has an expiry date of 31 December 2024 and is subject to covenants, which are the same as those
in the revolving credit facility (RCF). Both the RCF and the £50m bridge facility incorporate
provisions such that they will partially reduce in quantum as a consequence of specified
transactions including disposals, equity-raises or other refinancing.
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 215 to 227. 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 elect or re-elect each director will therefore
be proposed at the AGM on 11 May 2023.
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 leading provider of business process services driven by data,
technology and people. 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 64. 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 £61.4m from continued operations
(2021: £285.6m). As previously announced, the directors do not recommend the payment
of a final dividend (2021: nil). The total dividend for the year was nil (2021: 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.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
78
Major shareholders
At 31 December 2022, 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
Veritas Asset Management LLP1
BlackRock Inc.
Invesco Ltd
Vanguard Group Inc.
Veritas Funds PLC
Jupiter Asset Management Limited
Odey Asset Management LLP
1. Includes the holding of Veritas Funds PLC.
Number of
shares
321,365,363
286,449,316
126,900,867
83,131,892
74,230,358
70,883,236
64,670,000
55,009,900
53,573,060
51,459,613
% of
voting rights at
31 December
2022
19.08
17.01
7.53
4.98
4.45
4.24
3.84
3.30
3.21
3.05
Number of
shares direct
Number of
shares indirect
–
286,449,316
–
–
–
–
64,670,000
–
–
51,459,613
321,365,363
–
126,900,867
83,131,892
74,230,358
70,883,236
–
55,009,900
53,573,060
–
On 10 January 2023, notification in accordance with the DTRs was received from RWC Asset Management LLP that it held directly 286,050,563
shares, being 16.98% of voting rights. At 24 February 2023, no further notifications had been received under the DTRs in relation to interests in the
Company’s shares.
Directors’ interests
Details of directors’ interests in the share capital of the Company are listed on page 117.
Share capital
At 24 February 2023, the number of ordinary shares of 2 1⁄15 p each in issue, fully paid up and quoted
on the London Stock Exchange is detailed in the table below:
Issued shares
Treasury shares
Total voting rights
Employee Benefit Trust (EBT) shares1
Number of
shares
% of issued
share capital
1,684,273,523
0
1,684,273,523
9,263,250
100%
0%
100%
0.55%
1. Shares held in the Employee Benefit Trust are used for satisfying employee share options.
During the year ended 31 December 2022, no new ordinary shares were issued, and options
exercised pursuant to the Company’s share schemes were satisfied by the transfer of shares the
EBT (8,770,217 shares). No new ordinary shares have been allotted under the Company’s share
option schemes since the end of the financial year to the date of this report. 37,102 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 2022 was 24.26p. The highest share price in the year was 38.94p
and the lowest was 19.89p.
The Company renewed its authority to repurchase up to 10% of its own issued share capital at the
AGM in May 2022. During the year, the Company did not purchase any shares (2021: nil).
Viability statement
This statement is detailed in full on page 64. The directors have assessed the viability of the
Group over the three-year period to 31 December 2025, 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.
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 64. The financial position
of the Group, its cash flows, liquidity position and borrowing facilities are described on pages 26 to
32. In addition, section 4 in the financial statements on pages 188 to 202 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.
In determining the appropriate basis of preparation of the financial statements for the year ending
31 December 2022, 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.
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: revenue growth falling
materially short of plan; operating profit margin expansion not being achieved; additional inflationary
cost impacts which cannot be passed on to customers; unforeseen operational issues leading to
contract losses and cash outflows, increased interest rates, reduction in deferred cash
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
79
consideration in respect of completed disposals; non-availability of the Group’s non-recourse
receivables financing facility; and unexpected financial costs and penalties linked to incidents such
as data breaches and/or cyber attacks.
To mitigate these, the Board has considered the mitigations, under the direct control of the Group,
that could be implemented to address the financial impact should these risks materialise. These
mitigations include reductions in capital expenditure, materially reducing and/or removing in full
bonus and incentive payments and significantly reducing discretionary spend. Taking these
mitigations into account, the Group’s financial forecasts over the going concern period demonstrate
liquidity headroom and compliance with all covenant measures throughout the going concern
period to 31 August 2024.
Therefore, after careful consideration and reflecting also the Board’s confidence in the expected
benefits from the completion of the transformation, and its ability to implement the above mitigations
should the severe but plausible downside materialise, coupled with the potential to obtain further
financing beyond its existing committed funding facilities, 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.
Auditor review
The auditor has reviewed:
• the statements regarding going concern, see page 78;
• the longer-term viability statement, see page 64; and
• 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
– ARC composition, role and responsibilities.
Further details are in the auditor’s report, on pages 124 to 141.
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 training and 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, in April 2022. We are currently finalising plans to achieve Level 3 status in 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 33 to 36. Communication with employees
in relation to Capita’s financial performance is detailed in the remuneration report on page 103.
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 33 to 36 and 37 to 45 and the stakeholder
engagement section on pages 47 and 48.
Political donations
The Group did not make any political donations or incur any political expenditure during the year
(2021: 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 80 and on page 43 of the strategic report.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
80
GHG emissions (tCO2e) and energy use (kWh) for period 1 January 2022 to 31 December 2022
Period
Data source
Current reporting year 2022
Comparison reporting year 2021
Comparison reporting year 2020
Region
Energy used to calculate emissions (kWh)
Gas and fuel
Electricity & district heat
Business travel, cars
Total energy used (kWh)
% of total energy used
Energy Bureau, UK est energy, FSC burn, int. est
energy, Capita Europe
SAP expenses
Emissions from combustion of gas and fuel for heating
tCO2e (Scope 1)
Emissions from combustion of fuel in company vehicles
tCO2e (Scope 1)
Energy Bureau, Capita Europe
Fleet, FSC, fleet Germany, India, South Africa
Emissions from fugitive refrigerant gas tCO2e (Scope 1) Fugitive refrigerant gas
Emissions from purchased district heat tCO2e (Scope 2) Energy Bureau, Capita Europe
Emissions from purchased electricity (location based)
tCO2e (Scope 2)
Energy Bureau, UK est energy, int. est energy,
Capita Europe, South Africa, India
Emissions from purchased electricity (market based)
tCO2e (Scope 2)
Energy Bureau
Emissions from business mileage, air, rail, tube tram
and light rail, taxi, bus, coach, ferry, hotel, waste. tCO2e
(Scope 3)
SAP, Agiito
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: gross Scope 1 and 2 tCO2e (location
based) per headcount
UK and
offshore
Global
(excluding UK
and offshore)
UK and
offshore
Global
(excluding UK
and offshore)
UK and
offshore
Global
(excluding UK
and offshore)
Total
Total
Total
58,561,431
2,443,394 61,004,825
65,139,586
1,726,618 66,866,204
73,668,847
1,871,964
75,540,811
65,813,485
12,211,032
136,585,947
86%
9,281
81,218,550
15,405,065
16,047,610
3,836,579
21,685,038 158,270,986
100%
9,686
14%
405
93,211,777
12,502,976
170,854,338
85%
11,620
26,513,142 119,724,918
14,774,974
2,271,999
30,511,758 201,366,097
100%
11,941
15%
320
81,491,440
46,912,511
202,072,798
90%
15,594
16,112,463
97,603,902
3,351,543 50,264,055
21,335,969 223,408,768
100%
16,186
10%
592
1,851
445
34
12,827
2,247
4,857
24,438
29,294
18,680
8.1
0.77
67
1,918
1,845
71
1,916
1,695
86
1,782
0
264
8,012
1,836
1,244
8,748
9,992
3,552
2.9
0.48
445
298
20,839
1,466
40
23,891
0
157
6,853
1,466
198
30,744
1,011
45
18,938.58
0
136.60
9,239.43
1,011
181
28,178
4,083
10,328
8,132
18,460
12,513
11,009
23,522
6,101
3,860
640
4,500
6,829
1,052
7,881
33,186
39,287
22,233
11.0
38,863
42,722
29,119
10.0
0.66
0.91
7,401
8,042
9,163
2.3
0.39
46,264
50,763.93
38,282.35
12.3
37,284
44,113
37,643
11.2
10,055
11,107
12,740
3.0
47,338
55,220
50,383
14.2
0.73
1.01
0.54
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 in each year.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
81
Energy efficiency action 2022
We invested in energy-efficiency measures across our estate in 2022 to deliver savings below.
Building plant upgrades and initiatives
Replacement LED lighting
Replacement chillers and air conditioning units
Motor speed drives (VSD)
Upgraded building management controls
Lift motor drive and controls
Replacement heating plant
Total tCO2e reduction
tCO2e reduction per annum
5.6
70.1
5.0
49.5
5.9
48.9
185.1
Our virtual meetings initiative resulted in further reductions in business travel CO2. Post pandemic,
travel emissions began to climb in 2022 but remained significantly below our short-term SBTi target
for 2030. We have set a 2035 net zero target to augment our short term 1.5°C science based
targets for greenhouse gas reduction. This target covers our full value chain and has been verified
by SBTi. In 2022 we set net zero targets for functions and divisions, linked to incentive plans,
to drive progress against our net zero milestones and plan. Capita reached the CDP ‘A’ list for
the first time in 2022.
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 monitors the risk of a liquidity shortage through
its business plan and liquidity cycle forecasts and analysis, taking into consideration the maturity
of both the Group’s financial instruments and the forecast cash flows from operations.
The Group does not rely on sources of funding that are not contractually committed. Its policy is to
hold cash and undrawn committed facilities at a level sufficient to fund the Group’s operations and
its medium-term plans, and to maintain a balance between continuity of funding and flexibility
through the use or availability of multiple sources of funding.
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business
cycle and an allowance for contingencies. At 31 December 2022 the RCF commitment was
£288.4m (£385.7m at 31 December 2021) and was subsequently reduced to £284.7m on 4 January
2023 following receipt of proceeds from disposals.
The size of the available commitment will be right-sized each time the Group either refinances,
raises funds through disposals, or raises equity with the RCF including mandatory cancellation
mechanisms that determine the amount of the cancellation in each case. The commitments are
subject to a minimum value of £180m regardless of the quantum of receipts.
The RCF expires on 31 August 2024 and was undrawn at 31 December 2022 (31 December 2021:
£40m drawn).
US private placement loan notes and euro fixed-rate bearer notes (private placement loan notes)
provide the Group’s core funding, and to mitigate the risk of needing to refinance in challenging
conditions, these have been arranged with a spread of maturities to November 2027. 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.
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. The Group aims to pay its
suppliers on time in accordance 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 and
to provide working capital funding at an economically favourable rate versus the RCF. The value of
invoices sold under the arrangement at 31 December 2022 was £36.9m (2021: £3.9m). 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 2022
was £7.5m (2021: £12.5m).
As set out in note 6.2 (contingent liabilities), the Group has provided, through the normal course of
its business, £34m letters of credit, performance bonds and guarantees (2021: £28.7m). £12.5m 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
cross-currency interest rate swaps and forward foreign exchange contracts.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
82
The Group is not generally exposed to significant foreign currency transaction risk. The principal
exceptions relate to service delivery based in India and South Africa, 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, ZAR and USD. Further details of the
Group’s financial instruments can be found in note 4.5 to the consolidated financial statements on
pages 196 to 201.
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.
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.
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
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 2023 AGM of the Company will be held at 65 Gresham Street, London, EC2V 7NQ on 11 May
2023. 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 2022 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 2022, shareholders granted authority for the Company to purchase up to 168,427,352
ordinary shares. This authority will expire at the conclusion of the 2023 AGM. No shares were
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
83
purchased during 2022. A resolution to renew this authority will be put to shareholders at the
2023 AGM.
• Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern.
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.
• 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.
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
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.
Page no.
196
77
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.
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.
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.
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 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.
Corporate
governance
Corporate governance statement
continued
Capita plc
Annual Report 2022
84
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 on pages 1 to 122 has been approved by the Board.
On behalf of the Board.
Claire Denton
Chief General Counsel and Company Secretary
2 March 2023
Capita plc
Registered in England and Wales No. 2081330
Corporate
governance
Committees
Capita plc
Annual Report 2022
85
Committees
Terms of reference
The terms of reference of the Nomination, Remuneration and Audit and Risk committees
were reviewed in June 2022 upon the establishment of the ESG Committee, to ensure that
relevant matters are now considered by the ESG Committee, when appropriate matters are
considered in conjunction with other committees.
Committee terms of reference were also reviewed in December 2022 to reflect updates
in good governance practices. These are summarised below and the Nomination,
Remuneration, Audit and Risk and ESG 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
Brief description of responsibilities
Nomination Committee
Audit and Risk Committee
Remuneration Committee
• Reviews composition of the Board.
• Recommends appointment of new directors.
• Ensures plans are in place for orderly succession to both the 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.
ESG Committee
• Oversees the development of the Group’s ESG strategy, monitoring
its performance in relation to ESG matters.
• Considers the adequacy of the Group’s ESG policies and processes.
• Oversees and monitors the Group’s progress against its net zero
emissions strategy.
• Oversees and supports stakeholder engagement on ESG matters.
Disclosure Committee
• Responsible for the appropriate identification and management of inside
information, including any decision to delay public disclosure.
Membership
Membership of the Company’s standing committees at 31 December 2022 is shown below:
Nomination
Audit and Risk
Remuneration
ESG
David Lowden
Jon Lewis
Georgina Harvey
Brian McArthur-Muscroft
John Cresswell
Neelam Dhawan
Nneka Abulokwe
Janine Goodchild
(C) Chair
C
X
X
X
X
X
X
–
–
–
–
C
X
X
–
X
–
–
C
X
–
X
X
–
C
–
X
X
X
X
Changes to Committee membership
Following the establishment of the ESG Committee on 30 June 2022, the Nomination
Committee reviewed the membership of the Company’s standing committees on behalf of the
Board to ensure that each committee comprised members with the appropriate skillset and
diversity and that all members had sufficient time to devote to the committees.
Prior to this review John Cresswell, Neelam Dhawan and Nneka Abulokwe were members of all
of the standing committees. David Lowden stepped down as a member of the Remuneration
and Audit and Risk Committees upon his appointment as Chairman on 10 May 2022.
Frequency of meetings and attendance
During 2022, the Nomination Committee met eight times, the Remuneration Committee six
times, the Audit and Risk Committee six times and the ESG Committee three times. Attendance
of directors at committee meetings is shown in the table on page 73.
Corporate
governance
Nomination Committee Report
Capita plc
Annual Report 2022
86
Nomination
Committee report
We are committed to making sure we have the
necessary skills, expertise and diversity on the Board
to help support the delivery of Capita’s strategy.”
David Lowden, Chair, Nomination Committee
The committee met eight times in 2022
and the members’ attendance record is
shown on page 73. 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 can be found on Capita’s
website at www.capita.com/investors/
corporate-governance.
Nomination Committee
time allocation (%)
5
4
1
2
3
1 20% Board appointments
2 10% Employee director appointment
3 55% Succession planning
4 10% Diversity
5 5% Governance
The time allocation chart is provided for guidance only and other
matters were also considered by the committee.
Responsibilities and activities
Key responsibilities
• Identify and nominate appropriate candidates
for appointment to the Board, having due
regard to the provisions of the 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, its
committees 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.
Activity in 2022
• Succession planning for the Chairman.
• Recruitment and appointment of two
independent non-executive directors.
• Overseeing the process of the appointment
of a new employee director and reviewing
and recommending the appointment of the
preferred candidate to the Board.
• Review of diversity and inclusion activities
and measures.
• Reviewing succession planning for members
of the Executive Committee.
• Consideration of the contributions and
effectiveness of the non-executive directors
seeking re-election at the 2022 AGM.
• Reviewing committee membership and
appointment of the SID.
Corporate
governance
Nomination Committee Report
continued
Capita plc
Annual Report 2022
87
Diversity and inclusion
Capita’s diversity and inclusion policy, which includes 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 39 and 40 of the strategic report.
Gender and ethnicity balance
The FCA has introduced a requirement for premium listed companies to disclose against a target
of 40% female representation and ethnicity (at least one director of colour) on boards of premium
listed companies in respect of accounting periods beginning on or after 1 April 2022. During 2022,
we made further progress on gender and ethnicity balance at both Board and senior management
levels, and we have already exceeded the FCA’s target for female representation at Board level, but
there is still more to do throughout the organisation.
At 31 December 2022, female representation on the Board and among senior management1 was 44%
and female representation among senior management1 and direct reports was 35%. At 31 December
2022, ethnically diverse representation on the Board and among senior management1 was 22%.
Appointment process
Board appointments are made on merit, taking account of the specific skills, experience, knowledge
and independence needed to ensure a rounded board. 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.
Skills and experience
We are committed to making sure we have the necessary skills, expertise and diversity to help
support the delivery of Capita’s strategy.
During 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.
1. The 2018 Code defines senior management as the Executive Committee and the Group Company Secretary.
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.
Board appointments during the financial year
During the year the committee considered the following Board appointments, recommending the
appointment of the preferred candidate to the Board. External search agencies Spencer Stuart and
Lygon Group (Lygon), were engaged to assist in identifying suitable candidates for these Board
positions. These firms have no other connection with the Company or individual directors.
Nneka Abulokwe who has significant experience of business and technology innovation was
appointed to the Board on 1 February 2022, with Spencer Stuart assisting the committee.
The committee considered succession planning for the role of chairman. Lygon evaluated potential
external candidates against David Lowden, the Company’s SID and strong internal candidate.
The committee considered a number of potential external candidates, before concluding that
David was the strongest and preferred candidate for the role. Following this process the committee
recommended to the Board that David should succeed Sir Ian Powell when he stepped down as
Chairman at the conclusion of the Company’s 2022 AGM on 10 May 2022. David was appointed
as Chair designate on 22 March 2022. Sir Ian and David did not participate in these discussions.
Georgina Harvey and John Cresswell, committee members, co-chaired the committee meeting
which considered the appointment of Sir Ian’s successor.
As part of its succession planning agenda, the committee engaged Lygon to identify candidates
with strong current financial experience. This concluded in the appointment of Brian McArthur-
Muscroft to the Board on 1 June 2022 and as Audit and Risk Committee chair on 1 July 2022.
Brian is a chartered accountant and chief financial officer for Qontigo.
The committee considered, and recommended, the appointment of Janine Goodchild as employee
non-executive director. Janine is a Lead Clinical trainer in the Capita team which assesses personal
independence claims on behalf of the Department for Work and Pensions. Janine joined Capita in
January 2016 and was appointed to the Board on 1 July 2022.
Board evaluation
Details of the annual board evaluation process are provided in the Chairman’s report on page 68.
David Lowden
Chair
Nomination Committee
2 March 2023
Corporate
governance
ESG Committee report
Capita plc
Annual Report 2022
88
ESG
Committee
report
The committee oversees Capita’s conduct
as a responsible business and validates
through ESG principles our approach to
being a purpose-led business.
We have continued to make progress in
delivering on our environmental, social
and governance (ESG) objectives.
To enhance how we serve and respect
our stakeholders, including society
and the environment, we have also
established an ESG committee to the
Board. This committee was established
on 30 June 2022 and met three times
during 2022. David Lowden has been
appointed as ESG Committee chair.
Other members of the committee are
Georgina Harvey, Nneka Abulokwe,
John Cresswell and Janine Goodchild.
ESG Committee
time allocation (%)
4
5
3
1
2
1 25% Governance
2 25% Employee-related issues
including diversity and inclusion
3 20% Net zero
4 15% ESG-related bonus targets
5 15% Strategy
The time allocation chart is provided for guidance only and other
matters were also considered by the committee.
The committee received
reports on the following
themes during the year:
• cyber and information
security
• IT resilience
• internal controls
• securing contracts and
extending existing contracts
• risk of failing to deliver on
our contractual obligations
to our clients
• attracting, developing
and retaining our people
• anti-bribery and corruption,
including details of matters
raised under the Group’s
Speak Up policy
• privacy
• legal update.
Responsibilities and activities
Key responsibilities
• Oversee the development of the Group’s
ESG strategy and monitor its performance
in respect of ESG-related matters on
behalf of the Board.
• Consider the adequacy of the Group’s
ESG-related policies.
• Oversee and monitor the Group’s progress
against its net zero strategy.
• Liaise with the Audit and Risk Committee
regarding the Company’s Speak Up policy.
• Receive, review and approve the Group’s
people strategy on behalf of the Board.
Activity in 2022
• Reviewed the terms of reference
of the committee.
• Reviewed Capita’s progress towards
its net zero target.
• Received awareness training on net zero.
• Received a presentation on the Group’s
HSE framework and divisional/functional
compliance, including wellbeing matters.
• Reviewed diversity and inclusivity data.
• Considered Capita’s ESG strategy
and governance structure.
• Received an update on Capita’s
people plan.
• Reviewed and recommended to RemCo
ESG bonus-related targets for 2023 and
reviewing and approving the outcome of
ESG bonus-related targets for 2022.
• Received a report on ESG indices and
how Capita is performing.
Corporate
governance
ESG Committee report
continued
Capita plc
Annual Report 2022
89
Establishment and role of the committee
The committee oversees Capita’s conduct as a responsible business and validates, through ESG
principles, our approach to being a purpose-led business.
The committee monitors progress against our responsible business strategy, ensuring that we
remain focused on supporting the United Nations’ Sustainable Development Goals (UNSDGs) as
well as addressing the issues where we can have the biggest impact – through our own operations
and the products and services we provide to our clients.
This committee provides a forum within which all components of Capita’s responsible business
strategy can be considered in-depth on a regular basis, and provides for a joined up approach
across Board committees. The committee has a rolling agenda based upon our ESG strategy
and mapped against the Ten Principles of the UN Global Compact, in support of achieving the
UNSDGs by 2030.
The committee will work closely with the Nomination, Remuneration and Audit and Risk
Committees on ESG-related issues, including in relation to diversity and inclusion (D&I), employee
engagement, ESG-related bonus targets, Capita’s Speak Up policy and TCFD compliance.
In addition to the attendance of committee members, the following individuals have a standing
invitation to attend meetings: Jon Lewis, CEO; Caitlin Kinsella, Director of Employee Engagement,
D&I and Responsible Business; and Dr Charles Young, Senior Medical Officer. Caitlin and Charles
act as advisers to this committee. The Chief General Counsel and Company Secretary or their
nominee act as secretary to the committee.
This committee is supported by an ESG working group comprising key individuals in the Group who
are responsible for ESG-related matters. Members of the working group are invited to committee
meetings to share their perspectives and insights on key issues and external developments. These
discussions ensure the Committee stays alert to current and emerging trends and any potential
risks arising from sustainability issues.
Focus of the committee
Following its establishment in June 2022, the committee has focused on the following matters.
Net zero target
Capita is committed to being net zero by 2035 and this has been an area of focus for the
committee, which has received presentations on our progress towards net zero from Richard
Walker, Head of Environment.
The committee was proud to note that, through the dedication and professionalism of our
colleagues, Capita was included in the 2022 Carbon Disclosure Project ‘A’ list, a universal global
measure that scores companies and cities based on their journey through disclosure and towards
environmental leadership.
In addition, on 4 January 2023, Science Based Targets initiative (SBTi), the globally recognised
body for climate-related target setting, verified Capita’s 2035 net zero target as compliant with the
highest standards of target setting methodology. At that date, only 134 companies had net zero
targets verified by SBTi, showing the level of commitment and authenticity required.
Task Force on Climate-related Financial Disclosures
The committee has reviewed and considered the disclosures made within this annual report which
are consistent with the TCFD recommendations.
The Group’s HSE framework and wellbeing of our colleagues
The health and safety and the wellbeing of all our colleagues is a priority for the committee.
The committee received presentations from the Senior Medical Officer detailing Capita’s HSE
framework, noting the improvements that had been made to the Group’s HSE compliance during
2022 and from the Group Head of Wellbeing and Occupational Health, which explained the wide
variety of global wellbeing support tools and activities that we provide for all our colleagues to help
them manage their own wellbeing as well as supporting colleagues through challenging times. Our
employee assistance programmes are a fundamental support service available to all colleagues
providing 24/7 counselling and advice.
ESG-related bonus targets
This committee worked closely during the year with the Remuneration Committee on ESG-related
bonus targets, both reviewing the outturn of the ESG-related targets included in the 2022
management bonus plan and reviewing ESG targets for the 2023 management bonus plan, making
recommendations to the Remuneration Committee. These include traditional measures such as
employee engagement together with targets that address broader societal concerns, such as
climate change and D&I, consistent with the Board’s responsibility to all stakeholders. Further
details are provided in the Directors’ remuneration report on pages 99 to 122.
Other matters
During the year the committee also addressed a range of other strategic and current issues
including the results of our employee survey, gender pay gap information and D&I, and discussed
the initiatives that are being undertaken by Capita in these areas.
Details of the progress made by our responsible business team and the challenges that the Group
faces are detailed on pages 37 to 46 of this report. This includes details of our continuing
commitment to be a real living wage accredited employer in the UK, our adherence to the UK
Prompt Payment Code and other matters that will be considered by the committee during 2023,
including Capita’s focus on delivering an increasingly positive, consistent employee experience.
David Lowden
Chair
ESG Committee
2 March 2023
Corporate
governance
Audit and Risk Committee Report
Capita plc
Annual Report 2022
90
Audit and Risk
Committee Report
Following the decision by the Board and the
committee at the end of 2021 to focus on optimising
the current finance reporting systems, programmes
have been established to deliver further improvements
to the group risk and control framework, including
financial controls.”
Brian McArthur-Muscroft, 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.
Audit and Risk Committee
time allocation (%)
3 4
1
2
1 50% Risk management,
internal control & compliance
2 40% Financial reporting
(incl. external audit)
3 5% Private meetings with auditors
4 5% Governance
The time allocation chart is provided for guidance only and other
matters were also considered by the committee.
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:
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.
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.
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.
Corporate
governance
Audit and Risk Committee Report
continued
Capita plc
Annual Report 2022
91
Risk and control framework
Committee membership and attendance
The committee continued 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 system of risk management
and internal controls, and overseeing the activities of the group’s internal audit function and its
external auditor.
As noted below, further progress was made in strengthening the Group’s controls. In addition, 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.
Further detail on the risk management and internal control environment is set out later in this report
on page 97.
Controls improvement
Following the decision by the Board and the committee at the end of 2021 to focus on optimising
the current finance reporting systems, programmes have been established to deliver further
improvements to the Group risk and control framework, including financial controls. These
programmes have focused on the simplification of finance activities and controls, continuing to
embed the enterprise risk management framework, and further rationalisation of the overly complex
legal structure. Key improvements in 2022 include: strengthening key system access controls;
refining key policies, supporting standards, and communications; and continuing to mature risk
management within our functions and divisions. In addition the legal entity rationalisation
programme progressed well during the year with the number of legal entities in the Group being
reduced by 37. At 1 January 2023, the Group had 180 legal entities compared with 369 legal entities
in July 2018. The rationalisation programme is ongoing and the number of legal entities will further
reduce during 2023. Further improvements to the Group risk and control framework are planned for
2023, taking into consideration the Government’s proposed audit and governance reforms.
The Board and the committee also recognise the UK Government’s proposed reforms in respect of
fraud prevention and reporting. Elements of the Group’s existing control framework are targeted at
detecting fraud, bribery, corruption and criminal tax evasion. These include Capita’s Code of
Conduct and supporting mandatory training, a delegation of authority matrix applicable to all
employees, and segregation of duties within key systems and processes to prevent fraud. These
controls are supported by a Speak Up policy which enables whistleblowing within the Group and a
Financial Crime function dedicated to identifying, preventing and investigating where fraud
concerns have been raised.
Until 30 June 2022, all non-executive directors and Joseph Murphy, employee non-executive
director, were members of the committee. Following a review of committee membership by the
Nomination Committee in June 2022, the committee comprises myself as chair, together with John
Cresswell and Neelam Dhawan, non-executive directors and Janine Goodchild, employee non-
executive director. Although not considered independent under the UK Corporate Governance
Code 2018 (Code), Janine brings valuable insights from the employee perspective into committee
discussions and the Board considered that it was important from an employee engagement
perspective for both Joseph and Janine formally to be a member of the committee despite their lack
of independence.
I joined the committee on 1 June 2022 and was appointed as committee chair on 1 July 2022 with
Matthew Lester stepping down as a director and chair of the committee on 30 June 2022. I was
also invited to attend the April 2022 committee meeting as an observer. This, together with the
one-month handover between Matthew and I, ensured that there was a seamless transition of the
committee chair. Prior to my appointment as chair I also met with KPMG, our external auditor, and
members of our Group Finance and Internal Audit teams, as part of my induction programme.
I would like to thank Matthew for his leadership of the committee. During his five-year tenure as
committee chair, Matthew enhanced the committee’s focus on financial controls and the
identification and management of the material risk factors that Capita continues to face.
The committee is required to include at least one financially qualified member, with this requirement
fulfilled by myself since my appointment as a committee member and by Matthew until his
retirement from the committee.
All other committee members are considered to be financially literate given their qualifications and
experience. John is a chartered accountant and has substantial experience in leading and growing
organisations as CEO and executive director. Neelam has held senior positions in Hewlett-Packard,
Microsoft, Compaq and IBM with responsibility for areas including strategy and corporate
development. Janine’s previous experience includes working in the banking industry within
corporate actions and asset reconciliations.
As announced on 3 February 2023, John will step down from the Board and as a member of the
committee on 31 March 2023. On behalf of the committee, I would like to thank John for his
significant and valuable contribution to the committee’s deliberations. Georgina Harvey, Senior
Independent Director and Remuneration Committee Chair will be appointed as a member of the
Committee upon John’s departure.
Corporate
governance
Audit and Risk Committee Report
continued
Capita plc
Annual Report 2022
92
To encourage effective communication, in addition to the above members, the Chairman, CEO,
CFO, Chief General Counsel and Company Secretary, Director of Group Financial Control and
Group Chief Accountant are invited to attend committee meetings along with certain members
of the senior management team, the Director Internal Audit and Risk 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 Board evaluation, see page 68 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 Chief General Counsel and 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
planning meetings held in advance of each committee meeting, led by me and attended by the
CFO, members of the Group Finance team and the Director of Internal Audit and Risk. I will also
meet with the external auditor prior to committee meetings. 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.
How the committee discharged its roles and responsibilities in 2022
The committee held six scheduled meetings during the year and attendance at each meeting is
shown on page 73. Meetings are planned around the Company’s financial calendar.
Programmes have been established to deliver further
improvements to the Group risk and control framework.”
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 93 to 95.
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 the full-year announcement was
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.
Corporate
governance
Audit and Risk Committee Report
continued
Capita plc
Annual Report 2022
93
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.
Action
The committee considered the projections within the business plan, agreed by the Board in January 2023, and
the key assumptions underpinning the future cash flow and profit forecasts. The committee received reports
from executive management and KPMG (as part of their standard reporting to the committee in the course of
performing their duty as statutory auditor) 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).
The committee reviewed the disclosures presented in section 1 of the consolidated financial statements
together with the viability statement on page 64 to ensure there was sufficient detail provided to explain the
basis of preparation and the Board’s conclusion.
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 contract provisions, where appropriate, and the lifetime profitability of contracts.
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 64 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.
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Annual Report 2022
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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. 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.
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.
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 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 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 recognised in these financial statements in respect
of certain businesses within the Group’s Portfolio division.
The committee is also satisfied that the assumptions, methodology and disclosure in note 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 balance to any further impairment risk.
Of particular importance to the committee was the inclusion of sufficient disclosures regarding the events
and circumstances that have led to the impairment charges recorded in the year and the analysis showing
sensitivity of the goodwill valuation to changes in key assumptions.
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.
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Pensions
Matter considered
The measurement of the defined benefit liabilities 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 liabilities in respect of pension obligations and the pension charge or movement
recognised in the income statement or statement of comprehensive income.
Deferred tax assets
Matter considered
The Group carries significant deferred tax assets. The recoverability assessment requires the application of
judgement concerning future prospects and forecasts.
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.
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 with the amount of deferred tax recognised in these financial statements.
The committee is also satisfied that the assumptions, methodology and disclosure in note 2.6 to the
consolidated financial statements are sufficient to give the reader an understanding of the approach taken
and the sensitivities within the assumptions that could reasonably give rise to a material derecognition of
deferred tax.
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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:
income statement, 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 Financial Control 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.
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.
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.
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 £1.6m, and related to the review of interim results and
services as reporting accountant for the disposal of Pay360 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.
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The formal evaluation comprises separate assessments by both management and the committee
of the auditor’s role, activity and performance including:
meeting until the conclusion of the next general meeting at which accounts are laid before the
Company, and its remuneration will be determined by the committee.
• 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; and
• 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.
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. Robert Brent the lead audit partner rotated
off the audit team following the completion of the 2021 audit in March 2022 with Ian Griffiths
replacing Robert in this role. Ian was appointed following a robust process. Ian attended committee
meetings prior to his appointment as lead audit partner as part of ensuring a smooth transition of
the change in lead audit partner. 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
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 54 to 63.
Effectiveness and efficiency of risk management
During the year, the committee completed a robust assessment of the principal risks, including
deep-dive reviews on four 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:
• Cyber and information security;
• IT resilience;
• Internal controls;
• Securing contracts and extending existing contracts;
• Risk of failing to deliver on our contractual obligations to our clients;
• Attracting, developing and retaining our people;
• Anti-bribery and corruption, including details of matters raised under the Group’s Speak Up policy;
and
• Privacy.
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 54. As detailed on page 54 further improvements
to the Group risk and control framework, including financial controls were delivered during the year.
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The committee concluded that the Group risk and control framework, including financial controls
could be relied upon to be materially effective, noting that further improvements to the Group risk
and control framework are planned for 2023 to ensure that financial controls are appropriately
efficient for a Group of the scale and complexity of Capita.
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.
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 Internal Audit and Risk who is also responsible for the Group’s unregulated
risk function. Regulated business risk is the responsibility of the CEO, Experience.
The three-year plan approved by the committee in June 2021, which focuses on key business risks
and processes, formed the baseline for audit planning in 2022. Conducting audits over these risks
and processes provides better insight into how risk is being managed and provides comparison
across business units. The plan is structured to be flexible; to provide assurance over core
‘business as usual’ activities aligned to our principal risks; and, to offer continued support for
ongoing change activities.
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, together with oral updates. 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 action.
Insights from 2022 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. 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.
As a result of the consistent themes identified during audits a plan was presented and approved by
the committee during 2022 to address these issues and further improve the Group’s financial
controls framework. The committee will receive regular updates on the progress of this project.
Through regular interaction between the committee and the Director Internal Audit and Risk, 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.
Code of Conduct and Speak Up
During the year, the Company refreshed its mandatory Code of Conduct training and relaunched its
Speak Up policy. The 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.
As part of the relaunch, a 12-month Speak Up communication plan was prepared to raise
awareness of this policy and stimulate engagement with employees. The number of reported cases
has increased following the relaunch, although reported cases are still considered to be low in
certain jurisdictions given the size of Capita. The Chief General Counsel and Company Secretary
and members of the Business Integrity team are scheduled to visit some of Capita’s international
sites during 2023 to reinforce and embed the Speak Up policy in these businesses.
This is an area of focus for the committee, which receives a report and update on the current level
of reported cases at every meeting. Oversight of these arrangements is a matter reserved to the
Board and it receives updates on the operation of the policy from the committee chair.
Privacy
In December 2022, the privacy function was restructured to form a central team with a managerial
reporting line to the Data Protection Officer of Capita plc, while retaining the existing operational
alignment of the current privacy teams to the divisions, TSS and shared services, ensuring that
privacy is managed where data is created while ensuring that Capita’s privacy policies and
standards are implemented consistently throughout the Group.
The privacy teams across Capita continue to provide privacy assurance, training and support to
business units in line with the requirements of data protection legislation. Throughout 2022, there
were a number of new initiatives undertaken by the central privacy team aimed at raising privacy
awareness throughout Capita including targeted training and regular meetings with key stakeholders.
Brian McArthur-Muscroft
Chair
Audit and Risk Committee
2 March 2023
Corporate
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Directors’ remuneration report
Capita plc
Annual Report 2022
99
Directors’
remuneration report
Our remuneration policy continues to work well,
supporting our strategy to build a more focused
and sustainable business for the long term.”
Georgina Harvey, Chair, Remuneration Committee
This report is split into three sections:
• The annual statement summarises how
the committee discharged its roles and
responsibilities in respect of 2022 and
the proposed implementation of the
directors’ remuneration policy for 2023.
• 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 2023. A new
policy will be put to shareholders for
approval at the 2024 AGM.
• 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 2023.
The directors’ remuneration report,
excluding the policy, will be subject to an
advisory shareholder vote at the 2023 AGM.
Remuneration Committee
time allocation (%)
7
1
6
5
4
2
3
1 11% Governance
2 12% Executive director and executive
committee remuneration
3 30% Annual bonus plan
4 23% LTIP/RSA
5 10% Wider workforce/gender pay gap
6 5% Shareholder consultation/feedback
7 9% Committee time only
Remuneration
Committee membership
and attendance
All members of the committee are
independent non-executive directors.
Following a change to the non-executive
employee director during the year, this role
now attends committee meetings by
invitation, rather than being a member of
the committee. The number of formal
meetings held and the attendance by each
member is shown in the table on page 73.
The committee also held informal
discussions as required. The Chief
General Counsel and 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’s website at www.capita.com/
investors. These are reviewed and
updated where appropriate, on an
annual basis.
The time allocation chart is provided for guidance only and other
matters were also considered by the committee.
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Annual Report 2022
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Annual statement
Dear shareholder,
Committee activities
The key workstreams of the committee during the year included:
I am pleased to present the directors’ remuneration report for the year ended 31 December 2022.
• Agreeing the vesting percentage in respect of the 2019 LTIP awards for the performance period
Capita has delivered material progress in delivering our strategy to build a more focused,
sustainable business for the long term despite the current economic headwinds and cost-of-living
crisis. With this in mind, the committee’s focus in 2022 has been centred on:
• Operating our remuneration policy as approved by shareholders at the 2021 AGM; and
• Colleague wellbeing and development: establishing Capita pay principles, development of the
ended 31 December 2021.
• Agreeing annual bonus awards under the annual bonus plan for the year ended 31 December 2021.
• Agreeing appropriate 2022 RSA levels under the 2021 Capita Executive Plan.
• Agreeing the design and targets for the 2022 annual bonus.
• Determining the remuneration arrangements for senior management leavers/joiners.
career path framework incorporating job sizing and market informed job pay ranges.
• Consideration of executive pay arrangements and alignment with those for the wider workforce.
Details of the committee’s approach to remuneration in 2022, and the proposed implementation
of the policy for 2023, are set out below.
• Ongoing workforce engagement in respect of executive remuneration and considering feedback.
• Receiving progress updates in respect of a review of wider workforce strategy on pay and
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 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 and ethnicity 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.
Following the establishment of the ESG committee during the year, the ESG committee is
responsible for making recommendations to the committee in respect of setting and assessing
ESG targets in the annual bonus.
progression (career path framework).
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 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.
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;
(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.
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Directors’ remuneration report
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Capita plc
Annual Report 2022
101
After consideration of the progress made by Capita during 2022 in respect of the delivery of the
strategy and individual performance, the committee believes that a 60% of maximum annual bonus
award to the CEO and CFO for 2022 are both proportionate and appropriate.
Consistent with the shareholder approved remuneration policy, 50% of the bonus awards will be
deferred into Capita plc shares for three years.
2020 LTIP award
The LTIP award granted to Jon Lewis in April 2020, which is due to vest in April 2023, will vest
at 15% of the maximum opportunity as a result of the strong performance against the customer
satisfaction and supplier targets (which are considered to be critical underpins to the performance
and improvement of the business) over the three years to 31 December 2022. Further details in
respect of this performance assessment and the estimated pre-tax value of the awards at vesting
are set out on page 115.
Total remuneration
The committee is satisfied that total remuneration awarded to the CEO and CFO in respect of 2022
was appropriate when Capita’s strategic progress and the stakeholder experience more generally in
2022 are considered.
Proportionality – there is a clear link between individual awards, delivery of strategy and our long-
term performance through performance conditions or underpins applied to the annual bonus plan
and RSAs. 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 2022
A summary of the approach to remuneration in 2022 was as follows:
• The base salary level for the Chief Executive Officer (CEO) was increased by 3.17% from
1 January 2022 (his first salary increase since appointment in 2017). The Chief Financial Officer
(CFO) did not receive a salary increase given his recent appointment to the Board in May 2021.
• The annual bonus operated in line with policy, with a maximum potential of 200% of salary for the
CEO and 175% of salary for the CFO. The bonus was based on revenue, profit before tax and
free cash flow (all equally weighted and totalling 80% of maximum bonus), with 20% based on
strategic/individual objectives.
• RSAs were granted under the Capita Executive Plan in April 2022 at 100% of salary for both the
CEO and CFO. Further details of the 2022 RSAs are set out in the annual report on remuneration.
Annual bonus for 2022
Following a review of performance against the annual bonus targets by the committee, annual
bonuses of 60% of maximum were awarded to the CEO and CFO in respect of the year ended 31
December 2022. Revenue performance was between threshold and target and PBT and free cash
flow performance were both between target and stretch. However, following a review of the broader
stakeholder experience when assessing performance against the financial targets that were set,
and noting the utilisation of an invoice discounting facility to a greater extent than had been
assumed in the business plan, the committee exercised negative discretion post year end to reduce
the free cash flow element to a target payout. Strategic/individual objectives were considered to
have been met to a significant extent. Further details in respect of this performance assessment
and the application of negative discretion are set out on pages 112 to 115.
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Annual Report 2022
102
Use of discretion
Remuneration policy for 2023
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 also use its judgement
to adjust outcomes to ensure that any payments made reflect overall Company performance and
stakeholder experiences more generally. Where discretion is exercised, the rationale for this
discretion will be fully disclosed to shareholders in the relevant annual report. A summary of the
discretion exercised by the committee over the last three years, is set out below:
2020
2021
2022
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%.
Annual bonus awards for the
CEO and CFO for the year ended
31 December 2022 were reduced
from 69% to 60% of the maximum,
see page 115.
The 2022 RSA level for the CEO
was reduced from the normal
award level of 150% of salary to
100% of salary, see page 116.
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.
Share awards 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 2022
Nneka Abulokwe was appointed as a non-executive director on 1 February 2022. David Lowden
was appointed Chairman on 11 May 2022 following Sir Ian Powell’s resignation as Chairman and
non-executive director on 10 May 2022. Georgina Harvey was appointed Senior Independent
Director on 1 July 2022 following David Lowden’s appointment as Chairman.
Brian McArthur-Muscroft was appointed non-executive director and Janine Goodchild was
appointed employee non-executive director on 1 June 2022 and 1 July 2022 respectively.
Lyndsay Browne and Joseph Murphy stepped down as employee non-executive directors and
Matthew Lester stepped down as non-executive director on 30 June 2022.
Following shareholder approval of the policy at the 2021 AGM and support received at the 2022
AGM, no policy changes are being proposed at the 2023 AGM. See pages 104 to 109 for a summary
of the current approved policy. A new policy will be put to shareholders for approval at the 2024 AGM.
Implementing the policy for 2023
The committee’s intended approach to the implementation of the policy for 2023 is set out below.
Fixed remuneration: the committee is mindful of the need for pay restraint at senior management
levels in the current economic environment. As such, and consistent with the approach adopted for
the majority of senior executives across Capita, executive directors will not receive an increase in
salary in 2023. No changes will be made to benefit provision and executive directors will continue
to receive a workforce-aligned pension allowance (5% of salary) in line with other employees.
2023 annual bonus: maximum annual bonus potential will continue to operate at 200% (CEO) and
175% (CFO) of salary. The financial performance metrics will be based on revenue, profit before tax
and free cash flow (all equally weighted and totalling 80% of maximum bonus). The remaining 20%
of maximum bonus will continue to be based on strategic/individual objectives incorporating ESG
targets. To the extent that the threshold profit before tax target is not met, the committee will
consider whether it is appropriate to pay out a bonus under the strategic/individual objectives and
may exercise discretion to reduce pay out under these elements (including to zero) if considered
appropriate.
2023 RSAs: the 2023 RSAs to be granted to executive directors in March 2023 will:
• be set at a maximum of 150% of salary for the CEO and 100% of salary for the CFO;
• 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).
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Directors’ remuneration report
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Annual Report 2022
103
In respect of the underpins for the 2023 awards:
• underpin 1: Capita’s TSR over the three years ending 31 December 2025 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).
While the committee had originally intended to move to a more market standard approach to
underpinning performance by the sole operation of underpin 2, a share price underpin will be
retained for the 2023 RSAs. In addition, the committee will consider values at vesting to ensure
they are reflective of Capita performance over the vesting period.
The actual number of shares under award will be determined just prior to the date of grant and full
details will be in the RNS issued immediately following grant.
Shareholder views
The committee engaged with our major shareholders and the main representative bodies during
2022 in advance of the AGM. Support was strong with a 98% vote in favour of the report at the
2022 AGM. That said, the committee did note concerns from a number of shareholders and proxy
agencies regarding the annual bonus awards for 2021 in light of the furlough support received.
In response to the feedback received, and as stated in the RNS announcing the 2022 AGM voting
results, Capita has committed to repay all furlough support taken during 2021 no later than the first
half of 2023.
Employee engagement
In 2022, Jon Lewis regularly communicated with all employees, including on our 2021 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.
Following the appointment to the board of a new employee non-executive director during 2022,
it was determined that this role would no longer be a member of the committee to avoid any
independence issues. However, the new employee non-executive director attends committee
meetings by invitation and is therefore able to provide colleague perspective on remuneration
to the Board.
During 2022, the committee has continued to evolve the process of engaging with the workforce on
how executive remuneration aligns with wider company pay policy, in compliance with the Code. A
session was held with the chairs and co-chairs of the Capita employee network groups in mid-2022.
In addition, a further session was held with a cross-section of employees from different levels,
divisions and territories within the Capita Group in December 2022. Both sessions were chaired by
Georgina Harvey and covered 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 will take place
during 2023.
Concluding thoughts
As Capita continues to make material progress under our new, simpler, more client-focused
divisional structure, the committee is satisfied that the remuneration policy has operated as
intended to help 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 as it starts to consider its approach to reviewing
the policy at the 2024 AGM.
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
2 March 2023
Corporate
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Directors’ remuneration report
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Capita plc
Annual Report 2022
104
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 2023. 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
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 Chief General Counsel and
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 Chief General Counsel and 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
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Directors’ remuneration report
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Capita plc
Annual Report 2022
105
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.
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Annual Report 2022
106
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.
Maximum opportunity
200% of salary.
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.
Maximum opportunity
150% of salary.
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.
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
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Directors’ remuneration report
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Capita plc
Annual Report 2022
107
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.
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.
Corporate
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Directors’ remuneration report
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Capita plc
Annual Report 2022
108
Malus and clawback
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 policy, although
the two employee non-executive directors at that time (one as a committee member and one by
invitation to the committee) were involved in the committee’s discussions.
Directors’ recruitment and promotions
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.
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.
Corporate
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Directors’ remuneration report
continued
Capita plc
Annual Report 2022
109
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.
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.
Employee non-executive directors’ terms of engagement
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.
Employee non-executive 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.
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).
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
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Directors’ remuneration report
continued
Capita plc
Annual Report 2022
110
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 2023 AGM. The information on pages 110 to 122 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 operation of the
remuneration policy, shareholder/proxy feedback and voting in respect of the 2022 AGM and
remuneration-related disclosure within the accounts. FIT’s fees were £79,653 (excluding VAT)
during 2022 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 committee is detailed in the annual statement.
Shareholder voting at the AGM
The 2022 directors’ remuneration report will be presented to shareholders at the 2023 AGM. At the
2022 AGM, the actual voting in respect of the ordinary resolution to approve the remuneration
report for the year ended 31 December 2021 is set out below together with the vote on the current
remuneration policy approved at the 2021 AGM.
Directors’ remuneration report, other than the part
containing the directors’ remuneration policy, for the
year ended 31 December 2021
Directors’ remuneration policy (2021 AGM)
Votes
cast for
Votes cast
against
Abstentions1
1,148,723,621
23,356,565
3,956,217
98.01%
1,254,719,423
97.13%
1.99%
37,105,242
2.87%
108,597
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 2023
Details of the committee’s intended approach to the implementation of the policy for 2023 is set out
in the annual statement.
Fees for the Chairman, senior independent director, non-executive directors and
employee non-executive director
A summary of the fees for 2023 are as follows:
David Lowden, Chairman
Georgina Harvey, Senior Independent Director and Remuneration Committee Chair
Brian McArthur-Muscroft, Audit and Risk Committee Chair
Nneka Abulokwe
John Cresswell
Neelam Dhawan
Janine Goodchild
Annual fee from
1 January 2023
£290,000
£85,500
£75,000
£64,500
£64,500
£64,500
£64,500
Following a review of the Chairman’s fee, including his anticipated time commitment, David Lowden
was appointed on an annual fee of £290,000. This is lower than the fee of his predecessor, Sir Ian
Powell (£325,000). Fees for non-executive directors, the senior independent director and committee
chairs are unchanged from 2022.
Corporate
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Directors’ remuneration report
continued
Capita plc
Annual Report 2022
111
Directors’ remuneration earned in 2022 – single-figure table (audited)
The table below summarises directors’ remuneration received in 2022 (with prior year comparators).
David Lowden2
Jon Lewis3
Tim Weller4
Georgina Harvey5
Brian McArthur-Muscroft6
Nneka Abulokwe7
John Cresswell
Neelam Dhawan8
Janine Goodchild9
Former Directors
Sir Ian Powell10
Gordon Boyd11
Patrick Butcher
Matthew Lester12
Baroness Lucy Neville-Rolfe13
Gillian Sheldon14
Andrew Williams15
Lyndsay Browne16
Joseph Murphy16
Base salary
and fees
£
213,447
75,000
748,000
725,000
545,000
299,337
80,250
75,000
42,875
–
59,125
–
64,500
64,500
64,500
53,750
32,250
–
128,951
325,000
–
513,010
–
–
37,500
75,000
–
62,163
–
13,750
–
23,292
32,250
64,500
32,250
64,500
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Benefits1
£
839
–
17,986
18,837
18,399
9,588
–
–
–
–
193
–
–
–
25,599
4,000
–
–
16
–
–
1,309
–
905
–
–
–
–
–
896
–
902
–
–
–
–
Pension
Annual bonus
£
–
–
37,400
36,250
27,250
14,967
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£
–
–
897,600
359,020
572,250
135,296
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
LTIP
£
–
–
66,986
46,308
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
RSA
£
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
remuneration
Total fixed
remuneration
Total variable
remuneration
£
214,286
75,000
1,767,972
1,185,415
1,162,899
459,188
80,250
75,000
42,875
–
59,318
–
64,500
64,500
90,099
57,750
32,250
–
128,967
325,000
–
514,320
–
905
37,500
75,000
–
62,163
–
14,646
–
24,194
32,250
64,500
32,250
64,500
£
214,286
75,000
803,386
780,087
590,649
323,892
80,250
75,000
42,875
–
59,318
–
64,500
64,500
90,099
57,750
32,250
–
128,967
325,000
–
514,320
–
905
37,500
75,000
–
62,163
–
14,646
–
24,194
32,250
64,500
32,250
64,500
£
0
0
964,586
405,328
572,250
135,296
0
–
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
–
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
112
1. 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.
2. David Lowden was appointed Chairman on 11 May 2022 following the stepping down of Sir Ian Powell as Chairman and non-executive director
on 10 May 2022. David stepped down from the position of senior independent director on his appointment as Chairman. Fees for 2022 reflect
the change in roles and are shown on a pro-rata basis.
3. Details of the performance assessment and vesting of the 2020 LTIP award held by Jon Lewis are set out on page 115. The impact of share
price movements on his awards, based on the average three-month share price to 31 December 2022 (25.23p), is as follows:
Face value of awards expected to vest, based on the share price at grant (1,770,000 shares x 15% x 32.72p)
Expected value of awards at vesting (1,770,000 shares x 15% vesting x 25.23p)
Impact of share price movements on vesting values
£86,872
£66,986
£19,886
The 2019 LTIP awards have been restated in the table above in respect of the prior year from £98,811 (based on a three-month average share
price to 31 December 2021 of 44.34p) to £46,308 (based on a share price of 20.78p as at the 21 March 2022 vesting date). RSAs granted to
Jon Lewis and Tim Weller in May 2021 and April 2022 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. His remuneration for 2021 is shown from the date of his appointment to 31 December 2021,
albeit reflecting a period of unpaid leave. The benefits figure for 2022 includes an element of backdated car allowance (£1,342) which was
underpaid in 2021.
5. Georgina Harvey was appointed Senior Independent Director on 1 July 2022 following David Lowden’s appointment as Chairman. Fees for
2022 reflect the change in role part way through the year.
6. Brian McArthur-Muscroft was appointed as a non-executive director on 1 June 2022 and replaced Matthew Lester as Chair of the Audit and
Risk Committee on 1 July 2022. Fees for 2022 are shown from 1 June 2022 to 31 December 2022 and reflect his appointment as chair of a
committee from 1 July 2022.
7. Nneka Abulokwe was appointed as a non-executive director on 1 February 2022. Fees for 2022 are shown from 1 February 2022 to
31 December 2022.
Annual bonus for 2022 (audited)
The annual bonus for 2022 was operated at normal levels (200% of salary for the CEO and 175%
of salary for the CFO). The bonus was based on a combination of revenue, profit before tax (PBT)
reported free cash flow (all equally weighted and totalling 80% of maximum bonus) and strategic/
individual objectives (20% of maximum bonus). For each performance measure, 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/individual targets are set out below.
Financial targets (80% of the bonus)
Weighting (% of
maximum bonus)
Threshold target
(25% vests)
Target
(50% vests)
Stretch
(100% vests)
Actual
performance1
Revenue
PBT
Free cash flow
Financial measures
bonus payout
26.67%
26.67%
26.67%
80%
£2,785m
£2,932m
£3,079m
£62m
£14m
£70m
£23m
£79m
£32m
£2,846m
£74m2
£29m
42%
Achievement
against financial
performance
weighting
35.3%
72.3%
50.0%3
8. 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.
9. Janine Goodchild was appointed as employee non-executive director on 1 July 2022. Fees for 2022 are shown from 1 July 2022 to 31
December 2022. In addition to her fee as an employee non-executive director, she received earnings from the Group as an employee
amounting to £24,421 for the period 1 July 2022 to 31 December 2022.
10. Sir Ian Powell stepped down as Chairman and non-executive director on 10 May 2022. Fees for 2022 are shown from 1 January 2022 to
1. Excluding the impact of 2022 disposals (and planned disposals which have met the criteria to be excluded as business exits)
2. Actual PBT performance includes a c.£4.9m accrual in respect of the Board’s decision to repay UK Government furlough support in 2023 that
was received by Capita during 2021 (effectively reducing the PBT payout from c.100% to c.72% of this part of the bonus award.
3. Following a review of the broader stakeholder experience when assessing performance against the financial targets that were set in respect of
the year ended 31 December 2022, and noting the utilisation of an invoice discounting facility to a greater extent than had been assumed in the
business plan, the committee exercised negative discretion post year end to reduce the free cash flow element from a c.83% payout for this part
of the award to a target payout (ie a 50% payout for this part of the bonus award).
10 May 2022 and include an element of accrued holiday pay.
11. Gordon Boyd stepped down from the Board and as interim CFO 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) but 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 12 May 2021 and include an element of
accrued holiday pay.
12. Matthew Lester stepped down as a non-executive director on 30 June 2022. Fees for 2022 are shown from 1 January 2022 to 30 June 2022.
13. Baroness Lucy Neville-Rolfe stepped down as a non-executive director on 14 December 2021. Fees disclosed for 2021 are for the period from
1 January 2021 to 14 December 2021.
14. Gillian Sheldon stepped down as a non-executive director 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.
15. Andrew Williams stepped down as a non-executive director on 11 May 2021. Fees disclosed for 2021 are for the period from 1 January 2021
to 11 May 2021.
16. Lyndsay Browne and Joseph Murphy stepped down as employee directors on 30 June 2022. Fees for 2022 are shown from 1 January 2022
to 30 June 2022. In addition to their fee as an employee non-executive director, both received earnings from the Group as an employee
amounting to £54,763 for Lyndsay Browne and £35,605 for Joseph Murphy for the period from 1 January 2022 to 30 June 2022. As part of his
participation in the Capita share ownership scheme Joseph Murphy received 504 matching shares (£135). The value of the matching shares is
the sum of the cost of purchase over the period 1 January 2022 to 30 June 2022. The figures for earnings and matching shares for 2021 are
disclosed in footnote 7 of the single figure table in the 2021 report.
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
113
Strategic/individual objectives (20% of the bonus)
Achievement against the strategic and individual objectives represented 20% of the total annual bonus opportunity for each executive director. The objectives were focused on ESG measures
incorporating customer, employee, diversity & inclusion and net zero and an individual role-based measure. The objectives and targets were aligned for both executive directors.
Jon Lewis and Tim Weller
Objectives
Weighting
(% of maximum bonus) Assessment
Score
(% of maximum bonus)
Customer – cNPS
4%
Deliver improvement in
customer net promoter
score (cNPS) for Capita
Group (excluding Portfolio)
by the end of 2022.
Employee – eNPS
4%
Deliver improvement in
employee net promoter
score (eNPS) for Capita
Group by the end of 2022.
Diversity & inclusion
4%
Meet/exceed Group
diversity & inclusion
hurdles. NB, If neither
threshold target was met,
there would have been no
payout for this objective.
Threshold
Maintain score
Target
Maximum
Actual
+2 point improvement
+4 point improvement
+8 point improvement (max)
4%
Following a review of cNPS in respect of the year ended 31 December 2022, which remains key to the delivery of Capita’s strategy, the committee noted
a significant improvement compared with the year ended 31 December 2021. As such, the committee was satisfied that this objective was met in full.
Threshold
Target
Maximum
Actual
+2 point improvement
+5 point improvement
+10 point improvement
+15 point improvement (max)
4%
Following a review of eNPS in respect of the year ended 31 December 2022, the committee was pleased to see a material improvement when compared
with the 2021 outcome. As such, the committee was satisfied that this objective was met in full.
Achieve minimum of 11% ethnic minority (including 2% Black)
Threshold
Target
Maximum
Actual
2%
11% (including 2% Black)
+4 point improvement
+8 point improvement
Achieve minimum of female average representation across senior/middle management in the UK
Threshold
Maximum
Target
13.9% ethnic minority
(including 3% Black) (below target)
Actual
38%
+4 point improvement
+8 point improvement
+4 point improvement (target)
In assessing this target, the committee noted that both hurdles were achieved with 13.9% ethnic minority (including 3% Black) and 41.8% female average
representation across senior/middle management in the UK. Performance against the targets for the Inclusion Index was at target with a +4 improvement.
The committee therefore considers this objective to be partially met.
Objectives
Net zero
Ensuring all divisions and
functions have plans in
place which achieve the
following: (i) ensure
reporting on carbon
emissions is built into the
monthly performance
review process (and an
equivalent functional/
executive committee
process) to raise
awareness and familiarise
all colleagues with the net
zero challenge; (ii) agree
baseline data and set
targets for 2023 as part of
the business planning
process; and (iii) agree
and start to deliver ‘no
regret’ changes to reduce
carbon emission in 2022.
Debt reduction
Contribute to debt
reduction through the
successful execution of
the 2022 divestment plan.
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
114
Weighting
(% of maximum bonus) Assessment
4%
Threshold
Target
Maximum
Emissions reporting established in
the monthly performance review/
functional equivalent routine by
year end and 2023 targets set
As for threshold but to include a
detailed and executable plan for
2023–25 (first phase of net zero)
As target but to include
demonstrable reduction in
Capita’s carbon footprint during
the year
Actual
Met in full
Score
(% of maximum bonus)
4%
In assessing this target, the committee noted that emissions reporting had been successfully established in the monthly performance review process,
a detailed and executable plan had been developed for 2023–25, and Capita’s overall carbon footprint reduced by 16,323 tonnes CO2e. As such, the
committee was satisfied that this objective was met in full.
4%
Target
Divest in accordance with the
desired timeline and within the
agreed price range
Maximum
Divest in accordance with the
desired timeline and deliver at the
top end of the agreed price range
Actual
Met in full
In assessing this target, the committee noted the proceeds received from the divestment programme (together with the sale of Pay360) which were
consistent with the Board’s desired timelines and which resulted in a significant strengthening of Capita’s balance sheet and reduced net debt position
ahead of market expectations. As such, the committee was satisfied that this objective was met in full.
4%
18% (out of 20%)
Total
20%
Summary of total 2022 bonus awards
Total financial
Strategic/individual
Total (%)
Total bonus (£)
Jon Lewis
Tim Weller
% of maximum
% of salary
% of maximum
% of salary
42%
18%
60%
120%
£897,600
42%
18%
60%
105%
£572,250
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
115
As noted on page 89, Capita established an ESG committee during 2022. One of the ESG
committee’s responsibilities is to review performance against ESG metrics in the MBP and to
make recommendations to the committee on outturn. Following a review of financial and personal
performance and the ESG committee recommendations by the committee post year end, annual
bonuses of 60% of the maximum (reduced from 69% of the maximum following the committee’s
decision to reduce the free cash flow performance to a target performance level). This equates
to 120% of salary for the CEO and 105% of salary for the CFO. Consistent with the shareholder
approved remuneration policy, 50% of the bonus awards will be deferred into Capita plc shares
for three years.
Long-term incentive awards due to vest in 2023 based on performance
to 31 December 2022 (audited)
The performance assessment in respect of the 2020 LTIP awards1 held by Jon Lewis is as follows:
Performance measure
Weighting
Threshold
(25% vests)
Target
(50% vests)
Stretch
(100% vests)
Vesting
Result
(% of maximum)
Relative TSR
Below
median
0%
75% Median TSR
performance
vs the
constituents
of the FTSE
250
(excluding
investment
trusts)
Upper
quartile 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%
Responsible business scorecard:
Customer
10%
Employee
Suppliers adherence to
prompt payment code
10%
5%
3 point
positive
swing in
NPS
3 point
positive
swing in
NPS
–
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
20 point
positive
swing
Below
threshold
10%
0%
Exceed
5%
1. The awards are subject to an underpin requiring the assessment of the underlying financial and operational performance of Capita over the
performance period.
The TSR performance period runs for three years from the date of grant (16 April 2020) and
therefore has not yet concluded. Based on performance to 31 December 2022, Capita’s TSR
performance against the FTSE 250 constituents (excluding investment trusts) was below median
and therefore 0% of this part of the award is expected to vest. Actual vesting will be assessed at the
end of the three-year performance period and any change in the vesting outcome and value of the
LTIP 2020 for the purposes of the single figure of remuneration will be shown in next year’s report.
While employee engagement has improved significantly during 2022, it fell below the threshold set
for the 2020 LTIP award resulting in zero vesting for this element. However, performance against
the customer NPS and supplier targets (which are considered to be critical underpins to the
performance and improvement of the business) were very strong over the performance period.
A 20 point positive swing in cNPS delivered full vesting of this element. In addition, adherence to the
supplier prompt payment code exceeded the target set (with a record level of suppliers paid in less
than 31 days) resulting in maximum vesting of this element.
Based on the customer and supplier performance, the committee believes that the 15% vesting is
appropriate due to progress made in improving customer satisfaction and supplier payment scores.
In addition to noting that the 2020 LTIP award was reduced by 70% compared with normal award
levels as a % of salary (which together with the subsequent share price decline has significantly
impacted the estimated vesting value) and progress made in respect of the customer and supplier
targets (both critical to the delivery of Capita’s strategy), the committee also considered Capita’s
underlying performance over the three-year performance period. In this regard, it noted the material
progress that has been made in delivering the strategy including the performance of the disposal
programme, the significant strengthening of the balance sheet and strong operational delivery.
Based on the above outcomes, the estimated vesting of the long-term incentive for Jon Lewis in
2023 is:
Shares vesting based
on performance
(15% of maximum)
Awards granted
Dividend
equivalent shares1
Total shares
expected to vest
Estimated value
at vesting2
Jon Lewis
1,770,000
265,500
–
265,500
£66,986
1. No dividend equivalent shares are payable on the 2020 LTIP award.
2. Based on the average three-month share price to 31 December 2022 of 25.23p.
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
116
RSAs granted in 2022 (audited)
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.
RSAs were granted under the Capita Executive Plan in April 2022 as follows:
Name of director
Jon Lewis
Tim Weller
Number of shares
awarded
3,481,985
2,537,008
Face value of
RSA
£748,000
£545,000
Percentage
of salary
100%
100%
The CEO’s award level was reduced from 150% to 100% of salary to reflect the prevailing share
price at grant and noting the decision to continue to operate a TSR underpin for these awards
(which was significantly underwater at the date of grant). No reduction was made to the CFO’s
award level given Tim Weller’s recent recruitment and noting that the challenging TSR underpin
was not originally intended to apply when the CFO’s remuneration package was agreed in 2021.
RSAs granted to executive directors in 2022 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 2022 awards are as follows:
• 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).
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
117
David Lowden
Jon Lewis
Tim Weller
Georgina Harvey
Brian McArthur-Muscroft
Nneka Abulokwe
John Cresswell
Neelam Dhawan
Janine Goodchild
Sir Ian Powell2
Matthew Lester2
Lyndsay Browne3
Joseph Murphy3
Beneficially
held interests at
Beneficially
held interests at
Interests in share
incentive schemes,
awarded without
performance
conditions at
Interests in share
incentive schemes,
awarded without
performance
conditions at
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
31 December 2022
31 December 2021
31 December 2022
31 December 2021
31 December 2022
31 December 2021
31 December 2022
31 December 2021
Percentage of
shareholding target
requirement at
31 December 20221
150,000
1,414,538
270,689
6,000
0
0
65,500
0
0
100,000
49,186
11,241
14,431
75,000
795,303
262,854
6,000
–
–
20,500
–
–
100,000
49,186
11,240
11,379
–
868,456
327,276
–
–
–
–
–
–
–
–
–
–
–
516,029
–
–
–
–
–
–
–
–
–
–
–
–
7,421,085
3,619,703
–
–
–
–
–
–
–
–
–
–
–
5,721,886
1,082,695
–
–
–
–
–
–
–
–
–
–
–
738,877
–
–
–
–
–
–
–
–
–
–
–
–
1,183,666
–
–
–
–
–
–
–
–
–
–
–
–
25%
10%
–
–
–
–
–
–
–
–
–
–
1. Calculated using the closing share price on 31 December 2022 (24.26p).
2. Ian Powell and Matthew Lester’s beneficially held interests are shown at the date of their resignations on 10 May 2022 and 30 June 2022 respectively.
3. Lyndsay Browne and Joseph Murphy’s beneficially held interests are shown at the date of their resignation on 30 June 2022.
Between the end of the 2022 financial year and 1 March 2023, Jon Lewis and Tim Weller acquired 2,488 shares under the Capita share ownership plan, increasing their beneficial interest in ordinary
shares of the Company to 1,415,782 and 271,933 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
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
118
Share plans (audited)
The performance targets and underpin for the 2020 LTIP award are as follows:
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 20221
Name of director
Jon Lewis
Tim Weller
2022 award2
868,456
327,276
Total
868,456
327,276
1. As a result of no bonus award for 2019 performance and no bonus operated for 2020, there were no deferred bonus awards in 2020 or 2021.
2. The value of the 2022 deferred award granted on 25 March 2022 was included in the annual bonus value in the 2021 single-figure table (and is
included in the comparative figures for 2021 in the table on page 111). This award is due to vest on 25 March 2025.
Unvested LTIP award
Name of director
Jon Lewis
2020 award
1,770,000
Details of the performance targets and expected vesting in respect of the 2020 award are set out on
page 115.
Performance
measure
Weighting
Relative TSR
75%
Performance underpin
Assessment of
the underlying
financial and
operational
performance of
Capita over the
performance
period
Threshold (25%
vests)
Median TSR
performance vs
the constituents
of the FTSE 250
(excluding
investment
trusts)
Target (50% vests)
Stretch (100% vests)
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:
Customer
10%
Employee
10%
5%
Suppliers
adherence to
prompt payment
code
Unvested restricted share awards
Name of director
Jon Lewis
Tim Weller
3 point positive
swing in NPS
3 point positive
swing in NPS
–
6 point positive
swing in NPS
6 point positive
swing in NPS
Maintain current Exceed current
9 point positive
swing in NPS
9 point positive
swing in NPS
2021 award
2022 award
2,169,100
1,082,695
3,481,985
2,537,008
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
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
119
The underpins for the 2022 awards are as follows:
Board changes
• 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).
Sir Ian Powell and Matthew Lester stepped down from the Board on 10 May 2022 and 30 June
2022 respectively. No payments were made or are payable outside of their normal annual fees up
to cessation. Lyndsay Browne and Joseph Murphy stepped down from the Board as employee
non-executive directors on 30 June 2022. No payments were made or are payable outside of their
normal annual fees up to cessation. However, they both remained employees and so continued to
receive earnings from the Group as employees.
Satisfaction of options
When satisfying awards made under its share plans, the Company uses newly issued, treasury
or purchased shares as appropriate.
Payments to former directors (audited)
No payments were made to former directors.
External appointments for executive directors
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 4.26% of the Company’s share capital at 31 December 2022.
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
During the year Jon Lewis served as a non-executive director for Equinor ASA. He received and
retained fees of NOK 764,271 for the period from 1 December 2021 to 30 November 2022. 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.
Date of joining the Board
Non-executive directors’ terms of engagement
Non-executive directors
David Lowden1
Georgina Harvey2
Brian McArthur-Muscroft
Nneka Abulokwe
John Cresswell
Neelam Dhawan
Sir Ian Powell1
Matthew Lester3
1 January 2021
1 October 2019
1 June 2022
1 February 2022
17 November 2015
1 March 2021
1 September 2016
1 March 2017
Expiry date of current appointment
9 May 2025
1 July 2025
31 May 2025
31 January 2025
16 November 2024
29 February 2024
10 May 2022
30 June 2022
1. David Lowden was appointed Chairman on 11 May 2022 and stepped down from his role as senior independent director. Sir Ian Powell stepped
down from the Board as Chairman and non-executive director on 10 May 2022.
2. Georgina Harvey was appointed Senior Independent Director on 1 July 2022.
3. Matthew Lester stepped down from the Board on 30 June 2022.
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
120
Percentage change in remuneration levels
The table below shows the change in base compensation, benefits and annual bonus for the Board directors in the 2022 and 2021 financial years, compared with the average for all employees of the
Company (Capita plc):
2022
2021
2020
Executive directors1
Jon Lewis2
Tim Weller3
Gordon Boyd4
Patrick Butcher5
Non-executive directors1
David Lowden6
Georgina Harvey7
Brian McArthur-Muscroft8
Nneka Abulokwe8
John Cresswell
Neelam Dhawan9
Janine Goodchild8
Sir Ian Powell10
Matthew Lester10
Baroness Lucy Neville-Rolfe11
Gillian Sheldon11
Andrew Williams11
Lyndsay Browne12
Joseph Murphy12
Employee population13
Base
salary/fees
Taxable
benefits14
3.2%
0%
–
–
286.7%
14%
–
–
0%
0%
–
0%
0%
–
–
–
0%
0%
5%
-4.5%
23%
–
–
100%
–
–
–
–
540%
–
100%
–
–
–
–
–
–
7.4%
Annual
bonus
150%
132%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38.1%
Base
salary/fees
Taxable
benefits14
14.3%
–
0%
–
–
14.3%
–
–
14.3%
–
–
14.3%
13.9%
14.3%
14.3%
14.3%
14.3%
14.3%
2.8%
5.1%
–
100%
-100%
–
–
–
–
–
–
–
–
–
–
100%
100%
–
–
4.4%
Annual
bonus
100%2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123.2%
Base
salary/fees
Taxable
benefits14
Annual
bonus
-12.5%
–
–
-12.5%
–
-12.5%
–
–
-12.5%
–
–
-12.5%
-12.5%
-12.5%
-12.5%
-12.5%
-12.5%
-12.5%
5.5%
-36.9%
–
–
-10.8%
–
–
–
–
–
–
–
-100%
–
–
–
–
–
–
20.6%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-35.2%
1. The percentage change shown for the directors is based on the single figure information disclosed on page 111. The increase in salary/fees shown
as the comparative 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 in 2021 is therefore shown
as 100%.
3. Tim Weller was appointed to the Board on 12 May 2021. Comparative figures for 2021 are therefore unavailable. His salary, benefits and
annual bonus for 2021 have been annualised to show an approximate percentage change since 2021. The increase in benefits is due to
a backdated payment for car allowance (£1,342) which was underpaid in 2021.
8. Brian McArthur-Muscroft, Nneka Abulokwe and Janine Goodchild were appointed to the Board during 2022. Comparative figures for 2022
are therefore unavailable.
9. Neelam Dhawan was appointed to the Board during 2021. Comparative figures for 2021 are therefore unavailable. Her fee for 2021 has been
annualised to show the percentage change since 2021.The increase in benefits is due to additional fees payable for physical attendance at
board meetings as Neelam is based outside the UK.
10. Sir Ian Powell and Matthew Lester stepped down from the Board during 2022. For comparative purposes, their 2022 fees have been
annualised to show the percentage change since 2021.
4. Gordon Boyd received a base salary of £100,000 a month for the period of his appointment as interim CFO (16 November 2020 to 12 May
11. Baroness Lucy Neville-Rolfe, Gillian Sheldon and Andrew Williams stepped down from the Board during 2021. Comparative figures for 2022
2021) 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. Taxable benefits for Patrick Butcher reduced from £15,252 in 2020 to £905 in 2021.
6. David Lowden was appointed Chairman in May 2022. His fee for 2022 has been annualised to show the percentage change since 2021
following his change in role which has a significantly increased time commitment and associated fee. David was appointed to the Board during
2021, comparative figures for 2021 are therefore unavailable.
7. Georgina Harvey was appointed Senior Independent Director in July 2022. Her fee for 2022 has been annualised to show the percentage
change since 2021 following her change in role.
are therefore unavailable.
12. Lyndsay Browne and Joseph Murphy stepped down from the Board during 2022. For comparative purposes, their 2022 fees have been
annualised to show the percentage change (in fees as a non-executive employee director) since 2021.
13. The employee population information shown is for UK employees employed in the Capita plc entity.
14. Taxable benefits were £0 in 2021 but £839 and £16 for David Lowden and Sir Ian Powell in 2022 respectively. Taxable benefits were £0 in 2020 but
£1,309, £896 and £902 for Gordon Boyd, Gillian Sheldon and Andrew Williams respectively in 2021. The increases are therefore shown as 100%.
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
121
CEO pay ratio
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.
Year
2022
20211
20202
2019
25th percentile
50th percentile
75th percentile
Method
pay ratio
pay ratio
pay ratio
Option B
Option B
Option B
Option B
76:1
49:1
61:1
41:1
56:1
38:1
44:1
25:1
36:1
24:1
29:1
14:1
1. In accordance with the regulations, the 2021 CEO single figure has been updated to reflect the value of the LTIP based on the share price at the
vesting date. The 2021 pay ratio figures have therefore been adjusted accordingly.
2. 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 2022 remuneration figures for the employee at each quartile were determined with reference
to the financial year ending 31 December 2022. 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 2022 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 2022 full-time equivalent salary and total pay and benefits for the three
identified quartile point employees:
2022
Salary
Total pay and benefits
25th percentile (P25)
Median (P50)
75th percentile (P75)
£22,354
£23,188
£29,878
£31,821
£46,260
£48,707
The committee recognises that the 2022 ratios are higher than last year. The CEO’s single figure of
remuneration for 2022 is higher than the figure for 2021 (c.49% increase) for the following reasons:
• The CEO received a base salary increase of 3.17% (his first salary increase since appointment
in 2017).
• The 2022 single figure includes an annual bonus of £897,600 (60%) of maximum). This compares
with an annual bonus award of £359,020 in 2021.
• The value of the 2020 LTIP vesting outcome (included in the 2022 single figure) is higher than the
adjusted 2019 LTIP vesting outcome (included in the revised ratios for 2021).
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. 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 2022 gender pay gap data will be available on the government website
https://gender-pay-gap.service.gov.uk from April 2023.
Relative importance of the spend on pay
The table below shows the spend on employee costs in the 2022 and 2021 financial years,
compared with dividends:
Employee costs
Dividends
2022
£m
1,758.1
–
2021
£m
1,767.1
–
%
change
-0.51%
–
Corporate
governance
Directors’ remuneration report
continued
Capita plc
Annual Report 2022
122
Performance graph and CEO pay
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 past 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
£350
£300
£250
£200
£150
£100
£50
£0
01 Jan 13
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
31 Dec 22
Capita Group
FTSE All Share Index
FTSE 350 Support Services Index
The total remuneration figures for the CEO for 2022 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.
Year
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
CEO – single
figure of total
remuneration
£1,767,972
£1,185,415
£1,196,582
£789,678
£2,014,209
£741,376
£682,958
£2,520,428
£2,558,998
£2,326,250
Annual bonus
(vs max
opportunity)
Long-term
incentive (vs max
opportunity)
60%
24.8%
0%
0%
85%
0%
0%
50%
100%
75%
15%
12.5%
60%
0%
0%
0%
0%
71.4%
67.2%
54.5%
Note: the vesting percentages for the long-term incentives are averaged between the LTIP and the
DAB vesting rates for 2013 and 2015. For 2014, this is the actual vesting for the LTIP as there is no
DAB maturity in 2014. Note: figures for 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 2021 and 2020 CEO single figure have been updated
to reflect the value of the LTIPs for each year 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 2 March 2023.
Georgina Harvey
Chair
Remuneration Committee
2 March 2023
Financial
statements
Capita plc
Annual Report 2022
123
Financial
statements
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
124
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
KPMG LLP’s Independent
Auditor’s Report
To the members of Capita plc
1. OUR OPINION IS UNMODIFIED
In our opinion:
▪
▪
▪
▪
the financial statements of Capita plc give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 31 December 2022, 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 Group and Parent Company financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
WHAT OUR OPINION COVERS
We have audited the Group and Parent Company financial statements of Capita plc (“the Company”) for the year ended 31 December
2022 included in the Annual Report, which comprise:
Group (Capita plc and its subsidiaries)
Parent Company (Capita plc)
The consolidated income statement, consolidated statement of
sheet,
comprehensive
consolidated statement of changes in equity, consolidated cash
flow statement and related notes, including the accounting
policies in section 1 to 6 to the Group financial statements.
consolidated
balance
income,
The company balance sheet, company statement of changes in equity
and the related notes, including the accounting policies in section 7 to
the Parent Company financial statements.
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 and matters included in this report are consistent with those discussed and included in our reporting to the Group Audit and Risk
Committee (“ARC”).
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.
OUR
INDEPENDENCE
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
2. OVERVIEW OF OUR AUDIT
FACTORS
DRIVING OUR
VIEW OF RISKS
Going concern remains a key audit matter. In
FY21, the risk was focussed on the adequacy of
disclosures around the material uncertainty. In
FY22, the risk has changed to now reflect the
judgement taken in reaching the conclusion of no
material uncertainty, and adequacy of
the
accompanying disclosures.
The
risk
level
remains stable
for
revenue
recognition reflecting the volume and magnitude of
contractual changes in the period. This KAM is
focussed upon variations or modifications for the
Group’s long-term contracts, for which accounting
can involve significant judgement.
The risk associated with impairment of goodwill is
deemed
as
increased, with
impairments
recognised at both 30 June and 31 December
within the Portfolio CGUs. There is inherent
uncertainty in forecasting of future cash flows,
which are the basis of recoverability. In particular
for CGUs, measured as value in use on a disposal
basis, the estimated disposal proceeds.
The
risk associated with capitalisation and
recoverability of contract assets is heightened due
to economic uncertainties,
including
inflation,
which
could
significantly
impact
contract
assumptions which drives the assessment of asset
recoverability and onerous contract provision.
For
the Parent Company,
recoverability of
investments
in, and amounts due
from,
its
subsidiaries
remains a KAM owing
to
the
materiality of these balances and the estimation of
the underlying cash flow forecasts. We note that no
direct investments are held within subsidiaries in
the Portfolio division.
Key
Audit Matters
Vs FY21
Item
(“KAMs”)
Going Concern
➔➔
Revenue Recognition
Impairment of Goodwill
Capitalisation and
Recoverability of contract
assets
Recoverability of the Parent
Company’s investments in,
and amounts due from, its
subsidiaries.
➔➔
4.1
4.2
4.3
4.4
➔➔
4.5
We continue to perform procedures over litigation and claims
provisions, defined benefit pension obligations and the
presentation of items excluded from adjusted profits.
However, the level of estimation uncertainty associated with
litigation and claims is lower than last year. Whilst we
consider defined benefit obligations to be a significant risk,
the completion of the triennial valuation and additional
contributions made in FY21 means we no longer consider it
a KAM. There is a reduced level of judgement associated
with the volume and value of items excluded from adjusted
results, which are set out in note 2.4 and 2.10 in the accounts.
We have therefore not assessed any of these as one of the
most significant risks in our current year audit and, therefore,
they are not separately identified in our report this year.
AUDIT
COMMITTEE
INTERACTION
During the year, the ARC met six times. KPMG are invited to attend all ARC meetings and are provided with an
opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each Key Audit
Matter, we have set out communications with the ARC in section 6, including matters that required particular judgement
for each. The matters included in the Audit and Risk Committee Chair’s report on pages 93 to 95 are materially consistent
with our observations of those meetings.
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.
We have not performed any non-audit services
during FY22 or subsequently which are prohibited
by the FRC Ethical Standard.
We were
first appointed as auditor by
the
shareholders for the year ended 31 December
2010. The period of
total uninterrupted
engagement is for the 13 financial years ended 31
December 2022.
The Group engagement partner is required to
rotate every 5 years. As these are the first set of
the Group’s financial statements signed by Ian
Griffiths, he will be required to rotate off after the
FY26 audit.
The average tenure of partners responsible for
component audits as set out in section 7 is 3 years,
with the shortest being 1 and the longest being 6.
Total audit fee (including interim
review)
£6.1m
Audit related assurance services
£1.55m
Non-audit fee as a % of total audit
and audit related fee %
20.3%
Date first appointed
18 August 2010
Uninterrupted audit tenure
13 years
Next financial period which
requires a rotation
Tenure of Group engagement
partner
Average tenure of component
signing partners
2030
1 year
3 years
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
125
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
2. OVERVIEW OF OUR AUDIT
FACTORS
DRIVING OUR
VIEW OF RISKS
Going concern remains a key audit matter. In
FY21, the risk was focussed on the adequacy of
disclosures around the material uncertainty. In
FY22, the risk has changed to now reflect the
judgement taken in reaching the conclusion of no
material uncertainty, and adequacy of
the
accompanying disclosures.
for
risk
level
remains stable
The
revenue
recognition reflecting the volume and magnitude of
contractual changes in the period. This KAM is
focussed upon variations or modifications for the
Group’s long-term contracts, for which accounting
can involve significant judgement.
Key
(“KAMs”)
Audit Matters
Vs FY21
Item
Going Concern
➔➔
Revenue Recognition
Impairment of Goodwill
Capitalisation and
Recoverability of contract
assets
Recoverability of the Parent
Company’s investments in,
and amounts due from, its
subsidiaries.
➔➔
4.1
4.2
4.3
4.4
➔➔
4.5
as
The risk associated with impairment of goodwill is
impairments
increased, with
deemed
recognised at both 30 June and 31 December
within the Portfolio CGUs. There is inherent
uncertainty in forecasting of future cash flows,
which are the basis of recoverability. In particular
for CGUs, measured as value in use on a disposal
basis, the estimated disposal proceeds.
The
risk associated with capitalisation and
recoverability of contract assets is heightened due
inflation,
to economic uncertainties,
which
contract
significantly
assumptions which drives the assessment of asset
recoverability and onerous contract provision.
including
impact
could
the Parent Company,
in, and amounts due
remains a KAM owing
recoverability of
For
its
investments
subsidiaries
the
materiality of these balances and the estimation of
the underlying cash flow forecasts. We note that no
direct investments are held within subsidiaries in
the Portfolio division.
from,
to
We continue to perform procedures over litigation and claims
provisions, defined benefit pension obligations and the
presentation of items excluded from adjusted profits.
However, the level of estimation uncertainty associated with
litigation and claims is lower than last year. Whilst we
consider defined benefit obligations to be a significant risk,
the completion of the triennial valuation and additional
contributions made in FY21 means we no longer consider it
a KAM. There is a reduced level of judgement associated
with the volume and value of items excluded from adjusted
results, which are set out in note 2.4 and 2.10 in the accounts.
We have therefore not assessed any of these as one of the
most significant risks in our current year audit and, therefore,
they are not separately identified in our report this year.
AUDIT
COMMITTEE
INTERACTION
During the year, the ARC met six times. KPMG are invited to attend all ARC meetings and are provided with an
opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each Key Audit
Matter, we have set out communications with the ARC in section 6, including matters that required particular judgement
for each. The matters included in the Audit and Risk Committee Chair’s report on pages 93 to 95 are materially consistent
with our observations of those meetings.
OUR
INDEPENDENCE
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.
We have not performed any non-audit services
during FY22 or subsequently which are prohibited
by the FRC Ethical Standard.
first appointed as auditor by
the
We were
shareholders for the year ended 31 December
2010. The period of
total uninterrupted
engagement is for the 13 financial years ended 31
December 2022.
The Group engagement partner is required to
rotate every 5 years. As these are the first set of
the Group’s financial statements signed by Ian
Griffiths, he will be required to rotate off after the
FY26 audit.
The average tenure of partners responsible for
component audits as set out in section 7 is 3 years,
with the shortest being 1 and the longest being 6.
Total audit fee (including interim
review)
£6.1m
Audit related assurance services
£1.55m
Non-audit fee as a % of total audit
and audit related fee %
20.3%
Date first appointed
18 August 2010
Uninterrupted audit tenure
13 years
Next financial period which
requires a rotation
Tenure of Group engagement
partner
Average tenure of component
signing partners
2030
1 year
3 years
Financial
statements
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126
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
3. GOING CONCERN, VIABILITY AND PRINCIPAL RISKS AND UNCERTAINTIES
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’s and the Parent Company’s financial position means
that this is realistic. They have also concluded that there are no material uncertainties that could cast significant doubt over their ability to
continue as a going concern from the date of approval of the financial statements to 31 August 2024 (“the going concern period”).
GOING CONCERN
Our conclusions
An explanation of how we evaluated management’s assessment of going concern is set out
Summary of our conclusions
in the related key audit matter in section 4.1 of this report.
We found the directors’ use of the going
concern basis of accounting without any
material uncertainty for the Group and
Parent Company to be acceptable.
Our conclusions based on those procedures described in section 4.1 of this report are:
▪ we consider that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate;
▪ we have not identified, and concur with the directors’ assessment that there is not, a
material uncertainty related to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or Parent Company's ability to continue as a going
concern for the going concern period;
▪ we have nothing material to add or draw attention to in relation to the directors’ statement
in section 1 to the financial statements on the use of the going concern basis of
accounting with no material uncertainties that may cast significant doubt over the Group
and Parent Company’s use of that basis for the going concern period; and
▪ The related statement under the Listing Rules set out on page 64 is materially consistent
with the financial statements and our audit knowledge.
However, 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 above conclusions are not a guarantee that the Group or the Parent Company
will continue in operation.
DISCLOSURES OF EMERGING AND PRINCIPAL RISKS AND LONGER-TERM VIABILITY
Our responsibility
Our reporting
We are required to perform procedures to identify whether there is a material inconsistency
We have nothing material to add or draw
between the directors’ disclosures in respect of emerging and principal risks and the viability
attention to in relation to these
statement, and the financial statements and our audit knowledge.
disclosures.
Based on those procedures, we have nothing material to add or draw attention to in relation
We have concluded that these
disclosures are materially consistent with
the financial statements and our audit
knowledge.
to:
▪
▪
▪
liquidity;
and
the directors’ confirmation within the Corporate Governance statement on page 97 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
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;
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 64 under the Listing
Rules.
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.
KPMG LLP’s Independent Auditor’s Report To the members of Capita plc MATERIALITY (ITEM 6 BELOW) The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement. We have determined overall materiality for the Group financial statements as a whole at £6.0m (FY2Y1: £6.0m) and for the Parent Company financial statements as a whole at £5.5m (FY21: £5.5m). A key judgement in determining materiality was the most relevant metric to select as the benchmark, by considering which metrics have the greatest bearing on shareholder decisions. Consistent with FY21, we determined that Group revenue of £3,014.6m, normalised by excluding revenue in relation to business exits of £168.8m, as disclosed in note 2.8, remains the benchmark for the Group, of which it represents 0.21% (FY21: 0.20%). This reflects the continuing volatility in profit before tax from continuing operations, with total revenues providing a more stable measure year on year. Total revenue is also a significant focus for management and external stakeholders. Materiality for the Parent Company financial statements was determined by reference to total Company assets and represents 0.15% of the Company's total assets (FY21: 0.15%). Group Group materiality GPM Group performance materiality HCM Highest component materiality PLC Parent Company Statutory materiality LCM Lowest component materiality AMPT Audit misstatement posting threshold GROUP SCOPE (ITEM 7 BELOW) We have performed risk assessment and planning procedures to determine which of the Group’s components are likely to include risks of material misstatement to the Group financial statements, the type of procedures to be performed at these components and the extent of involvement required from our component auditors around the world. Of the Group’s components we subjected 15 (FY21: 22) to full scope audits and performed specific risk-focused audit procedures over litigation and claims provisions on 1 component (FY21: 1). The components within the scope of our work accounted for the percentages illustrated opposite. In addition, we have performed Group level analysis on the remaining components to determine whether further risks of material misstatement exist in those components. We consider the scope of our audit, as communicated to the Audit and Risk Committee, to be an appropriate basis for our audit opinion. Coverage of Group financial statements 2022 2021 Total Revenue 81% 86% Total profits and losses 79% 86% Total assets 89% 90% 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 and liabilities the Group holds on its balance sheet, and 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. Taking into account the nature of the Group’s operations, 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) statement in the front half of the annual report and considered consistency with the financial statements and our audit knowledge. 0.3 0.4 5.5 4.8 3.9 6.0 0.3 0.6 5.5 4.8 3.9 6.0 AMPTLCMPLCHCMGPMGroupMateriality levels used in our auditFY21 £mFY22 £m
Financial
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KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
3. GOING CONCERN, VIABILITY AND PRINCIPAL RISKS AND UNCERTAINTIES
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’s and the Parent Company’s financial position means
that this is realistic. They have also concluded that there are no material uncertainties that could cast significant doubt over their ability to
continue as a going concern from the date of approval of the financial statements to 31 August 2024 (“the going concern period”).
Summary of our conclusions
We found the directors’ use of the going
concern basis of accounting without any
material uncertainty for the Group and
Parent Company to be acceptable.
GOING CONCERN
An explanation of how we evaluated management’s assessment of going concern is set out
in the related key audit matter in section 4.1 of this report.
Our conclusions
Our conclusions based on those procedures described in section 4.1 of this report are:
▪ we consider that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate;
▪ we have not identified, and concur with the directors’ assessment that there is not, a
material uncertainty related to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or Parent Company's ability to continue as a going
concern for the going concern period;
▪ we have nothing material to add or draw attention to in relation to the directors’ statement
in section 1 to the financial statements on the use of the going concern basis of
accounting with no material uncertainties that may cast significant doubt over the Group
and Parent Company’s use of that basis for the going concern period; and
▪ The related statement under the Listing Rules set out on page 64 is materially consistent
with the financial statements and our audit knowledge.
However, 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 above conclusions are not a guarantee that the Group or the Parent Company
will continue in operation.
DISCLOSURES OF EMERGING AND PRINCIPAL RISKS AND LONGER-TERM VIABILITY
Our responsibility
Our reporting
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.
We have nothing material to add or draw
attention to in relation to these
disclosures.
We have concluded that these
disclosures are materially consistent with
the financial statements and our audit
knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation
to:
▪
▪
▪
the directors’ confirmation within the Corporate Governance statement on page 97 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 64 under the Listing
Rules.
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.
Financial
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KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
4. KEY AUDIT MATTERS
WHAT WE MEAN
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.
We include below the Key Audit Matters in decreasing order of audit significance 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, for the
purpose of our audit of the financial statements as a whole. We do not provide a separate opinion on these matters.
4.1 GOING CONCERN (GROUP AND PARENT COMPANY)
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
Going concern disclosures with no material
uncertainties – section 1 to the Group financial
statements.
➔➔
In FY21, the risk was focussed on the
adequacy of disclosures around the
material uncertainty.
In FY22, the risk has changed to now
reflect the judgement taken in reaching
the conclusion of no material uncertainty,
and adequacy of the accompanying
disclosures.
FY22: We found the Group's
judgement that there was no
material uncertainty
to be
disclosed, to be balanced.
We found the going concern
disclosure in section 1 without
any material uncertainty to be
proportionate.
FY21: We
the going
found
concern disclosure in section
1 with a material uncertainty to
be proportionate.
Description of the Key Audit Matter
Our response to the risk
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 2024
from the date of approval of these financial statements (the ‘going
concern period’).
The risks most likely to adversely affect the Group’s and Parent
Company’s available financial resources over this period include,
but are not limited to, the following:
•
•
•
•
An inability to achieve the growth targets in the Group’s
business plan;
Increases in staff attrition, impacting upon ability to
deliver services or secure new opportunities;
Adverse impact from inflationary pressures, such as
interest rates; and
A significant unexpected downturn in performance in
one of the Group’s businesses.
There are also less predictable but realistic second order impacts,
such as business disruption in the event of a cyber incident, or
adverse changes in UK Government policy.
The risk for our audit was whether or not those risks were such that
they amounted to a material uncertainty that may have cast
significant doubt about the ability to continue as a going concern.
Had they been such, then that fact would have been required to
have been disclosed.
We considered whether these risks could plausibly affect the liquidity or
covenant compliance in the going concern period by assessing the directors’
sensitivities over the level of available financial resources and covenant
thresholds indicated by the Group’s financial forecasts taking account of
severe, but plausible, adverse effects that could arise from these risks
individually and collectively.
Our procedures to address the risk included:
Assessing transparency: We assessed whether the matters included in
the going concern disclosure give a full and accurate description of the
directors’ assessment, including the judgements made, identified risks and
mitigating actions.
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. We critically assessed
whether economic headwinds in particular inflation risks, have been
sufficiently factored in the forecast cash flows, along with the risks and
uncertainties associated with the Group’s customers, suppliers and
workforce.
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 assessed
whether these were sufficiently taken into consideration in the projections
prepared to support the base case and the downside risks applied.
Test of detail: 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 and cost inflationary
assumptions. We evaluated these via enquiries with each of the divisional
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
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
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.
Funding assessment: We read the revolving credit facility (RCF)
agreement to understand the terms including covenant requirements and
any restrictions in the use of funds. We also read the Bridge facility
agreement entered into in February 2023 which will provide additional
liquidity from 1 January 2024. We re-performed the key financial covenants
calculations for 30 June 2023 and 2024 and 31 December 2023, assessing
compliance at these dates.
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.
We evaluated the refinancing risk, including renewal of the RCF and
additional sources of debt finance. This included consideration of the
previous RCF extensions secured, the additional bridging facility signed in
February 2023 and potential factors which remain outside of the Group’s
controls, including debt market conditions at the time of the fund raising.
Sensitivity analysis: We critically challenged 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 organic growth and the ongoing effects from
inflation based on the impacts experienced by the Group during the year.
We assessed identified risk assumptions to ensure that they reflected a more
likely than not chance of occurring under the downside scenarios. We also
challenged the mitigating actions, to identify whether these were reasonable
and within the direct control of the Group.
Evaluating directors’ intent: we evaluated the achievability of the actions
the directors consider they would take to improve the position should the
risks materialise, which included reductions in discretionary spend and
capex investment, taking into account the extent to which the directors can
control the timing and outcome of these. This included consideration of the
nature and quantum of historical cost savings delivered and the feasibility of
implementing these over the going concern period.
Assessment of the risk and potential mitigations in the downside case, including directors’ intent should risks materialise
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
Going concern period of assessment
Assessment of the level of refinancing risk faced by the Group
Assessment of historical forecasting accuracy and current performance
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
▪
▪
▪
▪
▪
Our findings
The ability of the Group to secure a further extension or refinancing of the RCF ahead of its expiry in August 2024
The level of severity in the downside assumptions and if proposed mitigations are executable and within control of the Company
We found the Group's judgement that there was no material uncertainty to be disclosed, to be balanced.
We found the going concern disclosure in section 1 without any material uncertainty to be proportionate (FY21: we found the going concern
disclosure in section 1 with a material uncertainty to be proportionate).
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KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
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.
Funding assessment: We read the revolving credit facility (RCF)
agreement to understand the terms including covenant requirements and
any restrictions in the use of funds. We also read the Bridge facility
agreement entered into in February 2023 which will provide additional
liquidity from 1 January 2024. We re-performed the key financial covenants
calculations for 30 June 2023 and 2024 and 31 December 2023, assessing
compliance at these dates.
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.
We evaluated the refinancing risk, including renewal of the RCF and
additional sources of debt finance. This included consideration of the
previous RCF extensions secured, the additional bridging facility signed in
February 2023 and potential factors which remain outside of the Group’s
controls, including debt market conditions at the time of the fund raising.
Sensitivity analysis: We critically challenged 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 organic growth and the ongoing effects from
inflation based on the impacts experienced by the Group during the year.
We assessed identified risk assumptions to ensure that they reflected a more
likely than not chance of occurring under the downside scenarios. We also
challenged the mitigating actions, to identify whether these were reasonable
and within the direct control of the Group.
Evaluating directors’ intent: we evaluated the achievability of the actions
the directors consider they would take to improve the position should the
risks materialise, which included reductions in discretionary spend and
capex investment, taking into account the extent to which the directors can
control the timing and outcome of these. This included consideration of the
nature and quantum of historical cost savings delivered and the feasibility of
implementing these over the going concern period.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
▪
▪
Going concern period of assessment
Assessment of the level of refinancing risk faced by the Group
Assessment of the risk and potential mitigations in the downside case, including directors’ intent should risks materialise
Assessment of historical forecasting accuracy and current performance
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
▪
The ability of the Group to secure a further extension or refinancing of the RCF ahead of its expiry in August 2024
The level of severity in the downside assumptions and if proposed mitigations are executable and within control of the Company
Our findings
We found the Group's judgement that there was no material uncertainty to be disclosed, to be balanced.
We found the going concern disclosure in section 1 without any material uncertainty to be proportionate (FY21: we found the going concern
disclosure in section 1 with a material uncertainty to be proportionate).
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4.2 REVENUE RECOGNITION
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
▪
Timing of accounting for contract modifications and basis for revenue recognition applied across the long-term contract portfolio
Long-term
contractual
revenue
Deferred
Income
FY22
FY21
£2,236.2m
£2,325.2m
➔➔
£640.7m
£794.7m
Risk remains as stable
vs FY21, reflecting the
volume and magnitude
of contractual changes
in the period.
FY22: Balanced
FY21: Balanced
Description of the Key Audit Matter
Our response to the risk
Subjective Judgement
The Group has many complex and bespoke contract arrangements which can span
many years and involve the provision of more than one performance obligation. These
long-term contracts are held within the Public Service and Experience Divisions of the
Group.
Significant contract variations or modifications may give rise to judgement as to the
impact for revenue recognition. These can arise throughout the year.
In the event of a full or partial termination, judgement arises in determining the effective
date to trigger re-profiling of deferred income held, particularly where services are being
handed back or across to another provider.
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 recognition. The opportunity is considered to apply to these long-
term contracts, given the factors noted above.
Disclosure quality
There is a risk that the disclosures presented are not sufficient to explain the revenue
recognition accounting policies and the key judgements applied.
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.
Our procedures to address the risk included:
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 Group that set out the key judgements
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.
Our findings
In determining the treatment of revenue 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 (FY21: balanced). We found the
disclosures associated with the IFRS15 policies to be proportionate (FY21: ample).
4.3 IMPAIRMENT OF GOODWILL
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
Goodwill
(Total as per financial
statements)
FY22
FY21
£605.9m
£951.7m
Risk is increased against FY21 with
impairments recognised at both 30
June 2022 and 31 December 2022
within the Portfolio CGUs.
FY22: Balanced
FY21: Optimistic
Description of the Key Audit Matter
Our response to the risk
Forecast-based valuation
We performed the tests below rather than seeking to rely on any of
We consider the carrying value of goodwill and goodwill impairment to be a
the Group's controls because the nature of the balance is such that
significant audit risk. This reflects the inherent uncertainty involved in
we would expect to obtain audit evidence primarily through the
forecasting and discounting future cash flows, which are the basis of the
detailed procedures described.
assessment of recoverability, and also the estimate of expected proceeds
in relation to businesses anticipated for disposal.
Our procedures to address the risk included:
The focus of our procedures was the Experience CGU (goodwill carrying
value of £209.8m) and also those within the Portfolio Divisions (total
goodwill carrying value £111.5m). These CGUs were most sensitive to
changes in the underlying assumptions or were proposed for impairment.
Uncertainty in relation to the current macro-economic environment may
further impact the Group’s activities and performance and renders precise
forecasting of the underlying cashflows challenging.
The Board has the incentive to maximise the disposal proceeds from
businesses within the Portfolio Division. As a result, there could be bias
from management towards achieving a particular valuation, either due to
the potential to influence negotiations, or to maximise future gain on sale.
This increases the risk in relation to forecast assumptions for these specific
CGUs.
Disclosure quality
The financial statements (note 3.4) disclose the key assumptions
underlying the goodwill impairment calculation and the sensitivity of the
calculation to changes in these assumptions.
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 current
uncertainty surrounding the macro-economic environment.
Determination of recoverable amount: We have assessed the
judgements taken in respect to the Portfolio CGUs, including whether
value in use should be measured on a perpetual basis or based on
the future cash flows of the CGUs from continuing use up to estimated
date of disposal, plus an estimate of the sale proceeds less cost of
disposal.
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.
For the Portfolio CGUs which were measured using estimated sale
proceeds less costs of disposal, we reviewed the status of the
ongoing disposal programmes and evaluated the reasonableness of
expected disposal proceeds to correspondence with interested
parties, through multiples analysis and through consideration of prior
sales achieved.
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 of the current macro-economic environment. We also
assessed the forecast revenue growth with reference to the most
recent results for 2021 and 2022.
Benchmarking assumptions: We used external data and our own
internal valuation models to evaluate the key inputs and assumptions
for growth and discount rates.
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.
Comparing valuations: as an overall stand-back test 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
2022 and assessed the reasonableness of the factors identified by
the Board to explain the differences.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
Assessment of judgements linked to contract modifications and estimates in the year
Adequacy of accompanying disclosures in respect to revenue recognition in notes 2.1 and 2.2 to the financial statements
In situations where
there has been a significant
modification, termination, or partial termination, we
assessed
any
correspondence from the customer, to challenge the
effective date of the modification or termination. We also
challenged the judgements applied as to whether, in the
case of a partial termination, any deferred income should
be recognised
forward by
assessing the inter dependencies of the performance
obligations, and the initial contractual terms.
the
Assessing
disclosures in the financial statements to check that
these were sufficient and provided proportionate detail
of the revenue and profit recognition policies and of the
key judgements applied. This included an assessment
of whether notes 2.1 and 2.2 set out the impacts arising
from the accounting policies applied in relation to the
long-term contracts provided by the Group.
We challenged whether the key contract judgements
made by the Board are appropriate based upon the
underlying contractual terms and evidence obtained.
immediately or spread
transparency: We
considered
including
contract
terms
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Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
Timing of accounting for contract modifications and basis for revenue recognition applied across the long-term contract portfolio
Our findings
In determining the treatment of revenue 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 (FY21: balanced). We found the
disclosures associated with the IFRS15 policies to be proportionate (FY21: ample).
4.3 IMPAIRMENT OF GOODWILL
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
Goodwill
(Total as per financial
statements)
FY22
FY21
£605.9m
£951.7m
Risk is increased against FY21 with
impairments recognised at both 30
June 2022 and 31 December 2022
within the Portfolio CGUs.
FY22: Balanced
FY21: Optimistic
Description of the Key Audit Matter
Our response to the risk
Forecast-based valuation
We consider the carrying value of goodwill and goodwill impairment to be a
significant audit risk. This reflects the inherent uncertainty involved in
forecasting and discounting future cash flows, which are the basis of the
assessment of recoverability, and also the estimate of expected proceeds
in relation to businesses anticipated for disposal.
The focus of our procedures was the Experience CGU (goodwill carrying
value of £209.8m) and also those within the Portfolio Divisions (total
goodwill carrying value £111.5m). These CGUs were most sensitive to
changes in the underlying assumptions or were proposed for impairment.
Uncertainty in relation to the current macro-economic environment may
further impact the Group’s activities and performance and renders precise
forecasting of the underlying cashflows challenging.
The Board has the incentive to maximise the disposal proceeds from
businesses within the Portfolio Division. As a result, there could be bias
from management towards achieving a particular valuation, either due to
the potential to influence negotiations, or to maximise future gain on sale.
This increases the risk in relation to forecast assumptions for these specific
CGUs.
Disclosure quality
The financial statements (note 3.4) disclose the key assumptions
underlying the goodwill impairment calculation and the sensitivity of the
calculation to changes in these assumptions.
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 current
uncertainty surrounding the macro-economic environment.
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.
Our procedures to address the risk included:
Determination of recoverable amount: We have assessed the
judgements taken in respect to the Portfolio CGUs, including whether
value in use should be measured on a perpetual basis or based on
the future cash flows of the CGUs from continuing use up to estimated
date of disposal, plus an estimate of the sale proceeds less cost of
disposal.
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.
For the Portfolio CGUs which were measured using estimated sale
proceeds less costs of disposal, we reviewed the status of the
ongoing disposal programmes and evaluated the reasonableness of
expected disposal proceeds to correspondence with interested
parties, through multiples analysis and through consideration of prior
sales achieved.
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 of the current macro-economic environment. We also
assessed the forecast revenue growth with reference to the most
recent results for 2021 and 2022.
Benchmarking assumptions: We used external data and our own
internal valuation models to evaluate the key inputs and assumptions
for growth and discount rates.
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.
Comparing valuations: as an overall stand-back test 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
2022 and assessed the reasonableness of the factors identified by
the Board to explain the differences.
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Assessing transparency: We evaluated the adequacy of the
disclosures related to the estimation uncertainty, judgements made
and assumptions over the recoverability of goodwill, assessing the
level of detail included in the disclosures and performing an
assessment as to whether disclosure omissions identified were
material.
The effect of these matters is that, as part of our risk assessment, we determined
impact of inflation on the key assumptions, together with any
that the recoverable amount of contract assets and completeness and accuracy of
contract modifications agreed with the customer in response
the onerous contract provision have a high degree of estimation uncertainty, with a
to the economic environment, or more widely as part of
potential range of reasonable outcomes greater than our materiality for the financial
commercial discussions.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
▪
The Board’s judgement on the change in methodology for determination of recoverable amount for certain CGUs within the Portfolio
Division
Refinement of the significant risk to focus on specific CGUs within the Portfolio Division and the Experience CGU
Adequacy of the disclosures of goodwill impairment in section 3.4 to the financial statements
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
▪
▪
For two of the CGUs where recoverable amount was determined through value in use on a perpetual basis, the cash flow forecasts were
deemed to be a significant assumption for the estimate
The assumptions taken in respect to forecast net disposal proceeds for two of the Portfolio CGUs
Adequacy of sensitivity disclosures and the assessment as to what would constitute a reasonably possible downside scenario for
each CGU
Our findings
We consider the carrying value of Goodwill, following the impairment charges recognised, to be balanced (FY21 finding: optimistic).
Assessment of judgements linked to contracts, potentially at risk of becoming onerous, or where an onerous contract provision is already
We found the Group's disclosures in the description of the assumptions and estimates to be proportionate (FY21 finding: proportionate) and
disclosures of the sensitivity of the valuation of goodwill to changes in those assumptions and estimates to be light (FY21 finding: proportionate).
held. This included consideration of recoverability of any CFA held
Adequacy of accompanying disclosures in respect to contract assets in notes 2.1 and 3.1.3 to the financial statements
4.4 CAPITALISATION AND RECOVERABILITY OF CONTRACT ASSETS
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
Non-Current Contract
Fulfilment Assets
“CFA”
Onerous Contract
Provisions
FY22
FY21
£263.0m
£286.7m
£52.8m
£45.8m
Risk is heightened due to economic
uncertainties including inflation, which
could significantly impact assumptions
performance
future
concerning
metrics which drives the assessment
of asset recoverability and onerous
contract provision.
FY22: Balanced
FY21: Balanced
Description of the Key Audit Matter
Our response to the risk
Accounting application
A contract fulfilment asset (CFA) is recorded for costs incurred on a contract or an
anticipated contract that generate or enhance the resources of an entity that will be
used in satisfying future obligations under the contract.
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.
Subjective estimate
Note 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.
Judgement may be required in determining whether the costs incurred are
appropriate to be capitalised, and this leads to a risk that costs may be incorrectly
capitalised as a result of error or fraud.
Where a contract is not performing as expected, the costs capitalised may not be
recoverable and an impairment of the asset should be recorded.
Where no CFA has been recorded or the CFA has already been fully impaired,
there is also a risk that the contract may be onerous, and an onerous contract
provision (OCP) should be recorded.
A risk of fraud arises as there may be an incentive to capitalise or expense items
to achieve bonus targets or market consensus.
Our procedures to address the risk included:
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: 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-
inflection phase of transformation. We assessed any ongoing
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, or the key judgements applied in assessment of
contract lifetimes and any onerous contract provisions required.
In determining whether OCPs 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.
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, and
on judgements taken in respect to recognition and
measurement of OCPs.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
▪
▪
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
Assessment of the level of execution risk on cost saving initiatives for one of the Major Contracts
Assessment of the need for onerous contract provision and/or CFA impairment for Major Contracts sensitive to forecast assumptions
made in respect to remaining contract term
Our findings
provisions, to be balanced (FY21: balanced).
We found the assumptions and estimates used to assess the CFAs to be recognised, and to determine the need for any onerous contract
We found that the Group’s disclosures in note 2.1 and 3.1.3 to be proportionate (FY21: proportionate).
4.5 RECOVERABILITY OF THE PARENT COMPANY’S INVESTMENT IN, AND AMOUNTS DUE FROM, ITS
SUBSIDIARIES
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
FY22
FY21
Investment carrying
value
£994.3m
£947.3m
➔➔
Amounts due from
subsidiaries
£2,559.2m
£2,619.8m
Risk is considered stable against
FY21. We note
that no direct
investments
are
held within
subsidiaries in the Portfolio division.
FY22: Balanced
FY21: Balanced
Description of the Key Audit Matter
Our response to the risk
The carrying amount of the Parent Company’s investment in, and
amounts due from, its subsidiaries represent 27.3% and 70.4% (FY21:
25.4% and 70.3%) of its total assets respectively.
As with goodwill, there is a significant level of inherent uncertainty
involved in forecasting and discounting future cash flows, which are
the basis of the assessment of recoverability for investments in
subsidiaries and amounts due from subsidiaries.
We performed the tests below rather than seeking to rely on the Parent’s
controls because the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed procedures
described.
Our procedures to address the risk included:
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
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The effect of these matters is that, as part of our risk assessment, we determined
that the recoverable amount of contract assets and completeness and accuracy of
the onerous contract provision have 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, or the key judgements applied in assessment of
contract lifetimes and any onerous contract provisions required.
impact of inflation on the key assumptions, together with any
contract modifications agreed with the customer in response
to the economic environment, or more widely as part of
commercial discussions.
In determining whether OCPs 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.
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, and
on judgements taken in respect to recognition and
measurement of OCPs.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
Assessment of judgements linked to contracts, potentially at risk of becoming onerous, or where an onerous contract provision is already
held. This included consideration of recoverability of any CFA held
Adequacy of accompanying disclosures in respect to contract assets in notes 2.1 and 3.1.3 to the financial statements
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
▪
Assessment of the level of execution risk on cost saving initiatives for one of the Major Contracts
Assessment of the need for onerous contract provision and/or CFA impairment for Major Contracts sensitive to forecast assumptions
made in respect to remaining contract term
Our findings
We found the assumptions and estimates used to assess the CFAs to be recognised, and to determine the need for any onerous contract
provisions, to be balanced (FY21: balanced).
We found that the Group’s disclosures in note 2.1 and 3.1.3 to be proportionate (FY21: proportionate).
4.5 RECOVERABILITY OF THE PARENT COMPANY’S INVESTMENT IN, AND AMOUNTS DUE FROM, ITS
SUBSIDIARIES
Financial Statement Elements
Our assessment of risk vs FY21
Our findings
FY22
FY21
Investment carrying
value
£994.3m
£947.3m
➔➔
Amounts due from
subsidiaries
£2,559.2m
£2,619.8m
Risk is considered stable against
that no direct
FY21. We note
investments
held within
are
subsidiaries in the Portfolio division.
FY22: Balanced
FY21: Balanced
Description of the Key Audit Matter
Our response to the risk
The carrying amount of the Parent Company’s investment in, and
amounts due from, its subsidiaries represent 27.3% and 70.4% (FY21:
25.4% and 70.3%) of its total assets respectively.
As with goodwill, there is a significant level of inherent uncertainty
involved in forecasting and discounting future cash flows, which are
the basis of the assessment of recoverability for investments in
subsidiaries and amounts due from subsidiaries.
We performed the tests below rather than seeking to rely on the Parent’s
controls because the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed procedures
described.
Our procedures to address the risk included:
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
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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.
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.
Evaluating directors’ intent: We assessed the directors’ intention in
respect of the recovery of intercompany debt and based the recoverable
amount on their intention of expected cashflows.
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, judgements 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.
Communications with Capita plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
▪
▪
▪
Appropriateness of methodology applied in measurement of recoverable amount for investment in subsidiaries
Assumptions taken in respect to cash flow forecasts
Assessment of the judgement taken in respect to Expected Credit Loss on intercompany receivables
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
▪
For investments where recoverable amount was determined through value in use on a perpetual basis, the cash flow forecasts were
deemed to be a significant assumption for the estimate
Our findings
We found the Parent Company’s assessment of the recoverability of the investment in, and amounts due from, subsidiaries to be balanced
(FY21: 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 (FY21: proportionate).
•
•
•
•
•
•
•
•
•
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5. OUR ABILITY TO DETECT IRREGULARITIES, AND OUR RESPONSE
FRAUD - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT DUE TO FRAUD
FRAUD RISK
ASSESSMENT
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 ARC, internal audit and inspection of the Group’s documented high-level
policies and procedures to prevent and detect fraud, including the Group’s channel for “whistleblowing”,
as well as whether they have knowledge of any actual, suspected or alleged fraud;
Reading Board and ARC meeting minutes;
Considering remuneration incentive schemes and performance targets for management and Directors
including the short and long-term incentive plans 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, with the engagement partner and engagement key team
members, and assisting with designing relevant audit procedures to respond to the identified fraud risks.
RISK COMMUNICATIONS
procedure component audit teams of relevant fraud risks identified at the Group level and requested to full scope
component audit teams to report to the Group audit team any instances of fraud that could give rise to a material
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 and specified
misstatement at Group level.
As required by auditing standards, taking into account possible pressures to meet profit targets and market
consensus and continued ongoing economic uncertainty, and using our overall knowledge of the control
environment, we perform procedures to address the risk of management override of controls and the risk of
FRAUD RISKS
fraudulent revenue 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
The risk of bias in accounting estimates and judgements such as contract modifications and terminations.
LINK TO KAMS
We also identified fraud risks related to inappropriate impairment of goodwill, inappropriate capitalisation, and
recoverability of contract fulfilment assets. Further details in respect of inappropriate impairment of goodwill,
inappropriate capitalisation and recoverability of contract fulfilment assets are set out in section 4 of this report.
PROCEDURES TO
ADDRESS FRAUD RISKS
We performed procedures including:
Identifying journal entries and other adjustments to test for all full scope components, based on risk criteria
specific to the component, and comparing the identified entries to supporting documentation. These
included where relevant, those posted by senior finance personnel and those posted to unusual accounts,
including unexpected account combinations of entries to revenue, expenses, cash and borrowings.
Assessing whether the judgement made in accounting estimates are indicative of a potential bias, including
those over revenue recognition, capitalisation and recoverability of contract assets and impairment of
goodwill.
LAWS AND REGULATIONS - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT
RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS
LAWS AND
REGULATIONS RISK
ASSESSMENT
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, 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.
RISK COMMUNICATIONS
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.
DIRECT LAWS CONTEXT
AND LINK TO AUDIT
The potential effect of these laws and regulations on the financial statements varies considerably. The Group is
subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related company 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.
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5. OUR ABILITY TO DETECT IRREGULARITIES, AND OUR RESPONSE
FRAUD - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT DUE TO FRAUD
FRAUD RISK
ASSESSMENT
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 ARC, internal audit and inspection of the Group’s documented high-level
policies and procedures to prevent and detect fraud, including the Group’s channel for “whistleblowing”,
as well as whether they have knowledge of any actual, suspected or alleged fraud;
Reading Board and ARC meeting minutes;
Considering remuneration incentive schemes and performance targets for management and Directors
including the short and long-term incentive plans 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, with the engagement partner and engagement key team
members, and assisting with designing relevant audit procedures to respond to the identified fraud risks.
RISK COMMUNICATIONS
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 and specified
procedure component audit teams of relevant fraud risks identified at the Group level and requested 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.
FRAUD RISKS
As required by auditing standards, taking into account possible pressures to meet profit targets and market
consensus and continued ongoing economic uncertainty, and using our overall knowledge of the control
environment, we perform procedures to address the risk of management override of controls and the risk of
fraudulent revenue 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
The risk of bias in accounting estimates and judgements such as contract modifications and terminations.
LINK TO KAMS
We also identified fraud risks related to inappropriate impairment of goodwill, inappropriate capitalisation, and
recoverability of contract fulfilment assets. Further details in respect of inappropriate impairment of goodwill,
inappropriate capitalisation and recoverability of contract fulfilment assets are set out in section 4 of this report.
PROCEDURES TO
ADDRESS FRAUD RISKS
•
We performed procedures including:
•
Identifying journal entries and other adjustments to test for all full scope components, based on risk criteria
specific to the component, and comparing the identified entries to supporting documentation. These
included where relevant, those posted by senior finance personnel and those posted to unusual accounts,
including unexpected account combinations of entries to revenue, expenses, cash and borrowings.
Assessing whether the judgement made in accounting estimates are indicative of a potential bias, including
those over revenue recognition, capitalisation and recoverability of contract assets and impairment of
goodwill.
LAWS AND REGULATIONS - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT
RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS
LAWS AND
REGULATIONS RISK
ASSESSMENT
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, 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.
RISK COMMUNICATIONS
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.
DIRECT LAWS CONTEXT
AND LINK TO AUDIT
The potential effect of these laws and regulations on the financial statements varies considerably. The Group is
subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related company 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.
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MOST SIGNIFICANT
INDIRECT LAW/
REGULATION AREAS
CONTEXT
CONTEXT OF THE
ABILITY OF THE AUDIT
TO DETECT FRAUD OR
BREACHES OF LAW OR
REGULATION
The Group is subject to many 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 (in relation to the financial and regulated nature of certain 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.
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 fraud 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.
£6M
FY21: £6M
MATERIALITY FOR
THE GROUP
FINANCIAL
STATEMENTS AS A
WHOLE
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
6. OUR DETERMINATION OF MATERIALITY
The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative
considerations to help us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect
of misstatements, both individually and in the aggregate, on the financial statements as a whole.
What we mean
A quantitative reference for the purpose of planning and performing our audit.
Basis for determining materiality and judgements applied
Materiality for the Group financial statements as a whole was set at £6m (FY21: £6m). Consistent with FY21,
this was determined with reference to a benchmark of Group revenue of £3,014.6m, normalised by excluding
revenue in relation to business exits of £168.8m, as disclosed in note 2.8. Use of total revenue as the
benchmark reflects the continuing volatility in profit before tax from continuing operations, with total revenues
providing a more stable measure year on year. Total revenue is also a significant focus for management and
external stakeholders.
Our Group materiality of £6m was determined by applying a percentage to the normalised Group revenue.
When using this benchmark, KPMG’s approach for listed entities considers a guideline range 0.5% - 1% of
the measure. In setting overall Group materiality, we applied a percentage of 0.21% (FY21: 0.20%) to the
benchmark which is below the lower end of the expected range. This acknowledges the low historic margin
of the Group.
Materiality for the Parent Company financial statements was set at £5.5m (FY21: £5.5m), determined by
reference to total Company assets and represents 0.15% of the Company's total assets (FY21: 0.15%).
What we mean
a whole.
What we mean
of fraud.
Committee.
grounds.
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 as
Basis for determining performance materiality and judgements applied
Performance materiality for the Group and the Parent Company was set at 65% (FY21: 65%) of materiality for
the financial statements as a whole, which equates to £3.9m (FY21: £3.9m) for the Group and £3.6m (FY21:
£3.6m) 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.
This is the amount below which identified misstatements are considered to be clearly trivial from a quantitative
point of view. We may become aware of misstatements below this threshold which could alter the nature,
timing and scope of our audit procedures, for example if we identify smaller misstatements which are indicators
This is also the amount above which all misstatements identified are communicated to Capita Plc’s Audit
Basis for determining the audit misstatement posting threshold and judgements applied
We set our audit misstatement posting threshold at 5% (FY21: 5%) of our materiality for the Group financial
statements. We also report to the ARC other identified misstatements that warrant reporting on qualitative
£3.9M
(FY21: £3.9M)
PERFORMANCE
MATERIALITY
£0.3M
(FY21: £0.3M)
AUDIT
MISSTATEMENT
POSTING
THRESHOLD
The overall materiality for the Group financial statements of £6m (FY21: £6m) compares as follows to the main financial statement caption
amounts:
Group Revenue
Group profit before tax
Total Group Assets
FY22
FY21
FY22
FY21
FY22
FY21
£3,014.6m
£3,182.5m
£61.4m
£285.6m
£2,552.6m
£3,142.4m
0.20%
0.19%
9.77%
2.10%
0.24%
0.19%
Financial statement
Caption
Group Materiality
as % of caption
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
137
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
6. OUR DETERMINATION OF MATERIALITY
The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative
considerations to help us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect
of misstatements, both individually and in the aggregate, on the financial statements as a whole.
£6M
FY21: £6M
MATERIALITY FOR
THE GROUP
FINANCIAL
STATEMENTS AS A
WHOLE
£3.9M
(FY21: £3.9M)
PERFORMANCE
MATERIALITY
£0.3M
(FY21: £0.3M)
AUDIT
MISSTATEMENT
POSTING
THRESHOLD
What we mean
A quantitative reference for the purpose of planning and performing our audit.
Basis for determining materiality and judgements applied
Materiality for the Group financial statements as a whole was set at £6m (FY21: £6m). Consistent with FY21,
this was determined with reference to a benchmark of Group revenue of £3,014.6m, normalised by excluding
revenue in relation to business exits of £168.8m, as disclosed in note 2.8. Use of total revenue as the
benchmark reflects the continuing volatility in profit before tax from continuing operations, with total revenues
providing a more stable measure year on year. Total revenue is also a significant focus for management and
external stakeholders.
Our Group materiality of £6m was determined by applying a percentage to the normalised Group revenue.
When using this benchmark, KPMG’s approach for listed entities considers a guideline range 0.5% - 1% of
the measure. In setting overall Group materiality, we applied a percentage of 0.21% (FY21: 0.20%) to the
benchmark which is below the lower end of the expected range. This acknowledges the low historic margin
of the Group.
Materiality for the Parent Company financial statements was set at £5.5m (FY21: £5.5m), determined by
reference to total Company assets and represents 0.15% of the Company's total assets (FY21: 0.15%).
What we mean
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 as
a whole.
Basis for determining performance materiality and judgements applied
Performance materiality for the Group and the Parent Company was set at 65% (FY21: 65%) of materiality for
the financial statements as a whole, which equates to £3.9m (FY21: £3.9m) for the Group and £3.6m (FY21:
£3.6m) 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.
What we mean
This is the amount below which identified misstatements are considered to be clearly trivial from a quantitative
point of view. We may become aware of misstatements below this threshold which could alter the nature,
timing and scope of our audit procedures, for example if we identify smaller misstatements which are indicators
of fraud.
This is also the amount above which all misstatements identified are communicated to Capita Plc’s Audit
Committee.
Basis for determining the audit misstatement posting threshold and judgements applied
We set our audit misstatement posting threshold at 5% (FY21: 5%) of our materiality for the Group financial
statements. We also report to the ARC other identified misstatements that warrant reporting on qualitative
grounds.
The overall materiality for the Group financial statements of £6m (FY21: £6m) compares as follows to the main financial statement caption
amounts:
Group Revenue
Group profit before tax
Total Group Assets
FY22
FY21
FY22
FY21
FY22
FY21
£3,014.6m
£3,182.5m
£61.4m
£285.6m
£2,552.6m
£3,142.4m
0.20%
0.19%
9.77%
2.10%
0.24%
0.19%
Financial statement
Caption
Group Materiality
as % of caption
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
138
KPMG LLP’s Independent Auditor’s Report
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
7. THE SCOPE OF OUR AUDIT
What we mean
How the Group audit team determined the procedures to be performed across the Group.
In working with component auditors, we:
The Group has 209 (FY21: 232) reporting components. To determine the work performed at the reporting
component level, we identified those components which we considered to be of individual financial significance
and those remaining components on which we required procedures to be performed to provide us with the
evidence we required in order to conclude on the Group financial statements as a whole.
We determined individually financially significant components as those contributing at least 7.5% (FY21: not
considered) of total assets or 7.5% (FY21: 10%) of total revenue or 7.5% (FY21: 10%) of the Group profit before
tax. We selected total assets, total revenue, and profit before tax because these are the most representative of
the relative size of the components. We identified 4 (FY21: 3) components as individually financially significant
components and performed full scope audits on these components.
In addition to the individually financially significant components, we identified 3 (FY21: 8) components as
significant, owing to significant risks of material misstatement affecting the Group financial statements and
performed full scope audits on these components.
In addition, to enable us to obtain sufficient appropriate audit evidence for the group financial statements as a
whole, we selected 9 (FY21:12) components on which to perform procedures. Of these components, we
performed full scope audits for 8 components (FY21: 11) and performed specific risk-focused audit procedures
over litigation and claims provisions on 1 component (FY21: 1).
The components within the scope of our work accounted for the following percentages of the Group’s results,
with the prior year comparatives indicated in brackets:
Scope
Number of
components
Full scope
audit
Specified
audit
procedures
TOTAL
15 (22)
1 (1)
16 (23)
Range of
materiality
applied
Group
Revenue
Total profits
and losses
that made up
Group PBT
Total
Assets
£4.8m - £0.4m
(£4.8m - £0.6m)
£2m
(£2m)
81% (86%)
79% (86%)
89% (90%)
N/A
N/A
N/A
81% (86%)
79% (86%)
89% (90%)
The remaining 19% (FY21: 14%) of total Group revenue, 21% (FY21: 14%) of total profits and losses that made
up Group profit before tax and 11% (FY21: 10%) of total Group assets is represented by 193 (FY21: 209)
reporting components. For these 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.
Full scope audits were performed by component auditors at 13 reporting components in the United Kingdom,
Switzerland, and Germany, and by the Group audit team over 2 key components in the United Kingdom,
including the Parent Company (FY21: 20 in the United Kingdom, Switzerland, and Germany, and by the Group
audit team over 2 key components in the United Kingdom, including the Parent Company). Specified audit
procedures were performed by component auditors at a reporting component in Guernsey (FY21: 1 in
Guernsey).
The Group audit team has performed testing of IT Systems and certain controls in the shared service centre on
behalf of the components and communicated the results of these procedures to the component teams. This is
because of the centralised systems and processes in place across the Group.
GROUP SCOPE
To the members of Capita plc
What we mean
The extent of the Group audit team’s involvement in component audits.
GROUP AUDIT
TEAM
OVERSIGHT
•
•
•
•
Held planning calls with component audit teams to discuss the significant areas of the audit relevant
to the components, including the key audit matters of revenue recognition and capitalisation and
recoverability of contract assets
Issued Group audit instructions to component auditors on the scope of their work, including specifying
the minimum procedures to perform in their audit of Journals and long term contracts
Visited the UK component audit teams in-person as the audit progressed to understand and
challenge the audit approach and organised frequent video conferences with the partners and
directors of the Group and component audit teams, including those based overseas. At these
meetings the findings reported to the Group team were discussed in more detail, and any further work
required by the Group team was then performed by the component audit teams
Inspected the component audit teams’ key work papers (in person and/or using remote technology) to
evaluate the quality of execution of the audits of the components with a particular focus on work
performed by the components on Group-level significant risks and key audit matters
8. OTHER INFORMATION IN THE ANNUAL REPORT
The directors are responsible for the other information presented in the Annual Report 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.
ALL OTHER INFORMATION
Our responsibility
Our reporting
Our responsibility is to read the other information and, in doing so, consider whether, based
Based solely on that work we have not
on our financial statements audit work, the information therein is materially misstated or
identified material misstatements or
inconsistent with the financial statements or our audit knowledge.
inconsistencies in the other information.
STRATEGIC REPORT AND DIRECTORS’ REPORT
Our responsibility and reporting
Based solely on our work on the other information described above we report to you as follows:
we have not identified material misstatements in the strategic report and the
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
▪
▪
▪
directors’ report;
Act 2006.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks
detailed above and the information to be reported back. The Group team approved the component materialities, as
detailed in the table above, having regard to the mix of size and risk profile of the Group across the components.
DIRECTORS’ REMUNERATION REPORT
Our responsibility
The scope of the audit work performed was predominantly substantive as we placed limited reliance upon the
Group’s internal control over financial reporting.
We are required to form an opinion as to whether the part of the Directors’ Remuneration
Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Our reporting
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
139
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
What we mean
GROUP AUDIT
TEAM
OVERSIGHT
The extent of the Group audit team’s involvement in component audits.
In working with component auditors, we:
•
•
•
•
Held planning calls with component audit teams to discuss the significant areas of the audit relevant
to the components, including the key audit matters of revenue recognition and capitalisation and
recoverability of contract assets
Issued Group audit instructions to component auditors on the scope of their work, including specifying
the minimum procedures to perform in their audit of Journals and long term contracts
Visited the UK component audit teams in-person as the audit progressed to understand and
challenge the audit approach and organised frequent video conferences with the partners and
directors of the Group and component audit teams, including those based overseas. At these
meetings the findings reported to the Group team were discussed in more detail, and any further work
required by the Group team was then performed by the component audit teams
Inspected the component audit teams’ key work papers (in person and/or using remote technology) to
evaluate the quality of execution of the audits of the components with a particular focus on work
performed by the components on Group-level significant risks and key audit matters
8. OTHER INFORMATION IN THE ANNUAL REPORT
The directors are responsible for the other information presented in the Annual Report 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.
ALL OTHER INFORMATION
Our responsibility
Our reporting
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 or
inconsistencies in the other information.
STRATEGIC REPORT AND DIRECTORS’ REPORT
Our responsibility and reporting
▪
Based solely on our work on the other information described above we report to you as follows:
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
Our responsibility
We are required to form an opinion as to whether the part of the Directors’ Remuneration
Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Our reporting
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
140
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
CORPORATE GOVERNANCE DISCLOSURES
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency
between the financial statements and our audit knowledge, and:
▪
▪
▪
the directors’ statement that they consider that the annual report 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 describing the work of the Audit and Risk
Committee, including the significant issues that the Audit and Risk Committee
considered in relation to the financial statements, and how these issues were
addressed; and
the section of the annual report that describes the review of the effectiveness of
the Group’s risk management and internal control systems.
We are also 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.
Our reporting
Based on those procedures, we have
concluded that each of these disclosures
is materially consistent with the financial
statements and our audit knowledge.
10. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR
RESPONSIBILITIES
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.
We have nothing to report in this respect.
for and on behalf of KPMG LLP, Statutory Auditor
OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Our responsibility
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.
Our reporting
We have nothing to report in these
respects.
9. RESPECTIVE RESPONSIBILITIES
Directors’ responsibilities
As explained more fully in their statement set out on pages 83 and 84, 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.
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 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.
The Company is required to include these financial statements in an annual financial report prepared using the single electronic reporting
format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial report has
been prepared in accordance with that format.
Ian Griffiths
Chartered Accountants
15 Canada Square
London
E14 5GL
2 March 2023
Financial
statements
Independent
auditor’s report
Capita plc
Annual Report 2022
141
KPMG LLP’s Independent Auditor’s Report
To the members of Capita plc
10. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR
RESPONSIBILITIES
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.
Ian Griffiths
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
2 March 2023
Financial
statements
Consolidated
financial statements
Capita plc
Annual Report 2022
142
Strategic report
Corporate governance
Financial statements
100
Section 5
Employee benefits
5.1
5.2
5.3
Share-based payment plans
Pensions
Employee benefit expense
Section 6
Other supporting notes
6.1
6.2
6.3
Related-party transactions
Contingent liabilities
Post balance sheet events
Company financial statements
Section 7
7.1
7.2
7.3
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Additional information
Section 8
8.1
8.2
Shareholder information
Alternative performance measures
Structure of the financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Section 1
Basis of preparation
Section 2
Results for the year
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
Contract accounting
Revenue including segmental revenue
Operating profit
Adjusted operating profit and adjusted profit before tax
Segmental information
Taxation
Earnings/(loss) per share
Business exits and assets held-for-sale
Discontinued operations
2.10
Cash flow information
Section 3
Operating assets and liabilities
3.1
3.1.1
3.1.2
Working capital
Trade and other receivables
Trade and other payables
3.1.3 Contract fulfilment assets
3.2
3.3
3.4
3.5
3.6
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Provisions
Section 4
Capital structure and finance costs
4.1
4.2
4.3
4.4
4.5
4.6
4.7
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
Strategic report
Corporate governance
Financial statements
100
Financial
statements
Consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
101
143
Structure of the financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Section 5
Employee benefits
Share-based payment plans
Pensions
Employee benefit expense
Section 6
Other supporting notes
Related-party transactions
Contingent liabilities
Post balance sheet events
5.1
5.2
5.3
6.1
6.2
6.3
7.1
7.2
7.3
8.1
8.2
Company financial statements
Section 7
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Section 8
Shareholder information
Alternative performance measures
Adjusted operating profit and adjusted profit before tax
Additional information
Section 1
Basis of preparation
Section 2
Results for the year
Contract accounting
Revenue including segmental revenue
Operating profit
Segmental information
Taxation
Earnings/(loss) per share
Business exits and assets held-for-sale
Discontinued operations
2.10
Cash flow information
Section 3
Operating assets and liabilities
3.1
3.1.1
3.1.2
Working capital
Trade and other receivables
Trade and other payables
3.1.3 Contract fulfilment assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Provisions
Section 4
Capital structure and finance costs
Net debt, capital and capital management
Financial risk
Net finance costs
Leases
Issued share capital
Financial instruments and the fair value hierarchy
Group composition and non-controlling interests
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Consolidated income statement
For the year ended 31 December 2022
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 before tax
Income tax credit/(charge)
Profit 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 per share
Continuing:
Total operations:
– basic
– diluted
– basic
– diluted
Adjusted operating profit/(loss)1
Adjusted profit/(loss) before tax1
Adjusted earnings/(loss) per share1
Adjusted and diluted earnings/(loss) per share1
Notes
2.2
2.3, 2.4, 2.8
2.3, 2.4, 2.8
4.3
2.8
2.4
2.6
2.9
4.7
2.7
2.4
2.4
2.7
2.7
2022
£m
2021
£m
3,014.6
(2,298.6)
716.0
(795.6)
(79.6)
5.8
(31.7)
166.9
61.4
14.6
76.0
—
76.0
74.8
1.2
76.0
4.47 p
4.40 p
4.47 p
4.40 p
102.9
73.8
6.20 p
6.09 p
3,182.5
(2,506.7)
675.8
(762.4)
(86.6)
(0.6)
(46.9)
419.7
285.6
(61.5)
224.1
3.1
227.2
224.7
2.5
227.2
13.33 p
13.15 p
13.52 p
13.33 p
(77.7)
(122.8)
(7.74) p
(7.74) p
1. From 1 January 2022, the Board has limited the items excluded from the adjusted results to: business exits, amortisation and impairment of acquired intangibles, impairment of goodwill
and certain mark-to-market valuation changes that impact net finance expense/income. Please refer to note 2.4 for further details.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Total profit for the year
Other comprehensive expense
Items that will not be reclassified subsequently to the income statement
Actuarial (loss)/gain on defined benefit pension schemes
Tax effect on defined benefit pension schemes
Gain 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 on cash flow hedges
Cash flow hedges recycled to the income statement
Tax effect on cash flow hedges
Other comprehensive (expense)/ income for the year net of tax
Total comprehensive income 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
5.2
2.6
4.2.4
4.2.4
2.6
4.7
2022
£m
2021
£m
76.0
227.2
(8.9)
2.0
0.2
(0.6)
0.3
11.5
(5.1)
(1.6)
(2.2)
73.8
72.6
1.2
73.8
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
Strategic report
Financial
statements
Corporate
Consolidated
governance
financial statements
Financial statements
#
Capita plc
Annual Report 2022
144
Consolidated balance sheet
At 31 December 2022
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
Capital and reserves
Share capital
Share premium
Employee benefit trust and treasury shares
Capital redemption reserve
Other reserves
Retained deficit
Equity attributable to owners of the Company
Non-controlling interests
Total equity
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
2.2.3
4.5.4
4.4,4.5
2.8
4.5
3.6
3.1.2
2.2.3
4.4,4.5
4.5
2.6
3.6
5.2
4.6
4.6
4.6
4.7
2022
£m
101.1
106.0
605.9
249.5
0.2
263.0
118.2
189.5
42.7
15.8
1,691.9
23.6
—
430.4
396.8
9.9
860.7
2,552.6
492.5
585.1
219.6
55.6
—
84.6
75.7
1,513.1
15.1
55.6
341.9
212.6
6.9
51.6
3.1
686.8
2,199.9
352.7
34.8
1,145.5
(4.2)
1.8
(4.5)
(843.2)
330.2
22.5
352.7
2021
£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
The accompanying notes are an integral part of these consolidated financial statements.
These consolidated financial statements were approved by the Board of directors on 2 March 2023 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
Strategic report
Financial statements
#
Corporate
governance
Financial
statements
Consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
Consolidated balance sheet
At 31 December 2022
Consolidated statement of changes in equity
For the year ended 31 December 2022
103
145
Total
(deficit)/
equity
£m
(81.1)
At 31 December 2020
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
Share-based payment net of tax effects (note 2.6;
note 5.1)
Reclassification
Elimination of non-controlling interest on 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 paid2
Movement in put-options held by non-controlling
interests3
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 (1,289.5)
Retained
deficit
£m
Other
reserves
£m
(13.4)
Total
attributable
to the
owners of
the parent
£m
(134.5)
Non-
controlling
interests
£m
53.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 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)
—
—
(3.5)
—
2.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
Impact of change in accounting standards –
amendments to IAS 371
—
—
—
—
(21.7)
—
(21.7)
—
(21.7)
At 1 January 2022 on adoption of IAS 37
34.8 1,145.5
(8.0)
1.8 (912.3)
(9.0) 252.8
22.0 274.8
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
—
—
—
—
—
—
—
—
—
—
—
—
74.8
(6.7)
68.1
—
4.5
4.5
74.8
(2.2)
72.6
1.2
76.0
—
(2.2)
1.2
73.8
Share-based payment net of tax effects (note 2.6;
note 5.1)
Elimination of non-controlling interest on disposal
(note 2.8.1)
Exercise of share options under employee long-
term incentive plans (note 4.6; note 5.1)
Dividends paid
Movement in put-options held by non-controlling
interests
—
—
—
—
5.4
—
5.4
—
5.4
—
—
—
—
—
—
—
(0.3)
(0.3)
—
—
—
—
3.8
—
—
—
(3.8)
—
—
—
—
—
—
—
(0.4)
(0.4)
—
—
—
—
(0.6)
—
(0.6)
—
(0.6)
At 31 December 2022
34.8 1,145.5
(4.2)
1.8 (843.2)
(4.5) 330.2
22.5 352.7
1. The Group initially applied the amendments to IAS 37 on 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
retained earnings. Refer to note 1 for further details.
2. The dividends paid to non-controlling interests in 2021 included amounts from AXELOS Limited (£36.6m) who paid £10.7m 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 2022 or 2021 on the Parent Company’s ordinary shares.
3. 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 £8.6m (2021: £8.3m deficit) and the cash flow hedging
reserve surplus of £4.1m (2021: £0.7m deficit).
Non-controlling interests (NCI) – This represents equity in subsidiaries not attributable directly or indirectly to the Parent Company.
The accompanying notes are an integral part of these consolidated financial statements.
Investments in associates and joint ventures
Non-current assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
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
Disposal group liabilities held-for-sale
Total assets
Current liabilities
Trade and other payables
Deferred income
Overdrafts
Lease liabilities
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
Capital and reserves
Share capital
Share premium
Other reserves
Retained deficit
Non-controlling interests
Total equity
Employee benefit trust and treasury shares
Capital redemption reserve
Equity attributable to owners of the Company
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
2.2.3
4.5.4
4.4,4.5
2.8
4.5
3.6
3.1.2
2.2.3
4.4,4.5
4.5
2.6
3.6
5.2
4.6
4.6
4.6
4.7
2022
£m
101.1
106.0
605.9
249.5
0.2
263.0
118.2
189.5
42.7
15.8
2021
£m
129.0
147.3
951.7
287.9
0.7
286.7
107.2
176.0
13.3
15.7
1,691.9
2,115.5
23.6
—
430.4
396.8
9.9
860.7
2,552.6
17.5
138.8
547.1
317.6
5.9
1,026.9
3,142.4
1,513.1
1,999.5
492.5
585.1
219.6
55.6
—
84.6
75.7
15.1
55.6
341.9
212.6
6.9
51.6
3.1
686.8
(4.2)
1.8
(4.5)
330.2
22.5
352.7
542.2
669.8
231.9
61.6
81.1
286.3
126.6
15.4
124.9
386.8
291.9
5.9
14.0
7.5
846.4
(8.0)
1.8
(9.0)
274.5
22.0
296.5
2,199.9
2,845.9
352.7
296.5
34.8
1,145.5
34.8
1,145.5
(843.2)
(890.6)
The accompanying notes are an integral part of these consolidated financial statements.
These consolidated financial statements were approved by the Board of directors on 2 March 2023 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
104
Capita plc Annual Report 2022
Financial
statements
Consolidated
financial statements
Capita plc
Annual Report 2022
146
Consolidated cash flow statement
For the year ended 31 December 2022
Cash generated from/(used by) operations
Income tax paid
Net interest paid
Net cash inflow/(outflow) 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 and intangible assets
Additions to investments held at fair value through profit and loss
Capital repayment from investments at fair value through other comprehensive income
Subsidiary partnership payment
Capital element of lease rental receipts
Total proceeds received from disposals net of disposal costs
Cash held by subsidiaries when sold
Net cash inflow 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 and other debt
(Repayment of)/proceeds from credit facilities
Proceeds from cross-currency interest rate swaps
Debt financing arrangement costs
Net cash outflow from financing activities
Increase/(decrease) 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
Cash and cash equivalents comprise:
Cash
Overdrafts
Cash, net of overdrafts, included in disposal group assets and liabilities held-for-sale
Total
Cash generated from/(used by) operations before business exits
Free cash flow before business exits
Notes
2.10
2022
£m
117.8
(7.9)
(38.0)
Restated1
2021
£m
(148.5)
(17.7)
(40.1)
71.9
(206.3)
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
(20.6)
(27.3)
0.5
(2.4)
0.2
—
5.8
463.4
(75.5)
344.1
(0.4)
(61.8)
—
(237.4)
(46.0)
10.1
(5.2)
(25.6)
(32.5)
0.1
(0.1)
0.3
(4.7)
0.5
510.3
(25.9)
422.4
(10.8)
(82.6)
2.2
(232.3)
46.0
19.7
(1.9)
(340.7)
(259.7)
75.3
101.5
0.4
177.2
4.5.4
4.5.4
2.8
396.8
(219.6)
—
(43.6)
141.1
4.0
101.5
317.6
(231.9)
15.8
177.2
101.5
2.10
2.10
116.5
29.0
(109.7)
(218.6)
1. The 2021 cash flow has been restated to include £27.2m of cash, received from the purchasers of subsidiaries when sold to settle inter-company balances, within investing activities, which
were previously included within operating activities. This results in an increase in net cash flow from investing activities by £27.2m and decrease in net cash flows from operating activities,
cash generated from operations, and free cash flow by the same amount. There is no impact on the reported net movement in cash and cash equivalents.
The accompanying notes are an integral part of these consolidated financial statements.
104
Capita plc Annual Report 2022
Strategic report
Corporate governance
Financial statements
105
Notes to the consolidated financial statements
Financial
statements
Capita plc
Annual Report 2022
Notes to the
consolidated
financial statements
147
Net cash inflow/(outflow) from operating activities
71.9
(206.3)
Proceeds from sale of property, plant and equipment and intangible assets
2.3, 3.2, 3.3
Additions to investments held at fair value through profit and loss
Capital repayment from investments at fair value through other comprehensive income
Consolidated cash flow statement
For the year ended 31 December 2022
Cash generated from/(used by) operations
Income tax paid
Net interest paid
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Subsidiary partnership payment
Capital element of lease rental receipts
Total proceeds received from disposals net of disposal costs
Cash held by subsidiaries when sold
Net cash inflow 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 and other debt
(Repayment of)/proceeds from credit facilities
Proceeds from cross-currency interest rate swaps
Debt financing arrangement costs
Net cash outflow from financing activities
Increase/(decrease) 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
Cash and cash equivalents comprise:
Cash
Overdrafts
Total
Notes
2.10
3.2
3.3
2.8
2.8
2.10.3
2.10.3
2.10.3
2.10.3
2.10.3
2022
£m
117.8
(7.9)
(38.0)
(20.6)
(27.3)
0.5
(2.4)
0.2
—
5.8
463.4
(75.5)
344.1
(0.4)
(61.8)
—
(237.4)
(46.0)
10.1
(5.2)
75.3
101.5
0.4
177.2
Restated1
2021
£m
(148.5)
(17.7)
(40.1)
(25.6)
(32.5)
0.1
(0.1)
0.3
(4.7)
0.5
510.3
(25.9)
422.4
(10.8)
(82.6)
2.2
(232.3)
46.0
19.7
(1.9)
(43.6)
141.1
4.0
101.5
317.6
(231.9)
15.8
(340.7)
(259.7)
4.5.4
4.5.4
2.8
396.8
(219.6)
—
177.2
101.5
2.10
2.10
116.5
29.0
(109.7)
(218.6)
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.
This section also includes 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 2022 were authorised for issue in accordance with a
resolution of the directors on 2 March 2023.
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 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 2022, the Board is required to
consider whether the Group and Parent Company can continue in operational existence for the foreseeable future. The Board has concluded
that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties,
sensitivities, and mitigations as set out below.
Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the
date of approval of these financial statements, although those standards do not specify how far beyond twelve months a Board should
consider. In its going concern assessment, the Board has considered the period from the date of approval of these financial statements to
31 August 2024 (‘the going concern period’) and which aligns with the expiry of the revolving credit facility (RCF).
The base case financial forecasts used in the going concern assessment are derived from the 2023-2024 business plans as approved by the
Board in January 2023.
The going concern assessment considers the Group’s sources and uses of liquidity and covenant compliance throughout the period under
review. The value of the Group’s committed RCF was £288.4m at 31 December 2022 and it expires on 31 August 2024. In February 2023, the
Group executed a committed bridge facility of £50m with three of its relationship banks providing additional liquidity from 1 January 2024. The
committed bridge facility has an expiry date of 31 December 2024 and is subject to covenants, which are the same as those in the RCF. Both
the RCF and the £50m bridge facility incorporate provisions such that they will partially reduce in quantum as a consequence of specified
transactions, including disposals, equity raises or other refinancing.
Given the track record of the Group extending the RCF in prior years, including in 2022, and the committed bridge facility executed in February
2023, the Board is confident that the RCF will be extended or refinanced and be of a sufficient quantum well ahead of its expiry in August 2024.
Financial position at 31 December 2022
As detailed further in the Chief Financial Officer’s review in the strategic report, as at 31 December 2022 the Group had net debt of £482.4m
(2021: £879.8m), net financial debt (pre-IFRS 16) of £84.9m (2021: £431.4m), liquidity of £405.2m (2021: £392.4m) and was in compliance with
all debt covenants.
Cash, net of overdrafts, included in disposal group assets and liabilities held-for-sale
Cash generated from/(used by) operations before business exits
Free cash flow before business exits
1. The 2021 cash flow has been restated to include £27.2m of cash, received from the purchasers of subsidiaries when sold to settle inter-company balances, within investing activities, which
were previously included within operating activities. This results in an increase in net cash flow from investing activities by £27.2m and decrease in net cash flows from operating activities,
cash generated from operations, and free cash flow by the same amount. There is no impact on the reported net movement in cash and cash equivalents.
The accompanying notes are an integral part of these consolidated financial statements.
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 the proceeds from the Board approved disposal programme and available
committed facilities allows the Group to manage scheduled debt repayments. The most material sensitivity to the base case is the risk of not
delivering the planned revenue growth.
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 completion of the disposal programme requires agreement from third parties,
and major disposals may be subject to shareholder and lender approval. Such agreements and approvals, are outside the direct control of the
Company and as such, the inclusion of the effect of any potential future disposals in the Group’s projections is inappropriate for going concern
assessment purposes in accordance with IAS 1 Presentation of Financial Statements.
106
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
148
Section 1: Basis of preparation continued
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, other than in respect of the current RCF as noted above.
The base case financial forecasts demonstrate liquidity headroom and compliance with all debt covenant measures throughout the going
concern period to 31 August 2024.
Severe but plausible downside scenario
In considering severe but plausible downside scenarios, the Board has taken account of the potential adverse financial impacts resulting from
the following risks:
• revenue growth falling materially short of plan;
• operating profit margin expansion not being achieved;
• additional inflationary cost impacts which cannot be passed on to customers;
• unforeseen operational issues leading to contract losses and cash outflows;
• increased interest rates;
• reduction in deferred cash consideration in respect of completed disposals;
• non-availability of the Group’s non-recourse receivables financing facility; and
• unexpected financial costs and penalties linked to incidents such as data breaches and/or cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is considered by the directors to be relatively low. Nevertheless in the event that
simultaneous crystallisation were to occur, the Group would need to take action to mitigate the risk of insufficient liquidity and covenant
headroom. In its assessment of going concern, the Board has considered the mitigations, under the direct control of the Group, that could be
implemented including reductions in capital investment, substantially reducing (or removing in full) bonus and incentive payments and
significantly reducing discretionary spend. Taking these mitigations into account, the Group’s financial forecasts, in a severe but plausible
downside scenario, demonstrate sufficient liquidity headroom and compliance with all debt covenant measures throughout the going concern
period to 31 August 2024.
Adoption of going concern basis
Reflecting the Board’s confidence in the benefits expected from the completion of the transformation programme and ability to obtain further
RCF financing beyond its existing committed funding facilities coupled with its ability to implement appropriate mitigations should the severe but
plausible downside materialise, 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 2024.
Foreign currency translation
The functional and presentation currency of Capita plc and its 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 on
the balance sheet date and their income statements are translated using 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.
Current versus non-current classification
The Group presents assets and liabilities in the balance sheet based on whether they are current or non-current.
An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting
period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in the normal operating cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
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149
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
Section 1: Basis of preparation continued
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, other than in respect of the current RCF as noted above.
The base case financial forecasts demonstrate liquidity headroom and compliance with all debt covenant measures throughout the going
In considering severe but plausible downside scenarios, the Board has taken account of the potential adverse financial impacts resulting from
concern period to 31 August 2024.
Severe but plausible downside scenario
the following risks:
• revenue growth falling materially short of plan;
• operating profit margin expansion not being achieved;
• additional inflationary cost impacts which cannot be passed on to customers;
• unforeseen operational issues leading to contract losses and cash outflows;
• increased interest rates;
• reduction in deferred cash consideration in respect of completed disposals;
• non-availability of the Group’s non-recourse receivables financing facility; and
• unexpected financial costs and penalties linked to incidents such as data breaches and/or cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is considered by the directors to be relatively low. Nevertheless in the event that
simultaneous crystallisation were to occur, the Group would need to take action to mitigate the risk of insufficient liquidity and covenant
headroom. In its assessment of going concern, the Board has considered the mitigations, under the direct control of the Group, that could be
implemented including reductions in capital investment, substantially reducing (or removing in full) bonus and incentive payments and
significantly reducing discretionary spend. Taking these mitigations into account, the Group’s financial forecasts, in a severe but plausible
downside scenario, demonstrate sufficient liquidity headroom and compliance with all debt covenant measures throughout the going concern
Reflecting the Board’s confidence in the benefits expected from the completion of the transformation programme and ability to obtain further
RCF financing beyond its existing committed funding facilities coupled with its ability to implement appropriate mitigations should the severe but
plausible downside materialise, 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
period to 31 August 2024.
Adoption of going concern basis
31 August 2024.
Foreign currency translation
The functional and presentation currency of Capita plc and its 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 on
the balance sheet date and their income statements are translated using 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.
Current versus non-current classification
An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting
period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in the normal operating cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
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.
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, onerous contract provisions.
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 49 to 53. 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
• Deferred tax asset recognition (note 2.6)
• Impairment of goodwill (note 3.4)
• Measurement of defined benefit pension 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)
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
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 amendments to
standards which are listed below. These amendments were either not applicable or not material to the Group, except for the impact of the
Amendments to IAS 37 detailed further below.
The Group presents assets and liabilities in the balance sheet based on whether they are current or non-current.
Reference to the Conceptual Framework (Amendments to IFRS 3)
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)
Effective date
1 January 2022
1 January 2022
1 January 2022
1 January 2022
Onerous contracts – cost of fulfilling a contract (amendments to IAS 37)
An onerous contract is a contract under which the unavoidable costs (ie the costs that the Group cannot avoid because it has the contract) of
meeting the obligations under the contract exceed the economic benefits expected to be received under it.
The amendments specify that when assessing whether a contract is onerous or loss-making, an entity needs to include costs that relate directly
to a contract to provide goods or services, which include both incremental costs (eg the costs of direct labour and materials) and an allocation
of costs directly related to contract activities (eg depreciation of equipment used to fulfil the contract as well as costs of contract management
and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to
the counterparty under the contract.
The Group has adopted the amendment which resulted in a change in accounting policy for performing an onerous contract assessment.
Previously, the Group included only incremental costs to fulfil a contract when determining whether that contract was onerous. The revised
policy requires inclusion of both incremental costs and an allocation of other direct costs.
In accordance with the transitional provisions, the Group applies the amendments to contracts for which it has not yet fulfilled all its obligations
at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application) and has not restated its
comparative information.
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Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
150
Section 1: Basis of preparation continued
The adoption of the amended standard has resulted in a reduction in retained earnings at 1 January 2022 of £21.7m, comprising an increase of
£18.8m in onerous contract provisions and an impairment of contract related assets of £2.9m. The additional onerous contract provision
recognised is tax deductible, however, no deferred tax asset has been recognised reflecting the probable level of future taxable profits that will
be available against which the assets can be utilised at 1 January 2022.
Impact of amendments to IAS 37
Property, plant and equipment
Contract fulfilment assets
Total assets
Provisions (current)
Provisions (non-current)
Total liabilities
Retained earnings
Total equity
1 January 2022
£m
(0.5)
(2.4)
(2.9)
(10.6)
(8.2)
(18.8)
(21.7)
(21.7)
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:
International Accounting Standards (IAS/IFRS)
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
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)
Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10 and
IAS 28)
Effective date
1 January 2023
1 January 2023
1 January 2023
1 January 2023
1 January 2023
The Group is assessing the impact of these new standards and the Group’s financial reporting will be presented in accordance with these
standards from the effective date.
IFRS 17 Insurance Contract and amendments to IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts (IFRS 17) is a comprehensive new accounting standard for insurance contracts covering recognition,
measurement, presentation and disclosure, and will replace IFRS 4 Insurance Contracts (IFRS 4). IFRS 17 applies to all types of insurance
contracts (ie life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees
and financial instruments with discretionary participation features.
The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In
contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a
comprehensive model for insurance contracts, covering all relevant accounting aspects.
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023 and must be applied retrospectively unless impracticable, in
which case the Group has the option of using either the modified retrospective approach or the fair value approach. Based on initial analysis
performed, it is not anticipated that this new accounting standard will have a material impact on the way the Group recognises its provisions in
relation to insurance contracts.
151
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109
Capita plc Annual Report 2022
Capita plc
Annual Report 2022
Notes to the
consolidated
financial statements
Financial
Notes to the consolidated financial statements
statements
Notes to the consolidated financial statements
Impact of amendments to IAS 37
Property, plant and equipment
Contract fulfilment assets
Total assets
Provisions (current)
Provisions (non-current)
Total liabilities
Retained earnings
Total equity
£m
(0.5)
(2.4)
(2.9)
(10.6)
(8.2)
(18.8)
(21.7)
(21.7)
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:
International Accounting Standards (IAS/IFRS)
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
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)
Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10 and
IAS 28)
Effective date
1 January 2023
1 January 2023
1 January 2023
1 January 2023
1 January 2023
standards from the effective date.
IFRS 17 Insurance Contract and amendments to IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts (IFRS 17) is a comprehensive new accounting standard for insurance contracts covering recognition,
measurement, presentation and disclosure, and will replace IFRS 4 Insurance Contracts (IFRS 4). IFRS 17 applies to all types of insurance
contracts (ie life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees
and financial instruments with discretionary participation features.
The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In
contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a
comprehensive model for insurance contracts, covering all relevant accounting aspects.
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023 and must be applied retrospectively unless impracticable, in
which case the Group has the option of using either the modified retrospective approach or the fair value approach. Based on initial analysis
performed, it is not anticipated that this new accounting standard will have a material impact on the way the Group recognises its provisions in
relation to insurance contracts.
Section 1: Basis of preparation continued
Section 2: Results for the year
The adoption of the amended standard has resulted in a reduction in retained earnings at 1 January 2022 of £21.7m, comprising an increase of
£18.8m in onerous contract provisions and an impairment of contract related assets of £2.9m. The additional onerous contract provision
recognised is tax deductible, however, no deferred tax asset has been recognised reflecting the probable level of future taxable profits that will
be available against which the assets can be utilised at 1 January 2022.
This section contains notes related to the financial performance of the Group. These include:
1 January 2022
2.2 Revenue including segmental revenue
2.1 Contract accounting
2.3 Operating profit
2.4
2.5
2.6
2.7
2.8
Adjusted operating profit and adjusted profit before tax
Segmental information
Taxation
Earnings/(loss) per share
Business exits and assets held-for-sale
2.9 Discontinued operations
2.10 Cash flow information
AP
Denotes accounting policies
J
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Reported revenue
Reported free cash flow
£3,014.6m £24.5m
The Group is assessing the impact of these new standards and the Group’s financial reporting will be presented in accordance with these
(2021: £3,182.5m)
(2021: £(264.3)m)
Reported profit before tax
£61.4m
Reported earnings per share
(EPS) – continuing operations
4.47p
(2021: profit £285.6m)
(2021: 13.33p)
Adjusted revenue1
Aim: Achieve long-term organic revenue
growth
Free cash flow before business exits1
Aim: Achieve sustainable, long-term positive
free cash flow growth generation
£2,845.8m £29.0m
(2021: £2,777.8m)
(2021: £(218.6)m)
Adjusted profit before tax1
Aim: Achieve long-term growth in profit
Adjusted earnings per share (EPS)1
Aim: Achieve long-term growth in EPS
£73.8m
6.20p
(2021: loss £122.8m)
(2021: (7.74)p)
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
110
152
Section 2: Results for the year continued
In 2022 the Group’s adjusted revenue1 increased year on year. Adjusted profit before tax1 significantly improved year on year following
completion of the significant restructuring programme in 2021 and provisions and impairments during 2021 in our closed book Life & Pensions
business. The higher level of profit supplemented by a lower cash outflow from movements in working capital and a reduction in capital
expenditure and materially lower deferred VAT repayments and pension deficit contributions, resulting in free cash inflow before business exits1
of £29.0m (2021: £218.6m outflow).
The Group had additional cash inflow of £4.1m (2021: £36.2m inflow) arising from those businesses sold in the year, primarily Pay360 and
businesses in the Capita Portfolio division, offset by additional pension deficit payments triggered by these disposals totalling £8.6m (2021:
£81.9m).
Revenue
Adjusted revenue1 increased by 2.4% year-on-year.
The adjusted revenue increased as a result of the following:
•
•
•
Capita Public Service: growth from contract wins, including a contract to supply laptops to teachers in Northern Ireland as well as the
annualised benefit of the Royal Navy training contract, increased growth in existing contracts in Central Government, and completion of a
full test cycle on the Standards Testing Agency contract, offsetting contract hand-backs in Local Public Services;
Capita Experience: stabilisation in revenue, with the impact of significant prior year contract losses offset by positive revenue
contributions in particular from new client wins in International and with ScottishPower; and
Capita Portfolio: growth in transactional revenue mainly from Travel and Enforcement following the turnaround in these Covid-19
impacted businesses.
The difference of £168.8m between adjusted revenue of £2,845.8m and reported revenue of £3,014.6m is related to business exits in the year
(refer to note 2.8).
For additional information, which does not form part of these consolidated financial statements, the Chief Financial Officer’s review in the
strategic report includes further information in respect of the movement.
Profit before tax
The adjusted result before tax1 improved by £196.6m year-on-year to a profit of £73.8m.
The adjusted profit before tax1 increased as a result of the profit impact of the following:
•
•
•
•
Capita Public Service: benefits from the wins in 2022, the annualised benefit of the Royal Navy training contract and the non-recurrence
of Electronic Monitoring programme costs in 2021; offset by a reduction on the British Army recruitment (RPP) contract resulting from
transition to the next phase of service delivery;
Capita Experience: flow through of prior year losses including 3UK, William Hill and in closed book Life & Pensions business. 2021 was
impacted by provisions and impairments in our closed book Life & Pensions business and completion of significant restructuring;
Capita Portfolio: benefits from post Covid-19 recovery in transactional businesses and the non-repeat of 2021 restructuring costs, offset
by operational investment in certain businesses; and
Capita plc: benefits from the end of the transformation programme (2021 included £128.0m of significant restructuring) and efficiencies
realised; offset by the effect of the announced intention to repay the 2021 furlough related income (£4.9m).
Adjusted profit before tax1 excludes a number of specific items so users of these consolidated financial statements can more clearly understand
the financial performance of the Group. Reported profit before tax was £61.4m (2021: profit £285.6m). The year-on-year reduction has arisen
from a lower gain on business disposals and a higher impairment of goodwill. 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 £79.6m (2021: loss £86.6m). Details of items charged/credited in arriving at the reported operating
loss can be found in note 2.3.
For additional information, which does not form part of these consolidated financial statements, the Chief Financial Officer’s review in the
strategic report includes further information in respect of the movement.
Taxation
The income tax credit of £31.8m on adjusted profit before tax1 of £73.8m (2021: charge of £4.0m on adjusted loss before tax of £122.8m)
differs from the notional tax charge at the UK corporation tax rate of 19%, mainly due to adjustments in the carrying value of recognised
deferred tax assets.
Earnings per share
The movement in reported basic earnings per share and adjusted basic earnings per share1 for continuing operations was a result of the
performance explained above.
Dividend
The Board is not recommending the payment of a final dividend (2021: £nil). However, the Board recognises the importance of regular dividend
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.
Strategic report
Corporate governance
Financial statements
110
111
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Section 2: Results for the year continued
In 2022 the Group’s adjusted revenue1 increased year on year. Adjusted profit before tax1 significantly improved year on year following
completion of the significant restructuring programme in 2021 and provisions and impairments during 2021 in our closed book Life & Pensions
business. The higher level of profit supplemented by a lower cash outflow from movements in working capital and a reduction in capital
expenditure and materially lower deferred VAT repayments and pension deficit contributions, resulting in free cash inflow before business exits1
of £29.0m (2021: £218.6m outflow).
The Group had additional cash inflow of £4.1m (2021: £36.2m inflow) arising from those businesses sold in the year, primarily Pay360 and
businesses in the Capita Portfolio division, offset by additional pension deficit payments triggered by these disposals totalling £8.6m (2021:
Section 2: Results for the year continued
Free cash flow before business exits1
Adjusted operating profit to free cash flow before business exits1
Adjusted operating profit1
Add: depreciation/amortisation and impairment of property, plant and equipment and intangible assets
Adjusted EBITDA
Working capital
Non-cash and other adjustments
Operating cash flow before business exits1
Deferred VAT repayment
Pension deficit contributions
Cash generated/(used) by operations before business exits1
Net capital expenditure
Interest/tax paid
Free cash flow before business exits1
153
2022
£m
102.9
135.9
238.8
(32.7)
(44.7)
161.4
(14.9)
(30.0)
116.5
(43.6)
(43.9)
29.0
2021
£m
(77.7)
220.7
143.0
(113.6)
38.6
68.0
(104.1)
(73.6)
(109.7)
(51.2)
(57.7)
(218.6)
Capita Public Service: benefits from the wins in 2022, the annualised benefit of the Royal Navy training contract and the non-recurrence
of Electronic Monitoring programme costs in 2021; offset by a reduction on the British Army recruitment (RPP) contract resulting from
The reduction in non-cash and other adjustments reflects utilisation of customer contract provisions in 2022 compared with provision
recognition in 2021, and the utilisation of the remaining restructuring provision.
Adjusted EBITDA increased by 67% reflecting the improvement in adjusted profit1 explained earlier offset by the significant reduction in
depreciation, amortisation and impairment of property, plant and equipment and intangible assets, largely driven by the Group’s property
rationalisation programme and the step-down in impairment charges following the £53.5m write-down of finance system investment in 2021.
Cash generated from operations before business exits1 benefited from the improvement in adjusted EBITDA, a lower working capital outflow
compared with 2021, materially lower deferred VAT repayments and pension deficit contributions; offset by a reduction in non-cash and other
adjustments.
The lower working capital outflow arises from contracts moving into the operational phase and increased utilisation of non-recourse trade
receivables financing in 2022.
Free cash flow before business exits1 for the year ended 31 December 2022 was an inflow of £29.0m (2021: outflow £218.6m). The
improvement reflected the above increase in cash generated from operations before business exits1, and a reduction in capital expenditure,
and net interest paid in respect of leases and the Group's private placement loan notes.
Adjusted operating cash conversion1 increased to 68% (2021: 48%).
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Notes to the consolidated financial statements
£81.9m).
Revenue
Adjusted revenue1 increased by 2.4% year-on-year.
The adjusted revenue increased as a result of the following:
•
•
•
•
•
•
•
Capita Public Service: growth from contract wins, including a contract to supply laptops to teachers in Northern Ireland as well as the
annualised benefit of the Royal Navy training contract, increased growth in existing contracts in Central Government, and completion of a
full test cycle on the Standards Testing Agency contract, offsetting contract hand-backs in Local Public Services;
Capita Experience: stabilisation in revenue, with the impact of significant prior year contract losses offset by positive revenue
contributions in particular from new client wins in International and with ScottishPower; and
Capita Portfolio: growth in transactional revenue mainly from Travel and Enforcement following the turnaround in these Covid-19
The difference of £168.8m between adjusted revenue of £2,845.8m and reported revenue of £3,014.6m is related to business exits in the year
impacted businesses.
(refer to note 2.8).
For additional information, which does not form part of these consolidated financial statements, the Chief Financial Officer’s review in the
strategic report includes further information in respect of the movement.
Profit before tax
The adjusted result before tax1 improved by £196.6m year-on-year to a profit of £73.8m.
The adjusted profit before tax1 increased as a result of the profit impact of the following:
transition to the next phase of service delivery;
Capita Experience: flow through of prior year losses including 3UK, William Hill and in closed book Life & Pensions business. 2021 was
impacted by provisions and impairments in our closed book Life & Pensions business and completion of significant restructuring;
Capita Portfolio: benefits from post Covid-19 recovery in transactional businesses and the non-repeat of 2021 restructuring costs, offset
by operational investment in certain businesses; and
Capita plc: benefits from the end of the transformation programme (2021 included £128.0m of significant restructuring) and efficiencies
realised; offset by the effect of the announced intention to repay the 2021 furlough related income (£4.9m).
Adjusted profit before tax1 excludes a number of specific items so users of these consolidated financial statements can more clearly understand
the financial performance of the Group. Reported profit before tax was £61.4m (2021: profit £285.6m). The year-on-year reduction has arisen
from a lower gain on business disposals and a higher impairment of goodwill. A reconciliation of the adjusted profit before tax1 to reported loss
Reported operating loss for the year was £79.6m (2021: loss £86.6m). Details of items charged/credited in arriving at the reported operating
For additional information, which does not form part of these consolidated financial statements, the Chief Financial Officer’s review in the
strategic report includes further information in respect of the movement.
The income tax credit of £31.8m on adjusted profit before tax1 of £73.8m (2021: charge of £4.0m on adjusted loss before tax of £122.8m)
differs from the notional tax charge at the UK corporation tax rate of 19%, mainly due to adjustments in the carrying value of recognised
before tax is detailed in note 2.4.
loss can be found in note 2.3.
Taxation
deferred tax assets.
Earnings per share
performance explained above.
Dividend
The movement in reported basic earnings per share and adjusted basic earnings per share1 for continuing operations was a result of the
The Board is not recommending the payment of a final dividend (2021: £nil). However, the Board recognises the importance of regular dividend
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.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
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Section 2: Results for the year continued
2.1 Contract accounting
At 31 December 2022, the Group had the following results and balance sheet items related to long-term contracts:
Long-term contractual revenue1
Non-current and current deferred income
Non-current contract fulfilment assets
Non-current and current onerous contract provision
Notes
2021
2022
£m
£m
2.2 2,236.2 2,325.2
794.7
640.7
286.7
263.0
45.8
52.8
3.1.3
1. The 2021 comparative has been re-presented to reflect the recategorisation of certain contracts between contract types (long-term contractual, short-term contractual and transactional
(point-in-time)) following a review in 2022.
Background
The Group operates diverse businesses. The majority of the Group’s revenue is from contracts greater than two years in duration (long-term
contractual), representing 74% of Group revenue in 2022 (2021: 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:
Inflection point
Contract
lifetime profit
IFRS 15
revenue
Cash
received
Fixed asset
depreciation
and contract
fulfilment
asset utilisation
Transformation phase
BAU phase
Initial loss
Restructuring
l
e Operating model
u
at service
a
V
commencement pa
Deferred
income
Operating costs
Target
operating
model
Time
Higher level of uncertainty in lifetime profitability
Reduced level of uncertainty in lifetime profitability
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).
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Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
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Annual Report 2022
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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; impact of inflation; 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. An assessment of which contracts are major contracts is performed twice a year, and to enable comparability the
prior period balances below are re-presented to reflect the same scope as the current period. Other contracts are reported to the Audit and Risk
Committee as deemed appropriate. These contracts are collectively referred to as ‘major contracts’ in the remainder of this note.
The major contracts contributed £1.4 billion (2021: £1.3 billion) or 49% (2021: 47%) of Group adjusted revenue. Non-current contract fulfilment
assets at 31 December 2022 were £263.0m, of which £106.3m (2021: £118.6m) relates to major contracts with ongoing transformational
activities. The remainder relates to contracts post transformation and includes non-major contracts.
The major contracts, both pre- and post-transformation, are rated according to their financial risk profile, which is linked to the level of
uncertainty over future assumptions. For those that are in the high and medium rated risk categories the associated non-current contract
fulfilment assets were, in aggregate, £40.4m at 31 December 2022 (2021: £41.9m). The recoverability of these assets is dependent on no
significant adverse change in the key contract assumptions arising during the next financial year. The balance of deferred income associated
with these contracts was £116.5m at 31 December 2022 (2021: £126.6m) 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 £42.5m at
31 December 2022 (2021: £39.5m).
Following these reviews, and reviews of smaller contracts across the business, as outlined in note 3.1.3, contract fulfilment asset impairments
of £3.8m (2021: £7.3m) were identified and recognised within cost of sales, of which £0.5m (2021: £nil) relates to contract fulfilment assets
added during the period, and net onerous contract provisions of £1.7m (2021: £32.0m) were identified and recognised in cost of sales. As
discussed in note 1, the adoption of the amendment to IAS 37 resulted in additional onerous contract provisions being required, as well as
contract asset impairments. On adoption of the amended standard the cumulative effect was recognised as an opening balance adjustment to
retained earnings.
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, £106.3m
of non-current contract fulfilment assets relates to major contracts with ongoing transformational activities; and, £40.4m of non-contract
fulfilment assets and £42.5m of onerous contract provisions relate to the highest and medium rated risk category. Due to the level of
uncertainty, combination of variables and timing across numerous contracts, it is not practical to provide a quantitative analysis of the
aggregated judgements that are applied, and management do not believe that disclosing a potential range of outcomes on a consolidated basis
would provide meaningful information to a user of the financial statements. Due to commercial sensitivities, the Group does not specifically
disclose the amounts involved in any individual contract.
Certain major transformation contracts have key milestones during the next twelve months and an inability to meet these key milestones could
lead to reduced profitability and a risk of impairment of the associated contract assets. These contracts include Royal Navy training and TfL
Road User Charging.
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.
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.1 Contract accounting
At 31 December 2022, the Group had the following results and balance sheet items related to long-term contracts:
Notes
2022
£m
2021
£m
2.2 2,236.2 2,325.2
3.1.3
640.7
263.0
52.8
794.7
286.7
45.8
Long-term contractual revenue1
Non-current and current deferred income
Non-current contract fulfilment assets
Non-current and current onerous contract provision
(point-in-time)) following a review in 2022.
Background
1. The 2021 comparative has been re-presented to reflect the recategorisation of certain contracts between contract types (long-term contractual, short-term contractual and transactional
The Group operates diverse businesses. The majority of the Group’s revenue is from contracts greater than two years in duration (long-term
contractual), representing 74% of Group revenue in 2022 (2021: 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:
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).
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
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Corporate governance
Financial statements
114
156
Section 2: Results for the year continued
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 ‘over time’ 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.
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 over time, 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. This is a faithful depiction of the transfer of
services since the service delivered to the customer is unchanged. 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.
When transfer of control is most closely aligned to Group efforts in delivering the service, the input method is used to measure progress and
revenue is recognised in direct proportion to costs incurred. This is a faithful depiction of the transfer of services because costs (or other inputs)
most accurately reflect the incremental benefits received by the customer from efforts to date.
If performance obligations in a contract do not meet the over time 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 because the types of modifications will vary contract by
contract and may result in different accounting outcomes.
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Financial statements
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115
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157
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
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 ‘over time’ 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.
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 over time, 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. This is a faithful depiction of the transfer of
services since the service delivered to the customer is unchanged. 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.
When transfer of control is most closely aligned to Group efforts in delivering the service, the input method is used to measure progress and
revenue is recognised in direct proportion to costs incurred. This is a faithful depiction of the transfer of services because costs (or other inputs)
most accurately reflect the incremental benefits received by the customer from efforts to date.
If performance obligations in a contract do not meet the over time 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 because the types of modifications will vary contract by
contract and may result in different accounting outcomes.
Section 2: Results for the year continued
2.2 Revenue including segmental revenue
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
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. For example, if pricing is subject to indexation based on an external metric
(such as CPI or RPI) then the revenue related to the indexation will only be recognised once the relevant indexation is confirmed. Future
indexation will not be recognised because it is not highly probable that a significant reversal of an indexation adjustment will not 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.
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 over time (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.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
116
158
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
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.
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
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.
Strategic report
Corporate governance
Financial statements
116
117
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
159
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 as reported to the Chief Operating Decision Maker. The Group
comprises two core trading divisions - Capita Public Service and Capita Experience - and a third division - Capita Portfolio - which comprises
non-core businesses that the Group intends to exit in due course. Comparative information has been re-presented to reflect businesses exited
during 2022.
Adjusted revenue, excluding results from businesses exited in both years (adjusting items), was £2,845.8m (2021: £2,777.8m), an increase of
2.4% (2021: increase 0.1%).
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 2022
Continuing operations
Long-term contractual
Short-term contractual
Transactional (point-in-time)
1,157.3
236.7
51.3
986.2
150.0
14.5
Total segment revenue
1,445.3
1,150.7
Trading revenue
Inter-segment revenue
Total adjusted segment
revenue
1,487.5
1,190.9
(42.2)
(40.2)
1,445.3
1,150.7
Business exits – trading
2.8
—
33.3
Total segment revenue
1,445.3
1,184.0
Year ended
31 December 2021 (Re-presented)1
Continuing operations
Long-term contractual
Short-term contractual
Transactional (point-in-time)
1,115.3
211.1
84.0
982.2
152.7
6.0
Total segment revenue
1,410.4
1,140.9
Trading revenue
Inter-segment revenue
Total adjusted segment
revenue
1,443.5
1,226.9
(33.1)
(86.0)
1,410.4
1,140.9
Business exits – trading
2.8
—
43.9
Total segment revenue
1,410.4
1,184.8
33.1
37.7
179.0
249.8
334.2
(84.4)
249.8
135.5
385.3
38.5
42.9
145.1
226.5
265.4
(38.9)
226.5
360.8
587.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,176.6
424.4
244.8
59.6
70.4
38.8
2,236.2
494.8
283.6
2,845.8
168.8
3,014.6
3,012.6
(166.8)
—
—
3,012.6
(166.8)
2,845.8
—
2,845.8
—
2,845.8
168.8
168.8
168.8
3,014.6
2,136.0
406.7
235.1
189.2
127.7
87.8
2,325.2
534.4
322.9
2,777.8
404.7
3,182.5
2,935.8
(158.0)
—
—
2,935.8
(158.0)
2,777.8
—
2,777.8
—
2,777.8
404.7
404.7
404.7
3,182.5
1. The 2021 comparative figures have been re-presented to reflect the recategorisation of certain contracts between contract types (long-term contractual, short-term contractual and
transactional (point-in-time)) following a review in 2022.
Geographical location
The table below presents revenue by geographical location.
Revenue
2022
2021
United
Kingdom
£m
2,718.6
Other
£m
Total
£m
296.0 3,014.6
United
Kingdom
£m
2,882.4
Other
£m
Total
£m
300.1 3,182.5
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
118
160
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 unsatisfied or partially unsatisfied. Revenue expected to be recognised upon satisfaction of these performance obligations
is as follows:
Order book
31 December 2022
Long-term contractual
Short-term contractual
Total
Order book
31 December 2021
Long-term contractual
Short-term contractual
Total
Capita
Public
Service
£m
2,916.7
68.3
2,985.0
Capita
Public
Service
£m
3,172.8
113.5
3,286.3
Capita
Experience
£m
2,465.3
61.4
2,526.7
Capita
Experience
£m
2,170.0
101.8
2,271.8
Capita
Portfolio
£m
201.9
91.6
293.5
Capita
Portfolio
£m
417.1
140.2
557.3
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 2022:
Time bands of expected revenue recognition
from long-term contractual orders
< 1 year
1–5 years
> 5 years
Total
Capita
Public
Service
£m
843.3
1,417.0
656.4
2,916.7
Capita
Experience
£m
708.3
1,489.8
267.2
2,465.3
Capita
Portfolio
£m
25.2
62.6
114.1
201.9
Capita
plc
£m
—
—
—
—
Total
£m
5,583.9
221.3
5,805.2
Total
£m
5,759.9
355.5
6,115.4
Total
£m
1,576.8
2,969.4
1,037.7
5,583.9
Prior year comparative information is not presented for the expected timing of revenue recognition because it is a forward looking disclosure
and therefore management does not believe that such disclosure provides meaningful information to a user of the consolidated financial
statements.
The order book represents the consideration that the Group will be entitled to receive from customers when the Group satisfies its remaining
performance obligations under the contracts. However, the total revenue that will be earned by the Group will also include non-contracted
volumetric revenue, future indexation linked to an external metric, new wins, scope changes, and anticipated contract extensions. These
elements have been excluded from the above tables because they are not contracted. Additionally, revenue from contract extensions is
excluded from the order book unless they are pre-priced extensions whereby the Group has a legally binding obligation to deliver the
performance obligations during the extension period. The total revenue related to pre-priced extensions included in the tables above amounted
to £577.0m (2021: £668.0m). The amounts presented do not include orders for which neither party has performed, and each party has the
unilateral right to terminate a wholly unperformed contract without compensating the other party.
Of the £5.6 billion (2021: £5.8 billion) revenue to be earned on long-term contracts, £4.2 billion (2021: £4.3 billion) relates to major contracts.
This amount excludes revenue that will be derived from frameworks (transactional ‘point-in-time’ contracts), non-contracted volumetric revenue,
non-contracted scope changes and future unforeseen volume changes from these major contracts, which together are anticipated to contribute
an additional £0.7 billion (2021: £2.3 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 £831.4m (2021: £941.1m).
Movements in the deferred income balances were driven by transactions entered into by the Group within the normal course of business during
the year (2021: 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).
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
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 unsatisfied or partially unsatisfied. Revenue expected to be recognised upon satisfaction of these performance obligations
2.2.2 Order book
is as follows:
Order book
31 December 2022
Long-term contractual
Short-term contractual
Total
Order book
31 December 2021
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
statements.
Capita
Public
Service
£m
2,916.7
68.3
2,985.0
Capita
Public
Service
£m
3,172.8
113.5
3,286.3
Capita
Public
Service
£m
843.3
1,417.0
656.4
2,916.7
Capita
Experience
£m
2,465.3
61.4
2,526.7
Capita
Experience
£m
2,170.0
101.8
2,271.8
Capita
Experience
£m
708.3
1,489.8
267.2
2,465.3
Capita
Portfolio
£m
201.9
91.6
293.5
Capita
Portfolio
£m
417.1
140.2
557.3
Capita
Portfolio
£m
25.2
62.6
114.1
201.9
Capita
plc
£m
—
—
—
Capita
plc
£m
—
—
—
Capita
plc
£m
—
—
—
—
Total
£m
5,583.9
221.3
5,805.2
Total
£m
5,759.9
355.5
6,115.4
Total
£m
1,576.8
2,969.4
1,037.7
5,583.9
The table below shows the expected timing of revenue to be recognised on long-term contractual orders at 31 December 2022:
Prior year comparative information is not presented for the expected timing of revenue recognition because it is a forward looking disclosure
and therefore management does not believe that such disclosure provides meaningful information to a user of the consolidated financial
The order book represents the consideration that the Group will be entitled to receive from customers when the Group satisfies its remaining
performance obligations under the contracts. However, the total revenue that will be earned by the Group will also include non-contracted
volumetric revenue, future indexation linked to an external metric, new wins, scope changes, and anticipated contract extensions. These
elements have been excluded from the above tables because they are not contracted. Additionally, revenue from contract extensions is
excluded from the order book unless they are pre-priced extensions whereby the Group has a legally binding obligation to deliver the
performance obligations during the extension period. The total revenue related to pre-priced extensions included in the tables above amounted
to £577.0m (2021: £668.0m). The amounts presented do not include orders for which neither party has performed, and each party has the
unilateral right to terminate a wholly unperformed contract without compensating the other party.
Of the £5.6 billion (2021: £5.8 billion) revenue to be earned on long-term contracts, £4.2 billion (2021: £4.3 billion) relates to major contracts.
This amount excludes revenue that will be derived from frameworks (transactional ‘point-in-time’ contracts), non-contracted volumetric revenue,
non-contracted scope changes and future unforeseen volume changes from these major contracts, which together are anticipated to contribute
an additional £0.7 billion (2021: £2.3 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 £831.4m (2021: £941.1m).
Movements in the deferred income balances were driven by transactions entered into by the Group within the normal course of business during
the year (2021: 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).
Strategic report
Corporate governance
Financial statements
118
119
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
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
(Reversal of impairment)/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
Loss on sale of property, plant and equipment and intangibles
Foreign exchange differences
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 (net of additions and releases)
161
Notes
3.2
3.5
3.2
3.5
3.3
3.3
3.4
2.8
2.10.1
3.1.3
2022
£m
40.9
56.0
4.7
(2.7)
41.5
5.9
169.0
—
3.5
6.9
85.7
—
—
1.7
2021
£m
48.6
68.2
1.9
13.3
57.7
58.7
16.1
44.1
0.7
(0.2)
107.8
(4.7)
(7.5)
32.0
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 has recognised an impairment against costs
capitalised as contract fulfilment assets totalling £3.8m (2021: £7.3m) in 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. There were no in-year customer contract terminations for customer convenience that led to associated exit fees
being earned by Capita (2021: £4.7m in Capita Experience) and recorded as income during the year.
The net of: accelerated deferred income unwind and contract fulfilment asset utilisation: during 2022 the Group recognised no gains or
losses (2021: gain £7.5m) related to the net of accelerated deferred income unwinds and contract fulfilment asset utilisation. In 2021 the gains
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.
Onerous contract provisions: during 2022 the Group recognised a net loss of £1.7m related to onerous contract provisions (refer to note 3.6)
in Capita Experience (2021: £32.0m loss related to contracts in Capita Experience).
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 the Group’s consolidated financial statements
The audit of the financial statements of the Group’s subsidiary companies
Total audit and audit-related services
Non-audit services
Other assurance services
Total non-audit services
Total audit and non-audit services
2022
£m
2021
£m
5.1
1.0
6.1
1.6
1.6
7.7
5.1
1.9
7.0
1.5
1.5
8.5
The non-audit fees in respect of 2022 related to the review of interim results, and services as reporting accountant for the disposal of Pay360
Limited. In respect of 2021, the non-audit fees related to the review of interim results, and services as reporting accountant for the disposal of
AXELOS Limited.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
120
162
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 disclose separately those items that it considers are outside the underlying operating results for the
particular year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be
disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an
understanding of the financial information and the underlying 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 90 to 98. The Board considers alternative performance measures (APMs) to be
helpful to the reader, but notes that APMs have certain limitations, including the exclusion of significant recurring items, and may not be directly
comparable with similarly titled measures presented by other companies.
From 1 January 2022, the Board has limited the items excluded from the adjusted results to: business exits; amortisation and impairment of
acquired intangibles; impairment of goodwill; and, certain mark-to-market valuation changes that impact net finance expense/income; because
the adjusted metrics provide a more representative measure of the underlying performance of the business post completion of the Group-wide
transformation.
In prior years, the Board excluded other items from the adjusted results because they were material and required separate disclosure for users
of the financial statements to obtain a proper understanding of the financial information and the underlying performance of the business. These
items included: significant restructuring; contract-related provisions and impairments; and, certain litigation and claims.
The comparatives have been re-presented on the same basis, with significant restructuring (£147.5m), certain litigation and claims (credit
£2.3m) and contract related provisions and impairments (£43.1m) now included within adjusted results for the year ended 31 December 2021.
The items below are excluded from the adjusted results:
Reported
Amortisation and impairment of acquired intangibles
Impairment of goodwill
Net finance (income)/costs
Business exits
Adjusted
Operating
profit/(loss)
2021
£m
(Re-presented4)
(86.6)
7.7
11.5
—
(10.3)
(77.7)
2022
£m
(79.6)
5.1
169.0
—
8.4
102.9
Profit/(loss)
before tax
2022
£m
61.4
2021
£m
(Re-presented4)
285.6
5.1
169.0
(3.4)
(158.3)
73.8
7.7
11.5
1.4
(429.0)
(122.8)
Notes
3.3
3.4
4.3
2.8
1. Adjusted operating profit increased by 232.4% (2021: increased 26.6%) and adjusted profit before tax increased by 160.1% (2021: increased 15.1%). Adjusted operating profit of £102.9m
(2021: loss £77.7m) was generated on adjusted revenue of £2,845.8m (2021: £2,777.8m) resulting in an adjusted operating margin of 3.6% (2021: (2.8)%).
2. The tax credit on adjusted profit before tax is £31.8m (2021: £4.0m charge) resulting in adjusted profit after tax of £105.6m (2021: £126.8m loss).
3. The adjusted operating loss and adjusted loss before tax for 2021 have been re-presented for the impact of business exits during 2022 and the change in adjusting items. This has resulted
in adjusted operating profit decreasing from £139.1m to a loss of £77.7m and adjusted profit before tax decreasing from £93.5m to a loss of £122.8m.
4. 2021 adjusted results have been re-presented - please refer to further detail above.
Amortisation and impairment of acquired intangible assets: the Group recognised acquired intangible amortisation of £5.1m (2021: £7.7m)
and impairment of £nil (2021: £nil). These charges are excluded from the adjusted results of the Group because they are non-cash items
generated from historical acquisition related activity.
Impairment of goodwill: the Group carries on its balance sheet significant balances related to goodwill. Goodwill is subject to annual
impairment testing and any impairment charges are reported separately because they are non-cash items generated from historical acquisition
related activity.
Net finance costs: net finance costs excluded from adjusted profits relate to movements in the mark-to-market value of forward foreign
exchange contracts to cover anticipated future costs and therefore have no equivalent offsetting transaction in the accounting records, also
refer to note 4.2.2.
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 to enable comparability of 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.
Strategic report
Corporate governance
Financial statements
120
121
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
163
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 pages16 to 25.
The tables below present profit for the Group’s business segments. 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. Comparative information has been
re-presented to reflect businesses exited during 2022 and the change in definition of what the Board excludes from adjusted results (refer to
note 2.4).
Information on segmental revenue can be found in note 2.2.
Year ended
31 December 2022
Adjusted operating profit
Business exits – trading
Total trading result
Non-trading items:
Business exits – non-trading
Other adjusting items
Operating profit/(loss)
Interest income
Interest expense
Share of results in associates
and investment gains
Gain on business disposal
Profit before tax
Supplementary Information
Depreciation and amortisation
Impairment of property, plant
and equipment, intangible
assets and right-of-use assets
Contract fulfilment assets
utilisation, impairment and
derecognition
Capita
Public
Service
£m
91.5
—
91.5
Capita
Experience
£m
38.5
4.3
42.8
Capita
Portfolio
£m
16.2
10.4
26.6
Capita
plc
£m
(43.3)
—
Total
adjusted
£m
102.9
—
(43.3)
102.9
Adjusting
items
£m
—
14.7
14.7
—
—
102.9
(23.1)
(174.1)
(182.5)
Total
reported
£m
102.9
14.7
117.6
(23.1)
(174.1)
(79.6)
8.9
(40.6)
5.8
166.9
61.4
38.5
67.2
19.4
3.3
128.4
10.0
138.4
—
7.7
—
(0.2)
7.5
0.4
7.9
Notes
2.4
2.8
2.8
2.4
3.2
3.3
3.5
3.1.3
67.2
16.3
0.8
—
84.3
1.4
85.7
Onerous contract provisions
2.3
—
1.7
—
—
1.7
—
1.7
Notes to the consolidated financial statements
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 disclose separately those items that it considers are outside the underlying operating results for the
particular year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be
disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an
understanding of the financial information and the underlying 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 90 to 98. The Board considers alternative performance measures (APMs) to be
helpful to the reader, but notes that APMs have certain limitations, including the exclusion of significant recurring items, and may not be directly
comparable with similarly titled measures presented by other companies.
From 1 January 2022, the Board has limited the items excluded from the adjusted results to: business exits; amortisation and impairment of
acquired intangibles; impairment of goodwill; and, certain mark-to-market valuation changes that impact net finance expense/income; because
the adjusted metrics provide a more representative measure of the underlying performance of the business post completion of the Group-wide
transformation.
In prior years, the Board excluded other items from the adjusted results because they were material and required separate disclosure for users
of the financial statements to obtain a proper understanding of the financial information and the underlying performance of the business. These
items included: significant restructuring; contract-related provisions and impairments; and, certain litigation and claims.
The comparatives have been re-presented on the same basis, with significant restructuring (£147.5m), certain litigation and claims (credit
£2.3m) and contract related provisions and impairments (£43.1m) now included within adjusted results for the year ended 31 December 2021.
The items below are excluded from the adjusted results:
Amortisation and impairment of acquired intangibles
Reported
Impairment of goodwill
Net finance (income)/costs
Business exits
Adjusted
Notes
(Re-presented4)
Operating
profit/(loss)
2021
£m
(86.6)
7.7
11.5
—
(10.3)
(77.7)
2022
£m
(79.6)
5.1
169.0
—
8.4
102.9
Profit/(loss)
before tax
2021
£m
(Re-presented4)
285.6
7.7
11.5
1.4
(429.0)
(122.8)
2022
£m
61.4
5.1
169.0
(3.4)
(158.3)
73.8
3.3
3.4
4.3
2.8
1. Adjusted operating profit increased by 232.4% (2021: increased 26.6%) and adjusted profit before tax increased by 160.1% (2021: increased 15.1%). Adjusted operating profit of £102.9m
(2021: loss £77.7m) was generated on adjusted revenue of £2,845.8m (2021: £2,777.8m) resulting in an adjusted operating margin of 3.6% (2021: (2.8)%).
2. The tax credit on adjusted profit before tax is £31.8m (2021: £4.0m charge) resulting in adjusted profit after tax of £105.6m (2021: £126.8m loss).
3. The adjusted operating loss and adjusted loss before tax for 2021 have been re-presented for the impact of business exits during 2022 and the change in adjusting items. This has resulted
in adjusted operating profit decreasing from £139.1m to a loss of £77.7m and adjusted profit before tax decreasing from £93.5m to a loss of £122.8m.
4. 2021 adjusted results have been re-presented - please refer to further detail above.
Amortisation and impairment of acquired intangible assets: the Group recognised acquired intangible amortisation of £5.1m (2021: £7.7m)
and impairment of £nil (2021: £nil). These charges are excluded from the adjusted results of the Group because they are non-cash items
generated from historical acquisition related activity.
Impairment of goodwill: the Group carries on its balance sheet significant balances related to goodwill. Goodwill is subject to annual
impairment testing and any impairment charges are reported separately because they are non-cash items generated from historical acquisition
related activity.
refer to note 4.2.2.
the balance sheet date.
Net finance costs: net finance costs excluded from adjusted profits relate to movements in the mark-to-market value of forward foreign
exchange contracts to cover anticipated future costs and therefore have no equivalent offsetting transaction in the accounting records, also
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 to enable comparability of 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
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
122
164
Section 2: Results for the year continued
2.5 Segmental information continued
Capita
Experience
£m
Capita
Portfolio
£m
Capita
plc
£m
Total
adjusted
£m
Adjusting
items
£m
Total
reported
£m
Re-presented1
8.9
6.9
15.8
(0.1)
72.4
72.3
(179.7)
(77.7)
—
—
(179.7)
(77.7)
—
—
(77.7)
—
79.3
79.3
(69.0)
(19.2)
(8.9)
(77.7)
79.3
1.6
(69.0)
(19.2)
(86.6)
4.7
(51.6)
(0.6)
419.7
285.6
Year ended
31 December 2021
Adjusted operating profit
Business exits – trading
Total trading result
Non-trading items:
Notes
2.4
2.8
Capita
Public
Service
£m
93.2
—
93.2
Business exits – non-trading
Other adjusting items
2.8
2.4
Operating loss
Interest income
Interest expense
Share of results in associates
and investment gains
Gain on business disposal
Profit before tax
Supplementary Information
Depreciation and amortisation
Impairment of property, plant
and equipment, intangible
assets and right-of-use assets
Contract fulfilment assets
utilisation, impairment and
derecognition
3.2
3.3
3.5
42.2
78.8
21.8
6.6
149.4
25.1
174.5
3.3
5.5
2.6
59.9
71.3
2.6
73.9
3.1.3
64.5
21.8
2.0
—
88.3
19.5
107.8
Onerous contract provisions
2.3
—
32.0
—
—
32.0
—
32.0
1. 2021 adjusted results have been re-presented - please refer to note 2.4 for further details.
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
2022
2021
United
Kingdom
£m
1,320.9
Other
£m
Total
£m
20.6 1,341.5
United
Kingdom
£m
1,791.3
Other
£m
Total
£m
27.7 1,819.0
Strategic report
Corporate governance
Financial statements
122
123
Capita plc Annual Report 2022
165
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
Notes
2.4
2.8
Capita
Public
Service
£m
93.2
—
93.2
Re-presented1
8.9
6.9
15.8
(0.1)
72.4
72.3
(179.7)
(77.7)
—
—
(179.7)
(77.7)
—
79.3
79.3
(69.0)
(19.2)
(8.9)
—
—
(77.7)
(77.7)
79.3
1.6
(69.0)
(19.2)
(86.6)
4.7
(51.6)
(0.6)
419.7
285.6
Business exits – non-trading
Other adjusting items
2.8
2.4
Year ended
31 December 2021
Adjusted operating profit
Business exits – trading
Total trading result
Non-trading items:
Operating loss
Interest income
Interest expense
Share of results in associates
and investment gains
Gain on business disposal
Profit before tax
Supplementary Information
Depreciation and amortisation
Impairment of property, plant
and equipment, intangible
assets and right-of-use assets
Contract fulfilment assets
utilisation, impairment and
derecognition
3.2
3.3
3.5
42.2
78.8
21.8
6.6
149.4
25.1
174.5
3.3
5.5
2.6
59.9
71.3
2.6
73.9
3.1.3
64.5
21.8
2.0
—
88.3
19.5
107.8
1. 2021 adjusted results have been re-presented - please refer to note 2.4 for further details.
The table below presents the carrying amount of non-current assets (excluding deferred tax, financial assets and employee benefits) by the
Geographical location
geographical location of those assets.
Non-current assets
1,320.9
20.6 1,341.5
1,791.3
27.7 1,819.0
United
Kingdom
£m
Other
£m
United
Kingdom
£m
Other
£m
2022
Total
£m
2021
Total
£m
Section 2: Results for the year continued
2.5 Segmental information continued
Section 2: Results for the year continued
2.6 Taxation
Capita
Experience
£m
Capita
Portfolio
£m
Capita
plc
£m
Total
adjusted
£m
Adjusting
items
£m
Total
reported
£m
AP
Accounting policies
Tax on the profit or loss for year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income 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 bases 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 nor taxable profit or 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.
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.
J
Significant accounting judgements, estimates and assumptions
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. This involves an assessment of when those assets are likely to reverse, and a judgement
as to whether or not there will be sufficient taxable profits available to offset the assets when they do reverse. This requires assumptions
regarding future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability change, there may be
an increase or decrease in the amounts recognised in respect of deferred tax assets as well as in the amounts recognised during the year in
which the change occurs.
Onerous contract provisions
2.3
—
32.0
—
—
32.0
—
32.0
Sensitivities and additional information relating to deferred tax assets/liabilities are provided in note 2.6.2.
2.6.1 Income tax credit
There is a reported income tax credit for the period of £14.6m on reported profit before tax of £61.4m (2021: reported income tax charge of
£61.5m on reported profit of £285.6m), and an adjusted income tax credit for the period of £31.8m on adjusted profit before tax of £73.8m
(2021: adjusted tax charge of £4.0m on adjusted loss of £122.8m). The most significant reconciling items, explaining the difference from the
standard UK rate of 19%, are changes in the accounting estimate of recognised deferred tax assets, non-taxable profit on disposals and non-
deductible goodwill impairment.
The forecast future adjusted effective tax rate, before and assuming no material changes to tax laws in the jurisdictions in which Capita
operates, is expected to be broadly in line with the UK corporation tax rate, with an increase for taxable profits in higher tax rate jurisdictions.
However, management anticipates that in the short term, the continued divestment programme may impact the future effective tax rate
because the profits of divested businesses fall outside of the assessment of future taxable profits, impacting the recognisable deferred tax
asset assessment.
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
2022
2021
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
14.0
(1.2)
(36.7)
3.0
6.3
(14.6)
12.6
(1.2)
(52.5)
3.0
6.3
(31.8)
1.4
—
27.2
3.8
15.8
—
—
76.1
(39.0)
(6.6)
17.2
61.5
(14.5)
3.8
60.3
(39.0)
(6.6)
4.0
41.7
—
15.8
—
—
57.5
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
124
166
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
Current income tax deduction on the exercise of share options
2022
£m
—
1.6
5.2
(7.2)
—
—
(0.4)
2021
£m
(2.0)
(0.2)
32.2
(11.5)
(2.6)
(0.4)
15.5
The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the UK corporation tax rate is as follows:
Profit before tax from continuing operations
Notional charge 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-taxable income – specific items
Profit on disposal of business
Non-deductible goodwill impairment
Difference in rate recognition of temporary differences
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
At the effective total tax rate of (23.8)% (2021: 21.5%) and the effective current tax rate
of 20.8% (2021: 10.9%)
Tax (credit)/charge reported in the income statement
Total tax
2021
£m
2022
£m
Current tax
2022
£m
2021
£m
61.4 285.6
61.4 285.6
11.7
54.3
11.7
54.3
a
b
c
(1.2)
3.8
6.3
(6.6)
(2.3)
d*
2.3
3.7
1.5
(1.2)
—
(2.3)
2.3
3.8
—
3.7
1.5
—
(1.1)
—
(1.1)
e*
(31.6)
(51.7)
(31.6)
(51.7)
f*
32.0
11.4
32.0
11.4
3.1
(39.0)
1.3
0.5
1.1
(0.1)
g
h
—
—
—
3.2
0.5
(0.1)
note 2.6.2
(36.7)
84.2
—
—
—
—
—
—
—
—
6.8
(2.0)
(6.4)
1.0
0.2
7.8
(14.6)
(14.6)
61.5
61.5
12.8
31.0
12.8
31.0
i
j
* These £2.7m (2021: £(39.9)m) of reconciling items relate to reported tax charge only, with no impact on the adjusted tax charge. Further details are given (*) below.
a The £1.2m prior year credit adjustment includes: (i) a £1.2m release of uncertain tax positions due to the relevant entity being put into liquidation; (ii) a £6.3m credits which have a
corresponding impact within deferred tax of prior years; and (iii) a £6.0m credit to adjust for finalisation of submitted tax returns.
b Adjustments in respect of deferred tax of prior years mainly relate to £6.3m of charges which have a corresponding impact within current income tax of prior years.
c Relates mainly to a one-off tax deduction triggered due to the adoption of IAS 37. Refer to section 1 for further details.
d* Business exit: relates to non-deductible closure costs associated with the sale of entities. Refer to note 2.8 for further details.
e* Relates to the application of the tax exemption on accounting profits from the sale of entities. Refer to note 2.8.1 for further details.
f* Relates to the intangible asset impairments as detailed further in note 3.4.
g Movement in the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes.
h 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).
i Relates to the (utilisation)/carry forward of tax losses during the current period.
j
The current tax charge of £12.8m (2021: £31.0m) results in an effective current tax rate of 20.8%, which is different from the UK statutory rate of tax of 19% predominantly due to: tax
impact of non-taxable profits from disposals of businesses; non-deductible goodwill impairment; and losses carried forward. The impact of differing overseas tax rates is minimal and
covered in footnote (h).
Strategic report
Corporate governance
Financial statements
124
125
Capita plc Annual Report 2022
167
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
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
Current income tax deduction on the exercise of share options
Profit before tax from continuing operations
Notional charge 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-taxable income – specific items
Profit on disposal of business
Non-deductible goodwill impairment
Difference in rate recognition of temporary differences
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
2022
£m
—
1.6
5.2
(7.2)
—
—
2021
£m
(2.0)
(0.2)
32.2
(11.5)
(2.6)
(0.4)
Total tax
2021
£m
2022
£m
Current tax
2022
£m
2021
£m
61.4 285.6
61.4 285.6
11.7
54.3
11.7
54.3
a
b
c
(1.2)
3.8
6.3
(6.6)
(2.3)
d*
2.3
3.7
1.5
(1.2)
—
(2.3)
2.3
3.8
—
3.7
1.5
—
(1.1)
—
(1.1)
e*
(31.6)
(51.7)
(31.6)
(51.7)
f*
32.0
11.4
32.0
11.4
3.1
(39.0)
1.3
0.5
1.1
(0.1)
g
h
—
—
—
3.2
0.5
(0.1)
note 2.6.2
(36.7)
84.2
—
—
—
—
—
—
—
—
6.8
(2.0)
(6.4)
1.0
0.2
7.8
(14.6)
(14.6)
61.5
61.5
12.8
31.0
12.8
31.0
i
j
At the effective total tax rate of (23.8)% (2021: 21.5%) and the effective current tax rate
of 20.8% (2021: 10.9%)
Tax (credit)/charge reported in the income statement
* These £2.7m (2021: £(39.9)m) of reconciling items relate to reported tax charge only, with no impact on the adjusted tax charge. Further details are given (*) below.
a The £1.2m prior year credit adjustment includes: (i) a £1.2m release of uncertain tax positions due to the relevant entity being put into liquidation; (ii) a £6.3m credits which have a
corresponding impact within deferred tax of prior years; and (iii) a £6.0m credit to adjust for finalisation of submitted tax returns.
b Adjustments in respect of deferred tax of prior years mainly relate to £6.3m of charges which have a corresponding impact within current income tax of prior years.
c Relates mainly to a one-off tax deduction triggered due to the adoption of IAS 37. Refer to section 1 for further details.
d* Business exit: relates to non-deductible closure costs associated with the sale of entities. Refer to note 2.8 for further details.
e* Relates to the application of the tax exemption on accounting profits from the sale of entities. Refer to note 2.8.1 for further details.
f* Relates to the intangible asset impairments as detailed further in note 3.4.
g Movement in the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes.
h 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).
i Relates to the (utilisation)/carry forward of tax losses during the current period.
j
The current tax charge of £12.8m (2021: £31.0m) results in an effective current tax rate of 20.8%, which is different from the UK statutory rate of tax of 19% predominantly due to: tax
impact of non-taxable profits from disposals of businesses; non-deductible goodwill impairment; and losses carried forward. The impact of differing overseas tax rates is minimal and
covered in footnote (h).
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 assets for the period to 31 December 2022, and the prior period, have been calculated based on this
rate.
Deferred tax relates to the following:
The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the UK corporation tax rate is as follows:
(0.4)
15.5
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
77.3
(0.1)
14.7
19.8
3.8
63.3
178.8
(2.8)
176.0
(0.7)
(4.4)
(3.6)
(8.7)
2.8
(5.9)
12.2
1.2
(3.7)
(8.7)
(0.4)
27.2
27.8
—
—
(1.6)
(5.2)
—
—
(6.8)
1.3
(1.1)
1.1
—
(2.1)
(9.1)
(9.9)
27.8
(6.8)
(9.9)
0.5
0.4
(1.3)
(0.4)
—
—
—
—
—
1.8
—
1.8
(0.4)
—
1.8
90.8
—
10.5
5.9
1.3
81.4
189.9
(0.4)
189.5
(0.2)
(2.2)
(4.9)
(7.3)
0.4
(6.9)
170.1
27.4
(6.8)
(8.1)
182.6
1. Mainly trading losses available to shelter future profits and deferred interest.
2. Other movements includes business disposals.
The main movements in the net deferred tax asset are due to the income statement tax credit arising on the change in the accounting estimate
of deferred tax, the deferred tax charge to other comprehensive income (OCI) and income statement on the defined benefit pension scheme
surplus recognised for accounting purposes, and the deferred tax assets disposed of on the sale of subsidiaries.
For the purpose of recognising deferred tax on the pension scheme surplus, withholding tax at 35% would apply for any surplus being refunded
to the Group at the end of the life of the scheme. Corporation tax at 25% would apply for any surplus expected to unwind over the life of the
scheme. Management have concluded that the corporation tax rate should apply to the recognition of deferred tax on the pension scheme
surplus, reflecting the Group’s intention regarding the manner of recovery of the asset.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can
be utilised. The recoverability of deferred tax assets is supported by the deferred tax liabilities against which the reversal can be offset and the
expected level of future profits in the countries concerned.
The recognition of deferred tax assets for 2022 has been based on the forecast accounting profits in the 2023-2025 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 2.2%, as used for impairment test purposes, has been applied to years beyond 2025. 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 asset. 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 have concluded that an additional deferred tax asset should be recognised this year. The impact of this is an adjustment to
recognise additional deferred tax assets of £36.7m. This is net of £16.7m change in the deferred tax asset estimate due to the reduction in
future taxable profits on disposal of taxable subsidiaries, reflected in the tax arising on business exits (see note 2.8).
Deferred tax asset recognition is reliant on the accuracy of management’s forecasts and the assumptions that underlie them. Management
have considered the severe but plausible downsides, applied to the base-case projections, to gauge sensitivity and identify a reasonable
possible alternative result. This scenario identified a further potential reduction in recognised deferred tax assets of approximately £17m.
Further disposals, planned as part of the simplification agenda, could also reduce the recognised deferred tax asset in future periods, which
management currently estimate at approximately £41m.
The Group has unrecognised tax losses and other temporary differences that are available for offset against future taxable profits of the
companies in which the losses or other temporary differences arose, but have not been recognised because their recoverability is uncertain.
The table below shows the amounts split between UK and non-UK jurisdictions.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
126
168
Section 2: Results for the year continued
2.6 Taxation continued
At 31 December
UK:
Tax losses
Other temporary timing differences
Non-UK:
Tax losses
Other temporary timing differences
Total
2022
£m
Gross
Amount
2021
£m
Gross
Amount
332.7
113.9
446.6
60.8
11.6
72.4
519.0
498.0
99.7
597.7
44.9
14.8
59.7
657.4
Assets have no time expiry, but some losses are subject to specific loss restriction rules. £39.9m (2021: £50.7m) of the losses were incurred by
companies acquired by the Group and are not a result of the Group’s trading performance.
Dividends received from subsidiaries are largely exempt from UK tax but may be subject to dividend withholding taxes levied by the overseas
tax jurisdictions in which the subsidiaries operate. The gross temporary differences of those subsidiaries affected by such potential taxes is
£58.4m (2021: £42.8m). A deferred income tax liability of £4.9m (2021: £3.6m) has been recognised on the unremitted earnings of those
subsidiaries affected by such potential taxes because the Group is able to control the timing of reversal and it is anticipating dividends to be
distributed. The earnings remitted during the year have resulted in a reduction in the closing deferred tax liability.
2.6.3 Uncertain tax positions
The Group files income tax returns in several jurisdictions and some of those 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 this criteria.
Income tax receivable of £9.9m at 31 December 2022 is net of a £2.9m (2021: £4.1m) liability in relation to uncertain tax positions. The Group
released £1.2m (2021: £1.7m ) of uncertain tax positions during 2022 relating to tax risks which are no longer considered likely to arise, due to
the relevant entity being put into liquidation. 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 during the next financial year.
2.6.4 Global minimum tax
In December 2021, the OECD released the Pillar II global minimum tax draft legislative framework which ultimately seeks to introduce a global
minimum corporation tax rate of 15%. Following consultation the UK Government has proposed that Pillar II will first apply to accounting
periods beginning on or after 31 December 2023, but at the time of signing these financial statements no tax jurisdiction Capita operates in had
enacted or substantively enacted laws to implement the Pillar II framework.
As disclosed in our Responsible Taxation report, which can be found in the Responsible Business area of the Capita website, Capita has
minimal profits arising in jurisdictions with a low tax rate. A high level impact assessment of a potential top-up tax, chargeable in respect of
profits in jurisdictions which have an effective tax rate lower than 15%, suggests that Capita may be subject to some top-up tax due to a trading
legal entity in the Isle of Man which has a statutory corporate tax rate lower than 15%. There has been a lack of Pillar II legislative progress
globally, with the UK only having draft legislation currently available. As such, Capita is unable to determine the impact of the framework with
any degree of certainty.
Capita is committed to paying its fair share of tax in all jurisdictions. As a conscientious taxpayer, Capita will continue to monitor the legislative
progress in all the jurisdictions it operates in.
2.6.5 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, re-assessed in 2021, and has been
awarded the Fair Tax Mark for its tax disclosures from 2018 to 2021. The Group has operations in a number of countries outside the UK. All
Capita operations outside the UK are trading operations and pay the appropriate local taxes on these activities. Further detail, regarding
Capita's tax strategy can be found on the Policies & Principles area of the Capita website (https://www.capita.com/our-company/about-capita/
policies-and-principles).
Capita contributed £153.2m (2021: £162.3m ) in taxes from its UK operations during 2022. This consisted of a net repayment of £2.6m (2021:
net repayment of £0.5m) of UK corporation tax; £15.0m (2021: £18.1m) incurred in irrecoverable VAT; £124.8m (2021: £125.5m) in employer
national insurance contributions (NIC); and £16.0m (2021: £19.3m) in other levies including business rates, import duties, the apprenticeship
levy and environmental taxes. Additionally, the Group’s 2022 UK VAT payments were £315.1m (2021: £318.7m). A further £14.9m VAT was
remitted in 2022, which was VAT deferred from 2020 under HMRC’s Covid-19 deferral scheme: The Group also collected £272.8m (2021:
£287.8m) of Capita UK employee payroll taxes (PAYE and NIC). Capita entities in overseas jurisdictions paid £8.5m (2021: £15.0m)
corporation tax, which mainly covers corporate income tax on local profits.
Strategic report
Corporate governance
Financial statements
126
127
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
169
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
– reported
– adjusted 1
– reported
– adjusted 1
1. 2021 adjusted results have been re-presented. Please refer to note 2.4 for further details.
2022
Continuing
operations
p
4.47
6.20
4.40
6.09
Total
operations
p
4.47
6.20
4.40
6.09
Continuing
operations
p
13.33
(7.74)
13.15
(7.74)
2021
Total
operations
p
13.52
(7.74)
13.33
(7.74)
The following tables show the earnings and share data used in the basic and diluted earnings/(loss) per share calculations:
Reported profit before tax for the period
Income tax credit/(charge)
Reported profit for the period
Less: Non-controlling interest
Total profit attributable to shareholders
Adjusted profit/(loss) before tax for the period 1
Income tax credit/(charge)
Adjusted profit/(loss) for the period 1
Less: Non-controlling interest
Adjusted profit/(loss) attributable to shareholders 1
2.6
Continuing
operations
£m
61.4
14.6
76.0
(1.2)
74.8
2022
Total
operations
£m
61.4
14.6
76.0
(1.2)
74.8
Continuing
operations
£m
285.6
(61.5)
224.1
(2.5)
221.6
2.4
2.6.1
73.8
31.8
105.6
(2.0)
103.6
73.8
31.8
105.6
(2.0)
103.6
(122.8)
(4.0)
(126.8)
(1.9)
(128.7)
2021
Total
operations
£m
288.7
(61.5)
227.2
(2.5)
224.7
(122.8)
(4.0)
(126.8)
(1.9)
(128.7)
1. 2021 adjusted results have been re-presented. Please refer to note 2.4 for further details.
Weighted average number of ordinary shares (excluding trust and treasury shares) for basic earnings per share
Dilutive potential ordinary shares:
Employee share options
2022
m
2021
m
1,671.7 1,661.9
30.0
23.9
Weighted average number of ordinary shares (excluding trust and treasury shares) adjusted for the effect of dilution
1,701.7 1,685.8
The earnings per share figures are calculated based on earnings attributable to ordinary equity holders of the Parent Company, and therefore
exclude non-controlling interest. The earnings per share is calculated on a total reported and an adjusted basis. The earnings per share for
business exits and specific items are reconciling items between total reported and adjusted 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 authorised for issue.
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.6 Taxation continued
At 31 December
UK:
Tax losses
Other temporary timing differences
Other temporary timing differences
Non-UK:
Tax losses
Total
2022
£m
Gross
Amount
2021
£m
Gross
Amount
332.7
113.9
446.6
498.0
99.7
597.7
60.8
11.6
72.4
44.9
14.8
59.7
519.0
657.4
Assets have no time expiry, but some losses are subject to specific loss restriction rules. £39.9m (2021: £50.7m) of the losses were incurred by
companies acquired by the Group and are not a result of the Group’s trading performance.
Dividends received from subsidiaries are largely exempt from UK tax but may be subject to dividend withholding taxes levied by the overseas
tax jurisdictions in which the subsidiaries operate. The gross temporary differences of those subsidiaries affected by such potential taxes is
£58.4m (2021: £42.8m). A deferred income tax liability of £4.9m (2021: £3.6m) has been recognised on the unremitted earnings of those
subsidiaries affected by such potential taxes because the Group is able to control the timing of reversal and it is anticipating dividends to be
distributed. The earnings remitted during the year have resulted in a reduction in the closing deferred tax liability.
2.6.3 Uncertain tax positions
The Group files income tax returns in several jurisdictions and some of those 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 this criteria.
Income tax receivable of £9.9m at 31 December 2022 is net of a £2.9m (2021: £4.1m) liability in relation to uncertain tax positions. The Group
released £1.2m (2021: £1.7m ) of uncertain tax positions during 2022 relating to tax risks which are no longer considered likely to arise, due to
the relevant entity being put into liquidation. 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 during the next financial year.
2.6.4 Global minimum tax
In December 2021, the OECD released the Pillar II global minimum tax draft legislative framework which ultimately seeks to introduce a global
minimum corporation tax rate of 15%. Following consultation the UK Government has proposed that Pillar II will first apply to accounting
periods beginning on or after 31 December 2023, but at the time of signing these financial statements no tax jurisdiction Capita operates in had
enacted or substantively enacted laws to implement the Pillar II framework.
As disclosed in our Responsible Taxation report, which can be found in the Responsible Business area of the Capita website, Capita has
minimal profits arising in jurisdictions with a low tax rate. A high level impact assessment of a potential top-up tax, chargeable in respect of
profits in jurisdictions which have an effective tax rate lower than 15%, suggests that Capita may be subject to some top-up tax due to a trading
legal entity in the Isle of Man which has a statutory corporate tax rate lower than 15%. There has been a lack of Pillar II legislative progress
globally, with the UK only having draft legislation currently available. As such, Capita is unable to determine the impact of the framework with
Capita is committed to paying its fair share of tax in all jurisdictions. As a conscientious taxpayer, Capita will continue to monitor the legislative
any degree of certainty.
progress in all the jurisdictions it operates in.
2.6.5 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, re-assessed in 2021, and has been
awarded the Fair Tax Mark for its tax disclosures from 2018 to 2021. The Group has operations in a number of countries outside the UK. All
Capita operations outside the UK are trading operations and pay the appropriate local taxes on these activities. Further detail, regarding
Capita's tax strategy can be found on the Policies & Principles area of the Capita website (https://www.capita.com/our-company/about-capita/
policies-and-principles).
Capita contributed £153.2m (2021: £162.3m ) in taxes from its UK operations during 2022. This consisted of a net repayment of £2.6m (2021:
net repayment of £0.5m) of UK corporation tax; £15.0m (2021: £18.1m) incurred in irrecoverable VAT; £124.8m (2021: £125.5m) in employer
national insurance contributions (NIC); and £16.0m (2021: £19.3m) in other levies including business rates, import duties, the apprenticeship
levy and environmental taxes. Additionally, the Group’s 2022 UK VAT payments were £315.1m (2021: £318.7m). A further £14.9m VAT was
remitted in 2022, which was VAT deferred from 2020 under HMRC’s Covid-19 deferral scheme: The Group also collected £272.8m (2021:
£287.8m) of Capita UK employee payroll taxes (PAYE and NIC). Capita entities in overseas jurisdictions paid £8.5m (2021: £15.0m)
corporation tax, which mainly covers corporate income tax on local profits.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
128
170
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 sold, exited during the period, or are in the process of being sold or exited in accordance with the
Group's strategy. None of these business exits meet the definition of ‘discontinued operations’ as stipulated by IFRS 5, which requires
comparative financial information to be restated where the relative size of a disposal or business closure is significant, which is normally
understood to mean a reported segment.
However, the trading result of these businesses, non-trading expenses, and any gain/loss on disposal, have been excluded from adjusted
results. To enable a like-for-like comparison of adjusted results, the 2021 comparatives have been re-presented to exclude the businesses
classified as business exits during 2022.
Assets held-for-sale
The Group classifies a non-current asset (or disposal group) as held-for-sale if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.
For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and
an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively
marketed for sale at a price that is reasonable in relation to its current fair value, and, the sale should be expected to be completed within one
year from the date of classification.
Based on the above requirements, individual businesses within the Portfolio Division will only reach the criteria to be treated as held-for-sale
when their disposal is seen to be highly probable, and expected to complete within the following twelve months. At 31 December 2022 no
disposals were deemed to have met this threshold. At 31 December 2021, the disposals of three businesses (AMT Sybex software, Secure
Solutions and Services (SSS), and Speciality Insurance) were deemed to have met this threshold.
2022 business exits
Business exits at 31 December 2022 primarily comprised:
Business
AMT Sybex
Secure Solutions and Services
Trustmarque
Speciality Insurance
Real estate and infrastructure consultancy
Optima Legal Services
Pay360
Capita Translation and Interpreting
Disposal completed on
1 January 2022
3 January 2022
31 March 2022
29 April 2022
22 September 2022
30 November 2022
1 December 2022
29 December 2022
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 2022, their trading results were included within adjusted results. However, exit costs related to those disposals,
which include professional fees, salary costs and separation planning costs, are included within business exit non-trading administrative
expenses.
Income statement impact
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Net finance costs
Gain on business disposal
Profit before tax
Taxation
Profit after tax
Trading
£m
168.8
(135.3)
33.5
(18.8)
14.7
(0.2)
—
14.5
(2.8)
11.7
2022
Non-trading
£m
—
—
—
(23.1)
(23.1)
—
166.9
143.8
(14.7)
129.1
Total
£m
168.8
(135.3)
33.5
(41.9)
(8.4)
(0.2)
166.9
158.3
(17.5)
140.8
Trading
£m
404.7
(269.0)
135.7
(56.4)
79.3
(0.7)
—
78.6
(16.1)
62.5
2021
Non-trading
£m
—
—
—
(69.0)
(69.0)
(0.3)
419.7
350.4
(43.0)
307.4
Total
£m
404.7
(269.0)
135.7
(125.4)
10.3
(1.0)
419.7
429.0
(59.1)
369.9
Trading revenue and costs represent the current period trading performance of the above businesses up to the point of being disposed or
exited, and in the comparative those businesses disposed of during 2021 (ESS, Life Insurance and Pensions Servicing business in Ireland, and
the AXELOS joint venture with the UK Government). Trading expenses primarily comprise payroll costs of £96.9m (2021: £217.6m) and
information technology costs of £23.2m (2021: £65.2m).
Included within non-trading administrative expenses is £nil (2021: £9.3m) of amortisation of acquired intangibles which, in accordance with the
Group’s policy, were excluded from the Group’s adjusted results and have been reclassified to business exits because they relate to
businesses sold or being exited. Other non-trading administrative expenses include: asset impairments of £nil (2021: £53.1m); disposal project
costs of £14.4m (2021: £8.9m); other costs including staff and redundancy costs of £8.7m (2021: £4.7m); and, other income of £nil (2021:
£7.0m).
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.8 Business exits and assets held-for-sale
Accounting policies
Business exits
Business exits are businesses that have been sold, exited during the period, or are in the process of being sold or exited in accordance with the
Group's strategy. None of these business exits meet the definition of ‘discontinued operations’ as stipulated by IFRS 5, which requires
comparative financial information to be restated where the relative size of a disposal or business closure is significant, which is normally
understood to mean a reported segment.
However, the trading result of these businesses, non-trading expenses, and any gain/loss on disposal, have been excluded from adjusted
results. To enable a like-for-like comparison of adjusted results, the 2021 comparatives have been re-presented to exclude the businesses
classified as business exits during 2022.
Assets held-for-sale
The Group classifies a non-current asset (or disposal group) as held-for-sale if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.
For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and
an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively
marketed for sale at a price that is reasonable in relation to its current fair value, and, the sale should be expected to be completed within one
year from the date of classification.
Based on the above requirements, individual businesses within the Portfolio Division will only reach the criteria to be treated as held-for-sale
when their disposal is seen to be highly probable, and expected to complete within the following twelve months. At 31 December 2022 no
disposals were deemed to have met this threshold. At 31 December 2021, the disposals of three businesses (AMT Sybex software, Secure
Solutions and Services (SSS), and Speciality Insurance) were deemed to have met this threshold.
2022 business exits
Business exits at 31 December 2022 primarily comprised:
Business
AMT Sybex
Secure Solutions and Services
Trustmarque
Speciality Insurance
Real estate and infrastructure consultancy
Optima Legal Services
Pay360
Capita Translation and Interpreting
Disposal completed on
1 January 2022
3 January 2022
31 March 2022
29 April 2022
22 September 2022
30 November 2022
1 December 2022
29 December 2022
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 2022, their trading results were included within adjusted results. However, exit costs related to those disposals,
which include professional fees, salary costs and separation planning costs, are included within business exit non-trading administrative
expenses.
Income statement impact
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Net finance costs
Gain on business disposal
Profit before tax
Taxation
Profit after tax
Trading
£m
168.8
(135.3)
33.5
(18.8)
14.7
(0.2)
—
14.5
(2.8)
11.7
2022
Non-trading
£m
—
—
—
(23.1)
(23.1)
—
166.9
143.8
(14.7)
129.1
Total
£m
168.8
(135.3)
33.5
(41.9)
(8.4)
(0.2)
166.9
158.3
(17.5)
140.8
Trading
£m
404.7
(269.0)
135.7
(56.4)
79.3
(0.7)
—
78.6
(16.1)
62.5
2021
Non-trading
£m
—
—
—
(69.0)
(69.0)
(0.3)
419.7
350.4
(43.0)
307.4
Total
£m
404.7
(269.0)
135.7
(125.4)
10.3
(1.0)
419.7
429.0
(59.1)
369.9
Trading revenue and costs represent the current period trading performance of the above businesses up to the point of being disposed or
exited, and in the comparative those businesses disposed of during 2021 (ESS, Life Insurance and Pensions Servicing business in Ireland, and
the AXELOS joint venture with the UK Government). Trading expenses primarily comprise payroll costs of £96.9m (2021: £217.6m) and
information technology costs of £23.2m (2021: £65.2m).
Included within non-trading administrative expenses is £nil (2021: £9.3m) of amortisation of acquired intangibles which, in accordance with the
Group’s policy, were excluded from the Group’s adjusted results and have been reclassified to business exits because they relate to
businesses sold or being exited. Other non-trading administrative expenses include: asset impairments of £nil (2021: £53.1m); disposal project
costs of £14.4m (2021: £8.9m); other costs including staff and redundancy costs of £8.7m (2021: £4.7m); and, other income of £nil (2021:
£7.0m).
Strategic report
Corporate governance
Financial statements
128
129
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
171
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
2.8.1 Disposals
During 2022 the Group disposed of eight businesses: AMT Sybex, Secure Solutions and Services, Trustmarque, Speciality Insurance, Real
estate and infrastructure consultancy, Optima Legal Services, Pay360 and Capita Translation and Interpreting. During 2021 the Group
disposed of three businesses: ESS, Life Insurance and Pensions Servicing business in Ireland and AXELOS.
The assets and liabilities disposed of and the related gain on disposal are as follows:
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Income tax recoverable and deferred tax assets
Contract fulfilment assets
Trade and other receivables
Cash and cash equivalents
Disposal group assets held-for-sale
Trade and other payables
Deferred income
Lease liabilities
Deferred consideration payable
Loans payable1
Capita group loan balances
Income tax payable and deferred tax liabilities
Provisions
Disposal group liabilities held-for-sale
Net identifiable assets sold
Non-controlling interests
Sales price:
received in cash
deferred receivable
Less: disposal costs
Net sales price
Realisation of cumulative currency translation difference
Gain on business disposals
Net cash inflow
Proceeds received
Less disposal costs:
income statement charge
change in accrued disposal costs during the year
Settlement of receivables due from disposed subsidiaries:
disposal of subsidiaries in the period
disposal of subsidiaries classified as held-for-sale
2022
£m
0.2
20.4
178.3
0.2
7.6
2.8
136.6
55.9
143.0
(127.0)
(38.6)
(0.3)
—
—
(102.3)
(0.7)
(0.4)
(135.4)
140.3
(0.3)
140.0
330.0
10.5
(33.3)
307.2
(0.3)
166.9
2021
£m
0.2
20.0
65.7
—
—
0.1
2.6
8.2
120.2
(6.7)
(2.9)
—
(22.8)
(26.0)
(27.2)
(4.3)
—
(57.5)
69.6
(3.4)
66.2
508.6
—
(25.5)
483.1
2.8
419.7
330.0
508.6
(33.3)
9.9
102.3
54.5
(25.5)
—
27.2
—
Total proceeds received net of disposal costs paid
463.4
510.3
Total cash held by subsidiaries when sold
Cash held by subsidiaries when sold
Cash held by subsidiaries classified as held-for-sale
Total cash held by subsidiaries when sold
Net cash inflow
.
(55.9)
(19.6)
(75.5)
(8.2)
(17.7)
(25.9)
387.9
484.4
1. 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%pa and was settled on completion of the disposal on 29 July 2021.
Disposal costs of £7.1m, relating to businesses disposed of in the year, were recognised in prior years and are excluded from the above gain
on business disposals.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
130
172
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
As part of the disposal of Trustmarque to One Equity Partners in March 2022, Capita entered into a five year agreement committing to procure
a sufficient amount of the Group's IT and technology requirements through Trustmarque as a reseller of such services to enable Trustmarque
to realise a specified level of gross profits over the period of that agreement. The price paid for these purchases will be equivalent to that paid
by other customers of Trustmarque, and the Group expects to have sufficient demand to meet the commitment. It is currently estimated that the
total expenditure with Trustmarque under this agreement over the five year period will be approximately £300m of which less than 25% is
expected to be capital in nature.
During 2022, management identified that the net assets of a business held-for-sale at 31 December 2021 and used to assess for impairment
were incorrectly determined when comparing to the expected net disposal proceeds. This resulted in an overstatement of a goodwill impairment
charge recognised within business exits (£19.0m) and consequently, an understatement of assets held-for-sale at 31 December 2021. This
error did not impact the adjusted results of the Group.
Management has considered IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and concluded that the impact of this
error is not deemed material since it would not influence the economic decisions of primary users of the consolidated financial statements, not
least because the business has been disposed of in the current period, and therefore, the correction of the impairment has been recognised in
the current period within the gain on business disposal.
2.8.2 Disposal group assets and liabilities held-for-sale
Disposal group assets and liabilities held-for-sale at 31 December 2021 comprised the AMT Sybex, Secure Solutions and Services and
Speciality Insurance businesses, whose disposals were completed during the first half of 2022. At 31 December 2022, no disposals were
deemed to have met the threshold to be treated as held-for-sale.
Property, plant and equipment
Intangible assets
Goodwill
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
Income tax payable and deferred tax liabilities
Provisions
Disposal group liabilities held-for-sale
2022
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2021
£m
0.4
14.4
44.2
32.6
10.7
5.1
5.2
15.8
10.4
138.8
1.6
1.6
3.4
69.8
2.3
2.4
81.1
Business exit cash flows
Businesses exited and being exited had a cash generated from operations inflow of £9.9m (2021: cash inflow of £43.1m).
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.
No further material movements in provisions related to the disposal of the Asset Services business are anticipated.
The earnings per share impact from discontinued operations is nil p (2021: 0.19p) on basic earnings per share and nil p (2021: 0.18p) on
diluted earnings per share.
Strategic report
Corporate governance
Financial statements
130
131
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
173
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
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
As part of the disposal of Trustmarque to One Equity Partners in March 2022, Capita entered into a five year agreement committing to procure
a sufficient amount of the Group's IT and technology requirements through Trustmarque as a reseller of such services to enable Trustmarque
to realise a specified level of gross profits over the period of that agreement. The price paid for these purchases will be equivalent to that paid
by other customers of Trustmarque, and the Group expects to have sufficient demand to meet the commitment. It is currently estimated that the
total expenditure with Trustmarque under this agreement over the five year period will be approximately £300m of which less than 25% is
expected to be capital in nature.
During 2022, management identified that the net assets of a business held-for-sale at 31 December 2021 and used to assess for impairment
were incorrectly determined when comparing to the expected net disposal proceeds. This resulted in an overstatement of a goodwill impairment
charge recognised within business exits (£19.0m) and consequently, an understatement of assets held-for-sale at 31 December 2021. This
error did not impact the adjusted results of the Group.
Management has considered IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and concluded that the impact of this
error is not deemed material since it would not influence the economic decisions of primary users of the consolidated financial statements, not
least because the business has been disposed of in the current period, and therefore, the correction of the impairment has been recognised in
the current period within the gain on business disposal.
2.8.2 Disposal group assets and liabilities held-for-sale
Disposal group assets and liabilities held-for-sale at 31 December 2021 comprised the AMT Sybex, Secure Solutions and Services and
Speciality Insurance businesses, whose disposals were completed during the first half of 2022. At 31 December 2022, no disposals were
deemed to have met the threshold to be treated as held-for-sale.
Property, plant and equipment
Intangible assets
Goodwill
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
Provisions
Income tax payable and deferred tax liabilities
Disposal group liabilities held-for-sale
Business exit cash flows
2.9 Discontinued operations
2022
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
138.8
Cash flows from operating activities:
Reported operating loss
Less: business exit operating loss/(profit)
Total operating 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 and intangible assets
Amendments and early terminations of leases
Impairment of disposal group assets
Impairment of non-current assets
Other adjustments:
Movement in provisions
Pension deficit contributions
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)
Businesses exited and being exited had a cash generated from operations inflow of £9.9m (2021: cash inflow of £43.1m).
Cash generated from/(used by) 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.
No further material movements in provisions related to the disposal of the Asset Services business are anticipated.
The earnings per share impact from discontinued operations is nil p (2021: 0.19p) on basic earnings per share and nil p (2021: 0.18p) on
diluted earnings per share.
Adjustments for free cash flows:
Income tax paid
Net interest paid
Net cash inflows/(outflow) from operating activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment and intangible assets
3.2
3.3
Free cash flow1
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
2. The 2021 cash flow has been restated to include £27.2m of cash, received from the purchasers of subsidiaries when sold to settle inter-company balances, within investing activities, which
were previously included within the operating activities. This results in an increase in net cash flow from investing activities by £27.2m and decrease in net cash flows from operating
activities, cash generated from operations, and free cash flow by the same amount. There is no impact on the reported net movement in cash and cash equivalents.
2022
2022
2021
2021
Notes
Reported
£m
Before
business
exits
£m
Restated2
Restated2
Reported
£m
Before
business exits
£m
2.4
2.8
(79.6)
—
(79.6)
(79.6)
8.4
(71.2)
(86.6)
—
(86.6)
(86.6)
(10.3)
(96.9)
3.2, 3.5
3.3
5.1
5.2
2.3
96.9
41.5
5.4
9.0
3.5
(4.7)
—
176.9
96.7
36.8
5.4
9.0
3.5
(4.7)
—
176.5
117.1
57.7
1.2
8.9
0.7
—
44.1
90.0
115.7
41.4
1.2
8.9
0.7
—
—
82.8
(42.1)
(38.6)
(10.0)
(47.9)
(30.0)
(10.0)
21.9
(155.5)
(8.4)
36.2
(73.6)
(8.4)
(41.0)
28.0
84.8
(14.9)
(116.0)
18.7
18.6
28.0
25.9
(14.9)
(124.2)
19.0
(5.2)
(5.7)
17.0
(104.1)
(116.9)
(24.7)
(10.0)
(5.7)
20.6
(104.1)
(62.9)
(55.6)
117.8
116.5
(148.5)
(109.7)
(7.9)
(38.0)
71.9
(20.6)
(27.3)
0.5
(6.5)
(37.4)
72.6
(16.8)
(27.3)
0.5
(17.7)
(40.1)
(206.3)
(17.7)
(40.0)
(167.4)
(25.6)
(32.5)
0.1
(18.7)
(32.5)
—
24.5
29.0
(264.3)
(218.6)
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
132
174
Section 2: Results for the year continued
2.10 Cash flow information continued
2.10.2 Free cash flow and cash generated from operations (alternative performance measures - refer to section 8.2)
From 1 January 2022, the Board considers free cash flow, and cash generated from operations before business exits, to be alternative
performance measures because these metrics provide a more representative measure of the sustainable cash flow of the Group.
These measures are analysed below:
Reported
Business exits
Pension deficit contributions triggered by disposals
Before business exits
Free cash flow
Cash generated/(used) by
operations
2022
£m
24.5
(4.1)
8.6
2021
£m
(264.3)
(36.2)
81.9
2022
£m
117.8
(9.9)
8.6
2021
£m
(148.5)
(43.1)
81.9
29.0
(218.6)
116.5
(109.7)
A reconciliation of net cash flow to movement in net debt is included in note 2.10.3.
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 31 December 2021 results have been re-presented for those businesses exited, or in the process of being exited,
during the period from 1 January 2022 to 31 December 2022 to enable comparability of the adjusted results.
Pension deficit contributions triggered by disposals: the Trustee of the Capita Pension and Life Assurance Scheme (the Scheme) has
agreed with the Group to accelerate the payment of future agreed deficit contributions on a pound for pound basis in the event of disposal
proceeds being used to fund mandatory prepayments of debt. During the year, the disposal of the Trustmarque business led to accelerated
deficit contributions of £5.9m being paid into the Scheme (plus up to a further £14.5m in accelerated contributions will be required to be paid by
31 March 2024). In addition, an accelerated deficit contribution of £2.7m was paid into the Scheme during the year as a result of the disposal of
the Axelos business in 2021 (2021: Pension deficit contributions of £81.9m triggered by: the disposal of the ESS business which led to
accelerated deficit contributions of £50.2m; and the disposal of the Parking Eye business in 2018, where actual settlement of accelerated deficit
contributions of £31.7m was deferred until 2021).
2.10.3 Reconciliation of net cash flow to movement in net debt
Overdrafts comprise the aggregate value of overdrawn bank account balances within the Group’s notional interest pooling arrangements.
These aggregate overdrawn amounts are fully offset by surplus balances within the same arrangements.
At 31 December 2022, the Group’s £288.4m committed revolving credit facility was undrawn (31 December 2021: £40.0m drawn).
Year ended 31 December 2022
Cash, cash equivalents and overdrafts
Other loan notes
Credit facilities
Private placement loan notes1
Cross-currency interest rate swaps1
Lease liabilities
Total net liabilities from financing activities
Deferred consideration
Net debt
Net debt at
1 January
£m
101.5
Cash flow
movements
£m
75.3
Non-cash
movement2
£m
0.4
Net debt at
31 December
£m
177.2
(1.3)
(46.0)
(512.9)
28.0
(448.4)
0.6
46.0
242.0
(10.1)
84.4
—
—
(0.7)
—
(14.6)
(285.5)
6.9
24.8
(33.5)
(397.5)
Note
4.5.4
4.5
4.5
4.5
4.4
(980.6)
362.9
(41.2)
(658.9)
4.5
(0.7)
—
—
(0.7)
4.1.1
(879.8)
438.2
(40.8)
(482.4)
1. The sum of these items equates to the fair value of the Group’s private placement loan note’s debt of £260.7m (2021: £484.9m). Cash flow movement in private placement loan notes
includes both repayment of private placement loan notes of £236.8m (2021: £232.3m) and finance arrangement costs of £5.2m (2021: £1.9m).
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 2021
Cash, cash equivalents and overdrafts
Other loan notes
Credit facilities
Private placement loan notes
Cross-currency interest rate swaps
Interest rate swaps
Lease liabilities3
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
1.0
(46.0)
234.2
(19.7)
—
—
—
18.0
(9.8)
(0.5)
(1.3)
(46.0)
(512.9)
28.0
—
(508.1)
106.2
(46.5)
(448.4)
Note
4.5.4
4.5
4.5
4.5
4.5
4.4
(1,217.5)
275.7
(38.8)
(980.6)
4.5
(0.7)
—
—
(0.7)
4.1.1
(1,077.1)
232.1
(34.8)
(879.8)
3. Cash flow movements in respect of lease liabilities have been re-presented to include net interest paid on finance leases (£23.6m) previously included within non-cash movement.
Strategic report
Corporate governance
Financial statements
132
133
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
175
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 (current and non-current):
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
2022
£m
(439.1)
446.2
(507.6)
(640.7)
263.0
101.1
106.0
605.9
249.5
(127.3)
2021
£m
(502.8)
562.8
(557.6)
(794.7)
286.7
129.0
147.3
951.7
287.9
(140.6)
Year on Year
movement
£m
63.7
(116.6)
50.0
154.0
(23.7)
(27.9)
(41.3)
(345.8)
(38.4)
13.3
The decrease in trade and other receivables is primarily driven by a reduction in trade receivables (£82.1m), prepayments (£19.4m) and current
contract fulfilment assets (£13.0m). The reduction in trade and other receivables is largely a result of the disposal of businesses during the year
(£75.2m), alongside a drive in cash collection towards the end of the year. This was offset by an increase in accrued income (£6.9m).
The Group uses non-recourse invoice discounting facilities, with £44.4m of outstanding invoices sold under these facilities at 31 December
2022 (2021: £16.4m).
The decrease in trade and other payables was primarily a result of the disposal of businesses during the year (£54.8m) and repayment of VAT
under the Government’s VAT deferral scheme (£14.9m). This was offset by an increase in other payables (£6.3m).
The decrease in deferred income was a result of the normal reduction in deferred income balances, partially offset by increases from advanced
receipts and higher activity levels on contracts such as Royal Navy training.
Contract fulfilment assets decreased as a result of additions of £67.1m predominantly in Capita Public Service (£44.2m) on contracts including
TfL Networks and Royal Navy training being offset by a utilisation of £81.5m mainly within Capita Public Service (£67.8m), as well as
impairments of £3.8m primarily in Capita Experience.
Property, plant and equipment decreased due to depreciation of £40.7m being partially offset by £20.6m of additions.
Intangible assets decreased due to amortisation of £31.7m being partially offset by £27.3m of additions relating primarily to investment in
capitalised software.
Goodwill decreased primarily as a result of the businesses sold in the year (£178.3m), and impairment of certain cash generating units in the
Capita Portfolio division (£169.0m).
The decrease in provisions of £13.3m during the year was predominantly due to new provisions totalling £66.2m, with the largest increases
being additional customer contract provisions (£20.6m) and business exit provisions (£25.0m), being offset by releases and utilisations totalling
£97.9m.
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.10 Cash flow information continued
2.10.2 Free cash flow and cash generated from operations (alternative performance measures - refer to section 8.2)
From 1 January 2022, the Board considers free cash flow, and cash generated from operations before business exits, to be alternative
performance measures because these metrics provide a more representative measure of the sustainable cash flow of the Group.
These measures are analysed below:
Reported
Business exits
Before business exits
Pension deficit contributions triggered by disposals
Free cash flow
Cash generated/(used) by
operations
2022
£m
24.5
(4.1)
8.6
2021
£m
2022
£m
2021
£m
(264.3)
117.8
(148.5)
(36.2)
81.9
(9.9)
8.6
(43.1)
81.9
29.0
(218.6)
116.5
(109.7)
A reconciliation of net cash flow to movement in net debt is included in note 2.10.3.
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 31 December 2021 results have been re-presented for those businesses exited, or in the process of being exited,
during the period from 1 January 2022 to 31 December 2022 to enable comparability of the adjusted results.
Pension deficit contributions triggered by disposals: the Trustee of the Capita Pension and Life Assurance Scheme (the Scheme) has
agreed with the Group to accelerate the payment of future agreed deficit contributions on a pound for pound basis in the event of disposal
proceeds being used to fund mandatory prepayments of debt. During the year, the disposal of the Trustmarque business led to accelerated
deficit contributions of £5.9m being paid into the Scheme (plus up to a further £14.5m in accelerated contributions will be required to be paid by
31 March 2024). In addition, an accelerated deficit contribution of £2.7m was paid into the Scheme during the year as a result of the disposal of
the Axelos business in 2021 (2021: Pension deficit contributions of £81.9m triggered by: the disposal of the ESS business which led to
accelerated deficit contributions of £50.2m; and the disposal of the Parking Eye business in 2018, where actual settlement of accelerated deficit
contributions of £31.7m was deferred until 2021).
2.10.3 Reconciliation of net cash flow to movement in net debt
Overdrafts comprise the aggregate value of overdrawn bank account balances within the Group’s notional interest pooling arrangements.
These aggregate overdrawn amounts are fully offset by surplus balances within the same arrangements.
At 31 December 2022, the Group’s £288.4m committed revolving credit facility was undrawn (31 December 2021: £40.0m drawn).
1. The sum of these items equates to the fair value of the Group’s private placement loan note’s debt of £260.7m (2021: £484.9m). Cash flow movement in private placement loan notes
includes both repayment of private placement loan notes of £236.8m (2021: £232.3m) and finance arrangement costs of £5.2m (2021: £1.9m).
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 2022
Cash, cash equivalents and overdrafts
Other loan notes
Credit facilities
Private placement loan notes1
Cross-currency interest rate swaps1
Lease liabilities
Total net liabilities from financing activities
Deferred consideration
Net debt
Year ended 31 December 2021
Cash, cash equivalents and overdrafts
Other loan notes
Credit facilities
Private placement loan notes
Cross-currency interest rate swaps
Interest rate swaps
Lease liabilities3
Total net liabilities from financing activities
Deferred consideration
Net debt
Net debt at
1 January
£m
Cash flow
movements
£m
Non-cash
movement2
Net debt at
31 December
Note
4.5.4
4.5
4.5
4.5
4.4
101.5
(1.3)
(46.0)
(512.9)
28.0
(448.4)
75.3
0.6
46.0
242.0
(10.1)
84.4
£m
0.4
—
—
£m
177.2
(0.7)
—
(14.6)
(285.5)
6.9
24.8
(33.5)
(397.5)
(980.6)
362.9
(41.2)
(658.9)
4.5
(0.7)
—
—
(0.7)
4.1.1
(879.8)
438.2
(40.8)
(482.4)
4.5.4
141.1
Net debt at
1 January
£m
Cash flow
movements
£m
Non-cash
movement2
£m
Net debt at
31 December
£m
(2.3)
—
(765.1)
57.5
0.5
(43.6)
1.0
(46.0)
234.2
(19.7)
—
4.0
—
—
18.0
(9.8)
(0.5)
101.5
(1.3)
(46.0)
(512.9)
28.0
—
(508.1)
106.2
(46.5)
(448.4)
Note
4.5
4.5
4.5
4.5
4.4
(1,217.5)
275.7
(38.8)
(980.6)
4.5
(0.7)
—
—
(0.7)
4.1.1
(1,077.1)
232.1
(34.8)
(879.8)
3. Cash flow movements in respect of lease liabilities have been re-presented to include net interest paid on finance leases (£23.6m) previously included within non-cash movement.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
134
176
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
2022
£m
149.9
32.6
10.7
179.1
58.1
Current
2021
£m
232.0
43.4
23.7
169.5
78.5
430.4
547.1
Non-current
2021
£m
—
4.0
—
2.7
9.0
15.7
2022
£m
—
5.8
—
—
10.0
15.8
1. Other receivables includes £0.4m (2021: £1.6m) 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
2022
£m
19.4
(4.0)
15.3
(1.0)
—
29.7
2021
£m
11.3
(6.7)
15.2
—
(0.4)
19.4
Strategic report
Corporate governance
Financial statements
134
135
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
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
177
2022
£m
118.5
26.9
6.3
9.9
18.0
(29.7)
2021
£m
203.3
29.8
6.6
11.4
0.3
(19.4)
149.9
232.0
Non-recourse trade receivables facilities
The value of the outstanding invoices sold under non-recourse trade receivable facilities was £44.4m at 31 December 2022 (2021: £16.4m).
The cost of selling such invoices totalling £0.8m (2021: £0.6m) 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.
The Group aims to pay its suppliers on time in accordance with agreed terms.
2022
£m
134.9
32.8
85.6
239.2
Current
2021
£m
153.7
26.7
122.9
238.9
Non-current
2022
£m
0.1
6.5
6.0
2.5
2021
£m
—
6.3
5.0
4.1
492.5
542.2
15.1
15.4
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.1 Working capital
3.1.1 Trade and other receivables
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.
fully transferred.
revenue recognised by the reporting date.
Trade receivables that are sold without recourse are derecognised at the point of sale when the risks and rewards of the receivables have been
Accrued income: Accrued income in relation to contract assets is recognised when payments received from customers are less than the
1. Other receivables includes £0.4m (2021: £1.6m) 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:
Current contract fulfilment assets2
Trade receivables
Other receivables1
Accrued income
Prepayments
At 1 January
Utilised
Provided in the year
Business disposal
At 31 December
Transfer to disposal group assets held-for-sale
149.9
232.0
2022
£m
32.6
10.7
179.1
58.1
Current
2021
£m
43.4
23.7
169.5
78.5
430.4
547.1
Non-current
2021
£m
—
4.0
—
2.7
9.0
15.7
2022
£m
—
5.8
—
—
10.0
15.8
2022
£m
19.4
(4.0)
15.3
(1.0)
—
29.7
2021
£m
11.3
(6.7)
15.2
—
(0.4)
19.4
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
136
178
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
Impact of change in accounting standards – amendments to IAS 372
At 1 January 2022 on adoption of IAS 37
Additions
Transfer to assets held-for-sale
Disposal of business
Impairment
Derecognition
Utilised during the year
Exchange movement
At 31 December
2022
£m
286.7
(2.4)
2021
£m
294.8
—
284.3
294.8
67.1
—
(2.8)
(3.8)
(0.4)
(81.5)
0.1
132.2
(32.6)
(0.1)
(7.3)
(16.6)
(83.9)
0.2
263.0
286.7
1. Refer to note 3.1.1 for current contract fulfilment assets.
2. The Group initially applied the amendments to IAS 37 at 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
retained earnings. Refer to note 1 for further details.
Impairment: In 2022, the Group recognised an impairment of £3.8m (2021: £7.3m) in cost of sales, of which, £0.5m (2021: £nil) relates to
contract fulfilment assets added during the year.
Derecognition: In 2022, £0.4m (2021: £16.6m) was derecognised in relation to a contract 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 2021 the derecognition primarily related 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.
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.1 Working capital continued
3.1.3 Contract fulfilment assets
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.
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
Impact of change in accounting standards – amendments to IAS 372
At 1 January 2022 on adoption of IAS 37
Additions
Transfer to assets held-for-sale
Disposal of business
Impairment
Derecognition
Utilised during the year
Exchange movement
At 31 December
1. Refer to note 3.1.1 for current contract fulfilment assets.
retained earnings. Refer to note 1 for further details.
contract fulfilment assets added during the year.
2. The Group initially applied the amendments to IAS 37 at 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
Impairment: In 2022, the Group recognised an impairment of £3.8m (2021: £7.3m) in cost of sales, of which, £0.5m (2021: £nil) relates to
Derecognition: In 2022, £0.4m (2021: £16.6m) was derecognised in relation to a contract 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 2021 the derecognition primarily related 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.
2022
£m
2021
£m
286.7
294.8
(2.4)
—
284.3
294.8
67.1
132.2
—
(2.8)
(3.8)
(0.4)
(81.5)
0.1
(32.6)
(0.1)
(7.3)
(16.6)
(83.9)
0.2
263.0
286.7
Strategic report
Corporate governance
Financial statements
136
137
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
179
Section 3: Operating assets and liabilities continued
3.2 Property, plant and equipment
AP
Accounting policies
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.
Depreciation: Depreciation is disclosed as an administrative expense in the consolidated income statement, and is calculated on a straight-line
basis over the estimated useful life of the asset, as follows:
•
•
•
Freehold buildings and long leasehold property – up to 50 years.
Leasehold improvements – period of the lease.
Plant and machinery – 3 to 10 years.
Impairment: The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated
recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the
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
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
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.
Cost
At 1 January
Additions
Disposal of business
Disposals – included in adjusted profit
Disposals – included in business exits
Transfer to assets held-for-sale
Reclassifications
Asset retirements
Exchange movement
At 31 December
Depreciation and impairment
At 1 January
Impact of change in accounting standards – amendments to
IAS 371
At 1 January 2022 on adoption of IAS 37
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 – included in business exits
Impairment – included in 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
Leasehold
improvements,
land and
buildings
£m
Plant and
machinery
£m
2022
Total
£m
Leasehold
improvements,
land and
buildings
£m
Plant and
machinery
£m
2021
Total
£m
99.6
169.1
7.7
—
(9.1)
—
—
1.3
(3.7)
0.2
12.9
(0.4)
(7.4)
—
—
(1.8)
(27.9)
2.0
268.7
20.6
(0.4)
(16.5)
—
—
(0.5)
(31.6)
2.2
103.3
193.2
296.5
8.1
—
(2.3)
(0.1)
(0.1)
—
(8.9)
(0.4)
17.5
(0.8)
25.6
(0.8)
(10.0)
(12.3)
(0.4)
(0.6)
(1.9)
(25.8)
(2.1)
(0.5)
(0.7)
(1.9)
(34.7)
(2.5)
96.0
146.5
242.5
99.6
169.1
268.7
40.5
99.2
139.7
41.6
97.7
139.3
—
40.5
10.1
—
—
(7.3)
—
2.0
—
0.8
(3.7)
0.1
0.5
99.7
30.6
0.2
(0.2)
(6.9)
—
2.7
—
(0.8)
(27.9)
1.5
0.5
140.2
40.7
0.2
(0.2)
(14.2)
—
4.7
—
—
(31.6)
1.6
—
41.6
9.3
0.1
—
(2.0)
(0.1)
0.6
(0.1)
—
(8.9)
—
—
97.7
38.2
1.0
(0.6)
(9.7)
(0.5)
1.3
(0.2)
(0.4)
(25.8)
(1.8)
—
139.3
47.5
1.1
(0.6)
(11.7)
(0.6)
1.9
(0.3)
(0.4)
(34.7)
(1.8)
42.5
98.9
141.4
40.5
99.2
139.7
59.1
53.5
69.9
47.6
129.0
101.1
61.7
59.1
95.5
69.9
157.2
129.0
1. The Group initially applied the amendments to IAS 37 at 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
retained earnings. Refer to note 1 for further details.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
138
180
Section 3: Operating assets and liabilities continued
3.2 Property, plant and equipment continued
At 31 December 2022, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment
amounted to £2.7m (2021: £3.6m), relating to building improvements on leased property.
During the prior 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. Following
the change in presentation of adjusted results (refer to note 2.4) the related charge has been re-presented and included within adjusted profit.
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 accumulated amortisation and impairment losses. The
useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in 2022 or 2021.
Amortisation: Amortisation is charged on assets with finite lives and is disclosed as an administrative expense in the consolidated income
statement. 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:
•
•
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.
Intangible assets acquired in business combinations – 1.5 to 20 years.
Intangible assets purchased or internally capitalised – 3 to 20 years.
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.
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. 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 an adjustment to the carrying value of intangible assets.
Notes to the consolidated financial statements
At 31 December 2022, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment
amounted to £2.7m (2021: £3.6m), relating to building improvements on leased property.
During the prior 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. Following
the change in presentation of adjusted results (refer to note 2.4) the related charge has been re-presented and included within adjusted profit.
3.3 Intangible assets
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 accumulated amortisation and impairment losses. The
useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in 2022 or 2021.
Amortisation: Amortisation is charged on assets with finite lives and is disclosed as an administrative expense in the consolidated income
statement. 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.
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. 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 an adjustment to the carrying value of intangible assets.
Strategic report
Corporate governance
Financial statements
138
139
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Section 3: Operating assets and liabilities continued
3.2 Property, plant and equipment continued
Section 3: Operating assets and liabilities continued
3.3 Intangible assets continued
181
2021
Total
£m
488.5
(68.9)
32.5
(3.0)
(3.4)
(23.2)
1.9
(145.1)
(1.2)
Cost
At 1 January
Disposal of business
Additions
Disposals – included in adjusted profit
Disposals – included in business exits
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 – included in business exits
Disposal of business
Disposals – included in adjusted profit
Disposals – included in business exits
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
55.4
—
—
—
—
—
—
(53.1)
0.7
222.7
(33.0)
27.3
(12.2)
—
—
0.5
(11.2)
0.5
2022
Total
£m
278.1
(33.0)
27.3
(12.2)
—
—
0.5
(64.3)
1.2
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
(3.0)
(3.4)
(16.4)
1.9
(94.8)
(0.7)
3.0
194.6
197.6
55.4
222.7
278.1
49.6
—
5.1
—
—
—
—
—
—
—
—
(53.1)
0.7
81.2
31.7
—
4.7
5.5
0.4
(12.6)
(10.5)
—
—
—
(11.2)
0.1
130.8
31.7
5.1
4.7
5.5
0.4
(12.6)
(10.5)
—
—
—
(64.3)
0.8
135.4
—
7.7
9.2
—
—
(46.5)
—
—
(5.7)
—
(50.3)
(0.2)
88.1
33.7
—
7.1
56.1
2.6
(2.4)
(2.7)
(3.4)
(3.1)
0.4
(94.8)
(0.4)
223.5
33.7
7.7
16.3
56.1
2.6
(48.9)
(2.7)
(3.4)
(8.8)
0.4
(145.1)
(0.6)
2.3
89.3
91.6
49.6
81.2
130.8
5.8
0.7
141.5
105.3
147.3
106.0
38.9
5.8
226.1
141.5
265.0
147.3
Intangible assets acquired in business combinations include: committed sales (net book value 2022: £0.7m, 2021: £3.3m); and client lists and
relationships (net book value 2022: £nil, 2021: £2.5m). Intangible assets capitalised or purchased include capitalised software development
(net book value 2022: £90.9m, 2021: £120.7m) and purchased software (net book value 2022: £14.4m, 2021: £20.8m).
Impairment included in adjusted profit in 2021 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. This charge was previously excluded from adjusted profit, however following the
change in presentation of adjusted results (refer to note 2.4) the related charge has been re-presented and included within adjusted profit.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
140
182
Section 3: Operating assets and liabilities continued
3.4 Goodwill
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.
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.
Cost
At 1 January
Disposal of businesses
Transfer to disposal group assets held-for-sale
Exchange movement
At 31 December
Accumulated impairment
At 1 January
Disposal of businesses
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
2022
£m
2021
£m
1,676.8
(255.0)
—
1.5
1,918.5
(65.7)
(177.3)
1.3
1,423.3
1,676.8
725.1
(76.7)
—
169.0
—
798.0
—
(89.0)
11.5
4.6
817.4
725.1
951.7
605.9
1,120.5
951.7
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.4 Goodwill
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.
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.
Transfer to disposal group assets held-for-sale
Cost
At 1 January
Disposal of businesses
Exchange movement
At 31 December
Accumulated impairment
At 1 January
Disposal of businesses
At 31 December
Net book value
At 1 January
At 31 December
Transfer to disposal group assets held-for-sale
Impairment – excluded from adjusted profit
Impairment – included in business exits
2022
£m
2021
£m
1,676.8
1,918.5
(255.0)
—
1.5
(65.7)
(177.3)
1.3
1,423.3
1,676.8
725.1
(76.7)
—
169.0
—
798.0
—
(89.0)
11.5
4.6
817.4
725.1
951.7
605.9
1,120.5
951.7
Strategic report
Corporate governance
Financial statements
140
141
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
183
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Cash-generating units
Reflecting the way management exercises oversight and monitors the Group’s performance, the lowest level at which goodwill is monitored is
at the divisional level for Capita Public Service and Capita Experience, and at a sub-divisional level for Capita Portfolio. At 31 December 2022
the Group has seven CGUs or groups of CGUs for the purpose of impairment testing of goodwill.
In light of the ongoing disposal processes within the Capita Portfolio division, the CGUs and groups of CGUs relating to the Capita Portfolio
division have been presented in aggregate in the table below, and where relevant in this note. An aggregated disclosure of the carrying value of
goodwill for the Capita Portfolio division with recoverable amount sensitivity disclosed, including the impact on the aggregate impairment
charge recognised, is considered by management to provide meaningful information to the primary users of these consolidated financial
statements.
Carrying amount of goodwill allocated to groups of CGUs:
CGU
At 1 January
Business disposals
Impairment – excluded from adjusted profit
Exchange movement
At 31 December
Capita Public
Service
£m
284.6
—
Capita
Experience
£m
220.2
(11.9)
—
—
284.6
—
1.5
209.8
Capita
Portfolio
£m
446.9
(166.4)
(169.0)
—
111.5
Total
£m
951.7
(178.3)
(169.0)
1.5
605.9
Business exits
As set out in note 2.8, eight businesses were fully disposed of during the year. Goodwill relating to three of these businesses had been
reclassified to disposal group assets held-for-sale at 31 December 2021. Goodwill relating to the other disposals is included within the Group’s
brought forward goodwill balances as at 1 January 2022, and has either been impaired during the course of the year, or derecognised as part
of business disposals.
No businesses that the Group intends to dispose of in 2023 met the criteria to be treated as held-for-sale at 31 December 2022.
The impairment test
In undertaking the annual impairment review, the directors considered both internal and external sources of information, and any observable
indications that may suggest that the carrying value of goodwill may be impaired. This included a comparison with the Group’s share price and
market capitalisation.
The Group’s impairment test compares the carrying value of each CGU with its recoverable amount. The recoverable amount of a CGU is the
higher of fair value less cost of disposal, and its value in use, where value in use would typically be the expected cash flows to be generated
from operating the businesses into perpetuity.
At 31 December 2022, no planned disposals met the threshold to be classified as held-for-sale (refer to note 2.8). However, the disposal of
businesses aligned to the People, Business Solutions (excluding one smaller business where the disposal process is less advanced), Travel
and Fera CGUs or groups of CGUs in the Capita Portfolio division were sufficiently advanced that the Board’s judgement was that for
impairment testing purposes the value-in-use of these CGUs or groups of CGUs should be determined based on the future cash flows of the
CGUs or groups of CGUs from continuing use, up to the estimated date of disposal, plus an estimate of the sale proceeds less cost of disposal.
At 30 June 2022, a goodwill impairment of £92.5m was recognised in respect of the People and Property groups of CGUs, and at 31 December
2022, a further goodwill impairment of £76.5m was recognised in respect of the People, Travel and Business Solutions groups of CGUs. The
impairments arose primarily due to the expectation of acquirers factoring in additional investment and costs required to run the businesses
outside of the Group, and general macroeconomic conditions. The Property group of CGUs was disposed of in the second half of 2022.
As at 31 December 2022, the estimated recoverable amount of each remaining Group of CGUs exceeded its respective carrying value. The
key inputs to the calculations are described below, including changes in market conditions.
Forecast cash flows
The cash flow projections prepared for the impairment test are derived from the 2023-2025 business plans (BP) approved by the Board.
Global economic uncertainties continue to lead to increased judgement being applied, 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.
For ongoing disposals that are seen to be sufficiently advanced, forecast cash flows cover both operational cash flows up to the expected date
of disposal, as well as the Board’s best estimate of expected net proceeds at disposal. These have been derived from management’s latest
financial projections and reflect an assessment of the range of bids currently being considered by the Board, the status of these sale processes
and the time horizon over which these transactions are expected to complete.
Allocation of central function costs
The Board has considered an appropriate methodology to apply when allocating central function costs. The methodology applied for the 2022
impairment test was aligned to that applied in reporting segmental performance (refer to note 2.5). The costs of Capita plc, which have not
been allocated as part of segmental reporting, are allocated based on 2023 forecast EBITDA.
Long-term growth rate
The long-term growth rate is based on economic growth forecasts by recognised bodies and this has been applied to forecast cash flows for
years four and five (2026 and 2027) and for the terminal period. The 2022 long-term growth rate is 2.2% (2021: 1.7%).
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
142
184
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Discount rates
Management estimates discount rates using pre-tax rates of comparator companies for each CGU or group of CGUs, which reflect the latest
market assumptions for the risk-free rate, the equity risk premium and the net cost of debt, and which are all based on publicly available
external sources.
The table below represents the pre-tax discount rates applied to the cash flows for 2022 and 2021.
2022
2021
Capita Public
Service
Capita Experience
11.8 %
13.0 %
10.4 %
11.6 %
People
14.3 %
12.4 %
Software Business Solutions
12.1 %
12.8 %
12.1 %
13.3 %
Travel
13.0 %
15.7 %
Fera
11.2 %
11.9 %
Capita Portfolio
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.
Sensitivity scenarios applied estimate 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 2023 to 2025,
and the long-term growth rate (2.2%) applied to projected cash flows for 2026, 2027, and the terminal period. We have also considered the
impact of all of the scenarios together, which is also a reasonable possible alternative.
This sensitivity analysis covers CGUs where the associated business’ value-in-use has been calculated based on operating the business into
perpetuity (covering Capita Public Service, Capita Experience, the Portfolio Software pillar, and one smaller business within the Portfolio
Business Solutions pillar where the disposal process is less far advanced). No additional impairments have been identified under any of these
sensitivity scenarios, including the combination sensitivity scenario. However, for the Portfolio Software group of CGUs it is noted that the key
assumption impacting the impairment test is the forecast EBITDA growth included in the BP (compound annual growth rate over the BP period
in excess of 60%). The forecast EBITDA in 2025 would need to reduce by more than 45% before the group of CGUs recoverable amount would
be equal to its carrying amount.
For the businesses in the Capita Portfolio division where for impairment testing purposes the value-in-use has been determined based on the
future cash flows of the CGUs from continuing use up to the estimated date of disposal, plus an estimate of the net sale proceeds (being
businesses aligned to the People, Business Solutions, Travel and Fera CGUs or groups of CGUs), assumptions around the expected sale
proceeds are seen to be the only key assumption impacting the impairment test.
While it is the Board’s intention to complete these disposals in the short-term, where there are presently no signed agreements in place with
any counterparty, there are a range of possible outcomes that could occur, and the actual net proceeds received could be materially higher or
lower than those assumed in the impairment assessment. Given the dependence on commercial negotiations it is not possible to quantify a
reasonably possible change in this key assumption, however a change of 10% in the aggregate net proceeds would have materially altered the
impairment charge recognised. The expected sales proceeds are based on the Board’s best estimate, based on the knowledge existing at the
time of estimation.
Strategic report
Corporate governance
Financial statements
142
143
Capita plc Annual Report 2022
185
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Discount rates
external sources.
2022
2021
Sensitivity analysis
The table below represents the pre-tax discount rates applied to the cash flows for 2022 and 2021.
Capita Public
Service
Capita Experience
11.8 %
13.0 %
10.4 %
11.6 %
People
14.3 %
12.4 %
Software Business Solutions
12.1 %
12.8 %
12.1 %
13.3 %
Travel
13.0 %
15.7 %
Fera
11.2 %
11.9 %
Capita Portfolio
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.
Sensitivity scenarios applied estimate 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 2023 to 2025,
and the long-term growth rate (2.2%) applied to projected cash flows for 2026, 2027, and the terminal period. We have also considered the
impact of all of the scenarios together, which is also a reasonable possible alternative.
This sensitivity analysis covers CGUs where the associated business’ value-in-use has been calculated based on operating the business into
perpetuity (covering Capita Public Service, Capita Experience, the Portfolio Software pillar, and one smaller business within the Portfolio
Business Solutions pillar where the disposal process is less far advanced). No additional impairments have been identified under any of these
sensitivity scenarios, including the combination sensitivity scenario. However, for the Portfolio Software group of CGUs it is noted that the key
assumption impacting the impairment test is the forecast EBITDA growth included in the BP (compound annual growth rate over the BP period
in excess of 60%). The forecast EBITDA in 2025 would need to reduce by more than 45% before the group of CGUs recoverable amount would
be equal to its carrying amount.
For the businesses in the Capita Portfolio division where for impairment testing purposes the value-in-use has been determined based on the
future cash flows of the CGUs from continuing use up to the estimated date of disposal, plus an estimate of the net sale proceeds (being
businesses aligned to the People, Business Solutions, Travel and Fera CGUs or groups of CGUs), assumptions around the expected sale
proceeds are seen to be the only key assumption impacting the impairment test.
While it is the Board’s intention to complete these disposals in the short-term, where there are presently no signed agreements in place with
any counterparty, there are a range of possible outcomes that could occur, and the actual net proceeds received could be materially higher or
lower than those assumed in the impairment assessment. Given the dependence on commercial negotiations it is not possible to quantify a
reasonably possible change in this key assumption, however a change of 10% in the aggregate net proceeds would have materially altered the
impairment charge recognised. The expected sales proceeds are based on the Board’s best estimate, based on the knowledge existing at the
time of estimation.
Management estimates discount rates using pre-tax rates of comparator companies for each CGU or group of CGUs, which reflect the latest
market assumptions for the risk-free rate, the equity risk premium and the net cost of debt, and which are all based on publicly available
AP
Accounting policies
Section 3: Operating assets and liabilities continued
3.5 Right-of-use assets
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-use 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 2021
Addition of new leases
Depreciation charged during the year - included in adjusted profit
Impairment - included in adjusted profit
Disposal
Exchange movement
Other movements
At 31 December 2021
Addition of new leases
Depreciation charged during the year - included in adjusted profit
Reversal of Impairment - included in adjusted profit
Disposal of business
Disposal
Exchange movement
Other movements
At 31 December 2022
Other movements include amendments to existing leases.
Property
£m
Motor vehicles
£m
Equipment
£m
Total
£m
310.0
16.9
15.2
342.1
18.2
(55.1)
(13.0)
(2.2)
(1.7)
9.4
4.2
(6.5)
—
—
0.4
0.4
—
(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
12.9
(45.8)
2.4
(0.2)
(6.3)
1.4
7.0
2.4
(6.0)
—
—
(1.6)
—
0.4
—
(4.2)
0.3
—
(0.5)
—
(0.6)
15.3
(56.0)
2.7
(0.2)
(8.4)
1.4
6.8
237.0
10.6
1.9
249.5
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
144
186
Section 3: Operating assets and liabilities continued
3.6 Provisions
AP
Accounting policies
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. 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 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.
J
Significant accounting judgements, estimates and assumptions
As detailed in note 2.1, in respect of onerous customer contract provisions, 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.
Provisions
The movements in provisions during the year are as follows:
At 1 January
Impact of change in accounting standards –
amendments to IAS 371
At 1 January 2022 on adoption of IAS 37
Reclassification2
Provisions in the year
Releases in the year
Utilisation
Disposal of subsidiaries
At 31 December
Current
Non-current
Restructuring
provision
£m
Business exit
provision
£m
Claims and
litigation
provision
£m
Property
provision
£m
Customer
contract
provision
£m
Other
provisions
£m
Total
£m
25.6
1.5
13.2
9.7
84.7
5.9
140.6
—
25.6
(25.6)
—
—
—
—
—
—
1.5
—
25.0
(1.2)
(14.6)
—
—
13.2
—
7.6
(1.4)
(2.4)
—
—
18.8
9.7
21.8
7.0
(7.8)
(11.7)
(0.3)
103.5
(0.5)
20.6
(17.1)
(33.0)
—
—
5.9
4.3
6.0
(3.7)
(5.0)
(0.1)
18.8
159.4
—
66.2
(31.2)
(66.7)
(0.4)
10.7
17.0
18.7
73.5
7.4
127.3
31 December 2022
£m
31 December 2021
£m
75.7
51.6
127.3
126.6
14.0
140.6
1. The Group initially applied the amendments to IAS 37 at 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
retained earnings. Refer to note 1 for further details.
2. Following the end of the Group-wide transformation programme, restructuring provision relating to severance and property costs (including unavoidable running costs, such as insurance,
security, and dilapidation costs) where properties have been exited as a result of the transformation programme, have been reclassified to others and property provision respectively as at
1 January 2022.
Strategic report
Corporate governance
Financial statements
144
145
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
187
Section 3: Operating assets and liabilities continued
3.6 Provisions continued
Business exit provision: The provision relates to the cost of exiting businesses through disposal or closure including professional fees related
to business exits and the costs of separating the businesses being disposed. These are likely to unwind over a period of one to four years.
Claims and litigation provision: The Group is exposed to claims and litigation proceedings arising in the ordinary course of business. These
matters are reassessed regularly and where obligations are probable and estimable, provisions are made representing the Group’s best
estimate of the expenditure to be incurred. Due to the nature of these claims, the Group cannot give an estimate of the period over which this
provision will unwind.
Property provision: The provision relates to unavoidable running costs, such as insurance and security, of leasehold property where the
space is vacant or currently not planned to be used for ongoing operations, and for dilapidation costs. The expectation is that this expenditure
will be incurred over the remaining periods of the leases which vary up to 25 years.
Customer contract provision: The provision includes onerous contract provisions in respect of customer contracts where the costs of fulfilling
a contract (both incremental and costs directly related to contract activities) exceeds the economic benefits expected to be received under the
contract, claims/obligations associated with missed milestones in contractual obligations, and other potential exposures related to contracts
with customers. These provisions are forecast to unwind over periods of up to six years.
The customer contract provision includes £59.7m (2021: £54.5m) in respect of contracts in Capita Experience. 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 after the transformation phase was completed. Under the Group’s
long-term contract accounting policy, 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 potentially allowing the customers to extend the contracts indefinitely until the run-off of the underlying life
and pension books is complete.
The closed book Life & Pensions business has remained in structural decline because 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 contractual dynamics have led to onerous conditions to service certain of these contracts. Management 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, the Group has, in prior years, provided for the onerous contract conditions based on the best estimate of the
remaining contract terms.
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. In 2021, management 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 was 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, provided cover for contracts to extend out to 2026. This resulted in an
increase to the contract provision of £39.5m at 31 December 2021. At 31 December 2022, the provision was increased to provide cover for
contracts to extend out to December 2027 (ie a five-year rolling period).
Other provisions: Relates to provisions in respect of other potential exposures arising as a result of the nature of some of the operations that
the Group provides. These are likely to unwind over periods of up to five years.
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.6 Provisions
Accounting policies
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. 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 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.
Significant accounting judgements, estimates and assumptions
As detailed in note 2.1, in respect of onerous customer contract provisions, 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.
Provisions
The movements in provisions during the year are as follows:
Restructuring
provision
Business exit
provision
Claims and
litigation
provision
£m
Property
provision
£m
Customer
contract
provision
£m
Other
provisions
£m
13.2
9.7
84.7
5.9
140.6
£m
1.5
—
1.5
—
25.0
(1.2)
(14.6)
—
£m
25.6
—
25.6
(25.6)
—
—
—
—
—
—
13.2
—
7.6
(1.4)
(2.4)
—
—
18.8
9.7
21.8
7.0
(7.8)
(11.7)
(0.3)
103.5
(0.5)
20.6
(17.1)
(33.0)
—
10.7
17.0
18.7
73.5
7.4
127.3
31 December 2022
31 December 2021
Total
£m
18.8
159.4
—
66.2
(31.2)
(66.7)
(0.4)
—
5.9
4.3
6.0
(3.7)
(5.0)
(0.1)
£m
126.6
14.0
140.6
£m
75.7
51.6
127.3
At 1 January
Impact of change in accounting standards –
amendments to IAS 371
At 1 January 2022 on adoption of IAS 37
Reclassification2
Provisions in the year
Releases in the year
Utilisation
Disposal of subsidiaries
At 31 December
Current
Non-current
1 January 2022.
1. The Group initially applied the amendments to IAS 37 at 1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to
retained earnings. Refer to note 1 for further details.
2. Following the end of the Group-wide transformation programme, restructuring provision relating to severance and property costs (including unavoidable running costs, such as insurance,
security, and dilapidation costs) where properties have been exited as a result of the transformation programme, have been reclassified to others and property provision respectively as at
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
146
188
Section 4: Capital structure and finance costs
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
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
AP
Denotes accounting policies
J
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Net financial debt to adjusted EBITDA1 (both pre-IFRS 16)
Aim: Maintain the ratio of net financial debt to adjusted EBITDA1 (both pre-IFRS
16) at ≤1.0x times over the long term
Available liquidity
0.5x
(2021: 3.7x)
£405.2m
(2021: £392.4m)
1. Details of all alternative performance measures and related KPIs can be found in section 8.2.
Capital strategy
The Group’s capital strategy is to build a strong and flexible balance sheet, which supports the Group’s strategic objectives, the investment
needed to grow the business and allows for contributions required to reduce pension liabilities.
The Board expects to maintain the ratio of net financial debt to adjusted EBITDA, both on a pre-IFRS 16 basis at ≤1.0x times.
Liquidity
Available liquidity at 31 December 2022 was £405.2m (31 December 2021 £392.4m) and during 2022 adjusted net debt (excluding leases and
restricted cash) reduced by £346.5m from £431.4m to £84.9m.
Liquidity remains a key area of focus and in July 2022, the Group signed an extension of the £300m forward start revolving credit facility (RCF)
with its lending banks for a further twelve months to August 2024. The new facility commenced on 31 August 2022 upon the expiry of the
previous RCF and provides the Group with committed liquidity for the cash fluctuations of the business cycle and an allowance for
contingencies, and incorporates provisions such that it will partially reduce in quantum as a consequence of specified transactions. The RCF
was not drawn upon at 31 December 2022 and had a total committed value of £288.4m.
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. Both of these KPIs have been achieved and as a result a slight reduction in the facility margin was applied.
Net finance costs
Net finance costs have decreased by £15.2m to £31.7m (2021: £46.9m) driven by an increase in interest receivable resulting from the higher
interest rate environment, a decrease in interest payable as a result of debt maturities in 2022 and favourable change in the value of our non-
designated foreign exchange forward contracts.
Strategic report
Corporate governance
Financial statements
146
147
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
189
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
4.5.2b
2022
£m
(396.8)
219.6
397.5
285.5
—
0.7
(24.8)
0.7
482.4
288.4
2021
£m
(333.4)
231.9
448.4
512.9
46.0
1.3
(28.0)
0.7
879.8
345.7
770.8
1,225.5
Year on Year
movement
(63.4)
(12.3)
(50.9)
(227.4)
(46.0)
(0.6)
3.2
—
(397.4)
(57.3)
(454.7)
1. Private placement loan notes include US dollar and British pound sterling private placement loan notes, and euro fixed rate bearer notes.
2. 2021: 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.
During the year, USD and GBP private placement loan notes of £40.5m and £36.7m were repaid at maturity on 22 January 2022 and 22 April
2022 respectively. The associated currency and interest rate swaps also expired on these dates, such that the combined net cash outflow for
these repayments was £67.2m. Additionally, £20.7m of the outstanding EUR fixed rate notes were prepaid during June and July 2022 as a
result of the disposal of Trustmarque with a further repayment at maturity on 10 November 2022 of £138.8m.
4.1.2 Capital management
Focus on capital management forms an important component of Board meetings, including review of forecast 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 are two separate
sets of covenant tests underlying the Group’s financial instruments with the key difference being the treatment of IFRS 16. There have been no
breaches in the financial covenants of any loans or borrowings during the reporting period.
The committed RCF provides the liquidity needed to cover the cash fluctuations of the business cycle, allowing a buffer for contingencies.
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, and all of
them complied with all externally imposed financial services regulatory capital requirements applicable to them.
To provide working capital funding at an economically favourable rate versus the RCF, in the UK, the Group uses a non-recourse invoice
discounting facility, and the value of invoices sold under this arrangement at 31 December 2022 was £36.9m (2021: £3.9m) . Additionally, the
Group's German business uses a non-recourse invoice discounting arrangement for a specific customer contract, and the value of invoices sold
under that arrangement at 31 December 2022 was £7.5m (2021: £12.5m).
Notes to the consolidated financial statements
Section 4: Capital structure and finance costs
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
4.1
4.2
4.3
4.4
4.5
4.6
4.7
this section you will find disclosures about:
Net debt, capital and capital management
Financial risk
Net finance costs
Leases
Issued share capital
Financial instruments and the fair value hierarchy
Group composition and non-controlling interests
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
Key highlights
0.5x
(2021: 3.7x)
Capital strategy
Liquidity
Net financial debt to adjusted EBITDA1 (both pre-IFRS 16)
Available liquidity
Aim: Maintain the ratio of net financial debt to adjusted EBITDA1 (both pre-IFRS
16) at ≤1.0x times over the long term
£405.2m
(2021: £392.4m)
1. Details of all alternative performance measures and related KPIs can be found in section 8.2.
The Group’s capital strategy is to build a strong and flexible balance sheet, which supports the Group’s strategic objectives, the investment
needed to grow the business and allows for contributions required to reduce pension liabilities.
The Board expects to maintain the ratio of net financial debt to adjusted EBITDA, both on a pre-IFRS 16 basis at ≤1.0x times.
Available liquidity at 31 December 2022 was £405.2m (31 December 2021 £392.4m) and during 2022 adjusted net debt (excluding leases and
restricted cash) reduced by £346.5m from £431.4m to £84.9m.
Liquidity remains a key area of focus and in July 2022, the Group signed an extension of the £300m forward start revolving credit facility (RCF)
with its lending banks for a further twelve months to August 2024. The new facility commenced on 31 August 2022 upon the expiry of the
previous RCF and provides the Group with committed liquidity for the cash fluctuations of the business cycle and an allowance for
contingencies, and incorporates provisions such that it will partially reduce in quantum as a consequence of specified transactions. The RCF
was not drawn upon at 31 December 2022 and had a total committed value of £288.4m.
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. Both of these KPIs have been achieved and as a result a slight reduction in the facility margin was applied.
Net finance costs
Net finance costs have decreased by £15.2m to £31.7m (2021: £46.9m) driven by an increase in interest receivable resulting from the higher
interest rate environment, a decrease in interest payable as a result of debt maturities in 2022 and favourable change in the value of our non-
designated foreign exchange forward contracts.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
148
190
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 54 to 63 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 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 monitors the risk of a liquidity shortage through its business plan and liquidity cycle forecasts and analysis, taking into consideration
the maturity of the Group’s financial instruments, projected cash flows from operations and an allowance for contingencies.
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. Multiple sources of funding are used to maintain a balance between continuity of funding and flexibility without placing reliance on
sources that are not contractually committed.
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business cycle and an allowance for contingencies. At
31 December 2022 the RCF commitment was £288.4m (31 December 2021: £385.7m) and was subsequently reduced to £284.7m on
4 January 2023 following receipt of proceeds from disposals. The RCF expires on 31 August 2024 and was not drawn upon at 31 December
2022 (31 December 2021: £40.0m drawn).
The size of the available commitment will be right-sized each time the Group either refinances, raises funds through disposals, or raises equity
with the RCF including mandatory cancellation mechanisms that determine the amount of the cancellation in each case. The commitments are
subject to a minimum value of £180m regardless of the quantum of receipts.
The Group’s core funding is provided by US private placement loan notes and euro fixed-rate bearer notes (‘private placement loan notes’), and
to mitigate the risk of needing to refinance in challenging conditions, these have been arranged with a spread of maturities to November 2027.
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.
In March 2022 the Group executed a committed backstop bridge facility with one of its relationship banks which provided £70m of additional
liquidity and incorporated provisions such that it would be cancelled or partially reduced in quantum as a consequence of specified
transactions, including on the completion of the announced disposal of Trustmarque. The facility was cancelled on 10 March 2022 following
receipt of the Trustmarque disposal proceeds.
In February 2023, the Group entered into a committed bridge facility of £50m with three of its relationship banks providing additional liquidity
from 1 January 2024. It incorporates provisions such that it will partially reduce in quantum as a consequence of specified transactions. The
committed facility has an expiry date of 31 December 2024 and is subject to covenants, which are the same as those in the RCF.
The tables below summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted cash flows. All balances
are stated based on the prevailing foreign exchange rates and the contractual interest rates at the end of the reporting period.
At 31 December 2022
Overdraft*
Private placement loan notes
Interest on loan notes
Lease liabilities
Deferred consideration
Put options of non-controlling interests
Cross-currency interest rate swaps
Other financial instruments
Within
1 year
£m
219.6
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
—
75.0
9.6
76.1
—
9.2
0.8
0.7
—
7.9
64.9
—
—
0.8
—
91.4
6.2
49.0
—
—
0.8
—
34.7
4.5
39.7
—
—
0.8
—
94.0
2.6
33.6
0.7
—
—
—
—
—
296.7
—
—
—
—
Total
£m
219.6
295.1
30.8
560.0
0.7
9.2
3.2
0.7
391.0
73.6
147.4
79.7
130.9
296.7 1,119.3
* 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
above are fully offset by credit balances in the same arrangement.
Strategic report
Corporate governance
Financial statements
148
149
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
191
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
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
—
—
69.8
9.2
73.0
—
—
0.7
0.6
4.3
Between
2–3 years
£m
—
—
—
7.6
61.8
—
—
0.4
0.1
—
Between
3–4 years
£m
—
—
84.6
6.0
46.6
—
—
0.4
—
—
Between
4–5 years
£m
—
—
32.9
4.5
38.1
—
—
0.4
—
—
More than
5 years
£m
—
—
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
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 South Africa and incurred in Indian rupee (INR) and South African rand (ZAR). The Group seeks to mitigate the
short term effect of this exposure by entering into forward foreign exchange contracts to fix the British pounds sterling (GBP) cost of highly
probable transactions over a rolling 24 month period.
At 31 December 2022, the Group held forward foreign exchange contracts against forecast internal monthly INR and ZAR 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, ZAR 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.
2022
2021
USD
Effect on profit
before tax
£m
—
—
INR
Effect on
equity
£m
0.8
(3.3)
Effect on profit
before tax
£m
—
—
Effect on
equity
£m
0.3
(5.3)
ZAR
Effect on profit
before tax
£m
1.8
(3.1)
Effect on
equity
£m
—
—
4.2.3 Interest rate risk
The Group manages its interest rate exposure, which arises from the Group’s private placement loan notes, cash, deposits and RCF drawings
at variable interest rates through cross-currency interest rate swaps. The swaps are designated fair value hedges against the fair value
changes of the private placement loan notes.
Notes to the consolidated financial statements
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 54 to 63 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 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 monitors the risk of a liquidity shortage through its business plan and liquidity cycle forecasts and analysis, taking into consideration
the maturity of the Group’s financial instruments, projected cash flows from operations and an allowance for contingencies.
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. Multiple sources of funding are used to maintain a balance between continuity of funding and flexibility without placing reliance on
sources that are not contractually committed.
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business cycle and an allowance for contingencies. At
31 December 2022 the RCF commitment was £288.4m (31 December 2021: £385.7m) and was subsequently reduced to £284.7m on
4 January 2023 following receipt of proceeds from disposals. The RCF expires on 31 August 2024 and was not drawn upon at 31 December
2022 (31 December 2021: £40.0m drawn).
The size of the available commitment will be right-sized each time the Group either refinances, raises funds through disposals, or raises equity
with the RCF including mandatory cancellation mechanisms that determine the amount of the cancellation in each case. The commitments are
subject to a minimum value of £180m regardless of the quantum of receipts.
The Group’s core funding is provided by US private placement loan notes and euro fixed-rate bearer notes (‘private placement loan notes’), and
to mitigate the risk of needing to refinance in challenging conditions, these have been arranged with a spread of maturities to November 2027.
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.
In March 2022 the Group executed a committed backstop bridge facility with one of its relationship banks which provided £70m of additional
liquidity and incorporated provisions such that it would be cancelled or partially reduced in quantum as a consequence of specified
transactions, including on the completion of the announced disposal of Trustmarque. The facility was cancelled on 10 March 2022 following
receipt of the Trustmarque disposal proceeds.
In February 2023, the Group entered into a committed bridge facility of £50m with three of its relationship banks providing additional liquidity
from 1 January 2024. It incorporates provisions such that it will partially reduce in quantum as a consequence of specified transactions. The
committed facility has an expiry date of 31 December 2024 and is subject to covenants, which are the same as those in the RCF.
The tables below summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted cash flows. All balances
are stated based on the prevailing foreign exchange rates and the contractual interest rates at the end of the reporting period.
At 31 December 2022
Overdraft*
Private placement loan notes
Interest on loan notes
Lease liabilities
Deferred consideration
Put options of non-controlling interests
Cross-currency interest rate swaps
Other financial instruments
Within
1 year
£m
219.6
75.0
9.6
76.1
—
9.2
0.8
0.7
Between
1–2 years
Between
2–3 years
Between
3–4 years
Between
4–5 years
More than
5 years
£m
—
—
7.9
64.9
—
—
0.8
—
£m
—
91.4
6.2
49.0
—
—
0.8
—
£m
—
34.7
4.5
39.7
—
—
0.8
—
£m
—
94.0
2.6
0.7
—
—
—
33.6
296.7
£m
—
—
—
—
—
—
—
Total
£m
219.6
295.1
30.8
560.0
0.7
9.2
3.2
0.7
391.0
73.6
147.4
79.7
130.9
296.7 1,119.3
* 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
above are fully offset by credit balances in the same arrangement.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
150
192
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:
Nominal amounts
At 31 December 2022
Fixed rate
Private placement loan notes
Floating rate
Cash in hand
Overdraft
Private placement loan notes
Nominal amounts
At 31 December 2021
Fixed rate
Private placement loan notes
Floating rate
Cash in hand
Overdraft
Private placement loan notes
Credit facilities
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
27.5
—
29.7
18.6
71.2
—
147.0
(396.8)
219.6
38.8
—
—
—
—
—
46.2
—
—
15.5
—
—
17.1
—
—
—
(396.8)
219.6
117.6
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
169.2
27.5
—
29.7
18.6
74.2
319.2
(333.4)
231.9
48.5
46.0
—
—
38.8
—
—
—
—
—
—
—
46.2
—
—
—
15.5
—
—
—
17.1
—
(333.4)
231.9
166.1
46.0
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 £0.6m (2021: £1.1m) 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 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 £3.2m (2021: £30.0m loss) was equal to the loss/gain 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 £0.2m debit (2021: £0.1m credit) 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 2022 is as follows:
Cross-currency interest rate swaps – assets
Cross-currency interest rate swaps – liabilities
Notional amount
£m
102.1
15.5
Line item in the
balance sheet
Financial assets
Carrying amount
£m
25.8
(1.0) Financial liabilities
24.8
Change in FV used for
measuring ineffectiveness
£m
(4.4)
1.2
(3.2)
Private placement loan notes
Carrying amount
£m
285.5
Accumulated FV
adjustment
£m
24.8
Line item in the
balance sheet
Financial Liabilities
Change in FV used for
measuring ineffectiveness
£m
3.2
Strategic report
Corporate governance
Financial statements
150
151
Capita plc Annual Report 2022
193
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
Private placement loan notes
Nominal amounts
At 31 December 2022
Fixed rate
Floating rate
Cash in hand
Overdraft
Nominal amounts
At 31 December 2021
Fixed rate
Floating rate
Cash in hand
Overdraft
Private placement loan notes
Credit facilities
4.2.4 Hedges
Fair value hedges
Private placement loan notes
169.2
27.5
—
29.7
18.6
74.2
319.2
(396.8)
219.6
38.8
—
—
—
—
—
—
—
—
—
46.2
15.5
17.1
—
—
—
(396.8)
219.6
117.6
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
(333.4)
231.9
48.5
46.0
—
—
38.8
—
—
—
—
—
—
—
46.2
—
—
—
15.5
—
—
—
17.1
—
(333.4)
231.9
166.1
46.0
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 £0.6m (2021: £1.1m) increase or decrease to profit before tax, and no impact on the Group’s equity.
The Group’s fixed rate USD and GBP private placement loan notes are hedged through a combination of 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 £3.2m (2021: £30.0m loss) was equal to the loss/gain 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 £0.2m debit (2021: £0.1m credit) to the consolidated income statement, shown in net finance costs, note 4.3.
Cross-currency interest rate swaps – assets
Cross-currency interest rate swaps – liabilities
Notional amount
Carrying amount
Line item in the
Change in FV used for
measuring ineffectiveness
£m
102.1
15.5
£m
balance sheet
25.8
Financial assets
(1.0) Financial liabilities
24.8
Private placement loan notes
Accumulated FV
Carrying amount
adjustment
Line item in the
£m
285.5
£m
balance sheet
24.8
Financial Liabilities
Change in FV used for
measuring ineffectiveness
£m
(4.4)
1.2
(3.2)
£m
3.2
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
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:
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
Cash flow hedges
The Group holds a series of non-deliverable forward foreign exchange contracts (NDFs), 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.
Private placement loan notes
27.5
—
29.7
18.6
71.2
—
147.0
The fair value of cash flow hedging instruments held at 31 December 2022 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:
recognised in administrative expenses
recognised in net finance cost
Change in tax
At 31 December
2022
£m
(0.7)
11.5
(5.1)
—
(1.6)
2021
£m
(4.8)
1.3
—
0.6
2.2
4.1
(0.7)
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 - also refer note 3.1.1.
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 (ie the expected credit losses) 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 impact of the hedged item and the related financial derivatives on the consolidated balance sheet at 31 December 2022 is as follows:
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
Net interest income on defined benefit pension schemes
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 expense 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)/expense
Other items excluded from adjusted profits
Non-designated foreign exchange forward contracts – mark-to-market
Fair value hedge ineffectiveness2
Net finance (income)/expenses excluded from adjusted profit
Notes
5.2
5.2
4.5.2
4.2.4
2022
£m
(1.1)
(4.2)
(3.6)
(8.9)
12.0
—
9.2
22.6
—
43.8
34.9
0.2
—
—
(3.6)
0.2
(3.2)
2021
£m
(0.4)
(4.3)
—
(4.7)
17.9
0.6
5.4
23.8
1.5
49.2
44.5
0.7
0.4
(0.1)
1.5
(0.1)
2.4
Total net finance expense
31.7
46.9
1. Private placement loan notes comprise US private placement loan notes and euro fixed rate bearer notes.
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
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
152
194
Section 4: Capital structure and financing costs continued
4.4 Leases
AP
Accounting policies
The Group leases various assets, comprising land and buildings, equipment and motor vehicles.
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 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.
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.
Strategic report
Corporate governance
Financial statements
152
153
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
195
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
Note
2022
£m
397.5
2021
£m Type of financial instrument
448.4 Financial liabilities
The lease liability includes £5.0m (2021: £18.8m) 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 £13.2m (2021: £23.1m) (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 £84.4m
(2021: £106.2m) consisting of interest paid of £22.6m (2021: £23.6m) and capital element of £61.8m (2021: £82.6m).
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
2022
£m
76.3
2021
£m Type of financial instrument
82.1 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
2022
£m
9.8
9.7
8.2
7.7
4.0
70.2
109.6
(33.3)
76.3
2021
£m
10.8
9.6
9.6
8.2
7.7
73.0
118.9
(36.8)
82.1
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 of £70.5m as of 31 December
2022. 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.
Notes to the consolidated financial statements
Section 4: Capital structure and financing costs continued
4.4 Leases
Accounting policies
The Group leases various assets, comprising land and buildings, equipment and motor vehicles.
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 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.
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
At the commencement of a lease, the Group recognises the lease liability measured at the present value of the lease payments to be made
assets.
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.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
154
196
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.
Strategic report
Corporate governance
Financial statements
154
155
Capita plc Annual Report 2022
197
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy
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.
of principal and interest.
Debt instruments
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 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/
• 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.
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.
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.
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
(losses).
Equity instruments
Impairment
Derivatives
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 instruments with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment
During the year ended 31 December 2022, there were no transfers between fair value levels.
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, are carried at either amortised cost or cost (undiscounted cash
flows) as a reasonable approximation of fair value.
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 2022
Financial assets
Lease receivables
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Originated loans receivable
Financial assets at fair value through P&L
Financial assets at fair value through OCI
Deferred consideration receivable
Other financial assets
Cash
Total financial assets
Financial liabilities
Private placement loan notes
Other loan notes
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Deferred consideration payable
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
—
—
Level-2
a Level-2
n/a
Level-3
Level-3
n/a
5.3
—
—
17.2
—
—
—
—
—
—
—
—
0.8
—
—
5.4
76.3
—
76.3
5.4
5.9
3.0
70.4
2.4
—
25.8
—
—
—
—
—
—
0.5
—
—
10.5
5.3
25.8
0.5
17.2
0.8
10.5
4.4
8.3
—
—
—
2.0
0.9
17.5
0.5
17.2
0.8
8.5
22.5
0.8
31.2
87.3 141.8
23.6 118.2
4.5.4
n/a
—
—
—
396.8 396.8
396.8
—
22.5
0.8
31.2
484.1 538.6
420.4 118.2
a
n/a
n/a
Level-2
a Level-2
n/a
d Level-3
4.5.4
4.4.1
n/a
n/a
—
—
0.1
—
—
—
0.1
—
—
—
—
—
—
—
9.2
9.2
—
—
—
—
—
1.0
—
—
285.5 285.5
74.6 210.9
0.7
0.7
0.7
—
—
—
0.7
—
0.1
1.0
0.7
9.2
0.1
—
—
9.2
—
1.0
0.7
—
1.0
286.9 297.2
84.6 212.6
—
—
219.6 219.6
397.5 397.5
219.6
—
55.6 341.9
0.1
9.2
1.0
904.0 914.3
359.8 554.5
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
156
198
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
Financial assets measured at amortised cost consist of cash, lease receivables, originated loans and deferred consideration receivable. The
carrying value of cash is a reasonable approximation of its fair value due to the short-term nature of the instruments. Lease receivables,
originated loans and deferred consideration receivable are measured at amortised cost using the effective interest rate method. Included in
other investments are £0.8m (31 December 2021: £0.8m) of strategic investments in unlisted equity securities which are not held-for-trading
and the Group elected to recognise at Fair Value through Other Comprehensive Income (FVOCI). During the period no dividends were
received from, and no disposals were made of, strategic investments.
The financial assets at Fair Value through P&L (FVPL) relate to the Group’s minority shareholding in companies as part of Capita Scaling
Partners. The assets are revalued when reliable information on fair value becomes available, which is normally at each funding round.
Financial liabilities measured at amortised cost consist of loan notes, overdrafts, lease liabilities, credit facilities and deferred consideration
payable. With the exception of certain series within the fixed rate private placement loan notes, the carrying value of financial liabilities are a
reasonable approximation of their fair value. This is because either the interest payable is close to market rates or the liability is short-term in
nature. The private placement loan note series that remain subject to a fixed rate of interest have an underlying carrying value of £144.9m
(2021: £320.7m) and a fair value of £130.2m (2021: £278.2m). The carrying value of overdrafts is a reasonable approximation of fair value
reflecting the short-term nature of the instruments. Lease liabilities and deferred consideration payable are measured at amortised cost using
the effective interest rate method.
The Group’s key financial liabilities are set out below:
a. Private placement loan notes
The private placement loan notes were issued in US dollars, pounds sterling, and euros at fixed interest rates. The Group manages its
exposure to foreign exchange and interest rate movements through cross-currency interest rate swaps, interest rate swaps, and forward foreign
exchange contracts.
b. Bank facilities
Details of the Group’s bank facilities are provided in the Liquidity section above. At 31 December 2022, the total value of committed facilities
was £288.4m, of which none was drawn (2021: total facilities of £385.7m of which £40.0m was drawn).
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 2022 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.
Notes to the consolidated financial statements
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
Financial assets measured at amortised cost consist of cash, lease receivables, originated loans and deferred consideration receivable. The
carrying value of cash is a reasonable approximation of its fair value due to the short-term nature of the instruments. Lease receivables,
originated loans and deferred consideration receivable are measured at amortised cost using the effective interest rate method. Included in
other investments are £0.8m (31 December 2021: £0.8m) of strategic investments in unlisted equity securities which are not held-for-trading
and the Group elected to recognise at Fair Value through Other Comprehensive Income (FVOCI). During the period no dividends were
received from, and no disposals were made of, strategic investments.
The financial assets at Fair Value through P&L (FVPL) relate to the Group’s minority shareholding in companies as part of Capita Scaling
Partners. The assets are revalued when reliable information on fair value becomes available, which is normally at each funding round.
Financial liabilities measured at amortised cost consist of loan notes, overdrafts, lease liabilities, credit facilities and deferred consideration
payable. With the exception of certain series within the fixed rate private placement loan notes, the carrying value of financial liabilities are a
reasonable approximation of their fair value. This is because either the interest payable is close to market rates or the liability is short-term in
nature. The private placement loan note series that remain subject to a fixed rate of interest have an underlying carrying value of £144.9m
(2021: £320.7m) and a fair value of £130.2m (2021: £278.2m). The carrying value of overdrafts is a reasonable approximation of fair value
reflecting the short-term nature of the instruments. Lease liabilities and deferred consideration payable are measured at amortised cost using
the effective interest rate method.
The Group’s key financial liabilities are set out below:
a. Private placement loan notes
exchange contracts.
b. Bank facilities
The private placement loan notes were issued in US dollars, pounds sterling, and euros at fixed interest rates. The Group manages its
exposure to foreign exchange and interest rate movements through cross-currency interest rate swaps, interest rate swaps, and forward foreign
Details of the Group’s bank facilities are provided in the Liquidity section above. At 31 December 2022, the total value of committed facilities
was £288.4m, of which none was drawn (2021: total facilities of £385.7m of which £40.0m was drawn).
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 2022 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.
Strategic report
Corporate governance
Financial statements
156
157
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
199
Non-
current
£m
75.5
0.2
1.0
20.8
0.5
8.4
0.8
At 31 December 2021
Financial assets
Lease receivables
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Originated loans receivable
Financial assets at fair value through P&L
Financial assets at fair value through OCI
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
Credit facilities
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Deferred consideration payable
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
n/a
4.4.2
4.2.4 Level-2
Level-2
a Level-2
n/a
Level-3
Level-3
—
—
1.8
—
—
8.4
—
—
—
—
—
—
—
0.8
—
0.9
82.1
—
82.1
0.9
—
30.2
—
—
—
—
—
0.5
—
—
1.8
30.2
0.5
8.4
0.8
6.6
0.7
0.8
9.4
—
—
—
10.2
0.8
31.1
82.6 124.7
17.5 107.2
.
4
n/a
—
—
— 317.6 317.6
317.6
2.8
n/a
—
—
—
15.8
15.8
15.8
—
—
10.2
0.8
31.1 416.0 458.1
350.9 107.2
a
n/a
n/a
b Level-2
4.2.4 Level-2
Level-2
a Level-2
n/a
d Level-3
4.5.4
4.4.1
n/a
n/a
—
—
—
—
4.7
—
—
—
4.7
—
—
—
—
—
—
—
—
—
8.6
8.6
—
—
— 512.9 512.9
1.3
1.3
—
46.0
46.0
—
1.8
—
1.8
226.3 286.6
1.0
—
1.0
0.3
46.0
0.8
—
2.2
—
—
—
—
0.7
—
4.7
2.2
0.7
8.6
4.3
—
—
8.6
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
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
200
Strategic report
Corporate governance
Financial statements
158
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 2021
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
Change in put-options recognised in other comprehensive income
Additions
Reclassification from other investment categories
Gain in fair value recognised in income statement
Gain in fair value recognised in other comprehensive income
At 31 December 2022
Subsidiary
partnership
payment
£m
Put options
of non-
controlling
interests
£m
Investments
FVPL and
FVOCI
£m
27.1
(4.7)
—
—
—
—
—
0.4
(22.8)
—
—
—
—
—
—
—
99.7
—
(91.1)
—
—
—
—
—
—
8.6
0.6
—
—
—
—
9.2
2.3
—
—
0.3
4.3
2.2
0.1
—
—
9.2
—
2.3
0.4
5.9
0.2
18.0
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 facility are shown in the above liquidity section (see note 4.5.2b).
Borrowing costs of £2.4m were capitalised in the year (2021: £1.9m). At 31 December 2022, the Group’s private placement loan note series
had a GBP equivalent underlying carrying value of £260.5m (2021: £484.8m) (see note 4.5.2a) analysed as follows:
Maturity
27 October 2023
22 January 2025
22 April 2025
27 October 2026
22 January 2027
Total GBP denominated
22 January 2023
27 October 2023
22 January 2025
27 October 2026
22 January 2027
Total USD denominated1
10 November 2027
Total euro denominated2
Denomination
GBP
GBP
GBP
GBP
GBP
GBP
USD
USD
USD
USD
USD
USD
EUR
EUR
Interest rate
%
2.520
3.540
3.670
2.770
3.580
Nominal value
Ccy’m
27.5
7.4
22.3
18.6
23.8
3.450
3.370
3.650
3.590
3.800
3.625
99.6
39.4
17.8
74.3
19.3
27.5
178.3
53.4
53.4
1. USD denominated loan notes have a GBP equivalent underlying carrying value of £117.2m. The Group has entered into cross-currency interest rate swaps for the USD issues to achieve a
floating rate of interest based on SONIA. 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 £45.8m.
Notes to the consolidated financial statements
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 2021
Payments made
Additions
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
Business disposal
At 31 December 2021
Additions
Change in put-options recognised in other comprehensive income
Reclassification from other investment categories
Gain in fair value recognised in income statement
Gain in fair value recognised in other comprehensive income
At 31 December 2022
Maturity
27 October 2023
22 January 2025
22 April 2025
27 October 2026
22 January 2027
22 January 2023
27 October 2023
22 January 2025
27 October 2026
22 January 2027
Total GBP denominated
Total USD denominated1
10 November 2027
Total euro denominated2
Subsidiary
partnership
payment
£m
Put options
of non-
controlling
interests
£m
Investments
FVPL and
FVOCI
£m
27.1
(4.7)
—
—
—
—
—
0.4
(22.8)
—
—
—
—
—
—
—
99.7
—
(91.1)
—
—
—
—
—
—
8.6
0.6
—
—
—
—
9.2
2.3
—
—
0.3
4.3
2.2
0.1
—
—
9.2
—
2.3
0.4
5.9
0.2
18.0
Ccy’m
27.5
7.4
22.3
18.6
23.8
99.6
39.4
17.8
74.3
19.3
27.5
178.3
53.4
53.4
%
2.520
3.540
3.670
2.770
3.580
3.450
3.370
3.650
3.590
3.800
3.625
GBP
GBP
GBP
GBP
GBP
GBP
USD
USD
USD
USD
USD
USD
EUR
EUR
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 facility are shown in the above liquidity section (see note 4.5.2b).
Borrowing costs of £2.4m were capitalised in the year (2021: £1.9m). At 31 December 2022, the Group’s private placement loan note series
had a GBP equivalent underlying carrying value of £260.5m (2021: £484.8m) (see note 4.5.2a) analysed as follows:
Denomination
Interest rate
Nominal value
1. USD denominated loan notes have a GBP equivalent underlying carrying value of £117.2m. The Group has entered into cross-currency interest rate swaps for the USD issues to achieve a
floating rate of interest based on SONIA. 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 £45.8m.
Strategic report
Corporate governance
Financial statements
158
159
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
201
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
2022
£m
396.8
(219.6)
—
2021
£m
317.6
(231.9)
15.8
177.2
101.5
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
2022
№ m
2021
№ m
2022
£m
1,684.1 1,671.1
13.0
—
1,684.1
1,684.1
34.8
—
34.8
2022
£m
2021
£m
34.5
0.3
34.8
2021
£m
1,145.5 1,143.3
2.2
—
1,145.5 1,145.5
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
2022
№ m
2021
№ m
2022
£m
—
—
—
2.3
(2.3)
—
—
—
—
2021
£m
(0.1)
0.1
—
During the year, the Group did not purchase any treasury shares (2021: none) and did not allot nor issue any treasury shares (2021: 2,299,955
whose aggregate nominal value was £47,532). The total consideration received in respect of the shares allotted during 2021 was £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
2022
№ m
2021
№ m
2022
£m
2021
£m
18.1
—
(8.8)
9.3
12.6
13.0
(7.5)
18.1
(8.0)
—
3.8
(4.2)
(11.1)
(0.3)
3.4
(8.0)
The Group will use shares held in the Employee Benefit Trust (EBT) 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 (2021: nil) were allotted to the EBT for an aggregate
nominal value of £268,667 to satisfy exercises under the Group’s share plans. The total consideration received in respect of these shares was
£268,667. During the year, 8,770,217 (2021: 7,560,173) shares with a value of £3.8m (2021: £3.4m) 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
(2021: £nil).
The Group has an unexpired authority to repurchase up to 10% of its issued share capital.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
202
Strategic report
Corporate governance
Financial statements
160
Section 4: Capital structure and financing costs continued
4.7 Group composition and non-controlling interests
The Group’s subsidiaries are listed in notes 7.3.4 and 7.3.17 of the Parent Company financial statements on pages 219 and 224 to 227.
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.
Strategic report
Corporate governance
Financial statements
160
161
Capita plc Annual Report 2022
203
Capita plc
Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Notes to the consolidated financial statements
4.7 Group composition and non-controlling interests
The Group’s subsidiaries are listed in notes 7.3.4 and 7.3.17 of the Parent Company financial statements on pages 219 and 224 to 227.
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.
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
Denotes accounting policies
J
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Additional funding into
the defined benefit schemes
Net defined benefit pension surplus
£38.6m £39.6m
(2021: £155.5m)
(2021: surplus £5.8m)
Employee benefit expense
£1,758.1m
(2021: £1,767.1m)
The net defined benefit pension position on an accounting basis moved from a small net asset at the start of the year to a larger net asset by
31 December 2022. As part of the deficit funding plan £38.6m of additional funding was paid into the defined benefit schemes.
Net defined benefit pension asset
Defined benefit obligation
Fair value of plan assets
Net defined pension asset after effect of asset ceiling limit
2022
£m
2021
£m
(1,136.1) (1,791.5)
1,175.7 1,797.3
5.8
39.6
Movement
£m
655.4
(621.6)
33.8
The main reason for the movement in the net defined benefit pension position was the deficit funding contributions (£38.6m) paid into the
Capita Pension and Life Assurance Scheme (CPLAS) (plus a net £0.2m deficit funding contribution in respect of other schemes). Both the
value attributed to the pension liabilities and the value of the assets fell materially over the year predominantly due to the material increase in
the yields available on both long-dated Government and corporate bonds. Due to the investment strategy adopted by the CPLAS Trustee
Board the impact of these changes has been broadly hedged so that the value of the assets has moved to a similar degree to the value of the
liabilities. The schemes are highly sensitive to the change in discount rates (with a 0.5% pa change resulting in a c.£87.5m impact) and in
future inflation expectations (with a 0.5% pa change resulting in a c.£48.8m impact).
The 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 are scheme specific and 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 2022 the net asset of the CPLAS scheme was broadly the same on a funding basis (ie the funding assumption principles adopted
for the full actuarial valuation at 31 March 2020) as that on an accounting basis.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
204
Strategic report
Corporate governance
Financial statements
162
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 2022
was £5.4m (2021: £1.2m), 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 99 to 122).
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 2022 was £0.22 (2021: £0.33). The weighted average share price during
the year was £0.26 (2021: £0.43).
The total cash value of the deferred shares awarded during the year was £0.2m (2021: £nil).
Long-term incentive plans (LTIPs)
The structure of the Group’s LTIP schemes was approved at the Company’s AGM in 2017. From 2021, no new awards will be granted under
the LTIP although the 2020 awards are yet to vest.
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;
six 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; eight 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 net debt. Threshold vesting (25%) is dependent on 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.
Details of the LTIP awards made to executive directors over the same period are set out in the directors’ remuneration report, on page 115.
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.
Notes to the consolidated financial statements
Section 5: Employee benefits continued
5.1 Share-based payment plans
The Group operates a number of executive and employee equity-settled share schemes.
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 2022
was £5.4m (2021: £1.2m), 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 99 to 122).
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 2022 was £0.22 (2021: £0.33). The weighted average share price during
the year was £0.26 (2021: £0.43).
The total cash value of the deferred shares awarded during the year was £0.2m (2021: £nil).
The structure of the Group’s LTIP schemes was approved at the Company’s AGM in 2017. From 2021, no new awards will be granted under
Long-term incentive plans (LTIPs)
the LTIP although the 2020 awards are yet to vest.
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;
six 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; eight 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 net debt. Threshold vesting (25%) is dependent on 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.
Details of the LTIP awards made to executive directors over the same period are set out in the directors’ remuneration report, on page 115.
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.
Strategic report
Corporate governance
Financial statements
162
163
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
205
Section 5: Employee benefits continued
5.1 Share-based payment plans continued
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 and 2022 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 116.
Outstanding at 1 January
Awarded during the year
Exercised
Forfeited
Outstanding at 31 December
Exercisable at 31 December
2022
№ m
46.4
28.5
(8.8)
(24.4)
2021
№ m
48.5
15.8
(9.8)
(8.1)
41.7
46.4
—
—
The weighted average remaining contractual life of the above shares outstanding at 31 December 2022 was 1.3 years (2021: 1.0 years).
All schemes
The fair value of the options granted/awarded during the year was £0.22 per share (2021: £0.41 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.
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.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
206
Strategic report
Corporate governance
Financial statements
164
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 retained the assumed difference between RPI and CPI at an average of 0.65%pa.
Short-term inflation expectations continued to rise due to the global economic recovery from the initial phase of Covid-19, combined with supply
constraints in certain sectors such as energy. Current inflation levels exceed 10% pa. This will have an impact on pension increases that are
linked to inflation and this impact, where applicable, has been reflected in the disclosures. It should be noted that a material proportion of
pension increases are capped (at different levels, but the main cap is 5% pa) with some caps applying annually and others applying over a
period of years.
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 experiences in 2020
and 2021 are a short-term phenomenon, 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; however, some allowance has been reflected for actual mortality experienced in
2020 and 2021 by making a refinement in an initial addition parameter used in the future mortality improvement assumptions from 0.5% to
0.25% (which makes an allowance for a decrease in initial rates of longevity improvement stemming from Covid-19) and which results in the life
expectancy reducing by around 0.1 years (around 0.4% of liabilities).
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
2022
£m
55.2
4.4
3.9
0.6
0.1
(3.6)
5.4
2021
£m
60.2
6.3
3.5
(0.2)
(0.7)
1.5
10.4
Total charged to profit before tax in the consolidated income statement
60.6
70.6
At 31 December 2022, retirement obligations were disclosed in relation to 9 (2021: 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 200 members
continuing to accrue benefits – out of a total membership of around 16,600 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%).
Notes to the consolidated financial statements
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 retained the assumed difference between RPI and CPI at an average of 0.65%pa.
Short-term inflation expectations continued to rise due to the global economic recovery from the initial phase of Covid-19, combined with supply
constraints in certain sectors such as energy. Current inflation levels exceed 10% pa. This will have an impact on pension increases that are
linked to inflation and this impact, where applicable, has been reflected in the disclosures. It should be noted that a material proportion of
pension increases are capped (at different levels, but the main cap is 5% pa) with some caps applying annually and others applying over a
period of years.
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 experiences in 2020
and 2021 are a short-term phenomenon, 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; however, some allowance has been reflected for actual mortality experienced in
2020 and 2021 by making a refinement in an initial addition parameter used in the future mortality improvement assumptions from 0.5% to
0.25% (which makes an allowance for a decrease in initial rates of longevity improvement stemming from Covid-19) and which results in the life
expectancy reducing by around 0.1 years (around 0.4% of liabilities).
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
2022
£m
55.2
4.4
3.9
0.6
0.1
(3.6)
5.4
2021
£m
60.2
6.3
3.5
(0.2)
(0.7)
1.5
10.4
Total charged to profit before tax in the consolidated income statement
60.6
70.6
At 31 December 2022, retirement obligations were disclosed in relation to 9 (2021: 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 200 members
continuing to accrue benefits – out of a total membership of around 16,600 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
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%
independent Trustee.
investment strategy.
(31 March 2017: 86%).
Strategic report
Corporate governance
Financial statements
164
165
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
207
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
2022
20232
£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 Capita Scotland (Pension) Limited Partnership, and in respect of a section 75 debt. The Trustee Board
has agreed with the Group to accelerate the payment of some of the deficit contributions on a pound for pound basis in the event of disposal proceeds being used to fund mandatory
prepayments of debt.
2. In addition, in 2023, the £5.0m held in escrow at 31 December 2022 is expected to 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 with a low dependency covenant 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 2022 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 2022, showed a funding level of 104% on a Technical Provisions basis.
The Group expects to contribute around £52m to the CPLAS during 2023. This includes the acceleration of agreed deficit contributions on a
pound for pound basis as noted above.
Other defined benefit schemes
The total employer contributions to the ‘Other’ schemes during 2023 are estimated to be £3m.
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 at 16 January 2020 had
been carried out and an exit credit payment of £192,587 was due from the scheme to the Group. The payment was received by the Group on
17 March 2022 and no further amounts are due to the Group with the scheme’s assessed liability to the Group now settled.
Other UK schemes
• Three segregated sections in an industry-wide scheme under which defined benefits are not continuing to accrue. 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. The actuarial valuations as at 31
December 2021 are currently in progress and as part of those valuations the contribution requirements will be reviewed, and if necessary,
amended. 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 2021, this was estimated at £8.9m.
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 2022) 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.
Additional defined benefit schemes
There are a further 46 (2021: 48) defined benefit pension arrangements in which various Capita businesses participated during 2022. Of these
arrangements, 41 (2021: 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 £12m of employer contributions were paid to these 46 schemes during 2022.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
208
Strategic report
Corporate governance
Financial statements
166
Section 5: Employee benefits continued
5.2 Pensions continued
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.
Environmental Social and Governance (ESG) risk: ESG risk relates to these issues having a detrimental impact on financial returns. The
fiduciary manager has policies in place to reduce this risk, although there is a higher risk in older externally held assets.
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 2022 of £50.1m
(2021: £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. At
31 December 2022 around 95% of CPLAS’s liabilities measured on the Trustee Board’s long-term funding basis was hedged. As the funding
level improves it is planned to further increase the level of hedging. Despite the market volatility during the last quarter of 2022, the CPLAS held
sufficient liquid assets to meet its collateral calls and maintain its hedged positions throughout the year, as well as holding a sufficient buffer
against future adverse movements. The fiduciary manager has confirmed that the investment strategy held up well despite the market volatility
and that they continue as planned with the current strategy (which involved the selling down of more illiquid holdings in any event).
The hedging aims to match the value of the assets to the movement in liabilities (on a funding basis) 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. Although
credit spreads (difference between the yields available on long-dated corporate bonds and long-dated government bonds) have been volatile
over the year, they have fallen back down towards levels seen at the start of the year. This means that the hedge has broadly had the same
impact on the funding position of the scheme and the accounting disclosures at the year-ends.
To illustrate how sensitive the value of the defined benefit obligations is to different market conditions, the table below shows what the resulting
defined benefit obligation would be if the assumptions were changed as shown (assuming all other assumptions remain constant):
Change in assumptions compared with 31 December 2022 actuarial assumptions
Base defined benefit obligation
0.5% pa decrease in discount rate
0.5% pa increase in salary increases
0.5% pa increase in inflation (and related assumption, eg salary and pension increases)
1 year increase in life expectancy
Group Total
£m
1,136.1
1,223.6
1,137.4
1,184.9
1,169.7
Due to the higher interest rate environment and recent market volatility, please note the change in method used to prepare the sensitivity
analysis (analysis from 0.1% pa to 0.5% pa).
Notes to the consolidated financial statements
Section 5: Employee benefits continued
5.2 Pensions continued
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.
Environmental Social and Governance (ESG) risk: ESG risk relates to these issues having a detrimental impact on financial returns. The
fiduciary manager has policies in place to reduce this risk, although there is a higher risk in older externally held assets.
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:
(2021: £67.8m).
• 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 2022 of £50.1m
• 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. At
31 December 2022 around 95% of CPLAS’s liabilities measured on the Trustee Board’s long-term funding basis was hedged. As the funding
level improves it is planned to further increase the level of hedging. Despite the market volatility during the last quarter of 2022, the CPLAS held
sufficient liquid assets to meet its collateral calls and maintain its hedged positions throughout the year, as well as holding a sufficient buffer
against future adverse movements. The fiduciary manager has confirmed that the investment strategy held up well despite the market volatility
and that they continue as planned with the current strategy (which involved the selling down of more illiquid holdings in any event).
The hedging aims to match the value of the assets to the movement in liabilities (on a funding basis) 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. Although
credit spreads (difference between the yields available on long-dated corporate bonds and long-dated government bonds) have been volatile
over the year, they have fallen back down towards levels seen at the start of the year. This means that the hedge has broadly had the same
impact on the funding position of the scheme and the accounting disclosures at the year-ends.
To illustrate how sensitive the value of the defined benefit obligations is to different market conditions, the table below shows what the resulting
defined benefit obligation would be if the assumptions were changed as shown (assuming all other assumptions remain constant):
Change in assumptions compared with 31 December 2022 actuarial assumptions
Base defined benefit obligation
0.5% pa decrease in discount rate
0.5% pa increase in salary increases
1 year increase in life expectancy
0.5% pa increase in inflation (and related assumption, eg salary and pension increases)
Group Total
£m
1,136.1
1,223.6
1,137.4
1,184.9
1,169.7
Due to the higher interest rate environment and recent market volatility, please note the change in method used to prepare the sensitivity
analysis (analysis from 0.1% pa to 0.5% pa).
Strategic report
Corporate governance
Financial statements
166
167
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
209
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
(before effect of asset ceiling limit)
Effect of asset ceiling limit
Present value of scheme liabilities
(after effect of asset ceiling limit)
Net surplus
(after effect of asset ceiling limit)
Quoted
£m
Unquoted
£m
0.2
2.0
0.2
2.4
482.0
0.4
10.1
0.9
0.5
—
—
493.9
2.6
1.5
2.7
—
0.1
—
—
34.3
(8.5)
32.7
529.0
2.5
24.8
—
27.3
—
11.6
11.4
101.0
27.3
134.5
39.8
325.6
88.2
—
—
2.1
—
—
71.4
133.2
(1.1)
293.8
646.7
2022
Total
£m
2.7
26.8
0.2
29.7
482.0
12.0
21.5
101.9
27.8
134.5
39.8
819.5
90.8
1.5
2.7
2.1
0.1
—
71.4
167.5
(9.6)
326.5
1,175.7
(1,136.0)
39.7
(0.1)
(1,136.1)
39.6
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
Group total
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
* Some investments are in funds which are in themselves not traded in active markets. Please also note a change in asset classification for CPLAS’s Credit Funds (£93.0m) and Diversified
Growth Funds (£56.8m) as at 31 December 2022 which are now classified on a ‘look-through’ basis.
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
168
210
Section 5: Employee benefits continued
5.2 Pensions continued
The CPLAS Trustee Board 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 (on a funding basis) 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 2022
(approximately £484.3m) has been mapped as 97.0% Quoted UK Government Bonds, 1.7% Quoted Overseas Government Bonds, 3.1%
Quoted Cash and -1.8% Quoted Other.
The assets do not include any directly owned financial instruments issued by the Group.
Within the Private Debt allocation, approximately £97.3m relates to lagged valuations as at 30 September 2022. Allowance has been made for
broad market movements and distributions over the period to 31 December 2022.
In accordance with the CPLAS Trustee Board’s focus on financially material considerations, it is acknowledged that Environment, Social and
Governance (ESG) factors can impact security prices. The CPLAS Trustee Board has discussed their views on ESG factors, and considered
the Group’s perspective, and developed responsible investment beliefs. These can be found in the CPLAS’s Statement of Investment
Principles (which can be found at https://www.cplas-pension.co.uk/library).
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
marginally increase the deficits shown at this balance sheet date for only one scheme, which is reflected in the balance sheet position. For the
CPLAS, the Group’s main defined benefit scheme, IFRIC 14 would not limit the surplus or increase the deficits shown at the balance sheet date
because the Group has an unconditional right to a refund at some point during the life of the scheme.
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: approximately £0.1m as
at 31 December 2022 (£nil as at 31 December 2021).
Notes to the consolidated financial statements
Section 5: Employee benefits continued
5.2 Pensions continued
The CPLAS Trustee Board 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 (on a funding basis) 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 2022
(approximately £484.3m) has been mapped as 97.0% Quoted UK Government Bonds, 1.7% Quoted Overseas Government Bonds, 3.1%
Quoted Cash and -1.8% Quoted Other.
The assets do not include any directly owned financial instruments issued by the Group.
Within the Private Debt allocation, approximately £97.3m relates to lagged valuations as at 30 September 2022. Allowance has been made for
broad market movements and distributions over the period to 31 December 2022.
In accordance with the CPLAS Trustee Board’s focus on financially material considerations, it is acknowledged that Environment, Social and
Governance (ESG) factors can impact security prices. The CPLAS Trustee Board has discussed their views on ESG factors, and considered
the Group’s perspective, and developed responsible investment beliefs. These can be found in the CPLAS’s Statement of Investment
Principles (which can be found at https://www.cplas-pension.co.uk/library).
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
marginally increase the deficits shown at this balance sheet date for only one scheme, which is reflected in the balance sheet position. For the
CPLAS, the Group’s main defined benefit scheme, IFRIC 14 would not limit the surplus or increase the deficits shown at the balance sheet date
because the Group has an unconditional right to a refund at some point during the life of the scheme.
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: approximately £0.1m as
at 31 December 2022 (£nil as at 31 December 2021).
Strategic report
Corporate governance
Financial statements
168
169
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
211
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:
Defined benefit obligation
Fair value of plan assets
Net defined obligation
Group total
At 1 January
Included in the consolidated income statement:
Current service cost
Administration costs
Past service cost
Effect of settlements
Interest income/(expense)*
Sub-total in consolidated income statement
Included in other comprehensive income:
Actuarial gain/(loss) 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 contributions
Contributions by employees
Benefits paid
Exchange movement - recognised in other comprehensive income
2022
£m
2021
£m
(1,791.5) (1,882.3)
2022
£m
2021
£m
1,797.3 1,630.2
2022
£m
5.8
2021
£m
(252.1)
(4.4)
(3.9)
(0.6)
0.1
(44.0)
(52.8)
6.8
706.1
(50.4)
2.3
—
664.8
(0.2)
(1.7)
47.8
(2.5)
(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
—
—
—
(0.2)
47.6
47.4
—
—
—
—
(673.7)
(673.7)
48.7
1.7
(47.8)
2.1
—
—
—
(4.8)
26.0
21.2
—
—
—
—
34.8
34.8
158.9
1.6
(48.8)
(0.6)
(4.4)
(3.9)
(0.6)
(0.1)
3.6
(5.4)
6.8
706.1
(50.4)
2.3
(673.7)
(8.9)
48.5
—
—
(0.4)
(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
—
—
—
At 31 December
Schemes in a net surplus
CPLAS
Other schemes
Schemes in a net deficit
Other schemes
At 31 December
(1,136.1) (1,791.5)
1,175.7 1,797.3
39.6
5.8
(1,087.0) (1,725.3)
(23.8)
(1,102.2) (1,749.1)
(15.2)
1,126.3 1,732.5
29.9
1,144.9 1,762.4
18.6
(33.9)
(33.9)
(42.4)
(42.4)
30.8
30.8
34.9
34.9
(1,136.1) (1,791.5)
1,175.7 1,797.3
39.3
3.4
42.7
(3.1)
(3.1)
39.6
7.2
6.1
13.3
(7.5)
(7.5)
5.8
*includes impact of asset ceiling on net interest of £0.1m in 2022 (2021: £nil).
Of the total pension cost of £5.4m (2021: £10.4m), £5.1m (2021: £5.4m) was included in cost of sales, £3.9m (2021: £3.5m) was included in
administrative expenses, and, in net finance costs: £3.6m of net interest income (2021: £1.5m of net interest expense).
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
%
2022
6
59
35
Proportion
of overall
liability
%
2021
5
63
32
Duration
(years)
2022
16.9
18.0
10.6
100
15.5
100
Duration
(years)
2021
21.4
22.8
13.0
19.6
Duration is a weighted average of when benefits are expected to be paid from a pension scheme. It is sensitive to the interest rate used to
calculate it. The increase in yields has acted to reduce the duration of the CPLAS (as less weight is placed of the pension cash flows stretching
far out into the future).
Financial
Notes to the consolidated financial statements
statements
Notes to the
consolidated
financial statements
Capita plc
Annual Report 2022
Strategic report
Corporate governance
Financial statements
170
212
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
2021
%
3.30
2.65
3.30
3.20
2.20
2.65
1.90
85.00
2022
%
3.15
2.50
3.15
3.05
2.15
2.50
4.75
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 3.8% per annum
and for the Swiss schemes it is 2.2% per annum in 2022.
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 2022 and 31 December 2021 are as follows:
Member currently aged 65 (current life expectancy)
Member currently aged 45 (life expectancy at 65)
2022
22.4
21.1 to 22.7
Male
2021
22.5
21.6 to 22.6
2022
24.3
23.7 to 24.5
Female
2021
24.4
23.5 to 24.4
2022
22.3
22.3 to 25.0
Male
2021
22.4
22.4 to 24.9
2022
25.2
25.2 to 26.5
Female
2021
25.3
25.1 to 26.4
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 (CMI 2021 core model
Sk=7.0) with a long-term rate of improvement of 1.25% p.a., an ‘A’ parameter of 0.25% for both males and females and no weighting applied to 2020 and 2021 data). 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.
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 salaries1
Social security costs
Pension costs
Share-based payments
2022
£m
2021
£m
(Re-
presented)1
1,536.1 1,540.9
155.9
69.1
1.2
152.4
64.2
5.4
Notes
5.1
1. The 2021 comparative figures have been re-presented to reflect the reclassification of employee contributions from pension costs to wages and salaries.
During 2021, 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 were treated as a government grant and deducted
from the relevant cost in the consolidated income statement. During 2021, the Group claimed £4.9m under CJRS. These amounts are included
within the relevant cost headings in the table above. In May 2022, we announced the Group's intention to repay the amounts received in 2021
under CJRS at the end of the Group's publicly stated disposal programme and no later than the end of June 2023. An accrual has been
recognised for this repayment in the year ended 31 December 2022.
1,758.1 1,767.1
Strategic report
Corporate governance
Financial statements
170
171
Capita plc Annual Report 2022
Financial
Notes to the consolidated financial statements continued
statements
Capita plc
Annual Report 2022
Notes to the
consolidated
financial statements
213
Section 5: Employee benefits continued
5.3 Employee benefit expense continued
The aggregate amount of directors’ remuneration (salary, bonus and benefits) is shown on page 111 of the directors’ remuneration report.
•
•
•
The aggregate amount of gains made by directors on exercise of share options was £119,102 (2021: £nil) (refer to note 6.1).
The remuneration of the highest paid director was £1,767,972 (2021: £1,185,415).
Payments have been made to a defined contribution pension scheme on behalf of five directors (2021: four directors). For the
highest paid director, pension contributions of £37,400 (2021: £36,250) were made.
The average number of employees during the year was made up as follows:
Sales
Administration
Operations
2022
Number
598
3,093
47,509
2021
Number
766
3,259
49,305
51,200
53,330
All schemes
2021
%
3.30
2.65
3.30
3.20
2.20
2.65
1.90
2022
%
3.15
2.50
3.15
3.05
2.15
2.50
4.75
Notes to the consolidated financial statements
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
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 3.8% per annum
and for the Swiss schemes it is 2.2% per annum in 2022.
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 2022 and 31 December 2021 are as follows:
Member currently aged 65 (current life expectancy)
Member currently aged 45 (life expectancy at 65)
2022
22.4
Male
2021
22.5
2022
24.3
Female
2021
24.4
2022
22.3
Male
2021
22.4
2022
25.2
Female
2021
25.3
21.1 to 22.7
21.6 to 22.6
23.7 to 24.5
23.5 to 24.4
22.3 to 25.0
22.4 to 24.9
25.2 to 26.5
25.1 to 26.4
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 (CMI 2021 core model
Sk=7.0) with a long-term rate of improvement of 1.25% p.a., an ‘A’ parameter of 0.25% for both males and females and no weighting applied to 2020 and 2021 data). 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.
5.3 Employee benefit expense
Accounting policies
Government grants
Wages and salaries1
Social security costs
Pension costs
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.
2021
£m
(Re-
2022
£m
presented)1
Notes
1,536.1 1,540.9
152.4
155.9
64.2
5.4
69.1
1.2
1,758.1 1,767.1
5.1
1. The 2021 comparative figures have been re-presented to reflect the reclassification of employee contributions from pension costs to wages and salaries.
During 2021, 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 were treated as a government grant and deducted
from the relevant cost in the consolidated income statement. During 2021, the Group claimed £4.9m under CJRS. These amounts are included
within the relevant cost headings in the table above. In May 2022, we announced the Group's intention to repay the amounts received in 2021
under CJRS at the end of the Group's publicly stated disposal programme and no later than the end of June 2023. An accrual has been
recognised for this repayment in the year ended 31 December 2022.
Financial
statements
Notes to the
consolidated
financial statements
Strategic report
Corporate governance
Financial statements
Capita plc
Annual Report 2022
172
214
Section 6: Other supporting notes
This section includes disclosures of those items that are not explained elsewhere in the financial statements.
In this section you will find disclosures about:
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
2022
£m
7.6
—
2.2
9.8
2021
£m
12.7
—
0.3
13.0
Gains on share options exercised in the year by Capita plc executive directors were £119,102 (2021: £nil) and by key management personnel
£396,621 (2021: £1,132,231), totalling £515,723 (2021: £1,132,231).
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 £112.0m (2021: £90.1m) 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 £34.0m (2021: £28.7m).
The Group is reviewing its position in respect of a number of its closed book Life & Pensions contracts. The outcomes and timing of this review,
which are uncertain, could result in 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 2022, and before the approval of these consolidated financial statements, but have not
resulted in adjustment to the 2022 financial results:
Committed bridge facility
In February 2023, the Group entered into a committed bridge facility of £50m with three of its relationship banks providing additional liquidity
from 1 January 2024. The committed bridge facility has an expiry date of 31 December 2024 and is subject to covenants, which are the same
as those in the Revolving Credit Facility (RCF). Both the RCF and the £50m bridge facility incorporate provisions such that they will partially
reduce in quantum as a consequence of specified transactions including disposals, equity-raises or other refinancing.
Strategic report
Corporate governance
Financial statements
172
173
Capita plc Annual Report 2022
Company
Financial
Company financial statements
financial statements
statements
Capita plc
Annual Report 2022
215
Section 6: Other supporting notes
Section 7: Company financial statements
This section includes disclosures of those items that are not explained elsewhere in the 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
Amounts owed by subsidiary companies
Trade and other receivables
Current assets
Financial assets
Amounts owed by subsidiary companies
Trade and other receivables
Income tax receivable
Cash
Total assets
Current liabilities
Amounts owed to subsidiary companies
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
2022
£m
2021
£m
7.3.2
7.3.3
7.3.4
7.3.5
7.3.6
7.3.7
7.3.8
—
26.8
0.8
13.2
994.3
947.3
20.8
22.0
11.2
12.7
64.4
—
—
0.1
1,091.5 1,022.1
7.3.5
10.9
15.7
7.3.7 2,494.8 2,619.8
1.6
13.1
7.3.8
33.6
59.3
—
—
2,545.7 2,703.1
3,637.2 3,725.2
7.3.7 2,302.7 2,086.8
7.9
7.3.9
41.7
31.0
196.2
5.2
8.2
2,348.4 2,377.0
9.6
16.6
14.6
—
0.1
4.8
7.3.11
7.3.5
7.3.10
7.3.9
7.3.11
7.3.5
—
44.2
1.0
45.2
0.3
51.7
3.6
55.6
2,393.6 2,432.6
1,243.6 1,292.6
34.8
(4.2)
34.8
7.3.12
7.3.12
(8.0)
7.3.12 1,145.5 1,145.5
1.8
44.6
(0.7)
74.6
1.8
44.6
—
21.1
1,243.6 1,292.6
The Company’s loss after taxation was £55.1m (2021: £198.0m loss).
The accompanying notes form part of the financial statements.
The accounts were approved by the Board of directors on 2 March 2023 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
In this section you will find disclosures about:
6.1 Related-party transactions
6.2 Contingent liabilities
6.3 Post balance sheet events
Denotes accounting policies
6.1 Related-party transactions
Compensation of key management personnel
Short-term employment benefits
Pension
Share-based payments
2022
£m
7.6
—
2.2
9.8
2021
£m
12.7
—
0.3
13.0
Gains on share options exercised in the year by Capita plc executive directors were £119,102 (2021: £nil) and by key management personnel
£396,621 (2021: £1,132,231), totalling £515,723 (2021: £1,132,231).
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 £112.0m (2021: £90.1m) 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 £34.0m (2021: £28.7m).
The Group is reviewing its position in respect of a number of its closed book Life & Pensions contracts. The outcomes and timing of this review,
which are uncertain, could result in 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.
The following events occurred after 31 December 2022, and before the approval of these consolidated financial statements, but have not
6.3 Post balance sheet events
resulted in adjustment to the 2022 financial results:
Committed bridge facility
In February 2023, the Group entered into a committed bridge facility of £50m with three of its relationship banks providing additional liquidity
from 1 January 2024. The committed bridge facility has an expiry date of 31 December 2024 and is subject to covenants, which are the same
as those in the Revolving Credit Facility (RCF). Both the RCF and the £50m bridge facility incorporate provisions such that they will partially
reduce in quantum as a consequence of specified transactions including disposals, equity-raises or other refinancing.
174
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Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
216
Section 7: Company financial statements continued
7.2 Company statement of changes in equity
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
Exercise of share options under employee long-term
incentive plans
Share-based payment net of tax effects
At 1 January 2022
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Shares issued
Exercise of share options under employee long-term
incentive plans
Share-based payment net of tax effects
At 31 December 2022
1. The directors did not declare a dividend in 2022 or 2021.
Employee
benefit trust
and treasury
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
1.8
—
—
—
—
—
Merger
reserve
£m
44.6
—
—
—
—
—
Cash flow
hedging
reserve
£m
(4.6)
—
3.9
3.9
—
—
Retained
earnings
£m
Total
£m
274.5 1,482.9
(198.0)
(198.0)
3.9
—
(194.1)
(198.0)
—
—
2.2
—
—
—
1.8
—
—
—
—
—
—
1.8
—
—
44.6
—
—
—
—
—
—
44.6
—
—
(0.7)
—
0.7
0.7
—
—
—
—
(3.5)
1.6
—
1.6
74.6 1,292.6
(55.1)
(55.1)
0.7
—
(54.4)
(55.1)
—
—
(3.8)
5.4
—
5.4
21.1 1,243.6
(11.2) 1,143.3
—
—
—
—
2.2
—
—
—
(0.3)
—
3.5
—
—
—
(8.0) 1,145.5
—
—
—
—
—
—
—
—
3.8
—
—
—
(4.2) 1,145.5
Share
capital
£m
34.5
—
—
—
0.3
—
—
—
34.8
—
—
—
—
—
—
34.8
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 of 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.
174
Capita plc Annual Report 2022
175
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
217
Section 7: Company financial statements continued
7.2 Company statement of changes in equity
Section 7: Company financial statements continued
7.3 Notes to the Company financial statements
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
Exercise of share options under employee long-term
Share-based payment net of tax effects
incentive plans
At 1 January 2022
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Shares issued
incentive plans
Exercise of share options under employee long-term
Share-based payment net of tax effects
At 31 December 2022
1. The directors did not declare a dividend in 2022 or 2021.
Employee
benefit trust
and treasury
shares
£m
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Total
£m
34.5
(11.2) 1,143.3
1.8
44.6
(4.6)
274.5 1,482.9
34.8
(8.0) 1,145.5
1.8
44.6
(0.7)
74.6 1,292.6
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
—
—
(0.3)
—
3.5
—
—
—
—
—
3.8
—
—
—
—
—
2.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(198.0)
(198.0)
—
3.9
(198.0)
(194.1)
3.9
3.9
—
—
—
—
—
0.7
0.7
—
—
—
—
—
—
(3.5)
1.6
—
2.2
—
1.6
(55.1)
(55.1)
—
0.7
(55.1)
(54.4)
—
—
(3.8)
5.4
—
5.4
21.1 1,243.6
34.8
(4.2) 1,145.5
1.8
44.6
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 of 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.
7.3.1 Accounting policies
AP
Accounting policies
Basis of preparation
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of UK-adopted
international accounting standards, 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.
(a) Investments in subsidiaries
J
Significant accounting judgements, estimates and assumptions
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 defined contribution scheme where contributions are charged to the profit and loss account in the year in which
they are due. The scheme is funded and the payment of contributions is made to a separately administered trust fund. The assets of the
scheme 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.
The last remaining active employee transferred to a subsidiary company on 1 November 2022. Since the Company no longer has any active
members in the Capita DB Scheme, this triggered a cessation event which means a Section 75 debt (which is a statutory debt due from a
participating employer to the trustees of a multi-employer defined benefit pension scheme which is in deficit) became due. However, the
Trustee Board of the Capita DB Scheme has agreed that the pension liabilities attributable to the Company can be transferred to Capita
Business Services Limited (the Principal Employer of the Capita DB Scheme), which will remove the Section 75 debt due from the Company.
This Flexible Apportionment Arrangement (FAA) is expected to be finalised in 2023. Following the finalisation of the FAA, the Company will no
longer be a formal participating employer in the Capita DB Scheme.
Since 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 Capita Business Services Limited. The Company then recognises a cost
equal to its contribution payable for the applicable 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 with 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 full actuarial valuation 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 qualified 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, Capita Business Services Limited has agreed to make additional, non-statutory, contributions of £15m each year in
2024, 2025 and 2026 to meet a secondary funding target.
176
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statements
Company
financial statements
Capita plc
Annual Report 2022
218
Section 7: Company financial statements continued
7.3.1 Accounting policies continued
The Trustee Board has agreed with Capita Business Services Limited to accelerate the payment of some of the deficit contributions on a pound
for pound basis in the event of disposal proceeds being used to fund mandatory prepayments of debt.
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 about the pension obligations.
(c) Share-based payments
Subsidiary companies 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 companies
J
Significant accounting judgements, estimates and assumptions
The amounts owed by and to subsidiary companies are shown at cost plus accrued interest less any provision for impairment. Amounts owed
by subsidiary companies 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 companies 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 counterparty 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 either based on repayment on
demand or fixed term loan 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.
7.3.2 Intangible assets
Cost
At 1 January 2022
Intragroup transfer
Retirement
At 31 December 2022
Amortisation
At 1 January 2022
Charge for the year
Intragroup transfer
Retirement
At 31 December 2022
Net book value:
At 1 January 2022
At 31 December 2022
Capitalised
software
development
£m
Other
intangibles
£m
Total
£m
47.5
(46.8)
(0.7)
—
20.7
6.0
(26.3)
(0.4)
—
15.7
(15.7)
—
—
9.5
0.9
(10.4)
—
—
6.2
—
26.8
—
31.8
(31.1)
(0.7)
—
11.2
5.1
(15.9)
(0.4)
—
20.6
—
On 1 November 2022, certain tangible and intangible assets were transferred to Capita Shared Services Limited (a wholly owned subsidiary of
the Company) as part of a Group reorganisation. All the assets were transferred at their net book value, with the consideration remaining
outstanding as an inter-company loan.
Other intangibles relates to software purchased from third parties.
176
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Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
219
Section 7: Company financial statements continued
7.3.1 Accounting policies continued
Section 7: Company financial statements continued
7.3.3 Tangible assets
The Trustee Board has agreed with Capita Business Services Limited to accelerate the payment of some of the deficit contributions on a pound
for pound basis in the event of disposal proceeds being used to fund mandatory prepayments of debt.
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 about the pension obligations.
Subsidiary companies of the Company reimburse the Company through the intercompany account for charges attributable to their employees
(c) Share-based payments
participating in the Company’s share schemes.
(d) Amounts owed by/to subsidiary companies
Significant accounting judgements, estimates and assumptions
The amounts owed by and to subsidiary companies are shown at cost plus accrued interest less any provision for impairment. Amounts owed
by subsidiary companies 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 companies 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 counterparty 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 either based on repayment on
demand or fixed term loan 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.
7.3.2 Intangible assets
Cost
At 1 January 2022
Intragroup transfer
Retirement
At 31 December 2022
Amortisation
At 1 January 2022
Charge for the year
Intragroup transfer
Retirement
At 31 December 2022
Net book value:
At 1 January 2022
At 31 December 2022
Capitalised
software
development
£m
Other
intangibles
£m
31.8
(31.1)
(0.7)
—
11.2
5.1
(0.4)
—
20.6
—
15.7
(15.7)
—
—
9.5
0.9
—
—
6.2
—
(15.9)
(10.4)
Total
£m
47.5
(46.8)
(0.7)
—
20.7
6.0
(26.3)
(0.4)
—
26.8
—
On 1 November 2022, certain tangible and intangible assets were transferred to Capita Shared Services Limited (a wholly owned subsidiary of
the Company) as part of a Group reorganisation. All the assets were transferred at their net book value, with the consideration remaining
outstanding as an inter-company loan.
Other intangibles relates to software purchased from third parties.
Cost
At 1 January 2022
Additions
Intragroup transfer
Asset retirements
At 31 December 2022
Depreciation
At 1 January 2022
Charge for the year
Intragroup transfer
Asset retirements
At 31 December 2022
Net book value:
At 1 January 2022
At 31 December 2022
Computer
equipment
£m
Short-term
leasehold
improvements
£m
Equipment
right-of-use
asset
£m
22.2
3.0
(23.9)
(1.3)
—
9.8
4.7
(13.2)
(1.3)
—
12.4
—
1.3
0.1
0.1
(0.1)
1.4
0.5
0.3
(0.1)
(0.1)
0.6
0.8
0.8
0.4
—
—
—
0.4
0.4
—
—
—
0.4
—
—
Total
£m
23.9
3.1
(23.8)
(1.4)
1.8
10.7
5.0
(13.3)
(1.4)
1.0
13.2
0.8
On 1 November 2022, certain tangible and intangible assets were transferred to Capita Shared Services Limited (a wholly owned subsidiary of
the Company) as part of a Group reorganisation. All the assets were transferred at their net book value, with the consideration remaining
outstanding as an inter-company loan.
7.3.4 Investments
Net book value
At 1 January 2022
Additions1
Impairment2
At 31 December 2022
Shares in
subsidiary
undertakings
£m
947.3
54.0
(7.0)
994.3
1. During the year ended 31 December 2022, Capita plc invested £54.0m in Capita Life & Pensions Regulated Services Limited.
2. During the year ended 31 December 2022, Capita plc impaired its investments in Capita Financial Services Holdings Limited by £6.4m and Capita Employee Benefits Holdings Limited by
£0.6m.
Direct investments
Capita Pension Solutions Limited2
Capita Legal Services Limited1
Capita Employee Benefits Holdings Limited1
Capita Financial Services Holdings Limited1
Capita Group Insurance PCC Limited3
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 Limited6
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
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
Proportion of nominal
value of issued shares
held
by the Company
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
1. Investing holding company
2. Outsourcing services company
3. Insurance captive
4. Trustee company for the pension schemes
5. In liquidation
6. Internal services company
178
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Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
220
Section 7: Company financial statements continued
7.3.4 Investments continued
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 7.3.17 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 2022 in
accordance with Section 479A of The Companies Act 2006.
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 7.3.17 to the Company financial statements.
The Company considered whether there was an indicator of impairment in investments in subsidiaries at 31 December 2022, 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 2023-2025 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 2022 long-term growth rate is 2.2% (2021: 1.7%).
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 table below represents the pre-tax discount rates applied to the cash flows for 2022 and 2021.
2022
2021
Capita Public
Service
Capita Experience
11.8 %
13.0 %
10.4 %
11.6 %
People
14.3 %
12.4 %
Software Business Solutions
12.1 %
12.8 %
12.1 %
13.3 %
Travel
13.0 %
15.7 %
Fera
11.2 %
11.9 %
Capita Portfolio
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
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
—
—
—
—
—
—
—
At 31 December 2022, an impairment of £7.0m (2021: £0.8m) arose from the impairment test performed. Under the combination sensitivity
scenario no additional impairments were highlighted where the enterprise value was used for impairment assessment.
Management continue to monitor closely the performance of all investments in subsidiaries and consider the impact of any changes to the key
assumptions. Given that 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.
178
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
221
Section 7: Company financial statements continued
7.3.5 Financial instruments
Cash flow hedges
Non-designated foreign exchange forwards and swaps
Lease liabilities
Cross-currency interest rate swaps
Analysed as:
Current
Non-current
The cash flow projections used for the impairment test, are derived from the 2023-2025 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 2022 long-term growth rate is 2.2% (2021: 1.7%).
7.3.6 Deferred tax
Deferred tax included in the balance sheet is as follows:
Accelerated capital allowances
Tax losses
Other short term timing differences
Financial
assets
2022
£m
—
10.7
—
25.8
36.5
15.7
20.8
36.5
Financial
liabilities
2022
£m
—
0.1
—
1.0
1.1
0.1
1.0
1.1
Financial
assets
2021
£m
0.9
Financial
liabilities
2021
£m
1.8
1.8
—
30.2
32.9
10.9
22.0
32.9
2022
£m
3.9
1.0
6.3
11.2
4.7
0.1
2.2
8.8
5.2
3.6
8.8
2021
£m
5.4
1.0
6.3
12.7
7.3.7 Amounts owed by/to subsidiary companies
Amounts owed by subsidiary companies
Current
2021
£m
2022
£m
2,494.8 2,619.8
Non-current
2022
£m
64.4
2021
£m
—
Amounts due within one year are repayable on demand along with any accrued interest. Amounts due after more than one year is a fixed term
loan. The expected credit loss provision against amounts owed by subsidiary undertakings is immaterial.
The non-current receivable relates to a long-term loan to a subsidiary. This was previously considered to be a current receivable but following a
reassessment has been reclassified to non-current at 31 December 2022.
Amounts owed to subsidiary companies
Current
2021
£m
2022
£m
2,302.7 2,086.8
Non-current
2022
£m
—
2021
£m
—
Amounts owed to subsidiary companies are repayable on demand along with any accrued interest.
7.3.8 Trade and other receivables
At 31 December 2022, an impairment of £7.0m (2021: £0.8m) arose from the impairment test performed. Under the combination sensitivity
scenario no additional impairments were highlighted where the enterprise value was used for impairment assessment.
Management continue to monitor closely the performance of all investments in subsidiaries and consider the impact of any changes to the key
assumptions. Given that 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.
Trade receivables
Other debtors
Other taxes and social security
Prepayments
Current
Non-current
2022
£m
—
1.1
0.1
0.4
1.6
2021
£m
—
2.0
1.4
9.7
13.1
2022
£m
—
—
—
—
—
2021
£m
—
—
—
0.1
0.1
Section 7: Company financial statements continued
7.3.4 Investments continued
entities.
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
Listed in note 7.3.17 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 2022 in
accordance with Section 479A of The Companies Act 2006.
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 7.3.17 to the Company financial statements.
The Company considered whether there was an indicator of impairment in investments in subsidiaries at 31 December 2022, 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
2022
2021
Sensitivity analysis
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 table below represents the pre-tax discount rates applied to the cash flows for 2022 and 2021.
Capita Public
Service
Capita Experience
11.8 %
13.0 %
10.4 %
11.6 %
People
14.3 %
12.4 %
Software Business Solutions
12.1 %
12.8 %
12.1 %
13.3 %
Travel
13.0 %
15.7 %
Fera
11.2 %
11.9 %
Capita Portfolio
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
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
1% decrease in
long-term
growth rate
Severe but
plausible
downside
Combination
sensitivity
£m
—
—
—
—
—
—
—
£m
—
—
—
—
—
—
—
£m
—
—
—
—
—
—
—
£m
—
—
—
—
—
—
—
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
222
Strategic report
Corporate governance
Financial statements
180
Section 7: Company financial statements continued
7.3.9 Trade and other payables
Trade creditors
Other creditors
7.3.10 Provisions
At 1 January
Provisions provided for during the year
Provisions released during the year
Utilisation
At 31 December
Current
Non-current
2022
£m
8.9
0.7
9.6
2021
£m
7.2
0.7
7.9
2022
£m
—
—
—
2021
£m
—
0.3
0.3
2022
£m
8.2
1.6
(1.2)
(3.8)
4.8
2021
£m
17.3
8.8
(5.9)
(12.0)
8.2
The majority of the provisions relate to the claims and litigation provision of £4.0m. Further detail on these provisions can be found in note 3.6
to the Group’s consolidated financial statements.
7.3.11 Borrowings
Private placement loan notes
Credit facilities1
1. Credit facilities includes £nil (2021: £40.0m) drawing on the RCF.
Maturity analysis is as follows:
Falling due within a year
Falling due after more than 5 years
Total borrowings
2022
£m
44.2
—
44.2
2021
£m
201.9
46.0
247.9
—
44.2
44.2
196.2
51.7
247.9
The Company issued guaranteed unsecured private placement loan notes as follows:
Fixed rate bearer notes
Total of euro denominated private placement loan notes
Interest rate
(%)
3.625
EUR
EUR
(m)
53.4
53.4
Maturity
10 November 2027
In July 2022, the Group signed an extension of the £300m forward start revolving credit facility (RCF) with its lending banks for a further twelve
months to August 2024. The new facility commenced on 31 August 2022 upon the expiry of the previous RCF and provides the Group with
committed liquidity for the cash fluctuations of the business cycle and an allowance for contingencies, and incorporates provisions such that it
will partially reduce in quantum as a consequence of specified transactions. The RCF was not drawn upon at 31 December 2022 and had a
total committed value of £288.4m.
Further detail on these facilities can be found in note 4.2 to the Group’s consolidated financial statements.
7.3.12 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.
7.3.13 Contingent liabilities
The Company has provided, through the normal course of its business, performance bonds and bank guarantees of £34.0m (2021: £28.7m).
Strategic report
Corporate governance
Financial statements
180
181
Capita plc Annual Report 2018
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
223
Section 7: Company financial statements continued
7.3.14 Related-party transactions
In the following, amounts for purchases and sales are for transactions invoiced during the year inclusive of VAT where applicable. All
transactions are undertaken at arm’s-length prices.
During the year, the Company sold goods/services in the normal course of business to Entrust Support Services Limited for £1.2m (2021:
£0.8). The Company purchased goods/services in the normal course of business for £0.4m (2021: £0.2m). At the balance sheet date, the net
amount receivable from Entrust Support Services Limited was £nil (2021: £nil).
During the year, the Company sold goods/services in the normal course of business to Capita Glamorgan Consultancy Limited for £0.1m
(2021: £0.1m). The Company purchased goods/services in the normal course of business for £nil (2021: £nil). At the balance sheet date, the
net amount receivable from Capita Glamorgan Consultancy Limited was £nil (2021: £nil).
During the year, the Company sold goods/services in the normal course of business to Fera Science Limited for £0.7m (2021: £0.6m). The
Company purchased goods/services in the normal course of business for £0.1m (2021: £nil). At the balance sheet date, the net amount
receivable from Fera Science Limited was £nil (2021: £nil).
7.3.15 Pension costs
The Company operates defined benefit and defined contribution schemes. The pension charge for these schemes for the year was £1.5m
(2021: £2.0m).
7.3.16 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 2022
of £5.4m (2021: £1.2m), 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 £3.0m (2021: £0.6m).
Section 7: Company financial statements continued
7.3.9 Trade and other payables
Trade creditors
Other creditors
7.3.10 Provisions
At 1 January
Provisions provided for during the year
Provisions released during the year
Utilisation
At 31 December
7.3.11 Borrowings
Private placement loan notes
Credit facilities1
1. Credit facilities includes £nil (2021: £40.0m) drawing on the RCF.
Maturity analysis is as follows:
Falling due within a year
Falling due after more than 5 years
Total borrowings
Current
Non-current
2021
£m
7.2
0.7
7.9
2022
£m
—
—
—
2021
£m
—
0.3
0.3
2022
£m
8.9
0.7
9.6
2022
£m
8.2
1.6
(1.2)
(3.8)
4.8
2021
£m
17.3
8.8
(5.9)
(12.0)
8.2
2022
£m
44.2
—
44.2
2021
£m
201.9
46.0
247.9
—
44.2
44.2
196.2
51.7
247.9
The majority of the provisions relate to the claims and litigation provision of £4.0m. Further detail on these provisions can be found in note 3.6
to the Group’s consolidated financial statements.
The Company issued guaranteed unsecured private placement loan notes as follows:
Fixed rate bearer notes
Total of euro denominated private placement loan notes
Interest rate
(%)
3.625
EUR
EUR
(m)
53.4
53.4
Maturity
10 November 2027
In July 2022, the Group signed an extension of the £300m forward start revolving credit facility (RCF) with its lending banks for a further twelve
months to August 2024. The new facility commenced on 31 August 2022 upon the expiry of the previous RCF and provides the Group with
committed liquidity for the cash fluctuations of the business cycle and an allowance for contingencies, and incorporates provisions such that it
will partially reduce in quantum as a consequence of specified transactions. The RCF was not drawn upon at 31 December 2022 and had a
total committed value of £288.4m.
Further detail on these facilities can be found in note 4.2 to the Group’s consolidated financial statements.
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 Share capital
7.3.13 Contingent liabilities
The Company has provided, through the normal course of its business, performance bonds and bank guarantees of £34.0m (2021: £28.7m).
182
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
224
Section 7: Company financial statements continued
7.3.17 Related companies
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 9
Share class
£1.00 Ordinary
Company name
Capita Group Insurance PCC Limited 27 *
Akinika Debt Recovery Limited 7
£1.00 Ordinary
Capita Group Limited (in liquidation) 1
Akinika Limited 7
£1.00 Ordinary
Capita Group Secretary Limited (D) 9
Akinika UK Limited (in liquidation) 1
£1.00 Ordinary
Capita HCH Limited 9
Artificial Labs Ltd 16 ●
Barrachd Limited (in liquidation) 15
BCS Design Ltd (in liquidation) 1
£0.000025
Ordinary
£1.00 Ordinary
Capita Health and Wellbeing Limited 9
Capita Health Holdings Limited 9
£1.00 Ordinary
Capita Holdings Limited 9 *
Booking Services International Limited 9
£1.00 Ordinary
Capita IB Solutions (HK) Limited 11
Brentside Communications Limited (D) 9
£1.00 Ordinary
Capita IB Solutions (Ireland) Limited 6
Brightwave Enterprises Limited 9
Brightwave Holdings Limited 9
Brightwave Limited 9
BSI Group Limited 9
£1.00 Ordinary
Capita IB Solutions Limited 9
£1.00 Ordinary
Capita India Private Limited 26
£1.00 Ordinary
Capita Insurance Services Group Limited 9
£1.00 Ordinary
£1.00 Ordinary
Capita Insurance Services Holdings Limited 9
Call Vision Technologies Ltd (in liquidation) 1
£1.00 Ordinary
Capita Insurance Services Limited 9
Capita (02549055) Limited (in liquidation) 1
Capita (04472243) Limited (in liquidation) 1
Capita (210568) Limited 6
£1.00 Ordinary
£1.00 Ordinary
€0.0012 Ordinary
Capita International Limited 9 *
Capita International Retirement Benefit Scheme
Trustees Limited 9 *
Capita Ireland Limited 6 *
Capita (6588350) Limited (in liquidation) 1
£1.00 Ordinary
Capita IT Services (BSF) Limited 9
Capita (Polska) Spółka z ograniczoną odpowiedzialnością
17
Capita (South Africa) (Pty) Limited 13
PLZ50.00 Ordinary
Capita IT Services Holdings Limited 9
ZAR1.00 Ordinary
Capita IT Services Limited 25
Capita (USA) Holdings Inc. 12
Capita Birmingham Limited 9
Capita Business Services Ltd 9
US$1.00 Ordinary
Capita Justice & Secure Services Holdings Limited 9
£1.00 Ordinary
£1.00 Ordinary
Capita Land Limited (in liquidation) 1
£1.00 Ordinary
Capita Learning Limited 9
Capita Business Support Services Ireland Limited 6
€1.00 Ordinary
Capita Legal Services Limited 9 *
Capita Corporate Director Limited (D) 9
£1.00 Ordinary
Capita Life & Pensions Regulated Services Limited 9 * £1.00 Ordinary
Capita CTI (USA) LLC 12
US$1.00 Ordinary
Capita Life & Pensions Services Limited 9 *
£1.00 Ordinary
Capita Customer Management Limited 9
£1.00 Ordinary
Capita Life and Pensions International Limited 9
£1.00 Ordinary
Capita Customer Services (Germany) GmbH 30
€1.00 Ordinary
Capita Customer Services AG 22
Capita Customer Solutions (UK) Limited 9
CHF1.00 Ordinary
£1.00 Ordinary
Capita Life and Pensions Services (Isle of Man)
Limited 28
Capita Managed IT Solutions Limited 20
Capita Mclarens Limited 31
Capita Customer Solutions Limited 34
€1.00 Ordinary
Capita Mortgage Administration Limited 9
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Capita Cyprus Holdings Limited 33
£1.00 Ordinary
Capita Mortgage Software Solutions Limited 9
£1.00 Ordinary
Capita Dubai Limited 9
Capita Employee Benefits (Consulting) Limited 9
Capita Employee Benefits Holdings Limited 9 *
Capita Energie Services GmbH 24 ►
Capita ESS Holdings Limited 9
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
Capita Financial Services Holdings Limited 9 *
£1.00 Ordinary
Capita Gas Registration and Ancillary Services Limited 9
£1.00 Ordinary
Capita Norman + Dawbarn Limited (D) 3 □
Capita Offshore Services Private Limited (in
liquidation) 26
Capita Pension Solutions Limited 9 *
Capita Property and Infrastructure (Structures)
Limited 9
Capita Property and Infrastructure Consultants LLC
(in liquidation) 2 ♦
Capita Property and Infrastructure Holdings Limited 9
Capita Property and Infrastructure International
Holdings Limited (D) 9
Capita GMPS Trustees Limited (D) 9
Capita Grosvenor Limited (in liquidation) 1
£1.00 Ordinary
£1.00 Ordinary
Capita Property and Infrastructure International
Limited (D)9
Capita Property and Infrastructure Limited 9
NGN1.00 Ordinary
INR10.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
AED1,000.00
Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Share class
£1.00 CG1
£1.00 CIC2
£1.00 Ordinary
£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
€1.00 Ordinary
£1.00 Ordinary
INR10.00 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
£1.00 Ordinary
£1.00 Ordinary
182
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
225
Strategic report
Corporate governance
Financial statements
183
Section 7: Company financial statements continued
7.3.17 Related companies
Section 7: Company financial statements continued
7.3.17 Related companies continued
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.
Company name
Capita Resourcing Limited 9
Share class
£1.00 Ordinary
Company name
Evolvi Rail Systems Limited 9
Share class
£1.00 Ordinary
Unless otherwise indicated, all shareholdings are owned indirectly by the company and represent 100% of the issued share capital of the
Capita Retail Financial Services Limited 9
£1.00 Ordinary
Expotel Hotel Reservations Limited (in liquidation) 1
£1.00 Ordinary
Share class
£1.00 CG1
£1.00 CIC2
£1.00 Ordinary
£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
€1.00 Ordinary
£1.00 Ordinary
INR10.00 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
£1.00 Ordinary
subsidiary. Dormant companies are marked (D).
Company name
Agiito Limited 9
Share class
Company name
£1.00 Ordinary
Capita Group Insurance PCC Limited 27 *
Akinika Debt Recovery Limited 7
£1.00 Ordinary
Capita Group Limited (in liquidation) 1
Akinika Limited 7
£1.00 Ordinary
Capita Group Secretary Limited (D) 9
Akinika UK Limited (in liquidation) 1
£1.00 Ordinary
Capita HCH Limited 9
Artificial Labs Ltd 16 ●
Barrachd Limited (in liquidation) 15
BCS Design Ltd (in liquidation) 1
£0.000025
Ordinary
Capita Health and Wellbeing Limited 9
£1.00 Ordinary
Capita Health Holdings Limited 9
£1.00 Ordinary
Capita Holdings Limited 9 *
Booking Services International Limited 9
£1.00 Ordinary
Capita IB Solutions (HK) Limited 11
Brentside Communications Limited (D) 9
£1.00 Ordinary
Capita IB Solutions (Ireland) Limited 6
Brightwave Enterprises Limited 9
Brightwave Holdings Limited 9
Brightwave Limited 9
BSI Group Limited 9
£1.00 Ordinary
Capita IB Solutions Limited 9
£1.00 Ordinary
Capita India Private Limited 26
£1.00 Ordinary
Capita Insurance Services Group Limited 9
£1.00 Ordinary
£1.00 Ordinary
Capita Insurance Services Holdings Limited 9
Call Vision Technologies Ltd (in liquidation) 1
£1.00 Ordinary
Capita Insurance Services Limited 9
Capita (02549055) Limited (in liquidation) 1
£1.00 Ordinary
Capita International Limited 9 *
Capita (04472243) Limited (in liquidation) 1
£1.00 Ordinary
Capita International Retirement Benefit Scheme
£1.00 Ordinary
Trustees Limited 9 *
Capita (210568) Limited 6
€0.0012 Ordinary
Capita Ireland Limited 6 *
Capita (6588350) Limited (in liquidation) 1
£1.00 Ordinary
Capita IT Services (BSF) Limited 9
Capita (Polska) Spółka z ograniczoną odpowiedzialnością
PLZ50.00 Ordinary
Capita IT Services Holdings Limited 9
17
Capita (South Africa) (Pty) Limited 13
ZAR1.00 Ordinary
Capita IT Services Limited 25
Capita (USA) Holdings Inc. 12
Capita Birmingham Limited 9
Capita Business Services Ltd 9
US$1.00 Ordinary
Capita Justice & Secure Services Holdings Limited 9
£1.00 Ordinary
£1.00 Ordinary
Capita Land Limited (in liquidation) 1
£1.00 Ordinary
Capita Learning Limited 9
Capita Business Support Services Ireland Limited 6
€1.00 Ordinary
Capita Legal Services Limited 9 *
Capita Corporate Director Limited (D) 9
£1.00 Ordinary
Capita Life & Pensions Regulated Services Limited 9 * £1.00 Ordinary
Capita CTI (USA) LLC 12
US$1.00 Ordinary
Capita Life & Pensions Services Limited 9 *
£1.00 Ordinary
Capita Customer Management Limited 9
£1.00 Ordinary
Capita Life and Pensions International Limited 9
£1.00 Ordinary
Capita Customer Services AG 22
CHF1.00 Ordinary
Capita Managed IT Solutions Limited 20
Capita Customer Solutions (UK) Limited 9
£1.00 Ordinary
Capita Mclarens Limited 31
Capita Customer Solutions Limited 34
€1.00 Ordinary
Capita Mortgage Administration Limited 9
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Capita Cyprus Holdings Limited 33
£1.00 Ordinary
Capita Mortgage Software Solutions Limited 9
£1.00 Ordinary
Capita Dubai Limited 9
£1.00 Ordinary
Capita Norman + Dawbarn Limited (D) 3 □
NGN1.00 Ordinary
Capita Employee Benefits (Consulting) Limited 9
£1.00 Ordinary
Capita Offshore Services Private Limited (in
INR10.00 Ordinary
Capita Employee Benefits Holdings Limited 9 *
£1.00 Ordinary
Capita Pension Solutions Limited 9 *
£1.00 Ordinary
Capita Energie Services GmbH 24 ►
Capita ESS Holdings Limited 9
€1.00 Ordinary
Capita Property and Infrastructure (Structures)
£1.00 Ordinary
£1.00 Ordinary
Capita Property and Infrastructure Consultants LLC
AED1,000.00
Ordinary
liquidation) 26
Limited 9
(in liquidation) 2 ♦
Holdings Limited (D) 9
Limited (D)9
Capita Retain Limited 9
Capita Retain (USA) LLC 12
Capita Scotland (Pension) Limited Partnership 25
£1.00 Ordinary
Fera Science Limited 9 ■
N/A
N/A
Fire Service College Limited 9
FirstAssist Services Limited 9
Capita Scotland General Partner (Pension) Limited 25
£1.00 Ordinary
Capita Secure Information Solutions Limited 9
£1.00 Ordinary
Full Circle Contact Centre Services (Proprietary)
Limited 13
Gissings Trustees Limited (in liquidation) 1
Capita Shared Services Limited 9 *
Capita Southampton Limited 9
Capita Symonds (Asia) Limited 9
£1.00 Ordinary
Grosvenor Career Services Limited (D) 9
£1.00 Ordinary
Health Analytics Ltd (in liquidation) 1
£1.00 Ordinary
Level Financial Technology Limited 29 ◙
Capita Symonds India Private Limited (in liquidation) 26
INR10.00 Ordinary
Liberty Printers (Ar And Rf Reddin) Limited 9
Capita Symonds Saudi Arabia Limited (D) 21
N/A
Market Mortgage Limited 9◄
Capita Travel & Events Holdings Limited 9
£1.00 Ordinary
Metacharge Limited (in liquidation) 1
Capita West GmbH 30
Capita Workforce Management Limited 9
€25,000.00
Ordinary
£1.00 Ordinary
NYS Corporate Ltd. (in liquidation) 1
Octal Business Solutions Limited 9
CAS Services US Inc 18
US$1.00 Ordinary
Optilead Inc. (in liquidation) 12
CCSD Services Limited (in liquidation) 1
£1.00 Ordinary
Optilead Limited (in liquidation) 1
CHKS Limited 9
£1.00 Ordinary
PageOne Communications Limited 9
Clinical Solutions Acquisition Limited 9
£1.00 Ordinary
RE (Regional Enterprise) Limited 9 ▼
Clinical Solutions Finance Limited 9
£1.00 Ordinary
Retain International (Holdings) Limited 9
Clinical Solutions Group (International) LLC (D) 18
N/A
Retain International Limited (D) 9
Clinical Solutions Holdings Limited 9
£1.00 Ordinary
Ross & Roberts Limited 8
Clinical Solutions International Limited 9
£1.00 Ordinary
Sbj Benefit Consultants Limited (D) 9
Clinical Solutions IP Limited (D) 9
£1.00 Ordinary
Sbj Professional Trustees Limited (D) 9
£1.00 Ordinary B
£1.00 Ordinary
£1.00 Ordinary
ZAR0.01 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.001 Ordinary
£1.00 Ordinary
£0.001 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
US$0.001 Common
Stock
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary A
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Complete Imaging Limited (in liquidation) 1
£1.00 Ordinary
SDP Regeneration Services 2 Limited (in liquidation) 1
£1.00 Ordinary
Computerland UK Limited 9
Contact Associates Limited 9
CPLAS Trustees Limited (D) 9
£1.00 Ordinary
Security Watchdog Limited (in liquidation) 1
£1.00 Ordinary
Smart DCC Limited 9
£1.00 Ordinary
Stirling Park LLP 5
CS Clinical Solutions India Private Limited (in liquidation) 26
INR10.00 Ordinary
Synaptic Software Limited 9
Cymbio Limited (in liquidation) 1
£1.00 Ordinary
Tascor E & D Services Limited 9
Daisy Updata Communications Limited 23 ▲
Debt Solutions (Holdings) Limited 7
£1.00 Ordinary B
Tascor Services Limited 9
£1.00 Ordinary
TELAG AG 19
Capita Customer Services (Germany) GmbH 30
€1.00 Ordinary
Capita Life and Pensions Services (Isle of Man)
£1.00 Ordinary
Dragonfly Technology Solutions Ltd 9 ○
Limited 28
DSTBTD LIMITED 36 <
Duke 2021 Topco Limited 4 >
E.B. Consultants Limited (D) 9
Electra-Net (UK) Limited 9
£0.000001
Ordinary
£0.000001 A
Ordinary
£0.001 Ordinary
The G2G3 Group Ltd. 25
Thirty Three Group Limited 9
£1.00 B Ordinary
Thirty Three LLP 9
£1.00 Ordinary
ThirtyThree APAC Limited (D) 10
£1.00 Ordinary
ThirtyThree USA Inc. 12
Electra-Net Group Limited (in liquidation) 1
£1.00 Ordinary
Updata Infrastructure (UK) Limited 9
Electra-Net Holdings Limited (in liquidation) 1
£1.00 Ordinary
Updata Infrastructure 2012 Limited (D) 9
Emercom Ltd (in liquidation) 1
Entrust Support Services Limited 32 ▼
Equita Limited 8
£1.00 Ordinary
£1.00 Ordinary X
Urban Vision Partnership Limited 9 ►
Ventura (India) Private Limited 35
£1.00 Ordinary
Ventura (UK) India Limited 9
£1.00 Ordinary
£1.00 Ordinary
N/A
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
CHF1,000.00
Ordinary
£1.00 Ordinary
£1.00 Ordinary
N/A
HKD1.00 Ordinary
US$1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary B
INR10.00 Ordinary
£1.00 Ordinary
Capita Financial Services Holdings Limited 9 *
£1.00 Ordinary
Capita Property and Infrastructure Holdings Limited 9
£1.00 Ordinary
Equitable Holdings Limited (D) 9
£1.00 Ordinary
Venues Event Management Limited (in liquidation) 1
£1.00 Ordinary
Capita Gas Registration and Ancillary Services Limited 9
£1.00 Ordinary
Capita Property and Infrastructure International
£1.00 Ordinary
Eureka Assessoria Empresarial Ltda (D) 14 ◊
BRL1.00 Ordinary
Voice Marketing Limited 9
Capita GMPS Trustees Limited (D) 9
£1.00 Ordinary
Capita Property and Infrastructure International
£1.00 Ordinary
Capita Grosvenor Limited (in liquidation) 1
£1.00 Ordinary
Capita Property and Infrastructure Limited 9
£1.00 Ordinary
Euristix (Holdings) Limited 9
£1.00 Ordinary
Western Mortgage Services Limited 9
Euristix Limited 9
£1.00 Ordinary
Woolf Limited 9
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
184
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
226
Section 7: Company financial statements continued
7.3.17 Related companies continued
Footnotes
* Companies directly held by Capita plc.
> Shareholdings owned indirectly by the company and represent 0.37% of the issued share capital of
subsidiary.
< Shareholdings owned indirectly by the company and represent 9.63% of the issued share capital of
subsidiary.
● Shareholdings owned indirectly by the company and represent 5.43% of the issued share capital of
subsidiary.
○ Shareholdings owned indirectly by the company and represent 9.38% 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 26.87% of the issued share capital
of subsidiary.
Registered office address
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
1 More London Place, London, SE1 2AF,England
1004 Bin Hamoodah Building, Khalifa St., PO Box 113 740, Abu Dhabi, United
Arab Emirates
10th Floor, UBA House, No 57, Marina Street, Lagos Island, Lagos, Nigeria
22 Grenville Street, St. Helier, JE4 8PX, Jersey
24 Blythswood Square, Glasgow, G2 4BG, Scotland
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P767,
Ireland
33/34 Winckley Square, Preston, Lancashire, PR1 3EL, England
42/44 Henry Street, Northampton, Northamptonshire, NN1 4BZ, England
65, Gresham Street, London, EC2V 7NQ, England
803 Manning House, 38 Queen's Road Central, Hong Kong
803 Manning House, 48 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, Western
Cape, 8001, South Africa
Alameda dos Guaramomis, no 930, 1st Floor, Suite 01, Bairro, Moema, CEP
04076-011, Brazil
Atria One, 144 Morrison Street, Edinburgh, EH3 8EX, Scotland
Bourne House, 475 Goodstone Road, Whyteleafe, Surrey, CR3 0BL, England
Centrum Biurowe Lubicz ul. Lubicz 23, 31-503 Krakow, Polska
Corporation Service Company, 251 Little Falls Drive, Wilmington, County of
Newcastle, Delaware 19808, United States
Hardturmstrasse 101, Zürich, 8005, Switzerland
Hillview House, 61 Church Road, Newtownabbey, Co Antrim, BT36 7LQ,
Northern Ireland
King Abdul Aziz Street, PO Box 7052, Dammam, Saudi Arabia
Konstanzerstrasse 17, Tägerwilen, 8274, Switzerland
Lindred House, 20 Lindred Road, Brierfield, Nelson, Lancashire, BB9 5SR,
England
Nassauer Ring 39-41, Krefeld, 47803, Germany
Pavilion Building Ellismuir Way, Tannochside Park, Uddingston, Glasgow, G71
5PW, Scotland
Plant 6, Gate No. 2, Godrej and Boyce Complex, LBS Marg, Pirojshahnagar,
Vikhroli (West), Mumbai, 400079, India
PO Box 33, Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT
PO Box 227, Peveril Buildings, Peveril Square, Douglas, Isle of Man, IM99 1RZ
Rift Accounting House, 160 Eureka Park Upper Pemberton, Kennington,
Ashford, TN25 4AZ, England
Rudower Chaussee 4, Berlin, 12489, Germany
The Beacon, 176 St Vincent Street, Glasgow, G2 5SG, Scotland
The Riverway Centre, Riverway, Stafford, ST16 3TH, England
Themistokli Dervi 3, Julia House, Nicosia, 1066, Cyprus
Unit B, West Cork Technology Park, Clonakilty, Cork, Ireland
Upper Ground Level, Level 1, Level 2, & Level 3, Tower B1, Margapatta City
SEZ, Margapatta City, Hadapsar, Pune, 411013, India
36. Wsm, Connect House 133-137 Alexandra Road, Wimbledon, London, SW19
7JY, England
Section 7: Company financial statements continued
7.3.17 Related companies continued
Footnotes
* Companies directly held by Capita plc.
> Shareholdings owned indirectly by the company and represent 0.37% of the issued share capital of
< Shareholdings owned indirectly by the company and represent 9.63% of the issued share capital of
● Shareholdings owned indirectly by the company and represent 5.43% of the issued share capital of
○ Shareholdings owned indirectly by the company and represent 9.38% of the issued share capital of
◊ Shareholdings owned indirectly by the company and represent 49.9% of the issued share capital of
▲ Shareholdings owned indirectly by the company and represent 50% of the issued share capital of
► 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 49% of the issued share capital of
Ireland
subsidiary.
subsidiary.
subsidiary.
subsidiary
subsidiary.
subsidiary.
subsidiary.
subsidiary.
subsidiary.
of subsidiary.
subsidiary.
subsidiary.
of subsidiary.
◄ Shareholdings owned indirectly by the company and represent 48.29% of the issued share capital
Cape, 8001, South Africa
■ Shareholdings owned indirectly by the company and represent 75% of the issued share capital of
04076-011, Brazil
□ Shareholdings owned indirectly by the company and represent 97.3% of the issued share capital of
◙ Shareholdings owned indirectly by the company and represent 26.87% of the issued share capital
Centrum Biurowe Lubicz ul. Lubicz 23, 31-503 Krakow, Polska
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
27.
28.
29.
30.
31.
32.
33.
34.
35.
1 More London Place, London, SE1 2AF,England
1004 Bin Hamoodah Building, Khalifa St., PO Box 113 740, Abu Dhabi, United
Arab Emirates
10th Floor, UBA House, No 57, Marina Street, Lagos Island, Lagos, Nigeria
22 Grenville Street, St. Helier, JE4 8PX, Jersey
24 Blythswood Square, Glasgow, G2 4BG, Scotland
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P767,
33/34 Winckley Square, Preston, Lancashire, PR1 3EL, England
42/44 Henry Street, Northampton, Northamptonshire, NN1 4BZ, England
65, Gresham Street, London, EC2V 7NQ, England
803 Manning House, 38 Queen's Road Central, Hong Kong
803 Manning House, 48 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, Western
14.
Alameda dos Guaramomis, no 930, 1st Floor, Suite 01, Bairro, Moema, CEP
Atria One, 144 Morrison Street, Edinburgh, EH3 8EX, Scotland
Bourne House, 475 Goodstone Road, Whyteleafe, Surrey, CR3 0BL, England
Corporation Service Company, 251 Little Falls Drive, Wilmington, County of
Newcastle, Delaware 19808, United States
Hardturmstrasse 101, Zürich, 8005, Switzerland
Hillview House, 61 Church Road, Newtownabbey, Co Antrim, BT36 7LQ,
Northern Ireland
King Abdul Aziz Street, PO Box 7052, Dammam, Saudi Arabia
Konstanzerstrasse 17, Tägerwilen, 8274, Switzerland
Lindred House, 20 Lindred Road, Brierfield, Nelson, Lancashire, BB9 5SR,
England
5PW, Scotland
Nassauer Ring 39-41, Krefeld, 47803, Germany
Pavilion Building Ellismuir Way, Tannochside Park, Uddingston, Glasgow, G71
26.
Plant 6, Gate No. 2, Godrej and Boyce Complex, LBS Marg, Pirojshahnagar,
Vikhroli (West), Mumbai, 400079, India
PO Box 33, Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT
PO Box 227, Peveril Buildings, Peveril Square, Douglas, Isle of Man, IM99 1RZ
Rift Accounting House, 160 Eureka Park Upper Pemberton, Kennington,
Ashford, TN25 4AZ, England
Rudower Chaussee 4, Berlin, 12489, Germany
The Beacon, 176 St Vincent Street, Glasgow, G2 5SG, Scotland
The Riverway Centre, Riverway, Stafford, ST16 3TH, England
Themistokli Dervi 3, Julia House, Nicosia, 1066, Cyprus
Unit B, West Cork Technology Park, Clonakilty, Cork, Ireland
Upper Ground Level, Level 1, Level 2, & Level 3, Tower B1, Margapatta City
SEZ, Margapatta City, Hadapsar, Pune, 411013, India
36. Wsm, Connect House 133-137 Alexandra Road, Wimbledon, London, SW19
7JY, England
184
Capita plc Annual Report 2022
Financial
statements
Company
financial statements
Capita plc
Annual Report 2022
227
Strategic report
Corporate governance
Financial statements
185
Registered office address
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 2022. This exemption is taken in accordance with Section 479A of the Companies Act.
Section 7: Company financial statements continued
7.3.17 Related companies continued
Company name
Company
registration
Company name
Akinika Debt Recovery Limited
1242485
Capita Southampton Limited
Akinika Limited
1613010
Capita Symonds (Asia) Limited
Booking Services International Limited
1833039
Capita Travel & Events Holdings Limited
Brentside Communications Limited
1991595
CHKS Limited
Brightwave Enterprises Limited
Brightwave Holdings Limited
Brightwave Limited
BSI Group Limited
7066783
Clinical Solutions Acquisition Limited
7462788
Clinical Solutions Finance Limited
4092349
Clinical Solutions Holdings Limited
3005596
Clinical Solutions International Limited
Capita Birmingham Limited
5660977
Clinical Solutions IP Limited
Capita Customer Solutions (UK) Limited
7886341
Computerland UK Limited
Capita Dubai Limited
10908066 Contact Associates Limited
Capita Employee Benefits Holdings Limited
6722404
Debt Solutions (Holdings) Limited
Capita ESS Holdings Limited
12714191 E.B. Consultants Limited
Capita Financial Services Holdings Limited
10016286 Electra-Net (UK) Limited
Capita Gas Registration and Ancillary Services Limited
5078781
Equita Limited
Capita HCH Limited
2384029
Equitable Holdings Limited
Capita Health and Wellbeing Limited
3185776
Euristix (Holdings) Limited
Capita Health Holdings Limited
6413394
Euristix Limited
Capita Insurance Services Group Limited
2777642
Fire Service College Limited
Capita Insurance Services Holdings Limited
6041965
FirstAssist Services Limited
Capita Insurance Services Limited
1396443 Grosvenor Career Services Limited
Capita International Limited
2683437
Liberty Printers (AR and RF Reddin) Limited
Capita International Retirement Benefit Scheme
Trustees Limited
2328910 Octal Business Solutions Limited
Capita IT Services (BSF) Limited
1855936
PageOne Communications Limited
Capita IT Services Holdings Limited
6002593
Retain International (Holdings) Limited
Capita IT Services Limited
SC045439
Retain International Limited
Capita Justice & Secure Services Holdings Limited
4746912
Ross & Roberts Limited
Capita Learning Limited
Capita Legal Services Limited
4968329
Sbj Benefit Consultants Limited
8540594
Sbj Professional Trustees Limited
Capita Life and Pensions International Limited
5952054
Stirling Park LLP
Capita Managed IT Solutions Limited
NI032979
Tascor E & D Services Limited
Capita Mclarens Limited
SC021024
The G2G3 Group Ltd
Capita Mortgage Software Solutions Limited
1855353
Thirty Three Group Limited
Capita Property and Infrastructure (Structures) Limited
2082106
Thirty Three LLP
Capita Property and Infrastructure Holdings Limited
3840627
Updata Infrastructure (UK) Limited
Capita Property and Infrastructure International
Holdings Limited
Capita Property and Infrastructure International
Limited
3860653
Updata Infrastructure 2012 Limited
2752154
Urban Vision Partnership Limited
Capita Retail Financial Services Limited
5296886
Ventura (UK) India Limited
Capita Scotland General Partner (Pension) Limited
SC434757
Voice Marketing Limited
Capita Secure Information Solutions Limited
1593831
Woolf Limited
Company
registration
10207906
3023340
6258931
2442956
5353896
5337592
5337596
4394761
5354046
2275625
5601393
3673307
1106104
3419833
3168371
2239663
5564856
5420948
8102633
1404718
3119327
2920033
5182624
04560277
7871708
3061744
3365520
1834757
2547932
SO300097
9980217
SC199414
3626724
OC372712
6957593
4342422
5292634
5131185
5820091
1564535
Financial
statements
Additional
information
Capita plc
Annual Report 2022
228
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) 7720 169 269 or email: IRTeam@capita.com
If you have any queries about your shareholding or dividend payments
please contact the Company’s registrar, Link Group:
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Email: shareholderenquiries@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.
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 – Helen Parris
Company Secretariat
secretariat@capita.com
Chief General Counsel and Company Secretary – Claire Denton
Company advisers
Independent auditor
KPMG LLP
Corporate brokers
Barclays Bank plc
Numis Securities Limited
Bankers
Barclays Bank plc
Citicorp North America, Inc
Goldman Sachs International Bank
ING Bank NV, London Branch
Lloyds Bank plc
National Westminster Bank plc
Corporate communications
Powerscourt
Registrars
Link Group
Financial
statements
Additional
information
Capita plc
Annual Report 2022
229
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. This includes key performance indicators (KPIs) such as adjusted revenue, adjusted profit before tax, adjusted earnings per
share, free cash flow before business exits, 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 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 sold, or exited during
the year or prior year; or, are in the process of being sold, or exited.
R
This measure of revenue is used internally in respect of the Group’s continuing business (being the
Group’s continuing activities, which exclude business exits) and the Board believes it is a good
indication of ongoing performance.
The table below shows a reconciliation between reported and adjusted revenue, as well as adjusted
revenue growth:
Reported revenue per the income statement
Deduct: business exits (note 2.2.1)
Adjusted revenue
Adjusted revenue growth
2022
2021
£3,014.6m £3,182.5m
(£168.8m) (£404.7m)
£2,845.8m £2,777.8m
0.1 %
2.4 %
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.
U
The Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
operating decisions.
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.
U
The table below shows the components, and calculation, of adjusted operating profit margin:
Adjusted EBITDA EBITDA
U
Adjusted revenue
Adjusted operating profit (note 2.4)
Adjusted operating profit margin
a
b
b/a
2022
20211
£2,845.8m £2,777.8m
£102.9m
(£77.7m)
3.6 %
(2.8) %
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 measure 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
2022
20211
2022
20211
Adjusted profit before tax
£73.8m (£122.8m)
£79.0m (£117.6m)
Add back: adjusted net finance costs (note 4.3)
£34.9m
£44.5m
£16.5m
£25.0m
Add back: adjusted depreciation and impairment
of property, plant and equipment (note 3.2)
Add back: depreciation and impairment of right-of-
use assets (note 3.5)
Add back: adjusted amortisation and impairment
of intangibles (note 3.3)
Remove: Share of results in associates and
investment gains (income statement)
Adjusted EBITDA
Adjusted EBITDA margin
£45.4m
£49.4m
£45.4m
£49.4m
£53.3m
£81.5m
£—m
£—m
£37.2m
£89.8m
£37.2m
£89.8m
(£5.8m)
£0.6m
(£5.8m)
£0.6m
£238.8m £143.0m £172.3m
£47.2m
8.4 %
5.1 %
6.1 %
1.7 %
188
Capita plc Annual Report 2022
Financial
statements
Additional
information
Capita plc
Annual Report 2022
230
8.2 Alternative performance measures continued
APM
Closest equivalent
IFRS measure
Definition, Purpose and
Reconciliation
Income statement continued
Adjusted profit
before tax
U
Adjusted profit
after tax
U
Profit before tax Calculated as profit or loss before tax excluding the items detailed in note 2.4 which include: 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 Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
operating decisions.
A reconciliation of reported to adjusted profit before tax is provided in note 2.4.
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/(loss) before tax (note 2.4)
Tax on adjusted profit/(loss) (note 2.6.1)
Adjusted profit/(loss) after tax
2022
£73.8m
£31.8m
20211
(£122.8m)
(£4.0m)
£105.6m
(£126.8m)
Adjusted effective
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.
U
The effective tax rate for 31 December 2022 is calculated from the current year elements of
corporation (£12.6m) and deferred taxes (£(52.5)m) (2021: £(14.5)m and £60.3m respectively), which
exclude one-off items.
The Board believes 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.
U
The Board believes that this provides an indication of basic earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted basic earnings per share refer to note 2.7.
Adjusted diluted
earnings per share
Diluted
earnings per
share
U
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 Board believes that this provides an indication of diluted earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted diluted earnings per share refer to note 2.7.
Cash flows and net debt
Cash flows
generated/(used)
by operations
before business
exits
Cash
generated /
(used) by
operations
N
Calculated as the cash flows generated from operations excluding the items detailed in note 2.10.2
which includes: business exits (trading results, non-trading expenses) and pension deficit
contributions which have been triggered by disposals.
The Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
operating decisions.
A reconciliation of reported to cash generated/(used) by operations excluding business exits is
provided in note 2.10.2.
Free cash flow
before business
exits
Net cash flows
from operating
activities
Calculated as cash generated from operations after: capital expenditure; income tax and interest; and,
the proceeds from the sale of property, plant and equipment and intangible assets, but before the
impact of business exits.
N
From 1 January 2022, the Board considers free cash flow and cash generated from operations before
business exits provide a more representative measure of the sustainable cash flow of the Group.
Free cash flow is a measure used to show how efficient the Group is at generating cash and the
Board believes 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 free cash flow excluding business exits is provided in note 2.10.2.
188
Capita plc Annual Report 2022
Financial
statements
Additional
information
Capita plc
Annual Report 2022
231
8.2 Alternative performance measures continued
The Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
N
operating decisions.
A reconciliation of reported to adjusted profit before tax is provided in note 2.4.
APM
Cash flows and net debt continued
Closest equivalent IFRS
measure
Adjusted
operating cash
conversion
Operating cash
conversion
Definition, Purpose and Reconciliation
Calculated as operating cash flow before business exits divided by adjusted EBITDA.
The Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
operating decisions.
Adjusted EBITDA
Working capital
Non-cash and other adjustments
Operating cash flow before business exits
a
b
2022
20211
£238.8m £143.0m
(£32.7m) (£113.6m)
(£44.7m)
£38.6m
£161.4m
£68.0m
Adjusted operating cash conversion
b/a
67.6 %
47.6 %
Net debt
Borrowings, cash,
derivatives, lease
liabilities and
deferred
consideration
Calculated as the net of the Group’s: cash, cash equivalents and overdrafts; private placement loan
notes debt; other loan notes; currency and interest rate swaps; lease liabilities; and deferred
consideration.
The Board believes that net debt enables investors to see the economic effect of debt, related
hedges and cash and cash equivalents in total and shows the indebtedness of the Group.
The calculation of net debt is provided in notes 2.10.3 and 4.1.1
Net financial debt
(pre-IFRS 16)
No direct
equivalent
Calculated as the sum of the Group’s: cash, cash equivalents and overdrafts; the fair value of the
Group’s private placement loan notes; other loan notes; and deferred consideration.
The Board believes that this measure of net debt allows investors to see the Group's net debt
position excluding its IFRS 16 lease liabilities.
Gearing: net debt
to adjusted
EBITDA ratio
No direct
equivalent
U
Net debt (note 4.1.1)
Remove: IFRS16 impact (note 4.4)
Net financial debt (pre-IFRS 16)
2022
2021
£482.4m £879.8m
(£397.5m) (£448.4m)
£84.9m
£431.4m
This ratio is calculated as net financial debt (pre-IFRS 16) divided by adjusted EBITDA over a
rolling twelve month period including business exits not yet completed at the balance sheet date.
The Board believes that this ratio is useful because it shows how significant net debt is relative to
adjusted EBITDA.
This measure has been calculated including and excluding the impact of IFRS 16 leases on
EBITDA and net debt because the Board believes this provides useful information to enable
investors to understand the impact of the Group’s lease portfolio on its gearing ratio.
The table below shows the components, and calculation, of the net debt / net financial debt (pre-
IFRS 16) to adjusted EBITDA ratio:
Post IFRS 16
Pre IFRS 16
2022
20212
2022
20212
Adjusted EBITDA
£238.8m £181.7m £172.3m
£85.9m
EBITDA in respect of business exits not yet
completed
Adjusted EBITDA (including business exits not
yet completed)
Net debt / net financial debt (pre-IFRS 16)
£1.3m
£32.2m
£1.3m
£32.2m
£240.1m £213.9m £173.6m £118.1m
£482.4m £879.8m
£84.9m £431.4m
Net debt / net financial debt (pre-IFRS 16) to
adjusted EBITDA ratio
2.0x
4.1x
0.5x
3.7x
8.2 Alternative performance measures continued
APM
Closest equivalent
Definition, Purpose and
IFRS measure
Reconciliation
Income statement continued
Adjusted profit
Profit before tax Calculated as profit or loss before tax excluding the items detailed in note 2.4 which include: business
before tax
exits (trading results, non-trading expenses, and any gain/(loss) on business disposal); acquired
intangible amortisation; and impairment of goodwill and acquired intangibles.
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.
Adjusted effective
Tax rate
Calculated as the income tax credit or expense on the adjusted profit or loss before tax divided by the
tax rate
adjusted profit or loss before tax.
The table below shows a reconciliation:
Adjusted profit/(loss) before tax (note 2.4)
Tax on adjusted profit/(loss) (note 2.6.1)
Adjusted profit/(loss) after tax
2022
£73.8m
£31.8m
20211
(£122.8m)
(£4.0m)
£105.6m
(£126.8m)
The effective tax rate for 31 December 2022 is calculated from the current year elements of
corporation (£12.6m) and deferred taxes (£(52.5)m) (2021: £(14.5)m and £60.3m respectively), which
The Board believes that this tax rate provides an indication of the effective average tax rate across
exclude one-off items.
the Group on adjusted profit before tax.
For further information refer to note 2.6.
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 Board believes that this provides an indication of basic earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted basic earnings per share refer to note 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 Board believes that this provides an indication of diluted earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted diluted earnings per share refer to note 2.7.
Cash flows and net debt
Cash flows
generated/(used)
by operations
before business
Cash
generated /
(used) by
operations
exits
Calculated as the cash flows generated from operations excluding the items detailed in note 2.10.2
which includes: business exits (trading results, non-trading expenses) and pension deficit
contributions which have been triggered by disposals.
The Board believes that this measure is useful for investors because it is closely monitored by
management to evaluate the Group’s operating performance and to make financial, strategic and
operating decisions.
provided in note 2.10.2.
A reconciliation of reported to cash generated/(used) by operations excluding business exits is
Free cash flow
before business
Net cash flows
from operating
Calculated as cash generated from operations after: capital expenditure; income tax and interest; and,
the proceeds from the sale of property, plant and equipment and intangible assets, but before the
exits
activities
impact of business exits.
1. 2021 adjusted results have been re-presented - please refer to note 2.4 for further details.
2. 2021 adjusted EBITDA has been re-presented excluding changes in business exits - please refer to note 2.4 for further details.
From 1 January 2022, the Board considers free cash flow and cash generated from operations before
business exits provide a more representative measure of the sustainable cash flow of the Group.
Free cash flow is a measure used to show how efficient the Group is at generating cash and the
Board believes 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 free cash flow excluding business exits is provided in note 2.10.2.
N
U
R
New APM in the year
Definition updated in the year
Comparatives re-presented
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Capita plc Annual Report 2022