Capita plc Annual Report 2022 Welcome to the Capita plc Capita plc Annual Report 2022 Annual Report 2022 | Our business | | CEO’s | | Our | | | --- | --- | --- | --- | --- | --- | | model | | review | | people | | | | Read more about our business | | Read more from our CEO | | Read more about our people | | | model on pages 6 and 7. | | on pages 10 to 25. | | on pages33 to 36. | ## Our purpose ## Capita is a purpose-led | | Strategic report | Corporate governance | | Financial statements | | | --- | --- | --- | --- | --- | --- | | organisation which exists | 1 2022 highlights | 66 Chairman’s report | | 124 Independent auditor’s report | | | | 2 At a glance | 69 Board members | | 142 Consolidated financial | | | to ‘create better outcomes’ | 4 Our purpose and strategy | 71 Corporate governance | | | statements | | | 6 Our business model | | statement | 147 Notes to the consolidated | | | | 8 Chairman’s introduction | 84 Directors’ responsibility | | | financial statements | ## for all its stakeholders. | | 10 Chief Executive | | | statement | 215 Company financial | | | --- | --- | --- | --- | --- | --- | --- | | Read more about our purpose on page 4. | | Officer’s review | 85 Committees | | | statements | | | 16 Public Service | | 86 Nomination Committee | | 217 Notes to the Company | | | | 20 Experience | | 88 ESG Committee | | | financial statements | | | 24 Portfolio | | 90 Audit and Risk Committee | | 228 Additional information | | | | 26 Chief Financial | | 99 Directors’ remuneration | | 228 Shareholder information | | | | | Officer’s review | | report | 229 Alternative performance | | | | 33 Our people | | | | | measures (APMs) | 36 Responsible business at a glance 37 Responsible business 46 Non-financial information statement 47 Stakeholder engagement 49 TCFD 54 Risk management Cautionary statement 64 Viability 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 This Annual Report, other year. Pages 1 to 122 of thisAnnual Report corporate publications, comprise a report of the directors which has ourlatest news and been drawn up and presented in accordance with English company law, and the liabilities announcements, and more of the directors in connection with that report information about us is shall be subject to the limitations and available onour website, restrictions provided by such law. Where thedirectors’ report refers to other reports www.capita.com 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. ### Strategic 2022 Capita plc 1 report highlights Annual Report 2022 ## 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 | Reported profit | Reported free | | Points swing in | Points swing in | Suppliers paid | | Total shareholder | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 3 | | | | 4 | | | | before tax | cash flow | | employee net | customer net | within 60 days | | return (TSR) | | | | | | promoter score | promoter score | | | | | £3,014.6m | £61.4m | £24.5m | | | | | | | | (2021: £3,182.5m) | (2021: £285.6m) | (2021: £(264.3)m) | | +15pts | +6pts | 99% | | (33.5)% | | | | | | (2021: -22pts) | (2021: -3pts) | (2021: 98%) | | (2021: (6.9)%) | 1 | Adjusted revenue | Adjusted profit/(loss) | | Free cash flow before the | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 1 | | 3 | | | | | | | | before tax | | impact of business exits | | Employee | Diversity: gender | Reduction in | CO | 2 emissions | 6 engagement M/F carbon footprint (location-based) 7 | £2,845.8m | £73.8m | £29.0m | index | | (location-based) | Scope1,2 and 3 | | --- | --- | --- | --- | --- | --- | --- | | (2021: £2,777.8m) | (2021: £(122.8)m) | (2021: £(218.6)m) | | | | | | | | | 65% | 51/49% | 57% | 39.0m | | Reported earnings per | Adjusted earnings/loss | | (2021: 56%) | (2021: 51/49%) | (2021: 52%) | gross tonnes | 2 | share (continuing ops) | pershare | | | | | | (2021: 43.6m gross tonnes) | | --- | --- | --- | --- | --- | --- | --- | --- | | 4.47p | 6.20p | Voluntary | Diversity: | | Reduction in carbon | | | | | | | | 5 | | 6 | | | | | employeeturnover | ethnicity | | footprint | (market-based) | | | (2021: 13.33p) | (2021: (7.74)p) | | | | | | | | | | 30% | 37/24% | | 71% | | | | | | (2021: 30%) | (2021: 56/19%) | | (2021: 61%) | | | 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. 4. Data includes invoices paid through Capita UK companies. Refer to alternative performance measures (APMs) on pages 229 to 231. 5. White/Black, Asian and minority ethnic. 39% of people chose not to respond or not to specify. 2. Refer to note 2.7 to the consolidated financial statements. 6. Reduction in carbon footprint based on emissions per headcount from 2019 baseline. See pages 42 and 43 for more information. 3. Refer to note 2.10 to the consolidated financial statements. 7. Scope 3 for business travel only. See pages 42 and 43 for more information. ### Strategic At a glance Capita plc 2 report Annual Report 2022 ## About us ## Capita is a leading The Turing Scheme, which provides global ## provider of business opportunities in education and training for ### What we do as a business students, will see a record 38,000 students ## process services, driven participate over the 2022–23 academic year. ## by data, technology ## andpeople. ### Everything we do is underpinned by our ### Consult ### purpose: to ‘create better outcomes’ – We work collaboratively ### forour employees, clients and their withclients as partners, drawing on our practical ### customers, suppliers and partners, experience and deep ### investors, andsociety. sectorknowledge ### Every day we help millions of people by We have secured a five-year ### delivering innovative, digitally enabled agreement with ScottishPower to ### solutions to transform and simplify the deliver customer support services. ### connections between governments and ### citizens, businesses and customers. ### Capita ### We partner with clients and provide them Capita is a leading provider ### with the insight and technologies that allow of business process services, ### them to focus on what they do best and driven by data, technology and people ### make peoples’ lives easier and simpler. ### We operate across two core divisions – Deliver ### Transform ### Public Service and Experience – in the We provide business We create innovative, ### UK,Europe, India and South Africa; a process services and digitally enabled solutions operations, and software ### thirddivision, Portfolio, comprises our to transform businesses We deliver training to the Royal Navy toprovide and networks, often under and services ### remaining non-core businesses being motivated and experienced personnel to deal multi-year contracts ### prepared for disposal. withchallenges in the future. ### Strategic At a glance Capita plc 3 report continued Annual Report 2022 ## Capita’s structure in 2022 ### Two divisions focused on distinct market and client needs; ### a third division of non-core businesses. ## Capita Public Service Capita Experience Capita Portfolio 2 The number one strategic supplier of Experience is one of western Europe’s Remaining portfolio of valuable but non-core business process services (BPS) and leading customer experience businesses. businesses, targeting sale by half year 2023, 3 | technology services to the UK Government. | Itis the market leader in the UK | | | and ranks | depending on market conditions. | | --- | --- | --- | --- | --- | --- | | | | 3 | 3 | | | | | fifth in Germany | and Europe | . | | | Main verticals: Education & Learning; Main verticals: Telecoms, Media Pillars: People; Software; Business Local Public Services; Health & Welfare; &Technology; Multi-industry; and Solutions; Travel; and Fera Defence, Fire & Security; and Justice, FinancialServices Sold during 2022: Technology, Property Central Government & Transport | See page 16 for further information. | | | | See page 20 for further information. | | | | See page 24 for further information. | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | | 1 | | | | 1 | | | | Adjusted revenue | | Adjusted divisional | | Adjusted revenue | | Adjusted divisional | | Adjusted revenue | | Adjusted divisional | | | | | | 1 | | | | 1 | | | | 1 | | contribution | | operating profit | | contribution | | operating profit | | contribution | | operating profit | | | | | contribution | | | | contribution | | | | contribution | | Divisional financial performance: (see also pages 19, ## 51% 63% 40% 26% 9% 11% 23 and 25) is presented on an adjusted basis. Reported is not included, as the Board assesses divisional (2021: 51%) (2021: 91%) (2021: 41%) (2021: 9%) (2021: 8%) (2021: 0%) 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. 1. Refer to APMs on pages 229 to 231. 2. TechMarketView. 3. NelsonHall. ### Strategic Our purpose Capita plc 4 report and strategy Annual Report 2022 ### Capita ‘creates better outcomes’ for all ### itsstakeholders: ## Our purpose Our people by providing an Number of people ### environment in which they in2022 ### canthrive and develop ## We are driven by our purpose: ## 50,000 ## to ‘create better outcomes’– ## for our employees, clients ### Clients and customers by Customer net ## and customers, suppliers ### delivering solutions, transforming promoter score ## andpartners, investors, (cNPS) in 2022 ### businesses and services, and ### bydelighting them ## andsociety. ## +35pts ## We are committed to being ### Suppliers and partners by Supplier payment ## aresponsible business – ### treating them fairly and compliance in 2022 ## inhow we operate, serve encouraging them to deliver ## 99% ## society, respect our people ## and the environment, and ### Everyone at Capita strives to create better ### Investors by delivering Share price ## deliver improving returns ### outcomes for all our stakeholders by living ### improving free cash flow movement in 2022 ## toourinvestors. ourvalues of being: ### andreturns ## (12.2)p Open Collaborative ### Society by acting as a Reduction in carbon footprint in 2022 Ingenious Effective ### responsible business for ### thecommunities we serve ## 4.6m ### We bring these values to life through our day-to- gross tonnes ### day behaviours and by putting our purpose at the ### centre of everything we do. ### Strategic Our purpose Capita plc 5 report and strategy Annual Report 2022 continued ### Measured through our KPIs: Aligning with our ### performance-based ## Our strategy ### remuneration: ### To create a simpler, stronger and more successful business that ### will drive organic revenue growth and sustainable free cash flow. ### Financial Non-financial | | | 2 | | executive directors | | --- | --- | --- | --- | --- | | | Adjusted revenue | | Employee NPS points swing | | | • A focused business with strong positions and | | | | determined by: | growth potential ## £2,845.8m +15pts • Using common, scalable capabilities (2021: £2,777.8m) (2021: -22pts) ### Simplify • Empowering our people to deliver Free cash flow before the Customer NPS points swing • Streamlining our cost base 2 impact of business exits ## £29.0m +6pts • Winning more of the right work (2021: £(218.6)m) (2021: -3pts) • A stronger balance sheet through improving cashgeneration and disposal proceeds Adjusted earnings/(loss) per Suppliers paid within 60 days Free cash flow ### Strengthen 2 share Revenue • Addressed the pension deficit Profit before tax • Investment in technology and people | | 6.20p | 99% | | | --- | --- | --- | --- | | | (2021: (7.74)p) | (2021: 98%) | | | • Purpose-led, responsible business | | | Read more in the directors’ remuneration report | Net financial debt (pre-IFRS 16): onpages 99 to 122. • Innovative and creative 2 adjusted EBITDA | | Succeed | • Accelerating revenue growth | | | | --- | --- | --- | --- | --- | | Annual bonus for the | | | 1 | 0.5x | | | | • Delivered positive free cash flow | in2022 | | (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. Strategic/personal objectives ### Strategic Our business Capita plc 6 report model Annual Report 2022 ### Our expertise and resource What we do as a business ## How we ## createvalue Market expertise Capita is a leading provider of Our consultants: business process services, driven We have deep understanding of our clients • Work collaboratively with clients as bydata, technology and people. At Capita, we provide business process services, and their markets; we are organised in market trusted, long-term partners. ### drivenbydata, technology and people. verticals that reflect our client expertise. We are focused on creating better • Proactively identify opportunities to outcomes and value by working Technological resources improve our clients’ businesses. collaboratively with our clients Our markets • Generate forward-looking insights We offer technology-led, digitally enabled aspartners. by analysing, researching and services and solutions. We are investing in We operate in large and growing markets, at scale and We provide consulting, transformation debating trends and data. digital and software development. We partner often with significant market share. and professional delivery services, with global technology leaders. • Support the design and drawing on our practical experience; implementation of better solutions Public Service Client relationships and provide digitally enabled for clients. servicesand solutions, often under We form longstanding partnerships with • Maximise opportunities across ### BPS spending growing at c.5% per annum multi-year contracts. awide range of clients, from blue-chip Capita, driving pipeline and creating Government spending in the UK with private organisations businesses to the public sector, to transform We consult, transform and deliver. pull-through revenue. is around £176bn and spending on BPS is growing at their activities by delivering insight and around 5% per annum. As Capita has won and delivered Consult Our transformation services: innovative solutions. more digital transformation and IT contracts across the We work collaboratively with clients as • Improve process quality, reliability public sector, the UK Government now regards us as a Our people partners, drawing on our experience and efficiency. digital service provider alongside delivering traditional We are a people-focused business, built and deep sector knowledge. outsourcing scopes of work. • Help reduce risk and cost. around 50,000 skilled and committed (Source: TechMarketView) Transform • Create new opportunities for clients. employees who have deep understanding ofour clients’ markets and needs. We create innovative solutions to • Allow clients to focus on what they Experience transform businesses and services. do best. International infrastructure ### Outsourced market growth of c.5% per annum Deliver Our digitally enabled services: We have an international delivery platform, The global customer experience market is valued at around with more than 18,000 people providing We provide digitally enabled • Help simplify clients’ services. £277bn and the outsourced element is expected to grow at technology solutions and customer servicesand operations, often • Assist better decision making. around 5% per annum. The drive to digital includes engagement services such as call centres undermulti-year contracts. acustomer desire to shift to self-service, where • Contribute to process acceleration. and customer support, principally in Europe, convenience matters, and high-quality human interactions, • Improve end-customer experiences. India and South Africa. supported by technology when needed. (Source: Everest) ### Strategic Our business Capita plc 7 report model continued Annual Report 2022 ### Generating financial value Better outcomes for stakeholders ### We generate revenue, profit and cash flow Efficient operations Our people by providing an environment ### by providing valuable services to our in which they can thrive and develop. Running our business as efficiently as we clients,consistently and efficiently over can allows us to pass savings through to thelong term. ourclients and customers over the long Transformational services term,aswell as generating value for our shareholders. During 2022, our operating Clients procure our digitally enabled services profit margin improved from a negative 2.8% ### and network solutions through contracts, Clients and customers by delivering to positive 3.6% through efficiencies from the ### often long term, to effect significant change solutions, transforming businesses business structure we implemented in 2021, in their businesses. In 2022, approximately ### andservices, and by delighting them. 1 reducing the cost of poor quality and 76% (2021: 77%) of Group adjusted revenue adopting efficiency-generating technologies was underpinned by long-term contracts, such as automation. with around 15% (2021: 15%) from short-term contracts. Ourorder book at 31 December Generating cash flow ### 2022 was £5.8bn. Suppliers and partners by treating We aim to generate sustainable free cash ### them fairly and encouraging them Transactional services flow from revenue growth, increasing profit ### todeliver. margins through greater efficiency and Approximately 9% (2021: 8%) of adjusted 1 eliminating the cash cost of poor-quality revenue comes from our transactional operations. During 2022, we delivered businesses where we sell products and positive free cash flow before the impact of professional services to our clients across 1 | | | business exits | of £29.0m compared with | | | --- | --- | --- | --- | --- | | awide range of functions. In 2022, this | | | | Investors by delivering improving free | | | 1 | negative free cash flow before the impact of | | | | represented £244.8m of adjusted revenue | . | | | | | | | | 1 | cash flow and returns. | | | | business exits | 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. ### Society by acting as a responsible ### business for the communities we serve. 1. Refer to APMs on pages 229 to 231. ### Strategic Chairman’s Capita plc 8 report introduction Annual Report 2022 | In 2022, Capita made further progress as a | The patience and ongoing support of our | | --- | --- | | simplified and more focused organisation, built | shareholders is very much appreciated and, | | around two core divisions with strong positions | looking forward, we remain committed to | ## Making good progress, in attractive and growing markets, and driven by improving long-term value creation for them its purpose. andall ourstakeholders. ## driven by our purpose ### The macroeconomic backdrop for all Strategy and performance businesses including Capita, and our While 2021 marked the completion of Capita’s employees, remained challenging – despite transformation, 2022 saw us embedding thewaning threat of the Covid pandemic – amid thenew corporate structure, stabilising the political uncertainty and inflationary pressures. business, and building on the platform Despite the difficult external environment, we for growth. delivered on our commitment of improving We are now fully oriented towards our clients ### We delivered on our commitment of improving financial performance and moved towards the and their own organisational and commercial completion of the disposal processes in our ### financial performance and moved towards the requirements, rather than approaching business Portfolio division. ### completion of the disposal processes in our from our previous, product-focused perspective. Aligned to our purpose, the welfare and ### Portfolio division.” We are committed to providing a consistently wellbeing of our tens of thousands of people David Lowden, Chairman high quality of service delivery in order to remained a top priority. delight our clients and customers – and, It was very important, especially amid the through this, will create more opportunities, cost-of-living crisis, to continue to support andaccelerate andincrease growth. andcare for our employees, particularly the This has been reflected in our contract lowest paid. renewalrate which has remained very high, I would like to thank all our colleagues for their andour continuingly positive customer net hard work, professionalism and commitment promoter scores. over the last year. In 2022, we increased our adjusted revenue– With our structural transformation done, the with growth higher than it has been for seven senior leadership team and the business are years – and produced adjusted profit and now veryfocused on the needs of our clients positive free cash flow. andcustomers. The progress and growth have been At the same time, we recognise that our mostvisible in our Public Service division, investors have yet to see the financial benefits withExperience still somewhat behind in of the company’s improved performance. itsevolution. ### Strategic Chairman’s Capita plc 9 report introduction Annual Report 2022 continued He successfully steered the organisation We were delighted to welcome Janine As a responsible business, we continued through challenging times, overseeing the Goodchild, a clinical trainer in our healthcare tomake progress on delivering on our structural transformation and the return to team, as our new employee director. environmental, social and governance (ESG) ### Focused investment on adjusted revenue growth. objectives – and driving towards our target to I would like to thank all members of the Board | digital is the way forward and, | | | befully net zero on carbon emissions by 2035. | | --- | --- | --- | --- | | | Matthew Lester, non-executive director, also left | for their commitment, continued support and | | | backed by clear strategic | the Board in 2022 and I would like to thank him | hard work. | To enhance how we serve and respect our | | | for his five years of service. | | stakeholders, including society and the | ### plans, will be the main driver ### Culture and sustainability environment, we have also introduced ### of growth for us.” As Chair of the Audit and Risk Committee, he At Capita, we remain committed to our anESGcommittee to the Board. enhanced our focus on financial controls and purposeof creating better outcomes for ### helped identify and manage the material risk Looking forward allstakeholders – our people, clients and But that division has stabilised its revenues, factors that Capita continues to face. customers, suppliers and partners, investors, We live and work in uncertain times, which andwe are confident of seeing growth come Another non-executive director, John Cresswell, and society. willcontinue to present challenges, but which through successfully. has recently announced his intention to step will also provide opportunities – and we need As part of that, for the past three years, we have In 2022, we started to concentrate even more down from the Board at the end of March 2023; toconsider how we respond to those as been proud to support thousands of our lowest on our digital transformation capabilities; and I would also like to thank him for his abusiness. paid people as an accredited payer of the real processes, standardisation and automation professionalism, commitment and valuable living wage – and have recently invested to We are committed to continuing to improve areall being improved. contribution during his seven-year tenure. continue that important commitment. performance on behalf of all our stakeholders. Focused investment on digital is the way In June, we welcomed Brian McArthur-Muscroft, We have also embedded our virtual first We have to drive, not just towards increased forward and, backed by clear strategic plans, a highly experienced chief financial officer and hybridworking model, introduced an employee revenue growth, but to profitable growth with will be the main driver of growth for us. board director, as a non-executive director. leadership council, and continued to work on improved, cash-backed margins. Increased We have now also sold a significant proportion Brian has taken over Matthew’s role as head of increasing diversity and inclusivity across the digitalisation and greater transformation of our non-core Portfolio businesses, which the Audit and Risk Committee, and will continue organisation, and addressing our pay gaps. capabilities should enable that tohappen. hashelped strengthen the balance sheet to focus on the increased discipline that has But to be able to delight stakeholders, including There is still more to be done at Capita and andmaterially reduce our debt, and enabled been brought to bear across the organisation. clients and customers, also requires an challenges remain. But I am confident of ustoaddress other responsibilities such as On the Board, we are committed to making engaged workforce, who like and want to further progress towards long-term revenue additional contributions to the pension fund. sure we have the necessary skills, expertise continue working for the organisation. growth – and of securing a sustainable future and diversity to help support the delivery of as a profitable business, delivering positive ### The Board and governance So, while we are pleased to have seen a rise Capita’s strategy. free cash flow. It was my privilege to step up to become inboth our employee net promoter score and Our first ever employee directors, Lyndsay engagement index, we must continue to focus David Lowden Chairman of Capita in 2022. Browne and Joseph Murphy, stepped down on the welfare and needs of our colleagues. Chairman On behalf of the Board, I would like to thank my inJune at the end of their three-year tenures. predecessor Sir Ian Powell for his outstanding I would like to thank them both for the significant leadership over the previous six years. contribution they made to the Board, providing fresh insight and a vital new perspective. ### Strategic Chief Executive Capita plc 10 report Officer’s review Annual Report 2022 ### Summary further disposals of non-core businesses, achieving gross disposal proceeds of c.£485m, Following the completion in 2021 of the Group’s which has substantially reduced our net debt. | An important year | transformation, 2022 was an important year of | | | --- | --- | --- | | | stabilisation for Capita and we are pleased to | Market conditions and dynamics have | | | report that the Group delivered an acceleration | changedsignificantly over the past year, for | ## of stabilisation | inadjusted revenue growth, an improvement | both businesses and consumers. But we | | --- | --- | | from last year’s adjusted loss before tax to | believe Capita remains a resilient business, | | aprofit of £74m following cessation of | notwithstanding the challenging macroeconomic | ## and acceleration restructuring spend, and positive free cash environment, as we use our know-how, digital flowin line with expectations. tools and process expertise to deliver cost- effective solutions to clients and customers. At the start of 2022, we set out our six corporate priorities: to live our purpose; invest in our I would like to thank our colleagues throughout Our strategy is delivering and we achieved a colleagues; grow the business; deliver for our the organisation for their continued hard work, clients; deliver sustainable free cash flow; and commitment and professionalism. ### turnaround in our financial performance in 2022.” reduce net debt. We made progress against Jon Lewis, Chief Executive Officer The foundation that Capita now has in place, each of these priorities which has provided following our transformation and stabilisation afirm foundation for the success of the phases, will allow us to accelerate our growth business moving forwards. Our strategy is further in 2023 and beyond. delivering and we achieved a turnaround in | ourfinancial performance in 2022. | Living our purpose | | --- | --- | | The Group’s organisational structure now | Creating better outcomes for all key | | prioritises client needs alongside operational | stakeholders is Capita’s purpose and is our | | delivery, and we were pleased to have seen | licence to operate. It underpins everything we | | asix-point increase in customer net promoter | do as a business. | score (cNPS) over the year to +35 points. We align ourselves to the five principles of a | We are also creating a more compelling | purpose-driven business within the Blueprint for | | --- | --- | | working environment for our colleagues, with an | Better Business. These include being honest | | increase of 15 points in our employee net | and fair with clients and suppliers, being a good | | promoter score (eNPS). But there is still more to | citizen, being a responsible and responsive | | do in this area, and we have a comprehensive | employer, being a guardian for future | | plan to deliver further progress in 2023. | generations, and having a purpose which | delivers long-term sustainable performance. We are on a path to sustainable free cash flow | generation, having delivered positive free cash | Globally, we have introduced purpose-related | | --- | --- | | flow in 2022 and having continued to strengthen | remuneration metrics and objectives, to embed | | the balance sheet following the completion of | further our purpose-driven behaviours across | ### Strategic Chief Executive Capita plc 11 report Officer’s review Annual Report 2022 continued career opportunities for the economically inactive and supporting the UK Government’s Levelling Up agenda. In 2022, 85% of ### We are committed to helping employees gave our hybrid working model ### our employees navigate the asareason to stay with Capita, and we have ### cost-of-living crisis.” seena positive effect on both productivity andabsenteeism. However, similar to our competitors in the the Group; these are set by the new ESG outsourcing market, colleague attrition remains Committee of the Board and approved by a key challenge for the Group. We are working theRemuneration Committee prior to final to identify the drivers of attrition and take Board approval. meaningful action to reduce it to a sustainable | Diversity was a key focus during 2022 and, as | level. This year we introduced the career path | | --- | --- | | a Group, we have set multi-year targets for | framework to both help employees’ | | gender and ethnic equality, diversity and | development and shape their future progress, | | inclusion in senior leadership. The Group is | creating long and fulfilling careers at Capita. | | ahead of these targets with 42% female senior | The rollout of the career path framework across | | leadership (globally) and 14% ethnic diversity | the Group will be completed in 2023. | in UK senior leadership, including 3% Black Attrition rates have improved in a number representation at the end of 2022. ofareas such as within our Technology | In addition, our Board and Executive | andSoftware Solutions (TSS) function and | | --- | --- | | Committee are both currently 44% female and | PublicService, but there are still some parts | | 22% ethnically diverse, well above the diversity | ofExperience where they remain high. | | levels of most UK boards and executive teams. | Addressing and reducing attrition across | theGroup represents a significant future Employee engagement and investing in our cost-saving opportunity. colleagues was a corporate priority in 2022. We | paid specific attention to better communication, | We are committed to helping our employees | | | --- | --- | --- | | investment in training, and development of the | navigate the cost-of-living crisis, particularly our | | | career path framework. We have a compelling | lower-earning colleagues. We have confirmed | | | employee value proposition and we saw a +15 | our commitment and retained our status as a | | | point improvement in eNPS in 2022. | real living wage accredited employer in the UK; | Capita has launched the business’s firstemployee leadership | and, through our 2023 annual salary review ### We are committed to remaining a virtual-first council. This comprises 11 individuals, drawn from different process, pay rises will be heavily weighted ### organisation. Our hybrid working model allows parts of the company, who have been identified as potential towards the lower earners in the organisation, a large proportion of our colleagues to work ### with the highest earners being asked to forgo future leaders within the organisation remotely all or part of the time. This has helped a basic pay increase. improve employee recruitment, while unlocking ### Strategic Chief Executive Capita plc 12 report Officer’s review Annual Report 2022 continued Elsewhere within the Group, we launched Sustainalytics, a leading independent ESG divisions, led by our dedicated client partners, Project Compass to provide ex-offenders with andcorporate governance research, ratings are also generating a better-quality pipeline, cNPS remains high meaningful employment upon leaving prison. and analytics firm. Our newly created ESG enabling us to accelerate revenue growth. We also joined forces with a social impact firm Committee provides additional strategic We are taking a proactive approach to ## +35pts to assist military veterans with finding jobs to oversight, accountability and guidance to mitigating the pressures of rising inflation and, help fill the UK’s digital skills gaps on their ensure we maintain our high standards. (2021: +29pts) in 2022, we believe this resulted in no material return to civilian life. We were pleased to retain Our performance on supplier metrics has been profit impact from inflation on the Group. To our status as a gold award employer under the maintained; for example, 99% of all suppliers provide future protection, we have focused Armed Forces Covenant. | | | were paid within UK Government guidelines of | efforts on ensuring we have robust contractual | | --- | --- | --- | --- | | For colleagues based outside the UK, we have | Outside the UK, we made a donation at the | 60 days, a one percentage point increase from | protection in place against inflation. Where | | a similar and fair approach, paying colleagues | start of the Ukraine war to the Red Cross, | 2021. We were also slightly ahead of our 33% | protection does not currently exist, we have | | in line with our global pay principles. In order to | whileour colleagues in Poland have supported | target spend with SME suppliers. | seen success from commercial dialogue with | | support our colleagues further, we have also | refugees with donations and hosted refugee | | clients to ensure we are being fairly | ### Markets and clients launched a number of financial wellbeing families. In South Africa we funded a learners remunerated in changing market conditions. initiatives including direct financial support, programme to help underprivileged groups to We are a leading provider of business process We also have embedded cost-reduction such as salary advances, and the Level app tackle digital exclusion. services (BPS), driven by data, technology and programmes across the Group to help offset which provides support for financial budgeting. people. Both our Public Service and inflationary pressures. More widely, across our contract bids, we have Experience divisions have strong positions in During 2022, we continued to develop and seen our clients placing a greater emphasis on ### Digital transformation their markets – as the UK Government’s largest embed our health, safety and wellbeing policies ESG in their tender appraisal processes. This is 2 IT outsourcing supplier and as the UK’s There is a major market opportunity across and standards for all our colleagues within the an area where we typically score well, reflecting 3 | | | leading customer services provider | . | | both core divisions to be more cost effective | | --- | --- | --- | --- | --- | --- | | divisions and business units. We are driving | our success in transforming Capita into a truly | | | | | | | | | | 2,3 | and win more business, as we improve our | | assurance programmes around our | purpose-driven, responsible business. | Both markets are growing at around 5% | | per | | digital capabilities. requirements, growing the wellbeing and annum. Some sub-sectors within the markets We previously outlined our plans to take our healthcomponents of our new occupational are growing at much higher rates, as both the Both core divisions are highly ranked by carbon footprint to net zero by 2035, ahead of health services, and increasing the digital public and private sectors invest in digital TechMarketView and Information Services the UK Government’s target of 2050. Our transformation of the tools we use to care for transformation to drive efficiency, amid Group for their client delivery. We remain on three-phased approach aims to see us reach our employees. In 2022 our annual employee economic uncertainty and fiscal strain, and ajourney in which we are transitioning from Scope 1 net zero by 2025 and Scope 2 and 3 wellbeing index improved by 4%, we also deliver better citizen and customer service. Our providing traditional business process net zero by 2030. During the year, the Science introduced SafetyNet, providing guidance overall value proposition remains strong in the outsourcing (BPO) to BPS, where services and Based Targets initiative verified the Group’s andsupport to teams dealing with complex current macroeconomic climate where we can process delivery are digitally enabled. 2035 net zero target as compliant with the | issues related to wellbeing, safeguarding | | drive efficiency and productivity for the benefit | | | --- | --- | --- | --- | | | highest standards of target-setting methodology | | In 2022, the UK Government published its | | orvulnerability. | | of customers and citizens. | | | | and Capita was awarded a climate change A list | | roadmap for digital and data, outlining its | | | award by the Carbon Disclosure Project (CDP). | Our deep sector process knowledge and | intention to spend up to an additional £8bn | | | | market vertical divisional structure, combined | by2025 on digital, data and technology | We reduced our Scope 1 and 2 emissions by with the breadth and depth of the Group’s client transformation. As our mix of work shifts 45% compared with our 2019 base line. We are base, provide stability and resilience. The fromtraditional BPO to digital BPS, we see 2. TechMarketView. pleased to be certified as ESG low risk by incremental margin opportunity from processes 3. NelsonHall. ### Strategic Chief Executive Capita plc 13 report Officer’s review Annual Report 2022 continued | becoming standardised and repeatable, | Service, our digital technology stack will be an | | --- | --- | | withgreater contract stickiness. Previous | area of continued investment in 2023 and | | investments are starting to yield benefits, | beyond, positioning us for improved | | withthe UK Government, for the first time, | opportunities going forwards. | regarding us as a digital service provider To underpin the Group’s increase in digital BPS; alongside delivering complex outsourcing in 2023 we will be investing in a number of scopes of work. areas, including consolidation of our networks, | To support our digital offerings, we continue | improving our automation tools, and growing | | --- | --- | | toembed our TSS capability. With 4,200 | our cloud and hosting capabilities, data | | employees, TSS brings a single resource | analytics and software engineering. This will | | poolto deliver secure, resilient and predictable | enable us to meet the demands of clients, help | | digital solutions for Capita’s businesses | deliver user-centric solutions and accelerate | | andclients. We view this as the digital heart | benefit delivery. | ofCapita. The Group continues to strengthen digital We have aligned TSS partners with divisional capability within our client offerings, as we Service Delivery Managers to ensure greater invest in our technology stack and capabilities. insight into our clients’ requirements, while We have partnered with world-leading ensuring we have a pan-Capita digital roadmap technology providers such as Amazon Web with broader capabilities across the Group. Services (AWS), Salesforce and Microsoft OurTSS capabilities contributed to client tosupport the build of standardised scalable satisfaction improvements across Capita Public platforms, improving our ability to deploy ### In August 2022, Capita joined Service and Experience in 2022. The new automation, AI and analytics, and, in turn, anumber of years. New contract wins included shared-service structure has also seen a strong delivering better customer service outcomes. forces with a social impact broad customer experience support provision improvement in TSS employee engagement in ### for ScottishPower for five years, which uses AI firm to help military veterans ### Growing our business 2022, with attrition rates halving. ### conversational technology and data analytics fill the UK’s chronic digital In 2022, the Group won contracts with a total Operationally, the creation of a shared service todeliver better outcomes and efficiencies. ### skills gap contract value (TCV) of £2,853m (2021:£3,420m) technology delivery function facilitated a the reduction reflecting the scale andlumpy Renewed contracts included a five-year significant step-up in new daily software nature of timing of contract award phasing in renewal with the BBC (providing TV licensing releases, delivering 33% more releases Public Service, partially offset by astrong collection, management and administration), the division remains extremely high at 99% compared with 2021, and helped reduce the cost performance in Experience. aseven-year contract extension with freenet ofall renewals bid for. of service-credits across the contract portfolio. AG (providing customer services support for Experience had a particularly strong year, with Public Service saw a 50% reduction in TCV Our strengthened balance sheet underpins our the German telecommunications and digital a 71% increase in TCV sold, reflecting very high sold, compared with the prior year, following the ability to increase investment in digital solutions. services company), and multiple contracts levels of contract retention and growth with £925m win of the Royal Navy training contract This year we invested in a new pensions within the financial services industry, reflecting existing clients. The book to bill ratio for the in 2021. Our client renewal rate remains very platform in our Financial Services vertical to our strength in that area. The renewal rate in division was 1.2x, the highest it has been for high at 91% across renewals bid for. There was facilitate wider user self service. Within Public ### Strategic Chief Executive Capita plc 14 report Officer’s review Annual Report 2022 continued | | At 31 December 2022, the Group’s order book | We had a strong and predictable operational | More broadly, we see margin opportunity in | | --- | --- | --- | --- | | | stood at £5,805m, reducing £310m from 31 | performance in 2022, hitting customer KPIs | improving commercial terms on our existing | | | December 2021 with £2,110m order book | consistently across the year. There were | contracts and from solutions that have a higher | | Developing a more agile | additions, indexation and scope changes, | anumber of notable achievements across | digital underpin and are more scalable. | | workforce has enabled us | £2,132m revenue recognised and £288m from | thecontract portfolio, including: | | Our property portfolio and usage are a business disposals and contract terminations. ### to increase our ability to • Maintaining our 100% success delivery continued area of focus for management as we Delivery for our clients and record for both time and cost on the Royal maintain our virtual first working model. In 2022, ### meet resource demands.” ### costefficiency Navy training contract. The strength of this we permanently closed 19 properties and partnership has allowed us to bid for consolidated an additional 19, resulting in Consistently delivering for our clients is additional scopes of work such as the a23% reduction in our total square footage success in the year in each vertical, including thecornerstone of our success. Effective, Submarine Training Centre. over the past two years, reducing our annual renewals with NHS England, Barnet Council efficient client delivery and getting it right first lease payments by £22m. and with the Department for Work and • A smooth start to our work on the new time, reduces excess cost and allows us to | Pensions. We also secured growth with existing | | ScottishPower contract in June, transferring | | | --- | --- | --- | --- | | | growrevenue. | | Financial results – revenue and profit | | clients, including TfL Road User Charging and | | 400 people to Capita from the previous | | 1 | | Our cNPS improved in 2022 by six points, | | Adjusted revenue | growth accelerated in 2022 | | --- | --- | --- | --- | --- | | the Royal Navy on the Submarine Training | | service provider with no impact on | | | | | withthe overall score now at +35 points. We | | to 2.4% across the whole year with 4% growth | | | Centre. The book to bill for the division for the | | operationalperformance. | | | | | saw improvements in all divisions, reflecting | | in the second half as we delivered adjusted | | | year was 0.8x. | | • Flexible scaling of service delivery teams in our | | | 1 ourefforts to deliver for our clients and their revenue of £2,845.8m (2021: £2,777.8m). New Experience division around client peak Wider market conditions across 2022, including contract wins included the Northern Ireland customers throughout the business. In a few demand periods for retail sales across the year. changes within the UK Government, resulted in a teachers IT device refresh contract and the cases where KPI performance was not met number of significant contract tender processes The challenging market conditions, and higher Turing Scheme, as well as the annualised consistently we actively engaged in remediation seeing timeline slippage, particularly in areas of levels of employee attrition in some areas, benefit of the Royal Navy training contract and actions. This has helped improve our overall new business. Across the year, more than £3bn increased cost pressure for the Group over the price increases/indexation. The impact of these external stakeholder reputational scores, where of TCV opportunities saw their closing date move year, but developing a more agile workforce new awards was partially offset by prior-year we saw the highest annual scorethe Group has from 2022 to 2023. Our 2023 unweighted hasenabled us to increase our ability to meet losses, and reductions in contract scope and achieved since tracking began three years ago. pipeline is £7.5bn, with 70% of this reflecting new resource demands, and we have seen an volume, mainly in the Financial Services vertical To allow more consistent delivery across both clients and new business. The weighted pipeline improvement in our eNPS. in Experience. Portfolio performed well, as core divisions, we have established a flexible | for 2023 is £2.2bn, split broadly 50:50 between | | | businesses recovered from the Covid-19 related | | --- | --- | --- | --- | | | and agile workforce, which can be scaled up | We are experiencing one of the tightest | | | Experience and Public Service. | | | activity restraints of 2021. | | | and down. We have created a single delivery | labourmarkets of all time, but managed to | | | The remaining businesses within Portfolio | | recruit a significant number of people in 2022 | Reported revenue declined by 5% to £3,014.6m | organisation in each division, with common contributed £264m of TCV, which was a slight tomeet market demand. We now have the as the core business growth was more than technology stacks and processes with a high increase from that signed in 2021 on a like-for- appropriate resources to grow and maximise offset by the disposal of non-core businesses. level of agility. We are applying the same | like basis. The book to bill for the division | | revenue opportunities. | | | | --- | --- | --- | --- | --- | | | digitaltechnology to our clients and ourselves | | | 1 | | | | | Adjusted profit before tax | increased to £73.8m | remains above 1.0x. to drive cost reduction and consistency of (2021 loss: £122.8m). The improvement in profit service delivery. reflected the cessation of major restructuring spend in 2021 (£147.5m), the non-repetition of 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Executive Capita plc 15 report Officer’s review Annual Report 2022 continued ### Financial results – free cash flow area. The division now has £249.8m revenue ### andnet debt and £26.9m of profit, before the allocation of Group overheads in 2022. We delivered positive free cash flow before the | | 1 | The closed book Life & Pensions business | | --- | --- | --- | | impact of business exits | of £29.0m (2021 | | | outflow: £218.6m) and free cash flow was | | unit,which sits in Experience, continues to | | positive at £24.5m (2021 outflow: £264.3m). | | negatively affect the Group’s cash performance, | | The swing to positive free cash flow generation | | as the costs of servicing a small number of | | reflected a reduction in pension deficit | | legacy contracts significantly outweigh client | | payments from £155.5m to £38.6m and | | cash receipts. The cash outflow from this | | deferred VAT repayments from £104.1m to | | business unit is forecast to remain broadly | | £14.9m, together with an underlying | | unchanged. However, we continue to deliver | | improvement in operating cash flow conversion. | | operationally well for these clients and, while | wesupport those that remain core to our Net debt reduced further to £482.4m in 2022 Financial Services vertical, these contracts are (2021: £879.8m), as we continued to strengthen an area of continued focus from management, the balance sheet. Pre-IFRS 16 net financial as we look to reduce the adverse cash flow debt reduced to £84.9m (2021: £431.4m). The impact on the Group. reduction was achieved through our successful ### disposals programme, with c.£485m of gross Outlook proceeds received in 2022 from the sales of While the current economic and broader Pay360, the Technology and Property pillars, ### Capita’s Fire Service political environments create some uncertainty, and Capita Translation and Interpreting, as well the closed book Life & Pensions provisions we believe that the transformation of Capita ### College has launched its as those announced in 2021. | | booked in 2021 (£43.1m) and the benefit from | | thatwe completed in 2021, and the financial | | --- | --- | --- | --- | | new Aviation Firefighter | revenue growth and cost efficiencies over the | | | | | | Our disposals programme has enabled us to | turnaround of the business we delivered in | | Programme – with London | year. This was partially offset by the Group’s | | 2022, places the business in a strong position | meet £440m of debt maturities in 2021 and commitment to repay £4.9m of furlough income todeliver successfully, moving forwards. ### Oxford Airport confirmed 2022. We continue to reduce other financial received in 2021. obligations, including in respect of our pension ### asits first customer – in a We expect that our market positioning, deficit through additional contributions, and our Reported profit before tax decreased, transformed business model and focus on ### significant investment in property footprint which yielded a further | | principally reflecting the reduction in disposal | | opportunities in the digitally enabled BPS | | --- | --- | --- | --- | | thecollege’s civilaviation | | reduction in lease liabilities of £40m. | | | | gains, following the ESS and Axelos sales | | spacewill enable us to continue to accelerate | | training offering | completed in 2021 (2021 gain: £285.6m). In | | revenue growth into 2023 and to deliver profit | While market conditions have been challenging 2022, we made a disposal gain of £166.9m, growth and positive free cash flow over the in some areas, we continued to see good primarily from the sale of Pay360. We medium term. interest in the businesses remaining to be sold recognised a £169.0m (2021: £11.5m) non-cash within Portfolio. Operationally, we have Jon Lewis goodwill impairment in respect of businesses maintained our strong delivery for clients in this Chief Executive Officer within the Portfolio division. 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Executive Public Capita plc 16 report Officer’s review Service Annual Report 2022 continued ### Business units ## Capita Public Service • Education & Learning ### Public Service is well positioned, ### Capita Public Service is the number • Local Public Services 2 ### one strategic supplier of Software benefiting from its breadth of • Health & Welfare ### andIT Services (SITS) and business coverage, domain understanding • Defence, Fire & Security ### process services (BPS) to the ### and scale.” ### UKGovernment. • Justice, Central Government & Transport Alistair Murray CEO, Capita Public Service ### Employees • 11,70 0 ### Client distribution 1 Adjusted revenue • UK 3 1 2 ## £1,445.3m 5 Major contract wins and renewals (2021: £1,410.4m) 2.5% • A three-year extension to our Primary Care 2 Support England contract, worth £94m 1 Adjusted operating profit • £85m additional growth and scope, including 1 4 3 the Submarine Training Centre on the Royal Navy training contract ## £91.5m 1 80% Long-term contractual 1 16% Education & Learning 2 16% Short-term contractual 2 18% Local Public Services • An extension to the current 10-year Barnet (2021: £93.2m) (1.8)% 3 4% Transactional 3 17% Health & Welfare contract, worth up to £57m over three years 4 20% Defence, Fire & Security 5 29% • Appointment as an HMRC automation partner, which over four years could be worth up to £20m ### Financial performance ### Revenue by market (%) Competitors Adjusted revenue by type (%) Divisional financial summary 2022 2021 Change % • Fujitsu • DXC Technology 1 | Adjusted revenue | (£m) 1,445.3 1,410.4 2.5 | | | | | --- | --- | --- | --- | --- | | | | 1 | • Atos | • BJSS | | Adjusted operating profit | | (£m) 91.5 93.2 (1.8) | | | | | | 1 | • Sopra Steria | • Cap Gemini | | Adjusted operating margin | | (%) 6.3 6.6 | | | 1 Adjusted EBITDA (£m) 130.0 138.7 (6.3) • CGI • Kainos 1 Cash generated from operations before business exits (£m) 95.4 66.5 43.5 • TCS • Serco Order book (£m) 2,985.0 3,286.3 (9.2) • Cognizant • Maximus 1. Refer to APMs on pages 229 to 231. 2. TechMarketView. • Accenture Justice, Central Government & Transport | Strategic | Chief Executive | Public | Capita plc | 17 | | --- | --- | --- | --- | --- | | report | Officer’s review | Service | Annual Report 2022 | | | | continued | continued | | | | | Our markets and growth drivers | Our placement on digital frameworks and the | In 2022, we reinforced our position as an | | --- | --- | --- | --- | | | | shift in the BPS market to become more digital | important strategic supplier to the UK | | Capita Public Service is | Government spending in the UK with private | | | | | | and data-enabled provides an opportunity as | Government, reflecting continuous | 2 sector organisations is c.£176bn . Our current ### structured across five the Government seeks more cost-efficient and improvements in our delivery and strengthened 2 core addressable market is c.£13.9bn growing ### market verticals: Education effective services, while improving overall balance sheet. As Capita has won and 2 at c.5% per annum. Digital BPS is a fast- citizen experience. delivered more digital transformation and ### & Learning; Local Public growing area, while BPO is currently shrinking, ITcontracts across the public sector, the ### Services; Health & Welfare; reflecting the Government’s focus on digitally- Across the variety of services that Public Government now regards us as a digital enabled transformation. Service provides, we compete with a number ### Defence, Fire &Security; serviceprovider alongside delivering traditional, ofother providers within this fragmented market ### and Justice, Central While broader market dynamics and complex outsourcing scopes of work. including but not limited to Fujitsu, Atos, Sopra macroeconomics are expected to continue to ### Government & Transport; Steria, CGI, TCS, Cognizant, Accenture, DXC Our strength is in understanding our clients’ be challenging during 2023, Public Service is Technology, BJSS, Cap Gemini, Kainos, Serco needs and problems with our deep sector ### as well as the non- well positioned, benefiting from its breadth of and Maximus. knowledge and client partners in our chosen ### consolidated Smart coverage, domain understanding and scale, verticals working with relevant Government ### together with sales and delivery capabilities in Our strategy ### DCCsubsidiary. departments. We have invested in our coverage each vertical, offering efficient solutions and Our strategy is to create better outcomes, using on Government frameworks, through which cost savings during times of fiscal strain. our consult-transform-deliver approach. companies are able to bid for Government In 2022, the UK Government published the contracts, and we are now included on Public Service is executing on a digital strategy Roadmap for Digital and Data outlining its frameworks representing market access transformation programme, materially investing intention to spend up to an additional £8bn by ofupto £9.5bn. in our digital capabilities to create a preferred 2025 to accelerate digital, data and technology technology stack and IT ecosystem, alongside We are working with the Government to transformation in order to better respond to our traditional BPO business. This investment understand how it expects the transition future macroeconomic challenges. will underpin our ambition to transform the way todigital delivery to be completed, with we work, in line with the UK Government’s opportunities in our Health & Welfare, evolving demand for digital solutions. andDefence, Fire & Security, and Justice, Central Government & Transport verticals. We look to leverage our vast experience of | | delivering and integrating end-to-end processes | We saw success in this journey across | | --- | --- | --- | | | by deploying our digital capability in partnership | avarietyof contracts in 2022. In May, we were | | | with our UK Government clients to help them | appointed as HMRC’s new automation and | | | increase their operational efficiency and | innovation partner to develop, deploy and | | | improve the outcomes for UK citizens. | support robotic software and other automation | | In 2022, we reinforced our | | tools in order tosimplify processes and drive | operational efficiency. ### position as an important ### strategic supplier to the ### UKGovernment 2. TechMarketView. | Strategic | Chief Executive | Public | Capita plc | 18 | | --- | --- | --- | --- | --- | | report | Officer’s review | Service | Annual Report 2022 | | | | continued | continued | | | ### Growth Cost and operational excellence ### Our operational delivery Across the year, we intensified our customer Across the year, we focused on further focus through client partnering, with a embedding the operating model introduced in ### remained consistently professionalised sales force, to deliver high 2021 to ensure it met our clients’ needs across ### strong across the contract growth alongside strong operational outcomes. a broad range of services with improved ### portfolio cross-sell opportunities. There have been Public Service won contracts with £1,218m natural efficiencies from the division’s matrix (2021: £2,422m) TCV. The total TCV won operating model and we are now looking at the decreased from the prior year reflecting the Utilising our internally developed GrantIS digital tools and investments to reduce future somewhat lumpy nature of the Government platform, we successfully accelerated funding costs, as we enhance the scalability of solutions. large contract sales pipeline and, in particular, applications with the Department for Education the benefit in 2021 from the £925m Royal Navy The division’s standalone cNPS improved by for the 38,000 applications on the Turing training contract award. We saw certain nine points from 2021 to an overall score of Scheme and the product remains in use on a material bid timelines pushed into 2023, +33, including many of our key clients, contract with the Department for International particularly in the second half of the year, reflecting the commitment to client delivery and Trade. We believe there are a number of further following a number of changes within the UK consistent outcomes achieved during the year. applications for GrantIS within the grant Government. As a result, the division’s weighted management and wider distribution market. In 2022 our operational delivery remained pipeline has increased by £419m to £1,652m, consistently strong across the contract portfolio, During the year, we set up a client advisory and the 2022 book to bill ratio was 0.8x. with strong performance against all contract board to improve our understanding of At 31 December 2022, the total unweighted KPIs; for example, we delivered on all the key Government bid processes and requirements to pipeline was £7,858m, a decrease of £291m milestones on the Royal Navy training contract help us become an even more effective service ### from December 2021, reflecting the TCV won and have now started running the Royal Navy’s In April 2022, Capita provider. In the long term, we expect this to inthe year and the number of additions to the maritime composition training system. In ### improve win rates, our origination of bids, secured a two-year contract pipeline across the year. addition, we launched the Aviation Fire ### andour cNPS, as we see further alignment extension with Northern Programme at the Fire Service College, while inour offerings. We continue to see strong performance on ### the Job Entry Targeted Support contract Ireland’s Education contract renewals with a 91% win rate across delivered in 18 months more than 1.5x the ### renewals bid for, with extensions with NHS Authority to continue to target number of job starts. Within our Smart ### England, Barnet Council, the Department for deliver the managed IT DCC subsidiary there are now 10 million first Work and Pensions, and the Northern Ireland ### generation meters connected to the DCC service for allofNorthern Education Authority. On all opportunities bid for, ### secure nationwide network. Ireland’s 1,100schools 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. | Strategic | Chief Executive | Public | Capita plc | 19 | | --- | --- | --- | --- | --- | | report | Officer’s review | Service | Annual Report 2022 | | | | continued | continued | | | | This consistent performance has reduced the | restructuring spend in 2021 (£5m) and margin | | --- | --- | | financial burden on the division, with the major | from contract wins and increases in volumes. | | contracts now delivering improving profit and | The division also benefited from the mutual | | cash flow, alongside growth opportunities such | conclusion ofthe Electronic Monitoring Service | | as the Submarine Training Centre and with our | transformation programme in 2021, which | | TfL Road User Charging contract. | resulted in £9m of costs being incurred in | theprior year. We have now commenced investment to underpin efficient operations in future years, Cash generated from operations before 1 | automating common operational activities, with | business exits | increased by 43.5% to £95.4m, | | --- | --- | --- | | financial payback expected from 2023. We are | reflecting the working capital benefit from | | | increasingly using shared service centres to | contracts moving into the operational phase, | | | provide resourcing flexibility and to ensure we | offset by utilisation of customer contract | | | service our contracts consistently. | provisions in 2022. The 2021 cash flow was | | impacted by the repayment ofdeferred VAT ### Financial performance from 2020. 1 Adjusted revenue increased by 2.5% to ### Outlook £1,445.3m, reflecting the annualisation of the | | Royal Navy training contract and additional | In 2023, we expect accelerated revenue | | --- | --- | --- | | | growth opportunities within the contract and | growth, particularly in our Education & | | | wins such as the Northern Ireland teachers | Learning, and Defence, Fire & Security | | | ITrefresh contract. Revenue also benefited | verticals, as volumes on existing contracts and | | In 2022, we delivered on all the key milestones of | from additional volumes in the Justice, Central | transactional revenueincrease. | Government & Transport vertical and the ### our Royal Navy training contracts, and have now Improvements in the division’s operating margin running of the first full test cycle of primary are expected to be achieved, as we continue to ### started running the Navy’s maritime composition school curriculum assessments in England win work at appropriate rates of return and ### training system forthe Standards and Testing Agency (STA), efficiencies are realised from our simplified following cancellation of the previous year’s organisation and technology investment. 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. 1 Adjusted operating profit 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 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Executive Experience Capita plc 20 report Officer’s review Annual Report 2022 continued ### Business units (new split from 2023) ## Capita Experience • Telecoms, Media & Technology ### Our service-delivery options ### Capita Experience is one of western • Financial Services ### Europe’s leading customer experience across different geographies • Energy & Utilities | businesses. It is the market leader | | | offer our clients flexibility and | | | --- | --- | --- | --- | --- | | | 4 | 4 | | • Retail | | inthe UK | and ranks fifth in Germany | | | | ### provide a growth opportunity 4 | andEurope | . | | | | --- | --- | --- | --- | | | | going forward.” | Employees | | | | Corinne Ripoche | • 31,000 | CEO, Capita Experience ### Client distribution 1 • UK, Ireland, Germany and Switzerland Adjusted revenue ### 2 Delivery centres 3 ## £1,150.7m • UK, South Africa, India and Poland 3 1 (2021: £1,140.9m) 0.9% ### Major contract wins and renewals 1 Adjusted operating profit • A five-year contract extension worth £456m 1 2 toadminister the TV licence fee on behalf ofthe BBC ## £38.5m 1 86% Long-term contractual 1 39% Telecoms, Media 2 13% Short-term contractual & Technology • Extensions worth up to £40m across our (2021: £8.9m) 332.6% 3 1% Transactional 2 21% Multi-industry Plusnet and Samsung contracts • A new logo win with ScottishPower worth upto £63m over five years ### Financial performance Competitors Divisional financial summary 2022 2021 Change % • Atento • T-Tech 1 Revenue by market (%) Adjusted revenue (£m) 1,150.7 1,140.9 0.9 Adjusted revenue by type (%) • Teleperformance • Sykes Enterprises 1 Adjusted operating profit (£m) 38.5 8.9 332.6 • Webhelp • Firstsource 1 | Adjusted operating margin | | (%) 3.3 0.8 | | | | | --- | --- | --- | --- | --- | --- | | | 1 | | | • Accenture | • Majorel | | Adjusted EBITDA | (£m) 113.4 93.2 21.7 | | | | | | | | | 1 | • Concentrix | • In-sourcing trend | | Cash generated from/(used by) operations before business exits | | | (£m) 30.7 (4.8) n/a | | | Order book (£m) 2,526.7 2,271.8 11. 2 1. Refer to APMs on pages 229 to 231. 4. NelsonHall. 3 40% Financial Services ### Strategic Chief Executive Experience Capita plc 21 report Officer’s review continued Annual Report 2022 continued ### Capita Experience digital ecosystem ### Our markets and growth drivers | Experience is now | The global customer experience market is | | | | Cloud | | --- | --- | --- | --- | --- | --- | | | | 5 | Voice customer | | | | | worth £277bn | a year and the outsourced | | | omni-channel | | structured around four | | | | services | | AWS connect element is expected to grow at c.5% ### core industries: Financial 5 perannum. Around 28% of the market Web andemail Managed Cloud ### Services; Technology iscurrently outsourced. services service shoring ### Media& Telco (TMT); and, We are the largest provider of customer | following the separation | experience services in the UK and Ireland, | | | Working from | | --- | --- | --- | --- | --- | | | | 4 | Data | home (WFH) | | ofour Multi-industry | witha market share of around 12% | . Our | | | and workforce insight competitors within the customer experience Agent management ### vertical, Energy & Utilities Experience and segment are mostly global and include peers hubs ### analytics capabilities ### andRetail. such as Teleperformance, Webhelp, Concentrix Dynamic and Majorel. data The market continues to trend towards self- service and automation, with clients looking Digital Agent Workflow Robotic and AI management toutilise omni-channel offerings, with increased processing assist multilingual capabilities and capacity, and automation (RPA)/ Assisted agents working remotely both on and offshore. automation customer The changing economic landscape poses an conversation Conversational opportunity for Experience, particularly within AI 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 Our strategy In 2022 we introduced a single divisional is required for those who need it most. operating model, with more consistent The long-term strategy of the core business is leadership and improved rigour across the to be a leading customer experience service service delivery process. Using our matrix provider delivering better outcomes for our operating model, we are able to meet clients through a consultative approach resourcing needs with an agile and flexible underpinned by data and technology. workforce available to serve across various Experience has an extensive blue-chip contracts as demand requires, such as for peak ### Renewal rates continue to customer list and we have increasingly seen sale periods. Our operating model helps us stay our customer base diversify, with wins this year competitive within the market and allows us to ### remain high for the division, in the FinTech sector. manage resources around client demands with ### with 99% of bids successful 4. NelsonHall. an end-to-end delivery model. 5. Everest. ### Strategic Chief Executive Experience Capita plc 22 report Officer’s review continued Annual Report 2022 continued We are a trusted partner and adviser for clients, The weighted pipeline at 31 December 2022 Cost and operational excellence with omni-channel delivery options allowing for stood at £1,114m (2021: £1,566m) reflecting the Throughout 2022, our matrix structure delivered both self-service and human-contact options TCV won during the year. The divisional book to operational excellence while delighting clients, based on the nature of the experience required. bill was 1.2x, an improvement from 0.7x in 2021, as evidenced by our consistent KPI performance The division has an advanced toolkit of services an important milestone on the division’s and +10 point improvement in cNPS, to an including speech analysis and real-time business-improvement journey. overall score of +19. feedback to ensure customers get the best Renewal rates continue to remain high for the outcomes seamlessly. As with many competitors in our markets, division, with 99% of bids successful as we employee attrition remained high, and we Our service-delivery options across different continue to deliver operationally for clients. adapted our business model across the year, geographies offer our clients flexibility and Renewals are important in order to maintain while taking action to address the higher level provide a growth opportunity going forward. aconsistent revenue base, but we are also ofattrition. We moved to using a demand-led In2022, alongside expanding our operations in focused on revenue growth from new scopes resource model, allowing us to resource all India and Durban, South Africa, we expanded ofwork and growth on account where our full-time employee requirements on our into additional cities in Poland to support historical win rates have not been as strong. contracts. Attrition will remain a key area of delivery of our services in 35 different Our win rate in the division was 52% across focus in 2023, as well as being an area of languages with 24/7 support. These sites allopportunities. Our 2023 pipeline is diverse, further cost-reduction opportunity, as we reduce willbe important strategic hubs for our with a mixture of new scopes of work and attrition levels and improve employee retention. futuregrowth and further expansion of our growth on account. multilingualcapabilities. We delivered well for our clients during the year; Challenged end-markets meant that we saw for example, after winning the ScottishPower ### Growth anumber of significant deal timelines slip into contract in June, we transferred 400 people 2023; these included a number of new clients ### At 31 December 2022, the total unweighted from the previous service provider to Capita Capita has secured a five- inthe TMT vertical and renewals within our | pipeline was £4,082m, a decrease of £1,388m | | Experience with no impact on functionality or | | | --- | --- | --- | --- | | | Energy & Utilities and Retail industry verticals. | | year agreement to deliver | | from 31 December 2021. The division won TCV | | service delivered to customers. Working with | | ### frontline customer support | of £1,371m, an increase of 71% from 2021. | The order book at year end was £2,527m, an | another client in the energy sector, we more | | | --- | --- | --- | --- | | Significant wins in the year included renewals | increase of £255m since 31 December 2021, | than doubled the existing team to improve | services for ScottishPower | | with the BBC (providing TV licensing collection, | reflecting the contract wins in the year which | customer service, responding to the additional | customers across the UK | | management and administration) and with | more than offset revenue recognised in the year. | volume requirements during the ongoing | | | freenet AG (providing customer services | | energy crisis, reducing response times by 30% | | | support for the German telecommunications | | and improving quality scores by 10%. | | 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. ### Strategic Chief Executive Experience Capita plc 23 report Officer’s review continued Annual Report 2022 continued We have seen further volume attrition within our closed book Life & Pensions business unit, in ### As revenue growth becomes line with our expectations. The business unit is ### more established, operating forecast to be loss-making with a consistent ### cash outflow in future years, with a provision leverage is expected to drive held reflecting this. We continue to deliver ### further margin improvement operationally well for these clients but remain focused on resolving the structural challenge inthis area to reduce ongoing cash losses. Cash generated from operations before business 1 | Elsewhere in the regulated services business, | exits | increased by £35.5m to £30.7m, with an | | --- | --- | --- | | Pensions Administration continues to perform | improvement in working capital benefiting the | | | well and activity levels improved further in 2022. | division’s operating cash conversion. The | | | Within the Financial Services vertical, we | division’s cash performance in 2021 was | | | invested in our mortgage business to create a | impacted by the repayment of deferred VAT | | | customer-focused IT platform and ecosystem, | from 2020 together with restructuring spend | | | allowing an end-to-end service to clients, which | and recognition of contract-related provisions. | | supports our growth ambitions in this area. ### Outlook ### Financial performance While improvements were made during 2022, 1 | | Adjusted revenue | increased by 0.9% to | Experience continues to lag behind Public | | --- | --- | --- | --- | | | £1,150.7m, reflecting price increases and wins | | Service in its business-improvement journey. | | Capita has secured a five-year contract extension to | in the year including ScottishPower and | | | In 2023, we expect revenue to be broadly in line international wins in Germany and Switzerland ### continue to administer the TV licence fee in the UK with 2022, reflecting continued reductions from which offset the final-year impact of prior-year contract losses and volume attrition within the losses. The division saw lower volumes with closed book Life & Pensions, offset by growth continued attrition within the closed book Life In addition, we worked with Marks & Spencer from new wins and growth on account delivered &Pensions contracts. deploying conversational AI, outperforming the across our market verticals. As we have 1 | previous incumbent with a 10% increase in | Adjusted operating profit | increased by 332.6% | simplified our go-to-market offering and | | --- | --- | --- | --- | | customers able to self serve. We also worked | to £38.5m. The result in 2021 was impacted by | | become more efficient and effective, we expect | | with an existing customer on a consulting | the recognition of provisions and impairments in | | to deliver mid single-digit growth over the | | basisto categorise all incoming calls across | our closed book Life & Pensions business | | medium term. | | their entire estate and use data analytics to | (£43m) and completion of the Group’s | | | As revenue growth becomes more established, improve and add value to the overall customer significant restructuring where the division operating leverage is expected to drive further experience. This type of consulting engagement incurred £12m of expense in 2021. margin improvement. 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 Chief Executive Portfolio Capita plc 24 report Officer’s review Annual Report 2022 continued ### Business units ## Portfolio • People ### We have made significant ### Portfolio comprises the remaining • Property (sold during 2022) ### non-core businesses which the progress with the Portfolio • Technology (sold during 2022) ### Group is looking to exit. disposal programme, helping • Software ### ussimplify and focus the Group • Business Solutions ### for future growth.” • Travel Chantal Free • Fera CEO, Capita Portfolio ### Employees 1 Adjusted revenue • 3,000 1 ### Client distribution ## £249.8m 2 • UK (2021: £226.5m) 10.3% ### Major contract wins and renewals 1 3 Adjusted operating profit • A renewal with an energy company within the Peoplepillar worth £5m ## £16.2m 1 13% Long-term contractual • There were a number of new clients and 2 15% Short-term contractual (2021: £(0.1)m) n/a% renewals within the Retain business with totalTCV won over £7m ### Financial performance Divisional financial summary 2022 2021 Change % 1 | | Adjusted revenue | (£m) 249.8 226.5 10.3 | | | --- | --- | --- | --- | | Adjusted revenue by type (%) | | | 1 | | | Adjusted operating profit | | (£m) 16.2 (0.1) n/a | 1 Adjusted operating margin (%) 6.5 – 1 Adjusted EBITDA (£m) 35.6 24.3 46.5 1 Cash generated from operations before business exits (£m) 17.1 21.2 (19.3) 2 Order book (£m) 293.5 557. 3 (47.3) 1. Refer to APMs on pages 229 to 231. 2. Includes businesses subsequently disposed of in 2022 3 72% Transactional ### Strategic Chief Executive Portfolio Capita plc 25 report Officer’s review continued Annual Report 2022 continued ### Our markets and growth drivers We are working to ensure ongoing cost efficiency in the division ahead of the ### Since the division was Portfolio is made up of a range of businesses completion of the disposal programme, which service public and private sector clients ### formed in 2021 we have throughsuccessful vacancy management across multiple, generally mature, markets ### made significant progress andredeployment of employees across the andsectors. wider Group. ### with the Portfolio disposal We enjoy strong positions in many of the ### programme, helping us Financial performance markets where we operate, with strong brands | simplify and focus the | | | 1 | | --- | --- | --- | --- | | | andpositive client perception of our services. | Adjusted revenue | increased 10.3% to £249.8m | | Group for future growth. | | as pillars within Portfolio continued to recover | | ### Our strategy from subdued trading during the Covid-19 ### This year thedivision The division is organised into pillars comprising pandemic, particularly within our Agiito and ### raised more than £330m businesses of similar characteristics: People, Enforcement businesses. ### gross proceeds from Software, Business Solutions, Travel, and the 1 Adjusted operating profit increased from break Fera joint venture with the UK Government, to ### completed disposals. even to £16.2m, reflecting revenue growth allow for efficient management and to facilitate andthe benefit from the non-repeat of £2.3m smooth transaction processes. significant restructuring costs incurred in 2021. During 2022, we successfully completed the Thismore than offset the cost of operational disposal of the Technology and Property pillars, investment in some pillars. as well as Capita Translation and Interpreting Cash generated from operations before | within the Business Solutions pillar, together | | 1 | | | --- | --- | --- | --- | | | business exits | decreased by 19.3% to £17.1m | | | with those announced in 2021, achieving gross | | | Fera Science launched a | driven by working capital requirements as the proceeds of c.£330m from these disposals. | | division recovers from Covid-19, which more | £1mlaboratory forinsect | | --- | --- | --- | | Cost and operational excellence | than offset the improvement in EBITDA. | bioconversion in York | | The pillars within Portfolio continue to deliver | Outlook | | astrong operational service for clients and We are targeting for the majority of the thedivision has seen its fourth consecutive remaining businesses within Portfolio to improvement in its annual cNPS score. bedisposed ofduring the first half of 2023, During the year, our travel business, Agiito, depending ongeneral market conditions. 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. 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Financial Capita plc 26 report Officer’s review Annual Report 2022 ### Overview revenue was impacted by significant prior year contract losses, offset by new wins, including 1 Improved adjusted revenue growth was in line those in International and with ScottishPower. | A turnaround in | with our expectations, with an acceleration | | | --- | --- | --- | | | across the year from 1% in the first half to 4% | Growth in our transactional business was | | | inthe second half. This was driven by strong | mainly driven by Portfolio, including the | ## financial performance | growth in the Public Service and Portfolio | Traveland Enforcement businesses, | | --- | --- | | divisions and stabilisation of revenues in the | whichcontinued their recovery following | | Experience division. | Covid-related constraints. | | Public Service revenue growth was | From 1January 2022, the Board has limited the | | underpinned by new wins such as the Northern | items excluded from the adjusted results to | | Ireland teachers IT refresh contract and | business exits, amortisation and impairment of | | annualisation of the Royal Navy training | acquired intangibles, impairment of goodwill | ### Accelerated revenue growth, a step change contract offset by revenue reductions in some and certain fair value adjustments which impact in profitability and positive free cash flow.” Local Public Service contracts. Experience net finance income/expense. This presentation Tim Weller, Chief Financial Officer ### Summary of financial performance Financial highlights | Reported results – continuing operations Adjusted | | | | | | 1 results – continuing operations | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 December | | 31 December | | Reported | 31 December | | 31 December | | | Adjusted | | | 2022 | | 2021 | YOY change | | 2022 | | 2021 | YOY change | | Revenue £3,014.6m £3,182.5m (5.3)% £2,845.8m £2,777.8m 2.4% Operating profit/(loss) £(79.6)m £(86.6)m 8% £102.9m £( 7 7.7) m n/a EBITDA £235.7m £222.3m 6% £238.8m £143.0m 67% Profit/(loss) before tax £61.4m £285.6m (79)% £73.8m £(122.8)m n/a Earnings/(loss) 4.47p 13.33p (67)% 6.20p (7.74)p n/a pershare Cash generated from/ £117.8m £(148.5)m n/a £116.5m £(109.7)m n/a (used by)operations* Free cash flow* £24.5m £(264.3)m n/a £29.0m £(218.6)m n/a Net debt £(482.4)m £(879.8)m £3 97.4m £(482.4)m £(879.8)m £3 9 7.4m Net financial debt £(84.9)m £(431.4)m £346.5m £(84.9)m £(431.4)m £346.5m (pre-IFRS 16) * 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 Chief Financial Capita plc 27 report Officer’s review Annual Report 2022 continued provides a more representative measure of performance measures that provide a more These disposals form part of the Board- of their nature, size and/or incidence for theunderlying performance of the business representative measure of the sustainable cash approved disposal programme. The sale usersof the financial statements to obtain following completion of the Group-wide flow of the Group following completion of the processes have been launched for the anunderstanding of the financial information transformation. The comparatives have been Group-wide transformation. remaining pillars in the Portfolio division. The andthe underlying in-period performance re-presented on the same basis, with significant Group expects to use the proceeds from this ofthebusiness. Cash generated from operations before | restructuring (£147.5m), contract-related | | | 1 | disposal programme to repay debt, to make | | | --- | --- | --- | --- | --- | --- | | | | business exits | increased by £226.2m to | | In accordance with the above policy, the | | provisions and impairments (£43.1m) and | | | | accelerated deficit reduction contributions to | | | | | £116.5m benefiting from the improvement in | | | tradingresults of business exits, along with | | certain litigation and claims (credit £2.3m) now | | | 1 | theGroup’s defined benefit pension scheme | | | | | adjusted profit | explained above, a reduction | | thenon-trading expenses and gain or loss on | | included within adjusted results for the year | | | | and to invest in driving growth in the remaining | | | | | inrepayments in respect of the Government’s | | | disposals, have been excluded from adjusted | | ended 31December 2021. | | | | core businesses. During the year, we repaid | | | | | VAT deferral scheme and a £43.6m reduction | | | results. To enable a like-for-like comparison of | | | 1 | | | £226.7m of private placement loan notes and | | | The increase in adjusted profit before tax | | inpension deficit contributions as the Group | | | adjusted results, the 2021 comparatives have | made pension deficit contributions of £38.6m reflects the above change in presentation, reverts to the agreed deficit contributions set been re-presented to exclude 2022 business (£30.0m regular contributions and £8.6m andtherefore benefits from the reduction aspart of the 2020 triennial funding agreement exits. As at 31 December 2022, the following acceleration of agreed contributions triggered inrestructuring costs and contract-related with the pension scheme trustees. businesses met this threshold and were by disposals). | provisions and impairments, as well as the | | 1 | | classified as business exits and therefore | | --- | --- | --- | --- | --- | | | Free cash flow before business exits | for the | | | | benefit of revenue growth. In 2021, the | | | Liquidity as at 31December 2022 was | excluded from adjusted results in both 2022 | year ended 31December 2022 was an inflow Groupreceived £4.9m of funding under the £405.2m, made up of £288.4m of the undrawn and 2021: ESS, AXELOS, Life Insurance and of£29.0m (2021: £218.6m outflow). The coronavirus job retention scheme made element of our committed revolving credit Pensions Servicing business in Ireland, AMT improvement primarily reflected the above available by the Government to help ease the facility (RCF) and £116.8m of unrestricted cash Sybex, Secure Solutions and Services, the increase in cash generated from operations | employment impact of Covid-19. In May 2022, | | 1 | and cash equivalents net of overdrafts. In July | Speciality Insurance business, Trustmarque, | | --- | --- | --- | --- | --- | | | before business exits | , and a reduction in net | | | | we announced the Group’s intention to repay | | | 2022, we extended the RCF to 31August 2024. | Real Estate and Infrastructure Consultancy, | interest paid in respect of leases and private | the 2021 furlough-related income at the end of | | | Optima Legal Services, Pay360 and Capita | | --- | --- | --- | --- | | | placement loan notes. | Adjusted results | | | the Group’s publicly stated disposal programme | | | Translation and Interpreting. | | and no later than the end of June 2023. An | As part of our drive for simplification of the | Capita reports results on an adjusted basis to | | Reconciliations between adjusted and reported accrual has been recognised for this repayment business, and strengthening the balance sheet, aid understanding of business performance. operating profit, profit before tax and free in the year ended 31December 2022. we continue to seek to dispose of a number The Board has adopted a policy of disclosing cashflow before business exits are provided ofnon-core businesses. During the year we separately those items that it considers are The decrease in reported profit before tax onthefollowing pages and in the notes to the completed the disposal of eight businesses, outside the underlying operating results for the aroseas the increase in adjusted profit before financial statements. realising total proceeds net of disposal costs of particular period under review and against 1 tax was more than offset by an increase £463.4m (including settlement of intercompany which the Group’s performance is assessed inimpairments of goodwill, a reduction in balances on completion) with net cash proceeds internally. In the directors’ judgement, these operating profit from business exits and a of £387.9m reflecting the cash held in the items need to be disclosed separately by virtue lowergain on the sale of businesses. disposed entities on completion. 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. ### Strategic Chief Financial Capita plc 28 report Officer’s review Annual Report 2022 continued | Adjusted revenue | | | Adjusted profit before tax | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | 1 | | | | | Adjusted revenue | growth of 2.4% was in line | | Adjusted profit before tax | increased in 2022. | | | 1 | | | | | | | | Adjusted revenue | bridge by division | | | | 1 | | | 1 | | | | with expectations. The adjusted revenue | | was | The adjusted profit before tax | | was driven | | | Public | impacted by the following: | bythe following: | Service | | Experience | | Portfolio | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | £m | | £m | | £m | £m | | • Public Service (2.5% growth): growth from | • Public Service: benefits from the wins in | | | | | | | | Year ended 31 December 2021 1,410.4 1,140.9 226.5 2,777.8 contract wins, including a contract to supply 2022, the annualised benefit of the Royal Net growth 34.9 9.8 23.3 68.0 laptops to teachers in Northern Ireland as well Navy training contract and the non-recurrence Year ended 31 December 2022 1,445.3 1,150.7 249.8 2,845.8 | as the annualised benefit of the Royal Navy | of Electronic Monitoring programme costs | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | training contract, increased growth in existing | in2021; offset by a reduction on the British | | | 1 | | | | | | | | | | | | Adjusted profit before tax | bridge by division | | | | | | | | | contracts in Central Government, and | Army recruitment contract (RPP) resulting | | | | | | | | | | | | | | | | | Public | | | | | Capita | | | completion of a full test cycle on STA, | from transition to the next phase of | | | | | | | | | | | | | | | | | Service | Experience | | Portfolio | | plc | Total | | offsetting handbacks in Local Government; | servicedelivery; | | | | £m | | £m | | £m | £m | £m | | • Experience (0.9% growth): stabilisation in | • Experience: flow through of prior year losses | | Year ended 31 December 2021 93.2 8.9 (0.1) (224.8) (122.8) | | | | | | | | | | revenue, with the impact of significant prior | including 3UK, William Hill and in the closed | | Net growth/(reduction) (1.7) 29.6 16.3 152.4 196.6 | | | | | | | | | | year contract losses offset by positive | book Life & Pensions business. 2021 was | | Year ended 31 December 2022 91.5 38.5 16.2 (72.4) 73.8 | | | | | | | | | | revenue contributions in particular from | impacted by provisions and impairments in | | | | | | | | | | | | newclient wins in International and with | the closed book Life & Pensions business | | | | | | | | | | | | ScottishPower; and | and completion of significant restructuring; | | | | | | | | | | | | | | depreciation, amortisation and impairment of | | | | The reduction in non-cash and other | | | | | | | • Portfolio (10.3% growth): growth in | • Portfolio: benefits from post Covid-19 | | | | | | | | | | | | | | property, plant and equipment and intangible | | | | adjustments reflects utilisation of customer | | | | | | | transactional revenue mainly from Travel | recovery in transactional businesses and | | | | | | | | | | | | | | assets, largely driven by the Group’s property | | | | contract provisions in 2022 compared with | | | | | | | andEnforcement following the turnaround | thenon-repeat of 2021 restructuring costs; | | | | | | | | | | | | | | rationalisation programme. | | | | provision recognition in 2021, and the utilisation | | | | | | | inthese Covid-19 impacted businesses. | offset by operational investment in certain | | | | | | | | | | | of the remaining restructuring provision. Cash generated from operations before businesses; and | Order book | | | 1 | | | | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | | | | business exits | benefited from the improvement | | Free cash flow before business exits | | for the | | The Group’s consolidated order book was | • Capita plc: benefits from the end of the | | | 1 | | | | | | | in adjusted EBITDA | | , a lower working capital | year ended 31December 2022 was an inflow | | | | £5,805.2m at 31 December 2022 (2021: | transformation programme (2021 included | | | | | | | | | | outflow compared with 2021, materially lower | | | of£29.0m (2021: outflow £218.6m). The | | | | £6,115.4m). Additions from contract wins, scope | £128.0m of significant restructuring) and | | | | | | | | | | deferred VAT repayments and pension deficit | | | improvement reflected the above increase | | | | changes and indexation in 2022 (£2,110.2m), | efficiencies realised; offset by the effect of | | | | | | | | | | contributions; offset by a reduction in non-cash | | | incash generated from operations before | | | | including the BBC and freenet AG extensions | theannounced intention to repay the 2021 | | | | | 1 | | | | | and other adjustments. | | | business exits | , a reduction in capital | | | within Experience, and Personal Independence | furlough-related income. | | | | | | | expenditure, and net interest paid in respect The lower working capital outflow arises from Payments and TfL Road User Charging within Cash generated from operations and ofleases and the Group’s private placement contracts moving into the operational phase Public Service, were offset by the reduction freecash flow loan notes. and increased utilisation of non-recourse trade | from revenue recognised in the year | | 1 | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Adjusted EBITDA | increased by 67% reflecting | | | | 1 | | | | | | receivables financing in 2022. | Adjusted operating cash conversion | increased | | (£2,132.3m), contract terminations (£8.1m) | | | 1 | | | | | | the improvement in adjusted profit | | explained | | | | to 68% (2021: 48%). andbusiness disposals (£280.0m). above and the significant reduction in 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Financial Capita plc 29 report Officer’s review Annual Report 2022 continued | Reported results | potential for acquirers factoring in additional | | | | --- | --- | --- | --- | | | investment and costs required to run the | | 1 | | Adjusted to reported profit | | Adjusted operating profit to free cash flow before business exits | | businesses on a standalone basis, coupled As noted above, to aid understanding of our 2022 2021 withgeneral macroeconomic conditions. £m £m underlying performance, adjusted operating 1 | | 1 | 1 | Refer to note 3.4 to the consolidated financial | Adjusted operating profit/(loss) | 102.9 (7 7.7) | | --- | --- | --- | --- | --- | --- | | profit | and adjusted profit before tax | exclude | | | | | anumber of specific items, including the | | | statements for further details. | Add: depreciation/amortisation and impairment of property, plant and | | equipment and intangible assets 135.9 220.7 amortisation and impairment of acquired Business exits 1 Adjusted EBITDA 238.8 143.0 intangibles and goodwill, and the impact Business exits include the effects of businesses ofbusiness exits. Working capital (32.7) (113.6) that have been disposed of or exited during the Non-cash and other adjustments (44.7) 38.6 Impairment of goodwill period and the results of businesses held-for- 1 Operating cash flow before business exits 161.4 68.0 In preparing the half-yearly condensed sale at the reporting date. Deferred VAT repayment (14.9) (104.1) consolidated financial statements at 30 June In addition, business exits include the exit costs, Pension deficit contributions (30.0) (73.6) 2022, and these consolidated financial including professional fees, salary costs and 1 Cash generated from/(used by) operations before business exits 116.5 (109.7) statements at 31 December 2022, the Group separation planning costs, relating to further undertook detailed impairment reviews. Net capital expenditure (43.6) (51.2) planned disposals for which the held-for-sale Interest/tax paid (43.9) (57.7) At 30 June 2022 a goodwill impairment of and business exit criteria were not met at 1 | | | Free cash flow before business exits | | 29.0 (218.6) | | --- | --- | --- | --- | --- | | £92.5m was recognised in respect of the | 31December 2022. | | | | | People and Property CGUs, and at 31 | | | 1 | | | | In accordance with our policy, the trading | Reported to adjusted | profit bridge | | December 2022 a further goodwill impairment results of these businesses, along with the Operating profit/(loss) Profit/(loss) before tax of £76.5m was recognised in respect of the non-trading expenses and gain on disposal, 2022 2021 2022 2021 People, Travel and Business Solutions £m £m £m £m were classified as business exits and therefore CGUs,in the Group’s Portfolio division. The Reported (79.6) (86.6) 61.4 285.6 excluded from adjusted results. To enable impairments reflected the difference between alike-for-like comparison of adjusted results, Amortisation and impairment of acquired 5.1 7.7 5.1 7.7 the expected net proceeds at disposal and the intangibles the 2021 comparatives have been re-presented cash flows the Group had previously projected Impairment of goodwill 169.0 11.5 169.0 11.5 toexclude the 2022 business exits. it would generate if it held these businesses into Net finance costs — — (3.4) 1.4 perpetuity. The difference has arisen due to the Business exits 8.4 (10.3) (158.3) (429.0) Adjusted 102.9 (7 7.7) 73.8 (122.8) 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Financial Capita plc 30 report Officer’s review Annual Report 2022 continued 1 | At 31 December 2022 business exits primarily comprised: | Free cash flow to free cash flow before business exits | | | | --- | --- | --- | --- | | Business Disposal completed on | | 2022 | 2021 | | | | £m | £m | AMT Sybex 1 January 2022 Free cash flow 24.5 (264.3) Secure Solutions and Services 3 January 2022 Business exits (4.1) (36.2) Trustmarque 31 March 2022 Pension deficit contributions triggered by disposals 8.6 81.9 Speciality Insurance 29 April 2022 1 Free cash flow before business exits 29.0 (218.6) Real Estate and Infrastructure Consultancy 22 September 2022 Optima Legal Services 30 November 2022 ### Net debt Pay360 1 December 2022 2022 2021 Capita Translation andInterpreting 29 December 2022 £m £m Opening net debt (879.8) (1,07 7.1) Cash movement in net debt 438.2 232.1 | Further businesses are planned for disposal | in the tax arising on business exits). These | Non-cash movements (40.8) (34.8) | | --- | --- | --- | | aspart of the Group’s simplification strategy. | losses mainly arose due to the adoption of | Closing net debt (482.4) (879.8) | | However, given the status of the relevant | IFRS 15, Covid-19 related downward pressures | Remove closing IFRS 16 impact 39 7.5 448.4 | | disposal processes, the businesses did not | on the profits and tax deductible restructuring | Net financial debt (pre-IFRS 16) (84.9) (431.4) | | meet the criteria to be classified as assets | costs in previous years. | Cash and cash equivalents net of overdrafts 177. 2 101.5 | held-for-sale at 31December 2022 and, | | Free cash flow to free cash flow before | Financial debt net of swaps (262.1) (532.9) | | | | | --- | --- | --- | --- | --- | --- | | accordingly their trading results are included | | | 1 | | | | | business exits | Net financial debt/adjusted EBITDA | (both pre-IFRS 16) 0.5x 3.7x | | | | within adjusted results. | | | | 1 | | | | Free cash flow was lower than free cash flow | Net debt (post-IFRS 16)/adjusted EBITDA | | | 2.0x 4.1x | 1 | Further detail of the specific items charged in | before business exits | principally reflecting | | --- | --- | --- | | arriving at reported operating profit and profit | pension deficit contributions triggered by the | | | before tax for 2022 is provided in note 2.4 of | disposal of Trustmarque and AXELOS, offset | | | theconsolidated financial statements. | by free cash flows generated by business exits. | | | Taxation | Movements in net debt | | The reported income tax credit for the year of Net debt at 31December 2022 was £482.4m £14.6m (2021: charge £61.5m) and the adjusted (2021: £879.8m). The substantial reduction income tax credit for the year of £31.8m (2021: innet debt reflects the benefit of the Group’s charge of £4.0m) reflect the recognition of positive freecash flow generation, the proceeds additional deferred tax assets of £36.7m (net of fromdisposals, coupled with the impact of a £16.7m change in the deferred tax asset theongoing programme of leased property estimate due to the reduction in future taxable estate exits. profits on disposal of taxable entities, reflected 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Financial Capita plc 31 report Officer’s review Annual Report 2022 continued Net financial debt (pre-IFRS 16) reduced by favourable than drawing under the RCF as £346.5m to £84.9m at 31 December 2022, prevailing interest rates have increased. As ### Liquidity resulting in a net financial debt to adjusted such, the Group has increased its use of the 2022 2021 1 EBITDA (both pre-IFRS 16) ratio of 0.5x. Over facility across the year with the value of invoices £m £m the medium term, following the completion of sold under the facility at 31December 2022 of Revolving credit facility (RCF) 288.4 385.7 our Portfolio divestment programme, we will £44.4m (2021: £16.4m). Less: drawing on committed facilities — (40.0) betargeting anet financial debt to adjusted At 31December 2022, the Group had £177.2m Undrawn committed facilities 288.4 345.7 1 EBITDA (both pre-IFRS 16) ratio for Capita of cash and cash equivalents net of overdrafts, Net cash, cash equivalents net of overdrafts 177. 2 101.5 of≤1.0x. | | and £285.5m of private placement loan notes | | * | | | --- | --- | --- | --- | --- | | | | Less: restricted cash | | (60.4) (54.8) | | The Group was compliant with all debt | and fixed-rate bearer notes. These debt | Liquidity 405.2 392.4 | | | | covenants at 31 December 2022. | instruments mature over the period to 2027, | | | | * Restricted cash includes cash required to be held under FCA regulations and cash held in foreign bank accounts. with repayment of £66.3m of maturities in 2023 ### Capital and financial risk management which are expected to be funded through the | Liquidity remains a key area of focus for the | Group’s existing facilities, cash and cash | | | | --- | --- | --- | --- | | Group. Financial instruments used to fund | equivalents and from the proceeds of the | Viability assessment | £38.6m of deficit funding contributions paid into | | operations and to manage liquidity comprise | Group’s ongoing divestment programme | | the Scheme (plus a net £0.2m deficit funding | The Board’s assessment of viability over the US private placement loan notes, euro fixed- without the need to obtain new financing. contribution in respect of other schemes). Both Group’s three-year business planning time rate bearer notes, revolving credit facility (RCF), Assuch, a measured approach will be taken the value attributed to the pension liabilities and horizon is summarised in the viability statement leases and overdrafts. toany potential refinancing with time taken to the value of the assets fell materially over the on page 64. implement a longer-term debt solution at the year predominantly due to the material increase In July 2022, the Group signed an extension ### appropriate moment. Pensions in the yields available on both long-dated ofthe £300m forward start RCF with its Government and corporate bonds. Due to the lendingbanks for a further twelve months to Contributions during the year to the Capita ### Going concern investment strategy adopted by the Trustee of August 2024. The new facility commenced on Pension and Life Assurance Scheme (the the Scheme the impact of these changes has The Board closely monitors the Group’s 31August 2022 upon the expiry of the previous Scheme) have been in line with the contribution been broadly hedged so that the value of the fundingposition throughout the year, including RCF and provides the Group with committed schedule agreed with the Trustee of the Scheme assets has moved to a similar degree to the compliance with covenants and available liquidity for the cash fluctuations of the business following the 31 March 2020 triennial valuation. value of the liabilities. Despite the economic facilities to ensure it has sufficient headroom cycle and an allowance for contingencies, and This includes the acceleration of deficit events in Q3 2022 that led the Bank of England tofund operations. In addition, to support the incorporates provisions such that it will partially reduction contributions (£8.6m) triggered due to to purchase Government bonds, the Scheme’s going concern assumption, the Board conducts reduce in quantum as a consequence of the disposal of Capita entities during the year. Fiduciary Manager confirmed that the Scheme a robust assessment of the projections, specified transactions. The RCF was not drawn The net defined benefit pension position for had sufficient liquid assets to meet collateral considering also the committed facilities upon at 31 December 2022 and had a total accounting purposes moved from a small net calls to maintain its hedged positions available to the Group. committed value of £288.4m. asset at the start of the year (£5.8m) to a larger throughout the year, as well as confirming The Group and Parent Company continue to In addition, the Group has in place a non- net asset by 31December 2022 (£39.6m). The thatthere is sufficient buffer against future adopt the going concern basis in preparing recourse invoice discounting facility, utilisation main reasons for this movement were the adverse movements. these consolidated financial statements as of which has become economically more setout in section 1 to the consolidated financialstatements. 1. Refer to APMs on pages 229 to 231. ### Strategic Chief Financial Capita plc 32 report Officer’s review Annual Report 2022 continued The valuation of the Scheme liabilities (and The next triennial valuation of the Scheme is multiples achieved on recent disposals, and assumptions used) for funding purposes due as at 31 March 2023, where the Trustee of that the sector may be trading at or below ### The net defined benefit (theactuarial valuation) are specific to the the Scheme and the Company will review the bookvalue with the market making a general ### pension position for | | circumstances of the Scheme. It differs from the | contributions being paid to the Scheme. The | assessment of the sector and all companies | | --- | --- | --- | --- | | accounting purposes | valuation and assumptions used for accounting | 2023 triennial valuation is expected to be | within the sector which can ignore the liquidity | | | purposes, which are set out in IAS 19 and | completed in 2024. | profile and specific risks of an entity. | ### moved from a small net shown in these financial statements. The ### asset at the start of the Consolidated balance sheet Management’s estimate of the value in use of maindifference is in assumption principles the Group used in the testing of goodwill and year(£5.8m) to a larger net being used based in the different regulatory At 31December 2022 the consolidated net assets intangibles for impairment at 31December ### asset by 31December 2022 requirements of the valuations. Management were £352.7m (2021: net assets £296.5m). 2022 gave a value for the Group that exceeded estimates that at 31December 2022 the net ### (£39.6m) The movement is predominantly driven by the the market capitalisation at that date, and asset of the Scheme on a funding basis (ie the gain on the sale of businesses offset by the supported the parent company net assets. funding assumption principles adopted for the goodwill impairment recognised during the year, Animpairment test was performed at full actuarial valuation at 31 March 2020 and the increase in the net pension asset 31December 2022 in respect of the parent updated for market conditions at 31December referred to above. company’s investments in subsidiaries and 2022) was approximately £40.0m (2021: net amounts owedby subsidiary undertakings. ### asset £40.0m) on a technical provisions basis. Parent company balance sheet A£7.0m impairment was identified in respect The Trustee of the Scheme has also agreed The company’s market capitalisation was ofthe parent company’s investments in asecondary more prudent funding target to significantly less than the net assets of the subsidiaries, and an impairment of £30.1m enable it to reduce the reliance the Scheme parent company at 31December 2022 and wasrecognised inrespect of amounts owed hason the covenant of the Group. On this theDirectors gave consideration as to why bysubsidiaries. basis, at 31December 2022, the funding level thismight be the case and whether assets on was around 96% (or a net liability of £50m). the parent company balance sheet may be Thedeficit of £50m is expected to be met by impaired. The factors considered included: amixture of the remaining deficit contributions thediffering basis of valuations (point in time and asset outperformance. 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 Our people Capita plc 33 report Annual Report 2022 Our commitment to consistency in 2022 underpinned many of our headline activities, including the launch of our career path ## Creating a compelling framework, our focus on equitable opportunities through diversity and inclusion, the expansion ## people experience of our central employee relations hub and the significant increase in the use of digital training modules. We also continued our support of ### While 2022 presented many challenges for so many businesses and their people, flexible, hybrid or remote working wherever ### including a cost-of-living crisis and a very tight labour market, we remained possible, and saw an extremely positive ### focused at Capita on delivering an increasingly positive and consistent employee response from employees. ### experience, which delivered improved engagement metrics. However, we must acknowledge that, like many of our peers, attrition and attraction remains akey challenge, as does the macroeconomic Workforce climate and the subsequent impact on our employees – particularly those who are lowest paid. We are continuing to work to support our ## 50,000 people however we can, including through our people employed in 11 different countries commitment to the real living wage, and via ongoing financial wellbeing support across thebusiness. ### While we know we are still | In 2022, despite all the challenges, our focus | 2022 saw the promotion of a new Chief People | We expect attrition to remain a key focus area | | | --- | --- | --- | --- | | | | throughout 2023, and we will continue to adapt | on a journey to create | | remained on making Capita a place that people | Officer, Scott Hill, demonstrating the success | | | | want to join and where they want to stay – a | of our continuing focus on internal mobility and | and evolve our practices as required to ensure | acompelling and fully | | workplace that delivers on our four employee | succession planning. We also increased the | we continue to meet the needs of our clients | | ### consistent experience for value proposition (EVP) themes: be yourself; remit of our People function, moving both and other stakeholders. ### every employee globally, make an impact; expand your horizons; and theinternal and external communications ### shape our future. We were, therefore, andresponsible business specialisms into webelieve we are making ### particularly pleased to see improvements in our thefunction. significant progress 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. ### Strategic Our people Capita plc 34 report continued Annual Report 2022 ### Building an engaged workforce Our commitment to flexible, ### remoteworking In order to live our purpose and delight our customers, we know that we need a highly In a market where many companies are now engaged workforce. Therefore in 2022 we expecting all employees to return to the office introduced a pulse survey, on top of our annual post-Covid, we took a clear stance at Capita to employee survey, to better understand how our offer flexible and remote work wherever client employees are feeling, and ensure we are and business needs allow as part of a virtual- listening to, and acting on their feedback. We first working approach. were pleased to see that in our annual people We believe offering this flexibility will help us survey, completed in October by more than attract and retain high-quality and increasingly 30,000 employees globally, 82% of diverse talent. For the first time, we asked about respondents said their manager had both working arrangements in our annual people shared and acted on survey results. We will survey, and the data showed us that those who work to continue increasing this score in 2023. work in a hybrid model, or from home, are on | In overall engagement, we saw positive | average 11% more engaged than those who | | --- | --- | | movement in 2022: our eNPS increased by | work solely from an office or the field. 85% of | | 15 points, while our employee engagement | these individuals also say it is a key motivator | | index increased by 9%. | for them to remain working at Capita. | | In addition, 2022 was the fourth year in | However, we do acknowledge that fully remote | | which employees were able to rate their line | working does not suit everyone, and we | | manager’s performance against our managers’ | encourage colleagues to book a desk in a local | | commitments. These commitments set out | office when needed, or to get together for team | | the additional behaviours we expect from all | events. We will continue to evaluate the impact | | our leaders and managers and affirm our | of this approach in 2023. | 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 Investment in apprenticeships at all levels continued behaviours. The feedback is fed into annual ### to grow and is providing ongoing opportunities to development discussions and can inform ### build the skills required for our future business managers’ objectives. ### success and for serving our clients successfully ### insupport of growth ### Strategic Our people Capita plc 35 report continued Annual Report 2022 We continued to see positive levels ofengagement with our learning resources over the past year, eg: ### Performance and development We continued to support wellbeing initiatives year. At the same time, the development of offering a suite of digital modules, which in ourmanagers remains a significant priority, During 2022, our focus was on the development | | | addition to specialist speakers, provided | andlast year we aligned our Accelerate, | | --- | --- | --- | --- | | of our career path framework (CPF). This is | c.569,000 | | | | | | practical tools and techniques for personal | Advance and Ascent programmes to our | aCapita-wide tool designed to enable our digital learning modules completed – an | | | wellbeing. We amended and enhanced the | managers passport to upskill our line | | --- | --- | --- | --- | | colleagues to plan and develop their career. | increase of more than 492,000 on 2021 | | | | | | communication on our Speak up whistleblower | managers. We currently have 173 managers | Itprovides a map of the whole organisation policy, providing colleagues with a safe and onone of these development pathways. enabling colleagues to view the role they secure mechanism to report anonymously | arein,behavioural, leadership and technical | | | Investment in apprenticeships at all levels | | --- | --- | --- | --- | | | c.356,000 | anyactivity that does not meet the values that | | | competencies for each job across the | | | continued, and is providing ongoing | | | mandatory training modules completed | we strive to achieve at Capita every day. We | | | organisation and identify what they need to | | | opportunities to build the skills required for our | also introduced our Code of Conduct digital doto progress and move to another role in future business success and for serving our learning, which has been completed by 97% theorganisation. This framework forms the clients successfully in support of growth. As an ofapplicable employees. ## foundation of many of our development and c.10,360 extension of our apprenticeship offering and in people processes. managers passport digital modules In 2022, our global learning teams collaborated alignment with our social value and responsible completed – an increase of more than 3,060 to remove duplication and continuously improve business activity, we pledged to gift more than Aligned to our CPF, we provide a global on 2021 our learning offering. This has been recognised in £1.4m in 2022–23 to help charities and SMEs academy approach to learning that gives Capita India where our Learning & Development invest in skills development. individuals access to self-directed development team won two awards, the L&D Excellence | that enables growth in them and for the business. | | | Supporting future leaders | | --- | --- | --- | --- | | | 606 | Award & The Innovation in Learning Award at | | | Capita Academy | | Future of L&D Summit and Awards 2022. | In 2022, we enhanced our approach to internal | colleagues attended live development mobility through succession and progression. For the Academy, 2022 was a year of engaging workshops delivered by the Capita Academy Looking forward, we will continue to focus on Succession planning is an integral process with colleagues and highlighting our resources simplification, organising our resources and helping us to identify potential in individuals and across Capita. We continued to build a solid providing easy access for all colleagues so develop future talent to support organisational ## resource bank within the Academy through c.44,000 theycan self-serve and self-develop. We will effectiveness and success. We conducted a theintroduction of the Capita e-library, which continue to build our learning suite and of applicable colleagues completed our comprehensive succession process for our provides colleagues with a suite of accessible provideclear alignment to our career pathway newly introduced Code of Conduct training Executive Committee and top 100 leadership learning to support their ongoing development. framework, supporting attraction, diversity (since its launch in April 2022) roles, challenging ourselves on the diversity We introduced a self-assessment tool andinclusion, competency development, and inclusion of our talent pipelines. 42% of this ‘MyCompass’ for colleagues to assess their andretention of our talent globally. population who were identified as high potential current knowledge and skills level against ## c.45,500 Professional development and suitable for succession are female. theiraspirational level with suggested learning resources have been accessed as part of to support in-role development. Our focus We offer 64 different professional development To improve diversity at senior levels, we also Capita’s e-library, including e-books, audio continued to be on management development programmes across England funded by our continue to support high-potential women learning and virtual classrooms | through our newly launched managers | apprenticeship levy. We have more than 600 | andindividuals from underrepresented | | --- | --- | --- | | passportprogramme and on growth through | learners on the apprenticeship programmes | groupsthrough cross-company mentoring | | our Sales Academy. | and 186 learners who successfully completed | opportunities. In 2022, 80 colleagues were | | | their professional development programme this | enrolled in these programmes. We are | ### Strategic Our people Capita plc 36 report continued Annual Report 2022 ### Responsible business at a glance We are committed to being a responsible business – in how we operate, serve society, respect delighted to win the Moving Ahead Mentor onboarding team to deliver excellence in our our people and the environment, and deliver improving returns to our investors. ofthe year for 2022 and Moving Ahead new joiner experience; evolved our reward MostDedicated Programme Partner of the hubto improve consistency in the application Our people – see pages 33 to 36 for more information. Also read our fair pay report and UK pay yearawards. ofglobal compensation and benefits; and gap reporting online. introduced a global mobility team to support We want to make Capita a place that people want to join and where they want to stay – a workplace Talent acquisition and turnover that delivers on our four employee value proposition themes: be yourself; make an impact; expand your complex international movement when horizons; and shape our future. We launched our inaugural Capita employee leadership council in Despite an extremely tight global talent market, required. We also centralised the majority of our 2022 with 11 colleagues from across the Group. We recognise the contributions of all colleagues, junior Capita continued in 2022 to attract large employee relations activity, delivering improved and senior, supporting and paying them fairly for the work they do. We are a real living wage employer. volumes of applicants, with more than 27,000 efficiency, consistency and reporting which will Key metrics 2022 2021 new starters in the year. International headcount allow us to be more proactive in employee eNPS (points) -9 -24 also increased, notably in South Africa where relations management going forward. Voluntary turnover (%) 30 30 itgrew by 139% to more than 4,900. Our People Hub, which provides direct support Employee engagement index (%) 65 56 Given the challenging external economic to all employees, continued to deliver excellent People survey response rate (%) 72 68 | backdrop, our focus in 2022 was on employee | results, with 99% of calls being answered | | | --- | --- | --- | | retention initiatives, ensuring the best talent was | within10 seconds. Our internal chatbot, Herbot, | Our customers and clients – see pages 44 and 47 for more information. Also read our supplier | | nurtured and developed. Our strengthened | can now manage high volume multi-functional | charter and human rights policy online. | | ‘Capita first’ policy saw more than 3,200 roles | transactional queries from employees, on | 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. | filled internally, 11% of total recruitment. | demand and across time zones. Across our | | | --- | --- | --- | | Voluntary turnover remained high and | People Hub channels, we successfully | Key metrics 2022 2021 | | continues to be a challenge due to external | managed more than 500,000 enquiries, | cNPS (points) +35 +29 | | market conditions. In 2023 we will continue to | incidents, and data transactions throughout | Supplier payment within 60 days (%) 99 98 | | build on our internal mobility strategy, and focus | theyear. As a reflection of our progress, we | | The environment – see pages 42 to 44 and the TCFD section for more information. Also read on retention activities. were awarded best Shared Services Team our achieving net zero report online. ofthe year 2022 by UBS forum. | Over the course of 2022 the resourcing function | | Our three-phased approach aims to reach operational net zero by 2025; operational and business | | --- | --- | --- | | implemented a new target operating model and | Reward | travel net zero by 2030; and full net zero by 2035. | | held a series of levelling-up roadshows to | | Key metrics 2022 2021 | Our fair pay agenda continues to underpin embed our candidate-focused approach. We Reduction in carbon footprint (gross tonnes) 4.6m 11.6m allour remuneration decisions. That means also continued to work on the refresh of our ensuring that we are recognising the Our investors – see page 48 for more information employer brand, developing new campaign contributions of all our colleagues, junior and Input and feedback from our investors forms an important element of our decision making. material and capitalising on our EVP to attract senior, supporting and paying all colleagues and retain talent. Key metrics 2022 2021 fairly for the work they do. You can read TSR (%) (33.5) (6.9) ### HR operations moreinour annual fair pay report, published Share price movement (pence) (12.2) (2.7) alongside our Annual Report. We also In 2022, we continued to focus on simplifying published our UK pay gap figures and and centralising key human resource functions, anarrative explaining them. We continued delivered through improved technology and tosupport our lowest paid employees by processes. To do this we launched a dedicated beingareal living wage employer. ### Strategic Responsible Capita plc 37 report business Annual Report 2022 | The commitment to being a purpose-led, | UK, our science-based climate targets (we | | --- | --- | | values-driven and responsible organisation | intend to be net zero by 2035), the significant | | isnow part of Capita’s DNA. This means a | progress towards our diversity goals, the launch | ## Creating better for all constant, Group-wide focus on how we can of our Capita Leadership Council, our continued deliver better for all our stakeholders – commitment to having an employee director ## our stakeholders employees, shareholders, clients, end-users onthe Board, and our socially responsible and communities. resourcing programmes, including one that provides paid internships to ex-offenders. | The commitment to being a purpose-led, values-driven and | In 2022, we further demonstrated this | | | --- | --- | --- | | responsibleorganisation is now part of Capita’s DNA. | commitment through the creation of a new | However, we also now need to respond to | | | ESG(environmental, social and governance) | arapidly changing external environment | | | Committee of the Board, focusing on | thatincludes an increasing understanding | | | responsible business issues, and providing | ofthe impact of climate change, a difficult | | | additional strategic oversight, accountability | economic situation and a cost-of-living crisis | | | and guidance. | forour employees. | | | Our responsible business strategy, which was | We are, therefore, in the process of refreshing | | | originally developed in 2019, has ensured that | our responsible business strategy to ensure | | | we remained focused on supporting the United | itfocuses on the areas of greatest concern | | | Nations’ Sustainable Development Goals | andeffect. | (UNSDGs) as well as addressing the issues We will publish our updated strategy and where we can have the biggest impact – responsible business report later in 2023 through our own operations, and the products (www.capita.com/responsible-business). We and services we provide to our clients. know that to ‘create better’ we must constantly In 2022, our activities focused significantly on: adapt, evolve and respond, and, through our building a more inclusive organisation and current and future activities, we arecommitted supporting our colleagues’ wellbeing; tackling to this ongoing challenge. 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 Responsible Capita plc 38 report business Annual Report 2022 continued ### We are addressing the ### globalchallenges of ### importance to our ### business and society. People Community Planet Operating responsibly Delivering ourstrategy themes Building a more inclusive Driving greater Reducing our Operating responsibly for organisation social mobility environmentalimpact ourstakeholders Enabling better digital access | Goals | • Ensuring our workforce reflects | • Empowering 100,000 young people | • Seeking to reduce our carbon | • Seeking to integrate environmental, | | --- | --- | --- | --- | --- | | | thediversity of the communities | inthe communities we serve to | footprint and supporting our clients | social, ethicaland governance | | | weserve and is inclusive | progress into the world of work by | todo the same | considerations across our | | | | theend of 2023 | | businessoperations | • Equipping 10,000 people in ourcommunities with the digital skillsrequired for today’s world by theend of 2023 Areas of focus • Prioritising our colleagues’ wellbeing • Tackling youth unemployment • Tackling environmental challenges • Client relations withclients • Engaging with our colleagues • Promoting digital skills • Supplier engagement for all • Improving our environmental • Reimagining our workplaces • Ethical business performance • Building an inclusive organisation • Adapting to climate change Supporting the UNSDGs ### Strategic Responsible Capita plc 39 report business Annual Report 2022 continued • Developing a number of programmes tosupport the career progression of ### We secured a place in the underrepresented groups. ## Addressing our ### 100 Best Companies for • Our RISE (reduce inequality strive for ### Women in India, as well equality) and RISE for Women programmes ## global challenges are specifically designed for Black, Asian & ### asbeing oneof the 2022 minority ethnic and female colleagues to help ### Exemplars in Most Inclusive start them on atransformational journey that ### Companies Index in India will give them the practical mechanisms to ### People • Expanding the use of personal pronouns on drive their careers forward. Workday, Outlook and Teams to ensure our We were extremely pleased that two Capita colleagues are represented and supported leaders – Kathy Quashie, Chief Growth Officer inthe way they wish to be recognised. and Eileen Lewis, Social Responsible ### Building a more inclusive organisation • Launching a new ‘life leave’ policy, to support Resourcing Lead – were named in the global employees with paid time off for fertility 2022 Empower Ethnic Minority Role Model Lists. At Capita, we are committed to creating an treatment, early pregnancy loss and more. environment where diversity is valued, We were highly commended by the Employers respected and included in everything we do, • Running an ongoing lunch and learn series Network for Equality & Inclusion for our approach and where we benefit from all colleagues tobuild awareness and understanding of to intersectionality, and recognised as a ‘Leading sharing their different perspectives and bringing oursimilarities and differences. In 2022 this Light’ by the UK Social Mobility awards. | their whole selves to work. In this way, each | included topics such as: menopause; faith | | | --- | --- | --- | | person can do their part to create better | and wellbeing; debunking the myths behind | We also secured a place in the 100 Best | | outcomes. We are committed to this goal not | ADHD; baby loss awareness; and more. | Companies for Women in India, as well as | | just because it helps us deliver better for our | | being one of the 2022 Exemplars in Most | • This was in addition to our ongoing clients and end-users, but because we believe Inclusive Companies Index in India, which celebration of awareness events, including it’s the right thing to do. istestimony to our diversity and inclusion (but not limited to) Pride, International commitments andpractices. Women’s Day, International Men’s Day, Racial During 2022, we continued to build on our Equality Week, Black History Month, Mental In 2022 we continued with our three diversity previous work to create a more inclusive Health Awareness week, and International focus areas: women in senior leadership; ethnic workplace for all our people. This included: Day of People with Disabilities. diversity in middle and senior leadership; and • Growing and supporting our eight global supporting colleagues with a disability. We are • Celebrating our Black colleagues with our employee network groups. We currently have pleased to say that: second annual Black Employees Awards, more than 15,000 network members. held during Black History Month. • We exceeded our 2022 targets for women • Continuing in our commitment to be a real • Continuing to review employee survey results insenior roles. Our workforce is 51% female, living wage employer in the UK. | by protected characteristic and working with | and in our senior leadership roles 42% are | | --- | --- | | each of our employee network groups on | female. In addition, both our Board and | | results relevant to their area of focus. | Executive Committee are 44% female. | ### Strategic Responsible Capita plc 40 report business Annual Report 2022 continued • We exceeded our 2022 targets for ethnic Supporting our colleagues’ wellbeing We also completed the transition to our new diversity in leadership roles. Our workforce provider, Health Partners, and launched 1 5 (56%) Male Focusing on the wellbeing, safety and health 2 4 (44%) is21% ethnically diverse, including 7% Black, aseries of proactive occupational health ofall Capita employees continues to be a top and our senior leaders are now 14% ethnically interventions in the UK, building on the priority. In 2022, we particularly focused on 2 diverse (in the UK) and 3% Black. In 2023 activitiesalready in place in some of our mental health and financial wellbeing, as the 1 wewill be working on targets for additional international locations. cost-of-living crisis intensified. geographies. In addition, both our Board ### Reimagining our workplaces | andExecutive Committee are each 22% | We are not afraid to tackle difficult subjects | | | --- | --- | --- | | ethnically diverse. | andalso launched suicide awareness initiatives | We continued to transform and simplify our | | | andnew guidance relating to domestic abuse. | property footprint with further consolidation | • In 2022 we were recognised as Disability 1 5 (56%) Male Wealso launched our Group menopause during 2022 with 19 locations closed globally. Confident Employer (level 2) status across the 2 4 (44%) procedure, supported with our first ever virtual Group and we are working to achieve level 3 We continue to look to invest, as we create Menopause Café. status in 2023. We are particularly proud of more flexible and better equipped space, 2 the work we did with the Capita ability network Through the advancement of our wellbeing, providing our colleagues with improved 1 | to support our colleagues with adisability, | safety, and health focus, our colleagues | technology to complement our ways of working. | | --- | --- | --- | | such as the launch of our adjustments | reported improved feelings of healthand | This allows us to come together, both face-to- | | passport to ensure that reasonable adjustments | wellbeing, with a Wellbeing Index rating of 71% | face and virtually, to collaborate and to meet | | follow our employees throughout their career | in our annual people survey (up4% from 2021). | with clients and stakeholders. | in Capita. We also increased our disability 1 73 (74%) Male We introduced new mandatory safeguarding We also internally recycle as much quality declaration level by8%. 2 25 (26%) training with 98% completion for level 1 and furniture and equipment as possible from 2 | We will continue to build on these figures in | 99% for level 2, which exceeds our internal | thesites we closed, with 36 locations benefiting | | --- | --- | --- | | 2023, while also introducing an additional focus | compliance targets of 95%. | from more than 5,200 items. As part of our | | on how we measure and track social mobility | | responsible business commitment, wealso | We also enhanced and expanded our within the organisation. donated more than 2,300 items of furniture to 1 SafetyNet initiative, which provides guidance 12 schools, three NHS Trusts and six charities. and support to human resources representatives and business managers dealing with employees with complex issuesrelated 1 24,240 (49%) Male towellbeing, safeguarding or vulnerability. 2 25,350 (51%) Asamultidisciplinary group, SafetyNet providesanindependent view and advice, 2 1 recommends additional interventions, and supports managers and colleagues through extremely difficult situations. In 2022, | All employees | | | | SafetyNethas supported 219 colleagues | | --- | --- | --- | --- | --- | | Board Executive Committee Senior management* | | | | | | | * Senior management includes directors of subsidiary legal | | | sinceit started in 2021. | | | entities as per requirements ofthe Companies Act section | Female Female Female | Female | | 414C(8)(c)(ii) and414C(10)(b). ### Strategic Responsible Capita plc 41 report business Annual Report 2022 continued At the start of the Ukraine war, our colleagues We also continued to work with Good Things ### Community inKrakow collected clothes, food and money Foundation, the digital inclusion charity, to ### Helping to support and tosupport the refugees and some of our inspire senior leaders in England to set ### grow strong communities colleagues hosted refugee families. We have ambitious strategies to tackle digital inequality. ### since raised further resources and bought a The aim of this work is to ensure people from inthe current economic generator to provide power to a water plant allbackgrounds, including the disadvantaged, ### Tackling economic inequalities climate is a key priority for which pumps to local hospitals in Ukraine. have access to devices and the skills necessary ### Capita; and, we believe, Helping to support and grow strong to use them. Our partnership engaged several All our employees globally are granted one ### communities in the current economic climate combined authorities in England to help them anobligation for all dayper year for volunteering activities, more isa key priority for Capita, and, we believe, an develop their approaches to digital inclusion ### businesses globally than 7,800 hours of volunteering were obligation for all businesses globally. We are and led to the creation of aroadmap providing requested in 2022. | therefore proud that we not only renewed our | | practical ideas for digital inclusion strategies | | | --- | --- | --- | --- | | commitment to be a real living wage employer | We also continued our sponsorship of the UK | aimed at tackling digital inequality. | | | in 2023, but we also joined Business in the | Social Mobility Awards and were delighted to | | | | | | Capita colleagues also volunteered their time | Community investment | | Community’s cross-industry cost of living | beawarded a ‘Leading Light’ award. | | | during the year to take part in Business in the taskforce, which launched in December 2022. We were also particularly pleased to see the Community’s ClickSilver Connections scheme, Capita was one of the first organisations to sign ## progress of our Compass programme, providing mentors to help older and vulnerable c.£1m up to the UK Government’s Kickstart Scheme. delivered in partnership with Project Remake, people to connect with friends and family, (2021: c.£0.9m) From the start of 2021 to end of 2022, we supporting ex-offenders into meaningful work. source essential items, find information and offered 59 Kickstart placements, with the You can watch interviews with some of our gain digital confidence. majority being delivered virtually. 95% of our Compass interns at www.capita.com/our- Kickstarters successfully completed the thinking/creating-better-outcomes-internships- programme with 53% securing roles in Capita prison-leavers. We hope to grow this afterwards. 17% gained roles externally and 8% programme further in 2023. returned to full time education. Of the 53% that ### were retained after the programme, 90% Digital inclusion remain within Capita. In 2022, Capita invested in WithYouWithMe, a | In 2022 we pledged to gift more than £1.4m of | workforce technology platform that finds | | --- | --- | | our apprenticeship levy to support charities and | employment for military veterans and other | | SMEs to invest in skills development. We | overlooked groups through delivering innovative | | continued to support our employees to | aptitude testing and digital skills training. With | | fundraise more than £60,000 and were pleased | them, we launched ‘15,000 Futures’, an initiative | | to donate more than £16,000 in matched charity | to support former members of the UK armed | | funding. We also raised more than £180,000 | forces and their partners to find employment in | | through payroll giving. | the technology and digital sectors after leaving | the military, encouraging organisations to fill 5% of available digital roles with reskilled veterans. ### Strategic Responsible Capita plc 42 report business Annual Report 2022 continued Our three-phased approach aims to reach We have already achieved our 2025 and 2030 ### Planet operational net zero by 2025; operational and near-term science-based targets apart from ### We are working to reach business travel net zero by 2030; and full net those relating to Scope 1 which we expect to ### operational net zero by zero by 2035. achieve by 2024. ### 2025; operational and | | In 2022, as part of our business planning | Work to improve the accuracy of our monitoring | | | --- | --- | --- | --- | | Fighting climate change | process, each division and function submitted | of Scope 3 emissions will accelerate in 2023. | business travel net zero | | | its own net zero targets for 2023 and issued | Across the Group we will develop our low | by2030; and full net zero | The Science Based Target initiative (SBTi) has | | plans to achieve longer-term net zero | carbon transition plan to ensure transparency | | | --- | --- | --- | --- | | verified Capita’s 2035 net zero science-based | | | by2035, including our | | | milestones. Successful submission of these | tostakeholders across all areas of our carbon | | target as follows: ### supply chain | | plans and reduction targets, together with | reduction planning, responding to climate- | | --- | --- | --- | | Near-term targets | demonstrable reduction in carbon emissions, | related risks and opportunities, and our | | Capita has committed to reduce absolute | forms part of 2022 management bonus plan | contribution to economy wide transition. | | Scope 1 and 2 greenhouse gases (GHG) | criteria. 2023 incentives will focus on | | With more than 50,000 colleagues across emissions and absolute Scope 3 GHG achievement of target, and reporting of theglobe, we are all too aware of our own emissions covering business travel by 46% by performance against target will form part of the internal responsibilities. We therefore launched 2030 from a 2019 base year. Capita has also company-wide management reporting cycle. a newenvironmental standard, setting out committed to 50% of its suppliers by spend – Following our commitment to be net zero by Capita’s environmental commitments and covering purchased goods & services and 2035, the challenges we believe will be most responsibilities and incorporating an capital goods – having science-based targets difficult to address are: the decarbonisation of environmental training module for all employees by 2025. | | our heating systems; and collecting, monitoring | to support the environmental standard and net | | --- | --- | --- | | Long-term targets | and managing the reduction of emissions from | zero commitment. | | Capita has committed to reducing absolute | more than 19,000 suppliers. | | In 2022 we published our third disclosure Scope 1 and 2 GHG emissions, and absolute Driving down GHG emissions statement against the recommendations of Scope 3 GHG emissions (covering purchased Following the onset of the Covid pandemic, theFinancial Stability Board’s Task Force on goods & services, capital goods, business- wesignificantly reduced business travel. While Climate-related Financial Disclosure (TCFD), travel and employee commuting) by 90% by there was an increase over lockdown levels, see page 49. 2035 from a 2019 base year. travel bounceback in 2022 has been mitigated | We set out our ambitious and far-reaching | by our virtual first meeting strategy and remains | | --- | --- | | roadmap to take us to net zero in 2021. We | less than 25% of pre-pandemic levels. Our | | arecommitted to these challenging targets | electricity emissions also reduced, through | | atevery level of our organisation, setting | efficiency, sourcing more renewable power | | decarbonisation as our overarching objective. | andreducing the property portfolio. | Our goal is for all residual emissions to be neutralised in line with SBTi criteria to reach netzero emissions. ### Strategic Responsible Capita plc 43 report business Annual Report 2022 continued ### Annual GHG emissions 2022 2021 2020 | | | | | | | | | | | Scope 1 (tCO | 2 e) 12,049* 15,021* 18,980* | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Milestone 1: | | | Milestone 2: | | | Milestone 3: | | | | | | | Operational net zero | | | Operational + travel net zero | | | | Full net zero | | Scope 2 (tCO | 2 e) (location-based) 21,137* 24,088* 28,359* | | | | | | | | | | | | | Scope 2 (tCO | 2 e) (market-based) 4,083* 10,328* 23,526* | | | | | | 2025 | | | 2030 | | | 2035 | Scope 3 (tCO | 2 e) (business travel and waste) 6,101* 4,500* 7,8 81* | | | Operational (Scope 1 & 2) | | | | Operational (Scope 1 & 2) | | | Operational (Scope 1 & 2) | | | | | | | | | | | | | | | | | Total gross tonnes of CO | | 2 e (location-based) 39,287 43,609 55,219 | | | | | | + business travel emissions | | | | + business travel | | | | | | | | | | | | | | | | Total gross tonnes of CO | | 2 e (market-based) 22,233 29,848 50,386 | + supply chain emissions Total gross tonnes of CO 2 e/£1m revenue (location-based) 13.03 13.70 16.60 ### Methodology Our disclosures cover sources of our GHG Total gross tonnes of CO 2 e/headcount emissions from our operations in the UK, (location-based) 0.79 0.73 0.85 We measure our environmental performance Ireland, Central Europe (Poland, Germany, by reporting our global carbon footprint annually ### Switzerland and Bulgaria), India and South Table of progress against targets in terms of tonnes CO 2 equivalent (tCO 2 e), an 2022 2022 2030 Africa. Capita converts the consumption data absolute measure, and tonnes CO 2 equivalent Progress against SBTi verified short-term targets actual target target into a carbon footprint with consideration for per £1m revenue and per person (intensity Scope 1 (tCO 2 e) 12,049 14,506 10,201 theWorld Business Council for Sustainable measures). The data relates to Capita’s owned Scope 2 (tCO 2 e) (market-based) 4,083 24,167 14,876 Development and World Resources Institute’s and leased facilities and business travel under Scope 3 (business travel and waste) 6,101 26,869 16,540 Greenhouse Gas Protocol, together with the its operational control across all geographies. 2022 2022 2025 latest emissionsfactors from the UK Progress against SBTi verified short-term engagement target actual target target We report separately on our direct emissions Department forEnvironment, Food and from Capita-controlled and owned sources Scope 3 supply chain spend covered by science- RuralAffairs, Association of Issuing Bodies based targets % 50% 32% 50% (Scope 1), indirect emissions from consumption andInternational Energy Agency. Other metrics 2022 2021 2020 of electricity, heat or steam (Scope 2), and 100% renewable power progress (as % of total power) 85% 80% 68% emissions from third parties (Scope 3). This ensures our compliance with Part 7 of The Transition from internal combustion to low emission vehicles: Companies Act 2006 (Strategic Report and Diesel 47% 62% 77% Director’s Report) Regulations 2013 which | requires certain disclosures in respect of GHG | Hybrid electric 48% 32% 19% | | | --- | --- | --- | | emissions (the Strategic Report GHG Emission | Pure electric 4% 5% 4% | | | disclosures). We engaged an external agency, | Average CO | 2 e 96g/km 96g/km 98g/km% | | Corporate Citizenship, to provide independent | Fleet vehicle energy source | | limited assurance over the selected GHG Notes: emissions data (highlighted in the table Total gross tonnes of CO e/£1m revenue (location-based) in 2022, 2021 and 2020 has been calculated using statutory revenue. 2 opposite with an *) using the assurance 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. standards ISAE 3000 and 3410. Corporate Scope 2: Emissions from the consumption of purchased electricity, heat or steam. Citizenship has issued an unqualified opinion Scope 3: Emissions from non-owned sources related to Capita’s activities, including business travel and waste. over the selected data; its full assurance statement is available at www.capita.com/ responsible-business/resources-and-reports. ### Strategic Responsible Capita plc 44 report business Annual Report 2022 continued Our two core divisions (Public Service and Our supplier charter, which is available on our ### Operating responsibly | Experience) received feedback from 403 | website, remains at the core of strengthening | | | --- | --- | --- | | individuals across 250 clients providing a 52% | our commitments to support more SMEs, | cNPS score for 2022 | | response rate. The results give the two core | increasing the diversity of our supply chain, | | | divisions a combined cNPS score of +24, an | promoting supply chain resilience and | | ## +35 increase of +8 on 2021. encouraging ambitious carbon reduction Operating responsibly means ensuring we keep targets. All new and renewing suppliers are our purpose – to create better outcomes for all ### Supplier engagement Spend with direct suppliers in 2022 expected to comply with this charter. stakeholders – at the core of everything we do. Around 92% of our total supply chain are In 2022, we maintained our focus by: continuing Business aligned objectives are in place for smalland medium-sized enterprises (SMEs), ## to support clients and communities in recovery 2023 which are fully supported by the Board, £1.98bn including sole traders and micro-businesses. from the Covid pandemic; engaging and inorder for us to progress to meet our net zero in We continued to recognise the effect that the working closely with our suppliers; goals for Scope 3 emissions. Our 2025 goals current economic situation is having on many understanding our colleagues needs; and are that 55% of our suppliers by spend will have ofthese suppliers, with varying demand for ## dealing with wider societal challenges, such committed to having science-based targets 69 products and services often severely affecting asthe cost-of-living crisis. (SBTs) in place and, by 2030, 85% of our countries their cash flow. Consequently, we strive as suppliers by spend will have committed to ### Client relations abusiness to prioritise and ensure payment having SBTs in place. toterms with our vendors at all times We actively seek the views of our clients wherepossible. As signatories to the Prompt Payment Code, we through an annual customer net promoter report our payment practices and performance score(cNPS) survey. In the survey we ask for We spent more than £1.98bn in 2022 with more to the UK Government every six months; 99% feedback on our current performance and than 19,000 direct suppliers in 69 countries. of our suppliers were paid within 60 days. | advice on areas that they would like us to focus | Wevalue the business relationships we have | | --- | --- | | on in future. We feed this information back to | with our suppliers and seek to build lasting | | our teams who then take the time to understand | relationships, treating our suppliers and | | any root causes of issues raised and set | partners fairly and paying promptly. We want | | actions which are monitored via our customer | towork with suppliers who share our values | | relationship management platform, Salesforce. | and support us in delivering our purpose. | | In 2022, we received feedback from 585 | Our aim is to encourage and work with | | individuals across 392 clients. This enabled us | suppliers in order to achieve the highest | | to achieve a 49% response rate and the results | standards within our supply chain. We are | | give Capita a cNPS score of +35 for 2022 | committed to working with our supply base | | which is an increase of +6 on 2021. | toensure that together we can achieve wider | social, economic and environmental benefits. ### Strategic Responsible Capita plc 45 report business Annual Report 2022 continued | Valuing the employee voice | Targeting bribery and corruption | | --- | --- | | As a people-centric business, we believe | We do not tolerate bribery or corruption in any | | listening to, and involving, our colleagues in the | form. Our anti-bribery and corruption policy | | highest levels of our strategic decision making | applies to all Capita businesses, employees | | is critical to our success. Our first two employee | and suppliers. The Risk & Compliance team | | non-executive directors completed their terms | monitors compliance, with a view to ensuring | | in the summer of 2022, and we recruited a | allparts of the business are aware of their | | newemployee director, Janine Goodchild, | responsibilities in terms of charitable donations, | | whojoined the Board on 1 July 2022. We are | sponsorships, facilitation payments, gifts and | | proud of the exceptional contribution and fresh | hospitality. All employees must complete | | perspective that our employee directors make | financial crime training annually. | to Board-level governance in the organisation, ### Upholding human rights and we would encourage other organisations toconsider doing the same. We are committed to playing our role in globalsociety by ensuring that through our Building on this employee-oriented success, management and operations we have the welaunched our inaugural Capita Employee ### systems, policies and processes in place to Members of our tech solution delivery team Leadership Council in 2022. The council identify any potential instances of exploitation ### competed in a charity plane pull to raise funds comprises 11 individuals, drawn from different and, if found, eradicate modern slavery in all ### parts of Capita, who were identified as potential for Action for Children itsforms from our business and supply chain. future leaders within the organisation. The council acts as an advisory group, representing Our updated human rights policy details our the perspective of employees directly to the commitments to upholding the principles of Executive Committee, the business’ senior human rights, as set out in the UN Declaration leadership team. It has also contributed to of Human Rights and the International Labour strategic projects. Organization core labour principles. We comply with all relevant legislation, including the UK Each council member’s tenure is two years, Modern Slavery Act and our compliance during which they will benefit from learning statement can be found on our website. We anddevelopment opportunities designed to outline expectations and compliance to the enhance their leadership skills. This will occur standards we set out for suppliers, working with through projects the council is asked to deliver them to ensure they operate in accordance with and a rotating programme of mentorships which this policy, and upholding the principles of will be provided by members of the executive, human rights in their operations and supply including our CEO, Jon Lewis. 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 ### Strategic Responsible Capita plc 46 report business Annual Report 2022 continued ### Non-financial information statement This section of the report constitutes Capita’s non-financial information statement, produced to comply with sections 414CA and and anyone that we do business with also 414CB of the Companies Act 2006. The table below, and information it refers to, is intended to help stakeholders understand our upholds these principles. If any client, position on key non-financial matters. This builds on reporting that we do under the following frameworks: CDP, Dow Jones employee, supplier or other stakeholder Sustainability Index and the EcoVadis Assessment. becomes aware of any potential breach of human rights (or any other ethical concern) they Reporting requirement Policies and standards which govern ourapproach Where is this referenced in this report? may report this confidentially to our Speak Up Environmental matters • Health, safety and environmental policy (E) • Responsible business: fighting climate change hotline. This hotline is externally managed for • Environmental standard (I) pages 42 and 43 independence and confidentiality. | | Employees • Code of conduct (E) | | • Our people section pages 33 to 36 | | --- | --- | --- | --- | | Protecting privacy | | • Health, safety and environmental policy(E) | • Responsible business: building an inclusive | | | | • Diversity and inclusion policy (E) | workplace pages 39 and 40 | | Our clients and our colleagues expect us to | | • Wellbeing policy (E) | • Responsible business: diversity data page 40 | | keep their data safe and secure, and to respect | | • Employee handbook (I) | | their privacy. We take this responsibility very Human rights • Human rights policy (E) • Responsible business: operating responsibly – seriously, with a view to ensuring we only | | • Supplier charter (E) | supplier engagement page44 | | --- | --- | --- | | process personal data in line with all applicable | • Modern slavery statement (E) | • Responsible business: community – tackling | | | • Information and cyber security policy (E) | economic inequalities page41 | laws, including how we collect, store, use, • Privacy policy (E) • Responsible business: operating responsibly – retain, transfer and delete personal data. • Employment screening policy (I) upholding human rights page 45 and 46 • Procurement policy (E) Our privacy policy details how we expect • Speak Up policy (E) everyone to take responsibility for privacy, • Safeguarding policy (E) including the protection of data, applying our Social matters • Community and charity policy (E) • Responsible business: digital inclusion page 41 privacy standards, procedures and guidance in • Community and charity standard (I) • Responsible business: community – tackling their areas of the business. These requirements | | • Volunteering FAQ (I) | economic inequalities page 41 | | --- | --- | --- | | include maintaining information asset registers, | • Matched funding FAQ (I) | | | following a comprehensive incident | • Fundraising FAQ (I) | | management process, completing privacy by | | Anti-corruption | • Code of Conduct: Anti-bribery and | • Responsible business: targeting bribery and | | --- | --- | --- | --- | | design and default, and data protection impact | and anti-bribery | corruptionpolicy (E) | corruption page 45 | | assessments. We continue to raise awareness | | • Financial crime policy (E) | | of the importance of privacy through our | | Due diligence | • Risk management framework | • Risk management framework pages 55 and 56 | | --- | --- | --- | --- | | mandatory training and ongoing communication | and outcome | • Annual internal audit plan | • Audit and Risk Committee report pages 90 to 98 | | programmes. | | • Risk register | | • Audit and Risk Committee report Business model • Business model pages 6 and Non-financial KPIs • 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 Engaging with Capita plc 47 report our stakeholders Annual Report 2022 ### Our people Clients and customers ## Engaging with | | Why they are important | Outcomes and actions | Why they are important | Outcomes and actions | | --- | --- | --- | --- | --- | | our stakeholders | They deliver our business strategy; | The 2022 employee survey showed | They are recipients of Capita’s | Feedback provided to business | | | they support the organisation to | improvement across all metrics. We | services; and Capita’s reputation | units to address any issues raised; | | | build a values-based culture; and | are developing and delivering a | depends on delighting them. | client value proposition teams | | | they deliver our products and | range of action plans, including | | supporting divisions with | | | services ensuring client satisfaction. | ensuring our leaders feel confidence | What matters to them | co-creation ideas; direct customer | | | | in, and ownership of Capita’s | | and sector feedback; and senior | High-quality service delivery; What matters to them strategy, plans and successes, client partner programme delivery of transformation projects developing inclusive opportunities undertaking client-focused growth Flexible working; learning and within agreed timeframes; and for internal career mobility. sprints to build understanding of development opportunities leading responsible and sustainable We developed a global career path client issues and ideas to help to career progression; fair pay business credentials. framework which defines career address them. andbenefits as a reward for performance; and two-way levels, career job content, and How we engaged Risks to stakeholder Society Our people communication and feedback. reward framework and introduced mentoring schemes. • Client meetings and surveys relationship How we engaged • Regular meetings with We introduced our first employee • Loss of business by not providing government stakeholders | | | leadership council, comprising | | the services that our clients and | | --- | --- | --- | --- | --- | | | • People surveys | | andannual review with the | | | | | 11individuals, drawn from different | | customers want | | Create better | • Regular all-employee | | Cabinet Office | | parts of Capita. communications • Damage to reputation by not • Creation of Customer Advisory ### outcomes We refreshed our Speak Up policy. delivering to the requirements • Employee director on the Boards ofour clients and customers Capitaplc Board • Created a senior client Investors Clients Risks to stakeholder andcustomers • Employee focus groups and partnerprogramme giving Key metrics relationship network groups anexperienced single point • Workforce engagement on • Our ability to recruit due to the ofcontact for key clients Customer NPS; specific feedback remuneration national and global labour market andcustomers on client engagements. Suppliers and demand for resources • Leadership Council partners Topics of engagement Further details • Our ability to retain people, • Regular ‘breakfast’ sessions | | impacting our quality of service | | Chief Executive Officer’s review on | | --- | --- | --- | --- | | withthe Executive Committee | | • Current service delivery | | | forour colleagues | • Our ability to evolve our culture | | pages 10 to 15. | • Capita’s digital transformation and practices in line with our capabilities Topics of engagement responsible business agenda • Possible future services • Creating an inclusive workplace Key metrics • Co-creation of client value Section 172 statement • Speak Up policy propositions The following disclosures describe how the directors have had Employee NPS, Employee • Health and wellbeing • Ongoing benefits of hybrid Engagement Index and people regard to the matters set out insection 172(1a) to (f) and forms working on client services • Directors’ remuneration survey completion level. the directors’ statement required under section 414CZA of the • Acting on survey feedback Companies Act 2006. Further details Our people section on pages 33 to 36. Responsible business section on pages 37 to 45. Directors’ See page 75 for more information. remuneration report on pages 99 to122. ### Strategic Engaging with Capita plc 48 report our stakeholders Annual Report 2022 continued ### 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 | | --- | --- | --- | --- | --- | --- | | They share our values and help us | Alignment of payments with agreed | They own the business and provide | Frequent market communication; | Capita is a provider of key services | Publication of net zero plan and | | deliver our purpose; maintain high | terms; supplier feedback on | essential capital; and their input | and active engagement with largest | to government impacting a large | verification during 2022 of Science | | standards in our supply chain; and | improvements to procurement | andfeedback is considered when | shareholders including with the | proportion of the population. | Based Targets; continued | | achieve social, economic and | process; improvement plans and | making decisions. | Chairman and Remuneration | | commitment and accreditation as a | | environmental benefits aligned | innovation opportunities; and | | Committee chair. | What matters to them | real living wage employer; youth and | | tothe Social Value Act. | improved adherence to supplier | What matters to them | | | employability programme; Capita’s | | | | | Hybrid arrangements for the 2022 | Social mobility; youth skills and | | | | charter, suppliers committing | | annual general meeting to allow | | investment in WithYouWithMe, | | | | Reporting on strategic, operational | | jobs;digital inclusion; diversity | | | What matters to them | toSBTs. | | | | aworkplace technology platform | | | | and ESG factors; financial | shareholders to attend both | andinclusion; climate change; | | | | | | physically in-person and remotely. | | that finds employment for military | | Payments made within agreed | | performance; directors’ | | businessethics; accreditations | | | | Risks to stakeholder | | | | veterans and other overlooked | | payment terms; clear and fair | | remuneration, access to the Board | | andbenchmarking; and cost of | | | | relationship | | Risks to stakeholder | | groups through delivering innovative | | procurement process; building | | and senior management; and | | living crisis. | | aptitude testing and digital skills lasting commercial relationships; regular communication. relationship • Environmental issues training; highly commended by the and working inclusively with all How we engaged • Commitment to tackling SBTs • Changes to outsourcing market, Employers Network for Equality types of business. How we engaged • Supply chain resilience eg government policy • Membership of non-governmental &Inclusion for our approach to • Financial and other reports and • Delivery on strategic and organisations intersectionality; recognised as How we engaged | | Key metrics | trading updates | financialobjectives | • Charitable and community | a‘Leading Light’ by the UK Social | | --- | --- | --- | --- | --- | --- | | • Supplier meetings throughout | | • Regular investor programme with | | partnerships | Mobility awards; and joined the | | | 99% of supplier payments within | | • Key aspects of governance. | | | | source to procure process | | the Board, including meetings | | | Cost-of-living Taskforce. | | | agreed terms; SME spend | | egremuneration | • External accreditations | | | • Regular reviews with suppliers | | with the Chairman and | | andbenchmarking | | | | allocation; and supplier diversity | | | | Risks to stakeholder | | • Supplier questionnaires and risk | | Remuneration Committee chair | Key metrics | | | | | profile. | | | • Working with clients, suppliers | | | assessments | | and feedback throughout the year | | | relationship | and the Cabinet Office Revenue; profit; free cash flow; net | | Further details | • Discussions around AGM on | | | | | --- | --- | --- | --- | --- | --- | | | | | debt and gearing; valuation; and | | • Lack of understanding of the | | Topics of engagement | | resolutions and governance | | Topics of engagement | | | | | | AGM voting. | | issues important to them | | | Supplier engagement section on | topics | | | | | • Supplier payments | page 44. | | | • Youth employment | • Insufficient communication or | | | | • Dedicated investor relations | Further details | | | | • Sourcing requirements | | | | • Promoting digital inclusion | involvement in shaping and | contacts and email inbox • Supplier performance influencing strategies and plans Shareholder engagement section • Workplace inequalities • Regular Board reports from | • Responsible Business | | on page 44. | • Diversity & inclusion | | | --- | --- | --- | --- | --- | | | investor relations function and | | | Key metrics | | • Science based targets (SBTs) | external advisers | Principal decisions table on | • Climate change | | | | | page75. | | Net zero by 2035, community | • Supplier Charter Topics of engagement investment, workforce diversity and ethnicity data, including pay gaps. • Disposal programme • Medium term targets and outlook Further details • Social: attrition and engagement Responsible business: Planet | • Balance sheet and liquidity | section on pages 42 to 44. | | --- | --- | | • Governance: remuneration | Greenhouse gas emissions section | | • Environmental: net zero target | on pages 79 to 81. | ### Strategic Task Force on Climate-related Capita plc 49 report FinancialDisclosures Annual Report 2022 ### Strategy To identify, assess and manage climate ## Task Force on Climate-related risksand opportunities, Capita conducted anin-depth climate scenario analysis (CSA) in two phases. ## Financial Disclosures (TCFD) Phase 1, a qualitative risks and opportunity assessment, was completed in 2021, while phase 2, the quantification of climate risks, was completed in 2022. ### Governance To achieve these responsibilities, the Board is Management’s responsibility for climate- assisted by three committees: related risks and opportunities: This analytical work has allowed Capita to Board responsibility for climate-related Climate-related responsibilities are assigned understand the range of possible impacts risks and opportunities: • The Audit and Risk Committee (ARC) to specific management-level positions that arising from different long-term climate Capita’s Board is responsible for promoting assists in managing risk systems, including coordinate activity across and within each change scenarios to inform the overall long-term sustainable success, generating managing climate change as a principal risk. business division. business strategy, build resilience and value for shareholders and contributing to • The Remuneration Committee is mitigate climate risk impacts. wider society. This includes its role in ensuring • Capita’s Chief Executive Officer: overall responsible for setting policies for executive climate-related issues are appropriately responsibility for climate-related risks & Climate risks and opportunities are pay and incentives and approving changes considered when setting business strategy, opportunities and for ensuring that climate assessed across short-term (0–3 years), to existing remuneration plans. In 2022, deploying capital, agreeing remuneration issues are appropriately considered at medium-term (4–9 years), and long-term executive remuneration is linked to the metrics, and setting corporate policy. Board level. (10+ years) time horizons to reflect the achievement of Capita’s climate targets during 2022. • Divisional Heads of Responsible Business: longer-term impacts from climate change. deliver on Capita’s sustainability initiatives • The newly formed ESG Committee has and commitments, including those relating senior level oversight of climate-related toclimate change. issues and is chaired by the Chairman oftheBoard. • 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. ### Strategic Task Force on Climate-related Capita plc 50 report FinancialDisclosures Annual Report 2022 continued | Phase 1 (completed in 2021): qualitative | Phase 2 (completed in 2022): | Physical risks | Transition risks | | --- | --- | --- | --- | | risk & opportunity assessment | quantitative modelling of five key | Exposure modelling | Exposure modelling | | | | All of Capita’s sites were screened for exposure | Three transition risks (carbon pricing, | ### climate risks In 2021, Capita completed the first phase of | | | to water stress in the baseline using publicly | supply-chain pass through costs and energy | | --- | --- | --- | --- | | itsclimate scenario analysis by qualitatively | As a result of the qualitative CSA, Capita | | | | | | available projections; 20 highly exposed or | pricing) were modelled, using publicly available | | assessing climate risks and opportunities | identified five risks likely to affect its operation | | | | | | strategic sites were taken forward for detailed | projections in a low carbon <2°C scenario. | | overforward-looking scenarios. | indifferent climate scenarios: | | | | | | modelling. The modelling was used to provide | Carbon credit pricing was modelled using | | The qualitative assessment consisted of: | • water stress (physical risk); | an exposure rating for each of Capita’s sites. | a bespoke offset modelling system based on | | | | Scenarios used and timelines modelled are | offsetting project type and market fluctuations. | | • A gap analysis against TCFD | • carbon pricing (transition risk); | | | | | | outlined in the risk table. | All scenarios and timelines are outlined in the | | recommendations to identify actions to | • supply chain pass-through costs | | | risk table. achieve full disclosure, and a peer review Vulnerability workshop (transition risk); ofsector climate-related disclosures. To understand Capita’s vulnerability to water Carbon pricing, supply chain pass-through • energy pricing (transition risk); and stress, an internal cross-functional workshop costs and energy pricing were all modelling • Internal stakeholder engagement to examine • carbon credit pricing (transition risk). was conducted. The discussions and output under two internal emissions/energy potential operational impacts from climate While Capita’s exposure to the risks was from this workshop provided an understanding consumption projections: business as usual change. Teams engaged included: modelled on a global level for the transition of site operations which was used to provide (BAU) and net zero. Procurement; Business Growth & Continuity; | | risks, the water stress risk was modelled at | each site with a vulnerability rating. | | | --- | --- | --- | --- | | Risk Management; Responsible Business; | | | BAU: assumes that Capita’s emissions or | | and Financial Planning. Each team has | site level. | | | | | | Overall risk rating | energy consumption remains constant from | | identified relevant climate-related risks and | | The exposure and vulnerability risk ratings were | a2019 baseline. | | opportunities for their function. | | multiplied together to understand the overall | | Net zero: assumes that Capita’s emissions and • Qualitative assessment of risks and risk of water stress to each of the modelled energy consumption decrease in line with the opportunities across relevant geographies, sites. Results and mitigation measures are SBTi verified near-term targets and 2035 net time horizons and climate scenarios based outlined in the risk table. zero target. onscores for vulnerability, likelihood and Vulnerability magnitude assessment criteria (results can To understand Capita’s vulnerability to the be found on Capita’s website). This enables modelled transitional risks, an internal cross- the prioritisation of climate impacts for further functional workshop was conducted. The analysis in phase 2. discussions and output from this workshop Capita has used the climate scenarios provided an understanding of Capita’s financial developed by Network for Greening the planning, strategy and current mitigation Financial System (NGFS). These include measures. The outputs of the workshop and the three scenario categories: orderly transition exposure modelling were assessed to provide (for early ambitious action), disorderly transition an overall potential impact rating for each risk, (for when action is late and sudden), and outlined in the risk table. hothouse world (for limited action resulting insignificant warming). ### Strategic Task Force on Climate-related Capita plc 51 report FinancialDisclosures Annual Report 2022 continued Risk table: we modelled five risks in terms of the scenarios and time horizons used, their potential Climate scenario Risk description and time horizon Potential impact Mitigation actions impact and the current/potential mitigation actions. | | Climate scenario | | | Supply chain pass-through cost | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Risk description | and time horizon Potential impact Mitigation actions | | | | | | | | | | | | Costs from direct taxation | Scenario: IEA net zero and | Potential minor impact on | • Focus on emissions | | Water stress | | | | on suppliers’ emissions | NGFS divergent net zero | Capita from an explicit carbon | reductions, particularly for | | | | | | passed through to Capita | (low carbon <2°C) | tax but the implicit cost of | Scope 3, and ensure that the | | Ratio of renewable water | Scenario: SSP3 RCP8.5 | Seven sites in two locations | • Leasing agreements can | and indirect costs from the | | carbon could have a greater | net zero and near-term | Time horizon: 2019–2050 supply to water demand. (high carbon) were found to have potential provide flexibility and low carbon transition on impact if not considered in reduction targets are met (short, medium and long | Increased water stress | | major impact from water | mitigation if water stress | Capita’s supply chain. | | financial planning. | • Engage with supply chain | | --- | --- | --- | --- | --- | --- | --- | --- | | | Future time horizon: 2040 | | | | term) | | | | implies higher competition | | stress due to high exposure | isconsidered | | | | • Implement an internal price | (long term) Main impacts identified: | among users and reduced | | and vulnerability to water | • Include water stress risk into | | of carbon | | --- | --- | --- | --- | --- | --- | | | Baseline: 1960-2014 | | | • Increased pass-through | | | availability of, as well as | | stress-related power issues. | longer-term contracts | | • Build costs into financial | costs from supply chain as increased costs of, water. The other modelled sites • Integrate water stress risk planning and strategy carbon intensive parts of were found to have no into site location the supply chain are impact potential impact to moderate considerations by increasing carbon prices. potential impact. • Utilise flexible working arrangements, including BAU projections show Main impacts identified: work from home protocols significantly greater impact • Power outages • Consider potential carbon than from emissions reducing • Water, sanitation and emissions from mitigation in line with net zero target. hygiene facility maintenance techniques (eg diesel Capita’s current strategy is • Increased cost and volatility generators) showing much greater ofwater supply resilience to risk from carbon pricing due to implemented Carbon pricing carbon-reduction strategies and targets compared with Costs associated with tax Scenario: IEA net zero and Potential minor impact to • Focus on emissions theBAU scenario. | onCapita’s Scope 1 and 2 | NGFS divergent net zero | Capita from an explicit carbon | reductions across all scopes | | --- | --- | --- | --- | | emissions and indirect costs | (low carbon <2°C) | tax but the implicit cost of | and ensure that the net zero | | to operations from taxing of | | carbon could have a greater | and near-term reduction | Time horizon: 2019–2050 emission sources. impact if not considered in targets are met (short, medium and financial planning. • Engage with supply chain longterm) • Implement an internal price Main impacts identified: of carbon • Increased costs of operations • Build costs into financial and energy procurement planning and strategy 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 Task Force on Climate-related Capita plc 52 report FinancialDisclosures Annual Report 2022 continued | | Climate scenario | | | Climate transition plan | Planned actions in 2023: | | --- | --- | --- | --- | --- | --- | | Risk description | and time horizon Potential impact Mitigation actions | | | | | | | | | | Capita is committed to achieving net zero by | • Integrate results of 2022 quantitative CSA | | Energy pricing | | | | 2035, with near-term and long-term science- | intoGroup-wide risk matrix and assess | | | | | | based targets validated by the SBTi. Further | requirements for mitigation. | | | Scenario: Enerbase (high | Exposure to high energy | • Detailed analysis of energy | | | Projections of costs of | | carbon) and Energreen | pricing is greater in a | consumption | details on our targets and climate transition | | | --- | --- | --- | --- | --- | --- | | different energy sources | | | | | • Establish which identified risks would be most | | | (low carbon <2°C) from | low-carbon scenario than a | • On-site renewable | plancan be found on our climate change hub | | | splitby country. | | | | | beneficial to assess quantitatively or assess | | | Enerdata projection. | high-carbon scenario. | production | | | webpage. Key climate initiatives underway to | | | • Focus on energy efficiency | | on a more granular level. | | --- | --- | --- | --- | --- | | Time horizon: 2019-2050 | Main impacts identified: | | | | | | | and usage reduction | reduce our emissions footprint include: | | | (short, medium and | • Increased energy price | | | • More detailed analysis of potential | • Ensure all programmes longterm) volatility • Streamlining Capita’s global property portfolio opportunities afforded to Capita by the areconsidered in • Increased energy costs capexplanning to reduce building-related emissions. low-carbon transition. due tocarbon taxation • Maintaining our energy efficiency programme, • Develop climate transition plan to Gold Capita is already closely which identifies energy anomalies and Standard in line with UK Taskforce on monitoring energy costs, implementing energy enables data-driven efficiency improvements Transition Plan recommendations. efficiency measures and across Capita’s property portfolio. buying on a contract basis, thereby mitigating against • Procuring renewable electricity across all potential price volatility and Capita’s controlled UK sites, with intent to making strategy more extend coverage to 100% of tenanted resilient. buildings occupied where possible. Carbon credit pricing • Transitioning vehicles to electric vehicles or Scenario: N/A Potential moderate impact • Introduce a carbon credit hybrid, with 33% of fleet transitioned to date. Cost of purchasing carbon | | | due to high costs of spot | purchase strategy | | | --- | --- | --- | --- | --- | | credits to offset Capita’s | Time horizon: 2019-2050 | | | • Promoting hybrid and virtual working to | | | | purchases after Capita’s net | • Integrate carbon credit | | | residual emissions in line | (short, medium and | | | | reduce commuting and business travel | | | zero target year of 2050. | purchases into longer-term | | | --- | --- | --- | --- | --- | | with our net zero targets. | longterm) | | | | | | | | financial planning | emissions. | Main impacts identified: • Invest early in offsetting • Additional cost of offsetting • Increasing the proportion of supply chain projects toreach net zero target • Continued focus on spend on suppliers with science-based GHG Risk could be higher if the net emissions reduction reduction targets. zero target or near-term targets are not met ### Strategic Task Force on Climate-related Capita plc 53 report FinancialDisclosures Annual Report 2022 continued Risk management risk’s overall risk score, which is then pitched • Revenue from climate related opportunities: Climate-related targets: against four levels of likelihood. in2023, Capita will initiate the categorisation • Capita has set a range of ambitious targets Climate change is fully integrated into our risk | | | of services that directly/indirectly enable | toreduce the company’s impact on global | | --- | --- | --- | --- | | management system and, in early 2021, was | As with all Group-wide risks, the climate change | | | | | | GHGemission reductions through customer | warming, and its exposure to climate-related | | escalated to a Group-wide principal risk. | principal risk scoring process identifies key | | | | | | implementation. Once defined, systems will be | risks. The SBTi has verified Capita’s 2035 | | Asaprincipal risk, climate change is subject | controls and mitigating actions to reduce risk | | | | | | adjusted to track low carbon-related revenues. | netzero science-based target. | | tooversight by the ARC and Board, and | from inherent to residual level. Further risk | | | | | reduction actions are taken to bring residual risk | • Capital deployment on management of | Overall net zero target | ownership is assigned to the Group Head down to the risk appetite level set by the Board. climate risks and opportunities: Capita Capita commits to reach net zero greenhouse ofEnvironment. Risk identification and Current climate risk controls include adopting hasestablished a climate transition plan to gas emissions across the value chain by 2035 assessment process: since establishing climate ascience-based emission reduction target; achieve net zero, and the costs of achieving from a 2019 base year. change as a principal risk, Capita has held monitoring supply chain emissions; climate this target in alignment with the SBTi are several internal interviews to understand how Near-term targets factors integrated into due diligence when being reviewed in 2023–2025. risks and opportunities manifest for different Capita commits to reduce absolute Scope 1 divisions and functions. A longlist of risks and onboarding new suppliers; business continuity • Internal carbon price: Capita is exploring how and 2 GHG emissions and absolute Scope 3 opportunities was developed and cross- planning to ensure climate resilience; a travel a bespoke internal carbon price can be used GHG emissions covering business travel 46% referenced against both apeer review and policy to reduce business travel; and ongoing in the capital allocation process to support by 2030 from a 2019 base year. Capita also TCFD resources, and was qualitatively monitoring of health, safety and environment thebusiness case for investment in low commits that 50% of its suppliers by spend analysed in 2021. legislation. These controls and their carbon initiatives. covering purchased goods & services and effectiveness are reviewed regularly. In 2022, five key climate risks were • Proportion of executive remuneration capital goods will have science-based targets quantitatively modelled and analysed. The assigned to climate considerations: Capita by 2025. ### Metrics and targets | results will be integrated into Capita’s Group- | | incorporated performance against Capita’s | | | --- | --- | --- | --- | | | Climate-related metrics: | | Long-term targets | | wide risk management framework. | | climate targets in remuneration policy | | | | The business is committed to developing | | Capita commits to reduce absolute Scope 1 | | Assessments into required mitigation actions | | inFY2022. | | | | cross-industry, climate-related metrics in | | and 2 GHG emissions, and absolute Scope 3 | will be carried out in 2023 and integrated into Other climate-related indicators monitored: GHG emissions covering purchased goods & accordance with the 2021 TCFD Capita’s investment planning and strategy. In • Number of suppliers who set their own services, capital goods, business travel and implementation guidance update. Capita’s Group-wide risk assessment process, | | | science based GHG reduction targets, | employee commuting 90% by 2035 from a | | --- | --- | --- | --- | | ongoing and emerging risks are continually | • Scopes 1–3 emissions: we measure and | | | | | | helping track supply chain emissions and | 2019 base year. | | monitored across emerging legal, health, safety | disclose our operational (Scope 1 and 2) and | | | attainment of SBTs. and environmental regulations (such as the UK business travel (Scope 3) GHG emissions This long-term SBT will require an ambitious • Proportion of renewable power for electricity, Government’s PPN 06/21), using Watermans annually, see page 43 and our full value 90% absolute reduction of Scope 1, 2 and 3 tracking our fossil fuels phase-out and (athird party legal register service provider) and chainemissions via CDP’s climate emissions from 2019, before counterbalancing adoption of new energy sources. an online compliance tool. Identified risks are questionnaire, in accordance with the residual emissions to achieve net zero. GHGProtocol’s methodology. • Emissions associated with business travel, added to Capita’s risk register and escalated contributing to attainment of climate targets. tothe Executive Committee if needed. Each • Exposure to climate related risks: the climate identified risk is evaluated against six impact scenario analysis conducted under strategy • Carbon intensity of business by turnover categories: finance, people, legal & regulatory, informs the amount of potential financial andheadcount. technology, customer, and strategy. Whichever exposure to material climate impacts. impact has the highest score will determine the ### Strategic Risk management Capita plc 54 report and internal control Annual Report 2022 | (the ARC) do not underestimate the work | over the operation of key financial controls. | | --- | --- | | needed to ensure that robust internal control and | Itisintended that this process will continue | | risk assessment frameworks are embedded | tooperate in 2023, in parallel with new and | ## Risk management | | fully. Work will continue to be undertaken | existing control initiatives such as the finance | | --- | --- | --- | | | during2023 to enhance and improve the | control framework project, which will focus on | | andinternal control | standardisation and overall effectiveness | strengthening key system access controls; | | | oftheGroup’s internal control framework. | refining key finance policies and standards | andcontinuing to simplify and standardise key ### Key control questionnaire financial controls. ### We manage risks proactively The key controls questionnaire (KCQ) is an ### Risk oversight and governance annual management attestation process where At Capita, we recognise that effective risk management and internal control is fundamental business leaders testify to the effectiveness of A risk-focused culture and tone is expected to helping us achieve our strategic objectives. Our ability to identify, assess and manage key controls and adherence with group polices across all levels at Capita, reflecting the tone at risks successfully enables us to continue to protect shareholder value and allows us to within their functions, divisions or business the top set by the Board. The Board is ultimately pursue potential opportunities for growth. | | | units. The results from the KCQ process inform | accountable for providing strategic governance | | --- | --- | --- | --- | | | | the development of action plans for control | and stewardship of the company. Throughout | | | | improvement during the subsequent year. | 2022, the principal and emerging risks facing | | Impact of cost of energy, elevated | to6.5% during the country’s two-year slump. | | the company continued to be reviewed by the | The KCQ reinforces accountability and inflation, rising interest rates and global Whilst the latest economic projections in the Board, including those risks that could threaten increases business leaders’ awareness of Bank of England’s February 2023 Monetary Capita’s business strategy delivery, future ### economic weakness on Capita theirresponsibilities in maintaining an effective Policy Report anticipate a less severe performance, resilience or liquidity. In 2022, inflation rates in the UK and around the control environment. The status of KCQ downturn, there remains considerable world rose to their highest levels since the early corrective actions arising from the exercise The Board is committed to the continuous uncertainty about the strength of the economy 1980s. While there is no single reason for this arereported to the executive risk and ethics improvement of our governance mechanisms and Capita will continue to monitor the impact rapid rise in global prices, a series of events committee (EREC) throughout the year. and risk management processes, to ensure on our principal risks. worked together to increase inflation to such thatrisks, including new and emerging risks, ### Minimum control standards ### high levels, including recovery from the Internal control and risk management continue to be identified and managed Covid-19 pandemic (as demand outpaced The senior finance team undertake an annual effectively at all levels of the Group. As part We continuously seek opportunities to enhance supply) and Russia’s invasion of Ukraine with self-assessment of financial controls across the ofthis commitment, a regular review of the our risk management and internal control resulting sanctions and supply chain disruption Group against a specified set of Minimum principal risks was undertaken during the year environment and introduce greater rigour and that have led to price increases in oil, gas and Control Standards focused on identifying areas to ensure that they remain relevant and standardisation in our processes and controls. food across the world. to strengthen controls of improve efficiency. appropriate. This included determining whether The Board recognises that Capita’s control Any material issues are dealt with through any new or emerging risks should be added to In November 2022, the Bank of England effectiveness remains dependent on mitigating activities to ensure the effectiveness the principal risk profile. The ARC, which has warned that the UK was facing its longest management intervention and that of the existing controls over financial reporting. delegated responsibility from the Board for recession since records began, with the | | inconsistencies in control documentation can | | reviewing and assessing the risk management | | --- | --- | --- | --- | | economic downturn expected to extend well | | During 2022, the Finance function continued to | | | | lead to process variability across the Group. | | and internal control systems, is responsible for | | into 2024 and unemployment likely to double | | enhance the self-assessment process across | | | | The Board and the Audit and Risk Committee | | overseeing the Group’s principal risk profile and | the whole organisation to obtain assurance management’s risk mitigation strategy. ### Strategic Risk management Capita plc 55 report and internal control Annual Report 2022 continued ### Risk governance structure and assurance lines In 2022 the ARC reviewed, discussed and briefed the Board on risks, controls and Top Third line of defence down • Internal Audit reports directly to the Board and assurance, including the annual assessment ## Board 3 ARC on the effectiveness of governance, internal ofthe system of risk management and internal control andrisk management, through an Independent control, to monitor the effectiveness of the independent risk-based assurance programme assurance procedures for internal control over financial • Help safeguard the first two lines and Audit and Risk recommendimprovements as the risk reporting, compliance and operational matters. Committee (ARC) profileadapts and changes The EREC is responsible for identifying, Second line of defence | assessing, overseeing and challenging | | | • Provide the policies, framework, tools, | | --- | --- | --- | --- | | | | 2 | techniques and support to empower risk and | | principal risks across all Capita’s unregulated | Executive and risk | | | internal control to be managed by the first line businesses and provides regular updates to committees • Establish monitoring controls, provide oversight themain Committee. Risk and regularly evaluate the effectiveness of the oversight firstline Capita recognises the importance to clients and Risk, compliance • Promote consistency of the key objectives and customers of the financial services businesses and governance management of risk across the Group it operates and the need for specific oversight, First line of defence to manage and mitigate regulatory risks • Includes senior leadership and employees who, ## associated with those businesses, which is 1 aspart of their core role, identify and manage Divisional and business keyrisks provided by the financial regulated entities unit management • Equipped with the necessary skills, knowledge oversight committee (FREOC). The FREOC Ownership and and tools to operate effectively and have the management ischaired by an independent non-executive relevant authority levels to embed the policies of risk director, supported by specialist risk and and procedures across the internal controls and Local risk committees risk management frameworks compliance professionals and provides regular Bottom up 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 ### Risk management process incollaboration to undertake a ‘top down, thatrisk cannot be fully eliminated and that bottom up’ approach to identify, assess and there are certain risks the Board and/or the The risk management framework ensures that respond to risks faced by Capita. senior leadership will accept when pursuing ownership and responsibility for identification, strategic business opportunities. However, assessment and management of key risks and The risk management process is based on risk these risk acceptance decisions are made opportunities are embedded throughout registers and risk reporting at the established atanappropriate authority level and reflect Capita.The Board sets the context for risk risk governance committees. Key risks in the theorganisation’s defined risk appetite. management through defining the strategic registers have assigned risk owners who review Capita’srisk governance framework is direction and risk tolerances for the them regularly, and report on them at least a illustrated opposite. organisation as a whole. The divisions, quarterly basis, as part of the risk reporting functions and business unit teams then work process. The strength of existing controls is ### Strategic Risk management Capita plc 56 report and internal control Annual Report 2022 continued ### evaluated to determine whether any additional Risk appetite Principal risks mitigation actions are needed to manage the ### The impact on our The Board sets the Group’s risk appetite, as Principal risks are defined as those risks that risk level to within the risk tolerances and proposed by the EREC, to ensure that it reflects are significant for the Group and are owned and ### riskprofile of the rapid appetites set by the Board. current external factors and market conditions. managed by a specified member of the ### deterioration in the global Risks are assessed at both an inherent The risk appetite outlines: those risks Capita executive team who has accountability for economy, potential (pre-controls) and residual (post-controls) should not take; those which should be ensuring that the risk is managed within the risk prolonged recession in level,against two scales addressing: (a) their managed to an acceptable level; and those appetite levels set by the Board. Assigning risk likelihood; and (b) their potential impact on which should be accepted to deliver our ownership at executive level also ensures that ### theUK and cost-of-living Capita. The assessment of impact includes business strategy. an appropriate level of attention and focus is ### challenges is being finance, customer & client, technology, people, applied in addressing the principal risks. As part of the risk management maturity ### closelymonitored reputation, and legal & regulatory. These risk programme, risk owners, supported by Group A regular cycle of reassessment and reporting assessments are designed to ensure a Risk, have been developing risk appetite of the principal risks is undertaken within the thorough assessment of the risks, as well as statements for their respective principal risks. remit of the EREC and the ARC. the associated causes, controls, mitigations This will provide greater clarity to the and future risk reduction actions. A risk and For more details on the challenges faced and organisation and to the risk owners on the assurance committee timetable enables actions taken to address them, please refer acceptable level of risk set by the Board smooth flow of risk information between the tothe Chief Executive Officer’s review on andthesteps required to manage risk levels divisions, functions, the EREC and the ARC. page10. towithin the agreed appetite. During 2022 standard terms of reference, ### agenda and data points were developed at Emerging risks each governance level to ensure risk The identification of emerging risks is carried management is consistently reported and out by both the divisions and business units, understood across Capita. using a bottom-up approach, and the executive, | Our risk management processes continued | from a top-down perspective. Regular reviews | | --- | --- | | tooperate effectively throughout 2022. The | of risks, including emerging risks and project/ | | progression of Capita’s disposal programme | programme risks, are included in risk and | | and external influences such as: the potential | assurance committees within Capita’s existing | | UK recession; rapidly increasing inflation and | governance structures. Capita did not identify | | interest rates; and the associated cost-of-living | any emerging risks during 2022. However, | | challenges – were all reviewed and considered | theimpact on our risk profile of the rapid | | for their impact on Capita’s principal risk profile | deterioration in the global economy, potential | | by the executive team. | prolonged recession in the UK and cost-of- | living challenges is being closely monitored. ### Strategic Risk management Capita plc 57 report and internal control Annual Report 2022 continued | The Capita principal risk profile as at | No. Risk title Risk description | | | During the year, the likelihood | The Board remains confident that our | | --- | --- | --- | --- | --- | --- | | 31December 2022, is illustrated below | | | | ofprincipal risk 3, failure to | existing governance mechanisms and | | | | Living our | Failure to live our purpose and failure to | | | 1 innovate and develop new value risk management processes will purpose change stakeholder perception so we are propositions forclients and ensure that risks, including emerging seento live ourpurpose | | | | | customers, reduced when | risks, continue to be identified and | | --- | --- | --- | --- | --- | --- | | 6 | 4 | 11 | | | | | | | | Strategy Failure to define, resource and execute the | compared with the previous year. | dealt with effectively. However, the | 2 right medium-termstrategy We now have a dedicated strategy Board recognises that a number of team working on effectively these risks are taking a number of Innovation Failure to innovate and develop new value 3 managing existing propositions years to address and bring back to 1 7 312 propositions forclients and customers | | | | and working in collaboration with | anappropriate level. The Board also | | --- | --- | --- | --- | --- | | | | | our sector, growth, consult and | recognises the improvement made, | | | People | Failure to attract, develop, engage and retain | | | | 4 | | | transform teams to identify | which has resulted in Capita being | Impact | 5 | 13 | 29 | attraction | the right peoplefor current and future client | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | opportunities to create new | asimpler business with a stronger | | | | | &retention | propositions | | | | 8 10 | | | | | propositions for our clients. We | operational platform to underpin its | | | | | | | have also developed stronger | future development. At Capita, the | Culture Failure to change the culture and practices of 5 strategic partnerships with our key principal risks are considered over the Capita inlinewith our purpose and strategy technology providers to enable us same three-year period as the viability Minor Significant Data Failure to protect data, information and to better leverage their products to statement. They are listed and 6 ImminentRare protection ITsystems serve our clients. described opposite and, for each risk, wedisclose key mitigations and future Contracts Failure to secure new/extend existing 7 actions to further manage the risk Likelihood contracts and services andimprove internal control. Key: Level of risk Delighting Failure to delight clients and customers 8 Critical The maximum level of risk Capita clients anddeliver contractual obligations can bear andremain effective at delivering its strategy. Ofimmediate | | | Internal | Failure to maintain a risk-based system of | | --- | --- | --- | --- | | critical concern. | 9 | | | | | | control | internalcontrol | Uncomfortable Risk level will cause problems that would putuncomfortable pressure Geopolitical Failure to plan for, influence and respond 10 on delivery. climate topotential changes in the geopolitical climate Vulnerable Risk level likely to cause problems that would putuncomfortable Financial Failure to maintain financial stability and 11 pressure on delivery. stability achieve financial targets Acceptable A business-as-usual risk, manageable with the rightpeople Wellbeing, Failure of Capita to protect the wellbeing, 12 andprocesses in place to respond health & safety and health of all Capita’s employees, tothethreat. A tolerable level safety the people we work with and our service users ofrisk. | | | Climate | Failure to adapt Capita and its services tothe | | --- | --- | --- | --- | | Risk movement since 2021 | 13 | | | | year end | | change | impacts of climate change | ### Strategic Risk management Capita plc 58 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Principal risk and risk level Potential impact How we manage the risk Failure to live • misalignment Cost of living and inflation impacts may cause us to have more challenging Failure to • misalignment This risk is managed through regular review, challenge and update of 1 2 our purpose between the decision points in terms of being a purpose-led business. For example, between Group divisional strategies at least annually with Executive Committee and Board define, | | strategic | where the needs of different stakeholders’ conflict. | | and divisional | approval, ensuring alignment to Capita’s corporate strategy. | | --- | --- | --- | --- | --- | --- | | and failure | | | resource and | | | | | objectives and | | | objectives | | | tochange | | Mitigation actions in 2022 | execute the | | Mitigation actions in 2022 | | | the purpose of | | | • inability to evolve | | | stakeholder | | • Established a Board level ESG committee, to oversee our ESG initiatives | right medium- | | • Embedded the operating changes and focused on growth in our areas | | | the business | | | strategic | | | | | • Centralised ESG strategic oversight into the Group People function to | | | ofcore competencies | | perception | • brand and | | term strategy | objectives | | | | | ensure a globally consistent approach | | | • Continued to dispose of portfolio businesses at the right price to reduce | | sothat we are | reputation | | | egadapt to a | | | | | • Developed a refreshed approach to how we deliver social value, and how | Accountable | | debt and improve liquidity | | | adversely | | | changing market | | | seen to live | | this complements our core service offerings | | | | • Reviewed the divisional medium-term strategies, including market and impacted officer: CEO environment/ ourpurpose competitor analysis, which were also presented to the Board and • clients, suppliers, Future actions client Executive Committee Accountable and people don’t • Refresh our corporate responsibility business strategy to ensure expectations/ • Investment provided to develop and implement the first stage of Public want to work maximum impact and alignment with our evolving business competitor officer: CEO Service divisions’ digital strategy with, or for, • Continue to build external visibility of activities related to our purpose, action/policy • Operational optimisation plan prepared within the Experience division Capita values, behaviours and ESG credentials • difficult to fordelivery throughout 2023 • investors lose • Further develop our approach to social value delivery in order to align articulate and • Strengthened its commercial model with more stringent pricing discipline, confidence in the toour overall ESG principles optimise given the macroeconomic backdrop Group’s ESG investment case credentials for investors Future actions: • ineffective • Focus on growth in our areas of core competency prioritisation of • Execute and deliver Public Service division’s digital strategy capital investmentprogramme investment/ • Embed Experience division’s operating model changes to drive more investment effective operations and delivery decisions with • Review and enhance Capita’s strategic partnerships ecosystem sub-optimal returns versus competitors ### Strategic Risk management Capita plc 59 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Principal risk and risk level Potential impact How we manage the risk Failure to • inability to grow Within the Strategy function, we have a dedicated team working on Failure to • potential for new Cost of living and inflation impacts may cause engagement challenges in 3 5 innovate and and develop into effectively managing existing propositions and working in collaboration with change the clients not to specific parts of the business, particularly where our employees are in a new markets Sectors, Growth, Consult/Transform and the digital transformation programme want to contract lower pay bracket, and therefore are significantly more affected by increases | develop new | | | culture and | | | | --- | --- | --- | --- | --- | --- | | | • failure to | to identify prioritised opportunities to create new propositions forour clients. | | with Capita | in the cost of living. This could cause reduced engagement and cultural | | value | | | practices of | | | | | compete with | | | • unable to attract | impacts, specifically related to employee confidence in Capita as a | | propositions | | Mitigation actions in 2022 | Capita in line | | | | | others who are | | | and retain talent | purpose-led business. | • Horizon scanned new customer value propositions | for clients and | innovative | | with our | • negative | | | --- | --- | --- | --- | --- | --- | | | | • Developed stronger strategic partnerships with key technology providers | | | Mitigation actions in 2022 | | customers | • loss of new and | | inlinewith our | corporate | | | | | to enable us to better leverage their products to serve our clients | | | • Implemented a mid-year employee survey to improve employee | | | existing business | | | reputation | | | | | • Explored opportunities to invest in the innovation and product teams to | purpose and | | engagement to identify further improvements | | Accountable | to competitors | | | hampers our | | | | | build future capability | strategy | | • Continued to work with over 15,000 colleagues in our expanded employee | | officers: | • eroded corporate | | | ability to deliver | | | | | • Rolled out the governance product lifecycle | | | network groups to deliver a range of policy and procedural changes based | | divisional CEOs | position in the | | Accountable | sustainable | | on employee feedback. We saw a resulting increase in our global inclusion market Future actions: growth officer: CEO index • Improve definition of propositions, and related communications and • lack of staff • Launched the Capita leadership council to provide more diverse employee marketing material engagement input into Group-wide strategic decision making, as well as demonstrating • Match our integrated capabilities to client and market demand anddemotivated our commitment to growing diverse, internal future leaders in line with our • Standardise and integrate our digital capabilities to deliver more efficient staff leading to commitments as a purpose-led employer solutions for our clients attrition hindering • Continued to work on the embedding of our employee value proposition • Align innovation within the overall governance across the product lifecycle ability to deliver throughout the full employee lifecycle, therefore working to create a to develop scalable, monetizable, global client value propositions strategic consistent, purpose-led and values driven experience for every employee • Leverage market insight to identify opportunities to develop innovative & objectives from attraction to exit client centric value propositions with unique selling points • Align country led go to market strategies, as the north star to drive central Future actions: and in-country innovative solutions • Deliver our employee listening programme, acting at all levels on the feedback received via our surveys Failure to • loss of key The cost of living challenges and inflationary environment are having 4 • Work with our employee network groups to drive positive cultural attract, personnel/lack asignificant impact on the UK labour market and our attrition levels. andpolicy changes ofsuccession Unprecedented recruitment activity is being driven by job seekers looking develop, • Work with our leadership council, to bring constructive challenge • increased staff foralternative employment, across sectors. engage and anddiverse thinking to our executive attrition and retain the right Mitigation actions in 2022 increase in costs • Further developed our people proposition and attraction strategy people for from buying in torespond to market labour challenges current and short-term • Continued focus on ensuring competitive pay and reward packages contractors future client • Introduced a demand planning methodology to enable • poor financial propositions proactiverecruitment performance • Improved the onboarding process to rationalise and reduce onboarding Accountable resulting in time for candidates inability to grow officer: Chief • Developed a career path framework enabling employees to plan • reputational People Officer anddevelop their careers damage 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 Risk management Capita plc 60 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Principal risk and risk level Potential impact How we manage the risk Failure to • loss or theft of TSS was created in August 2021 as an IT and Software shared service Failure to • loss of contracts We continue to bid for and win new contracts that we are confident we 6 7 protect data, confidential client todeliver products and services to Capita’s colleagues and clients. secure new • inability to havethe resources and proven track record to deliver. Continued focus or customer data Thisconsolidation of resource and capability into TSS, enables Capita to acquire new onmaximising the benefit of our operating model will ensure our information contracts/ due to cyber better manage and continually improve the IT and cyber resilience posture, business competitiveness in our principal markets. Coupling this with our deep and IT systems extend existing attack standardise toolsets and create repeatable and scalable products and • contract terms sectoral understanding through the industry verticals in our core divisions • disruption to services, and to simplify how we operate as a business. contracts and and service should enable us to maximise our market opportunities. Accountable | | business | | services | commitments | | | --- | --- | --- | --- | --- | --- | | officer: Chief | | Mitigation actions in 2022 | | | Mitigation actions in 2022 | | | operations of | | | arenot met or | | | Technology | | Established the technology strategy for TSS as a wider business to | Accountable | | • Refreshed the contract review committee policy and deal reviewprocess | | | Capita and/or its | | | understood | | | | | introduce standardisation and harmonisation of Capita’s IT landscape. | | | • ‘Solution briefcase’ relaunched in Public Service | | Officer (CTO) | customers due | | officers: | • exposure to | | • Public Service commercial playbook develop and embedded tocyber attack Strategy created on the back of having completed industry, market led divisional CEOs unexpected • Delegation of authority matrices updated to reflect new ways of working • loss of one or andclient analyses of Capita’s technology domains. costs/cost • Coordination between Pursuit, Programme and Performance more of Capita’s overruns or • Consolidation of over 4,000 IT resources into a shared service to drive teamsimproved data centres onerous terms efficiencies and improve service levels • Go to market strategies to influence market trends and solutions approved • reputational • brand and • Improved stability of IT environments by the Board damage leading reputation • Migration from legacy hosting into a Tier 3 industry standard for improved • Focused on our technology and digital assets in collaboration with TSS to loss of new damage data centre performance, removal of end-of-life systems and our Products and Customer Value Proposition teams and existing • financial claims/ business Identified a clear road map for technology to ensure full foresight of any penalties and Future actions: upcoming technology obsolescence. other disputes • Investment in digital propositions to enhance attractiveness to the market with clients • Fortify the strategic deals team to support high value multi-year contract Future actions: • adverse impact opportunities • Enhance our understanding and reassessment of the technology risk on contract • Deploy clear focus on growth across geographies with specialisation profile by creating a centralised risk register profitability across go to market value propositions • Continue to evolve our cyber security posture • Leverage the new organisation and operating model to enhance market • Create a pan-Capita IT disaster recovery shared service to consolidate penetration via land and expand opportunities and simplify the capability and enhance resilience • Recalibrate pre-sales to delivery process, including governance across • Continue to invest in our capabilities and people quality of deals, with focus on margins and profitability • Invest in enhancing digital capability in the identified priority tech domains • IT Asset Management to enhance visibility of the estate ### Strategic Risk management Capita plc 61 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Principal risk and risk level Potential impact How we manage the risk Failure to • loss of existing We deliver services that are vital to the success of our clients; Capita will Failure to • fraud, Our internal controls effectiveness has historically been dependent on 8 9 delight clients contracts take all reasonable steps to ensure it meets contractual obligations and maintain a misstatement management experience and intervention. A multi-year control improvement • brand and deliverables. Performance against deliverables is regularly and rigorously and inaccurate programme is underway with progress being made in establishing and | and customers | | | risk-based | | | | --- | --- | --- | --- | --- | --- | | | reputation | monitored through several governance forums. | | financial | communicating standards, automating system access controls, and | | and deliver | | | system of | | | | | damage | | | reporting | standardising control activities across the Group. The implementation of | | contractual | | Mitigation actions in 2022 | internal control | | | | | • limited or no | | | • greater | efficient processes and controls is key in reducing effort, duplication and | • Continued development of the divisional operating environment to drive obligations newbusiness regulatory or costs to mitigate the impact of inflation on the Group. simplification and strengthening of service delivery Accountable • demotivated client scrutiny Accountable • Increased automation of Development Operations officer: CFO Mitigation actions in 2022 staffleading to • increased costs • Improvements undertaken to operational performance reporting, to • Established a programme to standardise finance processes and controls officers: attrition and loss associated with support earlier identification of potential performance concerns • Further improved the coverage of financial policies and associated divisional CEOs of capability/ risk remediation • Risk reduction operational maturity assessments undertaken to identify standards capacity activities opportunities to deliver better outcomes for our clients • Refreshed and updated the delegation of authority document following the • financial • breaches of law, • Commonality identified in failures or issues across divisions, and implementation of the new divisional structure penalties and/or statutory and addressed through coordinated action • Deployed software which has automated reviews of access to key service credits legal reporting • Rolled out foresight demand planning tool to better predict and manage financesystems leading to recruitment pipeline and mitigate attrition risk across the business regulatory fines Future actions: • Introduced a new customer success framework in financial • Continue to standardise finance processes and controls Future actions: services sector • Review and refresh the framework that ensures consistency and quality • Project Accelerate to review, transform and strengthen current capabilities and loss of key ofGroup wide policies and standards (incl. operational excellence plan 2023) contracts • Further documentation of our key business processes to enable • Continue top lessons learned activity to maintain learning from experience • reputational additionalstandardisation and automation of our key business processes • Continued review/development of ’function’ through the future Capita damage and and controls operating model work to drive consistency and standardisation adverse media • Focus on data-led, technology-driven and people-enabled business interest leading model, keeping our clients at the forefront of all our initiatives Failure to plan • unable to We may encounter changes in government priorities as we approach 10 • Leverage Lean 6 Sigma capabilities to drive operational excellence respond rapidly aperiod of political turbulence in the run-up to a UK general election. for, influence acrossdelivery platforms globally and effectively Wecontinue to monitor, engage and communicate with government and respond • Deploy continuous improvement insights and analytics to deliver tonew political stakeholders to understand emerging policy and contribute to consultations solutionsthat drive enhanced customer experiences for our clients topotential priorities which where appropriate. Our continued commitment to being a leading andtheir customers changes in the change the responsible business, our reputation for reliable delivery and seeking geopolitical regulatory contracts that enhance social value will remain our key focus. climate environment and Mitigation actions in 2022 public sector • Continued engagement with UK Government and others to promote Accountable customer andprotect reputation officer: CEO priorities • 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 Risk management Capita plc 62 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Principal risk and risk level Potential impact How we manage the risk Failure to • poor cash flow The impact of the challenging economic environment on the trading Failure of • poor health, The cost-of-living crisis and rising inflation have increased financial and 11 12 and high levels performance of the Group is outlined in the Chief Financial Officer’s injury and death social concerns for many Capita colleagues with significant potential maintain Capita to ofdebt reduce review.The Group’s materially reduced level of net debt, pension deficit of colleagues consequences for their day-to-day lives. These types of social, financial, financial protect the liquidity available reduction, prudent approach to balance sheet management and focus and service andpractical/day-to-day impacts are known to have potential negative stability wellbeing, to invest in ondelivering against our financial objectives all serve to mitigate the risk users effects on wellbeing in general and mental health in particular. andachieve business offinancial instability. safety, and • legislative Mitigation actions in 2022 | financial | development | | health of all | breaches/ | | | --- | --- | --- | --- | --- | --- | | | | Mitigation actions in 2022 | | | • Developed and implemented a culture of ownership and accountability | | targets | andgrowth | | Capita’s | prosecutions, | | | | | • Completed the disposal of several key businesses including the | | | forthe wellbeing, safety and health of our people by Group, Divisional, | | | • loss of | | | including | | | | | Trustmarque business, Pay360, and the real estate and infrastructure | employees, | | andbusiness leadership | | Accountable | shareholder | | | corporate | | | | | consultancy businesses | thepeople we | | • Assessed and validated Capita’s legal and statutory wellbeing, safety | | officer: CFO | value | | | manslaughter | | | | | • Agreed an extension to the Group’s RCF to August 2024 | work with and | | andhealth requirements | | | • loss of investor | | | • costs associated | | • Embedded CRC HSE & Safeguarding risk assessments for new contracts confidence our service- with Future actions: • Updated the approach and process to wellbeing, safety and health • Completion of remaining planned disposals of businesses users compensation incident and near-miss reporting, management and analysis • Review the Group’s capital structure on completion of disposals and litigation Accountable • reputational • Continued focus on resources in the two core divisions and reductions Future actions: inGroup overheads with the aim of delivering sustainable material free officer: Chief damage • Complete detailed pan-Capita wellbeing assessment cash flow General Counsel • increased levels • Develop a pan-Capita mental health plan including alignment of absenteeism • Initiate new mandatory HSE training programme and Company and recruitment/ • Expand proactive occupational health intervention programme in Secretary retention CapitaUK challenges • Review and confirm health screening policies for all Capita business units • increased insurance premiums • loss of contracts or inability to win new contracts • reduced willingness of contractors to work with Capita ### Strategic Risk management Capita plc 63 report and internal control Annual Report 2022 continued Principal risk and risk level Potential impact How we manage the risk Failure to • unpredictable The global economic downturn has contributed to lower-than-expected 13 shift in markets delivery against commitments made at COP26, which may lead to an adapt Capita tolow carbon increasingly disorderly low carbon transition. Scenario analysis of climate and its leading to risks and opportunities point to a greater threat of disruption from disorderly services to the increased costs transition, requiring immediate action to minimise the impact to Capita, its impacts of and reduced stakeholders and wider society. climate change revenue Mitigation actions in 2022 • increased cost Accountable • Linked objectives and management bonus to net zero initiatives and uncertainty • Reviewed the HSE policy to include specific environmental factors and officer: Chief of investment in creation of a new environmental standard General Counsel new technology • Engaged with suppliers and customers to ensure resilience to transitional and Company and substitution and physical climate risk, developing low carbon business solutions of existing Secretary supporting net zero commitments products and • Introduced further efficiency, renewable energy, and travel reduction services programmes • reputational threats from slow Future actions: adaptation to • Integrate climate culture and practice into Capita business as usual climate change • Progress against targets reported in divisional performance reporting • increased cost of from2023 regulation and • Continue to improve understanding and management of Scope 3 emissions decarbonisation • Increase accuracy and maturity of supply chain emissions reporting resulting from andextend scope of supply chain engagement transition to a • Develop and implement net zero plans and low carbon transition plan lower carbon • Further develop our emissions database, analysis, insights, and economy associated actions to minimise climate risk • 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 Viability statement Capita plc 64 report Annual Report 2022 • The ongoing successful execution of the • Operating profit margin expansion over the than not’ test. These wide-ranging risks are non-core business disposal programme business plan period reflecting the benefit of unlikely to crystallise simultaneously and ## Viability | | which has realised net cash proceeds | operating leverage coupled with ongoing | thereare mitigations under the direct control | | --- | --- | --- | --- | | | totalling c.£1.3bn since 1 January 2018, | efficiency delivery. | ofthe Group, including reductions in capital | | statement | usedto repay maturing debt, to make further | | investment, substantially reducing and (or | • Completion of the portfolio disposal deficit reduction contributions to the Group’s removing in full) bonus and incentive payments programme during 2023. In accordance with provision 31 of the UK main defined benefit pension scheme and and significantly reducing discretionary spend, • The refinancing of the Group’s RCF prior to Corporate Governance Code 2018, the Board toinvest in driving growth in the remaining that can be actioned to address a combination itsmaturity in August 2024. has assessed the viability of the Group and core businesses. of risk crystallisations that may occur under Parent Company over the three-year period to The most material assumptions from a asevere but plausible downside. These • The repayment of £1.7bn of debt, including 31 December 2025, aligned with the period of viabilityassessment perspective, relate to havebeen considered in the Board’s lease liabilities, since 1 January 2018. the Group’s bottom-up business planning thecontinuation of adjusted revenue growth, viabilityassessment. • The extension during 2022 of the Group’s | process. The Board believes that a three-year | | operating profit margin expansion, and the | | | --- | --- | --- | --- | | | revolving credit facility (RCF) to 31August | | Based on this assessment and reflecting the | | period provides sufficient clarity to consider the | | refinancing of the RCF. Capita has been | | | | 2024 and in February 2023, the Group | | Board’s confidence in the platform for improving | | Group and Parent Company’s prospects and | | successful in obtaining new and extended | | | | entering into a committed bridge facility | | financial performance resulting from completion | | facilitates the development of a robust base | | financing facilities over the last few years. | | | | of£50m with three of its relationship | | of the transformation plan, and the Group’s | | case set of financial projections against which | | Assuch, in concluding on viability the Board | | | | banksproviding additional liquidity from | | ability to refinance, the Board has a reasonable | | severe but plausible downside scenario stress | | believes that it is reasonable to assume that the | | | | 1January 2024. | | expectation that the Group and Parent | | testing can be conducted. | | Group will be successful in refinancing the RCF | | Company will be able to continue in operation | | • The payment of c.£350m of deficit reduction | in line with the assumptions underpinning the | | | --- | --- | --- | --- | | The completion of the Group’s multi-year | | | and meet their liabilities as they fall due over | | | contributions to the Group’s main defined | base case financial projections. | | | transformation programme during 2021 created | | | theperiod of the viability assessment. | benefit pension scheme since 1 January the platform for sustainable improving financial The three-year base case financial projections 2018, and the commitment to a further performance which underpins the viability of were used to assess covenant compliance and The strategic report was approved by the c.£70m of deficit reduction contributions theGroup and Parent Company. The Board liquidity headroom under different scenarios. Board and signed on behalf of the Board: across 2023–2024, which should enable the particularly notes the following: This analysis included assessing the sensitivity scheme to reduce its reliance on the covenant of the financial performance of the Group • The simplification and strengthening of the of the Group. tochanges in trading conditions in line with Claire Denton Group’s organisation design establishing two The foregoing elements provide the backdrop thoseconsidered in the severe but plausible Chief General Counsel and Company Secretary core divisions focused on public and private to the three-year business plan approved by the 2 March 2023 downside case for the going concern | sector markets providing a platform for | | | Capita plc | | --- | --- | --- | --- | | | Board in January 2023 and are key factors in | assessment and from the crystallisation of | | | continued revenue growth and delivery | | | Registered in England and Wales No.2081330 | | | the Directors’ viability assessment. The main | specific risks including those set out in the | | ofefficiency savings. assumptions underpinning the base case principal risks section of the 2022 Annual • Adjusted revenue growth in 2022 of 2.4%. financial projections in the Group’s business Report and Accounts (refer to section 1 of • A significant reduction in the Group’s cost plan are set out below: theconsolidated financial statements). base, with cumulative savings during the • Further adjusted revenue growth broadly The risks applied have not been probability transformation programme of £428m. inline with market trends in each of the two weighted but rather consider the impact should core divisions. each risk materialise by applying a ‘more likely ### Corporate Capita plc 65 governance Annual Report 2022 ## Corporate ## governance ### Corporate Chairman’s Capita plc 66 governance report Annual Report 2022 ### Corporate governance The corporate governance report sets out how the Company has complied with the 2018 UK ## Chairman’s report 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. ### On behalf of the Board, I am pleased to introduce the Company’s Capita is a purpose-led business, and we are committed to being a responsible business – in how ### corporate governance report for the year ended 31 December 2022, we operate, serve society, respect our people and the environment, and deliver improving returns ### which is my first report as your Chairman. 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 ### Capita is committed to creating an environment that in 2022 Capita was, for the first time, included in the Carbon Disclosure Project ‘A’ list, a ### where diversity and inclusion are valued and universal global measure that scores companies and cities based on their journey through ### respected, and where we benefit from all disclosure and towards environmental leadership. ### colleagues sharing their different perspectives.” 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 David Lowden, Chairman 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 31 December 2022 Female representation 44.6% 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 ### Board time allocation (%) ![img-0.jpeg](img-0.jpeg) - 1 90% Strategy, transformation and growth - 2 30% Executive reports - 3 3% Governance (incl. Board evaluation) - 4 0% IR / brand / reputation - 5 10% Full and half-year results ![img-1.jpeg](img-1.jpeg) ### Board directors / length of tenure | David Lowden (Chairman) | 2 years | | --- | --- | | Joni Cook (CEO) | 2 years | | Tim Naylor (CFO) | 2 years | | Georgina Harvey | 2 years | | John Cresswell | 2 years | | Neelam Dhawan | 2 years | | Nneka Abulokwe | 2 years | | Janine Goodchild | 8 months | | Brian McArthur-Muscroft | 3 months | The time allocation chart is provided for guidance only and other matters were also considered by the Board. 1. Joined the Board on 1 January 2021, appointed as Senior Independent Director (SIO) on 1 March 2021 and as Chairman (SIO) May 2022 when he opened from SIO. 2. Joined the Board on 1 October 2018 and as SIO 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 Capital plc Annual Report 2022 E8 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 | 2022 | 2021 | | --- | --- | --- | | Movement in employee net promoter score (a measure of employee satisfaction) | <5 points | ≥2 points | | Employee engagement index (a measure of employee engagement) | 65% | 56% | | People survey response rate (a measure of employee engagement) | 73% | 66% | | Employee rating of manager commitments (a measure of how managers live our values and demonstrate our behaviours) | 91% | 87% | | Voluntary turnover (a measure of employee commitment) | 35% | 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 Succession planning – further in-depth focus needed to ensure Board composition is appropriate for the Group as it shifts focus from transformation to growth. #### Action in 2022 The Nomination Committee reviewed the skill set of the Board, and agreed a skills matrix aligned to the Group's redelined strategy. During the year, Niveka Abulakee 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 30 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 GoHigo, a financial management and investment management business. #### Finding from 2021 evaluation Strategy – the Board has rights 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. #### Action in 2022 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 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. Stakeholders – the Board noted that further interaction with both clients and senior management would be beneficial. #### Proposal actions in 2022 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. 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 2022 ### Corporate Board members Capita plc 69 governance Annual Report 2022 Key to committees A Audit and Risk N Nomination R Remuneration Committee chair ## Board members E Environmental, Social and Governance (ESG) Chairman Executive Directors Independent Non-Executive Directors David Lowden N E Jon Lewis N Tim Weller Georgina Harvey N R E Brian A N R McArthur-Muscroft | Chairman | Chief Executive Officer | Chief Financial Officer | Senior Independent Director | | | --- | --- | --- | --- | --- | | Appointed: January 2021 (independent | Appointed: December 2017 | Appointed: May 2021 | Appointed: October 2019 (Non- | Appointed: June 2022 | | Non-Executive Director); March 2021 | | | Executive Director); July 2022 (Senior | Key skills and experience: Brian was | | | Key skills and experience: before | Key skills and experience: before | | | | (Senior Independent Director); May 2022 | | | Independent Director) | formerly the Group Chief Financial | | | joining Capita, Jon was Chief Executive | joining Capita, Tim was at G4S for five | | | | (Chairman) | | | | Officer at Micro Focus International plc, | | | Officer of Amec Foster Wheeler. Prior | years as its CFO and for three years | Key skills and experience: Georgina | | | Independent at appointment: Yes | tothat, he had a 20-year career at | before that as a Non-Executive Director. | has significant experience across highly | aFTSE 100 global infrastructure | | | Halliburton Company Inc, where he | He has many years’ experience as a | competitive consumer-facing markets | software company. Prior roles include | Key skills and experience: David is helda number of senior roles, including CFO with Innogy, RWE Thames Water, and of delivering successful CFO at Paysafe Group plc leading the ahighly experienced non-executive Senior Vice President and member of United Utilities, Cable & Wireless transformational change. Prior to her business to a FTSE 250 listing on the director, senior independent director and theHalliburton Executive Committee. Worldwide plc and Petrofac. He spent his current roles, Georgina was Managing LSE Main Market in 2016 and Group FD chair of UK listed companies. He was | | | early career at KPMG, where he trained | Director ofRegionals and a member of | at Telecity Group plc. Also a restructuring | | --- | --- | --- | --- | --- | | formerly Chair of PageGroup plc and | Board responsibilities: managing and | | | | | | | to become aChartered Accountant, | the Executive Committee of Trinity Mirror | specialist, he was interim CFO on the | | Huntsworth plc, Senior Independent | developing Capita’s business to achieve | | | | | | | becoming apartner in 1997. | plc from 2005 to2012. | successful turnaround of MCI Worldcom | | Director at Berendsen, Chair of the | the Company’s strategic objectives. | | | | EMEA. Prior to joining Capita he was a Auditand Risk Committee at William Hill, Board responsibilities: overall control Other current appointments: Non- External appointments: board member Non-Executive Director at Robert Walters Chair of the Audit Committee at Cable & and responsibility for all financial aspects Executive Director of Superdryplc and of EquinorASA. plc. Brian holds a law degree and Wireless Worldwide plc andChief of the business’s strategy. McColl’s Retail Group plc. qualified as a chartered accountant with Executive ofTaylor Nelson Sofresplc. External appointments: Non-Executive PricewaterhouseCoopers in London. Other current appointments: Chairman Director of TheCarbon Trust. Other current appointments: of Diploma plc; and SeniorIndependent ChiefFinancial Officer of Qontigo, Director of MorganSindall plc. afinancial intelligence and investment management business. ### Corporate Board members Capita plc 70 governance continued Annual Report 2022 Key to committees A Audit and Risk N Nomination R Remuneration Committee chair E Environmental, Social and Governance Independent Non-Executive Directors Employee Non-Executive Director Nneka Abulokwe OBE N R E John Cresswell A N E Neelam Dhawan A N R Janine Goodchild A E Directors who served during the year2022 Appointed: February 2022 Appointed: November 2015 Appointed: March 2021 Appointed: July 2022 Sir Ian Powell stepped down from the Key skills and experience: Nnekahas Key skills and experience: John has Key skills and experience: Neelam has Key skills and experience: Janine Board on 10 May 2022 at the conclusion significant experience of delivering substantial experience in leading and c.40 years’ leadership experience in the isaregistered adult nurse and lead of the Company’s 2022 AGM. large-scale, high-profile technology growing organisations asCEO and IT industry, where she held senior clinical trainer inthe Capita team which Matthew Lester, Lyndsay Browne and projects for governments and private executive director. He qualified as a positions in Hewlett-Packard, Microsoft, assesses personal independence Joseph Murphy retired from the Board institutions globally. She held senior Chartered Accountant, has a BSc in Compaq and IBM with responsibility for payment claims on behalf of the on30 June 2022. | andexecutive positions withLogica | Economics and Politics, and attended | awide range ofareas including strategy, | Department for Work and Pensions. | | | --- | --- | --- | --- | --- | | (nowCGI), Atos andSopra Steria, in | the advanced management programme | corporate development, software | Janine joined Capita in January 2016. | On 3 February 2023, the Company | | acorporate careerspanning more than | at Harvard Business School. Previously, | engineering and offshoring. She now | Janine’s previous experience includes | announced that John Cresswell had | | 25years, before founding MicroMax | he was CEO of Bibby Line Group and | advises multinationals on business and | working in the banking industry | decided to step down fromthe Board | | Consulting, where she is currently CEO. | Arqiva, and held a number of executive | technology transformation and, until | withincorporate actions, asset | witheffect from 31 March 2023. | | Nneka was awarded Officer of the Order | director roles on the board of ITV plc. | recently, was an advisor to IBM in India. | reconciliations and within employee | | | of the British Empire (OBE) in2019 for | | Neelam recently stepped down from the | training and development. | | Other current appointments: Chair of services to business. Board of Skylo Technologies Inc. and JMurphy and Sons Ltd; Chair of Bio4gas Other current appointments: None. asa member of Koninklijke Philips NV Other current appointments: Non- Holdings Limited and an Operating Supervisory Board, having served for Executive Director, Davies Group; Advisor with Lazard Asset Management. themaximum term of 10 years. Director of MicroMax Consulting Limited; external member of the Audit & Risk Other current appointments: Committee, University ofCambridge; Non-Executive Board Member of ICICI adviser to Cranfield School of Bank Limited and Yatra Online Inc. She Management Advisory Board and mentors and advises young startup DoGood Africa. companies and is on the board of Capillary Technologies. Corporate governance Corporate governance statement Capital plc Annual Report 2022 71 # Committed to high standards of governance ## Corporate Governance Code Capital 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 Nheika 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 2018 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 | Independent non-executive directors | Employee non-executive director | | Jon Lewis | David Lowden^{1} | Janine Goodchild | | Tim Walter | Georgina Harvey | | | | Brian McArthur-Muscroft | | | | John Cresswell^{2} | | | | Neelam Dhawan | | | | Nheika Abulokwe | | 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 Corporate governance statement Capita plc 72 governance continued Annual Report 2022 ### The Board Role of the directors ### Chairman Non-executive directors Role of the Board The Chairman is responsible for leadership of The non-executive directors constructively theBoard and ensuring its effectiveness on all challenge and help develop proposals on To promote Capita’s long-term sustainable success, generating value for shareholders and contributing aspects of its role. This includes setting the strategy.They scrutinise the performance of to wider society. Board’s agenda and ensuring that adequate time management inmeeting agreed goals and isavailable for discussion of all agenda items, in objectives, and monitor the reporting of Matters reserved for the Board particular strategic issues. The Chairman should performance. They satisfy themselves on the also promote a culture of openness and debate, integrity of financial information and that financial • Strategy and • Financial reporting • Major contracts • Board membership byfacilitating the effective contribution of non- controls and systems of risk management are management executive directors in particular and ensuring robust and defensible. They areresponsible for • Internal controls • Shareholder constructive relations between executive and determining appropriate levels of remuneration • Structure and capital communication non-executive directors. The Chairman is ofexecutive directors and have a prime role in responsible for ensuring that the directors appointing and, where necessary, removing receiveaccurate, timelyand clear information, executive directors, and in succession planning. andshould ensure there is effective ### Executive directors communication with shareholders. Nomination Audit and Risk Remuneration ESG Committee Committee Committee Committee The executive directors are responsible for the ### • Approval of ESG Senior independent director day-to-day running of all aspects of the Group’s • Board and committee • External audit • Remuneration policy strategy The SID acts as a sounding board for the business. This responsibility is different from the composition • Financial reporting • Remuneration • Oversee and monitor Chairman on Board-related matters, chairs Chairman’s role in running the Board. The role • Succession planning principles Capita’s net zero meetings in the absence of the Chairman, acts ofCEO is separate from that of Chairman to • Risk management emissions strategy asan intermediary for other directors when ensurethat no one individual has unfettered powers • Diversity and internal controls • Incentive design and necessary, leads the evaluation of the Chairman’s of decision making. setting of targets • People strategy • Internal audit performance, leads the search for anew Chair, ### • Executive and senior Employee non-executive directors when necessary, and is available toshareholders management who wish to discuss matters which cannot be Employee non-executive directors are appointed remuneration resolved otherwise. from the workforce to contribute an employee perspective to Board discussions. Thisis Read more on page 86. Read more on page 90. Read more on page 99. Read more on page 88. akeyelement of the Board’s approach to employeeengagement. ### Corporate Corporate governance statement Capita plc 73 governance continued Annual Report 2022 ### Board meetings and attendance 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 During 2022, the Board held seven scheduled meetings. Additional ad hoc meetings were held as committee chair will contact the director who is unable to attend the meeting to obtain their required. In 2022, this included meetings to approve the disposal of Pay360 Limited and the related comments on Board and committee papers prior to the meeting. shareholder circular. During 2022, the following formal director meetings took place: Attendance of the directors at Board and committee meetings is shownbelow; the maximum number of meetings a director could attendis in brackets. • The Chairman held one-to-one individual review sessions witheachexecutive director and each non-executive director. Audit and | | | | | Risk | Remuneration | Nomination | | ESG | • The non-executive directors met without executive directors. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Board | Committee | | Committee | Committee | Committee | | | | | 1 | | | | | | | | • The directors met without the Chairman, ledbytheSID. | | David Lowden | | 7(7) 2(3) 1(3) 6(8) 3(3) | | | | | | | | 2 ### Jon Lewis 7(7) n/a n/a 0(3) n/a Board leadership Tim Weller 7(7) n/a n/a n/a n/a There is a clear division of responsibility between the running oftheBoard by David Lowden Georgina Harvey 7(7) 3(3) 6(6) 8(8) 3(3) asChairman and responsibility fortherunning of the Group’s business by Jon Lewis as CEO. 4 | Brian McArthur-Muscroft | | 4(4) 4(4) 3(3) 4(4) n/a | | | --- | --- | --- | --- | | | 3 | | David Lowden as Chairman has held meetings comprising solely the non-executive directors. | | John Cresswell | | 6(7) 6(6) 3(3) 8(8) 3(3) | | | | 3 | | BothDavid andGeorgina are available to meet with significant shareholders when requested. | | Neelam Dhawan | 7(7) 5(6) 6(6) 8(8) n/a | | | 4 ### Nneka Abulokwe 6(6) 6(6) 5(5) 7(7) 3(3) Governance and strategy 5 Janine Goodchild 2(3) 2(3) n/a n/a 2(3) The Group recognises the contribution made by good governance totheCompany’s success, 6 Sir Ian Powell 3(3) n/a n/a 3(4) n/a andchanges made at both Board and Executive Committee level demonstrate the importance of 7 Matthew Lester 4(4) 3(3) 2(3) 3(5) n/a embedding the right structures with the right people to deliver the Group’s strategy.The connection 6 Lyndsay Browne 4(4) n/a 3(3) n/a n/a between governance and delivery of strategyisreflected throughout this Annual Report. 6 Joseph Murphy 4(4) 3(3) n/a n/a n/a In addition to their statutory duties, the directors must ensure that theBoard focuses effectively on 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 all its accountabilities. 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. Section 172 of the Companies Act 2006 requires directors to act in awaythey consider, in good 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. faith, would be most likely to promote the success of the Company for the benefit of shareholders 3. John Cresswell was unable to attend one Board meeting and Neelam Dhawan one committee meeting due to a prior commitment. as a whole. Indoing so, the directors must have regard (among other matters) to: 4. Nneka Abulokwe, Brian McArthur-Muscroft and Janine Goodchild were appointed to the Board on 1 February, 1 June and 1 July 2022 respectively. • the likely consequences of any decision in the long term 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 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 • the need to foster business relationships with suppliers, clients andothers 30 June 2022. 7. Matthew Lester was unable to attend one RemCo and two Nomination Committee meetings due to prior commitments. • 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 • the desirability of the Company maintaining a reputation for high standards of business conduct orvideoconference. • the need to act fairly towards all shareholders of the Company. ### Corporate Corporate governance statement Capita plc 74 governance continued Annual Report 2022 The Board determines the strategic objectives and policies of the Groupto best support the delivery • Financial reporting, including the approval of the Annual Report, half-yearly report, trading of long-term value, providing overallstrategic direction within an appropriate framework of rewards, statements, preliminary announcement forthe final results and dividend, treasury and incentives and controls. The Board is collectively responsible for thesuccess of the Company accountingpolicies. anddirectors’ roles are set out above. Following presentations by executive anddivisional • Internal controls, ensuring that the Group manages risk effectively byapproving its risk appetite management, andadisciplined process of review andchallenge by the Board, cleardecisions on and monitoring aggregate risk exposures. policy or strategy areadopted, and the executive management are fully empowered toimplement • Contracts, including approval of all major capital projects and major investments. those decisions. • Ensuring satisfactory communication with shareholders. Stakeholder interests and the matters listed above are factored into allBoard discussions and • Board membership and other appointments, including changes tothe structure, size and decisions. For more information, please referto the stakeholder engagement section on pages 47 composition of the Board, and succession planning for the Board and senior management. and 48. ### Board of directors’ induction and training ### Board independence Following appointment to the Board, all new directors receive an induction tailored to their individual Non-executive directors are required to be independent in character andjudgement. All requirements. They are encouraged to meet and be briefed on the roles of key people across the relationships that may interfere materially with this judgement are disclosed as required under the Group andhave open access to all business areas and employees to build upan appropriate level conflicts of interest policy, see page 77. The Board has determined that, except for the employee of knowledge of the business that extends beyond formal papers and presentations to the Board. non-executive directors, all the non-executive directors whoserved during the year were All directors havereceived an appropriate induction for their roles within Capita, including some or independent and that, before and uponappointment as Chairman, David Lowden met the criteria all of the following: ofindependence as outlined in the Code. • The nature of the Group, its business, markets and relationships. 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 • Meetings with the external auditor, lawyers, brokers and relevant operational and functional senior appropriate for the broad nature of Capita’s businesses. The experience and breadth of tenure of management. the non-executive directors means the Board is well positioned to advise, challenge and support • Board procedures, including meeting protocols, committee activities and terms of reference, and executive management as the Group progresses its growth strategy. matters reserved for the Board. The Board believes that each of the non-executives has retained independence of character and • Overviews of the business via monthly performance reviewreports. judgement and has not formed associations with management or others that may compromise • The Group approach to risk management. theirability to exercise independent judgement or act in the best interests of the Group. The Board Ongoing training and briefings are also given to all directors, including external courses as required. is satisfied that no conflict of interest for any director requires disclosure, see page 77. Tailored induction programmes were prepared for Nneka Abulokwe, Brian McArthur-Muscroft and ### Matters reserved for the Board Janine Goodchild to ensure they were properly equipped to fulfil their roles. 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. ### Corporate Corporate governance statement Capita plc 75 governance continued Annual Report 2022 ### Company Secretary ### All Board members have access to independent advice on any mattersrelating to their Principal decisions responsibilities as directors and as members ofthe various committees of the Board at the Group’s Impact on long-term Principal decision* sustainablesuccess Stakeholder considerations Further details expense. The previously separate roles of Chief General Counsel and Group Company Secretary Disposal of Pay360 Strategy: the disposal of Our people, customers and pages 30 were combined in the appointment of Claire Denton as Chief General Counsel and Group Company Limited: following a Pay360 was expected to allow suppliers: the strengthening of the and171. Secretary on 1 March 2022. Claire is available to all directors and is responsible for ensuring that all | | strategic review the | the Company to strengthen its | Group’s balance sheet has supported | | --- | --- | --- | --- | | Board procedures arecomplied with. Claire has direct access and responsibility tothe chairs of the | Board decided to | balance sheet by reducing its | the Group’s strategy to build a more | | standing committees and open access to all directors, and has been appointed as Secretary to the | dispose of its Pay360 | indebtedness, improve the | focused sustainable future providing | | | payments solutions | Group’s liquidity and pension | more stability for our colleagues, | Audit and Risk, Remuneration, Nomination and ESG committees. | | business, a non-core | funding position and support | customers and suppliers. | | --- | --- | --- | --- | | | business. The disposal | the Group’s strategy to build a | | | Claire will meet regularly with the Chairman of the Board and theChairs of the ARC and RemCo, | | | Investors: the disposal of Pay360, | | | of Pay360 required | more focused sustainable | | anon-core business, has contributed andbrief them on areas of governance and committee requirements. shareholder approval business for the long term. to the ability of the Group to focus on which was sought at a Principal risks: the its core business and to progress its ### Shareholder engagement general meeting held on strengthening of the Group’s growth strategy by strengthening the 1November 2022. There is an active engagement programme with the Company’s investors. The executive directors balance sheet as a result of the balance sheet and improving liquidity. disposal has assisted in The Company believes that this will meet regularly with institutional investors to discuss and obtain feedback on the business, | | reducing two of Capita’s | improve the prospects of the Company | | --- | --- | --- | | performance, strategy and corporate governance, and address any issues of concern.This is | principal risks: (i) to execute its | and will benefit shareholders. | | undertaken through a combination of roadshows, groupor one-to-one meetings and attendance | medium-term strategy; and (ii) | Shareholders voted 99.99% in favour of | | | maintain financial stability. | the disposal of Pay360 at the general | atinvestor conferences. David Lowden also met with existing institutional shareholders both prior meeting held on 1 November 2022. toand following his appointment as Chairman on 10 May 2022. | | Appointment of David | Governance: the chairman is | All of our stakeholders: all of our | Nomination | | --- | --- | --- | --- | --- | | Georgina Harvey, Chair of the RemCo, engaged with shareholders to discuss remuneration prior | Lowden as Chairman | critical in ensuring the | stakeholders have an interest in the | Committee | | tothe 2022 AGM. The investor relations team has day-to-day responsibility for managing investor | | effectiveness of the board in all | delivery of our strategy and the way it | report on | | | | aspects of its role. | is delivered. David Lowden, Chairman | page87. | communications and always acts in close consultation with the Board. All members of the Board, has a critical role in ensuring that our Principal risks: the including thenon-executive directors, receive a report on any significant discussions with strategy is delivered in line with our appointment of a chairman with shareholders and anonymous feedback that followstheannual and half-yearly presentations to purpose and values. the appropriate skills and investment analystsand institutional investors. Analyst reports concerning Capitaare circulated attributes is essential to the delivery of our strategy. tothe directors and the Board is kept informedofchanges in the share register. | Establishment | Strategy: to provide additional | Our people, customers, suppliers, | ESG | | --- | --- | --- | --- | | ofBoard ESG | and strategic focus on ESG | investors: all of our stakeholders are | Committee | | Committee | matters. | concerned by the issues that will | report on | | | | receive increased focus by the ESG | pages 88 | Principal risks: the ESG Committee on behalf of the Board. and89. Committee will have an increased focus on people, attraction and retention, culture, wellbeing, health and safety, and climate change. * 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 Capital plc^{}[] Annual Report 2022 78 ## 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 Capital'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, Janice 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.capital.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 ARIC 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 2005 (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-rases 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 Corporate governance statement Capita plc 78 governance continued Annual Report 2022 ### Major shareholders 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 At 31 December 2022, the Company had received notifications in accordance with the DTRs that date of this report. the following were interested in the Company’s shares: | | | | | % of | | | | The share price at 31 December 2022 was 24.26p. The highest share price in the year was 38.94p | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | voting rights at | | | | | and the lowest was 19.89p. | | | Number of | | 31December | | Number of | | Number of | | | Shareholder | | shares | | 2022 | sharesdirect | sharesindirect | | The Company renewed its authority to repurchase up to 10% of its own issued share capital at the | | Schroders plc 321,365,363 19.08 – 321,365,363 | | | | | | | | AGM in May 2022. During the year, the Company did not purchase any shares (2021: nil). | RWC Asset Management LLP 286,449,316 17.01 286,449,316 – Viability statement Marathon Asset MGMT Limited 126,900,867 7.5 3 – 126,900,867 This statement is detailed in full on page 64. The directors have assessed the viability of the 1 Veritas Asset Management LLP 83,131,892 4.98 – 83,131,892 Groupover the three-year period to 31December 2025, taking into account the Group’scurrent BlackRock Inc. 74,230,358 4.45 – 74,230,358 position and the potential impact of the principal riskssetout in the strategic report. Based on this Invesco Ltd 70,883,236 4.24 – 70,883,236 assessment, thedirectors have a reasonable expectation that the Group and Parent Company Vanguard Group Inc. 64,670,000 3.84 64,670,000 – willbe able to continue in operation and meet their liabilities as they fall due over the period of the Veritas Funds PLC 55,009,900 3.30 – 55,009,900 viability assessment. Jupiter Asset Management Limited 53,573,060 3.21 – 53,573,060 Going concern Odey Asset Management LLP 51,459,613 3.05 51,459,613 – The Group’s business activities, together with the factors likely to affectits future development, 1. Includes the holding of Veritas Funds PLC. 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 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 32. In addition, section 4 in the financial statementson pages 188 to 202 includes the Group’s Company’s shares. objectives, policiesandprocesses for managing its capital, its financial risk management Directors’ interests objectives, details of its financial instruments and hedgingactivities, and its exposures to credit Details of directors’ interests in the share capital of the Company are listed on page 117. riskand liquidity risk. Share capital In determining the appropriate basis of preparation of the financial statements for the year ending 1 31 December 2022, the directors are required to consider whether the Group can continue in At 24 February 2023, the number of ordinary shares of 2 ⁄ 15 p each in issue, fully paid up and quoted on the London Stock Exchange is detailed in the table below: operational existence for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements. Number of % of issued shares sharecapital The Board monitors closely the Group’s funding position throughout the year, including monitoring Issued shares 1,684,273,523 100% compliance with covenants and available facilities to ensure it has sufficient headroom to fund Treasury shares 0 0% operations. In addition, to support the going concern assumption, the Board conducts a robust Total voting rights 1,684,273,523 100% assessment of the Group’s financial projections for the foreseeable future, considering also the 1 Employee Benefit Trust (EBT) shares 9,263,250 0.55% 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 1. Shares held in the Employee Benefit Trust are used for satisfying employee share options. materially short of plan; operating profit margin expansion not being achieved; additional inflationary During the year ended 31 December 2022, no new ordinary shares were issued, and options cost impacts which cannot be passed on to customers; unforeseen operational issues leading to exercised pursuant to the Company’s share schemes were satisfied by the transfer of shares the contract losses and cash outflows, increased interest rates, reduction in deferred cash EBT (8,770,217 shares). No new ordinary shares have been allotted under the Company’s share ### Corporate Corporate governance statement Capita plc 79 governance continued Annual Report 2022 consideration in respect of completed disposals; non-availability of the Group’s non-recourse Disabled persons receivables financing facility; and unexpected financial costs and penalties linked to incidents such As part of the Group’s commitment to create a workplace that fully reflects the diversity of as data breaches and/or cyber attacks. 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 To mitigate these, the Board has considered the mitigations, under the direct control of the Group, disability, age, gender, religion or belief, sexual orientation or race. Colleagues who declare that could be implemented to address the financial impact should these risks materialise. These adisability are supported with reasonable adjustments made throughout the hiring process, mitigations include reductions in capital expenditure, materially reducing and/or removing in full theworkplace or job content so no opportunity, including training and career development, bonus and incentive payments and significantly reducing discretionary spend. Taking these isinaccessible. Opportunities also exist for employees of the Group who become disabled to mitigations into account, the Group’s financial forecasts over the going concern period demonstrate continuein their employment with any reasonable adjustments being made or tobe retrained for liquidity headroom and compliance with all covenant measures throughout the going concern other positions in the Group. Demonstrating our commitment to ensure that both applicants and period to 31 August 2024. colleagues with disabilities and those with long-term health conditions have the opportunity to fulfil Therefore, after careful consideration and reflecting also the Board’s confidence in the expected their potential and realise their aspirations, the Group became a Disability Confident Employer benefits from the completion of the transformation, and its ability to implement the above mitigations Level 2, in April 2022. We are currently finalising plans to achieve Level 3 status in 2023. should the severe but plausible downside materialise, coupled with the potential to obtain further Employee development and engagement financing beyond its existing committed funding facilities, the Board has concluded that the Group Actions taken during the year regarding the consultation of and provision of information to UK and Parent Company will continue to have adequate financial resources to discharge their liabilities employees are described in the people section on pages 33 to 36. Communication with employees as they fall due over the going concern assessment period. in relation to Capita’s financial performance is detailed in the remuneration report on page 103. Accordingly, the directors have formed the judgement that it is appropriate to prepare the Capita has an established UK employee share purchase plan designed to promote employee consolidated financial statements on the going concern basis. The Board’s assessment is set out shareownership and to give employees the opportunity to participate in the future success of inmore detail inSection 1 of the consolidated financial statements. theCompany. An international share incentive plan is available to employees in Ireland. Auditor review Further information on employee development, consultation and engagement is included in the The auditor has reviewed: people and responsible business sections on pages 33 to 36 and 37 to 45 and the stakeholder • the statements regarding going concern, see page 78; engagement section on pages 47 and 48. • the longer-term viability statement, see page 64; and Political donations • those parts of the statement of compliance with the Code relating to: The Group did not make any political donations or incur any political expenditure during the year (2021: nil). – directors’ and auditor’s responsibilities Greenhouse gas emissions – the ‘fair, balanced and understandable’ statement Details of the Group’s greenhouse gas (GHG) emissions, including metrics andmethodology, are – confirmation of robust risk assessment, and monitoring and review ofeffectiveness of risk set out in the table on page 80 and on page43 of the strategic report. management and internal control systems – ARC composition, role and responsibilities. Further details are in the auditor’s report, on pages 124 to 141. ### Corporate Corporate governance statement Capita plc 80 governance continued Annual Report 2022 ### GHG emissions (tCO 2 e) 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 Global Global Global UK and (excluding UK UK and (excluding UK UK and (excluding UK Region offshore and offshore) Total offshore and offshore) Total offshore and offshore) Total Energy used to calculate emissions (kWh) Gas and fuel Energy Bureau, UK est energy, FSC burn, int.est 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 energy, Capita Europe Electricity & district heat 65,813,485 15,405,065 81,218,550 93,211,777 26,513,142 119,724,918 81,491,440 16,112,463 97,60 3,902 Business travel, cars SAP expenses 12,211,0 32 3,836,579 16,047,610 12,502,976 2,271,999 14,774,974 46,912,511 3,351,543 50,264,055 Total energy used (kWh) 136,585,947 21,685,038 158,270,986 170,854,338 3 0,511,75 8 201,366,097 202,072,798 21,335,969 223,408,768 % of total energy used 86% 14% 100% 85% 15% 100% 90% 10% 100% | Emissions from combustion of gas and fuel forheating | | | | Energy Bureau, Capita Europe | 9,281 405 9,686 11,620 320 11,941 15,594 592 16,186 | | | --- | --- | --- | --- | --- | --- | --- | | tCO | 2 e (Scope 1) | | | | | | | Emissions from combustion of fuel in company vehicles | | | | Fleet, FSC, fleet Germany, India, South Africa | 1,851 67 1,918 1,845 71 1,916 1,695 86 1,782 | | | tCO | 2 e (Scope 1) | | | | | | | Emissions from fugitive refrigerant gas tCO | | 2 e (Scope 1) Fugitive refrigerant gas | | | | 445 0 445 1,466 0 1,466 1,011 0 1,011 | | Emissions from purchased district heat tCO | | 2 e (Scope 2) Energy Bureau, Capita Europe | | | | 34 264 298 40 157 198 45 136.60 181 | | Emissions from purchased electricity (location based) | | | | Energy Bureau, UK est energy, int. est energy, | 12,827 8,012 20,839 23,891 6,853 30,744 18,938.58 9,239.43 28,178 | | | tCO | 2 e (Scope 2) | | | Capita Europe, South Africa, India | | | | Emissions from purchased electricity (market based) | | | | Energy Bureau | 2,247 1,836 4,083 10,328 8,132 18,460 12,513 11,0 0 9 23,522 | | | tCO | 2 e (Scope 2) | | | | | | | Emissions from business mileage, air, rail, tube tram | | | | SAP, Agiito | 4,857 1,244 6,101 3,860 640 4,500 6,829 1,052 7,881 | | | andlight rail, taxi, bus, coach, ferry, hotel, waste. tCO | | | 2 e | | | | (Scope 3) Total gross tCO 2 e Scope 1 and 2 (location based) 24,438 8,748 33,186 38,863 7,4 01 46,264 37,28 4 10,055 47,338 | Total gross tCO | 2 e emissions (location based) 29,294 9,992 39,287 42,722 8,042 50,763.93 4 4,113 11,107 55,220 | | | | --- | --- | --- | --- | | Total gross tCO | 2 e emissions (market based) 18,680 3,552 22,233 29,119 9,163 38,282.35 37,6 4 3 12,740 50,383 | | | | Intensity ratio: gross Scope 1 and 2 tCO | | 2 e (location | 8.1 2.9 11.0 10.0 2.3 12.3 11. 2 3.0 14.2 | based) per £1M turnover Intensity ratio: gross Scope 1 and 2 tCO 2 e (location 0.77 0.48 0.66 0.91 0.39 0.73 1.01 0.54 0.85 based) per headcount 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 tCO 2 e using Gov.UK and Defra conversion tables. Mileage provided has been converted into tCO 2 e 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 CO 2 e 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 S1 ## Energy efficiency action 2022 We invested in energy-efficiency measures across our estate in 2022 to deliver savings below. | Building plant upgrades and milestones | ICCs reduction per annum | | --- | --- | | Replacement USD lighting | 5.6 | | Replacement chillers and air conditioning units | 70.1 | | Motor speed drives (VSD) | 5.0 | | Degraded building management controls | 49.5 | | Lift motor drive and controls | 5.9 | | Replacement heating plant | 48.9 | | Total ICO_{2}e reduction | 185.1 | Our virtual meetings initiative resulted in further reductions in business travel CO$_{2}$. 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 £160m 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. ![img-2.jpeg](img-2.jpeg) Corporate governance Corporate governance statement continued Capita plc Annual Report 2022 E2 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 156 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 Corporate governance statement Capita plc 83 governance continued Annual Report 2022 purchased during 2022. A resolution to renew this authority will be put to shareholders atthe • Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as 2023AGM. applicable, matters related to goingconcern. The directors consider that each of the resolutions is in the best interestsof the Company and the • Use the going concern basis of accounting unless they intend either toliquidate the Group or the shareholders as a whole, and recommend that shareholders vote in favour of all of the resolutions. 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. 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 Cross-references the financial position of the Parent Company and enable them to ensure thatits financial statements For the purposes of LR 9.8.4R, the following information is located assetout below: comply with the Companies Act 2006. Theyare responsible for such internal control as they Listing Rule Subject Page no. determine is necessary to enable the preparation of financial statements that are freefrom material 9.8.4 (1) Capitalisation of interest 196 misstatement, whether due to fraud or error, and havegeneral responsibility for taking such steps 9.8.4 (12–13) Shareholder waiver of dividends 77 as are reasonably opento them to safeguard the assets of the Group and to prevent anddetect fraud and other irregularities. ### Directors’ responsibilities in respect of the Annual Report and the Under applicable law and regulations, the directors are also responsible for preparing a strategic ### financialstatements report, directors’ report, directors’ remuneration report and corporate governance statement that The directors are responsible for preparing the Annual Report and theGroup and Parent Company comply with that law and those regulations. financial statements, in accordance withapplicable law and regulations. The directors are responsible for the maintenance and integrity of thecorporate and financial Company law requires the directors to prepare Group and Parent Company financial statements information included on the Company’s website. Legislation in the UK governing the preparation foreach financial year. Under that lawthey are required to prepare the Group financial statements and dissemination of financial statements may differ from legislation in otherjurisdictions. 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 Corporate governance statement Capita plc 84 governance continued Annual Report 2022 ### 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 Committees Capita plc 85 governance Annual Report 2022 ## Committees ### Terms of reference Membership The terms of reference of the Nomination, Remuneration and Audit and Risk committees Membership of the Company’s standing committees at 31 December 2022 is shown below: were reviewed in June 2022 upon the establishment of the ESG Committee, to ensure that Nomination Audit and Risk Remuneration ESG relevant matters are now considered by the ESG Committee, when appropriate matters are David Lowden C – – C considered in conjunction with other committees. Jon Lewis X – – – Committee terms of reference were also reviewed in December 2022 to reflect updates Georgina Harvey X – C X ingood governance practices. These are summarised below and the Nomination, Brian McArthur-Muscroft X C X Remuneration, Audit and Risk and ESG committee terms of reference are displayed in John Cresswell X X – X fullinthe investor centre at www.capita.com/investors/corporate-governance, together Neelam Dhawan X X X withasummary of matters reserved for the Board. Nneka Abulokwe X – X X Terms of reference Brief description of responsibilities Janine Goodchild – X – X Nomination Committee • Reviews composition of the Board. (C) Chair • 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. Changes to Committee membership Audit and Risk Committee • Reviews accounting policies and contents offinancial reports. • Monitors internal control environment. Following the establishment of the ESG Committee on 30 June 2022, the Nomination • Considers adequacy, effectiveness and scope of external and internal Committee reviewed the membership of the Company’s standing committees on behalf of the auditprogramme. Board to ensure that each committee comprised members with the appropriate skillset and • Oversees relationship with external auditor. diversity and that all members had sufficient time to devote to the committees. • Monitors risk profile and obtains assurance that principal risks have been properly identified and appropriately managed. Prior to this review John Cresswell, Neelam Dhawan and Nneka Abulokwe were members of all Remuneration Committee • Sets policy for Board and senior management remuneration. of the standing committees. David Lowden stepped down as a member of the Remuneration • Approves individual remuneration awards. • Agrees changes to senior executive incentiveplans. and Audit and Risk Committees upon his appointment as Chairman on 10 May 2022. ESG Committee • Oversees the development of the Group’s ESG strategy, monitoring ### Frequency of meetings and attendance itsperformance in relation to ESG matters. • Considers the adequacy of the Group’s ESG policies and processes. During 2022, the Nomination Committee met eight times, the Remuneration Committee six • Oversees and monitors the Group’s progress against its net zero emissionsstrategy. times, the Audit and Risk Committee six times and the ESG Committee three times. Attendance • Oversees and supports stakeholder engagement on ESG matters. of directors at committee meetings is shown in the table on page 73. Disclosure Committee • Responsible for the appropriate identification and management of inside information, including any decision to delay public disclosure. ### Corporate Nomination Committee Report Capita plc 86 governance Annual Report 2022 ### Responsibilities and activities The committee met eight times in 2022 Key responsibilities and the members’ attendance record is ## Nomination • Identify and nominate appropriate candidates shown on page 73. The Chief General for appointment to the Board, having due Counsel and Group Company Secretary regard to the provisions of the Code and, in ## Committee report acts as Secretary to the committee and particular, the balance of skills, knowledge is available to assist committee and experience on the Board and the members as required, also ensuring the diversity of its composition. distribution oftimely and accurate • Keep the structure and size of the Board, its information. Thecommittee reports and committees and the leadership needs of the makes recommendations to the Board in organisation under review and ensure that relation to its activities. It is authorised plans are in place for orderly succession and under its terms of reference to obtain the ### We are committed to making sure we have the appointment to the Board. advice of independent search necessary skills, expertise and diversity on the Board consultants. The committee’s terms of • Review the time commitment and reference can be found on Capita’s performance of non-executive directors. ### to help support the delivery ofCapita’s strategy.” website at www.capita.com/investors/ • Oversee development of a diverse pipeline David Lowden, Chair, Nomination Committee corporate-governance. forsuccession. Activity in 2022 • Succession planning for the Chairman. • Recruitment and appointment of two | time allocation (%) | | | | independent non-executive directors. | | --- | --- | --- | --- | --- | | | | 5 | | • Overseeing the process of the appointment | | | 4 | | 1 | | ofa new employee director and reviewing andrecommending the appointment of the 2 preferred candidate to the Board. • Review of diversity and inclusion activities Nomination Committee and measures. 3 • Reviewing succession planning for members 1 20% Board appointments of the Executive Committee. 2 10% • Consideration of the contributions and 3 55% Succession planning 4 10% Diversity effectiveness of the non-executive directors seeking re-election at the 2022 AGM. • Reviewing committee membership and appointment of the SID. The time allocation chart is provided for guidance only and other matterswere also considered by the committee. Employee director appointment 5 5% Governance Corporate^{}[] governance Nomination Committee Report^{}[] continued Capital plc^{}[] Annual Report 2022 87 ## Diversity and inclusion Capital'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 Capital 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 PCA 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 PCA'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 management$^{1}$ was 44% and female representation among senior management$^{2}$ and direct reports was 35%. At 31 December 2022, ethnically diverse representation on the Board and among senior management$^{3}$ 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 Capital'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 Qorrigo. The committee considered, and recommended, the appointment of Janine Goodchild as employee non-executive director. Janine is a Lead Clinical trainer in the Capital team which assesses personal independence claims on behalf of the Department for Work and Pensions. Janine joined Capital 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 ESG Committee report Capita plc 88 governance Annual Report 2022 ### Responsibilities and activities The committee received ### We have continued to make progress in reports on the following Key responsibilities delivering on our environmental, social ## ESG themes during the year: • Oversee the development of the Group’s and governance (ESG) objectives. ESG strategy and monitor its performance • cyber and information To enhance how we serve and respect in respect of ESG-related matters on security ## Committee our stakeholders, including society behalf of the Board. • IT resilience andthe environment, we have also • Consider the adequacy of the Group’s established an ESG committee to the • internal controls ## report ESG-related policies. Board. This committee was established • securing contracts and • Oversee and monitor the Group’s progress on 30 June 2022 and met three times extending existing contracts ### The committee oversees Capita’s conduct against its net zero strategy. during 2022. David Lowden has been • risk of failing to deliver on ### as a responsible business and validates appointed as ESG Committee chair. • Liaise with the Audit and Risk Committee our contractual obligations ### through ESG principles our approach to Other members of the committee are regarding the Company’s Speak Up policy. toour clients ### being a purpose-led business. Georgina Harvey, Nneka Abulokwe, • Receive, review and approve the Group’s • attracting, developing John Cresswell and Janine Goodchild. people strategy on behalf of the Board. andretaining our people Activity in 2022 • anti-bribery and corruption, • Reviewed the terms of reference including details of matters ofthecommittee. raised under the Group’s • Reviewed Capita’s progress towards Speak Up policy itsnetzero target. • privacy • Received awareness training on net zero. time allocation (%) • legal update. • Received a presentation on the Group’s 5 HSEframework and divisional/functional 1 compliance, including wellbeing matters. 4 • Reviewed diversity and inclusivity data. • Considered Capita’s ESG strategy ESG Committee 2 andgovernance structure. 3 • Received an update on Capita’s peopleplan. 1 25% Governance 2 25% Employee-related issues • Reviewed and recommended to RemCo ESG bonus-related targets for 2023 and 3 20% Net zero 4 15% ESG-related bonus targets reviewing and approving the outcome of ESG bonus-related targets for 2022. • Received a report on ESG indices and The time allocation chart is provided for guidance only and other how Capita is performing. matterswere also considered by the committee. including diversity and inclusion 5 15% Strategy Corporate governance ESG Committee report continued Capita plc Annual Report 2022 E9 ## 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 ![img-3.jpeg](img-3.jpeg) ### Corporate Audit and Risk Committee Report Capita plc 90 governance Annual Report 2022 ### Role and responsibilities The Audit and Risk Committee’s terms The committee is responsible for carrying out ofreference set out in full therole, ## Audit and Risk the audit functions as required by DTR 7.1.3R responsibilities and authority of the and assists the Board in fulfilling its oversight committee and can befound on the responsibilities in respect of the Company ## Committee Report Company’s website at www.capita.com/ andthe Group. The committee’s key investors/corporategovernance. responsibilities are: The terms of reference are reviewed Financial reporting annually and updated asrequired. To review the reporting of financial and other information to the Company’s shareholders and ### Following the decision by the Board and the to monitor the integrity offinancial statements, ### committee atthe end of 2021 to focus on optimising including the application of key judgements in ### the current finance reporting systems, programmes determining reported outcomes, to ensure they ### have been established to deliver further improvements are fair, balanced and understandable. ### to the group risk and control framework, including Risk management, internal control andcompliance ### financial controls.” To review and assess the adequacy of systems Brian McArthur-Muscroft, Chair, Audit and RiskCommittee of internal control and risk management, and monitor the risk profile ofthe business. Internal audit time allocation (%) To approve the annual internal audit plan, review the effectiveness of the internal 4 3 auditfunction and review all significant recommendations, and ensure they are addressed in a timely manner. 1 2 External audit Audit and Risk Committee To review the effectiveness and objectivity ofthe external audit process, assess the independence of the external auditor and 1 50% Risk management, internal control & compliance ensure appropriate policies and procedures 2 40% Financial reporting arein place to protect such independence. (incl. external audit) 3 5% Effectiveness To report to the Board on how it has discharged its responsibilities. The time allocation chart is provided for guidance only and other matterswere also considered by the committee. Private meetings with auditors 4 5% Governance Corporate governance Audit and Risk Committee Report continued Capita plc Annual Report 2022 91 ## Risk and control framework 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 affected 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. ## Committee membership and attendance 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 Audit and Risk Committee Report Capita plc 92 governance continued Annual Report 2022 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 Programmes have been established to deliver further KPMG, the Group’s external auditor. Opportunity exists at the end of each committee meeting improvements to the Group risk and control framework.” 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. ### Financial reporting Committee performance was assessed as part of the Board evaluation, see page 68 for more Accounting judgements and significant accounting matters information. The Board is satisfied that the combined knowledge and experience of its members As part of the process of monitoring the integrity of the financial information presented in the issuch that the committee discharges its responsibilities in an effective, informed and challenging half-year results and the Annual Report and Accounts, the committee reviewed the key accounting manner and that, as a whole, the committee has competence relevant to the sector in which the policies and judgements adopted by management to ensure that they were appropriate. The Company operates. The Chief General Counsel and Company Secretary, or their nominee, acts significant areas of judgement identified by the committee, in conjunction with management and asSecretary to the committee and is available to assist the members of the committee as required, theexternal auditor, together with a number of areas that the committee deemed significant in the ensuring that timely and accurate information is distributed accordingly. context of the financial statements, are set out in the tables on pages 93 to 95. ### How the committee operates Fair, balanced and understandable The committee has an annual forward agenda to cover the key events in the financial reporting At the Board’s request, the committee considered whether the half-year results and the Annual cycle, specific risk matters identified by the committee and standing items that the committee is Report and Accounts were fair, balanced and understandable, and whether the information required to consider in accordance with its terms of reference. The annual agenda is supported by provided was sufficient for a reader of the statements to understand the Group’s position and planning meetings held in advance of each committee meeting, led by me and attended by the performance, business model and strategy. The committee reviewed both the narrative and CFO, members of the Group Finance team and the Director of Internal Audit and Risk. I will also financial sections ofthe reports to ensure they were consistent and gave a balanced view of the meet with the external auditor prior to committee meetings. Their purpose is to identify key issues performance of the business in the year and that appropriate weight was given to both positive and impacting the business that may require consideration by the committee. Reports are received from negative aspects. The committee also considered whether the full-year announcement was Group functions, including risk and internal audit, as appropriate. New sales wins and their contract presented clearly. terms are reviewed from a risk and accounting perspective as appropriate. Additional reports are The committee considered whether the Annual Report and Accounts enables readers to provided as may be required. Ireport to the Board the key matters of discussion and make any understand the Company’s financial position and prospects, as well as assess its going concern significant recommendations asnecessary. status and longer-term viability. ### 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. ### Corporate Audit and Risk Committee Report Capita plc 93 governance continued Annual Report 2022 ### Significant issues in relation to the financial statements considered by the Audit and Risk Committee Going concern and viability assessment Matter considered Outcome Consideration of the going concern assumption and viability of the Group and Parent Company is the The committee is satisfied that the analysis presented by executive management and KPMG provides enough responsibility of the Board. The committee conducted an assessment as part of its support role, given the detail to allow a robust assessment of relevant risks and mitigations to be undertaken. This supported full inherent judgements required to assist the Board evaluate the resilience of the Group. 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. Action The committee considered the projections within the business plan, agreed by the Board in January 2023, and The committee is satisfied that section 1 to the consolidated financial statements and the viability statement the key assumptions underpinning the future cash flow and profit forecasts. The committee received reports onpage 64 include proportionate disclosures to inform users of the assessments undertaken by the Board. 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 To aid the reader, the company has included a detailed explanation of the Group’s accounting for long-term There is significant risk on long-term contracts related to revenue recognised from variations or scope changes, contracts (see note 2.1 to the consolidated financial statements). where significant judgement is required to be exercised by management. There is a risk that revenue may be Outcome recognised even though it is not probable that consideration will be collected, which could be due to The revenue recognition policy includes disclosure of the significant judgements and estimates in relation to its uncertainties over contractual terms and ongoing negotiations with clients. application and the committee is satisfied that these have been properly disclosed. The committee is satisfied Judgement is also required when customers request scope changes to determine if there is a contract that the disclosures given within the accounts are sufficient to gain a proper understanding of the methodology modification or a contract termination followed by a new contract. Contract terminations can lead to the of accounting for revenue across the Group, including the recognition of deferred income at the balance sheet immediate recognition of any deferred income being held for recognition in future periods. 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. 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. ### Corporate Audit and Risk Committee Report Capita plc 94 governance continued Annual Report 2022 Contract fulfilment assets Matter considered Outcome The adoption of IFRS 15 led to the recognition of contract fulfilment assets (CFAs). Judgements are involved in The committee is satisfied that appropriate judgements and estimates have been made in determining the assessing whether the costs incurred on a contract or an anticipated contract meet the capitalisation criteria as carrying value of CFAs and the extent of impairment of CFAs recognised in these statements is appropriate. set out under the standard. 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 In addition, the amortisation of these assets involves estimation of the expected life of the contract, and when stages of a typical long-term Capita contract. 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. Impairment of goodwill and Parent Company’s investment in subsidiaries, and recoverability of receivables from subsidiary undertakings in the Parent Company Matter considered Outcome The Group carries significant asset balances in respect of goodwill related to its acquisition activity. In addition, The committee is satisfied with the impairment of goodwill recognised in these financial statements in respect the Parent Company carries a material balance of investment in, and receivables from, subsidiaries in its of certain businesses within the Group’s Portfolio division. financial statements. The impairment and recoverability assessments require the application of judgement The committee is also satisfied that the assumptions, methodology and disclosure in note 3.4 to the concerning future prospects and forecasts. consolidated financial statements are sufficient to give the reader an understanding of the action taken and the Action sensitivities within the goodwill balance to any further impairment risk. The committee has reviewed the robustness of the impairment model and challenged the appropriateness of Of particular importance to the committee was the inclusion of sufficient disclosures regarding the events assumptions used to calculate and determine the existence of impairment. andcircumstances that have led to the impairment charges recorded in the year and the analysis showing The committee has also reviewed the robustness of the assessment of recoverability of receivables from sensitivity of the goodwill valuation to changes in key assumptions. subsidiary undertakings in the parent company, and challenged the appropriateness of assumptions used to The committee also considered that any impairment of investment in subsidiaries, or any provision calculate and determine any provisions required. againstamounts receivable from subsidiaries, at the parent company level were appropriate and properly accounted for. ### Corporate Audit and Risk Committee Report Capita plc 95 governance continued Annual Report 2022 Pensions Matter considered Action The measurement of the defined benefit liabilities in respect of defined benefit pension schemes operated The committee reviewed the disclosure as presented in the accounts. The committee also challenged the key within the Group is a complex area, relying on assumptions on inflation, mortality, corporate bond yields, assumptions and reviewed the sensitivity to changes in some of the key assumptions on a standalone basis as expectations of returns on assets and several other key inputs. There is a risk that any one of these could lead well as in the context of defined benefit schemes across other external benchmarks. to misstatement of the Group’s liabilities in respect of pension obligations and the pension charge or movement Outcome recognised in the income statement or statement of comprehensive income. 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. Deferred tax assets Matter considered Action The Group carries significant deferred tax assets. The recoverability assessment requires the application of The committee reviewed the disclosure as presented in the accounts. The committee also challenged the key judgement concerning future prospects and forecasts. 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. ### Corporate Audit and Risk Committee Report Capita plc 96 governance continued Annual Report 2022 ### Other issues considered in relation to the financial statements Auditor independence The committee has a responsibility to put in place safeguards to auditor objectivity and Materiality independence and the key measures are: 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 • The CFO monitors the independence of the auditor as part of the Group’s assessment of auditor items above a certain threshold that are most likely to have an impact on the financial statements. effectiveness and reports to the committee accordingly. The committee reviews the external auditor’s report and the individual items that breach the • The CFO must approve all audit-related engagements – further details are set out in the section materiality thresholds and assesses their relative impact on the reported statements. These are: below on audit-related services. The committee reviews audit-related fees twice a year and income statement, statement of comprehensive income; balance sheet; statement of changes in considers the implications for auditor objectivity and independence. equity and cash flow; as well as the notes to the accounts. • The auditor must confirm its independence to the committee every six months. The committee requests further clarification from the external auditor, the CFO and Director Ensuring conflicts of interest are avoided is a fundamental criterion in the selection of any third-party ofFinancial Control as to the nature of these items and also their relative importance in the auditor. Such conflicts may arise across public and private sector clients, and in key supplier financialstatements. relationships. They are a key factor in the award process for an external audit assignment. After having made such enquiries, the committee is satisfied that materiality has been applied Audit-related services and fees correctly in the accounts. The Company’s policy on auditor independence describes the services that may be procured from Disclosure of information to the auditor the auditor, namely audit and audit-related services only. To avoid the perception of a conflict of The directors who held office at the date of the approval of this directors’ report confirm that, so far interest, the provision of non-audit services is not permitted. Audit-related services include those as they are each aware, there is no relevant audit information of which the Company’s auditor is required by laws and regulations, or where it is more practical for the external auditor to perform unaware; and each director has taken all steps that they ought to have taken as a director to make theservice (eg reporting accountant role related to certain public company transactions). KPMG themselves aware of any relevant audit information required for the audit and to establish that the continues to perform the review of interim results which, although technically classified as a Company’s auditor is aware of that information. non-audit service, relates closely to the audit. Statutory auditor Under the policy, which is reviewed annually, executive management has discretion to engage the The committee provides a forum for reporting by the Group’s auditor (KPMG) and it advises the auditor for audit-related services but the nature of such assignments and associated fees must Board on the appointment, independence and objectivity of the auditor and on fees earned for bereported regularly to the committee. All assignments require approval from the CFO. Where bothstatutory audit and audit-related work. The committee discusses the nature, scope and executive management has any concern that a proposed assignment might threaten the auditor’s timingof the statutory audit with the auditor and, in making a recommendation to the Board on independence, this is discussed with the committee chair. auditor reappointment, performs an annual, independent assessment of the auditor’s suitability Total non-audit fees during the year were £1.6m, and related to the review of interim results and andperformance. services as reporting accountant for the disposal of Pay360 Limited. Further details are provided The external auditor attends meetings of the committee and provides updates on statutory innote 2.3.2 to the consolidated financial statements. reporting, audit-related services and fees, and ongoing audit items. External auditor performance The auditor has the opportunity to raise concerns in private session with the committee and The committee discussed regularly the performance of KPMG during the year and was satisfied separately with the chair. Specifically, the committee asks the auditor if discussion of business that the level of communication and reporting was appropriate. These discussions included a review performance in the strategic report is consistent with the auditor’s overall impression of Capita. of the effectiveness and quality of the audit process, audit planning and a formal post-audit evaluation. Anymaterial discrepancies are discussed (refer to the independent auditor’s report). ### Corporate Audit and Risk Committee Report Capita plc 97 governance continued Annual Report 2022 The formal evaluation comprises separate assessments by both management and the committee meeting until the conclusion of the next general meeting at which accounts are laid before the of the auditor’s role, activity and performance including: Company, and its remuneration will be determined by the committee. • Calibre and risk profile of the audit firm; Review of risk management and internal control Responsibility for reviewing the effectiveness of the Group’s risk management and internal control • Audit governance, independence and objectivity; systems is delegated to the committee by the Board. The principal risks and risk management • Audit scope and strategy; processes are set out on pages 54 to 63. • Audit team and relations with management and business; and Effectiveness and efficiency of risk management • Audit communications and resolution of audit issues. During the year, the committee completed a robust assessment of the principal risks, including Financial Reporting Council: audit quality inspections deep-dive reviews on four of the 13 principal risks. The assessment also considered any emerging Each year, the Audit Quality Review team (AQR) of the FRC issues a report that sets out the risks that would threaten its business model, future performance, solvency or liquidity. The principal findings arising from the audit quality inspections conducted in the previous calendar year assessment process included regular engagement with the Executive Committee members across a sample of audits for all major audit firms. The AQR’s objective is to monitor and promote accountable for the management of risk falling under their remit. As part of each deep dive, the improvements in the quality of auditing. The reports highlight improvements required to promote committee reviewed existing controls and further risk reduction actions to ensure they were valid audit quality, and areas of good practice. The FRC publishes separate reports on the individual and effective in reducing the overall risk level. firms, including KPMG. The committee received reports on the following themes during the year: The committee received a presentation from the KPMG lead audit partner on the findings from the • Cyber and information security; FRC Audit Quality Inspection Report for KPMG. • IT resilience; External auditor reappointment • Internal controls; Following a robust and rigorous audit tender process in 2018, the committee and Board • Securing contracts and extending existing contracts; 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. • Risk of failing to deliver on our contractual obligations to our clients; The lead audit partner is rotated on a five-yearly basis. Robert Brent the lead audit partner rotated • Attracting, developing and retaining our people; off the audit team following the completion of the 2021 audit in March 2022 with Ian Griffiths • Anti-bribery and corruption, including details of matters raised under the Group’s Speak Up policy; replacing Robert in this role. Ian was appointed following a robust process. Ian attended committee and meetings prior to his appointment as lead audit partner as part of ensuring a smooth transition of • Privacy. the change in lead audit partner. There are no contractual obligations which restrict the committee’s The enterprise risk management framework and control environment continues to be enhanced choice of auditor. and embedded across Capita in the revised operating model. The committee concluded that risk Under the requirements of the Statutory Audit Services Order and the EU Audit Directive and Audit management processes and the system of internal controls were adequate and there were no Regulation, the provision of audit services should be retendered every 10 years. The complex material weaknesses requiring specific disclosure. The committee reported the conclusions to the nature of the Group requires that a knowledge base is built up year on year by the incumbent to Board to support the annual confirmation that a robust assessment of the principal risks had been ensure that the external audit is conducted with a proper understanding of the Group’s operations carried out. and the nature of the risks that it faces. This is an important factor in ensuring audit quality. The Effectiveness and efficiency of financial controls Group has complied with the provisions of the Statutory Audit Services Order. Detail on the status of internal financial controls is in the internal control and risk management A resolution to reappoint KPMG as the external auditor of the Company will be put forward at the section of this report and can be found on page 54. As detailed on page 54 further improvements forthcoming annual general meeting. If approved, KPMG will hold office from the conclusion of this tothe Group risk and control framework, including financial controls were delivered during the year. ### Corporate Audit and Risk Committee Report Capita plc 98 governance continued Annual Report 2022 The committee concluded that the Group risk and control framework, including financial controls Anti-bribery and corruption could be relied upon to be materially effective, noting that further improvements to the Group risk Capita has a Group-wide anti-bribery and corruption policy, which complies with the Bribery Act and control framework are planned for 2023 to ensure that financial controls are appropriately 2010. Procedures are reviewed periodically to ensure continued effective compliance in Group efficient for a Group of the scale and complexity of Capita. businesses around the world. Internal audit Code of Conduct and Speak Up The Group internal audit function has an administrative reporting line to the CFO and an During the year, the Company refreshed its mandatory Code of Conduct training and relaunched its independent reporting line to me as Chair of the committee. The function has in place a co-sourcing Speak Up policy. The Speak Up policy provides a framework for concerns to be raised in a arrangement which adds expertise and breadth to the work of the in-house audit team. The function responsible and effective manner. To ensure that concerns are addressed in a manner independent is led by the Director Internal Audit and Risk who is also responsible for the Group’s unregulated of a worker’s business area, concerns can be raised through a facility provided by an independent risk function. Regulated business risk is the responsibility of the CEO, Experience. third-party provider. Where concerns are raised, they are escalated to named contact points within Capita for further assessment and investigation. 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 As part of the relaunch, a 12-month Speak Up communication plan was prepared to raise and processes provides better insight into how risk is being managed and provides comparison awareness of this policy and stimulate engagement with employees. The number of reported cases across business units. The plan is structured to be flexible; to provide assurance over core has increased following the relaunch, although reported cases are still considered to be low in ‘business as usual’ activities aligned to our principal risks; and, to offer continued support for certain jurisdictions given the size of Capita. The Chief General Counsel and Company Secretary ongoing change activities. 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. 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 This is an area of focus for the committee, which receives a report and update on the current level annual report is provided each year summarising the key matters arising. Reports set out strengths of reported cases at every meeting. Oversight of these arrangements is a matter reserved to the and weaknesses identified during the work, together with any recommendations for action. Board and it receives updates on the operation of the policy from the committee chair. Insights from 2022 audits have continued to identify consistent themes including: lack of defined Privacy policy and procedures over key processes; risks being managed through the experience of our In December 2022, the privacy function was restructured to form a central team with a managerial people and existing knowledge; roles, responsibilities and accountabilities not always clear; and reporting line to the Data Protection Officer of Capita plc, while retaining the existing operational lack of evidence to demonstrate monitoring and reporting of control activity. 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 In all cases, management responded with appropriate actions to mitigate the associated risks. The standards are implemented consistently throughout the Group. 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. 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 As a result of the consistent themes identified during audits a plan was presented and approved by were a number of new initiatives undertaken by the central privacy team aimed at raising privacy the committee during 2022 to address these issues and further improve the Group’s financial awareness throughout Capita including targeted training and regular meetings with key stakeholders. controls framework. The committee will receive regular updates on the progress of this project. Brian McArthur-Muscroft Through regular interaction between the committee and the Director Internal Audit and Risk, as well Chair as reports received from the function, the committee can assess and satisfy itself that the Group’s Audit and Risk Committee provision of internal audit is effective. 2 March 2023 ### Corporate Directors’ remuneration report Capita plc 99 governance Annual Report 2022 This report is split into three sections: • The annual statement summarises how ## Remuneration ## Directors’ the committee discharged its roles and ## Committee membership responsibilities in respect of 2022 and ## the proposed implementation of the and attendance ## remuneration report directors’ remuneration policy for 2023. All members of the committee are • A summary of the directors’ independent non-executive directors. remuneration policy (the policy) which Following a change to the non-executive was approved by shareholders at the employee director during the year, this role 2021 annual general meeting (AGM). No now attends committee meetings by changes are proposed for 2023. A new invitation, rather than being a member of policy will be put to shareholders for the committee. The number of formal approval at the 2024 AGM. ### Our remuneration policy continues to work well, meetings held and the attendance by each • The annual report on remuneration sets member is shown in the table on page 73. ### supporting our strategy to build a more focused out the remuneration arrangements and The committee also held informal ### andsustainable business for the long term.” | | incentive outcomes for the year under | discussions as required. The Chief | | --- | --- | --- | | Georgina Harvey, Chair, Remuneration Committee | review and explains how the policy will | General Counsel and Company Secretary | | | be operated for 2023. | acts as secretary to the committee and is | available to assist the members of the The directors’ remuneration report, committee as required, ensuring that excluding the policy, will be subject to an timely and accurate information is advisory shareholder vote at the 2023 AGM. distributed accordingly. The committee’s terms of reference set out time allocation (%) the role, responsibilities and authority of 7 1 the committee and can be found on the 6 Company’s website at www.capita.com/ Remuneration Committee 2 5 investors. These are reviewed and updated where appropriate, on an annualbasis. 34 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 The time allocation chart is provided for guidance only and other 7 9% Committee time only matterswere also considered by the committee. Corporate governance Directors' remuneration report continued Capita plc Annual Report 2022 100 ## Annual statement Dear shareholder, I am pleased to present the directors' remuneration report for the year ended 31 December 2022. 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 career path framework incorporating job sizing and market informed job pay ranges. Details of the committee's approach to remuneration in 2022, and the proposed implementation of the policy for 2023, are set out below. ## How the committee operates The committee has an annual agenda covering the key planning and decision events in the annual remuneration cycle. Each meeting is supported by an agenda-setting discussion held in advance with the committee Chair, Chief People Officer and Group Reward Director, to identify issues affecting remuneration that may require consideration by the committee. Regular reports, including updates on corporate governance and regulatory developments, are received from the 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. ## Committee activities The key works/teams of the committee during the year included: - Agreeing the vesting percentage in respect of the 2019 LTIP awards for the performance period 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. - Consideration of executive pay arrangements and alignment with those for the wider workforce. - 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 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. ![img-4.jpeg](img-4.jpeg) Corporate governance Directors' remuneration report continued Capita plc Annual Report 2022 101 **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 63% 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. 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. ![img-5.jpeg](img-5.jpeg) ### Corporate Directors’ remuneration report Capita plc 102 governance continued Annual Report 2022 ### Use of discretion Remuneration policy for 2023 The committee retains the right to exercise discretion to override formulaic outcomes and ensure Following shareholder approval of the policy at the 2021 AGM and support received at the 2022 that the level of bonus and/or share award payable is appropriate. It may also use its judgement AGM, no policy changes are being proposed at the 2023 AGM. See pages 104 to 109 for a summary toadjust outcomes to ensure that any payments made reflect overall Company performance and of the current approved policy. A new policy will be put to shareholders for approval at the 2024 AGM. stakeholder experiences more generally. Where discretion is exercised, the rationale for this ### Implementing the policy for 2023 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: The committee’s intended approach to the implementation of the policy for 2023 is set out below. 2020 2021 2022 Fixed remuneration: the committee is mindful of the need for pay restraint at senior management | Annual bonus In light of the impact of Covid-19, | | The committee did not consider | Annual bonus awards for the | levels in the current economic environment. As such, and consistent with the approach adopted for | | --- | --- | --- | --- | --- | | | the annual bonus plan was | further application of downward | CEO and CFO for the year ended | the majority of senior executives across Capita, executive directors will not receive an increase in | | | withdrawn for 2020 for the | discretion to be necessary or | 31 December 2022 were reduced | | salary in 2023. No changes will be made to benefit provision and executive directors will continue executive directors (plus the appropriate in 2021 following a from 69% to 60% of the maximum, toreceive a workforce-aligned pension allowance (5% of salary) in line with other employees. executive committee and selected review of Group and individual see page 115. senior managers) before the performance, the general 2023 annual bonus: maximum annual bonus potential will continue to operate at 200% (CEO) and targets were agreed. stakeholder experience and noting discretion exercised in 175% (CFO) of salary. The financial performance metrics will be based on revenue, profit before tax 2019 and 2020. and free cash flow (all equally weighted and totalling 80% of maximum bonus). The remaining 20% Share awards 2020 LTIP award levels were 2021 RSA levels were reduced The 2022 RSA level for the CEO of maximum bonus will continue to be based on strategic/individual objectives incorporating ESG reduced by around 70% from the normal policy grant level was reduced from the normal targets. To the extent that the threshold profit before tax target is not met, the committee will compared with normal grant by around 17%. award level of 150% of salary to 100% of salary, see page 116. consider whether it is appropriate to pay out a bonus under the strategic/individual objectives and levels. In addition, and to reflect underlying financial and may exercise discretion to reduce pay out under these elements (including to zero) if considered operational performance, the appropriate. committee applied downward discretion when assessing the 2023 RSAs: the 2023 RSAs to be granted to executive directors in March 2023 will: vesting of the 2018 LTIP. • be set at a maximum of 150% of salary for the CEO and 100% of salary for the CFO; ### Board changes in 2022 • 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 Nneka Abulokwe was appointed as a non-executive director on 1 February 2022. David Lowden performance against two underpins (see below); and 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 • deliver shares that, once vested, may not normally be sold until at least six years from the grant Director on 1 July 2022 following David Lowden’s appointment as Chairman. date (other than to pay relevant taxes). 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. Corporate governance Directors' remuneration report continued Capita plc 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 ![img-6.jpeg](img-6.jpeg) ### Corporate Directors’ remuneration report Capita plc 104 governance continued Annual Report 2022 ### Directors’ remuneration policy Consideration of shareholder views This part of the remuneration report sets out a summary of our remuneration policy which was The Company is committed to maintaining good communications with shareholders. It considers approved by shareholders at, and took effect from, the 2021 AGM. The full policy approved by the AGM to be an opportunity to communicate with shareholders, giving them the opportunity to shareholders at the 2021 AGM is presented in the Annual Report 2020. No changes to the policy raise any issues or concerns they may have. In addition, the committee seeks to engage directly are proposed for 2023. The information provided in this section of the remuneration report is not with major shareholders and the main representative bodies, should any material changes be subject to audit. proposed to the policy. ### Responsibilities and activities of the Remuneration Committee Consideration of our people The committee is responsible for determining and agreeing with the Board the remuneration policy When determining executive director remuneration policy and practices, the committee reviews for the executive directors, executive committee members and the Chief General Counsel and workforce remuneration and related policies and the alignment of incentives and rewards with Company Secretary role, including setting the overarching principles, parameters and governance culture to ensure that workforce pay and conditions are taken into account when setting the pay framework and determining each remuneration package. In addition, the committee reviews ofexecutive directors and senior management. 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 Directors’ remuneration report Capita plc 105 governance continued Annual Report 2022 ### Remuneration policy table The following table sets out the key aspects of the policy. Base salary Purpose and link to strategy Operation Maximum opportunity Performance framework To attract and retain Normally reviewed annually in December, with any changes usually effective in There is no prescribed maximum monetary annual Individual and business performance are talentby ensuring base January. The committee may award salary increases at other times of the year increase to base salaries. Any annual increase in considerations in setting base salaries. salaries are sufficiently ifit considers it to be appropriate. The review takes into account: salaries is at the discretion of the committee, taking competitive. into account the factors stated in this table and the • Salaries in similar companies and comparably-sized companies following principles: • Remuneration policy • Salaries would typically be increased at a rate • Economic climate consistent with the average salary increase • Market conditions (inpercentage of salary terms) for the broader • Group performance workforce. • The role and responsibility of the individual director • Larger increases may be considered appropriate in certain circumstances (including, but not limited to, • Employee remuneration across the broader workforce. 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. Benefits Purpose and link to strategy Operation Maximum opportunity Performance framework Designed to be consistent Benefits include car allowance, private medical insurance, travel and property Benefit provision varies between different executive Not performance-related. with benefits available to hire. Executive directors can also participate in all-employee share plans. directors. While there is no maximum level set by the employees in the Group. committee, benefits provision will be set at a level the The committee has discretion to add additional benefits which are not currently committee considers appropriate and be based on provided, such as relocation expenses. individual circumstances. Participation in the Company’s HMRC-approved all-employee share plan will be limited by the maximum level prescribed by HMRC. Pension Purpose and link to strategy Operation Maximum opportunity Performance framework Consistent with benefits Pension contributions are paid into the Group’s defined contribution scheme 5% of salary. Not performance-related. available to employees and/or as a cash allowance. inthe Group. ### Corporate Directors’ remuneration report Capita plc 106 governance continued Annual Report 2022 Annual bonus Purpose and link to strategy Operation Maximum opportunity Performance framework Performance measures The bonus measures and targets are reviewed annually to ensure that bonus 200% of salary. Performance is normally measured over a one-year are selected to focus opportunity and performance measures continue to support the business plan. period relative to challenging targets for selected executives on delivery of Stretching targets are set at the start of each financial year. measures of Group financial, strategic and/or the Group business plan individual performance. Performance against targets is reviewed following completion of the final for the financial year. accounts for the period under review. The majority of the bonus will be determined by measure(s) of Group financial performance 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 A sliding scale is set for each Group financial measure: executive director’s discretion. 50% of the bonus will be paid at target performance, increasing to 100% for maximum performance. 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. Any bonus payout is ultimately at the discretion of the committee, and the amount of any bonus that would Malus and clawback provisions apply to all annual bonus and deferred bonus be determined based on performance may be share awards for a period of up to three years after the determination of the reduced if the committee believes this better reflects annual bonus. the underlying performance of Capita over the relevant period. Restricted share awards Purpose and link to strategy Operation Maximum opportunity Performance framework Designed to reward and Awards will normally vest after three years from grant and, once vested, shares 150% of salary. Vesting will be subject to: (i) continued employment; retain executives over the may not normally be sold until at least six years from the grant date (other than (ii) satisfactory personal performance during the longer term while aligning to pay relevant taxes). relevant vesting periods; and (iii) a positive their interests with those assessment of performance against one or Dividends or dividend equivalents may accrue over the vesting period and any ofshareholders. moreunderpins. holding period but only to the extent awards vest. To link reward to In addition, the committee may reduce the extent to Malus and clawback provisions apply to awards for a period up to the fifth longer-term performance. which an award vests if it believes this better reflects anniversary of grant. the underlying performance of Capita over the To encourage share relevant period. ownership. Shareholding guidelines Purpose and link to strategy Operation Maximum opportunity Performance framework To align interests of Shareholding guidelines require executive directors to reach a specified In employment: 300% of salary (CEO); 200% of Not performance-related. management and shareholding. Executive directors are required to retain 100% of any shares salary (CFO). shareholders and promote from deferred bonus awards, RSAs (or LTIPs as granted under the previous Post cessation: 100% of the relevant guideline a long-term approach policy) on vesting (net of tax) until the guideline level is achieved. between cessation and the second anniversary of toperformance and Post-cessation guidelines apply to share awards granted following the 2020 cessation (or the actual shareholding if the guideline riskmanagement. AGM. In determining the relevant number of shares to be retained post has not been met at cessation). cessation, shares acquired from own purchases, any buyout awards and share awards granted prior to the 2020 AGM will not be counted. ### Corporate Directors’ remuneration report Capita plc 107 governance continued Annual Report 2022 Non-executive director (NED) fees Purpose and link to strategy Operation Maximum opportunity Performance framework Market competitive fees Reviewed periodically by the Board. Fee levels set by reference to market rates, As per the executive directors, there is no prescribed Not performance-related. are set so as to attract and taking into account the individual’s experience, responsibilities, time maximum monetary annual increase. Fees are | retain non-executive | commitment and pay decisions for the broader workforce. NED fees comprise | limited to an aggregate annual sum of £1m increased | | --- | --- | --- | | directors with required | payment of an annual basic fee and additional fees for further Board | only to take account of the effect of inflation as | | skills, experience and | responsibilities such as: | measured by the retail price index or such index | | knowledge so that the | | asthe directors consider appropriate or such | • Senior independent director Board can effectively carry otheramount as the Company may by ordinary out its responsibilities. • Audit and Risk Committee chair resolution decide. • 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 The committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions key priorities for the Group. 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 Targets are normally set on sliding scales that take account of internal strategic planning and external market expectations for the Company. 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 Only modest rewards are available for achieving threshold performance with maximum rewards requiring substantial outperformance of 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 challenging strategic plans approved at the start of each year. 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 The committee operates share-based arrangements for the executive directors in accordance with their respective scheme rules, the Listing policy set out in this policy report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) Rules and the HMRC rules where relevant. The committee, consistent with market practice and the scheme rules, retains discretion over a number without obtaining shareholder approval for that amendment. of areas relating to the operation and administration of the plans. These include (but are not limited to) the following: • Who participates • The form in which the award is granted and settled (eg shares, nil cost options, cash) • The timing of the grant of award and/or payment • The size of an award (up to individual and plan limits) and/or a payment • Discretion relating to the measurement of any performance target/underpin and pro-rating of awards in the event of a ‘good leaver’ scenario or a change of control or reconstruction of the Company • Determination of whether or not a person is characterised as a good leaver (in addition to any specified categories) for incentive plan purposes • Adjustments required in certain circumstances (eg share capital variation, rights issues, demerger, corporate restructuring, special dividends) • The ability to vary or substitute any performance condition(s)/underpins if circumstances occur which cause it to determine that the original condition(s) have ceased to be appropriate, provided that any such variation or waiver is fair, reasonable and not materially less difficult to satisfy than the original condition (in its opinion). In the event that the committee were to make an adjustment of this sort, a full explanation would be provided in the next remuneration report • The ability to reduce the vesting level of awards (including to nil) where the Committee determines it is appropriate to do so. ### Corporate Directors’ remuneration report Capita plc 108 governance continued Annual Report 2022 ### Malus and clawback 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. Malus and clawback provisions apply to all incentive awards granted to executive directors. These However, flexibility would be retained to make ‘buyout’ awards or payments in respect of provisions permit the committee to reduce or recover bonus awards (including deferred shares) for remuneration arrangements and contractual terms forfeited on leaving a previous employer. In such up to three years after the determination of the annual bonus and to reduce or recover RSA awards circumstances, the committee would look to replicate the arrangements being forfeited as closely (and LTIP awards granted under the previous policy) up to the fifth anniversary of grant. The as possible and, in doing so, would take account of relevant factors including the nature of the potential circumstances in which malus or clawback provisions can be applied include: remuneration and contractual terms, performance conditions and the time over which they would • material misstatement of a Group company’s financial results have vested or been paid. • a participant deliberately misleads relevant parties regarding financial performance If appropriate, a new appointee’s incentives in their year of joining may be subject to different targets • serious misconduct or conduct which causes significant financial loss than for other executive directors. The committee may also agree that the Company will meet certain relocation and incidental expenses, as it considers appropriate. • 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 The maximum level of variable remuneration which may be granted (excluding awards to ofanaward 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 • reputational damage (the maximum limit permitted within the policy table). • material failure of risk management The initial notice period for a service contract may be up to 24 months, which is longer than that • corporate failure or the occurrence of an insolvency event. stated in the policy of a 12-month notice period, provided it reduces to 12 months within a short ### Application of our remuneration policy space of time. When determining executive director remuneration policy and practices, the committee For an internal appointment or an appointment following the Company’s acquisition of or merger reviewsworkforce remuneration and related policies, and the alignment of incentives and with another company, any incentive amount awarded in respect of a prior role may be allowed to rewardswith culture. 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 Share awards are granted to senior management in order to encourage a high level of employee continue. 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 The committee retains discretion to make appropriate remuneration decisions outside the standard value created for shareholders and the remuneration received by the executive directors. The policy to meet the individual circumstances of recruitment when: committee did not consult with employees formally in respect of the design of the policy, although • An interim appointment is made to fill an executive director role on a short-term basis. the two employee non-executive directors at that time (one as a committee member and one by • Exceptional circumstances require that the Chairman or a non-executive director takes on an invitation to the committee) were involved in the committee’s discussions. executive function on a short-term basis. ### Directors’ recruitment and promotions In the event of the appointment of a new non-executive director, remuneration arrangements will The committee takes into account the need to attract, retain and motivate the best person for each normally be in line with the structure set out in the policy table for non-executive directors. However, position, while at the same time ensuring a close alignment between the interests of shareholders the committee (or the Board as appropriate) may include any element listed in the policy table or and management. 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 Directors’ remuneration report Capita plc 109 governance continued Annual Report 2022 Directors’ service agreements and payments for loss of office 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 The committee regularly reviews the contractual terms of the service agreement to ensure these to vest on the normal vesting date (or earlier at the discretion of the committee) to the extent any reflect best practice. performance conditions/underpins attached to the relevant award are satisfied at vesting. In such The service contracts for executive directors are for an indefinite period and provide for a 12-month cases awards will, other than in exceptional circumstances, be scaled back on a time pro-rated notice period. They do not include provisions for predetermined compensation on termination that basis and post-vesting holding periods would normally apply. exceed 12-months’ salary, pension and benefits. There are no arrangements in place between the In the event of a change of control, all unvested LTIP awards/RSAs would (unless rolled over) Company and its directors that provide for compensation for loss of office following a takeover bid. vest,to the extent that any performance conditions/underpins attached to the relevant awards All directors are appointed for an indefinite period but are subject to annual re-election at the annual havebeen achieved. Awards would normally be subject to time pro-rating (unless the committee general meeting. determines otherwise). In circumstances of termination on notice, the committee will determine an equitable compensation Unvested deferred share awards would vest in the event of a change of control (unless rolled over). package, having regard to the particular circumstances of the case. The committee reserves the Shares held within the share ownership plan will be removed from the plan or exchanged for right to make payments in connection with a director’s cessation of office or employment where the replacement shares in accordance with the scheme rules and HMRC guidelines. 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 Non-executive directors’ terms of engagement connection with the cessation of a director’s office or employment. Any such payments may include, Non-executive directors are appointed by letter of appointment for an initial period of three years. but are not limited to, paying any fees for outplacement assistance and/or the director’s legal and/or Each appointment is terminable by three months’ notice on either side. At the end of the initial professional advice fees in connection with his cessation of office or employment. The committee period, the appointment may be renewed by mutual consent, subject to annual re-election at has discretion to require notice to be worked or to make payment in lieu of notice or to place the theAGM. 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. 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 Employee non-executive directors are appointed by letter of appointment for an initial period of two period of the bonus plan year worked by the director; there is no provision for an amount in lieu of to three years. Each appointment is terminable by one month’s written notice on either side. At the bonus to be payable for any part of the notice period not worked. Bonus payments would normally end of the initial period, the appointment may be renewed by mutual consent, subject to annual be paid at the normal payment date. re-election at the AGM. On cessation, an executive director’s share plan entitlements will be determined in accordance with Inspection of service agreements/letters of appointment the rules of the relevant plan. The service agreements and non-executive directors’ letters of appointment are available for Unvested deferred share awards will normally lapse on the earlier of notice being given/received inspection during normal business hours at the Company’s registered office, and available for and cessation. However, the committee has discretion to allow awards to instead continue to vest in inspection at the AGM. 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). ### Corporate Directors’ remuneration report Capita plc 110 governance continued Annual Report 2022 ### Annual report on remuneration Shareholder voting at the AGM This part of the remuneration report has been prepared in accordance with The Large and Medium- The 2022 directors’ remuneration report will be presented to shareholders at the 2023 AGM. At the sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) and 2022 AGM, the actual voting in respect of the ordinary resolution to approve the remuneration paragraphs 9.8.6R and 9.8.8 of the Listing Rules. The annual report on remuneration will be put report for the year ended 31 December 2021 is set out below together with the vote on the current | toan advisory shareholder vote at the 2023 AGM. The information on pages 110 to 122 has been | remuneration policy approved at the 2021 AGM. | | | | | --- | --- | --- | --- | --- | | audited as indicated. | | Votes | Votes cast | | | | | cast for | against Abstentions | 1 | FIT Remuneration LLP was appointed by the committee during 2020 to provide independent advice Directors’ remuneration report, other than the part 1,148,723,621 23,356,565 3,956,217 on executive remuneration matters. During the year, the committee received independent and containingthe directors’ remuneration policy, for the objective advice from FIT primarily on market practice, governance updates, the operation of the yearended 31 December 2021 98.01% 1.99% remuneration policy, shareholder/proxy feedback and voting in respect of the 2022 AGM and Directors’ remuneration policy (2021 AGM) 1,254,719,423 3 7,105 , 242 108,597 remuneration-related disclosure within the accounts. FIT’s fees were £79,653 (excluding VAT) 97.13% 2.87% during 2022 for its services (charged on a time plus expenses basis). The fees were considered 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. 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 Policy implementation for 2023 voluntarily under the code of conduct in relation to executive remuneration consulting in the UK. The Details of the committee’s intended approach to the implementation of the policy for 2023 is set out committee considers FIT’s advice on remuneration to be independent and objective, and there is no in the annual statement. connection with the Company or individual directors. ### Fees for the Chairman, senior independent director, non-executive directors and The committee also consulted with the CEO, CFO, the Chief People Officer and the Group ### employee non-executive director 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 A summary of the fees for 2023 are as follows: own remuneration. Annual fee from 1January 2023 The work of the committee is detailed in the annual statement. David Lowden, Chairman £290,000 Georgina Harvey, Senior Independent Director and Remuneration Committee Chair £85,500 Brian McArthur-Muscroft, Audit and Risk Committee Chair £75,000 Nneka Abulokwe £64,500 John Cresswell £64,500 Neelam Dhawan £64,500 Janine Goodchild £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 Directors’ remuneration report Capita plc 111 governance continued Annual Report 2022 ### Directors’ remuneration earned in 2022 – single-figure table (audited) The table below summarises directors’ remuneration received in 2022 (with prior year comparators). | Base salary | | | | | | | | | | | Total | | Total fixed | | Total variable | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and fees | | Benefits | 1 | Pension | | Annual bonus | | LTIP | RSA | remuneration | | | remuneration | | remuneration | | | | £ | | £ | | £ | | £ | £ | £ | | | £ | | £ | | £ | 2 David Lowden 2022 213,447 839 – – – – 214,286 214,286 0 2021 75,000 – – – – – 75,000 75,000 0 3 Jon Lewis 2022 748,000 17, 9 8 6 37,4 0 0 897, 6 0 0 66,986 – 1,767,972 803,386 964,586 2021 725,000 18,837 36,250 359,020 46,308 – 1,185,415 780,087 405,328 4 Tim Weller 2022 545,000 18,399 27, 2 5 0 572,250 – – 1,162,899 590,649 572,250 2021 299,337 9,588 14,967 135,296 – – 459,188 323,892 135,296 5 Georgina Harvey 2022 80,250 – – – – – 80,250 80,250 0 2021 75,000 – – – – – 75,000 75,000 – 6 Brian McArthur-Muscroft 2022 42,875 – – – – – 42,875 42,875 0 2021 – – – – – – – – 0 7 Nneka Abulokwe 2022 59,125 193 – – – – 59,318 59,318 0 2021 – – – – – – – – 0 John Cresswell 2022 64,500 – – – – – 64,500 64,500 0 2021 64,500 – – – – – 64,500 64,500 0 8 Neelam Dhawan 2022 64,500 25,599 – – – – 90,099 90,099 0 2021 53,750 4,000 – – – – 57,750 57,75 0 0 9 Janine Goodchild 2022 32,250 – – – – – 32,250 32,250 0 2021 – – – – – – – – 0 Former Directors 10 Sir Ian Powell 2022 128,951 16 – – – – 128,967 128,967 0 2021 325,000 – – – – – 325,000 325,000 11 Gordon Boyd 2022 – – – – – – – – 0 2021 513,010 1,309 – – – – 514,320 514,320 0 Patrick Butcher 2022 – – – – – – – – 0 2021 – 905 – – – – 905 905 0 12 Matthew Lester 2022 37,50 0 – – – – – 37,500 37,50 0 0 2021 75,000 – – – – – 75,000 75,000 0 13 Baroness Lucy Neville-Rolfe 2022 – – – – – – – – 0 2021 62,163 – – – – – 62,163 62,163 0 14 Gillian Sheldon 2022 – – – – – – – – 0 2021 13,750 896 – – – – 14,646 14,646 0 15 Andrew Williams 2022 – – – – – – – – 0 2021 23,292 902 – – – – 24,194 24,194 0 16 Lyndsay Browne 2022 32,250 – – – – – 32,250 32,250 0 2021 64,500 – – – – – 64,500 64,500 0 16 Joseph Murphy 2022 32,250 – – – – – 32,250 32,250 0 2021 64,500 – – – – – 64,500 64,500 – ### Corporate Directors’ remuneration report Capita plc 112 governance continued Annual Report 2022 1. Benefits include all taxable benefits as defined by paragraph 11(1) of the regulations. This includes private medical insurance, company car ### Annual bonus for 2022 (audited) 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 The annual bonus for 2022 was operated at normal levels (200% of salary for the CEO and 175% 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. ofsalary for the CFO). The bonus was based on a combination of revenue, profit before tax (PBT) 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 reported free cash flow (all equally weighted and totalling 80% of maximum bonus) and strategic/ price movements on his awards, based on the average three-month share price to 31 December 2022 (25.23p), is as follows: individual objectives (20% of maximum bonus). For each performance measure, 25% of bonus was Face value of awards expected to vest, based on the share price at grant (1,770,000 shares x 15% x 32.72p) £86,872 payable for achieving the threshold target; 50% was payable for achieving target performance; with Expected value of awards at vesting (1,770,000 shares x 15% vesting x 25.23p) £66,986 100% of the bonus payable for achieving the maximum target. Details of performance against the Impact of share price movements on vesting values £19,886 financial and strategic/individual targets are set out below. 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 Financial targets (80% of the bonus) 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 Achievement vesting date. against financial 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, | | Weighting (% of | Threshold target | | | Target | | Stretch | | Actual | | performance | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | albeit reflecting a period of unpaid leave. The benefits figure for 2022 includes an element of backdated car allowance (£1,342) which was | | | | | | | | | | 1 | | | | maximum bonus) | | (25% vests) | (50%vests) | | (100%vests) | | performance | | | weighting | underpaid in 2021. Revenue 26.67% £2,785m £2,932m £3,079m £2,846m 35.3% 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. | | 2 | | | --- | --- | --- | --- | --- | | | | PBT 26.67% £62m £70m £79m £74m | 72.3% | | | 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 | | | | 3 | Free cash flow 26.67% £14m £23m £32m £29m 50.0% 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. Financial measures 7. Nneka Abulokwe was appointed as a non-executive director on 1 February 2022. Fees for 2022 are shown from 1 February 2022 to bonus payout 80% 42% 31December 2022. 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 1. Excluding the impact of 2022 disposals (and planned disposals which have met the criteria to be excluded as business exits) 2021. Neelam is based outside the UK and receives an allowance for physical attendance at a Board meeting. This is shown in the benefits 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 column. was received by Capita during 2021 (effectively reducing the PBT payout from c.100% to c.72% of this part of the bonus award. 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 3. Following a review of the broader stakeholder experience when assessing performance against the financial targets that were set in respect of December 2022. In addition to her fee as an employee non-executive director, she received earnings from the Group as an employee 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 amounting to £24,421 for the period 1 July 2022 to 31 December 2022. 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 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 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 Directors’ remuneration report Capita plc 113 governance continued Annual Report 2022 ### 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 | | Weighting | | Score | | --- | --- | --- | --- | | Objectives | (% of maximum bonus) Assessment | | (% of maximum bonus) | | Customer – cNPS | 4% | Threshold Target Maximum Actual | | | Deliver improvement in | | Maintain score +2 point improvement +4 point improvement +8 point improvement (max) | 4% | customer net promoter 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 score (cNPS) for Capita asignificant improvement compared with the year ended 31 December 2021. As such, the committee was satisfied that this objective was met in full. Group (excluding Portfolio) by the end of 2022. Employee – eNPS 4% Threshold Target Maximum Actual Deliver improvement in +2 point improvement +5 point improvement +10 point improvement +15 point improvement (max) 4% employee net promoter 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 score (eNPS) for Capita withthe 2021 outcome. As such, the committee was satisfied that this objective was met in full. Group by the end of 2022. Diversity & inclusion 4% Achieve minimum of 11% ethnic minority (including 2% Black) Threshold Target Maximum Actual | Meet/exceed Group | | | 2% | | --- | --- | --- | --- | | diversity & inclusion | | 13.9% ethnic minority | | | hurdles. NB, If neither | 11% (including 2% Black) +4 point improvement +8 point improvement | (including 3% Black) (below target) | | threshold target was met, Achieve minimum of female average representation across senior/middle management in the UK there would have been no Threshold Target Maximum Actual payout for this objective. 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. ### Corporate Directors’ remuneration report Capita plc 114 governance continued Annual Report 2022 | | Weighting | | | | | Score | | --- | --- | --- | --- | --- | --- | --- | | Objectives | (% of maximum bonus) Assessment | | | | | (% of maximum bonus) | | Net zero | 4% | Threshold Target Maximum Actual | | | | 4% | | Ensuring all divisions and | | Emissions reporting established in | As for threshold but to include a | As target but to include | Met in full | | | functions have plans in | | themonthly performance review/ | detailed and executable plan for | demonstrablereduction in | | | | place which achieve the | | functional equivalent routine by | 2023–25 (first phase of net zero) | Capita’scarbon footprintduring | | | | following: (i) ensure | | yearend and 2023 targets set | | theyear | | | reporting on carbon In assessing this target, the committee noted that emissions reporting had been successfully established in the monthly performance review process, emissions is built into the adetailed and executable plan had been developed for 2023–25, and Capita’s overall carbon footprint reduced by 16,323 tonnes CO 2 e. As such, the monthly performance committee was satisfied that this objective was met in full. 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 | 4% | Target Maximum Actual | | | 4% | | --- | --- | --- | --- | --- | --- | | Contribute to debt | | Divest in accordance with the | Divest in accordance with the | Met in full | | | reduction through the | | desired timeline andwithin the | desired timeline and deliver at the | | | | successful execution of | | agreed price range | top end of the agreed price range | | | the 2022 divestment plan. 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. Total 20% 18% (out of 20%) Summary of total 2022 bonus awards Jon Lewis Tim Weller % of maximum % of salary % of maximum % of salary Total financial 42% 42% Strategic/individual 18% 18% Total (%) 60% 120% 60% 105% Total bonus (£) £8 97,6 0 0 £572,250 ### Corporate Directors’ remuneration report Capita plc 115 governance continued Annual Report 2022 As noted on page 89, Capita established an ESG committee during 2022. One of the ESG The TSR performance period runs for three years from the date of grant (16 April 2020) and committee’s responsibilities is to review performance against ESG metrics in the MBP and to therefore has not yet concluded. Based on performance to 31 December 2022, Capita’s TSR makerecommendations to the committee on outturn. Following a review of financial and personal performance against the FTSE 250 constituents (excluding investment trusts) was below median performance and the ESG committee recommendations by the committee post year end, annual and therefore 0% of this part of the award is expected to vest. Actual vesting will be assessed at the bonuses of 60% of the maximum (reduced from 69% of the maximum following the committee’s end of the three-year performance period and any change in the vesting outcome and value of the decision to reduce the free cash flow performance to a target performance level). This equates LTIP 2020 for the purposes of the single figure of remuneration will be shown in next year’s report. to120% of salary for the CEO and 105% of salary for the CFO. Consistent with the shareholder While employee engagement has improved significantly during 2022, it fell below the threshold set approved remuneration policy, 50% of the bonus awards will be deferred into Capita plc shares for the 2020 LTIP award resulting in zero vesting for this element. However, performance against forthree years. the customer NPS and supplier targets (which are considered to be critical underpins to the Long-term incentive awards due to vest in 2023 based on performance performance and improvement of the business) were very strong over the performance period. to31December 2022 (audited) 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 1 The performance assessment in respect of the 2020 LTIP awards held by Jon Lewis is as follows: than 31 days) resulting in maximum vesting of this element. | | | Threshold | | Target | | | Stretch | | | Vesting | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Performance measure Weighting | | (25%vests) | (50%vests) | | | (100% vests) Result | | | (% of maximum) | | Based on the customer and supplier performance, the committee believes that the 15% vesting is | | Relative TSR 75% Median TSR | | | Pro-rating | | | | Upper | Below | | 0% | appropriate due to progress made in improving customer satisfaction and supplier payment scores. | | | performance | | vesting | | quartile TSR | | | median | | | | In addition to noting that the 2020 LTIP award was reduced by 70% compared with normal award vs the between performance levels as a % of salary (which together with the subsequent share price decline has significantly constituents median and vs the impacted the estimated vesting value) and progress made in respect of the customer and supplier | of the FTSE | | | | upper | constituents | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 250 | | | quartile | of the FTSE | | targets (both critical to the delivery of Capita’s strategy), the committee also considered Capita’s | | (excluding | | performance | | | | 250 | underlying performance over the three-year performance period. In this regard, it noted the material | | investment | | on a straight | | | (excluding | | progress that has been made in delivering the strategy including the performance of the disposal | | | trusts) | | line basis | | investment | | programme, the significant strengthening of the balance sheet and strong operational delivery. | | | | | between | | | trusts) | | Based on the above outcomes, the estimated vesting of the long-term incentive for Jon Lewis in 25% and | | | 100% | | | | 2023 is: | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Responsible business scorecard: | | | | | | | | Shares vesting based | | | | | | | | | | | | | | | | | | | | on performance | | Dividend | | | Total shares | Estimated value | | | | Customer 10% 3 point | | 6 point | 9 point | 20 point | 10% | | | | | | | 1 | | | | | 2 | | | | | | | | | Awards granted | | (15%of maximum) | equivalentshares | | | expectedto vest | | | atvesting | | | | positive | positive | positive | positive | | | | | | | | | | | | | | Jon Lewis 1,770,000 265,500 – 265,500 £66,986 swing in swing in swing in swing NPS NPS NPS 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. | Employee 10% 3 point | | | | 6 point | 9 point | | Below | 0% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | positive | | positive | positive | threshold | | | | | | swing in | | swing in | swing in | | | | | | | | NPS | NPS | NPS | | | | | Suppliers adherence to | 5% – Maintain | | | | Exceed | | Exceed 5% | | | prompt payment code | | | | current | current | | | | 1. The awards are subject to an underpin requiring the assessment of the underlying financial and operational performance of Capita over the performance period. Corporate governance Directors' remuneration report continued Capita plc Annual Report 2022 116 # **RSAs granted in 2022 (audited)** RSAs were granted under the Capita Executive Plan in April 2022 as follows: | Name of director | Number of shares awarded | Face value of RSA | Percentage of salary | | --- | --- | --- | --- | | Jan Lewis | 3,481,985 | £748,000 | 100% | | Tim Weller | 2,537,098 | £545,000 | 100% | The CEO's award level was reduced from 100% 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). # **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. ### Corporate Directors’ remuneration report Capita plc 117 governance continued Annual Report 2022 | | | | | Interests in share | | Interests in share | | | Interests in share | Interests in share | | | Interests in share | | Interests in share | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | incentive schemes, | | incentive schemes, | | | incentive schemes, | incentive schemes, | | option schemes where | | option schemes where | | | | | | | | | | awarded without | | awarded without | | | awarded subject | awarded subject | | performance/vesting | | performance/vesting | | | Percentage of | | | | Beneficially | | Beneficially | | performance | | performance | | to performance | to performance | | conditions have been | | conditions have been | | shareholding target | | | | held interests at | | held interests at | | | conditions at | | conditions at | conditions/underpins at | | | conditions at | met but not exercised at | | met but not exercised at | | | requirement 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 | 31 December 2022 | | 1 | David Lowden 150,000 75,000 – – – – – – – Jon Lewis 1,414,538 795,303 868,456 516,029 7,4 21,0 8 5 5,721,886 738,877 1,183,666 25% Tim Weller 270,689 262,854 327,276 – 3,619,703 1,082,695 – – 10% Georgina Harvey 6,000 6,000 – – – – – – – Brian McArthur-Muscroft 0 – – – – – – – – Nneka Abulokwe 0 – – – – – – – – John Cresswell 65,500 20,500 – – – – – – – Neelam Dhawan 0 – – – – – – – – Janine Goodchild 0 – – – – – – – – 2 Sir Ian Powell 100,000 100,000 – – – – – – – 2 Matthew Lester 49,18 6 49,186 – – – – – – – 3 Lyndsay Browne 11,241 11, 240 – – – – – – – 3 Joseph Murphy 14,431 11,379 – – – – – – – 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 Directors’ remuneration report Capita plc 118 governance continued Annual Report 2022 ### Share plans (audited) The performance targets and underpin for the 2020 LTIP award are as follows: Performance Threshold (25% DAB plan Performance underpin measure Weighting vests) Target (50% vests) Stretch (100% vests) A deferred award is the deferred element of an individual’s annual bonus. Any deferral is made Assessment of Relative TSR 75% Median TSR Pro-rating Upper quartile onagross basis into deferred shares or as a (net of tax) restricted share award. The deferred | | | the underlying | performance vs | vesting between | TSR | | --- | --- | --- | --- | --- | --- | | shares are held for a period of three years from the date of award. This part is not subject to | | financial and | the constituents | median and | performance vs | | performance conditions. | | operational | of the FTSE 250 | upper quartile | the constituents | | | 1 | performance of | (excluding | performance on | of the FTSE 250 | Unvested DAB deferred/restricted awards at 31 December 2022 | | | Capita over the | | investment | a straight line | (excluding | | --- | --- | --- | --- | --- | --- | --- | | Name of director 2022 award | 2 Total | | | | | | | | | performance | | trusts) | basis between | investment | | Jon Lewis 868,456 868,456 | | period | | | 25% and 100% | trusts) | | Tim Weller 327,276 327,276 | | | Responsible business scorecard: | | | | | | | | Customer 10% 3 point positive | | 6 point positive | 9 point positive | 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 | | swing in NPS | swing in NPS | swing in NPS | | --- | --- | --- | --- | --- | | included in the comparative figures for 2021 in the table on page 111). This award is due to vest on 25 March 2025. | Employee 10% 3 point positive | | 6 point positive | 9 point positive | | | | swing in NPS | swing in NPS | swing in NPS | Unvested LTIP award Suppliers 5% – Maintain current Exceed current Name of director 2020 award adherence to Jon Lewis 1,770,000 prompt payment code Details of the performance targets and expected vesting in respect of the 2020 award are set out on page 115. Unvested restricted share awards Name of director 2021 award 2022 award Jon Lewis 2,169,100 3,481,985 Tim Weller 1,082,695 2,5 3 7,0 0 8 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: - 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). # Satisfaction of options When satisfying awards made under its share plans, the Company uses newly issued, treasury or purchased shares as appropriate. # Dilution All awards are made under plans that incorporate the overall dilution limit of 10% in 10 years. The estimated dilution from existing awards, including executive and all-employee share awards, was approximately 4.26% of the Company's share capital at 31 December 2022. # Executive directors' service agreements | Executive directors | Date of joining the Company | Nation period | | --- | --- | --- | | Jon Lewis | 1 December 2017 | 12 months | | Tim Weller | 12 May 2021 | 12 months | # Non-executive directors' terms of engagement | Non-executive directors | Date of joining the Board | Expiry date of current appointment | | --- | --- | --- | | David Lowden^{1} | 1 January 2021 | 9 May 2025 | | Georgina Harvey^{2} | 1 October 2019 | 1 July 2025 | | Brian McArthur-Muscroft | 1 June 2022 | 31 May 2025 | | Nireka Abulokwe | 1 February 2022 | 31 January 2025 | | John Cresswell | 17 November 2015 | 16 November 2024 | | Neelam Dhawan | 1 March 2021 | 29 February 2024 | | Sir Ian Powell^{3} | 1 September 2016 | 10 May 2022 | | Matthew Lester^{4} | 1 March 2017 | 30 June 2022 | 1. David Lowden was appointed Chairman on 11 May 2022 and stopped 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. # Board changes 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. # Payments to former directors (audited) No payments were made to former directors. # External appointments for executive directors During the year Jon Lewis served as a non-executive director for Equinor ASA. He received and retained fees of NOK 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. Corporate governance Directors' remuneration report continued Capital 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 (Capital plc) | | 2022 | | | 2021 | | | 2020 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base salary/fees | Taxable benefits^{1)} | Annual bonus | Base salary/fees | Taxable benefits^{1)} | Annual bonus | Base salary/fees | Taxable benefits^{1)} | Annual bonus | | **Executive directors^{2)}** | | | | | | | | | | | Jon Lewis^{3)} | 3.3% | -4.5% | 100% | 14.3% | 5.1% | 100%^{4)} | -12.5% | -36.9% | - | | Tim Weller^{4)} | 0% | 23% | 132% | - | - | - | - | - | - | | Gordon Boyd^{5)} | - | - | - | 0% | 100% | - | - | - | - | | Patrick Butcher^{6)} | - | - | - | - | -100% | - | -12.5% | -10.8% | - | | **Non-executive directors^{7)}** | | | | | | | | | | | David Lowden^{8)} | 286.7% | 100% | - | - | - | - | - | - | - | | Georgina Harvey^{9)} | 14% | - | - | 14.3% | - | - | -12.5% | - | - | | Brian McArthur-Muscroft^{10)} | - | - | - | - | - | - | - | - | - | | Neska Abuleiwa^{11)} | - | - | - | - | - | - | - | - | - | | John Cresswell^{12)} | 0% | - | - | 14.3% | - | - | -12.5% | - | - | | Neelam Dhawan^{13)} | 0% | 540% | - | - | - | - | - | - | - | | Janine Goodchild^{14)} | - | - | - | - | - | - | - | - | - | | Sir Ian Powell^{15)} | 0% | 100% | - | 14.3% | - | - | -12.5% | -100% | - | | Matthew Lester^{16)} | 0% | - | - | 13.9% | - | - | -12.5% | - | - | | Baroness Lucy Neville-Rolfe^{17)} | - | - | - | 14.3% | - | - | -12.5% | - | - | | Gillian Sheldon^{18)} | - | - | - | 14.3% | 100% | - | -12.5% | - | - | | Andrew Williams^{19)} | - | - | - | 14.3% | 100% | - | -12.5% | - | - | | Lyndsay Browne^{20)} | 0% | - | - | 14.3% | - | - | -12.5% | - | - | | Joseph Murphy^{21)} | 0% | - | - | 14.3% | - | - | -12.5% | - | - | | Employee population^{22)} | 5% | 7.4% | 38.1% | 2.8% | 4.4% | 123.2% | 5.0% | 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 composition for 2021 is due to the voluntary reduction index 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 net allowance (ECCAD) which was employed in 2021. 4) Gordon Boyd received a base salary of £100,000 a month for the period of his appointment as interim CPO UK November 2020 to 12 May 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 £15,000 in 2020 to £60,000 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 the 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. 8) Brian McArthur-Muscroft, Neska Abuleiwa 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 stopped down from the Board during 2020. For comparative purposes, their 2022 fees have been annualised to show the percentage change since 2021. 11) Baroness Lucy Neville-Rolfe, Gillian Sheldon and Andrew Williams stopped down from the Board during 2021. Comparative figures for 2022 are therefore unavailable. 12) Lyndsay Browne and Joseph Murphy stopped down from the Board during 2020. 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 Capital plc entity. 14) Taxable benefits were £3 in 2021 but £60A and £1B for David Lowden and Sir Ian Powell in 2022 respectively. Taxable benefits were £3 in 2022 but £1,000, £60A and £1B for Gordon Boyd, Gillian Sheldon and Andrew Williams respectively in 2021. The increases are therefore shown as 100%. ### Corporate Directors’ remuneration report Capita plc 121 governance continued Annual Report 2022 ### CEO pay ratio 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 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) • The CEO received a base salary increase of 3.17% (his first salary increase since appointment | and 75th percentile (upper quartile) of its UK employee population. | | | | | | | in2017). | | --- | --- | --- | --- | --- | --- | --- | --- | | | 25th percentile | | 50th percentile | | 75th percentile | | • The 2022 single figure includes an annual bonus of £897,600 (60%) of maximum). This compares | | Year Method | | pay ratio | | pay ratio | | pay ratio | | with an annual bonus award of £359,020 in 2021. 2022 Option B 76:1 56:1 36:1 • The value of the 2020 LTIP vesting outcome (included in the 2022 single figure) is higher than the 1 2021 Option B 49:1 38:1 24:1 adjusted 2019 LTIP vesting outcome (included in the revised ratios for 2021). 2 2020 Option B 61:1 44:1 29:1 2019 Option B 41:1 25:1 14:1 The pay ratios have fluctuated since reporting commenced in 2019, primarily as a result of variability in incentive outcomes for the CEO. 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. Capita is committed to offering its employees a competitive remuneration package. Base salaries 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 for employees, including our executive directors, are determined with reference to a range of vesting date. The 2020 pay ratio figures have therefore been adjusted accordingly. factorsincluding market practice, experience and performance in role. Due to the nature of his role, The 2022 remuneration figures for the employee at each quartile were determined with reference the CEO’s remuneration package has higher weighting on performance-related pay (including the tothe financial year ending 31 December 2022. Due to the complexity of Capita’s corporate and annual bonus and historical LTIP) compared to the majority of the workforce. This means the workforce structure, Option B was used to calculate these figures. The committee believes that payratios are likely to fluctuate depending on the outcomes of incentive plans in each year. The thisapproach provides a fair representation of the CEO to employee pay ratios and is appropriate committee also recognises that, due to the nature of the Company’s business and the flexibility incomparison to alternative methods, balancing the need for statistical accuracy with internal permitted within the regulations for identifying and calculating the total pay and benefits for operational constraints. 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 A full-time and full-year equivalent total pay and benefits figure for 2022 was calculated for each representative of the UK employee base. 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 ### Gender pay gap reporting the appropriate representative employee was selected. No adjustments were made to the total pay The Company’s 2022 gender pay gap data will be available on the government website and benefits figures (other than the approximate up-rating of pay elements where appropriate to https://gender-pay-gap.service.gov.uk from April 2023. achieve full-time and full-year equivalent values) and no components of pay have been omitted. ### Relative importance of the spend on pay The table below sets out the 2022 full-time equivalent salary and total pay and benefits for the three identified quartile point employees: The table below shows the spend on employee costs in the 2022 and 2021 financial years, | 2022 25th percentile (P25) Median (P50) 75th percentile (P75) | compared with dividends: | | | | | | --- | --- | --- | --- | --- | --- | | Salary £22,354 £29,878 £46,260 | | 2022 | 2021 | | % | | | | £m | £m | change | | Total pay and benefits £23,188 £31,821 £48,707 Employee costs 1,758.1 1,767.1 -0.51% Dividends – – – ### Corporate Directors’ remuneration report Capita plc 122 governance continued Annual Report 2022 Performance graph and CEO pay 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. The following chart compares the value of an investment of £100 in the Company’s shares with an CEO – single Annual bonus Long-term investment of the same amount in the FTSE All-Share Index and the FTSE 350 Support Services | | | figure of total | | (vs max | incentive (vs max | | | --- | --- | --- | --- | --- | --- | --- | | Index over the past 10 years, assuming that all dividend income is reinvested. The FTSE 350 | Year | remuneration | opportunity) | | | opportunity) | | Support Services has been chosen as the appropriate comparator as Capita is a constituent | 2022 £1,767,9 72 60% 15% | | | | | | | ofthisindex. | 2021 £1,18 5,415 24.8% 12.5% | | | | | | 2020 £1,196,582 0% 60% 2019 £789,678 0% 0% 2018 £2,014,209 85% 0% £300 2017 £741,376 0% 0% 2016 £682,958 0% 0% £250 2015 £2,520,428 50% 71.4% 2014 £2,558,998 100% 67. 2 % £200 2013 £2,326,250 75% 54.5% £150 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 £100 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 £50 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 £0 2017. In accordance with the regulations, the 2021 and 2020 CEO single figure have been updated 31 Dec 2231 Dec 2131 Dec 2031 Dec 1931 Dec 1831 Dec 1731 Dec 1631 Dec 1531 Dec 1431 Dec 1301 Jan 13 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). £350 ### Approval of the directors’ remuneration report The total remuneration figures for the CEO for 2022 and the previous nine years are shown in the The directors’ remuneration report was approved by the Board on 2 March 2023. 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. Georgina Harvey Chair Remuneration Committee 2 March 2023 Total shareholder return rebased at 100 Capita Group FTSE All Share Index FTSE 350 Support Services Index ### Financial Capita plc 123 statements Annual Report 2022 ## Financial ## statements ### Financial Independent Capita plc 124 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc To the members of Capita plc ### 2. OVERVIEW OF OUR AUDIT ## 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) Going concern remains a key audit matter. In The consolidated income statement, consolidated statement of The company balance sheet, company statement of changes in equity FY21, the risk was focussed on the adequacy of comprehensive income, consolidated balance sheet, and the related notes, including the accounting policies in section 7 to disclosures around the material uncertainty. In consolidated statement of changes in equity, consolidated cash the Parent Company financial statements. FY22, the risk has changed to now reflect the flow statement and related notes, including the accounting judgement taken in reaching the conclusion of no policies in section 1 to 6 to the Group financial statements. material uncertainty, and adequacy of the accompanying disclosures. The risk level remains stable for revenue ### recognition reflecting the volume and magnitude of BASIS FOR OPINION contractual changes in the period. This KAM is focussed upon variations or modifications for the We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities Group’s long-term contracts, for which accounting are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit can involve significant judgement. We have fulfilled our ethical responsibilities under, opinion and matters included in this report are consistent with those discussed and included in our reporting to the Group Audit and Risk and we remain independent of the Group in Committee (“ARC”). The risk associated with impairment of goodwill is accordance with, UK ethical requirements deemed as increased, with impairments 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 recognised at both 30 June and 31 December including the FRC Ethical Standard as applied to listed public interest entities. listed public interest entities. within the Portfolio CGUs. There is inherent We have not performed any non-audit services uncertainty in forecasting of future cash flows, during FY22 or subsequently which are prohibited which are the basis of recoverability. In particular | by the FRC Ethical Standard. for CGUs, measured as value in use on a disposal | | --- | | We continue to perform procedures over litigation and claims basis, the estimated disposal proceeds. | | provisions, defined benefit pension obligations and the We were first appointed as auditor by the | | presentation of items excluded from adjusted profits. shareholders for the year ended 31 December The risk associated with capitalisation and | OUR 2010. The period of total uninterrupted recoverability of contract assets is heightened due However, the level of estimation uncertainty associated with INDEPENDENCE engagement is for the 13 financial years ended 31 to economic uncertainties, including inflation, litigation and claims is lower than last year. Whilst we December 2022. which could significantly impact contract consider defined benefit obligations to be a significant risk, the completion of the triennial valuation and additional assumptions which drives the assessment of asset FACTORS The Group engagement partner is required to contributions made in FY21 means we no longer consider it recoverability and onerous contract provision. DRIVING OUR rotate every 5 years. As these are the first set of a KAM. There is a reduced level of judgement associated For the Parent Company, recoverability of the Group’s financial statements signed by Ian VIEW OF RISKS with the volume and value of items excluded from adjusted investments in, and amounts due from, its Griffiths, he will be required to rotate off after the results, which are set out in note 2.4 and 2.10 in the accounts. subsidiaries remains a KAM owing to the FY26 audit. During the year, the ARC met six times. KPMG are invited to attend all ARC meetings and are provided with an We have therefore not assessed any of these as one of the | materiality of these balances and the estimation of AUDIT opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each Key Audit | | | --- | --- | | most significant risks in our current year audit and, therefore, The average tenure of partners responsible for Recoverability of the Parent | | | the underlying cash flow forecasts. We note that no Matter, we have set out communications with the ARC in section 6, including matters that required particular judgement COMMITTEE Average tenure of component | | | they are not separately identified in our report this year. component audits as set out in section 7 is 3 years, Capitalisation and Company’s investments in, | | | direct investments are held within subsidiaries in Key Audit Matters for each. The matters included in the Audit and Risk Committee Chair’s report on pages 93 to 95 are materially consistent Tenure of Group engagement signing partners Non-audit fee as a % of total audit Total audit fee (including interim Next financial period which Vs FY21 Item | 3 years | | INTERACTION | ➔➔ 4.5 | | with the shortest being 1 and the longest being 6. and amounts due from, its Recoverability of contract | 4.4  20.3% 1 year £6.1m 2030 | | the Portfolio division. Audit related assurance services Uninterrupted audit tenure Date first appointed (“KAMs”) with our observations of those meetings. partner and audit related fee % review) requires a rotation 18 August 2010 | 13 years £1.55m | | Going Concern ➔➔  | 4.1 | | Impairment of Goodwill Revenue Recognition subsidiaries. assets | ➔➔ 4.3 4.2  | ### Financial Independent Capita plc 125 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report To the members of Capita plc ### 2. OVERVIEW OF OUR AUDIT Going concern remains a key audit matter. In Key Audit Matters Vs FY21 Item FY21, the risk was focussed on the adequacy of (“KAMs”) disclosures around the material uncertainty. In FY22, the risk has changed to now reflect the Going Concern  ➔  4.1 judgement taken in reaching the conclusion of no FACTORS material uncertainty, and adequacy of the  ➔ DRIVING OUR accompanying disclosures. Impairment of Goodwill  4.3 VIEW OF RISKS The risk level remains stable for revenue Capitalisation and Recoverability of contract  4.4 recognition reflecting the volume and magnitude of contractual changes in the period. This KAM is | focussed upon variations or modifications for the | Recoverability of the Parent | | | | --- | --- | --- | --- | | Group’s long-term contracts, for which accounting | Company’s investments in, | | | | | |  ➔ | 4.5 | and amounts due from, its 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. We continue to perform procedures over litigation and claims provisions, defined benefit pension obligations and the The risk associated with capitalisation and presentation of items excluded from adjusted profits. recoverability of contract assets is heightened due However, the level of estimation uncertainty associated with to economic uncertainties, including inflation, litigation and claims is lower than last year. Whilst we which could significantly impact contract consider defined benefit obligations to be a significant risk, assumptions which drives the assessment of asset the completion of the triennial valuation and additional recoverability and onerous contract provision. contributions made in FY21 means we no longer consider it a KAM. There is a reduced level of judgement associated For the Parent Company, recoverability of with the volume and value of items excluded from adjusted investments in, and amounts due from, its results, which are set out in note 2.4 and 2.10 in the accounts. subsidiaries remains a KAM owing to the We have therefore not assessed any of these as one of the materiality of these balances and the estimation of most significant risks in our current year audit and, therefore, the underlying cash flow forecasts. We note that no they are not separately identified in our report this year. direct investments are held within subsidiaries in the Portfolio division. During the year, the ARC met six times. KPMG are invited to attend all ARC meetings and are provided with an AUDIT opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each Key Audit COMMITTEE 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 INTERACTION with our observations of those meetings. We have fulfilled our ethical responsibilities under, Total audit fee (including interim £6.1m and we remain independent of the Group in review) accordance with, UK ethical requirements including the FRC Ethical Standard as applied to Audit related assurance services £1.55m listed public interest entities. We have not performed any non-audit services Non-audit fee as a % of total audit 20.3% during FY22 or subsequently which are prohibited and audit related fee % by the FRC Ethical Standard. We were first appointed as auditor by the Date first appointed 18 August 2010 shareholders for the year ended 31 December OUR 2010. The period of total uninterrupted INDEPENDENCE Uninterrupted audit tenure 13 years engagement is for the 13 financial years ended 31 December 2022. Next financial period which The Group engagement partner is required to 2030 requires a rotation 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 Tenure of Group engagement 1 year FY26 audit. partner The average tenure of partners responsible for Average tenure of component component audits as set out in section 7 is 3 years, 3 years signing partners with the shortest being 1 and the longest being 6.  ➔   ➔  Revenue Recognition assets subsidiaries.  4.2  ➔ ### Financial Independent Capita plc 126 statements auditor’s report Annual Report 2022 | KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report | | | --- | --- | | To the members of Capita plc To the members of Capita plc | | | 3. GOING CONCERN, VIABILITY AND PRINCIPAL RISKS AND UNCERTAINTIES | Materiality levels used in our audit | The scope of our work is influenced by our view of materiality and our assessed risk of material 6.0 Group misstatement. 6.0 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 3.9 We have determined overall materiality for the GPM 3.9 that this is realistic. They have also concluded that there are no material uncertainties that could cast significant doubt over their ability to Group financial statements as a whole at £6.0m 4.8 continue as a going concern from the date of approval of the financial statements to 31 August 2024 (“the going concern period”). (FY2Y1: £6.0m) and for the Parent Company HCM 4.8 financial statements as a whole at £5.5m (FY21: 5.5 £5.5m). PLC 5.5 A key judgement in determining materiality was the 0.6 LCM most relevant metric to select as the benchmark, by 0.4 considering which metrics have the greatest bearing 0.3 AMPT MATERIALITY on shareholder decisions. 0.3 (ITEM 6 Consistent with FY21, we determined that Group FY21 £m FY22 £m revenue of £3,014.6m, normalised by excluding BELOW) Group Group materiality revenue in relation to business exits of £168.8m, as disclosed in note 2.8, remains the benchmark GPM Group performance materiality for the Group, of which it represents 0.21% (FY21: HCM Highest component materiality 0.20%). This reflects the continuing volatility in PLC Parent Company Statutory materiality profit before tax from continuing operations, with LCM Lowest component materiality total revenues providing a more stable measure year on year. Total revenue is also a significant AMPT Audit misstatement posting threshold 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%). Coverage of Group financial statements We have performed risk assessment and planning procedures to determine which of the Group’s components are likely to include risks of material 2022 2021 misstatement to the Group financial statements, the type of procedures to be performed at these components and the extent of involvement Total Revenue 81% 86% required from our component auditors around the world. Total profits and losses 79% 86% Of the Group’s components we subjected 15 (FY21: 22) to full scope audits and performed GROUP specific risk-focused audit procedures over Total assets 89% 90% SCOPE litigation and claims provisions on 1 component (FY21: 1). (ITEM 7 The components within the scope of our work BELOW) 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. Our responsibility Our reporting We consider the scope of our audit, as We are required to perform procedures to identify whether there is a material inconsistency We have nothing material to add or draw communicated to the Audit and Risk Committee, to between the directors’ disclosures in respect of emerging and principal risks and the viability attention to in relation to these be an appropriate basis for our audit opinion . 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 An explanation of how we evaluated management’s assessment of going concern is set out Summary of our conclusions to: disclosures are materially consistent with in the related key audit matter in section 4.1 of this report. the financial statements and our audit We found the directors’ use of the going ▪ the directors’ confirmation within the Corporate Governance statement on page 97 that they This included the business sectors the Group operates in, the assets and liabilities the Group holds on its balance sheet, knowledge. Our conclusions concern basis of accounting without any have carried out a robust assessment of the emerging and principal risks facing the Group, and the ways in which the Group maintains and develops its client relations and supplier engagement and manages its material uncertainty for the Group and including those that would threaten its business model, future performance, solvency and people. Our conclusions based on those procedures described in section 4.1 of this report are: Parent Company to be acceptable. liquidity; THE IMPACT ▪ we consider that the directors’ use of the going concern basis of accounting in the As part of our audit, we have made enquiries of management to understand the extent of the potential impact of climate ▪ the risk management and internal control disclosures describing these risks and how OF CLIMATE preparation of the financial statements is appropriate; change risk on the Group’s financial statements. We have performed a risk assessment of how the impact of climate emerging risks are identified and explaining how they are being managed and mitigated; CHANGE ON change may affect the financial statements and our audit. Taking into account the nature of the Group’s operations, our ▪ we have not identified, and concur with the directors’ assessment that there is not, a and OUR AUDIT assessment is that the climate related risks to the Group’s business, strategy and financial planning did not have a material uncertainty related to events or conditions that, individually or collectively, may significant impact on our key audit matters. ▪ the directors’ explanation in the viability statement of how they have assessed the prospects cast significant doubt on the Group’s or Parent Company's ability to continue as a going of the Group, over what period they have done so and why they considered that period to concern for the going concern period; We have also read the Board’s Task Force on Climate-related Financial Disclosure (TCFD) statement in the front half of We have considered the potential impacts of climate change on the financial statements as part of planning our audit. be appropriate, and their statement as to whether they have a reasonable expectation that ▪ we have nothing material to add or draw attention to in relation to the directors’ statement 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 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 necessary qualifications or assumptions. and Parent Company’s use of that basis for the going concern period; and We are also required to review the viability statement set out on page 64 under the Listing Rules. ▪ The related statement under the Listing Rules set out on page 64 is materially consistent with the financial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and However, as we cannot predict all future events or conditions and as subsequent events may as subsequent events may result in outcomes that are inconsistent with judgements that were result in outcomes that are inconsistent with judgements that were reasonable at the time they reasonable at the time they were made, the absence of anything to report on these statements were made, the above conclusions are not a guarantee that the Group or the Parent Company is not a guarantee as to the Group’s and Parent Company’s longer-term viability. will continue in operation. DISCLOSURES OF EMERGING AND PRINCIPAL RISKS AND LONGER-TERM VIABILITY GOING CONCERN the annual report and considered consistency with the financial statements and our audit knowledge. ### Financial Independent Capita plc 127 statements auditor’s report Annual Report 2022 ### 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 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 Our conclusions concern basis of accounting without any material uncertainty for the Group and Our conclusions based on those procedures described in section 4.1 of this report are: Parent Company to be acceptable. ▪ 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 to: disclosures are materially consistent with the financial statements and our audit ▪ the directors’ confirmation within the Corporate Governance statement on page 97 that they knowledge. 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 Independent Capita plc 128 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc 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 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 | | | FY22: We found the Group's | | uncertainties – section 1 to the Group financial | | | judgement that there was no | statements. In FY21, the risk was focussed on the disclosed, to be balanced. adequacy of disclosures around the We found the going concern material uncertainty. disclosure in section 1 without | | In FY22, the risk has changed to now | any material uncertainty to be | | --- | --- | --- | |  ➔ | | | | | reflect the judgement taken in reaching | proportionate. | the conclusion of no material uncertainty, and adequacy of the accompanying FY21: We found the going disclosures. concern disclosure in section assessed the most recent years’ performance against budget, including 1 with a material uncertainty to sales growth and cost reductions and challenged the assumptions over the be proportionate. 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 Description of the Key Audit Matter Our response to the risk 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 Disclosure quality covenant compliance in the going concern period by assessing the directors’ calculations for 30 June 2023 and 2024 and 31 December 2023, assessing compliance at these dates. sensitivities over the level of available financial resources and covenant We considered whether these risks could plausibly affect the liquidity or The financial statements explain how the Board has formed a thresholds indicated by the Group’s financial forecasts taking account of judgement that it is appropriate to adopt the going concern basis of We considered the adjustments made in the adjusted EBITDA for the severe, but plausible, adverse effects that could arise from these risks preparation for the Group and Parent Company. covenant calculations, considering the appropriateness compared to the individually and collectively. loan agreements and historical accepted practice with the current lenders. That judgement is based on an evaluation of the inherent risks to the In addition, we inspected the correspondence between the Company and Our procedures to address the risk included: Group’s and Parent Company’s business model and how those risks the private placement lenders that set out the proposed items to be excluded might affect the Group’s and Parent Company’s financial resources in the adjusted EBITDA definition and compared these against the items Assessing transparency: We assessed whether the matters included in or ability to continue operations over a period to 31 August 2024 included in the covenant calculations. the going concern disclosure give a full and accurate description of the from the date of approval of these financial statements (the ‘going directors’ assessment, including the judgements made, identified risks and concern period’). We evaluated the refinancing risk, including renewal of the RCF and mitigating actions. additional sources of debt finance. This included consideration of the The risks most likely to adversely affect the Group’s and Parent previous RCF extensions secured, the additional bridging facility signed in Company’s available financial resources over this period include, Our sector experience: We assessed the projections and assumptions by February 2023 and potential factors which remain outside of the Group’s but are not limited to, the following: reference to our knowledge of the business and general market conditions Communications with Capita plc’s Audit and Risk Committee controls, including debt market conditions at the time of the fund raising. including the potential risk of management bias. We critically assessed • An inability to achieve the growth targets in the Group’s Our discussions with and reporting to the Audit and Risk Committee included: Sensitivity analysis: We critically challenged the downside sensitivities to business plan; sufficiently factored in the forecast cash flows, along with the risks and ensure that these represented severe but plausible scenarios based on our ▪ Going concern period of assessment • Increases in staff attrition, impacting upon ability to whether economic headwinds in particular inflation risks, have been knowledge of the business, the associated risk exposure and we considered deliver services or secure new opportunities; workforce. ▪ Assessment of the level of refinancing risk faced by the Group the most recent trading results to form a holistic view of the Group. We • Adverse impact from inflationary pressures, such as uncertainties associated with the Group’s customers, suppliers and assessed those risks and challenged whether the risks applied reflected interest rates; and We considered the risk factors as set out by the Board in the Principal Risks ▪ Assessment of the risk and potential mitigations in the downside case, including directors’ intent should risks materialise progress to date in delivering organic growth and the ongoing effects from • A significant unexpected downturn in performance in section of the annual report and accounts, and where relevant assessed material uncertainty to be inflation based on the impacts experienced by the Group during the year. ▪ Assessment of historical forecasting accuracy and current performance one of the Group’s businesses. whether these were sufficiently taken into consideration in the projections We assessed identified risk assumptions to ensure that they reflected a more prepared to support the base case and the downside risks applied. Areas of particular auditor judgement There are also less predictable but realistic second order impacts, likely than not chance of occurring under the downside scenarios. We also such as business disruption in the event of a cyber incident, or Test of detail: We critically assessed the cash flow forecasts by considering challenged the mitigating actions, to identify whether these were reasonable We identified the following as the areas of particular auditor judgement: adverse changes in UK Government policy. the appropriateness of key assumptions used in preparing those projections, and within the direct control of the Group.  ➔ with a specific focus on the revenue growth ▪ The ability of the Group to secure a further extension or refinancing of the RCF ahead of its expiry in August 2024 The risk for our audit was whether or not those risks were such that Evaluating directors’ intent: we evaluated the achievability of the actions assumptions. We evaluated these via enquiries with each of the divisional they amounted to a material uncertainty that may have cast ▪ The level of severity in the downside assumptions and if proposed mitigations are executable and within control of the Company Finance Directors, the Chief Executive Officer, and Chief Financial Officer, the directors consider they would take to improve the position should the significant doubt about the ability to continue as a going concern. and cost inflationary risks materialise, which included reductions in discretionary spend and and inspected the Board’s plans and associated papers. Our findings Had they been such, then that fact would have been required to capex investment, taking into account the extent to which the directors can have been disclosed. We found the Group's judgement that there was no material uncertainty to be disclosed, to be balanced. control the timing and outcome of these. This included consideration of the Historical comparisons: We assessed the ability of the Group to accurately nature and quantum of historical cost savings delivered and the feasibility of We found the going concern disclosure in section 1 without any material uncertainty to be proportionate (FY21: we found the going concern implementing these over the going concern period. disclosure in section 1 with a material uncertainty to be proportionate). forecast by comparing historical results to forecasts for key metrics. We ▪ directing the efforts of the engagement team. ### Financial Independent Capita plc 129 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report To the members of Capita plc 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 th 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. 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. assessed the most recent years’ performance against budget, including 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 capex investment, taking into account the extent to which the directors can control the timing and outcome of these. This included consideration of the e Bridge facility 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 We evaluated the refinancing risk, including renewal of the RCF and additional sources of debt finance. This included consideration of the 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). reductions in discretionary spend and ### Financial Independent Capita plc 130 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc To the members of Capita plc 4.2 REVENUE RECOGNITION Financial Statement Elements Our assessment of risk vs FY21 Our findings FY22 FY21   Risk remains as stable | Long-term | |  ➔ | | | | --- | --- | --- | --- | --- | | | | | vs FY21, reflecting the | FY22: Balanced | | contractual | £2,236.2m £2,325.2m | | | | volume and magnitude revenue of contractual changes FY21: Balanced in the period. Deferred £640.7m £794.7m Income Description of the Key Audit Matter Our response to the risk We performed the tests below rather than seeking to The Group has many complex and bespoke contract arrangements which can span rely on any of the Group's controls because the nature many years and involve the provision of more than one performance obligation. These of the balance is such that we would expect to obtain long-term contracts are held within the Public Service and Experience Divisions of the audit evidence primarily through the detailed Group. procedures described. Significant contract variations or modifications may give rise to judgement as to the Our procedures to address the risk included: impact for revenue recognition. These can arise throughout the year. Tests of detail: We obtained and inspected a sample of In the event of a full or partial termination, judgement arises in determining the effective the contractual agreements to understand the contract Subjective Judgement date to trigger re-profiling of deferred income held, particularly where services are being terms and conditions that underpin the revenue and the handed back or across to another provider. profit recognition assumptions and to identify conditions under which variable revenue can arise. For the major Professional standards require us to make a rebuttable presumption that the fraud risk contracts selected through our scoping exercise, where associated with revenue recognition is a significant risk. The incentive/pressures on relevant, we also assessed the accounting papers management to achieve bonus targets and/or market consensus increase the risk of prepared by the Group that set out the key judgements fraudulent revenue recognition. The opportunity is considered to apply to these long- to apply. Forecast-based valuation We performed the tests below rather than seeking to rely on any of term contracts, given the factors noted above. 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 Where contract negotiations are ongoing in relation to significant audit risk. This reflects the inherent uncertainty involved in we would expect to obtain audit evidence primarily through the variable consideration, we made enquiries on the current Disclosure quality forecasting and discounting future cash flows, which are the basis of the detailed procedures described. status with those involved in the discussions and by There is a risk that the disclosures presented are not sufficient to explain the revenue assessment of recoverability, and also the estimate of expected proceeds Our procedures to address the risk included: recognition accounting policies and the key judgements applied. in relation to businesses anticipated for disposal. consideration had been recognised, we obtained and Determination of recoverable amount: We have assessed the The focus of our procedures was the Experience CGU (goodwill carrying inspected the contractual agreements to understand the judgements taken in respect to the Portfolio CGUs, including whether value of £209.8m) and also those within the Portfolio Divisions (total contract terms and conditions that underpin the revenue value in use should be measured on a perpetual basis or based on goodwill carrying value £111.5m). These CGUs were most sensitive to recognition assumptions. Where relevant we inspected the future cash flows of the CGUs from continuing use up to estimated changes in the underlying assumptions or were proposed for impairment. date of disposal, plus an estimate of the sale proceeds less cost of documenta disposal. Uncertainty in relation to the current macro-economic environment may change. further impact the Group’s activities and performance and renders precise Tests of detail: We tested the principles and integrity of the Group’s forecasting of the underlying cashflows challenging. In situations where there has been a significant reference to the associated signed contract or any discounted cash flow model. We compared the cash flows used in the modification, termination, variation amendments. Where significant variable impairment model to the output of the Group’s budgeting process and The Board has the incentive to maximise the disposal proceeds from against the understanding we obtained about the business areas businesses within the Portfolio Division. As a result, there could be bias correspondence from the customer, to challenge the through our audit and assessed if these cash flows were reasonable. from management towards achieving a particular valuation, either due to effective date of the modification or termination. We also For the Portfolio CGUs which were measured using estimated sale the potential to influence negotiations, or to maximise future gain on sale. challenged the judgements applied as to whether, in the proceeds less costs of disposal, we reviewed the status of the This increases the risk in relation to forecast assumptions for these specific case of a partial termination, any deferred income should correspondence with customers or other supporting ongoing disposal programmes and evaluated the reasonableness of CGUs. expected disposal proceeds to correspondence with interested tion in relation to the variations or scope assessing the inter dependencies of the performance parties, through multiples analysis and through consideration of prior obligations, and the initial contractual terms. sales achieved. Disclosure quality The financial statements (note 3.4) disclose the key assumptions We challenged whether the key contract judgements Historical comparison: We assessed the historical accuracy of the or partial termination, we underlying the goodwill impairment calculation and the sensitivity of the made by the Board are appropriate based upon the assessed the contract terms including any forecasts used in the Group’s impairment model by considering calculation to changes in these assumptions. underlying contractual terms and evidence obtained. actual performance against prior year budgets, recognising the impacts of the current macro-economic environment. We also There is a risk that the disclosures presented are not sufficient to explain Assessing transparency: assessed the forecast revenue growth with reference to the most the key assumptions that drive the valuations, and the key sensitivities that disclosures in the financial statements to check that recent results for 2021 and 2022. the Board has considered. This is particularly important given the current these were sufficient and provided proportionate detail be recognised immediately or spread forward by uncertainty surrounding the macro-economic environment. of the revenue and profit recognition policies and of the Benchmarking assumptions: We used external data and our own key judgements applied. This included an assessment internal valuation models to evaluate the key inputs and assumptions of whether notes 2.1 and 2.2 set out the impacts arising for growth and discount rates. from the accounting policies applied in relation to the Sensitivity analysis: We performed sensitivity and break-even long-term contracts provided by the Group. analyses for the key inputs and assumptions and identified those cash-generating units we considered most sensitive to impairment. Areas of particular auditor judgement Communications with Capita plc’s Audit and Risk Committee   We considered the Comparing valuations: as an overall stand-back test we compared We identified the following as the areas of particular auditor judgement: Our discussions with and reporting to the Audit and Risk Committee included: the sum of the discounted cash flows to the Group’s market  ➔ capitalisation and assessed the rationale for the differences. We also ▪ Assessment of judgements linked to contract modifications and estimates in the year ▪ Timing of accounting for contract modifications and basis for revenue recognition applied across the long-term contract portfolio compared the implied share price derived from the recoverable Risk is increased against FY21 with  FY22: Balanced ▪ Adequacy of accompanying disclosures in respect to revenue recognition in notes 2.1 and 2.2 to the financial statements Our findings amount at the year end to the Company’s share price throughout impairments recognised at both 30 Goodwill In determining the treatment of revenue recognition, the Group has applied accounting policies based on the requirements of IFRS15. In applying 2022 and assessed the reasonableness of the factors identified by June 2022 and 31 December 2022 FY21: Optimistic | (Total as per financial £951.7m | £605.9m | | | --- | --- | --- | | these policies there is room for judgement and we found that within that the Group's judgement was balanced (FY21: balanced). We found the the Board to explain the differences. within the Portfolio CGUs. FY21 | FY22 | | | Description of the Key Audit Matter Our response to the risk | Our findings Our assessment of risk vs FY21 | Financial Statement Elements | | 4.3 IMPAIRMENT OF GOODWILL statements) | | | disclosures associated with the IFRS15 policies to be proportionate (FY21: ample). Financial^{}[] statements Independent^{}[] auditor's report Kapita jnb^{}[] Annual Report 2022 131 # KPMG LLP's Independent Auditor's Report KPMG # To the members of Capita plc # 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 £209.9m) 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 tried 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. | | ### Financial Independent Capita plc 132 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc To the members of Capita plc disclosures related to the estimation uncertainty, judgements made and assumptions over the recoverability of goodwill, assessing the assessment as to whether disclosure omissions identified were material. 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). 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). 4.4 CAPITALISATION AND RECOVERABILITY OF CONTRACT ASSETS Financial Statement Elements Our assessment of risk vs FY21 Our findings FY22 FY21   Risk is heightened due to economic uncertainties including inflation, which | Non-Current Contract | |  | | | | --- | --- | --- | --- | --- | | | | | could significantly impact assumptions | FY22: Balanced | | Fulfilment Assets | £263.0m £286.7m | | | | | | | | metrics which drives the assessment | FY21: Balanced | of asset recoverability and onerous Onerous Contract £52.8m £45.8m contract provision. Provisions Description of the Key Audit Matter Our response to the risk A contract fulfilment asset (CFA) is recorded for costs incurred on a contract or an any of the Group's controls because the nature of the balance 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 anticipated contract that generate or enhance the resources of an entity that will be that the recoverable amount of contract assets and completeness and accuracy of contract modifications agreed with the customer in response used in satisfying future obligations under the contract. primarily through the detailed procedures described. Accounting application We performed the tests below rather than seeking to rely on 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. Subjective estimate Our procedures to address the risk included: is such that we would expect to obtain audit evidence statements as a whole. Communications with Capita plc’s Audit and Risk Committee Note 2.1 sets out the outsourcing model operated by the Group and explains how Tests of detail: We tested on a sample basis the costs In determining whether OCPs should be recorded, we typically the early stages of a contract (‘pre-inflection’) will reflect a period when the Our discussions with and reporting to the Audit and Risk Committee included: capitalised as CFAs by reference to the criteria set out in the Disclosure quality assessed contract profitability forecasts by analysing historic contract fulfilment assets are created as the contract delivery is established. performance relative to contractual commitments over its full ▪ Assessment of judgements linked to contracts, potentially at risk of becoming onerous, or where an onerous contract provision is already Judgement may be required in determining whethe There is a risk that the disclosures presented are not adequate to explain the obtained third party support, or for internally generated time term. This included assessing critically the assumptions over held. This included consideration of recoverability of any CFA held appropriate to be capitalised, and this leads to a risk that costs may be incorrectly capitalisation criteria that are used to assess whether items of expense should be we obtained the relevant costing rates and records, to support future costs including projected savings and the actions capitalised as a result of error or fraud. recorded as a contract asset, or the key judgements applied in assessment of ▪ Adequacy of accompanying disclosures in respect to contract assets in notes 2.1 and 3.1.3 to the financial statements the basis of capitalisation. required to achieve these by comparison to historical cost Group’s accounting policy. For the costs sampled we contract lifetimes and any onerous contract provisions required. r the costs incurred are savings achieved on similar projects. Our assessment Where a contract is not performing as expected, the costs capitalised may not be Areas of particular auditor judgement We assessed on a sample basis the useful economic lives considered the levels of uncertainty contained in the recoverable and an impairment of the asset should be recorded. applied to the CFAs and evaluated the expected contract life forecasts, the extent to which Company actions alone could We identified the following as the areas of particular auditor judgement: by reference to the contract terms or where appropriate any mitigate risks and any dependencies on the customer or other Where no CFA has been recorded or the CFA has already been fully impaired, agreed extensions to the original contract. third parties. This assessment covered a sample of contracts ▪ Assessment of the level of execution risk on cost saving initiatives for one of the Major Contracts there is also a risk that the contract may be onerous, and an onerous contract The carrying amount of the Parent Company’s investment in, and including those identified by the Board as being high risk and  Sensitivity analysis: We considered the assumptions within provision (OCP) should be recorded. We performed the tests below rather than seeking to rely on the Parent’s  ▪ Assessment of the need for onerous contract provision and/or CFA impairment for Major Contracts sensitive to forecast assumptions  amounts due from, its subsidiaries represent 27.3% and 70.4% (FY21: comprising the major contracts in a pre-inflection phase. the business plans and lifetime assessments, checking that controls because the nature of the balance is such that we would expect made in respect to remaining contract term 25.4% and 70.3%) of its total assets respectively. Assessing transparency: We evaluated the adequacy of the Risk is considered stable against ➔➔ A risk of fraud arises as there may be an incentive to capitalise or expense items to obtain audit evidence primarily through the detailed procedures Assessing transparency: We considered the disclosures  FY22: Balanced to achieve bonus targets or market consensus. particularly on contracts that have had a poor performance in Our findings FY21. We note that no direct described. As with goodwill, there is a significant level of inherent uncertainty in the financial statements to assess whether these concerning future performance the current year and those contracts that are in a pre- We found the assumptions and estimates used to assess the CFAs to be recognised, and to determine the need for any onerous contract investments are held within involved in forecasting and discounting future cash flows, which are provided sufficient detail of the criteria used to evaluate FY21: Balanced Our procedures to address the risk included: level of detail included in the disclosures and performing an provisions, to be balanced (FY21: balanced). onerous conditions had been recognised appropriately, subsidiaries in the Portfolio division. the basis of the assessment of recoverability for investments in whether expense items should be recorded as a CFA, and | Tests of detail: We compared the carrying amount of the investment, and Amounts due from | | | | --- | --- | --- | | subsidiaries and amounts due from subsidiaries. on judgements taken in respect to recognition and Investment carrying | | | | 4.5 RECOVERABILITY OF THE PARENT COMPANY’S INVESTMENT IN, AND AMOUNTS DUE FROM, ITS £2,559.2m £2,619.8m | | | | the amounts due from subsidiaries, with the relevant subsidiary’s draft We found that the Group’s disclosures in note 2.1 and 3.1.3 to be proportionate (FY21: proportionate). subsidiaries £994.3m £947.3m | | | | Description of the Key Audit Matter Our response to the risk measurement of OCPs. value | FY22 FY21 | Our findings Financial Statement Elements Our assessment of risk vs FY21 | | “CFA” SUBSIDIARIES inflection phase of transformation. We assessed any ongoing statutory balance sheet to identify whether its net assets, being an | | | Financial Statements Independent auditor's report Capita plc Annual Report 2022 133 # KPMG LLP's Independent Auditor's Report KPMG # To the members of Capita plc 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 | | --- | --- | --- | --- | | Investment carrying value | FY22 FY21 | Risk is considered stable against FY21. We note that no direct investments are held within subsidiaries in the Portfolio division. | FY22: Balanced FY21: Balanced | | Amounts due from subsidiaries | £994.3m £947.3m | | | | | £2,559.2m £2,619.8m | | | # Description of the Key Audit Matter 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. # Our response to the risk 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 ### Financial Independent Capita plc 134 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc To the members of Capita plc ### 5. OUR ABILITY TO DETECT IRREGULARITIES, AND OUR RESPONSE statements, this is considered to be the area that had the greatest carrying amount and assessed whether the subsidiary has historically effect overall on our Parent Company audit. 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 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). Due to its materiality in the context of the Parent Company financial approximation of its minimum recoverable amount, was in excess of its To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could FRAUD RISK indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. ASSESSMENT 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”, We performed procedures including: as well as whether they have knowledge of any actual, suspected or alleged fraud; As required by auditing standards, taking into account possible pressures to meet profit targets and market • Reading Board and ARC meeting minutes; We identified areas of laws and regulations that could reasonably be expected to have a material effect on the • Identifying journal entries and other adjustments to test for all full scope components, based on risk criteria consensus and continued ongoing economic uncertainty, and using our overall knowledge of the control • Considering remuneration incentive schemes and performance targets for management and Directors financial statements from our general commercial and sector experience, through discussion with the Directors environment, we perform procedures to address the risk of management override of controls and the risk of specific to the component, and comparing the identified entries to supporting documentation. These and other management (as required by auditing standards), and from inspection of the Group’s regulatory and including the short and long-term incentive plans for management remuneration; fraudulent revenue recognition, in particular: LAWS AND PROCEDURES TO included where relevant, those posted by senior finance personnel and those posted to unusual accounts, We communicated identified laws and regulations throughout our team and remained alert to any indications of We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud The potential effect of these laws and regulations on the financial statements varies considerably. The Group is legal correspondence; and discussed with the Directors and other management the policies and procedures FRAUD RISKS • Using analytical procedures to identify any unusual or unexpected relationships; and REGULATIONS RISK ADDRESS FRAUD RISKS including unexpected account combinations of entries to revenue, expenses, cash and borrowings. of the Parent Company’s investment in, and non-compliance throughout the audit. This included communication from the Group audit team to full-scope throughout the audit. This included communication from the Group audit team to full scope and specified subject to laws and regulations that directly affect the financial statements including financial reporting legislation • The risk that Group and component management may be in a position to make inappropriate accounting regarding compliance with laws and regulations. DIRECT LAWS CONTEXT • Using our own forensic specialists to assist us in identifying fraud risks. This included attending the Risk • Assessing whether the judgement made in accounting estimates are indicative of a potential bias, including ASSESSMENT We also identified fraud risks related to inappropriate impairment of goodwill, inappropriate capitalisation, and component audit teams of relevant laws and regulations identified at the Group level, and a request for full-scope (including related company legislation), distributable profits legislation, and taxation legislation and we assessed procedure component audit teams of relevant fraud risks identified at the Group level and requested to full scope RISK COMMUNICATIONS RISK COMMUNICATIONS AND LINK TO AUDIT LAWS AND REGULATIONS - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT entries for long-term contracts; and Assessment and Planning Discussion, with the engagement partner and engagement key team those over revenue recognition, capitalisation and recoverability of contract assets and impairment of As some of the Group’s subsidiaries are regulated, our assessment of risks involved gaining an understanding of recoverability of contract fulfilment assets. Further details in respect of inappropriate impairment of goodwill, component auditors to report to the Group audit team any instances of non-compliance with laws and regulations the extent of compliance with these laws and regulations as part of our procedures on the related financial component audit teams to report to the Group audit team any instances of fraud that could give rise to a material LINK TO KAMS • The risk of bias in accounting estimates and judgements such as contract modifications and terminations. members, and assisting with designing relevant audit procedures to respond to the identified fraud risks. goodwill. FRAUD - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT DUE TO FRAUD RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS the control environment including these entities’ procedures for complying with regulatory requirements. inappropriate capitalisation and recoverability of contract fulfilment assets are set out in section 4 of this report. statement items. that could give rise to a material misstatement at Group level. misstatement at Group level. ### Financial Independent Capita plc 135 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report To the members of Capita plc ### 5. OUR ABILITY TO DETECT IRREGULARITIES, AND OUR RESPONSE ASSESSMENT 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. throughout the audit. This included communication from the Group audit team to full scope and specified 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 misstatement at Group level. 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: FRAUD RISKS • 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 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. • 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 PROCEDURES TO included where relevant, those posted by senior finance personnel and those posted to unusual accounts, ADDRESS FRAUD RISKS 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. RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS 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 LAWS AND legal correspondence; and discussed with the Directors and other management the policies and procedures REGULATIONS RISK regarding compliance with laws and regulations. ASSESSMENT 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. To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could FRAUD RISK non-compliance throughout the audit. This included communication from the Group audit team to full-scope RISK COMMUNICATIONS 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. We performed procedures including: As required by auditing standards, taking into account possible pressures to meet profit targets and market subject to laws and regulations that directly affect the financial statements including financial reporting legislation We identified areas of laws and regulations that could reasonably be expected to have a material effect on the DIRECT LAWS CONTEXT (including related company legislation), distributable profits legislation, and taxation legislation and we assessed AND LINK TO AUDIT the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. We communicated identified laws and regulations throughout our team and remained alert to any indications of We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud The potential effect of these laws and regulations on the financial statements varies considerably. The Group is We also identified fraud risks related to inappropriate impairment of goodwill, inappropriate capitalisation, and LAWS AND REGULATIONS - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT FRAUD - IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT DUE TO FRAUD Financial^{}[] statements Independent^{}[] auditor's report Capita plc^{}[] Annual Report 2022 138 # KPMG LLP's Independent Auditor's Report To the members of Capita plc | **MOST SIGNIFICANT INDIRECT LAW/ REGULATION AREAS** | 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. | | --- | --- | | **CONTEXT** | | | **CONTEXT OF THE ABILITY OF THE AUDIT TO DETECT FRAUD OR BREACHES OF LAW OR REGULATION** | Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as 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. | | 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** | **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%). | | **£3.9M** **(FY21: £3.9M)** **PERFORMANCE MATERIALITY** | **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. | | **£0.3M** **(FY21: £0.3M)** **AUDIT MISSTATEMENT POSTING THRESHOLD** | **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 | | Financial statement Caption | £3,014.6m | £3,182.5m | £61.4m | £285.6m | £2,552.6m | £3,142.4m | | Group - Materiality as % of caption | 0.20% | 0.19% | 9.77% | 2.10% | 0.24% | 0.19% | ### Financial Independent Capita plc 138 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc 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. 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, ### 8. OTHER INFORMATION IN THE ANNUAL REPORT with the prior year comparatives indicated in brackets: 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. components materiality Revenue and losses Assets applied that made up audit (£2m) GROUP SCOPE 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. 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. The scope of the audit work performed was predominantly substantive as we placed limited reliance upon the Group’s internal control over financial reporting. 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 GROUP AUDIT recoverability of contract assets TEAM • Issued Group audit instructions to component auditors on the scope of their work, including specifying OVERSIGHT the minimum procedures to perform in their audit of Journals and long term contracts Our responsibility and reporting • Visited the UK component audit teams in-person as the audit progressed to understand and Based solely on our work on the other information described above we report to you as follows: challenge the audit approach and organised frequent video conferences with the partners and ▪ we have not identified material misstatements in the strategic report and the directors of the Group and component audit teams, including those based overseas. At these Our responsibility Our reporting meetings the findings reported to the Group team were discussed in more detail, and any further work directors’ report; Our responsibility Our reporting required by the Group team was then performed by the component audit teams Scope Total profits Number of We are required to form an opinion as to whether the part of the Directors’ Remuneration In our opinion the part of the Directors’ Group Total Range of ▪ in our opinion the information given in those reports for the financial year is What we mean • Inspected the component audit teams’ key work papers (in person and/or using remote technology) to | Specified Report to be audited has been properly prepared in accordance with the Companies Act 2006. Remuneration Report to be audited has Our responsibility is to read the other information and, in doing so, consider whether, based Based solely on that work we have not | 1 (1) N/A N/A N/A £2m | consistent with the financial statements; and | | --- | --- | --- | | Full scope 81% (86%) 89% (90%) on our financial statements audit work, the information therein is materially misstated or identified material misstatements or been properly prepared in accordance 79% (86%) £4.8m - £0.4m | 15 (22) ▪ in our opinion those reports have been prepared in accordance with the Companies | evaluate the quality of execution of the audits of the components with a particular focus on work | | DIRECTORS’ REMUNERATION REPORT STRATEGIC REPORT AND DIRECTORS’ REPORT ALL OTHER INFORMATION The extent of the Group audit team’s involvement in component audits. | | | | audit procedures TOTAL (£4.8m - £0.6m) 81% (86%) 89% (90%) Group PBT inconsistent with the financial statements or our audit knowledge. inconsistencies in the other information. with the Companies Act 2006. 79% (86%) | 16 (23) | performed by the components on Group-level significant risks and key audit matters Act 2006. | ### Financial Independent Capita plc 139 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report To the members of Capita plc What we mean 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 GROUP AUDIT recoverability of contract assets TEAM • Issued Group audit instructions to component auditors on the scope of their work, including specifying OVERSIGHT 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 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 DIRECTORS’ REMUNERATION REPORT Our responsibility Our reporting We are required to form an opinion as to whether the part of the Directors’ Remuneration In our opinion the part of the Directors’ Report to be audited has been properly prepared in accordance with the Companies Act 2006. Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. inconsistent with the financial statements or our audit knowledge. inconsistencies in the other information. Act 2006. ### Financial Independent Capita plc 140 statements auditor’s report Annual Report 2022 ### KPMG LLP’s Independent Auditor’s Report KPMG LLP’s Independent Auditor’s Report To the members of Capita plc To the members of Capita plc CORPORATE GOVERNANCE DISCLOSURES ### 10. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR ### Our responsibility RESPONSIBILITIES Our reporting We are required to perform procedures to identify whether there is a material inconsistency Based on those procedures, we have 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 between the financial statements and our audit knowledge, and: concluded that each of these disclosures 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 is materially consistent with the financial 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 ▪ the directors’ statement that they consider that the annual report and financial statements and our audit knowledge. 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 statements taken as a whole is fair, balanced and understandable, and provides 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 the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; opinions we have formed. ▪ 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. Ian Griffiths for and on behalf of KPMG LLP, Statutory Auditor We are also required to review the part of the Corporate Governance Statement relating to the We have nothing to report in this respect. Chartered Accountants Group’s compliance with the provisions of the UK Corporate Governance Code specified by 15 Canada Square the Listing Rules for our review. London E14 5GL 2 March 2023 OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Our responsibility Our reporting Under the Companies Act 2006, we are required to report to you if, in our opinion: We have nothing to report in these respects. ▪ 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 ### 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. ▪ we have not received all the information and explanations we require for our audit. ### Financial Independent Capita plc 141 statements auditor’s report Annual Report 2022 ### 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 Consolidated Capita plc 142 statements financial statements Annual Report 2022 Structure of the financial statements Section 5 Employee benefits Consolidated income statement 5.1 Share-based payment plans 5.2 Pensions Consolidated statement of comprehensive income 5.3 Employee benefit expense Consolidated balance sheet Consolidated statement of changes in equity Section 6 Other supporting notes Consolidated cash flow statement 6.1 Related-party transactions 6.2 Contingent liabilities ### Notes to the consolidated financial statements 6.3 Post balance sheet events Section 1 Basis of preparation ### Company financial statements | Section 2 | Section 7 | | --- | --- | | Results for the year | 7.1 Company balance sheet | | 2.1 Contract accounting | 7.2 Company statement of changes in equity | | 2.2 Revenue including segmental revenue | 7.3 Notes to the Company financial statements | 2.3 Operating profit | 2.4 Adjusted operating profit and adjusted profit before tax | Additional information | | --- | --- | | 2.5 Segmental information | Section 8 | | 2.6 Taxation | 8.1 Shareholder information | | 2.7 Earnings/(loss) per share | 8.2 Alternative performance measures | 2.8 Business exits and assets held-for-sale 2.9 Discontinued operations 2.10 Cash flow information Section 3 Operating assets and liabilities 3.1 Working capital 3.1.1 Trade and other receivables 3.1.2 Trade and other payables 3.1.3 Contract fulfilment assets 3.2 Property, plant and equipment 3.3 Intangible assets 3.4 Goodwill 3.5 Right-of-use assets 3.6 Provisions Section 4 Capital structure and finance costs 4.1 Net debt, capital and capital management 4.2 Financial risk 4.3 Net finance costs 4.4 Leases 4.5 Financial instruments and the fair value hierarchy 4.6 Issued share capital 4.7 Group composition and non-controlling interests ### Financial Consolidated Capita plc 143 statements financial statements Annual Report 2022 ## Consolidated income statement Structure of the financial statements Section 5 2022 2021 ### For the year ended 31December 2022 Notes £m £m Employee benefits Continuing operations: Consolidated income statement 5.1 Share-based payment plans Revenue 2.2 3,014.6 3,182.5 5.2 Pensions Cost of sales (2,298.6) (2,506.7) Consolidated statement of comprehensive income 5.3 Employee benefit expense Gross profit 716.0 675.8 Consolidated balance sheet Administrative expenses 2.3, 2.4, 2.8 (795.6) (762.4) Operating loss 2.3, 2.4, 2.8 (79.6) (86.6) Consolidated statement of changes in equity Section 6 Share of results in associates and investment gains 5.8 (0.6) Other supporting notes Consolidated cash flow statement Net finance expense 4.3 (31.7) (46.9) 6.1 Related-party transactions Gain on business disposal 2.8 166.9 419.7 6.2 Contingent liabilities Profit before tax 2.4 61.4 285.6 ### Notes to the consolidated financial statements 6.3 Post balance sheet events Income tax credit/(charge) 2.6 14.6 (61.5) Section 1 Profit for the year from continuing operations 76.0 224.1 Basis of preparation ### Company financial statements Discontinued operations: Profit for the year 2.9 — 3.1 Section 2 Section 7 Total profit for the year 76.0 227.2 | Results for the year | 7.1 Company balance sheet | | | --- | --- | --- | | 2.1 Contract accounting | 7.2 Company statement of changes in equity | Attributable to: | | | 7.3 Notes to the Company financial statements | Owners of the Company 74.8 224.7 | 2.2 Revenue including segmental revenue Non-controlling interests 4.7 1.2 2.5 2.3 Operating profit 76.0 227.2 ### 2.4 Adjusted operating profit and adjusted profit before tax Additional information Earnings per share 2.7 2.5 Segmental information Section 8 Continuing: – basic 4.47p 13.33p 2.6 Taxation 8.1 Shareholder information – diluted 4.40p 13.15p | 2.7 Earnings/(loss) per share | 8.2 Alternative performance measures | Total operations: – basic 4.47p 13.52p | | | | | --- | --- | --- | --- | --- | --- | | 2.8 Business exits and assets held-for-sale | | | – diluted 4.40p 13.33p | | | | 2.9 Discontinued operations | | | | 1 | | | | | Adjusted operating profit/(loss) | | | 2.4 102.9 (77.7) | | 2.10 Cash flow information | | | | 1 | | | | | Adjusted profit/(loss) before tax | | | 2.4 73.8 (122.8) | 1 Adjusted earnings/(loss) per share 2.7 6.20p (7.74) p 1 Section 3 Adjusted and diluted earnings/(loss) per share 2.7 6.09p (7.74) p Operating assets and liabilities 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 3.1 Working capital and certain mark-to-market valuation changes that impact net finance expense/income. Please refer to note 2.4 for further details. 3.1.1 Trade and other receivables 3.1.2 Trade and other payables ## Consolidated statement of comprehensive income 3.1.3 Contract fulfilment assets | | | | | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | | 3.2 Property, plant and equipment | For the year ended 31December 2022 | | Notes | £m | £m | | 3.3 Intangible assets | Total profit for the year 76.0 227.2 | | | | | | 3.4 Goodwill | Other comprehensive expense | | | | | | 3.5 Right-of-use assets | | Items that will not be reclassified subsequently to the income statement | | | | | 3.6 Provisions | | Actuarial (loss)/gain on defined benefit pension schemes 5.2 (8.9) 109.4 | | | | Tax effect on defined benefit pension schemes 2.6 2.0 (18.1) Section 4 Gain on fair value of investments 0.2 0.1 Capital structure and finance costs Items that will or may be reclassified subsequently to the income statement 4.1 Net debt, capital and capital management Exchange differences on translation of foreign operations (0.6) 3.0 | 4.2 Financial risk | | Exchange differences realised on business disposals | 0.3 (2.8) | | --- | --- | --- | --- | | 4.3 Net finance costs | | Gain on cash flow hedges 4.2.4 11.5 1.3 | | | 4.4 Leases | | Cash flow hedges recycled to the income statement 4.2.4 (5.1) 0.6 | | | 4.5 Financial instruments and the fair value hierarchy | | Tax effect on cash flow hedges 2.6 (1.6) 2.2 | | | 4.6 Issued share capital | Other comprehensive (expense)/ income for the year net of tax (2.2) 95.7 | | | 4.7 Group composition and non-controlling interests Total comprehensive income for the year net of tax 73.8 322.9 Attributable to: Owners of the Company 72.6 320.5 Non-controlling interests 4.7 1.2 2.4 73.8 322.9 The accompanying notes are an integral part of these consolidated financial statements. Financial^{}[] statements Consolidated^{}[] financial statements Capital plc^{}[] Annual Report 2022 144 ## Consolidated balance sheet At 31 December 2022 | | Notes | 2022 Q4 | 2021 Q4 | | --- | --- | --- | --- | | **Non-current assets** | | | | | Property, plant and equipment | 3.2 | 101.1 | 129.0 | | Intangible assets | 3.3 | 106.0 | 147.3 | | Goodwill | 3.4 | 605.9 | 951.7 | | Right-of-use assets | 3.5 | 249.5 | 287.9 | | Investments in associates and joint ventures | | 0.2 | 0.7 | | Contract fulfilment assets | 3.1.3 | 263.0 | 286.7 | | Financial assets | 4.5 | 118.2 | 107.2 | | Deferred tax assets | 2.6 | 189.5 | 176.0 | | Employee benefits | 5.2 | 42.7 | 13.3 | | Trade and other receivables | 3.1.1 | 15.8 | 15.7 | | | | **1,691.9** | **2,115.5** | | **Current assets** | | | | | Financial assets | 4.5 | 23.6 | 17.5 | | Disposal group assets held-for-sale | 2.8 | — | 138.8 | | Trade and other receivables | 3.1.1 | 430.4 | 547.1 | | Cash | 4.5.4 | 396.8 | 317.6 | | Income tax receivable | | 9.8 | 5.9 | | | | **860.7** | **1,026.9** | | **Total assets** | | **2,552.6** | **3,142.4** | | **Current liabilities** | | | | | Trade and other payables | 3.1.2 | 492.5 | 542.2 | | Deferred income | 2.2.3 | 585.1 | 669.8 | | Overdrafts | 4.5.4 | 219.6 | 231.9 | | Lease liabilities | 4.4.4.5 | 55.6 | 61.6 | | Disposal group liabilities held-for-sale | 2.8 | — | 81.1 | | Finance liabilities | 4.5 | 84.6 | 286.3 | | Provisions | 3.6 | 75.7 | 126.6 | | | | **1,513.1** | **1,999.5** | | **Non-current liabilities** | | | | | Trade and other payables | 3.1.2 | 15.1 | 15.4 | | Deferred income | 2.2.3 | 55.6 | 124.9 | | Lease liabilities | 4.4.4.5 | 341.9 | 386.8 | | Financial liabilities | 4.5 | 212.6 | 291.9 | | Deferred tax liabilities | 2.6 | 6.9 | 5.9 | | Provisions | 3.6 | 51.6 | 14.0 | | Employee benefits | 5.2 | 3.1 | 7.5 | | | | **686.8** | **846.4** | | **Total liabilities** | | **2,199.9** | **2,845.9** | | **Net assets** | | **302.7** | **296.5** | | **Capital and reserves** | | | | | Share capital | 4.6 | 34.8 | 34.8 | | Share premium | 4.6 | 1,145.5 | 1,145.5 | | Employee benefit trust and treasury shares | 4.6 | (4.2) | (8.0) | | Capital redemption reserve | | 1.8 | 1.8 | | Other reserves | | (4.5) | (9.0) | | Retained deficit | | (843.2) | (890.6) | | **Equity attributable to owners of the Company** | | **330.2** | **274.5** | | Non-controlling interests | 4.7 | 22.5 | 22.0 | | **Total equity** | | **302.7** | **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: Chief Executive Officer Chief Financial Officer Company registered number: 02081330 ### Financial Consolidated Capita plc 145 statements financial statements Annual Report 2022 | Consolidated balance sheet | | | | Consolidated statement of changes in equity | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 31December 2022 | | | | For the year ended 31December 2022 | | | | | | | | | | | | | | | | | | | | | | | | Employee | | | | | | | | | Total | | | | | | | 2022 | 2021 | | | | benefit | | | | | | | | attributable | | | | | | | Notes | £m | £m | | | | trust and | | | Capital | | | | | | to the | | Non- | Total | | | | | | | Share | Share | treasury | | redemption | | | Retained | | Other | owners of | | controlling | | (deficit)/ | | Non-current assets | | | | | capital | premium | shares | | | reserve | | | deficit | reserves | the parent | | interests | | equity | | | | | | | £m | £m | | £m | | | £m | | £m | £m | | £m | | £m | £m | Property, plant and equipment 3.2 101.1 129.0 Intangible assets 3.3 106.0 147.3 At 31December 2020 34.5 1,143.3 (11.2) 1.8 (13.4) (134.5) 53.4 (81.1) Goodwill 3.4 605.9 951.7 Profit for the year — — — — 224.7 — 224.7 2.5 227.2 Right-of-use assets 3.5 249.5 287.9 Other comprehensive income/(expense) — — — — 91.4 4.4 95.8 (0.1) 95.7 Investments in associates and joint ventures 0.2 0.7 Total comprehensive income for the year — — — — 316.1 4.4 320.5 2.4 322.9 Contract fulfilment assets 3.1.3 263.0 286.7 | Financial assets 4.5 118.2 107.2 | Share-based payment net of tax effects (note2.6; | | --- | --- | | Deferred tax assets 2.6 189.5 176.0 | note5.1) — — — — 1.6 — 1.6 — 1.6 | | Employee benefits 5.2 42.7 13.3 | Reclassification — — — — (6.4) — (6.4) 6.4 — | Trade and other receivables 3.1.1 15.8 15.7 Elimination of non-controlling interest on disposal | | 1,691.9 2,115.5 | (note 2.8.1) — — — — — — — (3.4) (3.4) | | --- | --- | --- | | Current assets | | Exercise of share options under employee long- | | Financial assets 4.5 23.6 17.5 | | term incentive plans (note4.6; note5.1) — — 3.5 — (3.5) — — — — | Disposal group assets held-for-sale 2.8 — 138.8 Shares issued (note 4.6) 0.3 — (0.3) — — — — — — Trade and other receivables 3.1.1 430.4 547.1 VAT refund on rights issue issuance costs Cash 4.5.4 396.8 317.6 (note 4.6) — 2.2 — — — 2.2 — 2.2 Income tax receivable 9.9 5.9 2 Dividends paid — — — — — — — (36.8) (36.8) 860.7 1,026.9 Movement in put-options held by non-controlling Total assets 2,552.6 3,142.4 3 interests — — — — 91.1 — 91.1 — 91.1 Current liabilities Trade and other payables 3.1.2 492.5 542.2 At 31December 2021 34.8 1,145.5 (8.0) 1.8 (890.6) (9.0) 274.5 22.0 296.5 Deferred income 2.2.3 585.1 669.8 Impact of change in accounting standards – 1 Overdrafts 4.5.4 219.6 231.9 amendments to IAS37 — — — — (21. 7) — (21.7) — (21.7) Lease liabilities 4.4,4.5 55.6 61.6 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 Disposal group liabilities held-for-sale 2.8 — 81.1 Finance liabilities 4.5 84.6 286.3 Profit for the year — — — — 74.8 — 74.8 1.2 76.0 Provisions 3.6 75.7 126.6 Other comprehensive income/(expense) — — — — (6.7) 4.5 (2.2) — (2.2) 1,513.1 1,999.5 Total comprehensive income for the year — — — — 68.1 4.5 72.6 1.2 73.8 Non-current liabilities Share-based payment net of tax effects (note2.6; Trade and other payables 3.1.2 15.1 15.4 note5.1) — — — — 5.4 — 5.4 — 5.4 Deferred income 2.2.3 55.6 124.9 Lease liabilities 4.4,4.5 341.9 386.8 Elimination of non-controlling interest on disposal (note2.8.1) — — — — — — — (0.3) (0.3) Financial liabilities 4.5 212.6 291.9 | Deferred tax liabilities 2.6 6.9 5.9 | | Exercise of share options under employee long- | | --- | --- | --- | | Provisions 3.6 51.6 14.0 | | term incentive plans (note4.6; note5.1) — — 3.8 — (3.8) — — — — | | Employee benefits 5.2 3.1 7.5 | | Dividends paid — — — — — — — (0.4) (0.4) | | | 686.8 846.4 | Movement in put-options held by non-controlling | interests — — — — (0.6) — (0.6) — (0.6) Total liabilities 2,199.9 2,845.9 Net assets 352.7 296.5 At 31December 2022 34.8 1,145.5 (4.2) 1.8 (843.2) (4.5) 330.2 22.5 352.7 Capital and reserves 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 Share capital 4.6 34.8 34.8 retained earnings. Refer to note1 for further details. Share premium 4.6 1,145.5 1,145.5 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. Employee benefit trust and treasury shares 4.6 (4.2) (8.0) 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 Capital redemption reserve 1.8 1.8 note4.5 for further details. Other reserves (4.5) (9.0) Share capital – The balance classified as share capital is the nominal proceeds on issue of the Parent Company’s equity share capital, Retained deficit (843.2) (890.6) comprising 21/15p ordinary shares. Equity attributable to owners of the Company 330.2 274.5 Share premium – The amount paid to the Parent Company by shareholders, in cash or other consideration, over and above the nominal value Non-controlling interests 4.7 22.5 22.0 of shares issued to them less issuance costs. Total equity 352.7 296.5 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 The accompanying notes are an integral part of these consolidated financial statements. shares are cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the shares redeemed. These consolidated financial statements were approved by the Board of directors on 2March 2023 and signed on its behalf by: 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). Jon Lewis Tim Weller Non-controlling interests (NCI) – This represents equity in subsidiaries not attributable directly or indirectly to the Parent Company. Chief Executive Officer Chief Financial Officer Company registered number: 02081330 The accompanying notes are an integral part of these consolidated financial statements. (1,289.5) ### Financial Consolidated Capita plc 146 statements financial statements Annual Report 2022 ## Consolidated cash flow statement ### For the year ended 31December 2022 | | | Restated | | 1 | | --- | --- | --- | --- | --- | | | 2022 | | 2021 | | | Notes | £m | | £m | | Cash generated from/(used by) operations 2.10 117.8 (148.5) Income tax paid (7.9) (17.7) Net interest paid (38.0) (40.1) Net cash inflow/(outflow) from operating activities 71.9 (206.3) Cash flows from investing activities Purchase of property, plant and equipment 3.2 (20.6) (25.6) Purchase of intangible assets 3.3 (27.3) (32.5) Proceeds from sale of property, plant and equipment and intangible assets 2.3, 3.2, 3.3 0.5 0.1 Additions to investments held at fair value through profit and loss (2.4) (0.1) Capital repayment from investments at fair value through other comprehensive income 0.2 0.3 Subsidiary partnership payment — (4.7) Capital element of lease rental receipts 5.8 0.5 Total proceeds received from disposals net of disposal costs 2.8 463.4 510.3 Cash held by subsidiaries when sold 2.8 (75.5) (25.9) Net cash inflow from investing activities 344.1 422.4 Cash flows from financing activities Dividends paid to non-controlling interests (0.4) (10.8) Capital element of lease rental payments 2.10.3 (61.8) (82.6) Proceeds from issue of share capital (net of issuance costs) — 2.2 Repayment of private placement loan notes and other debt 2.10.3 (237.4) (232.3) (Repayment of)/proceeds from credit facilities 2.10.3 (46.0) 46.0 Proceeds from cross-currency interest rate swaps 2.10.3 10.1 19.7 Debt financing arrangement costs 2.10.3 (5.2) (1.9) Net cash outflow from financing activities (340.7) (259.7) Increase/(decrease) in cash and cash equivalents 75.3 (43.6) Cash and cash equivalents at the beginning of the period 101.5 141.1 Effect of exchange rates on cash and cash equivalents 0.4 4.0 Cash and cash equivalents at 31 December 177.2 101.5 Cash and cash equivalents comprise: Cash 4.5.4 396.8 317.6 Overdrafts 4.5.4 (219.6) (231.9) Cash, net of overdrafts, included in disposal group assets and liabilities held-for-sale 2.8 — 15.8 Total 177.2 101.5 Cash generated from/(used by) operations before business exits 2.10 116.5 (109.7) Free cash flow before business exits 2.10 29.0 (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. Financial^{}[] Statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 147 ## 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: ### 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. #### 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. ### Financial Notes to the Capita plc 148 statements consolidated Annual Report 2022 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 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reprint^{}[] Annual Report 2022 149 ## 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: ### 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. | International Accounting Standards (IAS/IFRS) | Effective date | | --- | --- | | Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) | 1 January 2022 | | Annual Improvements to IFRS Standards 2018 - 2020 | 1 January 2022 | | Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) | 1 January 2022 | | Reference to the Conceptual Framework (Amendments to IFRS 3) | 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 (in 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. Financial^{}[] Statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reprint 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 | 1 January 2023 £m | | --- | --- | | Property, plant and equipment | (0.5) | | Contract fulfilment assets | (2.4) | | **Total assets** | **(2.9)** | | Provisions (current) | (10.6) | | Provisions (non-current) | (8.2) | | **Total liabilities** | **(18.8)** | | Retained earnings | (21.7) | | **Total equity** | **(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) | Effective date | | --- | --- | | IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts | 1 January 2023 | | Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) | 1 January 2023 | | Definition of Accounting Estimates (Amendments to IAS 8) | 1 January 2023 | | Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) | 1 January 2023 | | Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10 and IAS 28) | 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. Financial statements Notes to the consolidated financial statements Kapita jnt: Annual Report 2022 151 ## Section 2: Results for the year This section contains notes related to the financial performance of the Group. These include: - 2.1 Contract accounting - 2.2 Revenue including segmental revenue - 2.3 Operating profit - 2.4 Adjusted operating profit and adjusted profit before tax - 2.5 Segmental information - 2.6 Taxation - 2.7 Earnings/(loss) per share - 2.8 Business exits and assets held-for-sale - 2.9 Discontinued operations - 2.10 Cash flow information ☑ Denotes accounting policies ☐ Denotes significant accounting judgements, estimates and assumptions ### Key highlights Reported revenue **£3,014.6m** (2021: £3,182.5m) Reported free cash flow **£24.5m** (2021: £(264.3)m) Reported profit before tax **£61.4m** (2021: profit £285.6m) Reported earnings per share (EPS) – continuing operations **4.47p** (2021: 13.33p) Adjusted revenue¹ Aim: Achieve long-term organic revenue growth **£2,845.8m** (2021: £2,777.8m) Free cash flow before business exits¹ Aim: Achieve sustainable, long-term positive free cash flow growth generation **£29.0m** (2021: £(218.6)m) Adjusted profit before tax¹ Aim: Achieve long-term growth in profit **£73.8m** (2021: loss £122.8m) Adjusted earnings per share (EPS)¹ Aim: Achieve long-term growth in EPS **6.20p** (2021: (7.74)p) 1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2. Financial statements Notes to the consolidated financial statements Capita plc Annual Report 2022 15/2 ## Section 2: Results for the year continued In 2022 the Group's adjusted revenue¹ increased year on year. Adjusted profit before tax² 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 exits³ 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 realized, offset by the effect of the announced intention to repay the 2021 furlough related income (£4.8m). 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 £122.6m) 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: £16). 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 statements | Notes to the consolidated financial statements | Capital plc Annual Report 2022 | 15.9 | | --- | --- | --- | --- | ## Section 2: Results for the year continued Free cash flow before business exits¹ | Adjusted operating profit to free cash flow before business exits¹ | 2022 YTD | 2021 YTD | | --- | --- | --- | | **Adjusted operating profit¹** | **102.9** | **(77.7)** | | Add: depreciation/amortisation and impairment of property, plant and equipment and intangible assets | 135.9 | 220.7 | | **Adjusted EBITDA** | **238.8** | **143.0** | | Working capital | (32.7) | (113.6) | | Non-cash and other adjustments | (44.7) | 38.6 | | **Operating cash flow before business exits¹** | **161.4** | **68.0** | | Deferred VAT repayment | (14.9) | (104.1) | | Pension deficit contributions | (30.0) | (73.6) | | **Cash generated/(used) by operations before business exits¹** | **118.5** | **(109.7)** | | Net capital expenditure | (43.6) | (51.2) | | Interest/tax paid | (43.9) | (57.7) | | **Free cash flow before business exits¹** | **29.0** | **(218.6)** | 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. 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, 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 APIs can be found in section 8.2. Financial statements Notes to the consolidated financial statements Capital plc Annual Report 2022 154 ## 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 Qtr | 2021 Qtr | | --- | --- | --- | --- | | Long-term contractual revenue^{1} | 2.2 | 2,236.2 | 2,325.2 | | Non-current and current deferred income | | 640.7 | 794.7 | | Non-current contract fulfilment assets | 3.1.3 | 263.0 | 286.7 | | Non-current and current onerous contract provision | | 53.8 | 45.8 | 1. The 2021 composition has been re-presented to reflect the recategorisation of certain contracts between contract types (long-term contractual, short-term contractual and transactional (given 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: ![img-7.jpeg](img-7.jpeg) #### 3 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 159 ## 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 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 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: £16) 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 TIL 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. ### Financial Notes to the Capita plc 156 statements consolidated Annual Report 2022 financial statements AP Section 2: Results for the year continued 2.2 Revenue including segmental revenue 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. ### Financial Notes to the Capita plc 157 statements consolidated Annual Report 2022 financial statements ## Section 2: Results for the year continued Section 2: Results for the year continued ### 2.2 Revenue including segmental revenue 2.2 Revenue including segmental revenue continued 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. 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) long-term outsourced service arrangements in the public and private sectors; and (ii) active software licence arrangements. The majority of long-term contractual agreements form part of a series of distinct goods and services because they are substantially the same service; and have the same pattern of transfer, since the series constitutes services provided in distinct time increments (eg daily, monthly, quarterly or annually), and therefore treats the series as one performance obligation. Short-term contractual – less than two years The nature of contracts or performance obligations within this revenue type includes: (i) short-term outsourced service arrangements in the public and private sectors; and (ii) software maintenance contracts. ### Financial Notes to the Capita plc 158 statements consolidated Annual Report 2022 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital 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 18 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%). | Year ended 31 December 2022 | Notes | Capita Public Service £m | Capita Experience £m | Capita Portfolio £m | Capita plc £m | Total adjusted £m | Adjusting items £m | Total reported £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Continuing operations** | | | | | | | | | | Long-term contractual | | 1,157.3 | 986.2 | 33.1 | — | 2,176.6 | 59.6 | 2,236.2 | | Short-term contractual | | 236.7 | 150.0 | 37.7 | — | 424.4 | 70.4 | 494.8 | | Transactional (point-in-time) | | 51.3 | 14.5 | 179.0 | — | 244.8 | 38.8 | 283.6 | | **Total segment revenue** | | **1,445.3** | **1,150.7** | **249.8** | **—** | **2,845.8** | **168.8** | **3,014.6** | | Trading revenue | | 1,487.5 | 1,190.9 | 334.2 | — | 3,012.6 | — | 3,012.6 | | Inter-segment revenue | | (42.2) | (40.2) | (84.4) | — | (166.8) | — | (166.8) | | **Total adjusted segment revenue** | | **1,445.3** | **1,150.7** | **249.8** | **—** | **2,845.8** | **—** | **2,845.8** | | Business exits – trading | 2.8 | — | 33.3 | 135.5 | — | — | 168.8 | 168.8 | | **Total segment revenue** | | **1,445.3** | **1,184.0** | **385.3** | **—** | **2,845.8** | **168.8** | **3,014.6** | 31 December 2021 (Per-presented) | **Continuing operations** | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Long-term contractual | | 1,115.3 | 982.2 | 38.5 | — | 2,136.0 | 189.2 | 2,325.2 | | Short-term contractual | | 211.1 | 152.7 | 42.9 | — | 406.7 | 127.7 | 534.4 | | Transactional (point-in-time) | | 84.0 | 6.0 | 145.1 | — | 235.1 | 87.8 | 322.9 | | **Total segment revenue** | | **1,410.4** | **1,140.9** | **226.5** | **—** | **2,777.8** | **404.7** | **3,182.5** | | Trading revenue | | 1,443.5 | 1,226.9 | 265.4 | — | 2,935.8 | — | 2,935.8 | | Inter-segment revenue | | (33.1) | (86.0) | (38.9) | — | (158.0) | — | (158.0) | | **Total adjusted segment revenue** | | **1,410.4** | **1,140.9** | **226.5** | **—** | **2,777.8** | **—** | **2,777.8** | | Business exits – trading | 2.8 | — | 43.9 | 360.8 | — | — | 404.7 | 404.7 | | **Total segment revenue** | | **1,410.4** | **1,184.8** | **587.3** | **—** | **2,777.8** | **404.7** | **3,182.5** | 1. The 2021 comparative figures have been re-presented to reflect the re-integration 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. | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | United Kingdom £m | Other £m | Total £m | United Kingdom £m | Other £m | Total £m | | **Revenue** | **2,718.8** | **296.0** | **3,014.6** | **2,882.4** | **300.1** | **3,182.5** | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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 | Capita Public Service £m | Capita Experience £m | Capita Portfolio £m | Capita plc £m | Total £m | | --- | --- | --- | --- | --- | --- | | Long-term contractual | 2,916.7 | 2,465.3 | 201.9 | — | 5,583.9 | | Short-term contractual | 68.3 | 61.4 | 91.6 | — | 221.3 | | **Total** | **2,985.0** | **2,526.7** | **293.5** | **—** | **5,805.2** | | Order book 31 December 2021 | Capita Public Service £m | Capita Experience £m | Capita Portfolio £m | Capita plc £m | Total £m | | --- | --- | --- | --- | --- | --- | | Long-term contractual | 3,172.8 | 2,170.0 | 417.1 | — | 5,759.9 | | Short-term contractual | 113.5 | 101.8 | 140.2 | — | 355.5 | | **Total** | **3,286.3** | **2,271.8** | **557.3** | **—** | **6,115.4** | 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 | Capita Public Service £m | Capita Experience £m | Capita Portfolio £m | Capita plc £m | Total £m | | --- | --- | --- | --- | --- | --- | | < 1 year | 843.3 | 708.3 | 25.2 | — | 1,576.8 | | 1–5 years | 1,417.0 | 1,489.8 | 62.6 | — | 2,969.4 | | > 5 years | 656.4 | 267.2 | 114.1 | — | 1,037.7 | | **Total** | **2,916.7** | **2,465.3** | **201.9** | **—** | **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 £3.7 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). ### Financial Notes to the Capita plc 161 statements consolidated Annual Report 2022 financial statements ## 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: Capita | | Public | | | Capita | | Capita | | Capita | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Order book | Service | | Experience | | | Portfolio | | | plc | Total | | 31 December 2022 | | £m | | | £m | | £m | | £m | £m | Long-term contractual 2,916.7 2,465.3 201.9 — 5,583.9 Short-term contractual 68.3 61.4 91.6 — 221.3 Total 2,985.0 2,526.7 293.5 — 5,805.2 Capita | | Public | | Capita | Capita | Capita | | | --- | --- | --- | --- | --- | --- | --- | | Order book | Service | Experience | | Portfolio | plc | Total | | 31 December 2021 | £m | | £m | £m | £m | £m | Long-term contractual 3,172.8 2,170.0 417.1 — 5,759.9 Short-term contractual 113.5 101.8 140.2 — 355.5 Total 3,286.3 2,271.8 557.3 — 6,115.4 The table below shows the expected timing of revenue to be recognised on long-term contractual orders at 31 December 2022: Capita Public Capita Capita Capita Time bands of expected revenue recognition Service Experience Portfolio plc Total from long-term contractual orders £m £m £m £m £m < 1 year 843.3 708.3 25.2 — 1,576.8 1–5 years 1,417.0 1,489.8 62.6 — 2,969.4 > 5 years 656.4 267.2 114.1 — 1,037.7 Total 2,916.7 2,465.3 201.9 — 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). Section 2: Results for the year continued 2.3 Operating profit 2.3.1 Items charged/(credited) to reported operating profit Notes 2022 £m 2021 £m Depreciation of property, plant and equipment 3.2 40.9 48.6 Depreciation of right-of-use assets 3.5 56.0 68.2 Impairment of property, plant and equipment 3.2 4.7 1.9 (Reversal of impairment)/impairment of right-of-use assets 3.5 (2.7) 13.3 Amortisation of intangible assets 3.3 41.5 57.7 Impairment of intangible assets 3.3 5.9 58.7 Impairment of goodwill 3.4 169.0 16.1 Impairment of disposal group assets held-for-sale 2.8 — 44.1 Loss on sale of property, plant and equipment and intangibles 2.10.1 3.5 0.7 Foreign exchange differences 6.9 (0.2) Contract fulfilment asset utilisation, impairment and derecognition 3.1.3 85.7 107.8 Contract termination gains — (4.7) The net of: accelerated deferred income unwind, and contract fulfilment asset utilisation — (7.5) Onerous contract provisions (net of additions and releases) 1.7 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: 2022 £m 2021 £m Audit and audit-related services The audit of the Parent Company and the Group’s consolidated financial statements 5.1 5.1 The audit of the financial statements of the Group’s subsidiary companies 1.0 1.9 Total audit and audit-related services 6.1 7.0 Non-audit services Other assurance services 1.6 1.5 Total non-audit services 1.6 1.5 Total audit and non-audit services 7.7 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 162 ## Section 2: Results for the year continued ### 2.4 Adjusted operating profit and adjusted profit before tax #### A 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. The 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 filled 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: | | Notes | Operating profit/(loss) | | Profit/(loss) before tax | | | --- | --- | --- | --- | --- | --- | | | | 2021 £m | 2021 £m (Re-presented*) | 2021 £m | 2021 £m (Re-presented*) | | **Reported** | | **(79.6)** | **(86.6)** | **61.4** | **285.6** | | Amortisation and impairment of acquired intangibles | 3.3 | 5.1 | 7.7 | 5.1 | 7.7 | | Impairment of goodwill | 3.4 | 169.0 | 11.5 | 169.0 | 11.5 | | Net finance (income)/costs | 4.3 | — | — | (3.4) | 1.4 | | Business exits | 2.8 | 8.4 | (10.3) | (158.3) | (429.0) | | **Adjusted** | | **102.9** | **(77.7)** | **73.8** | **(122.8)** | 1. Adjusted operating profit increased by 232.4% (2021: increased 26.9%) and adjusted profit before tax increased by 168.1% (2021: increased 15.1%). Adjusted operating profit of £102.8m (2021: less £77.7m) was generated on adjusted revenue of £2,640.8m (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 of £31.8m (2021: £4.3m charge) resulting in adjusted profit after tax of £108.8m (2021: £128.8m 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 £138.1m to a loss of £71.7m and adjusted profit before tax decreasing from £92.5m to a loss of £122.0m. 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 trading 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. ### Financial Notes to the Capita plc 163 statements consolidated Annual Report 2022 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: | | | | Operating | | | | Profit/(loss) | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | profit/(loss) | | | | before tax | | | | | | | | | 2021 | | | | 2021 | | | | | 2022 | | | | £m | 2022 | | £m | | | | Notes | £m | (Re-presented | | | 4 ) | £m | (Re-presented | | 4 ) | Reported (79.6) (86.6) 61.4 285.6 Amortisation and impairment of acquired intangibles 3.3 5.1 7.7 5.1 7.7 Impairment of goodwill 3.4 169.0 11.5 169.0 11.5 Net finance (income)/costs 4.3 — — (3.4) 1.4 Business exits 2.8 8.4 (10.3) (158.3) (429.0) Adjusted 102.9 (77.7) 73.8 (122.8) 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. 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 Notes Capita Public Service £m Capita Experience £m Capita Portfolio £m Capita plc £m Total adjusted £m Adjusting items £m Total reported £m Adjusted operating profit 2.4 91.5 38.5 16.2 (43.3) 102.9 — 102.9 Business exits – trading 2.8 — 4.3 10.4 — — 14.7 14.7 Total trading result 91.5 42.8 26.6 (43.3) 102.9 14.7 117.6 Non-trading items: Business exits – non-trading 2.8 — (23.1) (23.1) Other adjusting items 2.4 — (174.1) (174.1) Operating profit/(loss) 102.9 (182.5) (79.6) Interest income 8.9 Interest expense (40.6) Share of results in associates and investment gains 5.8 Gain on business disposal 166.9 Profit before tax 61.4 Supplementary Information Depreciation and amortisation 3.2 3.3 3.5 38.5 67.2 19.4 3.3 128.4 10.0 138.4 Impairment of property, plant and equipment, intangible assets and right-of-use assets — 7.7 — (0.2) 7.5 0.4 7.9 Contract fulfilment assets utilisation, impairment and derecognition 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 Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile plc^{}[] Annual Report 2022 164 ## Section 2: Results for the year continued ### 2.5 Segmental information continued | Year ended 31 December 2021 | Notes | Capital Adjusted Surplus £m | Capital Expenditure £m | Capital Provision £m | Capital pct £m | Total adjusted £m | Adjusting items £m | Total reported £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Represented^{1} | | | | | | | | | | Adjusted operating profit | 2.4 | 93.2 | 8.9 | (0.1) | (179.7) | (77.7) | — | (77.7) | | Business exits – trading | 2.8 | — | 6.9 | 72.4 | — | — | 79.3 | 79.3 | | Total trading result | | 93.2 | 15.8 | 72.3 | (179.7) | (77.7) | 79.3 | 1.6 | | Non-trading items | | | | | | | | | | Business exits – non-trading | 2.8 | | | | | — | (69.0) | (69.0) | | Other adjusting items | 2.4 | | | | | — | (19.2) | (19.2) | | Operating loss | | | | | | (77.7) | (8.8) | (86.6) | | Interest income | | | | | | | | 4.7 | | Interest expense | | | | | | | | (51.6) | | Share of results in associates and investment gains | | | | | | | | (0.6) | | Gain on business disposal | | | | | | | | 419.7 | | Profit before tax | | | | | | | | 285.6 | | **Supplementary information** | | | | | | | | | | Depreciation and amortisation | 3.2 | 42.2 | 78.8 | 21.8 | 6.6 | 149.4 | 25.1 | 174.5 | | Impairment of property, plant and equipment, intangible assets and right-of-use assets | 3.3 | 3.3 | 5.5 | 2.6 | 59.9 | 71.3 | 2.6 | 73.9 | | Contract fulfilment assets utilisation, impairment and derecognition | 3.5 | | | | | | | | | Onerous contract provisions | 3.1.3 | 64.5 | 21.8 | 2.0 | — | 88.3 | 19.5 | 107.8 | | | 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. | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | United Kingdom £m | Other £m | Total £m | United Kingdom £m | Other £m | Total £m | | Non-current assets | 1,320.9 | 30.6 | 1,341.5 | 1,791.3 | 27.7 | 1,819.0 | ### Financial Notes to the Capita plc 165 statements consolidated Annual Report 2022 financial statements ## Section 2: Results for the year continued ### 2.5 Segmental information continued Capita AP | | | | Public | | Capita | Capita | | Capita | | | | Total | | Adjusting | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Year ended | | | Service | Experience | | Portfolio | | | plc | | adjusted | | | | items | reported | | 31 December 2021 Notes | | | £m | | £m | £m | | | £m | | | £m | | | £m | £m | | | | | | | | Re-presented | 1 | | | | | | | | | | | Adjusted operating profit | 2.4 | 93.2 8.9 (0.1) (179.7) | | | | | | | | (77.7) | | | — (77.7) | | | | | Business exits – trading | 2.8 | — 6.9 72.4 — — 79.3 79.3 | | | | | | | | | | | | | | | Total trading result 93.2 15.8 72.3 (179.7) (77.7) 79.3 1.6 Non-trading items: Business exits – non-trading 2.8 — (69.0) (69.0) Other adjusting items 2.4 — (19.2) (19.2) Operating loss (77.7) (8.9) (86.6) Interest income 4.7 Interest expense (51.6) Share of results in associates and investment gains (0.6) Gain on business disposal 419.7 Profit before tax 285.6 J Supplementary Information Depreciation and amortisation 42.2 78.8 21.8 6.6 149.4 25.1 174.5 3.2 Impairment of property, plant 3.3 and equipment, intangible 3.3 5.5 2.6 59.9 71.3 2.6 73.9 3.5 assets and right-of-use assets Contract fulfilment assets utilisation, impairment and 3.1.3 64.5 21.8 2.0 — 88.3 19.5 107.8 derecognition 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. 2022 2021 United United Kingdom Other Total Kingdom Other Total £m £m £m £m £m £m Non-current assets 1,320.9 20.6 1,341.5 1,791.3 27.7 1,819.0 Section 2: Results for the year continued 2.6 Taxation 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. 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. 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: 2022 2021 Consolidated income statement 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 Current income tax Current income tax charge 14.0 12.6 1.4 27.2 (14.5) 41.7 Adjustment in respect of prior years (1.2) (1.2) — 3.8 3.8 — Deferred tax On origination and reversal of temporary differences (36.7) (52.5) 15.8 76.1 60.3 15.8 Effect of changes in tax rate on deferred tax balances 3.0 3.0 — (39.0) (39.0) — Adjustment in respect of prior years 6.3 6.3 — (6.6) (6.6) — Total (14.6) (31.8) 17.2 61.5 4.0 57.5 Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile job^{}[] Annual Report 2022 168 ## Section 2: Results for the year continued ### 2.6 Taxation continued | Consolidated statement of comprehensive income and consolidated statement of changes in equity | 2022 £m | 2021 £m | | --- | --- | --- | | Current income tax movement on cash flow hedges | — | (2.0) | | Deferred tax movement on cash flow hedges | 1.8 | (0.2) | | Deferred tax movement in relation to actuarial changes on defined benefit pension schemes | 5.2 | 32.2 | | Current income tax movement on defined benefit pension scheme contributions | (7.2) | (11.5) | | Effect of rate change on deferred tax on defined benefit pension schemes | — | (2.6) | | Current income tax deduction on the exercise of share options | — | (0.4) | | | **(5.4)** | **15.5** | The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the UK corporation tax rate is as follows: | | Total tax | | Current tax | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Profit before tax from continuing operations | 61.4 | 285.6 | 61.4 | 285.6 | | Notional charge at UK corporation tax rate of 19% | 11.7 | 54.3 | 11.7 | 54.3 | | Adjustments in respect of current income tax of prior years | a (1.2) | 3.8 | (1.2) | 3.8 | | Adjustments in respect of deferred tax of prior years | b 6.3 | (6.6) | — | — | | Non-deductible expense/(non-taxable income) – adjusted | c (2.3) | 3.7 | (2.3) | 3.7 | | Non-deductible expenses – business exit | d* 2.3 | 1.5 | 2.3 | 1.5 | | Non-taxable income – specific items | — | (1.1) | — | (1.1) | | Profit on disposal of business | e* (31.6) | (51.7) | (31.6) | (51.7) | | Non-deductible goodwill impairment | f* 32.0 | 11.4 | 32.0 | 11.4 | | Difference in rate recognition of temporary differences | 3.1 | (38.0) | — | — | | Tax provided on unremitted earnings | g 1.3 | 1.1 | — | 3.2 | | Attributable to different tax rates in overseas jurisdictions | h 0.5 | (0.1) | 0.5 | (0.1) | | Movement in deferred tax unrecognised | note 2.6.2 (36.7) | 84.2 | — | — | | Fixed asset timing differences | — | — | 6.8 | (2.0) | | Current tax impact on other timing differences | — | — | (6.4) | 0.2 | | Carry forward/(utilisation) of losses in current period | i — | — | 1.0 | 7.8 | | At the effective total tax rate of (23.8)% (2021: 21.5%) and the effective current tax rate of 20.8% (2021: 10.9%) | j (14.6) | 61.5 | 12.8 | 31.0 | | **Tax (credit)/charge reported in the income statement** | **(14.6)** | **61.5** | **12.8** | **31.0** | * These 62.7m (2021: 6.2M €m) of accounting items relate to reported tax charge only, with no impact on the adjusted tax charge. Further details are given (*) below a The 61.2m prior year credit adjustment includes: (i) a 21.2m release of uncertain tax positions due to the relevant entity being put into liquidation; (ii) a 65.2m credits which have a corresponding impact within deferred tax of prior years; and (iii) a 25.2m credit to adjust for finalisation of submitted tax returns. b Adjustments in respect of deferred tax of prior years mainly relate to 25.2m of charges which have a corresponding impact within current income tax of prior years. c Deferral results in a short of tax deduction (improved due to the valuation of 40.2%). Refer to section 1 for further details. d Decrease with interest in the deductible income over assessment with the sale of entities. Refer to note 2.8 for further details. e Rerates to the application of the tax exemption on accounting profits from the sale of entities. Refer to note 6.8.1 for further details. f Rerates to the inter-glde asset impairments as detailed below is note 3.4. g Movement in the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes. h Rerates to the difference between tax payables at higher rates or rates also South Africa, and tax payable at lower rates or other trading jurisdictions (Poland, Isle of Man and UAE). i Rerates to the utilisation (loans forward of tax losses during the current period). j The current tax charge of 11.0.9m (2021: 231.6m) results in an effective current tax rate of 20.8%, which is different from the UK statutory rate of less of 19% (preferably 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 (f). Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 167 ## 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: | | At 1 January £m | Credited (changed) to | | | | | --- | --- | --- | --- | --- | --- | | | | Income statement £m | OCI and changes in equity £m | Other movements £m | At 31 December £m | | **Deferred tax assets** | | | | | | | Fixed assets which qualify for tax relief | 77.3 | 12.2 | — | 1.3 | 90.8 | | Deferred income | (0.1) | 1.2 | — | (1.1) | — | | Provisions and other timing differences | 14.7 | (3.7) | (1.6) | 1.1 | 10.5 | | Pension schemes | 19.8 | (8.7) | (5.2) | — | 5.9 | | Share-based payments | 3.8 | (0.4) | — | (2.1) | 1.3 | | Tax losses^{1} | 63.3 | 27.2 | — | (9.1) | 81.4 | | | 178.8 | 27.8 | (6.8) | (9.9) | 189.9 | | Jurisdictional netting | (2.8) | — | — | — | (0.4) | | Net deferred tax assets | 176.0 | 27.8 | (6.8) | (9.9) | 189.5 | | **Deferred tax liabilities** | | | | | | | Acquired intangibles | (0.7) | 0.5 | — | — | (0.2) | | Contract fulfilment assets | (4.4) | 0.4 | — | 1.8 | (2.2) | | Unremitted earnings | (3.6) | (1.3) | — | — | (4.9) | | | (8.7) | (0.4) | — | 1.8 | (7.3) | | Jurisdictional netting | 2.8 | — | — | — | 0.4 | | Net deferred tax liabilities | (5.9) | (0.4) | — | 1.8 | (6.9) | | **Net deferred tax** | **170.1** | **27.4** | **(6.8)** | **(9.1)** | **182.6** | 1. Mainly trading losses available to another 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capita plc^{}[] Annual Report 2022 169 ## Section 2: Results for the year continued ### 2.6 Taxation continued | | 2022 UK Gross Amount | 2021 UK Gross Amount | | --- | --- | --- | | At 31 December | | | | **UK:** | | | | Tax losses | 332.7 | 498.0 | | Other temporary timing differences | 113.9 | 99.7 | | | **446.6** | **597.7** | | **Non-UK:** | | | | Tax losses | 60.8 | 44.9 | | Other temporary timing differences | 11.6 | 14.8 | | | **72.4** | **59.7** | | **Total** | **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 £38.4m (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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 169 ## Section 2: Results for the year continued ### 2.7 Earnings/(loss) per share #### A 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. | | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | --- | | | | Continuing operations £m | Total operations £m | Continuing operations £m | Total operations £m | | Basic earnings/(loss) per share | – reported | 4.47 | 4.47 | 13.33 | 13.52 | | | – adjusted^{1} | 6.20 | 6.20 | (7.74) | (7.74) | | Diluted earnings/(loss) per share | – reported | 4.40 | 4.40 | 13.15 | 13.33 | | | – adjusted^{1} | 6.09 | 6.09 | (7.74) | (7.74) | 1. 2021 adjusted results have been re-prescribed. Please refer to note 2.4 for further details. The following tables show the earnings and share data used in the basic and diluted earnings/(loss) per share calculations: | | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | --- | | | | Continuing operations £m | Total operations £m | Continuing operations £m | Total operations £m | | Reported profit before tax for the period | | 61.4 | 61.4 | 285.6 | 288.7 | | Income tax credit/(charge) | 2.6 | 14.6 | 14.6 | (61.5) | (61.5) | | Reported profit for the period | | 76.0 | 76.0 | 224.1 | 227.2 | | Less: Non-controlling interest | | (1.2) | (1.2) | (2.5) | (2.5) | | Total profit attributable to shareholders | | 74.8 | 74.8 | 221.6 | 224.7 | | Adjusted profit/(loss) before tax for the period^{1} | 2.4 | 73.8 | 73.8 | (122.8) | (122.8) | | Income tax credit/(charge) | 2.6.1 | 31.8 | 31.8 | (4.0) | (4.0) | | Adjusted profit/(loss) for the period^{1} | | 105.6 | 105.6 | (135.8) | (135.8) | | Less: Non-controlling interest | | (2.0) | (2.0) | (1.9) | (1.9) | | Adjusted profit/(loss) attributable to shareholders^{1} | | 103.6 | 103.6 | (128.7) | (128.7) | 1. 2021 adjusted results have been re-prescribed. Please refer to note 2.4 for further details. | | 2022 £m | 2021 £m | | --- | --- | --- | | Weighted average number of ordinary shares (excluding trust and treasury shares) for basic earnings per share | 1,871.7 | 1,861.9 | | Dilutive potential ordinary shares: | | | | Employee share options | 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 170 ## 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 these businesses (AMT Sybex software, Secure Solutions and Services (SSS), and Specialty Insurance) were deemed to have met this threshold. ##### 2022 business exits Business exits at 31 December 2022 primarily comprised: | Business | Disposal completed on | | --- | --- | | AMT Sybex | 1 January 2022 | | Secure Solutions and Services | 3 January 2022 | | Trustmanque | 31 March 2022 | | Specialty Insurance | 29 April 2022 | | Real estate and infrastructure consultancy | 22 September 2022 | | Optima Legal Services | 30 November 2022 | | Pay360 | 1 December 2022 | | Capita Translation and Interpreting | 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 | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Trading £m | Non-trading £m | Total £m | Trading £m | Non-trading £m | Total £m | | **Revenue** | **168.8** | — | **168.8** | 404.7 | — | 404.7 | | Cost of sales | (135.3) | — | (135.3) | (269.0) | — | (269.0) | | Gross profit | 33.5 | — | 33.5 | 135.7 | — | 135.7 | | Administrative expenses | (18.8) | (23.1) | (41.9) | (56.4) | (69.0) | (125.4) | | **Operating profit/(loss)** | **14.7** | **(23.1)** | **(8.4)** | 79.3 | (69.0) | 10.3 | | Net finance costs | (0.2) | — | (0.2) | (0.7) | (0.3) | (1.0) | | Gain on business disposal | — | 166.9 | 166.9 | — | 419.7 | 419.7 | | **Profit before tax** | **14.5** | **143.8** | **158.3** | 78.6 | 350.4 | 429.0 | | Taxation | (2.8) | (14.7) | (17.5) | (16.1) | (43.0) | (59.1) | | **Profit after tax** | **11.7** | **129.1** | **140.8** | 62.5 | 307.4 | 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 £96.8m (2021: £217.6m) and information technology costs of £23.2m (2021: £65.2m). Included within non-trading administrative expenses is £9.3m (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 £13.4m (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 £7.0m (2021: £7.0m). Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital 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: | 2022 £m | 2021 £m | | --- | --- | --- | | Property, plant and equipment | 0.2 | 0.2 | | Intangible assets | 20.4 | 20.0 | | Goodwill | 178.3 | 65.7 | | Right-of-use assets | 0.2 | — | | Income tax recoverable and deferred tax assets | 7.6 | — | | Contract fulfilment assets | 2.8 | 0.1 | | Trade and other receivables | 136.6 | 2.6 | | Cash and cash equivalents | 55.9 | 8.2 | | Disposal group assets held-for-sale | 143.0 | 120.2 | | Trade and other payables | (127.0) | (6.7) | | Deferred income | (38.6) | (2.9) | | Lease liabilities | (0.3) | — | | Deferred consideration payable | — | (22.8) | | Loans payable^{1} | — | (26.0) | | Capita group loan balances | (102.3) | (27.2) | | Income tax payable and deferred tax liabilities | (0.7) | (4.3) | | Provisions | (0.4) | — | | Disposal group liabilities held-for-sale | (135.4) | (57.5) | | **Net identifiable assets sold** | **140.3** | **69.6** | | Non-controlling interests | (0.3) | (3.4) | | | **140.0** | **66.2** | | Sales price: | | | | received in cash | 330.0 | 508.6 | | deferred receivable | 10.5 | — | | Less: disposal costs | (33.3) | (25.5) | | **Net sales price** | **307.2** | **483.1** | | Realisation of cumulative currency translation difference | (0.3) | 2.8 | | **Gain on business disposals** | **166.9** | **419.7** | | **Net cash inflow** | | | | Proceeds received | 330.0 | 508.6 | | Less disposal costs: | | | | Income statement charge | (33.3) | (25.5) | | change in accrued disposal costs during the year | 9.9 | — | | Settlement of receivables due from disposed subsidiaries: | | | | disposal of subsidiaries in the period | 102.3 | 27.2 | | disposal of subsidiaries classified as held-for-sale | 54.5 | — | | **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 | (55.9) | (8.2) | | Cash held by subsidiaries classified as held-for-sale | (19.6) | (17.7) | | **Total cash held by subsidiaries when sold** | **(75.5)** | **(25.9)** | | **Net cash inflow** | **387.9** | **484.4** | 1. The total payable represents an interest-bearing loan payable by AXELOS Limited to AM Government in connection with a dividend payable by this company. The loan is subject to interest at 5% per share and was settled on completion of the disposal on 20 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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 Sybes, 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. | | 2022 £m | 2021 £m | | --- | --- | --- | | Property, plant and equipment | — | 0.4 | | Intangible assets | — | 14.4 | | Goodwill | — | 44.2 | | Contract fulfilment assets | — | 32.6 | | Trade and other receivables | — | 10.7 | | Accrued income | — | 5.1 | | Prepayments | — | 5.2 | | Cash and cash equivalents | — | 15.8 | | Income tax receivable and deferred tax assets | — | 10.4 | | **Disposal group assets held-for-sale** | **—** | **138.8** | | Trade and other payables | — | 1.6 | | Other taxes and social security | — | 1.6 | | Accruals | — | 3.4 | | Deferred income | — | 69.8 | | Income tax payable and deferred tax liabilities | — | 2.3 | | Provisions | — | 2.4 | | **Disposal group liabilities held-for-sale** | **—** | **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: 0.18p) on basic earnings per share and nil p (2021: 0.18p) on diluted earnings per share. Financial statements Notes to the consolidated financial statements Capital plc Annual Report 2022 173 ## Section 2: Results for the year continued ### 2.10 Cash flow information #### 4 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 | | 2022 | 2022 | 2021 | 2021 | | --- | --- | --- | --- | --- | | | Reported Ch. | Before business estn Ch. | Reported Ch. | Before business estn Ch. | | **Cash flows from operating activities:** | | | | | | Reported operating loss | 2.4 | (79.6) | (86.6) | (86.6) | | Less: business exit operating loss/(profit) | 2.8 | — | — | (10.3) | | **Total operating loss** | | **(79.6)** | **(86.6)** | **(86.6)** | | **Adjustments for non-cash items:** | | | | | | Depreciation | 3.2, 3.5 | 96.9 | 117.1 | 115.7 | | Amortisation of intangible assets | 3.3 | 41.5 | 57.7 | 41.4 | | Share-based payment expense | 5.1 | 5.4 | 1.2 | 1.2 | | Employee benefits | 5.2 | 9.0 | 8.9 | 8.9 | | Loss on sale of property, plant and equipment and intangible assets | 2.3 | 3.5 | 0.7 | 0.7 | | Amendments and early terminations of leases | | (4.7) | — | — | | Impairment of disposal group assets | | — | 44.1 | — | | Impairment of non-current assets | | 176.9 | 90.0 | 82.8 | | **Other adjustments:** | | | | | | Movement in provisions | | (42.1) | 21.9 | 36.2 | | Pension deficit contributions | | (39.6) | (155.5) | (73.6) | | Other contributions into pension schemes | | (10.0) | (8.4) | (8.4) | | **Movements in working capital:** | | | | | | Trade and other receivables | | (41.0) | (5.2) | (10.0) | | Non-recourse trade receivables financing | | 28.0 | (5.7) | (5.7) | | Trade and other payables | | 84.8 | 17.0 | 20.6 | | VAT deferral | | (14.9) | (104.1) | (104.1) | | Deferred income | | (116.0) | (116.9) | (62.9) | | Contract fulfilment assets (non-current) | | 18.7 | (24.7) | (55.6) | | **Cash generated from/(used by) operations** | | **117.8** | **(148.5)** | **(109.7)** | | **Adjustments for free cash flows:** | | | | | | Income tax paid | | (7.9) | (17.7) | (17.7) | | Net interest paid | | (38.0) | (40.1) | (40.0) | | **Net cash inflows/(outflow) from operating activities** | | **71.9** | **(206.3)** | **(167.4)** | | Purchase of property, plant and equipment | 3.2 | (20.6) | (25.6) | (18.7) | | Purchase of intangible assets | 3.3 | (27.3) | (32.5) | (32.5) | | Proceeds from sale of property, plant and equipment and intangible assets | | 0.5 | 0.1 | — | | **Free cash flow^{1}** | | **24.5** | **(264.3)** | **(218.6)** | 1. Definitions of the alternative performance measures and related EPS can be found in section 4.2. 2. The 2021 cash flow has been estimated to include 627.8% of cash received from the purchase of subsidiaries when sold to within-the-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 627.8% 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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: | | Free cash flow | | Cash generated/(sold) by operations | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Reported** | **24.5** | (264.3) | **117.8** | (148.5) | | Business exits | (4.1) | (36.2) | (9.9) | (43.1) | | Pension deficit contributions triggered by disposals | 8.6 | 81.9 | 8.6 | 81.9 | | **Before business exits** | **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 Awelos 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 | Note | Net debt at 1 January £m | Cash flow recoupment £m | Non-cash recoupment £m | Net debt at 31 December £m | | --- | --- | --- | --- | --- | --- | | Cash, cash equivalents and overdrafts | 4.5.4 | 101.5 | 75.3 | 0.4 | 177.2 | | Other loan notes | 4.5 | (1.3) | 0.6 | — | (0.7) | | Credit facilities | | (46.0) | 46.0 | — | — | | Private placement loan notes^{1} | 4.5 | (512.9) | 242.0 | (14.6) | (285.5) | | Cross-currency interest rate swaps^{1} | 4.5 | 28.0 | (10.1) | 6.9 | 24.8 | | Lease liabilities | 4.4 | (448.4) | 84.4 | (33.5) | (397.5) | | **Total net liabilities from financing activities** | | **(980.6)** | **362.9** | **(41.2)** | **(658.9)** | | Deferred consideration | 4.5 | (0.7) | — | — | (0.7) | | **Net debt** | **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 notes's debt of £280.7m (2021: £484.8m). Cash flow movement in private placement loan notes includes both repayment of private placement loan notes at £288.4m (2021: £332.3m) 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 (sous costs), amortisation of the discount on the euro debt, and additions and terminations and foreign exchange rate effects on the Group's losses. | Year ended 31 December 2021 | Note | Net debt at 1 January £m | Cash flow recoupment £m | Non-cash recoupment £m | Net debt at 31 December £m | | --- | --- | --- | --- | --- | --- | | Cash, cash equivalents and overdrafts | 4.5.4 | 141.1 | (43.6) | 4.0 | 101.5 | | Other loan notes | 4.5 | (2.3) | 1.0 | — | (1.3) | | Credit facilities | | — | (46.0) | — | (46.0) | | Private placement loan notes | 4.5 | (765.1) | 234.2 | 18.0 | (512.9) | | Cross-currency interest rate swaps | 4.5 | 57.5 | (19.7) | (9.8) | 28.0 | | Interest rate swaps | 4.5 | 0.5 | — | (0.5) | — | | Lease liabilities^{2} | 4.4 | (508.1) | 106.2 | (46.5) | (448.4) | | **Total net liabilities from financing activities** | | **(1,217.5)** | **275.7** | **(38.8)** | **(980.6)** | | Deferred consideration | 4.5 | (0.7) | — | — | (0.7) | | **Net debt** | **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 losses (£25.6m) previously included within non-cash movement. ### Financial Notes to the Capita plc 175 statements consolidated Annual Report 2022 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: Cash generated/(used) by | | Free cash flow | | | operations | | | --- | --- | --- | --- | --- | --- | | 2022 | | 2021 | 2022 | | 2021 | | £m | | £m | £m | | £m | Reported 24.5 (264.3) 117.8 (148.5) Business exits (4.1) (36.2) (9.9) (43.1) Pension deficit contributions triggered by disposals 8.6 81.9 8.6 81.9 Before business exits 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, AP 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 J 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). | | | Net debt at | | Cash flow | | Non-cash | | Net debt at | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 1 January | | movements | | movement | 2 | 31 December | | | Year ended 31 December 2022 | Note | | £m | | £m | | £m | | £m | Cash, cash equivalents and overdrafts 4.5.4 101.5 75.3 0.4 177.2 Other loan notes 4.5 (1.3) 0.6 — (0.7) Credit facilities (46.0) 46.0 — — 1 Private placement loan notes 4.5 (512.9) 242.0 (14.6) (285.5) 1 Cross-currency interest rate swaps 4.5 28.0 (10.1) 6.9 24.8 Lease liabilities 4.4 (448.4) 84.4 (33.5) (397.5) Total net liabilities from financing activities (980.6) 362.9 (41.2) (658.9) Deferred consideration 4.5 (0.7) — — (0.7) Net debt 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. | | | Net debt at | | Cash flow | | Non-cash | | Net debt at | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 1 January | | movements | | movement | 2 | 31 December | | | Year ended 31 December 2021 | Note | | £m | | £m | | £m | | £m | Cash, cash equivalents and overdrafts 4.5.4 141.1 (43.6) 4.0 101.5 Other loan notes 4.5 (2.3) 1.0 — (1.3) Credit facilities — (46.0) — (46.0) Private placement loan notes 4.5 (765.1) 234.2 18.0 (512.9) Cross-currency interest rate swaps 4.5 57.5 (19.7) (9.8) 28.0 Interest rate swaps 4.5 0.5 — (0.5) — 3 Lease liabilities 4.4 (508.1) 106.2 (46.5) (448.4) Total net liabilities from financing activities (1,217.5) 275.7 (38.8) (980.6) Deferred consideration 4.5 (0.7) — — (0.7) Net debt 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. 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 3.2 Property, plant and equipment 3.3 Intangible assets 3.4 Goodwill 3.5 Right-of-use assets 3.6 Provisions Denotes accounting policies Denotes significant accounting judgements, estimates and assumptions Key highlights Note 2022 £m 2021 £m Year on Year movement £m Working capital (current and non-current): 3.1 (439.1) (502.8) 63.7 Trade and other receivables 3.1.1 446.2 562.8 (116.6) Trade and other payables 3.1.2 (507.6) (557.6) 50.0 Deferred income 2.1 (640.7) (794.7) 154.0 Contract fulfilment assets 3.1.3 263.0 286.7 (23.7) Property, plant and equipment 3.2 101.1 129.0 (27.9) Intangible assets 3.3 106.0 147.3 (41.3) Goodwill 3.4 605.9 951.7 (345.8) Right-of-use assets 3.5 249.5 287.9 (38.4) Provisions 3.6 (127.3) (140.6) 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 179 ## 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. 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. | | Current | | Non-current | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Trade receivables | 149.9 | 232.0 | — | — | | Other receivables^{1} | 32.6 | 43.4 | 5.8 | 4.0 | | Current contract fulfilment assets^{2} | 10.7 | 23.7 | — | — | | Accrued income | 179.1 | 169.5 | — | 2.7 | | Prepayments | 58.1 | 78.5 | 10.0 | 9.0 | | | 430.4 | 547.1 | 15.8 | 15.7 | 1. Other receivables includes 20.4m (2021: 21.0m) of accrued interest on close-currency interest rate swaps. 2. Note 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: | | 2022 £m | 2021 £m | | --- | --- | --- | | At 1 January | 15.4 | 11.3 | | Utilised | (4.0) | (6.7) | | Provided in the year | 15.3 | 15.2 | | Business disposal | (1.0) | — | | Transfer to disposal group assets held-for-sale | — | (0.4) | | At 31 December | 29.7 | 19.4 | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 177 ## 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 | 2022 £m | 2021 £m | | --- | --- | --- | | Not due | 118.5 | 203.3 | | Overdue by less than three months | 26.3 | 29.8 | | Overdue between three and six months | 6.3 | 6.6 | | Overdue between six and twelve months | 9.9 | 11.4 | | Overdue more than twelve months | 18.0 | 0.3 | | Allowance for doubtful debts | (29.7) | (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 | | Current | | Non-current | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Trade payables | 134.9 | 153.7 | 0.1 | — | | Other payables | 32.8 | 26.7 | 6.5 | 6.3 | | Other taxes and social security | 85.6 | 122.9 | 6.0 | 5.0 | | Accruals | 239.2 | 238.9 | 2.5 | 4.1 | | | **492.5** | **542.2** | **15.1** | **15.4** | 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. ### Financial Notes to the Capita plc 178 statements consolidated Annual Report 2022 financial statements AP J 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 follows 1 : 2022 £m 2021 £m At 1 January 286.7 294.8 Impact of change in accounting standards – amendments to IAS 37 2 (2.4) — At 1 January 2022 on adoption of IAS 37 284.3 294.8 Additions 67.1 132.2 Transfer to assets held-for-sale — (32.6) Disposal of business (2.8) (0.1) Impairment (3.8) (7.3) Derecognition (0.4) (16.6) Utilised during the year (81.5) (83.9) Exchange movement 0.1 0.2 At 31 December 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 . ### Financial Notes to the Capita plc 179 statements consolidated Annual Report 2022 financial statements ## 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. 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. 1 | Movements in non-current contract fulfilment assets were as follows | : | | | | --- | --- | --- | --- | | | | 2022 | 2021 | | | | £m | £m | At 1 January 286.7 294.8 2 Impact of change in accounting standards – amendments to IAS 37 (2.4) — At 1 January 2022 on adoption of IAS 37 284.3 294.8 Additions 67.1 132.2 Transfer to assets held-for-sale — (32.6) Disposal of business (2.8) (0.1) Impairment (3.8) (7.3) Derecognition (0.4) (16.6) Utilised during the year (81.5) (83.9) Exchange movement 0.1 0.2 At 31 December 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. Section 3: Operating assets and liabilities continued 3.2 Property, plant and equipment 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. 2022 2021 Leasehold improvements, land and buildings £m Plant and machinery £m Total £m Leasehold improvements, land and buildings £m Plant and machinery £m Total £m Cost At 1 January 99.6 169.1 268.7 103.3 193.2 296.5 Additions 7.7 12.9 20.6 8.1 17.5 25.6 Disposal of business — (0.4) (0.4) — (0.8) (0.8) Disposals – included in adjusted profit (9.1) (7.4) (16.5) (2.3) (10.0) (12.3) Disposals – included in business exits — — — (0.1) (0.4) (0.5) Transfer to assets held-for-sale — — — (0.1) (0.6) (0.7) Reclassifications 1.3 (1.8) (0.5) — (1.9) (1.9) Asset retirements (3.7) (27.9) (31.6) (8.9) (25.8) (34.7) Exchange movement 0.2 2.0 2.2 (0.4) (2.1) (2.5) At 31 December 96.0 146.5 242.5 99.6 169.1 268.7 Depreciation and impairment At 1 January 40.5 99.2 139.7 41.6 97.7 139.3 Impact of change in accounting standards – amendments to IAS 37 1 — 0.5 0.5 — — — At 1 January 2022 on adoption of IAS 37 40.5 99.7 140.2 41.6 97.7 139.3 Depreciation charged in the year - included in adjusted profit 10.1 30.6 40.7 9.3 38.2 47.5 Depreciation charged in the year - included in business exits — 0.2 0.2 0.1 1.0 1.1 Disposal of business — (0.2) (0.2) — (0.6) (0.6) Disposals – included in adjusted profit (7.3) (6.9) (14.2) (2.0) (9.7) (11.7) Disposals – included in business exits — — — (0.1) (0.5) (0.6) Impairment – included in adjusted profit 2.0 2.7 4.7 0.6 1.3 1.9 Transfer to assets held-for-sale — — — (0.1) (0.2) (0.3) Reclassifications 0.8 (0.8) — — (0.4) (0.4) Asset retirements (3.7) (27.9) (31.6) (8.9) (25.8) (34.7) Exchange movement 0.1 1.5 1.6 — (1.8) (1.8) At 31 December 42.5 98.9 141.4 40.5 99.2 139.7 Net book value At 1 January 59.1 69.9 129.0 61.7 95.5 157.2 At 31 December 53.5 47.6 101.1 59.1 69.9 129.0 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile job^{}[] Annual Report 2022 189 ## 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 52.7m (2021: 53.6m), 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. **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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 181 ## Section 3: Operating assets and liabilities continued ### 3.3 Intangible assets continued | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Intangible assets acquired in business combinations £m | Capitalised/ purchased software £m | Total £m | Intangible assets acquired in business combinations £m | Capitalised/ purchased software £m | Total £m | | **Cost** | | | | | | | | At 1 January | 55.4 | 222.7 | 278.1 | 174.3 | 314.2 | 488.5 | | Disposal of business | — | (33.0) | (33.0) | (61.3) | (7.6) | (68.9) | | Additions | — | 27.3 | 27.3 | — | 32.5 | 32.5 | | Disposals – included in adjusted profit | — | (12.2) | (12.2) | — | (3.0) | (3.0) | | Disposals – included in business exits | — | — | — | — | (3.4) | (3.4) | | Transfer to assets held-for-sale | — | — | — | (6.8) | (16.4) | (23.2) | | Reclassifications | — | 0.5 | 0.5 | — | 1.9 | 1.9 | | Asset retirement | (53.1) | (11.2) | (64.3) | (50.3) | (94.8) | (145.1) | | Exchange movement | 0.7 | 0.5 | 1.2 | (0.5) | (0.7) | (1.2) | | **At 31 December** | **3.0** | **194.6** | **197.6** | **55.4** | **222.7** | **278.1** | | **Amortisation and impairment** | | | | | | | | At 1 January | 49.6 | 81.2 | 130.8 | 135.4 | 86.1 | 223.5 | | Amortisation charged in the year - included in adjusted profit | — | 31.7 | 31.7 | — | 33.7 | 33.7 | | Amortisation charged in the year - excluded from adjusted profit | 5.1 | — | 5.1 | 7.7 | — | 7.7 | | Amortisation charged in the year - included in business exits | — | 4.7 | 4.7 | 9.2 | 7.1 | 16.3 | | Impairment – included in adjusted profit | — | 5.5 | 5.5 | — | 56.1 | 56.1 | | Impairment – included in business exits | — | 0.4 | 0.4 | — | 2.6 | 2.6 | | Disposal of business | — | (12.6) | (12.6) | (46.5) | (2.4) | (48.9) | | Disposals – included in adjusted profit | — | (10.5) | (10.5) | — | (2.7) | (2.7) | | Disposals – included in business exits | — | — | — | — | (3.4) | (3.4) | | Transfer to assets held-for-sale | — | — | — | (5.7) | (3.1) | (8.8) | | Reclassifications | — | — | — | — | 0.4 | 0.4 | | Asset retirement | (53.1) | (11.2) | (64.3) | (50.3) | (94.8) | (145.1) | | Exchange movement | 0.7 | 0.1 | 0.8 | (0.2) | (0.4) | (0.6) | | **At 31 December** | **2.3** | **89.3** | **91.6** | **49.6** | **81.2** | **130.8** | | **Net book value** | | | | | | | | At 1 January | 5.8 | 141.5 | 147.3 | 36.9 | 226.1 | 265.0 | | **At 31 December** | **0.7** | **105.3** | **106.0** | **5.8** | **141.5** | **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: £n4, 2021: £2.5m). Intangible assets capitalised or purchased include capitalised software development (net book value 2022: £95.9m, 2021: £120.7m) and purchased software (net book value 2022: £14.4m, 2021: £35.8m). 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile job^{}[] Annual Report 2022 182 ## Section 3: Operating assets and liabilities continued ### 3.4 Goodwill #### 4 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. #### 5 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. | | 2022 £m | 2021 £m | | --- | --- | --- | | **Cost** | | | | At 1 January | 1,676.8 | 1,918.5 | | Disposal of businesses | (255.0) | (65.7) | | Transfer to disposal group assets held-for-sale | — | (177.3) | | Exchange movement | 1.5 | 1.3 | | **At 31 December** | **1,423.3** | **1,676.8** | | **Accumulated impairment** | | | | At 1 January | 725.1 | 798.0 | | Disposal of businesses | (76.7) | — | | Transfer to disposal group assets held-for-sale | — | (89.0) | | Impairment – excluded from adjusted profit | 169.0 | 11.5 | | Impairment – included in business exits | — | 4.6 | | **At 31 December** | **817.4** | **725.1** | | **Net book value** | | | | At 1 January | 951.7 | 1,120.5 | | **At 31 December** | **605.9** | **951.7** | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capita plc^{}[] Annual Report 2022 189 ## 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 | Capita Public Service £m | Capita Experience £m | Capita Portfolio £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January | 284.6 | 220.2 | 446.9 | 951.7 | | Business disposals | — | (11.9) | (166.4) | (176.3) | | Impairment – excluded from adjusted profit | — | — | (169.0) | (169.0) | | Exchange movement | — | 1.5 | — | 1.5 | | **At 31 December** | **284.6** | **209.8** | **111.5** | **605.5** | #### 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 Fere 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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 CGUs 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. | | Capita Public Service | | Capita Portfolio | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Capita Public Service | Capita Experience | People | Software | Business Solutions | Travel | Fare | | 2022 | 11.8% | 10.4% | 14.3% | 12.1% | 12.1% | 13.0% | 11.2% | | 2021 | 13.0% | 11.6% | 12.4% | 12.8% | 13.3% | 15.7% | 11.9% | #### Sensitivity analysis The impairment testing as described is reliant on the accuracy of management's forecasts and the assumptions that underlie them; and on the selection of the discount and growth rates to be applied. To gauge the sensitivity of the result to a change in any one, or combination of the assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and measure which CGUs are the most susceptible to an impairment should the assumptions used be varied. 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 40% 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 Fare 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 189 ## Section 3: Operating assets and liabilities continued ### 3.5 Right-of-use assets #### A Accounting policies At the inception of the lease, the Group recognises a right-of-use asset at cost, which comprises the present value of minimum future lease payments determined at the inception of the lease. Right-of-use assets are depreciated using the straight-line method over the shorter of estimated life or the lease term. Depreciation is included within administrative expenses in the consolidated income statement. Amendment to lease terms resulting in a change in payments or the length of the lease results in an adjustment to the right-of-use asset and corresponding lease liability. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be fully recoverable. Right-of-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 | Property £m | Motor vehicles £m | Equipment £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January 2021 | 310.0 | 16.9 | 15.2 | 342.1 | | Addition of new leases | 18.2 | 4.2 | — | 22.4 | | Depreciation charged during the year - included in adjusted profit | (55.1) | (6.5) | (6.6) | (68.2) | | Impairment - included in adjusted profit | (13.0) | — | (0.3) | (13.3) | | Disposal | (2.2) | — | (1.0) | (3.2) | | Exchange movement | (1.7) | 0.4 | — | (1.3) | | Other movements | 9.4 | 0.4 | (0.4) | 9.4 | | At 31 December 2021 | 265.6 | 15.4 | 6.9 | 287.9 | | Addition of new leases | 12.9 | 2.4 | — | 15.3 | | Depreciation charged during the year - included in adjusted profit | (45.8) | (6.0) | (4.2) | (56.0) | | Reversal of Impairment - included in adjusted profit | 2.4 | — | 0.3 | 2.7 | | Disposal of business | (0.2) | — | — | (0.2) | | Disposal | (6.3) | (1.6) | (0.5) | (8.4) | | Exchange movement | 1.4 | — | — | 1.4 | | Other movements | 7.0 | 0.4 | (0.6) | 6.8 | | At 31 December 2022 | 237.0 | 10.6 | 1.9 | 249.5 | Other movements include amendments to existing leases. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile job^{}[] Annual Report 2022 189 ## Section 3: Operating assets and liabilities continued ### 3.6 Provisions #### 4 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. #### 5 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 provided On | Business and provided On | Claims and Mighten provided On | Property provided On | Customer contract provided On | Other provided On | Total On | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January | 25.6 | 1.5 | 13.2 | 9.7 | 84.7 | 5.9 | 140.6 | | Impact of change in accounting standards – amendments to IAS 37^{1} | — | — | — | — | 18.8 | — | 18.8 | | At 1 January 2022 on adoption of IAS 37 | 25.6 | 1.5 | 13.2 | 9.7 | 103.5 | 5.9 | 159.4 | | Reclassification^{2} | (25.6) | — | — | 21.8 | (0.5) | 4.3 | — | | Provisions in the year | — | 25.0 | 7.6 | 7.0 | 20.6 | 6.0 | 66.2 | | Releases in the year | — | (1.2) | (1.4) | (7.8) | (17.1) | (3.7) | (31.2) | | Utilisation | — | (14.6) | (2.4) | (11.7) | (33.0) | (5.0) | (66.7) | | Disposal of subsidiaries | — | — | — | (0.3) | — | (0.1) | (0.4) | | **At 31 December** | **—** | **10.7** | **17.0** | **18.7** | **73.5** | **7.4** | **127.3** | | | | | | | | | | | | | | | 31 December 2022 On | | 31 December 2021 On | | | **Current** | | | | 75.7 | | 126.6 | | | **Non-current** | | | | 51.6 | | 14.0 | | | | | | | **127.3** | | **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 material earnings. Refer to note 1 for further details. 2. Following the rest of the Group under transformation programme, restructuring provision relating to severance and property costs (including unavoidable running costs, such as insurance, security, and disposition costs) where properties have been extinct as a result of the transformation programme, have been reclassified to others and property provision respectively as at 1 January 2022. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital 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. Financial statements Notes to the consolidated financial statements Capital plc Annual Report 2022 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 Net debt, capital and capital management - 4.2 Financial risk - 4.3 Net finance costs - 4.4 Leases - 4.5 Financial instruments and the fair value hierarchy - 4.6 Issued share capital - 4.7 Group composition and non-controlling interests Denotes accounting policies 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 0.5x (2021: 3.7x) Available liquidity £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 £306m 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital 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. | | Notes | 2022 CAGR | 2021 CAGR | Year on Year increased | | --- | --- | --- | --- | --- | | Cash and cash equivalents | 4.5.4 | (396.8) | (333.4) | (63.4) | | Overdraft | 4.5.4 | 219.6 | 231.9 | (12.3) | | Lease liabilities | 4.4.1 | 397.5 | 448.4 | (50.9) | | Private placement loan notes^{1} | 4.5.2 | 285.5 | 512.9 | (227.4) | | Credit facilities^{2} | | — | 46.0 | (46.0) | | Other loan notes | 4.5.2 | 0.7 | 1.3 | (0.6) | | Currency and interest rate swaps | 4.5.2 | (24.8) | (28.0) | 3.2 | | Deferred consideration | 4.5.2 | 0.7 | 0.7 | — | | **Net debt** | | **482.4** | **879.8** | **(397.4)** | | Undrawn available financing facilities | 4.5.2b | 288.4 | 345.7 | (57.3) | | **Capital** | | **770.8** | **1,225.5** | **(454.7)** | 1. Private placement loan notes include US dollar and British pound sterling private placement loan notes, and euro fixed rate bearer notes. 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 £67.3m. 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. Capital 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). Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 199 ## 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 £286.4m (31 December 2021: £385.7m) and was subsequently reduced to £294.7m 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 | Within 1 year £m | Between 1-2 years £m | Between 3-5 years £m | Between 5-8 years £m | Between 8-10 years £m | More than 5 years £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | Overdraft* | 219.6 | — | — | — | — | — | 219.6 | | Private placement loan notes | 75.0 | — | 91.4 | 34.7 | 94.0 | — | 295.1 | | Interest on loan notes | 9.6 | 7.9 | 6.2 | 4.5 | 2.6 | — | 30.8 | | Lease liabilities | 76.1 | 64.9 | 49.0 | 39.7 | 33.6 | 296.7 | 560.0 | | Deferred consideration | — | — | — | — | 0.7 | — | 0.7 | | Put options of non-controlling interests | 9.2 | — | — | — | — | — | 9.2 | | Cross-currency interest rate swaps | 0.8 | 0.8 | 0.8 | 0.8 | — | — | 3.2 | | Other financial instruments | 0.7 | — | — | — | — | — | 0.7 | | | 391.0 | 73.6 | 147.4 | 79.7 | 130.9 | 296.7 | 1,119.3 | \* The Group has a national cash pool under which the bank may set 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 Capita plc 191 statements consolidated Annual Report 2022 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. | | Within | | Between | | Between | | Between | | Between | | More than | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 year | | 1–2 years | | 2–3 years | | 3–4 years | | 4–5 years | | 5 years | | Total | | At 31 December 2022 | | £m | | £m | | £m | | £m | | £m | | £m | £m | Overdraft* 219.6 — — — — — 219.6 Private placement loan notes 75.0 — 91.4 34.7 94.0 — 295.1 Interest on loan notes 9.6 7.9 6.2 4.5 2.6 — 30.8 Lease liabilities 76.1 64.9 49.0 39.7 33.6 296.7 560.0 Deferred consideration — — — — 0.7 — 0.7 Put options of non-controlling interests 9.2 — — — — — 9.2 Cross-currency interest rate swaps 0.8 0.8 0.8 0.8 — — 3.2 Other financial instruments 0.7 — — — — — 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. Section 4: Capital structure and financing costs continued 4.2 Financial risk continued At 31 December 2021 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 Overdraft 231.9 — — — — — 231.9 Credit facilities 46.0 — — — — — 46.0 Private placement loan notes 226.9 69.8 — 84.6 32.9 94.6 508.8 Interest on loan notes 15.3 9.2 7.6 6.0 4.5 2.6 45.2 Lease liabilities 82.8 73.0 61.8 46.6 38.1 322.2 624.5 Deferred consideration — — — — — 0.7 0.7 Put options of non-controlling interests 8.6 — — — — — 8.6 Cross-currency interest rate swaps 0.6 0.7 0.4 0.4 0.4 — 2.5 Cash flow hedges 0.6 0.6 0.1 — — — 1.3 Other financial instruments 1.3 4.3 — — — — 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. USD INR ZAR Effect on profit before tax £m Effect on equity £m Effect on profit before tax £m Effect on equity £m Effect on profit before tax £m Effect on equity £m 2022 — 0.8 — 0.3 1.8 — 2021 — (3.3) — (5.3) (3.1) — 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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 | Within 1 year £m | Between 1-2 years £m | Between 3-5 years £m | Between 5-8 years £m | Between 8-9 years £m | More than 9 years £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Fixed rate** | | | | | | | | | Private placement loan notes | 27.5 | — | 29.7 | 18.6 | 71.2 | — | 147.0 | | **Floating rate** | | | | | | | | | Cash in hand | (396.8) | — | — | — | — | — | (396.8) | | Overdraft | 219.6 | — | — | — | — | — | 219.6 | | Private placement loan notes | 38.8 | — | 46.2 | 15.5 | 17.1 | — | 117.6 | | Nominal amounts At 31 December 2021 | Within 1 year £m | Between 1-2 years £m | Between 3-5 years £m | Between 5-8 years £m | Between 8-9 years £m | More than 9 years £m | Total £m | | **Fixed rate** | | | | | | | | | Private placement loan notes | 169.2 | 27.5 | — | 29.7 | 18.6 | 74.2 | 319.2 | | **Floating rate** | | | | | | | | | Cash in hand | (333.4) | — | — | — | — | — | (333.4) | | Overdraft | 231.9 | — | — | — | — | — | 231.9 | | Private placement loan notes | 48.5 | 38.8 | — | 46.2 | 15.5 | 17.1 | 166.1 | | Credit facilities | 46.0 | — | — | — | — | — | 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 £8.6m (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: | | National amount £m | Carrying amount £m | Line item in the balance sheet | Change in FY used for measuring ineffectiveness £m | | --- | --- | --- | --- | --- | | Cross-currency interest rate swaps – assets | 102.1 | 25.8 | Financial assets | (4.4) | | Cross-currency interest rate swaps – liabilities | 15.5 | (1.0) | Financial liabilities | 1.2 | | | | 24.8 | | (3.2) | | | Carrying amount £m | Accumulated FY adjustment £m | Line item in the balance sheet | Change in FY used for measuring ineffectiveness £m | | --- | --- | --- | --- | --- | | Private placement loan notes | 285.5 | 24.8 | Financial Liabilities | 3.2 | ### Financial Notes to the Capita plc 193 statements consolidated Annual Report 2022 financial statements ## 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 | Within | | Between | | Between | | Between | | Between | | More than | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 year | | 1–2 years | | 2–3 years | | 3–4 years | | 4–5 years | | 5 years | | Total | | At 31 December 2022 | | £m | | £m | | £m | | £m | | £m | | £m | £m | Fixed rate Private placement loan notes 27.5 — 29.7 18.6 71.2 — 147.0 Floating rate Cash in hand (396.8) — — — — — (396.8) Overdraft 219.6 — — — — — 219.6 Private placement loan notes 38.8 — 46.2 15.5 17.1 — 117.6 | Nominal amounts | Within | Between | | Between | | Between | | Between | | More than | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 year | 1–2 years | | 2–3 years | | 3–4 years | | 4–5 years | | 5 years | | Total | | At 31 December 2021 | £m | | £m | | £m | | £m | | £m | | £m | £m | Fixed rate Private placement loan notes 169.2 27.5 — 29.7 18.6 74.2 319.2 Floating rate Cash in hand (333.4) — — — — — (333.4) Overdraft 231.9 — — — — — 231.9 Private placement loan notes 48.5 38.8 — 46.2 15.5 17.1 166.1 Credit facilities 46.0 — — — — — 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: Change in FV used for Notional amount Carrying amount Line item in the measuring ineffectiveness £m £m balance sheet £m Cross-currency interest rate swaps – assets 102.1 25.8 Financial assets (4.4) Cross-currency interest rate swaps – liabilities 15.5 (1.0) Financial liabilities 1.2 24.8 (3.2) Accumulated FV Change in FV used for Carrying amount adjustment Line item in the measuring ineffectiveness £m £m balance sheet £m Private placement loan notes 285.5 24.8 Financial Liabilities 3.2 Section 4: Capital structure and financing costs continued 4.2 Financial risk continued Cash flow hedges The Group holds a series of non-deliverable forward foreign exchange contracts (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. 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: 2022 £m 2021 £m At 1 January (0.7) (4.8) Change in fair value recognised in the consolidated statement of other comprehensive income 11.5 1.3 Reclassified to the consolidated income statement: recognised in administrative expenses (5.1) — recognised in net finance cost — 0.6 Change in tax (1.6) 2.2 At 31 December 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 table below shows the composition of net finance costs, including those excluded from adjusted profit: Notes 2022 £m 2021 £m Interest income Interest on cash (1.1) (0.4) Interest on finance lease assets (4.2) (4.3) Net interest income on defined benefit pension schemes 5.2 (3.6) — Total interest income (8.9) (4.7) Interest expense Private placement loan notes 1 12.0 17.9 Cash flow hedges recycled to the income statement — 0.6 Bank loans and overdrafts 9.2 5.4 Interest on finance lease liabilities 22.6 23.8 Net interest expense on defined benefit pension schemes 5.2 — 1.5 Total interest expense 43.8 49.2 Net finance expense included in adjusted profit 34.9 44.5 Included within business exits Bank loans and overdrafts 0.2 0.7 Discount unwind on public sector subsidiary partnership payment 4.5.2 — 0.4 Other financial (income)/expense — (0.1) Other items excluded from adjusted profits Non-designated foreign exchange forward contracts – mark-to-market (3.6) 1.5 Fair value hedge ineffectiveness 2 4.2.4 0.2 (0.1) Net finance (income)/expenses excluded from adjusted profit (3.2) 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 Capita plc 194 statements consolidated Annual Report 2022 financial statements AP 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 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 199 ## 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 | Note | 2022 £m | 2021 £m | Type of financial instrument | | --- | --- | --- | --- | --- | | Lease liabilities | | 397.5 | 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 | 2022 £m | 2021 £m | Type of financial instrument | | --- | --- | --- | --- | | Lease receivables | 76.3 | 82.1 | Financial assets | The maturity analysis of lease receivables, including the undiscounted lease payments to be received, is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Within 1 year | 9.8 | 10.8 | | Between 1-2 years | 9.7 | 9.6 | | Between 2-3 years | 8.2 | 9.6 | | Between 3-4 years | 7.7 | 8.2 | | Between 4-5 years | 4.0 | 7.7 | | More than 5 years | 70.2 | 73.0 | | Total undiscounted lease payments receivable | 109.6 | 118.9 | | Unearned finance income | (33.3) | (36.8) | | **Net investment in lease receivables** | **76.3** | **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 £70.0m 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. ### Financial Notes to the Capita plc 196 statements consolidated Annual Report 2022 financial statements AP 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. Financial instruments with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Purchases and sales of financial instruments are recognised on their trade date (ie the date the Group commits to purchase or sell the instrument). Financial instruments are derecognised when the rights to receive/pay cash flows from the financial instrument have expired or have been transferred such that the Group has transferred substantially all risks and rewards of ownership. Debt instruments Debt instruments are initially recognised at fair value less directly attributable transaction costs and are subsequently remeasured depending on the Group’s business model for managing the liability and the cash flow characteristics of the liability. There are three measurement categories into which the Group classifies its debt instruments: • Amortised cost: instruments that are held for collection/payment of contractual cash flows are measured at amortised cost where those cash flows represent solely payments of principal and interest. Interest income/expense from these financial instruments is included in net finance costs using the effective interest rate method. • FVOCI: instruments that are held for collection/payment of contractual cash flows and for selling the financial instrument are measured at FVOCI where the instrument’s cash flows represent solely payments of principal and interest. Movements in the carrying amount are taken through consolidated Other Comprehensive Income (OCI), except for the recognition of impairment gains or losses, interest income and foreign exchange gains/losses, which are recognised in the consolidated income statement. When the financial instrument is derecognised, the cumulative gain/loss previously recognised in OCI is reclassified to the consolidated income statement and recognised in other gains/ (losses). • FVPL: instruments that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain/loss on a debt instrument that is measured at FVPL is recognised in the consolidated income statement and presented within net finance costs. The Group reclassifies debt instruments when, and only when, its business model for managing those instruments changes. Equity instruments Investments in equity instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recognised through the consolidated income statement, except where an election has been made for the movement to be recognised through OCI. An election can be made on initial recognition of equity instruments that are neither held-for-trading or instruments acquired as part of a business combination. Once an election has been made all movements in fair value, with the exception of dividends, are presented through OCI and there is no subsequent reclassification of fair value gains/losses to the consolidated income statement following the derecognition of the investment. Dividends from such investments continue to be recognised in the consolidated income statement as other income when the Group’s right to receive payments is established. Impairment The Group assesses, on a forward looking basis, the expected credit losses associated with its financial instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Derivatives Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value at the end of each reporting period with the movement recognised through the consolidated income statement, except where derivatives qualify for cash flow hedge accounting. The effective proportion of cash flow hedges is recognised in OCI and presented in the hedging reserve within equity. The cumulative gain/loss is subsequently reclassified to the consolidated income statement in the same period that the relevant hedged transaction is realised. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 197 ## 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. During the year ended 31 December 2022, there were no transfers between fair value levels. #### 4.5.2 Financial instruments and their fair value hierarchy classification The following table analyses, by classification and category, the carrying value of the Group's financial instruments and identifies the level of the fair value hierarchy for the instruments carried at fair value: | At 31 December 2022 | Note | Fair value hierarchy | PVRL £m | PVOD £m | Derivatives used for hedging £m | Amortised cost £m | Total £m | Current £m | Non- current £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | | | | Lease receivables | 4.4.2 | n/a | — | — | — | 76.3 | 76.3 | 5.9 | 70.4 | | Cash flow hedges | 4.2.4 | Level-2 | — | — | 5.4 | — | 5.4 | 3.0 | 2.4 | | Non-designated foreign exchange forwards and swaps | | Level-2 | 5.3 | — | — | — | 5.3 | 4.4 | 0.9 | | Cross-currency interest rate swaps | a | Level-2 | — | — | 25.8 | — | 25.8 | 8.3 | 17.5 | | Originated loans receivable | | n/a | — | — | — | 0.5 | 0.5 | — | 0.5 | | Financial assets at fair value through P&L | | Level-3 | 17.2 | — | — | — | 17.2 | — | 17.2 | | Financial assets at fair value through OCI | | Level-3 | — | 0.8 | — | — | 0.8 | — | 0.8 | | Deferred consideration receivable | | n/a | — | — | — | 10.5 | 10.5 | 2.0 | 8.5 | | | | | 22.5 | 0.8 | 31.2 | 87.3 | 141.8 | 23.6 | 118.2 | | **Other financial assets** | | | | | | | | | | | Cash | 4.5.4 | n/a | — | — | — | 396.8 | 396.8 | 396.8 | — | | **Total financial assets** | | | **22.5** | **0.8** | **31.2** | **484.1** | **538.6** | **420.4** | **118.2** | | **Financial liabilities** | | | | | | | | | | | Private placement loan notes | a | n/a | — | — | — | 285.5 | 285.5 | 74.6 | 210.9 | | Other loan notes | | n/a | — | — | — | 0.7 | 0.7 | 0.7 | — | | Non-designated foreign exchange forwards and swaps | | Level-2 | 0.1 | — | — | — | 0.1 | 0.1 | — | | Cross-currency interest rate swaps | a | Level-2 | — | — | 1.0 | — | 1.0 | — | 1.0 | | Deferred consideration payable | | n/a | — | — | — | 0.7 | 0.7 | — | 0.7 | | Put options of non-controlling interests | d | Level-3 | — | 9.2 | — | — | 9.2 | 9.2 | — | | | | | 0.1 | 9.2 | 1.0 | 286.9 | 297.2 | 84.6 | 212.6 | | **Other financial liabilities** | | | | | | | | | | | Overdrafts | 4.5.4 | n/a | — | — | — | 219.6 | 219.6 | 219.6 | — | | Lease liabilities | 4.4.1 | n/a | — | — | — | 397.5 | 397.5 | 55.6 | 341.9 | | **Total financial liabilities** | | | **0.1** | **9.2** | **1.0** | **904.0** | **914.3** | **359.8** | **554.5** | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 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 £144.0m (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 26 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 199 ## Section 4: Capital structure and financing costs continued ### 4.5 Financial instruments and the fair value hierarchy continued | At 31 December 2021 | Note | Fair value hierarchy | FVA, £m | FVCO, £m | Derivatives used for hedging, £m | Amortised loss, £m | Total, £m | Current, £m | Non-current, £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | | | | Lease receivables | 4.4.2 | n/a | — | — | — | 82.1 | 82.1 | 6.6 | 75.5 | | Cash flow hedges | 4.2.4 | Level-2 | — | — | 0.9 | — | 0.9 | 0.7 | 0.2 | | Non-designated foreign exchange forwards and swaps | | Level-2 | 1.8 | — | — | — | 1.8 | 0.8 | 1.0 | | Cross-currency interest rate swaps | a | Level-2 | — | — | 30.2 | — | 30.2 | 9.4 | 20.8 | | Originated loans receivable | | n/a | — | — | — | 0.5 | 0.5 | — | 0.5 | | Financial assets at fair value through P&L | | Level-3 | 8.4 | — | — | — | 8.4 | — | 8.4 | | Financial assets at fair value through OCI | | Level-3 | — | 0.8 | — | — | 0.8 | — | 0.8 | | | | | 10.2 | 0.8 | 31.1 | 82.6 | 124.7 | 17.5 | 107.2 | | **Other financial assets** | | | | | | | | | | | Cash | 4 | n/a | — | — | — | 317.6 | 317.6 | 317.6 | — | | Cash included within disposal group assets held-for-sale | 2.8 | n/a | — | — | — | 15.8 | 15.8 | 15.8 | — | | **Total financial assets** | | | 10.2 | 0.8 | 31.1 | 416.0 | 458.1 | 350.9 | 107.2 | | **Financial liabilities** | | | | | | | | | | | Private placement loan note | a | n/a | — | — | — | 512.9 | 512.9 | 226.3 | 286.6 | | Other loan notes | | n/a | — | — | — | 1.3 | 1.3 | 0.3 | 1.0 | | Credit facilities | b | Level-2 | — | — | — | 46.0 | 46.0 | 46.0 | — | | Cash flow hedges | 4.2.4 | Level-2 | — | — | 1.8 | — | 1.8 | 0.8 | 1.0 | | Non-designated foreign exchange forwards and swaps | | Level-2 | 4.7 | — | — | — | 4.7 | 4.3 | 0.4 | | Cross-currency interest rate swaps | a | Level-2 | — | — | 2.2 | — | 2.2 | — | 2.2 | | Deferred consideration payable | | n/a | — | — | — | 0.7 | 0.7 | — | 0.7 | | Put options of non-controlling interests | d | Level-3 | — | 8.6 | — | — | 8.6 | 8.6 | — | | | | | 4.7 | 8.6 | 4.0 | 560.9 | 578.2 | 286.3 | 291.9 | | **Other financial liabilities** | | | | | | | | | | | Overdrafts | 4.5.4 | n/a | — | — | — | 231.9 | 231.9 | 231.9 | — | | Lease liabilities | 4.4.1 | n/a | — | — | — | 448.4 | 448.4 | 61.6 | 386.8 | | **Total financial liabilities** | | | 4.7 | 8.6 | 4.0 | 1,241.2 | 1,258.5 | 579.8 | 676.7 | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 200 ## 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. | | Subsidiary partnership payment P/E | Put options of non- controlling interests P/E | Investments PSPs and P/2021 P/E | | --- | --- | --- | --- | | At 1 January 2021 | 27.1 | 98.7 | 2.3 | | Payments made | (4.7) | — | — | | Change in put-options recognised in other comprehensive income^{1} | — | (91.1) | — | | Additions | — | — | 0.3 | | Reclassification from other investment categories | — | — | 4.3 | | Gain in fair value recognised in income statement | — | — | 2.2 | | Gain in fair value recognised in other comprehensive income | — | — | 0.1 | | Discount unwind recognised in the income statement | 0.4 | — | — | | Business disposal | (22.8) | — | — | | At 31 December 2021 | — | 8.6 | 9.2 | | Change in put-options recognised in other comprehensive income | — | 0.6 | — | | Additions | — | — | 2.3 | | Reclassification from other investment categories | — | — | 0.4 | | Gain in fair value recognised in income statement | — | — | 5.9 | | Gain in fair value recognised in other comprehensive income | — | — | 0.2 | | **At 31 December 2022** | **—** | **9.2** | **18.0** | 1. The option to acquire the non-controlling interest in A/AL/OS Limited expired without being exercised on 26 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 | Denomination | Interest rate % | Nominal value Crp/m | | --- | --- | --- | --- | | 27 October 2023 | GBP | 2.520 | 27.5 | | 22 January 2025 | GBP | 3.540 | 7.4 | | 22 April 2025 | GBP | 3.670 | 22.3 | | 27 October 2026 | GBP | 2.770 | 18.6 | | 22 January 2027 | GBP | 3.580 | 23.8 | | **Total GBP denominated** | **GBP** | | **99.6** | | 22 January 2023 | USD | 3.450 | 39.4 | | 27 October 2023 | USD | 3.370 | 17.8 | | 22 January 2025 | USD | 3.650 | 74.3 | | 27 October 2026 | USD | 3.590 | 19.3 | | 22 January 2027 | USD | 3.800 | 27.5 | | **Total USD denominated^{2}** | **USD** | | **178.3** | | 10 November 2027 | EUR | 3.625 | 53.4 | | **Total euro denominated^{2}** | **EUR** | | **53.4** | 1. USD denominated loan notes have a GBP equivalent underlying carrying value of £117.9m. The Group has entered into cross-currency interest rate swaps for the USD issues to achieve a floating rate of interest based on SCNIA. 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. | Financial statements | Notes to the consolidated financial statements | Capital 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: | | 2022 Qtr. | 2021 Qtr. | | --- | --- | --- | | Cash and cash equivalents | 396.8 | 317.6 | | Overdrafts | (219.6) | (231.9) | | Cash, net of overdrafts, included in disposal group assets and liabilities held for sale | — | 15.8 | | **Cash, cash equivalents and overdrafts** | **177.2** | **101.5** | #### 4.6 Issued share capital | Allotted, called up and fully paid | 2022 No m | 2021 No m | 2022 Qtr. | 2021 Qtr. | | --- | --- | --- | --- | --- | | Ordinary shares of 2 1/15p each | | | | | | At 1 January | 1,684.1 | 1,671.1 | 34.8 | 34.5 | | Issue of share capital | — | 13.0 | — | 0.3 | | **At 31 December** | **1,684.1** | **1,684.1** | **34.8** | **34.5** | | **Share premium** | | | **2022 Qtr.** | **2021 Qtr.** | | Ordinary shares of 2 1/15p each | | | | | | At 1 January | | | 1,145.5 | 1,143.3 | | VAT refund on rights issue issuance costs | | | — | 2.2 | | **At 31 December** | | | **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 | 2022 No m | 2021 No m | 2022 Qtr. | 2021 Qtr. | | --- | --- | --- | --- | --- | | Ordinary shares of 2 1/15p | | | | | | At 1 January | — | 2.3 | — | (0.1) | | Issued on exercise of share options | — | (2.3) | — | 0.1 | | **At 31 December** | **—** | **—** | **—** | **—** | 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 £nll. | Employee benefit trust shares | 2022 No m | 2021 No m | 2022 Qtr. | 2021 Qtr. | | --- | --- | --- | --- | --- | | Ordinary shares of 2 1/15p | | | | | | At 1 January | 18.1 | 12.6 | (8.0) | (11.1) | | Shares purchased | — | 13.0 | — | (0.3) | | Issued on exercise of share options | (8.8) | (7.5) | 3.8 | 3.4 | | **At 31 December** | **9.3** | **18.1** | **(4.2)** | **(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: 7,580,173) 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 Capita plc 202 statements consolidated Annual Report 2022 financial statements 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. financial statements Notes to the consolidated financial statements Kapitel plc Annual Report 2022 203 ## 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 - **P** Denotes accounting policies - **T** Denotes significant accounting judgements, estimates and assumptions ### Key highlights Additional funding into the defined benefit schemes £38.6m (2021: £155.5m) Net defined benefit pension surplus £39.6m (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 | 2022 £m | 2021 £m | Movement £m | | --- | --- | --- | --- | | Defined benefit obligation | (1,136.1) | (1,791.5) | 655.4 | | Fair value of plan assets | 1,175.7 | 1,797.3 | (621.6) | | **Net defined pension asset after effect of asset ceiling limit** | **39.6** | **5.8** | **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 Capite 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 204 ## Section 5: Employee benefits continued ### 5.1 Share-based payment plans The Group operates a number of executive and employee equity-settled share schemes. 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 in 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 £160m; 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 5 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. Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 209 ## 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. | | 2020 M cr | 2021 M cr | | --- | --- | --- | | Outstanding at 1 January | 46.4 | 48.5 | | Awarded during the year | 28.5 | 15.8 | | Exercised | (8.8) | (9.8) | | Forfeited | (24.6) | (8.1) | | Outstanding at 31 December | 41.7 | 46.4 | | Exercisable at 31 December | — | — | 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 #### 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 redissolved 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^{}[] Statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital plc^{}[] Annual Report 2022 208 ## Section 5: Employee benefits continued ### 5.2 Pensions continued #### 5 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 6.1 years (around 0.4% of liabilities). #### Pension expense included in the consolidated income statement | | 2020 £m | 2021 £m | | --- | --- | --- | | **Defined contribution scheme** | **55.2** | **60.2** | | **Defined benefit schemes** | | | | Current service cost | 4.4 | 6.3 | | Administration costs | 3.9 | 3.5 | | Past service cost | 0.6 | (0.2) | | Effect of settlements | 0.1 | (0.7) | | Interest cost | (3.6) | 1.5 | | **Total defined benefit schemes** | **5.4** | **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%). Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capital 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: | | 2021 | 2022 | 2023^{1} | | --- | --- | --- | --- | | Deficit contribution^{1} | £59.0m | £30.0m | £30.0m | 1. The agreed contributions make allowances for additional contributions, totalling £71.0m, paid by the Group between 1 April 2020 and 30 June 2021 to meet its obligations under the previous agreement dated 28 November 2018. In a second CPLAS is released in the Capital Scotland (Pension) Limited Partnership, and in respect of a section 15 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 2023 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 0.5% 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 18). 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: 61) 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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Reptile plc^{}[] Annual Report 2022 208 ## 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:** it 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 99% 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 | Group Total £m | | --- | --- | | Base defined benefit obligation | 1,136.1 | | 0.5% pa decrease in discount rate | 1,223.5 | | 0.5% pa increase in salary increases | 1,137.4 | | 0.5% pa increase in inflation (and related assumption, eg salary and pension increases) | 1,184.9 | | 1 year increase in life expectancy | 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). Financial statements Notes to the consolidated financial statements Capital 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: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | | **Scheme assets at fair value:** | | | | | | | | Equities: | | | | | | | | – UK | 0.2 | 2.5 | 2.7 | 1.0 | 3.1 | 4.1 | | – Overseas | 2.0 | 24.8 | 26.8 | 7.0 | 76.5 | 83.5 | | – Private | 0.2 | — | 0.2 | 0.5 | — | 0.5 | | | 2.4 | 27.3 | 29.7 | 8.5 | 79.6 | 88.1 | | **Debt securities:** | | | | | | | | – UK Government | 482.0 | — | 482.0 | 789.1 | 0.2 | 789.3 | | – UK Corporate | 0.4 | 11.6 | 12.0 | 1.1 | 7.6 | 8.7 | | – Overseas Government | 10.1 | 11.4 | 21.5 | 2.6 | 53.4 | 56.0 | | – Overseas Corporate | 0.9 | 101.0 | 101.9 | 1.2 | 67.8 | 69.0 | | – Emerging Markets | 0.5 | 27.3 | 27.8 | 1.4 | — | 1.4 | | – Private Debt | — | 134.5 | 134.5 | — | 129.5 | 129.5 | | – Secured Loans | — | 39.8 | 39.8 | 0.1 | — | 0.1 | | | 493.9 | 325.6 | 819.5 | 795.5 | 258.5 | 1,054.0 | | Property | 2.6 | 88.2 | 90.8 | 2.8 | 97.5 | 100.3 | | Infrastructure | 1.5 | — | 1.5 | 1.5 | — | 1.5 | | Credit Funds | 2.7 | — | 2.7 | 3.2 | 160.1 | 163.3 | | Hedge Funds | — | 2.1 | 2.1 | — | 54.1 | 54.1 | | Absolute Return Funds | 0.1 | — | 0.1 | 0.8 | — | 0.8 | | Diversified Growth Funds | — | — | — | — | 79.5 | 79.5 | | Insurance Contracts | — | 71.4 | 71.4 | — | 86.8 | 86.8 | | Cash | 34.3 | 133.2 | 167.5 | 148.1 | 11.2 | 159.3 | | Other | (8.5) | (1.1) | (9.6) | 1.2 | 8.4 | 9.6 | | | 32.7 | 293.8 | 326.5 | 157.6 | 497.6 | 655.2 | | **Total** | **529.0** | **648.7** | **1,175.7** | **961.6** | **835.7** | **1,797.3** | | Present value of scheme liabilities (before effect of asset ceiling limit) | | | (1,136.0) | | | (1,789.2) | | Net surplus (before effect of asset ceiling limit) | | | 39.7 | | | 8.1 | | Effect of asset ceiling limit | | | (0.1) | | | (2.3) | | Present value of scheme liabilities (after effect of asset ceiling limit) | | | (1,136.1) | | | (1,791.5) | | Net surplus (after effect of asset ceiling limit) | | | 39.6 | | | 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 CPLAE's Credit Funds (£90.0m) and Diversified Growth Funds (£90.0m) as at 31 December 2022 which are now classified on a 'non-through' basis. Financial statements Notes to the consolidated financial statements Reptile job Annual Report 2022 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 (Eni as at 31 December 2021). | financial statements | Notes to the consolidated financial statements | Capital 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 | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | At 1 January | (1,791.5) | (1,882.3) | 1,797.3 | 1,630.2 | 5.8 | (252.1) | | **Included in the consolidated income statement:** | | | | | | | | Current service cost | (4.4) | (6.3) | — | — | (4.4) | (6.3) | | Administration costs | (3.9) | (3.5) | — | — | (3.9) | (3.5) | | Past service cost | (0.6) | 0.2 | — | — | (0.6) | 0.2 | | Effect of settlements | 0.1 | 5.5 | (0.2) | (4.8) | (0.1) | 0.7 | | Interest income/(expense)* | (44.0) | (27.5) | 47.6 | 26.0 | 3.6 | (1.5) | | **Sub-total in consolidated income statement** | **(52.8)** | **(31.6)** | **47.4** | **21.2** | **(5.4)** | **(10.4)** | | **Included in other comprehensive income:** | | | | | | | | Actuarial gain/(loss) arising from: | | | | | | | | – demographic assumptions | 6.8 | (10.7) | — | — | 6.8 | (10.7) | | – financial assumptions | 706.1 | 129.2 | — | — | 706.1 | 129.2 | | – experience adjustments | (50.4) | (41.6) | — | — | (50.4) | (41.6) | | – changes in asset ceiling/minimum liability | 2.3 | (2.3) | — | — | 2.3 | (2.3) | | Return on plan assets excluding interest | — | — | (673.7) | 34.8 | (673.7) | 34.8 | | **Sub-total in other comprehensive income** | **664.8** | **74.6** | **(673.7)** | **34.8** | **(8.9)** | **109.4** | | Employer contributions | (0.2) | — | 48.7 | 158.9 | 48.5 | 158.9 | | Contributions by employees | (1.7) | (1.6) | 1.7 | 1.6 | — | — | | Benefits paid | 47.8 | 48.8 | (47.8) | (48.8) | — | — | | Exchange movement - recognised in other comprehensive income | (2.5) | 0.6 | 2.1 | (0.6) | (0.4) | — | | **At 31 December** | **(1,136.1)** | **(1,791.5)** | **1,175.7** | **1,797.3** | **39.6** | **5.8** | | **Schemes in a net surplus** | | | | | | | | CPLAS | (1,087.0) | (1,725.3) | 1,126.3 | 1,732.5 | 39.3 | 7.2 | | Other schemes | (15.2) | (23.8) | 18.6 | 29.9 | 3.4 | 6.1 | | | **(1,102.2)** | **(1,749.1)** | **1,144.9** | **1,762.4** | **42.7** | **13.3** | | **Schemes in a net deficit** | | | | | | | | Other schemes | (33.9) | (42.4) | 30.8 | 34.9 | (3.1) | (7.5) | | | **(33.9)** | **(42.4)** | **30.8** | **34.9** | **(3.1)** | **(7.5)** | | **At 31 December** | **(1,136.1)** | **(1,791.5)** | **1,175.7** | **1,797.3** | **39.6** | **5.8** | *Includes impact of asset ceiling on net interest of £5.1m in 2022 (2021: £m). 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: | | Proportion of overall liability % 2022 | Duration (years) % 2022 | Proportion of overall liability % 2021 | Duration (years) % 2021 | | --- | --- | --- | --- | --- | | Active members | 6 | 16.9 | 5 | 21.4 | | Deferred members | 59 | 18.0 | 63 | 22.8 | | Pensioners | 35 | 10.6 | 32 | 13.0 | | **Total percentage / average duration** | **100** | **15.5** | **100** | **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^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Rapita plc^{}[] Annual Report 2022 212 ## Section 5: Employee benefits continued ### 5.2 Pensions continued #### Financial and demographic assumptions | Main assumptions^{1} | All schemes | | | --- | --- | --- | | | 2022 % | 2021 % | | Rate of price inflation – RPI | 3.15 | 3.30 | | Rate of price inflation – CPI | 2.50 | 2.65 | | Rate of salary increase | 3.15 | 3.30 | | Rate of increase of pensions in payment^{2} | | | | – RPI inflation capped at 5% per annum | 3.05 | 3.20 | | – RPI inflation capped at 2.5% per annum | 2.15 | 2.20 | | – CPI inflation capped at 5% per annum | 2.50 | 2.65 | | Discount rate | 4.75 | 1.90 | | 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 crude schemes it is 2.2% per annum in 2022. 2. These 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 65 (life expectancy at 65) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Male | | Female | | Male | | Female | | | | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | | Capita Scheme^{1} | 22.4 | 22.5 | 24.3 | 24.4 | 22.3 | 22.4 | 25.2 | 25.3 | | Other Schemes^{2} | 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 | 1. The assumptions used for the Capita scheme are defined for each member. The assumptions adopted make allowance for an increase in the longevity in the future (OM 2021) one model (but it is with a long-term rate of improvement of 1.05% p.a. at 1% per annum) of 0.05% 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 30 years. One 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 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. | | Notes | 2022 £m | 2021 £m prepaid | | --- | --- | --- | --- | | Wages and salaries^{1} | | 1,536.1 | 1,540.9 | | Social security costs | | 152.4 | 155.9 | | Pension costs | | 64.2 | 69.1 | | Share-based payments | 5.1 | 5.4 | 1.2 | | | | 1,758.1 | 1,767.1 | 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 Capital plc^{}[] Annual Report 2022 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: | 2022 Number | 2021 Number | | --- | --- | --- | | Sales | 598 | 766 | | Administration | 3,093 | 3,259 | | Operations | 47,509 | 49,305 | | | 51,200 | 53,330 | Financial^{}[] statements Notes to the^{}[] consolidated^{}[] ^{}[] financial statements Capita plc^{}[] Annual Report 2022 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: - 6.2 Contingent liabilities Denoites accounting policies ### 6.1 Related-party transactions Compensation of key management personnel | | 2022 £m | 2021 £m | | --- | --- | --- | | Short-term employment benefits | 7.6 | 12.7 | | Pension | — | — | | Share-based payments | 2.2 | 0.3 | | | **9.8** | **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 Otgem 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-asses or other refinancing. ### Financial Company Capita plc 215 statements financial statements Annual Report 2022 ## Section 6: Other supporting notes Section 7: Company financial statements This section presents the company only financial statements for Capita plc (the Company). In this section, you will find This section includes disclosures of those items that are not explained elsewhere in the financial statements. the following: | In this section you will find disclosures about: | 7.1 Company balance sheet | | --- | --- | | 6.1 Related-party transactions | 7.2 Company statement of changes in equity | | 6.2 Contingent liabilities | 7.3 Notes to the Company financial statements | 6.3 Post balance sheet events AP Denotes accounting policies Denotes accounting policies J Denotes significant accounting judgements, estimates and assumptions ### 6.1 Related-party transactions ### 7.1 Company balance sheet Compensation of key management personnel | | | | | | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | --- | | | | | | Notes | £m | £m | | | 2022 | 2021 | | | | | | | £m | £m | Non-current assets | | | | | Short-term employment benefits 7.6 12.7 | | | Intangible assets 7.3.2 — 26.8 | | | | | Pension — — | | | Tangible assets 7.3.3 0.8 13.2 | | | | Investments 7.3.4 994.3 947.3 Share-based payments 2.2 0.3 Financial assets 7.3.5 20.8 22.0 9.8 13.0 Deferred tax assets 7.3.6 11.2 12.7 Amounts owed by subsidiary companies 7.3.7 64.4 — 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). Trade and other receivables 7.3.8 — 0.1 1,091.5 1,022.1 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 Current assets length basis under the DCC licence. The services are subject to review by Ofgem to ensure that all costs are economically and efficiently Financial assets 7.3.5 15.7 10.9 incurred by DCC. Amounts owed by subsidiary companies 7.3.7 2,494.8 2,619.8 Trade and other receivables 7.3.8 1.6 13.1 Capita Pension and Life Assurance Scheme is a related party of the Group. Transactions with the Scheme are disclosed in note5.2. Income tax receivable 33.6 59.3 Cash — — ### 6.2 Contingent liabilities 2,545.7 2,703.1 Total assets 3,637.2 3,725.2 Contingent liabilities represent potential future cash outflows which are either not probable or cannot be measured reliably. Current liabilities The Group has provided, through the normal course of its business, performance bonds and bank guarantees of £34.0m (2021: £28.7m). Amounts owed to subsidiary companies 7.3.7 2,302.7 2,086.8 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, Trade and other payables 7.3.9 9.6 7.9 which are uncertain, could result in the continuation of contracts with amended terms or the termination of contracts. If an operation is Accruals and deferred income 16.6 41.7 terminated, the Group may incur associated costs, accelerate the recognition of deferred income or the impairment of contract assets. Overdrafts 14.6 31.0 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 Borrowings 7.3.11 — 196.2 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 Financial liabilities 7.3.5 0.1 5.2 outflow of economic benefits occurring and whether there is a need to disclose a contingent liability or whether a provision might be required Provisions 7.3.10 4.8 8.2 due to the probability assessment. 2,348.4 2,377.0 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 Non-current liabilities entities heightens the risk that not all potential claims are known at any point in time. Trade and other payables 7.3.9 — 0.3 Borrowings 7.3.11 44.2 51.7 ### 6.3 Post balance sheet events Financial liabilities 7.3.5 1.0 3.6 The following events occurred after 31 December 2022, and before the approval of these consolidated financial statements, but have not 45.2 55.6 resulted in adjustment to the 2022 financial results: Total liabilities 2,393.6 2,432.6 Committed bridge facility Net assets 1,243.6 1,292.6 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 Capital and reserves as those in the Revolving Credit Facility (RCF). Both the RCF and the £50m bridge facility incorporate provisions such that they will partially Issued share capital 7.3.12 34.8 34.8 reduce in quantum as a consequence of specified transactions including disposals, equity-raises or other refinancing. Employee benefit trust and treasury shares 7.3.12 (4.2) (8.0) Share premium 7.3.12 1,145.5 1,145.5 Capital redemption reserve 1.8 1.8 Merger reserve 44.6 44.6 Cash flow hedging reserve — (0.7) Retained earnings 21.1 74.6 Total equity 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 Tim Weller Chief Executive Officer Chief Financial Officer Company registered number: 02081330 financial^{}[] statements Company^{}[] financial statements Capital plc^{}[] Annual Report 2022 218 ## Section 7: Company financial statements continued ### 7.2 Company statement of changes in equity | | Share capital £m | Employee benefit trust and treasury shares £m | Share premium £m | Capital redemption reserve £m | Merger reserve £m | Cash flow hedging reserve £m | Retained earnings £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2021 | 34.5 | (11.2) | 1,143.3 | 1.8 | 44.6 | (4.6) | 274.5 | 1,482.9 | | Loss for the year | — | — | — | — | — | — | (198.0) | (198.0) | | Other comprehensive expense | — | — | — | — | — | 3.9 | — | 3.9 | | Total comprehensive expense for the year | — | — | — | — | — | 3.9 | (198.0) | (194.1) | | Shares issued | 0.3 | (0.3) | — | — | — | — | — | — | | VAT refund on rights issue issuance costs | — | — | 2.2 | — | — | — | — | 2.2 | | Exercise of share options under employee long-term incentive plans | — | 3.5 | — | — | — | — | (3.5) | — | | Share-based payment net of tax effects | — | — | — | — | — | — | 1.6 | 1.6 | | At 1 January 2022 | 34.8 | (8.0) | 1,145.5 | 1.8 | 44.6 | (0.7) | 74.6 | 1,292.6 | | Loss for the year | — | — | — | — | — | — | (55.1) | (55.1) | | Other comprehensive expense | — | — | — | — | — | 0.7 | — | 0.7 | | Total comprehensive expense for the year | — | — | — | — | — | 0.7 | (55.1) | (54.4) | | Shares issued | — | — | — | — | — | — | — | — | | Exercise of share options under employee long-term incentive plans | — | 3.8 | — | — | — | — | (3.8) | — | | Share-based payment net of tax effects | — | — | — | — | — | — | 5.4 | 5.4 | | At 31 December 2022 | 34.8 | (4.2) | 1,145.5 | 1.8 | 44.6 | — | 21.1 | 1,243.6 | 1. The directors did not declare a dividend in 2022 to 2021. **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. Financial^{}[] statements Company^{}[] financial statements Capita plc^{}[] Annual Report 2022 217 ## Section 7: Company financial statements continued ### 7.3 Notes to the Company financial statements #### 7.3.1 Accounting policies ##### 4 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 ##### 1 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 determined 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. financial^{}[] statements Company^{}[] financial statements Capital 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 #### 3 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 | | Capitalised software development £m | Other Intangibles £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 January 2022 | 31.8 | 15.7 | 47.5 | | Intragroup transfer | (31.1) | (15.7) | (46.8) | | Retirement | (0.7) | — | (0.7) | | At 31 December 2022 | — | — | — | | **Amortisation** | | | | | At 1 January 2022 | 11.2 | 9.5 | 20.7 | | Charge for the year | 5.1 | 0.9 | 6.0 | | Intragroup transfer | (15.9) | (10.4) | (26.3) | | Retirement | (0.4) | — | (0.4) | | At 31 December 2022 | — | — | — | | **Net book value:** | | | | | At 1 January 2023 | 20.6 | 6.2 | 26.8 | | At 31 December 2022 | — | — | — | 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. ### Financial Company Capita plc 219 statements financial statements Annual Report 2022 ## Section 7: Company financial statements continued Section 7: Company financial statements continued ### 7.3.1 Accounting policies 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 | | | | | Short-term | | Equipment | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | for pound basis in the event of disposal proceeds being used to fund mandatory prepayments of debt. | Computer | | | leasehold | | right-of-use | | | | | equipment | | improvements | | | | asset | Total | | The next scheme funding assessment is expected to be carried out with an effective date of 31March 2023. | | £m | | | £m | | £m | £m | Cost Note5.2 of the Group’s consolidated financial statements sets out more detail about the pension obligations. At 1 January 2022 22.2 1.3 0.4 23.9 (c) Share-based payments Additions 3.0 0.1 — 3.1 Subsidiary companies of the Company reimburse the Company through the intercompany account for charges attributable to their employees Intragroup transfer (23.9) 0.1 — (23.8) participating in the Company’s share schemes. Asset retirements (1.3) (0.1) — (1.4) (d) Amounts owed by/to subsidiary companies At 31December 2022 — 1.4 0.4 1.8 Significant accounting judgements, estimates and assumptions Depreciation At 1 January 2022 9.8 0.5 0.4 10.7 The amounts owed by and to subsidiary companies are shown at cost plus accrued interest less any provision for impairment. Amounts owed Charge for the year 4.7 0.3 — 5.0 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 Intragroup transfer (13.2) (0.1) — (13.3) there is an indicator of increased credit risk. The key assumption considered is the probability of a subsidiary undertaking going into default at Asset retirements (1.3) (0.1) — (1.4) the balance sheet date. At 31December 2022 — 0.6 0.4 1.0 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 Net book value: 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 At 1 January 2022 12.4 0.8 — 13.2 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 At 31December 2022 — 0.8 — 0.8 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. On 1November 2022, certain tangible and intangible assets were transferred to Capita Shared Services Limited (a wholly owned subsidiary of The cash shortfalls arising when an amount owed by a subsidiary undertaking is in default are assessed by discounting the expected future the Company) as part of a Group reorganisation. All the assets were transferred at their net book value, with the consideration remaining cash flows at the original effective interest rate of the instrument. Where it is expected that the principal and all associated interest can be outstanding as an inter-company loan. recovered at some point in the future, no material expected credit loss is recognised. | 7.3.2 Intangible assets | | | | | | 7.3.4 Investments | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Capitalised | | | | | | | Shares in | | | | software | | | Other | | | | subsidiary | | | | development | | intangibles | | Total | | undertakings | | | | | | £m | | £m | £m | | | | £m | | Cost | | | | | | Net book value | | | | | At 1 January 2022 31.8 15.7 47.5 | | | | | | At 1 January 2022 947.3 | | | | 1 Intragroup transfer (31.1) (15.7) (46.8) Additions 54.0 2 Retirement (0.7) — (0.7) Impairment (7.0) At 31December 2022 — — — At 31December 2022 994.3 Amortisation 1. During the year ended 31December 2022, Capita plc invested £54.0m in Capita Life & Pensions Regulated Services Limited. At 1 January 2022 11.2 9.5 20.7 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. Charge for the year 5.1 0.9 6.0 Proportion of nominal Intragroup transfer (15.9) (10.4) (26.3) value of issued shares held Retirement (0.4) — (0.4) | | Direct investments Registered office | | | | | by the Company | | --- | --- | --- | --- | --- | --- | --- | | At 31December 2022 — — — | | | 2 | | | | | | Capita Pension Solutions Limited | | | | 65 Gresham Street, London, England, EC2V 7NQ 100 % | | | Net book value: | | 1 | | | | | | | Capita Legal Services Limited | | | | 65 Gresham Street, London, England, EC2V 7NQ 100 % | | | At 1 January 2022 20.6 6.2 26.8 | | | | 1 | | | | | Capita Employee Benefits Holdings Limited | | | | 65 Gresham Street, London, England, EC2V 7NQ 100 % | | | At 31December 2022 — — — | | | | 1 | | | | | Capita Financial Services Holdings Limited | | | | 65 Gresham Street, London, England, EC2V 7NQ 100 % | | 3 Capita Group Insurance PCC Limited Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT, 100 % On 1November 2022, certain tangible and intangible assets were transferred to Capita Shared Services Limited (a wholly owned subsidiary of Guernsey the Company) as part of a Group reorganisation. All the assets were transferred at their net book value, with the consideration remaining 1 Capita Holdings Limited 65 Gresham Street, London, England, EC2V 7NQ 100 % outstanding as an inter-company loan. 2 Capita International Limited 65 Gresham Street, London, England, EC2V 7NQ 100 % Other intangibles relates to software purchased from third parties. 2 Capita Life & Pensions Regulated Services Limited 65 Gresham Street, London, England, EC2V 7NQ 100 % Capita International Retirement Benefit Scheme 65 Gresham Street, London, England, EC2V 7NQ 100 % 4 Trustees Limited 2 Capita Ireland Limited 2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, 100 % D01P767 2 Capita Life & Pensions Services Limited 65 Gresham Street, London, England, EC2V 7NQ 100 % 6 Capita Shared Services Limited 65 Gresham Street, London, England, EC2V 7NQ 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 ### Financial Company Capita plc 220 statements financial statements Annual Report 2022 ## 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. Capita Portfolio Capita Public Service Capita Experience People Software Business Solutions Travel Fera 2022 11.8 % 10.4 % 14.3 % 12.1 % 12.1 % 13.0 % 11.2 % 2021 13.0 % 11.6 % 12.4 % 12.8 % 13.3 % 15.7 % 11.9 % Sensitivity analysis The impairment testing as described is reliant on the accuracy of management’s forecasts and the assumptions that underlie them; and on the selection of the discount and growth rates to be applied. To gauge the sensitivity of the result to a change in any one, or combination of the assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and measure which 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. | | | 1% decrease in | | | Severe but | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1% increase in | | | long-term | | plausible | | Combination | | | discount rate | | | growth rate | | downside | | sensitivity | | | | £m | | | £m | | £m | | £m | 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 — — — — 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. ### Financial Company Capita plc 221 statements financial statements Annual Report 2022 ## Section 7: Company financial statements continued Section 7: Company financial statements continued ### 7.3.4 Investments continued 7.3.5 Financial instruments Certain subsidiaries of the Group have opted to take advantage of a statutory exemption from having an audit in respect of their individual | | Financial | | Financial | | Financial | | Financial | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | statutory accounts. Strict criteria must be met for this exemption to be taken and has been agreed to by the directors of those subsidiary | | assets | liabilities | | | assets | liabilities | | | | | 2022 | | 2022 | | 2021 | | 2021 | entities. £m £m £m £m Listed in note7.3.17 to the Company financial statements are subsidiaries controlled and consolidated by the Group, where the directors have Cash flow hedges — — 0.9 1.8 taken advantage of the exemption from having an audit of the entities’ individual financial statements for the year ended 31December 2022 in Non-designated foreign exchange forwards and swaps 10.7 0.1 1.8 4.7 accordance with Section479A of The Companies Act2006. Lease liabilities — — — 0.1 To facilitate the adoption of this exemption, Capita plc, the parent company of the subsidiaries concerned, undertakes to provide a guarantee Cross-currency interest rate swaps 25.8 1.0 30.2 2.2 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. 36.5 1.1 32.9 8.8 The Company considered whether there was an indicator of impairment in investments in subsidiaries at 31December 2022, and due to the Analysed as: Company’s market capitalisation being below the carrying value of the Company’s net assets, concluded a trigger existed and performed an Current 15.7 0.1 10.9 5.2 impairment test. Non-current 20.8 1.0 22.0 3.6 The impairment test 36.5 1.1 32.9 8.8 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 ### 7.3.6 Deferred tax 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 2022 2021 premium and the cost of debt, which are all based on publicly available external sources. £m £m Deferred tax included in the balance sheet is as follows: The table below represents the pre-tax discount rates applied to the cash flows for 2022 and 2021. Accelerated capital allowances 3.9 5.4 | | | | Capita Portfolio | Tax losses 1.0 1.0 | | --- | --- | --- | --- | --- | | Capita Public | | | | Other short term timing differences 6.3 6.3 | | | Service Capita Experience | People Software Business Solutions Travel Fera | | | 11.2 12.7 2022 11.8 % 10.4 % 14.3 % 12.1 % 12.1 % 13.0 % 11.2 % 2021 13.0 % 11.6 % 12.4 % 12.8 % 13.3 % 15.7 % 11.9 % ### Sensitivity analysis 7.3.7 Amounts owed by/to subsidiary companies 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 Current Non-current assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and 2022 2021 2022 2021 measure which investments are the most susceptible to an impairment should the assumptions used be varied. This sensitivity analysis is only £m £m £m £m applicable to those investments which have not already been fully impaired. Amounts owed by subsidiary companies 2,494.8 2,619.8 64.4 — 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 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 applied to the base-case projections for assessing going concern and viability, without mitigations; and from all of the scenarios together. The loan. The expected credit loss provision against amounts owed by subsidiary undertakings is immaterial. table below excludes those investments which have been fully impaired previously or are held at nominal value. 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. | | | | 1% decrease in | | | Severe but | | | | | | | Current Non-current | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1% increase in | | | long-term | | plausible | | Combination | | | | | | | | | | | discount rate | | | growth rate | | downside | | sensitivity | | | | 2022 | | 2021 | 2022 | 2021 | | | | £m | | | £m | | £m | | £m | | | £m | | £m | £m | £m | | Capita Pension Solutions Limited — — — — | | | | | | | | | | Amounts owed to subsidiary companies | 2,302.7 2,086.8 — — | | | | | | Capita Financial Services Holdings Limited — — — — Amounts owed to subsidiary companies are repayable on demand along with any accrued interest. Capita Group Insurance PCC Limited — — — — Capita Holdings Limited — — — — Capita International Limited — — — — ### 7.3.8 Trade and other receivables Capita Life & Pensions Regulated Services Limited — — — — — — — — Current Non-current Capita Employee Benefits Holdings Limited 2022 2021 2022 2021 £m £m £m £m At 31December 2022, an impairment of £7.0m (2021: £0.8m) arose from the impairment test performed. Under the combination sensitivity Trade receivables — — — — scenario no additional impairments were highlighted where the enterprise value was used for impairment assessment. Other debtors 1.1 2.0 — — Management continue to monitor closely the performance of all investments in subsidiaries and consider the impact of any changes to the key Other taxes and social security 0.1 1.4 — — 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. Prepayments 0.4 9.7 — 0.1 1.6 13.1 — 0.1 ### Financial Company Capita plc 222 statements financial statements Annual Report 2022 ## Section 7: Company financial statements continued ### 7.3.9 Trade and other payables Current Non-current 2022 2021 2022 2021 £m £m £m £m Trade creditors 8.9 7.2 — — Other creditors 0.7 0.7 — 0.3 9.6 7.9 — 0.3 ### 7.3.10 Provisions 2022 2021 £m £m At 1 January 8.2 17.3 Provisions provided for during the year 1.6 8.8 Provisions released during the year (1.2) (5.9) Utilisation (3.8) (12.0) At 31 December 4.8 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 | | | 2022 | 2021 | | --- | --- | --- | --- | | | | £m | £m | | Private placement loan notes | 44.2 201.9 | | | 1 Credit facilities — 46.0 44.2 247.9 1. Credit facilities includes £nil (2021: £40.0m) drawing on the RCF. Maturity analysis is as follows: Falling due within a year — 196.2 Falling due after more than 5 years 44.2 51.7 Total borrowings 44.2 247.9 The Company issued guaranteed unsecured private placement loan notes as follows: Interest rate EUR (%) (m) Maturity Fixed rate bearer notes 3.625 EUR 53.4 10 November 2027 Total of euro denominated private placement loan notes 53.4 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). ### Financial Company Capita plc 223 statements financial statements Annual Report 2022 ## Section 7: Company financial statements continued Section 7: Company financial statements continued ### 7.3.9 Trade and other payables 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 Current Non-current transactions are undertaken at arm’s-length prices. 2022 2021 2022 2021 £m £m £m £m During the year, the Company sold goods/services in the normal course of business to Entrust Support Services Limited for £1.2m (2021: Trade creditors 8.9 7.2 — — £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 Other creditors 0.7 0.7 — 0.3 amount receivable from Entrust Support Services Limited was £nil (2021: £nil). 9.6 7.9 — 0.3 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). 7.3.10 Provisions 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 2022 2021 receivable from Fera Science Limited was £nil (2021: £nil). £m £m At 1 January 8.2 17.3 ### Provisions provided for during the year 1.6 8.8 7.3.15 Pension costs Provisions released during the year (1.2) (5.9) The Company operates defined benefit and defined contribution schemes. The pension charge for these schemes for the year was £1.5m Utilisation (3.8) (12.0) (2021:£2.0m). At 31 December 4.8 8.2 ### 7.3.16 Share-based payments 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 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 ### 7.3.11 Borrowings of£5.4m (2021: £1.2m), all of which arises from equity-settled share-based payment transactions. The total Company expense, after | | | 2022 | 2021 | recharging subsidiary undertakings, charged to the income statement in respect of share-based payments was £3.0m (2021: £0.6m). | | --- | --- | --- | --- | --- | | | | £m | £m | | | Private placement loan notes | 44.2 201.9 | | | | 1 Credit facilities — 46.0 44.2 247.9 1. Credit facilities includes £nil (2021: £40.0m) drawing on the RCF. Maturity analysis is as follows: Falling due within a year — 196.2 Falling due after more than 5 years 44.2 51.7 Total borrowings 44.2 247.9 The Company issued guaranteed unsecured private placement loan notes as follows: Interest rate EUR (%) (m) Maturity Fixed rate bearer notes 3.625 EUR 53.4 10 November 2027 Total of euro denominated private placement loan notes 53.4 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). ### Financial Company Capita plc 224 statements financial statements Annual Report 2022 ## 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 Share class Company name Share class 9 27 Agiito Limited £1.00 Ordinary Capita Group Insurance PCC Limited * £1.00 CG1 £1.00 CIC2 £1.00 Ordinary | | | | 7 | | | | | 1 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Akinika Debt Recovery Limited | | | | | £1.00 Ordinary Capita Group Limited (in liquidation) | | | | £1.00 Ordinary | | | 7 | | | | | | | 9 | | | Akinika Limited | | | | | £1.00 Ordinary Capita Group Secretary Limited (D) | | | | £1.00 Ordinary | | | | | | 1 | | | 9 | | | | Akinika UK Limited (in liquidation) | | | | | £1.00 Ordinary Capita HCH Limited | | | | £1.00 Ordinary | | | | 16 | | | | | | 9 | | | Artificial Labs Ltd | | ● £0.000025 | | | | Capita Health and Wellbeing Limited | | | £1.00 Ordinary | Ordinary | | 15 | | | | 9 | | | --- | --- | --- | --- | --- | --- | --- | | Barrachd Limited (in liquidation) | | | £1.00 Ordinary Capita Health Holdings Limited | | | £1.00 Ordinary | | | 1 | | | 9 | | | | BCS Design Ltd (in liquidation) | | | £1.00 Ordinary Capita Holdings Limited | * £1.00 Ordinary | | | | | | 9 | | | 11 | | | Booking Services International Limited | | | £1.00 Ordinary Capita IB Solutions (HK) Limited | | | HKD1.00 Ordinary A | HKD1.00 Ordinary B | | | | 9 | | | | 6 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Brentside Communications Limited (D) | | | £1.00 Ordinary Capita IB Solutions (Ireland) Limited | | | | | | €1.00 Ordinary | | | | 9 | | | | 9 | | | | | Brightwave Enterprises Limited | | | | | £1.00 Ordinary Capita IB Solutions Limited | | | | £1.00 Ordinary | | | | 9 | | | | 26 | | | | | Brightwave Holdings Limited | | | | | £1.00 Ordinary Capita India Private Limited | | | | INR10.00 Ordinary | | | 9 | | | | | | | 9 | | | Brightwave Limited | | | | | £1.00 Ordinary Capita Insurance Services Group Limited | | | | £1.00 Ordinary | | | 9 | | | | | | | 9 | | | BSI Group Limited | | | | | £1.00 Ordinary Capita Insurance Services Holdings Limited | | | | £1.00 Ordinary | | | | | | 1 | | | 9 | | | | Call Vision Technologies Ltd (in liquidation) | | | | £1.00 Ordinary Capita Insurance Services Limited | | | | | £1.00 Ordinary | | | | | | 1 | | 9 | | | | | Capita (02549055) Limited (in liquidation) | | | | | £1.00 Ordinary Capita International Limited | * £1.00 Ordinary | | | | 1 Capita (04472243) Limited (in liquidation) £1.00 Ordinary Capita International Retirement Benefit Scheme £1.00 Ordinary 9 | | | | | Trustees Limited | * | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 6 | | | | | 6 | | | | Capita (210568) Limited | | | €0.0012 Ordinary Capita Ireland Limited | | | * €1.00 Ordinary | | | | | | 1 | | | | | 9 | | | Capita (6588350) Limited (in liquidation) | | | £1.00 Ordinary Capita IT Services (BSF) Limited | | | | | £1.00 Ordinary | 9 | Capita (Polska) Spółka z ograniczon | | | odpowiedzialno | | ci | PLZ50.00 Ordinary Capita IT Services Holdings Limited | | | | | | | £1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 13 | | | | 25 | | | | | | | | Capita (South Africa) (Pty) Limited | | | | | | ZAR1.00 Ordinary Capita IT Services Limited | | | | | | | £1.00 Ordinary | | | | 12 | | | | | | | | | | 9 | | | Capita (USA) Holdings Inc. | | | | | | US$1.00 Ordinary Capita Justice & Secure Services Holdings Limited | | | | | | | £1.00 Ordinary | | | | 9 | | | | | | | 1 | | | | | | Capita Birmingham Limited | | | | | | £1.00 Ordinary Capita Land Limited (in liquidation) | | | | | | | £1.00 Ordinary | | | | 9 | | | | | 9 | | | | | | | | Capita Business Services Ltd | | | | | | £1.00 Ordinary Capita Learning Limited | | | | | | | £1.00 Ordinary | | | | | | 6 | | | | 9 | | | | | | | Capita Business Support Services Ireland Limited | | | | | | €1.00 Ordinary Capita Legal Services Limited | | * £1.00 Ordinary | | | | | | | | | | 9 | | | | | | | | | 9 | | | Capita Corporate Director Limited (D) | | | | | | £1.00 Ordinary Capita Life & Pensions Regulated Services Limited | | | | | | * £1.00 Ordinary | | | | 12 | | | | | | | | | 9 | | | | | Capita CTI (USA) LLC | | | | | | US$1.00 Ordinary Capita Life & Pensions Services Limited | | | | * £1.00 Ordinary | | | | | | | | 9 | | | | | | | | 9 | | | | Capita Customer Management Limited | | | | | | £1.00 Ordinary Capita Life and Pensions International Limited | | | | | | | £1.00 Ordinary | 30 Capita Customer Services (Germany) GmbH €1.00 Ordinary Capita Life and Pensions Services (Isle of Man) £1.00 Ordinary 28 Limited | | | 22 | | | | | 20 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Capita Customer Services AG | | | | | CHF1.00 Ordinary Capita Managed IT Solutions Limited | | | | £1.00 Ordinary | | | | | | 9 | | 31 | | | | | Capita Customer Solutions (UK) Limited | | | | | £1.00 Ordinary Capita Mclarens Limited | | | | £1.00 Ordinary | | | | | 34 | | | | 9 | | | | Capita Customer Solutions Limited | | | | | €1.00 Ordinary Capita Mortgage Administration Limited | | | | £1.00 Ordinary | | | | 33 | | | | | | 9 | | | Capita Cyprus Holdings Limited | | | | | £1.00 Ordinary Capita Mortgage Software Solutions Limited | | | £1.00 Ordinary | | | | 9 | | | | | | 3 | | | | Capita Dubai Limited | | | | | £1.00 Ordinary Capita Norman + Dawbarn Limited (D) | | □ NGN1.00 Ordinary | | | 9 Capita Employee Benefits (Consulting) Limited £1.00 Ordinary Capita Offshore Services Private Limited (in INR10.00 Ordinary 26 liquidation) 9 9 Capita Employee Benefits Holdings Limited * £1.00 Ordinary Capita Pension Solutions Limited * £1.00 Ordinary 24 Capita Energie Services GmbH ► €1.00 Ordinary Capita Property and Infrastructure (Structures) £1.00 Ordinary 9 9 Capita ESS Holdings Limited £1.00 Ordinary Capita Property and Infrastructure Consultants LLC AED1,000.00 2 ♦ Ordinary (in liquidation) 9 9 Capita Financial Services Holdings Limited * £1.00 Ordinary Capita Property and Infrastructure Holdings Limited £1.00 Ordinary 9 Capita Gas Registration and Ancillary Services Limited £1.00 Ordinary Capita Property and Infrastructure International £1.00 Ordinary 9 Holdings Limited (D) 9 Capita GMPS Trustees Limited (D) £1.00 Ordinary Capita Property and Infrastructure International £1.00 Ordinary 9 Limited (D) 1 9 Capita Grosvenor Limited (in liquidation) £1.00 Ordinary Capita Property and Infrastructure Limited £1.00 Ordinary ą ś ą 17 Limited ### Financial Company Capita plc 225 statements financial statements Annual Report 2022 | Section 7: Company financial statements continued | | | | | | | | | | | | Section 7: Company financial statements continued | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 7.3.17 Related companies | | | | | | | | | | | | 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 | | | | | | | | | | | | Company name Share class Company name Share class | | | | | | | | | | | | | | | | | Group Insurance PCC Limited which is incorporated in Guernsey, but which is tax resident in the UK. | | | | | | | | | | | | | | 9 | | | | | | | | | 9 | | | | | | | | | | | | | | | | | | Capita Resourcing Limited | | | | | | | £1.00 Ordinary Evolvi Rail Systems Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | 9 | | | | | | | | | | 1 | | | 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 | | | | | | | £1.00 Ordinary Expotel Hotel Reservations Limited (in liquidation) | | | | | | | | £1.00 Ordinary | | subsidiary. Dormant companies are marked (D). | | | | | | | | | | | | | 9 | | | | | | | | | 9 ■ | | | | | | | | | | | | | | | | | | | Capita Retain Limited | | | | | | | £1.00 Ordinary Fera Science Limited | | | | | | | | £1.00 Ordinary B | | Company name Share class Company name Share class | | | | | | | | | | | | | | 12 | | | | | | | | | 9 | | | | | | | | | | | | | | | | | | Capita Retain (USA) LLC | | | | | | | N/A Fire Service College Limited | | | | | | | | £1.00 Ordinary | | | 9 | | | | | | | | | 27 | | | | | | | | | | | | | | | | | | | Agiito Limited | | | | | £1.00 Ordinary Capita Group Insurance PCC Limited | | | | | * £1.00 CG1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 25 | | | | | | 9 | | | | | | | | | | | | | | | | | £1.00 CIC2 | Capita Scotland (Pension) Limited Partnership | | | | | | | N/A FirstAssist Services Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | £1.00 Ordinary | | | | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | Capita Scotland General Partner (Pension) Limited | | | | | | | £1.00 Ordinary Full Circle Contact Centre Services (Proprietary) | | | | | | | | ZAR0.01 Ordinary | | | | | 7 | | | | | | | 1 | | | | | | | | | | | 13 | | | | | | | | Akinika Debt Recovery Limited | | | | | £1.00 Ordinary Capita Group Limited (in liquidation) | | | | | | £1.00 Ordinary | | | | | | | | | Limited | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | | 1 | | | | | 7 | | | | | | | | | 9 | | Capita Secure Information Solutions Limited | | | | | £1.00 Ordinary Gissings Trustees Limited (in liquidation) | | | | | | | | | | £1.00 Ordinary | | Akinika Limited | | | | | £1.00 Ordinary Capita Group Secretary Limited (D) | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | | | | 9 | | | | | | | 1 | | | | 9 | | | | | Capita Shared Services Limited | | | * £1.00 Ordinary Grosvenor Career Services Limited (D) | | | | | | | | | | | | £1.00 Ordinary | | Akinika UK Limited (in liquidation) | | | | | £1.00 Ordinary Capita HCH Limited | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | | | | 1 | | | | | | | | | | | | | | | | | Capita Southampton Limited | | | | | | | £1.00 Ordinary Health Analytics Ltd (in liquidation) | | | | | | | | £1.00 Ordinary | | | | 16 | | | | | | | | 9 | | | | | | | | | | | | | | | | | | | Artificial Labs Ltd | | ● £0.000025 | | | | Capita Health and Wellbeing Limited | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | Ordinary | | | | | | | | | | 9 | | | | | | | | | 29 ◙ | | | | | | | | | | | | | | | | | Capita Symonds (Asia) Limited | | | £1.00 Ordinary Level Financial Technology Limited | | | | | | | | | | | | £0.001 Ordinary | | | | | 15 | | | | | | 9 | | | | | | | | | | | | | | | | | | | | Barrachd Limited (in liquidation) | | | | | £1.00 Ordinary Capita Health Holdings Limited | | | | | | £1.00 Ordinary | | | | | | | 26 | | | | | | | 9 | | | | | | | | | | | | | | | | Capita Symonds India Private Limited (in liquidation) | | | | | | | INR10.00 Ordinary Liberty Printers (Ar And Rf Reddin) Limited | | | | | | | | £1.00 Ordinary | | | | | 1 | | | | | 9 | | | | | | | | 21 | | | | | | | 9◄ | | | | | | BCS Design Ltd (in liquidation) | | | | | £1.00 Ordinary Capita Holdings Limited | | | * £1.00 Ordinary | | | | Capita Symonds Saudi Arabia Limited (D) | | | | | N/A Market Mortgage Limited | | | | | | | | | | £0.001 Ordinary | | | | | | 9 | | | | | 11 | | | | | | | 9 | | | | | | | | 1 | | | | | Booking Services International Limited | | | | | £1.00 Ordinary Capita IB Solutions (HK) Limited | | | | | | HKD1.00 Ordinary A | Capita Travel & Events Holdings Limited | | | | | | | £1.00 Ordinary Metacharge Limited (in liquidation) | | | | | | | | £1.00 Ordinary | HKD1.00 Ordinary B | | | | | | | | | | | | | 30 | | | | | | | 1 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | Capita West GmbH | | | | | | €25,000.00 | NYS Corporate Ltd. (in liquidation) | | | | £1.00 Ordinary | | | | | 9 | | | | 6 | | | | | | | | | | | | | | | | Brentside Communications Limited (D) | | | £1.00 Ordinary Capita IB Solutions (Ireland) Limited | | | | | | €1.00 Ordinary | | | | | | | Ordinary | | | | | | | | | | | | | | | | | | | | | 9 | | | | | 9 | | | | | | | | | | | | | | Capita Workforce Management Limited | | | | | | £1.00 Ordinary Octal Business Solutions Limited | | | | | £1.00 Ordinary | | | | 9 | | | | 9 | | | | | | | | | | | | | | | | | Brightwave Enterprises Limited | | | | | £1.00 Ordinary Capita IB Solutions Limited | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | 18 | | | | | | 12 | | | | | | | | | | | | | | | CAS Services US Inc | | | | | | US$1.00 Ordinary Optilead Inc. (in liquidation) | | | | | US$0.001 Common | | | | 9 | | | | 26 | | | | | | | | | | | | | | | | | Brightwave Holdings Limited | | | | | £1.00 Ordinary Capita India Private Limited | | | | INR10.00 Ordinary | | | | | | | | | | | | Stock | | | 9 | | | | | | | 9 | | | | | | 1 | | | | 1 | | | | | Brightwave Limited | | | | | £1.00 Ordinary Capita Insurance Services Group Limited | | | | £1.00 Ordinary | CCSD Services Limited (in liquidation) | | | | | | £1.00 Ordinary Optilead Limited (in liquidation) | | | | | £1.00 Ordinary | | | | | | | | | | | | | 9 | | | | | | | | 9 | | | | | 9 | | | | | | | 9 | | CHKS Limited | | | | | | £1.00 Ordinary PageOne Communications Limited | | | | | £1.00 Ordinary | | BSI Group Limited | | | | | £1.00 Ordinary Capita Insurance Services Holdings Limited | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | 9 ▼ | | | | | | | | 1 | | | 9 | | | Clinical Solutions Acquisition Limited | | | | | | £1.00 Ordinary RE (Regional Enterprise) Limited | | | | | £1.00 Ordinary A | | Call Vision Technologies Ltd (in liquidation) | | | | £1.00 Ordinary Capita Insurance Services Limited | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | 9 | | | | | | | 1 | | 9 | | | | Clinical Solutions Finance Limited | | | | | | £1.00 Ordinary Retain International (Holdings) Limited | | | | | £1.00 Ordinary | | Capita (02549055) Limited (in liquidation) | | | | | £1.00 Ordinary Capita International Limited | * £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18 | | | | 9 | | | | | | | | 1 | | | | | | Clinical Solutions Group (International) LLC (D) | | | | | N/A Retain International Limited (D) | | | | | | £1.00 Ordinary | | Capita (04472243) Limited (in liquidation) | | | | | £1.00 Ordinary Capita International Retirement Benefit Scheme | | | | £1.00 Ordinary | | | | | | | | | | | | | 9 | | | | | Trustees Limited | * | | | | | | 9 | | | 8 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | Clinical Solutions Holdings Limited | | £1.00 Ordinary Ross & Roberts Limited | | | | | £1.00 Ordinary | | | 6 | | | | | 6 | | | | | | | | | | | | Capita (210568) Limited | | | €0.0012 Ordinary Capita Ireland Limited | | | * €1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | 9 | | | | | | | | | | | | Clinical Solutions International Limited | | | | £1.00 Ordinary Sbj Benefit Consultants Limited (D) | | | £1.00 Ordinary | | | | 1 | | | | | 9 | | | | | | | | | | | Capita (6588350) Limited (in liquidation) | | | £1.00 Ordinary Capita IT Services (BSF) Limited | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | 9 | | | | | 9 | | | | | | | | | | | | Clinical Solutions IP Limited (D) | | | | £1.00 Ordinary Sbj Professional Trustees Limited (D) | | | £1.00 Ordinary | 9 | | | | | | | | PLZ50.00 Ordinary Capita IT Services Holdings Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | 1 | | | | | | | | | 1 | | | | | | | | | | | | | | | | | | | Complete Imaging Limited (in liquidation) | | | | | | £1.00 Ordinary SDP Regeneration Services 2 Limited (in liquidation) | | | | | | | | £1.00 Ordinary | | | | | 13 | | | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | Capita (South Africa) (Pty) Limited | | | | | | | ZAR1.00 Ordinary Capita IT Services Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | | | | | 1 | | | | | | | | | | | | | | | | | | | | Computerland UK Limited | | | | | | £1.00 Ordinary Security Watchdog Limited (in liquidation) | | | | | | | | £1.00 Ordinary | | | | 12 | | | | | | | | | | | | 9 | | | | | | | | | | | | | | | | | | Capita (USA) Holdings Inc. | | | | | | | US$1.00 Ordinary Capita Justice & Secure Services Holdings Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | | 9 | | | | | | | | | | | | | | | | | | | | | | | Contact Associates Limited | | | | | | £1.00 Ordinary Smart DCC Limited | | | | | | | | £1.00 Ordinary | | | | 9 | | | | | | | | | 1 | | | | | | | | | | | | | | | | | | | | | Capita Birmingham Limited | | | | | | | £1.00 Ordinary Capita Land Limited (in liquidation) | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9 | | | | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | CPLAS Trustees Limited (D) | | £1.00 Ordinary Stirling Park LLP | | | | | | | | | | | | N/A | | | | 9 | | | | | | | 9 | | | | | | | | | | | | | | | | | | | | | | | Capita Business Services Ltd | | | | | | | £1.00 Ordinary Capita Learning Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26 | | | | | 9 | | | | | | | | | | | | 6 | | | | 9 | | | | | | CS Clinical Solutions India Private Limited (in liquidation) | | | | | | INR10.00 Ordinary Synaptic Software Limited | | | | | | | | £1.00 Ordinary | | Capita Business Support Services Ireland Limited | | | | | | | €1.00 Ordinary Capita Legal Services Limited | | | * £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | | | | | | 9 | | | | | | | | | 9 | | | | | | | | | | 9 | | Cymbio Limited (in liquidation) | | | | | | £1.00 Ordinary Tascor E & D Services Limited | | | | | | | | £1.00 Ordinary | | Capita Corporate Director Limited (D) | | | | | | | £1.00 Ordinary Capita Life & Pensions Regulated Services Limited | | | | | | | * £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23 | | | | | | 9 | | | | | | | 12 | | | | | | | | | | | 9 | | | | Daisy Updata Communications Limited | | | | ▲ £1.00 Ordinary B Tascor Services Limited | | | | | | | | | | £1.00 Ordinary | | Capita CTI (USA) LLC | | | | | | | US$1.00 Ordinary Capita Life & Pensions Services Limited | | | | | * £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7 | | | | | 19 | | | | | | | | | | | | 9 | | | | | | | | | 9 | | | Debt Solutions (Holdings) Limited | | | | | | £1.00 Ordinary TELAG AG | | | | | | | | CHF1,000.00 | | Capita Customer Management Limited | | | | | | | £1.00 Ordinary Capita Life and Pensions International Limited | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | Ordinary | | | | | | | 30 | | | | | | | | | | | | | | 9 | | | | | | 25 | | | | | | | Capita Customer Services (Germany) GmbH | | | | | | | €1.00 Ordinary Capita Life and Pensions Services (Isle of Man) | | | | | | | | £1.00 Ordinary | Dragonfly Technology Solutions Ltd | | | ○ £0.000001 | | | | The G2G3 Group Ltd. | | | | | | | £1.00 Ordinary | | | | | | | | | | 28 | | | | | | | | | | | | | | Ordinary | | | | | | | | | Limited 22 20 £0.000001 A Capita Customer Services AG CHF1.00 Ordinary Capita Managed IT Solutions Limited £1.00 Ordinary Ordinary | | | | | 9 | | | 31 | | | | | 36 | | | | | | | 9 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Capita Customer Solutions (UK) Limited | | | | | | £1.00 Ordinary Capita Mclarens Limited | | | | £1.00 Ordinary | DSTBTD LIMITED | < £0.001 Ordinary Thirty Three Group Limited | | | | | | | | | £1.00 Ordinary | | | | | 34 | | | | | 9 | | | | | 4 | | | | 9 | | | | | | Capita Customer Solutions Limited | | | | | | €1.00 Ordinary Capita Mortgage Administration Limited | | | | £1.00 Ordinary | Duke 2021 Topco Limited | | > £1.00 B Ordinary Thirty Three LLP | | | | | | | | N/A | | | | 33 | | | | | | | 9 | | | | | 9 | | | | | 10 | | | | Capita Cyprus Holdings Limited | | | | | | £1.00 Ordinary Capita Mortgage Software Solutions Limited | | | £1.00 Ordinary | | E.B. Consultants Limited (D) | | | £1.00 Ordinary ThirtyThree APAC Limited (D) | | | | | | | HKD1.00 Ordinary | | | 9 | | | | | | | 3 | | | | | 9 | | | | | 12 | | | | | Capita Dubai Limited | | | | | | £1.00 Ordinary Capita Norman + Dawbarn Limited (D) | | □ NGN1.00 Ordinary | | | Electra-Net (UK) Limited | | | | | £1.00 Ordinary ThirtyThree USA Inc. | | | | | US$1.00 Ordinary | | | | | | | 9 | | | | | | | | | | 1 | | | | | 9 | | | Capita Employee Benefits (Consulting) Limited | | | | | | £1.00 Ordinary Capita Offshore Services Private Limited (in | | | | INR10.00 Ordinary | Electra-Net Group Limited (in liquidation) | | | | £1.00 Ordinary Updata Infrastructure (UK) Limited | | | | | | £1.00 Ordinary | 26 liquidation) | | | | | | | | | | | | | | | | 1 | | | | 9 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 9 | | | | | 9 | | | Electra-Net Holdings Limited (in liquidation) | | | | | | £1.00 Ordinary Updata Infrastructure 2012 Limited (D) | | | | | £1.00 Ordinary | | Capita Employee Benefits Holdings Limited | | * £1.00 Ordinary Capita Pension Solutions Limited | | | | | * £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | | | 9 | | | | | | 24 | | | | | | | | | Emercom Ltd (in liquidation) | | £1.00 Ordinary Urban Vision Partnership Limited | | | | | | ► £1.00 Ordinary B | | | | | Capita Energie Services GmbH | ► €1.00 Ordinary | | | | | | | | £1.00 Ordinary | | | | | | | | | | | | | | | | | | | | | | | | | | | 32 | | | | | 35 | | | | | | 9 | | | | | | | | | Entrust Support Services Limited | | | ▼ £1.00 Ordinary X Ventura (India) Private Limited | | | | | | | | INR10.00 Ordinary | | Capita ESS Holdings Limited | | | | £1.00 Ordinary Capita Property and Infrastructure Consultants LLC | | | | | AED1,000.00 | | | | | | | | | | | | | | | | | | | | 2 ♦ | | | Ordinary | | 8 | | | | | | 9 | | | | | | | | | | | (in liquidation) | | | | | Equita Limited | | | | | | £1.00 Ordinary Ventura (UK) India Limited | | | | | £1.00 Ordinary | | | | 9 | | | | | | 9 | | | | 9 | | | | | | | | 1 | | | Capita Financial Services Holdings Limited | | * £1.00 Ordinary Capita Property and Infrastructure Holdings Limited | | | | | | | £1.00 Ordinary | Equitable Holdings Limited (D) | | | | | | £1.00 Ordinary Venues Event Management Limited (in liquidation) | | | | | £1.00 Ordinary | | | | | 9 | | | | | | | | | | | 14 | | | 9 | | | | | | Capita Gas Registration and Ancillary Services Limited | | | | £1.00 Ordinary Capita Property and Infrastructure International | | | | | £1.00 Ordinary | Eureka Assessoria Empresarial Ltda (D) | | | | | ◊ BRL1.00 Ordinary Voice Marketing Limited | | | | | | £1.00 Ordinary | 9 Holdings Limited (D) 9 9 Euristix (Holdings) Limited £1.00 Ordinary Western Mortgage Services Limited £1.00 Ordinary 9 | Capita GMPS Trustees Limited (D) | £1.00 Ordinary Capita Property and Infrastructure International | | | | | | £1.00 Ordinary | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 9 | | | | 9 | | 9 | | | | | | | Limited (D) | | | | Euristix Limited | | £1.00 Ordinary Woolf Limited | | £1.00 Ordinary | | | | 1 | | | | 9 | | | | | | | | Capita Grosvenor Limited (in liquidation) | | | £1.00 Ordinary Capita Property and Infrastructure Limited | | | | £1.00 Ordinary | | | | | | Capita (Polska) Spółka z ograniczoną odpowiedzialnością Capita Property and Infrastructure (Structures) 17 9 Limited financial statements Company financial statements Reptile job: Annual Report 2022 225 # Section 7: Company financial statements continued # 7.3.17 Related companies continued # Footnotes * Companies directly held by Equity 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 0.03% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 0.03% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 0.30% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 20% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 20% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 20% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 10% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 10.2% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 10% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 40.25% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 70% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 70% of the issued share capital of subsidiary • Shareholdings owned indirectly by the company and represent 57.3% 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. 1 West London Place, London, E61 2AP, England 2. 1004 8th Nannestall Building, Knolls St., PO Box 113 740, Abu Dhabi, United Arab Emirates 3. 10th Floor, 18th House, No.57, Mocha Street, Lagos Island, Lagos, Nigeria 4. 22 Grenville Street, St. Helier, JEX 8PX, Jersey 5. 24 Rutherford Square, Glasgow, GII 4MS, Scotland 6. East Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P1XT, Ireland 7. 33-34 Winchley Square, Preston, Lancashire, PR1 9EL, England 8. 42-44 Henry Street, Northampton, Northamptonshire, NW1 4BZ, England 9. 45 Grisham Street, London, EC2V 7NQ, England 10. 603 Manning House, 36 Queen's Road Central, Hong Kong 11. 805 Manning House, 46 Queen's Road Central, Hong Kong 12. 800 New Berlin Road, Suite 301, Dover, DE 19904, United States 13. 8th Floor, Union Castle Building, 36 St Georges'Mott Cape Town, Western Cape, 8061 South Africa 14. Assembly line Superomms, no 830, 1st Floor, Suite 01, Beirut, Moama, CEP 00078-011, Brazil 15. Alria One, 144 Morrison Street, Edinburgh, EH3 8EX, Scotland 16. Bourke House, 419 Goodstone Road, Mirphletts, Surrey, CR0 4BE, England 17. Centrum Bluview Lubico ul. Lubico 23, 51-503 Hradner, Polska 18. Corporation Service Company, 001 Little Falls Drive, Wilmington, County of Newcastle, Delaware 19006, United States 19. Hardturmshouse 101, Zürich, 8003, Switzerland 20. Hilkow House, 61 Church Road, Awolomabbap, Co Aonim, BT30 1LG, Northern Ireland 21. King Abdul Aziz Street, PO Box 7050, Sommark, Saudi Arabia 22. Kontratsverdraose 17, Tilgemolen, 8074, Switzerland 23. United House, 20 United Road, Brønhold, Nelson, Lancashire, BB9 6SR, England 24. Nassauer Ring 38-41, Krefeld, 47805, Germany 25. Pardley Building Elberson Way, Tannaschode Park, Wellington, Glasgow, G71 6TW, Scotland 26. Floor & Gate No. 2, Centre and Boyce Complex, U65 Marg, Phosphatnagar, Valnick (West), Mardton, 468076, India 27. PO Box 33, Dong Court, Ashfield Park, St. Peter Port, Guernsey, G11 4KT 28. PO Box 227, Peveril Buildings, Peveril Square, Douglas, Isle of Man, NW9 1RZ 29. RM Accounting House, 160 Ezeiko Park Upper Pambarton, Kensington, Ashford, TN20 4BZ, England 30. Rudower (Dauclane II, Berlin, 12989, Germany 31. The Beacon, 170 St Vincent Street, Glasgow, G2 0SD, Scotland 32. The Roseway Center, Monterey, Stafford, ST16 2TH, England 33. Themsteek Derm 5, John House, Nozwa, 1068, Cyprus 34. Unit 8, West Cork Technology Park, Chiswatty, Cork, Ireland 35. Upper Ground Level, Level 1, Level 2, & Level 3, Tower B1, Mangapaha City 36. 322, Mangapaha City, Hadapour, Pune, 411013, India 37. River, Cornwall House 133-137 Alexandra Road, Wimbledon, London, SW19 2JX, England financial^{}[] statements Company^{}[] financial statements Capital plc^{}[] Annual Report 2022 227 ## Section 7: Company financial statements continued ### 7.3.17 Related companies continued Listed below are subsidiaries controlled and consolidated by the Group, where the directors have taken the exemption from having an audit of its financial statements for the year ended 31 December 2022. This exemption is taken in accordance with Section 479A of the Companies Act. | Company name | Company registration | Company name | Company registration | | --- | --- | --- | --- | | Akinka Debt Recovery Limited | 1242485 | Capita Southampton Limited | 10207906 | | Akinka Limited | 1613010 | Capita Symonds (Asia) Limited | 3023340 | | Booking Services International Limited | 1833039 | Capita Travel & Events Holdings Limited | 6258931 | | Brentside Communications Limited | 1991595 | CHKS Limited | 2442956 | | Brightwave Enterprises Limited | 7066783 | Clinical Solutions Acquisition Limited | 5353896 | | Brightwave Holdings Limited | 7462788 | Clinical Solutions Finance Limited | 5337592 | | Brightwave Limited | 4092349 | Clinical Solutions Holdings Limited | 5337596 | | BSI Group Limited | 3005596 | Clinical Solutions International Limited | 4394761 | | Capita Birmingham Limited | 5660977 | Clinical Solutions IP Limited | 5354046 | | Capita Customer Solutions (UK) Limited | 7886341 | Computerland UK Limited | 2275625 | | Capita Dubai Limited | 10908066 | Contact Associates Limited | 5601393 | | Capita Employee Benefits Holdings Limited | 6722404 | Debt Solutions (Holdings) Limited | 3673307 | | Capita ESS Holdings Limited | 12714191 | E.B. Consultants Limited | 1106104 | | Capita Financial Services Holdings Limited | 10016286 | Electra-Net (UK) Limited | 3419833 | | Capita Gas Registration and Ancillary Services Limited | 5078781 | Equita Limited | 3168371 | | Capita HCH Limited | 2384029 | Equitable Holdings Limited | 2239663 | | Capita Health and Wellbeing Limited | 3185776 | Eureka (Holdings) Limited | 5564856 | | Capita Health Holdings Limited | 6413394 | Eureka Limited | 5420948 | | Capita Insurance Services Group Limited | 2777642 | Fire Service College Limited | 8102633 | | Capita Insurance Services Holdings Limited | 6041965 | FirstAssist Services Limited | 1404718 | | Capita Insurance Services Limited | 1396443 | Grosvenor Career Services Limited | 3119327 | | Capita International Limited | 2683437 | Liberty Printers (AR and RF Reddin) Limited | 2920033 | | Capita International Retirement Benefit Scheme Trustees Limited | 2328910 | Octal Business Solutions Limited | 5182624 | | Capita IT Services (BSF) Limited | 1855996 | PageOne Communications Limited | 04560277 | | Capita IT Services Holdings Limited | 6002593 | Retain International (Holdings) Limited | 7871708 | | Capita IT Services Limited | SC045439 | Retain International Limited | 3061744 | | Capita Justice & Secure Services Holdings Limited | 4746912 | Ross & Roberts Limited | 3365520 | | Capita Learning Limited | 4968329 | Sbj Benefit Consultants Limited | 1834757 | | Capita Legal Services Limited | 8540594 | Sbj Professional Trustees Limited | 2547932 | | Capita Life and Pensions International Limited | 5952054 | Stirling Park LLP | SC000097 | | Capita Managed IT Solutions Limited | NI032979 | Tascor E & D Services Limited | 9880217 | | Capita Mclarens Limited | SC021024 | The G2G3 Group Ltd | SC199414 | | Capita Mortgage Software Solutions Limited | 1855353 | Thrifty Three Group Limited | 3626724 | | Capita Property and Infrastructure (Structures) Limited | 2082156 | Thrifty Three LLP | DC372712 | | Capita Property and Infrastructure Holdings Limited | 3840927 | Updata Infrastructure (UK) Limited | 6957593 | | Capita Property and Infrastructure International Holdings Limited | 3860653 | Updata Infrastructure 2012 Limited | 4342422 | | Capita Property and Infrastructure International Limited | 2752154 | Urban Vision Partnership Limited | 5292634 | | Capita Retail Financial Services Limited | 5296886 | Ventura (UK) India Limited | 5131185 | | Capita Scotland General Partner (Pension) Limited | SC434757 | Voice Marketing Limited | 5820091 | | Capita Secure Information Solutions Limited | 1593831 | Woolf Limited | 1564535 | | Financial informants | 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 28 Wellington Street Leeds LS1 4DL Email: shareholdersinquiries@linkgroup.co.uk Tel: +44 (0) 371 664 8300 (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 8.00am – 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 Oticorp 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 Additional Capita plc 229 statements information Annual Report 2022 ### 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. Closest equivalent IFRS APM measure Definition, Purpose and Reconciliation Income statement Adjusted revenue Revenue 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: 2022 2021 | | | Reported revenue per the income statement | £3,014.6m | | £3,182.5m | | | --- | --- | --- | --- | --- | --- | --- | | | | Deduct: business exits (note 2.2.1) | (£168.8m) | | (£404.7m) | | | | | Adjusted revenue | £2,845.8m | | £2,777.8m | | | | | Adjusted revenue growth | | 2.4 % | | 0.1 % | | Adjusted | Operating profit Calculated as reported operating profit excluding items determined by the Board to be outside | | | | | | | operating profit | | underlying operations. These items are detailed in note 2.4. | | | | | The Board believes that this measure is useful for investors because it is closely monitored by U 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 Calculated as the adjusted operating profit divided by adjusted revenue. operating profit margin margin 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: | | | 2022 2021 | | | 1 | | --- | --- | --- | --- | --- | --- | | Adjusted revenue a | £2,845.8m | | £2,777.8m | | | | Adjusted operating profit (note 2.4) b | £102.9m | | (£77.7m) | | | | Adjusted operating profit margin b/a | | 3.6 % | | (2.8) % | | Adjusted EBITDA EBITDA 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 U 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 2021 | 1 | 2022 2021 | 1 | | --- | --- | --- | --- | --- | --- | | 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) £45.4m £49.4m £45.4m £49.4m Add back: depreciation and impairment of right-of- use assets (note 3.5) £53.3m £81.5m £—m £—m Add back: adjusted amortisation and impairment of intangibles (note 3.3) £37.2m £89.8m £37.2m £89.8m Remove: Share of results in associates and | investment gains (income statement) | (£5.8m) £0.6m (£5.8m) £0.6m | | | --- | --- | --- | | Adjusted EBITDA | £238.8m £143.0m £172.3m £47.2m | | | Adjusted EBITDA margin | | 8.4 % 5.1 % 6.1 % 1.7 % | Calculated as revenue less any revenue relating to businesses that have been sold, or exited during ### Financial Additional Capita plc 230 statements information Annual Report 2022 ### 8.2 Alternative performance measures continued Closest equivalent Definition, Purpose and APM 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. 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 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 after tax profit or loss. U The table below shows a reconciliation: 2021 1 2022 Adjusted profit/(loss) before tax (note 2.4) £73.8m (£122.8m) Tax on adjusted profit/(loss) (note 2.6.1) £31.8m (£4.0m) Adjusted profit/(loss) after tax £105.6m (£126.8m) 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. 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 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 U adjusted profit after tax. For the calculation of adjusted basic earnings per share refer to note 2.7. Adjusted diluted Diluted Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by earnings per share earnings per the weighted average number of ordinary shares outstanding during the period plus the weighted share average number of ordinary shares that would have been issued on the conversion of all the dilutive U 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 | Cash | Calculated as the cash flows generated from operations excluding the items detailed in note2.10.2 | | --- | --- | --- | | generated/(used) | generated / | which includes: business exits (trading results, non-trading expenses) and pension deficit | | by operations | (used) by | contributions which have been triggered by disposals. | | before business | operations | | The Board believes that this measure is useful for investors because it is closely monitored by exits management to evaluate the Group’s operating performance and to make financial, strategic and N 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 | Net cash flows | | | --- | --- | --- | | before business | from operating | the proceeds from the sale of property, plant and equipment and intangible assets, but before the | | exits | activities | 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 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. Adjusted profit Calculated as cash generated from operations after: capital expenditure; income tax and interest; and, cash to fund operations, capital expenditure, debt and pension obligations, and dividends. ### Financial Additional Capita plc 231 statements information Annual Report 2022 | 8.2 Alternative performance measures continued | | | 8.2 Alternative performance measures continued | | | | --- | --- | --- | --- | --- | --- | | | Closest equivalent | Definition, Purpose and | | Closest equivalent IFRS | | | APM | IFRS measure | Reconciliation | APM | measure Definition, Purpose and Reconciliation | | | Income statement continued | | | Cash flows and net debt continued | | | | Adjusted profit | Profit before tax Calculated as profit or loss before tax excluding the items detailed in note2.4 which include: business | | | Operating cash | Calculated as operating cash flow before business exits divided by adjusted EBITDA. | | before tax | | exits (trading results, non-trading expenses, and any gain/(loss) on business disposal); acquired | operating cash | conversion | | The Board believes that this measure is useful for investors because it is closely monitored by intangible amortisation; and impairment of goodwill and acquired intangibles. conversion management to evaluate the Group’s operating performance and to make financial, strategic and N | | | | | 2022 2021 | | 1 | | --- | --- | --- | --- | --- | --- | --- | | | Adjusted EBITDA | a £238.8m £143.0m | | | | | | A reconciliation of reported to adjusted profit before tax is provided in note 2.4. | Working capital | | (£32.7m) (£113.6m) | | | | | | Non-cash and other adjustments | | (£44.7m) | | £38.6m | | Profit after tax Calculated as the above adjusted profit or loss before tax, less the tax credit or expense on adjusted | profit or loss. | | | Operating cash flow before business exits b £161.4m £68.0m | | --- | --- | --- | --- | | The table below shows a reconciliation: | | | Adjusted operating cash conversion b/a 67.6 % 47.6 % | | | 2021 | 1 | | 2022 | | | | Net debt Borrowings, cash, | | Calculated as the net of the Group’s: cash, cash equivalents and overdrafts; private placement loan | | --- | --- | --- | --- | --- | --- | | Adjusted profit/(loss) before tax (note 2.4) | £73.8m | (£122.8m) | | | | | | | | | derivatives, lease | notes debt; other loan notes; currency and interest rate swaps; lease liabilities; and deferred | | Tax on adjusted profit/(loss) (note 2.6.1) | £31.8m | (£4.0m) | | liabilities and | consideration. | deferred Adjusted profit/(loss) after tax £105.6m (£126.8m) The Board believes that net debt enables investors to see the economic effect of debt, related consideration hedges and cash and cash equivalents in total and shows the indebtedness of the Group. 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 calculation of net debt is provided in notes 2.10.3 and 4.1.1 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 Net financial debt No direct Calculated as the sum of the Group’s: cash, cash equivalents and overdrafts; the fair value of the exclude one-off items. (pre-IFRS 16) equivalent Group’s private placement loan notes; other loan notes; and deferred consideration. The Board believes that this tax rate provides an indication of the effective average tax rate across The Board believes that this measure of net debt allows investors to see the Group's net debt the Group on adjusted profit before tax. position excluding its IFRS 16 lease liabilities. For further information refer to note 2.6. 2022 2021 Net debt (note 4.1.1) £482.4m £879.8m Basic earnings Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by per share the weighted average number of ordinary shares outstanding during the year. Remove: IFRS16 impact (note 4.4) (£397.5m) (£448.4m) The Board believes that this provides an indication of basic earnings per share of the Group on Net financial debt (pre-IFRS 16) £84.9m £431.4m adjusted profit after tax. Gearing: net debt No direct This ratio is calculated as net financial debt (pre-IFRS 16) divided by adjusted EBITDA over a For the calculation of adjusted basic earnings per share refer to note 2.7. to adjusted equivalent rolling twelve month period including business exits not yet completed at the balance sheet date. EBITDA ratio The Board believes that this ratio is useful because it shows how significant net debt is relative to Adjusted diluted Diluted Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by adjusted EBITDA. earnings per share earnings per the weighted average number of ordinary shares outstanding during the period plus the weighted U share average number of ordinary shares that would have been issued on the conversion of all the dilutive This measure has been calculated including and excluding the impact of IFRS16 leases on potential ordinary shares into ordinary shares. EBITDA and net debt because the Board believes this provides useful information to enable The Board believes that this provides an indication of diluted earnings per share of the Group on investors to understand the impact of the Group’s lease portfolio on its gearing ratio. adjusted profit after tax. The table below shows the components, and calculation, of the net debt / net financial debt (pre- IFRS 16) to adjusted EBITDA ratio: For the calculation of adjusted diluted earnings per share refer to note 2.7. Post IFRS 16 Pre IFRS 16 2022 2021 2 2022 2021 2 Cash flows and net debt Cash flows Cash Calculated as the cash flows generated from operations excluding the items detailed in note2.10.2 Adjusted EBITDA £238.8m £181.7m £172.3m £85.9m generated/(used) generated / which includes: business exits (trading results, non-trading expenses) and pension deficit EBITDA in respect of business exits not yet | by operations | (used) by | contributions which have been triggered by disposals. | | | | --- | --- | --- | --- | --- | | | | | completed | £1.3m £32.2m £1.3m £32.2m | | before business | operations | | | | | | | The Board believes that this measure is useful for investors because it is closely monitored by | Adjusted EBITDA (including business exits not | | exits management to evaluate the Group’s operating performance and to make financial, strategic and yet completed) £240.1m £213.9m £173.6m £118.1m operating decisions. Net debt / net financial debt (pre-IFRS 16) £482.4m £879.8m £84.9m £431.4m A reconciliation of reported to cash generated/(used) by operations excluding business exits is Net debt / net financial debt (pre-IFRS 16) to provided in note2.10.2. | | | adjusted EBITDA ratio | 2.0x 4.1x 0.5x 3.7x | | --- | --- | --- | --- | | Free cash flow | Net cash flows | | | | before business | from operating | | | 1. 2021 adjusted results have been re-presented - please refer to note 2.4 for further details. exits activities 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. N New APM in the year U Definition updated in the year A reconciliation of net cash flows from operating activities to free cash flow is provided in note 2.10.1 R Comparatives re-presented and a reconciliation of reported to free cash flow excluding business exits is provided in note 2.10.2. Adjusted Adjusted basic Adjusted profit earnings per share after tax Calculated as cash generated from operations after: capital expenditure; income tax and interest; and, The Board believes that this measure is useful for investors because it is closely monitored by Free cash flow is a measure used to show how efficient the Group is at generating cash and the the proceeds from the sale of property, plant and equipment and intangible assets, but before the management to evaluate the Group’s operating performance and to make financial, strategic and Board believes it is useful for investors and management to measure whether the Group has enough impact of business exits. operating decisions. cash to fund operations, capital expenditure, debt and pension obligations, and dividends. operating decisions. 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