Capita plc (CPI) Earnings Call Transcript & Summary

So thank you, and good morning, everyone, and thanks very much for joining us. I'm sure many, if not most, of you have seen the RNS we issued earlier this morning. So I'll make some brief summary statements. Patrick will talk to the numbers, and then we will open it up for Q&A. In summary, businesses remain resilient through the crisis. Revenues are down 10% year-on-year, just over half of that related to COVID directly. We got on top of this very early, late February, adopted a programmatic approach and took decisive actions on cost, and cash has been given at that stage in particular. We didn't know where this was heading. Patrick will talk to the implications for our liquidity, but it is encouraging. We pretty much got on top of the operational challenges in the first 6 to 8 weeks post lockdown, and over that period, quite fundamentally changed the operating model in many ways. We now have of the 35,000 of our 60,000 colleagues working from home. That's just over 60% of the workforce. The remaining 35% continue to work for our clients, many of whom are key workers, either in the field or in offices where the clients have mandated that. So about 95% of our colleagues have remained safely employed, serving our clients, which has meant that we have not received a single service penalty as a result of COVID through the crisis. And I think more importantly, we have won a considerable amount of goodwill from our clients because of the agile and responsive way in which we responded to their needs through the crisis. We also have won work primarily from the government, around EUR 70 million to date, TCV. That's largely with NHS England and the Department of Work and Pensions, and some of that is ongoing. In terms of growth, our pipeline remains reasonably strong. For the remainder of the year, we have about 2.2 billion in weighted opportunity. About 8.7 billion in overall weighted opportunity beyond 2020. We have a total pipeline today that has grown actually since the full year results in March of around GBP 25 billion. Retention rates remained strong at circa 91%. And we have a strong pipeline of opportunities that we will hear upon in the remainder of the year, the Ministry of Defense, Project Selborne training contract, which is a TCV of around GBP 950 million; the ULEZ extension for Transport for London at GBP 358 million TCV; and then an opportunity with Aviva for $372 million. We also have won and been awarded work through the crisis. Examples would be a new contract for Irish Water at $60 million. We renewed the pensions -- achieved the pension contract again for GBP 60 million, extension of the electronic monitoring for GBP 114 million, and there are a number of other extensions in the offering that we hope to close in second half of the year. Turning to disposals. Very pleased with the consideration we were able to realize from the disposal of Eclipse, which we announced on Friday at a 14.1 multiple. I think it's important to recognize that we can still get healthy valuations for our business even in the middle of this crisis. We also announced the disposal of ESS, an acceleration of our simplification aspect of our strategy. This is an asset that has received more interest than any other of our assets as we've progressed through the transformation over the last couple of years. I'm confident we will be able to affect a competitive process, a healthily competitive process there and maintain the track record of getting good valuations for the disposals we have acted upon over the course of the last 2 years. In terms of outlook, we expect trading through 2020 to remain resilient. And with that, let me just hand over to Patrick to say a few words on the numbers.

Good morning, everybody. As Jon has said, the most important thing that we could do to protect our business from a financial perspective was make sure that -- as many of our colleagues as possible. We're working to deliver the services that our customers still require. And as Jon said, we've got 60% people working from home, 35% working in our facilities for -- on client sets and just over 5% further. Revenue is expected to be 10% down for the first half of that, about half relates to contracts that we had lost in 2019, and we have briefed and communicated at the time we did our full year results. And the other half is the net impact of COVID. As Jon said, we took swift action on costs, everything from salary reductions following not making bonus payments, shutting down half our properties, discretionary expenditure reductions, so travel that -- payments about training, but nothing that isn't directly associated with either a contractual obligation or generation of revenue or a regulatory obligation has been looked at and cut where possible. We've had a long hard look at our head office costs, and we have a plan that will take a solid chunk up in the second half. That is a lot of -- to protect quite a lot of our profits. We were very focused, as we've said, on the 27th of March, on making sure we were compliant with our covenants at June. The other part of complying with our covenants is making sure that we're managing our cash effectively. We have accelerated the working capital improvement plan that we had set up for this year and getting invoices are promptly collecting cash, really engaging with customers. I'm pleased to report that, that has gone really, really well. I get a daily report on how much cash has come in, and most days so far, that's been a certain support to the team. We've also taken advantage of the government VAT deferral plan where we can defer the quarter's VAT, which is worth GBP 120 million to us. The combination of all of those cash actions mean that as of yesterday, we will settle on GBP 832 million of liquidity through a mix of cash and undrawn facilities. And we will burn through a chunk of that over the next few days. We've got to repay GBP 165 million of U.S. private placement loan net. So we expect to end the half with GBP 640 million of liquidity, and that puts us in as good a position as we could be going into the second half. And as I've said to 1 or 2 of you this morning, when lockdown hit in late March, priority #1 was hunkering down and making sure that we did everything we needed to do to comply with the H1 covenants. That proxy is now pretty much ticked. Priority #1 now is making sure that we hunker down and do everything we need to do to remain compliant with our H2 covenants. Obviously, trading is uncertain. As we look into the second half, we've got a bunch of levers to pull, and we're going to do everything we can to make sure that we repeat the performance of the first half. And we remain compliant with our covenants at the end of this year. That was all I was on the numbers.

Patrick, thank you. Let's open it up to Q&A, please.

[Operator Instructions] Our first question today comes from the line of Robert Plant.

Jon and Patrick. Do you think you're going to be able to permanently reconfigure your office network to facilitate working from home?

Robert, thanks for the question. I don't think we will move permanently to working from home. I think we will end up with a hybrid model. We did actually poll our colleagues a few weeks ago, and 70% of them indicated they would like to spend 3 days or more working from home. And interestingly, we've seen, and I suspect it's a function of the lack of distractions currently, significant improvements in productivity, and customer satisfaction associated with the working-from-home model. But as people become more comfortable, we're going back into society. I think that percentage will reduce. But I will share with you that we have already made a decision to not renew the leases on 25 of our properties across the U.K. So yes, our property footprint will reduce across the nation. It will also reduce in London where we'll be much more focused on becoming a client hub and a partner hub versus running back-office operations. So yes, some opportunity for further cost savings over time.

And any sort of figure for what proportion of your office space that would equate to?

I'm not sure we know the answer to that right now. We do have -- I mean, it's an important point because we have -- we've taken this programmatic approach to handling the crisis. There was the precrisis planning. There was handling the crisis as it was enacting. We're now in the third phase, which is a sort of steady state operational model. But also very importantly, looking at what the new norm will look like. And we've start up a small team of people who are looking to define, not just what our property footprint should be, Robert, but more broadly, what the new norm in terms of our operating model will look like more broadly across the organization.

Our next question comes from the line of Paul Sullivan.

Yes. Just 3 from me. Firstly, I mean, can you give us your indication as to the underlying revenue outlook for the rest of the year? And how we should expect that COVID impact to start to improve as lockdown ease into the third quarter? Secondly, any comment on underlying margin progression in the first half and for the full year? And then thirdly, I mean, if you strip out the software business sort of on a pro forma basis or the bulk of that anyway, post the COVID impact, you're not generating much profitability if any at all across the rest of the business at the moment. When do you think you'll have visibility over that sort of level of margin that you should be able to extract from what of Capita remains?

Paul, good to hear from you. I'll let Patrick address the first 2 questions, but let me talk to what we're doing to improve margins in the rest of the business. Look, we are 2 years into -- to the big years into a transformation where we have spent a considerable amount of resource in the first 2 years fixing a whole series of legacy contracts, many of which were burning through considerable amounts of cash. We've now got those contracts to a point where we're delivering against client expectations. And in fact, both prior and to date, our KPI performance on our contracts has never been as strong as it is. That gives us an opportunity to go back to many of our clients and, where we can, improve the commercial terms. I refer to this internally as grinding our margins up across those portfolio of contracts where we're not realizing the margin performance that we would wish to take. So that's actually number one to offset the loss of the margin pounds from the software business. The other thing, and Patrick's already alluded to this that we're undertaking, is we continue to look at cost. We doubled our efforts on that as a result of the crisis. We've got GBP 45 million in cost out of the business in the first half of this year. We plan to do materially more than that in the second half. We've got our group cost structure in line with what we believe it should be for a business of this scale and operating model on the back of having to have invested in many of our functions over the first 2 years, of course, to address the lack of controls, lack of governance in some parts of the business. So we are still looking to get to the double-digit margin target that we talked about previously. That's not going to happen overnight. It's going to be a matter of years to get there as we work through our existing portfolio of contracts and as we win new work at the kind of margins we overstated we wish to win, as we migrate more and more into the consulting and digital transformation phase where we can secure higher margins than we would do in some of the traditional areas that Capita has operated. Patrick, do you want to talk to the first one?

Yes. So we talked about revenue. For the first half, we are about 10% down. As I said, we'll get to sort of between GBP 1.6 billion, GBP 1.7 billion. Various commentators have a 10% down for the full year. That's kind of in the middle of the range. Obviously, you would imagine that there's lots of uncertainties as we forecast. That would mean that, yes, in round terms, revenue is going to be flat in the second half. That's 10% down overall. When we talk to underlying margins, which is clearly an important thing, I'd make 2 or 3 points, and then I'll answer your question. The first point is we have spoken at the full year about the importance of cash flow from operations as well as margins. And so we will talk at the half year when we do our results about both of those 2 things. The second thing that I've talked about at some length is the importance of looking below the top level group margin and cash flow at the individual level, whereas, as you all know, there is a wide disparity in margins between the different divisions. And so we will be providing a lot more color by division on both the margins and the cash flow from operations, so you'll be able to see how the deferred income unwinds, affects the different divisions in different ways, and we've got that set up. We'll give you last year's numbers in the next couple of weeks, so everybody is ready for the half year results, and then that will give you -- something for us to seek into. So we're following through on the commitments that we made to improve the granularity of our reporting and to improve the transparency of our reporting. Today is very much more about a trading update and the 4 or 5 key points that we have made. The third point on underlying margins is, of course, in the 2020 numbers, there are lots and lots of one-offs. There are lots of one-off revenue reduction that we expect will reverse as we go into 2021. We're uncertain exactly how much of them will reverse. The good example to use to explain that point is Capita travel and events. Travel is obviously way, way down. Amazingly, there is still some revenue going through that business, but that's, again, due to the quality of our client base. And people like network rail are still traveling to keep the railway moving, but that business is going to recover. But like every business on this call, we've been looking at our travel and wondering quite why we spent so much time on trains and planes. And so clearly, Capita travel and event is not going to get back to the same level of revenue it had before the crisis so we're trying to size that up. And then we need to restructure the business so that it's fitting the full purpose for its reform. And only when we've done that can we deliver a view on the underlying margins of Capita travel and event, and then we need to do that across all of our businesses and then roll that up into divisions and then roll that up into the group. That's the work that we're doing. As I said earlier, we're really focused at the moment on planning covenants, protecting cash and managing our cash carefully. In terms of what we feel about the first half and the second half, if you look at consensus, it has process depending on this figure you look at, so which consensus you look at profit for the first half of somewhere around GBP 50 million-ish. And then we see that improving in the second half as revenues remain flat as I said. And then the benefit of some of the cost action that we've taken in the first half flows through into the second half. For example, I mentioned actions we've taken to reduce the size of our headquarter costs. And that -- those reductions are going in June and July, and therefore, we get the benefits of those in the second half. And so the margins will move from sort of low to mid-single digits in the first half to mid- to high single digits in the second half. And as we make clear in our release, forecasting in these uncertain times is as much an art as a science, and therefore, there are kind of reasonably wide error bars on both the actual upturn of revenues that we're going to get and the precise impact of the cost actions we will be able to take in response to that revenue reduction. So hopefully, that gives you a flavor of an answer to your questions.

Yes. Just to clarify, on revenues, are you talking about flat second half that's sequential or year-on-year?

Flat sequential.

Our next question comes from the line of David Brockton.

Two questions, please. One relates to the last question. In respect of the transactional businesses, unsurprising that they've been hit more hard through this period, and you touched on why travel and events won't recover. I just wonder if you could just quickly give a view as to what the other transactional businesses are doing. Are you seeing the sequential improvements already as lockdowns ease? That's the first question. And then the second question relates to specialist services. You clearly have been preparing some of those units for sale and disposal at the year-end. I just wondered if you can give us an update there as to your intentions given that some of those have been hit more hard.

David, thanks for the question. Let me address the second point first. Without a doubt, our Specialist Services division has been the most significantly impacted by the crisis. And we have close to 30% of the workforce in that division furloughed currently. It's far more the numbers of colleagues furloughed at any other division. And that's as you rightly point out, because of the very transactional nature of many of the businesses in that space. It's not just travel and events. It's our enforcement business as well, of course. What we have done is spent quite a bit of time modeling the recovery curves business unit by business unit to the back end of '21 to get a sense of when these businesses might be at a point in which we can go back to the strategy of disposing of that portfolio. It's still our intent to dispose of those businesses, but obviously, we will do that at such a point where we believe we can get appropriate valuations for them on the back of the businesses being a lot healthier than they are currently. We are seeing some green shoots. The revenue trajectory we modeled for our enforcement business is proving to be a little more pessimistic than perhaps we are currently seeing. Local authorities, in particular, are starting because they're running out of cash, to enforce payment from people who don't pay the parking fines, et cetera. So we're starting to see that business pick up. But I think it's going to be some time before we see that in businesses like travel and events for the very reasons that Patrick has discussed.

I think then if you look more broadly at the transactional businesses, I just kind of go through it piece by piece. Software, as Jon said, the only business that really saw a reduction there with the payment business, which is a mix of local authority payments and Transport for London congestion charging. And having come into Central London this morning, I can confirm there are a number of congestion charge payments being made today. But as the -- after the emission then rolls up and other things, we will see that coming back. But that's the thing, software is always is pretty resilient. People solutions were pleased with 2 big things that have been hit there are the learning, face-to-face training. Quite one of that is moving online. It's helping us redefine our propositions. And there's no question that corporates on all forms are going to need all kinds of new training solutions as they adjust to the new way of being. And so we don't know when that comes back, but we still believe it's pretty resilient. Resourcing is entirely dependent on economic activity. And as the economy comes back, that resourcing business comes back. Customer management, pretty resilient. That's where a lot of the current benefit has gone in, in terms of additional call center work for the government. The government business as such -- probably the biggest transactional business in there is one of our education businesses, which ranges up with balance trips and things. Student, clearly, has a lot happening this year. That will happen next year. That'll recover back to where it was as far as we can see. Technology solutions, they've seen some benefits as companies scramble to get people working from home. But equally, companies are deferring improvement projects and network reorganizations and those sorts of things. So that will come back when they leave and special services like Jon said and talked about.

The next question comes from Sylvia Barker.

Three questions, please. Could you maybe quantify the COVID benefits and the negative impact of COVID in the first half? You have obviously mentioned quite a few benefits, but just what were actually the growth negatives that you saw? Then on free cash flow, could you maybe tell us what the ESS free cash would have been last year and/or in 2020? And then finally, on consulting, you seem to be getting more inquiries around that, but how should we think about the revenue and the losses maybe last year and into 2020 as well?

Sylvia, thanks very much for the question. I'll let Patrick address the first and second. Let me talk to consulting. Look, there is probably no worse of time in the history of consulting as a profession to launch a new consulting business. Demand for consulting services in the U.K. is down 30% so far. That said, we are growing our consulting business. We are not going to grow it to the GBP 50 million in revenues that we spoke to in the full year results in March, but it will grow this year. And it's growing because we have a number of differentiated and competitive offerings that are gaining traction primarily in the public sector for large central government departments like the foreign commonwealth office, the home office, the MOD, but also selectively in some local authorities and with the private sector as well. So I am encouraged that we have been able to grow this business through the economic climate we're all currently experiencing, but it will be to a lesser level than we anticipated at the beginning of the year when we put our plan in place. We have had to rightsize our consulting organization, obviously, consulting is higher -- ahead of demand. That demand has tailed off. So we are reducing the number of consultants we have currently. With an objective of getting us close to breakeven, we may not get there, but getting us close to breakeven for the year on that business as we can.

Just talking about COVID benefits and good benefits. Specifically on revenue, what we've said is roughly 5% of the reduction is down from COVID and 5% of GBP 1.7 billion is GBP 80 million, GBP 85 million. So that gives you a sense of what the first half this benefit -- revenue decline from COVID is. In terms of the benefits in the half, they've been very modest. But we have GBP 170 million worth of contract value related to COVID, which is, as I said, mostly, of course, of the work that has started in May -- I think we had a couple in April, but mostly sort of May and June, and that will continue through the end of the year and into next year. In terms of the net benefits and just benefits of COVID on the kind of profit and free cash flow, there are partly many moving parts from these transformations on the call, we are working out the best and curious way for us to disclose all of that at the half year, and there'll be all kinds of exciting bridges for everybody to work through. And then you have a specific question on ESS. We've not really talked to the free cash flow numbers, although it has a very high free cash flow conversion from EBITDA. The EBITDA last year was about GBP 50 million, and we've put that in our release, and that's what we're saying. We're confident that the purchases of that business will describe better value to it than the market describes to it as a sole part of the very large diverse group.

Great. And maybe just a follow-up quickly on ESS. Will you have any stranded central cost after that's gone?

So good question. One of the things that we have worked in a much more accelerated and focused way on COVID is we've seen revenue coming down. And therefore, we've been really thoughtful about how we segregate direct, indirect, semi-fix and overhead costs. And so we've taken the first step, which is to reduce our central overheads. On ESS itself, it's pretty self-contained. It benefits from central services like payroll, for example. And when we are clear about the timing and nature of the disposal, we'll focus on taking out as many of those stranded costs as we possibly can. And when we're clear what they are, we'll disclose them. But it's -- if you think of the EBITDA of GBP 50 million, yes, the stranded costs are going to be well short of 5% of that, if anything.

The next question comes from Rory McKenzie.

It's Rory here. Just one for me. You've talked about hoping to improve cash from trading operations year-over-year. Julian's asked a bit about the contractual working capital. I know that GBP 230 million outflow last year is a relatively easy comp. But just kind of conceptually, shouldn't another year of significant revenue declines result in another big outflow given that negative working capital balance? I don't know if there's any kind of guidance you can remind us on about deferred income, all the other moving pieces that might point to where that comes from.

Correct. That is absolutely fair. So we guided the working capital outflow would drop from, as you said, minus GBP 230 million down to a number of sub-GBP 100 million. The reason that there was such a high outflow, and as I've said before, it's not actually outflows. Because it's not like cash leaves of the business. It's something that we book revenue by taking it out of deferred income, and there's no cash associated with that revenue. So what is usually a recognition that an element of the profit is not cash back. And what happened last year was that there were a series of contracts that were either restructured or came to an end, and we talked, I think at length at the full year call. And really the big deferred income release, the big income, big profit, no cash that you reverse without the focus on cash flow. So we guided to less than GBP 100 million, GBP 89 million. And as we're looking now, we're probably going to be slightly less than that for the full year. Yes. Again, all kind of things could happen in the second half. We made some big plans that wants to restructure. But then again, while that will change the working capital outflow number, it won't change the cash flow from operations number, which is if client X decides to terminate early or restructure and we re-profile as deferred income. We'll get additional revenue, additional profit, have additional outflow and the cash flow from operations would be the same number.

Yes. Yes, got it. I guess, Patrick, when you guided before that, that was based on modest organic revenue growth and the hope of getting some bigger transmission contract wins, which, I guess, do actually would have been a cash benefit had those wins come through. So I guess, I'm still a bit surprised that -- the way -- this could be performing better. But without the big wins, isn't that going to be a drag versus your plans in some ways?

No. What we typically do with the new contract is the cash flow associated with the contract, it will not be a much working capital or something, real working capital because you incur the cost in your invoice a month later. But typically, we will seek to profile the cash receipts from the plan in line with our cash costs. So therefore, if you add a new contract into the P&L, you will get a lot -- a lot of DFRP is a great example where we've added DFRP into our results this year. It will book a GBP 20 million P&L hit, which we guided to one of the contract. But then there'll be a GBP 20 million inflow on working capital and the net cash position for that contract will be 0. So they're not -- and the new contract is not a net cash negative. It's simply -- you've got some profits that -- you got some loss that isn't cash back and then you reverse it up in the working capital. So the net cash position for a new contract in real terms, if you look at the contract discreetly, it's usually pretty close to breakeven, and we work to make that the case. But it looks like there's a working capital inflow because there's a loss higher off the P&L chain.

Our next question comes from Suhasini Varanasi.

Just a couple, please. If you look at government services, the revenues are down GBP 60 million, if I'm not mistaken. If you exclude the local government contract attrition that was known, was the business actually resilient, was maybe up year-over-year? Second question is on the software division, the ESS businesses up for sale. Can you maybe cap what you see as the future of the software division medium to long term? Apart from ESS, any other part of software also be up for sale in the next 12, 18 months? What happens in 3 years' time, 4 years' time?

Thanks very much for the question. Patrick will deal with the first one. Let me deal with the second one, which is a question strategy. Look, we are -- we remain committed to evolving Capita towards becoming a consulting transformation and digitally enabled services business, and that means a focus on digital platforms and software that support those consulting engagements and the delivery of services. Not all of the software businesses within Capita today are strategically aligned with that objective. They are standalone businesses. They're great businesses. They generate very healthy cash flow and margin, but they're not aligned with that long-term strategy. And quite frankly, so long as those continue in the Capita portfolio, given our limited ability to invest in those businesses, given they are not strategic, one might argue that, that while there -- that we, over time, would reduce the value, effectively destroy value if we were to do something different with them. So we undertook, as part of the strategy, a thorough review of the software portfolio. We spent most of '19 doing that. We've categorized the businesses into no software solutions that support our services business versus those that are stand-alone product businesses. They carry little revenue, next to no revenue pull-through on the latter. And over a period of time, we will look to dispose of several of those businesses. The first of those disposals was enacted last week, of course, with Eclipse. With an encouraging multiple given the economic climate, we will look to disclose more over time. And that was -- the sequencing of that will depend on a number of factors, our capacity to handle the disposals at any one number of disposals or any one point in time. But also the fact that we want to do it sequentially, we want -- we don't want to do it as a single portfolio because the buyers of the different businesses are very different, the strategics, in particular. And it's very clear that we will get superior valuation through a discreet -- set of discreet processes versus doing it as a portfolio. And that takes some time. I anticipate we will be doing this well into -- certainly through '21, perhaps into '22.

Okay. And then a very -- there's a short answer to your first question, which is that excluding the effects of the loss of the local government contracts that we talked about, obviously, the exit of the defense infrastructure contract with a little bit of that in last year and offset by incremental revenue from the win of DFRP. With the combination of those losses, it was about -- expected to be about GBP 100 million over the full year, with GBP 60 million in the first half. I haven't done the detailed math. But I would guess that net-net, excluding those big losses, government services is probably about flat, with some losses, as I mentioned, in the areas referred to in the press release and then some gains in other areas. So it's pretty resilient overall, which is what we would expect.

The only thing I would add is that the -- the picture vis-à-vis renewal of key government contracts through the remainder of the year is encouraging. I'm not going to specify them because we're in negotiations, but there are large contracts we have with central government that could have gone to tender, but will not, will be extended, and that's pretty much the picture across the board, which, again, from a revenue resilience perspective is obviously helpful.

Our last question comes from the line of Ed Steele.

Two questions, please. The first on organic growth. Back on the 5th of March, your guidance was for modest organic growth for the full year '20, but that was going to be second half-focused, I think. You think it's minus 5% ex-COVID in the first half. That sounds like it's a bit worse than you were expecting. Going to the second half, your guidance is for minus 10% for the group overall it seems. Just trying to just understand your comments. I'm just trying to work out why it won't be a bit better than that given that your previous guidance in the full year results was the second half can be a bit better, easier comps. You've got more COVID-19 revenues of that GBP 70 million TCF -- TCV. Presumably lockdowns are starting to ease, so you won't get any worse third quarter versus second quarter. So just if you could square all those together to your minus 10% second half guidance, that would be helpful, please? And then second question, at the bottom of your release, you've got some restated additional numbers. You've moved over half of the revenue out of specialty services into other divisions, with the biggest being life and pensions. Should we assume you're now thinking that life and pension is staying for good? And are the economics sufficiently amended and attractive now for that to be the case, please?

So thanks for the question. Let me address the second one first. And as you probably better than many will remember, that when this leadership team came into Capita late '17, early '18, we very quickly went through a restructuring that was our best assessment of how we should be managing the business at that point in time. Clearly, over the course of the last couple of years, we've learned more about the businesses in the portfolio. And we have made some adjustments, and one of those is life and pensions. So the strategic work we did have continued to do over the course of the last couple of years. It's very clear that financial services represents a significant opportunity set for us. And life and pensions, mortgage origination is clearly an area where we've won work already. We won the co-op origination, renewal and expansion last year. We're in discussions with 2 other financial services businesses currently to -- with work in that arena for them as well. And this is another example where, through increased use of technology, automation, superior operating model, negotiating better terms as a part of the commercial agreement, we can secure better financials on that new scope of work. That doesn't detract, however, from some of the legacy closed-book pension businesses we inherited, which will continue to burn cash through that period. But obviously, net-net, we will see an improvement of margin over that time.

That makes -- so you're no longer actively looking to exit some of those contracts? You feel that the cash burn in 1 or 2 contracts is more an offset by opportunity to grow the business overall in financial services. Is that the right way to read?

No. I'm not going to go that far. I would love us to offload the legacy closed-book pension businesses, and we have done some of that. We've handed some of them back to clients, of course, or to other providers of services to clients. But we have 1 or 2 where the clients contractually can force us to continue to deliver the service. And that is the case, we have no option but to continue to deliver that service for that client. What we have to do is figure out more economic ways of doing that, so we can limit the -- limit the cash burn. But that's specific to the closed book. The other areas of financial services that came over, absolutely, are decent margin businesses with significant growth opportunity.

And it's worth saying that on a number of legacy contracts, we have been able to either hand them off to somebody else or restructure in terms of contracts that they are kind of cash breakeven. And we will continue that process with the remaining ones as best we can. Then to your kind of mathematical challenges around revenue percentages. If you think through, we were always going to see more of a revenue reduction in the first half because, as you pointed out, the comps were higher. So if you sort of think of minus 300 bps for the first half and plus 300 bps for the second half has been how we got to modest organic growth for the year. And we're not minus 10% and minus 10%. We explained how we get to minus 10% for the first half. Looking at the second half, you've got clearly the continuation of the COVID impact. So you had 3 months of COVID in the first half. You've got -- yes, in our current thinking, we were at least 3 months inside in the second half. While some things are unlocking, we don't see that driving. July and August are going to be quiet because it's in August. And then the sort of missing ingredients in your math is the revenue growth that we were expecting from new contract wins. And as I was talking, for example, in technology solutions, and we're seeing this in some of our contracts, plans are not bringing opportunities to market at the philosophy that we had anticipated because they are focused on the same things that we're focused on, which is stability and cash conservation and risk avoidance. So we had anticipated that there would be across a number of divisions, and I'm going to be guessing more, there would be opportunities, and a number of those opportunities have moved to the right. What we can't yet determine is how far that moves to the right, whether we might get a few of them tracking in, in Q4 or whether they're going to come in, in 2021. And we've got a reasonable track recorders of winning new work when we did it. So that's the sort of missing ingredient. COVID, there's a direct and obvious total impact on the transactional businesses when revenue that was there disappears, and the indirect COVID impact which is obviously much harder to quantify because you were projecting forward on the basis of pipelines and assumed win rates. And the indirect impact of COVID is that pipelines have moved to the right. As Jon has said, our pipeline remains very healthy and continues to build, but we haven't been able to land opportunities. And there's a lot of opportunities for new work and the velocity set we had expected. Obviously, that helps you with that bridge.

Yes. It's very hard to catch. Just have a very small question. The GBP 2.2 billion of TCV pipeline that you expect to have outcomes in FY '20, would it be fair to say we're now looking more or very little FY '20 revenue contributions, more FY '21 from those tenders? Is that right?

Predominantly. Yes. I mean, we've done, yes, something like GBP 1.6 billion of TCV in the first half. And we're looking to close at least that much in the second half, but a lot of that revenue will be forward revenue.

Thanks very much, everyone, for your interest in Capita. We will catch up with many of you over the next few days. Thank you.