Capita plc (CPI) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining this Yellowstone Advisory Webinar. Today's company presenting is Capita plc, and we're delighted to have with us Helen Parris, the Director of Investor Relations; and Stephanie Little, the Investor Relations Manager. Before we start the presentation, I'd just like to go through a few points of administration. Hopefully, you should all be able to see a poll on the screen. We'd appreciate it if you could respond to that poll. The format today is a presentation and then we'll follow on to Q&A. [Operator Instructions] And we'll endeavor to cover as many questions as we can during the time we have at the end. I'd now like to hand over to Helen Parris, Director of Investor Relations at Capita to start today's presentation.

Hello. Good afternoon, everybody. Thank you, Alex. So I'm Helen Parris, Director of Investor Relations, I joined in mid-December. I think some of you I may have spoken to already, and I'm joined today by Stephanie Little, who is the Capita IR Manager. So we're planning on talking probably about 15 to 20 minutes, very much, I guess, using the full year results presentation as the basis. But hopefully, spending a bit more time talking about sort of the outlook. So the forward-looking piece of the presentation. And then as Alex said, we should have plenty of time for questions afterwards. So if I start on the next slide, it's the usual disclaimer. I will let you use your time later to read that in more detail should you wish to. So the next slide, as I said, introduced ourselves, I joined mid-December, previously was 13 years at G4S, and prior to that was at BG Group and before that, both on buy side and the sell side. So let's go straight into presentation. So just very quickly, really wanted to sort of a quick introduction to Capita. I know many of you are very familiar with the group, but I just really wanted to reiterate some of what we see is the core sort of investment sort of qualities about the group. We're a much simplified business now. We're on 2 core divisions, public service and experience. Obviously, we have a very small number of businesses in portfolio still to sell. But fundamentally, we are a much simpler and more focused business than we were before. And within those businesses, we have market-leading positions. So we -- in our public service business, we are the #1 supplier of software and IT supplier to the U.K. government. And we're #1 here in the customer experience market and #5 in Germany and in Europe. We have 50,000 employees who are obviously incredibly valuable to providing the customer service and operational delivery of the business. We have good positions in growing markets. So both our businesses should have the opportunity and the potential to grow at around 5% per annum. And as you saw, in the second half of last year, we're making good progress on that, and that's something that we will come on to. Part of what is driving the growth is really our move from being a business process outsourcer to a digital business process solutions sort of a supplier to customers and really helping their digital transformation of their own business, and we can talk through some examples of that. And one of the sort of the other big changes that we've made, particularly under Jon as our CEO, is that the business has gone from being very heavily indebted to really a minimal debt position. So at the end of 2022, we had net financial debt of just GBP 85 million and net debt-to-EBITDA of 0.5x. So clearly, in the sort of current uncertain economic environment, we feel in a very strong and resilient position going forward. So then -- on to next slide, again, I just thought I would highlight some of the great things that Capita does within the 2 businesses. So within our U.K. government business, we're very much sort of specialized in niche areas where we really understand what the government department does and what we can really understand what they're trying to deliver to their end customers, which is generally sort of the U.K. public. We focus on areas such as justice, central government and transport, things like managing the ULA scheme. And here in London, where we are today, we recruit all the officers and soldiers for the British Army and our Defense, Fire and Safety business. maybe that we collect over GBP 1.5 billion of counsel tax for 850,000 households. We've done 1.5 million house assessments since 2012 under our contract, support the NHS. We have our education and learning business, where we help 50,000 students access the higher education through the disabled students allowance business that we administer. So really looking to deliver better experiences for citizens and do it in a cost-effective way for the U.K. government. The next business, which is our customer experience business. Some of what we do is call center management and increasingly are using digital technology, AI and so on to again make that as efficient as possible, both in terms of our customer, but also for our end user to make sure that they have a seamless customer experience but also make sure that our people are helping those most in need. We have our financial services business, so managing life and pensions, for example, mortgage applications. Around 1/3 of that business is our space -- the remaining legacy issue with which the group has, which is our closed book life and pensions business, which says around 1/3 probably about GBP 150 million of revenue this year. And it's something that we can come back to is clearly has been and will probably likely be still a bit of a drag on the margin for this business. But then we have other multi-industries particularly focusing on areas like energy, utilities and retail were actually sadly in the current cost of living prices we're seeing pretty good demand for additional help for our customers, clients in that -- in those areas. Then on to the next slide, really, hopefully, what you took from the full year results was that the group is returned to growth. The focus is helping. Our strategy is delivering, and we're seeing improving momentum. So we delivered 4% growth in the second half of the year. We think that as a result of the focus. It's a result of the fact that we have competitive solutions, means that we are winning both in terms of new customers, but also even more importantly, really as we're winning more work with existing customers as well as having very high customer retention. And that high customer retention is because we have really transformed the reputation for delivering to clients. That's something that you can really see over the last few years. We have really absolutely done a massive turnaround. We've also started to see an improvement in profitability. So we basically swung from a loss to a profit, and that's as a result of returning to growth, mix of work that we're doing. So in terms of more digital work and basically stickier contracts and also as a result of the cost saving, restructuring and transformation programs that were put in over the last few years. As a result of really some of the actions that were taken a few years ago around the portfolio businesses, we have seen a significant strengthening in the balance sheet. Not only have we significantly reduced our debt, we've also really sort of transformed our pension deficit and really are on a much stronger footing in the current financial situation. We have an increasingly agile and flexible workforce, and that's something that, as Steph will come on to, it's very important in the current very tight labor market that basically our people are allowed to work generally where they want to do, whether they want to work from home or from in the office. So they have a fully hybrid workforce policy. And that's delivering. We saw a 15-point increase in our employee Net Promoter Score. And one of the key opportunities really for us is to reduce employee attrition. It's one of the big sort of cost saving opportunities. And so to make people happier where they work is obviously a clear sort of indicator that, that we should be able to improve on that. And as I say, really in the current sort of environment, we feel that we have a very resilient business, got good structural growth and we have good market positions, where we have a clear strategy in terms of where we expect to grow going forward. And so again, just really to reiterate where the group has come from. We've very much the first few years under Jon's leadership was around transforming the business. So initially, we were in 10-odd facing divisions. We're now down to 2. And really has sort of been a case of sort of making sure that we were able to improve the contract take on. From my experience at G4S, that's really also very similar to what Capita's done is make sure that we are absolutely clear about the sort of work that we should be bidding on and that we have the right risk-reward type process at a much more disciplined approach than historically, Capita I think, was very much driven by driving top line growth, and we've really transformed that whole risk process. And as a result of that, we've not taken on any material loss-making contracts during that time. And it's also as a result of that, we're able to deliver better and why our operational delivery, our performance, our customer retention, all of those things that have improved. And so we really are in a position now where we feel that we can accelerate. We have a number of years we're just trying to stabilize, not lose business and we really now feel we can go much more on the front foot. We have changed our incentive plans for our salespeople to be, again, much more looking at winning new business rather than just retaining existing business as we come on through looking at reducing cost of attrition, continuing to look at where we can take out costs and also stepping up our investments in digital solutions for our customers, again, that will be a virtuous circle in terms of driving growth also. Before I hand over to Steph who's going to go through areas in a little bit more detail, I do also want to emphasize our purpose, which is very much our license to operate. And I know that many companies talk about the good things that they do. But this -- we -- this is absolutely fundamental to Capita. And we do see this is the right thing to do, but it is also the thing that is helping us to win business. We are very much seen as attracting people because they want to work for a purpose-led responsible business. Our social value commitments help us win bids. We have a number of examples. And with that, so the fact that we are a living wage payer, the fact that we have committed to net 0 by 2035, we have a fair tax accreditation, we have -- we are well ahead of the norm in terms of what we spend with SME companies, our suppliers, our modern slavery assessment, these are all things that we think are making us a good company and will make us a sustainable business for the future. And so now I'll hand over to Stephanie, who will go through some of what we're trying to do in terms of reducing employee attrition.

I'm Stephanie. As Helen said, I've been with Capita for around 3 years now. And prior to that, I trained as a bit for audit manager kind of focused on PLC listed groups, which is when I then made a move across to Capita. So as Helen said, just to spend a few minutes talking through employees. Obviously, we have 50,000 employees. They are at the heart of our business as such a people-heavy firm. At the moment, we're in one of the tightest labor markets that we've seen in the years, and we've seen that in our attrition numbers. Attrition this year actually was flat at around 30%. But actually, it's a bit more of a nuanced story underneath that. We've put in very clear engagement structures in place to try and improve our attrition, and we really saw good results with that in public and our TSS division, which is our technology division. And actually now the final issue that we have really is within our capital experience business, where, again, we are working on fixing that issue. One of the big things that will really help attrition in this business, to be honest, is our working from home model. As you can see on the slide, 85% of our home-based or hybrid employees say that their working arrangements are a reason they want to stay with Capita. And actually, what we see is for those that are home-based or hybrid, we see much lower sickness and absenteeism. So it really is helping our ability to staff our work at the moment. Now if I move on just to our financial highlights very quickly. Helen and I have talked you through some of these on the summary slide, but I'll just talk you through in slightly more detail. So as you can see, revenue was up 2.4% this year with a strong performance in public and portfolio and stabilization in capital experience. Experience actually grew by just under 1% this year, which in 2021, they declined by 10%. So we really have seen a stabilization of the revenue there. We saw a significant improvement in our operating profit, PBT and EBITDA, reflecting the revenue growth, the efficiency of delivery and the completion of our restructuring program which finished in 2021. We also delivered positive free cash flow as expected. That is pre-lease payments. But it was a very important milestone for the group as a whole. And then as Helen's touched upon, we reduced our net debt by GBP 397 million this year as a result of the disposal program, which means we're well below actually our target net financial debt-to-EBITDA ratio, which our target is 1, and we were at 0.5x. So as we've talked about, at the moment, we are working through a disposal program to dispose of noncore businesses, really good businesses, but it's not core to Capita's future business in public and experience. So we have been selling those, which has also then helped our balance sheet. So post results, we announced the sales of the people pillar, which we've now ticked off in this presentation, which leaves us with about GBP 150 million of revenue to sell and about GBP 60 million of profit for the numbers that are on the right-hand side of the screen. We've launched all of the processes for the remaining pillars, and we are continuing to target sale by half year, depending on the market condition. I think the point to note here is that given where we are with our net debt number, there's no rush to sell this, so it's the balance of maximizing the proceeds, but also making sure that we find the right owners for the business. Then if I move on to liquidity. So we continue to have strong liquidity. At year-end, we were undrawn on our RCF compared to GBP 40 million drawn at the prior year-end. Last year, we repaid nearly GBP 230 million of private placement loan notes, and this year, already, we've now paid another GBP 40 million. So I think the graph on this slide really shows that we've broken the back of the liquidity challenge. Actually, we have a strong liquidity position going forward. Now if I move on to our guidance slide. Sorry, trying not to too many things clicker. If I move you onto the guidance. So this guidance is for Core Capita. And just to confirm, Core Capita is Capita public and experience with all of the overheads that we have kind of excluding portfolio given our plan to sell those businesses kind of by the half year. So revenue, we're targeting further growth from the 2.4% delivered this -- last year, with continuing momentum from the 4% that we saw in H2 of last year. As Helen said, the markets that we're operating are growing at around 5% per annum. So we're targeting mid-single-digit revenue growth in line with those markets. Our EBITDA margin for the Core group last year was 2.9%, and we're targeting to at least double that in the medium term. Our medium term is our forecasting period, which is 3 years. That's kind of the structure that we're looking at there. Then in terms of our cash generated by operations, we're looking at that will be a similar level in 2023, with an increase in CapEx from the increased spend in digital offerings that we're looking at in 2023. And I should point out that the digital offerings are across both divisions. It's not just in 1. And then we expect further low levels of net financial debt as we finish on our disposal program and continue to generate the free cash flow that we've talked about. And then finally, our target remains that our net debt to adjusted EBITDA would be below 1x. Then if I look at our enablers for growth, we've outlined at the year-end results that actually top line growth is going to be a primary driver for improving the group's financial position. And that will be driven by winning new business, growth on our existing clients and then renewals. You can see that we have a really, really high renewal rate within the group at the moment. In fact, last year, Capita experience had a 99% renewal rate, which is pretty strong. But now we are looking at focusing on new clients and growth on account to grow the business that way, which will be driven by delivering really well for our existing clients to open up new growth opportunities and winning new work. And as Helen said, our sales compensation has been changed ever so slightly this year so that we are really incentivizing those to be winning growth on account and new clients to drive that top line growth. Then if I bring you on to where our growth is for both of the divisions, I think this slide captures really, really well the fact that within Capita Public, we have a really healthy mix of renewals, growth on accounts and the new clients. We've got a weighted pipeline of GBP 1.2 billion, which is up from last year. Now part of that is due to the shenanigans in the government in Q3 of last year, which meant we saw quite a few material bids shifting from H2 of last year into H1 of this year. They've not been lost. It's just the time line has moved into early this year rather than last year. So as you can see, we've got some really great opportunities with the Department for Work and Pensions that we won last year, continuing to expand on TFL where we continue to deliver really well. And then this year, we've got some really good opportunities with the education authority, the student loans council and integrated care. And then we have a really similar picture for capital experience. We've got a really diverse portfolio in that business and a weighted pipeline this year of GBP 1 billion with a big chunk of that being in renewals for this year. Last year, at the start of the year, you may remember we announced the extension of our BBC TV licensing contract. And then towards the end of the year, we announced the renewal of the Mobile Com Freenet contract. This year, again, we've got some really great opportunities. And in fact, Commerzbank, which was on this slide, we have now won. And then we've got further growth on account opportunities with Scottish Power, which you may remember was a new win last year. So another factor in increasing the margin other than growth is moving some of our contracts from more of a BPO model to a digital BPS, which can often drive a higher margin. We're capitalizing on the shift from digital. So one example that we saw last year was on our Barnett contract where we actually handed back some of the more BPO elements and what we've actually kept and retained on that contract was the more digital BPS elements, which can drive a higher margin as they are more digitally enabled. If I move on to the next slide. Then another driver of margins will be cost savings within the group. We've listed on this slide some of the examples of where we're seeing cost savings, and that's from improved execution. We no longer have the 4 problem contracts that we talked to previously, and we still are doing that business, but they are no longer they drain on the business that they were as they're all profitable and we're seeing kind of sensible margins come through on those. We have continuous improvement programs where we are investing in our delivery centers, and we're starting to see teams using more standard tools and processes rather than every single solution being completely contract-specific and built on a one-by-one basis. We're really sharing more across the group. And then another benefit from our virtual first model is reducing our property footprint. So for example, in London, we used to have 4 offices. Now we just have the one that Helen and I sat in. And then we're also reducing our U.K. footprint to move to a more hub and spoke model. So we still have plenty of offices around the U.K., but we no longer have the full call centers where people are choosing to work from home more. We've listed here some opportunities for 2023. So one of the big ones that we've spoken about is reducing attrition. If we can get the 30% attrition down, that will have a big impact, particularly on Capita experience's margin achievement. And then there's further efficiencies that we can get from reducing and having a lean corporate overhead where we match the corporate overhead to the size of the group we are now compared to what we were kind of 18 months ago. Then if I move on to the summary. I'll pass back on to Helen over for Q&A.

Yes. So just a few closing remarks before we go to Q&A. No, we really feel that we have good, strong operational momentum and really have the right platform in place to deliver improved financial performance. We saw a turnaround in our financial performance in 2022. Mentioned again, we're strongly positioned in growth markets. We expect to at least double our Core Capita EBIT margin over the medium term. We've outlined the reasons -- the ways that we expect to get that. And I think what you can see is there are sort of multiple levers that we expect to pull on to be able to do that. Our balance sheet has been materially strengthened and we expect to see improving cash conversion as the business grows, but also because we have resolved many of the legacy issues over the past. We don't have the same sort of drain on cash and should see improving cash conversion going forward. So with that, Alex, I think I hand back to you to start with the Q&A. Thank you.

Yes. Thank you, Helen. And thank you, Stephanie, for that presentation. Glad to see that the hard work over the last 2 years is paying off. We are now going to take your questions. [Operator Instructions] I'm going to start with a couple that have come in on margins. And they're similar questions. One is capital experience margins have recovered well, but are still quite low. What could margins get to in this division. And you have a target to at least double the 2.9% EBIT margin in the medium term and what does the medium term mean? I think you did clarify that in the presentation, but if you could just respond to that, that would be great.

Yes, that's right. So as said, our planning cycle is 3 years. So medium term for us is basically by 2025 in terms of the sort of reported numbers in that year, so we would expect to get there. You're right. The experience margin is lower than we would want it to be and where we expect it to be in the future. And it is really that business is, I guess, almost sort of 18 months, 2 years behind, the Capita Public business in terms of the reorganization, the focus, the management team and so on. On the public side, it's much more embedded and you can see that it's on a really good growth trajectory. Experience is improving, but it's still a bit of a step behind. Experience margin, looking at a number of ways, again, looking to improve the growth. So very much focusing on core sectors where they see the ability to be sort of competitive in terms of understanding the customer, also in terms of how we deliver to the customer. So whether it's onshore, offshore, a hybrid of that, looking at really making sure that we have a very sort of flexible cost model. And again, there's some hybrid working, all of those things, feed into that. We also, as I mentioned, we have this sort of the last albatross as it were, which is the closed book life and pension business, which would have had revenue of about GBP 170 million in 2022. That business, in effect, is loss-making. We make provision each year, but it's basically a drag on the profitability and the margin of that business. That business, because of it being a closed book as it were, is declining probably somewhere between 10%, 20% per annum. So it becomes, over time, less of a drag than it has been. So it becomes a reducing proportion of that business. And our other pension life business is a very good business. So again, I'd say so multiple levers on which to pull on but where we definitely see the opportunity to improve margins. And you'll probably have realized that, that really Experience business is the big sort of swing factor on getting the group margin to double because the Capita Public business is close to that already really. And then again, I guess, that business is growing well, more opportunity also for higher-margin, digital-enabled contracts that also helps the mix also. So as I say, we don't have to have 1 big silver bullet to deliver a list. We've got multiple different areas as well as we mentioned, some of the things like the overheads and so on that should be appropriate for a group that has shrunk. It has. And sometimes, I think it's misreported that our revenues have gone down and so on. Will it have because we sold businesses on a reported basis, it would have down. But from an underlying point of view, we can see that the group is growing again.

Thank you, Helen. Good segue on to a question coming in here about disposals. Could you provide some more color on the disposals and how they're tracking. And there was a comment reference from Tim Weller on the FY '22 results conference call. Do you still see Capita having financial pre-IFRS net debt below 0 by the end of half 1, 2023?

Yes. I think one of the analysts used the word awash with cash half year. So we continue to make really good progress on the disposals. It was really good to see the people business sale soon after our results. I think if you look at the revenue lift to sell, where we've had GBP 250 million, now GBP 150 million of revenue, I think we would be a little bit disappointed if you didn't see that reduce to 0 or just below based on what we have achieved to date. And as we said, the focus is on maximizing the proceeds. We're not selling these because we need the cash in desperately. We're selling them because it's the right thing to do for the long-term strategy of the businesses. And like I said, there are some really good businesses in there. And part of the reason that some of the latter ones to sell is the travel business, for example, was really heavily impacted by COVID and the pandemic. So I think a lot of buyers are waiting to see what a post-COVID world looks like for that business and that we also want to see that in the sales. So yes.

Timing is important as well. But clearly, we don't need to sell them, but we won't see because it makes strategic sense to. But yes, we should be, as I say, hopefully, in a small cash positive position on a pre-IFRS 16 basis, yes.

Okay. Brilliant. As you would expect, we've had a lot of questions that have come in. We had a couple of questions ahead of time and quite a few have come in on this webinar regarding the cyber -- legal -- the cyber incident. One of the questions is, could you explain sort of what happened. So that might be a useful starting to explain to people what happened? And then if I group some of the other questions, it seems to be around and what's the likely cost? Can you tell us a bit more about how this incident is being resolved. So should we start with that?

Yes, sure. I mean I have to sell margins ahead of time to say, I'm going to be very restricted in what I can say, obviously, based on very much going to be reiterating probably what we said before in our RNS on the 20th of April. As you'll be aware, the group was subject to a cyber incident. We now know that there's unauthorized access into our IT systems, I think it's around the 22nd of March. We discovered that and basically interrupted it on the 31st of March, which seems like quite a long time, but from what I understand, that's a very, very short time compared to often how these incidents can evolve, can be many months that you have to act within your systems. And so -- the fact that we were able to interrupt the access, I think, very much limited. The impact from the 20th of April release, we said that we believe that a small proportion of the data that was on basically 4% of our servers had potentially been accessed. And that's basically where really all I can sort of say on that. Our forensic investigations continue. As and when we have more information, we will obviously update the market as appropriate. I would say that we have reconnected to all our customers. The fact that saying we were able to -- we are willing to sort of interrupt the access quite quickly in this case means that we think that we very much limited the impact on the business, very -- there's only a very small proportion of our customers that were impacted. And for the vast majority, it was business as usual, and I say that has been the case. Obviously since then, it is an ongoing, say, investigation. And I'm sure in time, we will be able to share more information about sort of what's happened. I think from the initial understanding is that it was a human error. So although that you can do all the things in terms of investments and education and all of these things, which are really important. And I know when I did my onboarding, I had to do all of this stuff when I joined Capita, unfortunately, you cannot 100% prevent these incidents from happening. And unfortunately, they are quite common in the current corporate environment. And I think that by no means, was this a positive event for us. But I think that it was limited in terms of what the, say, the access that they had. And as I say, we will be certainly hoping to update at some point and really draw a line under this hopefully soon.

Okay, brilliant. Just one follow-up question to that. It may be too early for you to answer this, but has the cyber incident affected the customers' pipeline and win rates?

Not that we are aware of at all. We are aware of a number of contracts that we were bidding for renewals, new work that are continuing with that process. I'm sure there probably was a short pause with some of them for the IT people and so on to understand what happened. Our IT people have been very busy dealing with other customers, IT partners to give them comfort basically, and that's why we have reconnected to all of our customers. So no, I think there's general sort of awareness that it's unfortunate part of the modern world that we live in, that these incidents happen. And so we don't see any impact in terms of the pipeline or the work that we are doing.

Okay. Thank you. I'm going to move to another topic here, and that's one that you mentioned a couple of times, which is the attrition rates. And I wondered if you could give us the main reason for attrition, what do people cite in their exit interviews. And then going on to how are your attrition rates trending in 2023 so far? And there's a follow-up to that, but I'll let you answer those 2 first before coming on to the follow-up.

Yes. Yes, that's fine. So I think one that I would point out is actually our Capita Experience business, you would expect to have an elevated attrition rate due to the nature of the business. There's a lot of seasonal workers that we get in that business. So for example, university students who are in between terms that want to come and earn some money for kind of a few months at a time. So the attrition rate will always be inflated in that business. I think one of the key reasons that people are leaving is actually, it's quite a difficult job. I've sat in some of our call centers. And I've actually -- the number of screens and multitasking that the people in the call center have to do is a really difficult job, it's quite -- it's a taxing role. And we are a real living wage payer. But actually, when you also have real living wage payers with the likes in the retail sector, for example, which is perceived as a slightly easier job, people are moving around as a result of that. Last year, Amazon, for example, offered a GBP 1,000 sign-on bonus, if you stayed for 3 months. We can never compete with that. So we saw high attrition around the time that Amazon were offering bonuses like that. But as I said, our employee value proposition are now starting to really see Capita in that division as a really meaningful employment and career path. We are starting to see the green shoots. And one thing actually to note on that is really in Capita Experience, it was full contracts where we're seeing the really high elevated levels of attrition. The good news is, first of all, management now are incentivized around improving attrition, which really does show the focus that we have on that on a business. And the good news also is that in 2023, so far, we have seen that attrition start to come down. It's still higher than where we would like it to be, but we're starting to see progress certainly in the right direction.

If we look at sort of all the costs involved in terms of recruitment, training, downtime, because obviously, somebody is being trained. They have to be -- they're not necessarily providing a lot of service for a number of weeks. It's tens of millions cost to the business. This is a big price potentially that we can go after. And the tight labor market and the things that Steph has emphasized means that it is quite challenging to try and reduce attrition. But one of the reasons that we basically focused the annual salary review was at the lower end earners within the group was because we recognize that, that's where there was biggest opportunity. So basically, people earning over GBP 120,000 were asked to salary increase for 2023, whereas those in the lower end in the -- but still real living wage to well, I think it was over 10% to 11% salary increase. So we recognize that there's a real benefit in trying to keep those people on the front line delivery.

Okay. And then the follow-up question is that with the upcoming U.S. recession, are you seeing that assist with your attrition story at Capita. I guess, linked to that, moving on from attrition is that if there is a U.S. recession, how do you see that contraction impacting your business?

Just to clarify, you're saying U.S., not U.K.?

Well, I guess the question is about the upcoming U.S. recession and the impact that might have, I guess, then on recession slowdown...

And the rest of the world, yes. Yes. I think that we're in a -- the main issue for us is that we have this ridiculously tight labor market. So although we've got inflation and cost of living prices, it's actually just hard to get people to work for. Now we've locked into work. We're in a much stronger position than we were, I think, 18 months ago when we actually found it hard to resource and grow with some contracts. That's not a problem. We are being able to attract people. It's just now we've got to put in an extra effort to keep them because of the same tightness of the labor market. So the salary increases, the hybrid working. And it also means -- hybrid working means that we are able to attract people to work for us, but probably wouldn't be able to work otherwise, because they've got the ability to work from home. they have other care responsibilities or whether because they themselves have some physical disabilities or challenges. So it's -- it's something -- so I would say in terms of -- if we go-- if we went into a global recession, what would it mean in terms of the impact on the labor market? Any stock freeing up in the labor market is potentially a positive. You have to think about the very defensive nature of our U.K. government business. Everybody is still going to carry on doing all the other things they're going to have to carry on paying the council tax, got to pay the TV license or whatever it is. So we do have, I think, quite a defensive business. And on the customer experience business, as I've mentioned in areas like utilities retail, we've seen a growth because of the cost of living prices that our customers are saying, now we've got more people with more questions about the electricity accounts or whatever. So we are -- I wouldn't say we are in any way recession proof, but we would probably be more defensive than some other sectors.

Okay. And one final sort of attrition question. Where do you think attrition could get to full Capita? What do you think it could come down to?

I think probably for the business as a whole, bearing in mind Experience will always have slightly elevated. I think you'd be looking at kind of low 20s would be kind of a steady state good level of attrition. And as Helen said, that's tens of millions of pounds worth price to the group if we can get there.

Okay. Moving on to revenues and profits. Could you advise what the normal half 1, half 2 split is likely to be for both revenues and operating profit?

Yes. So I think from a revenue perspective, we talked to seeing 4% momentum or growth in H2 of last year, then you'd expect that to be a bit slightly higher in H1 of this year. And then maybe slightly lower in H2 actually, which is slightly different to the tracking that we had last year. So this year, we're expecting actually slightly more in H1 compared to H2. And then from a profit perspective, one thing that actually impacts our profit is the holiday pay accrual, which impacts our business quite a lot as a very people-heavy business. So what we see generally is most employees will take most of their leave in the second half of the year. And that creates for the group a liability, which under the accounting rules, you effectively book because you pay everyone a consistent wage every single day. But if they've not taken half their holiday, then technically, you have underpaid them for that period. So that kind of creates a bit of about GBP 20 million delta between our H1 and H2 numbers every year. This year, we are expecting profits to be slightly H1 weighted, which is a bit different to last year where they were H2 weighted. And then cash flow, we expect to be H2 weighted as compared to H1.

We've got a couple of questions around dividends. One, when do you anticipate returning to paying a dividend? And the other one is what conditions need to be in place for dividends to be restarted?

Yes. So I guess we're sort of moving to a point where we're becoming a more normal company now. And the idea of being able to pay a dividend or go back on the is more realistic. I think that, as Tim said in March that once we've completed the disposal program, which we expect to have done materially by the half year or certainly have made a lot of progress on that, that we would give an update in terms of our sort of clarity on our capital allocation policy. So I don't want to preempt anything that the Board may say then. But I think you'll get an indication then of what we're thinking in terms of what the investment needs of the business are versus what we can basically sort of share back with our shareholders. We are very conscious of the fact that really, in the last few years, it's the bond holders, the debt holders and the pensioners that have had the benefit of the cash from the disposals and so on. And that really our very patient shareholders are there to also be sort of rewarded for their loyalty. I think that based on the profile of what we're investing in this year in terms of our step-up of some digital investment for our products-facing digital services that we are probably looking at whether we would return to paying a dividend in 2024. So in terms of the meetings that we've had with larger shareholders and so on, those are sort of the discussions in terms of being in a position where we can see line of sight in terms of having good sustainable cash flow. So that would basically be -- we should see what is it, one of the catalysts. It's net free cash flow that we would then be able to have a dividend that is, therefore, growing and sustainable. I think the Board will be looking at a number of options, looking at dividends, looking at buybacks. But I would imagine that a buyback is something that is usually where you have a lot of excess cash from an M&A situation or something like that. I would imagine that it's something that we will look at more from a dividend perspective. But as I say, that's something that the Board will be considering in the coming months ahead of the half year where it's now an obvious time for them to give a clarity around that capital allocation policy for the group.

Okay. Brilliant. A question here. Any chance of a rebranding and the questioner has offered a name, Social X, but do you want to -- has a rebranding of the company been considered?

Well, so we rebranded in I think just before I joined 3 and a bit years ago, I've not heard any murmuring since then, although it might be good because actually, the navy blue that we print in is really quite annoying from the printers. So you get rid of the navy blue. I don't think so. I actually think that particularly within the public sector, Capita has a really, really strong brand now. Our clients really respect the work that we do. We've got some really long relationships there. And as much as -- yes, so I think branding would be a good idea. I actually think that in the markets we operate in, the brand that we have is a really strong brand to have.

It will be a very expensive exercise. I can't see getting to that, so. I think that we have transformed the operational delivery to our clients. And so yes, I'm aware of some of the other names that the group has been called and we really feel that, that is just not the case, and we see that through the feedback that we get from customers, the very strong retention rate from the customer net rate score are fantastic. So I don't think just as we wouldn't see the feel the need to spend money on rebranding.

Okay. Question here. What do you think are the drivers of the suppressed share price and what can management do about this?

I would say that clearly, the business was very challenged. You had onerous contracts, you had significant financial debt. You had a large pension deficit. We then had COVID, all of these things. And I think that -- it's really around -- we've just got to have a period of stability, delivery, execution, show that all the things that we've said that we expect that we deliver on. And I think that that's very much where we are focused. Clearly, the cyber incident is a bit of a blip, but I think the fundamentals remain. And so where we would expect to see continued progress for this year and next year. But yes, I'm sure that there would be some people that will have had their fingers burnt and we just need to show them that the business is a very different business, managed in a very different way than how it was previously. So I think it's also around delivery and execution, which it is often with these sorts of businesses, again, from my thinking of my experience of G4S it would be very similar.

Brilliant. We've got 2 more questions to go, and I think we've got time to do, so I'm going to ask them. So we know from all about the pipeline. We know from FY 2022 results at some of the public sector sales pipeline slipped into 2023. How are these opportunities, such as the DWP extension tracking?

Yes. They're tracking well. I guess our outlook on those hasn't changed at all. Although on some of the bigger deals that we have, you do frustratingly see the sales cycle get longer and longer. Like I said, the -- our outlook hasn't changed on those. It's purely just the timing of when we actually expect to be announcing anything around them.

I guess the thing to say as well is that some of those we've had limited impact and benefit on 2023. So just because of the timing of even when you win, you've got a long lead time in terms of the work starting. So they're not so important in terms of in-year revenue. And sometimes, we don't have absolute control of the timing of when those contracts are awarded, but I think what happens in the meantime is that we're often doing the existing work and maybe in a different structure and the contract just gets extended. So -- and again, I think an obvious question is you've got potential election year next year, what happens then? Well, again, you go into a period of sort of a bit of sort of not a lot happening. So our existing contracts just roll over and just get extended. And we started to see some of that and some of the work that we're doing. So when you've had, say, quite a lot of change within government, it can just mean that some of these things get delayed. But when we are already incumbent, the impact is more limited.

Okay. I've got a final question here. It's very difficult for private investors to get access to analytics research. Would you consider making some analyst research available to private investors?

Thank you. I have a lot of sympathy. I think that -- I'm not really sure we benefited it certainly wasn't private investors. We're just not allowed to basically under the banks -- we're not allowed to forward the research. We're even very restricted in terms of what we can do with it internally. So we're allowed to sort of basically to share it between ourselves, CEO, CFO. And we're not even sharing it with executive committee members and so on because this is paid for research in effect. We are aware that there are other research houses where we could pay for research to be written on Capita. So there are a number of providers that do that. And I guess, I'm relatively new to Capita. One of the things that we're thinking about is where we have our own IR budget for the retail investors where do we focus that? So obviously, we're doing an event like this with Yellowstone. But that's something that I think we will be looking at is how do we best spend our money and in terms of where is the best benefit for retail investors. We're trying to be more active on things like the LSE platform. We are -- we would think our IR site is great on the website, see If there's any way that we can improve that. But we're looking at things like the private client broker market. But yes, if any of your -- any of the people who are listening today would have a view on what they find most feasible, we're very much open to any suggestions. I've had other brokers say don't waste your money on paid research. So it's -- we're -- I say, we're in an open book minded at the moment.

Okay. Well, I guess speaking as a private investor, too. I think it would be great to perhaps something say, a number of providers of that private research so, probably investor research, so Anyway, that brings us to the end of today's webinar with Capita. Helen and Stephanie, thank you very much for presenting, and thank you very much for answering all those questions very clearly. As people leave today, there is a feedback form that we ask you to complete. It will only take a few moments of your time. So please if you could complete that feedback, we'd most appreciate that. And then finally, just to plug up, there are a couple of webinars coming up. We've got Sainsbury's coming up in a joint presentation with Sharestock on the 22nd of May. On the 6th of June, we had Hercules Site Services, and on the 19th of June, Castings plc. So thank you again, everyone for attending, and we hope to see you soon. Thank you.

Thank you.

Thank you.