Capita plc ($CPI)

All right. Good morning. I hope you enjoy that wonderful video with the highlights of what has been another interesting, challenging and very busy year for us at Capita in 2025. For those of you who haven't had the opportunity to meet, I'm Adolfo Hernandez, I'm the Group Chief Executive. Today, even though I have a number of colleagues from my executive team, the only one who's going to be presenting is Pablo, our CFO. And we're going to be taking you through the 2025 results, but also we're going to give you an update on the operational progress that we made and the strategy. And then we'll do through both of them, and then we'll go and take some Q&A. Please have a look at the disclaimer at your leisure while I just flick over and just get quickly started with a little bit of a summary. If you were here in a similar room about 2 years ago, you might remember that when I joined literally just over 2 years ago now, I was very clear about the size, scale and complexity of the transformation we were facing in Capita. It was a business that had lost focus. It was a business that was carrying too much complexity. But at the heart of it, it was a business that was generating a lot of social value, but it had failed to sustainably translate that social value into economic value. That was my thesis 2 years ago. And then we set out quite an ambitious plan to do a deep root and branch transformation of the business that would allow us to get the good Capita into a better Capita that was able to translate the value that we provided every day, improve it, but also translate it into financial outcomes. We set out on our Capital Markets Day and what we call our 4 betters strategy. It was about building this better technology at the very core to enable everything else that we were going to be doing in the company. We talk about better efficiencies to make us a simpler business, a lighter business, more profitable business, more competitive business, translate all of those to the technology and the efficiencies into a better delivery, better for our customers, delivering better outcomes. And in the process of doing this, working with our colleagues to build that better Capita. So that was the journey. The journey is still current. And I think -- let me just say this from the outset, 2025 has been a critical and pivotal year in terms of our journey to get there. We are way closer than we probably thought we would be at this time 2 years ago, but we haven't finished our job. There is still a lot of work to do. There are some areas in our business, as you can see that still need attention. But if you look at the biggest picture, we're actually doing really well. So let me just go through some of the specifics. Let me just take to them in that sequence. Let me start with technology because when I stood up here 2 years ago, having joined from a hyperscaler, my thesis was and a deep belief at the time is that this new wave of technology that we've been blessed with had the potential to fully transform society and businesses all over the world. But if you look in a sort of micro into our business process outsourcing, everything that had to do with business process outsourcing could and should be at the forefront of that AI transformation. So we got going very, very quickly because we believe that the combination of very complex workflows and managing processes and process expertise and automation and mixing it really well could really be our competitive advantage. We really got going. And as you will see through the presentation, AI is no longer a vision or a concept inside Capita, but it is a reality. I'll give you some numbers about the agents that are already been at work. I'll take you through some of the examples. This is happening today. So that's really important. We've also built hyperscaler partnerships, not ticking the box partnerships, not we buy from them just partnerships, but partnerships that are intentional that are strategic and that they are long term. And each of them has been designed to attain a particular area of differentiation somewhere in the value chain, and I will be taking you through those. So 2 years on, we've made a significant amount of progress there. We've also moved the business significantly to the cloud, and that continues to be a key priority for me. We need to get that, what I call cloud edge thinking in how we deploy systems, how we manage systems, how we provide for security, confidentiality and really how we run operations internally. And then crucially, we have taken all of this technology, and we have managed a unique way to deploy this technology in very complex real-time workflows that are running society and do that in a responsible, governed and secured way with the judgment of a human in the loop the whole time. So this goes way more than just selecting. It's just sort of selecting and figuring out how you actually make it work in reality, and we've done that. So that technology piece actually underpins all the others because it has enabled us to go much further and faster on cost efficiencies, where we're pleased to report we achieved our GBP 250 million stretch target. And that obviously has been cascading through with our 140 bps improvement in operating margin and taking us as a group to 5.2%. But there are parts of the business that are already at or significantly above our expectations if you look at our public sector business that is already sitting at 8.3%. So from a delivery perspective, just a couple of things. We have to look back and we have to look forward. What do I mean by looking back? We had a lot of long-standing legacy issues that we have to work through. So we had an issue that was a decade-plus old around closed book life and pensions that we finally find a solution for at the end of 2025. We had an outstanding process ongoing with the ICO since March 2023. So it was really important to be able to bet those things that were costing us not only money, resources, but a lot of management time and it's actually made the company now a lot leaner, clearer and much easier to predict. But when I talk about looking forward, looking forward in delivery is looking at what is it that you're building? What are the size of your pipeline? Are you growing the pipeline? But most importantly, are you converting the pipeline in the right places? Are you converting it at the right margin. And I think if you look at the size of our pipeline, that nearly doubled to GBP 20 billion. The size of our total contract value closed in the year, up by 36%. Our win ratio now nearly doubled to over 60%. And our Net Promoter Score, our customer Net Promoter Score continues to improve through all these changes, through all of these difficulties, we have the highest ever customer Net Promoter Score since we started measuring in 2018. So from a delivery perspective, I think all of my colleagues in Capita will be very proud for the work that has been done and has been achieved. And as a whole, we're building a better company. It's a lot of change. It is very taxing for our colleagues, continues to be reorganizations, realignments of management, changes in how the work needs to be done, but more pervasive introduction of AI into everything changes the constant. And throughout all of this change, employee engagement continues to stay at a high level, and we see an improvement in employee Net Promoter Score. So I cannot thank my colleagues enough for the great work and the patience and the dogged determination to help us turn this business around. So Pablo is going to now take us quickly through the financials, and I'll be coming back and I'll be addressing some of these topics a little bit later, and then we'll do the Q&A. Pablo, please?

Thank you, Adolfo, and good morning, everyone. And as Adolfo has said, 2025 has been a pivotal year for building that better Capita. And it's not only that we made tangible progress against our strategy, but we actually delivered a material improvement on our financial performance. So before I start with my slides, though, a reminder, numbers in the presentation are prepared on an adjusted basis, unless otherwise stated, and the adjusted basis now includes our closed book life and pensions business within business exits after the handback agreement we reached in December with Royal London. So starting with the financial highlights of the year, what this slide shows is that we delivered broadly in line with the expectations we had set. Margin, profit and cash conversion all improved materially year-on-year, reflecting the delivery of the cost reduction program and strong execution in Public Services. Looking at revenue, we have seen strong growth of 4.5% within Public Service, reflecting contract wins and growth in a number of key contracts. And this division is now 2/3 of the group adjusted revenue. However, this growth was offset by a 7.5% decline in our Contact Centers business. The group's operating margin increased by 140 basis points, reflecting the in-year benefit from the cost reduction program and improved contractual performance in our public business. Profit before tax improved by 84%, reflecting improved operating profit, reduced depreciation from our reduced property footprint and reduced financing costs. The group's cash conversion improved to 74% with a material improvement in our underlying cash generation and solid cash conversion in public business, whilst we invested in our civil service pension scheme contract. And our free cash outflow halved to GBP 54 million outflow, and it includes GBP 53 million outflow related to the cost reduction program as well as the GBP 40 million settlement with the ICO, which obviously leaves us in a very solid position to deliver positive free cash flows into 2026 as we had promised. Moving to the reconciliation between adjusted and reported. Business exits of GBP 102 million includes the exit agreement we reached with Royal London in December, where we agreed the handback of the last evergreen loss-making contracts resolving one of the largest legacy issues of the group. Goodwill impairment is wholly related to the contact center business where despite the progress made in cost savings and improving the competitiveness of our offerings, the business has seen continued contract losses. Financial performance on the contact centers is not where it should be. And they are expected to remain loss-making in 2026, even if we expect an improving profit trajectory during the year. We continually assess all options to improve this business and to maximize value for our shareholders. The cost reduction program line includes the GBP 56 million invested in the year to fully deliver the GBP 250 million cost savings program. And the cyber incident line mostly reflects the P&L cost of the settlement with the ICO. Moving on to the group's cash flow. Operating cash conversion has improved to 74%, reflecting strong cash conversion and favorable timings in public, partially offset by increased contract fulfillment assets in pensions and other includes mainly termination of leases and payment of provisions. We have continued to make progress in reducing the structural headwinds on cash conversion. We expect deferred income headwinds of around GBP 30 million this year on working capital, reducing thereafter to become a more normal business. The cash flows for the cost reduction program and cyber are also including below operating cash flow and cash generated from operations, excluding business exits, was GBP 73 million. Continuing with the remainder of the cash flow and net debt movement, CapEx has remained broadly consistent with the prior year, reflecting our continued investment in contract delivery and in our cyber and data capabilities. Interest was broadly in line with prior year and lease payments reduced by GBP 7 million, showing progress on our property rationalization contract. And all of this resulted in a free cash outflow before business exits of GBP 54 million. Our net debt increased, reflecting the cash outflow for the year, and we continued making progress reducing our lease footprint, reducing by over 10% our net lease debt year after year, in line with our guidance. Moving on to the group's liquidity position. As mentioned previously, in July, we extended our RCF. And in February 2026, we entered into a GBP 75 million committed facility that gives us ample liquidity to manage upcoming maturities. Our financial net debt to EBITDA at the year-end was 1x, in line with our target range. Moving on to the business and starting with Capita Public Service. This is our largest division and has delivered strong improvements across all metrics. We are pleased with the progress made, and we are well positioned to deliver further growth with our AI-enabled BPO strategy. Revenue grew 4.5% with continued momentum from divisions, from the division's strong H1 performance, reflecting the annualized benefit of go-live of prior year contracts won as well as additional extension and scope expansions enabling AI solutions with a strong customer base. Operating margin improved by 190 basis points, reflecting the revenue growth and the related profit flow-through as well as GBP 43 million of in-year savings, allowing us to reinvest on our AI solutions and mitigate the national insurance contribution increase. Cash conversion was 89%, reflecting our strong cash generation during the year and some favorable timing on receipts at year-end. Let's turn to the page with key achievements from the Public division. And 2025 has been a strong year, both financially and operationally. We had award-winning performance in Army applications, and we made great progress on our HAAS contract. We have also seen significant growth, including TCV1 of nearly GBP 1.2 billion as well as a number of contract extensions that allowed us to deploy innovative AI solutions. We have seen strong delivery on the contracts within the division, and this is reflected by customer NPS increasing by 9 points to 37 and consistent operational KPI performance at 93%. Finally, the division has delivered improved efficiency driven by our Catalyst lab with a number of successful rollout of Agentic Assistant, including those in our HAAS contract and in our TFL contracts. Moving on to the Contact Center. Revenue declined by 17.5%, reflecting lower volumes in our telecommunications vertical, contract losses within the division and further offshoring to our new service delivery centers. We delivered almost GBP 50 million of cost savings during the year, but these were only able to partially offset the impact of volume reductions and losses. We have made good progress with our existing customers, delivering a compelling product with AI solutions and excellent service delivery centers in South Africa and India. We have a number of structural issues that we are addressing, such as around GBP 10 million losses in Germany, approximately GBP 50 million of P&L costs of underutilized properties and the need to accelerate growth with our refreshed product offering. Moving on to pensions. Revenue growth was 4.5%, reflecting indexation and expansions of existing contracts and the go-live on the civil service pension scheme in December. Operating margin increased by 30 basis points, reflecting the growth I've just mentioned as well as delivery of our cost reduction program, offsetting the reduction of interest rate income. Cash conversion halved, reflecting GBP 26 million invested in building the civil service pension scheme solution, of which GBP 10 million is expected to be recovered over the life of the contract rather than through milestone payments. We also had the delayed timing of a GBP 5 million milestone payment, which slipped to the second working day of 2026. Without these last 2 elements of GBP 10 million and GBP 5 million, cash conversion would have been around 90%. And now moving on to the outlook. First of all, we are still expecting to deliver positive free cash flow in 2026 of between GBP 20 million and GBP 40 million, which reflects the nonoccurrence of the cost reduction program and the ICO settlement. On revenue, we expect to see low single-digit growth with good growth in Public and Pension Solutions, offset by continued decline in contact center. On margin, we expect to see a small reduction, reflecting the challenges faced by the contact center and the mobilization of large contracts won in public and pensions that were well priced and will deliver good margins and cash in the future. We expect cash conversion to be between 70% to 80%, underpinning our positive free cash flows in 2026. And in terms of phasing, we expect revenue margin and cash to improve, particularly in the second half as we make progress in the turnaround of the contact centers and mobilization costs in pensions reduce. And with this, I will hand over to Adolfo for him to continue.

Thank you, Pablo. All right. So with that backdrop on the numbers, let me just quickly take you back, give you a little bit of context on the journey we started 2 years ago. I think going back to the theme of the introduction, I made a very conscious decision that I wanted to be decisive right at the beginning. And you might remember me talking about the 3 waves that we were going to use to drive this. It's going to be an initial wave around creating space, right, which is the cost efficiency phase. There was going to be another wave that was around fixing the basics and getting our innovation, how we operate it and just sort of really effectively getting us to do the right things the right way. And then there was going to be a third one that was around building the future that would be both the operating model, but also our growth strategy. So that was the sort of the big 3 waves that we got there. And I think as you can see there, we're tracking nicely against all 3. We're probably done most of what we wanted to do on the first one, attaining our GBP 250 million savings, being able to reinvest GBP 50 million to just really give us the capabilities that we needed into both the fixing the basics, all of the innovation work that we've done around AI, the work that we've done around our teams, culture principle. And now we are moving more of the focus towards the right-hand side of the chart, right? So you're starting to see more us looking at building more simplified operating models, building further an identification layer to run the business, and you're starting to see more and more of the work that we need to do in terms of reshaping more value proposition. So this growth that we are seeing in the business and this growth in pipeline, this improvement of win rates, this improvement of conversion can continue further into the future. But that has to be looked at in the context of the market. And it is a market that if you look at it in Europe, it's a GBP 50 billion business and where roughly from pretty much 0 in 2023, it went up to 20% in 2025. So that's the sort of the AI penetration. That is what components of the existing services business had a flavor of AI inside, which is very, very unique to have seen such a big jump of that scale so quickly. But it's actually if you sort of look at it further and you fast forward into 2027, so a couple of years out from now, we're expecting that to be 50% of the market. So what does that mean really? Because you can think, well, the big numbers, what does it mean? So there's a number of implications. Number one, people-only services will continue to exist, right? There's still significant parts of the industry that are highly analog and physical. So we shouldn't discount that they're still going to have people-only services. However, the mix, it's going to change. There's going to see more and more introduction of AI technologies, automation and data facilities to make those people-based services more efficient. So is this area of what I call the new hybrid, whereas maybe over the past decade, it was really easy to say, well, this is a people services opportunity. This is an IT services opportunity. This is something else, consulting or integration. Everything is blending now. So we're starting to see more hybrid outcomes that are being solved. So that requires a number of things. So all the delivery mechanisms have to be adapted in companies. What do you go after has to be sharpened. So the whole go-to-market model needs to be readjusted so that you're very clear as to the type of opportunities you're after. The tools and mechanisms that you use to convert those opportunities need to be adapted. But most importantly and crucially, the teams need to be educated. It's an important huge skills management and change management issue to go and take advantage of that. And then for a company like Capita, this really means that we have to be now able to orchestrate outcomes not only based on people that are deployed in processes, not only managing tech, but now having to orchestrate across different pools of people, different pools of systems and different pools of data and provide an orchestration that is secure, that is real, that is being deployed into very complex workflows. So the nature of how we do things is going to be changing. It's actually really changed a lot in the last couple of years. And some people would say, well, how do you sort of differentiate? What's your value proposition? I get a lot of time being asked that question. So I'm just taking a little bit of time to sort of take you through this because I think it's a fundamental point on the Capita strategy. A lot of people think that getting [indiscernible] done is basic automation, you just get a few tools and just get a little bit of Gen AI tools, and that's it, I'll do it because the world is simple, all the workflows are straight, and there is absolutely nothing else, but happy paths. Let me tell you something, we do this for a living, whether it's revenue operations, traffic management, dealing with vulnerable customers, doing advanced bespoke training for forces, doing emergency services, recovering debt. There is one thing we've learned is that processes are not simple. Processes are super complex. Processes have a lot of unhappy paths. And the reality is that you need to have the skill and the ability to orchestrate all of these complexities to orchestrate across all of these different systems because our customers' infrastructure is not built on one single system. It's not built on one single data lake. It's not built on one single application. It's not built on one single Agentic fabric. So our role as the master orchestrator of outcomes who understands the nuances in day-to-day complex, regulated mission-critical environment is second to none. And the ability to have always human judgment in the loop is not only nice, but it's an absolute must in the industries that we serve. It might not be in others, but in the ones that are relevant to us, it is an absolute must. So all about accountability, security and human-in-the-loop judgment is critical. So the next question that sometimes becomes is like, okay, where do you invest, right? Everybody -- how can you keep up? Everybody is investing so much. If you tally it all up, we've seen over -- the next couple of years, north of $1 trillion in investment in data centers, in LLMs, in applications, everybody is going crazy. How are you going to keep up? Well, we are not because we don't have to. Our position in the value chain is that we get to understand what it is that everybody else is building. We get to test it. We get to see what is good for, what is the real applicability in real customer environments. We get to orchestrate it, and then we will get to build a solution for a customer real-world problem, selecting whatever component is out there. And for me, this is not a competitive threat. For me, this is a blessing. All of this is available for free. I don't have to invest hundreds of millions of pounds in CapEx. We've got the innovation clip and pace of hyperscalers, which we don't need to build in Capita. And then we've got the ability to combine all of this beauty with our colleagues and train them and deliver those absolute outcomes. So the integration of those components safely in a governed way is an absolute differentiator. And that will take us into creating a different value architecture. On the hyperscalers, I talked at the beginning about different ways of being with the hyperscalers. I was in one. I know how value is created, and I know how people just go and get a tick in the box so that they can put it in the slides. In my time at a hyperscaler, I learned very quickly that value is only derived if you go all in. There can't be plan B, and that's exactly what we've done. We have been very intentional, extremely intentional about who do we do what with and at what cost and where do this goes in the future. And then you can read there the great progress that we've had with all of them. I'm extremely proud and thankful and appreciative of the partnerships we're building with these hyperscalers. The amount of work that they're doing upfront to enable some of these to build the pipeline, to test the solutions, to do the prototyping to help us really bridge that gap that they have from standard extremely advanced, nevertheless, [vanilla technology], and for us to be the last mile to take them into the sort of very complex, very nuanced business processes and workflows. And that's kind of where we're doing that. So we're actually seeing a lot of really good results. And the most important thing is all of these things work together are underpinning our competitiveness, underpinning our value proposition, are underpinning our ability to intercept new deals in the market, grow the pipeline and actually address it because that will get enhanced by everything else that Capita is really good at, understanding the contracting, understanding the process, understanding the onboarding, the mobilization, all of these very nuanced things. So the question you might be saying, how are you doing this? How do you bring it to life, right? This is like a big undertaking. Well, our innovation team came up with a construct this year in 2025. By the way, it doesn't mean to scare you, but there's no way to simplify it. Just keep it there for reference, just sort of mind my words here. This is a catalyst. This is, call it, the Capita agentification engine. And this is different in 2 ways. This is not born out of tech looking for a solution. This is born in the business process. The first thing that we do is we observe our customers' business process. We understand the business process. And we figure out what are we trying to solve here? Where is the opportunity? Where do we have bottlenecks, where do we have inefficiencies? What needs to be addressed? And we work with our customers in defining that business process transformation. Then we'll come back and understand that there are a number of things that will need to be built. And then we will go and build it, whether it's low code, [indiscernible] code, pro code, we will go and build the orchestration that is required to deliver that business process. Once you've done that, you need to integrate it and we have an integration layer and then you need to run it securely on a data layer. So what is unique is, as I said, number one, it starts from the business and it goes down to the tech. And the second thing that sort of makes it unique is that it's 100% flexible and open in every layer. So we don't have to stick to one particular vendor, one particular hyperscaler. We can choose who is best for what at a given point in time and everything is totally portable. And then some of you have been asking me, well, that's really great about tech. What about people? How are you managing all of this with people? How do you get that innovation happening with people? So for that, at the beginning of '25, we actually built our innovation engine, right? It's the Catalyst lab, right? So we have the identification engine, the catalyst stack, and we've got the innovation engine, which is the catalyst. So what the catalyst does is creates an agentified way for everybody in the organization who is a specialist in a business process and who cares about improving the outcome to send an idea. If I do this, we can deliver a better service. [indiscernible], we can save some cost to serve. If I do this, we can save our customer money. If I do this, so we've had over 400 of, if I do this, bottoms up, specialist up. This is not Pablo and I figuring out where we add value. This is coming all the way up. And then things get understood, prioritized, validated, tested, deployed and scaled. So there is an absolute process that we've got that. So I said, we've got the 400 ideas. Now we're going into 40 pilots that's along in 9 months, and we've already got 12 solutions coming out of that. And then you've got a number of examples there, which customers this is working. So this is just the hyperscalers, it's understanding the hyperscalers, and understanding how to deploy. This is where the catalyst stack comes and then getting the organization, this is a 30,000 people organization to figure out how they can add value to their customers through that. And the result is there to be shown, right? So you look at it, AI is no longer a concept. It's not a vision. It's not a strategy, it's not -- it is a reality. It is really happening. We are industrializing slowly but surely. We are not done. It's not everywhere. It's not to the intensity that I would like, but we certainly move the needle significantly in a short period of time. And as you can see, we're doing it across all the areas where we operate, the front office, the middle office and the back office. And we've got real solutions in each of them that are happening. And most importantly, as we go and see how much of this is pervasive in our opportunities, we're actually now seeing it's about 2/3 of our revenue contains elements of this in the solution. And I would expect this to continue because what this is actually doing is creating a new shareholder value created model for a business process outsourcer, is how does a traditional business process outsourcer operating a lot of high OpEx, high CapEx very much FTE-centric only solutions where everything is manually done and hard coded to a particular process that tends to sort of run to the bottom. How does it move to a very different model where the cost is variable, where you get to be more outcome-based and where you actually can move from legacy and you can have sort of real-time rewriting and recoding of business processes. So capturing value in real time rather than capturing value every time you deploy a new application that normally they tend to be dated and invaluable by the time you do that. And moving from an FTE-based sort of model than to a human in the loop is a very different one. So we do believe this is a fundamental element of our strategy. It has impact on our efficiencies. It impacts on the quality of what we deliver, how we deliver it and also the type of company that we're building. And sort of the proof is in the pudding, right? So if you look at a number of the metrics I've already covered, customer Net Promoter Score continued to improve to an all-time high, whether you look at our pipeline growing, our conversion growing, our win rate growing and you look at the progress we continue to make as we have started to deploy this strategy in each of the divisions, it is there. So that was a good set of 2025 and just sort of pointing out that we also had a good start to 2026. Now it would be disingenuous for me to stand up today and not comment on the civil service pension scheme. So I'll just take a couple of minutes and update you on what it is. So I think it's really important that I start by acknowledging that -- it's in the wrong sequence, but minor detail. Let me start by acknowledging that the civil servants are not getting the service and the quality and the attention they deserve. And that is bad, and this is something that we're truly sorry for. And while we do not have originated all of the problems, I have made it my personal priority and the company mandate that we will own the resolution. This is something that we are totally committed to address and fix to get the civil servants, the attention, the service and the quality that they work so hard for. But I also wanted to sort of talk to you about when we took over in December, this was already a very deteriorated project and service. There was a number of things that -- which sort of warn that. I'll probably just give you one example. Ahead of us taking control of the project in December 1, we had to step in and process a payroll run ahead of us taking because otherwise, it wouldn't have been possible for civil servants to get paid in November. So we have to put our machine in there at the service of the civil service so that the civil servants could process that last payroll run from the previous delivery. So that sort of gives you an idea. It is public knowledge that they had a significant number of disputes with the workforce, did have union recognition, and there was a lot of industrial action, which is something we have addressed ahead of taking over as well. The backlog that we inherited was nearly 3x the normal numbers expected. There was 12,000 members that were owed money. There were 15,000 inbox e-mails from members that were unopened and unread. And each of them is a case. Each of them is a difficult situation. Each of them is people in difficulties. And then the data quality that came across was poor. We had 20 million data sets either missing or wrong or incomplete. Now you might think, well, is that complex? Well, if you think about it, it's 1.7 million members. Every member has 100 data points, and they can be touching 50 different processes. Now I'm not expecting you to do the numbers here, but that's about 70 million possible combinations. It does matter. A lot of people decided to call on day 1. That sort of collapsed our infrastructure, and we've been working really hard in partnership, and I cannot stress that enough the support and the partnership from the cabinet office to jointly work on through these issues. This was always going to be a 2-stage go-live. It was going to be December and March. And obviously, we're sort of caught through the volume, the complexity of the cases between December and March. We now have over 90% of the calls being responded and addressed to within 30 seconds. The portal issues have now all been addressed. And there is a huge amount of focus that we put in with our colleagues of the cabinet office through February to address the urgent cases. And then we've got more work to do on different areas. We are committed also to hit our milestones in March, et cetera, so that we are in a position to address the different buckets of this complexity as we deal with it. Now there is a question that people said rightly, didn't you know? Well, there is only so much you know until you get the keys. There is only so much you know until you actually get the full access to the systems, to the cases. There's only so much you know until you get a chance to look at the data and it's complexity. We didn't know the exact numbers of cases. We knew it was high, and we remember sort of sharing our fear with the cabinet office and with the ministers that we were going to get a lot more cases than we were expecting. We resourced up ahead of it. What we couldn't see certainly was the complexity or the longevity or the delays with the cases. A case is not always a case. There are many, many, many cases that have been outstanding for 6, 9 months, very complex, very difficult situation. So no, we did not know fully. And we've been operating under a crisis volume and environment over the last couple of months that had just sort of made it challenging to get there. The most important message is here, 2 things. Number one is we're working through it, and it's actually working now, as I said. And we are committed to get all of this to the normal SLAs. And we are committed to keep doing this in partnership with our new colleagues that have to it in and the cabinet office, and we will get this to a situation where the civil servants get the service they deserve, okay? And I think this is something that we want to make true for the whole of Capita. When customers hit a problem, yes, it's good to understand where the customer -- where the problem originated, but I think something that Capita needs to be known for is that we will own the fixing. We will restore the quality of the outcome first, and then we will do whatever recalculations we need to do with our customers. So -- and I think that sort of explains -- now if I got to manage that, that sort of explains why the tenure of our customers is so long. And you can see there that within our top 10 customers across the group, 7 of them have been customers for longer than a decade. It speaks of -- once Capita is in there at large, we do a pretty good job. We listen to them. We take their problems to heart. We might not get it right first time, we might not always get it right, but we will do whatever it takes to get it right. So that speaks to both on the longevity, but also on the diversification of our business across the different divisions. And speaking of divisions, just quickly, I wanted to be more transparent on the Net Promoter Score because we talk about the blended. So I want you to see the different businesses on different trajectories, you can see the improvement -- the marked improvement we saw last year on our contact center business, improving the value proposition, the innovation there. We see a steadier ramp over the last couple of years from our civil -- from our central government business. And then we've sort of seen also an improving but more challenged opportunity from our pensions business. So with that, let me quickly jump to the better company. We talked earlier about sort of stable employee engagement. We talk about improvement on the employee Net Promoter Score. And you've got -- you can read through all of this. I think for me, the bit that is -- really stands out is the work that we did both on the values and the culture last year. You can modernize the tools as much as you want. You can modernize your deliverable, your mechanisms as much as you want. If you don't manage to change the emotional fabric and the culture of the company, you're going to be held back. And I think the work that our teams have done, both in the transformation teams and in the people area to sort of drive that mental transformation, drive the culture, drive how do we get mid-management enable, mobilized, the training we put in there in terms of tech, the management training, the leadership academies, the work that we're doing with Multiverse in terms of AI training, it's really enabling that fabric so that whatever we do on the capital stack, whatever we do on the Catalyst lab, whatever we do in that lever just comes into a fertile ground that takes advantage of that. So I think that's really, really pleased with that. I don't think it's unrelated, but we actually have now attrition at 17%. Many of you might remember, not the 21.7% of last year, but at times where this was north of 30%. So we're literally half there for a while. So this is a better place to be. It's not the place for everyone because of the amount of change. But if you like this space, if you like the change, if you like this transformation, there's a lot of people are finding this is a place where they can grow their careers and just modernize. So besides our financial commitments that Pablo very well captured on the financial outlook, it is clear we have work to do on the contact center. I think that's -- we have the other 2 groups. The businesses are humming not only from a value proposition, but execution perspective. We've got good work on the value proposition and on the retention side of the contact center, but there is more work to be done there. And we are very committed to get that sort of sustainable cash back profit growth going into the periods to achieve and exceed our outlook. And we are going to be doing that literally through the same themes. We're going to be using the culture, our values as the foundation on how we operate. We established a number of strategic priorities for 2026. So you've got the 6 areas that we are chasing as a management team to go and deliver the 4 better that in turn is effectively going to deliver a better capital that's going to be in a better position to deliver better outcomes to our customers. So this is sort of progress report too after 2 years. I think this has been pivotal. I think we're very happy to have exceeded and met all of our expectations, but we are very aware that there is more work to do that we own up in some areas of delivery, but also some of the work that we need to do in areas like the contact center. And yes, so pleased with the lap, but there is still a few more laps ahead of us, and we're committed to do that. So with that, I think this is the end of the presentation, and then we can move on to Q&A.

It's James Rosenthal from Barclays. I've got 2 questions, please, if I may. The first is on public service. The pipeline has doubled to a huge number. Could you talk us through what the step-up has been there? And as a leading indicator, should we be expecting strong growth from public sector over the next few years? And then secondly, on contact centers, can you talk us through how you can turn around that business? I mean I note that the weighted pipeline there looks quite low at the moment. And in the medium term, if that business does continue to struggle, do you still have a long-term commitment to owning it?

So let me start with the growth, and we call it the opportunity growth in the public sector. In any go-to-market model that you want to improve, you've got 3 levers, right? And I think we played all 3 levers really, really well. The first one is decide what you go after, right? Be very targeted, very intentional. Everything that moves is not an opportunity and everything that is an opportunity is not an opportunity for us and everything that is an opportunity for us might not be an opportunity for us today. So Richard's team, just in front of you, has been extremely intentional on what do we go after, right? Second thing, lever number two, what value proposition do you take to market. And this is where the mix and the thesis of this presentation of combining the complex delivery, the understanding of the workflows, the mobilization, the contracting nuances, all of that expertise that Capita always had with the nuances of all of the sort of AI enablement acceleration that shaping that combined orchestrated value proposition is what drives a higher conversion rate, right? So you've got those 2 things that have actually been there. And then obviously, you got through the partnerships as well with the hyperscalers, you also get exposed to opportunities where we might not normally have seen, so we get ability to opt in and to opt out. And then there was sort of the third question is does it automatically translate into huge growth I think anybody who's been in a -- selling to a public sector type business would have never mentioned huge growth. I think the public sector moves at a speed, had a set of processes, had a contracting liturgy, right? It's got a contracting environment, it's got some government procurement. So the speed at which things get done is lower than what we use in the more of the commercial sector. And then as Pablo rightly say, you win some of these very large deals, then you need to mobilize them. So it's more of like a continuous growth rather than a hockey stick. But what we see now is we have a healthy pipeline where we can be intentional as to which deals we go after with what value proposition, converting more and delivering better. So that's on the public sector. On the contact center, remember 2 years ago, when I stood there, I said we missed the boat. We missed the boat over the last 5 years. We had a pretty good, very well-functioning voice-only contact center strategy and the world had moved on. So we've been sort of catching up with the value proposition, moving from voice-only phone calls to an integrated omnichannel contact center strategy. And then we've been together that omnichannel to be AI-enabled so that you can do routing, you can do sentiment analysis. You can get all these automations. So literally, we've been having to effectively do the last 5 years and the next 5 years in 2. And I think if you look at it in isolation, forget about the numbers for a minute, we saw for the last 2 years, we stopped the bleeding of contracts, in contact center, right? The story 2020 to 2023 was all of how customer X left Capita, how customer Y left Capita, how customer Z left Capita. I think for the last couple of years, it's been customer X has retained or have extended or changed the scope. So we've actually marked a change. However, it hasn't changed the fundamentals of the business as a whole, as Pablo said, there are 2 structural big ticket items and the problems in Germany and the P&L cost associated with the legacy facilities. Those are making the business more complex to operate. But we remain committed to improving the operational performance, and we are going to get there.

It's Kai, Canaccord. Just to follow up on the contact center question we just had. So I guess, from an investor perspective, the sort of patience level in terms of how long will you give the business to, I guess, breakeven or become profitable before you may consider more strategic alternatives for the business would be my first question. Are we talking 1, 2, 3 years? And then the second one was just around the generative AI benefits, and I guess, economic value creation and particularly the bit that accrues to shareholders. Do you have a few more proof points, perhaps recent contract wins on -- does this manifest itself in lower bids, higher margins, combination of both therefore, positioning you well for market share gains? How should we think about those economic benefits?

Okay. On the first one, Kai, we're actively focused right now on the improvement of the business. And I think it would be responsible for me to comment now and trying to predict the future. But we're very aware of where the business is, and we are 100% committed to improve the performance of the business and create shareholder value. On the second question on AI and proof points, I think there is one theme in the slides that I shared is that we do not build the engines, we fly the plane. And for some customers, we actually run the airline, right? And in that value proposition, we're actually seeing the value being created certainly on cost reduction, right? As we become leaner as an organization, we have to pass through less costs into our bids, so we can be more competitive, right? From the outset. Second, when we build a solution on top, the cost of the solution, the cost to serve, the cost to architect goes down because you don't put just 400 people, say, you can maybe put 50 or 100 extended by some of these orchestration low code or pro code in there. So that actually gives you benefits when you are contracting because you've got a much better solution, cheaper, more innovative, and then you actually end up being more competitive. How do you see that we'll be more competitive? What proof points do you want to see? It's a higher win rate. We've nearly doubled the win rate. We've seen 36% growth on the TCV conversion. And the pipeline, okay, is not converted yet, but you already point in that direction. And then there are different contracts in the commercial world, we can talk about sharing the benefit in the commercial world. Then there are some TCV contracts in the public sector that allows you to do some benefit sharing -- profit sharing in a different way. So we're actually seeing the benefits everywhere. What we don't have, actually, I'm glad. I don't have a category that is called the AI P&L, right? For us, it is one engine of the plane. There is a lot more that goes into flying that plane and running the airline. But I know how much we spent on the engines, and I know how capable they are, and I know that they fly and they keep the business up in the air, and it's definitely working as hopefully I was able to show.

James Musker, Singer. On the AI-enabled solutions, how repeatable are they across the customer base? Is it a unique solution to one exact customer? Or can it be copy and pasted across several?

There is a huge amount of repeatability. And this was harder than I thought it was going to be for reasons I am glad we encountered, right? So from the outside or early in my days, I thought, well, definitely everything can be a product. The reality is our customers' business processes and workloads are very nuanced. So the cookie-cutter approach that I was hoping for is not there. But we've done a lot of painful but really high-quality work in understanding at a higher level order what solutions are repeatable. So now we're in a position to say document verification, fraud detection, debt recovery, online learning, AI-assisted recruitment are repeatable buckets, whereas that 80% is common. So this is what we've changed. Back in the day, if you needed a document verification document likely was that every system, every contract will be different. Now they will all be based on the same framework. They will all be based on the same technology. They will be 80% the same. It's the last mile, the last nuance that will be different. So I've just given you some examples of we got case management. We got intelligent document processing. So if you think about this, as I'm sort of giving you the names, these are key business processes that our customers need to inject. And those are the ones that the Catalyst lab is working with the divisions into productizing. It's not a product that you can put in a magazine, right? It's not that level of productization, but it's a high level of customization. We moved away from one of a kind -- I think this is one here.

Chris Bamberry, Peel Hunt. I've got 3 questions. Just going back to the headwinds in contact centers, Germany, the underutilized property. Could you give us a little bit more detail on what actions you're taking and what you think you might be able to achieve over the next 12, 24, 36 months type of thing? Secondly, looking at the margin guidance for this year, could you give us a little bit more granularity on the kind of building blocks? You've obviously got the annualization of the cost savings, there's mobilization costs, but other factors. And finally, in the pre-close, you talked about delays in decision-making in public sector. Just where we are with that now? And I guess, generally, what are customers saying to you in the current economic environment?

I'll leave the last one for you. And I'll take -- so contact centers, as we work through the different elements that we've been cleaning, it is now becoming clearer where the biggest areas to address are. Germany is a complex market. It's a complex labor market, and it's not that you can -- one that you can rush in rightsizing and projecting. So there are 2 stones there. One is working on the top line and make sure that we've got the right people. Two is working with our offshore facilities, nearshore facilities that we've got serving that market and then continue streamlining it. That's -- it's a very simple, but hard market to work through. The other one, leases -- leases are becoming more visible as we continue our offshoring and are moving our product proposition to our new service delivery service. Leases are a complex one, but there are opportunities always in the market to restructure leases with potentially economically beneficially options for the group. So basically, lease restructuring. Those are on the table, those we can do. Now that the company is in a place where it is generating positive free cash flows, we have more optionality to decide what we can do with them. So that's in terms of Germany leases, contact centers, the big ticket items there. In terms of margin guidance, it's a little bit complicated. But at the same time, if I look at it from a cash perspective, we are saying that we're going to deliver GBP 20 million to GBP 40 million. We could deliver more, but we've got, say, GBP 10 million to GBP 15 million somewhere on in relation to mobilization costs. We've got some timing of receivables that we have this year. It's, call it, 10, it's not material, but in such small numbers, they matter. And then this year, hopefully, we'll have the end of the big ticket items of deferred income, historical since. And this year, that will still be a drag. But all of that is going to clear. It's going to make a stronger company. And from 2027 onwards, we will start being a much stronger, cleaner company. That is the way I would look at them.

And then obviously, I think the point that Pablo made a couple of times as well on when you win a lot of these deals, it's good news, right? And they are -- and they create a lot of value. But there is obviously a mobilization phase at the beginning where they are short-term drag. So that's what we were -- in the guidance where we're saying actually, the good news is that we've won. For us, the good news is that we have to mobilize. There is a little bit more cost upfront is the nature of this business, but it is a very nice price to pay in the short term to get the medium-term and long-term value. So I think that probably explains a little bit of the outcome. I think we've been clear enough on that point. In terms of what we're hearing from the market, the situation is complex out there, right? I don't need to remind anyone on the ups and downs of most of the countries, economies in Europe are challenges, what we're seeing now geopolitically with oil prices, the budget situation in the U.K. But if I look at all of this, I actually see that there is a need for solutions that allow you to reduce your expenditure and to spend your money wisely. And I think if you look at the value propositions that we're putting out in the market, all of them has the potential to say, actually, you don't need to pay 400, 500 people anymore. You can actually get the job done with maybe with 150 if you put this orchestration, this acceleration there. You can actually get more value for your money. And if you're a government department, actually, you can actually get more citizen value being delivered for whatever budget it is that you have. Yes, there are some contracts that you could just been awarded, you haven't been able to sign. But this is normal mechanics of doing business in the public sector. And then some of them roll over one side of the period. There are going to be payments like this payment that Pablo mentioned, it landed on the 2nd of January or the 3rd of January rather than the 31st of December. So in smaller numbers, small movements one side of the calendar year might actually make it look like a bigger issue than it is.

Sophia Yu, I'm from ABN AMRO. So my question is on the hyperscaler partnership. So you did mention the hyperscaler-only strategy and then given the nuance and then the Capita's focus on identifying the correct solution for the right processes. My question is, does management view a certain sort of dependency on different hyperscaler tools? Is that a concentration risk?

No, I don't think it's a concentration risk at all. Everything that we're building is highly portable because of the concepts that we put in there in the catalyst stack. So every one of our workloads could run on AWS and it could run on Microsoft Azure, so it could run on the Google Cloud, everything that we're doing from a development perspective, when you want to get a reagentification layer, we're doing some ag agentification on Azure. We're doing some agentification on AWS Bedrock, and we're doing some agentification and agent for some MuleSoft. So actually, the market is giving us multiple options when we get now to advanced agents. Now we've got Anthropic as well with Cowork. So if anything, the early challenge is to sort of keep up and got Matt in the back, right? Matt has to stay on top of everything that's been produced, categorize it, test it. Certainly, while that is a challenge, I prefer that challenge to be locked in with anybody and have a commercial disadvantage, which we don't have. I think there's a question from online.

[indiscernible] From Shore Capital. Slide 29, you pulled out the kind of the key customers per division there. How stable is that mix? Is there any of those key contracts that are up for renewal over maybe the next year or so? And then just on exceptionals, obviously, there's been a history of exceptionals. How confident are you that you can avoid that in '26? It sounds like there may be perhaps a bit of risk there around the leases.

Yes. So in terms of contracts, I think that, yes, the top 10 contracts are 70% of the relationships, but the level of extensions and the level of innovative work into each of these contracts is very significant. So I wouldn't look only at the angle of binary in or out, but also -- and then they do get replaced. So yes, within those top contracts, we do know that we have the recruitment contract that is a large one that is meant to be expiring at the end of 2026. That is probably the biggest one. Then we've got other renewals, extensions, other possible contracts, probably TFL is another big one that we've got there. Those are probably the biggest ones I can think of. DCC is one that eventually will transition into -- back into the government to public. So those are the biggest ones. Second question was in relation to...

Exceptionals...

Exceptionals. Listen, in terms of exceptionals, I think we are in a cleaner position. We've been cleaning the house. What we have had this year is actually the success in drawing a line under the loss-making business, the closed book Life and Pensions and providing for all of the future known losses. That's now ticketed and boxed. And we've written off the remaining of the goodwill of the contact centers given where the progression was going. We are not pointing out that any further restructuring programs. We've said we've done the GBP 250 million savings. That is done. The other big legacy item that was outstanding was the ICO that is done. So in a way, I think that we are now providing a much cleaner balance sheet to move forward.

Okay. So I got a few questions actually. So first, a batch from David Brockton at Deutsche Numis. So first one is, could you give a bit more color on the specific factors that are driving the contact center revenue decline and the expected decline in 2026? For example, is this further intense competition in telecommunications or broader weakness in other verticals?

So there are -- it's a multipart answer. This is multiple things. Obviously, telecommunications has been a key segment for us. Telecommunications, in particular, obviously, in the call center business only. Telecommunications tend to be more technically advanced and they've actually in-sourced a lot more of this, and many of them have started a strategy of trying to engage as little as possible with their customers, which obviously reduces the cost of serving, but it's actually now starting to create some problems in cross-selling. So that's a an industry-wide phenomenon. I think we started to see that one in '24 and it's sort of bottoming out, we believe now at the beginning of '26. There hasn't been any recent losses that are moving out. So I think that's what we have to wash through the P&L, some particular losses. But at large, remember, the contact center is mostly like a framework business. There is no commitment to volumes. So if customers do something, like, for example, increase the rates significantly, we will see a spike on calls. We will see a huge amount of volume as we're seeing in our utilities at the moment. And then if something happens and the customers do something very different, we might see a reduction on calls. So it's that variability that makes it really hard for us to predict what is the right level of cost that we can have on the call center business. But as Pablo said, we've taken nearly GBP 50 million out of there. I think there is now a significantly shrunk our cost base that would allow us to a more modest revenue behavior to get to the point of profitability.

So then another question from David was there was a GBP 28 million -- this is for Pablo. There was a GBP 28 million cash outflow from the exited closed book Life and Pensions contracts in 2025. How should we think about ongoing cash outflow from this business over the next few years?

You don't want to take this one.

So listen, business exits right now will only have mostly closed book life and pensions exit with the Royal London that we announced. When we announced it, we said that this business would -- previously, this business would have lost GBP 20 million perpetual forever. What we now boxed is that this business is expected to lose GBP 20 million per annum for 5 years. That's it, and then not our repayment. So it's going to be GBP 20 million per annum. We guided that it was going to be more front-end loaded as more activity in the first years are going to happen. So the guidance is therefore say, call it, 25% for the first year and then decreasing. That's the way I would look at it. And yes, this year, we had a peak. It was more the losses related to that contract and some additional contract termination or finalization of exits from the past that were cleared. And now we have a cleaner place to move into next year.

Then there's a question from James Vincent who says, if we look at 4:51 PM Serco, who produced free cash flow to revenue of 4.5%, should we be expecting a free cash flow to revenue return in a similar range, so 4% to 5%. And that would imply free cash flow of GBP 80 million to GBP 100 million on current revenues. Do you agree with that trajectory? If so, what is your timing horizons for achieving this?

Okay. So our guidance for 2026 is between GBP 20 million and GBP 40 million positive. Let's call it GBP 30 million. What do we have in this year? You said that constant revenue, take 10 out of mobilization costs, we're on GBP 40 million. Let's get the contact centers to generate some cash, GBP 500 million, 5%, GBP 25 million -- call it, GBP 20 million, okay? We're now on GBP 60 million. And then what else do we have? The deferred income historical drag that Capita had that you will recall in the past, I said it was GBP 80 million, then GBP 50 million, then GBP 30 million last year, then GBP 30 million this year and going forward, it now decreases. That GBP 30 million comes out. How much exactly next year, call it GBP 15 million and then disappearing or something like that. So it is absolutely within our reach to be at that level, if not more.

And Helen, if I may, Serco is a different business for a number of reasons. A major one is they started their transformation way earlier than we did. Second, they diversified geographically significantly into the United States and in particular, to defense and aerospace in the United States, which is a business that drives very different commercials and economic value. Just I think we are comparing things that are not always like-for-like.

Then I have a question that's synonymous saying when will the dividend return? Or when will there be share buybacks?

Good. Got the same answer that I have had so far, which is consistent with Capital Markets Day. We first want to deliver consistent positive free cash flows. And at that point, we will address how we go about it. So priorities remain the same: number one, reduce debt; number two, invest in the business. And after that, we will be looking at dividends and share buybacks or whatever is required. So we are going to deliver this year the first year of positive free cash flows, and we will be forming a view on how it works going forward.

Thank you. That was the final question online.

Okay. Well, if there is no further questions in the room or online, thanks, everybody, for your support, and thanks for being here in person or dialing in and looking forward to another good year in 2026. Thank you.