Capita plc (CPI) Earnings Call Transcript & Summary

All right. Thank you, team for putting together this wonderful little video summary about what we've been doing for the last 6 months. Good morning, everyone. Everybody here in the room, everybody watching this remotely. Thanks for taking your time. I fully appreciate there's a lot out there today happening on the street, a lot of reporting news, and you chose to be here with us. So we will do our utmost to make sure that you don't get disappointed. I'm here with Pablo, we're going to cover in the first half. We're going to cover, obviously, the numbers. We're going to cover the strategy. We're going to give you an update on operations and where we are. But before I do so, I wanted to just say the journey is well underway, right? We set out a couple of years ago, it was a deep root and branch transformation of a great company that was doing great things. It was managing really critical fabric for the country, but they needed work done to it. And we set out with our ambitious agenda to build that better Capita dealing with efficiencies, dealing with leveling with effectively technology and bringing it at the core to build a better company. And we remain fully, fully committed to build that AI-led business process services company, that will be fundamental for the critical services delivery in this country for the next decade. So let's start by summarizing some of the numbers, obviously, you have the disclaimer there for your consumption. So you see on the left, the adjusted numbers, you see on the right, some of the operational strategic translation of it. So I'm going to pick more on the side on the right because Pablo is going to double click at length on there and we're also going to cover a lot of them in detail throughout the presentation. So I'm just going to pick up a few then they are relevant. So starting with the top line technology. 2 years ago, just over 2 years ago when I joined, I said -- one of the reasons why I joined was because I believe technology in its sort of AI incarnation this time with automation and data have the potential to fund them in tell you transform this industry. And he was going to level the playing field and companies like Capita could really emerge from where they were to a very different position in the future. There was nothing wrong with what we were doing is how we were doing it that could be worked on. And I think if you look at that top line, you see that the progress keeps being reporting period after reporting period, very solid the number of agents, you think we talked about 2 years ago, now we're talking to nearly 500 deployed throughout the operation. In some of them, we were announcing the formation of the Catalyst lab where we were announcing the formation of the Catalyst stack. Now they are being deployed. We talked about alliances and getting into commercial agreements with hyperscalers. Now we have been the first Western European BPS company, open a store on the AWS marketplace where customers can come and buy some of the solutions that we offer. We did talk about our intention to become a more efficient company. And it was that well, can you do that on a people business? Can you do that when you have so many contracts where you start to set the levels of staffing been we've proven over the last couple of years that we've been able to take GBP 250 million out of the cost line. And we committed that following the divestiture of the commercial call center business, we would take another between 40, 2026 and 2027. And we're already well underway to go and deliver that. On delivery, I know that we've had a very challenging period with CSPS. This is obviously not the experience that we would like members to have. This is not the experience we have like government departments, the field, and this is definitely not something that we would like our shareholders to have to go through. This is something that we got to it. And I'm going to cover in a minute. But if you were to park it to the sign up because it's important, but not important, but because I want to give you the perspective we continue to deliver KPIs north of 90% across the rest of the business. So the rest of the business is working really, really well. As you will see later, even in the Pensions division, if you were to exclude CSPS, the KPIs are close to 95%. So we are delivering -- we're delivering well. And we're also managing to translate that into a good conversion. And you'll see later, we talked about the market. We talked about the pipeline that we're finding in that market structure, growing market. But most importantly, it's not about finding the right pipeline is able to convert it into TCV. So pleased with the 15% growth in TCV, Pleased to have started the period strongly as you saw yesterday on the announcement of DFL. And we're just very excited about what we've got to go and do in the second half. Obviously, you showed a release yesterday about the completion of the call centers. We announced the transaction end of March is now completed. The new company, Elia is operating as of yesterday, and it's done and then now we can focus on what we have doubled down on. And as a company, obviously, we still have work to do on the financials. Let me be very clear, we are not happy with the current financial performance. But we have done everything that we should be doing in terms of inputs to deliver the financial performance results in 2027. We're very, very pleased with where we are, with the work we're doing with our team, our attrition is a pretty much a very recent low of 17% as a group. It used to be north of 30%. And if you sort of were to remove the call-center team that has just left, I think the public sector team is around 14% and the pensions team's attrition is under 10%. So you are going to find this is a motivated new culture well-retained team that is willing to fight and win. And when we make mistakes, we don't make many, but sometimes we make them, we roll up our sleeves, and we will do what it takes to get our customers on the right side of resolution. So if I was to quickly look by the vision, so you can see that both the sort of the revenue growth, the TCV, the KPI performance across both of our Romanian divisions, it's good, it's solid. They're both performing. You can see revenue growth, you can see the TCV growth, and you can see very high delivery performance. You're also seeing high renewal rates, and that speaks to the quality of the service better than anything else that we've got out there. I mean you can see over the period that we've been extremely busy in terms of delivery, escalation management but also winning new contracts and innovating across both divisions. But let me just quickly sum out and put the journey in context. I know we are talking about today the first half of [ 2016. ] So it's right that we double click that. But I don't want anybody to lose sight of what we set out to do. We set out to do a multiyear deroute branch transformation of the company, and we talked about 3 distinct waves that form part of it. The first one was about creating the space to fund the journey. The second one was about fixing the basics and the third one was about investing and build in the future. And I always said we're going to be doing a bit of everything. The whole time because you can't do this sequentially. But I also said there was going to be times where we're going to be more focused on 1 thing than the other. So it's normal under the beginning, we were more focused on the creating this space. And I think we've done that and the large part of the restructuring is largely behind this because we've done that part. That has given us the financial whereabouts, the capability to reinvest and get some of the fixes done. We've done a lot of work on the technology front. We've done a huge amount of work with the hyperscalers, a huge amount of work on the identification of the processes that we've been running for a long time. we've been doing a huge amount of work in terms of increasing the AI and data literacy of our leaders by our company. We've done a huge amount of work in building trial and testing and optimizing and redesigning our internal processes and mechanisms to go after opportunities as they emerge. So as we look at the future, we feel that the divestiture of the call center business gives us an opportunity to further simplify the operating model to really get us to operate and get the efficiency, the scale and the operational leverage and the operational gearing that will get us to this sort of 200 basis points improvement in performance that we expect by 2027. And I want to quickly talk about simplification because simplification sometimes can be seen as a collection of press releases, right? And to me simplification is not just the sale or the closure or the commercial agreements. I mean, I think simplification is a way of thinking, right? It's a way to create value in the company. It gives us the ability to be more focused, to be sharper to get efficiencies, to get operational leverage. And it's basically effectively built a business that is easy to run, easy to read, easy to value, and it's 1 that we are going to be able to scale a lot better. So as you can see there, we've been taking a lot of steps to make sure that we get some of the things that we're getting underway to do that, but there is more work to do. We still have work to do on the operational side of things. But very happy to report, obviously, the progress on the exit yesterday but also the closure of closed book Life and Pension being in the right place. So Pablo is going to quickly going to come in and talk about the numbers. I'll quickly come back and talk about markets, AI, defensibility, CSBS in more detail, but we'll just quickly go through the numbers first, and then we'll do that and we'll take some questions at the end. Thank you.

And thank you, Dolfo, and good morning to everyone. And as far said, the first half of 2026 has been massive progress in building the better capital. We have now completed the sale of the private contact centers. we have delivered solid performance in the public business and strengthen our liquidity position. At the same time, our profitability in the half was impacted by the cost remediating the civil service pension scheme contract as announced earlier in July. And this has had a collateral impact on the allocation of our central costs that remain consistent with prior periods based on revenue, profit and headcount with public and retained contact centers, taking a material impact with higher share of those costs. The recently sold private contact center business is presented as full IFRS 5 discontinued operation. which has allowed us to present clear comparatives for the prior period. And before I start with my slides, reminder that these numbers are on an adjusted basis. So my first slide shows financial highlights for the first half, with revenue growth and a resilient liquidity position, but with margin on profit impacted by the pension repudiation costs. Looking at revenue, we delivered revenue of GBP 906 million, up 1.6% with growth in public and pensions business, partially offset by the non-repeat of a GBP 19 million prior year contract exit benefit in the regulated business. Operating profit was GBP 32 million, down 32%, reflecting the additional cost on the CSBS contract under non-repeat of a GBP 6 million benefit from the prior year contract exit. This was partially offset by the cost reduction program savings. Profit before tax was GBP 12.5 million, down from GBP 29 million, reflecting the lower operating profit and higher finance costs from a higher average net debt. Our cash conversion was 96%, down from 112%, reflecting continued investment in the CSBS contract and mobilization costs. This also reflects the non-repeat of favorable timing at the year-end and the completion of a major contract milestone in public service last year. Free cash flow remained positive at GBP 3.5 million after capital expenditure, net lease payments and interest. And our net financial debt to EBITDA pre-IFRS 16 was 1.6x at the 30th of June. Moving on to our reconciliation between adjusted and reported metrics. Business exits of GBP 2 million includes costs related to the disposal of the private contact centers. The simplification program line reflects GBP 4 million of costs as the business transitions to a simpler operating model following the sale of the private contact centers. And the finance line reflects our hedging valuation movements, which brings us to our reporting profit before tax from continuing operations of GBP 4.1 million. Moving on to Capita Public Service. This is our largest division, representing 80% of group revenue, and it has continued with solid performance in the first half. and has had very strong wins in pipeline performance. Revenue grew 2.4% to GBP 729 million, with increased volumes in our local and regional partnerships, transactional business, and on the disabled students allowance contract as well as growth on the Transport for London contract. This was partially offset by the flow-through of prior year contract losses and lower recoveries on the smart DCC contract. Operating margin remained strong at 7.9%, absorbing an impact of 0.5% from the central overhead cost allocations I mentioned due to the reduced profits in the pensions business. And this operating margin was underpinned by cost savings that allowed us to continue investing in our AI hyperscaler partnerships whilst we saw some negative timing on insurance recoveries. Cash conversion was 50% and reflecting the timing of cash receipts on a major program milestone in the prior year and the unwind of favorable timing differences from year-end 2025 and mobilization costs. Moving on to Pension Solutions. Revenue growth was 24.7%, up to GBP 107 million, reflecting the impact of the civil service pension scheme contract and increased volumes on our existing contracts. And whilst the underlying business performed well, the operating loss of GBP 3.6 million was mainly driven by the additional cost of the CSPs contract that also impacted lower consulting revenue. Cash conversion was 270%, with the investment in the CSP system in the first half, offset by the receipt of our 2025 delayed milestone payment unfavorable timing in working capital. Moving on to the retained contact center. Revenue declined 6% to GBP 67 million reflecting lower project work and the accounting impact of the extension of a major contract. Operating profit reduced to GBP 1.2 million with the flow-through of the lower revenue project lower revenue from projects, higher cost allocations and continued investment in AI and hyperscaler partnerships. This was partly offset by the savings from the cost reduction program in 2025. And cash conversion was again very strong in the half, driven by the usual receipt profile on a major contract. We now move in to the group's cash flow. Operating cash conversion was 96% in the half, down from 112% driven by the usual receipt profile of a major contract in H1 and the benefit from the year-end timing differences in public. The reduction year-on-year on deferred income and CFA reflects the timing of cash received on a major contract milestone payment last year and the investment on the CSPs contract and synergy contract. Noncash and other adjustments were GBP $2 million inflow, including movement in provisions and other noncash items. Below operating cash flow, we incurred GBP 2 million of cash costs on the simplification program and a further GBP 2 million on the final payments from the 2025 cost reduction program. And this left cash generated from operations, excluding business exits of GBP 51 million continued with the remaining of the cash flow going down to net debt movement. From cash generating from operations that we have GBP 51 million, we then have capital expenditure of GBP 15 million, reflecting our continued investment in contract delivery, new technology solutions and cyber capabilities. interest paid of GBP 20 million, up from GBP 19 million, reflecting higher average interest -- higher average net debt during the period and capital lease payments of GBP 11 million. All of this resulted in free cash flow, excluding business exits of GBP 3.5 million. And turning to net debt. Net financial debt pre-IFRS 16 was GBP 200 million, up from GBP 143 million at the end of 2025. Our IFRS 16 lease liabilities were GBP 299 million, including GBP 15 million of private contact center leases that have now exited the group and excluding the GBP 94 million lease receivable asset. In terms of the group's liquidity position, in June, we extended and increased our revolving facility to GBP 325 million, replacing the previous GBP 250 million RCF and the additional GBP 75 million bridge facility, and we extended the maturity to June 2029 and with the option for 2 additional 1-year extensions. This leaves us with a total liquidity of GBP 351 million at the half year, comprising GBP 278 million of available committed facilities and GBP 73 million of net cash. In July, we also now issued GBP 41 million equivalent of U.S. private placement loan notes maturing in July 2029 and repaid GBP 4 million of USPP maturities. Our financial net debt ratio, both pre-IFRS 16 was 1.6x at June compared to 1x at the end of 2025. And then having shared a slide on the order book, because with the strong performance on sales in H1, I thought it would help you go through the profile on how this converts into future revenue. Our order book increased to GBP 4 billion, excluding the GBP 425 million extension to TFL announced yesterday. And it is around GBP 250 million higher than at the end of 2025 with the growth led by both public and pension business. It covers approximately 76% of our H1 revenue base with a further GBP 100 million in H1 that came from well-established framework agreements. Additions in the half include the wins of the Synergy and Army Collective training system contracts, a renewal with a major client within pension solutions and expanded scope on the private primary care supporting line contract. And as you can see in the pie chart of the GBP 957 million won in H1, 11% flows in year, 14% in '27,'28 and the restos beyond, which reflects the long cycles from win to revenue on large contracts existing on this business. And finally, moving on to the outlook. On revenue, we expect the group to be broadly flat, mostly from public service revenue, reflecting the impact of previously announced losses and the revenue profile of the wins in 26 that flows mostly in future years. On margin, we remain in line with our previous guidance with a reduction reflecting the additional cost of the CSPS contract and residual overheads as the business transitions to a simpler operating model. On free cash flow, we expect an outflow before business exits of between GBP 35 million and GBP 50 million, with solid performance in the Public Service business and reflecting the increased cost in the civil service pension scheme contract. Under net debt, we expect an increase, reflecting the free cash outflow before business exits the outflows from the disposal of the private contact center and the closed book life and pensions. And with this, I will hand back over to Adolfo.

Thank you, Pablo. Good overview of the numbers. I think you certainly highlights the areas where we've done well, the areas where we've done very well. and the areas where we still have opportunities for improvement. Everything that we do is absolutely critical. But ultimately, our challenge and how we should be judged is on our ability to translate the strategic and the operational improvements into financial results. I wanted to go and turn now into the market because I think it's important to highlight a number of things. First, we play in structurally growing in very resilient markets. If you look at our core in the context of our size, but you most importantly look at the headroom that we still have speaks of opportunity. Our markets in both sort of the wider public sector, central government, defense local and regional authorities, regulated entities at large. It is a stable market. It is growing and is reasonably resilient. And I think if you look at the different positions where we play, this speaks of a constant growth where we have opportunity to grow the market but also, I think as we're showing with our effective winning machine, we have an opportunity to also increase share of the overall market. So some people have asked me, are you concerned at all now that you have sort of refocused the company, or you just have now a smaller pond were to drink. I actually think it's the opposite. We are going to be more targeted, more intentional, more focused, but the opportunity is there to be taken. And all of this data is validated by a number of external companies. And I think we're starting to see these already in the numbers. right? That sort of intentionality makes it clear what you're trying to do, you prepare for that, you equip for that, you train your people you're very selective on what you go after. So you tend to win more often, so you grow your TCV, and that's where we are. Critically, there is a lagging time between winning and revenue, but that is a nice problem to have. Second, I wanted to talk about the specific of our position as a strategic supplier to the U.K. government. So following the divestiture of the commercial private gold centers, if you look at the data provided by tech market view, we will be #1 in the category of seats, right? Software and IT services. And this is a position that we've built over many, many years because the reality is that there isn't anybody out there who's able to match the skills, the depth and the breadth of the services that we provide to the public sector as a whole across all the areas. We are in a very good position because we know the private sector. We know the business processes. We know the nuances of delivering and orchestrating a citizen experience and a citizen service across multiple data silos, against multiple systems against multiple regulations and legislation much better than tech companies do. But at the same time, and this is really important, we are better at deploying AI capabilities and innovative than most of the traditional BPOs are. So our ambition of being that AI-led business process services, partner to the public sector and regulated industries is validated not only by the market opportunity, but also our history and our capabilities that we're keeping to build. So we will keep building on that expertise. We will keep building and marrying those 2 expertises, understanding the business process, understanding the ultimate citizen experience, understanding the ultimate pension member or trustee experience. And then rolling it back into a process running it back into automation running it back into identification where at all possible. But our experience, our depth of relationships with the hyperscalers. The capabilities that we have in the team and our approach to do this is, I think, second to none. I also wanted to talk to you about the public interest desk because this has been something that has come out for the last few weeks and it's attracted attention and rightly so. I think rightly, the government has come up with this policy for the public interest test. What it says, every transaction, every deal that is above 1 million should be tested. Is it better done in towers? Is it better done by a government department? Or is it better done by industry? And I think this is the right thing to do. We're going to make sure as taxpayers that we're getting the right value for every investment that we make and that, that investment is made in the right possible channel. And I think the stated intention is to start with facility management, with cleaning services, security and a number of others. I believe this is going to be putting pressure on the sector and able to be putting pressure on Capita. But the level of pressure that is going to put on Capita is going to be smaller than this. Remember, we did the change and dispose the call center, the front office capability because we wanted to focus on middle office and back office complex very complex, very critical services to the fabric in this country. And in that level of complexity, when you're orchestrating people processes across sometimes providing a service to multiple departments, we're having to deal with a lot of different systems, a lot of different data sets, a lot of different policies. That level of complexity requires a skill and a scale that is not in long supply inside the government, at the time where the government has stated an ambition to reduce some of its population. So I believe this is good. This is good for the industry, it's good for the country, but I believe and I accept the challenge to prove that delivering with our SMEs delivering the social value, delivering our innovation, delivering on our experience and being a U.K.-based provider we should structurally benefit from this push. Now let's look at the priorities from the new government. And I think if you look at the new government, I think most of us are quite excited to see the level of energy and the termination that a new government has come up with ideas and some of them that really are going to fundamentally drive some change in the kind of in that we are going to build. But if you sort of go and look beyond the energy and you look at the initiatives and the areas that have been highlighted as priorities. I see they represent great opportunity for Capita. In the #10 North, the whole concept of evolution. I think that effectively expands our addressable market. it gives us a capability to engage with new newly funded buying centers in other parts of the country that are going to need the experience of deploying these services. They're going to need to help from somebody who knows and has the experience in transforming local administration. We have people who have the capability to help them provide citizen services, they have that multi-program and effectively help them onboard and effect change. This is more than just buying new technology. And I believe our learnings and our experience across both local government and the central government departments will be very relevant and very useful through the evolution. We've also got these mantra that the Prime Minister had talked about good growth. And I think a lot of that is around building. And I think if you look at our capabilities around planning and what we can do around benefits, these are areas that we're very comfortable with where we have a lot of experience. We heard about skills, training, recruitment, all of these areas play squarely into our learning and development capabilities, what we do in terms of assessment, already the capabilities that we've been doing employability services. things that are not new to us. This is not us having to scratch our head and see how we provide those services and how do we help the government to drive that. We do these today, and we do this for a living. We talked about AI adoption and the government has been talking about looking at AI as a driver for public sector productivity. This is something that we are not trying to latch on now. We've been at this now for a couple of years, and I'm going to cover the credentials, the capability that we've built since then. -- look at welfare, social reform. Again, is very close to what we've already been doing with FAST, [indiscernible] and a number of other assessment services we provided to market. And then again, they want to pay an attention to the U.K. SMEs, U.K.-based skills and U.K.-based company. So we're hoping that structurally Capita can benefit from that. So overall, I think the agenda is squarely there. It's a natural place where we have an ambition to win. I think we have the ability to win. And we're very, very pleased to see this very early days of agenda drive. It will be important to see the funding when the budget is put out there. We'll import them to see the sequence in which these investments will be made by the new government but we're ready to help. We are aligned and capable. I talked earlier about simplification. And I think I made the point that simplification is not just divestitures or a reorganization. For me, simplification is a value driver. If you take a little bit of distance, just a little bit of distance and you look at the remaining of the group, you're going to see that what we do is fundamentally 1 of these 5 fans. And then we provide a service to the citizens or we're providing some sort of assessment services or we're providing services related to the workforce of a particular company. The government area or we're providing operational services or we are delivering pensions administrations. That is it. Why is this relevant? Well, first of all, now that you're doing a number of things that you understand well, you can leverage all of your operational capabilities, whether they are people-based capabilities or IT systems capabilities or they can be AI and identification capabilities. You get operational leverage across all of it. We have stated our intention to go after the 40 million additional opportunities that this offers because we can remove of ahead. So they will be margin accretive. We're also going to be able to get operational leverage and cross-selling of those capabilities because we now have the abilities, and we're doing this for your workforce would you like us to go and help you with operational services or a number of other combinations. So the recipe remains the same, combining operational experience, skills, people who know how to orchestrate and deliver experience. But unlike the old Capita where we were doing 50-plus things, and you used to call 50-plus capabilities. Now we're focused on this 5. And that is just going to really help. So market competitive. A number of you have asked me over the last couple of years, are you going to be a pay to AI, you going to help. So I'm just sort of trying to give you my perspective why I think our position is well defined, well protected. And while we have to work on it every day we like our hand. We really like that hand. So if you look at the chart on the left, you'll see the data from BCG that pretty much says that 70% of the value derived from AI is derived to people. People who are happy or able to understand that capability on and understand the process and they're able to really nuance the delivery of a particular service who are not only good to deal with the happy path that can be automated, but they have the skill and the experience to deal with the unhappy path of a service provision that needs that human [indiscernible] that's 2/3. Yes, there is technology, brilliant. Yes, there are algorithms and there is going to be technology prowess, but that's, a mean, to an end. If you look at what's happening on the wider industry in prior events, I'll show you some of the AI stack. And I always talked about these trillions of dollars that are going into building the bottom layers of the stack is going into memories going into processes, is going into the system scales, is going into these huge clouds, giving to these huge data centers, it's going to build in these applications, these layers, these LLM, brilliant, the more the merrier. Because we can go and build on it, built on top of air our capabilities. We are not tied to any particular architecture. We're not tied to any particular LLM. We're not tied to any particular data lake or analytics structure. But we're sitting on the top with the depth of the process. with the people, with the understanding that is required to deploy technology there and get that ultimate outcome that I've got a regulated industry, a government department, a local administration, part of the -- our forces really need to deploy. And you cannot buy your way through trillions into long-term expertise and deep understanding of a process. That is the one thing -- you just can knock up. You've seen many of the investments are now going into less go forward deploying engineers because they do recognize, but yes, you can throw the tech at it but is not going to speak, unless you understand what the tech is for. And this is something that we've been working and I'll cover. So we are an early mover. But we are derisked. And let me just sort of tell you. So if I'll take you through, I think the end of 2023 phase as in here, which was the shock when Chat GPT came about and everybody is like a or sort of this with chats. And then there was this phase of Oh, this is coming, it's this anxiety, what's going to happen with AI overall. And then we sort of moved to, okay, can we build vertical moves, vertically integrated can we build horizontal platforms. What is going to be the operating model, these all displays coming up, the pressure on the SaaS companies to defend their business models. But then what has really started to since towards the half of the later half of last year. It was this going to be a lot of orchestration require, orchestration of agents, orchestration of multiple agents. And then ultimately, it's a realization where the whole narrative in the industry is change back from humans are relevant to how humans are absolutely critical to work in this workflow. That's sort of been the journey we've been on many of you have been writing about. And our journey sort of maps that. And I think if you look at from our ambition when I first came in to the early deployments when we started to do an agent suite in the summer of '24 to forming the catalyst lapse that we could get this ideation and integration with the platforms, then make the use cases, the catalyst stack to start mapping, okay, there are trillions of dollars in R&D, going into R&D and build-outs going into this space, how do we build it into a stack that makes sense to our customers, and then how do we go and move into the AI-led BPS or BPO company? How do we rewrite story. And then now the forward deployed orchestrator is different from the forward deployed engineers, and I'll talk about it in a minute. So I think if you start looking at this, I think we are moving clearly. Yes, there is a lot of augmentation. And as a matter of fact, the vast majority of what we do today is augmenting our colleagues' capabilities through AI. But the shift is going to be from augmentation to orchestration. And I think it's the human in the loop, right, which is the new expected model. It's kind of like the market has moved towards where Capita is and Capita was and Capita has a legitimacy to keep adding value in the future. Because remember, we are not in retail, we are not in a number of businesses that do not have the same level of regulatory pressure. We are in regulated industries. We are very critical government departments. We are very critical citizen service provision, close to the user in the local county, and the governance aspect, which is something that is not new to us, is absolutely critical. So why am I bullish? As I said earlier, we moved early, but we are derisked. We haven't had to put a lot of money into it, but we've already built a number of capabilities in the organization, and we got some credibility. But most importantly is because we are on the right side of the market. We are not either trying to create a market, we're trying to chase after a market. The market is there. It's growing. Yes, there are adoption issues there, there are adoption challenges. Yes, we've got many challenges with government procurement to buy these type of solutions with a transitional phase. Yes, it's still very top down driven in some organizations. Yes, all of these things are true. But at the same time, it's true that it's moving and it's moving towards us. So find the market, select the pipeline, close the pipeline, deliver the revenue, deliver the margins. So we're sort of moving from that left to rent. And I think the numbers start to show. I think Pablol will cover them, I would probably talk about just a couple of them. I mentioned the KPI performance. And I think it's really important to keep reminding everybody about everything else that we do, the media intensity, the political intensity around CSPS have been intense. It has been brutal. And sometimes, we could all collectively make the mistake, I think, in that -- that's everything that we do at Capita and that is normal. That is not normal. We're delivering very, very well. And we're renewing extremely well within new business really well. And I think as you've seen the last of momentum, we continue to win through these motions because we are not failing at building the best possible propositions. We're not winning because of any other reason. There is -- there are robust procurement processes. And if you win as a result of that procurement, you tend to get the order. But I did talk about, yes, we got over 90% [indiscernible] we got one terribly, terribly wrong for which I will apologize once more because it's not the experience that anybody wanted. We didn't want it for the members, we didn't want it for ourselves, we didn't want it for our shareholders, we didn't want it for the employees. But that's where we got. I've talked enough about the challenges over the last few months. There's obviously a lot of complexity that was inherited. Some of it was known, some of it was not known, and some of it might have been known but not fully understood, and some of that, it was worse than we thought. It doesn't really matter. We are where we are. We inherited the service, and we decided to do everything we could right from the outset to do the best possible team for people that needed it the most. So we didn't necessarily chase SLAs. We chased urgent cases. We did the best we could for a variety of months so that we could just sustain that sort of social pressure. And we actually did fairly well in some areas like payroll, you never heard about it. We even did a significant payroll to all the retired civil sevants on the country ahead of us taking over the contract because it was required, and it was the right thing today. And it continue to happen solidly since then. There were issues with some of the automation. We didn't have the right automation for the data we inherited, some of it arrived late. There was a number of things that we've had to catch up with. The vast majority of it in the second quarter of the year. And a lot of it actually coming towards the end of -- into May and June, throughout June. But I think as you can see there at the bottom, in particular, you can see the 4 key processes and the 4 key areas of pain where collectively, we're still letting members down. And you can see that this has moved from a -- what is it going on to can you get the automations to work? Can you deal with the data? Doesn't matter what quality of the data is in, to do you have a capacity in the system? And the answer is yes. We do now have the capacity in the system, the capacity across the processes exceeds the inflow. So that excess capacity is now being directed to reduce the amount of cases and we made some commitments to solve that over the next few months. So extremely painful. That's something they shouldn't have had, is our #1 operational priority. From me down and everybody in my executive team and everybody who is required, we will do what it takes to get it there, but it's now turning the corner. And I think the financial update last week as the dust settles and we got a clear picture sort of reflects that. It will still remain an operational reality in the second half. You know how these things are politically from a media perspective, expected to be intense. But operationally, we are in a very, very, very different place, and that will over time move into the right direction. I've talked about the Catalyst stack and the Catalyst lab already, so I won't cover it. I just wanted to put there a number of hyperscale highlights. Because I think if you go back 2 years and you see what we've been saying around the hyperscalers, what this slide shows is the strategic depth of the relationships that we have with them now that go beyond a commercial alignment, go beyond some go-to-market capabilities. Now you're starting to see those capabilities being well entrenched and well embedded either internally in our functions as we reduce our cost to operate and we become more efficient or in our customers as we improve the quality of the service, we provide the quality of the MI, we provide or we reduce the cost to serve. And then there is also some go-to-market capabilities like in areas like AWS and sales force that will get us there. So it's a good progress. But what you're starting to see here is, yes, there is also for customers, but it's also internally. And this is an effort that we put in this year, which is what we talked about, customer zero. And customer 0 is, well, do we need to build the technology, we need to rant ourselves. We need to have a reference Obviously, we will have the benefit of doing it to ourselves first. Back in the day, 10 years ago in tech, we used to call this flying urine jets, right? And this is kind of what we're trying to do now is say, okay, where can we deploy this first and then how we capture it, replicate it and then just get a scale out. And we've just given you a number of initiatives that we are already using internally whether it's the assessment benefits or whether we're talking about quality and compliance, extremely critical in the markets we go after. And a very important one, which is the AI registry and I like to talk about the AI registry as this [indiscernible] right? It's okay to have one agent -- is not enough. You'll end up having to have several agents. You probably end up having tens of agents or hundreds of agents. So the question is no longer whether you can build an agent. The question is no longer whether you can build 10, 20, 100 agents. The question is whether you can manage the agents. The question is whether you know who build the agent, for what purpose, whether you know for every single agent, what data are they using? How do you make sure that are there not 3 different people, 3 different departments building the same agent, whether the return on investment of the agent is the one where the agent should be retired. And has it been retired properly? So how do you manage that zoo, right? You have animals in the -- all of them in their own domains. They all have their own jail. They all have their own feeding medical scheme is the same with agents. And we built that AI registry where we now have full control and governance on how to do that. It's not just the technology, it's knowing what technology you need to build, you need to do about what operational processes. And I believe that scale of understanding, orchestrating, managing the life cycle of the agents will become the #1 priority in deployment of Agentic AI in regulated industries, and we're way ahead of the pack in terms of having built that capability internally for us as customer 0. Now very happy to be taking it to market. And the best way to take it to market is this new capability we've announced is the forward deployment orchestrator, which is not the same as the forward deployed engineer that you're reading about from Anthropic, Open AI and a number of the consulting companies. The thesis is you go in, you understand, you build and you move out as a forward deployed engineer. Our ambition is to leverage what we've been doing for 40 years, which is observe a business process, deploy that sort of new business process, orchestrate the business process and then operate it. That's been what we've been doing for 40 years in the analog world. So we've taken that very same logic into the Agentic world. And we will look at the business process, we will reimagine the business process and then we will orchestrate it, and then we'll manage it. But we will do that with agents. So instead of building an agent to deploy and running away, our proposition to our customers is we will work with you. We will look at your business processes. We will optimize it. We will build an agent. We will stay. We will run it with you. We will help you train people. We will help you embed it into the operating culture. We will make sure you get the usability. And because these things are never static. If it needs improvement, we will drive the improvement. For you, otherwise, you're going to get a ton of agents, you drop them in, not training no development, no change in the process won't be used and you will be wasting your money. So this sort of FDO model, I think, is a very legitimate extension to what a business process outsourcer, we call it now our business process services company, adds value into deployment and creating value for government departments who have to do this at scale, local authorities, different parts of of the Army. And this sort of operate and own versus build an exit. It's our space. Now everybody is going to want this, but we believe our public sector customers and our regulated customers will very much value this model going forward. So just to conclude, I'm extremely proud, but I really, really, really proud, and I wish I could give it more time in this call about the work our colleagues do. I mean, their the determination, their drive their ability to cope with the change that is happening around them in the market, the inside Capita, how they wake up every day passionate about delivering when it's easy, but more importantly, when it's difficult. The team is superb. They're motivated, they're really fighting every day on behalf of our customers. And I just sort of wanted to give you some highlights of some of the things that we've been doing, and they've been doing and then we've been getting credit for us. We build that better company that values that customer orientation as our first value in the company. Above and beyond, I wanted to highlight 3 things. From a governance perspective, responsible AI is critical. We've been evolving our governance models so that we have now an AI charter where we hold ourselves accountable, both internally and externally for what gets done, how does it get done, what gets tracked for what purpose is traceability and everything is done with accountability, security and transparency in mind. And we created the process, the gating factors and the gun rails to ensure that, that works. That is a very important piece of work as you embark into this journey. And we have built it on top of our experience dealing with complexity around governance in this area. The second one is the skills. I wish we could do more. I wish we did do more but I take a lot of pride in how much we've already done to increase the literacy in AI and data across the company. But you can never do enough, super important. And I think where we're seeing where there's a number of apprenticeships that we're doing or the number of assets that are being consumed a number of bottoms up initiatives that have been driven is fantastic. I think this is -- we've given them a sense of what we're trying to do. We've given them the enablement and when we let them go and build. And then we talk about attrition. We talked about that 17% blended. But once you allowed public sector, around 14% pensions just on -- or and the 10% is very, really good. And then there is a use case around employability. I think it's a really important case. I think it's a pretty good time. I think we know that as a country, we're facing a lot of issues with employability and the challenges that a generation has, but we've got work going in employability across multiple areas. It's just not -- they're not in education. Segment that you've got the special education needs. We've got veterans. You've got people who just left jail. We've got work that we're doing with the families of serving members of the forces. And this is something that we're very proud about and our colleagues are very proud about as we support it to create joint value. So just to conclude, with our -- we'd like to call it a strategy house. It's everything that we're doing on 1 page starts with our values that were created by our colleagues now by management last year. Then we built some of the strategic initiatives that I think you can all recognize from the narrative in this session. Obviously, there are 4 betters that are there. And ultimately, this is to unlock value, delivering our vision and deliver on the financial objectives that we are committed to deliver that improved financial performance. So summary, we are working and we're privileged to work on structurally strong growing and stable markets. The market is moving our way. We built capabilities. We are sort of ahead of the pack back derisked, but we're leveraging on everything that we've been doing for decades. We now have a simpler group. We have what I call manageable leverage of everything in the go-to-market on the delivery and on the investment in tech. I think that's important. We also have to fix CSPS. I'm very clear remains a key and absolute priority to get there. But everything else that we're doing, we're going to keep winning as we are, and we're going to keep delivering well as we are, and we're going to keep building this better company that ultimately will generate the financial returns that we have all waited for. So with that, let me conclude the update. Thank you for your attention, and then I'll sit down there with Pablo to do some Q&A.

Mark Howson from HSBC. Just a quick one on CSPS. Are you still confident that you'll get the scheme back up to normal levels of claims by about September, October. Is that where you're running at the moment?

So we stated 2 goal posts on by September which is sort of more what we call the flow. And then there is another Gold Post in October, which is sort of make progress on the stock. There is a caveat there. Obviously, we did see do that with the cases that we don't have dependencies on and dependence to third parties, maybe lack of data of about particular employability, employment records of somebody because the employment records are not there or there's a probate that needs to be done. So there's a number of things that we cannot resolve initially. So those Gold posts are excluding those. And then we've also started a parallel piece of work with the cabinet office to figure out how we can jointly work on making those unworkable cases, turn them into work in all cases. Ultimately, they all need to be addressed.

Thank you. Kai from Canaccord. One for Pablo and one for Adolfo, I don't know if that's okay. So for Pablo, just on the guidance range for the cost and free cash flow impact, which was quite wide relative to your profitability. I'm just wondering at which point in the year would you know which end of the range are you most likely to come in? And what are the puts and takes for you to be within that range. That's the first one. And Adolfo, the second one was on the public interest test, which I believe or understand kicks in April next year and creates quite a bit of additional Admin burden for the departments awarding contracts. I'm just wondering if you think about your potential bookings profile, would you expect possibly a bit of a rush to award to get awards out before that deadline and then maybe a bit of a pause? Or I'm just kind of wondering how you think that might impact bookings over the next 9, 12, 18 months?

Thanks, Kai. So yes, the guidance is quite wide. But if you consider actually how much we departed from the original guidance from March to July, you will understand that we can only be prudent at this stage and guide towards broaden up range. And there are a number of things. Number one is continue the timing at which we are planning to deliver September, October, as Adolfo was mentioning, Assuming that there are no news prices, assuming that all of the macro environment around us from customers to pensions to everything remains on track. Then we've always said that there is a commercial discussion to be had at some point. The timing of that may impact that a portion of that range is making assumptions on commercial recoveries, et cetera. So I think that it will be by the Capital Markets Day, where we have a stronger view on whether we have been able to progress at pace operationally and whether we see that further commercial discussions are going to be within this year or slipping into the next year and because we cannot make accounting assumptions from them unless they are signed.

And on the second question, I think normally, you always see a bit, right? So there's always going to be some people have market fall on one side of the deadline or the other side of the line. So it will be a little bit, of course. But the reality is most of the stuff that we go for is a long sales cycles, long engagements, very complex in nature, very long-term processes. So I just don't think that's the kind of work you would rush, right, to be on that. Yes, there is going to be -- there's going to be a little bit more work that the government department might have to do. to sort of prove that there is going to be work that we need to do to improve the social value, but it is something that we're already doing as part of our propose. Yes, it might be a little beeper there somewhere, but I don't think that's going to be a factor that's going to change the shape of the business.

Thanks for the presentation. Roddy Davidson from Singers. Just very interested in the hyperscaler partnerships. You talked about the progress you've made there, how they're developing. So kind of 2 questions. One, just wondering if you would highlight any of those as being potentially particularly impactful going forward. and also whether there are any other tech relationships that you're building at present that we perhaps don't know about?

Yes. I think they will all be impactful. The reason why they are highlighted is because they play a critical role somewhere in the value chain of our AI catalyst stack, whether it's on the data and there's and analytics, whether it's on the observability of the service, whether it's on the orchestration of of agents or whether it's the fabric. So they're all relevant otherwise they wouldn't be there. There is a growing amount of work that we're doing with Anthropic, as you would imagine. But at the moment, obviously, we can use some tropic through AWS and to Azure, but that's in terms of a new name that will become important in the second half would be Anthropic.

James Lock here from Peel Hunt. There are stats out there that suggests sort of less than 30% of AI investments you're actually seeing ROI, but you generated at least GBP 250 million, of which I may imagine some of that was -- could you talk us a bit more through that? Any helpful ROI stats would be useful there? Secondly, in knowledge industries, there are a couple of reasons why people haven't often seen an ROI in their investments. Culturally, people disengage if they're worried about their jobs and companies are often over-indexed into savings instead of incremental revenues from those more productive employees. How do you think about those 2 elements around cultures and incremental revenues? And then third question, when you were at SDL, the asset that compounded with AI wasn't the MTN general wealth server. It was actually the client-specific translation memory there. Every job made the next job cheaper. What's the equivalent at Capita. And presumably, the answer is processing case data from 20 years worth of contracts. But on a government contract, who owns that data? And can you use it to make the next bid cheaper ?

Okay. Excellent questions. So yes, the equivalent of that is effectively the training data that you can use for the provision of the service. And that can be historical data our current data. So for example, if you are on the front end of a citizen service, it might be the real-time life transcription that happens on a particular call and an engagement. It could be the sentiment analysis of that particular citizen, if you are engaging out there, it may be the policy. So how many policies there are, for example, around road user charging in TFL, right? So every particular contract will have a number of data assets, whether they're policy, whether they're recommendations and whether live data assets. that become the core of the foundation of the service. The level of access that we have to data varies account by account, there is contract by contract and then various business process by business process because -- for example, we talked about assessment services and our own training, for example. That doesn't require any data. It requires data, but it's data that we governed, right? If we wanted to go into somebody's medical records that requires working with the right authorities as you would expect. So I can't give you -- it's not like the SDL industry where everybody has the same asset, and it was just about getting that asset and apply it on that, but this is sort of a more nuanced thing, which, again, I think it plays to our differentiation is that nuance is that case by case, process by process expertise that we have that is part of our moat because this is not something that you build on scale and you can serve all of our contracts, they're all 1 million times different on that. In terms of the AI ROI, the way I look at AI, AI is an ingredient to the service. We don't do AI for the sake of tech. We're not building AI and we have we have AI discrete costs and then AI discrete margin. I think it will be the wrong way to go about it. That's more of a product company. We are a services company and outcome company that has to deliver a working outcome. And there is transformation. There is operational capabilities. There are people capabilities. There is going to be a supply chain. There is -- there is a building a consociate. You've got all of these things and then you've got AI and technical operations as part of the ingredient. What AI and automation are large and good data practices will give you a more modern solution. I'll give you an ability to do things faster. So if you look at the work that we do, for example, with Snowflake, and be able to build much better MI and real-time data about the service that has been provisioned that translates into a better service. And if you build a better service and you build a better proof of concept, you're more likely to get the customer to believe so you get increased win rates and then it's less of just price right? So I think the value comes indirectly, which is why I don't see in the immediate future and ability to either track it wanted to track it because that would be a crazy metric, right?

Chris Bamberry from Peel Hunt. I've got 3 questions. What do you still need to do operationally to be in a position to deliver market rates of growth? I mean I know that may well vary across the 5 offerings you have? And when do you think you might get there? Secondly, as you scale up the agents from 500 to 1,000, et cetera, what's the greatest challenge? Is it governance, technology or people, that sort of thing. And finally, the increase in the unweighted and the water pipeline is large. Just really trying to understand the factors behind that? Is it what's going into the funnel is that you're using conversion or what you're taking on?

Yes. So on scaling the agent, is not about scaling the number of agents. It's about scaling the impact that the agents have. And I think there was the question you made earlier is about the culture right? So building the agent is great. Nearly everybody, actually, probably all of us in this room could build an agent in a weekend, right with that now into code. Most of our employees know how to build an agent. But is the agent relevant? Is the agent gain to effect and leverage something in the business process is going to be grounded? Is it going to be safe? Is it going to be governed? So it's not a silver bullet there, Chris. It's like a collection of lead bullets, right? It needs to be safe. It is to serve a purpose. You need to have the operating team willing to use it. They need to see an immediate benefit and the benefit that we're seeing is if it makes their life easier, that is in the operations for us, the real measurement. If it adds value to you because you're doing something because it allows you to populate your responses faster because it creates a better quality because it checks what you're going to do before or because it gives you faster relapsed times and particularly most people are going to yes, give it to me. So you need to take all of these lead bullets so that you drive the adoption. We had to solve the fabric challenge last year because it's how do you build that fabric was effectively a system of record of all the agents because it's a governance question, right? And there is also a financial question. We have 200 ideas coming out of the catalyst labs, right, of which we've only progress about 20 of them at scale, so they need to be analyzed. So you need to have that. We've actually better way we've created our own agent life that deals with the Catalyst lab, right? It's a catalyst lab ideation, verification engine, something like that. So you say when people submit is an agent that is processing that and then there is a number of humans. So my learning is a lot more about management, culture and understanding what is it that you're ultimately trying to fix. If somebody is not getting a better service or a cheaper service or a better experience or we are not reducing our cost is probably not worth doing and having that discipline. And then the other thing that we've learned is -- sometimes you take a step forward and you take 2 backwards. Sometimes you've got friction, right? You've got to have that willingness to have that friction. You want to have the issues out in the air because as I showed the sort of when you look at the 2-year path, it looks like it was linear, and it looks like it was always the plan to go that way. No, it wasn't. It's been like step-by-step conflict by conflict and question by question. So a lot of it is in the culture of the organization and in the management team to be willing to have back and forth, very different to run a company with that type of culture than it was to run a more linear command and control culture. I think that for me is the single biggest inhibitor and why a lot of the AI efforts are failing in a lot of places. They just build them build by the tech give them the licenses and then just hope that things improve just by osmosis, that's not the way it happens. And then if you're in a regulated space and it's a government process, then less so. So do you have something on the market, the pipeline as well, I just think what I just explains part of it. Richard and his team have done a pretty good job of defining the value proposition narrowing the focus, making sure we are very driven in terms of what we go after. We have a clear value proposition and the market is moving towards what we do and how we do it. So there are more things that would get qualified terms of suitability, then we will go and look at -- do we have the resources, right? It's not everything that moves is an opportunity for us. And it's an opportunity for us. It's an opportunity for us now. So we're actually having to discuss a lot of things and we are putting more focus on where we believe the probability of winning the sale the wind is a good one. And then we will look at can we differentiate and then can we command the right levels of margin in that. But the market is moving that way. So even though we've been more restrictive and we're opting out of more things in a perverse way our market is growing and our TCV is growing which is a good place to be.

Oil from Barclays. The book-to-bill is back to positive. Within this, do you have evidence of wind that utilize AI and BPO?