Earnings Call: H2 2020

Mar 17, 2021

Welcome to the Capital Full Year 2020 Results Presentation. My name is Ruby, and I'll be your moderator for today's call. I will now hand over to your host, John Lewis, CEO and Gordon Boyd, CFO to begin. Good morning, everyone, and welcome To Capita's 2020 Financial Year Results, I'm John Lewis, Capita's CEO and as mentioned, I'm joined by Gordon, our Interim CFO this morning. As is usual, before we start, I draw your attention, of course, to the disclaimer at the beginning of the presentation. First and foremost, I'd like to thank all of our colleagues, many of whom are on this call for their hard work and dedication in the past 12 months. Both the tens of thousands who have managed to deliver for our clients and customers from their homes and the thousands who have continued to go into their workplace, Often supporting frontline services such as the NHS or Department For Works and Pensions. The commitment and resilience you have shown in supporting our clients And their customers through the pandemic has been exceptional. Thank you. This has been a challenging year for Capita, it has been a challenging year for many companies. 2020, of course, should have been the pivotal year in the transformation plan we set out in 2018, 1, but instead we had to respond to the significant challenge of COVID. I'm very pleased that we were able to do so robustly and effectively, In many cases, relying on the investments we have already made in the transformation to become a more agile and operationally effective organization. 1. In so doing, we've also delivered financial results that were in line with our expectations at the half year, particularly reflecting our focus on cash The service our clients expect from us, our client sentiment towards us benchmarks favorably against leaders in our markets, and this has materially improved our prospects for future growth. Since we last reported, we have won a significant amount of business, including the long term Royal Navy training contract signed at the very beginning of 2021, a sign of confidence from a strategic client. And we've delivered over 300,000,000 Aligned with our long term strategic objective of simplifying the business, we're now moving into the next phase of our transformation, a more focused, Client centric operation with 2 core but distinct divisions focused on serving government and our blue chip customer experience clients. We will also have an expanded non core portfolio division, which we anticipate realizing significant proceeds as and when the time is right. We've already received $299,000,000 this year from the sale of ESS with a target of $200,000,000 more from the disposals through this year and a further $200,000,000 thereafter. The new structure will allow us to take out further costs associated with managing the current business, And we expect this to drive an additional annualized cost benefit of $50,000,000 from 2022. We continue to be very focused on the balance sheet. As we did in 2020, we will continue to manage our upcoming cash commitments through further disposals and extending our maturities as the core businesses build stronger cash generation. As a result, we expect to inflect to sustainable free cash flow in 2022. Since the start of the transformation, we have put our purpose and values right at the center of the process. This is important for the future of the business and has been strongly supported by both clients and colleagues as well as other stakeholders. In the markets we serve, it is a must do, not a nice to do, and it has positive business and commercial consequences. Being purpose led has helped attract talent And engaged employees means lower voluntary attrition and superior customer service. Better operations means greater trust and more work from our clients. In particular, as the U. K. Government adds social value requirements to 10% of the bid assessment criteria, it is also a necessity. By example, we recently won a framework contract in Scotland where we were not the lowest price bidder. We won because our bid was technically strong and because of the strength of our social impact statement. We also care about the well-being of all of our 55,000 colleagues. Treating our people right and listening to their concerns is having a positive impact on performance too. I think we all know there is a strong correlation between increasing employee Net Promoter Scores, up 7 points this year with good levels of engagement and delivery for our clients, with our client Net Promoter Score up a significant 17 points this year to plus 32. Both results are encouraging, but there is scope to do better. We're also committed to reducing our carbon footprint and we'll launch our net zero targets, which we have already had approved by the Science Based Targets Initiative formally later this year. As with most businesses, the impact of COVID has been significant financially, 1. But here at Capitat also tested the strength and effectiveness of our transformation actions to date. I'm pleased with how we responded. We took early and decisive action, prioritizing a safe environment for our colleagues to ensure we could continue to deliver services for our clients. Clients saw a different capital through the crisis and is testament to this response that in such a difficult year, our employee and customer net promoter scores Both increased so materially. We also won $100,000,000 of business to support the government in its response in key areas like the NHS and in Social Security. We targeted over $100,000,000 of savings through discretionary cost and cash actions and have delivered $122,000,000 again reinforcing our track record on cost. We expect some of this to be sustainable as we adapt our business model to a more flexible way of working in future. We were able to protect the balance sheet too. We met our covenants, increased liquidity and repaid $220,000,000 of maturing debt in the year. This included significant measures such as deferred VAT and pension payments, which we will now make this year. We also improved our cash management processes and expect around $50,000,000 of the improvement to be sustainable from here on. This work to the extent that we ended 2020 with net debt materially lower than guidance and with more liquidity than we started the year with. Our transformation objectives remain the same, to simplify and strengthen capital so that we can generate sustainable free cash flow, to build, in other words, a better quality business. It is clear that some of the challenges inherited in 2018 have proven to be tougher and more expensive to fix than we originally thought. And as we said last year, this transformation is taking longer and costing more than we originally anticipated. But we've stuck at it and dealt effectively with a global pandemic. The progress we have made means we are now in a position to execute on the next phase of the transformation. We will focus on our strongest markets with our most competitive value propositions and with greater client centricity. This gives us the platform to further to simplify further into 2 core divisions, each focused on their client specific needs in what our distinct growth markets where we know we are demonstrating the capacity to win contracts with the risk and margin characteristics that are acceptable to us. The reorganization will unite currently disparate but synergistic core capabilities into natural homes, integrating with our integrated with our growing consulting capability to provide more compelling solutions to our clients. A third, enlarged portfolio division We'll contain businesses that are valuable and successful, but that are just not core to our future strategy and will be managed for sale at the right time. Reducing organizational complexity also gives us more opportunity to take out cost, and we expect to be $50,000,000 which we expect to be $50,000,000 per annum from 2022. This next slide sets out the future structure of the business, 2 core divisions with client centric operating models 1, and a 3rd non core division. All three are supported by a smaller head office, overheads and an efficient shared services organization. I will talk more about each of these later on in the presentation. I believe Capita is a significantly better business than 3 years ago, I am acutely aware that this is not clear enough just from reading our historic financial results. However, many of the changes we have made are foundational to us being sustainably successful. As we have stated throughout the transformation, sustainable success is predicated on fixing contract delivery issues, Rebuilding client trust and improving the competitiveness of our market offerings. And we made very encouraging progress on these in the last year. Operationally, even in an unusually disruptive year, we delivered for our clients and maintained a high level of service KPIs. And service credits associated with poor service delivery also decreased significantly and for the 3rd year in a row, down 80% over the last 3 years. Our customers have recognized this with the 17 point improvement in Net Promoter Score to plus 32 year on year, again putting us on a par or ahead of most of our key peers. 2 years ago, we were significantly behind them, of course. We're also almost there with the 3 legacy contracts we highlighted previously. Mobilecom and RPP are now profitable and cash positive. PCSC saw some delays due to COVID, But we are still delivering a major uplift in financial performance this year and expect to complete the work very shortly. Collectively, These achievements have reestablished a reputation for reliable contract delivery, a far cry from where we were 3 years ago, further supporting us winning new work. Now as well as fixing legacy contracts, we have had a very strong track delivery of on contracts awarded since the 1 of the biggest, Defense, Fire and Rescue, is a case example of this. Since we took responsibility for this work in April last year, All major operational KPIs have remained on target, as a result of which we have been awarded work for 6 more MOD sites, growing the revenue base on the contract in the process. We're also delivering, I hasten to add, our bid margins. I also talked last year about how the first phase The ultra low emission zone implementation for Transport for London was delivering on time and on budget. We're now progressing well on the extension work won last year and are on track to go live in October this. And we continue to benefit from the discipline of our contract review committees and from the investment in project management tools and resources. We are winning work with the right margins, low double digits and the appropriate risk profiles. As we perform better for our clients, our sales performance is also improving. We're also seeing the benefits of our investment in sales systems, processes and competency 1 with better visibility and confidence in our revenue outlook. We won $3,100,000,000 in total contract value TCV in 2020, an 8 1% increase on 2019. And we are on track to do materially better than this in 2021. I'm also encouraged by the amount of work that we won and executed in the year, particularly tough as transactional work was more difficult to secure as a result of the pandemic. Back on spending, I'm also pleased that our book to bill ratio reached close to 1 even before the $1,000,000,000 training contract from the Royal Navy, Our order book is down year on year, partly due to the timing of contract tenders and renewals, but it is flat when you include the Navy training award. In summary, we're now seeing in our sales data tangible benefits from the investments we have made in improving our contract delivery credentials and the trust this has built with our clients, We're planning to grow organic revenue in 2021 for the first time in 6 years. This point is further evidenced by the 8% increase in total unweighted pipeline year on year as we build on improving client trust, understand better what our clients need through our consulting led engagements and evolve our client value propositions. Analysis of our client NPS data shows that among those who increased their score, We saw a 40% increase in pipeline year on year. Consulting led sales a fundamental to our future and an integral part of how we plan for our new core divisions to go to market. Most importantly, it is helping to change the way senior client executives perceive us as we engage on higher value business process services solutions. Our consulting engagements also create future pull through revenue opportunities. And our recent experience of being able to increase charge out rates for our consultants Materially on some engagements is a sign of the value our consultants are delivering. Despite this being one of the worst years ever To launch a consulting practice, we have still managed to grow consulting revenue year on year and won total contract value of 30,000,000 Whilst the pandemic means that we have narrowed the scope of our focus, our specialisms in cloud, transformation And data and AI have one word for clients such as HSBC Wealth Management, Lambeth Council and Police Scotland. A great example of this is our work for the Financial Services Compensation Scheme, where we designed and executed a data driven solution to an urgent client need. We're using AI to process 1,000,000 pieces of evidence and 700,000 voice calls. Its CEO has publicly stated that this has saved them 2 years and halve what it would otherwise cost. Our transformation cost savings underpin our work to make Capita a more efficient organization, 3, as well as offsetting some of the impact of revenue losses as we wound down legacy contracts. This year, we delivered another $145,000,000 of transformational savings, Taking the total to over $300,000,000 in the last 3 years. This is against an original target of $175,000,000 This is also on top of the COVID cost action of $122,000,000 we secured this past year. But we have yet to see the bottom line impact of this As at the same time, we have been investing in improving governance, systems, functional competencies, a simpler structure and more resilient information technology systems. We plan to complete our implementation of S4HANA Once we finalize the new operating, which of itself will drive further efficiency in how we manage our finances. For 2021 onwards, we expect to start to properly leverage the benefits of these investments and are targeting further significant transformational savings this and next year. This This will include the benefits we can draw from the experiences we have gained from working remotely this past year and we are currently in the process of redefining Overall, we will reduce this by at least 25% across 2020 'twenty one. We have, in fact, targeted the most expensive part of our estate first, And our London footprint will reduce by over 60%, including of course the closure last year of our head office in the West End. Now that we have the foundations of a better culture, better governance, better client trust and better sales performance, It is time to move to the next phase of our transformation. We're in the process of evolving our operating model into 2 core divisions 1, focused on serving the specific client needs in their distinct markets with an expanded set of synergistic capabilities. Revenue growth will be enhanced, 1st, as we make our clients more central to our operating model and second, as we bring together capabilities into a more focused a competitive set of offerings under 1 divisional umbrella. And this is in digital transformation markets that are growing faster than some of our existing traditional areas. This leaves a bigger non core division comprising of great businesses, but businesses not aligned to either of these. It's a slimmer, leaner group structure appropriately sized to our revenue and fewer legal entities with associated intercompany cross charging. Shared services that continue to strengthen, but can be deployed with greater efficiency. We have already seen this in the areas of finance and HR, both of which are very effectively leveraging our talented colleagues in India. Complexity has been a drag on Agility and margins and this next operating model is targeting that. Collectively, we expect these to deliver cost savings of $50,000,000 on an annualized basis next year. We've spent a lot of time over the last 3 years to better understand our market offerings, their competitiveness and the potential synergies between them. And in the tables on the right are at last a simple answer to the question, what does Capita actually do? 80% of the work won in 2020 comes from what we call 20 client value propositions, the language we use to describe our main market offerings. And of those 20 CVPs last year, 13 fall into our 2 proposed core divisions, 11 exclusively to 1 or the other. 1. This analysis, understanding what we do and who we sell it to, is why the organizational structure makes so much sense. And the graphic on the bottom is a simple illustration of its potential. We have aligned the divisions, the CVPs and their clients. Capital is already one of government's largest strategic suppliers and is particularly strong in the BPS and IT markets with almost double the share Over the last couple of years, we've built a reputation for helping government apply digital technologies to improve productivity, public services and a reputation that was enhanced as we helped the government respond to COVID. We're already well positioned within this attractive market. However, today these services are bid and provided across multiple parts of Capita, which is inefficient for Capita and for our clients. With this new structure, we will be aligning these capabilities in a much more coherent way. For example, Capital One, which currently sits in Capital Software, We will derive a better understanding of our clients' needs, enabling faster product development. And a great example of this is our new grant distribution product, GRANTIS. And as we further develop our consulting offerings, we will be less reliant on reactive bidding and more proactive in policy driven decisions, such as the leveling up agenda or the focus on quality and value for money. As a result, we expect Capital Public Services can deliver attractive top and bottom line growth 1,000,000,000 as reflected in our current pipeline of opportunities. With a pro form a revenue of around $1,100,000,000 focused on a market where our services will support strong long term growth. We anticipate this making returns at least in line with industry levels. Our expanded private sector BPO business We'll be called Capital Customer Experience. This division supports our clients in the delivery of frontline and back office customer Member interactions both in regulated and non regulated environments, leveraging again our strong digital capabilities. We're a leading provider of customer experience services in the U. K. With strong positions also in Ireland, Germany and Switzerland and with pro form a revenue of around $1,300,000,000 Within those geographies, our strengths and the reason why we have such a high quality client base Our deep domain expertise in telecoms, retail, utilities and Financial Services, these being the very primary industry verticals we will focus upon. In Financial Services, our strong onshore capabilities are proving to be a competitive advantage currently. In the near term, the priority will be to drive the bottom line by continuing to focus on our cost structure, investing in digital solutions and through our consult, transform, deliver client engagement methodology. Over the medium term, we expect to return to sustainable revenue growth as the market for these services continues to expand, 1, both in Europe and globally. As mentioned, we expect to realize efficiency and cost benefits associated with our new operating model. We We will have a simpler client facing organizational structure with fewer legal entities and reduced organizational capacity. There will be greater clarity around P and L accountabilities, which will be aligned to clients and industry verticals. We will have a more efficient management structure through reduced spans and layers. And we will be bringing all of our IT services together to be managed in one organization, giving clarity of management and the more efficient use of resource. And we continue to consolidate our software development resource from divisions from across the divisions under the umbrella of our digital delivery center, which is based both in the U. K. And India, which by the way recently achieved CMMI accreditation. We anticipate the role of the group to be corporate strategy, governance and controls, capital allocation and external reporting. It will be slimmer than it is today Now that we have successfully implemented the standards and controls that the business so needed. We will be more streamlined, more effective, more efficient, It should leave an expanded portfolio of excellent businesses, which are no longer core to our future. Some of these have been announced previously, Notably, the Specialist Services and Commercial Off the Shelf Software Businesses. In these areas, a significant amount of preparation for sale has already taken place and disposal processes are well underway. Therefore, in addition to the $300,000,000 already realized this year from the sale of ESS, We are targeting a further $200,000,000 in proceeds this year and $200,000,000 in 2022. This will then leave a small number of businesses for sale in 2023. Unfortunately, some of the assets, specifically some of these assets, specifically our Corporate Travel and Events And resourcing businesses have been hard hit by COVID and will likely take some time to recover before we would wish to dispose of them. Let me now pass you to Gordon for an overview of our 2020 financials. Thank you, John, and good morning, everyone. I'd like to turn to Slide 24. As in previous presentations, we present our results on an adjusted basis, and therefore, the impact of which is executed On the process of being executed are excluded. We started 2020 with a strong focus on the balance sheet. However, The onset of COVID interrupted the pace of our ongoing transformation, planned disposals and also our refinancing plans. Corvid resulted in us placing increased focus on short term cash preservation measures to address the financial impact on a number of our transactional businesses, Whilst ensuring we're able to maintain business as usual and other businesses to ensure our clients were able to continue to operate throughout the pandemic. Revenue was 9% lower on a like for like basis due to previously announced contract losses, scope and volume reductions and the effect of COVID. And as a result of the revenue reduction, profit was lower. The impact of high margin revenue losses could not be fully mitigated by cost savings from the ongoing transformation program and the additional measures we've put in place in response to COVID. Nevertheless, cash from trading operations increased by almost 12% due to a significantly lower outflow on contractual working capital, which more than offset the reduction in profit. Free cash flow increased significantly due to improvements in other working capital, which we saw across all divisions And lower capital expenditure as we work to preserve cash. Just to note that the adjusted free cash flow excludes the benefit $119,000,000 of that deferral and $14,000,000 of non recourse receivables financing. Net debt was significantly lower and benefit from our continued focus on improving working capital, the government's VAT deferral scheme, lower restructuring costs and lower pension deficit payments compared to 2019. Liquidity increased and included $452,000,000 of committed revolving credit facilities $150,000,000 backstop included facility, which expired on completion of the ESS disposal, and neither of the facilities were drawn at year end. As noted earlier, businesses exited or in the process of being exited are excluded from the group's adjusted results. 2020, the largest business which was excluded was Education Software Solutions or ESS, which in 2020 Reported $50,000,000 of profit before tax. Adjusted profit, including the ESS, is included in the table at the bottom of the slide I'm sure that the group's results would have been in 2020 if the AFS business had not been presented as a business exit, And that would have resulted in profit before tax of $117,000,000 in 20.20, I. E, in line with consensus, albeit at the bottom end. Return to Slide 25 on revenue. As noted a few moments ago, revenue was 9% lower year on year. 4% of this reduction was due to previously announced contact losses due to a number of local government handbags, revenue reductions in specialist services We chose not to rebid for some contracts and scope and volume reductions mainly within customer management. In addition, we estimate that we suffered a net 5% reduction in revenues as a result of COVID. And this adversely affected scope and volumes, including volume based framework contracts and transactional revenue, mainly in businesses such as Travel and Events, Enforcement, Government Services and People Solutions. These losses were partially offset by COVID wins to assist with the U. K. Pandemic response in contract with the DWP and various NHS schemes with some of these continuing into 2021. Previously, we had expected to see revenue growth in H2, but instead we saw that contract bid time lines were delayed or paused as a result of COVID. We did, however, have a number of notable successes. Notable new wins included the 1st full year on the Ministry of Defense's Fire and Rescue Service or The FRC contract, our project and customer management and a number of smaller wins across divisions. We continue to see resilient revenue performance The majority of our operations are for long term contracts with a stable government and Blue Chip customer base. As in previous years, the 1 off benefits arising from deferred income releases on contract multiplications. So moving on now to costs on Slide 26. Our transformation program continues to deliver significant cost savings with new recurring revenue savings of €145,000,000 delivered in 2020, 3, bringing the total saves at inception to over $300,000,000 In 2020 2019, one off plan savings were at similar levels and therefore has no year on year impact. We took immediate actions to conserve cash when COVID struck, including reductions in discretionary spend, management pay cuts and recruitment freezes. We saved an estimated 122,000,000 Although much of this is not sustainable and around half those costs will roll back in 2021. We're targeting a further $124,000,000 year on year cost savings in 2021, which will partially offset the rollback of 1 off COVID savings, inflation and the reintroduction of the management bonus scheme. Finally, as a result of our planned simplification of the business described earlier by John, we expect to generate future annual cost savings from 2021 onwards, And which are expected to reach $50,000,000 by 2022 and all of which are expected to flow down to the bottom line with the cost to achieve being met from our existing transformation program. We move on now to PBT on Slide 27. Slide 27 summarizes the key drivers behind the year on year profit reduction and highlights the action taken to mitigate the impact of lost revenue. Due to the level of management judgment required, we've not been able to separate the impact of COVID in this profit bridge as we did on the revenue bridge. The margin generated from contract wins is not yet offsetting the margin from losses. However, contract wins include the impact of 1st year losses on contracts Such as DFRP, which results in the application of IFRS 15 and which equated to £15,000,000 in 2020. In 2021, these contracts are expected to generate positive margins. And ignoring the €15,000,000 IFRS 15 effect on the DFRP contract wins, We would actually have been wins would slightly have exceeded losses this year. 2020, scope and volume reductions and the impact of cost increases, Including wage inflation and the introduction of the real living wage were offset by savings from the ongoing transformation program. 1. However, these savings and those related to specific actions we took in 2020 in response to COVID did not mitigate The reduction in the margin generated by our transactional businesses, much of which will have been due to COVID. The transactional businesses typically have a high fixed cost base and Therefore, the margin erosion from loss from revenue is more severe than in other areas of the group despite the cash preservation measures put in place, As we leave lockdown, these transactional businesses are expected to recover with the timing of recovery star in between businesses. As in previous years, 2020 saw a number of unplanned contractual one offs And which adversely affected profit before tax by £24,000,000 This included an onerous contract provision and contract assets impairment, partly offset by net gain from the release of deferred income and write off of contract assets arising from a contract termination. Turning now to Slide 28 and a high level summary of group income on both an adjusted and reported basis. Adjusted operating profit of $111,000,000 in 20.20 was before interest of $47,000,000 which was some $10,000,000 lower than 20.19 Due to scheduled debt repayments made in the year of 2018, this resulted in adjusted PBT of £65,000,000 As of the previous year, there were a number of adjusting items between adjusted and reported PBT. Adjusting items are 115,000,000 Are substantially lower than the 260 in 2019, reflecting a gain on the sale of Eclipse, lower restructuring charges and no goodwill impairments in 2020. Our reported result for 2020 showed a $13,000,000 improvement over 2019, Mainly as a result of the reduction in adjusting assets and interest more than offsetting the reduction in adjusted operating profit. At the bottom of the slide, we provide a breakdown of what is included within group support services. Group shared services accounts for the majority of the costs And at $103,000,000 was slightly lower in 2020 than in 2019. Group support services also include the increase in investment in our new consulting business And group head office costs. Group head office costs were almost $10,000,000 or at $19,000,000 largely due to cash preservation measures, which included cancellation bonuses Turning to Slide 29 and a summary of performance by The appendix includes slides for each of the divisions under the existing structure, and I don't intend to spend any time going through the contribution of each of the divisions the 2020 outcome and any detail. Nevertheless, this summary slide clearly shows the impact of COVID on specialist services, which holds our Travel and Events business, where we saw a $100,000,000 drop in revenue and a corresponding fall in margin from 15% to minus 2.2% 1, as we were unable to cut costs fast enough to match the following revenue. In addition, one can clearly see the reduction in margin in government services, Largely as a result of local government contract handbags, contract bid costs, asset impairments and 1st year IFRS 15 losses of 15,000,000 on the DFRP contract and which will show a positive margin in 2021. Turning now to group cash 2 and net debt summarized in Slide 13. The reduction in EBITDA from $439,000,000 to 2.93,000,000 Reflects the lower operating profit. However, cash from trading operations improved as a result of contractual working capital improvements more than offsetting the reduction in EBITDA. The improvement in contractual working capital reflects lower deferred income outflows in 2020, largely from advanced deceased and increased activity of a new project such as DFRP where cash was received in 2020 in respect for transformation expenditure. This compares to the overall outflow in 2019, which included the impact from a number of local government contract terminations. In addition, 2020 benefited from higher accrued income inflows due to invoice phasing in Technology Solutions and lower volumes across People Solutions and Software. This is partly offset by a small net outflow on contractual fixed assets. Overall, the net reduction in contractual working capital outflows supported the improvement in cash conversion to 83% in 2020 compared to 51% in 2019. Capital expenditure was significantly lower in 2020 As we drove more focused investments and look to preserve cash as part of the COVID response. In addition, 2019 CapEx was high This included significant investment in large functional IT programs such as Workday, Salesforce, and SAPO HANA in particular And also spend on property rationalization. Typically, we'd expect CapEx to be in the $80,000,000 to $100,000,000 range. Other and working capital inflows were generated by shorter public sector payment cycles as part of the government's COVID response, revenue reduction efforts on working capital and improvements in working capital management across the group. Adjusted free cash flow of €239,000,000 in 20, with the 4 taking account of a number of excluded items, most notably, dollars 119,000,000 from the BAFTA Ferro scheme, Most of which will be repaid in 2021, dollars 64,000,000 of restructuring costs and pension deficit repair payments of $30,000,000 In addition to the adjustments, a further $57,000,000 of pension deficit repair payments were deferred into January 2021 and which have since been settled. Combined with the improvement in adjusted free cash flow, the net effect was to reduce net debt by 276,000,000 Resulting in a closing net debt position of under $1,100,000,000 or $569,000,000 pre IFRS 16. The net debt position obviously benefited from the government's stock deferral scheme and the $57,000,000 deferral pension fund deficit payment, 8. With all debt covenants as of 31st December 2020 with the improvement in net debt from improved adjusted free cash flow, debt deferral, Low restructuring cash flows and an adjusted pension deficit payment all contributing to the results. Headline net debt to adjusted EBITDA both pre and Post IFRS 16 exceeded the target range set by the Board of 1 to 2 times pre IFRS 16 over the medium term And which is broadly equivalent to 1.7x to 2.7x quarterly IFRS 60. This was in part due to the impact of COVID. And if all the outcome is higher than target, we were comfortably below our financial covenants. Moving on to liquidity and debt maturities. 1. Throughout 2020, we continue to focus on working capital management and work to conserve cash to offset the impact of COVID. Actions taken, combined with the disposal proceeds and the VAT deferral scheme, improved liquidity by 214,000,000 to $709,000,000 at the year end. We ended the year with $107,000,000 of unrestricted cash and no drawings under our RCF facilities. Liquidity included a $150,000,000 backstop facility, which has subsequently fallen away as a result of receiving sales proceeds from the ESS disposal at the beginning of February. Of the 299,000,000 cash proceeds received under the full During 2020, we made $218,000,000 of scheduled debt repayments and we have further debt maturities in 2021 and 2022 of €440,000,000 In addition, our €452,000,000 RCF expires in August 2 with an option to extend by year subject to lender consent. So we'll turn now to Slide 33. We're addressing upcoming debt maturities and August 22 expire of our RCF through a number of measures. First of all, Extending our RCF, we're an existing banking group, and I can confirm that discussions are already underway with formal launch timed to coincide with the release of these annual results. We have targeted €700,000,000 of disposal proceeds over the next few years, €300,000,000 of which was received in February, 2 hundred of which relates to disposals currently underway and a balance from our expanded non core portfolio. We also expect most of our spend and transformation to have come to an end over the next 12 months or so, which will significantly reduce below the line commitments, Cash commitments in 2022 and which has been a feature of Capitalist's financial performance in recent years. We also expect to generate sustainable cash savings 50,000,000 by 2022 as a result of the further simplification of our business outlined by John earlier And all of which are expected to flow down to our bottom line. This, of course, is in addition to the $124,000,000 year on year targeted for the current year, And which will offset the rollback of 1 off COVID savings, restoration of the bonus scheme and inflation. And finally, we aim to issue long term debt. Rich, I would like to hand over back over to John. Thank you, Gordon. So to summarize, 2020 was a challenging year, We responded well to the COVID crisis and continued to focus on making Capita a better quality business. Despite national lockdown through Q1 this year, we're targeting our 1st year organic revenue growth for 6 years 21 from the winning of the €1,000,000,000 Navy training contract. Through our transformation actions, we also have now established a solid foundation from which we can develop a structure that we believe really works for Capita, 2 core client and market focused divisions to drive growth and cash flow and a portfolio from which we can realize substantial proceeds. We're also very focused on the balance sheet. And as Gordon highlighted, We have a clear plan to address this. We are targeting over $500,000,000 of disposal proceeds this year and have already received $300,000,000 from the ESS disposal with 3 more processes now well underway. Further disposals will come. And today, we are launching the process for the extension on the RCF. So, cost actions and a return to organic revenue growth this year, we expect to deliver sustainable cash generation from 2022 onwards. And in the longer term, we continue to build a more focused, client centric and streamlined business delivering improved returns to investors. And with that, I think we will open up to Q and A. Thank you very much. Our first question is from Robert Platt of Panmure Gordon. Your line is now open. Please go ahead. Good morning, John and Gordon. The statement in the cash Section mentions ongoing significant restructuring charges. Do you have the figures for what those restructuring charges will be in 2021, 2022, 2023 star and or how they compared to what you thought they might be this time last year? Thanks. Good morning, Robert. In terms of 2021, there's roughly around €110,000,000 which is not that similar from 2020. 22, 23 onwards, it's pretty de minimis. We expect most of the transmission programs to have been completed by then. Great. Thanks, Gordon. Thank you very much. Our next question is From Paul Sullivan of Barclays. Your line is now open. Please go ahead. Yes. Good morning, both. 3 for me to kick off with. John, I can see the positives of simplification, but what about the risks in terms of execution? And how can we judge But you aren't sort of cutting too far. That's the first question. Secondly, can you quantify the net COVID impact on profits last year? 3. I mean, the drop through, we know is very high, but I wonder if you can just quantify that. And how quickly do you see That coming back. And then on M and A, €400,000,000 of sort of new proceeds from Out of with €700,000,000 of revenues, seems rather unambitious. But could you give us some color on profits associated with the assets earmarked for disposal, maybe breaking it out between the 2, the 2 200,000,000 buckets. Thank you. Paul, good morning. Thanks very much for the questions. I'll let Gordon address the second and third, but let me address The first one, look, this has been a process of transformation, organizational change, Fixing contracts, bringing in talent, taking cost out that I would suggest this leadership team has had a pretty strong track record on The last 3 years. And frankly, what we're about to embark upon is more of the same. We did this back in 2018 when we defined CapEx's first operating model, we called it the blue book. This is the next iteration of that document. We have a leadership team, Several members of which are very experienced at doing this. We understand the risks and obviously we're taking action to mitigate those. But I think Fundamentally, this is the right client centric operating model that we should now be migrating to. When We put the operating model in place 2 years ago. It had different objectives. It was about getting a grip on the business. It was about putting controls in place. 2. It was about fixing contracts. It was about putting the right talent into functions and driving competencies. We've done that ticked. We now need to inflect to accelerating growth, and that is why we're making the change. Paul, in terms of the profit impact So COVID on divisional sorry, and then sorry, on the business. We have explicitly not tried to allocate the impact Due to the amount of transfer pricing within the group, however, we did draw attention to the fact that we believe that in revenue, which is much easier to estimate, The effect was about 5% in terms of 5% loss revenue. I would, however, draw your attention to the Summary of financial performance life of other divisions where you can clearly see the impact on Specialist Services and Government Services. Those would be the Air is most badly hit, so you can probably come to a reasonable view, but we didn't feel comfortable giving our I feel like an authoritative And I'm sorry, the third question on proceeds, could you repeat that one, please? Yes. I mean, You're targeting €400,000,000 of new proceeds with a revenue base of €700,000,000 and it doesn't seem it seems rather unambitious. I mean, what does it imply in terms of the profits coming out of those assets? It's maybe split between the 2 buckets that you've talked about, the 200,000,000 Going in this year and €200,000,000 sort of next year and beyond. Sure. As you can imagine, it's always Giving an estimate of sales proceeds is always fraught with difficulty in the public forum. And I think historically, Capita has actually done better than expected in proceeds. I think it's fair to say the market was disappointed When we sold ESS for less than what the market had been anticipating. So I think you could argue sorry, it's possible to argue that We are we have learned a lesson from that. And there are a number of different businesses there. And end of day, Several are already underway, and we're probably better informed on those ones. And others will be dependent, to a certain extent, on recovery. So I'd say we're being Reasonably cautious. And can you quantify the profits generated by these assets? No, that's not something we have disclosed. Okay. Okay. Thank you very much. Our next question is from Thomas Beavers of Stockfield. Your line is now open. Please go ahead. Thank you. Just one question on shared services. On the face of it, it looks relatively fixed at €130,000,000 What confidence do you have that as you dispose of the non core businesses that you can manage that down in line With the lost profit from those disposals. And then just a second question on restructuring costs 110,000,000 as mentioned. That understand that, that continues out into FY 'twenty one. What gives you I just wonder if you could give a bit more color on what that actually consists of now And why you have the confidence to say that, that drops off in FY 'twenty three? Thank you. Thomas, let me address the first question and then Gordon will address the second. Look, I think our track record in getting cost out of this business, and I gave the numbers in my prepared remarks, is pretty strong. And as We scale the business to the 2 core divisions. We will take appropriate actions to ensure we have the right cost structure in place. The other thing one has to remember, of course, is that a good many of those shared services might very well be required for the acquiring entity as well. So some of them Might very well go with the businesses we're disposing of. In terms of the cost savings, some of that 80 for like has already been achieved and is flowing through from the current year. So it is a year on year. So some of the savings that are identified for FY 2 part sorry, I beg your pardon, for FY 'twenty one. The actions took place during 2020 and therefore the full year impact of those that still have yet to feed through. And I think that's how it's in one of the slides in the presentation. The balance of savings will come from continued operational excellence and improvement, I. E, doing things better structural optimization and simplification, I. E, efficiency and overhead So for example, property costs, we are addressing our property portfolio, as you can imagine. We've made really good progress there and continue to do so. We are beginning to reap the benefits of the investment we're making in technology, whether it be sales force, whether it be And we continue to address Griffin overhead costs as well, particularly in areas such as procurement, Where we are, I think it's fair to say we are increasingly having a more joined up approach, but there's still some more room to go. So those are the sort of the main areas, But we are pretty confident that we can achieve so and part of that by the way, part of all of those running through that It's just the addition of the overall complexity of the group and looking at spans and layers of the organization. We still have although we've made fantastic progress over the last 2 years, there's probably still more that can be done in reducing the number of layers and indeed Our next question is from Christopher Bambury of Peel Hunt. Your line is now open. Please go ahead. Good morning. A couple of areas You've said also you're planning to return to organic growth this year. What gives you the confidence to make this statement? And I guess, behind that, what are the key building blocks in terms of the unwise and the impact If COVID contracts already won and contracts to be won, and do you expect to deliver organic growth in H1? And secondly, what level of margin would you expect the 2 new core divisions to deliver over the medium term? Thank you. I'll let Gordon address the second, Chris. Let me address the first. Look, we've been Investing very heavily, as we said in the prepared remarks, in rebuilding trust with our clients by delivering on the scopes of work we currently had with them. And that of itself has now created star more opportunities for us going forward than we had historically. And that manifests itself in the numbers. Let me just run through for you our book to bill ratio from 2019 to forecast 2021. Our book to bill ratio in 2019 was 0.79. Back end of last year, it was 0.94. This year, we're forecasting to close the year with a book to bill ratio of 1.32. So a very consistent trend there in that key metric. We talked earlier on about the $3,100,000,000 in TCV we closed Last year, if I look at our performance on total contract value year to date and forecast for the Q1 this year And in your revenue, we're seeing healthy trends. And let's just take government services and our current organizational structure. We closed about $850,000,000 in TCB in Government Services last year. We're on track this year to do more than double that. So, yes, we fixed relationships. We're now delivering for our clients. We're more specific with regard to our client value propositions. We're more aligned to the specific needs of our clients and the markets we serve, and we're now starting to see that reflected in order book, our book to bill ratio, our INU revenue and our TCV. Now offsetting that, of course, this year Will be the speed with which our transactional businesses recover from COVID. We were anticipating that to be a Q1 effect. It's probably likely to be a Q1 and Q2 effect, but we do not believe that will be sufficiently great to prevent us from delivering for the first time in 6 years at least organic growth in 2021. And in terms of margin, I think the guidance we would give is in line with peers. Thank you. And Chris, remember, we've been very consistent throughout this transformation that we are targeting low double digit margins. We're migrating up the value chain into more BPS, BPAP services to achieve that. We've been extraordinarily disciplined In terms of the scopes of work we've bid upon over the last 3 years and the margins that they can generate. And I'll remind the audience that the average bid margin over the last 3 years has remained around 10%. So all of the new work that has been won since we started the transformation Is in the margin ballpark that we're gunning for. It's dragged down today, of course, by ongoing fixing of legacy contracts and investments we've had to make to deal with historic legacy issues. Thank you. Thank you. Our next question is from Sasini Varanasi of Goldman Sachs. Your line is now open. Please go ahead. Hi, good morning. Thank you for taking my questions. Just 2 for me, please. It's clear that the big pipeline is seeing good strength. Can you give some color on the key opportunities that you see coming up over the next 12 to 18 months? The second one is 2. On the consulting led sales approach, I think you've given some color in the presentation. But over the medium term, can you discuss how you see this changing in the revenue mix 2. And importantly, adding to margins as well. But from what I understand, this is much higher margin business compared to even the 10% the big work that you have achieved so far. So in terms of Cecilia, good morning. Good to hear from you. In terms of contract opportunities, I think the most significant ones That we're bidding on currently are in government services. We were and I didn't talk about this in the prepared remarks actually quite successful last year In terms of getting ourselves on to government framework contracts, the key one of which was the Kerst framework in the Department of Works and Pensions. We've already won the scope of work on that in Scotland, the Jets contract, which we're now executing well upon. And we have literally in the last few days submitted bids on several £100,000,000 worth of opportunity on the restart contract within that division as well. There are other significant opportunities Coming down the pipe within government services beyond that as well as growth in existing contracted work. So for example, we Fully anticipate that on the back of strong delivery on Selborne, which is the Royal Navy training contract that we will see Additional revenue opportunities over the course of that particular contract. In our customer experience business. We have opportunities with Lloyds. We have opportunities with NatWest. We have the renewal of the AVEVA scope of work. We have opportunity with British Airways, a much healthier pipeline, as we mentioned earlier on, Than we've had at any stage in the transformation. And I'll remind you of the figure we cited, which is that our unweighted pipeline is at €7,500,000,000 year on year. Cecilia, I think you had a second question as well. You need to remind us of that please. Yes. Thank you. It's on the consulting led sales approach. From what I understand, this business has done really has done It's been resilient in 2020. How do you see this adding to growth medium term and importantly also adding to margins? Because from what I understand, this is much higher margin business compared to your core revenue. Well, its impact on the overall business is going to be small over the course of the next couple of years. I mean, it is strategically important in that it changes the kinds of conversations we have with our clients And it creates opportunity for bigger contract pull through. But the revenue numbers, I mean last year, we closed around $30,000,000 in TCB and consulting. It's a relatively small number in the context of Capita as a whole, but it's strategically important because of the conversations and the pull through. On margins, 2020 was an investment year for our consulting business. This year, We expect that business to turn a profit for a number of reasons, not least of which is the fact that we have been able to go in and negotiate renegotiate the rates on some of the scopes of work, again, on the back of the value that we are delivering for a number of our clients. Thank you. Thank you. We have a follow-up from Christopher Bambry of Peel Hunt. Your line is now open. Please go ahead. Thank you. Given Axolos is 49% owned by the Cabinet Office, does this complicate the disposal process? And secondly, the interim she talks about washing out legacy contracts that Capstead doesn't want to participate in. What's the flow through from 2020 The delightful second question, I'll punt to Gordon, but that's not an easy question to answer. The first part, as always, we have an extremely strong Partenereal and collaborative relationship with the Cabinet Office, not just in our conventional scopes of work, but that extends to The partnership we are enacting for the sale of Axolos, so no additional complication there whatsoever. What a challenging question you've asked for the last one. To be honest, I can't answer that. What I can say is numbers are reducing Significantly. And on those contracts where we previously have had poor margins, We have been renegotiating on improved terms and that's probably by 2nd quarter or 3rd. Yes. I mean the only thing I would add is We have material in the deck which shows the significant reduction in what we call cost of goods quality or service credits As we've improved our execution on our challenging contracts, it's down 80% over the last 3 years, 1. Such that those 3 of those contracts will not be loss making at a P and L level in the course of 2021. And that's Mobilecom, Debitel, that's our RPP contract, as well as PCFC. Thank you. We have a follow-up from Thomas Beavers of Stockvue. Your line is now open. Please go ahead. Thomas, you may be on mute. Thomas, your line is open. Please go ahead. Yes, sorry about that. Just one point of clarification on the £400,000,000 of further disposals. Does that assume that everything that we see in the non core Portfolio business is disposed of. And then a second question, that €200,000,000 I think you've earmarked for this year. The additional €200,000,000 is Expected in 2023 or might that take longer? Thank you. So your first question, no, it does not include All of the businesses in Capitur Portfolio, there will be additional businesses we will dispose of in addition to the numbers that we cited, and I'll review those numbers again in a minute, Christopher. You'll remember that things like our travel and events business, our enforcement business have been Very significantly impacted by COVID. And we're naturally going to want to wait until those businesses recover before we dispose of them. And that may be both of them in the first half of twenty twenty three. In terms of proceeds, it's $700,000,000 in total. We've already realized $300,000,000 of that from the disposal of ESS, cash received in January. We will dispose of an incremental 200 this year and we have 3 processes that are well underway in that regard And then an incremental 200 in 22. Perfect. Thank you. You're welcome. We have no further telephone questions. And as we believe the online questions have been addressed, I will hand back to our hosts. It just remains for me to thank everyone for their interest in Capitur this morning, and I look forward Gordon and I look forward to catching up with many of you over the course of the next several days. Thanks very much.