Right. Good morning. Hope you enjoyed that wonderful video with the highlights of what has been another interesting, challenging and very busy year for us at Capita in 2025. For those of you who haven't had the opportunity to meet, I'm Adolfo Hernandez. I'm the Group Chief Executive. Today, even though I have a number of colleagues on my executive team, the only one who's gonna be presenting is Pablo, our CFO. We're gonna be taking you through the 2025 results, but also we're gonna give you an update on the operational progress that we made and the strategy. Then we'll go through both of them, and then we'll go and take some Q&A.
Please have a look at the disclaimer at your leisure while I just flick over and let's just get quickly started with a little bit of a summary. If you were here in a similar room about two years ago, you might remember that when I joined, literally just over two years ago now, I was very clear about the size, scale, and complexity of the transformation we were facing in Capita. It was a business that had lost focus. It was a business that was carrying too much complexity. At the heart of it was a business that was generating a lot of social value, but it had failed to sustainably translate that social value into economic value. That was my thesis two years ago.
We set out quite an ambitious plan to do a deep root and branch transformation of the business that would allow us to get the good Capita into a better Capita that was able to translate the value that we provided every day, improve it, but also translate it into financial outcomes. We set out on a Capital Markets Day on what we call our Four Betters strategy. It was about building this better technology at the very core to enable everything else that we were going to be doing in the company. We talk about better efficiencies to make us a simpler business, a lighter business, more profitable business, more competitive business.
Translate all of those to the technology and the efficiencies into a better delivery, better for our customers, delivering better outcomes, and in the process of doing this, working with our colleagues to build that better Capita. That was the journey. The journey is still current. I think, let me just say this from the outset, 2025 has been a critical and pivotal year in terms of our journey to get there. We are way closer than we probably thought we would be at this time, two years ago, but we haven't finished our job. There's still a lot of work to do. There are some areas in our business, as you're going to see, that still need attention. If you look at the biggest feature, we're actually doing really well. Let me just go through some of the specifics.
Let me just take you to them in that sequence. Let me start with technology, because when I stood up here two years ago, having joined from a hyperscaler, my thesis was, and a deep belief at the time, is that this new wave of technology that we've been blessed with had the potential to fully transform society and businesses all over the world. If you look in a sort of micro into our business process outsourcing, everything that had to do with business process outsourcing could and should be at the forefront of that AI transformation. We got going very, very quickly because we believe that the combination of very complex workflows and managing processes and process expertise and automation and mixing it really well could really be our competitive advantage.
We really got going, and as you will see through the presentation, AI is no longer a vision or a concept inside Capita, but it is a reality. I'll give you some numbers about the agents that are already been at work. I'll take you through some of the examples. This is happening today. That's really important. We've also built hyperscaler partnerships. Not ticking the box partnerships. Not we buy from them just partnerships, but partnerships that are intentional, that are strategic, and that they are long-term. Each of them has been designed to attain a particular area of differentiation somewhere in the value chain. I will be taking you through those. Two years on, we've made a significant amount of progress there.
We've also moved the business significantly to the cloud, and that continues to be a key priority for me. We need to get that, what I call cloud age, thinking in how we deploy systems, how we manage systems, how we provide for security, confidentiality, and really well, how we run operations internally. Then crucially, we have taken all of this technology, and we have managed a unique way to deploy this technology in very complex real-time workflows that are run in society and do that in a responsible, governed, and secured way with the judgment of a human-in-the-loop the whole time. This goes way more than just selecting. It's just sort of selecting and figuring out how you actually make it work in reality, and we've done that.
That technology piece actually underpins all the others because it has enabled us to go much farther and faster on cost efficiencies, where we're pleased to report we achieved our GBP 250 million stretch target. That obviously has been cascading through with our 140 basis points improvement in operating margin and taking us as a group to 5.2%. There are parts of the business that are already at or significantly above our expectations. Like we look at our Public Sector business, that is already sitting at 8.3%. From a delivery perspective, just a couple of things. We have to look back, and we have to look forward. Why, what do I mean by looking back? We had a lot of longstanding legacy issues that we had to work through.
We had an issue that was a decade-plus old around closed book life and pensions that we finally found a solution for at the end of 2025. We had an outstanding process ongoing with the ICO since March 2023. It was really important to be able to bed those things that were costing us not only money, resources, but a lot of management time, and it's actually made the company now a lot leaner, clearer, and much easier to predict. When I talk about looking forward, looking forward in delivery is looking at what is it that you're building, what are the size of your pipeline, are you growing the pipeline? Or most importantly, are you converting the pipeline in the right places? Are you converting it at the right margin?
I think if you look at the size of our pipeline, that nearly doubled to GBP 20 billion. The size of our total contract value closed in the year, up by 36%. Our win ratio now nearly doubled to over 60%. Our Net Promoter Score, our customer Net Promoter Score continues to improve through all these changes, through all of these difficulties. We have the highest ever customer Net Promoter Score since we started measuring in 2018. From a delivery perspective, I think all of my colleagues in Capita will be very proud for the work that has been done and has been achieved. As a whole, we're building a better company. It's a lot of change. It is very taxing for our colleagues. Continues to be reorganizations, realignments of management, changes in how the work needs to be done.
A more pervasive introduction of AI into everything. Change is the constant. Throughout all of this change, employee engagement continues to stay at high level, and we're seeing improvement in employee Net Promoter Score. I cannot thank my colleagues enough for the great work, the patience, and the dogged determination to help us turn this business around. Pablo is gonna now take us quickly through the financials, and I'll be coming back, and I'll be addressing some of these topics a little bit later, and then we'll do the Q&A. Pablo, please.
Thank you, Adolfo, and good morning, everyone. As Adolfo has said, 2025 has been a pivotal year for building that better Capita. It's not only that we made tangible progress against our strategy, but we actually delivered a material improvement on our financial performance. Before I start with my slides, though, a reminder, numbers and representation are prepared on an adjusted basis unless otherwise stated. Adjusted basis now includes our closed book life and pensions business within business exits after the hand-back agreement we reached in December with Royal London. Starting with the financial highlights of the year, what this slide shows is that we delivered broadly in line with the expectations we had set. Margin, profit, and cash conversion all improved materially year-on-year, reflecting the delivery of the cost reduction program and strong execution in Public Services.
Looking at revenue, we have seen strong growth of 4.5% within Public Service, reflecting contract wins and growth in a number of key contracts. This division is now two-thirds of the group adjusted revenue. However, this growth was offset by a 7.5% decline in our Contact Centres business. The group's operating margin increased by 140 basis points, reflecting the in-year benefit from the cost reduction program and improved contractual performance in our Public Service business. Profit before tax improved by 84%, reflecting improved operating profit, reduced depreciation from a reduced property footprint, and reduced financing costs. The group's cash conversion improved to 74%, with a material improvement in our underlying cash generation and solid cash conversion in Public Service business, while we invested in our Civil Service Pension Scheme contract.
Our free cash outflow halved to GBP 54 million outflow, and it includes GBP 53 million outflow related to the cost reduction program, as well as the GBP 40 million settlement with the ICO, which obviously leaves us in a very solid position to deliver positive free cash flows in 2026, as we had promised. Moving on to the reconciliation between adjusted and reported. Business exits of GBP 102 million includes the exit agreement we reached with Royal London in December, where we agreed the hand-back of the last evergreen loss-making contracts, resolving one of the largest legacy issues of the group. Goodwill impairment is wholly related to the Contact Centre business. Where despite the progress they made in cost savings and improving the competitiveness of our offerings, the business has seen continued contract losses.
Financial performance on the Contact Centre is not where it should be, and they are expected to remain loss-making in 2026, even if we expect an improving profit trajectory during the year. We continually assess all options to improve this business and to maximize value for our shareholders. The cost reduction program line includes the GBP 56 million invested in the year to fully deliver the GBP 250 million cost savings program. The cyber incident line mostly reflects the P&L cost of the settlement with the ICO. Moving on to the group's cash flow. Operating cash conversion has improved to 74%, reflecting strong cash conversion and favorable timings in Public, partially offset by increased contract fulfillment assets in Pensions, and other includes mainly termination of leases and payment of provisions. We have continued to make progress in reducing the structural headwinds on cash conversion.
We expect deferred income headwinds of around GBP 30 million this year on working capital, reducing thereafter to become a more normal business. The cash flows for the cost reduction program and cyber are also including low operating cash flow, and cash generated from operations excluding business exits was GBP 73 million. Continuing with the remainder of the cash flow and net debt movement, CapEx has remained broadly consistent with the prior year, reflecting our continued investment in contract delivery and our cyber and data capabilities. Interest was probably in line with prior year and lease payments reduced by GBP 7 million, showing progress on our property rationalization contract. All of this resulted in a free cash outflow before business exits of GBP 54 million.
Our net debt increased reflecting the cash outflow for the year, and we continued making progress reducing our lease footprint, reducing by over 10% our net lease debt year after year, in line with our guidance. Moving on to the group's liquidity position. As mentioned previously, in July, we extended our RCF, and in February 2026, we entered into a GBP 75 million committed facility that gives us ample liquidity to manage upcoming maturities. Our financial net debt to EBITDA at year-end was 1x, in line with our target range. Moving on to the business and starting with Capita Public Service. This is our largest division and has delivered strong improvements across all metrics. We are pleased with the progress made, and we are well-positioned to deliver further growth with our AI-enabled BPO strategy.
Revenue grew 4.5% with continued momentum from the divisions' strong H1 performance, reflecting the analyzed benefit of go-live of prior year contracts won, as well as additional extension and scope expansions, enabling AI solutions with our strong customer base. Operating margin improved by 190 basis points, reflecting the revenue growth and the related profit flow through, as well as GBP 43 million of in-year savings, allowing us to reinvest on our AI solutions and mitigate the National Insurance contribution increase. Cash conversion was 89%, reflecting our strong cash generation during the year and some favorable timing on receipts at year-end. Let's turn to the page with key achievements from the Public division. 2025 has been a strong year, both financially and operationally. We had award-winning performance in army applications, and we made great progress in our HAAS contract.
We have also seen significant growth, including TCV1 of nearly GBP 1.2 billion, as well as a number of contract extensions that allowed us to deploy innovative AI solutions. We have seen strong delivery on the contract within the division, and this is reflected by customer NPS increasing by 9 points to 37, and consistent operational KPI performance at 93%. Finally, the division has delivered improved efficiency driven by our Catalyst Lab, with a number of successful rollout of agentic assistants, including those in our HAAS contract and our TfL contracts. Moving on to the Contact Centre. Revenue declined by 17.5%, reflecting lower volumes in our telecommunications vertical, contract losses within the division, and further offshoring to our new service delivery centres. We delivered almost GBP 50 million of cost savings during the year, but these were only able to partially offset the impact of volume reductions and losses.
We have made good progress with our existing customers, delivering a compelling product with AI solutions and excellent service delivery centres in South Africa and India. We have a number of structural issues that we are addressing, such as around GBP 10 million losses in Germany, approximately GBP 50 million of P&L costs of underutilized properties. The need to accelerate growth with our refreshed product offering. Moving on to pensions. Revenue growth was 4.5%, reflecting indexation and expansions of existing contracts and the go live on the Civil Service Pension Scheme in December. Operating margin increased by 30 basis points, reflecting the growth I've just mentioned, as well as delivery of our cost reduction program, offsetting the reduction of interest rate income.
Cash conversion halved, reflecting GBP 26 million invested in building the Civil Service Pension Scheme solution, of which GBP 10 million is expected to be recovered over the life of the contract rather than through milestone payments. We also had the delayed timing of a GBP 5 million milestone payment, which slipped to the second working day of 2026. Without these last two elements of GBP 10 million and GBP 5 million, cash conversion would have been around 90%. Now moving on to the outlook. First of all, we are still expecting to deliver positive free cash flow in 2026 of between GBP 20 million and GBP 40 million, which reflects the non-occurrence of the cost reduction program and the ICO settlement. On revenue, we expect to see low single-digit growth with good growth in Public and Pension Solutions, offset by continued declining Contact Centre.
In margin, we expect to see a small reduction reflecting the challenges faced by the Contact Centre and the mobilization of large contracts won in Public Service and Pension Solutions that were well priced and will deliver good margins and cash in the future. We expect cash conversion to be between 70%-80%, underpinning our positive free cash flows in 2026. In terms of phasing, we expect revenue margin and cash to improve, particularly in the second half as we make progress in the turnaround of the Contact Centres and mobilization costs in Pension Solutions reduce. With this, I will hand over to Adolfo for him to continue.
Thank you, Pablo. All right, with that backdrop on the numbers, let me just quickly take you back, give you a little bit of context on the journey, we started two years ago. I think, going back to the theme of the introduction, I made a very conscious decision that I wanted to be decisive right at the beginning. You might remember, me talking about the three waves that we were going to use to drive this. There's gonna be an initial wave around creating space, right, which is the cost efficiency phase. There was going to be another wave that was around fixing the basics and getting our innovation, how we operated, and just sort of really effectively getting us to do the right things the right way.
There was going to be a third one that was around building the future that would be both the operating model but also our growth strategy. That was the sort of big three waves that we got there. I think as you can see there, we're tracking nicely against all three. We've probably done most of what we wanted to do on the first one. We're attaining our GBP 250 million savings, being able to reinvest GBP 50 million to just really give us the capabilities that we needed into both the fixing the basics, all of the innovation work that we've done around AI, the work that we've done around our teams, culture, principles. Now we are moving more of the focus toward the right-hand side of the chart, right?
You're starting to see more of us looking at building more simplified operating models, building further an agentification layer to run the business, and you're starting to see more and more of the work that we need to do in terms of reshaping more value propositions. This growth that we are seeing in the business and this growth in pipeline, this improvement of win rates, this improvement of conversion can continue farther into the future. That has to be looked at in the context of the market. It is a market that if you look at it in Europe, it's a GBP 50 billion business, and we're roughly from pretty much zero in 2023, it went up to 20% in 2025. That's the sort of the AI penetration.
That is what components of the existing services business had a flavor of AI inside. Which is very, very unique to have seen such a big jump of that scale so quickly. It's actually, if you sort of look at it farther and you fast-forward into 2027, so a couple of years out from now, we're expecting that to be 50% of the market. What does that mean really? This is. You could think, well, they're big numbers. What does it mean? There's a number of implications. Number one, people-only services will continue to exist. Right? There's still significant parts of the industry that are highly analog and physical, so we shouldn't discount that we're still gonna have people-only services. However, the mix is going to change.
There is going to be more and more introduction of AI technologies, automation, and data facilities to make those people-based services more efficient. This area of what I call the new hybrid. Whereas maybe over the past decade, it was really easy to say, "Well, this is a people services opportunity, this is an IT services opportunity, this is something else, consulting or integration." Everything is blending now. We're starting to see more hybrid outcomes that are being sought. That requires a number of things. All the delivery mechanisms have to be adapted in companies. What you go after has to be sharpened, so the whole go-to-market model needs to be readjusted so that you're very clear as to the type of opportunities you're after. The tools and mechanisms that you use to convert those opportunities need to be adapted.
Most importantly, and crucially, the teams need to be educated. It is an important, huge skills management and change management issue to go and take advantage of that. For a company like Capita, this really means that we have to be now able to orchestrate outcomes, not only based on people that are deployed in processes, not only managing tech, but now having to orchestrate across different pools of people, different pools of systems, different pools of data, and provide an orchestration that is secure, that is real, that is being deployed into very complex workflows. The nature of how we do things is gonna be changing. It's actually already changed a lot in the last couple of years. Now, some people would say, "Well, how do you sort of differentiate?
What's your value proposition?" I get a lot of time being asked that question, so I'm just taking a little bit of time to sort of take you through this, because I think it's a fundamental point on the Capita strategy. A lot of people think that, oh, getting this done is basic automation. You just get a few tools and just get a little bit of GenAI tools, and that's it, that'll do it, because the world is simple, all the workflows are straight, and there is absolutely nothing else but happy paths. Let me tell you something. We do this for a living, whether it's revenue operations, traffic management, dealing with vulnerable customers, doing advanced bespoke training for forces, doing emergency services, recovering debt. There is one thing we've learned, is that processes are not simple. Processes are super complex. Processes have a lot of unhappy paths.
The reality is that you need to have the skill and the ability to orchestrate all of these complexities, to orchestrate across all of these different systems. Because our customers' infrastructure is not built on one single system, is not built on one single data lake, is not built on one single application, is not built on one single agentic fabric. Our role as the master orchestrator of outcomes who understands the nuances in day-to-day, complex, regulated, mission-critical environment is second to none. The ability to have always human judgment in the loop is not only nice, but is an absolute must in the industries that we serve. It might not be in others, but in the ones that are relevant to us, it is an absolute must. All of our accountability, security, and human-in-the-loop judgment is critical.
The next question sometimes becomes is like, okay, where do you invest? Right? Everybody. How can you keep up? Everybody's investing so much. You know, if you tally it all up, we've seen you know, the next couple of years, you know, north of $1 trillion in investment in data centres, in LLMs, in applications. Everybody's going crazy. How are you going to keep up? Well, we're not, because we don't have to. Our position in the value chain is that we get to understand what it is that everybody else is building. We get to test it. We get to see what it's good for, what is the real applicability in real customer environments. We get to orchestrate it, and then we will get to build a solution for a customer, real-world problem, selecting whatever component is out there.
For me, this is not a competitive threat. For me, this is a blessing. All of this is available for free. I don't have to invest hundreds of millions of GBP in CapEx. We've got the innovation click and pace of hyperscalers, which we do not need to build in Capita. We've got the ability to combine all of this beauty with our colleagues and train them and deliver those absolute outcomes. The integration of those components safely in a governed way is an absolute differentiator. That will take us into creating a different value architecture. On the hyperscalers, I talked at the beginning about different ways of being with the hyperscalers. I was in one.
I know how value is created, and I know how people just go and get a tick in the box so that they can put it in the slides. In my time at a hyperscaler, I learned very quickly that value is only derived if you go all in. There can't be plan B. That's exactly what we've done. We have been very intentional, extremely intentional about who do we do what with and at what cost, and where do this goes in the future. Then you can read there the, you know, the great progress that we've had with all of them. I'm extremely proud and thankful and appreciative of the partnerships we're building with these hyperscalers.
The amount of work that we're doing up front to enable some of this, to build the pipeline, to test the solutions, to do the prototyping, to help us really bridge that gap that they have from standard, extremely advanced, nevertheless vanilla technology. For us to be the last mile to take them into these sort of very complex, very nuanced business processes and workflows. That's kind of where we're doing that. We're actually seeing a lot of really good results. The most important thing is all of these things work together are underpinning our competitiveness, are underpinning our value proposition, are underpinning our ability to intercept new deals in the market, grow the pipeline, and actually address it, because that will get enhanced by everything else that Capita is really good at.
Understanding the contracting, understanding the process, understanding the onboarding, the mobilization, all of these very nuanced things. The question you might be saying, like, "How are you doing this? How do you bring it to life?" Right? This is like a big undertaking. Well, our innovation team came up with a contract, this year in 2025. By the way, doesn't mean to scare you, but there's no way to simplify it. Just keep it there for reference. Just sort of mind my words here. This is a catalyst. Like, this is. Call it the Capita agentification engine. This is different in two ways. This is not born out of tech looking for a solution. This is born in the business process. The first thing that we do is we observe our customer's business process.
We understand the business process, and we figure out what are we trying to solve here. Where is the opportunity? Where do we have bottlenecks? Where do we have inefficiencies? What needs to be addressed? We work with our customers in defining that business process transformation. We'll come back and understand that there are a number of things that will need to be built, and then we will go and build it, whether it's low-code, vibe coding, pro-code. We will go and build the orchestration that is required to deliver that business process. Once you've done that, you need to integrate it, and we'll have an integration layer, and then you need to run it securely on a data layer. What is unique is, as I said, number one, it starts from the business and it goes down to the tech.
The second thing that sort of makes it unique is that it's 100% flexible and open in every layer. We don't have to stick to one particular vendor, one particular hyperscaler. We can choose who is best for what at a given point in time, and everything is totally portable. Some of you have been asking me, "Well, you know, that's really great about tech. What about people? How are you managing all of this with people? How do you get that innovation happening with people?" For that, at the beginning of 2025, we actually built our innovation engine. Right? It's the Catalyst Lab. Right? We have the agentification engine, the Catalyst Stack, and we've got the innovation engine, which is the catalyst.
What a catalyst does is creates a agentified way for everybody in the organization who is a specialist in a business process and who cares about improving the outcome to send an idea. If I do this, we're gonna deliver a better service. If I do this, we can save some cost to serve. If I do this, we can save our customer money. If I do this. We've had over 400 of, "If I do this," bottoms up, specialist up. This is not Pablo and I figuring out where we add value. This is coming all the way up. Then things get understood, prioritized, validated, tested, deployed, and scaled. There's an absolute process that we've got. As I said, we got these 400 ideas, now we've gone into 40 pilots. That's how long in nine months.
We've already got 12 solutions coming out of that. You've got a number of examples there of which customers this is working. This is, it's just the hyperscalers. It's understanding the hyperscalers and understanding how to deploy. This is where the Catalyst Stack comes from. Getting the organization, this is a 30,000 people organization, to figure out how they can add value to their customers through that. The result is there to be shown, right? You look at it. AI is no longer a concept. It's not a vision, it's not a strategy, it's not. Yeah. It is a reality. It is really happening. We are industrializing slowly but surely. We're not done. It's not everywhere. It's not to the intensity that I would like, but we certainly moved the needle significantly in a short period of time.
As you can see, we're doing it across all the areas where we operate, the front office, the middle office, and the back office. We've got real solutions in each of them that are happening. Most importantly, as we go and see how much of this is pervasive in our opportunities, we actually now are seeing it's about two-thirds of our revenue contains elements of this in the solution. I would expect this to continue, because what this is actually doing is creating a new shareholder value created model for a business process outsourcer. This is how a traditional business process outsourcer operating a lot on high OpEx, high CapEx, very much FTE-centric only solutions where everything is manually done and hard-coded to a particular process that tends to sort of run to the bottom.
How does it move to a very different model where the cost is variable, where you get to be more outcome-based, and where you actually can move from legacy and you can have sort of real-time rewriting and recoding of business processes? Capturing value in real time rather than capturing value every time you deploy a new application, that normally they tend to be dated and invaluable by the time you do that. Moving from an FTE-based sort of model and to a human in the loop. It's a very different one. We do believe this is fundamental element of our strategy. It has impacts on our efficiencies, it impacts on the quality of what we deliver, how we deliver it, and also the type of company that we're building. Some of the proof is in the pudding, right?
If you look at a number of the metrics I've already covered, customer Net Promoter Score continued to improve to an all-time high. Whether you look at our pipeline growing, our conversion growing, our win rate growing, and you look at the progress we continue to make as we have started to deploy this strategy in each of the divisions, it's there. That was a good set of 2025. Just sort of pointing out that we also had a good start to 2026. Now, it would be disingenuous for me to stand up today and not comment on the Civil Service Pension Scheme. I just thought I'll just take a couple of minutes and update you on what it is.
I think it's really important that I start by acknowledging that. Okay. No?
Go ahead, you passed it.
All right. Okay. All right. Both of us touching it. No, it's not there.
Keep going. Go forward. One more line. Yeah.
There we go. Thank you. It's in the wrong sequence, but minor detail. Let me start by acknowledging that the civil servants are not getting the service and the quality and the attention they deserve. That is bad, and this is something that we're truly sorry for. While we do not have originated all of the problems, I have made it my personal priority and the company mandate that we will own the resolution. This is something that we are totally committed to address and fix to give the civil servants the attention, the service, and the quality that they work so hard for. I also wanted to sort of talk to you about when we took over in December, this was already a very deteriorated project and service.
There was a number of things which has ruined that. I'll probably just give you one example. Ahead of us taking control of the project in December first, we had to step in and process a payroll run ahead of our start in, because otherwise it wouldn't have been possible for civil servants to get paid in November. We had to put our machine in there, the service of the civil service, so that the civil servants could process that last payroll run from the previous delivery. That sort of gives you an idea. It is public knowledge that they had a significant number of disputes with the workforce, didn't have union recognition, and there was a lot of industrial action, which is something we have addressed ahead of taking over as well.
The backlog that we inherited was nearly 3 x the normal numbers expected. There was 12,000 members that were owed money. There were 15,000 inbox emails from members that were unopened and unread. Each of them is a case, each of them is a difficult situation, each of them is people in difficulties. The data quality that came across was poor. We had 20 million data sets either missing, or wrong, or incomplete. Now you might think, "Well, is that complex?" Well, if you think about it's 1.7 million members. Every member has 100 data points, and they can be touching 50 different processes. Now, I'm not expecting you to do the numbers here, but that's about 70 million possible combinations. It does matter. A lot of people decided to call on day one.
That sort of collapsed our infrastructure and we've been working really hard in partnership, and I cannot stress that enough, the support and the partnership from the Cabinet Office to jointly work on through these issues. This was always going to be a two-stage go live. It was going to be December and March, and obviously we're sort of caught through the volume, the complexity of the cases between December and March. We now have over 90% of the calls being responded to and addressed within 30 seconds. The portal issues have now all been addressed, and there is huge amount of effort and focus that we put in with our colleagues of the Cabinet Office through February to address the urgent cases. Then we've got more work to do on different areas.
We're committed also to hit our milestones in March, et cetera, so that we are in a position to address the different buckets of this complexity as we deal with it. Now, there is a question that people said rightly, "Didn't you know?" Well, there's only so much you know until you get the keys. There is only so much you know until you actually get the full access to the systems, to the cases. There's only so much you know until you get a chance to look at the data and its complexity. We didn't know the exact numbers of cases. We knew it was high, and we remember sort of sharing our fear with the Cabinet Office and with the ministers that we were gonna get a lot more cases than we were expecting. We resourced up ahead of that.
What we couldn't see, certainly, was the complexity or the longevity or the delays. A case is not always a case. There are many cases that have been outstanding for six, nine months. Very complex, very difficult situations. No, we did not know fully. We've been operating, I mean, under a crisis volume and environment over the last couple of months that has just sort of made it challenging to get there. The most important messages here, two things. Number one is we're working through it, and it's actually working now, as I said, and we are committed to get all of this to the normal SLAs.
We are committed to keep doing this in partnership with our new colleagues that have chipped in and the Cabinet Office, and we will get this to a situation where the civil servants get the service they deserve. Okay. I think this is something that we want to make true for the whole of Capita. When customers hit a problem, yes, it's good to understand where the problem originated, but I think something that Capita needs to be known for is that we will own the fixing. We will restore the quality of the outcome first, and then we will do whatever recalculations we need to do with our customers. I think that sort of explains why the tenure of our customers is so long.
You can see there that within our top 10 customers across the group, seven of them have been customers for longer than a decade. It speaks of once Capita is in there at large, we do a pretty good job. We listen to them. We take their problems to heart. We might not get it right first time. We might not always get it right, but we will do whatever it takes to get it right. That speaks, starts both on the longevity, but also on the diversification of our business across the different divisions. Speaking of divisions, just quickly, wanted to be more transparent on the Net Promoter Score because we talk about the blended. I want you to see the different businesses on different trajectories.
You can see the improvement, the marked improvement we saw last year on our Contact Centre business, improving the value proposition, the innovation, there. We see a steadier ramp over the last couple of years from our central government business. We sort of see now also an improving but more challenged opportunity from our pensions business. With that, let me quickly jump to the better company. We talked earlier about sort of stable employee engagement. We talked about improvement on the employee Net Promoter Score. You can read through all of this. I think for me, the bit that really stands out is the work that we did both on the values and the culture last year.
You can modernize the tools as much as you want. You can modernize your deliverable, your mechanisms as much as you want. If you don't manage to change the emotional fabric and the culture of the company, you're gonna be held back. In the work that our teams have done, both in the transformation teams and in the people area, to sort of drive that mental transformation, drive the culture, drive how do we get mid-management enabled, mobilized.
The training we put in there in terms of tech, the management training, the leadership academies, the work that we're doing with Multiverse in terms of AI training, it's really enabling that fabric so that whatever we do on the Capita stack, whatever we do on the Catalyst Lab, whatever we do in that level just comes into a fertile ground that takes advantage for that. You know, just really, really pleased with that. I don't think it's unrelated, but we actually have now attrition at 17%. Many of you might remember not the 21.7% of last year, but the times where this was north of 30%. We're literally half there for a while. This is a better place to be. It's not the place for everyone because of the amount of change.
If you like this space, if you like the change, if you like this transformation, there's a lot of people are finding this is a place where they can grow their careers and just modernize. Besides our financial commitments that Pablo very well captured on the financial outlook, it is clear we have work to do on the Contact Centre. I mean, that's. We have the other two groups. The businesses are humming not only from a value proposition but execution perspective. We've got good work on the value proposition and on the retention side of the Contact Centre, but there is more work to be done there. We are very committed to get that sort of sustainable cash back profit growth going into the periods to achieve and exceed our outlook.
We are going to be doing that literally through the same themes. We're going to be using the culture, our values, as the foundation on how we operate. We established a number of strategic priorities for 2026. You've got these six areas that we are chasing as a management team to go and deliver the Four Betters. That in turn is effectively gonna deliver a better Capita that is gonna be in a better position to deliver better outcomes to our customers. This is sort of progress report too after two years. I think it's been pivotal.
I think we're very happy to have exceeded and met all of our expectations, but we're very aware that there is more work to do, that we own up in some areas of delivery, but also some of the work that we need to do in areas like the Contact Centre. We're so pleased with the lap, but there's still a few more laps ahead of us, and we're committed to do that. With that, I think this is the end of the presentation, and then we can move on to Q&A.
Hi there. It's James Rose from Barclays. Thank you for the presentation. I've got two questions please, if I may. The first is on Public Service. The pipeline has doubled to a huge number. Could you talk us through what the step-up has been there? And as a leading indicator, should we be expecting strong growth from Public Sector over the next few years? And then secondly, on Contact Centre, could you talk through how you can turn around that business? I mean, I know the weighted pipeline there looks quite low at the moment. And, you know, in the medium term, if that business does continue to struggle, do you still have a long-term commitment to owning it?
Let me start with the growth, and we call it the opportunity growth in the Public Sector. In any go-to market model that you want to improve, you've got three levers, right? I think we've played all three levers really, really well. The first one is decide what you go after, right? Be very targeted, very intentional. Everything that moves is not an opportunity, and everything that is an opportunity is not an opportunity for us, and everything that is an opportunity for us might not be an opportunity for us today. Richard's team, who's just sat in front of me, has been extremely intentional on what do we go after, right? Second thing, lever number two. What value proposition do you take to market?
This is where the mix, the thesis of this presentation, of combining the complex delivery, the understanding, the workflows, the mobilization, the contracting nuances, all of that expertise that Capita always had, with the nuances of all of this sort of AI enablement acceleration, that shaping that combined orchestrated value proposition is what drives a higher conversion rate, right? You've got those two things that have actually been in there. Then obviously, you've got through the partnerships as well with the hyperscalers. You also get exposed to opportunities where we might not normally have seen this, so we get ability to opt in, and to opt out. Then there is sort of the third question is, does it automatically translate into huge growth?
I think anybody who's been in a selling to a Public Sector type business would have never mentioned huge growth. I think the Public Sector moves at a speed. It has a set of processes. It had a contracting litany, right? It's got a contracting environment. It's got some government procurement. The speed at which things get done is slower than what we use in the more of the commercial sector. Then, as Pablo rightly say, you win some of these very large deals, then you need to mobilize them. It's more of like a continuous growth rather than a hockey stick. What we see now is we have a healthy pipeline where we can be intentional as to which deals we go after with what value proposition, converting more and delivering better.
That's on the Public Sector. On the Contact Centre, remember two years ago when I stood there, I said, "Well, we missed the boat." We missed the boat over the last five years. We had a pretty good, very well-functioning voice-only Contact Centre strategy, and the world had moved on. We've been sort of catching up with the value proposition, moving from voice-only phone calls to an integrated omnichannel Contact Centre strategy. Then we began to get that omnichannel to be AI-enabled so that you can do routing, you can do sentiment analysis, you can get all these automations. Literally, we've been having to effectively do the last five years and the next five years in two. I think if you look at it in isolation, forget about the numbers for a minute.
We said for the last two years, we stopped the bleeding of contracts in Contact Centre, right? The story 2020 to 2023 was all of how customer X left Capita, how customer Y left Capita, how customer Z left Capita. I think for the last couple of years, it's been customer X has retained or have extended or changed the scope. We've actually marked change. However, it hasn't changed the fundamentals of the business as a whole. As Pablo said, there are two structural big-ticket items, and the problems in Germany and the P&L cost associated with the legacy facilities, those are making the business more complex to operate. We remain committed to the improving the operational performance, and we are going to get there.
Thank you. Hello, you can hear me. It's Kai, Canaccord. Good morning. Just to follow up on the Contact Centre question we just had. I guess from an investor perspective, the sort of patience level in terms of how long will you give the business to, I guess, break even or become profitable before you may consider more strategic alternatives for the business, would be my first question. Are we talking one, two, three years? Then the second one was just around the generative AI benefits and I guess economic value creation, and particularly the bit that accrues to shareholders. Do you have a few more proof points, perhaps recent contract wins and does this manifest itself in lower bids, higher margins, combination of both, therefore positioning you well for market share gains? How should we think about those economic benefits?
Thank you.
Okay. On the first one, Kai, we actively focus right now on the improvement of the business. I think it would be irresponsible for me to comment now in trying to predict the future. We're very aware of where the business is, and we are 100% committed to improve the performance of the business and create shareholder value. On the second question on AI and proof points, I think there was one theme in the slides that I share, is that we do not build the engines. We fly the plane, and for some customers, we actually run the airline, right? In that value proposition, we're actually seeing the value being created, certainly on cost reduction, right?
As we become leaner as an organization, we have to pass through less costs into our bids so we can be more competitive, right? From definitely the outset. Second, when we build a solution on top, the cost of the solution, the cost to serve, the cost to architect goes down because you don't put just 400 people, say. You can maybe put 50 or 100 extended by some of these orchestration, low-code or pro-code in there. So that actually gives you benefits when you are contracting, 'cause you've got a much better solution, cheaper, more innovative, and then you actually end up being more competitive. How do you see that we've been more competitive? What proof points do you wanna see? It's a higher win rate. We've nearly doubled the win rate.
We've seen 36% growth on the TCV conversion and the pipeline, okay, it's not converted yet, but it already points in that direction. Then there are different contracts. In the commercial world, we can talk about, you know, sharing the benefit in the commercial world. Then there are some TCV contracts in the Public Sector that allows you to do some benefit sharing. Profit sharing in a different way. We're actually seeing the benefits everywhere. What we don't have, and I actually am glad, I don't have a category that is called the AI P&L, right? For us, it is one engine of the plane. There is a lot more that goes into flying that plane than running the airline.
I know how much we spent on the engines, and I know how capable they are, and I know that they fly and they keep the business up in the air, and it's definitely working, as I hopefully was able to show.
James Serjeant at Singer Capital Markets. On the AI-enabled solutions, how repeatable are they across the customer base? You know, is it a unique solution to one exact customer or can it be copy and pasted across several?
There is a huge amount of repeatability. This was harder than I thought it was going to be for reasons I am glad we encountered, right? From the outside or early in my days, I thought, "Well, definitely everything can be a product." The reality is our customers' business processes and workflows are very nuanced. The cookie cutter approach that I was hoping for is not there. We've done a lot of painful but really high-quality work in understanding at a higher level order what solutions are repeatable. Now we're in a position to say document verification, fraud detection, debt recovery, online learning, AI-assisted recruitment are repeatable buckets. Whereas that 80% is common. This is what we've changed.
Back in the day, if you needed a document verification document, likely was that every system, every contract would be different. Now they will all be based on the same framework. They will all be based on the same technology. It'll be 80% the same. It's the last mile, the last nuance that will be different. I've just given you some examples of we've got case management, we've got intelligent document processing. If you think about these, as I'm sort of giving you the names, these are key business processes that our customers need to inject, and those are the ones that the Catalyst Lab is working with the divisions into productizing. It's not a product that you can put in a magazine, right? It's not that level of productization, but it's a high level of customization.
We moved away from one of a kind. I think there's one here. No.
Good morning. Chris Bamberry, Peel Hunt. I've got three questions. Just going back to the headwinds in Contact Centre, Germany, and unused leased property, could you give us a little bit more detail on what actions you're taking and what you think you might be able to achieve in the next 12, 24, 36 months type of thing? Secondly, looking at the margin guidance for this year, could you give us a little bit more granularity on the kind of building blocks? You've obviously got the annualization of the cost savings. There's mobilization costs, but other factors. Finally, in the pre-close, you talked about delays in decision-making in Public Sector. Just where we are with that now, and I guess generally, what are customers saying to you in the current economic environment? Thank you.
I'll leave the last one for you, Adolfo. I'll take Contact Centre, as we work through the different elements that we've been cleaning, it is now becoming clearer where the biggest areas to address are. Germany is a complex market, it's a complex labor market, and it's not one that you can rush in right sizing and projecting. There are two strands there. One is working on the top line and make sure that we've got the right people. Two is working with our offshore facilities, nearshore facilities that we've got serving that market, and then continue streamlining it. It's a very simple but hard to market to work through. The other one, leases.
Leases are becoming more visible as we continue our offshoring and are moving our product proposition to our new service delivery service. Leases are a complex one, but there are opportunities always in the market to restructure leases with potentially economically beneficial options for the group. Basically, lease restructuring. Those are on the table. Those we can do. Now that the company is in a place where it is generating positive free cash flows, we have more optionality to decide what we can do with them. That's in terms of Germany leases, Contact Centre, the big-ticket items there. In terms of margin guidance, it's a little bit complicated, but at the same time, if I look at it from a cash perspective, we are saying that we're going to deliver GBP 20 million-GBP 40 million.
We could deliver more, but we've got, say, GBP 10 million-GBP 15 million somewhere on in relation to mobilization costs. We've got some timing of receivables that we have this year. It's call it GBP 10 million. Like, it's not material, but in such small numbers, they matter. This year, hopefully we'll have the end of the big-ticket items of deferred income, historical provisions, and this year that will still be a drag, but all of that is going to clear. It's going to make a stronger company, and from 2027 onwards, we will start being a much stronger, clearer company. That is the way I would look at them.
Obviously, I mean, the point that Pablo's made a couple of times as well on when you win a lot of these deals, it's good news, right? And they are, and they create a lot of value. But there is obviously a mobilization phase at the beginning where they are short-term drag. So that's what we were in the guidance where we're saying like, actually, the good news is that we've won. Then for us, the good news is that we have to mobilize. There is a little bit more cost up front, is the nature of this business, but it is a very nice price to pay in the short term to get the medium term and long-term value. So I think that's probably explains a little bit of the outcome.
I think we've.
Yeah.
We've been clear enough on that point. In terms of what we're hearing from the market, listen, the situation is complex out there, right? I don't need to remind anyone of the ups and downs of most of the countries' economies in Europe, challenges what we're seeing now geopolitically with oil prices, the budget situation in the U.K. If I look at all of these, I actually see that there is a need for solutions that allow you to reduce your expenditure and to spend your money wisely. I think if you look at the value propositions that we're putting out in the market, all of them has the potential to say, "Actually, you don't need to pay 400 or 500 people anymore.
You can actually get the job done with maybe 150 if you put this orchestration, this acceleration there. You can actually get more value for your money. If you're a government department, actually, you can actually get more citizen value being delivered for whatever budget it is that you have. Yes, there are, you know, some contracts that, you know, you could have just been awarded, you haven't been able to sign. This is normal mechanics of doing business in the Public Sector. Then some of them roll over end of the period. There are gonna be payments like this payment that Pablo mentioned, you know. It landed on the second of January or the third of January rather than the thirty-first of December.
In smaller numbers, small movements on one side of the calendar year might actually make it look like a bigger issue than it is.
Sorry. Excuse me. Could you pass that down to me? Thank you. Sophia Yu. I'm from ABN AMRO. My question is on the hyperscaler partnerships. You did mention the hyperscaler-only strategy, and then give it a nuance and then, Capita's focus on identifying the correct solution for the right processes. My question is, does management view a certain sort of dependency on different hyperscaler tools? Is that a concentration risk?
No, I don't think it's a concentration risk at all. Everything that we're building is highly portable because of the concepts that we put in there in the Catalyst stack. Every one of our workloads could run on AWS, and it could run on Microsoft Azure, it could run on the Google Cloud. Everything that we're doing from a development perspective when you wanna get any agentification layer, we're doing some agentification on Azure, we're doing some agentification on AWS Bedrock, and we're doing some agentification on MuleSoft. Actually, the market is giving us multiple options when we get now to advanced agents. Now we've got Anthropic as well, we co-work. If anything, you know, the only challenge is to sort of keep up and, you know, got Matt in the back, right?
Matt has to stay on top of everything that's been produced, categorize it, test it. Certainly, while that is a challenge, I prefer that challenge to be locked in with anybody and have a commercial disadvantage, which we don't have. I think there's a question from online.
Thank you. Joe Spooner from Shore Capital. Slide 29, you pulled out the kind of key customers per division there. How stable is that mix? Is there any of those key contracts that are up for renewal over maybe the next year or so? Then just on exceptionals, obviously, there's been a history of exceptionals. How confident are you that you can avoid that in 2026? It sounded like there may be perhaps a bit of risk there around the leases. Thanks.
Yeah. In terms of contracts, I think that, yes, the top 10 contracts have 70% of the relationships, but the level of extensions and the level of, you know, the work into each of these contracts is very significant. I wouldn't look only at the angle of binary in or out, but also. They do get replaced. Yes, within those top contracts, we do know that we have the recruitment contract. That is a large one that is meant to be expiring at the end of 2026. That is probably the biggest one. Then we've got other renewals, extensions, other possible contracts, probably TfL is another big one that we've got there. Those are probably the biggest ones I can think of. DCC is one that eventually will transition into, back into the government, to public.
Those are the biggest ones. Second question was in relation to?
Exceptionals.
Exceptionals. Listen, in terms of exceptionals, I think we are in a cleaner position. We've been cleaning the house. What we have had this year is actually the success in drawing a line under the loss-making business, the closed book life and pensions, and providing for all of the future known losses. That's now ticketed and boxed. We've written off the remaining of the goodwill of the Contact Centre, given where the progression was going. We are not embarking on any further restructuring programs. We've said we've done the GBP 250 million savings. That is done. The other big legacy item that was outstanding was the ICO. That is done. In a way, I think that we are now providing a much cleaner balance sheet to move forward.
Okay, thank you. I've got a few questions, actually. First, a batch from David Brockton at Deutsche Numis. First one is, could you give a bit more color on the specific factors that are driving the Contact Centre revenue decline and the expected decline in 2026? For example, is this further intense competition in telecommunications or broader weakness in other verticals?
It's a multi-part answer. This is multiple things. Obviously telecommunications has been a key segment for us. Telecommunications, in particular, obviously, in the call centre business only, tend to be more technically advanced, and they've actually insourced a lot more of this. Many of them have started a strategy of trying to engage as little as possible with their customers, which obviously reduces the cost of serving, but it's actually now starting to create some problems in cross-selling. That's an industry-wide phenomenon. I think we started to see that one in 2024, and it's sort of bottoming out, we believe, now the beginning of 2026.
There hasn't been any recent losses that are moving out, so I think that's what we had to wash through the P&L particular old losses. By and large, remember, the Contact Centre is mostly like a framework business. There is no commitment to volumes. If customers do something like for example, increase the rates significantly, we will see a spike in calls. We will see huge amount of volume, as we're seeing in our utilities at the moment. If something happens and the customers do something very different, we might see a reduction in calls. It's that variability that makes it really hard for us to predict what is the right level of cost that we can have on the Contact Centre business.
As Pablo said, we've taken nearly GBP 50 million out of there. I think there is now a significantly shrunk cost base that would allow us a more modest revenue behavior to get to the point of profitability.
Thank you. Another question from David was, there was a GBP 28 million cash outflow from the exited closed book life and pensions contracts in 2025. This is for Pablo. How should we think about ongoing cash outflow from this business over the next few years?
You don't want to take this one?
Fine.
Business exits right now will only have mostly closed book life and pensions exit with the Royal London that we announced. When we announced it, we said that this business would previously have lost GBP 20 million perpetual forever. What we now book is that this business is expected to lose GBP 20 million per annum for five years. That's it, and then another repayment. It's going to be GBP 20 million per annum. We guided that it was going to be more front-end loaded as more activity in the first years are going to happen. The guidance is therefore 20, say, call it 25 for the first year and then decreasing. That's the way I would look at it. Yes, this year we had a peak.
It was more the losses related to that contract and some additional contract termination or finalization of exits from the past that were cleared, and now we have a cleaner place to move into next year.
Thank you. There's a question from James Vincent who says, "If we look at Serco, who produce free cash flow to revenue of 4.5%, should we be expecting a free cash flow to revenue return in a similar range, so 4%-5%? And that would imply free cash flow of GBP 80 million - GBP 100 million on current revenues. Do you agree with that trajectory? If so, what is your timing horizons for achieving this?
Our guidance for 2026 is between GBP 20 million and GBP 40 million positive. Let's call it GBP 30 million. What do we have in this year? You set up constant revenue, take GBP 10 million out of mobilization costs. We're on GBP 40 million. Let's get the Contact Centre to generate some cash. GBP 500 million, 5%, GBP 25 million, call it GBP 20 million. Okay? We're now on GBP 60 million. What else do we have? The deferred income historical drag that Capita had, that you will recall in the past, I said it was GBP 80 million, then GBP 50 million, then GBP 30 million last year, then GBP 30 million this year, and going forward it now decreases. That GBP 30 million comes out. How much exactly next year? Call it GBP 15 million and then disappearing or something like that.
It is absolutely within our reach to be at that level, if not more.
Thank you.
Helen, if I may, Serco's a different business for a number of reasons. A major one is they started their transformation way earlier than we did. Second, they diversified geographically significantly into the United States and in particular to defense and aerospace in the United States, which is a business that drives very different commercials and economic value. Just, it's a thing we are comparing-
Yeah.
things that are not always like for like.
Thank you. I have a question that's anonymous, saying, "When will the dividend return or when will there be share buybacks?
Good. Got the same answer that I have had so far, which is consistent with capital markets today. We first want to deliver consistent positive free cash flows, and at that point, we will address how we go about it. Priorities remain the same. Number one, reduce debt. Number two, invest in the business. After that, we will be looking at dividends and share buybacks or whatever is required. We are going to deliver this year, the first year of positive free cash flows, and we will be forming a view on how it works going forward.
Thank you. That was the final question online. Thank you.
Okay. Well, if there's no further questions in the room or online, thanks everybody for your support and thanks for being here in person or dialing in, and looking forward to another good year in 2026. Thank you.