Okay, good morning, everyone. It is 9:00 A.M., so I think we should start. Just to say, we don't expect to have a fire alarm go off this morning. If it does, it probably means that, you do need to move. So just to let you know, the you need to go through the doors here on the right, and then to the left, and then down the stairs. Now I'd like to hand over to Jon. Thank you.
Hi there. Thank you. Good morning, everyone, thanks for joining us. I'm joined this morning, of course, by Tim Weller, our CFO, and also members of the executive team who are in the audience here who would be very happy to chat with anyone afterwards. As usual, I take a moment to refer you to our disclaimer. Capita today is a leading provider of business process services driven by data, technology, and people. Put simply, we help our clients realize improvements in productivity and customer experience. We achieve this by combining our deep understanding of their business operations with an increasingly competitive array of digital solutions. 2022 was an important year for us in which I'm pleased to report a turnaround in our underlying financial performance, demonstrating the financial benefits of our strategy to focus on the two core markets we serve best.
We delivered accelerated growth during the year, with 4% revenue growth in the second half after 1% in the first. Our competitive solutions mean we are winning in all our markets and verticals. As I will show later, I cemented our reputation for delivery with our clients, which is further aiding our growth ambitions. Our top line growth benefited profit before tax, swinging from a loss of GBP 123 million in 2021 to a profit of GBP 74 million in 2022. Profit before tax was also enhanced by an improving revenue mix, cost savings from the restructuring program, and non-reoccurrence of their related cost. With the higher growth rate achieved, we also delivered positive free cash flow as expected.
Through the sale of our portfolio businesses and Pay360, we realized just over GBP 485 million in the year, materially strengthening our balance sheet. At the end of the year, pre-IFRS 16 net financial debt was just GBP 85 million. None of this would be possible without the commitment of our colleagues, many of whom are with us today. As a services company, a highly engaged, motivated, and flexible workforce is fundamental to meeting our clients' expectations, and I'm pleased to report that our employee net promoter score improved 15 points in 2022 year-on-year. Our strong client relationships, long-term contracts, our increasingly competitive solutions, our engaged colleagues, and our track record for delivery means we have a resilient business, one well positioned in the current uncertain economic environment. It is perhaps helpful to reflect on where we are on our overall journey.
Following four years of significant transformational activity, which we call complete this time last year, 2022 was a year of stabilization in which we focused on embedding our strategy and its related operating model, ultimately delivering, of course, the results I've just spoken of. 2022 was in many ways a pivotal year for us as a company in which we ensured that we had the platform in place by which to accelerate our financial performance. While there remain opportunities for cost efficiency, for example, through further simplification of our processes and reducing our employee attrition rates, it is top-line growth that we are now most focused on and the operating leverage that that will provide. For this reason, we are selectively investing in digital solutions, have improved sales incentives and processes, and are increasingly focused on new client opportunities.
Helpfully, over 50% of our weighted pipeline in 2023 represents opportunities with new clients or growth on existing accounts. Improving conversion rates on these is key to accelerating our overall revenue rate. I'll come back to this later, but let me now hand over to Tim to talk you through the numbers. Tim?
Thanks, Jon. Morning, everyone. As Jon just said, we've seen a turnaround in financial performance, and we significantly strengthened the balance sheet. As mentioned on this slide, and consistent with prior presentations, our results are presented on an adjusted basis unless stated otherwise. As we noted at the half year, we've restricted the adjustments we make to those resulting from business exits, the amortization and impairment of intangibles and goodwill, and certain fair value adjustments. We simplified our financial reporting and are no longer calling out significant restructuring costs and contract and litigation-related provisions as below-the-line items. The comparatives have been represented on the same basis, and we provide a reconciliation to the previously reported numbers in the appendix to the presentation. Turning to the next slide for our financial highlights.
We've seen revenue growth accelerating across the year from 1% in the first half to 4% in the second, resulting in full year growth of 2.4%. We saw a stabilization of revenues in the Capita Experience division with stronger growth in the Capita Public Service and portfolio divisions. We've seen significant improvements in operating profit before tax, and EBITDA, reflecting this revenue growth, efficiency delivery, and the completion of the group's restructuring program in 2021. We delivered positive free cash flow as expected, and we've also seen a 91% improvement in free cash flow after capital lease payments.
This reflects our increased operating profit, improved cash conversion, reduced level of pension contributions, and the final COVID-19 related VAT repayment. The growth in free cash flow coupled with disposal proceeds realized in the year contributed to the 45% reduction in net debt, with our net financial debt pre IFRS 16 reducing substantially to GBP 85 million. Overall, the group saw a turnaround in financial performance in 2022, with a step up in revenue growth, a step change in profit, and positive free cash flow. Turning to the divisional performance and public service on slide seven. The division saw accelerating revenue growth across the year with second half growth of 4% and full year growth of 2.5%.
This was underpinned by new wins, such as the Northern Ireland Teachers IT refresh contract, annualization of the Royal Navy training contract, a full test cycle under the SGA contract, and growth in central government contracts offset by revenue reductions in some local public service contracts. Operating profit fell by 1.8%, reflecting the mix of work and reduced margin on the Army recruitment contract as it moved into the next phase of service delivery, partly offset by the impact of revenue growth, a benefit from the 2021 conclusion of the electronic monitoring transformation program, and the cessation of restructuring spend. Cash generated by operations saw a step from GBP 67 million- GBP 95 million, reflecting the working capital benefit of the contracts moving to the operational phase and a step down in deferred VAT repayments offset by contract provision utilization.
Moving on to Experience on the next slide. We saw a stabilization in revenue and a step change in profit. Revenue was impacted by significant prior year contract losses offset by new wins, including those in international and with ScottishPower. There were no material new contract losses in 2022, resulting in a much improved revenue trajectory compared with the 10% decline seen in 2021. Operating profit was adversely affected by the flow through of prior contract losses. Even so, the result was up by almost GBP 30 million on 2021, which is impacted by restructuring costs and close book life and pensions provisions. Cash flow improved as a result of improvements in working capital across the division during 2022, with 2021's cash flows impacted by deferred VAT repayments, restructuring spend and contract-related provisions.
On the next slide, we provide the reconciliation between adjusted and reported PBT. Adjusted profit has improved by roughly GBP 200 million, principally reflecting step-ups in profitability in the Experience and Portfolio divisions and a step down in central group costs following the cessation of restructuring in 2021. We also completed a number of disposals from our portfolio division and sold the Pay360 business, which previously sat within the Experience division, realizing disposal gains of GBP 167 million. The benefit of this was offset by a non-cash goodwill impairment charge of GBP 169 million in respect to a number of the businesses remaining in the Portfolio division at year-end, in recognition of our current expectation of the outcome of the disposal processes underway.
The next slide sets out the detail behind the substantial improvement we've delivered in cash flow in the year and the drivers behind the step reduction in net debt achieved by year-end. EBITDA increased 67%, reflecting the improvement in adjusted profit I talked about earlier. We saw a significant improvement in operating cash flow, reflecting a number of our contracts moving from transformation to operational phases. We also increased the utilization of receivables financing over the year as, with prevailing interest rates, it's become an economically appealing lever to pull. Pension deficit contributions reduced by GBP 44 million as the group reverted to the GBP 30 million of regular annual deficit contributions set as part of the 2020 triannual funding agreement with the pension scheme trustees. During the year, we completed the disposal of eight businesses, realizing net cash proceeds of GBP 388 million.
We saw a substantial reduction in net debt of GBP 397 million, reflecting the group's positive free cash flow generation, as well as proceeds from the disposals and ongoing program of leased property estate exits. Turning to the next slide, which shows the group's liquidity position. The group was undrawn on its revolving credit facility at year-end, compared with GBP 40 million drawn at the 2021 full year. As we noted at the half year in July, we extended the RCF to August 2024. Private placement loan notes of GBP 227 million were repaid during the year, with an additional GBP 39 million repaid to date in 2023.
As you can see from the chart at the bottom of the slide, in each of the last three years, we've repaid over GBP 200 million of debt, which has broken the back of the group's refinancing challenge. Given our robust liquidity position and cash flow generation capacity, the group's future debt maturity profile no longer represents anything like the challenge it was just three years ago. Building on this theme, on the slide we take a look back at what's been achieved over the last few years in terms of balance sheet strengthening. Since the start of 2018, we've realized proceeds totaling around GBP 1.3 billion from the successful non-core disposal program. These proceeds have contributed towards the repayment of around GBP 1.7 billion of debt in the same time period.
Our ongoing property rationalization program has delivered a 45% per annum saving on net cash payments for lease liabilities, and this has been supplemented by incremental savings to reduce energy usage, capital investment, and other property running costs. Our pension has reduced substantially with payments of around GBP 350 million into the group's main defined benefit pension scheme since 2018, with the overall pension now in an accounting surplus position. As I previously outlined, we extended our RCF in July for an additional 12 months, and with net financial debt pre IFRS 16 of only GBP 85 million, our leverage is now well within the group's medium-term target envelope. Moving to the next slide. In 2022, we received net disposal proceeds of GBP 388 million for the portfolio program and the exit of Experian's Pay360 business.
We've now launched processes for all of the remaining pillars within the portfolio and are focused on maximizing proceeds, targeting the sale of these businesses by half year depending on market conditions. The next slide shows the key areas where we've delivered significant efficiencies over the year. Firstly, improving operational performance and project execution on our major contracts continue to be a rich source of cost reduction for Capita and its customers. We are very focused on disciplined contract management and are maximizing the benefit of our demand-led resourcing model to meet the peaks and troughs in client trading cycles. The delivery functions in our two core divisions are running continuous improvement programs, working with our centralized TSS Technology function to maximize the efficiency benefits of digitization and standardized tools and processes.
We continue to drive cost optimization through expanding our delivery capabilities and resources in Poland, South Africa, and India to improve the flexibility of our client offer. Finally, as I mentioned previously, our property rationalization program continues to deliver cost savings with 137 properties vacated since 2019. Going forward, in addition to each of these areas, we will target further cost savings from areas such as legal entity rationalization, reducing employee attrition across the group, and moving to a lean central overhead structure. Now turning to the next slide for guidance on our outlook from a financial perspective. Just to be clear, the guidance on this slide is for core Capita, which excludes the remaining portfolio businesses. In the appendix of this presentation, we provided a bridge between the overall group results for 2022 and the pro forma results for core Capita.
We expect to see further acceleration of revenue growth in 2023. Over the medium term, we'll continue to target mid-single-digit revenue growth in line with the guidance we gave at the half year. On EBIT margin, we're targeting to at least double the 2.9% margin delivered in 2022 over the medium term. We expect 2023 operating cash flow conversion to reduce slightly from that seen in 2022, which benefits from a step up in usage of our non-recourse invoice discounting facility. Overall, we expect cash generated by operations in 2023 to be broadly in line with that delivered in 2022, with more significant growth over the medium term as pension deficit contributions step down and we see the cash flow benefit from revenue growth and margin improvement.
We're planning an increase in CapEx in 2023 to between GBP 50 million and GBP 60 million as we invest in digitization and technology improvements in both divisions. Notwithstanding this increase in technology investment, we expect to see continued reductions in net debt in 2023 from completion of the portfolio disposal program and further property estate rationalization. Over the next few years, we currently anticipate running with a relatively low level of net financial debt with leverage well within the group's medium-term target range. Overall, we're well-positioned to deliver sustainable growth over the medium term. With that, I'll hand back to Jon.
Thank you, Tim. As you know, our purpose, creating better outcomes, is at the very heart of everything we do at Capita, and is one of our corporate priorities. It's a key part of how we run the business. This has now been formally recognized through the creation of an ESG committee of the board, which ensures environmental, social, and governance considerations are integral to everything we do, including executive compensation. This is quite a detailed snapshot of some of the things we've achieved around ESG in 22, which I'll let you read at your leisure. I want to emphasize a couple of things that are important in the context of our business.
Firstly, our performance on the prompt supplier payment, the engagement of small to medium enterprises in our solutions, our commitment to the real Living Wage, the importance we place on equality, diversity, and inclusion, and our commitment to net zero by 2035 provide us with a very strong social value score, particularly important as we look to win more work with government. There were in fact a number of public sector contract wins in 2022 in which we were commended for our social value score, and we continue to aspire to be the U.K. government's most progressive, purpose-led strategic supplier. Of course, our ESG credentials are also an important factor in our ability to attract talent. We see from our recruitment programs and our employee surveys that people increasingly want to work for companies committed to being responsible businesses, manifested through deeds and not just words.
With the highest levels of inflation in many decades, we are supporting colleagues through the cost of living crisis, biasing our salary increases this year to our lower-earning colleagues. We remain committed to being a real Living Wage employer in the U.K. and adopting a fair pay approach in other geographies. Lastly, we've cemented our reputation for delivery with our clients, which is further aiding our growth ambitions of course. Our customer net promoter score was up 6 points year-on-year to +35 points. A highly competitive performance amongst our peers. As already mentioned, a highly engaged and motivated workforce is vital for any services business, and following the disappointing reduction in our employee net promoter score in 2021, you'll remember directly related to the significant restructuring that took place that year, we undertook specific measures in 2022 to address this.
This included a significant ramp-up in employee communications, including our #BeBrilliantBeYou campaign, investment in training and development, and ensuring we had a competitive employee value proposition. As a result of these measures, our employee net promoter score, employee engagement, and wellness scores all improved materially year-on-year. According to the Institute for Employment Studies, we are experiencing one of the tightest labor markets since records began. Given our ability to attract and retain the talent required to deliver our strategy remains a key risk and cost, we continue to invest in recruitment capacity and attrition reduction. Our recruitment engine met demand in the second half of 2022 for the first time since the pandemic and continues to do so.
Revenue is no longer being lost due to a lack of delivery capacity, and we're now focused on improving fit to role, a key factor in reducing attrition. For the group as a whole, voluntary turnover was unchanged at 30% for the year, but the underlying performance is more nuanced. It did reduce towards the back end of the year, and we have made great progress in reducing attrition in Capita Public Services and TSS. In Experience, as with many other peer companies in the customer management sector, there are still pockets of the business, essentially four contracts in our case, where attrition remains challenging. Given the material burden, margin burden attrition places on the business, reducing what we call cost of churn is a core area of focus in 2023, with defined management targets that drive executive compensation.
Now one mitigating factor to attrition is the continued benefit of our virtual approach, virtual first approach to flexible working. It is a differentiator in terms of recruitment and retention, as other employers are encouraging staff to return to the office. It also allows us to access talent from disadvantaged groups and the so-called economically inactive. In 2022, 85% of employees gave our virtual first policy a reason to stay with Capita. More interestingly, amongst colleagues embracing hybrid working, we see materially less sickness and absenteeism. Attrition is half that of office-based staff, and hold and handling times in our customer management operations are lower for home workers than office-based staff. In other words, our virtual first model has improved our colleagues' productivity and reduced our property costs.
As mentioned in one of my introductory slides, top-line growth will be the primary driver of accelerated financial performance going forward. This will come from a combination of renewals, often with expanded scope, as we have seen in the current Functional Assessment Services tender for the Department for Work and Pensions. Growth on account, as we have very effectively executed on our TfL, Transport for London account the last few years, and new clients, exemplified by ScottishPower and the HMRC wins in 2022. Starting at the bottom of the triangle on this slide, our renewal rate in 2022 remained pretty strong at 97%, testimony to the ongoing competitiveness of our offerings and the quality of service we deliver. Our growth on account win rate was 75%, and our new client win rate was 11%.
This was a decent overall performance, particularly in the second half of 2022. We're challenging ourselves to do better in 2023. An appropriate setting of sales targets and their associated incentive schemes is core to achieving this. For example, sales compensation on all deals greater than GBP 25 million is based on net margin. For example, on a deal of GBP 100 million, the multiplier is one on renewals, 1.25 for growth, and 1.5 for new clients. Otherwise we're incentivizing our sales organization to win growth on account and new clients. In life contract performance and net margin hurdles have to be met for the second sales compensation payment to be made.
We also placed particular emphasis in 2022 on building new client pipeline for 2023, which if we combine with growth on account, represents more than 50% of the opportunity set we have this year. The highest it has been in at least seven years. We have a habit of emphasizing the larger, more binary, longer sales cycle contract opportunities. It's worth remembering that we also deliver growth from a healthy mix of smaller transactional engagements. Through our market vertical structure, we're getting far better at originating the sub 10 million TCV opportunities, and in 2022, over 40% of the TCV won, around GBP 1.16 billion, was driven by deals of this size and with this much shorter sales cycle.
As you can see on this slide, in 2022, we won contracts with a total value of nearly GBP 2.9 billion, an 18% reduction on 2021 as a result of contract phasing in Capita Public Service, something I'll come back to later on. As focused as we are on growth, it is not at the expense of contract alignment to strategy, deliverability at the price bid, or balance between margin and execution risk. Our contract review committee, which we've talked about many times, which Tim and I sit on, remains a core and integral part of our government's model. We are not going to repeat the mistakes of the past. Throughout our journey, we have talked about the need to migrate our contract portfolio from the more commoditized BPO space into the business process services arena.
As this slide illustrates, we're taking both existing clients on this journey, as well as winning new work firmly in the BPS space. Capitalizing on this digitalization shift is strategically key for us, with our capabilities in this space improving our competitiveness, making us more sticky with those clients, and ultimately driving margin improvement. We achieve this by combining the deep market insights and client needs provided by our market vertical client partners with the technical capabilities of our 4,200 person strong technology and software solutions organization. For example, under our revised contract with Barnet Council, signed in 2022, some of the BPO elements went back in-house. We kept the more digitally enabled parts, co-designed and developed new digital solutions with citizens, staff, and partners to drive improved responsiveness, productivity, and end user experience.
This has translated into a 50% increase in digital transactions for the council, an increase of online satisfaction by 13%, and a reduction in the number of phone calls by 30% over the last three years. It's a great proof point for what we can do for our public sector clients. Contracts won in the BPS space often leverage existing Capita IP. We're delivering, for example, a mortgage origination platform for Virgin Money by building on our proprietary Omega software. Much of our software development is undertaken in our digital development center in India, part of the technology and software services organization, where we have seen continued improvement in the velocity of release cycles. Technology partners, Microsoft, Salesforce, Palantir, Amazon, and others, are also playing an increasingly important role as we standardize our technology stack and go to market together.
These global technology players see us as a vehicle by which to increase their share in the segments we serve, often leveraging our presence on government framework agreements. Let me now spend a few minutes on each of our core divisions, highlighting their growth potential, market resilience, core strengths, and our strategy to generate more value from them. According to TechMarketView, Capita Public Service is the number one strategic supplier of both software and IT services and business process services to the U.K. government, with around 10% share of a market that's worth around GBP 13.9 billion. While the market as a whole is predicted to grow at around 5% per annum, sub-sectors, particularly those in the digital arena, are growing at more than double this.
Based on 30 years of experience, we focus on and are structured around those market verticals with the healthiest growth rates and where we can leverage our specialist knowledge and insights. These five market verticals are justice, central government and transport, defense, fire and security, local public services, health and welfare, and education and learning. We believe we are largely insulated from U.K. public sector budgetary pressures due to government spend in our core market verticals being nationally critical activity. I'd cite army recruitment and Personal Independence Payment as examples of that. We're also part of the solution, of course, as government focuses on the digitalization of services with its associated cost benefits. As you'll no doubt be aware, the U.K. government published its roadmap for digital and data in 2022, outlining its spend of up to GBP 8 billion by 2025 on digital transformation.
Based on our investment in and operational delivery on a number of contracts, such as HMRC Automation and the Turing Scheme, the U.K. government, for the first time, now regards us as a digital services provider alongside our more traditional complex outsourcing credentials. We are one of a small handful of strategic suppliers to government with credentials in both categories. Capita Public Service's reputation for delivery is now cemented, and we have strong client relationships as reflected in the 9-point improvement in the customer net promoter score to +33 achieved in 2022. We saw a 50% reduction in TCV sold in CPS last year to GBP 1.2 billion as a function of two things. Firstly, the non-repeat of the very large GBP 925 million Royal Navy training contract, Project Selborne, as many of you will remember, in 2021.
Second, the contract tender slippage, a function of U.K. politics in the middle of 2022, resulting in the closing dates of contracts with a total TCV value of more than GBP 2.5 billion moving from the second half of 2022 into the first half of 2023. It's important to remember that these have not been lost. They've simply moved to the right. We have over GBP 1 billion of this TCV to be awarded in Q1 of this year, and we have already been informed that we are the winning bidder on 25% of this. As a result of the Government's Outsourcing Playbook commitments, we now have better insight to contracts that will be tendered over the next several years.
By analyzing the services and technology required to deliver these, we have mapped a series of scalable and repeatable solutions based on a common tech stack that would underpin two or more of these future contract opportunities. We're using our proven model of consult, transform, and deliver with increasing integration of technology, digitalization, and partnerships. We're starting to invest in a controlled and very disciplined manner in a selection of these propositions ahead of time to improve bid quality-Price competitiveness and the margin potential of our tenders. Tender responses, sorry. Good examples of such propositions would be the automation and digitization of records, or the BPaaS Business Process as a Service solution for medical assessments.
These digital Lego blocks, as I call them, will be increasingly important to our ability to win and deliver appropriate margins from this business, mark an important strategic shift in our approach to government bids. Historically, each major contract, Army recruitment, for example, was bid with a unique tech stack and a unique set of processes. This significantly increased cost, both at the bid and execution phases, increased execution risk, limited the transferability of resources, and ultimately stymied the margin potential on that contract or those contracts. This next slide illustrates the much more balanced portfolio of contracts across the renewals, growth on account, and new client spectrum that the division has built over the last year or so. Our renewals performance was strong at 91%, with all renewals securing improved financial and commercial terms.
A previous slide showed that 94% service delivery on KPIs for the division, a performance that has helped us win expanded scopes with Transport for London and the Royal Navy training contract, which we've delivered every aspect of on time, on spec, and on budget. As a result, we've continued to be awarded new scopes under this contract, and the TCV now exceeds GBP 1.03 billion. In May last year, we were appointed as HMRC's new automation partner to develop, deploy, and support robotic process automation and other automation tools in order to simplify processes and drive operational efficiency. Now, in part due to contract slippage, but also down to improved origination, the division's weighted pipeline in 2023 is now GBP 1.2 billion.
It's a healthy balance of renewals, growth with existing clients, and new client opportunities. We expect this to deliver accelerated growth in 2023. Capita Experience is a full service customer management solutions provider led by data, enabled by technology, and powered by our people. It is the number one customer services company in the U.K. and Ireland, in the top five in Europe. We have a blue-chip client base with high customer loyalty in four key segments: financial services, technology, media, and telco, energy and utilities, and retail. We service clients in four geographic markets, the U.K., Ireland, Switzerland, and Germany, from those markets, also substantial delivery centers in Poland, India, and South Africa. Capita Experience has five competitive, repeatable, and scalable market offerings: customer experience transformation, customer experience delivery, collections, customer acquisition and retention, and pensions administration.
The global customer experience market is worth more than GBP 277 billion, with the outsourced element predicted to grow at around 5% per annum. Like the public sector, public services sector, sub-sectors are expected to grow significantly faster. It's also worth remembering that globally only around one-third of customer management services are outsourced today, creating plenty of additional opportunity as solutions become more technically sophisticated and clients need more external support. Within that large growing market, Capita Experience won GBP 1.4 billion of work last year, a 71% increase on 2021, taking its book-to-bill ratio to the highest level in several years.
Our market offerings and capabilities are aligned to the market trends and client demand, and this slide shows how our adoption of technology is positioning us well as the market expands its adoption of agent augmentation, self-service, and automation solutions. AI and data analytics are playing an increasingly important role in accelerating agent productivity and customer problem-solving as clients find their customers demand ever higher levels of service. Such customer expectations are themselves a catalyst for growth. On our ScottishPower contract, we quickly mobilized nearly 400 Capita agents early last year with our Assisted Customer Conversations technology and AI-based innovation. The tool provides real-time feedback to our customer service agents using data analytics, driving a more personalized and efficient customer service outcome. ScottishPower are delighted with the services we are providing.
Overall, our assisted customer conversation technology has helped clients with 58 million minutes of conversations in 2022. We're using related technology on our chat platforms, where on a number of accounts, 70% of the chats have been fully contained and closed with our artificial intelligence solution. Clients are also looking to utilize omni-channel offerings with increased multilingual capabilities and capacity with agents working remotely, both on, near, and offshore. For example, our Virgin Media O2 contract is delivered across the U.K., South Africa, and India, with different services provided across each geography. We expect to make greater use of our operations in India and South Africa as we co-continue to grow this business. Our propositions are competitive and attractive, we won work in each of our market verticals in Capita Experience in 2022.
Our telecoms clients are among the biggest in Europe, and we renewed contracts with EE and Freenet. We anticipate doing the same here in the U.K. in Q1 with Virgin Media O2. As expected, during 2022, there were multiple wins within the financial services sector, including new clients, Allianz, Santander, and very recently, this year, Commerzbank, reflecting our strength in this vertical in particular. The challenging economic landscape poses an opportunity for Experience, particularly within our financial services and energy utilities industries, as institutions in these sectors have a role to play in helping vulnerable customers through periods of economic uncertainty. Here, human intervention is required to ensure our clients meet their regulatory obligations to their customers. Our 99% renewal rate speaks to the high levels of operational delivery for our clients, and Experience has a weighted pipeline of around GBP 1 billion this year.
In summary, 2022 was another year of execution against our commitments. We now have strong operational momentum and a platform in place by which to accelerate our financial performance. We're growing, we're profitable, we've generated free cash flow, and we have a solid balance sheet. On completion of the disposal program later this year, we will have de minimis net financial debt. We have strong market share positions in growing markets with increasingly competitive offerings, a reputation for delivery, and much of our contract portfolio is protected from inflationary pressures. We're therefore targeting accelerated revenue growth in 2023. As we continue to improve our efficiency and benefit from the operating leverage provided by revenue growth, we're targeting core Capita EBIT margins of at least double the 2.9% we delivered in 2022 over the medium term, as Tim presented.
We will maintain a prudent approach to our capital structure with net financial debt to EBITDA at or below 1x . As I think I always say at this forum, there is clearly more to do, particularly on margins. In these uncertain times, we have a resilient platform with which to deliver improving returns. Thank you. We would be very happy to take your questions.
The mic's on the way.
Great, thanks. It's Paul Sullivan from Barclays. I'm gonna be greedy and do four, if that's okay. Firstly.
Let me grab my pen, Paul.
How should we, how should we think about margins this year, and sort of the range of outcomes and the key determinants of that, and the sort of the phasing to doubling, by, I guess, 2025? How should we think about that? Secondly, how do you think AI changes the economics of Experience? Thirdly, given, dare I say it, you're gonna be awash with cash on a financial basis by the end of the year, how do we think about capital structure? Do you think there's scope for, or do you want M&A to come back onto the agenda? Just finally for me, it looks like the auditors have removed the material uncertainty clause from the going concern. Is that indeed material? Thank you.
They seem to be rather biased to our CFO. Margins, Tim needs to take the credit for the removal of the MU. Tim, you could cover that. The balance sheet. Then I'll come back to talk about AI and economics, and perhaps maybe make some other comments on the other questions as well. Tim.
Okay. On margins, the guidance we're given to more than doubling is over the medium term. You know me, it'd be a bit sporty if I said we're gonna be doubling by 2023. I'd like to take the full time out to our end of business planning period in 2025 to get to that doubling. That is clearly what we're saying. Reflecting the fact that we are gonna be making both CapEx and OpEx investments in this technology journey, do not expect a big step up in margin in 2023, is the guidance we're giving.
Having said that, reflecting the improvement we have seen, in particular in Capita Experience's underlying financial performance in 2022, the mathematical result of that will be that there should be some margin improvement in 2023. I'm being deliciously vague and not saying what the actual answer is, but it should be a little bit better than it currently is. Awash with cash capital structure. I think Jon's official phrase is de minimis net financial debt. And, you know, you can do the math when you start off with net financial debt.
Some of us are old enough to have done Latin in school. Yeah.
When you start off with net financial debt of GBP 85 million, you reflect the number of portfolio businesses left to be sold, it would be disappointing if genuinely it is anything more than de minimis net financial debt at that particular point in time. Capital structure, M&A. What we've consistently said about capital structure is when we have completed the disposal program, and in the presentation, we talk about targeting that to be achieved by the half year, we will then set out what we expect our long-term capital structure and shareholder remuneration policy to be. I'd expect to be giving an update on that at the half year. I presume you will want to pick up on any suggestions around M&A. On the removal of the material uncertainty on the going concern qualification.
It's wrong to say I take the credit for that. The reality is, it is the performance of this business that has got us there. You know, we have seen a step down in financial leverage through the successful portfolio disposal program, a material diminution in the pension scheme deficit we have to fund. Importantly, a turnaround in the financial performance of the group, which clearly you roll forward into future expectations in a going concern assessment. That going concern assessment, you are not allowed to take account of the things outside your control, which would, in this case, be the portfolio disposal program.
Without completing that portfolio disposal program, the directors have concluded that we are a going concern in all cases, including a severe but plausible downside. The auditors will not be drawing attention to anything around that in the audit report that you'll see in a few weeks' time when we publish our accounts.
Modest as ever, M&A is not on the cards until we've determined what our long-term capital structure is. Have we started looking at some small bolt-on opportunities that have protected IP as a means of accelerating our strategy to being a sort of full-service BPS provider in the two markets we serve? Yes. We won't sort of pull the cord on any of that until we've finalized our capital structure. The economics on AI, we're delivering more value, and we're decommoditizing what we're able to do versus some of our competitors. That ultimately speaks to a higher net margin on those contracts. If we look at the work, I mentioned some of the companies we've been awarded work from in CE in my prepared remarks.
The margins on those contracts, many of which have much richer digital content than our more commoditized customer management service offerings, you know, those margins are in the high single-digit, and we have a couple that are in the low double-digit range. That's, as you know, Paul, completely aligned with strategy. We want to get out of the commoditized BPO space, whether it's public or whether it's CE, and have higher value offerings that reflect where the growth is in the markets and reflect where we can earn higher margins long term. In contrast to some of our traditional outsources.
Good morning. It's David Brockton from Numis. Just two from me, please. Firstly, in respect of the win rate, I mean, clearly over the last sort of year, even two years, the focus has been on renewals and securing those, and you've done very well at that. As we look forward, you touched on some of the changes to compensation structure. I just wondered if you could sort of elaborate on when those were implemented. Are you starting to see an improvement in the win rate for new work, and where you think that should be? That's the first, I guess, set of questions. The second question just relates to, if you can give a bit more, I guess, visibility on how you form the guidance for 2023 in respect of revenue growth.
When you look at the book-to-bill in Public Service, it's lower, yet you're expecting growth there. When you look at Experience, the book-to-bill was higher, yet you're expecting stability. I just wonder if you can just help me understand your thought process there. Thank you.
Let's start with win rates. I'll make a couple of comments on growth given the order book, Tim might want to add to that as well. I think the first thing we should recognize is that our contract portfolio can be quite lumpy in terms of wins, they can massively shift the percentage win rates in different categories. By way of example, our new business win rate went from 59% in 2021 to 11% in 2022, purely as a function of Project Selborne, a GBP 925 million new win contract in the prior year. We aspire to new client win rates of high teens to low twenties. That would be competitive, you know, to our competitors in the space.
I think you can anticipate that we will sort of grind that percentage up over the course of 2023, 2024, and into 2025. You're right, our renewal rate remains very strong. I think we're now at the point where we can perhaps negotiate a little bit harder on some of those renewals. I have, I think you've heard me say before, David, never operated in a B2B business with renewal rates that high. We deliberately wanted to achieve that because through the early years of the transformation, we didn't want to attrit any more revenue than we had to.
I think as we build the growth on account and new client opportunities, we could afford, quite frankly, to lose two of those renewals if we didn't believe that the returns were where they should be for the type of work we're doing, the risk we're engaging in, and so forth. In terms of commission structure, it was implemented this year. I think, you know, the next question is, well, you know, why do you believe you can grow given what's happened to your order book? That is a key factor. We have, through Kathy, our Chief Growth Officer, completely transformed the discipline, focus, operation, structure associated with our sales operations. People know what their target is. There's overage. We have clarity on who's got to close what.
We are prioritizing commission, as I mentioned in the prepared remarks, for growth on account and new client, which tend to come at a higher margin because you know, the new client is building on Sorry, the growth on account is building on an existing cost base, of course. To your last point about guidance, I think we need to remember that the order book in core Capita is flat year-on-year. The 9% reduction is associated with the removal of portfolio, of course. It's flat at GBP 6.1 billion. Which is not a bad achievement, given GBP 2.5 billion of opportunity slipped from 2022 into 2023, and that is very biased to Capita Public Services. The deal in VMO2 there was, of course, Virgin Media O2.
We feel pretty well-positioned on GBP 1 billion of that for award in Q1. We may not get it all, but we certainly have put in some pretty competitive bids on that government scope in particular. We will renew VMO2 as well, which, you know, contributes to that number. I think the other point one should remember is a stat we've not shared before, which is, you know, the GBP 1.16 billion in TCV we closed last year on deals of less than GBP 10 million. Short sales cycles, growth on account, leveraging our understanding of client needs. I didn't say this, but they, in new clients, become a stepping stone to bigger things. We get into a client with a small opportunity from which we then hope to grow on the back of the quality of service we deliver.
If I can just add, picking up on, on that point about the smaller contracts and the cycle times. Revenue growth in a particular year, revenue, isn't all about TCV you win and how quickly that flows through. With some of the big complex contracts, you win it, and it takes, you know, a very long time before that actually starts flowing through into revenue. Recognizing you'll be transitioning potentially from one, service provider to another. What we have in Capita Public in the second half of 2022 is momentum. It grew at 4% in the second half, and that's why we, you know, continue to expect it to grow, in revenue terms moving into 2023. The revenue growth in Capita Experience in the second half wasn't at the same level.
That's, that's one reason why we're expecting Public to outperform Experience in revenue growth in 2023. The other point in Experience is we continue to expect revenue attrition in respect of our life and pensions business in Capita Experience, which is gonna naturally limit the actual revenues we deliver in 2023.
Closed book, life and pensions. Chris.
Morning, Christopher Bamberry, Peel Hunt. Four questions if I may. Going back to contract new bids. Where you're unsuccessful, are there any kind of recurring themes in terms of customer feedback on why you've been unsuccessful in Public or Experience? Secondly, what's your thoughts on the kind of central overhead this year, how that develops? Third, what are your expectations for wage inflation this year? Finally, in your fixed cost contracts, can you give us a bit clearer how successful you were or otherwise in terms of improving pricing in those last year? Thank you.
Okay, let me talk to new bids. I'll have Tim talk to overheads. I can talk to wage inflation. Tim, you may wanna touch on fixed costs, fixed cost contracts. Let's start with wage inflation first. We allocated 4% in our 2023 budget to wage inflation. We've since increased that between 5% and 6%. We are biasing all of that budget to colleagues earning less than GBP 120,000 a year. We will pay the 10.1% increase for the real Living Wage. Our attrition is greatest in our lowest-earning colleagues, particularly in Capita Experience. Obviously a logical reason for continuing to pay the real Living Wage there.
As I mentioned earlier on, we've asked people over 120 not to take a pay rise, and all of ExCo volunteered to do the same. In terms of new bids, I don't think, Chris, there's any one particular reason. At times it can be, you know, we were too greedy, our price wasn't where it needed to be. I think the other thing one has to recognize with new clients is you don't know them as well, and you're often competing with an incumbent who's been there for many years. Simply deriving the relevant understanding of that client and their needs is much more challenging on a new client than it is on a renewal. That's why the renewal rates are so much higher than the new client rates.
As we continue to develop, our stronger digital offerings, there is no doubt that that is improving our capacity to win with new clients. You know, we announced, whenever it was, well, internally this week, the Commerzbank deal. As one example, a new client where we've won an opportunity based on a stronger digital content for the solutions we're providing them. I think it's more of the same that'll ultimately deliver an acceleration in our win rate in new client space.
On the central overhead, in the back of the pack, in the pro forma calculation, to strip out portfolio and leave you with core Capita. The central overhead, effectively the Capita PLC costs, end up as GBP 54 million for 2022. That is a pro forma. In the prepared remarks, we talked about the opportunities for further efficiency moving forward. Clearly, in our sights is that central overhead cost. That is a pro forma overhead. It's the overhead for the Capita that we were during the course of 2022. Clearly, as we are exiting the portfolio business, we have the scope to shrink that central overhead further.
We're not giving precise guidance on where it's going to end up, you can expect it to be significantly lower than GBP 54 million over the next two years as we drive that efficiency. In terms of the fixed cost or the inflationary impacts on our contract portfolio. We have replicated, once again in the appendices to the slides, the contract analysis we presented, I think, two times, now results announcements showing the split of our contract portfolio between those contracts that have indexation clauses built in and those that do not. Remembering that around two-thirds of our contract portfolio does actually have the benefit of indexation clauses. What you are talking about in terms of exposure is on the remaining third.
We have had a measure of success in arguing and negotiating for incremental price rises. As Jon pointed out earlier, of course, a significant amount of our in-year revenue is driven by contracts, small contracts we bid for during the course of the year, and those are priced at current prices as opposed to historic prices. Actually, as we are going through the business development program, we're repricing in terms of new work. In terms of the upshot of all that, in our order book at the end of the year versus the start of the year, we have an incremental GBP 80 million as a result of the application of indexation clauses and other inflationary impacts.
Thank you. David, that's relevant to your question as well. The indexation tailwind we have, far fewer contract terminations. We have the lowest level of contract terminations coming into 23 of any year in my six years of Capita.
Hi there, Arthur Truslove from Citi. First question was just on the net debt. Sounds like you're on just over GBP 80 million of net debt now on a financial basis, and you've got about GBP 250 million of revenue to sell. How conceivable is it that you end up in a net cash position? Second question is, I think from memory, the labor market was most tight around the end of 21 from the experience that you were having. Just wondered if you could comment on how that is progressing. Thirdly, you know, once you've finished getting rid of your non-core businesses and you've got your net debt down, is there any reason why you shouldn't introduce a regular dividend? Thank you.
That took a long time for the D-word to come up. Thank you. Let me talk about the labor market. It's probably best for Tim to talk to the other two. The labor market is still tight, and there is unquestionably a hourly rate inflation at the lower compensation levels of the labor market in the U.K. Quite material. I mean, Tesco, who we compete with, quite frankly, for some of the resources we have in our customer management business, have just agreed to pay as a lowest salary, GBP 1 more than the real Living Wage. That puts stress on our ability to attract talent. That said, as I mentioned in our prepared remarks, we have managed to attract the people we need in the second half of last year and into this.
I think ultimately, and we're seeing this from our clients as well, as we grow, I think you can expect that more of the resource associated with that growth will come from our centers in India, South Africa and Poland than the U.K.. I'm always at pains to point out at this point, that does not mean we are going to have redundancies in the U.K.. It's the growth that is going to lead to staffing more in our overseas operations than in the U.K. because of the tightness of the labor market.
Net debt, I mean, clearly there are two measures of net debt. One is the accounting definition that includes capitalized leases, and the other is net financial debt. At year-end, overall net debt was GBP 482 million, and yes, there was GBP 85 million of net financial debt. If you're starting with your GBP 85 million of net financial debt, I think it would be disappointing if from the disposals we're talking about, we didn't realize more than GBP 85 million. We're very coy about giving any kind of guidance in terms of proceeds for any particular transaction, but we've identified the amount of revenue that is in there in terms of the business to be sold. Plainly, it would be disappointing if we didn't achieve more than GBP 85 million.
In terms of the D-word, back to what I said before, we've been consistent in saying when we complete that portfolio disposal program, is the appropriate moment to set out, essentially a capital allocation or financial structure and distribution policy for this group moving forward. That would be something we come back to, if we do achieve the completion disposal program by the half year, at the half year results announcement in August.
I think some questions online.
Of course.
I think they're all for Tim. Do you want them one at a time or all in one go?
Depends how many there are.
About five. The first one, they're all from Sten Husberg.
Yeah.
Does the significant reduction in lease expenses in full year 22 reflect the new run rates, or did you exit the year lower than the overall year reflects? If this so, can you provide some guidance on where the run rate is?
You got two things about leases. You got the step down in lease liability, but also more personally, the step down in capital lease rental payments, which came down from about GBP 80 million to GBP 56 million between 2021 and 2022. The 80 number in 2021 was impacted by the pandemic, in that there were deferred rentals from 2020 into 2021. The 80 had, if you like, a double count of rentals in that particular year, in 2021. A more underlying decrease would be from high sixties to high fifties. We do anticipate further reduction in rentals moving into 2023 and 2024, reflecting our ability to further trim our property estate.
Okay. Thank you. The next one is the expected acceleration in digital CapEx investment for 2023. Should we consider this as a natural investment level to continue to develop digital capabilities and remain competitive?
The guidance we're giving is for CapEx for the group as a whole, which includes an incremental amount in respect to digital investment to increase to GBP 50 million-GBP 60 million for core Capita. That is an increase from around GBP 36 million-GBP 37 million in 2022. Yes, that would be our expected capital run rate moving forward. Kind of bubbling around a couple of % of revenue, which is not out of line with what you would see in terms of investment by our competitors.
Thank you.
Just to build on that, Helen, I think it's important that we remember that we can do a lot more with that quantum of CapEx today than we could five years ago when we were investing in tin and wire in data centers, and we were developing solutions for our clients from scratch. We work very closely with the technology partners I mentioned in our prepared remarks, many of whom actually help us with the cost associated with the development of some of these platforms, through a low-code, no-code approach. We certainly aren't building tin and wire anymore. We're leveraging Azure, Amazon Web Services, et cetera. It goes a lot further than it used to.
Thank you. The next question is, does the acceleration in pension deficit contribution due to disposals mean that future pension contribution will be reduced? How much do you foresee annual pension contributions to be going forward?
Yeah. At the moment, we're running under the agreed pension deficit contributions as part of the 2020 triennial. The pension year end is March. Triennial means that the next one is gonna be in March 2023. This month is the official start date for the next triennial. If nothing else moves, the agreed payment profile under the previous agreement was GBP 30 million of deficit contributions in 2023, and then GBP 15 million per year in 2024, 2025 and 2026. The acceleration, absent any other moving parts as a result of the disposals, reduces the tail end GBP 15 million in 2024, 2025 and 2026.
I emphasize the point about absent any other moving parts, including a significant moving part, is the next triennial when we will both have a new valuation and then a new agreed funding schedule. In the detail of the results announcement, you will see that in respect to pensions, the funding basis, so assuming the same assumptions as at the last triennial, we would be showing a GBP 40 million surplus. Not only is the accounting surplus GBP 40 million, coincidentally, and it is coincidentally, the funding surplus, assuming the same basis of valuation, at the last triennial, the 2020, would be also a GBP 40 million surplus.
However, over time, we and the trustees would like to move towards some form of self-sufficiency for this scheme, and applying a sensible investment strategy and return expectation to move towards self-sufficiency. You'd expect that GBP 40 million surplus to move to around a GBP 50 million deficit. The GBP 50 million deficit would obviously be covered by the already committed deficit payments of GBP 30 million in 2023 and GBP 15 million a year for the subsequent three years. Whilst we haven't got anywhere near resolution of the triennial, I wouldn't expect the next valuation we go through to materially change what we're expecting in terms of deficit contributions going forward.
Thank you. I think you've answered the question. There was a follow-up from Andy Brooke at RBC, basically saying, "Does that imply you think the GBP 15 million deficit reduction payments will end in 2024, 2025, and hence there'll be a boost to free cash flow?" I think you're not committing on that.
I'm not committing on that 'cause we have to go through the process with the trustees. Clearly, we have called out the expectation of reducing deficit contributions moving forward as one of the contributors to improvement in free cash flow moving forward.
Thank you. That's from all the questions online. Thank you.
Any other questions in the room? Thank you, everyone. Appreciate you coming.
Thank you very much.