Annual Financial Report
31 March 2014
Capita plc
(the "Company")
Annual Financial Report
In compliance with Disclosure and Transparency Rule 4.1, the Company announces
the publication of its Annual Financial Report for the year ended 31 December
2013. Pursuant to Listing Rule 9.6.1, a copy of this document has been
submitted to the National Storage Mechanism and will shortly be available for
inspection at http://www.hemscott.com/nsm.do. The document is also available on
the Company's website: www.capita.co.uk.
Additional Information
A condensed set of the Company's financial statements and information on
important events that have occurred during the financial year and their impact
on the financial statements, were included in the preliminary results
announcement released on 27 February 2014. That information, together with the
information set out below, which is extracted from the Annual Report and
Accounts 2013, is provided in accordance with the Disclosure and Transparency
Rule 6.3.5. This information should be read in conjunction with the Company's
preliminary results announcement. This announcement is not a substitute for
reading the full Annual Report and Accounts 2013.
Principal risks and uncertainties
Managing our risks
It is our policy to observe high standards of integrity and fair dealing in the
conduct of our business and to act with due skill, care and diligence.
Taking and managing appropriate levels of risk is an integral part of all our
business activities. Risk management, performed rigorously and comprehensively,
creates stability, contributes to business success and growth and is a key
element of operational management. It also provides the framework for the
management of business and operational risk in the performance of Capita's
activities, to meet the requirements of good corporate governance and protect
the interests of our clients and stakeholders.
Capita's business model is `decentralised' and our approach to risk management
mirrors this. It is the responsibility of management at all levels of the
organisation to ensure that risks are understood and appropriately managed in
accordance with the Group Risk policies and within the Board's risk appetite.
This is in line with the standard `three lines of defence' model that has been
adopted.
Principal risk categories, potential impacts, examples of mitigations and
developments in 2013
Key risk Potential impacts Mitigating activities 2013 developments
categories include
Financial * Adverse effect on * Strong financial * Greater
exposure business controls operated stakeholder
financial by unified interest in
performance from finance structure robustness of
e.g. mispricing controls
long term * Assurance
contracts, client provided by Group * Increased use of
disputes or Internal Audit GIA to provide
changing market (GIA) assurance
landscape
* Monthly finances * New procurement
* Adverse investor reviewed in MOB processes rolled
impact and out to strengthen
detriment * Capital current
expenditure is expenditure
* Impact to brand subject to control
reputation. rigorous
approvals and * Disposal of some
monitoring of our insurance
distribution
* `Black Hat' businesses and
process across closure of our
significant bids SIP (Self
and acquisitions. Invested
Pensions)
administration
business.
Partnership/ * Contractual * Review of key * Strengthening of
dispute with third party Material Supplier
third party client firms contracts by Policy and
commercial teams adoption
* Reputation risk Group-wide
* Monitoring of key
* Potential outsources * Increased
financial loss to services SLAs regulatory (FCA)
Capita focus on
* Group Outsourcing outsourced
* Potential (Material services
disruption to Suppliers) Policy
supply chain and * New partnerships
service * Individual (London Borough
interruption. business unit of Barnet,
risk reviews Staffordshire
County Council,
* Partnership Cabinet Office)
governance. and go-live RPP.
Client * Failure to meet * Operating * Increased
delivery contractual performance regulatory focus
terms, indicators in on `conduct risk'
mobilisation place for all - delivery of end
milestones and businesses and customer outcomes
service level key contracts
agreements in * Greater
major contracts * Robust stakeholder
contractual and scrutiny in
* Client service governance public sector
financial mechanism for contracts
penalties management for
third parties * New operating
* End customer frameworks
detriment * Risk Committees finalised for
and MOB challenge insurance
* Potential loss of and oversight businesses
contracts
* Risk-based * Development of
* Liabilities for independent new risk
actions of third assurance (GIA) framework
parties includes
* Business `customer
* Impact to brand resilience delivery' risk.
reputation. arrangements to
protect key
services
* Incident support
by internal PR
team.
Bids and * Planned synergies * Strong financial * Changes in
acquisitions failing to controls operated legislation
achieve financial by unified extend historic
targets finance structure liability reach,
e.g. acquired
* Detrimental * Due diligence on liability risk in
impact on growth financial, anti-bribery and
and performance operational, corruption and
of business market and risk data security
matters, often
* Integration using external * 2013 acquisitions
challenges advisers and contracts
resulting in have extended
higher * `Black Hat' regulatory
operational risks governance footprint
(e.g. data process
security, * Implementation of
customer * Group Board Group Due
delivery) review and Diligence and
approval of Integration
* Mispricing of acquisitions and Policy across all
long term major significant bids Capita businesses
contracts
* Commercial and * Strengthening of
* Impairment of contractual terms Group risk and
goodwill and closely reviewed compliance
intangible assets to ensure clarity oversight of
through non-financial
underperformance * Integration and service deals.
or unforeseen transition
developments in process.
acquired
businesses.
Economic and * Weaker economic * Focus on 11 * Supply of
market conditions are a diverse public services that
landscape key driver for and private support essential
outsourcing, sector markets client functions
however, extreme rather than
economic * Focus on widening discretionary
uncertainty can scope of existing activities
result in a delay contracts to help
in buying client save money * Initiatives to
decisions and increase the
lower * Proactively efficiency of
discretionary diversified our Group operations
spend across some business
market segments operations across * Newer operations
numerous private in justice and
* General Elections and public sector emergency
may cause a pause markets and services and
in bid decisions market segments. customer
in central management have
government. continued to open
up bid
opportunities
with new clients.
Human * Failure to * Extensive * Introduction of
resources recruit and training and new Capita
retain quality developments for Vetting Policy to
people impacts all staff and better detect
business delivery management issues with
and strategic candidates
plans * Continual
development and * Increased staff
* Morale issues performance numbers through
weigh on appraisals contract growth/
productivity and acquisition to
innovation * Competitive manage
incentive and consistently
* Higher costs bonus plans
likely from * Whistleblowing
increased * Succession line refresh to
turnover of planning ensure
staff. significant staff
* Comprehensive issues escalated
vetting process appropriately.
in line with
roles.
Information * Contractual and * Group-wide * Appointment of
security regulatory policies and divisional
penalties procedures information
security
* Loss or theft of * Single directors to
customer/client information better focus
data security local business
framework, effort
* Loss or theft or including
intellectual policies and * Executive level
property processes Group Security
Risk Board and
* Adverse media * Risk Committee governance
comment and oversight at all structure set-up
reputation impact business levels
on brand * Potential changes
* Staff training in EU Data
* End customer and monitoring Protection
detriment. programme legislation
requires
* Implementation of considerable work
Group information and shifts the
security policies liability
and protocols by landscape.
acquired
businesses
* Cross-Group forum
to discuss
issues, effective
controls
* Regular oversight
by Group Risk and
Compliance and
Group Internal
Audit
* Centralised
proactive and
reactive PR team.
Technical * Failure of IT * Adoption of * Increased
infrastructure managed services industry standard investment into
and systems to support core managed service core IT
availability services and standards and infrastructure
business needs controls
* Refresh of
* Inability to * Disaster recovery managed services
adequately testing
recover after * Greater internal
disaster/incident * Deployment of and external
impacting service robust issue stakeholder
delivery detection expectations
software and
* Failure to resolution * Investment in
protect client, practices internal IT risk
end customer and management
Capita data. * Adherence to framework.
higher level
security
environments as
clients require
* Adoption, where
appropriate and
effective, of ISO
27001 standards.
Fraud, bribery * Significant civil * Appropriate * Changes in
and corruption and criminal policies and whistleblowing
penalties in procedures in legislation
cases of bribery/ place including a increased risk/
corruption Group-wide onus on employers
`whistle blowing'
* Potential policy * Enhanced vetting
prohibition from and screening
bidding for * Board led procedures
public sector anti-corruption introduced on new
contracts and anti-fraud staff
culture;
* Client and end zero-tolerance * Refreshed fraud
customer approach with a policies.
detriment robust
disciplinary
* Financial impact process
of fraud
* Training of
* Impact to brand senior management
reputation. across Capita
* Formal risk
assessments of
vulnerabilities
* Oversight by
Group Risk and
Compliance
* Fraud
investigation
team to
investigate and
prosecute cases,
identify root
causes and
remedial work.
Regulatory and * Non-compliance of * Appropriate * New financial
legal risk our businesses policies and services
with the procedures regulator and
requirements of supervision team
our regulatory * Monitoring by for Capita
bodies in the UK compliance teams
or overseas, e.g. in business, * Increased number
our fund Group Risk and of FCA supervised
administration Compliance and firms in Capita
operation and Group Internal to follow
client money Audit providing consumer credit
obligations further oversight changes
* Regulatory, * Risk Committee * New key
financial and oversight at all regulators for
contractual business levels Capita businesses
penalties including
* Risk-based Solicitors
* Client and end assurance and Regulatory
customer actions for Authority.
detriment improvement
* Impact on brand * Independent
reputation reporting to
Group Audit and
* Potential legal Risk Committee
action from and Group
clients, Financial
customers and Services Risk
suppliers. Committee.
Health and * Non-compliance * Rigorously * Asbestos policy
safety with health and applied Health and management
safety and Safety Policy system is now in
regulations and processes place and most of
the training has
* Adverse impact on * Health and safety been completed -
well-being of our training although we have
employees. had a number of
* Comprehensive incidents in
Group-wide health 2013, risk has
and safety audits been reduced.
undertaken twice
a year
* Environmental
management system
in place.
Environmental * Non-compliance * Rigorously * Packaging
with applied regulations risk
environmental Environmental in Capita Secure
regulations Policy and Information
processes Services reduced
* As a low impact through working
company our key * Raising awareness more closely with
environmental of environmental IT Services to
impacts are issues across the improve packaging
energy use, Group data collection.
business travel,
resource use and * Continue to
waste management measure and mange
which we manage our carbon
proactively. footprint and
achieve energy
reductions.
* Environmental
site audits
carried out twice
a year
* Reduction of
paper use and
increase in
recycling
* Reducing energy
use to reduce
energy CRC
Allowance costs.
Related party transactions
Compensation of key management personnel
2013 2012
£m £m
Short term employment 8.1 7.6
benefits
Pension 0.2 0.1
Share based payments 6.0 3.6
Total 14.3 11.3
Gains on share options exercised in the year by key management personnel
totalled £6.3m (2012: £4.6m).
Statement of Directors' responsibility
The Directors confirm that, to the best of their knowledge:
a. the consolidated financial statements in this report, which have been
prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union, IFRIC interpretations and those
parts of the Companies Act 2006 applicable to companies reporting under
IFRS, give a true and fair view of the assets, liabilities, financial
position and profit of the Group taken as a whole;
b. the parent company financial statements in this report, which have been
prepared in accordance with United Kingdom Accounting Standards (UK GAAP)
and applicable law, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
c. the management report contained in this report includes a fair review of
the development and performance of the business and position of the Company
and the Group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
By order of the Board
P R M Pindar G M Hurst
Chief Executive Group Finance Director
26 February 2014
Forward-looking statement
The Directors present the annual report for the year ended 31 December 2013
which includes the strategic report, governance and audited Group accounts for
the year. Pages 1 to 92 of the annual report comprise a report of the Directors
that has been drawn up and presented in accordance with English company law and
the liabilities of the Directors in connection with that report shall be
subject to the limitations and restrictions provided by such law. Where we
refer in this report to other reports or material, such as a website address,
this has been done to direct the reader to other sources of Capita information
which may be of interest to the reader. Such additional materials do not form
part of the report.
Contact: Francesca Todd, Deputy Group Company Secretary, 020 7202 0641
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