The Directors present the Strategic report, Directors' report and financial statements for the year ended 31 December 2020.
Capita Life & Pensions Services Limited (“the Company”) is a wholly owned subsidiary of Capita plc. Capita plc along with its subsidiaries are hereafter referred to as (“the Group”). The Company operates within the Group's Customer Management division.
The Company works closely with Capita Life & Pensions Regulated Services Ltd (“CLPRS Ltd”) and many of the services provided by the Company are consumed by CLPRS Ltd. In particular the Company holds assets which are used as shared infrastructure across both the Company and CLPRS Ltd. In prior years the depreciation & amorti s ation for these assets has not been cross charged to CLPRS Ltd. In order to provide additional clarity to the Company’s financial position from 2019 the Board has agreed to charge a fee to CLPRS Ltd which encompasses the depreciation and amorti s ation on these assets, as well as any supporting shared project work. Also, in prior years the Company has held some costs on behalf of the wider division. From 2019 onwards, the Board has agreed to charge these costs to anot her Group entity . In addition, the Company has received dividend income of £20,968,757 (2019: £21,281,000) from its subsidiary companies which has largely contributed to the profit for the year.
As shown in the Company's income statement on page 10, the Company's revenue has decreased from £4,675,894 to £2,670,894 over the year. This is related to the termination of the Company’s contract with HBOS which was finalized in April 2020.
The Company has reported an operating loss of £7,702,547 in 2020 as compared to an operating loss of £2,676,644 in 2019. The increase is driven by business exit costs incurred for complet ing the sale of the businesses - Capita Life and Pension Services ( Ireland ) Limited and Met Life on the 1 March 2021 to SS&C (Project Ibiza) .
The balance sheet on pages 11 - 12 of the financial statements shows the Company's financial position at the year end. Net liabilities have decreased from £106,735,778 in 2019 to £94,282,526 in 2020 mainly as a result of the dividend income received. Details of amounts owed by/to its parent Company and fellow subsidiary undertakings are shown in notes 17 and 19 to the financial statements.
Key performance indicators used by Capita plc are operating margins, free cash flow, capital expenditure and return on capital employed. Capita plc and its subsidiaries manage their operations on a divisional basis and as a consequence, some of these indicators are monitored only at a divisional level. The performance of the Customer Management division of Capita plc is discussed in the Group's annual report which does not form part of this report.
The Company is subject to various risks and uncertainties during the ordinary course of its business many of which result from factors outside of its control. The Company’s risk governance framework provides assurance that significant risks are identified and addressed. The Company’s risk management framework provides reasonable assurance (but cannot provide absolute) assurance that significant risks are identified and addressed. An active risk management process identifies, assesses, mitigates and reports on strategic, financial, operational and compliance risk.
The principal themes of risk for the Company are:
Strategic : changes in economic and market conditions such as contract pricing and competition.
Financial : significant failures in internal systems of control and lack of corporate stability.
Operational: including recruitment and retention of staff, maintenance of reputation and strong supplier and customer relationships, operational IT risk, and failures in information security controls.
Compliance: non-compliance with laws and regulations. The Company must comply with an extensive range of requirements that govern its business.
To mitigate the effect of these risks and uncertainties, the Company adopts a number of systems and procedures, including:
Regularly reviewing trading conditions to be able to respond quickly to changes in market conditions.
Applying procedures and controls to manage compliance, financial and operational risks, including adhering to an internal control framework.
Capita plc has also implemented appropriate controls and risk governance techniques across all of its businesses, which are discussed in the Group’s annual report and doesn’t form part of this report.
Section 172 Statement
Capita plc’s section 172 statement applies to both the Division and the Company to the extent it relates to the Company’s activities. Common policies and practices are applied across the Group through divisional management teams and a common governance framework. The following disclosure describes how the Directors have regard to the matters set out in section 172(1a) to (f) and forms the Directors’ statement as required under section 414CZA of the Companies Act 2006.
Further details of the Group’s approach to each stakeholder are provided in Capita plc’s section 172 statement on pages 38 and 39 of Capita plc’s 2020 Annual Report.
Our People What matters to them?
How we engaged? Topics of Engagement
Outcomes and actions
Key Metrics |
Flexible working, learning and development opportunities leading to career progression, fair pay and benefits as a reward for performance, two-way communication, and feedback. People surveys, regular all-employee communications. Protection of employees during Covid-19, human resources policies during Covid-19, future ways of working as a result of Covid-19, and creating an inclusive workplace. Issue of Capita specific Covid-19 guidance and regular updates, new and temporary human resource policies (eg. furlough and flexible working). Employee net promoter score, people survey completion level. |
Clients and Customers What matters to them?
How we engaged? Topics of Engagement
Outcomes and actions
Key Metrics |
High-quality service delivery, sustainability, rapid response to support pandemic planning and Compliance with FCA Regulations. Client meetings and surveys, regular meetings with key clients and customers. Remote working on client services as a result of Covid-19, current service delivery, possible future services, co-creation of client value propositions and regulatory compliance Receipt of regular detailed feedback summaries, application of standard Capita plc policies and procedures which includes the establishment of the Group contract review committee to ensure delivery against contractual obligations and positive feedback from FCA Customer net promoter score, specific feedback on client engagements. |
Supplier and Partners What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Key Metrics |
Payments made within agreed payment terms, clear and fair procurement process, building lasting commercial relationships, and working inclusively with all types of business. Supplier meetings throughout the source to procure process, regular reviews with suppliers, and supplier questionnaires. Supplier payments, sourcing requirements, supplier performance, and the Supplier Charter. Alignment of payments with agreed terms, supplier feedback on improvements to the procurement process, improvement plans and innovation opportunities, and improved adherence to the Supplier Charter. Percentage of supplier payments within agreed terms, supplier relationship management feedback score, and supplier diversity profile. |
Section 172 Statement (continued)
Society What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Key Metrics |
Social mobility, youth skills and jobs, digital inclusion, diversity and inclusion, climate change, and business ethics. Membership of non-governmental organisations, and charitable and community partnerships. Youth employment, tackling digital exclusion, workplace inequalities, and carbon reduction targets. Implementation of real living wage, youth and employability programme, and commitments to tackle racism and enhance ethnic diversity. Percentage reduction in carbon footprint, amount of community investment, and responsible business report 2020: capita.com/responsiblebusiness. |
On behalf of the Board
The Directors present their annual r eport and f inancial statements for the year ended 31 December 2020.
The results for the year are set out on page 10.
No dividends were paid or proposed during the year (2019: £nil).
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
KPMG LLP, having indicated its willingness to continue in office, will be deemed to be reappointed as auditor under section 487(2) of the Companies Act 2006.
The C ompany has granted an indemnity to the D irectors of the C ompany against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the D irectors' report.
We have audited the financial statements of Capita Life & Pensions Services Limited (“the company”) for the year ended 31 December 2020 which comprise the Income Statement, the Balance Sheet and the Statement of Changes in Equity, and related notes, including the accounting policies in note 1.
We draw attention to note 1 to the financial statements which indicates that the Company is reliant on its ultimate parent undertaking, Capita plc, in regard to its ability to continue as a going concern. The most recent financial statements of Capita plc include material uncertainties that may cast significant doubt on its ability to continue as a going concern. The reliance of the Company on Capita plc accordingly means that these events and conditions constitute a material uncertainty that may cast significant doubt on the Group’s and in turn, the Company’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Going concern basis of preparation
The directors have prepared the financial statements on the going concern basis. As stated above, they have concluded that a material uncertainty related to going concern exists.
Based on our financial statements audit work, we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
Enquiring of directors and inspection of policy documentation as to the Company’s high-level policies and procedures to prevent and detect fraud, including the Company’s channel for “whistleblowing” as well as whether they have knowledge of any actual, suspected or alleged fraud.
Reading Board minutes and internal audit reports.
Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
Fraud and breaches of laws and regulations – ability to detect (Continued)
As required by auditing standards, and taking into account possible pressures to meet profit and revenue targets, we perform procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular the risk that the single long term contract that terminated during the year is inaccurately accounted for and the risk that management may be in a position to make inappropriate accounting entries. We also identified a fraud risk related to the risk of bias in accounting estimates such as the recoverability of both tangible and intangible assets.
We performed procedures including:
Identifying journal entries and other adjustments to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management or individuals who do not frequently post journals, and those posted to unusual accounts, including unexpected combination of entries related to revenue, expenses, cash and borrowings.
Assessing significant accounting estimates for bias
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors (as required by auditing standards), and from inspection of the Company’s regulatory and legal correspondence and discussed with the directors the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: anti-bribery and employment law. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Under the Companies Act 2006, we are required to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
Under the Companies Act 2006, we are required to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Nature and purpose of reserves:
a) Share Capital
The balance classified as share capital is the proceeds on issue of the Company's equity share capital comprising of 100 Ordinary shares of £1 each.
b) Retained deficit
Represents accumulated losses in the Company.
The notes on pages 14 to 37 form an integral part of these financial statements.
Capita Life & Pensions Services Limited is a company incorporated and domiciled in the United Kingdom .
The financial statements are prepared under the historical cost basis except where stated otherwise and in accordance with applicable accounting standards.
In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2020, the Company’s Directors (“the Directors”) are required to consider whether the Company can continue in operational existence for the foreseeable future, being a period of at least 12 months following the approval of these accounts. The Directors have concluded that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, and sensitivities, as set out below.
Board assessment
Base case scenario
The financial forecasts used for the going concern assessment are derived from the 2021-2023 business plans (‘BP’) for the Company which have been subject to review and challenge by management and the Directors. The Directors have approved the projections. The BP captures the benefits that the Capita group-wide transformation plan is anticipated to deliver, including sales growth together with margin improvements and cost out targets, and the costs to achieve these. COVID-19 has introduced unprecedented economic uncertainties and has led to increased judgement particularly in forecasting future financial performance. The forecast impact of COVID-19 has been incorporated within the base case forecasts, however the continuing uncertainty over how the COVID-19 pandemic might evolve, including the speed and timing of economic recovery, makes precise forecasting challenging.
Severe but plausible downside
In addition to the base case, the Directors considered severe but plausible downside scenarios, recognising [the execution risk associated with the transformation programme and] the broader uncertainty arising from COVID-19. The downside scenarios include trading downside risks, transformation programmes not delivering the anticipated benefits, together with] increased attrition, and further impacts of COVID-19. In addition, the downside scenario includes potential adverse financial impacts that could arise from unforeseen operational issues leading to contract losses and cash outflows.
Offsetting these risks the Directors have considered available mitigations within the direct control of the Company, including continued reductions to variable pay rises, setting aside any bonus payments and limiting discretionary spend.
Finally, the assessment has considered the extent to which the Company is reliant on the Group. The Company is reliant on the Group in respect of the following:
provision of certain services, such as administrative support services and should the Group be unable to deliver these services, the Company would have difficulty in continuing to trade;
participation in the Group’s notional cash pooling arrangements, of which £2, 308 , 979 was advanced at 3 0 April 2021. In the event of a default by the Group, the Company may not be able to access its facility balance within the pooling arrangement;
recovery of receivables of £ 552,016 from fellow Group undertakings as of 3 0 April 2021. If these receivables are not able to be recovered when forecast by the Company, then the Company may have difficulty in continuing to trade;
additional funding that may be required if the Company suffers potential/continuing future losses; and
revenue from other group entities or key contracts that may be terminated in the event of a default by the Group.
Despite the Company being in a net liability position, the ultimate parent undertaking has stated that it will provide continuing financial support as necessary and to the extent it is able to do so.
The BP forecasts are dependent on Capita plc providing additional financial support over the period to 31 August 2022 (the “going concern period”). Capita plc has indicated its intention to continue to make available such funds as are needed by the company for the period covered by the forecasts.
The BP forecasts are also dependent on the company’s immediate parent company, Capita Plc not seeking repayment of the amounts currently due to the group, which at 31 December 2020 amounted to £70,526,424. Capita Plc has indicated that it does not intend to seek repayment of these amounts for the period covered by the forecasts.
As with any company placing reliance on other group entities for financial support, the directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so.
Given the reliance the Company has on the Group, the Directors have considered the financial position of the ultimate parent undertaking as disclosed in its most recent financial statements, being for the year ended 31 December 2020.
Ultimate parent undertaking – Capita plc
The Capita plc Board (‘the Board’) concluded that it was appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties and sensitivities, when preparing the Group’s consolidated financial statements to 31 December 2020. These financial statements were approved by the Board on 16 March 2021 and are available on the Group’s website ( www.capita.com/investors ).
Below is a summary of the position as at 16 March 2021:
Accounting standards require that the foreseeable future covers a period of at least 12 months from the date of approval of the financial statements, although they do not specify how far beyond 12 months a Board should consider. In the prior year, the Board considered an extended period out to 31 August 2022 (30 months) which aligned with the expiry of the revolving credit facility (RCF). The Board continued to consider the period out to 31 August 2022 for the purpose of the going concern assessment, which reflects a period of at least 18 months from the date of approval of the Group consolidated financial statements (the going concern period). While this is a shorter period, it does align with the expiry of the RCF which is a key consideration. The Board also considered any committed outflows beyond this period in forming their assessment.
To address the resilience of the Group to its severe but plausible downside scenarios, the Board has been exploring a refinancing of the debt maturities to reprofile the debt repayments to align with the completion of the transformation programme while also providing the financial support necessary to complete the required investments. While refinancing was not completed in 2020, the Board did successfully arrange backstop facilities in February and August 2020, is already in discussion with lenders, and is targeting completion of a refinancing in 2021.
In addition to refinancing, the Board has approved a continuation of the previously announced disposal programme which covers businesses that do not align with the longer-term strategy for the Group. The Group has a strong track record of executing major planned disposals and the Board is confident that the disposal programme can be delivered given the strength of the underlying businesses and the value they deliver. The planned disposals will introduce considerable net cash proceeds to the Group, albeit with a corresponding removal of consolidated profits associated with these businesses.
Material uncertainties related to the group:
The Board recognises that any refinancing, should the severe downside play out, would require third party agreements from lenders. Furthermore, the disposal programme requires agreement from third parties, and major disposals may be subject to shareholder and lender approval. Such agreements and approvals are outside the direct control of the Group. Accordingly, these events give rise to material uncertainties, as defined in auditing and accounting standards, relating to events and circumstances which may cast significant doubt about the Group’s and Parent’s ability to continue as a going concern and, therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business.
Reflecting the Board’s confidence in the transformation programme, ability to refinance, and execution of the approved disposal programme, the Company continues to adopt the going concern basis in preparing the financial statements. The Board has concluded that the Group and Parent Company will continue to have adequate financial resources to realise their assets and discharge their liabilities as they fall due over the period to 31 August 2022. Consequently, these financial statements do not include any adjustments which would be required if the going concern basis of preparation is inappropriate.
Conclusion
Although the Company has a reliance on the Group as detailed above, even in a severe but plausible downside for both the Company and the Group, the Directors are confident the Company will continue to have adequate financial resources to release its assets and discharge its liabilities as they fall due over the period to 31 August 2022. Consequently, the annual report and financial statements have been prepared on the going concern basis.
However, as the Group’s financial statements have identified material uncertainties giving rise to significant doubt over the Group’s ability to continue as a going concern, given the Company’s reliance on the Group as set out above, this in turn gives rise to a material uncertainty relating to events and circumstances which may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, that the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments which would be required if the going concern basis of preparation were to be deemed inappropriate.
The Company has applied FRS 101 – Reduced Disclosure Framework in the preparation of its financial statements. The Company has prepared and presented these financial statements by applying the recognition, measurement, and disclosure requirements of international accounting standards in conformity with the requirements of the Companies, Act 2006.
The Company's ultimate parent undertaking, Capita plc, includes the Company in its consolidated statements. The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies, Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and are available to the public and may be obtained from Capita plc’s website on http://investors.capita.com .
In these financial statements, the Company has applied the disclosure exemptions available under FRS 101 in respect of the following disclosures:
A cash flow statement and related notes;
Co mparative period reconciliations for share capital, property, plant and equipment and intangible assets;
Disclosures in respect of transactions with wholly owned subsidiaries;
Disclosures in respect of capital management;
The effects of new but not yet effective IFRSs;
Certain disclosures regarding IFRS 15 Revenue from Contracts with Customers;
Certain disclosures regarding IFRS 1 6 Leases ; and
Disclosures in respect of the compensation of key management personnel.
As the consolidated financial statements of Capita plc include equivalent disclosures, the Company has also taken the disclosure exemptions under FRS 101 available in respect of the following disclosures:
Certain disclosures required by IFRS 2 Share Based Payments in respect of Group settled share based payments;
Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company, in the current and prior periods including the comparative period reconciliation for goodwill; and
Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures.
The Company has adopted the new amendments to standards detailed below but they do not have a material effect on the Company’s financial statements.
New amendments or interpretation |
Effective date |
Amendments to References to the Conceptual Framework in IFRS Standards |
1 January 2020 |
Definition of Material (Amendments to IAS 1 and IAS 8) |
1 January 2020 |
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) |
1 January 2020 |
Definition of a Business (Amendments to IFRS 3) |
1 January 2020 |
COVID-19 - Related Rent Concessions (Amendments to IFRS 16) |
1 June 2020 |
Revenue is earned within the United Kingdom. The Company currently services multiple customers within the Life and Pensions industry.
The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer.
Revenue is recognised either when the performance obligation in the contract has been performed ‘point in time' recognition’ or 'over time' as control of the performance obligation is transferred to the customer.
Contract types
The Company disaggregates revenue from contracts with customers by contract type, as management believe this best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors. Categories are: ‘long-term contractual – greater than two years’; and ‘short-term contractual – less than two years’. Years based from service commencement date.
Long term contractual - greater than two years
For long term contracts, the total transaction price is estimated at the inception of the contract, being the amount to which the Company expects to be entitled and has rights to under the present contract. The transaction price does not include estimates of consideration resulting from change orders for additional goods and services unless these are agreed. Once the total transaction price is determined, the Company allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied.
For each performance obligation, the Company determines if revenue will be recognised over time or at a point in time. Where the Company recognises revenue over time for long term contracts, this is in general due to the Company performing and the customer simultaneously receiving and consuming the benefits provided over the life of the contract.
Given the contract exit from HBOS in April 2020 the Company currently has no contracts which are in this long term category .
Short term contractual - less than two years
For short term contracts, the revenue is recognised on a Time & Materials basis in the month the activity takes place . The transaction price is agreed in advance with the client on a Day Rate basis. The total transaction price is driven by the above transaction price multiplied by the hours worked by the resource.
Transactional (point in time) contracts
The Company delivers transactional services for which revenue is recognised at the point in time when control of the goods or services has transferred to the customer. This may be at the point of physical delivery of goods and acceptance by a customer or when the customer obtains control of an asset or service in a contract with customer-specified acceptance criteria.
Deferred and accrued income
The Company’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and services being provided. This can include performance-based payments or progress payments as well as regular monthly or quarterly payments for ongoing service delivery. Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance.
Where payments made to date are greater than the revenue recognised to date at the period end date, the Company recognises a deferred income contract liability for this difference. Where payments made are less than the revenue recognised at the period end date, the Company recognises an accrued income contract asset for this difference.
At each reporting date, the Company assesses whether there is any indication that accrued income assets may be impaired by considering whether the revenue remains highly probable that no revenue reversal will occur. Where an indicator of impairment exists, the Company makes a formal estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value as at the date of acquisition. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Amortisation is charged on assets with finite lives, this expense is taken to the profit and loss account through the administrative expenses line item.
Intangible assets are tested for impairment, either individually or at the cash-generating unit level, where there is an indicator of impairment.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account when the asset is de-recognised.
The Company currently only has software and licences as intangibles. Software and licences are amortised over their useful economic lives of 5-10 years from the date they are brought into use.
Regular computer equipment is depreciated over 3-5 years in line with the standard Group policy. In addition the Company holds shared infrastructure assets which support the deployment of desktop and laptop devices across the business; this platform is depreciated over a period of 10 years, representing the expected useful life of this specific asset.
All investments are stated at cost. Subsequently they are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
The Company leases various assets, comprising land and buildings, equipment and motor vehicles.
The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The following sets out the Company’s lease accounting policy for all leases with the exception of leases with low value and term of 12 months or less which we have taken the exemption in the standard. These are expensed to the income statement.
At the inception of the lease, the Company recognises a right-of-use asset and a lease liability. A right-of-use asset is capitalised in the balance sheet at cost, which comprises the present value of minimum lease payments determined at the inception of the lease. A lease liability of equivalent value is also recognised. Right-of-use assets are depreciated using the straight-line method over the shorter of estimated life or the lease term. Depreciation is included within the line item administrative expenses in the income statement.
The Company as a lessee - Right-of-use assets and lease liabilities
Right-of-use assets are measured at cost, which comprised the initial amount of the lease liability adjusted for any lease payments made at or before the adoption date, less any lease incentives received at or before the adoption date and less any onerous lease provisions (reclassified on the opening balance sheet). Depreciation is included within administrative expenses in the income statement. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be fully recoverable. Right-of-use assets exclude leases with a low value and term of 12 months or less. These leases are expensed to the income statement as incurred.
Lease liabilities are measured at amortised cost using the effective interest rate method. Lease payments are apportioned between a finance charge and a reduction of the lease liability based on the constant interest rate applied to the remaining balance of the liability. Interest expense is included within the line item net finance costs in the consolidated income statement.
The lease payments comprise fixed payments, including in-substance fixed payments such as service charges and variable lease payments that depend on an index or a rate, initially measured using the minimum index or rate at inception date. The payments also include any lease incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option. Lease liability is adjusted for any prepayment.
The lease term determined comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are included if the Company has reasonable certainty that the option will be exercised and periods covered by the option to terminate are included if it is reasonably certain that this will not be exercised.
The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments due to a renegotiation or market rent review, a change of an index or rate or a reassessment of the lease term. Payments associated with leases that have a term of less than 12 months or are of low value are recognised as an expense in the income statement as incurred.
The Company as a lessor
The Company acts as an intermediate lessor of property assets and equipment. When the Company acts as a lessor, it determines at lease commencement whether the lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership in relation to the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. The Company recognises lessor payments under operating leases as income on a straight-line basis over the lease term. The Company accounts for finance leases as finance lease receivables, using the effective interest rate method.
Investments and other financial assets
Classification
T he Company classifies its financial assets in the following measurement categories:
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
those to be measured at amortised cost.
The classification depends on the Company ’s business model for managing the financial assets and the contractual terms of the cash flows.
Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Impairment
T he Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.
Trade and other receivables
The Company assesses on a forward looking basis the expected credit losses associated with its receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of 3 months or less. Bank overdrafts are shown within current liabilities .
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of the asset's recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use is determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences:
- except where the deferred tax liability arises from the initial recognition of goodwill
- except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss ; and
- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future .
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date .
Group Accounts
The financial statements present information about the Company as an individual undertaking and not about its Group. The Company has not prepared Group accounts as it is exempt from the requirement to do so by section 400 of the Companies Act 2006 as it is a subsidiary undertaking of Capita plc, a company incorporated in England and Wales, and is included in the consolidated accounts of that Company.
The preparation of financial statements in conformity with generally accepted accounting principles requires the directors to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported income and expense during the reported periods. Although these judgements and assumptions are based on the D irectors’ best knowledge of the amount, events or actions, actual results may differ.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the impairment of property plant & equipment and the value of any commercial disputes with suppliers.
The total revenue of the C ompany for the year has been derived from its principal activity wholly undertaken in the United Kingdom.
Recharge of depreciation and net project cost: the Company holds assets which are used as shared infrastructure. In order to provide additional clarity to the Company’s financial position from 2019 the Board has agreed to charge the depreciation and amortisation on these assets, as well as any supporting shared project work, to CLPRS Ltd at cost.
Impairment of property, plant and equipment: Out of the total impairment, £266,485 relates to write off for Royal London assets due to shortening of Royal London contract with the Company and £951,094 relates to write off for MetLife contract as the assets has been reclassified to held for sale, and therefore an impairment is necessary.
Impairment of intangible assets: The impairment of £597,534 relates to write off for Royal London assets due to shortening of Royal London contract with the Company.
Recharge of divisional overhead : There are no divisional overhead recharges in the current year as all the divisional overhead was moved out of the Company for 2020 due to the entity moving from the Specialist Services to Customer Management division. (2019: £3,166,858)
Audit fees are borne by the ultimate parent undertaking, Capita plc. The audit fee for the current period was £30,000 (2019: £29,716). The Company has taken advantage of the exemption provided by regulations 6(2)(b) of The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 not to provide information in respect of fees for other (non-audit) services as this information is required to be given in the Company accounts of the ultimate parent undertaking, which it is required to prepare in accordance with the Companies Act 2006.
A change to the main UK corporation tax rate was substantively enacted on 17 March 2020. The rate applicable from 1 April 2020 now remains at 19%, rather than the previously enacted reduction to 17%. The UK deferred tax asset at 31 December 2020 has been calculated based on this rate, resulting in a £1,307,253 tax credit to the income statement in 2020.
On 3 March 2021, it was announced in the Budget that the UK tax rate will increase from 19% to 25% from 1 April 2023 onwards. This will increase the company’s future income tax charge from 2023. If this rate change had theoretically been applied to the deferred tax balances at 31 December 2020, the deferred tax asset would have increased by £4,113,077.
The nominal proceeds on issue of the Company's equity share capital, comprising 100 ordinary shares of £ 1 each .
Contributions in respect of defined contribution schemes payable by the Company during the year amounted to £1,562,960 (2019: £1,880,163).
The Company has current and former employees who were members of the Capita Pension and Life Assurance Scheme (the "Capita DB Scheme"), a defined benefit scheme.
The Capita DB Scheme is a non-segregated scheme but there are around 200 different sections in the scheme where each section provides benefits on a particular basis (some based on final salary, some based on career average earnings) to particular groups of employees.
As the Company no longer has any active members in the Capita DB Scheme, this triggered a cessation event which means a Section 75 debt (which is a statutory debt due from a participating employer to the trustees of a multi-employer defined benefit pension scheme which is in deficit) would have become due. However, the Trustee of the Capita DB Scheme agreed that the pension liabilities attributable to the Company would be transferred to Capita Business Services Ltd (the Principal Employer of the Capita DB Scheme and a fellow subsidiary undertaking), which removed the Section 75 debt due from the Company. This Flexible Apportionment Arrangement was agreed in early 2018. As a result of the arrangement, the Company is no longer a formal participating employer in the Capita DB Scheme. In return for the Trustee granting this Flexible Apportionment Arrangement, the Company has provided a guarantee to the Capita DB Scheme that puts the Company into the same position as if it had remained a participating employer. However, the probability of any liability crystallising on the guarantee has been assessed as remote.
The pension charge for the Company in relation to the Capita DB Scheme for the year was £nil (2019: £nil).
A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent actuary for the Trustee, with the last full valuation carried out at 31 March 2017. Amongst the main purposes of the valuation is to agree a contribution plan such that the pension scheme has sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee and the Principal Employer. The 31 March 2017 valuation showed a funding deficit of £185m (31 March 2014: £1.4m). This equates to a funding level of 86.1% (31 March 2014: 99.8%).
As a result of the funding valuation, the Principal Employer and the Trustee agreed the payment of additional contributions totaling £176m between November 2018 and 2021 with the intention of removing the deficit calculated as at 31 March 2017 by 2021.
In addition, the Principal Employer agreed an average employer contribution rate of 28.1% (excluding employee contributions made as part of a salary sacrifice arrangement) towards the expected cost of benefits accruing.
The next scheme funding assessment is being carried out with an effective date of 31 March 2020.
For the purpose of the consolidated accounts of Capita plc, an independent qualified actuary projected the results of the 31 March 2020 funding assessment, currently in progress, to 31 December 2020 taking account of the relevant accounting requirements.
The principal assumptions for the valuations at 31 December 2020 were as follows: rate of increase in the RPI/CPI price inflation – 2.9% pa/2.15% pa (2019: 3.0% pa/2.0% pa); rate of salary increase – 2.9% pa (2019: 3.0% pa); rate of increase for pensions in payment (where RPI inflation capped at 5% pa applies) – 2.85% pa (2019: 2.95% pa); discount rate – 1.3% pa (2019: 2.05% pa).
The Capita DB Scheme assets at fair value at 31 December 2020 totalled £1,568.8m (2019: £1,353.1m). The actuarially assessed value of Capita DB Scheme liabilities at 31 December 2020 was £1,810.6m (2019: £1,585.9m) indicating that the Capita DB Scheme had a net liability of £241.8m (2019: net liability of £232.8m). These figures are quoted gross of deferred tax. The full disclosure is available in the consolidated accounts of Capita plc.
The average monthly number of employees (including non-executive D irectors) w ere :
Their aggregate remuneration comprised:
The Directors' were paid by another subsidiary c ompany. As no significant time was spent by the Directors on the Company's affairs, no Directors' remuneration has been allocated to this Company.
On 1 March 2021, the Company received dividend from Capita Life and Pensions (Ireland) Limited of £1,443,221.
On 1 March 2021, the Company completed the sale of its investment in Capita Life and Pensions (Ireland) Limited for a consideration of £10,092,293.