Company registration number 05296886 (England and Wales)
CAPITA RETAIL FINANCIAL SERVICES LIMITED
ANNUAL REPORT AND UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
CAPITA RETAIL FINANCIAL SERVICES LIMITED
COMPANY INFORMATION
Directors
Capita Corporate Director Limited
C C Clements
Secretary
Capita Group Secretary Limited
Company number
05296886
Registered office
65 Gresham Street
London
England
EC2V 7NQ
CAPITA RETAIL FINANCIAL SERVICES LIMITED
CONTENTS
Page
Strategic report
1 - 6
Directors' report
7 - 8
Income statement
9
Balance sheet
10
Statement of changes in equity
11
Notes to the financial statements
12 - 25
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 1 -
The Directors present their Strategic report and financial statements for the year ended 31 December 2023.
Capita Retail Financial Services Limited ('the Company') is a wholly owned subsidiary (indirectly held) of Capita plc. Capita plc, along with all its subsidiaries' is hereafter referred to as 'the Group'. The Company operates within the Capita Experience division of the Group.
Principal activities
The principal activity was that of outsourced business support services functions to client organisations. On 1 May 2023, the Group as a part of a reorganisation of its Experience business, transferred the trade and associated assets and liabilities of the Company to Western Mortgage Services Limited, a fellow group subsidiary company. The assets and liabilities were transferred at their existing carrying values and the consideration was received through an intragroup loan. Refer to note 17 of financial statement for more information on business transfers. The Directors plan to liquidate the Company within twelve months from the approval of these annual financial statements and therefore have prepared the financial statements on the basis that the Company is no longer a going concern.
Review of the business
As shown in Company's income statement on page 9, revenue has decreased from £26,024,380 in 2022 to £10,046,865 in 2023 and Company's Operating loss has decreased from £2,098,439 in 2022 to Operating profit of £6,173 in 2023 mainly on account of business transfer during the year.
The balance sheet on page 10 of the financial statements shows the financial position at the year end. Net assets have increased from £51,605,044 in 2022 to £52,837,990 in 2023 primarily due to profits earned by the company during the year.
Details of the amounts owed by/to its parent company and fellow subsidiary companies are shown in notes 8 and 9 to the financial statements.
The key financial performance indicators used by the Group, on a consolidated basis, are adjusted revenue, adjusted profit before tax, adjusted basic/diluted earnings per share, free cash flow excluding business exits, and gearing ratios. The Group manages its operations on a divisional basis and consequently, some of these indicators are monitored at a divisional level. The performance of the Capita Experience division is discussed in the Group's annual report which does not form part of this report.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 2 -
Principal risks and uncertainties
The Company is exposed to a range of risks that, should they materialise, could have a detrimental impact on financial performance, reputation or operational resilience. The Company’s risk management framework provides a consistent approach to the identification, assessment, monitoring and reporting of risks and opportunities. The risk management process is based on risk registers and risk reporting at the established risk governance committees. Key risks are documented in the risk registers and have assigned risk owners who review them regularly, and report on them at least quarterly, as part of the risk reporting process. The strength of existing controls is evaluated to determine whether any further mitigating actions are needed to manage the risk level to within the risk appetite set by the Board.
The principal risks for the Company are:
Financial stability
Maintain financial stability and achieve financial targets.
Cyber security
Protect our systems, networks and programs from unauthorised use and access.
ESG
Comply with regulatory and contractual requirements to drive a purpose driven organisation with the right focus on governance.
Data governance and data privacy
Manage our data effectively (both clients and Capita) as a strategic asset across the organisation.
As a subsidiary of Capita plc, the Company is subject to controls and risk governance techniques applied across all the Group's businesses. Details of the specific risk assessments and mitigating actions are outlined on pages 57-63 of the Group's 2023 Annual Report.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 3 -
Section 172 statement
Capita plc’s section 172 statement applies to its Divisions 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(1)(a) 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 45, 46 and 47 of Capita plc’s 2023 Annual Report.
Our People
Why they are important
They deliver our business strategy; they support the organisation to build a values-based culture; and they deliver our products and services ensuring client satisfaction.
What matters to them
Flexible working; learning and development opportunities leading to career progression; fair pay and benefits as a reward for performance; and two-way communication and feedback.
How we engaged
People surveys
Regular all-employee communications
Employee director on the Capita plc Board
Employee focus groups and network groups
Workforce engagement on remuneration
Regular ‘breakfast’ sessions with the Executive Committee for our colleagues
Topics of engagement
Creating an inclusive workplace
Health and wellbeing
Speak Up policy
Directors’ remuneration
Acting on survey feedback
The career path framework
The redundancy consultation programme announced in November 2023
Outcomes and actions
The 2023 employee survey showed key indices had either improved or remained steady with a five-point increase in the eNPS compared with 2022. 63% of colleagues who responded felt proud to work at Capita. We are developing and delivering a range of action plans, including ensuring our leaders feel confidence in, and ownership of Capita’s strategy, plans and successes, developing inclusive opportunities for internal career mobility.
In December 2023, the Board agreed that while the appointment of employee directors had been successful, it was appropriate for the Board to consider a wider level of engagement with colleagues, including site visits arranged for individual directors to meet with local management and colleagues at Capita’s businesses. In addition, the Board has appointed Nneka Abulokwe as the designated non-executive director to engage with colleagues. Adolfo Hernandez, our new CEO, has also commenced a series of breakfast sessions to meet with colleagues of differing seniority and at different locations throughout the Group. Janine Goodchild stepped down from the Board as an employee director on 31 December 2023.
The UK real living wage increase was applied from 1 April 2023. At the end of 2023, we took the difficult decision to withdraw from the UK’s real living wage. Since 2020, the Group has increased the salaries of our lowest earners by 22% and the 2024 real living wage increase of 10.1% was not something we could commit to given the need for Capita to remain cost competitive and reflecting the fact that this is not a cost we are able to pass on to clients.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 4 -
The global career path framework which defines career levels, career job content, and reward framework within Capita was launched during the year.
In October 2023, Capita was recognised by Forbes, as being one of the top companies for women, ranking at number 18 out of 400 global companies on their list.
We continued to promote our Speak Up policy throughout the organisation.
Risks to stakeholder relationship
Our ability to recruit due to the national and global labour market demand for resources
Our ability to retain and develop people, impacting our quality of service and our financial performance
Our ability to evolve our culture and practices in line with our responsible business agenda
Key metrics
Voluntary attrition, employee NPS, employee engagement Index and people survey completion level.
Clients and customers
Why they are important
They are recipients of Capita’s services; and Capita’s reputation depends on consistent and timely delivery of the services they need from us.
What matters to them
High-quality service delivery; delivery of transformation projects within agreed timeframes; and responsible and sustainable business credentials.
How we engaged
Client meetings and surveys
Regular meetings with government stakeholders and annual review with the Cabinet Office
Through our customer advisory boards
Through our senior client partner programme giving an experienced single point of contact for key clients and customers
Introductory meetings and correspondence with the new CEO and new interim CEO, Capita Public Service
Topics of engagement
Current service delivery
Transition and mobilisation of services
Capita’s digital transformation capabilities
Possible future services
Co-creation of client value propositions
The cyber incident
Ongoing benefits of hybrid working on client services
Outcomes and actions
Feedback provided to business units to address any issues raised; client value proposition teams supporting divisions with co-creation ideas; direct customer and sector feedback; and senior client partner programme undertaking client-focused growth sprints to build understanding of client issues and ideas to help address them.
Risks to stakeholder relationship
Loss of business by not providing the services that our clients and customers want
Damage to reputation by not delivering to the requirements of our clients and customers
Loss of customers for our clients
Key metrics
Customer NPS; specific feedback on client engagements.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 5 -
Suppliers and Partners
Why they are important
They share our values and help us deliver our purpose; maintain high standards in our supply chain; and achieve social, economic and environmental benefits aligned to the Social Value Act. Our suppliers and partners provide additional expertise, skill and technology, elevating our offering.
What matters to them
Payments made within agreed payment terms; clear and fair procurement process; building lasting commercial relationships; and working inclusively with all types of business.
How we engaged
Supplier meetings throughout source to procure process
Regular reviews with suppliers
Supplier questionnaires and risk assessments
Topics of engagement
Outcomes and actions
Our supplier charter, which is available on our website, remains at the core of strengthening our commitments and sets out how we conduct business in an open, honest and transparent manner, and what we expect of our suppliers. This year, it was refreshed and relaunched.
To understand Capita’s Scope 3 carbon footprint, a supplier engagement programme was also undertaken with suppliers accounting for £1bn annual spend (over 50% of the supply chain by spend) to ask them to disclose their carbon emissions to CDP.
During 2023, 99% of our suppliers were paid within 60 days.
Risks to stakeholder relationship
Key metrics
99% of supplier payments within agreed terms; SME spend allocation; and supplier diversity profile.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 6 -
Society
Why they are important
Capita is a provider of key services to government impacting a large proportion of the population.
What matters to them
Social mobility; youth skills and jobs; digital inclusion; diversity and inclusion; climate change; business ethics; accreditations and benchmarking; and cost of living crisis.
How we engaged
Membership of non-governmental organisations
Charitable and community partnerships
External accreditations and benchmarking
Working with clients, suppliers and the Cabinet Office
Topics of engagement
Youth employment
Workplace inequalities
Diversity & inclusion
Climate change
Outcomes and actions
Youth and employability programme such as Social Shifters; ranked 18 on the Forbes Global list of top employers for women; a 5% reduction in our gender pay gap (compared with 2022); awarded Employer’s Network for Equality and Inclusion; achieved a silver Tidemark and an A CDP (Carbon Disclosure Project) score as well as a silver medal in EcoVadis for Capita plc.
Risks to stakeholder relationship
Key metrics
Community investment, workforce diversity and ethnicity data, including pay gaps.
C C Clements
Director
13 September 2024
CAPITA RETAIL FINANCIAL SERVICES LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 7 -
The Directors present their Directors' report and financial statements for the year ended 31 December 2023.
Results and dividends
The results for the year are set out on page 9.
No ordinary dividend was paid or proposed during the year (2022: £nil).
Directors
The Directors, who held office during the year and up to the date of signature of the financial statements were as follows:
Capita Corporate Director Limited
C C Clements
A Ajit
(Resigned 9 April 2024)
M Billingham
(Resigned 31 March 2023)
Political donations
The Company made no political donations and incurred no political expenditure during the year (2022: £nil).
Disabled persons
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the company's continues and that the appropriate training is arranged. It is the policy of the company that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.
Employee involvement
The Company is committed to involving all employees in the performance and development of the Company. Employees are distributed with frequent newsletters and internal notice broad statements. The Company maintains a strong communication network and employees are encouraged to discuss with management matters of interest to them and subjects affecting the day to day operations of the Company.
The company's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests. Information of matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the group's performance.
Environment
The Company recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce any damage that might be caused by the it’s activities. The Company operates in accordance with Group policies, which are described in the Group’s 2023 annual report that does not form part of this report. Initiatives designed to minimise the Company’s impact on the environment include safe disposal of waste, recycling and reducing energy consumption.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 8 -
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic report, the Directors’ report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with United Kingdom ('UK') accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern (see note 1.1).
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Strategic report
In accordance with s414c(11) of the Companies Act 2006, the Company has set out certain information in its Strategic report that is otherwise required to be disclosed in the Directors' report. This includes information regarding results and activities and a description of the principle risks and uncertainties facing the Company.
Qualifying third party indemnity provisions
The Company has granted an indemnity to the directors of the Company against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. This qualifying third-party indemnity provision remains in force as at the date of approving the directors' report.
On behalf of the board
C C Clements
Director
13 September 2024
CAPITA RETAIL FINANCIAL SERVICES LIMITED
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 9 -
2023
2022
Notes
£
£
Revenue
3
10,046,865
26,024,380
Cost of sales
(9,209,310)
(25,005,607)
Gross profit
837,555
1,018,773
Administrative expenses
(831,382)
(3,117,212)
Operating profit/(loss)
4
6,173
(2,098,439)
Net finance income
5
1,153,963
1,041,381
Profit/(loss) before tax
1,160,136
(1,057,058)
Income tax credit
6
72,810
189,903
Profit/(loss) and total comprehensive income/(expense) for the year
1,232,946
(867,155)
The income statement has been prepared on the basis that the company has ceased all its operation.
The notes and information on pages 12 to 25 form an integral part of these financial statements.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
BALANCE SHEET
AS AT
31 DECEMBER 2023
31 December 2023
- 10 -
2023
2022
Notes
£
£
Current assets
Property, plant and equipment
7
9,671
Trade and other receivables
8
53,087,353
75,948,068
Deferred tax assets
107,581
Income tax receivable
553,297
Total assets
53,087,353
76,618,617
Current liabilities
Trade and other payables
9
3,239,473
Deferred income
10
1,933,238
Financial liabilities
11
17,215,663
Provisions
12
2,625,199
Income tax payable
249,363
Total liabilities
249,363
25,013,573
Net assets
52,837,990
51,605,044
Capital and reserves
Issued share capital
13
2
2
Retained earnings
52,837,988
51,605,042
Total equity
52,837,990
51,605,044
The notes and information on pages 12 to 25 form an integral part of these financial statements.
For the financial year ended 31 December 2023, the company was entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies.
The Directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of financial statements.
The members have not required the company to obtain an audit of its financial statements for the year in question in accordance with section 476.
These financial statements were approved by the board of directors and authorised for issue on 13 September 2024 and are signed on its behalf by:
C C Clements
Director
Company registration number 05296886 (England and Wales)
CAPITA RETAIL FINANCIAL SERVICES LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
- 11 -
Share capital
Retained earnings
Total equity
£
£
£
At 1 January 2022
2
52,472,197
52,472,199
Loss for the year
-
(867,155)
(867,155)
At 31 December 2022
2
51,605,042
51,605,044
Profit for the year
-
1,232,946
1,232,946
At 31 December 2023
2
52,837,988
52,837,990
Share capital
The balance classified as share capital is the nominal proceeds on issue of the Company's equity share capital, comprising two ordinary shares of £1 each.
Retained earnings
Net profits accumulated in the Company after dividends are paid.
The notes and information on pages 12 to 25 form an integral part of these financial statements.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
- 12 -
1
Accounting policies
1.1
Basis of preparation
Capita Retail Financial Services Limited is a private company limited by shares incorporated in England and Wales. The registered office is 65 Gresham Street, London, England, EC2V 7NQ. The company's principal activities and nature of its operations are disclosed in the Strategic report.
In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2023, 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 twelve months following the approval of these accounts.
The principal activity of the Company was that of outsourced business support services functions to client organisations. On 1 May 2023, the Group as a part of a reorganisation of its Experience business, transferred the trade and associated assets and liabilities of the Company to Western Mortgage Services Limited, a fellow group subsidiary company.The Directors have therefore prepared the financial statements on the basis that the Company is no longer a going concern. The financial statements have been prepared on a breakup basis as at 31 December 2023. As a consequence, the Directors have considered the adjustments required to prepare the financial statement on a breakup basis. The expected realisable and settlement values for current assets and liabilities are not considered to be materially different from their carrying value at the balance sheet date. Therefore, the Directors have considered that no further adjustments are required as a result of preparing the financial statements on a breakup basis.
1.2
Compliance with accounting standards
The Company has applied FRS101 – 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 company, Capita plc, includes the Company in its consolidated financial statements. The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and with UK-adopted International Financial Reporting Standards ('IFRSs') and the Disclosure and the Transparency Rules of the UK's Financial Conduct Authority. They are available to the public and may be obtained from Capita plc’s website on https://www.capita.com/investors .
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;
Comparative period reconciliations for tangible fixed 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 as required by IFRS 15 ; and
Disclosures in respect of the compensation of key management personnel.
Since 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 Certain disclosures required by IFRS 7 Financial Instrument Disclosures and certain disclosure exemptions as permitted by IFRS 13 Fair value measurement.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 13 -
1.3
Change in accounting policies
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 interpretations | |
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts | |
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) | |
Definition of Accounting Estimates (Amendments to IAS 8) | |
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) | |
International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) | |
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 14 -
1.4
Revenue
The Company operates a range of businesses and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS 15.
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 (so ‘point-in-time’ recognition) or ‘over-time’ when control of the performance obligation is transferred to the customer.
For all contracts, the Company determines if the arrangement with a customer creates enforceable rights and obligations. This assessment results in certain Master Service Agreements ('MSAs') or frameworks not meeting the definition of a contract under IFRS 15 and as such the individual call-off agreements, linked to the MSA, are treated as individual contracts.
The Company enters into contracts which contain extension periods, where either the customer or both parties can choose to extend the contract or there is an automatic annual renewal, and/or termination clauses that could impact the actual duration of the contract. Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the contract impacts both the period over which revenue from performance obligations may be recognised and the period over which contract fulfilment assets and capitalised costs to obtain a contract are expensed.
For contracts with multiple components to be delivered, for example transformation; transitions and the delivery of outsourced services; management applies judgement to consider whether those promised goods and services are:
distinct – to be accounted for as separate performance obligations;
not distinct – to be combined with other promised goods or services until a bundle is identified that is distinct; or
part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.
At a contract's inception the total transaction price is estimated, being the amount to which the Company expects to be entitled and has rights to under the contract. This includes an assessment of any variable consideration where the Company’s performance may result in additional revenues based on the achievement of agreed Key Performance Indicators ('KPIs'). Such amounts are only included based on the expected value or the most likely outcome, and only to the extent that it is highly probable that no revenue reversal will occur.
The transaction price does not include estimates of consideration resulting from change orders for additional goods and services unless these are already agreed.
Once the total transaction price is determined, the Company allocates this to the identified performance obligations in proportion to their relative standalone selling prices and recognises revenue when (or while) those performance obligations are satisfied.
The Company infrequently sells standard products with observable standalone prices due to the specialised services required by customers, consequently the Company applies judgement to determine an appropriate standalone selling price. More frequently, the Company sells customers bespoke solutions, and in these cases the Company typically uses the expected cost-plus margin or a contractually stated price approach to estimate the standalone selling price of each performance obligation.
The Company may offer price step downs during the life of a contract, but with no change to the underlying scope of services to be delivered. In general, any such variable consideration, price step down or discount is included in the total transaction price to be allocated across all performance obligations unless it relates to only one performance obligation in the contract.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 15 -
Revenue (continued)
For each performance obligation to be recognised over-time, the Company applies a revenue recognition method that faithfully depicts the Company’s performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods or services that the Company has promised to transfer to the customer. The Company applies the relevant output or input method consistently to similar performance obligations in other contracts.
When using the output method, the Company recognises revenue on the basis of direct measurements of the value to the customer of the goods and services transferred to date relative to the remaining goods and services under the contract. Where the output method is used, in particular for long-term service contracts where the series guidance is applied, the Company often uses a method of time elapsed which requires minimal estimation. Certain long-term contracts use output methods based upon estimations of: user numbers; service activity levels; or fees collected.
When transfer of control is most closely aligned to the Company's efforts in delivering the service, the input method is used to measure progress, and revenue is recognised in direct proportion to costs incurred. This is a faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits received by the customer from efforts to date.
If performance obligations in a contract do not meet the over-time criteria, the Company recognises revenue at a point-in-time when the service or good is delivered.
Contract modifications
The Company’s contracts are often amended for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new or changes existing, enforceable rights and obligations.
The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognised as an adjustment to revenue in one of the following ways:
a) prospectively as an additional separate contract;
b) prospectively as a termination of the existing contract and creation of a new contract;
c) as part of the original contract using a cumulative catch up; or
d) as a combination of (b) and (c).
In respect of contracts for which the Company has decided there is a series of distinct goods and services that are substantially the same and have the same pattern of transfer where revenue is recognised over-time, the modification will always be treated under either (a) or (b); (d) may arise when a contract has a part-termination and a modification of the remaining performance obligations.
The facts and circumstances of any contract modification are considered individually because the types of modifications will vary contract by contract and may result in different accounting outcomes. Judgement is applied in relation to the accounting for such modifications where the final terms or legal contracts have not been agreed prior to the period end. In these cases management need to determine if a modification has been approved and if it either creates new or changes existing, enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount of revenue recognised may be different in the relevant accounting periods. Modification and amendments to contracts are undertaken through an agreed formal process. For example, if a change in scope has been approved but the corresponding change in price is still being negotiated, management uses its judgement to estimate the change to the total transaction price. Importantly, any variable consideration is only recognised to the extent that it is highly probable that no revenue reversal will occur. For example, if pricing is subject to indexation based on an external metric (such as the Consumer Price Index ('CPI') or such as the Retail Price Index ('RPI')) then revenue related to the indexation will only be recognised after the relevant indexation is confirmed. Future indexation will not be recognised because it is not highly probable that a significant reversal of an indexation adjustment will not occur.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 16 -
Revenue (continued)
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/or services being provided. This can include performance-based payments or progress payments and 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. The long-term service contracts tend to have higher cash flows early in the contract to cover transformational activities.
Where payments received are greater than the revenue recognised up to the balance sheet date, the Company recognises a deferred income contract liability for this difference. Where payments received are less than the revenue recognised up to the balance sheet date, the Company recognises an accrued contract income asset for this difference.
At each balance sheet date, the Company assesses whether there is any indication that accrued contract income assets may be impaired by considering whether or not any revenue reversal could 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.
Contract types
The Company disaggregates revenue from contracts with customers by contract type, because 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; short-term contractual – less than two years; and transactional. The years being measured from the service commencement date.
Long-term contractual - greater than two years
The Company provides a range of services under contracts with a duration of more than two years. The nature of contracts or performance obligations within this revenue type includes:
(i) long-term outsourced service arrangements in the public and private sectors; and
(ii) active software license arrangements.
The majority of long-term contractual contracts form part of a series of distinct goods and services because they are substantially the same service; and have the same pattern of transfer since the series constitutes services provided in distinct time increments (e.g., daily, monthly, quarterly or annually services) and therefore treats the series as one performance obligation.
Short-term contractual - less than two years
The nature of contracts or performance obligations within this revenue type includes:
(i) short-term outsourced service arrangements in the public and private sectors; and
(ii) software maintenance contracts.
The Company has assessed that maintenance and support (i.e., on-call support, remote support) for software licences is a performance obligation that can be considered capable of being distinct and separately identifiable in a contract if the customer has a passive licence. These recurring services are substantially the same because the nature of the promise is for the Company to ‘stand ready’ to perform maintenance and support when required by the customer.
Each day of ‘standing ready’ is distinct from each subsequent day and is transferred in the same pattern to the customer.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 17 -
Revenue (continued)
Transactional (point-in-time) contracts
The Company delivers a range of goods or services that are 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 or services and acceptance by the customer or when the customer obtains control of an asset or service in a contract with customer-specified acceptance criteria.
The nature of contracts or performance obligations within this revenue type includes:
(i) provision of computing hardware goods;
(ii) passive software license agreements;
(iii) commission received as agent from the sale of third-party software; and
(iv) fees received in relation to delivery of professional services.
1.5
Property, plant and equipment
Property, plant and equipment other than freehold land are stated at cost less depreciation and impairment. Depreciation is provided at rates calculated to write-off the cost less estimated residual value of each asset over its expected useful life, as follows:
Leasehold improvement
Over the period of lease.
Fixtures, fittings and equipment
4 - 5 years
1.6
Financial instruments
Trade and other receivables
The trade and other receivables have been measured and presented at their expected realisable values.
Trade and other payables
The trade and other payables have been measured and presented at their expected settlement values.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at their fair value less any directly attributable transaction costs. After initial recognition, loans and borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.
Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process.
Impairment
The Company assesses, on a forward-looking basis, the expected credit losses associated with its financial instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
1.7
Taxation
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.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 18 -
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 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 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 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.
1.8
Provisions
Provisions are recognised when the Company has a present legal or constructive obligation arising from past events, it is probable that cash will be paid to settle it, and the amount can be estimated reliably.
If the effect of the time value of money is material, provisions are discounted using the yield on government bonds which have a similar timing and currency of cash flows to the provision being discounted. Where required adjustments are made to the yields to reflect the risks specific to the cash flows being discounted. The unwinding of the discount is recognised as a financing cost in the income statement.
The value of the provision is determined based on assumptions and estimates in relation to the amount, timing and likelihood of actual cash flows, which are dependent on future events. Where no reliable basis of estimation can be made, no provision is recorded. However, contingent liabilities disclosures are given when there is a greater than remote probability of outflow of economic benefits.
On an ongoing basis, management monitor provisions and their accurate estimation when compared to final outcomes.
1.9
Pensions
The Company participates in a number of defined contribution schemes and contributions are charged to the income statement in the year in which they are due. These schemes are funded and the payment of contributions is made to separately administered trust funds. The assets of these schemes are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services Limited, a fellow subsidiary company, which pays the Group liability centrally. Any unpaid contributions at the year-end are accrued in the accounts of that company.
1.10
Leases
The Company has elected not to recognise the right-of-use assets and lease liabilities for short term leases that have a lease term of twelve months or less and leases of low value assets. The Company recognises the lease payments associated with the leases as an expense on a straight line basis over the lease term.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 19 -
1.11
Common control transactions
Where a business is transferred from one legal entity to another legal entity within the Capita Group under a Business Transfer Agreement ('BTA'), this is treated as a business combination under common control, and would therefore fall outside of the scope of IFRS 3 Business Combinations. As such, an accounting policy choice has been made for how common control transactions are dealt with across the Group, as follows:
Where a BTA is undertaken at net book value (with consideration paid equal to the net book value of the assets and liabilities transferred on the BTA date), the relevant assets and liabilities of the transferring business are recognised in the transferee at their previous carrying values as in the transferor’s standalone entity accounts;
Where the consideration paid is greater than the net book value of the assets and liabilities transferred, this excess is recognised as a gain on disposal for the transferor, and by the recognition of entity level goodwill in the transferee, which would be linked to the acquired business.
2
Significant accounting judgements, estimates and assumptions
The preparation of financial statements in accordance 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 presented periods. Although these judgements and assumptions are based on the directors’ best knowledge of the amount, events or actions, actual results may differ. No significant judgements, estimates and assumptions were used in preparation of financial statements in current reporting period.
3
Revenue
The total revenue of the Company for the year has been derived from its principal activity largely undertaken in the United Kingdom.
4
Operating Profit/(loss)
Notes
2023
2022
Operating Profit/(loss) for the year is stated after charging:
£
£
Depreciation of property, plant and equipment
7
7,095
25,381
Short term lease rentals
1,319
3,938
5
Net finance income
2023
2022
£
£
Interest income
Interest income on bank balance
5,839
Interest receivable from Group companies
1,373,650
1,035,542
1,373,650
1,041,381
Interest expense
Interest expense on bank overdrafts and loans
(219,687)
(219,687)
Total net finance income
1,153,963
1,041,381
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 20 -
6
Income tax
The major components of income tax credit are:
2023
2022
£
£
Current tax
UK corporation tax
265,398
(195,570)
Adjustments in respect of prior periods
(367,043)
(37,419)
(101,645)
(232,989)
Deferred tax
Origination and reversal of temporary differences
8,228
(6,297)
Adjustment in respect of prior periods
20,607
49,383
28,835
43,086
Total tax credit
(72,810)
(189,903)
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
6
Income tax
(Continued)
- 21 -
The reconciliation between tax credit and the accounting profit/(loss) multiplied by the UK corporation tax rate for the years ended 31 December 2023 and 2022 is as follows:
2023
2022
£
£
Profit/(loss) before taxation
1,160,136
(1,057,058)
Expected tax charge/(credit) based on the weighted average Corporation Tax rate of 23.52% (2022: 19.00%)
272,864
(200,841)
Expenses not deductible for tax purpose
274
486
Impact of changes in statutory tax rates
488
(1,512)
Adjustments in respect of current income tax of prior periods
(367,044)
(37,419)
Adjustments in respect of deferred income tax of prior periods
20,608
49,383
Total adjustments
(345,674)
10,938
Total tax credit reported in the income statement
(72,810)
(189,903)
Balance sheet
Income statement
2023
2022
2023
2022
£
£
£
£
Deferred tax assets
Decelerated capital allowances
77,044
(1,701)
(20,080)
Other short term timing differences
30,537
30,536
63,166
Deferred tax assets
107,581
Deferred tax charge to income statement
28,835
43,086
The decrease in deferred tax assets of £107,581 includes deferred tax assets of £78,745 transferred to Western Mortgage Services Limited pursuant to the transfer of the trade and assets of Company to WMSL (Refer note 17).
A change to the main UK corporation tax rate was substantively enacted on 24 May 2021. The rate applicable from 1 April 2023 increases from 19% to 25%. The deferred tax assets at 31 December 2022 has been calculated based on this rate.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 22 -
7
Property, plant and equipment
Leasehold Improvement
Fixtures, fittings and equipment
Total
£
£
£
Cost
At 1 January 2023
36,297
77,265
113,562
Intragroup transfer
(77,265)
(77,265)
Asset retirement
(36,297)
(36,297)
At 31 December 2023
Accumulated depreciation and impairment
At 1 January 2023
34,353
69,538
103,891
Charge for the year
1,944
5,151
7,095
Intragroup transfer
(74,689)
(74,689)
Asset retirement
(36,297)
(36,297)
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
1,944
7,727
9,671
For Intragroup transfers, refer note 17.
8
Trade and other receivables
Current
2023
2022
£
£
Trade receivables
219,139
Amounts due from Group companies
53,087,353
73,090,305
Accrued income
2,628,960
Prepayments
9,664
53,087,353
75,948,068
Amounts due from group companies are repayable on demand. These are not chargeable to interest except for the amounts due from Capita Plc, on which interest is charged as per the prevailing Bank of England rates.
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 23 -
9
Trade and other payables
Current
2023
2022
£
£
Trade payables
42,553
Amount due to Group companies
1,207,184
Accruals
624,263
Other taxes and social security
1,362,272
Other payables
3,201
3,239,473
10
Deferred income
2023
2022
£
£
Current
Deferred income
1,933,238
1,933,238
11
Financial liabilities
Current
2023
2022
£
£
Bank overdrafts
17,215,663
17,215,663
12
Provisions
2023
2022
£
£
Current
-
2,625,199
2,625,199
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
12
Provisions
(Continued)
- 24 -
Onerous provision
£
At 1 January 2023
2,625,199
Intragroup transfers
(2,161,796)
Utilised during the year
(463,403)
At 31 December 2023
For Intragroup transfers, refer note 17.
13
Share capital
2023
2022
2023
2022
Number
Number
£
£
Allotted, called up and fully paid
Ordinary shares paid of £1 each
At 1 January and 31 December
2
2
2
2
14
Employee benefits
The total costs charged to income in respect of defined contribution plans is £153,834 (2022: £419,476).
15
Employees
The average monthly number of employees (including directors) up until May 2023 (2022: full year) were:
2023
2022
Number
Number
Operations
1,044
1,010
Administration
10
19
Total
1,054
1,029
Their aggregate remuneration comprised:
2023
2022
£
£
Wages and salaries
8,544,109
23,333,748
Social security costs
651,632
1,927,257
Pension costs
153,834
419,476
9,349,575
25,680,481
CAPITA RETAIL FINANCIAL SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
15
Employees
(Continued)
- 25 -
The above includes employee costs for temporary staff as well as recharges from other Group companies amounting to £384,828 (2022: £839,312) in respect of various services delivered to the Company throughout the year.
16
Directors' remuneration
2023
2022
£
£
Remuneration for qualifying services
253,835
Company pension contributions to defined contribution schemes
-
5,662
259,497
All directors are paid by other companies within the Capita Group. The Company has not paid any fees or other remuneration to the Group based Directors related to the directorship role they provided to the Company as a part of their Group-wide executive management role. The Company has estimated that allocation of the qualifying services that these Group based Directors provided to the Company is inconsequential.
17
Common control transaction
As a part of the Group's legal entity reorganisation programme, the trade and assets related to the Experience business were transferred out of the Company by way of a Business Transfer Agreement ('BTAs'). As both transferor and transferee companies for this BTA were ultimately controlled by Capita plc, this is deemed to be business combination under common control, with an accounting policy choice made as detailed in note 1.11. The following table shows the gross assets and liabilities transferred as part of the BTA; and the consideration paid by the Company:
| | | | |
Western Mortgage Services Limited | | | | |
* Consideration was settled via intercompany loan
18
Controlling party
The company's immediate parent undertaking is Capita Life & Pensions Regulated Services Limited, a company incorporated in England and Wales.
The company's ultimate parent undertaking is Capita plc, a company incorporated in England and Wales. The accounts of Capita plc are available from the registered office at 65 Gresham Street, London, England, EC2V 7NQ.
19
Post balance sheet date events
On 9 April 2024, the Company paid dividend in specie amounting to £52,563,852 to Capita Life & Pensions Regulated Services Limited.
There are no other significant events which have occurred after the reporting period.
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