Chairman’s report

I am pleased to present to you this report on the work of the Capita Group Board during 2011. This section of the Report and Accounts (pages 57 to 85) together with the Business Review on pages 1 to 56 form the Directors’ Report.

I continue to be impressed by the Board’s commitment to the highest standard of corporate governance, and most importantly how this works within the structure of the whole organisation without being overly cumbersome.

It is vital that a Board balances its time between strategy and oversight, as this responsibility is given to them by the shareholders, but consideration of all its stakeholders is also important. I believe that this balance is managed well within Capita at Board, divisional and business unit level.

Results for 2011

When determining the Executive Directors’ remuneration for 2011 a stretching target was agreed with them at the beginning of 2011.

Although Capita has had a strong sales year securing new major contracts and has performed well in challenging trading conditions, achieving revenue growth of 7%, underlying operating profit growth of 8%, and an underlying EPS growth of 8%, the agreed stretching target was not met for the first time in over a decade. In line with our policy of remuneration based upon meeting performance targets, no bonuses have been awarded to the Executive and Divisional Directors for the period under review.

Board activities in 2011

As explained in our 2010 reporting, in January 2011 we appointed Vic Gysin and Andy Parker as Joint Chief Operating Officers and Simon Pilling stepped down from the Board. I believe that we have a talented and strong team in place on the Group Board and across our divisional management team to support our continued growth as a Group.

During 2011 the Board discussed a range of items as well as the business as usual of strategy, risk and oversight of the Group. The Group has undertaken a record number of acquisitions and had its best year on record for securing new and renewed major contracts.

The Board and committee meetings are structured and agendas drawn up accordingly to cover the wide range of matters that are brought to their attention and the meetings are aligned with the financial calendar of the Company: this ensures that appropriate focus can be given to the items brought to their attention.

In order that the Board can ensure that the strategic direction and growth of the Group can continue successfully and with the appropriate risk oversight, meetings are held between the Director, Group Risk and Business Assurance and the Chairman of the Audit Committee and the Group Compliance Director and the Chairman of the Audit Committee throughout the year as well as the normal scheduled meetings. Risks are identified in a number of ways and are prioritised and delegated in accordance with the risk ratings provided. An additional meeting of the Audit Committee was held this year to review the risk profile across the Group and to ensure that it reflected the Group’s overall appetite for risk.

Approximate allocation of agenda time in 2011

During the year the Board’s discussions have been wide-ranging, including: strategy, acquisitions, finance, corporate reporting, operational performance and risk and business assurance. An increased amount of time was spent on our acquisitions due to the number we have completed this year. The work of the Board is shown in the table below.

Strategy

A specific session to review the Group’s strategy in detail is held each year. Strategy is also a standing item at each Board meeting. The diverse nature of the business means that we must continue to be adaptable to the opportunities and challenges that face us, our clients and our stakeholders. Risk is considered side by side with strategy and is included in our operational reporting.

Board members reporting

All Executive Directors prepare and present a report at each Board meeting. These include the key issues (including risk and opportunity), operational and financial performance and bid and acquisition activity. These reports are then complemented with verbal updates at the meeting. This allows the Directors to focus on specific issues and also for the other Directors to debate and challenge as required. See our management and governance structure.

Financial and corporate reporting

The Board considers the Group’s statutory reports and the broader aspects of corporate reporting at each scheduled meeting. Regular updates are received on the financial results from Gordon Hurst and Paul Pindar, which also include the financial outlook for the Group.

Major bids and acquisitions

Maggi Bell, Business Development Director, presents a report at each Board meeting which covers the current major bid strategy, constituents of the bid pipeline (bids over £10m in value where we are shortlisted to four or fewer) and prospects which are sitting just outside of the bid pipeline. As many of these potential contracts are of significant size and duration, these opportunities can make a significant impact on the shape and resource requirements of the Group as it grows.

Paul Pindar reports on the acquisition strategy and current acquisition activity in addition to his Chief Executive report. Again these acquisitions have an impact on the shape and resource requirements of the Group, particularly in 2011 when a large number of acquisitions were completed.

The Board considers the potential impacts of new acquisitions and contracts on resourcing at a senior management level and identifies candidates from within the Group or externally for key positions in the transition periods and ongoing delivery of these operations.

Board evaluation in 2011

In 2010 we undertook a full Board evaluation. In 2011 we undertook a shortened evaluation managed by the Deputy Company Secretary. The evaluation was questionnaire based as I had recently held one to one meetings with all Board members. The unedited Board evaluation report was presented at the October 2011 Board meeting. The evaluation covered risk, board strategy and training.

Risk and business assurance

Both the Director, Group Risk and Business Assurance and Group Compliance Director report to the Group Finance Director and independently to the Audit Committee and report on the internal assurance programme and risk management activities across the Group. They have access to all members of the Board and hold regular meetings with the Executive Directors and meet with the Audit Committee Chairman and myself at least quarterly. See our management and governance structure.

Directors

The Board of Directors lists the Directors of the Company currently in office. No Director has a service contract exceeding one year. 

As explained in our announcement in January 2012, Paddy Doyle has decided to retire from the Board at the end of March 2012. All the current Directors (except Paddy Doyle) will be offering themselves for re-election at the forthcoming Annual General Meeting in May 2012. Paddy has made an immense contribution to Capita over the last 20 years and has been instrumental in our success. I wish him a long and prosperous retirement and know that he will remain a good friend to many of us here in Capita. 

Martin Bolland
Non-Executive Chairman