Slide 1: Serco 2023 Results
serco Serco 2023 Results Mark Irwin, Group Chief Executive
Slide 2: Disclaimer
Disclaimer This announcement contains statements which are, or may be deemed to be, “forward looking statements” which are prospective in nature. All statements other than statements of historical fact are forward looking statements. Generally, words such as “expect”, “anticipate”, “may”, “could”, “
Slide 3: Agenda
Agenda Overview Mark Irwin Group Chief Executive Financial review Nigel Crossley Chief Financial Officer Strategy & outlook Mark Irwin Group Chief Executive Q&A
Slide 4: Overview
Overview Mark Irwin, Group Chief Executive serco
Slide 5: Full year results 2023
Full year results 2023 £4.9bn Revenue £249m Underlying operating profit £209m Free cash flow +7% vs. 2022 +£12m vs. 2022 111% Trading Cash Conversion £4.6bn Wins in year £10.1bn £140m Pipeline Share buyback in 2024 95% Book to bill Highest in a decade On top of 19% dividend growth
Slide 6: FY23 operational review
FY23 operational review Highlights Strong performance in 2023, positive outlook for 2024 and medium-term Lowlights • Highly engaged workforce, enhanced customer relationships, improved win rates Asia Pacific business did not meet expectations Operational delivery • Volume-variable work reduced & new
Slide 7: Financial review
Financial review Nigel Crossley, Group Chief Financial Officer serco
Slide 8: Financial overview
Financial overview FY 23 FY 22 Growth Revenue Revenue £4,874m £4,534m 7% Organic growth 4% +4% Acquisitions 4% Organic revenue growth FX (1%) led by immigration and defence sectors Underlying operating Underlying operating profit £249m £237m 5% profit Organic growth 1% Acquisitions 4% +5% FX - Stron
Slide 9: North America
North America CMS retained and growth from new wins in Defence and Citizen Services Year ended 31 December (£m)* FY23 FY22 Total growth CFX growth • Revenue +7% reported, +8% organic – Defence – ramp up of new business secured late 2022 Defence 932 863 8% including NOMARS and SHAPM Justice & Immigra
Slide 10: UK & Europe
UK & Europe Increased immigration volumes in UK and Europe, higher contribution from joint ventures Year ended 31 December (£m)* FY23 FY22 Total growth CFX growth • Revenue +16% reported, +7% organic – Up: Immigration - strong volumes and ORS acquisition, Defence 355 316 12% Citizen Services – Resta
Slide 11: Asia Pacific
Asia Pacific Reduced volumes and tougher trading in 2023, new management team established Year ended 31 December (£m)* FY23 FY22 Total growth CFX growth • Revenue -11% reported, -7% organic – Volume-variable work reduced in Immigration and facilities Defence 157 148 12% management Justice & Immigrat
Slide 12: Middle East
Middle East Good in-year performance, new business wins and a strong pipeline Year ended 31 December (£m)* FY23 FY22 Total growth CFX growth • Revenue +8% reported, +9% organic – Growth driven by Citizen Services where new advisory Defence 31 30 6% business in progressing well Justice & Immigration
Slide 13: Exceptional cash flow performance
Exceptional cash flow performance Cash conversion averaged greater than 100% over last 5 years Year ended 31 December (£m)* FY23 FY22 Underlying operating profit 248.7 237.0 Capex and repayment of lease liabilities (146.3) (139.2) Positive working capital inflow Depreciation and amortisation (includ
Slide 14: Capital allocation
Capital allocation Continued progress against our framework Business highly Capital-light Target leverage range of Context: cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in 2023 Invest to support organic New bid investment, increased pipeline, technology pilot 1
Slide 15: Guidance for 2024
Guidance for 2024 2023 2024 Actual Initial guidance New guidance 14 Dec 2023 Revenue £4.9bn ~£4.8bn ~£4.8bn Organic sales growth 4% ~(3%) ~(3%) Underlying operating profit £249m ~£260m ~£260m Net finance costs £25m ~£33m ~£35m Underlying effective tax rate 23% ~25% ~25% Free cash flow £209m ~£140m ~
Slide 16: Strategy & outlook
Strategy & outlook Mark Irwin, Group Chief Executive serco
Slide 17: A clear direction
Purpose The partner of choice / \ to governments globally the right the right and the right Values serco
Slide 18: Market view: key drivers for growth
Market view: key drivers for growth ~£715bn ~65% ~1% ~2-3% Estimated total government Of worldwide* government Estimated Serco share of CAGR of government spend spend with the private sector spend with the private sector government spend with the with the private sector in in Serco’s regions in 2021
Slide 19: Migration: supporting governments, migrants & communities internationally
Migration: supporting governments, migrants & communities internationally Market context 184m Market context 330m+ 143m live outside their international people displaced 2023: country of citizenship By 2050: migrants by climate change Serco End-to-end Welfare capabilities services Revenue • Intellig
Slide 20: Defence: Geopolitical risk driving spend & our broad capabilities
Defence: Geopolitical risk driving spend & our broad capabilities allow us to support Market Global defence spending AUKUS spending World's military arsenals context at an all-time high expected up to doubled in $2.2trn+ $241bn size by 2030 compared to 2016 (2023) Serco Acquisition programme Base se
Slide 21: Our strategic enablers
Our strategic enablers 1 2 3 Customers Colleagues Capabilities
Slide 22: Customers: building stronger relationships to execute growth
Customers: building stronger relationships to execute growth 1 Profitable, sustainable growth Defence growth such as SHAPM contract with the Naval Sea Systems Command (TEAM SUB) Growing advisory business 100+ advisory colleagues supporting giga projects in Saudi Arabia, bolstered by acquisition of C
Slide 23: Colleagues: growing colleague value
Colleagues: growing colleague value 2 Engagement Overall engagement up from 70 to 71, with a response rate of 70% Retention focus Reduction in attrition in 2023, continued focus for further improvement in coming years Safety outcomes In 2023 the actual number of LTIs fell by 3% and from 2024 a targe
Slide 24: Capabilities: improving productivity & our technology ecosystem
Capabilities: improving productivity & our technology ecosystem 3 Margin improvement A business plan to deliver margin improvement from a rigorous approach to operational efficiency over the next 3 years Microsoft UK partnership Strategic MOU with Microsoft UK to drive Serco’s digital transformation
Slide 25: Key messages after another successful year
Key messages after another successful year A resilient 2024 Guidance: Alignment on Largest pipeline Execution focus ESG focused international revenues of at a renewed in a decade on strategic on the positive platform for least £4.8bn; purpose, enablers: impact we growth in the UOP ~£260m; vision, an
Slide 26: S S rCO on fGtil re
S S rCO on fGtil re
Slide 27: Q&A
Q&A
Slide 28: Appendix
Appendix serco
Slide 29: Notes and definitions
Appendix 1 Notes and definitions Revenue is as defined under IFRS, which excludes Serco’s share of revenue of its joint ventures and associates. In prior periods where relevant, revenue including that from any discontinued operations has been shown for consistency with previous guidance and disclosu
Slide 30: Revenue divisional analysis
Appendix 2 Revenue divisional analysis Revenue - growth composition FY23 vs FY22 FY22 FY23 Reported Acquisition/ Reported Constant £m currency Organic Disposal FX TOTAL currency currency UK&E 2,100 +7% +8% +1% +16% 2,440 2,426 Americas 1,270 +8% - (1%) +7% 1,363 1,367 AsPac 955 (7%) - (4%) (11%) 845
Slide 31: Underlying operating profit (UOP) divisional analysis
Appendix 3 Underlying operating profit (UOP) divisional analysis Underlying operating profit and margin FY23 UOP FY22 UOP FY change HY23 UOP Reported Constant Reported Reported Reported Constant Constant Reported Reported £m currency currency margin currency margin currency currency currency margin
Slide 32: Income statement – EPS and DPS
Appendix 4 Income statement – EPS and DPS £m FY23 FY22 HY23 Underlying operating profit (UOP) 248.7 237.0 147.9 Net finance costs (NFC) (24.6) (20.4) (11.0) Underlying PBT 224.1 216.6 136.9 Tax on UOP and NFC (50.8) (47.9) (29.8) Underlying PAT 173.3 168.7 107.1 Non underlying items - 4.2 - Amortisa
Slide 33: Exceptional items
Appendix 5 Exceptional items £m FY23 FY22 HY23 Exceptional operating items: Compensation relating to early termination of UK contract 9.9 - 9.9 Costs associated with successful acquisitions - (2.4) - Provision releases relating to indemnities provided on disposed businesses 43.9 - 41.3 Exceptional o
Slide 34: Free cash flow and trading cash flow
Appendix 6 Free cash flow and trading cash flow £m FY23 FY22 HY23 Underlying operating profit (UOP) 248.7 237.0 147.9 Share of profit of joint ventures and associates (29.0) (12.0) (18.0) Depreciation, amortisation and impairment of owned assets 25.7 33.1 13.9 Depreciation, amortisation and impairme
Slide 35: Net debt and leverage
Appendix 7 Net debt and leverage £m FY23 FY22 HY23 Free cash flow 209.2 159.1 98.4 Exceptional items (see Appendix 5) 9.2 (2.9) 9.7 Net (acquisition) / disposal of subsidiaries and operations (7.5) (19.2) (6.7) Other Adjusted net debt items on acquisition and disposal - (6.5) - Dividends paid to sha
Slide 36: Focus on five sectors across four regions
Appendix 8 Focus on five sectors across four regions FY23 revenue mix, including share of JV&As* UK & Asia Middle Serco £m Sector Europe Americas Pacific East total Defence 718 932 157 31 £1,838m 35% Justice & 1,330 - 351 - £1,681m 31% Immigration Transport 259 103 12 71 £445m 8% Health 227 - 197 10
Slide 37: Cash flow breakdown 1 and breakdown 2
Appendix 9 Cash flow breakdown 1 and breakdown 2 £m FY23 FY22 HY23 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 17.3 20.7 9.0 Amortisation (non-acquisition) 7.7 10.0 4.0 Depreciation and amortisation 25.0 30.7 13.0 Impairment of PPE (excluding lease a
Slide 38: Cash flow breakdown 3
Appendix 10 Cash flow breakdown 3 £m FY23 FY22 HY23 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (0.7) (0.6) (0.2) Compensation relating to early termination of contract 9.9 - 9.9 Costs associated with successful acquisitions - (2.3) - Exc
Slide 39: Leverage covenant calculation
Appendix 11 Leverage covenant calculation £m FY23 FY22 HY23 LTM Underlying operating profit (UOP) 248.7 241.2 255.4 Exclude: share of joint venture and associate post-tax profits (29.0) (12.0) (26.6) Exclude: foreign exchange credit on investing and financing arrangements (0.9) 0.4 0.5 Include: divi
Slide 40: Interest cover covenant calculation
Appendix 12 Interest cover covenant calculation £m FY23 FY22 HY23 LTM Net finance costs (24.6) (20.4) (22.2) Exclude: finance charge on lease obligations recognised under IFRS16 12.7 7.5 9.5 Exclude: foreign exchange credit on investing and financing arrangements 0.9 (0.4) (0.6) Exclude: net interes
Slide 41: Balance sheet summary
Appendix 13 Balance sheet summary £m FY23 FY22 HY23 Goodwill 906.7 945.0 908.5 Other intangible assets (excluding leased assets) 115.6 158.0 134.0 Property, plant and equipment (excluding leased assets) 44.3 48.1 41.7 Contract assets, trade and other receivables 640.4 735.7 660.3 Inventories 24.1 22
Slide 42: Return on Invested Capital (ROIC)
Appendix 14 Return on Invested Capital (ROIC) £m FY23 FY22 HY23 Invested capital assets 1,773.2 1,942.5 1,814.9 Invested capital liabilities (662.3) (726.1) (659.5) Invested capital (IC) 1,110.9 1,216.4 1,155.4 Average IC (two-point) 1,163.7 1,151.8 1,154.7 Operating profit for rolling 12 months 248
Slide 43: Pension assets mix and IAS 19 valuation
Appendix 15 Pension assets mix and IAS 19 valuation £m FY23 FY22 HY23 Scheme assets at fair value: Liability driven investments (LDI) 235.8 217.7 214.8 Bonds except LDI 136.5 151.4 133.6 Pooled investment funds 145.0 140.0 141.0 Equities 31.6 45.2 30.9 Cash, property and other 9.4 14.7 8.8 Amounts h
Slide 44: Currency rates
Appendix 16 Currency rates Spot rate for FY24e Average rates Closing rates 19 Feb 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun FY23 HY23 FY22 HY22 FY21 2024 2023 2023 2022 2022 2021 2021 £:US$ 1.26 1.24 1.23 1.24 1.31 1.38 1.27 1.26 1.20 1.21 1.35 1.39 £:Aus$ 1.93 1.87 1.83 1.78 1.81 1.83 1.87 1.91 1.7
Slide 45: Tax
Appendix 17 Tax • FY23 underlying tax of £50.8m, - on an underlying profit before tax of £224.1m is an underlying effective tax rate (ETR) of 22.7% • Expect ETR to increase closer to ~25% in future periods - sensitive to geographical mix of profit • Corporate tax rate in the UK increased to 25% - fr
Slide 46: Net debt trend analysis
Appendix 18 Net debt trend analysis FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 31/12/12 30/06/13 31/12/13 31/12/13 30/06/14 31/12/14 31/12/14 30/06/15 31/12/15 31/12/15 30/06/16 31/12/16 31/12/16 30/06/17 31/12/17 31/12/17 30/06/18 31/12/18 31/12/18 30/06/19 31/12/19 31/12/19 30/06/20 31
Slide 47: American Depository Receipt (ADR) program
Appendix 19 American Depository Receipt (ADR) program Serco Group has a sponsored Level 1 ADR program, for which Deutsche Bank act as the depositary bank and custodian Ticker: SCGPY Exchange: OTC For assistance with converting Ordinary Shares into ADRs (or vice CUSIP: 81748L209 versa), please contac
Slide 48: serco.com
serco.com