Slide 1: Serco 2024 half year results
serco Serco 2024 half year results For the six months ended 30 June 2024
Slide 2: Disclaimer
Disclaimer This presentation 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 Group Chief Financial Officer Defence sector and key Mark Irwin messages Group Chief Executive Q&A
Slide 4: Overview
Overview Mark Irwin, Group Chief Executive serco
Slide 5: On track for full year after good progress in first half
On track for full year after good progress in first half Profitable growth Portfolio ✓ Order intake £1.9bn with several performance key awards pending Safety & productivity ✓ Voluntary attrition reduction – ✓ Robust order book £13.5bn of colleagues 30% down from peak ✓ Pipeline robust at £10.2bn, 60
Slide 6: Financial review
Financial review Nigel Crossley, Group Chief Financial Officer serco
Slide 7: Financial overview
Financial overview HY 24 HY 23 Growth Revenue Revenue Organic growth £2,359m (5%) £2,472m (5%) (5%) Acquisitions 2% Organic revenue FX (2%) decline in line with expectations Underlying operating Underlying operating profit £142m £148m (4%) profit Organic growth (7%) Acquisitions 5% FX (2%) 6.0% 6.0%
Slide 8: North America
North America Strong margin after absorbing CMS reset and good order intake Six months ended 30 June (£m)* Revenue -6% reported, -3% organic HY24 HY23 Total growth CFX growth – Up: Maritime work and ATFP within defence, employment Defence 453 462 1% services ramp up in citizen services – Down: CMS n
Slide 9: UK & Europe
UK & Europe Revenue in line with expectations, excellent progress on margin Six months ended 30 June (£m)* Revenue -1% reported, -5% organic HY24 HY23 Total growth CFX growth – Up: HMP Fosse Way, Europe immigration and EHC Defence 174 181 (3%) immigration acquisition – Down: Various contracts exits
Slide 10: Asia Pacific
Asia Pacific New management turnaround plan on track, further productivity and efficiency gains in the second half Six months ended 30 June (£m)* Revenue -14% reported, -10% organic HY24 HY23 Total growth CFX growth – Up: High demand within defence for healthcare services and Defence 87 78 17% incre
Slide 11: Middle East
Middle East Continuing to win new business, significant pipeline of new opportunities Six months ended 30 June (£m)* Revenue +2% reported, +5% organic HY24 HY23 Total growth CFX growth – Up: Citizen services and transport with project work at Zayed Defence 12 16 (17%) University and growth in Saudi
Slide 12: Significant progress on margin
Significant progress on margin Margin progression over time Examples 6 5.6% – Improved performance on previously low 5.2% 5.2% 5.1% margin contracts e.g. DES, UK Immigration, 5 UK prisoner escorting 4.2% 4 3.7% – Exit of low margin contracts e.g. Dubai Metro, 3.3% Barts 3 2.3% – Growth of North Amer
Slide 13: Good cash flow generation
Good cash flow generation On track for 80% trading cash conversion for the full year Continued good Six months ended 30 June (£m)* HY24 HY23 cash performance with minimal Underlying operating profit 142.4 147.9 working capital Capex and repayment of lease liabilities (83.3) (70.2) outflow Depreciati
Slide 14: Capital allocation
Capital allocation Continued progress against allocation framework Business highly Capital-light Target leverage range of Context: cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in H1 2024 Invest to support organic New bid investment, healthy pipeline, technology
Slide 15: Guidance for 2024
Guidance for 2024 2023 2024 Actual Current guidance (unchanged) Revenue £4.9bn ~£4.8bn Organic sales growth 4% ~(3%) Underlying operating profit £249m ~£270m Net finance costs £25m ~£35m Underlying effective tax rate 23% ~25% Free cash flow £209m ~£150m Adjusted net debt £109m ~£165m Notes to guidan
Slide 16: HY24 defence sector overview
HY24 defence sector overview
Slide 17: Deep dive: defence and the continuing drivers of demand
Deep dive: defence and the continuing drivers of demand
Slide 18: Global defence spending continues to grow
Global defence spending continues to grow 2.2 • 2.0 1.9 1.8 • 1.7 1.7 • • • • • • •
Slide 19: Broad capability across the defence value chain
Broad capability across the defence value chain Acquisition support Naval design Vessel operations MRO Supporting the procurement of Naval architecture & design of Crewing & operations of support Maintenance, repair and overhaul Capability key defence & security platforms ships & ports vessels, incl
Slide 20: We have increasing capability in next generation platforms – xUSVs
We have increasing capability in next generation platforms – xUSVs • • • • • •
Slide 21: Key messages after another successful period
Key messages after another successful period A resilient Alignment to ESG focused Strong pipeline Execution focus 2024 guidance: international clear purpose, on the positive of new delivering revenues of at platform for vision, and impact we opportunities, productivity & least £4.8bn; growth in the
Slide 22: se rCO anf futiire
se rCO anf futiire
Slide 23: Q&A
Q&A
Slide 24: Serco. Your Solutions Partner.
serco Serco. Your Solutions Partner. We bring together the right people, Our core capabilities include the right technology and the right service design and advisory, partners to create innovative solutions resourcing, complex programme that make a positive impact and address | management, systems i
Slide 25: Appendix
Appendix serco
Slide 26: 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 27: Revenue divisional analysis
Appendix 2 Revenue divisional analysis Revenue - growth composition HY24 vs HY23 HY23 HY24 FY23 Reported Acquisition/ Reported Constant Reported £m currency Organic disposal FX TOTAL currency currency currency UK&E 1,219 (5%) +4% (0%) (1%) 1,211 1,213 2,440 North America 701 (3%) - (3%) (6%) 656 677
Slide 28: Underlying operating profit (UOP) divisional analysis
Appendix 3 Underlying operating profit (UOP) divisional analysis Underlying operating profit and margin HY24 UOP HY23 UOP HY change FY23 UOP Reported Constant Reported Reported Reported Constant Constant Reported Reported £m currency currency margin currency margin currency currency currency margin
Slide 29: Income statement – EPS and DPS
Appendix 4 Income statement – EPS and DPS £m HY24 HY23 FY23 Underlying operating profit (UOP) 142.4 147.9 248.7 Net finance costs (NFC) (15.5) (11.0) (24.6) Underlying PBT 126.9 136.9 224.1 Tax on UOP and NFC (33.0) (29.8) (50.8) Underlying PAT 93.9 107.1 173.3 Amortisation and impairment of intangi
Slide 30: Exceptional items
Appendix 5 Exceptional items £m HY24 HY23 FY23 Exceptional operating items: Compensation relating to early termination of UK contract - 9.9 9.9 Provision releases relating to indemnities provided on disposed businesses - 41.3 43.9 Exceptional operating items - 51.2 53.8 Tax on exceptional items - (2
Slide 31: Free cash flow and trading cash flow
Appendix 6 Free cash flow and trading cash flow £m HY24 HY23 FY23 Underlying operating profit (UOP) 142.4 147.9 248.7 Share of profit of joint ventures and associates (11.2) (18.0) (29.0) Depreciation, amortisation and impairment of owned assets 11.7 13.9 25.7 Depreciation, amortisation and impairme
Slide 32: Net debt and leverage
Appendix 7 Net debt and leverage £m HY24 HY23 FY23 Free cash flow 75.3 98.4 209.2 Exceptional items (see Appendix 5) - 9.7 9.2 Net (acquisition) / disposal of subsidiaries and operations (19.3) (6.7) (7.5) Dividends paid to shareholders (24.5) (21.2) (33.7) Dividends paid to non-controlling interest
Slide 33: Focus on five sectors across four regions
Appendix 8 Focus on five sectors across four regions HY24 revenue mix, including share of JV&As* UK & North Asia Middle Serco £m Sector Europe America Pacific East total Defence 387 453 87 12 £939m 35% Justice & 711 - 156 - £867m 33% Immigration Transport 118 44 4 41 £207m 8% Health 107 - 83 39 £229
Slide 34: Cash flow breakdown 1 and breakdown 2
Appendix 9 Cash flow breakdown 1 and breakdown 2 £m HY24 HY23 FY23 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 8.0 9.0 17.3 Amortisation (non-acquisition) 4.0 4.0 7.7 Depreciation and amortisation 12.0 13.0 25.0 Impairment of PPE (excluding lease ass
Slide 35: Cash flow breakdown 3
Appendix 10 Cash flow breakdown 3 £m HY24 HY23 FY23 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review - (0.2) (0.7) Compensation relating to early termination of contract - 9.9. 9.9 Costs associated with successful acquisitions - - - Exceptiona
Slide 36: Leverage covenant calculation
Appendix 11 Leverage covenant calculation £m HY24 LTM HY23 LTM FY23 Underlying operating profit (UOP) 243.2 255.4 248.7 Exclude: share of joint venture and associate post-tax profits (22.2) (26.6) (29.0) Exclude: foreign exchange credit on investing and financing arrangements (1.9) 0.5 (0.9) Include
Slide 37: Interest cover covenant calculation
Appendix 12 Interest cover covenant calculation £m HY24 HY23 FY23 Net finance costs (29.1) (22.2) (24.6) Exclude: finance charge on lease obligations recognised under IFRS16 16.3 9.5 12.7 Exclude: foreign exchange credit on investing and financing arrangements 1.9 (0.6) 0.9 Exclude: net interest rec
Slide 38: Balance sheet summary
Appendix 13 Balance sheet summary £m HY24 HY23 FY23 Goodwill 938.5 908.5 906.7 Other intangible assets (excluding leased assets) 117.2 134.0 115.6 Property, plant and equipment (excluding leased assets) 55.7 41.7 44.3 Contract assets, trade and other receivables 678.8 660.3 640.4 Inventories 24.9 23
Slide 39: Return on invested capital (ROIC)
Appendix 14 Return on invested capital (ROIC) £m HY24 HY23 FY23 Invested capital assets 1,853.2 1,814.9 1,773.2 Invested capital liabilities (702.9) (659.5) (662.3) Invested capital (IC) 1,150.3 1,155.4 1,110.9 Average IC (two-point) 1,152.9 1,154.7 1,163.7 Operating profit for rolling 12 months 243
Slide 40: Pension assets mix and IAS 19 valuation
Appendix 15 Pension assets mix and IAS 19 valuation £m HY24 HY23 FY23 Scheme assets at fair value: Liability driven investments (LDI) 203.7 214.8 235.8 Bonds except LDI 128.8 133.6 136.5 Pooled investment funds 147.8 141.0 145.0 Equities 28.8 30.9 31.6 Cash, property and other 22.3 8.8 9.4 Amounts h
Slide 41: Currency rates
Appendix 16 Currency rates Spot rate for FY24e Average rates Closing rates 26 Jul 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec HY24 FY23 HY23 FY22 HY22 2024 2024 2023 2023 2022 2022 2021 £:US$ 1.29 1.27 1.24 1.23 1.24 1.31 1.27 1.27 1.26 1.20 1.21 1.35 £:Aus$ 1.90 1.92 1.87 1.83 1.78 1.81 1.90 1.87 1.9
Slide 42: Tax
Appendix 17 Tax • HY24 underlying tax of £33.0m, on an Underlying profit before tax of £126.9m is an Underlying effective tax rate (ETR) of 26.0% • Expect ETR closer to ~25% in future periods - sensitive to geographical mix of profit • Corporate tax rate in the UK increased to 25% - from previous ra
Slide 43: Net debt trend analysis
Appendix 18 Net debt trend analysis FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 HY24 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/
Slide 44: 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 45: serco.com
serco.com