REG - Serco Group PLC - 2024 Final Results
27/02/2025 07:15
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RNS Number : 6153Y Serco Group PLC 27 February 2025
2024 full year results
Serco Group plc ("Serco" or the "Company")
27 February 2025
Strong performance in 2024, good momentum into 2025
Strong performance in 2024
• Revenue: £4.8bn in 2024, in line with guidance; improving organic trend as we
moved through the year led by our North American Defence business.
• Underlying operating profit: £274m, up 10% in the full year, and an increase
of 30% in the second half compared to the same period in 2023.
• Margin: 60 basis point increase in full year underlying operating profit
margin to 5.7% with progress in all regions, reflecting ongoing focus on
efficiency and productivity.
• Reported operating profit: ~£130m, reduction due to an exceptional £115m
non-cash goodwill impairment charge in Asia Pacific.
• Order intake: +7% to £4.9bn, book-to-bill of 102%, order book of £13.3bn.
• Cash flow: Very strong free cash flow at £228m, ahead of guidance of ~£170m,
trading cash conversion has averaged more than 100% since 2019, ahead of our
medium-term guidance of 80%+.
• Strong financial position: adjusted net debt £100m, £45m lower than prior
guidance, leverage c.0.3x net debt to EBITDA, and pro-forma net leverage of
1.2x including proposed acquisition of MT&S. The Board will review the
capital position again at the half year.
• Attractive shareholder returns: £140m share buyback in 2024, taking the total
amount returned to shareholders through buybacks to £340m since 2021,
recommended final dividend of 2.82 pence per share, +24% year on year.
Good momentum into 2025
• Dynamic global backdrop driving demand: Mounting fiscal challenges and
geopolitical complexity mean we are able to leverage our capabilities,
expertise, and value proposition to deliver critical services for our
government customers better, faster, and more efficiently.
• Record pipeline: Entered year with highest level of potential new work in more
than a decade at £11.2bn, 11% higher than prior year end.
• High visibility: Robust order book combined with low level of rebids or
extensions in 2025 and only one contract above 2% of Group revenue due for
rebid before 2028.
• Good momentum in early 2025: Order intake of more than £1bn including the
landmark UK Armed Forces Recruitment Service contract.
• MT&S acquisition strategically and financially compelling: US$327m
acquisition of leading US Defence business from Northrop Grumman agreed and
expected to complete in mid-2025, resulting in a US$2bn North America business
delivering 10% margins, and a £2bn Defence business across the Group.
• Guidance for 2025: Revenue in line with 2024, organic growth across other
parts of business offsetting expected reduction from immigration in Australia
and UK of c.7%; ongoing focus on efficiency and productivity will largely
compensate for known headwinds on underlying operating profit.
Year ended 31 December 2024 2023 Change at reported currency Change at constant currency
Reported revenue £4,787m £4,874m (2)% -%
Underlying operating profit £274m £249m 10% 12%
Reported operating profit £130m £272m (52)%
Underlying earnings per share (EPS), diluted 16.67p 15.36p 9%
Reported EPS (i.e. after non-underlying items), diluted 4.10p 17.93p (77)%
Dividend per share (recommended) 4.16p 3.41p 22%
Free cash flow £228m £209m 9%
Net cash inflow from operating activities £419m £393m 7%
Adjusted net debt £100m £109m (8)%
Reported net debt £630m £562m 12%
Mark Irwin, Serco Group Chief Executive, said:
"Our 2024 results reflect another year of strong operational and financial
delivery across the Group.
We accelerated trading momentum through the second half of the year, which
allowed us to achieve full year revenue in line with guidance, underlying
operating profit up 10%, a 60 basis point increase in margins and deliver
significantly more free cash flow than initially expected. We had excellent
order intake of £4.9bn resulting in a robust £13bn order book, and we ended
the year with a strong pipeline of qualified new business opportunities
exceeding £11bn to underpin future growth.
Our strong balance sheet has enabled delivery against all our capital
allocation priorities by investing in organic business development, increasing
our dividend by 22% and completing the planned share buyback of £140m; and,
as announced in January, we have agreed the strategically important and
financially compelling acquisition of MT&S from Northrup Grumman, which we
expect to complete in mid-2025. MT&S will transform our capabilities in
the critical areas of technology-enabled military training and satellite
ground network software services. The combination of Serco and MT&S
further enhances the growth potential of our US platform and our international
defence business.
Our people have always been at the heart of our business, and we are pleased
that colleague engagement improved from already high levels, attrition rates
are markedly reduced and importantly, we have achieved significant improvement
in safety outcomes across the business. I am immensely proud of the commitment
of all my Serco colleagues around the world and remain deeply grateful for
their contribution to our success.
In a global environment of continuous change and increasing complexity,
Serco's purpose to impact a better future by enabling more efficiency and
greater agility in the delivery of critical services for governments has never
been more relevant. We enter 2025 with confidence that we will continue to
deliver profitable growth and make further progress in executing our strategy
to create value for customers and shareholders."
Guidance for 2025
Our focus in 2025 remains steadfast on reinforcing our market positioning by
concentrating on growth, operational excellence and competitiveness. The
outlook for 2025 anticipates revenue will be similar to 2024 with underlying
organic growth of 7% offsetting reductions in the UK and Australian
immigration contracts. Underlying operating profit will reduce only slightly
despite previously advised headwinds from immigration and higher UK national
insurance contributions. The conversion of profit to cash will continue to be
strong at over 80%, contributing to a strong balance sheet.
As we look ahead to 2025, we have the highest level of potential new work in
our pipeline in more than a decade at £11.2bn. Post the period end we were
awarded a landmark UK Armed Forces Recruitment Service contract with an
estimated value of £1.0bn over the initial seven-year term and up to £1.5bn
should the Ministry of Defence elect to exercise all three one-year extension
options beyond the initial term.
The acquisition of MT&S is expected to complete in mid-2025, subject to
regulatory approvals, and will be included in guidance at that point.
2024 2025
Actual Initial guidance New guidance
Revenue £4.8bn ~£4.8bn ~£4.8bn
Organic sales growth (3)% ~0% ~0%
Underlying operating profit £274m ~£260m ~£260m
Net finance costs £33m ~£42m ~£40m
Underlying effective tax rate 25% ~25% ~25%
Free cash flow £228m ~£135m ~£135m
Adjusted net debt £100m ~£60m ~£10m
NB: The guidance uses an average GBP:USD exchange rate of 1.26 in 2025,
GBP:EUR of 1.20 and GBP:AUD of 1.98. We expect a weighted average number of
shares in 2025 of 1,015m for basic EPS and 1,035m for diluted EPS.
For further information please contact Serco:
Paul Checketts, Head of Investor Relations | +44 (0) 7718 195 074 |
paul.checketts@serco.com
Jamie Hastings, Head of Investor Relations (new) | +44 (0) 7718 195 074 |
jamie.hastings@serco.com
Scot Marchbank, Group Communications and Marketing Director | +44 (0) 7958 675
706 | scot.marchbank@serco.com
Presentation:
A presentation for institutional investors and analysts will be held at RBC
Capital Markets, 100 Bishopsgate, London, EC2N 4AA today at 10.00 UKT. The
presentation will be webcast live at
https://sparklive.lseg.com/SercoGroup/events/f1f455da-bf2f-4af3-be40-00e78d18da2d/serco-2024-full-year-results
(https://sparklive.lseg.com/SercoGroup/events/f1f455da-bf2f-4af3-be40-00e78d18da2d/serco-2024-full-year-results)
and subsequently available on demand. To be able to ask questions please use
our dial-in facility accessed on https://registrations.events/direct/LON444406
(https://registrations.events/direct/LON444406)
Notes to financial results summary table and highlights:
The trading performance and outlook for each Division are described on pages
13 to 17. Reconciliations and further detail of financial performance are
included in the additional information on pages 42 to 48. This includes full
definitions and explanations of the purpose of each non-IFRS Alternative
Performance Measure (APM) used by the Group.
About Serco
Serco brings together the right people, the right technology, and the right
partners to create innovative solutions that make a positive impact and
address some of the most urgent and complex challenges facing the modern
world.
With a primary focus on serving governments globally, Serco's services are
powered by more than 50,000 people working across defence, space, migration,
justice, healthcare, mobility, and customer services.
Serco's core capabilities include service design and advisory, resourcing,
complex programme management, systems integration, case management,
engineering, and asset & facilities management.
Underpinned by Serco's unique operating model, Serco drives innovation and
supports customers from service discovery through to delivery.
More information can be found at www.serco.com
LEI: 549300PT2CIHYN5GWJ21
Chief Executive's update
We delivered strong financial and operational results in 2024, a year that
presented a dynamic operating environment framed by unprecedented political
change, as voters in more than 60 countries went to the polls. Despite some
headwinds, we delivered revenue in line with guidance, we materially increased
underlying operating profit, generated excellent cash flow, and we improved
colleague safety and engagement.
Our focus has been on reinforcing our market positioning by concentrating on
growth, operational excellence and competitiveness. We made demonstrable
progress in all three areas in 2024.
On growth, we entered the year with a robust pipeline of new business
opportunities and a clear focus on effective execution. Momentum grew as we
moved through the year with an improving trend in organic revenue and
strengthened order intake. In the UK & Europe we offset the expected
organic revenue reduction from exiting a variety of lower margin contracts in
2023, with good growth in our European business. North America, a core
strategic focus area for us, was the standout performer. Strong order intake -
book-to-bill was 1.6x in the year - saw organic revenue growth step up to 5%
in the second half and sets the business up for good growth in 2025; and in
January 2025, we agreed to acquire MT&S, a leading provider to the US
military of advanced mission training services, and software that makes
satellite ground networks more efficient. MT&S grows our North American
business to beyond US$2bn of revenue and US$200m of profit. It brings new
capabilities and access to a broader base of customers, which will provide
further opportunities for Serco to grow organically in both North America and
internationally.
Operational excellence was focused on the safety, engagement and productivity
of colleagues as a critical enabler to provide exceptional service to our
customers. The high importance we placed on keeping our colleagues safe in
2024 resulted in a 22% reduction in lost time injuries and 31% reduction in
lost working days. As we continue to evolve our employee value proposition, it
was encouraging to see vacancy rates drop from approximately 13% to 5% over
the past two years, voluntary attrition reduce by 5 percentage points, and
employee engagement increase to 72.
We see in-contract operational performance as the foundation to retaining
business across multiple contracting cycles. We achieved high levels of
success on rebids and extensions of existing work through the year securing
around £3bn of awards with retention rates in excess of 90% in our two
largest markets.
The exception across the Group was the disappointing outcome of the Australian
immigration rebid as notified in November. We will learn from this loss, and
Management is actively resetting the cost base of the business, which we still
expect to deliver approximately £700m of revenue in 2025. Beyond immigration,
the underlying performance of the Australian portfolio has improved during the
year, we have retained key contracts and we continue to work to ensure we are
well positioned in a market where we see opportunity to grow, particularly
noting the importance of the country for geopolitical security.
Our focus on competitiveness in the year included concerted efforts to improve
the productivity and efficiency of the business. We are pleased with the ramp
up in our progress, which included an increase of 120 basis points (bp) in the
second half compared to the same period in the prior year and where every
region delivered higher underlying operating profit compared to the same
period in 2023. The UK & Europe was the leading contributor to the Group,
delivering a margin of 6.0% over the full year, 110bp higher than in 2023.
Overall, at the Group level we increased our underlying operating profit
margin by 60bp in 2024, an improvement driven by better gross profit. This was
achieved through a combination of improvements on underperforming contracts,
increased contract productivity, agreeing new contract terms with customers,
and in-contract organic revenue growth. We are confident these improvements
pave the way for additional opportunities in the future.
Strong financial performance enabled us to deliver all aspects of our capital
allocation strategy: investing in the business to drive growth and efficiency;
increasing returns to shareholders by raising dividends; maintaining adequate
headroom to fund strategic bolt-on acquisitions; using share buybacks to keep
our leverage within our target range of 1-2x EBITDA. We expect strong cash
generation to continue and will regularly assess the opportunity for further
buybacks.
In summary, we are proud of the progress made in 2024, with strong financial
performance, positive employee metrics and high-quality delivery of important
services to customers in a dynamic environment. Strong drivers of demand in
our markets have resulted in a record pipeline of potential new work and the
momentum in our business. This supports our confidence in delivering our
medium-term goals.
In January, it was announced I would be retiring as Group Chief Executive,
having served as a member of the Executive leadership team for the past 12
years. It has been a true privilege to lead this remarkable Company. I am
delighted with the progress we have made in the last few years and
particularly proud of what has been achieved to keep our colleagues safer,
deliver consistently strong financial performance and develop the biggest
pipeline in more than a decade to meet our strategic growth goals. I know that
my successor, Anthony Kirby, will continue to build on these solid
foundations. I remain deeply grateful for the hard work and dedication of more
than 50,000 colleagues across the Group, for the continued trust of our
customers, and for the ongoing support of our shareholders.
Looking forward, governments and citizens are facing changes that are complex
and challenging. Governments need to balance fiscal constraint with responding
to growing demand for citizen services, critical infrastructure, AI-driven
transformation, defence and broader national security including cyber
resilience, among others. The need to be agile, adaptive and efficient in the
delivery of critical services has never been clearer. Serco is well positioned
to help navigate these changes and our opportunity to grow has never been more
compelling.
Mark Irwin
Group Chief Executive
Serco - Impact a better future
Group Review
Summary of financial performance
Revenue, underlying operating profit and underlying earnings per share
Revenue was £4,787m, which was 2%, or £87m, lower than the £4,874m reported
in 2023, or flat on a constant currency basis. Organically, revenue declined
by 3% (£123m), while acquisitions added 3% (£121m) and currency was a drag
of 2% (£85m). We saw good growth from new and expanded contracts in Defence,
Justice and Citizen Services sectors. The reduction reflects lower
volume-variable work in the Immigration sector in both the UK and Australia,
our Centers for Medicare & Medicaid Services (CMS) contract being in its
new five-year agreement and the annualisation of our previously announced exit
from certain low-margin contracts.
Despite revenue reducing in the year, we increased underlying operating profit
by 10% to £274m (2023: £249m); and taking account of a 2%, or £6m, adverse
impact of currency, on a constant currency basis, underlying operating profit
increased by 12%. There were also higher costs associated with mobilising our
electronic monitoring contract. We more than offset these with our efforts to
improve the productivity and efficiency of the business and the positive
contribution from acquisitions. It was pleasing to see increasing momentum as
the year progressed. In the second six months of the year, every region
delivered higher underlying operating profit compared to the same period in
2023. Our margin was 60bp higher in the year as a whole and increased by 120bp
in the second half alone.
Reported operating profit reduced by 52% to £130m (2023:£272m). The decline
was because of a £115m impairment charge in Asia Pacific following the loss
of our immigration contract. Underlying profit after net finance costs and
tax, both of which were higher in the year, increased by 4% to £180m (2023:
£173m).
Diluted underlying earnings per share increased by 9% to 16.67p (2023:
15.36p). The growth was higher than underlying profit after tax as our share
buybacks in 2023 and 2024 led to a 4% reduction in our weighted average number
of shares in the year.
The revenue and underlying operating profit performances are discussed in more
detail in the Divisional Reviews.
Cash flow and net debt
Free cash flow was £228m (2023: £209m). Over recent years we have created a
system and culture around invoicing and cash collection that has structurally
improved our working capital. This continued efficiency, in conjunction with
cash received for mobilisation costs and this being a period of catch up of
dividends from joint ventures, delivered cash conversion of more than 100%.
The ongoing rigour on cash management means we expect the business to convert
at least 80% of profit into cash on an ongoing basis. Average working capital
days were at attractive levels with debtor days of 17 (2023: 16 days) and
creditor days of 19 (2023: 20 days). Including accrued income and other
unbilled receivables, day sales outstanding were 39 days (2023: 38 days). Of
all UK supplier invoices, 92% were paid in under 30 days (2023: 94%) and 97%
were paid in under 60 days (2023: 98%). No working capital financing
facilities were utilised in this or the prior year.
Adjusted net debt was £100m at the end of December. This was a reduction in
the year of £9m (December 2023: £109m) despite £38m of dividend payments, a
£21m net cash outflow for acquisitions and £141m being spent on our share
buyback programme, including fees.
The period end adjusted net debt compares to a daily average of £146m (2023:
£232m) and a peak of £212m (2023: £362m). The difference between average
and peak figures reflected working capital fluctuations. These can be caused
when certain discrete outflows - for example payroll, supplier payments, VAT
payments on account - occur in a short timeframe. Variances like this are
normal for the Group.
Our measure of adjusted net debt excludes lease liabilities, which aligns
closely with the covenants on our financing facilities. Lease liabilities
totalled £530m at the end of December (2023: £454m), the majority being
leases on housing for asylum seekers under our Asylum Accommodation and
Support Services Contract (AASC). These leases are serviced with contracted
revenue from the customer and their terms do not extend beyond the expected
life of the contract we have.
At the closing balance sheet date, our leverage for debt covenant purposes was
0.3x EBITDA (2023: 0.5x). This compares with the covenant requirement for net
debt to be less than 3.5x EBITDA and our target range of 1-2x.
In February 2024, we issued US$150m (£118m) of US private placement loan
notes. The notes were equally split into two series of US$75m each with
maturities of five and ten years, giving an average maturity of seven and a
half years. The average interest rate on the new loan notes was fixed at
6.58%. On 14 May 2024, we repaid US$66m (£53m) of maturing US private
placement loan notes which had a coupon of 5.08%. The blended rate on US
private placement loan notes in issue at the end of December 2024 was 4.88%
(December 2023: 3.97%).
Capital allocation and returns to shareholders
We aim to have a strong balance sheet with our target financial leverage of 1x
to 2x net debt to EBITDA, and, consistent with this, the Board's capital
allocation priorities are to:
• Invest in the business to support organic growth.
• Increase ordinary dividends to reward shareholders with a growing and
sustainable income stream.
• Selectively invest in strategic acquisitions that add capability, scale or
access to new markets, enhance the Group's future potential organic growth and
have attractive returns.
• Return any surplus cash to shareholders through share buybacks or other means.
Our capital allocation framework was actively applied in 2024:
• Invest to support organic growth: investment has been put into business
development, which has supported our healthy pipeline of new opportunities. We
continued to invest in pilot programmes to partner with both start-up and
established technology businesses to create a broader capability ecosystem
from which to deliver future growth. Investment was made to improve
productivity and competitiveness.
• Increase ordinary dividends: the Board is recommending a final dividend of
2.82 pence per share. Following the interim dividend of 1.34 pence per share,
this results in a full year dividend of 4.16 pence per share, an increase of
22% compared to 2023, as we continue our path to reduce dividend cover
progressively towards 3x over the coming years.
• Invest in acquisitions: in March, we acquired European Homecare (EHC), a
leading provider of immigration services in Germany. In January, we acquired
Climatize, a small, fast-growing business that operates in the United Arab
Emirates and the Kingdom of Saudi Arabia offering 'zero-carbon' advisory and
related engineering services. In January 2025, we agreed to acquire Northrop
Grumman's mission training and satellite ground network communications
software business (MT&S) for US$327m (£264m). MT&S is a leading
provider of services to the US military. We continue to assess other
opportunities that are aligned to our strategy and provide potential to
enhance future organic growth.
• Return surplus cash to shareholders: we completed a £140m share buyback. We
have now returned £340m to shareholders through buybacks since 2021.
Contract awards, order book, rebids and pipeline
Contract awards
Order intake was £4.9bn (2023: £4.6bn), a book-to-bill rate of 102%.
Consistent with the momentum we saw generally across our business, order
intake was much improved in the second half. Book-to-bill was 82% in the first
half and 121% in the second.
There were around 65 contract awards worth £10m or more each. North America
had the strongest book-to-bill at 165%, with wins across the Defence and
Citizen Services sectors. Unsuccessful bids and some existing work being
extended rather than proceeding with the tender left the UK & Europe
book-to-bill at 78%. After strong order intake in 2023, our Middle East
business experienced a period of lower wins, with book-to-bill reducing to
93%. In Asia Pacific, we had the disappointing news in November 2024 that we
were unsuccessful in rebidding the contract for immigration services. As is
the nature of larger binary decisions, the loss depressed book-to-bill, with
the year ending at 74%. Encouragingly, momentum did improve through the year,
with book-to-bill of 35% in the first half and 113% in the second six months.
North America had order intake of £2.2bn, or approximately 45% of the total
for the Group, the UK & Europe contributed £1.9bn, or approximately 40%,
Asia Pacific secured £0.6bn, or approximately 10% and the Middle East
£0.2bn, or approximately 5%.
Approximately 35% of the order intake value was new business and 65% was
rebids or extensions of existing work. The win rate by value for new work was
approximately 25%, which was at the lower end of the range we have delivered
over recent years as some larger bids were unsuccessful. The win rate by value
for retaining existing work was approximately 75%. Having had a success rate
of more than 90% on rebids in 2023 and the first half of 2024, the full year
rate was depressed by the unsuccessful Australian immigration rebid. Excluding
this, the rate for the year would have been approximately 95%.
New wins included a US$320m four-year contract to upgrade Defence
infrastructure at the US Space Force's Pituffik Space Base in Greenland, a
US$247m contract to support soldier readiness and performance within the US
Army's Holistic Health and Fitness (H2F) System, which has an eight-month base
period plus four one-year options, a c.£90m six and a half year contract to
deliver emergency response services in the NEOM economic zone in the Kingdom
of Saudi Arabia, a £70m six-year agreement to operate and maintain the Shing
Mun Tunnels and Tseung Kwan O Tunnel in Hong Kong, and a further £50m
five-year contract with the Government of Ontario to help job seekers develop
their skills and match them to employment opportunities. We successfully rebid
our contract to manage HMP Ashfield in the UK. The new contract has an
estimated value to Serco of £200m over its initial ten-year period. Also in
the UK, we extended parts of our immigration accommodation work and retained
our contract to provide facilities management services at Forth Valley Royal
Hospital, which is worth approximately £150m over seven years.
In the US, we won the rebid of our contract to provide customer support
services to the US Pension Benefit Guaranty Corporation. The contract has a
one-year base period and four option years with a value of approximately
£180m if all options years are exercised. Our contracts with the UK
Department for Work and Pensions to help people find jobs in the West Central
region and Wales as part of the Restart programme, were extended for a further
two years, with an estimated value of £130m.
Following the year end, as announced on 6 February 2025, we were selected by
the UK Ministry of Defence to deliver its next-generation recruitment solution
for the Royal Navy, the British Army, the Royal Air Force and Strategic
Command. The contract has an estimated value of £1.0bn over the initial
seven-year term and up to £1.5bn should the Ministry of Defence elect to
exercise all three one-year extension options beyond the initial term. A
21-month mobilisation period is expected to begin in April 2025 with most of
the costs charged to profit as they are incurred. The new service is scheduled
to commence in early 2027.
Order book
The order book remains strong at £13.3bn at the end of December (2023:
£13.6bn). Our order book definition gives our assessment of the future
revenue expected to be recognised from the remaining performance obligations
on existing contractual arrangements. This excludes unsigned extension
periods, and the order book would be £3.0bn (2023: £2.6bn) higher if option
periods in our US business, which typically tend to be exercised, were
included. If joint venture work was included this would add a further £1.9bn
(2023: £1.9bn) to our order book.
Rebids
In our portfolio of existing work, we have around 75 contracts with annual
revenue of £5m or more where an extension or rebid will be required before
the end of 2027, with an aggregate annual revenue of £1.5bn. At around 30% of
the Group's 2024 revenue guidance, this proportion of work that will be up for
rebid is at the low end of the range we have seen over recent years. Contracts
that will either need to be rebid or extended in 2025 have an annual contract
value of around £0.4bn. The annual value of rebids is approximately £0.6bn
in both 2026 and 2027. The largest contract that is scheduled to be rebid in
the next three years represents around 2.5% of Group revenue. This is the only
contract with annual revenue of more than £100m, or 2% of Group revenue,
scheduled to be rebid before 2028.
New business pipeline
Our measure of pipeline includes only opportunities for new business that have
an estimated annual contract value (ACV) of at least £10m and which we expect
to bid and to be adjudicated within a rolling 24-month timeframe. We cap the
total contract value (TCV) of individual opportunities at £1bn, to lessen the
impact of single large opportunities. The definition does not include rebids
and extension opportunities, and in the case of framework, or call-off,
contracts such as Indefinite Delivery/Indefinite Quantity contracts (ID/IQ),
which are common in the US, we only take the value of individual task orders
into our pipeline as the customer confirms them. Our published pipeline is
thus a small proportion of the total universe of opportunities, as many
opportunities have annual revenues less than £10m, are likely to be decided
beyond the next 24 months, or are rebids and extensions.
Our pipeline was £11.2bn at the end of December 2024, 11% higher than the
£10.1bn level at the end of December 2023. This is the largest pipeline of
potential new work we have had in more than a decade. The pipeline consists of
over 50 bids with an average ACV of £36m and an average contract length of
around six years. The pipeline of opportunities for new business with an
estimated ACV of less than £10m totalled £2.0bn at the end of December
(2023: £2.6bn).
Acquisitions
We view acquisitions as an important part of our strategic toolkit, which, if
deployed correctly, can add significant value to the business. They should
therefore supplement and be capable of delivering new opportunities for
organic growth. Generally speaking, we regard acquisitions as higher risk than
organic growth, so any potential opportunities have to meet our stringent
criteria of being both financially and strategically compelling. We judge
potential acquisitions against three criteria: Do they add new, or strengthen
existing, capability? Do they add scale which we can use to increase
efficiency? Do they bring us access to new and desirable customers and
markets? We also recognise that acquisition opportunities come in different
shapes, sizes and sectors, and a small one can be strategically important to a
region, but not necessarily significant at Group level. But large or small,
the execution of all acquisitions is centrally managed and follows the same
rigorous process. Equal focus and discipline are applied to post-acquisition
value drivers such as effective integration and value realisation from synergy
and growth. Our approach of selectively adding acquisitions to our organic
strategy has enabled us to accelerate growth, strengthen the business and
improve its future growth potential in North America and in Europe.
In Europe, we have grown our business from approximately £100m of revenue in
2020 to more than £500m in 2024. Acquisitions in the Immigration and Defence
sectors gave us positions that would have been very difficult to achieve
organically; and being part of Serco has enabled the acquired businesses to
scale up in a way that would not have been possible as standalone entities. We
see strong potential for further growth in Europe.
In North America, we have approximately doubled revenue and more than trebled
profit between 2017 and 2024 through a successful combination of organic
growth and strategic acquisitions. This demonstrates the success of our
M&A strategy, which is that acquisitions should provide access to new
markets and bring new capabilities that broaden the opportunities for further
organic growth and improve profitability.
Equally importantly, we have transformed the business from a low-margin
portfolio of contracts largely performing front-line installation work on
industrial systems back in 2017. The acquisition of NSBU in 2019 added a
strong US Navy business. We are now the leading naval architecture firm in the
US and have capability in upfront engineering and asset-light management. WBB,
which we acquired in 2021, brought strong positions with the Air Force, Space
Force, and the Army.
Today, Serco is a leading provider of services to the US Navy and that has
strengthened positions with Army, Air Force, and Space Force, and has
capabilities in government site program support, high-end engineering,
equipment support, and technology-enabled frontline services.
The proposed acquisition of MT&S, covered below, will continue this growth
through new capabilities and access to new markets and customers, providing
exciting opportunities for future organic growth.
Two acquisitions completed in 2024
In March, we acquired European Homecare (EHC), for an enterprise value of
€40m (£34m). EHC is a leading private provider of immigration services in
Germany. In conjunction with ORS, the Swiss-based business we acquired in
2022, this strategic acquisition creates a strong partner for European
governments in immigration services and complements the support we already
provide to government customers in the UK and Australia.
In January, we acquired Climatize, for an initial consideration of AED9m
(£2m) and a contingent consideration of up to AED51m (£11m), payable on
achieving certain financial targets. Climatize is a small, fast-growing
business that operates in the United Arab Emirates and the Kingdom of Saudi
Arabia offering 'zero-carbon' advisory and related engineering services.
Acquisition of MT&S in 2025
Following the year end, in January 2025, we agreed to acquire Northrop
Grumman's mission training and satellite ground network communications
software business (MT&S) for US$327m (£264m). The acquisition is expected
to complete in mid-2025, subject to regulatory approvals.
MT&S provides the US military with advanced mission training services, and
software that makes satellite ground networks more efficient. With expertise
in training services and software engineering, and a track record of
innovation, it supports programmes across the US Army, Space Force, Air Force,
Navy, Combatant Commands and international partners.
The acquisition will build additional scale for Serco in North America,
growing our business to beyond US$2bn of revenue and US$200m of profit. It
brings new capabilities and access to a broader base of customers, which will
provide further opportunities for Serco to grow organically in both North
America and internationally.
We continue to seek out and evaluate new opportunities for acquisitions that
fit our criteria and focus on delivering value from those acquisitions already
executed.
Asia Pacific segment
The 2024 results include a £115m non-cash, non-underlying, impairment charge
in respect of the Asia Pacific goodwill balance, which has been triggered by
the loss of the immigration rebid in November 2024. The Directors recognise
that the Asia Pacific business has performed below expectations but continue
to be committed to the market and believe that they have a strong platform to
grow the business.
A number of changes have been made that have started to show improvements in
2024. Further plans are being developed and executed to strengthen the
business. The stage of development of these plans means that for accounting
purposes, and to be compliant with IAS36, they are not considered in the
goodwill valuation.
Guidance for 2025
In 2025, our focus remains steadfast on reinforcing our market positioning by
concentrating on growth, operational excellence and cost competitiveness. We
expect revenue in 2025 will be similar to 2024 despite a 7% revenue reduction
relating to the UK and Australian immigration contracts, while underlying
operating profit will reduce only slightly despite known headwinds. The
conversion of profit to cash will continue to be strong and our pipeline of
new business opportunities is healthy. The acquisition of MT&S is expected
to complete in mid-2025 and will be included in guidance at that point.
Revenue: We anticipate revenue of around £4.8bn with flat organic revenue
growth and a c.1% contribution from businesses acquired in 2024. Having had a
success rate of more than 90% on rebids in 2023 and the first half of 2024, it
was disappointing to be unsuccessful in rebidding the contract for immigration
services in Australia. In the UK, we expect to continue supporting the UK
Government's efforts to reduce the number of asylum seekers being accommodated
in hotels. These two impacts are expected to reduce revenue by approximately
7% in 2025, however, the business is making good progress elsewhere in the
portfolio to offset this impact. Growth is anticipated to be strongest in the
North American market where we expect mid-single digit organic growth after
securing new work in the defence sector in 2024 and early 2025. In addition,
contracts mobilised during 2024 in the UK justice and citizen services sectors
will contribute further in 2025.
Underlying operating profit: Underlying operating profit is expected to be
around £260m, compared to the £274m delivered in 2024. This is a relatively
small reduction given the previously disclosed headwinds from our Australian
immigration contract ending, lower activity levels within our UK immigration
business and higher UK national insurance contributions. Significant progress
is expected from the ramp up and reduced costs on newly mobilised contracts,
and continued opportunities to improve productivity and efficiency across the
portfolio. These support our margin which is expected to be around the
mid-point of our medium-term target of 5-6%.
Net finance costs and tax: Net finance costs are expected to increase to
around £40m. This is more than 2024 due to the increased volume of lease
interest, particularly in relation to immigration services in the UK. The
underlying effective tax rate is expected to be around 25%, although this is
sensitive to the geographic mix of our profit and any changes to current
corporate tax rates.
Financial position: Free cash flow is again expected to be strong at around
£135m in the year, in line with our medium-term target of converting at least
80% of profit into cash. This is below 2024 as the prior year included cash
received on contracts in their mobilisation phase and a catch up of dividends
from joint ventures. The current year includes one-off end of contract cash
costs of £20m in relation to our Australian immigration contract, which were
expensed in previous years. We expect adjusted net debt to end the year at
around £10m.
Surplus capital in 2025: Consistent with our capital allocation priorities, we
have a preferred financial leverage range of 1-2x net debt to EBITDA. If we
are below 1.0x leverage we consider the business to be in a position of having
surplus capital, which will be returned to our shareholders through share
buybacks or other means. Leverage at the year end was 0.3x net debt to EBITDA
and on a pro forma basis, including the proposed acquisition of MT&S that
was announced in January, leverage was 1.2x. Although we are not currently in
a position of surplus capital, we are only modestly above the threshold and
have an established track record of strong cash flow reducing our leverage. We
will review the capital position again at the half year.
Summary of guidance for 2025
2024 2025
Actual Initial Guidance New guidance
Revenue £4.8bn ~£4.8bn ~£4.8bn
Organic sales growth (3)% ~0% ~0%
Underlying operating profit £274m ~£260m ~£260m
Net finance costs £33m ~£42m ~£40m
Underlying effective tax rate 25% ~25% ~25%
Free cash flow £228m ~£135m ~£135m
Adjusted net debt £100m ~£60m ~£10m
NB: The guidance uses an average GBP:USD exchange rate of 1.26 in 2025,
GBP:EUR of 1.20 and GBP:AUD of 1.98. We expect a weighted average number of
shares in 2025 of 1,015m for basic EPS and 1,035m for diluted EPS.
Outlook for growth in the medium-term
Our medium-term targets remain unchanged:
• Revenues to grow at ~4-6% per year over the medium-term
• Profits to grow faster than revenue with margins of 5-6%
• At least 80% of profit converted into cash
• Returns to shareholders will grow faster than profits
Divisional Reviews
Serco's operations are reported through four geographic divisions: North
America, UK & Europe (UK&E), the Asia Pacific region and the Middle
East. Reflecting statutory reporting requirements, Serco's share of revenue
from its joint ventures and associates is not included in revenue, while
Serco's share of joint ventures and associates' profit after interest and tax
is included in underlying operating profit.
Year ended 31 December 2024 North America UK&E Asia Pacific Middle Corporate Total
East costs
£m £m £m £m £m £m
Revenue 1,326.1 2,445.9 799.4 215.9 - 4,787.3
Change (3)% -% (5)% (5)% (2)%
Change at constant currency 1% -% (2)% (2)% -%
Organic change at constant currency 1% (5)% (2)% (3)% (3)%
.
Underlying operating profit / (loss) 136.1 147.9 24.6 16.0 (51.1) 273.5
Margin 10.3% 6.0% 3.1% 7.4% (1.1)% 5.7%
Change (2)% 22% 4% 5% 4% 10%
Amortisation and impairment of intangibles arising on acquisition (15.5) (13.4) - - - (28.9)
Exceptional goodwill impairment - - (114.5) - - (114.5)
Reported operating profit / (loss) 120.6 134.5 (89.9) 16.0 (51.1) 130.1
Year ended 31 December 2023 North America UK&E Asia Pacific Middle Corporate Total
East costs
£m £m £m £m £m £m
Revenue 1,362.8 2,439.5 845.1 226.4 - 4,873.8
Underlying operating profit / (loss) 138.2 120.8 23.7 15.3 (49.3) 248.7
Margin 10.1% 5.0% 2.8% 6.8% (1.0)% 5.1%
Amortisation and impairment of intangibles arising on acquisition (16.0) (3.4) (11.5) - - (30.9)
Exceptional operating items - 9.9 - - 43.9 53.8
Reported operating profit / (loss) 122.2 127.3 12.2 15.3 (5.4) 271.6
The trading performance and outlook for each Division are described on the
following pages. Reconciliations and further details of financial performance
are included in the additional information on pages 42 to 48. This includes
full definitions and explanations of the purpose of each non-IFRS Alternative
Performance Measure (APM) used by the Group. The Condensed Consolidated
Financial Statements and accompanying notes are on pages 22 to 42.
Included in note 2 to the Group's 2023 Consolidated Financial Statements are
the Group's policies on recognising revenue across the various revenue streams
associated with the diverse range of goods and services discussed within the
Divisional Reviews. The various revenue recognition policies are applied to
each individual circumstance as relevant, taking into account the nature of
the Group's obligations under the contract with the customer and the method of
delivering value to the customer in line with the terms of the contract.
North America (28% of revenue, 42% of underlying operating profit)
Year ended 31 December 2024 2023 Growth
£m
Revenue 1,326.1 1,362.8 (3)%
Organic change 1% 8%
Acquisitions -% -%
Currency (4)% (1)%
Underlying operating profit 136.1 138.2 (2)%
Organic change 2% 1%
Acquisitions -% -%
Currency (4)% -%
Margin 10.3% 10.1% 12bp
Revenue declined by 3% to £1,326m (2023:£1,363m), with organic growth of 1%
more than offset by a 4% adverse translational effect of currency. Growth in
our Defence business, drove the organic revenue increase for the division
overall. There were positive contributions from new work ramping up, maritime
services and anti-terrorist force protection for the navy. We were pleased to
see this more than offset the effect of our CMS contract being in its new
five-year agreement and lower revenue in the transport sector. Momentum
improved as the year progressed with an organic revenue decline of 4% in the
first half shifting to 5% growth in the second six months.
Underlying operating profit reduced by 2% to £136m (2023: £138m). Currency
had a 4% adverse impact, with underlying operating profit up 2% on a constant
currency basis. Good progress in our Defence business and in Canada, more than
offset lower profit from the new CMS contract. Margins increased from 10.1% to
10.3% as a result. We saw momentum improve in the year. Underlying operating
profit was 13% lower in the first half but increased by 14% in the second
half, compared to the same period in 2023.
Order intake was strong at £2.2bn, which was 45% of the total for the Group
and a book-to-bill ratio of 1.6x. New business wins were around 55% of the
order intake. Our largest new win was a US$320m four-year contract to upgrade
Defence infrastructure at the US Space Force's Pituffik Space Base in
Greenland. We were also successful in being awarded a US$247m contract to
support soldier readiness and performance within the US Army's Holistic Health
and Fitness (H2F) System, which has an eight-month base period plus four
one-year options.
Following on from our success in 2022 and 2023, we secured a further £50m
five-year contract with the Government of Ontario to help job seekers develop
their skills and match them to employment opportunities. We won the rebid of
our contract with the US Pension Benefit Guaranty Corporation. We provide
benefits administration and customer support for over one million individuals
whose defined benefits plans have been disrupted. The contract has a one-year
base period and four option years with a value of approximately £180m if all
options years are exercised.
We also successfully rebid our IT support contract with the US Air Force. The
new agreement has a one-year base period and four one-year option periods, and
a value of approximately £70m if all options are exercised. As the NexGen
Information Technology (IT) Service Provider, Serco will manage, configure,
deploy, operate, sustain, and enhance the NexGen IT program solutions for Air
Force Civil Engineering activities. This includes delivering the largest
implementation of the IBM TRIRIGA software application in the world, to enable
data-driven decisions for the Air Force.
As we worked through and successfully converted a lot of the pipeline of new
bid opportunities in 2024, the pipeline reduced from £3.2bn at the end of
2023 to £2.1bn at the end of 2024. We are actively looking to replenish the
pipeline through 2025. Defence makes up around 75% of the North American
pipeline and Citizen Services is approximately 25%.
UK & Europe (51% of revenue, 46% of underlying operating profit)
Year ended 31 December 2024 2023 Growth
£m
Revenue 2,445.9 2,439.5 -%
Organic change (5)% 7%
Acquisitions 5% 8%
Currency -% 1%
Underlying operating profit 147.9 120.8 22%
Organic change 7% 55%
Acquisitions 16% 12%
Currency (1)% 1%
Margin 6.0% 5.0% 110bp
Revenue was stable at £2,446m (2023: £2,440m), with an organic decline of 5%
offset by a 5% contribution from acquisitions. EHC, the German immigration
services business we acquired in March 2024, traded strongly with robust
demand due to global migration patterns. The organic decline resulted from us
exiting a variety of contracts in 2023, several of which had margins below the
level we see as appropriate for the services we deliver. These contracts were
in different sectors, so revenue declined in Citizen Services, Transport and
Health & Facilities Management as we exited this work. Elsewhere we saw
growth in Justice & Immigration and Defence.
Underlying operating profit increased by 22% to £148m (2023: £121m). The
good underlying operating profit outcome was supported by immigration, where
the EHC acquisition contributed and performance in the UK was better than
originally anticipated, successful mobilisation of the newly built Fosse Way
prison and from our focus on productivity and improving the underlying
performance of our portfolio. Our Health & Facilities Management business,
in particular, saw much improved profitability compared to the prior year.
These factors more than offset higher costs associated with the ongoing
mobilisation of our electronic monitoring contract. Margin performance in the
period was strong,with it increasing by around 110bp to 6.0%(2023: 5.0%).
Underlying operating profit includes the profit contribution of joint
ventures, from which interest and tax have already been deducted. If the
proportional share of revenue from joint ventures was included and the share
of interest and tax cost was excluded, the overall divisional margin would
have been 5.3% (2023: 4.5%). The joint venture profit contribution reduced to
£23m (2023: £29m) due to a one-off settlement being included in the prior
year.
Order intake was £1.9bn, a book-to-bill ratio of 0.8x and around 40% of the
total intake for the Group. The book-to-bill reflected some larger bids on new
work not landing in our favour. Our win rate by value on new work was around
15% as a result. Offsetting this, our win rate on rebids and extensions was
very good at more than 95%. Rebids and extensions represented approximately
85% of the order intake. Agreements signed included the rebid of our contract
to manage HMP Ashfield in the UK. The new contract has an estimated value of
£200m and by the end of the ten-year period, Serco will have been managing
the prison for 29 years. We extended parts of our immigration accommodation
work and retained our contract to provide facilities management services at
Forth Valley Royal Hospital, which is worth approximately £150m over seven
years.
Following the year end, as announced on 6 February 2025, we were selected by
the UK Ministry of Defence to deliver its next-generation recruitment solution
for the Royal Navy, the British Army, the Royal Air Force and Strategic
Command. The contract has an estimated value of £1.0bn over the initial
seven-year term and up to £1.5bn if all three one-year extension options are
taken.
The pipeline of new opportunities in the UK & Europe increased by more
than 30% in the year to £6.4bn (2023: £4.8bn). The Armed Forces Recruitment
Service contract, which we have now won, was the largest bid in our pipeline.
Excluding this, the pipeline remains very healthy with significant new
opportunities across the Justice & Immigration, Defence and Citizen
Services sectors.
Asia Pacific (17% of revenue, 8% of underlying operating profit)
Year ended 31 December 2024 2023 Growth
£m
Revenue 799.4 845.1 (5)%
Organic change (2)% (7)%
Acquisitions -% -%
Currency (3)% (4)%
Underlying operating profit 24.6 23.7 4%
Organic change 8% (56)%
Acquisitions -% -%
Currency (4)% (2)%
Margin 3.1% 2.8% 27bp
We are working through a plan to turn around our Asia Pacific segment and this
began to deliver positive results as 2024 progressed. The first half saw us
take action to reduce the cost base and improve profitability on some larger
contracts, the benefits of which began to come through in the second half of
the year. Although it was disappointing to be unsuccessful in rebidding our
immigration contract, our turnaround plan is independent of this. We remain
committed to the Asia Pacific market and continue to position the business for
the opportunities we expect in the coming years.
Revenue reduced by 5% to £799m (2023: £845m). The business contracted by 2%
organically and adverse currency moves had a 3% impact. Revenue fell because
of reduced work in facilities management, lower volume-variable work in parts
of the immigration network and some lost work in the Citizen Services sector.
Underlying operating profit increased by 4% to £25m (2023: £24m),
representing an increased margin of 3.1% (2023: 2.8%). Our focus on contract
profitability improvements and cost transformation more than offset lower
profit in the Justice & Immigration sectors. Progress came through as the
year progressed with underlying operating profit down 44% in the first half
and up 71% in the second.
Disappointingly, we were unsuccessful in rebidding the contract for the
provision of onshore immigration detention facilities and detainee services.
Serco is proud to have provided immigration services as a partner to the
Australian Government since October 2009.
Our performance levels have been high on the contract and we submitted what we
believed to be a compelling bid that would have delivered continued strong
performance to the Australian Government as well as meeting our framework for
achieving margins appropriate for the services we deliver.
The unsuccessful rebid led to an exceptional £115m goodwill impairment charge
for the division, which resulted in a reported operating loss of £90m (2023:
profit of £12m).
Order intake was £0.6bn in the year, a book-to-bill rate of 0.7x. Momentum
improved through the year, with book-to-bill of 33% in the first six months
then stepping up to 113% in the second half.
Larger contributors included a £122m award to continue to provide health
services personnel to the Australian Defence Force at garrisons across the
country and a £99m three-year award with the National Disability Insurance
Agency (NDIA) to continue providing contact centre services. New work included
a £70m six-year agreement to operate and maintain the Shing Mun Tunnels and
Tseung Kwan O Tunnel in Hong Kong.
The pipeline of potential new business stands at £1.7bn (December 2023:
£1.3bn). Defence makes up around 75% of the pipeline, Citizen Services 20%,
with smaller opportunities in the Transport and Health sectors.
Middle East (4% of revenue, 4% of underlying operating profit)
Year ended 31 December 2024 2023 Growth
£m
Revenue 215.9 226.4 (5)%
Organic change (3)% 9%
Acquisitions 1% -%
Currency (3)% (1)%
Underlying operating profit 16.0 15.3 5%
Organic change -% (2)%
Acquisitions 9% -%
Currency (4)% (2)%
Margin 7.4% 6.8% 65bp
Revenue reduced by 5% to £216m (2023: £226m). The business declined by 3%
organically, currency moves had a further 3% adverse impact, while
acquisitions added 1%. Organic contraction resulted from some lost facilities
management work and lower revenue in Defence, where a large contract, which we
successfully retained, moved to a reduced scope in its new term. These factors
more than offset good growth in our Transport business, which includes fire
and rescue work.
Underlying operating profit increased by 5% to £16m (2023: £15m). We managed
to deliver higher profit on a lower revenue base through our focus on
productivity and improving the underlying performance of our portfolio, and
the exited facilities management work being lower margin. Margins increased
from 6.8% to 7.4% as a result.
Order intake was around £0.2bn, a book-to-bill ratio of 0.9x. Around 75% of
the order intake was new business and 25% rebids and extensions. The largest
win was a new contract to provide fire rescue, emergency and ambulance
services in the NEOM economic zone in the Kingdom of Saudi Arabia. This
followed on from other similar work in the zone and is estimated to be worth
around £90m over its six-and-a-half-year term.
Our pipeline of major new bid opportunities in the Middle East totals around
£1.0bn (December 2023: £0.8bn) and includes opportunities in Transport,
Justice & Immigration and Defence.
Corporate costs
Corporate costs relate to typical central function costs of running the Group,
including executive, governance and support functions such as HR, finance and
IT. Where appropriate, these costs are stated after allocation of recharges to
operating divisions. The costs of Group-wide programmes and initiatives are
also incurred centrally. Corporate costs increased by £1.8m to £51.1m (2023:
£49.3m). The higher level was due to investments made in the year.
Dividend
The Board has recommended a final dividend of 2.82 pence per share. The
dividend, subject to shareholder approval, will be paid on 9 May 2025, with an
ex-dividend date of 10 April 2025 and a record date of 11 April 2025.
Other Financial Information
Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2024 2024 2024 2023 2023 2023
For the year ended 31 December £m £m £m £m £m £m
Revenue 4,787.3 - 4,787.3 4,873.8 - 4,873.8
Cost of sales (4,268.7) - (4,268.7) (4,378.3) - (4,378.3)
Gross profit 518.6 - 518.6 495.5 - 495.5
Administrative expenses (267.9) - (267.9) (275.8) - (275.8)
Exceptional Items comprising
- Operating items - - - - 53.8 53.8
- Goodwill impairment - (114.5) (114.5) - - -
Amortisation and impairment of intangibles arising on acquisition (excluding - (28.9) (28.9) - (30.9) (30.9)
exceptional items)
Share of results of joint ventures and associates, net of interest and tax 22.8 - 22.8 29.0 - 29.0
Operating profit / (loss) 273.5 (143.4) 130.1 248.7 22.9 271.6
Net finance costs (33.1) - (33.1) (24.6) - (24.6)
Profit/(loss) before tax 240.4 (143.4) 97.0 224.1 22.9 247.0
Tax (charge)/credit (60.4) 7.9 (52.5) (50.8) 6.2 (44.6)
Effective tax rate 25.1% 54.1% 22.7% 18.1%
Profit/(loss) for the year 180.0 (135.5) 44.5 173.3 29.1 202.4
Basic EPS 16.97p 4.17p 15.61p 18.23p
Diluted EPS 16.67p 4.10p 15.36p 17.93p
Non-underlying items
Non-underlying items in the year were a charge net of tax of £135.5m (2023:
credit net of tax of £29.1m).
Exceptional items - goodwill impairment: The 2024 result includes an
impairment charge before tax of £114.5m, non-cash, non-underlying, in respect
of the Asia Pacific goodwill balance, which has been triggered by the loss of
the Immigration rebid in November 2024. The directors recognise that the Asia
Pacific business has performed below expectations but continue to be committed
to the market, and recognise that they have a strong platform to grow the
business from. A number of changes have been made that have started to show
improvements in 2024. Further plans are being developed and executed to
strengthen the business, however, for accounting purposes and to be compliant
with IAS36, these improvements and plans are not used to support the goodwill
valuation (see note 7).
Exceptional items - operating items: In 2023 there was a credit before tax of
£53.8m following a release of the provisions held for indemnities provided on
disposed businesses totalling £43.9m, due to the claims period ending. The
Group also received in 2023, £9.9m compensation on the early termination of a
contract which, due to the size of the settlement, had been disclosed as
exceptional.
Amortisation and impairment of intangible assets arising on acquisitions of
£28.9m (2023: £30.9m).
Non-underlying tax for the year was a credit of £7.9m (2023: credit of
£6.2m).
Joint ventures and associates - share of results
During the year, the most significant joint ventures and associates in terms
of scale of operations were Merseyrail Services Holding Company Limited
(Merseyrail) and VIVO Defence Services Limited (VIVO). Both are incorporated
and operated in the UK.
Merseyrail generated revenue of £215.0m (2023: £217.0m), with the Group's
share of profits net of interest and tax for the year being £10.9m (2023:
£15.9m). The reduction in Merseyrail revenue and profits is primarily due to
a one-off commercial settlement received in 2023. The Group received dividends
of £14.1m (2023: £21.1m).
VIVO revenue for the year was £917.8m (2023: £844.9m) with the Group's share
of profits net of interest and tax for the year being £11.9m (2023: £13.1m).
The increase in VIVO's revenue is largely due to volumes and the impact of
indexation. The decrease in profit is due to lower margins on billable work
and the mix of margins within different contracts. The Group received
dividends of £16.7m (2023: £nil).
Whilst the revenues and individual line items are not consolidated in the
Group Consolidated Income Statement, summary financial performance measures
for the Group's proportion of the aggregate of all joint ventures and
associates are set out below for information purposes.
Year ended 31 December 2024 2023
£m £m
Revenue 504.5 473.4
Operating profit 30.6 38.1
Net finance cost (0.1) (0.2)
Income tax charge (7.7) (8.9)
Profit after tax 22.8 29.0
Dividends received from joint ventures and associates 30.8 21.1
Finance costs and investment revenue
Net finance costs recognised in the income statement were £33.1m (2023:
£24.6m), consisting of investment revenue of £7.7m, less finance costs of
£40.8m.
Investment revenue of £7.7m (2023: £7.0m) includes interest accruing on net
retirement benefit assets of £1.9m (2023: £3.1m), and interest income of
£5.3m (2023: £3.9m).
Finance costs of £40.8m (2023: £31.6m) include interest incurred on loans,
primarily the US private placement loan notes and the revolving credit
facility of £14.7m (2023: £15.6m) and lease interest expense of £19.9m
(2023: £13.1m) as well as other financing related costs including the impact
of foreign exchange on financing activities. The increase in lease interest
expense year on year is primarily due to the continuing increase in the number
of leases for dispersed properties required for our UK asylum contract.
Net interest paid recognised in the cash flow statement was £28.5m (2023:
£26.5m), consisting of interest received of £5.3m less interest paid of
£33.8m.
Tax
Underlying tax
The underlying tax charge recognised in the year was £60.4m (2023: £50.8m).
The effective tax rate of 25.1% is higher than in 2023 (22.7%). The increase
compared with 2023 is due to movements in provisions as part of the regular
reassessment of tax exposures across the Group together with charges
recognised in 2023 in connection with the finalisation of tax filings,
withholding taxes suffered for which no tax benefit is expected and the change
in mix of where profits have arisen.
The tax rate at 25.1% is slightly higher than the UK standard corporation tax
rate of 25%. This is due to withholding taxes suffered to the extent no tax
benefit is expected (increasing the rate by 1%), the increase in provisions
held for uncertain tax positions (increasing the rate by 0.4%), additional
charges on the finalisation of prior year returns (increasing the rate by
0.6%) and the movement in unprovided deferred tax (increasing the rate by
0.2%). This is offset by the impact of profits of joint ventures and
associates whose post-tax profits are included in the Group's profit before
tax (reducing the rate by 2.4%) together with the impact of lower statutory
rates of tax on overseas profits (reducing the rate by 0.3%). Other smaller
items result in a net increase to the rate of 0.6%.
Non-underlying tax
A tax credit of £7.9m (2023: £6.2m) arises due to tax deductions associated
with the amortisation of intangibles arising on acquisitions. The goodwill
impairment during the year is not tax deductible and therefore has no tax
credit associated with it.
Deferred tax assets
At 31 December 2024, the Group has recognised a net deferred tax asset of
£177.7m (2023: £184.8m). This consists of a deferred tax asset of £229.8m
(2023: £235.7m) and a deferred tax liability of £52.1m (2023: £50.9m). A
£177.5m UK deferred tax asset has been recognised on the Group's balance
sheet at 31 December 2024 (2023: £179.9m) on the basis that the performance
in the underlying UK business indicates sustained profitability which will
enable the accumulated tax losses within the UK to be utilised.
Taxes paid
Net corporate income tax of £41.3m (2023: £41.1m) was paid during the year,
relating to the Group's operations in Asia Pacific (£5.3m), North America
(£25.0m), Europe (£9.4m) and the Middle East (£2.2m). The UK has a net
repayment of £0.6m in the year, this consisted of a £2.6m payment to HMRC,
offset by £3.2m received from the Group's joint ventures and associates for
losses sold to them. The amount of tax paid, £41.3m, differs from the tax
charge in the period, £52.5m, mainly because taxes paid/received from Tax
Authorities can arise in later periods to the associated tax charge/credit.
This is particularly the case with regards to movements in deferred tax, such
as on the use of prior year losses, and provisions for uncertain tax
positions.
Treasury risk management and operations
The Group's operations expose it to a variety of financial risks that include
access to liquidity, the effects of changes in foreign currency exchange
rates, interest rates and credit risk. The Group has a centralised treasury
function whose principal role is to seek to ensure that adequate liquidity is
available to meet the Group's funding requirements as they arise and that the
financial risk arising from the Group's underlying operations is effectively
identified and managed.
Treasury operations are conducted in accordance with policies and procedures
approved by the Board which are reviewed annually. Financial instruments are
only used for hedging purposes and speculation is not permitted. A monthly
report is provided to senior management outlining performance against key risk
management metrics, as required by the Treasury Policy.
Liquidity and funding
As at 31 December 2024, the Group had committed funding of £629.2m (2023:
£558.8m), comprising £279.2m of US private placement loan notes, and a
£350.0m revolving credit facility which was undrawn. The US private placement
loan notes are repayable in bullet payments between October 2025 and February
2034. The Group does not engage in any external financing arrangements
associated with either receivables or payables.
During the year ended 31 December 2024 total repayments of debt were £52.8m.
The Group's revolving credit facility provides £350.0m of committed funding
for five years from the arrangement date in November 2022. The facility
includes an accordion option, providing a further £100.0m of funding
(uncommitted and therefore not incurring any fees) if required without the
need for additional documentation. This option has not been included in the
Group's assessment of available liquidity as approvals are required to access
the funding.
Interest rate risk
The Group has a preference for fixed rate debt to reduce the volatility of net
finance costs. The Group's Treasury Policy requires it to maintain a minimum
proportion of fixed rate debt as a proportion of overall Adjusted Net Debt and
for this proportion to increase as the ratio of EBITDA to interest expense
falls. As at 31 December 2024, £279.2m of debt was held at fixed rates and
Adjusted Net Debt was £99.8m.
Foreign exchange risk
The Group is subject to currency exposure on the translation to Sterling of
its net investments in overseas subsidiaries. The Group seeks to manage this
risk, where appropriate, by borrowing in the same currency as those
investments. Group borrowings are predominantly denominated in Sterling and US
Dollars. The Group seeks to manage its currency cash flows to minimise foreign
exchange risk arising on transactions denominated in foreign currencies and
uses forward contracts where appropriate to hedge net currency cash flows.
Credit risk
Cash deposits and in-the-money financial instruments give rise to credit risk
on the amounts due from counterparties. The Group manages this risk by
adhering to counterparty exposure limits based on external credit ratings of
the relevant counterparty.
Net assets
At 31 December 2024, the consolidated balance sheet shown on page 25
(#ide45c26280bf4e7cb93a9d3bf4c30add_413) had net assets of £842.5m, a
movement of £191.2m from the closing net asset position of £1,033.7m as at
31 December 2023. This reduction is a result of returns to shareholders
totalling £179.7m through share buybacks and dividend payments, offset by
£4.7m of total comprehensive income generated during the year.
Key movements since 31 December 2023 on the consolidated balance sheet shown
on page 25 (#ide45c26280bf4e7cb93a9d3bf4c30add_413) include:
• A decrease in goodwill of £80.5m driven predominantly by £114.5m impairment
in Asia Pacific CGU offset by the goodwill on acquisition of EHC and Climatize
totalling £30.9m.
• A reduction in other intangible assets of £14.2m due to amortisation of
£31.4m, partly offset by assets arising on acquisition of £15.5m.
• A decrease in the net retirement benefit asset of £20.5m primarily in respect
of SPLAS; further details are provided in the pensions section below.
• Provisions have increased by £20.0m predominantly due to a provision in
respect of a contingent liability recognised on the acquisition of EHC.
• Cash and cash equivalents have increased by £88.6m. In the period the Group
generated free cash flow of £227.5m and £65.4m from net advance of loans.
This was offset by £141.3m shares repurchased, £38.4m dividends to
shareholders and £20.8m acquisition of subsidiaries, net of cash acquired.
• Lease liabilities have increased by £76.3m largely as a result of circa 1,000
more leases for dispersed properties in our UK asylum contract. This has also
resulted in an increase of £74.0m of right of use assets.
• Net loan balances have increased by £70.2m due to the issue of additional
USPP notes of £118.2m partially offset by repayment of USPP notes of £52.8m.
• The movement in contract assets, trade receivables and other assets, and,
contract liabilities, trade payables and other liabilities are as a result of
normal working capital movements.
Pensions
Serco's pension schemes have an accounting surplus before tax of £4.0m (2023:
£24.5m). The decrease in the net retirement benefit asset of £20.5m is
primarily due to market conditions and changes to assumptions on the two UK
funded schemes, SPLAS and RPS. Higher yields compared to 2023 resulted in the
majority of the £102.6m fall in the fair value of UK schemes assets . The
Group's UK schemes liabilities reduced by £79.9m primarily due to the higher
yields increasing discount rates.
Based on the 2021 actuarial funding valuation which was finalised in 2022 for
SPLAS, the Group has committed to make deficit recovery payments of £6.6m per
year from 2022 to 2030.
The opening net asset position led to a net interest income within net finance
costs of £1.9m (2023: £3.1m).
Condensed Consolidated Financial Statements
Consolidated Income Statement
For the year ended 31 December 2024
Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2024 2024 2024 2023 2023 2023
Year ended 31 December £m £m £m £m £m £m
Revenue 4,787.3 - 4,787.3 4,873.8 - 4,873.8
Cost of sales (4,268.7) - (4,268.7) (4,378.3) - (4,378.3)
Gross profit 518.6 - 518.6 495.5 - 495.5
Administrative expenses (267.9) - (267.9) (275.8) - (275.8)
Exceptional Items comprising
- Operating items - - - - 53.8 53.8
- Goodwill impairment - (114.5) (114.5) - - -
Amortisation and impairment of intangibles arising on acquisition (excluding - (28.9) (28.9) - (30.9) (30.9)
exceptional items)
Share of results of joint ventures and associates, net of interest and tax 22.8 - 22.8 29.0 - 29.0
Operating profit/(loss) 273.5 (143.4) 130.1 248.7 22.9 271.6
Investment revenue 7.7 - 7.7 7.0 - 7.0
Finance costs (40.8) - (40.8) (31.6) - (31.6)
Net finance costs (33.1) - (33.1) (24.6) - (24.6)
Profit/(loss) before tax 240.4 (143.4) 97.0 224.1 22.9 247.0
Tax (charge)/credit (60.4) 7.9 (52.5) (50.8) 6.2 (44.6)
Profit/(loss) for the year 180.0 (135.5) 44.5 173.3 29.1 202.4
Attributable to:
Equity owners of the Company 179.7 (135.5) 44.2 173.3 29.1 202.4
Non-controlling interest 0.3 - 0.3 - - -
Earnings per share (EPS)
Basic EPS 16.97p 4.17p 15.61p 18.23p
Diluted EPS 16.67p 4.10p 15.36p 17.93p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2024
2024 2023
£m £m
Profit for the year 44.5 202.4
Other comprehensive income/(loss) for the year:
Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income in joint ventures and associates 0.7 1.1
Remeasurements of post-employment benefit obligations1 (38.7) (29.1)
Actuarial loss on reimbursable rights1 - (3.0)
Income tax relating to components of other comprehensive income that will not 7.7 6.1
be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss:
Net exchange loss on translation of foreign operations2 (18.6) (38.4)
Fair value gain/(loss) on cash flow hedges during the year2 (0.4) (0.8)
Tax relating to items that may be reclassified2 0.1 0.2
Total other comprehensive loss for the year (49.2) (63.9)
Total comprehensive (loss)/income for the year (4.7) 138.5
Attributable to:
Equity owners of the Company (5.0) 138.4
Non-controlling interest 0.3 0.1
1 Recorded in retirement benefit obligations reserve in the Consolidated
Statement of Changes in Equity.
2 Recorded in hedging and translation reserve in the Consolidated Statement of
Changes in Equity.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2024
Share capital Share premium account Retained earnings Other Reserves Total shareholders' equity Non-controlling interest
£m £m £m £m £m £m
At 1 January 2023 24.4 463.1 670.6 (129.9) 1,028.2 1.5
Total comprehensive income/(loss) for the year - - 203.4 (65.0) 138.4 0.1
Dividends paid - - (33.7) - (33.7) (1.7)
Shares purchased and held in own share reserve - - - (22.9) (22.9) -
Shares purchased and held in Treasury - - - (88.8) (88.8) -
Cancellation of shares held in Treasury (2.3) - (180.0) 182.3 - -
Change in non-controlling interests - - (1.2) - (1.2) (0.2)
Expense in relation to share-based payments - - - 13.5 13.5 -
Tax credit on items taken directly to equity - - - 0.5 0.5 -
At 1 January 2024 22.1 463.1 659.1 (110.3) 1,034.0 (0.3)
Total comprehensive income/(loss) for the year - - 44.9 (49.9) (5.0) 0.3
Dividends paid - - (38.4) - (38.4) -
Shares purchased and held in own share reserve - - - (22.8) (22.8) -
Shares purchased and held in Treasury until cancelled - - - (141.3) (141.3) -
Cancellation of shares held in Treasury (1.6) - (141.3) 142.9 - -
Shares transferred to award holders on exercise of share awards - - - 0.1 0.1 -
Expense in relation to share-based payments - - - 15.2 15.2 -
Tax credit on items taken directly to equity - - - 0.7 0.7 -
At 31 December 2024 20.5 463.1 524.3 (165.4) 842.5 -
Consolidated Balance Sheet
For the year ended 31 December 2024
At At
31 December 31 December 2023
2024
£m £m
Non-current assets
Goodwill 826.2 906.7
Other intangible assets 101.4 115.6
Property, plant and equipment 56.8 44.3
Right of use assets 514.9 440.9
Interests in joint ventures and associates 25.1 32.1
Trade and other receivables 26.3 14.8
Deferred tax assets 229.8 235.7
Retirement benefit assets 15.2 37.4
1,795.7 1,827.5
Current assets
Inventories 24.1 24.1
Contract assets 300.0 296.6
Trade and other receivables 331.5 329.0
Loan to joint ventures - 10.0
Current tax assets 25.2 23.8
Cash and cash equivalents 183.0 94.4
Derivative financial instruments 0.8 4.9
864.6 782.8
Total assets 2,660.3 2,610.3
Current liabilities
Contract liabilities (37.5) (35.8)
Trade and other payables (595.0) (558.0)
Derivative financial instruments (6.6) (1.7)
Current tax liabilities (35.9) (18.4)
Provisions (108.9) (92.9)
Obligations under leases (168.3) (140.0)
Loans (38.8) (51.0)
(991.0) (897.8)
Non-current liabilities
Contract liabilities (60.7) (59.3)
Trade and other payables (21.5) (9.2)
Derivative financial instruments (0.6) (0.2)
Deferred tax liabilities (52.1) (50.9)
Provisions (81.4) (77.4)
Obligations under leases (361.7) (313.7)
Loans (237.6) (155.2)
Retirement benefit obligations (11.2) (12.9)
(826.8) (678.8)
Total liabilities (1,817.8) (1,576.6)
Net assets 842.5 1,033.7
Equity
Share capital 20.5 22.1
Share premium account 463.1 463.1
Retained earnings 524.3 659.1
Other reserves (165.4) (110.3)
Equity attributable to owners of the Company 842.5 1,034.0
Non-controlling interest - (0.3)
Total equity 842.5 1,033.7
Condensed Cash Flow Statement
For the year ended 31 December 2024
2024 2023
£m £m
Net cash inflow from underlying operating activities 419.4 383.8
Non-underlying items - 9.3
Net cash inflow from operating activities 419.4 393.1
Investing activities
Interest received 5.3 3.9
Dividends received from joint ventures and associates 30.8 21.1
Loan repaid by joint venture 10.0 -
Purchase of other intangible assets (9.1) (8.8)
Purchase of property, plant and equipment (25.3) (15.9)
Proceeds from disposal of property, plant and equipment 1.3 1.4
Proceeds from disposal of intangible assets - 1.3
Proceeds from disposal of subsidiary - 0.2
Acquisition of subsidiaries, net of cash acquired (20.8) (7.7)
Other investing activities 0.4 (0.9)
Net cash outflow from investing activities (7.4) (5.4)
Financing activities
Interest paid (33.8) (30.4)
Capitalised finance costs paid (1.0) -
Advances of loans 118.2 -
Repayments of loans (52.8) (44.5)
Capital element of lease repayments (137.4) (124.4)
Cash movements on finance related derivatives (13.1) (1.5)
Dividends paid to shareholders (38.4) (33.7)
Dividends paid to non-controlling interests - (1.7)
Purchase of own shares for Employee Share Ownership Trust (22.8) (22.9)
Own shares repurchased (141.3) (88.8)
Proceeds received from exercise of share options 0.1 -
Net cash outflow from financing activities (322.3) (347.9)
Net increase in cash and cash equivalents 89.7 39.8
Cash and cash equivalents at beginning of year 94.4 57.2
Net exchange loss (1.1) (2.6)
Cash and cash equivalents at end of year 183.0 94.4
Notes to the Condensed Consolidated Financial Statements
1.Basis of preparation and accounting policies
Basis of preparation
The financial information in this preliminary announcement does not constitute
the Group's or the Company's statutory accounts as defined in section 434 of
the Companies Act 2006 for the years ended 31 December 2024 or 2023 The
financial information for 2023 is derived from the statutory accounts for 2023
which have been delivered to the registrar of companies, and those for 2024
will be delivered in due course. The auditor has reported on those accounts;
their reports were (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The preliminary announcement has been prepared in accordance with UK-adopted
International Accounting Standards (IAS), UK-adopted International Financial
Reporting Standards (IFRS) and with the requirements of the Companies Act 2006
as applicable to companies reporting under those standards. Whilst the
financial information included in this preliminary announcement has been
computed in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company expects to publish
full Group and parent company only financial statements that comply with IFRS
and FRS101 respectively, in due course and this includes the Group's and
parent company's accounting policies.
Going concern
In assessing the basis of preparation of the financial statements for the year
ended 31 December 2024, the Directors have considered the principles of the
Financial Reporting Council's 'Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting, 2014'; particularly in assessing
the applicability of the going concern basis, the review period and
disclosures. The period of assessment is considered to be at least 12 months
from the date of approval of these financial statements.
At 31 December 2024, the Group's principal debt facilities comprised a £350m
revolving credit facility maturing in November 2027 (of which £nil was
drawn), and £279.2m of US private placement notes (USPP notes), giving
£629.2m of committed credit facilities and committed headroom of £533.0m,
being the undrawn RCF plus cash of £183.0m. The principal financial covenant
ratios are consistent across the USPP notes and revolving credit facility, and
are outlined on page 46 (#ide45c26280bf4e7cb93a9d3bf4c30add_1441) . As at 31
December 2024, the Group's primary restricting covenant, its leverage ratio,
is below the covenant of 3.5x and is below the Group's target range of 1x-2x
at 0.33x.
The Directors have undertaken a rigorous assessment of going concern and
liquidity, taking into account financial forecasts, as well as the potential
impact of key uncertainties and sensitivities on the Group's future
performance. In making this assessment the Directors have considered the
Group's existing debt levels, the committed funding and liquidity positions
under its debt covenants, its ability to generate cash from trading activities
and its working capital requirements. The Directors have also identified a
series of mitigating actions within their control that could be used to
preserve cash in the business should the need arise.
The basis of the assessment continues to be the Board-approved budget which is
prepared annually for the next two-year period and is based on a bottom-up
approach to all of the Group's existing contracts, potential new contracts and
administrative functions.
During the period of assessment, £39.9m of the Group's USPP notes mature. The
forecast supporting this statement shows that, on the assumption that these
are repaid, there is still sufficient liquidity headroom for the Group to
remain a going concern.
The Directors believe that appropriate sensitivities in assessing the Group's
ability to continue as a going concern are to model reductions in the Group's
win rates for bids and extensions, and reductions in profit margins. Due to
the diversity in the Group's operations, the Directors believe that a reverse
stress test of these sensitivities to assess the headroom available under the
Group's debt covenants and available liquidity provides meaningful analysis of
the Group's ability to continue as a going concern. Based on the headroom
available, the Directors are then able to assess whether the reductions
required to breach the Group's financial covenants, or exhaust available
liquidity, are plausible.
This reverse stress test shows that after assuming no additional refinancing
occurs after the date of approval of the financial statements, the Group can
afford to be unsuccessful on 80% of its budgeted bids and extensions, combined
with a profit margin 80 basis points below the Group's forecast, and still
retain sufficient liquidity to meet all liabilities as they fall due for a
period of 12 months from approval of these financial statements, and remain
compliant with the Group's financial covenants.
In respect of win rates, rebids and extensions have a more significant impact
on the Group's revenue than new business wins during the assessment period.
The Group has won more than 85% of its rebids and available contract
extensions by volume over the last two years, therefore a reduction of
budgeted bids and extensions by 80% is not considered plausible. The Group
does not generally bid for contracts at margins below its target range.
As detailed in post balance sheet events within note 15 to the financial
statements, subsequent to the balance sheet date the Group signed a committed
2-year term loan facility of US$250m (c.£199m) on the announcement to acquire
Northrop Grumman's mission training and satellite ground network
communications software business (MT&S), which has been included in the
Directors' liquidity forecast supporting this assessment. The facility
provides a source of additional liquidity in the near term, becoming available
after the completion of the acquisition, and it will mandatorily cancel in the
event of equivalent future debt issuance by the Group. The principal financial
covenant ratios of this facility are consistent with the USPP loan notes and
revolving credit facility.
Consequently, the Directors are confident that the Group and Company will have
sufficient funds to continue to meet its liabilities as they fall due for at
least 12 months from the date of approval of the financial statements and
therefore have prepared the financial statements on a going concern basis.
Accounting policies
No new or amended accounting standards had a material impact on the Group for
the 31 December 2024 reporting period.
There have been no changes to the Group's accounting policies during the year
ended 31 December 2024 with the exception of the following two policies:
Contingent liabilities on business combinations
Any present obligation that exists when a business is acquired is recognised
as a liability within provisions measured at its fair value, even if the
outflow of economic benefits is not probable.
After initial recognition and until the liability is settled, cancelled, or
expires, the liability continues to be measured at the amount initially
recognised in the business combination unless the liability becomes probable.
Once probable it is then measured at the higher of the amount initially
recognised or the amount that would be recognised based on the accounting
policy for provisions above.
Share repurchase arrangements
Any shares repurchased (excluding shares repurchased by employee share
ownership trusts) are recognised when legal ownership is transferred to the
Group. These are measured at cost and are included in the treasury share
reserve until used or cancelled.
Any shares that the Group is contractually committed to purchase after the
balance sheet date are recognised at the expected cost and included in the
treasury share reserve.
When treasury shares are cancelled the cost is transferred from the treasury
share reserve into retained earnings.
Shares purchased by employee share ownership trusts are recognised when legal
ownership is transferred to the trust. These are measured at cost and are
included in the own share reserve until transferred to the share based payment
reserve on exercise of share awards.
Estimates and judgements
In preparing these condensed consolidated financial statements, there have
been no changes to the critical
accounting judgements and key sources of estimation uncertainty from those
disclosed in the Group's 2023
audited financial statements.
2. Segmental information
The Group's operating segments reflecting the information reported to the
Board in 2024 under IFRS 8 Operating Segments are consistent with those
reported in the Group's 2023 audited financial statements.
An analysis of the Group's revenue from its key market sectors is as follows:
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Total
£m £m £m £m £m
Key sectors
Defence 358.2 932.5 181.4 26.3 1,498.4
Justice & Immigration 1,409.2 - 323.1 - 1,732.3
Transport 130.7 85.3 16.6 82.4 315.0
Health & Other Facilities Management 217.1 - 160.2 83.7 461.0
Citizen Services 330.7 308.3 118.1 23.5 780.6
2,445.9 1,326.1 799.4 215.9 4,787.3
Year ended 31 December 2023 UK&E North America Asia Pacific Middle East Total
£m £m £m £m £m
Key sectors
Defence 355.0 931.9 156.7 30.9 1,474.5
Justice & Immigration 1,329.8 - 351.3 - 1,681.1
Transport 148.7 102.5 12.2 71.3 334.7
Health & Other Facilities Management 227.4 - 196.5 103.2 527.1
Citizen Services 378.6 328.4 128.4 21.0 856.4
2,439.5 1,362.8 845.1 226.4 4,873.8
The following is an analysis of the Group's revenue, results, assets and
liabilities by reportable operating segment:
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Revenue 2,445.9 1,326.1 799.4 215.9 - 4,787.3
Result
Underlying operating profit/(loss) 147.9 136.1 24.6 16.0 (51.1) 273.5
Amortisation and impairment of intangibles arising on acquisition (excluding (13.4) (15.5) - - - (28.9)
exceptional items)
Exceptional Items comprising
- Operating items - - - - - -
- Goodwill impairment - - (114.5) - - (114.5)
Operating profit/(loss) 134.5 120.6 (89.9) 16.0 (51.1) 130.1
Net finance cost (33.1)
Profit before tax 97.0
Tax charge (52.5)
Profit for the year 44.5
Supplementary Information
Share of profits in joint ventures and associates, net of interest and tax 22.8 - - - - 22.8
Total depreciation and impairment of plant, property and equipment and right (129.4) (19.3) (8.8) (1.7) 0.7 (158.5)
of use assets
Amortisation and impairment of intangible assets (5.7) (1.1) (1.4) (0.2) - (8.4)
Year ended 31 December 2023 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Revenue 2,439.5 1,362.8 845.1 226.4 - 4,873.8
Result
Underlying operating profit/(loss) 120.8 138.2 23.7 15.3 (49.3) 248.7
Amortisation and impairment of intangibles arising on acquisition (excluding (3.4) (16.0) (11.5) - - (30.9)
exceptional items)
Exceptional Items comprising
- Operating items 9.9 - - - 43.9 53.8
- Goodwill impairment - - - - - -
Operating profit/(loss) 127.3 122.2 12.2 15.3 (5.4) 271.6
Net finance cost (24.6)
Profit before tax 247.0
Tax charge (42.3)
Tax on exceptional items (2.3)
Profit for the year 202.4
Supplementary Information
Share of profits in joint ventures and associates, net of interest and tax 29.0 - - - - 29.0
Total depreciation and impairment of plant, property and equipment and right (99.4) (20.6) (10.0) (2.1) (11.9) (144.0)
of use assets
Amortisation and impairment of intangible assets (1.9) (0.9) (1.1) (0.1) (3.6) (7.6)
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates 27.7 - - 0.4 - 28.1
Other segment assets1 1,052.2 886.7 136.1 68.6 52.7 2,196.3
Total segment assets4 1,079.9 886.7 136.1 69.0 52.7 2,224.4
Unallocated assets2 438.9
Consolidated total assets 2,663.3
Segment liabilities
Segment liabilities4 (921.9) (169.6) (213.6) (61.6) (79.4) (1,446.1)
Unallocated liabilities2 (371.7)
Consolidated total liabilities (1,817.8)
Supplementary Information
Additions to non-current assets3 280.6 22.5 9.3 11.4 0.2 324.0
Segment non-current assets 826.8 686.5 32.4 22.8 - 1,568.5
Unallocated non-current assets 230.2
1 The Corporate segment assets and liabilities include balance sheet items which
provide benefit to the wider Group, including defined benefit pension schemes.
2 Unallocated assets and liabilities include deferred tax, cash and cash
equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on
acquisition for goodwill, other intangible assets, property plant and
equipment and right of use assets.
4 In 2024, central managed assets and liabilities were moved from corporate to
UK&E to reflect an internal restructure of overhead functions
predominately used by UK&E
Year ended 31 December 2023 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates 31.8 - - 0.3 - 32.1
Other segment assets1 891.6 897.7 254.5 62.4 113.2 2,219.4
Total segment assets 923.4 897.7 254.5 62.7 113.2 2,251.5
Unallocated assets2 358.8
Consolidated total assets 2,610.3
Segment liabilities
Segment liabilities (725.1) (172.0) (223.5) (54.1) (124.7) (1,299.4)
Unallocated liabilities2 (277.2)
Consolidated total liabilities (1,576.6)
Supplementary Information
Additions to non-current assets3 125.3 16.7 8.0 2.6 15.7 168.3
Segment non-current assets 677.1 688.6 151.9 13.5 60.8 1,591.9
Unallocated non-current assets 235.8
1 The Corporate segment assets and liabilities include balance sheet items which
provide benefit to the wider Group, including defined benefit pension schemes
and corporate intangible assets.
2 Unallocated assets and liabilities include deferred tax, cash and cash
equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on
acquisition for goodwill, other intangible assets, property plant and
equipment and right of use assets.
3. Acquisitions
See note 15 for details of acquisitions announced subsequent to the Balance
Sheet date.
On 1 March 2024, the Group acquired 100% of the issued share capital of
European Homecare (EHC), a private provider of immigration services in
Germany. The operating results, assets and liabilities have been recognised
effective 1 March 2024 and EHC contributed £115.6m of revenue and £18.9m of
operating profit before exceptional items, including an appropriate allocation
of charges for shared support services and fully allocated overheads, to the
Group's result during the year to 31 December 2024.
On 31 January 2024, the Group acquired 100% of the issued share capital of
Climatize, a business that operates in the United Arab Emirates and the
Kingdom of Saudi Arabia offering 'zero-carbon' advisory and related
engineering advisory services. The operating results, assets and liabilities
have been recognised effective 31 January 2024. Climatize contributed £2.3m
of revenue and £1.4m of operating profit before exceptional items, including
an appropriate allocation of charges for shared support services and fully
allocated overheads, to the Group's results during the year to 31 December
2024.
In the event that certain annual financial targets and conditions are achieved
by Climatize, additional undiscounted consideration of between nil or up to
AED51.3m (£10.8m) might be payable in cash over a three year period. The fair
value of the contingent consideration of AED40m (£8.5m) was estimated by
calculating the present value of the future expected cash flows. The estimate
is based on a discount rate of 12% and Climatize achieving the maximum
financial target in each of the three years. As at 31 December 2024, there has
been no change to the expected earn-out since acquisition.
The total impact of acquisitions to the Group's cash flow position in the
period was as follows:
EHC Climatize Total
£m £m £m
Enterprise value1 34.0 13.0 47.0
Working capital and completion account finalisation 9.7 (2.0) 7.7
Acquisition date fair value of consideration transferred 43.7 11.0 54.7
Contingent consideration on acquisition - (8.5) (8.5)
Cash consideration 43.7 2.5 46.2
Cash acquired on acquisition of businesses (24.9) (0.5) (25.4)
Acquisition of subsidiaries, net of cash acquired 18.8 2.0 20.8
1 Enterprise value reflects the consideration prior to working capital and
fair value adjustments on the acquisition date. In local currency the
enterprise value was €40m for EHC and AED60m for Climatize.
The fair value of assets acquired of the two acquisitions undertaken during
the period are summarised below:
EHC Climatize Total
£m £m £m
Other intangible assets 15.5 - 15.5
Property, plant and equipment 5.7 - 5.7
Right of use assets 1.7 - 1.7
Trade and other receivables1 28.7 0.8 29.5
Cash and cash equivalents 24.9 0.5 25.4
Trade and other payables (9.0) - (9.0)
Provisions2 (27.0) - (27.0)
Corporation tax liabilities (11.8) - (11.8)
Deferred tax liabilities (4.7) - (4.7)
Lease obligations (1.5) - (1.5)
Net Assets Acquired 22.5 1.3 23.8
Goodwill3 21.2 9.7 30.9
Acquisition date fair value of consideration transferred 43.7 11.0 54.7
1. The fair value of acquired trade and other receivables was £28.7m. The
gross contractual amount was £29.4m, with a loss allowance of £0.7m
recognised on acquisition.
2. See note 9 for details of the contingent liability recognised in provisions
on acquisition for EHC.
3. The goodwill for EHC and Climatize is attributable to the workforce and an
increase in market share. No goodwill is expected to be deductible for tax
purposes.
4. Non-underlying items
Non-underlying items consist of:
• IAS 1 Presentation of Financial Statements sets out disclosure requirements
regarding fair representation of information and the composition, labelling,
prominence and consistency of additional line items and subtotals in financial
statements. IAS 1 paragraph 97 requires separate disclosure of the nature and
amount of material items of income or expense. The company uses the term
'exceptional items" to categorise those items which require disclosure under
IAS 1 paragraph 97, but this is not a term defined by IFRS. These items are
separately disclosed and explained below. A level of judgement is involved in
determining what items are classified as exceptional items. Management
considers exceptional items to be outside of normal practice of the business
(i.e. the financial impact is unusual or rare in occurrence), and are material
to the results of the Group by virtue of their size or nature, and are
suitable for separate presentation and detailed explanation. There is a level
of judgement required in determining which items are exceptional on a
consistent basis and require separate disclosure. Further details can be seen
below.
• Amortisation and impairment of intangible assets arising on acquisition: These
charges are disclosed separately because they are based on judgements about
the value and economic life of assets that would not be capitalised in normal
operating practice.
2024 2023
Year ended 31 December £m £m
Compensation received on the early termination of contractual services - 9.9
Release of provisions held for indemnities given on disposed businesses - 43.9
Impairment of goodwill in Asia Pacific (see note 7) (114.5) -
Exceptional items (114.5) 53.8
Amortisation of customer relationship intangibles (26.9) (22.8)
Impairment of customer relationship intangibles (2.0) (8.1)
Amortisation and impairment of intangible assets arising on acquisition (28.9) (30.9)
(excluding exceptional items)
Total non-underlying items before tax (143.4) 22.9
Non-underlying tax credit 7.9 6.2
Total non-underlying items net of tax (135.5) 29.1
5. Tax
5 (a) Income tax recognised in the income statement
Year ended 31 December Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2024 2024 2024 2023 2023 2023
£m £m £m £m £m £m
Current income tax
Current income tax charge/(credit) 53.3 (4.0) 49.3 34.0 (1.5) 32.5
Adjustments in respect of prior years 0.4 - 0.4 1.3 - 1.3
Deferred tax
Current year charge/(credit) 5.3 (3.9) 1.4 16.8 (4.7) 12.1
Adjustments in respect of prior years 1.4 - 1.4 (1.3) - (1.3)
60.4 (7.9) 52.5 50.8 (6.2) 44.6
The corporate income tax expense for the year is based on the UK statutory
rate of corporation tax for the period of 25.0% (2023: 23.5%). Taxation for
other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
5 (b) Income tax recognised in the SOCI
2024 2023
Year ended 31 December £m £m
Current tax
Taken to retirement benefit obligations reserve 2.4 1.9
Deferred tax
Relating to cash flow hedges 0.1 0.2
Taken to retirement benefit obligations reserve 5.3 4.2
7.8 6.3
5 (c) Tax on items taken directly to equity
2024 2023
Year ended 31 December £m £m
Current tax
Recorded in share-based payment reserve 1.1 1.0
Deferred tax
Recorded in share-based payment reserve (0.4) (0.5)
0.7 0.5
6. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax
attributable to owners of the Company by the weighted average number of shares
in issue after deducting the own shares held by employee share ownership
trusts and treasury shares and adding back vested share options not exercised.
In calculating the diluted earnings per share, unvested share options
outstanding have been taken into account where the impact of these is
dilutive.
The calculation of the basic and diluted EPS is based on the following data:
2024 2023
Number of shares millions millions
Weighted average number of ordinary shares for the purpose of basic EPS 1,058.9 1,110.2
Effect of dilutive potential ordinary shares: Shares under award 19.2 18.4
Weighted average number of ordinary shares for the purpose of diluted EPS 1,078.1 1,128.6
Earnings per share
Earnings Per share amount Earnings Per share amount
2024 2024 2023 2023
Basic EPS £m pence £m pence
Earnings for the purpose of basic EPS 44.2 4.17 202.4 18.23
Effect of dilutive potential ordinary shares - (0.07) - (0.30)
Diluted EPS 44.2 4.10 202.4 17.93
7. Goodwill
At 31 December the carrying value of goodwill was £826.2m (31 December 2023:
£906.7m). The net decrease is primarily due to an £114.5m impairment of the
Asia Pacific CGU.
Asia Pacific CGU
2024 has been a year of change for the Asia Pacific Division after a
challenging year in 2023. New management has been appointed and their focus
has been on improving margins by establishing an overhead cost structure which
is appropriate for the size of the business, and improving contract
performance where the profits being generated are lower than expected. Good
progress has been made with annualised overhead reductions of c£9m being
realised, and profitability on some key contracts improved; these continue to
be a priority for 2025 and further progress is expected. Underlying Operating
Profit has increased by 71% to £16.8m in H2 2024 compared to the same period
in 2023.
Organic growth declined by 5% in 2024, although the second half of the year
compared to the same period in 2023 saw organic growth of 4%. The Directors
continue to recognise that this element of the turnaround plan will take
longer to realise given the lead time to identify new business opportunities
and convert them into revenue. The Division saw an improvement in new business
win rates during 2024 of 15% in key markets compared to the Asia Pacific
five-year average of 9% although still below the Group's five-year average win
rate of 55%. The Directors see no significant structural differences within
the Asia Pacific market which would prevent the Division achieving win rates
at, or near, the Group average. The average win rates assumed for new business
within the five-year plan submitted by the Division are lower than the Group
five-year average at 21%.
In order to improve the Division's pipeline and win rates on new business,
changes to the execution of the growth strategy have been introduced,
including reviewing the root causes for low win rates and developing a more
focused and refined strategy and pipeline. To implement these improvements,
the CGU also underwent a restructure of the Growth team to enhance
capabilities and engagement with government departments. Regarding the
pipeline, the Division's 2025 five-year plan submission focuses on a smaller
number of targeted opportunities, aiming to allocate more effort to each bid
to achieve better win rates; the current pipeline does not represent the
universe of opportunities available within the market, and identification of
new opportunities is also a priority for the new Growth Team.
The five-year plan submitted by the Division has been risk-adjusted to ensure
compliance with IAS 36, and this adjusted plan has been used to determine the
impairment charge. This plan is based on historic new business win rates for
the Division of 9%, assuming no improvement from the activities outlined
above. Consequently, the win rates used are lower than both the Group's
average and below the Directors' expectations for the Division. For the
purposes of the impairment calculation, and in accordance with IAS 36, any
planned enhancements to business performance have not been considered, except
where benefits have already been realised.
On 8 November 2024, the Group was informed it had been unsuccessful in its
rebid of the Immigration services contract in Australia. The financial
statements for the year ended 31 December 2023 disclosed that a loss of this
contract may lead to an impairment unless a fundamental restructuring of the
Division was undertaken to improve profitability and mitigate the risk of any
impairment. As at 31 December 2024, the Directors were in the process of
developing a revised operating structure for the Asia Pacific Division, but
this had not been finalised or communicated, and therefore has not been taken
into consideration for the impairment test in accordance with IAS 36.
The Group will continue to provide immigration services under the contract
during the transition period, which is expected to end during the first half
of 2025. As required by IAS 36, no benefits from any subsequent restructuring
of the Division have been considered within the value-in-use assessment and no
provisions for any such restructuring have been recorded on the balance sheet
at 31 December 2024.
Key assumptions and sensitivities applied to testing goodwill allocated to the
Asia Pacific CGU
The Directors have risk adjusted the cash flows in the five-year plan
submitted by Divisional management used in the value-in-use assessment under
IAS 36, which effectively assumes a continuation of poor historic performance
and no further enhancements to the Asia Pacific business. These adjustments
remove the benefit of any further the turnaround activity being undertaken in
the Division and therefore values the business based on growth in the terminal
year of 2.2%, the long-term inflation rate for the region.
Uncommitted restructuring costs and benefits of the Division following the
loss of the immigration contract have been excluded from the value-in-use
calculation. The following risk adjustments have been made to the baseline
forecast submitted by the Asia Pacific Division to reflect the Directors'
assessment of certain key assumptions:
• New business win rates are at the five year average of 9% by value which is
lower than the average win rates assumed within the five-year plan submitted
by the Asia Pacific Management team of 21%. Whilst this does not require an
improvement from current levels experienced by the Division in 2024 of 15%
(2023: 2%), it requires improvement on win rates experienced by the Division
in recent years.
• Rebid win rates by value align with the five-year average when excluding the
loss of the immigration contract of 72% (2023: 63%) which is lower than the
current levels experienced by the Division in 2024 of 90% on the same basis.
The five-year average including the loss of the immigration contract is 58%.
• A lower estimate associated to a win of the Base Services Transformation
Programme (BSTP) opportunity which forms a significant part of the CGU's
pipeline of opportunities, for which a decision could made in 2025. The win
rate used is higher than the long term historic win rate, reflecting the
experience the Group has in delivering facility management services as a core
capability, and the diversified nature of the contract enabling multiple
bidders to be successful in winning one or multiple regions.
The table below demonstrates how the impairment charge would change if each of
the sensitivities outlined above is adjusted within the value-in-use model for
the Asia Pacific Division.
Low scenario High scenario
New business win rate at 9% / 21% No more impairment £67.9m less impairment
Rebid win rate at 58% / 90% Full impairment of goodwill1 £44.6m less impairment
BSTP loss / as planned Full impairment of goodwill1 £41.9m less impairment
1% increase / decrease in discount rate Full impairment of goodwill1 £15.2m less impairment
1.The Directors have assessed the recoverability of assets other than Goodwill
within the Asia Pacific CGU and have determined that an impairment beyond the
full value of Goodwill would not result in an impairment of any further
assets.
The Directors consider that it is possible to expect that actual future cash
flows will outperform the risk-adjusted cash flows modelled for the purpose of
testing goodwill impairment. A less conservative view of risks and
opportunities in the base case forecast, which aligns to the Divisional plan
excluding risk adjustments to the cash flows, would result in headroom of
approximately £100.1m rather than the impairment charge.
8. Analysis of net debt
The analysis below provides a reconciliation between the opening and closing
positions in the balance sheet for liabilities arising from financing
activities together with movements in derivatives relating to the items
included in net debt. There were no changes in fair value noted in either the
current or prior year.
At 1 January 2024 Cash flow Acquisitions1 Exchange differences Non-cash movements2 At 31 December
2024
£m £m £m £m £m £m
Loans payable (206.2) (65.4) - (4.8) 0.1 (276.3)
Lease obligations (453.7) 137.4 (1.5) 1.5 (213.7) (530.0)
Liabilities arising from financing activities (659.9) 72.0 (1.5) (3.3) (213.6) (806.3)
Cash and cash equivalents 94.4 89.7 - (1.1) - 183.0
Derivatives relating to net debt 3.1 - - (9.5) - (6.4)
Net debt (562.4) 161.7 (1.5) (13.9) (213.6) (629.7)
1 Acquisitions represent the net cash/(debt) acquired on acquisition.
2 Non-cash movements on loans payable relate to movement in capitalised finance
costs in the year. For lease obligations non-cash movements relate to the net
impact of entering into new leases and exiting certain leases before the end
of the lease term without payment of a cash termination cost.
9. Provisions
Employee related Property Contract Claims Other Total
£m £m £m £m £m £m
At 1 January 2024 83.9 23.2 16.7 25.6 20.9 170.3
Arising on acquisition - - 0.3 - 26.7 27.0
Charge capitalised in right of use assets - 2.0 - - - 2.0
Charged to income statement 19.7 2.3 6.1 9.2 10.8 48.1
Released to income statement (3.4) (5.7) (0.4) (4.9) (8.0) (22.4)
Utilised during the year (15.7) (2.1) (2.7) (4.4) (3.9) (28.8)
Exchange differences (4.7) 0.1 (0.2) - (1.1) (5.9)
At 31 December 2024 79.8 19.8 19.8 25.5 45.4 190.3
Analysed as:
Current 46.9 5.5 8.7 5.5 42.3 108.9
Non-current 32.9 14.3 11.1 20.0 3.1 81.4
79.8 19.8 19.8 25.5 45.4 190.3
Employee-related provisions include amounts for long-term service awards and
terminal gratuity liabilities which have been accrued and are based on
contractual entitlement, together with an estimate of the probabilities that
employees will stay until rewards fall due and receive all relevant amounts.
The provisions will be utilised over various periods driven by attrition and
demobilisation of contracts, the timing of which is uncertain. There are also
amounts included in relation to restructuring.
The majority of property provisions relate to leased properties and are
associated with the requirement to return properties to either their original
condition, or to enact specific improvement activities in advance of exiting
the lease. Dilapidations associated with leased properties are held as a
provision until such time as they fall due, with the longest running lease
ending in March 2037.
A contract provision is recorded when a contract is deemed to be unprofitable
and therefore is considered onerous. The present value of the estimated future
cash outflow required to settle the contract obligations as they fall due over
the respective contracts has been used in determining the provision.
Claims provisions relate to claims made against the Group. These claims are
varied in nature, although they typically come from either the Group's service
users, claimants for vehicle-related incidents or the Group's employees. While
there is some level of judgement on the amount to be recorded, in almost all
instances the variance to the actual claim paid out will not individually be
material; however, the timing of when the claims are reported and settled is
less certain as a process needs to be followed prior to the amounts being
paid.
Included within other provisions:
• £20.5m relates to legal and other costs that the Group expects to incur over
an extended period, in respect of past events for which a provision has been
recorded, none of which are individually material.
• £24.9m relates to a provision in respect of a contingent liability recognised
on the acquisition of EHC. The Directors have assessed that a present
obligation exists in respect of the treatment of certain historic transactions
and have measured the fair value of these as required by IFRS 3 Business
Combinations notwithstanding that the outflow of economic benefits is not
probable. This provision will be reassessed at each reporting date as the risk
associated with the contingent liability in due course expires.
Individual provisions are only discounted where the impact is assessed to be
significant. Currently, the effect of discounting is not material.
10. Contingent liabilities
The Group and its subsidiaries have provided certain guarantees and
indemnities in respect of performance and other bonds, issued by its banks on
its behalf in the ordinary course of business. The total commitment
outstanding as at 31 December 2024 was £278.4m (2023: £214.4m).
The Group has guaranteed overdrafts, finance leases and bonding facilities of
its joint ventures and associates up to a maximum value of £5.7m (2023:
£5.7m). The actual commitment outstanding at 31 December 2024 was £5.7m
(2023: £5.7m).
The Group has previously disclosed a contingent liability in respect of
damages for alleged losses as a result of the reduction in Serco's share price
in 2013. The claim has now been resolved with no material impact to the
Group's financial statements.
The Group is also aware of other claims and potential claims which involve or
may involve legal proceedings against the Group although the timing of
settlement of these claims remains uncertain. The Directors are of the
opinion, having regard to legal advice received and the Group's insurance
arrangements, that it is unlikely that these matters will, in aggregate, have
a material effect on the Group's financial position.
11. Financial risk management
The vast majority of financial instruments are held at amortised cost. The
classification of the fair value measurement falls into three levels, based on
the degree to which the fair value is observable. The levels are as follows:
Level 1: Inputs derived from unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2: Inputs that are observable for the asset or liability, either
directly or indirectly, other than quoted prices included within Level 1.
Level 3: Inputs are unobservable inputs for the asset or liability.
Based on the above, the derivative financial instruments held by the Group at
31 December 2024 and the comparison fair values for loans are all considered
to fall into Level 2. The contingent consideration and contingent liabilities
on acquisition are considered to fall into Level 3. Market prices are sourced
from Bloomberg and third party valuations. The valuation models incorporate
various inputs including foreign exchange spot and forward rates and interest
rate curves.
There have been no transfers between levels in the year.
12. Retirement benefit schemes
Year ended 31 December 2024 2023
Recognised in the income statement £m £m
Current service cost - employer 7.1 5.3
Administrative expenses and taxes 1.7 2.0
Recognised in arriving at operating profit 8.8 7.3
Interest income on scheme assets - employer (47.5) (50.4)
Interest cost on scheme liabilities - employer 45.6 47.3
Finance income (1.9) (3.1)
Total recognised in the income statement 6.9 4.2
2024 2023
Included within the Statement of Comprehensive Income £m £m
Actual return on scheme assets (60.7) 41.4
Less: interest income on scheme assets (47.4) (50.4)
Net return on scheme assets (108.1) (9.0)
Effect of changes in demographic assumptions 2.1 24.3
Effect of changes in financial assumptions 63.9 (22.7)
Effect of experience adjustments 3.4 (21.7)
Remeasurements (38.7) (29.1)
Change in franchise adjustment - (1.8)
Change in members' share - (1.2)
Actuarial loss on reimbursable rights - (3.0)
Total recognised in the Statement of Comprehensive Income (38.7) (32.1)
The assets and liabilities of the schemes are:
Fair value of Present value of scheme liabilities Surplus/(deficit) Fair value of Present value of scheme liabilities Surplus/(deficit)
scheme assets scheme assets
2024 2024 2024 2023 2023 2023
At 31 December £m £m £m £m £m £m
SPLAS1 822.8 (810.0) 12.8 917.0 (886.5) 30.5
ORS 83.2 (93.9) (10.7) 68.5 (80.5) (12.0)
RPS 58.4 (57.4) 1.0 66.7 (60.8) 5.9
Other Schemes in surplus 4.0 (2.6) 1.4 3.8 (2.8) 1.0
Other schemes in deficit 1.1 (1.6) (0.5) 1.1 (2.0) (0.9)
Net retirement benefit asset2 969.5 (965.5) 4.0 1,057.1 (1,032.6) 24.5
1 The SPLAS Trust Deed gives the Group an unconditional right to a refund of
surplus assets assuming the gradual settlement of plan liabilities over time
until all members have left the plan. Pension assets are deemed to be
recoverable and there are no adjustments in respect of minimum funding
requirements as economic benefits are available to the Group either in the
form of future refunds or in the form of possible reductions in future
contributions
2 Net retirement benefit asset (before tax) is split between schemes with a
pension asset £15.2m (31 December 2023: £37.4m) and a pension liability
£11.2m (31 December 2023: £12.9m).
Actuarial assumptions:
The assumptions set out below are for SPLAS, which reflects 84% of total
liabilities and 85% of total assets of the defined benefit pension scheme in
which the Group participates. The significant actuarial assumptions with
regards to the determination of the defined benefit obligation are set out
below.
2024 2023
Significant actuarial assumptions % %
Discount rate 5.50 4.80
Rate of salary increases 3.05 2.85
RPI Inflation 3.15 3.05
CPI Inflation 2.55 2.35
2024 2023
Post-retirement mortality1 years years
Current pensioners at 65 - male 20.8 20.9
Current pensioners at 65 - female 23.6 23.6
Future pensioners at 65 - male 22.8 22.8
Future pensioners at 65 - female 25.7 25.6
1 The mortality assumptions have been updated to reflect the latest available
mortality tables CMI_2023 (2023: CMI_2022).
13. Related party transactions
Transactions between the Company and its wholly-owned subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note. Transactions between the Group and its joint venture
undertakings and associates are disclosed below. During the year, Group
companies entered into the following transactions with joint ventures and
associates:
Transactions Current Non-current Transactions Current Non-current
outstanding outstanding outstanding outstanding
2024 2024 2024 2023 2023 2023
£m £m £m £m £m £m
Sale of goods and services
Joint ventures 20.2 (0.2) - 15.4 1.1 -
Other transactions
Loan receivable from joint ventures 10.0 - - - 10.0 -
Dividends received - joint ventures 30.8 - - 21.1 - -
Receivable from consortium for tax - joint ventures 9.6 9.4 10.1 9.9 3.7 9.4
Total 70.6 9.2 10.1 46.4 14.8 9.4
Sales of goods and services to joint ventures relates to services provided
including administrative and back office activities to VIVO. Joint venture
receivable and loan amounts outstanding have arisen from transactions
undertaken during the general course of trading, are unsecured and will be
settled in cash. In the year ended 31 December 2023 there was a loan
receivable balance from VIVO; this was repaid in year.
14. Notes to the Consolidated Cash Flow statement
Year ended 31 December 2024 2024 2024 2023 2023 2023
Underlying Non-underlying Reported Underlying Non-underlying Reported
£m items £m £m items £m
£m £m
Profit before tax 240.4 (143.4) 97.0 224.1 22.9 247.0
Net finance costs 33.1 - 33.1 24.6 - 24.6
Operating profit for the year 273.5 (143.4) 130.1 248.7 22.9 271.6
Adjustments for:
Share of profits in joint ventures and associates (22.8) - (22.8) (29.0) - (29.0)
Share-based payment expense 15.2 - 15.2 13.5 - 13.5
Impairment of intangible assets - 2.0 2.0 0.1 8.1 8.2
Amortisation of intangible assets 8.3 26.9 35.2 7.7 22.8 30.5
Impairment of goodwill - 114.5 114.5 - - -
(Reversal of impairment)/Impairment of property, plant and equipment (0.4) - (0.4) 0.6 - 0.6
Net impairment of right of use assets 0.2 - 0.2 0.7 - 0.7
Depreciation of property, plant and equipment 17.2 - 17.2 17.3 - 17.3
Depreciation of right of use assets 141.5 - 141.5 125.4 - 125.4
Loss/(profit) on disposal of intangible assets 0.7 - 0.7 (0.8) - (0.8)
(Profit)/Loss on early termination of leases 0.1 - 0.1 0.6 - 0.6
Profit on disposal of property, plant and equipment (0.3) - (0.3) (0.6) - (0.6)
Other non-cash movements - - - (1.5) - (1.5)
(Decrease)/increase in provisions (3.1) - (3.1) 12.6 (44.6) (32.0)
Total non-cash items 156.6 143.4 300.0 146.6 (13.7) 132.9
Operating cash inflow before movements in working capital 430.1 - 430.1 395.3 9.2 404.5
(Increase) in inventories (0.7) - (0.7) (2.4) 0.1 (2.3)
(Increase)/decrease in receivables (1.9) - (1.9) 63.1 - 63.1
Decrease/(increase) in payables 32.9 - 32.9 (30.7) - (30.7)
Movements in working capital 30.3 - 30.3 30.0 0.1 30.1
Cash generated by operations 460.4 - 460.4 425.3 9.3 434.6
Tax paid (41.3) - (41.3) (41.1) - (41.1)
Non-cash R&D credit/(expenditure) 0.3 - 0.3 (0.4) - (0.4)
Net cash inflow from operating activities 419.4 - 419.4 383.8 9.3 393.1
15. Post balance sheet events
Acquisitions
On 30 January 2025, Serco agreed to acquire Northrop Grumman's mission
training and satellite ground network communications software business
(MT&S) for US$327m (£264m) subject to regulatory approval and final fair
value assessments. The acquisition is expected to complete midway through 2025
and therefore the availability of financial information, the measurement of
the fair value of net assets acquired and any goodwill to be recognised as a
result of the acquisition is in progress.
The Group maintains committed credit facilities to ensure that it has
sufficient liquidity to maintain its ongoing operations. On 30 January 2025,
Serco Group plc signed a committed 2-year term loan facility of US$250m
(c.£199m) on the announcement of the acquisition of MT&S. The facility
provides a source of additional liquidity in the near term, becoming available
after the completion of the acquisition, and it will mandatorily cancel in the
event of equivalent future debt issuance by the Group. The principal financial
covenant ratios of this facility are consistent with the USPP loan notes and
revolving credit facility.
Dividends
Subsequent to the year-end, the Board has recommended the payment of a final
dividend in respect of the year ended 31 December 2024 of 2.82 pence per
share. The dividend remains subject to shareholder approval at the Annual
General Meeting and therefore no amounts have been recognised in respect of a
dividend in these Consolidated Financial Statements.
Additional information
Key performance indicators
We use key performance indicators (KPIs) to monitor our performance, ensuring
that we have a balance and an appropriate emphasis to both financial and
non-financial aspects.
Key Performance Indicators Relevance to strategy
Underlying operating profit (UOP) The level of absolute UOP and the relationship of UOP with revenue - i.e. the
margin we earn on what our customers pay us - is at the heart of our
aspiration to be profitable and sustainable. We believe the delivery of
strategic success has potential to support annual revenue growth of 4-6%, in
the medium term, and trading margins of 5-6%.
Underlying earnings per share (EPS), diluted EPS builds on the relevance of UOP and further reflects the strength and costs
of our financial funding and tax arrangements. EPS is, therefore, a measure of
financial return for our shareholders.
Free cash flow (FCF) FCF is a reflection of the sustainability of the organisation, by showing how
much of our effort turns into cash to reinvest into the business or to deploy
in other ways. Our philosophy is that we should only win business that
generates appropriate cash returns and we apply disciplined management of our
working capital cash flow cycles.
Underlying return on invested capital (ROIC) ROIC measures how efficiently the Group uses its capital to generate returns
from its assets. To be a sufficiently profitable and sustainable business, a
return must be achieved that is appropriately above a cost of capital hurdle
reflective of the typical returns required by our weighting of equity and debt
capital.
Pipeline of larger new bid opportunities The pipeline provides a measure of potential for winning new business and,
therefore, is a major input to being profitable and sustainable. The size of
the pipeline and our win-rate on the bids within it are at the heart of our
strategy to grow the business.
Order book The order book reflects progress with winning and retaining good business and,
as a store of future value, it is a key measure to ensure that the Group is
profitable and sustainable. The value of how much is added to the order book
compared to how much revenue we are billing our customers - the book-to-bill
ratio - is important to achieving long-term growth.
Alternative Performance Measures (APMs) reconciliations
Overview
In general, APMs are presented externally to meet investors' requirements for
further clarity and transparency of the Group's financial performance. The
APMs are also used internally in the management of our business performance,
budgeting and forecasting, and for determining Executive Directors'
remuneration and that of other Management throughout the business.
APMs are non-IFRS measures. Where additional revenue is being included in an
APM, this reflects revenues presented elsewhere within the reported financial
information, except where amounts are recalculated to reflect constant
currency. Where items of income or expense are being excluded in an APM, these
are included elsewhere in our reported financial information as they represent
actual income or expense of the Group, except where amounts are recalculated
to reflect constant currency. As a result, APMs allow investors and other
readers to review different kinds of revenue, profits and costs and should not
be used in isolation. Commentary including in the Group and Divisional Review,
as well as the Consolidated Financial Statements and their accompanying notes,
should be referred to in order to fully appreciate all the factors that affect
our business. We strongly encourage readers not to rely on any single
financial measure, but to carefully review our reporting in its entirety.
Definitions of the Group's APMs is shown in the glossary on pages 47 to 48 and
the reconciliations for each measure are shown as follows:
Alternative revenue measures
A reconciliation of reported revenue to the alternative revenue measures is as
follows:
Statutory Revenue Statutory Revenue Organic Organic Revenue plus share of joint ventures and associates Revenue plus share of joint ventures and associates
Revenue Revenue
Year ended 31 December 2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Alternative revenue measure at constant currency 4,872.7 4,873.8 4,751.2 4,873.8 5,377.2 5,347.2
Foreign exchange differences (85.4) - (81.9) - (85.4) -
Alternative revenue measure at reported currency 4,787.3 4,873.8 4,669.3 4,873.8 5,291.8 5,347.2
Impact of relevant acquisitions or disposals - - 118.0 - - -
Share of joint venture and associates - - - - (504.5) (473.4)
Reported revenue at reported currency 4,787.3 4,873.8 4,787.3 4,873.8 4,787.3 4,873.8
Alternative profit measures
A reconciliation of underlying operating profit to reported operating profit
is as follows:
Year ended 31 December 2024 2023
£m £m
Underlying operating profit at constant currency 279.8 248.7
Foreign exchange differences (6.3) -
Underlying operating profit at reported currency 273.5 248.7
Amortisation and impairment of intangibles arising on acquisition (28.9) (30.9)
Exceptional Items comprising
- Operating items - 53.8
- Goodwill impairment (114.5) -
Reported operating profit at reported currency 130.1 271.6
Underlying EPS
A reconciliation of underlying EPS to reported EPS is as follows:
2024 2023 2024 2023
Year ended 31 December basic basic diluted diluted
pence pence pence pence
Underlying EPS 16.97 15.61 16.67 15.36
Non-underlying items:
Net impact of non-underlying operating items, non underlying tax and (1.98) (2.02) (1.95) (1.99)
amortisation and impairment of intangibles arising on acquisition
Exceptional operating items, net of tax (10.82) 4.64 (10.62) 4.56
Reported EPS 4.17 18.23 4.10 17.93
Alternative cash flow measures
A reconciliation of underlying operating profit, net cash inflow from
underlying operating activities, free cash flow and trading cash flow is as
follows:
Year ended 31 December 2024 2023
£m £m
Underlying operating profit 273.5 248.7
Less: Share of profit from joint ventures and associates (22.8) (29.0)
Movement in provisions (3.1) 12.6
Depreciation, amortisation and impairment of property, plant and equipment and 25.1 25.7
intangible assets
Depreciation and impairment of right of use assets 141.7 126.1
Other non-cash movements 15.7 11.1
Working capital movements 30.3 30.1
Tax paid (41.3) (41.1)
Non-cash R&D expenditure 0.3 (0.4)
Net cash inflow from underlying operating activities 419.4 383.8
Dividends from joint ventures and associates 30.8 21.1
Net interest paid (28.5) (26.5)
Capitalised finance costs paid (1.0) -
Capital element of lease repayments (137.4) (124.4)
Proceeds received from exercise of share options 0.1 -
Purchase of own shares to satisfy share awards (22.8) (22.9)
Purchase of intangible and tangible assets net of proceeds from disposal (33.1) (21.9)
Free cash flow 227.5 209.2
Add back:
Tax paid 41.3 41.1
Non-cash R&D expenditure (0.3) 0.4
Net interest paid 28.5 26.5
Capitalised finance costs paid 1.0 -
Trading cash flow 298.0 277.2
Underlying Operating Profit 273.5 248.7
Trading cash conversion 109% 111%
Free cash flow to adjusted net debt
A reconciliation from free cash flow to adjusted net debt is as follows:
Year ended 31 December 2024 2023
£m £m
Free cash flow 227.5 209.2
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures (20.8) (7.5)
and associates
Dividends paid to non-controlling interests - (1.7)
Dividends paid to shareholders (38.4) (33.7)
Purchase of own shares (141.3) (88.8)
Movements on other investment balances - (0.7)
Loans repaid from joint venture 10.0 -
Capitalisation and amortisation of loan costs - (0.8)
Exceptional items - 9.2
Cash movements on hedging instruments (13.1) (1.5)
Foreign exchange (loss)/gain on adjusted net debt (15.0) 11.5
Movement in adjusted net debt 8.9 95.2
Opening adjusted net debt - 1 January (108.7) (203.9)
Closing adjusted net debt (99.8) (108.7)
Reported net debt to adjusted net debt
Reported net debt includes all lease liabilities, including those recognised
under IFRS 16 Leases. A reconciliation of adjusted net debt to reported net
debt is as follows:
At 31 December At 31 December
2024 2023
£m £m
Cash and cash equivalents 183.0 94.4
Loans payable (276.4) (206.2)
Lease liabilities (530.0) (453.7)
Derivatives relating to net debt (6.4) 3.1
Reported net debt (629.8) (562.4)
Add back: Lease liabilities 530.0 453.7
Adjusted net debt (99.8) (108.7)
Return on invested capital (ROIC)
At 31 December At 31 December
2024 2023
£m £m
ROIC excluding right of use assets
Non current assets
Goodwill 826.2 906.7
Other intangible assets - owned 101.4 115.6
Property, plant and equipment - owned 56.8 44.3
Interest in joint ventures 25.1 32.1
Contract assets, trade and other receivables 26.3 14.8
Current assets
Inventory 24.1 24.1
Loans to joint ventures - 10.0
Contract assets, trade and other receivables 631.5 625.6
Total invested capital assets 1,691.4 1,773.2
Current liabilities
Contract liabilities, trade and other payables (632.5) (593.8)
Non current liabilities
Contract liabilities, trade and other payables (82.2) (68.5)
Total invested capital liabilities (714.7) (662.3)
Invested capital 976.7 1,110.9
Two point average of opening and closing invested capital 1,043.8 1,163.7
Underlying operating profit 12 months 273.5 248.7
Underlying ROIC % 26.2% 21.4%
Debt covenants
The principal financial covenant ratios are consistent across the US private
placement loan notes and revolving credit facility, with a maximum
Consolidated Total Net Borrowings (CTNB) to covenant EBITDA of 3.5 times and
minimum covenant EBITDA to covenant net finance costs of 3.0 times, tested
semi-annually. A reconciliation of the basis of calculation is set out in the
table below.
The covenants exclude the impact of IFRS 16 Leases on the Group's results.
31 December 31 December
For the twelve months ended 2024 2023
£m £m
Operating Profit 130.1 271.6
Remove: Exceptional items 114.5 (53.8)
Remove: Amortisation and impairment of intangibles arising on acquisition 28.9 30.9
Exclude: Share of joint venture post-tax profits (22.8) (29.0)
Include: Dividends from joint ventures 30.8 21.1
Add back: Net non-exceptional charges/(releases) to OCPs 5.7 8.2
Add back: Net covenant OCP utilisation (2.7) (3.2)
Add back: Depreciation, amortisation and impairment of owned property, plant 25.1 25.7
and equipment and non acquisition intangible assets
Add back: Depreciation, amortisation and impairment of property, plant and 4.4 4.3
equipment and non acquisition intangible assets held under finance leases - in
accordance with IAS17 Leases
Add back: Foreign exchange on investing and financing arrangements (2.1) (0.9)
Add back: Share-based payment expense 15.2 13.5
Net other covenant adjustments to EBITDA (15.0) (11.5)
Covenant EBITDA 312.1 276.9
Net finance costs 33.1 24.6
Exclude: Net interest receivable on retirement benefit obligations 1.9 3.1
Exclude: Movement in discount on deferred consideration (0.8) -
Exclude: Foreign exchange on investing and financing arrangements (2.1) (0.9)
Other covenant adjustments to net finance costs (19.6) (12.7)
Covenant net finance costs 12.5 14.1
Adjusted net debt 99.8 108.7
Obligations under finance leases - in accordance with IAS17 Leases 13.1 17.4
Recourse net debt 112.9 126.1
Add back: Disposal vendor loan note, encumbered cash and other adjustments (3.7) 5.9
Covenant adjustment for average FX rates (5.9) 5.6
CTNB 103.3 137.6
CTNB / Covenant EBITDA (not to exceed 3.5x) 0.33x 0.50x
Covenant EBITDA / Covenant net finance costs (at least 3.0x) 25.0x 19.6x
Glossary
Adjusted Net Debt
The Adjusted Net Debt measure more closely aligns with the covenant measure
for the Group's financing facilities than reported net debt because it
excludes all lease liabilities recognised under IFRS 16 Leases. Principally as
a result of the Asylum Accommodation and Support Services Contract (AASC), the
Group has entered into a significant number of leases which contain a
termination option. The use of Adjusted Net Debt removes the volatility that
would result from the estimation of lease periods and the recognition of
liabilities associated with such leases where the Group has the right to
cancel the lease. Though the intention is not to exercise the options to
cancel the leases, it is available, unlike other debt obligations.
Constant currency
Constant currency is calculated by translating non-sterling values for the
Year ended 31 December into sterling at the average exchange rates for the
prior year. Constant currency and reported currency are equal for the prior
year numbers.
Employee engagement
We use a specialist third party provider to run Viewpoint, our global employee
engagement survey. The survey covers employees, excluding our joint ventures,
and measures engagement in two key areas: how happy employees are working at
Serco and their intention to recommend Serco to others. Our engagement score
incorporates all respondents' perceptions and shows the overall average view
of these two areas when we survey.
Exceptional items
IAS 1 Presentation of Financial Statements sets out disclosure requirements
regarding fair representation of information and the composition, labelling,
prominence and consistency of additional line items and subtotals in financial
statements. IAS 1 paragraph 97 requires separate disclosure of the nature and
amount of material items of income or expense. The company uses the term
'exceptional items" to categorise those items which require disclosure under
IAS 1 paragraph 97, but this is not a term defined by IFRS. A level of
judgement is involved in determining what items are classified as exceptional
items. Management considers exceptional items to be outside of normal practice
of the business (i.e. the financial impact is unusual or rare in occurrence),
and are material to the results of the Group by virtue of their size or
nature, and are suitable for separate presentation and detailed explanation.
There is a level of judgement required in determining which items are
exceptional on a consistent basis and require separate disclosure.
Free Cash Flow (FCF)
Free cash flow is the net cash flow from operating activities adjusted to
remove the impact of non-underlying cash flows from operating activities,
adding dividends we receive from joint ventures and associates and deducting
net interest, net capital expenditure on tangible and intangible asset
purchases and the purchase of own shares to satisfy share awards.
Invested Capital
Invested Capital represents the assets and liabilities considered to be
deployed in delivering the trading performance of the business. Invested
Capital assets are: goodwill and other intangible assets; property, plant and
equipment; interests in joint ventures and associates; contract assets, trade
and other receivables; and inventories. Invested Capital liabilities are
contract liabilities, trade and other payables. Invested Capital is calculated
as a two-point average of the opening and closing balance sheet positions. The
Invested Capital of the Group used in underlying ROIC are for those items for
which resources are or have been committed. This excludes right of use assets
recognised under IFRS 16 Leases as many have termination options and
commitments for expenditure in future years.
Order book
The order book reflects the estimated value of future revenue based on all
existing signed contracts, excluding Serco's share of joint ventures and
associates. It excludes contracts at the preferred bidder stage and excludes
the award of new Multiple Award Contracts (MACs), Indefinite
Delivery/Indefinite Quantity (IDIQ) contracts or framework vehicles, where
Serco cannot estimate with sufficient certainty its expected future value of
specific task orders that may be issued under the IDIQ or MAC; in these
situations the value of any task order is recognised within the order book
when subsequently won. The definition is aligned with IFRS15 disclosures of
the future revenue expected to be recognised from the remaining performance
obligations on existing contractual arrangements and therefore excludes
unsigned extension periods and option periods in our US business. Order intake
is the value of business which has been won during the year and typically
includes Serco's share of order intake from its joint ventures and option
periods in our US business.
Organic
Organic measures exclude the impact of relevant acquisitions or disposals
(European Homecare and Climatize). The prior year figures are recalculated on
a consistent basis with the relevant acquisitions or disposals removed in the
current year and therefore may not agree to the organic revenue previously
reported.
Net debt
Net debt is a measure to reflect the net indebtedness of the Group and
includes all cash and cash equivalents and any debt or debt-like items,
including any derivatives entered into in order to manage risk exposures on
these items. Net debt brings together the various funding sources that are
included on the Group's Consolidated Balance Sheet and the accompanying notes.
Net debt includes all lease liabilities, whilst Adjusted Net Debt is derived
from net debt by excluding liabilities associated with leases.
Non-underlying items
Included in non-underlying items are exceptional items as well as amortisation
and impairment of intangibles arising on acquisitions, because these charges
are based on judgements about the value and economic life of assets that, in
the case of items such as customer relationships, would not be capitalised in
normal operating practice.
Pipeline of large new bid opportunities
Pipeline of large new bid opportunities reflects the estimated aggregate value
at the end of the reporting period of new bid opportunities with Annual
Contract Value (ACV) greater than £10m and which we expect to bid and be
awarded within a rolling 24-month timeframe. It does not include re-bids or
extensions of existing business and the Total Contract Value (TCV) of
individual opportunities is capped at £1bn; also excluded is the potential
value of framework agreements, prevalent in the US in particular where there
are numerous arrangements classed as IDIQ. In this case only the potential
value of any individual task order is included.
Revenue plus share of joint ventures and associates
This alternative measure includes the share of revenue from joint ventures and
associates for the benefit of reflecting the overall change in scale of the
Group's ongoing operations, which is particularly relevant for evaluating
Serco's presence in market sectors such as Defence and Transport. The
alternative measure allows the performance of the joint venture and associate
operations themselves, and their impact on the Group as a whole, to be
evaluated on measures other than just the post-tax result.
Trading cash conversion
In order to calculate an appropriate cash conversion metric equivalent to UOP,
trading cash flow is derived from FCF by excluding capitalised finance costs,
interest, non-cash R&D expenditure and tax items. Trading cash conversion
therefore provides a measure of the efficiency of the business in terms of
converting profit into cash before taking account of the impact of capitalised
finance costs, interest, non-cash R&D expenditure, tax and non-underlying
items.
Underlying Earnings Per Share (EPS), diluted
Underlying EPS reflects the Underlying Operating Profit measure after
deducting underlying net finance costs and tax. It takes into account any
non-controlling interests share of the result for the period, and divides the
remaining result that is attributable to the equity owners of the Company by
the weighted average number of ordinary shares outstanding, including the
potential dilutive effect of share options, in accordance with IFRS.
Underlying net finance costs and tax are used to calculate Underlying EPS to
remove the impact of typical non-recurring or out of period items.
Underlying Operating Profit (UOP)
Underlying Operating Profit is defined as IFRS Operating Profit excluding
non-underlying items (as described above). Consistent with IFRS, it includes
Serco's share of profit after interest and tax of its joint ventures and
associates.
Underlying Return on Invested Capital (ROIC)
ROIC is calculated as UOP for the period divided by the Invested Capital
balance (as described above).
Forward looking statements
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", "should",
"will", "aspire", "aim", "plan", "target", "goal", "ambition", "intend" or, in
each case, their negative or other variations or comparable terminology
identify forward looking statements. By their nature, these forward looking
statements are subject to a number of known and unknown risks, uncertainties
and contingencies, and actual results and events could differ materially from
those currently being anticipated as reflected in such statements. Factors
which may cause future outcomes to differ from those foreseen or implied in
forward looking statements include, but are not limited to: general economic
conditions and business conditions in Serco's markets; contracts awarded to
Serco; customers' acceptance of Serco's products and services; operational
problems; the actions of competitors, trading partners, creditors, rating
agencies and others; the success or otherwise of partnering; changes in laws
and governmental regulations; regulatory or legal actions, including the types
of enforcement action pursued and the nature of remedies sought or imposed;
the receipt of relevant third party and/or regulatory approvals; exchange rate
fluctuations; the development and use of new technology; changes in public
expectations and other changes to business conditions; wars and acts of
terrorism; cyber-attacks; and pandemics, epidemics or natural disasters. Many
of these factors are beyond Serco's control or influence. These forward
looking statements speak only as of the date of this announcement and have not
been audited or otherwise independently verified. Past performance should not
be taken as an indication or guarantee of future results and no representation
or warranty, express or implied, is made regarding future performance. Except
as required by any applicable law or regulation (including under the UK
Listing Rules and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority), Serco expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward
looking statements contained in this announcement to reflect any change in
Serco's expectations or any change in events, conditions or circumstances on
which any such statement is based after the date of this announcement, or to
keep current any other information contained in this announcement.
Accordingly, undue reliance should not be placed on the forward looking
statements.
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