REG - Serco Group PLC - Half-year Report
04/08/2022 07:15
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RNS Number : 8568U Serco Group PLC 04 August 2022
2022 half year results
4 August 2022
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Growth in many parts of the business more than offsets wind-down of Test &
Trace and exit from AWE. Profits up 6% and trading margin increased. Interim
dividend increased by 18%.
Six months ended 30 June 2022 2021 Change at reported currency Change at constant currency
Revenue((1)) £2,178m £2,168m 1% (1%)
Underlying Trading Profit (UTP)((2)) £130m £123m 6% 2%
Trading Profit £134m £126m 6%
Operating Profit((2)) £123m £116m 6%
Underlying Earnings Per Share (EPS), diluted((3)) 7.71p 6.75p 14%
Reported EPS (i.e. after exceptional items), diluted 7.41p 18.77p (61%)
Interim Dividend Per Share 0.94p 0.80p 18%
Free Cash Flow((4)) £96m £130m (26%)
Adjusted Net Debt((5)) £164m £225m (27%)
Reported Net Debt((6)) £596m £651m (8%)
( )
Highlights
· Revenues: strong growth across the business offsets revenue reductions from
Test & Trace. Revenue excluding Test & Trace up 12%.
· Underlying Trading Margin increases: up from 5.7% to 5.9%.
· Underlying Trading Profit, Trading Profit and Operating Profit all up 6%.
More than three-quarters of our profit earned outside of the UK((7)).
· Underlying Earnings per Share up 14%: growing faster than UTP due to lower
interest and tax.
· Reported Earnings per Share: prior year included recognition of £145m UK
deferred tax asset.
· Interim Dividend per Share up 18%.
· Underlying trading profit cash conversion: >100%.
· Reduced Adjusted Net Debt: down £61m to £164m. Covenant leverage 0.5x EBITDA
(2021: 1.0x).
· Return on Invested Capital: 21.5%, same as prior year.
· Order book up £0.5bn on prior year to £14.6bn. Order intake £2.0bn,
book-to-bill 94%.
· Healthy New Business Pipeline at £8.1bn, up around 40% year-on-year.
· Full year guidance slightly increased to reflect trading in May and June, and
additional FX benefit.
Rupert Soames, Serco Group Chief Executive, commented:
We did much better in the first half than we expected in January, and as a
consequence also expect to do better than we originally anticipated in the
full year. In the first six months we have maintained revenues year-on-year
despite losing around £220m, or 10%, of our revenues as a result of the
wind-down in Test & Trace. Excluding Test & Trace, revenues grew by
over 12%. Profits increased by 6%, despite a £25m, or 21%, negative impact
of the exit from AWE in June 2021 and Test & Trace. Increased demand for
case management in North America, employment services in the UK, immigration
services in both Australia and the UK, as well as our acquisition of WBB in
April 2021, more than offset the impact of Test & Trace and AWE on
revenues and profit.
Our order book remains very strong at £14.6bn, up £0.5bn over the prior year
with the positive effect of wins, indexation and currency more than offsetting
revenue earned over the last twelve months. Order intake in the first half
of £2.0bn represented a book-to-bill ratio of 94%, and would have been well
over 100% but for unusually low levels of contract rebids and extensions being
due in the first half. New business wins, on the other hand, were above
average levels. The pipeline has reduced from the start of the year but at
over £8bn stands at a very healthy level, and is up around 40% year-on-year.
Looking at the first half performance in the round - robust revenues despite
the wind-down in Test & Trace, strong margins, large and growing order
book, healthy pipeline, strong cash conversion and balance sheet - tells of
the agility of Serco's Business-to-Government platform and the advantages of
our differentiated business model and international footprint.
We employ around 57,000 people delivering services to governments and so the
balance of supply and demand in labour markets is important to us. It is our
sense that the dislocation in labour markets we saw last year is beginning to
ease, as more people return to work, and we have seen a reduction in our
vacancy levels. However, staff turnover remains high in some contracts, and
unpredictable absence levels, driven by waves of Covid-19, mean that
operational management of the business remains very demanding.
I am delighted to report that we have made significant progress on our
diversity and equality strategy. Since 2017, the proportion of women in our
senior leadership team (around 350 leaders) has increased from 17% to 33%,
while the proportion of colleagues with a declared disability or health
condition has more than doubled in recent years and now stands at 5%. In the
UK our median gender pay gap has fallen from 12.9% to 6.9%.
As a result of the recent surge in inflation we are increasing pay faster than
we budgeted and we will be distributing an additional £9m in the coming weeks
in one-off payments to all our colleagues outside management grades,
recognising the pressure many people, particularly the lower paid, are under
at this time. Increasing pay is one of the reasons why costs are expected to
be higher, and profits lower, in the second half than in the first. We do
have mechanisms in many of our contracts which will over time help us mitigate
the effects of cost increases, but inflation that goes from 2% to 10% in 12
months, and is then forecast to fall back to 2% by the end of 2024 makes it
hard for companies, customers and employees to balance their long term
interests and expectations.
Guidance for 2022
We significantly increased our guidance for the full year in an unscheduled
trading update on 26 May. UTP guidance was raised by 15% from £195m to
£225m, and today we are slightly increasing UTP guidance to £230m to reflect
further FX movement since the last update and trading in May and June. We
also strengthen guidance for Free Cash Flow and Adjusted Net Debt. For the
year, we expect currency movements to contribute around £150m to revenues and
£12m to profits.
2021 2022
Actual Previous guidance New guidance
26 May 2022 4 August 2022
Revenue £4.4bn £4.3bn-£4.4bn Unchanged
Organic sales growth 10% ~(5)% Unchanged
Underlying Trading Profit £229m ~£225m ~£230m
Net finance costs £24m ~£25m ~£23m
Underlying effective tax rate 24% ~25% ~24%
Free Cash Flow £190m ~£120m ~£140m
Adjusted Net Debt £178m ~£200m ~£190m
NB: The guidance uses an average GBP:USD exchange rate of 1.25 in 2022 and
GBP:AUD of 1.78, which is based on currency rates as 30 June 2022. Adjusted
Net Debt guidance includes the £90m share buyback programme. We expect a
weighted average number of shares in 2022 of 1,195m for basic EPS and 1,220m
for diluted EPS.
Looking ahead
Serco's resilience and strong trading performance stands in sharp contrast to
a geo-political and economic landscape which continues to be miserable and
dominated by the malign influence of two "black swan" events. In March 2020,
Covid-19 up-ended the world. Almost exactly two years later, the Russian
invasion of Ukraine has brought death and destruction, nine million refugees,
inflation, food shortages, and world-wide disruption of efforts to rebuild
after the pandemic.
The concatenation of these two catastrophes will shape public policy for years
to come. Governments are struggling to square promises to invest in energy
transition and to "build back better" with the realities of materially
increased levels of public debt incurred mitigating the impact of Covid-19;
the need to increase defence expenditure; and inflation, with its outriders of
unplanned increases in debt service and other costs - notably in pay for
public servants. In squaring these circles governments will need more than
ever the innovation, efficiency and skilled operational management the private
sector can bring to the effective delivery of public services.
We have got off to a much better start than we expected against the five-year
plan we presented at our Capital Markets Day in December 2021. Our
expectation then was that, from a base year in 2022 of UTP of £195m and
margin of around 4.7%, we would over the four years to 2026 grow revenues at
an average of 4-6% a year, with margins rising to 5-6%. Whilst it may be
tempting to rebase our objectives to a higher 2022 starting point, any
sensible plan has to allow for humps, when we do better than the average, and
bumps, when we do worse; 2022 will clearly be a hump, and our margins in
particular are stronger, at an earlier point in the plan, than we expected.
Overall, we believe that we remain on course, even if our strong start means
that we are travelling towards our destination a little faster than we
expected. Importantly, the experience of the last two years, and the outlook
for 2022, confirms our belief in the resilience of our model and the ability
of our Business-to-Government platform to enable us to adapt to the changing
requirements of governments, whilst delivering growing returns to
shareholders, rewarding careers to our employees, and high-quality public
services to our customers.
For further information please contact Serco:
Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718 195 074 or
email: paul.checketts@serco.com (mailto:paul.checketts@serco.com)
Marcus De Ville, Head of Media Relations; tel +44 (0) 7738 898 550 or email:
marcus.deville@serco.com (mailto:marcus.deville@serco.com)
Presentation:
A presentation for institutional investors and analysts will be held at
Maitland/AMO, 3 Pancras Square, London,
N1C 4AG today, starting at 10.00am. The presentation will be webcast live at
https://edge.media-server.com/mmc/p/72gqvd9g
(https://edge.media-server.com/mmc/p/72gqvd9g) and subsequently available on
demand. A dial-in facility is available on
https://register.vevent.com/register/BI26239113466b42deba7b6d01a65ac9da
(https://register.vevent.com/register/BI26239113466b42deba7b6d01a65ac9da) .
Notes to financial results summary table and highlights:
(1) Revenue is as defined under IFRS, which excludes Serco's share of revenue
of its joint ventures and associates. Organic revenue growth is the change
at constant currency after adjusting to exclude the impact of relevant
acquisitions or disposals. Change at constant currency is calculated by
translating non-sterling values for the six months ended 30 June 2022 into
sterling at the average exchange rates for the six months ended 30 June 2021.
(2) Trading Profit is defined as IFRS Operating Profit excluding amortisation
of intangibles arising on acquisition as well as exceptional items.
Consistent with IFRS, it includes Serco's share of profit after interest and
tax of its joint ventures and associates. Underlying Trading Profit
additionally excludes Contract & Balance Sheet Review adjustments and
other material one-time items. A reconciliation of Underlying Trading Profit
to Trading Profit and Reported Operating Profit is as follows:
Six months ended 30 June 2022 2021
£m
Underlying Trading Profit 129.5 122.7
Include: non-underlying items
OCP charges and releases
Other Contract & Balance Sheet Review adjustments and one-time items 4.2 2.9
Trading Profit 133.7 125.6
Amortisation of intangibles arising on acquisition (9.6) (6.6)
Operating Profit before exceptional items 124.1 119.0
Operating exceptional items (0.9) (2.7)
Reported Operating Profit 123.2 116.3
(3) Underlying EPS reflects the Underlying Trading Profit measure after
deducting pre-exceptional net finance costs and related tax effects.
(4) Free Cash Flow is the net cash flow from operating activities before
exceptional items as shown on the face of the Group's Consolidated Cash Flow
Statement, adding dividends we receive from joint ventures and associates, and
deducting net interest and net capital expenditure on tangible and intangible
asset purchases.
(5) Adjusted Net Debt has been introduced by Serco as an additional non-IFRS
Alternative Performance Measure (APM) used by the Group. This 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 IFRS16.
(6) Reported Net Debt includes all lease liabilities, including those
recognised under IFRS16. A reconciliation of Adjusted Net Debt to Reported
Net Debt is as follows:
As at 30 June 2022 30 June 2021 31 Dec 2021
£m
Adjusted Net Debt 163.6 225.2 178.0
Include: all lease liabilities 432.5 425.7 430.3
Reported Net Debt 596.1 650.9 608.3
(7) Refers to non-UK Underlying Trading Profit as a proportion of group
Underlying Trading Profit before corporate costs. Our Underlying Trading
Profit before corporate costs in the first half of 2022 was £153.5m.
Reconciliations and further detail of financial performance are included in
the Finance Review on pages 14-24. This includes full definitions and
explanations of the purpose and usefulness of each non-IFRS Alternative
Performance Measure (APM) used by the Group. The condensed Consolidated
Financial Statements and accompanying notes are on pages 28-43.
Chief Executive's Review
Summary of financial performance
Revenue, Underlying Trading Profit and Underlying Earnings Per Share
Revenue increased by 1%, or £10m, to £2,178m (2021: £2,168m). An organic
contraction of 3% (£70m) was more than offset by an acquisition contribution
from WBB of 2% (£46m) and favourable currency movements that added 2%
(£34m). The organic decline was driven by the wind down in Test & Trace,
which ended in April, and the ending of the Dubai Metro contract in September
2021. These contracts reduced revenue by around £280m, or 13%,
year-on-year. Most of this decline was offset by strong growth in other
contracts, including immigration in Australia and the UK, case management in
North America and employment services in the UK; excluding Test & Trace
revenues grew by 12%, of which 8% was organic.
Underlying Trading Profit (UTP) increased by 6%, or £7m, to £130m (2021:
£123m). Excluding the favourable currency contribution of £4m, growth at
constant currency was 2%. Acquisitions added 4%, or £5m, of the growth,
with an organic decline of 1%. The organic reduction primarily resulted from
lower levels of Test & Trace work and the end of our Atomic Weapons
Establishment contract in June 2021. These were offset by growth in a range
of other areas, including in Justice & Immigration, Citizens Services and
improvement across parts of the Transport and Health sectors that had been
negatively impacted by Covid-19. The Americas, Asia Pacific and Middle East
regions all improved their Underlying Trading Profit margins, which offset the
impact of lower margins in the UK & Europe division, meaning our UTP
margin increased from 5.7% to 5.9%.
Six months ended 30 June 2022 UK&E Americas AsPac Middle Corporate costs Total
£m East
Revenue 991.5 622.3 472.0 92.6 - 2,178.4
Change (5%) +18% +3% (35%) +0.5%
Change at constant currency (4%) +11% +4% (38%) (1.0%)
Organic change at constant currency (5%) +3% +3% (38%) (3.6%)
Underlying Trading Profit 37.5 75.7 31.6 8.7 (24.0) 129.5
Margin 3.8% 12.2% 6.7% 9.4% (1.1%) 5.9%
Change (33%) +33% +26% +21% +6% +5.5%
Contract & Balance Sheet Review adjustments 4.2 - - - - 4.2
Other one-time items - - - - - -
Trading Profit/(Loss) 41.7 75.7 31.6 8.7 (24.0) 133.7
Amortisation of intangibles arising on acquisition (0.4) (7.4) (1.8) - - (9.6)
Operating profit/(loss) before exceptionals 41.3 68.3 29.8 8.7 (24.0) 124.1
Diluted Underlying Earnings Per Share increased by 14% to 7.71p (2021: 6.75p).
The percentage improvement was higher than the increase in UTP due to a
reduced finance cost, a decrease in the effective tax rate and a lower number
of shares, due to our buyback programme.
The Revenue and Underlying Trading Profit performances are discussed in more
detail in the Divisional Reviews, starting on page 9.
Cash flow and Net Debt
Free Cash Flow was again strong at £96m (2021: £130m) and underlying trading
profit cash conversion in the half was 101% (2021: 137%). The first six
months of 2021 benefitted from cash collections on some older receivables,
shorter payment terms on Covid-19 related work and favourable timing effects.
Average working capital days reduced with debtor days of 21 (2021: 23 days)
and creditor days of 21 (2021: 24 days). 85% of UK supplier invoices were
paid in under 30 days (2021: 89%) and 94% were paid in under 60 days (2021:
95%). No working capital financing facilities were utilised in this or the
prior year.
Adjusted Net Debt reduced to £164m at 30 June (31 December 2021: £178m, 30
June 2021: £225m). The £14m reduction since the prior year end occurred
despite £19m of dividend payments and £42m of share purchases, including
those for employee share schemes, during the period.
The period end Adjusted Net Debt compares to a daily average of £201m (2021:
£178m) and a peak of £258m (2021: £346m). This is a typical range for our
net debt over the first half of a year, with the period end number lower due
to the timing of receipts; the difference between period end and daily average
debt is in any case immaterial at around 1.5% of revenues in the period. As
usual, we have not used any financing or efforts out of the ordinary to reduce
period end debt.
Our measure of Adjusted Net Debt excludes lease liabilities, which are
included in Statutory Net Debt, and aligns closely with the covenants on our
financing facilities. Lease liabilities totalled £433m at the end of June
(2021: £426m), the majority being leases on housing for asylum seekers under
the AASC contract. The terms of these leases are generally aligned to the
contract we have with the customer.
At the closing balance sheet date, our leverage for debt covenant purposes was
0.5x EBITDA (2021: 1.0x). This compares with the covenant requirement for
net debt to be less than 3.5x EBITDA and our target range of 1-2x.
More detailed analysis of earnings, cash flow, financing and related matters
is included in the Finance Review.
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 so shareholders are rewarded with a growing and
sustainable income stream.
· Selectively invest in bolt on acquisitions that add capability, scale or
access to new markets and have attractive returns.
· Return any surplus cash to shareholders through share buybacks.
In 2022 we continue to deliver our capital allocation policy:
· Invest to support organic growth: we have continued to invest in our
infrastructure and capabilities. Significant investment has also been put
into business development, which has supported our healthy pipeline of new
opportunities. Our investment in IT systems has been increased, and we have
rolled out further our workforce management system; we have also restarted our
Oxford Management Training programme, including the development of a specific
programme to support Women in Leadership.
· Increase ordinary dividends: we will be paying an interim dividend of 0.94p
per share, 18% higher than the prior year, as we continue on our path to
reduce dividend cover progressively towards 3x over the coming years.
· Invest in acquisitions: on 12 July we completed the small, bolt-on acquisition
of Sapienza, a leading European provider of services in the space sector, and
we continue to assess multiple other opportunities.
· Return surplus cash to shareholders: in the first half, we completed £25m of
the £90m share buyback announced at the full year results in February.
Contract awards, order book, rebids and pipeline
Contract awards
Order intake was £2.0bn in the first half, a book-to-bill rate of around 95%.
This was lower than in the prior two years, due to a low level of contract
rebids and extensions being due in the period. New business awards, on the
other hand were strong. There were around 30 contract awards worth more than
£10m each and 3 with a total contract value of more than £200m. Around half
of the order intake came from the UK & Europe, just over 40% from the
Americas and 4% from both Asia Pacific and the Middle East.
Of the order intake, approaching 70% was represented by the value of new
business and around 30% was rebids and extensions of existing work. The win
rate by value for new work, which has averaged around 35% over the last five
years, was again at this level in the period. Rebids and extensions on which
we bid in the first six months totalled around £800m, compared to £1.9bn in
the first half of 2020 and £2.3bn in the same period in 2021. The win rate
by value for securing existing work was within our normal range of 80-90%.
The largest award was our contract to manage the new HMP Fosse Way prison
(previously known as HMP Glen Parva) on behalf of the UK Ministry of Justice,
which we expect to generate more than £400m. Also in the Justice &
Immigration sector, we secured an estimated £200m of additional immigration
work, reflecting the large numbers of service-users having to be temporarily
accommodated. VIVO Defence Services, our joint venture with Equans, followed
on from its success in 2021 by securing contracts from the UK Ministry of
Defence (MOD) Defence Infrastructure Organisation (DIO) to deliver asset and
facilities management services to the United States Visiting Forces (USVF).
These have an estimated value to Serco of around £60m over the initial
three-year period. Also in the UK, we successfully rebid our contract to
provide facilities management services at Norfolk and Norwich University
Hospital, with an estimated value of £130m over five years. Our North
American business won the Ship Acquisition Programme / Project Management
(SHAPM) contract from the US Navy, which we expect to be worth £280m over
five years and a £60m, 2.5-year contract for detail design, prototype
construction and demonstration of a large and highly sophisticated unmanned
ship as part of the No Manning Required Ship (NOMARS) programme. In
addition, since the period end, we have been notified we were successful in
the rebid of our US Navy SEA21 contract. The new contract is expected to be
worth around $400m over five years, and will see us provide technical services
related to international fleet support, surface ship modernisation, surface
ship in-service readiness and surface training systems.
Bids for work that were unsuccessful in the period included a contract to
deliver vehicle licensing and registration for the State of Victoria transport
department, services as part of the redevelopment of Frankston Hospital, also
in Victoria, and the contract to provide estate management and other services
to the Ministry of Defence's Training Estate. In addition, we withdrew from
the competition to build three new Fleet Solid Support ships for the Royal
Navy.
Order book
The closing order book stood at £14.6bn (30 June 2021: £14.1bn, 31 December
2021: £13.7bn) with the positive effect of wins, indexation and currency more
than offsetting revenue earned over the last twelve months. 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 £1.5bn (2021: £1.2bn) higher if option periods on contracts in our
US business, which always tend to be exercised, were included.
Rebids
In our portfolio of existing work, we have around 80 contracts with annual
revenue of £5m or more where an extension or rebid will be required before
the end of 2024. Contracts that will either end or need to be extended in
2022 have an annual contract value of around £0.4bn. The annual value rises
in 2023 to approximately £0.9bn, which includes our Centers for Medicare
& Medicaid Services (CMS) in the US and our Immigration Services contract
in Australia, two of our largest contracts, before reducing to £0.6bn in
2024. The current CMS and Immigration Services contracts end, respectively,
in July and December 2023, and we will be re-bidding both. Because revenues
from CMS tend to be first half weighted, and the Immigration services contract
does not end until December 2023, we would expect outcomes on these contracts,
positive or negative, to be more significant in 2024 than 2023.
Pipeline
Our measure of pipeline is probably more narrowly defined than is common in
our industry. It 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 'ID/IQ' (Indefinite Delivery / Indefinite Quantity)
contracts, 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 relatively small proportion of the total universe of
opportunities, many of which have annual revenues less than £10m, are likely
to be decided beyond the next 24 months, or are rebids and extensions.
Our pipeline was £8.1bn at the end of June, a reduction, as expected, from
the record £9.9bn level at the end of 2021 but still around 40% higher than
the £5.8bn at the end of June 2021 and almost double the level of two years
ago. It is pleasing to see the pipeline at such a healthy level given 2021
was a strong year for wins and with several large bids having exited the
pipeline in the first half of 2022. The pipeline now consists of over 40 bids
with an ACV averaging around £30m and an average contract length of more than
six years. The pipeline of opportunities for new business that have an
estimated ACV of less than £10m has continued to increase, now totalling
£2.5bn. This is around 20% higher than the £2.0bn at the end of 2021 and
approximately 50% more than 12 months ago.
End of Deferred Prosecution Agreement
In July 2022, the Serious Fraud Office (SFO) announced the expiry of the
Deferred Prosecution Agreement (DPA) with Serco Geografix Ltd, one of Serco's
UK subsidiaries, and of the obligations under the Letter of Undertakings with
Serco Group. The DPA, agreed in July 2019, arose from issues concerning
Serco's Electronic Monitoring contract which were reported by Serco to the SFO
and the UK Ministry of Justice in November 2013. The SFO confirmed that
Serco has co-operated fully with the SFO and has fulfilled all its obligations
agreed as part of the DPA, including reviewing, improving and enhancing
aspects of our Group-wide compliance programme related to internal controls,
compliance policies, and procedures.
Market outlook
We set out a comprehensive description of our views on the market in our
Capital Markets Day
(https://www.serco.com/media/7227/serco-capital-markets-day-2021-presentation-1.pdf?1638452789)
in December 2021, and in our Annual Report for 2021
(https://www.serco.com/media/7711/serco-annual-report-and-accounts-2021.pdf) .
Since then, Russia has invaded Ukraine and that has brought with it
intensified inflationary pressures on government expenditure, which may result
in government expenditure on outsourced services growing faster in the next
few years than the 2-3% nominal growth-rate we suggested at the Capital
Markets Day. Inflation adjustments should also have a positive impact on our
revenues. However, whilst we believed that we could grow our revenues at
twice an assumed market rate of 2-3%, were nominal government expenditure to
grow much faster as a result of inflation, for example 5%, we would not expect
to grow our revenues twice as fast on a nominal basis but we would expect to
grow faster than the market in real terms.
Guidance for 2022
The business traded strongly in the first half of the year, with all four
regions performing above their budgets, leading to us to upgrade guidance in
May. Despite a significant drag on revenue and profit from our work on the
UK Test & Trace programme ending, and on profit from the ending of the AWE
contract, we have largely replaced these contracts with other government work
around the world. It is hard to forecast the precise impact of inflation on
revenues and costs, but most of our contracts have some form of inflation
protection although there will be timing differences between cost increases
and receiving the benefit of indexation. Guidance for the full year is set
out below.
Revenue: we expect revenue to be £4.3bn-£4.4bn, similar to the £4.4bn in
2021. This assumes a 1% contribution from acquisitions and a 3% benefit from
currency. We expect an organic contraction of around 5%, with lower demand
for Covid-19 related services in 2022 reducing our revenue by around £480m,
or 11%, partially offset by organic growth on non-Covid work of around 6%,
ahead of our medium-term growth targets.
Underlying Trading Profit (UTP): we expect UTP of around £230m. As well as
the impact of reduced Test & Trace revenues noted above, UTP will be
reduced by the ending of the AWE contract in June 2021; we also expect the
increase in employers' National Insurance contributions in the UK to cost
around £5 million on an annualised basis. The impact of these factors is
largely offset by increased demand for immigration services in the UK and
Australia, a full six months impact of the increase in employers' National
Insurance contributions in the UK, strong trading in our case management work
in North America, the positive effect of new work secured in 2021, such as the
DWP Restart Programme and the Defence Infrastructure Organisation contracts,
moving into profitability.
Second half profit is expected to be lower than the first six months due to
our Test & Trace work having ended, usual seasonality on some contracts
including our CMS healthcare eligibility contract in the US, lower volumes on
our immigration services contract in Australia, above-budget pay increases and
one off payments to non-management staff. The first-half second-half split
of profits in 2022 is expected to be similar to 2021.
Net finance costs and tax: net finance costs are expected to be around £23m,
slightly lower than 2021. The underlying effective tax rate is expected to
be around 24%, although this is sensitive to the geographic mix of our profit
and any changes to current corporate tax rates. This is lower than the prior
guidance of 25% as the first half benefited from a discrete reduction in
provisions for uncertain tax positions.
Financial position: free cash flow is expected to remain strong at around
£140m, with underlying trading profit cash conversion continuing to be above
90%. We expect Adjusted Net Debt to end the year at around £190m.
Returns to shareholders: although it is anticipated earnings will be broadly
stable in 2022, it is our intention to continue on our path of increasing
dividends to shareholders as part of our policy of progressively reducing
dividend cover towards 3x over the coming years. We will continue to execute
the £90m share buyback announced in March, of which we executed £25m in the
first half. The Board will keep future buybacks under review in line with
our capital allocation framework and target leverage of 1-2x net debt to
EBITDA.
Summary and concluding thoughts
It seems that "black swan" events behave like buses and taxis: ages pass
without seeing one, and then two arrive at the same time. The concatenation
of Covid-19 and the Russian invasion of Ukraine has set back almost every
positive aspect of global development. But they stand as reminders that
governments matter, and that they have enormous resources and the power to do
immense good, and immense harm. It has been governments who mobilised and
organised healthcare and social services to defang Covid-19; it is a
government that is responsible for attacking Europe and bringing misery to
millions; it is governments who have cooperated to help the Ukrainians stop
the invaders.
It is also a reminder of the sheer scale and breadth of what we expect
governments to deliver - whether it be running health services, collecting our
rubbish, managing justice and immigration, defending the realm, or building
and maintaining vital infrastructure. To do all these things governments
need the private sector to help them, and for those companies who are prepared
to invest in satisfying the very specific requirements of delivering public
services it is a huge and resilient market.
Companies that thrive in this sector need to be agile, resilient, have deep
expertise and capability in public services, strong management, and effective
governance. These are all attributes which we work hard to excel at, as do our
peers. But Serco has a number of points of differentiation from the majority
of our competitors:
First, we serve only governments, so we are specialists and completely focused
on governments', often unique, requirements. Culturally, we have public
service in our corporate DNA, with a set of values and a public service ethos
that comes from the fact that many of our colleagues come from careers in
public service.
Second, we have an international footprint which allows us to access many more
opportunities than would be the case if we operated in a single jurisdiction.
In the first six months of the 2022, almost three-quarters of our profits
arose from outside the UK.
Third, we have the scale to have developed a unique Business-to-Government
platform which allows us to drive agility, efficiency and resilience.
Serco's strong performance over the last few years has been largely due to
these differentiators, and we work daily to build and strengthen them. In so
doing we can thrive in a very large and growing market, and be able to deliver
growing returns to shareholders, rewarding careers to our employees, and
high-quality public services to our customers.
Rupert Soames
Group Chief Executive
Serco - and proud of it.
Divisional Reviews
Serco's operations are reported as four regional divisions: UK & Europe
(UK&E); the Americas; the Asia Pacific region (AsPac); 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 Trading Profit (UTP). As previously disclosed and
for consistency with guidance, Serco's UTP measure excludes contract &
balance sheet review adjustments, which were, in any case, immaterial in the
period.
Six months ended 30 June 2022 UK&E Americas AsPac Middle Corporate costs Total
£m East
Revenue 991.5 622.3 472.0 92.6 - 2,178.4
Change (5%) +18% +3% (35%) +0.5%
Change at constant currency (4%) +11% +4% (38%) (1.0%)
Organic change at constant currency (5%) +3% +3% (38%) (3.6%)
UTP 37.5 75.7 31.6 8.7 (24.0) 129.5
Margin 3.8% 12.2% 6.7% 9.4% (1.1%) 5.9%
Change (33%) +33% +26% +21% +6% +5.5%
Contract & Balance Sheet Review adjustments 4.2 - - - - 4.2
Other one-time items - - - - - -
Trading Profit/(Loss) 41.7 75.7 31.6 8.7 (24.0) 133.7
Amortisation of intangibles arising on acquisition (0.4) (7.4) (1.8) - - (9.6)
Operating profit/(loss) before exceptionals 41.3 68.3 29.8 8.7 (24.0) 124.1
Six months ended 30 June 2021 UK&E Americas AsPac Middle Corporate costs Total
£m East
Revenue 1,038.5 528.6 457.9 142.5 - 2,167.5
UTP 56.1 57.1 25.0 7.2 (22.7) 122.7
Margin 5.4% 10.8% 5.5% 5.1% (1.0%) 5.7%
Contract & Balance Sheet Review adjustments 2.9 - - - - 2.9
Other one-time items
Trading Profit/(Loss) 59.0 57.1 25.0 7.2 (22.7) 125.6
Amortisation of intangibles arising on acquisition (0.4) (4.5) (1.7) - - (6.6)
Operating profit/(loss) before exceptionals 58.6 52.6 23.3 7.2 (22.7) 119.0
Year ended 31 December 2021 UK&E Americas AsPac Middle Corporate costs Total
£m East
Revenue 2,131.6 1,120.0 908.4 264.6 - 4,424.6
UTP 96.0 117.8 51.3 13.7 (49.9) 228.9
Margin 4.5% 10.5% 5.6% 5.2% (1.1%) 5.2%
Contract & Balance Sheet Review adjustments 1.3 - - - - 1.3
Other one-time items 2.5 - 0.7 - - 3.2
Trading Profit/(Loss) 99.8 117.8 52.0 13.7 (49.9) 233.4
Amortisation of intangibles arising on acquisition (0.8) (11.7) (3.5) - - (16.0)
Operating profit/(loss) before exceptionals 99.0 106.1 48.5 13.7 (49.9) 217.4
The trading performance and outlook for each Division are described on the
following pages. Reconciliations and further detail of financial performance
are included in the Finance Review on pages 14-24. 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 28-43. Included in
note 2 to the Group's 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.
UK & Europe (45% of revenue, 24% of Underlying Trading Profit((7)))
Six months ended 30 June 2022 2021 Growth
£m
Revenue 991.5 1038.5 (5%)
Organic change (5%) 33%
Acquisitions 0% 0%
Currency 0% 0%
Underlying Trading Profit 37.5 56.1 (33%)
Organic change (34%) 112%
Acquisitions 1% 0%
Currency 0% 0%
Margin 3.8% 5.4% (160bps)
Revenue declined by 5% to £992m (2021: £1,039m), with the reduction being
almost entirely organic. The lower revenue was due to our Covid-19 Test
& Trace services coming to an end part way through the first half. In
total this was a drag on revenue of around 21%, with the net reduction being
significantly less as we saw growth in other Citizen Services work, Justice
& Immigration, Transport and Defence. We experienced particularly strong
demand for immigration services and, from a revenue perspective, our contract
to provide accommodation for asylum seekers is now the largest in the group.
Underlying Trading Profit reduced to £38m (2021: £56m), representing a
margin of 3.8% (2021: 5.4%). The step down in profit was due to lower levels
of Covid-19 work, the cessation of our Atomic Weapons Establishment contract
in June 2021, which together were a drag of £25m, as well as broader market
related challenges such as higher utility costs in our asylum seeker
accommodation and driver shortages impacting our prisoner escorting work.
These factors contributed to the margin reducing by around 160bp compared to
the first half of 2021, although it was around 40bp higher than the same
period in 2020.
Underlying Trading Profit includes the profit contribution of joint ventures
and associates, from which interest and tax have already been deducted. If the
proportional share of revenue from joint ventures and associates was included
and the share of interest and tax cost was excluded, the overall divisional
margin would have been 3.5% (2021: 4.7%). The joint venture and associate
profit contribution was lower at £3m (2021: £6m), as a result of the Atomic
Weapons Establishment contract ending in June 2021, partially offset by some
recovery in Merseyrail and the start of contracts with the UK Defence
Infrastructure Organisation, which are delivered by our VIVO joint venture.
Order intake was around £1.0bn, a book-to-bill ratio of 1.0x and around 50%
of the total intake for the Group. New wins were approximately 75% of the
order intake. Agreements signed included a contract with the UK Ministry of
Justice to run HMP Fosse Way, a new prison in the UK, previously known as Glen
Parva. The new contract has an estimated value of more than £400m over the
initial ten-year term. Also in the Justice & Immigration sector, we
secured an estimated £200m of additional immigration work, reflecting the
large numbers of service-users having to be temporarily accommodated. VIVO
Defence Services, our joint venture with Equans, continued its success of
2021, being awarded four of the five contracts being tendered to deliver asset
and facilities management services to the Defence Infrastructure Organisation
(DIO) at the UK military establishments that host US Visiting Forces. We
estimate the work will have a value of around £60m over the initial
three-year period. We also successfully rebid our agreement to provide
facilities management services at Norfolk and Norwich University Hospital,
with an estimated value of £130m over four years.
The pipeline of new opportunities in the UK & Europe remains healthy, with
significant new opportunities across Defence, Space, Justice & Immigration
and Citizen Services.
Americas (29% of revenue, 49% of Underlying Trading Profit((7)))
Six months ended 30 June 2022 2021 Growth
£m
Revenue 622.3 528.6 18%
Organic change 3% 0%
Acquisitions 8% 5%
Currency 7% (8%)
Underlying Trading Profit 75.7 57.1 33%
Organic change 20% 10%
Acquisitions 6% 6%
Currency 7% (9%)
Margin 12.2% 10.8% 140bps
Revenue grew by 18% to £622m (2021: £529m), with organic growth of 3%, an
acquisition contribution of 8% and a 7% favourable translational effect of
currency. The acquisition growth came from WBB, a leading provider of
advisory, engineering and technical services to the US Department of Defense.
This acquisition completed at the end of April 2021 and contributed £42m to
revenue growth in the first half of 2022 at constant currency. The two main
sectors for our Americas business are Defence and Citizen Services.
Excluding WBB, our Defence business saw a modest decline in revenue as some
work programs approached their planned end and growth continued to be held
back by delays in the award of new contracts. Citizen Services, however, saw
good growth supported by increased demand for our case management services and
recovery in driver examination activities, which had been negatively impacted
by Covid-19.
Underlying Trading Profit grew faster than revenue, increasing by 33% to £76m
(2021: £57m). Excluding the favourable currency movement of £4m, UTP
growth at constant currency was 26%, of which 20% was organic. Margins
increased from 10.8% to 12.2%, due to the good growth in our Citizen Services
sector and better profitability in Defence, despite lower revenues.
Order intake was strong at £0.9bn, approximately half of the total for the
Group and a book-to-bill ratio of approaching 1.4x. New business wins
represented around 60% of the order intake and included important programmes
such as the Ship Acquisition Programme / Project Management (SHAPM) contract
from the US Navy, under which we will deliver design, acquisition and
programme management to the US Navy's submarine build and sustainment
programmes; we expect this contract to be worth £280m over four years. We
also won a £60m, 2.5-year contract from the Defense Advanced Research
Projects Agency (DARPA) for detail design, prototype construction and
demonstration of a large and highly sophisticated unmanned ship as part of the
No Manning Required Ship (NOMARS) programme. In addition, since the period
end, we have been notified we were successful in the rebid of our US Navy
SEA21 contract. The new contract is expected to be worth around $400m over
five years, and will see us provide technical services related to
international fleet support, surface ship modernisation, surface ship
in-service readiness, surface training systems and inactive ships.
The pipeline of major new bid opportunities due for decision within the next
24 months in the Americas has increased from £2.2bn at the end of 2021 to
£3.1bn at the end of June, meaning it now represents approximately 40% of the
Group total. A combination of new opportunities joining the pipeline and award
decisions being delayed has driven the increase. Defence makes up the bulk
of the Americas pipeline, with a broad spread of types of work, while Citizen
Services opportunities represent the remainder.
Asia Pacific (22% of revenue, 21% of Underlying Trading Profit((7)))
Six months ended 30 June 2022 2021 Growth
£m
Revenue 472.0 457.9 3%
Organic change 3% 12%
Acquisitions 1% 17%
Currency (1%) 9%
Underlying Trading Profit 31.6 25.0 26%
Organic change 29% 52%
Acquisitions (3%) 23%
Currency 0% 13%
Margin 6.7% 5.5% 120bps
Revenue increased by 3% to £472m (2021: £458m). Organic growth was 3%, the
FFA acquisition from 2021 contributed 1%, while currency reduced reported
revenue by 1%. The growth was driven by Justice & Immigration, where we
saw increased demand for our immigration services, and Citizen Services.
This more than offset lower revenues in Health, as some services at Fiona
Stanley Hospital were taken back in-house in the second half of 2021.
Underlying Trading Profit increased by 26% to £32m (2021: £25m),
representing a margin of 6.7% (2021: 5.5%). Currency had only a minor negative
impact, leaving growth at constant currency also 26%. The biggest driver of
the increase was our immigration services work.
Despite an active period of bidding in the first half, order intake was just
£0.1bn, 4% of the Group total, as we were unsuccessful in bids to run driver
licensing and vehicle registration at the transport department in Victoria,
and facilities management at Frankston Hospital. We did however have a very
high rate of success in retaining existing work, including our contract to
provide contact centre services to the Australian Tax Office, which has been
extended to June 2023.
Our pipeline for new business reduced in the period, due to the lost bids
mentioned above, but contains significant opportunities in the Defence,
Justice & Immigration, Citizen Services and Transport sectors.
Middle East (4% of revenue, 6% of Underlying Trading Profit ((7)))
Six months ended 30 June 2022 2021 Growth
£m
Revenue 92.6 142.5 (35%)
Organic change (38%) (7%)
Acquisitions 0% 0%
Currency 3% (6%)
Underlying Trading Profit 8.7 7.2 21%
Organic change 17% 0%
Acquisitions 0% 0%
Currency 4% 3%
Margin 9.4% 5.1% 430bps
Revenue fell by 35% to £93m (2021: £143m). An organic reduction of 38% was
modestly offset by favourable currency moves adding 3% to revenues. The end
of our contract to operate the Dubai Metro, which we exited in September, led
to a large reduction in revenue for the division, which outweighed growth in
other parts of the Transport sector including Dubai Airport and air traffic
control services in the region.
Despite the sharp revenue contraction, Underlying Trading Profit improved to
£9m (2021: £7m). This favourable profit outcome was supported by
improvement in parts of the Transport sector, as demand recovered following a
reduction in Covid-19 cases. This, plus a successful exit from the
low-margin Dubai Metro contract, meant margins increased from 5.1% to 9.4%.
Order intake was around £0.1bn, or 4% of the total for the Group. Just over
60% of this was rebids, which included our contract to provide air traffic
control services to Dubai Air Navigation Services (dans), the organisation
responsible for Air Traffic Management at airports in Dubai and the Northern
Emirates. New business included a £10m, five-year contract to provide a
facilities management managing agent service to Riyadh International Airport.
Our pipeline of new bid opportunities in the Middle East includes work in the
Citizen Services, Transport and Defence sectors.
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 £1.3m to £24.0m (2021: £22.7m). The higher
amount resulted from increased spending on travel, as Covid-19 restrictions
were eased, and other activity that had been put on hold as a result of the
pandemic, such as our in-person management training courses.
Dividend calendar
Ex-dividend date: 8 September 2022
Record date: 9 September 2022
Interim dividend payable: 6 October 2022
LEI code: 549300PT2CIHYN5GWJ21
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" and
similar expressions 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, 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.
Finance Review
For the six months ended Underlying Non underlying items Trading Amortisation and impairment of intangibles arising on acquisition Statutory pre exceptional Exceptional items Statutory
30 June 2022 £m £m £m £m £m £m £m
Revenue 2,178.4 - 2,178.4 - 2,178.4 - 2,178.4
Cost of sales (1,927.2) 4.2 (1,923.0) - (1,923.0) - (1,923.0)
Gross profit 251.2 4.2 255.4 - 255.4 - 255.4
Administrative expenses (125.1) - (125.1) - (125.1) - (125.1)
Other exceptional operating items - - - - - (0.9) (0.9)
Other expenses - - - (9.6) (9.6) - (9.6)
Share of profits in joint ventures and associates, net of interest and tax 3.4 - 3.4 - 3.4 - 3.4
Profit before interest and tax 129.5 4.2 133.7 (9.6) 124.1 (0.9) 123.2
Margin 5.9% 6.1% 5.7% 5.7%
Net finance costs (9.2) - (9.2) - (9.2) - (9.2)
Profit before tax 120.3 4.2 124.5 (9.6) 114.9 (0.9) 114.0
Tax (charge)/credit (25.8) (0.2) (26.0) 2.6 (23.4) 0.3 (23.1)
Effective tax rate 21.4% 20.9% 20.4% 20.3%
Profit for the period 94.5 4.0 98.5 (7.0) 91.5 (0.6) 90.9
Minority interest - - - - - - -
Earnings per share (EPS) - basic (pence) 7.83 8.16 7.58 7.53
Earnings per share (EPS) - diluted (pence) 7.71 8.03 7.46 7.41
For the six months ended Underlying Non underlying items Trading Amortisation and impairment Statutory pre exceptional Exceptional items Statutory
30 June 2021 £m £m £m of intangibles arising on acquisition £m £m £m
£m
Revenue 2,167.5 - 2,167.5 - 2,167.5 - 2,167.5
Cost of sales (1,936.6) 2.9 (1,933.7) - (1,933.7) - (1,933.7)
Gross profit 230.9 2.9 233.8 - 233.8 - 233.8
Administrative expenses (114.6) - (114.6) - (114.6) - (114.6)
Other exceptional operating items - - - - - (2.7) (2.7)
Other expenses - - - (6.6) (6.6) - (6.6)
Share of profits in joint ventures and associates, net of interest and tax 6.4 - 6.4 - 6.4 - 6.4
Profit before interest and tax 122.7 2.9 125.6 (6.6) 119.0 (2.7) 116.3
Margin 5.7% 5.8% 5.5% 5.4%
Net finance costs (12.6) - (12.6) - (12.6) - (12.6)
Profit before tax 110.1 2.9 113.0 (6.6) 106.4 (2.7) 103.7
Tax (charge)/credit (25.6) 155.1 129.5 1.2 130.7 0.7 131.4
Effective tax rate 23.3% (114.6%) (122.8%) (126.7%)
Profit for the period 84.5 158.0 242.5 (5.4) 237.1 (2.0) 235.1
Minority interest - - - - - - -
Earnings per share (EPS) - basic (pence) 6.86 19.68 19.24 19.08
Earnings per share (EPS) - diluted (pence) 6.75 19.36 18.93 18.77
Alternative Performance Measures (APMs) and other related definitions
Overview
APMs used by the Group are reviewed below to provide a definition and
reconciliation from each non-IFRS APM to its IFRS equivalent, and to explain
the purpose and usefulness of each APM.
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 profits or costs are being excluded in an APM, these
are included elsewhere in our reported financial information as they represent
actual profits or costs 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. Other commentary within this announcement, including the other
sections of this Finance Review, as well as the Condensed 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.
The methodology applied to calculating the APMs has not changed since 31
December 2021.
Alternative revenue measures
For the six months ended 30 June 2022 2021
£m £m
Reported revenue at constant currency(1) 2,144.0 2,167.5
Foreign exchange differences 34.4 -
Reported revenue at reported currency 2,178.4 2,167.5
1. In order to provide a comparable movement on the previous period's results,
reported revenue is recalculated by translating non-Sterling values for the
six months ended 30 June 2022 into Sterling at the average exchange rates for
the six months ended 30 June 2021.
For the six months ended 30 June 2022 2021 2022 2021
Organic Organic Revenue plus share of joint ventures and associates(2) Revenue plus share of joint ventures and associates(2)
Revenue(1) Revenue(1) £m £m
£m £m
Alternative revenue measure at constant currency 2,004.4 2,079.7 2,232.9 2,360.2
Foreign exchange differences 30.8 - 34.4 -
Alternative revenue measure at reported currency 2,035.2 2,079.7 2,267.3 2,360.2
Impact of relevant acquisitions or disposals 143.2 87.8 - -
Share of joint venture and associates - - (88.9) (192.7)
Reported revenue at reported currency 2,178.4 2,167.5 2,178.4 2,167.5
1. In order to provide a comparable movement which ignores the effect of both
acquisitions and disposals, Organic Revenue at constant currency is
recalculated by excluding the impact of any relevant acquisitions or
disposals.
2. The alternative measure includes the share of 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.
Alternative profit measures
For the six months ended 30 June 2022 2021
£m £m
Underlying trading profit at constant currency(1) 125.4 122.7
Foreign exchange differences 4.1 -
Underlying trading profit at reported currency(2) 129.5 122.7
Non-underlying items (excluding exceptional items):
OCP charges and releases(3) - 0.4
Other Contract & Balance Sheet Review adjustments and one-time items(4) 4.2 2.5
Trading profit(5) 133.7 125.6
Amortisation and impairment of intangibles arising on (9.6) (6.6)
acquisition(6 )
Operating profit before exceptional items 124.1 119.0
Operating exceptional items(7) (0.9) (2.7)
Reported operating profit 123.2 116.3
1. In order to provide a comparable movement on the previous period's results,
reported Underlying trading profit is recalculated by translating non-Sterling
values for the six months ended 30 June 2022 into Sterling at the average
exchange rates for the six months ended 30 June 2021.
2. The Group uses an alternative measure, Underlying trading profit (UTP), to
make adjustments for unusual items that occur and to remove the impact of
historical issues. UTP therefore provides a measure of the underlying
performance of the business in the current period.
3. Charges and releases on all Onerous contract provisions (OCPs) that arose
during the 2014 Contract and Balance Sheet Review are excluded from UTP in the
current and prior periods. Charges associated with the creation of new OCPs
identified are included within UTP to the extent that they are not considered
sufficiently material to require separate disclosure on an individual basis.
4. Revisions to accounting estimates and judgements which arose during the
2014 Contract & Balance Sheet Review and other one-time items are
separately reported where the impact of an individual item is material. The
item recorded in the current year relates to the reversal of an impairment in
respect of assets which is no longer required due to contractual changes which
the Group has agreed with its customer.
5. The Group uses Trading profit as an alternative measure to operating
profit, as shown in the Group's Condensed Consolidated Income Statement on
page 28. Trading profit is derived by making the two adjustments outlined
below in footnote 6 and 7.
6. Amortisation and impairment of intangibles arising on acquisitions are
excluded, 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.
7. Exceptional items, being those considered material and outside of the
normal operating practice of the Group to be suitable for separate
presentation and detailed explanation. Where items are not material, their
inclusion as exceptional items is to ensure they are treated consistently with
prior periods.
Alternative Earnings per share (EPS) measures
2022 2021 2022 2021
basic basic diluted diluted
For the six months ended 30 June pence pence pence pence
Underlying EPS(1) 7.83 6.86 7.71 6.75
Net impact of non-underlying operating items, non-underlying tax and (0.25) 12.38 (0.25) 12.18
amortisation and impairment of intangibles arising on acquisition
EPS before exceptional items(2) 7.58 19.24 7.46 18.93
Impact of exceptional items (0.05) (0.16) (0.05) (0.16)
Reported EPS 7.53 19.08 7.41 18.77
1. Reflecting the same adjustments made to operating profit to calculate UTP
as described above and including the related tax effects of each adjustment
and any other non-underlying tax adjustments as described in the tax charge
section below, an alternative measure of EPS is presented. This aids
consistency with historical results and enables performance to be evaluated
before the unusual or one-time effects described above. The full
reconciliation between statutory EPS and Underlying EPS is provided in the
summary income statements on page 14.
2. EPS, as shown on the Group's Condensed Consolidated Income Statement on
page 28, includes exceptional items charged or credited to the income
statement. EPS before exceptional items aids consistency with historical
operating performance.
Alternative cash flow and Net debt measures
Free cash flow (FCF)
For the six months ended 30 June 2022 2021
£m £m
Free cash flow(1) 95.6 129.9
Exclude dividends from joint ventures and associates (3.6) (9.6)
Exclude net interest paid 10.9 12.8
Exclude capitalised finance costs paid - 0.6
Exclude capital element of lease repayments 58.1 60.0
Exclude proceeds received from exercise of share options - (0.1)
Exclude purchase of own shares to satisfy share awards 15.9 20.3
Exclude purchase of intangible and tangible assets net of proceeds from 8.3 8.7
disposal
Cash flow from operating activities before exceptional items 185.2 222.6
Exceptional operating cash flows (1.1) (3.7)
Cash flow from operating activities 184.1 218.9
1. We present an alternative measure for cash flow to reflect net cash inflow
from operating activities before exceptional items, which is the measure shown
on the Condensed Consolidated Cash Flow Statement on page 32. This IFRS
measure is adjusted to include dividends we receive from joint ventures and
associates, net interest paid, the capital element of lease payments, cash
flows on the purchase of own shares to satisfy share awards and net capital
expenditure on tangible and intangible asset purchases.
UTP cash conversion
For the six months ended 30 June 2022 2021
£m £m
Free cash flow(1) 95.6 129.9
Add back:
Tax paid 24.9 24.5
Net interest paid 10.9 12.8
Capitalised finance costs paid - 0.6
Trading cash flow 131.4 167.8
Underlying trading profit 129.5 122.7
Underlying trading profit cash conversion(1) 101% 137%
1. FCF as defined above, includes interest and tax cash flows. In order to
calculate an appropriate cash conversion metric equivalent to UTP, trading
cash flow is derived from FCF by excluding tax and interest items. UTP 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
interest, tax and exceptional items.
Net debt and Adjusted net debt
As at As at 31 December 2021
30 June £m
2022
£m
Cash and cash equivalents 178.9 198.4
Loans payable (338.6) (377.0)
Lease liabilities (432.5) (430.3)
Derivatives relating to Net debt (3.9) 0.6
Net debt(1) (596.1) (608.3)
Add back: Lease liabilities 432.5 430.3
Adjusted net debt(2) (163.6) (178.0)
1. We present an alternative measure to bring together the various funding
sources that are included on the Group's Condensed Consolidated Balance Sheet
on page 31 and the accompanying notes. 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 includes all lease
liabilities, whilst Adjusted net debt is derived from Net debt by excluding
liabilities associated with leases.
2. The Adjusted net debt measure was introduced because it more closely aligns
to the Consolidated Total Net Borrowings measure used for the Group's debt
covenants, which is prepared under accounting standards applicable prior to
the adoption of IFRS16 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 estimations of
lease periods and the recognition of liabilities associated with such leases
where the Group has the right to cancel the lease and hence the corresponding
obligation. Though the intention is not to exercise the options to cancel the
leases, it is available unlike other debt obligations.
Pre-tax Return on invested capital (ROIC)
30 June 31 December 30 June
2022 2021 2021
£m £m £m
ROIC excluding right of use assets
Non-current assets
Goodwill 922.7 852.7 826.7
Other intangible assets - owned 143.5 144.0 159.6
Property, plant and equipment - owned 52.3 55.5 54.7
Interest in joint ventures and associates 18.6 17.6 18.5
Loans to joint ventures 7.5 - -
Contract assets, trade and other receivables 18.8 16.2 25.4
Current assets
Inventory 21.4 19.6 20.5
Contract assets, trade and other receivables 655.5 624.7 624.2
Total invested capital assets 1,840.3 1730.3 1,729.6
Current liabilities
Contract liabilities, trade and other payables (631.0) (587.3) (630.8)
Non-current liabilities
Contract liabilities, trade and other payables (55.3) (55.9) (60.8)
Total invested capital liabilities (686.3) (643.2) (691.6)
Invested capital(1) 1,154.0 1,087.1 1,038.0
Two-point average of opening and closing Invested capital 1,096.0 967.0 969.9
Trading profit, 12 months ended 241.5 233.4 220.8
ROIC%(2) 22.0% 24.1% 22.8%
Underlying trading profit, 12 months ended 235.7 228.9 208.2
Underlying ROIC%(2) 21.5% 23.7% 21.5%
1. Invested capital excludes right of use assets recognised under IFRS16
Leases. This is because the Invested capital of the Group are those items
within which resources are, or have been, committed, which is not the case for
many leases which would have been classed as operating leases under IAS17
Leases where termination options exist and commitments for expenditure are in
future years.
2. ROIC is a measure to assess the efficiency of the resources used by the
Group and is a metric used to determine the performance and remuneration of
the Executive Directors. ROIC is calculated based on UTP and Operating profit
before exceptional items, using the income statement for the period and a
two-point average of the opening and closing balance sheets. The composition
of Invested capital and calculation of ROIC are summarised in the table above.
Overview of financial performance
Revenue and Underlying trading profit (UTP)
Commentary on the revenue and trading performance of the Group is provided in
the Chief Executive's Review and the Divisional Reviews sections.
Joint ventures and associates - share of results
In 2022, 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), with dividends received of £2.0m
and £nil (2021: £nil and £nil), respectively, and total revenues of £90.2m
and £96.2m, respectively (2021: £75.0m and £nil).
The split of the share of profits in joint ventures and associates, net of
interest and tax for the first six month of 2022 was £3.4m (2021: £6.4m),
with Merseyrail £1.7m (2021: loss £1.7m), VIVO £1.4m (2021: £nil) and
other joint ventures and associates £0.3m (2021: £8.1m).
VIVO, a joint venture between Serco and Equans, has been awarded by the
Defence Infrastructure Organisation (DIO), contracts to provide repairs and
maintenance work for Service Family Accommodation (SFA) and asset and
facilities management services at the UK military establishments that host US
Visiting Forces.
2021 included AWE Management Limited (AWEML), which as announced on 2 November
2020, the Ministry of Defence notified the Group that it would be exercising
its ability to terminate services provided by the Group through AWEML on 30
June 2021. During the first six months of 2022 a dividend of £1.6m (2021:
£9.6m) was received from AWEML.
While the revenues and individual line items are not consolidated in the Group
Condensed 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.
For the six months ended 30 June 2022 2021
£m £m
Revenue 88.9 192.7
Operating profit 3.9 8.5
Net investment income (0.1) -
Income tax charge (0.4) (2.1)
Profit after tax 3.4 6.4
Dividends received from joint ventures and associates 3.6 9.6
The change in revenue and profits on the prior year is primarily due to the
exit from the AWEML contract. This is offset by Merseyrail generating a profit
in 2022 compared to losses in 2021 as a result of Covid-19 impacted passenger
volumes. VIVO operations also commenced in 2022 resulting in a profit being
generated in the current period.
Dividends received reduced due to the exit from the AWEML contract partially
offset by Merseyrail paying a dividend following a return to profits.
Exceptional items
Exceptional items are items of financial performance that are outside normal
operations and are material to the results of the Group either by virtue of
size or nature. These require separate disclosure on the face of the income
statement to assist in the understanding of the performance of the Group. In
2022, the total exceptional charge for the year net of tax was £0.6m (2021:
£2.0m).
The Group completed the acquisition of Whitney, Bradley & Brown, Inc (WBB)
in 2021. The transaction and implementation costs incurred during the six
months ended 30 June 2022 of £0.9m (2021: £2.0m) have been treated as
exceptional costs in line with the Group's accounting policy and the treatment
adopted in the prior year.
Exceptional tax for the period was a tax credit of £0.3m (2021: £0.7m) which
arises on exceptional items within operating profit.
Finance costs and investment revenue
Net finance costs were £9.2m (2021: £12.6m) and net interest paid was
£10.9m (2021: £12.8m).
Investment revenue of £2.0m (2021: £1.3m) consists primarily of interest
accruing on net retirement benefit assets of £1.4m (2021: £0.6m), interest
receivable of £0.6m (2021: £0.3m) and dividends received of £nil (2021:
£0.4m).
The finance costs of £11.2m (2021: £13.9m) include interest incurred on the
US private placement loan notes and the revolving credit facility of £6.7m
(2021: £7.9m) and lease interest payable of £3.6m (2021: £4.1m) as well as
other financing related costs including the impact of foreign exchange on
financing activities.
Tax
Underlying tax
An underlying tax charge of £25.8m has been recognised in the period. The
effective tax rate (21.4%) is slightly lower than at half year 30 June 2021
(23.3%) and year end 31 December 2021 (23.7%). The rate is lower than December
2021 primarily due to the impact of changes in the geographical location of
where profits are made together with the impact of movements in provisions as
part of our regular reassessment of tax exposures across the Group.
Pre-exceptional tax
A tax charge of £23.4m (2021: £130.7m credit) on pre-exceptional profits has
been recognised which includes an underlying tax charge of £25.8m, a tax
credit on amortisation of intangibles arising on acquisition of £2.6m, and a
£0.2m charge on non-underlying items. Of the £0.2m charge on non-underlying
items, a £0.6m credit arises on the revaluation of the deferred tax asset in
the UK, due to changes in estimated timing of its utilisation. The £0.8m
non-underlying tax charge relates to tax on non-underlying income.
The tax rate on profits before exceptional items at 20.4% is slightly higher
than the UK standard corporation tax rate of 19.0%. This is mainly due to
higher rates of tax on profits arising on our international operations which
is partially offset by the credit associated with a reduction in provisions
for uncertain tax positions noted above.
Exceptional tax
Exceptional tax for the period was a tax credit of £0.3m arising on the
transaction and implementation costs associated with the WBB acquisition in
2021.
Deferred tax assets
At 30 June 2022 there is a net deferred tax asset of £181.9m (31 December
2021: £174.0m). This consists of a deferred tax asset of £230.5m (31
December 2021: £214.3m) and a deferred tax liability of £48.6m (31 December
2020: £40.3m). A £174.5m UK tax asset is recognised on the Group's balance
sheet at 30 June 2022 (31 December 2021: £162.8m). A significant element of
the increase in the balance (£10.7m) is due to reduction in the value of the
UK retirement benefits assets during the period and the decrease in the
associated deferred tax liability.
Taxes paid
Net corporate income tax of £24.9m was paid during the period, relating
primarily to our operations in AsPac (£11.9m), North America (£10.7m),
Middle East (£0.5m), UK (£1.6m) and Europe (£0.2m).
The amount of tax paid (£24.9m) differs from the tax charge in the period
(£23.1m) partly due to the impact of a reduction in the provision for
uncertain tax positions. In addition, taxes paid/received from Tax Authorities
can arise in later periods to the associated tax charge/credit, and there is a
time lag on receipts of cash from joint ventures and associates for losses
transferred to them resulting in a net tax inflow.
Dividends and share buyback
During the six months to 30 June 2022, the Group has paid dividends of £19.3m
(2021: £16.8m) in respect of the final dividend for the year ended 31
December 2021. As noted in the Chief Executive's Review, the Board has decided
to declare an interim dividend of 0.94p per share in respect of the six months
ended 30 June 2022 (2021: 0.8p per share).
On 24 February 2022, the Group announced its intention to repurchase Ordinary
Shares with a value of up to £90m. On 8 March 2022, the group confirmed that
the repurchase would be split over two tranches, with the first tranche of up
to £40m purchased during the period 8 March 2022 to 16 August 2022. The
second tranche of a value up to £50m will commence following the first. The
buyback programme is expected to complete by December 2022 with the shares
either cancelled or held in Treasury.
During the period, the Group had repurchased of 17,524,402 Ordinary Shares of
which 16,851,027 Ordinary Shares for total consideration of £25.1m including
fees had been settled with cash by 30 June 2022 and are currently held in
Treasury. The remaining balance of 673,375 Ordinary Shares for total
consideration of £1.2m including fees was settled during July 2022 and is
recorded as a liability within trade and other payables at 30 June 2022.
The Group has recognised a liability for £13.8m within trade and other
payables as at 30 June 2022 to reflect the remaining commitment to purchase a
maximum of £40m of shares related to the first tranche of the buyback. The
Group had no legal commitment for the second tranche as at 30 June 2022.
Share count and Earnings per share (EPS)
The weighted average number of shares for EPS purposes was 1,207.2m for the
six months ended 30 June 2022 (2021: 1,232.2m) and diluted weighted average
number of shares was 1,226.3 (2020: 1,252.6m). The decrease in the weighted
average number of shares is primarily due to the full year impact of the
15,371,849 shares repurchased in the first half of 2021 and the repurchase of
17,524,402 shares during 2022 that are now held in treasury.
Basic EPS before exceptional items was 7.58p per share (2021: 19.24p);
including the impact of exceptional items, Basic EPS was 7.53p (2021: 19.08p).
Basic underlying EPS was 7.83p (2021: 6.86p) which increased due to the
movement in Underlying trading profit and reduction in the weighted average
number of shares.
Diluted EPS before exceptional items was 7.46p (2021: 18.93p); including the
impact of exceptional items, Diluted EPS was 7.41p (2021: 18.77p). Diluted
underlying EPS was 7.71p (2021: 6.75p).
Cash flows
UTP of £129.5m (2021: £122.7m) converts into a trading cash inflow of
£131.4m (2021: £167.8m). The decrease in 2022 trading cash inflows is mainly
due to a reduction in working capital inflows across the Group of £2.9m
(2021: £43.6m). The first six months of 2021 benefitted from cash collections
on some older receivables, shorter payment terms on Covid-19 related work and
favourable timing effects.
The table below shows the cash flow from operating activities before
exceptional items and Free cash flow (FCF) reconciled to movements in Net
debt. FCF for the period was an inflow of £95.6m compared to £129.9m in
2021. The decrease in 2022 is primarily due to a lower working capital inflow
than 2021. The working inflow in 2021 was strong as noted above and this has
begun to normalise during the first half of 2022, however this continues to be
higher than expectations.
Adjusted net debt decreased by £14.4m in the six months to 30 June 2022, a
reconciliation of which is provided at the bottom of the following table.
Average Adjusted net debt as calculated on a daily basis for the six months
ended 30 June 2022 was £201m (2021: £178m). Peak Adjusted net debt was
£258m (2021: £346m).
For the six months ended 30 June 2022 2021
£m £m
Operating profit before exceptional items 124.1 119.0
Less: Share of profit from joint ventures and associates (3.4) (6.4)
Movement in provisions 1.5 1.2
Depreciation, amortisation and impairment of property, plant and equipment and 25.0 22.0
intangible assets
Depreciation and impairment of right of use assets 52.5 58.8
Other non-cash movements 7.5 8.9
Operating cash inflow before movements in working capital, exceptional items, 207.2 203.5
and tax
Working capital movements 2.9 43.6
Tax paid (24.9) (24.5)
Cash flow from operating activities before exceptional items 185.2 222.6
Dividends received from joint ventures and associates 3.6 9.6
Interest received 0.7 0.3
Interest paid (11.6) (13.1)
Capital element of lease repayments (58.1) (60.0)
Capitalised finance costs paid - (0.6)
Purchase of intangible and tangible assets net of proceeds from disposals (8.3) (8.7)
Purchase of own shares to satisfy share awards(1) (15.9) (20.3)
Proceeds received from exercise of share options - 0.1
Free cash flow 95.6 129.9
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures (0.1) (235.1)
and associates
Net increase in debt items on acquisition and disposal of subsidiaries, joint - (14.3)
ventures and associates
Dividends paid to shareholders (19.3) (16.8)
Purchase of own shares(1) (25.1) (20.4)
Movements on other investment balances - 0.3
Loan to joint venture (7.5) -
Capitalisation and amortisation of loan costs (0.7) -
Exceptional items (1.1) (3.7)
Cash movements on hedging instruments 2.7 (5.9)
Foreign exchange loss on Adjusted net debt (30.1) (1.4)
Movement in Adjusted net debt 14.4 (167.4)
Opening Adjusted net debt (178.0) (57.8)
Closing Adjusted net debt (163.6) (225.2)
Lease liabilities (432.5) (425.7)
Closing Net debt (596.1) (650.9)
1. In 2022 the Employee Share Ownership Trust purchased shares directly of
£15.9m to satisfy share awards. This purchase is presented separately from
the Group's £25.1m repurchase of own shares on the Consolidated Cash Flow
Statement on page 32. In 2021 the Group repurchased shares at a cost of
£40.7m as shown on the Consolidated Cash Flow Statement on page 32 and
subsequently transferred £20.3m to the Employee Share Ownership Trust to
satisfy share awards.
Risk management and treasury operations
The Group's operations expose it to a variety of financial risks that include
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 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 and are reviewed annually. Financial instruments are
only executed for hedging purposes and speculation is not permitted. A monthly
report is provided to senior management outlining performance against the
Treasury Policy and the treasury function is subject to periodic internal
audit review.
Liquidity and funding
As at 30 June 2022, the Group had committed funding of £590m (at 31 December
2021: £629m), comprising £265m of US private placement loan notes, a total
of £75m of term loan facilities which were fully drawn and a £250m revolving
credit facility (RCF) which was undrawn. The Group does not engage in any
external financing arrangements associated with either receivables or
payables.
The Group's RCF provides £250m of committed funding for five years from the
arrangement date in December 2018. The US private placement loan notes are
repayable in bullet payments between 2023 and 2032.
Interest rate risk
Given the nature of the Group's business, we have a preference for fixed rate
debt to reduce the volatility of net finance costs. Our Treasury Policy
requires us 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 30 June 2022, £265m of
debt was held at fixed rates and Adjusted net debt was £164m.
Foreign exchange risk
The Group is subject to currency exposure on the translation to Sterling of
its net investments in overseas subsidiaries. The Group manages this risk,
where appropriate, by borrowing in the same currency as those investments.
Group borrowings are predominantly denominated in Sterling and US Dollar. The
Group manages its currency flows to minimise foreign exchange risk arising on
transactions denominated in foreign currencies and uses forward contracts
where appropriate to hedge net currency 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.
Debt covenants
The principal financial covenant ratios are consistent across the 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 net finance costs of 3.0 times, tested
semi-annually. A reconciliation of the basis of calculation is set out in the
table below.
Following the refinancing in December 2018, the debt covenants have been
amended to include the impact of IFRS15 Revenue from Contracts with Customers.
The covenants continue to exclude the impact of IFRS16 Leases on the Group's
results.
For the twelve months ended 30 June 31 December 2021 30 June
2022 £m 2021
£m £m
Operating profit before exceptional items 222.5 217.4 210.2
Remove: Amortisation and impairment of intangibles arising on acquisition 19.0 16.0 10.6
Trading profit 241.5 233.4 220.8
Exclude: Share of joint venture post-tax profits (5.7) (8.7) (12.1)
Include: Dividends from joint ventures 7.5 13.5 17.0
Add back: Net non-exceptional charges to OCPs 0.9 1.3 6.5
Add back: Net covenant OCP utilisation (0.7) (0.6) (0.9)
Add back: Depreciation, amortisation and impairment of owned property, plant 31.2 31.2 30.3
and equipment and non-acquisition intangible assets
Add back: Depreciation, amortisation and impairment of property, plant and 5.0 5.0 3.7
equipment and non-acquisition intangible assets held under finance leases - in
accordance with IAS17 Leases
Add back: Foreign exchange on investing and financing arrangements 0.1 (0.6) (1.1)
Add back: Share based payment expense 15.5 15.8 13.4
Other covenant adjustments to EBITDA 3.7 6.3 (4.7)
Covenant EBITDA 299.0 296.6 272.9
Net finance costs 20.6 24.0 25.8
Exclude: Net interest receivable on retirement benefit obligations 1.9 1.1 1.2
Exclude: Movement in discount on other debtors 0.1 0.1 0.1
Exclude: Other dividends received 0.2 0.6 0.8
Exclude: Foreign exchange on investing and financing arrangements 0.1 (0.6) (1.1)
Add back: Movement in discount on provisions (0.1) - (0.2)
Other covenant adjustments to net finance costs resulting from IFRS16 Leases (6.9) (7.3) (8.2)
Covenant net finance costs 15.9 17.9 18.4
Adjusted net debt 163.6 178.0 225.2
Obligations under finance leases - in accordance with IAS17 Leases 24.1 26.5 28.3
Recourse net debt 187.7 204.5 253.5
Exclude: Disposal vendor loan note, encumbered cash and other adjustments (2.0) 2.9 (3.8)
Covenant adjustment for average FX rates (25.5) (5.7) 9.8
CTNB 160.2 201.7 259.5
CTNB/covenant EBITDA (not to exceed 3.5x) 0.54x 0.68x 0.95x
Covenant EBITDA/covenant net finance costs (at least 3.0x) 18.8x 16.6x 14.8x
Net assets
At 30 June 2022, the condensed consolidated balance sheet shown on page 31 had
net assets of £1,058.7m, a movement of £50.3m from the closing net asset
position of £1,008.4m as at 31 December 2021. The increase in net assets is
driven mainly by the retained profit in the period of £92.1m as well as
dividends paid, share purchases including the share buyback programme and
foreign exchange movements.
Key movements since 31 December 2021 on the condensed consolidated balance
sheet shown on page 31 include:
● An increase in goodwill of £70.0m has been driven predominantly by a
favourable foreign exchange movement.
● A decrease in the net retirement benefit asset of £42.9m reflecting the
experience adjustment from current salary increases as a result of higher CPI
in 2022 compared to the year-end assumption. The impact of the change in
demographics and experience adjustment from updated member data following the
2021 actuarial funding valuation of Serco Pension and Life Assurance Scheme
(SPLAS), broadly offset.
● Cash and cash equivalents have decreased by £19.5m which is net of an
exchange gain of £2.8m. In the period the Group has generated cash inflows of
£185.2m from operations before exceptionals. The net repayment of loans was
£67.5m and the capital element of lease repayments in the period was £58.1m.
Including associated costs, the spend on shares repurchased totals £41.0m
(£25.1m held in treasury and £15.9m for the Employee Share Ownership Trust)
and dividends totalling £19.3m have been paid. The net spend on tangible and
intangible assets was £8.5m and the Group loaned £7.5m to a joint venture.
● Net loan balances have decreased by £38.4m due to net repayment of loans in
the period offset by impact of foreign exchange on US private placement loan
notes.
● The increase in contract assets, trade receivables and other assets have
largely offset increases in contract liabilities, trade payables and other
liabilities and are as a result of normal working capital movements.
Pensions
Serco's pension schemes are in a strong funding position, and show an
accounting surplus, before tax, of £105.3m (31 December 2021: £148.2m) on
scheme gross assets of £1.2bn and gross liabilities of £1.1bn. The opening
net asset position led to a net credit within net finance costs of £1.4m
(2021: £0.6m).
Based on the 2018 actuarial funding valuation for Serco Pension and Life
Assurance Scheme (SPLAS), the Group made deficit recovery payments of £4.4m
per year from 2019 to 2021 and was expected to make further payments of £1.7m
per year for 2022 to 2028. Following the finalisation of the 2021 actuarial
funding valuation in the first half of the year, deficit recovery payments
have increased to £6.6m per year for 2022 and 2030, due to the impact of RPI
reform on the funding assumptions.
Claim for losses in respect of the 2013 share price reduction
Following the announcement during 2020 that the Group has received a claim
seeking damages for alleged losses as a result of the reduction in Serco's
share price in 2013, the Group has continued to assess the merit, likely
outcome and potential impact on the Group of any such litigation that either
has been or might potentially be brought against the Group. Any outcome is
subject to a number of significant uncertainties. The Group does not currently
assess the merits as strong, especially given the legal uncertainties in such
actions.
Information on other contingent liabilities can be found in note 10 to the
Condensed Consolidated Financial Statements.
Nigel Crossley
Group Chief Financial Officer
03 August 2022
Principal risks and uncertainties
Risk Management and Covid Impacts
Since the date of the approval of the Annual Report and Financial statements
our risk management process has continued to operate as described on page 92
of our 2021 Annual Report.
The Risk Committee have considered the principal risks and uncertainties of
the Group and have determined that those reported in the 2021 Annual Report
and Accounts remain valid for the remaining half of the financial year. These
and any emerging risks will be reviewed by the Executive Committee in October
and remain under review on a quarterly basis by the Risk Committee.
The following summarises the risks and uncertainties detailed further in the
Annual Report:
● Major Information Security Breach (including Cyber-attack), resulting in the
loss or compromise of sensitive information or wilful damage;
● Failure to Grow Profitably as a result of failing to win material bids or
renew material contracts profitably, or a lack of opportunities in our chosen
markets;
● Material Legal and Regulatory Compliance that may cause significant loss and
damage to the Group including exposure to regulatory prosecution, reputational
damage and the potential loss of licences and authorisations;
● Significant Failure of the Supply Chain that may result in Serco being unable
to meet customer obligations, perform business critical operations or win new
business;
● Failure to Act with Integrity including engagement in significant corrupt,
illegal or dishonest acts;
● Contract Non-Compliance including failure to deliver contractual requirements
and to meet agreed service performance levels and report against them
accurately;
● Financial Control Failure impacting our ability to accurately report,
forecast, create suitable capital structures and make critical financial
transactions;
● Catastrophic Risk focusing on the risk of an event as a result of our actions
or failure to respond to an event that results in multiple fatalities, severe
property/asset damage or loss or very serious long term environmental damage;
● Health, Safety and Wellbeing as a result of the diversity of our operations
and the inherent risks in our operations in both work and public environments;
and
● Failure to Attract and Retain Good People restricting our ability to deliver
customer obligations, execute our strategy and achieve business objectives
whilst driving employee pride in the organisation.
We continue to monitor external factors including ongoing Covid-19 status and
the war in Ukraine, and their potential impact to our risks and control
environment.
Further detail on our principal risks and uncertainties and the associated
controls and mitigations can be found on page 95 in our 2021 Annual Report.
Statement of Directors' Responsibilities
We confirm that to the best of our knowledge:
● The condensed set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted for use in the UK.
● The interim management report includes a fair review of the information
required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
By order of the Board:
Rupert
Soames
Nigel Crossley
Group Chief Executive
Group Chief Financial Officer
03 August
2022
03 August 2022
INDEPENDENT REVIEW REPORT TO SERCO GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the Condensed Consolidated Income Statement, the
Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed Consolidated
Balance Sheet, the Condensed Cash Flow Statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements of the Group
are prepared in accordance with International Financial Reporting adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in conformity with
the requirements of the Companies Act 2006 and the next annual financial
statements will be prepared in accordance with UK-adopted international
accounting standards. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly financial
report in accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
John Luke
for and on behalf of KPMG LLP
15 Canada Square, London, E14 5GL
03 August 2022
Financial Statements
Condensed Consolidated Income Statement
For the six months ended 30 June 2022 2021
(unaudited) (unaudited)
£m £m
Revenue 2,178.4 2,167.5
Cost of sales (1,923.0) (1,933.7)
Gross profit 255.4 233.8
Administrative expenses (125.1) (114.6)
Other exceptional operating items (0.9) (2.7)
Other expenses - amortisation and impairment of intangibles arising on (9.6) (6.6)
acquisition
Share of profits in joint ventures and associates, net of interest and tax 3.4 6.4
Operating profit 123.2 116.3
Operating profit before exceptional items 124.1 119.0
Investment revenue 2.0 1.3
Finance costs (11.2) (13.9)
Total net finance costs (9.2) (12.6)
Profit before tax 114.0 103.7
Profit before tax and exceptional items 114.9 106.4
Tax on profit before exceptional items (23.4) 130.7
Exceptional tax 0.3 0.7
Tax (charge)/credit (23.1) 131.4
Profit for the period 90.9 235.1
Attributable to:
Equity owners of the Company 90.9 235.1
Non controlling interest - -
Earnings per share (EPS)
Basic EPS 7.53p 19.08p
Diluted EPS 7.41p 18.77p
The notes on pages 33 to 43 form part of these condensed consolidated
financial statements.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022 2021
(unaudited) (unaudited)
£m £m
Profit for the period 90.9 235.1
Other comprehensive income for the period:
Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income in joint ventures and associates 1.3 2.5
Remeasurements of post-employment benefit obligations(1) (42.0) 47.1
Actuarial loss on reimbursable rights(1) (8.2) (2.1)
Income tax relating to these items(1) 12.4 (16.3)
Items that may be reclassified subsequently to profit or loss:
Net exchange gain/(loss) on translation of foreign operations(1) 58.9 (18.6)
Fair value gain on cash flow hedges during the period(1) 0.8 -
Income statement items reclassified - 0.1
Tax relating to items that may be reclassified(1) (0.2) 4.0
Total other comprehensive income for the period 23.0 16.7
Total comprehensive income for the period 113.9 251.8
Attributable to:
Equity owners of the Company 113.6 251.8
Non controlling interest 0.3 -
1. Recorded in other reserves in the Condensed Consolidated Statement of
Changes in Equity.
The notes on pages 33 to 43 form part of these condensed consolidated
financial statements
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium account Retained earnings Other reserves Total shareholders' equity Non controlling interest
£m £m £m £m £m £m
At 1 January 2021 (audited) 24.7 463.1 302.4 (76.9) 713.3 1.7
Total comprehensive income for the period - - 237.7 14.1 251.8 -
Income statement items reclassified - - - 0.1 0.1 -
Dividends paid - - (16.8) - (16.8) -
Shares purchased and held in Treasury - - - (40.7) (40.7) -
Cancellation of shares held in Treasury (0.3) - (20.4) 20.7 - -
Shares transferred from Treasury to Own shares reserve - - (20.0) 20.0 - -
Expense in relation to share based payments - - - 8.1 8.1 -
Tax credit on items taken directly to equity - - - 0.3 0.3 -
At 30 June 2021 (unaudited) 24.4 463.1 482.9 (54.3) 916.1 1.7
Total shareholders' equity Non controlling interest
Share premium account £m £m
Share capital £m Retained earnings Other reserves
£m £m £m
At 1 January 2022 (audited) 24.4 463.1 542.8 (23.6) 1,006.7 1.7
Total comprehensive income for the period - - 92.1 21.5 113.6 0.3
Dividends paid - - (19.3) - (19.3) -
Shares purchased and held in Treasury - - - (25.1) (25.1) -
Shares committed to be purchased and held in Treasury - - - (15.0) (15.0) -
Shares purchased and held in own share reserve - - - (15.9) (15.9) -
Expense in relation to share based payments - - - 7.9 7.9 -
Tax credit on items taken directly to equity - - - 3.8 3.8 -
At 30 June 2022 (unaudited) 24.4 463.1 615.6 (46.4) 1,056.7 2.0
The notes on pages 33 to 43 form part of these condensed consolidated
financial statements
Condensed Consolidated Balance Sheet
As at As at
30 June 31 December
2022 2021
(unaudited) (audited)
£m £m
Non-current assets
Goodwill 922.7 852.7
Other intangible assets 143.5 144.0
Property, plant and equipment 52.3 55.5
Right of use assets 422.9 416.7
Interests in joint ventures and associates 18.6 17.6
Loans to joint ventures 7.5 -
Contract assets 3.0 2.6
Trade and other receivables 15.8 13.6
Derivative financial instruments 0.4 -
Deferred tax assets 230.5 214.3
Retirement benefit assets 107.2 166.2
1,924.4 1,883.2
Current assets
Inventories 21.4 19.6
Contract assets 319.5 319.0
Trade and other receivables 336.0 305.7
Current tax assets 10.6 5.5
Cash and cash equivalents 178.9 198.4
Derivative financial instruments 3.9 2.6
870.3 850.8
Total assets 2,794.7 2,734.0
Current liabilities
Contract liabilities (73.4) (61.3)
Trade and other payables (557.6) (526.0)
Derivative financial instruments (7.5) (2.0)
Current tax liabilities (15.3) (17.2)
Provisions (79.9) (79.6)
Lease obligations (127.1) (126.3)
Loans - (64.9)
(860.8) (877.3)
Non-current liabilities
Contract liabilities (46.5) (48.6)
Trade and other payables (8.8) (7.3)
Deferred tax liabilities (48.6) (40.3)
Provisions (125.4) (118.0)
Lease obligations (305.4) (304.0)
Loans (338.6) (312.1)
Retirement benefit obligations (1.9) (18.0)
(875.2) (848.3)
Total liabilities (1,736.0) (1,725.6)
Net assets 1,058.7 1,008.4
Equity
Share capital 24.4 24.4
Share premium account 463.1 463.1
Retained earnings 615.6 542.8
Other reserves (46.4) (23.6)
Equity attributable to owners of the Company 1,056.7 1,006.7
Non controlling interest 2.0 1.7
Total equity 1,058.7 1,008.4
The notes on pages 33 to 43 form part of these condensed consolidated
financial statements
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2022 2021
(unaudited) (unaudited)
£m £m
Net cash inflow from operating activities before exceptional items 185.2 222.6
Exceptional items (1.1) (3.7)
Net cash inflow from operating activities 184.1 218.9
Investing activities
Interest received 0.7 0.3
Increase in other investments - (0.1)
Dividends received from joint ventures and associates 3.6 9.6
Loans to joint ventures (7.5) -
Other dividends received - 0.4
Proceeds from disposal of property, plant and equipment 0.2 6.5
Acquisition of subsidiaries, net of cash acquired (0.1) (235.1)
Purchase of other intangible assets (3.3) (3.8)
Purchase of property, plant and equipment (5.2) (11.4)
Net cash outflow from investing activities (11.6) (233.6)
Financing activities
Interest paid (11.6) (13.1)
Capitalised finance costs paid - (0.6)
Advances of loans 60.1 110.0
Repayments of loans (127.6) (95.5)
Capital element of lease repayments (58.1) (60.0)
Cash movements on hedging instruments 2.7 (5.9)
Dividends paid to shareholders (19.3) (16.8)
Purchase of Own Shares by the Employee Share Ownership Trust (15.9) -
Own shares repurchased (25.1) (40.7)
Proceeds received from exercise of share options - 0.1
Net cash outflow from financing activities (194.8) (122.5)
Net decrease in cash and cash equivalents (22.3) (137.2)
Cash and cash equivalents at beginning of period 198.4 335.7
Net exchange gain/(loss) 2.8 (5.2)
Cash and cash equivalents at end of period 178.9 193.3
The notes on pages 33 to 43 form part of these condensed consolidated
financial statements
Notes to the Condensed Consolidated Financial Statements
1. General information, accounting policies and going concern
The financial information herein for the year ended 31 December 2021 does not
constitute the Company's statutory accounts as defined in section 434 of the
Companies Act 2006 but is derived from those accounts. The auditor's report on
the 2021 accounts contained no emphasis of matter and did not contain
statements under S498 (2) or (3) of the Companies Act 2006 or equivalent
preceding legislation.
The annual financial statements of Serco Group plc are prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
United Kingdom. The condensed set of financial statements included in this
half yearly financial report has been prepared in accordance with
International Accounting Standard (IAS) 34 Interim Financial Reporting, as
adopted for use in the UK. The financial statements have been prepared on the
historical cost basis, except for the revaluation of financial instruments.
Historical cost is generally based on the fair value of the consideration
given in exchange for goods and services.
In the six months ended 30 June 2022, the same accounting policies,
presentation and methods of computation are followed in the condensed set of
financial statements as applied in the Group's latest annual audited financial
statements.
No new or amended accounting standards that became effective during the six
months ended 30 June 2022 have had a significant impact on the Group. No new
standards or interpretations that have been issued but are not yet effective
are expected to have a significant impact on the Group.
Going concern
In assessing the basis of preparation of the condensed set of financial
statements for the six months ended 30 June 2022, 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 30 June 2022, the Group's principal debt facilities comprised a £250m
revolving credit facility (of which £nil was drawn), term loan facilities
totalling £75m (of which £75m was drawn) and £265m of US private placement
notes, giving £590m of committed credit facilities and committed headroom of
£424m. The principal financial covenant ratios are consistent across the
private placement loan notes and revolving credit facility. As at 30 June
2022, 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 0.54x.
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 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 updated
to take account of known changes since, including the impact of the Group's
results for the six months to 30 June 2022. The budget 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.
Owing to the unprecedented levels of inflation driven by geopolitical factors,
the Directors have considered the Group's resilience to rising costs. Due to
the contracting nature of the Group's operations, almost all of the revenue
base has some form of inflationary protection, whether it be through
contractual indexation mechanisms, cost plus billing or being short term in
nature. Though the timing of such protections becoming effective may, in the
short term, differ from the impact of cost pressures, it is expected that the
current inflation levels will not have a material impact on the Group's
profitability.
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, even after assuming that the US private
placement loan of £40.5m due to mature before 31 December 2023 is repaid, and
that no additional refinancing occurs, the Group can afford to be unsuccessful
on 60% of its 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 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 extensions and available
contract extensions over the last two years, therefore a reduction of 60% or
more to the budgeted bid and extensions rates is not considered plausible. The
Group does not generally bid for contracts at margins below its target range.
In respect to margin reduction, due to the diversified nature of the Group's
portfolio of long-term contracts and the fact that the Group has met or
exceeded its full year guidance for the last five years, a reduction in margin
of 80bps versus the Group's budget is not considered plausible within the
assessment period combined with a 60% reduction in bid and extensions rates.
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.
2. Critical accounting judgements and key sources of estimation uncertainty
In the six months ended 30 June 2022, there have been no changes to the
critical accounting judgements and key sources of estimation uncertainty from
those disclosed in the Group's latest annual audited financial statements.
3. Segmental information
The Group's operating segments reflecting the information reported to the
Board in the six months ended 30 June 2022 and are consistent with those
reported in the Group's latest annual audited financial statements.
An analysis of the Group's revenue from its key market sectors is as follows:
For the six months ended 30 June 2022 UK&E Americas AsPac Middle East Total
£m £m £m £m £m
Key sectors
Defence 125.0 411.5 71.6 14.7 622.8
Justice & Immigration 325.9 - 201.7 - 527.6
Transport 83.4 43.0 3.8 33.1 163.3
Health 130.1 - 112.1 44.1 286.3
Citizen Services 327.1 167.8 82.8 0.7 578.4
991.5 622.3 472.0 92.6 2,178.4
For the six months ended 30 June 2021 (restated(1)) UK&E Americas AsPac Middle East Total
£m £m £m £m £m
Key sectors
Defence 123.8 357.3 74.0 14.9 570.0
Justice & Immigration 201.3 - 185.0 - 386.3
Transport 70.6 40.5 3.5 86.8 201.4
Health 132.9 - 121.9 40.7 295.5
Citizen Services 509.9 130.8 73.5 0.1 714.3
1,038.5 528.6 457.9 142.5 2,167.5
1. The prior period balances have been restated to ensure consistent
application of the sector definitions used for the current period. This
follows a review in the second half of 2021 of the Group's sector definitions
to align with the strategic objectives of the Group. The change has no impact
on the condensed consolidated income statement or the condensed consolidated
balance sheet of the Group.
The following is an analysis of the Group's results, assets and liabilities by
reportable segment:
For the six months ended 30 June 2022 UK&E Americas AsPac Middle East Corporate Total
£m £m £m £m £m £m
Result
Trading profit/(loss)(1) 41.7 75.7 31.6 8.7 (24.0) 133.7
Amortisation and impairment of intangibles arising on acquisition (0.4) (7.4) (1.8) - - (9.6)
Other exceptional operating items(2) - (0.9) 0.1 - (0.1) (0.9)
Operating profit/(loss) 41.3 67.4 29.9 8.7 (24.1) 123.2
Net finance costs (9.2)
Profit before tax 114.0
Tax charge (23.1)
Profit for the period 90.9
Supplementary information
Share of profits in joint ventures and associates, net of interest and tax 3.4 - - - - 3.4
Depreciation and impairment of plant, property and equipment (36.7) (13.6) (6.1) (0.9) (5.7) (63.0)
Amortisation of intangible assets arising on acquisition (0.4) (7.4) (1.8) - - (9.6)
Amortisation of other intangible assets (0.5) (0.3) (1.1) - (3.0) (4.9)
1. Trading profit/(loss) is defined as operating profit/(loss) before
exceptional items and amortisation and impairment of intangible assets arising
on acquisition.
2. Included within exceptional operating items are total acquisition related
costs of £0.9m. Exceptional items incurred by the Corporate segment are not
allocated to other segments. Such items may represent costs that will benefit
the wider business.
For the six months ended 30 June 2021 UK&E Americas AsPac Middle East Corporate Total
£m £m £m £m £m £m
Result
Trading profit/(loss)(1) 59.0 57.1 25.0 7.2 (22.7) 125.6
Amortisation and impairment of intangibles arising on acquisition (0.4) (4.5) (1.7) - - (6.6)
Other non-underlying operating items(2) 0.1 (2.0) (0.5) - (0.3) (2.7)
Operating profit/(loss) 58.7 50.6 22.8 7.2 (23.0) 116.3
Net finance costs (12.6)
Profit before tax 103.7
Tax credit 131.4
Profit for the period 235.1
Supplementary information
Share of profits in joint ventures and associates, net of interest and tax 6.4 - - - - 6.4
(restated(3))
Depreciation of plant, property and equipment (42.8) (10.8) (6.4) (3.3) (4.6) (67.9)
Amortisation of intangible assets arising on acquisition (0.4) (4.5) (1.7) - - (6.6)
Amortisation of other intangible assets (0.5) (0.5) (1.7) (0.1) (3.5) (6.3)
1. Trading profit/(loss) is defined as operating profit/(loss) before
exceptional items and amortisation and impairment of intangible assets arising
on acquisition.
2. Included within exceptional operating items are total acquisition related
costs of £1.4m. Exceptional items incurred by the Corporate segment are not
allocated to other segments. Such items may represent costs that will benefit
the wider business.
3. Share of profits in joint ventures and associates, net of interest and tax
has been restated to allocate tax previously presented under Corporate to
UK&E where the joint venture this tax balance relates to is presented. The
change has no impact on the condensed consolidated income statement or the
condensed consolidated balance sheet of the Group.
As at 30 June 2022 UK&E Americas AsPac Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates 18.2 - - 0.4 - 18.6
Other segment assets(1) 830.6 1,002.1 349.4 66.3 103.4 2,351.8
Total segment assets 848.8 1,002.1 349.4 66.7 103.4 2,370.4
Unallocated assets 424.3
Consolidated total assets 2,794.7
Segment liabilities
Segment liabilities(1) (671.3) (196.1) (267.5) (55.5) (135.6) (1,326.0)
Unallocated liabilities (410.0)
Consolidated total liabilities (1,736.0)
1. The Corporate segment assets and liabilities include balance sheet
items which provide benefit to, or are incurred on behalf of, the wider Group,
including defined benefit pension schemes and corporate intangible assets.
As at 31 December 2021 UK&E Americas AsPac Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates 17.1 - 0.1 0.4 - 17.6
Other segment assets(1) 782.5 911.6 313.2 60.8 227.5 2,295.6
Total segment assets 799.6 911.6 313.3 61.2 227.5 2,313.2
Unallocated assets 420.8
Consolidated total assets 2,734.0
Segment liabilities
Segment liabilities(1) (641.2) (187.7) (224.7) (53.2) (182.3) (1,289.1)
Unallocated liabilities (436.5)
Consolidated total liabilities (1,725.6)
1. The Corporate segment assets and liabilities include balance sheet items
which provide benefit to, or are incurred on behalf of, the wider Group,
including defined benefit pension schemes and corporate intangible assets.
4. Exceptional Items
Exceptional items are items of financial performance that are outside normal
operations and are material to the results of the Group either by virtue of
size or nature. As such, the items set out below require separate disclosure
on the face of the income statement to assist in the understanding of the
performance of the Group.
For the six months ended 30 June 2022 2021
£m £m
Exceptional operating items
Restructuring costs - 0.1
Costs associated with UK Government review - (0.3)
Costs associated with successful acquisition (0.9) (2.5)
Exceptional operating items (0.9) (2.7)
Exceptional tax credit 0.3 0.7
Total exceptional items net of tax (0.6) (2.0)
The Group completed the acquisition of Whitney, Bradley & Brown, Inc.
(WBB) in 2021. The transaction and implementation costs incurred during the
six months ended 30 June 2022 of £0.9m have been treated as exceptional costs
in line with the Group's accounting policy.
Exceptional tax for the period was a tax credit of £0.3m (2021: £0.7m) which
arises on exceptional items within operating profit.
5. Tax
The tax charge for the six months ended 30 June 2022 is calculated using the
full year forecasted effective tax rate by territory, in which the Group has
generated profits, and then applying this to the actual profit for the period
in each territory. The tax impacts of items specific to the period are then
included to provide the half year actual tax charge.
A tax charge of £23.4m (2021: £130.7m credit) on pre-exceptional profits has
been recognised which includes an underlying tax charge of £25.8m, a tax
credit on amortisation of intangibles arising on acquisition of £2.6m, and a
£0.2m credit on non-underlying items.
Of the £0.2m charge on non-underlying items, a £0.6m credit arises on the
revaluation of the deferred tax asset in the UK, due to changes in estimated
timing of its utilisation. The £0.8m non-underlying tax charge relates to tax
on non-underlying income.
The tax rate on profits before exceptional items at 20.4% is slightly higher
than the UK standard corporation tax rate of 19.0%. This is mainly due to
higher rates of tax on profits arising on our international operations which
is partially offset by the credit associated with a reduction in provisions
for uncertain tax positions noted, made as part of our regular reassessment of
tax exposures across the Group.
A £174.5m UK tax asset is recognised on the Group's balance sheet at 30 June
2022 (31 December 2021: £162.8m). A significant element of the increase in
this balance (£10.7m) is due to reduction in the value of the UK retirement
benefits assets during the period and the decrease in the associated deferred
tax liability.
6. Earnings per share
Basic and diluted earnings per ordinary share (EPS) have been calculated in
accordance with IAS33 Earnings per Share.
The calculation of the basic and diluted EPS is based on the following data:
Number of shares 2022 2021
For the six months end 30 June millions millions
Weighted average number of ordinary shares for the purpose of basic EPS 1,207.2 1,232.2
Effect of dilutive potential ordinary shares: Shares under award 19.1 20.4
Weighted average number of ordinary shares for the purpose of diluted EPS 1,226.3 1,252.6
Basic EPS Earnings Per share amount Earnings Per share
2022
2022
For the six months end 30 June
pence 2021 amount
£m
£m 2021
pence
Earnings for the purpose of basic EPS 90.9 7.53 235.1 19.08
Effect of dilutive potential ordinary shares (0.12) (0.31)
Diluted EPS 90.9 7.41 235.1 18.77
Earnings Per share amount Earnings Per share
2022
2022
pence 2021 amount
£m
Basic EPS excluding exceptional items £m 2021
For the six months end 30 June pence
Earnings for the purpose of basic EPS 90.9 7.53 235.1 19.08
Add back exceptional items 0.9 0.07 2.7 0.22
Add back tax on exceptional items (0.3) (0.02) (0.7) (0.06)
Earnings excluding exceptional items for the basis of basic EPS 91.5 7.58 237.1 19.24
Effect of dilutive potential ordinary shares (0.12) (0.31)
Excluding exceptional items, diluted 91.5 7.46 237.1 18.93
7. Goodwill
Goodwill is stated at cost less any provision for impairment and is compared
against the associated recoverable amount at least annually. The value of each
cash generating unit (CGU) is based on value in use calculations derived from
forecast cash flows based on past experience, adjusted to reflect market
trends, economic conditions and key risks. These forecasts include an estimate
of new business wins and an assumption that the final year forecast continues
on into perpetuity at a CGU specific growth rate.
Goodwill is required to be tested for impairment at least once every financial
year, irrespective of whether there is any indication of impairment. The
annual impairment review typically takes place in the final quarter of the
year. However, if there are indicators of impairment, an earlier review is
also required.
There have been no indicators of impairment since the full impairment test
undertaken for the 2021 year end. In assessing for potential indicators of
impairment, the Group has gathered information at both macro and micro levels,
globally and on the basis of the individual geographies in which the Group
operates.
The Group has not been impacted in a manner which would indicate the existence
of impairment indicators and will prepare a full goodwill assessment at the
end of the year. When considering the potential existence of both internal and
external impairment indicators, the Group assessed certain key measures and
other sources of available information which included, but were not limited
to, in particular the absence of:
● Any obsolescence indicators within the Group's physical assets;
● Any plans to dispose of CGUs;
● Indicators of worse than expected performance to an extent that would have
caused an impairment had they been known at the time of the latest full
impairment review;
● Net operating cash outflows or operating losses;
● A significant decline in market value; or
● Carrying amounts of net assets in excess of market capitalisation.
The potential indicator with the largest possible impact has been the
volatility in the macroeconomic environment which has seen unprecedented
levels of inflation driven by rising oil and food prices and the political
unrest in Europe. These factors have led to increased market risk resulting in
higher discount rates across all CGU operating locations and therefore reduce
the present value of future cash flows.
Following all the above analysis undertaken, no indicators of impairment have
been identified.
8. Analysis of Net debt
30 June 2022
As at Cash Acquisitions Exchange differences Non-cash movements(1) As at
flow
1 January 2022
£m £m £m 30 June
£m
£m 2022
£m
Loans payable (377.0) 67.5 - (28.4) (0.7) (338.6)
Lease obligations (430.3) 58.1 - (7.3) (53.0) (432.5)
Liabilities arising from financing activities (807.3) 125.6 - (35.7) (53.7) (771.1)
Cash and cash equivalents 198.4 (22.3) - 2.8 - 178.9
Derivatives relating to Net debt 0.6 - - (4.5) - (3.9)
Net debt (608.3) 103.3 - (37.4) (53.7) (596.1)
1. 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.
31 December 2021
As at Cash Acquisitions(1) Exchange differences Non-cash movements(2) As at
1 January 2021 flow £m £m £m 31 December 2021
£m £m £m
Loans payable (388.8) 29.7 (14.3) (2.9) (0.7) (377.0)
Lease obligations (402.6) 111.3 (13.8) (0.5) (124.7) (430.3)
Liabilities arising from financing activities (791.4) 141.0 (28.1) (3.4) (125.4) (807.3)
Cash and cash equivalents 335.7 (145.8) 13.3 (4.8) - 198.4
Derivatives relating to Net debt (4.7) - - 5.3 - 0.6
Net debt (460.4) (4.8) (14.8) (2.9) (125.4) (608.3)
1. Acquisitions represent the net cash/(debt) acquired on acquisition.
2. 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 Property Contract Claims Other Total
related £m £m £m £m £m
£m
As at 1 January 2022 73.8 19.3 14.2 20.1 70.2 197.6
Arising on acquisition - - - - 0.4 0.4
Transfer from working capital - - - - 0.2 0.2
Reclassification between categories - (1.1) - - 1.1 -
Charged to income statement 6.4 1.1 0.7 4.0 3.2 15.4
Released to income statement (1.5) (0.2) (0.1) - (0.9) (2.7)
Utilised during the period (3.3) (1.3) (0.5) (0.9) (5.6) (11.6)
Unwinding of discount - 0.1 - - - 0.1
Exchange differences 5.0 0.3 - - 0.6 5.9
As at 30 June 2022 80.4 18.2 14.3 23.2 69.2 205.3
Analysed as:
Current 30.4 5.8 14.3 4.6 24.8 79.9
Non-current 50.0 12.4 - 18.6 44.4 125.4
80.4 18.2 14.3 23.2 69.2 205.3
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.
There are also amounts included in relation to restructuring. The provisions
will be utilised over various periods driven by local legal or regulatory
requirements, the timing of which is uncertain.
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 January 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.
Individual provisions are only discounted where the impact is assessed to be
significant. Currently, no contract provisions are discounted.
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.
Whilst 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 is:
● £42.7m related to indemnities provided in respect of a historic business
transaction. Within this amount, £36.0m is reserved for potential tax
liabilities arising within the disposed company when local tax submissions are
reviewed by the relevant authorities which represents Management's best
estimate of the likely outcome based on past experiences and other known
factors. Under the indemnity, £36.0m is the Group's maximum potential
exposure to these tax matters. The timing of utilisation is dependent on
future events which could occur within the next twelve months, or over a
longer period, with the majority expected to be settled by 31 March 2023.
● £26.5m related 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.
10. Contingent liabilities
The Group has guaranteed overdrafts, leases and bonding facilities of its
joint ventures and associates up to a maximum value of £5.7m (31 December
2021: £5.7m). The actual commitment outstanding at 30 June 2022 was £5.7m
(31 December 2021: £5.7m).
The Group has 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 30 June 2022 was
£233.5m (31 December 2021: £263.8m).
Following the announcement during 2020 that the Group has received a claim
seeking damages for alleged losses as a result of the reduction in Serco's
share price in 2013, the Group has continued to assess the merit, likely
outcome and potential impact on the Group of any such litigation that either
has been or might potentially be brought against the Group. Any outcome is
subject to a number of significant uncertainties and it is therefore not
possible to assess the quantum of any such litigation as at the date of this
disclosure.
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 are inputs, other than quoted prices included within Level
1, that are observable for the asset or liability, either directly or
indirectly.
Level 3: Inputs are unobservable inputs for the asset or liability.
Based on the above, the derivative financial instruments held by the Group at
30 June 2022 and the comparison fair values for loans and leases, are all
considered to fall into Level 2. There are no Level 3 items. As at 30 June
2022, the Group held Level 2 derivative instruments in designated hedge
relationships or designated as fair value through the P&L made up of
financial assets of £3.5m (31 December 2021: £4.5m) and financial
liabilities of £7.5m (31 December 2021: £9.4m).
There have been no transfers between levels in the six months to 30 June 2022.
12. Defined benefit schemes
Recognised in the income statement:
2022 2021
For the six months ended 30 June £m £m
Current service cost - employer 2.5 2.6
Settlement gain recognised (0.4) -
Administrative expenses and taxes 0.9 0.5
Recognised in arriving at operating profit before exceptional items 3.0 3.1
Interest income on scheme assets - employer (14.0) (11.0)
Interest on franchise adjustment (0.1) (0.1)
Interest cost on scheme liabilities - employer 12.7 10.5
Finance income (1.4) (0.6)
Total recognised in the income statement 1.6 2.5
Included within the SOCI:
For the six months ended 30 June 2022 2021
£m £m
Actual return on scheme assets (367.7) (24.2)
Less: interest income on scheme assets (14.0) (11.0)
(381.7) (35.2)
Effect of changes in demographic assumptions 16.0 -
Effect of changes in financial assumptions 399.8 62.7
Effect of experience adjustments (76.1) 19.6
Remeasurements (42.0) 47.1
Change in franchise adjustment (4.7) (1.1)
Change in members' share (3.5) (1.0)
Actuarial loss on reimbursable rights (8.2) (2.1)
Total pension (loss)/gain recognised in the SOCI (50.2) 45.0
The total assets and liabilities of all schemes are:
As at As at
30 June 31 December 2021
2022 £m
£m
Fair value of scheme assets 1,202.1 1,592.9
Present value of scheme liabilities (1,103.4) (1,459.1)
Net amount recognised 98.7 133.8
Franchise adjustment(1) 4.0 8.6
Members' share of deficit 2.6 5.8
Net retirement benefit asset(2) 105.3 148.2
Deferred tax liabilities (26.2) (36.9)
Net retirement benefit asset (after tax) 79.1 111.3
1. The franchise adjustment represents the amount of scheme deficit that is
expected to be funded outside the contract period.
2. Net retirement benefit asset is split between schemes with a pension asset
£107.2m (2021: £166.2m) and a pension liability £1.9m (2021: £18.0m)
Actuarial assumptions:
The assumptions set out below are for Serco Pension and Life Assurance Scheme
(SPLAS), which represents 91% of total liabilities and 93% of total assets of
the defined benefit pension schemes in which the Group participates.
Main assumptions 30 June 31 December
2022 2021
% %
Discount rate 3.85 1.80
Rate of salary increases 2.85 2.95
Rate of increase in pensions in payment 2.75 (CPI) and 3.00 (RPI) 2.75 (CPI) and 3.05 (RPI)
Rate of increase in deferred pensions 2.45 (CPI) and 3.35 (RPI) 2.00 (CPI) and 2.90 (RPI)
Inflation assumption - pre-retirement 2.35 (CPI) and 3.15 (RPI) 2.45 (CPI) and 3.35 (RPI)
Inflation assumption - post-retirement 2.75 (CPI) and 3.00 (RPI) 2.75 (CPI) and 3.05 (RPI)
Post retirement mortality 30 June 31 December
2022 2021
years years
Current pensioners at 65 - male 21.5 21.7
Current pensioners at 65 - female 24.1 24.3
Future pensioners at 65 - male 23.6 23.9
Future pensioners at 65 - female 26.2 26.4
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. The Group also enters into transactions with the Directors;
however, disclosure of such transactions is only made annually. Transactions
between the Group and its joint venture undertakings and associates are
disclosed below.
Transactions
During the period, Group companies entered into the following transactions
with joint ventures and associates:
Transactions for the six months ended 30 June Current Outstanding at 30 June Non-current Outstanding at 30 June
2022 2022 2022
£m £m £m
Sale of goods and services
Joint ventures 5.7 - -
Associates 0.8 0.1 -
Other
Dividends received - joint venture 2.0 - -
Dividends received - associates 1.6 - -
Loan receivable from joint ventures 7.5 - 7.5
Receivable from consortium for tax - joint ventures 1.1 0.2 1.9
Total 18.7 0.3 9.4
Joint venture receivable amounts outstanding have arisen from transactions
undertaken during the general course of trading, are unsecured, and will be
settled in cash. No guarantees have been given or received.
Transactions for the six months ended 30 June Current Outstanding at 31 December Non-current Outstanding at 31 December
2021 2021 2021
£m £m £m
Sale of goods and services
Joint ventures - 1.7 -
Associates 0.8 - -
Other
Dividends received - associate 9.6 - -
Receivable from consortium for tax - joint ventures - 0.2 0.8
Total 10.4 1.9 0.8
14. Notes to the Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2022 2022 Exceptional items 2022 2021 2021 Exceptional items 2021
Before exceptional items £m Total Before exceptional items £m Total
£m £m £m £m
Operating profit for the period 124.1 (0.9) 123.2 119.0 (2.7) 116.3
Adjustments for:
Share of profits in joint ventures and associates (3.4) - (3.4) (6.4) - (6.4)
Share based payment expense 7.8 - 7.8 8.1 - 8.1
Impairment of property, plant and equipment - leased (4.2) - (4.2) - - -
Depreciation of property, plant and equipment -owned 10.5 - 10.5 9.1 - 9.1
Depreciation of property, plant and equipment -leased 56.7 - 56.7 58.8 - 58.8
Amortisation of intangible assets - owned 14.5 - 14.5 12.9 - 12.9
Profit on early termination of leases (0.1) - (0.1) (0.7) - (0.7)
Profit on disposal of property, plant and equipment (0.1) - (0.1) - - -
Loss on disposal of intangible assets 0.1 - 0.1 1.5 - 1.5
Increase/(decrease) in provisions 1.5 (0.2) 1.3 1.2 (0.6) 0.6
Other non-cash movements (0.2) - (0.2) - - -
Total non-cash items 83.1 (0.2) 82.9 84.5 (0.6) 83.9
Operating cash inflow/(outflow) before movements in working capital 207.2 (1.1) 206.1 203.5 (3.3) 200.2
(Increase)/decrease in inventories (1.1) - (1.1) 0.7 - 0.7
Decrease in receivables 9.1 - 9.1 34.1 - 34.1
(Decrease)/increase in payables (5.1) - (5.1) 8.8 (0.4) 8.4
Movements in working capital 2.9 - 2.9 43.6 (0.4) 43.2
Cash generated by operations 210.1 (1.1) 209.0 247.1 (3.7) 243.4
Tax paid (24.9) - (24.9) (24.5) - (24.5)
Net cash inflow/(outflow) from operating activities 185.2 (1.1) 184.1 222.6 (3.7) 218.9
15. Post balance sheet events
Dividends
Subsequent to the period end, the Board has declared an interim dividend of
0.94p per share in respect of the six months ended 30 June 2022.
Share buyback
During the period 1 July 2022 to 3 August 2022, the Group repurchased a
further 5,286,276 Ordinary Shares for total consideration of £9.6m including
fees. The Group has a remaining commitment of £4.3m in relation to the first
tranche of the buyback.
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