Serco Group Plc Sp/Adr

Good morning, everyone. I'm Mark Irwin, Group Chief Executive. Thank you for taking the time to join us in person, as well as those who have joined us via the live webcast for this morning's presentation of our 2023 full year results. As always, we appreciate your interest in and support for Serco. May I also acknowledge John Rishton, Chairman of the Serco Board, who is with us this morning. As required, I ask you to note the disclaimer on the screen, which also appears in the results notebooks that you have for those in the room. I'm joined this morning by our group CFO, Nigel Crossley, and as we have done in previous years, I will start with the summary of the year. Nigel will take us through the detailed financials and I will come back to close with some brief comments on where we are with executing our strategic plan before moving to Q&A. The execution focus which gave us the positive start we reported on in our mid-year trading update continues and has driven the strong set of results you see headlined in the summary. On a full year basis for 2023, we've delivered growth in revenue and profit, as well as continued strong cash generation with all of these measures ending the year better than our initial guidance. We grew revenue by 7% to 4.9 billion pounds, underpinned by 4% organic growth. Underlying operating profit increased 5% to £249 million. The business has a proven track record of cash generation and the work that Niger leads across the group to continuously improve has delivered more than £200 million of cash in the year. In our work to build a resilient international growth platform, we had order intake of 4.6 billion pounds and our order book remains healthy at 13.6 billion. A more analytical approach to understanding the market and getting left of the deal sees our qualified pipeline of new opportunities at 10.1 billion pounds, over 20% higher than it was at the end of last year, more than double its pre-COVID level, and featuring good distribution across sectors and geographies. and the strength of our balance sheet has allowed us to act on all four of our capital allocation priorities, including the board approving the new shared buyback of 140 million pounds, which we announced today. And as I leave the slide, it is important that I acknowledge and thank my colleagues across the group, without whose hard work and dedication these results would simply not be possible. Looking at some of the highlights across the business, the strong performance in 2023 is supported by a more engaged workforce, enhanced customer relationships, and improved win rates compared to the prior year. The successful integration of ORS and helping it to respond to market demand more effectively has seen revenues double when compared to the last full year prior to acquisition. and we expect the acquisition of European home care to further build scale in the sector. Order intake in 2022 made for a busy period of mobilization over the past year, including the highly effective commissioning of the newly built HMP Fosway prison in England, which has already now ramped up to full operational capacity. And we began instilling good practice to get below the headlines of contract performance to identify opportunity for productivity, which will contribute to the 30 basis point margin improvement in our 2024 business plan. We delivered revenue growth of more than 7% in all of our geographic divisions except Asia Pacific, underlining the value of our international portfolio. included in that was retaining the CMS contract in the US and continued growth in Canada through the employment services contracts we now have in Ontario. This is a fantastic example of growth in ABLE through global collaboration where our expertise in running the DWP's restart scheme in the UK directly led to the ability to bid and win opportunities in Canada. and we entered 2024 with the largest pipeline of potential new work in a decade, validating our focus on the government services market as a source for sustainable and profitable growth. And our capital allocation priorities are clear, and we believe through them we can continue to create value. Now, we're always transparent about what did not go as well as we'd planned, and so on the other side of the ledger, our Asia-Pacific business did not meet expectations, both in terms of the progress made on contract remediation or improving our new business winds. In addition, during the year we saw a reduction of the volume variable work in our immigration contract, which continued from the fourth quarter of 2022 into 2023. We've taken appropriate action, appointed a new leader for the division, and put in place a robust recovery plan, which is now well underway. In North America, we had terrific rebate success, defending more than 90% of our contracts. However, our new business conversion was below our internal targets. Our focus for 2024, therefore, is on improving the new business conversion rates in the division's £3 billion plus pipeline. We also saw during the year that our customers chose to self-deliver our Caledonia Sleeper and Wishaw Health contracts in the UK, despite excellent service delivery during and post-pandemic. While we are very disappointed about that outcome, we respect the decision of governments in relation to public service delivery. And as we always do, we manage the demobilisations professionally and with citizen interest as a priority. In terms of the labour markets, we know that there's been some easing in the global labour markets, but dynamics in certain locations and for certain skill types remain challenging. Having significantly reduced vacancies in the past year, we've now shifted our focus to reducing attrition and will include attrition management as a performance metric for our leadership team in 2024. and our safety outcomes in 2023 have improved. However, we are committed to always do better, and we've now set an ambitious target to reduce lost time injuries by 50% over the next three years. Having now set this operational context for what has been a good year, I will now hand over to Nigel to talk through the details of our financial performance.

Thank you, Mark, and good morning to everybody. I'm going to start off with an overview of the group's financial results, and 2023 was another very strong performance. Revenue grew by 7% to just shy of £4.9 billion, including organic growth of 4%. Demand in immigration and defense sectors were major drivers, and this more than offset the remaining impact to the end of COVID from 2022 and some contract exits. And while the group's reported revenue excludes joint ventures, if Serco's share of JVs was to be included, this would have added a further 5% of the group's organic growth following the mobilization and increased volumes in Avivo JV. In addition, the first full year of the European Immigration Acquisition, ORS, contributed a further 4%. Underlying operating profit was £249 million, an increase of 5% on 2022, with higher UK margins and revenue offset by tougher trading conditions in our Asia-Pacific division. Underlining earnings per share were up 10% driven by the strong operating profit performance and the share count benefit from the share buybacks that we've completed. And strong cash performance remains one of the important characteristics of our business with free cash flow generation of 209 million pounds in the year. This means on average the group has converted over 100% of its profit into cash over the last five years due to strong discipline around collecting receivables from our customers. And our balance sheet strength and cash conversion underpins both increasing dividend per share, which is up 19% on 2022, and a new £140 million share buyback, both of which have been announced today. So I'm now going to turn to our divisional performance and starting with North America, which contributed strong organic growth for the group and continues to be the most profitable of all our regions. Revenue is up 7%, with 8% organic growth and a 1% adverse impact from currency. And the defense sector reported the strongest organic growth, increasing by 8%, which was driven by the mobilizations of strong winds in 2022, including the maritime, SHAPEM, and NOMARS contracts. And citizen services grew 77% from the start-up of new employment contracts for the Government of Ontario as our Canadian business experienced growth for the first time in many years. And stronger-than-expected volumes on CMS through the year offset some of the impacts of its new contract terms. Underlying operating profit of £138 million was slightly higher than 2022, with margins declining by around 60 basis points to 10.1%. This reduction was expected following the investment to mobilize new contracts, some defense IT management contracts transitioning from installation to operational phase, and a higher mix of lower margin, lower risk cost plus work within our portfolio. An order intake of 2.1 billion pounds continues to be strong with a book to bill of 150% following the 160% reported last year. The retention of existing business was particularly strong, accounting for 75% of the order intake, with a rebid win rate of 95% in the year. And the largest new business win was the employment services in Ontario, building on our first win in 2022. Importantly, we also retained CMS, the division's largest contract. This started on the 1st of July and will operate at a lower margin than the old contract, albeit still at a high margin relative to the North America portfolio. In addition, since the end of the year, we've retained another key rebid by securing our contract with FEMA. The Americas pipeline remains very strong and increased to £3.2 billion, up from £2.9 billion at the half year, with around 80% of the pipeline weighted to the defence market. So moving on to UK&E, which was a standout performer in the group. Revenue increased 16%, with organic growth of 7%, driven by demand for immigration services in both the UK and continental Europe. and also supported by our justice and defence sectors. This was despite an impact from the end of a number of contracts such as DWP Universal Credit, Caledonian Sleeper and Barts Hospital Trust. ORS, the European immigration business acquired in 2022, contributed 8% to the UK's growth and has doubled in size since the acquisition due to strong volumes and ability to scale the capacity of the business. Justice and immigration continued its significant growth, particularly immigration where demand for services remained high due to global migration patterns with service user levels remaining elevated. Additionally, the successful mobilisation of the new prison HMP Fosway contributed revenues in the justice sector. Citizen services revenue declined as expected with fewer wins in the year and the impact from the end of COVID work in 2022. as well as a DWP universal credit contract. There was some growth from the restart program. And while the new DWP functional assessment does not mobilize until 2024. And the defense business traded higher after re securing our maritime services contract, as well as growth in the defense radar operations. And underlying profit increased significantly, up 68% to £121 million, and profit margin was increased by 150 basis points to 5%. This improvement has been delivered through the revenue growth in the division, as well as strong performances in the Mersey Rail and Vivo joint ventures, albeit some of the Mersey Rail contribution was one-off in the year. And order intake was robust at 1.9 billion pounds. This includes the 350 million pounds five-year contract to deliver functional health assessment for the DWP in the Southwest of England. And a 200 million six-year contract to deliver electronic monitoring in England and Wales. Importantly, the new business and rebid ring rates were strong at 60% and more than 95% respectively, bouncing back after lower rates in 2022. And the pipeline of new business remains attractive at around £4.8 billion, with a number of decisions moving from 2023 to 2024, and a good range of growth opportunities across justice and immigration, defence and citizen services. So moving on to Asia-Pacific, which as we set out at the half-year results, had a tough year. We're pleased to have appointed a new chief executive in October, who is starting to execute a growth and profit improvement plan. We expect to see some benefits to the profit improvement work in 2024, but the growth recovery will likely take longer to impact the financial performance and will likely benefit 2025. Organic revenue declined 7% in the year, and this reflected lower volume variable work, particularly on the immigration contract, where volumes declined quicker than expected due to changes in demand. and this was combined with reduced volumes and some contracts ending in both citizen services and facilities management. Underlying operating profit reduced 58% to £24 million, with the margin decreasing by around 320 basis points to 2.8%. This was impacted by the immigration volumes and mix, lower levels of facilities management work, and tight labour markets, making it difficult to recruit and retain staff to achieve customer headcount targets. and order intake was low at 0.3 billion pounds. The pipeline for new work stands at 1.3 billion pounds and includes the defense-based services opportunity, which is a large integrated FM contract for the Australian Defense Force. And in quarter four, we submitted the rebid for the immigration contract, which ends in December of this year. And the Middle East made some good strategic progress over the year with some strong wins, as well as developing a healthy pipeline of new business opportunities. Revenue increased 8% and 9% on an organic basis with some early success in our advisory business, which largely sits within citizen services, as well as good organic growth on some existing contracts in the UAE. Profitability and margin both experienced a small decline in the year following the demobilization of a higher margin traffic control contract. An order intake of 0.3 billion pounds was strong with a book to bill over 150%. And this included new contracts provided fire rescue services in the Neom economic zone in Saudi Arabia, as well as airport custom experience services in Abu Dhabi. We also retained the contract to provide logistics and base services support in the region for the Australian Defence Force. The pipeline of new work is healthy at around 0.8 billion pounds, including a number of larger opportunities in UAE across defence, citizen services and transport, and further opportunities in our advisory business across the region. So now moving on to cash, and as we've already said, we delivered an exceptionally strong cash performance over the year with free cash flow of 209 million pounds and a trading cash conversion of 111%. And over the last five years, cash conversion has averaged above 100%. And over that same period, we've reduced the number of day sales outstanding by 20 days. which is the equivalent of more than 250 million pounds of working capital. We've achieved this through continuously improving the accuracy and timeliness of our sales invoicing processes and working with customers to pay to terms. We also continue to play our suppliers on time and in line with the UK prompt payment code. The net effect of these items is that working capital was a 30 million pound inflow in the year. Adjusted net debt finished the year better than we expected at £109 million following the strong cash performance. And this has resulted in leverage of 0.5 times EBITDA, which is the equivalent of being £140 million of debt below the bottom of our one to two times target leverage range, and once again underlines the strength of our balance sheet. And since the end of the year, we have successfully raised $150 million of U.S. private placement loan notes to provide liquidity for the group after repaying debt maturity in 2023 and to fund the share buyback. The loan notes have been secured at a blended rate of 6.6% with 5- and 10-year maturities. So on that note, let's move forward to capital allocation. And there are no changes to our capital allocation framework that we've shared previously. And in 2023, we delivered on all of our priorities. Generating organic growth will always be our first priority. And we've continued to invest in our pipeline and building capability and bidding capability. And that's been demonstrated today by the size of the pipeline that we've announced. We've also started a number of small pilot programs to partner with technology businesses to further improve capability that can both support organization efficiency and organic growth. Our second priority is to increase dividends. And we've announced today a final dividend of 2.27 pence per share, taking the total to the year for 3.41 pence per share. And this is a 19% year on year increase and comes on top of last year's 19% increase. And our third priority is to fund acquisitions that will drive future organic growth for the group. In December 2023, we announced two acquisitions, European Home Care in the German immigration market, which strengthens our position in the largest immigration market in Europe, and Climatize in the Middle East, which adds sustainability capability to our growing advisory business. And our final priority is to return surplus cash capital to shareholders, which we define as the value of debt below one times leverage. So today we've announced a £140 million buyback to be completed in 2024. And this is on top of the £200 million of share buybacks completed since 2021. So finally, on to guidance, which is laid out clearly on the screen and has been updated from our initial guidance issued at the pre-close in December. Revenue, profit and cash expectations today are unchanged, but debt guidance is updated for both the better outturn in 2023 and the £140 million share buyback announced today. Revenue is expected to be around £4.8 billion, with an organic decline of 3%. a 2% contribution from acquisitions and a 1% adverse currency impact. The organic decline includes the new agreement for the CMS contract previously announced, contract exits such as Caledonia Sleep in the UK, and a contract mix change in the UK immigration as we support the government's efforts to reduce the number of asylum seekers being accommodated in the hotels. The guidance also includes around £100 million from the acquisition of the European home curb, which we expect to complete soon. Underlying operating profit guidance for around £260 million is unchanged, which is a 5% growth on 2023, after absorbing a 2% adverse currency impact. Profit margins are expected to increase by 30 basis points to around 5.4%. And drivers of margin improvement include the benefit of new contracts moving from mobilisation to operations. But most significantly, the renewed focus on operational efficiency improvements across our portfolio, both the efficiency of our overhead structures and shared service functions, as well as the productivity within our contracts. And in addition, there will be a contribution from the acquisitions already announced. We expect cash flow to remain strong with guidance of around £140 million, which is the equivalent to around 80% trading cash conversion, in line with our medium-term goals. And guidance for net finance costs is increased, but only slightly. This is driven by higher debt, principally from the share buyback, tempered by more favourable interest rates and better outturn for 2023 debt. And the effective tax rate of 25% is in line with our medium-term guidance, albeit higher than 2023, which included a one-off benefit from a reduction in tax provisions. And on that, I'm going to hand back to Mark.

Nigel, thank you. During 2023, we worked with colleagues across the group to bring clarity to our purpose, to impact a better future, our vision to be the partner of choice to governments globally, our mission to bring together the right people, the right technology, and the right partners to help our government customers solving some of the most complex problems they face, and re-energising the shared values of our Serco community, which remain the guardrails for everything we do. I remain confident our strategy provides the best pathway to value creation for our customers, our colleagues, our shareholders, and our performance framework to grow revenue faster than the market, profit faster than revenue, and convert that profit to cash serves as a good measure for that. If we reflect on the last year, from technology transformation to continuing conflicts, we saw another year of significant global change. However, the fundamental features of our business to government markets remain the same, large and growing, with high barriers to entry. We've previously described the long-term drivers of demand for our services through the four forces, which continue to be relevant and indeed is amplified by recent market forces and world events. There are growing costs for government due to, amongst other things, service backlogs, ageing populations, and the need to modernise infrastructure. We know that governments continue to balance public income and expenditure, as well as the need to reduce debt, which is at unprecedented levels post-pandemic. And we certainly know the tension between popular governments and higher taxation. We've seen citizen activism in relation to higher expectations for public service quality and reliability. And there are new challenges which continue to add further pressure on governments. De-globalization and geopolitical risk, demographic and skill impacts on labor markets, and the technical debt that most governments enter the next wave of AI-enabled technology changes that we are already seeing in the world today. These forces continue to drive requirement on governments globally to deliver more and better for less, irrespective of their ideologies. I wanted to touch briefly on two sectors where we see macro drivers driving longer-term demand. The first is the opportunity to support governments with the challenges that flow from global migration trends. In 2023, the World Bank estimated that 184 million people lived outside their country of citizenship, including 37 million refugees. This is only set to increase, driven by factors like climate change, conflict, demographic trends, and income inequality. These forces are not only pushing more people to relocate for better opportunities, but are also presenting growing challenges for migration policy in the decades to come. It is estimated that by 2050, there will be over 330 million international migrants and potentially 143 million people displaced by climate change. For Serco, this is a sector where purpose, vision, mission, and values align perfectly to our growth strategy. We are differentiated in the breadth of our capability, the flexibility of the capacity we provide, the values-based approach we take to service delivery, and the international footprint we have in offering these services. We therefore see significant opportunity for further growth in this market by offering more services in the geographies where we already operate and through building scale internationally. The secondary is defence. Defence services is our largest sector globally and the key, one of the keys to our growth strategy. I don't think anyone needs a reminder that geopolitically, the time of clear lines and conventional alliances is now less certain. And that in the multipolar world we now live in, it simply means that everything is just more complex and therefore less predictable. Serco, different from original equipment manufacturers, offers a full lifecycle approach from concept and design all the way through to modernisation, sustainment and operational support. And we are supporting defence and national security agencies with forward deployment and digital skills to build the military capabilities that governments will need in the future. The examples shown on this slide are just a small sample of the types of contracts we've won over the past year and intended to show the diversification of our Defence Services portfolio. In particular, I wanted to highlight the Shipbuilding Acquisition Programme Management Services contract, which Nigel referred to as SHAPEM, which has been awarded to Serco by the US Naval Sea Systems Command. As the prime contractor, we will provide program management, business and financial management, technical and engineering services, logistics, and foreign military support. The contract could extend over five years and is valued at more than $330 million. What this means in practice is that we are now supporting NAVSEA Team Submarine, working with the program executive offices for strategic submarines, attack submarines, and undersea warfare systems with the goal of helping them to eliminate the traditional siloed structures and processes which created impediments and inefficiencies in the submarine research, development, acquisition, and maintenance communities. While the program content of SHAPEM is protected within the US, the broader capability we bring to support the interests of the US and its partners in the AUKUS Alliance offers Serco opportunity to grow in what are our three largest geographic markets in our largest global sector. And I wanted to turn just very briefly to update on our strategic enablers of customers, colleagues, and capabilities. As highlighted in the ShapeM example I just gave, we've worked hard in recent years to earn credibility and enhance our customer relationships, which we now believe are stronger. We'll continue to work hard in the period ahead to elevate those relationships and to be forensic in our understanding of the existing market while remaining agile and flexible to respond to new and emerging opportunities. Our strategy focuses on profitable, sustainable growth. Our process to drive innovation and support customers from service discovery to service delivery is underpinned by three components. our impact pathway, our approach to partnership, and our use of global data and insights. Bringing these together allows us to support governments with solving some of the most complex challenges that they face. In a further example, we will continue to invest in our advisory to operate business in Saudi Arabia, which has already shown early signs of success and is focused on supporting the country in its development of sustainable future cities. With more than 100 advisory colleagues already active on the Giga projects during the planning and construction phases, we are working to build the trust and confidence with our customers to have long-term presence in the delivery of the Kingdom's Vision 2030. With this new approach to how we can partner with our customers, we've been able to build our pipeline to £10.1 billion so far, the largest we've seen in a decade. In relation to colleagues, during 2023, our people and culture function reorganised to ensure that it is structured to confront the current and emerging workforce challenges that impact government service providers while continuing our work to progress inclusivity, equity and diversity. Quite simply, colleagues are and have always been at the heart of Serco. our engagement continues to be a marker of our success in retaining and growing our colleague network. And in 2023, our engagement improved to 71. Our commitment to the safety and wellbeing of colleagues remains foremost in our efforts to protect and deepen the relationship between Serco and the people whose dedication and commitment stands behind its success. Although our LTIs last time injuries reduced in 2023, as I've said, we now have an ambitious target to reduce them further by 50% over the next three years, consistent with our longer term commitment to make zero harm a reality in our business. And finally, we're seeing external recognition of our commitment to colleagues, such as being named on the 2024 Forbes Best Large Employers list. In terms of capabilities, Nigel's referenced before the margin improvement. We have a business plan to deliver 30 basis point margin improvement through a rigorous approach to operational efficiency over the next year. Our mantra is now mobilize, stabilize, and then get below the headlines of every contract to drive operational improvement. we've begun also to optimise our existing IT platforms and align investments to business and growth needs, such as selectively piloting AI systems. In December 23, we signed a strategic MOU with Microsoft UK to drive Serco's digital transformation, to leverage opportunities for co-innovation and joint business development, And this includes a pilot project to use Microsoft's Vision AI platform to automatically identify, classify, and retrieve prisoner property, which is aimed at improving significantly the processing time, as well as enabling the identification of the indicators of bullying and gang activity in custodial environments. Once this platform has been fully tested, it is our intention to deploy it across our entire prison and immigration network globally. And our first technology pilot in 2023 with Autogen AI, a UK-based startup, has already resulted in a global partnership agreement. Initial tests during the pilot have shown a very significant time saving when managing and collating knowledge about Serco's capabilities worldwide. We've already used Autogen's AI technology over 6,000 times in the pilot phase just in the UK and Europe, and it will now be deployed globally to support better knowledge management across the group. And so to conclude, we're building a resilient international platform for growth in the government services sector as evidenced by the largest pipeline in a decade. We've aligned our business to a renewed purpose, vision, and mission, which has resonated with our colleagues, our customers, and broader stakeholders. And our execution focus on our strategic enablers of customers, colleagues, and capabilities has already delivered results and will continue to improve profitability as evidenced by our guidance for 2024. All of this is aligned to our medium-term goals to continue to create shareholder value. Thank you.

Shall we open that up for questions? We've got a mic. Shall we work from the back forwards? Arthur.

Thank you very much. Arthur from City. So three, if I may, please. So first question probably to you, Nigel. So you've beaten your previous estimate of free cash flow by just under 40 million, and that has no impact on 2024. And I guess my question was, how have you not sort of brought cash flow forward from 24 to 23 and are thus able to maintain your 24 guidance? Second question, can we just talk a little bit about the UK migration, which obviously I understand is your biggest contract. Have you seen any reduction in volumes of migrants since we spoke a couple of months ago? And how are the government getting on in taking people out of hotels? And just remind us please, what does your guidance incorporate for both volumes and the proportion of them that are in hotels? And then final question. So you talked about your plan to deliver 30 bps of margin improvement in 2024. If I take a step back, if everything was sort of going perfectly on your existing contract base, what do you think the sort of highest level of margin that you could achieve would be? Thank you.

Let me take the first one of those, which was free cash flow. And you're saying we did overachieve by 40 million. And the reality is, as you get to a year end, Free cash flow out of time can vary depending on whether a customer pays you on the 31st of December or the 1st of January. So there's a little bit of variability about that. But we're confident with what we've been doing on free cash flow. If you think about our invoices that we give to customers are quite complex. There's KPIs in there. There's often a certain amount of volumes that we have to demonstrate that comes up with a price. And what we've worked hard at over the last five years is how do we get those invoices out more accurately and more timely? Because once we do that, we've got a customer base that pays us on time. And that's what we're focused on. So I am confident from the overachievement that we had in December that that is a structural and sustainable. And I'm confident holding on to that. So that, I think, answers the first question. Do you want to take the second one on immigration?

So I think if we look at our UK immigration demand, we see continued strong demand. We have highlighted and have seen through the fourth quarter of last year the mix change that Nigel spoke of, which is our support for the Home Office moving service users from hotels into dispersed accommodation. And that work will continue, but at a pace that's really permitted by the state of the rental market and what's going on with property availability over the next 12 months. And we've built that in, that mix change into the guidance for 2024, which has a large impact in revenue than it does in profit for us. I think it's also important for us to bear in mind the broader picture that we have around immigration. You saw the significant growth that we had in the European business, which is largely Swiss-based, but with the inclusion of European home care, we expect to expand the footprint of our European business, which today is significantly in Switzerland, with smaller business in Italy, Austria, and Germany. a more significant position in Germany now in the largest market, as Nigel said, but also the opportunity more broadly across continental Europe. So we see the balance overall in our immigration portfolio to be net positive.

And then, Arthur, your third question was around margin improvement in 2024 to improve margin by 30 bits. We think cost efficiencies, productivity is an important contributor to that. And we've set a medium-term target to be between 5% and 6%. I think to help us inch up through that range, efficiency and productivity will be a key contributor to that. To say where is the top of that range, I don't think we can really comment on that today. I think we just want to work through, see what progress we can make. And if necessary in time, we will reassess that.

Hi, good morning, Sylvia Barker from JP Morgan. Maybe firstly on elections, obviously everyone is noting that it's a big election year globally. Could you maybe talk a little bit about your thoughts on the various elections which will be impacting you in 2024 and what's built in your guidance? Then mobilization cost, how much did you incur in 2023 that will be falling away and hopefully benefiting the margin in 24? And finally, Saudi seems like has been growing very well, maybe across the advisory business and the contracts. How big is that now out of that Middle Eastern business? Thank you.

So you took the first one in elections, yeah?

Yeah. So you're right. We understand across the world more than 2 billion citizens will vote for national governments during this year. In our core markets, We have actively engaged with current and alternative governments in the UK, as we do in the US. Australia is probably 18 or so months from its next election. And our approach to that is really understand the policy position of governments. current or alternative governments, make sure that we can position as well as we can to serve them once the electorate has decided what will happen. And we've worked through these changes in all of the markets that we have, working for Republican and Democratic governments in the US, Conservative and Labor governments here in the UK, and in Australia, both at federal and state levels. having lots of changes in government. So really for us, this is our customer base. Understanding those customers, really engaging with them actively through the political cycle continues to be a key focus of how we enhance those customer relationships. So a balanced view, and we'll continue to engage actively. We've been encouraged, I would say finally, by the consistency and the constructiveness of dialogue with the Labour Party in the UK. We started that process more than a year ago, and what you read in the press has really been our experience, that it's open, it's constructive, and it's pragmatic, and we'll continue that engagement.

If I pick up mobilisation costs. Mobilization costs we've incurred in 2023, just over 10 million pounds. And the big ones there have been the HMP Fosway in the UK, and also the employment services contract that we've got in Canada. I think it's important to point out here that it's the accounting that drives the cost. We do get, on the whole, we're collecting cash for that, but we can't show it on our P&L. So it's a P&L hit rather than a cash hit. And then when we look into next year, probably slightly higher, not materially higher, but a bit higher, the electronic monitoring contract is the most significant mobilisation cost that we have next year. And then the last question was on Saudi.

So Saudi has been a success story for us in the last 12 months. We see that as a platform for further growth. We've gone from almost zero to the kingdom now representing about 15% of the division's revenue. where it will go from here, we'll wait to see. But we're encouraged by the strong demand signal. And importantly, our focus on advisory, as I said, is not just about advisory. It's about getting into these projects, establishing the relationships, and then being able to transition through the whole value chain into operations and long-term sustainment. And we think we're all positioned for that.

Thank you. Do you want to go to Chris? Yeah. Morning, Chris Bambury, Peel Hunt. A couple of topics, if I may. First of all, you said that North American conversion rates were lower than you expected. Could you talk about, I guess, the factors you've identified behind that? Is it something in your offering or their selectivity and what actions you're taking to address that? And secondly, just a little bit more detail on turning around Australia. Again, the issues you've identified, the cost, those factors, what actions you're actually taking, and when those actions will be in place. I know they'll take a time to feed through, but when will the stuff actually be in place to then start having a positive impact?

So I think for North America, to start with, really good book to bill, right? Over 150% for two years in a row. We saw the balance of that shift towards rebates in 2023. Our group level of conversion for new business is above 30%, and that's really what we set as an internal performance measure. So the analysis that we've done has given us some indications around technical areas where we need to improve, where we've made investments over the last 12 months, and also renewing part of the growth team in business. in the US, so all of that's settling in now and we're working to manage performance as we go through 24.

Australia, Tyrone.

Yeah, the changes in Australia we made in July and I provided coverage for the third quarter and then Andrew Head's appointment in the fourth quarter. Two areas of focus for us, one, the performance of the existing contract portfolio. A lot of that driven by labour availability. What we saw in the second half of the year, so between July and December, is that our vacancies in the division has dropped by half. And so we've made real progress by taking a different approach, data-driven, really targeted, and focused on the contracts where we needed the most help most urgently. And so we've seen traction there already, which, as Nigel said, should flow into improvement in the financial performance of the division in 2021. Growth, because of the cycle of the business more than anything else, we expect to take a little bit longer to sort of flush through the financials. But all of that work has been defined in a very detailed recovery plan, which we govern from the group level through a steer co on a regular basis. So we haven't let go. We've managed it very closely.

In terms of getting that growth driving, what was holding you back? Was it your offering? Was it your sales team? Or was it the lack of availability of staff hindering that growth?

I think from a growth perspective, two things. One, really understanding the customer, building strong customer relationships, which initially was affected by COVID and the fact that the country was in such a strict lockdown for so long, and then really not picking that up effectively because after those restrictions eased. So again, we've renewed the team, we've got the appropriate resourcing, and we're rebuilding those relationships so that we can start to rebuild the pipeline.

Thank you.

Good morning.

I want to stick with the three questions, if that's okay. Starting off with the order book, clearly down a bit. Could you just talk us through the mechanics of why that was down? I totally understand that the pipeline gives some assurance there. Secondly, Chris just asked about win rates in North America. Could you give us the detail on the rebid and new bid win rates in the US? And finally... totally get the asylum opportunity across Europe. But you give the pipeline and the sales, and actually the pipeline to sales ratio looks very low. I can't see a lot of pipeline in asylum, so I would love to understand that.

Let me tell the first two. So order book, you're right, order book is down slightly. That's a function of three things. One is our book-to-bill was 95%, so we didn't quite match. So more came out than went in, but only marginally. Two is we had a slight hit from FX, so FX worked against us. And there's a third factor. It was a bit of a technical one, but our largest wins... was in North America, and a lot of the North America contracts that we win, you get given them on a one year plus one year plus one year, and because of the accounting rules, you're only allowed to put one year into the order book. So even though we appear to have won more, we didn't put it all into the order book. So those are really the three things behind that. You asked about win rates in North America. Do you want to ask that? I've got the numbers. Yeah.

That point, though, I think is important, that we're seeing across our portfolio an increase, not a significant part of, but still an increase in the shorter cycle business. So the task orders, which we are familiar with in the US, some of the immigration work, particularly in Europe, also is quite short cycles. So we'll be contracted for 12, 18, or 24 months versus the average across the group of around five years. And so that plays just into the dynamic of how we recognize that it's not necessarily a reflection of a shift in demand.

And then rebid win rates were very high. I mean, it was 75% of the order intake. It was 95% to 100%. So very high levels of rebid win rates. The new business win rate was lower, and that was more around 20%. And you asked three questions.

Yeah, the final one was there's a slide on Asylum where you showed the sales and the pipeline. The pipeline sales ratio was quite low.

Yeah. So I think... Part of that, Joe, is the new business that we have when we look at our two key markets. So Australia is a rebid, so it's not included in that. And in the UK, we already have a significant position in this market. So what you see there really is the developing market for us, particularly in Europe at this stage. Thank you.

James, yeah. Hi, it's James Rose from Barclays. I've got two, please, both on the pipeline. Could you give us an indication of the sort of mix of opportunities you have in the pipeline versus history and about the concentration within the pipeline as well? And then secondly, the pipeline's the biggest it's been for 10 years. I'd appreciate your thoughts on why. What do you feel you can bid for now that you perhaps wouldn't have done in prior years?

Don't want to share the numbers, please. Yeah, so... A pipeline mix is there's about 60% of this is in defense, just over 60%. The next biggest would be justice and immigration. And then the other bits are split across the three sectors. And then I think when you look at that on a region by region basis, nearly half of that pipeline is in the UK. The next biggest one being North America. So that's the way we see the shape of it. And it's not dramatically different from the shape that we've seen in previous years.

just depends really on what's what's available but i don't look at that pipeline and think oh that's that's different to what we've seen before so more do you want to talk about yeah so just i guess building on nigel's point when we look at defense we see both areas where we have deep experience in doing work one of the largest opportunities we have is for the base services transformation of the Australian Defence Force bases. So work very similar to what we do in the UK for the DIO. And in fact, business that we had in Australia, we had this contract 10 years ago. And so we've got strong relationship also there. In terms of traditional, more traditional capability, the work that we are... for the UK Armed Forces recruitment, that is completely new work. That is technology-driven approach tri-service, so across all of the defence services in one contract to start operations from 2026. So that's blank page, complete new design, technology-driven, and really focused on the ability to solve the problem for the MOD, which is enough recruits, all the way through the process into uniform. And so we're playing, again, across that spectrum in new, new work, as well as leveraging capability we have. In terms of why the pipeline, uncomplicated but true answer is we're working harder. We're working hard at understanding our customers, really getting close to what their real needs are and positioning ourselves as far left of the deal as we say. So really early on in the development process and not coming to bids late.

Thank you.

Are there any other questions in the room?

Michael. Just one last one, again, on the pipeline. If we look at 10 million overall, and I'm guessing 3 to 4 billion of that in US defence, roughly, given your previous comments on proportions, and then you mentioned that the 60-bit decline in North America was a bit mobilisation, but you also said it was more cost plus, I think was one of the reasons for the fall in the margin. So if we take the 3.4 billion, as that falls into revenues, over the next few years, how should we think about the margin that it falls through? Is it all going to be cost plus? And if it is, should we be thinking more towards a 5% end of the spectrum rather than the historical 10%? It's going to be somewhere in between the two, but is it trending down more quickly than perhaps we've seen historically?

I'll have the first go and Mark can colour in. Look, our margin has been high, and the reality is we have been north of 10%, and our CMS contract has probably overachieved in that period of time. We know that we're coming onto new terms. Those new terms are still good terms for us, but we'll see some reduction on the margin from that. And when we look at it, we think our margin ongoing is going to be in that high single digits to 10, very high single digits to 10, and that's where we think we'll be. And when we look across our competitive landscape, we're seeing our competitors' margins in government services work in the 8, 9, 10, 11 range. So it feels like that's the right range for us. Exactly how the mix of work plays out, we're really at the mercy of what the shape of the pipeline is. But we are certainly, as a management team, focused on keeping that margin up in the very high single digits.

So, Michael, reinforcing rather than adding. One, when we look across the market at the government services sector in the US, we're not atypical of the margin range, so high single digits into the double digit range. And we expect that to be achieved over time through a mix. In fact, the federal non-defence part of the portfolio is more profitable than defence because of that high percentage of cost plus work that we have. And so our growth targets are both defence and non-defence to make sure we can keep the margin up. And there is distribution of that in the £3.1 billion pipeline that we have in the North American market, so Canada and the US. Thank you.

Are there any other questions in the room? In that case, are there any questions on the line, please?

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. Please stand by while we compile a Q&A roster. At this time, there are no further questions. Speakers, please continue.

On that basis, can I again express our thanks for your time this morning, for your continued interest in the business, and for your support. We appreciate it. Thank you.