Serco Group Plc Sp/Adr

Good morning everyone and thank you for joining us here for the presentation of Serco's 2025 half year results both in person and also via the live stream. I'm Anthony Kirby and I'm the Group Chief Executive and I'm joined by Nigel Crossley our Group Chief Financial Officer. I'd like to take this opportunity to formally welcome Keith Williams, who is in the room today, and join the board as a non-executive director on the 1st of August and will become the board chair, succeeding John Rishton, who's also in the audience today, having completed his nine-year tenure later this year. I'm delighted to welcome Keith as the chair, and on behalf of everybody at Serco, would like to thank John for his excellent leadership and unwavering commitment over the past nine years. This morning I'll give you a quick overview of our first half performance including our progress in priority areas and my initial reflections on the organisation having spent time in each part of our international portfolio over the last six months. Nigel will then take you through the detailed financials for the reporting period And I'll then come back to provide some thoughts on the strategic positioning of the organisation as we look ahead to build on our momentum. But before we go any further, can I please ask you to note the disclaimer. Our first half outturn delivered an excellent performance and it reflects the hard work and dedication of my 50,000 Serco colleagues around the world. I thank them for it, and I'm incredibly proud to be on their team. Our strong operational performance has culminated in revenue of 2.4 billion, up 5% on a constant currency basis compared to the same period last year, with excellent organic growth, and in particular, 9% organic growth out of our North America business. An underlying operating profit of 146 million pounds, representing a margin towards the top end of our medium term guidance at 6%. An order intake of 3.2 billion, which represents a book to bill north of 130%. Structurally, Serco is well positioned. We continue to have a good geographical spread, working with governments in over 20 countries. And while some of our divisions are smaller, each contributes to the whole. We typically deliver critical, non-discretionary complex services that can't just be switched off. And we do so in big markets and sectors where we continue to see good demand of drivers for growth. That demand is being driven in part due to geopolitical tensions, a race to leverage tech and AI as governments are seeking high quality and efficiency in the services that they're procuring. In the UK alone, we saw a 7% increase in government spending with the private sector partners in the last 12 months, demonstrating the need for private sector industry capability and expertise. And against that backdrop, we continue to demonstrate top-line growth, which since 2019 has been around an 8% CAGR. all of which underpinned by strong contract retention in the first half of this year alone, 95%, which shows that we are bringing good quality competitive solutions to our customers. In fact, our North America pipeline, for example, has grown from 2.1 billion at the full year in 24 to around 4.6 billion today. We continue to be relentlessly focused on our deliberate plan for execution, centred on growth, competitiveness and operational excellence. As I've said before, these three priorities are mutually reinforcing. Operational excellence builds the trust that wins us new opportunities. Competitiveness, which means having the most competitive solutions, approach to social value, appetite for innovation and low cost to operate. That underpins our ability to win, which creates the headroom we need to further invest in our technology, our people and our future capabilities. And that growth fuels investment in operational excellence and innovation. So virtuous circle, if you will. And under those three component parts, I want to call out a couple of areas of progress that we've seen in the first half. For those of you that I've had the pleasure of meeting over the last seven months, you will know that I'm absolutely focused on growth, strategic, sustainable, profitable growth. An increase in our pipeline of new opportunities to 11.9 billion puts us ahead of a decade high figure of 11.2 billion at the end of the prior year. This is particularly significant following the 3.2 billion pound order intake. And it's also notable that three quarters of our order intake is in defence, an area where we've been exceptionally focused for some years now. When it comes to making us more competitive, we have secured important contract retentions over the last few years, with an average retention rate since 2023 of around 85%. That secures the base business and gives us a strong platform for growth. And we do continue to roll out digital and AI solutions with an increasing number of pilots in growing progress. For example, in Australia, we're supporting the police force in Victoria and have embedded AI tooling to automate processes, which has significantly enhanced frontline policing, freeing up more than 105,000 hours in 2024 alone, enabling police officers to focus on more urgent and complex issues and enhancing overall public safety. I'm also pleased to say that we've again reported margins towards the upper end of our medium-term target, a reflection of our disciplined approach to operational excellence. That's thanks to our efficiency and margin improvement plans, which have delivered a good start, in part made possible thanks to the progress and operational improvements out of our Asia-Pacific business. And in the first half, we've continued to make Serco a safer place for our colleagues. with 19% fewer lost time incidents, taking our total reduction to 31% since the beginning of last year. So good progress on all parts of our approach to execution. Or put another way, a lot done, more to do. Since sharing the news of my appointment in January, I've been around the world spending time in each of our businesses. And whilst a lot has changed both in the world and in the organisation since I was the Group Chief Operating Officer three years ago, the coffee in our Sydney office is still pretty bad. I've now had the opportunity to spend time in each of the divisions with each of the divisional leadership teams, understanding their unique strategic imperatives as part of our global aligned approach. I've now had the opportunity to really review some of their growth plans for the future and I'm super excited and ambitious with them. While it's clear that we've got a strong momentum as seen in these results, I think we could intensify our efforts in part to sharpen our focus on the sectors where we feel we have the most valuable capabilities and the greatest capacity for growth. And of course, we're constantly reviewing our markets and how we're structured to meet and adjust to demand. And today we see the structural drivers of demand focus on justice, migration, citizen services and defence, which contributes to around 85% of the revenue. And I'll talk more about defence later on. And we have a highly engaged workforce who are working more safely than ever before and who are totally focused on delivering superb outcomes for our customers. But we need to make a little more progress on how we systemize and enable the best practice sharing across the group to better leverage learning and execution solutions. I've observed the leading edge technology that we are introducing to our customer offerings. Our expeditionary ship repair innovation system is just one example. That's where we use drones and neural radiance field models to create 3D replicas of ships for damage assessment. can be deployed anywhere that the ship sails and whilst it's at sea, increasing the at-sea time that the vessel has, which is a key metric for navies around the world and their productivity performance. Our teams more broadly continue to identify further opportunities to automate and introduce AI to support our broader commitment to efficiency and productivity where it makes sense. But Obserto is an exceptional business. And while I recognize that great progress has been made, I, we, Nigel and I believe with a management team that with a sharpening of our focus over the coming years, we can go further and faster to once again improve outcomes and get that growth wheel continuing to turn. Let me just take a moment to bring an example of impact off the page, real life impact. Recognizing that innovation is not all about AI and shiny bright things. Every month I try and spend time with colleagues who are delivering our services and a couple of weeks ago I had the privilege of spending time with a number of officers at HMP Doncaster. While I was on shift there I visited the newly introduced safer custody unit where prisoners who are at heightened risk of self-harm can be supported in a different way away from the main wings. I spoke to some of those serving significant sentences for a range of offences And they said if it were not for that extra support, they may well have taken their own lives or committed serious acts of self-harm. So investment in those sorts of innovations that really do differentiate our establishments from others really does shine a light on the innovation that we're bringing to the sectors that we operate in. So regardless of the environment or the sectors We innovate our solutions and we do it because we care and because we want to reduce the lifecycle cost for our customers in the contracts that we're competitively bidding. And at the same time, I'll continue to review the portfolio to ensure that we're right-sized, structured to grow and are leveraging complementary services and solutions. Look, I'm seven months in now and I can be clear that we have a very strong business with solid foundations. It's absolutely clear to me that we bring together the right people, the right technology and the right partners to deliver solutions for our customers. And that helps them face into some of the most difficult and complex challenges that they face. We do some things and we do them exceptionally well. And what we do is often not easy, but it is always important. So overall, we've had a successful third half where we've performed strongly on a number of the metrics that matter. I've seen firsthand the strength of our operational delivery around the globe, leading to this excellent financial performance. And we've doubled down on our management priorities of operational excellence, competitiveness and growth, where we're beginning to reap the rewards, as demonstrated by our margin progression in ASPAC and the superb order intake in the UK. Good organic growth has been complemented by the integration of MT&S, which opens up significant pipeline and new business opportunities, both in North America and further afield. And I'm pleased to announce an increase in the interim dividend, along with a £50 million share buyback, which will be completed by the end of this year. And I'll now hand over to Nigel to further bring to life our financial performance and look forward to coming back and talking about our defence business.

Thank you, Anthony, and good morning to everybody. I'm going to start off with an overview of the group's financial results for the half year. On this busy slide, there's four points I want to draw to your attention. First, the business has grown revenue at 5% on a constant currency basis in the first half of the year, of which 3% is organic and 2% from acquisitions. We've seen particularly strong revenue performance from the defense sector, reporting 11% organic growth. Additionally, the MT&S acquisition, which closed at the end of May, added a further four percentage points of growth to the group's defence sector, which now accounts for more than 40% of the group revenue. Second, we've continued to deliver a strong profit margin at 6% in the period. This has been driven by good performance across our portfolio on contract productivity and overhead efficiency, offsetting the impact of Australia immigration and immigration contracts ending higher contract mobilisation costs and the increase of UK national insurance. Also in the period, earnings per share is up 12%, from increased operating profit and lower tax charges, plus the benefit of last year's share buyback programme, reducing the share count as we look to return surface capital back to shareholders promptly. And finally on this page, return on invested capital for the period was 24%. This strong return reflects our capital light operating model, where we can run a £5 billion business with invested capital of £1.2 billion, of which more than £1 billion relates to goodwill and assets created on acquisition, and only £150 million of operating invested capital. I will now pull out the highlights for each of the divisions, starting with North America, who led the way for the group with exceptional organic and inorganic revenue growth, as well as generating over 40% of the group's divisional underlying operating profit. Revenue increased 13% in the period on a constant currency basis, including organic growth of 9%. The strong revenue performance in North America was built on another period of contract retention rates above 90%. Defence led the revenue increase up 16%, benefiting from the MT&S acquisition closing late in a period, as well as 10% organic growth from the base business due to the high order intake in the second half of 2024. North America continues to deliver a margin of over 10% with strong performance on some fixed price contracts, reduced spend and overheads at the same time as managing higher revenues and absorbing some of the acquisition integration costs of the MT&S acquisition within underlying operating profit. It is worth noting that over the period we've seen no major impact from Doge in the US. Order intake, as expected, has been lighter in the period because of the high contract wins in the second half of 2024. However, the win rates for both retention of contracts and new businesses have been strong. The North America team have worked hard in the first half of the year to rebuild the pipeline to 4.6 billion pounds. The largest has been for over a decade. We expect order intake in the second half to be stronger, although we are sensitive to a near-term risk of some slowdown in decision-taking by the customer as they experience some organisation restructuring and downsizing of their own. UK and Europe have had an exceptional order intake in the first half of the year of £2.5 billion, which translates to a book-to-bill of over 200%. Revenue was up 4%, with 2% organic growth and 2% from last year's acquisition of European Home Care. There was strong growth in systems services from the Health Assessment Contract for the Department of Work and Pensions, which was mobilised in the second half of 2024, and from the commencement of both Armed Forces Recruitment and Maritime Services Contracts for the Ministry of Defence. There has been a relatively small revenue decline in justice and immigration, as the impact of slightly softer volumes and mix in the UK and European immigration are partially offset by the ramp-up of electronic monitoring. The margin in the UK is strong at over 6%, with good cost control offsetting national insurance increases, higher mobilisation costs and some mix effect from immigration. The European business continues to perform strongly, recording revenue of £270 million and a margin of over 7% in the first half. The business has grown from around £100 million in 2020 to more than £500 million business and has established a strong platform for further growth in Europe. The order intake was exceptional at 2.5 billion. New business wins were 1.4 billion, with the largest being the £1 billion contract to deliver armed forces recruitment for the Ministry of Defence. Rebid win rates were strong at 97%, which established a strong base business for the new wins to build on. Finally, on the UK, despite the high value of the wins, progress has been made to refill the pipeline with a good number of decisions expected in the second half of the year and early. In Asia-Pacific, revenue declined 3% organically, largely because of the Australia immigration contract ending during the first half of the year as we successfully exited. In the first half, the Australian management team had delivered further efficiency in their overheads and worked towards right-sizing the organisation to support the current business. They've also made good progress in improving the profitability of several underperforming contracts, which have contributed to increasing the margin of the business in the period, despite the contract loss. There are more opportunities to drive efficiencies and productivity in this business, which will be the focus in the second half of 2025. In the period, order intake has been weak. As we've always said, identifying new opportunities and then developing winning solutions and bids is going to take longer than addressing the cost base. In the first half of the year, the growth team will continue to seek out and qualify new growth opportunities that will be added to the pipeline in the second half. And turning to the Middle East, which is the smallest of our regions, where the revenue is declined in the period, largely because of a low margin traffic control contract, which ended in 2024. There continues to be strong demand and a strong pipeline of new business opportunities in the region. spread across the UAE and Saudi Arabia. We've also entered into a strategic partnership with Mubadala in the UAE to strengthen our Middle East business. This partnership will jointly deliver asset management services and provide new business opportunities across the wider region. So I'm now going to move on to cash flow. And once again, we've delivered strong cash flow, with 84% of profit converting to cash in the first six months of the year. Structurally, cash flow in the first half of the year should be slightly weaker, but there's been continued focus on improving the collections from our customers by streamlining the processes to generate accurate and timely sales invoices. In addition, cash flow benefited from some higher deferred revenue and some early cash receipts from the customer in Australia at the end of their financial year. And net debt finished the period at £259 million. This is £160 million higher than the start of the year after closing the MT&S acquisition and paying £246 million. This has resulted in leverage at 0.9 times EBITDA, which is below the bottom end of our target leverage range of one to two times, leaving a strong balance sheet and flexibility for the use of capital. So turning to capital allocation. And as a reminder, we've set our capital priorities in the context of being a highly cash-generative business, operating with low levels of invested capital. We target leverage not to be above two times EBITDA, and when leverage is below one times, we view this as surplus cash, sorry, more cash than we need to run the business, and treat it as surplus capital. Since 2019, we have consistently ended the year with leverage below the bottom end of our range as we've delivered exceptional cashflow performance over that period. Our number one priority is to fund organic growth. In the period we've delivered strong order intake, rebuilt our pipeline of new business opportunities to be the largest in more than a decade, and we've invested in mobilizing new contracts won in 2024 and 2025. Second, we will deliver a dividend to our shareholders today, and we've announced an interim dividend for 2025 of 1.4 pence per share, which is an 8% increase on last year. And our third priority is to invest in acquisition opportunities that will improve the group's future organic growth by providing access to adjacent markets and new customers, or acquiring new capabilities that we can utilise more broadly across our existing portfolio. In the first half, we announced and closed the acquisition of the US Defence Services business from Norfolk Grumman, focused on the technology-enabled training and space. And finally, if we have surplus capital, we've always committed to return this to shareholders promptly. And today, we've announced a £50 million share buyback to be completed this year. This will be the fifth consecutive year of share buybacks and total capital return to shareholders of £390 million. So finally, on guidance for the balance of 2025. And since our pre-close statement in late June, guidance is unchanged for revenue, profit and cash flow. Debt guidance has been updated to reflect the share buyback announced today. And tax is expected to be a little better after some favourable tax outturns in the first half. Revenue for the year is expected to be around £4.9 billion, a 5% increase on the constant currency basis. The second half of the year will benefit from the recent new business wins, the MT&S acquisition, and will offset the impact of the Australia immigration contract. Underlying operating profit is guided to be around £260 million, which is broadly flat on a constant currency basis. We also expect the second half to be lower than the first half because of usual seasonality, particularly in North America. But also in 2025, there will be the full period impact of Australia immigration and national insurance, partially offset by good cost control and contract productivity. In addition, MT&S will not be contributing in its full-going rate because around $10 million of acquisition and integration costs will be charged to underlying operating profits. And cash flow is based on our median term guidance that structure it at least 80% of our profits should convert into cash. And net debt is expected to be at the bottom end of our target range by the end of the year. So I'll now hand back to Anthony.

Nigel, thank you. I'm going to Turn now to our strategic positioning for a moment, if I may, with a focus on the area where we are most ambitious, which is defence. As Nigel said earlier, defence now makes up around 40% of the portfolio, and I'm clear that the structural drivers of demand continue to create intense pressure on governments who look to partner with the private sector for support and innovation. You'll have heard us talk previously about the four forces that drive demand, and I believe that they remain as true today as at any point in our past. The public are rightly demanding improved services while remaining intolerant of higher taxation, and this creates the need for governments to do more for less, which is being compounded by the need to find headroom to invest in national security and resilience. And this is where organisations like Serco add value, with our focus on innovative solutions, efficient processes, deep expertise and productive workforces. These drivers of demand are perhaps most acute in defence. Ongoing conflicts and geopolitical risk are creating the need for enhanced sovereign capabilities, which is driving defence spending, whether that be across Europe, here in the UK or in North America. Global defence spending reached a record of $2.7 trillion in 2024, real-time growth of around 9% and is forecast to continue to grow. And we have good exposure to a number of those areas. So this is clearly a new era for defence. In the near time, President Trump's big beautiful bill alone will see US military receive a budget increase of around $150 billion with money identified to bolster armed forces shipbuilding capability and capacity as well as to fund the Golden Dome. In addition, we know that warfare readiness is a strategic priority for the Department of Defense, and we believe that we have deep expertise and vast experience that can contribute to the priorities of the US administration. After the full year, we talked about DOGE and how that may impact our business, and we acknowledge that others in our sectors have seen a slight slowdown in awards in the first half. we as always and as expected saw a slightly softer first half on the basis that we had our bidding cycle it typically flows more into the second than the first and based on the huge number of wins that we were successful in North America in 2024 we always expected the first half would be slightly softer but we're very conscious of the second half adjudications that are currently in the pipeline and to date we've seen no cancellations of contracts in our pipeline or that we have submitted overall any impact on our business. Our breadth of defence capabilities continues to grow and evolve, placing us well to convert our significant pipeline to qualify a greater proportion of defence opportunities than we've been able to in the past. One example of growing our capabilities is the defiant unmanned vessel that has been designed and built entirely by Serco for the US Defence Advanced Research Project Agency, DARPA. This is a first in class unmanned surface vessel designed for remote and autonomous operations. She will be christened in fact by the US Navy next week before heading out on a large lengthy at sea demonstration. The successful acquisition and integration of MT&S is enhancing our capability offering in that sector and significantly advances our expertise in synthetic training and exercise simulation as well as ground satellite communications and space. This builds on our significant military training expertise that we have across the group from maritime warfare training in Wattens Bay in Sydney to expert guidance in specialist technical programmes out of the UK Resilience Academy. This capability development gives us access to defence sub-sectors where we now have more ability to grow than we have historically, particularly satellite ground and network communications as well as warrior readiness. You can clearly see that our focus on investment in defence is yielding results. Our defence business now accounts for over £2 billion of the group's revenue, over twice what it was in 2018, and our pipeline continues to have a heavy defence weighting. Combined with a further £1.4 billion of smaller but equally important defence deals that are in our sights, although out of our pipeline definition. And the universe of unqualified opportunities in this sector sits at around £12 billion. And whilst I struggle to hide my ambition for our defence business, the next stage of our strategic cycle I'm hoping will take great advantage of those spending increases. And our conversion rate is also improving with over 80% of our order intake in the year coming from defence. Now, of course, this momentum in defence comes as no surprise to Nigel or I or Serco, as it's an area that's been core to our strategy, a focused, deliberate strategy for investment for some years now. We can now see growing scale and capabilities in two of our most important markets, North America and the UK, through both organic and inorganic progress. These scaled opportunities are increasing complex and technical solutions such as the award of three major wins with a combined value of over a million pound with the UK Ministry of Defence to deliver maritime services to the Royal Navy. and the retention of two significant contracts with the US Navy worth around $100 million each delivering design and engineering support for their next generation small surface combatant vessels and supporting the amphibious warfare program office. And we've also been deliberate with our acquisition investments growing our capability offering and building additional scale. This has predominantly been focused in the US, where historically we've seen the greatest propensity for growth. And those acquisitions have contributed to us becoming a critical ship design partner to the US Navy, along with bringing significant engineering and sustaining capabilities to bear. We've also created a foothold in the European defence market through our Clemico acquisition back in 2021, which supports the Belgian Navy to be mission ready. Europe, whilst not homogenous, is an interesting prospect for us as nations are quickly appreciating the need to further invest across their defence landscape with the US pursuing an America First policy, all of which is driving demand globally. And we see targeted and disciplined M&A as an important part of our overall growth strategy. As an example of this increasing complexity that we're able to deliver on behalf of customers and a scaling defence, I did just want to spend a moment on the UK Armed Forces Tri-Service Recruitment Mobilisation, which began in April this year, two-year mobilisation. This complex service requires the management and execution of deep technical expertise. through a specifically designed partnering approach led by Serco, it's moving apace with all milestones on track. Our six decades of experience working with the UK Armed Forces is critical in integrating and delivering a solution for one of the most high profile contracts the MOD have ever procured. Our expertise in critical programme management, governance, sector experience and deep stakeholder management, as well as operational delivery, has proved essential in the start of this transition, as we bring together best-in-class partners into a single delivery entity, with Serco at the centre and the Ministry of Defence at the heart. In parallel, we've engaged in bilateral engagement with other MODs to share the learning and hopefully shape future opportunities outside of the UK. On the inorganic side of things, I'm exceptionally proud of the excellent integration of the MT&S business, which became part of the Serco family on the 24th of May this year, following approval from the US government. Almost 1,000 colleagues have successfully transferred with superb levels of engagement. I've personally had the opportunity to spend time with some of those new colleagues and I'm delighted with the skills, expertise and experience that they've demonstrated and the glowing reviews following the transfer to our business. We've already secured new business and have qualified £800 million worth of opportunities to date as the team continue to scrub the pipeline and overlay our existing capabilities. We believe there is a clear opportunity to bring MT&S's cutting-edge capabilities to other markets around the world, some of which are already showing up in our pipeline. To conclude this section, we remain excited by the potential of the market in which we operate and where we see strong growth drivers. I'm clear that we can maintain that good momentum that we have demonstrated in the first half and in prior periods. To do this, we will continue our focused efforts on disciplined execution centred around those three core pillars of our strategy, operational excellence, competitiveness and growth, which I believe will contribute to sustained progress and future growth. Look, I don't want to repeat verbatim what I've said earlier, but I do want to reiterate the key messages as I see them. Strong operational performance in the first half gives us confidence in the full year. We continue to operate in buoyant markets with governments around the world seeking more for less, along with the need to invest in and increase defence capabilities. And this gives us confidence in our future capability for growth. Our disciplined focus on operational excellence, competitiveness and growth positions us well to capitalise on all of this growth whilst leveraging momentum from organic wins and acquisitions. And all of this leaves as well to capitalise on the structural drivers in our markets. So thank you for listening to Nigel and I and we will now take questions. Firstly from the room and then potentially online.

Thank you. Alex Smith from Berenberg. Just a quick question on the record pipeline that you seem to have replenished quite well, strong growth in the U.S. If you could maybe give some detail on the key kind of drivers there. And secondly, just on timing of award, sometimes trying to give a percentage over what's being awarded over 12 months, that would be kind of helpful. And then second, just on capital allocation with the balance sheet kind of at the bottom end of your leverage ratio at the end of this year, strong free cash flow coming up. Just kind of looking in towards where capital allocation sits going forward. Is it a focus more on buybacks or is it bolt on M&A? Any color there would be great. Thank you.

Super. Shall I start with the pipeline and then you take the second question? So we're very confident in the replenishment of the pipeline. In order to get things into our qualified pipeline, there is a significant number of staged qualification dates that our teams have to go through. So this is a good quality pipeline that the teams have replenished, of which around a third is in defence. We continue to see our pipeline growing in areas where we have deep expertise so mission training readiness as an example, warrior readiness in the US as well as personnel readiness in other parts of the group as well. So we're confident that our pipeline is being replenished with good quality business.

On timing of awards?

trying to predict exactly when these things are going to get determined is out of our control. What I can tell you is that 40% of that pipeline has already been bid. So it's sat with a customer. And there's about 60% where we have developed the plans and we're waiting for the RFP to drop or we're in the process of completing the RFP. So I think that's probably the best way to think about that. And then on balance sheet, big priorities, continue to manage our cash very strongly, good disciplines around cash management, work and capital management. As far as our priorities are concerned, our number one priority, our priority between Bolton M&A and buybacks is really to look for Bolton M&A opportunities. We are very disciplined about what we look at, and we're very disciplined about getting confidence that acquisitions that we make will help us drive future organic growth. through getting access to new markets or buying capabilities that we can use more broadly across that portfolio. We look at a lot of opportunities and we turn them down. So we're very disciplined with our financial measures as well. So M&A, we would prioritize. We think that helps the group grow strong going forward. Buyback, that's something that we think about when we think we've got more cash. then we really need to run the business. And once we're below that one-times leverage, that's more cash than we need. And I think we've demonstrated over the last five years that we return cash promptly to shareholders once we go below that one-times leverage. Thank you. Michael, behind you.

Thank you. Anthony, thank you for the overview of defence there. That was very useful. You didn't mention AUKUS for probably obvious reasons. Can you just please give us your reading, your thoughts, your prognostications on how that might go? Thank you.

I'll probably refrain from giving you a prognosis on how I think that will go, because this is a multi-decade programme, clearly. We remain ready and able to assist the government, obviously, in the Defence Department in the US, the UK and Australia. We're looking at a number of opportunities at the moment, and we are waiting for... Clearly, we're trying to help shape with those defence departments where we think we can help support the AUKUS programme. At the moment, there are no particular RFPs that have landed that we are responding to at the moment. So this is a longer-burn question for us when it comes to AUKUS globally. Thank you.

Arthur, behind you. Pass the baton.

Thank you very much. So a few from me, if I can. So the first one, you obviously mentioned the one-off costs associated with NTU. How many other one-off costs are there in there? So, for example, are contracts associated with bringing up to speed new contracts higher than usual this year? And if so, by how much? Secondly, if you could talk a little bit about how the very, very strong book to bill compares with what you expected when you spoke on the 26th of June. And secondly, can you just talk about what scenario could see that book to bill at 130% on a full year basis? And then finally, on your tax rate, obviously down from 25% to 23% in terms of guidance. Is that 23% the sustainable rate that we should look to and kind of what's gone right for you there?

Thank you.

Should I start with mobilization? Why don't you do that, yeah. So, not surprisingly, because we had a good level of wins at the end of last year and the start of this year, our mobilization costs are higher this year than we have ordinarily had. We would also say that the electronic monitoring contract was always going to be a more expensive contract to mobilize. the kind of increasing volumes that we had as we were going through that and added to that cost. So in 2025, we have seen higher levels of mobilization costs. We expect that to drop down a bit in the second half of 2025.

So on the, thank you Arthur for the question. In terms of book to build, so it is a fantastic performance and I thank all of the growth teams and operations teams around the world for delivering those record numbers. we've got a bigger pipeline than we've ever had we've increased our retention rates our contract retention rates are at 95% so therefore our face business is helping us achieve that growth and that says to me that we're providing solutions to customers that they're willing to buy a competitive rate so Do I foresee the book to bill being 130% for the rest of the year? That's probably a little bit toppy. But we have still got a number of adjudications to come in the second half of the year, predominantly out of the US, as I said, given that cyclicality of that business. And there are a couple of deals still to be decided in 2025 in the UK, which could slip into 2026, depending upon customer adjudication. So we... we have confidence that we've got sufficient pipeline. If we can keep those win rates increasing and the retention rates where they are, then we'll be confident to move forward with a book to bill that we're comfortable with.

And then on tax rates. If we look at the structure of our business and the mix of our business, our tax rate should be around about 25%. And actually, tax position is relatively straightforward. There's not a lot of complex cross-border shipments or anything. We had some provisions against some risks. Those got a favorable outcome this year. So we've released some of that. And that's what's brought the average rate down by a couple of percent. But you can't bank on that going forward. So I think 25% is a good number. Mr. Perry?

Thank you. Karen So from JPMorgan. Just one question on your medium-term guidance of the 5% to 6% margin. So this year seems to be reaching towards the midpoint, 5.3%, and given the strong growth in North America and the implied, I guess, mixed impact on margins, can you elaborate your thoughts around kind of the assumptions for the medium term? Is it an element of being conservative? That would be helpful. Thank you.

So look, we feel good about the 5% to 6% margin that we've given as medium-term guidance at the moment. We're making good progress on that, and we're moving up through that. Remember when we set this target, we were down sub-5%. So we've not only got into the range, we're getting towards the higher end of the range. And we continue to look for opportunities to drive our business more efficiently, but also opportunities to invest in the business as well. So we are not uncomfortable at all with that range of margin that we're currently going to and we are sticking with that at the moment. Can we come here to David please?

David from . Can I ask two, please? Firstly, on the pipeline, the business not weighted to defense, can you give any insight as to how that looks in terms of scale of opportunities and is it weighted to any particular sector? And then the second question relates to MT&S. I think when you bought the business, you flagged two renewals or two pending revids. Can you give any updates on those? Thanks.

So David thanks for the question our pipeline is weighted towards our strategic growth drivers so we see more than a third now in or around the third in defense then around another third in justice and migration and then the remaining third in the citizen services type areas that we have so that's the weighting of it that is not necessarily not necessarily different to what we saw towards the start of this year, and actually gives me confidence that as we look to continue to build on the strategy and the execution of the strategy, that segmentation of the pipeline gives us confidence that we've got the ability to continue to operate against those strategic areas evenly weighted.

David, the second question, you're going to have to repeat, I'm sorry. MTS Rebids. MTS Rebids, so there is... There were two significant contracts in the acquisition. The first one has been won and is a 10-year contract and is, I can't remember the number off the top of my head, but something like $800 million. It's a big contract. That's secure. That was the biggest and most profitable of the contracts that we bought. The second one is the rebid has come out. We have submitted a rebid. We were very happy with, A, the knowledge we already had in the business about that, but the engagement we had with MT&S. We're expecting a decision on that late this year, early next year, and we've had an extension on that contract as well. So we expect that contract to run on the current terms well into next year, and with a decision coming sometime around the end of the year. But we feel good about our position on that and the service that we provide. And interesting anecdote, the day we actually bought this business, we had hundreds of people out on exercise, doing the training exercise, And they all had to change their IDs and their laptops on that day. And the feedback from our customers, they never spotted that they changed employees. So we managed that integration really, really well.

And they were operating across, I think the training exercise was north of 10 different countries that they were all deployed in as well. So that was a significant indication to us of our process. A significant time relief.

Thanks.

Joe? Good morning, Joe Brent at Palmer and Liebman, three questions if I may. Firstly, could you give us an indication of what the median term earnings power of APAC is and how you kind of get there? Secondly, could you give us your thoughts around the trajectory of sales in UK asylum? And lastly, really good deep dive you've done on defence, very interesting, lots of macro data. Could you give us your sense of the mix of defence spending, which is obviously important as well, because there's a lot of chat around hypersonic missiles, Golden Dome, munitions, and those I don't think are areas you're particularly strong in. So is the mix, the contents of what is the mixed paper as well? Okay.

Shall I do... So in terms of the ASPAC margin look we see we make good progress I think the context is important here we've doubled the margin year-on-year in terms of ASPAC the team have done an exceptional job in terms of productivity turning some of those contracts around etc so I'm pleased with the progress but there is more to do. I think the structural drivers in ASPAC are very similar to the UK so we see not significant number of competition with the structural drivers are the same as the UK so I don't foresee any reason why we can't get the ASPAC margin to be as close to the UK as we've seen it previously in years gone by so I can foresee that that margin continues to develop as we move forward and we continue to implement those plans. In terms of your third question, the mix of defense spending, look, $2.7 trillion of defense spending we'll take a small we'll take a small slice of that um fundamentally if you look at where some of that spending is so golden dome big space element of that business uh missile deterrent systems we operate in those uh in those areas raf filing dales as a prime example uh which will be part of that so fundamentally um we are we think we're in the sectors the the governments around the world will continue to spend on so warrior readiness, readiness of the military to be on a war footing, and also sustainment capability. So although we generally don't build anything, we do help governments sustain their assets, and that's where we think a significant amount of defence spending will be spent as we move forward. Nigel, a second?

Yeah, on migration, I think I start off by saying that all the data we see say that the macro trends for migration into Europe are going to increase, are going to stay strong for some significant period of time. What I would say, so what's happening in the short term in the UK, I assume you're asking a question about the UK housing contract, we would we have seen a reasonable leveling off of revenue on that business there's a bit of a decline half year half one and half one but it's running at similar levels to what we saw at the end of last year so in the short term we don't see material movements on on the revenue of that business i think it's really difficult to look beyond that other than it is very difficult to find new solutions or alternatives to running the contract the way we run it at the moment and this contract is scheduled to run through to the second half of 2029. James?

Hello, it's James Roche from Barclays. Two, please, if I may. So the last few presentations have talked about contract deficiencies and getting employee attrition down. Is that still a meaningful part of the profit bridge for this year and for years to come? And then secondly, on defence again, if we look across at Europe, is there any signs or inkling that they're starting to outsource a bit more of their spend? Okay, do you want to do the first one?

Yeah, so look, contract efficiency, we're looking for opportunities across the whole, all of our contracts and how we can run them more efficiently, improve productivity. You're absolutely right. Staff attrition is a big expense for us because a lot of our staff have to be trained for some period of time before they become effective or chargeable. and we need to minimize that and there's been a real focus efforts on that over the last two years and we've made really good progress. I wish I had some numbers I could give you but our retention rates have gone up and our attrition rate has come down over that period of time so we're making good progress but it's not something that we are taking the foot off but we're continuing to focus on that as an opportunity for us.

Well sure, our attrition rate I think we're running in the high 20s, the below 20. now so we've made really good progress and again I think the teams have done an exceptional job in managing that well. So in terms of the defence spending in Europe, they have signalled, European countries have signalled this increase in defence spending. We're still in the early stages of seeing what is likely to come out and what is likely they're going to come to the private sector for help and support with. So I can't give you any precise numbers unfortunately but what I can do James is say that we are reviewing the European landscape overlaying where we think we have capabilities that we can bring into Europe from other parts of the group and we're also continually looking at any potential M&A opportunities that will help us build presence and scale in those markets but we see where we do have capability those are likely going to be the areas the european governments are going to continue to grow their spending in as i said earlier thank you any more questions in the room steven oh thank you i assume you're listening from the prior value um

Probably the first time in about sort of quite a few years, Serco used to be quite siloed and now the talk really is about focusing on defence and immigration. It sort of gives us a couple of questions in and around are you able to reward people and the transfer of knowledge, sharing of contacts, how you're doing that and particularly in those two areas but it also then highlights something else that might be cropping up and then around what's the portfolio going to be shaping up in the future where transport and health are much much smaller now than these two areas you've highlighted not only in terms of current revenues but also in terms of the pipeline as you've described it this morning If you just talk about those sort of strategic impacts and what that might mean for, for example, you know, selling parts of the portfolio of current businesses in order to fund the areas that you see as growth areas and so on. So it's a big question for results-making, but just very briefly you can touch upon some of those issues.

For sure, and we've got six minutes left in the session, so I don't think I'm going to be able to satisfy all of those. I don't think I'm going to be able to satisfy all of those, Stephen, but let me try and take some of them. In terms of the transfer of knowledge across the group, I think we are much better than we have been historically. We've been, over the last couple of years, we've been trying really hard to look at sharing that expertise and knowledge in a more constructive, more consolidated way, a coordinated way. MTNS is a prime example of that. So we see the MTNS opening up opportunities in the pipeline for sharing of knowledge, expertise and skills. If you look at our justice business, so our justice teams in New Zealand, in Australia and the UK now work much more collaboratively together to try and help shape better outcomes in those justice areas, as well as our migration services businesses in Europe and the UK working together. So I would say we have done a significant amount of work to bring that together. So where you said in years gone by, it was quite siloed we've broken those silos down but I do think there's opportunity to further enhance that as we move forward which I'm hoping will help us contribute to even more improved growth rates. In terms of incentivising people you will forgive me for not sharing our reward strategy openly but needless to say we have people that are really ambitious to try and help us grow this organisation beyond the boundaries in which they work. In terms of Your other questions around portfolio and portfolio review, et cetera. Again, look, we constantly review our portfolio. We constantly look to see are we in businesses and jurisdictions where we have the right to win, where we can occupy first and second place in some of those capabilities and that's not going to change as we move forward we will continue to review that portfolio on an ongoing basis but I can't say to you now we're going to do x over here in order to achieve y over there so we're just going to our strategic review process and we'll come back and share that with you all at some stage early next year probably anything else is there another question Stephen no no those are two questions

Questions on the line?

If you would like to ask a question, please signal by pressing star 1. We'll pause for a moment to allow questions to come in. As a reminder, please press star 1 if you wish to ask a question. There are no questions on the conference line. I want to hand it over to the management for closing remarks.

Well, look, thank you all very much for your time. Really appreciate the energy and effort to come here. Really enjoyed the conversations and the discussions. And please do reach out to Nigel or I and Jamie if you need anything else in the meantime. Well, have a good rest of the day. Stay safe and we'll see you soon. Thank you.