2023 Final Results

Serco Group PLC

Feb 29 2024 07:00 GMTSource: RNS

RNS Number : 8683E

Serco Group PLC

29 February 2024

2023 full year results

Serco Group plc

29 February 2024

Strong performance in 2023, positive outlook for 2024 and medium-term

Year ended 31 December	2023	2022	Change at reported currency	Change at constant currency
	unaudited
Revenue⁽¹⁾	£4,874m	£4,534m	7%	8%
Underlying operating profit⁽²⁾	£249m	£237m	5%	5%
Reported operating profit⁽²⁾	£272m	£217m	25%
Underlying earnings per share (EPS), diluted⁽³⁾	15.36p	13.92p	10%
Reported EPS (i.e. after exceptional items), diluted	17.93p	12.79p	40%
Dividend per share (recommended)	3.41p	2.86p	19%
Free cash flow⁽⁴⁾	£209m	£159m	31%
Adjusted net debt⁽⁵⁾	£109m	£204m	(47)%
Reported net debt⁽⁶⁾	£562m	£650m	(13)%

Highlights

• Revenue: grew by 7% to £4.9bn, organic revenue growth of 4%

• Underlying operating profit: increased by 5% to £249m, a margin of 5.1%. More than 60% of Group underlying operating profit derived from outside the UK⁽⁷⁾

• Underlying earnings per share: increased by 10% to 15.36p

• Cash flow: free cash flow very strong at £209m, trading cash conversion of 111%

• Adjusted net debt: better than previous guidance at £109m; covenant leverage at 0.5x EBITDA

• Order intake: £4.6bn of wins, order book remains strong at £13.6bn

• Pipeline: pipeline of potential new work of £10.1bn, +28% since half year, highest level in a decade

• Dividend per share: recommended final dividend per share of 2.27p, +18% year on year

• New £140m share buyback in 2024: continuing to return capital to shareholders as a result of strong trading and cash conversion consistent with our capital allocation priorities.

• Updated guidance for 2024: Revenue and underlying operating profit unchanged, net debt updated to include better 2023 outcome and new share buyback

Mark Irwin, Serco Group Chief Executive, said:

"We are making good progress in building a resilient international platform for growth in the government services sector. Our strong results for 2023 reflect this progress, with another year of growth in revenue and profit and continued excellent cash generation. We enhanced our customer relationships and improved our win rates compared to the prior year, delivered better safety outcomes for our colleagues, and announced two strategic acquisitions to strengthen our capabilities.

We have entered 2024 with increased execution focus on service excellence to our customers, effective conversion of a substantial pipeline of opportunities, the safety and productivity of our colleagues, and progressing the technology-enablement of our business, all aligned to delivery of our medium-term goals."

Guidance for 2024

We update our guidance for 2024. Revenue and underlying operating profit guidance are unchanged. Net debt guidance is updated to reflect a stronger outcome on free cash flow than expected in 2023 and the new £140m share buyback announced with these results.

	2023 Actual unaudited	2024 Initial guidance 14 December 2023	2024 New guidance
Revenue	£4.9bn	~£4.8bn	~£4.8bn
Organic sales growth	4%	~(3)%	~(3)%
Underlying operating profit	£249m	~£260m	~£260m
Net finance costs	£25m	~£33m	~£35m
Underlying effective tax rate	23%	~25%	~25%
Free Cash Flow	£209m	~£140m	~£140m
Adjusted Net Debt	£109m	~£85m	~£175m

NB: The guidance uses an average GBP:USD exchange rate of 1.26 in 2024, GBP:AUD of 1.93 and GBP:EUR of 1.17⁽⁸⁾. We expect a weighted average number of shares in 2024 of 1,065m for basic EPS and 1,085m for diluted EPS.

Medium-term financial targets

-	Revenues to grow at ~4-6% per year over the medium term
-	Profits to grow faster than revenue with margins of 5-6%
-	At least 80% of profit converted into cash
-	Returns to shareholders will grow faster than profits.

For further information please contact Serco:

Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718 195 074 or email: paul.checketts@serco.com

Marcus De Ville, Head of Media Relations; tel +44 (0) 7738 898 550 or email: marcus.deville@serco.com

Presentation:

A presentation for institutional investors and analysts will be held at H/Advisors Maitland, 3 Pancras Square, London, N1C 4AG today at 10.00 UKT. The presentation will be webcast live at https://edge.media-server.com/mmc/p/pg7tzizn and subsequently available on demand. A dial-in facility is available on https://register.vevent.com/register/BI91351cd9c6f7468781113fb5ea697036

Notes to financial results summary table and highlights:

(1) Revenue is as defined under IFRS, which excludes Serco's share of revenue of its joint ventures and associates. Organic revenue growth is the change at constant currency after adjusting to exclude the impact of relevant acquisitions or disposals. Change at constant currency is calculated by translating non-sterling values for the year ended 31 December 2023 into sterling at the average exchange rates for the prior year.

(2) Underlying operating profit is defined as IFRS Operating Profit excluding amortisation of intangibles arising on acquisition and exceptional items (and in the prior year other non-underlying items). Consistent with IFRS, it includes Serco's share of profit after interest and tax of its joint ventures and associates. A reconciliation of underlying operating profit to reported operating profit is as follows:

Year ended 31 December	2023	2022
£m	unaudited
Underlying operating profit	248.7	237.0
Amortisation and impairment of intangibles arising on acquisition	(30.9)	(21.6)
Exceptional operating items	53.8	(2.4)
Other non-underlying items	-	4.2
Reported operating profit	271.6	217.2

(3) Underlying EPS is derived from the underlying operating profit measure after deducting pre-exceptional net finance costs and related tax effects.

(4) Free cash flow is the net cash flow from operating activities adjusted to remove the impact of non-underlying cash flows from operating activities, adding dividends we receive from joint ventures and associates and deducting net interest, net capital expenditure on tangible and intangible asset purchases and the purchase of own shares to satisfy share awards.

(5) Adjusted net debt is used by Serco as an additional non-IFRS Alternative Performance Measure (APM). This measure more closely aligns with the covenant measure for the Group's financing facilities than reported net debt because it excludes all lease liabilities including those recognised under IFRS 16 Leases.

(6) Reported net debt includes all lease liabilities, including those recognised under IFRS 16 Leases. A reconciliation of adjusted net debt to reported net debt is as follows:

As at 31 December	2023	2022
£m	unaudited
Adjusted net debt	108.7	203.9
Include: all lease liabilities	453.7	446.0
Reported net debt	562.4	649.9

(7) Refers to non-UK underlying operating profit as a proportion of Group underlying operating profit before corporate costs. Our underlying operating profit before corporate costs in 2023 was £298.0m.

(8) The currency rates used for our 2024 outlook, along with their estimated impact on revenue and underlying operating profit are:

Year ended 31 December (unaudited)	2024 outlook	2023 actual	2022 actual
Average FX rates:
US Dollar	1.26	1.24	1.24
Australian Dollar	1.93	1.87	1.78
Euro	1.17	1.15	1.18

Year-on-year impact:
Revenue	£(48)m	£(33)m	£175m
Underlying operating profit	£(4)m	£(0)m	£14m

Reconciliations and further detail of financial performance are included in the Finance Review on pages 17-29 This includes full definitions and explanations of the purpose and usefulness of each non-IFRS Alternative Performance Measure (APM) used by the Group. The Condensed Consolidated Financial Statements and accompanying notes are on pages 30-51.

Chief Executive's update

In 2023 we made good progress towards building a resilient international platform for growth in the government services sector. We delivered growth in revenue, profit and cash, with all three financial performance measures ending the year better than our initial guidance. We have also made good progress executing our strategy with clarity about our Purpose - to impact a better future; our Vision - to be the partner of choice to governments globally; and our Mission - to bring together the right people, the right technology and the right partners to support our government customers with solving some of the most complex problems that they face.

We grew revenue by 7% to £4.9bn, with organic growth of 4%, acquisitions adding another 4% and a 1% drag from currency. Underlying operating profit increased by 5% to £249m and our cash generation was again very strong, with 111% profit to trading cash conversion.

In North America, which generates close to half our profit, organic revenue growth was strong. We secured the rebid for our CMS contract, one of the largest and strategically crucial contracts in the Group and we strengthened our order book with excellent rebid success. Within North America, Canada continues to grow, and we are seeing our focus on global collaboration bear fruit with success in winning employment services work in Ontario, as we entered the sector for the first time by leveraging our longstanding work in the UK.

Our UK business delivered high organic revenue growth, margin improvement and good conversion rates for new wins and recompetes. In Europe, the successful integration of ORS, which is now delivering revenue more than double the level prior to us acquiring it, has strengthened our position in immigration services. We have followed that with the acquisition of European Homecare, a German immigration services provider which will complement the work we do to support governments in the UK, Australia and across Europe.

Our Middle East business had a good year. Although profit reduced slightly, order intake was high as we saw success in executing our strategy of repositioning Serco for higher margin growth in the most dynamic markets in the region. The development of an advisory business has helped us win work in new segments, such as sustainability services at the Red Sea Global megaproject and has expanded our presence in the exciting new giga-cities of Saudi Arabia.

Our Asia Pacific business had a difficult year. Volume-variable work, which as part of a portfolio we expect to ebb and flow, reduced in the period, tight labour markets created operational challenges and new business wins did not meet our expectations. We took appropriate action, appointing a new CEO for the business and implementing the necessary business changes to ensure we are well positioned for future opportunities in what remains an important market for Serco.

In summary, we are pleased with the full year results for 2023 which were the direct result of the hard work and dedication of more than 50,000 colleagues across the Group. For that we remain grateful, as we do for the continued trust of our customers and the support of our shareholders.

After my first full year as Group Chief Executive, I am confident that we enter this next stage of Serco's development with strong foundations and a strategy aimed at delivering profitable, sustainable growth aligned to our medium-term goals. We enter 2024 with the largest pipeline of potential new work in a decade, a business plan to deliver margin improvement from a rigorous approach to operational efficiency, a network of partnerships to support technology enablement and a robust balance sheet providing good optionality for capital allocation. We therefore see clear opportunity to sustain the consistent positive results reported in recent years.

Mark Irwin

Group Chief Executive

Serco - Impact a better future

Group Review

Summary of financial performance

Revenue, underlying operating profit and underlying earnings per share

Revenue increased by 7%, or £340m, to £4,874m (2022: £4,534m). Organic revenue growth was 4% (£199m), acquisitions added 4% (£174m) and currency was a drag of 1% (£33m). Revenue has increased organically as growth in the immigration and defence sectors, areas we have invested in significantly in recent years, more than offset Covid-related work which concluded in 2022. Were revenue from our joint ventures to be included, it would add a further 5% to the Group's organic revenue growth, as our VIVO Defence Services work for the UK's Defence Infrastructure Organisation continues to experience robust demand.

Underlying operating profit increased by 5% to £249m (2022: £237m), and growth on a constant currency basis was also 5%. Ongoing demand for immigration services in the UK and Europe, operational improvement in our existing portfolio, as well as the successful ramp up of new business signed in prior years, more than offset a 7% impact from Covid-related work, as well as lower volumes in Asia Pacific. Improved margins in the UK & Europe division broadly offset lower margins in the other regions, underlining the benefit of our geographic and sectoral diversity, and the overall resilience this brings to our business.

Reported operating profit increased by 25% to £272m. The growth rate was greater than for underlying operating profit because of positive exceptional operating items. Exceptional operating items of £54m resulted from the release of £44m of provisions held for indemnities provided on businesses disposed of in 2015, predominantly due to the claims period ending, and £10m compensation we received on the early termination of a contract.

Diluted underlying earnings per share increased by 10% to 15.36p (2022: 13.92p). The percentage improvement was higher than the increase in underlying operating profit as a 7% reduction in the weighted average number of shares, due to our share buybacks in 2022 and 2023, more than offset higher net finance costs.

The revenue and underlying operating profit performances are discussed in more detail in the Divisional Reviews.

Cash flow and net debt

Free cash flow was very strong at £209m. This was 31% better than the prior year (2022: £159m), which itself had been a particularly good outcome. Trading cash conversion was also very strong at 111%. High conversion of profit to cash in recent years has been achieved, in part, by intense focus on the cash management process. An important element of this has been increased focus on the timeliness and accuracy of issuing sales invoices, which enables our customers to pay us on time. In 2023, cash flow benefitted from continued good performance on working capital, including successful collection of some older debt, the timing of payments on some large contracts, contract mobilisation dynamics, and the working capital unwind of lower work levels in Asia Pacific. Average working capital days were at attractive levels with debtor days of 16 (2022: 22 days) and creditor days of 20 (2022: 21 days). The reduction in debtor days reflects the factors mentioned above, some of which are temporary. Including accrued income and other unbilled receivables, day sales outstanding for 2023 were 38 days (2022: 48 days). Of all UK supplier invoices, 94% were paid in under 30 days (2022: 87%) and 98% were paid in under 60 days (2022: 95%). No working capital financing facilities were utilised in this or the prior year.

Adjusted net debt was £109m at the end of December. This was a reduction of £95m (December 2022: £204m) despite £34m of dividend payments to shareholders and £89m being spent on our share buyback programme, net of fees.

The period end adjusted net debt compares to a daily average of £232m (2022: £231m) and a peak of £362m (2022: £377m). The variance reflects free cash flow being generated across the year, while returns to shareholders - our share buyback and final dividend - were concentrated in the first half. Receipts towards the end of the period supported the closing balance being lower than prior guidance.

Our measure of adjusted net debt excludes lease liabilities, which aligns closely with the covenants on our financing facilities. Lease liabilities totalled £454m at the end of December (2022: £446m), the majority being leases on housing for asylum seekers under our Asylum Accommodation and Support Services Contract (AASC). The terms of these leases do not extend beyond the expected life of the contract we have with the customer.

At the closing balance sheet date, our leverage for debt covenant purposes was 0.5x EBITDA (2022: 0.8x). This compares with the covenant requirement for net debt to be less than 3.5x EBITDA and our target range of 1-2x.

On 27 February 2024, we issued $150m (£118m) of US Private Placement loan notes. The notes are equally split into two series of $75m each with maturities of five and ten years, giving an average maturity of seven and a half years. The average interest rate on the new loan notes is fixed at 6.58%, which compares to a blended rate of 3.97% for the existing notes.

More detailed analysis of earnings, cash flow, financing and related matters is included in the Divisional Reviews and Finance Review.

Capital allocation and returns to shareholders

We aim to have a strong balance sheet with our target financial leverage of 1x to 2x net debt to EBITDA, and, consistent with this, the Board's capital allocation priorities are to:

-	Invest in the business to support organic growth.
-	Increase ordinary dividends to reward shareholders with a growing and sustainable income stream.
-	Selectively invest in strategic acquisitions that add capability, scale or access to new markets, enhance the Group's future potential organic growth and have attractive returns.
-	Return any surplus cash to shareholders through share buybacks or other means.

Our capital allocation framework was actively applied in 2023:

-	Invest to support organic growth: significant investment has been put into business development, which has supported our healthy pipeline of new opportunities. In the Middle East, we have invested in developing an advisory capability and this has generated good new business wins in the year. We also invested in new pilot programmes to partner with both start-up and established technology businesses, as well as academic and research institutions to create a broader capability ecosystem from which to deliver future growth.
-	Increase ordinary dividends: the Board is recommending a final dividend of 2.27p per share. Following the interim dividend of 1.14p, this results in a full year dividend of 3.41p, an increase of 19% compared to 2022, as we continue on our path to reduce dividend cover progressively towards 3x over the coming years.
-	Invest in acquisitions: we agreed to acquire European Homecare (EHC), a leading provider of immigration services in Germany, and we also agreed to acquire Climatize, a small but fast-growing business that operates in the United Arab Emirates and the Kingdom of Saudi Arabia offering 'zero-carbon' advisory and related engineering services. The Climatize acquisition completed in January 2024 and EHC is expected to complete in March 2024. We continue to assess other opportunities that are aligned to our strategy and provide potential to enhance future organic growth.
-	Return surplus cash to shareholders: in 2023 we completed a £90m share buyback and the Board has agreed that it intends to buy back a further £140m of the Company's shares during 2024. Net debt to EBITDA was 0.5x at the end of 2023 and the £140m buyback, applied retrospectively, would take leverage to 1.0x, the low end of our preferred 1-2x range and the level below which we consider capital to be surplus.

Contract awards, order book, rebids and pipeline

Contract awards

Order intake in 2023 was £4.6bn, a book-to-bill rate of 95%. Book-to-bill of slightly below 100% reflects a significant number of bids currently submitted and awaiting decision. Our win rates in the year improved and have rebounded to the levels we have delivered on average over recent years, following a dip in the second half of 2022.

There were around 60 contract awards worth £10m or more each. As in 2022, North America had the strongest book-to-bill at 154%, with robust new order intake in Defence and Citizen Services as well as the strategically important rebid of our Centers for Medicare & Medicaid Services (CMS) contract.

Our Middle East business showed strong momentum, with full year book-to-bill of 150%, supported by order intake in the second half approaching 2x revenue. Around £2.1bn, or 45%, of the order intake came from North America, £1.9bn, or 41%, from the UK & Europe, and the Middle East and Asia Pacific both contributed £0.3bn, or 7%.

Approximately 40% of the order intake value was new business and 60% was rebids or extensions of existing work. The win rate by value for new work was approaching 35%, while the win rate by value for retaining existing work was approximately 90%.

New wins included a £350m five-year contract to deliver functional health assessments in the south-west of England for the Department of Work and Pensions to determine disability benefits and a contract to deliver electronic monitoring services in England and Wales that is expected to be worth £200m over its initial six-year term. We also secured a £140m, five-year contract with the Government of Ontario to assist job seekers develop their skills and match them to employment opportunities, and a £78m, nine-year contract with the UK Home Office to run the Derwentside Immigration Removal Centre. In the UK, increases in the numbers of service users led to us securing additional immigration accommodation work that is expected to generate around £300m of revenue in 2024. We also successfully rebid our CMS contract where we support eligibility determinations for citizens purchasing health insurance through the Federal Health Insurance Exchanges. The estimated total value to Serco, subject to workload volumes, is approximately $690m (£570m) over its term of just over four and a half years, if all option periods are exercised. Other notable retained work in the year included our driver examination services contract in Ontario, where we secured a three-year extension worth an estimated £220m, an agreement with the Australian Defence Force to continue to provide logistics and a full suite of base services for their locations in the Middle East, and our force protection work for the US Navy, with the new five-year contract expected to be worth approximately £160m.

Order book

The order book remains strong at £13.6bn at the end of December (2022: £14.8bn). The reduction during the year primarily reflected book-to-bill being slightly below 1.0x. Our order book definition gives our assessment of the future revenue expected to be recognised from the remaining performance obligations on existing contractual arrangements.

This excludes unsigned extension periods, and the order book would be £2.6bn (2022: £1.9bn) higher if option periods in our US business, which typically tend to be exercised, were included. If joint venture work was included this would add a further £1.9bn (2022: £2.0bn) to our order book.

Rebids

In our portfolio of existing work, we have around 85 contracts with annual revenue of £5m or more where an extension or rebid will be required before the end of 2026, with an aggregate annual revenue of £1.9bn. Contracts that will either need to be rebid or extended in 2024 have an annual contract value of around £0.7bn, including our immigration services work in Australia, which is currently contracted until December 2024. The annual value of rebids is approximately £0.6bn in both 2025 and in 2026.

New business pipeline

Our measure of pipeline includes only opportunities for new business that have an estimated annual contract value (ACV) of at least £10m and which we expect to bid and to be adjudicated within a rolling 24-month timeframe. We cap the total contract value (TCV) of individual opportunities at £1bn, to lessen the impact of single large opportunities. The definition does not include rebids and extension opportunities, and in the case of framework, or call-off, contracts such as 'ID/IQ' (Indefinite Delivery/Indefinite Quantity contracts), which are common in the US, we only take the value of individual task orders into our pipeline as the customer confirms them. Our published pipeline is thus a small proportion of the total universe of opportunities, as many opportunities have annual revenues less than £10m, are likely to be decided beyond the next 24 months or are rebids and extensions.

Our pipeline was £10.1bn at the end of December, 20% higher than the £8.4bn level at the end of 2022, an increase of nearly 30% since the end of June 2023, and is now more than double its pre-Covid level. The pipeline consists of around 45 bids with an ACV averaging around £40m and an average contract length of around six years. The pipeline of opportunities for new business with an estimated ACV of less than £10m totalled £2.6bn at the end of December, a 4% increase from the £2.5bn value at the end of 2022.

Acquisitions

We continue to view acquisitions as an important part of our strategic toolkit, which, if deployed correctly, can add significant value to the business. They should therefore supplement and be capable of delivering new opportunities for organic growth. Generally speaking, we regard acquisitions as higher risk than organic growth, so any potential opportunities have to meet our stringent criteria of being both financially and strategically compelling. We judge potential acquisitions against three criteria: do they add new, or strengthen existing, capability? Do they add scale which we can use to increase efficiency? Do they bring us access to new and desirable customers and markets? We also recognise that acquisition opportunities come in different shapes, sizes and sectors, and a small one can be strategically important to a region, but not necessarily significant at Group level. But large or small, the execution of all acquisitions is centrally managed by Group and follows the same rigorous process. Equal focus and discipline is applied to post-acquisition value drivers such as effective integration and value realisation from synergy and growth.

We announced two acquisitions in 2023:

In December we agreed to acquire European Homecare (EHC), for a consideration of €40m (£34m). EHC is a leading private provider of immigration services in Germany. In conjunction with ORS, the Swiss-based business we acquired in 2022, this strategic acquisition will create a strong partner for European governments in immigration services and complement the support we already provide to government customers in the UK and Australia. The acquisition has received competition clearance and is expected to complete in March 2024.

We agreed in December and completed in January 2024, the acquisition of Climatize, for an initial cash consideration of AED 9m (£2m) and a contingent consideration of up to AED 51m (£11m), payable on achieving certain financial targets. Climatize is a small but fast-growing business that operates in the United Arab Emirates and Saudi Arabia offering 'zero-carbon' advisory and related engineering services. The business will significantly boost Serco's sustainability advisory capability in the Middle East with possible scalability to other markets.

We continue to seek out and evaluate new opportunities for acquisition which fit our criteria, and focus on delivering value from those acquisitions already executed.

Our market

The market for private sector delivery of government services is large and growing. Independent research has put low estimates of Serco's addressable market at around £715bn. Further growth is predicted as governments around the world are facing ever more complex challenges.

We believe that the imperative to provide more, and better, for less will become even more urgent in the years ahead. And to deliver those objectives governments will need to access the skills, resources, innovation and agility of a partnership ecosystem. At the same time, the supply-side is fragmented and even Serco, as a leading international provider, has only a small market share. This gives us an opportunity to grow within, as well as with, the market.

Our strategy

We embark on the next stage of Serco's development from a strong position; our foundations are solid and the strategy is working as demonstrated by the results delivered over recent years. Our focus in the period ahead is on the execution of our strategy to make our business even better and achieve our medium-term growth goal to grow revenue faster than the market, profit faster than revenue and convert that profit into cash.

Last year we laid out three strategic enablers, Customers, Colleagues and Capabilities, where we see opportunity to create value by driving enhanced execution. We have made good progress in 2023.

Customers

Our power to drive innovation and support customers from service discovery through to delivery is underpinned by Serco's unique operating model, which features three components: Impact Pathway, Partnership, and Global data and insights.

Impact Pathway factors in the perspectives of citizens, communities, customers and operators - to inform service innovation and deliver measurable improvement in outcomes. Our highly collaborative approach to Partnership brings our people together with government, along with network partners - including start-ups, enterprise level technology companies, academia and third sector organisations - to design and deliver end-to-end solutions and learn collectively from our experience.

Finally, we draw on a global pool of data and insights, deep domain knowledge, and global operating experience to inform the design of solutions we know will work in the real world.

Bringing these together allows us to support our government customers with solving some of the most complex problems they face.

By way of example, we will continue to invest in our advisory-to-operate business in Saudi Arabia, which has shown early success and is focussed 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 of our customers to make a long-term contribution to delivery of the Kingdom's Vision 2030.

Colleagues

During 2023, our People and Culture function was reorganised to ensure that it is structured to confront the current and emerging workforce challenges impacting government service providers, while continuing our work to progress inclusivity, equity and diversity. Health, safety, and well-being feature as priorities in the development of a high-performance culture and will remain central to strategic decisions that affect our people including recruitment, development, digital inclusivity and compensation.

In the past year we have made key appointments to give us a stronger and more diverse executive team, and taken a data driven approach to addressing People and Culture challenges and opportunities. We have effectively resourced successful mobilisation of key contracts such as the newly built HMP Fosse Way, and pleasingly saw a reduction in employee attrition which has created operational challenges for our business in recent years. And we have proudly welcomed more than two thousand new colleagues in our growing immigration business in Europe.

As we press ahead, ongoing execution of our People and Culture strategy is crucial to our long-term success. Continually evolving our Employee Value Proposition from its purpose-led and values-driven foundations to remain relevant, attractive, and exciting is a key element to that execution.

Colleagues are, and have always been, at the heart of Serco.

Capabilities

We have begun to optimise existing IT platforms and align investment to business and growth needs such as selectively piloting AI systems, as outlined below. The appointment of a Chief Data and Technology Officer to the Group's Executive Committee will be a critical enabler to the next stage of developing and delivering our technology roadmap. As we explore the positive impacts AI can have on our operations, we are mindful that AI is also enabling an expanded cyber threat landscape that requires adaptive risk and response management, and continuous vigilance throughout the business and into our supply chain. We will continue to invest in technology pilots as well as strategic partnerships with technology companies to drive productivity and open new revenue opportunities.

Artificial intelligence pilot programs

Microsoft Partnership

In December 2023, we signed a strategic memorandum of understanding with Microsoft UK to drive Serco's digital transformation, leverage opportunities for co-innovation and joint business development. This includes a pilot project to use Microsoft's VisionAI products to automatically identify, classify, and retrieve prisoner property - this will potentially improve processing time as well as enable the identification of signs of bullying and potential gang activity. Once this product has been fully tested, Serco will aim to deploy it for similar use cases in its prison and immigration estate globally. This is an example of Serco partnering to impact a better future for our government customers globally.

AutogenAI

Serco's first technology pilot in 2023 with AutogenAI (a UK-based start-up) has already resulted in a global partnership agreement. Initial tests, during the pilot, have shown up to a very significant time saving when managing and collating knowledge about Serco's capabilities worldwide. If deployed at scale, Serco believes the technology could produce significant productivity improvements; increase global collaboration; and lead to more innovative solutions for Serco's customers. Serco has already used AutogenAI's technology over 6,000 times during the pilot phase in the UK & Europe Division. It will now be deployed globally to support better knowledge management across the Group.

Guidance for 2024

Our guidance for 2024 is updated from our pre-close trading statement on 14 December 2023, to reflect the strong cash performance and share buyback announced today. We expect revenue in 2024 to be slightly below 2023, underlying operating profit to grow by around 5% and the conversion of profit to cash to be consistent with our medium-term target of at least 80%.

Revenue: We expect revenue to be around £4.8bn, slightly below the £4.9bn outturn for 2023, with a 3% organic contraction, a 2% contribution from acquisitions and a 1% adverse impact of currency. Revenue is expected to be lower organically due to our CMS contract now being in its new five-year agreement, the annualisation of our previously announced exit from certain low-margin contracts, and contract mix change in immigration, as we support the UK Government's efforts to reduce the number of asylum seekers being accommodated in hotels. These factors will be partially offset by increased contribution from newer contracts ramping up, new business and growth in the existing portfolio. EHC, the leading provider of immigration services in Germany we have agreed to acquire, is expected to complete in March 2024 and to contribute revenue of around £100m.

Underlying operating profit: Underlying operating profit is expected to grow by around 5% to £260m, including an expected currency drag of £4m, with margins increasing by around 30 basis points. The year will benefit from new contracts ramping up, operational efficiency improvements across the existing portfolio and a contribution from acquisitions. We expect these to more than offset the mobilisation costs on new work, lower immigration volumes in the UK and Australia, and CMS operating in its new contract term. Following our success in winning the Functional Assessment Services and electronic monitoring contracts in the UK in the fourth quarter, we expect around £13m of mobilisation costs relating to these in 2024.

Net finance costs and tax: Net finance costs are expected to be around £35m. This is more than 2023 due to higher interest rates, increased volume of lease-related interest and acquisition spend. The underlying effective tax rate is expected to be around 25%, although this is sensitive to the geographic mix of our profit and any changes to current corporate tax rates.

Financial position: Free cash flow is again expected to be strong at around £140m in the year, consistent with our ongoing expectation of converting at least 80% of profit into cash. This is below 2023, as this included the benefit of actions taken to structurally improve our working capital. We expect adjusted net debt to end the year at around £175m, including the acquisitions of EHC and Climatize, and the £140m share buyback announced today.

Summary of guidance for 2024

	2023 Actual unaudited	2024 Initial guidance 14 December 2023	2024 New guidance
Revenue	£4.9bn	~£4.8bn	~£4.8bn
Organic sales growth	4%	~(3)%	~(3)%
Underlying operating profit	£249m	~£260m	~£260m
Net finance costs	£25m	~£33m	~£35m
Underlying effective tax rate	23%	~25%	~25%
Free Cash Flow	£209m	~£140m	~£140m
Adjusted Net Debt	£109m	~£85m	~£175m

Outlook for growth in the medium-term
Our medium-term targets remain unchanged. We expect to grow revenue at an average of 4-6% a year. Our focus on productivity and efficiency will help us increase our margins. At least 80% of our operating profit will be converted into cash.

Divisional Reviews

Serco's operations are reported as four regional divisions: North America; UK & Europe (UK&E); the Asia Pacific region; and the Middle East. Reflecting statutory reporting requirements, Serco's share of revenue from its joint ventures and associates is not included in revenue, while Serco's share of joint ventures and associates' profit after interest and tax is included in underlying operating profit.

Year ended 31 December 2023	North America	UK&E	Asia Pacific	Middle East	Corporate costs	Total
unaudited	£m	£m	£m	£m	£m	£m
Revenue	1,362.8	2,439.5	845.1	226.4	-	4,873.8
Change	+7%	+16%	(11)%	+8%		+7%
Change at constant currency	+8%	+16%	(7)%	+9%		+8%
Organic change at constant currency	+8%	+7%	(7)%	+9%		+4%
			.
Underlying operating profit / (loss)	138.2	120.8	23.7	15.3	(49.3)	248.7
Margin	10.1%	5.0%	2.8%	6.8%	(1.0)%	5.1%
Change	1%	68%	(58)%	(4)%	11%	5%

Amortisation of intangibles arising on acquisition	(16.0)	(3.4)	(11.5)	-	-	(30.9)
Exceptional operating items	-	9.9	-	-	43.9	53.8
Reported operating profit / (loss)	122.2	127.3	12.2	15.3	(5.4)	271.6

Year ended 31 December 2022	North America	UK&E	Asia Pacific	Middle East	Corporate costs	Total
	£m	£m	£m	£m	£m	£m
Revenue	1,269.8	2,100.2	954.6	209.4	-	4,534.0

Underlying operating profit / (loss)	136.6	72.1	56.9	16.0	(44.6)	237.0
Margin	10.8%	3.4%	6.0%	7.6%	(1.0)%	5.2%

Amortisation of intangibles arising on acquisition	(16.5)	(1.5)	(3.6)	-	-	(21.6)
Exceptional operating items	(1.2)	(1.2)	-	-	-	(2.4)
Other non-underlying items	0.1	4.1	-	-	-	4.2
Reported operating profit / (loss)	119.0	73.5	53.3	16.0	(44.6)	217.2

The trading performance and outlook for each Division are described on the following pages. Reconciliations and further detail of financial performance are included in the Finance Review on pages 17 to 29. This includes full definitions and explanations of the purpose of each non-IFRS Alternative Performance Measure (APM) used by the Group. The Condensed Consolidated Financial Statements and accompanying notes are on pages 30 to 51. Included in note 2 to the Group's 2022 Consolidated Financial Statements are the Group's policies on recognising revenue across the various revenue streams associated with the diverse range of goods and services discussed within the Divisional Reviews. The various revenue recognition policies are applied to each individual circumstance as relevant, taking into account the nature of the Group's obligations under the contract with the customer and the method of delivering value to the customer in line with the terms of the contract.

North America (28% of revenue, 46% of underlying operating profit)

Year ended 31 December	2023	2022	Growth
£m	unaudited
Revenue	1,362.8	1,269.8	7%
Organic change	8%	(1)%
Acquisitions	-%	3%
Currency	(1)%	11%
Underlying operating profit	138.2	136.6	1%
Organic change	1%	6%
Acquisitions	-%	-%
Currency	-%	11%
Margin	10.1%	10.8%	(62)bps

Revenue grew by 7% to £1,363m (2022: £1,270m), with organic growth of 8% and a 1% adverse translational effect of currency. The two main sectors for our North America business are Defence and Citizen Services, and both saw growth in the period. Our Defence business delivered organic revenue growth of 8% as the high level of new work secured in 2022 ramped up. Citizen Services also showed good progress with 7% organic revenue growth, driven by higher demand for our case management services and the start of our new employment services work in Canada. These contracts with the Government of Ontario were secured by leveraging the work we do in the UK for the Department of Work and Pensions.

Underlying operating profit grew by 1% in the year to £138m (2022: £137m). Currency had a negligible impact, meaning underlying operating profit on a constant currency basis also grew by1%. The profit outcome was lower than revenue as good performance in case management was more than offset by new contracts being in a lower margin, mobilisation stage, and some defence IT management work transitioning from its more profitable installation phase to sustainment operations. Margins reduced from 10.8% to 10.1% as a result.

Order intake was strong at £2.1bn, around 45% of the total for the Group and a book-to-bill ratio of 1.5x. Of this, new business wins were around 25% of the order intake, continuing the strong momentum of 2022. The largest single new business win was in Canada. Following on from our success in 2022, we were again selected by the Government of Ontario to support part of their Employment Services Transformation program, which will help unemployed people back into work.

The contract signed this year is expected to be worth around £140m over five years. It was an active period for rebids and extensions, and we were pleased to achieve a win rate of around 95% on these, above our usual 80-90% range. This included the successful rebid of our Centers for Medicare & Medicaid Services (CMS) work, which sees us continue to support eligibility determinations for citizens purchasing health insurance through the Federal Health Insurance Exchanges.

The new contract started on 1 July 2023 and has an estimated total value to Serco, subject to workload volumes, of approximately $690m (£570m), if all option periods are exercised over its term of just over four and a half years. Other notable retained work in the year included our driver examination services contract in Ontario, where we secured a three-year extension worth an estimated £220m and our force protection work for the US Navy, with the new five-year contract expected to be worth approximately £160m.

The pipeline of major new bid opportunities due for decision within the next 24 months in North America has increased from £2.5bn at the end of 2022 to £3.2bn at the end of 2023. It is pleasing to see the pipeline at such a healthy level given the high order intake in both 2022 and 2023. North America represents approximately 35% of the total Group pipeline. Defence makes up the largest proportion of the North American pipeline, with a broad spread of types of work. There are also significant opportunities in Citizen Services, where we have been actively seeking to grow.

UK & Europe (50% of revenue, 41% of underlying operating profit)

Year ended 31 December	2023	2022	Growth
£m	unaudited
Revenue	2,439.5	2,100.2	16%
Organic change	7%	(5)%
Acquisitions	8%	3%
Currency	1%	-%
Underlying operating profit	120.8	72.1	68%
Organic change	55%	(27)%
Acquisitions	12%	2%
Currency	1%	-%
Margin	5.0%	3.4%	152bps

Revenue increased by 16% to £2,440m (2022: £2,100m), with 7% organic growth, an 8% contribution from acquisitions and a 1% favourable translational effect of currency. ORS, the business we acquired in September 2022 to enter the European immigration services market, traded ahead of expectations with robust underlying demand due to global migration patterns. Covid-related work, which fully concluded in the first half of 2022, was a drag of £79m, or 4%. This was more than offset by strong growth for our immigration services in both the UK and Europe, and good growth in our defence and justice businesses. We exclude the revenue from our joint ventures, however, our VIVO Defence Services work for the Defence Infrastructure Organisation, which when won in 2021 included one of the largest contracts ever secured by Serco, continued to ramp up. Were revenue from our joint ventures to be included, it would add a further 10% to organic revenue growth, as our VIVO work experienced robust demand.

Underlying operating profit increased by 68% to £121m (2022: £72m). Strong demand for immigration services, the ramp up of contracts signed in prior years, improved performance across a range of existing contracts and the ORS acquisition more than offset the drag from Covid-related work. The year also benefitted from a £6m one-off settlement of a dispute on a contract. The margin increased by around 150bps to 5.0% (2022: 3.4%) because of these factors.

Underlying operating profit includes the profit contribution of joint ventures and associates, from which interest and tax have already been deducted. If the proportional share of revenue from joint ventures and associates was included and the share of interest and tax cost was excluded, the overall divisional margin would have been 4.5% (2022: 3.2%). The joint venture and associate profit contribution increased to £29m (2022: £12m) due to our VIVO work continuing to ramp up, Merseyrail seeing improved performance and the one-off settlement mentioned above being included.

Order intake was around £1.9bn, a book-to-bill ratio of 0.8x and around 40% of the total intake for the Group. The low book-to-bill reflected 2023 being relatively quiet in terms of rebids and contract award decisions for new work. Our win rates, having dipped in the second half of 2022, rebounded in 2023. New business represented nearly 60% of the order intake and our win rate on new work was around 60%. Our win rate by value on rebids and extensions was more than 95%. Agreements signed included a £350m five-year contract to deliver functional health assessments in the south-west of England for the Department of Work and Pensions to determine disability benefits, a contract to deliver electronic monitoring services in England and Wales that is expected to be worth £200m over its initial six-year term, and a contract with the UK Home Office to run the Derwentside Immigration Removal Centre. The new contract has an estimated value of around £80m over the initial nine-year term. Also in the Justice & Immigration sector, increases in the numbers of service users led to us securing additional immigration accommodation work that is expected to generate around £300m of revenue in 2024.

The pipeline of new opportunities in the UK & Europe increased by around 30% to £4.8bn (December 2022: £3.7bn), with significant new opportunities across Justice & Immigration, Defence and Citizen Services.

Asia Pacific (17% of revenue, 8% of underlying operating profit)

Year ended 31 December	2023	2022	Growth
£m	unaudited
Revenue	845.1	954.6	(11)%
Organic change	(7)%	-%
Acquisitions	-%	2%
Currency	(4)%	3%
Underlying operating profit	23.7	56.9	(58)%
Organic change	(56)%	13%
Acquisitions	-%	(6)%
Currency	(2)%	4%
Margin	2.8%	6.0%	(316)bps

Our Asia Pacific business had a difficult year. Volume-variable work, which as part of a portfolio we expect to ebb and flow, reduced in the period, tight labour markets created operational challenges and new business wins did not meet our expectations. We have appointed a new CEO for the business, Andrew Head, identified actions and designed what we believe to be an achievable plan to ensure the business is well positioned for the opportunities we expect in the coming years. Asia Pacific remains an important market for Serco.

Revenue reduced by 11% to £845m (2022: £955m). The business contracted by 7% organically and adverse currency moves had a 4% impact. Revenue fell because of lower volume-variable work in parts of the immigration network, reduced work in facilities management and a combination of tight labour markets and some lost work in the Citizen Services sector.

Underlying operating profit reduced by 58% to £24m (2022: £57m), representing a margin of 2.8% (2022: 6.0%). Profit fell more than revenue due to a negative mix impact from the lower immigration volumes, some initial stranded costs on lost contracts and labour market disruption making it difficult to recruit enough people to meet customer headcount targets.

Order intake was £0.3bn, continuing a recent record of low win rates on new work. Our investor pipeline for new business currently stands at £1.3bn in the year. Defence makes up around 90% of the pipeline with opportunities also in the transport and health sectors.

Our immigration services work in Australia, which is contracted until December 2024, and one of the largest contracts in the Group, is currently in a competitive rebid process. Serco has been providing immigration services as a partner to the Australian Government since October 2009, with our work having been successfully rebid and extended over this period. Our performance levels have been high on the current contract and we believe we have submitted a compelling bid. The final outcome of the tender process is expected before the end of the third quarter of 2024.

Middle East (5% of revenue, 5% of underlying operating profit)

Year ended 31 December	2023	2022	Growth
£m	unaudited
Revenue	226.4	209.4	8%
Organic change	9%	(28)%
Acquisitions	-%	-%
Currency	(1)%	8%
Underlying operating profit	15.3	16.0	(4)%
Organic change	(2)%	8%
Acquisitions	-%	-%
Currency	(2)%	9%
Margin	6.8%	7.6%	(88)bps

Revenue grew by 8% to £226m (2022: £209m). The business grew by 9% organically and currency moves had a 1% adverse impact. Organic growth was driven by the Citizen Services sector, where our new advisory business unit is gaining traction. Underlying operating profit reduced to £15m (2022: £16m). Profit was negatively impacted by stopping services with a customer where we had debtor collection issues and by costs on some health and facilities management work we exited. These more than offset the higher margins being achieved on our advisory work. Margins decreased from 7.6% to 6.8% as a result.

Order intake was around £0.3bn, or 7% of the total for the Group and a book-to-bill ratio of 1.5x. Around 60% of the order intake was new business. The largest win was a contract to provide Fire Rescue, Emergency and Ambulatory Services in the NEOM economic zone in Saudi Arabia, which is estimated to be worth around £50m over eight years, and we also won a £40m, five-year, contract with Red Sea Global to act as the managing agent for their full suite of sustainable mobility services across Saudi Arabia's visionary new tourism destination. In addition, we secured a three-year contract worth approximately £30m to provide Customer Experience services within Terminal A of the newly opened Zayed International Airport in Abu Dhabi. Since the end of our contract to run the Dubai Metro, our Middle East business has been exploring new potential areas of demand and has invested in developing an advisory business in the region. The year saw this begin to pay off with several agreements being secured to advise customers in the region as they embark on ambitious new multi-year projects.

We were successful on all our key rebids in the period, including renewing our agreement with the Australian Defence Force to continue to provide logistics and a full suite of base services for their locations in the Middle East, which has an estimated value of approaching £60m over three years. We also secured a three-year extension to our contract for the delivery of integrated facilities and support services at the United Arab Emirates University in Al Ain, which is expected to be worth around £50m.

Our pipeline of major new bid opportunities in the Middle East totals around £0.8bn and includes increasing opportunities in Defence and potential work in the Citizen Service sector.

_____________________________________________________________________________________________________

Corporate costs

Corporate costs relate to typical central function costs of running the Group, including executive, governance and support functions such as HR, finance and IT. Where appropriate, these costs are stated after allocation of recharges to operating divisions. The costs of Group-wide programmes and initiatives are also incurred centrally. Underlying corporate costs increased by £4.7m to £49.3m (2022: £44.6m). The higher level in 2023 was primarily related to an increase in audit fees and the transition of Group Chief Executive, as Rupert Soames, who stepped down as Group Chief Executive on 31 December 2022, acted as a strategic adviser to the Group in 2023 until his retirement in September 2023.

Dividend calendar, if approved at the AGM

Ex-dividend date 18 April 2024

Record date 19 April 2024

Final dividend payable 10 May 2024.

LEI: 549300PT2CIHYN5GWJ21

Forward looking statements

This announcement contains statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature. All statements other than statements of historical fact are forward looking statements. Generally, words such as "expect", "anticipate", "may", "could", "should", "will", "aspire", "aim", "plan", "target", "goal", "ambition", "intend" or, in each case, their negative or other variations or comparable terminology identify forward looking statements. By their nature, these forward looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Factors which may cause future outcomes to differ from those foreseen or implied in forward looking statements include, but are not limited to: general economic conditions and business conditions in Serco's markets; contracts awarded to Serco; customers' acceptance of Serco's products and services; operational problems; the actions of competitors, trading partners, creditors, rating agencies and others; the success or otherwise of partnering; changes in laws and governmental regulations; regulatory or legal actions, including the types of enforcement action pursued and the nature of remedies sought or imposed; the receipt of relevant third party and/or regulatory approvals; exchange rate fluctuations; the development and use of new technology; changes in public expectations and other changes to business conditions; wars and acts of terrorism; cyber-attacks; and pandemics, epidemics or natural disasters. Many of these factors are beyond Serco's control or influence. These forward looking statements speak only as of the date of this announcement and have not been audited or otherwise independently verified. Past performance should not be taken as an indication or guarantee of future results and no representation or warranty, express or implied, is made regarding future performance. Except as required by any applicable law or regulation (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Serco expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such statement is based after the date of this announcement, or to keep current any other information contained in this announcement. Accordingly, undue reliance should not be placed on the forward looking statements.

Finance Review

For the year ended 31 December	Underlying	Non Underlying items	Reported	Underlying	Non Underlying items	Reported
	2023	2023	2023	2022	2022	2022
	£m	£m	£m	£m	£m	£m
	unaudited	unaudited	unaudited
Revenue	4,873.8	-	4,873.8	4,534.0	-	4,534.0
Cost of sales	(4,378.3)	-	(4,378.3)	(4,044.7)	4.2	(4,040.5)
Gross profit	495.5	-	495.5	489.3	4.2	493.5
Administrative expenses	(275.8)	-	(275.8)	(264.3)	-	(264.3)
Exceptional operating items	-	53.8	53.8	-	(2.4)	(2.4)
Amortisation and impairment of intangibles arising on acquisition	-	(30.9)	(30.9)	-	(21.6)	(21.6)
Share of results of joint ventures and associates, net of interest and tax	29.0	-	29.0	12.0	-	12.0
Operating profit / (loss)	248.7	22.9	271.6	237.0	(19.8)	217.2
Margin	5.1%		5.6%	5.2%		4.8%
Net finance costs	(24.6)	-	(24.6)	(20.4)	-	(20.4)
Profit before tax	224.1	22.9	247.0	216.6	(19.8)	196.8
Tax (charge)/credit	(50.8)	6.2	(44.6)	(47.9)	6.1	(41.8)
Effective tax rate	22.7%		18.1%	22.1%		21.2%
Profit for the period	173.3	29.1	202.4	168.7	(13.7)	155.0
Attributable to:
Equity attributable to owners of the Company	173.3	29.1	202.4	169.1	(13.7)	155.4
Non-controlling interest	-	-	-	(0.4)	-	(0.4)
Earnings per share (EPS)
Basic EPS	15.61p		18.23p	14.18p		13.03p
Diluted EPS	15.36p		17.93p	13.92p		12.79p

Alternative Performance Measures (APMs) and other related definitions

Overview

APMs used by the Group are reviewed below to provide a definition and reconciliation from each non-IFRS APM to its IFRS equivalent, and to explain the purpose and usefulness of each APM.

In general, APMs are presented externally to meet investors' requirements for further clarity and transparency of the Group's financial performance. The APMs are also used internally in the management of our business performance, budgeting and forecasting, and for determining Executive Directors' remuneration and that of other Management throughout the business.

APMs are non-IFRS measures. Where additional revenue is being included in an APM, this reflects revenues presented elsewhere within the reported financial information, except where amounts are recalculated to reflect constant currency. Where items of income or expense are being excluded in an APM, these are included elsewhere in our reported financial information as they represent actual income or expense of the Group, except where amounts are recalculated to reflect constant currency. As a result, APMs allow investors and other readers to review different kinds of revenue, profits and costs and should not be used in isolation. Other commentary within this announcement, including the other sections of this Finance Review, as well as the Consolidated Financial Statements and their accompanying notes, should be referred to in order to fully appreciate all the factors that affect our business. We strongly encourage readers not to rely on any single financial measure, but to carefully review our reporting in its entirety.

Consolidation of profit measures

The Group is simplifying its profit measures by removing Trading Profit and renaming underlying trading profit (UTP) to underlying operating profit (UOP). The historic UOP presented is consistent with the equivalent reported UTP in that period.

The UTP definition was introduced in 2015 to exclude onerous contract provision (OCP) releases or charges, other Contract and Balance Sheet Review adjustments, depreciation and amortisation of assets held for sale, and some other one-time items. It was maintained to ensure there was transparency outside the underlying results of large charges and releases from the portfolio of onerous contracts recorded in 2014. These definitions are no longer required as the Contract and Balance Sheet Review Adjustments recorded in 2014 are now at an insignificant level. In the future, no items will be recorded between UTP and Trading Profit, meaning the additional measure no longer adds any value.

Items excluded from UOP will be the amortisation and impairment of intangibles arising on acquisition and exceptional operating items (and in the prior year other non-underlying items), which is consistent with the items previously excluded from Trading Profit. The methodology applied to calculating other APMs has not changed since 31 December 2022.

Alternative revenue measures

	2023	2022
For the year ended 31 December	£m	£m
	unaudited
Reported revenue at constant currency¹	4,906.3	4,534.0
Foreign exchange differences	(32.5)	-
Reported revenue at reported currency	4,873.8	4,534.0

1	In order to provide a comparable movement on the previous year's results, reported revenue is recalculated by translating non-Sterling values into Sterling at the average exchange rates for the year ended 31 December 2022.

	Organic Revenue¹	Organic Revenue¹	Revenue plus share of joint ventures and associates²	Revenue plus share of joint ventures and associates²
	2023	2022	2023	2022
For the year ended 31 December	£m	£m	£m	£m
	unaudited		unaudited
Alternative revenue measure at constant currency³	4,663.9	4,465.1	5,379.7	4,771.9
Foreign exchange differences	(43.5)	-	(32.5)	-
Alternative revenue measure at reported currency	4,620.4	4,465.1	5,347.2	4,771.9
Impact of relevant acquisitions or disposals	253.4	68.9	-	-
Share of joint venture and associates	-	-	(473.4)	(237.9)
Reported revenue at reported currency	4,873.8	4,534.0	4,873.8	4,534.0

1	In order to provide a comparable movement which ignores the effect of both acquisitions and disposals, organic revenue at constant currency is recalculated by excluding the impact of relevant acquisitions or disposals. There are two acquisitions excluded for the calculation of organic revenue in the year to 31 December 2023 being the acquisitions of OXZ Holdings AG (ORS) and Sapienza Consulting Holdings BV (Sapienza). The prior year figure is recalculated on a consistent basis to the acquisitions or disposals removed in the current year and therefore may not agree to the organic revenue previously reported.
2	The alternative measure includes the share of joint ventures and associates for the benefit of reflecting the overall change in scale of the Group's ongoing operations, which is particularly relevant for evaluating Serco's presence in market sectors such as Defence and Transport. The alternative measure allows the performance of the joint venture and associate operations themselves, and their impact on the Group as a whole, to be evaluated on measures other than just the post-tax result.
3	In order to provide a comparable movement on the previous period's results, the alternative revenue measures are recalculated by translating non-Sterling values into Sterling at the average exchange rates for the year ended 31 December 2022.

Alternative profit measures

	2023	2022
For the year ended 31 December	£m	£m
	unaudited
Underlying operating profit at constant currency¹	248.9	237.0
Foreign exchange differences¹	(0.2)	-
Underlying operating profit at reported currency²	248.7	237.0
Non-underlying items:
Amortisation and impairment of intangibles arising on acquisition³	(30.9)	(21.6)
Exceptional operating items⁴	53.8	(2.4)
Other non-underlying items⁴	-	4.2
Reported operating profit	271.6	217.2

1	In order to provide a comparable movement on the previous period's results, reported UOP is recalculated by translating non-Sterling values into Sterling at the average exchange rates for the year ended 31 December 2022.
2	The Group uses an alternative measure, UOP, to make adjustments for items considered material and outside of the normal operating practice of the Group to be suitable for separate presentation and detailed explanation.
3	Amortisation and impairment of intangibles arising on acquisitions are excluded, because these charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice.
4	Exceptional operating items (and in the prior year other non-underlying items) are those items considered material and outside of the normal operating practice of the Group to be suitable for separate presentation and detailed explanation. Where items are not material, their inclusion is to ensure they are treated consistently with prior periods.

Alternative Earnings per share (EPS) measures

	2023	2022	2023	2022
For the year ended 31 December	basic pence	basic pence	diluted pence	diluted pence
	unaudited		unaudited
Underlying EPS¹	15.61	14.18	15.36	13.92
Non-underlying items:
Net impact of non-underlying operating items, non underlying tax and amortisation and impairment of intangibles arising on acquisition	(2.02)	(0.97)	(1.99)	(0.95)
Exceptional operating items, net of tax	4.64	(0.18)	4.56	(0.18)
Reported EPS	18.23	13.03	17.93	12.79

Reflecting the same adjustments made to operating profit to calculate UOP as described above and including the related tax effects of each adjustment and any other non-underlying tax adjustments as described in the tax charge section below, an alternative measure of EPS is presented. This aids consistency with historical results and enables performance to be evaluated before the one-time effects described above.

Alternative cash flow and Net Debt measures

Free cash flow (FCF)

	2023	2022
For the year ended 31 December	£m	£m
	unaudited
Free cash flow¹	209.2	159.1
Exclude dividends from joint ventures and associates	(21.1)	(9.1)
Exclude net interest paid	26.5	22.5
Exclude capitalised finance costs paid	-	2.6
Exclude capital element of lease repayments	124.4	120.5
Exclude proceeds received from exercise of share options	-	(0.1)
Exclude purchase of own shares to satisfy share awards	22.9	15.9
Exclude purchase of intangible and tangible assets net of proceeds from disposal	21.9	18.7
Net cash inflow from underlying operating activities	383.8	330.1
Non-underlying cash flows from operating activities	9.3	(2.9)
Net cash inflow from operating activities	393.1	327.2

Free cash flow is the net cash flow from operating activities adjusted to remove the impact of non-underlying cash flows from operating activities, adding dividends we receive from joint ventures and associates and deducting net interest, net capital expenditure on tangible and intangible asset purchases and the purchase of own shares to satisfy share awards.

Trading cash conversion

	2023	2022
For the year ended 31 December	£m	£m
	unaudited
Free cash flow¹	209.2	159.1
Add back:
Tax paid	41.1	44.2
Non-cash R&D expenditure	0.4	0.4
Net interest paid	26.5	22.5
Capitalised finance costs paid	-	2.6
Trading cash flow	277.2	228.8
Underlying operating profit	248.7	237.0
Trading cash conversion¹	111%	97%

In order to calculate an appropriate cash conversion metric equivalent to UOP, trading cash flow is derived from FCF by excluding capitalised finance costs, interest, non-cash R&D expenditure and tax items. Trading cash conversion therefore provides a measure of the efficiency of the business in terms of converting profit into cash before taking account of the impact of capitalised finance costs, interest, non-cash R&D expenditure, tax and non-underlying items.

Net Debt and Adjusted Net Debt

	2023	2022
As at 31 December	£m	£m
	unaudited
Cash and cash equivalents	94.4	57.2
Loans payable	(206.2)	(262.9)
Lease liabilities	(453.7)	(446.0)
Derivatives relating to Net debt	3.1	1.8
Net debt¹	(562.4)	(649.9)
Add back: Lease liabilities	453.7	446.0
Adjusted net debt²	(108.7)	(203.9)

Alternative measures bring together the various funding sources that are included on the Group's Consolidated Balance Sheet and the accompanying notes. Net debt is a measure to reflect the net indebtedness of the Group and includes all cash and cash equivalents and any debt or debt-like items, including any derivatives entered into in order to manage risk exposures on these items. Net debt includes all lease liabilities, whilst adjusted net debt is derived from net debt by excluding liabilities associated with leases.

The Adjusted net debt measure was introduced because it more closely aligns to the Consolidated Total Net Borrowings measure used for the Group's debt covenants, which is prepared under accounting standards applicable prior to the adoption of IFRS 16 Leases. Principally as a result of the Asylum Accommodation and Support Services Contract (AASC), the Group has entered into a significant number of leases which contain a termination option. The use of Adjusted net debt removes the volatility that would result from estimations of lease periods and the recognition of liabilities associated with such leases where the Group has the right to cancel the lease and hence the corresponding obligation. Though the intention is not to exercise the options to cancel the leases, it is available unlike other debt obligations.

Return on invested capital (ROIC)

	2023	2022
For the year ended 31 December	£m	£m
	unaudited
ROIC excluding right of use assets
Non current assets
Goodwill	906.7	945.0
Other intangible assets - owned	115.6	158.0
Property, plant and equipment - owned	44.3	48.1
Interest in joint ventures	32.1	23.3
Loans to joint ventures	-	10.0
Contract assets, trade and other receivables	14.8	16.1
Current assets
Inventory	24.1	22.4
Loans to joint ventures	10.0	-
Contract assets, trade and other receivables	625.6	719.6
Total invested capital assets	1,773.2	1,942.5
Current liabilities
Contract liabilities, trade and other payables	(593.8)	(683.3)
Non current liabilities
Contract liabilities, trade and other payables	(68.5)	(42.8)
Total invested capital liabilities	(662.3)	(726.1)
Invested capital¹	1,110.9	1,216.4
Two point average of opening and closing invested capital	1,163.7	1,151.8
Underlying operating profit 12 months	248.7	237.0
Underlying ROIC %²	21.4%	20.6%

Invested capital excludes right of use assets recognised under IFRS 16 Leases. This is because the Invested capital of the Group are those items within which resources are, or have been, committed, which is not the case for many leases where termination options exist and commitments for expenditure are in future years.

ROIC is a measure to assess the efficiency of the resources used by the Group and is a metric used to determine the performance and remuneration of the Executive Directors. ROIC is calculated based on UOP, using the income statement for the period and a two-point average of the opening and closing balance sheets. The composition of Invested capital and calculation of ROIC are summarised in the table above.

Overview of financial performance

Revenue

Reported revenue increased by 7.5% in the year to £4,873.8m (2022: £4,534.0m), a 8.2% increase at constant currency. Organic revenue at constant currency increased by 4.4%. This is in line with the trading update issued on 14 December 2023 where revenue was expected to be at least £4.8bn for the year ended 31 December 2023. Revenue including the Group's share of joint ventures has increased by 12.1% in the year to £5,347.2m (2022: £4,771.9m) a 12.7% increase at constant currency.

Commentary on the revenue performance of the Group is provided in the Chief Executive's Review and the Divisional Reviews sections.

Underlying operating profit (UOP)

UOP increased by 4.9% in the year to £248.7m (2022: £237.0m), a 5.0% increase at constant currency. This is marginally higher than the trading update issued on 14 December 2023 where UOP was expected to be around £245m for the year ended 31 December 2023.

Commentary on the underlying performance of the Group is provided in the Chief Executive's Review and the Divisional Reviews sections.

Exceptional operating items

Exceptional operating items are items of financial performance that are outside normal operations and are material to the results of the Group either by virtue of size or nature. These require separate disclosure on the face of the income statement to assist in the understanding of the performance of the Group. In 2023, the total exceptional credit net of tax was £51.5m (2022: charge of £2.1m).

The Group released provisions held for indemnities provided on disposed businesses totalling £43.9m predominantly due to the claims period ending. The Group also received £9.9m compensation on the early termination of a contract which, due to the size of the settlement, has been disclosed as exceptional.

Exceptional tax for the period was a tax charge of £2.3m (2022: credit of £0.3m) which arises on exceptional operating items within operating profit.

Finance costs and investment revenue

Net finance costs recognised in the income statement were £24.6m (2022: £20.4m), consisting of investment revenue of £7.0m, less finance costs of £31.6m.

Investment revenue of £7.0m (2022: £4.7m) consists of interest accruing on net retirement benefit assets of £3.1m (2022: £2.7m) and interest income of £3.9m (2022: £1.9m).

Finance costs of £31.6m (2022: £25.1m) include interest incurred on loans, primarily the US private placement loan notes and the revolving credit facility of £15.6m (2022: £15.2m) and lease interest expense of £13.1m (2022: £7.9m) as well as other financing related costs including the impact of foreign exchange on financing activities.

Net interest paid recognised in the cash flow statement was £26.5m (2022: £22.5m), consisting of interest received of £3.9m less interest paid of £30.4m.

Tax

Underlying tax

The underlying tax charge recognised in the year was £50.8m (2022: £47.9m). The effective tax rate of 22.7% is marginally higher than in 2022 (22.1%). The increase compared with 2022 is due to smaller credits recognised in 2023 in connection with the finalisation of tax filings and movement in provisions as part of the regular reassessment of tax exposures across the Group. This has been offset by the change in mix of where profits have arisen.

The tax rate at 22.7% is slightly lower than the UK standard corporation tax rate of 23.5%. This is mainly due to the impact of the profits of joint ventures and associates whose post-tax profits are included in the Group's profit before tax (reducing the rate by 3.0%) together with the reduction in provisions held for uncertain tax positions which reduced the rate by 0.4%. This is partially offset by the impact of the higher statutory rate of tax on overseas profits (increasing the rate by 0.9%), the impact of unprovided UK deferred tax in a company that ceased trading in the year (0.5% increase in the rate), the impact of unprovided overseas deferred tax (increasing the rate by 0.2%), and tax disallowable costs (increase the rate by 0.4%). Other smaller items result in a net increase to the rate of 0.6%.

Non-underlying tax

A tax credit of £6.2m (2022: £6.1m) arises on non-underlying items which comprises of:

-	A tax credit of £8.5m (2022: £5.8m) due to tax deductions associated with the amortisation of intangibles arising on acquisitions.
-	A non-underlying exceptional tax charge for the period of £2.3m arising on compensation received for early termination of a contract. The other exceptional credits, which arise in the UK on the release of the indemnities, are not subject to tax.

Deferred tax assets

At 31 December 2023, the Group has recognised a net deferred tax asset of £184.8m (2022: £190.4m). This consists of a deferred tax asset of £235.7m (2022: £244.2m) and a deferred tax liability of £50.9m (2022: £53.8m). A £179.9m UK deferred tax asset has been recognised on the Group's balance sheet at 31 December 2023 (2022: £186.9m) on the basis that the performance in the underlying UK business indicates sustained profitability which will enable the accumulated tax losses within the UK to be utilised.

Taxes paid

Net corporate income tax of £41.1m (2022: £44.2m) was paid during the year, relating to the Group's operations in Asia Pacific (£12.3m), North America (£24.1m), UK (£2.7m), Europe (£0.9m) and the Middle East (£1.1m). The payments made in the UK consisted of £3.6m to HMRC, offset by £0.9m received from the Group's joint ventures and associates for losses sold to them. The amount of tax paid, £41.1m, differs slightly from the tax charge in the period, £44.6m, mainly because taxes paid/received from Tax Authorities can arise in later periods to the associated tax charge/credit. This is particularly the case with regards to movements in deferred tax, such as on the use of prior year losses, and provisions for uncertain tax positions.

Total tax contribution

The Group's published tax strategy of paying the appropriate amount of tax as determined by local legislation in the countries in which it operates means that a variety of taxes are paid across the globe. To increase the transparency of the Group's tax profile, the cash taxes that have been paid across its regional markets is shown below.

In total during 2023, Serco globally contributed £914.5m of tax to government in the jurisdictions in which it operates.

Taxes by category

unaudited	Taxes borne £m	Taxes collected £m	Total £m
Total of Corporate Income Tax	41.8	-	41.8
Total of VAT and similar	11.6	277.0	288.6
Total of People Taxes	165.9	401.2	567.1
Total Other Taxes	16.7	0.3	17.0
	236.0	678.5	914.5

Taxes by region

unaudited	Taxes borne £m	Taxes collected £m	Total £m
UK & Europe	126.3	362.8	489.1
Asia Pacific	39.4	176.8	216.2
North America	67.5	131.3	198.8
Middle East	2.8	7.6	10.4
	236.0	678.5	914.5

Corporation tax, which is the only cost to be separately disclosed in our Financial Statements, is only one element of the Group's tax contribution. For every £1 of corporate tax paid directly by the Group (tax borne), a further £4.65 is borne in other business taxes. The largest proportion of these is in connection with employing people.

In addition, for every £1 of tax borne, £2.88 is collected on behalf of national governments (taxes collected). This amount is directly impacted by the number of people employed and the sales made.

Dividend, share buyback and share count

During the year to 31 December 2023, the Group paid dividends of £33.7m (2022: £30.3m) in respect of the final dividend for the year ended 31 December 2022 and the interim dividend for the year ended 31 December 2023. As noted in the Chief Executive's Review, the Board has decided to declare a final dividend of 2.27p per share in respect of the year ended 31 December 2023 (2022:1.92p per share).

On 28 February 2023, the Group announced its intention to repurchase ordinary shares with a value of up to £90m. The buyback programme took place between 3 March and 22 June 2023. During this period, the Group repurchased 58,956,118 shares at an average cost of £1.51 for total cost including fees of £88.8m. All shares held in treasury at 31 December 2022 and those purchased in 2023 have been cancelled.

The weighted average number of shares for EPS purposes was 1,110.2m for the year ended 31 December 2023 (2022: 1,192.2m) and diluted weighted average number of shares was 1,128.6m (2022: 1,214.8m). The decrease in the weighted average number of shares is primarily due to the full year impact of therepurchase of 55,506,704 shares in 2022 and the impact of the repurchase of 58,956,118 shares during 2023 which were all cancelled in year.

Cash flows and net debt

UOP of £248.7m (2022: £237.0m) converts into a trading cash inflow of £277.2m (2022: £228.8m). The increase in trading cash inflows is mainly due to a £30.1m inflow of working capital compared to an outflow of £24.4m in 2022. The improvement in working capital is driven by 2023 benefiting from some aged debt collection on ceased contracts and better payment terms being experienced within our immigration contracts. The Group saw a decrease in the debtor days from 22 days (2022) to 16 days (2023) and a decrease in creditor days from 21 days (2022) to 20 days (2023) during the year, as the Group continues to ensure its suppliers are paid on time. Including accrued income and other unbilled receivables, day sales outstanding for 2023 were 37.9 days (2022: 48.4 days).

The table below shows the cash flow from underlying operating activities and Free Cash Flow (FCF) reconciled to movements in Net Debt. FCF for the period was an inflow of £209.2m compared to £159.1m in 2022. The movement compared to 2022 is consistent with the increase in trading cash flow above.

Adjusted net debt decreased by £95.2m in the year to 31 December 2023, a reconciliation of which is provided at the bottom of the following table. Average Adjusted net debt as calculated on a daily basis for the year ended 31 December 2023 was £232.2m (2022: £231.0m). Peak Adjusted net debt was £362.2m (2022: £376.8m)

For the year ended 31 December	2023 £m	2022 £m
	unaudited
Underlying operating profit	248.7	237.0
Less: Share of profit from joint ventures and associates	(29.0)	(12.0)
Movement in provisions	12.6	4.0
Depreciation, amortisation and impairment of property, plant and equipment and intangible assets	25.7	33.1
Depreciation and impairment of right of use assets	126.1	121.7
Other non-cash movements	11.1	15.3
Working capital movements	30.1	(24.4)
Tax paid	(41.1)	(44.2)
Non-cash R&D expenditure	(0.4)	(0.4)
Net cash inflow from underlying operating activities	383.8	330.1
Dividends received from joint ventures and associates	21.1	9.1
Interest received	3.9	1.9
Interest paid	(30.4)	(24.4)
Capital element of lease repayments	(124.4)	(120.5)
Capitalised finance costs paid	-	(2.6)
Purchase of intangible and tangible assets net of proceeds from disposals	(21.9)	(18.7)
Purchase of own shares to satisfy share awards	(22.9)	(15.9)
Proceeds received from exercise of share options	-	0.1
Free cash flow	209.2	159.1
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures and associates	(7.5)	(19.2)
Net increase in debt items on acquisition and disposal of subsidiaries, joint ventures and associates	-	(6.5)
Dividends paid to non-controlling interests	(1.7)	-
Dividends paid to shareholders	(33.7)	(30.3)
Purchase of own shares	(88.8)	(91.2)
Movements on other investment balances	(0.7)	1.6
Loans to joint venture	-	(10.0)
Capitalisation and amortisation of loan costs	(0.8)	1.4
Exceptional items	9.2	(2.9)
Cash movements on hedging instruments	(1.5)	(2.7)
Foreign exchange gain/(loss) on Adjusted net debt	11.5	(25.2)
Movement in Adjusted net debt	95.2	(25.9)
Opening Adjusted net debt	(203.9)	(178.0)
Closing Adjusted net debt	(108.7)	(203.9)
Lease liabilities	(453.7)	(446.0)
Closing Net debt	(562.4)	(649.9)

Risk management and treasury operations

The Group's operations expose it to a variety of financial risks that include access to liquidity, the effects of changes in foreign currency exchange rates, interest rates and credit risk. The Group has a centralised treasury function whose principal role is to seek to ensure that adequate liquidity is available to meet the Group's funding requirements as they arise and that the financial risk arising from the Group's underlying operations is effectively identified and managed.

Treasury operations are conducted in accordance with policies and procedures approved by the Board which are reviewed annually. Financial instruments are only used for hedging purposes and speculation is not permitted. A monthly report is provided to senior management outlining performance against the Treasury Policy.

Liquidity and funding

As at 31 December 2023, the Group had committed funding of £558.8m (at 31 December 2022: £616.4m), comprising £208.8m of US private placement loan notes, and a £350.0m revolving credit facility which was undrawn. The US private placement loan notes are repayable in bullet payments between 2024 and 2032. The Group does not engage in any external financing arrangements associated with either receivables or payables.

During the year ended 31 December 2023 total repayments of debt were £44.5m which related to US private placement loan notes.

The Group's revolving credit facility provides £350.0m of committed funding for five years from the arrangement date in November 2022. The facility includes an accordion option, providing a further £100.0m of funding (uncommitted and therefore not incurring any fees) if required without the need for additional documentation. This option has not been included in the Group's assessment of available liquidity as approvals are required to access the funding.

Interest rate risk

The Group has a preference for fixed rate debt to reduce the volatility of net finance costs. The Group's Treasury Policy requires it to maintain a minimum proportion of fixed rate debt as a proportion of overall Adjusted Net Debt and for this proportion to increase as the ratio of EBITDA to interest expense falls. As at 31 December 2023, £208.8m of debt was held at fixed rates and Adjusted Net Debt was £108.7m.

Foreign exchange risk

The Group is subject to currency exposure on the translation to Sterling of its net investments in overseas subsidiaries. The Group seeks to manage this risk, where appropriate, by borrowing in the same currency as those investments. Group borrowings are predominantly denominated in Sterling and US Dollars. The Group seeks to manage its currency cash flows to minimise foreign exchange risk arising on transactions denominated in foreign currencies and uses forward contracts where appropriate to hedge net currency cash flows.

Credit risk

Cash deposits and in-the-money financial instruments give rise to credit risk on the amounts due from counterparties. The Group manages this risk by adhering to counterparty exposure limits based on external credit ratings of the relevant counterparty.

Debt covenants

The principal financial covenant ratios are consistent across the US private placement loan notes and revolving credit facility, with a maximum Consolidated Total Net Borrowings (CTNB) to covenant EBITDA of 3.5 times and minimum covenant EBITDA to covenant net finance costs of 3.0 times, tested semi-annually. A reconciliation of the basis of calculation is set out in the table below.

The covenants exclude the impact of IFRS 16 Leases on the Group's results.

	2023	2022
For the year ended 31 December	£m	£m
	unaudited

Operating Profit	271.6	217.2
Remove: Exceptional items	(53.8)	2.4
Remove: Amortisation and impairment of intangibles arising on acquisition	30.9	21.6
Exclude: Share of joint venture post-tax profits	(29.0)	(12.0)
Include: Dividends from joint ventures	21.1	9.1
Add back: Net non-exceptional charges/(releases) to OCPs	8.2	(1.0)
Add back: Net covenant OCP utilisation	(3.2)	(1.3)
Add back: Depreciation, mortization and impairment of owned property, plant and equipment and non acquisition intangible assets	25.7	33.1
Add back: Depreciation, mortization and impairment of property, plant and equipment and non acquisition intangible assets held under finance leases - in accordance with IAS17 Leases	4.3	4.8
Add back: Foreign exchange on investing and financing arrangements	(0.9)	0.4
Add back: Share-based payment expense	13.5	15.6
Net Other covenant adjustments to EBITDA	(11.5)	(1.0)
Covenant EBITDA	276.9	288.9
Net finance costs	24.6	20.4
Exclude: Net interest receivable on retirement benefit obligations	3.1	2.7
Exclude: Movement in discount on other debtors	-	0.1
Exclude: Foreign exchange on investing and financing arrangements	(0.9)	0.4
Other covenant adjustments to net finance costs	(12.7)	(7.5)
Covenant net finance costs	14.1	16.1
Adjusted Net Debt	108.7	203.9
Obligations under finance leases - in accordance with IAS17 Leases	17.4	21.8
Recourse Net Debt	126.1	225.7
Add back: Disposal vendor loan note, encumbered cash and other adjustments	5.9	6.9
Covenant adjustment for average FX rates	5.6	(8.2)
CTNB	137.6	224.4
CTNB / covenant EBITDA (not to exceed 3.5x)	0.50x	0.78x
Covenant EBITDA / Covenant net finance costs (at least 3.0x)	19.64x	17.94x

Net assets

At 31 December 2023, the consolidated balance sheet shown on page 33 had net assets of £1,033.7m, a movement of £4.0m from the closing net asset position of £1,029.7m as at 31 December 2022. Whilst the Group generated total comprehensive income of £138.5m during the year, returns to shareholders totalled £122.5m through share buybacks and dividend payments.

Key movements since 31 December 2022 on the consolidated balance sheet shown on page 33 include:

-	A decrease in goodwill of £38.3m driven predominantly by foreign exchange movements.
-	A reduction in other intangible assets of £42.4m due to amortisation of £30.5m, the impairment of customer relationships arising on the acquisition of £8.1m and a revision to the provisional fair values of intangibles arising on acquisition of ORS of £6.9m.
-	A decrease in the net retirement benefit asset of £26.3m primarily in respect of SPLAS; further details are provided in the pensions section below.
-	Provisions have reduced by £38.1m predominately due to the £43.9m exceptional release of provisions previously held for indemnities given on disposed businesses.
-	Cash and cash equivalents have increased by £37.2m. In the period the Group generated cash of £383.8m from underlying operations. The net repayment of loans was £44.5m and the capital element of lease repayments in the period was £124.4m. Including associated costs, the spend on shares repurchased during the year totalled £111.7m (£88.8m share buyback and £22.9m to fund employee share options) and dividends totalling £33.7m have been paid to shareholders.
-	Net loan balances have decreased by £56.7m due to the £44.5m repayment of the US Private Placement loan notes.
-	The movement in contract assets, trade receivables and other assets, and, contract liabilities, trade payables and other liabilities are as a result of normal working capital movements.

Acquisitions

On 14 December 2023, Serco agreed to acquire 100% of the share capital of European Homecare (EHC), a specialist provider of immigration services to public sector customers in Germany. The business will be acquired from Korte-Stiftung for €40m (£34m) subject to final fair value assessments. Subsequent to the balance sheet date clearance has been obtained from the competition authority and the acquisition is expected to complete on 1 March 2024.

On 14 December 2023, Serco agreed to acquire 100% of the share capital of Climatize, a small but fast-growing business that operates in the United Arab Emirates and the Kingdom of Saudi Arabia offering 'zero-carbon' advisory and related engineering services. The acquisition completed on 31 January 2024 for cash consideration of AED 9.0m (£1.9m) and contingent consideration of up to AED 51.0m (£10.9m), payable on achieving certain financial targets. Due to the timing of completion, the measurement of the fair value of net assets acquired and any goodwill to be recognised as a result of the acquisition is in progress.

Pensions

During the year there continued to be a high degree of volatility in the pensions market. Discount rates and short-term inflation rates had been rising since 31 December 2021. Concerns over high global inflation, recession, rising interest rates and sharp rises in bond yields continued through to the third quarter of 2023 and, as inflation fell and interest rates rose, bond yields fell slightly below the levels at 31 December 2022.

Despite the volatility, Serco's pension schemes remain in a strong funding position and have an accounting surplus, before tax, of £24.5m (2022: £50.8m), on scheme gross assets of £1.1bn (2022 : £1.1bn) and gross liabilities of £1.0bn (2022 £1.0bn). The decrease in the net retirement benefit asset of £26.3m is primarily due to the Group's largest scheme, Serco Pension and Life Assurance Scheme (SPLAS), and is as a result of the following:

-	Discount rates being lower than prior year resulting in an increase in pension obligation
-	Actual inflation in 2023 was higher than prior year assumptions resulting in an experience adjustment increasing pension obligations
-	Updated mortality assumptions to reflect the latest available actuarial projections resulting in a reduction to pension obligations
-	Reductions to long term RPI inflation assumptions have resulted in a decrease to pension obligations

Based on the 2021 actuarial funding valuation which was finalised in 2022 for SPLAS, the Group has committed to make deficit recovery payments of £6.6m per year from 2022 to 2030.

On 25 June 2023 the contract for Caledonian Sleepers was transferred back to the Scottish Government which included the transfer of obligations under the section of the share costs pension scheme under the franchise agreement. In line with the accounting under IAS 19 the Group held no liability for this scheme on the balance sheet and therefore there is no gain or loss through the income statement.

The opening net asset position led to a net interest income within net finance costs of £3.1m (2022: £2.7m).

Claim for losses in respect of the 2013 share price reduction

Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the reduction in Serco's share price in 2013. As the claim progresses, the Group has continued to assess the merit, likely outcome and potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially given the legal uncertainties in such actions.

Information on other contingent liabilities can be found in note 10 to the Condensed Consolidated Financial Statements.

Nigel Crossley

Group Chief Financial Officer

Condensed Consolidated Financial Statements

Consolidated Income Statement

For the year ended 31 December 2023 (unaudited)

	Underlying	Non Underlying items	Reported	Underlying	Non Underlying items	Reported
	2023	2023	2023	2022	2022	2022
	unaudited	unaudited	unaudited	audited	audited	audited
For the year ended 31 December	£m	£m	£m	£m	£m	£m
Revenue	4,873.8	-	4,873.8	4,534.0	-	4,534.0
Cost of sales	(4,378.3)	-	(4,378.3)	(4,044.7)	4.2	(4,040.5)
Gross profit	495.5	-	495.5	489.3	4.2	493.5
Administrative expenses	(275.8)	-	(275.8)	(264.3)	-	(264.3)
Exceptional operating items	-	53.8	53.8	-	(2.4)	(2.4)
Amortisation and impairment of intangibles arising on acquisition	-	(30.9)	(30.9)	-	(21.6)	(21.6)
Share of results of joint ventures and associates, net of interest and tax	29.0	-	29.0	12.0	-	12.0
Operating profit / (loss)	248.7	22.9	271.6	237.0	(19.8)	217.2
Investment revenue	7.0	-	7.0	4.7	-	4.7
Finance costs	(31.6)	-	(31.6)	(25.1)	-	(25.1)
Net finance costs	(24.6)	-	(24.6)	(20.4)	-	(20.4)
Profit before tax	224.1	22.9	247.0	216.6	(19.8)	196.8
Tax (charge)/credit	(50.8)	6.2	(44.6)	(47.9)	6.1	(41.8)
Profit for the period	173.3	29.1	202.4	168.7	(13.7)	155.0
Attributable to:
Equity attributable to owners of the Company	173.3	29.1	202.4	169.1	(13.7)	155.4
Non-controlling interest	-	-	-	(0.4)	-	(0.4)
Earnings per share (EPS)
Basic EPS	15.61p		18.23p	14.18p		13.03p
Diluted EPS	15.36p		17.93p	13.92p		12.79p

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2023 (unaudited)

	2023	2022
	unaudited	audited
	£m	£m
Profit for the year	202.4	155.0

Other comprehensive income/(loss) for the period:

Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income in joint ventures and associates	1.1	2.9
Remeasurements of post-employment benefit obligations¹	(29.1)	(93.8)
Actuarial loss on reimbursable rights¹	(3.0)	(12.3)
Income tax relating to components of other comprehensive income that will not be reclassified subsequently to profit or loss	6.1	27.1

Items that may be reclassified subsequently to profit or loss:
Net exchange (loss)/gain on translation of foreign operations²	(38.4)	60.2
Fair value (loss)/gain on cash flow hedges during the year²	(0.8)	0.6
Tax relating to items that may be reclassified²	0.2	(0.1)
Total other comprehensive loss for the year	(63.9)	(15.4)

Total comprehensive income for the year	138.5	139.6
Attributable to:
Equity owners of the Company	138.4	139.8
Non-controlling interest	0.1	(0.2)

1	Recorded in retirement benefit obligations reserve in the Consolidated Statement of Changes in Equity.
2	Recorded in hedging and translation reserve in the Consolidated Statement of Changes in Equity.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2023 (unaudited)

	Share capital	Share premium account	Retained earnings	Other Reserves	Total shareholders' equity	Non-controlling interest
	£m	£m	£m	£m	£m	£m
Audited balance at 1 January 2022	24.4	463.1	542.8	(23.6)	1,006.7	1.7
Total comprehensive income/(loss) for the year	-	-	158.1	(18.3)	139.8	(0.2)
Dividends paid	-	-	(30.3)	-	(30.3)	-
Shares purchased and held in own share reserve	-	-	-	(15.9)	(15.9)	-
Shares purchased and held in Treasury	-	-	-	(91.2)	(91.2)	-
Shares transferred to award holders on exercise of share awards	-	-	-	0.1	0.1	-
Expense in relation to share-based payments	-	-	-	15.6	15.6	-
Tax credit on items taken directly to equity	-	-	-	3.4	3.4	-
Audited balance at 1 January 2023	24.4	463.1	670.6	(129.9)	1,028.2	1.5
Total comprehensive income/(loss) for the year	-	-	203.4	(65.0)	138.4	0.1
Dividends paid	-	-	(33.7)	-	(33.7)	(1.7)
Shares purchased and held in own share reserve	-	-	-	(22.9)	(22.9)	-
Shares purchased and held in Treasury until cancelled	-	-	-	(88.8)	(88.8)	-
Cancellation of shares held in Treasury	(2.3)	-	(180.0)	182.3	-	-
Change in non-controlling interests	-	-	(1.2)	-	(1.2)	(0.2)
Expense in relation to share-based payments	-	-	-	13.5	13.5	-
Tax credit on items taken directly to equity	-	-	-	0.5	0.5	-
Unaudited balance at 31 December 2023	22.1	463.1	659.1	(110.3)	1,034.0	(0.3)

Consolidated Balance Sheet

For the year ended 31 December 2023 (unaudited)

	At 31 December	At 31 December
	2023	2022
	unaudited	audited
	£m	£m
Non-current assets
Goodwill	906.7	945.0
Other intangible assets	115.6	158.0
Property, plant and equipment	44.3	48.1
Right of use assets	440.9	434.2
Interests in joint ventures and associates	32.1	23.3
Loan to joint ventures	-	10.0
Trade and other receivables	14.8	16.1
Derivative financial instruments	-	0.3
Deferred tax assets	235.7	244.2
Retirement benefit assets	37.4	57.0
	1,827.5	1,936.2
Current assets
Inventories	24.1	22.4
Contract assets	296.6	345.0
Trade and other receivables	329.0	374.6
Loan to joint ventures	10.0	-
Current tax assets	23.8	11.5
Cash and cash equivalents	94.4	57.2
Derivative financial instruments	4.9	3.3
	782.8	814.0
Total assets	2,610.3	2,750.2
Current liabilities
Contract liabilities	(35.8)	(60.5)
Trade and other payables	(558.0)	(622.8)
Derivative financial instruments	(1.7)	(1.1)
Current tax liabilities	(18.4)	(16.0)
Provisions	(92.9)	(134.9)
Obligations under leases	(140.0)	(144.4)
Loans	(51.0)	(44.5)
	(897.8)	(1,024.2)
Non-current liabilities
Contract liabilities	(59.3)	(36.3)
Trade and other payables	(9.2)	(6.5)
Derivative financial instruments	(0.2)	-
Deferred tax liabilities	(50.9)	(53.8)
Provisions	(77.4)	(73.5)
Obligations under leases	(313.7)	(301.6)
Loans	(155.2)	(218.4)
Retirement benefit obligations	(12.9)	(6.2)
	(678.8)	(696.3)
Total liabilities	(1,576.6)	(1,720.5)
Net assets	1,033.7	1,029.7

	At 31 December	At 31 December
	2023	2022
	unaudited	audited
	£m	£m
Equity
Share capital	22.1	24.4
Share premium account	463.1	463.1
Retained earnings	659.1	670.6
Other reserves	(110.3)	(129.9)
Equity attributable to owners of the Company	1,034.0	1,028.2
Non-controlling interest	(0.3)	1.5
Total equity	1,033.7	1,029.7

Consolidated Cash Flow Statement

For the year ended 31 December 2023 (unaudited)

	2023	2022
	unaudited	audited
	£m	£m
Net cash inflow from underlying operating activities	383.8	330.1
Non-underlying items	9.3	(2.9)
Net cash inflow from operating activities	393.1	327.2
Investing activities
Interest received	3.9	1.9
Dividends received from joint ventures and associates	21.1	9.1
Loan to pension scheme relating to collateral calls	-	(60.0)
Repayment from pension scheme of loan relating to collateral calls	-	60.0
Loan to joint venture	-	(10.0)
Purchase of other intangible assets	(8.8)	(7.0)
Purchase of property, plant and equipment	(15.9)	(12.4)
Proceeds from disposal of property, plant and equipment	1.4	0.7
Proceeds from disposal of intangible assets	1.3	-
Proceeds from disposal of subsidiary	0.2	-
Acquisition of subsidiaries, net of cash acquired	(7.7)	(19.2)
Other investing activities	(0.9)	1.6
Net cash outflow from investing activities	(5.4)	(35.3)
Financing activities
Interest paid	(30.4)	(24.4)
Capitalised finance costs paid	-	(2.6)
Advances of loans	-	205.0
Repayments of loans	(44.5)	(354.3)
Capital element of lease repayments	(124.4)	(120.5)
Cash movements on hedging instruments	(1.5)	(2.7)
Dividends paid to shareholders	(33.7)	(30.3)
Dividends paid to non-controlling interests	(1.7)	-
Purchase of Own Shares for Employee Share Ownership Trust	(22.9)	(15.9)
Own shares repurchased	(88.8)	(91.2)
Proceeds received from exercise of share options	-	0.1
Net cash outflow from financing activities	(347.9)	(436.8)
Net increase/(decrease) in cash and cash equivalents	39.8	(144.9)
Cash and cash equivalents at beginning of year	57.2	198.4
Net exchange (loss)/gain	(2.6)	3.7
Cash and cash equivalents at end of year	94.4	57.2

Notes to the Condensed Consolidated Financial Statements

1. Basis of preparation and accounting policies

Basis of preparation

The financial information in this announcement does not constitute the Group's or the Company's statutory accounts as defined in section 434 of the Companies Act 2006 for the years ended 31 December 2023 or 2022 The financial information for 2022 is derived from the statutory accounts for 2022 which have been delivered to the registrar of companies. The auditor has reported on the 2022 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2023 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

The preliminary announcement has been prepared in accordance with UK-adopted International Accounting Standards (IAS), UK-adopted International Financial Reporting Standards (IFRS) and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Going concern

In assessing the basis of preparation of the financial statements for the year ended 31 December 2023, the Directors have considered the principles of the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, 2014'; particularly in assessing the applicability of the going concern basis, the review period and disclosures. The period of assessment is considered to be at least 12 months from the date of approval of these financial statements.

At 31 December 2023, the Group's principal debt facilities comprised a £350.0m revolving credit facility maturing in November 2027 (of which £nil was drawn), and £208.8m of US private placement notes, giving £558.8m of committed credit facilities and committed headroom of £444.4m, being the undrawn revolving credit facility plus cash of £94.4m. The principal financial covenant ratios are consistent across the US Private Placement loan notes and revolving credit facility and are outlined on page 27. As at 31 December 2023, the Group's primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below the Group's target range of 1x to 2x at 0.50x.

The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well as the potential impact of key uncertainties and sensitivities on the Group's future performance. In making this assessment, the Directors have considered the Group's existing debt levels, the committed funding and liquidity positions under its debt covenants, its ability to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of mitigating actions that could be used to preserve cash in the business should the need arise.

As noted in post balance sheet events within note 15, subsequent to the balance sheet date the Group issued a further £118m ($150m) of US private placement notes which have been included in the Directors liquidity forecast supporting this assessment.

The basis of the assessment continues to be the Board-approved budget which is prepared annually for the next two-year period and is based on a bottom-up approach to all of the Group's existing contracts, potential new contracts and administrative functions.

Owing to the unprecedented levels of inflation driven by geopolitical factors, the Directors have considered the Group's resilience to rising costs. Due to the nature of the Group's operations, almost all of the revenue base has some form of inflationary protection, whether it be through contractual indexation mechanisms, cost plus billing or being short term in nature. Though the timing of such protections becoming effective may, in the short term, differ from the impact of cost pressures, it is expected that the current inflation levels will not have a material impact on the Group's profitability or cash flow.

The Directors believe that appropriate sensitivities in assessing the Group's ability to continue as a going concern are to model reductions in the Group's win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group's operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group's debt covenants and available liquidity provides meaningful analysis of the Group's ability to continue as a going concern. Based on the headroom available, the Directors are then able to assess whether the reductions required to breach the Group's financial covenants, or exhaust available liquidity, are plausible.

This reverse stress test shows that, even after assuming that the US private placement loan of £51m due to mature during the assessment period is repaid, and that no additional refinancing occurs after the date of approval of the financial statements, the Group can afford to be unsuccessful on 80% of its bids and extensions, combined with a profit margin 80 basis points below the Group's forecast, and still retain sufficient liquidity to meet all liabilities as they fall due and remain compliant with the Group's financial covenants.

In respect of win rates, rebids and extensions have a more significant impact on the Group's revenue than new business wins during the assessment period. The Group has won more than 85% of its rebids and extensions and available contract extensions by volume over the last two years, therefore a reduction of 80% or more to the budgeted bid and extensions rates is not considered plausible. The Group does not generally bid for contracts at margins below its target range.

In respect of margin reduction, due to the diversified nature of the Group's portfolio of long-term contracts and the fact that the Group has met or exceeded its full year guidance for the last five years, a reduction in margin of 80 basis points (bps) versus the Group's budget is not considered plausible within the assessment period combined with an 80% reduction in bid and extensions rates.

Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

Accounting policies, estimates and judgements

In the year ended 31 December 2023, the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's 2022 audited financial statements with the exception of the change to alternative profit measures (APMs) as set out below.

No new or amended accounting standards had a material impact on the Group for the 31 December 2023 reporting period.

In preparing these condensed consolidated financial statements, there have been no changes to the critical accounting judgements and key sources of estimation uncertainty from those disclosed in the Group's 2022 audited financial statements.

Consolidation of profit measures

The Group has simplified its profit measures by removing Trading Profit and renaming underlying trading profit (UTP) to underlying operating profit (UOP). The historic UOP will be the same as the reported UTP.

The UTP definition was introduced in 2015 to exclude onerous contract provision (OCP) releases or charges, other Contract and Balance Sheet Review adjustments, depreciation and amortisation of assets held for sale, and some other one-time items. It was maintained to ensure that there was transparency outside the underlying results of large charges and releases from the portfolio of onerous contracts recorded in 2014. These definitions are no longer required as the Contract and Balance Sheet Adjustments recorded in 2014 are now at an insignificant level. In the future, no items will be recorded between UTP and Trading Profit, meaning the additional measure no longer adds any value.

The methodology applied to calculating other APMs has not changed since 31 December 2022.

2. Segmental information

The Group's operating segments reflecting the information reported to the Board in 2023 under IFRS 8 Operating Segments are consistent with those reported in the Group's 2022 audited financial statements. An analysis of the Group's revenue from its key market sectors is as follows:

Year ended 31 December 2023 (unaudited)	UK&E	North America	Asia Pacific	Middle East	Total
Year ended 31 December 2023 (unaudited)	£m	£m	£m	£m	£m
Key sectors
Defence	355.0	931.9	156.7	30.9	1,474.5
Justice & Immigration	1,329.8	-	351.3	-	1,681.1
Transport	148.7	102.5	12.2	71.3	334.7
Health & Other Facilities Management	227.4	-	196.5	103.2	527.1
Citizen Services	378.6	328.4	128.4	21.0	856.4
	2,439.5	1,362.8	845.1	226.4	4,873.8

Year ended 31 December 2022 (audited)	UK&E	North America	Asia Pacific	Middle East	Total
Year ended 31 December 2022 (audited)	£m	£m	£m	£m	£m
Key sectors
Defence	315.8	863.0	147.9	30.5	1,357.2
Justice & Immigration	798.9	-	412.9	-	1,211.8
Transport	173.9	95.9	9.8	70.0	349.6
Health & Other Facilities Management	264.4	-	225.3	103.0	592.7
Citizen Services	547.2	310.9	158.7	5.9	1,022.7
	2,100.2	1,269.8	954.6	209.4	4,534.0

The following is an analysis of the Group's revenue, results, assets and liabilities by reportable operating segment:

Year ended 31 December 2023 (unaudited)	UK&E	North America	Asia Pacific	Middle East	Corporate	Total
Year ended 31 December 2023 (unaudited)	£m	£m	£m	£m	£m	£m
Revenue	2,439.5	1,362.8	845.1	226.4	-	4,873.8
Result
Underlying operating profit/(loss)¹	120.8	138.2	23.7	15.3	(49.3)	248.7
Amortisation and impairment of intangibles arising on acquisition	(3.4)	(16.0)	(11.5)	-	-	(30.9)
Exceptional operating items²	9.9	-	-	-	43.9	53.8
Operating profit/(loss)	127.3	122.2	12.2	15.3	(5.4)	271.6
Net finance cost						(24.6)
Profit before tax						247.0
Tax (charge)/credit						(42.3)
Tax on exceptional items						(2.3)
Profit for the year						202.4
Supplementary Information
Share of profits in joint ventures and associates, net of interest and tax	29.0	-	-	-	-	29.0
Total depreciation and impairment of plant, property and equipment and right of use assets	(99.4)	(20.6)	(10.0)	(2.1)	(11.9)	(144.0)
Amortisation and impairment of intangible assets	(1.9)	(0.9)	(1.1)	(0.1)	(3.6)	(7.6)

1	Underlying operating profit/(loss) is defined as operating profit/(loss) before exceptional items (and in the prior year other non-underlying items) and amortisation and impairment of intangible assets arising on acquisition.
2	Included within exceptional operating items are releases of provisions previously held for indemnities given on disposed businesses of £43.9m and compensation received on the early termination of a contract of £9.9m. Exceptional items incurred by the Corporate segment are not allocated to other segments. Such items may represent costs that will benefit the wider business.

Year ended 31 December 2022 (audited)	UK&E	North America	Asia Pacific	Middle East	Corporate	Total
Year ended 31 December 2022 (audited)	£m	£m	£m	£m	£m	£m
Revenue	2,100.2	1,269.8	954.6	209.4	-	4,534.0
Result
Underlying operating profit/(loss)¹	72.1	136.6	56.9	16.0	(44.6)	237.0
Other non-underlying items²	4.1	0.1	-	-	-	4.2
Amortisation and impairment of intangibles arising on acquisition	(1.5)	(16.5)	(3.6)	-	-	(21.6)
Exceptional operating items³	(1.2)	(1.2)	-	-	-	(2.4)
Operating profit/(loss)	73.5	119.0	53.3	16.0	(44.6)	217.2
Net finance cost						(20.4)
Profit before tax						196.8
Tax (charge)/credit						(42.1)
Tax on exceptional items						0.3
Profit for the year						155.0
Supplementary Information
Share of profits in joint ventures and associates, net of interest and tax	12.0	-	-	-	-	12.0
Total depreciation and impairment of plant, property and equipment and right of use assets	(86.4)	(26.7)	(12.6)	(1.9)	(12.9)	(140.5)
Amortisation and impairment of intangible assets	(1.3)	(1.0)	(2.1)	(0.1)	(5.6)	(10.1)

1	Underlying operating profit/(Loss) is defined as operating profit/(loss) before exceptional items (and in the prior year other non-underlying items) and amortisation and impairment of intangible assets arising on acquisition.
2	Non-underlying items include the reversal of an impairment in respect of assets which is no longer required due to contractual changes which the Group has agreed with its customer.
3	Included within exceptional operating items are total acquisition related costs of £2.4m.

Year ended 31 December 2023 (unaudited)	UK&E	North America	Asia Pacific	Middle East	Corporate	Total
Year ended 31 December 2023 (unaudited)	£m	£m	£m	£m	£m	£m
Segment assets
Interests in joint ventures and associates	31.8	-	-	0.4	-	32.2
Other segment assets¹	891.6	897.7	254.5	62.4	113.2	2,219.4
Total segment assets	923.4	897.7	254.5	62.8	113.2	2,251.6
Unallocated assets²						358.7
Consolidated total assets						2,610.3
Segment liabilities
Segment liabilities	(725.1)	(172.0)	(223.5)	(54.1)	(124.7)	(1,299.4)
Unallocated liabilities²						(277.2)
Consolidated total liabilities						(1,576.6)
Supplementary Information
Additions to non current assets³	125.3	16.7	8.0	2.6	15.7	168.3
Segment non-current assets	677.1	688.6	151.9	13.5	60.8	1,591.9
Unallocated non-current assets						235.8

Year ended 31 December 2022 (audited)	UK&E	North America	Asia Pacific	Middle East	Corporate	Total
Year ended 31 December 2022 (audited)	£m	£m	£m	£m	£m	£m
Segment assets
Interests in joint ventures and associates	22.9	-	-	0.4	-	23.3
Other segment assets¹	960.8	948.0	309.6	68.7	123.3	2,410.4
Total segment assets	983.7	948.0	309.6	69.1	123.3	2,433.7
Unallocated assets²						316.5
Consolidated total assets						2,750.2
Segment liabilities
Segment liabilities	(720.2)	(178.3)	(248.1)	(61.1)	(179.0)	(1,386.7)
Unallocated liabilities²						(333.8)
Consolidated total liabilities						(1,720.5)
Supplementary Information
Additions to non current assets³	173.7	14.5	7.4	3.0	12.1	210.7
Segment non-current assets	701.1	718.6	177.1	14.1	80.8	1,691.7
Unallocated non-current assets						244.5

1	The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension schemes and corporate intangible assets.
2	Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans.
3	Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant and equipment and right of use assets.

3. Acquisitions

No acquisitions were completed during the year. See note 15 for details of acquisitions completed subsequent to the Balance Sheet date.

During the year, the Group finalised the integration of OXZ Holdings AG (ORS), completed the analysis of balances acquired as part of the transaction, and made closing net working capital settlements with the vendors. As a result of these activities, the Group revised the fair values of the acquired assets and liabilities resulting in an increase to goodwill of £3.3m, a reduction in other intangibles of £6.9m, an increase to the deferred tax asset of £1.3m, and a cash receipt of £2.3m for final working capital settlements.

Contingent consideration recognised on acquisition of ORS in 2022 was CHF12.8m (£11.2m) and reflected the fair value of the earn-out and over performance payments based on a range of targets for the full year 2022 EBITDA. The maximum earn-out and over performance payments were CHF10.0m and CHF4.0m respectively. The final earn-out and over performance payments settled at CHF 12.3m (£10.2m) which resulted in a change to the fair value of the contingent consideration resulting in a profit of £1.0m including the impact of foreign currency translation.

During the year the Group finalised the integration of Sapienza Consulting Holdings BV (Sapienza), completed the analysis of balances acquired as part of the transaction, and made closing net working capital settlements with the vendors. As a result of these activities, the Group revised the fair values of the acquired assets and liabilities resulting in a decrease of goodwill of £0.2m, an increase in provisions of £0.4m, a reduction in trade and other payables of £0.4m, and a cash receipt of £0.2m for final working capital settlements.

The total impact of acquisitions to the Group's cash flow position in the period was as follows:

	£m unaudited
Cash received in respect of prior period acquisitions	(2.5)
Settlement of deferred consideration in respect of prior year acquisitions	10.2
Net cash outflow in respect of prior year acquisitions	7.7
Acquisition related costs	1.3
Net cash impact in the year on acquisitions	9.0

The total transaction and implementation costs recognised in exceptional items for the year ended 31 December 2023 was nil (2022 £2.4m).

4. Exceptional operating items

Exceptional items are items of financial performance that are outside normal operations and are material to the results of the Group either by virtue of size or nature. As such, the items set out below require separate disclosure on the face of the income statement to assist in the understanding of the performance of the Group.

	2023	2022
	unaudited	audited
Year ended 31 December	£m	£m
Compensation received on the early termination of contractual services	9.9	-
Release of provisions held for indemnities given on disposed businesses	43.9	-
Costs associated with successful acquisitions	-	(2.4)
Exceptional operating items	53.8	(2.4)
Exceptional tax (charge)/credit	(2.3)	0.3
Total exceptional operating items net of tax	51.5	(2.1)

5. Tax

5 (a) Income tax recognised in the income statement

Year ended 31 December	Underlying	Non-underlying items	Reported	Underlying	Non-underlying items	Reported
	2023	2023	2023	2022	2022	2022
	unaudited	unaudited	unaudited	audited	audited	audited
	£m	£m	£m	£m	£m	£m
Current income tax
Current income tax charge/(credit)	34.0	(1.5)	32.5	41.8	(4.0)	37.8
Adjustments in respect of prior years	1.3	-	1.3	3.5	-	3.5
Deferred tax
Current year charge/(credit)	16.8	(4.7)	12.1	7.5	(2.1)	5.4
Adjustments in respect of prior years	(1.3)	-	(1.3)	(4.9)	-	(4.9)
	50.8	(6.2)	44.6	47.9	(6.1)	41.8

The corporate income tax expense for the year is based on the UK statutory rate of corporation tax for the period of 23.5% (2022: 19.0%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

5 (b) Income tax recognised in the SOCI

	2023	2022
	unaudited	audited
Year ended 31 December	£m	£m
Current tax
Taken to retirement benefit obligations reserve	1.9	2.0
Deferred tax
Relating to cash flow hedges	0.2	(0.1)
Taken to retirement benefit obligations reserve	4.2	25.1
	6.3	27.0

5 (c) Tax on items taken directly to equity

	2023	2022
	unaudited	audited
Year ended 31 December	£m	£m
Current tax
Recorded in share-based payment reserve	1.0	2.2
Deferred tax
Recorded in share-based payment reserve	(0.5)	1.2
	0.5	3.4

6. Earnings per share

Basic earnings per share is calculated by dividing the profit after tax attributable to owners of the Company by the weighted average number of shares in issue after deducting the own shares held by employee share ownership trusts and treasury shares and adding back vested share options not exercised.

In calculating the diluted earnings per share, unvested share options outstanding have been taken into account where the impact of these is dilutive.

The calculation of the basic and diluted EPS is based on the following data:

	2023	2022
	unaudited	audited
Number of shares	millions	millions
Weighted average number of ordinary shares for the purpose of basic EPS	1,110.2	1,192.2
Effect of dilutive potential ordinary shares: Shares under award	18.4	22.6
Weighted average number of ordinary shares for the purpose of diluted EPS	1,128.6	1,214.8

Earnings per share

	Earnings	Per share amount	Earnings	Per share amount
	2023	2023	2022	2022
	unaudited	unaudited	audited	audited
Basic EPS	£m	pence	£m	pence
Earnings for the purpose of basic EPS	202.4	18.23	155.4	13.03
Effect of dilutive potential ordinary shares	-	(0.30)	-	(0.24)
Diluted EPS	202.4	17.93	155.4	12.79

7. Goodwill

Movements in the balance since the prior year end can be seen as follows:

	Goodwill balance 1 January 2023	Acquisitions	Disposals	Exchange differences 2023	Goodwill balance 31 December 2023	Headroom on impairment analysis 2023	Headroom on impairment analysis 2022
	audited				unaudited	unaudited	audited
	£m	£m	£m	£m	£m	£m	£m
UK & Europe	203.8	3.1	-	(0.3)	206.6	1,051.1	811.1
North America	592.2	-	-	(32.7)	559.5	644.3	360.9
Asia Pacific	137.8	-	-	(7.6)	130.2	110.0	281.0
Middle East	11.2	-	(0.1)	(0.7)	10.4	285.5	119.5
	945.0	3.1	(0.1)	(41.3)	906.7	2,090.9	1,572.5

Included above is the headroom on the cash generating units (CGUs) existing at the year end, which reflects where future discounted cash flows are greater than the underlying assets and includes all relevant cash flows, including where provisions have been made for future costs and losses. In all CGUs, there is sufficient headroom available which is consistent with 2022.

Sensitivity analysis

Reflecting the assumptions made in the estimation of future cash flows and the selection of appropriate discount rates and terminal growth rates, a number of plausible scenarios have been considered as part of the overall impairment assessment.

Sensitivity analysis has been performed by applying a 1% movement in discount rates and a 1% movement in terminal growth rates which are considered to be reasonably possible. Both individually and combined, the impact of these changes in key assumptions does not lead to an impairment in any CGU (2022: no impairment in any CGU).

A sensitivity analysis has been performed in respect of short-term growth rates within the Board-approved five-year plan. The sensitivity applied has been to assume no growth to cash flows outside of the two year budget period of the five-year plan. No impairment results from these changes, even when combined with the additional 1% increase in discount rates and 1% reduction in terminal growth rates, with the exception of the Asia Pacific CGU (2022: Asia Pacific CGU) for which additional sensitivities have been performed below. Given the visibility of pipeline available, a no growth scenario is unlikely and would require win and rebid rates to fall below the five-year averages seen within the business. In order to deliver revenue growth, amongst other things, the Group continues to invest in bidding activity in order to ensure it remains competitive within the markets in which it operates.

Management has also considered the sensitivity of cash flows in the terminal year for all CGUs and has determined that a reduction in cash flows of up to 10% in the final year of the plan is reasonably possible. No impairment results from this scenario even when combined with an additional 1% increase in discount rates and a 1% reduction in terminal growth rates though this is not deemed reasonably possible. Cash flows in the terminal year would need to reduce by 91% in the Middle East (£32.4m), 32% in Asia Pacific (£9.8m), 68% in North America (£56.5m) and 79% in UK & Europe (£102.3m), before an impairment would need to be recognised.

Asia Pacific CGU

The risk adjusted Board-approved five-year plan for the Asia Pacific Division supports the headroom held against the CGU. The key judgements in respect of the divisional plan are as follows:

-	Win rates by value improve from the current levels experienced by the Division in 2023 of 2% for new business and 24% for rebids, to the five-year average which are 15% for new business and 63% for rebids.
-	The immigration rebid, for which the tender outcome is expected in the first half of 2024, delivers cash flows beyond 2024.
-	There is no significant deterioration within the outsourcing market in the region

Having performed a review of the market, made local management changes and identified areas where the business could be more efficient, the Directors believe that sufficient opportunities exist to deliver the five-year plan and that win rates can be improved. Whilst tangible cost savings are expected in the short term, it may take a longer period for an improvement in pipeline and win rates to be observed. In addition, the Directors believe on balance that the immigration contract is likely to be retained given the Group's experience in delivering the existing contract, and the general rebid rates it achieves. However, a loss would impact the Division's ability to deliver the five-year plan if no opportunities are secured to replace the cash flows delivered by the contract.

In respect of scenarios within the Asia Pacific CGU:

Whilst the base case scenario, which assumes win rates returning to the long-term five-year average outlined above, results in no impairment, the Directors note that sustained win rates at the level observed over the last year combined with the inability to identify sufficient credible opportunities could lead to an impairment of the entire goodwill balance of the CGU. Win rates by value would independently have to reduce to 11% for new business and 46% for rebids over the five-year period to result in no headroom.

An unsuccessful outcome in respect of the immigration rebid could result in an impairment in isolation. However, given the scale of this contract to the CGU, a fundamental restructuring of the Division may be required to improve profitability and would mitigate the risk of impairment.

As noted above, win rates not improving, or the loss of the immigration rebid, would require a review of the efficiency of the Asia Pacific Division and may result in a review of the overhead and support structures in place to ensure that they are appropriate for the scale of business and opportunities available . Any costs or benefits of restructuring are not included in the five-year cash flows.

8. Analysis of Net Debt

The analysis below provides a reconciliation between the opening and closing positions in the balance sheet for liabilities arising from financing activities together with movements in derivatives relating to the items included in Net Debt. There were no changes in fair value noted in either the current or prior year.

	At 1 January 2023	Cash flow	Exchange differences	Non-cash movements²	At 31 December 2023
	audited				unaudited
	£m	£m	£m	£m	£m
Loans payable	(262.9)	44.5	13.1	(0.8)	(206.2)
Lease obligations	(446.0)	124.4	3.1	(135.2)	(453.7)
Liabilities arising from financing activities	(708.9)	168.9	16.2	(136.0)	(659.9)
Cash and cash equivalents	57.2	39.8	(2.6)	-	94.4
Derivatives relating to net debt	1.8	-	1.3	-	3.1
Net debt	(649.9)	208.7	14.9	(136.0)	(562.4)

1	Acquisitions represent the net cash/(debt) acquired on acquisition.
2	Non-cash movements on loans payable relate to movement in capitalised finance costs in the year. For lease obligations non-cash movements relate to the net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash termination cost.

9. Provisions

	Employee related	Property	Contract	Claims	Other	Total
	£m	£m	£m	£m	£m	£m
At 1 January 2023 (audited)	82.5	19.6	11.6	24.2	70.5	208.4
Acquisitions - revision of provisional fair value estimates	-	-	-	-	0.4	0.4
Disposals	(1.2)	(0.9)	-	-	(0.3)	(2.4)
Charge capitalised in right of use assets	-	0.9	-	-	-	0.9
Charged to income statement	18.3	9.7	8.8	9.7	7.7	54.2
Released to exceptional items	-	-	-	-	(43.9)	(43.9)
Released to income statement	(2.1)	(1.6)	(0.6)	(3.1)	(7.7)	(15.1)
Utilised during the year	(9.2)	(4.2)	(3.2)	(5.2)	(5.4)	(27.2)
Exchange differences	(4.4)	(0.3)	0.1	-	(0.4)	(5.0)
At 31 December 2023 (unaudited)	83.9	23.2	16.7	25.6	20.9	170.3
Analysed as:
Current	54.0	5.9	10.7	5.4	16.9	92.9
Non-current	29.9	17.3	6.0	20.2	4.0	77.4
	83.9	23.2	16.7	25.6	20.9	170.3

Employee-related provisions include amounts for long-term service awards and terminal gratuity liabilities which have been accrued and are based on contractual entitlement, together with an estimate of the probabilities that employees will stay until rewards fall due and receive all relevant amounts. The provisions will be utilised over various periods driven by attrition and demobilisation of contracts, the timing of which is uncertain. There are also amounts included in relation to restructuring.

The majority of property provisions relate to leased properties and are associated with the requirement to return properties to either their original condition, or to enact specific improvement activities in advance of exiting the lease. Dilapidations associated with leased properties are held as a provision until such time as they fall due, with the longest running lease ending in March 2037.

A contract provision is recorded when a contract is deemed to be unprofitable and therefore is considered onerous. The present value of the estimated future cash outflow required to settle the contract obligations as they fall due over the respective contracts has been used in determining the provision.

Claims provisions relate to claims made against the Group. These claims are varied in nature, although they typically come from either the Group's service users, claimants for vehicle-related incidents or the Group's employees. While there is some level of judgement on the amount to be recorded, in almost all instances the variance to the actual claim paid out will not individually be material, however, the timing of when the claims are reported and settled is less certain as a process needs to be followed prior to the amounts being paid.

Included within other provisions is £20.9m related to legal and other costs that the Group expects to incur over an extended period, in respect of past events for which a provision has been recorded, none of which are individually material. The Group released from other provisions indemnities given on disposed businesses of £43.9m during the year predominantly due to the claims period ending.

Individual provisions are only discounted where the impact is assessed to be significant. Currently, the effect of discounting is not material.

10. Contingent liabilities

The Group and its subsidiaries have provided certain guarantees and indemnities in respect of performance and other bonds, issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 31 December 2023 was £214.4m (2022: £222.7m).

The Group is also aware of other claims and potential claims which involve or may involve legal proceedings against the Group although the timing of settlement of these claims remains uncertain. The Directors are of the opinion, having regard to legal advice received and the Group's insurance arrangements, that it is unlikely that these matters will, in aggregate, have a material effect on the Group's financial position.

The Group has guaranteed overdrafts, finance leases and bonding facilities of its joint ventures and associates up to a maximum value of £5.7m (2022: £5.7m). The actual commitment outstanding at 31 December 2023 was £5.7m (2022: £5.7m).

11. Financial risk management

The vast majority of financial instruments are held at amortised cost. The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is observable. The levels are as follows:

Level 1: Inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within Level 1.

Level 3: Inputs are unobservable inputs for the asset or liability.

Based on the above, the derivative financial instruments held by the Group at 31 December 2023 and the comparison fair values for loans, are all considered to fall into Level 2, with the exception of contingent consideration which is considered to fall into Level 3. Market prices are sourced from Bloomberg and third party valuations. The valuation models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves.

There have been no transfers between levels in the year.

12. Retirement benefit schemes

	2023	2022
	unaudited	audited
Recognised in the income statement	£m	£m
Current service cost - employer	5.3	5.9
Past service cost - employer	-	0.8
Settlement gain recognised	-	(0.3)
Administrative expenses and taxes	2.0	2.4
Recognised in arriving at operating profit	7.3	8.8
Interest income on scheme assets - employer	(50.4)	(28.3)
Interest on franchise adjustment	-	(0.2)
Interest cost on scheme liabilities - employer	47.3	25.8
Finance income	(3.1)	(2.7)
Total recognised in the income statement	4.2	6.1

	2023	2022
	unaudited	audited
Included within the SOCI	£m	£m
Actual return on scheme assets	41.4	(539.8)
Less: interest income on scheme assets	(50.4)	(28.3)
Net return on scheme assets	(9.0)	(568.1)
Effect of changes in demographic assumptions	24.3	21.2
Effect of changes in financial assumptions	(22.7)	530.3
Effect of experience adjustments	(21.7)	(77.2)
Remeasurements	(29.1)	(93.8)
Change in franchise adjustment	(1.8)	(7.0)
Change in members' share	(1.2)	(5.3)
Release of member share on end of franchise	-	-
Actuarial loss on reimbursable rights	(3.0)	(12.3)
Total recognised in the SOCI	(32.1)	(106.1)

The assets and liabilities of the schemes at 31 December are:

	Fair value of scheme assets	Present value of scheme liabilities	Surplus/(deficit)	Fair value of scheme assets	Present value of scheme liabilities	Surplus/(deficit)
	2023	2023	2023	2022	2022	2022
	unaudited	unaudited	unaudited	audited	audited	audited
	£m	£m	£m	£m	£m	£m
SPLAS¹	917.0	(886.5)	30.5	925.3	(877.8)	47.5
ORS	68.5	(80.5)	(12.0)	49.8	(54.9)	(5.1)
RPS	66.7	(60.8)	5.9	68.4	(59.7)	8.7
Other Schemes in surplus	3.8	(2.8)	1.0	3.3	(2.5)	0.8
Other schemes in deficit	1.1	(2.0)	(0.9)	1.0	(2.1)	(1.1)
Scheme under Franchise agreement²	-	-	-	11.9	(14.9)	(3.0)
Total	1,057.1	(1,032.6)	24.5	1,059.7	(1,011.9)	47.8
Franchise adjustment²			-			1.8
Members' share of deficit			-			1.2
Net retirement benefit asset³			24.5			50.8

1	The SPLAS Trust Deed gives the Group an unconditional right to a refund of surplus assets assuming the gradual settlement of plan liabilities over time until all members have left the plan. Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as economic benefits are available to the Group either in the form of future refunds or in the form of possible reductions in future contributions
2	The franchise adjustment represents the amount of scheme deficit that is expected to be funded outside the contract period and therefore no additional funding will be required by the Group.
3	The net retirement benefit asset (before tax) is split in the balance sheet between schemes in surplus totalling £37.4m (2022: £57.0m) reported in retirement benefit assets and schemes in deficit totalling £12.9m (2022: £6.2m) reported in retirement benefit obligations.

Actuarial assumptions:

The assumptions set out below are for SPLAS, which reflects 86% of total liabilities and 87% of total assets of the defined benefit pension scheme in which the Group participates. The significant actuarial assumptions with regards to the determination of the defined benefit obligation are set out below.

	2023	2022
	unaudited	audited
Significant actuarial assumptions	%	%
Discount rate	4.80	5.00
Rate of salary increases	2.85	2.85
RPI Inflation	3.05	3.15
CPI Inflation	2.35	2.35

	2023	2022
	unaudited	audited
Post-retirement mortality¹	years	years
Current pensioners at 65 - male	20.9	21.5
Current pensioners at 65 - female	23.6	24.1
Future pensioners at 65 - male	22.8	23.6
Future pensioners at 65 - female	25.6	26.2

1	The mortality assumptions have been updated to reflect the latest available mortality tables CMI_2022.

13. Related party transactions

Transactions between the Company and its wholly-owned subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint venture undertakings and associates are disclosed below. During the year, Group companies entered into the following transactions with joint ventures and associates:

	Transactions	Current outstanding at 31 December	Non-current outstanding at 31 December
	2023	2023	2023
	unaudited	unaudited	unaudited
	£m	£m	£m
Sale of goods and services
Joint ventures	15.4	1.1	-
Other
Loan to joint venture	-	10.0	-
Dividends received - joint ventures	21.1	-	-
Receivable from consortium for tax - joint ventures	9.9	3.7	9.4
Total	46.4	14.8	9.4

Sales of goods and services to joint ventures relates to services provided including administrative and back office activities to VIVO. Joint venture receivable and loan amounts outstanding have arisen from transactions undertaken during the general course of trading, are unsecured and will be settled in cash.

	Transactions	Current outstanding at 31 December	Non-current outstanding at 31 December
	2022	2022	2022
	audited	audited	audited
	£m	£m	£m
Sale of goods and services
Joint ventures	10.5	3.1	-
Other
Loan to joint venture	10.0	-	10.0
Loan to pension scheme	60.0	-	-
Dividends received - joint ventures	7.3	-	-
Dividends received - associates	1.8	-	-
Receivable from consortium for tax - joint ventures	3.2	0.9	3.2
Total	92.8	4.0	13.2

The Group made a short-term temporary loan of £60.0m to Serco Pension and Life Assurance Scheme (SPLAS) in 2022 in order for the scheme to be able to liquidate assets to meet collateral calls required to ensure that the LDI hedge was maintained; this loan was repaid in 2022.

14. Notes to the Consolidated Cash Flow statement

Year ended 31 December	2023 Underlying £m	2023 Non underlying items £m	2023 Reported £m	2022 Underlying £m	2022 Non underlying items £m	2022 Reported £m
	unaudited	unaudited	unaudited	audited	audited	audited
Profit before tax	224.1	22.9	247.0	216.6	(19.8)	196.8
Net finance costs	24.6	-	24.6	20.4		20.4
Operating profit for the year	248.7	22.9	271.6	237.0	(19.8)	217.2
Adjustments for:
Share of profits in joint ventures and associates	(29.0)	-	(29.0)	(12.0)	-	(12.0)
Share-based payment expense	13.5	-	13.5	15.6	-	15.6
Impairment of intangible assets	0.1	8.1	8.2	0.1	-	0.1
Amortisation of intangible assets	7.7	22.8	30.5	10.0	21.6	31.6
Impairment of property, plant and equipment	0.6	-	0.6	2.3	-	2.3
Net impairment/(reversal of impairment) of right of use assets	0.7	-	0.7	2.4	(4.2)	(1.8)
Depreciation of property, plant and equipment	17.3	-	17.3	20.7	-	20.7
Depreciation of right of use assets	125.4	-	125.4	119.3	-	119.3
(Profit)/Loss on disposal of intangible assets	(0.8)	-	(0.8)	0.4	-	0.4
Loss/(profit) on early termination of leases	0.6	-	0.6	(0.2)	-	(0.2)
Profit on disposal of property, plant and equipment	(0.6)	-	(0.6)	(0.5)	-	(0.5)
Other non-cash movements	(1.5)	-	(1.5)	-	-	-
Increase/(decrease) in provisions	12.6	(44.6)	(32.0)	4.0	(0.6)	3.4
Total non-cash items	146.6	(13.7)	132.9	162.1	16.8	178.9
Operating cash inflow/(outflow) before movements in working capital	395.3	9.2	404.5	399.1	(3.0)	396.1
(Increase) in inventories	(2.4)	0.1	(2.3)	(1.5)	-	(1.5)
Decrease in receivables	63.1	-	63.1	1.2	-	1.2
(Increase)/decrease in payables	(30.7)	-	(30.7)	(24.0)	0.1	(23.9)
Movements in working capital	30.0	0.1	30.1	(24.4)	0.1	(24.3)
Cash generated by operations	425.3	9.3	434.6	374.7	(2.9)	371.8
Tax paid	(41.1)	-	(41.1)	(44.2)	-	(44.2)
Non-cash R&D expenditure	(0.4)	-	(0.4)	(0.4)	-	(0.4)
Net cash inflow/(outflow) from operating activities	383.8	9.3	393.1	330.1	(2.9)	327.2

15. Post balance sheet events

Acquisitions

US Private Placement Loan Notes

On 27 February 2024, Serco Group plc issued $150m (£118m) of US Private Placement loan notes. The notes are equally split into two series of $75m each with maturities of 5 and 10 years, giving an average maturity of 7.5 years. The average interest rate on the new loan notes is fixed at 6.58%, which compares to a blended rate of 3.97% for the existing notes.

Serco share buyback

The Group has announced its intention to commence a share buyback of up to £140m. Consistent with the Group's capital allocation policy, the objective of the programme is to provide additional returns to shareholders as well as aid the Group in meeting its medium-term leverage targets. The buyback programme is expected to complete by 31 December 2024 with the shares either held in treasury or cancelled.

Employee Share Ownership Trust

Subsequent to the year end, the Group's Employee Share Ownership Trust completed the purchase of 9.3m shares at the cost of £16.2m. These shares will be held in the own share reserve until they are transferred to award holders on the exercise of share awards.

Dividends

Subsequent to the year-end, the Board has recommended the payment of a final dividend in respect of the year ended 31 December 2023 of 2.27p. The dividend remains subject to shareholder approval at the Annual General Meeting and therefore no amounts have been recognised in respect of a dividend in these Consolidated Financial Statements.

Additional information

We use key performance indicators (KPIs) to monitor our performance, ensuring that we have a balance and
an appropriate emphasis to both financial and non-financial aspects. As part of simplifying our profit measures, we renamed underlying trading profit (UTP) to underlying operating profit (UOP). This is explained in more detail in the Finance Review. All other KPIs are unchanged and therefore there is comparability and consistency with our focus in the business and the guidance we issue. The Finance Review provides further detailed definitions and reconciliations of our use of Alternative Performance Measures (APMs).

Alternative performance measure	Relevance to strategy
Underlying operating profit (UOP)	The level of absolute UOP and the relationship of UOP with revenue - i.e. the margin we earn on what our customers pay us - is at the heart of our aspiration to be profitable and sustainable. We believe the delivery of strategic success has potential to support annual revenue growth of 4-6%, in the medium term, and trading margins of 5-6%.
Underlying earnings per share (EPS), diluted	EPS builds on the relevance of UOP, and further reflects the achievement of being profitable and sustainable by taking into account not just our ability to grow revenue and margin but also the strength and costs of our financial funding and tax arrangements. EPS is therefore a measure of financial return for our shareholders.
Free cash flow (FCF)	FCF is a reflection of the sustainability of the business, by showing how much of our effort turns into cash to reinvest back into the business or to deploy in other ways. Our philosophy is we should only win business that generates appropriate cash returns, and 'executing well' includes appropriate management of our working capital cash flow cycles.
Underlying return on invested capital (ROIC)	ROIC measures how efficiently the Group uses its capital to generate returns from its assets. To be a sufficiently profitable and sustainable business, a return must be achieved that is appropriately above a cost of capital hurdle reflective of the typical returns required by our weighting of equity and debt capital.
Pipeline of larger new bid opportunities	The pipeline provides a key area of potential for winning good business and therefore is a major input to being profitable and sustainable. The size of the pipeline and our win-rate on the bids within it are at the heart of our strategy to grow the business.
Order book	The order book reflects progress with winning good business, including retaining existing work and as a store of future value, it is a key measure to ensure the Group is profitable and sustainable. The value of how much is added to the order book compared to how much revenue we are billing our customers - the book-to-bill ratio - is key to achieving long-term growth.

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Company Announcements

2023 Final Results