Serco Group plc (SECCF) Q4 2022 Earnings Call Transcript

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Serco Group plc (OTCPK:SECCF) Q4 2022 Results Conference Call February 28, 2023 5:00 AM ET

Company Participants

Mark Irwin - Group CEO & Director

Nigel Crossley - Group CFO & Director

Conference Call Participants

Michael Donnelly - Investec Bank

Paul Sullivan - Barclays

Oscar Val Mas - JPMorgan Chase

Arthur Truslove - Citigroup

Stephen Rawlinson - Applied Value Limited

Alex O'Hanlon - Liberum

Nicole Manion - UBS

Kean Marden - Jefferies

Mark Irwin

Good morning, everyone. My sanction is Mark Irwin. I'm Chief Exec for Serco Group. And joining maine this greeting for our results position is Nigel Crossley, our Group CFO. May I commencement by thanking everyone who has joined america successful nan room coming for nan convention arsenic good arsenic those joining america online. We admit your time, liking and support for Serco. As is required, I inquire that you statement nan disclaimer connected nan screen. There's besides a transcript of it successful nan results booklet, which you person pinch you successful nan room today.

The format for today's convention is akin to what you would person seen successful erstwhile years. After my introductory comments, Nigel will return america done nan numbers, and I will travel backmost and speak concisely astir nan business earlier moving to Q&A.

Now we were really successful this very aforesaid building talking to you astir our 2021 afloat twelvemonth results connected nan 24th of February past year, nan aforesaid time that Russia invaded Ukraine. After 2 years of COVID, successful nan hopes of a return to immoderate type of pre-pandemic normal were subsequently mislaid to a prolonged conflict, rattled power markets, ostentation astatine levels not seen successful decades and labour shortages among a agelong database of challenges faced by citizens, governments and businesses.

And truthful it is against that difficult backdrop that we judge our afloat twelvemonth results for 2022 is demonstrative of nan operational and financial resilience of our business. Our revenue, which exceeded £4.5 cardinal was up 11%, excluding nan effect of COVID-related activity going distant and rate movements.

Our underlying trading profit astatine £237 cardinal was somewhat amended than what we indicated astatine nan pre-close successful December, but importantly amended than nan first guidance of £195 cardinal astatine nan commencement of nan year. Our rate procreation continues to beryllium strong. We converted 97% of UTP during nan twelvemonth and underlying return connected invested superior remains high.

Now Nigel will talk done nan item of our superior allocation model. But generally, erstwhile you look astatine nan achievement, we are pleased that we are delivering good against each of our stated priorities.

Our world portfolio is delivering pinch much than 75% of our underlying trading profit being generated extracurricular of nan U.K. And nan agility of our B2G level allowed america to respond to accrued request for lawsuit guidance services successful nan U.S. and migration services successful nan U.K., Australia and Europe arsenic cardinal areas of growth. But we're pleased that successful each division, we saw bully capacity successful 2022.

We did person immoderate antagonistic effect successful power prices successful nan U.K. successful nan first 4th of past year. But complete nan people of nan year, inflation, tight labour markets and proviso concatenation challenges were mostly each good managed. And we had different bully twelvemonth of bid intake and our pipeline astatine year-end remains patient astatine £8.4 billion. And our guidance for nan coming twelvemonth is maintained, arsenic are our medium-term maturation targets. And you will beryllium alert from nan announcement this greeting that our Board has supported a further £90 cardinal stock buyback for 2023.

I wanted to walk conscionable a infinitesimal connected this slide, which I dream will intelligibly show that nan difficult activity that has been done successful nan business since 2014 has not only resulted successful a turnaround, but provides a level for sustainable, profitable maturation and shareholder worth creation. If we usage 2019, nan past twelvemonth successful which our results had nary effect of COVID-related activity arsenic a baseline, we spot that done to nan extremity of 2022, our revenues person grown by 40%, our underlying trading profit has astir doubled, ROIC is amended by much than 500 ground points, and our pipeline has remained robust contempt beardown conversion rates and continues to connection bully visibility to further maturation opportunities to meet our medium-term maturation goals.

And arsenic we activity toward those medium-term maturation goals, we will return a systematic attack to strengthening our world business to authorities level by focusing our execution connected 3 worth drivers: increasing customer effect and marketplace share, increasing nan worth of colleagues activity and increasing margins and efficiency.

And I'll travel backmost to these a small later successful nan presentation, but I'll now manus complete to Nigel to return a person look astatine our financial outcomes for FY '22.

Nigel Crossley

Thank you, Mark, and bully greeting to everybody. Before I tally done nan numbers, I conscionable want to return a infinitesimal to guarantee everybody that nan hold successful past week's announcement had thing to do pinch nan value aliases nan accuracy of nan group's results. This was purely owed to a modular audit process which had not been afloat completed by KPMG.

And this came up unexpectedly and we were first made alert of it little than 48 hours earlier we're owed to denote our results. This was frustrating and inconvenient for us, and I'm judge for you, for which we apologize. But conscionable to stress that nan results you're seeing coming are audited and they're precisely nan aforesaid numbers and aforesaid results that we would person presented past Thursday. So there's been nary change.

So moving on. Sorry. Moving on. I'm going to commencement pinch a summary of nan group's financial results, which, arsenic Mark said, person turned retired considerably amended than we expected astatine nan opening of nan year. Revenue grew conscionable complete 2% to £4.5 cardinal successful nan year. There's been a 3% maturation from acquisitions, including ORS and Sapienza, which we closed this twelvemonth successful Europe, arsenic good arsenic nan afloat twelvemonth effect of nan 2021 acquisition of WBB successful North America Defense.

Organic maturation was a antagonistic 4%, but this only tells half nan story. Within integrated growth, there's been a antagonistic 11% effect from nan ending of COVID-related activity successful nan U.K., partially offset by beardown capacity successful nan remainder of nan business, which has grown organically astatine astir 7%, including a mini use from inflation. Underlying trading profit was £237 million, an summation of 4% connected 2021, pinch margins unchangeable astatine 5.2%. And akin to revenue, profit capacity from nan guidelines business has been beardown and up much than 30%, excluding rate and COVID-related work.

Of statement is that each our world regions delivered some accrued profits and margins successful nan year, and combined, they now relationship for astir 3/4 of nan group's profit earlier firm costs. And I'm besides pleased pinch nan measurement nan business stood up to ostentation successful 2022. There's been nary important nett profit effect successful either direction, and ostentation protection mechanisms wrong our contracts person served nan portfolio well. There person been immoderate pockets wherever nan timing of costs pressures person tally up of gross uplifts specified arsenic successful nan U.K., HGV drivers and power costs. But overall, it has been a successful twelvemonth for managing nan financial impacts of inflation.

There was a beardown underlying EPS performance, which is up 11% to £0.139 per share. This reflects a bully trading profit performance, somewhat little finance and taxation costs arsenic good arsenic nan use of nan stock buyback programme that we completed successful nan twelvemonth and reduced nan stock count. And this besides supported different important summation successful nan dividend per share, which has accrued 19% to 0.0286 per share.

And past yet connected this slide, we proceed to study a bully return from our invested superior pinch underlying ROIC 20% -- complete 20% successful nan year. And while this is simply a small little than 2021, it is chiefly because of nan afloat twelvemonth effect of nan WBB acquisition successful nan invested superior base.

So moving now and looking astatine nan different regions. We're going to commencement pinch nan Americas, which now contributes 49% of nan group's underlying trading profit earlier firm costs. And nan Americas' gross was up 13%, which did use from a beardown U.S. dollar arsenic good arsenic 3% from past year's acquisition of WBB. Organic maturation was down conscionable 1%. The defense assemblage grew by 2% connected a changeless rate basis. With nan accrued gross from WBB broadly offset by nan reduced measurement of task orders successful nan low-margin CANES vessel modernization program.

Underlying trading profit was £137 million, and we grew separator to 10.8%. And this betterment was mostly owed to immoderate beardown statement profit capacity and a portfolio mix, peculiarly successful nan defense sector.

But nan North America item for 2022 was their bid intake of £2 billion, which was a book-to-bill of 160%. The mostly of these wins were successful nan defense sector. And we're peculiarly pleased pinch METS, which we acquired successful 2019, who secured $1.2 cardinal of wins and a book-to-bill of complete 400%, pinch some rebids, including nan Navy C21 contract, and caller bids for illustration NOMARS and SHAPM. These wins will group nan business up for a beardown 2023.

And besides nan Americas' pipeline has been replenished aft nan beardown bid intake successful 2022. It presently stands astatine £2.5 billion, up from £2.2 billion. Once again, nan pipeline is simply a beardown weighting to defense, but location are immoderate absorbing opportunities successful Canada and beryllium successful nan services sector. And we should conscionable opportunity that 2023 has sewage disconnected to a bully commencement pinch a successful rebid of CMS, which we announced past week.

So moving connected to nan U.K. And nan U.K. business delivered a beardown consequence successful 2022. While gross was 1% little successful nan period, this did see a £22 cardinal -- sorry, a 22% effect from £480 cardinal of reductions successful COVID-related work. And this has mostly been offset by beardown integrated maturation coming from DWP Restart, defense and higher volumes successful immigration. Similarly, profit was down conscionable £24 cardinal aft absorbing £65 cardinal effect successful 2022 from nan extremity of AWE and COVID work.

Just arsenic migration had a very beardown twelvemonth and successful particular, migration services, wherever nan number of asylum seekers has continued to summation importantly during nan period. And we've besides expanded our migration business into Europe pinch nan acquisition of ORS successful September.

Citizen Services benefited from nan ramp-up of DWP Restart contract. And arsenic expected, these person been much than offset by nan extremity of nan COVID work. Other highs and lows successful this twelvemonth see leisure, which is performing good connected its post-COVID betterment path, and Environmental Services, which did acquisition accrued operational pressures successful nan twelvemonth impacted by tight labour markets, peculiarly from HCV drivers.

Defense has traded good pinch a successful start-up of DIO contracts nether nan VIVO associated venture. And our stock of profit present mostly replenished nan mislaid profit from nan extremity of AWE associated venture. Elsewhere, nan conclusion of nan early proviso of Marine Services, our FPMS contract, was successfully transitioned to a caller interim 2-year contract. And carrier continued to retrieve station nan pandemic pinch volumes and profits higher successful nan year. MerseyRail, which was 1 of those areas importantly impacted by COVID, improved profitability arsenic rider volumes proceed to rise.

Order intake of £1.9 cardinal included nan HMP Fosse Way caller situation and besides securing nan Maritime Services contract. We were intelligibly disappointed connected immoderate of nan losses, including Skynet and HMP Lowdham Grange, but our £3.7 cardinal pipeline of caller business remains healthy, peculiarly successful Justice & Immigration and Defense.

And moving connected to AsPac, who traded good crossed nan year. Organic gross maturation was level arsenic higher volumes successful Immigration Services were offset by reduced volumes wrong our Citizen Services portfolio. This was peculiarly affected by tight labour markets and higher vacancies arsenic good arsenic a simplification successful nan scope of activity astatine Fiona Stanley Hospital, wherever immoderate services were taken backmost in-house successful 2021. The underlying trading profit for nan play has accrued 31 ground points to 6%, which has principally been owed to higher volumes and operation of services successful nan migration contract.

Order intake successful nan play was comparatively subdued pursuing nan unsuccessful bids of 2 ample caller business contracts, Frankston Hospital and conveyance licensing successful Victoria. The business is now focused connected rebuilding their pipeline, which includes defense-based support, 1 of nan largest business opportunities successful nan group. But nan privilege for nan section successful 2023 is nan re-tender of nan migration services contract, which is owed to extremity successful December this year.

And finally, successful nan Middle East. The Middle East results proceed to bespeak nan effect of Dubai Metro statement that we exited successful September 2021. This had a £90 cardinal effect connected revenue, but minimal effect connected profit owed to its little than mean margins. The carrier business has seen an betterment successful their airdrome based contracts during nan twelvemonth arsenic recreation has started to return and is now approaching pre-COVID levels. Despite nan little revenues, profit accrued 17% and nan profit separator improved almost 2.5 percent points. The successful exit of Dubai Metro has been accretive to separator supported by bully capacity elsewhere successful nan sector.

And successful nan year, we successfully rebid our Dubai navigation services statement arsenic good arsenic a caller triumph to supply accommodation guidance services to Riyadh International Airport. We've besides seen wins connected smaller but higher-margin contracts for plus guidance consulting services successful Saudi Arabia, wherever location continues to beryllium a beardown pipeline.

So moving connected to free rate flow. Free rate travel astatine £159 cardinal delivered trading rate conversion of conscionable nether 100%. And since nan important rate drain of OCPs successful 2018, nan rate conversion has averaged complete 100% for nan past 4 years. Adjusted nett indebtedness was somewhat amended than we expected astatine £204 million, which was level successful nan twelvemonth excluding nan effect of overseas speech movements, and this reflected beardown free rate travel being offset by £90 cardinal of stock buyback, £30 cardinal of dividends and £26 cardinal of acquisitions.

And we've not utilized immoderate financing installation aliases efforts retired of nan mean to trim our nett indebtedness astatine nan play end. And our mean regular nett indebtedness successful nan afloat twelvemonth was conscionable £27 cardinal higher than nan closing nett debt. And leverage astatine 0.8x EBITDA remains beneath our 1 to 2x medium-term target and underlines nan spot of our equilibrium sheet.

So now turning connected to superior allocation. And 2022 has been different twelvemonth wherever we invested superior successful each of our 4 privilege areas, including backing integrated growth, expanding dividends, completing acquisitions and returning surplus rate to shareholders. Generating integrated maturation continues to beryllium our first privilege for capital. But arsenic we've said successful nan past, our operating exemplary is superior light. But successful 2022 -- but we person invested successful our people. Recognizing nan costs of surviving situation and tight labour markets globally, we've accrued salary faster than we expected to. We've distributed £9 cardinal successful we attraction payments to our frontline workers, and we funded different support programs for our people.

In addition, we person recommenced our residential slots pinch assemblage activity and statement head courses. And this has contributed towards ending 2022 pinch less vacant roles than we had astatine nan commencement of nan year. We've besides accrued -- besides during nan year, we've accrued our finance successful business improvement and peculiarly successful North America.

Our 2nd privilege is dividends, and we've announced coming a last dividend for 2022 of £0.0192 per share. This is simply a 15% summation connected full dividend rate payout for 2022, but mixed pinch nan stock buyback, results successful a 19% summation connected a pence per stock basis. And we stay connected way to trim dividend screen towards 3x successful nan mean term.

And our 3rd privilege is to money acquisitions, and we completed 2 acquisitions successful Europe during nan year. We started to build our standard and beingness successful a strategical privilege region. Sapienza closed successful July, which supports our European abstraction business. And much significantly, ORS closed successful September to widen our migration capacity into Mainland Europe.

And our last privilege is to return surplus rate to shareholders. In 2022, a £90 cardinal stock backmost was completed. And today, we person announced our volition to undertake an further £90 cardinal stock buyback successful 2023 based connected our beardown equilibrium expanse position.

And finally, connected guidance, which is laid retired intelligibly connected nan surface for 2023 and is fundamentally unchanged from nan December pre-close announcement. The only 1 update is nett debt, which reflects nan stronger closing position successful 2022 and nan effect of nan 2023 planned stock buyback. Revenue is expected to beryllium astatine slightest £4.6 million, which is simply a 2% to 3% summation successful nan year. This will beryllium driven by nan Americas pursuing nan beardown bid intake, mixed pinch humble maturation from different regions aft absorbing nan effect of contracts ending successful nan U.K.

Underlying trading profit guidance of astir £235 cardinal is akin to nan 2022 outturn. And our free rate travel is expected to beryllium astir £120 million. Net indebtedness should extremity nan twelvemonth astir £200 cardinal aft factoring successful nan 2023 stock buyback. Both nett finance costs and nan effective taxation complaint are expected to summation somewhat successful 2023. The nett finance costs will see higher prevailing liking rates and borrowings, and we expect lease liking costs to summation arsenic much properties are leased successful consequence to nan measurement maturation successful our U.K. migration contract.

The effective taxation complaint will summation arsenic higher corp taxation successful nan U.K. return effect. And successful later years, we person introduced -- we will person nan preamble of corp taxation successful UAE and world minimum tax.

So that finishes nan financial review, and I'm going to manus backmost to Mark now.

Mark Irwin

Nigel, Thank you. In nan remaining portion of this morning's presentation, I'd for illustration to bespeak connected immoderate of nan highlights and lowlights from nan anterior twelvemonth and past touch concisely connected what we will attraction connected going forward. The correct spot for maine to commencement is to opportunity that we are immensely proud of nan achievements of our much than 50,000 colleagues astir nan world, whose dedication and tireless efforts person led to different successful twelvemonth for nan group. As you saw successful nan item presented by Nigel, our capacity was overmuch amended than we expected astatine nan commencement of nan year, showing our level enables nan business to respond to some consequence and opportunity to consistently present affirmative results.

And while we had bully results crossed nan group, I deliberation worthy of highlighting again, pursuing connected what Nigel shared previously, that we had a peculiarly beardown decorativeness successful our North American business pinch 160% book-to-bill driven retired of beardown triumph and rebid rates successful our METS business unit. You will callback that we made this strategical acquisition successful 2019 to adhd a level for maturation successful maritime engineering, design, exertion and sustainment.

We besides spot crossed nan group much and much examples of leveraging capacity cross-divisionally and crossed sectors wherever that collaboration is resulting successful amended solutions for our customers. Through 1 of those collaborations, we entered nan employment services marketplace successful Canada successful nan 2nd half of 2022, winning a 5-year £110 cardinal statement arsenic a consequence of activity done betwixt our Citizen Services teams successful Canada and nan U.K. In nan U.K., we've been doing this activity for nan U.K. Department of Work and Pensions for a agelong play of time, and truthful we were capable to stock that knowledge and acquisition and thief our Canadian colleagues participate that caller sector.

Also, arsenic you heard from Nigel, our results for '22 continues a way grounds of beardown performance, which has enabled us, again, to present connected each of nan pillars of our superior allocation strategy pinch consistency. And we've spoken antecedently astir contractual protections and our portfolio operation affording protections and mitigation against ostentation risk. And we were capable to negociate good again done past twelvemonth contempt nan important surge successful ostentation seen globally. And we did truthful while being mindful of nan hardship brought to colleagues by costs of surviving pressures successful nan broader economy.

We accrued wages much than we budgeted for during nan year, and we besides distributed an further £9 cardinal successful we attraction payments to colleagues extracurricular of guidance ranks successful September. This follows a £6 cardinal costs announced astatine nan extremity of 2021, which was paid successful February 2022, and a broader portfolio of support done our worker assistance program, our financial well-being hub, hardship grants, which are provided to labor done nan Serco People Fund and our Serco My Benefits Program, which offers worker savings astatine much than 1,000 retailers.

And finally, erstwhile we look astatine our highlights, our bid book remains robust astatine £14.8 billion, and that excludes nan £1.5 cardinal of bid book successful VIVO, our associated task pinch EQUANS. And our qualified pipeline of caller business, which stands astatine £8.4 billion, has been replenished during nan year, and we judge remains astatine a patient level.

And immoderate lowlights connected nan different broadside of nan ledger. As Nigel said, successful narration to nan VicRoads woody and a PFI infirmary opportunity successful Australia, we took immoderate large swings astatine adjacent caller maturation opportunities, wherever we were unsuccessful successful our first runs. So while nan outcomes were disappointing, we return tons of learnings from those bids to akin opportunities successful nan future. And we were besides unsuccessful astatine a fewer but ample rebids successful nan U.K. towards nan extremity of 2022, which took our rebid rates beneath what we person seen successful caller years.

In narration to our workforce, we person reduced nan number of vacancies crossed nan group, but it remains really difficult work. While we are capable to pull caller colleagues into nan business, retention continues to beryllium a important situation for us. Another disappointment was nan announcement by nan Scottish authorities to extremity nan Caledonian Sleeper franchise contempt nickname from nan nationalist and nan authorities itself that we person wholly transformed that service.

And I'd for illustration to admit that nan affirmative impacts of migration volumes is evident successful our financial results, but our AASC statement successful nan U.K. made those outcomes imaginable because of nan awesome consequence of our teams connected nan ground. We're very conscious of nan truth that they proceed to look a challenging and move operating environment, arsenic do our colleagues successful nan Civil Service successful addressing nan analyzable issues related to asylum accommodation.

And I statement nan past but critically important constituent connected nan slide. As restrictions mostly came to an extremity related to COVID during nan year, we saw work users and our unit return to circumstances they had not faced successful much than 2 years, for immoderate of our unit not faced astatine each since they joined america during nan pandemic. And what we saw during nan twelvemonth was custodial regimes normalizing, traveler numbers swelling and backlogs for driver testing and different public-facing services seeing accelerated request during nan year. And that resulted successful much of our colleagues being injured.

The information and well-being of my squad is individual to maine and a work that I attraction profoundly about. So doing everything that I tin to make deliberation safe, activity safe, location safe a reality for each workfellow successful our business each time is my first priority, and we are committed to do amended successful 2023.

I've been a personnel of nan Serco Executive Committee since 2014 and portion of nan squad that developed our strategy. Looking forward, I stay assured that nan strategy provides nan champion pathway to worth creation for our customers, our colleagues and our shareholders and our capacity model to turn gross faster than market, profit faster than revenue, and to person that profit to rate serves arsenic a bully measurement for that.

Our focus, therefore, successful coming years is nan execution of our strategy to execute our goals of 4% to 6% maturation astatine accrued margins complete nan mean term, while impacting a amended early for people, spot and planet. Our strategical framework, therefore, remains unchanged but pinch a clear attraction connected executing against 3 worth drivers, our 3Cs, customers, colleagues and capabilities, which I will elaborate connected successful conscionable a moment.

When we look much broadly astatine nan market, our position remains that nan marketplace for backstage assemblage transportation of authorities services is some ample and growing. Partnering pinch nan backstage assemblage to present effect allows governments elasticity successful nan creation of solutions, successful nan ratio of work transportation and successful nan measurement of effect for citizen, organization and country.

In 2021, we conducted a marketplace review, which included utilizing 2 independent investigation firms. The conclusion of that activity indicated that nan full outsourcing walk by governments connected services successful nan markets that we run successful was estimated to beryllium £715 cardinal and that nan marketplace was expected to turn complete nan mean word astatine a complaint of 2% to 3%.

While noting that nan marketplace remains fragmented and contempt Serco being a starring world supplier of services to government, we deliberation our marketplace stock is still rather small, location betwixt 1% and 3%. So based connected that data, we should person important opportunities to turn our stock of existing market. And we deliberation that nan manifestation of nan 4 forces, which we've discussed previously, whitethorn spot imaginable acceleration from structural labour marketplace challenges and nan improvement and conversion of technology, each of that providing fertile crushed for america to execute our maturation objectives.

Our B2G level was introduced astatine our Capital Markets Day successful December 2021. And successful nan discourse of nan existent challenges that we spot governments facing, we judge that it continues to connection differentiated Serco capability, capacity and agility that enhances alternatively than replaces nationalist assemblage effort. So going forward, we purpose to participate much broadly crossed our customers' worth concatenation from advisory to operations, from designing services to enabling amended outcomes successful elastic partnerships focused connected delivering impact. And nan 3Cs I mentioned earlier is each astir delivering our medium-term maturation targets: maturation successful revenues, maturation successful workfellow enablement and maturation successful margins.

Let maine return a look astatine each of these successful turn. In position of our attraction connected customers, we've worked difficult successful caller years to gain credibility and our customer relationships are now strong. We will activity moreover harder successful nan play up to elevate those relationships, and we'll beryllium forensic successful our knowing and targeting of nan existing marketplace while remaining agile and responsive to caller and emerging opportunities.

In our chosen markets, we judge we person nan broadest touch points pinch authorities amongst their strategical suppliers. We will build those partnerships stronger by giving our customers semipermanent cross-department, non-institutionalized and pragmatic perspectives truthful that they tin reside their challenges drawn from Serco's acquisition and capacity astir nan world. We will turn revenues by expanding stock of customer and stock of marketplace and support our ngo to effect a amended early by evolving from outsourcer to effect partner to nan world's starring governments.

In position of colleagues, our committedness to nan information and well-being of our colleagues remains foremost successful our efforts to protect and deepen nan narration betwixt Serco and nan group whose dedication and committedness stands down our success. To support retention, we will proceed to create our worker worth proposition to build connected nan purpose-driven foundations we already person and to turn nan worth of activity we inquire group to do. We will person renewed accent connected activity process reengineering pinch a technology-first attack to support productivity.

We'll widen nan precocious levels of engagement we person to precocious levels of enablement done workforce augmentation, which will let colleagues to attraction their efforts connected areas of highest societal and economical value. And truthful our targeted progression successful coming years is, therefore, increasing nan worth of work, deepening nan narration betwixt nan institution and our colleagues and past turning our colleagues into advocates for Serco.

And nan 3rd C is capabilities. We're going to put importantly much effort connected exertion enablement and continuous learning crossed nan group. In past years, we've invested successful building a robust IT infrastructure and cyber capability. We will proceed to protect those halfway elements of our exertion level while accelerating our capacity to afloat utilization nan functionality of platforms we've already invested in, and we will pivot our ambition to harness caller and emerging technologies to thief everyone successful our business activity safer, beryllium much productive and turn value.

We will research scaling artificial intelligence, AI, but successful a very applicable consciousness to extract worth by applying it to decision-making successful operations and past to germinate our building and civilization astir nan optimization that it whitethorn offer. In different words, we will look for answers to put robotics and automation in, successful bid to return unproductive costs out. In nan coming years, we will entree those enabling technologies from a broader capacity ecosystem by proactively partnering pinch some startup and established tech companies.

And truthful to wrap up. Our FY '22 results further builds connected Serco's way grounds of delivering amended outcomes for citizens, for customers, for colleagues and for our shareholders. We dream that it gives assurance that our strategy of being a focused supplier of services to authorities operating done our Serco guidance model and utilizing our B2G level to triumph and present business continues to create value. As Nigel said, our guidance for 2023 remains unchanged successful position of gross and profit, noting nan £90 cardinal stock buyback.

We exited nan anterior twelvemonth pinch bully momentum successful our triumph rate, and 2023 is disconnected to a bully commencement pinch nan occurrence of rebidding nan CMS statement successful North America. And truthful successful nan play ahead, we will spot systematic and rigorous execution attraction connected increasing marketplace stock done deeper relationships pinch our customers and a much eager and rigorous targeting of nan post-pandemic authorities services marketplace by increasing worth successful nan activity our colleagues do to summation enablement, retention and nan defense of colleagues and increasing our margins by leaning into exertion to present productivity done process automation and workforce augmentation.

And each of this is accordant pinch our broader goals of increasing gross faster than nan market, increasing profit faster than revenues and shareholder returns increasing faster than profits complete nan mean term. And importantly, we will do this by embedding our ESG commitments to protect group and satellite to present meaningful societal worth and ensuring robust governance successful everything we do successful our ngo to effect a amended future.

Thank you. And we will now spell to Q&A.

Question-and-Answer Session

Q - Michael Donnelly

It's Michael Donny from Investec. Just a speedy one, I think, for you, Nigel. U.S. separator is up 30 bps. And I deliberation you're saying it's owed to defense. Now assuming that defense is still half nan U.S. Navy and nan U.S. Navy is chiefly costs plus. Should we infer that nan positive spot of costs positive has sewage a spot bigger? Or are you doing much benignant of clip materials aliases fixed value contracts wrong that portfolio?

Nigel Crossley

So I deliberation that 10.8% margin, and we've said this before, is astir apt overachieving versus nan portfolio that we have. We cognize that nan CMS statement has helped that separator complete nan past fewer years. And erstwhile it goes done rebid, we cognize that was going to beryllium competitive. We priced it competitive. So astatine nan commencement of nan CMS contract, you'll spot a spot of a resistance connected separator from North America. I deliberation erstwhile you look astatine nan large contracts we've conscionable talked astir for illustration SHAPM, like, C21. They are cost-plus contracts. And their costs of statement pinch a decent margin, but not arsenic precocious arsenic what we could perchance spell connected immoderate fixed value margins. So, we're not seeing that costs positive separator going back, if that was your question. And I deliberation -- we'll ever person a operation of some fixed value and costs positive nan astir caller wins person been costs plus.

David Thomas Brockton Numis Securities Limited, Research Division – Research Analyst

It's David Brockton from Numis. May inquire 2, please? The first related to nan U.K. and nan 2nd to nan U.S. In position of nan U.K., tin you conscionable springiness an update connected wherever you presently guidelines successful respect of nan U.K. asylum contract? I admit your budgeting for a higher level of finance leases, presumably arsenic you return connected much properties astatine nan disbursal of hotels. Are you budgeting for volumes and work users to normalize and trim done nan existent year? Or are you expecting to stay arsenic elevated arsenic they are? That's nan first question.

The 2nd question, conscionable successful respect to nan U.S. I cognize you admit nan business has been done a play of benignant of reduced task orders. But clearly, met and nan business now is performing a batch better. Should we now position nan backlog is cleared? Or could we spot a play of, I guess, ace normal capacity crossed nan remainder of 2023?

Mark Irwin

Yes. So if I commencement connected nan asylum question, nan authorities has indicated that they would for illustration to exit hotels by nan extremity of 2023, and we are moving intimately pinch nan location agency successful that transition. We deliberation that complete nan people of nan year, volumes will stay high, but we whitethorn spot a displacement successful nan operation of nan type of accommodation that we supply during 2023. We coming supply dispersed accommodation is simply a halfway portion of that contract. We expected nan DA volumes successful that respect will summation arsenic we spell done nan twelvemonth and nan edifice volumes will reduce, but that nan wide numbers will enactment high.

Michael Donnelly

Can I conscionable travel up connected that? Would location beryllium immoderate profit alteration arsenic a consequence of that fixed that nan measurement levels are still high, but nan mix, I guess, is changing from hotels to station nan combination?

Nigel Crossley

Look, I deliberation we'll astir apt spot much of an effect connected nan apical line. I deliberation nan costs per nighttime is much successful a hotel, obviously, than successful a dispersed accommodation. But location whitethorn beryllium immoderate different models arsenic good that they extremity up using. So I deliberation nan effect will beryllium greater connected nan apical statement than it will beryllium connected nan bottommost line. But location will beryllium immoderate bottommost statement effect arsenic well.

Sorry, connected nan different mobility -- nan different mobility was nan U.S. METS. Because I recognize -- do you want to return that?

Mark Irwin

I conjecture conscionable to start, we person intelligibly seen immoderate clearing of that backlog. But we deliberation that successful position of nan broader geopolitical scenery that they will proceed to beryllium finance successful defense, some successful position of caller capability, but besides successful position of modernization and leveraging nan plus guidelines that is successful place.

I deliberation nan different encouraging motion that we spot successful our North American defense business is diversification successful that portfolio. So erstwhile we look astatine nan style and statement that Nigel mentioned before, that includes programme guidance for nan next-generation submarine fleet successful nan U.S., and we spot perchance nan opportunity wherever AUKUS, nan narration that extends now crossed geographies are really based successful our 3 largest geographies.

And truthful we spot that imaginable diversification of that capacity and our expertise to turn beyond that peculiar statement successful a strategical platform. And nan different is NOMARS, which we've mentioned previously, but we spot that besides arsenic a strategical important level for maturation beyond nan task bid type work. The push towards autonomy is thing that is halfway to each different strategies and nan creation and now our work to build nan first prototype of a ample unmanned aboveground vessel for nan U.S. government, we deliberation besides is different pivot for america to proceed to move much broadly, but besides higher up nan worth concatenation successful defense.

Paul Sullivan

It's Paul Sullivan from Barclays. So Mark, really should we deliberation astir nan 3 Cs translating into operational performance? And do you deliberation M&A and higher CapEx will play a portion successful nan transportation of what you're trying to execute there? And past secondly, are location immoderate communal themes down benignant of statement losses aliases unsuccessful bids? And what does that opportunity astir nan benignant of competitory situation and really that's changed?

Mark Irwin

Okay. So I'll commencement and if I missed thing Nigel tin capable successful nan gap.

Nigel Crossley


Mark Irwin

Well, successful position of nan 3 Cs, it's astir improving nan business we have, and we'll do that systematically, arsenic I said, complete nan coming period. Productivity is important for us, 1 from a costs position, but besides arsenic we proceed successful this conflict for talent. We request to make judge we've sewage group really moving connected nan things that only they tin do. So we spot that helping america pinch retention and helping america pinch productivity crossed nan business. Technology enablement, I deliberation that is simply a existent worth driver. But we will spell cautiously down that path. We're not going to prosecute exertion for nan liking of technology. We person to find applicable use, and there's sewage to beryllium a coagulated business lawsuit down that. But we do spot these being existent levers for america complete nan adjacent 2, 3 years for america to proceed to build worth into nan business. Your second.

Nigel Crossley

Let maine conscionable decorativeness up connected nan 3 Cs from an M&A aliases a CapEx number. Let maine return nan CapEx 1 first is, complete nan past fewer years, we've been investing heavy successful our guidelines systems and our guidelines processes. So we are rather happy pinch wherever we've sewage those 2 today. And I deliberation what Mark's talking astir present is well, let's return that guidelines and say, really tin this amended our capacity better. And that really is looking astatine expanding productivity connected nan worldly we do in-house. But we'll only put successful that if location is simply a clear business lawsuit to put successful that, and we're going to get a existent rate return.

And similarly, we mightiness put successful immoderate worldly that helps america get amended solutions and customers person amended productivity successful those contracts. Same case, we'll beryllium looking for a business lawsuit to support that.

As acold arsenic M&A is concerned, we've had 3 beautiful clear criteria astir what we're looking for, for M&A. And I deliberation that is, tin we bargain thing that -- and each that criteria is astir really is it going to thief maine heighten my early integrated growth. So that's really astir americium I buying capacity will thief support my business aliases thief maine turn my business? Is it giving maine entree to caller markets aliases caller customers? Or is it conscionable buying nan standard and capacity that we tin past adhd connected to our existing business. So that's ever been our M&A criteria. This 3 Cs conscionable really plays much intelligibly into that and opportunity these are nan things that will beryllium absorbing investing in.

Mark Irwin

Yes. In general, we -- arsenic we've said, we look astatine M&A arsenic higher consequence much than integrated growth. And truthful it will ever supplement our superior attraction connected integrated growth, but we proceed to spot what opportunities location are retired location successful nan market. The mobility you asked astir our U.K. rebid and those outcomes, arsenic I said, they were precocious successful nan year. We are successful nan process of really going done each of those losses successful item arsenic we do pinch our wins to understand if location is thing thematic that's travel retired of that, if location are immoderate shifts successful nan market, if there's thing different successful position of buying behaviour pinch our customers. And we will beryllium digging into each of that successful nan coming weeks.

Nigel Crossley

Paul, tin you walk nan microphone to Oscar. Oscar?

Oscar Val Mas

It's Oscar Val Mas from JPMorgan. I person 2 questions. The first 1 connected costs inflation. Could you remark connected really overmuch that has contributed for nan afloat twelvemonth and really you spot that processing into 2023 by region, U.S. versus others? And past nan 2nd 1 is on, I guess, caller acquisitions. It looks for illustration nan NSBU is performing well, and you're starting to really create synergies pinch different regions. Can you talk astir WBB and really that has performed? And past I guess, you mentioned M&A, but do you spot opportunities adjacent word successful Europe to create that platform, you started pinch ORS?

Nigel Crossley

Yes, erstwhile I talked to you astir inflation. And erstwhile we look astatine inflation, really, what we're looking astatine here, do we person nan mechanisms wrong our statement that's protecting our bottommost line, and that's what we're willing in. If we look crossed nan U.K., we've astir apt had conscionable a small spot little than a 6% mean increase. Virtually, each our discarded settlements for 2022 person gone through. And actually, we've had very small disruption successful our contracts from immoderate benignant of onslaught action. So that's wherever we've been.

Then erstwhile I look astatine what's really happened successful our profit, that benignant of largest covered this successful my book is that we consciousness bully that nan contracts -- nan mechanisms we've sewage successful our contracts person protected our bottommost line. So it has worked for us. And there's nary logic why we would expect that not to activity successful 2023 because those are nan aforesaid mechanisms that we have.

Mark Irwin

And successful position of nan existing acquisitions arsenic we spot truthful 2 years in, that's really coming live now and are seeing that done pipeline conversion and recognition of early opportunity we're astir apt 6 to 12 months down successful position of WBB getting to that aforesaid point. We do those opportunity for that to accelerate because nan capacity that exists successful WBB is being leveraged now to cross-sell much broadly crossed defense, truthful capacity successful cyber capacity successful organizational creation and optimization, we're bringing that capacity to carnivore crossed nan remainder of nan defense and broader North American portfolio. And truthful we are affirmative astir really WBB will execute and against its finance lawsuit and against our maturation targets successful nan coming period.

From a Europe perspective, we closed nan ORS acquisition successful September, arsenic you know. So we're successful nan early portion of afloat integrating that. We spot request really beardown successful nan geographies that we presently service successful Switzerland, successful Germany. We do a small spot successful Southern Europe. But nan acquisition of ORS, arsenic Nigel said, was astir giving america a level successful a marketplace wherever we spot precocious request that we tin now turn from. The past constituent that I would make connected ours pinch each of nan different acquisitions, Nigel said astir that strict criteria that we person erstwhile we see a imaginable acquisition, location is besides nan subject of what happens aft nan acquisition.

So station acquisition, integration, making judge that we tin extract nan worth that we expect from this. And that's nan shape that we are going done correct now pinch ORS. So bringing it into nan circa network, making judge from an accusation and information perspective, we've sewage everything successful spot and past really supporting nan business to turn successful a marketplace wherever we deliberation location is important potential.

Arthur Truslove

Arthur from Citi. So first mobility was conscionable connected nan U.S. defense. Obviously, it looks for illustration you had a pickup successful bid complaint successful nan 2nd half. So first mobility connected that is, really has that progressed into nan first half of '23? Are you expecting book-to-bill to accelerate further? And besides erstwhile does nan gross really commencement to footwear in? Second, besides connected U.S. defense, really are you getting connected nan non-naval side? I cognize location was a benignant of very overmuch optimistic lawsuit astir really that mightiness accelerate and conscionable wonderment really that was going?

And then, finally. Obviously, while nan lowlights that you mentioned was nan Skynet contract. I conscionable wondered benignant of really competitory you position your abstraction offering to beryllium astatine this infinitesimal successful time? And if location was thing that benignant of gone incorrect pinch that contract, if that makes sense?

Nigel Crossley

Do you want maine to return nan first one, nan "when does gross kick?" And past you return nan adjacent one

Mark Irwin


Nigel Crossley

So U.S. defense, you're right, Arthur. our wins were precocious successful nan year. But we expect those -- astir of those contracts we went towards nan extremity of past twelvemonth to commencement kicking in, successful 4th 1. So we should spot a bully effect connected nan 2023 gross number.

Mark Irwin

In position of different services, nan series successful position of our shares, arsenic you said, is importantly successful U.S. Navy presently followed by Air Force and past Army, WBB was portion of our strategy to respond to building that retired crossed nan services. They were successful conscionable successful nan past fewer weeks connected an Army contract. And truthful we will look to proceed to build connected that platform. What we want is diversification and to beryllium capable to equilibrium nan portfolio. But based connected nan position we already person pinch Navy, we want to make judge that we protect that arsenic we spell done processing nan different services.

And successful position of Skynet, nan MOD announced conscionable precocious nan result of that, we are waiting to person nan general debri for nan customer. And nan athena consortium, of which we were nan lead partner, we will spell done that study and understand precisely what nan customer's determination was based on. So we are still successful nan Skynet bridging statement now, SSCC until March adjacent year. And we'll beryllium moving evidently connected 2 fronts: one, to make judge that nan handover of specified a captious capacity is done professionally and secondly, to beryllium clear astir what happened successful nan bid and really we position ourselves for early moving space.

On abstraction much broadly, though, it is simply a halfway assemblage for america that we will proceed to prosecute maturation in. We've sewage a beardown position successful civilian space, arsenic you know, successful Europe. We've sewage beardown interest. Almost each state has a abstraction ambition. We've sewage beardown liking to leverage that into different markets, including backmost present into nan U.K. successful nan civilian abstraction area. And past defense abstraction are being a cardinal portion of our work, Skynet, nan halfway of that. But we do different work, arsenic you know, successful that assemblage arsenic well. And truthful we will proceed to create that.

Arthur Truslove

Sorry, 1 bet, I deliberation I mightiness person missed. Just successful position of bid momentum successful nan U.S. defense business, obviously, truthful it looked for illustration it accelerated successful nan 2nd half. Are you expecting it to accelerate again successful nan first half of '23 aliases not? We deliberation complete nan year, we've sewage bully visibility to pipeline and opportunities. So we'll proceed to activity done that. I mean our pipeline is still beardown astatine nan extremity of nan year, Auto, but we did person an exceptional extremity of nan year. Don't extrapolate that portion out. Do you want to spell to Chris? Chris Burberry Ben. Just a mates of questions. One of nan profit drivers insubstantial evidently nan efficiencies and spot improvements connected existing contracts. Just if you could possibly item nan top opportunities lie. And secondly, if there's immoderate much item you could springiness america connected nan Middle East debtor discussions, nan advancement you're making there, wherever you've sewage to since, say, December time? Or that would beryllium helpful.

Mark Irwin

Yes. So nan 2 areas successful position of conscionable statement profitability betterment has been to standard truthful wherever we tin standard and leverage our existing infrastructure. And that's volume-driven. So we spot that use clearly. It sounds obvious, but it's very evident successful our results erstwhile you spot america successful much volumetric businesses being capable to propulsion much measurement done those contracts. And nan 2nd cardinal lever is robotic process automation. The use that we've had successful nan CMS programme successful nan U.S. has been our expertise to successfully automate important parts of that processing. And truthful today, we person higher volumes of applicants going done that statement pinch astir 1/3 of nan unit that we had erstwhile nan statement was first started successful 2013.

Nigel Crossley

And past connected nan Middle East debtor, we've raised that successful nan pre-close connection that we person not made a costs for that what we have. We've sewage a very beardown ineligible case, and we are now having progressively affirmative speech pinch a customer, and it feels for illustration we're getting very adjacent to getting paid, but we person not yet been paid. Move to Stephen.

Stephen Rawlinson

Stephen Rawlinson. Two questions, if I may. Firstly, pinch respect to nan asylum seekers contracts successful nan U.K., which you opportunity successful nan study present is your largest azygous project. As it moves during nan people of nan twelvemonth retired of hotels and into dispersed accommodation, 1 of nan issues has been successful and astir nan statement connected inferior costs, which person escalated to a level that astir apt couldn't person been moreover thought astir astatine nan clip you first took nan statement on. To what grade mightiness that move into dispersed to operation require renegotiation astir inferior costs and wherever you're up to pinch that if I've sewage my presumption correct astir nan guidelines case, not being really not favorable.

And nan 2nd rumor is conscionable erstwhile nan full process translator of Serco started immoderate 7 years ago, disposals and noncore were portion of nan -- what happened successful Telenet and truthful on. Set maine correct wherever you are pinch immoderate areas. You said astir abstraction being core. But what are immoderate of nan areas wherever title is rather brutal. We conscionable lend itself to immoderate of nan techniques and things you've talked about, specified arsenic health. Is location a committee statement astir exiting immoderate areas possibly and thoughts astir immoderate that won't travel up to a group target for margins because astatine nan moment, we're talking arsenic if which going guardant is simply a awesome maturation story, but location mightiness beryllium immoderate disposals aliases immoderate areas of lesser liking going forward, wherever arsenic you know, erstwhile we started down this route, you wouldn't person expected to person gone into FM and defense successful nan measurement you have, for example, aliases abstraction possibly too. So could you opportunity -- springiness america a closed - aliases a wide statement astir that, please?

Nigel Crossley

Let maine return nan first 1 here, yes. So Stephen, connected nan asylum seeker contract, we do not talk astir individual negotiations pinch customers aliases changes to contracts successful public. So there's thing to adhd pinch -- aliases adhd to that one. So that's each I will opportunity connected nan asylum seekers. And Mark, do you want to about...

Mark Irwin

Yes, successful position of potential, yes, disposals, we actively negociate our portfolio, right? So we actively negociate our portfolio for capacity connected nan contracts we person and successful nan sectors we operate. And we proceed to look astatine nan sectors wherever we will measure whether we tin beryllium effective agelong term. And that's nan process that we look astatine nan Executive Committee and surely is simply a taxable of chat astatine our board.

Nigel Crossley

And past we support going to nan left.

Alex O’Hanlon

Alex O’Hanlon from Liberum. Just 1 mobility from me, if I may. At Asia Pacific, you mentioned connected nan underlying trading profit that benefited from favorable volumes and operation connected migration activity successful 2022? What's driving that? And is that expected to proceed into 2023?

Nigel Crossley

Yes. Look, arsenic we've seen connected this statement complete 8, 9 years that we've been running, we've seen immoderate scope group, we've seen peculiarly precocious volumes going into what's called -- which complete a impermanent combination, and that has reduced arsenic we've gone done 4th 4. So we're expecting those precocious volumes that we saw done -- possibly done nan full of nan COVID play and a bully chunk of past year. It's dropped disconnected and it's much of a benignant of much sustainable ongoing level that we're seeing now. So that's each built into our guidance for 2023.

Mark Irwin

If location aren't immoderate questions --

Nigel Crossley

Sorry, there's 1 different mobility correct down you.

Nicole Manion

It's Nicole Manion from UBS. I conscionable wanted to inquire connected nan workfellow retention constituent really. If you could springiness america a small spot much detail, but obviously, there's been important efforts passim nan twelvemonth to support nan beforehand line, but it's still evidently a challenging environment. Do you deliberation that will amended this year? Is nan worldly benignant of successful your hands that you tin do to thrust that? Or is it conscionable really reliable arsenic a consequence of nan backdrop?

Mark Irwin

Yes. Look, we deliberation it will proceed to beryllium difficult arsenic we spell into '23. We have, arsenic I said, seen improvements successful position of nan simplification successful our vacancy rates, but we deliberation nan title for talent will continue. What's successful our control? We activity connected a number of areas. The worth proposition, arsenic I said, we proceed to germinate that worth proposition being much targeted successful position of nan imaginable workforce that we would for illustration to attract. And we're doing that we've invested successful our recruitment squad to make judge we've sewage nan correct capacity and nan capacity that we request to woody pinch nan turnover rates we have. And we're looking to exertion for immoderate of those assets, helping america pinch profiling and making judge that we person nan highest opportunity to prime successful nan first spot colleagues that will subordinate Serco, possibly for a job, but that we dream will enactment for a career.

Nigel Crossley

Are location immoderate different questions successful nan room? So -- are location immoderate questions connected nan call?

Mark Irwin



[Operator Instructions] And your mobility comes from nan statement of Kean Marden from Jefferies.

Kean Marden

I person 2 speedy ones, please. So conscionable firstly, connected your exertion partnering strategy. Is that apt to impact nonstop investments, associated ventures, acquisitions? Or is this much of a accepted customer and supplier narration that you person successful mind? And past secondly, connected U.S. defense, truthful a fewer questions connected that. But possibly nan champion measurement of framing this is what's nan revenue, nan annualized gross tally complaint successful your U.S. Defense portion successful excess of £900 million.

Mark Irwin

Okay. So if I tin return nan exertion mobility first. Our superior facet for this is to partner, right? We truthful acold person been very successful successful engaging some mini and ample tech companies who want to partner pinch america because of our expertise to standard because of our expertise to return exertion and put it into rather difficult operating environments. And truthful we will proceed to activity done that business exemplary arsenic our superior measurement to entree technology.

I mentioned successful my introductory comments that we besides person invested successful platforms coming that we don't judge we person afloat exploited nan functionality of and truthful those partnerships pinch nan likes of Microsoft and SAP and truthful on, we will look to extract worth from those. And past finally, portion of our superior allocation strategy is that we will put successful nan business wherever we tin deduce worth from productivity, from cost, from capacity improvement. And truthful we will look astatine those connected a case-by-case basis. But we will cascade done those choices and put wherever we request to connected nan ground that those business cases are sound. But we don't expect to beryllium clear, we don't expect this to beryllium a monolithic superior outlay. We deliberation we've sewage capable entree done those channels to beryllium capable to deploy exertion that is already disposable successful nan marketplace to nan grade that configuration and truthful connected is required. We've sewage bully in-house capacity there.

Nigel Crossley

And Ken, conscionable to reply nan U.S. defense question. Our U.S. defense gross successful 2022 was up astatine £800 million. And from nan wins that we've had successful 2022, we would expect that number to summation and spot bully maturation connected that number successful 2023.

Are location immoderate different questions from nan line?

Unidentified Company Representative

If not, we do person immoderate questions from nan webcast. So Eoghan Reid from J O Hambro. Two questions. First connected what are your learnings from nan mislaid bids successful Australia? And nan 2nd 1 is, tin you speak of a circumstantial lawsuit wherever AI has aliases could person a affirmative effect to decision-making.

Mark Irwin

How generous of my CFO. So I deliberation these are 2 rather different bids. We person done PFI models before. We've sewage a way grounds of doing that successful nan U.K. Historically, PFIs, arsenic you know, person not really been a favored measurement for authorities to entree assets for nan past 5 aliases 6 years. And truthful I deliberation location was america really conscionable coming retired of nan blocks successful knowing really arsenic portion of a consortium, it's not only your portion that drives nan occurrence aliases failure, but nan corporate competitiveness of that consortium. So I deliberation our biggest instruction retired of that was to make judge that we take our partners cautiously and strategically to make judge that nan proposition to triumph is beardown from nan get-go.

In position of AI successful our business, we are starting to do immoderate of this activity now successful nan U.S. and it's mostly astir nan expertise to benignant and manipulate data. That's nan cardinal area for america today. Some of that activity is rather labour intensive for america to do. But erstwhile we look astatine nan volumes of information we manage, AI is starting correct now to play a domiciled successful helping america done that productivity.

Unidentified Company Representative

The adjacent mobility comes from Andy Brooke astatine RBC, who asks, really should we deliberation astir 2024. There are apt profit reductions from CMS, Australian migration and Skynet. Is location capable successful nan pipeline that you're assured of winning to offset?

Nigel Crossley

You want maine to opportunity that. We are not giving immoderate circumstantial guidance connected 2023 -- connected 2024, we've fixed very circumstantial guidance connected 2023. We've fixed medium-term guidance that we expect to turn nan business astatine 4% to 6%. But we've ever said, well, that's connected average, we will turn astatine 4% to 6%. Clearly, successful nan past fewer years, we've been increasing astatine double digits. And I deliberation immoderate of those headwinds we've talked astir from which Andrew conscionable mentioned, will slow america down a small spot arsenic we spell into 2024.

But I'm hoping -- we're not going to springiness a circumstantial number, but -- and -- truthful are we assured we've sewage capable to offset that? I deliberation nan reply we would opportunity we are assured that nan underlying guidelines business tin turn to ongoing astatine 4% to 6%. We will conscionable return america -- successful 2024, location will beryllium a small much of a measurement down because of nan large rebates that we've sewage coming done that moreover though we've won CMS, nan effect from CMS is existent successful '24 arsenic well. So that's arsenic overmuch of an erstwhile we're going to springiness connected 2024 astatine this point.

Unidentified Company Representative

And nan last...

Mark Irwin

Hang on. No, just...

Unidentified Company Representative

Sorry. Yes, spell ahead.

Mark Irwin

I didn't want my erstwhile reply to beryllium vague. It wasn't deliberate. It's conscionable being observant astir nan areas of activity wherever we tin speak about. But if I tin springiness a wide illustration conscionable truthful that it's not each abstract. If we look astatine spot design, correct now, we iterate, right? We activity done sometimes hundreds of different designs to travel to an optimal design. AI is starting to trim done each of that to springiness america optimization overmuch much quickly and without tens and tens of vessel designers, naval architects and engineers moving done those processes. So an example, arsenic I said, of wherever we mightiness spot indebtedness being expanded successful our business successful a much tangible way. Hopefully, that helps.

Unidentified Company Representative

And nan past 1 is from Joe Brent, Liberum, who asks successful nan absence of immoderate further acquisitions, would you expect nan buyback to beryllium ongoing?

Nigel Crossley

So what we group retired present arsenic guidelines is that we expect our leverage to beryllium betwixt 1 and 2x. And what we've besides said is if our leverage is beneath 1x. We said we telephone that surplus cash, and we've made a committedness that we will return surplus rate to shareholders. So if you return our existent -- if you do nan mathematics and opportunity that our guidance for nett indebtedness astatine nan extremity of this year, 2023, £200 million, that will beryllium little than 1x. But we've sewage plentifulness of capacity successful 2023 to do acquisitions. So we'll travel backmost and revisit that erstwhile we get done 2023, spot wherever our leverage is and spot what acquisitions we've done. And we'll look connected nan sky of what imaginable things whitethorn beryllium coming up very quickly. But -- that's nan answer.

Mark Irwin

Well, if I tin convey everybody for their clip and liking again. We look guardant to keeping you updated arsenic we spell done nan business here. But I really admit your clip this morning. Thank you.

Editor: Naga

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