TIDMSRP
RNS Number : 9639M
Serco Group PLC
03 August 2017
3 August 2017
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
2017 half year results
Six months ended 30 June 2017(5) 2016(6)
========================================================= =========== ===========
Revenue - continuing and discontinued operations(1) GBP1,508.2m GBP1,517.9m
Reported Revenue (continuing operations only)(1) GBP1,508.2m GBP1,493.2m
--------------------------------------------------------- ----------- -----------
Underlying Trading Profit (UTP)(2) GBP35.3m GBP50.6m
Reported Operating Profit/(Loss) (after exceptional
items; continuing operations only)(2) GBP21.7m GBP64.8m
--------------------------------------------------------- ----------- -----------
Underlying EPS, basic(3) 1.55p 3.30p
Reported EPS, basic (after exceptional items; continuing
and discontinued operations) (1.68p) 4.27p
Free Cash Flow(4) (GBP26.8m) (GBP22.5m)
--------------------------------------------------------- ----------- -----------
Net Debt (including that for assets and liabilities
held for sale) GBP148.9m GBP99.7m
--------------------------------------------------------- ----------- -----------
-- Reported Revenue(1) was broadly flat at GBP1,508m, comprising
a 7.6% organic decline from net contract attrition, offset by an
8.2% currency benefit.
-- Order intake increased substantially to GBP2.4bn (2016:
GBP0.9bn), including our largest ever contract at GBP1.5bn for
Grafton prison in Australia. Together with GBP1.6bn booked in the
second half of 2016, order intake over last 12 months of GBP4bn is
the largest since 2012 and represents a book-to-bill ratio of
around 130%. Closing order book increased to GBP10.8bn, up by over
GBP1bn year-on-year.
-- As previously explained, H1 2017 profits and earnings have
challenging comparators due to H1 2016 profits benefiting from:
o GBP11m of non-recurring trading items within UTP(2) , such as
commercial arrangements negotiated as part of contract closure;
o GBP21m of non-underlying items within Trading Profit(2) and
Reported Operating Profit(2) , predominantly Onerous Contract
Provision releases;
o In addition, Reported EPS reflects a GBP27m adverse
year-on-year movement in non-cash deferred tax adjustments related
to pension assets. The largest adjustment arose as a result of the
purchase of a bulk annuity for Serco's main defined benefit
scheme.
-- As a result of these factors, UTP(2) declined against H1 2016
by GBP15m to GBP35m, but was slightly ahead of the GBP32m recorded
for H2 2016; Reported Operating Profit(2) declined by GBP43m;
Underlying EPS(3) declined 1.75p to 1.55p, and Reported EPS fell
5.95p to a loss of 1.68p.
-- Free Cash Flow(4) of negative GBP27m includes GBP8m of unwind
of our receivables financing facility; the utilisation is now
GBPnil (2016: GBP30m). Cash outflow related to exceptional items
was GBP20m.
-- Closing Net Debt increased by GBP40m during the period to
GBP149m. Of the GBP49m increase in Net Debt during the last twelve
months, GBP30m relates to fully unwinding the receivables financing
facility. Net Debt : EBITDA leverage of 1.4x remains well within
our medium term target of 1-2x.
-- Continued progress reducing burden of loss-making contracts:
OCP utilisation of GBP40m (2016: GBP47m); closing balance sheet
liability now GBP180m (30 June 2016: GBP239m).
-- Operating costs reduced in proportion to the scale of
underlying revenue reduction; we remain on track to achieve savings
in our shared services and overheads of around GBP20m for the year,
which would take the total savings achieved over the last three
years to around GBP100m.
-- Pipeline of larger new bid opportunities now at GBP7.9bn,
down GBP0.5bn, with an encouraging GBP1.5bn of new opportunities
being promoted into the pipeline to partially offset the
exceptionally strong order intake.
-- Guidance for 2017 unchanged - Revenue of GBP3.1bn and
Underlying Trading Profit of between GBP65m and GBP70m; the
movement in currency since our February statement may, if
sustained, have a small negative effect.
Rupert Soames, Serco Group Chief Executive, said:
"Notwithstanding the well-flagged decline in profits compared with
the first half of 2016, trading in the first half of 2017 keeps us
on track to achieve our expectations for the full year, and
represents an improvement in Underlying Trading Profit on the
second half of 2016.
"The most striking element is the order intake, which for two
successive periods has been very strong, totalling some GBP4bn in
the last twelve months, and we have succeeded in maintaining the
pipeline at broadly similar levels despite strong order conversion.
However, as we said in June, we remain sensibly cautious in the
light of the political environment in several of our markets
becoming markedly more unpredictable.
"We continue to make good progress implementing the
'Transformation' phase of our strategy, which includes further
strengthening our service propositions, driving improvement in our
capabilities, infrastructure and processes, as well as eking out
further efficiencies from our cost base."
For further information please contact Serco:
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386
227
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386
226
Presentation:
A presentation for institutional investors and analysts will be
held today at JPMorgan, 60 Victoria Embankment, London EC4Y 0JP,
starting at 9.00am. The presentation will be webcast live on
www.serco.com and subsequently available on demand. A dial-in
facility is also available on +44(0)20 3427 1919 (USA: +1 646 254
3361) with participant pin code 4822723.
Notes to summary table of financial results:
(1) Revenue is as defined under IFRS, which excludes Serco's
share of revenue of its joint ventures and associates. Revenue
including that from discontinued operations (GBPnil in 2017 and
GBP24.7m in 2016) is shown for consistency with previous
disclosures. Reported Revenue excludes revenue from discontinued
operations. Organic revenue growth is the change at constant
currency in Revenue after adjusting to exclude the impact of
acquisitions or disposals. Change at constant currency is
calculated by translating non-Sterling values for the six months
ended 30 June 2017 into Sterling at the average exchange rate for
the six months ended 30 June 2016.
(2) Trading Profit is defined as IFRS Operating Profit adjusted
for (i) amortisation and impairment of intangibles arising on
acquisition and (ii) exceptional items; it includes the impact of
discontinued operations in 2016. Consistent with IFRS, it includes
Serco's share of profit after interest and tax of its joint
ventures and associates. Underlying Trading Profit additionally
excludes Contract and Balance Sheet Review adjustments (principally
Onerous Contract Provision (OCP) releases or charges), as well as
the beneficial treatment of depreciation and amortisation of assets
held for sale during 2016, and other material one-time items such
as the pension scheme settlement in the first half of 2016 related
to the profit on early exit from a UK local authority contract that
occurred in the second half of 2015. A reconciliation of Underlying
Trading Profit to Reported Operating Profit is as follows:
Six months ended 30 June
GBPm 2017 2016
======================================================== ====== =====
Underlying Trading Profit 35.3 50.6
Include: non-underlying items
Onerous contract and Balance Sheet Review adjustments - 17.0
Benefit from non-depreciation and non-amortisation
of assets held for sale - 0.2
Other one-time items - 3.5
------ -----
Trading Profit 35.3 71.3
Amortisation and impairment of intangibles arising
on acquisition (2.2) (2.0)
------ -----
Operating Profit Before Exceptional Items (continuing
and discontinued operations) 33.1 69.3
Exclude: Operating Loss/(Profit) Before Exceptional
Items from discontinued operations - 3.2
------ -----
Reported Operating Profit Before Exceptional Items
(continuing operations only) 33.1 72.5
Operating Exceptional Items (continuing operations
only) (11.4) (7.7)
------ -----
Reported Operating Profit (after exceptional items;
continuing operations only) 21.7 64.8
-------------------------------------------------------- ------ -----
(3) Underlying EPS reflects the Underlying Trading Profit
measure after deducting pre-exceptional net finance costs and
related tax effects. For the six months ended 30 June 2016, the
underlying tax charge has been restated so that the deferred tax
adjustment related to pension asset movements is treated as
non-underlying.
(4) Free Cash Flow is the net cash flow from operating
activities before exceptional items as shown on the face of the
Group's Consolidated Cash Flow Statement, adding dividends we
receive from joint ventures and associates, and deducting net
interest paid and net capital expenditure on tangible and
intangible asset purchases.
(5) The Global Services division, representing private sector
BPO operations, was classified as a discontinued operation in 2015
and 2016. Disposal of one of the two remaining elements of the
offshore business was completed in March 2016 and the final element
completed in December 2016. The residual UK onshore private sector
BPO operations were sold or exited in 2016 with the exception of
one business, consisting of a single contract, which completed in
July 2017. Total revenues for the remaining operations were GBP5.3m
and UTP was GBP0.1m for the six months ended 30 June 2017, and
therefore the results have been included in continuing operations
in 2017 on the grounds of materiality.
(6) Consistent with the restatement of the results for the year
ended 31 December 2015, the results for the six months ended 30
June 2016 have been restated for a change in accounting policy
related to foreign exchange movements on investment and financing
arrangements. This provides more relevant information about the
impact of underlying transactions and, within net debt, now takes
account of the currency hedging in place. This is particularly
relevant at a time when we have had significant currency
volatility, and, helpfully, more closely aligns our reported net
debt with our debt covenant definitions. This change in accounting
policy has the following effects for the six months ended 30 June
2016: reduces Trading and Operating Profit measures by GBP0.4m,
with an equal and opposite impact recognised within Net Finance
Costs; reduces Free Cash Flow (FCF) by GBP24.0m, with an equal and
opposite impact recognised below FCF; and reduces closing net debt
at 30 June 2016 by GBP20.5m, to reflect the hedging effect of
derivative financial instruments designed to mitigate the effect of
foreign exchange movements on our net debt. Further detail on the
restatement is included in the Finance Review on page 14.
Reconciliations and further detail of financial performance are
included in the Finance Review on pages 13 to 31. This includes
full definitions and explanations of the purpose and usefulness of
each non-IFRS Alternative Performance Measure (APM) used by the
Group. The consolidated financial statements and accompanying notes
are on pages 34 to 64.
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", "should", "will", "aspire", "aim", "plan",
"target", "goal", "ambition" and similar expressions identify
forward looking statements. By their nature, these forward looking
statements are subject to a number of known and unknown risks,
uncertainties and contingencies, and actual results and events
could differ materially from those currently being anticipated as
reflected in such statements. Factors which may cause future
outcomes to differ from those foreseen or implied in forward
looking statements include, but are not limited to: general
economic conditions and business conditions in Serco's markets;
contracts awarded to Serco; customers' acceptance of Serco's
products and services; operational problems; the actions of
competitors, trading partners, creditors, rating agencies and
others; the success or otherwise of partnering; changes in laws and
governmental regulations; regulatory or legal actions, including
the types of enforcement action pursued and the nature of remedies
sought or imposed; the receipt of relevant third party and/or
regulatory approvals; exchange rate fluctuations; the development
and use of new technology; changes in public expectations and other
changes to business conditions; wars and acts of terrorism; and
cyber-attacks. Many of these factors are beyond Serco's control or
influence. These forward looking statements speak only as of the
date of this announcement and have not been audited or otherwise
independently verified. Past performance should not be taken as an
indication or guarantee of future results and no representation or
warranty, express or implied, is made regarding future performance.
Except as required by any applicable law or regulation, Serco
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statements
contained in this announcement to reflect any change in Serco's
expectations or any change in events, conditions or circumstances
on which any such statement is based after the date of this
announcement, or to keep current any other information contained in
this announcement. Accordingly, undue reliance should not be placed
on the forward looking statements.
Chief Executive's Review
Summary of financial performance
Revenue and Trading Profit
Reported Revenue was GBP1,508m (2016: GBP1,493m); this measure
excludes Serco's share of revenue from joint ventures and
associates of GBP180m (2016: GBP294m); also excluded in the
comparable period is revenue of GBP25m from discontinued
operations, which reflected the residual run-off of the private
sector BPO division. Net currency movements provided a GBP122m
benefit or an 8.2% increase. At constant currency and adjusting for
disposals, the organic revenue decline was GBP113m or 7.6%; around
half of this organic decline relates to no longer recognising as
revenue the value of goods purchased on behalf of customers
following changes to two health procurement services contracts in
the UK; the balance of the decline relates to the ending or
transfer of contracts such as those for the UK Defence Science and
Technology Laboratory (DSTL), Virginia Department of Transportation
(VDOT), US Army transition assistance (SFLTAP) and Western
Australia Court Security and Custodial Services (WACSCS). These and
the effect of other smaller contract attrition was only partially
offset by growth elsewhere including that from the phased start of
new services during the period at Barts Health NHS Trust.
Underlying Trading Profit was GBP35.3m (2016: GBP50.6m), a
decline of GBP15.3m or, excluding the GBP6.1m net currency benefit,
a decline of GBP21.4m. The reduction was driven by the first half
of last year benefitting from GBP11m of non-recurring trading
items, which included: the higher shareholding and therefore a
larger share of the profits in the prior period of the Atomic
Weapons Establishment (AWE); the final settlement arrangements on
the transfer of the Northern Rail franchise; the conclusion of the
VDOT and SFLTAP operations; and the spike in activity in the
comparable period on a defence logistics contract in the Middle
East. In addition, as a consequence of the rapid growth of the bid
pipeline, there has been an increase in bidding costs in the latest
period.
Within our performance for the period, we are on track to
deliver around GBP20m of cost savings this year from efficiencies
in central support functions and overheads. Cumulatively over three
years, this will mean approximately GBP100m of cost has been
removed through our programmes to deliver savings by reducing the
number of management layers, implementing better procurement and
driving greater efficiency in the operation of shared services.
These savings are central to our efforts to reduce the scale of
Serco's cost base in proportion to the scale of the revenue
reduction incurred through the loss of contracts and the disposals
undertaken.
There being no adjustment items between Trading Profit and
Underlying Trading Profit, the two measures were the same at
GBP35.3m. In the comparable period there was a difference of
GBP20.7m between the two measures comprising three items which were
excluded from Underlying Trading Profit, none of which recurred in
the latest period. First, in 2016 there was a GBP17.0m credit
arising from the review of OCPs and other Contract and Balance
Sheet Review items; no OCPs have required adjustment in the first
half of 2017. Second, there was a GBP3.5m benefit in the first half
of last year of a one-time pension settlement negotiated as part of
the early termination of the Thurrock contract. Third, there was
the beneficial impact of GBP0.2m related to depreciation and
amortisation treatment of assets still classified as held for sale
during the first half of last year. Trading Profit was therefore
GBP71.3m for the first half of 2016.
As with the comparable period, Underlying Trading Profit
benefited from the utilisation of OCPs, which have the effect of
neutralising losses on previously identified onerous contracts; the
GBP40m utilised in the period was in line with our expectations of
around GBP80m utilisation for the year as a whole, and was lower
than the GBP47m utilised in the comparable period. The closing
balance of OCPs now stands at GBP180m, compared to GBP239m at 30
June 2016 and the initial charge of GBP447m taken in the second
half of 2014.
Finance, pensions, tax and exceptional costs
Pre-exceptional net finance costs were GBP7.6m (2016: GBP6.7m),
with the small increase including the effect of the average net
debt increasing by GBP63m versus the comparable period. Cash net
interest paid was GBP9.2m (2016: GBP10.5m).
Within net finance costs is a net credit of GBP1.6m (2016:
GBP2.3m) related to the strong funding position of Serco's pension
schemes. However, this net credit will be much smaller in the
future following the purchase in June 2017 by the Trustees of the
Serco Pension and Life Assurance Scheme (SPLAS) of a bulk annuity
from an insurer, which, for a significant proportion of scheme
members, has the effect of fully removing longevity, investment and
accounting risks. Assets of the pension scheme have been
transferred to the insurer to purchase the annuity, resulting in a
reduction in the IAS19 net balance sheet asset. The gross liability
remains recognised on our balance sheet, but there is now an equal
and opposite insurance asset reflecting the perfect hedge
established by the transaction.
The result after the transaction is that the overall pension
scheme net balance sheet asset, before tax, was GBP1m at 30 June
2017 on a gross asset base of GBP1,418m. As described below, this
transaction resulted in an exceptional tax charge of GBP16.1m
reflecting a non-cash deferred tax adjustment related to the
pension asset movements. Further details of Serco's pension funding
and the bulk annuity purchase are described more fully in the
Finance Review.
Pre-exceptional tax costs were GBP16.4m (2016: GBP3.8m). Cash
net tax paid was GBP7.9m (2016: GBP6.6m).
The underlying effective tax cost was GBP10.7m (2016: GBP8.1m);
this represents an underlying effective rate of 38.6% (2016: 18.5%)
based upon GBP27.7m (2016: GBP43.9m) of Underlying Trading Profit
less pre-exceptional net finance costs. The rate reflects the tax
charges at locally prevailing rates in the international divisions
(which tend to be higher than the UK's rate), while in the UK there
was no deferred tax credit taken against losses made in the period;
the resulting effective rate in the first half of 2017 is lower
than the approximate 50% rate that we continue to anticipate for
the financial year as a whole, mainly due to a one-off effect of UK
tax legislation enactment which will take place in the second half
and so can only be taken into account at that time.
Although we expect our cash tax rate to be reasonably
predictable in future periods, our underlying effective tax rate is
likely to be volatile until we are able to show sufficient
profitability in our UK business to be able to recognise on our
balance sheet the very significant UK tax asset arising from losses
in 2014 and 2015 principally as a result of the Contract and
Balance Sheet Review. We expect future years' effective tax rate
will be high until UK tax losses can be recognised.
Tax on non-underlying items was a charge of GBP5.7m (2016:
credit of GBP4.3m); this principally reflects non-cash deferred tax
adjustments amounting to GBP6.3m (2016: credit of GBP4.4m) related
to pension asset movements aside from the GBP16.1m resulting from
the bulk annuity transaction which is treated as exceptional; in
comparing the reported performance in the first half of 2017 versus
the first half of 2016, the aggregate year-on-year impact of these
non-cash deferred tax adjustments was therefore GBP26.8m.
The Group incurred operating exceptional costs of GBP11.4m
(2016: GBP7.7m), mainly comprising restructuring costs related to
the Transformation stage of our strategy, including redundancy
charges, asset impairments and other incremental costs. There was
an exceptional tax charge of GBP16.1m reflecting a non-cash
deferred tax adjustment related to the pension asset movements on
the bulk annuity purchase; exceptional tax on other items was a
credit of GBP0.2m (2016: charge of GBP0.1m). Exceptional items
related to discontinued operations were GBPnil (2016: GBP4.6m).
Total net exceptional costs were therefore GBP27.3m (2016:
GBP12.4m).
Reported result for the period
The reported result for the period, as presented at the bottom
of the Group's Consolidated Income Statement on page 34, was a loss
of GBP18.2m (2016: profit of GBP46.4m). This reflects: Trading
Profit of GBP35.3m (2016: GBP71.3m); amortisation of intangibles
arising on acquisition of GBP2.2m (2016: GBP2.0m); pre-exceptional
net finance costs of GBP7.6m (2016: GBP6.7m); pre-exceptional tax
costs of GBP16.4m (2016: GBP3.8m); and total net exceptional costs
of GBP27.3m (2016: GBP12.4m).
Earnings Per Share (EPS)
Underlying EPS, which reflects the Underlying Trading Profit
measure after deducting pre-exceptional finance costs and related
tax effects, was 1.55p (2016: 3.30p). The reduction reflects the
lower Underlying Trading Profit, together with the higher
underlying effective tax rate; the weighted average number of
shares in issue was broadly unchanged at 1,091.1m (2016: 1,088.8m).
Reported EPS, which includes the impact of the GBP26.8m aggregate
non-cash deferred tax adjustments related to pension assets, was a
loss per share of 1.68p (2016: profit per share of 4.27p).
Cash Flow and Net Debt
Free Cash Flow was negative GBP26.8m (2016: negative GBP22.5m).
Cash generated from Underlying Trading Profit was largely offset by
the outflows related to loss-making contracts subject to Onerous
Contract Provisions. These cash outflows lessened versus the
comparable period, as reflected in the lower rate of OCP
utilisation. There was a working capital outflow of GBP15m, which
included GBP8m (2016: GBPnil) of reduction in the utilisation of
the Group's receivables financing facility; at 30 June 2017 there
was no utilisation of the GBP30m facility, whereas the full GBP30m
was utilised at 30 June 2016. Of the GBP49m increase in Net Debt
during the last twelve months, GBP30m of this outflow relates
therefore to the unwinding of the receivables financing
facility.
Closing net debt at 30 June 2016 increased to GBP148.9m, having
been GBP109.3m at the start of the period; the increase includes
the Free Cash outflow, together with a GBP20m cash outflow related
to exceptional items. There was a beneficial gross currency
translation effect on net debt of GBP9m, predominantly reflecting
the Group's US Private Placement debt, however this was partially
offset by a GBP2m adverse movement on hedging instruments. The
closing net debt of GBP149m compares to a daily average of GBP178m
for the period (2016: GBP115m) and a peak net debt of GBP243m
(2016: GBP165m).
At the closing balance sheet date, our leverage for debt
covenant purposes was 1.4x EBITDA (2016: 0.8x), which compares with
the covenant requirement to be less than 3.5x and remains within
our medium term target range of 1-2x.
Dividends
The Board has not declared an interim dividend for 2017. The
Board's appraisal of the appropriateness of dividend payments takes
into account the Group's underlying earnings, cash flows and
financial leverage, together with the requirement to maintain an
appropriate level of dividend cover and the prevailing market
outlook. Although the Board is committed to resuming dividend
payments as soon as it believes it prudent to do so, in assessing
whether we should resume dividend payments in respect of 2017, we
have been mindful of the fact that our forecasts for 2017
anticipate a reduction in earnings, a free cash outflow and an
increase in net debt. In these circumstances, the Board believes
that it would not be prudent to resume dividend payments at the
current juncture.
The Revenue and Trading Profit performances are described
further in the Divisional Reviews. More detailed analysis of
earnings, cash flow, financing and related matters are described
further in the Finance Review.
Contract awards, order book, rebids and pipeline
Contract awards
The Group signed contracts with a total value of GBP2.4bn during
the period (2016: GBP0.9bn), which was an exceptionally strong
performance. With GBP1.6bn booked in the second half of 2016, order
intake for the 12 months to 30 June 2017 has been GBP4bn; this is
the largest 12-month order intake for Serco since 2012, and
represents a book-to-bill ratio of approximately 130%. There were
16 contract awards worth more than GBP10m each in the period. The
large value of new business won resulted in this being
approximately 80% of the total value signed, with the balance
represented by the value of secured extensions or rebids of
existing work; the latter was also an abnormally small balance by
virtue of there being a relatively small amount of contracts coming
up for rebid or extension during the period.
The largest new contract signed in the period was to operate the
New Grafton Correctional Centre (NGCC) in New South Wales, which,
when completed, will be the largest correctional facility in
Australia; the estimated total contract value to Serco over a
20-year term is approximately AUD2.6bn (equivalent to approximately
GBP1.5bn, based upon the period end exchange rate of 1 GBP = 1.69
AUD). The second largest new contract was with University Hospital
Southampton NHS Foundation Trust to transform catering and
cleaning, with an estimated value of GBP125m over the ten-year
term. The third largest was in the Americas division to provide
three Navy Fleet Readiness Centers with supply chain management
services for hazardous materials, valued at a total of $101m for
the base period and four one-year option periods. Smaller new bids
won included environmental services for Rushmoor Borough Council,
facilities management for Abu Dhabi Investment Authority, and
numerous US Navy ship and shore defence equipment modernisation
task orders.
Of rebids and extensions secured, the largest was for the US
Patent & Trademark Office (USPTO) for a further ten years, with
others including fleet services for Louisville Gas & Electric
Company, air navigation services in Bahrain and Iraq, and support
to passenger information services for the Western Australia Public
Transport Authority.
Win rates by volume were over 50% for new bids and over 90% for
rebids and extensions. Win rates by value saw significant
improvement to around 80% for new work given the bias from the
sheer scale of the Grafton win and no losses of large bids, and was
approximately 90% for securing existing work.
Order book
The Group's order book, now stands at an estimated GBP10.8bn, up
by over GBP1bn year-on-year. There is now GBP2.8bn of revenue
already delivered or secured in the order book for 2017, equivalent
to around 95% visibility of a GBP3.0bn revenue estimate at current
exchange rates. The secured order book is GBP1.9bn for 2018 and
GBP1.4bn for 2019.
Rebids
Through to the end of 2020, across the Group there are around 60
contracts in our order book with annual revenue of over GBP5m where
an extension or rebid will be required, representing current annual
revenue of approximately GBP1.5bn in aggregate or around 50% of the
Group's 2017 GBP3.0bn revenue estimate at current exchange rates.
This proportion of revenue that requires securing at some point
over the next three and a half years is not unusual given our
average contract length of around seven years (or approximately ten
years on average on a revenue-weighted basis, as larger contracts
typically have longer terms). Contracts that could potentially end
at some point by the end of 2017 have aggregate annual revenue of
around GBP50m. In 2018, this increases to around GBP500m, with the
greater amount driven in particular by the US Affordable Care Act
contract becoming due for full rebid in that year, and with the
next largest being Northern Isles Ferries. In 2019, it is around
GBP700m, with Australian immigration services, the Dubai Metro, one
of our US Navy installation contracts, COMPASS and PECS also all
expected to become due for rebid or potential extension. In 2020,
it is around GBP200m, with no particularly large contracts
currently anticipated to become due in that year.
Pipeline
Our pipeline is defined as new bid opportunities with estimated
Annual Contract Value (ACV) of at least GBP10m and which we expect
to bid and to be adjudicated within a rolling 24-month timeframe.
The TCV of individual opportunities is capped at GBP1bn. The
definition does not include rebids and extension opportunities. It
is therefore a relatively small proportion of the total universe of
opportunities, many of which either have annual revenues less than
GBP10m, or are likely to be decided beyond the next 24 months, or
are rebids and extensions. It should also be remembered that in the
Americas division in particular, we have numerous arrangements
which are classed as 'IDIQ' - Indefinite Delivery / Indefinite
Quantity - which are essentially framework agreements under which
the customer issues task orders one at a time; whilst the ultimate
value of such an agreement contract may be very large and run over
many years, a value is only recorded in our order book as
individual task orders are contracted, and few of them would appear
in the pipeline as they tend to be individually less than GBP10m
and contracted on short lead times.
Following several years of decline in the value of the bid
pipeline, in 2015 it began to grow again from its nadir of around
GBP5bn, increasing to GBP6.5bn at the start of 2016, and stood at
GBP8.4bn at the start of 2017. During the year to date, GBP2.0bn
has come out of the pipeline, predominantly due to wins such as
Grafton prison (which was capped in the pipeline at GBP1bn) and
Southampton NHS Foundation Trust, and the removal of an immigration
services opportunity in the US. A number of new opportunities have
now matured to the stage where they meet our pipeline definition,
adding in aggregate GBP1.5bn. As a result, the pipeline currently
stands at GBP7.9bn, which consists of over 30 bids that have an ACV
averaging approximately GBP30m and a contract length averaging
around eight years. In the services industry which Serco serves,
pipelines are often lumpy, as individual opportunities can be very
large, and when they come in and out of the pipeline they can have
a material effect on reported values.
Currently, our pipeline has a number of large bids, and a high
proportion of them are due to be decided in the next six months,
giving an unusually high degree of "front loading". It is therefore
unlikely that we will be able to immediately replace the
approaching GBP5bn of bids that are likely to drop out of the
pipeline over the next six months and its value will likely be
noticeably lower at the end of 2017, and could continue to be so
through 2018. Provided we win one or more of these current large
opportunities, a lower pipeline is not a matter of undue concern:
growing our pipeline should not be expected to be a smooth
progression given the effects of the timing and scale of individual
awards.
Key opportunities in the pipeline are described further in the
Divisional Reviews.
Risks associated with Serco's trading environment
We have previously reported on the risks and opportunities
presented by Brexit. In terms of our business directly serving
European bodies which accounts for around 5% of Serco's revenue, we
think that the risks are likely to be small, since our services are
typically delivered by EU-domiciled subsidiaries. There is also a
possible impact on UK labour costs, and while only 4% of our
employees in the UK are Continental EU nationals, there may be a
wider impact on labour availability and cost. Third and most
importantly, our business with the UK Central Government, which
accounts for about a quarter of our revenue, depends on the
administration's priorities. Brexit has been described by the Head
of the Civil Service as the greatest peacetime challenge ever faced
by the Civil Service, and it is clear that their priority is going
to be focused in this direction for several years to come. However,
in the medium term the repatriation of swathes of regulatory
functions may lead to important opportunities, and many of our
largest customers - most notably the Ministry of Defence, the
Ministry of Justice and the Home Office - still have pressing needs
to reduce costs and increase efficiency.
As we said in June, the political environment in three of our
major markets has become markedly more unpredictable in recent
months, which in turn makes it harder to forecast outcomes for our
business. In the US, there is no clear determination of the future
of the Affordable Care Act (ACA), and the shape of the budget for
Federal Government spending remains unsettled; this is particularly
important given the promised increases in Defence expenditure,
which would be helpful to our North American business. In the UK,
the recent General Election has left the administration weakened
and less able to carry out a domestic reform agenda at the pace
they might have hoped. And in the Middle East, the dispute between
Qatar and neighbouring countries has unsettled the region.
Serco's long-term contracts and our role in providing critical
public services should give us some protection from short-term
vicissitudes. Importantly, our breadth of operations, and our
strong presence in multiple international markets, helps to
diversify our risk and give us choices as to where we invest our
resources. As we have shown, even in a difficult environment, we
have signed GBP4bn of business over the last 12 months. However,
given the current geo-political uncertainties, we remain sensibly
cautious.
Guidance and outlook
At the end of June we reiterated our 2017 full year guidance for
Revenue of approximately GBP3.1bn and Underlying Trading Profit of
between GBP65m and GBP70m, although the movement in currency since
our previous statement in February may, if sustained, have a small
negative effect. We do, however, repeat that the potential outcomes
for the year remain wider than the stated profit range, both to the
upside and the downside, due to the sensitivity of our profits to
even small percentage changes in either revenues or costs, as well
as movements in currency.
Our previous estimate of closing net debt of between GBP150m and
GBP200m at the end of 2017 is similarly unchanged, and is
equivalent to leverage for covenant purposes of between 1.4 and
1.8x EBITDA.
The trading outlook for 2018 remains unchanged from our
statement in February, which was that we expect to see some modest
improvement in margins. As described above, the pipeline remains
very "front-loaded", with around 60% of the GBP7.9bn expected to be
decided in the next six months. It is therefore likely that our
pipeline in 2018 will run at lower levels than those seen in the
first half of 2017.
Concluding thoughts
Our overarching objective is to secure Serco's position as a
world-class international supplier of services to governments in
our chosen sectors of Defence, Justice & Immigration,
Transport, Health and Citizen Services. Our strategy has been based
on the three stages of 'Stabilise - Transform - Grow'. The first
stage was completed in 2015, and we are working hard to deliver our
planned 'Transformation' phase. Our recent order intake has been
very strong, totalling some GBP4bn in the last twelve months, thus
returning the business back to a book-to-bill ratio of over 100%
for the first time since 2012. While much still remains to be done
to execute the long-term turnaround of Serco, we have established a
good track record of delivery against our plans. The environment in
several of our markets has become markedly more unpredictable in
recent months, and this leads us to be sensibly cautious, but thus
far we continue to track to our plan and make good progress against
our strategy.
Rupert Soames
Group Chief Executive Officer
Serco - and proud of it.
Divisional Reviews
Serco's operations are reported as five divisions: UK Central
Government (CG); UK & Europe Local & Regional Government
(LRG); the Asia Pacific region (AsPac); the Middle East; and the
Americas. The Global Services division previously consisted of
Serco's private sector BPO operations, which for statutory
reporting purposes were classified in 2015 and 2016 as discontinued
operations following the previously announced strategic exit from
this market and the subsequent disposals. Serco presents
alternative measures to include the Revenue and Trading Profit of
these discontinued operations in prior periods for consistency with
previous disclosures. Reflecting statutory reporting requirements,
Serco's share of revenue from its joint ventures and associates is
not included in revenue, while Serco's share of joint ventures and
associates' profit after interest and tax is included in Underlying
Trading Profit. As previously disclosed and for consistency with
guidance, Serco's Underlying Trading Profit measure excludes
Contract and Balance Sheet Review adjustments (principally OCP
releases or charges), and the benefit in 2015 and 2016 from not
depreciating and amortising assets held for sale and other one-time
items such as those related to the early exit from the Thurrock
contract.
Six months ended 30 June CG Total
2017 Middle Corporate
GBPm LRG AsPac East Americas costs
Revenue 323.3 334.8 307.4 174.2 368.5 - 1,508.2
Change (7%) (11%) +8% +13% +12% - 1%
Change at constant currency (7%) (13%) (8%) (1%) (2%) - (7%)
Organic change at constant
currency (7%) (15%) (8%) (1%) (2%) - (8%)
Underlying Trading Profit/(Loss) 20.9 (4.9) 10.5 6.8 22.2 (20.2) 35.3
Change (37%) n/a +38% (30%) +13% +11% (36%)
Change at constant currency (37%) n/a +14% (39%) (2%) +11% (47%)
Margin 6.5% (1.5%) 3.4% 3.9% 6.0% n/a 2.3%
Contract and Balance Sheet
Review adjustments - - - - - - -
Assets held for sale depreciation
and amortisation - - - - - - -
Other one-time items - - - - - - -
Trading Profit/(Loss) 20.9 (4.9) 10.5 6.8 22.2 (20.2) 35.3
Amortisation of intangibles
arising on acquisition - - (0.7) - (1.5) - (2.2)
Operating profit/(loss)
before exceptionals 20.9 (4.9) 9.8 6.8 20.7 (20.2) 33.1
---------------------------------- ----- ------ ----- ------ -------- --------- -------
Six months ended 30 June CG Sub-total
2016 Middle Corporate continuing Global
GBPm LRG AsPac East Americas costs Services Total
Revenue including discontinued
operations 349.0 376.7 284.7 153.9 328.9 - 1,493.2 24.7 1,517.9
Discontinued operations
adjustment* - - - - - - - (24.7) (24.7)
---------------------------------- ----- ----- ----- ------ -------- --------- ----------- --------- -------
Revenue 349.0 376.7 284.7 153.9 328.9 - 1,493.2 - 1,493.2
---------------------------------- ----- ----- ----- ------ -------- --------- ----------- --------- -------
Underlying Trading Profit/(Loss) 33.4 2.7 7.6 9.7 19.6 (18.2) 54.8 (4.2) 50.6
Margin 9.6% 0.7% 2.7% 6.3% 6.0% n/a 3.7% (17.0%) 3.3%
Contract and Balance Sheet
Review adjustments 18.6 (1.1) 0.3 1.8 (2.8) (0.7) 16.1 0.9 17.0
Assets held for sale depreciation
and amortisation - - - - - - - 0.2 0.2
Other one-time items - 3.5 - - - - 3.5 - 3.5
Trading Profit/(Loss) 52.0 5.1 7.9 11.5 16.8 (18.9) 74.4 (3.1) 71.3
Amortisation of intangibles
arising on acquisition - - (0.6) - (1.3) - (1.9) (0.1) (2.0)
Discontinued operations
adjustment* - - - - - - - 3.2 3.2
---------------------------------- ----- ----- ----- ------ -------- --------- ----------- --------- -------
Operating profit/(loss)
before exceptionals 52.0 5.1 7.3 11.5 15.5 (18.9) 72.5 - 72.5
---------------------------------- ----- ----- ----- ------ -------- --------- ----------- --------- -------
* Statutory reporting only includes the post-tax result of
discontinued operations as a single line in the Consolidated Income
Statement.
Year ended 31 December 2016 CG Middle Corporate Sub-total Global
GBPm LRG AsPac East Americas costs continuing Services Total
Revenue including discontinued
operations 678.6 696.5 619.7 324.8 691.4 - 3,011.0 36.8 3,047.8
Discontinued operations
adjustment* - - - - - - - (36.8) (36.8)
---------------------------------- ----- ------ ----- ------ -------- --------- ----------- --------- -------
Revenue 678.6 696.5 619.7 324.8 691.4 - 3,011.0 - 3,011.0
---------------------------------- ----- ------ ----- ------ -------- --------- ----------- --------- -------
Underlying Trading Profit/(Loss) 52.2 (6.5) 24.9 16.6 43.0 (43.5) 86.7 (4.6) 82.1
Margin 7.7% (0.9%) 4.0% 5.1% 6.2% n/a 2.9% (12.5%) 2.7%
Contract and Balance Sheet
Review adjustments 42.7 (7.4) 9.3 2.2 (36.6) 3.2 13.4 0.8 14.2
Assets held for sale depreciation
and amortisation - - - - - - - 0.5 0.5
Other one-time items - 3.5 - - - - 3.5 - 3.5
Trading Profit/(Loss) 94.9 (10.4) 34.2 18.8 6.4 (40.3) 103.6 (3.3) 100.3
Amortisation of intangibles
arising on acquisition (0.3) - (2.0) - (2.8) - (5.1) - (5.1)
Discontinued operations
adjustment* - - - - - - - 3.3 3.3
---------------------------------- ----- ------ ----- ------ -------- --------- ----------- --------- -------
Operating profit/(loss)
before exceptionals 94.6 (10.4) 32.2 18.8 3.6 (40.3) 98.5 - 98.5
---------------------------------- ----- ------ ----- ------ -------- --------- ----------- --------- -------
* Statutory reporting only includes the post-tax result of
discontinued operations as a single line in the Consolidated Income
Statement.
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 13 to 31. This includes full definitions and explanations
of the purpose of each non-IFRS Alternative Performance Measure
(APM) used by the Group. The consolidated financial statements and
accompanying notes are on pages 34 to 64.
UK Central Government
The UK Central Government division includes our UK operations in
Defence, Justice & Immigration and Transport.
Revenue for the first half of 2017 was GBP323.3m (2016:
GBP349.0m), a decline of 7%; reported revenue excludes that from
our joint venture and associate holdings at AWE, Merseyrail and
previously Northern Rail, with these representing the vast majority
of the Group's activity in joint ventures and associates. The
principal driver of the revenue reduction was last year's phased
transfer back of services that Serco had previously been providing
to the Defence Science and Technology Laboratory (DSTL), together
with the Defence Business Services arrangement which also ended in
2016. There was limited new growth to offset this attrition.
Underlying Trading Profit was GBP20.9m (2016: GBP33.4m),
representing an implied margin of 6.5% (2016: 9.6%). Trading Profit
includes the profit contribution (from which tax and interest have
already been deducted) of joint ventures and associates; if the
GBP157m proportional share of revenue from joint ventures and
associates was also included and if the GBP3.2m share of interest
and tax cost was excluded, the overall divisional margin would have
been 5.0% (2016: 5.9%). The joint venture and associate profit
contribution of GBP13.6m (2016: GBP17.1m) was GBP3.5m lower,
reflecting the end of the Northern Rail franchise in March 2016 and
the lower shareholding of AWE from the second half of last year.
The reduction in Underlying Trading Profit included the impact of
other contract attrition, some increase in bidding costs, as well
as the lower contribution from joint ventures and associates.
Within Underlying Trading Profit there was GBP22m of OCP
utilisation (2016: GBP18m), which served to offset the Division's
loss-making contracts principally COMPASS, FPMS, Caledonian Sleeper
and PECS.
UK Central Government represented around GBP0.1bn of the Group's
aggregate total value of signed contracts during the period,
comprising a number of smaller rebids and extensions predominantly
for various defence support services. There were no larger rebids
or major new bid pipeline decisions in the period. However, we
expect the next six months to be much busier in terms of bid
determinations, with tenders for immigration escorting for the Home
Office and the Defence Fire & Risk Management Organisation both
likely to be decided by the end of 2017; other opportunities
include programmes to provide various support services to the
Ministry of Defence, prisoner escorting services in Scotland and
the operation of an immigration removal centre. Over the longer
term, we await greater clarity on public service reform by the UK
Government to assess what further opportunities may arise in the
Justice & Immigration, Transport and Defence sectors.
Of existing work where an extension or rebid will be required at
some point before the end of 2020, there are 11 contracts with
annual revenue of over GBP5m within the UK Central Government
division; in aggregate, these represent approximately 40% of the
current level of annual revenue for the division. The largest of
these are the Northern Isles Ferries operations that would become
due for potential extension or rebid in 2018, PECS which is assumed
to be rebid in 2019 if further extension options are not exercised
by the customer, and COMPASS also in 2019.
The comparison between the first half of 2016 and 2017 is
particularly ugly in Central Government, as 2016 benefited from a
number of advantageous commercial settlements. Looking forward, we
expect that revenues and margins in the second half will stabilise
on a comparative and sequential basis, reflecting the Division
getting itself onto firmer ground.
UK & Europe Local & Regional Government
The UK & Europe Local & Regional Government division
(LRG) includes our UK Health and UK and European Citizen Services
sectors. The Health business provides primarily non-clinical
support services to hospitals; the Citizen Services business
provides environmental and leisure services, as well as a wide
range of other front, middle and back-office services to Local
Authorities, and IT services to European institutions.
Revenue for the first half of 2017 was GBP334.8m (2016:
GBP376.7m), a decline of 11%. At constant currency, the organic
decline was 15%. Over GBP50m of decline reflected no longer
recognising as revenue the value of goods purchased on our
customers' behalf following changes to two procurement services
contracts in our Health business. We also saw reducing volumes in
our Child Maintenance Group operations; and the ending or reduced
scale of various other BPO and IT support services contracts. These
revenue reductions were only partially offset from growth
elsewhere, namely the start of hospital facility management
services for Barts Health NHS Trust, as well as some growth in our
European agency operations and from the new Skills Support for the
Workforce (SSW) contracts.
There was an Underlying Trading Loss of GBP4.9m (2016: profit of
GBP2.7m), representing a margin of -1.5% (2016: +0.7%). There was
an impact from contract attrition as well as other in-contract
reductions. Within Underlying Trading Profit there was GBP8m of OCP
utilisation (2016: GBP13m), with the reduction principally
reflecting lower losses on the Lincolnshire County Council
operations as costs reduced from the levels seen in 2016 with the
implementation of a new ERP system.
LRG represented around GBP0.2bn of the Group's aggregate total
value of signed contracts during the period. The largest award was
a new contract to transform catering and cleaning for University
Hospital Southampton NHS Foundation Trust, with an estimated value
of GBP125m over the ten-year term. Smaller awards included a new
contract for environmental services to Rushmoor Borough Council,
and several rebids and extensions for citizen services support to
customers including Invest Northern Ireland, the Department of
Health and the Skills Funding Agency. There were no other larger
rebids or major new bid pipeline decisions made in the period.
Of existing work where an extension or rebid will be required at
some point before the end of 2020, there are 17 contracts with
annual revenue of over GBP5m within the LRG division; in aggregate,
these represent approximately 30% of the current level of annual
revenue for the division; this excludes Glasgow ACCESS which, as
previously noted, is assumed to expire in March 2018. The largest
of these are back office support services to Hertfordshire County
Council and a European agency contract both potentially due in
2019, and for the Anglia Support Partnership healthcare shared
services operations in 2020.
Our success in the last 12 months winning Barts and Southampton
NHS Trusts, has left our pipeline of major new bid opportunities
due for decision within the next 24 months largely denuded, though
we expect to 'reload' with some further tenders for hospital
facilities management and environmental services during the second
half of the year. We continue to evaluate developments and the
potential for further public service reform in the other sectors of
operation within LRG, including other Citizen Services work and our
European business providing various operational support to
government agencies.
For 2017 as a whole, we expect the rate of revenue decline to
significantly moderate as the effect of the health procurement
contracts annualises and the growth contribution from the Barts and
Southampton hospital facilities management contracts increases; we
also expect the level of Underlying Trading Loss to improve and we
are hopeful that the Division will be modestly profitable in the
second half of the year.
AsPac
Operations in the Asia Pacific division include Justice,
Immigration, Defence, Health, Transport and Citizen Services in
Australia, New Zealand and Hong Kong. Serco's operations in
Australia are by far the largest element of the division; the
country represents approximately 20% of total Revenue for the
Group.
Revenue for the first half of 2017 was GBP307.4m (2016:
GBP284.7m), an increase of 8%. In Australian dollars, the main
currency for operations of the division, revenue for the period was
equivalent to approximately A$516m (2016: A$560m). The movements in
local currencies against Sterling increased revenue by GBP45m or
16%; the organic change at constant currency was therefore a
decline of 8%. This reduction was driven by the end of the Western
Australia Court Security and Custodial Services (WACSCS), Armidale
Class Patrol Boat (ACPB) and Mount Eden contracts, together with
some smaller reductions from other contracts ending or reducing in
scope, with little growth to offset this attrition.
Underlying Trading Profit was GBP10.5m (2016: GBP7.6m),
representing a margin of 3.4% (2016: 2.7%). The improvement in
profitability included a favourable currency movement of GBP1.8m,
with the net of other movements reflecting attrition and other
margin pressures offset by progress on cost efficiencies. Within
Underlying Trading Profit there was GBP7m of OCP utilisation (2016:
GBP8m).
AsPac represented around GBP1.7bn of the Group's aggregate total
value of signed contracts during the period. By far the largest
element of this was approximately GBP1.5bn for the 20-year contract
valued at A$2.6bn for the operation of New Grafton Correctional
Centre (NGCC) which is expected to commence in 2020; NGCC will be
the largest correctional centre in Australia, consisting of a total
of 1,700 beds in three individual security categories, and draws
upon Serco's experience of managing correctional facilities in the
UK, New Zealand and elsewhere in Australia, which includes
Australia's current largest facility, Acacia Prison. Other
extensions and rebids awarded in the period included passenger and
integrated transport information services for transport authorities
in Western Australia and New South Wales. There were no other
larger rebids or major new bid pipeline decisions made in the
period.
Of existing work where an extension or rebid will be required at
some point before the end of 2020, there are 10 contracts with
annual revenue of over GBP5m within the AsPac division; in
aggregate, these represent over 50% of the current level of annual
revenue for the division; this high proportion reflects that the
Australia onshore immigration services contract requires rebid or
extension at the end of 2019, with this accounting for over 30% of
current divisional revenue.
Our pipeline of major new bid opportunities due for decision
within the next 24 months includes some further (but far smaller
than Grafton) Justice & Immigration opportunities, as well as
others in Citizen Services, Defence and Transport support services,
with potential opportunities in non-clinical health services also
being explored.
For 2017 as a whole, we expect the rate of organic revenue
decline to increase as there will be a greater effect from the end
of the WACSCS, ACPB and Mount Eden contracts over the balance of
the year, though these should not unduly impact progress on
Underlying Trading Profit given ACPB and Mount Eden were onerous
contracts.
Middle East
Operations in the Middle East division include Transport,
Defence, Health and Citizen Services.
Revenue for the first half of 2017 was GBP174.2m (2016:
GBP153.9m), an increase of 13%. The strengthening of local
currencies against Sterling provided growth of GBP23m or 14%; the
organic change at constant currency was therefore a decline of 1%.
There was some growth from new contracts for facilities management
at Dubai Airport and for Abu Dhabi Investment Authority, though
these were offset by reductions related to the Dubai Air Navigation
Services and the Staff College training for the Qatar Armed Forces
contracts, as well as a small number of other operations reducing
in scope or volume including the Middle East Logistics and Base
Support (MELABS) contract that supports the Australian Defence
Force in the region.
Underlying Trading Profit was GBP6.8m (2016: GBP9.7m),
representing a margin of 3.9% (2016: 6.3%). While there was a
GBP0.9m favourable currency movement, there was an overall
reduction in profitability due in large part to the heavy costs of
bidding three large rail opportunities simultaneously, as well as
the non-repeat of the higher defence logistics volumes experienced
in the comparable period, together with the impact of other
contract scope reductions and attrition. There are no OCP contracts
in the division and therefore no OCP utilisation within Underlying
Trading Profit.
The Middle East represented around GBP0.1bn of the Group's
aggregate total value of signed contracts during the period.
Amongst smaller contract awards were wins to provide facilities
management for Abu Dhabi Investment Authority and defence training
support in Qatar, whilst extensions to existing work included air
navigation services and training in Bahrain and in Iraq. There were
no larger rebids or major new bid pipeline decisions due in the
period.
Of existing work where an extension or rebid will be required at
some point before the end of 2020, there are 12 contracts with
annual revenue of over GBP5m within the Middle East division; in
aggregate, these represent well over half of the current level of
annual revenue for the division. There is a high proportion of work
to secure in 2019, when the Dubai Metro, MELABS and Cleveland
Clinic Abu Dhabi contracts each require extending or rebidding.
Our pipeline of major new bid opportunities due for decision
within the next 24 months includes three major light rail and tram
operations in the region; in aggregate, these represent
approximately 30% of the value of the Group's pipeline. There are
also other smaller opportunities in defence support services and in
non-clinical health facilities management in the current
pipeline.
For 2017 as a whole, the organic revenue profile is expected to
improve modestly as the pressures from the small amount of
attrition and scope changes ease in the second half and as there
will also be an increased contribution from the smaller new wins
secured in recent months. Profitability in the second half will
however be shaped to a greater extent by the cost to progress, and
the outcomes of, the major rail opportunities in the region.
Americas
Our Americas division provides professional, technology and
management services focused on Defence, Transport, and Citizen
Services. The US Federal Government, including the military,
civilian agencies and the national intelligence community, are our
largest customers. We also provide services to the Canadian
Government and to some US state and municipal governments.
Revenue for the first half of 2017 was GBP368.5m (2016:
GBP328.9m), an increase of 12%. In US dollars, the main currency
for operations of the division, revenue for the year was equivalent
to approximately US$465m (2016: US$470m). The strengthening of
local currencies against Sterling increased revenue by GBP47m or
14%; the organic change at constant currency was therefore a
decline of 2%. The decline was driven by the end of the contracts
for the Virginia Department of Transportation (VDOT) and for US
Army transition assistance (SFLTAP). These and other smaller
reductions were largely offset by growth from the start of the US
Air Force High Altitude Electromagnetic Pulse (HEMP) Protection of
Ballistic Missile Early Warnings Systems radar facility contract
that started in the second half of last year and some increases
elsewhere in the volume of workload or task orders.
Underlying Trading Profit was GBP22.2m (2016: GBP19.6m),
representing a margin of 6.0% (2016: 6.0%). The increase includes a
GBP2.9m favourable currency movement; the impact from the benefit
in the first half of last year from the longer running of the VDOT
and SFLTAP contracts was only partially offset by other growth and
cost efficiencies. Within Underlying Trading Profit there was GBP3m
(2016: GBP5m) of OCP utilisation, which reflects the offset of
losses on the Ontario Driver Examination Services contract.
Americas represented around GBP0.3bn of the Group's aggregate
total value of signed contracts during the period. The largest new
award was to provide supply chain management services for hazardous
materials at three US Navy Fleet Readiness Centers, valued at a
total of $101m for the base period and four one-year options.
Smaller new awards included numerous US Navy ship and shore defence
equipment modernisation task orders. Of rebids and extensions
secured, the largest was for the US Patent & Trademark Office
(USPTO) for a further ten years, albeit the new contract is for a
reduced volume of work, with others secured including fleet
services for Louisville Gas & Electric Company, parking meter
management in San Francisco and support services for the US
Government Accountability Office. There were no other larger rebids
or major new pipeline decisions during the period.
Of existing work where an extension or rebid will be required at
some point before the end of 2020, there are ten contracts with
annual revenue of over GBP5m within the Americas division; in
aggregate, these represent around 50% of the current level of
annual revenue for the division; this high proportion reflects that
our contract supporting the US Affordable Care Act (ACA), which
currently accounts for around 30% of divisional revenue, requires
rebidding from 30 June 2018; the Global Installation Contract
covering areas of our defence ship modernisation work also requires
securing in 2019, while our support to the Federal Aviation
Administration's (FAA) Contract Tower (FCT) Program will become due
for rebid once again in 2020.
Our pipeline of major new bid opportunities due for decision
within the next 24 months includes important opportunities to
provide various support functions to the US Navy, one of which is
due for adjudication before the end of this year and two others due
in 2018. A further defence opportunity to support US Air Force
radar systems has recently been added, as has a further tender for
transport operational support. Opportunities for immigration
services have been removed from our pipeline due to delays in
tender processes.
For 2017 as a whole, the organic revenue profile is expected to
improve modestly as the pressure from contract attrition eases in
the second half and as there will also be an increased contribution
from the new wins secured in recent months. Profitability in the
second half will however be shaped to a greater extent by the cost
to progress, and the outcomes of, the major new bid opportunities
in the region, as well as the scale of operation of the ACA
contract and its absorption of overhead costs. Our current view is
that structural changes to the ACA will be implemented over a
matter of years rather than months, and we expect the customer to
launch in the near future a tender to provide services beyond the
expiry of the current contract in June 2018.
Serco was pleased to announce in June that David J. Dacquino
would become Chief Executive Officer of the Americas division, with
Dan Allen having informed the business back in February of his
intention to retire. Dave Dacquino joined Serco in 2015 to lead the
Americas' Defence business, bringing deep knowledge and experience
from across the defence, aeronautics, logistics and technical
services industries.
Corporate Costs
Corporate costs relate to typical central function costs of
running the Group, including executive, governance and support
functions such as HR, finance and IT. Where appropriate, these
costs are stated after allocation of recharges to operating
divisions. The costs of Group-wide programmes and initiatives are
also incurred centrally.
Corporate costs for the first half of 2017 were GBP20.2m (2016:
GBP18.2m). The increase versus the first half of last year largely
reflects the phasing of various costs, which is expected to reverse
in the second half of the year, therefore still resulting in an
overall lower cost in 2017 than 2016.
Finance Review
Amortisation
and
impairment
of Continuing
intangibles Less and Less
Non arising discontinued Statutory discontinued discontinued
For the six underlying on pre pre exceptional exceptional
months ended Underlying items Trading acquisition exceptional* exceptional items items* Statutory
30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Revenue 1,508.2 - 1,508.2 - - 1,508.2 - - 1,508.2
Cost of sales (1,374.8) - (1,374.8) - - (1,374.8) - - (1,374.8)
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Gross profit 133.4 - 133.4 - - 133.4 - - 133.4
Administrative
expenses (112.7) - (112.7) (2.2) - (114.9) (11.4) - (126.3)
Share of
profits in
joint
ventures and
associates,
net of
interest and
tax 14.6 - 14.6 - - 14.6 - - 14.6
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit before
interest
and tax 35.3 - 35.3 (2.2) - 33.1 (11.4) - 21.7
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Margin 2.3% 2.3% 2.2% 1.4%
Net finance
costs (7.6) - (7.6) - - (7.6) - - (7.6)
Profit before
tax 27.7 - 27.7 (2.2) - 25.5 (11.4) - 14.1
Tax charge (10.7) (6.3) (17.0) 0.6 - (16.4) (15.9) - (32.3)
Effective tax
rate (38.6%) (61.4%) (64.3%) (229.1%)
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit / (loss)
for the
period 17.0 (6.3) 10.7 (1.6) - 9.1 (27.3) - (18.2)
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Minority
interest 0.1 - 0.1 - - 0.1 - - 0.1
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Earnings /
(loss) per
share (pence) 1.55 0.97 0.82 (1.68)
---------------- ---------------- ------------ ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
* No amounts are recorded as discontinued operations for the six months ended 30 June 2017.
Amortisation
and
impairment
of Continuing
For the six intangibles Less and Less
months ended Non arising discontinued Statutory discontinued discontinued
30 June 2016 underlying on pre pre exceptional exceptional
(restated* Underlying items Trading acquisition exceptional exceptional items items Statutory
** ***) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Revenue 1,517.9 - 1,517.9 - (24.7) 1,493.2 - - 1,493.2
Cost of sales* (1,378.2) 20.7 (1,357.5) - 24.5 (1,333.0) - - (1,333.0)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Gross profit* 139.7 20.7 160.4 - (0.2) 160.2 - - 160.2
Administrative
expenses*
** (106.8) - (106.8) (2.0) 3.4 (105.4) (11.9) 4.2 (113.1)
Share of
profits in
joint
ventures and
associates,
net of
interest and
tax 17.7 - 17.7 - - 17.7 - - 17.7
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit before
interest
and tax** 50.6 20.7 71.3 (2.0) 3.2 72.5 (11.9) 4.2 64.8
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Margin 3.3% 4.7% 4.9% 4.3%
Net finance
costs** (6.7) - (6.7) - - (6.7) (0.4) 0.4 (6.7)
Profit before
tax 43.9 20.7 64.6 (2.0) 3.2 65.8 (12.3) 4.6 58.1
Tax (charge) /
credit*** (8.1) 3.7 (4.4) 0.6 0.1 (3.7) (0.1) - (3.8)
Effective tax
rate*** 18.5% 6.8% 5.6% 6.5%
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit for the
period
from
continuing
operations*** 35.8 24.4 60.2 (1.4) 3.3 62.1 (12.4) 4.6 54.3
Loss for the
period from
discontinued
operations - - - - (3.3) (3.3) - (4.6) (7.9)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit for the
period*** 35.8 24.4 60.2 (1.4) - 58.8 (12.4) - 46.4
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Minority
interest (0.1) - (0.1) - - (0.1) - - (0.1)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Earnings per
share
(pence)*** 3.30 5.54 5.40 4.27
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
* Costs included within costs of sales and general and
administrative expenses have been reallocated, resulting in a
restatement. See note 1 to the Consolidated Financial
Statements.
** Administrative expenses and net finance costs have been
restated following the change in accounting policy in H2 2016
regarding foreign exchange movements on investment and financing
arrangements. See note 1 to the Consolidated Financial
Statements.
*** The underlying tax charge has been restated to reflect the
deferred tax impact of the movements in the defined benefit pension
scheme valuations, as explained in the tax section of this Finance
Review. This has resulted in the restatement of the post tax
underlying profit for the period, the underlying effective tax rate
and Underlying EPS.
Amortisation
and
impairment
of Continuing
For the year intangibles Less and Less
ended Non arising discontinued Statutory discontinued discontinued
31 December underlying on pre pre exceptional exceptional
2016 Underlying items Trading acquisition exceptional exceptional items items Statutory
(restated*) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Revenue 3,047.8 - 3,047.8 - (36.8) 3,011.0 - - 3,011.0
Cost of sales* (2,782.9) 18.2 (2,764.7) - 40.1 (2,724.6) - - (2,724.6)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Gross profit* 264.9 18.2 283.1 - 3.3 286.4 - - 286.4
Administrative
expenses* (216.2) - (216.2) (5.1) - (221.3) (70.5) 14.2 (277.6)
Share of
profits in
joint
ventures and
associates,
net of
interest and
tax 33.4 - 33.4 - - 33.4 - - 33.4
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit before
interest
and tax 82.1 18.2 100.3 (5.1) 3.3 98.5 (70.5) 14.2 42.2
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Margin 2.7% 3.3% 3.3% 1.4%
Net finance
costs (12.6) - (12.6) - - (12.6) (0.4) 0.4 (12.6)
Profit before
tax 69.5 18.2 87.7 (5.1) 3.3 85.9 (70.9) 14.6 29.6
Tax charge (24.4) 6.7 (17.7) 1.8 0.1 (15.8) 3.1 - (12.7)
Effective tax
rate 35.2% 20.2% 18.4% 42.9%
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit for the
year from
continuing
operations 45.1 24.9 70.0 3.3 3.4 70.1 (67.8) 14.6 16.9
Loss for the
year from
discontinued
operations - - - - (3.4) (3.4) - (14.6) (18.0)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Profit / (loss)
for the
year 45.1 24.9 70.0 3.3 - 66.7 (67.8) - (1.1)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Minority
interest 0.1 - 0.1 - - 0.1 - - 0.1
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
Earnings /
(loss) per
share (pence) 4.13 6.42 6.12 (0.11)
---------------- ---------------- ----------- ---------------- ------------- ------------- ---------------- -------------- ------------- ----------------
* Costs included within costs of sales and general and
administrative expenses have been reallocated, resulting in a
restatement. See note 1 to the Consolidated Financial
Statements.
Change in accounting policy for foreign exchange movements on
investment and financing activities
In order to provide more relevant information about the impact
of the underlying transactions of trading operations, the
accounting policy regarding the classification of foreign exchange
movements on investment and financing arrangements was changed in
the second half of 2016. These movements are excluded from Trading
Profit and included instead within net finance costs. As a result
of this change in accounting policy, the income statement and cash
flow statement for the six months ended 30 June 2016 have been
restated, together with the definition of Net Debt which now
includes derivatives relating to Net Debt components. The impact of
this change has been to increase Trading Profit in the six months
ended 30 June 2017 by GBP0.1m (six months ended 30 June 2016:
decrease by GBP0.4m), with an equal and opposite impact recognised
within net finance costs, increase Free Cash Flow by GBP1.6m (six
months ended 30 June 2016: decrease by GBP24.0m), with an equal and
opposite impact recognised below Free Cash Flow, and decrease Net
Debt by GBP13.1m (six months ended 30 June 2016: decrease by
GBP20.5m).
Change in accounting policy regarding the classification of cost
items within cost of sales and administrative expenses
The Group has undergone a programme of work on its financial
data structures to appropriately allocate and charge costs to the
relevant divisions and between cost of sales and administration
expenses. As a result of the activities performed in this area, the
Group's accounting policy for the classification of cost items in
the income statement has changed. The prior periods' results have
been restated to reflect the current year accounting policy, in
addition to a reclassification for the full year results in 2016,
where no reallocation of costs was made. The change in policy has
no impact on operating profit, any other item below this on the
income statement, or any of the Group's performance measures.
Cost of sales are considered to be the direct costs of operating
ongoing contracts. This includes the unavoidable costs of servicing
contracts and all costs that a contract would incur purely on its
own without a parent company, regardless of how those services are
delivered within the wider Group, such as IT or Human Resource
management services provided centrally.
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 Directors' remuneration and that of other
management throughout the business.
APMs are non-IFRS measures. Where additional revenue is being
included in an APM, this reflects revenues presented elsewhere
within the reported financial information, except where amounts are
recalculated to reflect constant currency. Where items of profits
or costs are being excluded in an APM, these are included elsewhere
in our reported financial information as they represent actual
profits or costs of the Group. As a result, APMs allow investors
and other readers to review different kinds of revenue, profits and
costs and should not be used in isolation. Other commentary within
this announcement, including the other sections of this Finance
Review, as well as the Condensed Consolidated Financial Statements
and their accompanying notes, should be referred to in order to
fully appreciate all the factors that affect our business. We
strongly encourage readers not to rely on any single financial
measure, but to carefully review our reporting in its entirety.
The methodology applied to calculating the APMs has not changed
during the period for any measure, but the APMs do reflect the
impact of the prior period restatement.
Alternative revenue measures
Reported revenue at constant currency
Reported revenue, as shown on the Group's Condensed Consolidated
Income Statement on page 34, reflects revenue translated at the
average exchange rates for the period. In order to provide a
comparable movement on the previous periods' results, reported
revenue is recalculated by translating non-Sterling values for each
of the six months to 30 June 2017 into Sterling at the average
exchange rate for the six months ended 30 June 2016.
Six months
ended
30 June
2017
GBPm
--------------------------------------------------- --------------
Reported revenue at constant currency (continuing
activities only) 1,385.7
Foreign exchange differences 122.5
--------------------------------------------------- --------------
Reported revenue at reported currency (continuing
activities only) 1,508.2
--------------------------------------------------- --------------
Organic Revenue at constant currency
Reported revenue may include revenue generated by businesses
acquired during a particular period and/or by businesses sold
during a particular period up to the date of disposal. In order to
provide a comparable movement which ignores the effect of both
acquisitions and disposals, Organic Revenue at constant currency is
recalculated by excluding the impact of any acquisitions or
disposals. For the six months ended 30 June 2017, the only
adjustment required was for a UK private sector BPO business,
consisting of a single contract, sold on 3 July 2017. This business
was previously reported within discontinued operations but included
as continuing in 2017 as it does not have a material impact on the
Group's results, and is considered to be a disposal within these
calculations due to the proximity to the period end of the
transaction closing. No adjustments were required for the six
months ended 30 June 2016 nor the year ended 31 December 2016 as no
disposed businesses were included within continuing operations and
no acquisitions generated third party revenues.
Organic Revenue growth is calculated by comparing the current
period Organic Revenue at constant currency exchanges rates with
the prior period Organic Revenue at reported currency exchange
rates.
Six months Six months
ended ended
30 June 30 June
2017 2016
GBPm GBPm
--------------------------------------------------- -------------- --------------
Organic Revenue at constant currency 1,380.4 N/A
Foreign exchange differences 122.5 N/A
--------------------------------------------------- -------------- --------------
Organic Revenue at reported currency 1,502.9 1,493.2
Impact of any acquisitions or disposals or 5.3 -
discontinued operations on reported revenue
at reported currency
--------------------------------------------------- -------------- --------------
Reported revenue at reported currency (continuing
activities only) 1,508.2 1,493.2
--------------------------------------------------- -------------- --------------
Revenue from continuing and discontinued operations
Reported revenue, as shown on the Group's Condensed Consolidated
Income Statement on page 34, reflects only that from continuing
operations, with the post tax result of discontinued operations
consolidated as a single line at the bottom of the Condensed
Consolidated Income Statement. The alternative measure includes
discontinued operations for the benefit of consistency with
previously reported results and to reflect the overall change in
scale of the Group's operations. The alternative measure allows the
performance of the discontinued operations themselves, and their
impact on the Group as a whole, to be evaluated on measures other
than just the post tax result. No operations were classified as
discontinued in 2017 as there was a single remaining business as at
1 January 2017 which generated insignificant revenue and profit in
the period. Discontinued operations in prior periods reflect the
former Global Services division which consisted of our private
sector BPO operations.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- -------------- -------------- --------------
Revenue from continuing and discontinued
operations 1,508.2 1,517.9 3,047.8
Exclude revenue from discontinued operations - (24.7) (36.8)
----------------------------------------------- -------------- -------------- --------------
Reported revenue (continuing activities only) 1,508.2 1,493.2 3,011.0
----------------------------------------------- -------------- -------------- --------------
Revenue from continuing operations, including share of joint
ventures and associates
Reported revenue, as shown on the Group's Condensed Consolidated
Income Statement on page 34, excludes the Group's share of revenue
from joint ventures and associates, with Serco's share of profits
in joint ventures and associates (net of interest and tax)
consolidated within operating profit as a single line further down
the Condensed Consolidated Income Statement. The alternative
measure includes the share of revenues from 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.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- -------------- -------------- --------------
Revenue from continuing operations, including
share of joint ventures and associates 1,688.4 1,786.8 3,491.8
Exclude share of revenue from joint ventures
and associates (180.2) (293.6) (480.8)
----------------------------------------------- -------------- -------------- --------------
Reported revenue (continuing activities only) 1,508.2 1,493.2 3,011.0
----------------------------------------------- -------------- -------------- --------------
Alternative profit measures
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
---------------------------------------------------- ------------- ------------- -------------
Underlying Trading Profit* 35.3 50.6 82.1
Non-underlying items:
Include OCP charges and releases - 13.4 9.6
Include other Contract and Balance Sheet
Review adjustments - 3.6 4.6
Include benefit from non-depreciation and
amortisation of assets held for sale - 0.2 0.5
Include other one-time items - 3.5 3.5
---------------------------------------------------- ------------- ------------- -------------
- 20.7 18.2
---------------------------------------------------- ------------- ------------- -------------
Trading Profit* 35.3 71.3 100.3
Include operating exceptional items (continuing
operations only) (11.4) (7.7) (56.3)
Include amortisation and impairment of intangibles
arising on acquisition from continuing and
discontinued operations (2.2) (2.0) (5.1)
Exclude operating loss from discontinued
operations - 3.2 3.3
---------------------------------------------------- ------------- ------------- -------------
Operating profit (continuing activities only)* 21.7 64.8 42.2
---------------------------------------------------- ------------- ------------- -------------
* Profit measures down to operating profit have been restated
following the change in accounting policy to exclude foreign
exchange movements on investment and financing arrangements,
including them instead in net finance costs.
Trading Profit
The Group uses Trading Profit as an alternative measure to
operating profit, as shown on the Group's Condensed Consolidated
Income Statement on page 34, by making three adjustments. Trading
Profit is a metric used to determine the performance and
remuneration of the Executive Directors.
Firstly, Trading Profit excludes exceptional items, being those
considered material, non-recurring and outside of the normal
operating practice of the Company. These require separate
presentation and detailed explanation.
Secondly, amortisation and impairment of intangible assets
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.
Thirdly, the Trading Profit of discontinued operations is
included, since as with our alternative measure of revenue, this
benefits from consistency with previously reported results,
reflects the overall change in scale of the Group's operations and
takes account of the performance of the discontinued operations
themselves. This allows their impact on the Group as a whole to be
evaluated on measures other than just the post tax result.
Underlying Trading Profit (UTP)
The Group uses a further alternative measure, Underlying Trading
Profit, to make adjustments for unusual items that occur within
Trading Profit and to remove the impact of historical issues. UTP
therefore provides a measure of the underlying performance of the
business in the current period. For 2016 and 2015 there were four
items excluded from UTP, none of which required adjustment in the
six months ended 30 June 2017.
Releases and charges on all Onerous Contract Provisions (OCPs)
are excluded in the current and prior periods. OCP charges and
releases reflect the future multiple year cost of delivering
onerous contracts and do not reflect therefore just the current
cost of operating the contract in the latest individual period. It
should be noted that, as for operating profit, UTP benefits from
OCP utilisation (of GBP40.4m in the six months ended 2017 and
GBP47.3m in the six months ended 30 June 2016) which neutralises
the losses on previously identified onerous contracts, therefore it
is only the initial or subsequent charges or releases of OCPs that
are adjusted for.
In addition, revisions to accounting estimates and judgements
which arose during the 2014 Contract and Balance Sheet Review were
excluded in 2015 and 2016.
Both OCP adjustments and other Contract and Balance Sheet Review
adjustments are identified and separated from the APM in order to
give clarity of the underlying performance of the Group and to
separately disclose the progress made on these items. As expected,
Contract and Balance Sheet Review adjustments were insignificant
for the first six months of 2017, and will no longer be separately
reported unless they are individually material.
The benefit of depreciation and amortisation charges not being
taken in the Group accounts in relation to assets held for sale
were excluded in prior periods. Such charges were being taken in
the subsidiary accounts to reflect the reduction in value of the
underlying assets, and we consider it relevant to show the effect
this would have on the Group performance measure. No assets are
included as held for sale in 2017 and therefore no adjustment is
required for the six months ended 30 June 2017.
Finally, any other significant items that have a one-time
financial impact are excluded, which for the periods under review
are the benefit of a profit on early exit of a UK local authority
contract in 2015 and the associated one-time pension settlement in
2016. These one-time items are distinct from exceptional items in
that they have arisen from normal contract exit conditions. No such
one-time items exist in the six months ended 30 June 2017.
Underling trading margin is calculated as UTP divided by revenue
from continuing and discontinued operations.
The non-underlying column in the summary income statement on
page 13 includes the tax impact of the above items and tax items
that in themselves are considered to be non-underlying. Further
detail of such items is provided in the tax section below.
UTP at constant currency
UTP disclosed above has been translated at the average foreign
exchange rates for the period. In order to provide a comparable
movement on the previous period's results, UTP is recalculated by
translating non-Sterling values for each of the six months to 30
June 2017 into Sterling at the average exchange rate for the six
months ended 30 June 2016.
Six months
ended
30 June
2017
GBPm
------------------------------------------------ -----------
Underlying Trading Profit at constant currency 29.2
Foreign exchange differences 6.1
------------------------------------------------ -----------
Underlying Trading Profit at reported currency 35.3
------------------------------------------------ -----------
Alternative Earnings or Loss Per Share (EPS) measures
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
pence pence pence
------------------------------------------------- ------------- ------------- -------------
Underlying EPS from continuing and discontinued
operations, basic* 1.55 3.30 4.13
Impact of non-underlying items and amortisation
and impairment of intangibles arising on
acquisition* (0.73) 2.10 1.99
------------------------------------------------- ------------- ------------- -------------
EPS from continuing and discontinued operations
before exceptional items 0.82 5.40 6.12
Impact of exceptional items (2.50) (1.13) (6.23)
------------------------------------------------- ------------- ------------- -------------
Reported EPS from continuing and discontinued
operations, basic (1.68) 4.27 (0.11)
------------------------------------------------- ------------- ------------- -------------
* As explained in the tax charge section of this Finance Review,
the underlying tax charge for the six months ended 30 June 2016 has
been restated to reflect the deferred tax impact of movements in
the defined benefit pension scheme valuations, resulting in a
restatement of Underlying EPS.
EPS from continuing and discontinued operations before
exceptional items
EPS from continuing and discontinued operations, as shown on the
Group's Condensed Consolidated Income Statement on page 34,
includes exceptional items charged or credited to the income
statement in the period. EPS before exceptional items aids
consistency with historical results and is a metric used in
assessing the performance and remuneration of the Executive
Directors.
Underlying EPS from continuing and discontinued operations
Reflecting the same adjustments made to operating profit to
calculate UTP as described above, and including the related tax
effects of each adjustment and any other non underlying tax
adjustments as described in the tax charge section below, an
alternative measure of EPS is presented. This aids consistency with
historical results, and enables performance to be evaluated before
the unusual or one-time effects described above. The full
reconciliation between statutory EPS and Underlying EPS from
continuing and discontinued operations is provided in the summary
income statements on page 13.
Alternative cash flow and net debt measures
Free Cash Flow (FCF)
We present an alternative measure for cash flow to reflect net
cash inflow from operating activities before exceptional items,
which is the measure shown on the Condensed Consolidated Cash Flow
Statement on page 38, but adjusting this IFRS measure to include
dividends we receive from joint ventures and associates and
deducting net interest paid and net capital expenditure on tangible
and intangible asset purchases. FCF is considered relevant to
reflect the cash performance of business operations after meeting
usual obligations of financing and tax. It is therefore a measure
that is before all other remaining cash flows, being those related
to exceptional items, acquisitions and disposals, other
equity-related and debt-related funding movements, and foreign
exchange impacts on financing and investing activities. FCF is
therefore a measure to assess the cash flow generated by the
business and aids consistency for comparison to historical results.
FCF is a metric used to determine the performance and remuneration
of the Executive Directors.
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
--------------------------------------------- ------------- ------------- -------------
Free Cash Flow* (26.8) (22.5) (33.0)
Exclude dividends from joint ventures and
associates (13.8) (19.7) (40.0)
Exclude net interest paid 9.2 10.2 18.7
Exclude capitalised finance costs paid - 0.3 0.3
Exclude purchase of intangible and tangible
assets net of proceeds from disposal 18.1 14.4 31.6
--------------------------------------------- ------------- ------------- -------------
Cash flow from operating activities before
exceptional items* (13.3) (17.3) (22.4)
Exceptional operating cash flows (19.7) (32.1) (39.9)
--------------------------------------------- ------------- ------------- -------------
Cash flow from operating activities* (33.0) (49.4) (62.3)
--------------------------------------------- ------------- ------------- -------------
* Free Cash Flow has been restated following the change in
accounting policy to exclude foreign exchange movements on
investment and financing arrangements.
UTP cash conversion
FCF as defined above includes interest and tax cash flows. In
order to calculate an appropriate cash conversion metric equivalent
to UTP, Trading Cash Flow is derived from the FCF by excluding tax
and interest items. UTP cash conversion therefore provides a
measure of the efficiency of the business in terms of converting
profit into cash before taking account of the impact of interest,
tax and exceptional items. As Trading Cash Flow is currently an
outflow, a conversion percentage of UTP is not shown.
Six months
ended 30
June 2016
Six months Year ended
ended 30 31 December
June 2017 (restated*) 2016
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- -------------
Free Cash Flow* (26.8) (22.5) (33.0)
Add back:
Tax paid 7.9 6.6 5.6
Non-cash R&D expenditure - 0.1 0.4
Net interest paid 9.2 10.2 18.7
Capitalised finance costs paid - 0.3 0.3
-------------------------------------------- ------------- ------------- -------------
Trading Cash Flow* (9.7) (5.3) (8.0)
-------------------------------------------- ------------- ------------- -------------
Underlying Trading Profit* 35.3 50.6 82.1
-------------------------------------------- ------------- ------------- -------------
Underlying Trading Profit cash conversion* N/A N/A N/A
-------------------------------------------- ------------- ------------- -------------
* As explained above, FCF and UTP have been restated, resulting
in a restatement of Trading Cash Flow and the Underlying Trading
Profit cash conversion.
Net Debt including assets held for sale
We present an alternative measure to bring together the various
funding sources that are included on the Group's Condensed
Consolidated Balance Sheet on page 37 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.
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
----------------------------------------------------- -------------- -------------- --------------
Cash and cash equivalents 117.7 166.2 177.8
Loans receivable 23.5 20.4 22.9
Loans payable (281.7) (273.5) (299.9)
Obligations under finance leases (21.5) (35.7) (28.2)
Derivatives relating to Net Debt* 13.1 20.5 18.1
----------------------------------------------------- -------------- -------------- --------------
Net Debt (excluding assets and liabilities
held for sale)* (148.9) (102.1) (109.3)
Net Debt balances within assets held for - 2.4 -
sale**
----------------------------------------------------- -------------- -------------- --------------
Net Debt (including that for assets and liabilities
held for sale)* (148.9) (99.7) (109.3)
----------------------------------------------------- -------------- -------------- --------------
* Net Debt has been restated to include derivative financial
instruments that relate to other components of Net Debt.
** There were no assets or liabilities held for sale on the
balance sheet as at 30 June 2017 or 31 December 2016.
Pre-tax Return on Invested Capital (ROIC)
ROIC is a measure used to assess the efficiency of the resources
used by the Group and to determine the performance and remuneration
of the Executive Directors. ROIC is calculated based on UTP and
Trading Profit using the Income Statement for the twelve months to
the closing balance sheet date and a two point average of the
closing balance sheet and the balance sheet twelve months ago. The
composition of Invested Capital and calculation of ROIC are
summarised in the table below.
30 June
2016
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
--------------------------------------------- ---------------------- -------------- --------------
Non-current assets
Goodwill 564.4 545.2 577.9
Other intangible assets 75.5 88.5 83.6
Property, plant and equipment 66.6 70.7 69.3
Interest in joint ventures and associates 16.0 12.6 14.4
Trade and other receivables 51.1 46.9 44.4
Current assets
Inventory 16.6 27.6 22.4
Trade and other receivables 563.0 561.2 543.5
Assets classified as held for sale - 19.7 - -
--------------------------------------------- ---------------------- -------------- --------------
Total invested capital assets 1,353.2 1,372.4 1,355.5
--------------------------------------------- ---------------------- -------------- --------------
Current liabilities
Trade and other payables (512.4) (550.5) (524.5)
Liabilities classified as held for sale - (5.6) - -
Non-current liabilities
Trade and other payables (26.0) (18.7) (16.8)
--------------------------------------------- ---------------------- -------------- --------------
Total invested capital liabilities (538.4) (574.8) (541.3)
--------------------------------------------- ---------------------- -------------- --------------
Invested capital 814.8 797.6 814.2
--------------------------------------------- ---------------------- -------------- --------------
Two point average of opening and closing
invested capital 806.2 897.9 768.7
--------------------------------------------- ---------------------- -------------- --------------
Trading Profit for the prior twelve months* 64.3 147.3 100.3
--------------------------------------------- ---------------------- -------------- --------------
ROIC%* 8.0% 16.4% 13.0%
--------------------------------------------- ---------------------- -------------- --------------
Underlying Trading Profit for the prior
twelve months* 66.8 100.8 82.1
--------------------------------------------- ---------------------- -------------- --------------
Underlying ROIC%* 8.3% 11.2% 10.7%
--------------------------------------------- ---------------------- -------------- --------------
* Profit measures have been restated following the change in
accounting policy to include foreign exchange movements on
investment and financing arrangements in net finance costs. As a
result, Trading Profit, ROIC, UTP and Underlying ROIC have been
restated.
Overview of financial performance for the six months ended 30
June 2017
Revenue
Reported revenue increased by 1% in the six month period to
GBP1,508.2m (2016: GBP1,493.2m), a 7% reduction in constant
currency.
No revenue arose in the six month period from operations
classified as discontinued, with total revenues in the six month
period ended 30 June 2016 from continuing and discontinued
operations being GBP1,517.9m.
Commentary on the revenue performance of the Group is provided
in the Chief Executive's Review and the Divisional Reviews
sections.
Trading Profit
Trading Profit for the six month period was GBP35.3m (2016
restated: GBP71.3m), a 50% reduction when compared with the same
period in the prior year. Trading Profit in the six month ended 30
June 2016 included a loss arising on discontinued operations of
GBP3.1m.
Commentary on the trading performance of the Group is provided
in the Chief Executive's Review and the Divisional Reviews
sections.
Underlying Trading Profit
UTP was GBP35.3m (2016 restated: GBP50.6m), down 30%. At
constant currency UTP was GBP21.4m lower than 2016 at GBP29.2m,
with a movement of GBP4.2m relating to the results of discontinued
operations in 2016.
Commentary on the underlying performance of the Group is
provided in the Chief Executive's Review and the Divisional Reviews
sections.
Trading Profit and UTP were the same in the six months ended 30
June 2017, compared with GBP20.7m of profit included in Trading
Profit and excluded from UTP in the same period in 2016. In 2017
there have been no charges or releases to OCPs, compared with net
releases of GBP13.4m in the period same period in 2016. Excluded
from UTP in 2016 were net releases of GBP3.6m relating to other
provisions and accruals for items identified during the 2014
Contract and Balance Sheet Review. Such items are expected to
reduce in scale as these provisions and accruals are utilised and
we will only disclose any profit impact separately if any items are
individually material. UTP also excluded the benefit arising from
the non-depreciation of assets classified as held for sale in 2016
of GBP0.2m; there were no such assets in 2017. Other one-time items
of GBP3.5m excluded from UTP in 2016 related to a pension scheme
settlement arising from the early exit of a UK Local Authority
contract in 2015; there were no adjustments necessary for one-time
items in 2017.
The tax impact of items in UTP and other non underlying tax
items are discussed in the tax section of this Finance Review.
Discontinued operations
The Global Services division, representing private sector BPO
operations, was classified as a discontinued operation in 2015 and
2016. The most significant part of this business was disposed in
2015, and the disposal of one of the two remaining elements of the
offshore business was completed in March 2016 and the final element
completed in December 2016. The residual UK onshore private sector
BPO operations were sold or exited in 2016 with the exception of
one business for which the disposal completed in July 2017. Total
revenues for the remaining operations were GBP5.3m and UTP was
GBP0.1m for the six months ended 30 June 2017, and therefore the
results have been included in continuing operations in 2017 on the
grounds of immateriality.
The amounts reported as discontinued operations were as
follows:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
---------------------------------------------------- ------------ ------------ -------------
Revenue - 24.7 36.8
---------------------------------------------------- ------------ ------------ -------------
Underlying Trading Loss - (4.2) (4.6)
Onerous contract and Balance Sheet Review
adjustments - 0.9 0.8
Benefit from non-depreciation and non-amortisation
of assets held for sale - 0.2 0.5
---------------------------------------------------- ------------ ------------ -------------
Trading Loss - (3.1) (3.3)
Amortisation and impairment of intangibles - (0.1) -
arising on acquisition
---------------------------------------------------- ------------ ------------ -------------
Operating loss before exceptional items - (3.2) (3.3)
---------------------------------------------------- ------------ ------------ -------------
Exceptional loss on disposal of subsidiaries
and operations - (0.3) (2.8)
Other exceptional operating items - (3.9) (11.4)
---------------------------------------------------- ------------ ------------ -------------
Exceptional operating items - (4.2) (14.2)
---------------------------------------------------- ------------ ------------ -------------
Operating loss - (7.4) (17.5)
---------------------------------------------------- ------------ ------------ -------------
Exceptional finance costs - (0.4) (0.4)
---------------------------------------------------- ------------ ------------ -------------
Loss before tax - (7.8) (17.9)
Tax charge - (0.1) (0.1)
---------------------------------------------------- ------------ ------------ -------------
Net loss on discontinued operations (attributable
to equity owners of the Company) as presented
in the income statement - (7.9) (18.0)
---------------------------------------------------- ------------ ------------ -------------
Joint ventures and associates - share of results for the six
months ended 30 June 2017
In 2017 the most significant joint ventures and associates in
terms of scale of operations were AWE Management Limited and
Merseyrail Services Holding Company Limited, with dividends
received of GBP9.9m (2016: GBP12.2m) and GBP3.3m (2016: GBP7.2m)
respectively. Total revenues generated by these businesses were
GBP480.2m (2016: GBP508.9m) and GBP78.2m (2016: GBP75.6m)
respectively. From September 2016 there was a change in the AWE
Management Limited shareholding structure, with the Group's
shareholding reducing from 33.3% to 24.5% by way of a return of
shares.
While the revenues and individual line items are not
consolidated in the Group's Condensed Consolidated Income
Statement, summary financial performance measures for our
proportion of the aggregate of all joint ventures and associates
are set out below for information purposes.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------------- ------------ ------------ -------------
Revenue 180.2 293.6 480.8
-------------------------------------------- ------------ ------------ -------------
Operating profit 17.8 21.4 40.7
Net investment finance costs - (0.3) (0.6)
Income tax expense (3.2) (3.4) (6.7)
-------------------------------------------- ------------ ------------ -------------
Profit after tax 14.6 17.7 33.4
-------------------------------------------- ------------ ------------ -------------
Dividends received from joint ventures and
associates 13.8 19.7 40.0
-------------------------------------------- ------------ ------------ -------------
Exceptional items for the six months ended 30 June 2017
Exceptional items are non-recurring 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.
Exceptional items arose on both the continuing and discontinued
operations of the Group in 2016. Exceptional items arising on
discontinued operations are disclosed on the face of the Condensed
Consolidated Income Statement within the profit or loss
attributable to discontinued operations. There were no discontinued
operations in 2017.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------------- ------------- ------------- -------------
Exceptional items arising on continuing operations
Exceptional profit / (loss) on disposal of
subsidiaries and operations 0.1 (0.9) 2.9
Other exceptional operating items on continuing
operations
Impairment of goodwill - - (17.8)
Restructuring costs (13.3) (6.2) (17.2)
Aborted transaction costs - 0.3 (0.1)
Costs associated with UK Government review (0.4) (0.9) (0.1)
Release of UK frontline clinical health contract
provisions - - 0.6
Settlement of defined benefit pension obligations - - (10.7)
Impairment of interest in joint venture and
related loan balances 2.2 - (13.9)
----------------------------------------------------- ------------- ------------- -------------
Other exceptional operating items (11.5) (6.8) (59.2)
----------------------------------------------------- ------------- ------------- -------------
Exceptional operating items arising on continuing
operations (11.4) (7.7) (56.3)
----------------------------------------------------- ------------- ------------- -------------
Exceptional items arising on discontinued
operations
Exceptional loss on disposal of subsidiaries
and operations - (0.3) (2.8)
Other exceptional operating items on discontinued
operations
Restructuring costs - (0.4) (1.1)
Movements in indemnities provided on business
disposals - (7.8) (13.7)
Movement in the fair value of assets transferred
to held for sale - 4.3 3.4
----------------------------------------------------- ------------- ------------- -------------
Other exceptional operating items - (3.9) (11.4)
----------------------------------------------------- ------------- ------------- -------------
Exceptional operating items arising on discontinued
operations - (4.2) (14.2)
----------------------------------------------------- ------------- ------------- -------------
Exceptional operating items arising on continuing
and discontinued operations - (11.9) (70.5)
Exceptional finance costs - discontinued - (0.4) (0.4)
Exceptional tax - continuing (15.9) (0.1) 3.1
Total operating and financing exceptional
items in continuing and discontinued operations (27.3) (12.4) (67.8)
----------------------------------------------------- ------------- ------------- -------------
Exceptional profit / (loss) on disposals of continuing
operations
There were no material disposals of continuing operations in the
six months ended 30 June 2017 or the six months ended 30 June
2016.
Other exceptional operating items arising on continuing
operations
In the six months ended 30 June 2017, a charge of GBP13.3m
(2016: GBP6.2m) arose in relation to the restructuring programme
resulting from the Strategy Review, as discussed in the Chief
Executive's Review in the Group's 2016 Annual Report and Accounts.
This included redundancy charges, asset impairments and other
incremental costs. Due to the nature and scale of the impact of the
transformation stage of our Strategy Review, the incremental costs
associated with this programme were considered to be exceptional in
the prior year and have been treated consistently in 2017.
There were exceptional costs totalling GBP0.4m (2016: GBP0.9m)
associated with the UK Government reviews and the programme of
Corporate Renewal. These costs were treated as exceptional when the
matter first arose and consistent treatment is applied in 2017.
In the second half of 2016 the equity investment of a joint
venture and the related loan balances with this business were
impaired. In the six months ended 30 June 2017 a payment of GBP2.2m
was received against the impaired loan.
Exceptional tax
Exceptional tax items resulted in a tax charge of GBP15.9m
(2016: charge of GBP0.1m on continuing operations), including a
GBP0.2m credit on exceptional items within operating profit and a
GBP16.1m charge in respect of other exceptional tax items.
The other exceptional tax items relate to the tax impact of the
pension buy-in disclosed in note 15 to the Consolidated Financial
Statements, which led to a GBP95.0m reduction in the IFRS valuation
of the Group's defined benefit pension schemes and consequently to
a deferred tax charge to the income statement of GBP16.1m. Further
detail of the impact of movements in the valuation of defined
benefit pension schemes is discussed in the tax section of this
Finance Review.
Pre exceptional finance costs and investment revenue for the six
months ended 30 June 2017
Investment revenue of GBP3.6m (2016: GBP4.7m) includes interest
accruing on net retirement benefit assets of GBP1.6m (2016:
GBP2.3m), interest earned on deposits and other receivables of
GBP1.4m (2016: GBP1.9m) and the movement in discounting of other
receivables of GBP0.6m (2016: GBP0.5m).
Finance costs of GBP11.2m (2016 restated: GBP11.4m) includes
loan interest incurred on the USPP loans of GBP7.2m (2016:
GBP7.9m), facility fees and other charges of GBP1.4m (2016:
GBP2.0m), interest payable on finance leases of GBP0.8m (2016:
GBP1.0m), the movement in discount on provisions of GBP1.7m (2016:
GBP0.9m) and a charge for foreign exchange on financing activities
of GBP0.1m (2016: credit of GBP0.4m). The last of these items was
previously included in operating profit for the six months ended 30
June 2016 and therefore represents a restatement on the previously
reported results.
Tax charge for the six months ended 30 June 2017
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
----------- ----------- ------------- ----------- ------------- -----------
Profit Tax charge Profit Tax charge Profit Tax charge
before before before
tax tax tax
------------------------------ ----------- ----------- ------------- ----------- ------------- -----------
Underlying profit before
tax* 27.7 (10.7) 43.9 (8.1) 69.5 (24.4)
Effective tax rate* 38.6% 18.5% 35.2%
Non underlying items - - 20.7 (0.7) 18.2 6.7
Impact of pension deferred
tax movement on tax charge*
** - (6.3) - 4.4 - -
Amortisation and impairment
of intangibles arising
on acquisition (2.2) 0.6 (2.0) 0.6 (5.1) 1.8
Discontinued pre exceptional - - 3.2 0.1 3.3 0.1
------------------------------ ----------- ----------- ------------- ----------- ------------- -----------
Profit before tax, pre
exceptional items 25.5 (16.4) 65.8 (3.7) 85.9 (15.8)
Effective tax rate 64.3% 5.6% 18.4%
Exceptional items** (11.4) (15.9) (12.3) (0.1) (70.9) 3.1
Discontinued exceptional
items - - 4.6 - 14.6 -
------------------------------ ----------- ----------- ------------- ----------- ------------- -----------
Statutory (continuing
operations only) 14.1 (32.3) 58.1 (3.8) 29.6 (12.7)
------------------------------ ----------- ----------- ------------- ----------- ------------- -----------
* As explained in more detail below, the underlying tax charge
for the six months ended 30 June 2016 has been restated to reflect
the deferred tax impact of movements in the defined benefit pension
scheme valuations.
** The total impact of pension deferred tax movements in the six
months ended 30 June 2017 was a charge of GBP22.4m, GBP16.1m of
which relates to the pension buy-in disclosed in note 15 to the
Consolidated Financial Statements, which is included in the
exceptional tax charge for the period.
The tax charge on an underlying basis, reflecting UTP of
GBP35.3m (2016 restated: GBP50.6m) net of finance costs of GBP7.6m
(2016: GBP6.7m), was GBP10.7m (2016 restated: GBP8.1m),
representing an underlying effective tax rate of 38.6% (2016
restated: 18.5%). The increase in rate is primarily due to
differences in the proportions of profits and losses made in the
various geographic regions in which we operate which affects the
tax charge due to both the varying tax rates and the impact of not
recognising the tax benefits arising on UK losses.
In the six months ended 30 June 2017, a total tax charge of
GBP32.3m (2016: GBP3.9m) was recognised, being GBP32.3m (2016:
GBP3.8m) on continuing operations profit of GBP14.1m (2016:
GBP58.1m) and GBPnil (2016: GBP0.1m) on discontinued operations
losses of GBPnil (2016: GBP7.8m).
In respect of the results of our continuing operations, the
profit before interest, exceptional items and tax of GBP33.1m
(2016: GBP72.5m) less pre-exceptional finance costs of GBP7.6m
(2016 : GBP6.7m) is GBP25.5m (2016: GBP65.8m), which incurs a tax
charge of GBP16.4m (2016: GBP3.7m), giving a tax rate of 64.3%
(2016: 5.6%).
The principal reasons why the tax rate on profit before
exceptional items and tax from continuing operations at 64.3% is
higher than the UK standard corporation tax rate of 19.25% is due
to the pension movement commented on below. In addition, higher
rates of tax on profits arise on our international operations, and
there is an absence of a deferred tax credit for losses incurred in
the UK, because a deferred tax asset cannot be recognised against
these losses until we can confidently forecast these losses being
utilised against future profits (which includes the result of UK
divisions and the majority of corporate costs). These factors are
partially offset by the impact of our joint ventures whose post-tax
results are included in our pre-tax profit.
Our tax charge continues to be materially impacted by our
accounting for UK deferred taxes. To the extent that future UK tax
losses are incurred and are not recognised, our effective tax rate
will be higher than prevailing standard corporation tax rates as we
will not be able to recognise the associated tax benefits arising.
When our UK business returns to sustainable profitability our
existing UK tax losses will be recognised or utilised, and the
effective rate will be reduced.
Movements in the valuation of the Group's defined benefit
pension schemes and the associated deferred tax impact are reported
in the Statement of Comprehensive Income (SOCI) and do not flow
through the income statement, therefore do not impact profit before
tax or the tax charge. However, the net amount of deferred tax
recognised in the balance sheet relates to both the pension
accounting and other timing differences, such as recoverable
losses. As the net deferred tax balance sheet position is capped at
the level supported by future profit forecasts, the decrease in the
deferred tax liability associated with the pension changes (with
the benefit reported in the SOCI) leads to a corresponding decrease
in the deferred tax asset to match the future profit forecasts.
Such a reduction in the deferred tax asset therefore leads to a
charge to tax in the income statement. Where deferred tax charges
or releases are the result of movements in the pension scheme
valuations rather than trading activity, these are excluded from
the calculation of tax on underlying profit in the six months ended
30 June 2017, and the underlying effective tax rate for the six
months ended 30 June 2016 has been restated to be presented on a
comparable basis. Although the net impact of the restatement is
zero for the full year 2016 results, for the six months ended 30
June 2017, the total impact of such movements on the statutory tax
charge was GBP22.4m, GBP16.1m of which arose as a result of the
pension buy-in disclosed in note 15 to the Consolidated Financial
Statements and has been treated as an exceptional tax item, and
GBP6.3m relates to other pension movements and is treated as an
adjustment to the underlying tax charge.
Deferred tax assets as at 30 June 2017
As at 30 June 2017 there is a net deferred tax asset of
GBP20.0m, this consists of a deferred tax asset of GBP54.1m and
deferred tax liability of GBP34.1m.
A GBP10.0m UK deferred tax asset has been recognised at 30 June
2017 (2016: GBP10.5m) on the basis of forecast utilisation against
future taxable profits. An expected change in the UK loss
utilisation laws in the second half of 2017 is estimated to reduce
the value of this deferred tax asset by GBP3.7m; this will be
reported in the second half of the year once the change in
legislation has been passed.
Taxes paid in the six months ended 30 June 2017
Net corporate income tax of GBP7.9m was paid during the six
months ended 30 June 2017, relating primarily to our operations in
AsPac (GBP3.6m), Europe (GBP1.3m), Middle East (GBP0.9m) and
Americas (GBP2.0m).
The amount of tax paid (GBP7.9m) differs from the tax charge in
the period (GBP10.7m) mainly due to the effect of future expected
cash tax outflows for which a charge has been taken in the current
period and the impact of the time lag on receipts of cash from
joint ventures and associates for losses transferred to them.
Dividends
The Board has not declared an interim dividend for 2017. The
Board's appraisal of the appropriateness of dividend payments takes
into account the Group's underlying earnings, cash flows and
financial leverage, together with the requirement to maintain an
appropriate level of dividend cover and the prevailing market
outlook. Although the Board is committed to resuming dividend
payments as soon as it believes it prudent to do so, in assessing
whether we should resume dividend payments in respect of 2017, we
have been mindful of the fact that our forecasts for 2017
anticipate a reduction in earnings, a free cash outflow and an
increase in net debt. In these circumstances, the Board believes
that it would not be prudent to resume dividend payments at the
current juncture.
Share count and EPS
The weighted average number of shares for EPS purposes was
1,091.1m at 30 June 2017 compared to 1,088.8m at 30 June 2016. EPS
before exceptional items from both continuing and discontinued
operations was 0.82p per share (2016: 5.40p); including the impact
of exceptional items EPS was a loss of 1.68p (2016: profit of
4.27p). Underlying EPS was 1.55p per share (2016 restated:
3.28p).
Cash flows
UTP of GBP35.3m for the six months ended 30 June 2017 (2016
restated: GBP50.6m) converts into a trading cash outflow of GBP9.7m
(2016 restated: outflow of GBP5.3m). The negative conversion is
primarily due to the cash outflows arising on the utilisation of
contract provisions of GBP40.4m (2016: GBP44.8m).
The table below shows the operating profit and FCF reconciled to
movements in Net Debt. FCF for the six months ended 30 June 2017
was an outflow of GBP26.8m (2016 restated: GBP22.5m). Commentary on
the FCF performance of the Group is provided in the Chief
Executive's Review. It should be noted that during the half year
2017, within the working capital movement of GBP15.1m, we unwound
GBP7.7m of the receivables financing facility, which has a zero
balance at 30 June 2017.
The movement in Net Debt since 31 December 2016 is an increase
of GBP39.6m in 2017, primarily relating to GBP26.8m of FCF outflow
and GBP19.7m of exceptional items, together with foreign exchange
gains on items included in Net Debt of GBP8.5m.
Six months
ended
30 June
2016
Six months
ended Year ended
30 June 31 December
2017 (restated*) 2016
GBPm GBPm GBPm
-------------------------------------------------- -------------- -------------- --------------
Operating profit on continuing operations* 21.7 64.8 42.2
Operating loss on discontinued operations - (7.4) (17.5)
Remove exceptional items 11.4 11.9 70.5
-------------------------------------------------- -------------- -------------- --------------
Operating profit before exceptional items
on continuing and discontinued operations* 33.1 69.3 95.2
Less: profit from joint ventures and associates (14.6) (17.7) (33.4)
Movement in provisions (42.1) (77.8) (118.4)
Depreciation, amortisation and impairment
of property, plant and equipment and intangible
assets 26.5 24.3 52.4
Other non-cash movements* 6.8 5.5 11.5
-------------------------------------------------- -------------- -------------- --------------
Operating cash inflow before movements in
working capital, exceptional items and tax* 9.7 3.6 7.3
Working capital movements (15.1) (14.2) (23.7)
Tax paid (7.9) (6.6) (5.6)
Non-cash R&D expenditure - (0.1) (0.4)
-------------------------------------------------- -------------- -------------- --------------
Cash flow from operating activities before
exceptional items* (13.3) (17.3) (22.4)
Dividends from joint ventures and associates 13.8 19.7 40.0
Interest received 0.3 0.9 1.4
Interest paid (9.5) (11.1) (20.1)
Capitalised finance costs paid - (0.3) (0.3)
Purchase of intangible and tangible assets
net of proceeds from disposals (18.1) (14.4) (31.6)
-------------------------------------------------- -------------- -------------- --------------
Free Cash Flow* (26.8) (22.5) (33.0)
Net cash inflow on acquisition and disposal
of subsidiaries 0.8 11.1 19.2
Purchase of own shares net of share option - 0.1 -
proceeds
Other movements on investment balances - 0.2 0.7
Capitalisation and amortisation of loan costs (0.4) (0.2) (0.7)
Unwind of discounting and capitalisation
of interest on loans receivable 0.6 0.4 2.9
New, acquired and disposed finance leases (1.0) - (0.5)
Exceptional items (19.7) (32.4) (40.2)
Cash movements on hedging instruments* (1.6) 24.0 47.0
Foreign exchange loss on Net Debt* 8.5 (17.5) (41.8)
-------------------------------------------------- -------------- -------------- --------------
Movement in Net Debt including assets and
liabilities held for sale* (39.6) (36.8) (46.4)
Assets held for sale movement in Net Debt - 2.3 4.7
Net Debt at 1 January* (109.3) (67.6) (67.6)
-------------------------------------------------- -------------- -------------- --------------
Net Debt at end of period* (148.9) (102.1) (109.3)
-------------------------------------------------- -------------- -------------- --------------
Net Debt at 1 January including assets and
liabilities held for sale* (109.3) (62.9) (62.9)
-------------------------------------------------- -------------- -------------- --------------
Net Debt at end of period including assets
and liabilities held for sale* (148.9) (99.7) (109.3)
-------------------------------------------------- -------------- -------------- --------------
* Operating profit, other non-cash movements, cash movements on
hedging instruments, foreign exchange loss on Net Debt and Net Debt
have been restated following the change in accounting policy
regarding foreign exchange movements on investment and financing
arrangements and the change in definition of Net Debt to include
derivative financial instruments that relate to other components of
Net Debt. The sub totals including Free Cash Flow have changed as a
result.
Net Debt
Including Including
Including assets assets
assets and liabilities and liabilities
and liabilities held for held for
held for sale as sale as
sale as at 30 at 31
at 30 June 2016 December
June 2017 (restated*) 2016
GBPm GBPm GBPm
---------------------------------------------- ----------------- ----------------- -----------------
Cash and cash equivalents 117.7 168.9 177.8
Loans receivable 23.5 20.4 22.9
Other loans (281.7) (273.5) (299.9)
Obligations under finance leases (21.5) (36.0) (28.2)
Derivatives relating to Net Debt components* 13.1 20.5 18.1
---------------------------------------------- ----------------- ----------------- -----------------
Net Debt* (148.9) (99.7) (109.3)
---------------------------------------------- ----------------- ----------------- -----------------
* As explained above, Net Debt has been restated to include
derivative financial instruments that relate to other components of
Net Debt.
Average Net Debt as calculated on a daily basis for the six
months ended 30 June 2017 was GBP178.2m (2016 restated: GBP115.4m),
compared with the opening and closing positions of GBP109.3m and
GBP148.9m respectively. Peak Net Debt was GBP242.7m (2016 restated:
GBP165.2m).
Treasury operations and risk management
The Group's operations expose it to a variety of financial risks
that include liquidity, the effects of changes in foreign currency
exchange rates, interest rates and credit risk. The Group has a
centralised treasury function whose principal role is to ensure
that adequate liquidity is available to meet the Group's funding
requirements as they arise and that the financial risk arising from
the Group's underlying operations is effectively identified and
managed.
Treasury operations are conducted in accordance with policies
and procedures approved by the Board and are reviewed annually.
Financial instruments are only executed for hedging purposes,
speculation is not permitted. A monthly report is provided to
senior management outlining performance against the treasury policy
and the treasury function is subject to periodic internal audit
review.
Liquidity and funding
As at 30 June 2017, the Group had committed funding of GBP751m
(31 December 2016: GBP770m), comprising GBP271m of private
placement notes and a GBP480m revolving credit facility with a
syndicate of banks which was undrawn. In addition, the Group had a
receivables financing facility of GBP30.0m, which was fully
utilised as at 30 June 2016 but was unutilised as at 30 June 2017
(31 December 2016: GBP7.7m utilised).
Following the further small disposal relating to the private
sector BPO business, the Group was required to offer two thirds of
the net disposal proceeds to the debt holders in prepayment. As a
result of this process, GBP3.7m ($4.9m) of private placement notes
were repaid at par on 29 June 2017.
Interest rate risk
Given the nature of the Group's business, we have a preference
for fixed rate debt to reduce the volatility of net finance costs.
Our treasury policies require us to maintain a minimum proportion
of fixed rate debt as a proportion of overall Net Debt and for this
proportion to increase as the ratio of EBITDA to interest expense
falls. As at 30 June 2017, more than 100% of the Group's Net Debt
was at fixed rates. Interest on the revolving credit facility is at
floating rate, however it was undrawn.
Foreign exchange risk
The Group is subject to currency exposure on the translation to
Sterling of its net investments in overseas subsidiaries. The Group
manages this risk where appropriate by borrowing in the same
currency as those investments. Group borrowings are predominantly
denominated in Sterling and US Dollar. The Group manages its
currency flows to minimise foreign exchange risk arising on
transactions denominated in foreign currencies and uses forward
contracts where appropriate to hedge net currency flows.
Credit risk
Cash deposits and in-the-money financial instruments give rise
to credit risk on the amounts due from counterparties. The Group
manages this risk by adhering to counterparty exposure limits based
on external credit ratings of the relevant counterparty.
Debt covenants
The principal financial covenant ratios are consistent across
the private placement loan notes, receivables financing facility
and revolving credit facility, with a maximum Consolidated Total
Net Borrowings (CTNB) to covenant EBITDA of 3.5 times and minimum
covenant EBITDA to net finance costs of 3.0 times, tested
semi-annually. A reconciliation of the basis of calculation is set
out in the table below.
Twelve
Twelve months
months ended Year ended
ended 30 30 June 31 December
June 2017 2016 (restated*) 2016
GBPm GBPm GBPm
---------------------------------------------------- ------------- ------------------ -------------
Operating profit before exceptional items
on continuing and discontinued operations* 59.0 143.3 95.2
Remove: Amortisation and impairment of intangibles
arising on acquisition 5.3 4.0 5.1
---------------------------------------------------- ------------- ------------------ -------------
Trading Profit* 64.3 147.3 100.3
Exclude: Share of joint venture post-tax
profits (30.3) (40.8) (33.4)
Include: Dividends from joint ventures 34.1 36.4 40.0
Add back: Depreciation, amortisation and
impairment of property, plant and equipment
and non acquisition intangible assets 49.3 64.9 47.3
Add back: Foreign exchange on investing
and financing arrangements* 0.7 (0.7) 1.2
Add back: Share based payment expense 11.7 10.6 9.7
Covenant EBITDA 129.8 217.7 165.1
---------------------------------------------------- ------------- ------------------ -------------
Net finance costs on continuing and discontinued
operations* 13.5 21.2 12.6
Exclude: Net interest receivable on retirement
benefit obligations 4.0 4.7 4.7
Exclude: Movement in discount on other debtors 1.1 0.6 1.0
Exclude: Foreign exchange on investing and
financing arrangements* 0.7 (0.7) 1.2
Add back: Movement in discount on provisions (3.2) (3.6) (2.4)
---------------------------------------------------- ------------- ------------------ -------------
Covenant net finance costs 16.1 22.2 17.1
---------------------------------------------------- ------------- ------------------ -------------
Recourse net debt (including assets and
liabilities held for sale)* 148.9 99.7 109.3
Less: Disposal vendor loan note, encumbered
cash and other adjustments 27.5 36.0 28.5
Covenant adjustment for average FX rates 3.7 (20.1) (23.0)
---------------------------------------------------- ------------- ------------------ -------------
CTNB 180.1 115.6 114.8
---------------------------------------------------- ------------- ------------------ -------------
CTNB / covenant EBITDA (not to exceed 3.5x) 1.4x 0.5x 0.7x
---------------------------------------------------- ------------- ------------------ -------------
Covenant EBITDA / Covenant net finance costs
(at least 3.0x) 8.1x 9.8x 9.7x
---------------------------------------------------- ------------- ------------------ -------------
* As explained above, operating profit, Trading Profit and net
finance costs have been restated following the change in accounting
policy regarding foreign exchange movements on investment and
financing arrangements. These adjustments have been reversed in
order to maintain the definition of EBITDA and net finance costs
per the covenant. CTNB is consistent with the new definition of Net
Debt and is unaffected by the change in accounting policy.
Net assets summary
30 June 30 June 30 June 30 June 31 December
2017 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ------------- ---------------- ----------------
Including Adjustment
assets for assets
held for held for
As reported* sale sale As reported As reported*
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Non-current assets
Goodwill 564.4 547.6 (2.4) 545.2 577.9
Other intangible assets 75.5 88.5 - 88.5 83.6
Property, plant and equipment 66.6 70.7 - 70.7 69.3
Other non-current assets 71.6 70.2 - 70.2 73.0
Deferred tax assets 54.1 42.5 - 42.5 50.8
Retirement benefit assets 18.3 153.9 - 153.9 150.4
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
850.5 973.4 (2.4) 971.0 1,005.0
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Current assets
Inventories 16.6 27.6 - 27.6 22.4
Trade and other current
assets 574.6 585.9 (9.9) 576.0 548.4
Current tax 14.1 12.9 (4.7) 8.2 11.0
Cash and cash equivalents 117.7 168.9 (2.7) 166.2 177.8
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
723.0 795.3 (17.3) 778.0 759.6
Assets classified as
held for sale - - 19.7 19.7 -
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Total current assets 723.0 795.3 2.4 797.7 759.6
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Total assets 1,573.5 1,768.7 - 1,768.7 1,764.6
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Current liabilities
Trade and other current
liabilities (515.4) (557.9) 3.2 (554.7) (525.1)
Current tax liabilities (28.2) (11.5) 0.1 (11.4) (25.9)
Provisions (156.4) (153.9) 1.1 (152.8) (172.3)
Obligations under finance
leases (9.6) (15.6) 0.3 (15.3) (12.3)
Loans (33.1) (9.7) - (9.7) (9.7)
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
(742.7) (748.6) 4.7 (743.9) (745.3)
Amounts classified as
held for sale - - (5.6) (5.6) -
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Total current liabilities (742.7) (748.6) (0.9) (749.5) (745.3)
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Non-current liabilities
Other non-current liabilities (26.0) (18.7) - (18.7) (16.8)
Deferred tax liabilities (34.1) (28.6) - (28.6) (30.5)
Provisions (220.2) (274.6) 0.9 (273.7) (249.4)
Obligations under finance
leases (11.9) (20.4) - (20.4) (15.9)
Loans (248.6) (263.8) - (263.8) (290.2)
Retirement benefit obligations (17.5) (13.6) - (13.6) (17.7)
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
(558.3) (619.7) 0.9 (618.8) (620.5)
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Total liabilities (1,301.0) (1,368.3) - (1,368.3) (1,365.8)
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
Net assets 272.5 400.4 - 400.4 398.8
------------------------------- ---------------- ---------------- ------------- ---------------- ----------------
* No amounts were included in held for sale as at 30 June 2017 or as at 31 December 2016.
The breakdown of the Group's net assets is summarised above,
showing the impact of the assets and liabilities held for sale for
each line item for 30 June 2016.
At 30 June 2017 the balance sheet had net assets of GBP272.5m, a
movement of GBP126.3m from the closing net asset position of
GBP398.8m as at 31 December 2016. The decrease in net assets is
mainly due to the following movements:
-- A decrease in the retirement benefit assets of Group funded
defined benefit pension schemes of GBP131.9m. In June 2017, the
Trustees of the Group's primary defined benefit pension scheme
entered into a bulk annuity purchase whereby an insurer will fund
future benefit payments to the relevant members. The liability to
pay the members remains with the pension scheme, which therefore
continues to include the relevant pension liabilities, but an
insurance asset is held which is an equal and opposite amount to
the liability. This removes the risk of longevity and investment
movements for this portion of the scheme on a funding basis, and
also removes the accounting risk of movements in underlying
assumptions on the liabilities. The transaction resulted in a
significant reduction in the surplus of the pension scheme under
IFRS accounting convention, but resulted in a reduction in the
deficit that is actuarially assessed for funding purposes of
approximately GBP12m.
-- A decrease in provisions of GBP45.1m. Further details on the
provision balance is provided below.
-- Trade and other current assets and liabilities increased by
GBP35.9m, and Net Debt increased by GBP39.6m. Further details of
these movements are provided in the cash flow and Net Debt sections
above.
-- A decrease in goodwill by GBP13.5m caused by movements in foreign exchange rates.
Provisions
The total of current and non-current provisions has decreased by
GBP45.1m since 31 December 2016. The movement is primarily due to a
decrease in contract provisions of GBP39.9m as set out below:
Onerous
Contract
Provisions
GBPm
---------------------------- --------------
At 1 January 2017 (220.2)
Utilised during the period 40.4
Unwinding of discount (1.7)
FX 1.2
At 30 June 2017 (180.3)
---------------------------- --------------
In the first half of the year we have analysed the performance
of the contracts with OCPs to assess whether there have been any
triggering events that would require the provisions to be
re-calculated. Our assessment is that there have been no triggering
events in the first half of the year. However, we are aware that
there are a number of material milestones in the second half of the
year, including negotiations with customers, closing out contracts
that end in the period, the implementation of new technology and
the impact on operating performance. The outcomes of these material
milestones could result in the provisions being re-assessed. At
this point in time, our assessment is that any potential risks and
opportunities associated with these outcomes are balanced across
our contract portfolio.
Angus Cockburn
Group Chief Financial Officer
3 August 2017
Principal risks and uncertainties
The principal risks and uncertainties that could materially
affect Serco's results and operations are set out on pages 16 to 23
of the 2016 Annual Report and Accounts and the key headline risks
for the remainder of 2017 are restated below. This summary is not
intended, and should not be used, as a substitute for reading the
appropriate pages of the 2016 Annual Report and Accounts which
include further commentary on the risks and the Group's management
of them.
-- Failure to grow profitably
-- Failure to build our reputation or act with integrity
-- Failure to transform and deliver the Group strategy
-- Financial control failure and finance IT systems failure
-- Major information security breach
-- Misreporting of performance
-- Failure to attract and retain leaders fit for the future
-- Catastrophic event
-- Contract non-compliance and contract non-performance
-- Material legal and regulatory compliance failure
In addition to the principal risks and uncertainties listed
above, there may be additional risks unknown to Serco and other
risks, currently believed to be immaterial, which could turn out to
be material. These risks, whether they materialise individually or
simultaneously, could significantly affect the Group's business and
financial results.
Responsibility statement
We confirm to the best of our knowledge:
a. the condensed set of financial statements has been prepared
in accordance with IAS34 Interim financial reporting;
b. the interim management report includes a fair review of the
information required by the DTR 4.2.7R, being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
c. the interim management report includes a fair review of the
information required by DTR 4.2.8R, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
By order of the Board,
Rupert Soames Angus Cockburn
Group Chief Executive Group Chief Financial Officer
3 August 2017
Independent review report to Serco Group PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Balance Sheet, the
Condensed Consolidated Cash Flow Statement and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with IAS34 Interim Financial Reporting as adopted by the EU and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's
Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with
IAS34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Stephen Wardell
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London, E14 5GL
3 August 2017
Financial Statements
Condensed consolidated income statement
Six months Year ended
ended 30 31 December
June 2016 2016
Six months
ended 30 (restated* (restated*
June 2017 **) **)
(unaudited) (unaudited) (audited)
Continuing operations GBPm GBPm GBPm
--------------------------------------------------- ------------ ------------ ------------
Revenue 1,508.2 1,493.2 3,011.0
Cost of sales** (1,374.8) (1,333.0) (2,724.6)
--------------------------------------------------- ------------ ------------ ------------
Gross profit** 133.4 160.2 286.4
Administrative expenses
General and administrative expenses* ** (112.7) (103.5) (216.2)
Exceptional profit / (loss) on disposal of
subsidiaries and operations 0.1 (0.9) 2.9
Other exceptional operating items (11.5) (6.8) (59.2)
Other expenses - amortisation and impairment
of intangibles arising on acquisition (2.2) (1.9) (5.1)
--------------------------------------------------- ------------ ------------ ------------
Total administrative expenses* ** (126.3) (113.1) (277.6)
Share of profits in joint ventures and associates,
net of interest and tax 14.6 17.7 33.4
--------------------------------------------------- ------------ ------------ ------------
Operating profit* 21.7 64.8 42.2
--------------------------------------------------- ------------ ------------ ------------
Operating profit before exceptional items* 33.1 72.5 98.5
--------------------------------------------------- ------------ ------------ ------------
Investment revenue 3.6 4.7 9.3
Finance costs* (11.2) (11.4) (21.9)
Total net finance costs* (7.6) (6.7) (12.6)
--------------------------------------------------- ------------ ------------ ------------
Profit before tax 14.1 58.1 29.6
--------------------------------------------------- ------------ ------------ ------------
Tax on profit before exceptional items (16.4) (3.7) (15.8)
Exceptional tax (15.9) (0.1) 3.1
--------------------------------------------------- ------------ ------------ ------------
Tax charge (32.3) (3.8) (12.7)
--------------------------------------------------- ------------ ------------ ------------
(Loss) / profit for the period from continuing
operations (18.2) 54.3 16.9
Loss for the period from discontinued operations - (7.9) (18.0)
--------------------------------------------------- ------------ ------------ ------------
(Loss) / profit for the period (18.2) 46.4 (1.1)
--------------------------------------------------- ------------ ------------ ------------
Attributable to:
Equity owners of the Company (18.3) 46.5 (1.2)
Non controlling interests 0.1 (0.1) 0.1
--------------------------------------------------- ------------ ------------ ------------
(Loss) / Earnings Per share (EPS)
Basic EPS from continuing operations (1.68p) 5.00p 1.55p
Diluted EPS from continuing operations (1.68p) 4.82p 1.50p
Basic EPS from discontinued operations - (0.73p) (1.66p)
Diluted EPS from discontinued operations - (0.70p) (1.66p)
Basic EPS from continuing and discontinued
operations (1.68p) 4.27p (0.11p)
Diluted EPS from continuing and discontinued
operations (1.68p) 4.12p (0.11p)
--------------------------------------------------- ------------ ------------ ------------
* General and administrative expenses and net finance costs have
been restated following the change in accounting policy regarding
foreign exchange movements on investment and financing
arrangements. See note 1.
** Costs included within costs of sales and general and
administrative expenses have been reallocated, resulting in a
restatement. See note 1.
Condensed consolidated statement of comprehensive income
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------------------- ------------ ------------ ------------
(Loss) / profit for the period (18.2) 46.4 (1.1)
Other comprehensive income for the period:
Items that will not be reclassified subsequently
to profit or loss:
Net actuarial (loss) / gain on defined benefit
pension schemes* (130.8) 21.7 9.0
Actuarial gain on reimbursable rights* - 0.8 2.9
Tax relating to items not reclassified* 22.4 (4.4) (1.7)
Share of other comprehensive income in joint
ventures and associates 0.8 0.2 14.8
Items that may be reclassified subsequently
to profit or loss:
Net exchange (loss) / gain on translation
of foreign operations** (7.2) 44.0 80.3
Fair value (loss) / gain on cash flow hedges
during the period** (0.3) 4.2 2.3
Tax relating to items that may be reclassified** 0.1 (0.1) -
Share of other comprehensive income in joint
ventures and associates - 0.6 1.0
------------------------------------------------- ------------ ------------ ------------
Total other comprehensive (expense) / income
for the period (115.0) 67.0 108.6
Total comprehensive (loss) / income for the
period (133.2) 113.4 107.5
------------------------------------------------- ------------ ------------ ------------
Attributable to:
Equity owners of the Company (133.2) 113.4 107.1
Non controlling interest - - 0.4
------------------------------------------------- ------------ ------------ ------------
* Recorded in retirement benefit obligations reserve in the
Consolidated Statement of Changes in Equity.
** Recorded in hedging and translation reserve in the
Consolidated Statement of Changes in Equity.
Condensed consolidated statement of changes in equity
Retirement Share Hedging
Share Capital benefit based Own and Total Non
Share premium redemption Retained obligations payment shares translation shareholders' controlling
capital account reserve earnings reserve reserve reserve reserve equity interest
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- -------- ----------- ------- ------- ----------- ------------- -----------
At 1 January
2016 22.0 327.9 0.1 68.5 (101.3) 80.9 (59.8) (57.7) 280.6 1.5
Total
comprehensive
income for
the
period - - - 47.3 18.1 - - 48.0 113.4 -
Shares
transferred
to option
holders
on exercise
of
share options - - - - - (0.3) 0.3 - - -
Expense in
relation
to share
based
payments - - - - - 4.9 - - 4.9 -
At 30 June
2016
(unaudited) 22.0 327.9 0.1 115.8 (83.2) 85.5 (59.5) (9.7) 398.9 1.5
Total
comprehensive
income for
the
period - - - (32.7) (7.9) - - 34.3 (6.3) 0.4
Shares
transferred
to option
holders
on exercise
of
share options - - - - - (7.4) 7.4 - - -
Expense in
relation
to share
based
payments - - - - - 4.8 - - 4.8 -
Change in non
controlling
interest - - - - - - - - - (0.5)
At 31 December
2016
(audited) 22.0 327.9 0.1 83.1 (91.1) 82.9 (52.1) 24.6 397.4 1.4
Total
comprehensive
income for
the
period - - - (17.3) (108.4) - - (7.5) (133.2) -
Shares
transferred
to option
holders
on exercise
of
share options - - - - - (1.1) 1.1 - - -
Expense in
relation
to share
based
payments - - - - - 6.9 - - 6.9 -
Change in non - - - - - - - - - -
controlling
interest
At 30 June
2017
(unaudited) 22.0 327.9 0.1 65.8 (199.5) 88.7 (51.0) 17.1 271.1 1.4
-------------- ------- ------- ---------- -------- ----------- ------- ------- ----------- ------------- -----------
Condensed consolidated balance sheet
At 30 June At 30 June At 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ --------------
Non-current assets
Goodwill 564.4 545.2 577.9
Other intangible assets 75.5 88.5 83.6
Property, plant and equipment 66.6 70.7 69.3
Interests in joint ventures and associates 16.0 12.6 14.4
Trade and other receivables 51.1 46.9 44.4
Derivative financial instruments 4.5 10.7 14.2
Deferred tax assets 54.1 42.5 50.8
Retirement benefit assets 18.3 153.9 150.4
------------------------------------------- ------------ ------------ --------------
850.5 971.0 1,005.0
------------------------------------------- ------------ ------------ --------------
Current assets
Inventories 16.6 27.6 22.4
Trade and other receivables 563.0 561.2 543.5
Current tax assets 14.1 8.2 11.0
Cash and cash equivalents 117.7 166.2 177.8
Derivative financial instruments 11.6 14.8 4.9
------------------------------------------- ------------ ------------ --------------
723.0 778.0 759.6
Assets classified as held for sale - 19.7 -
------------------------------------------- ------------ ------------ --------------
723.0 797.7 759.6
------------------------------------------- ------------ ------------ --------------
Total assets 1,573.5 1,768.7 1,764.6
------------------------------------------- ------------ ------------ --------------
Current liabilities
Trade and other payables (512.4) (550.5) (524.5)
Derivative financial instruments (3.0) (4.2) (0.6)
Current tax liabilities (28.2) (11.4) (25.9)
Provisions (156.4) (152.8) (172.3)
Obligations under finance leases (9.6) (15.3) (12.3)
Loans (33.1) (9.7) (9.7)
------------------------------------------- ------------ ------------ --------------
(742.7) (743.9) (745.3)
Liabilities directly associated with - (5.6) -
assets classified as held for sale
------------------------------------------- ------------ ------------ --------------
(742.7) (749.5) (745.3)
------------------------------------------- ------------ ------------ --------------
Non-current liabilities
Trade and other payables (26.0) (18.7) (16.8)
Deferred tax liabilities (34.1) (28.6) (30.5)
Provisions (220.2) (273.7) (249.4)
Obligations under finance leases (11.9) (20.4) (15.9)
Loans (248.6) (263.8) (290.2)
Retirement benefit obligations (17.5) (13.6) (17.7)
------------------------------------------- ------------ ------------ --------------
(558.3) (618.8) (620.5)
------------------------------------------- ------------ ------------ --------------
Total liabilities (1,301.0) (1,368.3) (1,365.8)
------------------------------------------- ------------ ------------ --------------
Net assets 272.5 400.4 398.8
------------------------------------------- ------------ ------------ --------------
Equity
Share capital 22.0 22.0 22.0
Share premium account 327.9 327.9 327.9
Capital redemption reserve 0.1 0.1 0.1
Retained earnings 65.8 115.8 83.1
Retirement benefit obligations reserve (199.5) (83.2) (91.1)
Share based payment reserve 88.7 85.5 82.9
Own shares reserve (51.0) (59.5) (52.1)
Hedging and translation reserve 17.1 (9.7) 24.6
------------------------------------------- ------------ ------------ --------------
Equity attributable to owners of the
Company 271.1 398.9 397.4
Non-controlling interest 1.4 1.5 1.4
------------------------------------------- ------------ ------------ --------------
Total equity 272.5 400.4 398.8
------------------------------------------- ------------ ------------ --------------
Condensed consolidated cash flow statement
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(restated*)
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------------------- ------------ ------------- ------------
Net cash outflow from operating activities
before exceptional items* (13.3) (17.3) (22.4)
Exceptional items (19.7) (32.1) (39.9)
---------------------------------------------------- ------------ ------------- ------------
Net cash outflow from operating activities* (33.0) (49.4) (62.3)
---------------------------------------------------- ------------ ------------- ------------
Investing activities
Interest received 0.3 0.9 1.4
Decrease in security deposits - - (0.4)
Dividends received from joint ventures and
associates 13.8 19.7 40.0
Proceeds from disposal of property, plant and
equipment 0.3 0.1 0.6
Proceeds from disposal of intangible assets 0.1 0.1 0.1
Proceeds on disposal of subsidiaries and operations 0.8 11.2 19.4
Acquisition of subsidiaries, net of cash acquired - (0.1) (0.2)
Purchase of other intangible assets (8.3) (6.8) (15.1)
Purchase of property, plant and equipment (10.2) (7.8) (17.2)
---------------------------------------------------- ------------ ------------- ------------
Net cash (outflow) / inflow from investing
activities (3.2) 17.3 28.6
---------------------------------------------------- ------------ ------------- ------------
Financing activities
Interest paid (9.5) (10.7) (20.1)
Exceptional finance costs paid - (0.3) (0.3)
Capitalised finance costs paid - (0.3) (0.3)
Repayment of loans (3.8) (135.8) (135.5)
Decrease in loans to joint ventures and associates - 0.2 1.1
Capital element of finance lease repayments (7.6) (8.6) (17.0)
Cash (loss) / gains from hedging instruments* (1.6) 24.0 47.0
Proceeds from issue of other share capital - 0.1 -
and exercise of share options
---------------------------------------------------- ------------ ------------- ------------
Net cash outflow from financing activities* (22.5) (131.4) (125.1)
---------------------------------------------------- ------------ ------------- ------------
Net decrease in cash and cash equivalents (58.7) (163.5) (158.8)
Cash and cash equivalents at beginning of period 177.8 323.6 323.6
Net exchange (loss) / gain (1.4) 3.6 7.8
Cash reclassified to assets held for sale - 2.5 5.2
---------------------------------------------------- ------------ ------------- ------------
Cash and cash equivalents at end of period 117.7 166.2 177.8
---------------------------------------------------- ------------ ------------- ------------
* Net cash outflow from operating activities and net cash
(outflow) / inflow from financing activities have been restated
following the change in accounting policy regarding foreign
exchange movements on investment and financing arrangements. See
note 1.
Notes to the Consolidated Financial Statements
1. General information, going concern and accounting
policies
The basis of preparation in this preliminary announcement is set
out below.
The information contained herein for the year ended 31 December
2016 does not constitute statutory accounts as defined in section
434 of the Companies Act 2006. A copy of the statutory accounts for
that year has been delivered to the Registrar of Companies. The
auditor's report on those accounts was not qualified and did not
contain statements made under s498(2) or (3) of the Companies Act
2006 and did not draw attention to any matters by way of emphasis
of matter.
The annual financial statements of Serco Group plc are prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU). The condensed set of
financial statements included in this half yearly financial report
has been prepared in accordance with International Accounting
Standard (IAS) 34 Interim financial reporting, as adopted by the
EU.
In the six months ended 30 June 2017, there have been no
significant changes to accounting under IFRS which have impacted
the Group's consolidated financial statements. The same accounting
policies, presentation and methods of computation are followed in
the condensed set of financial statements as applied in the Group's
latest annual audited financial statements except for as noted
below. The significant judgements made by management in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements as at and for the year ended 31 December
2016.
The financial statements have been prepared on the historical
cost basis, except for the revaluation of financial instruments.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
IFRS15 Revenue from contracts with customers
IFRS15 has been endorsed by the EU and will be effective from 1
January 2018.
This new standard supersedes: IAS11 Construction contracts;
IAS18 Revenue; IFRIC13 Customer loyalty programmes; IFRIC15
Agreements for the construction of real estate; IFRIC18 Transfers
of assets from customers; and SIC-31 Revenue - Barter transactions
involving advertising services.
The new standard is intended to bring greater transparency and
comparability to financial reporting.
Some areas of accounting in the outsourcing sector could be
significantly impacted by IFRS15. However, due to the composition
of our contract base and the impact of our Contract and Balance
Sheet Review in 2014 and our current accounting policies, the
impact for Serco from the adoption of IFRS15 is not expected to
fundamentally change the presentation of our income statement or
the level of profit recognised in the periods disclosed. In
addition, some of the Group's most complex contracts which could be
impacted by IFRS15 have OCPs and therefore any adjustment to
profits under IFRS15 does not impact the profitability of the Group
since 2014. Contracts with OCPs by their very nature are reported
at a break even position, such that any increase or decrease in
profitability as a result of IFRS15 would impact only the initial
OCP calculations determined in 2014, unless the adjustments are so
significant to have turned a loss making contract into a profitable
one. This level of adjustment is not expected for the Group's
contracts.
IFRS15 could result in a delay of revenues and profits over
those previously recognised, in particular with respect of
percentage to completion accounting, which is not a significant
area of accounting for the Group, or where elements of revenues
associated with transition activities (also referred to as 'phase
in') have been recognised in the early stages of contracts. Such
transition payments, or payments made to compensate for expenditure
on bid activity may be made by customers to match with a company's
up-front investment, but under IFRS15 such cash flows are less
likely to result in revenue being recognised than under historic
accounting. IFRS15 is of more relevance to the Group in relation to
the accounting for new contracts rather than those which were in
place at the time of adoption of the new standard.
A project to assess the full impact of the new standard is well
advanced and will be completed in the second half of the year and
subject to audit by the Group's external auditors.
Under the transition rules IFRS15 will be applied
retrospectively to the prior period in accordance with IAS8
Accounting policies, changes in accounting estimates and errors,
subject to the following expedients:
-- contracts completed prior to 1 January 2018 and that begin
and end within the same annual reporting period will not be
restated;
-- for contracts that have variable consideration and which have
completed prior to 1 January 2018, the revenues recognised will
reflect the actual outcome, rather than being estimated and trued
up; and
-- the disclosures required for comparative periods in respect
of amount of revenue allocated to the remaining performance
obligations and an explanation of when that amount is expected to
be recognised will not be made.
The cumulative effect of initially applying the standard will be
shown as an adjustment to brought forward retained earnings as at 1
January 2017.
Prior period restatements
Change in accounting policy regarding the classification of
foreign exchange movements on investment and financing
arrangements
In order to provide more relevant information about the impact
of the underlying transactions of trading operations, the
accounting policy regarding the classification of foreign exchange
movements on investment and financing arrangements was changed in
the second half of 2016. The new policy is to include foreign
exchange movements on investment and financing arrangements within
investment revenue or finance costs as appropriate. Such
transactions include foreign exchange movements on non Sterling
cash and financing arrangements, related derivative financial
instruments and any income or costs associated with such balances.
As a result of this change in accounting policy, the prior period
income statement and cash flow statement have been restated,
together with the Net Debt definition which has been changed to
include derivative financial instruments that relate to other
components of Net Debt. No restatement was required to the balance
sheet as a result of the change in policy.
The impact on the relevant line items in the consolidated
financial statements and Net Debt for the six months ended 30 June
2016 is as follows:
Six months Six months
ended 30 ended 30
June 2016 June 2016
as previously as
stated Adjustment restated
Consolidated income statement GBPm GBPm GBPm
------------------------------------- -------------- ---------- ----------
General and administrative expenses* (109.4) (0.4) (109.8)
Finance costs (11.8) 0.4 (11.4)
------------------------------------- -------------- ---------- ----------
* General and administrative expenses are further restated by
GBP6.3m to GBP103.5m as noted in the change in accounting policy
regarding the classification of cost items within cost of sales and
administrative expenses below.
Six months Six months
ended 30 ended 2016
June 2016 30 June
as previously as
stated Adjustment restated
Consolidated cash flow statement GBPm GBPm GBPm
------------------------------------------- -------------- ---------- -----------
Net cash outflow from operating activities (25.4) (24.0) (49.4)
Net cash outflow from financing activities (155.4) 24.0 (131.4)
------------------------------------------- -------------- ---------- -----------
At 30 June
2016 At 30 June
as previously 2016
stated Adjustment as restated
Analysis of Net Debt GBPm GBPm GBPm
--------------------------------- -------------- ---------- ------------
Cash and cash equivalents 166.2 - 166.2
Loan receivables 20.4 - 20.4
Loans payable (273.5) - (273.5)
Obligations under finance leases (35.7) - (35.7)
Derivatives relating to Net Debt - 20.5 20.5
--------------------------------- -------------- ---------- ------------
(122.6) 20.5 (102.1)
--------------------------------- -------------- ---------- ------------
Change in accounting policy regarding the classification of cost
items within cost of sales and administrative expenses
The Group has undergone a programme of work on its financial
data structures to appropriately allocate and charge costs to the
relevant divisions and between cost of sales and administration
expenses. As a result of the activities performed in this area, the
Group's accounting policy for the classification of cost items in
the income statement has changed. The prior periods' results have
been restated to reflect the current year accounting policy, in
addition to a reclassification for the full year results in 2016,
where no reallocation of costs was made.
Cost of sales are considered to be the direct costs of operating
ongoing contracts. This includes the unavoidable costs of servicing
contracts and all costs that a contract would incur purely on its
own without a parent company, regardless of how those services are
delivered within the wider Group, such as IT or Human Resource
management services provided centrally.
The impact on the relevant line items in the consolidated income
statement for the six months ended 30 June 2016 and the year ended
31 December 2016 is as follows:
Six months Six months
ended 30 ended 30
June 2016 June 2016
as previously as
stated Adjustment restated
Consolidated income statement GBPm GBPm GBPm
------------------------------------- -------------- ---------- ----------
Cost of sales (1,326.7) (6.3) (1,333.0)
Gross profit 166.5 (6.3) 160.2
General and administrative expenses* (109.8) 6.3 (103.5)
------------------------------------- -------------- ---------- ----------
* Restated from the reported actual of GBP109.4m as covered
above in the change in accounting policy regarding the
classification of foreign exchange movements on investment and
financing arrangements above.
Year ended
31 December Year ended
2016 as 31 December
previously 2016 as
stated Adjustment restated
Consolidated income statement GBPm GBPm GBPm
------------------------------------ ------------ ---------- -------------
Cost of sales (2,767.6) 43.0 (2,724.6)
Gross profit 243.4 43.0 286.4
General and administrative expenses (173.2) (43.0) (216.2)
------------------------------------ ------------ ---------- -------------
Going concern
The Directors have a reasonable expectation that the Company and
the Group will be able to operate within the level of available
facilities and cash for the foreseeable future and accordingly
believe that it is appropriate to prepare the financial statements
on a going concern basis.
In assessing the basis of preparation of the financial
statements for the six months ended 30 June 2017, 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'; namely assessing the
applicability of the going concern basis, the review period and
disclosures. The Directors have undertaken a rigorous assessment of
going concern and liquidity, taking into account financial
forecasts. In order to satisfy themselves that they have adequate
resources for the future, the Directors have reviewed the Group's
existing debt levels, the committed funding and liquidity positions
under our debt covenants, and our ability to generate cash from
trading activities. The Group's current principal debt facilities
at the period end comprised a GBP480m revolving credit facility,
and GBP271m of US private placement notes. As at 30 June 2017, the
Group had GBP751m of committed credit facilities and committed
headroom of GBP593m.
In undertaking this review the Directors have considered the
business plans which provide financial projections for the
foreseeable future. For the purposes of this review, we consider
that to be the period ending 31 December 2018.
Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies,
management has made the following judgements that have the most
significant effect on the amounts recognised in the financial
statements. As described below, many of these areas of judgement
also involve a high level of estimation uncertainty.
Prior period restatement: Change in accounting policies
The accounting policy regarding the classification of foreign
exchange movements in relation to investment and financing
arrangements was changed in the second half of the prior year. The
accounting policy regarding the classification of cost items within
cost of sales and administrative expenses was changed in the six
months ended 30 June 2017. Judgement was applied in reaching the
conclusion that these changes provide more relevant financial
information to the users of these financial statements.
Use of Alternative Performance Measures: Operating profit before
exceptional items
IAS1 requires material items to be disclosed separately in a way
that enables users to assess the quality of a company's
profitability. In practice, these are commonly referred to as
'exceptional' items, but this is not a concept defined by IFRS and
therefore there is a level of judgement involved in arriving at an
Alternative Performance Measure which excludes such exceptional
items. We consider items which are material, non-recurring and
outside of the normal operating practice of the Company to be
suitable for separate presentation and explanation.
The segmental analysis of continuing operations in note 3
includes the additional performance measure of Trading Profit on
continuing operations which is reconciled to operating profit in
that note. The Group uses Trading Profit as an alternative measure
to operating profit by making the following two adjustments.
Firstly, Trading Profit excludes exceptional items, as described
above. Secondly, amortisation and impairment of intangibles arising
on acquisitions are excluded, because these charges are based on
judgments 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. The Chief Operating
Decision Maker (CODM) reviews the segmental analysis for continuing
operations together with discontinued operations.
Provisions for onerous contracts
Determining whether provisions are required for loss making
contracts requires significant judgements to be made regarding the
ability of the company to maintain or improve operational
performance. Judgements can also be made regarding the outcome of
matters dependent on the behaviour of the customer in question or
other parties involved in delivering the contract.
The level of uncertainty in the estimates made, either in
determining whether a provision is required, or in the calculation
of a provision booked, is linked to the complexity of the
underlying contract and the form of service delivery.
In the six months ended 30 June 2017, no revisions have been
made to contract provisions.
To mitigate the level of uncertainty in making these estimates,
Management regularly compares actual performance of the contracts
against previous forecasts and considers whether there have been
any changes to significant judgements. A detailed bottom up review
of the provisions is performed as part of the Group's formal annual
budgeting process.
The individual provisions are discounted where the impact is
assessed to be material. Discount rates used are calculated based
on the estimated risk free rate of interest for the region in which
the provision is located and matched against the ageing profile of
the provision. Rates applied are in the range of 0.17% and
3.30%.
Impairment of assets
Identifying whether there are indicators of impairment for
assets involves a high level of judgement and a good understanding
of the drivers of value behind the asset. At each reporting period
an assessment is performed in order to determine whether there are
any such indicators, which involves considering the performance of
our business and any significant changes to the markets in which we
operate.
We seek to mitigate the risk associated with this judgement by
putting in place processes and guidance for the finance community
and internal review procedures.
Determining whether assets with impairment indicators require an
actual impairment involves an estimation of the expected value in
use of the asset (or CGU to which the asset relates). The value in
use calculation involves an estimation of future cash flows and
also the selection of appropriate discount rates, both of which
involve considerable judgement. The future cash flows are derived
from approved forecasts, with the key assumptions being revenue
growth, margins and cash conversion rates. Discount rates are
calculated with reference to the specific risks associated with the
assets and are based on advice provided by external experts. Our
calculation of discount rates are performed based on a risk free
rate of interest appropriate to the geographic location of the cash
flows related to the asset being tested, which is subsequently
adjusted to factor in local market risks and risks specific to
Serco and the asset itself. Discount rates used for internal
purposes are post tax rates, however for the purpose of impairment
testing in accordance with IAS36 Impairment of assets we calculate
a pre tax rate based on post tax targets.
A key area of focus in recent years has been in the impairment
testing of goodwill as a result of the pressure on the results of
the Group. However, no impairment of goodwill was noted in the six
months ended 30 June 2017.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and the
level of future taxable profits. Recognition has been based on
forecast future taxable profits.
Current tax
Liabilities for tax contingencies require management judgement
and estimates in respect of tax audits and also tax exposures in
each of the jurisdictions in which we operate. Management is also
required to make an estimate of the current tax liability together
with an assessment of the temporary differences that arise as a
consequence of different accounting and tax treatments. Key
judgement areas include the correct allocation of profits and
losses between the countries in which we operate and the pricing of
intercompany services. Where management conclude that a tax
position is uncertain, a current tax liability is held for
anticipated taxes that are considered probable based on the current
information available.
These liabilities can be built up over a long period of time but
the ultimate resolution of tax exposures usually occurs at a point
in time, and given the inherent uncertainties in assessing the
outcomes of these exposures, these estimates are prone to change in
future periods. It is not currently possible to estimate the timing
of potential cash outflows, but on resolution, to the extent this
differs from the liability held, this will be reflected through the
tax charge/(credit) for that period. Each potential liability and
contingency is revisited on an annual basis and adjusted to reflect
any changes in positions taken by the company, local tax audits,
the expiry of the statute of limitations following the passage of
time and any change in the broader tax environment.
On the basis of the currently available information, the Group
does not anticipate a material change to the estimated liability in
the short term.
Retirement benefit obligations
Identifying whether the Group has a retirement benefit
obligation as a result of contractual arrangements entered into
requires a level of judgement, largely driven by the legal position
held between the Group, the customer and the relevant pension
scheme.
The calculation of retirement benefit obligations is dependent
on material key assumptions including discount rates, mortality
rates, inflation rates and future contribution rates.
In accounting for the defined benefit schemes, the Group has
applied the following principles:
-- The asset recognised for the Serco Pension and Life Assurance
Scheme is based on the assumption that the full surplus will
ultimately be available to the Group as a future refund of
surplus.
-- No foreign exchange item is shown in the disclosures as the
non UK liabilities are not material.
-- No pension assets are invested in the Group's own financial instruments or property.
-- Pension annuity assets are remeasured to fair value at each
reporting date based on the share of the defined benefit obligation
covered by the insurance contract.
2. Discontinued operations
The Global Services division, representing private sector BPO
operations, was classified as a discontinued operation in 2015 and
2016. The most significant part of this business was disposed in
2015, and the disposal of one of the two remaining elements of the
offshore business was completed in March 2016 and the final element
completed in December 2016. The residual UK onshore private sector
BPO operations were sold or exited in 2016 with the exception of
one business consisting of a single contract, where disposal was
completed in July 2017. Total revenues for the remaining operations
were GBP5.3m and UTP was GBP0.1m for the six months ended 30 June
2017, and therefore the results have been included in continuing
operations in 2017 due to their relative immateriality.
The results of the discontinued operations in prior periods were
as follows:
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------------------- ------------ ------------ ------------
Revenue - 24.7 36.8
Expenses - (27.9) (40.1)
------------------------------------------------- ------------ ------------ ------------
Operating loss before exceptional items - (3.2) (3.3)
Exceptional loss on disposal of subsidiaries
and operations - (0.3) (2.8)
Other exceptional operating items - (3.9) (11.4)
------------------------------------------------- ------------ ------------ ------------
Operating loss - (7.4) (17.5)
Investment revenue - - -
Finance costs - - -
Exceptional finance costs - (0.4) (0.4)
------------------------------------------------- ------------ ------------ ------------
Loss before tax - (7.8) (17.9)
Tax charge on loss before exceptional items - (0.1) (0.1)
Tax credit on exceptional items - - -
------------------------------------------------- ------------ ------------ ------------
Net loss attributable to discontinued operations
presented in the income statement - (7.9) (18.0)
------------------------------------------------- ------------ ------------ ------------
Attributable to:
Equity owners of the Company - (7.9) (18.1)
Non controlling interests - - 0.1
------------------------------------------------- ------------ ------------ ------------
Included above were items classified as exceptional as they were
considered to be material, non recurring and outside of the normal
course of business. These were summarised as follows:
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------------------- ------------ ------------ ------------
Exceptional items arising on discontinued
operations
Exceptional loss on disposal - (0.3) (2.8)
Other exceptional operating items
Restructuring costs - (0.4) (1.1)
Movements in indemnities provided on business
disposals - (7.8) (13.7)
Movement in the fair value of assets transferred
to held for sale - 4.3 3.4
Other exceptional operating items - (3.9) (11.4)
---------------------------------------------------- ------------ ------------ ------------
Exceptional operating items arising on discontinued
operations - (4.2) (14.2)
---------------------------------------------------- ------------ ------------ ------------
3. Segmental information
The Group's operating segments reflecting the information
reported to the Board in 2017 under IFRS 8 Operating segments are
as set out below.
Reportable segments Operating segments
---------------------- --------------------------------------------------------------
UK Central Government Services for sectors including Defence, Justice & Immigration
and Transport delivered to the UK Government and devolved
authorities;
---------------------- --------------------------------------------------------------
UK & Europe Local Services for sectors including Health and Citizen Services
& Regional Government delivered to UK and European public sector customers;
---------------------- --------------------------------------------------------------
AsPac Services for sectors including Defence, Justice & Immigration,
Transport, Health and Citizen Services in the Asia Pacific
region including Australia, New Zealand and Hong Kong;
---------------------- --------------------------------------------------------------
Middle East Services for sectors including Defence, Transport, Health
and Citizen Services in the Middle East region;
---------------------- --------------------------------------------------------------
Americas Services for sectors including Defence, Transport and
Citizen Services delivered to US federal and civilian
agencies, selected state and municipal governments and
the Canadian Government; and
---------------------- --------------------------------------------------------------
Corporate Central and head office costs.
---------------------- --------------------------------------------------------------
Each operating segment is focused on a narrow group of customers
in a specific geographic region and is run by a local management
team which report directly to the CODM on a regular basis. As a
result of this focus, the sectors in each region have similar
economic characteristics and are aggregated at the operating
segment level in these financial statements. The accounting
policies of the reportable segments are the same as the Group's
accounting policies.
Geographic information
Six months Six months
ended 30 ended 30
June June
Year ended
31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
------------ ----------- ------------ ----------- ------------ -----------
Non current Non current Non current
Revenue assets* Revenue assets* Revenue assets*
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ----------- ------------ ----------- ------------ -----------
United Kingdom 583.1 308.9 665.5 448.5 1,244.9 444.7
United States 335.3 286.4 300.3 283.2 632.9 309.1
Australia 296.0 155.2 271.6 139.2 593.1 146.0
Middle East 173.9 20.0 153.8 21.0 324.8 19.7
Other countries 119.9 21.5 102.0 18.5 215.3 20.4
---------------- ------------ ----------- ------------ ----------- ------------ -----------
1,508.2 792.0 1,493.2 910.4 3,011.0 939.9
---------------- ------------ ----------- ------------ ----------- ------------ -----------
* Non current assets exclude financial instruments, deferred tax
assets and loans to joint ventures and associates.
Revenues from external customers are attributed to individual
countries on the basis of the location of the customer.
Information about major customers
The Group has three major governmental customers which each
represent more than 10% of Group revenues. The customers' revenues
were GBP574.7m for the UK Government across the UK Central
Government and UK & Europe Local & Regional Government
segments, GBP304.6m for the US Government within the Americas
segment, and GBP294.7m for the Australian Government within the
AsPac and Middle East segments.
The following is an analysis of the Group's revenue, results,
assets and liabilities by reportable segment:
Middle
Six months ended 30 June 2017 CG LRG AsPac East Americas Corporate Total
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Revenue 323.3 334.8 307.4 174.2 368.5 - 1,508.2
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Result
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Trading profit / (loss) from
continuing operations* 20.9 (4.9) 10.5 6.8 22.2 (20.2) 35.3
Amortisation and impairment
of intangibles arising on acquisition - - (0.7) - (1.5) - (2.2)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Operating profit / (loss) before
exceptional items 20.9 (4.9) 9.8 6.8 20.7 (20.2) 33.1
Exceptional profit / (loss)
on disposal of subsidiaries
and operations 0.1 - - - - - 0.1
Other exceptional operating
items** - 1.0 (0.7) - - (11.8) (11.5)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Operating profit / (loss) 21.0 (3.9) 9.1 6.8 20.7 (32.0) 21.7
Investment revenue 3.6
Finance costs (11.2)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Loss before tax 14.1
Tax charge (32.3)
Tax on exceptional items -
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Loss for the period from continuing
operations (18.2)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
* Trading profit / (loss) is defined as operating (loss) /
profit before exceptional items and amortisation and impairment of
intangible assets arising on acquisition.
** Exceptional items incurred by the Corporate segment are not
allocated to other segments. Such items may represent costs that
will benefit the wider business.
Supplementary information
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Share of profits in joint ventures
and associates, net of interest
and tax 13.6 0.4 0.6 - - - 14.6
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Depreciation of plant, property
and equipment (1.2) (6.6) (2.6) (0.4) (1.6) (0.7) (13.1)
Impairment of plant, property - - - - - - -
and equipment
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total depreciation and impairment
of plant, property and equipment (1.2) (6.6) (2.6) (0.4) (1.6) (0.7) (13.1)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Amortisation of intangible assets
arising on acquisition - - (0.7) - (1.5) - (2.2)
Amortisation of other intangible
assets (0.1) (0.5) (2.3) (0.1) (0.8) (7.4) (11.2)
Impairment and write down of
other intangible assets - - - - - (2.8) (2.8)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total amortisation and impairment
of intangible assets (0.1) (0.5) (3.0) (0.1) (2.3) (10.2) (16.2)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment assets
Interests in joint ventures
and associates 13.5 - 2.1 0.4 - - 16.0
Other segment assets*** 162.1 313.2 249.1 113.8 417.2 100.0 1,355.4
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total segment assets 175.6 313.2 251.2 114.2 417.2 100.0 1,371.4
Unallocated assets 202.1
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total assets 1,573.5
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment liabilities
Segment liabilities*** (239.4) (162.0) (184.6) (84.2) (139.2) (132.2) (941.6)
Unallocated liabilities (359.4)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total liabilities (1,301.0)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
*** 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.
Middle
Six months ended 30 June 2016 CG LRG AsPac East Americas Corporate Total
(restated*) (unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Revenue 349.0 376.7 284.7 153.9 328.9 - 1,493.2
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Result
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Trading profit / (loss) from
continuing operations* ** 52.0 5.1 7.9 11.5 16.8 (18.9) 74.4
Amortisation and impairment
of intangibles arising on acquisition - - (0.6) - (1.3) - (1.9)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Operating profit / (loss) before
exceptional items* 52.0 5.1 7.3 11.5 15.5 (18.9) 72.5
Exceptional profit / (loss)
on disposal of subsidiaries
and operations - 0.6 0.4 - - (1.9) (0.9)
Other exceptional operating
items*** - (0.1) - (0.1) - (6.6) (6.8)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Operating profit / (loss)* 52.0 5.6 7.7 11.4 15.5 (27.4) 64.8
Investment revenue 4.7
Finance costs* (11.4)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Profit before tax 58.1
Tax charge (3.7)
Tax on exceptional items (0.1)
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
Profit for the period from continuing
operations 54.3
--------------------------------------- ----- ----- ----- ------ -------- --------- -------
* Administrative expenses included within Trading Profit and
operating profit has been restated following the change in
accounting policy regarding foreign exchange movements on
investment and financing arrangements which has also resulted in a
restatement of finance costs. See note 1.
** Trading profit / (loss) is defined as operating profit /
(loss) before exceptional items and amortisation and impairment of
intangible assets arising on acquisition.
*** Exceptional items incurred by the Corporate segment are not
allocated to other segments. Such items may represent costs that
will benefit the wider business.
Supplementary information
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Share of profits in joint ventures
and associates, net of interest
and tax 17.0 0.3 0.4 - - - 17.7
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Depreciation of plant, property
and equipment (1.0) (6.5) (1.9) (0.4) (1.5) (0.6) (11.9)
Impairment of plant, property
and equipment (0.1) - (0.2) - - - (0.3)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total depreciation and impairment
of plant, property and equipment (1.1) (6.5) (2.1) (0.4) (1.5) (0.6) (12.2)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Amortisation of intangible assets
arising on acquisition - - (0.6) - (1.3) - (1.9)
Amortisation of other intangible
assets (0.1) (0.2) (0.8) (0.3) (0.7) (7.6) (9.7)
Impairment and write down of - - - - - - -
other intangible assets
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total amortisation and impairment
of intangible assets (0.1) (0.2) (1.4) (0.3) (2.0) (7.6) (11.6)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment assets
Interests in joint ventures
and associates 2.7 6.7 2.8 0.4 - - 12.6
Other segment assets**** 200.6 306.6 247.7 105.0 406.3 220.0 1,486.2
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total segment assets 203.3 313.3 250.5 105.4 406.3 220.0 1,498.8
Unallocated assets, including
assets held for sale 269.9
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total assets 1,768.7
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment liabilities
Segment liabilities**** (315.4) (165.7) (199.0) (81.3) (109.6) (138.3) (1,009.3)
Unallocated liabilities, including
liabilities held for sale (359.0)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total liabilities (1,368.3)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
**** 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.
Middle
Year ended 31 December 2016 CG LRG AsPac East Americas Corporate Total
(audited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Revenue 678.6 696.5 619.7 324.8 691.4 - 3,011.0
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Result
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Trading profit / (loss) from
continuing operations* 94.9 (10.4) 34.2 18.8 6.4 (40.3) 103.6
Amortisation and impairment
of intangibles arising on acquisition (0.3) - (2.0) - (2.8) - (5.1)
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Operating profit / (loss) before
exceptional items 94.6 (10.4) 32.2 18.8 3.6 (40.3) 98.5
Exceptional profit / (loss)
on disposal of subsidiaries
and operations (0.1) 4.5 0.4 - - (1.9) 2.9
Other exceptional operating
items** (11.1) (14.8) (0.9) - - (32.4) (59.2)
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Operating profit / (loss) 83.4 (20.7) 31.7 18.8 3.6 (74.6) 42.2
Investment revenue 9.3
Finance costs (21.9)
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Profit before tax 29.6
Tax charge (15.8)
Tax on exceptional items 3.1
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
Profit for the year from continuing
operations 16.9
--------------------------------------- ------ ------ ----- ------ -------- --------- -------
* Trading profit / (loss) is defined as operating (loss) /
profit before exceptional items and amortisation and impairment of
intangible assets arising on acquisition.
** Exceptional items incurred by the Corporate segment are not
allocated to other segments. Such items may represent costs that
will benefit the wider business.
Supplementary information
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Share of profits in joint ventures
and associates, net of interest
and tax 31.3 - 2.0 - - 0.1 33.4
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Depreciation of plant, property
and equipment (2.1) (12.9) (4.5) (0.9) (3.1) (1.3) (24.8)
Impairment of plant, property
and equipment (0.3) - (0.4) - - - (0.7)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total depreciation and impairment
of plant, property and equipment (2.4) (12.9) (4.9) (0.9) (3.1) (1.3) (25.5)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Amortisation of intangible assets
arising on acquisition (0.3) - (1.3) - (2.8) - (4.4)
Impairment and write down of
intangible assets arising on
acquisition - - (0.7) - - - (0.7)
Amortisation of other intangible
assets (0.1) (0.5) (3.3) (0.7) (1.5) (15.7) (21.8)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total amortisation and impairment
of intangible assets (0.4) (0.5) (5.3) (0.7) (4.3) (15.7) (26.9)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment assets
Interests in joint ventures
and associates 12.3 - 1.7 0.4 - - 14.4
Other segment assets*** 168.7 298.3 252.1 108.7 428.8 228.6 1,485.2
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Total segment assets 181.0 298.3 253.8 109.1 428.8 228.6 1,499.6
Unallocated assets 265.0
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total assets 1,764.6
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Segment liabilities
Segment liabilities*** (279.1) (163.8) (182.8) (79.3) (140.7) (139.7) (985.4)
Unallocated liabilities (380.4)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
Consolidated total liabilities (1,365.8)
----------------------------------- ------- ------- ------- ------ ------- ------- ---------
*** 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.
4. Joint ventures and associates
AWE Management Limited (AWEML), Merseyrail Services Holding
Company Limited (MSHCL) and Northern Rail Holdings Limited (NRHL)
were the only equity accounted entities which were material to the
Group during the six months ended 30 June 2017 and 30 June 2016.
Dividends of GBP9.9m (2016: GBP12.2m), GBP3.3m (2016: GBP3.3m) and
GBP0.5m (2016: GBP4.0m) respectively were received from these
companies in the period. The NRHL franchise ended on 31 March
2016.
Summarised financial information of the material entities and an
aggregation of the other equity accounted entities in which the
Group has an interest is as follows:
30 June 2017 (unaudited)
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% of (100% of (100% of joint ventures arrangements
Summarised financial results) results) results) and associates* and associates* Total
information GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Revenue 480.2 78.2 0.1 156.8 23.4 180.2
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Operating profit 49.5 8.2 1.1 16.7 1.1 17.8
Net investment revenue 0.1 - - - - -
Income tax charge (9.8) (1.6) - (3.2) - (3.2)
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Profit from continuing
operations 39.8 6.6 1.1 13.5 1.1 14.6
Other comprehensive income - 1.8 - 0.9 (0.1) 0.8
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Total comprehensive income 39.8 8.4 1.1 14.4 1.0 15.4
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Non-current assets 1,092.5 11.8 - 273.5 3.3 276.8
Current assets 155.0 39.4 11.3 62.8 17.4 80.2
Current liabilities (139.9) (35.6) (7.7) (55.4) (14.8) (70.2)
Non-current liabilities (1,090.9) (1.2) - (267.8) (3.0) (270.8)
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Net assets 16.7 14.4 3.6 13.1 2.9 16.0
Proportion of Group ownership 24.5% 50.0% 50.0% - - -
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Carrying amount of investment 4.1 7.2 1.8 13.1 2.9 16.0
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% of (100% of (100% of joint ventures arrangements
results) results) results) and associates* and associates* Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- ---------------- ---------------- -----
Cash and cash equivalents 85.6 31.9 11.3 42.6 4.9 47.5
Current financial liabilities
excluding trade and other
payables and provisions (7.8) (1.6) 0.2 (2.6) (0.9) (3.5)
Non current financial
liabilities excluding
trade and other payables
and provisions - (0.5) - (0.3) (2.9) (3.2)
Depreciation and amortisation - (1.1) - (0.6) (0.8) (1.4)
Interest income 0.1 - - - - -
Interest expense - - - - - -
------------------------------ --------- --------- --------- ---------------- ---------------- -----
* Total results of the joint ventures and associates multiplied
by the respective proportion of Group ownership.
30 June 2016 (unaudited)
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% (100% of (100% of joint ventures arrangements
of results) results) results) and associates* and associates* Total
Summarised financial information GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Revenue 508.9 75.6 131.5 273.0 20.6 293.6
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Operating profit 37.8 7.4 8.4 20.5 0.9 21.4
Net investment revenue
/ (finance costs) 0.2 (0.6) - (0.2) (0.1) (0.3)
Income tax charge (3.3) (1.7) (2.5) (3.2) (0.2) (3.4)
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Profit from continuing
operations 34.7 5.1 5.9 17.1 0.6 17.7
Other comprehensive income - - 1.2 0.6 0.2 0.8
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Total comprehensive income 34.7 5.1 7.1 17.7 0.8 18.5
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Non-current assets 464.5 13.3 - 161.3 12.0 173.3
Current assets 168.3 31.1 33.9 88.5 17.5 106.0
Current liabilities (154.0) (33.1) (22.5) (79.1) (13.9) (93.0)
Non-current liabilities (462.0) (33.8) - (170.7) (3.0) (173.7)
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Net assets / (liabilities) 16.8 (22.5) 11.4 - 12.6 12.6
Proportion of Group ownership 33.3% 50.0% 50.0% - - -
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Carrying amount of investment 5.6 (11.3) 5.7 - 12.6 12.6
--------------------------------- ------------ --------- --------- ---------------- ---------------- -------
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% of (100% of (100% of joint ventures arrangements
results) results) results) and associates* and associates* Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- ---------------- ---------------- -----
Cash and cash equivalents 0.2 1.8 27.2 14.6 28.5 43.1
Current financial liabilities
excluding trade and other
payables and provisions - (0.2) (1.2) (0.7) (3.4) (4.1)
Non current financial
liabilities excluding
trade and other payables
and provisions - (0.1) - - (3.1) (3.1)
Depreciation and amortisation - (1.0) (1.7) (1.4) (0.6) (2.0)
Interest income 0.2 (0.6) - (0.2) 0.4 0.2
Interest expense - - - - (0.5) (0.5)
------------------------------ --------- --------- --------- ---------------- ---------------- -----
* Total results of the joint ventures and associates multiplied
by the respective proportion of Group ownership.
31 December 2016 (audited)
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% of (100% of (100% of joint ventures arrangements
Summarised financial results) results) results) and associates* and associates* Total
information GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Revenue 968.1 150.3 132.7 437.5 43.3 480.8
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Operating profit 72.9 18.9 13.2 37.4 3.3 40.7
Net investment revenue
/ (finance costs) 0.2 (1.3) 0.1 (0.5) (0.1) (0.6)
Income tax (charge) /
credit (11.3) (3.7) (3.4) (6.8) 0.1 (6.7)
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Profit from continuing
operations 61.8 13.9 9.9 30.1 3.3 33.4
Other comprehensive income - 34.0 0.8 17.4 (1.6) 15.8
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Total comprehensive income 61.8 47.9 10.7 47.5 1.7 49.2
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Non-current assets 1,097.0 12.5 - 275.1 3.2 278.3
Current assets 149.3 32.8 14.2 60.1 16.0 76.1
Current liabilities (133.9) (31.9) (10.7) (54.2) (14.0) (68.2)
Non-current liabilities (1,095.2) (0.9) - (268.7) (3.1) (271.8)
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Net assets 17.2 12.5 3.5 12.3 2.1 14.4
33.3% /
Proportion of group ownership 24.5% 50.0% 50.0% - - -
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Carrying amount of investment 4.2 6.3 1.8 12.3 2.1 14.4
------------------------------ --------- --------- --------- ---------------- ---------------- -------
Group portion
Group portion of other
AWEML MSHCL NRHL of material joint venture
(100% of (100% of (100% of joint ventures arrangements
results) results) results) and associates* and associates* Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- --------- ---------------- ---------------- -----
Cash and cash equivalents 72.4 21.1 14.5 35.4 4.7 40.1
Current financial liabilities
excluding trade and other
payables and provisions (7.0) (2.3) (0.5) (3.1) (0.9) (4.0)
Non current financial
liabilities excluding
trade and other payables
and provisions - (0.6) - (0.3) (3.0) (3.3)
Depreciation and amortisation - (2.3) (1.7) (2.1) (1.0) (3.1)
Interest income 0.2 - 0.1 0.2 - 0.2
Interest expense - (1.3) - (0.6) (0.1) (0.7)
------------------------------ --------- --------- --------- ---------------- ---------------- -----
* Total results of the joint ventures and associates multiplied
by the respective proportion of Group ownership.
5. Acquisitions
There were no acquisitions in the six months ended 30 June
2017.
6. Exceptional items
Exceptional items are non recurring 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
underlying performance of the Group.
Exceptional profit / (loss) on disposal of subsidiaries and
operations
There were no material disposals of continuing operations in the
six months ended 30 June 2017 or the six months ended 30 June
2016.
Other exceptional operating items arising on continuing
operations
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 (unaudited) 2016 (unaudited) 2016 (audited)
GBPm GBPm GBPm
--------------------------------------------------- ------------------ ------------------ ----------------
Impairment of goodwill - - (17.8)
Restructuring costs (13.3) (6.2) (17.2)
Costs associated with UK Government review (0.4) (0.9) (0.1)
Aborted transaction costs - 0.3 (0.1)
Release of UK frontline clinical health contract
provisions - - 0.6
Settlement of defined benefit pension obligations - - (10.7)
Impairment of interest in joint venture and
related loan balances 2.2 - (13.9)
--------------------------------------------------- ------------------ ------------------ ----------------
Other exceptional operating items (11.5) (6.8) (59.2)
--------------------------------------------------- ------------------ ------------------ ----------------
In the six months ended 30 June 2017, a charge of GBP13.3m
(2016: GBP6.2m) arose in relation to the restructuring programme
resulting from the Strategy Review, as discussed in the Chief
Executive's Review in the Group's 2016 Annual Report and Accounts.
This included redundancy charges, asset impairments and other
incremental costs. Due to the nature and scale of the impact of the
transformation stage of our Strategy Review, the incremental costs
associated with this programme were considered to be exceptional in
the prior year and have been treated consistently in 2017.
There were exceptional costs totalling GBP0.4m (2016: GBP0.9m)
associated with the UK Government reviews and the programme of
Corporate Renewal. These costs were treated as exceptional when the
matter first arose and consistent treatment is applied in the
2017.
In the second half of 2016 the equity investment of a joint
venture and the related loan balances with this business were
impaired. In the six months ended 30 June 2017 a payment of GBP2.2m
was received against the impaired loan.
Exceptional tax items in the six months ended 30 June 2017
resulted in a tax charge of GBP15.9m (2016: charge of GBP0.1m on
continuing operations), including a GBP0.2m credit on exceptional
items within operating profit and a GBP16.1m charge in respect of
other exceptional tax items. The other exceptional tax item relates
to the tax impact of the pension buy-in disclosed in note 15, which
led to a GBP95.0m movement in the valuation of the Group's defined
benefit pension schemes and consequently to a deferred tax charge
to the income statement of GBP16.1m. Further detail of the reason
for the impact of movements in the valuation of defined benefit
pension schemes is discussed in the tax section of this Finance
Review.
7. Investment revenue
Six months
Six months
ended 30 ended 30
June 2017 June 2016
Year ended
31 December
(unaudited) (unaudited) 2016 (audited)
GBPm GBPm GBPm
------------------------------------------------ ------------ ------------ ---------------
Interest receivable on other loans and deposits 1.4 1.9 3.6
Net interest receivable on retirement benefit
obligations 1.6 2.3 4.7
Movement in discount on other debtors 0.6 0.5 1.0
------------------------------------------------ ------------ ------------ ---------------
3.6 4.7 9.3
------------------------------------------------ ------------ ------------ ---------------
8. Finance costs
Six months
Six months
ended 30 ended 30
June 2017 June 2016
Year ended
(restated*) 31 December
(unaudited) (unaudited) 2016 (audited)
GBPm GBPm GBPm
---------------------------------------------- ------------ ------------- ---------------
Interest payable on obligations under finance
leases 0.8 1.0 1.6
Interest payable on other loans 7.2 7.9 15.6
Facility fees and other charges 1.4 2.0 3.5
Movement in discount on provisions 1.7 0.9 2.4
---------------------------------------------- ------------ ------------- ---------------
11.1 11.8 23.1
Foreign exchange on financing activities* 0.1 (0.4) (1.2)
11.2 11.4 21.9
---------------------------------------------- ------------ ------------- ---------------
* Finance costs have been restated as a result of the change in
treatment of foreign exchange items on investing and financing
items as explained in note 1.
9. Tax
In the six months ended 30 June 2017, a total tax charge of
GBP32.3m (2016: GBP3.9m) was recognised, being GBP32.3m (2016:
GBP3.8m) on continuing operations profit of GBP14.1m (2016:
GBP58.1m) and GBPnil (2016: GBP0.1m) on discontinued operations
losses of GBPnil (2016: GBP7.8m).
In respect of the results of our continuing operations, the
profit before interest, exceptional items and tax of GBP33.1m
(2016: GBP72.5m) less pre-exceptional finance costs of GBP7.6m
(2016 : GBP7.1m) is GBP25.5m (2016: GBP65.8m), which incurs a tax
charge of GBP16.4m (2016: GBP3.7m), giving a tax rate of 64.3%
(2016: 5.6%).
The principal reasons why the tax rate on profit before
exceptional items and tax from continuing operations at 64.3% is
higher than the UK standard corporation tax rate of 19.25% is due
to the pension movement commented on below. In addition, higher
rates of tax on profits arise on our international operations, and
there is an absence of a deferred tax credit for losses incurred in
the UK, because a deferred tax asset cannot be recognised against
these losses until we can confidently forecast these losses being
utilised against future profits (which includes the result of UK
divisions and the majority of corporate costs). These factors are
partially offset by the impact of our joint ventures whose post-tax
results are included in our pre-tax profit.
Our tax charge continues to be materially impacted by our
accounting for UK deferred taxes. To the extent that future UK tax
losses are incurred and are not recognised, our effective tax rate
will be higher than prevailing standard corporation tax rates as we
will not be able to recognise the associated tax benefits arising.
When our UK business returns to sustainable profitability our
existing UK tax losses will be recognised or utilised, and the
effective rate will be reduced.
Movements in the valuation of the Group's defined benefit
pension schemes and the associated deferred tax impact are reported
in the Consolidated Statement of Comprehensive Income (SOCI) and do
not flow through the income statement, and therefore do not impact
profit before tax or the tax charge. However, the net amount of
deferred tax recognised in the balance sheet relates to both the
pension accounting and other timing differences, such as
recoverable losses. As the net deferred tax balance sheet position
is capped at the level supported by future profit forecasts, the
decrease in the deferred tax liability associated with the pension
changes (with the benefit reported in the SOCI) leads to a
corresponding decrease in the deferred tax asset to match the
future profit forecasts. Such a reduction in the deferred tax asset
therefore leads to a charge to tax in the income statement. For the
six months ended 30 June 2017, the total impact of such movements
on the statutory tax charge was GBP22.4m, GBP16.1m of which arose
as a result of the pension buy-in disclosed in note 15. As this
GBP16.1m adjustment is the consequence of a material one off
transaction in the period, it is therefore considered to be
exceptional.
As at 30 June 2017 there is a net deferred tax asset of
GBP20.0m, this consists of a deferred tax asset of GBP54.1m and
deferred tax liability of GBP34.1m.
A GBP10.0m UK deferred tax asset has been recognised at 30 June
2017 (2016: GBP10.5m) on the basis of forecast utilisation against
future taxable profits. An expected change in the UK loss
utilisation laws in the second half of 2017 is estimated to reduce
the value of this deferred tax asset by GBP3.7m during the second
half of the year.
10. Earnings per share
Basic and diluted EPS has been calculated in accordance with
IAS33 Earnings per share.
The calculation of the basic and diluted EPS is based on the
following data:
Six months Six months
ended 30 ended 30 Year ended
June 2017 June 2016 31 December
(unaudited) (unaudited) 2016 (audited)
Number of shares millions millions millions
---------------------------------------------- ------------ ------------ ---------------
Weighted average number of ordinary shares
for the purpose of basic EPS 1,091.1 1,088.8 1,088.3
Effect of dilutive potential ordinary shares:
Share options - 40.2 37.3
---------------------------------------------- ------------ ------------ ---------------
Weighted average number of ordinary shares
for the purpose of diluted EPS 1,091.1 1,129.0 1,125.6
---------------------------------------------- ------------ ------------ ---------------
At 30 June 2017, options over 214,632 (30 June 2016: 310,493)
shares were excluded from the weighted average number of shares
used for calculating diluted earnings per share because their
exercise price was above the average share price for the period and
they were, therefore, anti-dilutive.
The impact of dilutive shares has only been applied where a
profit has been made.
Earnings per share continuing and discontinued
Per share Per share
Earnings amount Earnings amount Per share
30 June 30 June 30 June 30 June Earnings amount
2017 2017 2016 2016 31 December 31 December
(unaudited) (unaudited) (unaudited) (unaudited) 2016 (audited) 2016 (audited)
Basic EPS GBPm pence GBPm pence GBPm pence
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings for the
purpose of
basic EPS (18.3) (1.68) 46.5 4.27 (1.2) (0.11)
Effect of - - - (0.15) - -
dilutive
potential
ordinary shares
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted EPS (18.3) (1.68) 46.5 4.12 (1.2) (0.11)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic EPS
excluding
exceptional
items
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings for the
purpose of
basic EPS (18.3) (1.68) 46.5 4.27 (1.2) (0.11)
Add back
exceptional
items 11.4 1.04 12.3 1.13 70.9 6.51
Add back tax on
exceptional
items 15.9 1.46 - - (3.1) (0.28)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings
excluding
exceptional
operating items
for the purpose
of basic EPS 9.0 0.82 58.8 5.40 66.6 6.12
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings per share continuing
Per share Per share
Earnings amount Earnings amount Per share
30 June 30 June 30 June 30 June Earnings amount
2017 2017 2016 2016 31 December 31 December
(unaudited) (unaudited) (unaudited) (unaudited) 2016 (audited) 2016 (audited)
Basic EPS GBPm pence GBPm pence GBPm pence
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings for the
purpose of
basic EPS (18.3) (1.68) 54.4 5.00 16.9 1.55
Effect of
dilutive
potential
ordinary shares - - - (0.18) - (0.05)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted EPS (18.3) (1.68) 54.4 4.82 16.9 1.50
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic EPS
excluding
exceptional
items
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings for the
purpose of
basic EPS (18.3) (1.68) 54.4 5.00 16.9 1.55
Add back
exceptional
items 11.4 1.04 7.7 0.71 56.3 5.17
Add back tax on
exceptional
items 15.9 1.46 0.1 - (3.1) (0.28)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings
excluding
exceptional
operating items
for the purpose
of basic EPS 9.0 0.82 62.2 5.71 70.1 6.44
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings per share discontinued
Per share Per share Per share
Earnings amount Earnings amount Earnings amount
30 June 30 June 30 June 30 June 31 December 31 December
2017 (unaudited) 2017 (unaudited) 2016 (unaudited) 2016 (unaudited) 2016 2016
Basic EPS GBPm pence GBPm pence GBPm pence
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
Earnings for the
purpose of
basic EPS - - (7.9) (0.73) (18.1) (1.66)
Effect of - - - 0.03 - -
dilutive
potential
ordinary shares
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
Diluted EPS - - (7.9) (0.70) (18.1) (1.66)
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
Basic EPS
excluding
exceptional
items
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
Earnings for the
purpose of
basic EPS - - (7.9) (0.73) (18.1) (1.66)
Add back
exceptional
items - - 4.6 0.43 14.6 1.34
Add back tax on - - - - - -
exceptional
items
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
Earnings
excluding
exceptional
operating items
for the purpose
of basic EPS - - (3.3) (0.30) (3.5) (0.32)
----------------- ---------------- ---------------- ---------------- ----------------- ------------ ------------
11. Goodwill
The value of each CGU is based on value in use calculations
derived from forecast cash flows based on past experience, adjusted
to reflect market trends, economic conditions and key risks. These
forecasts include an estimate of new business wins and an
assumption that the final year forecast continues on into
perpetuity at a CGU specific growth rate.
Goodwill is required to be tested for impairment at least once
every financial year, irrespective of whether there is any
indication of impairment. The annual impairment review typically
takes place in the final quarter of the year. However, if there are
indicators of impairment an earlier review is also required.
The political environment in the USA, UK and the Middle East has
become more unpredictable in recent months, which in turn makes it
harder to forecast outcomes for our business. However, there have
been no indicators of impairment since the full impairment test
undertaken for 2016 year end.
In the USA, there is no clear determination of the future of the
Affordable Care Act (ACA), and the shape of the budget for Federal
Government spending remains unsettled. The Group's position is that
structural changes to the ACA will be implemented over a matter of
years rather than months, and it is expected that the customer will
launch in the near future a tender to provide services beyond the
expiry of the current contract in June 2018.
12. Analysis of Net Debt
At 1 Reclassified
January Cash as held Exchange Non cash At 30
2017 flow for sale Acquisitions Disposals differences movements June 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- ------ ------------ ------------ --------- ------------ ----------- ----------
Cash and cash
equivalents 177.8 (58.7) - - - (1.4) - 117.7
Loan receivables 22.9 - - - - - 0.6 23.5
Loans payable (299.9) 3.8 - - - 14.8 (0.4) (281.7)
Obligations under
finance leases (28.2) 7.6 - - - 0.1 (1.0) (21.5)
Derivatives relating
to Net Debt 18.1 - - - - (5.0) - 13.1
---------------------- -------- ------ ------------ ------------ --------- ------------ ----------- ----------
(109.3) (47.3) - - - 8.5 (0.8) (148.9)
---------------------- -------- ------ ------------ ------------ --------- ------------ ----------- ----------
At 30
Cash June 2016
At 1 Reclassified
January as held Exchange Non cash
2016 flow for sale Acquisitions Disposals differences movements (restated*)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ------------
Cash and cash
equivalents 323.6 (160.8) - - - 3.4 - 166.2
Loan receivables 19.9 - - - - 0.1 0.4 20.4
Loans payable (381.9) 135.8 - - - (26.8) (0.6) (273.5)
Obligations under
finance leases (43.8) 8.4 - - - (0.3) - (35.7)
Derivatives
relating
to Net Debt* 14.6 - - - - 5.9 - 20.5
------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ------------
(67.6) (16.6) - - - (17.7) (0.2) (102.1)
------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ------------
* Net Debt has been restated to include derivative financial
instruments that relate to other components of Net Debt. See note
1.
At 1 Reclassified At 31
January Cash as held Exchange Non cash December
2016 flow for sale Acquisitions Disposals differences movements 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ---------
Cash and cash
equivalents 323.6 (153.7) - 0.1 - 7.8 - 177.8
Loan receivables 19.9 - - - - 0.1 2.9 22.9
Loans payable (381.9) 135.8 - - - (52.8) (1.0) (299.9)
Obligations under
finance leases (43.8) 16.7 (0.2) - - (0.4) (0.5) (28.2)
Derivatives relating
to Net Debt 14.6 - - - - 3.5 - 18.1
---------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ---------
(67.6) (1.2) (0.2) 0.1 - (41.8) 1.4 (109.3)
---------------------- -------- ------- ------------ ------------ --------- ------------ ----------- ---------
13. Provisions
Employee
related Property Contract Other Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- --------- --------- ------ ------
At 1 January 2016 36.4 18.3 302.1 124.9 481.7
Reclassified to trade and
other payables - - (13.1) - (13.1)
Charged to income statement
- exceptional - - - 7.9 7.9
Charged to income statement
- other 6.9 1.5 4.4 4.5 17.3
Released to income statement (2.3) (0.1) (17.7) (4.8) (24.9)
Utilised during the period (5.6) (3.0) (44.8) (3.6) (57.0)
Reclassification - (3.0) 0.7 2.3 -
Unwinding of discount - - 0.8 - 0.8
Exchange differences 2.9 0.8 6.9 3.2 13.8
------------------------------ -------- --------- --------- ------ ------
At 30 June 2016 (unaudited) 38.3 14.5 239.3 134.4 426.5
Acquisitions - 0.6 14.0 - 14.6
Reclassified to trade and
other payables - - 1.6 (8.3) (6.7)
Charged to income statement
- exceptional 0.4 - - 14.8 15.2
Charged to income statement
- other 18.7 2.9 52.2 19.2 93.0
Released to income statement
- exceptional (0.2) - (0.6) - (0.8)
Released to income statement
- other (3.0) (0.2) (47.2) (12.4) (62.8)
Utilised during the period (11.9) (3.2) (37.2) (14.1) (66.4)
Reclassification - 0.1 (8.0) 2.6 (5.3)
Transfer from assets held
for sale - - - 3.3 3.3
Eliminated on disposal of
subsidiary - - - (1.7) (1.7)
Unwinding of discount - 0.1 1.6 - 1.7
Exchange differences 2.8 0.4 4.5 3.4 11.1
------------------------------ -------- --------- --------- ------ ------
At 31 December 2016 (audited) 45.1 15.2 220.2 141.2 421.7
Charged to income statement
- exceptional 2.4 - - - 2.4
Charged to income statement
- other 8.8 0.7 - 2.4 11.9
Released to income statement
- exceptional (0.3) - - - (0.3)
Released to income statement
- other (3.1) (0.4) - (3.8) (7.3)
Utilised during the period (4.8) (1.6) (40.4) (2.7) (49.5)
Unwinding of discount - - 1.7 - 1.7
Exchange differences (0.9) (0.1) (1.2) (1.8) (4.0)
------------------------------ -------- --------- --------- ------ ------
At 30 June 2017 (unaudited) 47.2 13.8 180.3 135.3 376.6
------------------------------ -------- --------- --------- ------ ------
Analysed as:
------------------------------ -------- --------- --------- ------ ------
Current 11.9 3.5 70.9 70.1 156.4
------------------------------ -------- --------- --------- ------ ------
Non current 35.3 10.3 109.4 65.2 220.2
------------------------------ -------- --------- --------- ------ ------
Contract provisions are onerous contract provisions which will
be utilised over the life of each individual contract, the longest
remaining life which runs until 2024. The present value of the
estimated future cash outflows required to settle the contract
obligations as they fall due over the respective contracts has been
used in determining the provision. The individual provisions are
discounted where the impact is assessed to be material. Discount
rates used are calculated based on the estimated risk free rate of
interest for the region in which the provision is located and
matched against the ageing profile of the provision. Rates applied
are in the range of 0.17% to 3.30%. A full analysis is performed at
least annually of the future profitability of all contracts with
marginal performances and of the balance sheet items directly
linked to these contracts. Due to the significant size of the
balance and the inherent level of uncertainty over the amount and
timing of the related cash flows upon which onerous contract
provisions are based, if the expected operational performance
varies from the best estimates made at the previous balance sheet
date, a material change in estimate may be required. The key
drivers behind operational performance is the level of activity
required to be serviced, which is often directed by the actions of
the UK Government, and the efficiency of Group employees and
resources.
Employee related provisions are for long-term service awards and
terminal gratuities liabilities, which are based on contractual
entitlement, together with an estimate of the probabilities that
employees will stay until retirement and receive all relevant
amounts. There are also amounts included in relation to
restructuring. The provisions will be utilised over various periods
driven by local legal or regulatory requirements, the timing of
which is not certain.
Property provisions relate to leased properties which are either
underutilised or vacant and where the unavoidable costs associated
with the lease exceed the economic benefits expected to be
generated in the future. The provision has been calculated based on
the discounted cash outflows required to settle the lease
obligations as they fall due, with the longest running lease ending
in April 2039.
Other provisions are held for indemnities given on disposed
businesses, legal and other costs that the Group expects to incur
over an extended period, in respect of past events. These costs are
based on past experience of similar items and other known factors
and represent management's best estimate of the likely outcome and
will be utilised with reference to the specific facts and
circumstances, with the majority expecting to be settled by 31
December 2021.
14. Contingent liabilities
At 30 June 2017 the Company has guaranteed overdrafts, finance
leases, and bonding facilities of its joint ventures and associates
up to a maximum value of GBP4.8m (31 December 2016: GBP20.4m). The
actual commitment outstanding at 30 June 2017 was GBP4.8m (31
December 2016: GBP17.9m).
The Company 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 30 June 2017 was
GBP247.9m (31 December 2016: GBP252.1m).
As we have disclosed before, we are under investigation by the
UK's Serious Fraud Office. In November 2013, the UK's Serious Fraud
Office announced that it had opened an investigation, which remains
ongoing, into the Group's Electronic Monitoring Contract. We are
cooperating fully with the Serious Fraud Office's investigation but
it is not possible to predict the outcome at this time.
The Group is aware of claims and potential claims which involve
or may involve legal proceedings against the Group. 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.
15. Defined benefit schemes
The costs related to defined benefit pension schemes included
within operating profit in the six months ended 30 June 2017 amount
to GBP7.3m (2016: GBP7.0m). Included in investment income and
finance costs is a credit of GBP1.6m (2016: GBP2.3m) relating to
the net interest income on our consolidated pension schemes. Among
our non contract specific schemes, the largest is the Serco Pension
and Life Assurance Scheme (SPLAS). The most recent full actuarial
valuation of this scheme was undertaken as at 5 April 2015 and
resulted in an actuarially assessed deficit of GBP4.0m.
In June 2017 the Trustees of SPLAS entered into a bulk annuity
purchase whereby an insurer will fund future benefit payments to
the relevant members, commonly referred to as a "buy-in". The
liability to pay the members remains with SPLAS and therefore the
pension scheme will continue to include the relevant pension
liabilities, but an insurance asset is held at fair value, which is
an equal and opposite amount to the liability. This removes the
risk of longevity and investment movements for this portion of the
scheme on a funding basis, and also removes the accounting risk of
movements in underlying assumptions on the liabilities. Of the
total remeasurements recognised in the statement of other
comprehensive income in the six months ended 30 June 2017 of
GBP130.8m, GBP95.0m related to the revaluation of the assets and
liabilities as a result of this transaction. Whilst the impact
substantially reduced the asset on an IAS19 valuation basis, on an
actuarial basis the transaction decreased the deficit of the scheme
by approximately GBP12m. As a result of the transaction, the scheme
also exited a longevity swap arrangement early, at a cost borne by
the scheme of GBP7.5m. A summary of the amounts recognised in the
statement of other comprehensive income respect of the Group's
total defined benefit pension scheme position is set out below.
Six months
Six months
ended 30 ended 30
June 2017 June 2016
Year ended
(restated*) 31 December
(unaudited) (unaudited) 2016 (audited)
Included within the SOCI GBPm GBPm GBPm
--------------------------------------------- ------------ ------------- ---------------
Impact of SPLAS pension buy-in (95.0) - -
Cost of exiting the SPLAS longevity swap (7.5) - -
Actual return on scheme assets 1.1 199.5 286.1
Less: interest income on scheme assets (20.7) (24.5) (49.2)
--------------------------------------------- ------------ ------------- ---------------
(122.1) 175.0 236.9
Effect of changes in demographic assumptions - - 26.2
Effect of changes in financial assumptions (19.2) (153.3) (282.8)
Effect of experience adjustments 10.5 - 28.7
--------------------------------------------- ------------ ------------- ---------------
Remeasurements recognised in the SOCI (130.8) 21.7 9.0
--------------------------------------------- ------------ ------------- ---------------
Change in franchise adjustment 0.1 0.5 1.7
Change in members' share (0.1) 0.3 1.2
--------------------------------------------- ------------ ------------- ---------------
Actuarial gains on reimbursable rights - 0.8 2.9
--------------------------------------------- ------------ ------------- ---------------
Total pension (loss) / gain recognised in
the SOCI (130.8) 22.5 11.9
--------------------------------------------- ------------ ------------- ---------------
The assets and liabilities of the schemes are:
Contract Non contract
specific specific Total
30 June 30 June 30 June
2017 2017 2017
Scheme assets at fair value (unaudited) GBPm GBPm GBPm
----------------------------------------- --------- ------------ ---------
Equities 8.7 44.8 53.5
Bonds except LDI 2.8 20.4 23.2
Liability driven investments (LDI) - 761.5 761.5
Gilts - - -
Property 1.3 - 1.3
Cash and other 3.0 3.3 6.3
Annuity policies - 572.2 572.2
----------------------------------------- --------- ------------ ---------
Fair value of scheme assets 15.8 1,402.2 1,418.0
Present value of scheme liabilities (22.9) (1,400.8) (1,423.7)
----------------------------------------- --------- ------------ ---------
Net amount recognised (7.1) 1.4 (5.7)
Franchise adjustment* 3.9 - 3.9
Members' share of deficit 2.6 - 2.6
----------------------------------------- --------- ------------ ---------
Net retirement benefit asset (0.6) 1.4 0.8
----------------------------------------- --------- ------------ ---------
Net pension liability (0.6) (16.9) (17.5)
Net pension asset - 18.3 18.3
Deferred tax liabilities - (0.2) (0.2)
----------------------------------------- --------- ------------ ---------
Net retirement benefit asset (after tax) (0.6) 1.2 0.6
----------------------------------------- --------- ------------ ---------
* The franchise adjustment represents the amount of scheme
deficit that is expected to be funded outside the contract
period.
Contract Non contract
specific specific Total
30 June 30 June 30 June
2016 2016 2016
Scheme assets at fair value (unaudited) GBPm GBPm GBPm
----------------------------------------- --------- ------------ ---------
Equities 3.0 47.6 50.6
Bonds except LDI 0.6 19.8 20.4
Liability driven investments (LDI) - 1,308.7 1,308.7
Gilts - 70.3 70.3
Property 0.6 1.3 1.9
Cash and other 1.0 16.7 17.7
Annuity policies - 23.2 23.2
----------------------------------------- --------- ------------ ---------
Fair value of scheme assets 5.2 1,487.6 1,492.8
Present value of scheme liabilities (9.2) (1,347.3) (1,356.5)
----------------------------------------- --------- ------------ ---------
Net amount recognised (4.0) 140.3 136.3
Franchise adjustment* 2.4 - 2.4
Members' share of deficit 1.6 - 1.6
----------------------------------------- --------- ------------ ---------
Net retirement benefit asset - 140.3 140.3
----------------------------------------- --------- ------------ ---------
Net pension liability - (13.6) (13.6)
Net pension asset - 153.9 153.9
Deferred tax liabilities - (25.2) (25.2)
----------------------------------------- --------- ------------ ---------
Net retirement benefit asset (after tax) - 115.1 115.1
----------------------------------------- --------- ------------ ---------
* The franchise adjustment represents the amount of scheme
deficit that is expected to be funded outside the contract
period.
Contract Non contract
specific specific Total
31 December 31 December 31 December
2016 2016 2016
Scheme assets at fair value (audited) GBPm GBPm GBPm
----------------------------------------- ------------ ------------ ------------
Equities 3.3 43.3 46.6
Bonds except LDI 0.7 20.2 20.9
Liability driven investments (LDI) - 1,390.6 1,390.6
Gilts - 72.4 72.4
Property 0.6 - 0.6
Cash and other 1.2 4.2 5.4
Annuity policies - 20.0 20.0
----------------------------------------- ------------ ------------ ------------
Fair value of scheme assets 5.8 1,550.7 1,556.5
Present value of scheme liabilities (12.0) (1,418.0) (1,430.0)
----------------------------------------- ------------ ------------ ------------
Net amount recognised (6.2) 132.7 126.5
Franchise adjustment* 3.7 - 3.7
Members' share of deficit 2.5 - 2.5
----------------------------------------- ------------ ------------ ------------
Net retirement benefit asset - 132.7 132.7
----------------------------------------- ------------ ------------ ------------
Net pension liability - (17.7) (17.7)
Net pension asset - 150.4 150.4
Deferred tax liabilities - (17.6) (17.6)
----------------------------------------- ------------ ------------ ------------
Net retirement benefit asset (after tax) - 115.1 115.1
----------------------------------------- ------------ ------------ ------------
* The franchise adjustment represents the amount of scheme
deficit that is expected to be funded outside the contract
period.
Key pension assumptions:
30 June 2017 30 June 2016 31 December 2016
(unaudited) (unaudited) (audited)
Main assumptions % % %
------------------------- ----------------- ----------------- -----------------
Rate of salary increases 2.7 2.3 2.8
Rate of increase in 2.2 (CPI) and 3.2 1.7 (CPI) and 2.7 2.3 (CPI) and 3.3
pensions in payment (RPI) (RPI) (RPI)
Rate of increase in 2.2 (CPI) and 3.2 1.8 (CPI) and 2.8 2.3 (CPI) and 3.3
deferred pensions (RPI) (RPI) (RPI)
Inflation assumption 2.2 (CPI) and 3.2 1.8 (CPI) and 2.8 2.3 (CPI) and 3.3
(RPI) (RPI) (RPI)
Discount rate 2.6 2.9 2.7
------------------------- ----------------- ----------------- -----------------
30 June 2017 30 June 2016 31 December 2016
(unaudited) (unaudited) (audited)
Post retirement mortality years years years
-------------------------- ------------ ------------ ----------------
Current pensioners
at 65 - male 22.5 22.6 22.5
Current pensioners
at 65 - female 25.1 25.2 25.0
Future pensioners at
65 - male 24.3 24.5 24.2
Future pensioners at
65 - female 26.9 27.1 26.9
-------------------------- ------------ ------------ ----------------
The defined benefit obligation is calculated on the actuarial
assumptions agreed as at that date. The sensitivities set out below
are calculated by changing each assumption in turn following the
methodology above with all other things held constant. The change
in the defined benefit obligation from updating the single
assumption represents the impact of that assumption on the
calculation of the defined benefit obligation.
30 June 2017 30 June 2016 31 December 2016
(unaudited) (unaudited) (audited)
Pension assumption
sensitivities GBPm GBPm GBPm
-------------------------- ------------ ------------ ----------------
Discount rate - 0.5%
increase (113.7) (110.7) (116.5)
Discount rate - 0.5%
decrease 128.5 125.2 132.5
Inflation - 0.5% increase 89.6 110.0 106.1
Inflation - 0.5% decrease (86.5) (99.6) (87.6)
Rate of salary increase
- 0.5% increase 7.7 10.8 7.8
Rate of salary increase
- 0.5% decrease (7.4) (10.2) (7.4)
Mortality - one year
age rating 42.7 32.8 44.2
-------------------------- ------------ ------------ ----------------
16. Notes to the consolidated cash flow statement
30 June
30 June 2016
2017 Before 30 June
Before 30 June 30 June exceptional 30 June 2016
exceptional 2017 Exceptional 2017 items 2016 Exceptional Total
items items Total (restated) items (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
Operating profit / (loss) for
the period - continuing
operations* 33.1 (11.4) 21.7 72.5 (7.7) 64.8
Operating loss for the period
- discontinued operations - - - (3.2) (4.2) (7.4)
Operating profit / (loss) for
the period* 33.1 (11.4) 21.7 69.3 (11.9) 57.4
Adjustments for:
Share of profits in joint
ventures
and associates (14.6) - (14.6) (17.7) - (17.7)
Share based payment expense 6.9 - 6.9 4.9 - 4.9
Exceptional impairment of
property,
plant and equipment - - - - (0.3) (0.3)
Impairment of property, plant
and equipment - - - 0.3 - 0.3
Exceptional impairment of
intangible
assets - 2.8 2.8 - 0.3 0.3
Depreciation of property,
plant
and equipment 13.1 - 13.1 12.2 - 12.2
Amortisation of intangible
assets 13.4 - 13.4 11.8 - 11.8
Exceptional profit on disposal
of subsidiaries and
operations - (0.8) (0.8) - 1.2 1.2
Loss on disposal of property,
plant and equipment 0.1 - 0.1 0.4 - 0.4
Loss on disposal of intangible - - - - - -
assets
Non cash R&D expenditure
offset
against intangible assets (0.4) - (0.4) 0.1 - 0.1
Decrease in provisions (42.1) (0.6) (42.7) (77.8) (14.5) (92.3)
Other non-cash movements* 0.2 - 0.2 0.1 - 0.1
Total non-cash items* (23.4) 1.4 (22.0) (65.7) (13.3) (79.0)
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
Operating cash inflow /
(outflow)
before movements in working
capital 9.7 (10.0) (0.3) 3.6 (25.2) (21.6)
Decrease in inventories 5.6 - 5.6 0.3 - 0.3
(Increase) / decrease in
receivables (24.4) (1.4) (25.8) 4.5 - 4.5
Increase / (decrease) in
payables 3.7 (8.3) (4.6) (19.0) (6.9) (25.9)
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
Movements in working capital (15.1) (9.7) (24.8) (14.2) (6.9) (21.1)
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
Cash generated by operations* (5.4) (19.7) (25.1) (10.6) (32.1) (42.7)
Tax paid (7.9) - (7.9) (6.6) - (6.6)
Non cash R&D expenditure - - - (0.1) - (0.1)
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
Net cash outflow from
operating
activities* (13.3) (19.7) (33.0) (17.3) (32.1) (49.4)
------------------------------ ------------ ----------------- ------- ------------ ----------------- -----------
* Operating profit and other non-cash items have been restated
following the change in accounting policy to include foreign
exchange movements on investment and financing arrangements in net
finance costs and to reflect the associated cash flows and non-cash
movements in a consistent manner.
31 December
2016
Before 31 December 31 December
exceptional 2016 Exceptional 2016
items items Total
GBPm GBPm GBPm
----------------------------------------------- ------------ ----------------- -----------
Operating profit / (loss) for the year
- continuing operations 98.5 (56.3) 42.2
Operating loss for the year - discontinued
operations (3.3) (14.2) (17.5)
Operating profit / (loss) for the year 95.2 (70.5) 24.7
Adjustments for:
Share of profits in joint ventures and
associates (33.4) - (33.4)
Share based payment expense 9.7 - 9.7
Exceptional impairment of goodwill - 17.8 17.8
Exceptional impairment of property, plant
and equipment - (0.8) (0.8)
Impairment of property, plant and equipment 0.7 - 0.7
Exceptional impairment of intangible assets - 0.3 0.3
Impairment of intangible assets 0.7 - 0.7
Depreciation of property, plant and equipment 24.8 - 24.8
Amortisation of intangible assets 26.2 - 26.2
Exceptional profit on disposal of subsidiaries
and operations - (0.1) (0.1)
Loss on disposal of property, plant and
equipment 0.4 - 0.4
Loss on disposal of intangible assets 0.8 - 0.8
Non cash R&D expenditure offset against
intangible assets 0.2 - 0.2
Decrease in provisions (118.4) (1.1) (119.5)
Other non-cash movements 0.4 - 0.4
Total non-cash items (54.5) 16.1 (38.4)
-------------------------------------------------- ------------ ----------------- -----------
Operating cash inflow / (outflow) before
movements in working capital 7.3 (54.4) (47.1)
Decrease in inventories 1.3 - 1.3
Decrease in receivables 59.0 13.9 72.9
(Decrease) / increase in payables (84.0) 0.6 (83.4)
-------------------------------------------------- ------------ ----------------- -----------
Movements in working capital (23.7) 14.5 (9.2)
-------------------------------------------------- ------------ ----------------- -----------
Cash generated by operations (16.4) (39.9) (56.3)
Tax paid (5.6) - (5.6)
Non cash R&D expenditure (0.4) - (0.4)
-------------------------------------------------- ------------ ----------------- -----------
Net cash outflow from operating activities (22.4) (39.9) (62.3)
-------------------------------------------------- ------------ ----------------- -----------
17. 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. There have been no related party transactions
other than as disclosed.
Group companies entered into the following transactions with
joint ventures and associates:
Transactions
for the
six months Current Non current
ended 30 outstanding outstanding
June 2017 at 30 June at 30 June
(unaudited) 2017 (unaudited) 2017 (unaudited)
GBPm GBPm GBPm
------------------------------------------- ------------ ----------------- -----------------
Sale of goods and services
Joint ventures 0.2 - -
Associates 3.4 0.7 -
Other
Dividends received - joint ventures 3.9 - -
Dividends received - associates 9.9 - -
Receivable from consortium for tax - joint
ventures 1.0 8.7 -
18.4 9.4 -
------------------------------------------- ------------ ----------------- -----------------
AWEML was formerly a joint venture but from September 2016 there
was a change in the entity's shareholding structure, with the
Group's shareholding reducing from 33.3% to 24.5% by way of a
return of shares and Lockheed Martin taking a majority holding.
Subsequent to the change in share ownership, AWEML has been
accounted for as an associate as we continue to have significant
influence. In the first half of the prior year, the AWEML
transactions and outstanding balances were disclosed within joint
ventures below.
Transactions
for the
six months Current Non current
ended 30 outstanding outstanding
June 2016 at 30 June at 30 June
(unaudited) 2016 (unaudited) 2016 (unaudited)
GBPm GBPm GBPm
------------------------------------------- ------------ ----------------- -----------------
Sale of goods and services
Joint ventures 3.3 0.6 -
Other
Dividends received - joint ventures 19.7 - -
Receivable from consortium for tax - joint
ventures 1.2 10.5 -
24.2 11.1 -
------------------------------------------- ------------ ----------------- -----------------
Transactions Current Non current
for the outstanding outstanding
31 December at 31 December at 31 December
2016 (audited) 2016 (audited) 2016 (audited)
GBPm GBPm GBPm
------------------------------------------- --------------- --------------- ---------------
Sale of goods and services
Joint ventures 0.5 0.1 -
Associates 6.2 0.5 -
Other
Dividends received - joint ventures 20.4 - -
Dividends received - associates 19.6 - -
Receivable from consortium for tax - joint
ventures 3.2 7.7 -
49.9 8.3 -
------------------------------------------- --------------- --------------- ---------------
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. Interest
arising on loans is based on LIBOR, or its equivalent, with an
appropriate margin. No guarantee has been given or received. The
only loan amounts owed by joint ventures or associates related to a
single entity which have been provided for in full.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UUOWRBBAWRAR
(END) Dow Jones Newswires
August 03, 2017 02:01 ET (06:01 GMT)
Serco (LSE:SRP)
Historical Stock Chart
From Mar 2024 to Apr 2024
Serco (LSE:SRP)
Historical Stock Chart
From Apr 2023 to Apr 2024