2019 Full Year Results Serco Group plc 26 February 2020 Serco - - PowerPoint PPT Presentation

1 Serco Group plc – 2019 Full Year Results

2019 Full Year Results

Serco Group plc 26 February 2020

2 Serco Group plc – 2019 Full Year Results 2

Disclaimer

Forward-looking statements This presentation contains statements which are, or may be deemed to be, “forward-looking statements” which are prospective in nature. All statements other than statements of historical fact are forward-looking statements. Generally, words such as “expect”, “anticipate”, “may”, “could”, “should”, “will”, “aspire”, “aim”, “plan”, “target”, “goal”, “ambition”, “intend” 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

• f these factors are beyond Serco’s control or influence. These forward-looking statements speak only as of the date
• f this presentation 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 presentation 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 presentation, or to keep current any other information contained in this presentation. Accordingly, undue reliance should not be placed on the forward-looking statements.

3 Serco Group plc – 2019 Full Year Results

Agenda

Overview Rupert Soames, Group CEO Financial Review Angus Cockburn, Group CFO Operational Review Rupert Soames Q&A Rupert Soames Angus Cockburn Mark Irwin AsPac Update Mark Irwin, Divisional CEO

4 Serco Group plc – 2019 Full Year Results 4 Serco Group plc – 2019 Full Year Results

FY19 Overview

Rupert Soames Group Chief Executive

5 Serco Group plc – 2019 Full Year Results

FY19 – moving further into the ‘Grow’ stage

• Ver

ery y strong ng trad ading ng and and financi nancial al per erformance ance – Revenue £3,248m, up +13% at CFX; +8% organic, the first year of growth since 2013; +5% acquired – UTP £120m, up +25% at CFX; margin up 40bps to 3.7% – Underlying EPS 6.16p, up +15% at CFX – Free Cash Flow £62m; a more ‘normal’ 84% conversion of Underlying PAT

• Re

Record o d orde der in r inta take ke a and o d orde der bo r book – £5.4bn order intake; 2019 third year in a row that order intake exceeded revenue – Order book increased to £14.1bn, up from £12.0bn 12 months ago

• NSBU acq

SBU acqui uisition n mat ater erial ally ad y adds to s scal cale e and and cap capab ability o y of US d US def efence ence bus usines ness – Adds naval design, systems engineering, procurement and lifecycle support services to Serco’s existing skills in ship modernisation, integration and naval logistics – Doubles our US Navy work; long-term and growing demand for fleet expansion and maritime support

• Robus

ust Bal Balance ance Sheet Sheet – Underlying leverage 1.31x EBITDA; covenant leverage 1.17x; Adjusted Net Debt £215m – OCP journey is materially complete; no use of working capital facilities; pension schemes well funded; no refinancing required near-term

• 2020

2020 gui uidance ance for fur further her g growt wth i h in b n both R h Revenue evenue and and UT UTP – Revenue £3.4-3.5bn; ~+4% organic growth, plus ~+5-6% annualisation from NSBU acquisition – UTP to grow ~20% to ~£145m

• Di

Divi vidend end r rei eins nstat ated ed, ref eflect ecting ng f fur urther her g good progres ess ex expect ected ed i in n 2020 and 2020 and und under erlini ning ng the he scal cale o e of tur urnar naround und s since 2014 nce 2014

6 Serco Group plc – 2019 Full Year Results

• As predicted in 2014 Strategy plan, we transitioned from the “Transform” into the “Grow” stage in 18/19
• Stronger than anticipated FY19 - part-year acquisition contribution as well as very strong organic growth
• Revenue growth in FY19, the growth expected in FY20, as well as our very strong order intake, indicates we

are outperforming our overall market which we think is growing at 2-3% on a weighted basis

20 40 60 80 100 120 140 FY FY17 FY FY18 FY FY19 FY FY20e 0e

Profit: ~28%

28% C CAGR 2017-20 (~22% excluding NSBU contribution)

Revenue: 8%

8% 2019 organic @ CFX, ~4% 4% 2020

£120m £120m

(inc. £8.6m for 5 months

• f NSBU acquisition)

3. 3.7% 7% m margin in

~£145m £145m

(inc. ~£20m for NSBU)

~4. 4.2% 2% m margin in

£69m £69m

the nadir

2. 2.3% 3% m margin in

£m UTP

£93m £93m

3. 3.3% 3% m margin in

7 Serco Group plc – 2019 Full Year Results 7 Serco Group plc – 2019 Full Year Results

FY19 Financial Review

Angus Cockburn Chief Financial Officer

8 Serco Group plc – 2019 Full Year Results

FY19

Income Statement – Revenue and Trading Profit

FY18 HY19 £m Rev evenue enue Trading Profit Exclude: Contract & Balance Sheet Review adjustments Exclude: other one-time items (DFRP settlement) Underl rlying Trad rading Pro rofit ( t (UTP) UTP mar margin Exclude: IFRS16 benefit Unde derlying T g Tradi ding g Profit (U (UTP) ) pr pre I IFRS RS16 UTP m margin pre re IF IFRS RS16 16 3,248 133.4 (3.6) (9.6) 120. 120.2 2 3. 3.7% 7% (1.2) 119. 119.0 3. 3.7% 7% 2,837 116.7 (23.6)

• 93.

93.1 1 3. 3.3% 3% n/a 93. 93.1 1 3. 3.3% 3% 1,476 50.6

• 50.

50.6 6 3. 3.4% 4% (1.6) 49. 49.0 3. 3.3% 3%

Revenue excludes share of JV&A revenue; Trading Profit measures include share of JV&A PAT Contract & Balance Sheet Review adjustments and

• ther one-time items

excluded from UTP FY19 adopts IFRS16, prior periods not restated; UTP excluding IFRS16 benefit shown for comparison

• Fa

Favour urable e cur urrenc ency i impact in n FY FY19: 19: R Rev evenue enue +£42. +£42.2m 2m; UTP +£3. +£3.7m 7m – Sterling weakened 6c against the US$ but strengthened 5c against the Aus$

• Transl

nslationa nal FX FX sensi sensitivity: – FY19 £:US$ av. rate of 1.28; 5c move = ~£50m Revenue, ~£4m UTP (based on Americas + Middle East) – FY19 £:Aus$ av. rate of 1.83; 5c move = ~£20m Revenue, ~£1m UTP (based on AsPac)

• Est

stimated ed a adver erse se cur urrenc ency impact f for FY FY20e: 20e: Rev evenue enue £80 £80-90m 90m; U UTP ~£5m ~£5m – Assumes FY20e £:US$ av. rate of 1.31 and £:Aus$ av. rate of 1.95, based on actual rate for January 2020 and then applying 31 January 2020 spot rates for the rest of the year

9 Serco Group plc – 2019 Full Year Results

Revenue divisional analysis

First time Serco has reported organic growth since 2013 Organic growth driven by Americas (predominantly in defence Ship & Shore task orders and FEMA), and in AsPac (from the new AHSC Garrison Health contract in H2 and Citizen Services contact centre and processing

• perations)

UK moved to positive

• rganic growth due to the

start of the expanded AASC contract in H2

HY19 £m UK&E Americas AsPac Middle East Total tal FY FY19 v 19 v FY FY18 18 1,362 916 621 350 3, 3,248 248 1,362 873 636 335 3, 3,206 206 658 372 280 166 1, 1,476 476 FY19 Revenue - growth composition FY19 vs FY18 +2% +19% +16% (2%) +8. 8.2% 2% +£230m

• +7%

(3%) +4% +1. 1.5% 5% +£42m +3% +16%

• +4.8

.8% +£140m 1,301 646 548 342 2, 2,837 837 +5% +42% +13% +2% +14. 14.5% 5% +£412m FY18

Organic Acquisition/ Disposal FX TOTAL Reported Currency Constant Currency Reported Currency Reported Currency

• Organic growth of +8%, comprised +4% in H1 accelerating to +12% in H2
• Constant currency growth of +13% reflects the acceleration in organic growth

together with the acquisition contribution resulting from five months consolidation of NSBU from August 2019 (the Carillion hospital FM contracts annualised around the same time as transfers occurred June-August 2018)

10 Serco Group plc – 2019 Full Year Results

Underlying Trading Profit (UTP) divisional analysis

UTP increase led by Americas, which includes £8.6m from the NSBU acquisition, strong growth in defence and FEMA task

• rders, and the benefit of

the CMS new contract structure with unusually high volume of variable work in H1 UK benefited from annualisation of the Carillion acquisition; AASC transition costs offset with move to profit in H2; lower AWE lower margin AsPac change includes AHSC move to profit in H2 Middle East includes the margin reset on MELABS

UK&E Americas AsPac Middle East Div ivis ision ions Corporate Total tal Underlying Trading Profit and margin 38.5 77.8 32.2 13.5 162. 162.0 (45.5) 116. 116.5 5

Constant Currency

FY19 UTP 38.4 82.1 31.3 13.9 165. 165.7 7 (45.5) 120. 120.2 2 2.8% 9.0% 5.0% 4.0% 5. 5.1% 1% (1.4%) 3. 3.7% 7% 39.2 45.7 26.8 21.5 133. 133.2 2 (40.1) 93. 93.1 3.0% 7.1% 4.9% 6.3% 4. 4.7% 7% (1.4%) 3. 3.3% 3% (0.7) +32.1 +5.4 (8.0) +28. 28.8 8 (5.4) +23. 23.4 4

Reported Currency Reported Margin Reported Currency

FY18 UTP

Constant Currency Reported Margin

FY change (2%) +70% +20% (37%) +22% 22% +13% +25% 25%

Constant Currency

£m

• Favourable FX of £3.7m increases the FY change from +£23.4m to +£27.1m
• UTP growth of +25% at CFX increases to +29% at RFX
• IFRS16 adoption in FY19 increased UTP by £1.2m; excluding this, UTP would

have been £119.0m, growth of +24% at CFX (increases to 28% at RFX). IFRS16 adoption reduced UTP in UK&E by £2.2m; excluding this, UK&E UTP grew 4% to £40.6m and maintained its margin at 3.0%

• Margin increased by +40bps (still +40bps excluding IFRS16)

11 Serco Group plc – 2019 Full Year Results

Income Statement – EPS and DPS

Net Finance Costs increased due to IFRS16 and repayment of Intelenet vendor loan note in 2H18 Underlying effective tax of 25% (see Appendix 11) Underlying EPS up +18% (up +15% at CFX) Non underlying items of £13.2m (Contract & Balance Sheet Review items net £3.6m credit, £9.6m DFRP settlement credit) Increase in amortisation of intangibles arising on acquisition reflects NSBU acquisition Exceptional costs include SFO (see slide 12)

Underl rlying Trad rading Pro rofit ( t (UTP) Net Finance Costs (NFC) Und nder erlying ng P PBT Tax on UTP and NFC Und nder erlying ng P PAT Non underlying items Amortisation of intangibles arising on acquisition Non underlying tax PAT b bef efore e ex excep eptiona nals Exceptional items, net of tax Prof

• fit

it/(loss) af afte ter tax r tax Less: attributable to non-controlling interests Attri ttributab table to to e equity ty owners rs Weighted average share count for diluted EPS Und nder erlying ng EPS, S, d dilut uted ed Impact of non underlying items Statu tatuto tory ry E EPS before re excepti tional al ite tems ms, d dilute ted Impact of exceptional items Statu tatuto tory ry EPS, d dilute ted DPS ( S (rec ecommend ended ed re-instate tated) 120. 120.2 2 (21.8) 98. 98.4 4 (24.4) 74. 74.0 13.2 (7.5) (3.0) 76. 76.7 7 (26.1) 50. 50.6 6 (0.2) 50. 50.4 4 1,199.0m 6. 6.16p 16p 0.23p 6. 6.39p 39p (2.18p) 4. 4.21p 21p 1.0 .0p p 93. 93.1 1 (13.9) 79. 79.2 2 (20.6) 58. 58.6 6 23.6 (4.3) 11.8 89. 89.7 7 (22.3) 67. 67.4 4

• 67.

67.4 4 1,125.4m 5. 5.21p 21p 2.76p 7. 7.97p 97p (1.98p) 5. 5.99p 99p 0p p 50. 50.6 6 (10.5) 40. 40.1 1 (9.8) 30. 30.3 3

• (2.3)

1.3 29. 29.3 3 (30.7) (1 (1.4 .4) (0.3) (1 (1.7 .7) 1,146.3m 2. 2.62p 62p (0.09p) 2. 2.53p 53p (2.68p) (0 (0.1 .15p) p) 0p p FY18 HY19 £m FY19

12 Serco Group plc – 2019 Full Year Results

Exceptional items

Restructuring costs relate to the last year of the Transformation stage of implementing the strategy, including redundancy and other incremental costs Investigation by the Serious Fraud Office (SFO) concluded with a Deferred Prosecution Agreement; a fine of £19.2m together with £3.7m related to the SFO’s investigation costs £19.3m release of a provision originally charged in 2014 re commercial dispute legal claims

Exceptional (loss)/profit on disposals Other exceptional operating items: Restructuring costs SFO fine and investigation costs Other costs re UK Government reviews Acquisition costs re NSBU Release of provision re 2014 commercial dispute Reversal of impaired loan balances re prior disposal Cost of Guaranteed Minimum Pension equalisation Reversal of impairment of other assets Increased legal and onerous lease provisions Other exceptional operating items Excepti tional al o

• perati

rating ite tems ms Exceptional finance income re prior disposal loan note Tax on exceptional items Total tal e excepti tional al ite tems ms, net t of tax tax Mem emo: cash h flow and nd net net deb ebt ex excep eptiona nal item ems

• (12.8)

(22.9) (2.3) (4.7) 19.3

• (23.4)

(23. 23.4) 4)

• (2.7)

(26. 26.1) 1) (49. 49.2) 2) (0.5) (32.3)

• 0.4
• 13.9

(9.6) 0.8 (4.6) (31.4) (31. 31.9) 9) 7.5 2.1 (22. 22.3) 3) (19. 19.2) 2)

• (5.4)

(22.9) (1.1) (1.7)

• (31.1)

(31. 31.1) 1)

• 0.4

(30. 30.7) 7) (12. 12.1) 1) FY18 HY19 £m FY19

13 Serco Group plc – 2019 Full Year Results

Dividends

• Back

Background und to Bo Boar ard’s r reco ecommend endat ation n of r res esum uming ng divi vidend ends – 2019 has been a year of very strong operational and financial performance – 2019 was also the last year of significant outflows on OCPs and cash exceptionals – 2020 expectations are for further good progress in increasing underlying earnings and reducing financial leverage

• Ap

Approach t ach to p phas hasing ng and and co cover ver – 1/3: 2/3 weighting between interim and final payments – Underlying EPS cover initially of ~4x

• 1.

1.0p 0p f final nal divi vidend end i in r n res espect ect of FY FY19 19 ther heref efore e reco ecommend ended ed – Board’s recommendation is subject to shareholder approval at the AGM on 14 May; payment would then be on 5 June 2020

• Bo

Boar ard w will k keep eep t the d he divi vidend end und under er r reg egul ular ar co cons nsider erat ation – Will consider views of underlying earnings, cash flows and financial leverage, together with the prevailing market outlook – Mindful of maintaining an appropriate level of dividend cover, potential alternative uses of capital to generate incremental value for shareholders, and the desire to maintain financial flexibility and a strong Balance Sheet

14 Serco Group plc – 2019 Full Year Results

Cash flow, net debt and leverage

• Us

Usual ual cas cash f h flow w and and net net d deb ebt det etai ailed ed t tab ables es ar are i e incl nclud uded ed at at Ap Append endix 5 5 & 6 6

• Fr

Free Cas ee Cash h Fl Flow £62.0m £62.0m (FY18: £16.3m) – Improvement includes higher UTP , lower working capital outflow of £0.1m (FY18: £21.6m) and lower OCP utilisation of £40.9m (FY18: £51.8m) – 84% conversion of Underlying PAT (FY18: 28%) – 96% conversion of Trading Cash Flow (i.e. FCF before interest and tax outflows) to UTP (FY18: 48%)

• FY

FY20 20 FCF b FCF broad adly s y similar ar t to FY FY19, 19, as cash outflow on onerous contracts/leases at £15-20m is lower, but re- introduction of share purchases for Employee Share Ownership Trust to fund LTIPs (~£15m outflow); Trading Cash Flow conversion, subject to working capital outflow, should still be ~80%

• Adju

djuste sted Ne d Net D t Debt bt of f £214.5 .5m m (31 Dec 2018: £173.2m) – FCF inflow of £62m turns to a net cash outflow of £41m, driven by £49m outflow for exceptional costs and a £54m net outflow for acquisitions (£193m consideration paid, less £139m Placing proceeds received) – 365-day average Adjusted Net Debt of £231m (FY18: £219m); peak of £357m (FY18: £292m) – Average working capital days broadly unchanged; No use of working capital facilities across the Group – Reported Net Debt of £584m includes IFRS16 lease liabilities of £370m; covenant excludes lease liabilities; note that the Balance Sheet also includes IFRS16 lease assets of £345m

• Und

Under erlyi ying ng l lever everag age o e of 1. 1.31x 31x (FY18: 1.23x); covenant leverage lower at 1.17x (FY18: 1.06x) which reflects non-underlying credits in Trading Profit and therefore in covenant EBITDA (see Appendix 9)

• FY

FY20 20 ex expect ect Ad Adjus usted ed N Net et Deb Debt of ~£200m £200m, which is after assumptions for resumed dividend; leverage towards the lower end of our normal target range of 1-2x

15 Serco Group plc – 2018 Full Year Results

The OCP journey is materially complete

• OCP liability of £447m at end of 2014, reduced to £17m end of 2019; therefore ~96% ‘done’; cumulative net

release over 5 years within 2% of original liability

• Dealing with OCPs has been an operationally complex programme, pulling on many levers:

– Converted into a profitable contract: ‒ on rebid (eg COMPASS/AASC, PECS) ‒ on contract extension (eg Lincs CC, Melbourne Parks & Gardens) ‒ through operational improvements (eg FPMS, Herts CC, WLA parking) – Disposed of (eg contracts within Intelenet sale, ASP) – Early exit/hand-back (YJB, VDOT, East Kent) – Exit at end of contract (eg ACPB, Hong Kong Eastern Harbour Crossing and Tsing Sha CA)

• Original revenue base of onerous contracts was ~£600m; by the end of 2019 it is <£100m; only material

contracts remaining are PECS (ends August 2020, new contract already secured) and Caledonian Sleeper (loss share arrangement from April 2020, then terms adjustment or exit from April 2022; no OCP remains, only an IFRS16 lease liability of £23m)

OCP OCP Utilis ilisatio ion (£m) Cl Clos

• sing OCP

OCP Lia Liabilit ility (£m)

30 60 90 120 150 100 200 300 400 500

2014 2015 2016 2017 2018 2019 2020

OCP Utilisation (RHS) Closing OCP Liability (LHS)

16 Serco Group plc – 2019 Full Year Results

FY20 outlook and modelling assumptions

• Revenue

evenue of £3.4 £3.4-3. 3.5b 5bn n (FY19: £3,248m) – Total growth of +6-8%, comprising: ~+4% organic growth; +5-6% acquisition contribution from 7 months of NSBU; -2-3% estimate of adverse FX

• Und

Under erlyi ying ng Trad ading ng Pr Profit o

• f ~

~£145m £145m (FY19: £120m) – Benefit of full year contributions of AASC and AHSC contracts, as well as NSBU annualisation – Absorbs significant reduction on CMS contract, ~£4m PECS transition costs and ~£5m adverse FX – Outcome, as always, remains sensitive to even small percentage changes in revenues or costs, as well as movements in currency – Outcome particularly sensitive to continued successful progress mobilising and transitioning large new contracts such as Clarence Correctional Centre, Icebreaker and PECS

• Net

et Fi Finance nance Co Costs t to i incr ncreas ease e ~£5m £5m driven by the IFRS16 effect on a full year of AASC (FY19: £22m)

• Und

Under erlyi ying ng Ef Effect ective T ve Tax ax R Rat ate e ~25% 25% (FY19: 24.8%)

• Wei

eight hted ed aver averag age e num number er o

• f shar

hares es f for d dilut uted ed EPS ~ EPS ~1, 1,250m 250m (FY19: 1,199m)

• No mat

ater erial al ex excep ceptional nal co costs ant antici cipat ated ed in the Income Statement (FY19: £26m) or Cash Flow (FY19: £49m)

• FCF b

FCF broad adly y simi simila lar to r to prio prior y r year r (FY19: £62m), which absorbs an assumed modest working capital outflow to support growth and the resumption of purchase of own shares for ESOT

• Clo

losin sing A g Adju djuste sted d Net t Debt bt (ie (ie e exc xclu ludin ding le g lease se o

• bl

bliga igatio tions) ~£ s) ~£200m (FY19: £215m), which absorbs assumption of reinstated dividend

• Unde

derly rlying g le levera rage ge to towards th ds the lo lower e r end d of o f our n r norma rmal l ta targe get t ra rage ge of 1-2x 2x (FY19: 1.35x)

17 Serco Group plc – 2019 Full Year Results 17 Serco Group plc – 2019 Full Year Results

FY19 Operational Review

Rupert Soames Group Chief Executive

18 Serco Group plc – 2019 Full Year Results

• Or

Organi anic r c revenue evenue growt wth h after 5 years of decline; strong UTP progress, on track for ~28% CAGR 2017-20

• Acqu

quisitio isition o

• f N

f NSBU adds materially to scale and capability of US business

• Reco

ecord o

• rder

er i int ntak ake e (£5.4bn) and orde der bo r book k (£14.1bn) – UK: AASC and PECS – Australia: Defence Health and Adelaide Remand Centre; – US Pension Benefit Guarantee Corporation; US Air Force NexGen IT; US defence and FEMA task orders

• Investme

stment t in in pe peopl ple, , sy syste stems a ms and pr d processe sses de s deliv livers str rs strong g

• per

erat ational nal p per erformance ance – Successful mobilisation and transition of new contracts – Strong services delivery – People: culture of collaboration deepens with tangible results; 1,000 applications for 14 UK Graduate Scheme places; highest ever employee engagement – Internal systems/processes: strengthened shared services and IT systems; SAP upgrade, 13,000 on WFM; procurement transformation

• Co

Concl nclus usion n of SFO i SFO inves nvestigat ation n with DPA agreed; amicable settlement to DFRP dispute

FY19 highlights & lowlights

• Introduction of Cal

Caled edoni nian Sl an Sleep eeper er new rolling stock, but performance improving in recent months

• COM

COMPASS o ASS over verstayer ayers in Glasgow

• Iceb

Icebreak eaker er d del eliver very y timetable

• Rep

epleni enishi hing ng the p he pipel eline ne for new business still taking time, but picked up in H2

• Progress could be quicker on driving

co cont ntract act p product uctivi vity y and Co Cont ntinuo nuous us Im Improvem vement ent

• US growth stretches all functions
• Hong Kong contract losses
• UK: pe

perfo rformin rming g well l bu but ma t marke rket t is is to tough

• gh. Not a lot of new work;

customers prioritising Brexit challenges; budgets under pressure; Carillion hangover; PFI audits in Health.

Highlights Lowlights

19 Serco Group plc – 2019 Full Year Results

Each of our regions and the Group centre collaborate on bids,

• perations, talent, capability development, and strategy to make

good things happen

Immigration Opportunities Canadian Icebreaker Process Automation Maritime Strategy ATC European Patent Office Maritime Strategy Continuous Improvement (CI) Training Workforce Management (WFM) Prison Bids & Strategy CI Training Maritime Bids Tugmaster Training Health Strategy WFM MELABS Health Rail Asset Management Experience Lab Health bids & strategy DIO “Ways of Working” “Ways of Working” Space Strategy Space Strategy Defence Partnerships Defence Partnerships Maritime Bids CI Training Community Justice Strategy Aviation Data & Digital

20 Serco Group plc – 2019 Full Year Results

Order book and pipeline progress

• Order book progress comes from existing work (ie

rebids/extensions) as well as new work; cumulatively over last 7 years, mix of order intake has been roughly split 50:50 between rebids/extensions and new work

• Order book definition aligned from FY18 to IFRS15

disclosure (revenue to be recognised from remaining performance obligations on existing contractual arrangements); excludes unsigned extension periods, but the £14.1bn would be £1.2bn higher at £15.3bn if option periods in our US business were included; adding Serco’s share of JV&A revenue would add a further £1.5bn

• Acquisitions further enhance the order book progress;

£0.7bn added from Carillion transaction in FY18; NSBU has visibility of ~$700m but only $200m is recognised in the IFRS15 order book (rest is unexercised options)

• New bid pipeline at end of FY19 of £4.9bn excludes ~£1.6bn
• f opportunities <£10m ACV; going forward, we will no

longer apply this minimum size criteria, therefore the pipeline on the new basis is ~£6.5bn; we are also tracking a further ~£10bn at earlier ‘gate’ stage, and there is additional potential growth from US IDIQ frameworks, and other volume or in-contract opportunities; the pipeline also specifically excludes rebids and extensions, which also have potential to produce growth

• During FY19, almost the full value of the pipeline rotated.

Most opportunities from 12 months earlier have either been won, lost or removed, therefore most of the £4.9bn reflects new opportunities added

~55%

J&I Defence Citizen Services Transport Health

~25% ~11%

Americas AsPac UK & Europe Middle East

New ew bid p pipel eline ne at 31 31 Dec ecem ember er 2019 2019

~38% ~16% ~44%

13.6 12.6 10.0 9.9 10.7 12.0 14.1 2 4 6 8 10 12 14 1 2 3 4 5 6

Or Order b book

• ok prog
• gress

FY13 FY14 FY15 FY16 FY17 FY18 Rebid/extension award value (LHS) New bid award value (LHS) Acquisition TCV added to

• rder book (LHS)

IFRS15 definition change (LHS) Order book value (RHS) IFRS15 future contractual revenue (RHS) Award value (£bn) Order book value (£bn)

~8%

FY19

21 Serco Group plc – 2019 Full Year Results

Employee engagement: Viewpoint scores

65 56 51 38 51 55 72 71 69 77 54 51 49 58 59 62 65 70 73 45 45 42 42 51 53 54 56 67 71 35 40 45 50 55 60 65 70 75 80 2011 2011 2012 2012 2013 2013 2014 2014 Pulse 2014 2014 2015 2015 2016 2016 2017 2017 2018* 2018* 2019 2019

Leaders People Managers Employees

2019 changes: Leaders: +8 People Managers: +3 Employees: +4

2019 response rates:

27, 27,000 em 000 emplo loyees ees r res espond nding ing, who ho als lso provid ided ed 50, 50,000 ind 000 indiv ivid idua ual c l commen ents

* in 2018, the methodology for calculating employee engagement changed, aligned to the new specialist third party provider of the survey. As reported at the time, it is not possible to adjust historic data to restate to the new methodology, but analysis performed by the new provider in 2018 indicated that the engagement level for that year was broadly stable on the previous year’s score

22 Serco Group plc – 2019 Full Year Results

UK & Europe summary of FY19

Justice, Immigration, Defence, Health, Citizen Services, Transport

• Revenue up: +5% CFX, +2% organic (ie excl. Carillion health FM contracts).

Growth from the AASC contracts (COMPASS rebid and expansion), Skills Support for the Workforce and DWP contracts, and new enviro services for two councils. Growth was partially offset by some other contracts ending (East Kent Hospitals and Anglia Support Partnership, both of which were

• nerous), and lower revenue in some European operations.
• UTP margin flat: at 3.0% excl. IFRS16 effect (FY18: 3.0%), or 2.7% JV&A-

adjusted; JV&A contribution modestly reduced with new AWE pricing period; AASC transition costs in H1 more than offset by move to profit in H2; improved performance in health business driven by the Carillion acquisition.

• OCPs: £33m utilisation excl. IFRS16 effect (FY18: £47m); principally offsetting

losses on Caledonian Sleeper, COMPASS, PECS.

• Contracts awards: >£3bn. AASC, the Group’s largest ever award, was

~£1.9bn, and was part rebid and part new. PECS also rebid and expanded at ~£0.8bn; Other awards include: Skills Support for the Workforce; new enviro services for Windsor and Maidenhead, with extensions for numerous other councils; other extensions including defence support services, contact centre services and support to European institutions.

• Rebids/extensions due before end of 2022: Herts CC, FPMS, Skynet.
• Pipeline: several defence support opportunities; others in enviro and Citizen

Services; first tender for new prisons framework position; Gatwick IRC and some new enviro contracts already won.

Sectors FY19 Revenue

£1,362m

CFX change: +£62m +5%

FY19 UTP

£38.4m

CFX change: (£0.7m) (2%)

42% 34%

% of Group Revenue

23%

% of Group UTP (before corp. costs)

23 Serco Group plc – 2019 Full Year Results

Americas summary of FY19

Defence, Citizen Services, Transport

• Revenue up very strongly: +42% RFX, +35% CFX, +19% organic. Very

strong growth in US Navy ship mod task orders, albeit against a weak comparative in 1H18; particularly strong demand on the CANES IDIQ for network upgrade tasks on ships and submarines; also FEMA task orders and new contracts such as PBGC and USAF TRIRIGA.

• UTP margin up very strongly: to 8.6% excl. IFRS16 effect (FY18: 7.1%). CMS

revenue broadly flat but profit up strongly in H1 on new contract structure and unusually high volumes of fixed-price variable work; margins reduced in H2, and we don’t expect margins to recur at the FY19 levels in the future.

• NSBU tracking to plan: £110m revenue, £8.6m UTP

, 7%+ margin; smooth integration; ~$300m contract awards; visibility on ~$700m revenue (IFRS15

• rder book of ~$200m as excludes unexercised options).
• OCPs: £4m utilisation excl. IFRS16 effect (FY18: n/a) required on Ontario DES.
• Contract awards: ~£1.1bn. Increased task orders for Ship/Shore mod,

hardware and for FEMA. New contracts included PBGC field office services, training and counselling services to transitioning military service members, TRIRIGA NexGen IT for US Air Force Civil Engineering, and new shore IT and engineering sustainment for US Navy. Strong performance on securing framework places and rebids/extensions/options, including NSBU and BTP .

• Rebids/extensions due before end of 2022: FAA, ATFP

, Goose Bay.

• Pipeline: defence support functions; ATC support; Citizen Services to rebuild.

FY19 Revenue

£916m

CFX change: +£227m +35%

FY19 UTP

£82.1m

CFX change: +£32.1m +70%

25% 28% 25% 50%

% of Group UTP (before corp. costs) % of Group Revenue

Sectors

24 Serco Group plc – 2019 Full Year Results

AsPac summary of FY19

Justice, Immigration, Defence, Health, Citizen Services, Transport

• Revenue up strongly: +13% RFX, +16% CFX and organic. H2 contribution

from start of AHSC defence garrison health services. Also strong growth in Citizen Services operations for contact centre and processing support, including expansion of work for Department of Human Services and Australia’s National Disability Insurance Scheme, and new Victoria Police contact centre services for non-emergency incidents.

• UTP margin broadly flat: at 5.0% excl. IFRS16 effect (FY18: 4.9%). Profit

growth through expanded Citizen Services operations; AHSC transition costs in H1 offset by move to profit in H2.

• OCPs: £3m utilisation (FY18: £5m) required on Hong Kong transport
• perations.
• Contracts awards: ~£1.1bn. Major new AHSC contract valued at AU$1.01bn.

New win to operate Adelaide Remand Centre for South Australia Department

• f Correctional Services. Two-year extension for DIBP immigration services

and South Queensland Correctional Centre (SQCC).

• Rebids/extensions due before end of 2022: DIBP and SQCC (again); also

Department of Human Services, Acacia Prison, Australian Tax Office and defence marine services. In advanced stages for Fiona Stanley extension.

• Pipeline: refilling the pipeline is ongoing; opportunities already added in

J&I, Defence and Citizen Services, with further progress targeted across these and the Transport and Health sectors.

FY19 Revenue

£621m

CFX change: +£88m +16%

FY19 UTP

£31.3m

CFX change: +£5.4m +20%

25% 19% 25% 34%

% of Group Revenue

25% 19%

% of Group UTP (before corp. costs)

Sectors

25 Serco Group plc – 2019 Full Year Results

Middle East summary of FY19

Transport, Defence, Health, Citizen Services

• Revenue broadly flat: +2% RFX but -2% CFX and organic; growth from

expanded services at the Dubai Metro and new contracts for airport fire & rescue services and hospital support services in Saudi Arabia. Revenue reduced on the rebid MELABS contract, loss of Bahrain air navigation services and a reduction in Saudi rail operations.

• UTP margin down: to 3.9% excl. IFRS16 effect (FY18: 6.3%); decline driven,

as expected, by significant reduction on the MELABS contract following the successful rebid.

• OCPs: no OCPs.
• Contracts awards: ~£0.2bn (excludes signing of two-year extension of

Dubai Metro as the signed LOI was included in 2H18); new advisory service to support Mashroat, public infrastructure programmes in Saudi Arabia; Jeddah hospital FM and patient-facing services; further extensions of Air Navigation Services (ANS) in Dubai and Baghdad.

• Rebids/extensions due before end of 2022: Dubai Metro full competitive

rebid now underway; further extensions or rebids would again be required

• n Dubai and Baghdad ANS, together with the MELABS and Saudi rail
• perations.
• Pipeline: includes a small number of Transport support opportunities, with

the first of these (Dubai Airports hospitality services) already won earlier this month; effort ongoing to rebuild a stronger pipeline across all current sectors of ME operation.

Sectors FY19 Revenue

£350m

CFX change: (£8m) (2%)

FY19 UTP

£13.9m

CFX change: (£8.0m) (37%)

25%

11%

25% 34%

% of Group Revenue

25%8%

% of Group UTP (before corp. costs)

26 Serco Group plc – 2019 Full Year Results 26 Serco Group plc – 2019 Full Year Results

Asia Pacific Update

Mark Irwin Divisional CEO, Serco Asia Pacific

27 Serco Group plc – 2019 Full Year Results

Asia Pacific: divisional overview reminder

~23% ~14%

J&I Defence Citizen Services Transport Health

~45% ~15%

Rev evenue enue by sec sector

~3%

Major co r contra tracts cts:

Cont ntract Onshore Immigration Detention Fiona Stanley Hospital Acacia Prison Australian Tax Office Fleet Marine Services Clarence Correctional Centre (formerly Grafton) BU BU J&I Health J&I CS Defence J&I

Ope peration

• ns acros
• ss:

:

– ~30 contracts – ~20 customers – 11k+ employees +20%

2019 f 2019 fina inanc ncia ial l sum ummary:

– Revenue £621m +16% – UTP £31m +19% – Margin 5.0% +10bps

ADF Health Services Contract (AHSC) CS Department of Human Services (DHS) CS

< New, started July 2019 < Significant growth < Extended to Dec 2021 < Current extension negotiations < New, operational mid 2020 < Rebid for beyond 05/2021 < Rebid for beyond 04/2021 < Rebid for beyond 09/2021

28 Serco Group plc – 2019 Full Year Results

Asia Pacific: key contract developments

Clarence Correctional Centre ADF Health Services (AHSC) Fiona Stanley Hospital

CONTRACT CUSTOMER PERIOD SCOPE RSV Nuyina (Noy-ee-na) Design, Build, Operate and Maintain (DBOM) Australian Antarctic Division 4yr D&B + 10yr O&M + 4 x 5yr extensions TCV ~£160m (4 + 10yr) CONTRACT CUSTOMER PERIOD SCOPE Provision of National Garrison Health Services Clinical workforce solutions at 50+ bases in Australia Australian Defence Force 6yr + 4 x 1yr extensions TCV ~AUD1.0bn/£0.6bn (6yrs) CONTRACT CUSTOMER PERIOD SCOPE Operator led design and O&M under PPP O&M of Australia’s largest prison; 1,400-male 300-female NSW Department of Corrections 20yrs TCV ~AUD2.6bn/~£1.4bn CONTRACT CUSTOMER PERIOD SCOPE Provision of non-clinical support services Provision of integrated non-clinical support services WA Department of Health 10yrs to August 2021 TCV ~AUD1.3bn/£0.8bn

ASRV (‘Icebreaker’)

29 Serco Group plc – 2019 Full Year Results

Asia Pacific: Clarence Correctional Centre video

PLAY

30 Serco Group plc – 2019 Full Year Results

Asia Pacific: key contract developments

Clarence Correctional Centre ADF Health Services (AHSC) Fiona Stanley Hospital

CONTRACT CUSTOMER PERIOD SCOPE RSV Nuyina (Noy-ee-na) Design, Build, Operate and Maintain (DBOM) Australian Antarctic Division 4yr D&B + 10yr O&M + 4 x 5yr extensions TCV ~£160m (4 + 10yr) CONTRACT CUSTOMER PERIOD SCOPE Provision of National Garrison Health Services Clinical workforce solutions at 50+ bases in Australia Australian Defence Force 6yr + 4 x 1yr extensions TCV ~AUD1.0bn/£0.6bn (6yrs) CONTRACT CUSTOMER PERIOD SCOPE Operator led design and O&M under PPP O&M of Australia’s largest prison; 1,400-male 300-female NSW Department of Corrections 20yrs TCV ~AUD2.6bn/~£1.4bn CONTRACT CUSTOMER PERIOD SCOPE Provision of non-clinical support services Provision of integrated non-clinical support services WA Department of Health 10yrs to August 2021 TCV ~AUD1.3bn/£0.8bn

ASRV (‘Icebreaker’)

31 Serco Group plc – 2019 Full Year Results

Asia Pacific: key divisional achievements

Exec ecut uting ing brillia illiant ntly ly

Successful AHSC and ARC transitions. DHS organic

• growth. Mobilisation for Clarence and ASRV

Winning inning good b bus usines iness

7 new bid wins (TCV £0.7bn) 7 rebid / extension wins (TCV £0.4bn)

Profit itable le a and nd sus ustaina inable le

Revenue +16% CFX growth in FY19 UTP +20% CFX growth in FY19 Margin +10bps On track with 5 year plan to reach ~£1bn revenue and ~6% UTP margin by 2024

A pl place pe peopl

• ple a

are pr prou

• ud t

d to

• wor
• rk

D&I focus Engagement score +2% 400 promotions 30-year anniversary

32 Serco Group plc – 2019 Full Year Results

Asia Pacific: trends affecting our markets

KEY SOCIO-POLITICAL AND GEO-POLITICAL TRENDS

• Continued momentum for

infra build

• Pacific pivot
• Resurgence of anti-

privatisation at state government level – QLD, WA

• Election cycle – NZ, QLD,

WA

MARKET FACTORS

• Maturing of outsourcing

marketplace in ANZ

• Service-outcome focus for

government activities

• Digital future
• Surge in middle class

across Asia: service & infra deficits

• Emerging outsourcing

marketplace in developing countries

KEY COMPETITOR TRENDS

• Ongoing consolidation:

Broadspectrum $3.5bn revenue, Ventia $2.2bn revenue

• Turnaround of under

performing businesses - ISS and Spotless

• Technology being used as

a key differentiator in contracted service delivery

• Emergence of non-

traditional competitors

33 Serco Group plc – 2019 Full Year Results

Asia Pacific: delivering growth

• Mai

aint ntai ain ab n absolut ute f e focus cus o

• n o

n oper erat ational nal stand andar ards

– Delivery of all contract obligations, and the safety and security of our people – Ensure new contracts transition smoothly to full operational stage – Achieve the potential benefits of Workforce Management, Shared Services and the Operating Model

• Develop

p our pr r propo posi sitio tion

– Explore service offering expansions and adjacencies – Leverage and collaborate across the wider Group – Attract, train and retain in a competitive market; deliver on the attractiveness of our strong social value, public service ethos and progress in diversity & inclusion

• Bal

Balance o ance our ur p portfolio

– Growth in Citizen Services makes it now almost a quarter of the Division, though J&I still dominates at just under half – Australia still dominates, though progress in New Zealand and looking at new geographic markets

• Del

Deliver ver our ur p plan an

– Very strong FY19, with 16% organic revenue growth; expect ~10% in FY20 with annualising new contracts started part-way through FY19 (eg AHSC) and the new operations in FY20 (eg Clarence) – Further rebuild the pipeline for longer term growth opportunities – Deliver in-contract and further operating model efficiencies to improve the Divisional margin above 5%

Asia Pacific: moving further into the ‘Grow’ stage

34 Serco Group plc – 2019 Full Year Results 34 Serco Group plc – 2019 Full Year Results

Summary & Outlook

Rupert Soames Group Chief Executive

35 Serco Group plc – 2019 Full Year Results

Summary

• Very strong trading and financial performance
• Record order intake and order book
• NSBU acquisition materially adds to scale and capability of US defence business
• Robust Balance Sheet
• 2020 guidance for further growth in both Revenue and UTP
• Dividend reinstated

36 Serco Group plc – 2019 Full Year Results 36 Serco Group plc – 2019 Full Year Results

Q&A &A

37 Serco Group plc – 2019 Full Year Results

Appendix 1 – notes and definitions

• Revenue is as defined under IFRS, which excludes Serco’s share of revenue of its joint ventures and associates. In prior periods where relevant, revenue

including that from any discontinued operations has been shown for consistency with previous guidance and disclosures.

• Organic revenue growth is the change at constant currency after adjusting to exclude the impact of relevant acquisitions or disposals.
• Trading Profit is defined as IFRS Operating Profit excluding amortisation of intangibles arising on acquisition as well as exceptional items. Consistent with

IFRS, it includes Serco’s share of profit after interest and tax of its joint ventures and associates. Underlying Trading Profit excludes Contract & Balance Sheet Review adjustments (principally Onerous Contract Provision (OCP) releases or charges) and other material one-time items. In prior periods where relevant, it has also excluded the beneficial treatment of depreciation and amortisation of assets held for sale. In prior periods where relevant, Trading Profit measures have included discontinued operations for consistency with previous guidance and disclosures.

• Change at constant currency for Revenue and Underlying Trading Profit is calculated by translating non-Sterling values for the period being reported into

Sterling at the average exchange rate for the comparable period.

• Underlying EPS reflects the Underlying Trading Profit measure after deducting pre-exceptional net finance costs and related tax effects.
• Trading 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 and is stated after net capital expenditure on tangible and intangible asset purchases, adding dividends we receive from joint ventures and associates, and adjusting to remove net tax paid.

• Free Cash Flow is Trading Cash Flow after adjusting to deduct net interest paid and net tax paid.
• Pre-tax ROIC is calculated as Underlying Trading Profit or Trading Profit divided by the Invested Capital balance on a two-point average basis. Invested

Capital assets are: goodwill and other intangible assets; property, plant and equipment (excluding ROU lease assets); interests in joint ventures and associates; contract assets, trade and other receivables; and inventories. All other assets are excluded from Invested Capital, being: ROU lease assets; tax assets; derivative financial instruments; retirement benefit assets; and cash and cash equivalents. Of the total liabilities on the Balance Sheet, Invested Capital liabilities are contract liabilities, trade and other payables. All other liabilities are excluded from Invested Capital being: lease liabilities; tax liabilities; provisions; derivative financial instruments; retirement benefit obligations; and loans. In prior periods where relevant, assets and liabilities classified as held for sale were also included in Invested Capital.

• The order book reflects the estimated value of future revenue based on all existing signed contracts, excluding Serco’s share of joint ventures and
• associates. It excludes contracts at the preferred bidder stage and excludes the award of new Multiple Award Contracts (MACs) or Indefinite Delivery /

Indefinite Quantity (IDIQ) contract or framework vehicles, where Serco cannot estimate with sufficient certainty its expected future value of specific task

• rders that may be issued under the IDIQ or MAC; in these situations the value of any task order is recognised within the order book when subsequently

won. In 2018, the definition was aligned with IFRS15 disclosures of the future revenue expected to be recognised from the remaining performance

• bligations on existing contractual arrangements. This excludes unsigned extension periods as well as option periods in our US business (though an order

book value including option periods is also noted).

• The pipeline is defined as new bid opportunities with estimated Annual Contract Value (ACV) of at least £10m, and which are expected to be bid and

awarded within a rolling 24-month timeframe. The TCV of individual opportunities is capped at £1bn. The definition does not include rebids and extension

• pportunities related to existing contractual relationships. FOR MACs or IDIQs, only the potential value of any individual task order is included.

38 Serco Group plc – 2018 Full Year Results

Appendix 2 – market growth and drivers

• Weighted growth rate across all our sectors and geographies has slowed from 5-7% seen in 2010-14 to around 2-3% in

2018-19; conditions in the UK, which represents ~40% of our revenues, weakened in large part because of Brexit diversion, and acting as a drag to aggregate market growth; demand in some markets remained more robust eg US defence market growth forecast to be ~8%

Public lic Polic licy

Growing costs: healthcare, ageing population and infrastructure Rising expectations

• f choice and

service quality Need to balance public income and expenditure, and reduce public debt Voters unwilling to to tolerate higher taxation

Fi Fier erce ce pres essur ure o e on gover vernm nment ents to d del eliver ver mo more, a , and be d bette tter, fo , for le r less ss

• But the fundamentals remain the same:

– Gover ernm nment ent r resp esponsi nsibility: to ensure public services are

• f high quality and represent good value to the taxpayer

and service user – ‘Fo Four ur Fo Forces’ es’ o

• n

n pub ublic p policy: that also creates unrelenting pressure on governments to improve productivity – Pri riva vate te s secto ctor’ r’s a ability to ty to offer: innovation, efficiency, choice, contestability, accountability, international experience, access to talent and capital

• Progress made in UK Government acknowledgement of too

much focus in the past on cost over quality, and inappropriate risk transfer to suppliers

• UK Government published in February 2019 its ‘Outsourcing

Playbook’ reflecting much of our thinking on Four Principles (Transparency / Orderly Exit / Security of Supply / Fairness). An important and positive development

• Desp

espite w e wea eaker er m market et growth, h, Ser Serco’s st s strong ng order er i int ntake m e mea eans ns tha hat it ha has s out utper erformed ed i in n 2019 2019 with 8% h 8%

• rgani

nic g growth h and nd i is f s forec ecast sting ng ~4% ~4% in n 2020 2020 with h the a he annua nnualisi sing ng ef effec ect of AASC SC a and nd AHSC SC, toget ether her w with h

• ther

her new new cont ntracts suc s such h as C s Clarenc ence/ e/Grafton and nd Iceb ebrea eaker er b bec ecoming ng o

• per

erationa nal in t n the he yea ear

39 Serco Group plc – 2019 Full Year Results

FY19 revenue mix, including share of JV&As*

Appendix 3 – Serco’s focus on five sectors across four regions

* Reflects £3,248.4m reported revenue, adjusted to include Serco's share of joint ventures and associates revenue of £394.6m

To Total £1, £1,756m 756m 48% £916m £916m 25% £621m £621m 17% £350m £350m 10% Jus ustic ice & e & Immi mmigrat ation £591m £591m 16% Hea ealt lth £428m £428m 12% £3, £3,643m 643m Def efenc ence £1, £1,170m 170m 32 32% Cit itiz izen en Ser Servic ices es £885m £885m 24% Tra ransport rt £569m £569m 16% Sec Sector Amer eric icas UK & K & Europe

• pe

Asia ia Pacif ific ic Mid Middle le East st 477 312 233 303 431 576 100 240 89 20 95 138 28

• 216

30 76 £m 279

40 Serco Group plc – 2019 Full Year Results

(£250m) (£200m) (£150m) (£100m) (£50m) £0m £50m £100m £150m £200m £250m 31/12/12 30/06/13 31/12/13 FY13 Key: Net debt 365-day average, indexed Difference between daily net debt and 365-day average Difference at statutory balance sheet date Peak/trough range 31/12/18 30/06/19 31/12/19 FY19 31/12/17 30/06/18 31/12/18 FY18 31/12/16 30/06/17 31/12/17 FY17 31/12/15 30/06/16 31/12/16 FY16 31/12/14 30/06/15 31/12/15 FY15 31/12/13 30/06/14 31/12/14 FY14

Appendix 4 – cash management normalisation

The impact of net proceeds from the May 2014 Placing, the April 2015 Rights Issue and refinancing, and the December 2015 BPO disposal are all adjusted for in the above charts. In FY19, the effect of the 28 May 2019 Placing proceeds (cash inflow of £139m for ~7 months of the year) and the completion of the NSBU acquisition on 1 September 2019 (cash outflow of £184m for ~5 months of the year) have also been adjusted for; for the purpose of the above chart this has the effect of changing the 365-day average from £231m to £237m, and changing the year-end Adjusted Net Debt from £215m to £169m.

Pre 2014, net debt at statutory Balance Sheet dates had been as much as £200m+ better than the 365-day average Previous cash management has been unwound, removing the cash inflow ‘spikes’ seen at the open/mid/closing statutory dates of FY13 and FY14 By FY16, the in-year cash cycle swing narrowed the peak/trough range; the difference between statutory Balance Sheet and average net debt has since been ~£50m Some daily volatility can still result from the timing of contracts starting and ending; statutory dates will be persistently better than the average due to 4-4-5 billing cycle in the US

41 Serco Group plc – 2019 Full Year Results

Appendix 5 – Free Cash Flow and Trading Cash Flow

FY18 FCF restated for capital repayment of finance lease liabilities; no impact to overall movement in net debt For FY19, IFRS16 introduces two new lines which broadly net out: depreciation of lease ROU assets; and capital repayment of all leases (ie including previous

• perating leases)

FCF improvement: lower working capital movement, OCP utilisation and capex Average working capital days broadly unchanged No use of working capital facilities across the Group

Op Operatin ing prof

• fit

it b befor

• re e

exc xception ionals ls Share of profit of joint ventures and associates Depr’n and amort’n (excl. IFRS16 leases) (see Appendix 7) Depreciation and impairment of lease ROU assets Working capital movement OCP utilisation (excl. accelerated OCP utilisation re IFRS16 leases) Accelerated OCP utilisation re IFRS16 leases Other movements in provisions Other non-cash movements (see Appendix 7) Tax paid Net t cas ash flow fro rom m operati rating ac acti tiviti ties Dividends from joint ventures and associates Net interest paid Capital repayment of lease liabilities Net capital expenditure Purchase of own shares net of options proceeds Fr Free ee Cash h Fl Flow (FC FCF) F) Add-back: tax paid and net interest paid, as above Add-back: non-cash R&D, within other movements Trad rading Cas ash Flow Memo:

• : U

UTP to T

• Tradin

ing Cash Flow low c con

• nversion

ion 125. 125.9 9 (27.5) 43.3 75.6 (0.1) (40.9) (12.7) 10.5 9.2 (31.2) 152. 152.1 1 25.4 (22.2) (70.2) (23.3) 0.2 62. 62.0 53.4 0.1 115. 115.5 5 96% 96% 112. 112.4 4 (28.8) 43.2 n/a (21.6) (51.8)

• (16.3)

16.4 (10.6) 42. 42.9 9 29.7 (18.1) (8.7) (29.5)

• 16.

16.3 3 28.7 0.1 45. 45.1 1 48% 48% 48. 48.3 3 (13.5) 21.7 29.4 (7.5) (29.5) (12.6) 6.7 5.6 (17.2) 31. 31.4 4 13.4 (10.5) (22.3) (11.7) 0.1 0. 0.4 4 27.7

• 28.

28.1 1 56% 56% FY18 HY19 £m FY19

42 Serco Group plc – 2019 Full Year Results

Appendix 6 – Net debt and leverage summary

FY18 HY19

Adjusted Net Debt excludes all IFRS16 lease liabilities, which increased to £369.9m given AASC; FY18 restated to exclude £14.8m of finance leases as IFRS16 makes no distinction between finance and operating leases Closing Adjusted Net Debt compares to a daily average of £231m; peak of £357m (reflects timing of NSBU consideration and exceptional cost outflows) Covenant leverage of 1.17x; on an underlying basis (ie excluding DFRP settlement and other non- underlying items) leverage was 1.31x

£m Fr Free ee Cash h Fl Flow Exceptional items (see Appendix 8) Net (acquisition)/disposal of subsidiaries Equity Placing net proceeds Other movements in investment and loan balances Cash movements on hedging instruments Foreign exchange movement on net debt Movem ement ent in n Adjus usted ed Net et Deb ebt (HY19 19 pro forma) Opening Net Debt Exclude finance leases in Opening Net Debt Closing Adjuste ted Net t Debt t (HY19 p pro ro f forma) rma) Covenant adjustments (see Appendix 9) Net t borro rrowings (HY19 p pro ro f forma) rma) HY19 pro forma: Equity Placing net proceeds Net et borrowing ngs per er covena enant nt EBITDA p per er covena enant nt (see Appendix 9) Exclude non-underlying items EBITDA und under erlyi ying ng Leverag rage rati ratio p per r covenan ant Leverag rage rati ratio u underl rlying (HY19 p pro ro forma) rma) 16. 16.3 3 (19.2) (31.3)

• 4.0

0.2 (22.3) (52. 52.3) 3) (141.1) 20.2 (173. 173.2) 2) (8.3) (181. 181.5) 5) n/a (181. 181.5) 5) 171. 171.0 (23.6) 147. 147.4 4 1. 1.06x 06x 1. 1.23x 23x 0. 0.4 4 (12.1) (9.3)

• 0.3

(7.0) 0.3 (27. 27.4) 4) (173.2) n/a (200. 200.6) 6) (11.5) (212. 212.1) 1) 138.7 (73. 73.4) 4) 170. 170.5 5 (15.8) 154. 154.7 7 0. 0.43x 43x 1. 1.37x 37x FY19 62. 62.0 (49.2) (193.2) 138.7 0.3 (2.0) 2.1 (41. 41.3) 3) (173.2) n/a (214. 214.5) 5) (20.6) (235. 235.1) 1) n/a (235. 235.1) 1) 200. 200.7 7 (21.5) 179. 179.2 2 1. 1.17x 17x 1. 1.31x 31x

43 Serco Group plc – 2019 Full Year Results

Appendix 7 – cash flow breakdown 1 & breakdown 2

FY19 FY18 HY19 £m Brea eakdown 1 n 1 – depreciation, amortisation and impairment Depreciation (excluding lease ROU assets) Amortisation (non-acquisition) Depre reci ciati tion and a amo morti rtisati tion Impairment of intangible assets Impairment of PPE (excluding lease ROU assets) D&A i inc

• nc. i

impairment ent (ex

• excl. lea

ease R se ROU a asset ssets s and nd acqui uisi sition i n int ntang ngibles) es) Amortisation of intangibles arising on acquisition Total d dep eprec eciation, n, amortisa sation n and nd impairment ent (ex exclud uding ng l lea ease R se ROU a asset ssets) s) Brea eakdown 2 n 2 – other non-cash movements Share-based payment expense (Profit)/loss on disposal of PPE, intangible assets and leases Non-cash R&D expenditure Other non-cash movements Other her no non-cash m sh movem ement ents 15.3 18.1 33. 33.4

• 2.4

35. 35.8 7.5 43. 43.3 3 11.6 (1.1) (0.1) (1.2) 9. 9.2 2 19.5 18.6 38. 38.1 1 0.1 0.7 38. 38.9 9 4.3 43. 43.2 2 14.7 2.0 (0.1) (0.2) 16. 16.4 4 10.0 9.4 19. 19.4 4

• 19.

19.4 4 2.3 21. 21.7 7 5.6 0.1

• (0.1)

5. 5.6 6

44 Serco Group plc – 2019 Full Year Results

Appendix 8 – cash flow breakdown 3

Brea eakdown 3 n 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review SFO fine and investigation costs Other costs re UK Government reviews Acquisition costs re NSBU Costs re legal claims previously provided for Costs re DLR pension deficit settlement Other cash flow exceptional items Excep eptiona nal i item ems c s cash sh cost sts Loan balances re prior disposal – reversal of impairment Loan receivables re prior disposal – increase/gain on early repayment Other net debt exceptional items Cash f sh flow and nd net net deb ebt ex excep eptiona nal item ems (32.3)

• (0.3)
• 0.7

(8.3)

• (40.2)

(40.2) 13.4 7.5 0.1 (19. 19.2) 2) (19.2) (22.9) (2.2) (4.7)

• (0.2)

(49.2) (49.2)

• (49.

49.2) 2) FY19 FY18 HY19 £m (11.1)

• (1.0)
• (12.1)

(12.1)

• (12.

12.1) 1)

45 Serco Group plc – 2019 Full Year Results

Appendix 9 – leverage covenant calculation

Trading Profit Exclude: share of joint venture and associate post-tax profits Exclude: foreign exchange credit on investing and financing arrangements Include: dividends from joint ventures and associates Add-back: D&A inc. impairment (excl. lease ROU assets and acquisition intangibles) Add-back: net non-exceptional charges to OCPs Add-back: share-based payments charge Covenant adjustment to pro forma for NSBU acquisition Other covenant adjustments including reflecting GAAP pre IFRS16 EBITDA per er c covena enant nt Adjusted Net Debt (closing, pro forma for HY19) Add: finance leases (as covenant reflects GAAP pre IFRS16) Exclude: disposal vendor loan note, encumbered cash and other adjustments Covenant adjustment for average FX rates Net b t borro rrowings (pro ro f forma rma f for r HY HY19) Equity Placing net proceeds pro forma adjusted in HY19 Net et b borrowing ngs s per er c covena enant nt Lev ever erage e ratio p per er c covena enant nt (not to exceed 3.5x) 133.4 (27.5) (0.8) 25.4 35.8 7.2 11.6 12.1 3.5 200. 200.7 7 (214.5) (8.9) (4.1) (7.6) (235. 235.1) 1) n/a (235. 235.1) 1) 1. 1.17x 17x 121.9 (27.3) (0.9) 27.0 38.0

• 13.4
• (1.6)

170. 170.5 5 (200.6) (11.7) (4.2) 4.4 (212. 212.1) 1) 138.7 (73. 73.4) 4) 0. 0.43x 43x 116.7 (28.8) (0.2) 29.7 38.9

• 14.7
• n/a

171. 171.0 (173.2) (14.8) (2.3) 8.8 (181. 181.5) 5) n/a (181. 181.5) 5) 1. 1.06x 06x FY18 £m HY19 LTM FY19

46 Serco Group plc – 2019 Full Year Results

Appendix 10 – interest cover covenant calculation

Net Finance Costs Exclude: Finance charge on lease obligations recognised under IFRS16 Exclude: foreign exchange on investing and financing arrangements Exclude: net interest receivable on retirement benefit obligations Exclude: movement in discount on other debtors Add-back: movement in discount on provisions and deferred consideration Other covenant adjustments to net finance costs Net t finance ce co costs ts f for r co cove venant ca t calcu culati tion EBITDA per er c covena enant nt (Appendix 9) Inte tere rest co t cove ver p r per co r cove venant t (to be at least 3.0x) (21.8) 6.9 0.8 (2.1) (0.1) 1.2 (0.3) (15. 15.4) 4) 200. 200.7 7 13. 13.0x 0x (18.1) 2.4 0.9 (1.5) (0.6) 1.3 (0.2) (15. 15.8) 8) 170. 170.5 5 10. 10.8x 8x (13.9) n/a 0.2 (0.8) (1.2) 0.5

• (15.

15.2) 2) 171. 171.0 11. 11.2x 2x £m FY18 HY19 LTM FY19

47 Serco Group plc – 2019 Full Year Results

• FY19 underlying tax of £24.4m, which, on UPBT of £98.4m (UTP of £120.2m less net finance costs of £21.8m), is

a 25% effective tax rate (ETR) due to the composition of UPBT and ETRs by tax jurisdiction: – UK in-year losses have reduced, and while still not yet taking a deferred tax (DTA) credit against these, the credit for sale of tax losses to JVs now equates to an overall UK ETR of ~10% – Overseas profits ETR blends ~28-30%, reflecting the mix of Australia, US and Middle East local rates – JV&A profits are consolidated within UPBT after tax, therefore equivalent to an ETR of 0% – Net Finance Costs credit equivalent to an ETR of ~30%

• The ETR reducing from 35% in FY17, to 26% in FY18, then to 25% in FY19, is predominantly due to the

reduction in UK in-year losses which derive a limited tax credit; in FY19, the increase in the UPBT mix from

• verseas, particularly the US, has the effect of broadly stabilising the ETR at ~25%
• Cash tax rate will likely be sustainably 1-2% lower than an Income Statement ETR of ~25%, though timing of

cash tax payments on account can impact the outflow in any single period. A lower cash tax rate is primarily driven by: – Utilisation of the UK DTA will lower cash tax; to date, the improved outlook of future profitability has resulted in recognising £21m of UK DTA. There is an additional potential DTA of £129m in relation to UK tax losses; recognition of more of this balance is contingent on further improvement in the UK

• utlook

– Similarly, NSBU goodwill amortisation deductibility does not impact the Income Statement ETR but lowers cash tax

Appendix 11 – Tax

48 Serco Group plc – 2019 Full Year Results

Appendix 12 – Balance Sheet summary

Goodwill Other intangible assets (excluding leased assets) Property, plant and equipment (excluding leased assets) Contract assets, trade and other receivables Inventories Interest in joint ventures and associates Inv nvest ested ed capital a asset ssets Cash and cash equivalents Leased assets Other assets (tax, derivative financial instruments, retirement benefit assets) Total a asset ssets Inve veste ted ca capita tal l liabiliti ties (co contra tract l ct liabiliti ties, tra trade & & oth ther r paya yables) Loans Obligations under leases Provisions Other liabilities (tax, derivative financial instruments, retirement benefit liabilities) Total lia l liabilit ilitie ies Net et a asset ssets 671.2 96.5 47.3 674.4 18.3 23.6 1, 1,531. 531.3 3 89.5 345.3 152.0 2, 2,118. 118.1 1 (667. 667.2) 2) (305.0) (369.9) (161.8) (71.3) (1, 1,575. 575.2) 2) 542. 542.9 9 579.6 63.7 44.3 574.1 22.9 20.6 1, 1,305. 305.2 2 62.5 24.1 161.8 1, 1,553. 553.6 6 (603. 603.9) 9) (239.5) (14.8) (239.4) (69.2) (1, 1,166. 166.8) 8) 386. 386.8 8 581.4 58.5 40.4 623.3 18.9 21.4 1, 1,343. 343.9 9 173.4 120.9 179.9 1, 1,818. 818.1 1 (618. 618.1) 1) (240.6) (144.8) (214.7) (69.9) (1, 1,285. 285.9) 9) 532. 532.2 2 FY19 FY18 HY19 £m

49 Serco Group plc – 2019 Full Year Results

Appendix 13 – Return on Invested Capital (ROIC)

Invested capital assets (see Appendix 12) Invested capital liabilities (see Appendix 12) Inv nvest ested ed Capital ( (IC) Average IC (two-point) Trading Profit Trading Profit for rolling 12 months Underlying Trading Profit Underlying Trading for rolling 12 months Pr Pre-tax R ROI OIC: C: Trading Profit / Average IC Underlying Trading Profit / Average IC 1,531.3 (667.2) 864. 864.1 1 782.7 133.4 n/a 120.2 n/a 17.0% 15.4% 1,305.2 (603.9) 701. 701.3 3 686.3 116.7 n/a 93.1 n/a 17.0% 13.6% 1,343.9 (618.1) 725. 725.8 8 732.6 50.6 121.9 50.6 106.1 16.6% 14.5% FY19 FY18 HY19 £m

50 Serco Group plc – 2019 Full Year Results

Appendix 14 – OCP and other provisions movement

31 December 2018 Opening adjustment of IFRS16 adoption to impair initial ROU assets As at 1 January 2019 Charge – Trading Charge – exceptional Release – Trading Release – exceptional Utilised against in-year losses Accelerated utilisation to impair ROU assets in-year Unwinding of discount FX 31 31 Dec ecem ember er 2019 2019 (82.1) 13.3 (68.8) (10.6)

• 9.6
• 40.9

12.7 (0.2) (0.1) (16. 16.5) 5)

Oner nerous us contra tract provis isio ions Employee, Property and other Tota tal re reporte rted provisio isions

(157.3) (0.8) (158.1) (33.2) (0.4) 7.8 19.4 17.5

• (1.1)

2.8 (145. 145.3) 3) (239.4) 12.5 (226.9) (43.8) (0.4) 17.4 19.4 58.4 12.7 (1.3) 2.7 (161. 161.8) 8) £m Contract & Balance Sheet Review OCPs originally charged in FY14 of £447m; OCP liability now stands at just £17m at end of FY19 OCP IFRS16 opening adjustment and in-year impairment totaled £26m; liabilities in terms of cash

• utflows are therefore

lease liabilities together with the residual OCP liability Cash outflows on the remaining onerous contracts/leases expected to be £15-20m in FY20

51 Serco Group plc – 2019 Full Year Results

Appendix 15 – pension assets mix and IAS 19 valuation

£m Sc Schem heme e asset ssets a s at f fair v value: ue: Liability driven investments (LDI) Bonds except LDI Equities Cash, property and other Annuity policies Fa Fair value o ue of sc schem heme a e asset ssets Present value of scheme liabilities Net et a amount unt rec ecogni nised sed Franchise adjustment and members’ share of deficit Net et r ret etirem ement ent b benef enefit asset sset ( (bef efore e tax) as p s per er conso nsolidated ed Group up B Balanc nce Sheet e Sheet 447.4 302.2 54.7 10.9 614.0 1, 1,429. 429.2 2 (1,384.5) 44. 44.7 7 9.6 54. 54.3 3 580.7 97.2 49.6 24.2 600.2 1, 1,351. 351.9 9 (1,287.0) 64. 64.9 6.0 70. 70.9 9 488.8 198.8 52.6 77.1 611.1 1, 1,428. 428.4 4 (1,361.1) 67. 67.3 3 8.2 75. 75.5 5 SPLAS, the main Group scheme, represents 90%+

• f total assets and

liabilities; ~90% of SPLAS assets historically allocated to LDIs June 2017 ‘buy-in’: assets transferred to purchase a bulk annuity policy covering ~45% of SPLAS members Insurer funds future payments to members; gross liability remains, but an equal and opposite insurance asset recorded Transaction establishes a perfect hedge for the insured liabilities – fully removes longevity, investment and accounting risks FY19 FY18 HY19

52 Serco Group plc – 2019 Full Year Results

Appendix 16 – IFRS16 leases: background and effect

• New accounting standard effective for the Group from 1 January 2019; transition approach for Serco means

prior periods are not restated; guidance for FY19 was updated for IFRS16 back in February 2019

• Key impacts of IFRS16 are that Underlying Trading Profit (UTP) increases, but Net Finance Cost (NFC) also

increases; these increases fully net out over the life of each lease, but the ‘interest cost’ is higher in the early years of a lease and lower in the later years, as the finance charge on the liability is on a reducing balance basis whereas depreciation of the asset is on a straight line basis

• Importantly, IFRS16 has no cash flow impact, nor any covenant impact; net debt for covenant purposes will

continue to be calculated by lenders under the prior standard, IAS17; Serco’s guidance of Adjusted Net Debt, which excludes all lease obligations, therefore closely matches the covenant definition

• FY19 effect:

– Opening Balance Sheet adjustments of a lease ROU asset of £104m, lease liability of £129m – Asset ≠ liability on adoption due to transition methodology and impairment of ROU assets on OCPs – Operating lease expense no longer charged to UTP: £54.5m; this is replaced by: – depreciation cost of newly recognised lease ‘right of use’ (ROU) asset charged to UTP: £53.3m – ‘interest cost’ of newly recognised lease liability charged to NFC: £6.6m

• Original guidance for FY19 was for UTP and NFC each to increase by ~£5m, so broadly netting out; the actual

increase to UTP has only been £1.2m, as the OCPs on two contracts were fully utilised on a post-IFRS16 basis, with £3.9m of trading losses impacting UTP; adjusting for this, the actual increase would have been £5.1m for UTP , broadly netting out against the £6.6m increase to NFC

• AASC contract will have a bigger impact in FY20: net margin lower in earlier years, higher in later years
• For the Caledonian Sleeper OCP contract, the ROU asset that would have been newly recognised in-year was

immediately impaired by accelerated OCP utilisation; the residual OCP liability is therefore now nil, but there is a lease liability; the profile of cash outflows has remained the same

53 Serco Group plc – 2018 Full Year Results

Appendix 17 – contract nature and inflation mitigation

• Around ¾ of revenue is from contracts where pricing is “fixed” in advance and on a longer term contractual

basis; a “long term fixed price contracting” model requires careful cost inflation consideration

• The remainder is the “non-fixed” revenue base, which includes: work on shorter term task order basis or

“cost plus” contracting (which represents a large proportion of the Americas division); pricing based on “time and expenses” or other project-based mechanisms; and revenue linked to that received direct from end users (eg Transport fares). This “non-fixed” revenue base should have relatively direct mechanisms for cost inflation pass-through.

• Whilst our contracting model is therefore dominated by “fixed” pricing, in fact >90% of that has a significant

amount of inflationary protection, via – Generic adjusters (RPI, RPIx, CPI, etc), wage indices or ‘basket of goods’ indices – In some instances there are specific inflation adjusters for labour rates (eg Barts, re London Living Wage), or for other particular cost categories (eg fuel price adjusters)

• Whilst any p

pricing mec echanism of

• ffs

fset is un unlikely to

• per

erfec fectly c cor

• rrel

elate to t

• the a

e actua ual cos

• st b

base pressure, Ser erco

• ha

has som

• me

e signifi ficant nt p prot

• tection
• n a

against c cos

• st i

infl flation

• n even

n thou hough ou

• ur cont
• ntracting mod
• del

el i is largely con

• nsidered “

“fi fixed” in n nature Rev evenue enue base m se mix

Fixed Non-fixed Fixed, but with inflationary protection

54 Serco Group plc – 2019 Full Year Results

Appendix 18 – currency rates

£: £:US$ S$ £: £:Aus$ us$ £: £:Eur ur FY19 30 Jun 2018 30 Jun 2017 HY18 FY17 Closing rates Average rates Spot rate for FY20e 1.28 1.83 1.14 1.38 1.78 1.14 1.29 1.69 1.14 1.31 1.78 1.13 1.30 1.69 1.14 31 Dec 2017 1.35 1.73 1.13 HY17 1.26 1.68 1.17 31 Dec 2018 1.28 1.81 1.12 31 Dec 2019 1.32 1.88 1.18 FY18 1.34 1.78 1.13 1.31 1.96 1.19 31 Jan 2020 HY19 1.30 1.83 1.15 30 Jun 2019 1.27 1.81 1.11

• Favo

Favour urab able cur e currency ency impact act in n FY FY19: R 19: Revenue + evenue +£42. £42.2m 2m; UT ; UTP P +£3. £3.7m 7m – Sterling weakened 6c against the US$ but strengthened 5c against the Aus$

• Trans

anslat ational nal FX s FX sens ensitivi vity: y: – FY19 £:US$ av. rate of 1.28; 5c move = ~£50m Revenue, ~£4m UTP (based on Americas + Middle East) – FY19 £:Aus$ av. rate of 1.83; 5c move = ~£20m Revenue, ~£1m UTP (based on AsPac)

• Es

Estimat ated ed ad adver verse e cur currency ency impact act for FY FY20e: 20e: Revenue evenue £80 £80-90m 90m; UT UTP ~ P ~£5m £5m – Assumes FY20e £:US$ av. rate of 1.31 and £:Aus$ av. rate of 1.95, based on actual rate for January 2020 and then applying 31 January 2020 spot rates for the rest of the year

55 Serco Group plc – 2019 Full Year Results

Appendix 19 – American Depository Receipt (ADR) program

Ser Serco co Group up has has a a spons nsored ed Level evel 1 AD 1 ADR p program am, for whi which ch Deut Deutsche che Bank Bank act act as as t the d he dep epositar ary b y bank ank and and cus custodian an Tic Ticke ker: r: SCGPY ADR ke R key be benefits fits Ex Exchang change: e: OTC

• Convenient means of trading/holding foreign shares

CUSIP: CUSIP: 81748L209

• USD-denominated security – reducing custody costs

ISIN ISIN: US81748L2097

• Trade, clear and settle like other US securities

Ra Ratio tio: : 1 ADR : 1 Ordinary Share

• Dividends (if declared by the Board) paid in USD
• Purchased or sold through US brokers

Fo For as assistance ance wi with co h conver nverting ng Or Ordinar nary Shar y Shares es int nto AD ADRs (o (or vi vice ver ce versa), a), pleas ease e co cont ntact act Deut Deutsche Bank che Bank’s ADR br R broke ker h r helplin lpline: Ne New Y York rk: +1 212 250 9100 Lon

• ndon
• n: +44 207 547 6500 Hong

ng Ko Kong ng: +852 2203 7854 e-mail: adr@db.com ADR website: www.adr.db.com

56 Serco Group plc – 2019 Full Year Results 56 Serco Group plc – 2019 Full Year Results

The following slides were part of those presented as part of the proposed acquisition of the Naval Systems Business Unit (‘NSBU’) from Alion Science & Technology Corporation as announced on 23 May 2019. The full presentation and webcast can be found at: https://www.serco.com/investors/results-reports-events

Serco Group plc – Proposed acquisition of NSBU May 2019

57 Serco Group plc – Proposed acquisition of NSBU May 2019

Overview

• Con
• ntext

– Over the last 5 years, Serco has been on a journey: Stabilise – Transform – Grow – Revenues now growing; Underlying Trading Profit CAGR 17-19E ~20%; FCF positive – Strategy review identified US Navy as a target for investment – Serco has been serving US Navy >30 years; US Defence revenues $453m in 2018 – Successfully completed BTP and Carillion Healthcare acquisitions in 2018

• Investmen

ent r ration

• nale

– NSBU has world-class capability in ship and submarine design, production, engineering and in-service support. Complements Serco’s existing US Navy ship-board and shore-based modernisation, installation and systems integration business – Makes us a top-tier supplier to US Navy, one of the fastest-growing areas of public

• procurement. Improves mix of Group business

– Significantly broadens the capabilities and increases the scale of both our North American and international Defence businesses – Opportunities to grow in existing Serco footprint: Canada, UK, Middle East, Australia – Enables us to generate synergies through sharing our fixed overheads across the wider revenue base in North America

• Transaction ov
• n overview

ew a and nd fi fina nancial e effe fects – Consideration: $225m (£173m1) on a cash-free, debt-free basis – Financed by an Equity Placing to raise around £130m, together with a new committed debt facility of up to £75m – Expected to contribute FY20 revenue of approximately $370m (£285m), EBITDA $28m (£21m) and UTP2 $27m (£20m); implied multiples of 0.6x, 8.1x and 8.3x, respectively; Underlying EPS accretion of 7-9% in FY20 – Financing structure produces attractive returns whilst keeping leverage well within our target range. 2019 closing leverage forecast increases from ~1.3x to pro forma ~1.5x

___________________________

• 1. All figures translated at an exchange rate of £1:$1.34 for historic FY18 financials, and £1:$1.30 for all current and forecast financials.
• 2. UTP as defined by Serco: IFRS Operating Profit excluding amortisation of intangibles arising on acquisition as well as exceptional items; UTP additionally excludes other material one-time items.
• 3. Net Debt guidance excludes lease obligations newly recognised under IFRS16, which is consistent with the covenant measure for the Group’s financing facilities.

58 Serco Group plc – Proposed acquisition of NSBU May 2019

US Navy fleet build and sustainment: long-term sustainable growth

Proposed shipbuilding plan represents largest build-up in fleet since the 1980s

• US

US Navy p Navy plan an to ex expand and f fleet eet f from ar around und 280 s 280 shi hips to 355 b 355 by y 2034 2034 – Shipbuilding budget grows from average of $20.3bn per year in 2020-24 to $26-28bn per year beyond

• Goal

al o

• f 355

355-shi hip Navy Navy canno cannot be e reached eached wi with h new new co cons nstruct uction n al alone; ne; the he Ser Servi vice L ce Life Ex e Extens ension n Progra gram m (S (SLE LEP) r resu sults in lts in su substa bstanti tially lly increase sed d fu fundi ding g fo for su r susta stainme ment t and mo d mode dern rnisa isati tion – Arleigh-Burke DDG class to be extended to 45 years; Los Angeles class subs from 33 years to 43 years – US Navy’s baseline sustainment cost forecast: $24bn in 2020, rising to $30bn in 2024 and $40bn by 2034

Source: Report to Congress on the Annual Long-Range Plan for Construction of Naval Vessels for Fiscal Year 2020

US Navy forecast annual funding for sustainment 2020 - 2049

59 Serco Group plc – Proposed acquisition of NSBU May 2019

Driver of fleet expansion: increase in the perceived threat

60 Serco Group plc – Proposed acquisition of NSBU May 2019

NSBU core capabilities: world-class naval systems engineering and design; ~1,000 people; involved in every major US Navy ship class

• Core skills of naval architecture; hull design; systems engineering and integration.

Supported by state-of-the-art tools such as simulation-based design as well as logistics and maintenance analysis

• Ships, submarines, UUVs (Unmanned Underwater Vehicles)
• Employs experts who have, collectively, many hundreds of years experience in the

design, engineering and support of naval vessels and systems

• Vendor agnostic, independent
• Highly trained and specialist shipyard engineering staff; well-developed procedures

and processes trusted by the US Navy

• Provide comprehensive oversight of build and systems integration, testing and trials

support

• Regulatory body coordination and certification
• Support Service Life Extension Programme (SLEP), modernisation & upgrades
• Deep design and platform knowledge
• Provide assessment teams, technical resolution and maintenance specialists
• Develop lifecycle and sustainment solutions to improve readiness and upgrade

capability

In In-servi vice ce and l lifecycl cycle su suppo pport Procurement ent/acqui uisition a n and production m n management ent Vess essel el a and nd system ems d des esign and engineer neering ng

61 Serco Group plc – Proposed acquisition of NSBU May 2019

Order book ~$600m; new business pipeline >$2bn

Key customers: US Navy, US Army, Coast Guard, Royal Canadian Navy

In-service support, managing critical lifecycle maintenance and modernisation to non-nuclear US Navy surface ships

Key c contra tracts ts SE SEA 21 21 (Sur Surface W e Warfare e Dire recto torate te) SE SEA 05 05 (Sy Syst stem ems E Eng ngine neering Dire recto torate te)

Ship design services and alternatives analysis; provision of technical and in-service support, across aircraft carriers, surface combatants, amphibious and auxiliary ships

PMS S 377 377 (A (Amphibiou

• us Wa

Warfare Pro rogra ram) m)

Procurement, technical management, integrated logistics and

• perations support to amphibious assault fleets

Tea eam Sub Submarine (Ente terp rprise W Wide C Contra tract t Sup Support Ser Services es)

SeaPort-e contract vehicle, providing engineering, technical, logistics, lifecycle and programme management support across submarines, systems and payloads

PMS S 400 / 400 / DDG DDG-51 51 (Shipbui uilding ng C Command)

Involved since inception with design, production oversight, testing and inspection, in-service support and maintenance of the DDG-51 destroyer class configuration and technical baselines

LCU 2000 2000 (Landing C Cra raft t Uti tility ves essel sels)

Life extension support for LCU vessels, including engine room, auxiliary equipment, galley and accommodation spaces

JS JSS (Joint nt Shi Ship Se Services)

Design development and integration support to the Joint Support Ship (JSS) Program of the Royal Canadian Navy

62 Serco Group plc – Proposed acquisition of NSBU May 2019

Strategic fit and rationale; people

• Adds scale: increases size of Serco’s US Defence business by ~70%; NSBU’s FY18 $336m revenue vs Serco US

Defence of $453m

• Adds capability: high-end engineering, naval systems design, production support, through-life sustainment
• Access to cost synergies through improved overhead recovery on Fixed-Price contracts
• Increases our presence in growing market: US Navy committed to expand fleet from 280 to 355 ships by both

new build and service life extension

• Opportunity to deploy skills into international markets: Canada, UK, Middle East, Australia
• People: skilled and long-tenured team; 30% > 10 years, 65% > 3 years
• Senior management team and all operational staff to transfer to Serco
• Appropriate arrangements to be put in place around transition and retention

The acquisition of NSBU brings world-class naval design and architecture, production support and in-service sustainment capabilities, which are highly complementary to Serco’s existing skills in ship and shore-based modernisation, hardware integration and naval logistics

63 Serco Group plc – Proposed acquisition of NSBU May 2019

Strategic fit and rationale – improving our mix

The acquisition of NSBU significantly advances our aim of increasing our exposure to the US defence market. Serco Group’s revenue mix from Defence will increase from 30% to ~35%, and the Americas division as a proportion of the Group will increase from 20% to ~26%

___________________________

• 1. Reflects Serco’s FY18 £2,837m reported revenue, adjusted to include Serco’s share of joint ventures and associates revenue of £375m; total = £3,212m.
• 2. Includes NSBU’s year ended 30 September 2018 revenue of $336m (£250m when translated at an exchange rate of £1:$1.34).

52% 11% 17% 20%

UK & Europe Middle East AsPac Americas

30% 17% 17% 12% 24%

Defence Justice & Immigration Transport Health Citizen Services

48% 10% 16% 26%

UK & Europe Middle East AsPac Americas

35% 16% 16% 11% 22%

Defence Justice & Immigration Transport Health Citizen Services

NSBU would represent ~7% of the pro forma revenue mix of the enlarged group. Ser Serco(1

(1)

Ser Serco + + NSB NSBU(2

(2)

$1.2bn (£0.9bn) $1.6bn (£1.2bn)

64 Serco Group plc – Proposed acquisition of NSBU May 2019

Financial performance and effect

• Revenue:

evenue: Y/E E Sep Sept 2018 $336m 2018 $336m (£250m (£250m); FY FY20 ex 20 expect ected ed t to grow w to ~$370m $370m ( (~£285m £285m) – Forecast growth largely already contracted for in order book – Standalone medium-term CAGR of ~5% projected; potential for revenue synergies to accelerate

• UT

UTP: P: Y Y/E Sep E Sept 2018 2018 $20.2m $20.2m (£15.1m £15.1m); ; FY FY20 20 ex expect ected ed t to g grow t to ~$27m $27m (~£20m £20m) – Includes first year cost efficiencies of $3-4m across combined business; shared services and overhead functions leveraged across larger business; majority of cost efficiencies passed back to customers with Cost-Plus contracts; the retained efficiencies result from lower indirect rates on Fixed Price contracts – NSBU standalone margin of ~6% in recent years; potential to expand via operational leverage, mix and efficiencies

• Lo

Low risk risk resu sultin lting fr g from >8 m >80% o % of f revenue be bein ing C g Cost st-Pl Plus us; acco ; account unting ng al all i in acco n accordance ance wi with US h US Fed Feder eral al Acq Acqui uisition R n Reg egs

• Net

et Fi Finance nance Co Costs t to i incr ncreas ease e by y £2 £2-3m 3m, , ref eflect ecting ng incr ncreas ease e in net n net d deb ebt and and ef effect ect of IFR IFRS16 S16 (immat ater erial al net net i impact act o

• n PBT

n PBT)

• Ef

Effect ective ve Tax ax Rat ate o e of 10 10-15% 15% ref eflect ects ~ ~25% 25% rat ate e on n incr ncrem ement ental al PBT PBT, t toget ether her wi with US t h US tax ax de dedu ducti tibi bility lity of go f goodw dwill a ill amo morti rtisa satio tion

• Ear

Earni ning ngs accr accret etion n ex expect ected ed to b be e 7-9% 9% i in 2020, n 2020, the f he first ful ull year year o

• f o
• wner

wnershi hip – Acquisition increases Underlying Profit After Tax (UPAT) by ~£15m – Equity Placing increases fully diluted share count for EPS purposes from ~1,145m to ~1,256m – Current analyst UPAT consensus for FY20 is ~£81m; Underlying EPS consensus of 7.1p

Acquisition adds a growing revenue base at good margins with potential for further

• enhancement. Combined with transaction funding, results in an acquisition that is materially

accretive to earnings in the first full year of ownership.

___________________________

• 1. All figures translated at an exchange rate of £1:$1.34 for historic FY18 financials, and £1:$1.30 for all current and forecast financials.
• 2. UTP as defined by Serco: IFRS Operating Profit excluding amortisation of intangibles arising on acquisition as well as exceptional items; UTP additionally excludes other material one-time items.
• 3. Net Debt guidance excludes lease obligations newly recognised under IFRS16, which is consistent with the covenant measure for the Group’s financing facilities.

65 Serco Group plc – Proposed acquisition of NSBU May 2019

Funding overview; completion arrangements

• NSBU i

SBU is t to be acq e acqui uired ed f for $225m $225m (£173m (£173m) on a cas n a cash-fr free, de debt bt-fr free ba basis, sis, and d su subje bject t to to custo stoma mary ry workin rking g capita pital a l and o d oth ther r r rele levant t adj djustme stments u ts up to p to th the da date te of f comple mpletio tion

• Fi

Financed nanced by y a co a combinat nation n of an an Eq Equi uity y Pl Placi acing ng ex expect ected ed to rai aise g e gross p proceed ceeds o

• f ar

around und £130m £130m, to toge geth ther w r with ith a a n new w commi mmitte tted d de debt bt fa facility lity of f up p to to £ £75m

• Eq

Equi uity y Pl Placi acing ng f for cas cash up h up t to 111, 111,216,40 216,400 0 shar hares es, rep epres esent enting ng up up to 10% 10% o

• f ex

existing ng s shar hare cap e capital al

• New co

New commi mmitted tted thr three ee-year term year term loan fo an for r up up to to £75m £75m ag agreed eed wi with th certai certain o n of f the the Gr Group up’s exi s existi sting ng lend enders, ers, wi with an exp th an expected ected inter nterest co est cost o st of ap f approxi ximatel mately y 2-3% 3% based ased up upon p n projected ected l level evels o s of f leverag everage – Margin comparable to existing facilities – All other terms and covenants also consistent

• Re

Resu sultin lting N g Net D t Debt a bt and le d levera rage ge – Net Debt guidance for the end of 2019 was ~£200m, would increase to ~£250m – Leverage for covenant purposes guidance was ~1.3x, which on an underlying pro forma basis would increase by around 0.2x to approximately 1.5x

• The

he acq acqui uisition n is sub ubject ect t to cer certai ain r n reg egul ulat atory y ap approval vals, i incl nclud uding ng cus customar ary H y Har art-Sco Scott-Rod

• dino
• (‘

(‘HS HSR’) R’) and C d Committe mmittee on F Foreign gn Investme stments ts into to th the U Unite ited S d Sta tate tes (‘ s (‘CFIUS’); ); acqu quisitio isition is is ex expect ected ed t to cl close i e in n the he seco econd nd hal half o

• f 2019

2019

• The

he Eq Equi uity y Pl Placi acing ng is no not co cond nditional nal on co n complet etion n of t the acq he acqui uisition

Financing the acquisition through a mix of debt and equity allows Serco to maintain a strong Balance Sheet with leverage well within our target range of 1-2x, whilst delivering a transaction that is both strategically and financially compelling.

___________________________

• 1. All figures translated at an exchange rate of £1:$1.34 for historic FY18 financials, and £1:$1.30 for all current and forecast financials.
• 2. UTP as defined by Serco: IFRS Operating Profit excluding amortisation of intangibles arising on acquisition as well as exceptional items; UTP additionally excludes other material one-time items.
• 3. Net Debt guidance excludes lease obligations newly recognised under IFRS16, which is consistent with the covenant measure for the Group’s financing facilities.

66 Serco Group plc – Proposed acquisition of NSBU May 2019

Summary: a highly attractive transaction for Serco

• St

Strateg egic ically lly c compelling elling: – US Navy one of the most attractive segments of our portfolio, combining long-term sustainable growth with balanced risk-reward – Very good fit with our existing business – Significant step up in our engineering capability – Opportunities for upside using Serco’s international footprint – Improves sector and geographic mix of Serco’s business

• St

Strong ng fina inanc ncia ial l ret etur urns ns, whils hilst m maint intaining ining a s solid lid B Bala lanc nce e Sheet Sheet

67 Serco Group plc – 2019 Full Year Results 67 Serco Group plc – 2019 Full Year Results

The following slides were part of those presented at Serco’s Capital Markets Event on 13 December 2017. The full presentation and webcast can be found at: https://www.serco.com/investors/results-reports-events

Serco Capital Markets Event 2017

68 Serco Capital Markets Event 2017 – Introduction

Introduction

• Rationalise portfolio
• Strengthen Balance Sheet
• Mitigate loss-making

contracts

• Re-build business

development

• Strengthen sector

propositions

• Improve risk management
• Rebuild confidence and trust
• Build differentiated capability
• Improve execution

Reminder: our strategy as described in Q1 2015

• Hire new

management

• Develop strategy and

plan

• Identify issues
• Undertake Contract

& Balance Sheet Review

• Stabilise morale
• Roll out corporate

renewal Our Ambition

To be a superb provider of public services by being the best managed business in our sector

Planned Outcome

Chosen sectors will grow at ~5-7% Industry margins in our sectors ~5-6% Employee engagement >60%

2014 Stabilise

• Build out

geographical footprint

• Move into new sub-

segments

• Leverage scale and

capability

• Harvest benefits of

transformation

• Continuously review

portfolio

2015-17 Transform 2018-20 Grow

69 Serco Capital Markets Event 2017 – Introduction

Introduction

3 steps to achieving our trading margin ambition

FY17

~2-3%

OCP contracts expire and revenue falls out. ~50% estimated to be retained but at appropriate positive margin ~50-100 bps

Ambition

~5-6%

Planned overhead and cost efficiencies through transformation projects Net revenue growth from target segments with appropriate contract margin and no incremental

• verhead

Status update

as at December 2017: ~100-200 bps ~50-100 bps

Confidence in

• perational

performance and rebid plans; margin benefit is back-end weighted On track with cost reductions; developing robust plans to accelerate and deepen where appropriate Difficult market conditions are likely to delay

• pportunity for
• rganic growth

Our planned

• utcome of a

~5-6% margin remains intact, but timing is dependent on market demand

70 Serco Capital Markets Event 2017 – Savings to date and current cost base

Savings to date and current cost base

Overhead savings to date driven by initial stages of transformation of shared services and organisational design

• Cumulative three-year reduction of >£100m or

~23% of overheads and CSS costs

• Within this, we will have achieved our FY17 target
• f ~£20m savings from central support functions

and overheads

• Key activities over the last three years have

included: – Driving greater efficiency in the operation of shared services – Implementing better use of our scale in procurement – Reducing the number of management layers – Initial transformation programmes covering ˗ Finance (eg transaction processing services) ˗ IT (eg secure corporate environment) ˗ HR (eg recruitment and payroll)

Three-year cumulative savings and % cost reduction by area

>£100m

Total ~10% ~25% ~40% ~23%

Division/BU

• verheads

Corporate costs CSS total costs Overall total

71 Serco Capital Markets Event 2017 – Transformation to Growth

Transformation to Growth

Over the last 3 years we have delivered on our promises. We remain confident we can deliver long-term goals

Values… Purpose…

A trusted partner of governments, delivering superb public services, that transform outcomes and make a positive difference for our fellow citizens

Our drivers: What we do: How we add value:

Efficiency & commercial nous Public service ethos Transferable global experience Full service integration Expert & empowered people Trusted partnership Transformational capability Citizen-centred, outcome focused Ability to test and innovate Strong governance & risk management

“4 Forces”: long-term structural growth drivers…

Rising expectations of service quality Voters unwilling to tolerate higher taxation Need to balance public income and expenditure, and reduce debt Growing costs: healthcare, ageing population and infrastructure

Deliverables…

Trust Care Innovation Pride

Engagement

>60% and increasing

Trading margin

~5-6%

Revenue growth

~5-7%

Superb public Services Defence Health Justice & Immigration Citizen Services Transport

72 Serco Group plc – 2019 Full Year Results

www.serco.com

Serco Group plc Serco House 16 Bartley Wood Business Park Bartley Way, Hook Hampshire RG27 9UY United Kingdom For general enquiries contact: T: +44 (0)1256 745900 E: generalenquiries@serco.com