Serco Group plc (SRP) Earnings Call Transcript & Summary

That is okay, right. Okay, and welcome, everybody, to the first capital market event by Serco since 2017 and welcome also to those online as well as in the room. My name is Rupert Soames, and I am the Group CEO of Serco, which means it's all my fault. Okay. So we've got a busy few hours ahead, which I hope you're going to find productive and useful. The afternoon splits into 3 parts. The first covers the group with presentations by myself, Kate Steadman, our Group Strategy and Comms Director; Anthony Kirby, our Group COO; and Nigel Crossley, group CFO. In the second session, after a short break, we will have presentations by each of the regional managing directors. And then third, later on, after the main sessions there's a showing of the film about life on the front line by Molly Dineen, which I commend to you all. And even if you haven't booked in to stay, if you have a spare hour or so, I suggest you stay to see that. In terms of the present -- sorry, in terms of Q&A, we're hoping to have about 20, 25 minutes after the end of each session. And of course, you can always call us between or in the coming days. These are the mugshots of the presenters. And in addition, in the room is our Group General Counsel, David Eveleigh, where are you? David is somewhere. Our Chairman, John Rishton. And a leash, for those of you who come from Yorkshire, you will know that the leash means 3, off the leash nonexecs in the form of Tim Lodge, Kru Desai and Ian El-Mokadem. Now as we get into the presentation, can I just say something about the slides. There seem to be 2 approaches to capital market slides. Some have huge fonts, big bullets and lots of photos. We take a different approach. As we recognize that a lot of the value of these presentations is that they serve as reference documents, which people can consult in their own time. Unapologetically, therefore, the slides are dense, contain a large amount of data, and there is only one slide other than this one that has photographs, which is the last one. So in the commentary, we will skip and dance about the content, leaving you to read the denser parts as we speak or later at your leisure. If I can, as it were, start at the end, our key messages. The headlines of our messages today are: first, we are optimistic and enthusiastic about the future. The team that you will see speak to you today have been responsible for turning the company around, but it has, frankly, been bloody hard work for all of us. And we all want to get on with what I might call the funner part. That's driving the growth of the company from a base of a solid operational, financial and market position. We think Serco has a long runway in front of it. And we think we can offer a compelling proposition for our investors, our customers and our colleagues. And in this context, we believe we have some favorable following wins. We see a government services marketplace that is very large and growing. We see that customers value and recognize the need for the private sector to help them deliver their objectives across a sway of policy areas. We hear that our conversations with investors, customers and other market actors start now from a position where we have been winning market share, a strong track record of getting things done and of delivering on our promises, both operational and financial. And as a consequence of that, we believe that over the last few years and particularly during COVID, we have built on our reputation as a trusted, valued and reliable partner of government. In terms of the market, we have a strong and differentiated position. We are no longer a random collection of contracts. We have built a powerful B2G platform, which gives us agility, reach, resilience and efficiency. But most important of all, I want you to get from today the idea that we know that there is a lot more that we can do to make Serco better. Every day, we see ways in which Serco could be more efficient, more nimble, more resilient, more innovative, more competitive and better serve our customers. Now in terms of our financial projections, we've based them all off 2022 on the basis that we hope and believe for all of our sakes, that most of the one-off impact of COVID will have dissipated by then. And as you will hear described in more detail later, from that base, we believe that we can grow revenues at twice the rate of the market, that we can deliver further margin accretion so that trading margin reaches 5% to 6%, that we can convert over 80% of our profits into cash. And by reducing our dividend cover from 4 to 3 in the coming years. And if appropriate, doing share buybacks, we can grow shareholder returns faster than profits. In short, revenue is growing faster than the market, profits growing faster than revenues, returns growing faster than profits. And on that, what I hope you will think a compelling note, I'm going to hand over to our group Strategy and Comms Director, Kate Steadman, who will set out for you the market dynamics.

Well, thank you very much, Rupert, and good afternoon, everyone. I have the task of talking to you a little bit about the government services market. And this is a market which having worked in both the public and the private sector myself, I feel really passionate about as a space where citizens, governments and the private sector can live symbiotically and for the benefit of all. So I'm going to start with my first slide. So the first point to make is that our markets are large, diverse, full of opportunities. And as we have seen during COVID at the overarching level, at least, also very reliable. As the need for public services and government does not rise and fall with consumer trends, government is here to stay. And as you can see on the slide, it's a huge market. Our latest research suggests that in 2021, outsourced government spending on services alone, that's excluding goods across Serco's existing countries only, totaled GBP 715 billion. Now of course, we are not targeting every single element of that spend. But given the diversity and transferability of our capabilities across multiple areas of government, we think this definition is the best proxy for our market size that we can give. When we look at the GBP 715 billion also as a proportion of the whole world, we estimate that this figure represents around 65% of the total worldwide outsourced government services spend. What's more, the 35% not in our footprint is dispersed across about 130 countries. So as a B2G provider, we are in all the right places and well positioned to seize the market. When it comes to our market share, we estimate this to be less than 1% of that GBP 715 billion or 3%, if you look only at the segments that we are delivering into today, indicating overall that there is plenty of headroom for us to grow. When we look at the impact of COVID on this picture, and we'll come to this more on the next slide, the increase in deficits across Serco's regions, 2019 to '21 have been absolutely huge. We estimate that outsourced government services spend has grown as well by 10% since 2019 as governments turn to the private sector for help during the pandemic. Despite that sizable increase, however, over the last few years, our recent analysis undertaken externally does not show the outsourced government services spend contracting over the next 5 years. But on the contrary, growing at a CAGR of around 2% to 3% between '22 and 2026. This figure is, of course, notoriously difficult to calculate and predict precisely and varies across our regions and with different areas of the market, but it is our best estimate when we average out the different external, independent studies we've had undertaken. Moving on. And so what are some of the key drivers behind that growth? And why do we see the market for government services not only remaining, but growing over the next few years. Back in 2015, we developed and spoke about the 4 forces driving structural growth in our market. For those not so familiar, I'll do a quick recap, which is briefly to say that, firstly, the growing cost of public services, combined with rising expectations of citizens, combined with unwillingness of voters to tolerate higher taxation and finally, the need of governments to balance public income and expenditure, all combined to put governments under fierce pressure to deliver more and better for less. But perhaps most importantly, when we look at these 4 forces again today a few years on, not only are they still relevant, but they are becoming stronger and stronger in a post-COVID world. Firstly, when we look at growing costs and demands on public services, we can be in no doubt that government has exacerbated -- sorry, that COVID has exacerbated this. More citizens have needed to access public services than ever before. Health care demand and backlogs have also increased, and governments are looking to spend more as they build back better as the saying goes from COVID. When it comes to rising expectations of public service quality, COVID has brought much greater visibility and scrutiny to governments, and we've seen a new trend development of citizens comparing different governments' performances internationally as they all fight to battle the same problem, but with different levels of success under the close watch of the media, their citizens and voters all the time. We expect this to continue, but also to go beyond COVID policy into comparisons of wider policies and their respective effectiveness. As we saw on the previous slide with regards to deficits across Serco's regions, we saw a 2.2 -- around GBP 2 trillion increase in government deficits '19 to '21, which will take some time for governments to reduce. And finally, with regard to taxation, tax rises are, of course, rarely a popular choice. And what is more, we think that rising interest rates will likely exacerbate this by reducing voters' disposable incomes. All in all, COVID has further strengthened the 4 forces in the medium term, creating greater pressure than ever on governments to deliver more and better for less. Now this next slide is just to give a few examples as to how we see the 4 forces impacting some of our markets tangibly across each of our 5 main sectors and beyond. For Justice & Immigration, for example, we see overcrowded prisons and high levels of reoffending, leading to 18,000 prison places being built in the U.K. under the current administration. When it comes to Defense, the U.K. also plans to double spending on shipbuilding over the next 10 years. And as Peter will talk to you later, Australia has announced a 6.1% defense budget increase in '21 to '22 versus the prior year. With Transport, the increasing importance of mobility and connectivity as well as the green agenda mean that passenger freight activity is set to double by 2050 as just one example. And when it comes to Health and FM, 1 in 6 people globally, as I'm afraid we all know too well, will be aged over 60 by 2030. And sadly, hospital treatment waiting lists reached a record high in the U.K. as just one example in 2021 July and continue to create significant challenges for the Health service. So what role can the private sector play in this in delivering this more and better for less. This slide is designed to explain that deploying the private sector in the delivery of public services in deploying choice and in deploying competition, it brings 4 key benefits: firstly, it allows government to concentrate on its primary purpose, policy development and the measurement of outcomes; secondly, it brings new ideas into public services; third, the choice and competition to drive out public services quality and drive down costs; and fourthly, it brings government skills and attributes they don't always have. You can see on the slide a few more specific examples of what we believe and what the private sector does bring to public service delivery, innovation, technology, efficiency, productivity, risk transfer, international best practice, better value, social value delivery, ESG, often heightened accountability and measurement versus our public sector counterparts by KPIs and more, agility, the ability to scale up and scale down delivery according to customer demand and so much more. Overall, it's a very powerful case, but one that isn't often made loudly enough. The Serco Institute in this way, we'll be launching a new report on just this subject in about 10 days' time. Research written by the Independent Economic Consultancy Capital Economics, they will present new data showing that across a range of market segments, the private sector almost always reduces cost, often in double-digit percentages, while typically delivering services to the same standard or better than the public sector. And a recent poll also commissioned by the Institute, shortly to be published, in fact, shows that excluding those who say they don't know, 77% of the U.K. public believe that the government should work with the private sector to deliver public services if doing so would improve quality and reduce costs. And perhaps more interestingly, 2/3 of labor voters who responded to this poll also support the use of the private sector in this situation. Moving on from our market growth and the reasons for the use of competition choice and the private sector. We see that there are wider trends actually emerging across the public service landscape to which we must and to which we are responding and which create new opportunities for value creation and for further enhancing our offer to governments. Firstly, citizen insight is becoming more and more important in public service design. Long gone are the days of the distance state designing services from afar without involvement of the citizen. Patient, prisoner and other end user or Citizen Insight is critical to design the best public services, and the best providers will increasingly design services with and around the citizen. You'll hear more from this later from our various divisional CEOs and how they're deploying experienced lads to do this. Secondly, technology, data and digital are increasingly being used to improve the quality and efficiency of frontline services, embedding these into what we do is becoming more and more important, and Anthony is going to talk about this in more detail later on. Social value and ESG. No longer an add-on or nice to have in the mind of governments. These are increasingly expected, required, measured and scored in public service procurement and delivery. Mark will no doubt mention this later, but it's not just in the U.K., it's appearing in all our regions in different forms. Next is an appetite for agility and flexibility. COVID has shown governments the benefits of and increased their desire for being able to change, scale up, scale down service provision according to demand. And we expect this trend for agile government to continue. Again, you'll hear more about this from my colleagues later. Finally, the increase in complication around procurement regulation and government's need to reduce costs has increased the advantage of scale, leading to supply side consolidation. These are all major trends that we see across most, if not all of our regions. And as you'll hear through the course of the day, we are busy responding to and getting ahead of them. Moving on and speaking a little bit of procurement regulation as we like to you -- on a Friday, both in this regard, but also much more wider than this, governments have complex and costly requirements that are rarely seen in commercial markets and which discourage those who are not used to them from entering our marketplace. Serving governments requires unique skills as significant cost and complexity, all of which create barriers to entry. Be it complex, varying and ever-changing procurement regulations, social values I mentioned earlier, strict financial reporting and transparency requirements, oversight, audit and scrutiny from customers, politicians and the press and the reputational risk that comes with that, security clearances and more. We see these complexities reflected in our own business when more than 200 people in Serco U.K. and Europe's business alone have audit, compliance or assurance in their job title. And we see this in the market, for example, in the U.K. where data tells us that the percentage of public sector tenders in the U.K. for which only one supplier responded has increased from 4% in 2013 to 23% in 2020. All in all, the government service marketplace is a challenging place to be for those who are not used to it or for those who are not specialists at engaging with public servants and government processes. This works less well for our competitors, but is rather convenient for us. So to conclude, for those who are specialists in business to government, the business to government space is a very attractive place to be. With a huge market, plenty of opportunity, good growth and a customer who is not going away. Most of all, it's a space where with all the challenges governments continuously and increasingly face, someone like Serco can and is needed to make a real difference, delivering more and better for less for governments, for citizens and for all. I'm now going to hand over to Rupert, who's going to talk about more about how we are responding to this. Thank you very much.

Thank you, Kate. So in a large and growing market that is not going to go away, where there are significant barriers to entry, we have a position that is both strong and as I will demonstrate, I hope, differentiated. But before we go there, can I just -- let me show you my favorite slide in all the world ever. The slide tells of our transformation from a company which had to renegotiate its covenants and write-off GBP 1.4 billion in 2014 to one that is now thriving. It's taken a very long time, endearing change in large companies does take a long time. And I'm not going to talk to you about the individual graphs except for one, which is that for the employee engagement scores, which in 2014 stood at 42. I think it is very rare to see such a huge swing in sentiment, and I would be happy to have that graph on my gravestone with the names of the hundreds of managers who led that transformation of attitude in the minds of tens of thousands of people around the world. And I want to pay particular tribute to my colleagues here today and recognize their part in this achievement. Now I don't propose to give a lecture on management, but companies need to be clear about what their values, their mission and their purpose is and how they will organize themselves to deliver it. This is a concept that has gained enormous traction over the last 2 years as ESG has swept the market. In Serco's case, we've had this clarity since 2015, when we set out our management framework, which shows -- says with complete clarity, our values, our purpose, our organizing principles, our method and our deliverables. Serco first included a corporate responsibility report in our annual report in 2003. ESG considerations are weaved in to all we do. And over the next 2 slides, I want to talk about how we respond to the challenges, both internally and externally. Now I'm going to let you read this slide and you've got it in your pack because it sets out the many ways that ESG is inherent in the way that we respond, but let me repeat our purpose, which is, for many years past and will be for many years in the future, to deliver superb public services, transform outcomes and make a positive difference to our fellow citizens. And in brief on the environmental issues, we have a very low carbon footprint, particularly since most of the assets we work on are owned by our customers. As Boris would say, forgive me. On social and governance matters, we think we should score highly against any of the metrics on our internal ESG. We have an exceptional reputation for transparency, and we now have ESG targets embedded into our LTIPs. Now in terms of external ESG considerations, for most companies, ESG is only an internal issue. But for us, ESG is really important because it's really important to our customers. Governments are publicly committed to promoting ESG. They have their own public targets. They want to use their procurement spend and heft with their suppliers to promote their policies. So they often embed ESG and social value into their contracts. Again, I'm going to let you read the slide. But while you read the slide, it's worth saying that we know that some of the business areas which we are involved in attract controversy. And I think that we have an obligation to explain how we think about this. The first thing is to say that we work for governments and our revenues come from taxpayers. So any search of Google is going to turn up quite a lot of public commentary and quite a lot of it is going to be critical and questioning. This is right and proper because we're spending taxpayers' money and executing public policy, and as such, are subject to a level of scrutiny, which is far higher than would be the case if we were a B2B business. Now during the height of the test and trace controversy last year, I ventured to suggest to someone in government that the press were giving us quite a hard time, and I thought unfairly. I paraphrase the response as being dry your eyes out princess. This is a sort of noise we get every day of the week, every month of the year, every year of the parliament or in everything we do. It's called government. Public accountability and criticism is just part of our customers' landscape. And the closer we are to them, the more that it is part of our landscape, too. The time to start worrying about Serco is when we're not being criticized by campaign groups or others because it may indicate that we are not as close to the action of government as we should be. The second point is that governments ask us to help them do some of the hard-edge stuff that the citizens who elect them expect them to do, like defending their country, protecting citizens from terrorists and criminals and managing effective immigration policies. Rather like people who eat sausages, though, but don't want to know how they're made, many people wish the outcomes of safe streets and peaceful coexistence with our neighbors, but turn their noses away of the work governments and their servants have to do to achieve this. To some, Serco's involvement in Defense and Justice & Immigration may seem worrisome. To us, it is reassuring. We think that helping governments do what they are elected to do within the law, with all the checks and balances that come with being a government contractor is a social good. We believe that a company whose whole purpose is focused on public service should be rated highly by those who analyze ESG scores. Ultimately, this is going to be a matter of individual choice for investors and institutions. But it would seem to me to be very strange indeed. If the work of delivering the policies of freely elected governments, be it in defense or justice or immigration should be seen as being anything other than a public and social good. Moving on. I'm not going to spend time on the history because it's been well documented. But what I want to focus on is what Serco is today and what it's going to be tomorrow. I will ask you to read the slide and hopefully agree that today, we stand out as a well-capitalized, profitable company, winning good business and in good standing with its customers. But the change is more profound than this. In 2014, we had a substantial commercial business, providing outsourcing services to both commercial and government customers. It was, and I think rightly, seen as a melange of contracts ranging from discount retailers to insurance companies to contracts classified to the highest levels of secrecy. And as a CEO, I remember one particular morning, where in the same hour, I had telephone conversations with the Commercial Director of Shop Direct, the CEO of the Atomic Weapons Establishment and the IT Director of AEGON. There was no theme, no common thread, nothing around which we could build repeatably -- repeatability, scale and efficiency. What we have done over the last 7 years is to weave that common thread, create that scale, build a B2G platform that allows us to deliver a broad range of services and contracts, which even though each contract is bespoke, are delivered from a common platform in a way that is resilient and efficient and also can be shared across our international network. This platform has 4 components. First, across the world, we share a public service DNA. That is a set of values and a culture of public service ethos that comes from the fact that probably around 50% of our colleagues have had careers in the public service. They bring with them an instinct for social responsibility, for transparency and sustainability and a commitment to improve outcomes for their citizens. And this public service ethos is to be found in colleagues around the world. Public service as a calling hums, the same tune in Goose Bay, in Glasgow, in Abu Dhabi and Adelaide. And this public service DNA means that we speak the same language as our customers in the same accent and it builds trust and the right instincts. With this public service DNA comes deep insight, understanding and know-how. Very little of our intellectual property is covered by patents. It is instead protected by tens of thousands of years of experience delivering complex mission-critical public service contracts around the world. Now there's not a lot of point in having this valuable DNA and know-how if you cannot deliver it. And whilst historically, many of our peers focused on developing their businesses in their home markets, my predecessors with great wisdom and courage developed Serco into an international business with large businesses in Australia and North America, which is now able to address 65% of the world governments outsourced services spend. Our governments want the customers want to have suppliers who employ people, who are part of that community and who will use the services, the people who will recirculate their taxpayers money into taxes and expenditure in the economy. They want to employ suppliers who eat their own cooking, who look and talk like they do and who share the same culture and commitment to government they do. So we have the DNA and the culture, the know-how and the distribution channel to know what customers want to buy and to be able to supply it. But can we do so at a price they can afford? How can we give them what they crave to buy more and better for less? How can we serve efficiently a market which insists on buying every contract as a bespoke item and where standardization is not valued, but low price is? The answer is to look at contracts not from the perspective of how they are different, but how they are the same. All our contracts use HR, finance, compliance, assurance, governance, procurement, IT and cybersecurity, legal and commercial, risk management, workforce management, talent development and bidding support. And these things, we provide them collectively and in common across contracts from an efficient shared services infrastructure. And thus, to give to bespoke solutions, the advantage of mass production. Collectively, this is our B2G platform. And our platform gives us 5 benefits, agility, breadth, reach, efficiency and resilience. And I will talk to each in the coming slides. But this is a platform which we believe is unique in our industry and one which allows us to shift our focus to areas of the greatest government needs and thereby grow faster than the market as a whole. To turn first to agility. Agility is important because governments change their minds. They introduce new policies. They kill old ones and the ability to keep ourselves in the flow of the money and to seek new flows is a core skill. So we are forever watching out for new opportunities, and we have a well-oiled process that once we have spotted a need of assembling teams of subject matter experts and delivery partners, developing compelling propositions and then building solutions into our B2G platform. And the revenues we have generated from this agility are astonishing. Before the introduction of Obamacare, we had never done health care eligibility testing ever. Along comes Obamacare, we assembled a team to bid for the work. And 7 years later, we've clocked up GBP 1.3 billion of revenues. Likewise, before March 2020, we had never done testing or tracing. By the end of 2021, we will have generated over GBP 900 million of revenues. But agility is not only the ability to spot new opportunities, it is also the ability to respond with speed. Between April and May last year, we recruited and mobilized 10,500 people to do tracing in the U.K. In a 3-month period, we stood up 250 test sites in car parks across England and Wales. In the U.S., when we won the FEMA contract, we promised and did source 2,000 engineers, flood experts and tradesman in 30 days. In Australia, we mobilized 250 people in 2 weeks for Services Australia and also recruited, trained and mobilized 400 people to do vaccinations again in 2 weeks. This ability to respond fast to governments, to turn services on and off is something that they are not used to, but they are coming to like it a lot. So our philosophy was best captured by Ruth in about 1,200 BC. When she wrote, whither thou goest, I will go, where thou lodgest, I will lodge. Thy people, shall be my people. If Ruth were alive today, she would probably just say, follow the money. Breadth. Breadth of offerings and experience are important as they enable us to tap into multiple sources of government funding. The chart on the slide shows the sectors in which we operate and spits them between regions. The important thing is that across our regions, we cover almost every area of significant government outsourced spend. Next, reach. Our B2G platform has significant reach. The footprint of our regions covers around 65% of worldwide outsourced service spend by governments. And these are very significant businesses employing thousands of people and able to deliver even the most complex public services. And to our customers, these are well-established local businesses with strong track records in delivering public services in their jurisdictions. Marry the reach with the agility and the breadth of services and you have a powerful platform for selling and delivering public service to government. The other notable thing about reach is that it's something that very few of our competitors have. The inhabitants of this market have mostly been pretty reluctant to go abroad, which says something about the importance they place on being local. We want to be local too, but in a lot of countries. And we think we have cracked that code. International reach is a huge competitive advantage. From the customer's point of view, it allows us to bring new ideas and ways of doing things from other jurisdictions. From our point of view, it gives us a huge landscape from which we can pick and choose the best opportunities, be it for bidding, for M&A and for recruiting talent. From our colleagues' point of view, it opens opportunities to live and work and develop their careers around the world. And say it not in Gath. In a world of changing political winds and a market in which buyers can be capricious, it diversifies us both in terms of risk and opportunity. Let me talk a little bit about resilience and risk management. In the graveyard of contractors past, there are the corporate corpses of those who fail to manage risk. And investors are rightly wary about a market where margins are low, contracts complex, customers are demanding. Resilience in our business comes from 2 sources: diversification of exposure by segment and geography, which we've discovered; and robust risk management. When Nigel and I joined, we had to declare over 40 contracts as onerous and made provisions of GBP 450 million to cover their anticipated losses. Since then, we have not had to declare any material contract new or existing at the time as onerous, which is highly satisfactory, but quite dangerous as it can lead to complacency. For the record, in the long term, I believe that the nature of this business is that we will always have 1 or 2 contracts that become onerous from time to time, but they should be few and the larger we get, the more immaterial they will be. The reason for this optimism is that we have an extremely strong risk management process, which consists of 3 distinct elements. The first is cultural and organization. Across our whole business, we have a culture of risk awareness. We live, breathe and lose sleep because of risk. All the senior management team in Serco are risk-hardened. They have all had to manage the consequences of risk that happens. And we have a team of very able people across the business whose sole job is to seek out and identify risk. The second element is that we have a very strong bidding process, which has a series of gates from prequalification through go, no go, customer shortlisting and so on, through to contract signature. And this process applies to rebids as well as new contracts. The process starts at business unit and then goes up to regional and group level depending on the size of the contract and the risk profile. And at the group level, we have an investment committee comprising the General Counsel, David Eveleigh; our Risk Warrior in Chief, who makes Angus Coben look like a care-free optimist. There's me, Nigel, Kate and Anthony, and we are supported by a dedicated commercial team. The committee considers all major tenders and oversees their progress through the gate process. To give you an idea how seriously this is taken in the 12 months to the end of June. The investment committee met 103 times to consider tenders that is about once every other working day. Once the contract has been signed, it is reviewed on a regular basis through the monthly business unit and divisional performance reviews. It is during the operational phase that the trick of managing risk is not about stopping it ever crystallizing, is how you manage it and mitigate it when it does. And I want to repeat that I am in no way suggesting that this business will always manage risk perfectly. But I do say that so far, the current management team has a pretty good track record, and I'm proud of the extent to which culturally we understand that the management of risk is critical to our success. Sitting alongside the B2G platform is our M&A capability, which we have used to make 5 acquisitions since 2018, 3 in North America, 1 in the U.K., 1 in Australia. We have a small, but experienced M&A team at group. And the regional businesses come to them with opportunities. As you can imagine, we kiss a lot of frogs. But all of our opportunities are measured against 3 strategic criteria. Do they add capability? Do they bring us scale? Do they give us access to new segments of the market? This is the first gate. The second gate is whether operationally, we can manage them and add value. The third gate is then building a plan to determine whether the project can meet the stringent financial criteria we've set. Finally, we run through a thorough DD and operational assessment. So far, this process has worked well for us. And I want to just bring this together and show on this slide how the combination of our B2G platform has delivered for us in North America. I call out 3 specific elements: agility, where the business has shown itself to be adept at identifying new opportunities and using our platform to develop strong operational solutions. I've already mentioned CMS, which is the health care eligibility contract. But I also mentioned FEMA, which is a federal emergency management agency where we support government in its response to natural disasters. The second ingredient in the recipe is M&A, and we have spent $550 million on 3 acquisitions, all of which added capability and access to new markets, and the 2 largest have also added significant scale. The icing on this delicious cake is growing scale, both organically and inorganically and leveraging our platforms and this has enabled us to spread our overheads and increase margins from 5% to 10%. The result has been extremely pleasing and illustrative of what the combination of a strong B2G platform, great people and M&A can bring to Serco. In the context in which our largest end user market in defense has been growing at a CAGR of around 2%. Divisional revenues since 2017 have grown by 15% and trading profit by 36%. And organic growth has delivered a CAGR of 5% across the division and 9% across the Defense business. That is a great achievement by Dave Dacquino and his team, which is why he gets to be the only person who's allowed to use photos in his slide deck. Let's now look at what we plan Serco to be in 2026. I regard it as good news that we don't need to have radical changes in our strategy to deliver our ambitions. Just as our customers want to do more and better for less. That is actually a pretty good recipe for our own operations strategy. We think we have a strong and differentiated position in the market, so we have no reason to move elsewhere. But this does not stop us being restless and frustrated because we know that there are 1,000 things we could do better. We are very serious in our ambition that we want to be considered to be the best-managed business in our sector, and we know we have more to do. We have proved how increased scale can drive efficiency and higher margins, and we want more. As Nigel said, since 2018, we've added GBP 1.6 billion of revenue, but only GBP 30 million of overheads or put another way, we have grown our revenues by 55% and our overheads by 16%. We know our shared services platform is good. But Anthony, we can do it better. We have some capability in data analytics but could do so much more if we had more. We want to do a better job of persuading ESG-focused investors that public services are a social good. And we want to continue to use our internal resources and skills to execute and deliver value through M&A. We have identified 8 areas which we believe can help us deliver our ambitions. Between them, we focus on 3 core priorities: making sure that we have the talent to make us the best managed business in our sector, improving the efficiency and capability of our contracts and shared services and making ourselves a more desirable partner for our customers. This is enough to keep us busy, very busy for the next 5 years. So turning now to the medium-term outlook. What do we think we can deliver? It's simple. Revenue growing faster than the market, about twice as fast; profits growing faster than revenues, we believe that we can add 50 to 100 basis points on top of our 2022 margins; growing returns faster than profits, we reduced dividend cover down to 3x over the period; and given that we expect to convert at least 80% of our trading profit into cash, we expect that we might also have the opportunity to enhance shareholder returns by way of buybacks if we fall below our target leverage range of 1 to 2x. Nigel will talk you through all of that in more detail, particularly around capital allocation. But I hope you find this a pretty compelling proposition particularly since it will be at least underpinned and could well be enhanced by value-added M&A. So we're excited. We think we have a good plan, and we think we've got the right tools to finish the job. And talking to which, let me introduce our Chief Operating Officer, Anthony Kirby, who will talk to you about our shared services.

Thank you, Rupert, and thank you for that public performance review of must do better. I've made it over to that. Thank you. So literally, we just wanted to have 1 slide that was looking in the rearview mirror. So since 2015, we've leveraged our overhead cost base, which overall has seen us achieve around 150 basis points of improvement on our overheads as a percentage against our revenue. Over the same period, we've improved our cost base in finance, HR and IT every year since. And in procurement, we've managed to achieve savings of just under GBP 60 million over 3 years, mainly driven by enhanced consolidation of our supply base, longer-term partnerships with key suppliers. And as Rupert mentioned earlier, delivering on our ESG promises of enabling more SMEs to deliver into our Serco ecosystem of supply management. A large amount of those savings, however, have been passed directly on to the customer because we have quite a significant amount of procurement purchases that are straight through pass-through costs. And we've also continued our investment in workforce management since 2018, delivering greater levels of efficiency across our divisions, predominantly in the U.K. and AsPac. But now those change processes and systems are rolling out with speed and rigor across the Middle East and the U.S. as well. And hopefully, Peter will touch maybe on our approach in AsPac a little later on. So moving to shared services. And really, this is a major part of us delivering our B2G platform. And I'd ask you to think of shared services as everything that supports our contract operations to run well-managed, well-governed contracts. Rupert mentioned all of the things that would naturally sit in there. Those are things that don't naturally sit in a contract or where it makes more sense for us to leverage our scale, we move those into shared services. And we're designing those services to be much more plug and play. So if we win a contract, it's easy to consume those services. And equally, if contracts fall away, it's easy to remove them as well, and at the same time, is making sure that we manage those variable cost base in line with both the increases or the reductions in demand. We've now got 4 shared service centers across the world based in Adelaide, Dubai, Birmingham and Washington. All 4 of them, notwithstanding, there are some regional nuances and security requirements, but they operate in the same way to similar processes, using similar systems as well as utilizing the same third-party suppliers, such as GEP purchasing, Accenture, Capgemini and so on. And that really does allow us to ensure that we manage and run our contracts with the support and the backup of experts in their field whilst also sharing the innovations that we're able to generate around the world in real time. And the most important thing for me here is that it allows our contract and operational teams to focus on the things that really matter, which are on the right-hand side of the slide there. But fundamentally, my message here is that we have, and as we heard from Rupert, we continue to build and develop an efficient, agile and resilient platform to support our contracts that can be deployed at speed anywhere around the world. Touching on technology now. So we have, over recent years, built a solid foundation of IT capability with a stable of world-class products, some of which you can see on the screen there. It gives us the confidence in our systems and platforms, coupled with our ability to deploy solutions at pace, allowing us to focus on the things that are additive horizontal value, if you like. So if you were to take asset management or workforce management, these are things that really have an impact in the contract, but that can be leveraged across the business units, the divisions or the group. So just to share a couple of examples, and you have these in your pack, which is probably easier to see. Just like to share a couple to lift them off the page, if I may, to show what we're doing with regards to modern rapid application development tools and how we're utilizing them and how they fit into our platform. So custom mine back probably 8 to 10 years and think of rapid deployable software. It probably felt like it's taken a lifetime from somebody having a really good idea that we could use technology and tools to make something more efficient. It took a lifetime to get it from inception of a good idea into reality and into the contract. Now it's almost -- I suppose the other thing to note as well is it also took us quite -- it would take quite a long time, big cost, big resource demands. Now we're able to deploy those really easily on a specific contract with ease and efficiency. So the flash to time bank, the cost and resource demands are worlds apart from what they were. In fact, now we use those tools in all parts of the Serco world. So let's just take an example, take the top 1 health care eligibility contract, our CMS contract as it's more commonly known in America. So we deployed a number of these tools to support and improve complex process management where we design, execute and manage processes that have a unique set of requirements. Our platform quickly enables the Serco team to build workflows and processes and integrate them, and more often than not, fully automate them using multiple data sources, maximizing straight through processing techniques. And by straight through, I mean, no manual intervention required, enabling a better quality of outcome, which allows our people to focus on the more human side of helping people to access health care. But the real value here is where we are able to have the development of this software, be operator-led, focused on the outcomes the customer wants and bringing our operational prowess to influence complex process management, perhaps better described as we get the technology to fit the solution rather than the solution having to fit around the technology. And our view on this is the software alone will never achieve those outcomes, but we are able to. And why? Because we bring our deep knowledge and experience of specific contracts or those which are similar, which generate efficiencies through process, through multiple software integrations, coupled with our insight and our data analytics capability, all of which are driving towards better quality outcomes for the consumer and the citizen. So one of the other major advantages here at Serco of which there are many, is being a truly global business. That really does provide us with the ability to share knowledge, learn from other parts of the -- learn from parts of the world for the benefit of others and enables our people with different skills to come together to work on some common challenges and issues. But it also helps us drive for better quality solutions that we're able to present to either current or new customers. Some of our CEOs, hopefully, will touch on a few more of those examples later. But over recent years, we focused on encouraging our people to come together to develop new solutions, to build on previous ways of working, but with a continuous improvement mentality and mindset and just share knowledge and ideas and opinions in an environment that fosters and encourages collaboration. One such example from the Wheel of Fortune, you can see behind me here, is through our Oxford University management development program. This is where we bring colleagues from around the world together probably in a cohort of around 30 to 35 people into the U.K. on a residential program. The actual program of collaboration is around 18 months with a residential visit to the Oxford University. And by the end of 2022, we would have had around 500 of our managers and leaders go through that program. So a significant investment in collaboration. But finally, I did want to touch on a couple of examples that you can see on the right side of the screen there to bring our global collaborations to life a little more. So we'll pick 2, fleet solid support services and maybe COVID-19. If we take a fleet solid support, it's a new opportunity that we are competitively bidding in the maritime space in the U.K. FFS, as we affectionately refer to it in the group, is a critical program for the next generation of support ships for the Navy. So we're bringing together the heft of Serco's defense capability, more specifically our deep Navy experience by setting up a team of people from around the world with a combined experience of more than 250 years in the maritime space, utilizing our expertise and talent, obviously, from the U.K., but supplementing it with resources and capability from Europe, from the U.S. and from Australia, which we hope will give us a compelling proposition, which keeps -- which sets us a apart from others who may also be in the process. And the final example is COVID-19 Rupert referred to earlier, specifically test and trace. So we stood up those services from a standard start here in the U.K. More than 10,000 people in response to the pandemic was stood up in less than 8 weeks. We utilized that learning that we'd managed to drive in the U.K. for the benefit of customers in the Middle East as well as some other customers in different states across Australia. Again, bringing to the fore our ability and nimbleness to move at pace, backed up by an agile, capable platform, supporting some really talented and capable people around the world to deliver the right thing for the customer against their expectation and exceeding their expectation, which made a difference -- a positive difference to the lives of both the customer and the citizens around the world. Nigel?

Good afternoon, everybody. I want to start by providing some color on the strong cash performance of the business over the last 5 years. Since 2017, cash flow has increased from GBP 22 million into what we expect will be this year, approximately GBP 225 million of cash. And this is principally a combination of 2 things. The first is a significant improvement on the profit performance of the group, but also the cash outflow associated with our onerous contracts, which was around GBP 70 million in 2017, and it's close to 0 this year. Looking forward, we expect over 80% of our trading profit to convert into cash. This is because our customers pay us on time, and we pay our suppliers promptly too, and that's without the use of working capital financing. And as you'll see on the screen, the number of debtor days that we have and the number of credit days that we have are similar for both and are both below 25 days. Also, the CapEx requirements of this business are relatively low, which are less than 1x revenue or around about GBP 30 million. And in addition, there are no material liability in our balance sheet that are expected to have significant cash drags of future cash, which includes both our pensions and onerous contracts. In fact, we expect the most significant use of cash in a normal year is likely to be the working capital required to fund the growth of our revenue. Before I leave this slide, I just want to touch on the last 3 years where we've averaged over 100% of cash conversion, which is higher than we'd ordinarily expect. And that's because we've had some catch-up of receivables in the U.S. and in the Middle East and also from the customer terms and the COVID work that we've had that we're expecting to unwind in the second half of 2021 and in the start of 2022. Turning to return on invested capital or ROIC. And I think the first thing to note is that Serco's business model is asset light. The group has around GBP 1 billion of invested capital, of which approximately GBP 900 million relates to goodwill and other assets created an acquisition. The remaining invested capital relates to operational assets, including fixed assets and working capital, which is expected to be around GBP 100 million at the end of 2021. And to put that into perspective, we run a GBP 4 billion revenue business that requires just GBP 100 million of net operating assets. You can see on the graph that since 2017, pretax ROIC has improved from around 9% to an expected return of 24% in 2021. We do expect these returns to drop down a little again in 2022 to more similar to the 2022 levels as profits reduce and we have the full year impact of the cost of the WBB acquisition in our invested capital. But this increase of ROIC has been achieved through strong revenue growth and margin growth while maintaining a stable invested capital base. Since 2017, the group's invested capital has increased by GBP 200 million or about 25%. All of this has been on goodwill for the METS, WBB and FFA acquisitions. While operational assets have reduced in value, over that same period of time, our business has grown faster than the increase in invested capital as revenues have grown by 50% and underlying trading profit has increased by more than 3x. So now turning to future revenue growth and how this will continue to support our return on invested capital. And our medium-term revenue growth target of 4% to 6% is built in our business and government platform that Rupert explained, but also on a solid base business and with the scale of opportunities for new business that we can see in the future. Our existing base is stable, is profitable, and we have good visibility of future revenue. We have a sizable order book, which is expected to be around GBP 14 billion at the end of 2021. And on average, there's more than 3 years of revenue in that order book and in an existing -- on our existing business. And the new business we win has an average contract life of about 7 years. Also importantly, for long-term contracts, there is good protection against inflation built into our portfolio. Approximately 25% of our contracts are short term or cost-plus in nature, where cost inflation will be passed on to the customer relatively quickly. Of the 75% of our contracts, over 90% of them have strong inflation protection through indexation clauses written within the contracts. And also important for a contracting business is that the base business remains stable as contracts come towards the end of their life. And over the last 5 years, our rebid and extension success rate has been around 90%, and that provides a stable base to add future growth to. Looking forward, we have good visibility of new business opportunities. And at the end of 2021, we expect our pipeline of qualified new opportunities to be higher than the GBP 5.8 billion pipeline we disclosed at the half year in August. And you'll hear more about this from the divisional CEOs later in the presentation. Turning to opportunities to improve our underlying trading profit margin. We forecast our margin for 2022 to be around 4.7%. And we see opportunities to add a further 50 to 100 basis points that will deliver a target margin of 5% to 6% in the medium term. The waterfall on the screen shows the opportunities available to improve margin. But first, we must recognize that there are a small number of contracts where we're making above normal margins, and they are up for rebid in the near to medium term. And as they go through that rebid process, it is likely that we'll win them but at lower margins. Conversely though, there are some contracts in our portfolio that are making lower margins than we'd expect, and these contracts have focused profit improvement plans against them, which will contribute to margin expansion for the group. Other enablers to improve profit margins includes the tools and capabilities that Anthony has just talked about, including workforce management and improved shared services that we've invested in to deliver efficiencies in our contracts without reducing the quality of service to our customers. In addition, as we grow our business, including with bolt-on acquisitions, we will add revenue without significant increases to our cost of shared services and overheads. The operational leverage of our platform will add to the group's margin as we've just successfully demonstrated over the last 3 years when we've grown revenue by GBP 1.6 billion while only adding around GBP 30 million to our overhead base. Moving on to capital allocation. And what I want to talk about is our capital allocation framework. And this framework has been established in the context of a target leverage margin of 1 to 2x EBITDA while recognizing that Serco is a sustainable, cash-generative business requiring low levels of capital investment. In that context, the first priority for capital is to invest in organic growth and operating efficiency of the base business. But as we've already discussed, it is not expected to require 6 significant amounts of incremental capital. Second, we plan to pay a dividend to our shareholders, and we started paying a dividend for 2020 with a notional dividend cover of 4x. And we aim to reduce that cover to 3x over the medium term through a consistent annual increases to our dividend payout. Our third priority is to fund bolt-on acquisitions that will add scale and capability and enable us to access new markets that will further grow the business. And finally, we recognize that the cash generated by the business will delever the balance sheet over time. And when acquisition targets do not meet our internal criteria and leverage falls below our target range, we will execute share buybacks or other returns of value to shareholders to move leverage back into the target range of 1 to 2x EBITDA. So finally, to sum up our financial outlook for the medium term. We expect our markets to grow at 2% to 3% per annum. We expect that revenue will grow at twice the rate of the market at 4% to 6%, underpinned by the strength of our business to government platform. We expect profits to grow faster than revenues as profit margins improve to 5% to 6% in the medium term. And returns to shareholders will grow faster than profits as reduce our dividend cover from 4 to 3x. And this will be achieved with strong cash generation that will fund M&A to underpin and enhance these targets or will be used to fund further returns to shareholders. So I'm going to hand back to Rupert, who's going to chair the Q&A session.

Right. Thank you, Nigel. Do my colleagues want to come and join me on the stage here? Let's have some bar tools, and we'll take Q&A. Could I ask you please to say your name, speak out loud? And we'll aim to have about 20 minutes of questions in this session. Bring on the stools, they can't stand for long, right. Thank you for your attention. A microphone coming to you.

Thank you, Rupert. Just on coming -- just on that margin point. I mean, how should we think about the phasing and delivery of margins over the target plan? Is a linear path wishful thinking? And is there any skew to any one of the particular building blocks that you highlighted? And then just sort of adding on from that, how has pricing evolved? And are you bidding more keenly than you have been historically? And does that represent some risk on the downside to the delivery of your sort of margin ambitions potentially?

I'm going to ask Nigel to answer on the path towards [ Navama ]. And after you've done that, I'll talk a little bit about pricing pressure.

So there are 2 parts to that question. Let me take the second part first, which is, are there any on areas that are going to deliver more than other areas. And I'd say for 2 that I will be most excited about is, one, the return on the investments that we've made in the contract to get more contract efficiencies while not diluting the quality of the service that we provide to customers. I think there is -- that's the biggest part of our cost base. And I think there's a significant amount of growth, particularly our people cost. The second bit is we've -- and we've proven it already that we keep a tight control of our fixed costs. So when we get new business, we can build that new business on without increase -- without significant increases to our overheads or significant increases to our shared services. So I think getting leverage from that platform will also help our margin. That's where help. As far as what's this going look, I mean because we win new business and that can be a little bit lumpy, it's difficult to say it's exactly linear. But we're not -- we don't have a 5-year plan here that's got a really big hockey stick at the end. We're seeing a relatively gradual increase in those margins as we go through the next 5 years over the medium term.

Okay. On the -- I'm just picking up from that Nigel said, one of the things that can happen is if we mobilize a big contract, you get a huge knock to your margins. We've taken what a GBP 10 million on the mobilization of DWP. And then it comes back in the following years. But I mean it's always a big debate. If you are driving efficiency into the business, how much do you keep for yourself and how much you give to your customer. Frankly, we inclined to give more to our customers than keep to ourselves. But -- so it then becomes a volume versus value gain. But this is a highly competitive market, but we are competing in it hopefully with technology and with our B2G platform. But I have no doubt at all that a lot of the goodness we get we give back to our customers over time. Is it -- are you done?

Thank you very much, indeed.

It's Kean Marden from Jefferies. I just wanted to ask a question regarding the organic revenue growth guidance. If we contrast to previous Capital Markets Day, you've effectively said that the trend organic revenue growth for the industry for the market is about 5%, and you're expecting yourself to grow in line with it. This time around, you're suggesting that you're going to grow twice as fast as the market, which obviously suggests that you're looking to pick up some market share. So I'm wondering where in particular you feel comfortable about that? And then secondly, I guess in a more inflationary environment, if most of your contracts have a pass-through mechanism, would that not provide some sort of tailwind? Or are you just assuming that the inflation here potentially is a temporary factor that doesn't linger over the 5 years?

Nigel, do you want to take the inflation?

Yes. I mean as I explained, there is good inflation protection within our contracts. There could be a little bit of upside because a little bit more -- there's a little bit of opportunity on revenue, but that revenue is only covering higher costs. So while our revenue might go a little faster, I don't really see much of that benefit flowing through to the bottom line.

So are you looking -- you're looking...

[indiscernible].

Okay. They're picking up market share. Well, I suppose sort of book-to-bill ratio of 120% since 2017 tends to indicate that we have been scraping together a bit of market share along the way. But frankly, it's such a huge market. We're talking about somewhere between 1% and 3%. It's actually quite difficult to see. And this thing about getting -- my advice to you would be is don't get hung up on the market growth. Because nobody really knows. It's an enormous market. We've got a tiny market share. And actually, it's more of what we're doing scrapping around. I mean, clearly, we've got quite a high market share in the U.K. We've got quite a high market share in Australia. We got a tiny market share in the U.S. So I think that we can find growth faster than the market. It also depends very much how the spend is shifting. So I can't tell you what the market share. But conceptually, it looks like we're growing. And as far as the market, I'd concentrate more on the 4% to 6% than I would the 2% to 3% if I was you.

Yes. I do that it's obviously difficult to try and sort of segment the market. So I appreciate that's a difficult piece of analysis to get to.

And can I just make a point about this. We've had quite a lot of questions, say, oh, which is your favorite child? And which market is growing faster? And is it defense? Or is it travel? The great thing about our platform is that frankly, my dear, we don't give a damn. We are agnostic as to where -- whether the defense -- whether growth comes from defense in Australia or Health FM in the U.K. or Citizen Services in Israel, we are agnostic to that. The margin differences between them is a bit. So defense tends to be higher. So we like to invest in that. But it's really investing in liquid markets. And my best example of this was when we had a huge reputable, wonderful, skillful strategy consultant whose name may begin with N in a couple of years ago, we -- they've helped us build a box thing that showed most desirable markets up there and get the actions quick as you can down there. Up there, with air traffic control. Well, that would have been a great place to have been down here with citizen services and call centers. So you really can't -- what this has taught us is that being present is really, really important, being present, being agile, ready to punch.

Sylvia Barker, JPMorgan. We're always going to ask about defense, so I'm not going to ask that. But could you maybe just talk a little bit about the rebids at higher margins and potentially kind of rewinning contracts at -- so which are current on lower profitability, potentially higher in the future, just around the timing of some of the bigger ones. If you can just remind us, obviously, there are big chunks in your waterfall, so just would be helpful to -- just to remind ourselves, which are the big ones toward trial 4.

Nigel?

Yes. The 2 big contracts we've got coming up for rebid in the near to medium term, both in 2023, in the middle of 2023, we've got the CMS or the Obama Care contract comes up for rebid. And at the end of 2023, we've got the immigration contract in Australia, both of which are big contracts. And apart from that, there's nothing unusual that's up for rebid in 2022. It's just business as usual. But those are the 2 big ones that published on that.

I would interesting say about both of them is that we've recompeted both of them before. And not only recompeted both of them and won before, but on the immigration, we just had this extended through to the back of 2023. So I'm going to give priority to anybody who wants to ask Kate or Anthony a question. Yes, yes?

[ Adrian Kate ]. So on the technology platform, can you kind of talk me through where you think your competitive advantage is against the technology-led competitors rather than, I guess, you as the broader service led? And what makes you comfortable or confident that you can continue to outpace, whether it's the new kind of cloud-led software-only providers or the broader tech-type companies.

Yes. Shall I have a go and then I'll hand over to our Chief Technology Officer, Rupert. So I suppose I sort of touched on it in the CMS example whereby we're able to take the technology and then put an operational lens on it. So technology in its own form really doesn't understand the complexities about trying to deliver the service. So where we bring value, where we add value is to take the technology, all of the required processes which are generally in the main, where we apply these sorts of technologies are very complex processes using multiple data sources. So the example that we gave in CMS, actually, we use around 8 to 10 different technology platforms, and then we integrate them, we put them through the lens of operator and customer demands and what we're looking to achieve and therefore, come out with a solution that works. And my view on that would be, that would be very difficult to achieve if it was just a technology or just a service-led solution. So actually, bringing them together and integrating them is where I think we add value.

Can I just add something to that, this is really important to understand where we're coming from. When I arrived in this business a few years ago, we -- particularly around call centers, people like Capita, they had invested tens of millions in building their own in-house technology to go and have a superior call handling and case management systems. We were never going to do that. And that's one of the reasons they had these high margins because they needed them to get back the depreciation on the investment that they made in the R&D. You may know my back, I spent most of my working life in software, well, a large chunk of it. And one of the things is, is don't develop products if there is a market that's even got a hint of standardization about because other people do it better. We are agnostic about these tools. We use the best tools that are available at the time to pick up to use as tools to develop that. It happens at the moment that in terms of rapid application development, we're using Appian and we're using a thing called BUMI from Dell, which is fantastic of meshing systems together. You would possibly surprise me, BUMI and Appian will have to run bloody hard to keep us as that customer in 2 or 3 years' time. And when we move, we move on. So what we are paying them, we pay them a SaaS fee, we pay them the maintenance. But we travel lightly when it goes to technology, and we switch really fast between different tools. So call it best of breed. I call it being a bit of a tart, actually. We would go after whether -- but we do say that the organization moves that we try to have at any one time a common set of applications of use. And inevitably, the back office is pretty stable around Darktrace and SAP and the like. So we're quite thoughtful about this, but we acknowledge that people, other people will have the greater software skills, they will have greater things. But frankly, most of the market in our sector is going this way of not trying to build their own tool or product but using -- and on call centers is a really good example. We use content guru, but we also use Genesis. And we regularly recompete them.

Richard Wingfield from BlackRock. Can I ask you about agility? Everybody talks about test and trace back. If I look over the years, FEMA, a number of other examples, you've demonstrated that you can mobilize a contract and hire a lot of labor in a very short period of time in reaction to government needs. How do customers recognize that capability? And do you expect these types of fast response programs to be a larger part of the business on a 5-year view than they would have been at the start of your tenure, who competes against you for this type of work?

So yes, I do. I think that customers have tasted this, and we have been able -- will do a lot to try and convince them but this wasn't just because it was a national emergency. It's because we can do it. And once they got a taste of flexing up and down the number of people on tracing, they've been asset-light goods. They've been -- they are able to adjust our tracing numbers by 20% on 2 weeks' notice rolling. So we are now down to almost nothing on tracing. And in the summer, we were up at 15,000. And this is a -- the other thing is to get it into Minister's minds. The minister, if you would like to go and implement a new service, not we needed for you. Because a lot of the ministerial studies, they want to get stuff done whilst they are in government. And the territory -- and this ability of being able to stand things up really fast. What we need to do is -- and this is where Kate and her Serco Institute are going to be doing work, is how we can wrap this around the thing of probity. How we can say because government is acting quickly, often then is in trouble. But at least we've got that commitment of convincing ministers that they should use this more often, go and try things like more often is, I think, quite a powerful marketing tool and also the fact that we can bring things from other countries. So we're quite keen on this. We're trying to find something that we can call it fast government, government at the speed of light or the speed of thought something but put this around that government can act much faster than it thought that it could. And certainly, the other thing interestingly is it can act much faster using people than it can developing software because we can stand up 1,000 people to do something. It will take you a year to develop the software to do it. That makes sense.

Yes.

Stephen Rawlinson from Applied Value. Just help me out here a little bit, if you could. You need people to do all of this. So could you just give us 1 or 2 clues about what you're doing to recruit and retain people in this environment, which may be different from your competitors? Are you training them, better paying them more? What's the thing that's going to hold all this together, which is the people that you employ and the recruitment and training of them. And I noticed also, of course, you've rapidly onboarded quite a lot of people, but that was done in a very fast pace of time to get the right behaviors. It's quite a tricky task. Just 1 or 2 clues given the nature of this meeting.

Gold Star for asking Anthony Kirby a question.

Thanks, Stephen. If I could just point out that the name of the agility from a customer point of view is still work in progress for your question. So we haven't landed on the name of that yet have government at the speed of lightning. In terms of recruitment and retention, look, we are -- I've got to be honest, we're seeing a bit of uptick in retention, but it's not worrying at the moment. So what's one of the main reasons why people will stay with the employer is because they're treated well, they're treated fairly, they're paid well and they're treated with dignity and respect. So we put a lot of energy and effort into making sure that our people are managed well, they're treated well and paid fairly accurately and on time. So the -- our approach to recruitment though is changing. So we've got a new employee value proposition where we make promises to people. So for example -- and we're just about to launch this in the start of next year is, everybody can get a great start. So in induction, you often see people leave in the first 6 months of joining an organization. We're starting to see that trend down slightly in the majority of divisions now. Everybody can get trained. That's the other thing, training somebody to do the job well is really important and giving them the tools to do the job well. And then everybody can gain a qualification. So our apprenticeships are up around the world. Our graduate schemes are up and making it a good place for people to come in to make a difference at the end of the day. We employ people that want to make a difference to the lives of citizens. In terms of the point, we have increased the number. We recruited last year more than 25,000 people, so this year, more than we did last year. And that is by deploying some really good technology where you can apply on an app. You go through the same sort of testing you would expect in a -- with a longer time frame. And then we really do just try and encourage people to stay. We show them how to make a difference and it started to impact. The challenge with that is, though, if you look at some of the roles that we have, people will move for $1 an hour extra to go through a call center down the road or somewhere like that. So our proposition has to be more compelling than the next person -- than the next organization, sorry, and we're doing reasonably well at the moment. For example, we've now got more people following our LinkedIn jobs than any of our competitors that we would talk about, which, again, is just another sign that people are willing to buy into us as an organization. And our last stat I'll give you is our leadership turnover. So our management and leadership card rate is less than 3% and has been now for the last 4.5 years, so that's another significant statistic that we're very proud of.

It's Karl Green from RBC. I've got 1.5 questions on the capital allocation policy, please. The first one is, could you just explain the thought process between increasing the payout ratio rather than throwing every spare pound of surplus capital you've got buybacks. And the second one, probably for Nigel is I think you talked about the 1 to 2x target leverage ratio. Are you saying you'd only buy back stock below 1x? Or would you buy it well within that range, please?

Nigel?

So taking the second as well. It's a guideline that where we'll start to buy back. So -- what we're saying is that our target is really to be in probably the low and just below 1.5x leverage because we want to retain capacity on our balance sheet to be able to fund bolt-on acquisitions. So that's where we want to be in the sweet spot. There's not a formula that says the minute we get to this place, we're going to trigger a buyback. But we're going to use a buyback to get us back into the range if we drop below that. And then I guess our thinking is why do we want to increase the scale of a dividend rather than doing an awful lot more share buybacks. Now I think on that as we wanted to get a consistent, standardized sustainable return to shareholders. And we'd like to see that as a consistent dividend and a message of an increase in dividend, rather than a big lump of share buyback and then nothing for a period of time and another big lump of share buyback. And that's the way we thought about it. And this is -- we're finding our way through this as well, Carl. It's only 6 months since we paid our first dividend in 6 years. So we've gone very quickly from that position to where we are now, but that's the way we're thinking about it.

Right. One more question, then we're going to break for tea. We've got another Q&A session after the regional directors. Yes.

Looking at M&A, which areas are top of your wish list.

Which what?

Which areas are top of your wish list for M&A?

We're agnostic. I mean you're talking about the company that at the same time, went and bought WBB in the U.S. also, which is really high -- it's a high-end consulting company in defense. We went and bought a brilliant company called Facilities First, it does -- that goes and cleans schools and looks after housing in Australia. It is a combination of what are -- most of the M&A, nearly all the M&A, comes to us from the divisions. We buy things that's going to fit into them, and that could be -- it could be any one of an area. And I really, really believe that you want to be, should we say, agile on this, flexible on this. I don't want to wipe things about or I don't think we want wipe things in. Clearly, our big dollars have been spent in defense in the U.S., and that's worked very well for us. It doesn't mean to say that there are not potential swans in the U.K., right? Or in the Middle East. We are agnostic. On that level, I'll note -- can I say we're going to take a 15-minute break. So please be back here at 15:50, please, for the regions. There will be more Q&A and, of course, provided that you go to the loo quickly, you might catch us to have a question there as well. Okay. See you back in 15 minutes. [Break]

As we speak and first up is Mark Irwin from the U.K. and Europe. Mark?

Thank you, Rupert. Good afternoon. Let's get down to business. In particular, our U.K. and Europe business, look at how we approach the market and the key opportunities that we see growing our portfolio in the coming period. I will conclude with a brief look at our European operations, particularly the work that we do in the space sector. The journey that Rupert highlighted in his presentation reflects, in many ways, the progress that we've made in our own business in this region. Prudent management, customer intimacy, improved bidding capability has underpinned the development of our portfolio to deliver further profit growth, building on the improvement that we delivered in the second half of 2020. My 31,000-strong team continue to show extraordinary courage and commitment to maintain the high standards of service in support of our customers and in support of the success of our business. We will deliver revenues exceeding GBP 2 billion this year, and underlying trading profit will exceed GBP 100 million. This reflects an improvement of 170 basis points since 2018, of which 150 basis points has been delivered in the current operating year. We've used this improved performance to fund investments in our business. We can now leverage capability in flexible employment services, in effective supply chain management and technology enablement to support a consistent platform for managing people, processes and assets on behalf of our public sector clients. Our significant operational support for the Department of Work and Pensions, the Home Office, the Ministry of Justice throughout the pandemic has built high levels of confidence in their partnership with Serco. We've demonstrated agility in the delivery of improved asylum accommodation in a very dynamic immigration environment as well as adapting employability services through the period when we went from a COVID-induced public health crisis to a much broader social and economic impacts. Our scalable customer contact services platform for the Department of Health and Social Care has now integrated us into the operational delivery model for the U.K. Health Security Agency. And we will continue to support the testing and tracing requirements with flexibility, continuity and assured governance. The success of our VIVO joint venture, a partnership with [ Equens ], will allow us to establish a strategic and significant role with the defense infrastructure organization, delivering complex facilities management in regulated environments, business we secured this year, which we will mobilize in 2022. And our European business is echoing the strategic partnership model we've developed in the U.K. to shape participation in the market rather than simply respond to tenders. Through our recent acquisition of Clemaco, so Rupert said 5, there's actually 6. It is small but really strategic for us. Through the acquisition of Clemaco, we've acquired customer intimacy. We've leveraged our global maritime capability to build trust with the Belgian Navy, and we've successfully integrated that new acquisition into our European footprint already. Kate referred to the broader market earlier. We've identified an addressable market in Europe and the U.K. in excess of GBP 300 billion. And through that, we see tangible opportunity to grow in addition to the underlying market growth of 2% to 3% that was referenced by both Kate and Rupert. Our core capabilities, asset and facilities management, complex case management, service user management, logistics and transportation and enterprise workforce management, are value drivers across all of our segments and across all of our operating geographies in the U.K. and Europe. Moving forward, we will use the experience gained over the past 18 months to align value recognition to the delivery of public service outcomes rather than simply managing contractual inputs as a key differentiator to achieve our target margins of between 5% and 7%. We are seeing already increasingly large and complex delivery requirements from government, which is completely aligned to our B2G platform. The Cabinet Office is active in reviewing market functionality aimed at effective government contracting, and we are encouraged by the maturing engagement of our U.K. customer base on risk allocation, which is being guided by the government's procurement playbook. Increased customer commercial sophistication and growing requirements for governance within their supplier management frameworks, early adoption of government policy outcomes and the ESG deliverables that Rupert spoke to earlier, all add cost, complexity and ultimately, entry barriers. We regard all of these developments positively and we believe that they support a more transparent, resilient and sustainable marketplace. But we are also pragmatic in recognizing that the attractiveness of this market is not limited to Serco. And we don't disregard the pressure that will come on our margins from competitors, some of whom are noted on the slide, who also will look to grow their government business, particularly during periods of private sector market uncertainty. To support our competitiveness, we will continue to drive operational efficiencies through our business and through our contract base. And we will invest in enabling technologies that will further automate our processes and augment our workforce. When we look at our potential in terms of pipeline, we have a healthy pipeline of new business across all of our chosen market segments. The current pipeline also reflects our active portfolio management to shape the business we want to have at the end of this current strategic period in 2026. We are increasingly targeting opportunities where we can leverage division-wide collaboration to drive differentiation. For example, the Armed Forces recruitment and inland border facilities opportunities in our pipeline where we are combining the process and service line expertise from our Citizen Services business unit with customer knowledge of the economic buyer from our defense and justice and immigration teams. And you will recall from Anthony's comments earlier that we are working in the design phase of the fleet solid support program for the U.K. MOD. In that program, the design work is being done by our colleagues in Serco Canada Marine. We're leveraging the build experience from the recently delivered Australian icebreaker. And we're combining that with our customer intimacy and the knowledge of the MOD that we have with our U.K. defense team. You will see from the slide also that our new business win rate has been improving and is now greater than the group average. This is supported by a strengthened divisional growth team, which we've worked on over the last 12 months so that we can bring together subject matter expertise, we can reduce the cost of bidding and through which we can develop best practice. In our pipeline, there are 2 bids which are currently at late-stage evaluation by our customers, HMP Glen Parva, one of several opportunities in a robust pipeline of prison management coming up in the next 2 to 4 years, and the MOD trading estates opportunity for our VIVO joint venture. In Europe, project Lightning is a program for the Belgian MOD, where as part of a consortium, we've submitted a proposal to design, build, operate and then maintain the infrastructure to support the country's new F-35 fleet on 2 military bases. A key differentiator for us in that proposal was our ability to leverage F-35 platform experience from our colleagues in the U.S. The Lightning proposal also leverages the [ DB OM ] consortium model, which has worked for us in Australia in the justice sector. It reflects the successful partnership ecosystem model that we applied in our approach to VIVO and the DIO and it brings to life the agility that Rupert has referred to earlier in his explanation of our B2G platform. In terms of rebids, we've also maintained strong win rates across both rebids and extensions. This slide profiles the key near- and midterm rebids. We see opportunities over the next years as PFI contracts end and our operational contracts are retendered outside SBB structures. That opportunity extends beyond our current portfolio and more broadly across the market as the large number of PFIs roll off over the next decade. In Justice & Immigration, you can see the program of recompetes for our current prison estate. In defense, we have the opportunity for Skynet 6 and the bridging contract. And in our defense business also, our marine services contract moves to a profitable single-source contract in 2022 before being recompleted outside of the PFI structure in 2024. In Europe, we see a high volume of recompetes as currently that market runs in a shorter cycle with lower value bids. We do, however, expect to change our contract portfolio over time to fewer, larger and longer contracts. I wanted to conclude by highlighting our European business, which is an emerging area of growth for us. We see opportunities, many of them in first-generation outsourcing, in areas where we have a depth of experience like defense and Justice & Immigration. And we see further growth opportunities in Space, which today represents 60% of our portfolio. In addition, over the planning period, we will start to increase the standardization and shared resources between our European and U.K. operations. This will be done without losing the vital local language and regulation expertise that we have and that is required for customer intimacy and successful in-country delivery. The implementation of SAP into our European operations next year is a good example of how we are investing in our shared services platform that Anthony detailed earlier. And just before concluding, I wanted to share a short video in which, in much more detail than I can describe in a few minutes, will show to you the fantastic and skilled work that our teams do to support critical operations for various European space agencies. We are truly excited about the opportunity for value creation in coming years due to our ability to convert legacy contracts, which are based on supplying specific skills, to output-based managed service delivery models. This shift is already manifesting itself in our portfolio with several key wins that we've had in 2021. [Presentation]

I had the privilege just 2 weeks ago to visit our team in Italy and with declared slight bias, I cannot tell you just how impressed I was by the energy and their enthusiasm. The breadth and the depth of their expertise in space and data and the inherent innovation that you feel just 2 minutes into any conversation that you have with them. But I will just momentarily suspense -- suppress that pride so that I can wrap up. I hope you can see that we are building a business with value and resilience, and we're doing that by protecting, developing and managing our people. We're doing it by driving competitiveness through operational efficiency and technology enablement, by winning business through disciplined bidding, and by actively managing the shape and performance of our portfolio. I hope it's helped to give you a clearer view of our U.K. and Europe market, of Serco's unique position to build scale for government services delivery as well as a sense of the fantastic work that our teams are already doing in Europe as the space economy continues to develop around us. Thank you again. And I'll now hand over to my colleague, Phil Malem.

Serco Middle East is the group's smallest region. But I'd like to tell my colleagues we punch above our weight. Operating the region since 1947, Serco has been an innovative provider of public services to governments in the Middle East throughout its history, transforming and evolving itself along the way. With the majority of our contracts in the UAE and Saudi Arabia, countries with clear and ambitious visions, our differentiated capabilities, our access to the Serco global network and powerful references locally and internationally have positioned us well to deliver world class services across our key sectors of transportation, citizen services, defense and health FM. We redefined our strategy in 2019 to focus on winning higher-margin contracts, exploiting our core capabilities in workforce, asset and data management with a user-centric approach. This focus, combined with effective cost management and operational excellence, has resulted in a forecast of 5.3% underlying trading margin in 2021 and a year-on-year improvement since 2020 of around 100 basis points. A couple of key customers and contracts to highlight. In 2019, we were asked by the Saudi Government Expenditure & Projects Efficiency Authority, EXPRO, to create from scratch the national manual for the management of all government assets and facilities. Our reputation locally and internationally was key in winning this contract, and we are now seeing demand for the rise in asset management services, an example of this being our new asset management transformation contract with the Royal Commission of Jubail. Our second customer to highlight is Dubai Airport. Dubai Airport is one of the busiest airports in the world, and one for whom we provide air traffic control services. We've deployed our ExperienceLab, which is our public services research and design agency, to help us win a guest experience contract at the airport, which, combined with our traffic control and the facilities management contracts, will take us to over 800 people employed in the airport. Let's take a step back and understand why the Middle East market is attractive to businesses and the reasons for some of the growth drivers for the region. In other geographies, COVID-related services increased outsourced public sector demand. However, most of these were kept in-house in the Middle East, although we are helping in a significant way now in contact tracing. So whilst in other geographic markets, demand increased in COVID, it actually declined in the Middle East, but now it's rebounding. Saudi Arabia, in particular, is witnessing the quickest rebound, thanks to its large pool of domestic demand and aggressive spending on tourism and related giga projects. The pandemic has also increased the demand for stronger private sector partnerships across government. Governments are realizing the flexibility outsourcers offer and are looking to providers to help them deliver operational and cost efficiencies amidst tighter budgets post-pandemic. They want more, better for less. The market, whilst growing, relies on the knowledge and know-how of international companies, giving us the ability to leverage our global capabilities and synergies. In line with this, government's openness to alternative delivery models provides great opportunity for a business in the outsourcing sector. Provisions of the UAE and Saudi Arabia are both transformational as they diversify from oil dependency. Whilst the UAE is further along that journey, both countries have a similar focus on their citizens and with tourism top of the agendas. This aligns well to our differentiating capabilities delivered by our ExperienceLab and the Serco Institute. KSA's Vision 2030, the government's economic and social reform blueprint, will deliver incredible growth and transformation across the country as it undertakes a structural transformation of its economy. 6 giga cities are being built, and achieving success will simply not be possible without private sector support. These projects are needed now more than ever to drive foreign investment and increased spending in the economy as the Kingdom is expecting $7 trillion in investment. Throughout the year, Serco has formed strong partnerships with some of the leading government and semi-government companies in the region, such as Mubadala and G42, the latter enhancing our digital transformation and technology capabilities and opened up opportunities in areas for us. The Middle East business has a healthy pipeline, which supports our core capabilities and key service lines of asset management, fire rescue services and air navigation services. Early client engagement with the Saudi giga projects has positioned us well. We understand the development plans and the time lines and are ready to support them. Particular opportunity with NEOM at the Vision 2030 flagship project, which has $500 billion worth of investment commitment. And the King Abdullah Financial District, the new Riyadh financial district, twice size of Canary Wharf. We're looking to work with Saudi Arabian military industries who are playing a key role to localize 50% of the Kingdom's total defense spend. We've identified asset management opportunities across land and sea, where we're able to draw upon our international defense capabilities and become an in-country partner. The aviation sector also presents significant opportunities. The sector witnesses great transformation to create the right environment to handle the medium- to long-term increase in passenger traffic. We're actively pursuing opportunities in Riyadh and in Jeddah's existing airports. The new airport is required by the giga cities as well as the exciting new air traffic control opportunities in Kuwait. As a competitive market, hence, we are selective with the opportunities we bid for, ensure are in line with our strategy and delivery of our investment hurdle rates. Our new bid win rate for 2019 to 2021 was 19% with client engagement contributing to that success. Our rebid win rate was 33% or 100% if you exclude the lower margin and often challenging Dubai Metro contracts. And our clients clearly see where we add value to the projects. We continuously challenge ourselves to do better and leverage technology to drive innovation at the contract level. We've enhanced our competitiveness in bids and operations and accelerated deployment of our technology solutions such as workforce management to benefit our existing prototype and develop new ways of working that can be later scaled up and rolled out globally. The addition of ExperienceLab to Serco's proposition in 2020 offered the first end-to-end integrated research, design and delivery offering in the region. Being able to understand the psychology behind customers and the customer experience, whilst also physically managing the clients' people, assets and data adds a lot of value, and it's something our competitors don't do. We've expanded our team on the ground in Saudi Arabia, and ready to launch even bigger in the Kingdom in 2022. We're launching a 90-day innovative sprint in Q1 of '22, which will primarily focus on incremental innovation and operational excellence. We'll measure performance of existing services, identify where our competitive advantage lies to optimize our performance and deliver new services in the market that are based on new business models and technologies. Using a bottom-up approach, we'll be encouraging our colleagues across the contracts to think differently and embrace technology to identify opportunities for business process automation and accelerate and enable asset and workforce management through great data management. Teams will orchestrate design sprints with rapid prototyping in a sand box environment and ultimately be in a position to replicate the success on a wider scale across our division and others. In conclusion, we've been in the Middle East for a long time. We intend to be there for a long time. In the region, governments are hungry for new ways of delivering public services. They are open to innovation in a way that few others are, and they are ambitious for change. Our mission is to help them achieve it.

[indiscernible] at the moment. Good afternoon, everyone. I'm Peter Welling, the AsPac CEO. I think I probably might be new to some people in the room today. But for me, Serco has been quite a long journey. I happened to join in 2015, right at the time that Rupert said, we were, I think, somewhere near the bottom of that hockey stick, and spent the last 5 years heading up the Citizen Services business in Australia, and was proud to be behind a lot of the growth trajectory that, that business drew. I took over as CEO about 12 months ago right in the middle of COVID. And I had to joke to my family at the time saying, "I think I have to rename myself to be Moses instead of Peter Welling, " because I had bushfires. We went into floods. We had COVID and the famine. I was waiting for the frogs and the locusts and I reckon I had the whole suite put together. But that's kind of like welcome to Serco. That's what we do as a business. And for us, I'll be really proud to take over a business that is ambitious and has been successfully serving the people of Australia for 30 years in their markets. We organize ourselves similar to other sectors across J&I, Citizen Services, health FM and defense through 38 contracts. And just to give you a bit of color and light about that, like Rupert's story earlier on, a day for me could be helping our team Western Australia with our FM hospital work that we do there, taking a phone call from our garrison health services, putting a dentist into 1 of the 58 defense force bases right through to people cutting lawns in the parks and gardens in Melbourne, right away through to specialist cleaning and aged care through our facilities first business, and right along the path to maintaining social housing and also running Australia's largest prisons and immigration network. It's a fascinating business that has absolutely positioned itself as a platform player with our government clients. In addition to Australia and New Zealand, we also have a participation in the business in the high-growth markets in Asia, particularly with our hub through Hong Kong. The good news for us is that this year, we'll deliver revenue of approximately GBP 900 million. And the great part about that is that business is 70% bigger today than it was 3 years ago. So with a CAGR of about 19%. Our trading profit has improved over the years, and we're sitting about 5.4% at the moment, in line with the guidance given today. The other thing that's changed that's important to our market is that we are a much more balanced business at the moment. We now have 3 business units that make up about 90% of our portfolio and that's across Justice & Immigration, Citizen Services and Health FM. We have a really diverse -- culturally diverse workforce across Australia, New Zealand and Hong Kong with 16,000 employees. I was really pleased this year to get the support from Rupert and the Board to welcome 2,500 new employees to the business through the Facilities First business, and that grew our overall business by about 20% in Australia. The -- I suppose the challenge for us as well, 50% of that workforce this year were directly involved in COVID lockdowns. In fact, 8,000 people spend over 260 days in lockdown across New South Wales and Victoria, which added to the complexity of what we needed to deliver. I think if it had not been for our investment in our platform and the ability to deploy workforce, we would not have seen not only that delivery happen, but this year, pleasingly seeing our staff engagement score of 70 points up 1 point from last year. Many of our key contracts continue to perform really, really well. Our onshore immigration contract was extended, as Rupert said earlier, till the end of 2023, and that was terrific news after a decade of working in that space. Our Australian Defense Force health contracts continue to deliver despite those challenges that I just said there as well. And to put it into context, not only do we have national border closures, we had state border closures and local government border closures. So to mobilize people within that, the permitting system to deploy them was very complex. But that was done across 58 bases, Australian national and state levels through 24 skill sets, 1,500 clinicians at 100% fill rate. So really tremendous year. I was personally very relieved to see our icebreaker, Nuyina, come down to Australia after her journey and Rupert is smiling at me because my first week, my first phone call to my new boss was, "You know that big red boat that we're bringing down? Well, it got stuck in the canal somewhere in Romania. And if you don't believe me go and have a look on YouTube." That was my first week. But it's essentially a significant capability for the Australian government. Being 160 meters long, it can crack 1.65 meters ice at 3 knots and weighs about 23,000 tonnes. Also earlier this year, we're really pleased to get recommissioned for the Acacia Prison contract, making it the second-largest contract in Australia for us, right next door to Transperth passenger transport contract at 25 years. Our key customers, of course, Australian Border Force is our #1 customer. But also just for an angle, when you look at some of these, and you would have known these from previous presentations, a small but important one is the National Disability Insurance Scheme. It is a first-generation outsource in Australia. And I think that, along with Services Australia, which is the benefit payment agency in Australia, are 2 new customers that came on board with us in the last few years. And I think, again, validates our call to action that we are the go-to agency for government with the platform that you go to when you need someone who you can trust, who will absolutely get it right. We also brought on some new customers in New South Wales and Victoria this year, which were known to us, but we're now delivering new capabilities into new customers particularly around our health workforce capabilities, which is really pleasing to see moving forward. And I have a slide at the end which I want to share with you how we've taken our workforce management, digital capability and applied it to those markets. The divisional growth drivers for us are similar to what you've heard in other jurisdictions, but we can see our way to a GBP 35 billion market moving forward. The same sort of structural drivers but slightly nuanced around growing life expectancy, aging workforces and the gap between the supply and demand of labor have created an opportunity for us in this market to really step in and provide that capability through the agility of our platform that you've heard a lot about today. Rupert mentioned a couple of examples earlier, and I'm pretty glad he didn't take all of mine, but there were some good things that we did in the middle of COVID as well with the rapid mobilization of Christmas Island for our Border Force customer. And that was to put 250 detainees on Christmas Island, which is a 3-hour flight off the Australian coast via Western Australia, which was in COVID lockdown. It would typically take 9 weeks to do that. We deployed it in 6 weeks, right in the middle of the COVID lockdown, as well as Rupert mentioned, setting up new call center seats for our Services Australia customer, and new COVID tracing workforces in various state governments. I actually find that personally rewarding as a business. It's the altruistic side of me that when government needs us, we can stand up, and it makes you proud to go home and tell your family, you're actually making a difference, and particularly helping job seekers in Australia at that time who were desperate for help. Not only were we able to give them some jobs, but we're able to help them find the benefit they were looking for. Equally excited was the acquisition of Facilities First this year, which opened up new opportunities for us in the FM sector, strengthened our FM pipeline, but also allowed us to scale up their repeatable processes and to learn from how they've actually entered the market. And we saw our first small win this year with the social housing maintenance contract in New South Wales. And just to put that into context, we've not had the opportunity to win in that area in the 30 years we've been established. We have a mature outsourcing regime similar to the U.K. labor and liberal, but we see the outsourcing of our work surviving both of those with a number of our contracts actually being commissioned by both sides. We do see, therefore, a very strong balance coming forward of 5% to 7% healthy margins coming from that -- both sides of the government that we are ready and willing to compete with. In our competitors, I think there's a couple of things to point out here. We have seen the mega mergers in the last few years. We've seen the spotless and downers coming together with broad spectrum and Ventia creating a very significant scale in our market. And this year, in Australia, I'm not sure if it was the same over here, but there was a sixfold increase in mergers and acquisition activity in the first 8 months in Australia. So we saw one of our competitors, [ probably gobble up ] and another one of our BPO competitors, for example. So scale is definitely entering our business. My other colleagues have mentioned a couple of cost divisional collaborations. They are real for us. I'm really excited about the work that we're doing with Dave in his business at the moment in the U.S. where we're taking the design for the land 87 craft that's in our pipeline and overlaying it with our PMO experience that we've just practiced by bringing Nuyina ship to Australia and then using that to bid. And we have quite a large bid in our pipeline as well with VicRoads, which is essentially an end-to-end registration licensing agency, run under sort of like a PPP model. We're working with David's team again to bring capability from the DES contract in North America out to Australia. And we're working closely with Mark and the team on the workforce management capability. We have seen lots of structural things happen in our market as well with government budget deficits as a percentage of GDP now reaching 4.3%. That's the highest in 25 years. And we will see that big government, small government pendulum swing back again. We also know that our governments, and we saw some great presentations earlier, now expect digitally smart public services. So the ability to bring our platform to be quick, accurate, repeatable, safe and smart is now core business. It's no longer a noble pursuit of government. It Is the price of staying in government, and we are ready and we are delivering. The geopolitical environment for us is important, particularly in the Indo-Pacific region. And we are seeing the increase in defense spend, as Rupert pointed out earlier, particularly around the Australian, U.S. and U.K. alliance. We do see full opportunities around -- under C6ISR space. Naval and [indiscernible] talked about the 87-10 landing craft space. But we will also look where we can leverage capability again from our U.S. business back into Australia as they come forward. We do also have quite a strong pipeline of opportunities over the next 5 years, and we can see $11 billion worth of opportunities that are going to be awarded between 2022 and 2026. About 1/3 of that or $3.7 billion is expected to be tendered in the next 2 years. We also have opportunities worth about $7.3 billion at various stages, and there are exciting sectors, particularly in Justice, with prisons coming out of New South Wales; our Health FM capability; and enterprise workforce solutions providing workforce capability around the $3 billion mark. Our win rates for 2019 to '21 are 27%. So we're really well positioned for the future. I'll just sort of talk about a couple of bids that are on there. The VicRoads registration licensing opportunity is the agency that gives you access to the roads, registers your car, gives you your licensing. It's the largest transactional agency in Victoria. It's the first of its kind. It's a concession model where a partner would write a big check, and we would be the operating partner for a long period of time. We actually think that's not only an exciting opportunity, but potential other markets that we can look at. We're also looking at Garrison Services (sic) [ Garrison Support Services ] which is a state services in Australia on defense force basis, similar to the VIVO work. And we think that not only the capability that we can leverage from our U.K. business, but the capability that Facilities First brings to us is going to be very important to attack that contract. And of course, the Frankston Hospital, which we submitted a bid for in September this year, we will find out whether we are shortlisted for that in December this year as well, essentially replicating the capability that we're doing in the Fiona Stanley Hospital. On rebids and extension, again, a really good track record. 33% of our revenue faced rebid, and we're up for the challenge. 96% of those in value term were retained. Only a couple of small contracts were taken back into government and they were for political reasons. So we have a very strong story that we bring to those, and we start early and we work hard. Just to put also in context, the Citizen Services rebids similar to the U.S. We're on a panel. So every year, typically, they're rebid. We're not concerned about those. We've really rebid and won them a number of times, but it is work that we have to continue to work pretty hard on. The most critical one, as you know, is resecuring the 2-year extension for immigration, which we did. And we have already commenced work on the rebid in anticipation for what happens in 2 years' time. Just the last slide. This is where I'll talk with a bit more passion. Rupert has been very patient with us over the last few years as we've invested in a digital workforce capability platform. And essentially, the table on the top left-hand corner tells the story about what the model is. So we've invested in end-to-end workforce capability right from recruitment through to onboarding, performance management and then being able to redeploy. You might shrug your shoulders and go, "So what?" And we did. And what we wanted to do is raise the bar to say, "What value can we drive out of that for our own business that we could potentially replicate to the market?" So we designed our own operating model up in the right-hand corner, which delivers over 800,000 shifts to 7,500 staff. All the complexity of clinicians through to custodial offices across 75 locations, and it's literally a cycle. It's quite a simple one. We issue a roster. We then look at variations against that roster as we get closer. So think about fine-tuning, making it more efficient. And then we fine-tune it on the day again. So we actually, in some contracts, go down to 15-minute increments where we look at demand versus workforce, and we fine-tune it. We then take the learnings from that and drive it into our data analytics. And this is where the smart people come in, and they look at that and they say, "Well, what's that data telling us about our workforce? And how can we optimize it?" And once you have that data and you're on a digital workforce platform, you have the opportunity to put it back into a continuous improvement cycle where we go and talk to our recruiters and say, "Actually, we want more casuals and part-timers than full-timers. Can you design me a workforce and go and recruit it?" Now we've applied that across our Australian Defense Force business and the Justice business that you can see here for the full value chain. But the really exciting thing is coming this year where we've taken parts of the value chain and we've been able to sell those to our government customers. So Services in Australia, you'll be familiar with because we run a large part of their call center. Now they have 35,000 public servants in government delivering services where we just want a spot on a panel to provide the rostering as a capability back into government, so it takes away whether things need to be in-sourced or outsourced. We are now making government more efficient from taking one part of our digital workforce channel back into them. Same sort of things with New South Wales, Personal Care attendants and Victoria Health, where we recruit credential on board on hold. And Rupert mentioned earlier, we get the phone call from the customer who says, "I need 40 or 50 or 100 or 200 of those people." And then we can deploy them into a roster and manage the performance. So just another example where we're taking our digital workforce capability, applying it to our highest cost driver. That sort of stuff gets me pretty excited about being part of this business. We're an ambitious business. We're excited about the future, and I'd like to now hand over to my colleague, Dave, to talk about the U.S. business. Thank you.

Thank you, Peter. Okay. We're almost there. You've noted in Rupert's presentation that he made reference to the fact that the North American business is now the biggest contributor to profit for the Serco Group. And that since 2017, we delivered 15% compound annual growth in revenues and 36% in profit. So we're rightly proud of that. In fact, if I'm smart, I'd probably just go and sit down. But I've come a long way, and I've endured more COVID tests and quarantines than I thought it was necessary, so you're going to have to endure this as well. Let's take a look at the business. We're a mid-tier provider. And we expect to close 2021 as you can see with about $1.16 billion. We've grown organically and through M&A, which was a good challenge. And our competitors also pursuing those benefits of scale, spreading our fixed costs over larger areas and larger base, greater customer intimacy and interfaces, diversification and, most importantly, our ability to cross-sell, which we've been pretty effective at. Our portfolio today is about 2/3 defense. And you can think of our traditional work as being on the waterfront, doing the installation and the integration work. It's on the ships and subs as they come in for their work. Now we've subsequently expanded since just the last few years into Navy acquisition support, in the systems engineering and now most recently with the WBB acquisition, the Army, Air Force and the Office of Secretary of Defense. And we're very proud of our Defense business, as you can probably tell, and we built what we believe is a very strong platform that we can continue to grow going forward. I'll give you more details on the Defense business at a later point, but I want to move on to a couple of other areas, because our Citizen Services work is also very critical to us. And particularly in light today if you're watching the news, of the priorities of our current administration in the U.S. Today, we're providing eligibility support for health care. We're doing -- administering retirement benefits for government workers. We're performing drivers' exams, and we see robust demand for these activities in both U.S. and Canada. So we're pretty excited about that. And I will say we do aspire to shift some of our growth energy into that space. Okay. So we have over 9,000 employees today. The WBB acquisition for reference added about 900 to that total. The contracts number that you see there is larger than the other divisions. We do have a handful of larger programs, but these are complemented by what you would call framework contracts. And what we do there is we compete to win a position on that framework contract. And then the actual work is awarded by task orders where only those contractors that bid in one of the framework contract can bid. And it's only a limited number of bidders as we could say. Now one example would be the global installation contract that we've had for a very long time. We've been very successful on that. And we're bidding against 5 other companies only. Those are the only 5 that are in the running. And that's where the ship or submarine comes into port. And then we would retrofit some new equipment and work on those ships as we go forward. All right. Let's shift a little bit to the engagement scores. Right on target at 75%. It's flat over the previous year, which was a pretty tough year, but it's up considerably since 2019. We have a footprint in 43 states, about 14 international locations, as I stand here today across the globe. But it represents the fact that we follow our customers. Where the ships and the equipment and so forth are is where we do our work. And our largest locations though are in the U.S. national capital region. That's also where our headquarters is. And then, of course, some of the larger Navy fleet concentration areas is where we have a large presence, such -- San Diego, California; Norfolk, Virginia; Jacksonville, Florida. And then back to Canada, we're primarily in the province of Ontario, but actually we're in 4 provinces. Okay. So divisional market and growth, let's talk a little bit about that. The U.S. market for services has been growing at a steady pace for the last 5 years at about 3% a year, and that's primarily for the U.S. Navy; and probably slightly lower than that for Citizen Services, but that's historical. Typical contract margins for us are between 5% and 12%. And of course, that depends on the type of contract, the work, the customer, the contract type, all of that drives those differences. We do have a balanced mix of contract types between firm fixed price, time and material and other cost reimbursable vehicles. But the majority of our revenues, as a key point, are low risk. And what you would refer to in the U.K. context has cost plus work. So we do have a diverse portfolio, as I mentioned, enabling us to deliver overall 10% margins across the division. Our acquisitions have greatly expanded our customer base, our digital and technical qualifications and capabilities, and most importantly, increased the number of opportunities we can pursue in our pipeline. Now the budget situation in the U.S. are always enjoyable to watch, just still a few more steps from resolution. The House and Senate need to agree on the final numbers for our fiscal year '22. And -- But I have to say we're in a much better position than last year where we felt we were because the conventional wisdom at that time is we were going to see a significant decrease in the defense budget. Where in fact, we're seeing probably a 5% increase in fiscal year '22, which is a very significant difference. And even more than that, for Citizen Services, depending on how final negotiations play out. So you can see why our interest is there. And happily, we, over the last few years, have positioned well in the spaces that are well supported. It's worth it to talk a little bit about competitors. You see it there on the chart. I'm going to make a couple of points. It does vary by market and customer, but we see these 5 listed on the slide in many of our markets. Booz Allen, very strong in the Defense and Citizen Services side, a formidable competitor. Amentum, interesting one. It's a recent combination of at least 3 companies: AECOM, DynCorp and PAE. And we're not sure when they're going to emerge, but we know they'll be showing up in a lot of our spaces. And what I mean by that is essentially the Navy Command that focuses on the IT acquisition upgrades and retrofits, which we are in as well. Then there's ManTech. We see them in our Army market, particularly in sustainment mission support. They just acquired a company called Griffin, which when closed will take them into our NAVC systems engineering space. That's our mass market that we bought with the Alliance side. So I'm going to make another note that the M&A activity remains very active in the U.S. and we're watching that happen. But I want to make one other note that's very important and that is these companies that you see here, these bigger competitors, they were not in our field or in our field of view a few years ago. And that's the measure of where the company has evolved in North America because we are now meeting these folks and competing successfully against them. All right. Let's talk about the new business pipeline. We do have a very strong pipeline for new business opportunities, which -- it represents the weighting in our portfolio against defense. You can see that very clearly. But it still has a good balance of Citizen Services opportunities that we're pursuing. Now of note are submitted opportunities that are awaiting adjudication or decision in the U.S. is about 1.25x our annual revenue today. Now that's a pretty healthy pipeline for us, but it's also folks of representation, of the impact that the delays in procurement are having on us because we have seen some of that back up there, and it's quite significant to us. It doesn't mean they've gone away, but they're delayed on us. Now I'm going to give you some specific examples of new opportunities we're bidding, just to give you a sense for that. First is the -- I got it on the bottom there, the Navy and foreign military support, over GBP 500 million, which is ship system upgrades, integration and repair and there are systems engineering in there as well. Second, the U.S. naval forces logistics support, nearly GBP 150 million which is sustaining Navy logistics systems. And by the way, this bid is a great example of the synergy bid because we would not have bid this if it wasn't for the METS capabilities that they brought to us. F-35 program management, north of GBP 100 million, probably closer to GBP 120 million. also a synergy bid with METS and WBB. -- and you heard my colleague, Mark Irwin also talk about F-35 and the opportunities that we're working together. I want to mention a couple of other ones that we talk about. Peter said, using our DES contract as well to chase the VicRoads bid as well. I'm chasing a Canadian employment bid. I couldn't do without Mark. So the opportunities in the cross-divisional expertise is real. It's affecting our pipeline and it's impacting our success, which is really exciting. Let's look at the rebid and extensions pipeline. Approximately 30% of our portfolio will come up for rebid or extension over the next 3 years. Now though about half of this amount is the task orders, and it's the type I talked about earlier, this 30% is pretty consistent for us. So it's not something that we're afraid of and we understand, and it's how our rebid portfolio actually typically looks. Now earlier this year, I'm happy to say we won the Goose Bay, about GBP 513 million, and the U.S. ATFP or Antiterrorism Force Protection, over GBP 115 million. So we successfully resecured 2 of our major contracts going forward. Our largest rebids ahead that we're thinking about, Citizen Services being CMS, the eligibility support. You heard Anthony talk about that a little earlier; and the Canada driver examination services we call DES, both of those are in mid-2023. Okay. Just a couple of more points I wanted to make as we drive forward here. And this is the defense business snapshot. I wanted to take just another minute to walk you through some of the subtleties here on this chart. Our U.S. defense business has steady growth both organically and through acquisitions over the past 3 years. We're very proud of that. Think about our defense being 2/3 of the North America business. And then think about Navy being 2/3 of that defense business. So that paints a picture of what we are. It's clearly our largest customer with the Navy over several contracts. We offer services now, which cover the full life cycle of program support, and that was our ambition 3 years ago when we talked about it before we started the acquisitions. So we fulfilled that objective. We now are through the upfront acquisition program management to engineering, to integration and installation, all the way through back -- through the back-end in-service sustainment work. Our strategic acquisition of BTP, Ally Enable systems, which is now METS, and WBB were all done with that objective and to fill critical capability gaps in our offerings and to give us greater customer access. So for example, our most recent acquisition of WBB hugely broadened our technical capabilities while it doubled the size of both Air Force and Army and their single acquisition, and it also brought us new customers with the Office Secretary of Defense and the Missile Defense Agency. And we already see those bids in our pipeline, the U.S. Navy, clearly, our most important defense customer. And it continues to be our key to success today. Our traditional work, as I've noted, is on the waterfront. It's the installation integration work on the ships and subs. So it's a blue collar folks that are out there. We expanded this through BTP, the first acquisition we did the $20 million that we did that brought us product repair and design capability for the antennas. So now we're top side of the ship and not just below decks on this one. It was a major move and helped us in engineering as well. The METS acquisition that took us into shipbuilding program offices at NAVC headquarters, where we provide acquisition support. We also do financial analysis and scheduling and very importantly, systems engineering as well. The synergies that we gained from METS and WBB folks, they were the game changers for us. And that success is still to come as we continue to integrate those. We're also working across all Serco divisions to leverage what we've purchased through Serco Group and our defense capabilities into other regions. Specifically, we're investing heavily in the maritime, and I know Mark and Peter both talked about that. I do want to repeat a couple of points here because it's important to us and the other divisions. And the work we're doing with the U.K. for the fleet solid support has been terrific. That's METS capability and Serco Canada and Marine that's delivering those design services, and it's an integral area that Mark talked about. In Australia, as we said, the landing craft ship builds, really important work. do that without the capability that we have that Peter mentioned. And Phil and my teams are working very closely together on opportunities in the Middle East on service ship support work. So the in-service work for those ships. Okay. Let's go to the final slide here. And I love this slide because it gives you a sense for some of the excitement of what we now are in North America. So after closing the WBB acquisition, we felt it would be a good time to actually revisit the full suite of technologies and capabilities. And we're a service company, right? So we're not developing these, but this is how we apply them that were resident not only in our legacy systems now, but of course, the acquired companies with an eye towards unlocking new opportunities to sell these across entire division and of course, globally. So each of these areas in sub billets, I've got underpinned by a specific case study or specific use to customers using that we're actually selling today. So these are not things we're wishing to do, we're actually doing. Let me just point out a couple of examples. Artificial intelligence. We're deploying this across the business, used heavily in our CMS program and it automates the process to reduce the human workload. So it helps bring the cost down and the efficiency and the accuracy up. The fun part here is we're also adapting the AI from commercial gaming industry and taking that into our war gaming work. And we've already -- we're already in the Army Space and Missile Defense Command that are excited about that. So we're crossing lots of lines here. Autonomous vehicles, which is a very large and growing market. We're primarily though on the innovation and operational testing side. That's the prototype development, software engineering. We do some of that. Payload integration and the servicing side, we provide the subject matter expert expertise for the customer. And for the most part, this is key, we're not competing with the OEMs that are building the equipment. We're partners to them. We take it after it's built. We do all the testing and operational support that go with that. Intelligent automation, that's business process automation overall. But we have a cool example where we're doing visualization for the F-15, foreign military sales program, as an example. And these are all referenceable to other programs in defense, and Rupert and I have discussed even here in the U.K. talking to the MOD. Dynamic resource management, data analytics apply across all our programs, both Defense and Citizen Services or Civilian Services. We're excited about applying these capabilities and technologies across all of North America, and we're doing that across our portfolio, but also globally. We've recently just stood up our innovation sell with all of our solution architects now centralized. And in fact, they're sitting in WBB part of the business. And now here's another important point I want to make because all of this sounds great. But if you can't share that, it doesn't work. And this is enabled because we do share much of the same IT and other infrastructure and security platforms across all the divisions. And in fact, what this does is it makes our knowledge and expertise transferable to each other, which is an extremely important point. So let me just wrap up my comments by saying that Serco North America is a growing and resilient business. We believe we're very innovative. We have an experienced leadership team with a good track record and a strong market where we're well positioned, and it gives us a good runway of opportunities to pursue and win because, as I like to say, winning new business is the most fun you can have at work without getting in trouble at home. Rupert, over to you.

Well done, Dave. Well done. And well done, all of you. Can I just make a point, whilst we're gathering the -- hopefully, the bar stools because I want to have the chance for the regional MDs to answer questions. And just put one about management succession and talent is that Mark running the U.K. previously ran Australia. And was very successful there. Peter, when did you join the business?

2015.

2015. And was then promoted to run business here. Dave was when?

[indiscernible]

Over 6 years. But you were running the Defense business promoted to be the -- and we are moving our talent around the business in a way and growing people who I think -- I mean, frankly, I'm proud of all of them. I think they've done a fantastic job. They're running very, very big businesses. And can I just say there was a question earlier around the labor force and workforce, et cetera. And Anthony gave a great answer, but I just want to add something to it, which is to say that in 40 years that I've been working I've never seen a more difficult time for people to run contracts and stuff. It's been really hard. We've got lockdowns state by state in Australia. We've got vaccination mandates in the U.S. We've got constantly flowing issues in the U.K. It's been -- these guys have done a terrific job. Operationally, it's been really difficult. And they've done well, and we've delivered well. So on that, no, let's have the regional MDs up in the -- so you can still ask questions to Anthony and to Kate and Nigel they're off in the wings there. And just while gathering can I also say that the we answer questions until probably about quarter past 5, 20 past 5 -- 6. For those of you who -- some of you are staying to watch the film. For those of you who are not, can I say you're very welcome to stay. And if I may put it into context is that it's a film made by something called [indiscernible], who is a documentary maker, who has a rare talent to get people to speak, and you'll hear this again. But it's -- to me, incredibly important. We've all stood on our doorsteps and banged cans for the NHS, for doctors and nurses. What [indiscernible] counts for was the people who were the porters and the cleaners and looking after siding seekers, the people who were still having to run North link ferries, the dustbin collectors. And Molly has made a film giving those people a voice. And we've got quite a lot of -- we've got some journalists and some politicians and others joining us. But if anybody was planning to go ahead you're very welcome to stay and see that film, and I commend it and Kleenexes will be available at each seat. It's here, it's just stand stairs. And that, we're going to move to questions, which are going to be chaired by Paul, because he's good at that. Paul?

Right. Who wants to ask a question? Any questions? Adrian, let's go with Adrian on the left-hand side there.

It's a question for Dave on the U.S. I just wondered if you could kind of talk through just maybe to ease my understanding, but like the process of when you're trying to win a bit and then it gets appealed, how that works, does it make it a more difficult process for other people to enter? Does it make it more difficult for you to win business off the incumbents? And do you need to do more M&A to kind of open up that sort of slightly complicated market to the naive outsider?

Yes. We -- what you're referring to is the protest fever that we have in the U.S., where every contract seems to be protested are up for appeal and it seems to be. It is frustrating for us to see it. Now we benefit from that as well as get punished by that because when our contracts get protracted through that process, we get to keep that work while that continues, but it has frustrated us. It's probably the single largest frustration that I have as we now have all these great new capabilities and this work has frustratedly pushed out, in some cases, 3 years. So yes, absolutely. I think the -- it isn't an issue of needing more M&A. It's just positioning well and getting with the customer going forward. But there's not much we can do. That's the process. We built it into our bid process, and we're moving on.

Carl, I think Carl had a question.

It's another question for Dave, please. Without sort of speculating about what's happening in the world geo strategically. Just in terms of scenarios, if we came in 1 day, and there was a headline that the U.S. Navy has been sent on a major deployment somewhere, what would that mean for you as an organization in terms of the short-term dynamic challenges, revenue opportunities? And maybe what it would look like 12 months down the line, let's assume that it was an enduring operation.

Yes. It's a great question. As I mentioned in my presentation, we follow the U.S. Navy and do the work. And our work consists primarily when we talk about the installation and integration side, a major retrofit. So when a ship comes in and we strip it all down in port, takes sometimes a year to 18 months to get that done. But we also have the work that we chase the ship and do upgrades while it's a floater in service as well. So what would happen there is we would see a delay in some of the major retrofits as those ships are not coming in, and we would then chase them with the in-service to some of the critical work that we have to do. The other work, the installation integration work that we do in our integration would continue, it would just be waiting for the ships to come in. So of course, it would impact us in some of the major retrofits. But on the overall business, we would continue to do the work.

I mean I think it's right to say, Dave, it was during the last administration. I mean...

We did that.

The whole -- almost all the U.S. fleet was in the Pacific and our shore-based work dried up for a bit and then all of the sudden there's an ugly rush as they come back to the U.S. So it's absolutely right. It can affect our business. But long term, those ships need to be refitted, and the United States cannot meet its objectives for having the number of [hulls] afloat without it continuing a very high level of refit.

Yes. And the other interesting angle is because we're now across the full life cycle, a lot of the folks that are sitting in the program office get deployed, and then we backfill those individuals to help those positions. So we end up supporting from that side. So as Rupert said earlier, the business ebbs and flows, we just have different kind of work during deployments.

Kean's got a question down here.

Just a question on the Australian derivation detention contact -- sorry, contracts. You have a similar situation in Australia that we have in the U.K. that there's a sort of backlog of people that have built up and that have been unprocessed in the system? And I guess, to sort of help us think about how the contract potentially evolves on rebid. I mean, you've obviously gone through the various extensions. So it feels like they've sort of kick the can down the road to some extent. Is this the point that they need to sort of fundamentally reexamine how they operate? And do you have any insights that you might help us scale that opportunity, please?

Yes. Thanks. It's a good question. I think for us as a business, we've kind of grown up with immigration in Australia. So from the start -- the type of business it was a decade ago is different to today. And that's, I think, something that we've been really proud to contribute to helping the customer think around what immigration will be and could be. As you know, the business all those years ago, with boat people arriving is different to the one it is today. The closed borders has definitely created a different dynamic in the business at the moment. So the ability to get people back to their home countries has been closed with international border closures, which meant we're dealing with more of those people in the country at the moment. And the customer is doing what they should do at any rebid is go back to have a look and think not what the contract looks like in 2024, but what does it look like in 2034 and think around the life cycle of people in those type of circumstances. We're doing that thinking in the background at the moment. I can't get into the minds of what is in the customer's mind. But I think they have benefited from our expertise every time we've asked for their approval to get the contract extended. It has happened. We've got a really strong performance record with them. We've done everything we can to set ourselves up for that rebid in 2023.

To follow up on that. So could you maybe characterize -- maybe how much sort of excess backlog may have built up. So obviously, we need to sort of scale this opportunity in online for sort of 2 or 3 years' time. So if there's the sort of spike in a backlog that's built up at the moment, is that 10% of volumes, 20% of volumes in Australia currently or something more than that?

Can I just comment? The model in Australia is very different from the model in the U.K. There is a huge backlog, as you say, in the U.K., but probably Mark's run both of them. So Mark, why don't you just understand -- explain the differences between contracts in the U.S. and the...

So in Australia, there is immediate delineation between people who enter the country illegally and can be detained indefinitely. That's the detention state that we have responsibility for. The backlog typically builds up for the people in community whose basis may run out or who may have asylum applications that are allowed to enter community or have other routes to legal immigration, that's where there is a significant backlog. Otherwise, the people, as I said, it's sort of cause and effect. You come in through a non-allowed channel. It's very clearly stated in legislation, illegal. That's when you then come in to the custodial estate effectively.

So where there is a backlog in the -- in Australia, is particularly in prisoners whose sentences have come to an end. And just talk, Peter, a bit about the change in proportion of your population.

Yes. So that point is exactly where we're up to is and because of the closed borders at the moment, people come out of their custodial sentences in prison, a stateless can't go home, so they come into the immigration network, where the model has changed or from just the immigration centers to also short-term accommodation that we're doing through APODs throughout Australia. The backlog of volume in the communities, as Mark said, is not a current policy of the government to go and collect up all those people to put them into detention. There's a policy decision to manage them in the community, and that would take a government policy decision to really accelerate that at the moment. But we're continuing on with the work that we're doing to maintain those cohorts. There are still transports and escorts happening. So some people are able to get to their home countries, which we do through charters, but the bulk of that cohort is still in the Australian community.

Just to give you a note, so we are -- you're looking in detention who we are looking after in Australia, about 1,500. In the U.K., in the community where we are providing housing, it's about 28,000. So one is in the community, the other is in detention. And the other point I just want to make some cases mentioned made of Christmas Island, being a [indiscernible]. That is not -- there were -- there was a contract that the Board force had of keeping people on Nauru, which was not part of Australia. And it's got a very, very bad reputation. We did not bid to do that. But Christmas Island is part of Australia, is under Australian law and it's kind of an overflow center, but it's not to be confused with the previous offshore contracts.

Yes. And probably just to add 1 more point to that, to answer the part of your question, the cohort is very different today. So it's about 95% people ex-prison, high risk and extreme risk in those establishments as well. So we had to harden those across the network to deal with that cohort.

[indiscernible] JPMorgan. Could I just ask on Digital Workforce Solutions? So obviously, the big focus in your presentation, but it seems like that's something that you're using across the group. So could we maybe hear how it's being used elsewhere and perhaps to what extent it's used internally versus within customer contracts as well?

Sure, do you want to talk about the U.K., Mark?

Yes. So we're in different stages of maturity. Our focus in the U.K. currently is to deploy this capability internally. We currently have around 7,000 of our colleagues managed through our workforce platform. We still have more to do in that regard. And then once we've got that capability proven internally, and we've got the value equation around that built in a U.K. context, we will then use that along with accelerating from what we've already done in Australia to then sell that externally to our customers. I will say that there is interest already. We have had discussions and engagement with public service departments, large ones, where they are looking for exactly what Pete's describing. So the effective use of the workforce, there's visibility and understanding of the cost of contingent labor and the relative loss of productivity that goes with that. And when we look at -- typically the motivations of outsourcing, part of it is flexibility, but part of it is fundamentally productivity. And when we have people in our contact centers delivering 20% to 30% higher productivity, being able to manage workforces in situ inside of our customers' premises and businesses allows us to transfer and create value in a different way for them. So it's coming. I intend to do it, but we have to make sure that we can deliver everything we promise. And by delivering it internally first, we can live up to that.

And probably just to top and tail that with the external part. The Australian Defense Force health contract that we won 2 years ago needed that sophistication and solution because 1,500 clinicians, 24 skill sets, 58 bases right across Australia. We had to bid and win that without knowing who got paid what salary and where you source them in the market. So the digital workforce platform gave us the capability to organize that. And we have 100% full risk KPI in that business, which means they have to be there on time and we have to know where they are. Out of that, as Rupert said, you've got to be ready. So we had the capability ready. And after deploying it there, other state and territories saw the opportunity. We looked at it also from an employee value proposition to say if I'm nurse X or doctor Y, that I can give you 3 days in the defense force space and 2 days in a hospital, but I can give you a rich employee experience, which exactly matches the demand deployed on that capability to the external market.

In the U.S., we're also putting in on CMS and our flight air traffic control programs as well. The Navy is interested in because we're putting that also for our folks that work on ships to manage different qualifications and different work orders that you have to do in a major ship retrofit. So the Navy is interested in that. And because we're in the Office of Secretary of Defense, and they're always looking at the big strategic views of how to manage complex workforces, we're starting to have those discussions as well. So we're excited about that potential.

It's Paul Sullivan from Barclays again. Just a bigger picture one for me. Firstly, could you just give us a sense of the key political headwinds and tailwinds you're facing across the major markets? That's the first one. And then secondly, on risk, any general characteristics of business you're walking away from that you can share? And how has that changed over the last couple of years? And then just finally for me, not wanting to overuse the term, but I mean it's clearly an impressive platform that you put in place, Aren't you tempted to scale it up more rapidly through larger M&A.

Okay. So let me handle the walk away. Governments very rarely ask us to follow them into places we don't want to go. It has happened. -- where they said, "Hey, Rupert, come with us over here." And we've said, no, I don't think we can. But on the whole, where they go is where they will go, where they lodge is where they lodge. Our walk aways are more normally to do with I'm terribly sorry, operationally, we don't think we can do this. or I'm terribly sorry, your terms and conditions are just unacceptable. There's too much risk. It's more around risk than about doing things -- not doing things that we don't want to do. And I think that our customers need to know that we respect their right as governments to say what they need to do as long as it's with the law. But I can think of 1 or 2 occasions where we have said that's a bit too close [indiscernible] for us. In terms of political headwinds and tailwinds, Dave, you might like to just talk about the -- that in terms of the change of administration and the impact that's having in the U.S.

Yes. I mean we seem to have political headwinds regardless of what we do on either side, just for fun, it's kind of a sport now in the U.S. But on the defense side of the business, it's been pretty constant in a positive way. There's mashing back and forth. On the CMS program and Citizen Services side, during the Trump administration when President Trump came in, it was very clear he wanted to kill the program, that's all going away. Of course, he never did that. Chipped away at it and bid some pieces. And now the Biden administration, there was a big expectation that he would just grow it like crazy. That's not happening either. That's also in little bit and fits and starts. So generally, we're positioned pretty well in those 2 areas that are getting a lot of support, and frankly, there's a lot of need. So we're frustrated by it, but it doesn't affect our business very much.

Mark?

In the U.K. context, we're thinking ahead about the next election, 2024 or sooner. And we're actively engaging. And we're actually encouraged by the fact that we see the willingness to engage from both sides of politics. And so I think it's about response to policy rather than, as Rupert said, the winds of politics. Not in a headwind context, but we are obviously aware of the B word, Brexit, and the implications that, that may have. And in our aspiration to grow our European business significantly, we need to do that in a way where areas like data sovereignty, if we look at what we do in our space program being a U.K.-based business, is something that we have to manage carefully with our customers, but it's about awareness. I think it's about dialogue and partnership and us being transparent in how we protect the things for them that they need protected within the business that we have. And we've got experience doing that with Dave's business. There are things that I'd love to get from Dave, but I can't. But we accept that and we respect that because that's part of the pact that we have with government around trust.

Pete, you might -- you come from a country which has every form of political opinion in government at the same time. So just compare and contrast Western Australia now as it was against but it was 5 or 6 years ago.

Yes. Well, we've started to treat Western Australia is another country now because I actually can't get in there until February next year. The borders are closed. I mean, look, we've got an interesting dynamic. I'll talk about labor and liberal earlier in my presentation. both sides of commission services, and we're ready for it. So labor will typically commission services where they see capability in the market that they don't have. Whereas liberal is more bullish on small government, big government, were small, the private sector will be big. But either way, we've collected all of that over the last 10 years. The thing that we watch is both a headwind and a tailwind with government, and that is the agility that Rupert talked about. That trust and confidence arrives on foot and departs on horseback. When government asks you to be ready, you better be ready. Because if you're not, they'll go to the next person down the line and they won't come back. So that is the thing that we've got to be ready for that the platform actually enables us to respond to in the last year. So I think they're the 2 other bits of context when you look at our business to say, is it a business that has capability in the platform to be ready? Yes. Can it survive different headwinds with government? Yes, but it's a different context when those things come out, and we understand what that is.

Tom? The big M&A. Oh, that one. Two things I would say there's old saying that the trouble is if you've got a hammer, every problem looks like a nail. We have and we are building a platform that we have proved can scale really well. And as we've said, we added 50% to our revenues and 30% to our overhead, GBP 1.6 billion, GBP 1.2 billion on to revenues and GBP 30 million on to overheads. We've got that. And we've proved in the U.S. where we have proven this. It's not a secret, but it's absolutely not a reason to go and just go on a rampage. And actually -- but what we do have, which is different from other models that have existed in this is where people have tended to buy businesses and then just leave them on their own. We buy and integrate. That's what we do. And we're spending a lot of money with FFA at the moment, taking a small facilities management company, and all of a sudden, they've got SAP and they've got all sorts of stuff. Because the other thing about IT, you can't afford not to do it. In a world of ransomware that is as bad as you have to bring people into the wall. This is an advantage for us because we're quite good at that. We have to be good at that for our business. And we have to be slick at bringing people over the wall. And one of the things going on at WBB at the moment is bringing WBB into our growth, it's quite difficult. But that is as it should be because it shows that we've got value in our wall. So I take your point. And if you've got anybody who wants to sacrifice themselves on the altar of our scale, we'll be very, very happy to lead them up the aisle, but we will be sensible about it. On that note, is there any more questions? There have been no... oh, yes, there is. Absolutely, one of that. Last question, please.

My question if for Mark. I saw 6% of your revenues are coming from transportation. So could you tell us how has that been affected by COVID, especially the ferry business?

Yes. So all of our transport businesses, as you would expect, have been affected during the COVID period, but quite differently. On the ferry business, in particular, we've seen a reduction, obviously, in passenger volumes. We have seen that partially offset by us having to effectively deliver freight during that period for development across the islands. And we have started to already see the recovery now of passenger volumes again, although not to the levels of pre-pandemic. So we're about 70% back to passenger levels on the ferry service. And we're seeing the same on our Caledonian Sleeper service, as well as in our [Merseyrail] joint venture. So I think it's recovery, it's not full recovery. And as you can see just in the last week, how volatile things are in terms of the restrictions and so on.

Right. Okay. Shall we'll call it a day? One other temptation in wanting to stay to see the film is that actually [Maitland] have canceled their office party. So there is absolutely fantastic line for food in booze. For those of you who would like it. For those who are not staying, very nice to see you, and thank you for coming. For those of you who are staying, there is the maintenance office party just in the are being taken out not according to Diamond Street party rules. Okay. Thank you all very much, indeed.