Serco Group Plc · LSE:SRP
Serco — H1 2005 Earnings Presentation
51 slides from Serco's earnings presentation, Aug 31, 2005
Slide 1: Interim results
Serco Group plc 31 August 2005 interim results
Slide 2: Agenda
2 agenda overview Kevin Beeston financial results Andrew Jenner business performance Chris Hyman summary and outlook Kevin Beeston q&a
Slide 3: 2005 interim results - highlights
3 2005 interim results - highlights change organic growth revenue £1,074.9m 33.6% 20.8% profit before tax* £43.7m 27.0% 14.5% earnings per share* 6.78p 22.6% dividend per share 0.91p 12.3% group free cash flow £19.4m £(4.1)m *before amortisation of intangible assets
Slide 4: Key performance drivers
4 key performance drivers service record drives organic growth 21% organic revenue increase significant contract wins >£700m signed continued good group cash conversion 70% acquisitions performing on target £9.3m profit pre-funding costs strong forward order book £12.9bn high visibility
Slide 5: Financial results
5 financial results financial performance - income statement - cash flow Andrew Jenner - net debt finance director IFRS conversion
Slide 6: Income statement
6 income statement revenue profit before tax including share of joint ventures before intangible amortisation 1,637 1,555 71 67 1,326 57 1,141 1,075 45 44 £m £m 805 723 34 31 626 28 526 24 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 restated restated half year full year Note: 2001 to 2003 unde
Slide 7: Income statement
7 income statement 2005 2004 Six months to 30 June £m £m increase (restated) Revenue 1,074.9 804.5 33.6% Gross profit 153.5 116.6 31.6% Administrative expenses (101.6) (80.0) 27.0% Investment income and finance costs (8.2) (2.2) Profit before intangible amortisation and tax 43.7 34.4 27.0% Intangibl
Slide 8: Revenue growth
8 revenue growth £161m £1,075m £51m £84m organic £805m £(26)m RCI growth disposals ITNET 2004 half year 2005 half year Note: 2004 restated under IFRS.
Slide 9: Income statement
9 income statement 2005 2004 Six months to 30 June £m £m increase (restated) Revenue 1,074.9 804.5 33.6% Gross profit 153.5 116.6 31.6% Administrative expenses (101.6) (80.0) 27.0% Investment income and finance costs (8.2) (2.2) Profit before intangible amortisation and tax 43.7 34.4 27.0% Intangibl
Slide 10: Profit before intangible amortisation and tax
10 profit before intangible amortisation and tax £5.0m £43.7m £3.2m £6.1m organic £34.4m £(5.0)m growth RCI acquisition ITNET funding costs 2004 half year 2005 half year Note: 2004 restated under IFRS.
Slide 11: Income statement
11 income statement 2005 2004 Six months to 30 June £m £m increase (restated) Revenue 1,074.9 804.5 33.6% Gross profit 153.5 116.6 31.6% Administrative expenses (101.6) (80.0) 27.0% Investment income and finance costs (8.2) (2.2) Profit before intangible amortisation and tax 43.7 34.4 27.0% Intangib
Slide 12: Group free cash flow
12 group free cash flow 55.8 47.0 £m 23.5 19.4 14.2 9.7 8.9 (11.5) (14.1) 2001 2002 2003 2004 2005 half year full year
Slide 13: Group free cash flow
13 group free cash flow 2005 2004 Six months to 30 June £m £m (restated) Group EBITDA 52.3 38.3 Working capital movement (15.5) (16.0) Group operating cash flow 36.8 22.3 Interest (7.7) (1.0) Taxation (3.2) 4.0 Expenditure on tangible / intangible assets (12.1) (8.0) Dividends from joint ventures 7.
Slide 14: Net cash flow
14 net cash flow 2005 2004 Six months to 30 June £m £m (restated) Group free cash flow 19.4 23.5 (Acquisitions)/disposals (282.5) 3.6 Other financing 254.4 (10.0) Dividends paid (8.3) (7.0) Non-recourse debt financed assets (9.2) (12.7) Net change in cash / equivalents - group (26.2) (2.6) Adjustmen
Slide 15: Net debt
15 net debt 30 June 31 Dec 2005 2004 As at £m £m (restated) Group recourse net debt (315.2) (15.3) JV recourse net cash / (debt) 22.3 (4.6) Total recourse net debt (292.9) (19.9) Group non-recourse debt (248.5) (256.5) JV non-recourse debt (45.1) (47.1) Total non-recourse debt (293.6) (303.6) Total
Slide 16: Summary implications of IFRS
16 summary implications of IFRS underlying performance, cash flow and ability to pay dividends will be unaffected impact on year on year earnings growth after transition likely to be minimal fair value concept will introduce volatility into balance sheet on transition profit before tax pri
Slide 17: Transition to IFRS
17 transition to IFRS six months to 30 June 2005 is first reporting period under IFRS 2004 comparatives restated internal change programme has fully embedded IFRS across the organisation still potential changes to interpretation of standards in areas of PFIs and pensions
Slide 18: Impact of IFRS on 2004
18 impact of IFRS on 2004 UK Intangible Pensions Debtors Deferred Share Dividends Other IFRS GAAP assets tax based payment £m £m £m £m £m £m £m £m £m 2004 Full year PBTA 74 - 1 - - (3) - (1) 71 Amortisation (17) 11 (1) - - - - - (7) PBT 57 11 - - - (3) - (1) 64 2004 Half year PBTA 36 - - - - (1) - (
Slide 19: Pensions
19 pensions As at 31 Dec 2004 Liability Intangible Debtor Deferred Net asset adjustment assets tax impact £m £m £m £m £m Group schemes SPLAS (157) - - 47 (110) NPL (12) 12 - - - Other (12) - - - (12) Joint venture schemes Northern Rail (6) 6 - - - Merseyrail (4) 4 - - - AWE (56) - 56 - - (247) 22 56
Slide 20: Impact of IFRS on H1 2005
20 impact of IFRS on H1 2005 PBTA primarily affected by increase in share based payment charge of c£2.5m net assets primarily affected by inclusion of financial instruments £(37)m movement in pension deficits £(30)m deferred tax credits on above £20m
Slide 21: Summary
21 summary strong revenue and profit growth, both organically and from acquisitions acquisitions accretive to earnings consistent operating cash conversion impact of IFRS as expected
Slide 22: Business performance
22 business performance Chris Hyman chief executive
Slide 23: Business performance
23 business performance operational highlights update on acquisitions progress on delivering vision and strategy sector review market and geographic analysis
Slide 24: Operational highlights
24 operational highlights performance win rates maintained at over 90% (rebids) and 50% (new) biggest contract to date phased in acquisitions completed and benefits growing second half start even stronger order book at 30 June 2005 order book stood at £12.9bn bids submitted and under
Slide 25: Acquisitions already bringing benefits
25 acquisitions already bringing benefits enhanced capabilities and fuller suite of products very positive employee and customer response key management retained and integration proceeding well re-named to Serco Solutions and Serco Inc cost synergies on target business opportunities prev
Slide 26: Serco Solutions
26 Serco Solutions >£80m new business since completion >£350m short term opportunities new local authorities contracts Bradford-i 10 year contract valued at £160m to consortium extensions valued at >£20m with Southwark, Enfield, Ealing and Richmond private sector progressing Coca-Cola
Slide 27: Serco Inc
27 Serco Inc critical mass in North America task orders flowing Pentagon information management centre US Army Career and Alumni Program sexual assault and harassment prevention program >$600m of near term major bids North America defence market expanding base realignment and closure
Slide 28: To be the leading service company in our chosen markets
28 to be the leading service company in our chosen markets strategy build balanced portfolio business through organic growth, achieved by delivering great service and building long term relationships distinctive, service-led brand efficiency initiatives growth initiatives strategic sourcing
Slide 29: Civil government
29 civil government overall growth of 31% sector accounted for 37% of H1 2005 revenue sector consists of home affairs local government health education
Slide 30: Home affairs highlights
30 home affairs highlights new division formed from Premier and Justice UK electronic monitoring contract phase-in e-borders consortium US first homeland security civil contingency contract second half close to securing more than £180m of opportunities across homeland security and of
Slide 31: Home affairs strategy
31 home affairs strategy opportunities focus UK: homeland Security Scottish Electronic Monitoring law enforcement offender management market offender management expansions immigration control SOCA joined-up government to reduce International reoffending and cost of specific opportunities identified
Slide 32: Local government (inc IT and BPO) highlights
32 local government (inc IT and BPO) highlights largest number of IT contracts in UK local government (Kable) Bradford-i 10 year contract valued at £160m to consortium all existing integrated services contracts are long term Breckland council, environmental services £60m contract over 20 yea
Slide 33: Local government (inc IT and BPO) strategy
33 local government (inc IT and BPO) strategy opportunities focus UK addressable market £3.4bn. deepen relationships across base - Gershon build applications capability - quality extend shared services provision - e-government develop strategic partnerships
Slide 34: Emerging markets - health
34 emerging markets - health progress and opportunities focus progress selective PFI support services bids Leicester Pathway PFI preferred bidder out of hours service provision extend consultancy services opportunities internal market opportunities consultancy services Forth Valley PFI chronic disea
Slide 35: Emerging markets - education
35 emerging markets - education progress and opportunities focus progress no major rebids until 2008 positive Ofsted report for Education Bradford flexed BSF strategy to focus on supporting more bids with ICT and consultancy support opportunities addressable market £4bn Children’s Services - Buildin
Slide 36: Defence highlights
36 defence highlights overall growth of 29% sector accounted for 23% of H1 2005 revenue UK Defence Academy Campus Integrator £400m contract, 23 years Defence Science & Technology Lab £400m, 15 years (preferred bidder) US Army Career and Alumni Program $15m p.a. contract renewed Penta
Slide 37: Defence strategy
37 defence strategy opportunities focus UK: UK: MoD addressable market Defence Procurement Agency doubling over five years to £8bn Defence Logistics Organisation Defence Estates Marine Services rebid Combined Aerial Targets bid US: Dept of Defence US Navy US Base Realignment and Closure Programme ef
Slide 38: Science highlights
38 science highlights overall growth of 13% sector accounted for 15% of H1 2005 revenue UK AWE extension valued at £350m over 3 years Integrated Sensor Management System £13m contract NPL nano-technology contract extensions
Slide 39: Science strategy
39 science strategy opportunities focus Nuclear Decommissioning UK and US Authority market valued at £2bn p.a. support government commitment to developing leading science capability DTI DeFRA manage and operate facilities in: MoD Nuclear - whole agency outsourcing - management of technical programme
Slide 40: Transport highlights
40 transport highlights overall growth of 61% sector accounted for 25% of H1 2005 revenue rail Northern Rail phase in and operational improvements Strong performance across Merseyrail and Ghan urban transportation DLR performance TCC progress air Abu Dhabi and Al Ain renewals n
Slide 41: Transport strategy
41 transport strategy opportunities focus rail mature economies Mersey vertical integration reinforce UK leading position South West Trains move from infrastructure Silverlink Metro development to optimisation Central developing privatisations extra Ghan service expand to Germany, US urban transport
Slide 42: Business getting stronger
42 business getting stronger focus remains on organic growth enhanced skills and capabilities synergies supporting organic growth into new markets pedigree resulting in strong performance
Slide 43: Market sector analysis
43 market sector analysis first half revenue including joint ventures 2005 £1,075m science 15% defence 23% 2004 £805m transport 25% defence 24% civil government 37% science 18% civil government 38% transport 20% Note: 2005 private sector revenue of £94m (2004 - £52m) 2004 restated under IFRS
Slide 44: Geographical analysis
44 geographical analysis first half revenue including joint ventures 2005 £1,075m North America 9% Asia Pacific 6% UK 77% Europe and Middle East 8% 2004 £805m North America 6% Asia Pacific 10% Europe and Middle East 11% UK 73% Note: 2004 restated under IFRS
Slide 45: High visibility of earnings
45 high visibility of earnings percentage of planned revenue secured 2005 99% 93% 5% 1% 2006 85% 68% 13% 4% 2007 74% 57% 13% 4% order book extension and rebids preferred bidder
Slide 46: Performance driving growth
46 performance driving growth internal transformation programme bearing fruit vision strategy and brand launched successfully people development new systems removal of under-performing countries and contracts internal organisation service performance very positive market opportunitie
Slide 47: Summary and outlook
47 summary and outlook Kevin Beeston executive chairman
Slide 48: Macro environment
48 macro environment continuing pressure on reducing tax and increasing service quality UK election public services programme • cost – Gershon • quality – reform agenda new Bush administration increased investment in defence and homeland security contracting extending emerging markets
Slide 49: Increasing range of drivers
49 increasing range of drivers fiscal imperative quality and choice new infrastructure security technology consulting
Slide 50: Outlook
50 outlook double digit growth for foreseeable future margins increasing over time
Slide 51: Questions and answers
questions ane answers serco bringing service te life