Serco Group Plc · LSE:SRP
Serco — H1 2022 Earnings Presentation
46 slides from Serco's earnings presentation, Aug 4, 2022
Slide 1: 2022 Half Year Results
serco 2022 Half Year Results For the six months ended 30 June 2022 Serco Group plc
Slide 2: Disclaimer
Disclaimer Forward-looking statements This presentation contains statements which are, or may be deemed to be, “forward-looking statements” which are prospective in nature. All statements other than statements of historical fact are forward-looking statements. Generally, words such as “expect”, “ant
Slide 3: Presenters
Rupert Soames, Group CEO Nigel Crossley, Group CFO Tom Watson, CEO designate North America Mark Irwin, CEO UK&E Rupert Soames w Serco — 2022 Half Year Results serco
Slide 4: Overview
Overview Rupert Soames Group Chief Executive 4 Serco- 2022 Half Year Results serco
Slide 5: First half much better than originally expected
First half much better than originally expected Global portfolio delivers robust performance through B2G platform * Strong financial performance — Revenue £2,178m; 12% growth excluding Test & Trace — Underlying Trading Profit of £130m, +2% CFX; 75% of UTP ex-UK — Margin increased to 5.9% — Cash Flow
Slide 6: Revenue CAGR +8%, UTP CAGR +27%
Revenue CAGR +8% UTP CAGR +27%
Slide 7: Financial review
Financial review Nigel Crossley Chief Financial Officer 7 Serco- 2022 Half Year Results serco
Slide 8: Financial overview
Financial overview Strong first half HY 22 HY 21 Growth Revenue Group revenue £2,178m £2,168m Organic growth Acquisitions FX Underlying trading profit Group UTP £130m £123m Organic growth Acquisitions FX Margin Underlying EPS (diluted) (GATS 6.75p Dividend per share 0.94p 0.80p Cash flow Free cash f
Slide 9: UK & Europe
UK & Europe Covid contracts ending, higher immigration volumes Six months ended Total CFX 30 June (£m)* HY22 HY21 growth = growth 5 * Revenue -5% organic a Sie 36% — Up: Immigration, transport 306 201 629% — Down: Citizen Services - Test & Trace /O UTP -32% reported Transport 83 71 18% — Test & Trac
Slide 10: Americas
Americas Case Management and acquisition driven growth Six months ended Hy22 Hy21 Tore! crx 30 J £m)* rowt rowt une (Em) 9 9 + Revenue +18% reported, + 3% organic fe} 168 131 21% — Full contribution from WBB acquisition 411 358 9% — Up: Citizen Services: CMS, DES 7 . ma — Down: CANES volumes 43 40 0
Slide 11: Asia Pacific
Asia Pacific Strong Immigration performance Six months ended 30 June (£m)* HY22 HY21 83 74 72 74 201 185 4 4 112 121 472 458 32 25 f 22% f 21% Group Revenue Group UTP* £472m £32m * Proportion of Group Underlying Trading Profit before corporate costs Total growth 3% 28% 120bps All numbers in table ab
Slide 12: Middle East
Middle East Margin increased substantially as Dubai Metro ends Six months ended 30 June (£m)* HY22 HY21 1 - 15 15 38 87 44 40 93 142 8.7 7.2 9.4% 5.1% 4% 6% Group Revenue Group UTP* m = £93m @ £9.0m * Proportion of Group Underlying Trading Profit before corporate costs Total growth -35% 21% 430bps A
Slide 13: Excellent cash flow performance
Excellent cash flow performance Continued strong cash conversion Six months ended 30 June (£m) HY22 HY21 FY21 Operating profit before exceptional items 124.1 119.0 217.4 Capex and repayment of lease liabilities (66.4) (68.7) (136.4) Depreciation and amortisation (including IFRS 16) 775 80.8 156.2 Wo
Slide 14: Capital allocation
Capital allocation Demonstrable progress against clear framework Business now Capital-light Target leverage range of highly cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in 2022 so far Investment in the business to Business development investment, workforce manag
Slide 15: Guidance for 2022
Guidance for 2022 2021 Actual May Trading New guidance Update Revenue £4.4bn £4.3-£4.4bn £4.3-£4.4bn Organic sales growth 10% ~(5)% ~(5)% Underlying trading profit £229m ~£225m ~£230m Net finance costs £24m ~£25m ~£23m Underlying effective tax rate 24% ~25% ~24% Free cash flow £190m ~£120m ~£140m Ad
Slide 16: Americas business review
Americas business review Tom Watson CEO designate North America 16 Serco- 2022 Half Year Results serco
Slide 17: Americas
Americas Case Management and acquisition driven growth Six months ended Hy22 Hy21 Tore! crx 30 J £m)* rowt rowt une (Em) 9 9 + Revenue +18% reported, + 3% organic fe} 168 131 21% — Full contribution from WBB acquisition 411 358 9% — Up: Citizen Services: CMS, DES 7 . ma — Down: CANES volumes 43 40 0
Slide 18: Our U.S. defence business
Our U.S. defence business Our portfolio includes contracts with all major branches of the US Military, plus select Department of Defense Agencies & Commands, and intelligence agencies Office of the Secretary of Defense (OSD) and Intel 2% Growth profile Air Force / Space Force * Serco NA’s defence bu
Slide 19: UK & Europe
UK & Europe Mark Irwin CEO UK&E 19 Serco- 2022 Half Year Results serco
Slide 20: UK & Europe
UK & Europe Covid contracts ending, higher immigration volumes Six months ended Total CFX 30 June (£m)* HY22 HY21 growth = growth 5 * Revenue -5% organic a Sie 36% — Up: Immigration, transport 306 201 629% — Down: Citizen Services - Test & Trace /O UTP -32% reported Transport 83 71 18% — Test & Trac
Slide 21: Operational review and outlook
Operational review and outlook Rupert Soames Group Chief Executive 21 Serco- 2022 Half Year Results serco
Slide 22: HY22 highlights & lowlights
HY22 highlights & lowlights Highlights Lowlights Much better performance than we expected at start of year, despite geopolitical & economic misery Strong UTP, cash, order book, 12% revenue growth ex Test & Trace All 4 elements of Capital Allocation Model creating value — Investing in the business; i
Slide 23: Our unique Management Framework and B2G Platform
Our unique Management Framework and B2G Platform delivers competitive advantage a ee Ce ee The ability to respond to changing government priorities and develop, mobilise and deliver solutions at speed *Sources: Renaissance Strategic Advisors. Does not include China & Russia We have deep expertise ac
Slide 24: Financial targets stated from initial 2022 guidance base
* All financial targets were stated from a base of our initial 2022 guidance (December 2021)
Slide 25: Q&A
O&A 25 Serco- 2022 Half Year Results serco
Slide 26: Notes and definitions
Appendix 1 Notes and definitions * Revenue is as defined under IFRS, which excludes Serco's share of revenue of its joint ventures and associates. In prior periods where relevant, revenue including that from any discontinued operations has been shown for consistency with previous guidance and disclo
Slide 27: Income Statement — Revenue and Trading Profit
Appendix 2 Income Statement — Revenue and Trading Profit Revenue excludes share of JV&A revenue Trading Profit measures include share of JV&A PAT Contract & Balance Sheet Review adjustments and other one-time items excluded from UTP fm HY22 HY21 FY21 Revenue 2,178 2,168 4,425 Trading profit 133.7 12
Slide 28: Revenue divisional analysis
Appendix 3 Revenue divisional analysis Revenue - growth composition HY22 vs HY21 HY21 HY22 FY21 Reported Acquisition/ Reported Constant Reported fm Currency Organic Disposal FX TOTAL Currency Currency Currency UK&E 1,039 (5%) - - (5%) 991 994 2,132 Americas 529 +3% +8% +7% +18% 622 588 1,120 AsPac 4
Slide 29: Underlying trading profit (UTP) divisional analysis
Appendix 4 Underlying trading profit (UTP) divisional analysis Underlying trading profit and Margin HY22 UTP HY21 UTP HY change FY21 UTP Reported Constant Reported Reported Reported Constant Constant Reported — Reported fm Currency Currency Margin Currency Margin Currency Currency Currency Margin UK
Slide 30: Income statement — EPS and DPS
Appendix 5 Income statement — EPS and DPS fm HY22 HY21 FY21 Underlying trading profit (UTP) 129.5 122.7 228.9 Net finance costs (NFC) (9.2) (12.6) (24.0) Underlying PBT 120.3 110.1 204.9 Tax on UTP and NFC (25.8) (25.6) (48.6) Underlying PAT 94.5 84.5 156.3 Non underlying items 4.2 29 4.5 Amortisati
Slide 31: Exceptional items
Appendix 6 Exceptional items fm HY22 HY21 FY21 Exceptional profit on disposals - - - Other exceptional operating items: Restructuring costs - 0.1 0.1 Costs associated with UK Government review = (0.3) - Costs associated with successful acquisitions (0.9) (2.5) (4.9) Increase in onerous lease provisi
Slide 32: Free Cash Flow and Trading Cash Flow
Appendix 7 Free Cash Flow and Trading Cash Flow fm HY22 HY21 FY21 Operating profit before exceptionals 124.1 119.0 217.4 Share of profit of joint ventures and associates (3.4) (6.4) (8.7) Depreciation and amortisation of owned assets 25.0 22.0 47.2 Depreciation and impairment of leased assets 52.5 5
Slide 33: Net debt and leverage
Appendix 8 Net debt and leverage fm HY22 HY21 FY21 Free cash flow 95.6 129.9 189.5 Exceptional items (see Appendix 6) (1.1) (3.7) 5.5 Net acquisition of subsidiaries and operations (0.1) (235.1) (234.9) Other net debt items on acquisition - (14.3) (14.3) Dividends paid to shareholders (19.3) (16.8)
Slide 34: Focus on five sectors across four regions
Appendix 9 Focus on five sectors across four regions HY22 revenue mix, including share of JV&As* UK & Asia Middle fm Sector Europe Americas Pacific East Defence © Justice & Immigration Transport (128) @) £667m 29% (=) £527m 23% © £209m 9% Health © @ £286m 13% Services @ G@) £578m 26% Total £1,080m £
Slide 35: Cash flow breakdown
Appendix 10 Cash flow breakdown 1 & breakdown 2 fm HY22 HY21 FY21 Breakdown 1 — depreciation, amortisation and impairment Depreciation (excluding lease assets) 10.5 9.1 19.6 Amortisation (non-acquisition) 49 6.3 11.3 Depreciation and amortisation 15.4 15.4 30.9 Impairment of PPE (excluding lease ass
Slide 36: Cash flow breakdown
Appendix 11 Cash flow breakdown 3 fm HY22 HY21 FY21 Breakdown 3 - cash flow and net debt exceptional items Restructuring and costs related to Strategy Review - (0.2) (0.7) Costs associated with UK Government review - (0.1) (1.3) Costs associated with successful acquisitions (0.9) (3.1) (5.5) Cashflo
Slide 37: Leverage covenant calculation
Appendix 12 Leverage covenant calculation fm HY22LTM HY21LTM FY21 Trading profit 241.5 220.8 233.4 Exclude: share of joint venture and associate post-tax profits (5.7) (12.1) (8.7) Exclude: foreign exchange credit on investing and financing arrangements 0.1 (1.1) (0.6) Include: dividends from joint
Slide 38: Interest cover covenant calculation
Appendix 13 Interest cover covenant calculation fm HY22 LTM = HY21LTM FY21 Net finance costs Exclude: finance charge on lease obligations recognised under IFRS16 Exclude: foreign exchange credit on investing and financing arrangements Exclude: other dividends received Exclude: net interest receivabl
Slide 39: Balance sheet summary
Appendix 14 Balance sheet summary fm HY22 HY21 FY21 Goodwill 922.7 826.7 852.7 Other intangible assets (excluding leased assets) 143.5 159.6 144.0 Property, plant and equipment (excluding leased assets) 52.3 54.7 55.5 Contract assets, trade and other receivables 674.3 649.6 640.9 Inventories 21.4 20
Slide 40: Return on Invested Capital (ROIC)
Appendix 15 Return on Invested Capital (ROIC) fm HY22 HY21 FY21 Invested capital assets 1,840.3 1,729.6 1,730.3 Invested capital liabilities (686.3) (691.6) (643.2) Invested Capital (IC) 1,154.0 1,038.0 1,087.1 Average IC (two-point) 1,096.0 969.9 967.0 Trading profit 133.7 125.6 233.4 Trading profi
Slide 41: Pension assets mix and IAS valuation
Appendix 16 Pension assets mix and IAS 19 valuation fm HY22 HY21 FY21 Scheme assets at fair value: Liability driven investments (LDI) 237.6 363.1 390.0 Bonds except LDI 299.7 360.9 368.2 Pooled investment funds 107.6 774 107.6 Equities 47.0 57.7 55.7 Cash, property and other 11.1 10.4 9.1 Annuity po
Slide 42: Currency rates
Appendix 17 Currency rates Spot rate for FY22 Average rates Closing rates 30 Jun 31Dec 30Jun 31Dec 30Jun 31Dec 30Jun 2022 | HY22. FY21. HY21 FY20 HY20 2021 2021 2020 2020 2019 2019 £:US$ 1.20 1.31 1.38 1.39 1.29 1.27 1.33 1.42 1.36 1.23 1.32 1.27 £:Aus$ 1.75 | 1.81 1.83 1.80 1.88 1.93 1.87 1.84 1.76
Slide 43: Tax
Appendix 18 Tax * HY22 underlying tax of £25.8m, which on Underlying trading profit of £129.5m less net finance cost of £9.2m is an Underlying effective tax rate (ETR) of 21.4% * Full Year 2022 ETR expected to be higher, as low HY22 rate includes a discrete reduction in provisions for uncertain tax
Slide 44: Contracts: cost-plus, short-term and inflation protection
Of our contracts are ~33% cost-plus or short-term Inflation is passed on to customers relatively quickly Strong inflation protection from indexation clauses. The indices Of our contracts ~52% have indexation used vary by contract and include RPI, RPIX, CPI, CPIH, wage indices, ‘basket of goods’ indi
Slide 45: American Depository Receipt (ADR) program
Appendix 19 American Depository Receipt (ADR) program Serco Group has a sponsored Level 1 ADR program, for which Deutsche Bank act as the depositary bank and custodian Ticker: SCGPY ADR key benefits Exchange: OTC ¢ Convenient means of trading/holding foreign shares CUSIP: 81748L209 e USD-denominated
Slide 46: Serco Group plc
www.serco.com Serco Group ple Serco House 16 Bartley Wood Business Park Bartley Way, Hook Hampshire RG27 9UY United Kingdom For general enquiries contact: T: +44 (0)1256 745900 E: generalenquiries@serco.com Serco