Serco Group Plc · LSE:SRP
Serco — FY2008 Earnings Presentation
39 slides from Serco's earnings presentation, Feb 27, 2009
Slide 1: 2008 Annual Results
2008 Annual Results Presented by Serco Group plc 27 February 2009 Advise | Design | Integrate | Deliver
Slide 2: Agenda
Agenda Overview Business review Financial results Summary and Outlook Q&A 1
Slide 3: 2008 key highlights
2008 key highlights Strong operational and financial performance Entered new markets and geographies Added new capabilities Created new business models Increasing growth prospects Investing in people, systems and business structures to support growth £900m funding in place to support g
Slide 4: Strong operational performance underpins growth
Strong operational performance underpins growth 2008 2007 Change Revenue £3,124m £2,811m 11.1% Adjusted profit before tax £145.3m £123.2m 17.9% Adjusted earnings per share 22.20p 18.57p 19.5% Dividend per share 5.00p 4.25p 17.6% Group free cash flow £94.2m £97.6m (3.5)% 3
Slide 5: Continued focus on strategy underpins growth
Continued focus on strategy underpins growth Build a balanced portfolio – Signed more than 200 contracts valued at £3.2bn – Order book of £16.3bn – Ongoing management of contract and investments in portfolio Maintain high rebid and new win rates – Won 90% of rebids and 50% of new bids Make str
Slide 6: Excellent revenue visibility
Excellent revenue visibility At 31 December 2008 2009 76% 13% 1% 90% 2010 63% 66% 12% 1% 76% 2011 49% 15% 1% 65% Order book Extensions and rebids Preferred bidder 5
Slide 7: Ensuring continued strong performance
Ensuring continued strong performance Driving efficiency Selective bidding Portfolio management Enhancing capabilities in growing markets 6
Slide 8: Market sector and geographical analysis
Market sector and geographical analysis Revenue by market Revenue by geography 7% 25% 12% 36% 2008 £3,124m 6% 22% 75% 17% 8% 26% 11% 34% 6% 2007 £2,811m 23% 75% 17% Civil Government Science UK Asia Pacific Defence Transport Europe & Middle East North America Advise | Design | Integrate | Deliver 8
Slide 9: Civil Government
Civil Government Strong organic growth: expansion of existing contracts; good win and rebid performance 18.4% revenue increase to £1,127m representing 36% of the group (2007: 34%) Home Affairs – £100m expansion of two UK prison contracts - HMPs Dovegate and Lowdham Grange – Borallon prison, Aust
Slide 10: Civil Government
Civil Government Strong organic growth: expansion of existing contracts; good win and rebid performance Education and Children’s Services – Renewed and expanded education contract with Walsall Council (12 years £345m) – Extension to Sure Start Children’s Centres roll out (two years £15m) – Aiming
Slide 11: Civil Government: Growth areas
Civil Government Growth areas Home Affairs – UK and Australia potential in offender and migration management IT & BPO – US system integration and cyber-security – UK local council partnerships and environmental management – India BPO Education and Children’s Services – Service integration prog
Slide 12: Defence
Defence Strong organic growth and wins in operational support 9.1% revenue increase to £786m representing 25% of the group (2007: 26%) UK – Strong organic growth in air support service contracts – Surface finish services, delivered at 16 bases (10 years £68m) – More than 50 employees awarded mil
Slide 13: Defence
Defence Strong organic growth and wins in operational support US – Supporting stretched military personnel – Army Career and Alumni Program (two years up to US$32m) – Freedom Team Salute recognition programme (two years US$21m) – Casualty Support Services contract (one year US$9m; up to US$44.5m)
Slide 14: Defence: Growth areas
Defence Growth areas UK Defence Industrial Strategy – Operational support to front line commands – Integration of people, infrastructure, training and technology US Defence spending increasing – Harmonisation and modernisation of IT – Military personnel support services 13
Slide 15: Transport
Transport UK skills enabling international opportunities 2.4% revenue increase to £671m representing 22% of the group (2007: 23%) Light Rail – Dubai Metro operations commence September 2009 (12.5 years £500m) – DLR increasing capacity – Manchester Metrolink and Copenhagen Metro ended in 2007 H
Slide 16: Transport
Transport UK skills enabling international opportunities Traffic management – San Francisco smart parking service (two years US$23m) – Dubai bus and journey planner (£6m) Civil marine – UK Woolwich Ferry operations (1.5 years £11m) Air Traffic Control – UAE Area Control Centre contract renewed
Slide 17: Transport: Growth areas
Transport Growth areas Rail – Significant pipeline of opportunities in the UAE Traffic management – Technology based solutions for traffic, road pricing and parking Civil marine – Extending naval expertise into civilian market 16
Slide 18: Science
Science Technology and innovation at the heart of growth 11.7% revenue increase to £540m representing 17% of the group (2007:17%) AWE – Orion research building opened on schedule in March – Programme to build new assembly plant has started – Strong health, safety and environmental performance
Slide 19: Science: Growth areas
Science Growth areas AWE – Site upgrade Nuclear – Regulatory and assurance services – Civil nuclear overseas 18
Slide 20: SI International
SI International SI International’s 2008 performance in line with expectations – US$575.5m revenue – US$36.7m underlying Adjusted operating profit – 6.4% margin Fast integration well advanced – Management and business re-organisation complete – Bid pipelines processes reviewed and integrated – R
Slide 21: SI International brings new opportunities
SI International brings new opportunities SI adds £1bn to order book and over £2bn to pipeline Now serving all branches of US military, numerous civilian agencies and the intelligence community Cross fertilising skills, capabilities and customers – IT and enterprise architecture for more effic
Slide 22: Andrew Jenner Financial review
Andrew Jenner Financial review 2008 Annual Results Advise | Design | Integrate | Deliver
Slide 23: Financial review
Financial review Income statement Cash flow Net debt Financing Guidance 22
Slide 24: Income statement
Income statement Revenue Adjusted profit before tax 3,124 145 2,811 123 2,548 105 2,260 87 1,637 69 £m £m 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Note: Adjusted profit before tax is profit before tax and amortisation of acquired intangibles. 23
Slide 25: Income statement
Income statement 2008 2007 Year ended 31 December £m £m Increase Revenue 3,123.5 2,810.7 11.1% Adjusted operating profit 165.2 142.0 16.3% Margin 5.3% 5.1% Investment revenue and finance costs (19.9) (18.8) Adjusted profit before tax 145.3 123.2 17.9% Margin 4.7% 4.4% Amortisation of acquired intang
Slide 26: Income statement
Income statement Year ended 31 December 2008 2007 Increase Effective tax rate 26.8% 28.1% Average shares in issue 485.7m 482.4m Adjusted earnings per share 22.20p 18.57p 19.5% Earnings per share 20.49p 16.98p 20.7% 25
Slide 27: Group free cash flow and recourse net debt
Group free cash flow and recourse net debt Group free cash flow Group recourse net debt SI and 525 other 98 94 85 74 56 £m £m ITNET 264 and RCI 172 138 15 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 26
Slide 28: Group free cash flow
Group free cash flow 2008 2007 Year ended 31 December £m £m Group EBITDA 147.2 139.8 Working capital movement (21.6) (0.2) Group operating cash flow 125.6 139.6 Interest (25.0) (25.6) Tax (11.8) (5.4) Net expenditure on tangible and intangible assets (31.8) (47.9) Dividends from joint ventures 37.2
Slide 29: Group recourse net debt
Group recourse net debt 32 525 40 387 £m 138 22 (94) 2007 Free Dividends SI Other Currency 2008 Cash acqs and Flow disposals 28
Slide 30: Financing
Financing 900 £400m revolving credit facility Matures end 2013 525 £m Repayments commence US$550m (£383m) term loan and bilateral facility end 2010; largest repayment in 2013 £117m private placement Amortises evenly from 2011 to 2015 2008 Group Committed recourse net financing debt 29
Slide 31: Guidance
Guidance Guidance consistent with expectation of strong growth and prospects implied by previous guidance 2009 guidance to incorporate SI and exclude material currency effects Guidance to Adjusted operating profit margin – Reflects operational drivers of margin improvement – Consistent with ma
Slide 32: 2009 guidance
2009 guidance Excluding SI – Double digit revenue growth and 30 bps increase in Adjusted PBT margin* Guidance for SI unchanged – 2009 revenue growth of approximately 7% (in line with 2008 organic growth) – Cost synergies principal driver of margin improvement: annual cost synergies of over US$10
Slide 33: Medium-term guidance – Revenue
Medium-term guidance – Revenue c.£5bn >3,700 £m 3,124 2,811 2,548 2,260 1,637 2004 2005 2006 2007 2008 2009E 2012E Excludes future material acquisitions, disposals and currency effects Group excluding SI SI International Group including SI 32
Slide 34: Medium-term guidance – Margin
Medium-term guidance – Margin c6.3% c5.7% 5.3% 5.0% 5.1% 4.7% 4.8% 4.5% 4.4% 4.1% 3.8% 2005 2006 2007 2008 2009E 2012E Excludes future material acquisitions, disposals and currency effects Group Adjusted operating margin Group Adjusted operating margin incl SI Group Adjusted PBT margin excl SI 33
Slide 35: Summary
Summary Continued strong revenue and margin performance Good cash flow generation Substantial committed financing with good maturity profile Guidance reflects confidence in prospects for the medium-term 34
Slide 36: Chris Hyman Summary and Outlook
Summary and Chris Hyman Outlook 2008 Annual Results Advise | Design | Integrate | Deliver
Slide 37: Business focus
Business focus Revenue – grow existing contract base – open new markets – introduce new models Margin improvement – portfolio management – operating cost savings – selective bidding policy 36
Slide 38: Drivers for growth
Drivers for growth Customers facing similar challenges – congestion – threat of terrorism – climate change – ageing populations – impact of technology Current economic climate fuels additional pressures – failing businesses – rising unemployment – increasing social costs – reducing tax incomes 3
Slide 39: Summary and Outlook
Summary and Outlook Strong order book of £16.3bn Continuing to win 90% of rebids and one in two of new bids £26bn of potential opportunities Opportunities to grow revenue and margins Growth from new markets and new business models Increasing demand for our skills and capabilities Resil