Serco Group Plc · LSE:SRP
Serco — FY2003 Earnings Presentation
59 slides from Serco's earnings presentation, 2004
Slide 1: Preliminary results presentation 2003
1 03 Serco Group plc Preliminary results presentation 2003
Slide 2: Agenda
2 Agenda Introduction Financial results Business performance Serco Science Looking forward
Slide 3: Introduction
3 Introduction Kevin Beeston Executive Chairman
Slide 4: 2003 Preliminary results - highlights
4 2003 Preliminary results - highlights Turnover £1,555.5m up 17.3% Profit before tax - pre goodwill £67.0m up 17.4% Earnings per share - pre goodwill 11.03p up 15.1% Dividend per share 2.34p up 12.5% Free cash flow £47.0m up 383 %
Slide 5: Company highlights
5 Company highlights • > 90% contract renewal rate • > 50% new bid success rate • £4.6bn total value of contracts awarded • Record order book of £10.3bn • Strong start to 2004 • Increasing addressable market
Slide 6: Financial results
6 Financial results Accounting policies Pension funding Private placement Profit and loss Cash flow & net debt Andrew Jenner Group Finance Director Balance sheet
Slide 7: Accounting policies
7 Accounting policies • UITF Abstract 38 ‘Accounting for ESOP Trusts’ • Adopted early for 2003 as recommended • Balance sheet restatement for 2002 • FRS17 Retirement benefits • Continue to adopt transitional rules and disclosures • International Financial Reporting Standards (IFRS) • Progressing tow
Slide 8: Pension funding
8 Pension funding • In February 2003, merged our two defined benefit schemes in the UK - investments reviewed to match asset and liability profiles • At 31 December 2003, market value (FRS 17) net deficit of £70m (2002 - £74m) • Long term employer contributions increased by £9m in 2003. Employee con
Slide 9: Private placement
9 Private placement • August 2003, issued £117m loan notes • Strengthens balance sheet • Repaid short term bank facilities of £48.6m used to acquire PCG • Increases long term debt capacity • Extends the maturity profile of debt and takes advantage of historically low interest rates • Covenants exclu
Slide 10: Profit and loss
10 Profit and loss 1,325.9 1,555.5 1,141.2 807.5 957.9 45.2 57.0 67.0 37.7 31.4 99 00 01 02 03 99 00 01 02 03 Turnover £m Profit £m including joint ventures before amortisation of goodwill
Slide 11: Profit and loss
11 Profit and loss 2003 2002 Year to 31 December £m £m Increase Total turnover 1,555.5 1,325.9 17.3% Group turnover 1,324.3 1,097.3 Joint venture turnover 231.2 228.6 Gross profit 180.8 150.0 Other administrative expenses (138.5) (112.8) 22.8% Net exceptional items 3.6 - Joint venture profit 24.0 23
Slide 12: Exceptional items
12 Exceptional items Year to 31 December 2003 £m Reorganisation costs (4.5) GSR sale and leaseback 4.0 N&N Hospital refinancing 4.1 Net exceptional profit 3.6
Slide 13: Exceptional items
13 Exceptional items Reorganisation costs • UK support operations restructured to form Serco Business Services • Redundancy, relocation and property costs of £4.5m • Ongoing savings of £1.5m per year GSR sale and leaseback • Part of focus on cash generation • Sale and leaseback of remaining rolling
Slide 14: Profit and loss
14 Profit and loss 2003 2002 Year to 31 December £m £m Increase Total turnover 1,555.5 1,325.9 17.3% Group turnover 1,324.3 1,097.3 Joint venture turnover 231.2 228.6 Gross profit 180.8 150.0 Other administrative expenses (138.5) (112.8) 22.8% Net exceptional items 3.6 - Joint venture profit 24.0 23
Slide 15: Cash flow highlights
15 Cash flow highlights • Free cash inflow of £47.0m (2002 - £9.7m) • 81% of Group EBITDA converted into operating cash (2002 - 45%) • Improved working capital efficiency: 2003 increase £11m (2002 increase £14m)
Slide 16: Cash flow
16 Cash flow 2003 2002 Year to 31 December £m £m Group EBITDA after reorganisation costs 57.5 53.5 Pension fund equalisation payment - (15.5) Working capital movement (11.1) (13.9) Operating cashflows 46.4 24.1 Dividends from joint ventures 12.6 11.1 Interest and taxation (7.8) (11.9) GSR sale and l
Slide 17: Cash flow
17 Cash flow 2003 2002 Year to 31 December £m £m Free cash flow 47.0 9.7 N&N Hospital refinancing 4.1 - Acquisitions/disposals (96.6) (10.3) Financing 156.5 114.1 Dividends paid (9.5) (8.3) Net cash flow 101.5 105.2 Opening cash 69.4 (35.8) Closing cash 170.9 69.4 Other loans and finance leases (193
Slide 18: Balance sheet
18 Balance sheet Balance sheet shape now reflects the 100% ownership of eight of our 12 PFIs: • Risk profile remains unchanged • Shareholders’ funds unaffected • Greater visibility of PFI debtors and non recourse loans • Assets and liabilities grossed up for long term PFI debtors and non recourse lo
Slide 19: Balance sheet
19 Balance sheet Restated As at as at 31.12.03 31.12.02 £m £m Fixed assets Tangible assets 77.4 62.4 Intangible assets 222.9 147.5 Investments in joint ventures 24.9 35.9 Share of gross assets 151.5 317.8 Share of gross liabilities (126.6) (281.9) Total fixed assets 325.2 245.8 Current assets / (lia
Slide 20: Strengthening the platform
20 Strengthening the Focused growth platform A record year Maintaining focus Analysis & contract examples A strong pipeline Christopher Hyman Preparing for scale Chief Executive A compelling future
Slide 21: Focused growth
21 Focused growth • High success in traditional markets continues • UK - major wins in defence, transport and science • Early strategic growth • GÜZ Army Combat Training Centre • Merseyrail Electrics • RAF Cranwell • Justice - Premier acquisition • Ontario Driver Examination Services • Quality inter
Slide 22: A record year
22 A record year • 83% growth achieved organically • > 90% rebid success • > 50% of new bids • Strong cash flow • Record order book stands at £10.3bn
Slide 23: Maintaining focus
23 Maintaining focus • Continued review of under performing businesses / contracts • Infrastructure Maintenance Contract, Sweden & Asia Pacific • 2004 turnover effect £100m • Roll out of Business Services concept • More rigorous investment criteria • Building resilience
Slide 24: Geographical analysis
24 Geographical analysis North America 5% Asia Pacific 10% UK 73% Europe and Middle East 12% 2003 Total turnover £1,555.5m including joint ventures North America 5% Asia Pacific 12% UK 70% Europe and Middle East 13% 2002 Total turnover £1,325.9m including joint ventures
Slide 25: Market sector analysis
25 Market sector analysis Civil government 32% Defence 26% Private sector 8% Transport 27% Science 7% 2003 Total turnover £1,555.5m including joint ventures Civil government 27% Defence 27% Private sector 10% Transport 27% Science 9% 2002 Total turnover £1,325.9m including joint ventures
Slide 26: 2003 Turnover growth
26 2003 Turnover growth Increases in scope of existing contracts New awards Acquisitions 2002 Turnover £1,325.9m £131.4m £58.6m £39.6m £1,555.5m 2003 Turnover growth including joint ventures
Slide 27: Some examples of new contracts
27 Some examples of new contracts Contract name Years Annual Country turnover Merseyrail Electrics 25 £72.0m UK Merlin Avionics Test Systems 2 £2.7m UK RAF Cranwell 5 £12.0m UK Rome’s EUR district 5 €1.7m IT Ontario Driver Examination Services 10 C$60.0m CAN Eastbourne’s sports and leisure sites 15
Slide 28: Merseyrail and Driver Examination Services
28 Merseyrail Driver Examination Services Duration 25 years to 2028 Duration 10 years to 2013 Annual turnover £72.0m Annual turnover C$60.0m • Largest contract win • Ground breaking PPP in North America, which could be replicated • Longest rail operating contract to date • Deliver innovative and tan
Slide 29: Gefechtsübungszentrum
29 Gefechtsübungszentrum Duration 5 years up to 2008 Annual turnover €10.0m • Army Combat Training Centre • Won against strong competition • Establishes us in a strong competitive position for future opportunities in a growing German outsourcing market
Slide 30: Replacement Patrol Boats
30 Replacement Patrol Boats Duration 15 years up to 2018 Annual turnover A$15.7m • Defence Maritime Services (DMS) is a JV between P&O Maritime Services & Serco. Austal Ships are responsible for the design & build • Delivery of the Royal Australian Navy's new Armidale Class patrol boats • All 12 pat
Slide 31: USDA Forest Services
31 USDA Forest Services Duration 5 years up to 2008 Annual turnover US$5.9m • Providing fleet maintenance to more than 4,200 vehicles covering 18 national forests • Demonstrates our ability to be successful in this highly competitive market • A new customer within the US federal agencies
Slide 32: Joint Technical College, Oman
32 Joint Technical College, Oman Duration 30 years up to 2034 Approx. total value US$1.4bn • 50/50 joint venture with Bahwan Engineering Group • Greenfield PFI to build and operate technical training college for Omani MOD • Output based delivery of National Diploma, Higher National Diploma and Degre
Slide 33: Some examples of growth from the contract base
33 Some examples of growth from the contract base Contract name Type Years Annual Country turnover City West Water Duration 3+3+3 A$11.0m AUS Goose Bay Duration 11 C$40.0m CAN Canada Mortgage and Housing Corporation Duration 5 C$3.5m CAN Electronic monitoring Midlands & Wales and London & Eastern re
Slide 34: Goose Bay and AWE
34 Goose Bay AWE Duration 11 years up to 2014 Duration 15 years to 2025 Annual turnover C$40.0m Annual turnover £69.3m • Significant contract extension • Largest Serco contract award to date • Joint venture with Lockheed Martin and BNFL • Broader contract – transfer of the base’s vehicle fleet inclu
Slide 35: RAF Fylingdales
35 RAF Fylingdales • Preferred bidder • Serco’s first outsourcing contract held for over 40 years • Operation, maintenance and repair of the solid state phased array radar and associated hardware including programme design and maintenance
Slide 36: Naval Air Command multi activity contract
36 Naval Air Command (NAC) multi activity contract Duration 3 years up to 2007 Annual turnover £13.0m • Multi-activity contract plus expansion to include provision of Aircraft Engineering and operational support to the Royal Navy’s Fleet Air Arm • Serco has been providing services to the NAC since 1
Slide 37: A strong pipeline
37 A strong pipeline • Substantial range of future opportunities • Bids worth £5bn submitted and under evaluation • £14bn of further opportunities identified • Bids under evaluation • Transport £2.9bn (Northern & Manchester Metrolink Phase 3) • Defence £1.2bn (ASSP & CATS) • Civil government £0.7bn
Slide 38: Preparing for scale
38 Preparing for scale • Clarification of vision and strategy • Rolling out the brand and preserving our culture • Implementing knowledge management system • Accelerated capability and skills development
Slide 39: A compelling future
39 A compelling future • Continued high visibility of earnings • Forward order book up to £10.3bn Near term confirmed order book as at December 2003 percentage of planned revenue 2006 42.0% 26.3% 1.6% 69.9% 2005 54.5% 20.1% 1.9% 76.5% 2004 78.6% 11.5% 3.1% 93.2% Order book Extension and rebids Prefe
Slide 40: A compelling future
40 A compelling future • Continued high visibility of earnings • Forward order book up to £10.3bn Global order book breakdown by sector as at December 2003 Defence £2.9bn Transport £2.0bn Civil government £4.0bn Science £0.8bn Private sector £0.6bn
Slide 41: A compelling future
41 A compelling future • Continued high visibility of earnings • Forward order book up to £10.3bn • Solid foundations for future growth • Established and growing contract base • Developing international markets • Increasing skills and capabilities • Tried and tested management system • A track recor
Slide 42: Serco Science
42 Serco Science Dr Bob McGuiness Chief Executive of Serco Science
Slide 43: Serco wins largest ever rebid at the National Physical Laboratory
43 Serco wins largest ever rebid at the National Physical Laboratory • The new science contract with DTI will renew Serco’s role as operator of NPL • It engages Serco to direct and deliver every aspect of NPL’s mission as the UK’s National Measurement Institute (NMI) • Serco transferred NPL to priva
Slide 44: NPL mission
44 NPL mission • Founded in 1900 to develop and deliver the most accurate physical measurement standards, technologies and processes known to man • Has maintained its place as an icon of British science and one of the world’s big three national measurement institutes • Measurement matters: without N
Slide 45: New direction at NPL
45 New direction at NPL • DTI economists estimate NPL underpins a £5bn annual contribution to UK GDP • Our vision for NPL is to be the national measurement institute that delivers the highest economic and social impact, through excellent and responsive science • Focused on excellence in knowledge ge
Slide 46: We have the confidence of UK business
46 We have the confidence of UK business “I have been impressed by the increase in focus on the needs of Industry that NPL has made over the past few years under the management of Serco.” The BOC Group “We feel that Serco’s management has encouraged our positive relationship with NPL to develop over
Slide 47: Key aspects of Serco's strategy for NPL
47 Key aspects of Serco’s strategy for NPL • No complacency - radical new structure and processes to deliver even better value to DTI and the nation • A 25 year technology roadmap • Extended international reputation and influence on global standards • Useable research results that deliver practical
Slide 48: NPL confirms Serco's leadership in science outsourcing
48 NPL - confirms Serco’s leadership in science outsourcing • Serco Science turnover of £190m pa • Twenty-five year contract to operate AWE in partnership with Lockheed Martin and British Nuclear Fuels Ltd • Serco Assurance - a leader in risk and safety management • Technology Transfer and Innovatio
Slide 49: Our vision
49 Our vision Serco Science will be recognised by governments as the best private sector partner for the management of science and technology organisations, programmes and schemes.
Slide 50: Next wave of major opportunities in Science
50 Next wave of major opportunities in Science • Nuclear Decommissioning Agency will create up to 20 PPPs • Innovation centres in economically challenged regions • Being considered as option for other central government science services • Significant international interest in our UK model In the UK
Slide 51: Looking forward
51 Looking forward Diversity underpins growth Evidence In summary Kevin Beeston Executive Chairman
Slide 52: Looking forward: UK Defence and Transport
52 Looking forward Diversity underpins growth UK Defence • Estimated growth in addressable market from £3bn to £11bn pa by 2012 • “Decider not provider” Transport • Additional rail operations, £2.9bn bids submitted • Emerging transport management systems market based upon the Traffic Control Centre
Slide 53: Looking forward: UK Consulting and Education
53 Looking forward Diversity underpins growth UK (continued) Civil Government - Consulting • 32 market shaping opportunities in 20 different agencies, local government or central government departments Civil Government - Education • Building Schools for the Future, £35bn of additional funding, 120 L
Slide 54: Looking forward: UK Justice and Health
54 Looking forward Diversity underpins growth UK (continued) Civil Government - Justice • Further PFI prisons/immigration centres • Expansion of electronic monitoring • Serious Organised Crime Agency • Police productivity • Immigration control Civil Government - Health • Evolving market, largest spe
Slide 55: Looking forward: Europe, Middle East, North America
55 Looking forward Diversity underpins growth Continental Europe & Middle East • PPPs emerging in Dubai and the Oman • German MOD focusing on core capabilities and partnering with industry for all other tasks North America • Provincial governments in Canada and the US states reviewing outsourcing st
Slide 56: Looking forward: Asia Pacific
56 Looking forward Diversity underpins growth Asia Pacific • Australian and New Zealand markets shaping continues • Medium term growth • Focus on defence and transport
Slide 57: Looking forward: Evidence
57 Looking forward Evidence July 2003 HM Treasury “Meeting the Investment Challenge” December 2003 The Office of Government Commerce “Increasing competition and competition planning in government” December 2003 Home Office, Carter Report “Offender Management” February 2004 Department for Education a
Slide 58: Questions
58 In summary 2003 was a year of great success We have a solid platform for delivering targeted growth Future opportunities are significant Questions
Slide 59: Preliminary results presentation
59 03 Serco Group plc Preliminary results presentation 2003