Serco Group Plc · LSE:SRP
Serco — Investor Day (December 2021)
74 slides from Serco's investor day presentation, Dec 2, 2021
Slide 1: Capital Markets Event 2021
Capital Markets Event 2021 Serco Group plc 2 December 2021 1 Serco Capital Markets Day 2021
Slide 2: Disclaimer
Disclaimer This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in Serco nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with,
Slide 3: Running Order
Running Order 14:00 The Group: past, present & future Introduction to the day Rupert Soames, Group CEO The market for government services Kate Steadman, Group Strategy & Communications Director Serco’s strong and differentiated position in the market Rupert Soames Capable & efficient Shared Services
Slide 4: Our presenters
Our presenters Rupert Soames Kate Steadman Anthony Kirby Nigel Crossley Mark Irwin Phil Malem Peter Welling Dave Dacquino 4 Serco Capital Markets Day 2021
Slide 5: Key messages
Key messages We have a consistent track Our markets are large, We have a strong and Private sector expertise record of delivery: diverse, liquid and differentiated position in a has never been more highly 11% revenue & 34% UTP growing at ~2-3% CAGR to market which has significant valued by governmen
Slide 6: The market for government services
The market for government services Kate Steadman Group Strategy & Communications Director 6 Serco Capital Markets Day 2021
Slide 7: Our markets are large, diverse, liquid, growing at an estimated 2-3% CAGR to 2026
Our markets are large, diverse, liquid, growing at an estimated 2-3% CAGR to 2026, and are not going to go away Our latest market research into Serco’s existing geographies found that: ~£715bn was spent on outsourced government services in Serco’s regions in 2021 ~65% of worldwide* outsourced govern
Slide 8: The Four Forces which drive structural market growth
The Four Forces which drive structural market growth, will be stronger in a post-Covid world Growing costs: healthcare, ageing What COVID has brought: More citizens accessing government services; population and infrastructure healthcare backlogs; increased focus on need for quality elderly care; ‘le
Slide 9: The four forces impact all our B2G sectors
The four forces impact all our B2G sectors, driving governments to seek more and better for less Growing demand or costs; rising expectations of outcomes Examples • 18,000 prison places to be built in the UK Rising costs of criminal justice systems; overcrowded prisons; J&I • Irregular border crossi
Slide 10: Delivering more & better for less: the essential role of the private sector
Delivering more & better for less: the essential role of the private sector Benefits of using the private sector to deliver services: Allows governments to concentrate on development of policy and measurement of outcomes Choice brings new ideas Competition proves value for money, drives public servi
Slide 11: New trends are also emerging across the public services landscape
New trends are also emerging across the public services landscape creating new opportunities for value creation Citizen insight increasingly important in public service design Use of tech, data, and digital innovation to improve quality and efficiency of frontline services Governments using private-
Slide 12: Governments have requirements that are rarely seen in the Commercial Services market
Governments have requirements that are rarely seen in the Commercial Services market Supplying critical services to governments requires unique skills; imposes significant cost and complexity; creates barriers to entry. Complex, differing and Mandatory and Financial reporting and constantly-changing
Slide 13: Serco has a strong and differentiated position
In a large and growing market, with significant barriers to entry, Serco has a strong and differentiated position Rupert Soames Group Chief Executive 13 Serco Capital Markets Day 2021
Slide 14: Strong track record of delivery
Strong track record of delivery Underlying Trading Profit more than trebled since 2017 Return on invested capital increased to ~24% Revenue CAGR +11% +34% £225m UTP CAGR +34% CAGR ~24% £163m 19.1% £120m 15.0% 12.5% £93m £69m 9.0% 2017 2018 2019 2020 2021e 2017 2018 2019 2020 2021 e Trading cash flow
Slide 15: Our Management Framework
Since 2015, our Management Framework has defined how we run the business, and weaves ESG considerations into all we do Our values Trust Care Innovation Pride Our purpose - what we want to be A valued and trusted partner of governments, delivering superb public services, that transform outcomes and m
Slide 16: ESG is central to Serco's values & purpose
ESG is central to Serco’s values & purpose How we address ESG internally Our corporate purpose: “To be a trusted partner of governments, delivering superb public services, that transform outcomes and make a positive difference for our fellow citizens“. Environment Social Governance We are committed
Slide 17: ESG is central to our customers' values & purpose
ESG is central to our customers’ values & purpose How we help governments meet their ESG commitments Environment Social Governance, diversity & inclusion We partner with governments to help We are committed to making a positive We offer transparency and oversight to deliver their net zero carbon tar
Slide 18: The Serco journey
The Serco journey Serco Serco Serco 2014 2021 2026 • Low employee engagement • Profitable Focus for today • Unfocused commercial / government • Strong balance sheet portfolio • Strong employee engagement • Ineffective IT & shared services • Focused international B2G business • Little international c
Slide 19: Serco 2021: transformed into a focused B2G platform
Serco 2021: transformed into a focused B2G platform Designed to deliver a broad range of technology-enabled, people-based government services which are innovative, agile, resilient, efficient and shared around the world Values, culture, reputation with buyers, understanding of government, public 1 P
Slide 20: Our B2G platform gives us
Our B2G platform gives us Agility Breadth Reach Efficiency Resilience The ability to respond We have deep Our international Our shared services Our common to changing expertise across the footprint allows us to allow us to invest in controls, governance government priorities major areas of access ~6
Slide 21: Agility: Our platform allows us to respond quickly to changing government needs
Agility: Our platform allows us to respond quickly to changing government needs The process The outcome: significant revenue generated Serco’s from identifying new government requirements cumulative revenue Spot the need • Healthcare eligibility testing in the US >£1.3bn Assemble Subject Matter Expe
Slide 22: Breadth: our regions touch almost every area of government outsourced spend
Breadth: Between them, our regions touch almost every significant area of government outsourced spend Serco revenues 12 months to June 2021: ASIA MIDDLE UK & AMERICAS TOTAL PACIFIC EAST EUROPE Defence & Space ~£719m ~£143m ~£29m ~£232m £1,123m Justice & Immigration ~£372m ~£416m £788m Citizen Servic
Slide 23: Reach: Four large regional businesses
Reach: Four large regional businesses that between them cover ~65%* of worldwide outsourced government spend on services Our international footprint is a significant advantage, and differentiates us from our competitors • Diversifies our exposure to individual governments: it gives us choice as to w
Slide 24: Reach: Few competitors have it
Reach: Few competitors have it. ~60% of Serco revenues and ~70% of UTP are ex-UK* Key: Revenue Home region International Sources: Annual Reports; Company guidance; Bloomberg; Serco estimates * 12 months to 30 June 2021 24 Serco Capital Markets Day 2021
Slide 25: Resilience & Risk Management
Resilience & Risk Management: Throughout the contract lifecycle our controls, governance and processes help us manage risk and assure quality outcomes Bidding – well-defined Gate process Operations Bid Pre- Go / No Go Customer Confirm Bid/ Bid Contract Contract Close/ Qualification Shortlisting No-B
Slide 26: M&A is a powerful tool of strategy delivery
M&A is a powerful tool of strategy delivery A key part of our armoury, our M&A strategy is founded on rigorous assessment of financial returns and one or more of three key strategic aims: • Adding capability • Adding scale • Providing access to new and attractive government markets Our acquisitions
Slide 27: How our B2G platform has delivered in North America
How our B2G platform has delivered in North America Agility + M&A + scale efficiencies -> revenues grow faster than the market, profits grow faster than revenues Agility: Contract examples include CMS, FEMA, PBGC, CANES M&A: Since 2017 we have completed three acquisitions in the US for an aggregate
Slide 28: Serco 2026: The value-creating journey continues
Serco 2026: The value-creating journey of Serco continues Serco Serco Serco 2014 2021 2026 • The best-managed business in our sector • Increased Reach & Breadth • Increased scale and greater efficiency • World-class shared services platform • Recognised expertise in application of data analytics and
Slide 29: Serco 2026: Eight areas of focus
Serco 2026: Eight areas where we are focused on making our B2G platform even better 01 02 03 04 Capability, Digital, data & Labour Customer resilience & innovation to productivity & intimacy & efficiency of enhance our cost efficiency market shaping shared services services 05 06 07 08 Delivery of E
Slide 30: Medium-term performance outlook, from a base of 2022e
Medium-term performance outlook, from a base of 2022e Revenues growing faster than the market Profits growing faster than revenues Returns growing faster than profits We expect: The market will Revenue will Profits to grow Strong Shareholder grow at ~2-3% grow on faster than conversion of returns to
Slide 31: Capable and efficient Shared Services
Capable and efficient Shared Services Anthony Kirby Group Chief Operating Officer 31 Serco Capital Markets Day 2021
Slide 32: Efficiency: Four key levers in our B2G platform
Efficiency: Four key levers in our B2G platform act as drivers of efficiency Focus areas 01 02 03 04 Overhead HR, IT & Finance Procurement Workforce scale & leverage shared services management optimisation DELIVERED DELIVERED DELIVERED DELIVERED Reduced from 7.2% to 30% cost reduction £59m of saving
Slide 33: Our B2G platform means Contract Managers can focus on their customer & colleagues
Our B2G platform means Contract Managers can focus on their customer & colleagues Human Resources Focus on… Finance Processing • Delivering commitments Governance, Assurance & Risk Business Unit Support • Customer satisfaction Health, Safety & Wellbeing Contract • End-user outcomes Workforce Managem
Slide 34: Well-invested portfolio of best-in-class software solutions
Well-invested portfolio of best-in-class software solutions supporting contracts and shared services Applications to support contracts and solutions Data Analytics Asset & Facilities Enterprise Rapid Application & Insights Management Workforce Solutions Development Whole enterprise supported by an e
Slide 35: Modern rapid application development tools bring automation to contracts
Modern rapid application development tools allow us to bring automation to individual contracts CONTRACT TASK VOLUMES TOOLS Healthcare Insurance Straight-through processing of applications • 30 million data claims COFAX- processed annually KTA Eligibility Testing Automated validation against multipl
Slide 36: International collaboration, capability and talent sharing
International collaboration, capability and talent sharing is now deeply embedded within Serco’s culture ExperienceLab Centres of Heightened global collaboration Excellence has facilitated the offer of international best Collaboration practice to customers and will drive both Tools operational impro
Slide 37: Medium-term financial targets
Medium-term financial targets Nigel Crossley Group Chief Financial Officer 37 Serco Capital Markets Day 2021
Slide 38: Business now generating strong cash flow
Business now generating strong cash flow With drags on cash significantly reduced, we expect future cash conversion >80% 140% UTP Trading cash flow has been transformed Trading cash flow 120% over last five years Cash conversion • From £22m in 2017 to ~£225m in 2021e 100% • Annual cash drag from OCP
Slide 39: Capital light business model
Capital light business model Our model drives very attractive returns, even at margins ~5% Revenue (RHS) Capital light business model Other invested capital 2021e invested capital of ~£1bn Goodwill and other acquired intangibles • ~£0.9bn is goodwill and acquired Margin intangible ROIC • ~£0.1bn is
Slide 40: The enablers of revenue growth
The enablers of revenue growth Target of ~4-6% growth possible due to solid base and substantial new opportunities Stable base Low levels Substantial opportunities with good visibility of contract attrition for future growth • Order book grown from £11bn • Rebid and extension win rate • Market growi
Slide 41: The drivers of margin improvement
The drivers of margin improvement We see potential to add another 50-100bp Operational leverage from scalable platform 5-6% New business wins at higher margin Improved contract efficiencies Rebid of higher Improving ~4.7% margin contracts performance of low-margin work FY22 base Ambition NB. The blo
Slide 42: Capital allocation
Capital allocation Business now Capital-light Target leverage range of Context: highly cash generative business model 1-2x net debt to EBITDA Capital priorities Our intentions Investment in the business to 01 generate organic growth Targeted investment to support growth Annual dividend payment to In
Slide 43: Medium-term performance outlook, from a base of 2022e
Medium-term performance outlook, from a base of 2022e Revenues growing faster than the market Profits growing faster than revenues Returns growing faster than profits We expect: The market will Revenue will Profits to grow Strong Shareholder grow at ~2-3% grow on faster than conversion of returns to
Slide 44: Wrap Up of Session One and Q&A
Wrap Up of Session One and Q&A Rupert Soames Group Chief Executive 44 Serco Capital Markets Day 2021
Slide 45: Our Management Framework
Our Management Framework Our values Trust Care Innovation Pride Our purpose - what we want to be A valued and trusted partner of governments, delivering superb public services, that transform outcomes and make a positive difference for our fellow citizens Our organising principles • Flair, agility,
Slide 46: Serco UK & Europe
Serco UK & Europe Mark Irwin Chief Executive Officer 46 Serco Capital Markets Day 2021
Slide 47: Overview of Serco UK & Europe today
Overview of Serco UK & Europe today A strategic supplier for UK & European governments trusted to deliver technology-enabled, people-based government services which are innovative, agile, resilient, and efficient. 2021e revenue, and sector mix Key facts 45% Citizen Services 67 10% Defence ~31,000 ~1
Slide 48: Divisional market and growth opportunities
Divisional market and growth opportunities Est. 2021 Outsourced market size Why the market is attractive to Serco • Mature, sizeable market with significant opportunities in Serco’s pipeline to 2026 • Increasingly large and complex delivery requirements, aligned to Serco’s B2G Estimated Government p
Slide 49: UK & Europe pipeline of new opportunities
UK & Europe pipeline of new opportunities Qualifying Bidding Awaiting adjudication Justice & Immigration Justice & Immigration Citizen Services ~£5.8bn TCV ~£0.9bn TCV ~£0.1bn TCV Europe Defence Defence ~£40m TCV ~£9.5bn TCV ~£3.0bn TCV Citizen Services Citizen Services ~£5.0bn TCV ~£0.5bn TCV Trans
Slide 50: UK & Europe rebids and extensions
UK & Europe rebids and extensions Divisional Revenues ~£2.1bn 2021e 2022 rebids 2023 rebids 2024 rebids Justice & Immigration Justice & Immigration Justice & Immigration ~£33m ACV ~£15m ACV ~£14m ACV Defence Defence Defence ~£103m ACV ~£10m ACV ~£29m ACV Citizen Services Citizen Services Citizen Ser
Slide 51: Deep Dive into Serco's operations in Europe
Deep Dive into Serco’s operations in Europe Serco Netherlands Serco Spain • European Space Research & Technology Centre – ESTEC Serco Germany • European Space Astronomy Centre - ESAC • European Space Operations Centre - ESOC • International Space Station Space 60% • German Space Agency - DLR • Europ
Slide 52: Click here to open in You Tube
Click here to open in You Tube 52 Serco Capital Markets Day 2021
Slide 53: Serco Middle East
Serco Middle East Phil Malem Chief Executive, Serco Middle East 53 Serco Capital Markets Day 2021
Slide 54: Overview of Serco Middle East today
Overview of Serco Middle East today An innovative provider of public services in the Middle East with a growing range of differentiated capabilities and powerful references, working to deliver customer service excellence and transform organizational efficiency through people-led, technology-enabled
Slide 55: Divisional market and growth opportunities
Divisional market and growth opportunities Est. 2021 Outsourced market size Why the market is attractive to Serco • Young but growing market with increasing outsourced opportunities as markets rebound post- Covid Estimated Government • Ability to leverage international capabilities and synergies thr
Slide 56: Middle East pipeline of new opportunities
Middle East pipeline of new opportunities Qualifying Bidding Awaiting adjudication Defence Defence Defence ~£154m TCV ~£100m TCV ~£0.5m TCV Citizen Services Citizen Services Citizen Services ~£399m TCV ~£392m TCV ~£29m TCV Transport Transport Transport ~£240m TCV ~£288m TCV ~£188m TCV Some key new o
Slide 57: Middle East rebids and extensions
Middle East rebids and extensions Divisional Revenues ~£260m 2021e 2022 rebids 2023 rebids 2024 rebids Citizen Services Defence Transport ~£23.7m ACV ~£2.5m ACV ~£23.5m ACV Transport Citizen Services Citizen Services ~£14.5m ACV** ~£12.6m ACV ~£14.8 ACV Some key rebids: Dubai Airports Facilities Man
Slide 58: Innovating in public service delivery
Innovating in public service delivery Workforce Management WFM- at Dubai and Sharjah airport Data Digital Asset Management Management Automation- Asset Investment reduction of Planning tool – trial at Workforce cost base Management Zayed University and deployment to all contracts Data Digital Asset
Slide 59: Serco Asia Pacific
Serco Asia Pacific Peter Welling Chief Executive Officer 59 Serco Capital Markets Day 2021
Slide 60: Overview of Serco Asia Pacific today
Overview of Serco Asia Pacific today A trusted provider of public services to governments across Asia Pacific with a broad range of capabilities spanning Justice & Immigration, Citizen Services, Defence and Healthcare. We have a significant footprint in Australia with ambitions to further strengthen
Slide 61: Divisional market and growth opportunities
Divisional market and growth opportunities Est. 2021 Outsourced market size Why the market is attractive to Serco • Growing, sizeable market with significant pipeline to 2026 • Potential to newly leverage international experience and capabilities e.g. WBB, METS, J&I & Estimated Government FM COEs ou
Slide 62: Asia Pacific Pipeline of New Opportunities
Asia Pacific Pipeline of New Opportunities Qualifying Bidding Awaiting adjudication Justice & Immigration Defence Citizen Services ~£3.3bn TCV ~£1.6bn TCV ~£20m TCV Health & Facilities Management Health & Facilities Management Defence ~£3.0bn TCV 1 ~£1.1bn TCV 2 ~£20m TCV Defence Citizen Services ~£
Slide 63: Asia Pacific Rebids and Extensions
Asia Pacific Rebids and Extensions Divisional Revenues ~£900m 2021e 2022 rebids 2023 rebids 2024 rebids Citizen Services Justice & Immigration Health & Facilities Management ~£100m ACV ~£190m ACV ~£4m ACV Health & Facilities Management Health & Facilities Management ~£37m ACV ~£35m ACV Defence ~£5m
Slide 64: Accelerating the digital workforce management market
Accelerating the digital workforce management market ENTERPRISE WORKFORCE SOLUTIONS SERVICES MODEL CAPABILITY OPERATIONALISED THROUGH NATIONAL OPERATIONS SUPPORT CENTRE SERCO EWS DIGITISED END-TO-END EMPLOYEE LIFECYCLE SOLUTION DELIVERING 815,000 SHIFTS TO 7,500 STAFF (INCLUDING 1,500+ CLINICIANS) A
Slide 65: Serco Americas
Serco Americas Dave Dacquino Chief Executive Officer 65 Serco Capital Markets Day 2021
Slide 66: Overview of Serco Americas today
Overview of Serco Americas today A diversified, mid-sized government services provider with – following organic and inorganic expansion - a leading position in the US Navy; growing positions in the US Air Force, Space Force and Army; and a well-established Citizen Services business, with an ambition
Slide 67: Divisional market and growth opportunities
Divisional market and growth opportunities Est. 2021 Outsourced market size Why the market is attractive to Serco • Abundant and growing opportunity in Serco’s core markets – allows us to be more selective Estimated Government • US defence and citizen services markets are the largest in the world ou
Slide 68: North America Pipeline of new opportunities
North America Pipeline of new opportunities Qualifying Bidding Awaiting adjudication Defence Defence Defence ~£12.2bn TCV ~£2.0bn TCV ~£1.4bn TCV Citizen Services Citizen Services Citizen Services ~£1.8bn TCV ~£0.2bn TCV ~£51.6m TCV Other Other Other ~£0.3bn TCV ~£0.1bn TCV ~£15.0m TCV KEY: Circles
Slide 69: North America Rebids and Extensions
North America Rebids and Extensions Divisional Revenues ~£1.13bn 2021e 2022 rebids 2023 rebids 2024 rebids Defence Defence Defence ~£258m ACV ~£130m ACV ~£70m ACV Citizen Services Citizen Services Citizen Services ~£3m ACV ~£142m ACV ~£25m ACV Other Other Other ~£82m ACV ~£19m ACV ~£11m ACV Some key
Slide 70: 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 Intel Growth profile Secretary of 2% Defense • Serco NA has had consistent organic growth in our legac
Slide 71: Substantial capabilities in key Defence and Citizen Services technologies
Substantial capabilities in key Defence and Citizen Services technologies New contracts and recent acquisitions have greatly expanded our digital capabilities. Serco is now higher up the value chain and more technology-oriented than at any point in our history. Autonomous Dynamic Resource Operations
Slide 72: Concluding remarks
Concluding remarks Rupert Soames Group Chief Executive 72 Serco Capital Markets Day 2021
Slide 73: Key messages
Key messages We have a consistent track Our markets are large, We have a strong and Private sector expertise record of delivery: diverse, liquid and differentiated position in a has never been more highly 11% revenue & 34% UTP growing at ~2-3% CAGR to market which has significant valued by governmen
Slide 74: Serco Group plc
www.serco.comMm 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