Serco Group Plc · LSE:SRP
Serco — FY2021 Earnings Presentation
52 slides from Serco's earnings presentation, Feb 24, 2022
Slide 1: 2021 Full Year Results
Serco Business 2021 Full Year Results For the year ended 31 December 2021 Serco Group plc 1 Serco Group plc – 2021 Full Year Results
Slide 2: Agenda
Serco Business Agenda Overview Rupert Soames (Group CEO) Financial Review Nigel Crossley (Group CFO) Focus on UK & Europe Mark Irwin (UK&E CEO) Changing labour markets Anthony Kirby (Group COO) Operational Review Rupert Soames Q&A 2 Serco Group plc – 2021 Full Year Results
Slide 3: Overview
Overview Rupert Soames Group Chief Executive 3 Serco Group plc – 2021 Full Year Results
Slide 4: Another strong year of delivery in a challenging year
Serco Business Another strong year of delivery in a challenging year • B2G platform helps deliver excellent operational performance in challenging conditions – Dislocated labour markets; successive waves of Covid; high sickness and attrition rates; volatile demand for Covid related services – Diffic
Slide 5: Strong track record of delivery
Serco Business Strong track record of delivery Underlying Trading Profit more than Return on invested capital trebled since 2017 increased to 24% Revenue CAGR +11% UTP CAGR +35% £229m 23.7% 19.1% £163m 15.0% 13.6% £120m £93m 9.0% £69m 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Trading cash fl
Slide 6: Financial Review
Financial Review Nigel Crossley Chief Financial Officer 6 Serco Group plc – 2021 Full Year Results
Slide 7: Financial overview: continued strength across all key metrics
Serco Business Financial overview Continued strength across all key metrics FY 21 FY 20 Growth Revenue Revenue £4,425m £3,885m +14% Organic growth 10% Acquisitions 6% FX -2% Underlying Trading Profit Underlying Trading Profit £229m £163m +40% Organic growth 33% Acquisitions 11% FX -4% Margin 5.2% 4.
Slide 8: Americas: continued high margins, award delays pushing pipeline higher
Serco Business Americas Continued high margins, award delays pushing pipeline higher Year ended Total CFX 31 December (£m)* FY21 FY20 growth growth • Revenue +5% reported, + 12% CFX Citizen Services 275 254 15% – Growth driven by WBB acquisition, Defence 765 725 13% completed April – Up: Systems Int
Slide 9: Asia Pacific: strong revenue and profit growth
Serco Business Asia Pacific Strong revenue and profit growth Year ended Total CFX 31 December (£m)* FY21 FY20 growth growth • Revenue +26% reported, + 24% CFX Citizen Services 161 140 13% – Facilities First acquisition added 15% Defence 146 133 7% to revenues at CFX – Up: Justice, Immigration, Citiz
Slide 10: Middle East: stable profit, higher margin, successful exit of Dubai Metro
Serco Business Middle East Stable profit, higher margin, successful exit of Dubai Metro Year ended Total CFX 31 December (£m)* FY21 FY20 growth growth • Revenue -18% reported, -13% CFX Citizen Services 3 0 n/a – Organic -13%, includes Dubai Metro Defence 31 27 15% ending in H2 – Recent signs of post
Slide 11: UK & Europe: exceptional growth and order intake
Serco Business UK & Europe Exceptional growth and order intake Year ended Total CFX 31 December (£m)* FY21 FY20 growth growth • Revenue +20% organic Citizen Services 991 749 32% – Up: Citizens Services (NHS Test & Defence 262 243 8% Trace; DWP, ONS), Immigration, Prisoner Escorting Justice & Immigra
Slide 12: Excellent cash flow performance
Serco Business Excellent cash flow performance Good control of working capital following high revenue growth Year ended 31 December (£m) FY21 FY20 Operating profit before exceptional items 217.4 166.7 Capex and repayment of lease liabilities (136.4) (130.0) Depreciation and amortisation (including I
Slide 13: Capital allocation
Serco Business Capital allocation Demonstrable progress against clear framework Business now Capital-light Target leverage range of Context: highly cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in 2021 01 Investment in the business to Temporarily increased our ra
Slide 14: Well positioned in a world of increasing inflation
Serco Business Well positioned in a world of increasing inflation 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
Slide 15: Guidance for 2022
Serco Business Guidance for 2022 2021 2022 Actual Initial guidance New guidance Revenue £4.4bn £4.1-£4.2bn £4.1-£4.2bn Organic sales growth 10% ~(8)% ~(8)% Underlying trading profit £229m ~£195m ~£195m Net finance costs £24m ~£25m ~£25m Underlying effective tax rate 24% ~25% ~25% Free cash flow £190
Slide 16: UK & Europe
UK & Europe Mark Irwin UK & Europe Chief Executive 16 Serco Group plc – 2021 Full Year Results
Slide 17: UK & Europe: exceptional growth and order intake
Serco Business UK & Europe Exceptional growth and order intake Year ended Total CFX FY21 FY20 growth growth • Revenue +20% organic 31 December (£m)* – Up: Citizens Services (NHS Test & Citizen Services 991 749 32% Trace; DWP, ONS), Immigration, Defence 262 243 8% Escorting – Down: parts of Environme
Slide 18: Our Global Space Portfolio
Serco Business Our Global Space Portfolio UK Europe North America & Canada Telecommand to over 150 satellites c.550 500,000+ registered users Alaska on the ESA employees Copernicus EO Goose Bay c.400 Alberta 47 service employees Massachusetts Colorado Springs Fylingdales Million c.100 Washington EO
Slide 19: Changing labour markets
Changing labour markets Anthony Kirby Group Chief Operating Officer 19 Serco Group plc – 2021 Full Year Results
Slide 20: Serco: a supplier of people-based services to government
Serco Business Serco: a supplier of people-based services to government B2G Platform supports our Business Model Bespoke, one-off contracts supported by industrial-scale standard processes; finance, IT, risk management, legal, procurement & supply chain, compliance & assurance, and HR etc People rep
Slide 21: Labour market challenges & our response
Serco Business Labour market challenges & our response Resilience, agility and innovation enabling strong delivery Challenges: Our response: • Labour market imbalances • Accelerated roll out of workforce management – Border restrictions • Multi-million £ investment in People First => – Changing expe
Slide 22: Operational review & outlook
Operational review & outlook Rupert Soames Group Chief Executive 22 Serco Group plc – 2021 Full Year Results
Slide 23: FY21 highlights & lowlights
Serco Business FY21 highlights & lowlights Highlights Lowlights Financial: ROIC 24%; leverage 0.7x despite c.£250m spent Impact of Covid on colleagues & families on acquisitions; two-thirds of Divisional UTP ex-UK; 28 colleagues die of or with Covid-19. Longer-than-expected Covid => higher-than-expe
Slide 24: Our unique Management Framework and B2G Platform delivers competitive advantage
Serco Business Our unique Management Framework and B2G Platform delivers competitive advantage Agility Breadth Reach Efficiency Resilience The ability to We have deep Our international Our shared services Our common respond to expertise across the footprint allows us allow us to invest in controls,
Slide 25: Key messages after a successful year
Serco Business Key messages after a successful year We have a consistent track Our markets are large, Private sector expertise We have a strong and record of delivery: diverse, liquid and has never been more differentiated position in 11% revenue & 35% UTP growing at ~2-3% CAGR highly valued by a ma
Slide 26: Q&A
Q&A 26 Serco Group plc – 2021 Full Year Results
Slide 27: Notes and definitions
Serco Business 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 guid
Slide 28: ESG
Serco Business APPENDIX 2 ESG 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,
Slide 29: ESG is central to Serco's values & purpose
Serco Business APPENDIX 3 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 Go
Slide 30: ESG is central to our customers' values & purpose
Serco Business APPENDIX 4 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 We are committed to making a We offer transparency and help deliver their net zero carbon
Slide 31: Income Statement – Revenue and Trading Profit
Serco Business APPENDIX 5 Income Statement – Revenue and Trading Profit £m FY21 FY20 HY21 Revenue excludes share of JV&A revenue Revenue 4,425 3,885 2,168 Trading Profit measures Trading Profit 233.4 175.7 125.6 include share of JV&A PAT Exclude: Contract & Balance Sheet Review items (4.5) (12.6) (2
Slide 32: Revenue divisional analysis
Serco Business APPENDIX 6 Revenue divisional analysis Revenue - growth composition FY21 vs FY20 F20 FY21 Reported Acquisition/ Reported Constant £m Currency Organic Disposal FX TOTAL Currency Currency UK&E 1,778 +20% - - +20% 2,132 2,134 Americas 1,064 +2% +10% (7%) +5% 1,120 1,193 AsPac 719 +8% +15
Slide 33: Underlying Trading Profit (UTP) divisional analysis
Serco Business APPENDIX 7 Underlying Trading Profit (UTP) divisional analysis Underlying Trading Profit and margin FY21 UTP FY20 UTP FY change Reported Constant Reported Reported Reported Constant Constant £m Currency Currency Margin Currency Margin Currency Currency UK&E 96.0 96.3 4.5% 57.0 3.2% +3
Slide 34: Income statement – EPS and DPS
Serco Business APPENDIX 8 Income statement – EPS and DPS £m FY21 FY20 HY21 Underlying Trading Profit (UTP) 228.9 163.1 122.7 Net finance costs (NFC) (24.0) (25.9) (12.6) Underlying PBT 204.9 137.2 110.1 Tax on UTP and NFC (48.6) (31.2) (25.6) Underlying PAT 156.3 106.0 84.5 Non underlying items 4.5
Slide 35: Exceptional items
Serco Business APPENDIX 9 Exceptional items £m FY21 FY20 HY21 Exceptional (loss)/profit on disposals - 11.0 - Other exceptional operating items: Restructuring costs 0.1 0.1 0.1 Costs associated with UK Government review - (1.3) (0.3) Increase in onerous lease provision (0.6) - - Movement in other pr
Slide 36: Free cash flow and trading cash flow
Serco Business APPENDIX 10 Free cash flow and trading cash flow £m FY21 FY20 HY21 Operating profit before exceptionals 217.4 166.7 119.0 Share of profit of joint ventures and associates (8.7) (12.7) (6.4) Depreciation and amortisation of owned assets 47.2 39.2 22.0 Depreciation and impairment of lea
Slide 37: Net debt and leverage
Serco Business APPENDIX 11 Net debt and leverage £m FY21 FY20 HY21 Free Cash Flow 189.5 134.9 129.9 Exceptional items (see Appendix 9) 5.5 1.1 (3.7) Net (acquisition)/disposal of subsidiaries and operations (234.9) 6.1 (235.1) Other net debt items on acquisition (14.3) - (14.3) Dividends paid to sha
Slide 38: Focus on five sectors across four regions
Serco Business APPENDIX 12 Focus on five sectors across four regions FY21 revenue mix, including share of JV&As* UK & Asia Middle £m Sector Europe Americas Pacific East Defence 418 765 146 31 £1,360m 29% Justice & 469 - 374 - £843m 18% Immigration Transport 231 80 7 136 £454m 10% Health & Other FM 2
Slide 39: Cash management normalisation
Serco Business APPENDIX 13 Cash management normalisation FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Pre 2014, net debt at statutory 31/12/12 30/06/13 31/12/13 31/12/13 30/06/14 31/12/14 31/12/14 30/06/15 31/12/15 31/12/15 30/06/16 31/12/16 31/12/16 30/06/17 31/12/17 31/12/17 30/06/18 31/12/18 31/1
Slide 40: Cash flow breakdown 1 & breakdown 2
Serco Business APPENDIX 14 Cash flow breakdown 1 & breakdown 2 £m FY21 FY20 HY21 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 19.6 15.9 9.1 Amortisation (non-acquisition) 11.3 14.0 6.3 Depreciation and amortisation 30.9 29.9 15.4 Impairment of PPE (ex
Slide 41: Cash flow breakdown 3
Serco Business APPENDIX 15 Cash flow breakdown 3 £m FY21 FY20 HY21 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (0.7) (1.7) (0.2) Costs associated with UK Government review (1.3) (0.2) (0.1) Costs associated with successful acquisitions (5
Slide 42: Leverage covenant calculation
Serco Business APPENDIX 16 Leverage covenant calculation £m FY21 LTM FY20 LTM HY21 LTM Trading Profit 233.4 175.7 220.8 Exclude: share of joint venture and associate post-tax profits (8.7) (12.7) (12.1) Exclude: foreign exchange credit on investing and financing arrangements (0.6) (0.7) (1.1) Includ
Slide 43: Interest cover covenant calculation
Serco Business APPENDIX 17 Interest cover covenant calculation £m FY21 LTM FY20 HY20 LTM Net finance costs (24.0) (25.9) (25.8) Exclude: finance charge on lease obligations recognised under IFRS16 7.3 9.1 8.2 Exclude: foreign exchange credit on investing and financing arrangements 0.6 0.7 1.1 Exclud
Slide 44: Balance sheet summary
Serco Business APPENDIX 18 Balance sheet summary £m FY21 FY20 HY21 Goodwill 852.7 669.6 826.7 Other intangible assets (excluding leased assets) 144.0 80.6 159.6 Property, plant and equipment (excluding leased assets) 55.5 54.2 54.7 Contract assets, trade and other receivables 640.9 634.9 649.6 Inven
Slide 45: Return on Invested Capital (ROIC)
Serco Business APPENDIX 19 Return on Invested Capital (ROIC) £m FY21 FY20 HY21 Invested capital assets 1,730.3 1,479.9 1,729.6 Invested capital liabilities (643.2) (633.1) (691.6) Invested Capital (IC) 1,087.1 846.8 1,038.0 Average IC (two-point) 967.0 855.5 969.9 Trading Profit 233.4 175.7 125.6 Tr
Slide 46: Pension assets mix and IAS 19 valuation
Serco Business APPENDIX 20 Pension assets mix and IAS 19 valuation £m FY21 FY20 HY21 Scheme assets at fair value: Liability driven investments (LDI) 390.0 408.3 363.1 Bonds except LDI 368.2 367.3 360.9 Pooled investment funds 107.6 62.8 77.4 Equities 55.7 55.6 57.7 Cash, property and other 9.1 16.3
Slide 47: Currency rates
Serco Business APPENDIX 21 Currency rates Spot rate for FY22e Average rates Closing rates 31 Jan 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 2022 FY21 HY21 FY20 HY20 FY19 HY19 2021 2021 2020 2020 2019 2019 £:US$ 1.34 1.38 1.39 1.29 1.27 1.28 1.30 1.33 1.42 1.36 1.23 1.32 1.27 £:A$ 1.90 1.83 1.80 1.88
Slide 48: Tax
Serco Business APPENDIX 22 Tax • FY21 underlying tax of £48.6m, which on UTP of £228.9m less net finance cost of £24.0m is an ETR of 23.7% • Expect ETR to remain at ~25% in future periods although this is sensitive to geographic mix of profit • Cash tax rate higher than ETR due to timing differences
Slide 49: UK deferred tax asset
Serco Business APPENDIX 23 UK deferred tax asset Positive message on profitability of UK business • Deferred tax asset brought on to balance sheet: mainly relating to historical losses in the group of UK Serco companies • Positive message on UK business: the asset reflects increased confidence in th
Slide 50: American Depository Receipt (ADR) program
Serco Business APPENDIX 24 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 •
Slide 51: Disclaimer
Serco Business 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
Slide 52: www.serco.com
Serco Business www.serco.com Serco Group plc 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 52 Serco Group plc – 2021 Full Year Results