Serco Group Plc · LSE:SRP
Serco — FY2020 Earnings Presentation
46 slides from Serco's earnings presentation, Feb 25, 2021
Slide 1: 2020 Full Year Results
2020 Full Year Results For the year ended 31 December 2020 Serco Group plc 1 Serco Group plc – 2020 Full Year Results
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: Agenda
Agenda Overview Rupert Soames (Group CEO) Financial Review Angus Cockburn (Group CFO) Nigel Crossley (Director of Finance) Operational Review Rupert Soames Q&A Rupert Soames Angus Cockburn Nigel Crossley 3 Serco Group plc – 2020 Full Year Results
Slide 4: Overview
Overview Rupert Soames Group Chief Executive 4 Serco Group plc – 2020 Full Year Results
Slide 5: Strong 2020 performance; continued growth in 2021
Strong 2020 performance; continued growth in 2021 • Strong financial performance – Revenue £3,885m, up +20% at CFX; +16% organic; +5% from NSBU acquisition – Underlying Trading Profit of £163.1m, up +37% at CFX; margin increased from 3.7% to 4.2% – Free Cash Flow more than doubles to £135m; Adjusted
Slide 6: Profit: ~26% CAGR 2017-21e; ~10% CFX growth in UTP in 2021e
Profit: ~26% CAGR 2017-21e; ~10% CFX growth in UTP in 2021e ex WBB £m UTP 200 ~£175m £163m ~4.2% margin 4.2% margin 160 £120m 3.7% margin 120 £93m £69m 3.3% margin 80 2.3% margin 40 0 FY17 FY18 FY19 FY20 FT21e • In the “Grow” stage of the strategic plan • Strong revenue and UTP growth over the last
Slide 7: Financial Review
Financial Review Angus Cockburn Nigel Crossley Chief Financial Officer Director of Finance 7 Serco Group plc – 2020 Full Year Results
Slide 8: Income Statement – Revenue and Trading Profit
Income Statement – Revenue and Trading Profit £m FY20 FY19 HY20 Revenue excludes share of JV&A revenue Revenue 3,885 3,248 1,822 Trading Profit measures Trading profit 175.7 133.4 80.5 include share of JV&A PAT Exclude: Contract & Balance Sheet Review items (12.6) (13.2) (2.9) Underlying Trading Pro
Slide 9: Revenue divisional analysis
Revenue divisional analysis Revenue - growth composition FY20 vs FY19 UK&E, Americas and FY19 FY20 AsPac all delivered strong Reported Acquisition/ Reported Constant growth £m Currency Organic Disposal FX TOTAL Currency Currency UK&E – AASC contract UK&E 1,362 +31% - - +31% 1,777 1,777 and Covid-19
Slide 10: Underlying Trading Profit (UTP) divisional analysis
Underlying Trading Profit (UTP) divisional analysis Underlying Trading Profit and margin UTP increase led by FY20 UTP FY19 UTP FY change Americas and UK&E Reported Constant Reported Reported Reported Constant Constant £m Currency Currency Margin Currency Margin Currency Currency UK&E improvement dri
Slide 11: Income statement – EPS and DPS
Income statement – EPS and DPS £m FY20 FY19 HY20 Underlying Trading Profit (UTP) 163.1 120.2 77.6 Net finance costs higher due to increased interest Net finance costs (NFC) (25.9) (21.8) (12.7) on lease liabilities Underlying PBT 137.2 98.4 64.9 (including AASC Tax on UTP and NFC (31.2) (24.4) (17.0
Slide 12: Exceptional items
Exceptional items £m FY20 FY19 HY20 Net exceptional profit of £12m Exceptional (loss)/profit on disposals 11.0 - 11.0 Other exceptional operating items: Exit of Viapath JV is biggest component with Restructuring costs 0.1 (12.8) 0.1 gain on disposal and loan SFO fine and investigation costs - (22.9)
Slide 13: Free cash flow and trading cash flow
Free cash flow and trading cash flow £m FY20 FY19 HY20 Free Cash Flow exceptionally strong at Operating profit before exceptionals 166.7 125.9 75.5 £135m Share of profit of joint ventures and associates (12.7) (27.5) (7.0) Capital repayment of Depreciation and amortisation of owned assets 39.2 43.3
Slide 14: Net debt and leverage
Net debt and leverage £m FY20 FY19 HY20 £58m closing adjusted net debt compares to a daily average of £209m Free cash flow 134.9 62.0 80.9 (2019 £231m). H2 2020 Exceptional items (see Appendix 5) 1.1 (49.2) (4.2) daily average of £137m Net (acquisition)/disposal of subsidiaries and operations 6.1 (1
Slide 15: Funding and Capital Allocation
Funding and Capital Allocation Funding • 2020 ended with £582m of available liquidity – Facilities First Australia and the WBB Inc acquisitions funded from existing facilities • $200m of new US private placement notes raised in October 2020 – Refinancing of upcoming debt maturities – Maturities spre
Slide 16: Dividends
Dividends Background to Board’s recommendation of resuming dividends in respect of FY19 • Followed very strong operational and financial performance • 2019 was also the last year of significant outflows on OCPs and cash exceptionals • Expectations were for increased underlying earnings and reducing
Slide 17: Guidance for 2021
Guidance for 2021 2020A 2021 guidance 2021 guidance (17 December 2020) Revenue £3.9bn ~£4.1bn ~£4.2bn Organic sales growth 16.2% ~2% ~4% Underlying trading profit £163.1m ~£165m ~£175m Net finance costs £25.9m ~£27m ~£27m Underlying effective tax rate 22.7% ~25% ~25% Free cash flow +£134.9m ~+£75m ~
Slide 18: Operational review
Operational review Rupert Soames Group Chief Executive 18 Serco Group plc – 2020 Full Year Results
Slide 19: FY20 highlights & lowlights
FY20 highlights & lowlights Highlights Lowlights • Strong operational performance supporting the delivery and • Dreadful impact of COVID on lives mobilisation of public services in response to pandemic. and welfare of colleagues & families • People – 21,500 people recruited, engagement increases. •
Slide 20: Rising to the level of events
Rising to the level of events Clearly setting priorities from the start “Our priority in this crisis is to support the delivery of essential public services and, within that context, do all we can to protect our employees from harm and our shareholders from loss” Trading Update 2 April 2020 Three en
Slide 21: People: managing and supporting colleagues in a pandemic
People: managing and supporting colleagues in a pandemic Challenge of running front-line services with unprecedented absence rates; responding to needs of sick and bereaved colleagues; recruiting thousands of staff. 27.8% 21,500 people recruited 3,000 COVID cases 6.4 23.8% 10,000 net new jobs 25 dea
Slide 22: People
People Engagement scores continue to climb, despite Covid-19; good succession planning delivers complex & interlinked senior management succession Viewpoint survey Sept 2020 Succession planning in action 29,782 respondents, 64,550 Mark Irwin ASPAC => UK, Kevin Craven retires free-text comments. Pete
Slide 23: Pandemic adds significant complexity to operational delivery
Pandemic adds significant complexity to operational delivery – but the job still gets done North America • Federal Emergency Management Agency contract mobilises ~2,000 direct and indirect staff to provide disaster relief and restoration services • Drivers Examination Services Ontario adaptations to
Slide 24: Acquisitions
Acquisitions Advancing strategy and managing M&A process effectively across the world in a pandemic WBB Facilities First Australia Announced 16 February 2021, subject to regulatory Announced 17 December 2020. Paid A$78m approval. Consideration: $295m (£215m). Calendar (£44m). 12 months to June 20: r
Slide 25: Americas summary of FY20
Americas summary of FY20 FY20 Revenue Sectors Defence, Citizen Services, Transport £1,064m • Revenue +16%: +17% NSBU, +1% organic, -1% FX – NSBU +17%: acquisition performing in-line with our expectations CFX change: – Organic +1%: main contributors new FEMA contract and PBGC, offset +£156m by loss o
Slide 26: UK & Europe summary of FY20
UK & Europe summary of FY20 FY20 Revenue Sectors Justice, Immigration, Defence, Health, Citizen Services, Transport £1,777m • Revenue +31% organic, substantially all Covid-19; NHS Test & Trace ~£350m CFX change: – Growth driven by: additional Covid-19 work, AASC contracts, PECS and +£415m Gatwick IR
Slide 27: AsPac summary of FY20
AsPac summary of FY20 FY20 Revenue Sectors Justice, Immigration, Defence, Health, Citizen Services, Transport £719m • Revenue +16%: +18% organic, -2% FX CFX change: – Organic growth driven by: strong growth in our Citizen Services and +£112m Justice & Immigration sectors. Growth from Clarence Correc
Slide 28: Middle East summary of FY20
Middle East summary of FY20 FY20 Revenue Sectors Transport, Defence, Health, Citizen Services £324m • Revenue -7%: -7% organic, -1% FX – Covid-19: Largest negative impact from Covid-19; sudden reduction in CFX change: activity in parts of the transport portfolio and limited Covid-19 response (£23m)
Slide 29: Summary & outlook
Summary & outlook Rupert Soames Group Chief Executive 29 Serco Group plc – 2020 Full Year Results
Slide 30: Summary and outlook: strong performance in 2020; continued growth expected in 2021
Summary and outlook: strong operational & financial performance in 2020; continued growth expected in 2021 • 2017 – 2020 Serco delivered 33% CAGR in UTP, margins The Four Forces (Strategy, 2015) growing from 2.3% to 4.2%; 10% CFX growth in UTP expected in 2021. • Pandemic has tested our mettle, and
Slide 31: Q&A
Q&A 31 Serco Group plc – 2020 Full Year Results
Slide 32: Appendix – 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 disc
Slide 33: Appendix – focus on five sectors across four regions
Appendix 2 – focus on five sectors across four regions FY20 revenue mix, including share of JV&As* UK & Asia Middle £m Sector Europe Americas Pacific East Defence 468 725 133 27 £1,353m 32% Justice & 394 - 328 - £722m 17% Immigration Transport 219 85 8 194 £506m 12% Health 264 - 101 10 £375m 9% Citi
Slide 34: Appendix – cash management normalisation
Appendix 3 – cash management normalisation FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 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 31/12/18 30/06/19 31/12/19 31/12/19 30/06/20 31/12/20 P
Slide 35: Appendix – cash flow breakdown 1 & 2
Appendix 4 – cash flow breakdown 1 & breakdown 2 £m FY20 FY19 HY20 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 15.9 15.3 7.8 Amortisation (non-acquisition) 14.0 18.1 7.5 Depreciation and amortisation 29.9 33.4 15.3 Impairment of PPE (excluding lease
Slide 36: Appendix – cash flow breakdown 3
Appendix 5 – cash flow breakdown 3 £m FY20 FY19 HY20 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (1.7) (19.2) (1.1) SFO fine and investigation costs - (22.9) - Other costs re UK government reviews (0.2) (2.2) (0.1) Acquisition costs re NS
Slide 37: Appendix – leverage covenant calculation
Appendix 6 – leverage covenant calculation £m FY20 FY19 HY20 LTM Trading Profit 175.7 133.4 163.3 Exclude: share of joint venture and associate post-tax profits (12.7) (27.5) (21.0) Exclude: foreign exchange credit on investing and financing arrangements (0.7) (0.8) (0.1) Include: dividends from joi
Slide 38: Appendix – interest cover covenant calculation
Appendix 7 – interest cover covenant calculation £m FY20 FY19 HY20 LTM Net Finance Costs (25.9) (21.8) (24.0) Exclude: Finance charge on lease obligations recognised under IFRS16 9.1 6.6 9.1 Exclude: foreign exchange credit on investing and financing arrangements 0.7 0.8 0.1 Exclude: Other dividends
Slide 39: Appendix – balance sheet summary
Appendix 8 – balance sheet summary £m FY20 FY19 HY20 Goodwill 669.6 674.2 710.3 Other intangible assets (excluding leased assets) 80.6 96.5 91.3 Property, plant and equipment (excluding leased assets) 54.2 47.3 58.6 Contract assets, trade and other receivables 634.9 633.9 702.9 Inventories 21.4 18.3
Slide 40: Appendix – Return on Invested Capital (ROIC)
Appendix 9 – Return on Invested Capital (ROIC) £m FY20 FY19 HY20 Invested capital assets 1,479.9 1,493.8 1,603.0 Invested capital liabilities (633.1) (629.7) (701.3) Invested Capital (IC) 846.8 864.1 901.7 Average IC (two-point) 855.5 782.7 813.6 Trading Profit 175.7 133.4 80.5 Trading Profit for ro
Slide 41: Appendix – pension assets mix and IAS 19 valuation
Appendix 10 – pension assets mix and IAS 19 valuation £m FY20 FY19 HY20 SPLAS, the main Group scheme, represents 90%+ Scheme assets at fair value: of total assets and liabilities; ~90% of SPLAS Liability driven investments (LDI) 408.3 447.4 425.8 assets historically allocated Bonds except LDI 367.3
Slide 42: Appendix – currency rates
Appendix 11 – currency rates Spot rate for Average rates Closing rates FY21e 31 Jan 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 2021 FY20 HY20 FY19 HY19 FY18 HY18 2020 2020 2019 2019 2018 2018 £:US$ 1.37 1.29 1.27 1.28 1.30 1.34 1.38 1.36 1.23 1.32 1.27 1.28 1.31 £:A$ 1.79 1.88 1.94 1.83 1.83 1.78 1.7
Slide 43: Appendix – Tax
Appendix 12 – Tax • FY20 underlying tax of £31.2m, which on UTP of £163.1m less net finance cost FY20 Underlying ETR of £25.9m is an ETR of 22.7% reduced slightly due to – Tax charge continues to be upwardly impacted due to overseas profits geographic mix offset taxed at higher rates utilisation of
Slide 44: Appendix – contract nature and inflation mitigation
Appendix 13 – contract nature and inflation mitigation • Around ¾ of revenue is from contracts where pricing is “fixed” in advance and on a longer term contractual basis; a “long term fixed price contracting” model requires careful cost inflation consideration • The remainder is the “non-fixed” reve
Slide 45: Appendix – American Depository Receipt (ADR) program
Appendix 14 – 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 • USD-denominat
Slide 46: www.serco.com
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 46 Serco Group plc – 2020 Full Year Results