Serco Group Plc · LSE:SRP
Serco — FY2012 Earnings Presentation
47 slides from Serco's earnings presentation, Mar 5, 2013
Slide 1: Well placed for future growth following excellent achievements in 2012
Well placed for future growth following excellent achievements in 2012 Serco Group plc 2012 Full Year Results 5 March 2013
Slide 2: Agenda
Agenda Overview Financial review Business review Looking ahead 2
Slide 3: Highlights
Highlights Well placed for future growth following excellent achievements in 2012 Record contract wins and best operational performance to date Strength and breadth of portfolio – UK & Europe returns to growth with numerous new contract start ups – Strong AMEAA growth from new contracts and expa
Slide 4: Strong financial result delivered by global portfolio
Strong financial result delivered by global portfolio Revenue Adjusted operating profit Adjusted profit before tax £4,832m £309m £278m +8.5% +13.4% +7.3% Adjusted EPS Dividend per share Group free cash flow 42.55p 10.10p £181m +8.7% +20.2% +£13m Revenue and adjusted operating profit shown on an ongo
Slide 5: Winning significant new business; increased order book
Winning significant new business; increased order book Signed record level of new business valued at £5.6bn Appointed preferred bidder for £0.2bn Supported by many small and medium sized wins Order book increased to £19.1bn £5.6bn £0.5bn £0.1bn £19.1bn £17.9bn £(0.1)bn £(4.9)bn 31 Dec Revenu
Slide 6: Good revenue visibility maintained
Good revenue visibility maintained Order Extensions Preferred of total book and rebids bidder 2015: 44% 25% 1% 70% 2014: 56% 22% 1% 79% 77% 14% 1% 2013: 92% At 31 December 2012 At 31 December 2011 2012: 92% 2013: 80% 2014: 70% 6
Slide 7: Portfolio management positions Serco for the future
Portfolio management positions Serco for the future Increasing exposure to growth markets Other Strong AMEAA growth 30% UK DMS Maritime acquisition 2011: 26% 56% 2011: 56% Entry into new markets US Disposal of non-core businesses 14% 2011: 18% Building transformational capability Launch an
Slide 8: Operational performance at the heart of Serco
Operational performance at the heart of Serco Strong operational performance underpins growth Continued assured delivery of critical services Successful start up of major wins Integration of acquisitions Completion of Group reorganisation Fresh thinking brought to customers’ challenges 8
Slide 9: Financial review
Financial review Andrew Jenner Finance Director Serco Group plc
Slide 10: Financial review
Financial review Income statement Dividend policy Cash flow and net debt Portfolio management Funding and pensions Accounting updates Financial outlook and assumptions 10
Slide 11: Overview
Overview Strong financial performance in 2012 – Good organic growth and margin improvement – Excellent cash generation Significant progress on portfolio management Good financial performance forecast for 2013 Planned higher dividend payout reflects positive outlook and growth prospects 11
Slide 12: Strong five-year record of revenue and profit growth
Strong five-year record of revenue and profit growth Revenue (£m) Adjusted operating profit (£m) and margin (%) 4,913 6.2% 6.4% 4,646 5.8% 6.0% 4,327 3,970 5.3% 315 290 259 3,124 230 165 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 All figures at reported exchange rates Adjusted operating profi
Slide 13: Income statement (slide 1 of 2)
Income statement (slide 1 of 2) Change at constant Year ended 31 December (£m) 2012 2011 Change currency Revenue 4,913.0 4,646.4 5.7% 6.2% Revenue - ongoing activities 4,832.2 4,471.8 8.1% 8.5% Organic growth 3.3% Adjusted operating profit 314.8 290.1 8.5% 9.9% Adjusted operating profit - ongoing ac
Slide 14: Revenue - divisional analysis
Revenue - divisional analysis 2012 revenue growth composition Revenue organic acquired disposed fx total £4,913m UK & Europe +2% - (3%) - (1%) +£267m Americas (14%) - - +1% (13%) +5.7% AMEAA +22% +8% - +1% +31% Global Services +12% +33% - (5%) +40% Group +3% +5% (2%) - +6% Global Services Revenue -
Slide 15: Operating profit - divisional analysis
Operating profit - divisional analysis Change in Adjusted operating profit (ongoing activities) Adjusted £309.1m ▲£32.7m ▲£28.4m ▲£1.3m operating margin £276.4m ▲£7.9m ▼£17.8m ▲£12.9m +12% 6.4% UK & Europe Americas AMEAA Global Corporate Services Expenses +17bps +10bps (110)bps (30)bps +200bps to 6.
Slide 16: Income statement (slide 2 of 2)
Income statement (slide 2 of 2) Change at constant Year ended 31 December (£m) 2012 2011 Change currency Adjusted profit before tax 278.1 262.2 6.1% 7.3% Amortisation of acquired intangibles (24.1) (20.0) Acquisition-related costs (3.7) (3.9) Exceptional item - net profit on disposals 5.6 - Exceptio
Slide 17: Earnings and dividend per share
Earnings and dividend per share Change at constant Year ended 31 December (£m) 2012 2011 Change currency Adjusted effective tax rate 24.6% 25.9% Adjusted earnings after tax £209.0m £194.2m 7.6% 8.9% Adjusted earnings per share 42.55p 39.59p 7.5% 8.7% Effective tax rate 18.6% 26.5% Profit after tax £
Slide 18: New dividend policy
New dividend policy Previous policy increased the dividend broadly in line with underlying earnings Plan to move progressively over the next three years to a cover of 2.5-3.0x Reflects the Board’s confidence in the Group’s future growth prospects and strong financial position Proposed total
Slide 19: Strong five-year record of Group free cash flow
Strong five-year record of Group free cash flow Group free cash flow (£m) 186 181 168 137 94 2008 2009 2010 2011 2012 Group free cash flow is free cash flow from subsidiaries and dividends received from joint ventures 19
Slide 20: Group free cash flow
Group free cash flow Year ended 31 December (£m) 2012 2011 Adjusted operating profit excluding joint ventures 237.4 208.5 Non-cash items 56.0 64.2 Adjusted EBITDA excluding joint ventures 293.4 272.7 Working capital movement (47.6) (32.3) Operating cash flow excluding joint ventures 245.8 240.4 Inte
Slide 21: Group free cash flow to movement in recourse net debt
Group free cash flow to movement in recourse net debt Year ended 31 December (£m) 2012 2011 Group free cash flow 181.2 168.3 Acquisition of subsidiaries (including acquired debt) (157.0) (398.6) Disposal of subsidiaries 131.0 - Acquisition-related costs (3.9) (3.7) Purchase of own shares and issue p
Slide 22: Net debt
Net debt As at 31 December (£m) 2012 2011 Group - cash and cash equivalents 142.8 194.6 Group - loans (699.5) (819.4) Group - obligations under finance leases (50.2) (45.0) Group recourse net debt (606.9) (669.8) Joint venture - net cash 51.3 51.4 Total recourse net debt (555.6) (618.4) Group non re
Slide 23: Portfolio management - acquisitions
Portfolio management - acquisitions Acquisition spend in 2012 of £157m Vertex acquired in June 2012 for £56m – c£110m revenue and c£8m Adjusted operating profit (pro forma year to 31 March 2012) DMS Maritime remaining 50% equity stake in December 2012 for £84m – £69m cash consideration and inc
Slide 24: Portfolio management - disposals
Portfolio management - disposals Four disposals of businesses non-core to the Group’s future development – Nuclear Technical Consulting Services, mainly defence-related operations in Germany, education software and UK data hosting – Part-year contribution of £81m revenue and £6m Adjusted operating
Slide 25: Funding and pensions
Funding and pensions Financial covenant leverage ratio, based on consolidated total net borrowings to EBITDA, 1.6 times as at 31 Dec 2012 (2011: 2.0 times) – Strong funding position with committed facilities of c£1.2bn – Early refinancing of committed syndicated bank facilities completed in March
Slide 26: Accounting updates - pensions
Accounting updates - pensions Limited impact from IAS 19 revision – Aligns expected return on pension assets with discount rate – Effective from 2013 with 2012 restated at that point – No cash flow effect – Impact on net pension credit expected to be a £5.8m increase in 2012 pro forma net finance
Slide 27: Accounting updates - JV consolidation
Accounting updates - JV consolidation Presentational change to financial statements from IFRS 11 implementation – Proportional consolidation replaced with equity accounting of joint ventures – Effective from 2013 with 2012 restated at that point – No impact to post-tax earnings or net asset positi
Slide 28: Financial outlook
Financial outlook For 2013 financial year, forecasting – Modest improvement in the rate of organic revenue growth – Adjusted operating margin broadly maintained Beyond 2013 – Planning for continued delivery of strong financial performance – Proposed increase in dividend payout ratio reflects con
Slide 29: 2013 - detailed financial assumptions
2013 - detailed financial assumptions Revenue – Broadly neutral impact from acquisitions (c+2%) and disposals (c-2%) to date Net finance costs – Expected to increase to c£45-£50m – Reflects impact from IAS 19, marginal increase in average borrowing cost and incremental cost of 2012 transactions
Slide 30: Summary
Summary Strong financial performance in 2012 – Good organic growth and margin improvement – Excellent cash generation Significant progress on portfolio management Good financial performance forecast for 2013 Planned higher dividend payout reflects positive outlook and growth prospects 30
Slide 31: Business review
Business review Chris Hyman Chief Executive Serco Group plc
Slide 32: UK & Europe - A return to growth
UK & Europe - A return to growth Financial highlights 2012 revenue – ongoing activities Organic growth of +2% £2,494m Performance highlights +£60m +2% 2011: £2,434m Contract starts: HMP Thameside, Compass, NHS Suffolk, East Kent Hospitals, Northern Isles Ferries Operational intensity: Transpor
Slide 33: UK & Europe - Improved activity and growth potential
UK & Europe - Improved activity and growth potential Markets summary Strong underlying drivers: Need for savings and better services; significant spend not yet open to competition Positive market outlook with new markets emerging: – Community healthcare and health enabling services – Probation a
Slide 34: Americas - Conditions remain tough
Americas - Conditions remain tough Financial highlights 2012 revenue £753m Organic decline of -14% (£115m) (13%) Performance highlights 2011: £868m Pressure on contract awards: Procurement delays; programme cancellations; lowest price contract awards Wins: Navy ADNS, Base Closure Assistance Te
Slide 35: Americas - Large market facing short-term uncertainty
Americas - Large market facing short-term uncertainty Markets summary Economic outlook uncertain: Continuing resolutions; debt ceiling; sequestration; market shrinkage through 2013 High level of rebids: Ontario Driver Examination Services, National Visa Center, Department of Veteran’s Affairs
Slide 36: AMEAA - New wins & contract expansions drive growth
AMEAA - New wins & contract expansions drive growth Financial highlights 2012 revenue £883m Organic growth of +22% +£211m +31% Performance highlights 2011: £672m Contract starts and ramp ups: Young adults facility, Court Security, Acacia expansion, Fiona Stanley, Australian Defence Force in the
Slide 37: AMEAA - Opportunities for further strong growth
AMEAA - Opportunities for further strong growth Markets summary Strong underlying drivers: Emerging markets adopt best practice; Middle East investment in social infrastructure; GDP growth Positive market outlook with new markets emerging: – Australian prisons and court escorting – Australian de
Slide 38: Global Services - Excellent underlying growth and wins
Global Services - Excellent underlying growth and wins Financial highlights 2012 revenue – ongoing activities Organic growth of +12%, underlying growth of over +30% £702m +£205m +41% Performance highlights 2011: £497m Headwinds from 2011: Bradford, BusinessLink Contract starts: Freemans Gratta
Slide 39: Global Services - Strong prospects for future growth
Global Services - Strong prospects for future growth Markets summary Strong underlying drivers: Addressable spend of $385bn; c8%pa growth; well positioned with scale, onshore/near-shore/offshore model and deep capabilities; focus on transformation Global growth markets: – Private sector: Financi
Slide 40: Looking ahead
Looking ahead Chris Hyman Chief Executive Serco Group plc
Slide 41: A focus on growth markets . . .
A focus on growth markets . . . Underlying growth drivers: Budget constraints but rising citizen expectations Demand for new public services Economic growth makes for wealthier and more demanding consumers Additional drivers: Demographic shifts underpin growth – Population growth – Urbanisat
Slide 42: . . . Leads to more opportunities
. . . Leads to more opportunities Existing contracts and sectors will grow: Current contracts continue to expand, growth in frontline services, growth in customer contact and business activities New sectors will open: Probation, community healthcare, logistics, human capital management, Federal
Slide 43: Summary
Summary Well positioned for future growth following excellent achievements in 2012 Excellent operational performance, and a broad portfolio have delivered a strong financial result Portfolio management has increased exposure to growth markets and deepened our capabilities Strong underlying gro
Slide 44: Well placed for future growth following excellent achievements in 2012
Well placed for future growth following excellent achievements in 2012 Serco Group plc 2012 Full Year Results 5 March 2013
Slide 45: Appendix
Appendix
Slide 46: Currency rates
Currency rates FY average rates HY average rates Closing rates 2012 2011 2012 2011 31 Dec 2012 30 Jun 2012 31 Dec 2011 £:US$ 1.58 1.60 1.57 1.61 1.63 1.57 1.55 £:Aus$ 1.52 1.54 1.52 1.55 1.57 1.53 1.52 £:Eur 1.23 1.15 1.21 1.15 1.23 1.24 1.20 £:INR 84.47 74.48 81.88 72.43 89.06 87.57 82.53 46
Slide 47: Accounting updates - expected impact on 2012
Accounting updates - expected impact on 2012 Operating Investment Profit Profit Earnings profit; revenue before tax; after tax; per share; Adjusted and net Adjusted Adjusted Adjusted operating finance profit profit earnings (£m) Revenue profit costs before tax after tax per share Statutory measure a