Serco Group plc · LSE:SRP
Serco — H1 2003 Earnings Presentation
48 slides from Serco's earnings presentation, 2003
Slide 1: 2003 Interim Results Presentation
1 01- 06 2003 INTERIM RESULTS PRESENTATION SERCO GROUP PLC
Slide 2: Agenda
2 AGENDA • Introduction • Financial results • Business performance • Premier Custodial Group • Looking forward
Slide 3: Introduction
3 INTRODUCTION KEVIN BEESTON EXECUTIVE CHAIRMAN
Slide 4: 2003 Interim Results - Highlights
4 2003 INTERIM RESULTS - HIGHLIGHTS Turnover £722.6m up 15.4% Profit before tax - pre goodwill £31.3m up 10.2% Earnings per share - pre goodwill 5.15p up 6.4% Dividend per share 0.72p up 12.5%
Slide 5: Company Highlights
5 COMPANY HIGHLIGHTS • Double-digit increases in sales and profits for the 16th successive year • 26% increase in profit before tax and goodwill, before incremental pension costs • Succession of sales records broken • Strong cash performance • Acquisition of remaining 50% share in Premier Custodial
Slide 6: Financial Results
6 FINANCIAL RESULTS • Profit and Loss • Pensions • Cash Flow and Net Debt • Private Placement • Balance Sheet ANDREW JENNER G R O U P F I N A N C E D I R E C TO R
Slide 7: Profit and Loss
7 PROFIT AND LOSS 1,326 57 1,141 45 958 38 808 31 31 723 626 28 24 526 451 392 19 16 99 00 01 02 03 99 00 01 02 03 Turnover £’m Profit before tax £’m Before amortisation of goodwill Full year Half year 2003 Half year
Slide 8: Profit and Loss
8 PROFIT AND LOSS 2003 2002 Six months to 30 June £m £m Increase Total turnover 722.6 625.9 15.4% Group turnover 608.6 522.0 Joint venture turnover 114.0 103.9 Gross profit 83.2 71.1 Other administrative expenses (61.8) (50.4) Exceptional item: Restructuring costs (4.5) - Exceptional item: GSR sale
Slide 9: Exceptional Items
9 E X C E P T I ON A L I T E M S Restructuring costs • UK support operations restructured to form Serco Business Services • Rationalisation of Australian support offices • Redundancy, relocation and property costs of £4.5m • Ongoing savings of £1.5m per year GSR sale and leaseback • Part of focus on
Slide 10: Profit and Loss
10 PROFIT AND LOSS 2003 2002 Six months to 30 June £m £m Increase Total turnover 722.6 625.9 15.4% Group turnover 608.6 522.0 Joint venture turnover 114.0 103.9 Gross profit 83.2 71.1 Other administrative expenses (61.8) (50.4) Exceptional item: Restructuring costs (4.5) - Exceptional item: GSR sale
Slide 11: Pensions
11 PENSIONS • In February 2003, merged two UK defined benefit schemes - investments reviewed to match asset and liability profiles • At 30 June 2003, market value (FRS 17) net deficit to be similar to 31 December 2002 (£74m) • Long term employer contributions to increase, 2003 increase by approximat
Slide 12: Cash Flow Highlights
12 CASH FLOW HIGHLIGHTS • Free cash inflow of £14.2m (2002: outflow of £11.5m) • 122% of operating profit converted into cash • 59% of Group EBITDA converted into cash • Improved working capital efficiency: 2003 increase £11m (2002 increase £17m)
Slide 13: Cash Flow
13 CASH FLOW 2003 2002 Six months to 30 June £m £m Group EBITDA after reorganisation costs 26.3 28.3 One off pension fund contribution - (15.5) Working capital movement (10.9) (16.6) Operating cashflows 15.4 (3.8) Dividends from joint ventures 4.6 6.2 Interest and taxation (5.1) (5.4) Capital expend
Slide 14: Cash Flow and Net Debt
14 CASH FLOW AND NET DEBT 2003 2002 Six months to 30 June £m £m Free cash flow 14.2 (11.5) Acquisitions (5.3) (3.2) Financing & dividends paid (7.7) 110.5 Net cash flow 1.2 95.8 Opening cash / (overdraft) 69.4 (35.8) Closing cash 70.6 60.0 Other loans and finance leases (70.4) (62.8) Net cash / (rec
Slide 15: Private Placement
15 PR IVATE PLACEMENT • August 2003, £117m Senior Notes • Repay short term bank facilities of £48.6m used to acquire PCG • Fund committed investments of £15m for TCC & DES equity and subordinated debt • Creates debt borrowing headroom of over £300m • Extends the maturity profile of debt and takes ad
Slide 16: Balance Sheet
16 BALANCE SHEET • Balance sheet disclosure is changing, reflecting the 100% ownership of eight of our twelve PFIs: • Risk profile remains unchanged • Shareholders’ funds unaffected • Assets and liabilities being grossed up for long term PFI debtors and non-recourse loans • Consequent reduction in j
Slide 17: Balance Sheet
17 BALANCE SHEET As at As at Acq of TCC & Private 31.12.02 30.06.03 PCG DES Placement Pro-forma £m £m £m £m £m £m Fixed Assets Tangible & intangible assets 228.2 229.9 35.0 55.0 - 319.9 Investments in joint ventures 35.9 41.1 (15.0) - - 26.1 Share of gross assets 317.8 267.8 (127.0) - - 140.8 Share
Slide 18: Business Performance
18 BUSINESS PERFORMANCE • Markets Continue to Grow • A Record Year thus Far • Analysis • Building Capability CHRISTOPHER HYMAN CHIEF EXECUTIVE
Slide 19: Markets Continue to Grow
19 MARKETS CONTINUE TO GROW • Existing markets continue to grow • Emerging markets • Business Process Outsourcing (BPO) • Train Operating Company (TOC) • Justice • New products meet early success • CCM Software Services • Serco Government Consulting • Developing integration capability
Slide 20: A Record Year Thus Far
20 A RECORD YEAR THUS FAR • Excellent organic growth • 43 contracts rebid or extended • 90% retention rate • Contracts won for the half year total £3.5bn • £2.2bn new awards • Won over half of new bids • Business support restructure complete • Review of underperforming activities continues • Operati
Slide 21: Geographical Analysis
21 GEOGRAPHICAL ANALYSIS 2003 half year turnover £722.6m North America 5% Asia Pacific 11% UK 71% Europe and Middle East 13% 2002 half year turnover £625.9m North America 5% Asia Pacific 12% UK 71% Europe and Middle East 12%
Slide 22: Market Sectors
22 MARKET SECTORS 2003 half year turnover £722.6m Private sector 11% Science 8% Defence 26% Civil government 28% Transport 27% 2002 half year turnover £625.9m Private sector 12% Science 10% Defence 28% Civil government 24% Transport 26%
Slide 23: 2003 Turnover Growth
23 2003 TURNOVER GROWTH 2003 half year turnover £722.6m £7.1m 8% £17.7m 18% £71.9m 74% Acquisitions £625.9m New awards Increases in scope of existing contracts 2002 half year turnover
Slide 24: Some Examples of Growth from the Contract Base
24 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$60.0m CAN GlaxoSmithKline Duration 3 £2.2m UK Canada Mortgage and Housing Corporation Duration 5 C$4.0m CAN Electronic monitoring Midl
Slide 25: Some Examples of Growth from the Contract Base
25 Some examples of growth from the Contract Base Goose Bay RAF Brampton, Wyton & Henlow CERN Duration up to 2014 Duration up to 2006 Duration up to 2008 Turnover C$60.0m pa Turnover £6.0m pa Turnover €2.3m pa • Largest contract extension • Multi activity contract • Providing support services for ov
Slide 26: Some Examples of New Contracts
26 SOME EXAMPLES OF NEW CONTRACTS Contract Name Years Annual Country Turnover Colnbrook immigration detention centre 8 £18.0m UK New Zealand Telecom 3 NZ$1.4m NZ Merseyrail Electrics 25 £72.0m UK Merlin Avionics Test Systems 2 £2.7m UK United States Air Force Europe 5 £1.2m UK Newquay Airport 4 £1.2
Slide 27: Some Examples of New Contracts
27 Some examples of New Contracts Merseyrail RAF Cranwell Driver Examination Services Duration 25 years to 2028 Duration 5 years to 2009 Duration 10 years to 2013 Annual turnover £72m Annual turnover £12m Annual turnover $C60m • Largest contract win • Support services multi-activity • Ground breakin
Slide 28: New contract examples
28 New Zealand Newquay Telecom Airport • Estate Management • Airport management • 3 year contract • 4 year contract • NZ$1.4m per annum • £1.2m per • Private sector annum • New Zealand • Aviation Rome EUR • UK District • First Italian FM contract • 5 year contract • €1.8m per annum • Civil governmen
Slide 29: Building Capability
29 BUILDING CAPABILITY SERCO GOVERNMENT CONSULTING • Created this year in order to: • bring client side insights to bids • help shape the market through strategic consulting work • transfer new skills into the main business • Consulting founded in real operational experience - management consultants
Slide 30: In Summary
30 IN SUMMARY • Measured growth • Integration capability increasing • Business mood buoyant • Solid rebid performance • Good organic growth • Strong new growth
Slide 31: Premier Custodial Services
31 PREMI ER CUSTODIAL SERVICES • The Justice Market • Premier • Opportunities for Growth JOHN JEFFERY MANAGING DIRECTOR
Slide 32: The Justice Market
32 THE JUSTICE MARKET The Serco / Premier fit • The current UK Justice Market is worth £1.4bn pa • In five years time, the UK Justice market could be worth £2.25bn pa • A potential increase of 60% Crown Sectors Police Prosecution Courts Custody Youth Immigration Service Serco Premier Premier and Ser
Slide 33: The Custodial Market
33 THE CUSTODIAL MARKET What has the private sector brought to the table? • They significantly out-perform public sector comparators in respect, humanity, trust and quality of staff prisoner relationships • There are significant increases in the time prisoners spend out of cells • Innovation in pris
Slide 34: The Custodial Market
34 THE CUSTODIAL MARKET What has the private sector brought to the table? “Speaking as someone who some years ago was fiercely opposed to the introduction of the private sector into the Prison Service, it has introduced competition, it has introduced better standards of working, a transformation in
Slide 35: Premier: Joint venture to 100% wholly-owned Serco company
35 PREMIER Joint venture to 100% wholly-owned Serco company
Slide 36: Premier: The business we're in and where we sit
36 PREMIER The business we’re in and where we sit in the market place Custodial UK Group 4 Premier Detention Securicor Reliance Marketplace Falck Services Prisons Immigration Secure Training Centres Court Escorts Electronic Monitoring
Slide 37: Premier: Our market share
37 PREMIER The business we’re in – our market share Prisons & Secure Training Centres Immigration Centres 5% 19% 25% 20% 41% 10% Key: Premier 56% 24% Group 4 Securicor Court Escorts Electronic Monitoring Reliance 10% 17% Wackenhut (UK) Ltd 25% UKDS 28% 50% 25% 45%
Slide 38: Premier: Turnover split
38 PREMIER The business we’re in – turnover split 24% Electronic Monitoring 19% Court Escorts 4% Immigration Centres 53% Prisons & Secure Training Centres
Slide 39: Premier Financials - Contract Life and Revenues
39 PREMIER Financials - contract life and revenues Commencement Contract Sector Capacity of operations completion Prisons Doncaster (original start date '94) 1,111 2000 2010 Lowdham Grange 524 1998 2023 Kilmarnock 596 1999 2024 Ashfield 400 1999 2024 Dovegate 800 2001 2026 Secure Training Centre (ST
Slide 40: Premier Financials - Consolidated Results
40 PREMIER Financials - consolidated results (£000’s) 130,000 14,000 120,000 12,000 100,000 10,000 80,000 8,000 60,000 6,000 40,000 4,000 20,000 2,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 1994 1995 1996 1997 1998 1999 2000 2001 2002 Turnover Profit before Tax
Slide 41: Market Opportunities
41 MARKET OPPORTUNITIES Secure Training Prisons Immigration Various Centres • HMP Lowdham • Hassockfield • Dungavel House • Court Escorts & Grange - extension - new wing Custody Service Existing - extension - re-bid Business • Colnbrook House • HMP & YOI Ashfield - current build • Electronic - re-ro
Slide 42: Potential Future Markets
42 POTENTIAL FUTURE MARKETS Outside the UK Prisons • Benelux countries • Germany • Australia Monitoring • Canada • Western Europe • South Africa • Australia Prisoner escort services • Worldwide
Slide 43: Looking Forward
43 LOOKING FORWARD KEVIN BEESTON EXECUTIVE CHAIRMAN
Slide 44: Looking Forward
44 LOOKING FORWARD • Solid foundations for growth • Established and growing contract base • Tried and tested management system • A track record of delivery • Strong customer relations • Proven public service ethos • Continued high visibility of earnings • Forward order book up from £7.1bn to £9.9bn
Slide 45: Near Term Forward Order Book
45 NEAR TERM FORWARD ORDER BOOK 99% 100% 5% 86% 90% 5% 80% 71% 70% 20% 3% 60% 23% 50% 94% 40% 61% 30% 45% 20% 10% 0% 2003 2004 2005 Order Book Extension & Rebids Preferred Bidder
Slide 46: Long Term Forward Order Book
46 LONG TERM FORWARD ORDER BOOK Total forward order book £9.9bn 4.5 £4.5bn 4.0 3.5 3.0 2.5 £bn £2.7bn £2.7bn 2.0 1.5 1.0 0.5 0.0 2003 - 2005 2006 - 2010 2011 - 2028
Slide 47: Looking Forward
47 LOOKING FORWARD • Geographic and sector diversity underpins growth • UK opportunities remain buoyant • Defence market place particularly strong • Economic imperative increasing • Emerging market in justice • PPP/PFI models remain key to government • North American market increasingly attractive •
Slide 48: Outlook
48 OUTLOOK “We have had an outstanding six months, continuing the Group’s double-digit growth record. After breaking a succession of sales records we’ve increased our forward order book by £2.8bn to £9.9bn while delivering a strong profit and cash performance. We are confident that our standing amon