Serco Group plc · LSE:SRP
Serco — H1 2013 Earnings Presentation
44 slides from Serco's earnings presentation, Aug 29, 2013
Slide 1: International portfolio provides resilience and growth
International portfolio provides resilience and growth Serco Group plc 2013 Half Year Results 29 August 2013
Slide 2: UK Government contract reviews
UK Government contract reviews Three-part audit and review announced in July 2013 Undertaking our own internal review Misreporting of data identified on PECS contract No evidence of management involvement outside the contract Three-month review period to implement required changes Corpor
Slide 3: International portfolio provides resilience and growth
International portfolio provides resilience and growth Serco Group plc 2013 Half Year Results 29 August 2013
Slide 4: Agenda
Agenda Overview Financial review Business review Summary 4
Slide 5: Highlights
Highlights International portfolio provides resilience and growth 8.8% organic revenue growth delivered by our broad portfolio – Good growth in UK & Europe from previous new contract awards – Improved performance in US although difficult environment continues – Excellent growth in AMEAA supported
Slide 6: Strong financial result delivered by global portfolio
Strong financial result delivered by global portfolio Revenue Adjusted operating profit Adjusted profit before tax £2,549m £146m £127m +11.8% +7.5% +10.5% Adjusted EPS Dividend per share Group free cash flow 19.69p 3.10p £29m +12.4% +17.0% +£28m Revenue and adjusted operating profit shown on an ongo
Slide 7: Further good progress on contract awards
Further good progress on contract awards Signed and selected for new business valued at £2.1bn New US awards highlight excellent progress to broaden operations Supported by many small and medium-sized wins Order book of £18.5bn +£1.7bn n/a n/a +£0.2bn £19.1bn £18.5bn (£2.5bn) 31 Dec Signed A
Slide 8: Good revenue visibility maintained
Good revenue visibility maintained Order Extensions Preferred of total book and rebids bidder 2015: 48% (+4%) 23% 1% 72% 2014: 62% (+6%) 19% 1% 82% 94% (+17%) 3% 1% 2013: 98% At 30 June 2013 (with order book change over 6 month period) At 30 June 2012 2012: 98% 2013: 83% 2014: 71% 8
Slide 9: Strategically positioning our portfolio
Strategically positioning our portfolio Increasing exposure to new geographies and markets Strong AMEAA growth and Middle East 56% UK Other 12% development US diversification 14% US 18% Entry into new markets Australia Strong BPO and transformational capabilities Combining front and back o
Slide 10: Financial review
Financial review Andrew Jenner Group CFO Serco Group plc
Slide 11: Financial review
Financial review Income statement Cash flow and net debt Funding and pensions Financial outlook and assumptions 11
Slide 12: Basis of preparation
Basis of preparation 2012 restated (as previously provided) for accounting updates – Limited impact from revision to IAS 19 regarding pensions – Presentational impact only from IFRS 11 regarding JV consolidation – Continue to present adjusted measures which include proportional share of JVs to aid
Slide 13: Five-year revenue, profit and margin
Five-year revenue, profit and margin Adjusted revenue (£m) Adjusted operating profit (£m) HY FY and margin (%) 6.2% 6.4% 4,913 6.0% 4,646 5.8% 4,327 5.8% 5.9% 5.9% 3,970 5.6% 5.7% 314 290 2,549 258 230 2,342 2,246 2,140 1,950 146 139 134 124 110 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 All
Slide 14: Income statement (slide 1 of 2)
Income statement (slide 1 of 2) Change at constant Six months ended 30 June (£m) 2013 2012 Change currency Adjusted revenue - ongoing activities 2,548.5 2,269.4 12.3% 11.8% Adjusted revenue 2,548.5 2,341.7 8.8% 8.4% Organic growth 8.8% Adjusted operating profit - ongoing activities 146.3 135.5 8.0%
Slide 15: Adjusted revenue – divisional analysis
Adjusted revenue – divisional analysis Adjusted revenue Adjusted revenue growth composition for H1 2013 - ongoing activities organic acquired disposed fx total £2,549m UK & Europe +7% - (5%) - +2% Americas (3%) - - +1% (2%) +£279m AMEAA +19% +5% - +1% +25% +12.3% Global Services +18% +17% (2%) (1%)
Slide 16: Adjusted operating profit – divisional analysis
Adjusted operating profit – divisional analysis Adjusted Change in Adjusted operating profit (ongoing activities) operating margin ▲£12.1m ▲£1.5m ▼£2.0m £146.3m ▲£10.8m - ongoing activities £135.5m ▼£1.0m ▲£0.2m +8% 5.7% UK & Europe Americas AMEAA Global Corporate Services Expenses (23bps) (50bps) +
Slide 17: Income statement (slide 2 of 2)
Income statement (slide 2 of 2) Change at constant Six months ended 30 June (£m) 2013 2012 Change currency Adjusted profit before tax 127.1 114.5 +11.0% +10.5% Reorganisation costs - (15.7) Amortisation of intangibles arising on acquisition (12.5) (11.5) Transaction-related costs (2.7) (1.1) Excepti
Slide 18: Earnings and dividend per share
Earnings and dividend per share Change at constant Six months ended 30 June (£m) 2013 2012 Change currency Adjusted effective tax rate 24.1% 25.1% Adjusted profit after tax £96.5m £85.8m +12.5% +12.0% Adjusted earnings per share (basic) 19.69p 17.44p +12.9% +12.4% Effective tax rate 20.6% 12.6% Prof
Slide 19: Dividend policy reminder
Dividend policy reminder Previous policy increased the dividend broadly in line with underlying earnings Updated policy announced in March 2013 to move progressively to a cover of 2.5-3.0x by 2015 2012 cover was therefore reduced by 0.5x to 4.2x; payout increased to 24% Accelerated dividend
Slide 20: Five-year free cash flow
Five-year free cash flow Free cash flow (£m) HY FY 186 181 168 137 93 51 52 29 1 2009 2010 2011 2012 2013 Free cash flow is defined in the Appendix 20
Slide 21: Free cash flow
Free cash flow Six months ended 30 June (£m) 2013 2012 Adjusted operating profit excl. JVs and reorganisation costs 117.3 101.3 Reorganisation costs - (15.7) Adjusted operating profit excluding joint ventures 117.3 85.6 Non-cash items 29.0 25.4 Adjusted EBITDA excluding joint ventures 146.3 111.0 Wo
Slide 22: Free cash flow to movement in cash
Free cash flow to movement in cash Six months ended 30 June (£m) 2013 2012 Free cash flow 29.0 0.9 Disposal of subsidiaries and operations (2.1) 132.8 Acquisition of subsidiaries (18.6) (67.5) Transaction-related costs (0.5) (1.3) Purchase of own shares and issue proceeds of share capital (14.8) 4.7
Slide 23: Net debt
Net debt Six months ended 30 June (£m) 2013 2012 Adjusted net debt at start of period (580.7) (633.9) Net increase/(decrease) in cash and cash equivalents 51.1 (33.5) Net (increase)/decrease in loans (159.0) 42.4 Net increase in obligations under finance leases (16.7) (12.3) Net decrease/(increase)
Slide 24: Funding and pensions
Funding and pensions Financial covenant leverage ratio, based on consolidated total net borrowings to EBITDA, 1.8 times as at 30 Jun 2013 (31 Dec 2012: 1.6 times) – Strong funding position with committed facilities of c£1.4bn – Continue to develop maturity profile and funding mix; further US priva
Slide 25: 2013 – financial outlook and assumptions
2013 – financial outlook and assumptions Adjusted revenue – Improvement in organic growth expectations – Broadly neutral impact from acquisitions (c+2%) and disposals (c-2%) to date – Broadly neutral currency impact assumed Adjusted operating margin – Flat to slightly down, reflecting increased
Slide 26: Summary
Summary Strong financial result for the period Supports unchanged earnings expectations for FY13 Robust funding and pension position Higher dividend payout reflecting overall outlook remaining positive Strength and breadth of portfolio demonstrated in financial performance Well positione
Slide 27: Business review
Business review Chris Hyman Group Chief Executive Serco Group plc
Slide 28: UK & Europe – Good organic growth
UK & Europe – Good organic growth Financial highlights 2013 revenue – ongoing activities Organic growth of +7% £1,285m Performance highlights +£86m +7% 2012: £1,199m Wins and extensions: Suffolk community healthcare; Northern Isles ferries; AWE projects; NCS; Canterbury direct services; RAF Cran
Slide 29: UK & Europe – Good growth potential
UK & Europe – Good growth potential Markets summary Strong underlying drivers: Need for savings and better services; established principle of greater use of competition; Cabinet Office driving market development Positive market outlook and new markets emerging: – Community healthcare and health
Slide 30: Americas – Improved performance
Americas – Improved performance Financial highlights 2013 revenue £375m Organic decline of -3% (£6m) (2%) Performance highlights 2012: £381m Implementation of sequestration: process has begun; impact to date less than expected Task orders and rebids: Sea Enterprise IDIQ; HRSolutions IDIQ; logi
Slide 31: Americas – Large market but short-term uncertainties
Americas – Large market but short-term uncertainties Markets summary Budgetary outlook uncertain: continuing resolutions; sequestration; debt ceiling; market shrinkage continues Market pressures: market shrinkage likely to continue in the short-term in federal defence; small business set asides;
Slide 32: AMEAA – Contract expansions drive growth
AMEAA – Contract expansions drive growth Financial highlights 2013 revenue £500m Organic growth of +19% +£100m +25% Performance highlights 2012: £400m Expansions and wins: record level of arrivals currently makes DIAC the Group’s largest contract; transport management in Hong Kong; Australian De
Slide 33: AMEAA – Opportunities for further strong growth
AMEAA – Opportunities for further strong growth Markets summary Strong underlying drivers: Australian economy; Middle East investment in social infrastructure; GDP growth Positive market outlook with new markets emerging: – Prisons, defence, immigration, healthcare, transport – Middle East FM an
Slide 34: Global Services – Excellent growth and wins
Global Services – Excellent growth and wins Financial highlights 2013 revenue – ongoing activities Organic growth of +18% £389m +£100m +34% Performance highlights 2012: £289m Wins and rebids: Shop Direct; AEGON; further leading UK retailer; Child Maintenance Group; UCAS; Food Standards Agency 15
Slide 35: Global Services – Strong prospects for future growth
Global Services – Strong prospects for future growth Markets summary Strong underlying drivers: $385bn market; c8%pa growth; well positioned; focus on transformation Large global growth markets: – Private sector: Financial Services, Travel, Hospitality, Retail, Healthcare, Logistics and Energy –
Slide 36: Summary
Summary Overall outlook remains positive Delivered a strong financial result and further progress on contract awards Strength and breadth of portfolio continues to provide resilience and good growth potential Attractive underlying drivers of demand The Group remains well positioned to take a
Slide 37: International portfolio provides resilience and growth
International portfolio provides resilience and growth Serco Group plc 2013 Half Year Results 29 August 2013
Slide 38: Appendix
Appendix
Slide 39: Notes and definitions
Notes and definitions 2012 is restated for changes to accounting standards IAS 19 Revised and IFRS 11. Adjusted measures include Serco’s proportional share of joint ventures in each case. Adjusted operating profit and Adjusted profit before tax are before amortisation of intangibles arising on a
Slide 40: 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 – No cash flow effect – Impact on net pension credit a £5.8m increase in 2012 Adjusted net finance costs (FY12 restated to £42.5m
Slide 41: 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 – No impact to post-tax earnings or net asset position – Proportio
Slide 42: FY12 restated for accounting updates (unaudited)
FY12 restated for accounting updates (unaudited) Operating Investment Profit Profit Earnings profit; revenue before tax; after tax; per share; Adjusted and Adjusted Adjusted Adjusted operating finance profit profit earnings (£m) Revenue profit costs before tax after tax per share Statutory measure a
Slide 43: 1H12 restated for accounting updates (unaudited)
1H12 restated for accounting updates (unaudited) Operating Investment Profit Profit Earnings profit; revenue before tax; after tax; per share; Adjusted and Adjusted Adjusted Adjusted operating finance profit profit earnings (£m) Revenue profit costs before tax after tax per share Statutory measure a
Slide 44: Currency rates
Currency rates HY average rates FY average rates Closing rates 2013 2012 2012 2011 30 Jun 2013 31 Dec 2012 30 Jun 2012 £:US$ 1.54 1.57 1.58 1.60 1.52 1.63 1.57 £:Aus$ 1.51 1.52 1.52 1.54 1.66 1.57 1.53 £:Eur 1.17 1.21 1.23 1.15 1.17 1.23 1.24 £:INR 84.47 81.88 84.47 74.48 90.13 89.06 87.57 44