Serco Group plc · LSE:SRP
Serco — H1 2007 Earnings Presentation
38 slides from Serco's earnings presentation, Aug 30, 2007
Slide 1: 2007 Interim results
2007 Interim results Presented by Serco Group plc Advise | Design | Integrate | Deliver 30 August 2007
Slide 2: Agenda
Agenda Overview Chris Hyman Financial results Andrew Jenner Business review and Outlook Chris Hyman Q&A
Slide 3: Strong six months
Strong six months 2006 2007 Increase Revenue £1,349m 9.1% Profit before tax (PBT) £52.0m 16.1% Earnings per share (EPS) 7.71p 15.2% PBT before amortisation £61.6m 17.3% EPS before amortisation 9.38p 16.4% Dividend per share 1.23p 17.1% Group free cash flow £28.8m 11.6%
Slide 4: Business progress
Business progress Good international growth Systems roll out in UK complete Proactive portfolio management continues More senior management resource
Slide 5: Successful first half
Successful first half Won >90% of rebids and 1 in 2 new bids £2bn of business signed in the period Appointed preferred bidder for £0.6bn of contracts Shortlisted to final 2 or 3 on bids valued at £1.1bn Order book at record £14.6bn Pipeline of opportunities estimated at £24bn
Slide 6: Visibility of planned revenue
Visibility of planned revenue At 30 June 2007 2007 92% 5% 2% 99% 2008 72% 8% 4% 84% 2009 60% 9% 4% 73% Order book Extensions and rebids Preferred bidder
Slide 7: Andrew Jenner Financial review
Andrew Jenner Financial review 2007 Interim results Advise | Design | Integrate | Deliver
Slide 8: Financial results
Financial results Financial performance – income statement – cash flow – net debt Pension funding Margin improvement Pro forma disclosure Advise | Design | Integrate | Deliver
Slide 9: Income statement
Income statement Revenue Profit before tax and intangible amortisation 2,548 124 2,260 92 1,637 1,556 1,349 71 1,236 67 £m £m 62 1,075 53 44 805 723 34 31 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 half year full year 2006 Profit before tax and amortisation includes £11m gain on sale
Slide 10: Income statement
Income statement 2007 2006 Six months ended 30 June £m £m increase Revenue 1,349.0 1,236.2 9.1% Profit before interest, tax and amortisation 71.1 61.8 15.0% Margin 5.3% 5.0% Investment revenue and finance costs (9.5) (9.3) Profit before tax and amortisation 61.6 52.5 17.3% Margin 4.6% 4.2% Amortisat
Slide 11: Income statement
Income statement Six months ended 30 June 2007 2006 increase Profit before tax £52.0m £44.8m 16.1% Effective tax rate 28.1% 29.0% Average shares in issue 479.9m 467.8m Earnings per share before amortisation of intangibles 9.38p 8.06p 16.4% Earnings per share 7.71p 6.69p 15.2%
Slide 12: Group free cash flow
Group free cash flow 85.4 73.8 £m 55.8 47.0 28.8 25.8 23.5 19.4 14.2 2003 2004 2005 2006 2007 half year full year
Slide 13: Group free cash flow
Group free cash flow 2007 2006 Six months ended 30 June £m £m Group EBITDA 67.0 56.5 Working capital movement (18.2) (11.2) Group operating cash flow 48.8 45.3 Interest (11.5) (8.7) Tax (0.7) (2.4) Expenditure on tangible and intangible assets (24.9) (21.9) Dividends from joint ventures 17.1 13.5 Gr
Slide 14: Net cash flow
Net cash flow 2007 2006 Six months ended 30 June £m £m Group free cash flow 28.8 25.8 Disposal of joint ventures 1.4 - Acquisitions (7.9) - Other financing (23.3) (26.0) Special pension contribution (51.0) - Dividends paid (12.0) (9.6) Net change in cash - group (64.0) (9.8)
Slide 15: Net debt
Net debt 30 June 31 Dec 2007 2006 As at £m £m Group cash and cash equivalents 114.2 177.8 Group loans (305.5) (334.4) Group obligations under finance leases (12.7) (15.3) Group recourse net debt (204.0) (171.9) JV recourse net debt 44.9 28.2 Total recourse net debt (159.1) (143.7) Group non recourse
Slide 16: Group defined benefit pension scheme
Group defined benefit pension scheme Deficit of £21m at 30 June 2007 (31 December 2006: £117m) on asset base of £640m Reduction in deficit principally due to – special cash contribution of £51m in January 2007 – movement in bond yields Lower potential volatility due to – smaller deficit – adop
Slide 17: Delivering margin improvement
Delivering margin improvement 2005 2006 2007 Actual Actual Guidance £m £m Revenue 2,260 2,548 10% growth Profit before interest, tax and amortisation of intangibles 111 130 Margin 4.9% 5.1% 5.5% Interest (19) (18) Profit before tax and amortisation of intangibles (PBTA) 92 112 Margin 4.0% 4.4% 4.8%
Slide 18: Pro forma disclosure
Pro forma disclosure Intangible assets accounted for and amortised in line with IFRS as disclosed in note 14 to the 2006 accounts Post IFRS best practice – companies moving pro forma profit measures closer to statutory measures Amortisation NBV 2006 2007 31 Dec 06 Actual Estimate £m £m £m Custom
Slide 19: Pro forma disclosure
Pro forma disclosure For 2007 full year results onwards, for pro forma purposes amortisation of intangibles will be split into two: £m Intangibles arising on acquisition 9 Other intangibles 12 21 Pro forma profit measure will be profit before tax and amortisation of intangibles arising on acquis
Slide 20: Revised pro forma disclosure
Revised pro forma disclosure 2005 2006 2007 Adjusted Adjusted Guidance £m £m Revenue 2,260 2,548 10% growth Profit before interest, tax and amortisation of acquired intangibles 106 123 Margin 4.7% 4.8% 5.1% Interest (19) (18) Profit before tax and amortisation of acquired intangibles 87 105 Margin 3
Slide 21: Summary
Summary Good organic growth Margin improvement coming through Consistent group free cash flow Strong balance sheet
Slide 22: Chris Hyman Business review and Outlook
Chris Hyman Business review and Outlook 2007 Interim results Advise | Design | Integrate | Deliver
Slide 23: Agenda
Agenda Our vision and strategy Business review Outlook
Slide 24: Serco's vision
Serco’s vision Vision: to be the leading service company in our chosen markets To deliver this our business is underpinned by: – strong set of values – long term relationships – world class systems, processes and people Built on a reputation of: – continuous improvement – organic growth – valu
Slide 25: Strategy based on following objectives
Strategy based on following objectives Balanced portfolio of market facing businesses Maintaining high rebid and new win rates Developing new models in existing and emerging markets Strategic acquisitions for new skills or market entry This enables us to: Strengthen our position in our cho
Slide 26: Serco's distinctive strengths
Serco’s distinctive strengths Serco has: – 40 years’ service experience – people-led change management – significant exposure to rapidly growing markets – deep public-service ethos and culture – robust risk management and corporate governance – excellent reputation for assured service delivery – p
Slide 27: Civil Government
Civil Government 8.2% revenue increase to £496m Home Affairs – Yarl’s Wood IRC, £85m 8 years IT and BPO services – Ealing Council, £30m 10 year partnership – Southwark Council, £26m 5 year partnership – Severn Trent, £40m 5 year IT framework contract – South West RDA, £15m 28 month “business l
Slide 28: Civil Government
Civil Government Integrated FM – NHS Forth Valley, £450m 30 years – State Street Bank, £50m 5 years – UAE University, £70m 10 years Consulting – significant framework contracts – UK central government, share of £1.5bn 4 years – Metropolitan Police, share of £200m 4 years – Cornwell acquisition
Slide 29: Civil Government
Civil Government Growth areas: – offender management – border control – local council partnerships – economic regeneration – consulting
Slide 30: Defence
Defence 9.7% revenue growth to £337m UK – Gibraltar UK armed forces estate facilities, £50m 5 years – South Atlantic multi activity contract, £20m 5 years – Naval Air Command (preferred bidder), £70m 10 years US – LOGCAP, $225m 5 years – Sea Enterprise, $200m 5 years – SPECTECH US Navy contrac
Slide 31: Defence
Defence Growth areas: – UK Defence Industrial Strategy – nuclear capabilities – US defence spending
Slide 32: Transport
Transport 6.7% revenue growth to £285m Light rail – Dubai Metro (preferred bidder), £400m 12.5 years Traffic management – NTCC completed – Georgia traffic management center, $12m 4 years Heavy rail – Northern Rail awarded Public Transport Operator of the Year – Passenger volumes increased
Slide 33: Transport
Transport Growth areas: – traffic management – light rail – increased consumer demand
Slide 34: Science
Science 13.6% revenue growth to £232m Growth from £350m AWE extension Magnox reactor support, £15m 5 years NDA Sellafield bid progressing
Slide 35: Science
Science Growth areas: – nuclear decommissioning – nuclear capabilities
Slide 36: Market sector and geographical analysis
Market sector and geographical analysis Revenue by market Revenue by geography 2007 £1,349m 8% 25% 11% 37% 6% 21% 75% 17% 2006 £1,236m 8% 25% 12% 37% 6% 22% 74% 16% Civil Government Science UK Asia Pacific Defence Transport Europe and Middle East North America
Slide 37: Market drivers
Market drivers All governments facing common challenges – demands for better public services – limits on taxation – efficiency and impact of technology – border control, security and crime – health, education and economic regeneration – environment, energy and transport congestion UK public serv
Slide 38: Summary and Outlook
Summary and Outlook Successful first half of 2007 – winning >90% of rebids and one in two new bids – £2bn of new contracts signed – revenue growth of 9.1% – PBTA growth of 17% with margin up to 4.6% – order book of £14.6bn Outlook – on course for another strong year – growing markets – enhanced