Serco Group Plc · LSE:SRP
Serco — H1 2023 Earnings Presentation
41 slides from Serco's earnings presentation, Aug 3, 2023
Slide 1: 2023 Half Year Results
2023 Half Year Results For the six months ended 30 June 2023 Serco Group plc
Slide 2: Forward-looking statements
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”, “anticipate”, “
Slide 3: Overview, Financial review, Operational and strategy review, Q&A
Overview Mark Irwin Group Chief Executive Financial review Nigel Crossley Group Chief Financial Officer Operational and Mark Irwin strategy review Group Chief Executive Q&A
Slide 4: Overview
Overview Mark Irwin, Group Chief Executive
Slide 5: Strong financial performance; capital allocation; pipeline and guidance
Strong financial performance • Revenue grew by 13% to £2.5bn, with organic revenue growth of 6% • Underlying operating profit increased by 14% to £148m, which equates to a margin of 6.0% • Free cash flow continues to be strong, at £98m, a trading cash conversion rate of 92% Capital allocation model
Slide 6: Financial Review
Financial Review Nigel Crossley, Group Chief Financial Officer
Slide 7: HY23 vs HY22 financial summary
HY 23 HY 22 Growth Revenue Revenue £2,472m £2,178m 13% Organic growth 6% Acquisitions 5% FX 2% Underlying operating profit Underlying operating profit £148m £130m 14% Organic growth 4% Acquisitions 6% FX 5% Margin 6.0% 5.9% EPS Underlying EPS (diluted) 9.40p 7.71p 22% Reported EPS (diluted) 12.96p 7
Slide 8: Americas: Continued strong order intake, new wins driving defence growth
Continued strong order intake, new wins driving defence growth Six months ended 30 June (£m)* HY23 HY22 Total growth CFX growth • Revenue +13% reported, +6% organic – Defence increase following strong wins in 2022 including Citizen Services 187 168 6% SHAPM and NOMARS 411 – Citizen Services growth r
Slide 9: UK & Europe: Higher immigration volumes, ORS acquisition ahead of expectations
Higher immigration volumes, ORS acquisition trading ahead of expectations Six months ended 30 June (£m)* HY23 HY22 Total growth CFX growth • Revenue +23% reported, +11% organic – Up: Immigration – strong volumes / ORS acquisition, Citizen Services 208 299 (31%) Citizen Services – Restart ramp up – D
Slide 10: Asia Pacific: Revenue decline due to Immigration and Citizen Services volumes
Revenue decline due to Immigration and Citizen Services volumes Six months ended 30 June (£m)* HY23 HY22 Total growth CFX growth • Revenue -5% reported -4% organic – Immigration lower volume-variable work and mix Citizen Services 72 83 (12%) – Citizen Services volumes impacted by tight labour market
Slide 11: Middle East: New advisory business gaining traction, strong pipeline
New advisory business gaining traction, strong pipeline Six months ended 30 June (£m)* HY23 HY22 Total growth CFX growth • Revenue +11% reported +5% organic – Citizen Services progress where new advisory business has Citizen Services 10 1 1,291% started well Defence 16 15 6% • UOP -20% reported – Ma
Slide 12: Cash flow and net debt
Six months ended 30 June (£m)* HY23 HY22 Underlying operating profit 147.9 129.5 Capex and repayment of lease liabilities (70.2) (66.4) Depreciation and amortisation 77.0 67.9 Working capital movement 12.8 2.9 Other (32.0) (2.5) Trading cash flow 135.5 131.4 Trading cash conversion 92% 101% Free cas
Slide 13: Continued progress against allocation framework
Continued progress against allocation framework Business highly Capital-light Target leverage range of Context: cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in H1 2023 Invest to support New bid investment, Middle East advisory business, technology 1 organic grow
Slide 14: 2023 guidance
2022 2023 Actual June guidance New guidance Revenue £4.5bn At least £4.8bn At least £4.8bn Organic sales growth (4%) ~4% ~4% Underlying operating profit £237m ~£245m ~£245m Net finance costs £20m ~£25m ~£25m Underlying effective tax rate 22% ~25% ~23% Free cash flow £159m ~£130m ~£150m Adjusted net
Slide 15: HY23 operational review, strategy and outlook
HY23 operational review, strategy and outlook Mark Irwin, Group Chief Executive
Slide 16: Highlights and lowlights
Highlights Year-to-date has gone better than expected • Full year guidance increased; revenue and UOP by 4%, FCF by 25% Lowlights Colleague safety and wellbeing • Measurable progress to embed think safe, work safe, home safe Asia Pacific performance has been disappointing Good momentum has continued
Slide 17: Setting a clear direction
Setting a clear direction Purpose To impact a better future Vision The partner of choice to leading governments Mission Bring together the right people, the oe 7 .. right technology and the right ii od partners to deliver positive impact a sercg
Slide 18: Customers, Colleagues, Capabilities
Customers Colleagues Capabilities Growing customer Growing colleague value Growing our technology relationships ecosystem • Supporting customers • Relentless focus on • Enabling greater global from discovery to design improving safety and collaboration to delivery wellbeing • Establishing technology
Slide 19: HY23 results strong and momentum good; guidance for 2023
• HY23 results strong and momentum in the business is good • Guidance for 2023: revenue at least £4.8bn; UOP ~£245m; FCF ~£150m • Making good progress with our three strategic enablers: Customers, Colleagues and Capabilities • Focused on execution to deliver deliberate, sustainable, and profitable g
Slide 20: Q&A
OsA
Slide 21: serco
serco
Slide 22: Appendix
serco Appendix
Slide 23: Appendix 1: Definitions
Appendix 1 Revenue is as defined under IFRS, which excludes Serco’s share of revenue of its joint ventures and associates. Organic revenue growth is the change at constant currency after adjusting to exclude the impact of relevant acquisitions or disposals. Underlying operating profit is defined as
Slide 24: Revenue - growth composition HY23 vs HY22
Appendix 2 Revenue - growth composition HY23 vs HY22 HY22 HY23 FY22 Reported Acquisition/ Reported Constant Reported £m Currency Organic Disposal FX TOTAL Currency Currency Currency UK&E 991 +10.6% +11.2% +1.1% +22.9% 1,219 1,208 2,100 Americas 622 +6.2% - +6.4% +12.6% 701 661 1,270 AsPac 472 (4.1%)
Slide 25: Underlying operating profit and margin
Appendix 3 Underlying operating profit and Margin HY23 UOP HY22 UOP HY change FY22 UOP Reported Constant Reported Reported Reported Constant Constant Reported Reported £m Currency Currency Margin Currency Margin Currency Currency Currency Margin UK&E 69.9 69.0 5.7% 37.5 3.8% +31.5 84% 72.1 3.4% Amer
Slide 26: Underlying profit and EPS reconciliation
Appendix 4 £m HY23 HY22 FY22 Underlying operating profit (UOP) 147.9 129.5 237.0 Net finance costs (NFC) (11.0) (9.2) (20.4) Underlying PBT 136.9 120.3 216.6 Tax on UOP and NFC (29.8) (25.8) (47.9) Underlying PAT 107.1 94.5 168.7 Non underlying items - 4.2 4.2 Amortisation of intangibles arising on
Slide 27: Exceptional operating items
Appendix 5 £m HY23 HY22 FY22 Exceptional operating items: Compensation relating to early termination of UK contract 9.9 - - Costs associated with successful acquisitions - (0.9) (2.4) Provision releases relating to indemnities provided on disposed businesses 41.3 - - Exceptional operating items 51.2
Slide 28: Free cash flow reconciliation
Appendix 6 £m HY23 HY22 FY22 Underlying operating profit (UOP) 147.9 129.5 237.0 Share of profit of joint ventures and associates (18.0) (3.4) (12.0) Depreciation, amortisation and impairment of owned assets 13.9 15.4 33.1 Depreciation, amortisation and impairment of leased assets 63.1 56.7 121.7 Wo
Slide 29: Adjusted net debt reconciliation
Appendix 7 £m HY23 HY22 FY22 Free cash flow 98.4 95.6 159.1 Exceptional items (see Appendix 5) 9.7 (1.1) (2.9) Net (acquisition) / disposal of subsidiaries and operations (6.7) (0.1) (19.2) Other Adjusted net debt items on acquisition and disposal - - (6.5) Dividends paid to shareholders (21.2) (19.
Slide 30: HY23 revenue mix, including share of JV&As
Appendix 8 HY23 revenue mix, including share of JV&As* UK & Asia Middle £m Sector Europe Americas Pacific East Defence 350 462 78 16 £906m 34% Justice & 621 - 183 - £804m 30% Immigration Transport 145 52 8 35 £239m 9% Health 123 - 108 43 £274m 10% Citizen 208 187 72 10 £478m 18% Services Total £1,44
Slide 31: Depreciation, amortisation and impairment breakdown
Appendix 9 £m HY23 HY22 FY22 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding leased assets) 9.0 10.5 20.7 Amortisation (non-acquisition) 4.0 4.9 10.0 Depreciation and amortisation 13.0 15.4 30.7 Impairment of PPE (excluding leased assets) 0.9 - 2.3 Impairment of Intan
Slide 32: Cash flow and net debt exceptional items
Appendix 10 £m HY23 HY22 FY22 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (0.2) (0.2) (0.6) Compensation relating to early termination of contract 9.9 - - Costs associated with successful acquisitions - (0.9) (2.3) Exceptional items cash
Slide 33: Appendix 11: Covenant EBITDA and leverage
Appendix 11 £m HY23 LTM HY22 LTM FY22 Underlying operating profit (UOP) 255.4 241.5 241.2 Exclude: share of joint venture and associate post-tax profits (26.6) (5.7) (12.0) Exclude: foreign exchange credit on investing and financing arrangements 0.5 0.1 0.4 Include: dividends from joint ventures and
Slide 34: Appendix 12: Net finance costs and interest cover
Appendix 12 £m HY23 LTM HY22 LTM FY22 Net finance costs (22.2) (20.6) (20.4) Exclude: finance charge on lease obligations recognised under IFRS16 9.5 6.9 7.5 Exclude: foreign exchange credit on investing and financing arrangements (0.6) (0.1) (0.4) Exclude: other dividends received - (0.2) - Exclude
Slide 35: Invested capital and balance sheet
Appendix 13 £m HY23 HY22 FY22 Goodwill 908.5 922.7 945.0 Other intangible assets (excluding leased assets) 134.0 143.5 158.0 Property, plant and equipment (excluding leased assets) 41.7 52.3 48.1 Contract assets, trade and other receivables 660.3 674.3 735.7 Inventories 23.1 21.4 22.4 Loan to joint
Slide 36: Underlying ROIC calculation
Appendix 14 £m HY23 HY22 FY22 Invested capital assets 1,814.9 1,840.3 1,942.5 Invested capital liabilities (659.5) (686.3) (726.1) Invested Capital (IC) 1,155.4 1,154.0 1,216.4 Average IC (two-point) 1,154.7 1,096.0 1,151.8 Operating profit for rolling 12 months 255.4 241.5 241.2 Underlying operatin
Slide 37: Pension scheme assets and liabilities
Appendix 15 £m HY23 HY22 FY22 Scheme assets at fair value: Liability driven investments (LDI) 214.8 237.6 217.7 Bonds except LDI 133.6 299.7 151.4 Pooled investment funds 141.0 107.6 140.0 Equities 30.9 47.0 45.2 Cash, property and other 8.8 11.1 14.7 Amounts held by insurance companies 483.5 499.1
Slide 38: Foreign exchange rates and sensitivity
Appendix 16 Spot rate for FY23e Average rates Closing rates 28 Jul 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec HY23 FY22 HY22 FY21 HY21 2023 2023 2022 2022 2021 2021 2020 £:US$ 1.29 1.23 1.24 1.31 1.38 1.39 1.26 1.20 1.21 1.35 1.39 1.36 £:Aus$ 1.91 1.83 1.78 1.81 1.83 1.80 1.91 1.77 1.76 1.86 1.85 1.7
Slide 39: Appendix 17: Underlying tax rate
Appendix 17 • HY23 underlying tax of £29.8m which on an underlying operating profit of £147.9 less net finance cost of £11.0 is an underlying effective tax rate (ETR) of 21.8% • Full Year 2023 ETR expected to be slightly higher, as HY23 rate includes a discrete reduction in provisions for uncertain
Slide 40: Sponsored Level 1 ADR program
Appendix 18 Serco Group has a sponsored Level 1 ADR program, for which Deutsche Bank act as the depositary bank and custodian Ticker: SCGPY For assistance with converting Ordinary Shares into ADRs (or vice Exchange: OTC versa), please contact Deutsche Bank’s ADR broker helpline: CUSIP: 81748L209 ISI
Slide 41: www.serco.com
www.serco.com Serco Group plc Serco House 16 Bartley Wood Business Park Bartley Way, Hook Hampshire RG27 9UY United Kingdom