Serco Group plc · LSE:SRP
Serco — FY2009 Earnings Presentation
58 slides from Serco's earnings presentation, Feb 26, 2010
Slide 1: Strong performance and well positioned for future growth
Strong performance and well positioned for future growth 2009 Full Year Results Serco Group plc 26 February 2010 Advise | Design | Integrate | Deliver
Slide 2: Chris Hyman Overview
Chris Hyman Overview 2009 Full Year Results Advise | Design | Integrate | Deliver
Slide 3: Strong operational and financial performance
Strong operational and financial performance 2009 2008 Change Revenue £3,970m £3,124m 27.1% Adjusted operating profit £229.7m £165.2m 39.0% Profit before tax £177.1m £136.1m 30.1% Adjusted earnings per share 29.53p 22.20p 33.0% Dividend per share 6.25p 5.00p 25.0% Group free cash flow £137.3m £94.2m
Slide 4: Portfolio growth strategy
Portfolio growth strategy Entered new, growing, markets – UK pathology – UK Welfare to Work Strengthened position in world’s largest contracting market – SI acquisition progressing very well – Now top 30 federal contractor Expanded presence and insight into growing markets – Australian migrati
Slide 5: Excellent service delivery in tough global environment
Excellent service delivery in tough global environment Challenging business environment – World economies declined, unprecedented national debts Customers seeking service quality, productivity and efficiency – Continuing to win 90% of rebids and 1 in 2 new bids Broad range of essential service
Slide 6: Excellent revenue visibility supported by order book
Excellent revenue visibility supported by order book At 31 December 2009 Order Extensions Preferred of total book and rebids bidder 47% 14% 3% 2012: 64% 61% 13% 2% 2011: 76% 79% 11% 1% 2010: 91% Order book of £17.1bn 5
Slide 7: Well positioned for future growth
Well positioned for future growth Governments now tackling significant deficits Greater need for efficiency and productivity in essential services Serco track record for service delivery and deep public service ethos Strong capabilities across increasing number of markets Expanding our exp
Slide 8: Andrew Jenner Financial Review
Andrew Jenner Financial Review 2009 Full Year Results
Slide 9: Financial review
Financial review 2009 financial results - Income statement - Cash flow - Net debt - Pensions Outlook - Segmental reporting - Guidance 8
Slide 10: Strong revenue and profit growth
Strong revenue and profit growth Revenue Adjusted operating profit 3,774* 217* 3,124 2,811 165 2,548 142 2,260 123 £m £m 2005 2006 2007 2008 2009 106 2005 2006 2007 2008 2009 * Excludes currency effects. Note: Adjusted operating profit is profit before interest and tax and amortisation of acquired i
Slide 11: Income statement
Income statement 2009 2008 Year ended 31 December £m £m Increase Revenue 3,970.0 3,123.5 27.1% Adjusted operating profit 229.7 165.2 39.0% Investment revenue and finance costs (35.0) (19.9) Adjusted profit before tax 194.7 145.3 34.0% Amortisation of acquired intangibles (17.6) (9.2) Profit before t
Slide 12: Revenue
Revenue +6.3% £3,970.0m +10.6% £196.0m +10.2% £331.9m £318.6m £3,123.5m 2008 Excluding SI SI Currency 2009 and currency Note: In calculating the growth rates excluding currency shown above, non-Sterling revenue, including that of SI, has been translated into Sterling at the average foreign exchange
Slide 13: Income statement
Income statement 2009 2008 Year ended 31 December £m £m Increase Revenue 3,970.0 3,123.5 27.1% Adjusted operating profit 229.7 165.2 39.0% Investment revenue and finance costs (35.0) (19.9) Adjusted profit before tax 194.7 145.3 34.0% Amortisation of acquired intangibles (17.6) (9.2) Profit before t
Slide 14: Adjusted operating profit
Adjusted operating profit +5bps £229.7m +18bps +27bps £165.2m 5.79% 5.29% 2008 Excluding SI SI Currency 2009 and currency Note: In calculating the growth rates excluding currency shown above, non-Sterling revenue and earnings, including those of SI, have been translated into Sterling at the average
Slide 15: SI International
SI International Financial performance in line with expectations - Revenue growth of 7.5% to US$618.5m (2008: US$575.5m) - Adjusted operating profit increase of 28.3% to US$47.1m (2008: US$36.7m) - Adjusted operating profit margin of 7.6% (2008: 6.4%) Good progress on cost savings - Remain on tr
Slide 16: Income statement
Income statement 2009 2008 Year ended 31 December £m £m Increase Revenue 3,970.0 3,123.5 27.1% Adjusted operating profit 229.7 165.2 39.0% Investment revenue and finance costs (35.0) (19.9) Adjusted profit before tax 194.7 145.3 34.0% Amortisation of acquired intangibles (17.6) (9.2) Profit before t
Slide 17: Investment revenue and finance costs
Investment revenue and finance costs Increase of £15.1m principally due to: Higher interest charge, as a result of SI acquisition funding Currency effects, which increased the net charge by £2.7m Increased pension financing cost of £5.7m 16
Slide 18: Income statement
Income statement 2009 2008 Year ended 31 December £m £m Increase Revenue 3,970.0 3,123.5 27.1% Adjusted operating profit 229.7 165.2 39.0% Investment revenue and finance costs (35.0) (19.9) Adjusted profit before tax 194.7 145.3 34.0% Amortisation of acquired intangibles (17.6) (9.2) Profit before t
Slide 19: Group free cash flow
Group free cash flow 137 98 94 £m 85 74 2005 2006 2007 2008 2009 18
Slide 20: Group free cash flow
Group free cash flow 2009 2008 Year ended 31 December £m £m Group EBITDA 226.0 148.4 Working capital movement (27.2) (22.8) Group operating cash flow 198.8 125.6 Interest (31.5) (25.0) Tax (26.5) (11.8) Net expenditure on tangible and intangible assets (49.8) (31.8) Dividends from joint ventures 46.
Slide 21: Net debt
Net debt 31 Dec 31 Dec 2009 2008 As at £m £m Group cash and cash equivalents 253.7 199.8 Group loans (619.1) (708.8) Group obligations under finance leases (22.3) (15.5) Group recourse net debt (387.7) (524.5) JV recourse net cash 58.2 44.5 Total recourse net debt (329.5) (480.0) Group non recourse
Slide 22: Defined benefit pension schemes
Defined benefit pension schemes Total net balance sheet liabilities of £113.6m (December 2008: £20.5m) - Asset base of £1.4bn Non contract specific schemes - Deficit on main Group scheme of £54.7m (December 2008: surplus of £62.4m) - Regular triennial review ongoing: working closely with the Tru
Slide 23: Segmental reporting
Segmental reporting Divisions repositioned from start of 2010 - Maximise focus on growth - Ensure responsiveness to customers’ needs Created five new divisions focused on our principal markets New divisions will be reflected in our segmental reporting from half year 2010 results - AMEAA - Amer
Slide 24: Guidance
Guidance By the end of 2012, we expect an increase in - Revenue to approximately £5bn - Adjusted operating profit margin to approximately 6.3% In 2010, we expect - Continued strong organic revenue growth - Further progress towards our 2012 margin guidance Note: 2012 guidance excludes material ac
Slide 25: Summary
Summary Strong 2009 revenue, margin and cash flow growth Significantly reduced year end net debt and robust funding position Expect further progress in 2010 towards our expectations for 2012 24
Slide 26: Chris Hyman Business Review
Chris Hyman Business Review 2009 Full Year Results
Slide 27: Market sector and geographical analysis
Market sector and geographical analysis Revenue by market Revenue by geography 26% 15% 39% 2009 £3,970m 21% 64% 20% 15% 25% 15% 36% 10% 2008 £3,124m 22% 75% 17% Civil Government Science UK US Defence Transport Other
Slide 28: Civil Government
Civil Government Three new markets entered; growth in existing markets Civil Government segment includes home affairs, IT and BPO, healthcare, environmental services, consulting and welfare to work Operates in UK, US, Canada, Australia, India and Europe Revenue up 38% to £1,556m representing 3
Slide 29: Civil Government: Immigration Services, Australia
Civil Government New market: Immigration Services, Australia Focus on welfare and value for money Transforming 7 immigration centres - AUS$370m, 5 years - Expansion being discussed Transforming residential immigration housing - AUS$45m, 5 years Christmas Island Darwin Further home affairs op
Slide 30: Civil Government: Welfare to Work, UK
Civil Government New market: Welfare to Work, UK Started three regional Flexible New Deal services on time - £400m-£500m, 5 years Prime contractor role integrating network of providers - Funded by service and performance payments Increasing referrals and job outcomes ahead of target Bidding
Slide 31: Civil Government: Pathology, UK
Civil Government New market: Pathology, UK Efficiency and quality transformation agenda in UK pathology market JV (GSTS) with Guy’s and St Thomas’ NHS Foundation Trust - £250m to Serco, 10 years GSTS Pathology attracting interest from NHS and private hospitals - £31m to Serco, 10 years - Trans
Slide 32: Civil Government: UK Home Affairs offender management
Civil Government UK Home Affairs: offender management 2 PFI prisons in London and Liverpool, UK (preferred bidder) - £600m, 26½ years - Innovative approach developed with charity partners to discourage reoffending England and Wales electronic monitoring extension - £70m, 2 years Further opport
Slide 33: Civil Government: UK local authority IT, education
Civil Government UK Local authority market: IT, education and knowledge services Peterborough City Council ICT - £44m, 11 years - More citizen access to council services, less cost Business Link contract with UK’s South East England Development Agency (signed Jan 2010) - £80m, 3+2 years Ofsted
Slide 34: Civil Government: local authority environmental services
Civil Government UK Local authority market: environmental services Providing services to 14 local authorities including 3 London boroughs - More recycling, less landfill and lower carbon consumption London Borough of Bexley - £160m, 15 years Charnwood Borough Council - £35m, 7 years Strong p
Slide 35: Civil Government: US Federal IT & BPO
Civil Government US Federal market: IT & BPO Key market drivers include efficiency, seamless government, cybersecurity and intelligence Records processing support to National Benefits Center for the US Department of Homeland Security - US$190m, 5 years Training and technical support contracts
Slide 36: Defence
Defence Strong performance and expanded capabilities Training, technical and systems engineering, management support and safety assurance support to UK, US, Canada, Germany and Australia Revenue up 30% to £1,020m, representing 26% of group (2008: 25%) 35
Slide 37: Defence: UK and Germany organic growth
Defence UK and Germany: organic growth from broad contract base Multi activity services for RAF Halton and RAF High Wycombe bases - £100m, 10 years £70m of additional organic growth - Helicopter maintenance support - Pilot training - Air surveillance £39m of contracts with German MoD and NATO
Slide 38: Defence: UK and Germany organic growth
Defence UK and Germany: organic growth from broad contract base Manage and operate UK Emergency Planning College (signed Feb 2010) - £55m, 15 years MoD defence spending under pressure Opportunities from extending asset lifetime, homeland security and transformational contracts - Armed Forces R
Slide 39: Defence: US armed forces work
Defence US: expanded work across all branches of armed forces US Air Force - C4I2TSR task orders expanding work for Air Force Space Command and other military - US$131m - Similar expansion to intelligence agency programmes - Data preparation center for Materiel Command - US$25m, 18 months US Nav
Slide 40: Defence: US armed forces work
Defence US: expanded work across all branches of armed forces US Army - 78 task orders from HR Solutions IDIQ - US$196m - Expanded base closure contracts - US$30m Government-wide procurement programs and IDIQs - Alliant program for application services and IT management - US$50bn, 10 years - STO
Slide 41: Transport
Transport Continued growth and expansion of capabilities Transport capabilities includes light and heavy rail, traffic management, civil aviation, civil marine and cycle schemes Principal services in UK, US, Australia and Middle East Revenue up 18% to £789m, representing 20% of the group (2008
Slide 42: Transport: UK Heavy Rail
Transport UK Heavy Rail – excellent service performance Merseyrail - First UK TOC to achieve 96% punctuality over 12 months - Joint highest customer satisfaction levels at 91% Northern Rail - Punctuality further increased to 91.8% - Passenger levels increased 34% since 2004 to 85m per annum - Pr
Slide 43: Transport: UK Road
Transport UK Road – excellent service performance and new mode London Cycle Hire - £140m, 6 years - Design, deliver and operate entire system - Registration and payment systems, call centre, web portal, 6,000 cycles, 400 docking stations Managed Motorways Traffic Management (selected Jan 2010) -
Slide 44: Transport: Middle East Metro and Aviation
Transport Middle East – Metro and Aviation Dubai Metro - Successful, on schedule, inauguration of Dubai Metro - More than 1m passengers carried in first 16 days - 100% availability and 99.5% punctuality (Dec 09 and Jan 10) Aviation - Expanded scope and duration of aviation services to UAE airpor
Slide 45: Transport: US Aviation and Traffic Management
Transport US: Aviation and Traffic Management US Federal Aviation Authority (signed Feb 2010) - US$170m, 5 years - Air traffic control increased to 64 towers Georgia Department of Transportation - IT services and traffic management systems - US$50m, 5 years - Facilitate privatisation of travelle
Slide 46: Transport: Australia
Transport Australia: Traffic Management and Heavy Rail Traffic management - AUS$27m, 5 years - Partnership with MDV - Transforming journey planning information services for New South Wales Transport Great Southern Rail - Minimised impact of weaker tourist market by increasing promotion and reduc
Slide 47: Science
Science Nuclear skills driving growth Science segment manages science based organisations and applies science to economic development Revenue up 12% to £605m, representing 15% of group (2008: 17%) 46
Slide 48: Science: Nuclear skills driving growth
Science Nuclear skills driving growth Successfully concluded five year AWE pricing review Serco-led consortium appointed to 3 year contract to manage and develop the UK National Nuclear Laboratory and transform UK nuclear research £40m of nuclear assurance related contracts signed Jan 2010:
Slide 49: Chris Hyman Market Review and Outlook
Chris Hyman Market Review and Outlook 2009 Full Year Results
Slide 50: Deficits enhance need for service transformation
Deficits enhance need for service transformation On-going demand to tackle long term issues of security, migration, congestion, health, climate change Deficit: UK >£180bn, US >US$1.5trn, Australia >AUS$150bn Economic recovery projected to be slower 20-30% increases in efficiency and producti
Slide 51: Significant scope for efficiencies and growth
Significant scope for efficiencies and growth Only 15% of UK’s public service market open to competition In 2008, the UK government outsourcing market was estimated to grow to £100bn by 2012 10% of US Federal government spending has been opened to competition - addressable market valued at jus
Slide 52: Radical steps to achieve fundamental changes
Radical steps to achieve fundamental changes United Kingdom - Government spending reductions - Expanding competition and reform in welfare, offender management, health, use of shared services - Sale of government assets, development of shared services United States - Seeking a 3 year federal bud
Slide 53: Summary – strong performance
Summary – strong performance Strong financial and operational performance Record £5.8bn of contract awards Continuing to win 90% of rebids and one in two of new bids Strong order book of £17.1bn Record £28bn pipeline of opportunities Increasing need for our skills and capabilities Conf
Slide 54: Outlook – well positioned to grow
Outlook – well positioned to grow Clear strategy for growth Delivering essential services Strong track record around the world with long standing relationships Experience across all service contracting models Exposure to broad range of geographic and sectoral markets 53
Slide 55: Questions & Answers
Questions & Answers Advise | Design | Integrate | Deliver
Slide 56: Appendix
Appendix Advise | Design | Integrate | Deliver
Slide 57: Currency
Currency Full Year Average rates Closing rates FY 2009 FY 2008 31 Dec 30 Jun 31 Dec 2009 2009 2008 £:US$ 1.56 1.86 £:US$ 1.61 1.65 1.44 £:Aus$ 1.99 2.19 £:Aus$ 1.80 2.04 2.06 £:Eur 1.12 1.26 £:Eur 1.13 1.17 1.03 Half Year Average rates 1H 2009 1H 2008 £:US$ 1.49 1.99 £:Aus$ 2.11 2.15 £:Eur 1.11 1.29
Slide 58: Segmental reporting
Segmental reporting Civil Government: UK and Europe civil government and transport operations Defence, Science and Nuclear: UK and Europe defence and science-based businesses Local Government & Commercial: UK and Europe IT & BPO, integrated services, education and commercial Americas: US def