Serco Group plc · LSE:SRP
Serco — FY2004 Earnings Presentation
44 slides from Serco's earnings presentation, Mar 1, 2005
Slide 1: Serco Group plc 2004 Preliminary Results
Serco Group plc 2004 Preliminary Results 1 March 2005
Slide 2: Introduction
Introduction Kevin Beeston Executive Chairman Introduction
Slide 3: Agenda
Agenda Introduction Financial results Business performance Looking forward Agenda
Slide 4: 2004 Preliminary results - highlights
2004 Preliminary results - highlights Growth Underlying Growth Turnover £1,636.8m 5.2% 14.0% Profit before tax* £73.9m 10.3% 16.4% Earnings per share* 12.20p 10.6% Dividend per share 2.63p 12.4% Free cash flow £55.8m 18.7% *before amortisation of intangible assets
Slide 5: Company highlights
Company highlights Strong underlying sales and profit growth Good cash generation Strong organic growth Strategic acquisitions enhance growth prospects High visibility of future earnings
Slide 6: Financial results
Financial results Profit and loss Cash flow Net debt Acquisition funding IFRS Andrew Jenner Finance Director Financial results
Slide 7: Profit and loss
Profit and loss 1,637 1,555 74 67 1,326 1,141 57 45 958 38 00 01 02 03 04 00 01 02 03 04 Turnover £m Profit before tax £m Including joint ventures Before intangible amortisation Full year 2004 full year
Slide 8: Profit and loss
Profit and loss 2004 2003 Year to 31 December £m £m Increase Total turnover 1,636.8 1,555.5 5.2% Group turnover 1,381.4 1,324.3 JV turnover 255.4 231.2 Gross profit 190.9 180.8 5.6% Administrative expenses (139.7) (138.5) Exceptional items (net) - 3.6 JV profit 24.8 24.0 Net Group interest (2.1) (2.
Slide 9: Cash flow highlights
Cash flow highlights Free cash inflow of £55.8m (2003: £47.0m) 95% of group EBITDA converted into operating cash (2003: 81%) Continued working capital efficiency: 2004 increase £3.6m (2003 increase £11.1m)
Slide 10: Free cash flow
Free cash flow 2004 2003 Year to 31 December £m £m Group EBITDA 71.6 57.5 Working capital movement (3.6) (11.1) Operating cashflow 68.0 46.4 Dividends from joint ventures 14.2 12.6 Interest and taxation (5.2) (7.8) Capital expenditure (19.3) (21.8) Disposal of assets - 8.9 GSR sale and leaseback - 5
Slide 11: Cash flow
Cash flow 2004 2003 Year to 31 December £m £m Free cash flow 55.8 47.0 N&N Hospital refinancing - 4.1 Acquisitions/disposals (9.0) (96.6) Other financing (7.8) 109.5 Dividends paid (10.4) (9.5) Non-recourse debt financed assets (25.2) 47.0 Net cash flow 3.4 101.5
Slide 12: Cash flow
Cash flow 2004 2003 Year to 31 December £m £m Change in PFI balances PFI debtor 6.9 3.7 Assets in the course of construction (16.3) (33.0) Non-recourse debt (12.8) 26.6 (22.2) (2.7) Change in other balances Non-recourse debt – Driver Examination Services (3.0) 49.7 Non-recourse debt financed assets
Slide 13: Net debt
Net debt 2004 2003 As at 31 December £m £m Closing cash 173.9 170.9 Long term loans (167.4) (165.3) Other loans and finance leases (21.3) (27.9) Recourse net debt (14.8) (22.3) Non-recourse debt (256.4) (357.0) Total net debt (271.2) (379.3)
Slide 14: Acquisition funding
Acquisition funding Acquisition cost of £235m for ITNET and $215m for proposed purchase of RCI Take up to date on share alternative for ITNET of 28.1m Serco shares (£67m) Committed five year bank facility of £450m in place with unchanged covenants Balance sheet gearing and interest cover pro
Slide 15: Update on transition to IFRS
Update on transition to IFRS Transition date to IFRS is 1 January 2004 First results under IFRS will be for 6 months to 30 June 2005 Interpretation of standards still evolving e.g. accounting for pension schemes and service concessions (including PFIs) Serco well positioned to ensure complia
Slide 16: Summary implications of IFRS
Summary implications of IFRS Underlying performance, cash flow and ability to pay dividends will be unaffected Impact on year on year earnings growth after transition likely to be minimal Fair value concept may introduce volatility into balance sheet On transition – Profit before tax princip
Slide 17: Estimated impact of IFRS for 2004 (Unaudited)
Estimated impact of IFRS for 2004(1) (Unaudited) UK Amortisation Share SPLAS Deferred Dividends Other Indicative GAAP of intangible based pension tax IFRS assets payment (2) (unaudited) £m £m £m £m £m £m £m £m Profit before tax and intangible 74 - (4) - - - - 70 amortisation Amortisation of (17) 11
Slide 18: Business Performance
Business Operational highlights Performance Growth Analysis Acquisitions Christopher Hyman Chief Executive Fuelling organic growth Business Performance
Slide 19: Operational highlights
Operational highlights Rebid win rate maintained at over 90% Continuing to win 1 out of 2 new bids Order book at 31 December 2004 stood at £12.7bn £4.7bn bids submitted and under evaluation Over £16bn of potential future opportunities identified Capability enhancing acquisitions 61% of
Slide 20: Defence
Defence Sector highlights: Best-ever year in 2004 Overall growth of 20% Sector accounted for 30% of 2004 sales Rated amongst best MoD ‘critical key suppliers’ Tenth successive rebid win at RAF Fylingdales Awarded preferred bidder for JTC Oman Notable contract wins with Defence Academy
Slide 21: Civil government
Civil government Sector highlights: Our largest market in 2004 – 33% of turnover Driven by government agenda Similar approach overseas Major opportunities in home affairs, education and health Home Affairs highlights: Strong organic growth in justice market New Serco Home Affairs divisio
Slide 22: Civil government - continued
Civil government - continued Education highlights: Opportunities in Building Schools for the Future Education Walsall achieved glowing Ofsted report New contract with Monheim Schools in Germany Regional and local government highlights: Continued organic growth Notable wins with Breckland D
Slide 23: Transport
Transport Sector highlights: Accounted for 22% of turnover Expect growth in light rail and traffic management Rail highlights: Largest-ever contract win with Northern Rail Record service on Merseyrail and DLR Record bookings and profits from Great Southern Railway’s iconic Indian Pacific a
Slide 24: Transport
Transport Road highlights: National Traffic Control centre providing congestion and incident information Two new contracts for abnormal load management and traffic system maintenance Installing traffic control system for new road and bridge connecting Hong Kong with mainland China Air highligh
Slide 25: Science
Science Highlights: Accounted for 7% of turnover Growing role in innovation and technology centres National Physical Laboratory science contract signed Renewed contract to provide nuclear safety advice to Royal Navy’s submarine fleet Extended European Space Agency contracts in Germany and
Slide 26: Private sector
Private sector Highlights: Provided 8% of turnover Extended our relationship with Microsoft Strengthened US utilities market position with a contract with PECO for fleet services Renewed contract with Oracle covering French headquarters and seven other sites
Slide 27: 2004 Turnover growth
2004 Turnover growth £1,637m £42m £121m £1,556m £(117)m New Awards £35m Changes in Scale and Disposals Acquisitions Scope 2003 turnover 2004 turnover
Slide 28: Market sector analysis
Market sector analysis 2004 turnover £1,636.8m including joint ventures Civil government 33% Defence 30% 2003 turnover £1,555.5m Private sector 8% including joint ventures Transport 22% Science 7% Defence 26% Civil government 32% Private sector 8% Transport 27% Science 7%
Slide 29: Geographical analysis
Geographical analysis 2004 turnover £1,636.8m including joint ventures North America 6% UK 74% Asia Pacific 9% Europe and Middle East 11% 2003 turnover £1,555.5m including joint ventures North America 5% Asia Pacific 10% UK 73% Europe and Middle East 12%
Slide 30: Continued high visibility of earnings
Continued high visibility of earnings Global order book breakdown by sector as at 31 December 2004 2004 Defence £2.6bn Transport £4.6bn Civil government £4.1bn Science £0.8bn Private sector £0.6bn Total £12.7bn
Slide 31: Continued high visibility of earnings
Continued high visibility of earnings Percentage of planned revenue secured as at 31 December 2004 2005 91.3% 79.9% 6.2% 5.2% 2006 76.0% 60.1% 11.1% 4.8% 2007 64.3% 50.1% 9.9% 4.3% Order book Extension and rebids Preferred bidder
Slide 32: Acquisitions ITNET and RCI
Acquisitions ITNET and RCI Broaden skills and capabilities Strengthen offering in public sector and commercial markets Improve access to these large and growing markets Reinforce platform for organic growth Enhance earnings in 2005
Slide 33: ITNET
ITNET Acquisition completed in February 2005 2004 unaudited revenue of £209m Adds capability in local government business transformation market Collaborative working has already begun bringing revenue synergy
Slide 34: RCI
RCI Completion expected during March 2005 2004 revenues of $293m (Source: RCI) Top 100 supplier to US Department of Defense Will transform our competitive position in the US Cross fertilisation of skills and transference overseas in time
Slide 35: The enlarged Group
The enlarged Group Asia Pacific 8% (9%) Europe and Middle East 9% (11%) North America 12% (6%) UK 71% (74%) 2004 proforma turnover
Slide 36: Fuelling organic growth
Fuelling organic growth Acquisitions add cross selling capabilities Extending relationships Synergies at contract level Leveraging capability
Slide 37: Delivering the vision
Delivering the vision Comprehensive capabilities Relevant global presence Track record Values and reputation
Slide 38: Looking forward
Looking forward Global drivers Political environment Strategy and acquisitions Strengths Kevin Beeston Executive Chairman Outlook Looking forward
Slide 39: Global drivers
Global drivers 1. Drive to increase quality and productivity 2. Increasing acceptance of private sector Increasing demand for quality public services Ideological barriers diminishing in the face of Increasing investment in positive experience new and existing infrastructure Global spread of
Slide 40: Political environment
Political environment Increasing interest in PPPs around world based on demonstrable benefits in UK UK Public sector investment continuing ahead of election Environment should be positive irrespective of election result North America Federal and state governments reforming services in face o
Slide 41: Strategy and acquisitions
Strategy and acquisitions Organic growth remains the priority Acquisitions used to obtain New capabilities Market access Highly selective approach
Slide 42: How we are positioned
How we are positioned Growing UK reputation Breadth of markets Solid and growing contract base Strength and depth of management Consistent management system Increased technology capabilities with ITNET and RCI
Slide 43: Outlook / Questions and Answers
Looking forward Outlook Encouraging UK and international market conditions Record order book Margin improvement Continued growth Questions and Answers
Slide 44: Serco Group plc 2004 Preliminary Results
Serco Group plc 2004 Preliminary Results 1 March 2005