Serco Group Plc · LSE:SRP
Serco — FY2002 Earnings Presentation
41 slides from Serco's earnings presentation, 2003
Slide 1: 2002 Preliminary Results Presentation
2002 PRELIMINARY RESULTS PRESENTATION SERCO GROUP PLC
Slide 2: Agenda
AGENDA • Introduction • Financial results • Business performance • Outlook
Slide 3: Introduction
INTRODUCTION KEVIN BEESTON EXECUTIVE CHAIRMAN
Slide 4: Financial Highlights 2002
FINANCIAL HIGHLIGHTS 2002 Turnover £1.3bn up 16.2% Profit before tax - pre goodwill £57.0m up 26.3% Earnings per share - pre goodwill 9.58p up 16.1% Dividend per share 2.08p up 11.8%
Slide 5: Company Highlights
COMPANY HIGHLIGHTS • Serco delivers 15th successive year of double-digit growth • Excellent organic growth • 64% of turnover growth from existing contract base • Robust cash performance • 75% of underlying EBITDA converted to cash • Continued success in winning contracts • Contract wins totalling £1
Slide 6: Company Highlights
COMPANY HIGHLIGHTS • Substantial range of future opportunities • Currently addressing a further £12bn of opportunities • Continuing high visibility of revenues • 91% of 2003 turnover already secured • Current order book stands at £7.1bn
Slide 7: Responding to the Market Environment
RESPONDING TO THE MARKET ENVIRONMENT • Enhanced shareholder communications programme • Continued development of alternative auditor relationships • Increased PFI and financial disclosures • D&T review of joint ventures • Comprehensive corporate governance disclosure • Ensuring appropriate funding of
Slide 8: Financial Results
FINANCIAL RESULTS • INCREASED DISCLOSURE • ACCOUNTING POLICIES • PROFIT AND LOSS • CASHFLOW • BALANCE SHEET • PENSIONS ANDREW JENNER G R O U P F I N A N C E D I R E C TO R
Slide 9: Increased Disclosure
INCREASED DISCLOSURE • Financial Review - Analysis of profit and loss account and cashflow - Accounting policies - Treasury policies • ‘Our Approach to PFIs’ - Details of our portfolio - Accounting for PFIs - Risk
Slide 10: Accounting Policies
ACCOUNTING POLICIES • UITF Abstract 34 ‘pre contract costs’ - All bid costs to be expensed up to point where award is ‘virtually certain’ - £1.2m prior year adjustment • FRS 19 Deferred tax - Full provisioning - Adoption has not had a material effect on tax charge • FRS 17 Retirement benefits - Adop
Slide 11: Profit and Loss
PROFIT AND LOSS Restated 2002 2001 Increase £m £m % Total turnover 1,325.9 1,141.2 16.2% Group turnover 1,097.3 913.7 Joint venture turnover 228.6 227.5 Gross profit 150.0 124.0 Other administrative expenses (112.8) (97.6) Exceptional items - 5.2 Joint venture profit 23.9 18.7 Net group interest (4.
Slide 12: Profit and Loss
PROFIT AND LOSS Restated 2002 2001 Increase £m £m % Total turnover 1,325.9 1,141.2 16.2% Group turnover 1,097.3 913.7 Joint venture turnover 228.6 227.5 Gross profit 150.0 124.0 Other administrative expenses (112.8) (97.6) Exceptional items - 5.2 Joint venture profit 23.9 18.7 Net group interest (4.
Slide 13: Underlying Profit Before Tax
UNDERLYING PROFIT BEFORE TAX Restated 2002 2001 Increase £m £m % Reported pre tax profit before goodwill amortisation 57.0 45.2 26.3% 2001 Acquisition: Serco Assurance (2.1) (0.5) Prior year adjustment: UITF Abstract 34 - 1.2 One-off items - (0.2) Underlying pre tax profit before goodwill amortisati
Slide 14: Profit and Loss
PROFIT AND LOSS Restated 2002 2001 Increase £m £m % Total turnover 1,325.9 1,141.2 16.2% Group turnover 1,097.3 913.7 Joint venture turnover 228.6 227.5 Gross profit 150.0 124.0 Other administrative expenses (112.8) (97.6) Exceptional items - 5.2 Joint venture profit 23.9 18.7 Net group interest (4.
Slide 15: Cashflow Highlights
CASHFLOW HIGHLIGHTS • 136% (2001: 121%) of operating profit converted into cash • 75% (2001: 65%) of Group EBITDA converted into cash • Working capital increased by £13m (2001: £14m) • Share placement - March 2002 £117m • Closing cash of £69m; net recourse funds £6m
Slide 16: Conversion of Group EBITDA into Cash
CONVERSION OF GROUP EBITDA INTO CASH 300% 265% 250% 200% 150% 142% 133% 93% 75% Average 100% 103% 92% 50% 65% 27% 1% 25% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Average Conversion of group EBITDA into cash
Slide 17: Contract Capital Expenditure
CONTRACT CAPITAL EXPENDITURE 16% 14% 12% 10% 8% 6% 4% 2.6% 2.1% 2.3% 2.2% 2.0% 1.9% 2.2% 2% 1.4% 1.5% 1.6% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Capital expenditure / Group turnover
Slide 18: Conversion of Group EBITDA into Cash and Free Cashflow
CONVERSION OF GROUP EBITDA INTO CASH AND FREE CASHFLOW 300% 40m 36m 265% 250% 30m 200% 24m 24m 142% 150% 20m 133% 15m 100% 11m 103% 10m 9m Average 93% 10m 75% £10m 50% 25% 27% 65% 1% 0% 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - 4m - 8m -10m -13m -20m Conversion of group EBITDA into cash
Slide 19: Conversion of Group EBITDA into Cash and Free Cashflow
CONVERSION OF GROUP EBITDA INTO CASH AND FREE CASHFLOW 300% 40m 36m 265% 250% 30m 200% 24m 24m 142% 150% 20m 133% 15m 100% 11m 103% 10m 9m Average 93% 10m 75% £10m 50% 25% 27% 65% 1% 0% 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - 4m - 8m -10m -13m -20m Conversion of group EBITDA into cash
Slide 20: Cashflow
CASHFLOW 2002 2001 £m £m Group EBITDA 52.7 39.6 Working capital movement (13.1) (13.9) Operating cashflows 39.6 25.7 Pension payment (15.5) - Exceptional items - 6.1 Dividends from joint ventures 11.1 9.6 Interest and taxation (11.9) (12.0) Capital expenditure (23.6) (17.6) Other 10.0 (2.9) Free cas
Slide 21: Net Debt
NET DEBT As at As at 31.12.02 31.12.01 £m £m Closing cash / (overdraft) 69.4 (35.8) Other loans and finance leases (63.1) (57.7) Recourse net funds / (debt) 6.3 (93.5) Non recourse debt (29.7) (14.1) Total net debt (23.4) (107.6) Gearing (exc. non recourse debt) - 72% Group interest cover 9.2 x 6.2
Slide 22: Balance Sheet
BALANCE SHEET As at As at 31.12.02 31.12.01 £m £m Fixed Assets Intangible assets 147.5 141.2 Tangible assets 62.5 48.7 Investments in joint ventures 35.9 30.5 Share of gross assets 317.8 322.3 Share of gross liabilities (281.9) (291.8) Investment in own shares 18.2 19.0 Total fixed assets 264.1 239.
Slide 23: Pensions
PENSIONS • At 31 December 2002, for defined benefit schemes we estimate: - Asset base £294m - Market value (FRS17) net deficit £74m - MFR funding level 100% • Long- term employer contributions to increase from 2003 by £9m per annum (under both FRS17 and SSAP24) • In February 2003 schemes merged - in
Slide 24: Business Performance
BUSINESS PERFORMANCE CHRISTOPHER HYMAN CHIEF EXECUTIVE
Slide 25: Platform for Growth
PLATFORM FOR GROWTH • Corporate Assurance Group • Strategic Advisory Team • Enhancing project appraisal process • Serco Management System • Serco / IoD programme
Slide 26: Strong Organic Growth
STRONG ORGANIC GROWTH • Organic growth accounts for 64% of turnover growth - 180 contracts rebid or extended - over 90% retention rate • Contract wins during the year totalled £1.2bn - 122 new contracts - won over half of new bids • Continuous review of under performing businesses / markets
Slide 27: Business Breakdown Market Sectors
BUSINESS BREAKDOWN MARKET SECTORS £1,325.9m - 2002 Total Turnover £1,141.2m - 2001 Total Turnover 10% 11% 27% 29% 9% 8% 27% 27% 27% 25% Defence Transport Civil Government Science Private Sector
Slide 28: Business Breakdown Geographical Analysis
BUSINESS BREAKDOWN GEOGRAPHICAL ANALYSIS £1,325.9m - 2002 Total Turnover £1,141.2m - 2001 Total Turnover 5% 6% 12% 12% 13% 12% 70% 70% UK Europe and Middle East Asia Pacific North America
Slide 29: 2002 Turnover Growth
2002 TURNOVER GROWTH 2002 Turnover £1,325.9m £28.4m Acquisitions £37.7m New Awards £118.6m Increases in scope of existing contracts 2001 Turnover £1,141.2m
Slide 30: Some Examples of Growth from the Contract Base
S O M E E X A M P L E S O F G R O W T H FR O M THE CONTRACT BASE Contract Name Type Years Annual Country Turnover National Physical Laboratory Duration 1 yr £50.0m UK RAF Ascension Island Duration 5 yrs £2.2m UK Walsall Local Education Authority Scope 5.5 yrs £14.0m UK Supplier Field Maintenance Dur
Slide 31: Some Examples of Growth from the Contract Base
Some examples of growth from the Contract Base Walsall LEA National Crime Squad Marine Services 5 ½ yrs up to July 2008 10 yrs up to 2010 3 yrs up to 2006 £14.0m p.a £13.0m p.a £39.1m p.a • Following an Ofsted report • The 11 original projects within • 90/10 JV with Denholm scope of contract increas
Slide 32: Atomic Weapons Establishment
Some examples of growth from the Contract Base Atomic Weapons Establishment 15 yrs up to 2025 £70.0m p.a. • Largest Serco contract award to date • Joint venture with Lockheed Martin and BNFL • Adds over £1 billion to forward order book • AWE to have access to private capital from financial instituti
Slide 33: Some Examples of New Contracts
SOME EXAMPLES OF NEW CONTRACTS Contract Name Type Annual Country Turnover Tsuen Kwan O Hospital 3 yrs £1.5m HK RAF Spadeadam 3 yrs £1.0m UK Rodney District Council (NZ) 5 yrs £1.4m NZ Skynet 5* 15 yrs £13.0m UK Defence Science & Technology Laboratory 8 yrs £10.0m UK Rail High Speed Mobilisation Deve
Slide 34: Some Examples of New Awards
Some examples of New Awards DSTL FAA Weather Observation Hong Kong Parking Meters 8 yrs up to June 2010 5 yrs up to 2008 7 yrs up to 2009 £10m p.a £1.1m p.a £1.1m p.a • Communications and • Management and operation of • Hong Kong looking to install information systems support weather observation sta
Slide 35: Acquisitions
Acquisitions SDC Consideration £2.0m Annual turnover £2.09m • Leading healthcare management consultancy, project management and solutions business • Specialises in services to health organisations providing strategy development, health planning, capital project advisory services, performance improve
Slide 36: Business Strengths
BUSINESS STRENGTHS • Strong processes • Responsible policies • Valuable culture • Proven business model
Slide 37: Outlook
OUTLOOK KEVIN BEESTON EXECUTIVE CHAIRMAN
Slide 38: Future Focus
FUTURE FOCUS • Solid foundations for growth – 600 contracts – Successful business model – Corporate assurance • Geographic and sector diversity – UK - Defence, Transport, Civil Government, PPP environment – Europe - Italy and Germany – Middle East – North America • Currently addressing a further £12
Slide 39: Near Term Confirmed Order Book
NEAR TERM CONFIRMED ORDER BOOK 100% 91% 90% 7% 80% 80% 11% 6% 70% 62% 18% 60% 5% 50% 73% 22% 40% 56% 30% 35% 20% 10% 0% 2003 2004 2005 Order Book Extension & Rebids Preferred Bidder
Slide 40: Long Term Order Book
LONG TERM ORDER BOOK Total forward order book £7.1bn 3.0 2.5 £2.8bn 2.0 £2.3bn £bn 1.5 £2.0bn 1.0 0.5 0.0 2003 - 2005 2006 - 2010 2011 - 2028
Slide 41: Questions and Answers
OUTLOOK “Our portfolio approach to a wide range of public sector markets has provided a robust and resilient platform during this period of difficult global economic conditions. We remain confident of achieving double-digit growth both this year and over the longer-term.” QUESTIONS AND ANSWERS