Serco Group Plc · LSE:SRP
Serco — FY2022 Earnings Presentation
49 slides from Serco's earnings presentation, Feb 23, 2023
Slide 1: 2022 Full Year Results
2022 Full Year Results For the year ended 31 December 2022 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 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
Strong financial performance • Revenue £4.5bn; 11% growth excluding Covid-related work and currency • Underlying trading profit of £237m, +4%, offsetting £65m of headwinds • Cash Flow continues to be strong, leverage low and ROIC high • Delivering against all capital allocation priorities B2G Platfo
Slide 6: Revenue, profit, ROIC and pipeline growth since 2019
Revenue increased by 40% Underlying Trading Profit nearly doubled £4.5bn £237m Growth +40% CAGR +12% Growth +97% £3.2bn CAGR +25% £120m 2019 2022 2019 2022 Underlying ROIC increased >500bp Pipeline increased ~70% 20.6% £8.4bn +520bp 15.4% +71% £4.9bn 2019 2022 2019 2022
Slide 7: Financial Review
Financial Review Nigel Crossley, Group Chief Financial Officer
Slide 8: FY22 results summary
FY 22 FY 21 Growth Revenue Revenue £4,534m £4,425m 2% Organic growth (4%) Good organic revenue outcome Acquisitions 3% following -11% FX 4% impact from end of Covid work Underlying trading profit Underlying trading profit £237m £229m 4% Organic growth (3%) Strong profit performance to Acquisitions 0
Slide 9: Americas: Case Management and acquisition driven growth
Case Management and acquisition driven growth Year ended 31 December (£m)* FY22 FY21 Total growth CFX growth • Revenue +13% reported, -1% organic – Full contribution from WBB acquisition Citizen Services 311 275 3% – Up: Citizen Services - CMS, DES Defence 863 765 2% – Down: CANES volumes Justice &
Slide 10: UK & Europe: Covid contracts ending, higher immigration volumes
Covid contracts ending, higher immigration volumes Year ended 31 December (£m)* FY22 FY21 Total growth CFX growth • Revenue -1% reported, -5% organic – Up: Immigration with strong volumes and ORS acquisition, Citizen Services 547 972 (44%) DWP Restart ramp up, Transport Defence 316 281 13% – Down: C
Slide 11: AsPac: Continued strong immigration services performance
Continued strong immigration services performance Year ended 31 December (£m)* FY22 FY21 Total growth CFX growth • Revenue +5% reported, 0% organic – Up: Immigration and FM volumes Citizen Services 159 161 (4%) – Down: Fiona Stanley reduced scope, volumes in parts of Defence 148 146 (1%) Citizen Ser
Slide 12: Middle East: Margin increased following exit of Dubai Metro
Margin increased following exit of Dubai Metro Year ended 31 December (£m)* FY22 FY21 Total growth CFX growth • Revenue -21% reported, -28% organic – Transport reduction: exit of Dubai Metro in 2021 Citizen Services 6 3 56% • UTP +17% reported, +8% CFX Defence 30 31 (7%) – Margin: increased 240 bps
Slide 13: Cash conversion continues to be strong
Cash conversion Year ended 31 December (£m)* FY22 FY21 continues to be strong and has Operating profit before exceptional items 219.6 217.4 averaged more than 100% over the last 4 Capex and repayment of lease liabilities (139.2) (136.4) years Depreciation and amortisation (including IFRS 16) 172.2 1
Slide 14: Demonstrable progress against clear framework
Demonstrable progress against clear framework Business highly Capital-light Target leverage range of Context: cash generative business model 1-2x net debt to EBITDA Capital priorities Progress in 2022 Invest to support organic Frontline financial and wellbeing support; resumed Oxford 1 growth Univer
Slide 15: 2023 guidance
2022 2023 Actual Initial guidance New guidance Revenue £4.5bn At least £4.6bn At least £4.6bn Organic sales growth -4% ~0% ~0% Underlying trading profit £237m ~£235m ~£235m Net finance costs £20m ~£25m ~£25m Underlying effective tax rate 22% ~25% ~25% Free cash flow £159m ~£120m ~£120m Adjusted net
Slide 16: FY22 operational review, strategy and outlook
FY22 operational review, strategy and outlook Mark Irwin, Group Chief Executive
Slide 17: Highlights and lowlights
Highlights Much better performance than we expected at start of year • Revenue 9% and UTP 22% higher than initial guidance Strong new business wins in North America Lowlights • ~160% book-to-bill, METS business unit rebid and new bid success International cross sector collaboration Bid losses • METS
Slide 18: Market, business model and medium-term outlook
Our market is attractive and growing Drive for public Governments Private sector Large, diverse service innovation Market facing increasing partnerships offer and growing e.g. connected Opportunity challenges agility, capability market citizens; digital and efficiency services Our business model is
Slide 19: The Four Forces impacting governments continue to escalate
The Four Forces impacting governments continue to escalate and may be compounded by labour markets, technology deficits, and geopolitical risk. ~£715bn ~65% ~1% ~2-3% Is our estimate of our share Is our estimate in real terms of Estimated spend on all Of worldwide* outsourced the CAGR of outsourced
Slide 20: Our B2G platform enabling the shift from outsourcer to Impact Partner
1 Public Service DNA Values, culture, reputation with buyers, understanding of government, public service ethos, social responsibility, transparency, sustainability Deep sector expertise, Deep knowledge of our market and sectors. Know-how and IP developed 2 IP & know-how delivering complex contracts
Slide 21: Customers, Colleagues, Capabilities
• Rigorous, ambitious targeting of addressable market 1 Customers • Elevating our relationships • Participating across customer value chain • Growing revenues • Growing the value of colleagues’ work • Growing colleague 2 Colleagues • Re-energising our Values enablement • Empowering teams • Growing m
Slide 22: Customers: growing customer impact and market share
i. Forensic understanding and rigorous targeting of our addressable markets 1 ii. Leveraging capabilities across regions and sectors Customers iii. Elevate customer relationships from outsourcer to Impact Partner Growing customer impact and market iv. Broaden our value chain participation from solut
Slide 23: Colleagues: growing the value of colleagues' work
i. ‘Think safe, work safe, home safe’ to be a reality for every colleague, everywhere, every day 2 ii. Continually evolve our employee value proposition to attract and retain the best talent Colleagues iii. Re-energise our values to empower Growing the value of colleagues’ work iv. Automate, digitis
Slide 24: Capabilities: growing margins and efficiency
3 i. Drive culture of continuous learning and innovation ii. Exploit functionality of existing technology platforms Capabilities iii. Artificial intelligence to enhance decision making and drive business optimisation Growing margins and efficiency iv. Digital primacy in solution development v. Lever
Slide 25: FY22 results build on track record of delivery
• Our FY22 results further build on Serco’s track record of delivering better outcomes for citizens, customers, colleagues and shareholders. • Continue to create value from our strategy to be a focused supplier of services to governments, operating through our Serco Management Framework, and using o
Slide 26: Impacting a better future
Im pacting a better future
Slide 27: Q&A
O&A (27 } serco
Slide 28: Impacting a better future
Im pacting a better future
Slide 29: Appendix
serco Appendix Impacting a better is,
Slide 30: Appendix 1: Definitions
Appendix 1 Revenue is as defined under IFRS, which excludes Serco’s share of revenue of its joint ventures and associates. In prior periods where relevant, revenue including that from any discontinued operations has been shown for consistency with previous guidance and disclosures. Organic revenue g
Slide 31: Underlying trading profit reconciliation
Appendix 2 £m FY22 FY21 HY22 Revenue 4,534 4,425 2,178 Trading profit 241.2 233.4 133.7 Exclude: Contract & Balance Sheet Review items (4.2) (4.5) (4.2) Underlying Trading Profit (UTP) 237.0 228.9 129.5 UTP margin 5.2% 5.2% 5.9% Revenue excludes share of JV&A revenue Trading Profit measures include
Slide 32: Revenue growth composition FY22 vs FY21
Appendix 3 Revenue - growth composition FY22 vs FY21 FY21 FY22 Reported Acquisition/ Reported Constant £m Currency Organic Disposal FX TOTAL Currency Currency UK&E 2,132 (5%) +3% +0% (1%) 2,100 2,098 Americas 1,120 (1%) +3% +11% +13% 1,270 1,146 AsPac 908 +0% +2% +3% +5% 955 926 Middle East 265 (28%
Slide 33: Underlying trading profit and margin
Appendix 4 Underlying trading profit and Margin FY22 UTP FY21 UTP FY change HY22 UTP Reported Constant Reported Reported Reported Constant Constant Reported Reported £m Currency Currency Margin Currency Margin Currency Currency Currency Margin UK&E 72.1 72.2 3.4% 96.0 4.5% (23.8) (25%) 37.5 3.8% Ame
Slide 34: Underlying profit and EPS
Appendix 5 £m FY22 FY21 HY22 Underlying trading profit (UTP) 237.0 228.9 129.5 Net finance costs (NFC) (20.4) (24.0) (9.2) Underlying PBT 216.6 204.9 120.3 Tax on UTP and NFC (47.9) (48.6) (25.8) Underlying PAT 168.7 156.3 94.5 Non underlying items 4.2 4.5 4.2 Amortisation of intangibles arising on
Slide 35: Exceptional items
Appendix 6 £m FY22 FY21 HY22 Exceptional operating items: Restructuring costs - 0.1 - Costs associated with successful acquisitions (2.4) (4.9) (0.9) Increase in onerous lease provision - (0.6) - Profit on sale of investments - 4.2 - Exceptional operating items (2.4) (1.2) (0.9) Tax on exceptional i
Slide 36: Free cash flow
Appendix 7 £m FY22 FY21 HY22 Operating profit before exceptionals 219.6 217.4 124.1 Share of profit of joint ventures and associates (12.0) (8.7) (3.4) Depreciation, amortisation and impairment of owned assets 54.7 47.2 25.0 Depreciation, amortisation and impairment of leased assets 117.5 109.0 52.5
Slide 37: Adjusted net debt movement
Appendix 8 £m FY22 FY21 HY22 Free cash flow 159.1 189.5 95.6 Exceptional items (see Appendix 6) (2.9) 5.5 (1.1) Net (acquisition) / disposal of subsidiaries and operations (19.2) (234.9) (0.1) Other Adjusted net debt items on acquisition and disposal (6.5) (14.3) - Dividends paid to shareholders (30
Slide 38: FY22 revenue mix, including share of JV&As
Appendix 9 FY22 revenue mix, including share of JV&As* UK & Asia Middle £m Sector Europe Americas Pacific East Defence 461 863 148 30 £1,502m 32% Justice & 799 - 413 - £1,212m 25% Immigration Transport 267 96 10 70 £443m 9% Health 264 - 225 103 £592m 13% Citizen 547 311 159 6 £1,023m 21% Services To
Slide 39: Depreciation, amortisation and non-cash movements breakdown
Appendix 10 £m FY22 FY21 HY22 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 20.7 19.6 10.5 Amortisation (non-acquisition) 10.0 11.3 4.9 Depreciation and amortisation 30.7 30.9 15.4 Impairment of PPE (excluding lease assets) 2.3 0.3 - Impairment of Inta
Slide 40: Cash flow and net debt exceptional items
Appendix 11 £m FY22 FY21 HY22 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (0.6) (0.7) - Costs associated with UK Government review - (1.3) - Costs associated with successful acquisitions (2.3) (5.5) (0.9) Cashflow from sale of investment
Slide 41: Appendix 12: Covenant leverage calculation
Appendix 12 £m FY22 FY21 HY22 LTM Trading profit 241.2 233.4 241.5 Exclude: share of joint venture and associate post-tax profits (12.0) (8.7) (5.7) Exclude: foreign exchange credit on investing and financing arrangements 0.4 (0.6) 0.1 Include: dividends from joint ventures and associates 9.1 13.5 7
Slide 42: Appendix 13: Interest cover calculation
Appendix 13 £m FY22 FY21 HY22 LTM Net finance costs (20.4) (24.0) (20.6) Exclude: finance charge on lease obligations recognised under IFRS16 7.5 7.3 6.9 Exclude: foreign exchange credit on investing and financing arrangements (0.4) 0.6 (0.1) Exclude: other dividends received - (0.6) (0.2) Exclude:
Slide 43: Invested capital and balance sheet
Appendix 14 £m FY22 FY21 HY22 Goodwill 945.0 852.7 922.7 Other intangible assets (excluding leased assets) 158.0 144.0 143.5 Property, plant and equipment (excluding leased assets) 48.1 55.5 52.3 Contract assets, trade and other receivables 735.7 640.9 674.3 Inventories 22.4 19.6 21.4 Loan to Joint
Slide 44: Return on invested capital
Appendix 15 £m FY22 FY21 HY22 Invested capital assets 1,942.5 1,730.3 1,840.3 Invested capital liabilities (726.1) (643.2) (686.3) Invested Capital (IC) 1,216.4 1,087.1 1,154.0 Average IC (two-point) 1,151.8 967.0 1,096.0 Trading profit 241.2 233.4 133.7 Trading profit for rolling 12 months n/a n/a
Slide 45: Pension scheme assets and liabilities
Appendix 16 £m FY22 FY21 HY22 Scheme assets at fair value: Liability driven investments (LDI) 217.7 390.0 237.6 Bonds except LDI 151.4 368.2 299.7 Pooled investment funds 140.0 107.6 107.6 Equities 45.2 55.7 47.0 Cash, property and other 14.7 9.1 11.1 Annuity policies 490.7 662.3 499.1 Fair value of
Slide 46: Foreign exchange rates and sensitivity
Appendix 17 Spot rate for FY23e Average rates Closing rates 31 Jan 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun FY22 HY22 FY21 HY21 FY20 2023 2022 2022 2021 2021 2020 2020 £:US$ 1.23 1.24 1.31 1.38 1.39 1.29 1.20 1.21 1.35 1.39 1.36 1.23 £:Aus$ 1.76 1.78 1.81 1.83 1.80 1.88 1.77 1.76 1.86 1.85 1.76 1.7
Slide 47: Underlying effective tax rate
Appendix 18 • FY22 underlying tax of £47.9m, which on Underlying trading profit of £237m less net finance cost of £20.4m is an Underlying effective tax rate (ETR) of 22.1% • Expect ETR to increase closer to ~25% in future periods - sensitive to geographical mix of profit • Corporate tax rate in the
Slide 48: Sponsored Level 1 ADR program
Appendix 19 Serco Group has a sponsored Level 1 ADR program, for which Deutsche Bank act as the depositary bank and custodian Ticker: SCGPY Exchange: OTC For assistance with converting Ordinary Shares into ADRs (or vice CUSIP: 81748L209 versa), please contact Deutsche Bank’s ADR broker helpline: ISI
Slide 49: www.serco.com
www.serco.com Serco Group plc Serco House 16 Bartley Wood Business Park Bartley Way, Hook Hampshire RG27 9UY United Kingdom