Serco Group Plc · LSE:SRP
Serco — H1 2021 Earnings Presentation
43 slides from Serco's earnings presentation, Aug 5, 2021
Slide 1: 2021 Half Year Results
2021 Half Year Results For the six months ended 30 June 2021 Serco Group plc 1 Serco Group plc – 2021 Half Year Results
Slide 2: Disclaimer
Disclaimer 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”, “ant
Slide 3: Agenda
Agenda Overview Rupert Soames, Group CEO Financial Review Nigel Crossley, Group CFO Operational Review Rupert Soames Q&A Rupert Soames Nigel Crossley 3 Serco Group plc – 2021 Half Year Results
Slide 4: Overview
Overview Rupert Soames Group Chief Executive 4 Serco Group plc – 2021 Half Year Results
Slide 5: Continued strong growth
Continued strong growth Scalable and agile government services platform delivers impressive H1 • Strong financial performance – Revenue: £2,168m, up +20% at CFX; +15% organic; +5% from WBB & FFA acquisitions; worldwide Covid-19 revenues ~£365m (2020: ~£130m) – Underlying Trading Profit: £123m, +62%
Slide 6: Consistent track record of progress over last 4 years
Consistent track record of progress over last 4 years Growth CAGR 2020 – 2021e 2017 – 2021e Revenue 11% 10% Underlying Trading Profit 23% 30% Margin 2.3% FY17 4.7% FY21e £m Jan-17 Jun-21 = 126% Book-to-bill UTP £15bn of revenue, £19bn of order intake ~£200m ~4.7% margin 200 £163m 4.2% margin 160 £12
Slide 7: Financial Review
Financial Review Nigel Crossley Chief Financial Officer 7 Serco Group plc – 2021 Half Year Results
Slide 8: Financial overview: A strong first half
Financial overview A strong first half HY 21 HY 20 Growth Revenue Group revenue £2,168m £1,822m 19% Organic growth 15% Acquisitions 5% FX -1% Underlying Trading Profit Group UTP £123m £78m 58% Organic growth 54% Acquisitions 8% FX -4% Margin 5.7% 4.3% EPS Underlying EPS 6.75p 3.86p 75% Dividend Divi
Slide 9: UK & Europe: Strong growth and order intake
UK & Europe Strong growth and order intake Six months ended Total CFX 30 June (£m)* HY21 HY20 growth growth • Revenue +33% organic Citizen Services 535 310 73% – Up: Citizens Services (NHS Test & Defence 99 101 -1% Trace; DWP, ONS), Immigration, Escorting Justice & Immigration 201 179 12% – Down: pa
Slide 10: Americas: Revenue and profit up at constant currency
Americas Revenue and profit up at constant currency; margin increase Six months ended Total CFX 30 June (£m)* HY21 HY20 growth growth • Revenue -2% reported, + 6% CFX Citizen Services 131 136 3% – Majority of CFX growth from WBB Defence 357 364 6% acquisition, completed 27 April – Up: Systems Integr
Slide 11: Asia Pacific: Strong revenue and profit growth
Asia Pacific Strong revenue and profit growth; muted new wins Six months ended Total CFX 30 June (£m)* HY21 HY20 growth growth • Revenue +38% reported, + 29% CFX Citizen Services 78 73 -1% – Facilities First acquisition added 17% Defence 74 64 7% to revenues – Up: Justice, Immigration, Defence Justi
Slide 12: Middle East: Profit protected despite Covid-19
Middle East Profit protected despite impact of Covid-19 Six months ended Total CFX 30 June (£m)* HY21 HY20 growth growth • Revenue -13% reported, -7% CFX Citizen Services 37 45 -10% – Organic -7%, full half of Covid-19 Defence 15 13 6% impact – FX -6% Justice & Immigration - - n/a • UTP +3% reported
Slide 13: Cash flow: Good cash flow in first six months
Cash flow Good cash flow in first six months £m HY21 HY20 FY20 Free Cash Flow exceptionally strong at Operating profit before exceptionals 119.0 75.5 166.7 £130m Capital expenditure and repayment of lease liabilities (68.7) (73.4) (129.9) Working capital inflow due Depreciation and amortisation (inc
Slide 14: UK deferred tax asset
UK deferred tax asset Positive message on profitability of UK business • Deferred tax asset brought on to balance sheet: mainly relating to historical losses in the group of UK Serco companies • Positive message on UK business: the asset reflects increased confidence in the long term profitability o
Slide 15: Guidance for 2021
Guidance for 2021 Prior Latest 2021 guidance 2021 guidance Revenue ~£4.3bn ~£4.3bn Organic sales growth ~6% ~6% Underlying Trading Profit (UTP) ~£200m ~£200m Net finance costs ~£28m ~£28m Underlying effective tax rate ~25% ~25% Free Cash Flow ~£100m ~£120m Adjusted Net Debt ~£275m ~£250m Assumptions
Slide 16: Operational review
Operational review Rupert Soames Group Chief Executive 16 Serco Group plc – 2021 Half Year Results
Slide 17: HY21 highlights & lowlights
HY21 highlights & lowlights Highlights Lowlights • Strong operational delivery of public services in response • Dreadful impact of Covid-19 on lives to, and in spite of, pandemic and welfare of colleagues & families • People & Covid-19 response: See slides 18-19 • UTP in H2 21 will be lower than H1
Slide 18: Covid-19: Support to governments around the world
Covid-19 Support to governments around the world UK&E • In H1, delivered 12 million hours, ~14,500 FTE equivalent, to NHS Test & Trace; since May 2020 Serco made 24m calls, 8m tests conducted, distributed 6m lateral flow devices • Tracing: providing around 50% of tracing call handlers. Numbers vary
Slide 19: People: Rising to the level of events
People Rising to the level of events, but not without challenges Numbers • Number of employees & contingent workers: +21,000 y/y, ~30%, to ~83,000 • Sought-after employer:~30,000 people apply to work with Serco each month. +22% y/y • All furlough claims repaid. Up to 500 staff at any one time kept o
Slide 20: People: Engagement scores continue to climb
People Engagement scores continue to climb across the Group; important tool for governance and operational insight Engagement Pulse-checks Feb-21 NHS testing: 83 Mar-21 Sharjah Airport: 67 83 Apr-21 FFA, post acquisition: 82 Jun-21 NHS testing: 79 77 Jul-21 Victoria Police: 67 73 75 71 70 73 72 69 7
Slide 21: Summary & outlook
Summary & outlook Rupert Soames Group Chief Executive 21 Serco Group plc – 2021 Half Year Results
Slide 22: Summary and outlook
Summary and outlook • 4 years of strong delivery: CAGR 17-21e Revenue 10%, UTP 32%; book-to-bill since 2017 126% • Last 18 month’s performance was not an accident – we have been working for 7 years to transform Serco In the future, the Four Forces “Rule OK” – Agile and scalable government services p
Slide 23: Q&A
Q&A 23 Serco Group plc – 2021 Half Year Results
Slide 24: Notes and definitions
Appendix 1 Notes and definitions • 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 disclo
Slide 25: Income Statement – Revenue and Trading Profit
Appendix 2 Income Statement – Revenue and Trading Profit £m HY21 HY20 FY20 Revenue excludes share of JV&A revenue Revenue 2,168 1,822 3,885 Trading Profit measures Trading profit 125.6 80.5 175.7 include share of JV&A PAT Exclude: Contract & Balance Sheet Review items (2.9) (2.9) (12.6) Underlying T
Slide 26: Revenue divisional analysis
Appendix 3 Revenue divisional analysis Revenue - growth composition HY21 vs HY20 HY20 HY21 FY20 Reported Acquisition/ Reported Constant Reported £m Currency Organic Disposal FX TOTAL Currency Currency Currency UK&E 784 +33% - - +33% 1,039 1,038 1,778 Americas 542 - +5% (7%) (2%) 529 572 1,064 AsPac
Slide 27: Underlying Trading Profit divisional analysis
Appendix 4 Underlying Trading Profit (UTP) divisional analysis Underlying Trading Profit and Margin HY21 UTP HY20 UTP HY change FY20 UTP Reported Constant Reported Reported Reported Constant Constant Reported Reported £m Currency Currency Margin Currency Margin Currency Currency Currency Margin UK&E
Slide 28: Income statement – EPS and DPS
Appendix 5 Income statement – EPS and DPS £m HY21 HY20 FY20 Underlying Trading Profit (UTP) 122.7 77.6 163.1 Net finance costs (NFC) (12.6) (12.7) (25.9) Underlying PBT 110.1 64.9 137.2 Tax on UTP and NFC (25.6) (17.0) (31.2) Underlying PAT 84.5 47.9 106.0 Non underlying items 2.9 2.9 12.6 Amortisat
Slide 29: Exceptional items
Appendix 6 Exceptional items £m HY21 HY20 FY20 Exceptional profit on disposals - 11.0 11.0 Other exceptional operating items: Restructuring costs 0.1 0.1 0.1 Costs associated with UK Government review (0.3) (1.2) (1.3) Costs associated with acquisition of NSBU - (1.4) (1.5) Costs associated with acq
Slide 30: Free Cash Flow and Trading Cash Flow
Appendix 7 Free Cash Flow and Trading Cash Flow £m HY21 HY20 FY20 Operating profit before exceptionals 119.0 75.5 166.7 Share of profit of joint ventures and associates (6.4) (7.0) (12.7) Depreciation and amortisation of owned assets 22.0 20.3 39.2 Depreciation and impairment of leased assets 58.8 4
Slide 31: Net debt and leverage
Appendix 8 Net debt and leverage £m HY21 HY20 FY20 Free Cash Flow 129.9 80.9 134.9 Exceptional items (see Appendix 6) (3.7) (4.2) 1.1 Net (acquisition)/disposal of subsidiaries and operations (235.1) 7.4 6.1 Other net debt items on acquisition (14.3) - - Dividends paid to shareholders (16.8) - - Pur
Slide 32: Focus on five sectors across four regions
Appendix 9 Focus on five sectors across four regions HY21 revenue mix, including share of JV&As* UK & Asia Middle £m Sector Europe Americas Pacific East Defence 254 357 74 15 £700m 30% Justice & 201 - 185 - £386m 16% Immigration Transport 109 41 4 87 £240m 10% Health 132 - 117 3 £253m 11% Citizen Se
Slide 33: Cash flow breakdown 1 & 2
Appendix 10 Cash flow breakdown 1 & breakdown 2 £m HY21 HY20 FY20 Breakdown 1 – depreciation, amortisation and impairment Depreciation (excluding lease assets) 9.1 7.8 15.9 Amortisation (non-acquisition) 6.3 7.5 14.0 Depreciation and amortisation 15.4 15.3 29.9 Impairment of PPE (excluding lease ass
Slide 34: Cash flow breakdown 3
Appendix 11 Cash flow breakdown 3 £m HY21 HY20 FY20 Breakdown 3 – cash flow and net debt exceptional items Restructuring and costs related to Strategy Review (0.2) (1.1) (1.7) SFO fine and investigation costs - - - Costs associated with UK Government review (0.1) (0.1) (0.2) Costs associated with ac
Slide 35: Leverage covenant calculation
Appendix 12 Leverage covenant calculation £m HY21 LTM HY20 LTM FY20 Trading Profit 220.8 163.3 175.7 Exclude: share of joint venture and associate post-tax profits (12.1) (21.0) (12.7) Exclude: foreign exchange credit on investing and financing arrangements (1.1) (0.1) (0.7) Include: dividends from
Slide 36: Interest cover covenant calculation
Appendix 13 Interest cover covenant calculation £m HY21 LTM HY20 LTM FY20 Net finance costs (25.8) (24.0) (25.9) Exclude: finance charge on lease obligations recognised under IFRS16 8.2 9.1 9.1 Exclude: foreign exchange credit on investing and financing arrangements 1.1 0.1 0.7 Exclude: other divide
Slide 37: Balance sheet summary
Appendix 14 Balance sheet summary £m HY21 HY20 FY20 Goodwill 826.7 710.3 669.6 Other intangible assets (excluding leased assets) 159.6 91.3 80.6 Property, plant and equipment (excluding leased assets) 54.7 58.6 54.2 Contract assets, trade and other receivables 649.6 702.9 634.9 Inventories 20.5 20.3
Slide 38: Return on Invested Capital (ROIC)
Appendix 15 Return on Invested Capital (ROIC) £m HY21 HY20 FY20 Invested capital assets 1,729.6 1,603.0 1,479.9 Invested capital liabilities (691.6) (701.3) (633.1) Invested Capital (IC) 1,038.0 901.7 846.8 Average IC (two-point) 969.9 813.6 855.5 Trading Profit 125.6 80.5 175.7 Trading Profit for r
Slide 39: Pension assets mix and IAS 19 valuation
Appendix 16 Pension assets mix and IAS 19 valuation £m HY21 HY20 FY20 Scheme assets at fair value: Liability driven investments (LDI) 363.1 425.8 408.3 Bonds except LDI 360.9 349.0 367.3 Pooled investment funds 77.4 61.8 62.8 Equities 57.7 52.1 55.6 Cash, property and other 10.4 10.6 16.3 Annuity po
Slide 40: Currency rates
Appendix 17 Currency rates Spot rate for FY21 Average rates Closing rates 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 2021 HY21 FY20 HY20 FY19 HY19 2020 2020 2019 2019 2018 2018 £:US$ 1.39 1.39 1.29 1.27 1.28 1.30 1.37 1.23 1.32 1.27 1.28 1.31 £:Aus$ 1.85 1.80 1.88 1.94 1.83 1.83 1.76 1.79 1.88
Slide 41: Contract nature and inflation mitigation
Appendix 18 Contract nature and inflation mitigation • Around ¾ of revenue is from contracts where pricing is “fixed” in advance and on a longer term contractual basis; a “long term fixed price contracting” model requires careful cost inflation consideration • The remainder is the “non-fixed” revenu
Slide 42: American Depository Receipt (ADR) program
Appendix 19 American Depository Receipt (ADR) program Serco Group has a sponsored Level 1 ADR program, for which Deutsche Bank act as the depositary bank and custodian Ticker: SCGPY ADR key benefits Exchange: OTC • Convenient means of trading/holding foreign shares CUSIP: 81748L209 • USD-denominated
Slide 43: www.serco.com
www.serco.com Serco Group plc Serco House 16 Bartley Wood Business Park Bartley Way, Hook Hampshire RG27 9UY United Kingdom For general enquiries contact: T: +44 (0)1256 745900 E: generalenquiries@serco.com 43 Serco Group plc – 2021 Half Year Results