Serco Group Plc · LSE:SRP
Serco — FY2011 Earnings Presentation
54 slides from Serco's earnings presentation, Feb 28, 2012
Slide 1: Full Year Results 28th February 2012
Solid operational performance delivers strong financial result; global markets support confidence in future growth Serco Group plc Full Year Results 28th February 2012 Advise | Design | Integrate | Deliver Serco in Confidence
Slide 2: Agenda
Agenda Overview – Chris Hyman Financial review – Andrew Jenner Business review – Chris Hyman Positioning for growth – Chris Hyman Q&A 2 Serco in Confidence
Slide 3: Strong financial result delivered by global portfolio
Strong financial result delivered by global portfolio 2011 2010 Change Revenue £4,646m £4,327m +7.4% Adjusted operating profit £290m £259m +12.1% Adjusted profit before tax £262m £231m +13.4% Adjusted earnings per share 39.59p 34.69p +14.1% Dividend per share 8.40p 7.35p +14.3% Group free cash flow
Slide 4: Winning significant new business; increased order book
Winning significant new business; increased order book Signed and selected for new business valued at £5.1bn Supported by many small and medium sized wins Maintained win rate at 1:2 for new bids; 90% for rebids and extensions Order book increased to £17.9bn at the end of 2011 £16.6bn £4.7bn
Slide 5: Operational excellence
Operational excellence Home Affairs – Acacia and Lowdham Grange prisons performance praised by independent inspectors UK Welfare to Work – Flexible New Deal: over 25,000 unemployed people into sustainable work – Work Programme: top performing for percentage of people supported Transport – Duba
Slide 6: Successful integration of acquisitions
Successful integration of acquisitions Acquired and successfully transitioned three leading companies in the global business process outsourcing market – The Listening Company – Intelenet – Excelior Domain expertise developed in front, middle & back office service delivery Blue chip customers
Slide 7: High visibility of forward revenues
High visibility of forward revenues Order Rebids and Preferred book extensions bidder 42% 27% 1% 2014: 70% 56% 22% 2% 2013: 80% 76% 14% 2% 2012: 92% At 31 December 2011 At 31 December 2010 2011: 92%, 2012: 77%, 2013: 66% 7 Serco in Confidence
Slide 8: Increasing portfolio breadth
Increasing portfolio breadth 2006 2011 £2,548m £4,646m 8% 17% Civil Government 12% 26% Defence, Science & Nuclear 30% Revenue Local Government & Commercial 19% 21% by market Americas 20% 29% AMEAA 18% 15% 27% United Kingdom 11% Revenue 56% United States 74% by geography 17% Other countries 8 Serco i
Slide 9: Responding effectively to changing environment
Responding effectively to changing environment Strong focus on operations Launch of global BPO division Review of UK structure and wider cost base Accelerated entry into new markets 9 Serco in Confidence
Slide 10: Financial review
Financial review Andrew Jenner Advise | Design | Integrate | Deliver Serco in Confidence
Slide 11: Financial review
Financial review Income statement Cash flow Net debt Pensions Acquisitions Funding Financial outlook and assumptions 11 Serco in Confidence
Slide 12: Strong five-year record of revenue and profit growth
Strong five-year record of revenue and profit growth 6.2% 5.8% 6.0% 5.3% 5.1% 290 4,646 259 4,327 3,970 230 3,124 2,811 165 142 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Revenue (£m) Adjusted operating profit (£m) and margin (%) Notes: All figures at reported exchange rates Adjusted operatin
Slide 13: Income statement
Income statement Increase £m excluding Year ended 31 December 2011 2010 Increase currency Revenue 4,646.4 4,326.7 7.4% 7.4% Organic growth 3.6% 3.5% Adjusted operating profit 290.1 258.7 12.1% 12.4% Adjusted operating margin 6.2% 6.0% 26bps 28bps Investment revenue and finance costs (27.9) (27.4) Ad
Slide 14: Income statement
Income statement Increase £m excluding Year ended 31 December 2011 2010 Increase currency Adjusted effective tax rate 25.9% 26.2% Adjusted earnings after tax 194.2 170.5 13.9% 14.0% Adjusted earnings per share 39.59p 34.69p 14.1% 14.2% Effective tax rate 26.5% 26.7% Profit after tax 175.2 156.8 11.7
Slide 15: Group free cash flow
Group free cash flow £m 186 168 137 98 94 2007 2008 2009 2010 2011 Note: Group free cash flow is free cash flow from subsidiaries and dividends received from joint ventures 15 Serco in Confidence
Slide 16: Group free cash flow
Group free cash flow £m Year ended 31 December 2011 2010 Adjusted operating profit excluding joint ventures 208.5 194.1 Non-cash items 64.2 61.8 Adjusted EBITDA excluding joint ventures 272.7 255.9 Working capital movement (32.3) (30.6) Operating cash flow excluding joint ventures 240.4 225.3 Intere
Slide 17: Group free cash flow to movement in recourse net debt
Group free cash flow to movement in recourse net debt £m Year ended 31 December 2011 2010 Group free cash flow 168.3 185.8 Acquisition of subsidiaries (including acquired debt) (398.6) (2.3) Acquisition-related costs (3.7) - Net purchase of share capital (6.7) (14.7) Special pension contribution (40
Slide 18: Net debt
Net debt £m Year ended 31 December 2011 2010 Group – cash and cash equivalents 194.6 204.0 Group – loans (819.4) (482.6) Group – obligations under finance leases (45.0) (25.0) Group recourse net debt (669.8) (303.6) Joint venture – net cash and cash equivalents 51.4 66.1 Total recourse net debt (618
Slide 19: Pensions
Pensions Total net balance sheet assets of £17m (2010: liabilities of £83m) on asset base on £1.7bn (2010: £1.5bn) Contract specific schemes have limited commercial risk Non contract specific schemes – Special contribution into main Group Scheme completed in January 2011 – Main Group scheme ba
Slide 20: Acquisitions
Acquisitions 2011 acquisition spend of £399m (including acquired debt) – Intelenet £336m – Smaller acquisitions £63m in aggregate (The Listening Company, Excelior, JBI Properties Services, Philips Collection Services, and Braintree Clinical Services) Fair value of contingent deferred considerati
Slide 21: Intelenet
Intelenet Integration into Serco largely complete Serco’s existing India BPO operations fully incorporated Financial performance since integration – £84m of revenue consolidated since July – Organic constant currency growth of 6% – Adjusted operating profit of £10.7m, margin of 12.8% Previou
Slide 22: Funding
Funding Financial covenant leverage ratio, based on consolidated total net borrowings to EBITDA, 2.0 times as at 31 Dec 2011 (2010: 1.1 times) Strong funding position with committed facilities of c£1.2bn Two successful private placement issues in 2011, raising c£400m Greater diversification,
Slide 23: Financial outlook
Financial outlook For 2012 financial year, forecasting – Another year of strong total revenue growth – Includes further good organic growth – Contribution from acquisitions completed to date of c3.5% – Challenging conditions to remain in the US, some further improvement in the UK markets and anoth
Slide 24: 2012 – detailed financial assumptions
2012 – detailed financial assumptions Revenue – Organic growth weighted to second half – Contribution from completed acquisitions weighted to first half Adjusted operating margin – Organisational changes impact expected to be broadly neutral for the full year – Timing of costs, currently estimat
Slide 25: 2012 – new divisional structure
2012 – new divisional structure As a result of the organisational changes, we expect to move to four reporting segments from 2012 New Global Services division, comprising – Intelenet, Serco BPO, Excelior, etc from AMEAA – IT-enabled BPO services, The Listening Company, etc from LG&C – Other BPO
Slide 26: Summary
Summary Strong financial result for 2011 Good organic growth, contribution from acquisitions and margin improvement Cash flow conversion remains strong Robust funding and pension positions Good financial performance forecast for 2012 and remain confident beyond 26 Serco in Confidence
Slide 27: Business review and positioning for growth
Business review and positioning for growth Chris Hyman Advise | Design | Integrate | Deliver Serco in Confidence
Slide 28: Business review
Business review UK and Europe: – Civil Government – Defence, Science and Nuclear – Local Government and Commercial Americas AMEAA Market developments Positioning for growth Summary 28 Serco in Confidence
Slide 29: UK market
UK market Signs of improvement in UK markets have started Better H2 performance Further signs of markets opening up Austerity measures mean some risks remain 29 Serco in Confidence
Slide 30: UK & Europe: Civil Government
UK & Europe: Civil Government Revenue increased 6% to £1,199m (2010: £1,127m) 26% of group revenue Growth driven by new services coming on stream and contract expansions Adjusted operating profit* increased 20% to £79.7m; margin increased to 6.6% *Segmental result before corporate expenses 3
Slide 31: UK & Europe: Civil Government (cont)
UK & Europe: Civil Government (cont) Doncaster prison payment by results contract - £250m,15 years Prisoner Escort and Custody Services contract - £420m,10 years Yarl's Wood IRC extended and expanded - £25m, 2 years Prime contractor for UK Border Agency e-Borders system - £29m, 2 years Bar
Slide 32: UK & Europe: Defence, Science and Nuclear
UK & Europe: Defence, Science and Nuclear Revenue growth 3% to £939m (2010: £911m) 20% of group revenue Strong performance at AWE and a number of smaller value contract awards Adjusted operating profit* growth 3% to £79.9m; margin held at 8.5% *Segmental result before corporate expenses 32 S
Slide 33: UK & Europe: Defence, Science and Nuclear (cont)
UK & Europe: Defence, Science and Nuclear (cont) Renewed RAF Culdrose helicopter support services - £33m, 5 years Expanded support to the Defence Science and Technology Laboratory - £80m, 5 years Won new multi activity contract at RAF Valley - £20m, 5 years Extended Cranfield Airport air tra
Slide 34: UK & Europe: Local Government and Commercial
UK & Europe: Local Government and Commercial Revenue grew 1% to £860m (2010: £854m) Organic growth declined 7% Represents 18% of Group Reductions due to cuts in Business Link services, redirection of education funding and delays in discretionary projects Adjusted operating profit* reduced
Slide 35: UK & Europe: Local Government and Commercial (cont)
UK & Europe: Local Government and Commercial (cont) Peterborough City Council strategic partnership - £100m, 10 years Scope of Glasgow Access joint venture expanded to include education ICT - £19m, 7 years Acquisition of UK customer contact operator The Listening Company led to new wins: – Wes
Slide 36: Americas
Americas Revenues declined 9% to £868m (2010: £954m) Constant currency decline of 6% 19% of group revenue Impact of US government spending delays and cancellations Adjusted operating profit* declined 6% to £73.0m; margin slightly increased to 8.4% *Segmental result before corporate expense
Slide 37: Americas (cont)
Americas (cont) Indefinite Delivery, Indefinite Quantity vehicles contributing to growth – US Navy SPAWAR IDIQ, ceiling value $1.4bn over five years - task orders totalling $31m – US Air Force Space Command C4IT2SR IDIQ ceiling value $800m - task orders totalling $115m – US Army HR Solutions IDIQs
Slide 38: AMEAA
AMEAA Reported growth of 62% to £780m (2010: £481m) Organic constant currency growth of 37% 17% of group Very strong growth in migration and offender management Adjusted operating profit* growth of 70% to £55.4m; margin slightly increased to 7.1% *Segmental result before corporate expenses
Slide 39: AMEAA - Home affairs
AMEAA - Home affairs New court escort contract with Western Australian Department of Corrective Service - A$210m, 5 years Renewed and expanded Acacia Prison contract - A$310m, 5 years New contract to run South Queensland Correctional Centre - A$100m, 5 years New contract to manage New Zealan
Slide 40: AMEAA – Defence, Health and Transport
AMEAA – Defence, Health and Transport Expanded DMS Maritime joint venture - A$50m, 17 years New Australian Defence Force logistics and base support contract - A$50m, 2 years Non-clinical support services at Fiona Stanley Hospital - A$1.3bn (approximately £850m), 10 years Green line opened on
Slide 41: Intelenet: Successful integration, growing order book and pipeline
Intelenet Successful integration, growing order book and pipeline Intelenet BPO acquisition and integration – won new business valued at over £50m – order book now valued at £600m – opened new delivery centres in Lucknow in India and Dubai Successful bid to operate the Anglia Support Partnership
Slide 42: Market developments
Market developments Advise | Design | Integrate | Deliver Serco in Confidence
Slide 43: Ongoing demand for efficient, high quality services
Ongoing demand for efficient, high quality services Public and private sector customers seeking – Depth of capability – Integration of middle and back office services with front line services Changing shape of business to address opportunities – Strengthening core markets – Expanding into new ma
Slide 44: Global BPO – new markets with strong potential
Global BPO – new markets with strong potential Large and growing market – Addressable global BPO 300 Domestic 291 market of c$500bn International 250 – Currently outsourced 205 213 Total outsourced $bn 195 c$200bn 200 175 200 165 – Global market expected to 150 grow at up to 7%pa 159 168 172 100 1
Slide 45: Market offers strong growth, sustainable margins
Market offers strong growth, sustainable margins BPO moving up the value chain – Beyond a simple tool for cost reduction – Life cycle of services has Customer service Application evolved development & Market value creation F&A maintenance – Increased ownership and HR BFSI mid-office risk transfer
Slide 46: Development of global BPO business
Development of global BPO business Bradford E-Borders Severn Trent Derby Peterborough Enfield West Sussex Selected for Council IT Cambridge ICT Council ICT City Council Council IT Council Anglia transformation Council ICT Southwark West Sussex ICT Services contact Support Bus
Slide 47: Positioning for growth in UK and Europe
Positioning for growth in UK and Europe UK public sector – Showing signs of potential improvement – Managing supplier relationships in a joined up manner, with operational management at a local level – Looking at a wider range of services delivered by the public, private and voluntary sectors work
Slide 48: Positioning for growth in Americas
Positioning for growth in Americas Expect ongoing delays and cancellations in US Federal market Many US Federal segments increasingly price focused Continue to win and be appointed to new work, attrition remains unusually high $125bn addressable market, attractive medium and longer-term grow
Slide 49: Positioning for growth in AMEAA
Positioning for growth in AMEAA Experiencing the fastest growth Economies of Australia, the Middle East and India continue to grow Australia and New Zealand opportunities in Justice including new-build and existing prisons and court escorting markets Middle East opportunities emerging in hea
Slide 50: Summary
Summary 2011 a defining year – Resilient portfolio, strong financial result – Challenging conditions in US and UK – Developed new markets and geographies – Increased order book and extensive pipeline of opportunities Creating new global BPO division and new UK & Europe division to address substa
Slide 51: Q&A
Q&A Advise | Design | Integrate | Deliver Serco in Confidence
Slide 52: Appendix
Appendix Advise | Design | Integrate | Deliver Serco in Confidence
Slide 53: Summary
Summary 2010 2011 £4,327m £4,646m 11% 17% Civil Government 26% 26% Local Government & Commercial Revenue 22% 19% AMEAA by market Defence, Science & Nuclear 21% 20% 20% 18% Americas 20% 27% United Kingdom Revenue 60% 56% United States by geography 20% 17% Other 53 Serco in Confidence
Slide 54: Currency rates
Currency rates Full year average rates Closing rates FY 2011 FY 2010 31 Dec 30 Jun 31 Dec 2011 2011 2010 £:US$ 1.60 1.54 £:US$ 1.55 1.61 1.57 £:Aus$ 1.54 1.58 £:Aus$ 1.52 1.50 1.53 £:Eur 1.15 1.16 £:Eur 1.20 1.11 1.17 £:INR 74.48 70.50 £:INR 82.53 71.78 70.01 Half year average rates 1H 2011 1 H 2010