Serco Group Plc · LSE:SRP
Serco — H1 2011 Earnings Presentation
58 slides from Serco's earnings presentation, Aug 24, 2011
Slide 1: Good financial performance; strong future growth opportunities across the portfolio
Good financial performance; strong future growth opportunities across the portfolio Serco Group plc Half Year Results 24 August 2011 Advise | Design | Integrate | Deliver
Slide 2: Agenda
Agenda Overview – Chris Hyman Financial Review – Andrew Jenner Business Review – Chris Hyman Intelenet – Tom Riall and Susir Kumar Summary and Outlook – Chris Hyman
Slide 3: International portfolio drives growth and resilience
International portfolio drives growth and resilience 2011 H1 2010 H1 Change Revenue £2,246m £2,140m +4.9% Adjusted operating profit £133.8m £124.4m +7.6% Adjusted profit before tax £123.6m £110.2m +12.2% Adjusted earnings per share 18.74p 16.53p +13.4% Dividend per share 2.50p 2.20p +13.6% Group fre
Slide 4: Strong business development across the world
Strong business development across the world Awarded contracts valued at £2.5bn – signed £2.4bn, preferred bidder £0.1bn Maintained new bid win rate at 1:2 and rebids and extensions at 90% Increased order book to £16.7bn (£16.6bn at 31st Dec 2010) Global opportunity pipeline maintained at £2
Slide 5: Excellent revenue visibility, extending beyond 2012
Excellent revenue visibility, extending beyond 2012 At 30 June 2011 Order Extensions Preferred of total book and rebids bidder 48% 19% 2% 2013: 69% 64% 16% 2% 2012: 82% 92% 4% 2% 2011: 98%
Slide 6: Service quality and efficiency at heart of customers' needs
Service quality and efficiency at heart of customers’ needs Acacia prison renewed, with report highlighting savings and quality New education opportunities enabled by record of improvements in Bradford Ability to drive efficiency savings for public and private sector customers strengthened thr
Slide 7: Strong start to H2 and, despite headwinds, market developments bode well
Strong start to H2 and, despite headwinds, market developments bode well for future growth £1bn of new contracts awarded in H2 to date UK and US headwinds may risk further delays to market opportunities Customers seeking efficiencies and improvements in essential services Public service refo
Slide 8: Financial review
Financial review Andrew Jenner Advise | Design | Integrate | Deliver
Slide 9: Financial review
Financial review Income statement Cash flow Net debt Financing Intelenet Guidance
Slide 10: Strong revenue and profit growth
Strong revenue and profit growth 6.0% 5.8% 5.3% 5.8% 6.0% 5.1% 5.6% 5.2% 4.9% 4,327 3,970 259 230 3,124 2,811 2,246 2,140 165 1,950 134 142 124 1,491 110 1,349 4.8% 5.1% 5.3% 5.8% 6.0% 77 66 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Revenue (£m) Adjusted operating profit (£m) and margin (%)
Slide 11: Income statement
Income statement Increase Six months ended 30 June excluding £m 2011 2010 Increase currency Revenue 2,245.8 2,140.3 4.9% 5.4% Adjusted operating profit 133.8 124.4 7.6% 8.3% Adjusted operating margin 6.0% 5.8% 15bps 17bps Investment revenue and finance (10.2) (14.2) costs Adjusted profit before tax
Slide 12: Income statement
Income statement Increase Six months ended 30 June excluding £m 2011 2010 Increase currency Effective tax rate 26.5% 26.6% Average shares in issue 490.3m 491.1m Adjusted earnings per share 18.74p 16.53p 13.4% 14.0% Earnings per share 16.74p 15.13p 10.6% 11.4% Interim dividend per share 2.50p 2.20p 1
Slide 13: Group free cash flow
Group free cash flow £m 186 137 98 94 93 51 52 29 33 2007 2008 2009 2010 2011 half year full year Note: Group free cash flow is free cash flow from subsidiaries and dividends received from joint ventures.
Slide 14: Group free cash flow
Group free cash flow 2011 2010 Six months ended 30 June £m £m Adjusted operating profit excluding joint ventures 97.0 96.7 Non-cash items 31.3 31.5 Adjusted EBITDA excluding joint ventures 128.3 128.2 Working capital movement (36.3) (21.8) Operating cash flow excluding joint ventures 92.0 106.4 Inte
Slide 15: Group free cash flow to movement in recourse net debt
Group free cash flow to movement in recourse net debt 2011 2010 Six months ended 30 June £m £m Group free cash flow 51.8 93.0 Acquisition of subsidiaries (23.9) (1.4) Repayment of acquired debt (15.9) - Acquisition-related costs (2.1) - Net purchase of share capital (22.6) (16.6) Special pension con
Slide 16: Net debt
Net debt 30 Jun 31 Dec 30 Jun 2011 2010 2010 As at £m £m £m Group – cash and cash equivalents 214.5 204.0 215.1 Group – loans (576.2) (482.6) (571.1) Group – obligations under finance leases (25.0) (25.0) (24.9) Group recourse net debt (386.7) (303.6) (380.9) Joint venture – net cash and cash equiva
Slide 17: Financing and pensions
Financing and pensions Strong financing position – As at 30 June 2011, committed facilities of c£1.4bn – Greater diversification between bank and private placement facilities – Increased maturity profile Further improved pensions position – Total net balance sheet liabilities of £62m on asset ba
Slide 18: Intelenet – transaction overview
Intelenet – transaction overview Acquisition cost of up to £386m – Initial cost of £336m – Contingent payments of up to £50m through to December 2013 – Transaction costs of c£3m in FY2011 – Similar amount of integration costs, spread over FY2011 and FY2012 Fully funded from debt facilities – Exp
Slide 19: Intelenet – historic financials
Intelenet – historic financials Revenue of £170m for the year to 31 March 2011 – 12% organic CAGR over the last three years EBITDA of £32m – 20% margin over the last three years Adjusted operating profit of £19m – 12% margin over the last three years Good cash conversion – Strong operating c
Slide 20: Intelenet – expectations
Intelenet – expectations 100% consolidation from July 2011 Income statement expectations – Organic growth of 10-15% pa – Medium term revenue synergies and growth linked to contingent payments – Adjusted operating margin pre net cost synergies to remain at c12% – Net cost synergies of c£5m pa fol
Slide 21: Guidance
Guidance For 2011, still expect good organic revenue growth and further progress on operating margin – Organic revenue growth for FY expected to be similar to H1 – Acquisitions (principally The Listening Company) to add c1.5% to revenue – Do not anticipate a change in consensus revenue and operati
Slide 22: Summary
Summary Good revenue and profit growth A more usual cash flow generation Robust funding and pension positions Guidance remains
Slide 23: Operational Review
Operational Review Chris Hyman Chief Executive Serco Group plc Advise | Design | Integrate | Deliver
Slide 24: Agenda
Agenda UK Market Developments Divisional Overviews Intelenet – Tom Riall and Susir Kumar Summary and Outlook Q&A
Slide 25: UK Market Developments
UK Market Developments Headwinds may continue if further austerity measures in public service markets Open Public Services White Paper signals more competition in monopoly markets New welfare to work market in place Increasing significance of outcome-based contracting Significant expansion
Slide 26: Civil Government
Civil Government UK and Europe Revenue: +4% to £599m (2010: £574m) Key wins: Doncaster Prison (£250m/15yrs) Prisoner Escort & Custody Services (£420m/10yrs) Key developments: Significant expansion of offender management market Emergence of broader and deeper police services market Near term
Slide 27: Defence, Science and Nuclear
Defence, Science and Nuclear UK and Europe Revenue: 0% at £460m (2010: £461m) Key wins: Royal Navy Merlin helicopter fleet maintenance and support (£33m/5yrs) Nuclear submarine safety assurance (£15m/1yr) Expansions to numerous existing contracts across the portfolio Key developments: Review
Slide 28: Local Government and Commercial
Local Government and Commercial UK and Europe Revenue: -1% to £428m, -6% organic growth (2010: £433m) Key wins: Hertfordshire County Council BPO services (£200m/8yrs) started April and recently extended in scope Glasgow Access expanded to include schools ICT (£19m/7yrs) European Commission IT
Slide 29: Americas
Americas US and Canada Revenue: +3% constant currency, -2% reported to £446m (2010: £455m) Key wins: US Navy SPAWAR task orders (US$15m) Appointed to SPAWAR successor “Sea Enterprise Global” US$1.4bn IDIQ 32 C4I2TSR task orders (US$33m) and 28 HR Solutions task orders (US$41m) Key developments
Slide 30: AMEAA
AMEAA Africa, Middle East, Asia and Australasia Revenue: +37% constant currency, +44% reported to £313m (2010: £218m) Key wins: Western Australia Court Security and Custodial Services (A$210m/5yrs) Acacia prison contract renewed and expanded (A$310m/5yrs) Australian Defence Force base support
Slide 31: BPO market and the Intelenet acquisition
BPO market and the Intelenet acquisition International BPO market is growing strongly Market focus on private and public sector opportunities Higher growth and higher margin markets across the world
Slide 32: Global BPO – new markets with strong potential
Global BPO – new markets with strong potential Tom Riall Executive Chairman Serco Global BPO Advise | Design | Integrate | Deliver
Slide 33: Strategic fit to meet customers' developing needs
Strategic fit to meet customers’ developing needs New, higher growth and higher margin markets across the world BPO broadens portfolio further into private sector Intelenet builds scale and enhances depth of capabilities Revenue synergy potential across portfolio
Slide 34: Market opportunity – size and growth
Market opportunity – size and growth Large market – Addressable global BPO market of c$500bn 300 291 Domestic – Currently outsourced c$200bn 250 International 213 205 Total outsourced $bn 195 Fast growing 200 175 200 165 – International BPO expected to 150 grow at c15% pa 168 172 159 100 147 – I
Slide 35: 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 evolved Customer service Application development & Market value creation Changing business models F&A maintenance – Increased ownership and HR BFS
Slide 36: Intelenet – the next stage of growth
Intelenet – the next stage of growth Susir Kumar Chief Executive Intelenet Advise | Design | Integrate | Deliver
Slide 37: History of growth and governance
History of growth and governance Incorporated in 2000 Pedigree of supportive investors Long-standing leadership team Blue-chip international, private sector, customer base Strong operating culture of service and quality control Organic CAGR of 12% over last three years Adjusted operati
Slide 38: Expert service offerings across growing markets
Expert service offerings across growing markets Service Offerings BPO Technology Consulting Contact Centres Enabling Tools Process Consulting Banking, • Customer service • Legacy re-platform • Process mapping and documentation Financial Services • Sales • User interfaces and Insurance (BFSI) • Colle
Slide 39: Intelenet today – broad based, high value BPO
Intelenet today – broad based, high value BPO 30,000+ employees in 8 countries Committed management team with domain expertise Client base includes over 100 global companies & Indian MNCs Proven capabilities International delivery platform - blended on, near, and offshore services One of
Slide 40: Broad and diverse geographic reach
Broad and diverse geographic reach Geographically diverse customers supported on-shore, near-shore and off-shore 1 Centre Krakow, Poland 30,000 Sq. Ft. 300 Seats 300 Employees UK 26 Centres Poland North America Mumbai China Chennai Gurgaon 2 Centres Central America 2 Delhi India Philippines Bangal
Slide 41: Blue-chip, long-standing client profile
Blue-chip, long-standing client profile Building Long Term Partnerships Banking, Financial Services and Insurance Travel, Hospitality & Transportation Healthcare, Utility, Retail & Manufacturing Telecom, Technology and Online Services Media, Education, Government and Others 40
Slide 42: Banking Services
Banking Services Retail & Banking Operations Commercial Banking & Markets – Retail Liability Operations – Payment Processing – Retail Assets & Credit Cards – Cash Management – Vendor Management – Trade & Market Operations
Slide 43: Travel, Transport & Hospitality
Travel, Transport & Hospitality Reservations Sales Billing Customer Service Accounts settlement Collections Revenue Cycle Management Accounting Services Reconciliations
Slide 44: Healthcare
Healthcare Order Processing Cash Posting Eligibility & Qualification Billing & Call Centre Authorisation Adjudication Claim Repair
Slide 45: Recent developments
Recent developments Good early progress on integration – Integrating Intelenet and Serco India-based BPO operations – Progressing on cost synergies – Integrating and aligning global BPO sales pipelines New market entry – Opened a 150-seat centre in Dubai focused on financial services Positive
Slide 46: Summary and Outlook
Summary and Outlook Chris Hyman Chief Executive Serco Group plc Advise | Design | Integrate | Deliver
Slide 47: Summary
Summary Good financial performance Global portfolio demonstrates resilience New BPO capabilities added Awarded £2.5bn of new business in H1 Robust order book of £16.7bn
Slide 48: Outlook
Outlook Short term UK and US headwinds Medium and long-term confidence remains high – High revenue visibility and £29bn of identified opportunities – Efficiencies and improvements in essential services still sought – Public service reform – Significant global capability in BPO – Breadth of portf
Slide 49: Questions and Answers
Questions and Answers serco
Slide 50: Appendix
Appendix Advise | Design | Integrate | Deliver
Slide 51: Segmental breakdown
Segmental breakdown Revenue by market Revenue by geography 25% H1 2011 £2,246m 18% 57% 18% H1 2010 £2,140m 19% 63% Defence, Science Civil Government United Kingdom United States & Nuclear Local Government & Americas Other countries Commercial AMEAA
Slide 52: Currency
Currency Half year average rates Closing rates 1H 2011 1H 2010 30 Jun 31 Dec 30 Jun 2011 2010 2010 £:US$ 1.61 1.52 £:US$ 1.61 1.57 1.50 £:Aus$ 1.55 1.70 £:Aus$ 1.50 1.53 1.77 £:Eur 1.15 1.15 £:Eur 1.11 1.17 1.22 Full year average rates FY 2010 FY 2009 £:US$ 1.54 1.56 £:Aus$ 1.68 1.99 £:Eur 1.16 1.12
Slide 53: Case study – Banking Services
Case study 1 – Banking Services Retail & Branch Banking Operations Commercial Banking & Markets Retail Liability Retail Assets & Vendor Payments Cash Trade & Market Operations Credit Cards Management Processing Management Operations • Account Life-cycle • Origination • Custody • Pass or Reject • Acc
Slide 54: Case study – Credit Bureaux
Case study 2 – Credit Bureaux Disclosures Disputes Exclusive Services - Mortgages Technical Helpdesk Fraud • Receive Data from • Initiate disputes with • Update accounts with responses • Provide Technical • Handle queries Member Banks and the credit grantors at received from credit grantors support
Slide 55: Case study – Travel, Transport & Hospitality
Case study 3 – Travel, Transport & Hospitality Voice Operations Data and Back Office Operations Customer Service & Contract Loading & Telesales Helpdesk Support F&A Escalations Fulfillment • Up-sell / Cross-sell • Amendments/ • B2B support for agencies • Ticketing and Quality • General Ledger Cancel
Slide 56: Case study – Healthcare
Case study 4 – Healthcare Order Processing Eligibility & Authorisation Claim Repair Cash Posting Billing & Call Adjudication Qualification Centre • Appointment • Pre- • Preliminary • Electronic • EOB Review • Certified Coders • Indexing & Scheduling authoriisation authorisations rejections for CPT-4
Slide 57: Case study – Telecoms
Case study 5 – Telecoms Snapshot • Over 10,000 FTEs in 5 dedicated centers in India • Work with 5 of the top 8 telecom providers in India • Telecom sector witnessed high growth in the last 3 years and will be a key driver for Intelenet due to increased telecom penetration and introduction of new ser
Slide 58: Case study – Finance & Accounting Services
Case study 6 – Finance & Accounting Services Clients (2,000+ FTEs) Procure to Pay Accounting, closing Decision support Risk Management, Order to Cash T&E & reporting and FP&A Payroll & others • Invoice receipt and • Invoicing and billing • General ledger • Product and channel • SOX / Internal contro