2019 Full Year Results Serco Group plc 26 February 2020 Serco Group plc – 2019 Full Year Results 1
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”, “anticipate”, “may”, “could”, “should”, “will”, “aspire”, “aim”, “plan”, “target”, “goal”, “ambition”, “intend” and similar expressions identify forward looking-statements. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Factors which may cause future outcomes to differ from those foreseen or implied in forward-looking statements include, but are not limited to: general economic conditions and business conditions in Serco's markets; contracts awarded to Serco; customers' acceptance of Serco's products and services; operational problems; the actions of competitors, trading partners, creditors, rating agencies and others; the success or otherwise of partnering; changes in laws and governmental regulations; regulatory or legal actions, including the types of enforcement action pursued and the nature of remedies sought or imposed; the receipt of relevant third party and/or regulatory approvals; exchange rate fluctuations; the development and use of new technology; changes in public expectations and other changes to business conditions; wars and acts of terrorism; and cyber-attacks. Many of these factors are beyond Serco’s control or influence. These forward-looking statements speak only as of the date of this presentation and have not been audited or otherwise independently verified. Past performance should not be taken as an indication or guarantee of future results and no representation or warranty, express or implied, is made regarding future performance. Except as required by any applicable law or regulation, Serco expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this presentation to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such statement is based after the date of this presentation, or to keep current any other information contained in this presentation. Accordingly, undue reliance should not be placed on the forward-looking statements. Serco Group plc – 2019 Full Year Results 2 2
Agenda Overview Rupert Soames, Group CEO Financial Review Angus Cockburn, Group CFO Operational Review Rupert Soames AsPac Update Mark Irwin, Divisional CEO Q&A Rupert Soames Angus Cockburn Mark Irwin Serco Group plc – 2019 Full Year Results 3
FY19 Overview Rupert Soames Group Chief Executive Serco Group plc – 2019 Full Year Results Serco Group plc – 2019 Full Year Results 4 4
FY19 – moving further into the ‘Grow’ stage • Ver ery y strong ng trad ading ng and and financi nancial al per erformance ance – Revenue £3,248m, up +13% at CFX; +8% organic, the first year of growth since 2013; +5% acquired – UTP £120m, up +25% at CFX; margin up 40bps to 3.7% – Underlying EPS 6.16p, up +15% at CFX – Free Cash Flow £62m; a more ‘normal’ 84% conversion of Underlying PAT • Re Record o d orde der in r inta take ke a and o d orde der bo r book – £5.4bn order intake; 2019 third year in a row that order intake exceeded revenue – Order book increased to £14.1bn, up from £12.0bn 12 months ago • NSBU acq SBU acqui uisition n mat ater erial ally ad y adds to s scal cale e and and cap capab ability o y of US d US def efence ence bus usines ness – Adds naval design, systems engineering, procurement and lifecycle support services to Serco’s existing skills in ship modernisation, integration and naval logistics – Doubles our US Navy work; long-term and growing demand for fleet expansion and maritime support • Robus ust Bal Balance ance Sheet Sheet – Underlying leverage 1.31x EBITDA; covenant leverage 1.17x; Adjusted Net Debt £215m – OCP journey is materially complete; no use of working capital facilities; pension schemes well funded; no refinancing required near-term • 2020 2020 gui uidance ance for fur further her g growt wth i h in b n both R h Revenue evenue and and UT UTP – Revenue £3.4-3.5bn; ~+4% organic growth, plus ~+5-6% annualisation from NSBU acquisition – UTP to grow ~20% to ~£145m • Di Divi vidend end r rei eins nstat ated ed, ref eflect ecting ng f fur urther her g good progres ess ex expect ected ed i in n 2020 and 2020 and und under erlini ning ng the he scal cale o e of tur urnar naround und s since 2014 nce 2014 Serco Group plc – 2019 Full Year Results 5
Profit: ~28% 28% C CAGR 2017-20 (~22% excluding NSBU contribution) Revenue: 8% 8% 2019 organic @ CFX, ~4% 4% 2020 ~£145m £145m (inc. ~£20m for NSBU) £120m £120m £m UTP ~4. 4.2% 2% m margin in (inc. £8.6m for 5 months of NSBU acquisition) 140 £93m £93m 3. 3.7% 7% m margin in 120 £69m £69m 3. 3.3% 3% m margin in 100 the nadir 80 2.3% 2. 3% m margin in 60 40 20 0 FY17 FY FY FY18 FY FY19 FY20e FY 0e • As predicted in 2014 Strategy plan, we transitioned from the “Transform” into the “Grow” stage in 18/19 • Stronger than anticipated FY19 - part-year acquisition contribution as well as very strong organic growth • Revenue growth in FY19, the growth expected in FY20, as well as our very strong order intake, indicates we are outperforming our overall market which we think is growing at 2-3% on a weighted basis Serco Group plc – 2019 Full Year Results 6
FY19 Financial Review Angus Cockburn Chief Financial Officer Serco Group plc – 2019 Full Year Results Serco Group plc – 2019 Full Year Results 7 7
Income Statement – Revenue and Trading Profit £m FY19 FY18 HY19 Revenue excludes share of JV&A revenue; Rev evenue enue 3,248 2,837 1,476 Trading Profit measures Trading Profit 133.4 116.7 50.6 include share of JV&A PAT Exclude: Contract & Balance Sheet Review adjustments (3.6) (23.6) - Contract & Balance Sheet Exclude: other one-time items (DFRP settlement) (9.6) - - Review adjustments and Underl rlying Trad rading Pro rofit ( t (UTP) 120. 120.2 2 93. 93.1 1 50.6 50. 6 other one-time items excluded from UTP UTP mar margin 3. 3.7% 7% 3.3% 3. 3% 3. 3.4% 4% FY19 adopts IFRS16, prior Exclude: IFRS16 benefit (1.2) n/a (1.6) periods not restated; UTP excluding IFRS16 benefit Unde derlying T g Tradi ding g Profit (U (UTP) ) pr pre I IFRS RS16 119.0 119. 0 93. 93.1 1 49. 49.0 0 shown for comparison UTP m margin pre re IF IFRS RS16 16 3.7% 3. 7% 3. 3.3% 3% 3. 3.3% 3% • Fa Favour urable e cur urrenc ency i impact in n FY FY19: 19: R Rev evenue enue +£42. +£42.2m 2m; UTP +£3. +£3.7m 7m – Sterling weakened 6c against the US$ but strengthened 5c against the Aus$ • Transl nslationa nal FX FX sensi sensitivity: – FY19 £:US$ av. rate of 1.28; 5c move = ~£50m Revenue, ~£4m UTP (based on Americas + Middle East) – FY19 £:Aus$ av. rate of 1.83; 5c move = ~£20m Revenue, ~£1m UTP (based on AsPac) • Est stimated ed a adver erse se cur urrenc ency impact f for FY FY20e: 20e: Rev evenue enue £80 £80-90m 90m; U UTP ~£5m ~£5m – Assumes FY20e £:US$ av. rate of 1.31 and £:Aus$ av. rate of 1.95, based on actual rate for January 2020 and then applying 31 January 2020 spot rates for the rest of the year Serco Group plc – 2019 Full Year Results 8
Revenue divisional analysis Revenue - growth composition FY19 vs FY18 First time Serco has FY18 HY19 FY19 reported organic growth Reported Acquisition/ Reported Constant Reported since 2013 £m Currency Disposal Currency Currency Currency Organic FX TOTAL Organic growth driven by UK&E 1,301 +2% +3% - +5% 1,362 1,362 658 Americas (predominantly Americas 646 +19% +16% +7% +42% 916 873 372 in defence Ship & Shore AsPac 548 +16% - (3%) +13% 621 636 280 task orders and FEMA), and in AsPac (from the Middle East 342 (2%) - +4% +2% 350 335 166 new AHSC Garrison Total tal 2, 2,837 837 +8. 8.2% 2% +4.8 .8% +1. 1.5% 5% +14. 14.5% 5% 3, 3,248 248 3, 3,206 206 1, 1,476 476 Health contract in H2 and Citizen Services contact FY19 v FY 19 v FY FY18 18 +£230m +£140m +£42m +£412m centre and processing operations) • Organic growth of +8%, comprised +4% in H1 accelerating to +12% in H2 UK moved to positive • Constant currency growth of +13% reflects the acceleration in organic growth organic growth due to the start of the expanded together with the acquisition contribution resulting from five months AASC contract in H2 consolidation of NSBU from August 2019 (the Carillion hospital FM contracts annualised around the same time as transfers occurred June-August 2018) Serco Group plc – 2019 Full Year Results 9
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