2013 Full Year Results
Date: 04 Mar 2014
A challenging 2013 and near-term outlook; markets remain attractive.
12 months to 31 December 2013
|Change at constant currency|
|Adjusted revenue - ongoing activities*|
|Adjusted operating profit - ongoing activities*|
|Adjusted operating profit|
|Adjusted profit before tax*|
|Profit before tax|
|Adjusted earnings per share (basic)*||39.53p||41.55p||(4.9%)||(2.1%)|
|Earnings per share (basic)||19.51p||48.94p||(60.1%)||(58.0%)|
|Dividend per share||10.55p||10.10p||+4.5%||n/a|
|Free cash flow||£84.8m||£181.2m||(£96.4m)||n/a|
* Adjusted measures include Serco's proportional share of joint ventures and are before a pre-tax net exceptional charge of £90.5m (2012: net exceptional profit of £51.7m) and management's estimate of indirect costs incurred and allocation of expenses in relation to the UK Government reviews of £21.0m. Ongoing activities exclude the financial results of disposals. Notes and definitions are below, reconciliations and descriptions of costs are included in the Finance Review as is the income statement.
Ed Casey, Acting Group CEO, said: "We have been through a difficult year and there remains much to be done to ensure the agreed programme of corporate renewal is successfully implemented. However, the work we have completed and the undertakings we have made demonstrate our commitment to achieve this.
"The events of 2013 absorbed management's focus and, therefore, interrupted the normal process of improving efficiency and developing our business into new areas. Over the second half of 2013 and until the end of January 2014 we were not able to be awarded new contracts by UK Central Government, which also had an impact on the development of our business in certain other sectors.
"Our focus is clear, to ensure that the Group has stable operations, appropriate operational controls and differentiated capabilities to make the most of the breadth of our offering across frontline and middle and back office services, and our referenceability from one country to another. I am confident that these attributes will enable Serco's return to growth in what remain fundamentally attractive service markets around the world."
Revenue growth of 5.6% for the Group; growth of 5.9% on an organic basis
- UK & Europe: organic growth of 3%, driven by first half growth from new contracts won in the previous year
- Americas: held steady, with new health and transport contract wins despite a challenging US federal market
- AMEAA: organic growth of 18%, supported by increased volume of work in immigration services
- Global Services: organic growth of 5%, with strong first half from previous awards partially offset by a weaker second half of the year
Reduced profit and cash generation
- Adjusted operating margin from ongoing activities declined to 5.6%, driven in particular by higher BPO bid investment and fewer contract awards in the year
- Adjusted earnings per share (basic) of 39.53p, a decline of 2.1% at constant currency
- Net exceptional charge of £90.5m, reflecting principally the Electronic Monitoring settlement and one-off costs, together with an estimated £21.0m of other indirect costs in relation to the UK Government reviews
- Operating profit of £143.8m, a decline of 44.6% at constant currency
- Earnings per share (basic) of 19.51p, a decline of 58.0% at constant currency
- Free cash flow declined to £84.8m after BPO working capital investment and other adverse timing effects
Increased total dividend for the year and robust financing position
- Proposed final dividend held at 7.45p; total dividend for the year of 10.55p, up 4.5%; ongoing transition to higher payout ratio
- Group recourse net debt of £725m; sufficient financing headroom maintained
Further progress on contract awards and strategic positioning
- £3.7bn of contract awards; order book of £17.1bn as at 31 December 2013
- New US contract awards broadened successfully the Americas portfolio
- Non-core disposals reflected ongoing assessment of operations against their fit to Group strategy
Challenging near-term outlook
- 2014 faces above-average contract attrition, reduced volume of work in Australian immigration services and lower expected growth from new contracts awarded
- As previously disclosed, a mid-single digit organic revenue decline and a 50-100 basis points reduction in Adjusted operating margin is anticipated
- Of 2014 revenue, order book visibility of 77%; rebid/extension revenue still to secure of 8%
Securing Serco's position in large and growing markets
- Equal bidding basis for current UK Central Government work restored following corporate renewal positive assessment; settlement reached with UK Ministry of Justice (MoJ); conclusion of UK Government audits and reviews
- Comprehensive programme of corporate renewal to ensure consistency of appropriate behaviours and improve operations across the Group
- Ongoing demand for efficient, high quality and innovative service provision from public and private sector customers around the world
- Pipeline of new bid decisions over next two years valued at approximately £12bn or aggregate annual revenue of approximately £1.4bn
- As announced recently, Rupert Soames OBE appointed as Group Chief Executive with effect from 1 June 2014; currently Group Chief Executive of Aggreko plc, the FTSE100 support services company
Notes and definitions:
2012 is restated for changes to accounting standards IAS 19 Revised (Employee Benefits) and IFRS 11 (Joint Ventures).
Adjusted measures include Serco's proportional share of joint ventures. Adjusted operating profit and Adjusted profit before tax are before amortisation of intangibles arising on acquisitions, transaction-related costs and exceptional items, as shown on the face of the Group's consolidated income statement and the accompanying notes. They are also before management's estimate of indirect costs incurred and allocation of expenses in relation to the UK Government reviews. The Adjusted earnings per share measure also takes account of the tax effect of these adjusting items. Adjusted net debt includes Serco's proportional share of joint venture net cash. Reconciliations to GAAP measures, together with descriptions of each adjusting item, are included in the Finance Review as is the income statement.
Change at constant currency has been calculated by translating non-Sterling revenue and earnings for 2013 into Sterling at the average exchange rates for 2012.
Ongoing activities measures exclude the financial results of subsidiaries and operations disposed of in 2013 (being the UK occupational health business and the UK transport maintenance and technology business) and in 2012 (being nuclear consulting services, defence-related German operations, education software and UK data hosting operations).
Organic revenue growth is the change at constant currency in Adjusted revenue from ongoing activities (thereby excluding disposals) and also excludes incremental revenue from acquisitions completed in the current or prior financial year.
Free cash flow is from subsidiaries and dividends received from joint ventures, and is reconciled to recourse net debt in Section 6 of the Finance Review, and to the movement in cash and cash equivalents, including the share of joint venture cash movements, in Section 3 of the Finance Review.
The order book reflects the estimated value of future revenue based on all existing signed contracts, including Serco's proportional share of joint ventures. It excludes contracts at the preferred bidder stage and excludes the award of new Indefinite Delivery, Indefinite Quantity (IDIQ) contract vehicles and Multiple Award Contracts (MACs) where Serco are one of a number of companies able to bid for specific task orders issued under the IDIQ or MAC. The value of any task order is recognised within the order book when subsequently won.
The total opportunity pipeline is the estimated value of all future potential new, expansion, rebid and extension opportunities that are clearly defined and identifiable, including the estimate of any proportional share of future joint venture arrangements. The pipeline of new bid decisions over the next two years is the aggregate value of potential new contracts that are anticipated to be bid in the near term, where annual revenue for each is estimated to be in excess of £10m and where the estimated total contract value of each is capped at £1bn.
For further information please contact Serco:
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386 227
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386 226
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