Serco Group plc - 2014 half year results
|Year ended 31 December||2014||2013|
|Adjusted Operating Profit||£50.7m||£146.3m|
|Reported Operating Profit||£9.9m||£125.1m|
|Adjusted Profit Before Tax||£33.3m||127.1m|
|Reported (Loss)/Profit Before Tax||(£7.3m)||£106.1m|
|Adjusted Earnings Per Share (basic)||4.96p||19.69p|
|Reported Earnings Per Share (basic)||(1.27p)||17.18p|
|Dividend Per Share||3.10p||3.10p|
|Free Cash Flow||£51.6m||£29.0m|
|Recourse Net Debt at end of period||£559.3m||£731.5m|
Adjusted measures include Serco's proportional share of joint ventures and are before a pre-tax net exceptional charge of £29.4m and management's estimate of one-off costs incurred in relation to the UK Government reviews and related activities of £2.7m. Notes and definitions are provided on page 2, reconciliations and descriptions of costs are included in the Finance Review on pages 12 to 25 and the income statement is presented on page 28.
- Adjusted Operating Profit of £50.7m, equivalent to £59.9m at constant currency, and after charging a loss of £14m in relation to the COMPASS contract
- Recourse net debt down £166m in the period, following successful share placing and improved Free Cash Flow; down £172m on twelve months earlier
- Net debt : EBITDA leverage ratio of 2.41x at 30 June 2014
- 2014 full year guidance maintained
- Good progress strengthening the management team, with four new senior appointments including Angus Cockburn joining as CFO from end of October
- Corporate Renewal Programme and Strategy Review proceeding to plan
Rupert Soames, Serco Group Chief Executive Officer, said: "As expected, trading was poor in the first half. Profits were in line with our revised expectations, and cash flow and net debt were better. We are making good progress with our Strategy Review, and in rebuilding trust and confidence with the UK Government. Many challenges remain, and we have a lot of work to do, but I am confident that, in time, we can restore the Company's fortunes."
"Good progress has been made strengthening the organisation structure and leadership. I am delighted that Angus Cockburn, currently Interim Group CEO at Aggreko, will be joining us as CFO in October; Kevin Craven, CEO of Balfour Beatty Services, will join in September as CEO of our UK Central Government division; Liz Benison, previously VP and General Manager of Computer Science Corporation's UK business, will be joining as CEO of our UK & Europe Local & Regional Government division also in September; and David Eveleigh, General Counsel of BT Global Services, will join as Group General Counsel and Company Secretary in November. These are strong appointments, and we have also moved to simplify and rationalise our Group structure in the AMEAA region."
Revenue broadly level at constant currency, though profitability significantly reduced
- Adjusted Revenue on an organic basis grew 2%, reflecting principally new contracts starting in the second half of last year, particularly in the US, and growth in the AMEAA region
- Adjusted Operating Profit was significantly reduced, driven in particular by: reductions in Australian Immigration Services; reductions on other contracts which had attracted higher-than-average margins; and additional costs to improve operational performance on some contracts
- Reported Operating Profit and other reported measures include the impact of a net exceptional charge of £29.4m; earnings measures include the impact of dilution from the equity placing
- £2.5bn of contract awards in the period; order book level at £17.1bn, giving 2014 revenue visibility of 96%
Whilst many challenges and uncertainties remain, guidance maintained for the full year
- 2014 guidance maintained: at constant currency, Adjusted Revenue of at least £4.8bn and Adjusted Operating Profit of not less than £170m; at estimated reported currency £4.6bn and £155m respectively
- Phasing of profitability will, as expected, be skewed towards the second half, split approximately one-third/two-thirds across the half-year periods; second half improvement includes seasonality, greater cost saving delivery and non-repeat of certain charges
- As previously stated in early July, the Strategy Review involves a detailed analysis of our contracts. This process is expected to be completed in time for our full-year results, and to the extent that there are financial consequences of this review, these may impact our currently stated expectations for the year.