Final Results - Year Ended 31 December 1999
Serco Group PLC
2 March 2000
SERCO GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999
ACHIEVEMENT HIGHLIGHTS
- Turnover* up 17.4% to £807.5m (1998 - £687.8m)
- Profit before tax (pre FRS 10) up 18.8% to £31.4m (1998 - £26.4m)
- Earnings per share (pre FRS 10) up 17.8% to 33.8p (1998 - 28.7p)
- Dividend per share up 15.5% to 8.55p per ordinary share (1998 - 7.4p)
* Including joint ventures
Richard White, Executive Chairman, stated:
'With our global reach and ability to handle operations on the scale of the UK's
Atomic Weapons Establishment, we are a highly credible contender for very large
challenges such as the UK's National Air Traffic Services Public Private
Partnership and the many large Private Finance Initiatives currently under
discussion. These large opportunities are not confined to the UK: they exist in
Asia Pacific and North America. Looking further ahead, we are also seeking
opportunities in Japan in association with the Itochu Corporation. Meanwhile, we
should not lose sight of the continuing strong growth in our traditional
business, across all our regional markets. It is this underlying strength that
makes us confident of delivering continued progress in 2000 and beyond.'
Notes to Editors
Serco Group plc is an international task management contractor to government and
industry, providing comprehensive engineering and support services across a wide
range of applications.
For further information please contact Serco Group plc: Tel: +44 (0)1932 755900
Richard White - Executive Chairman
Kevin Beeston - Chief Executive
Chris Hyman - Finance Director
The Serco Group plc Annual Review and Accounts is available from 2 March 2000 on
our internet site at www.serco.com
SERCO GROUP PLC
RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999
For the eleventh successive year since Serco's flotation, our sales, profit and
cash flow performance has fully met expectations.
In 1999, sales grew by 17.4% to £807.5 million. Pre-tax profits rose 18.8% to
£31.4 million pre FRS 10 (Goodwill and Intangible Assets) and by 14.5% to £29.3
million after FRS 10. Earnings per share before and after FRS 10 rose 17.8% and
11.7% respectively. The recommended final dividend of 5.9p per share makes a
total of 8.55p for the year - an increase of 15.5%.
The Group can look forward to continued strong growth this year. We have been
winning new business at an increasing rate, retaining over 90% of our contracts
as they come up for renewal and growing successfully across all our markets. We
were particularly pleased to be part of the consortium that won the contract,
worth at least £2.2 billion, to manage the UK's Atomic Weapons Establishment.
This is a milestone for us, not just in its size and complexity but because of
the confidence it displays in Serco's capability and responsibility. It gives us
a platform for pursuing the larger opportunities that are emerging worldwide -
while continuing to grow in our traditional markets, which still have immense
potential.
Serco is in many ways a 21st century business. Our devolved structure and
minimal hierarchy owe little to 20th century models and our function is to help
customers modernise their own activities. We use advanced technology to share
ideas and information freely worldwide - we are making further substantial
investments in new information technology systems this year - but we never
forget that the technology exists purely to support our people.
Business Review
Sales growth continues worldwide
In the UK, the largest contract win of the year - in fact, our largest ever -
was for the management of the UK's Atomic Weapons Establishment at Aldermaston.
The contract includes a 25-year Public Private Partnership (PPP) option to add
private finance to accelerate development of the site. This is in addition to
the 10 other Private Finance Initiative (PFI) opportunities that we are
currently pursuing. We were shortlisted for the STEPS programme, under which the
contractor will assume ownership of the entire Inland Revenue and HM Customs &
Excise property portfolios and provide office facilities to meet both
organisations' requirements. We also made a breakthrough into infrastructure
maintenance for Railtrack. As the first new entrant to this market we believe we
have opened the door to an area with considerable potential. These are all
exciting developments, but they should not overshadow the strong underlying
growth that we achieved in our traditional business.
In Continental Europe we built on a well established base in Italy, France,
Belgium, the Netherlands and Sweden. We are also making our mark in Germany, and
in 1999 we acquired Elekluft Elektronik und Luftfahrtgerate GmbH, a German
company providing engineering and facilities management services to military,
aerospace and other commercial customers. This business has now been renamed
Serco GmbH & Co. KG.
In Asia Pacific business was buoyant, particularly in the Australian and New
Zealand defence sectors. We also had significant wins in the transport sector
and acquired the remaining 50.8% of shares in Great Southern Railway, which
operates three interstate passenger rail services in Australia.
We made good headway in North America, where state and local governments are
becoming increasingly alert to the value of outsourcing and new large-scale
strategic opportunities are emerging.
Central and local government
We continued to make good progress in PPP and PFI projects. In the UK the
contract for a new prison in Staffordshire brought our total signed contracts to
12: our share of the total operating turnover will amount to more than £80
million a year.
The new contract is for an 800-bed unit which will be the UK's first
private-sector prison to incorporate a therapeutic community. It is the fifth
PFI contract won by Premier Prison Services (PPS), our joint venture with
Wackenhut Corrections, to design, construct, manage and finance custodial
facilities. In addition to the five PFI projects, PPS manages HM Prison and
Young Offenders Institution, Doncaster (where we have been awarded preferred
bidder status of a further 10-year contract), has two prisoner escort contracts
handling 250,000 prisoners a year, manages two of the UK's four electronic
tagging contracts and provides over 60% of the equipment for electronic tagging
used in the UK.
In the UK the Central Computer and Telecommunications Agency chose Serco for a
framework agreement to provide a range of live and automated call handling
services including call centres, linked to client or Serco operated databases.
This could be a key contract, as the government wants it to be possible for 25%
of public dealings with government departments to be made electronically by 2002
- rising to 50% in 2005 and 100% in 2008. We also won a two-year extension of
our call centre contract with the Driver and Vehicle Licensing Agency - the
first time this contract has been extended in partnership in this way. The Aqua
Vale swimming complex - our third PPP to develop new public leisure facilities -
confirmed our strength in this growth market. We are also developing a promising
position in professional services for property portfolios, having been awarded
preferred bidder status on our second contract in this field from a UK local
authority.
The National Physical Laboratory (NPL) won over £15 million of commercially
competed business in 1999, from clients as diverse as BP Amoco and the Greek
Government. NPL is developing a growing portfolio of innovation-related
management contracts for governments - including for example, a contract to
carry out initial appraisal of year 2000 innovation applications for the Queen's
Awards for Enterprise. During 1999 the members of the Metre Convention signed a
Mutual Recognition Agreement, which NPL expects will create new opportunities in
the international market for calibration and measurement services.
We were one of 33 companies that signed an outline agreement with the German
defence ministry, which is a first step to opening up the market for government
services in Germany.
In North America, the Federal Aviation Administration recognised our excellence
in air traffic control (ATC) by adding 13 towers to our existing contract. We
renewed parking enforcement contracts in California and Maryland and won another
in Chicago. The Serco operated Hopewell Rocks site in New Brunswick, Canada won
a British Airways award as one of the best tourist destinations in North
America.
In the Middle East we renewed our contracts at Dubai International Airport and
the United Arab Emirates Air Traffic Control Centre. We also won our first
contract in Lebanon, managing part of the American University of Beirut.
Defence
We maintained our growth in the UK, partly by extending the scope of existing
contracts - for example at the Royal Navy's two major Fleet Air Arm bases, where
we added significant new responsibilities. We also won a Ministry of Defence
contract to manage the procurement and building of seven auxiliary passenger
vessels for the existing port services contracts supporting RN Naval Bases.
In Asia Pacific we made strong gains in support services for the Australian and
New Zealand military.
We continue to extend our reach into the most remote parts of the world with the
award of preferred contractor status at the New Zealand Antarctic base. Added to
our existing US Antarctic ATC contract, this means we will have over 60 staff
based on the ice in Antarctica.
International agencies
In Belgium we won our first two contracts from Eurocontrol, the European
organisation for air navigation safety, and a support contract for the European
Commission's Data Centre.
Our relationship with the European Meteorological Satellite Agency (EUMETSAT)
continued to develop during the year: we won a new contract for data archive and
retrieval services and, in partnership with Alcatel, a substantial increase in
our existing contract for the provision of spacecraft operations analysts and
operators for existing and future missions.
Transport
In a good year for new rail business we won our first contract for
infrastructure maintenance, a market with great potential. Although we already
have a broad range of engineering and maintenance contracts with Railtrack, this
infrastructure contract is a breakthrough - making us the first new player in UK
track maintenance since the rail network was privatised. This contract involves
the transfer to Serco of some 700 staff from the existing contractor. It
followed another contract worth over £48 million to operate and maintain
Railtrack's new fleet of multi-purpose vehicles for traction improvement,
de-icing and vegetation control.
We also entered new geographical territory - winning a contract to mobilise and
operate the highly automated Copenhagen Metro, opening in 2002, and our first US
rail contract, to supply Amtrak with testing services.
We made good progress in traffic management systems in Asia Pacific and Europe,
using increasingly sophisticated technology. HM Customs & Excise ordered our
automatic number plate recognition equipment in the UK and we saw growing demand
for Gatsometer speed and red light cameras in Ireland and the UK.
Among several new aircraft maintenance contracts, we began a promising
relationship with MAS Aerotechnologies, which is a wholly-owned subsidiary of
Malaysian Airlines. MAS Aerotechnologies is building a substantial aircraft
maintenance operation based in Kuala Lumpur. We are providing licensed engineers
and consultants (when they are not locally available) to support their current
maintenance operations and help build new maintenance businesses on aircraft
types which are outside their current capabilities. We anticipate significant
opportunities to build on this contract, both by increasing our contribution to
MAS Aerotechnologies and by providing similar services to other customers. In
the UK we enlarged our contracts with Inflite Engineering Services at Stansted
Airport and Marshall Aerospace.
On the European mainland we began a new relationship with the Belgian airport
authorities with a contract to support technical operations at Zaventem, the
country's national airport. Our International Fire Training Centre at Teesside,
UK, won a contract from the Hellenic Civil Aviation Authority.
Commerce and industry
We saw an increase in opportunities for facilities management which should
continue through 2000, winning contracts from blue-chip customers such as Boots
The Chemists, Ericsson, IBM and Microsoft.
Our online services operation benefited from the continuing growth of call
centre and e-commerce business. And our consultancy operation experienced
overwhelming demand for its advice on the usability of information systems and
new developments in e-commerce and interactive TV. Despite taking on additional
consultants it was unable to keep pace with demand and expects to continue rapid
growth in 2000.
Managing the business
As we grow, it becomes increasingly important to check - both formally and
informally - that we are still living up to our customers' and our own
expectations.
In 1999 we commissioned the Serco Institute to conduct a worldwide customer
survey. This confirmed general satisfaction with our approach and performance -
as our contract renewal rate of over 90% continues to confirm. We are encouraged
by the positive overall response, but not complacent. We are using the findings
to improve our service wherever we can: for example, although our communication
was considered good, some respondents wanted us to pay more attention to
discussing their future requirements, particularly the skills they need.
We believe that much of our success stems from a strong culture based on clear
values. To formalise the way we monitor these, we asked Arthur Andersen to
evaluate the application of our values across senior management in January 2000.
The review concluded that Serco is clearly differentiated by its culture,
particularly in the way it values people, devolves responsibility, and shows
commitment to straightforwardness in dealings with staff and customers.
We apply effective risk management to all our activities and have had a risk
manager reporting directly to the group chief executive since August 1998. Risks
and proposed responses are regularly reviewed at all levels and, as part of this
process, we will be continuing to review and audit the effectiveness of internal
controls in 2000.
Our non-executive directors play an important role in monitoring our performance
from an independent perspective. We are pleased to announce the appointment of a
third non-executive director, Ralph Hodge, with effect from 5 April 2000. A
distinguished engineer with a keen interest in management education, Ralph was
formerly chief executive of ICI Chemicals and Polymers, a non-executive director
of Halifax Plc and chairman of Enron Europe Limited. He also chaired the
committee that created the ISO 9000 quality standard. He is currently chairman
of the Water Research Council, deputy chairman of Azurix International Limited,
a director of Wessex Water Services Limited and a non-executive chairman of the
Addis Group.
Summary Consolidated Profit and Loss Account
For the year ended 31 December 1999
1999 1998
£'000 £'000
Turnover: Group and share of joint ventures
- continuing operations 807,544 687,760
Less: share of joint ventures (138,982) (113,471)
Group turnover 668,562 574,289
Cost of sales (580,586) (499,052)
Gross profit 87,976 75,237
Administrative expenses (63,824) (51,865)
Amortisation of goodwill (2,092) (823)
Other administrative expenses (61,732) (51,042)
Operating profit - continuing operations 24,152 23,372
Share of operating profit in joint ventures 11,121 6,315
Gross operating profit 35,273 29,687
Net exceptional items - 162
Interest (net)
Group (2,643) (2,088)
Share of joint ventures (3,298) (2,142)
Profit on ordinary activities before taxation 29,332 25,619
Taxation on profit on ordinary activities (9,538) (8,199)
Profit on ordinary activities after taxation 19,794 17,420
Dividends (5,593) (4,888)
Retained profit for the financial year 14,201 12,532
Earnings per Ordinary Share of 2p each:
Basic earnings per share, after amortisation
of goodwill 30.6p 27.4p
Basic earnings per share, before amortisation
of goodwill 33.8p 28.7p
Diluted earnings per share, after amortisation
of goodwill 30.4p 27.0p
Diluted earnings per share, before amortisation
of goodwill 33.6p 28.3p
Dividend per share:
Interim dividend 2.65p 2.30p
Proposed final dividend 5.90p 5.10p
Summary Consolidated Balance Sheet
At 31 December 1999
1999 1998
£'000 £'000
Fixed assets
Intangible asset 66,854 23,332
Tangible assets 36,508 23,962
Investments in joint ventures 18,022 10,617
Total fixed assets 121,384 57,911
Current assets/(liabilities)
Stocks 26,830 9,127
Debtors 161,900 157,365
Cash (net of overdraft) 35,187 43,991
Trade and other creditors (105,565) (85,381)
Accruals and deferred income (74,970) (58,137)
Net current assets 43,382 66,965
Long term creditors (47,232) (48,957)
Provisions for liabilities and charges (25,906) (3,726)
Equity shareholders' funds 91,628 72,193
The financial information set out on pages 5 to 7 do not constitute the
Company's statutory accounts for the years ended 31 December 1999 or 1998, but
are derived from those accounts. Statutory accounts for 1998 have been
delivered to the Register of Companies and those for 1999 will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain statements
under s237(2) or (3) of the Companies Act 1985.
Summary Consolidated Cash Flow Statement
For the year ended 31 December 1999
1999 1998
£'000 £'000
Net cash inflow from operating activities 36,818 30,032
Dividends received from joint ventures 2,156 1,023
Returns on investment and servicing of finance (3,482) (2,088)
Taxation (7,279) (4,404)
Capital expenditure and financial investment (4,627) (9,329)
Acquisitions and disposals (26,288) (15,857)
Equity dividends paid (5,018) (4,302)
Net cash outflow before financing (7,720) (4,925)
Financing (1,084) 31,307
(Decrease)/increase in cash (8,804) 26,382
Balance at 1 January 43,991 17,609
Balance at 31 December 35,187 43,991
Distribution of Annual Review and Accounts
Copies of the Annual Review and Accounts, or where appropriate, Annual Review
and Summary Financial Statements are being sent to all shareholders of Serco
Group plc. Copies are available on 2 March 2000 from either our internet site at
www.serco.com or on request from the Registered Office:
Serco Group plc
Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex TW16 7HT
United Kingdom
Telephone: +44(0)1932 755900
Facsimile: +44(0)1932 755854
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