REG - Serco Group PLC - 2015 half year results <Origin Href="QuoteRef">SRP.L</Origin> - Part 3
11/08/2015 07:00
- Part 3: For the preceding part double click ID:nRSK6452Vb
1,789.3 2,026.3 3,955.0
Cost of sales (1,597.1) (1,826.9) (4,019.7)
Gross profit/(loss) 192.2 199.4 (64.7)
Administrative expenses
General and administrative expenses (143.4) (149.9) (597.4)
Exceptional (loss)/profit on disposal of subsidiaries and operations 7 (4.9) 2.2 (5.4)
Other exceptional operating items 7 (79.7) (31.6) (656.1)
Other expenses - amortisation and impairment of intangibles arising on acquisition (2.9) (5.8) (23.7)
Share of profits in joint ventures, net of interest and tax 6 13.9 13.8 30.0
Operating (loss)/profit (24.8) 28.1 (1,317.3)
Operating profit/(loss) before exceptional items 59.8 57.5 (655.8)
Investment income 8 4.3 2.8 6.2
Finance costs 9 (22.9) (20.0) (42.9)
Exceptional finance costs 7 (32.8) - -
Total net finance costs (51.4) (17.2) (36.7)
(Loss)/profit before tax (76.2) 10.9 (1,354.0)
Tax on (loss)/profit before exceptional items (15.8) (6.1) (11.1)
Tax on exceptional items 0.3 4.2 18.0
Tax (charge)/credit 10 (15.5) (1.9) 6.9
(Loss)/profit for the period (91.7) 9.0 (1,347.1)
Attributable to:
Equity owners of the Company (91.5) 9.0 (1,347.3)
Non-controlling interests (0.2) - 0.2
Earnings per share (EPS)*
Basic EPS 12 (10.32p) 1.42p (205.66p)
Diluted EPS 12 (10.32p) 1.39p (205.66p)
*Restatement of earnings per share reflects adjustments associated with the rights issue.
**Prior year adjustments have been made to reflect the restatement of certain financial instruments. Further details are
presented in note 2.
Condensed Consolidated Statement of Comprehensive IncomeFor the six months ended 30 June 2015
Six months ended 30 June 2015(unaudited)£m Six months ended 30 June 2014(restated)(unaudited)£m Year ended 31 December 2014(audited)£m
(Loss)/profit for the year (91.7) 9.0 (1,347.1)
Other comprehensive income for the year:
Items that will not be reclassified subsequently to profit or loss:
Net actuarial (loss)/gain on defined benefit pension schemes1 (9.5) 10.3 52.8
Actuarial gain on reimbursable rights1 - 8.4 13.5
Tax relating to items not reclassified1 1.2 (3.3) (12.9)
Share of other comprehensive income/(expense) in joint ventures 0.1 (0.1) 1.9
Items that may be reclassified subsequently to profit or loss:
Net exchange (loss)/gain on translation of foreign operations2 (14.6) (14.9) 24.9
Fair value gain/(loss) on cash flow hedges during the year2 6.3 (0.8) (2.7)
Tax relating to items that may be reclassified2 (1.5) - -
Share of other comprehensive income/(expense) in joint ventures 1.5 - (3.8)
Total comprehensive (expense)/income for the year (108.2) 8.6 (1,273.4)
Attributable to:
Equity owners of the Company (108.0) 8.6 (1,273.7)
Non-controlling interest (0.2) - 0.3
Notes:
1 Recorded in retirement benefit obligations reserve in the consolidated statement of changes in equity.
2 Recorded in hedging and translation reserve in the consolidated statement of changes in equity.
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium account Capital redemption reserve Retained earnings Retirement benefit obligations reserve Share-based payment reserve Own shares reserve Hedging and translation reserve Total share Non-controlling interest
holders' equity
£m £m £m £m £m £m £m £m £m £m
At 1 January 2014 10.0 327.8 0.1 946.7 (142.4) 70.2 (70.5) (46.7) 1,095.2 0.7
Prior year adjustment (note 2) - - - (5.7) - - - 5.7 - -
At 1 January 2014 (restated) (audited) 10.0 327.8 0.1 941.0 (142.4) 70.2 (70.5) (41.0) 1,095.2 0.7
Total comprehensive income for the period - - - 8.9 15.4 - - (15.7) 8.6 -
Issue of share capital 1.0 - - 154.8 - - - - 155.8 -
Shares transferred to option holders on exercise of share options - - - - - (4.7) 6.9 - 2.2 -
Dividends paid - - - (36.4) - - - - (36.4) -
Expense in relation to share based payments - - - - - 3.1 - - 3.1 -
Tax charge in relation to share based payments - - - - - (0.2) - - (0.2) -
At 30 June 2014 (restated) (unaudited) 11.0 327.8 0.1 1,068.3 (127.0) 68.4 (63.6) (56.7) 1,228.3 0.7
Total comprehensive income for the period - - - (1,358.1) 38.0 - - 37.8 (1,282.3) 0.3
Issue of share capital - - - 0.5 - - - - 0.5 -
Shares transferred to option holders on exercise of share options - 0.1 - - - 0.9 (0.9) - 0.1 -
Dividends paid - - - (16.7) - - - - (16.7) -
Expense in relation to share-based payments - - - - - 2.3 - - 2.3 -
Tax charge in relation to share based payments - - - - - (0.2) - - (0.2) -
Change in non-controlling interest - - - - - - - - - 0.8
At 31 December 2014 (audited) 11.0 327.9 0.1 (306.0) (89.0) 71.4 (64.5) (18.9) (68.0) 1.8
Total comprehensive income for the period - - - (89.9) (8.3) - - (9.8) (108.0) (0.2)
Transfer on disposal - - - (3.4) 3.4 - - - - -
Issue of share capital 11.0 - - 519.1 - - - - 530.1 -
Shares transferred to option holders on exercise of share options - - - - - (0.1) 4.4 - 4.3 -
Expense in relation to share based payments - - - - - 4.1 - - 4.1 -
At 30 June 2015 (unaudited) 22.0 327.9 0.1 119.8 (93.9) 75.4 (60.1) (28.7) 362.5 1.6
Condensed Consolidated Balance Sheet
At 30 June 2015 At 30 June 2014(restated) At 31 December 2014
Note (unaudited)£m (unaudited)£m (audited)£m
Non-current assets
Goodwill 13 530.6 1,261.0 541.5
Other intangible assets 95.5 177.8 118.8
Property, plant and equipment 37.2 169.1 38.4
Interests in joint ventures 1.4 7.1 1.6
Trade and other receivables 46.1 79.6 38.1
Derivative financial instruments 3.3 0.7 7.0
Deferred tax assets 32.9 57.9 37.4
Retirement benefit assets 133.8 84.8 143.9
880.8 1,838.0 926.7
Current assets
Inventories 34.4 53.3 31.2
Trade and other receivables 557.2 816.5 498.8
Current tax assets 20.1 15.5 16.5
Cash and cash equivalents 157.1 220.8 180.1
Derivative financial instruments 3.4 1.4 5.9
772.2 1,107.5 732.5
Assets classified as held for sale 21 473.3 - 564.7
1,245.5 1,107.5 1,297.2
Total assets 2,126.3 2,945.5 2,223.9
Current liabilities
Trade and other payables (573.9) (713.9) (581.9)
Derivative financial instruments (14.3) (16.7) (17.7)
Current tax liabilities (18.1) (11.6) (12.6)
Provisions 15 (147.2) (39.1) (205.7)
Obligations under finance leases (9.0) (15.2) (9.6)
Loans (34.9) (34.8) (43.9)
(797.4) (831.3) (871.4)
Liabilities directly associated with assets classified as held for sale 21 (166.1) - (219.9)
(963.5) (831.3) (1,091.3)
Non-current liabilities
Trade and other payables (37.5) (34.8) (29.7)
Derivative financial instruments - (17.2) -
Deferred tax liabilities (11.4) (37.5) (9.2)
Provisions 15 (345.3) (29.2) (372.2)
Obligations under finance leases (12.5) (48.1) (16.9)
Loans (377.5) (709.0) (753.4)
Retirement benefit obligations (14.5) (9.4) (17.4)
(798.7) (885.2) (1,198.8)
Total liabilities (1,762.2) (1,716.5) (2,290.1)
Net assets/(liabilities) 364.1 1,229.0 (66.2)
Equity
Share capital 22.0 11.0 11.0
Share premium account 327.9 327.8 327.9
Capital redemption reserve 0.1 0.1 0.1
Retained earnings/(loss) 119.8 1,068.3 (306.0)
Retirement benefit obligations reserve (93.9) (127.0) (89.0)
Share-based payment reserve 75.4 68.4 71.4
Own shares reserve (60.1) (63.6) (64.5)
Hedging and translation reserve (28.7) (56.7) (18.9)
Equity attributable to owners of the Company 362.5 1,228.3 (68.0)
Non-controlling interest 1.6 0.7 1.8
Total equity 364.1 1,229.0 (66.2)
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2015 Six months ended 30 June 2015(unaudited) Six months ended 30 June 2014(unaudited) Year ended 31 December 2014(audited)
Note £m £m £m
Net cash (outflow)/inflow from operating activities before exceptional items (40.8) 75.8 103.5
Exceptional items (41.5) (16.8) (40.4)
Net cash (outflow)/inflow from operating activities 19 (82.3) 59.0 63.1
Investing activities
Interest received 1.6 1.1 2.7
Decrease in security deposits 0.3 - -
Dividends received from joint ventures 15.8 14.7 34.8
Proceeds from disposal of property, plant and equipment - 3.8 5.8
Proceeds from disposal of intangible assets 0.3 0.1 1.1
Proceeds on disposal of subsidiaries and operations 5 (4.3) 6.8 1.9
Acquisition of subsidiaries, net of cash acquired 4 (0.2) (5.3) (6.5)
Acquisition of other investments - - (3.5)
Purchase of other intangible assets (13.6) (12.3) (20.0)
Purchase of property, plant and equipment (19.6) (15.1) (23.4)
Net cash outflow from investing activities (19.7) (6.2) (7.1)
Financing activities
Interest paid (21.2) (18.4) (42.3)
Exceptional finance costs paid (31.3) - -
Dividends paid 11 - (36.4) (53.1)
Increase in loans to Joint Ventures (0.9) - -
Repayment of loans (392.4) (70.6) (36.0)
Repayment of non recourse loans - (1.4) (3.1)
New loan advances - 22.4 17.4
Capital element of finance lease repayments (9.6) (9.2) (18.2)
Costs of equity rights issue - - (4.1)
Share placement net proceeds 530.1 155.8 156.3
Proceeds from issue of other share capital and exercise of share options 4.3 2.3 2.3
Net cash inflow from financing activities 79.0 44.5 19.2
Net (decrease)/increase in cash and cash equivalents (23.0) 97.3 75.2
Cash and cash equivalents at beginning of year 180.1 125.1 125.1
Net exchange (loss)/gain (3.5) (1.6) 2.2
Cash reclassified to assets held for sale 3.5 - (22.4)
Cash and cash equivalents at end of year 157.1 220.8 180.1
Notes to the consolidated financial statements
1. General information, going concern and accounting policies
The information for the year ended 31 December 2014 does not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The
auditor's report on those accounts was not qualified and did not contain statements made under s498(2) or (3) of the
Companies Act 2006. The auditor's report did however draw attention by way of emphasis to a material uncertainty in the
Directors' use of the going concern basis of accounting. Further details of events impacting going concern since the
signing of the 2014 statutory accounts are provided below.
The annual financial statements of Serco Group plc are prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU). The condensed set of financial statements included in this half
yearly financial report has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial
Reporting, as adopted by the EU.
In 2015 there have been no significant changes to accounting under IFRS which have affected the Group's results. The only
changes to accounting standards in the current year are:
Title Type Background Impact on Serco
Annual Improvements to IFRSs: 2011-2013 Cycle: · IFRS 1 First-time adoption of International Financial Reporting Standards· IFRS 3 Business combinations· IFRS 13 Fair value measurement· IAS 40 Investment property Amendments to existing standards As IFRS 1 relates to first time adopters of IFRS this element is not relevant. The IFRS 3 changes clarify the scope exclusion None.
for the formation of a joint arrangement in the financial statements of the joint arrangement itself and is not relevant. The
amendment to IFRS13 clarifies that the scope of the portfolio exception includes all contracts accounted for within the scope of
IAS 39 Financial instruments: Recognition and measurement or IFRS 9 Financial instruments, regardless of whether they meet the
definition of financial assets or financial liabilities as defined in IAS 32 Financial instruments: presentation. However, the
portfolio exception is not applied. IAS 40 is not relevant as no investment properties are held.
The same accounting policies, presentation and methods of computation are followed in the condensed set of financial
statements as applied in the Group's latest annual audited financial statements except for the change in segments as
described in note 3. The condensed set of financial statements includes the results of subsidiaries. Joint ventures have
been equity accounted.
The Group's business activities, together with the factors likely to affect its future development, performance and
position are set out in the Chief Executive's Review and Divisional Reviews on pages 3 to 11. The Finance Review includes
a summary of the Group's financial position, its cash flows and borrowing facilities.
Going Concern
In assessing the basis of preparation of the condensed financial statements for the six months ended 30 June 2015, the
Directors have applied the UK Corporate Governance Code (the Code) as updated in September 2014. The Code requires two
explicit statements being made around the financial viability of the company in the annual financial statements; one
covering the Directors' confirmation of the appropriateness of the going concern basis of accounting, and another which
includes a broader assessment of the long term viability of the Group. The half year financial statements are required
only to cover the Directors' assessment of the going concern basis of accounting.
In April 2015, an equity rights issue and a refinancing with lending banks and US Private Placement Noteholders were
successfully completed, raising approximately £555m of gross proceeds (£530m net after expenses) and reducing gross
indebtedness by £450m. The Group's committed revolving credit facility was reduced in size from £730m to £480m and the
maturity date increased by two years to March 2019. Financial covenants across the Group's funding arrangements are
unchanged, reflecting the strengthening of the Group's balance sheet by the rights issue. In undertaking the refinancing,
cash flow forecasts were prepared covering a period to 31 December 2019. Trading performance to date in 2015 has been
materially consistent with these plans and the updated forecast for the business is largely unchanged, consequently the
Directors have concluded that it is appropriate to consider these plans when making their going concern assessment,
together with the strategy and the principal risks and uncertainties the Group faces. Therefore, the Directors have a
reasonable expectation that the Group will be able to operate within the level of available facilities and cash for the
foreseeable future and accordingly believe that it is appropriate to prepare the condensed financial statements on a going
concern basis.
2. Prior Year Restatement
The December 2014 Annual Report and Accounts included a description of prior year restatements of certain financial
instruments. These resulted in a cumulative net charge of £9.7m to prior years' reported profits, which included a net
credit to the profit for the six months to 30 June 2014 of £15.4m. These amounts had previously been taken directly to
reserves, and as a consequence there was no adjustment required to restate the net assets of the Group as at 30 June 2014
or prior years.
The first adjustment relates to derivatives held by Intelenet at the time of Serco's acquisition of that company in 2011.
Under IFRS 3, in order to achieve hedge accounting at a Group level, these derivatives should have been designated at Serco
Group level at that time. Because the Group designation was not made at that time, they do not qualify for hedge accounting
and so the fair value movement on these instruments since 2011, together with the associated tax, has been reclassified to
either retained earnings or the income statement. The second adjustment relates to net investment hedges that were not
designated. These therefore did not qualify for hedge accounting and the fair value movement of these instruments was
reclassified to either retained earnings or the income statement. Both of these financial instruments have now been
designated and hedge documentation has been put in place, therefore any mark to market movements will be booked through
reserves in the future.
Impact of prior year restatement on summarised financial statements
Six months to 30 June 2014 As previously disclosed Other Distributable Reserves Derivatives Net Investment Hedges Restated
£m £m £m £m £m
Income statement
Revenue 2,017.7 - 8.6 - 2,026.3
Operating profit 9.9 - 8.6 9.6 28.1
Investment income 2.8 - - - 2.8
Finance costs (20.0) - - - (20.0)
Profit before tax (7.3) - 8.6 9.6 10.9
Tax (charge)/credit 0.9 - (2.8) - (1.9)
Profit for the year (6.4) - 5.8 9.6 9.0
Earnings per share* (1.01p) - 0.91p 1.52p 1.42p
*restated for effect of rights issue
Other comprehensive (expense)/income for the year 15.0 - (5.8) (9.6) (0.4)
Total comprehensive income for the year 8.6 - - - 8.6
Balance sheet
Non-current assets 1,838.0 - - - 1,838.0
Current assets 1,107.5 - - - 1,107.5
Total assets 2,945.5 - - - 2,945.5
Current liabilities (831.3) - - - (831.3)
Non-current liabilities (885.2) - - - (885.2)
Total liabilities (1,716.5) - - - (1,716.5)
Net assets 1,229.0 - - - 1,229.0
Retained earnings 903.8 154.8 (25.1) 34.8 1,068.3
Other reserve 154.8 (154.8) - - -
Hedging and translation reserve (47.0) - 25.1 (34.8) (56.7)
Other equity accounts 217.4 - - - 217.4
Equity 1,229.0 - - - 1,229.0
3. Segmental Information
This note is presented according to the management structure and internal reporting that Serco has put in place from 2015
as a result of actions from the Corporate Renewal Programme and the Strategy Review. The UK Central Government division,
which brings together Serco's work for the UK Central Government, also now brings together all Transport operations,
including those for devolved authorities that were previously included in the UK and Europe Local and Regional Government
division. The UK and Europe Local and Regional Government division now incorporates public sector BPO operations
previously included in the Global Services division, together with Citizen Services previously included in the Central
Government division. The Global Services division now consists of BPO operations only in the private sector.
The Group has also simplified its reporting by ending the sharing of Income Statement reporting of certain contracts
between two segments. This shared reporting of contracts occurred predominantly between the AsPac and UK segments, with
these contracts now being solely reported within the segment that delivers the contract to the end customer. Eliminating
the shared Income Statement reporting of such contracts increases the transparency and clarity of our segmental
performance reporting. The prior period comparative segmental information has been restated to reflect these changes.
The Group's reportable operating segments under IFRS 8 Operating Segments are:
Reportable segment Operating segment
UK Central Government Frontline services for sectors including Defence, Justice & Immigration and Transport delivered to UK Government;
UK & Europe Local & Regional Government Services for sectors including Health, Local Government Direct Services, Citizen Services and BPO services delivered to UK & European public sector customers;
Americas Professional, technology and management services for sectors including Defence, Transport and Citizen Services delivered to US federal and civilian agencies, some state and municipal governments and the Canadian Government;
AsPac Frontline services for sectors including Defence, Justice & Immigration, Transport, Health and Citizen Services in the Asia Pacific region including Australia, New Zealand and Hong Kong;
Middle East Frontline services for sectors including Defence, Transport, Health and other Direct Services such as facilities management in the Middle East region;
Global Services BPO services for private sector customers predominantly in the UK, India and North America; and
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