REG - Serco Group PLC - Half Year Results <Origin Href="QuoteRef">SRP.L</Origin> - Part 3
29/10/2014 12:02
- Part 3: For the preceding part double click ID:nRSL8461Ob
1 Taken to retirement benefit obligations reserve in condensed consolidated statement of changes in equity.
2 Taken to hedging and translation reserve in condensed consolidated statement of changes in equity.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2014
Share capital Share premium account Capital redemption reserve Other reserve Retained earnings Retirement benefit obligations reserve Share-based payment reserve Own shares reserve Hedging and translation reserve Total Non-controlling interest
£m £m £m £m £m £m £m £m £m £m £m
At 1 January 2013 (audited) 10.0 326.5 0.1 - 900.7 (138.6) 77.7 (58.8) 10.0 1,127.6 1.3
Total comprehensive income for the period - - - - 85.4 (31.8) - - (2.5) 51.1 0.1
Shares transferred to option holders on exercise of share options - 1.1 - - - - (1.0) 1.1 - 1.2 -
Dividends paid - - - - (36.4) - - - - (36.4) -
Expense in relation to share-based payment - - - - - - 5.9 - - 5.9 -
Tax charge in relation to share-based payment - - - - - - (3.4) - - (3.4) -
Purchase of own shares for Employee Share Ownership Trust (ESOT) - - - - - - - (16.0) - (16.0) -
At 30 June 2013 (unaudited) 10.0 327.6 0.1 - 949.7 (170.4) 79.2 (73.7) 7.5 1,130.0 1.4
Total comprehensive income for the period - - - - 12.1 28.0 - - (54.2) (14.1) (0.1)
Shares transferred to option holders on exercise of share options - 0.2 - - - - (3.5) 3.2 - (0.1) -
Dividends paid - - - - (15.1) - - - - (15.1) (0.6)
Expense in relation to share-based payment - - - - - - (3.0) - - (3.0) -
Tax charge in relation to share-based payment - - - - - - (2.5) - - (2.5) -
At 31 December 2013 (audited) 10.0 327.8 0.1 - 946.7 (142.4) 70.2 (70.5) (46.7) 1,095.2 0.7
Total comprehensive income for the period - - - - (6.5) 15.4 - - (0.3) 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 payment - - - - - - 3.1 - - 3.1 -
Tax charge in relation to share-based payment - - - - - - (0.2) - - (0.2) -
At 30 June 2014 (unaudited) 11.0 327.8 0.1 154.8 903.8 (127.0) 68.4 (63.6) (47.0) 1,228.3 0.7
Condensed consolidated balance sheet
At 30 June 2014
Note At 30 June 2014(unaudited)£m At 30 June 2013(unaudited)£m At 31 December 2013(audited)£m
Non-current assets
Goodwill 11 1,261.0 1,334.7 1,270.8
Other intangible assets 177.8 205.4 185.7
Property, plant and equipment 169.1 187.4 176.8
Interests in joint ventures 7.1 11.5 8.1
Trade and other receivables 79.6 73.4 78.3
Retirement benefit assets 15 84.8 34.2 64.2
Deferred tax assets 57.9 43.8 57.9
Derivative financial instruments 14 0.7 0.8 -
1,838.0 1,891.2 1,841.8
Current assets
Inventories 53.3 67.0 49.4
Trade and other receivables 816.5 848.6 764.4
Current tax assets 15.5 21.0 19.5
Cash and cash equivalents 220.8 193.9 125.1
Derivative financial instruments 14 1.4 6.7 8.7
1,107.5 1,137.2 967.1
Total assets 2,945.5 3,028.4 2,808.9
Current liabilities
Trade and other payables (713.9) (757.9) (644.1)
Current tax liabilities (11.6) (13.9) (10.4)
Obligations under finance leases (15.2) (14.2) (14.9)
Provisions 13 (39.1) (10.2) (26.2)
Loans (34.8) (49.0) (52.2)
Derivative financial instruments 14 (16.7) (13.0) (20.2)
(831.3) (858.2) (768.0)
Non-current liabilities
Trade and other payables (34.8) (40.9) (34.1)
Obligations under finance leases (48.1) (52.7) (53.1)
Loans (709.0) (833.7) (756.1)
Derivative financial instruments 14 (17.2) (18.7) (21.1)
Retirement benefit obligations 15 (9.4) (19.6) (11.3)
Provisions 13 (29.2) (38.6) (34.9)
Deferred tax liabilities (37.5) (34.6) (34.4)
(885.2) (1,038.8) (945.0)
Total liabilities (1,716.5) (1,897.0) (1,713.0)
Net assets 1,229.0 1,131.4 1,095.9
Equity
Share capital 11.0 10.0 10.0
Share premium account 327.8 327.6 327.8
Capital redemption reserve 0.1 0.1 0.1
Other reserve 154.8 - -
Retained earnings 903.8 949.7 946.7
Retirement benefit obligations reserve (127.0) (170.4) (142.4)
Share-based payment reserve 68.4 79.2 70.2
Own shares reserve (63.6) (73.7) (70.5)
Hedging and translation reserve (47.0) 7.5 (46.7)
Equity attributable to equity holders of the parent 1,228.3 1,130.0 1,095.2
Non-controlling interest 0.7 1.4 0.7
Total equity 1,229.0 1,131.4 1,095.9
1,229.0
1,131.4
1,095.9
Condensed consolidated cash flow statement
For the six months ended 30 June 2014
Note Six months ended30 June 2014(unaudited)£m Six months ended30 June 2013(unaudited)£m Year ended 31 December 2013(audited)£m
Net cash inflow from operating activities before cash spend on special pension contributions and other exceptional items 75.8 43.8 111.3
Special contributions to defined benefit pension schemes - (19.2) (19.7)
Other exceptional items (16.8) - (83.7)
Net cash inflow from operating activities 17 59.0 24.6 7.9
Investing activities
Interest received 1.1 1.3 2.6
Dividends received from joint ventures 14.7 24.5 51.5
Increase in security deposits - - (0.2)
Proceeds from disposal of property, plant and equipment 3.8 3.0 4.6
Proceeds from disposal of intangible assets 0.1 - 0.4
Proceeds/(costs) on disposal of subsidiaries and operations 4 6.8 (2.1) 40.6
Acquisition of subsidiaries, net of cash acquired (excluding acquisition related costs) 3 (5.3) (18.6) (18.6)
Purchase of other intangible assets (12.3) (13.8) (27.8)
Purchase of property, plant and equipment (15.1) (20.7) (38.9)
Net cash (outflow)/inflow from investing activities (6.2) (26.4) 14.2
Financing activities
Interest paid (18.4) (19.5) (40.8)
Dividends paid 9 (36.4) (36.4) (51.5)
Non-controlling interest dividends paid - - (0.6)
Repayment of loans (70.6) (44.7) (77.5)
Repayment of non-recourse loans (1.4) (4.9) (10.2)
New loan advances 22.4 168.9 176.5
Capital element of finance lease (repayments)/advances (9.2) 3.5 (4.9)
Purchase of own shares for Employee Share Ownership Trust (ESOT) - (16.0) (16.0)
Proceeds from issue of share capital and exercise of share options 158.1 1.2 1.1
Net cash inflow/(outflow) from financing activities 44.5 52.1 (23.9)
Net increase/(decrease) in cash and cash equivalents 97.3 50.3 (1.8)
Cash and cash equivalents at beginning of period 125.1 142.8 142.8
Net exchange (loss)/gain (1.6) 0.8 (15.9)
Cash and cash equivalents at end of period 220.8 193.9 125.1
220.8
193.9
125.1
Notes to the condensed set of financial statements
1. General information, going concern and accounting policies
The information for the year ended 31 December 2013 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, did not contain statements made under s498(2) or (3) of the Companies
Act 2006 and did not draw attention to any matters by way of emphasis.
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 2014 there have been no significant changes to accounting under IFRS which have affected the Group's results. Other
changes to accounting standards in the current year which had no material impact on the Group's financial statements are:
· Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS
17 Separate Financial Statements. These amendments provide an exception to the consolidation requirement for entities that
meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements. The exception to consolidation
requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no
impact to the Group, since none of the entities in the Group qualifies to be an investment entity under IFRS 10.
· Amendments to IAS 32 Financial Instruments: Presentation. These amendments clarify the meaning of 'currently has a
legally enforceable right to set-off' and the criteria for non-simultaneous settlement mechanisms of clearing houses to
qualify for offsetting. These amendments have no impact on the Group as no such set-off is adopted.
· Amendments to IAS 39Financial Instruments: Recognition and Measurement. These amendments provide relief from
discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria.
These amendments have no impact to the Group as the Group has not novated its derivatives during the current or prior
periods.
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 except for the change in segments as described in note
2. 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.
In order to satisfy themselves that the Group has adequate resources for the future, the Directors have reviewed the
Group's committed funding and liquidity positions, and the ability to generate cash from trading activities. The Directors
have also reviewed the strategy and the principal risks the Group faces. Whilst the current economic environment continues
to contain uncertainties, revenues are largely derived from long-term contracts and the contract portfolio is of sufficient
diversity that a downturn in any particular market, sector or geography has a diluted effect on the Group as a whole.
Although trading was poor in the first half of the year, profits were in line with the Group's revised expectations and
cash flow and net debt were better than expected. However, the reduction in profitability led to pressure on the Group's
loan covenants and the Group moved to strengthen the balance sheet in May 2014 via an equity placing of 49.9m shares,
raising net proceeds of £156m.
Notes to the condensed set of financial statements
1. General information, going concern and accounting policies (continued)
The Group's principal funding is through a revolving credit facility and US private placements. As at 30 June 2014, the
Group had £1,287.8m of committed credit facilities and headroom of £585.0m. The revolving credit facility matures in March
2017, whilst repayments of the US private placements occur between 2014 and 2024, with a scheduled repayment of £23.2m in
August 2014. The Group fully expects to meet these repayments through operational cash flows.
Despite the challenges and uncertainties which remain in our business, including a comparatively low level order book
visibility (of 71% for the next year) relative to the past, the Group is making good progress with its Strategy Review, and
in rebuilding trust and confidence with the UK Government. 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; accordingly
believe that it is appropriate to prepare the condensed financial statements on a going concern basis.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which
goodwill has been allocated. The value in use calculation involves an estimation of the future cash flows of
cash-generating units and also the selection of appropriate discount rates, which involves judgement, to calculate present
values (see note 11). The carrying value of goodwill is £1,261.0m (31 December 2013: £1,270.8m) at the balance sheet date.
Retirement benefit obligations
The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates, future
returns on assets and future contribution rates (see note 15).
Business combinations
The calculation of fair values associated with business combinations requires the use of judgement in determining the
future economic inflows and outflows associated with the acquired assets and liabilities. This includes the estimation of
contingent deferred consideration and intangibles arising on acquisition. As permitted by IFRS 3 (2008), provisional
amounts are recognised for acquired net assets during the measurement period where complete information about facts and
circumstances that existed at the acquisition date is not available at the reporting date.
Provisions for onerous contracts
Determining whether provisions are required for loss making onerous contracts requires an estimate to be made of the future
profitability of the given contract, based on various interdependent factors. Historically these provisions have been
rare, but in the current year an exceptional charge was made for onerous contracts, with further details provided in note
13.
Notes to the condensed set of financial statements
2. Segmental information
Segmental information is based on internal reports about components of the Group that are regularly reviewed by the Group's
Chief Operating Decision Maker in order to allocate resources to the segments and to assess their performance. Details of
the different products and services provided to each operating segment are included in the Divisional Review section of
this report.
Following the Cabinet Office review across other Serco contracts with UK Central Government, Serco agreed with the UK
Government to undertake a process of corporate renewal, to strengthen governance and transparency which included the
separation of the UK & Europe division into two new divisions - UK Central Government and UK & Europe Local & Regional
Government. The reportable segments have therefore changed in 2014 to reflect the separation of the UK & Europe segment
into these two new segments. In addition, certain contracts have moved from the Global Services division to the UK Central
Government division, resulting in the transfer of the following amounts from Global Services:
Six months ended30 June 2013 Year ended 31 December 2013
Revenue 32.2 62.8
Operating profit 3.3 6.0
Segment assets 3.8 2.1
Segment liabilities (3.0) (3.1)
The Group's reportable operating segments under IFRS 8 Operating Segments are provided below.
Reportable segments Operating segments
UK Central Government Frontline services delivered to the UK Central Government in areas including defence, science,
home affairs, citizen services and transport operations;
UK & Europe Local UK and European frontline services in areas including health, transport and local
& Regional Government government direct services;
Americas Frontline services to defence and other federal agencies, civilian agencies, selected
state and municipal governments and the Canadian Government;
AMEAA Frontline services in the Australia, New Zealand and Asia region and the Middle East
region; and
Global Services Business Process Outsourcing (BPO) across middle and back office services.
The following is an analysis of the Group's revenue and results by operating segment in the six months ended 30 June 2014.
The accounting policies of the reportable segments are the same as those described in the summary of the significant
accounting policies which are described in the Group's latest Annual Report and Accounts.
Segment assets exclude all derivative financial instruments, current and deferred taxation assets, loans to joint ventures
and cash. Segment liabilities consist of all trade and other payables and retirement benefit obligations.
Notes to the condensed set of financial statements
2. Segmental information (continued)
Geographic analysis
Six months ended30 June 2014 Six months ended30 June 2013 Year ended 31 December 2013
Revenue(unaudited)£m Non-current assets(unaudited)£m Revenue(unaudited)£m Non-current assets(unaudited)£m Revenue(audited)£m Non-current assets(audited)£m
United Kingdom 1,028.7 791.1 1,029.1 778.5 2,071.5 784.1
United States 345.9 407.6 346.1 466.0 706.5 423.7
Australia 356.0 170.3 423.0 196.9 869.2 167.0
Other countries 287.1 407.8 315.1 402.6 640.9 406.5
Total 2,017.7 1,776.8 2,113.3 1,844.0 4,288.1 1,781.3
Reportable segments
Six months ended 30 June 2014 (unaudited) CG LRG Americas AMEAA Global Services Corporate Total
£m £m £m £m £m £m £m
Revenue
Adjusted revenue 836.2 425.3 367.6 470.1 334.0 - 2,433.2
Less: Share of joint venture revenue (321.7) (54.8) (0.3) (38.7) - - (415.5)
Revenue 514.5 370.5 367.3 431.4 334.0 - 2,017.7
Result
Operating profit before exceptional items 28.1 5.7 21.8 18.3 (6.0) (28.6) 39.3
Exceptional net profit on disposal of subsidiaries and operations 1.7 0.5 - - - - 2.2
Other exceptional operating items (1.2) (12.4) - (4.0) (0.6) (13.4) (31.6)
Operating profit 28.6 (6.2) 21.8 14.3 (6.6) (42.0) 9.9
Investment revenue 2.8
Finance costs (20.0)
Loss before tax (7.3)
Tax 0.9
Loss after tax (6.4)
Segment assets:
Interests in joint ventures 3.6 (3.7) 0.2 7.0 - - 7.1
Other segment assets 230.4 461.3 535.2 442.2 856.5 113.8 2,639.4
Total segment assets 234.0 457.6 535.4 449.2 856.5 113.8 2,646.5
Unallocated assets 299.0
Consolidated total assets 2,945.5
Segment liabilities:
Segment liabilities (148.9) (137.5) (72.8) (163.7) (190.3) (44.7) (757.9)
Unallocated liabilities (958.6)
Consolidated total liabilities (1,716.5)
Notes to the condensed set of financial statements
2. Segmental information (continued)
Six months ended 30 June 2013 (unaudited and restated) CG LRG Americas AMEAA Global Services Corporate Total
£m £m £m £m £m £m £m
Revenue
Adjusted revenue 868.2 449.1 374.6 500.2 356.4 - 2,548.5
Less: Share of joint venture revenue (337.4) (50.5) (0.4) (46.9) - - (435.2)
Revenue 530.8 398.6 374.2 453.3 356.4 - 2,113.3
Result
Operating profit 65.9 11.5 22.8 36.5 11.5 (23.1) 125.1
Investment revenue 2.6
Finance costs (21.6)
Profit before tax 106.1
Tax (21.9)
Profit after tax 84.2
Segment assets:
Interests in joint ventures 9.3 (5.5) 0.2 7.5 - - 11.5
Other segment assets 244.0 491.0 635.0 473.6 885.2 19.2 2,748.0
Total segment assets 253.3 485.5 635.2 481.1 885.2 19.2 2,759.5
Unallocated assets 268.9
Consolidated total assets 3,028.4
Segment liabilities:
Segment liabilities (136.0) (146.6) (97.7) (171.8) (229.8) (36.5) (818.4)
Unallocated liabilities (1,078.6)
Consolidated total liabilities (1,897.0)
Year ended 31 December 2013 (unaudited and restated) CG LRG Americas AMEAA Global Services Corporate Total
£m £m £m £m £m £m £m
Revenue
Adjusted revenue 1,712.5 907.2 765.3 1,049.5 709.4 - 5,143.9
Less: Share of joint venture revenue (666.4) (104.4) (0.7) (84.3) - - (855.8)
Revenue 1,046.1 802.8 764.6 965.2 709.4 - 4,288.1
Result
Operating profit before exceptional items 115.0 24.4 47.5 77.8 19.5 (49.9) 234.3
Exceptional net profit on disposal of subsidiaries and operations - 19.2 - - - - 19.2
Other exceptional operating items (73.9) (18.4) - (10.1) (6.0) (1.3) (109.7)
Operating profit 41.1 25.2 47.5 67.7 13.5 (51.2) 143.8
Investment revenue 5.2
Finance costs (42.4)
Profit before tax 106.6
Tax (11.2)
Profit after tax 95.4
Segment assets:
Interests in joint ventures 5.9 (4.5) 0.2 6.5 - - 8.1
Other segment assets 194.5 444.1 558.3 418.7 844.6 126.0 2,586.2
Total segment assets 200.4 439.6 558.5 425.2 844.6 126.0 2,594.3
Unallocated assets 214.6
Consolidated total assets 2,808.9
Segment liabilities:
Segment liabilities (114.1) (118.2) (70.3) (147.7) (177.4) (61.3) (689.0)
Unallocated liabilities (1,024.0)
Consolidated total liabilities (1,713.0)
Notes to the condensed set of financial statements
3. Acquisitions
On 2 January 2014, 70% of the share capital of MENA Business Services LLC was acquired. MENA is a regional provider of
contact centre, training services and business consultancy outsourcing services, based in the Middle East.
The initial cash consideration was £3.1m. Up to a further £2.1m is payable from 2015 to 2016, contingent on the financial
performance of the acquired business. The provisional fair value of this deferred contingent consideration is £2.1m.
Goodwill of £4.4m arose on the transaction. Net cash payments arising on the acquisition were £2.3m, representing cash
consideration of £3.1m net of £0.8m of cash balances acquired.
The provisional value of goodwill of £4.4m arising from the acquisition represents future opportunities in the Middle East
business consultancy outsourcing services market. None of the goodwill is expected to be deductible for corporate income
tax purposes.
Deferred consideration payments of £3.0m were made in the period in relation to prior year acquisitions, representing the
final payment in respect of Intelenet.
In 2013 deferred consideration payments were made in relation to prior year acquisitions, which totalled £18.6m. This
represented £11.9m in relation to the acquisition of Intelenet and £6.7m in relation to the acquisition of Serco Listening
Company Limited.
Notes to the condensed set of financial statements
4. Disposals
On 10 March 2014 the Group disposed of its Braintree Community Hospital business to the Mid Essex Clinical Hospital Trust.
There was a payment of £0.5m to the purchaser and the gain on disposal was £0.5m, reflecting the net liabilities disposed.
On 19 June 2014 the Group disposed of its debt collection business, Collectica Limited. The initial cash consideration
received was £6.5m and the resulting loss on disposal was £3.7m.
There was a gain of £5.4m recognised in the period in relation to the disposal of the nuclear assurance technical
consulting services business that had been sold in 2012, following the release of provisions in relation to the 2012
disposal of the technical services business which have become time expired.
In the period, deferred cash proceeds of £2.0m in relation to the prior year disposal of UK transport maintenance and
technology business were received. £0.4m was also cash paid in relation to accrued disposal costs in relation to prior year
transactions.
The profit/(loss) on disposal is calculated as follows: Collectica Six months ended30 June 2014 £m BraintreeSix months ended30 June 2014£m OtherSix months ended30 June 2014£m Total Six months ended30 June 2014 £m Total Six months ended30 June 2013 £m Total Year ended 31 December 2013£m
Consideration 6.5 (0.5) - 6.0 - 49.2
Less:Net assets disposed (9.2) - - (9.2) - (23.7)
Disposal related costs (1.0) 1.0 5.4 5.4 - (6.3)
Profit/(loss) on disposal (3.7) 0.5 5.4 2.2 - 19.2
The net cash inflow/(outflow) arising on disposals is as follows:
Consideration received 6.5 (0.5) 2.0 8.0 - 49.2
Less:
Deferred consideration - 0.5 - 0.5 - (2.3)
Cash and cash equivalents disposed (1.0) - - (1.0) - -
Disposal-related costs paid during the period (0.2) (0.1) (0.4) (0.7) (2.1) (6.3)
Net cash inflow/(outflow) on disposal 5.3 (0.1) 1.6 6.8 (2.1) 40.6
Notes to the condensed set of financial statements
5. Joint ventures
The Group has certain arrangements where control is shared equally with one or more parties. As each arrangement is a
separate legal entity and legal ownership and control are equal with all other parties, there are no significant judgements
required to be made with regards to consolidation.
Summarised financial information of the two joint ventures which are material to the Group and an aggregation of the other
joint ventures in which the Group has an interest is as follows:
Six months ended 30 June 2014 (unaudited) Six months ended 30 June 2013 (unaudited)Total£m Year ended 31 December 2013 (audited)Total£m
AWEML1£m NRHL2£m Group portion of material joint ventures3£m Group portion of other joint ventures3£m Total3£m
Revenue 519.0 297.6 321.8
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