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Half Year Results
IntroductionMichael Jeffries
3
Agenda
Highlights Operational Review Financial Review Strategy Summary
4
HighlightsContinuing Operations
* Includes share of turnover from equity accounted JVs** Excludes intangible amortisation, exceptional items & MTM*** Compared to Mar 09
Group turnover* £601.1m 17%
Underlying PBT** £44.6m 16%
PBT £32.8m 53%
Underlying EPS 17.6p 16%
Interim dividend 4.3p 10%
Closing order book*** £4.4bn 2%
Cash conversion 88%
5
Key Messages
Support Services business Sector re-classification Pressure on Government budgets will drive outsourcing VT well placed for future opportunities
Operational ReviewPaul Lester
7
Structure
Defence Government & Critical Services VT Group US
Air
Lan
d
Sea
Edu
catio
n
Tra
inin
g
Crit
ical
Ass
ets
Env
iron
men
t
Tec
hnic
al S
ervi
ces
Inte
grat
ed S
olu
tion
s
Shared services and corporate functions
8
Restructure
Customer focus Efficiency gains through standardisation of processes Move towards shared service model for back office functions On target to achieve £7m pa net savings
9
Defence
Future Strategic Tanker Aircraft (FSTA) New facilities on schedule Delivery of first aircraft due 2011
Military Flying Training Systems (MFTS) Milestones met on new facilities in line with contract Rear Crew Stage One training – £57m total
Urgent Operational Requirements Army mechanical training supporting Afghanistan MOD ‘C’ vehicles engineering & training
Naval Training - £80m Contract awarded in the Middle East Royal Navy training and FM extensions
10
Defence
Bids SAR(H) 50/50 Lockheed Martin £5-7bn Cyprus £200m Brize Norton Multi Activity Contract £50m
Pipeline Army recruitment £750m JMATS up to £1bn
11
Government & Critical Services
Education Closed PFI for third Lewisham school - £20m First 2 Greenwich BSF schools commenced Advanced Teachers and Higher Level Assistants - £7m Highest GCSE results in Waltham Forest for 10 years
Training Training delivered to 20,000 people LSC annual contract increased by 14% to £42m Contract wins in automotive apprenticeship training - £10m
New clients Jaguar Land Rover, Kawasaki & Euro Parts 2 year extension VW
12
Government & Critical Services
Critical Assets - £200m Government agency renewal New Dimensions contract extended to Wales London Ambulance Service contract
Environment Extensions at Sellafield – £30m Decommissioning in Eastern Europe Autoclave due for commission in March
13
Government & Critical Services
Bids Financial Close on Wakefield expected end of FY £750m Highways Agency £20m Nuclear waste storage £100m
Pipeline Waste £4bn+ BSF ICT/FM projects £180m+ Nuclear £200m+ Fleet Management & Asset projects £50m+
14
VT Group Inc
Renewal for CH-47 logistics support - $29m Contract extensions - $15m Contract for NASA facility at Wallops Island - $10m Refocused on 2 Service Streams:
Integrated Solutions Systems Engineering C4IT Comms Infrastructure
Technical Services Ranges & Base Operations Training & Logistics
15
VT Group Inc
Bids Integrated Solutions bids submitted – $100m Technical Services bids submitted – $200m
Pipeline Integrated Solutions - $1bn+ Technical Services - $300m+
Financial ReviewPhilip Harrison
17
Income Statement
30 September 2009
£m
30 September 2008
£m
% Increase
Turnover (incl JVs) 601.1 513.7 17.0%
Underlying operating profit 51.2 42.2 21.3%
Net finance costs* (6.6) (3.9)
Underlying PBT 44.6 38.3 16.4%
Underlying EPS 17.6p 15.2p 15.8%
*Excluding mark to market derivative movement
18
Income Statement30 September
2009
£m
30 September 2008
£m
% Increase
Underlying operating profit 51.2 42.2 21.3%
Pension curtailment credit 0.4 -
Exceptional items - (5.4)
Amortisation of intangibles (11.8) (10.1)
Fair value movements on derivatives (0.2) -
JV tax (0.1) (1.3)
Net finance costs (6.7) (3.9)
Profit before tax (continuing operations) 32.8 21.5 52.6%
Taxation (9.2) (5.5)
Discontinued operations (5.1) 109.0
Net Result for the Period 18.5 125.0
19
Segmental Reporting - Continuing Operations
30 September 2009
£m
30 September 2008
£m
Turnover Underlying Operating
Profit
Margin %
Turnover Underlying Operating
Profit
Margin %
Profit % increase
Defence 251.4 28.7 11.4% 194.6 23.8 12.2% 20.6%
Govt & Critical Services 187.2 13.7 7.3% 182.3 11.7 6.4% 17.1%
VT Group Inc 162.5 8.8 5.4% 136.8 6.7 4.9% 31.3%
601.1 51.2 8.5% 513.7 42.2 8.2% 21.3%
20
Sep-08 Acquisitions Organic FX Sep-09
Segmental ReportingTurnover Growth Analysis- Continuing Operations
£m
513.7
17.2
601.143.1
27.1
8.4%
21
Segmental ReportingUnderlying Operating Profit Growth Analysis- Continuing Operations
Sep-08 Acquisitions Organic FX Sep-09
42.2
51.2
1.9 5.7
£m
1.4
13.5%
22
Investment Income & Finance Costs30 September 2009
£m
30 September 2008
£m
Investment Income from PFI Projects 1.6 1.7
Other Interest receivable 2.0 3.9
Net investment income - pensions - 1.5
PFI interest on bank loans / overdrafts (0.7) (0.7)
Other bank loans/overdrafts (2.7) (8.0)
Net finance costs – pensions (1.3) 0.0
Deferred consideration (2.0) (1.0)
Provision discounting (0.7) -
Other (1.3) 0.4
Net Finance Costs (6.7) (3.9)
Investment Income & finance costs (5.1) (2.2)
23
Balance Sheet30 September 2009
£m
31 March
2009
£m
Goodwill & intangible assets 443 464
Tangible assets 70 58
Equity accounted investments 11 13
Assets held for sale 116 120
Other non-current assets 44 44
Working capital (33) (36)
Net debt (191) (186)
Employee pensions (74) (60)
Tax 6 9
Net deferred tax (24) (33)
Provisions (56) (69)
Shareholders funds 312 324
24
Cash Generated from Operations
30 September 2009
£m
30 September 2008
£m
Underlying operating profit 51.2 42.2
Depreciation & amortisation 5.0 5.2
Other items 1.6 (8.7)
Pension paid in excess of P&L (7.4) (6.5)
Working capital (increase) / decrease (14.0) 16.2
Dividends from JVs 2.7 1.9
Cash generated from operations 39.1 50.3
Exceptional reorganisation expenditure 4.2 0.8
Investment Income from PFI contracts 1.6 1.7
Underlying operating cashflow 44.9 52.8
Operating Cashflow % 88% 125%
25
Net Debt
30 September 2009
Post BVT
Proforma £m
30 September 2009
£m
31 March
2009
£m
Cash balance 200.2 75.5 51.5
Bank loans and overdrafts (64.5) (159.7) (129.9)
Asset finance (20.8) (20.8) (20.8)
Loan notes & other borrowings 3.3 3.3 1.1
Recourse net debt 118.2 (101.7) (98.1)
Non recourse debt (19.5) (19.5) (20.2)
Deferred consideration - (70.1) (68.1)
Total net funds/(debt) 98.7 (191.3) (186.4)
26
Order Profile - Continuing Operations
Total order book £4.4 billion £2.5 billion of order book beyond 3 years Strong visibility of earnings
0 250 500 750 1000 1250
2012
2011
2010
£'m
Turnover Order book Rebids & renewals Preferred bidder
StrategyPaul Lester
28
Business Model
Customer engagement
Arms length subcontractor
Short term Prescriptive
Long term partner Higher added value Critical to success Managed service
Cap
abil
ity
29
Business Model
Customer engagement
Cap
abil
ity
UKMFTS
FSTA
SKIOS
Met Police
Severn ParkCardiff Gate
Careers
US Base Ops
Sellafield
Flagship
SPAWAR
New Dimension
BSFAMCOMExpress
Nuclear(Europe)
BBC
30
Customer Profile
Other4%
MOD40%
DoD & US Gov27%
UK Public Sector29%
31
Geography
United Kingdom70%
North America27%
Other3%
32
UK Background
Forthcoming election Political battleground drawn over plans for economic recovery Uncertainty over specific plans Short term delay to decision making Opportunity to communicate business model
Economic pressures4 ‘levers to pull’ Sell assets Raise taxation Increase GDP Reduce Government budgets
Opportunities and Threats
33
Defence
UK MOD budgetary pressures Equipment cuts drive support for existing platforms Drives further outsourcing Margin pressure 86,000 Civil Servants: 196,000 Armed Forces personnel
Gray Report (October 2009)* Budget overspend and programmes overrun - £35bn Poor acquisition process, new ways of working required Outsourcing of Procurement function
Post Election Strategic Defence Review
*A Review of Acquisition for the Secretary of State for Defence (Bernard Gray October 2009)
34
Government & Critical Services
Budgetary pressures Efficiencies in Central and Local Government Additional outsourcing opportunities Margin pressure
Post Election Prospect of decision making devolved to Local Authorities Greater need to work with Private sector
Julius Report (July 2008)* Competition for outsourced contracts brings benefits Significant cost savings (10-30%) No adverse effect on quality
*Public Services Industry Review (Dr DeAnne Julius CBE July 2008)
35
4%4%
18%
7%
4%
25%
1%
15%
2%
20% Business, Innovation & Skills
Childrens. Schools & Families
Health
Defence
Home & Foreign Office
Local Government
Energy & Environment
Other
Transport
Work & Pensions
UK Government Expenditure
Source: HM Treasury Public Expenditure Statistical Analysis 2009
*Source: Julius Report 2008
Total c£620bnOutsourced c£80bn*
36
31%
27%
6%
4%
11%
4%
17%Education
Social Care
Transport
Housing
Public Order & Safety
Environment
Other
UK Government ExpenditureLocal Government c£164bnOutsourced c£20bn (estimated)*
Source: HM Treasury Public Expenditure Statistical Analysis 2009
*Source: VT estimate based on Julius Report 2008
37
UK Opportunity for VT
Strong position in existing markets Proven track record in service delivery High customer rating Strong reputation for delivering in partnership Focused on Opex not Capex Potential to broaden footprint & capability Acquisitions and joint ventures
38
Defence Budget New administration committed to maintaining current level of spend Equipment cuts create service opportunity Afghanistan strategy and Defence Review drive priorities
Capitalise on OEM’s Conflict of Interest
In-sourcing
US Background
39
US Opportunity
Increased focus on higher end Range service work Transition from low margin Base Ops Leverage UK capability Adjacent market expansion
40
Summary
Continuing good momentum in the business Broaden UK capability & customer base Continue investment in Nuclear and Waste Maximise anticipated growth in outsourcing Focus US on higher margins & achieve critical mass
Additional Financial Information
Appendix 1
42
Summarised Cashflow 30 September
2009
£m
30 September 2008
£m
Underlying Operating cashflow 44.9 52.8
Reorganisation Costs (4.2) (0.8)
Business Acquisitions (3.1) 19.1
Fixed Asset (Purchases)/Disposals (16.8) 5.2
Repayment of PFI Financial Assets 1.3 1.8
Interest and Tax (9.6) (13.3)
12.5 64.8
Dividends paid (19.0) (17.6)
Shares issued/(purchased) 0.7 (2.0)
Discontinued Operations (2.0) (29.0)
Net cashflow movement (7.8) 16.2
Opening net debt
Arising on acquisition
(186.4)
-
(144.9)
(51.8)
Exchange gains & non cash movements 2.9 (5.8)
Closing net debt (191.3) (186.3)
43
Pensions Charge
30 September 2009
£m
30 September 2008
£m
Defined benefit schemes:
P&L Charge – current service cost 6.8 6.7
Curtailment Credit (0.4) -
Operating Profit Charge 6.4 6.7
Expected Return on Assets (10.8) (12.9)
Interest on Scheme Liabilities 12.1 11.4
Net Finance Charge/(Credit) 1.3 (1.5)
Net Pension Charge 7.7 5.2
44
Mar-09 ServicesCost
InterestCost
Actuarial Paid Sep-09
Pension Deficit£m
60.5
6.4
73.8
1.319.3 (13.8)
45
Earnings per Share/Dividends
30 September 2009
30 September 2008
Underlying EPS - continuing 17.6p 15.2p 15.8%
Basic EPS - continuing 13.0p 8.7p 49.4%
Diluted EPS - continuing 12.8p 8.5p 50.6%
Interim dividend per share 4.3p 3.9p 10.3%
Appendix 2Contract Portfolio
47
Contract Portfolio - DefenceValues over £50m
LAFTTTSPMFTSFSTASea King MaintenanceAllenby ConnaughtWhitefleetALC (C Vehicles)ArborfieldBordonTMASSESTSTOASTUTEFitzroyVLFDHFCSFirefighting Training
10 12 14 16 18 20 22 24 26 28
2037
Year
2035
ContractPreferred bidder
2030
48
Contract Portfolio – G&CSValues over £50m
Year
Metropolitan PoliceBritish AirwaysCardiff GateSevern ParkFirefighting TrainingSurrey County CouncilGreenwichLewishamBBCGovernment AgencyWakefieldNew Dimensions
2030
10 12 14 16 18 20 22 24 26 28
2036
2032
49
Contract Portfolio – VT Group IncValues over £50m
NASACamp Le JeuneKings BaySPAWARAMCOM Express
10 12 14 16 18 20 22 24 26 28Year
Rolling renewal