TIDMSRP
RNS Number : 1890Z
Serco Group PLC
13 December 2017
Update on 2017 financial performance and longer term outlook
ahead of Capital Markets Event and Close Period
13 December 2017
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Highlights
-- Profit performance for 2017 expected to be around the top end of previous guidance
-- Closing net debt expected to be towards the lower end of previous guidance
-- Strong order intake of over GBP3bn
-- Definitive agreement to acquire major part of Carillion's
health facilities management portfolio now signed
-- Strong profit growth expected in 2018 and 2019
-- Growth thereafter more dependent upon when market demand reverts to trend
Serco Group plc ('Serco' or 'the Group'), the international
service company, today provides its scheduled update on financial
performance for 2017 and for the outlook beyond. This statement is
being made ahead of Serco's Capital Markets Event which is to be
held in London this afternoon. Serco will be in a Close Period
between 1 January 2018 and the publication of the results for the
2017 financial year on Thursday 22 February 2018; no further
Trading Update or Close Period Statement is anticipated ahead of
the results.
This afternoon's Capital Markets Event for institutional
investors and analysts will be led by Serco's wider management team
and will focus in particular on Serco's international operations in
the Justice & Immigration and the Defence sectors. No
additional material information on trading or outlook will be
disclosed at this afternoon's event. The presentations will be made
available on www.serco.com after the event has concluded.
For 2017, Serco expects to achieve an Underlying Trading Profit
outcome around the top end of our previous guidance range of
GBP65-70m; profits in the second half will be around 10% higher
than in the comparable period in 2016. Revenue for the year is
expected to be just under GBP3.0bn; the small reduction against
previous revenue guidance includes an adverse impact of currency
movements during the second half of the year and other volume and
timing effects. The margin for the year will be better than
previous guidance. Closing net debt at 31 December 2017 is expected
to be towards the lower end of our previous guidance range of
GBP150-200m; the final outcome remains subject to the timing of
working capital movements around the year-end and the translation
effect of prevailing currency rates at the closing balance sheet
date. Closing net debt will not reflect the $20m outflow for the
BTP Systems acquisition as this is expected to complete in early
2018, and similarly it does not reflect any consideration related
to the Carillion health facilities management acquisition as this
would only complete in phases over the course of 2018.
Order intake in 2017 has been strong at over GBP3bn which
represents a book-to-bill ratio of over 100%, the first time this
has been achieved since 2012. Order intake includes Grafton prison
in Australia which is the Group's largest ever contract win, as
well as other new contracts such as those for Southampton NHS
Foundation Trust, the US Army Installation Management Command and
for the US Navy Fleet Readiness Centers, as well as rebids and
extensions such as those for the US Patent & Trademark Office,
air navigation services in the Middle East, facilities management
for NHS Forth Valley and citizen services support for Hertfordshire
County Council. As anticipated, the pipeline of new bid
opportunities will be noticeably lower by the time we report the
results for 2017, and is currently estimated to be GBP4-5bn.
Refilling the pipeline is unlikely to be a smooth progression given
the effect of the timing and scale of individual opportunities;
however, as announced separately today, we have now signed a
definitive agreement, subject to Carillion receiving shareholders'
approval and the requisite third party consents, to acquire the
major part of Carillion's health facilities management portfolio;
these contracts have an average unexpired period of around 14 years
and are expected to add around GBP1bn into our order book.
Having now completed our 2018 budget review process, we expect
that Underlying Trading Profit will grow to around GBP80m, in line
with consensus, on revenues broadly flat at around GBP2.9bn. We
continue therefore to expect some improvement in margins, driven
largely by transformation savings. Our guidance reflects current
currency rates, which imply adverse impacts of approximately
GBP3-4m for profit and GBP70-80m for revenue when compared to the
average rates for 2017 to date. As noted in the separate
announcement regarding the acquisition of Carillion's health
facilities management contracts, the effect of this transaction is
not included in our guidance at this stage.
Looking further ahead, we expect 2019 to be a year of further
good growth in Underlying Trading Profit, which is again broadly in
line with consensus and is likely to be driven by additional
transformation savings. The rate of growth thereafter will be more
dependent on our ability to grow revenues. The Strategy Review
announced in March 2015 set out a long term ambition that the
business could grow in line with a market which was expected to
expand at a long term trend rate of 5-7% a year and deliver margins
of 5-6%. Our margin ambition was predicated on three conditions:
first, reducing costs as a percentage of sales; second, containing
losses on onerous contracts and converting a number of them into
profitable contracts on rebid; and, thirdly, increasing margins by
growing revenues whilst bearing down on overheads. We remain
broadly on track on costs and onerous contracts, but some markets,
and in particular the UK, are currently growing more slowly than
their former trend rate. We can and will partly compensate for a
weaker organic revenue outlook through increased actions on the
cost base, and our ambitions of 5-7% revenue growth and 5-6% margin
remain intact, but the timing of achieving this will be dependent
upon when demand reverts to trend in our target markets.
Commenting on today's update, Rupert Soames, Serco Group Chief
Executive, said: "2017 has been a good year for order intake. We
will deliver Underlying Trading Profit around the top end of our
previous guidance, and we expect profits to grow strongly over the
next two years. Beyond 2019, our long term ambitions for margins
and revenue growth remain intact, but the timing of achieving these
remains subject to seeing improvements in the trading conditions
across our markets. In the meantime, we continue to deliver against
our plans and make good progress against our strategy."
Ends
For further information please contact Serco:
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386
227
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386
226
About Serco
Serco is a leading provider of public services. Our customers
are governments or others operating in the public sector. We gain
scale, expertise and diversification by operating internationally
across five sectors and four geographies: Defence, Justice &
Immigration, Transport, Health and Citizen Services, delivered in
UK & Europe, North America, Asia Pacific and the Middle
East.
More information can be found at www.serco.com
Forward looking statements
This announcement contains statements which are, or may be
deemed to be, "forward looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward looking statements. Generally, words such as "expect",
"anticipate", "may", "should", "will", "aspire", "aim", "plan",
"target", "goal", "ambition" and similar expressions identify
forward looking statements. By their nature, these forward looking
statements are subject to a number of known and unknown risks,
uncertainties and contingencies, and actual results and events
could differ materially from those currently being anticipated as
reflected in such statements. Factors which may cause future
outcomes to differ from those foreseen or implied in forward
looking statements include, but are not limited to: general
economic conditions and business conditions in Serco's markets;
contracts awarded to Serco; customers' acceptance of Serco's
products and services; operational problems; the actions of
competitors, trading partners, creditors, rating agencies and
others; the success or otherwise of partnering; changes in laws and
governmental regulations; regulatory or legal actions, including
the types of enforcement action pursued and the nature of remedies
sought or imposed; the receipt of relevant third party and/or
regulatory approvals; exchange rate fluctuations; the development
and use of new technology; changes in public expectations and other
changes to business conditions; wars and acts of terrorism; and
cyber-attacks. Many of these factors are beyond Serco's control or
influence. These forward looking statements speak only as of the
date of this announcement and have not been audited or otherwise
independently verified. Past performance should not be taken as an
indication or guarantee of future results and no representation or
warranty, express or implied, is made regarding future performance.
Except as required by any applicable law or regulation, Serco
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statements
contained in this announcement to reflect any change in Serco's
expectations or any change in events, conditions or circumstances
on which any such statement is based after the date of this
announcement, or to keep current any other information contained in
this announcement. Accordingly, undue reliance should not be placed
on the forward looking statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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