TIDMSRP
RNS Number : 9805S
Serco Group PLC
29 June 2018
Close period update
29 June 2018
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Serco Group plc ('Serco' or 'the Group'), the international
service company, will be in a close period between 1 July 2018 and
publication of the results for the first half of the financial year
on Thursday 2 August 2018. Serco will be holding meetings with
analysts today, during which no additional material information
will be disclosed.
Commenting on today's update, Rupert Soames, Serco Group Chief
Executive, said: "As foreseen in our five-year strategy, profits
are now starting to grow and we expect Underlying Trading Profit to
increase by around 20% at constant currency in the first half. The
period has also seen a continuation of the strong order intake we
saw in 2017, with contract awards expected to exceed GBP1.5bn,
representing over 100% book-to-bill ratio; consequently we expect
to show continued growth in our order book. Around 80% of our order
intake will have come from our operations outside the UK. In
addition, we have progressed with value-enhancing acquisitions,
completing and integrating the BTP acquisition within our US
defence business to deepen our satellite and radar capabilities,
and we have now transferred the first of the Carillion healthcare
contracts. Notwithstanding market conditions that are less than
ideal, particularly in the UK, we are responding appropriately and
continuing to make progress in line with our strategy."
Update on trading
For the first half, we expect to report revenue of around
GBP1.35bn and Underlying Trading Profit (UTP) of GBP35-40m. For the
comparable period, restated for IFRS15 (see note), revenue was
GBP1.51bn and UTP was GBP34.0m. The results for the first half of
2018 include adverse currency impacts of approximately GBP60m for
revenue and GBP3-4m for UTP. At constant currency therefore,
revenue is anticipated to have reduced by approximately 6%, and UTP
to have increased by around 20%. As expected, the revenue reduction
is driven largely by contracts that ended in 2017, whereas the
profit increase is driven by transformation savings. Our guidance
for the full year is revenue of GBP2.7--2.8bn and UTP of around
GBP80m, compared to the IFRS15-restated result for 2017 of
GBP2.95bn revenue and GBP69.3m UTP. We therefore do not anticipate
any material change to analyst consensus for UTP for 2018,
although, as we have previously stated, there remains a wide range
of potential outcomes reflecting the sensitivity of our profits to
even small changes in revenues and costs, as well as further
movements in currency during the second half of the financial
year.
Our order intake has continued to be strong, driven in
particular by progress on securing rebids and extensions. Including
the anticipated value of option periods for our health insurance
eligibility contract and our naval electronic surveillance systems
contract, both in the US, along with the value of other awards
across our UK & Europe, Middle East and AsPac divisions, we
expect over GBP1.5bn of order intake in the first half, and
therefore our book-to-bill ratio continuing to run at over
100%.
Update on health facilities management acquisition
Further to previous announcements on our planned acquisition of
a portfolio of selected UK health facilities management contracts
from certain subsidiaries of Carillion plc ('Carillion'), we
provide the following update.
Serco has been working closely with the Special Managers and
Liquidators of Carillion, together with all other relevant parties,
to agree acquisition terms enabling the various contract to
transfer. We are now anticipating that we will take responsibility
for facilities management services at six major NHS hospital sites:
Great Western Hospital in Swindon; Darent Valley Hospital in
Dartford; James Cook University Hospital in Middlesbrough;
Harplands Hospital in Stoke-on-Trent; The Langlands Unit of Queen
Elizabeth University Hospital in Glasgow; and Addenbrooke's
Treatment Centre in Cambridge. The first contract, Great Western
Hospital in Swindon, transferred recently, and the remainder,
subject to signing of the relevant contracts, are expected to do so
over the coming weeks.
Each of the remaining five contracts still require a separate
transaction and novation; if all six contracts transfer to Serco,
the total annual revenue would be around GBP70m and the estimated
Underlying Trading Profit, including an appropriate allocation of
charges for shared support services and other incremental
overheads, would be approximately GBP4m; together, all six
contracts would add around GBP700m to our order book. Reflecting
the reduced number of contracts transferring and other changes to
the transactions, the aggregate consideration payable, assuming all
of the relevant contracts are transacted and novated, would be
approximately GBP16m. As there would only be a part-year trading
contribution in 2018, after the costs of the transition and
integration phase that would be completed over the coming months,
this would likely result in a small negative impact on Serco's net
profitability for the 2018 financial year; this has been taken into
account in our guidance as stated in today's update on trading. The
transactions would be immediately accretive to earnings following
the completion of the integration phase.
Our previously stated estimate of accounting net debt at the end
of 2018 was a range of GBP200-250m, equivalent to leverage for
covenant purposes of 1.5-2x EBITDA. The guidance provided in
February excluded the potential effect of the proposed acquisition
of Carillion healthcare contracts. Assuming the transaction
progresses as currently anticipated, we would not expect it to have
a material impact on our net debt in the first half, but would
leave it at the upper end of the range at the close of the 2018
financial year.
A final update will be provided when all potential transfers
have been completed.
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
Note re IFRS15 restatement
In line with previous estimates, for the year ended 31 December
2017, the impact of adopting IFRS15 is a revenue restatement of
GBP2.7m from GBP2,953.6m to GBP2,950.9m and an Underlying Trading
Profit restatement of GBP0.5m from GBP69.8m to GBP69.3m. For the
six months ended 30 June 2017, there is a revenue restatement of
GBP0.9m from GBP1,508.2m to GBP1,507.3m and an Underlying Trading
Profit restatement of GBP1.3m from GBP35.3m to GBP34.0m. For the
six months ended 31 December 2017, the revenue restatement is
GBP1.8m from GBP1,445.4m to GBP1,443.6m and the Underlying Trading
Profit restatement is GBP0.8m from GBP34.5m to GBP35.3m.
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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