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RNS Number : 5554D
Serco Group PLC
30 June 2021
Closed period trading update: strong first half and full year
performance expected
30 June 2021
Serco Group plc, the international provider of services to
governments, today provides its scheduled closed period update of
trading for the first six months of 2021, together with updated
guidance for 2021 as a whole. Serco will be in a closed period
between 5 July 2021 and publication of the interim results for the
first half of 2021 on Thursday 5 August 2021.
Highlights of expected first half performance
* Reported revenue growth of 19%; organic revenue
growth of around 15%.
* Underlying Trading Profit more than 50% higher than
the first half of 2020 at GBP120m-GBP125m.
* All four regions trading ahead of last year.
Underlying Trading Profit margin likely to be greater
than 5%.
* GBP3.8bn of order intake, a book-to-bill ratio of
around 170% in the first half, and just under 120% on
a rolling 12-month basis.
* Robust financial position with adjusted net debt
expected to be around GBP275m; leverage towards the
bottom end of our target range of 1-2 times net debt
: EBITDA.
Commenting on today's update, Rupert Soames, Serco Group Chief
Executive, said:
"Serco's performance in the first half underlines the trust
governments around the world place in us, and our ability to
respond at scale and pace to rapidly-changing requirements. We
expect to deliver revenue growth in the first half of nearly 20%,
and Underlying Trading Profit growth of more than 50%; just as
pleasing, our order intake will be at record levels at almost
GBP4bn, including large new contracts with the UK Ministry of
Defence, the Department of Work & Pensions and the Royal
Canadian Airforce. Despite being exceptionally busy responding to
strong demand for our services, we also completed two important
acquisitions in the United States and Australia in the period.
For the year as a whole, we expect to deliver Underlying Trading
Profit of around GBP200m, or nearly 30% growth in constant
currency. Profits will be weighted to the first half, and will
include contributions from the WBB and FFA acquisitions, which will
enable us to absorb the impact of the end of the AWE contract, the
mobilisation costs of the recently-signed DWP contract and an
expected reduction in Covid-19 related activities. We also intend
to take advantage of the current strong trading to temporarily
increase our rate of investment in our systems platform, cyber
resilience, and business development spend to respond to a strong
pipeline of opportunities."
Expected outcome for the first half of 2021 and guidance for the
full year
Revenue: We expect revenue of around GBP2.2bn in the first half
of 2021, 19% higher than the GBP1.8bn reported in the first half of
2020; about GBP340m of our first half revenues are expected to be
related to Covid-19, which compares to GBP80m in the prior year.
The acquisitions of FFA and WBB have added 5% to our revenue, while
currency is expected to have a 1% adverse impact. Our organic
revenue growth is expected to be in the region of 15% for the first
half, making it the third successive half-year period where organic
growth has been at 15% or above. We have seen particularly strong
revenue growth in the first half in the UK and Australia. Whilst it
is not realistically possible to accurately forecast Covid-19
related revenues, given the constantly evolving situation, our
expectation is that revenues related to Covid-19 will drop
significantly in the second half. Notwithstanding this, we expect
revenue to show growth in the second half versus the same period in
2020.
Underlying Trading Profit (UTP): We expect first half UTP of
between GBP120m and GBP125m, more than 50% higher than the GBP78m
reported last year. Acquisitions will contribute around GBP7m or 8%
of the UTP growth, while currency is expected to be a 4% drag. The
organic growth in UTP has been driven by continued strong demand
for our Covid-19 work and growth in a range of other contracts,
notably in Justice & Immigration and Citizens Services. The net
impact of Covid-19 will be stronger than 2020 as a result of both
increased volumes on Covid-19 contracts, and as those parts of the
business that saw significant losses last year - notably Leisure,
Transport and Health - show signs of improvement.
For the year as a whole, we continue to expect UTP of around
GBP200m, which implies a larger first half weighting but strong
growth on 2020 overall. In the second half we anticipate a lower
level of Covid-19 work, our AWE and Dubai Metro contracts will end,
the new DWP Restart contract will be loss-making as it mobilises,
and GBP3m of profit on sale from the divestment of our US parking
business in the first half will not recur. In addition, we intend
to use the current strong trading to temporarily increase
investment across a variety of projects to improve the resilience
of the business and support future growth. These include workforce
management, upgraded IT systems, enhanced cyber-security and
additional business development spend as our pipeline of
opportunities is currently strong.
Financial position: We expect adjusted net debt to be around
GBP275m at the end of June and leverage towards the bottom end of
our target range of 1-2 times net debt : EBITDA. This is better
than our previous guidance of 1.6x due to higher profits and
because cash generation has been strong so far this year, helped by
expedited payment terms by several customers as they seek to
support their supply chains. The second half is unlikely to see
such strong operating cashflow as profits will be lower, customers
will revert to more normal payment terms, and we will repay
deferred payroll taxes in Americas.
Order intake: Order intake has been extremely strong in the
first half at around GBP3.8bn, moving our book-to-bill to around
170% for the half, and just under 120% for the rolling 12-months.
Amongst contracts signed were a number of contracts by the Defence
Infrastructure Organisation (DIO) awarded to our VIVO JV with
Engie, which together we estimate will have a value to Serco
approaching GBP2bn over their initial seven-year term. The order
intake also includes our DWP Restart contract, which has an
estimated value of GBP350m, the GBP400m Goose Bay contract renewal
and our recently-announced Testing contract award, which will be
valued in our order book at GBP190m.
Guidance for the 2021 financial year
Our latest guidance for 2021 is:
Prior guidance* New guidance
Revenue GBP4.3bn GBP4.3bn
Organic sales growth 4% 6%
Underlying Trading Profit GBP200m GBP200m
Net finance costs GBP28m GBP28m
Underlying effective
tax rate 25% 25%
Free cash flow GBP85m GBP100m
Adjusted net debt GBP300m GBP275m
Notes: Guidance on the full range of metrics was last given on
27 April 2021 but UTP guidance was increased from GBP185m to
GBP200m on 14 June 2021, ahead of this fuller trading update. The
guidance uses an average GBP:USD exchange rate of 1.40 in 2021 and
GBP:AUD of 1.82 in 2021. We expect a weighted average number of
shares of 1,246m for diluted EPS.
Ends
For further information please contact:
Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718
195 074 or email: paul.checketts@serco.com
Marcus De Ville, Head of Media Relations; tel +44 (0) 7738 898
550 or email: marcus.deville@serco.com
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", "could", "should", "will", "aspire", "aim",
"plan", "target", "goal", "ambition", "intend" 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;
cyber-attacks; and pandemics, epidemics or natural disasters. 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.
LEI code: 549300PT2CIHYN5GWJ21
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