21st Feb 2019 09:31
LONDON (Alliance News) - Serco Group PLC on Thursday said its profit multiplied in 2018 due to a drop in both expenses and cost of sales, and it increased its revenue guidance.
Shares in Serco were up 4.7% at 120.40 pence on Thursday morning.
The public services provider's pretax profit was GBP74.1 million, seven times higher than its GBP10.6 million profit in 2017.
While Serco's revenue decreased 3.7% to GBP2.84 billion from GBP2.95 billion, its gross profit was 21% higher at GBP290.2 million versus GBP240.3 million. This was due to a drop in cost of sales to GBP2.55 billion from GBP2.71 billion.
The balance of onerous contract provisions stood at GBP82.1 million on December 31, down from GBP146.6 million a year before. Additional charges of GBP3.4 million have been made for future losses on existing onerous contract provisions, reflecting "updated forecasts as settlements are agreed and contracts near completion", Serco said. This compares to additional charges of GBP61.9 million in 2017.
Serco will not pay a dividend in respect of 2018, nor did it for 2017.
"Although the board is committed to resuming dividend payments as soon as it judges it prudent to do so, in assessing whether we should resume dividend payments in respect of 2018, we are mindful of the fact that 2019 is the last year of significant outflows of cash related to [onerous contract provision] and operating exceptional costs, which together will mean that net debt is likely to increase again 2019, albeit modestly," said Serco.
The outsourcing company also raised its 2019 revenue guidance to between GBP2.9 billion and GBP3.0 billion, up from December guidance of GBP2.8 billion to GBP2.9 billion. This reflects recent contract wins, particularly is asylum support service contracts in the UK and a defence health contract in Australia.
Underlying trading profit guidance is now GBP105 million, compared to a 2018 underlying trading profit of GBP93.1 million and GBP69.3 million in 2017.
Serco had previously guided for an underlying trading profit of between GBP95 million and GBP100 million and said the new guidance represents the top end of the previous range as well as an additional GBP5 million due to a change in the accounting standard in 2019.
The company's underlying margin in 2018 was 3.3%, and its statutory margin was 2.8%. This compares to a 2.3% underlying margin in 2017 and statutory margin of 0.7%.
"Beyond 2019, and consistent with our strategy announced in 2015, we believe we will able to continue to improve our margins, with a target of achieving 5% or above in the longer term," said Serco Chief Executive Rupert Soames.
"Our recent strong order intake means that we believe we should be able to outperform a weaker market in the next few years, absent unforeseen headwinds or major rebid losses. We expect Serco to achieve revenue growth of 3% to 4% in 2019, accelerating to around 5% in 2020," Soames added.
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