30th Apr 2014 17:58
LONDON (Alliance News) - Serco Group PLC said Wednesday it is reducing its full-year group revenue expectations by GBP200 million on a reported basis as the firm's performance for the year-to-date has been "weaker than expected."
In an interim management statement the outsourcing firm also said it will be seeking to strengthen its balance sheet via an equity placing of up to 49,932,918 shares, representing up to 9.99% of existing share capital.
Serco said that approximately half of its revenue is in non-sterling currencies and if the latest currency rates continue throughout the remainder of the year, it estimates that group revenue on a reported basis would be approximately GBP200 million lower.
While the company retains its expectations that adjusted revenue will be in the range of GBP4.7 - GBP4.9 billion at constant currency, internal forecasts show that revenue will be slightly - around 1% or GBP50 million - lower than previously thought.
"Sharp declines in trading margin in the first quarter, and a weakened outlook for the first half, have led us to reassess the overall margin we are likely to achieve for the year," said the firm, citing affecting factors including, new terms on its interim franchise agreement for Northern Rail; greater-than-anticipated investment to achieve further improvement in the operational performance of challenging contracts such as PECS and COMPASS; and delays in implementing reductions in headcount and related costs, in part caused by the requirements of our Corporate Renewal Programme.
Serco said, "Based on an assessment of the risks in these forecasts, the Board now believes that Adjusted Operating Profit at constant currency in 2014 will be not less than GBP170 million. At latest rates of exchange, currency movements would serve to reduce reported profits by around GBP15 million."
New Chief Executive Rupert Soames, who begins in the role on May 1 said Serco is reviewing its performance so far this year, noting that performance has been more challenging than previously expected.
Soames, who Serco poached from Aggreko in February is tasked with the revival of the business. He said, "Year-to-date performance has been weaker than the business expected, and this shortfall has had two impacts. First, it has made the original targets for the second half of 2014 even more challenging, and secondly it has required the Board to take a more cautious view of projections. The judgement of the likely out-turn for the year has therefore been materially reduced, with a consequent impact on our leverage ratios, which, without remedial action, would be uncomfortably close to their limits at the half-year."
As a result, the firm said the equity placing has the purpose of giving the firm the opportunity to a thorough review of the strategy of the business whilst remaining within the terms of our debt facilities. The strategic review, which has already begun, said Serco, is expected to take about nine months to complete, with the firm planning to present its conclusions within its 2014 full year results.
Serco said that the phasing of financial performance remains weighted to the second-half of the year, with its updated Adjusted Operating Profit forecasts indicating an approximate one-third/two-third split across the two financial half-year periods. The better performance planned for the second-half also includes the delivery of cost reduction initiatives across the group, it said, improvement in the financial performance of certain operationally challenged contracts, and an improved performance on new business wins.
On Monday the firm warned that it may have to revise its expectations lower after a more challenging 2014 so far and that it would consult with its shareholders regarding the possibility of strengthening its balance sheet through an equity placing.
In a separate announcement, the firm also said Wednesday that Andrew Jenner, Group Chief Financial Officer of Serco since 2002, has formally advised the Group of his intention to step down from the Board and as CFO once there is a successor.
The sharp drop in the company's 2013 performance had been well flagged after it was banned from winning new UK government work in the wake of issues with two contracts. The company reported a pretax profit of GBP106.6 million, down from GBP281.1 million in 2012, even though revenues rose to GBP4.29 billion, from GBP4.06 billion.
Serco shares closed 1.08% lower at 340.10 pence per share Wednesday.
By Alice Attwood; [email protected]; @AliceAtAlliance
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