3rd Jul 2014 07:46
LONDON (Alliance News) - Serco Group PLC's new Chief Executive Rupert Soames Thursday said the company's expectations remain unchanged from the lowered guidance it set out in late April, with first-half organic revenue set to be about flat on the year but margins to fall significantly, but it also expects to book new provisions on poorly-performing contracts.
The support services company lowered its guidance in April, blaming the restructuring it was having to carry out in the wake of the fallout of its well-publicised difficulties with some UK government contracts, as well as a margin hit from some other poorly-performing contracts that it was having to invest in.
In its trading update Thursday, the company reiterated that it expects to report adjusted revenue of about GBP2.4 billion for the six months to end-June, broadly flat on the year-earlier period excluding the impact of acquisitions and disposals and currency movements. However, as flagged, it expects margins to be "significantly" down on the year.
It is retaining its full-year guidance that adjusted operating profit at constant currencies will be no less that GBP170 million, or about GBP155 million at actual currencies assuming a continuation of current exchange rates. It expects to make about a third of the profit in the first half of the year and two-thirds in the second half.
It said it had won over GBP2 billion of contracts in the first half of the year.
"Whilst difficulties continue on some contracts, overall our trading and financial position is in line with the expectations on which we updated the market two months ago. We are rebuilding trust and confidence with the UK Government and the strategy review is proceeding according to plan. There are many challenges ahead, but I am confident that we can build a strong future for the business; I look forward to providing further updates in due course," said Soames, who took the helm on May 1 after the company's previous CEO resigned in the wake of the contract issues.
The company's strategy review, which includes an analysis of the company's contracts, particularly loss-making ones, has uncovered the need for new provisions, the company said, and it expects to book new provisions of about GBP10 million to GBP15 million in the first half results.
It warned that its contract to provide accommodation and transport for asylum applicants in the north west of England is now expected to be loss-making for the whole five years of the contract. It has had the contract since late 2012 and has booked a loss of about GBP15 million so far on it.
It also warned that it will need to book new provisions for its underperforming UK clinical healthcare contract. It booked GBP18 million of provisions against this contract in 2013.
Serco said its restructuring and "corporate renewal" programme was progressing well. It expects the corporate renewal programme to cost about GBP15 million in 2014, with about half being charged in its first half accounts. It also expects to book most of the GBP15 million to GBP20 million full-year restructuring cost to be booked in the first half. However, it expects to book a small GBP3 million exceptional credit for disposals.
Serco will put out its full first half results on Tuesday August 12.
The company's shares were down 0.3% at 365.4 pence early Thursday.
By Steve McGrath; [email protected]; @SteveMcGrath1
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