1st Jul 2015 06:13
LONDON (Alliance News) - Outsourcer Serco Group PLC on Wednesday said trading in the first half of 2015 has been slightly better than anticipated, though it maintained its expectations for the full year and still forecasts a fall in revenue and flat trading profit in the half-year period.
The FTSE 250-listed company said it expects revenue in the first half to the end of June to be at least GBP1.7 billion, down from GBP2 billion a year earlier. The fall in revenue has been driven by an organic decline, as anticipated by the company, particularly reduced volumes and rates from its Australian Immigration Services deal and the end of its contracts for the Docklands Light Railway and the National Physical Laboratory in the UK, along with US intelligence agency support deals and visa processing work.
Serco said it expects trading profit in the first half to be no less than GBP45 million, flat year-on-year, including the benefit of the company utilising Onerous Contract Provisions, which it booked in its 2014 results. Free cash outflow for 2015 is still expected to be around GBP150 million, weighted to the first half, and the group said its recent rights issue reduced its debt pile by around GBP500 million.
The company added the process of offloading its offshore private sector business process outsourcing business is ongoing, and it is considering a range of options for the division. It added it is making good progress in exiting onerous contracts and expects the run-rate of losses from these contracts to be significantly lower in 2016 than they will be in 2015.
Serco is in the midst of a restructuring of its business to focus on the provision of services to the public sector market, following a review conducted of the business by new Chief Executive Rupert Soames, which ultimately led to it booking a GBP1.31 billion writedown in 2014. For that year, the company also posted its first fall in revenue as a listed company as it suffered the fall-out from two troubled contracts it held with the UK government, the issues from which led to it being banned from winning any new government deals back in 2013.
As part of the strategic review, Serco said it will dispose of a number of non-core businesses, with the proceeds from the sales to be used to pay down its debt. This will include its Environmental Services and Leisure businesses in the UK, the Great Southern Rail business in Australia, and the majority of its private sector outsourcing businesses. The sale of the Great Southern Rail arm was sealed in late March, when Serco offloaded the business to Australian private equity house Allegro Funds for GBP2.5 million in cash.
"We have ended the first half in reasonably good order and are making progress in implementing our plans. Whilst our recovery is at an early stage, and there will be bumps along the road, I am confident that we are doing the right things, with a stronger balance sheet and supported by an excellent management team," said Soames.
By Sam Unsted; [email protected]; @SamUAtAlliance
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