7th Dec 2015 09:37
LONDON (Alliance News) - Outsourcer Serco Group PLC on Monday said its trading for 2015 is set to come in ahead of previous guidance, but shares in the FTSE 250 company dropped as it projected another year of pain in 2016, with revenue and its trading profit set to fall.
Serco shares were down 8.8% to 104.25 pence on Monday, hitting a low of 99.0p earlier. The 52-week low for Serco shares is 89.48p.
Serco said trading in 2015 has been ahead of its expectations, with underlying trading profit set to beat its previous guidance and reported trading profit to be significant higher than its underlying figures due to an improved operational performance and renegotiation of loss-making contracts.
Free cash outflow in 2015 will be better than Serco anticipated, and despite the expected revenue and trading profit decline in 2016, free cash outflow in 2016 will be better in comparison to 2015, due to the progress made by the group in dealing with onerous contracts with which the company is saddled. Serco added it has exceeded its cost-savings targets for 2015 and is seeking to cut another GBP50.0 million in central support and other overheads in 2016.
"We expect to deliver a better performance than we originally expected in 2015, which reflects the fact that we are beginning to make progress and are delivering on our promises," said Rupert Soames, Serco's chief executive.
However, for 2016, Serco expects to generate revenue of around GBP2.8 billion, compared to around GBP3.5 billion for 2015, and said its trading profit will fall further to around GBP50.0 million, almost half the upgraded guidance for 2015 of GBP95 million.
The decline in trading profit will be driven by the group exiting its offshore business process outsourcing operations, which it sold to US private equity house Blackstone for GBP250.0 million in September. This business will deliver around GBP20.0 million in trading profit in 2015, but this will be removed in 2016, assuming the deal is completed by year-end.
The group's UK private sector business processing outsourcing business is expected to deliver a loss in 2015, though this should be reduced in 2016.
On the revenue front, Serco expects revenue attrition for 2016 to be around GBP500.0 million, ahead of the GBP350.0 million it had forecast around the time of its interim results in August, primarily due to ongoing weakness in its Americas division.
By Sam Unsted; [email protected]; @SamUAtAlliance
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