REG - Serco Group PLC - Unscheduled trading update and revised guidance

SercoAnnouncement

26/05/2022 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220526:nRSZ8975Ma&default-theme=true

RNS Number : 8975M  Serco Group PLC  26 May 2022

Better than expected trading and positive outlook lead to increase in full
year guidance

 

26 May 2022

 

As a result of stronger than expected trading in the first four months of the
year, along with a positive outlook for the balance of the year and favourable
foreign exchange movements, Serco is today issuing an unscheduled trading
update and revised guidance for 2022.  Serco will publish results for the
first half of 2022 on Thursday 4 August 2022.  In the following statement,
all numbers are quoted in constant currency unless otherwise indicated.

 

Increased Underlying Trading Profit expectation for 2022

We now expect Underlying Trading Profit (UTP) to be around £215m on a
constant currency basis (2021: £229m), an increase of about £20m versus
prior guidance.  In addition, at current exchange rates, we expect favourable
translation movements to increase UTP by around £10m.  We therefore revise
reported UTP guidance upwards by £30m to around £225m, approaching the level
achieved in 2021.

 

First half

Trading in the first four months of the year has been stronger than we
expected, with all regions performing above their budgets, and three of the
four delivering higher profits than last year.  Our work on the UK Test &
Trace programme ended in April and, as a result, related revenues are likely
to be about £220m lower than in the first half of 2021.  However, we now
expect to be able to largely replace this with other government work around
the world, so Group revenues in the first half are likely to be at similar
levels to last year, at a little over £2bn.

 

This would represent organic growth for the Group excluding UK Test &
Trace of around 8%.  Margins in the first half are likely to be stronger than
we previously expected, at over 5%.  Reported UTP is expected to be at
similar levels to the prior year, notwithstanding a near £30m drag on first
half profits from a combination of the Atomic Weapons Establishment contract,
which ended in June 2021, and the wind down in UK Test & Trace. The
pipeline of new opportunities remains strong.

 

Our North America business is expected to have a strong first half, helped by
good organic growth in our Federal Civil sector and improved margins in
Defence, which have been improved by the acquisition of WBB in April 2021.
In Australia, we expect to see good profit growth in the first half, with
revenues similar to 2021, but higher margins as a result of strong trading in
Immigration, Facilities Management and Defence.  We are also likely to report
improved margins in the Middle East business, with profits at similar levels
to last year despite a reduction of around 35% in revenues as a result of the
loss of the Dubai Metro contract.

 

In the UK & Europe, despite a £220m reduction in Test & Trace
revenues, we expect first half revenues to be only about 5% lower than the
prior year, at around £1bn.  This reflects strong growth in other work,
including: Immigration-related revenues, which are likely to around £100m
higher than the prior year; the DWP Restart programme; and smaller increases
in Defence, Transport and Leisure.  Margins are expected to be lower than
2021 as a result of the near £30m drag on UK&E profits from AWE and Test
& Trace referenced above.

 

After distributing dividends of £20m to shareholders in the first half and
spending in the region of £30m on share buybacks, we expect net debt at 30
June to be around £170m, compared to £178m at the start of the year.  Our
leverage is likely to be at similar levels to the 2021 year end, and well
under 1x Net Debt to last 12 months' EBITDA.

 

Full year 2022

We now expect reported revenue of £4.3bn-£4.4bn in 2022 as a whole and
reported Underlying Trading Profit of around £225m, significantly ahead of
our expectations set out at the time of our full year results in February, and
approaching the levels reported in 2021.  Revenues in the second half are
expected to be similar to the first half, with the year-on-year reduction of
£260m of Test & Trace revenues being offset in large part by increases in
Immigration and other programmes around the world.  Overall, we expect
organic revenue growth excluding UK Test & Trace to be about 6% in the
second half.  As in 2021, we expect second half margins to be lower than
those in the first half due to seasonality and mix.

 

Serco is well protected against inflation. Although it is hard to forecast the
precise impact on revenues and costs, the nature of our contractual
arrangements with our customers means we do not expect costs to increase
faster than revenues, although there will be timing differences between
indexation and cost increases.

 

 

Our latest guidance for 2022 is:

                                2021                          2022
                                Actual   Previous guidance        New guidance
 Revenue                        £4.4bn   £4.1bn-£4.2bn            £4.3bn-£4.4bn
 Organic sales growth           10%      ~(8)%                    ~(5)%
 Underlying Trading Profit      £229m    ~£195m                   ~£225m
 Net finance costs              £24m     ~£25m                    ~£25m
 Underlying effective tax rate  24%      ~25%                     ~25%
 Free Cash Flow                 £190m    ~£100m                   ~£120m
 Adjusted Net Debt              £178m    ~£220m                   ~£200m

 

NB: The guidance uses an average GBP:USD exchange rate of 1.26 in 2022 and
GBP:AUD of 1.79.  Net Debt guidance includes the £90m share buyback
programme.  We expect a weighted average number of shares in 2022 of 1,203m
for basic EPS and 1,224m for diluted EPS.

 

Commenting on today's update, Rupert Soames, Serco Group Chief Executive,
said:

 

"We have had a strong start to the year, and it is pleasing to be able to
increase reported profit guidance to levels approaching last year's.  To
deliver this outcome, we are having to replace with other work some £500m of
revenues and over £60m of contract profits from the ending of Test &
Trace and of the AWE contract.  We are able to do this because customers rely
on us to deliver their critical programmes, and this has driven strong order
intake over recent years on contracts that are now delivering revenues and
profits.  This is testimony to the effectiveness of our unique
Business-to-Government platform, with its international footprint, its
resilience, agility and efficiency, which allows us to respond rapidly to
support the ever-changing priorities of the many governments we serve."

 

 

This announcement contains inside information.

 

Ends

 

For further information please contact:

Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718 195 074 or
email: paul.checketts@serco.com (mailto:paul.checketts@serco.com)

Marcus De Ville, Head of Media Relations; tel +44 (0) 7738 898 550 or email:
marcus.deville@serco.com (mailto:marcus.deville@serco.com)

 

About Serco

Serco is a leading provider of public services. Our customers are governments
or others operating in the public sector.  We gain scale, expertise and
diversification by operating internationally across five sectors and four
geographies: Defence, Justice & Immigration, Transport, Health and Citizen
Services, delivered in UK & Europe, North America, Asia Pacific and the
Middle East.

 

More information can be found at www.serco.com (http://www.serco.com)

 

 

Forward looking statements

This announcement contains statements which are, or may be deemed to be,
"forward-looking statements" which are prospective in nature.  All statements
other than statements of historical fact are forward-looking statements.
Generally, words such as "expect", "anticipate", "may", "could", "should",
"will", "aspire", "aim", "plan", "target", "goal", "ambition", "intend" and
similar expressions identify forward looking-statements.  By their nature,
these forward-looking statements are subject to a number of known and unknown
risks, uncertainties and contingencies, and actual results and events could
differ materially from those currently being anticipated as reflected in such
statements.  Factors which may cause future outcomes to differ from those
foreseen or implied in forward-looking statements include, but are not limited
to: general economic conditions and business conditions in Serco's markets;
contracts awarded to Serco; customers' acceptance of Serco's products and
services; operational problems; the actions of competitors, trading partners,
creditors, rating agencies and others; the success or otherwise of partnering;
changes in laws and governmental regulations; regulatory or legal actions,
including the types of enforcement action pursued and the nature of remedies
sought or imposed; the receipt of relevant third party and/or regulatory
approvals; exchange rate fluctuations; the development and use of new
technology; changes in public expectations and other changes to business
conditions; wars and acts of terrorism; cyber-attacks; and pandemics,
epidemics or natural disasters.  Many of these factors are beyond Serco's
control or influence.  These forward-looking statements speak only as of the
date of this announcement and have not been audited or otherwise independently
verified.  Past performance should not be taken as an indication or guarantee
of future results and no representation or warranty, express or implied, is
made regarding future performance.  Except as required by any applicable law
or regulation, Serco expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking statements
contained in this announcement to reflect any change in Serco's expectations
or any change in events, conditions or circumstances on which any such
statement is based after the date of this announcement, or to keep current any
other information contained in this announcement.  Accordingly, undue
reliance should not be placed on the forward-looking statements.

 

The person responsible for arranging the release of this announcement on
behalf of Serco plc is David Eveleigh, Group General Counsel and Company
Secretary.

 

LEI code: 549300PT2CIHYN5GWJ21

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTBKABDPBKKOPB