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Serco Group plc full year results 2015

Published: 25 Feb 2016

Year ended 31 December 2015 2014
Revenue - including discontinued operations(1) £3,514.6m £3,955.0m
Reported Revenue(1) £3,177.0m £3,595.7m
Underlying Trading Profit(2) £96.0m £113.2m
Reported Trading Profit/(Loss)(2) £137.6m £632.1m
Operating Profit/(Loss) Before Exceptional Items - continuing and discontinued £132.7m £655.8m
Operating Loss - continuing and discontinued £54.8m (£1,317.3m)
Underlying EPS (basic)(3) 3.44p 4.73p
EPS Before Exceptional Items (basic) - continuing and discontinued 6.55p (107.43p)
EPS (basic) - continuing and discontinued (15.47p) (205.66p)
Dividend Per Share - 3.10p
Free Cash Flow (£16.2m) £62.2m
Net Debt (including that for assets and liabilities held for sale) £77.5m £682.2m
  • Underlying Trading Profit of £96m, ahead of our guidance provided at the time of the Rights Issue of £90m.
  • Reported Trading Profit of £138m, significantly higher than Underlying Trading Profit, benefiting from £21m net release of Onerous Contract Provisions and Contract and Balance Sheet Review items, £9m one-off profit on a contract termination and £12m beneficial impact of assets held for sale.
  • Exceptional operating charge of £188m, of which £166m are non-cash losses on disposals and impairments.
  • Free Cash Outflow of £16m, better than previously anticipated.
  • Net Debt reduced by £605m to £78m, as a result of the Rights Issue and offshore BPO disposal proceeds.  Net Debt:EBITDA around 0.5x.
  • £1.8bn total value of signed contracts, representing more than 700 individual customer orders of which 10 are worth more than £50m each.
  • Pipeline of larger new bid opportunities increases by approximately £1.5bn to £6.5bn.
  • Operating costs reduced by over £330m, broadly in proportion with revenue reduction.
  • Guidance for 2016 reiterated – Revenue expected to reduce to approximately £2.8bn and Underlying Trading Profit to around £50m as a result of BPO disposal and contract attrition.
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Rupert Soames, Serco Group Chief Executive, said: “The business has delivered a much better performance than we expected at the start of the year, which reflects the fact that we are making good progress in the first year of the implementation of our strategy.

“Serco has achieved a great deal in 2015: we have a significantly stronger balance sheet with materially less debt, we have successfully disposed of the majority of our offshore BPO business, reduced costs, improved our internal reporting processes, recruited new management, improved the position on several of our largest loss-making contracts, and strengthened our pipeline.  Our plan has survived first contact with the enemy.

“Looking ahead, and in line with our plan, we expect revenues and profits to decline in 2016, as a result of the disposal of our private sector BPO business and contract attrition.  We have four priorities this year: further improve the operational and financial performance of our contracts; build our new business pipeline; reduce our costs; and improve and embed our new management information systems.”

Sir Roy Gardner, Serco Group Chairman, commented: “Since joining Serco in June, I have seen first-hand the strong commitment of our people to delivering excellent public services.  Much has been done in 2015 to implement Serco’s new strategy and strengthen the business, and we now have a good foundation upon which to build a successful future.  There is much still to do to complete our transformation and restore Serco to appropriate growth and returns, and doing so whilst ensuring we meet the highest standards of operational performance, corporate governance, integrity and business ethics.”


Notes to summary table of financial results

(1) Revenue is as defined under IFRS, which excludes Serco’s share of revenue of its joint ventures.  Revenue including that from discontinued operations is shown for consistency with previous guidance.

(2) Reported Trading Profit is defined as IFRS Operating Profit adjusted for (i) amortisation and impairment of intangibles arising on acquisition and (ii) exceptional items.  Consistent with IFRS, it includes Serco’s share of profit after tax of its joint ventures.  Underlying Trading Profit excludes Contract and Balance Sheet Review adjustments (principally OCP releases or charges), the beneficial treatment of depreciation and amortisation of assets held for sale, and other material one-time items such as the profit on early termination of a UK local authority contract that occurred in 2015.  Trading Profit measures include that from discontinued operations for consistency with previous guidance.

(3) Underlying EPS reflects the Underlying Trading Profit measure after deducting pre-exceptional net finance costs (including those for discontinued operations) and related tax effects.

Reconciliations and further detail of financial performance are included in the Finance Review on pages 17 to 34.  The consolidated financial statements and accompanying notes are on pages 35 to73.

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