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Serco Group plc full year results 2017

Published: 22 Feb 2018

Year ended 31 December



Revenue – continuing and discontinued operations(1)



Reported Revenue (continuing operations only)(1)



Underlying Trading Profit (UTP)(2)



Reported Operating Profit/(Loss) (after exceptional items; continuing operations only)(2)



Underlying EPS, basic(3)



Reported EPS, basic (after exceptional items; continuing and discontinued operations)



Free Cash Flow(4)



Net Debt (including that for assets and liabilities held for sale)



Rupert Soames, Serco Group Chief Executive, said: “With profits at the top end of the expectations we set out some 15 months ago, net debt lower than we expected, fully funded pension schemes, and strong order intake, we delivered a solid performance in 2017 in a difficult market.  Most importantly, we expect profits to grow in both 2018 and 2019.  We understand that getting to this point has been a long haul for investors, and that there is still a long, and probably bumpy, road ahead before we are producing acceptable returns.  But we are now moving forward, not backward.

“The benefits of our international footprint have never been more evident as the UK market for public service outsourcing is afflicted by well-publicised traumas.  This environment may produce opportunities for suppliers with strong track records of delivery, and Serco also has the advantage of choice as to where we allocate resources and effort between different markets.  Therefore, as well as ensuring that we support our UK customers, and respond appropriately to opportunities as they arise, we will also be investing in our businesses in North America, Europe, the Middle East and Asia Pacific.

“The challenges facing governments around the world remain unchanged.  Ageing populations are driving demand for more and better public services; almost all governments spend more than they receive in tax; citizens have ever-higher expectations of the quality of public services.  In this environment, governments are likely to want to use all means at their disposal to deliver value for money and high quality public services, which should mean a strong continuing role for the private sector as a provider of innovation, investment and operational management.”


  • Reported Revenue(1) down 2%, comprising a 6% organic decline from net contract attrition, partially offset by a 4% currency benefit.
  • Order intake up 36% at £3.4bn (2016: £2.5bn), includes Grafton prison in Australia which is the Group’s largest ever contract win, and over 30 other contract awards worth more than £10m each across the UK, Europe, America and the Middle East; book-to-bill ratio of over 100% for the first time since 2012; closing order book increased to £10.7bn, up from £9.9bn a year earlier.
  • Underlying Trading Profit(2) was at the top end of our guidance given at the start of the year; run-rate throughout 2017 has been approximately 10% ahead of that achieved in H2 2016.
  • Operating costs reduced in proportion to the scale of revenue reduction; further shared services and overhead savings of around £20m achieved, taking total overhead savings over the last three years to over £100m.
  • Reported result includes a £16m net charge of Contract & Balance Sheet Review adjustments, compared to a net release of £14m in 2016; cumulatively over the last three years, we are tracking 3% better than the Contract & Balance Sheet Review charges taken in 2014.  Closing balance sheet Onerous Contract Provision (OCP) liability now stands at £168m, down from £220m in 2016 and £447m in 2014.
  • Pre‑exceptional tax costs were £14m (2016: £16m), and net exceptional costs were significantly lower at £25m (2016: £68m).
  • Free Cash Flow(4) outflow improved by £26m to (£6.7m), which includes (£8m) of outflow as we reduced our working capital facility utilisation to zero by the end of 2017.  Net Debt at £141m (2016: £109m) was some £9m below our guidance range at the start of the year, and Net Debt : EBITDA leverage of 1.4x remains well within our medium term target of 1-2x.
  • Pension schemes fully funded and in a surplus on an accounting basis; around half of our pension liabilities are now fully underwritten by bulk annuity purchases, further reducing pension scheme residual risks.
  • Pipeline of larger new bid opportunities reduced to £4.4bn, as a number of unusually large opportunities moved through the pipeline during 2017; £3bn of the pipeline are opportunities added over the course of 2017.
  • Acquisition of BTP Systems completed for $20m, bringing deep skills in defence satellite communication and radar engineering technical services, together with a pipeline of $200m.
  • We have signed a revised agreement with the Special Managers and Provisional Liquidators of Carillion plc, and while it is subject to requisite third party consents, we continue to work with all relevant parties to acquire the portfolio of selected UK health facilities management contracts.
  • IFRS15 estimated restatement to 2017 not anticipated to be significant; decrease revenue by £3m and Underlying Trading Profit by £0.3m.
  • Guidance for 2018 unchanged: we expect revenues to be £2.8-2.9bn, broadly flat in constant currency, and Underlying Trading Profit to grow to around £80m, driven largely by transformation savings.  We expect 2019 to see further good growth in Underlying Trading Profit.