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2016 Half Year Results

Date: 04 Aug 2016

Six months ended 30 June

2016

2015

Revenue – continuing and discontinued operations(1)

£1,517.9m

£1,789.3m

Reported Revenue (continuing operations only)

£1,493.2m

£1,612.7m

Underlying Trading Profit(2)

£51.0m

£46.9m

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

£65.2m

£36.8m

Underlying EPS, basic(3)

3.70p

1.57p

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

4.27p

(10.32p)

Free Cash Flow(4)

£1.5m

(£77.5m)

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

£120.2m

£290.3m

  • Revenue(1), including discontinued operations, declined by 15%, comprising an 8% organic decline from net contract attrition and 8% resulting from disposals, partially offset by a 1% currency benefit.
  • Underlying Trading Profit(2) increased by 9%, better than we anticipated at the start of the year; the improved performance was driven largely by factors which are unlikely to repeat, such as the favourable resolution of commercial issues and certain contracts running on longer than expected.
  • Trading Profit(2) of £71.7m increased by 14%, growing faster than Underlying Trading Profit due principally to further progress reducing future liabilities related to loss-making contracts.
  • Underlying EPS(3) increased substantially, reflecting increased profits, reduced net finance costs and a significantly lower effective tax rate.
  • Reported EPS includes the effect of exceptional items; the net exceptional charge was £12.4m, compared with £117.1m of charges in the first half of 2015 largely related to impairment of goodwill and refinancing costs.
  • Free Cash Flow of £2m, significantly better than the first half of 2015 outflow of £78m.
  • Closing Net Debt increased over the period by £43m to £120m, includes £23m translation effect on long-term US$ debt.
  • Net Debt : EBITDA leverage of 0.75x, comfortably below our medium term target range of 1-2x and at similar level to the start of the year.
  • £0.9bn total value of signed contracts, of which 16 are worth more than £10m each; largest new contracts were for the Australian icebreaker and nuclear hardening of US radar facilities; largest extensions were for Acacia prison in Australia and the Anglia Support Partnership healthcare shared services in the UK.
  • Pipeline of larger new bid opportunities of £7.3bn, an increase of £0.8bn over the period and £2.3bn year-on-year.
  • Operating costs compared to the first half 2015 reduced by £275m, or £550m on an annualised basis, and in proportion to revenue reduction.
  • Better trading performance and currency movements lead us to increase guidance for 2016; latest expectations are revenue of approximately £3.0bn and Underlying Trading Profit of not less than £80m.
  • View of 2017 not materially changed on a constant currency basis.

Rupert Soames, Serco Group Chief Executive, said: “Performance for the first half of the year has been better than we expected.  Although much of the improvement came from items that will not recur, it reflects the result of a lot of hard work and successful resolution of a number of commercial issues. Since our last update in May, our trading performance and cost savings are tracking slightly ahead of plan, and recent foreign exchange movements have increased the value in sterling of our overseas earnings.  Accordingly, we are increasing our profit guidance for 2016, although it is important to note that our view of the outlook for 2017 is not materially changed, other than adjusting for foreign currency movements.

“Whilst we expect to see potholes on the way, we are making good progress on the implementation of our strategy, underlined by our growing pipeline of new bids.  We have removed some £550m from our operating costs, and at the same time we have been investing in our infrastructure, processes and capability and have recently rolled out significant improvements in our HR, finance and purchasing systems.”

Download the full statement

For further information please contact Serco:

Stuart Ford, Head of Investor Relations T +44 (0) 1256 386 227

Marcus De Ville, Head of Media Relations T +44 (0) 1256 386 226

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2016 Half Year Results Presentation

A presentation for institutional investors and analysts was held at JPMorgan, 60 Victoria Embankment, London EC4Y 0JP on Thursday 4 August 2016. The presentation is available to download and the webcast is available on demand below:

Download the full statement

Download Presentation

Listen to the webcast

 

Last Updated: 04 Aug 2016