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Serco Group plc (Serco), the international service company, today gives the latest position on the various reviews being carried out, along with a trading update. A meeting for institutional investors and analysts will be held at 09:00 today to discuss this announcement, details of which are included at the end of the announcement.
- Strategy Review: Serco's future to be as an international B2G business. A successful, innovative and market-leading provider of services to Governments. Core sectors: Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.
- The Contract & Balance Sheet Reviews identify likely impairments and further Onerous Contract Provisions totalling around £1.5bn, approximately half of which relates to goodwill and intangible assets.
- Forecast for 2014 Adjusted Operating Profit reduced by approximately £20m to £130-140m (before the impact of the Contract & Balance Sheet Reviews); outlook for 2015 reduced.
- Discussions to be held with lenders to negotiate amendments to the operation of covenants.
- Medium term capital structure target of 1-2x net debt to EBITDA.
- Proposed equity rights issue of up to £550m in the first quarter of 2015; fully underwritten on a standby basis by Bank of America Merrill Lynch and J.P. Morgan Cazenove.
- Programme of disposals of businesses not core to our future strategy underway, including the majority of our private sector BPO business.
Rupert Soames, Group Chief Executive Officer, said: "The rapid progress we have made in recent weeks on the Strategy Review and the Contract & Balance Sheet Reviews has brought us to the point that we are able to provide an initial estimate of the impairments, write-downs and Onerous Contract Provisions that are likely to be required at year end. Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future.
"As might be expected, the Contract & Balance Sheet Reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts. These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015.
"Looking ahead, we have not yet completed our Strategy Review, and we will present it, as planned, at the time of our Full Year Results in March 2015. However, the direction is clear: Serco will concentrate on its core as a leading supplier of public services - an international B2G business focused on Justice & Immigration, Defence, Transport, Citizen Services and Healthcare. These are businesses which we are really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us. There are a tough couple of years ahead as we make this transition, but it will be worth it."
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