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Serco - Full year results show underlying progress

Steve Clayton | 25 February 2016 | A A A
Serco - Full year results show underlying progress

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Serco Group plc Ordinary 2p

Sell: 131.70 | Buy: 132.00 | Change -3.90 (-2.87%)
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Serco have announced an underlying trading profit of £96m in their full year results, down 18% on last year but ahead of guidance given last March, causing shares to rise 10% in early trading.

Revenue declined 11%, to £3,514m, with the group reporting an operating loss of £54.8m for the year, a significant improvement on a loss of £1.3bn in 2014.

Net debt falls from £605m to £78m, following last year's rights issue and sale of the offshore BPO business, resulting in a net debt to EBITDA ratio of around 0.5x. Free cash outflow was £16m, better than previous guidance.

The group signed contracts worth £1.8bn in 2015. This includes £0.5bn of new business with the remainder made up of extensions to existing contracts or successful re-bidding. Win rates were about 50% for new bids and 90% for rebids/extensions, although by value this declined to 20% and 75% respectively.

Overall the value of the group order book fell by £1.6bn over the year to £10bn. The pipeline of larger new bid opportunities increased 30% to £6.5bn for 2016.

As expected the group will not pay a dividend this year, nor has it indicated when dividends will be resumed.

Outlook:

The group reiterates its previous guidance for 2016 with revenue expected to fall to approximately £2.8bn, visibility on 90% of which is provided by the current order book. Underlying trading profit is expected to fall to £50m.

The sale of the offshore BPO unit is expected to reduce revenues by £300m and underlying trading profit by over £20m. Contracts drawing to an end across the rest of the group are expected to hit revenues by a further £500m resulting in a £40m drop in profit.

Net debt at the end of 2016 is expected to be around £200m, equivalent to leverage of 2x EBITDA.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.