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RNS Number : 2689C
Serco Group PLC
16 October 2020
16 October 2020
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Strong Q3 trading across all regions worldwide leads to upgrade
of guidance for 2020
Serco Group plc ('Serco' or 'the Group'), the international
provider of services to governments, today provides an unscheduled
update on the outlook for trading in 2020.
Trading: we have achieved strong revenue growth in the third
quarter and this, in conjunction with good cost control, means we
are upgrading our full year revenue guidance to around GBP3.9bn and
Underlying Trading Profit (UTP) to GBP160m-GBP165m; this would
represent organic growth in revenues of around 15%, growth in UTP
of over 30%, and a UTP margin of just above 4%. The range of
outcomes around these numbers, up or down, is wider than would
normally be the case at this time of year as on some contracts
customers are adjusting their requirements week-by-week in response
to the challenges of Covid-19.
All of our regions worldwide are performing better than we
expected and have increased their forecasts for 2020. In both Group
and in the divisions, effective cost control and the ability of our
systems to respond efficiently to increased demand has helped
increase margins.
In the US, we have seen strong performances across a number of
contracts, including our Center for Medicare & Medicaid
Services (CMS) contract, the US Federal Emergency Management Agency
(FEMA) contract and the Anti-Terrorism/Force Protection (ATFP)
framework contract for US Naval Facilities.
In the UK, we have been awarded extensions to our contracts to
provide test sites and call handlers for NHS Test & Trace,
which is an indication of our customer's satisfaction with the
quality of work we have delivered. We have also seen increases in
the number of asylum seekers we are looking after on behalf of the
Home Office, and our new Prisoner Escorting contract has been
successfully mobilised. We have now secured an extension to the
Emergency Measures Agreement on the Caledonian Sleepers to the end
of the year.
In Australia, restrictions on movement as a result of Covid-19
has meant additional work for both our immigration services and our
Citizens Services businesses. In the Middle East, there has been an
increase in project-related work on rail and facilities management
contracts.
Financial position: cash generation in the third quarter has
also been better than expected and, in particular, there has been
an almost complete catch up on delays in processing billings on our
FEMA contract in the US, which held back cash generation in the
first half. We now expect adjusted net debt to be between GBP100m
and GBP150m at the end of December with leverage of around 0.6x.
Following our successful issue of $200m (GBP154m) of US Private
Placement loan notes, we expect headroom on our committed finance
facilities to be at least GBP500m. As announced in our first half
results, we intend to repay early, and probably in the next few
weeks, UK Government VAT deferrals. Also as announced in August, we
will take a decision about dividends previously withdrawn (2019
final) or deferred (2020 interim) in December.
Guidance for the 2020 financial year
New guidance Prior guidance
Revenue GBP3.9bn GBP3.7bn
Organic sales growth 15% 9%
Underlying Trading Profit GBP160m-GBP165m GBP135m-GBP150m
Net Finance Costs GBP27m GBP27m
Underlying effective
tax rate 25% 25%
Free Cash Flow +GBP100m +GBP62m
Adjusted Net Debt GBP100m-GBP150m GBP200m
Notes to guidance: the free cash flow and adjusted net debt
guidance assumes accelerated repayment in 2020 of GBP38m of tax
payment deferrals. The guidance uses an average GBP:USD exchange
rate of 1.28 in 2020 and GBP:AUD of 1.87. We expect a weighted
average number of shares of 1,230m for basic EPS and 1,255m for
diluted EPS.
Outlook for 2021: as we noted in our half year results, and as
this unscheduled trading update underlines, the current crisis
makes forecasting extremely difficult. We expect the uncertainties
of 2020 will persist into 2021 as the world grapples with recurring
outbreaks of infection. We have only just started our budget review
process, and we would not have a view concerning 2021 today which
is materially different from that which we had at the time of our
half year results in August.
Governments' requirement for support services directly related
to Covid-19 is likely to be ephemeral, and at some point
(hopefully, for all our sakes, soon) will diminish. However, as we
said in our half year results, " The Four Forces, which we have
previously described as driving demand for our services will, we
think, have been amplified by the crisis: increasing and changing
demand for public services; heightened expectations around the
quality and resilience of public services; increased fiscal
deficits; the dire political consequences of increasing taxes.
These will continue to drive governments to want to deliver more
public services, of higher quality, for less money. We believe that
this imperative to provide more, and better, for less will become
even more urgent in the years ahead, and to deliver those
objectives governments will need the skills, resources, innovation
and nimbleness of the private sector."
Update on Serco's role in NHS Test & Trace: there has been
much comment on Serco's role in the NHS Test & Trace programme,
including suggestions that we are responsible for the whole
programme and / or that we have failed in our obligations. Serco is
proud to be playing a part in the NHS Test & Trace programme;
we now employ, directly or indirectly, around 9,000 people
supporting the programme. However, the part we play, although
important, is limited and specific. Serco contributes to two parts
of the process: at the start, we are one of five suppliers running
fixed and mobile sites where people go to get tested. We currently
manage about 25% of the 500 sites in the UK, and over the last six
months those sites have successfully delivered 1.7 million, or 30%,
of the 5.7 million tests carried out under Pillar 2 of the
programme. At the end of the Test & Trace process, and on the
tracing side, we are one of two prime contractors responsible for
reaching the people identified to us by NHS Professionals as having
been in contact with people who have tested positive. We are not
involved in other parts of the process, for instance the design and
management of the overall programme, the NHS App, the IT systems,
the booking of tests, the provision of test kits, the test
laboratories, delivering test results, or the identification of
contacts of people who have tested positive. We believe that our
operational delivery has been outstanding, and that we have
delivered our obligations to the customer to their satisfaction,
evidenced by the fact that they have extended our contracts for
both test sites and tracing call capacity.
Conference call: Rupert Soames and Angus Cockburn of Serco will
conduct a conference call for analysts and investors at 8:00am
British summer time on 16 October. The dial in details are as
follows:
Dial in number
(UK) +44 (0) 207 192 8338
Dial in number
(USA) +1 646 741 3167
Passcode 5586623
This announcement contains inside information.
Ends
For further information please contact:
Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718
195 074 or email: paul.checketts@serco.com
Marcus De Ville, Head of Media Relations, tel: +44 (0) 7738 898
550 or email: marcus.deville@serco.com
About Serco
Serco is a leading provider of public services. Our customers
are governments or others operating in the public sector. We gain
scale, expertise and diversification by operating internationally
across five sectors and four geographies: Defence, Justice &
Immigration, Transport, Health and Citizen Services, delivered in
UK & Europe, North America, Asia Pacific and the Middle
East.
More information can be found at www.serco.com
Forward looking statements
This announcement contains statements which are, or may be
deemed to be, "forward-looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward-looking statements. Generally, words such as "expect",
"anticipate", "may", "could", "should", "will", "aspire", "aim",
"plan", "target", "goal", "ambition", "intend" and similar
expressions identify forward looking-statements. By their nature,
these forward-looking statements are subject to a number of known
and unknown risks, uncertainties and contingencies, and actual
results and events could differ materially from those currently
being anticipated as reflected in such statements. Factors which
may cause future outcomes to differ from those foreseen or implied
in forward-looking statements include, but are not limited to:
general economic conditions and business conditions in Serco's
markets; contracts awarded to Serco; customers' acceptance of
Serco's products and services; operational problems; the actions of
competitors, trading partners, creditors, rating agencies and
others; the success or otherwise of partnering; changes in laws and
governmental regulations; regulatory or legal actions, including
the types of enforcement action pursued and the nature of remedies
sought or imposed; the receipt of relevant third party and/or
regulatory approvals; exchange rate fluctuations; the development
and use of new technology; changes in public expectations and other
changes to business conditions; wars and acts of terrorism;
cyber-attacks; and pandemics, epidemics or natural disasters. Many
of these factors are beyond Serco's control or influence. These
forward-looking statements speak only as of the date of this
presentation and have not been audited or otherwise independently
verified. Past
performance should not be taken as an indication or guarantee of
future results and no representation or warranty, express or
implied, is made regarding future performance. Except as required
by any applicable law or regulation, Serco expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward looking statements contained in this
presentation to reflect any change in Serco's expectations or any
change in events, conditions or circumstances on which any such
statement is based after the date of this presentation, or to keep
current any other information contained in this presentation.
Accordingly, undue reliance should not be placed on the
forward-looking statements.
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