Serco warns over revenues on back of new contracts

Full-year income now set to be £2.7bn to £2.8bn but profit guidance maintained

Shares in outsourcer Serco, whose contracts include the Caledonian Sleeper, closed down by nearly 2 per cent after taking a hit to sales in the first half of its financial year, and warning that profitability will be knocked when it adopts healthcare contracts from Carillion.

These include the Langlands Unit of Queen Elizabeth University Hospital in Glasgow.

The firm said revenues came to £1.35 billion for the first half of the financial year, down from £1.51bn the year before – a drop of 10.6 per cent.

Serco’s underlying trading profit will be between £35 million and £40m, the company said, compared with £34m in the previous year.

For the full year, revenues are expected to come in between £2.7bn and £2.8bn, with underlying trading profits of £80m.

The company previously said revenues would be between £2.8bn and £2.9bn. Serco has been working with Carillion’s liquidators to take on some of the contracts held by the firm, which collapsed in January.

The outsourcer expects to take on the service contracts for six NHS hospital sites, bringing in roughly £70m in extra revenue for the firm.

The new contracts are forecast to add about £4m to Serco’s underlying trading profit.

Serco said there will, however, be an impact on net profitability for 2018 because the company will bear the cost of taking on the contracts, although there will only be a trading contribution for part of the year.

The contract for managing the Great Western Hospital in Swindon has already been transferred to Serco, with the rest set to pass over in the coming weeks.

The company took a £60m hit to revenues due to currency movements, which also hit trading profit by up to £4 million.

Serco chief executive Rupert Soames said: “As foreseen in our five-year strategy, profits are now starting to grow.”

He added that the first half saw a continuation of the “strong” order intake seen in 2017, with contract awards expected to exceed £1.5bn, with further order book growth expected. “Notwithstanding market conditions that are less than ideal, particularly in the UK, we are responding appropriately and continuing to make progress in line with our strategy.”

Artjom Hatsaturjants, research Analyst at Accendo Markets, stressed that Serco maintained its full-year profit guidance at £80m, saying this “suggests higher profits margins for the company on the back of transformational cost savings”.

He added that it is “heartening to see a company working proactively on controlling costsandprotectinghard-won profits for shareholders”.

David Madden, analyst at CMC Markets UK, however said the share price has been in decline since February 2017, “and if the negative move continues it could target 90p”.

Serco shares closed down 1.93 per cent at 99p.

emma.newlands@jpress.co.uk