Stronger trading and cost savings put Serco on track for higher earnings
Serco, the outsouring group behind the Caledonian Sleeper service and Edinburgh’s new bike hire scheme, has upped its profit guidance following better-than-expected trading.
The firm – which is run by chief executive Rupert Soames, the former boss of Glasgow-based Aggreko – now expects to book a fullyear underlying trading profit in the range of £90 million to £95m, up from previous forecasts of £80m, a 30-40 per cent hike on 2017’s figure.
In an unscheduled trading update, the firm also noted that revenue was now set to come in at the top of the £2.7 billion to £2.8bn range.
Serco put this down to a strong performance and cost savings, as well as fewer nonrecurring trading items such as end-of-contract settlements.
In further good news, the group’s net debt is now expected to be towards the lower end of a £200m-£250m range.
The positive update comes after the firm took a hit to sales in the first half of its financial year and warned that profitability will be knocked when it adopts healthcare contracts from Carillion.
It has been working with Carillion’s liquidators to take on some of the contracts held by the collapsed firm. Serco expects to take on the service contracts for six NHS hospital sites, bringing in roughly £70m in additional revenue for the company.
Robin Speakman, an analyst with Shore Capital, said: “With this announcement we upgrade revenues for [financial year] 2018 by £65m to £2.8bn (+2.4 per cent). Our estimate of trading profit rises by £14m to £94m (+17.5 per cent).
“Guidance for 2019 is now foremost in our minds and a return to positive cash generation leading to a return to the dividend list.”