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Serco continues on long road to recovery

In its full year results 2016 Serco has announced revenues of £3,048 million, a 13 per cent decline on 2015 (£3,514.6 million).

The support services group says the figure comprises an 11 per cent organic decline from net contract attrition and an eight per cent reduction from disposals, partially offset by a six per cent currency benefit.

Underlying trading profit also declined by £14 million to £82 million; discontinued operations (the exit of private sector BPO) reduced profits by £19 million; net currency benefits were £9 million; allowing for these, the reduction was £4 million.

Whilst trading profit was £18 million higher than underlying trading profit due principally to £14 million net reduction in future liabilities and losses on onerous contracts.

Order intake increased by 40 per cent with £2.5 billion total value of signed contracts; including Serco’s share of the value of the Atomic Weapons Establishment (AWE) updated contract, order intake was £3.2 billion, an increase of some 80 per cent on the prior year; 35 contract awards were worth more than £10 million each.

Pipeline of larger new bid opportunities ended the year at £8.4 billion, a year-on-year increase of £1.9 billion or 30 per cent.

Operating costs reduced by more than £450 million, and in proportion to the scale of revenue reduction; this includes overheads and shared services savings of over £50 million.

Speaking about the results, Serco Group CEO, Rupert Soames, said:

“These results show that the execution of our five-year plan remains on track. Trading in 2016 was better than we expected at the start of the year, although this was in large part due to the resolution of a number of commercial matters in the first half, which will not recur; trading in the second half was in line with the guidance we gave at the time of our half-year results.

“Operationally, we have had a busy year: across key contracts our service delivery has improved; we have reduced operating costs by some £450 million whilst improving employee engagement; at year-end, the value of our pipeline of new opportunities was up 30%, notwithstanding a 40 per cent increase in order intake; and we have cleanly exited the private sector BPO business. These are the first fruits of the “transformation” phase of our plan, which we are now about half-way through.

“Our view of likely performance in 2017 remains unchanged from previous guidance. The road back to prosperity was always going to be long and winding, with many potholes and boulders, but we are making good progress.”

At current foreign exchange rates Serco anticipates revenue of approximately £3.1 billion and underlying trading profit of between £65-£70 million in 2017.

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