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Serco increases 2020 forecasts following strong revenue growth in Q3

Outsourcing firm, Serco Group, has provided an unscheduled update on the outlook for trading in 2020.

In a recent trading update statement, the international provider of services to governments says it has achieved “strong revenue growth in the third quarter” and this, in conjunction with “good cost control”, means it is upgrading its full year revenue guidance to around £3.9 billion (prior guidance £3.7 billion) and underlying trading profit to £160 million to £165 million (£135 million to £150 million).

This would represent organic growth in revenues of around 15 per cent, growth in UTP of over 30 per cent, and a UTP margin of just above 4 per cent.

Serco added 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.

Serco also reported that “all of its regions worldwide are performing better than expected” and as a result it has increased its forecasts for 2020, adding in both Group and in the divisions, “effective cost control and the ability of its systems to respond efficiently to increased demand has helped increase margins”.

In the UK, Serco has been awarded extensions to its contracts to provide test sites and call handlers for NHS Test & Trace. It has also seen increases in the number of asylum seekers it is looking after on behalf of the Home Office, and its new Prisoner Escorting contract has been successfully mobilised. Added to that Serco has announced it has secured an extension to the Emergency Measures Agreement on the Caledonian Sleepers to the end of the year.

There has been a lot of talk on Serco’s role in the NHS Test & Trace programme, including suggestions that it is responsible for the whole programme and / or that it has failed in our obligations.  In response to this Serco stated it  “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.”

Cash generation for the group in the third quarter has also been better than expected. Serco nows expect adjusted net debt to be between £100 million and £150 million at the end of December with leverage of around 0.6x.

Looking ahead to 2021, Serco expects the uncertainties of 2020 will persist into 2021 with recurring outbreaks of infection. It said: “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. “

 

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