Serco (SRP) ploughed ahead with the implementation of its strategic review during the first half. As part of this, the group exited loss-making contracts, including those for the Docklands Light Railway, the National Physical Laboratory and the Colnbrook immigration centre. While this dragged on revenue, the group managed to rid itself of £200m in operating costs in the process. The savings are expected to mount through the remainder of the year, as Serco intends to fully withdraw from the Suffolk Community Healthcare and National Citizens Service contracts.
The outsourcer generated an operating loss of £24.8m, compared with a profit of £28.1m the previous year. Reported profit suffered as a consequence of a net exceptional charge of £117m; the majority of which was linked to impairments on assets held for sale. As part of the group's strategic realignment, Serco hived off its Australian Great Southern Rail tourist travel operation - one of four businesses identified for disposal.
Revenue for the group's core UK central government division fell by more than a quarter to £366m. While this was mainly due to the cessation of some large contracts, the group pulled in lower project revenue for its work managing the Thameside prison expansion. Despite the business's relative size, it accounted for just a tenth of of the £1bn of new work won in the first half. In the Asia Pacific segment, the loss of immigration centre work effectively cancelled out the benefits from the Fiona Stanley Hospital in Perth becoming fully operational.
The Middle East provided a rare bright spot for the group, with trading profit increasing a third to £14.6m. This was predominately due to the collection of outstanding debts during the period, while the strengthening of local currency also buoyed revenue. The group won £200m in new contracts in the region, the largest of which was to support the Saudi Railway Company in operating its North South Railway.
Broker Numis Securities expects adjusted EPS of 3.6p for the full year, against a 104p loss in 2014.
SERCO (SRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 123p | MARKET VALUE: | £1.35bn | |
| TOUCH: | 122-123p | 12-MONTH HIGH: | 291p | LOW: 115p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 33p* | NET DEBT: | 80% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 (restated) | 2.03 | 10.9 | -1.4 | 3.10 |
| 2015 | 1.79 | -76.2 | -10.3 | nil |
| % change | -12 | - | - | - |
*Includes intangible assets of £626m, or 57p a share | ||||
