Serco struggles with uncertain outlook

The NSBU purchase has increased the group’s exposure to the US and added around £10m of underlying operating profit during the half. Overall underlying operating profit surged by 53 per cent year-on-year, to £78m, with the margin expanding by 0.9 percentage points to 4.3 per cent.

The Covid-19 pandemic had a mixed impact. Weakness in some areas – such as leisure and transport – was offset by additional work such as supporting the NHS’ ‘test and trace’ programme. All in all, there was a net revenue benefit of £80m.

Excluding lease liabilities, net debt has come down by a third since the December year-end to £143m, equivalent to 0.7 times cash profits (Ebitda). The group generated £81m of free cash flow during the first half – up from just £0.4m a year earlier – although this was boosted by £49m in tax deferrals.

Serco resurrected its dividend for the first time in five years alongside its 2019 full year results. But it was deferred in April due to the pandemic. The group will decide whether to reinstate it, alongside a half-year dividend, later this year.

With full-year guidance restored in June, Serco is continues to expect underlying operating profit will increase from £120m to between £135m-150m – broker Liberum is pencilling in £148m.