Serco revealed growth in its underlying profit of more than 50%
Serco (LON:SRP) reported a 19% increase in revenue on Wednesday, as the company provided an update for H1 2021 and its guidance for the whole year.
The FTSE 250 company revealed growth in its underlying trading profit of more than 50%, while its order intake is at record levels of nearly £4bn.
This includes major contracts with the UK Ministry of Defence, the Department of Work & Pensions and the Royal Canadian Airforce.
Serco is in a ‘robust financial position’ with adjusted net debt expected to be around £275m, while leverage is towards the bottom end of its target range of 1-2 times net debt.
“For the year as a whole, we expect to deliver Underlying Trading Profit of around £200m, or nearly 30% growth in constant currency,” said Rupert Soames, Serco chief executive.
“Profits will be weighted to the first half, and will include contributions from the WBB and FFA acquisitions, which will enable us to absorb the impact of the end of the AWE contract, the mobilisation costs of the recently-signed DWP contract and an expected reduction in Covid-19 related activities.”
Serco also intends to capitalise on the current strong trading to temporarily increase its rate of investment in its systems platform, cyber resilience, and business development spend to “respond to a strong pipeline of opportunities”.
Neil Shah, Director of Research at Edison Group, commented on Serco’s trading update:
“What’s interesting is that the company has reported Covid-19 contracts to have surged, representing £340m of first half revenues expected to be related to the pandemic, up from a comparatively low £80m in the prior year – a figure complemented by the recent £322m deal signed for the firm to run test and trace centres for the next 12 months,” said Shah.
“Serco will expect their new acquisitions FFA and WBB, both focused on long term activities, to continue their positive impact (having already contributed about 5% to revenues), as the firm seeks to ensure growth outside a pandemic context.”
Earlier this week, Serco secured a new £322m contract to continue operating Covid-19 testing locations.