Serco Group results don’t boost market confidence

The price of shares in FTSE 250 firm Serco Group (LON:SRP) plunged by 16% to 142.29p (as of 15:15 BST) after the outsourcer posted results for the half year ended 30th June. Revenues for the period were up by 24% but the pipeline of future projects has quietened.

CEO Rupert Soames commented: “Financially, the performance in the first half has been exceptionally strong, largely as a result of contract wins in 2019 and the acquisition of the Naval Systems Business Unit of Alion last August; Covid-19 has had little effect on profits; although there have been some dramatic impacts, positive and negative, on individual contracts, in aggregate the “ups” on profits have balanced the “downs”. Revenues were up 24% and Underlying Trading Profit increased by 53%; Reported Operating Profit increased from £17m to £89m. Pleasingly, at a time when a number of tenders have been delayed as a result of the crisis, our order intake was once again ahead of our revenues giving us a positive book-to-bill ratio. Free Cash Flow increased by £80m year-on-year, and Adjusted Net Debt fell by £58m to £143m; cashflow benefitted from tax payment deferrals of around £49m; excluding the temporary benefit of these deferrals, our underlying leverage would stand at 0.9x EBITDA, slightly below our target range of 1-2x. Subject to trading in the second half, it would be our intention to pay taxes deferred by the end of the year, even if not strictly required to do so, and we do not intend to take advantage of the UK government’s £1,000 per person re-employment incentive as we do not think it right that we should take money from the taxpayer to employ people who will be delivering services paid for by the taxpayer“.