StockMarketWire.com
Serco (SRP) has slashed its FY adjusted operating profit guidance by £20m to £130m-£140m, and lowered its outlook for 2015. Serco also plans raise £550m via a rights issue, and to write off £1.5bn linked to contract losses.

CEO Rupert Soames commented:

"The rapid progress we have made in recent weeks on the Strategy Review and the Contract & Balance Sheet Reviews has brought us to the point that we are able to provide an initial estimate of the impairments, write-downs and Onerous Contract Provisions that are likely to be required at year end.

"Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future.

"As might be expected, the Contract & Balance Sheet Reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts.

"These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015.

"Looking ahead, we have not yet completed our Strategy Review, and we will present it, as planned, at the time of our Full Year Results in March 2015.

"However, the direction is clear: Serco will concentrate on its core as a leading supplier of public services - an international B2G business focused on Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.

"These are businesses which we are really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us. There are a tough couple of years ahead as we make this transition, but it will be worth it."

As part of its warning, Serco noted the following key points:
· Strategy Review: Serco's future to be as an international B2G business. A successful, innovative and market-leading provider of services to Governments. Core sectors: Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.

· The Contract & Balance Sheet Reviews identify likely impairments and further Onerous Contract Provisions totalling around £1.5bn, approximately half of which relates to goodwill and intangible assets.

· Forecast for 2014 Adjusted Operating Profit reduced by approximately £20m to £130-140m (before the impact of the Contract & Balance Sheet Reviews); outlook for 2015 reduced.

· Discussions to be held with lenders to negotiate amendments to the operation of covenants.

· Medium term capital structure target of 1-2x net debt to EBITDA.

· Proposed equity rights issue of up to £550m in the first quarter of 2015; fully underwritten on a standby basis by Bank of America Merrill Lynch and J.P. Morgan Cazenove.

· Programme of disposals of businesses not core to our future strategy underway, including the majority of our private sector BPO business.

Investec Sell 220.25 290.00 - Retains

Liberum Capital Hold 220.25 300.00 210.00 Reiterates

Been under 160 today, I wonder where (if) this one will stop. Anybody trade this? It's a big mover intraday these days...

StockMarketWire.com
Serco Group said its fully underwritten 1-for-1 rights issue of 549,265,547 new shares at 101p each received valid acceptances totalling 520,256,417 shares, or about 94.7%.

Merrill Lynch International and J.P. Morgan Securities will endeavour to procure, on behalf of the underwriters, subscribers for the remaining 29,009,130 new shares.

Should those companies fail, Merrill Lynch International, J.P. Morgan Securities, Barclays Bank, HSBC Bank and Crédit Agricole Corporate and Investment Bank have, as underwriters, agreed to acquire, on a several basis, any remaining new shares.

StockMarketWire.com
Serco Group said FY trading in 2015 is likely to be ahead of previous guidance, with underlying trading profit expected to be about GBP95m.

It added that reported trading profit will likely to be significantly higher than underlying trading profit.

It noted improved operational performance or renegotiation on some loss-making contracts will result in a substantial net release of OCPs and other Contract and Balance Sheet Review items.

Free cash outflow for 2015 will be better than previously anticipated; closing net debt, assuming completion of the offshore BPO disposal in the coming weeks, now expected to be around GBP100m.

Revenue and trading profit will decline further in 2016, reflecting the BPO disposal and net contract attrition. Underlying Trading Profit anticipated to be around £50m; however, the positive developments on onerous contacts contribute to an anticipated improvement in free cash outflow compared to 2015.

Targeted cost savings exceeded in 2015; over £50m of further central support and other overhead savings targeted for 2016.

4th Aug 2016

StockMarketWire.com
Serco has swung to an H1 pretax profit of £58.1m, from a year-earlier loss of £16.0m due mostly to exceptional finance costs of £32.8m. Revenue slipped to £1.5bn, from £1.6bn.

CEO Rupert Soames said the H1 performance was better than we expected.

"Although much of the improvement came from items that will not recur, it reflects the result of a lot of hard work and successful resolution of a number of commercial issues,2 he said in a statement.

"Since our last update in May, our trading performance and cost savings are tracking slightly ahead of plan, and recent foreign exchange movements have increased the value in sterling of our overseas earnings.

"Accordingly, we are increasing our profit guidance for 2016, although it is important to note that our view of the outlook for 2017 is not materially changed, other than adjusting for foreign currency movements.

"Whilst we expect to see potholes on the way, we are making good progress on the implementation of our strategy, underlined by our growing pipeline of new bids.

"We have removed some £550m from our operating costs, and at the same time we have been investing in our infrastructure, processes and capability and have recently rolled out significant improvements in our HR, finance and purchasing systems."