Serco surges as it swings to H1 profit, lifts guidance

FTSE 250 outsourcing group Serco said it swung to a profit in the first half as it lifted its guidance for the year.

For the six months to the end of June, the company swung to a pre-tax profit of £58.1m from a loss of £16m in the same period last year, even though revenue dropped to £1.5bn from £1.6bn.

Underlying trading profit rose to £51m from £46.9m in the first half of 2015.

Serco said a better trading performance in the first half and currency movements were behind its decision to lift 2016 guidance. It now expects revenue of around £3bn and underlying trading profit of not less than £80m. Serco had previously expected revenue of £2.9bn and profit of not less than £65m.

Chief executive Rupert Soames said: “Performance for the first half of the year has been 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. 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.”

The company said recent foreign exchange movements have increased the value in sterling of our overseas earnings and estimated that at we estimate that at current rates and for the financial year as a whole, the translational benefit since the beginning of the year would be £165m for revenue and £8-9m for underlying trading profit.

At 0830 BST, Serco shares were up 14% to 135.12p.