Lower tax burden sees Serco lift earnings expectations again

The FTSE 250 firm said it was expecting 2018 underlying trading profit to grow 30-40%, to be in the range of £90-95m, which would be an outcome in line with guidance that it revised upwards in late September.

Closing net debt was set to be lower than previously expected at around £200m, with leverage improving to 1.2-1.3x.

The company’s 2019 outlook remained in line with market expectations of continued progress, including revenue of between £2.8bn and £2.9bn, and underlying trading profit growth of mid-single digits to be within the range of £95-100m.

Underlying earnings per share for both 2018 and 2019 were likely to be a further 5-10% ahead of current consensus, the board said, which it put down to a lower effective tax rate.

Its £250m revolving credit facility with its banking syndicate was also renewed for five years on terms “substantially unchanged”, the directors added.

“As we predicted when we set out our five-year strategy in 2015, profits have grown strongly in 2018 with margins increasing as a result of improved operational performance and cost reduction,” said chief executive officer Rupert Soames.

“With revenues no longer reducing, cash generation turning positive and the benefit of a strong balance sheet, we are pleased with progress, and we expect further improvement in 2019.

“We expect to deliver another year of strong order intake in 2018, driven in particular by our international businesses, and our operations and transformation plans continue to deliver an organisation which is leaner, fitter and much stronger.”