Strong Q3 trading across all regions worldwide leads to upgrade of guidance for 2020

Serco Group plc (‘Serco’ or ‘the Group’), the international provider of services to governments, today provides an unscheduled update on the outlook for trading in 2020.

Trading: we have achieved strong revenue growth in the third quarter and this, in conjunction with good cost control, means we are upgrading our full year revenue guidance to around £3.9bn and Underlying Trading Profit (UTP) to £160m-£165m; this would represent organic growth in revenues of around 15%, growth in UTP of over 30%, and a UTP margin of just above 4%.  The range of outcomes around these numbers, up or down, is wider than would normally be the case at this time of year as on some contracts customers are adjusting their requirements week-by-week in response to the challenges of Covid-19.

All of our regions worldwide are performing better than we expected and have increased their forecasts for 2020.  In both Group and in the divisions, effective cost control and the ability of our systems to respond efficiently to increased demand has helped increase margins.

In the US, we have seen strong performances across a number of contracts, including our Center for Medicare & Medicaid Services (CMS) contract, the US Federal Emergency Management Agency (FEMA) contract and the Anti-Terrorism/Force Protection (ATFP) framework contract for US Naval Facilities. 

In the UK, we have been awarded extensions to our contracts to provide test sites and call handlers for NHS Test & Trace, which is an indication of our customer’s satisfaction with the quality of work we have delivered.  We have also seen increases in the number of asylum seekers we are looking after on behalf of the Home Office, and our new Prisoner Escorting contract has been successfully mobilised.  We have now secured an extension to the Emergency Measures Agreement on the Caledonian Sleepers to the end of the year.  

In Australia, restrictions on movement as a result of Covid-19 has meant additional work for both our immigration services and our Citizens Services businesses.  In the Middle East, there has been an increase in project-related work on rail and facilities management contracts.

Financial position: cash generation in the third quarter has also been better than expected and, in particular, there has been an almost complete catch up on delays in processing billings on our FEMA contract in the US, which held back cash generation in the first half.  We now expect adjusted net debt to be between £100m and £150m at the end of December with leverage of around 0.6x.  Following our successful issue of $200m (£154m) of US Private Placement loan notes, we expect headroom on our committed finance facilities to be at least £500m.  As announced in our first half results, we intend to repay early, and probably in the next few weeks, UK Government VAT deferrals.  Also as announced in August, we will take a decision about dividends previously withdrawn (2019 final) or deferred (2020 interim) in December.

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Guidance for the 2020 financial year

New guidance

Prior guidance




Organic sales growth



Underlying Trading Profit



Net Finance Costs



Underlying effective tax rate



Free Cash Flow



Adjusted Net Debt



Notes to guidance: the free cash flow and adjusted net debt guidance assumes accelerated repayment in 2020 of £38m of tax payment deferrals. The guidance uses an average GBP:USD exchange rate of 1.28 in 2020 and GBP:AUD of 1.87. We expect a weighted average number of shares of 1,230m for basic EPS and 1,255m for diluted EPS.

Outlook for 2021: as we noted in our half year results, and as this unscheduled trading update underlines, the current crisis makes forecasting extremely difficult.  We expect the uncertainties of 2020 will persist into 2021 as the world grapples with recurring outbreaks of infection.  We have only just started our budget review process, and we would not have a view concerning 2021 today which is materially different from that which we had at the time of our half year results in August.  

Governments’ requirement for support services directly related to Covid-19 is likely to be ephemeral, and at some point (hopefully, for all our sakes, soon) will diminish.  However, as we said in our half year results, “The Four Forces, which we have previously described as driving demand for our services will, we think, have been amplified by the crisis: increasing and changing demand for public services; heightened expectations around the quality and resilience of public services; increased fiscal deficits; the dire political consequences of increasing taxes. These will continue to drive governments to want to deliver more public services, of higher quality, for less money. We believe that this imperative to provide more, and better, for less will become even more urgent in the years ahead, and to deliver those objectives governments will need the skills, resources, innovation and nimbleness of the private sector.
Update on Serco’s role in NHS Test & Trace: there has been much comment on Serco’s role in the NHS Test & Trace programme, including suggestions that we are responsible for the whole programme and / or that we have failed in our obligations.  Serco is proud to be playing a part in the NHS Test & Trace programme; we now employ, directly or indirectly, around 9,000 people supporting the programme.  However, the part we play, although important, is limited and specific.  Serco contributes to two parts of the process: at the start, we are one of five suppliers running fixed and mobile sites where people go to get tested.  We currently manage about 25% of the 500 sites in the UK, and over the last six months those sites have successfully delivered 1.7 million, or 30%, of the 5.7 million tests carried out under Pillar 2 of the programme.  At the end of the Test & Trace process, and on the tracing side, we are one of two prime contractors responsible for reaching the people identified to us by NHS Professionals as having been in contact with people who have tested positive.  We are not involved in other parts of the process, for instance the design and management of the overall programme, the NHS App, the IT systems, the booking of tests, the provision of test kits, the test laboratories, delivering test results, or the identification of contacts of people who have tested positive.  We believe that our operational delivery has been outstanding, and that we have delivered our obligations to the customer to their satisfaction, evidenced by the fact that they have extended our contracts for both test sites and tracing call capacity.

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Conference call: Rupert Soames and Angus Cockburn of Serco will conduct a conference call for analysts and investors at 8:00am British summer time on 16 October. The dial in details are as follows:

Dial in number (UK)

+44 (0) 207 192 8338

Dial in number (USA)

+1 646 741 3167



This announcement contains inside information.

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