Serco could gain from Brexit if Government ‘needs help quickly’

Serco said it could benefit from Brexit in the short term if the Government “needs help quickly”, as the company lifted its revenue guidance for the year after a string of new contract wins.

The outsourcer said that, like other firms, it has been plagued by the “fog of uncertainty” over Britain’s impending departure from the European Union but as it “neither exports nor imports to any significant degree” it is not exposed directly to the border issues that worry other businesses.

“In the short term there is a small possibility that there could be an upturn in demand if Government needs help quickly; on the downside, we think it unlikely that there will be any precipitous drop in demand as a result of Brexit.”

The company said it is “not possible to forecast with any certainty how demand in the UK market will evolve during and after Brexit”, but noted that 80% of its order intake last year came from outside the UK.

“It is certain that ‘taking back control’ will require more people working for or on behalf of Government to do the taking back and the controlling.”

The company, meanwhile, predicted a rosier outlook for the year having reached an “inflection point” in 2018 following its restructuring when it experienced a slowdown in winning new business from the Government after the collapse of rival Carillion.

The company generated £2.8 billion of revenue last year, down 2% from 2017, while underlying trading profit rose 40% to £93.1 million as the group cut costs.

Serco expects 2019 revenue to be between £2.9 billion and £3 billion, up from its previous guidance of £2.8 billion to £2.9 billion.

Underlying trading profit is expected to come to £150 million, which tops the company’s previously guided range of between £95 million and £100 million.

Chief executive Rupert Soames said: “2018 marked an inflection point for Serco. After several years of declining revenues and profits, underlying trading profit at constant currency rose 40%, reported operating profit grew fourfold, and revenue started to grow again in the second half.

“Strong order intake gave us a book-to-bill ratio of over 100% for the second year in a row, and in addition the acquisition of the Carillion health contracts contributed to our order book growing to £12 billion at the end of 2018, an increase of around 20% since 2016.”

Mr Soames, grandson of former prime minister Winston Churchill, added that the recent strong order intake means Serco should be able to outperform a weaker market in the next few years.