Serco forecasts trading ahead of expectations for 2015 – but 2016 forecast pushes share price lower
Is the iceberg-bound supertanker that is outsourcing giant Serco finally turning around? The company said this morning it expects 2015 trading "ahead of previous guidance".
But investors weren't impressed: shares fell 8.6 per cent to 104.4p in early trading. Perhaps that was to do with expectations of a "further decline" in both revenues and trading profit in 2016.
In a statement this morning, the company said underlying profit was expected to hit £95m, while reported trading profit was likely to be "significantly higher" – all thanks to either improved operational performance or the renegotiation of loss-making contracts.
Meanwhile, cost savings "exceeded" in 2015, it said – and it reckons it can make another £50m of savings on "central support and overheads" in 2016. In other words, back office functions.
Rupert Soames, the company's chief executive, said: "We expect to deliver a better performance than we originally expected in 2015, which reflects the fact that we are beginning to make progress and are delivering on our promises.
"Serco has achieved a great deal in 2015: we have reinforced the balance sheet, significantly reduced net debt, agreed the disposal of our offshore BPO business, started to implement our new strategy, reduced costs, vastly improved the reporting processes, recruited new management, and improved the position on several of our largest loss-making contracts."
The company has had a tough few years after it was implicated in the criminal tagging scandal, back in 2013.
In August, it posted figures showing operating losses of £24.8m. That beat expectations, pushing shares up – although Soames admitted: "There is still much to do".
And despite shareholders' clear reserve, analysts seemed optimistic. Roger Johnston, of Edison Investment Research, said he saw "medium-term potential for a return to growth".