Serco : full year results 2016

• Revenue(2), including discontinued operations, declined 13% to £3,048m, comprising an 11% organic decline from net contract attrition and an 8% reduction from disposals, partially offset by a 6% currency benefit.
• Underlying Trading Profit(3) declined by £14m to £82m; discontinued operations (the exit of private sector BPO) reduced profits by £19m; net currency benefits were £9m; allowing for these, the reduction was £4m.
• Trading Profit(3) was £18m higher than Underlying Trading Profit due principally to £14m net reduction in future liabilities and losses on onerous contracts.
• Underlying EPS(4) increased 20% to 4.13p, benefitting from reduced finance costs and a lower effective tax rate.
• Reported Operating Profit up £46m, and EPS up 15.36p; operating exceptional charges on continuing operations were £56m (2015: £110m); including discontinued operations, total exceptional charges net of tax were £68m (2015: £217m).
• Free Cash Flow(5) was negative £33m, similar to 2015 outflow of £36m.
• Closing Net Debt increased by £46m to £109m; however, Net Debt : EBITDA leverage of 0.7x, was similar to last year and below our medium term target of 1-2x.
• Continued progress reducing burden of loss-making contracts: OCP utilisation of £84m in 2016, £30m lower than 2015.
• Order intake increased by 40% with £2.5bn total value of signed contracts; including Serco's share of the value of the AWE updated contract, order intake was £3.2bn, an increase of some 80% on the prior year; 35 contract awards were worth more than £10m each.
• Pipeline of larger new bid opportunities ended the year at £8.4bn, a year-on-year increase of £1.9bn or 30%.
• Operating costs reduced by more than £450m, and in proportion to the scale of revenue reduction; this includes overheads and shared services savings of over £50m.
• Guidance for 2017 unchanged - at current foreign exchange rates, we anticipate Revenue of approximately £3.1bn and Underlying Trading Profit of between £65m and £70m.

Rupert Soames, Serco Group Chief Executive, said: 'These results show that the execution of our five-year plan remains on track. Trading in 2016 was better than we expected at the start of the year, although this was in large part due to the resolution of a number of commercial matters in the first half, which will not recur; trading in the second half was in line with the guidance we gave at the time of our half-year results.

'Operationally, we have had a busy year: across key contracts our service delivery has improved; we have reduced operating costs by some £450m whilst improving employee engagement; at year-end, the value of our pipeline of new opportunities was up 30%, notwithstanding a 40% increase in order intake; and we have cleanly exited the private sector BPO business. These are the first fruits of the 'transformation' phase of our plan, which we are now about half-way through.

'Our view of likely performance in 2017 remains unchanged from previous guidance. The road back to prosperity was always going to be long and winding, with many potholes and boulders, but we are making good progress.'