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UK's Serco cautious on short-term prospects after stellar first half

(Reuters) - British outsourcer Serco reported a jump in first-half profit but struck a cautious tone on its short-term outlook as coronavirus-related government works were unlikely to continue into the most part of 2021.

Shares of the company, which have outperformed its peers this year, fell 12% on Thursday, with analysts at Jefferies attributing the fall to profit-taking after a strong rally into the results.

Before the pandemic took hold, Serco had declared its first dividend since 2014, but withdrew the move due to the uncertainties arising from the health crisis.

A focus on public sector services has sheltered Serco from the impact of the health crisis. Weakness in its transport services was offset by additional work for governments and provision of COVID-19 testing and quarantine facilities.

“Covid-19 has had little effect on profits; although there have been some dramatic impacts, positive and negative, on individual contracts, in aggregate the “ups” on profits have balanced the “downs”,” Chief Executive Officer Rupert Soames said in a statement.

Serco, which provides services in hospitals, prisons and nuclear facilities in more than 20 countries, said underlying profit rose 53% to 77.6 million pounds in the first-half, benefiting from overseas demand and the acquisition of a U.S. naval systems unit last year.

It stuck to its 2020 forecast.

Soames said governments will be more indebted due to the crisis, adding that pressure from citizens will be “louder” in the years ahead for governments to provide more efficient, effective and higher quality services.

“I think that that will, if anything, make them more inclined to use private sector companies in delivery of public sector services,” he told Reuters.

Serco, which has expanded its international business after weathering problems and a slowdown at home in past years, returned to growth in 2019 for the first time in five years, shaking off the “gravitational pull of past mis-steps”.

Reporting by Yadarisa Shabong in Bengaluru; Editing by Aditya Soni, Arun Koyyur and Kim Coghill

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