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Serco profits to beat guidance

The outsourcing group expects underlying trading profit is expected to be at least £65mln.

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“There remains much to do in order to complete our transformation..."

Serco Group plc (LON:SRP) reported that profits for 2016 were ahead of current market forecasts after a number of contracts ran longer than and were more profitable than expected.

The outsourcing group expects underlying trading profit is expected to be at least £65mln ahead of its previous forecast of £50mln.

Revenue was expected to be about £2.6bn, higher than the previous guidance of £2.8bn.

Contracts, including the Virginia transport and the US army transition assistance deals, carried on longer than expected which pushed up profits.

The group’s contract with Northern Rail was also more favourable than was originally budgeted, it reported.

But Serco was cautious, highlighting that the nature of most of the items driving the stronger performance would mean a sharp increase profits in the first half, but will not repeat in subsequent periods.

“We must remain cognisant that, with underlying margins currently around 2%, our profits are a sliver of reward between two very large numbers - revenue and costs,” said chief executive Rupert Soames.

The upbeat report indicated that the group was gradually recovering from the scandals of its past, which included overcharging the UK government for the tagging of convicts.

“There remains much to do in order to complete our transformation this year and next, but we are continuing to make good progress on the roadmap we have set out through to 2020,” said Soames.

Shares rose more than 10% to 101.45p. It was the top percentage gainer on the FTSE 250.

Quick facts: Serco Group

Price: 129.3 GBX

LSE:SRP
Market: LSE
Market Cap: £1.58 billion
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