The outsourcer said in a statement on Friday that it now expects its full-year underlying trading profit to come in at between £90mln and £95mln, up from previous guidance of around £80mln.
Serco also expects its full-year results to be boosted by a number of non-recurring trading items, such as end-of-contract settlements and other commercial negotiations. Net debt is expected to be at the lower end of its previously guided £200mln - £250mln range.
The fall in debt comes after Serco received early repayment of a loan note issued when it sold its Indian business processing unit Intelenet back to Blackstone in 2015.
“Strong operating performance, together with transformation savings and other cost efficiencies, have resulted in trading in the first few months of the second half being better than we anticipated,” Serco said in a statement, adding that it is mindful of the fact that 2019 will not benefit from the non-recurring trading items it expects to see in 2018.
Last month Serco said its half-year revenues fell as it unwound more of its backlog of loss-making contracts. Contract attrition was cited for the drop in sales to £1.37bn (£1.51bn) in the half-year to June, though trading profits improved slightly to £37.6mln (£34mln).
Analysts at Liberum said the uplift in guidance was also down to a reduction in KPI penalties, while analysts at UBS said in a note to clients that they believed "the recovery is underway" at Serco which has had a tough few years.
Shares in the outsourcer were 15% up at 101.64p in early trade.
-- updates lead and adds analyst comment, share price --