August 2, 2018 / 7:12 AM / 10 months ago

UPDATE 1-Serco says to weather UK 'hiatus', meets H1 expectations

* Revenue down 5.6 pct

* Underlying trading profit up 20 pct

* CEO flags “increased actions on the cost base”

* Shares down 1.7 pct (Adds details)

By Elisabeth O’Leary

EDINBURGH, Aug 2 (Reuters) - British outsourcing company Serco met first-half profit expectations on Thursday and kept its 2018 guidance while highlighting a focus on foreign contracts and cost-cutting to compensate for a “hiatus” in UK public outsourcing.

Revenue at 1.37 billion pounds ($1.8 billion) was down 5.6 percent on a constant currency basis while underlying trading profit rose 20 percent to 37.6 million pounds, meeting company guidance.

Serco, which runs prisons, provides border security, operates ferries and trains as well as payslip administration, canteen and cleaning services in public hospitals, said growth in 2019 revenue would be broadly flat.

Beyond that point its performance “will be more dependent on our ability to grow revenues and to convert loss-making contracts into profitable contracts on rebid.”

“We can and will partly compensate for a weaker organic revenue outlook through increased actions on the cost base,” said Chief Executive Rupert Soames.

“Our long term ambitions of 5-7 percent revenue growth and 5-6 percent margin remain intact, but the timing of achieving this is inevitably dependent on the timing of demand growth in our largest markets reverting to historic levels,” he said.

The company is hoping that the debt-cutting and streamlining plan initiated in 2014 will soon start to reap more robust growth.

Soames added that Serco in Britain, which accounts for 40 percent of group revenue, would weather “a market hiatus caused by a combination of Brexit and market dysfunction” because the services it provides are non-discretionary.

It also plans to turn its efforts to foreign markets, which made up 80 percent of its new order intake in the first half.

Soames said he saw “significant opportunities” in public contracting overseas.

Serco shares have risen 18 percent in the past six months.

$1 = 0.7632 pounds Reporting by Elisabeth O'Leary; editing by Jason Neely

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