Profit after tax and exceptional costs may be 17% down year-on-year to £102m but this is mainly down to a one-off reorganisation cost (which will be recovered in the second half, the company says) and a few disposals of non-core companies. Serco has been busy trimming the fat from its operations, it seems. Music to investors’ ears.
Budget cuts both at home and across the pond have hit global outsourcers hard – G4S just reported a £200m downturn in its contract pipeline (although, there are other, Olympic-sized reasons for the decline in G4S’ fortunes…). But Serco has managed to secure 98% of its budgeted turnover for 2012 through a series of big contract wins. 2013 and 2014 look pretty healthy too, with 83% and 71% of budgeted revenues accounted for already.
Serco’s highly diversified portfolio has seen the outsourcer through a very difficult six months. Revenues at Serco’s US division are down 14% to £351.5m; budget cuts aside, the upcoming elections have also hampered government spending. In the UK, public sector cuts have also squashed growth, with first-half revenues down 1.2% year-on-year to £1.28bn. ‘Without doubt our markets in the UK and US are facing challenging conditions,’ says Serco’s energetic CEO Christopher Hyman (whose taste for feats of physical and mental endurance is revealed in this old MT interview).
But a robust performance from the firm’s Asian and Middle Eastern divisions has saved the day, pushing up total group turnover 4.3% to 2.34bn. ‘The breadth of our portfolio and our presence in fast-growing international markets underpin our strong growth opportunities into the future,’ states Hyman.
It’s also fair to say that rival outsourcer G4S’ recent trials may have benefitted Serco, which has just won a Ministry of Defence contract to maintain the UK’s nuclear warheads and a new probation contract in London worth £37m. Hence, despite the slight profit slip, Serco added 5p, or 1%, to its chare price in early London trade, hitting 566p.