Record contract wins see Serco profits up a third

Pre-tax profits at business service company climb to £83.3m in first half
  • @MrNickClark

Profits at Serco, the business services company that runs contracts from the London's Docklands Light Railway to Acacia Prison in Australia, rose by a third in the first half of the year as it won a record number of deals.

The Hampshire-based group lifted pre-tax profits from £62.8m in the first six months of 2008 to £83.4m this year after a "high level of activity across all our markets and regions". Revenues also rose from £1.4bn to £1.9bn.

Christopher Hyman, its chief executive, said: "This has been a strong first half. We were awarded record level of contracts, entered a number of important new markets, and delivered a strong financial performance."

Serco has signed contracts worth £2.1bn between January and the end of June and has been appointed as the preferred bidder on contracts worth a further £1.4bn "across a wide range of markets and regions".

The group's revenues are split between civil government, defence, transport and science. It was particularly active in the UK in the first half, winning several mandates from the Government as well as overseas bodies in Australia and Dubai.

Mr Hyman said the company had a strike rate of one in two wins on new bids and 90 per cent of contracts it rebid for. The group's order book stood at £16.7bn at the end of June, up from £16.3bn at the turn of the year.

The start of the second half has already proved lucrative, after it secured £500m worth of contract awards. This included being handed the mandate to design, build and operate the new London Cycle Hire scheme by Transport for London. It said there was a "considerable opportunity pipeline of £27bn" and it would take a "disciplined and selective approach to bidding".

"Given the economic challenges our customers are facing, they are making transformational changes and asking for our support in delivering high quality, essential services while improving productivity. These opportunities, across all our markets, and our growing capabilities, underpin our confidence in the future," Mr Hyman added.

The group benefited from the acquisition of SI International for the first time, after sealing the deal at the end of last year. It said there was "excellent progress" with the move and it laid "strong foundation for growth in the US market". The acquisition is expected to boost revenue growth by 10 per cent this year.

Serco expects its revenue to soar to £5bn by the end of 2012. The group said: "Given the economic climate our customers face, they are increasingly asking for our support in existing markets, and we also see significant opportunities to extend our capabilities to new markets."

Andrew Darke, an analyst at Ambrian, said: "The results exceeded our expectations. Not only is this a good financial performance, but strategically it has altered the balance of the group, with 36 per cent of revenue now earned outside the UK against only 25 per cent just 12 months ago."

Business is brisk for leading services group

Serco already manages transport contracts around the world from the Woolwich Ferry to the forthcoming Dubai Metro, operates air surveillance for the Ministry of defence, and runs the National Physics Laboratory as well as school inspections in the Midlands. And in 2009 the contracts are rolling in at record levels.

Its detention business – which includes supplying electronic tagging for offenders – is booming and earlier this year it was selected to operate new prisons at Belmarsh West in London and Maghull in Liverpool. The contract is expected to be worth about £600m over 26 years. The group also moved into pathology for the first time, forming a partnership with Guy's & St Thomas' NHS Foundation Trust in January. Four months later the UK chose Serco for its Flexible New Deal plan, aimed at helping jobseekers return to work. It also won the contract to run Transport for London's cycle hire scheme.

Overseas contracts flooded in from the Australian and US governments for detention and immigration services and Dubai Airport.