Serco in a profits wobble after delays to spending in UK

Austerity in the UK and a coming presidential election in the US have hit profits at Serco, the outsourcing giant behind London's Boris bikes.

Delays to government spending have hit the flow of public-sector work in Serco's core British market, which represents around half group profit, while the race between Mitt Romney and Barack Obama has choked spending plans in the US, leading to hold-ups in contracts. That combined to lead to a 17 per cent fall in half-year profits to £102.1m. On the upside, the company landed £4.2bn in new contracts over the period.

The chief executive, Christopher Hyman, said: "While significant challenges in the US remain, we see conditions in the UK starting to improve."

That £4.2bn of work won compared with £2.5bn a year ago, while Serco said that its order book, the value of future revenues based on all existing signed contracts, had increased to £19.4bn.

Serco's contracts include running prisons and air traffic control centres around the world as well as the DLR, the light railway in east London. Serco could benefit, say City analysts, from the troubles at rival G4S, which remains under fire for its failure to provide enough guards for the Olympics.

Robert Morton at Investec said: "Serco's interim results are well down on last year, reflecting a difficult trading background as well as a reorganisation programme. Cash generation in the first half was also disappointing."

The shares gained 3.5p to 566p.

The company is raising the interim dividend by 6 per cent to 2.65p a share.