Serco profit up as Australia and Asia drive growth


Outsourcing firm Serco
will target further expansion in fast-growing markets in
Australasia and the Middle East in 2012, after the regions helped it
ride out tougher times in its core UK and US markets.

FTSE 100-listed Serco, which runs services from London's light rail to prisons and air traffic control centres around the world, posted adjusted pretax profit of £262.2m for 2011, ahead of an average forecast of £259.6m by eight analysts polled by Reuters I/B/E/S.

Revenues rose 7.4 per cent to £4.64bn, helped in part by organic growth of 37 per cent across Africa, the Middle East, Asia and Australia (AMEAA), where it won a number of deals in the defence, prison, transport and health sectors.

"For us this has probably been our toughest year in our traditional markets of the UK, which was flat, and the US, which declined, in a first for us. The story for us has really been about the growth in the developing economies," Serco Chief Executive Christopher Hyman told Reuters.

Despite winning £5.1bn of work in 2011, Serco gave several warnings of slow UK and US markets - which account for around 80 per cent of group revenue - hit by government austerity measures and protracted budgetary negotiations.

"While we, and the market, remain preoccupied with the timing of short-term delivery by region, the group's breadth of service and geographic spread has continued to underpin good organic growth and margin progression over the past few years, outperforming almost all outsourcing peers," said Espirito Santo analyst David Brockton.

The timing of new UK work remains an issue, but having seen conditions and opportunities improve in the second half of 2011, the group said it was confident of contracts around prisons, probation, defence and local authorities coming to market.

In the United States, however, where Serco won work with the Navy, Army and Air Force last year but saw organic revenues decline by 6 per cent, budget delays and the upcoming presidential election are expected to put the brakes on much of its potential workload until 2013, the group said.

"The view I have on the US is that in the short-term we will see more headwinds, and there is a possibility that we might see some attrition, but we also do plan to win work that is coming out," Hyman said.

"The US government is not saying they don't want to contract. They want to do lots more of it. It's just at the moment they have not settled on a budget for it."


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