Kevin Beeston: Caught on camera - but Serco's chief isn't about to take his foot off the accelerator

It's time for the City's favourite support services group to hit the road. Clayton Hirst clocks its plans to keep the contracts coming
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The Independent Online

Kevin Beeston slides his chair away from his desk and turns to his PR minder. The usually articulate executive chairman of support services company Serco is surprisingly tongue-tied. "Oh! Right then. Mmmm. What have I to say to that?"

Kevin Beeston slides his chair away from his desk and turns to his PR minder. The usually articulate executive chairman of support services company Serco is surprisingly tongue-tied. "Oh! Right then. Mmmm. What have I to say to that?"

It's not a particularly tricky question. One of the less-publicised things his company does is to maintain hundreds of speed cameras across the country. Has Beeston ever sampled, first hand, this side of his business? After a bit of nudging from his PR man and a little more squirming, he eventually confesses: "Regrettably, I have been done by a speed camera - but I didn't blame the camera. I blamed myself for driving too quickly."

Beeston can be forgiven for his hesitation. He has just begun Serco's two-week roadshow that will see him meet major shareholders and investment analysts in England, Scotland and the United States. He has his answers covered to most questions about the business, but the odd curve ball was always going to break his flow.

"I have to say, the roadshow isn't my favourite part of the job," he admits. "There's a lot of travelling and it's remarkably tiring answering similar questions and repeating the Serco story over and over again."

But don't shed too many tears for Beeston, because the Serco story is one that many of his counterparts would give their back teeth to tell.

Beeston joined Serco in 1985, when the company was mainly known for its role in maintaining the UK's Ballistic Missile Early Warning System. Two years later the company floated on the Stock Exchange, and it has since expanded into a bewildering array of services, including operating the light railways in London's Docklands and in Manchester, and managing prisons. Beeston, whom associates describe as sharp and ambitious but approachable, has moved though Serco's ranks, becoming executive chairman in 2002.

Partly due to the Government's love affair with outsourcing - which has presented the company with many bidding opportunities - and partly to solid management, Serco has delivered consistent earnings growth, year on year. And it has done this at a time when other support services companies have pressed the self-destruct button (think Jarvis and Amey).

"I used to get out of bed every morning and look at what everyone else was doing to predict what our share price would do," says Beeston.

Serco, he argues, is different to its rivals because it has never attempted to reinvent itself. "We have always been a service contractor to the British government. We are not a construction company that has become a service business, nor are we an engineer that has become a service company. We have always been one."

True to form, on Wednesday, Serco revealed a strong set of results, posting an 18 per cent rise in half-year earnings and revealing a pre-tax profit of £28.1m. Its order book now stands at £10.3bn. The results were rewarded with flurry of flattering reports from investment banks, praising its "impressive" performance and "unblemished track record of superior earnings growth".

But Serco is now moving into uncertain times. The Transport Secretary, Alistair Darling, is about to overhaul the rail industry, which coincides with Serco's final negotiations with the soon-to-be-defunct Strategic Rail Authority to take over the Northern Rail franchise. The Government is also preparing to act on the Gershon review of the Civil Service, which recommended 80,000 job cuts; many Serco contacts are likely to leave their posts as a result. And some government departments are grappling with budget cuts after Chancellor Gordon Brown's summer spending review.

Beeston argues, however, that the uncertainty plays into Serco's hands. "This may sound perverse but I see this as a real opportunity. Historically, the thing that has driven our business is the Government needing to save money. That is where the private sector can come in and offer creative ideas and technology." Serco had a growth spurt, he says, in the early 1980s when the Thatcher government cut departmental spending.

This time around, Serco sees particular opportunities in defence and justice. The former already makes up around 30 per cent of its sales, and the company's biggest customer, the UK Ministry of Defence, is being forced to cut its spending. "Because of this," says Beeston, "the Defence Secretary needs to move resources to the front line. The UK can't have a capability without soldiers and hardware.

"The question the Defence Secretary must ask is: 'Do we really need highly trained personnel carrying out support and administration functions?' The answer is 'no'."

Further in the future, Beeston sees opportunities with the creation of the FBI-style UK Serious Organised Crime Agency. As with defence, he argues, the agency's resources should be spent on fighting crime, while companies like Serco stay in the back office to sort out the paperwork.

Cynics will argue that Serco's success in winning outsourcing contracts is down to dodgy accounting - not Serco's (the City appears pleased with its holier-than-thou book-keeping), but the Government's. Ministers have been accused of using the Private Finance Initiative so the deals can be kept off the Chancellor's balance sheet. On Tuesday, the Labour-leaning think-tank, the Institute for Public Policy Research (IPPR), added its voice to this concern, arguing that there is a bias against traditional government-funded programmes. There is no denying the PFI has kept the red ink out of the Government's books. The IPPR revealed that of the £40bn of PFI deals signed in the UK, some £15.3bn are off balance sheet.

But Beeston says the critics have taken their arguments too far: "Wherever it is on the balance sheet, the work has to be paid for. We don't, as individuals, stop and say: 'I'm not going to buy a house because I'll have to get a mortgage.' Is this really any different? Should the taxpayer expect that the Government has all the money in the bank before it buys a new school or hospital? In the end, productivity improvements across the public sector will have a much bigger impact on the bottom line than future mortgage payments on assets."

Serco is now eyeing government contracts in America, where Beeston's pro-PFI argument is being taken on board. "When I last did the roadshow, the US investors told me they wished that their country had a Serco, which was good to hear," he says proudly.

A year on, and with one small US contract already in the bag, the American leg of the 2004 Serco investor roadshow may be a little easier for him to endure.


Born: September 1962.

Education: Gorleston Grammar School, Great Yarmouth.

Career (1981): commercial trainee, Birds Eye Wall's.

1983: assistant manager, Birds Eye Wall's.

1985: financial analyst, RCA Services (later became Serco).

1985: finance manager, Serco Services.

1988: finance director, Serco Education.

1990: finance director, Serco Space.

1991: commercial director, Serco Space.

1992: director, Serco.

1994: chairman and chief executive, Serco International.

1996: finance director, Serco.

1999: chief executive, Serco.

2002: executive chairman, Serco.

Other posts (since 2003): non-executive director, Ipswich Town FC.