Serco puts out the begging bowl

What is a poor, little multinational like Serco to do when Britain has less money to give?

Look outward:

Serco, the FTSE 100 support services group that runs the Docklands Light Railway, is to target growth in international markets as the UK economy comes under pressure from public spending cuts.

Christopher Hyman, chief executive, said overseas markets will “underpin” growth in the next two years although he stressed the UK will remain Serco’s “primary market”.

The company on Wednesday posted robust results for 2010, with revenues up 9pc to …£4.3bn and pre-tax profits 21pc higher at …£214m.

However, the order book slipped from …£17.1bn to …£16.6bn a year ago as Serco felt the impact of promising cost savings to the Cabinet Office and the cancellation of contracts in the UK, such as the development of a new prison in Merseyside.

Serco’s overseas operations now account for 40pc of the business, with revenues in Africa, the Middle East, Asia, and Australasia growing by 41pc. The company runs the Dubai Metro and has also won its first contract in New Zealand – the operation of a prison. In the Americas, revenue grew by 9pc.

Mr Hyman said the reputation of British support services companies was helping Serco to secure overseas work, while the company may also target acquisitions to secure footholds.

“Two sectors that we have failed to be proud of in the UK are financial services and support services,” Mr Hyman said. “They [international governments] love seeing the Brits wherever we go. They think we have clever ways of doing public services.”

Serco, however, is expecting new opportunities to emerge within the UK towards the end of this year from sectors such as prisons, hospitals, and welfare. “We are anticipating headwinds in the current year while decisions on reform are resolved and customers develop their plans for future spending,” Mr Hyman said.

“However, a number of government reviews including those into defence and security, transport and welfare, and a forthcoming parliamentary White Paper on Open Public Services, may result in new opportunities for the private and third-sector organisations to deliver services.”

He added: “The Government wants to be seen as a procurer of services rather than a deliverer. We have a long track record of working for Government. I am not worried that there will be good opportunities when the time is right.”

Shares in Serco closed 25…½ higher at 579…½p following the results. The company has proposed a final dividend of 5.15p, taking the full-year payout to 7.35p, up 17.6pc on last year. It will be paid on May 17.

David Brockton at Espirito Santo said: “Serco’s relatively low margin and the critical nature of its front-line services should ensure it can continue to generate attractive earnings growth.”

Text and images ©2024 Antony Loewenstein. All rights reserved.

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