Wednesday 26 February 2020 3:25 pm

Serco grows revenue for first times since 2013 as outsourcer puts past behind it

Outsourcing giant Serco posted its first year of revenue growth since 2013 and paid its first dividend since 2014 as the firm entered the new decade in style.

Shares in the firm rose over three per cent over the day’s trading.

Read more: Serco returns to UK growth as outsourcer puts woes behind it

The figures

Revenue grew 15 per cent in 2019, from £2.8bn in 2018 to £3.2bn, as Serco’s presence in North America and the Asia Pacific paid off.

Profit grew to £120.2m, a 29 per cent increase on the year before, when it stood at £93.1m, not including impairment charges from an Serious Fraud Office investigation.

The FTSE 100 group also increased its order book by £5.4bn over the year, representing 170 per cent of annual revenues, and taking the firm’s total backlog to £14.1bn.

The company paid a dividend of 1p, a symbolic victory for the firm after several challenging years.

Earnings per share increased to 6.2p, up from 5.2p in 2018.

Why it’s interesting

Although Serco has been mired in challenges since 2013, enduring six years of losses during a period of pressure on the UK outsourcing industry which has seen the collapse of firms such as Interserve and Carillion, December’s trading update predicted a long-awaited return to profit.

Shareholders were cheered by the news that Serco will likely turn a profit of £129m and revenue of £3.2bn, both up year-on-year.

Serco, which is run by Rupert Soames, the grandson of Winston Churchill, carries out jobs ranging from helping build Britain’s nuclear warheads to running immigration centre.

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Speaking to City A.M., Soames said that restoring the dividend marked Serco’s “return to being a normal company”.

He added he was optimistic that the rest of the outsourcing sector would follow suit: “We were one of the earliest adopters of financial carnage and reputational carnage but it’s been an enormous disruptor of value for everyone”.

On government procurement reform, he said that the government’s playbook, which Soames championed, was “a major step forward” which has “gone down well with industry”:

“Both government and the private sector have realised they need to be nice to each other if they are going to work together well”.

He was also hopeful over the prospects for industry under the new majority Conservative government, although he warned that Brexit represented “one of the biggest pieces of national insourcing in history”.

It also raised its full-year outlook for revenue and underlying trading profit and said it expects to top them in 2020, driven by new contract wins and better performance at its U.S. and Asian businesses.

Last week the firm was awarded a contract to run two more immigration removal centres, despite being hampered by allegations of abuse at another such centre.

The £200m contract, which was awarded by the Home Office, will see Serco run Brook House and Tinsley House centres near Gatwick Airport for eight years. 

Read more: Former Serco directors charged with defrauding Ministry of Justice over tagging contract

What Serco said

Soames hailed the results, saying: “All this indicates that we have finally achieved escape velocity, leaving behind the gravitational pull of past mis-steps, and gives the board confidence to recommend paying a dividend for the first time since 2014, which is an important milestone. 

“We are immensely grateful to our committed and hardworking colleagues, our patient shareholders and our supportive customers who have helped us reach this point”.

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