Following hot on the heels of rival Capita’s mixed full year results last week (see Capita: ‘ups and downs’ in 2011), rival Serco has reported another strong set of figures that go a long way to justifying its depth, breadth and international reach of support services offerings. For the twelve months ended 31 December, Serco grew headline revenue by 7.4% to £4.65bn, and 3.5% on an organic basis. Operating profits rose 10.3% to £266.2m – giving Serco a margin of 5.7% vs. 5.6% in FY10.
Although it is difficult to compare Capita and Serco directly, they increasingly compete in the IT and BPO markets in the UK. Capita operates in a traditionally higher margin space (i.e. professional services and IT-enabled services), and its group margins are double that of Serco today.
Nonetheless, Serco’s broad-based support offerings, and international reach, have proven more resilient during the past year enabling it to continue delivering organic growth vs. Capita’s -7%. For example, its AMEAA operation (Africa, Middle East, Asia, and Australasia) notched up a very impressive 37% organic growth, and now accounts for 17% of total group revenue. The mature UK market meanwhile (civil government, defence, science and nuclear and local government and commercial divisions combined), achieved 4% headline growth to £2.99b. We suspect at least 50% of this is organic.
Serco is now aiming squarely at higher margin BPO business, although with a distinctly ‘international flavour’. It recently launched its Global Services ‘BPO’ division (see Serco cuts UK workforce) formed mainly out of its recent acquisition of offshore BPO provider Intelenet Global Services (see Serco’s expensive offshore gamble), and UK-based call centre provider The Listening Company (see Serco acquires UK contact centre provider). Serco’s recent award of the Anglia Support Partnership NHS shared service initiative (see Serco in healthy shared services win) is highlighted as the first significant deal in partnership with Intelenet, worth some £120m to Serco over the next four years, and covering middle and back office shared services. Although no specifics were given on the services Intelenet will be providing, the deal will be an important test case for Serco in how to negotiate the challenges and complexities of deploying offshore services within the public sector.
Looking ahead to FY12, Serco expects to deliver another year of ‘strong total revenue growth, including good organic growth, and a further increase in adjusted operating margin’. So no complaints there.