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Support services and BPO giant Serco has warned that group organic revenue growth at half time will show a ‘small reduction’ as a result of a ‘very tough’ US federal market. Only last month, Serco had expected flat organic revenue growth in the first half (see Serco on track for 2012), so the US business has clearly got worse in recent weeks. Despite these challenges over the pond, Serco said it is still on track to meet group expectations for 2012. Even so Serco’s shares were down 2% on the news.
Serco is putting a lot more attention into its core UK market, where it said the outlook is improving. It is pursuing M&A to expand in the private sector (see Serco pays £55m for Vertex Private Sector), while continuing to grow organically in the public sector thanks to its IT-enabled support and BPO services capabilities.
Recent UK performance shows a very strong win rate – in the first half it has secured the Anglia Support Partnership contract worth £120m+ (see Serco wins community health services deal), a £36m business services deal with the MoD (see here), and a £430m contract with Shop Direct Group (see Serco wins retail mega-deal) – this thanks to its other recent acquisition of The Listening Company (see here).
These deals should help deliver an improved second half performance for Serco, and help it meet its FY targets of ‘strong total revenue growth, good organic growth, and an adjusted operating margin increase similar to 2011’. Serco’s depth, breadth and geographical reach is such that difficulties in one market can be evened out by turning up the growth lever in another. It certainly appears to be doing this in the UK right now while the US is struggling.
