After reviewing the mixed performance of UK rivals Capita and Xchanging (see Capita and Xchanging challenges on the road to recovery), Serco’s full year 2012 results show a strong performance from BPO/BPS, with organic growth of 12% from its new Global Services operation. Although it is not a precise comparison, Capita and Xchanging achieved organic growth of 3% and 5.6% respectively from their overall businesses in FY12.
At the headline level, Global Services revenue grew 40% to £716m, including the acquisitions of Intelenet, The Listening Company and Vertex Public Sector (see here and work back), and the adjusted margin was 8.7% up from 6.7% last time. Overall, Serco’s group revenue came in at £4.9bn, up 5.7% on FY11, and organic growth was 3.3%. The operating margin continued to nudge slowly northwards to 5.9% vs. 5.7%.
Particularly of note was the fact that Serco returned to 2% organic growth in the UK after some big wins in both its traditional front line support services business and BPS. These included the delivery of ferry services to the Northern Isles in Scotland (£250m/6 years); the UK's National Citizen Service (£70m over two years); business services for the UK Ministry of Defence (see here); community health services for NHS Suffolk (£140m/3 years); £430m BPS megadeal with retailer Shop Direct Group (see here), entrée into the life and pensions market with its win at Aegon (see here), and its Anglia Support Partnership shared services deal for the NHS (see here).
Overall UK revenue was £2.49bn, and the margin remained stable at 6.9% (6.8% last time). Serco is confident that the UK will improve in 2013 as new markets continue to open up, such as through the commissioning of health services, defence organisation strategic partnerships and from competition being introduced to numerous areas of the home affairs market such as offender rehabilitation.
The one area of concern is Serco’s Americas division, which saw a 14% organic decline in revenue, and profitability slump by a quarter, due to ‘very difficult’ environment due to the budget cuts at the Department of Defense and civilian agencies. Serco said the threat of sequestration to cut spending automatically had severely disrupted the industry, with government agencies cancelling contracts. The outlook in 2013 will now be even worse with $85bn of sequestration cuts being passed last week.