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Clik here to view.Serco’s ‘rock steady’ performance in H111 (see here), is continuing in the second half with an ‘in line’ management update that points to another healthy FY performance to come. Serco is expecting H211 to deliver ‘similar organic growth’ to H1 (so c4%), and a 30bps boost to ‘adjusted’ operating margins for the FY. This is being achieved ‘despite ongoing headwinds in the UK and US’ – of course Serco’s two biggest markets – and just goes to show how resilient Serco’s business model is even in the most difficult of macro environments.
Serco has impressive momentum, although it is clearly now facing a slowdown in new wins. Since the half year, it has won £1.9bn of contracts vs. £2.3bn at this time last year - so down 17%. Nonetheless, the total for the year to date is £4.4bn, only marginally down on the £4.5bn last year. No reason for alarm bells just yet, but management will need to keep a close eye on this slowdown.
Serco is embarking on more M&A to mitigate this risk. Since taking on offshore BPO provider Intelenet (see here) and UK-based call centre provider The Listening Company (see here) in H1, it has made two smaller acquisitions in H2 to expand presence in new markets. With combined revenue of c£35m, these include Australian contact centre provider Excelior Pty, and in the UK, public sector debt recovery company Philips Collection Services, which has the DWP, MoJ, HMCS and Camden and Westminster councils among its customers. Debt recovery is high on the agenda in the public sector, so a smart move by Serco to extend its capabilities here.
Notable new UK wins in H2 include an extension to Serco's ‘Boris bikes’ contract, otherwise known as the ‘Barclays Cycle Hire Scheme’, in East and West London (worth £50m through to August 2015), a renewal for out-of-hours care in Cornwall and the Isles of Scilly (worth £32m over five years), and of course, its recent award of preferred bidders status on a £100m ten-year BPO deal at Peterborough Council (see Serco expands relationship with Peterborough Council). So it seems, no shortage of opportunities for Serco in the UK public sector.