Shares in outsourced service provider Serco (SRP) climbed as much as 5% to 127p after the firm published an upbeat full-year trading update and announced two new corporate developments in Australia, one of its key markets.
For the year to December, Serco is forecasting a 19% rise in revenues to £3.9 billion, driven by a 16% organic increase, and a 35% rise in underlying trading profit to between £160 million and £165 million with an operating margin just above 4% compared with 3.7% last year.
ROBUST PERFORMANCE
The firm said the Covid pandemic helped lift trading profits by around 9%, although most of that gain was offset by refunds of furlough payments and bonuses to some 50,000 front-line staff.
Chief executive Rupert Soames praised the firm’s ‘robust’ business performance in what he called ‘one of the most challenging periods for businesses since the Second World War’.
Despite significant falls in revenues for many areas of business, ‘it has been gratifying to see customers turning to Serco as a trusted and capable partner to help them deal with the enormous challenges they have faced’, added Soames.
While the year ahead still presents ‘unprecedented levels of uncertainty’, meaning the timing and shape of the recovery are ‘largely unknowable’, the firm is budgeting for revenues and profits to be at a similar level to 2020 for the existing business and slightly higher including the Facilities First acquisition, which is reassuringly conservative.
PURCHASE AND CONTRACT WIN
Facilities First, an Australian firm specialising in cleaning, facilities management and management services to the government, is being acquired for an enterprise value of A$76.5million or £43 million and is expected to add to earnings next year.
More than three quarters of the firm’s A$282 million of revenues in the year to June came from long-term government contracts. It has an order book of A$434 million or £240 million, and there are significant bidding opportunities in the next few years.
Serco also announced today it had won the re-bidding process to manage the Acacia Prison in Western Australia for up to 15 years. The contract is worth up to A$1.4 billion or £790 million over the full 15 years and gives Serco greater visibility over its long-term income. The firm operated the prison previously for 15 years, overseeing several expansions.
