February 21, 2019 / 7:10 AM / 9 months ago

Serco swims against outsourcing tide with bright 2019 outlook

EDINBURGH (Reuters) - Britain’s Serco raised its 2019 profit and revenue forecasts on Thursday, buoyed by a run of recent contract wins that mark a bright spot in a troubled outsourcing sector beset by what CEO Rupert Soames called “the fog of Brexit”.

FILE PHOTO - A Serco flag is seen flying alongside a Union flag outside Doncaster Prison in northern England December 13, 2011. REUTERS/Darren Staples/File Photo

Under Soames, a grandson of British wartime prime minister Winston Churchill, Serco is at the tail end of restructuring and has focused on winning business abroad and cutting costs.

That has allowed the provider of public sector administration, training and custody services to weather a slowdown in British decision-making caused in part by Brexit uncertainty and the collapse of contractor Carillion last year.

Shares in the company rose 4 percent after it said that 2018 underlying trading profit rose 40 percent in constant currency terms to 93.1 million pounds, meeting recently raised targets.

New contracts that are starting to boost results include three in Australia — running correctional centre Grafton in New South Wales, the design and construction of an icebreaker ship and provision of health services in the defence sector — as well as a mammoth UK asylum seekers’ accommodation contract won this year.

That will eventually mean a return to dividends that were suspended in 2014, Soames told Reuters, with a pipeline of prospective work weighted towards the second half of this year.

“Although the overall market may be weakening a bit, we are going to swim against that tide,” he said.

“We think revenue will grow about 5 percent in 2020 and that is largely because of the new orders we have signed ... I think we are coming in to land with a dividend, but it’s not appropriate for 2018 and 2019.”

Serco expects 2019 profit of about 105 million pounds, above its previous guidance of 95 million to 100 million, on revenue of 2.9 billion to 3 billion pounds, up from 2.8 billion to 2.9 billion pounds.

The UK now provides two fifths of Serco’s revenue, against about 55 percent in 2014, but Soames said the prospects for Serco in Britain are “marginally to the upside” because it provides essential public services.

“A government may decide whether it wants to invest in a major new outsourcing project, and can more or less speed up or slow down such projects at will. It cannot, however, suddenly decide it does not want to house 20,000 asylum seekers, or move its ships and submarines, or clean its hospitals,” Serco said.

The company’s shares were up 4 percent at 119.6 pence by 0850 GMT. The shares have climbed by 28 percent in the past three months, easily outperforming a 4 percent rise in the FTSE mid-250 index.

Reporting by Elisabeth O'Leary; Editing by Jason Neely and David Goodman

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