SERCO GROUP PLC: Interim Management Statement

Interim Management Statement 
Improved performance in second half in line with expectations; £5.6bn of
contract awards for year to date; challenging US conditions offset by overall
portfolio strength 
16 November 2012 
Serco Group plc (Serco), the international service company, today issues its
Interim Management Statement covering the Group's performance since 30 June
2012. With strong operations and a high level of new contracts having recently
begun, the second half of the year is seeing the forecasted improvement in
financial performance. It is therefore anticipated that 2012 will be in line
with expectations and our outlook is unchanged from that set out in the results
announced in August 2012. 
Christopher Hyman, Chief Executive of Serco Group plc, said: "I am pleased with
the business developments being made across the group, and particularly our
operational achievements including the significant new contracts that have
started in recent months. This supports the delivery of an improved financial
performance in this second half and meeting expectations for the 2012 financial
year. We continue to manage our portfolio proactively and it is showing its
overall resilience and strength, with the challenging US market conditions
being offset by our new BPO division and the AMEAA region both delivering
excellent performances." 
Contract awards and operational update 
At the half year, Serco had a £19.4bn order book and an estimated £31bn
pipeline of identified opportunities around the world. Since then, we have been
awarded a further £1.4bn of contracts, bringing the total for the year to date
to £5.6bn, comprising signed contracts valued at £5.4bn and preferred bidder
appointments valued at £0.2bn. Winning or expanding smaller contracts also
plays an important role in our growth and a selection of these is included in
today's Contract News Update on Notable contract developments
and approximate total contract award values are highlighted below. 
In UK frontline services, a number of significant new contracts have
successfully transitioned and mobilised. In Transport, the £350m contract to
operate the lifeline ferry services to the Northern Isles of Scotland began in
July. In Health, the £140m Suffolk Community Health contract commenced
operations in October whilst in the Home Affairs market the £175m COMPASS
asylum seeker support services contract has also started full operations. Serco
has recently been awarded preferred bidder status for two environmental
services contracts for Canterbury City Council and Wycombe and Chiltern
District Councils with a combined value of £90m. Other significant awards in
the second half include the contract for delivery of the new National Citizen
Service in six regions valued at approximately £70m, the London Community
Payback contract worth £38m and expansions and extensions to Defence
Multi-Activity Contracts (MACs) valued at £30m. 
In the Americas division, while challenging market conditions clearly remain,
task orders and contracts have continued to be awarded. A new $70m contract to
upgrade military vehicles was won, and our US Army career transition services
contract and patent office classification contract have seen important
expansions worth approximately $100m combined. There has also been progress on
extensions and rebids for some of the significant contracts that were due
before the end of 2013 such as the $100m extension for systems engineering
support for a US intelligence agency and the successful rebid of the $40m
contract to provide parking services in San Francisco. However, as previously
described, the market overall remains very difficult due to the continued
uncertainty around budgets and the threat of sequestration. 
In the AMEAA region, Serco has been selected as preferred bidder for its first
frontline services contract in India, to operate and maintain a new bus service
in the city of Indore. In Australia, whilst it is still not clear at this stage
how the government's new off-shore processing legislation will impact our
immigration services, the number of people in our care has further increased.
Continued strong growth is also being supported by the annualisation of
contracts started in the last year and other expansions in service scope in the
region. As announced on 7 November 2012, Serco has agreed to purchase the
remaining 50% stake in DMS Maritime Pty Ltd from our joint venture partner P&O
Maritime Services. The transaction strengthens Serco's position as a leading
defence services provider in Australia and in the growing marine services
Global Services, Serco's global BPO business, recently signed and commenced
operations for a £170m outsourcing partnership with AEGON UK, the leading life
and pensions company. Other major new contract awards have also been won in the
second half in the travel, utility, media, retail, IT and telecom sectors, as
well as several BPO services for public sector customers. In July, operations
also began for the major new £430m contract with Shop Direct Group. As a
result, Global Services is expected to see particularly strong organic growth
in the second half of the financial year. 
No other material events, transactions or impacts on the Group's strong
financial position have taken place since the 30 June 2012 balance sheet date. 
Outlook and guidance 
The outlook and our guidance reflect a balance of risks and opportunities and
remain unchanged from those set out with the half-year results announced on 29
August 2012. Whilst we expect challenging conditions to remain in the US, we
anticipate further improvement in UK markets and strong performances from our
AMEAA and Global Services BPO operations. 
The outcome for the 2012 financial year is anticipated to be in line with
expectations. As previously indicated, our financial performance (including
revenue growth, margin progression and free cash generation) is weighted to the
second half of the year when we expect a strong financial result. We expect to
deliver another year of strong total revenue growth, including further good
organic growth. The organic revenue decline of 2% in the first half of the year
is anticipated to improve to strong growth in the second half, reflecting the
excellent performance in securing new contract awards flowing through to
revenues. We expect an increase in full-year operating margin similar to that
achieved in 2011, reflecting the pick-up in second half revenue growth and the
delivery of underlying efficiencies. As previously communicated, free cash
generation is also expected to be weighted to the second half. A higher level
of working capital investment related to the growth in our BPO-related
contracts is still anticipated. 
We remain confident in the overall outlook for Serco, the continued delivery of
our strategic plan and further improving our financial performance. 
For further information please contact Serco: 
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386 227 
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386 226 
About Serco 
Serco is a FTSE 100 international service company, which combines commercial
know-how with a deep public service ethos. 
Around the world, we improve essential services by managing people, processes,
technology and assets more effectively. We advise policy makers, design
innovative solutions, integrate systems and - most of all - deliver to the
Serco supports governments, agencies and companies who seek a trusted partner
with a solid track record of providing assured service excellence. Our people
offer operational, management and consulting expertise in the aviation, BPO,
defence, education, environmental services, facilities management, health, home
affairs, information and communications technology, knowledge services, local
government, science and nuclear, transport, welfare to work and the commercial
More information can be found at 
-0- Nov/16/2012 07:00 GMT
Press spacebar to pause and continue. Press esc to stop.