US slow-down a concern at Serco

28th Feb 2012 07:11

Outsourcing giant Serco made play of the increasing importance of overseas markets to its revenue stream in its 2011 results but it is the US market that is putting the frighteners on shareholders.The group, which operates the bike hire scheme and the Docklands Light Railway in London, said 2011 was a year of "solid operational performance and contract awards across the portfolio", reflected in a 7.4% increase in revenue to £4,646m from £4,327m in 2011. The organic revenue growth rate was 3.5%. The market had been expecting a revenue figure of £4,622m. The group noted that 44% of group revenue is now generated outside of the UK, helped by its acquisition of Intelenet, which gave it a firm foothold in the fast growing higher margin business process outsourcing (BPO) market.Revenue growth was exceptionally strong in the Africa, Middle East, Asia and Australasia (AMEAA) geographical grouping, reflecting growth from both existingcontracts and those recently won. In the UK, performance was more of a mixed bag. Civil Government revenue grew, benefiting from previous contract wins and expanded operations, while the Defence, Science and Nuclear division saw modest growth.Local Government & Commercial saw strong growth in its strategic markets offset by sharper headwinds from specific austerity measures. Serco said that while the UK is showing some signs of improvement, there are a few red flags being hoisted in the Americas. The continent saw constant currency growth achieved in the first half of the year move into a decline for the year overall as the very challenging conditions for US federal contractors took hold. Group adjusted profit before tax rose 13.4% to £262.2m from £231.3m in 2010, ahead of market expectations of £251.7m, while adjusted earnings per share also came in above expectations (38.15p) at 39.59p, up 14.1% on 2010's 34.69p.The full year dividend has been increased more or less in line with earnings, as per group policy, to 8.40p from 7.35p in 2010. The market consensus forecast was for a dividend of 8.18p."Whilst challenges remain in the US and some UK markets, the breadth of our portfolio around the world and in the AMEAA region in particular, continues to present many new prospects. Our order book has grown, our pipeline of opportunities is large and we are now preparing for the next stage of growth which includes our entry into the global BPO market. This gives us confidence for the future," said Christopher Hyman, Chief Executive of Serco Group.At 31st of December 2011, Serco's order book stood at £17.9bn, compared with £16.6bn at 31st of December 2010. This leads to what the firm calls "revenue visibility" - the proportion of budgeted revenue already booked - of 92% for 2012, 80% for 2013 and 70% for 2014.jh