Outsourcer In Profit, Despite Leisure Centre Losses

Serco runs Northlink Ferries, which operates the service from Scrabster in Caithness to Stromness in Orkney past the striking Holborn Head Lighthouse. And it may be a year late, postponed because of the onset of the pandemic, but Serco is paying a dividend again, its first in seven years.

The one-time FTSE 100 star of the outsourcing sector, private companies that provide, and some say ruin, public services, Serco crashed to earth in 2013 in a fog of mismanagement and fraud.

Rupert Soames, who had made his name turning round Aggreko, the power business, was hired in 2014 to rescue the business, but has been unable to pay a dividend since because he had to unwind onerous legacy contracts. His turnaround meant that Serco was ready to pay dividends last year, but that was scuppered by Covid-19.

Yesterday Soames announced a 1.4p-a-share payout as the company reported a 20 per cent jump in revenues to £3.8 billion in 2020 on which it made £163 million of trading profits, 36 per cent better than the year before.

The stock market has welcomed Serco’s return to making payouts with a 10 per cent rise in the share price in recent days. The stock put on a further 4p, or 3.1 per cent, to 133¼p yesterday as Serco spoke of its expectation that there could be a further 6 per cent to 7 per cent rise in revenue and profit this year.

The group provides services working for governments in the Britain, the United States and Australia, running privatised prisons and asylum seekers’ accommodation, transport services such as the Caledonian Sleeper and Scottish ferries and processing claims in the American health service system.

Soames, who likes to use a cultural quote in summarising a year’s operations, previous examples have included the boxer Mike Tyson’s “everybody has a plan until they get punched in the mouth”, turned this time to Robert Burns, the poet “The best laid schemes o’ mice an’ men gang aft a-gley”.

He had promised that 2020 would be the year that Serco had profit margins moving toward 5 per cent and revenues rising at 5 per cent. “Maybe now, in 2021, we can think again of the ambition we set ourselves a year ago of being a more ‘normal’ company” he said.

He also landed a blow on those in the investment community who mark down companies on environmental, social and governance issues. He said that some may be more comfortable with Serco now that it is no longer involved in the development of nuclear warheads at the Atomic Weapons Establishment, but added “There will always be certain parts of our business, which will cause concern to some. Most notably, the fact that we do on governments’ behalf some of the hard things that citizens expect their governments to do, like deport some people and hold others in prison; all on behalf of democratically elected governments, but unpalatable to some”.

The outsourcing sector has fallen from its past heights: Capita and Mitie, both under new management, are stuck in multiyear turnarounds; Interserve was taken private by its debtholders, who broke it up; and Carillion famously went bust.

Serco has been paid about £50 million a month to package Covid tests and trace those who have tested positive. It marshalled an army of 9,000 people to make the scheme operational. That a commercial company was making a margin on such work put Serco at the centre of the criticism of the scheme when it got the blame for a sputtering start, when much of the ire might have been reserved for government policy and implementation.

Soames’ point to investors is that if it had not taken on the government contract, and admire outsourcers or not, Serco is one of only a handful of companies able to take it on then the group’s financial picture would have been a lot weaker, after all the business it lost to the pandemic from running public services such as trains and leisure centres.

Talking of which, Robert Burns also wrote in To a Mouse “Thou saw the fields laid bare an’ waste, An’ weary Winter comin fast, That wee-bit heap o’ leaves an’ stibble Has cost thee monie a weary nibble! Still, thou art blest, compar’d wi’ me! The present only toucheth thee: But Och! I backward cast my e’e, On prospects drear!” and surely he was ahead of his time knowing what Serco would do to the Beacon Park Golf Course?

What a “tim’rous beastie” company Serco is!

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