Serco profits down but boss is still optimistic

Serco has reported a fall in profits but is still optimistic it can emerge as one of the winners from the turmoil hitting the outsourcing sector.

The company, which provides justice, transport, defence and welfare services for governments worldwide, said pre-tax profits had tumbled to £19.1m in 2017.

This is compared to £29.6m in 2016.

It said underlying trading profit was "at the top end" of expectations outlined by the group 15 months ago, at £69.8m against £82.1m in 2016.

Rupert Soames, Serco Group (Other OTC: SCGPY - news) chief executive, said he expected Serco's profits to grow this year and next year.

He added: "With (Other OTC: WWTH - news) profits at the top end of the expectations we set out some 15 months ago, net debt lower than we expected, fully funded pension schemes, and strong order intake, we delivered a solid performance in 2017 in a difficult market.

"We understand that getting to this point has been a long haul for investors, and that there is still a long, and probably bumpy, road ahead before we are producing acceptable returns.

"But we are now moving forward, not backward."

Shares (Berlin: DI6.BE - news) rose by 2.3%.

The figures come just weeks after the demise of Serco's rival Carillion (Frankfurt: 924047 - news) .

Carillion employed 43,000 people, including 20,000 in the UK, and went into liquidation in January, mired in £1.3bn debt and also saddled with a vast pensions deficit.

Mr Soames had earlier said that Serco faced similar issues in 2014 , wiping £1.5bn off its balance sheet and taking £450m of losses on Government contracts - but had "made it through the valley of the shadow of death".

In reporting the company's latest results, Mr Soames said that the UK market accounts for around half of the company's revenue.

He said that the benefits of that "international footprint" were all the more apparent as the UK market for public service outsourcing was "afflicted by well-publicised traumas".

He added: "The UK public sector outsourcing market has in recent months been thrown into turmoil as the result of the collapse of Carillion, and the crystallisation on some contracts of very significant risks which government had transferred to suppliers.

"This has reignited the debate about the wisdom of government outsourcing to private companies the delivery of public services, and we suspect that this will become a theme in the next General Election."

Mr Soames outlined four proposals, including an agreed "break fee" on contracts for both suppliers and the Government to allow either to pull out if a project is not working, as well a new code of conduct setting out expected standards of behaviour.