August 29, 2012 / 6:46 AM / 5 years ago

UPDATE 2-Serco contract surge to help shake off U.S. woes

* H1 adjusted pretax profit 102 million pounds

* Order book 19.4 bln pounds; 4.2 bln work won in H1

* Upbeat on UK work prospects, U.S. gloom remains

* Sees contracts won underpinning organic revenue growth

* Shares up 0.3 pct

By Neil Maidment

LONDON, Aug 29 (Reuters) - British outsourcing group Serco said a raft of recent contract wins would help it to strong full-year revenue growth, after reorganisation costs and continued delays in the award of U.S. federal work pushed first-half profit down 17 percent.

The flow of much-anticipated public sector work in Serco’s core British market, which represents around half group profit, has been slowed by heavy austerity measures, while presidential elections have choked spending plans in the United States.

While the United States, where first-half revenue slipped 16 percent, was likely to continue suffering from contract delays and cancellations in the near term, Serco said on Wednesday a host of new contracts in Britain would add to the 4.2 billion pounds of work already won across the group this year.

Serco’s contracts include running prisons and air traffic control centres around the world as well as the DLR, the light railway in East London that helped carry millions of spectators to London’s Olympic Games.

“We are now seeing bids come out in prisons, probation, a little bit with the police back office, community service schemes. We have seen some bids in defence. So, they are all starting,” chief executive Christopher Hyman told Reuters.

“Some of it might come through in a small wave this year but I think it will more influence 2013 and 2014.”

Serco said it had identified 31 billion pounds ($49 billion) of further opportunities.

The 4.2 billion pounds of work won in the period compared with 2.5 billion a year ago, while Serco said its order book - the value of future revenues based on all existing signed contracts - had increased to 19.4 billion.

In the UK justice market, where it hopes to win a number of soon-to-be-awarded prison management deals, as well as probation work, Serco could benefit from the woes of rival G4S, which is at the centre of a political and media storm over its failure to provide enough guards for the London Olympics.

G4S said on Tuesday it had 3.8 billion pounds of work per year in its pipeline, adding that the Olympics fiasco would cost it 50 million pounds, as it posted flat first-half profit.

Serco, whose shares were up 0.3 percent at 1017 GMT, reported adjusted first-half pretax profit of 102 million pounds, in line with analyst forecasts.

The British group’s earnings in the period rose 4.3 percent to 2.34 billion pounds, underpinned by last year’s acquisitions and good growth in Australasia and the Middle East. The group now makes 46 percent of its earnings overseas.

Serco said organic revenue, down 2 percent in the first half, would grow significantly in the rest of 2012, driven by recent contract wins such as ferry operating services to the Northern Isles in Scotland and National Health Service back office support work.

Seymour Pierce analyst Caroline de La Soujeole said she remained positive on the outlook for Serco. “We expect organic growth of 3.5 percent for the year as a whole implying a pick up to 5.5 percent in the second half of 2012.”

Last month, Serco’s UK rival Capita posted a 10 percent rise in first-half profit and said it had been shortlisted for around 2.2 billion pounds worth of central and local government contracts.

Serco encountered reorganisation costs of 15.7 million pounds in the period, as it pulled its UK businesses together and also created a global business process outsourcing (BPO) division, targeting more back and middle office outsourcing work and avenues into new private sector markets.

Hyman said the unit, bolstered by last year’s 385 million pound acquisition of Indian firm Intelenet, had already won 500 million pounds of private sector work in the period, including running customer services for UK retailer Shop Direct.

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