More New Faces at Serco to Help Turn the Company Around | Sherpas in Blue Shirts

Serco’s H1 2014 results were poor but in-line with expectations. Adjusted revenue was £2,433m, up 1.1% year on year but adjusted operating profit was down 59.1% year on year to £50.7m.

Profits were impacted by £30m from reduced volumes of work for the Australian Government Department of Immigration and Border Protection (DIBP) and other contract attrition (principally Electronic Monitoring and U.S. contracts).

Changes in other contracts impacted profits by an additional £25m. These included work with AEGON and Shop Direct  moving from transformation into run and maintain phases.

A further £30m was wiped off profits due to two other troubled UK government contracts, COMPASS (for the provision of accommodation for asylum seekers) and PECS (Prisoner Escort and Custody Services) and the internal corporate renewal program.

Serco fared better in other geographies with 10% revenue growth in AMEAA and 7% in Americas.

The focus on fixing major contract problems in the UK has taken management attention away from sales. The pipeline declined by £4bn year on year down to £8bn. Furthermore, Serco has lost eight major new bids and two major rebids in this period.

To help the company turn around, Rupert Soames, Serco’s new CEO, has brought in a number of new executives. These include:

  • Liz Benison, soon to be the new Chief Executive Officer of Serco UK & Europe, Local & Regional Government division. Benison joins Serco from CSC where most recently, she was VP and General Manager for the UK business, managing a £1bn business and its 8,000 employees, with over half of its revenues coming from government customers. Her experience of working with the public sector is key. She has also worked for Capgemini and Xansa plc (now Steria)
  • The latest executive appointment to be announced is that of Angus Cockburn as Group Chief Financial Officer as from the end of October 2014. Angus is currently the interim Chief Executive Officer at Aggreko plc, having replaced Soames who joined Serco in May this year.

A strategic review is underway and in the coming months we expect to see:

  • More money put into strategic and targeted bids to improve the poor win rate and the pipeline
  • Better qualification of opportunities to focus on returns and not revenue alone
  • Further reorganization to simplify the business – the company operates in 47 different business segments, some of which are loss making – more divestments are very likely
  • Steps towards eliminating loss making contracts
  • Reduction of internal costs through improved internal functions, managing a troubled transition to shared services, and better management information.

Serco left its outlook for 2014 unchanged and expects revenue attrition of circa 5% in 2015.

The company is on a turnaround path to rebuild itself, its reputation and its pipeline. The strategic review is bringing out some clear weaknesses that it can address. With fresh faces on board to support the turnaround, Serco also needs to reenergize its workforce and, as Soames said, become a magnet for top talent.

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