Bloomberg News

Serco Targets New U.S. Business on Weak Government Spending

August 29, 2012

Serco Group Plc (SRP), the services company whose operations include prisons, defense facilities and air traffic control centers, may adjust its U.S. business to help offset declines in government spending.

Options include increasing work in health care, air traffic control or business process outsourcing, the Hook, England-based company’s newest business area, Chief Executive Officer Christopher Hyman said in an interview. “We will be looking at whether there are things that we can do that allow us to grow in areas we are not in today,” he said.

Revenue from the Americas operation, which includes Canada, fell 15 percent in the first six months to 381 million pounds ($603 million) as U.S. federal government spending slowed, the company said today in a statement. Total sales increased 4.3 percent to 2.34 billion pounds, in line with analyst estimates compiled by Bloomberg.

The White House and Congress are in discussions over long- term budget plans, and uncertainty over spending levels in the U.S. will probably persist at least until March, Hyman said. Once spending levels are set, the government’s efforts to achieve savings may open opportunities for new business in the medium term, Hyman said.

Encouraging U.K.

“Once the market recovers it should snap back quickly,” Liberium Capital analyst Joe Brent said in a note to investors.

Serco shares rose 0.4 percent to 565 pence at 11:55 a.m. in London. The stock has climbed 19 percent this year, giving the company a market value of 2.82 billion pounds.

In the U.K., where Serco generates 50 percent of sales, prospects are starting to improve, said Hyman. “We are seeing encouraging signs” and that should lead to contracts in the next six to 12 months, he said.

Sales from Australasia, the Middle East, Asia and Africa rose to 17 percent of the total from 13 percent last year.

Serco is looking to new markets for growth and the Philippines, Turkey and Brazil are good candidates, Hyman said. China is not on the agenda for acquisitions, but remains a market of interest, he said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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