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Sale of Indian subsidiary marks Serco’s genesis

Sale of Indian subsidiary marks Serco’s genesis

Deeply troubled outsourcing provider Serco, took another step back into the light this week with the appointment of Sir Roy Gardner, an ex-Centrica CEO, as chair. It took six months to recruit him but it must be seen as yet another positive example of Rupert Soames’ strategy coming to life.

Board attrition has been almost 100% since the company’s troubles began, with Soames pulling through ex-Aggreko colleague Angus Cockburn as Serco’s Group FD. New NEDs include Rachael Lomax ex-deputy governor at the Bank of England. Respectability at all costs is the tag line.

Disposals continue with a very disappointing offer from CVC Capital Partners of less than £250m for the Indian business, this against the original 2011 purchase price of £415m. Rumours abound that Blackstone may enter the auction, but even so the sale will be at a loss, as Serco never realised the potential of the Indian operation. This disposal should be seen against the background of a group of disposals last year, a pre-tax loss of £1Bn plus in 2013, and multiple currently active disposals (Environmental services, leisure centres and others). It seems unlikely that the sins of the past will be extinguish the deficit being carried forward. Sales had all but stopped in the run up to the election, and the new Soames business development strategy remains to be tested under fire.

Soames has tied Serco’s future to purely governmental work. This of course is openly reliant on being seen by Whitehall, quangos, local authorities and NHS Trusts as rehabilitated and now exonerated from Serco’s admission of over-changing and charging for fictitious services to non-existent prisoners.

Total withdrawal from the private sector is a very bold move, but in many ways smarter than first meets the eye when you consider the number of European governments bringing huge projects to market over the next few years. Serco however still lacks the critical mass and balance sheet to scoop this business.

With half a billion pound rights issue approved by the shareholders Soames has more flexibility than many of his competitors and is correctly flagging caution in overall revenue growth until 2017.

However, there is little doubt that Serco is on its way to respectability and longer-term recovery.

Buy, Sell, Hold? Keep watching and Buy if things keep trundling along – Steady as you go Mr Soames!!

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