Serco : wins DWP Restart contract with an estimated value of £350m; WBB acquisition completed; 2021 guidance updated.

Contract win

Serco is pleased to announce that it has been awarded two contracts by the UK Department for Work and Pensions (DWP) to help people find jobs in the West Central region and Wales as part of the Restart programme. We estimate that the combined value over the initial four and a half-year contract period will be around £350m, with the amount dependent on the number of people who find employment. The contracts have options to extend for a further two years.

The Restart programme will help people who have been unemployed for between 12 and 18 months get back into work, including those whose prospects for securing employment have been impacted by the Covid-19 pandemic. Jobseekers' needs will be assessed, and individually tailored programmes will be devised to support them; this will include identifying and leveraging skills which will help people find sustainable employment. Serco will be leading a team of employability providers including 13 SME's (Small and Medium sized Enterprises), 6 Local Authorities and 4 charities, all of whom, like Serco, have deep experience and expertise in this sector.

The contracts were awarded after a competitive process, and we expect delivery to start in June this year. The majority of the revenue from the contract will be outcome-related, i.e. only earned when jobseekers have been employed for six months working an average of 16 hours a week and earning at least the National Living Wage. Consequently, the contract will be loss-making in 2021 as it mobilises and helps the initial cohorts find work; we expect losses in 2021 to be in the range of £5m-10m, and that the contract will be profitable thereafter. Cash flow will be phased more evenly over the contract and is expected to be positive in 2021.

Commenting on the award, Rupert Soames, Group Chief Executive of Serco said: 'We are delighted to have been selected after a rigorous procurement process by the DWP to deliver a significant part of the Restart programme, which is an important component of the Government's strategy to 'Build Back Better'. Serco has extensive experience and a proven track record in employment services, and in managing teams of expert partners, including small companies and charities, who will work with us to achieve positive outcomes both for individual job-seekers and the UK economy more generally.'

Completion of WBB acquisition

On 16 February 2021 Serco announced the acquisition, subject to regulatory approvals, of Whitney, Bradley & Brown Inc (WBB) from an affiliate of H.I.G. Capital for $295m (£215m). Following receipt of all necessary approvals, Serco has today completed the acquisition, which will increase the scale, breadth and capability of Serco's North American defence business and will give Serco a strong platform from which to address all major segments of the US defence services market. As stated when we announced the acquisition, in calendar year 2021 WBB is expected to generate revenue of around $230m (£165m), EBITDA of $29m (£21m) and UTP of $28m (£20m), before exceptional transaction and integration costs; with the transaction now completed, Serco will benefit from eight months of WBB's financial performance in 2021.

Updated guidance for 2021

We update our guidance for 2021 to take account of eight months of financial contribution anticipated from WBB, the initial losses expected in 2021 on the Restart contract as well as recent exchange rates.

2020 Actual	2021 Guidance as at 25 Feb	2021 Latest guidance
Revenue	£3.9bn	~£4.2bn	~£4.3bn
Organic sales growth	16%	~4%	~4%
Underlying Trading Profit	£163m	~£175m	~£185m
Net finance costs	£26m	~£27m	~£28m
Underlying effective tax rate	23%	~25%	~25%
Free Cash Flow	£135m	~£75m	~£85m
Adjusted Net Debt	£58m	~£100m	~£300m

Notes to guidance: The guidance uses an average GBP:USD exchange rate of 1.38 in 2021 and GBP:AUD of 1.81.