TIDMSRP
RNS Number : 7175B
Serco Group PLC
14 June 2021
Significant UK defence contract win; strong current trading
underpins increase to 2021 guidance
14 June 2021
Serco:Engie joint venture awarded UK Defence Infrastructure
contracts with an estimated base value of GBP900m and total
potential value of GBP3.4bn over an initial term of seven
years.
VIVO Defence Services (VIVO), a 50/50 Joint Venture between
Serco, the international provider of services to governments, and
ENGIE, the leading energy and services company, has been awarded
contracts to provide asset and facilities management services for
the UK defence built estate by the Defence Infrastructure
Organisation (DIO). VIVO has been awarded contracts for two of the
four regions being tendered under Lot 3 of the Future Defence
Infrastructure Services (FDIS) programme. VIVO will be responsible
for providing services in the South West and Central regions of the
UK, the largest two regions of the four that were competed, and
which represent around two-thirds of the MOD's estimated value of
Lot 3 of the Future Defence Infrastructure Services contracts.
The total core contract value to VIVO for the two regions is
estimated to be around GBP900m over the initial seven-year period,
including indexation. There are a further three one-year extension
options. In addition to the core fixed price contract for each
region, there will be significant amounts of additional project
work, which will be commissioned as required by the DIO and, while
the future value of these projects is uncertain, the Ministry of
Defence (MOD) estimates that they are likely to be worth a further
GBP2.5bn over the initial seven year term. As it is a joint
venture, half of VIVO's profit after tax will accrue to Serco.
The services VIVO will deliver will support the UK's defence
capability, maintaining the MOD's built estate across more than 200
sites and around 19,000 buildings. The core services include
planned and reactive maintenance, as well as mandatory safety
checks. The potential additional project work will range from small
scale asset replacement and property refurbishments to large
construction projects. Following a six-month mobilisation phase,
the core work is scheduled to start in February 2022, and we expect
the additional project work to ramp up during the course of
2022.
Commenting on the contract award, Rupert Soames Group Chief
Executive said: "We are delighted that VIVO has been awarded these
important contracts by the Defence Infrastructure Organisation to
maintain nationally important assets and buildings across the MOD's
estate, and recognise the confidence and trust the MOD has placed
in us and the responsibility that comes with it. Serco has a proud
50-year history of supporting the UK's Armed Forces, with contracts
supporting activities at many military bases, including Brize
Norton, Fylingdales, Yeovilton and Northolt, as well as supporting
the Royal Navy at Portsmouth, Plymouth, Faslane and Kyle of
Lochalsh, and the UK Government's Skynet secure satellite
communications system. VIVO combines Serco's expertise and
understanding of the MOD with ENGIE's deep expertise in facilities
management and we look forward to working together to support the
UK Armed Forces."
Current trading and updated guidance
The strong performance we saw at the beginning of the year has
continued. All of our four divisions have traded in-line or ahead
of their budgets in the first five months of the year. In the UK in
particular, volumes on both our Testing and Tracing contracts have
continued to be strong and we now think it likely that demand for
these services will continue for longer in the second half than we
previously anticipated. Accordingly, we are increasing our guidance
for Underlying Trading Profit in 2021 by GBP15m, to around GBP200m.
The VIVO contract will not have any material impact on our profits
in 2021. A full update on trading will be given in our pre-close
statement on 30 June.
Notes on accounting treatment of the VIVO joint venture,
shareholder loans and dividends
The joint venture will be accounted for in the same way as our
other joint ventures, and in accordance with international
accounting standards. Revenue will not be recognised in Serco's
accounts, while 50% of VIVO's profit after tax will be included in
our Underlying Trading Profit; the first contribution to Serco's
profits is likely to be in 2022. As it is a joint venture, the
value of the contract will not be included in our order book. A
cash injection is required from both shareholders to set up the
VIVO business. This will be in the form of shareholder loans, of
which Serco's share is expected to be around GBP8m across 2022 and
2023. The loan is expected to be repaid by the end of 2024.
Dividends will be distributed equally to both shareholders and it
is anticipated 100% of the profit after tax earned over the
lifetime of the contract will be distributed. The first dividends
are expected to be paid around two years after the services begin,
when the shareholder loans have been repaid, depending on the pace
of mobilisation and the volume of additional work.
This announcement contains inside information.
Ends
For further information please contact:
Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718
195 074 or email: paul.checketts@serco.com
Marcus De Ville, Head of Media Relations, tel: +44 (0) 7738 898
550 or email: marcus.deville@serco.com
About Serco
Serco is a leading provider of public services. Our customers
are governments or others operating in the public sector. We gain
scale, expertise and diversification by operating internationally
across five sectors and four geographies: Defence, Justice &
Immigration, Transport, Health and Citizen Services, delivered in
UK & Europe, North America, Asia Pacific and the Middle East.
More information can be found at www.serco.com
Forward looking statements
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statement is based after the date of this announcement, or to keep
current any other information contained in this announcement.
Accordingly, undue reliance should not be placed on the
forward-looking statements.
LEI: 549300PT2CIHYN5GWJ21
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