(Alliance News) - Serco Group PLC on Monday raised its profit guidance on the back of promising trading and added that it has sealed a UK defence deal alongside Engie SA, worth up to GBP3.4 billion.
Vivo Defence Services, a 50-50 joint-venture with Courbevoie, France-based energy firm Engie, has won contracts to provide facilities management services to the UK's Defence Infrastructure Organisation. The DIO is responsible for the UK Ministry of Defence's estate.
Outsourcer Serco said the deals have a total base value of GBP900 million with a potential value of GBP3.4 billion during an initial seven-year term.
"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," Serco explained.
"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 UK company added.
Both Engie and Serco need to provide a cash injection for Vivo, the outsourcer said. Serco's GBP8 million contribution will be made across 2022 and 2023 in the form of shareholder loans. These are expected to be repaid in 2024.
Both firms will receive dividends from Vivo, with maiden payouts expected around two years after services commence.
In addition, Serco on Monday said its "strong" trading at the start of the year has continued further into 2021.
"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," the FTSE 250-listed company said.
As a result, Serco raised its underlying trading profit guidance by GBP15 million to GBP200 million. This would represent growth of 23% from GBP163.1 million posted in 2020.
The Vivo contract will not boost Serco's 2021 profits, though the first profit contribution from the business is expected to be in 2022.
By Eric Cunha; ericcunha@alliancenews.com
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Serco (SRP)