Serco Group plc (Serco), the international services company, has signed an agreement to dispose of the majority of its operations in Germany in a transaction with its local management team. With effect from 29 June 2012, the operations were transferred in return for net nil cash consideration. The transaction is in line with Serco's stated strategy to proactively manage its portfolio of contracts, assessing operations for strategic fit together with their expected future levels of performance and returns.
Serco Germany was originally established in 1961 to provide installation and support services for the German air defence radar systems. The business subsequently diversified into additional engineering and administrative support services for the defence sector as well as training services, facilities management, field installation and maintenance services, and IT consulting and related services.
Serco sees limited revenue growth potential or opportunity to achieve the necessary improvement in returns from these contracts. There are few synergies with the rest of the Group. Where appropriate, certain contracts have been retained, such as IT services to the European Space Agency and facilities management for State Street in Europe.
The contracts being transferred have delivered combined annual revenue of approximately £90m. Whilst revenues have been growing in recent years, Adjusted operating profit has maintained a broadly breakeven position. The disposal will have a broadly neutral impact on Adjusted earnings. The provisional value of net assets being disposed of is approximately £25m, which includes goodwill of around £22m. The provisional accounting loss on disposal, after disposal-related costs of around £2m, is therefore expected to be approximately £27m. An existing loan of approximately £12m will be settled by Serco over the next 18 months.
Christopher Hyman, Chief Executive of Serco Group, said: "I would like to thank our colleagues for their hard work and commitment in our German business whilst part of Serco, however, as we take Serco forward, this area of the business has become non-core to the ongoing development of the Group. Our withdrawal from these operations will allow Serco to focus on selecting the best future opportunities and continue to build a balanced contract portfolio in markets and geographies around the world, where we can deliver economies of scale or the transfer of our expertise to the greater benefit of customers."