Outsourcer Serco gains £200m contract with the Royal Navy

Serco has been awarded a contract worth around £200 million to provide ‘maritime services’ to the Royal Navy.

The public sector outsourcing specialist said the new deal will run for 27 months from December, with an option to extend to six months.

This latest contract builds on Serco’s long-standing business relationship with the Royal Navy, which has spanned more than 25 years and includes operating tugboats and providing training exercise support.

It also follows a 15-year private financing initiative agreement, under which the company will take over responsibilities for the Royal Maritime Auxiliary Service fleet.

Serco employs 650 seamen and engineers at six naval sites in Britain, including the Royal Navy’s three main operating bases – Clyde, Devonport and Portsmouth – as well as some overseas operations.

In 2022 alone, the FTSE 250 company won three major contracts from the US Navy for work related to submarines, surveillance and close-in weapons systems.

These deals come amid heightened tensions between NATO and Russia over the country’s invasion of Ukraine.

Several governments have pledged to increase military spending in the coming years, which could be a potential windfall for companies in the defense sector.

Outgoing CEO Rupert Soames said: ‘Serco is pleased to continue to provide these essential services in support of the Royal Navy.

“We are proud of our service over the past 25 years and especially our team, which combines decades of experience with highly specialized skills. Many of the team are marine veterans and have longstanding ties to the national maritime community.”

A week ago, the veteran businessman, whose grandfather was Sir Winston Churchill, made more than £3 million selling the first tranche of his stake in Serco ahead of his imminent retirement.

He will be replaced as CEO at the end of 2022 by Mark Irwin, who heads the company’s UK & Europe division, but will remain in an advisory role until September next year.

Soames, 63, is widely credited with bailing out the outsourcing firm he joined after a scandal in which it overcharged the UK government tens of millions of pounds for an electronic tagging contract, damaging his public reputation and subsequently his financial health were seriously affected.

As part of its turnaround measures, the company narrowed its focus on winning public sector contracts, cut costs, sold unprofitable divisions and launched a £170 million fundraising effort.

The recovery took some time, but the Hampshire-based company eventually achieved its first annual revenue increase in six years, partly through expansion into North America and Asia, and paid shareholders its first dividend in five years.

Serco shares fell 0.4 percent to 165.4 pence in late afternoon on Wednesday, though their value has risen by nearly a quarter this year.