Update on health facilities management acquisition
13 December 2017
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Further to the announcement on 24 October, Serco Group plc ('Serco' or 'the Group'), the international service company, is pleased to confirm that it has now signed the definitive Business Purchase Agreement to acquire a portfolio of selected UK health facilities management contracts from Carillion plc. Assuming Carillion receives shareholders' approval and the requisite third party consents over the course of 2018, each individual contract will be acquired on a cash-free, debt-free basis, with the consideration to be paid in instalments and to be satisfied using Serco's existing debt facilities. Assuming that the contracts are all transferred to Serco, the total consideration payable would be £47.7m (subject to a limited working capital adjustment and a limited adjustment in the event that the contracts are transferred ahead of or behind an assumed schedule). Full transition of operations is targeted to be achieved by the end of 2018.
The 15 contracts to be acquired by Serco provide facilities management services to NHS sites across the UK, covering five acute hospital trusts and around 20 other public sector organisations. The portfolio has current annual revenues of approximately £90m and a weighted average remaining term of 14 years; approaching £1bn of core contracted revenue would be added to Serco's order book if all contracts are transferred. The contracts will be integrated within Serco's existing UK Health business unit, which, following recent wins at Barts Health NHS Trust and University Hospital Southampton NHS Foundation Trust, has annual revenues of around £240m. The transaction will therefore significantly increase the scale of Serco's Health business, and, over time, will create opportunities for operational synergies.
Serco will only include within its financial forecasts the effect of the transaction once there is certainty regarding the necessary approvals and consents. Assuming all 15 contracts transfer, and including an appropriate allocation of charges for shared support services and other incremental overheads, the operations are expected to generate around £8m Underlying Trading Profit and therefore be significantly accretive to earnings following their integration into Serco. Exceptional acquisition costs of approximately £1m are expected to be incurred and the transition and integration phase is expected to cost around £4-5m which will be expensed across 2018 and 2019. The gross assets of the contracts being acquired are estimated to be approximately £16m. Reflected in today's separately announced update on 2017 financial performance, we now expect leverage for covenant purposes to be at the lower end of our previous guidance range 1.4 to 1.8x EBITDA; on an underlying pro forma basis this transaction would increase leverage by approximately 0.3x.
Rupert Soames, Serco Group Chief Executive, said: "The Health sector is one of the fastest-growing areas of government spending worldwide, and our customers face immense challenges catering for the ever-increasing demands of ageing populations. Serco's existing Health operations already generate revenue of over £350m, employ over 8,000 people, and provide services to such world-famous institutions as St Barts in the UK, the Cleveland Clinic in Abu Dhabi, the Prince of Wales Hospital in Hong Kong and Fiona Stanley Hospital in Australia. We look forward to taking on these high-quality, long-term contracts which will add significant scale to our Health business, and will enable us to further improve the quality and efficiency of services we provide to the NHS and our other customers."
Ends
For further information please contact Serco:
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386 227
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386 226
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
This announcement contains statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature. All statements other than statements of historical fact are forward looking statements. Generally, words such as "expect", "anticipate", "may", "should", "will", "aspire", "aim", "plan", "target", "goal", "ambition" and similar expressions identify forward looking statements. By their nature, these forward looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Factors which may cause future outcomes to differ from those foreseen or implied in forward looking statements include, but are not limited to: general economic conditions and business conditions in Serco's markets; contracts awarded to Serco; customers' acceptance of Serco's products and services; operational problems; the actions of competitors, trading partners, creditors, rating agencies and others; the success or otherwise of partnering; changes in laws and governmental regulations; regulatory or legal actions, including the types of enforcement action pursued and the nature of remedies sought or imposed; the receipt of relevant third party and/or regulatory approvals; exchange rate fluctuations; the development and use of new technology; changes in public expectations and other changes to business conditions; wars and acts of terrorism; and cyber-attacks. Many of these factors are beyond Serco's control or influence. These forward looking statements speak only as of the date of this announcement and have not been audited or otherwise independently verified. Past performance should not be taken as an indication or guarantee of future results and no representation or warranty, express or implied, is made regarding future performance. Except as required by any applicable law or regulation, Serco expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such 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.
