Serco (SRP) received more good news this week after it signed a deal, as part of a consortium, with the Saudi Railway Company to provide management and technical support to the North South Railway project. The contract, which starts immediately, is worth £120m over five years to the support services group, whose shares rose 4 per cent on the day of the announcement.
The deal is Serco's first major rail contract in Saudi Arabia - it operates rail systems elsewhere in the Gulf region - and will involve the group acting as prime contractor and providing technical support for passenger operations. Other consortium members include Freightliner Group, which will take lead responsibility for freight expertise and support. The North South Railway is one of the largest rail projects currently under development in the world.
The contract win is the third positive development for Serco in as many months as the group attempts to rebuild itself after a difficult couple of years. In December it announced it had reached agreement with its banks and US private placement lenders to amend its financial covenants. This included the deferral of its next covenant testing date to 31 May 2015, paving the way for a mooted £550m rights issue during the current quarter.
In the same month the City of London Police's investigation into its infamous prisoner escort contract was wound up without any prosecutions. Police officers had been investigating whether the group had falsified records on the delivery of offenders to court on time. Serco agreed to pay back all past profit and forgo any future earnings on the contract, which was due to run until 2018.
Chief executive Rupert Soames has had his work cut out since taking over the reins last May. The shares are still down by more than half since the group delivered its last set of full-year results in March last year. In November the preliminary results of Serco's operating review revealed increased charges for impairments against contracts won on ultra-slim margins, in addition to restructuring costs for parts of the business that had become dysfunctional.
