Rupert Soames was paid the greatest tribute any business person can hope to receive from investors when, in February 2014, it was announced that he was to become the new chief executive of the outsourcing group Serco.
Shares of Aggreko, the emergency power supplies equipment provider that Mr Soames had taken into the FTSE-100, slumped by 7% on news of his departure.
At the same time shares of Serco, a business that had issued two profits warnings during the previous four months, surged by 10% – adding £250m to the company’s stock market value.
Serco was in a wretched state at the time.
Its previous chief executive Chris Hyman, a South African who had been in the hot-seat for the previous 11 years, had quit suddenly the previous October following accusations that the company had been overcharging the government on electronic tagging and monitoring contracts.
Every politician in the land was queuing up to kick Serco and the company had been banned from bidding for any new public contracts.
This was a problem as 25% of the company’s business, at that time, came from the UK government.
At the same time, contracts representing 15% of Serco’s annual revenues were up for renewal, precisely at a time when the company was ill-equipped to tender for them.
Shareholders and some of the company’s lenders, meanwhile, worried that the company was about to break its banking covenants (the agreement a borrower makes with its lender to meet certain financial and operational yardsticks until the debt has been repaid).
With the company groaning under £745m worth of debt, they speculated, Serco was likely to have to tap investors for fresh capital.
With some commentators questioning whether the company could even be saved, Mr Soames began the new role a month earlier than planned, assuming control on 1 May 2014 – just two days after issuing yet another profit warning.
His first act was an emergency £170m fund-raising. Within months, he had instigated a review of all of Serco’s contracts, announced a restructuring of a number of operations and wrote down £1.5bn worth of assets.
This is a company that touches the lives of millions of people around the world on a daily basis.
Serco employs some 55,000 people around the world in five key sectors – transport, defence, health, justice and immigration and citizen services – and its employees include prison officers, marine technicians, air traffic controllers, paramedics, dentists and engineers.
Its contracts include running the Dubai Metro and the Scottish Caledonian Sleeper service, administering the US Affordable Care Act – so-called ‘Obamacare’ – operating HM Prison Doncaster, providing pathology services to the Guys and St Thomas’ NHS Foundation Trust and providing search and rescue training for Royal Navy helicopter crews.
The intervening five and a half years since his appointment have seen inordinate amounts of blood, sweat and tears expended – every journalist writing about Mr Soames is contractually obliged to mention that he is the grandson of Sir Winston Churchill – but today brought some genuinely positive signs.
Serco reported that it was expecting to announce revenue growth of 14%, to £3.2bn, for the year – the first year since he became chief executive that sales have risen.
During the second half of the year, he noted, that rate of growth had accelerated to 20%.
He told Sky News: “These are not small growth numbers – this is proper growth. One of the fun things going around the company now is that we can say we can think about proper growth now – and that’s exciting.”
Among the work that helped shift the dial was the acquisition, completed in August, of NSBU, a leading provider of ship and submarine design and engineering services to the US Navy, which Mr Soames said was trading to plan.
But he could also point out that 10% of the growth in the second half of the year was organic, in other words coming from the existing business, with examples including a Home Office contract to assist vulnerable individuals through the asylum system and a contract to provide healthcare services to 80,000 service personnel in the Australian Defence Force.
Mr Soames, however, was reluctant to say that the job had been done and the turnaround completed.
He added: “It’s always too early to say mission accomplished, there’s a long road ahead and when you’re making margins of 3.7% and have a target of getting them to 5%, there’s clearly quite a long way to go – but it’s a really positive step forward.”
The restoration of Serco’s fortunes is particularly eye-catching given some of the other mishaps in the support services sector during recent years, such as the collapse of Carillion last year and the near collapse of Interserve, which was taken over by its creditors in March this year.
Mr Soames has a simple explanation for why Serco avoided the pitfalls that did for those companies: “We were early adopters of financial carnage. Where I was lucky was that I got there, when things were going seriously badly wrong, and go to the shareholders and we raised a lot of equity, we did a lot of work – we raised over £700m worth of equity to give ourselves the financial strength to get through, work through, all these loss-making contracts.
“And I think to some extent we were advantaged by being early adopters of this process – and being first in, first out.”
Those shareholders now look like being rewarded for their patience.
Tucked away at the end of today’s trading statement, which also disclosed a record order intake of more than £5bn, was this line: “A further improvement in free cash flow is anticipated in 2020, and adjusted net debt is expected to reduce to approximately £200m…this excludes any assumption for the resumption of dividend payments to Serco’s shareholders, which the board will consider ahead of the reporting of the results for the 2019 financial year.”
This would truly be a landmark for the company which, as Mr Soames said his wife reminded him daily, has not paid a dividend for four years.
He added: “We recognise that normal companies pay dividends and you’ve got to have a very good reason for not paying a dividend – and I have to say we’ve had good reasons for not paying dividends for a long time.
“But there will come a time when it is prudent to do so and clearly we are in a parish called ‘possible dividend’ and we will be considering that at the end of February.”
The City is taking note. Shares of Serco have risen by 53% so far in 2019 and the resumption of dividends would enable more institutions to buy the shares.
Robin Speakman, support services analyst at stockbroker Shore Capital, told clients today: “With momentum building in Serco’s operational performance, investors will be thinking about the longer term possibilities for sustained growth and the full rehabilitation of the group into portfolios.”
Fuller evidence of a recovery will make Mr Soames in demand the next time another big company is in need of a turnaround.
Does that mean Mr Soames is starting to think about his next move?
Not according to the man himself: “I’m reminded of a US Marine Corps general at the Battle of the Bulge, when the Germans attacked, he was asked if he was going to retreat and he said ‘hell no, I’ve only just got here’.”