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Serco lifts outlook, considers dividend after boost from naval systems deal

FILE PHOTO: Rupert Soames, CEO of Serco Group Plc poses for a photograph at their offices in London

By Tanishaa Nadkar

(Reuters) - British public services outsourcer Serco <SRP.L> on Thursday raised its 2019 outlook, forecast a stronger 2020 and said it would consider paying dividends again, as it reaped the benefits of the acquisition of a U.S. naval systems business unit.

Serco, which provides services across defence, security, health and transport, has focussed on winning public business abroad and cutting costs to weather a slowdown in UK outsourcing amid Brexit uncertainty and after the collapse of contractor Carillion last year.

Hampshire-based Serco said the naval systems unit, which it bought from U.S. engineering firm Alion earlier this year to expand in the fast-growing U.S. Navy supplies segment, was performing well. It had earlier said the deal would boost earnings from 2020.

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"We see the advantage of having a broad international footprint, with excellent growth in both our North America and Asia Pacific divisions, and the ability to successfully execute acquisitions such as (the navel unit) in the U.S.," Chief Executive Officer Rupert Soames, the grandson of wartime Prime Minister Winston Churchill, said.

Serco, whose UK business returned to organic growth in the second half of this year for the first time since 2013, expects 2020 revenue to be in a range of 3.4 billion pounds to 3.5 billion pounds, with underlying trading profit of around 145 million pounds.

For its 2019 financial year, which runs to the end of December, it sees underlying trading profit of 120 million pounds ($153.96 million), up from a previous forecast of 105 million pounds, and revenue of 3.2 billion pounds, up from a previous estimate of the top end of a 2.9 billion to 3 billion pound range.

It also reported an order intake of more than 5 billion pounds and said it could reinstate dividend payments which were suspended in 2014.

"The UK and Europe are performing better, but would come under pressure from a Corbyn government that favours insourcing," Liberum analyst Joe Brent said.

Outsourcing companies such as Serco could find it harder to secure UK contracts under a Labour government led by Jeremy Corbyn than under a Conservative administration seeking to further privatise the economy.

(Reporting by Noor Zainab Hussain and Tanishaa Nadkar in Bengaluru; Editing by Arun Koyyur, Kirsten Donovan)