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Serco, the provider of services and support to governments internationally, has published its trading update for 2024 and guidance for 2025. The company states that a strong second half performance and improved cash flow provides a “resilient outlook” for 2025.
Revenue in 2024 is inline with guidance and expected to be around £4.8bn, a 2% decline on the £4.9bn reported in 2023 and an organic decline of 3%. After the first half experienced an organic revenue decline of 5%, Serco states the second half is expected to improve to a decline of c.1%. The improving trend in the second half is despite a c.5% impact from the expected lower revenue on Serco’s UK immigration contract, with strong organic growth in North America after securing new contracts in the defence sector.
Underlying operating profit is expected to grow by c.9% to £270m, which is an increase of more than 25% in the second half compared to the same period of 2023.
Order intake improved in the second half resulting in an expected book-to-bill for the full year of approximately 100%. Pipeline of new business opportunities set to end the year is reported at its highest level in more than a decade.
Resilient outlook for 2025
Revenue is expected to be in line with 2024 at around £4.8bn, despite c.7% revenue reduction from immigration contracts in UK and Australia. Good organic growth is anticipated in US defence.
Underlying operating profit is expected to be around £260m. Serco says contract ramp-ups and further portfolio improvements are anticipated to largely offset previously disclosed headwinds from its Australian immigration contract ending, lower activity levels within its UK immigration business and higher UK national insurance contributions.
Serco reports that the fiscal and geopolitical challenges facing governments are creating opportunities to support its customers, as can be seen in the company’s increased pipeline of potential new work. Serco adds that its strength in key areas of government need, positions the business well for 2025 and beyond.
Mark Irwin, Serco Group Chief Executive, said of the update: “We are proud of the progress throughout 2024, reporting a strong financial performance and delivering important services to our customers in a dynamic global environment. We built stronger trading momentum in the second half of the year, particularly in our North America business, and delivered good margin gains through our relentless focus on performance improvement and disciplined execution. Our strong cash generation and balance sheet have enabled us to complete our largest ever share buyback during the year. We have also seen significant improvement in safety outcomes and an increase in colleague engagement this year.
“The outlook for 2025 is positive, with continued momentum in North America and new contracts mobilising, mitigating previously announced higher UK employment costs and lower revenues in immigration. Our European business has seen significant growth over the past two years, and we are optimistic about further growth opportunities across the EU.
“Overall, we are confident in the Group’s outlook, built on the innovation, expertise and efficiency we bring to our partnership with governments. Our financial position is strong, which leaves us well positioned to actively apply our capital allocation priorities of investing to support organic growth, increase ordinary dividends, pursuing value-enhancing acquisition opportunities and to return surplus cash to shareholders.”
