Serco flags underlying profit growth, confidence in 2025
By Josh White
Date: Thursday 19 Dec 2024
(Sharecast News) - Outsourcing giant Serco forecast full-year revenue of £4.8bn in an update on Thursday, in line with its prior guidance but reflecting an organic revenue decline of 3%.
The FTSE 250 company said the decline softened over the year, with North America leading an improvement in the second half.
Underlying operating profit was expected to rise 9% year-on-year to £270m, with second-half profit up over 25% compared to 2023.
Margins were set to increase by 50 basis points to 5.6%, supported by a continued focus on efficiency and productivity.
Serco reported significant progress in its order intake during the second half, achieving a full-year book-to-bill ratio of roughly 100% and ending the year with its largest new business pipeline in over a decade.
Free cash flow guidance was raised to £170m, supported by improved cash conversion of around 90%.
Adjusted net debt was expected to come in at £145m, £20 million better than previous estimates, with leverage projected at 0.6x net debt-to-EBITDA, below the company's target range of 1-2x.
The company completed a £140m share buyback programme in 2024, bringing the total returns to shareholders through buybacks to £340m since 2021.
Looking ahead to 2025, Serco said it anticipated revenue to remain steady at £4.8bn, despite a 7% reduction from immigration contracts in the UK and Australia.
Growth was expected to be driven by US defence operations.
Underlying operating profit was forecast at £260m, with margins within the medium-term target of 5% to 6%.
Contract ramp-ups and portfolio adjustments were expected to counteract headwinds from reduced activity in UK immigration and higher national insurance costs.
"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," said group chief executive officer Mark Irwin.
"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."
Irwin said the company also saw significant improvements 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, Mark Irwin said Serco was confident in its outlook.
"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."
At 0819 GMT, shares in Serco Group were up 6.06% at 147.1p.
Reporting by Josh White for Sharecast.com.
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