REG - Serco Group PLC - Serco pre-close trading update

SercoAnnouncement

26/06/2025 07:00

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RNS Number : 4528O  Serco Group PLC  26 June 2025

Strong first-half performance; confidence in full-year guidance

26 June 2025

 

Serco, the international provider of critical government services, today
provides its scheduled trading update for the first six months of 2025.

 

Strong first half anticipated with significant contract wins:

 ·             Revenue: ~£2.4bn, an increase of 2% including organic growth of around 2%.
 ·             Underlying operating profit: at least £140m with a continued strong margin of
               around 5.9%.
 ·             Order intake: very strong with around £3bn of contract awards; high weighting
               of orders to defence sector and good progress on replenishing the pipeline.
 ·             MT&S acquisition completed: enhancing capability and scale in US and
               international defence markets.
 ·             Strong financial position: adjusted net debt expected to be ~£325m at end of
               June, with leverage c.1.2x net debt to EBITDA, and free cash flow weighted to
               the second half.

 

Confidence in full-year guidance:

 ·             Full-year organic revenue growth: now expected to improve to ~1% due to higher
               than anticipated activity levels in the immigration sector.  Overall revenue
               guidance increased from ~£4.8bn to ~£4.9bn.
 ·             Underlying operating profit: guidance of ~£260m is unchanged, with the
               first-half weighting reflecting previously disclosed impacts in the second
               half from higher UK national insurance contributions and the conclusion of the
               Australian immigration contract.
 ·             Financially well positioned: adjusted net debt of ~£245m expected for full
               year.  Cash conversion anticipated to be in line with our medium-term target
               of at least 80%.  As previously stated, the Board will review the capital
               position at the half year.

 

Commenting on today's update, Anthony Kirby, Serco Group Chief Executive,
said:

"Serco has delivered a strong first-half performance, with positive organic
revenue growth, and good margins, despite known headwinds in immigration
markets.

 

"We completed the acquisition of MT&S in May, having received US
Government approval, further strengthening our position and capabilities in
both the US and international defence markets at a time of increasing defence
budgets around the world.

 

"We have also delivered an outstanding period of contract awards, with strong
win rates, securing around £3 billion of contracts in the first half,
alongside strong client retention and replenishing our pipeline of
opportunities.

 

"I remain confident in our outlook and guidance for 2025.  In my first few
months as CEO, I have seen at first-hand the structural drivers of long-term
demand in our markets, most notably in defence, justice, migration and citizen
services.  With our strong financial position, I believe we are well
positioned to pursue opportunities to enhance future growth and deliver
continued value to our shareholders."

 

Strong first-half performance giving confidence in full-year guidance

Revenue: We expect revenue of approximately £2.4bn in the first half of 2025,
2% higher than 2024.  Organic growth is anticipated to be around 2%, with
acquisitions contributing 2% and currency expected to be a drag of 2%.  We
have seen good growth from new and expanded contracts in defence, justice and
citizen services sectors and a smaller than expected reduction in revenue in
relation to immigration activities.

 

Regionally, we expect North America to deliver the strongest organic growth in
the first half following the high level of contract awards in the defence
sector last year.  There will be good growth in the UK with contract
mobilisations from new business wins in our citizen services and justice
businesses.  As anticipated, revenue in both Asia Pacific and the Middle East
regions will be lower following the ramp down of ending contracts.

 

For the year as a whole, we are increasing organic revenue guidance from flat
to growth of around 1% following higher than expected activity levels in our
immigration business and strong organic growth in the UK with the mobilisation
of new and expanded defence contracts.  Our acquisition of MT&S in North
America is expected to deliver revenue this year of approximately £130m,
while the adverse translational impact of currency is estimated to be £90m,
as included in our previous guidance.

 

Underlying operating profit: Underlying operating profit of at least £140m is
expected in the first half of 2025, in line with last year.  This includes a
contribution from acquisitions of 2% and an estimated currency headwind of 2%.
 Strong organic growth in North America, and improved profitability in the
Asia Pacific region driven by efficiency and productivity gains, are expected
to offset lower profits in the UK which has seen higher costs associated with
mobilising our electronic monitoring contract and the initial impact from
increased UK national insurance contributions.  Overall, our margin will be
strong in the first half at around 5.9%.

 

For the full year, underlying operating profit guidance of around £260m is
unchanged, with a first-half weighting to profit reflecting the anticipated
second-half impacts from the end of the Australian immigration contract, a
full six-months of higher UK national insurance contributions, and the typical
seasonality within our North American case management business.  The
acquisition of MT&S will provide a seven-month financial contribution in
the year, estimated at around £7m which includes transaction and integration
costs of £8m.  Currency translation for the year is estimated to have a £7m
adverse impact.  The expected full year margin of 5.3% is within our
medium-term target range of 5-6%.

 

Financial position: Following the MT&S acquisition, we expect adjusted net
debt to be around £325m at the end of June and leverage of around 1.2x net
debt to EBITDA.  Adjusted net debt is expected to reduce by the end of the
year to around £245m.  Guidance for strong free cash flow generation of
approximately £130m remains unchanged, consistent with our medium-term target
of converting at least 80% of profit into cash.  In line with last year, free
cash flow is expected to be weighted to the second half.  As previously
stated, the Board will review the capital position at the half year.

 

 

 Guidance                       2024      2025
                                Actual    Prior guidance  New guidance
 Revenue                        £4,787m   ~£4.8bn         ~£4.9bn
 Organic sales growth           (3)%      ~0%             ~1%
 Underlying operating profit    £274m     ~£260m          ~£260m
 Net finance costs              £33m      ~£48m           ~£48m
 Underlying effective tax rate  25%       ~25%            ~25%
 Free cash flow                 £228m     ~£130m          ~£130m
 Adjusted net debt              £100m     ~£245m          ~£245m

 

NB: Guidance uses an average GBP:USD exchange rate of 1.31 in 2025, GBP:EUR of
1.18 and GBP:AUD of 2.07.  We expect a weighted average number of shares in
2025 of 1,015m for basic EPS and 1,035m for diluted EPS.

 

Ends.

 

For further information, please contact:

 

Jamie Hastings, Head of Investor Relations | +44 (0) 7718 195 074 |
jamie.hastings@serco.com

Scot Marchbank, Group Communications and Marketing Director | +44 (0) 7958 675
706 | scot.marchbank@serco.com

 

About Serco

Serco brings together the right people, the right technology and the right
partners to create innovative solutions that make a positive impact and
address some of the most urgent and complex challenges facing the modern
world.

 

With a primary focus on serving governments globally, Serco's services are
powered by more 50,000 people working across defence, space, migration,
justice, healthcare, mobility and customer services.

 

Serco's core capabilities include service design and advisory, resourcing,
complex programme management, systems integration, case management,
engineering, and asset & facilities management.

 

Underpinned by Serco's unique operating model, Serco drives innovation and
supports customers from service discovery through to delivery.

 

More information can be found at www.serco.com (http://www.serco.com)

 

Forward looking statements

This announcement contains statements which are, or may be deemed to be,
"forward looking statements" which are prospective in nature.  All statements
other than statements of historical fact are forward looking statements.
Generally, words such as "expect", "anticipate", "may", "could", "should",
"will", "aspire", "aim", "plan", "target", "goal", "ambition", "intend" or, in
each case, their negative or other variations or comparable terminology
identify forward looking statements.  By their nature, these forward looking
statements are subject to a number of known and unknown risks, uncertainties
and contingencies, and actual results and events could differ materially from
those currently being anticipated as reflected in such statements.  Factors
which may cause future outcomes to differ from those foreseen or implied in
forward looking statements include, but are not limited to: general economic
conditions and business conditions in Serco's markets; contracts awarded to
Serco; customers' acceptance of Serco's products and services; operational
problems; the actions of competitors, trading partners, creditors, rating
agencies and others; the success or otherwise of partnering; changes in laws
and governmental regulations; regulatory or legal actions, including the types
of enforcement action pursued and the nature of remedies sought or imposed;
the receipt of relevant third party and/or regulatory approvals; exchange rate
fluctuations; the development and use of new technology; changes in public
expectations and other changes to business conditions; wars and acts of
terrorism; cyber-attacks; and pandemics, epidemics or natural disasters.
Many of these factors are beyond Serco's control or influence.  These forward
looking statements speak only as of the date of this announcement and have not
been audited or otherwise independently verified.  Past performance should
not be taken as an indication or guarantee of future results and no
representation or warranty, express or implied, is made regarding future
performance.  Except as required by any applicable law or regulation
(including under the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority), Serco expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward looking statements contained in this announcement to
reflect any change in Serco's expectations or any change in events, conditions
or circumstances on which any such statement is based after the date of this
announcement, or to keep current any other information contained in this
announcement.  Accordingly, undue reliance should not be placed on the
forward looking statements.

 

LEI: 549300PT2CIHYN5GWJ21

 

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