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

SercoAnnouncement

Today 07:00

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20251217:nRSQ8409La&default-theme=true

RNS Number : 8409L  Serco Group PLC  17 December 2025

Strong 2025 performance; positive momentum into 2026

17 December 2025

 

Serco Group plc, the international provider of critical government services,
today provides its scheduled trading update for 2025 and initial guidance for
2026.

 

Strong 2025 performance anticipated, increasing profit and cash guidance

 ·             Revenue: c.£4.9bn, up 3% at constant currency including 1% organic growth
 ·             Underlying operating profit: expected to be around £270m; with margin of 5.5%
 ·             Financial position: free cash flow guidance increased to £170m, leverage of
               c.0.9x net debt to EBITDA
 ·             Order intake: strong with c.£5.5bn of contract awards, and book-to-bill of at
               least 110%. Around two thirds of awards in defence, weighted to UK and North
               America
 ·             Pipeline: expanded again to new decade high, driven by continued demand for
               high-quality, critical, front-line services in complex operating environments
 ·             Portfolio development: completed successful integration of MT&S, disposal
               of Hong Kong business, Mubadala joint venture mobilised in the Middle East
 ·             Operational excellence: around 20% reduction in colleague safety incidents;
               significantly fewer lost days; improving attrition; strong colleague
               engagement maintained; high levels of customer retention
 ·             Building strong leadership team: new North American and UK & Europe CEOs
               adding depth of international experience and growth focus
 ·             Shareholder returns: latest £50m share buyback completed, £390m returned to
               shareholders via buybacks since 2021. The Board will review the capital
               position at the full year in line with our capital allocation priorities

 

2026 guidance underpinned by good momentum

 ·             Revenue: c.£5.0bn expected, including improved organic growth of c.3%,
               weighted to defence
 ·             Underlying operating profit: initial guidance of c.£300m, with expected
               margin of c.6.0% at the top end of medium-term range, driven by contract
               ramp-ups, MT&S integration and productivity improvements
 ·             Financially well positioned: adjusted net debt of ~£150m expected for 2026.
               Trading cash conversion anticipated to be in line with our medium-term target
               of at least 80%

 

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

"The Group has demonstrated significant strategic and operational progress
throughout the year, as we continue our focus on operational excellence,
competitiveness and sustainable growth. I am pleased with the strong
performance across financial and non-financial metrics, reflecting the hard
work and dedication of all my colleagues around the world.

 

"The global government services market is substantial, with high barriers to
entry and strong growth prospects, particularly in the defence sector. Our
significant order intake, of which around two thirds is in defence, and record
pipeline further demonstrate the structural drivers of demand for our
services, as governments face ever more complex challenges, and look to
partners such as Serco to support them.

 

"We are confident that our robust financial position, innovative solutions and
strengthened leadership team, coupled with continued operational discipline,
and growing capabilities across the group, culminate in a positive outlook for
2026."

 

 Guidance                       2024      2025                          2026
                                Actual    Prior guidance  New guidance  Initial guidance
 Revenue                        £4,787m   ~£4.9bn         ~£4.9bn       ~£5.0bn
 Organic sales growth           (3)%      ~1%             ~1%           ~3%
 Underlying operating profit    £274m     ~£260m          ~£270m        ~£300m
 Net finance costs              £33m      ~£48m           ~£46m         ~£50m
 Underlying effective tax rate  25%       ~23%            ~23%          ~25%
 Free cash flow                 £228m     ~£130m          ~£170m        ~£160m
 Adjusted net debt              £100m     ~£285m          ~£265m        ~£150m

NB: Guidance uses an average GBP:USD exchange rate of 1.31, GBP:EUR of 1.17
and GBP:AUD of 2.05 in 2025 and for 2026 an average GBP:USD exchange rate of
1.33, GBP:EUR of 1.14 and GBP:AUD of 2.00, based on currency rates as 9
December 2025.  We expect a weighted average number of shares for basic EPS
of 1,011m in 2025, 995m in 2026 and for diluted EPS 1,033m in 2025, 1,018m in
2026.

Company-compiled consensus for underlying operating profit is £263m for 2025
with a range of £260m-£267m and £285m for 2026 with a range of
£279m-£301m.

 

Expected outcome for 2025

 

Revenue: We expect revenues of c.£4.9bn in 2025, (2024: £4.8bn), a 2%
increase on the prior year, or 3% on a constant currency basis including
organic growth of 1%. This reflects growth from new and expanded contracts in
defence, justice and citizen services more than offsetting a reduction in
revenue from immigration activities.  The part-year impact of the acquisition
of MT&S will contribute c.2%. We welcome the end of the US Government
shutdown which did not materially affect trading in our US business but did
delay some new business awards and contract protest resolutions. Further
progress has been made in our pipeline of new business opportunities
reinforcing our position to capitalise on structural drivers of demand across
defence, justice, immigration and citizen services markets.

 

Underlying operating profit: Underlying operating profit is expected to be
around £270m, (2024: £274m), ahead of previous guidance of c.£260m and
including an estimated currency translation headwind of c.£6m. This follows a
good second half performance including productivity improvements and contract
organic growth. For the year overall, contract mobilisations and ramp ups,
combined with our ongoing focus on efficiency and contract performance
improvements have significantly reduced the impact of previously disclosed
profit headwinds. These included higher UK national insurance contributions,
the end of our immigration contract in Australia and lower activity levels
within our UK & Europe immigration business. The acquisition of MT&S
is expected to contribute c.£8m in the seven-months of ownership after c.£7m
transaction and integration costs. This is expected to result in a c.5.5%
margin for the full year, which is slightly ahead of previous guidance.

 

Financial position: Free cash flow continues to be strong and is expected to
be around £170m for the year, with cash conversion approximately 90%.
Adjusted net debt is anticipated to be c.£265m (31 December 2024: £100m),
after the £246m acquisition of MT&S and buyback of £50m. This means net
debt to EBITDA leverage is forecast to be c.0.9x, below our medium-term target
of 1-2x. The £50m share buyback launched in August 2025, was completed in
December, contributing to shareholder returns via buybacks since 2021 of
c.£390m. The Board will review the Group's capital position at the full year
in line our capital allocation priorities.

 

Portfolio development: As part of our disciplined portfolio development, we
sold our Hong Kong operations in September 2025. The business accounted for
around 1% of Group revenue and mainly provided tunnel support services in the
transport sector with limited alignment to our international portfolio. Our
Mubadala partnership in the Middle East is strengthening our market access in
the region, while the acquisition of MT&S, which has been successfully
integrated, expands our defence capabilities, both in North America and
internationally.

 

Strategic and operational progress: Order intake is expected to be around
£5.5bn with a book-to-bill of at least 110% and major contract wins in the
year strengthening our position, particularly in the defence market. In the
second half of the year, major awards included the successful retention of HMP
Dovegate in the UK, a contract to support Canada's Future Aircrew Training
Programme, and in Australia a new award to operate justice transport services
in the state of Victoria.  Our focus on operational excellence supported a
significant reduction in colleague safety incidents, fewer lost working days
and improving levels of attrition. In addition, we have made progress with
efficiency initiatives and contract performance improvements including within
our AsPac division.

 

During the year, we strengthened our leadership team including the
appointments of Michael LaRouche, as CEO of North America, and Fiona Walters,
who will become CEO, UK & Europe in the first quarter of 2026. They both
bring considerable international experience and significant track records of
sustainable growth and performance.

 

Outlook for 2026

 

Revenue: We anticipate revenues of around £5.0bn, with organic revenue growth
expected to rise to c.3%, which excludes the full year impact of the MT&S
acquisition, the disposal of our Hong Kong operations and transfer of certain
contracts to our Mubadala joint venture in the Middle East. Growth is forecast
to be strongest in North America and UK & Europe, driven primarily by new
and mobilising contracts in defence, justice and citizen services, more than
offsetting the anticipated reduction in immigration revenues in UK &
Europe and Australia.

 

Underlying operating profit: Underlying operating profit is anticipated to be
around £300m. The increase includes the full-year contribution from the
acquisition of MT&S, contract ramp-ups and our initiatives to improve
productivity and efficiencies across the portfolio, partially offset by
anticipated lower immigration activities. This supports margin guidance of
c.6.0%, which is at the top of our medium-term target range of 5-6%.

 

Net finance costs and tax: Net finance costs are expected to be around £50m,
slightly higher than 2025 due to the full year effect of funding the
acquisition of MT&S. The underlying effective tax rate is expected to be
around 25%.

 

Financial position: Continued strong free cash flow is expected at around
£160m in the year, in line with our medium-term target of converting more
than 80% of profit into cash. We expect adjusted net debt to end the year at
approximately £150m.

 

Ends.

 

For further information, please contact:

 

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

Sophie McMillan, Director of Media Relations | +44 (0) 7356 157 071 |
sophie.mcmillan@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

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTBQLLFELLLFBX



            Copyright 2019 Regulatory News Service, all rights reserved