Full year guidance increased following good progress in first
half
27 June
2024
Serco today provides its scheduled closed
period update of trading for the first six months of 2024, together
with updated guidance for 2024 as a whole.
Highlights of
expected first half performance
·
|
Revenue: Around
£2.4bn, in line with expectations.
|
·
|
Underlying operating
profit: Ahead of plan at approximately £140m, with progress
in improving productivity and the underlying performance of our
portfolio delivering a margin of around 5.8%.
|
·
|
Share
buyback: ~£60m of £140m share buyback programme
expected to be completed by the end of June.
|
·
|
Strong
financial position: Adjusted net debt expected
to be around £135m, leverage approximately 0.6x net debt to
EBITDA.
|
·
|
Upgraded guidance
for 2024: Underlying operating profit guidance increased by
£10m, or 4%, to £270m, and we now expect free cash flow will
be better and financial leverage lower than prior
guidance.
|
Commenting on today's update, Mark Irwin, Serco
Group Chief Executive, said:
"We have delivered a good performance in the
first half, with progress in improving productivity and the
underlying performance of our portfolio allowing us to increase our
profit guidance for the full year by £10m, or 4%. We now
expect underlying operating profit of approximately £270m, 9%
higher than 2023, with margins increasing by around 50 basis
points.
We continue to explore new ways to bring
together the right people, the right technology and the right
partners to help governments around the world respond to the
complex and difficult challenges they face. As we enter the
second six months of the year, while mindful of a potential impact
internationally from elections in 2024, we remain optimistic about
the quality of our pipeline of potential new work to support our
medium-term growth targets."
Expected
outcome for the first half of 2024 and guidance for the full
year
Revenue: Group
revenue is in line with expectations at around £2.4bn, which is 4%
lower than the £2.5bn reported in the first half of 2023. We
see continued growth in our international immigration services
platform, supported by the acquisition of European Homecare in
early March, despite some reduced volume variable work in
Australia. Along with growth in defence and justice, this has
partially offset declines in other areas, in particular lower
revenue from the new Centers for Medicare & Medicaid Services
(CMS) contract and our previously announced exit from some low
margin contracts in the UK. On an organic basis, revenue is
expected to be 4%-5% lower, while acquisitions should contribute 2%
and currency is a 2% drag.
The first half performance and our visibility
of the second half means we are on track to meet our revenue
guidance for the full year. We continue to expect revenue of
around £4.8bn, slightly below the £4.9bn outturn for 2023, with a
3% organic contraction, a 2% contribution from acquisitions and a
1% adverse impact from currency. The organic revenue
contraction will ease in the second half as CMS and contract exit
impacts reduce.
Underlying
operating profit: We expect first half
underlying operating profit to be better than plan at approximately
£140m, which compares with £148m delivered in the same period last
year. Currency is expected to have an adverse impact of 2%,
leaving a constant currency decline of 3%. The lower profit
is due to the new CMS contract, immigration volumes in Australia,
mobilisation costs on new work, and the prior year benefiting from
a £6m one off settlement. Our focus on productivity and
improving the underlying performance of our portfolio, which we
discussed in our 2023 full year results, has seen good progress at
this early stage, and this has contributed to the margin being
ahead of our expectations.
The first half performance supports increasing
our profit guidance for the full year by £10m, or 4%. Second
half profit is therefore expected to be nearly 30% higher than the
same period in 2023. The year overall will benefit from new
contracts ramping up, operational efficiency improvements across
the existing portfolio and a contribution from acquisitions.
We now expect underlying operating profit of approximately £270m,
9% higher than 2023, with margins increasing by around 50 basis
points.
Financial
position: We expect adjusted net debt to
be around £135m at the end of June and leverage approximately 0.6x
net debt to EBITDA. Approximately £60m of our £140m share
buyback will have been completed in the first half.
For the full year, we now expect free cash flow
will be better and financial leverage lower than prior
guidance. Free cash flow is expected to be £150m. This
is below 2023, as the prior year included the benefit of actions
taken to structurally improve our working capital. Trading
cash conversion is expected to be consistent with our medium-term
target of converting at least 80% of profit into cash.
Adjusted net debt is expected to end the year at around £165m, £10m
better than previous guidance, meaning we now expect net debt to
EBITDA to be approximately 0.6x.
Guidance
|
2023
|
2024
|
|
Actual
|
Prior guidance
|
New guidance
|
Revenue
|
£4.9bn
|
~£4.8bn
|
~£4.8bn
|
Organic sales
growth
|
4%
|
~(3)%
|
~(3)%
|
Underlying
operating profit
|
£249m
|
~£260m
|
~£270m
|
Net finance
costs
|
£25m
|
~£35m
|
~£35m
|
Underlying
effective tax rate
|
23%
|
~25%
|
~25%
|
Free cash
flow
|
£209m
|
~£140m
|
~£150m
|
Adjusted net
debt
|
£109m
|
~£175m
|
~£165m
|
NB: The guidance uses an average
GBP:USD exchange rate of 1.27 in 2024, GBP:EUR of 1.17 and GBP:AUD
of 1.92. We expect a weighted average number of shares in
2024 of 1,065m for basic EPS and 1,085m for diluted EPS.
Ends.
For further
information, please contact:
Paul Checketts, Head of Investor Relations |
+44 (0) 7718 195 074 |
paul.checketts@serco.com
Scot Marchbank, Group Communications and
Marketing Director; tel +44 (0) 7958 675 706 or email:
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
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LEI: 549300PT2CIHYN5GWJ21