According to Serco, the business pipeline has been at its best for more than a decade
- Serco said it had seen “much improved” order intake in the second half of the year
- Sales are supported by defense, justice and civilian services contracts
Outsourcing giant Serco expects its pipeline of new business opportunities to end in 2024 at the strongest level in more than a decade.
The Hampshire-based company said it had had ‘much better’ order inflow in the second half of this year, supported by new contracts from the defense industry in North America.
As a result, the group expects its organic sales to decline by just 1 percent for the period, compared with 5 percent in the previous six months, despite forecasting lower revenue from its UK immigration contract.
Serco’s sales were supported by acquisitions, particularly of German immigration services provider European Homecare, and contracts from the defence, justice and citizen services sectors.
Among the deals the company recently secured was a £175m extension by the Department for Work and Pensions to deliver the Restart Scheme in Wales and West Central England.
It also received a $320 million contract from the US Army Corps of Engineers for work on an electrical installation at the US Space Force’s Pituffik Space Base in Greenland.
Getting better: Serco said it had had ‘much improved’ order inflow in the second half of this year, supported by new contracts from the defense industry in North America
Mark Irwin, CEO, said: ‘We have built stronger trading momentum in the second half of the year, particularly in our North America operations, and have achieved good margin gains.
He added: ‘Our strong cash generation and balance sheet enabled us to complete our largest ever share buyback during the year.’
The company still forecasts that total sales will be around £4.8 billion in 2024, slightly down from the previous year’s £4.9 billion.
However, it forecasts underlying operating profit to rise by around 9 per cent to £270 million due to recent acquisitions and ‘efforts to improve the company’s productivity and efficiency’.
Serco also raised its annual free cash flow guidance by £20m to £170m and said adjusted net debt would be around the same amount better than previously expected, at £145m.
Although the latter figure is an increase on 2023 levels, Serco expects it to more than halve to £60 million by the end of next year.
It said continued strong performance in North America and new contracts would help offset rising labor costs in Britain and weaker immigration revenues.
In November, Serco warned that the upcoming increase in employer contributions would increase direct staff costs by an estimated £20 million.
Russ Mould, investment director at AJ Bell, said: ‘It has been a difficult decade for Serco, which started with scandals, losses and a stretched balance sheet and has since seen an uneven recovery.
‘The order intake has improved significantly in the second half of the year; cash generation looks robust; and the balance sheet is in fair condition.
“This creates the conditions for the company to invest in future growth and return capital to shareholders.”
Serco Group shares were 6.3 per cent higher at 147.5p on Thursday morning, making them the best performing index of the FTSE 250 Index.
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