Serco says enterprise pipeline at its greatest for greater than a decade

Outsourcing giant Serco expects its pipeline of new business opportunities to close 2024 at its strongest level for more than a decade.

The Hampshire-based firm said it had enjoyed a ‘much improved’ order intake during the second half of this year, supported by new contracts from the defence industry in North America.

Consequently, the group anticipates its organic revenue will fall by just 1 per cent over the period, compared to 5 per cent in the prior six months, despite forecasting lower revenues from its UK immigration contract.

Serco’s sales have been aided by acquisitions, particularly the German immigration services provider European Homecare, and contracts from the defence, justice and citizen services sectors.

Among the deals recently won by the company was a £175million extension by the Department for Work and Pensions to provide the Restart Scheme in Wales and West Central England.

It also gained a $320million contract from the US Army Corps of Engineers for work on an electrical plant at the US Space Force’s Pituffik Space Base in Greenland.

Getting better: Serco said it had enjoyed a ‘much improved’ order intake during the second half of this year, supported by new contracts from the defence industry in North America

Mark Irwin, its chief executive, said: ‘We built stronger trading momentum in the second half of the year, particularly in our North America business, and delivered good margin gains.

He added: ‘Our strong cash generation and balance sheet have enabled us to complete our largest ever share buyback during the year.’

The firm still predicts its overall turnover will total about £4.8billion in 2024, marginally down on the £4.9billion recorded the prior year.

However, it forecasts underlying operating profits increasing by approximately 9 per cent to £270million due to recent takeovers and ‘efforts to improve the productivity and efficiency’ of the business.

Serco has also raised its annual free cash flow guidance by £20million to £170million and said adjusted net debts would be around the same amount better than previously expected at £145million.

While the latter figure is an increase on 2023 levels, Serco anticipates it will more than halve to £60million by the end of next year.

It said a continued strong performance in North America and new contracts would help offset rising labour costs in the UK and weaker revenues from immigration.

In November, Serco warned that the incoming hike in employers’ National Insurance rates would grow its direct staff costs by an estimated £20million. 

Russ Mould, investment director at AJ Bell, said: ‘It’s been a difficult decade for Serco, which started with scandals, losses and a strained balance sheet and has seen an uneven recovery since.

‘Order intake was much improved in the second half of the year; cash generation looks robust; and the balance sheet is in reasonable shape.

‘This creates the conditions for the company to invest for 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 FTSE 250 Index’s top performer.