Serco points to higher profits in 2024 after strong second half

(Sharecast News) - Public services provider Serco has announced that 2023 revenues and profits will be in line with guidance as it pointed to further bottom-line growth in the coming financial year. In a trading update ahead of the end of year, the company said revenues should be "at least £4.8bn" iin 2023, with reported growth of around 7% and organic revenue growth of 4% - in line with upgraded guidance given alongside the half-year results in August.

"Revenue has increased organically as growth in the immigration and defence sectors, areas we have invested in significantly in recent years, more than offset Covid-related work," the company said.

Underlying operating profit should be around £245m, representing a 3% increase on last year, as operational improvements and the ramp-up of new business signed in previous years offsets negative impacts of Covid-related work and lower volumes in Asia Pacific.

The company's financial position, however, is tipped to be better than guidance, with free cash flow £20m ahead of estimates at £170m, compared with £159m in 2022, and adjusted net debt £10m lower at £160m, down from £204m previously. This leaves financial leverage - in net debt-to-EBITDA terms - at just 0.7 times, down from 0.9 times at the half-year stage.

In a separate statement, Serco also announced that it is acquiring a public-facing immigration services provider in Germany, European Homecare, for £34m. The deal is hoped to "increase the reach and capability of Serco's international immigration services platform which has substantial operations in the UK, Australia and Europe", it said.

Commenting on the trading update, chief executive Mark Irwin said: "Our strong focus on execution has delivered good performance in the second half, resulting in full year outcomes that are better than those expected when we initially laid out guidance.

"We expect to enter 2024 with a strong pipeline of new business opportunities and a robust balance sheet."