Company Announcements

Closed period trading update

Source: RNS
RNS Number : 7621J
Serco Group PLC
15 December 2022

Closed period trading update; 2022 slightly ahead of previous guidance, 2023 expected to be in-line with consensus.


15 December 2022


Serco today provides its scheduled closed period update of trading for the 2022 financial year, together with its initial outlook for 2023.



·    Revenue: expected to be around £4.5bn in 2022, slightly above 2021, despite a reduction of £480m of Covid-related revenues.  Revenue excluding Covid and currency expected to grow 10%.

·      Underlying Trading Profit: expected to be around £235m, up £5m on previous guidance.

·     Order intake: expected to be at least £4.0bn in 2022.  Our North American Defence business has had a particularly strong year for order intake.

·  Strong financial position: Adjusted Net Debt expected to be around £220m at year end, 0.8x net debt:EBITDA.

·    Employee support: significant pay increases and additional one-off payments made in 2022 to help with increased living costs, as well as further financial and non-financial support.

·    Initial guidance for 2023: Underlying Trading Profit expected to be similar to 2022 at around £235m, in line with analysts' consensus*.


Commenting on today's update, Rupert Soames, Serco Group Chief Executive, said:


"2022 will turn out much better than we expected at the start of the year as strong growth across the business largely replaced Covid contracts.  Revenue is expected to be 8% higher and Underlying Trading Profit around 20% better than we anticipated when we first gave guidance in December 2021.  To deliver this in the midst of such a challenging geo-political and economic backdrop underlines the strength of our business-to-government platform.  Customers across the world continue, as they did during the pandemic, to turn to Serco as a trusted and capable partner to help them deal with the challenges they face delivering public services.


I will be retiring from the Board and standing down as Group Chief Executive at the end of December, so this is the last trading update I will give as Chief Executive of a public company, in which capacity I have served for nearly twenty years.  Throughout that time, I have been privileged to lead teams of outstandingly capable people who are deeply committed to the work that they do and who take responsibility for making a difference.  They have my respect and gratitude, and that of their customers and shareholders on whose behalf they work so hard.


As announced on 12 September, Mark Irwin, currently CEO of Serco's UK & Europe business, will join the Board and become Serco Group Chief Executive on 1 January, and I am delighted that the Board has chosen such an outstanding executive and close colleague as my successor."


Expected outcome for 2022


Revenue.  Reported revenue for the year is expected to be around £4.5bn in 2022, slightly above 2021, despite the significant negative effect of our Covid-19 work coming to an end.  The loss of Covid-related services is anticipated to reduce revenue by 11% (£480m).  This is partially offset by organic growth of around 6% in the rest of the portfolio, largely as a result of volume growth on existing contracts, and acquisitions should contribute 3%.  Favourable currency movements will add 4%.


The second half is expected to see an organic revenue contraction of 6%, with a £260m, or 11%, drag from Covid and growth of 5% in the rest of the business.  Strong demand for immigration related services, one of the reasons for our upgrade to guidance earlier in the year, has continued in the UK, whilst moderating in Australia as Covid restrictions are relaxed.  Revenues in North America are expected to decline organically in the second half as a result of the seasonality of case management work and reduced volumes on the CANES Navy fleet IT modernisation programme.  Volumes on our VIVO joint venture, which delivers asset and facilities management services to the UK Defence Infrastructure Organisation increased significantly in the fourth quarter, following mobilisation at the beginning of the year.  However, as a JV, these increased volumes do not flow through to revenue, but are reflected, post tax, in Underlying Trading Profit.


Underlying Trading Profit (UTP).  We currently expect UTP of around £235m, or 3% above 2021.  Reduced Test & Trace work and the ending of our AWE contract in June 2021 together reduced profit by around £65m, or nearly 30% of prior year UTP.  Underlining the resilience of our business, these impacts have been offset by increased demand for immigration services, strength in our case management work in North America as well as the positive effect of new work secured in 2021 such as the DWP Restart Programme and the Defence Infrastructure Organisation (VIVO JV) contracts.  There are a number of commercial items still in the process of being settled before accounts for 2022 are finalised, the most material of which is a debtor in the Middle East; for the purposes of this guidance, we are assuming this matter in particular will be resolved in our favour in the coming weeks.  Inflation-protection mechanisms in our contracts performed as expected during the year.


The first half of the year saw UTP increase by 6% year-on-year, while the second half, as expected, is likely to see a 1% reduction.  In the second half we made £9m of one-off payments to our colleagues outside management grades, reflecting the pressure many people, particularly the lower paid, are under at this time due to high inflation.  The period had the largest negative impact from Test & Trace ending, with it being the first period since 2019 to have no such work.  Excluding Test & Trace, the UK has delivered strong growth.  The profit margin in the US business will be lower in the second half due to the seasonality of case management work, which tends to be heavily first-half weighted.


Net finance costs and tax: net finance costs are expected to be around £22m, slightly lower than 2021.  The underlying effective tax rate is expected to be around 24%, which is unchanged from guidance we gave in August.  This is lower than the initial guidance of 25% and our expectation for 2023, as the first half of 2022 benefited from a reduction in provisions following a review of tax positions.


Financial position: free cash flow is expected to remain strong at around £140m, with underlying trading profit cash conversion continuing to be above 80%.  We expect Adjusted Net Debt to end the year at around £220m, which updates prior guidance to include the acquisition in September of ORS; net debt to EBITDA at the year-end is expected to be 0.8x.  The £90m share buyback announced at the full year results in February has been completed, and the number of shares in issue at the end of the year will be 5% lower than at the start.  In the second half of the year, we successfully refinanced our revolving credit facility for a five-year term.


Guidance for 2022 and 2023





Prior guidance

New guidance

Initial guidance




At least £4.6bn

Organic sales growth




Underlying Trading Profit




Net Finance Costs




Underlying effective tax rate




Free Cash Flow




Adjusted Net Debt





NB: The guidance uses an average GBP:USD exchange rate of 1.24 in 2022, 1.20 in 2023 and GBP:AUD of 1.78 in 2022, 1.78 in 2023, which is based on currency rates as 30 November 2022.  We expect a weighted average number of shares for basic EPS of 1,195m in 2022, 1,162m in 2023 and for diluted EPS 1,220m in 2022, 1,188m in 2023.

* Company-compiled analyst consensus for UTP is £232m in 2022 and £236m in 2023.


Outlook for 2023


Our initial outlook for 2023 anticipates revenue will increase slightly and UTP will be similar to 2022.  We expect some known headwinds to be compensated for by increased contribution from newer contracts ramping up and improvement across the existing portfolio. We expect to enter 2023 with a strong pipeline of new business opportunities.


Revenue: the outturn for revenue will be affected by inflation-related adjustments on contracts, which, given macro-economic volatility, is hard to predict at this point.  However, we have planned on the basis that revenue in 2023 will be at least £4.6bn, which would be 2% higher than the £4.5bn expected outturn for 2022 on a reported basis and stable organically.  We expect the negative impact of Test & Trace and other contracts ending or reducing in size, to be offset by new business wins.


Underlying Trading Profit: UTP is expected to be around £235m, similar to 2022.  The year will benefit from the annualisation of new contracts from 2022, continued ramp up of the VIVO and Restart contracts, efficiency improvements across the existing portfolio and the exit from our loss-making Barts Health FM contract.  These should offset the drag from Test & Trace, known contract losses, the initial impact of our CMS rebid and at least £8m of mobilisation costs in the first year of our contract to run HMP Fosse Way, a new prison in the UK.  In our budgeting we assumed cost inflation of around 4%.  The inflation protection in our contracts means we would not expect a material impact on UTP if the actual rate differs from this.


Net finance costs and tax: Net finance costs are expected to be around £25m. This is slightly higher than 2022 due to higher lease-related interest, the currency impact on our dollar-denominated debt and higher interest rates on the portion of our debt that is floating.  The underlying effective tax rate is expected to be around 25%, although this is sensitive to the geographic mix of our profit and any changes to current corporate tax rates.


Financial position: Free cash flow is expected to be around £120m in the year. This is lower than 2022, reflecting the timing of new contract mobilisation costs, but is consistent with our ongoing expectation of converting at least 80% of profit into cash.  We expect Adjusted Net Debt to end the year at around £130m.





For further information please contact:

Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718 195 074 or email:

Marcus De Ville, Head of Media Relations; tel +44 (0) 7738 898 550 or email:


About Serco

Serco is a leading provider of public services. Our customers are governments or others operating in the public sector.  We gain scale, expertise and diversification by operating internationally across five sectors and four geographies: Defence, Justice & Immigration, Transport, Health and Citizen Services, delivered in UK & Europe, North America, Asia Pacific and the Middle East.


More information can be found at



Forward looking statements

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