Strong first-half performance; confidence in full-year guidance

26 June 2025

Serco, the international provider of critical government services, today provides its scheduled trading update for the first six months of 2025.

Strong first half anticipated with significant contract wins:

Confidence in full-year guidance:

Commenting on today's update, Anthony Kirby, Serco Group Chief Executive, said:

"Serco has delivered a strong first-half performance, with positive organic revenue growth, and good margins, despite known headwinds in immigration markets.

"We completed the acquisition of MT&S in May, having received US Government approval, further strengthening our position and capabilities in both the US and international defence markets at a time of increasing defence budgets around the world.

"We have also delivered an outstanding period of contract awards, with strong win rates, securing around £3 billion of contracts in the first half, alongside strong client retention and replenishing our pipeline of opportunities.

"I remain confident in our outlook and guidance for 2025.  In my first few months as CEO, I have seen at first-hand the structural drivers of long-term demand in our markets, most notably in defence, justice, migration and citizen services.  With our strong financial position, I believe we are well positioned to pursue opportunities to enhance future growth and deliver continued value to our shareholders."

Strong first-half performance giving confidence in full-year guidance

Revenue: We expect revenue of approximately £2.4bn in the first half of 2025, 2% higher than 2024.  Organic growth is anticipated to be around 2%, with acquisitions contributing 2% and currency expected to be a drag of 2%.  We have seen good growth from new and expanded contracts in defence, justice and citizen services sectors and a smaller than expected reduction in revenue in relation to immigration activities.

Regionally, we expect North America to deliver the strongest organic growth in the first half following the high level of contract awards in the defence sector last year.  There will be good growth in the UK with contract mobilisations from new business wins in our citizen services and justice businesses.  As anticipated, revenue in both Asia Pacific and the Middle East regions will be lower following the ramp down of ending contracts.

For the year as a whole, we are increasing organic revenue guidance from flat to growth of around 1% following higher than expected activity levels in our immigration business and strong organic growth in the UK with the mobilisation of new and expanded defence contracts.  Our acquisition of MT&S in North America is expected to deliver revenue this year of approximately £130m, while the adverse translational impact of currency is estimated to be £90m, as included in our previous guidance.

Underlying operating profit: Underlying operating profit of at least £140m is expected in the first half of 2025, in line with last year.  This includes a contribution from acquisitions of 2% and an estimated currency headwind of 2%.  Strong organic growth in North America, and improved profitability in the Asia Pacific region driven by efficiency and productivity gains, are expected to offset lower profits in the UK which has seen higher costs associated with mobilising our electronic monitoring contract and the initial impact from increased UK national insurance contributions.  Overall, our margin will be strong in the first half at around 5.9%.

For the full year, underlying operating profit guidance of around £260m is unchanged, with a first-half weighting to profit reflecting the anticipated second-half impacts from the end of the Australian immigration contract, a full six-months of higher UK national insurance contributions, and the typical seasonality within our North American case management business.  The acquisition of MT&S will provide a seven-month financial contribution in the year, estimated at around £7m which includes transaction and integration costs of £8m.  Currency translation for the year is estimated to have a £7m adverse impact.  The expected full year margin of 5.3% is within our medium-term target range of 5-6%.

Financial position: Following the MT&S acquisition, we expect adjusted net debt to be around £325m at the end of June and leverage of around 1.2x net debt to EBITDA.  Adjusted net debt is expected to reduce by the end of the year to around £245m.  Guidance for strong free cash flow generation of approximately £130m remains unchanged, consistent with our medium-term target of converting at least 80% of profit into cash.  In line with last year, free cash flow is expected to be weighted to the second half.  As previously stated, the Board will review the capital position at the half year.

NB: Guidance uses an average GBP:USD exchange rate of 1.31 in 2025, GBP:EUR of 1.18 and GBP:AUD of 2.07.  We expect a weighted average number of shares in 2025 of 1,015m for basic EPS and 1,035m for diluted EPS.

Ends.

For further information, please contact:

Jamie Hastings, Head of Investor Relations | +44 (0) 7718 195 074 | jamie.hastings@serco.com

Scot Marchbank, Group Communications and Marketing Director | +44 (0) 7958 675 706 | 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

Forward looking statements

This announcement contains statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature.  All statements other than statements of historical fact are forward looking statements.  Generally, words such as "expect", "anticipate", "may", "could", "should", "will", "aspire", "aim", "plan", "target", "goal", "ambition", "intend" or, in each case, their negative or other variations or comparable terminology identify forward looking statements.  By their nature, these forward looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements.  Factors which may cause future outcomes to differ from those foreseen or implied in forward looking statements include, but are not limited to: general economic conditions and business conditions in Serco's markets; contracts awarded to Serco; customers' acceptance of Serco's products and services; operational problems; the actions of competitors, trading partners, creditors, rating agencies and others; the success or otherwise of partnering; changes in laws and governmental regulations; regulatory or legal actions, including the types of enforcement action pursued and the nature of remedies sought or imposed; the receipt of relevant third party and/or regulatory approvals; exchange rate fluctuations; the development and use of new technology; changes in public expectations and other changes to business conditions; wars and acts of terrorism; cyber-attacks; and pandemics, epidemics or natural disasters.  Many of these factors are beyond Serco's control or influence.  These forward looking statements speak only as of the date of this announcement and have not been audited or otherwise independently verified.  Past performance should not be taken as an indication or guarantee of future results and no representation or warranty, express or implied, is made regarding future performance.  Except as required by any applicable law or regulation (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Serco expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such statement is based after the date of this announcement, or to keep current any other information contained in this announcement.  Accordingly, undue reliance should not be placed on the forward looking statements.

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