Serco reports 10% jump in operating profit despite £115m charge
Serco, the global provider of public services, has reported a revenue of £4.8bn for 2024, in line with previous guidance, due to significant organic growth, particularly in its North American Defence business.
The company’s underlying operating profit grew by 10 per cent to £274m, with a substantial 30 per cent increase in the second half compared to 2023, as reported by City AM.
Operating profit margins improved by 60 basis points to 5.7 per cent, reflecting efficiency gains across all regions.
However, reported operating profit fell to £130m due to an exceptional £115m non-cash goodwill impairment charge in Asia Pacific.
The group’s order intake increased by seven per cent to £4.9bn, bringing the order book to £13.3bn, including a key contract for the UK Armed Forces Recruitment Service.
Entering 2025, Serco boasts a record pipeline of potential new work worth £11.2bn, up 11 per cent from the previous year.
Free cash flow was reported at £228m, significantly ahead of the £170m guidance.
Net leverage was around 0.3 times earnings before interest, tax, depreciation and amortisation (EBITDA), or 1.2 times when including the planned acquisition of MT&S.
This acquisition is expected to be completed by mid-2025 and would expand Serco’s North American business revenue to $2bn (£1.58bn).
The deal is also set to bolster Serco’s international defence operations, with the group’s total defence revenue potentially reaching £2bn upon completion.
In 2024, Serco announced a £140m share buyback, taking total buybacks since 2021 to £340m.
The board recommended a final dividend of 2.82p per share, marking a 24 per cent increase year on year. Serco Group’s Chief Executive, Mark Irwin, commented: “Our 2024 results reflected another year of strong operational and financial delivery across the group. We accelerated trading momentum through the second half of the year, which allowed us to achieve full year revenue in line with guidance, underlying operating profit up 10 per cent, a 60 basis point increase in margins and deliver significantly more free cash flow than initially expected.”
He added: “We had excellent order intake of £4.9bn resulting in a robust £13bn order book, and we ended the year with a strong pipeline of qualified new business opportunities exceeding £11bn to underpin future growth.”
Irwin further stated: “Our strong balance sheet enabled delivery against all our capital allocation priorities by investing in organic business development, increasing our dividend by 22 per cent and completing the planned share buyback of £140m; and, as announced in January, we agreed the strategically important and financially compelling acquisition of MT&S from Northrop Grumman, which we expected to complete in mid-2025.”
He concluded: “MT&S would transform our capabilities in the critical areas of technology-enabled military training and satellite ground network software services. The combination of Serco and MT&S further enhanced the growth potential of our US platform and our international defence business.”
“In a global environment of continuous change and increasing complexity, Serco’s purpose to impact a better future by enabling more efficiency and greater agility in the delivery of critical services for governments had never been more relevant.”
“We entered 2025 with confidence that we would continue to deliver profitable growth and make further progress in executing our strategy to create value for customers and shareholders.”