Serco Group (SRP) H1 2024 earnings summary

Executive summary

• Upgraded full-year profit guidance to £270 million, a 9% year-over-year increase, with second-half profit expected to be 25% higher than last year.

• Achieved strong operational delivery in H1 2024, integrating EHC acquisition and mobilizing key contracts like HMP Fosse Way.

• Order intake reached £1.9bn, with a robust order book of £13.5bn and pipeline of £10.2bn, 60% in defence.

• Margins held at 6% despite a 5% organic revenue decline, reflecting portfolio productivity and efficiency.

• Focused on service excellence, safety, productivity, and profitable growth, with significant progress in reducing safety incidents and attrition.

Financial highlights

• First-half revenue was £2.4 billion, down 5% year-over-year, with a 5% organic decline due to contract exits; acquisition growth contributed 2%.

• Underlying operating profit was £142m, down 4% year-over-year; margin steady at 6.0%.

• Free cash flow of £75 million in H1; full-year guidance of £150 million and at least 80% cash conversion.

• Interim dividend per share increased 18% to 1.34p; £57m of £140m share buyback completed.

• Adjusted net debt at £131 million (0.6x EBITDA); expected to be £165 million by year-end.

Outlook and guidance

• 2024 guidance unchanged: revenue expected at ~£4.8bn, underlying operating profit ~£270m (+9% year-over-year), free cash flow ~£150m.

• Full-year margin guidance at 5.6%, up 50bps from 2023; profit to cash conversion to remain at least 80%.

• Second-half margin to be materially stronger, up 100bps year-over-year, driven by new contracts and efficiency initiatives.

• Adjusted net debt expected to end 2024 at ~£165m; leverage to remain at 0.6x.

• Medium-term targets: revenue growth of 4-6% per year, margin 5-6%, and strong cash conversion.