Serco Group (SRP) H2 2023 earnings summary

Executive summary

• FY23 revenue £4.874bn, up 7%; underlying operating profit (UOP) £249m, up 5%; free cash flow £209m, up 31%.

• Wins of £4.6bn and 95% book-to-bill; £10.1bn pipeline, highest in a decade.

• Stronger performance in UK & Europe offset weaker Asia Pacific trading; outlook described as positive for 2024 and the medium term.

Financial highlights

• Revenue growth comprised 4% organic growth, 4% from acquisitions and a 1% FX reduction; UOP rose 5%.

• Underlying diluted EPS was 15.36p versus 13.92p; dividend per share increased 19% to 3.41p from 2.86p.

• Free cash flow was £209m versus £159m; trading cash conversion was 111% versus 97%.

Outlook and guidance

• FY24 guidance: revenue ~£4.8bn, organic sales growth ~-3%, UOP ~£260m, net finance costs ~£35m and effective tax rate ~25%.

• FY24 free cash flow guidance is ~£140m and adjusted net debt ~£175m; guidance assumes a £140m buyback and average GBP/USD of 1.26 and GBP/AUD of 1.93.

• Medium-term targets: revenue growth ~4–6%, margins ~5–6%, profits growing faster than revenue, >80% conversion of profit into cash and shareholder returns growing faster than profits.