Serco lifts profit guidance as outsourcer is boosted by takeovers

Serco has upgraded its annual guidance following a robust performance over the first six months of 2024.

Performance has been strengthened by Serco's immigration services contracts,which offset weakness in medicare services thanks to sector takeovers.

The outsourcing giant now anticipates achieving underlying operating profits of £270million this year,9 per cent more than in 2023 and £10million above previous guidance.

It forecasts reporting a lower first-half profit of around £140million,owing largely to adverse currency impacts,reduced immigration-related work in Australia,and a new contract with the US Centers for Medicare & Medicaid Services (CMS).

Forecast: Serco now anticipates achieving underlying operating profits of £270million this year,9 per cent more than in 2023 and £10million above previous guidance

However,the FTSE 250 firm said improvements in its portfolio's productivity and underlying performance had led to margins exceeding expectations during the period.

Serco also believes second-half profits will be about 30 per cent better than in the prior year,partly thanks to recent acquisitions and the 'ramping up' of new contracts.

Among the deals recently won by the company include one from Buckinghamshire Council to run five leisure centres and a £200million decade-long contract to manage HMP Ashfield in South Gloucestershire.

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Just before then,Serco agreed to acquire German immigration business European Homecare from Korte-Stiftung for €40million (£34million).

The group noted that the takeover helped bolster its immigration services platform and somewhat offset reduced trade in other areas,including lower revenue from the new CMS contract.

At the same time,the Hampshire-based company said full-year adjusted net debts and free cash flow would be better than expected,with the former closing the year at approximately £165million.

Mark Irwin,chief executive of Serco,remarked: 'While mindful of a potential impact internationally from elections in 2024,we remain optimistic about the quality of our pipeline of potential new work to support our medium-term growth targets.'

Irwin was promoted to CEO at the beginning of 2023,having previously run Serco's UK and Europe division.

He succeeded Rupert Soames,the current president of the Confederation of British Industry,who stood down after an eight-year spell successfully turning around the business.

During his tenure,Serco sold off multiple divisions,expanded into Asia and North America,and began focusing on winning public-sector contracts.

The company was also a major provider of coronavirus testing sites across England and Northern Ireland and call handlers operating on the NHS Test and Trace programme.

Serco Group shares were 4.75 per cent up at 181p on Thursday morning and have increased by around a third in the past 12 months.

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