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Investing.com -- Serco (LON:SRP) on Thursday raised its full-year revenue forecast to £4.9 billion after reporting a solid first-half performance, driven by contract momentum in defence and public services and stronger-than-expected immigration-related activity.
First-half revenue is projected at £2.4 billion, reflecting 2% year-over-year growth, with both organic growth and acquisitions contributing 2% and currency reducing reported revenue by 2%.
Underlying operating profit is expected to be at least £140 million, implying a margin of around 5.9%, which is approximately 3% ahead of consensus estimates of £136 million.
Contract wins totaled around £3 billion in the first half, with a concentration in the defence sector.
The company also reported strong client retention and said its pipeline had been replenished.
Regionally, North America posted the strongest organic growth, supported by prior defence awards.
The U.K. recorded growth from citizen services and justice contracts. Revenues in Asia Pacific and the Middle East declined due to contract completions.
Serco increased its guidance for full-year organic revenue growth from flat to around 1%, citing increased volumes in immigration services and new defence work in the U.K.
The revenue forecast now ranges from £4.8 billion to £4.9 billion, compared to the previous estimate of approximately £4.8 billion. Jefferies noted this guidance is ahead of the consensus forecast of a 0.1% decline.
Despite the revenue upgrade, the company held its full-year underlying operating profit forecast at approximately £260 million.
That figure is slightly below the consensus of £262 million and reflects a first-half weighting due to known second-half impacts, including the conclusion of the Australian immigration contract, increased U.K. national insurance costs, and seasonality in North America.
Jefferies said the guidance implies a full-year margin of around 5.3%, 40 basis points lower than 2024.
Serco completed its acquisition of MT&S in May following U.S. government approval. The deal is expected to contribute £130m in revenue and £7m in operating profit for the year, after accounting for £8m in transaction and integration costs. Currency translation is forecast to reduce operating profit by £7m in 2025.
Free cash flow guidance remains at £130 million, with a second-half weighting. Adjusted net debt is expected to fall from £325 million at mid-year to approximately £245 million by year-end. Leverage is projected at about 1.2 times net debt to EBITDA.
Jefferies said consensus earnings per share expectations are unlikely to shift significantly, as operational strength is offset by adverse currency movements.
Separately, Serco appointed Keith Williams as non-executive director and board chair designate. He joins the board on Aug. 1 and will succeed John Rishton as chair on Jan. 1, 2026.
Williams currently chairs Halfords Group (LON:HFD) and previously held leadership roles at British Airways, Royal Mail (LON:IDSI) and Aviva (LON:AV). Rishton will step down after nine years on the board.