Serco announces buyback and dividend hike as firm reaps the rewards from government contracts

Government contractor Serco has lowered its profit expectations for the year.

In an update this morning, the firm said it expects revenue in 2024 to be slightly below 2023, coming in at £4.8bn.

For the full-year, revenue grew slightly by seven per cent to £4.8bn, and underlying profit grew five per cent to £249m. 

Underlying earnings per share increased by 10 per cent to 15.4p. The company also revealed shareholders can expect a final dividend per share of 2.27p – up 18 per cent on last year’s figure and 3.4p per share for the full year.

The company also announced a £140m share buyback alongside the results.

The board said: “Revenue is expected to be lower organically due to our CMS contract now being in its new five-year agreement, the annualisation of our previously announced exit from certain low-margin contracts, and contract mix change in immigration, as we support the UK Government’s efforts to reduce the number of asylum seekers being accommodated in hotels. “

In the course of the year, it inked deals with a number of government groups including the Department of Work and Pensions and the UK Home Office. 

This included a £350m five-year contract to deliver functional health assessments in the south-west of England for the Department of Work and Pensions. 

Also, the group signed a £78m, nine-year contract with the UK Home Office to run the Derwentside Immigration Removal Centre. 

Serco, which has a portfolio valued over £16bn, said its pipeline of potential work is up 28 per cent to £10.1bn, the highest level in a decade. 

The company forecast an underlying operating profit of £260m for 2024, up from £249m in 2023.

Mark Irwin, chief executive of Serco, said: “We are making good progress in building a resilient international platform for growth in the government services sector. Our strong results for 2023 reflect this progress, with another year of growth in revenue and profit and continued excellent cash generation. 

“We enhanced our customer relationships and improved our win rates compared to the prior year, delivered better safety outcomes for our colleagues, and announced two strategic acquisitions to strengthen our capabilities.”