Government and private outsourcer Serco saw revenue climb to £2,178 million (H1 2021 £2,168 million) and operating profit of £123 million (£116 million) during the six months ended 30 June.
The group’s half-year statement says that growth in many parts of the business more than offset the end of the government’s Test & Trace scheme and its exit from some defence contracts. Profits were up 6% and the trading margin increased from 5.7% to 5.9%. The interim dividend rose by 18%.
Serco said its order book was up by £0.5 billion on the previous year to £14.6 billion and its new business pipeline was a healthy £8.1 billion, up around 40% on last year.
Regarding its outlook, the group’s guidance for 2022 increased for the full year in an unscheduled trading update in May. Unlisted trading privileges guidance was raised by 15% from £195 million to £225 million, and the company is slightly increasing UTP guidance to £230 million to reflect further foreign exchange movement since the last update and trading in May and June. For the year, it expects currency movements to contribute around £150 million to revenues and £12 million to profits.
Rupert Soames, Serco CEO, said: “We did much better in the first half than we expected in January, and as a consequence also expect to do better than we originally anticipated in the full year. In the first six months we have maintained revenues year-on-year despite losing around £220 million, or 10%, of our revenues as a result of the wind-down in Test & Trace. Excluding Test & Trace, revenues grew by over 12%. Profits increased by 6%, despite a £25 million, or 21%, the negative impact of the exit from AWE [Atomic Weapons Establishment] in June 2021 and Test & Trace. Increased demand for case management in North America, employment services in the UK, immigration services in both Australia and the UK, as well as our acquisition of [US business consultant ] WBB in April 2021, more than offset the impact of Test & Trace and AWE on revenues and profit.
“Our order book remains very strong at £14.6 billion, up £0. billion over the prior year with the positive effect of wins, indexation and currency more than offsetting revenue earned over the last 12 months. Order intake in the first half of £2 billion represented a book-to-bill ratio of 94%, and would have been well over 100% but for unusually low levels of contract rebids and extensions being due in the first half. New business wins, on the other hand, were above average levels. The pipeline has reduced from the start of the year but at over £8 billion stands at a very healthy level, and is up around 40% year on year.
“Looking at the first-half performance in the round – robust revenues despite the wind-down in Test & Trace, strong margins, large and growing order book, healthy pipeline, strong cash conversion and balance sheet – tells of the agility of Serco’s Business-to-Government platform and the advantages of our differentiated business model and international footprint.
“We employ around 57,000 people delivering services to governments and so the balance of supply and demand in labour markets is important to us. It is our sense that the dislocation in labour markets we saw last year is beginning to ease, as more people return to work, and we have seen a reduction in our vacancy levels. However, staff turnover remains high in some contracts, and unpredictable absence levels, driven by waves of Covid-19, mean that operational management of the business remains very demanding.
“We have made significant progress on our diversity and equality strategy. Since 2017, the proportion of women in our senior leadership team (around 350 leaders) has increased from 17% to 33%, while the proportion of colleagues with a declared disability or health condition has more than doubled in recent years and now stands at 5%. In the UK our median gender pay gap has fallen from 12.9% to 6.9%.
He added: “As a result of the recent surge in inflation we are increasing pay faster than we budgeted and we will be distributing an additional £9 million in the coming weeks in one-off payments to all our colleagues outside management grades, recognising the pressure many people, particularly the lower paid, are under at this time. Increasing pay is one of the reasons why costs are expected to be higher, and profits lower, in the second half than in the first. We do have mechanisms in many of our contracts, which will over time help us mitigate the effects of cost increases, but inflation that goes from 2% to 10% in 12 months, and is then forecast to fall back to 2% by the end of 2024 makes it hard for companies, customers and employees to balance their long-term interests and expectations.”