Defense expenditures fuel order backlog of Serco to record levels spanning a decade
Serco's Defense-Led Growth Fuels Order Pipeline Expansion
In a significant development, government services firm Serco has seen its order pipeline reach its highest level in over a decade, surpassing £11.9bn. This growth is largely attributed to the company's strategic focus and dominance in the defense sector, where defense contracts now account for over 80% of new orders.
The increase in defense budgets from countries in Europe and North America has played a crucial role in this expansion. Serco's strategic move to acquire US firm Northrop Grumman's mission training and satellite ground network communications software business, MT&S, for $327m (£244m) in May, has also bolstered the company's defense capabilities.
The acquisition of MT&S has been a key catalyst for Serco's ambitions to grow its defense business in Europe. According to Serco's chief exec, Anthony Kirby, the pipeline of opportunities in Europe, considering the 5% defense spending commitment of countries, remains significant and is expected to grow.
Serco's stellar results have been reflected in its financial performance. Underlying operating profit for the company rose 2% to £146m. The company's stock soared due to these results, rising 8.3% to 227p in early London trade.
In addition to the increased orders and revenue growth, Serco has reported revenues of £2.4bn for the first six months of the year, a 5% increase from the previous year. The interim dividend of Serco was also increased by 8% to 1.45p.
Kirby anticipates that Serco's M&A activity will be more concentrated in the defense sector in the future. The company has announced plans for a £50m share buyback, further demonstrating its confidence in its growth prospects.
Serco's strategic turnaround focusing on defense and government services has resulted in robust order intake growth and a firm long-term revenue pipeline. Key factors contributing to this growth include defense sector dominance, structural growth in high-margin government services, and strong regional growth in North America.
Specific defense contracts driving this growth include a 10-year contract worth up to £1.5 billion to run the UK Armed Forces Recruitment Service, and additional sizeable contracts in the US defense sector, including one valued at $96 million.
Overall, Serco’s strategic focus on defense and government services has led to a significant increase in its order pipeline, positioning the company for robust growth in the future.
[1] Serco Half Year Results 2022 [2] Serco Announces £50m Share Buyback [4] Serco Wins Major Defense Contracts [5] Serco Acquires Northrop Grumman's MT&S Business [6] Serco's Order Pipeline Hits 11-Year High [7] Serco's Defense-Led Growth Strategy Pays Off
- Serco's successful growth strategy in the defense sector, bolstered by strategic acquisitions like the Northrop Grumman's MT&S Business, has opened up opportunities in technology-oriented markets such as satellite ground network communications.
- The increasing investments in sports infrastructure by various governments worldwide provide a potential market for Serco, given its expansive experience in the government services sector and its focus on long-term revenue growth.
