Serco Group plc

In a rapidly changing world, the challenges governments face are becoming ever more complex. Serco enables critical government missions globally. Helping to make society safer for everyone. Across defence, justice and immigration and citizen services. Serco keeps our armed forces mission ready. Recruiting, training and supporting service personnel. Keeping military bases, sites and infrastructure ready for action. Maintaining, repairing and modernizing critical platforms, assets and equipment. Serco enables governments to deliver safe and orderly immigration. Through the delivery of robust and effective border security and returns. While in justice, Serco brings scale, credibility and expertise to keep the system moving across prisoner escorting, electronic monitoring and end-to-end prison management. Where our holistic approach to rehabilitation integrates education, therapy and training to improve resettlement outcomes. As public services face growing pressure, Serco delivers citizen services at scale, blending modernization and automation with human empathy, helping people find meaningful work, build careers, and unlock their potential, and delivering the everyday services that citizens rely on. In a rapidly changing world, governments need more than promises. They need delivery. Wherever the mission matters most, we're already there, delivering vital services for our customers.

Good morning and thank you to everyone who's joined us for the presentation of Serco's 2026 half-year results. Whether you're with us here in person today or joining via the live stream, you're very welcome. I'm Anthony Kirby. I'm the proud Group Chief Executive of Serco and I'm delighted to be joined by Mark Reid, our Chief Financial Officer. I was very pleased that Mark joined the business, the executive team and the board back in early March. This morning, I'll begin with an overview of our progress and performance. Then we'll take you through the financials in more detail with Mark, and then I'll return to discuss the outlook across our core geographies, the strong structural drivers that reinforce the need for trusted partners like Serco, and how we are positioning the business to deliver safe, sustainable growth in an ever-changing external landscape. But before we go any further, I must refer you to the disclaimers in your pack. So let's start at the top. Thanks to my 50,000 colleagues around the world, we've delivered another strong performance in the first half, reflecting disciplined execution and continued progress against our strategy. Through good operational delivery, productivity improvements and disciplined cost control, we have increased profitability and delivered margin improvements that we can be proud of. We've continued to deliver good progress across our strategic pillars, with retention once again north of 95%, a growing pipeline and a leaner, more efficient organisation, supporting our ability to deliver against our 26 guidance. We also remain confident in the outlook across all of our core geographies. Whilst market conditions are evolving, underlying demand for the critical services that we provide continues to be underpinned by the same long-term structural drivers that we've been talking to you about for many years. The four forces as we describe them. During the period, we have continued to take deliberate action to better position Serco for the future. Building on the sector simplification announced at the full year, we are refining our operating model to drive greater focus, efficiency and long-term growth. As a result, we're increasing our share buyback to £150 million for the full year, following the £75 million we announced and executed in the first half, whilst reiterating our full year guidance. So turning to the numbers, which I'm proud to present, as you can see, we've delivered revenue up 4% on a constant currency basis, including strong organic growth of 10% in our defence business. Free cash flow of 65 million, keeping us on track for full year cash conversion of at least 80%. Order intake representing a book to bill of around 100%. Underlying operating profit of 157 million, delivering a 10 year high margin, which I'll come back to shortly. But these results demonstrate the resilience of our business and our ability to deliver sustainable growth over the years ahead. So I'd like to spend a few moments highlighting the progress that we've made against our three mutually reinforcing priorities of growth, competitiveness and operational excellence. As many of you will know, I'm absolutely focused on growth, safe, sustainable growth in our revenue, our profit and our margin. During the period, we've made good progress, growing our pipeline to a record high of £12.8 billion, securing around £2.5 billion of order intake, maintaining strong retention rates across the Group. This reflects both our ability to win new work and expand the great business that we already have. That gives me confidence in growing the business over the medium term. Turning to competitiveness, when I stood here last year, I said that while Serco was a very strong business, there were opportunities to make us simpler, more focused and more efficient. At the full year, I spoke about the changes we were making to simplify our sector structure and reduce unnecessary complexity. Since then, we've continued to embed those changes, helping to reduce our overhead costs. And this is about creating a business that can respond more quickly to customer needs, allocate resources more effectively and position ourselves to capture future opportunities. And in Operational Excellence, we've continued to deliver complex services reliably across our portfolio, while successfully mobilising major programmes and investing in capabilities that will support our future performance. Since January, mobilisation activity contributed to strong organic growth, including 7% growth in the UK and Europe, whilst continued investment in technology and innovation is improving both service quality and productivity. Across the business, we have multiple live applications of AI support in both customer solutions and internal process improvements. In Asia Pacific, we're using AI-enabled strategic workforce planning tools to improve resource allocation and predict future strategic requirements. In North America, we're using AI to help identify and qualify opportunities, strengthening our business development capability and supporting the growth of our record pipeline. And in the UK, we're using AI services to automate asset monitoring, helping to improve operational efficiency and service performance. And we've also continued to make Serco a safer place for our colleagues with 15% fewer safety incidents resulting in time off work than we saw in the first half of 2025. But more importantly, that represents a 40% reduction over the past three years. We now have more than 640 apprentices across our UK business and we were exceptionally proud recently to be named UK's top employer for veterans, reservists and military families. So whilst there is always more that we can do, there's been good progress across all parts of our approach to executing our strategy. One of the most encouraging aspects of our performance has been the continued improvement in margin, despite a number of headwinds. This is the result of a deliberate strategy that has been executed consistently over a number of years. We strengthened the quality of our portfolio through disciplined contract selection, improved operational execution, a continued grip on governance, targeted acquisitions and an increasing focus on complex service lines. That coupled with greater exposure to higher value markets and stronger positions in Defence and North America. The result is a sustained improvement in our margin profile. Importantly, this progression has been driven by an improvement in the quality of our business rather than any single action or short-term initiative. I'm pleased with the progress that we've made and our focus remains on sustaining and further improving that performance over the years ahead. So with that, I'll now hand over to Mark, who will take you through our financial performance in more detail. So grab your popcorn, sit back and listen intently.

Thank you, Anthony. And good morning to everyone. I'm delighted to be here standing in front of you presenting my first Serco set of earnings. The last six months have flown by. I've spent a great deal of time getting to know the business. I'm very pleased with what I've experienced so far. Great culture, dedicated colleagues and a huge opportunity with robust delivery, which I can hope you see as you go through these results. Let me start with a few observations. Firstly, Serco is underpinned by good market dynamics. You see this in the strong performance the teams delivered in 2025 and how that momentum has continued into half one 2026. It has become more and more clear to me that the governments around the world need partners like Serco as they prioritise quality outcomes and value for money that citizens demand. Secondly, I've been impressed by the depth and breadth of the operating excellence. And this has been clear in the outcomes we have delivered for our customers. Take the electronic monitoring service, for example. We have transformed the service, monitoring record numbers of users while delivering against all the performance measures that the customer said. Thirdly, working with the many fantastic colleagues I've met so far has been inspiring. I've been able to collaborate at pace with our leadership team, and hopefully, Aunty agrees, our CEO-CFO partnership has got off to a good start. Now turning to the strong half-won performance, I'm delighted to present revenue increased by 4% to £2.5 billion, including 2% organic growth. underlying operating profit increased by 8% to £157 million, with margin improving by 20 basis points to 6.2%. As Antti noted earlier, our profit margin improved has been an impressive long-term trajectory. Profit growth was delivered by full period contribution from MT&S, improved contract outcomes, including electronic monitoring that I mentioned earlier, and lower corporate costs. and wider efficiency actions. These more than offset the known headwinds from the exit of the Australian immigration contract, lower immigration both UK and Europe and higher UK national insurance costs. Earnings per share increased by 6% and the board has declared an interim dividend of 1.6 pence per share, which is up 10% year over year. Cash generation continues to be a strength of the business. Free cash flow was £65 million and trading cash conversion at 74%. We remain on track to deliver at least 80% trading cash conversion for the full year. Our balance sheet remains strong, with leverage at 0.7 times EBITDA even after significant progress on the share buyback by the half-end close. I'll reiterate the optionality this gives us on capital allocation shortly. Reflecting our confidence today, we have announced the doubling of our 2026 buyback to £150 million, with the additional £75 million to be completed by the end of the year. Combined with dividends paid during the year, this will take our total capital return to shareholders in 2026 to just under £200 million. Overall, this is a strong first half performance with revenue growth, further margin progression, good cash generation, a robust balance sheet and continued strong shareholder returns. I'll now turn to provide a bit more colour around each of the divisions. First of all, to North America, which continues to be an important driver of growth and value creation for the Group. Revenue increased 8% to £775 million, supported by a full half-year contribution from MT&S. There was good momentum in defence, which saw 4% organic growth, including additional infrastructure work for the US Army and Space Force at the Pacific Space Base in Greenland. This was partially offset by lower activity levels in our citizen services following the expected reductions in case management volumes on our CMS contract and the conclusion of an aviation contract in the US. Underlying operating profit increased by 10% to £84 million with margin progression to 10.8%. The increase reflects a strong revenue growth, a focus on contract profitability and the benefit of contracts moving from mobilisation to the operational phase. Order intake was £0.7 billion with a book to bill ratio of around 90%. As expected, procurement delays across parts of the US federal market continued into the first half and affected the timing of some of these awards. Win rates remained healthy at 46% and the new business were around 80% for retentions. We're seeing progress on a number of important opportunities. Several contract protests have now been resolved, and we have around £3.2 billion of bids awaiting adjudication. This creates the conditions for an improving environment through the second half and into next year. Looking further ahead, the pipeline has strengthened significantly, increasing more than 60% to over £8 billion. Defence accounts for the majority of these opportunities, reflecting sustained increases in Pentagon spending and national security priorities. As Anthony will outline, this underpins our confidence in the continued growth potential of the North American region. Moving now to the UK and Europe, which has an excellent organic growth of 7%. Growth was led by Defence, with revenue increasing by 30%, reflecting the mobilisation of our Royal Navy maritime support and vessel replacement contract, together with additional activity at the Defence Academy. Citizen services also delivered good growth, and in the period we were delighted to begin delivering BBC audience services. Progress was more limited in justice and immigration, where we saw a reduced immigration activity both in the UK and in Europe. Underlying operating profit increased by 7% to £84 million, with margins remaining resilient at 6.2%, despite around £5 million of higher national insurance costs and the expected headwinds from lower immigration activity. Profitability benefited from the strong ramp-up in defence and improved outcomes with justice, particularly on the electronic monitoring contract, where performance and productivity continue to improve. Order intake was £1.2 billion, with a book-to-bill ratio of around 90%. Retention rates were particularly strong at over 95%, including several sidehold contract extensions and citizen services. We also secured a number of new business awards from the UK Administries of Defence, Justice and the Home Office, reinforcing the continued demand for our services. Finally, the pipeline stands at about £3.8 billion, while lower than the £5.8 billion at full year. As a result of adjudications, we have sight of several large deals that are set to be qualified. Demand remains very robust in the UK and in Europe. Turning now to Asia Pacific, where the first half performance reflects the Australian immigration contract exit alongside progress in strengthening the platform for future growth. Revenue was down 14%, primarily driven by previous year impacts, namely the conclusion of the immigration contract and disposal of our Hong Kong business. This was partially offset by growth in defence, progress on our number of citizen service contracts and the commencement of the Justice Transport Services contract in Victoria. As expected, underlying operating profit declined in the period with the immigration contract exit reducing profit by around 9 million on its own. Further operational efficiencies and workforce optimisation mitigated some of this impact. We are encouraged by the progress we have made on growth. Order intake for the period was £0.6 billion, resulting in a very strong book-to-bill ratio of just shy of 190%. We signed two significant extensions for the Adelaide Remand Centre and Acacia Prison in Western Australia, where we secured a significant expansion of our services. We also retained the Australian Defence Force health services contract for a further year to mid-2027. These outcomes help demonstrate both our improved customer relationships and our ability to retain strategically important work. The pipeline remains stable at approximately £0.7 billion, with a number of opportunities progressing across all three sectors. Now let's turn to the Middle East, where the first half performance was resilient in a challenging environment. Revenue was £67 million, down 25% compared with the prior period. The reduction was driven by several elements, including transition of contracts into the Mabadla Strategic Partnership and volume-related impacts of the regional conflict. Underlying operating profit reduced by 12% to £6 million. However, despite the lower revenue base, margin improved by over 100 basis points to 8.5%. This reflects the Mubadala partnership and benefits of target operational efficiencies, which is better positioning the business for profitable growth as the market conditions improve. Order intake in the first half was low and was inevitably impacted by the regional disruption. That said, we are very pleased to see the Mubadala partnership secure several contracts worth almost £60 million, and the pipeline currently stands at approximately £0.3 billion. While this is lower than last year, this reflects the reductions Raji because of adjudications and several larger opportunities removed or delayed related to cancelled bids. Importantly, the Mobadala partnership continues to broaden our access to future opportunities and provides an attractive platform for sustainable long-term growth in the region. Now if we turn to cash flow in the balance sheet, cash generation remained good with free cash flow at £65 million and trading cash conversion of 74%. While this is lower than the exceptionally strong comparative period last year, it was in line with our expectations and keeps us on track to deliver at least 80% trading cash conversion for the full year. Working capital was an outflow of £41 million in the period compared with an outflow of £14 in the first half of 2025. This primarily affects the effect of the strong outperformance at the end of 2025 as we set out at the time and not indicative of any change in underlying cash performance. Turning to the balance sheet, adjusted net debt was 228 million, only 22 million higher than the position at the end of 2025, despite returning significant capital to shareholders during the period. This included 58 million of the 75 million share buyback program completed by the 30th of June and 30 million of dividend payments. Strong Cash Generation has therefore substantially funded those shareholder returns while maintaining a very robust financial position. Leverage was around 0.7 times EBITDA at the period end and remains below our target range of one to two times. The balance sheet continues, therefore, to provide substantial capacity to support organic investment, discipline bolt-on acquisitions, and further shareholder returns under our capital allocation framework. Our framework is unchanged and supported by the three core strengths of Circle, significant cash generation, a capital light business model, and a strong balance sheet. Our first priority is investing organic growth. During the year, we have continued to strengthen our business development capability through expanded specialist sales teams and refresh government confidence in the business and outlook. The board has declared an interim dividend of 1.6 pence per share, up 10% year on year. And third, we continue to value both on our acquisition opportunities that enhance our capabilities on our organic growth potential. We have increased focus, resource in this area and have a strengthened pipeline of opportunities. As always, we will maintain the same financial discipline in this area. Finally, we have surplus capital. We will return it to shareholders consistent with that. We have announced a further 75 million buyback for the remainder of 2026. Let me finish with our guidance for 2026. Upon the strong first half performance, we are reiterating our guidance for revenue, profit and free cash flow. The only changes are to net finance costs, which are now expected to be slightly lower than previously guided. and the year-end net debt position, both of which reflect the additional 75 million buyback announced today. Overall, we entered the second half with good visibility from our order book, a record pipeline, excellent retention rates, strong momentum across our strategic priorities, and as a result, we remain confident in delivering our full year expectations. Finished my first six months. I'm very pleased with the state of the business. Markets continue to be supportive. Our teams execute with professionalism and precision that delivers great customer outcomes. I see multiple opportunities to support our growth and ambition, including cost efficiencies, self-funded organic investments, and bolt-on M&A, which I'm sure will continue to drive strong investor returns. And with that, I hand over to Anthony.