Serco Group Plc Sp/Adr

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.

Mark, thank you. At the full year, I talked to you about our strategy to simplify and focus the business around our core sectors of defence, justice and immigration, and citizen services. Today, I'd like to take a similar approach, but through a geographic lens, focusing on our core markets. But before I turn to our first geography, I'd like to spend a few moments on why governments around the world continue to partner with the private sector and why we believe that those structural drivers will remain in place for many years and decades to come. So whilst the specific challenges facing governments may differ from country to country, the underlying pressures remain remarkably consistent the world over. For many years, we have used our Four Forces framework to explain why demand for publicly controlled and privately operated partnerships continue to grow. The first is growing costs. Governments around the world continue to face inflationary pressures and rising demand for public services. The second is voter intolerance of higher taxes. Citizens remain resistant to higher taxation with the tax burden in many parts of the world already at an all-time high. Third, expectations keep rising. Whether it's in defence, justice and immigration or citizen services, people increasingly expect services to become more responsive, more personalised and more digitally enabled. And finally, governments must continue to balance the public expenditure against competing priorities. Collectively, these forces create intense pressure on governments to deliver more and better for less. To whatever the policy environment, decisions ultimately need to balance service quality, operational resilience and value for taxpayers. Faced with these pressures, governments increasingly look for ways to access specialist capability, improve productivity and, importantly, deliver better outcomes whilst retaining control of critical public services. Government has long partnered with the private sector to help address exactly these kinds of challenges. At Serco, we bring operational expertise, innovation and global best practice to help customers improve productivity, manage risk and deliver better public services on their behalf. Importantly, this is about value rather than cost alone. Independent research continues to demonstrate the publicly controlled services delivered by the private sector are often up to 15% more cost efficient customers seek is why organisations like Serco remain well placed to support governments around the world. And when you combine that with our ability to develop, deploy, innovation and technology at pace, it is clear why this delivery model will remain important over the long term. So those structural drivers underpin a geographically diverse portfolio of ours spanning more than 20 countries and a totable addressable market of over £900 billion. We believe the demand created by those four forces will continue to grow over the long term, which is why we have been taking deliberate action to simplify our business and position Serco to capture those opportunities. Our geographic footprint provides resilience. It gives us exposure to different governments, different spending priorities, different procurement cycles, and a broad range of opportunities across our core sectors. Last year, we sharpened our focus of our sector structure and we're taking that one step further by combining our Asia Pacific and Middle East operations under a single leadership structure. This creates a stronger regional platform, expanding opportunities and strengthening our ability to serve our customers across both regions. It also allows us to bring the expertise, capabilities and lessons learned from the successful transformation of our Asia Pacific business to the Middle East, while exporting agility, innovation and pace throughout the broader division. I really do believe that this will help accelerate growth across the region. So to North America, the largest government services market in the world, our largest by-profit contribution. Underlying demand for our services remains strong. Although procurement delays have continued to affect some timing of awards, we continue to see significant opportunities across our key markets. This is reflected in our record pipeline of over £8 billion, reinforcing our confidence in the region's long-term attractiveness. We're now starting to see some early signs of procurement environments moving again, although we are mindful of the midterms approaching in November. But in recent weeks, we've seen a number of opportunities progress through the procurement process. We now have more than £3 billion of awards submitted and awaiting adjudication, and several long-running protests have now been resolved. So let me bring that and our growth pillar to life with an example. In June, we secured the Comprehensive Error Rate Testing, or CERT for short, contract with CMS. The contract extends a relationship with the centres for Medicaid and Medicare services that builds on more than a decade of supporting the largest eligibility healthcare administration programme in the world. Through CERT, Serco helps identify improper payments and tackles fraud, waste and abuse across a health care program that supports more than 70 million Americans and oversees more than $1 trillion of annual spending. Importantly, this is not simply contract expansion. It builds on the technology-enabled capabilities we've developed over many years in our citizen services business, combining specialist medical expertise, artificial intelligence and intelligent document processing to improve both outcomes for citizens and efficiency for the government customer. For me, this award is a good example of the direction we're taking the business. It demonstrates our ability to win and retain complex services, deepen long-term customer relationships, and apply technology and domain expertise to solve increasingly important challenges for governments. Turning to the UK, our second largest market, the structural drivers that we've already discussed are particularly evident here, reinforcing the importance of productivity, innovation and getting more from every pound spent, areas where trusted partners like Serco can add real value. Defence is a good example. Across the region, governments are increasing investment in national security and military readiness capability, whilst operating within constrained fiscal environments. Through the UK Defence Investment Plan, priorities are becoming increasingly clear, with growing focus on personnel readiness, digital transformation, autonomy and next-generation capability. These are all areas where Serco has deep and strong international track records of delivery. That's reflected in our performance with defence revenues growing by around 30% in the region during the period, as Mark alluded to earlier, driven by operational excellence. And I'll bring that to life now. We're currently mobilising the Royal Navy's £1bn DMSNG programme, delivering critical import services across the UK, bringing 24 new vessels into service while maintaining operational readiness. Importantly, this is about managing complex defence operations and ensuring that the infrastructure is in place to enable frontline capability. The trust our customers place in us is also reflected in the additional opportunities that we continue to secure. Earlier this year, we were awarded a new seven-year contract to support the British Army's fleet of more than 500 vessels, further strengthening our position in higher value defence support services. These awards also reinforce a broader point. As the geopolitical environment becomes more volatile and more threatening, governments continue to invest in national security and military capability. The demand for trusted partners that can help deliver those ambitions efficiently and with operational excellence remains strong. Turning now to Asia Pacific and the Middle East. ASPAC is a market where we have a long and established track record of service delivery and trusted customer relationships. Demand remains strong across justice and increasingly attractive in defence. Partnerships such as AUKUS and the Five Eyes Alliance continue to support investment in capability, infrastructure and long-term readiness. That's reflected in our recent expansion to continue improving health outcomes for more than 80,000 Australian Defence Force members and reservists. In justice, governments continue to face capacity pressures and increasing demand, creating opportunities for experienced providers like us. That's reflected in our performance during the first half, including the exceptional order intake of £600 million demonstrating the strength of the market. Our long-standing presence, operational expertise and established customer relationships positions us well as governments address the challenges they face. Alongside this, we continue to see attractive opportunities emerging across the Middle East and we're pleased, as Mark said, about our partnership with Mabadla continues to perform well, strengthening our position in that region. For me, ASPAC is a good example of how the actions we have taken over recent years have made us a stronger and more competitive business. The performance we're delivering today looks very different to what we were delivering just a few years ago and this can be seen in the justice sector in Australia where we will now be operating two of the largest prisons in the southern hemisphere. At full year I shared our win of the justice transport services contract in Australia and having recently visited the operation and met with both our colleagues and the customer I'm really pleased that that contract has mobilized so successfully. Momentum has continued in the first half, resulting in more than 400 million of awards across the justice business. For me, the wins at Acacia in Western Australia, Adelaide Roman Centre and now Christchurch Men's Prison in New Zealand are about much more than contract value. They demonstrate the strength of our customer relationships, the quality of our operational delivery, and importantly, the actions that we've taken over recent years, translating into improved results. Across all our core markets, the structural drivers we have discussed today remain firmly in place. We've deliberately positioned Serco for success with leading positions in attractive government services markets across the geographies in which we're both proud and passionate to serve and operate. At the same time, we've simplified both our sector and divisional structures, creating a more focused, competitive and agile business to achieve our growth ambitions over the long term. So with that, let me just leave you with a few key messages. We've had another good first half performance. Revenue growth, profit and margin progression underpinned by strong cash generation. Importantly, that performance has not been driven by a single contract, market or initiative. It reflects the strength of the business that we have built and the quality of the execution across the Group over many years. We've also continued to make good progress against our strategic priorities of growth, competitiveness and operational excellence. Strong retention rates, a growing pipeline, a leaner, more efficient organisation support our confidence against our 2026 guidance. At the same time, our customers continue to face increasingly complex environments and growing demand. And as a result, the need for trusted partners like us that can deliver more and better for less remains. We stand ready to support them in that endeavour. And that gives me confidence in the opportunities ahead, confidence in our ability to continue to execute our strategy and confidence that Serco is well positioned to deliver safe, sustainable, long term value for our customers, our colleagues and our shareholders. So thank you very much for listening so intently. And Mark and I will now take some questions. So if you just say who you are and where you're from and put your hand up, a microphone should be with you. I didn't say it was going to work, but I did say we'll come to you. Could we get that?

Firstly, in respect of the US procurement cycle, is your sense that we need to wait for the midterms to be out of the way before that market now fully opens up? I guess you gave somewhat non-committal Q. In respect to the buyback, should we infer from that that there is low likelihood that there is going to be any bolt-ons in the imminent future and can you talk about what that pipeline does look like?

In terms of the procurement environment in the US, we are seeing some decisions now starting to be made. There were a number of protests awaiting decision which have now come through in terms of decisions. So CMS CERT as an example was protested, we've seen that. Group Plc Spd Spd Spd What I would draw your attention to is where decisions are being made. Our retention rates on current business are as strong as they've ever been and also our win rates on new business decisions are also keeping pace with where they've been over the last three years. So where decisions are being made we're still fortunate enough to win our fair share of both new and Retention Businesses and we will look to see what happens over the second half of the year. The point I would just make is that we've got about 3.2 billion actually of awards awaiting decision submitted and the final point I would make is that our 26 guidance doesn't rely on the movement of the US procurement framework.

Yeah, David, thank you for the question. So maybe first of all, I'll start off with really great first half performance, right? Left the balance sheet in a great position. I think you often get this question in terms of our capital allocation strategy. I think it's very sound. I'm very pleased with it. And I think we've been very consistent with it. So we found ourselves in a very strong position first half. I think consistently we thought it was the right thing to do to return the additional buyback. That's it being said, we're still in a very strong position in terms of the free cash flow that will generate the second half of the year. And so the balance sheet still gives us optionality, right? We still got capacity. In terms of where we are with M&A, I think Anthony and I are spending, you know, I'd say more time on that. We've put a bit more resource specifically in some of the regions where we thought strategically that makes more sense. And so, you know, we're working fast, but you know how these things are, right? They, you know, it's a bit more art than science about when these things land. And so we'll see what, you know, and, you know, be assured you'll be the first to know when we've got something buttoned down. But, you know, we're working vigorously towards evaluating the right bolt-on acquisitions. And we've got a great balance sheet to help us.

I hope we all find that at the same time, but thank you.

Good morning, Chris Banbury. I had a couple of questions. You mentioned that you expect to see an increase in the UK pipeline in the second half. Could you just give us a flavour of some of the opportunities that might come in then? And secondly, you also talked about within the margin about the increasing complexity of some of the work you're doing. Is that primarily defence? Or could you give us some examples of other areas as well? Thank you.

Yeah, so do you want to take the first one and I'll take the second one?

Yeah, sure. So, I mean, I think, Chris, we've got we continue to see, you know, strong demand for our services. Right. I think that's been clear. I think we've got some nice opportunities from defence on the facility side primarily. And then equally on justice again, we've got some nice opportunities coming through in the UK. So again, we feel fantastic first half performance. We'll see that flow through to the second half on UK. And as I said, we'll expect to continue the strength in both justice and defence pipeline as we go into the second half.

And then your second question, Chris, in terms of higher value services. If you look at the services that we're now delivering, complex defence services, support services, asset management and maintenance on vessels, the contract we'd won with the Army for those 500 vessels again is moving us up the complex chain which generally derives a greater value in terms of the things that we see in the pipeline they are weighted more to defense I think 60% of our pipeline is in is in defense and in North America which represents 60% of the total group 75 80% of that is also in defense. So we see higher value, more complex services, but also in things like our complex case management businesses in citizen services as well as our electronic monitoring contract in in the UK and elsewhere around the world. Thank you.

Thank you very much. Arthur from Citi. First one from me. Just wondered what the environment was like now that Andy Burnham has taken over. So in terms of contract adjudications, is that all kind of going to plan? And within that, just What's the government's ability to break UK migration and what's the music coming out of that? And then second question, obviously the margin in the UK over 6%, that's your sort of group upper end of guide. How much better do you think this could get in a sort of blue sky scenario? and how much of it's to do with sort of management action, how much to do with, you know, the business mix improving. Thank you.

Shall we do the first one? I'm joking, I'm joking. So let me take the UK political landscape and then Mark can take the margin question. So look, this is a new government with new secretaries of state appointed. The point I would make rather robustly, Arthur, is that we've worked in the UK for over 60 years with many different parties of all political persuasions with different policy outcomes. We deliver complex mission critical services. So we're not in the area of particularly security or cleaning without that being a wraparound of the contract. So first and foremost, we are operating critical mission Group Plc Spd Spd Spd Spd in terms of our social impact that we have in the communities that we're proud to operate in fundamentally that moving up to 20% rather than 10% of the scoring criteria now I welcome we're doing very very well in that under the current contracts and as we move forward our ability to showcase what we do to help socio-economic Disadvantage to individuals into career paths. What we do with our work with veterans and reservists, what we do with people with experience of homelessness, et cetera, is something that we hold dear. So overall, the structural drivers and the structural demand for our services remain. So look, like I say, we employ just under 30,000 people in the UK. We're very proud of the work that we do, and we continue to expect to deliver those as we move forward.

Now, on the UK margin, I think we're particularly pleased with that, given there are various puts and takes in there. So I think we've highlighted the Royal Navy, good progress on that. Electronic monitoring is one specifically where we've seen great progress. The team have really driven operational improvements, not only from a margin perspective, but also a customer outcome perspective. So that's very, very pleasing. I think obviously we've still got UK immigration, which will continue to be a headwind. And then obviously national insurance in half one was a headwind, which will lap itself into half two. So I think without predicting exactly the margin, I think those are the puts and takes, but we'll continue to see positive progress on electronic monitoring and on the Royal Navy. National insurance will drop off and then we'll see how immigration continues its progress into the second half.

Alan Wells from Jefferies. Maybe just kind of following on from Martha's question on the margin to start with, obviously 6.2% of the half year, it's ahead of the 5% to 6% kind of range that you guys have talked about. When we think about the group margin and the building blocks from here, could you maybe kind of spit out where the risks and opportunities, how much is kind of cost out at a group level, how much is Group Plc Sp-Adr you know you inherited a pretty tough situation when you pitch that contract up you make great progress but where are we in terms of capabilities and capacity I guess in that contract to accept those additional volumes and then finally a very quick one just on CMS in North America the legacy contract there obviously talked about volumes coming back just the shape of that for our modeling purposes the shape of that over the next few quarters would be really helpful thank you

Okay, do you want to carry on?

Yeah, let me continue with margin because it's kind of very similar component part when you start talking about groups. So I think, you know, again, very happy 6.2% I think is a decade high. So we're very pleased with that. The overall geographical mix is helping. So I think that's useful. If I look at North America again, very nice margin in the first half. So that's pleasing again. There's a real culture of continuing focus on driving in contract profitability and that's throughout the organization. So that will continue to be a tailwind where we execute positively there. Defense and Justice in the UK will continue in the second half to be supportive in terms of overall margin from a group perspective. And then you've got this immigration effect. Again, you know, we were slightly better from primarily a bulk volumes perspective, mixed perspective in the first half. That will continue to be a headwind as we go into in the second half, and then clearly into 2027. National Insurance, as I said, was a large, chunky number in half one. That starts to lap itself. And then maybe final on corporate costs, very pleased from CFO seat of the performance in half one on corporate costs. We continue to have a very thorough thought process in terms of managing costs. We managed, again, across workforce optimization in terms of third party spend. That plays out well. There will be some time in the second half, so we shouldn't expect the costs to flow fully through into the second half because there's some small IT spend in the second half which is phasing. But overall, I think again, and I'm sure the question is going to come in terms of where does that look longer term? I think the business is performing. We've got very good tailwinds in terms of the geographical mix, in terms of our defense, in terms of pipeline makeup there. So there's some real nice structural elements of our business. And clearly, but we've also got some headwinds in terms of immigration. But we'll come back and let you know what we think about that in due course. Once we've probably got through my first budget, I'll have a better view of what that really looks like.

Thanks, Mark. Alan, just to answer your other two questions. So in terms of CMS, the phasing that we see moving forward is no different to the historical trends that we've seen. We don't give numbers at this point in the year. We've obviously got to go through the budgeting process. But H1 to H2, we're seeing those trends continue to be as we've seen historically. In terms of UK justice and electronic monitoring, I reviewed this contract probably 10 days ago, and we were obviously talking about the government's need for the early release scheme to ease the capacity issues across the UK mail estate. Fundamentally, we are monitoring at the moment record numbers of people in the community. I think we're up to about 28,000 people per day that we're monitoring. We have the capacity, the resources and the capability to meet the government's demands as we move across the next couple of years. We expect those numbers, as the MOJ themselves have confirmed, to get into the mid-30,000s. Group Plc Sp-Adr and every KPI has been green for a significantly sustained period of time over the last couple of months so I'm exceptionally proud of it. This is where we come into our own, where we stand up and we help customers deliver those critical services to help them solve a complex problem that they see in front of them.

Hi, it's James Rose from Barclays. I've got two please. First is on productivity. I think that's been a significant contributor to profits over the last few years. Mark, when you look across the group, how big a pool of opportunity do you think remains in that spectrum? And then the second one is on how contracts may be changing over time? I think the US is trying to push towards more fixed price contracts, UK sort of to be determined, but potentially a bit more outcome based. How would you assess that framework in terms of the risks and potential opportunities for Serco? You want to do the first one?

Yeah, I'll do the first one. So, I mean, as I stated in my notes, look, I think you'd probably expect me to say that first six months in. I think there's a real DNA of driving productivity improvements, right, across the contracts, across the regions. That is in the DNA of the company. I think the example you used in terms of electronic monitoring is just one of those examples. And so, you know, if you take that practice is there, we're definitely going to focus, continue to focus on that and take that good practice. If you look across our cost base, it's a significant number. So, you know, I think it's four, four and a half billion. So there continues to be pools of spend to go against. And so you will expect me to continue to look at that and push to accelerate those benefits. So that's where I am.

Thanks for the question. Look, I think what I would say is our current landscape of contracts in the US is probably around 50% fixed priced already. So we don't have a huge proportion of the business or its weighted more favorably to cost plus. So we've got experience of operating in fixed priced environment and interestingly that's generally how the rest of the world currently operates in terms of fixed price contracts there's very few cost plus around the around the rest of the world so we have the skill and the capability within the organization to do that and actually we see the opportunity to help the customer reduce their costs through fixed price through this price contract as a good thing and like I say we've we've got some very good examples of where we've been helped Group Plc Sp-Adr

Alex Smith from Berenberg, just two from me. Number one on MT&S, almost fully integrated. One of the objectives there was to cross-sell and up-sell that new capability into the US, but also into Europe. Update on that and potential plans. Number two, just on UK immigration, you mentioned volume slightly lower as you previously guided in July. You're approaching the 2029 end of the contract. There's kind of discussions with the government how that contract is looking. I guess that kind of rebid process begins to start into next year. So any color there would be great.

Yeah, so in terms of MT&S, we're already starting now. That's been very well integrated into the wider Serco portfolio. We're working with them on a number of opportunities, quite sizable opportunities, both within the US and Alex, to your point more broadly. So there's an opportunity in Canada that we would probably not have been able to bid for had we not have made the acquisition of MT&S. and also MT&S supported a recent win in defence in New Zealand using some of that capability. So we're already starting to see some positive green shoots of being able to take that capability more globally. In terms of immigration, Mark can touch on the numbers. In terms of the 2029 contract, that's still the case. So the contract is up for renewal in 2029. The customer previously come out and suggested one contractual mechanism for the future services from 29 onwards that's changed ever so slightly now so we expect to be able to be absolutely as a strategic partner to the Home Office Bidding for that contract retention in 2029. The shape of it may be slightly different to what it is today but fundamentally I think the customer knows that having trusted partners like us where they're able to publicly control the contract or have it privately delivered is something where we think our skills and expertise will continue to be utilised by the Home Office.

Yeah, and then on numbers, I mean, I think, like you're saying, I think our customer's happy. We're supporting income out of hotels, so the hotel mix is down. Overall volumes is slightly down. We're around 40,000, but that's not huge. So the mix is moving more towards dispersed accommodation. In terms of overall financial effect of that, again, I think we talked about about 100 million headwind. That's not that size. It's probably more in the 60s. At this point, so and then we still got the second half to go, but it's certainly treating it slightly lower pace than what we'd expected.

Just one, going back to the Cabinet Office announcement, you talked about what it means from a relationship with government perspective. Could you also talk about what it means from a competitive environment perspective? Does that sort of 20% increase in social value and removing a lot of the other criteria sort of lower the barrier to entry for some smaller competitors?

Thanks for the question, Jane. I don't think it reduces the barrier to entry for other competitors. We work really well, actually, in our supply chain with SMEs. So we see this as an opportunity to work with more SMEs that can deliver some of those services where we think that others would be best placed under a prime relationship with us. But fundamentally, I don't see the barriers reducing. Some of the things that will no longer be part of the scoring criteria, we may still choose to do as an organization anyway. So I don't think that that's going to be impactful. This is all about skills and job creation. And I think I made the point previous session that around 90% of our population, the work in our contracts come from within the locality. We've got some very strong track record 630 apprentices. We have many people on master degree programs and apprenticeships that we have within the organization. So this is about still delivering complex government services but the focus of what the government wants out of those locally delivered services is slightly altered in the scoring mechanism. What I just hope that we can give confidence on is that we are very very good at this already so our passion and our determination to make sure that we deliver those socio-economic advantages both in skills and jobs locally absolutely is going to remain at the core. Any other questions from the room before we ask online? Somebody's hopefully going to appear from speaker in a minute.

If you would like to ask a question and are dialed into the conference line, please press star followed by the number one on your telephone keypad. Once again, if you're dialed into the conference and would like to ask a question, please press R, followed to number one on your telephone keypad. Any tips that we have, no questions on the conference line, I will now head over to the management for closing remarks.

Fantastic. Well, thank you all very, very much. And in our continued pursuit of efficiency, we've managed to finish spot on the time. So that was very well done, both from my colleague here and from the audience question. So thank you all very much. We will be around for any other individual questions that you may wish to ask. But we wish you a very safe day and a good rest of your week. Thank you all.