2025 half year results

2025 half year results

Serco Group plc ("Serco" or the "Company")

7 August 2025

Strong first-half performance, continued momentum, new £50m share buyback

Highlights from strong first half:

Continued momentum underpins confident outlook:

Commenting on today's update, Anthony Kirby, Serco Group Chief Executive, said:

"We have delivered a strong performance in the first half, thanks to the hard work of our dedicated people, underpinning confidence in full-year guidance.

"Revenue growth, profit and cash generation have all been robust, reflecting stronger organic growth, driven primarily by our defence-focused North American business. During the period, order intake of £3.2bn delivered a strong book-to-bill of more than 130%, which is heavily weighted to the defence sector.

"I am pleased that this performance and our healthy financial position has enabled the launch of a new £50m share buyback.

"Looking ahead, the depth of our portfolio, strong order book and growing pipeline, give me confidence that we will continue to build on this momentum. Around the world, the challenges governments face are becoming ever more complex and acute, driving demand for our services, where we are well placed in growing markets."

Guidance for 2025

We update guidance for 2025 versus our pre-close trading statement on 26 June when we improved both revenue and organic revenue growth expectations. Revenue and profit guidance is unchanged from that, and incorporates total adverse currency impacts for the year of £90m and £7m respectively. A first-half weighting to profit is expected, reflecting the previously disclosed second-half impacts from higher UK national insurance costs, the conclusion of the Australian immigration contract and the usual seasonality within the North American case management business. There is a small reduction in the underlying effective tax rate, and after the new share buyback, the expected number of shares will reduce and adjusted net debt will increase.

NB: The guidance uses an average GBP:USD exchange rate of 1.31 in 2025, GBP:EUR of 1.18 and GBP:AUD of 2.07. We expect a weighted average number of shares in 2025 of 1,012m for basic EPS and 1,028m for diluted EPS.

For further information please contact Serco:

Jamie Hastings, Head of Investor Relations | +44 (0) 7718 195 074 | [email protected]

Scot Marchbank, Group Communications and Marketing Director | +44 (0) 7958 675 706 |[email protected]

Presentation:

A presentation for institutional investors and analysts will be held at RBC Capital Markets, 100 Bishopsgate, London, EC2N 4AA today at 10.00 UKT. The presentation will be webcast live at https://sparklive.lseg.com/SercoGroup/events/248fc532-c09d-47c4-8691-0e2a0c9b5eea/serco-2025-half-year-results and subsequently available on demand.

To be able to ask questions please use our dial-in facility accessed on https://registrations.events/direct/LON9243163

Notes to financial results summary table and highlights:

The trading performance and outlook for each Division are described on pages 11 to 15. Reconciliations and further detail of financial performance are included in the additional information on pages 42 to 48. This includes full definitions and explanations of the purpose of each non-IFRS Alternative Performance Measure (APM) used by the Group.

About Serco

Serco brings together the right people, the right technology, and the right partners to create innovative solutions that make a positive impact and address some of the most urgent and complex challenges facing the modern world.

With a primary focus on serving governments globally, Serco's services are powered by more than 50,000 people working across defence, space, migration, justice, healthcare, mobility, and customer services.

Serco's core capabilities include service design and advisory, resourcing, complex programme management, systems integration, case management, engineering, and asset & facilities management.

Underpinned by Serco's unique operating model, Serco drives innovation and supports customers from service discovery through to delivery.

More information can be found at www.serco.com

LEI: 549300PT2CIHYN5GWJ21

Chief Executive's update

We have delivered a strong performance in the first half. Revenue growth, profit and cash generation have all been robust, reflecting stronger organic growth, driven primarily by our North American business and increased revenues in the defence sector.

I am grateful to every one of my colleagues who have contributed to our strong performance in the period. This performance reflects our focus on disciplined execution and operational excellence as we build momentum for the future.

Our excellent first half order intake of £3.2bn represents a book-to-bill of over 130%. The wins contributing to this strong performance included the first-ever tri-service recruitment programme for the UK Armed Forces. This new contract seeks to improve recruitment outcomes for all branches of the British military, at a time when departments of defence around the world are facing staffing challenges and seek to mobilise new recruits. In addition we secured three major contracts, totalling over £1bn, with the UK Ministry of Defence to deliver maritime services for the Royal Navy, contributing to first half order intake which reflected a strong win rate.

In recent years we have focused on increasing our defence capabilities, building on our 60 year history - through both organic and acquisitive growth - which positions us well to benefit from recent market drivers. Our £2bn global defence business generated over three quarters of our strong order intake during the first half, underpinning our confidence in this market.

As defence customers seek expanded, modern, resilient, mission-ready solutions, we are able to deploy our extensive experience, extended capabilities and increasing scale to support them. We continue to see significant opportunity in the sector, bolstered by our growing capabilities from the acquisition of MT&S which completed during the first half and is integrating in line with expectations.

Our commitment to operational excellence continues to create value, as we once again report excellent contract retention rates of 95%, providing a strong foundation for growth. Central in our approach to retention is adapting to meet new demands in the market. A good example of how we are evolving our services is the expanded strategic partnership with Mubadala, one of Abu Dhabi's sovereign wealth funds. We expect partnerships across our divisions to be key in driving sustainable growth in the medium term.

Our consistently strong order intake underpinned by our excellent retention rates supported 9% organic revenue growth in our North American business in the first half. Following the acquisition of MT&S, three quarters of the US$2bn revenue in this division will be generated from the defence sector, which grew at 14% in the period following sizeable contract awards in 2024. Although we remain alive to recent policy changes in the region, we have not seen a material impact on the business. Margins in North America are particularly strong at 10.6% and we achieved a 12-basis point improvement compared to the same period last year.

Across the Group, it is pleasing that we made good progress on profitability, alongside revenue growth. Our first-half margin of 6% is at the top of end of our target range, having delivered strong underlying operating profit of £146m for the half year. In our Asia Pacific business, we have made progress, where efficiency and improved contract performance led to margins almost doubling compared to the first half in the prior year. An increase in national insurance tax reduced the UK margin, which was also impacted by a longer transition and higher costs associated with our Electronic Monitoring contract which has significantly improved performance while monitoring a record volume of service users.

We expect migration will provide governments globally with ongoing challenges. Our migration services offering continues to evolve accordingly as we work with our customers to provide solutions to these complex, multi-year challenges and support them in delivering on their policies. Against this background, we continue to see consistent demand for our UK immigration services. On migration more broadly, we exited the Australian immigration contract successfully, handing it over in good shape.

Fundamentally, strong operational outcomes have delivered a healthy financial performance in the first half; this alongside supportive market drivers give us confidence in our full-year guidance. In addition, good cash generation, with 84% of profit converted to cash, has enabled us to reduce leverage at the half year to below our target range, at less than 0.9x EBITDA after the US$327m MT&S acquisition in the first half. Given this strong financial position, we are pleased to have launched a new £50m share buyback, alongside an increase in the interim dividend.

Looking ahead, we continue to build on the Group's momentum. Our strong order book provides a high level of visibility, supported by a new business pipeline which has grown to £11.9bn from the decade high £11.2bn reported in 2024, having been replenished following a high level of awards.

Serco is an exceptional business, and one which I am immensely proud to lead. We are well positioned for the opportunities ahead, driven by the clear structural drivers of demand for our expertise in defence, migration, justice, and citizen services, as governments increasingly need efficient partners of scale to support public service delivery.

We, therefore, look forward with confidence to enhancing future growth and delivering sustainable value to our shareholders, customers and colleagues, as we continue to deliver mission critical and complex services as a partner of choice for governments around the world.

Anthony Kirby

Group Chief Executive

Group Review

Summary of financial performance

Revenue, underlying operating profit and underlying earnings per share

Revenue for the period was £2,419m, an increase of 3%, or £60m, compared to the £2,359m reported in 2024. Organic growth contributed 3% (£60m), with acquisitions adding a further 2% (£47m). This was partially offset by a 2% (£47m) currency drag. We delivered strong growth in defence, particularly in North America, and in Citizen Services, where we are mobilising several contract wins. In Justice & Immigration, higher than expected demand for temporary accommodation meant the reduction in revenue in our UK immigration contract was lower than we originally anticipated. As expected, the exit of some contracts in Asia Pacific and the Middle East led to lower revenue in these regions.

Underlying operating profit increased by 2% to £146m (2024: £142m), this includes 2%, or £3m, adverse impact of currency. On a constant currency basis, underlying operating profit increased by 4%. Profit increased in our Defence business which includes the mobilisation of new contracts and an initial contribution from the acquisition of MT&S. A strong margin of 6% (2024: 6%) was maintained with support from continued efforts to improve efficiency and productivity across the portfolio. This helped offset the impact from higher national insurance contributions and additional costs in relation to our Electronic Monitoring contract where the mobilisation period has been extended.

Reported operating profit increased by 2% to £132m (2024: £130m) and after including net finance costs and tax, which were slightly lower on a net basis, reported profit increased by 5% to £89m (2024: £85m).

Diluted underlying earnings per share increased by 12% to 9.60p (2024: 8.54p). The growth was higher than underlying profit after tax as our share buybacks in 2024 led to a 6% reduction in our weighted average number of shares in the period.

The revenue and underlying operating profit performances are discussed in more detail in the Divisional Reviews.

Cash flow and net debt

Free cash flow was £91m (2024: £75m) representing a good cash conversion of 84%. This was better than we first expected for the period and it also included some temporary timing benefits that will normalise in the second half. Average working capital days were good, with debtor days of 18 (2024: 21 days) and creditor days of 20 (2024: 19 days). Including accrued income and other unbilled receivables, days sales outstanding were 43 days (2024: 43 days). Of all UK supplier invoices, 94% were paid in under 30 days (2024: 94%) and 98% were paid in under 60 days (2024: 97%). No working capital financing facilities were utilised in this or the prior year.

Adjusted net debt was £259m at the end of June. This was an increase of £159m since the year end (December 2024: £100m), largely driven by a £246m cash outflow for the acquisition of MT&S and £29m of dividend payments, partially offset by our positive free cash flow of £91m.

The period end adjusted net debt compares to a daily average of £199m (2024: £157m) and a peak of £465m (2024: £212m). The difference between average and peak figures reflect the timing of the outflow for the MT&S acquisition. Working capital outflows that occur in a short timeframe such as payroll, supplier payments, VAT payments on account also cause variability between peak and average figures. Variances such as these are normal for the Group.

Our measure of adjusted net debt excludes lease liabilities, which aligns closely with the covenants on our financing facilities. Lease liabilities totalled £524m at the end of June (December 2024: £530m), the majority being leases on housing for asylum seekers under our Asylum Accommodation and Support Services Contract (AASC). These leases are serviced with contracted revenue from the customer and their terms do not extend beyond the expected life of the contract.

As at the closing balance sheet date, our leverage for debt covenant purposes was 0.9x EBITDA (2024: 0.6x). This compares with the covenant requirement for net debt to be less than 3.5x EBITDA and our target range of 1-2x.

In April 2025, we issued US$250m (£193m) of US private placement loan notes to support the funding of acquiring MT&S. The notes were split into three series of US$100m, US$75m and US$75m with maturities of six, eight and ten years respectively. The weighted average interest rate on the new loan notes was fixed at 6.23%. The blended rate on US private placement loan notes in issue at the end of June 2025 was 5.44% (December 2024: 4.88%).

Capital allocation and returns to shareholders

We aim to have a strong balance sheet with our target financial leverage of 1-2x net debt to EBITDA.

Consistent with this, the Board's capital allocation priorities are to:

Our capital allocation framework was actively applied in the first half of 2025:

Contract awards, order book, rebids and pipeline

Contract awards

Order intake for the first half was £3.2bn up from £1.9bn in the comparable period of 2024, representing a book-to-bill rate of 134%. This included over 20 contract awards valued at £10m or more. UK & Europe accounted for £2.5bn, or 78%, of the Group's total, while North America contributed £0.6bn and Asia Pacific and Middle East secured a combined £0.1bn.

Our order intake was evenly split between new business and retention of existing work. Pleasingly, the win rate by value for new work was 37%, and 95% for retaining existing work, returning to the levels seen in 2023 and the first half of 2024. The full-year 2024 rate of 75% was impacted by the unsuccessful Australian immigration rebid.

UK & Europe had the strongest book-to-bill at 202%, driven by wins across the Defence and Citizen Services businesses. In North America, as expected following the very strong period of contract awards in 2024, there were fewer decisions in the first half resulting in a book-to-bill of 79%. Our Middle East business improved its book-to-bill rate from 93% at the end of 2024 to 148% by the end of June 2025. And in Asia Pacific, we experienced a disappointing period for contract awards. We are progressing with our transformation plan to optimise the business and to return the region to growth in the medium term.

Notable contract wins included three agreements with the UK Ministry of Defence to deliver maritime services for the Royal Navy under the Defence Maritime Services Next Generation programme. Collectively, the contracts have an estimated value of £1bn over a term of up to ten years. This is in addition to the £1bn seven-year Armed Forces Recruitment Service (AFRS) contract announced in February 2025 which could rise to £1.5bn if all extension options are exercised. Mobilisation has commenced, with service delivery scheduled to begin in early 2027. Elsewhere, in North America we secured a five-year contract to continue providing support to the US Navy's amphibious warfare ships and systems with an estimated value of US$105m. And in the Middle East we successfully secured a five-year extension to our long-standing guest experience partnership with Dubai Airport valued at AED495m.

Order book

The order book increased to £14.5bn at the end of June (30 June 2024: £13.5bn, 31 December 2024: £13.3bn). Our order book definition gives our assessment of the future revenue expected to be recognised from the remaining performance obligations on existing contractual arrangements. This excludes unsigned extension periods, and the order book would be £2.3bn (2024: £2.5bn) higher if option periods in our US business, which typically tend to be exercised, were included. If joint venture work was included, this would add a further £1.8bn (2024: £1.7bn).

Rebids

In our portfolio of existing work, we have around 66 contracts with annual revenue of £5m or more where an extension or rebid will be required before the end of 2027, with an aggregate annual revenue of £1.3bn. At around 30% of the Group's 2025 revenue guidance, this proportion of work that will be up for rebid is at the low end of the range we have seen over recent years. The annual value of rebids is approximately £0.6bn in 2026 and £0.7bn in 2027. The largest contract that is scheduled to be rebid in the next two years represents around 2.5% of Group revenue. This is the only contract with annual revenue of more than £100m, or 2% of Group revenue, scheduled to be rebid before 2028.

New business pipeline

Our measure of pipeline includes only opportunities for new business that have an estimated annual contract value (ACV) of at least £10m and which we expect to bid and to be adjudicated within a rolling 24-month timeframe. We cap the total contract value (TCV) of individual opportunities at £1bn, to lessen the impact of single large opportunities. The definition does not include rebids and extension opportunities, and in the case of framework, or call-off, contracts such as Indefinite Delivery/Indefinite Quantity contracts (ID/IQ), which are common in the US, we only take the value of individual task orders into our pipeline as the customer confirms them. Our published pipeline is thus a small proportion of the total universe of opportunities, as many opportunities that have annual revenues less than £10m, are likely to be decided beyond the next 24 months, or are rebids and extensions.

Our pipeline was £11.9bn at the end of June 2025, 6% higher than the £11.2bn level at the end of December 2024. This remains the largest pipeline of potential new work we have had in over a decade. The pipeline consists of over 60 bids with an average ACV of £31m and an average contract length of around five years. The pipeline of opportunities for new business with an estimated ACV of less than £10m totalled £2.9bn at the end of June (December 2024: £2.0bn).

To enhance future growth opportunities in the Middle East, we are expanding our strategic partnership with Solutions+, a Mubadala company, where we will bring experience in delivering world-class public services along with innovation and sustainability credentials to complement their deep regional experience, building a national champion in facilities management in the UAE.

Acquisitions

We view acquisitions as an important part of our strategic toolkit, which if deployed correctly, can add significant value to the business. They should therefore be capable of delivering new opportunities for organic growth. Generally speaking, we regard acquisitions as higher risk than organic growth, so any potential opportunities have to meet our stringent criteria of being both financially and strategically compelling. We judge potential acquisitions against three criteria: Do they add new, or strengthen existing, capability? Do they add scale which we can use to increase efficiency? Do they bring us access to new and desirable customers and markets? We also recognise that acquisition opportunities come in different shapes, sizes and sectors, and a small one can be strategically important to a region, but not necessarily significant at Group level. But large or small, the execution of all acquisitions is centrally managed and follows the same rigorous process. Equal focus and discipline are applied to post-acquisition value drivers such as effective integration and value realisation from synergy and growth. Our approach of selectively adding acquisitions to our organic strategy has enabled us to accelerate growth, strengthen the business and improve its future growth potential in North America and in Europe.

On 24 May 2025, the Group acquired the Mission Training and Satellite Ground Network Communications Software business (MT&S) from Northrop Grumman, for an enterprise value of US$327m (£242m). MT&S generates annual revenues of approximately US$300m, increasing the annual revenue of our North America business to US$2bn. This strategic acquisition significantly enhances Serco's defence and space capabilities, adding advanced mission training services and satellite ground network software to our portfolio. It also deepens our engagement with the US Department of Defense, supporting programmes across the US Army, Space Force, Air Force, Navy and Combatant Commands, with a team of around 900 skilled professionals. The acquisition supports Serco's growth ambitions within the international space sector, reinforcing our efforts to expand our global footprint in regions such as the UK, Australia, and the Middle East.

Further to the pre-close trading statement on 26 June, guidance has been updated to reflect the impact of the new £50m share buyback announced today. This will increase net debt and reduce the number of shares in issue which, in combination with a reduction in the expected underlying tax rate for the year, will further improve underlying earnings per share.

Revenue: We expect revenue of around £4.9bn with organic revenue growth of c.1% and a c.3% contribution from acquisitions, predominately due to MT&S. New and expanded contracts in Defence, Justice and Citizen Services will more than offset the reduced immigration revenues. This is both in the UK, following the UK Government's efforts to reduce the number of hotels being used to accommodate asylum seekers, and Australia, where we transitioned out of our contract in the first half. The translational impact of currency is expected to have a £90m adverse impact in the year.

Underlying operating profit: Underlying operating profit is expected to be around £260m, with a first-half weighting to profit reflecting the anticipated second-half impacts from the end of the Australian immigration contract, a full six months of higher UK national insurance costs, and the typical seasonality within our North American case management business. The acquisition of MT&S will provide a seven-month financial contribution in the year, estimated at around £7m which includes transaction and integration costs of £8m. Currency translation for the year is estimated to have a £7m adverse impact. The expected full-year margin of 5.3% is within our medium-term target range of 5-6%.

Net finance costs and tax: Net finance costs are expected to be around £48m. This is higher than 2024 due to the increased volume of leases, in relation to immigration accommodation services in the UK, and higher debt interest following the acquisition of MT&S. The underlying effective tax rate is expected to be around 23%, lower than our medium-term expectations of 25% following some one-time impacts in the year.

Financial position: Free cash flow is again expected to be strong at around £130m in the year, in line with our medium-term target of converting at least 80% of profit into cash. We expect adjusted net debt to end the year at around £285m which is higher than 2024 following the acquisition of MT&S and has increased versus previous guidance to incorporate the new share buyback.

Surplus capital in 2025: Consistent with our capital allocation priorities, we have a preferred financial leverage range of 1-2x net debt to EBITDA. If we are below 1.0x leverage, we consider the business to be in a position of having surplus capital, which will be returned to shareholders through share buybacks or other means. As leverage at the end of the first half was 0.9x net debt to EBITDA, placing the business in a position of surplus capital, a £50m share buyback has been announced today and is expected to complete in 2025. We will review the capital position again at the full year.

Summary of guidance for 2025

NB: The guidance uses an average GBP:USD exchange rate of 1.31 in 2025, GBP:EUR of 1.18 and GBP:AUD of 2.07. We expect a weighted average number of shares in 2025 of 1,012m for basic EPS and 1,028m for diluted EPS.

Divisional Reviews

Serco's operations are reported through four geographic divisions: North America, UK & Europe (UK&E), the Asia Pacific region and the Middle East. Reflecting statutory reporting requirements, Serco's share of revenue from its joint ventures and associates is not included in revenue, while Serco's share of joint ventures and associates' profit after interest and tax is included in underlying operating profit.

Reconciliations and further details of financial performance are included in the additional information on pages 42 to 48. This includes full definitions and explanations of the purpose of each non-IFRS Alternative Performance Measure (APM) used by the Group. The Condensed Consolidated Financial Statements and accompanying notes are on pages 20 to 41. Included in note 2 to the Group's 2024 Consolidated Financial Statements are the Group's policies on recognising revenue across the various revenue streams associated with the diverse range of goods and services discussed within the Divisional Reviews. The various revenue recognition policies are applied to each individual circumstance as relevant, taking into account the nature of the Group's obligations under the contract with the customer and the method of delivering value to the customer in line with the terms of the contract.

The trading performance and outlook for each Division are described on pages 12 to 15. Reference to each Division's proportion of underlying operating profit is based on the Group's underlying operating profit before corporate costs. For the period ended June 2025 the Group's underlying operating profit before corporate costs was £175.3m.

North America (29% of revenue, 43% of underlying operating profit)

Revenue increased by 10% to £721m (2024: £656m), delivering a very strong organic growth performance of 9% in addition to the 4% contribution from acquisitions. There was a 3% adverse translational effect of currency. Growth was led by the continued expansion in the defence sector following the high levels of order intake in 2024. There were positive contributions from mobilising new contracts as well as increased demand for IT network and infrastructure services to the US Navy. Elsewhere, demand for case management delivered growth in our Citizen Services business.

Underlying operating profit increased by 11% to £76m (2024: £69m). This was driven by 8% organic growth, with acquisitions contributing 5% and a 2% drag from currency. There was good progress on profit across all sectors including the mobilisation and expanded contracts in the defence sector and efficiencies in our case management portfolio. As a result, margins increased slightly from 10.5% to 10.6%.

Following the high level of contract awards in the second half of 2024, as expected, fewer bids concluded in the first half of 2025. Order intake of £0.6bn was robust and win rates for both new business and rebids remained healthy. The largest order was for a contract to continue providing support to the US Navy's amphibious warfare ships and systems. The five-year contract has an estimated value of US$105m with services including engineering, ship design management and integrated logistics support.

The acquisition of MT&S which completed in May, enhances our defence and space capabilities, adding advanced mission training services and satellite ground network software to our portfolio. It also deepens our engagement with the US Department of Defense, supporting programmes across the US Army, Space Force, Air Force, Navy and Combatant Commands, with a team of around 900 skilled professionals. There has been a good start to the transition and integration of MT&S into the business.

The pipeline of major new bid opportunities due for decision within the next 24 months has more than doubled from £2.1bn at the end of 2024 to £4.6bn, and includes around £800m of opportunities in relation to MT&S. Defence continues to account for the majority of the North American pipeline with a broad spread of types of work. There are a high number of contract awards due to conclude in the second half of the year and while we have not seen any significant delay to contracts awarded to Serco in the first half, we continue to monitor the wider market closely. The US defence market remains one of Serco's highest-priority target sectors. It benefits from the largest defence budget globally, strong bipartisan political support for increased readiness, and a clear strategic intent to strengthen military capabilities. These underpin our confidence in the long-term growth potential of this market.

UK & Europe (52% of revenue, 45% of underlying operating profit)

Revenue increased by 4% to £1,254m (2024: £1,211m), including organic growth of 2% with acquisitions contributing a further 2%. There was good organic growth in our Defence and Citizen Services businesses following the mobilisation of several major contracts. Higher than expected demand for temporary accommodation in our UK immigration contract meant the decline in revenue for our Justice & Immigration business was lower than we originally expected.

Underlying operating profit decreased by 5% to £78m (2024: £83m) with the contribution of European Homecare, the German immigration services business acquired in March 2024 partially offsetting an organic decline of 8%. Margin performance remained healthy at 6.3% (2024: 6.8%), although down 59bp on the prior period. This included the impact from higher national insurance contributions and additional costs in relation to our Electronic Monitoring contract where the mobilisation period has been extended. Productivity improvements in the second half, as the contract moves to its next phase of operation, are expected to deliver better financial outcomes and place it in a good position ahead of the anticipated increased demand for monitoring services as part of UK justice reforms. Defence, a priority sector of ours, showed growth in profitability and we're seeing good demand in our European Space business. We are committed to continuously improving the business and seeking opportunities to reduce cost and improve our efficiency in the future.

Underlying operating profit includes the profit contribution of joint ventures, from which interest and tax have already been deducted. If the proportional share of revenue from joint ventures was included and the share of interest and tax cost was excluded, the overall divisional margin would have been 5.5% (2024: 5.9%). The joint venture profit contribution increased to £11.7m (2024: £11.2m) due to a change in the mix of services within VIVO, our defence services joint venture.

Order intake was very strong at £2.5bn with a book-to-bill of 202%. We have seen particular success in winning new work which made up approximately 55% of order intake at a win rate by value of around 70%. We have maintained our momentum on securing rebids and extensions with a win rate over 95%. Notable contract wins included three agreements with the UK Ministry of Defence to deliver maritime services for the Royal Navy under the Defence Maritime Services Next Generation programme. Collectively the contracts have an estimated value of £1bn over a term of up to ten years. This is in addition to the £1bn seven-year Armed Forces Recruitment Service (AFRS) contract announced in February 2025 which could rise to £1.5bn if all extension options are exercised. Mobilisation has commenced, with service delivery scheduled to begin in early 2027. We also extended our contract to provide environmental waste services to Hart and Basingstoke and Deane councils, which is worth approximately £100m.

The UK & Europe pipeline remains healthy at £4.7bn (2024: £6.4bn) despite the high conversion rate in the period. Our opportunities are broad covering all the key sectors we operate in including defence, justice & immigration and citizen services.

Asia Pacific (15% of revenue, 8% of underlying operating profit)

Revenue reduced by 8% to £355m (2024: £387m), reflecting an organic contraction of 3% and a 5% adverse currency effect. The decline follows the successful transition out from providing onshore immigration services to the Australian Government which concluded in the period. We also saw revenue growth in our existing Justice and Defence portfolios.

Operational excellence and competitiveness programmes made strong progress in the period. Underlying operating profit increased by 79% to £14m (2024: £8m), a 193bp margin improvement to 3.9% (2024: 2.0%). Progress across the portfolio, particularly in Justice and Defence, included operational improvements and a significant reduction in the cost base. This is an important step in our transformation plan to optimise the business following the end of the immigration contract and to return the region to growth in the medium term.

It was a disappointing period for contract awards and our primary focus remains rebuilding the pipeline which stood at £0.8bn (2024: £1.7bn). The reduction in the period follows a reassessment of the pipeline and in particular our latest view for the tender to provide facilities management services to the Australian Defence Force.

Middle East (4% of revenue, 4% of underlying operating profit)

Revenue reduced by 15% to £89m (2024: £105m) of which 13% was an organic decline and 2% due to adverse currency movements. There was increased demand for fire and rescue services in Saudi Arabia, as well as defence support services. However, these did not offset the revenue impact following the conclusion of our air navigation contract in Dubai.

Underlying operating profit increased by 14% to £7m (2024: £6m) with margin improving 188bp from 5.4% to 7.3%, despite the decline in revenue. This follows our focus on improving the underlying performance of our portfolio and securing new work at higher margins.

Order intake was around £0.1bn and includes a strategically important contract extension at Dubai Airports valued at AED495m until December 2030. The five-year extension builds on a long-standing guest experience partnership , following the successful delivery of an initial five-year term.

Our pipeline of major new bid opportunities in the Middle East continues to grow and now totals around £1.7bn (December 2024: £1.0bn). In particular, there are a number of opportunities within the transport sector in Saudi Arabia. To enhance future growth opportunities in the Middle East, we are expanding our strategic partnership with Solutions+, a Mubadala company, where we will bring experience in delivering world-class public services along with innovation and sustainability credentials to complement their deep regional experience, building a national champion in facilities management in the UAE.

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Corporate costs

Corporate costs relate to typical central function costs of running the Group, including executive, governance and support functions such as HR, finance and IT. Where appropriate, these costs are stated after allocation of recharges to operating divisions. The costs of Group-wide programmes and initiatives are also incurred centrally.

Corporate costs increased by £6.7m to £29.5m (2024: £22.8m) and include targeted short-term investments made in the period to support future operational and productivity improvements.

Dividend

The Board has declared an interim dividend of 1.45 pence per share. The dividend will be paid on 3 October 2025, with an ex-dividend date of 28 August 2025 and a record date of 29 August 2025.

Other Financial Information

Non-underlying items

Non-underlying items in the period were a charge net of tax of £10.3m (2024: £9.4m). This comprises amortisation and impairment of intangible assets arising on acquisitions of £14.3m (2024: £12.9m), and non-underlying tax for the year being a credit of £4.0m (2024: £3.5m).

Joint ventures and associates - share of results

During the period, the most significant joint ventures and associates in terms of scale of operations were Merseyrail Services Holding Company Limited (Merseyrail) and VIVO Defence Services Limited (VIVO). Both are incorporated and operated in the UK.

Merseyrail generated revenue of £107.6m (2024: £108.8m), with the Group's share of profits net of interest and tax for the year being £5.5m (2024: £5.9m). The reduction in Merseyrail revenue and profits is primarily due to a one-off commercial settlement received in 2024. The Group received dividends of £5.0m (2024: £5.5m).

VIVO revenue for the period was £395.9m (2024: £514.8m) with the Group's share of profits net of interest and tax for the year being £6.2m (2024: £5.3m). The decline in VIVO's revenue is largely due to lower variable work volumes within VIVO's accommodation contract for which the Group receives a smaller share of profits. The increase in profit is due to the mix of margins within different contracts. The Group received dividends of £7.1m (2024: £nil).

Whilst the revenues and individual line items are not consolidated in the Group Consolidated Income Statement, summary financial performance measures for the Group's proportion of the aggregate of all joint ventures and associates are set out below for information purposes.

Finance costs and investment revenue

Net finance costs recognised in the income statement were £19.4m (2024: £15.5m), consisting of investment revenue of £3.5m, less finance costs of £22.9m.

Investment revenue of £3.5m (2024: £3.8m) includes interest accruing on net retirement benefit assets of £0.4m (2024: £0.9m), and interest income of £3.1m (2024: £2.9m).

Finance costs of £22.9m (2024: £19.3m) include interest incurred on loans, primarily the US private placement loan notes and the revolving credit facility of £10.0m (2024: £7.6m), and lease interest expense of £11.6m (2024: £9.1m), as well as other financing related costs including the impact of foreign exchange on financing activities. The increase in lease interest expense year-on-year is primarily due to the continuing increase in the number of leases for dispersed properties required for our UK asylum accommodation contract.

Net interest paid recognised in the cash flow statement was £17.0m (2024: £12.2m), consisting of interest received of £3.1m (2024: £2.8m) less interest paid of £20.1m (2024: £15.0m).

Tax

Underlying tax

An underlying tax charge of £27.5m (2024: £33.0m) has been recognised in the period on underlying profits after net finance costs. The effective tax rate of 21.8% is lower than at 30 June 2024 of 26.0% and 31 December 2024 of 25.1%. The rate is lower than 30 June 2024 primarily due to one-time credits for the release of tax provisions following finalisation of overseas tax audits and securing other tax repayments previously too uncertain to recognise. In contrast, the period to 30 June 2024 included increases in tax provisions against audit outcomes. Other differences are due to variances in permanent adjustments, overseas profits taxable at different rates, and profits of joint ventures whose post-tax profits are consolidated into the Group profit before tax.

The current underlying tax rate of 21.8% is lower than the UK statutory rate of 25%. This is mainly due to: the impact of profits made by joint ventures whose post-tax profits are included in the Group's profit before tax (reduces the rate by 2.3%); a release of provisions following the resolution of audits (reduces the rate by 1.3%); a credit in relation to prior year tax positions now finalised, including a refund received in the Middle East (reduces the rate by 0.3%); withholding tax reclaimed having been suffered in prior years (reduces the rate by 1.1%); and various other statutory adjustments (reduces the rate by 0.7%). These reductions are only partially offset by: the recognition of deferred tax representing the probable withholding tax on future distributions (increases the rate by 1.0%); higher rates of tax on profits arising on international operations (increases the rate by 0.8%); and the impact of losses made in companies overseas where forecast profits are such that deferred tax is not recognised (increases the rate by 0.7%).

Non-underlying tax

A tax credit of £4.0m (2024: £3.5m) arises from the amortisation and impairment of intangibles arising on acquisition.

Deferred tax

As at 30 June 2025, there is a net deferred tax asset of £172.2m (31 December 2024: £177.7m). This consists of a deferred tax asset of £220.3m (31 December 2024: £229.8m) and a deferred tax liability of £48.1m (31 December 2024: £52.1m). A £173.8m UK deferred tax asset (31 December 2024: £177.5m) and a £43.8m Australian deferred tax asset (31 December 2024: £50.5m) are included within the deferred tax asset on the Group's balance sheet as at 30 June 2025.

Taxes paid

Net corporate income tax of £13.4m was paid during the period, relating primarily to operations in Asia Pacific (£1.6m), North America (£15.7m), and Europe (£10.9m). Payments are offset by receipts in the Middle East (£0.2m), and UK receipts arising from the sale of losses to joint ventures in relation to the 2023 and 2024 years (£14.6m). UK net payments to tax authorities are £nil for the period due to payments carried from prior years.

The amount of tax paid (£13.4m) differs from the tax charge in the period (£23.5m) mainly because both receipts from joint ventures and taxes paid to or received from tax authorities can arise in later periods to the associated tax charge/credit. This is particularly the case with regards to movements in deferred tax and provisions for uncertain tax positions.

Treasury risk management and operations

The Group's operations expose it to a variety of financial risks that include access to liquidity, the effects of changes in foreign currency exchange rates, interest rates and credit risk. The Group has a centralised treasury function whose principal role is to seek to ensure that adequate liquidity is available to meet the Group's funding requirements as they arise and that the financial risk arising from the Group's underlying operations is effectively identified and managed.

Treasury operations are conducted in accordance with policies and procedures approved by the Board which are reviewed annually. Financial instruments are only used for hedging purposes and speculation is not permitted. A monthly report is provided to senior management outlining performance against key risk management metrics, as required by the Treasury Policy.

Liquidity and funding

As at 30 June 2025, the Group had committed funding of £787.9m (31 December 2024: £629.2m), comprising £437.9m of US private placement loan notes, and a £350.0m revolving credit facility which was undrawn. The US private placement loan notes are repayable in bullet payments between October 2025 and April 2035. The Group does not engage in any external financing arrangements associated with either receivables or payables.

In April 2025, we issued US$250m (£193.2m) of US private placement loan notes to support the funding of the MT&S acquisition. The notes were split into three series of US$100m, US$75m and US$75m with maturities of six, eight and ten years respectively. The weighted average interest rate on the new loan notes was fixed at 6.23%. The blended rate on US private placement loan notes in issue at the end of June 2025 was 5.44% (December 2024: 4.88%). No notes were repaid during the period.

The Group's revolving credit facility provides £350.0m of committed funding for five years from the arrangement date in November 2022. The facility includes an accordion option, providing a further £100.0m of funding (uncommitted and therefore not incurring any fees) if required without the need for additional documentation. This option has not been included in the Group's assessment of available liquidity as approvals are required to access the funding.

Interest rate risk

The Group has a preference for fixed rate debt to reduce the volatility of net finance costs. The Group's Treasury Policy requires it to maintain a minimum ratio of fixed rate debt to overall adjusted net debt, not to be lower than 50%, and for this proportion to increase as the ratio of EBITDA to interest expense falls. As at 30 June 2025, £437.9m of debt was held at fixed rates and adjusted net debt was £259.0m.

Foreign exchange risk

The Group is subject to currency exposure on the translation to Sterling of its net investments in overseas subsidiaries. The Group seeks to manage this risk, where appropriate, by borrowing in the same currency as those investments. Group borrowings are predominantly denominated in Sterling and US Dollars. The Group seeks to manage its currency cash flows to minimise foreign exchange risk arising on transactions denominated in foreign currencies and uses forward contracts where appropriate to hedge net currency cash flows.

Credit risk

Cash deposits and in-the-money financial instruments give rise to credit risk on the amounts due from counterparties. The Group manages this risk by adhering to counterparty exposure limits based on external credit ratings of the relevant counterparty.

Net assets

As at 30 June 2025, the Consolidated Balance Sheet shown on page 23 had net assets of £871.3m, a movement of £28.8m from the closing net asset position of £842.5m as at 31 December 2024. This increase is a result of total comprehensive income in the period of £53.4m offset by a cash dividend paid of £28.6m.

Key movements since 31 December 2024 on the Consolidated Balance Sheet shown on page 23 include:

Pensions

Serco's pension schemes had an accounting surplus before tax of £6.1m (31 December 2024: £4.0m). The £2.1m increase comprises a £47.0m decrease in scheme liabilities reflecting the impact of inflation, discount rates and revised member data. This is offset by a reduction in scheme assets of £44.9m due to market conditions reducing the value of liability matching assets.

The SPLAS 2024 triennial actuarial funding valuation was approved on 4 July 2025 and continues the Group commitment from the 2021 valuation to make deficit recovery payments of £6.6m per year from 2022 to 2030.

The opening net asset position led to a net interest income within net finance costs of £0.4m (2024: £0.9m).

Condensed Consolidated Financial Statements

Consolidated Income Statement

For the period ended 30 June 2025

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2025

Consolidated Statement of Changes in Equity

For the period ended 30 June 2025

Consolidated Balance Sheet

For the period ended 30 June 2025

Condensed Cash Flow Statement

For the period ended 30 June 2025

Notes to the Condensed Consolidated Financial Statements

1. Basis of preparation and accounting policies

Basis of preparation

These Condensed Consolidated Financial Statements for the six months ended 30 June 2025 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and with UK adopted International Accounting Standard 34 'Interim financial reporting'. These Condensed Consolidated Half-Year Financial Statements do not include all of the information required for full annual Consolidated Financial Statements and should be read in conjunction with the Group's Annual Report and Financial Statements for the year ended 31 December 2024, which has been prepared in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006.

These Condensed Consolidated Half-Year Financial Statements do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. Statutory financial statements for the year ended 31 December 2024 were approved by the Board of Directors on 26 February 2025 and delivered to the Registrar of Companies. The report of the auditor on those accounts was (i) unqualified, (ii) did not draw attention to any matters by way of emphasis, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These Condensed Consolidated Half-Year Financial Statements are unaudited but have been reviewed by Ernst & Young LLP, the Company's auditors in accordance with International Standard on Review Engagements (UK) 2410 'Review of Interim Financial Information performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board.

Going concern

In assessing the basis of preparation of the condensed set of financial statements for the period ended 30 June 2025 the Directors have considered the principles of the Financial Reporting Council's 'Guidance on the Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risks, 2025'; particularly in assessing the applicability of the going concern basis, the review period and disclosures. The assessment period for the purposes of considering going concern is to 31 August 2026.

As at 30 June 2025, the Group's principal debt facilities comprised a £350m revolving credit facility maturing in November 2027 (of which £nil was drawn), and £437.9m of US private placement notes (USPP notes), giving £787.9m of committed credit facilities and available funds of £523.6m, being the undrawn RCF plus cash of £173.6m. The principal financial covenant ratios are consistent across the USPP notes and revolving credit facility, and are outlined on page 46. As at 30 June 2025, the Group's primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below the Group's target range of 1x-2x at 0.86x. The Group has net current liabilities of £87.4m, the cash flows of which have been considered within the going concern assessment.

The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well as the potential impact of key uncertainties and sensitivities on the Group's future performance. In making this assessment the Directors have considered the Group's existing debt levels, the committed funding and liquidity positions under its debt covenants, its ability to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of mitigating actions that could be used to preserve cash in the business should the need arise.

The basis of the assessment continues to be the Board-approved budget updated to take account of known changes since, including the impact of the Group's results for the six months to 30 June 2025. The budget is prepared annually for the next two-year period and is based on a bottom-up approach to all of the Group's existing contracts, potential new contracts and administrative functions.

The Directors believe that appropriate sensitivities in assessing the Group's ability to continue as a going concern are to model reductions in the Group's win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group's operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group's debt covenants and available liquidity provides meaningful analysis of the Group's ability to continue as a going concern. Based on the headroom available, the Directors are then able to assess whether the reductions required to breach the Group's financial covenants, or exhaust available liquidity, are plausible.

This shows that, even after assuming that the US private placement loan of £36.5m due to mature during the assessment period is repaid, and that no additional refinancing occurs after the date of approval of the financial statements, the Group can afford to be unsuccessful on 60% of its bids and extensions, combined with a profit margin 200 basis points below the Group's forecast, and still retain sufficient liquidity to meet all liabilities as they fall due and remain compliant with the Group's financial covenants.

In respect of win rates, rebids and extensions have a more significant impact on the Group's revenue than new business wins during the assessment period. The Group has won more than 85% of its rebids and extensions and available contract extensions by volume over the last two years, therefore a reduction of 60% or more to the budgeted bid and extension win rate is not considered plausible.

Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for the period to 31 August 2026 and therefore have prepared the financial statements on a going concern basis.

Accounting policies

No new or amended accounting standards had a material impact on the Group for the period ended 30 June 2025.

There have been no changes to the Group's accounting policies during the period ended 30 June 2025.

Estimates and judgements

In preparing these Condensed Consolidated Financial Statements, the Group has applied the same critical accounting judgements and key sources of estimation uncertainty as disclosed in the audited financial statements for the year ended 31 December 2024.

However, the following item has been updated during the period:

Deferred Tax

Deferred tax assets are recognised for unused tax losses and other timing differences to the extent that it is probable that future taxable profits will be available against which these deductions can be utilised. Significant management judgement is required to determine the amount of deferred tax asset that can be recognised, based upon the likely timing and the level of future taxable profits.

Following the revised expectations regarding the Australian Base Services bid (see note 7), the probability of sufficient profits to enable tax asset utilisation has been reassessed. A deferred tax asset in respect of the Australian business as at 30 June 2025 of £43.8m (December 2024: £50.5m) continues to be recognised in full for temporary differences in line with IAS 12 'Income Taxes'. After considering the current forecasts of the Group's Australian entities and as tax losses in Australia do not expire, the Directors remain confident that the full deferred tax asset will be realised, although there is judgement associated with the period of time over which it will be utilised. The Australian business has consistently delivered taxable profits, and current forecasts indicate that this will continue. The Australian business has made good progress on restructuring its operations following the loss of the immigration contract announced in November 2024 and continues to focus on its ability to win new contracts within the region, however growth within the portfolio is an area of estimation uncertainty. Based on the forecasts and sensitivities prepared, the deferred tax asset will be fully utilised over a period potentially to 2035, which would be longer than the five-year period used for strategic planning purposes.

2. Segmental information

The Group's operating segments reflecting the information reported to the Board in 2024 under IFRS 8 Operating Segments are consistent with those reported in the Group's 2024 audited financial statements.

An analysis of the Group's revenue from its key market sectors is as follows: