Serco Group H1 2025 Earnings Report

Serco Group EPS Results

• Actual EPS: GBX 9.74
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Serco Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Serco Group Announcement Details

• Quarter: H1 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 5:00AM ET

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

Serco Group H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue rose 5% on a constant currency basis with 9% organic growth in North America, and underlying operating margin reached 6% at the top end of guidance.
• Positive Sentiment: Order intake hit £3.2 bn, yielding a book-to-bill ratio above 130% and a contract retention rate of 95%, while the qualified pipeline expanded to a record £11.9 bn.
• Positive Sentiment: Defence now represents over 40% of group revenue, supported by the MT&S acquisition and major US/UK wins in training, simulation and ship support capabilities.
• Negative Sentiment: Asia Pacific revenue fell 3% organically after exiting the Australia immigration contract, and order intake remained weak as the region works to rebuild its pipeline.
• Positive Sentiment: The board increased the interim dividend by 8% to 1.4 pence per share and announced a £50 m share buyback, backed by strong cash conversion and 0.9× leverage.

Presentation

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Good morning, everyone, and thank you for joining us here for the presentation of Serco's twenty twenty five Half Year Results, both in person and also via the live stream. I'm Anthony Kirby, and I'm the Group Chief Executive and I'm joined by Nigel Crossley, our Group Chief Financial Officer. I'd like to take this opportunity to formally welcome Keith Williams, who is in the room today and join the Board as a Non Executive Director on the August 1 and will become the Board Chair, succeeding John Richton, who is also in the audience today, having completed his nine year tenure later this year. I'm delighted to welcome Keith as the Chair and on behalf of everybody at Serco, would like to thank John for his excellent leadership and unwavering commitment over the past nine years. This morning, I'll give you a quick overview of our first half performance, including our progress in priority areas and my initial reflections on the organization having spent time in each part of our international portfolio over the last six months.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Nigel will then take you through the detailed financials for the reporting period, and I'll then come back to provide some thoughts on the strategic positioning of the organization as we look ahead to build on our momentum. But before we go any further, can I please ask you to note the disclaimer? Our first half out turn delivered an excellent performance and it reflects the hard work and dedication of my 50,000 Serco colleagues around the world. I thank them for it and I'm incredibly proud to be on their team. Our strong operational performance has culminated in revenue of £2,400,000,000 up 5% on a constant currency basis compared to the same period last year with excellent organic growth and in particular 9% organic growth out of our North America business.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

An underlying operating profit of £146,000,000 representing a margin towards the top end of our medium term guidance at 6%. An order intake of 3,200,000,000 which represents a book to bill north of 130%. Structurally, Serco is well positioned. We continue to have a good geographical spread working with governments in over 20 countries. And while some of our divisions are smaller, each contributes to the whole.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

We typically deliver critical non discretionary complex services that can't just be switched off. And we do so in big markets and sectors where we continue to see good demand as good demand of drivers for growth. That demand is being driven in part due to geopolitical tensions, a race to leverage tech and AI as governments are seeking high quality and efficiency in the services that they're procuring. In The UK alone, we saw a 7% increase in government spending with the private sector partners in the last twelve months, demonstrating the need for private sector industry capability and expertise. And against that backdrop, we continue to demonstrate top line growth, which since 2019 has been around an 8% CAGR, all of which underpinned by strong contract retention in the first half of this year alone 95%, which shows that we are bringing good quality competitive solutions to our customers.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

In fact, our North America pipeline, for example, has grown from £2,100,000,000 at the full year in 2024 to around £4,600,000,000 today. We continue to be relentlessly focused on our deliberate plan for execution centered on growth, competitiveness and operational excellence. As I've said before, these three priorities are mutually reinforcing. Operational excellence builds the trust that wins us new opportunities competitiveness, which means having the most competitive solutions approach to social value, appetite for innovation and low cost to operate. That underpins our ability to win, which creates the headroom we need to further invest in our technology, our people and our future capabilities.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And that growth fuels investment in operational excellence and innovation, so virtuous circle if you will. And under those three component parts, want to call out a couple of areas of progress that we've seen in the first half. For those of you that I've had the pleasure of meeting over the last seven months, you will know that I'm absolutely focused on growth, strategic, sustainable, profitable growth. An increase in our pipeline of new opportunities to 11,900,000,000 puts us ahead of a decade high figure of £11,200,000,000 at the end of the prior year. This is particularly significant following the £3,200,000,000 order intake. And it's also notable that three quarters of our order intake is in defense, an area where we've been exceptionally focused for some years now. When it comes to making us more competitive, we have secured important contract retentions over the last few years with an average retention rate since 2023 of around 85%. That secures the base business and gives us a strong platform for growth. And we do continue to roll out digital and AI solutions with an increasing number of pilots and growing progress. For example, in Australia, we're supporting the police force in Victoria and have embedded AI tooling to automate processes, which has significantly enhanced frontline policing, freeing up more than one hundred and five thousand hours in 2024 alone, enabling police officers to focus on more urgent and complex issues and enhancing overall public safety.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

I'm also pleased to say that we've again reported margins towards the upper end of our medium term target, a reflection of our disciplined approach to operational excellence. That's thanks to our efficiency and margin improvement plans, which we've delivered which have delivered a good start in part made possible thanks to the progress and operational improvements out of our Asia Pacific business. And in the first half, we've continued to make Serco a safer place for our colleagues with 19% fewer lost time incidents taken our total reduction to 31% since the beginning of last year. So good progress on all parts of our approach to execution or put another way, a lot done, more to do. Since sharing the news of my appointment in January, I've been around the world spending time in each of our businesses.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And whilst a lot has changed both in the world and in the organization since I was the Group Chief Operating Officer three years ago, the coffee in our Sydney office is still pretty bad. I've now had the opportunity to spend time in each of the divisions with each of the divisional leadership teams, understanding their unique strategic imperatives as part of our global aligned approach. I've now had the opportunity to really review some of their growth plans for the future and I'm super excited and ambitious with them. While it's clear that we've got a strong momentum as seen in these results, I think we can intensify our efforts in parts to sharpen our focus on the sectors where we feel we have the most valuable capabilities and the greatest capacity for growth. And of course, we're constantly reviewing our markets and how we're structured to meet and adjust to demand.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And today, we see the structural drivers of demand focus on justice, migration, citizen services and defense, which contributes to around 85% of the revenue. And I'll talk more about defense later on. And we have a highly engaged workforce who are working more safely than ever before and who are totally focused on delivering superb outcomes for our customers. But we need to make a little more progress on how we systemize and enable the best practice sharing across the group to better leverage learning and execution solutions. I've observed the leading edge technology that we are introducing to our customer offerings.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Our Expeditionary Ship Repair Innovation System is just one example. That's where we use drones and neural radiance field models to create three d replicas of ships for damage assessment. It can be deployed anywhere that the ship sails and whilst it's at sea increasing the at sea time that the vessel has, which is a key metric for navies around the world and their productivity performance. Our teams more broadly continue to identify further opportunities to automate and introduce AI to support our broader commitment to efficiency and productivity where it makes sense. Look, Serco is an exceptional business. And while I recognize that great progress has been made, I, we, Nigel and I believe with a management team that with a sharpening of our focus over the coming years, we can go further and faster to once again improve outcomes and get that growth wheel continuing to turn. Let me just take a moment to bring an example of impact off the page, real life impact, recognizing the innovation is not all about AI and shiny bright things.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Every month I try and spend time with colleagues who are delivering our services. And a couple of weeks ago, I had the privilege of spending time with a number of officers at HMP Doncaster. While I was on shift there, I visited the newly introduced safer custody unit, where prisoners who are at heightened risk of self harm can be supported in a different way away from the main wings. I spoke to some of those serving significant sentences for a range of offenses And they said if it were not for that extra support, they may well have taken their own lives or committed serious acts of self harm. So investments in those sorts of innovations that really do differentiate our establishments from others really does shine a light on the innovation that we're bringing to the sectors that we operate in.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So regardless of the environment or the sectors, we innovate our solutions and we do it because we care and because we want to reduce the life cycle cost for our customers in the contracts that we're competitively bidding. And at the same time, I'll continue to review the portfolio to ensure that we're right sized, structured to grow and are leveraging complementary services and solutions. Look, I'm seven months in now and I can be clear that we have a very strong business with solid foundations. It's absolutely clear to me that we bring together the right people, the right technology and the right partners to deliver solutions for our customers. And that helps them face into some of the most difficult and complex challenges that they face.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

We do tough things and we do them exceptionally well. And what we do is often not easy, but it is always important. So overall, we've had a successful first half where we've performed strongly on a number of the metrics that matter. I've seen firsthand the strength of our operational delivery around the globe, leading to this excellent financial performance. And we've doubled down on our margin on our management priorities of operational excellence, competitiveness and growth, where we're bringing we're beginning to reap the rewards as demonstrated by our margin progression in as pack and the superb order intake in The UK.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Good organic growth has been complemented by the integration of MT and S, which opens up significant pipeline and new business opportunities both in North America and further afield. And I'm pleased to announce an increase in the interim dividend along with a £50,000,000 share buyback, which will be completed by the end of this year. And I'll now hand over to Nigel to further bring to life our financial performance and look forward to coming back and talking about our Defence business.

[Nigel Crossley, Group CFO & Director at Serco Group]

Thank you, Anthony, and good morning to everybody. I'm going to start off with an overview of the group's financial results for the half year. On this business slide, there are four points I want to draw to your attention. First, the business has grown revenue at 5% on a constant currency basis in the first half of the year, of which 3% is organic and 2% from acquisitions. We've seen particularly strong revenue performance from the defense sector, reporting 11% organic growth.

[Nigel Crossley, Group CFO & Director at Serco Group]

Additionally, the MT and S acquisition, which closed at the May, added a further four percentage points of growth to the group's defense sector, which now accounts for more than 40% of the group revenue. Second, we've continued to deliver a strong profit margin at 6% in the period. This has been driven by a good performance across our portfolio on contract productivity and overhead efficiency, offsetting the impact of Australia immigration over sorry, contract immigration contract ending, higher contract mobilization costs and the increase of UK National Insurance. Also in the period, earnings per share is up 12% from increased operating profit and lower tax charges plus the benefit of last year's share buyback program reducing the share count as we look to return surplus capital back to shareholders promptly. And finally on this page, return on invested capital for the period was 24%.

[Nigel Crossley, Group CFO & Director at Serco Group]

This strong return reflects our capital light operating model where we can run a £5,000,000,000 business with invested capital of £1,200,000,000 of which more than £1,000,000,000 relates to goodwill and assets created on acquisition and only £150,000,000 of operating invested capital. I will now pull out the highlights for each of the divisions. And starting with North America, who led the way for the group with exceptional organic and inorganic revenue growth as well as generating over 40% of the group's divisional underlying operating profit. Revenue increased 13% in the period on a constant currency basis, including organic growth of 9%. The strong revenue performance in North America was built on another period of contract retention rates above 90%.

[Nigel Crossley, Group CFO & Director at Serco Group]

Defense led the revenue increase, up 16%, benefiting from the MT and S acquisition closing late in the period as well as 10% organic growth from the base business due to the high order intake in the 2024. North America continues to deliver a margin of over 10% with strong performance on some fixed price contracts, reduced spend and overheads at the same time as managing higher revenues and absorbing some of the acquisition integration costs of the MT and S acquisition within underlying operating profit. It is worth noting that over the period, we've seen no major impacts from Doge in The U. S. Order intake, as expected, has been lighter in the period because of the high contract wins in the 2024.

[Nigel Crossley, Group CFO & Director at Serco Group]

However, the win rates for both retention of contracts and new businesses have been strong. The North America team have worked hard in the first half of the year to rebuild the pipeline to £4,600,000,000 the largest has been for over a decade. We expect order intake in the second half to be stronger, although we are sensitive to a near term risk of some slowdown in decision taken by the customer as they experience some organization restructuring and downsizing of their own. U. K.

[Nigel Crossley, Group CFO & Director at Serco Group]

And Europe have had an exceptional order intake in the first half of the year of £2,500,000,000 which translates to a book to bill of over 200%. Revenue was up 4% with 2% organic growth and 2% from last year's acquisition of European Home Care. There was strong growth in systems services from the health assessment contract for the Department of Work and Pensions, which was mobilized in the 2024 and from the commencement of both Armed Forces recruitment and Maritime Services contracts for the Ministry of Defense. There's been a relatively small revenue decline in Justice and Immigration as the impact of slightly softer volumes and mix in The UK and European Immigration are partially offset by the ramp up of electronic monitoring. The margin in UK is stronger at over 6% with good cost control offsetting national insurance increases, higher mobilization costs and some mix effect from immigration.

[Nigel Crossley, Group CFO & Director at Serco Group]

The European business continues to perform strongly, recording revenue of £270,000,000 and a margin of over 7% in the first half. The business has grown from around £100,000,000 in 2020 to more than £500,000,000 business and established a strong platform for further growth in Europe. The order intake was exceptional at £2,500,000,000 New business wins were £1,400,000,000 with the largest being the £1,000,000,000 contract to deliver Armed Forces recruitment for the Ministry of Defence. Rebid win rates were strong at 97%, which established a strong base business for the new wins to build on. Finally, on The UK, despite the high value of wins, progress has been made to refill the pipeline with a good number of decisions expected in the second half of the year and early twenty twenty six.

[Nigel Crossley, Group CFO & Director at Serco Group]

In Asia Pacific, revenue declined 3% organically, largely because of the Australia immigration contract ending during the first half of the year as we successfully exited. In the first half, the Australian management team had delivered further efficiencies in their overheads and worked towards rightsizing the organization to support the current business. They have also made good progress in improving the profitability on several underperforming contracts, which have contributed to increase in the margin of the business in the period despite the contract loss. There are more opportunities to drive efficiencies and productivity in this business, which will be the focus in the 2025. In the period, order intake has been weak.

[Nigel Crossley, Group CFO & Director at Serco Group]

As we've always said, identifying new opportunities and then developing winning solutions and bids is going to take longer than addressing the cost base. In the first half of the year, the growth team have continued to seek out and qualify new growth opportunities that will be added to the pipeline in the second half. And turning to The Middle East, which is the smallest of our regions, where the revenue has declined in the period largely because of a low margin air traffic control contract, which ended in 2024. There continues to be strong demand and a strong pipeline of new business opportunities in the region, spread across The UAE and Saudi Arabia. We've also entered into a strategic partnership with Mubadala in The UAE to strengthen our Middle East business.

[Nigel Crossley, Group CFO & Director at Serco Group]

This partnership will jointly deliver asset management services and provide new business opportunities across the wider region. So I'm now going to move on to cash flow. And once again, we've delivered strong cash flow with 84% of profit converting to cash in the first six months of the year. Structurally, cash flow in the first half of the year should be slightly weaker, but there's been continued focus on improving the collections from our customers by streamlining the processes to generate accurate and timely sales invoices. In addition, cash flow benefited from some higher deferred revenue and some early cash receipts from a customer in Australia at the end of their financial year.

[Nigel Crossley, Group CFO & Director at Serco Group]

And net debt finished the period at £259,000,000 This is £160,000,000 higher than the start of the year after closing the MT and S acquisition and paying £246,000,000 This has resulted in leverage of 0.9 times EBITDA, which is below the bottom end of our target leverage range of one to two times, leaving a strong balance sheet and flexibility for the use of capital. So turning to capital allocation. And as a reminder, we've set our capital priorities in the context of being a highly cash generative business, operating with low levels of invested capital. We target leverage not to be above two times EBITDA. And when leverage is below one times, we view this as surplus cash sorry, more cash than we need to run the business and treat it as surplus capital.

[Nigel Crossley, Group CFO & Director at Serco Group]

Since 2019, we have consistently ended the year with leverage below the bottom end of our range as we've delivered exceptional cash flow performance over that period. Our number one priority is to fund organic growth. In the period, we've delivered strong order intake, rebuilt our pipeline of new business opportunities to be the largest in more than a decade, and we've invested in mobilizing new contracts won in 2024 and 2025. Second, we will deliver a dividend to our shareholders today, and we've announced an interim dividend for 2025 of 1.4p per share, which is an 8% increase from last year. And our third priority is to invest in acquisition opportunities that will improve the group's future organic growth by providing access to adjacent markets and new customers or acquiring new capabilities that we can utilize more broadly across our existing portfolio.

[Nigel Crossley, Group CFO & Director at Serco Group]

In the first half, we announced and closed the acquisition of The U. S. Defense services business from Northrop Grumman focused on the technology enabled training and space. And finally, if we have surplus capital, we've always committed to return this to shareholders promptly. And today, we've announced a £50,000,000 share buyback to be completed this year.

[Nigel Crossley, Group CFO & Director at Serco Group]

This will be the fifth consecutive year of share buybacks and total capital return to shareholders of £390,000,000 So finally, on guidance for the balance of 2025. And since our pre close statement in late June, guidance is unchanged for revenue, profit and cash flow. Debt guidance has been updated to reflect the share buyback announced today, and tax is expected to be a little better after some favorable tax outturns in the first half. Revenue for the year is expected to be around £4,900,000,000 a 5% increase on a constant currency basis. The second half of the year will benefit from the recent new business wins, the MT and S acquisition and will then offset the impact of the Australia immigration contract.

[Nigel Crossley, Group CFO & Director at Serco Group]

Underlying operating profit is guided to be around £260,000,000 which is broadly flat on a constant currency basis. We also expect the second half to be lower than the first half because of usual seasonality, particularly in North America. But also in 2025, there will be the full period impact of Australian immigration and National Insurance, partially offset by good cost control and contract productivity. In addition, MT and S will not be contributing at its full going rate because around $10,000,000 of acquisition and integration costs will be charged to underlying operating profit. And cash flow is based on our medium term guidance that structurally at least 80% of our profit should convert into cash.

[Nigel Crossley, Group CFO & Director at Serco Group]

And net debt is expected to be at the bottom end of our target range by the end of the year. So I'll now hand back to Anthony.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Nigel, thank you. I'm going to turn now to our strategic positioning for a moment, if I may, with a focus on the area where we are most ambitious, which is defense. As Nigel said earlier, defense now makes up around 40% of the portfolio. And I'm clear that the structural drivers of demand continue to create intense pressure on governments who look to partner with the private sector for support and innovation. You'll have heard us talk previously about the four forces that drive demand and I believe that they remain as true today as at any point in our past.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

The public are rightly demanding improved services while remaining intolerance of higher taxation. And this creates the need for governments to do more for less, which is being compounded by the need to find headroom to invest in national security and resilience. And this is where organizations like Serco add value with our focus on innovative solutions, efficient processes, deep expertise and productive workforces. These drivers of demand are perhaps most acute in defense. Ongoing conflicts and geopolitical risk are creating the need for enhanced sovereign capabilities, which is driving defense spending, whether that be across Europe, here in The UK or in North America.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Global defense spending reached a record of $2,700,000,000,000 in 2024, real time's growth of around 9% and is forecast to continue to grow. And we have good exposure to a number of those areas. So this is clearly a new era for defense. In the near term, President Trump's big beautiful bill alone will see U. S.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Military receive a budget increase of around $150,000,000,000 with money identified to bolster Armed Forces shipbuilding capability and capacity as well as to fund the Golden Dome. In addition, we know that warfare readiness is a strategic priority for the Department of Defense and we believe that we have deep expertise and vast experience that can contribute to the priorities of The U. S. Administration. After the full year, we talked about Doge and how we may how that may impact our business and we acknowledge that others in our sectors have seen a slight slowdown in awards in the first half.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

We as always and as expected saw a slightly softer first half on the basis that we had our bidding cycle is typically flows more into the second than the first and based on the huge number of wins that we were successful in North America in 2024. We always expected the first half would be slightly softer, but we're very conscious of the second half adjudications that are currently in the pipeline. And to date, we've seen no cancellations of contracts in our pipeline or that we have submitted overall any impact on our business. Our breadth of defense capabilities continues to grow and evolve, placing us well to convert our significant pipeline to qualify greater proportion of defense opportunities than we've been able to in the past. One example of growing our capabilities is the Defiant unmanned vessel that is being designed and built entirely by Serco for the U.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

S. Defense Advanced Research Projects Agency, DARPA. This is a first in class unmanned surface vessel designed for remote and autonomous operations. She will be christened in fact by the U. S.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Navy next week before heading out on a large lengthy at sea demonstration. The successful acquisition and integration of MT and S is enhancing our capability offering in that sector and significantly advances our expertise in synthetic training and exercise simulation as well as ground satellite communications and space. This builds on our significant military training expertise that we have across the group from maritime warfare training in Wattenberg Bay in Sydney to expert guidance in specialist technical programs out of the UK Resilience Academy. This capability development gives us access to defense subsectors where we have where we now have more ability to grow than we have historically, particularly satellite ground and network communications as well as warrior readiness. You can clearly see that our focus on investment in defense is yielding results.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Our defense business now accounts for over £2,000,000,000 of the group's revenue over twice what it was in 2018. And our pipeline continues to have a heavy defense weighting. Combined with a further £1,400,000,000 of smaller but equally important defense deals that are in our sights, although out of our pipeline definition. And the universe of unqualified opportunities in this sector sits at around £12,000,000,000 Whilst I struggle to hide my ambition for our Defence business, the next stage of our strategic cycle, I'm hoping we'll take great advantage of those spending increases. And our conversion rate is also improving with over 80% of our order intake in the year coming from defense.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Now of course, this momentum in defense comes as no surprise to Nigel or I or Serco as it's an area that's been called to our strategy, a focused deliberate strategy for investment for some years now. We can now see growing scale and capabilities in two of our most important markets, North America and The UK through both organic and inorganic progress. These scaled opportunities are increasing complex and technical solutions such as the award of three major wins with a combined value of over GBP 1,000,000 with the UK Ministry of Defense to deliver Maritime Services to the Royal Navy and the retention of two significant contracts with the U. S. Navy worth around $100,000,000 each delivering design and engineering support for their next generation small surface competent vessels and supporting the Amphibious Warfare Program Office.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And we've also been deliberate with our acquisition investments growing our capability offering and building additional scale. This is predominantly being focused in The U. S. Where historically we've seen the greatest propensity for growth. And those acquisitions have contributed to us becoming a critical ship design partner to the U.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

S. Navy, along with bringing significant engineering and sustaining capabilities to bear. We've also created a foothold in the European defense market through our Clemico acquisition back in 2021, which supports the Belgian Navy to be mission ready. Europe, whilst not homogenous, is an interesting prospect for us as nations are quickly appreciating the need to further invest across their defense landscape with The U. S.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Pursuing an America First policy, all of which is driving demand globally. And we see targeted and disciplined M and A as an important part of our overall growth strategy. As an example of this increasing complexity that we're able to deliver on behalf of customers and scale in defense, I did just want to spend a moment on the UK Armed Forces Tri Service recruitment mobilization, which began in April, two year mobilization. This complex service requires the management and execution of deep technical expertise through a specifically designed partnering approach led by Serco. It's moving a pace on all with all milestones on track.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Our six decades of experience working with the UK Armed Forces is critical in integrating and delivering a solution for one of the most high profile contracts the MOD have ever procured. Our expertise in critical program management, governance, sector experience and deep stakeholder management as well as operational delivery has proved essential in the start of this transition as we bring together best in class partners into a single delivery entity with Serco at the center and the Ministry of Defense at the heart. In parallel, we've engaged in bilateral engagement with other MODs to share the learning and hopefully shape future opportunities outside of The UK. On the inorganic side of things, I'm exceptionally proud of excellent integration of the MT and S business, which became part of the Serco family on the May 24 year following approval from the U. S.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Government. Almost 1,000 colleagues have successfully transferred with superb levels of engagement. I've personally had the opportunity to spend time with some of those new colleagues and I'm delighted with the skills, expertise and experience that they've demonstrated on the glowing reviews following the transfer to our business. We've already secured new business and have qualified GBP 800,000,000 worth of opportunities to date as the team continue to scrub the pipeline and overlay our existing capabilities. We believe there is a clear opportunity to bring MT and S's cutting edge capabilities to other markets around the world, some of which are already showing up in our pipeline.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

To conclude this section, we remain excited by the potential of the market in which we operate and where we see strong growth drivers. I'm clear that we can maintain that good momentum that we have demonstrated in the first half and in prior periods. To do this, we'll continue our focused efforts on disciplined execution centered around those three core pillars of our strategy, operational excellence, competitiveness and growth, which I believe will contribute to sustained progress and future growth. Look, I don't want to repeat the beta on what I've said earlier, but I do want to reiterate the key messages as I see them. Strong operational performance in the first half gives us confidence in the full year.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

We continue to operate in buoyant markets with governments around the world seeking more for less, along with the need to invest in an increased defense capabilities. And this gives us confidence in our future capability for growth. Our disciplined focus on operational excellence, competitiveness and growth positions us well to capitalize on all of this growth whilst leveraging momentum from organic wins and acquisitions. And all of this leaves us well to capitalize on the structural drivers in our markets. So thank you for listening to Nigel and I, and we will now take questions. Firstly, from the room and then potentially online.

[Alex Smith, Equity Research Analyst at Berenberg]

Alex

[Alex Smith, Equity Research Analyst at Berenberg]

Smith from Berenberg. Just a quick question on the record pipeline that you seem to have replenished quite well, strong growth in The U. S. If you could maybe see maybe give us some detail on the key kind of drivers there? And secondly, just on timing of award, sometimes you kind of give a percentage over what's being awarded over twelve months, that'd be kind of helpful.

[Alex Smith, Equity Research Analyst at Berenberg]

And then second, just on capital allocation with the balance sheet kind of at the bottom end of your leverage ratio at the end of this year, strong free cash flow coming up. Just kind of looking in towards where capital allocation sits going forward, is it a focus more on buybacks? Or is it bolt on M and A? Any color there would be great. Thank you.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Super. Shall I start with the pipeline, So Nigel, and then you take the second we're very confident in the replenishment of the pipeline. So in order to get things into our qualified pipeline, there is a significant number of staged qualification gates that our teams have to go through. So this is a good quality pipeline that the teams have replenished, of which around onethree is in defense. We continue to see our pipeline growing in areas where we have deep expertise.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So mission training readiness, as an example, warrior readiness in The U. S. As well as personnel readiness in other parts of the group as well. So we're confident that our pipeline is being replenished with good quality business.

[Nigel Crossley, Group CFO & Director at Serco Group]

And so just on timing of awards, any On timing, trying to predict exactly when these things are going to get determined is out of our control. What I can tell you is 40% of that pipeline is has already been bid. So it's sat with the customer. And there's about 60% where we have developed good plans and we're waiting for the RFP to drop or we're in the process of completing the RFP. So I think that's probably the best way to think about that.

[Nigel Crossley, Group CFO & Director at Serco Group]

And then on balance sheet, our big priority is continuing to manage our cash very strongly, good disciplines around cash management, working capital management. As far as our priority is concerned, our number one priority our priority between bolt on M and A and buybacks is really to look for bolt on M and opportunities. We are very disciplined about what we look at, and we're very disciplined about getting confident that acquisitions that we make will help us drive future organic growth through getting access to new markets or buying capabilities that we can use more broadly across our portfolio. We look at a lot of opportunities and we turn them down. So and we're very disciplined with our financial measures as well.

[Nigel Crossley, Group CFO & Director at Serco Group]

So M and A, we would prioritize. We think that helps the group grow strong going forward. Buybacks, that's something that we think about when we think we've got more cash than we really need to run the business. And once we're below that one times leverage, that's more cash than we need. And we are I think we've demonstrated over the last five years that we return cash promptly to shareholders once we go below that one times leverage. Thank you. We'll do the Michael behind you.

[Michael Donnelly, Equity Analyst at Investec]

Thank you. Anthony, thank you for the overview of Defence there. That was very useful. You didn't mention AUKUS for probably obvious reasons. Can you just please give us your reading, your thoughts, your prognostications on how that might go?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Well, I'll probably refrain from giving you a prognosis on how I think that will go because this is a multi decade program clearly. We remain ready and able to assist the governments, obviously, in the defense departments in The U. S, The UK and Australia. We're looking at a number of opportunities at the moment, and we are waiting for clearly, we're trying to help shape with those defense departments where we think we can help support the AUKUS program. At the moment, there are no particular RFPs that have landed that we are responding to at the moment.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So this is a longer burn question for us when it comes to AUKUS globally. Thank you.

[Nigel Crossley, Group CFO & Director at Serco Group]

Arthur, behind you. Pass the button.

[Arthur Truslove, Director at Citi]

Hi, Thank you very much. So a few from me, if I can. So the first one, you obviously mentioned the one off costs associated with MTU. Are there sort of how many other one off costs are there in there? So for example, are contracts associated with bringing up to speed new contracts higher than usual this year? And if so, by how much? Secondly,

[Michael Donnelly, Equity Analyst at Investec]

if you could

[Arthur Truslove, Director at Citi]

talk a little bit about how the very, very strong book to bill compares with what you expected when you spoke on the June 26. And secondly, can you just talk about what scenario could see that book to bill at 130% on a full year basis? And then finally, on your tax rate, obviously down from 25% to 23% in terms of guidance. Is that 23% the sustainable rate that we should look to and kind of what's gone right for you there? Thank you.

[Nigel Crossley, Group CFO & Director at Serco Group]

Should I start with the mobilization?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Why don't you do that? Yes.

[Nigel Crossley, Group CFO & Director at Serco Group]

Not surprisingly, because we had a good level of wins at the end of last year and the start of this year, our mobilization costs are higher this year than we have ordinarily had. We would also say that the electronic monitoring contract was always going to be a more expensive contract to mobilize. The kind of increasing volumes that we had as we're going through that has added to that cost. So in 2025, we have seen higher levels of mobilization costs. We expect that to drop down a bit in the 2025.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So on the thank you, Arthur, for the question. In terms of book to bill, so it is a fantastic performance, and I thank all of the growth teams and operations teams around the world for delivering those record numbers. We've got a bigger pipeline than we've ever had. We've increased our retention rates. Our contract retention rates are at 95%.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So therefore, our base business is helping us achieve that growth. And that says to me that we're providing solutions to customers that they're willing to buy a competitive rate. So do I foresee the book to bill being 130% for the rest of the year? That's probably a little bit toppy, But we have still got a number of adjudications to come in the second half of the year, predominantly out of The U. S, as I said, given that cyclicality of that business.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And there are a couple of deals still to be decided in 2025 in The UK, which could slip into 2026, dependent upon customer adjudication. So we have confidence that we've got sufficient pipeline. If we can keep those win rates increasing and the retention rates where they are, then we'll be confident to move forward with a book to bill that we're comfortable with.

[Nigel Crossley, Group CFO & Director at Serco Group]

And then on tax rates. If we look structural our business and the mix of our business, our tax rate should be around about 25%. Our actual tax position is relatively straightforward. There's not a lot of complex cross border shipments or anything. We had some provisions against some risks.

[Nigel Crossley, Group CFO & Director at Serco Group]

Those got a favorable outcome this year, so we've released some of that. And that's what's brought the average rate down by couple of percent, but you can't bank on that going forward. So I think 25% is a good number. Karen?

[Karin So, VP - Equity Research at JPMorgan Chase]

Karen So from JPMorgan. And just one question on your medium term guidance of the 5% to 6% margin. So this year seems to be reaching towards the midpoint, 5.3%. And given the strong growth in North America and the implied, I guess, the mix impact on margins, can you elaborate your thoughts around kind of the assumptions for the medium term? Is it an element of being conservative? That would be helpful. Thank you.

[Nigel Crossley, Group CFO & Director at Serco Group]

So look, we feel good about the 5% to 6% margin that we've given as medium term We're making good progress on that and we're moving up through that. Remember when we set this target, we were down sub-five percent. So we're not only going to the range, we're getting towards the higher end of the range. And we continue to look for opportunities to drive our business more efficiently but also opportunity to invest in the business as well.

[Nigel Crossley, Group CFO & Director at Serco Group]

So we are not in any we are not uncomfortable at all with that range of margin that we're currently guiding to, and we are sticking with that at the moment. Can we come here to David, please?

[David Brockton, Equity Research at Deutsche Numis]

It's David Brockton from Deutsche Numis. Can I ask two, please? Firstly, on the pipeline, the bid that's not weighted to defense. Can you give any insight as to how that looks in terms of scale of opportunities? And is it weighted to any particular sector?

[David Brockton, Equity Research at Deutsche Numis]

And then the second question relates to MT and S. I think when you bought the business, you flagged two renewals or two pending rebids. Can you give any update on those?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So I'll do the pipeline one first, So David, thanks for the question. Our pipeline is weighted towards our strategic growth drivers. So we see more than onethree now in around onethree in defense, then around another onethree in justice and migration and then the remaining onethree in the citizen services type areas that we have. So that's the weighting of it. That is not necessarily different to what we saw towards the start of this year and actually gives me confidence that as we look to continue to build on the strategy and the execution of the strategy, that segmentation of the pipeline gives us confidence that we've got the ability to continue to operate against those strategic areas, evenly weighted.

[Nigel Crossley, Group CFO & Director at Serco Group]

David, the second question, you've got to repeat, I'm sorry.

[David Brockton, Equity Research at Deutsche Numis]

G and S rebates.

[Nigel Crossley, Group CFO & Director at Serco Group]

M and S rebates. So there is there were two significant contracts in the acquisition. The first one has been won and is a ten year contract. And there's I can't remember the number off the top of my head, but something like 800,000,008 million dollars It's a big contract.

[Nigel Crossley, Group CFO & Director at Serco Group]

That secured that was the biggest and most profitable of the contracts that we bought. The second one is the rebid has come out. We have submitted a rebid. We're very happy with, a, the knowledge we already had in the business about that, but the engagement we had with MT and S. We are expecting a decision on that late this year, early next year, and we've had an extension on that contract as well.

[Nigel Crossley, Group CFO & Director at Serco Group]

So we expect that contract to run on the current terms well into next year and with a decision coming sometime around the end of the year. But we feel good about our position on that and the service that we provide. And interesting, think, though, the day we actually bought this business, we had hundreds of people out on exercise doing the training exercise and they all had to change their IDs and their laptops on that day. And the feedback from our customers, they never spotted that they changed employees. So we managed that integration really, really well.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

And they were operating across I think the training exercise was north of 10 different countries that they were all deployed in as well. So that was a significant indication to us that our process were our process

[Nigel Crossley, Group CFO & Director at Serco Group]

A significant sigh of relief without us. Joe?

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

Morning. Joe Brent at Premier LiBrum. Three questions, if I may. Firstly, could you give us an indication of what the medium term earnings power of APAC is and how you kind of get there? Secondly, could you give us your thoughts around the trajectory of sales in UK asylum?

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

And lastly, really good deep dive you've done on defense, very interesting, lots of macro data. Could you give us your sense of the mix of defense spending, which is obviously important as well, because there's a lot of chatter around hypersonic missiles, Golden Dome, munitions and those I don't think are as you particularly strong in. So is the mix the quantum is favorable or is the mix favorable as well?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Okay. Shall I do one and three and you do two?

[Nigel Crossley, Group CFO & Director at Serco Group]

Yes.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

That okay? In terms of the ASPAC margin, look, we see we've made good progress.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

I think the context is important here. We've doubled the margin year on year in terms of Aspac. The team have done an exceptional job in terms of productivity, turning some of those contracts around, etcetera. So I'm pleased with the progress, but there is more to do. I think the structural drivers in ASPAC are very similar to The UK.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So we see not significant number of competition with the structural drivers of the same as The UK. So I don't foresee any reason why we can't get the ASPAC margin to be as close to The UK as we've seen it previously in years gone by. So I can foresee that, that margin continues to develop as we move forward and we continue to implement those plans. In terms of your third question, the mix of defense spending, look, 2,700,000,000,000.0 of defense spending. We'll take a small slice of that.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Fundamentally, if you look at where some of that spending is, so Golden Dome, big space element of that business, missile deterrent systems, we operate in those areas, RAF filing deals as a prime example, which will be part of that. So fundamentally, we are we think we're in the sectors, the governments around the world will continue to spend on. So warrior readiness, readiness of the military to be on a war footing and also sustainment capability. So although we generally don't build anything, we do help government sustain their assets and that's where we think a significant amount of defense spending will be spent as we move forward. Is that okay? Nigel, a second?

[Nigel Crossley, Group CFO & Director at Serco Group]

Yes. On migration, I think I'll start off by saying that all the data we see say that the macro trends for migration into Europe are going to increase, are going to stay strong for some significant period of time. What I would say so what's happening in the short term in The UK, I assume you're asking the question about The UK housing contract. We would we have seen a reasonable leveling off of revenue on that business. There's been a bit of a decline half year half one on half one, but it's running at similar levels to what we saw at the end of last year.

[Nigel Crossley, Group CFO & Director at Serco Group]

So in the short term, we don't see material movements on the revenue of that business. I think it's really difficult to look beyond that other than it is very difficult to find new solutions or alternatives to running the contract the way we run it at the moment. And this contract is scheduled to run through to the 2029.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

James?

[James Rose, Equity Research Analyst - European Business Services at Barclays]

It's James Rose from Barclays. Two, please, if I may. So the last few presentations, talked about contract efficiencies and getting employee attrition down. Is that still a meaningful part of the profit bridge for this year and for years to come? And then secondly, on defense again, if we look across at Europe, is there any sort of signs or inklings that they're starting to outsource a bit more of their spend?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Okay. Do you want to do the first one or

[Nigel Crossley, Group CFO & Director at Serco Group]

do Yes. The look, contract efficiency, we're looking for opportunities across the whole all of our contracts, how we can run them more efficiently, improve productivity. You're absolutely right. Staff attrition is a real is a big expense for us because a lot of our staff have to be trained for some period of time before they become effective or chargeable, and we need to minimize that. And there's been a real focused effort on that over the last two years, and we've made really good progress.

[Nigel Crossley, Group CFO & Director at Serco Group]

I wish I had some numbers I could give you, but our retention rates have gone up and our attrition rate has come down over that period of time. So we're making good progress, but it's not something that we are taking the foot off of. We'll continue to focus on that as an opportunity for us.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

For sure. Our attrition rates, I think, we're running in the high 20s, the below 20 now. So we've made really good progress. And again, I think the teams have done an exceptional job in managing that well. So in terms of the defense spending in Europe, they have signaled European countries have signaled this increase in defense spending.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

We're still in the early stages of seeing what is likely to come out and what is likely they're going to come to the private sector for help and support with. So I can't give you any precise numbers, unfortunately. But what I can do, James, is say that we are reviewing the European landscape, overlaying where we think we have capabilities that we can bring into Europe from other parts of the group. And we're also continually looking at any potential M and A opportunities that will help us build presence and scale in those markets. But we see where we do have capability, those are likely going to be the areas that European governments are going to continue to grow their spending in, as I said earlier.

[James Rose, Equity Research Analyst - European Business Services at Barclays]

All right. Thank you.

[Nigel Crossley, Group CFO & Director at Serco Group]

Any more questions in the room?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Stephen?

[Stephen Rawlinson, Director at Applied Value Limited]

Thank you. Stephen Rawlinson from Applied Value. Probably the first time in about sort of quite a few years, Serco used to be quite siloed. And now the talk really is about focusing on defense and immigration. Sort of gives us a couple of questions in and around, are you able to reward people for transfer of knowledge, sharing of contacts, how you're doing that and particularly in those two areas, but it also then highlights something else that might be cropping up in and around what's the portfolio going to be shaping up in the future where Transport and Health are much, much smaller now than these two areas you've highlighted, not only in terms of current revenues, but also in terms of the pipeline as you've described it this morning.

[Stephen Rawlinson, Director at Applied Value Limited]

Can you just talk about those sort of strategic impacts and what that might mean for example, selling parts of the portfolio of current businesses in order to fund better fund the areas that you see as growth areas and so on. So it's a big question for results meeting, but just very briefly, can you touch upon some of those issues?

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

For sure. And we've got six minutes left on the in the session. So I don't think I'm going to be able to satisfy all You started me off talking about that. I don't think I'm going to be able to satisfy all of those, Stephen. But look, let me try and take some of them.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

In terms of the transfer of knowledge across the group, I think we are much better than we have been historically. We've been over the last couple of years, we've been trying really hard to look at sharing that expertise and knowledge in a more constructive, more consolidated way, a coordinated way. MT and S is a prime example of that. So we see that MT and S opening up opportunities in the pipeline for sharing of knowledge, expertise and skills. If you look at our Justice business, so our Justice teams in New Zealand, in Australia and The UK now work much more collaboratively together to try and help shape better outcomes in those justice areas as well as our migration services businesses in Europe and The UK working together.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So I would say we have done a significant amount of work to bring that together. So where you said in years gone by, it was quite siloed. We've broken those silos down, but I do think there's opportunity to further enhance that as we move forward, which I'm hoping will help us contribute to even more improved growth rates. In terms of incentivizing people, you will forgive me for not sharing our reward strategy openly. But needless to say, we have people that are really ambitious to try and help us grow this organization beyond the boundaries in which they work.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

In terms of your other questions around portfolio and portfolio review, etcetera, Again, look, we constantly review our portfolio. We constantly look to see are we in businesses and jurisdictions where we have the right to win, where we can occupy first and second place in some of those capabilities. That's not going to change as we move forward. We will continue to review that portfolio on an ongoing basis. But I can't say to you now, we're going to do X over here in order to achieve Y over there.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

So we're just going through our strategic review process, and we'll come back and share that with you all at some stage early next year probably. Anything else? Was there another question in Stephens there?

[Nigel Crossley, Group CFO & Director at Serco Group]

No, no. Those are two questions. Questions on the line?

[Operator]

There are no questions on the conference line. I want to hand it over to the management for closing remarks.

[Anthony Kirby, Group Chief Executive & Director at Serco Group]

Well, look, thank you all very much for your time. Really appreciate the energy and effort to come here. Really enjoyed the conversations and the discussions. And please do reach out to Nigel or I and Jamie if you need anything else in the meantime. We'll have a good rest of the day. Stay safe and we'll see you soon. Thank you.

Participants

Executives

• Anthony Kirby, Group Chief Executive & Director
• Nigel Crossley, Group CFO & Director

Analysts

• Alex Smith, Equity Research Analyst at Berenberg
• Michael Donnelly, Equity Analyst at Investec
• Arthur Truslove, Director at Citi
• Karin So, VP - Equity Research at JPMorgan Chase
• David Brockton, Equity Research at Deutsche Numis
• Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited
• James Rose, Equity Research Analyst - European Business Services at Barclays
• Stephen Rawlinson, Director at Applied Value Limited