Serco Group (LON:SRP) reported higher first-half revenue, profit and margin for 2026, supported by growth in defense activity, productivity initiatives and cost control, while maintaining its full-year guidance and expanding its share repurchase program.
Group Chief Executive Anthony Kirby said revenue rose 4% on a constant-currency basis, while underlying operating profit increased to £157 million. Free cash flow totaled £65 million, and order intake was about £2.5 billion, representing a book-to-bill ratio of approximately 100%.
Kirby attributed margin progress to disciplined contract selection, operational execution, governance, targeted acquisitions and a greater focus on complex service lines. He also said the group’s retention rate remained above 95% and its pipeline reached a record £12.8 billion.
Capital returns and cash flow
Serco increased its planned 2026 share buyback to £150 million, following the £75 million program announced and executed in the first half. Reid said the additional £75 million repurchase would be completed by the end of the year. Together with dividends, the company expects total capital returned to shareholders during 2026 to be just under £200 million.
The board declared an interim dividend of £0.016 per share, up 10% from a year earlier, according to Reid.
Trading cash conversion was 74% in the first half, with Serco continuing to target at least 80% for the full year. Working capital was a £41 million outflow, compared with a £14 million outflow in the first half of 2025. Reid said this reflected strong outperformance at the end of 2025 rather than a change in underlying cash performance.
Adjusted net debt was £228 million at the period end, up £22 million from year-end 2025 despite £58 million of share buybacks completed by June 30 and £30 million in dividend payments. Leverage stood at about 0.7 times EBITDA, below Serco’s target range of one to two times.
Reid said the balance sheet provided capacity for organic investment, bolt-on acquisitions and additional shareholder returns. He added that the company had increased resources devoted to evaluating acquisition opportunities, though management did not identify any imminent deals.
Regional performance
- North America: Revenue rose 8% to £775 million, including 4% organic growth in defense. Underlying operating profit increased 10% to £84 million and margin reached 10.8%. Growth included additional work for the U.S. Army and Space Force at Pituffik Space Base in Greenland. Lower activity in citizen services and the end of a U.S. aviation contract partly offset the gains.
- U.K. and Europe: Revenue grew organically by 7%, led by 30% defense revenue growth as Serco mobilized its Royal Navy maritime support and vessel replacement contract. Underlying operating profit increased 7% to £84 million, while margin remained 6.2% despite approximately £5 million of higher National Insurance costs and lower immigration activity.
- Asia Pacific: Revenue declined 14%, primarily reflecting the exit from the Australian immigration contract and disposal of the Hong Kong business. Order intake reached £600 million, producing a book-to-bill ratio just below 190%, helped by extensions at Adelaide Remand Centre and Acacia Prison and the retention of the Australian Defence Force Health Services contract through mid-2027.
- Middle East: Revenue fell 25% to £67 million amid transitional contracts related to the Mubadala strategic partnership and volume impacts from regional conflict. Underlying operating profit declined 12% to £6 million, but margin increased by more than 100 basis points to 8.5%.
In North America, Serco said procurement delays in parts of the U.S. federal market continued during the first half, affecting the timing of awards. However, the company said several contract protests had been resolved and it had about £3.2 billion of bids awaiting adjudication. The North American pipeline increased more than 60% to more than £8 billion, with defense representing the majority of opportunities.
Kirby said Serco’s 2026 guidance does not depend on a recovery in the U.S. procurement cycle. He said management expects conditions to improve through the second half and into the first half of 2027, while remaining mindful of U.S. midterm elections in November.
Strategy and outlook
The company reiterated its full-year revenue, profit and free-cash-flow guidance. The only changes were lower expected net finance costs and a revised year-end net debt position reflecting the additional £75 million buyback, Reid said.
Serco is continuing to simplify its structure around defense, justice and immigration, and citizen services. Kirby said the company will combine its Asia-Pacific and Middle East operations under one leadership structure, aiming to improve regional coordination and accelerate growth.
Management cited long-term government demand for cost-efficient, technology-enabled public services as a continuing structural driver. Kirby said Serco is using artificial intelligence in workforce planning in Asia Pacific, business-development processes in North America and asset monitoring in the U.K.
In the U.K., Serco said it was monitoring roughly 28,000 people per day under its electronic monitoring contract and had capacity to support additional volumes as the government addresses prison capacity constraints. Kirby said every key performance indicator on the contract had been green for a sustained period.
“We enter the second half with good visibility from our order book, a record pipeline, excellent retention rates [and] strong momentum across our strategic priorities,” Reid said.
