This article first appeared on GuruFocus .
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Revenue:Increased 4% on a constant currency basis to 2.5 billion, including 2% organic growth.
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Underlying Operating Profit:Increased 8% to 157 million, with margin improving by 20 basis points to 6.2%.
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Earnings Per Share:Increased 6%.
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Free Cash Flow:65 million, with trading cash conversion at 74%.
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Interim Dividend:Declared at 1.6p per share, up 10% year over year.
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Share Buyback:Increased to 150 million for the full year, following a 75 million buyback executed in the first half.
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Order Intake:Approximately 2.5 billion, representing a book-to-bill ratio of around 100%.
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Pipeline:Record high of 12.8 billion.
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North America Revenue:Increased 8% to 775 million, with underlying operating profit up 10% to 84 million and margin at 10.8%.
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UK & Europe Revenue:Organic growth of 7%, with underlying operating profit up 7% to 84 million and margins at 6.2%.
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Asia Pacific Revenue:Down 14%, primarily due to the Australian immigration contract exit and Hong Kong business disposal.
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Middle East Revenue:Down 25% to 67 million, with underlying operating profit down 12% to 6 million and margin improving to 8.5%.
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Adjusted Net Debt:228 million, with leverage at 0.7 times EBITDA.
Release Date: August 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Serco Group PLC ( SCGPY ) delivered a strong first half with revenue up 4% on a constant currency basis and underlying operating profit up 8% to 157 million, achieving a 10-year high margin of 6.2%.
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The company's record pipeline of 12.8 billion and strong retention rates above 95% underscore robust demand and future growth prospects.
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Serco Group PLC ( SCGPY ) increased its share buyback to 150 million for the full year, reflecting confidence in cash generation and a strong balance sheet with leverage at 0.7 times EBITDA.
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Defense business showed exceptional organic growth of 10% in the first half, with UK defense revenues up 30%, driven by major contract mobilizations like the Royal Navy's DMSNG programme.
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The company is leveraging AI across operations, improving productivity and service quality, and has reduced safety incidents by 15% year-over-year, demonstrating operational excellence.
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North America, the largest profit contributor, saw revenue up 8% and margin expansion to 10.8%, with a record pipeline of over 8 billion and a healthy win rate of 46%.
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Asia Pacific delivered a strong book-to-bill ratio of nearly 190%, securing significant contract extensions and new wins, including two of the largest prisons in the southern hemisphere.
Negative Points
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Serco Group PLC ( SCGPY ) faces ongoing headwinds from the exit of the Australian immigration contract and lower immigration volumes in the UK and Europe, impacting revenue and profit.
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The Middle East division experienced a 25% revenue decline due to regional conflict and contract transitions, with low order intake and a reduced pipeline.
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US federal procurement delays continued into the first half, affecting the timing of awards and leading to a book-to-bill ratio of around 90% in North America.
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The company anticipates continued margin pressure from higher UK national insurance costs and the phasing of immigration volumes, which may impact second-half performance.
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Working capital outflow increased to 41 million in the first half, compared to 14 million in the prior year, reflecting the impact of strong year-end performance.
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The UK and Europe pipeline decreased to 3.8 billion from 5.8 billion at full year, due to adjudications, though management expects new opportunities to qualify.
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The company's guidance for 2026 is reiterated, but net finance costs are expected to be slightly lower, and the year-end net debt position will be affected by the increased buyback.
Q & A Highlights
Q: Regarding the US procurement cycle, is your sense that we need to wait for the midterms to be out of the way before that market fully opens up? And regarding the increased buyback, should we infer that there is a low likelihood of any bolt-on acquisitions in the imminent future? A: Anthony Kirby (Group Chief Executive): We are seeing some decisions now starting to be made, with several protests resolved, and we anticipate the procurement environment becoming slightly better as we move through the second half and into the first half of 2027. However, we are mindful of the midterms in November. Where decisions are being made, our retention and win rates remain strong. We have around 3.2 billion pounds of awards awaiting adjudication, and our 2026 guidance does not rely on the movement of the US procurement framework. Mark Reid (Group Chief Financial Officer): The balance sheet remains in a strong position, and we still have optionality for M&A. We have increased resources in specific regions and are working vigorously to evaluate the right bolt-on acquisitions, but the timing of these things is more art than science.
Q: Could you provide a flavor of the opportunities that might come into the UK pipeline in the second half? And regarding the increasing complexity of the work, is that primarily in defence, and could you give examples of other areas? A: Mark Reid (Group Chief Financial Officer): We continue to see strong demand for our services in the UK, with nice opportunities coming through in defence on the facility side and in justice. We expect the strength of both the justice and defence pipelines to continue into the second half. Anthony Kirby (Group Chief Executive): The higher-value services we are delivering, such as complex defence support services and asset management on vessels, are moving us up the complexity chain. About 60% of our pipeline is in defence, and in North America, which represents 60% of the group, 75-80% is also in defence. We also see higher value in complex case management in citizen services and our electronic monitoring contract in the UK.
Q: What is the environment like now that Andy Burnham has taken over in terms of contract adjudications and the government's ability to break UK migration? Also, the UK margin is over 6%, which is at the group's upper end of guidancehow much better could this get in a blue sky scenario, and how much is due to management action versus business mix improvement? A: Anthony Kirby (Group Chief Executive): We have worked in the UK for over 60 years with many different parties, and we deliver complex mission-critical services. We are aligned to helping the government customer of the day deliver their policy objectives. We were proud to support the Cabinet Office's announcement to increase social value scoring in contracts to 20%, as Serco holds this dear, and we are doing very well in that area. Mark Reid (Group Chief Financial Officer): We are particularly pleased with the UK margin given the various puts and takes. We have seen great progress on the Royal Navy contract and electronic monitoring, where the team has driven operational improvements. UK immigration will continue to be a headwind, and National Insurance costs will lap themselves into the second half. We will continue to see positive progress on electronic monitoring and the Royal Navy.
Q: The group margin is 6.2% at the half year, ahead of the 5-6% range previously discussed. Could you break down the risks and opportunities, how much is cost out at a group level, and where sustainable margins might sit? Also, on the UK justice side, where are you in terms of capabilities and capacity on the tagging contract to accept additional volumes from the early release scheme? And on CMS in North America, what is the shape of volumes over the next few quarters? A: Mark Reid (Group Chief Financial Officer): The 6.2% margin is a decade high, and the overall geographical mix is helping. North America has a nice margin, and there is a culture of driving in-contract profitability. Defence and justice in the UK will continue to be supportive, while immigration will be a headwind into the second half and 2027. National Insurance costs will lap themselves, and corporate costs have been well managed, though there will be some IT spend in the second half. Anthony Kirby (Group Chief Executive): On CMS, the phasing is no different from historical trends. On electronic monitoring, we are monitoring record numbers of people, around 28,000 per day, and we have the capacity to meet government demands as numbers grow to the mid-30,000s. Every KPI on the contract is green, and I am exceptionally proud of the team's performance.
Q: On productivity, how big a pool of opportunity remains across the group? And how are contracts changing, with the US pushing towards more fixed-price contracts and the UK potentially moving to more outcome-based frameworks? What are the risks and opportunities for Serco? A: Mark Reid (Group Chief Financial Officer): There is a real DNA of driving productivity improvements across the regions, and we will continue to focus on that. Our cost base is significant, around 4.5 billion pounds, so there continues to be pools of spend to go after. Anthony Kirby (Group Chief Executive): Around 50% of our US contracts are already fixed-price, so we have experience operating in that environment. We see the opportunity to help customers reduce costs through fixed-price contracts as a good thing, and we have examples where we have helped customers reduce overall costs while walking the margin up slightly. We are well versed in this area.
Q: On MT&S, which is almost fully integrated, what is the update on cross-selling and upselling that capability into the US and Europe? And on UK immigration, volumes are slightly lower than guided, but with the contract ending in 2029, how are discussions with the government progressing on the rebid? A: Anthony Kirby (Group Chief Executive): MT&S has been well integrated into the wider Serco portfolio. We are working with them on sizeable opportunities in the US and more broadly, including an opportunity in Canada we would not have been able to bid for without the acquisition. MT&S also supported a recent win in defence in New Zealand. On immigration, the contract is up for renewal in 2029, and the customer has slightly changed the contractual mechanism for future services. We expect to be a strategic partner to the Home Office bidding for retention, and the shape may be slightly different, but our skills and expertise will continue to be utilized. Mark Reid (Group Chief Financial Officer): On numbers, the hotel mix is down, and overall volumes are slightly down to around 40,000, with the mix moving towards dispersed accommodation. The financial headwind is around 60 million pounds, less than the previously discussed 100 million, and it is treating at a slightly lower pace
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
