REG - Serco Group PLC - 2025 full year results
Today 07:00
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RNS Number : 4034V Serco Group PLC 05 March 2026
2025 full year results
Serco Group plc ("Serco" or the "Company")
5 March 2026
Strong performance in 2025, well positioned for growth in 2026, new £75m
share buyback
2025 delivery in line with upgraded guidance; cash performance ahead of
expectations
• Revenue: £4.9bn, up 3% at constant currency including 1% organic growth; good
progress with contract wins and growth offsetting immigration reductions in UK
and Australia
• Underlying operating profit: £272m, up 1% at constant currency; reported
operating profit of £246m, up 89%
• Underlying earnings per share: increased 2% to 16.93p
• Underlying operating margin: 5.6%, in line with medium-term target of 5-6%
• Cash flow: strong free cash flow of £219m, ahead of guidance of ~£170m
following strong collections. Trading cash conversion of 112%, averaging over
100% for last 7 years
• Order intake: £5.5bn with book-to-bill of 114%. Around two thirds of awards
in defence. Increased order book of £14.5bn, 9% higher than end of 2024
• Strong financial position: adjusted net debt £206m, leverage of 0.7x net debt
to EBITDA including funding £245m acquisition of MT&S and £50m share
buyback. Significantly below target range of 1-2x
• Shareholder returns: £50m share buyback completed in 2025, new £75m buyback
announced today, to be completed by half year results bringing total buybacks
since 2021 to £465m. The Board will review the capital position at half year.
Recommended final dividend of 3.05 pence per share, 8% year-on-year
Progress across strategic priorities; strengthened position in attractive
markets reinforces positive outlook
• Growth: pipeline increased to £12.1bn, up 8% since end of 2024 and highest
level in over a decade. North American pipeline more than doubled. Strong win
rates and continued long-term structural demand drivers across the portfolio,
particularly in defence markets where we have expanded capabilities.
• Competitiveness: Group-wide productivity initiatives supporting margin outlook
of c.6.0% in 2026, at the top end of medium-term range. Further progress in
Asia Pacific to reduce costs and streamline the business including the
divestment of Hong Kong operations.
• Operational excellence: contract retention rates over 90%; improved safety
performance with a 22% reduction in colleague safety incidents; significantly
fewer lost days. Strong colleague engagement maintained and attrition rate
continued to improve with a three-percentage-point reduction in the year.
Successful integration of MT&S.
• Reiterating guidance for 2026: c.£5bn revenue with improved organic growth of
c.3%. Underlying operating profit of c.£300m, 10% higher than 2025 driven by
contract ramp ups, MT&S full-year contribution and productivity
improvements. Trading cash conversion expected to be in line with our
medium-term target of at least 80%.
Commenting on today's update, Anthony Kirby, Serco Group Chief Executive,
said:
"In 2025, the Group demonstrated significant strategic and operational
progress. Our strong performance, as a trusted and mission-critical partner to
governments globally, reflects the hard work and dedication of my global team
of over 50,000 colleagues, for which I am grateful."
"With a focus on sustainable growth, competitiveness and operational
excellence we have delivered another year of good outcomes. Having
significantly increased our order intake, two thirds of which is in defence,
we have more than replenished our pipeline to another record level. Across our
growth markets, we have reinforced our position with expanded capabilities
that are well-aligned to customer priorities in Defence, Justice &
Immigration and Citizen Services."
"We expect elevated geopolitical tension and policy complexity to remain a
feature of the market in the near term, although the structural drivers of
demand will continue to intensify. Pressures are increasing on governments to
do more and better for less - we stand ready to support them in doing just
that. We enter 2026 in a robust financial position, with a strengthened
management team and a continued focus on operational discipline. We are well
placed to deliver increased organic revenue growth and underlying operating
profit, with good cash generation supporting our new share buyback"
Year ended 31 December 2025 2024 Change at reported currency Change at constant currency
Reported revenue £4,877m £4,787m 2 % 3 %
Underlying operating profit £272m £274m (1 %) 1 %
Reported operating profit £246m £130m 89 %
Underlying earnings per share (EPS), diluted 16.93p 16.67p 2 %
Reported EPS, diluted 14.07p 4.10p 243 %
Dividend per share (recommended) 4.50p 4.16p 8 %
Free cash flow £219m £228m (4 %)
Net cash inflow from operating activities £447m £419m 7 %
Adjusted net debt £206m £100m 106 %
Reported net debt £710m £630m 13 %
Guidance for 2026
We reiterate the 2026 guidance given in our pre-close trading statement on 17
December 2025 and update net debt and finance costs for the new share buyback.
Revenue and profit guidance is unchanged, with progress expected for organic
growth, profit and margin. This follows the strong order intake in 2025, a
full-year contribution from the acquisition of MT&S as well as
productivities and efficiencies across the portfolio. Cash flow is expected to
remain healthy.
2025 2026 2026
Actual Initial guidance New guidance
Revenue £ 4.9 bn ~£5.0bn ~£5.0bn
Organic sales growth 1 % ~3% ~3%
Underlying operating profit £ 272 m ~£300m ~£300m
Net finance costs £ 45 m ~£50m ~£52m
Underlying effective tax rate 23 % ~25% ~25%
Free cash flow £ 219 m ~£160m ~£160m
Adjusted net debt £ 206 m ~£150m ~£165m
NB: The guidance uses an average GBP:USD exchange rate of 1.33 in 2026,
GBP:EUR of 1.15 and GBP:AUD of 1.90. We expect a weighted average number of
shares in 2026 of 980m for basic EPS and 1,000m for diluted EPS.
For further information please contact Serco:
Jamie Hastings, Head of Investor Relations | +44 (0) 7718 195 074 |
jamie.hastings@serco.com
Scot Marchbank, External Communications Director | +44 (0) 7958 675 706 |
scot.marchbank@serco.com
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/e71d4594-de8f-4412-aff3-06575bfb66e6
and subsequently available on demand.
To be able to ask questions please use our dial-in facility accessed on
https://registrations.events/direct/LON924314
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 43 to 47. 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
In 2025, the Group made significant strategic progress as we continue to be a
mission-critical partner to customers during a period of heightened
geopolitical tensions and increasing fiscal constraints for governments around
the world.
Against a backdrop of rising government expenditure and elevated deficits,
customers continue to prioritise the delivery of critical and efficient
services - where we have a proven track record. This is seen across all our
priority markets; justice and immigration, citizen services and particularly
in defence. Governments around the world are committing to increased spending
in the face of global security challenges; from the UK prioritising the
development of sovereign capabilities, to the US' focus on defending the
homeland, defence investment is set to be a priority for years to come. Our
£5.5bn order intake, of which around two-thirds was in defence, book-to-bill
of 114%, and the highest pipeline in over a decade, demonstrate the strength
of demand for Serco's critical services.
Across our markets, the ongoing pressure on governments to deliver more and
better for less continues to ground our strategy. We are a leader in helping
governments navigate these pressures by bringing together the right people,
right technology and right partners to address some of their most complex
challenges. The continuing relevance of our expanding capabilities, and our
ability to deliver efficient services at scale, underpins the confidence we
have in our chosen and diverse markets.
It is through our key strategic priority areas of Growth, Competitiveness, and
Operational Excellence that the management team will continue to develop and
lead our business in the medium term.
Growth - robust awards & pipeline across our most attractive markets
We have sharpened our focus on the sectors with the greatest opportunity -
Defence, Justice & Immigration and Citizen Services.
The strategic strengthening of our Defence platform over recent years through
investment in talent, skills and technology, alongside acquisitions, has
allowed us to deepen our role supporting governments with national security
and critical infrastructure. Our selection to deliver the UK Armed Forces'
next-generation recruiting solution is a product of our enhanced defence
capabilities. We have led the overall design and delivery of this complex
service, including the integration of technology platforms and subject matter
experts through a strong team of international partners. The mobilisation of
this service, the first-of-its kind to cover all three forces is well
underway. We were also proud to commence the next generation contract to
provide defence maritime services for the Royal Navy and extend our
relationship with the Royal Canadian Air Force at several of their training
facilities.
Our ability to leverage global best practice was evident in Justice &
Immigration, having utilised our experience and capabilities from the UK to
secure the Victoria Prisoner Transport contract in Australia in the year. We
also retained our contract to manage HMP Dovegate, a Category B adult male
prison, which includes one of the few Therapeutic Community provisions in the
UK. In immigration, we continue to see demand for our broad range of services
and expertise into the medium term as policy, conflict and climate change
influences cross-border movements. Having integrated our two EU-based
acquisitions, our ability to manage fluctuating migration demand through safe,
secure and humane operations was again relied upon by governments across
Europe.
In Citizen Services, reform of public services continued to be in focus as
governments looked to integrate new technology, innovation and efficiency. Our
track record of strong execution helped us extend some long-standing
partnerships, including an initial £110m five-year contract with Transport
for London to continue to deliver the London Cycle Hire scheme, and in the
Middle East we won a £100m extension with Dubai Airports to deliver customer
services. We also added new customers to our Citizen Services sector including
the BBC.
Competitiveness - focusing our portfolio, investing to deliver organic growth
During the year we concentrated on the competitiveness of the entire
portfolio. This included a focus on efficiency and productivity through
process improvements, better use of resources and increased automation which
all contribute towards our increased 2026 margin guidance of c.6%.
In Asia Pacific, our dedicated programme to improve productivity and
right-size the platform has made good progress throughout the year, following
the ending of the Australian Immigration contract. This has been supported by
the disposal of our small Hong Kong business, which completed in September,
allowing us to focus our efforts on Australia and New Zealand, where we have
begun to see some new business wins.
In the Middle East, our new partnership with Mubadala, one of Abu Dhabi's
sovereign wealth funds, has created a leading infrastructure and asset
management operation. Through our operational expertise and Mubadala's
extensive market presence we see increased opportunity in this growing market.
Operational Excellence - strong customer retention rates a recognition of
superb delivery
During 2025, we expanded our defence mission readiness capability through the
acquisition of MT&S, which completed in May. Integration into our
back‑office platforms was completed inside six months, with around 900 new
colleagues joining the organisation. So far, MT&S has delivered £180m of
contract wins in addition to the retention of the significant virtual training
contract, known as DMON, which was secured just prior to completion. We have
also exported MT&S capabilities into existing Serco operations, including
to support our retention of the Australian Defence Force naval training
contract at HMAS Watsons Bay.
Central to delivering operational excellence is the way in which we motivate,
manage and retain our people. During the year, we streamlined HR systems and
processes, introduced leading‑edge technology and AI to empower our people,
and further embedded a culture of operational excellence across the Group.
These actions resulted in the retention of approximately 3,400 additional
colleagues on an annualised basis and an eight-percentage-point reduction in
attrition since 2023. Colleague engagement remains high at over 70 points and
has been at or above 70 points in all of the last five years.
In parallel, we deployed new technology-enabled risk management systems and
our programme of safety initiatives contributed to a 22% reduction in safety
incidents and over 2,500 fewer lost working days. We were also proud to retain
our top tier position in the CCLA corporate mental health benchmark and to
have acquired an ISO45003 for colleague psychological safety within our UK
immigration business.
Our relentless focus on operational execution is reflected in how our
customers measure our quality. Our Contractor Performance Assessment Report
(CPAR) scores - the US Government's mechanism for evaluating suppliers - have
consistently exceeded 95% at satisfactory or better. This has supported a
contract retention rate of over 90% across the Group. Our strong retention
rate and average contract length of around seven years contribute to our
increased £14.5bn order book at full year.
We also enter 2026 with a management team to drive Serco ahead in the next
phase of our journey. Mark Reid will become Group CFO when Nigel Crossley
retires in March this year, as previously announced. I look forward to working
with Mark to build on our strong foundations through the execution of our
strategic priorities.
I'd like to reiterate my thanks to Nigel for his significant contribution to
the Group's progress over the last 11 years and the support he has been to me.
He leaves the Group in an excellent financial position, having contributed to
strong cash generation, good capital deployment and excellent profitable
growth. On behalf of everyone at Serco, I would like to wish him all the very
best for a safe and enjoyable retirement.
Outlook - strategic progress and strong order book underpins 2026 guidance
Following a year of strong contract wins, we enter 2026 with an increased
order book and pipeline, reflecting our position as a trusted,
mission-critical partner to governments.
Events such as the US Government shutdown and the lag between spending
commitments being announced and opportunities being realised are a feature of
the market. We expect this to continue in the near term and note the emerging
situation in the Middle East. Fundamentally, the structural drivers of demand
in all our chosen sectors will continue as governments prioritise national and
international security, resilience and efficiency as pressure increases on
them to do more, and better, for less. Increased defence spending, public
service reform and strain on justice and immigration systems will remain
features of our markets in the medium term. We are well positioned to deliver
strong operational outcomes, increased organic revenue growth and underlying
operating profit, good cash generation and continued strong returns on
invested capital.
Looking forward, our strong financial performance enables us to continue to
deliver all aspects of our capital allocation strategy: investing in the
business to drive growth and efficiency; increasing returns to shareholders
through dividends; maintaining adequate headroom to fund strategic
acquisitions; and returning surplus capital to shareholders. In this context,
we are pleased to announce a new £75m share buyback to be completed by the
half year results and a dividend increase of 8%. We will again review the
capital position at half year in line with our capital allocation priorities.
Anthony Kirby
Group Chief Executive
Group Review
Summary of financial performance
Revenue, underlying operating profit and underlying earnings per share
Revenue was £4,877m, an increase of 2% compared to the £4,787m reported in
2024, or up 3% on a constant currency basis. Organic growth contributed 1%,
with net acquisitions and disposals adding a further 2%. This was partially
offset by a 1% currency drag. We saw strong growth in Defence and Citizen
Services, driven by the successful integration of the Mission Training and
Satellite Ground Network Communications Software (MT&S) business acquired
in May from Northrop Grumman and by expanded contracts in both the UK and
North America. In Justice & Immigration, revenue was lower following the
ending of our immigration contract in Australia as well as reduced demand for
temporary accommodation in the UK.
Group underlying operating profit decreased slightly to £272m (2024: £274m),
with an increase of 1% on a constant currency basis. There was a £5m adverse
impact from currency. Profit in the year was supported by the contribution
from MT&S and a number of contracts either starting or moving to their
operational phase. This largely offset the impact from higher National
Insurance contributions in the UK, increased corporate costs and the reduced
activity levels in Justice & Immigration. In Asia Pacific, we continued to
make progress, managing costs and achieving some successful commercial
outcomes. The resulting margin for the Group of 5.6% is well within our
medium-term target of 5-6%.
Reported operating profit increased by 89% to £246m (2024: £130m). This
follows the one-off £115m impairment charge in Asia Pacific in 2024.
Underlying profit after net finance costs and tax was £175.2m, compared with
£180.0m in 2024.
Diluted underlying earnings per share increased by 2% to 16.93p (2024:
16.67p).
The revenue and underlying operating profit performances are discussed in more
detail in the Divisional Reviews.
Cash flow and net debt
Free cash flow of £219m (2024: £228m) was better than expected and
represented a strong cash conversion of 112%. It follows stronger cash
collection across the business and some cash benefit of higher levels of
mobilisation activity and the associated deferred revenue. This performance
continues our strong track record of cash generation and cash conversion,
where we have delivered over 100% conversion on average over the last seven
years. We continue to expect the business to convert at least 80% of profit
into cash on an ongoing basis.
Average working capital days remained robust, with debtor days of 16 (2024: 17
days) and creditor days of 20 (2024: 19 days). Including accrued income and
other unbilled receivables, days sales outstanding were 38 days (2024: 39
days). Of all UK supplier invoices, 96% were paid in under 30 days (2024: 92%)
and 99% 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 £206m (2024: £100m) at the end of the year. This was
an increase of only £106m from the prior year, despite outflows of £245m for
the acquisition of MT&S; £50m for our share buyback programme; and £43m
for dividend payments.
The year-end adjusted net debt compares to a daily average of £232m (2024:
£146m) and a peak of £465m (2024: £212m). The difference between average
and peak figures reflects the timing of the outflow for the MT&S
acquisition. Working capital outflows that occur in a short timeframe such as
payroll, supplier payments, and 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 £504m at the end of December (2024: £530m), the majority relating
to leases on housing for asylum seekers under our Asylum Accommodation and
Support Services Contract. These leases are serviced with contracted revenue
from the customer and their terms do not extend beyond the expected life of
the contract.
At the end of the period, our leverage for debt covenant purposes was 0.7x
EBITDA (2024: 0.3x), below our target range of 1-2x and significantly below
the covenant requirements for net debt to be less than 3.5x EBITDA.
In April 2025, the Group issued US$250m (£193m) 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%. In October 2025, the Group repaid US$50m
(£37m) of the maturing US private placement loan notes, which had an interest
rate of 3.27%. The total amount of US private placement loan notes in issue at
the end of December 2025 was US$550m (£409m), which had a blended interest
rate of 5.64% (December 2024: 4.88%).
Capital allocation and returns to shareholders
We aim to have a strong balance sheet with our target financial leverage at
1-2x net debt to EBITDA.
Consistent with this, the Board's capital allocation priorities are to:
• invest in the business to support organic growth;
• increase ordinary dividends to reward shareholders with a growing and
sustainable income stream;
• selectively invest in strategic bolt-on acquisitions that add capability,
market access, scale and enhance the Group's future potential organic growth
and have attractive returns; and
• return any surplus cash to shareholders through share buybacks or other means.
Our capital allocation framework was actively applied in 2025:
• Invest to support organic growth: we have strengthened our business
development capabilities in multiple ways in 2025, including through expanding
specialist sales teams, enhanced training programmes, and refreshed government
relations efforts. Deploying new technology platforms and recruitment systems
will improve efficiency and competitiveness, while new and expanded
partnerships, such as with Mubadala in the Middle East, will enhance future
growth opportunities.
• Increase ordinary dividends: the Board is recommending a final dividend of
3.05 pence per share. Following the interim dividend of 1.45 pence per share,
this results in a full year dividend of 4.50 pence per share, an increase of
8% compared to 2024.
• Invest in acquisitions: in May, we acquired MT&S from Northrop Grumman.
MT&S is a leading provider of services to the US military. We continue to
assess other opportunities that are aligned to our strategy and provide
potential to enhance future organic growth.
• Return surplus cash to shareholders: our £50m share buyback was completed in
the second half of the year. This brings the total shareholder returns via
buybacks since 2021 to around £390m.
Contract awards, order book, rebids and pipeline
Contract awards
Order intake was £5.5bn, up from £4.9bn in 2024, representing a book-to-bill
rate of 114%. This included over 48 contract awards valued at £10m or more.
UK & Europe delivered an order intake of £3.7bn, or approximately 70% of
the Group's total, while North America contributed £1.4bn, or around 25%.
Asia Pacific and the Middle East secured a combined £0.5bn. There was a
relatively even split of awards, with new business accounting for 45% and
retentions 55% of wins. The win rate by value for new work was 32%, and 92%
for retaining existing work.
UK & Europe's book-to-bill rate of 145% was the highest in the Group, with
significant awards in the Defence sector. In North America, order intake of
£1.4bn and a book-to-bill of 92% was robust despite the US Government
shutdown which delayed some new business awards and contract protest
resolutions.
In Defence, notable awards included agreements with the UK Ministry of Defence
to deliver maritime services for the Royal Navy under the Defence Maritime
Services Next Generation programme, valued at £1bn, and a £1.1bn seven-year
contract to deliver recruitment services for the combined armed forces in the
UK. There were also significant awards in the Defence sector in our North
America Division, including a CAD$490m 25-year contract to support the Future
Aircrew Training programme for the Royal Canadian Air Force, and 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. In Asia Pacific, the
maritime synthetic warfare training operations contract for the Royal
Australian Navy was also secured, valued at AUD$80m for the initial
five‑year period.
In Justice & Immigration we successfully rebid our contract to manage HMP
Dovegate in the UK valued at over £500m and secured a new six-year contract
in Australia to operate Justice Transport Services in the state of Victoria.
Elsewhere, we retained or extended contracts for guest experience at multiple
airports in Dubai (AED495m over five years) and cycle hire services in London
(£110m for the initial five years).
Order book
The order book increased to £14.5bn at the end of December 2025 (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. The order book would be £2.6bn (2024: £3.0bn) higher if option
periods in our US business, which typically tend to be exercised, were
included. If joint venture work was included, it would add a further £1.4bn
(2024: £1.9bn).
Rebids
In our portfolio of existing work, we have around 85 contracts with annual
revenue of £5m or more where an extension or rebid will be required before
the end of 2028, with an aggregate annual revenue of £1.8bn. Contracts that
will either need to be rebid or extended in 2026 have an annual contract value
of around £0.5bn. The annual value of rebids is approximately £0.7bn in 2027
and £0.6bn in 2028.
At around 40% of the Group's 2025 revenue, this is in line with our normal
historical ranges and includes two rebids worth over £100m, or 2% of the
Group's 2025 revenue.
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
therefore a small proportion of the total universe of opportunities, as many
opportunities exist 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 £12.1bn at the end of December 2025, 8% higher than the
£11.2bn level at the end of December 2024 and the highest level in over a
decade. The pipeline consists of over 70 bids, with an average ACV of £30m
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 £3.3bn at the end of the year (2024: £2.0bn).
To enhance future growth opportunities in the Middle East, we expanded our
strategic partnership with Mubadala, 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
In May, we acquired MT&S from Northrop Grumman, for an enterprise value of
£242m. MT&S generates annual revenues of approximately US$300m,
increasing the annual revenue of our North America Division 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 War, 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.
Disposals
As part of our disciplined portfolio development, in September we sold our
Hong Kong operations. The business accounted for around 1% of Group revenue
and mainly provided tunnel support services in the Transport sector with
limited alignment to our international portfolio.
Guidance for 2026
Further to the Pre-Close Trading Statement on 17 December, guidance has been
updated to reflect the impact of the new £75m share buyback. This will
increase net debt and reduce the number of shares in issue.
Revenue: We anticipate revenues of around £5.0bn. Organic revenue growth is
expected to rise to c.3%, which excludes the annualisation of the MT&S
acquisition, the disposal of our Hong Kong operations and transfer of certain
contracts to our Mubadala strategic partnership in the Middle East. Growth is
forecast to be strongest in North America and UK & Europe, driven mainly
by new and mobilising contracts in Defence, Justice & Immigration and
Citizen Services. These are expected to more than offset the anticipated
reduction in Immigration revenues in UK & Europe and Asia Pacific.
Underlying operating profit: Underlying operating profit is anticipated to be
around £300m, 10% higher than 2025. The increase includes the full-year
contribution from the acquisition of MT&S, contract ramp-ups, and our
initiatives to improve productivity and efficiencies across the portfolio,
partially offset by anticipated lower immigration activities. This supports
margin guidance of c.6.0%, which is at the top of our medium-term target range
of 5-6%.
Net finance costs and tax: Net finance costs are expected to be around £52m,
slightly higher than 2025 due to the full-year effect of funding the
acquisition of MT&S and the new share buyback. The underlying effective
tax rate is expected to be around 25%, which is in line with our medium-term
expectations.
Financial position: Good free cash flow is expected at around £160m in the
year, in line with our medium-term target of converting more than 80% of
profit into cash. We expect adjusted net debt to end the year at approximately
£165m following the new share buyback.
Surplus capital: 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 finished the year at 0.72x net debt to EBITDA,
placing the business in a position of surplus capital, a £75m share buyback
has been announced and is expected to complete by the half-year results. We
will review the capital position again at the half year.
Summary of guidance for 2026
2025 2026 2026
Actual Initial guidance New guidance
Revenue £ 4.9 bn ~£5.0bn ~£5.0bn
Organic sales growth 1 % ~3% ~3%
Underlying operating profit £ 272 m ~£300m ~£300m
Net finance costs £ 45 m ~£50m ~£52m
Underlying effective tax rate 23 % ~25% ~25%
Free cash flow £ 219 m ~£160m ~£160m
Adjusted net debt £ 206 m ~£150m ~£165m
NB: The guidance uses an average GBP:USD exchange rate of 1.33 in 2026,
GBP:EUR of 1.15 and GBP:AUD of 1.90. We expect a weighted average number of
shares in 2026 of 980m for basic EPS and 1,000m for diluted EPS.
Divisional Reviews
Serco's operations are reported through four geographic divisions: North
America, UK & Europe (UK&E), Asia Pacific 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.
North America UK&E Asia Pacific Middle Corporate Total
East costs
Year ended 31 December 2025 £m £m £m £m £m £m
Revenue 1,463.2 2,582.1 654.6 176.9 - 4,876.8
Change 10 % 6 % (18 %) (18 %) 2 %
Change at constant currency 13 % 6 % (13 %) (16 %) 3 %
Organic change at constant currency 4 % 5 % (12 %) (12 %) 1 %
.
Underlying operating profit/(loss) 143.5 148.9 24.0 12.6 (57.4) 271.6
Change 5 % 1 % (2 %) (21 %) 12 % (1 %)
Margin 9.8 % 5.8 % 3.7 % 7.1 % (1.1 %) 5.6 %
Amortisation and impairment of intangibles arising on acquisition (19.8) (10.2) - - - (30.0)
Profit on disposal of subsidiary - - 4.7 - - 4.7
Reported operating profit/(loss) 123.7 138.7 28.7 12.6 (57.4) 246.3
North America UK&E Asia Pacific Middle Corporate Total
East costs
Year ended 31 December 2024 £m £m £m £m £m £m
Revenue 1,326.1 2,445.9 799.4 215.9 - 4,787.3
Underlying operating profit/(loss) 136.1 147.9 24.6 16.0 (51.1) 273.5
Margin 10.3 % 6.0 % 3.1 % 7.4 % (1.1 %) 5.7 %
Amortisation and impairment of intangibles arising on acquisition (15.5) (13.4) - - - (28.9)
Exceptional goodwill impairment - - (114.5) - - (114.5)
Reported operating profit/(loss) 120.6 134.5 (89.9) 16.0 (51.1) 130.1
Reconciliations and further details of financial performance are included in
the additional information on pages 43 to 49. These include 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 42.
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 year ended December 2025 the Group's underlying operating
profit before corporate costs was £329.0m.
North America (30% of revenue, 44% of underlying operating profit)
2025 2024 Growth
Year ended 31 December £m £m
Revenue 1,463.2 1,326.1 10 %
Organic change 4 % 1 %
Acquisitions 9 % - %
Currency (3) % (4) %
Underlying operating profit 143.5 136.1 5 %
Organic change 1 % 2 %
Acquisitions 7 % - %
Currency (3) % (4) %
Margin 9.8 % 10.3 % (46) bp
Revenue increased by 10% to £1,463m (2024: £1,326m), delivering a good
organic growth performance of 4% in addition to the 9% contribution from the
acquisition of MT&S. There was a 3% adverse translational effect of
currency. Organic growth was underpinned by the Defence sector, following a
significant order intake achieved in 2024 with the mobilisation of new
contracts, including defence personnel services, as well as increased demand
and volumes for IT network and infrastructure services for the US Navy.
Underlying operating profit increased by 5% to £144m (2024: £136m). Organic
growth was 1%, with the acquisition of MT&S contributing 7%, and a 3% drag
from currency. There was progress in the Defence sector including the
mobilisation of new contracts, expansion and higher volumes on existing
business, as well as efficiencies in our case management portfolio. Margins
decreased from 10.3% to 9.8%, with some contracts in the early mobilisation
phase as well as the acquisition and integration costs related to the MT&S
transaction.
Order intake of £1.4bn was robust, with a book-to-bill rate of 92%. This
followed the very high level of contract awards in 2024, resulting in fewer
bids concluding in the first half of 2025 as the pipeline was replenished. In
the second half, the US Government shutdown caused some delays to new business
awards and contract protest resolutions, although our win rates by value
remained healthy at 37% for new business and 75% for retentions. Our largest
new win was a CAD$490m, 25-year contract, to provide critical training
enablers, including air navigation services, air traffic control and other
site services for the Future Aircrew Training programme in Canada. We also
secured a US$105m, five-year contract, to continue providing support to the US
Navy's amphibious warfare ships and systems with services including
engineering, ship design management and integrated logistics support.
There has been an efficient transition and integration of the MT&S
acquisition into the business, which contributed £9m in the seven months of
ownership after £6m of transaction and integration costs.
The pipeline of new bid opportunities due for decision within the next 24
months has more than doubled from £2.1bn at the end of 2024 to £5.0bn. The
pipeline was replenished after the high level of contract awards in the prior
year and fewer award decisions following the US Government shutdown, which
prompted a short term lag between spending commitments and opportunities being
realised. Defence continues to represent the majority of the North American
pipeline and remains our priority sector in the region, supported by the
world's largest defence budget, strong bipartisan commitment to enhanced
readiness, and a clear strategic focus on strengthening military capabilities.
Serco is well positioned to compete and succeed in this highly liquid market,
and we have confidence in the long‑term growth potential of the sector.
UK & Europe (53% of revenue, 45% of underlying operating profit)
2025 2024 Growth
Year ended 31 December £m £m
Revenue 2,582.1 2,445.9 6 %
Organic change 5 % (5)%
Acquisitions 1 % 5%
Currency - % -%
Underlying operating profit 148.9 147.9 1 %
Organic change (2) % 7%
Acquisitions 2 % 16%
Currency 1 % (1)%
Margin 5.8 % 6.0% (28) bp
Revenue rose by 6% to £2,582m (2024: £2,446m), driven by good organic growth
of 5% and a further 1% uplift from the acquisition of EHC, our German
immigration services business. Organic growth was supported by the
mobilisation and ramp-up of several major Defence and Citizen Services
contracts. As expected, Justice & Immigration revenue reduced within our
UK immigration contract, although the contract remains the largest in the
Group.
Underlying operating profit increased by £1m to £149m (2024: £148m)
reflecting a resilient performance in the face of higher UK National Insurance
contributions. Margins remained healthy at 5.8% (2024: 6.0%) supported by the
mobilisation of early delivery phases from new contracts within complex case
management and marine services. As expected, Justice & Immigration
profitability reduced due to lower demand in the immigration portfolio. After
an extended period of mobilisation and higher costs, our Electronic Monitoring
Services contract delivered productivity improvements in the second half. We
expect these to continue and to contribute to a better financial performance
in 2026. Demand for our European space business remained strong.
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 5.1% (2024: 5.3%).
Order intake was very strong at £3.7bn, around two-thirds of the Group total,
with a book-to-bill of 145%. In 2025, new work accounted for approximately 42%
of order intake, with a high win rate by value of around 60%. We have also
maintained our momentum on securing rebids and extensions, with a win rate
over 97%. Awards included three agreements with the UK Ministry of Defence to
deliver maritime services for the Royal Navy, with an estimated value of
£1.0bn over a term of up to 10 years. This is in addition to the new £1.1bn
seven-year Armed Forces Recruitment (AFR) contract which is in the early
stages of mobilisation. We successfully rebid or extended contracts for cycle
hire services in London and environmental waste, as well as retaining the
contract to manage HMP Dovegate with an estimated value of over £500m.
The pipeline remains healthy at £5.8bn (2024: £6.4bn) despite the high level
of awards and conversion rate in the year. Our opportunities are broad,
covering the key sectors we operate in, including Defence, Justice &
Immigration and Citizen Services.
Asia Pacific (13% of revenue, 7% of underlying operating profit)
2025 2024 Growth
Year ended 31 December £m £m
Revenue 654.6 799.4 (18 ) %
Organic change (12) % (2) %
Disposals (1) % - %
Currency (5) % (3) %
Underlying operating profit 24.0 24.6 (2 ) %
Organic change 5 % 8 %
Disposals (2) % - %
Currency (5) % (4) %
Margin 3.7 % 3.1 % 59 bp
Our Asia Pacific business continued its turnaround following progress made in
2024 and the successful transition out from providing onshore immigration
services in Australia, historically the largest contract for the Division.
Revenue fell 18% to £655m (2024: £799m), driven by a 12% organic decline
following the exit of the immigration contract, though Defence and Justice
delivered good contract growth. As part of our disciplined portfolio
development, we sold our Hong Kong operations in September. The business
mainly provided tunnel support services to the Transport sector with limited
alignment to our international portfolio. Adverse currency movements had a 5%
impact overall.
Operational excellence remained a core focus throughout the year, and
improvements across our contract portfolio and cost base helped mitigate most
of the impact from lower revenue. This supported the margin improvement to
3.7% (2024: 3.1%) even with underlying operating profit reducing 2% to £24m
(2024: £25m). Actions to streamline the business included reducing overhead
and operating costs, enhancing workforce efficiency and some improved
commercial outcomes. This now better positions the region for a return to
growth in the medium-term.
Rebuilding the business development pipeline continues to be our priority,
supported by increased investment in growth-focused resourcing during the
year. Order intake of £0.3bn was mostly secured in the second half, including
a new six-year contract to operate Justice Transport Services in the state of
Victoria. A number of important extensions and rebids were secured, including
an initial five-year contract to continue providing maritime warfare training
services at HMAS Watsons Bay, Sydney and HMAS Stirling, Western
Australia - the country's naval warfare training establishments. In
Citizen Services we successfully rebid a AUD$40m two-year contract to provide
services for the Victorian Police Assistance Line, as well as a four-year
extension to the road safety services contract for the Victorian Department of
Justice and Community Safety, valued at over AUD$190m in Justice. The pipeline
closed at £0.7bn (2024: £1.7bn), reflecting the impact of the unsuccessful
facilities management services bid for the Australian Defence Force in the
first half.
Middle East (4% of revenue, 4% of underlying operating profit)
2025 2024 Growth
Year ended 31 December £m £m
Revenue 176.9 215.9 (18 ) %
Organic change (12) % (3) %
Acquisitions and disposals (4) % 1 %
Currency (2) % (3) %
Underlying operating profit 12.6 16.0 (21 ) %
Organic change (18) % - %
Acquisitions and disposals - % 9 %
Currency (3) % (4) %
Margin 7.1 % 7.4 % (29) bp
Revenue reduced by 18% to £177m (2024: £216m), largely driven by an organic
decline of 12%, and 2% adverse currency movement. The conclusion of our air
navigation contract in Dubai reduced revenue during the year. This was
partially offset by continued growth in our fire and rescue services in Saudi
Arabia and demand for our defence support services. Following the strategic
partnership with Mubadala, certain contracts have novated to a new joint
arrangement, resulting in a revenue reduction of approximately 4%, with no
impact on underlying operating profit.
Underlying operating profit decreased by 21% to £13m (2024: £16m). Operating
margin decreased by 29bps to 7.1% (2024: 7.4%) due to completion of higher
margin project works in 2024. We have adopted a disciplined approach to
bidding, improving the underlying performance of our portfolio over the longer
term and other operational efficiencies.
Order intake was approximately £0.1bn and includes a strategically
significant contract extension with Dubai Airports, valued at AED495m, which
will run until December 2030. This five-year extension reinforces our
long-standing role in enhancing the guest experience at Dubai Airports and
follows the successful delivery of its initial five-year term.
Our pipeline of new bid opportunities in the Middle East sits at approximately
£0.5bn (2024: £1.0bn), lower than the prior year following the adjudication
of several large bids and removal of some delayed and cancelled opportunities.
We continue to see robust demand across our markets, particularly within the
Defence sector and also in Saudi Arabia. To accelerate growth and strengthen
our regional market position, our strategic partnership with Mubadala will
provide us with greater access to new commercial opportunities, enhancing our
long-term prospects in the region.
Corporate costs
Corporate costs relate to typical central function costs of running the Group,
including executive, governance and support functions such as HR, Legal,
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 £6m to £57m (2024: £51m) and include targeted
short-term investments and one-off costs in the year.
Dividend
The Board has declared a final dividend of 3.05 pence per share. The dividend
will be paid on 8 May 2026, with an ex-dividend date of 9 April 2026 and a
record date of 10 April 2026. This takes the total dividend for the year to
4.50 pence per share (2024: 4.16 pence per share).
Other Financial Information
Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2025 2025 2025 2024 2024 2024
Year ended 31 December £m £m £m £m £m £m
Revenue 4,876.8 - 4,876.8 4,787.3 - 4,787.3
Operating profit/(loss) 271.6 (25.3 ) 246.3 273.5 (143.4 ) 130.1
Margin 5.6 % 5.1 % 5.7 % 2.7 %
Net finance costs (44.8 ) - (44.8 ) (33.1 ) - (33.1 )
Profit/(loss) before tax 226.8 (25.3 ) 201.5 240.4 (143.4 ) 97.0
Total tax (charge)/credit (51.6 ) (4.3 ) (55.9 ) (60.4 ) 7.9 (52.5 )
Effective tax rate 22.8 % 27.7 % 25.1 % 54.1 %
Profit/(loss) for the year 175.2 (29.6) 145.6 180.0 (135.5) 44.5
Basic EPS 17.31 p 14.38 p 16.97 p 4.17 p
Diluted EPS 16.93 p 14.07 p 16.67 p 4.10 p
Non-underlying items
Non-underlying items in the year were a charge net of tax of £29.6m (2024:
£135.5m). This comprises amortisation and impairment of intangible assets
arising on acquisitions of £30.0m (2024: £28.9m), profit on disposal of a
subsidiary in Hong Kong of £4.7m (2024: £nil) and non-underlying tax for the
year being a charge of £4.3m (2024: credit £7.9m). The non-underlying tax
charge includes £17.3m relating to the derecognition of part of the deferred
tax asset in Asia Pacific. For more details see page 26.
In 2024, a non‑cash, non‑underlying impairment charge of £114.5m was
recognised against Asia Pacific goodwill, following the loss of the
Immigration rebid in November 2024.
Joint ventures and associates - share of results
During the year, 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 £227.9m (2024: £215.0m), with the Group's
share of profits net of interest and tax for the year being £11.5m (2024:
£10.9m). The increase in Merseyrail revenue and profits is primarily due to
improved performance in 2025. The Group received dividends of £8.5m (2024:
£14.1m).
VIVO revenue for the year was £822.8m (2024: £917.8m) with the Group's share
of profits net of interest and tax for the year being £15.0m (2024: £11.9m).
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 £14.2m (2024: £16.7m).
While 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.
2025 2024
Year ended 31 December £m £m
Revenue 514.7 504.5
Operating profit 37.5 30.6
Net finance income/(cost) 0.5 (0.1)
Income tax charge (9.2) (7.7)
Profit after tax 28.8 22.8
Dividends received from joint ventures and associates 22.9 30.8
Finance costs and investment revenue
Net finance costs recognised in the income statement were £44.8m (2024:
£33.1m), consisting of investment revenue of £6.8m, less finance costs of
£51.6m.
Investment revenue of £6.8m (2024: £7.7m) includes interest accruing on net
retirement benefit assets of £0.8m (2024: £1.9m), and interest income of
£5.7m (2024: £5.3m).
Finance costs of £51.6m (2024: £40.8m) include interest incurred on loans,
primarily the US private placement loan notes and the revolving credit
facility of £23.9m (2024: £14.7m), and lease interest expense of £22.9m
(2024: £19.9m), as well as other financing related costs including the impact
of foreign exchange on financing activities. The increase in loans
year-on-year is due to the issue of further US private placement loan notes in
the year.
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 £40.3m (2024:
£28.5m), consisting of interest received of £5.7m (2024: £5.3m) less
interest paid of £46.0m (2024: £33.8m).
Tax
Underlying tax
The underlying tax charge recognised in the year was £51.6m (2024: £60.4m).
The effective tax rate of 22.8% is lower than in 2024 (25.1%). The decrease
compared with 2024 is primarily due to one-time credits for the release of tax
provisions following finalisation of overseas tax authority audits, and a
credit on securing other tax repayments previously too uncertain to recognise.
In contrast, 2024 included increases in provisions reflecting tax authority
audit outcomes.
The underlying tax rate of 22.8% is lower than the UK statutory rate of 25%.
This is due to the impact of profits of joint ventures and associates whose
post-tax profits are included in the Group's profit before tax (decreasing the
rate by 3.2%), and prior year adjustments, primarily arising from the decrease
in provisions held for uncertain tax positions (decreasing the rate by 2.1%).
These are partially offset by current year movements of uncertain tax
positions (increasing the rate by 0.9%); the movement in unprovided deferred
tax (increasing the rate by 0.9%); withholding taxes suffered to the extent no
tax benefit is expected (increasing the rate by 0.4%); together with the
impact of higher statutory rates of tax on overseas profits (increasing the
rate by 0.5%). Other smaller items result in a net increase to the rate of
0.4%.
Non-underlying tax
A tax credit of £8.1m (2024: £7.9m) arises from the amortisation and
impairment of intangibles arising on acquisition.
The accounting profit on disposal of £4.7m did not give rise to a taxable
profit and therefore does not result in a tax cost.
The partial derecognition of the deferred tax asset in Asia Pacific resulted
in a tax charge of £17.3m. For more details see page 26. Netting against this
is a £4.9m prior year credit arising on the recalculation of a deferred tax
liability connected with a historic acquisition in the US.
Deferred tax assets
As at 31 December 2025, the Group has recognised a net deferred tax asset of
£167.1m (2024: £177.7m). This consists of a deferred tax asset of £208.2m
(2024: £229.8m) and a deferred tax liability of £41.1m (2024: £52.1m). A
£175.7m UK deferred tax asset (2024: £177.5m) has been recognised on the
Group's balance sheet at 31 December 2025 on the basis that the performance
in the underlying business indicates sustained profitability which will enable
the accumulated tax losses to be utilised.
As detailed on page 26, a £27.7m Australian deferred tax asset (2024:
£50.5m) has been recognised on the basis of forecast profits capped - during
its turnaround phase - to the ordinary five-year planning cycle of the
business. As the turnaround of the Australian business progresses, management
will continue to reassess this judgement.
Taxes paid
Net corporate income tax of £43.4m (2024: £41.3m) was paid during the year.
The UK has a net repayment of £12.9m in the year, which consisted of £2.4m
payments to HMRC, offset by £14.6m received from the Group's joint ventures
and associates for losses sold to them and £0.7m of withholding tax refunds.
Payments relating to the Group's operations outside the UK were: Europe
(£24.9m), North America (£28.7m), Asia Pacific (£1.7m), and the Middle East
(£1.0m).
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 31 December 2025, the Group had committed funding of £758.6m (2024:
£629.2m), comprising £408.6m of US private placement loan notes, and a
£350m revolving credit facility which was undrawn. The US private placement
loan notes are repayable in bullet payments between October 2027 and April
2035. The Group does not engage in any external financing arrangements
associated with either receivables or payables.
In April 2025, the Group issued US$250m (£193m) 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%. In October 2025, the Group repaid US$50m
(£37m) of the maturing US private placement loan notes, which had an interest
rate of 3.27%. The total amount of US private placement loan notes in issue at
the end of December 2025 was US$550m (£409m), which had a blended interest
rate of 5.64% (December 2024: 4.88%).
The Group's revolving credit facility provides £350m of committed funding for
five years from the arrangement date in November 2022. The facility includes
an accordion option, providing a further £100m 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 31 December 2025, £408.6m of debt was held at fixed
rates and adjusted net debt was £205.7m.
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 31 December 2025, the Consolidated Balance Sheet shown on page 23 had
net assets of £873.6m, a movement of £31.1m 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 £128.5m partially offset by
returns to shareholders totalling £93.6m, through share buybacks and dividend
payments.
Key movements since 31 December 2024 on the Consolidated Balance Sheet shown
on page 23 include:
• An increase in goodwill of £103.1m driven by £140.8m recognised on
acquisition of MT&S, offset by £37.7m of adverse foreign exchange.
• An increase in other intangible assets of £60.8m, including £89.3m arising
on acquisition of MT&S, partly offset by amortisation of £37.7m.
• A decrease in the net retirement benefit asset of £2.5m. Further details are
provided in the pensions section below.
• Provisions have decreased by £1.5m predominantly due to the elimination of
provisions of the disposal of Hong Kong of £4.2m.
• Cash and cash equivalents have increased by £16.3m. In the year the Group
generated free cash flow of £219.3m and £156.0m from the net advance of
loans. This was partially offset by £50.3m shares repurchased, £43.3m
dividends to shareholders and £245.3m related to the acquisition of MT&S.
• Loan balances have increased by £128.5m due to the issue of additional USPP
notes of £193.0m, and offset by repayments of £37.2m and FX of £26.5m.
• The movement in contract assets, trade receivables and other assets, and,
contract liabilities, trade payables and other liabilities are as a result of
normal working capital movements.
Pensions
Serco's pension schemes had an accounting surplus before tax of £1.5m
(31 December 2024: £4.0m). The £2.5m decrease comprises a £39.3m reduction
in scheme assets due to market conditions lowering asset values. This was
largely offset by a £36.8m reduction in scheme liabilities, driven by changes
in inflation, discount rates and updated member data.
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 until March 2030.
The opening net asset position led to a net interest income within net finance
costs of £0.8m (2024: £1.9m).
Condensed Consolidated Financial Statements
Consolidated Income Statement
For the year ended 31 December 2025
Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2025 2025 2025 2024 2024 2024
£m £m £m £m £m £m
Revenue 4,876.8 - 4,876.8 4,787.3 - 4,787.3
Cost of sales (4,364.0 ) - (4,364.0 ) (4,268.7 ) - (4,268.7 )
Gross profit 512.8 - 512.8 518.6 - 518.6
Administrative expenses (270.0 ) - (270.0 ) (267.9 ) - (267.9 )
Exceptional item - Goodwill impairment - - - - (114.5 ) (114.5 )
Profit on disposal of a subsidiary - 4.7 4.7 - - -
Amortisation and impairment of intangibles arising on acquisition - (30.0 ) (30.0 ) - (28.9 ) (28.9 )
Share of results of joint ventures and associates, net of interest and tax 28.8 - 28.8 22.8 - 22.8
Operating profit/(loss) 271.6 (25.3 ) 246.3 273.5 (143.4 ) 130.1
Investment revenue 6.8 - 6.8 7.7 - 7.7
Finance costs (51.6 ) - (51.6 ) (40.8 ) - (40.8 )
Net finance costs (44.8 ) - (44.8 ) (33.1 ) - (33.1 )
Profit/(loss) before tax 226.8 (25.3 ) 201.5 240.4 (143.4 ) 97.0
Total tax (charge)/credit (51.6 ) (4.3 ) (55.9 ) (60.4 ) 7.9 (52.5 )
Profit/(loss) for the year 175.2 (29.6) 145.6 180.0 (135.5) 44.5
Attributable to:
Equity owners of the Company 175.2 (29.6 ) 145.6 179.7 (135.5 ) 44.2
Non-controlling interest - - - 0.3 - 0.3
Earnings per share (EPS)
Basic EPS 17.31 p 14.38 p 16.97 p 4.17 p
Diluted EPS 16.93 p 14.07 p 16.67 p 4.10 p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2025
2025 2024
£m £m
Profit for the year 145.6 44.5
Other comprehensive income/(loss) for the year:
Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income in joint ventures and associates(1) 0.7 0.7
Remeasurements of post-employment benefit obligations(2) (2.1) (38.7)
Income tax relating to components of other comprehensive income that will not 5.2 7.7
be reclassified subsequently to profit or loss(2)
Items that may be reclassified subsequently to profit or loss:
Net exchange loss on translation of foreign operations(2) (21.1) (18.6)
Net exchange on disposal of foreign operations(2) (0.5) -
Fair value loss/(gain) on cash flow hedges during the year(2) 0.9 (0.4)
Tax relating to hedging that may be reclassified(2) (0.2) 0.1
Total other comprehensive loss for the year (17.1) (49.2)
Total comprehensive income/(loss) for the year 128.5 (4.7)
Attributable to:
Equity owners of the Company 128.5 (5.0)
Non-controlling interest - 0.3
1 Recorded in retained earnings in the Consolidated Statement of Changes in
Equity.
2 Recorded in other reserves in the Consolidated Statement of Changes in Equity.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2025
Share capital Share premium account Retained earnings Other reserves Total shareholders' equity Non-controlling interest
£m £m £m £m £m £m
At 1 January 2024 22.1 463.1 659.1 (110.3) 1,034.0 (0.3)
Total comprehensive income/(loss) for the year - - 44.9 (49.9) (5.0) 0.3
Dividends paid - - (38.4) - (38.4) -
Shares purchased and held in own share reserve - - - (22.8) (22.8) -
Shares purchased and held in Treasury until cancelled - - - (141.3) (141.3) -
Cancellation of shares held in Treasury (1.6) - (141.3) 142.9 - -
Shares transferred to award holders on exercise of share awards - - - 0.1 0.1 -
Expense in relation to share-based payments - - - 15.2 15.2 -
Tax credit on items taken directly to equity - - - 0.7 0.7 -
At 31 December 2024 20.5 463.1 524.3 (165.4) 842.5 -
Total comprehensive income/(loss) for the year - - 146.3 (17.8) 128.5 -
Dividends paid - - (43.3) - (43.3) -
Shares purchased and held in own share reserve - - - (5.0) (5.0) -
Shares committed to be purchased and held in own share reserve - - - (21.3) (21.3)
Shares purchased and held in Treasury until cancelled - - - (50.3) (50.3) -
Cancellation of shares held in Treasury (0.4) - (50.3) 50.7 - -
Shares transferred to award holders on exercise of share awards - - - 3.9 3.9 -
Expense in relation to share-based payments - - - 13.6 13.6 -
Tax credit on items taken directly to equity - - - 5.0 5.0 -
At 31 December 2025 20.1 463.1 577.0 (186.6) 873.6 -
Consolidated Balance Sheet
For the year ended 31 December 2025
2025 2024
£m £m
Non-current assets
Goodwill 929.3 826.2
Other intangible assets 162.2 101.4
Property, plant and equipment 56.2 56.8
Right of use assets 482.8 514.9
Interests in joint ventures and associates 34.1 25.1
Contract assets 4.5 -
Trade and other receivables 21.7 26.3
Derivative financial instruments 0.6 -
Deferred tax assets 208.2 229.8
Retirement benefit assets 9.6 15.2
1,909.2 1,795.7
Current assets
Inventories 20.0 24.1
Contract assets 313.0 300.0
Trade and other receivables 330.1 331.5
Current tax assets 23.9 25.2
Cash and cash equivalents 199.3 183.0
Derivative financial instruments 0.5 0.8
886.8 864.6
Total assets 2,796.0 2,660.3
Current liabilities
Contract liabilities (87.1) (37.5)
Trade and other payables (562.6) (595.0)
Derivative financial instruments (0.3) (6.6)
Current tax liabilities (22.1) (35.9)
Provisions (113.0) (108.9)
Obligations under leases (167.1) (168.3)
Loans - (38.8)
(952.2) (991.0)
Non-current liabilities
Contract liabilities (84.6) (60.7)
Trade and other payables (17.7) (21.5)
Derivative financial instruments (0.7) (0.6)
Deferred tax liabilities (41.1) (52.1)
Provisions (75.8) (81.4)
Obligations under leases (337.3) (361.7)
Loans (404.9) (237.6)
Retirement benefit obligations (8.1) (11.2)
(970.2) (826.8)
Total liabilities (1,922.4) (1,817.8)
Net assets 873.6 842.5
Equity
Share capital 20.1 20.5
Share premium account 463.1 463.1
Retained earnings 577.0 524.3
Other reserves (186.6) (165.4)
Equity attributable to owners of the Company 873.6 842.5
Non-controlling interest - -
Total equity 873.6 842.5
Consolidated Cash Flow Statement
For the year ended 31 December 2025
2025 2024
£m £m
Net cash inflow from operating activities 446.7 419.4
Investing activities
Interest received 5.7 5.3
Dividends received by joint ventures and associates 22.9 30.8
Loan repaid by joint venture - 10.0
Purchase of other intangible assets (11.7) (9.1)
Purchase of property, plant and equipment (21.5) (25.3)
Proceeds from disposal of property, plant and equipment 4.4 1.3
Proceeds from disposal of subsidiary, net of cash disposed (2.9) -
Acquisition of subsidiaries, net of cash acquired (247.8) (20.8)
Other investing activities - 0.4
Net cash outflow from investing activities (250.9) (7.4)
Financing activities
Interest paid (46.0) (33.8)
Capitalised finance costs paid (2.2) (1.0)
Advances of loans 193.2 118.2
Repayments of loans (37.2) (52.8)
Capital element of lease repayments (158.9) (137.4)
Cash movements on finance-related derivatives (8.9) (13.1)
Dividends paid to shareholders (43.3) (38.4)
Purchase of own shares for Employee Share Ownership Trust (26.3) (22.8)
Own shares repurchased (50.3) (141.3)
Proceeds received from exercise of share options 3.9 0.1
Net cash outflow from financing activities (176.0) (322.3)
Net increase in cash and cash equivalents 19.8 89.7
Cash and cash equivalents at beginning of year 183.0 94.4
Net exchange loss (3.5) (1.1)
Cash and cash equivalents at end of year 199.3 183.0
Notes to the Condensed Consolidated Financial Statements
1. Basis of preparation and accounting policies
Basis of preparation
The financial information in this preliminary announcement does not constitute
the Group's or the Company's statutory accounts as defined in section 434 of
the Companies Act 2006 for the years ended 31 December 2025 or 2024. The
financial information for 2024 is derived from the statutory accounts for 2024
which have been delivered to the registrar of companies, and those for 2025
will be delivered in due course. The auditor has reported on those accounts;
their reports were (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The preliminary announcement has been prepared in accordance with UK-adopted
International Accounting Standards (IAS), UK-adopted International Financial
Reporting Standards (IFRS) and with the requirements of the Companies Act 2006
as applicable to companies reporting under those standards. Whilst the
financial information included in this preliminary announcement has been
computed in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company expects to publish
full Group and Company only, financial statements that comply with IFRS and
FRS101 respectively, in due course and this includes the Group's and parent
company's accounting policies.
Going concern
In assessing the basis of preparation of the financial statements for the year
ended 31 December 2025, the Directors have considered the principles of the
Financial Reporting Council's 2025 'Guidance on the Going Concern Basis of
Accounting and Related Reporting (including Solvency and Liquidity Risks)';
particularly in assessing the applicability of the going concern basis, review
period and disclosures. The period of assessment for the purposes of
considering going concern is to 31 March 2027.
At 31 December 2025, the Group's principal debt facilities comprised a £350m
revolving credit facility maturing in November 2027 (of which £nil was
drawn), and £408.6m of US private placement notes (USPP notes), giving
£758.6m of committed credit facilities and available funds of £549.3m, being
the undrawn RCF plus cash of £199.3m. The principal financial covenant ratios
are consistent across the USPP notes and revolving credit facility, and are
outlined on page 47.
As at 31 December 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 0.72x. The Group has net current liabilities of £65.4m, 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. 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 after the date of approval of the financial statements, the
Group can afford to be unsuccessful on 60% of its budgeted 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 82% of its rebids and available contract extensions by value
over the last two years, therefore a reduction of 60% or more to the budgeted
bids (including new business and rebids) and extensions rates is not
considered plausible.
Consequently, the Directors are confident that the Group and Company will have
sufficient funds to continue to meet their liabilities as they fall due for
the period to 31 March 2027 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 year ended 31 December 2025.
There have been no changes to the Group's accounting policies during the year
ended 31 December 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, with the exception of the following two items.
Deferred Tax
Deferred tax assets are recognised on tax deductible temporary differences to
the extent that it is probable that taxable profit will be available against
which they can be utilised. Significant management judgement is required to
determine the amount of the deferred tax asset that should be recognised,
based upon the likely timing, geography and level of future taxable profits.
The vast majority of recognised deferred tax assets within the Group arise in
the UK and Australia.
A £175.7m, UK deferred tax asset is recognised on the Group's balance sheet
at 31 December 2025 (2024: £177.5m). This is recognised on the basis of a
sustained return to profitability of the UK business which will enable future
tax deductions and previous tax losses within the UK to be utilised within a
14-year period.
An Australian deferred tax asset is recognised on the Group's balance sheet.
Consistent with IFRS requirements, the recoverability of this asset is
assessed based on forecast taxable profits.
Following the loss of the Base Services Transformation Programme (BSTP) bid in
2025, the probability of sufficient profits to enable tax asset utilisation
has been reassessed. While the Australian business has continued to deliver
positive results from the Group's turnaround programme, including strengthened
relationships with key government stakeholders, improved operational
performance and higher customer satisfaction, the full impact of the
turnaround of the Australian business still needs to be delivered.
As such, whilst there has been no further deterioration in the business and
our models imply full recoverability of the tax asset over a nine-year period,
Management has exercised caution and has chosen to limit recognition of the
deferred tax asset to the length of the ordinary planning cycle of the Group
which is five years.
This has led to a derecognition of £17.3m of the Australian deferred tax
asset. As at 31 December 2025, an Australian deferred tax asset of £27.7m
(2024: £50.5m) remains recognised on the Group's balance sheet. As the
turnaround of the Australian business progresses, Management will continue to
reassess this judgement. At 31 December 2025, there is £17.3m of unrecognised
deferred tax asset which could become available to the Group in future.
Acquired intangibles
As part of the MT&S business acquisition, Management engaged an
independent valuation specialist to assess all potential intangible assets and
benchmark against similar transactions. Based on this assessment, the only
identifiable intangible asset meeting the recognition criteria was customer
relationships, representing long term contracts, programs and associated
backlog within the U.S. Federal Government defence market. The fair value of
£89.3m was based on the Multi‑Period Excess Earnings Method, consistent
with the approach applied to similar primary revenue‑generating assets in
previous acquisitions.
In determining the amortisation period, Management considered the nature of
MT&S contracts, historical renewal patterns, and the Group's accounting
policy which is to amortise customer relationships over the average life of
related contracts (typically between five and fifteen years). Given that
MT&S' material contracts have performance periods of approximately 10
years, Management determined a 10‑year useful life as the most appropriate
estimate.
Further details on the acquisition are disclosed in note 3.
2. Segmental information
The Group's operating segments reflecting the information reported to the
Board in 2025 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:
Year ended 31 December 2025 UK&E North America Asia Pacific Middle East Total
£m £m £m £m £m
Key sectors
Defence 426.9 1,084.4 183.0 31.9 1,726.2
Justice & Immigration 1,400.1 - 189.1 - 1,589.2
Transport 124.3 67.5 20.0 67.2 279.0
Health & Other Facilities Management 229.3 - 149.7 54.6 433.6
Citizen Services 401.5 311.3 112.8 23.2 848.8
2,582.1 1,463.2 654.6 176.9 4,876.8
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Total
£m £m £m £m £m
Key sectors
Defence 358.2 932.5 181.4 26.3 1,498.4
Justice & Immigration 1,409.2 - 323.1 - 1,732.3
Transport 130.7 85.3 16.6 82.4 315.0
Health & Other Facilities Management 217.1 - 160.2 83.7 461.0
Citizen Services 330.7 308.3 118.1 23.5 780.6
2,445.9 1,326.1 799.4 215.9 4,787.3
The following is an analysis of the Group's revenue, results, assets and
liabilities by reportable operating segment:
Year ended 31 December 2025 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Revenue 2,582.1 1,463.2 654.6 176.9 - 4,876.8
Result
Underlying operating profit/(loss) 148.9 143.5 24.0 12.6 (57.4) 271.6
Amortisation and impairment of intangibles arising on acquisition (10.2) (19.8) - - - (30.0)
Profit on disposal of subsidiary - - 4.7 - - 4.7
Operating profit/(loss) 138.7 123.7 28.7 12.6 (57.4) 246.3
Net finance cost (44.8)
Profit before tax 201.5
Tax charge (55.9)
Profit for the year 145.6
Supplementary information
Staff costs 1167.6 618.8 450.6 38.9 35.6 2,311.5
Share of profits in joint ventures and associates, net of interest and tax 26.7 - - 2.1 - 28.8
Total depreciation and impairment of plant, property and equipment and right (154.5) (22.5) (7.5) (1.1) (0.3) (185.9)
of use assets
Amortisation and impairment of intangible assets (6.7) (0.9) (1.1) (0.1) - (8.8)
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Revenue 2,445.9 1,326.1 799.4 215.9 - 4,787.3
Result
Underlying operating profit/(loss) 147.9 136.1 24.6 16.0 (51.1) 273.5
Amortisation and impairment of intangibles arising on acquisition (13.4) (15.5) - - - (28.9)
Exceptional item - Goodwill impairment - - (114.5) - - (114.5)
Operating profit/(loss) 134.5 120.6 (89.9) 16.0 (51.1) 130.1
Net finance cost (33.1)
Profit before tax 97.0
Tax charge (52.5)
Profit for the year 44.5
Supplementary information
Staff costs 1061.2 576.7 540.9 57.0 27.5 2,263.3
Share of profits in joint ventures and associates, net of interest and tax 22.8 - - - - 22.8
Total depreciation and impairment of plant, property and equipment and right (129.4) (19.3) (8.8) (1.7) 0.7 (158.5)
of use assets
Amortisation and impairment of intangible assets (5.7) (1.1) (1.4) (0.2) - (8.4)
Year ended 31 December 2025 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates 28.9 - - 5.2 - 34.1
Other segment assets(1) 1,061.4 1,069.2 93.5 59.5 45.8 2,329.4
Total segment assets 1,090.3 1,069.2 93.5 64.7 45.8 2,363.5
Unallocated assets(2) 432.5
Consolidated total assets 2,796.0
Segment liabilities
Segment liabilities (948.1) (190.9) (178.6) (48.4) (87.3) (1,453.3)
Unallocated liabilities(2) (469.1)
Consolidated total liabilities (1,922.4)
Supplementary information
Additions to non-current assets(3) 147.9 254.5 6.1 2.6 0.1 411.2
Segment non-current assets 784.1 854.4 27.3 24.1 10.5 1,700.4
Unallocated non-current assets 208.8
1 The Corporate segment assets and liabilities include balance sheet items which
provide benefit to the wider Group, including defined benefit pension schemes.
2 Unallocated assets and liabilities include deferred tax, cash and cash
equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on
acquisition for goodwill, other intangible assets, property plant and
equipment and right of use assets.
Year ended 31 December 2024 UK&E North America Asia Pacific Middle East Corporate Total
£m £m £m £m £m £m
Segment assets
Interests in joint ventures and associates(4) 24.7 - - 0.4 - 25.1
Other segment assets(1) 1,052.2 886.7 136.1 68.6 52.7 2,196.3
Total segment assets 1,076.9 886.7 136.1 69.0 52.7 2,221.4
Unallocated assets(2) 438.9
Consolidated total assets(5) 2,660.3
Segment liabilities
Segment liabilities (921.9) (169.6) (213.6) (61.6) (79.4) (1,446.1)
Unallocated liabilities(2) (371.7)
Consolidated total liabilities (1,817.8)
Supplementary information
Additions to non-current assets(3) 280.6 22.5 9.3 11.4 0.2 324.0
Segment non-current assets 824.2 686.5 32.4 22.8 - 1,565.9
Unallocated non-current assets 230.2
1 The Corporate segment assets and liabilities include balance sheet items which
provide benefit to the wider Group, including defined benefit pension schemes
and corporate intangible assets.
2 Unallocated assets and liabilities include deferred tax, cash and cash
equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on
acquisition for goodwill, other intangible assets, property plant and
equipment and right of use assets.
4 An adjustment has been made to the interest in joint ventures and associates
within the UK&E segment as at 31 December 2024. The amount previously
disclosed in this note of £27.7m did not reflect the amount correctly
recorded in the Balance Sheet of £24.7m.
5 An adjustment has been made to the segment non-current assets as at 31
December 2024. The amount previously disclosed in this note of £826.8m on the
UK&E segment and £1,568.5m on the total segment did not reflect the
amount correctly recorded to ensure the total was equal to the Balance Sheet.
3. Acquisitions
In May, we acquired MT&S from Northrop Grumman, for an enterprise value of
£242m. MT&S generates annual revenues of approximately US$300m,
increasing the annual revenue of our North America Division 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 War, 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.
The operating results, assets and liabilities have been recognised effective
24 May 2025 and contributed £118.4m of revenue and £9.2m of operating profit
including an appropriate allocation of charges for shared support services and
fully allocated overheads, to the Group's result during the year.
During the year, £2.5m of contingent consideration was paid as part of the
acquisition of Climatize following 2024 targets being met in full. As at 31
December 2025 £2.7m of contingent consideration remains for 2025 targets and
£4.4m for 2026 targets which are still expected to be met.
The total impact of acquisitions to the Group's cash flow position in the year
was as follows:
2025
£m
MT&S - Enterprise value(1) 241.6
MT&S - Provisional working capital and completion account finalisation 3.7
MT&S - Acquisition date fair value of consideration transferred 245.3
Climatize - Contingent consideration on acquisition 2.5
Acquisition of business, net of cash acquired 247.8
1 Enterprise value reflects the consideration prior to working capital and fair
value adjustments on the acquisition date. In local currency the enterprise
value was US$327.0m and the consideration paid was US$332.1m.
The provisional fair value of assets and liabilities acquired during the year
are summarised below:
MT&S
£m
Other intangible assets(1) 89.3
Property, plant and equipment 2.2
Right of use assets(2) 6.4
Deferred tax asset 0.3
Contract assets, trade and other receivables(3) 20.4
Contract liabilities, trade and other payables (6.5)
Provisions (1.2)
Lease obligations(2) (6.4)
Net assets acquired(4) 104.5
Goodwill(5) 140.8
Acquisition date fair value of consideration transferred 245.3
1 Other intangible assets is the fair value of customer relationships acquired
using our best estimate of forecast cash flows discounted to present value.
This is based on the Multi-Period Excess Earnings Method reflecting the
contracts/programs in the US defence market and was benchmarked against
similar transactions. Management determined the useful life to be 10 years
aligning with the average duration of contracts acquired.
2 The Group measured the acquired lease liabilities using the present value of
the remaining lease payments at the date of acquisition. The right of use
assets were measured at an amount equal to the lease liabilities and adjusted
to reflect the favourable/unfavourable terms of the lease relative to market
terms.
3 The fair value of acquired contract assets, trade and other receivables was
£20.4m. The gross contractual amount was £21.2m, with a loss allowance of
£0.8m recognised on acquisition.
4 The fair value of the net assets acquired are prepared in accordance with IFRS
3.
5 The goodwill for MT&S is attributable to the workforce, expanding
capabilities of the Group in the defence sector and the cost synergies
expected to arise as a result of the acquisition. Goodwill has been allocated
to the North America GCGU. All £140.8m of the goodwill balance is expected to
be deductible for tax purposes equally over a 15-year period.
The total costs associated with the MT&S acquisition in the year were
£6.4m (2024: £1.2m) and have been recognised in administrative expenses.
Based on estimates made of the half-year impact of the acquisition of
MT&S, had this taken place on 1 January 2025, Group revenue and underlying
operating profit for the year would have increased by approximately £83.7m
and £11.7m respectively, taking total Group revenue to £4,960.5m and total
Group underlying operating profit to £283.3m.
4. Non-underlying items
2025 2024
Year ended 31 December £m £m
Exceptional item - Goodwill impairment - (114.5)
Amortisation of customer relationship intangibles (28.9) (26.9)
Impairment of customer relationship intangibles (1.1) (2.0)
Amortisation and impairment of intangible assets arising on acquisition (30.0) (28.9)
Profit on disposal of subsidiary 4.7 -
Total non-underlying items before tax (25.3) (143.4)
Non-underlying tax (charge)/credit(1) (4.3) 7.9
Total non-underlying items net of tax (29.6) (135.5)
1 The non-underlying tax charge includes £17.3m relating to the derecognition
of part of the deferred tax asset in Asia Pacific, for more details see page
26
During the year the Group disposed of Serco Group (HK) Limited and reduced its
shareholding in Khadamat Facilities Management LLC ('Khadamat') from 49% to
45%, resulting in Khadamat no longer being proportionally consolidated. The
total impact of disposals to the Group's cash flow position in the year was as
follows:
Hong Kong Khadamat Total
Year ended 31 December 2025 £m £m £m
Consideration 9.4 2.4 11.8
Less: cash disposed (6.4) (5.9) (12.3)
Less: non-cash consideration(1) - (2.4) (2.4)
Proceeds from disposal of subsidiary, net of cash disposed and disposal costs 3.0 (5.9) (2.9)
1 The non-cash consideration for Khadamat reflects that no cash was transferred
for either the disposal or the addition to investment in joint ventures and
associates.
Hong Kong Khadamat Total
Year ended 31 December 2025 £m £m £m
Property, plant and equipment (0.8) (0.1) (0.9)
Right of use assets (0.2) - (0.2)
Inventories - (0.3) (0.3)
Contract assets, trade and other receivables (5.0) (5.9) (10.9)
Cash and cash equivalents (6.4) (5.9) (12.3)
Contract liabilities, trade and other payables 6.8 8.8 15.6
Provisions 3.7 0.5 4.2
Corporation tax liabilities - 0.5 0.5
Net assets disposed (1.9) (2.4) (4.3)
Consideration 9.4 2.4 11.8
Foreign exchange loss from translation reserve (0.5) - (0.5)
Cost of disposal (2.3) - (2.3)
Profit on disposal of subsidiary 4.7 - 4.7
5. Tax
5 (a) Income tax recognised in the income statement
Year ended 31 December Underlying Non-underlying items Reported Underlying Non-underlying items Reported
2025 2025 2025 2024 2024 2024
£m £m £m £m £m £m
Current income tax
Current income tax charge/(credit) 45.1 (7.1) 38.0 53.3 (4.0) 49.3
Adjustments in respect of prior years (4.0) - (4.0) 0.4 - 0.4
Pillar Two taxes(1)
Current year charge 0.3 - 0.3 - - -
Adjustments in respect of prior years 0.2 - 0.2 - - -
Deferred tax
Current year charge/(credit) 10.7 16.3 27.0 5.3 (3.9) 1.4
Adjustments in respect of prior years (0.7) (4.9) (5.6) 1.4 - 1.4
51.6 4.3 55.9 60.4 (7.9) 52.5
1 Pillar Two taxes refer to charges arising under the Organisation for Economic
Co‑operation and Development framework for a global minimum tax.
The corporate income tax expense for the year is based on the UK statutory
rate of corporation tax for the period of 25.0% (2024: 25.0%). Taxation for
other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
5 (b) Income tax recognised in the SOCI
2025 2024
Year ended 31 December £m £m
Current tax
Taken to retirement benefit obligations reserve 1.6 2.4
Deferred tax
Relating to cash flow hedges (0.2) 0.1
Taken to retirement benefit obligations reserve 3.6 5.3
5.0 7.8
5 (c) Tax on items taken directly to equity
2025 2024
Year ended 31 December £m £m
Current tax
Recorded in share-based payment reserve 1.2 1.1
Deferred tax
Recorded in share-based payment reserve 3.8 (0.4)
5.0 0.7
6. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax
attributable to owners of the Group by the weighted average number of shares
in issue, after deducting treasury shares and the Group's own shares held by
employee share ownership trusts, and adding back vested share options not
exercised.
In calculating the diluted earnings per share, unvested share options
outstanding have been taken into account where the impact of these is
dilutive.
The calculation of the basic and diluted EPS is based on the following data:
Year ended 31 December 2025 2024
Number of shares millions millions
Weighted average number of ordinary shares for the purpose of basic EPS 1,012.2 1,058.9
Effect of dilutive potential ordinary shares: Shares under award 22.5 19.2
Weighted average number of ordinary shares for the purpose of diluted EPS 1,034.7 1,078.1
Earnings per share
Earnings Per share amount Earnings Per share amount
Year ended 31 December 2025 2025 2024 2024
Basic EPS £m pence £m pence
Earnings for the purpose of basic EPS 145.6 14.38 44.2 4.17
Effect of dilutive potential ordinary shares - (0.31) - (0.07)
Diluted EPS 145.6 14.07 44.2 4.10
7. Goodwill
As at 31 December 2025 the carrying value of goodwill was £929.3m (2024:
£826.2m). The net increase is due to the goodwill arising on the acquisition
of MT&S of £140.8m offset by the impact of foreign exchange of £37.7m.
Key assumptions and sensitivities applied to testing goodwill allocated to the
Asia Pacific GCGU
The following risk adjustments have been made to the baseline forecast
submitted by the Asia Pacific Division to reflect the Directors' assessment of
certain key assumptions:
• New business win rates are at the five-year average of 7% by
value, broadly in line with the average win rate in 2025, however this is
lower than the average win rates assumed within the five-year plan submitted
by the Division of 23%.
• Rebid and extension win rates by value align with the five-year
average when excluding the loss of the immigration contract of 93% (2024: 94%)
which is broadly in line with the levels experienced by the Division in 2025.
Noting the performance of the Division above, whilst the Directors have
assessed the assumptions used are realistic, it is possible that a reduction
in headroom would occur if any of the above key assumptions were adversely
changed. Factors which could lead to an impairment are:
• significant and prolonged underperformance relative to the
forecast; and.
• deteriorations in the economies in which the Group operates.
To support their assertions, the Directors have performed sensitivity analysis
based on a scenario of a reduction on the fifth year cash flows. For AsPac,
with a headroom of £31.0m, for the recoverable amount to fall below the
carrying value it would require a 35% reduction of fifth year cash flows.
However, having performed a review of the market and identified areas where
the business could be more efficient following the operational excellence
programme, the Directors believe that sufficient opportunities exist to
deliver the five-year plan and that win rates on new business can be improved.
Whilst tangible cost savings are expected in the short term, it may take a
longer period for an improvement in pipeline and win rates to be observed. The
Directors will continue to monitor the win rates on new business within the
Division, given the GCGU still represents the lowest headroom of £31.0m.
8. Analysis of net debt
The analysis below provides a reconciliation between the opening and closing
positions in the balance sheet for liabilities arising from financing
activities together with movements in derivatives relating to the items
included in net debt. There were no changes in fair value noted in either the
current or prior year.
At 1 January 2025 Cash flow(1) Acquisitions(2) Exchange differences Non-cash movements(3) At 31 December 2025
£m £m £m £m £m £m
Loans payable (276.3) (156.0) - 26.5 0.9 (404.9)
Lease obligations (530.0) 158.9 (6.4) 1.6 (128.5) (504.4)
Liabilities arising from financing activities (806.3) 2.9 (6.4) 28.1 (127.6) (909.3)
Cash and cash equivalents 183.0 19.8 - (3.5) - 199.3
Derivatives relating to net debt (6.5) - - 6.4 - (0.1)
Net debt (629.8) 22.7 (6.4) 31.0 (127.6) (710.1)
1 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 2025 was 5.64% (December 2024: 4.88%).
2 Acquisitions represent the net cash/(debt) acquired on acquisition.
3 Non-cash movements on loans payable relate to movement in capitalised finance
costs in the year. For lease obligations non-cash movements relate to the net
impact of entering into new leases and exiting certain leases before the end
of the lease term without payment of a cash termination cost.
9. Provisions
Employee related Property Contract Claims Other Total
£m £m £m £m £m £m
At 1 January 2025 79.8 19.8 19.8 25.5 45.4 190.3
Arising on acquisition - - 0.2 - 1.0 1.2
Eliminated on disposal (4.2) - - - - (4.2)
Charge capitalised in right of use assets - 0.8 - - - 0.8
Transferred to working capital - - - - (1.6) (1.6)
Charge gross insurance provisions with a separate reimbursement asset - - - 2.4 - 2.4
Charged to income statement 14.5 2.5 9.1 9.0 13.1 48.2
Released to income statement (0.7) (0.8) (0.8) (4.3) (5.9) (12.5)
Utilised during the year (19.2) (1.3) (3.3) (5.0) (7.6) (36.4)
Exchange differences (1.1) 0.6 - - 1.1 0.6
At 31 December 2025 69.1 21.6 25.0 27.6 45.5 188.8
Analysed as:
Current 46.5 8.3 12.2 5.9 40.1 113.0
Non-current 22.6 13.3 12.8 21.7 5.4 75.8
69.1 21.6 25.0 27.6 45.5 188.8
Employee-related provisions include amounts for long-term service awards and
terminal gratuity liabilities which have been accrued and are based on
contractual entitlement, together with an estimate of the probabilities that
employees will stay until rewards fall due and receive all relevant amounts.
The provisions will be utilised over various periods driven by attrition and
demobilisation of contracts, the timing of which is uncertain. There are also
amounts included in relation to restructuring.
The majority of property provisions relate to leased properties and are
associated with the requirement to return properties to either their original
condition, or to enact specific improvement activities in advance of exiting
the lease. Dilapidations associated with leased properties are held as a
provision until such time as they fall due, with the longest running lease
ending in October 2035.
A contract provision is recorded when a contract is deemed to be unprofitable
and therefore is considered onerous. The present value of the estimated future
cash outflow required to settle the contract obligations as they fall due over
the respective contracts has been used in determining the provision.
Claims provisions relate to claims made against the Group. These claims are
varied in nature, although they typically come from either the Group's service
users, claimants for vehicle-related incidents, or the Group's employees.
While there is some level of judgement on the amount to be recorded, in almost
all instances the variance to the actual claim paid out will not individually
be material; however, the timing of when the claims are reported and settled
is less certain as a process needs to be followed prior to the amounts being
paid.
During the year there is a charge to present insurance provisions gross with a
separate reimbursement asset recognised for amounts recoverable from insurance
providers.
Included within other provisions:
• £19.7m relates to legal and other costs that the Group expects to
incur over an extended period, in respect of past events for which a provision
has been recorded, none of which are individually material.
• £25.8m relates to a provision in respect of a contingent
liability recognised on the acquisition of EHC in 2024. The Directors have
assessed that a present obligation exists in respect of the treatment of
certain historic transactions and have measured the fair value of these as
required by IFRS 3 Business Combinations notwithstanding that the outflow of
economic benefits is not probable. This provision will be reassessed at each
reporting date as the risk associated with the contingent liability in due
course expires.
Individual provisions are only discounted where the impact is assessed to be
significant. Currently, the effect of discounting is not material.
10. Contingent liabilities
The Group and its subsidiaries have provided certain guarantees and
indemnities in respect of performance and other bonds, issued by its banks on
its behalf in the ordinary course of business. The total commitment
outstanding as at 31 December 2025 was £217.0m (2024: £278.4m).
The Group has guaranteed overdrafts, finance leases and bonding facilities of
its joint ventures and associates up to a maximum value of £5.7m (2024:
£5.7m). The actual commitment outstanding at 31 December 2025 was £5.7m
(2024: £5.7
In the normal course of business, the Group may be requested by customers or
relevant authorities to provide information in relation to operational
incidents arising under certain contracts. In this context, the Group is
currently engaged in a small number of such matters, which are at an early
stage of engagement and are limited to the provision of information. Based on
previous similar incidents, enquiries can be ongoing for several years. No
claims have been asserted against the Group in respect of these matters and no
findings or determinations have been made. Based on the information currently
available, the Group does not expect these matters to have a material impact.
Accordingly, no provision has been recognised as management does not consider
that a present obligation exists at the reporting date.
The Group is also aware of other claims and potential claims which involve or
may involve legal proceedings against the Group although the timing of
settlement of these claims remains uncertain. The Directors are of the
opinion, having regard to legal advice received and the Group's insurance
arrangements, that it is unlikely that these matters will, in aggregate, have
a material effect on the Group's financial position.
11. Financial risk management
The vast majority of financial instruments are held at amortised cost. The
classification of the fair value measurement falls into three levels, based on
the degree to which the fair value is observable. The levels are as follows:
• Level 1: Inputs derived from unadjusted quoted prices in active markets for
identical assets or liabilities.
• Level 2: Inputs that are observable for the asset or liability, either
directly or indirectly, other than quoted prices included within Level 1.
• Level 3: Inputs are unobservable inputs for the asset or liability.
Based on the above, the derivative financial instruments held by the Group,
the comparison fair values for loans and the long-term employee compensation
plan as at 31 December 2025are all considered to fall into Level 2. The
contingent consideration and contingent liabilities on previous acquisitions
are considered to fall into Level 3. Market prices are sourced from Bloomberg
and third-party valuations. The valuation models incorporate various inputs
including foreign exchange spot and forward rates and interest rate curves.
There have been no transfers between levels in the year.
The Group held the following financial assets which fall within the scope of
IFRS 9 Financial Instruments at 31 December 2025:
Carrying amount Comparison Carrying amount Comparison
fair value fair value
2025 2025 2024 2024
£m £m £m £m
Financial assets - non-current
Derivatives designated as FVTPL (Level 2)
Forward foreign exchange contracts 0.3 0.3 - -
Derivative instruments in designated hedge accounting relationships (Level 2)
Forward foreign exchange contracts 0.3 0.3 - -
Financial assets at fair value (Level 2)
Long-term employee compensation plan(1) 14.8 14.8 14.9 14.9
Financial assets - current
Cash and bank balances(2) 199.3 199.3 183.0 183.0
Derivatives designated as FVTPL (Level 2)
Forward foreign exchange contracts 0.3 0.3 0.8 0.8
Derivative instruments in designated hedge accounting relationships (Level 2)
Forward foreign exchange contracts 0.2 0.2 - -
Financial assets at amortised cost
Trade receivables(1) 209.9 209.9 228.2 228.2
Amounts owed by joint ventures and associates 1.1 1.1 - -
1 In 2024, long-term employee compensation plan amounts were presented within
other receivables; the comparative information has therefore been re-presented
to align with the current year presentation.
2 Management estimate that the carrying amounts of cash and trade receivables
approximate to their fair value due to the short-term maturity of these
instruments.
The Group held the following financial liabilities which fall within the scope
of IFRS 9 Financial Instruments at 31 December 2025:
Carrying amount Comparison fair value Carrying amount Comparison fair value
2025 2025 2024 2024
£m £m £m £m
Financial liabilities - current
Derivatives designated as FVTPL (Level 2)
Forward foreign exchange contracts (0.2) (0.2) (6.4) (6.4)
Derivative instruments in designated hedge accounting relationships (Level 2)
Forward foreign exchange contracts (0.1) (0.1) (0.2) (0.2)
Financial liabilities at fair value (Level 2)
Long-term employee compensation plan(1) (3.9) (3.9) (6.7) (6.7)
Financial liabilities at fair value (Level 3)
Contingent consideration (2.7) (2.7) (3.2) (3.2)
Contingent liabilities on acquisition (note 9) (25.8) (25.8) (24.9) (24.9)
Financial liabilities at amortised cost
Trade payables(2) (97.8) (97.8) (92.3) (92.3)
Amounts owed to joint ventures (0.2) (0.2) (0.2) (0.2)
Loans - - (38.8) (38.0)
Financial liabilities - non-current
Derivatives designated as FVTPL (Level 2)
Forward foreign exchange contracts (0.6) (0.6) (0.3) (0.3)
Derivative instruments in designated hedge accounting relationships (Level 2)
Forward foreign exchange contracts (0.1) (0.1) (0.3) (0.3)
Financial liabilities at fair value (Level 2)
Long-term employee compensation plan(1) (9.6) (9.6) (8.8) (8.8)
Financial liabilities at fair value (Level 3)
Contingent consideration (4.4) (4.4) (6.2) (6.2)
Financial liabilities at amortised cost
Loans (404.9) (411.4) (237.6) (225.2)
1 In 2024, long-term employee compensation plan amounts were presented within
other payables; the comparative information has therefore been re-presented to
align with the current year presentation.
2 Management estimate that the carrying amounts of trade payables approximate to
their fair value due to the short-term maturity of these instruments.
12. Retirement benefit schemes
Year ended 31 December 2025 2024
Recognised in the income statement £m £m
Current service cost - employer 7.5 7.1
Past service cost - employer 0.5 -
Administrative expenses and taxes 2.2 1.7
Recognised in arriving at operating profit 10.2 8.8
Interest income on scheme assets - employer (48.2) (47.5)
Interest cost on scheme liabilities - employer 47.4 45.6
Finance income (0.8) (1.9)
Total recognised in the income statement 9.4 6.9
2025 2024
Included within the statement of comprehensive income £m £m
Actual return on scheme assets 7.1 (60.7)
Less: interest income on scheme assets (48.2) (47.4)
Net return on scheme assets (41.1) (108.1)
Effect of changes in demographic assumptions 1.0 2.1
Effect of changes in financial assumptions 25.6 63.9
Effect of experience adjustments 12.4 3.4
Total recognised in the statement of comprehensive income (2.1) (38.7)
The assets and liabilities of the schemes are:
Fair value of Present value of scheme liabilities Surplus/(deficit) Fair value of Present value of scheme liabilities Surplus/(deficit)
scheme assets scheme assets
2025 2025 2025 2024 2024 2024
At 31 December £m £m £m £m £m £m
SPLAS(1) 780.5 (772.7) 7.8 822.8 (810.0) 12.8
ORS 91.4 (99.2) (7.8) 83.2 (93.9) (10.7)
RPS 57.1 (55.3) 1.8 58.4 (57.4) 1.0
Other schemes in surplus - - - 4.0 (2.6) 1.4
Other schemes in deficit 1.2 (1.5) (0.3) 1.1 (1.6) (0.5)
Net retirement benefit asset(2) 930.2 (928.7) 1.5 969.5 (965.5) 4.0
1 The SPLAS Trust Deed gives the Group an unconditional right to a refund of
surplus assets assuming the gradual settlement of plan liabilities over time
until all members have left the plan. Pension assets are deemed to be
recoverable and there are no adjustments in respect of minimum funding
requirements as economic benefits are available to the Group either in the
form of future refunds or in the form of possible reductions in future
contributions.
2 The net retirement benefit asset (before tax) is split in the balance sheet
between schemes in surplus totalling £9.6m (2024: £15.2m) reported in
retirement benefit assets and schemes in deficit totalling £8.1m (2024:
£11.2m) reported in retirement benefit obligations.
Actuarial assumptions:
The assumptions set out below are for SPLAS, which reflects 83% of total
liabilities and 84% of total assets of the defined benefit pension scheme in
which the Group participates. The significant actuarial assumptions with
regards to the determination of the defined benefit obligation are set out
below.
At 31 December 2025 2024
Significant actuarial assumptions % %
Discount rate 5.55 5.50
Rate of salary increases 2.70 3.05
RPI Inflation 2.90 3.15
CPI Inflation 2.20 2.55
At 31 December 2025 2024
Post-retirement mortality(1) years years
Current pensioners at 65 - male 20.9 20.8
Current pensioners at 65 - female 23.6 23.6
Future pensioners at 65 - male 22.9 22.8
Future pensioners at 65 - female 25.7 25.7
1 The mortality assumptions reflect the latest available mortality tables
CMI_2024 (2024: CMI_2023).
Virgin Media case
In June 2025, the UK Government announced its intention to legislate to allow
retrospective validation of affected amendments following the legal
uncertainties arising from the Court of Appeal's decision in Virgin Media
Limited v NTL Pension Trustees Limited. Draft provisions have been published
and, if enacted as proposed, are expected to remove any material impact on the
Group's obligations and therefore no adjustment has been made in the year.
The legislation is anticipated to take effect during 2026.
13. Related party transactions
Transactions between the Group and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its joint venture undertakings and
associates are disclosed below.
Transactions for the year ended Current balance outstanding at Non-current balance outstanding at Transactions for the year ended Current balance outstanding at Non-current balance outstanding at
2025 2025 2025 2024 2024 2024
£m £m £m £m £m £m
Sale of goods and services
Joint ventures 11.7 1.1 - 20.2 (0.2) -
Associates 15.3 - - - - -
Other
Loan to joint venture - - - 10.0 - -
Dividends received - joint ventures 22.9 - - 30.8 - -
Receivable from consortium for tax - joint ventures 8.3 4.3 9.0 9.6 9.4 10.1
Total 58.2 5.4 9.0 70.6 9.2 10.1
Sales of goods and services to joint ventures relate to services provided
including administrative and back office activities to VIVO, while sales of
goods and services to associates relates to contractual services provided on
behalf of Khadamat. Joint venture receivable amounts outstanding have arisen
from transactions undertaken during the general course of trading, are
unsecured and will be settled in cash.
14. Notes to the Consolidated Cash Flow statement
Year ended 31 December 2025 2024
£m £m
Profit before tax 201.5 97.0
Net finance costs 44.8 33.1
Operating profit for the year 246.3 130.1
Adjustments for:
Share of profits in joint ventures and associates (28.8) (22.8)
Share-based payment expense 13.6 15.2
Impairment of intangible assets 1.1 2.0
Amortisation of intangible assets 37.7 35.2
Impairment of goodwill - 114.5
Impairment/(reversal of impairment) of property, plant and equipment 0.1 (0.4)
Net impairment of right of use assets 2.1 0.2
Depreciation of property, plant and equipment 18.5 17.2
Depreciation of right of use assets 165.3 141.5
Loss on disposal of intangible assets - 0.7
(Profit)/loss on early termination of leases (0.6) 0.1
Profit on disposal of property, plant and equipment (0.6) (0.3)
Profit on disposal of subsidiaries (4.7) -
Decrease in provisions (0.7) (3.1)
Total non-cash items 203.0 300.0
Operating cash inflow before movements in working capital 449.3 430.1
Decrease/(increase) in inventories 3.7 (0.7)
Increase in receivables (8.0) (1.9)
Increase in payables 47.5 32.9
Movements in working capital 43.2 30.3
Cash generated by operations 492.5 460.4
Tax paid (43.4) (41.3)
Disposal-related costs paid (2.3) -
Non-cash R&D (expenditure)/credit (0.1) 0.3
Net cash inflow from operating activities 446.7 419.4
15. Post balance sheet events
Dividends
Subsequent to the year end, the Board has recommended the payment of a final
dividend in respect of the year ended 31 December 2025 of 3.05 pence per
share. The dividend remains subject to shareholder approval at the Annual
General Meeting and therefore no amounts have been recognised in respect of a
dividend in these Consolidated Financial Statements.
Serco share buyback
The Group has announced its intention to commence a share buyback of up to
£75m. Consistent with the Group's capital allocation policy, the objective of
the programme is to provide additional returns to shareholders as well as
aid the Group in meeting its medium-term leverage targets. The buyback
programme is expected to complete by 31 July 2026 with the shares either held
in treasury or cancelled.
Employee Share Ownership Trust
Subsequent to the year end, the Group's Employee Share Ownership Trust
completed the purchase of 8m shares at the cost (including fees) of £23.8m.
These shares were committed to be purchased prior to 31 December 2025 and
£21.3m of the cost was funded in advance and included in the own share
reserve at year end. These shares will be held in the own share reserve until
they are transferred to award holders on the exercise of share awards.
Middle East conflict
As at the date of signing there has been no material impact on our business
due to the recent events in the Middle East. Management continues to monitor
events across the region very closely.
Additional information
Key performance indicators
We use key performance indicators (KPIs) to monitor our performance, ensuring
that we have a balance and an appropriate emphasis on both financial and
non-financial aspects.
Key Performance Indicators Relevance to strategy
Underlying operating profit (UOP) The level of absolute UOP and the relationship of UOP with revenue - i.e. the
margin we earn on what our customers pay us - is at the heart of our
aspiration of profitable and sustainable growth. We believe the delivery of
strategic success has potential to support annual revenue growth of 4-6%, in
the medium-term, and margins of 5-6%.
Underlying earnings per share (EPS), diluted EPS builds on the relevance of UOP and further reflects the strength and costs
of our financial funding and tax arrangements. EPS is, therefore, a measure of
financial return for our shareholders.
Free cash flow (FCF) FCF is a reflection of the sustainability of the organisation, by showing how
much of our effort turns into cash to reinvest for future growth or to deploy
in other ways. Our philosophy is that we should only win business that
generates appropriate cash returns and we apply disciplined management of our
working capital cash flow cycles.
Underlying return on invested capital (ROIC) ROIC measures how efficiently the Group uses its capital to generate returns
from its assets. To be a sufficiently profitable and sustainable business, a
return must be achieved that is appropriately above a cost of capital hurdle
reflective of the typical returns required by our weighting of equity and debt
capital.
Pipeline of large new bid opportunities The pipeline provides a measure of potential for winning new business. The
size of the pipeline and our win-rate on the bids within it are at the heart
of our strategy to grow the business.
Order book The order book reflects progress with winning and retaining good business and,
as a store of future value, it is a key measure to ensure that the Group is
profitable and sustainable. The value of how much is added to the order book
compared to how much revenue we are billing our customers - the book-to-bill
ratio - is important to achieving long-term growth.
Alternative performance measures (APMs) reconciliations
Overview
In general, APMs are presented externally to meet investors' requirements for
further clarity and transparency of the Group's financial performance. The
APMs are also used internally in the management of our business performance,
budgeting and forecasting, and for determining Executive Directors'
remuneration and that of other Management throughout the business.
APMs are non-IFRS measures. Where additional revenue is being included in an
APM, this reflects revenues presented elsewhere within the reported financial
information, except where amounts are recalculated to reflect constant
currency. Where items of income or expense are being excluded in an APM, these
are included elsewhere in our reported financial information as they represent
actual income or expense of the Group, except where amounts are recalculated
to reflect constant currency. As a result, APMs allow investors and other
readers to review different kinds of revenue, profits and costs, and should
not be used in isolation. Commentary included in the Group and Divisional
Review, as well as the Consolidated Financial Statements and their
accompanying notes, should be referred to in order to fully appreciate all the
factors that affect our business. We strongly encourage readers not to rely on
any single financial measure, but to carefully review our reporting in its
entirety. Definitions of the Group's APMs is shown in the glossary on pages 48
to 49 and the reconciliations for each measure are shown as follows:
Alternative revenue measures
A reconciliation of reported revenue to the alternative revenue measures is as
follows:
Statutory revenue Statutory revenue Organic revenue Organic revenue Revenue plus share of joint ventures and associates Revenue plus share of joint ventures and associates
2025 2024 2025 2024 2025 2024
Year ended 31 December £m £m £m £m £m £m
Alternative revenue measure at constant currency 4,954.8 4,787.3 4,810.1 4,767.8 5,469.6 5,291.8
Foreign exchange differences (78.0) - (72.6) - (78.1) -
Alternative revenue measure at reported currency 4,876.8 4,787.3 4,737.5 4,767.8 5,391.5 5,291.8
Impact of relevant acquisitions or disposals - - 139.3 19.5 - -
Share of joint venture and associates - - - - (514.7) (504.5)
Reported revenue at reported currency 4,876.8 4,787.3 4,876.8 4,787.3 4,876.8 4,787.3
Alternative profit measures
A reconciliation of underlying operating profit to reported operating profit
is as follows:
Year ended 31 December 2025 2024
£m £m
Underlying operating profit at constant currency 276.6 273.5
Foreign exchange differences (5.0) -
Underlying operating profit at reported currency 271.6 273.5
Amortisation and impairment of intangibles arising on acquisition (30.0) (28.9)
Exceptional item - Goodwill impairment - (114.5)
Profit on disposal of subsidiary 4.7 -
Reported operating profit at reported currency 246.3 130.1
Underlying EPS
A reconciliation of underlying EPS to reported EPS is as follows:
Year ended 31 December 2025 2024 2025 2024
basic basic diluted diluted
pence pence pence pence
Underlying EPS 17.31 16.97 16.93 16.67
Non-underlying items:
Exceptional items, net of tax - (10.82 ) - (10.62 )
Other non underlying items, net of tax (2.93 ) (1.98 ) (2.86 ) (1.95 )
Reported EPS 14.38 4.17 14.07 4.10
Alternative cash flow measures
A reconciliation of net cash inflow from operating activities, free cash flow
and trading cash flow is as follows:
2025 2024
Year ended 31 December £m £m
Net cash inflow from operating activities 446.7 419.4
Dividends received 22.9 30.8
Net interest paid (40.3) (28.5)
Disposal-related costs paid 2.3 -
Capitalised finance costs paid (2.2) (1.0)
Capital element of lease repayments (158.9) (137.4)
Proceeds from exercise of share options 3.9 0.1
Purchase of own shares for Employee Share Trust (26.3) (22.8)
Net expenditure on tangible and intangible assets (28.8) (33.1)
Free cashflow 219.3 227.5
Add back:
Tax paid 43.4 41.3
Non-cash R&D expenditure/(credit) 0.1 (0.3)
Net interest paid 40.3 28.5
Capitalised finance costs paid 2.2 1.0
Trading cash flow 305.3 298.0
Underlying operating profit 271.6 273.5
Trading cash conversion 112 % 109 %
Free cash flow to adjusted net debt
A reconciliation from free cash flow to adjusted net debt is as follows:
2025 2024
Year ended 31 December £m £m
Free cash flow 219.3 227.5
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures (250.7 ) (20.8 )
and associates
Disposal-related costs paid (2.3) -
Dividends paid to shareholders (43.3 ) (38.4 )
Purchase of own shares (50.3 ) (141.3 )
Loans repaid from joint venture - 10.0
Capitalisation and amortisation of loan costs 0.9 -
Cash movements on hedging instruments (8.9 ) (13.1 )
Foreign exchange gain/(loss) on adjusted net debt 29.4 (15.0 )
Movement in adjusted net debt (105.9 ) 8.9
Opening adjusted net debt - 1 January (99.8 ) (108.7 )
Closing adjusted net debt - 31 December (205.7 ) (99.8 )
Reported net debt to adjusted net debt
Reported net debt includes all lease liabilities, including those recognised
under IFRS 16 Leases. A reconciliation of adjusted net debt to reported net
debt is as follows:
2025 2024
At 31 December £m £m
Cash and cash equivalents 199.3 183.0
Loans payable (404.9 ) (276.4 )
Lease liabilities (504.4 ) (530.0 )
Derivatives relating to net debt (0.1 ) (6.4 )
Reported net debt (710.1 ) (629.8 )
Add back: Lease liabilities 504.4 530.0
Adjusted net debt (205.7 ) (99.8 )
Return on invested capital (ROIC)
2025 2024
At 31 December £m £m
ROIC excluding right of use assets
Non-current assets
Goodwill 929.3 826.2
Other intangible assets - owned 162.2 101.4
Property, plant and equipment - owned 56.2 56.8
Interest in joint ventures 34.1 25.1
Contract assets, trade and other receivables 26.2 26.3
Current assets
Inventory 20.0 24.1
Contract assets, trade and other receivables 643.1 631.5
Total invested capital assets 1,871.1 1,691.4
Current liabilities
Contract liabilities, trade and other payables (649.7) (632.5)
Non-current liabilities
Contract liabilities, trade and other payables (102.3) (82.2)
Total invested capital liabilities (752.0) (714.7)
Invested capital 1,119.1 976.7
Two point average of opening and closing invested capital 1,047.9 1,043.8
Underlying operating profit 12 months 271.6 273.5
Underlying ROIC % 25.9 % 26.2 %
Debt covenants
The principal financial covenant ratios are consistent across the US private
placement loan notes and revolving credit facility, with a maximum
consolidated total net borrowings (CTNB) to covenant EBITDA of 3.5 times and
minimum covenant EBITDA to covenant net finance costs of 3.0 times, tested
semi-annually. A reconciliation of the basis of calculation is set out in the
table below.
The covenants exclude the impact of IFRS 16 Leases on the Group's results.
For the year ended 31 December 2025 2024
£m £m
Operating profit 246.3 130.1
Remove: Exceptional items - 114.5
Remove: Amortisation and impairment of intangibles arising on acquisition 30.0 28.9
Exclude: Share of joint venture post-tax profits (28.8 ) (22.8 )
Include: Dividends from joint ventures 22.9 30.8
Add back: Net non-exceptional charges/(releases) to OCPs 8.3 5.7
Add back: Net covenant OCP utilisation (3.3 ) (2.7 )
Add back: Depreciation, amortisation and impairment of owned property, plant 28.5 25.1
and equipment and non-acquisition intangible assets
Add back: Depreciation, amortisation and impairment of property, plant and 3.9 4.4
equipment and non-acquisition intangible assets held under finance leases - in
accordance with IAS 17 Leases
Add back: Foreign exchange on investing and financing arrangements (1.2 ) (2.1 )
Add back: Share-based payment expense 13.6 15.2
Pro-forma annualised impact of acquisition 11.7 -
Net other covenant adjustments to EBITDA (15.3 ) (15.0 )
Covenant EBITDA 316.6 312.1
Net finance costs 44.8 33.1
Exclude: Net interest receivable on retirement benefit obligations 0.8 1.9
Exclude: Movement in discount on deferred consideration (0.2 ) (0.8 )
Exclude: Foreign exchange on investing and financing arrangements (1.2 ) (2.1 )
Other covenant adjustments to net finance costs (22.8 ) (19.6 )
Covenant net finance costs 21.4 12.5
Adjusted net debt 205.7 99.8
Obligations under finance leases - in accordance with IAS 17 Leases 9.4 13.1
Recourse net debt 215.1 112.9
Add back: Disposal vendor loan note, encumbered cash and other adjustments 3.6 (3.7 )
Covenant adjustment for average FX rates 10.5 (5.9 )
CTNB 229.2 103.3
CTNB/Covenant EBITDA (not to exceed 3.5x) 0.72 x 0.33 x
Covenant EBITDA/Covenant net finance costs (at least 3.0x) 14.8 x 25.0 x
Glossary
Adjusted net debt
The adjusted net debt measure more closely aligns with the covenant measure
for the Group's financing facilities than reported net debt because it
excludes all lease liabilities recognised under IFRS 16 Leases. Principally as
a result of the Asylum Accommodation and Support Services Contract (AASC), the
Group has entered into a significant number of leases which contain a
termination option. The use of adjusted net debt removes the volatility that
would result from the estimation of lease periods and the recognition of
liabilities associated with such leases where the Group has the right to
cancel the lease. Though the intention is not to exercise the options to
cancel the leases, it is available, unlike other debt obligations.
Colleagues
The number of colleagues is derived from the average number of persons
employed and includes all individuals employed under contracts of service by
the Group as disclosed in note 10 of the Financial Statements. This comprises
permanent, part-time, and casual employees, and those with fixed term
contracts. In contrast with the number of employees disclosed in note 10 of
the Financial Statements, colleagues also includes self-employed contractors,
other casual workers and employees of Trusts. This is because such colleagues
fall within Serco's duty of care and are within the scope of a number of our
KPIs. Employees of joint ventures where Serco is not the controlling
shareholder and sub-contractors are excluded.
Constant currency
Constant currency is calculated by translating non-Sterling values for the
year ended 31 December into Sterling at the average exchange rates for the
prior year. Constant currency and reported currency are equal for the prior
year numbers.
Employee engagement
We use a specialist third-party provider to run Viewpoint, our global employee
engagement survey. The survey covers employees, excluding our joint ventures,
and measures engagement in two key areas: how happy employees are working at
Serco and their intention to recommend Serco to others. Our engagement score
incorporates all respondents' perceptions and shows the overall average view
of these two areas when we survey.
Exceptional items
IAS 1 Presentation of Financial Statements sets out disclosure requirements
regarding fair representation of information and the composition, labelling,
prominence and consistency of additional line items and subtotals in financial
statements. IAS 1 paragraph 97 requires separate disclosure of the nature and
amount of material items of income or expense. The Group uses the term
'exceptional items' to categorise those items which require disclosure under
IAS 1 paragraph 97, but this is not a term defined by IFRS. A level of
judgement is involved in determining what items are classified as exceptional
items. Management considers exceptional items to be outside of normal practice
of the business (i.e. the financial impact is unusual or rare in occurrence),
and are material to the results of the Group by virtue of their size or
nature, and are suitable for separate presentation and detailed explanation.
There is a level of judgement required in determining which items are
exceptional on a consistent basis and require separate disclosure.
Free cash flow
Free cash flow is the net cash flow from operating activities adjusted to
remove the impact of non-underlying cash flows from operating activities,
adding dividends we receive from joint ventures and associates and deducting
net interest, net capital expenditure on tangible and intangible asset
purchases, capital elements of lease repayments and the purchase of own shares
to satisfy share awards.
Invested capital
Invested capital represents the assets and liabilities considered to be
deployed in delivering the trading performance of the business. Invested
capital assets are: goodwill and other intangible assets; property, plant and
equipment; interests in joint ventures and associates; contract assets, trade
and other receivables; and inventories. Invested capital liabilities are
contract liabilities, trade and other payables. Invested capital is calculated
as a two-point average of the opening and closing balance sheet positions. The
Invested capital of the Group used in underlying ROIC are for those items for
which resources are or have been committed. This excludes right of use assets
recognised under IFRS 16 Leases as many have termination options and
commitments for expenditure in future years.
Lost time incident frequency rate (LTIFR)
Lost time incidents (LTIs) are incidents when personal injury accidents at
work, or when travelling on company business, cause an employee to incur one
or more working days (or shifts) absence as a result. LTIs are recorded from
the date the incident occurred, not from when time was lost. The LTIFR is
calculated using the total number of LTIs, normalised using the total number
of hours worked in the period. This provides a view on the frequency of LTIs,
regardless of movements in staff numbers, which is comparable across all areas
where LTIs are incurred. Minor revisions can be made to prior reported
performance based on data received post publication date.
Net debt
Net debt is a measure to reflect the net indebtedness of the Group and
includes all cash and cash equivalents and any debt or debt-like items,
including any derivatives entered into in order to manage risk exposures on
these items. Net debt brings together the various funding sources that are
included on the Group's Consolidated Balance Sheet and the accompanying notes.
Net debt includes all lease liabilities, while adjusted net debt is derived
from net debt by excluding liabilities associated with leases.
Non-underlying items
Included in non-underlying items are
• exceptional items (see above)
• amortisation and impairment of intangibles arising on
acquisitions, because these charges are based on judgements about the value
and economic life of assets that, in the case of items such as customer
relationships, would not be capitalised in normal operating practice.
• Profit or losses on disposal of subsidiaries are excluded,
because such transactions represent discrete, non‑recurring events outside
the ordinary course of the Group's ongoing operating activities.
Non-underlying tax
Non‑underlying tax refers to the tax effects of non‑underlying items,
along with tax items that are themselves considered non‑underlying because
they arise from discrete, non‑recurring events outside the Group's ordinary
operating activities.
Order book
The order book reflects the estimated value of future revenue based on all
existing signed contracts, excluding Serco's share of joint ventures and
associates. It excludes contracts at the preferred bidder stage and excludes
the award of new Multiple Award Contracts (MACs), Indefinite
Delivery/Indefinite Quantity (IDIQ) contracts or framework vehicles, where
Serco cannot estimate with sufficient certainty its expected future value of
specific task orders that may be issued under the IDIQ or MAC. In these
situations the value of any task order is recognised within the order book
when subsequently won. The definition is aligned with IFRS 15 disclosures of
the future revenue expected to be recognised from the remaining performance
obligations on existing contractual arrangements and therefore excludes
unsigned extension periods and option periods in our US business. Order intake
is the value of business which has been won during the year and typically
includes Serco's share of order intake from its joint ventures and option
periods in our US business.
Organic
Organic measures exclude the impact of relevant acquisitions (MT&S,
European Homecare and Climatize) or disposals (Serco Hong Kong and Khadamat).
The prior year figures are recalculated on a consistent basis with the
relevant acquisitions or disposals removed in the current or prior year and
therefore may not agree to the organic revenue previously reported.
Pipeline of large new bid opportunities
Pipeline of large new bid opportunities reflects the estimated aggregate value
at the end of the reporting period of new bid opportunities with Annual
Contract Value (ACV) greater than £10m and which we expect to bid and be
awarded within a rolling 24-month timeframe. It does not include re-bids or
extensions of existing business and the Total Contract Value (TCV) of
individual opportunities is capped at £1bn; also excluded is the potential
value of framework agreements, prevalent in the US in particular where there
are numerous arrangements classed as IDIQ. In this case only the potential
value of any individual task order is included.
Revenue plus share of joint ventures and associates
This alternative measure includes the share of revenue from joint ventures and
associates for the benefit of reflecting the overall change in scale of the
Group's ongoing operations, which is particularly relevant for evaluating
Serco's presence in market sectors such as Defence and Transport. The
alternative measure allows the performance of the joint venture and associate
operations themselves, and their impact on the Group as a whole, to be
evaluated on measures other than just the post-tax result.
Trading cash conversion
In order to calculate an appropriate cash conversion metric equivalent to UOP,
trading cash flow is derived from FCF by excluding capitalised finance costs,
interest, non-cash Research and Development expenditure and tax items. Trading
cash conversion therefore provides a measure of the efficiency of the business
in terms of converting profit into cash before taking account of the impact of
capitalised finance costs, interest, non-cash R&D expenditure, tax and
non-underlying items.
Underlying earnings per share (EPS), diluted
Underlying EPS reflects the underlying operating profit measure after
deducting underlying net finance costs and tax. It takes into account any
non-controlling interests share of the result for the period, and divides the
remaining result that is attributable to the equity owners of the Company by
the weighted average number of ordinary shares outstanding, including the
potential dilutive effect of share options, in accordance with IFRS.
Underlying net finance costs and tax are used to calculate underlying EPS to
remove the impact of typical non-recurring or out of period items.
Underlying operating profit (UOP)
Underlying operating profit is defined as IFRS operating profit excluding
non-underlying items (as described above). Consistent with IFRS, it includes
Serco's share of profit after interest and tax of its joint ventures and
associates.
Underlying return on invested capital (ROIC)
ROIC is calculated as UOP for the period divided by the invested capital
balance (as described above).
Forward-looking statements
This announcement contains statements which are, or may be deemed to be,
"forward-looking statements" which are prospective in nature. All statements
other than statements of historical fact are forward looking statements.
Generally, words such as "expect", "anticipate", "believe", "estimate", "may",
"could", "should", "will", "continue", "aspire", "aim", "plan", "target",
"goal", "ambition", "intend" or, in each case, their negative or other
variations or comparable terminology identify forward-looking statements. By
their nature, these forward-looking statements are subject to a number of
known and unknown risks, uncertainties and contingencies, and actual results
and events may differ materially from those currently anticipated in such
statements. Factors which may cause future outcomes to differ from those
foreseen or implied in forward-looking statements include, but are not limited
to: general economic conditions and business conditions in Serco's markets;
contracts awarded to or lost by Serco; customers' acceptance of Serco's
products and services; operational problems; the actions of competitors,
trading partners, creditors, rating agencies and others; the success or
otherwise of partnering; changes in laws and governmental regulations;
regulatory or legal actions, including the nature of any enforcement action or
remedies sought or imposed; the receipt of relevant third party and/or
regulatory approvals; exchange rate fluctuations; the development and use of
new technology; changes in public expectations or behaviour and other changes
to business conditions; wars and acts of terrorism; cyber-attacks; climate
change and related regulatory developments; and pandemics, epidemics or
natural disasters. Many of these factors are beyond Serco's control or
influence. For a description of the principal risks and uncertainties,
including mitigation examples, see the "Principal Risks and Uncertainties"
section in the strategic report within the 2025 Annual Report and Accounts
which will be published in due course.
Forward-looking statements are not guarantees of future performance. These
forward-looking statements are based on information available, and assumptions
made, as of the date of this announcement and have not been audited or
otherwise independently verified. Past performance should not be taken as an
indication or guarantee of future results and no representation or warranty,
express or implied, is made regarding future performance. Except as required
by any applicable law or regulation (including under the UK Listing Rules and
the Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority), Serco expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
in this announcement (including to reflect any change in Serco's expectations
or any change in events, conditions or circumstances on which any such
statement is based) after the date of this announcement. Accordingly, undue
reliance should not be placed on the forward-looking statements.
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