2025 full year results

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 | [phone] | [e-mail]

Scot Marchbank, External Communications Director | [phone] | [e-mail]

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 East		Corporate costs		Total
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 East		Corporate costs		Total
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 associates1	0.7	0.7
Remeasurements of post-employment benefit obligations2	(2.1)	(38.7)
Income tax relating to components of other comprehensive income that will not be reclassified subsequently to profit or loss2	5.2	7.7
Items that may be reclassified subsequently to profit or loss:
Net exchange loss on translation of foreign operations2	(21.1)	(18.6)
Net exchange on disposal of foreign operations2	(0.5)	-
Fair value loss/(gain) on cash flow hedges during the year2	0.9	(0.4)
Tax relating to hedging that may be reclassified2	(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 of use assets	(154.5)	(22.5)	(7.5)	(1.1)	(0.3)	(185.9)
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 of use assets	(129.4)	(19.3)	(8.8)	(1.7)	0.7	(158.5)
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 assets1	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 assets2						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 liabilities2						(469.1)
Consolidated total liabilities						(1,922.4)
Supplementary information
Additions to non-current assets3	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 associates4	24.7	-	-	0.4	-	25.1
Other segment assets1	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 assets2						438.9
Consolidated total assets5						2,660.3
Segment liabilities
Segment liabilities	(921.9)	(169.6)	(213.6)	(61.6)	(79.4)	(1,446.1)
Unallocated liabilities2						(371.7)
Consolidated total liabilities						(1,817.8)
Supplementary information
Additions to non-current assets3	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 value1	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 assets1	89.3
Property, plant and equipment	2.2
Right of use assets2	6.4
Deferred tax asset	0.3
Contract assets, trade and other receivables3	20.4
Contract liabilities, trade and other payables	(6.5)
Provisions	(1.2)
Lease obligations2	(6.4)
Net assets acquired4	104.5
Goodwill5	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)/credit1	(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 consideration1	-	(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 taxes1
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 flow1	Acquisitions2	Exchange differences	Non-cash movements3	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 fair value	Carrying amount	Comparison 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 plan1	14.8	14.8	14.9	14.9
Financial assets - current
Cash and bank balances2	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 receivables1	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 plan1	(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 payables2	(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 plan1	(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 scheme assets	Present value of scheme liabilities	Surplus/(deficit)	Fair value of scheme assets	Present value of scheme liabilities	Surplus/(deficit)
	2025	2025	2025	2024	2024	2024
At 31 December	£m	£m	£m	£m	£m	£m
SPLAS1	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 asset2	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 mortality1	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 pence		basic pence		diluted pence		diluted 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 and associates	(250.7	)	(20.8	)
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 and equipment and non-acquisition intangible assets	28.5		25.1
Add back: Depreciation, amortisation and impairment of property, plant and equipment and non-acquisition intangible assets held under finance leases - in accordance with IAS 17 Leases	3.9		4.4
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.

 

END