Serco 2025 results: cash generative, defence-fuelled, and turning up the buybacks
Serco has posted a solid 2025 and set out upbeat guidance for 2026. Revenue grew to £4,877m, up 3% at constant currency, with underlying operating profit of £272m and an underlying margin of 5.6% – bang in the middle of the Group’s 5-6% medium-term target. Cash was the star: free cash flow came in at £219m, well ahead of prior guidance of around £170m, helped by strong collections and contract mobilisation.
On shareholder returns, Serco finished a £50m buyback last year and has announced a fresh £75m programme to be completed by the half year. The total of buybacks since 2021 now stands at £465m. The full-year dividend is lifted 8% to 4.50p per share.
Key numbers investors should know
| Metric (FY 2025) | Result |
|---|---|
| Revenue | £4,877m (+3% constant currency) |
| Underlying operating profit (UOP) | £272m (+1% constant currency) |
| Underlying operating margin | 5.6% |
| Diluted underlying EPS | 16.93p (+2%) |
| Free cash flow | £219m |
| Order intake / Book-to-bill | £5.5bn / 114% |
| Order book | £14.5bn (+9% vs 2024) |
| Adjusted net debt | £206m |
| Leverage (net debt to EBITDA) | 0.7x (target range 1-2x) |
| Dividend per share | 4.50p (+8%) |
| New buyback | £75m (to complete by half year) |
Jargon buster: “Underlying” strips out items like acquisition-related amortisation and one-offs, to show the core trading result. “Book-to-bill” is orders won divided by revenue – above 100% means the order book is growing. “Leverage” is net debt relative to EBITDA – the lower the safer. “Trading cash conversion” (Serco: 112% in 2025) compares operating cash to profit; consistently over 100% is a rare and welcome feat.
What’s driving the performance: defence up, immigration down
Serco’s mix continues to tilt toward defence, which accounted for around two thirds of awards in 2025. Big UK wins included:
- £1.1bn seven-year Armed Forces Recruitment contract covering all three services.
- About £1.0bn of Royal Navy maritime services across the Defence Maritime Services Next Generation programme.
In North America, the acquisition of MT&S from Northrop Grumman added heft in mission training and space, contributing £118.4m of revenue and £9.2m of operating profit in seven months of ownership (after £6m of transaction and integration costs). Defence awards also included a CAD$490m, 25-year Future Aircrew Training contract in Canada and a US$105m five-year US Navy support deal.
The drag was immigration: activity stepped down in the UK and Australia, and Asia Pacific revenue fell 18% after exiting the Australian immigration contract. Middle East revenue also declined 18% as the Dubai air navigation contract ended and some work transferred to the Mubadala partnership.
Divisional snapshot
- UK & Europe: Revenue £2,582m (+6%), margin 5.8%. Defence and Citizen Services growth offset softer immigration profitability. HMP Dovegate rebid secured at over £500m and London Cycle Hire renewed at £110m.
- North America: Revenue £1,463m (+10%), margin 9.8%. Organic growth in defence and IT services, plus the MT&S boost. Pipeline more than doubled to £5.0bn.
- Asia Pacific: Revenue £655m (-18%), margin improved to 3.7%. Reshaped post-immigration exit; Hong Kong business sold. Order intake £0.3bn with a new Victoria Justice Transport Services win.
- Middle East: Revenue £177m (-18%), margin 7.1%. Dubai Airports customer services extended at AED495m through December 2030; Mubadala tie-up should improve access to opportunities.
Orders, pipeline and what that means for 2026
Order intake of £5.5bn pushed book-to-bill to 114% and the order book to £14.5bn. The new business pipeline is £12.1bn, up 8% and the highest in over a decade, with North America’s pipeline more than doubling.
Guidance for 2026 is reiterated: around £5.0bn of revenue with organic growth of about 3%, underlying operating profit of about £300m (+10%), and margin guidance of roughly 6.0% – the top end of the medium-term range. Free cash flow is expected to be around £160m, reflecting normalisation after a stronger-than-expected 2025. Net finance costs are set to rise to around £52m given the full-year effect of funding the MT&S deal and the new buyback.
Share buyback, dividend and balance sheet: why it matters
With leverage at 0.7x – well below the 1-2x comfort range – the Board sees “surplus capital” and is returning it. The £75m buyback shrinks the share count, which can lift EPS and support the share price, albeit while nudging net debt a touch higher. The dividend steps up 8% to 4.50p, signalling confidence in cash generation and earnings quality.
Adjusted net debt at year end was £206m, despite £245m on the MT&S acquisition, £50m on buybacks and £43m of dividends. Liquidity looks ample, with a £350m undrawn revolving credit facility and long-dated US private placement notes.
Operational execution: retention, safety and people
Contract retention rates are over 90%, US performance scores (CPAR) are above 95% satisfactory or better, and the Group reports a 22% reduction in colleague safety incidents and significantly fewer lost days. Engagement remains above 70 points, and attrition improved by eight percentage points since 2023. These softer points matter: they help explain why Serco keeps winning and keeping work in complex, long-duration contracts.
My take: strengths, watch-outs and what could move the dial
What looks positive
- Cash conversion remains excellent at 112%, averaging over 100% for seven years – a strong indicator of discipline and contract hygiene.
- Defence positioning is materially stronger following MT&S and marquee UK awards. The 2026 margin target of around 6% suggests ongoing productivity gains are credible.
- Order book and pipeline momentum underpin the revenue and profit guidance. A 114% book-to-bill and a decade-high pipeline give visibility.
What to keep an eye on
- Immigration revenues and profitability are stepping down in the UK and Asia Pacific. Management expects defence and citizen services growth to offset – execution on ramp-ups will be key.
- Net finance costs are rising to around £52m in 2026. Not a concern given leverage, but it is a clear headwind versus 2025.
- Asia Pacific and Middle East need to rebuild after revenue declines. The Mubadala partnership and new justice wins help, but sustained growth proof points would be welcome.
What could surprise to the upside
- Faster-than-expected conversion in the enlarged North American pipeline, particularly in defence and space, where structural demand is strong.
- Productivity initiatives dropping through more quickly, lifting margins above the circa 6% guide.
- Further disciplined bolt-on acquisitions that add capability and scale, similar to MT&S.
Bottom line
This is a steady, cash-rich set of numbers with improving growth prospects. Defence is doing the heavy lifting, cash generation remains a hallmark, and the balance sheet supports ongoing buybacks alongside an increased dividend. The main swing factor is how quickly new and mobilising contracts offset the decline in immigration-related work. On the information disclosed, Serco enters 2026 with a larger order book, a fatter pipeline, and credible guidance for higher profit and margins – a reassuring combination for long-term holders.
