Serco half-year results 2026: buyback doubles as margins improve

Serco's first-half results delivered a useful combination for shareholders: revenue growth, higher profit, improving margins and another £75 million share buyback.

The government services group reported revenue of £2.5 billion for the six months to 30 June 2026, up 4% at constant currency. Underlying operating profit rose 9% on the same basis to £157 million, while the underlying operating margin improved by 20 basis points to 6.2%.

Management has kept its main full-year forecasts unchanged. The headline addition is that Serco has doubled its planned 2026 share buyback from £75 million to £150 million.

You can read Serco's figures in the original company announcement, while our Serco Group PLC share page provides further company coverage.

Serco's half-year results at a glance

Metric	H1 2026	H1 2025	Change
Revenue	£2,508 million	£2,419 million	4%
Underlying operating profit	£157 million	£146 million	9% at constant currency
Underlying operating margin	6.2%	6.0%	20 basis points
Reported operating profit	£145 million	£132 million	10%
Diluted underlying EPS	10.17p	9.60p	6%
Free cash flow	£65 million	£91 million	Down 29%
Order intake	£2.5 billion	£3.2 billion	Lower year-on-year
Adjusted net debt	£228 million	£259 million	Down 12%
Interim dividend	1.60p	1.45p	10%

Organic revenue growth was 2%, meaning growth excluding the impact of acquisitions, disposals and currency movements. Acquisitions and disposals contributed another 2%.

Defence was the standout sector, producing organic growth of 10%. This included progress on UK maritime services for the Royal Navy and further work for the US Army Corps of Engineers.

Margin progress is the strongest feature

Revenue growth of 4% is respectable, but the profit performance is more interesting. Underlying operating profit grew faster than sales, lifting the margin from 6.0% to 6.2%.

Serco attributed this to productivity improvements, contract execution, cost control and a shift towards higher-value services. Corporate costs also fell from £29.5 million to £23.5 million.

The improvement came despite several pressures. These included higher UK National Insurance contributions, the exit from an Australian immigration contract and lower immigration activity in the UK and Europe.

That suggests Serco's efficiency work is producing a measurable benefit rather than merely supporting management commentary. The group now expects a full-year margin of around 6.0%, approximately 40 basis points higher than in 2025.

There is a timing point to remember. Serco expects its second-half margin to moderate from the first half due partly to revenue mix, although it should still improve year-on-year.

Defence drives growth, but regional performance was mixed

North America generated revenue of £775 million, up 8%, and underlying operating profit of £84 million, up 10%. Its margin increased from 10.6% to 10.8%, helped by the acquired Mission Training and Satellite Ground Network Communications Software business.

UK and Europe revenue rose 8% to £1,359 million, supported by 29% organic growth in Defence and 8% growth in Citizen Services. Underlying operating profit increased 7% to £84 million, although the margin slipped slightly from 6.3% to 6.2%.

Asia Pacific was considerably weaker. Revenue declined 14% to £307 million and underlying operating profit fell 51% to £7 million following the Australian immigration contract exit and the disposal of the Hong Kong operations. Its margin dropped from 3.9% to 2.2%.

The Middle East also reported lower activity, with revenue down 25% to £67 million. However, efficiency initiatives helped its margin improve from 7.3% to 8.5%.

The mixed regional picture matters. Serco is benefiting from strong defence demand, but its portfolio still includes areas where contract exits, procurement delays and activity changes can cause substantial swings.

The order pipeline offers visibility

Serco secured £2.5 billion of orders during the half, down from £3.2 billion a year earlier. Its book-to-bill ratio was 100%, meaning new orders were equal to revenue recognised during the period.

A ratio of 100% maintains the order base, but it does not indicate rapid expansion. The result was also held back by procurement delays in North America.

There are more encouraging signs beneath that figure. The order book increased slightly to £14.6 billion, contract retention was 95%, and the new-business pipeline reached £12.8 billion. That was up 6% from December 2025 and represented its highest level in more than a decade.

North America's pipeline alone expanded to £8.1 billion, with £3.2 billion of submitted awards awaiting decisions. Asia Pacific recorded a particularly strong book-to-bill ratio of 188%, supported by prison contract extensions worth more than £400 million.

The opportunity is therefore visible, but timing remains uncertain. Investors will want to see delayed North American awards convert into signed work during the second half.

Cash flow is the main soft spot

Free cash flow fell 29% to £65 million, while cash conversion declined from 84% to 74%. Cash conversion measures how effectively accounting profit is converted into cash.

Serco still expects approximately £160 million of free cash flow for the full year and trading cash conversion of at least 80%. Meeting that target will require a stronger second-half cash performance.

Adjusted net debt stood at £228 million, with leverage of just 0.75 times net debt to EBITDA. EBITDA is profit before interest, tax, depreciation and amortisation and is commonly used when assessing debt capacity.

This leverage is below Serco's preferred range of 1 to 2 times. Management therefore considers the group to have surplus capital, supporting the additional buyback.

Buybacks and dividends increase shareholder returns

Serco completed its initial £75 million buyback in July and has announced another £75 million programme for the second half. The total planned buyback for 2026 is therefore £150 million.

The interim dividend rises 10% to 1.60p per share. It is due to be paid on 2 October 2026 to shareholders on the register on 28 August.

These returns are supported by low leverage, although they also affect the year-end debt forecast. Adjusted net debt guidance has increased from approximately £165 million to approximately £240 million following the enlarged buyback.

That is not the same as an operational deterioration, but it means Serco is choosing to return more cash rather than retain it on the balance sheet.

What investors should watch next

Serco has reiterated guidance for approximately £5.0 billion of revenue, organic growth of around 3%, underlying operating profit of approximately £300 million and free cash flow of around £160 million.

The investment positives are clear: margins are improving, Defence is growing strongly, the pipeline is at a decade high and the balance sheet supports meaningful shareholder returns.

The less comfortable points are the first-half cash flow decline, weaker Asia Pacific profitability and slower North American procurement. Order intake was also lower than last year, even though it matched revenue.

The second half now needs to demonstrate three things: stronger cash conversion, progress on delayed North American awards and evidence that Asia Pacific can stabilise after its contract exit. If Serco delivers those while maintaining margin discipline, the increased buyback will look well supported by the underlying business rather than simply by spare balance-sheet capacity.