Serco Group Aktie

Good morning and thank you to everyone who's joined us for the presentation of Serco's 2026 half year results. Whether you're with us here in person today or joining via the live stream, you're very welcome.

I'm Anthony Kirby. I'm the proud Group Chief Executive of Serco, and I'm delighted to be joined by Mark Reid, our Chief Financial Officer. I was very pleased that Mark joined the business, the executive team and the Board back in early March.

This morning, I'll begin with an overview of our progress and performance. Then we'll take you through the financials in more detail with Mark, and then I'll return to discuss the outlook across our core geographies, the strong structural drivers that reinforce the need for trusted partners like Serco and how we are positioning the business to deliver safe, sustainable growth in an ever-changing external landscape. But before we go any further, I must refer you to the disclaimers in your pack.

So let's start at the top. Thanks to my 50,000 colleagues around the world, we've delivered another strong performance in the first half, reflecting disciplined execution and continued progress against our strategy.

Through good operational delivery, productivity improvements and disciplined cost control, we have increased profitability and delivered margin improvements that we can be proud of. We've continued to deliver good progress across our strategic pillars with retention once again north of 95%, a growing pipeline and a leaner, more efficient organization, supporting our ability to deliver against our '26 guidance.

We also remain confident in the outlook across all of our core geographies. Whilst market conditions are evolving, underlying demand for the critical services that we provide continues to be underpinned by the same long-term structural drivers that we've been talking to you about for many years, the 4 forces as we describe them.

During the period, we have continued to take deliberate action to better position Serco for the future. Building on the sector simplification announced at the full year, we're refining our operating model to drive greater focus, efficiency and long-term growth.

As a result, we're increasing our share buyback to GBP 150 million for the full year following the GBP 75 million we announced and executed in the first half whilst reiterating our full year guidance.

So turning to the numbers, which I'm proud to present. As you can see, we've delivered revenue up 4% on a constant currency basis, including strong organic growth of 10% in our Defence business. Free cash flow of GBP 65 million, keeping us on track for full year cash conversion of at least 80%.

Order intake representing a book-to-bill of around 100%, underlying operating profit of GBP 157 million, delivering a 10-year high margin, which I'll come back to shortly. But these results demonstrate the resilience of our business and our ability to deliver sustainable growth over the years ahead.

So I'd like to spend a few moments highlighting the progress that we've made against our 3 mutually reinforcing priorities of growth, competitiveness and operational excellence.

As many of you will know, I'm absolutely focused on growth; safe, sustainable growth in our revenue, our profit and our margin. During the period, we've made good progress growing our pipeline to a record high of GBP 12.8 billion, securing around GBP 2.5 billion of order intake, maintaining strong retention rates across the group. This reflects both our ability to win new work and expand the great business that we already have. That gives me confidence in growing the business over the medium term.

Turning to competitiveness. When I stood here last year, I said that while Serco was a very strong business, there were opportunities to make us simpler, more focused and more efficient. At the full year, I spoke about the changes we were making to simplify our sector structure and reduce unnecessary complexity. Since then, we've continued to embed those changes, helping to reduce our overhead costs. And this is about creating a business that can respond more quickly to customer needs, allocate resources more effectively and position ourselves to capture future opportunities.

And on operational excellence, we've continued to deliver complex services reliably across our portfolio, while successfully mobilizing major programs and investing in capabilities that will support our future performance.

Since January, mobilization activity contributed to strong organic growth, including 7% growth in the U.K. and Europe, whilst continued investment in technology and innovation is improving both service quality and productivity.

Across the business, we have multiple live applications of AI supporting both customer solutions and internal process improvements. In Asia Pacific, we're using AI-enabled strategic workforce planning tools to improve resource allocation and predict future strategic requirements.

In North America, we're using AI to help identify and qualify opportunities, strengthening our business development capability and supporting the growth of our record pipeline. And in the U.K., we're using AI services to automate asset monitoring, helping to improve operational efficiency and service performance.

And we've also continued to make Serco a safer place for our colleagues with 15% fewer safety incidents resulting in time off work than we saw in the first half of 2025. But more importantly, that represents a 40% reduction over the past 3 years.

And we've now had -- we now have more than 640 apprentices across our U.K. business, and we were exceptionally proud recently to be named U.K.'s top employer for veterans, reservists and military families. So whilst there is always more that we can do, there's been good progress across all parts of our approach to executing our strategy.

One of the most encouraging aspects of our performance has been the continued improvement in margin despite a number of headwinds. This is the result of a deliberate strategy that has been executed consistently over a number of years.

We strengthened the quality of our portfolio through disciplined contract selection, improved operational execution, a continued grip on governance, targeted acquisitions and an increasing focus on complex service lines. That, coupled with greater exposure to higher-value markets and stronger positions in Defence and North America.

The result is a sustained improvement in our margin profile. Importantly, this progression has been driven by an improvement in the quality of our business rather than any single action or short-term initiative.

I'm pleased with the progress that we've made, and our focus remains on sustaining and further improving that performance over the years ahead.

So with that, I'll now hand over to Mark, who will take you through our financial performance in more detail. So grab your popcorn, sit back and listen intently.

Thank you, Anthony. And good morning to everyone. I'm delighted to be here standing in front of you presenting my first Serco set of earnings. The last 6 months have flown by. I've spent a great deal of time getting to know the business. And I'm very pleased with what I've experienced so far: great culture, dedicated colleagues and a huge opportunity with robust delivery, which I can hope you see as you go through these results.

Let me start with a few observations. Firstly, Serco is underpinned by good market dynamics. You see this in the strong performance the teams delivered in 2025 and how that momentum has continued into half 1 2026. It has become more and more clear to me that the governments around the world need partners like Serco as they prioritize quality outcomes and value for money citizens demand.

Secondly, I've been impressed by the depth and breadth of the operating excellence, and this has been clear in the outcomes we have delivered for our customers. Take the Electronic Monitoring service, for example. We have transformed this service, monitoring record numbers of users while delivering against all the performance measures that the customer set.

Thirdly, working with the many fantastic colleagues I've met so far has been inspiring. I've been able to collaborate at pace with our leadership team. And hopefully, Anthony agrees, our CEO-CFO partnership has got off to a good start.

Now turning to the strong half 1 performance. I'm delighted to present revenue increased by 4% to GBP 2.5 billion, including 2% organic growth. Underlying operating profit increased by 8% to GBP 157 million, with margin improving by 20 basis points to 6.2%.

As Anthony noted earlier, our profit margin improved, has been an impressive long-term trajectory. Profit growth was delivered by a full period contribution from MT&S, improved contract outcomes, including Electronic Monitoring that I mentioned earlier, and lower corporate costs and wider efficiency actions. These more than offset the known headwinds from the exit of the Australian immigration contract, lower immigration in both U.K. and Europe and higher U.K. national insurance costs.

Earnings per share increased by 6%, and the Board has declared an interim dividend of 1.6p per share, which is up 10% year-over-year. Cash generation continues to be a strength of the business. Free cash flow was GBP 65 million and trading cash conversion at 74%. We remain on track to deliver at least 80% trading cash conversion for the full year.

And our balance sheet remains strong with leverage at 0.7x EBITDA even after significant progress on the share buyback by the half-end close. I'll reiterate the optionality this gives us on capital allocation shortly.

Reflecting our confidence today, we have announced the doubling of our 2026 buyback to GBP 150 million with the additional GBP 75 million to be completed by the end of the year. Combined with dividends paid during the year, this will take our total capital return to shareholders in 2026 to just under GBP 200 million.

Overall, this is a strong first half performance with revenue growth, further margin progression, good cash generation, a robust balance sheet and continued strong shareholder returns.

I'll now turn to provide a bit more color around each of the divisions. First of all, to North America, which continues to be an important driver of growth and value creation for the group. Revenue increased 8% to GBP 775 million, supported by a full half year contribution from MT&S.

There was good momentum in Defence which saw 4% organic growth, including additional infrastructure work for the U.S. Army and Space Force at the Pituffik Space Base in Greenland. This was partially offset by lower activity levels in our Citizen Services following the expected reductions in case management volumes on our CMS contract and the conclusion of an aviation contract in the U.S.

Underlying operating profit increased by 10% to GBP 84 million with margin progression to 10.8%. The increase reflects a strong revenue growth, a focus on contract profitability and the benefit of contracts moving from mobilization to the operational phase.

Order intake was GBP 0.7 billion with a book-to-bill ratio of around 90%. As expected, procurement delays across parts of the U.S. federal market continued into the first half and affected the timing of some of these awards. Win rates remain healthy at 46% and the new business were around 80% for retentions.

We're seeing progress on a number of important opportunities. Several contract protests have now been resolved, and we have around GBP 3.2 billion of bids awaiting adjudication. This creates the conditions for an improving environment through the second half and into next year.

Looking further ahead, the pipeline has strengthened significantly, increasing more than 60% to over GBP 8 billion. Defence accounts for the majority of these opportunities, reflecting sustained increases in Pentagon spending and national security priorities. As Anthony will outline, this underpins our confidence in the continued growth potential of the North American region.

Moving now to the U.K. and Europe, which has an excellent organic growth of 7%. Growth was led by Defence with revenue increasing by 30%, reflecting the mobilization of our Royal Navy maritime support and vessel replacement contract, together with additional activity at the Defence Academy. Citizen Services also delivered good growth. And in the period, we were delighted to begin delivering BBC Audience Services.

Progress was more limited in Justice & Immigration, where we saw reduced immigration activity, both in the U.K. and in Europe.

Underlying operating profit increased by 7% to GBP 84 million, with margins remaining resilient at 6.2% despite around GBP 5 million of higher National Insurance costs and the expected headwinds from lower immigration activity. Profitability benefited from the strong ramp-up in Defence and improved outcomes with Justice, particularly on the Electronic Monitoring contract, where performance and productivity continue to improve.

Order intake was GBP 1.2 billion with a book-to-bill ratio of around 90%. Retention rates were particularly strong at over 95%, including several sizable contract extensions in Citizen Services. We also secured a number of new business awards from the U.K. Ministries of Defence, Justice and the Home Office, reinforcing the continued demand for our services.

Finally, the pipeline stands at about GBP 3.8 billion. While lower than the GBP 5.8 billion at full year as a result of adjudications, we have sight of several large deals that are set to be qualified. Demand remains very robust in the U.K. and in Europe.

Turning now to Asia Pacific, where the first half performance reflects the Australian immigration contract exit alongside progress in strengthening the platform for future growth. Revenue was down 14%, primarily driven by previous year impacts, namely the conclusion of the immigration contract and disposal of our Hong Kong business.

This was partially offset by growth in Defence, progress on a number of Citizen Service contracts and the commencement of the Justice Transport Services contract in Victoria. As expected, underlying operating profit declined in the period with the immigration contract exit reducing profit by around GBP 9 million on its own. Further operational efficiencies and workforce optimization mitigated some of this impact.

We're encouraged by the progress we have made on growth. Order intake for the period was GBP 0.6 billion, resulting in a very strong book-to-bill ratio of just shy of 190%. We signed 2 significant extensions for the Adelaide Remand Center and Acacia Prison in Western Australia, where we secured a significant expansion of our services.

We also retained the Australian Defence Force Health Services contract for a further year to mid-2027. These outcomes help demonstrate both our improved customer relationships and our ability to retain strategically important work. The pipeline remains stable at approximately GBP 0.7 billion with a number of opportunities progressing across all 3 sectors.

Now let's turn to the Middle East, where the first half performance was resilient in a challenging environment. Revenue was GBP 67 million, down 25% compared with the prior period. The reduction was driven by several elements, including transition of contracts into the Mubadala strategic partnership and volume-related impacts of the regional conflict.

Underlying operating profit reduced by 12% to GBP 6 million. However, despite the lower revenue base, margin improved by over 100 basis points to 8.5%. This reflects the Mubadala partnership and benefits of target operational efficiencies, which is better positioning the business for profitable growth as the market conditions improve.

Order intake in the first half was low and was inevitably impacted by the regional disruption. That said, we are very pleased to see the Mubadala partnership secure several contracts worth almost GBP 60 million, and the pipeline currently stands at approximately GBP 0.3 billion. While this is lower than last year, this reflects the reductions largely because of adjudications and several larger opportunities removed or delayed related to canceled bids.

Importantly, the Mubadala partnership continues to broaden our access to future opportunities and provides an attractive platform for sustainable long-term growth in the region.

Now if we turn to cash flow and the balance sheet. Cash generation remained good with free cash flow at GBP 65 million and trading cash conversion of 74%. While this is lower than the exceptionally strong comparable period last year, it was in line with our expectations and keeps us on track to deliver at least 80% trading cash conversion for the full year.

Working capital was an outflow of GBP 41 million in the period compared with an outflow of GBP 14 million in the first half of 2025. This primarily reflects the effect of the strong outperformance at the end of 2025 as we set out at the time and is not indicative of any change in underlying cash performance.

Turning to the balance sheet. Adjusted net debt was GBP 228 million, only GBP 22 million higher than the position at the end of 2025 despite returning significant capital to shareholders during the period. This included GBP 58 million of the GBP 75 million share buyback program completed by the 30th of June and GBP 30 million of dividend payments.

Strong cash generation has therefore substantially funded those shareholder returns while maintaining a very robust financial position. Leverage was around 0.7x EBITDA at the period end and remains below our target range of 1x to 2x. The balance sheet continues, therefore, to provide substantial capacity to support organic investment, disciplined bolt-on acquisitions and further shareholder returns under our capital allocation framework.

Our framework is unchanged and supported by the 3 core strengths of Serco: significant cash generation, a capital-light business model and a strong balance sheet. Our first priority is investing in organic growth.

During the year, we have continued to strengthen our business development capability through expanded specialist sales teams and refreshed [Technical Difficulty] confidence in the business and outlook, the Board has declared an interim dividend of 1.6p per share, up 10% year-on-year.

And third, we continue to evaluate bolt-on acquisition opportunities that enhance our capabilities and our organic growth potential. We have increased focus, resource in this area and have a strengthened pipeline of opportunities. As always, we will maintain the same financial discipline in this area.

Finally, we have surplus capital. We will return it to shareholders. Consistent with that, we have announced a further GBP 75 million buyback for the remainder of 2026.

Let me finish with our guidance for 2026. Following the strong first half performance, we are reiterating our guidance for revenue, profit and free cash flow. The only changes are to net finance costs, which are now expected to be slightly lower than previously guided and the year-end net debt position, both of which reflect the additional GBP 75 million buyback announced today.

Overall, we enter the second half with good visibility from our order book, a record pipeline, excellent retention rates, strong momentum across our strategic priorities. And as a result, we remain confident in delivering our full year expectations.

Finishing my first 6 months, I'm very pleased with the state of the business. Markets continue to be supportive. Our teams execute with professionalism and precision that delivers great customer outcomes. I see multiple opportunities to support our growth and ambition, including cost efficiencies, self-funded organic investments and bolt-on M&A, which I'm sure will continue to drive strong investor returns.

And with that, I'll hand over to Anthony.

Mark, thank you. At the full year, I talked to you about our strategy to simplify and focus the business around our core sectors of Defence, Justice & Immigration and Citizen Services. Today, I'd like to take a similar approach but through a geographic lens, focusing on our core markets.

But before I turn to our first geography, I'd like to spend a few moments on why governments around the world continue to partner with the private sector and why we believe that those structural drivers will remain in place for many years and decades to come.

So whilst the specific challenges facing governments may differ from country to country, the underlying pressures remain remarkably consistent the world over. For many years, we have used our 4 forces framework to explain why demand for publicly controlled and privately operated partnerships continue to grow.

The first is growing costs. Governments around the world continue to face inflationary pressures and rising demand for public services. The second is voter intolerance of higher taxes. Citizens remain resistant to higher taxation with the tax burden in many parts of the world already at an all-time high.

Third, expectations keep rising. Whether it's in Defence, Justice & Immigration or Citizen Services, people increasingly expect services to become more responsive, more personalized and more digitally enabled. And finally, governments must continue to balance the public expenditure against competing priorities.

Collectively, these forces create intense pressure on governments to deliver more and better for less. So whatever the policy environment, decisions ultimately need to balance service quality, operational resilience and value for taxpayers.

Faced with these pressures, governments increasingly look for ways to access specialist capability, improve productivity and importantly, deliver better outcomes whilst retaining control of critical public services. In fact, the [Technical Difficulty] additional cost, reinforcing the importance of assessing delivery models on the basis of outcomes, efficiency and value for money.

Governments have long partnered with the private sector to help address exactly these kinds of challenges. At Serco, we bring operational expertise, innovation and global best practice to help customers improve productivity, manage risk and deliver better public services on their behalf. Importantly, this is about value rather than cost alone.

Independent research continues to demonstrate that publicly controlled services delivered by the private sector are often up to 15% more cost efficient [Technical Difficulty] that customers seek is why organizations like Serco remain well placed to support governments around the world. And when you combine that with our ability to develop, deploy innovation and technology at pace, it is clear why this delivery model will remain important over the long term.

So those structural drivers underpin a geographically diverse portfolio of ours spanning more than 20 countries and a total addressable market of over GBP 900 billion. We believe the demand created by those 4 forces will continue to grow over the long term, which is why we have been taking deliberate action to simplify our business and position Serco to capture those opportunities.

Our geographic footprint provides resilience. It gives us exposure to different governments, different spending priorities, different procurement cycles and a broad range of opportunities across our core sectors. Last year, we sharpened our focus of our sector structure, and we're taking that one step further by combining our Asia Pacific and Middle East operations under a single leadership structure.

This creates a stronger regional platform, expanding opportunities and strengthening our ability to serve our customers across both regions. It also allows us to bring the expertise, capabilities and lessons learned from the successful transformation of our Asia Pacific business to the Middle East while exporting agility, innovation and pace throughout the broader division. I really do believe that this will help accelerate growth across the region.

So to North America, the largest government services market in the world, our largest by profit contribution. Underlying demand for our services remains strong, although procurement delays have continued to affect some timing of awards. We continue to see significant opportunities across our key markets. This is reflected in our record pipeline of over GBP 8 billion, reinforcing our confidence in the region's long-term attractiveness.

We're now starting to see some early signs of procurement environments moving again, although we are mindful of the midterms approaching in November. But in recent weeks, we've seen a number of opportunities progress through the procurement process. We now have more than GBP 3 billion of awards submitted and awaiting adjudication, and several long-running protests have now been resolved.

So let me bring that and our growth pillar to life with an example. In June, we secured the Comprehensive Error Rate Testing, or CERT for short, contract with CMS. The contract extends the relationship with the Centers for Medicaid and Medicare services that builds on more than a decade of supporting the largest eligibility healthcare administration program in the world. Through CERT, Serco helps identify improper payments and tackles fraud, waste and abuse across a healthcare program that supports more than 70 million Americans and oversees more than $1 trillion of annual spending.

Importantly, this is not simply contract expansion. It builds on the technology-enabled capabilities we've developed over many years in our Citizen Services business, combining specialist medical expertise, artificial intelligence and intelligent document processing to improve both outcomes for citizens and efficiency for the government customer.

For me, this award is a good example of the direction we're taking the business. It demonstrates our ability to win and retain complex services, deepen long-term customer relationships and apply technology and domain expertise to solve increasingly important challenges for governments.

Turning to the U.K., our second largest market. The structural drivers that we've already discussed are particularly evident here, reinforcing the importance of productivity, innovation and getting more from every pound spent, areas where trusted partners like Serco can add real value.

Defence is a good example. Across the region, governments are increasing investment in national security and military readiness capability, whilst operating within constrained fiscal environments. Through the U.K. Defence Investment Plan, priorities are becoming increasingly clear with growing focus on personnel readiness, digital transformation, autonomy and next-generation capability. These are all areas where Serco has deep and strong international track records of delivery.

That's reflected in our performance with Defence revenues growing by around 30% in the region during the period, as Mark alluded to earlier, driven by operational excellence, and I'll bring that to life now.

We're currently mobilizing the Royal Navy's GBP 1 billion DMSNG program, delivering critical in-port services across the U.K., bringing 24 new vessels into service while maintaining operational readiness. Importantly, this is about managing complex defence operations and ensuring that the infrastructure is in place to enable frontline capability.

The trust our customers place in us is also reflected in the additional opportunities that we continue to secure. Earlier this year, we were awarded a new 7-year contract to support the British Army's fleet of more than 500 vessels, further strengthening our position in higher-value defence support services.

These awards also reinforce a broader point. As the geopolitical environment becomes more volatile and more threatening, governments continue to invest in national security and military capability. The demand for trusted partners that can help deliver those ambitions efficiently and with operational excellence remains strong.

Turning now to Asia Pacific and the Middle East. ASPAC is a market where we have a long and established track record of service delivery and trusted customer relationships. Demand remains strong across Justice and increasingly attractive in Defence. Partnerships such as AUKUS and the Five Eyes alliance continue to support investment in capability, infrastructure and long-term readiness. That's reflected in our recent expansion -- extension to continue improving health outcomes for more than 80,000 Australian Defence Force members and reservists.

In Justice, governments continue to face capacity pressures and increasing demand, creating opportunities for experienced providers like us. That's reflected in our performance during the first half, including the exceptional order intake of GBP 600 million, demonstrating the strength of the market.

Our longstanding presence, operational expertise and established customer relationships positions us well as governments address the challenges they face. Alongside this, we continue to see attractive opportunities emerging across the Middle East, and we're pleased, as Mark said, about our partnership with Mubadala continues to perform well, strengthening our position in that region.

For me, ASPAC is a good example of how the actions we have taken over recent years have made us a stronger and more competitive business. The performance we're delivering today looks very different to what we were delivering just a few years ago, and this can be seen in the justice sector in Australia, where we will now be operating 2 of the largest prisons in the Southern Hemisphere.

At full year, I shared our win of the Justice Transport Services contract in Australia and having recently visited the operation and met with both our colleagues and the customer, I'm really pleased that that contract has mobilized so successfully.

Momentum has continued in the first half, resulting in more than GBP 400 million of awards across the Justice business. For me, the wins at Acacia in Western Australia, Adelaide Remand Centre and now Christchurch Men's Prison in New Zealand are about much more than contract value. They demonstrate the strength of our customer relationships, the quality of our operational delivery and importantly, the actions that we've taken over recent years translating into improved results.

Across all our core markets, the structural drivers we've discussed today remain firmly in place. We've deliberately positioned Serco for success with leading positions in attractive government services markets across the geographies in which we're both proud and passionate to serve and operate. At the same time, we've simplified both our sector and divisional structures, creating a more focused, competitive and agile business to achieve our growth ambitions over the long term.

So with that, let me just leave you with a few key messages. We've had another good first half performance: revenue growth, profit and margin progression underpinned by strong cash generation. Importantly, that performance has not been driven by a single contract, market or initiative. It reflects the strength of the business that we have built and the quality of the execution across the group over many years.

We've also continued to make good progress against our strategic priorities of growth, competitiveness and operational excellence. Strong retention rates, a growing pipeline, a leaner, more efficient organization support our confidence against our 2026 guidance.

At the same time, our customers continue to face increasingly complex environments and growing demand. And as a result, the need for trusted partners like us that can deliver more and better for less remains. We stand ready to support them in that endeavor. And that gives me confidence in the opportunities ahead, confidence in our ability to continue to execute our strategy and confidence that Serco is well positioned to deliver safe, sustainable, long-term value for our customers, our colleagues and our shareholders.

So thank you very much for listening so intently. And Mark and I will now take some questions. So if you just say who you are, where you're from, a -- put your hand up a microphone should be with you.

It's David Brockton from Deutsche Numis.

I didn't say it was going to work, but I did say we'll come to you. Could we get that? I get that.

Yes. David Brockton from Deutsche Numis. Can I ask 2, please? I think it is working now. Firstly, in respect of the U.S. procurement cycle. Is your sense that we need to wait for the midterms to be out of the way before that market now fully opens up? I guess you gave sort of somewhat noncommittal response in terms of the recent levels of activity you're seeing there.

And then the second question, in respect to the buyback, should we infer from that that the -- there is a low likelihood that there's going to be any bolt-ons in the imminent future? And can you talk about what that pipeline does look like?

Shall I take the first one and you take the second one, okay? So in terms of the procurement environment in the U.S., we are seeing some decisions now starting to be made. There are a number of protest awaiting decision, which have now come through in terms of decisions. So CMS CERT, as an example, was protested. We've seen that move along.

I think we anticipate the procurement environment becoming slightly better as we move through the second half and into the first half of '27. But we are also mindful that the midterms are approaching in November. But we remain confident. I think what I would draw your attention to is where decisions are being made.

Our retention rates on current business are as strong as they've ever been and also our win rates on new business decisions are also keeping pace with where they've been over the last 3 years. So where decisions are being made, we're still fortunate enough to win our fair share of both new and retention businesses. And we will look to see what happens over the second half of the year.

The point I would just make is that we've got about GBP 3.5 billion -- GBP 3.2 billion actually of awards awaiting decision submitted. And the final point I would make is that our '26 guidance doesn't rely on the movement of the U.S. procurement framework.

Yes, David, thank you for the question. So maybe first of all, I'll start off with really great first half performance, right? Left the balance sheet in a great position. I think I often get this question in terms of our capital allocation strategy. I think it's very sound. I'm very pleased with it, and I think we've been very consistent with it. So we found ourselves in a very strong position first half. I think consistently, we thought it was the right thing to do to return the additional buyback.

That being said, we're still in a very strong position in terms of the free cash flow that we'll generate in the second half of the year. And so the balance sheet still gives us optionality, right? We still got capacity. In terms of where we are with M&A, I think Anthony and I are spending, I'd say, more time on that. We've put a bit more resource, specifically in some of the regions where we thought strategically that makes more sense.

And so we're working fast, but you know how these things are, right? It's a bit more art than science about when these things land. And so we'll see what -- and be assured, you'll be first to know when we've got something buttoned down. But we're working vigorously towards evaluating the right bolt-on acquisitions, and we've got a great balance sheet to help us out.

Chris Bamberry, Peel Hunt. A couple of questions. You mentioned that you expect to see an increase in the U.K. pipeline in the second half. Could you just give us a flavor of some of the opportunities that might come in then?

And secondly, you also talked about within the margin about the increasing complexity of some of the work you're doing. Is that primarily Defence? Or could you give us some examples of other areas as well?

Yes. So do you want to take the first one, and I'll take the second one?

Yes, sure. So I mean, I think, Chris, we've got -- we continue to see strong demand for our services, right? I think that's been clear. I think we've got some nice opportunities from Defence on the facility side primarily. And then equally on Justice, again, we've got some nice opportunities coming through in the U.K.

So again, we feel fantastic first half performance. We'll see that flow through to the second half on the U.K. And as I said, we expect to continue the strength in both Justice and Defence pipeline as we go into the second half of the year.

And then your second question, Chris, in terms of higher value services, if you look at the services that we're now delivering complex Defence services, support services, asset management and maintenance on vessels, the contract we had won with the Army for those 500 vessels, again, is moving us up the complex chain, which generally drives greater value.

In terms of the things that we see in the pipeline, they are weighted more to Defence. I think 60% of our pipeline is in Defence. And in North America, which represents 60% of the total group, 75%, 80% of that is also in Defence.

So we see higher value, more complex services, but also in things like our complex case management businesses in Citizen Services as well as our Electronic Monitoring contract in the U.K. and elsewhere around the world.

Arthur from Citi. First one for me. I just wondered what the environment was like now that Andy Burnham has taken over. So in terms of contract adjudications, is that all kind of going to plan? And within that, just kind of what's the government's ability to break U.K. migration and what's the new music coming out of that?

And then second question, obviously the margin in the U.K. over 6%. That's your sort of group upper end of guide. How much better do you think this could get in a sort of blue-sky scenario? And how much of it to do with sort of management action, how much to do with the business mix improving?

So let me take the U.K. political landscape and then Mark can take the margin question. So look, this is a new government with new Secretaries of State appointed. The point I would make rather robustly, Arthur, is that we've worked in the U.K. for over 60 years with many different parties of all political persuasions with different policy outcomes. We deliver complex mission-critical services. So we're not in the area of particularly security or cleaning without that being a wraparound other contracts. So first and foremost, we are operating critical mission important services.

But look, we're always aligned to helping the government customer of the day deliver their policy objectives. If you look at the announcement that was made only yesterday, actually, by the Cabinet office, which we were proud to support the increase in social value scoring in contracts, I'm really pleased about that because that's something that Serco holds dear in terms of our social impact that we have in the communities that we're proud to operate in.

Fundamentally, that moving up to 20% rather than 10% of the scoring criteria now, I welcome. We're doing very, very well in that under the current contracts. And as we move forward, our ability to showcase what we do to help socio-economic disadvantaged individuals into career paths, what we do with our work with veterans and reservists, what we do with people with experience of homelessness, et cetera, is something that we hold dear.

So overall, the structural drivers and the structural demand for our services remain. So look, like I say, we employ just under 30,000 people in the U.K. We're very proud of the work that we do, and we continue to expect to deliver those as we move forward.

On the U.K. margin, I think we're particularly pleased with that given there are various puts and takes in there, right? So I think we've highlighted the Royal Navy, good progress on that. Electronic Monitoring is one specifically where we've made some great progress. The team have really driven operational improvements, not only from a margin perspective, but also a customer outcome perspective. So that's very, very pleasing. I think, obviously, we've still got U.K. Immigration, which is -- will continue to be a headwind.

And then obviously, National Insurance in half 1 was a headwind, which will lap itself into half 2. So I think without predicting exactly the margin, I think those are the puts and takes, but we'll continue to see positive progress on Electronic Monitoring on the Royal Navy. National Insurance will drop off, and then we'll see how immigrations continue its progress into the second half.

Allen Wells from Jefferies. Maybe just kind of following on from Arthur's question on the margin to start with, obviously 6.2% at the half year, it's ahead of the 5% to 6%, kind of, range that you guys have talked about. When we think about the group margin and the building blocks from here, could you maybe kind of split out where the risks and opportunities? How much is kind of cost out at the group level? How much is contract-based opportunity? Maybe where some of the headwinds are on margins when you think about where sustainable margins start to sit? That's the first question.

And then secondly, on the U.K., the Justice side, obviously a lot of noise in the news over the past couple of weeks on early release. It would be just interesting on kind of the tagging contract that you have. You inherited a pretty tough situation. When you picked that contract up, you made great progress. But where are we in terms of capabilities and capacity, I guess, in that contract to accept those additional volumes?

And then finally, a very quick one, just on CMS in North America, the legacy contract there. Obviously, you talked about volumes coming back. Just the shape of that -- for our modeling purposes, the shape of that over the next few quarters would be really helpful.

Do you want to carry on the margin and I'll do...

Yes. Let me continue with margin because it's kind of very similar component part when you start talking about group. So I think, again, very happy. 6.2%, I think, is a decade high. So we're very pleased with that. The overall geographical mix is helping. So I think that's useful.

If I look at North America, again, very nice margin in the first half. So that's pleasing. Again, there's a real culture of continuing focus on driving in-contract profitability, and that's throughout the organization. So that will continue to be a tailwind where we execute positively there.

Defence and Justice in the U.K. will continue to -- in the second half and we continue to be supportive in terms of overall margin from a group perspective. And then you've got this Immigration effect. Again, we were slightly better from primarily a volumes perspective and mix perspective in the first half. That will continue to be a headwind as we go into the second half and then clearly into 2027. National Insurance, as I said, was a large chunky number in half 1. That starts to lap itself.

And then maybe finally on corporate costs, very pleased from a CFO seat, the performance in half 1 on corporate costs. We continue to have a very thorough thought process in terms of managing costs. We managed, again, across workforce optimization in terms of third-party spend. That plays out well. There will be some timing in the second half. So we shouldn't expect the costs to flow fully through into the second half because there's some IT -- small IT spend in the second half is just phasing.

But overall, I think, again, and I'm sure the question is going to come in terms of where does that look longer term. But I think the business is performing. We've got very nice headwinds in terms of -- sorry, very good tailwinds in terms of the geographical mix in terms of our Defence, in terms of pipeline makeup there. So there's some real nice structural elements of our business.

And clearly, but we've also got some headwinds in terms of Immigration. But we'll come back and let you know what we think about that in due course once we've probably got through my first budget, I'll have a better view of what that really looks like.

Thanks, Mark. Allen, just to answer your other 2 questions. So in terms of CMS, the phasing that we see moving forward is no different than the historical trends that we've seen. We don't give numbers at this point in the year. We've obviously got to go through the budgeting process. But H1 to H2, we're seeing those trends continue to be as we've seen historically.

In terms of the U.K. Justice and Electronic Monitoring, I reviewed this contract probably 10 days ago, and we were obviously talking about the government's need for the early release scheme to ease the capacity issues across the U.K. male estate. Fundamentally, we are monitoring at the moment record numbers of people in the community. I think we're up to about 28,000 people per day that we're monitoring.

We have the capacity, the resources and the capability to meet the government's demands as we move across the next couple of years. We expect those numbers, as the MOJ themselves have confirmed, to get into the mid-30,000s as we move over the coming years. I was in the contract a couple of weeks ago, actually, I spent a day out with the team fitting the tags to device wearers. And actually, I'm really proud of what we've done to get that contract to where it is.

Every KPI bar known is green and every KPI has been green for a significantly sustained period of time over the last couple of months. So I'm exceptionally proud of it. This is where we come into our own, where we stand up and we help customers deliver those critical services to help them solve a complex problem that they see in front of them.

It's James Rose from Barclays. I've got 2, please. First is on productivity. I think that's been a significant contributor to profits over the last few years. Mark, when you look across the group, how big a pool of opportunity do you think remains in that spectrum?

And then the second one is on how contracts may be changing over time. I think the U.S. is trying to push towards more fixed price contracts, U.K. sort of to be determined, but potentially they're more outcome-based. How would you sort of assess that framework in terms of the risks and potential opportunities for Serco?

You want to do the first one?

Yes, I'll take the first one. So I mean, as I stated in my notes, look, I think you'd probably expect me to say that first 6 months in. I think there's a real DNA of driving productivity improvements, right, across the contracts, across the regions. That is in the DNA of the company. I think the example you used in terms of Electronic Monitoring is just one of those examples.

And so if you take -- that practice is there, we're definitely going to focus -- continue to focus on that and take that good practice. If you look across our cost base, it's a significant number. So I think it's GBP 4 billion, GBP 4.5 billion. So there continues to be pools of spend to go against. And so you will expect me to continue to look at that and push to accelerate those benefits. So that's where I am at.

Thanks for the question. Look, I think what I would say is our current landscape of contracts in the U.S. is probably around 50% fixed priced already, so where we don't have a huge proportion of the business or it's weighted more favorably to cost plus. So we've got experience of operating in fixed price environment. And interestingly, that's generally how the rest of the world currently operates in terms of fixed price contracts. There's very few cost-plus around the rest of the world. So we have the skill and the capability within the organization to do that.

And actually, we see the opportunity to help the customer reduce their costs through fixed price contract is a good thing. And like I say, we've got some very good examples of where we've been able to help the customer reduce their overall costs, whilst we're also able to walk the margin up slightly in those fixed-priced contracts. So we're well versed in that area.

Alex Smith from Berenberg. Just 2 for me. Number one on MT&S kind of almost kind of fully integrated. One of kind of the objectives there was to kind of cross-sell and upsell that new capability into the U.S., but also into Europe. Kind of update on that in potential plans.

Number two, just on U.K. Immigration. You mentioned volumes slightly lower as you previously guided in July. But you're approaching the 2029 end of the contract. Just kind of discussions with the government, how that contract is looking. I guess that kind of rebid process begins to start into next year. So any color there would be great.

Yes. So in terms of MT&S, we're already starting now that's been very well integrated into the wider Serco portfolio. We're working with them on a number of opportunities, quite sizable opportunities, both within the U.S. and, Alex, to your point more broadly. So there's an opportunity in Canada that we would probably not have been able to bid for had we not have made the acquisition of MT&S. And also MT&S supported a recent win in Defence in New Zealand using some of that capability. So we're already starting to see some positive green shoots of being able to take that capability more globally.

In terms of Immigration, Mark can touch on the numbers. In terms of the 2029 contract, that's still the case. So the contract is up for renewal in '29. The customer previously come out and suggested one contractual mechanism for the future services from '29 onwards. That's changed ever so slightly now. So we expect to be able to be absolutely as a strategic partner to the home office bidding for that contract retention in 2029.

The shape of it may be slightly different to where it is today. But fundamentally, I think, the customer knows that having trusted partners like us where they're able to publicly control the contract or have it privately delivered is something where we think our skills and expertise will continue to be utilized by the Home Office.

Yes. And then on numbers, I mean, I think like you're saying, I think our customers are happy. We're supporting them come out of the hotel. So the hotel mix is down. Overall volumes is slightly down that we're around 40,000, but that's not huge. So the mix is moving more towards dispersed accommodation. In terms of overall financial effect of that, again, I think we talked about GBP 100 million headwind. That's not that size. It's probably more in the 60s at this point. So -- and then we still got the second half to go, but it's certainly trending at a slightly lower paced than what we had expected.

Jane Sparrow from JPMorgan. Just one going back to the Cabinet Office announcement. You talked about what it means from a relationship with government perspective. Could you also talk about what it means from a competitive environment perspective? Does that sort of 20% increase in social value and reducing or removing a lot of the other criteria sort of lower the barrier to entry for some smaller competitors?

Thanks for the question, Jane. I don't think it reduces the barrier to entry for other competitors. We work really well actually in our supply chain with SMEs. So we see this as an opportunity to work with more SMEs that can deliver some of those services where we think that others would be best placed under a prime relationship with us. But fundamentally, I don't see the barriers reducing.

Some of the things that will no longer be part of the scoring criteria, we may still choose to do as an organization anyway. So I don't think that that's going to be impactful. This is all about skills and job creation. And I think I made the point a previous session that around 90% of our population that work in our contracts come from within the locality. We've got some very strong track record, 630 apprentices. We have many people on master degree programs and apprenticeships that we have within the organization.

So this is about still delivering complex government services, but the focus of what the government wants out of those locally delivered services is slightly altered in the scoring mechanism. What I just hope that we can give confidence on is that we are very, very good at this already. So our passion and our determination to make sure that we deliver those socioeconomic advantages, both in skills and jobs locally, absolutely is going to remain at the core.

Any other questions from the room before we ask online? Somebody is hopefully going to appear from the speaker in a minute.

[Operator Instructions] It seems that we have no questions on the conference line. I will now hand over to the management for closing remarks.

Fantastic. Well, thank you all very, very much. And in the -- our continued pursuit of efficiency, we've managed to finish spot on the time. So that was very well done both from my colleague here and from the audience questions. So thank you all very much. We will be around for any other individual questions that you may wish to ask, but we wish you a very safe day and a good rest of your week. Thank you all.

Good morning, everyone, and thank you for joining us for the Presentation of Serco's 2025 Full Year Results. I'm Anthony Kirby. I'm the Group Chief Executive, and I'm extremely proud to lead what I believe is one of the best companies in the world. My more than 50,000 great colleagues deliver mission-critical services in some of the most demanding environments globally. And their commitment, skill and resilience continues to inspire us every day. Nigel Crossley, our Group CFO, and I are delighted to be able to present the strong set of results on their behalf.

But before we begin, it would be remiss of me not to recognize Nigel's outstanding contribution to Serco at this stage, more than 11 years of dedicated service as well as 5 as the Group Chief Financial Officer. And on behalf of the Board, the Executive Committee and all of his colleagues across Serco, I want to offer my sincere thanks and wish you, Nigel and Lorraine a very happy, long and safe retirement.

I'd also like to take this opportunity to introduce Mark Reid, who is with us in the room this morning, who will succeed Nigel as the Group CFO, joining the Board in the coming days.

But before we go on, I must refer you to the disclaimer, which is in the presentation pack.

As ever, the running order will start with me giving you an overview of our 2025 performance, the key themes that shape the year, the highlights and the progress that we've made and the momentum that we're carrying into 2026. I'll then hand over to Nigel, who will take you through the financials in more detail. And after that, I'll return to talk about how we're sharpening Serco's strategic focus and strengthening our platform for future delivery. We'll then open up for Q&A.

So let me begin with an overview of what has been a strong year for Serco. 2025 was a year that was defined by disciplined execution, strong operational delivery and continued strategic progress. Across the organization, be that in Defence, Justice & Immigration or Citizen Services, we delivered with professionalism, pride and purpose.

Our full year performance in 2025 has been strong and positions us well for '26. We delivered robust revenue and profit performance. And critically, we've done so while maintaining our focus on competitiveness, operational excellence and growth. You've heard me speak previously about our focus on safe, sustainable, profitable growth. That focus remains absolute and is clearly reflected in our results. Our deliberate multiyear investment in Defence expansion has proven effective. We've deepened our strategic intent, and it's a sector where our momentum is unmistakable. Alongside Defence, we have sharpened our attention on Justice & Immigration and Citizen Services, and I'll come back to talk about more in detail on those 3 sectors following Nigel.

But turning to the headlines for a moment. Revenue for the year was GBP 4.9 billion, up 3% at constant currency. Underlying operating profit was GBP 272 million, delivering a margin of 5.6%. Cash conversion was again exceptional, reflecting disciplined working capital management. And our order intake was GBP 5.5 billion, representing a book-to-bill of 114%, with more than 2/3 coming from our Defence business. This performance demonstrates the trust our customers place in us and reinforces the momentum that we carry into 2026.

We continue to drive progress across our 3 strategic mutually reinforcing pillars: growth; competitiveness; and operational excellence. Starting with growth, our new business win rate for the year was over 30%, reflecting disciplined bidding and a strong competitive position in our core markets. In particular, we secured around GBP 3.5 billion of defense contracts, underlining both the strength of our Defence platform and our ability to deliver complex mission-critical services. We also ended the year with a GBP 12.1 billion pipeline, the highest we've seen in a decade and which again reinforces the strength of the opportunities that we see ahead.

Turning to competitiveness. We've strengthened our delivery quality and our efficiency. Margin progression reflects that discipline as do the partnerships that we've secured such as with Mubadala in the Middle East. In Asia Pacific, our portfolio optimization and productivity performance, along with the disposal of our Hong Kong business has made the region sharper and more competitive, helping to grow margins year-on-year despite the end of the Australian immigration contract.

Under operational excellence, the rapid integration of MT&S has been a major achievement in 6 months. We've transferred almost 1,000 new colleagues into the organization, aligned systems, embedded common ways of working and begun to win new work together. MT&S has strengthened our Defence platform with deep simulation, mission training and satellite ground and network capability. Across the wider portfolio, our contract retention rate remains high at over 90%. At the same time, we're building a safer, more engaged organization with safety incidents reduced by 22% year-on-year.

Colleague engagement sustained at 70 points for the third consecutive year as well as continued colleague engagement. And these results reinforce the quality and dedication of our people. Supporting them, investing in their safety and well-being and ensuring that they have what they need to succeed remains a core business imperative. It's central to how we deliver for our customers and how we will retain more business.

This focus on our people, our culture and how we operate is also being recognized externally. During the year, our performance has been acknowledged by a range of independent organizations, but the standout for me was being named as Britain's Most Admired Companies. That recognition reflects, not just what we deliver, but how we deliver it, the strength of our leadership teams, our culture and the trust we build with our customers and the communities in which we work. Ultimately, it reinforces that we are building a business. Our colleagues are proud to work for, our customers are proud to partner with and our investors can have confidence in, grounded in strong performance and responsible delivery and doing the right thing always because it's always the right thing to do.

Our performance in '25 demonstrates consistent progress across key financial metrics. Over the last 5 years, we've delivered revenue CAGR of around 5% and profit CAGR of around 11%. Over the period, we've doubled earnings per share to 16.93p. And over the same 5-year period, we've also demonstrated disciplined capital allocation. Of the GBP 1 billion of cash generated, we've invested in targeted M&A and returned surplus cash to shareholders, again, as demonstrated this morning with the announcement of a further GBP 75 million share buyback. Not only does this reflect our approach to good capital allocation, but it also showcases the sustained progress that we've made over the last 5 years.

As a business, we are more increasingly predictable, more competitive and well positioned to convert opportunities into sustainable long-term growth over the years ahead.

And with that overview, I'll now hand over to Nigel.

Thank you, Anthony, and good morning to everybody. Let me take you through the financial -- sorry, let me take you through the performance for 2025, a year in which the group has demonstrated strong momentum despite a number of anticipated headwinds. Revenue increased to GBP 4.9 billion, up 3% on a constant currency basis, reflecting good underlying performance and the benefit of the MT&S acquisition. Organic revenue growth was up 1%, in line with where we guided the market. And it's been led by double-digit organic growth in Defence, partially offset by a reduction in U.K. and Europe and Australia immigration revenues.

Underlying operating profit was GBP 272 million, which is up 1% on a constant currency basis. The margin of 5.6% remains in the middle of our target range of 5% to 6% and reflects execution discipline and productivity improvements, offsetting the Australian immigration contract exit and higher national insurance costs in the U.K.

And return on invested capital continues to be strong at 26%. It's worth remembering that the significant part of invested capital relates to goodwill and acquisition intangibles. And we run the business using just GBP 0.1 billion of operational invested capital, which emphasizes the capital-light nature of our business model.

And I'll now move on and provide more color on the operational performance for each of the regions. So starting with North America, who delivered another strong performance and continues to be an important contributor to the group's growth targets. Revenue increased by 10% to GBP 1.46 billion, driven by 4% organic growth and a 9% contribution from the MT&S acquisition, partially offset by a 3% adverse currency movement. Organic growth was led by defense, where significant order intake achieved in 2024 is flowing through to this year's revenue. We saw higher activity across defense personnel services, mission training and increased demand for IT network and infrastructure services for the U.S. Navy.

Underlying operating profit increased 5% to GBP 144 million, including a 3% negative impact from the weaker dollar. The margin stayed around 10% despite the impact of mobilization of new defense contracts and the one-off MT&S transaction integration costs of GBP 6 million. These costs were anticipated and as the contracts mature, margins will recover, supported by increased efficiency and portfolio mix.

Order intake was GBP 1.4 billion, of which 90% was from defense, which is a robust outcome after the exceptional order intake in the second half of 2024 and the temporary delay in contract awards caused by DOGE and the U.S. government shutdown.

Win rates remained healthy, 37% of new business, reflecting our customer relationships and competitive positioning. Our rebid win rate was a bit lower than normal due to the loss of a low-margin air traffic control contract. The pipeline in North America has more than doubled to GBP 5 billion. And once again, defense continues to represent the majority of the pipeline of new business opportunities. Integration of MT&S has been successful and is delivering early benefits. In the first 7 months of ownership, it contributed GBP 9 million of operating profit after absorbing transaction integration costs. The strategic fit is proving to be exactly as expected, expanding our defense footprint by deepening customer access and enhancing our mission training and satellite communication capabilities.

So moving on to U.K. and Europe, our largest division, which delivered another strong performance. Revenue increased 6% to GBP 2.58 billion, driven by 5% organic growth and a further 1% contribution from the acquisition of EHC, our German immigration services business. Organic growth was supported by the mobilization and ramp-up of several major Defence and Citizen Services contracts, including Armed Forces Recruitment, marine services for the Royal Navy, continued progress on electronic monitoring and some complex case management contracts. As expected, we have seen lower revenues in our Immigration business from harder borders in Europe and the ongoing shift in accommodation mix in the U.K. although revenues in the U.K. have not reduced the rate we expected at the start of 2025.

Underlying operating profit was GBP 149 million, flat on last year, and margins remained healthy at 5.8%. While there were anticipated headwinds from Immigration and higher U.K. national insurance costs, these were offset by improved contract performance elsewhere in the division, including stronger contributions from Citizen Services and Defence.

Order intake was excellent at GBP 3.7 billion, delivering a book-to-bill ratio of 145%. Win rates were also very strong, winning 60% of new business bids and 97% of rebids. The wins included several strategically important long-term awards, particularly in Defence, which accounted for 60% of the order intake.

Finally, the U.K. have done a good job of not just winning new business, but also rebuilding the pipeline back to similar levels to what we saw at the end of the year at GBP 5.8 billion -- end of last year, sorry, at GBP 5.8 billion. The pipeline includes a broad range of opportunities across Defence, Justice & Immigration and Citizen Services.

So turning to Asia Pacific, where the division delivered a resilient performance with good cost control, improving contract performance and some early progress on growth. This resulted in an improved margin despite the expected reduction in revenue following last year's Australian immigration contract exit.

Revenue for the year was GBP 655 million, down 18%, recognizing the 12% organic decline associated primarily with immigration contract exit and the disposal of our Hong Kong business and some adverse currency movements of 5%.

Underlying operating profit was GBP 24 million, up 3% on a constant currency basis. The margin increased to 3.7%, up about 60 basis points. And the improvement demonstrates the effectiveness of disciplined cost control to rightsize the organization and improved operational performance.

We also delivered some important new business wins across the region. Notably, we secured a 6-year contract for Justice Transport Services in Victoria. Rebid win rates were strong at 91% and Defence performed particularly well with key extensions, including the Royal Australian Navy's warfare training contract. There were also some important rebid and extension wins in Citizen Services. And looking ahead to 2026, we have a good pipeline of both new business opportunities and rebids and extensions of existing work across Defence, Justice and Citizen Services. There's still work to do during 2026 to further build the APAC pipeline, but we're encouraged by the progress made in 2025.

And turning now to the Middle East, where we have restructured the business in Abu Dhabi by entering into a strategic partnership with the sovereign wealth fund, Mubadala. This involves transitioning facilities management contracts into the new joint venture and combine Serco's capability and Mubadala's network in the Middle East to expand access to large, high-quality opportunities across the UAE. Whilst it's still early, we are encouraged by the breadth and scale of opportunities we are seeing.

Revenue for the year was GBP 177 million, a reduction of 18%, driven by 12% organic decline, a 4% drop from accounting impact of Mubadala partnership and a 2% adverse currency. The organic revenue reduction primarily resulted from the conclusion in 2024 of our low-margin air navigation services contract in Dubai and lower variable project work compared with the prior year.

Underlying operating profit decreased to GBP 13 million from reduced organic revenue with margin decline to 7.1%. We continue to focus on operational efficiencies, disciplined bidding and improving the commercial resilience of the region.

During the year, order intake was GBP 150 million, and we've rebuilt a GBP 0.5 billion pipeline of new business opportunities.

So now let me move on to cash and cash generation in 2025 was again strong with cash flow of GBP 219 million, representing trading cash conversion of 112%. And this maintains our track record since 2019 of averaging over 100% of profit converting into cash. And the result reflects the disciplined approach we take to timely and accurately billing to our customers, enabling them to pay us promptly. Our 2025 cash flows also benefit from a higher-than-usual level of mobilization activity and the associated deferred revenue.

Adjusted net debt increased to GBP 206 million from the GBP 100 million at the end of last year. This increase reflects the GBP 245 million acquisition of MT&S, along with capital we've allocated to buybacks and dividends, partially offsetting the strong cash flow.

The group continues to maintain a very strong financial position with year-end leverage of 0.7x EBITDA, below our target range of 1 to 2x.

So on that, let me turn to capital allocation, which is in the context of strong cash generation, capital-light business model and the maintenance of a strong financial position. Our #1 priority continues to be to invest in organic growth. We further strengthened our business development capabilities and our operational delivery platform and mobilized major new contracts across Defence, Citizen Services and Justice & Immigration. These investments contributed to our record GBP 12.1 billion pipeline and strong order intake for the year.

Reflecting our confidence in the group's financial position and outlook, today, we are recommending a full year dividend of 4.5p per share, an 8% increase on last year.

And our third priority is M&A. This year, we saw the successful completion and integration of the MT&S acquisition, and we continue to assess additional strategic bolt-on M&A opportunities where they enhance our capability, expand our customer access and strengthen our competitive position.

And finally, where we have surplus capital, we commit to return this to shareholders promptly. We completed a GBP 50 million share buyback in the second half of 2025 and today announced a GBP 75 million buyback to be executed in the first half of 2026. Inclusive of this newly announced buyback, Serco will have returned in total around GBP 650 million to shareholders through buybacks and dividends since 2021, demonstrating our commitment to disciplined capital returns when our balance sheet strength allows.

So let me finish off with our updated guidance for 2026, which is largely unchanged from our pre-close statement. We expect revenue to be around GBP 5 billion for 2026, resulting in organic growth of 3%. The increase in revenue reflects a full year contribution from MT&S, ramp-ups of major contracts and the impacts of new businesses won in late 2024 and throughout 2025. These upsides offset the expected reductions in the immigration activity in both U.K. and Australia, which we expect to account for around a 3% organic headwind.

We expect underlying operating profit of around GBP 300 million, over 10% higher than this year. This includes the continued positive impact of MT&S, productivity improvements across the group and the full year effect of multiple contract ramp-ups transitioning into steady-state operations. This result in a margin of around 6%, placing us at the top end of our medium-term target range.

And net finance costs are expected to increase to around GBP 52 million, reflecting the annualized impact of interest on the new debt issued to fund the MT&S acquisition and the cost of the new GBP 75 million share buyback.

We expect free cash flow of around GBP 160 million, which is unchanged from our pre-close statement and remains consistent with our medium-term ambition to convert at least 80% of our profit into cash.

And finally, adjusted net debt is expected to finish 2026 at GBP 165 million, which is slightly different to the initial pre-close guidance of GBP 150 million and reflects the new GBP 75 million buyback, offset by the better-than-expected closing net debt position at the end of 2025.

And with that, I'll hand back to Anthony.

Nigel, thank you. Let me now turn back to the strategic and operational progress that we've made during the year and the opportunities that we see ahead. As you know, '25 has been a year where we've taken a much more deliberate approach to the areas where we see the greatest opportunity. We've refined our strategic direction to prioritize the geographies and sectors where Serco can deliver the most value, achieve the best growth and where our capabilities are strongest.

The underlying demand for the essential services that we deliver remains remarkably robust at a time where external environments can often feel volatile. Across all of our geographies, we continue to see strong structural drivers that reinforce the need for trusted partners like Serco. In North America, budget in the sectors in which we operate continue to grow. We've remained resilient but not complacent through the changes in administration priorities, including the impact of the U.S. shutdowns. However, some short-term slowness in the system could persist into the first half of '26. But to remind you, we have more than doubled our pipeline in the U.S. to more than GBP 5 billion this year.

In the U.K. and Europe, financial pressures remain acute, but demand drivers will endure, including rising Defence spending and sustained pressure on the asylum and migration systems, which reinforce our view of the long-term demand drivers.

In the Middle East, modernization plans are creating new opportunities as well as likely increases in defense capability and security protections. And in Asia Pacific, encompassing the Indo-Pacific region, defense and infrastructure needs remain significant, albeit balanced against tighter budget conditions. But these dynamics point to an addressable market of over GBP 900 billion. Whatever the precise figure is, it is a large and growing market with clear opportunity for us to increase our share over the years ahead.

In Defence, investment pledges remain substantial. The U.S. has proposed a defense budget of over $1 trillion. The U.K. has committed to 3.5% of GDP and European nations continue long-term multiyear rearmament and capability improvement programs.

In Immigration, volumes may fluctuate, as Nigel has just alluded to, but long-term global pressures, conflicts, geopolitical uncertainty, climate-related displacement and economic instability continue to drive underlying demand.

And in Citizen Services, technology is driving efficiency, yet the services that we deliver still depend on people, which means our exposure to displacement from automation is limited more than you might expect.

Instead of eradicating our work, technology gives us an opportunity to enhance our offering further, making our services more efficient and improving the services to the citizens who depend and rely on them.

And finally, to labor the point in this context, our role is to deliver critical mission public services. It helps shield us from sudden political policy reversals. Even during dynamic shifts in government policy or legislation changes, our operational roles remain essential for the delivery of critical services. So while the headlines may suggest rapid change, the reality is demand for what we do is anchored in long-term structural demand.

So when you look across our international platform, the picture is clear. I said that we needed to become more focused on the areas with the greatest opportunities, being more selective and deliberate about the capabilities that we're developing and clearer about the geographies and sectors where those capabilities can best be deployed.

North America, the U.K. and Europe remain our most addressable and scalable markets. The U.S. federal government is the largest buyer of goods and services in the markets in which we operate in the world. In the U.K. and Europe, governments face sustained financial pressure and are looking for partners who can deliver better outcomes more efficiently. And whilst those markets do offer us the greatest growth potential, that does not mean that we don't value our presence in Asia Pacific or the Middle East. We absolutely do, and we expect both of those regions to grow over the coming years. But we will be disciplined about where we deploy our capital and focus our growth attention.

Across the group, we're therefore doubling down on the sectors where structural demand is the greatest and where our capabilities, track record and recent progress positions us well for sustainable growth. Our enhanced Defence platform, our deep operational expertise in Justice & Immigration and our breadth of services across the Citizen Services portfolio gives us a greater level of differentiation.

Over the past year, we focused the organization on removing some inefficiencies, reducing complexity where we can and sharpening our ways of working. This has laid the foundations to make us more agile, more focused and more competitive for the years ahead.

I also said we needed to make more progress in systemizing the sharing of best practice across the group, enabling us to leverage capability, learning and execution at scale, and I'll touch on some of the examples of those shortly. But at its core, Serco delivers mission-critical services where outcomes matter most, deploying people, technology and partners to perform at scale.

So I'm now just going to touch on 3 of those growth sectors. So turning to Defence, the area where we see our greatest long-term opportunity. Defence now accounts for around 40% of the group's total revenue, inclusive of our joint venture operations. We're deeply embedded in the armed forces of the U.K., the U.S. and Australia. And we deliver critical services in the Middle East for the Australian Defence Force and provide essential training in New Zealand and Canada. We also deliver naval capability in Europe, including the maintenance of the minehunter vessels in Belgium.

We bring over 60 years of proven delivery supported by increasing technological capability to Defence. In fact, that journey began at RAF Fylingdales where today, we operate and maintain the U.K. early warning radar, a critical part of both the U.K. and U.S. missile detection system. Our teams provide 24/7 uninterrupted support to this national security asset, demonstrating the depth and experience of Serco's expertise and long-standing credibility. And we're also working in Greenland, modernizing and maintaining assets for the U.S. Space Force. And we're active across all Five Eyes nations and throughout several NATO countries where Defence spending continues to rise with 24 members of NATO now exceeding or meeting the 2% of GDP spend targets.

So whether it's training, personnel readiness, platform modernization or future-focused autonomous capabilities such as our USX-1 Defiant vessel, Serco is a critical partner to governments as they deliver on their national security ambitions.

So a core differentiator for Serco is our ability to support the full life cycle of personnel services for the military from recruitment, to health, fitness and readiness to training, housing and family support through to veterans transitions. In the U.K., we're the prime contractor for the Armed Forces Recruitment program. The program brings together a set of best-in-class partners under a single Serco delivery model, and it's a flagship example of where our capability in program management, governance, stakeholder engagement and operational delivery truly differentiates us.

In the United States, we continue to deliver the Army's Holistic Health and Fitness program, H2F. Mobilize last year is the largest human optimization and soldier readiness program ever fielded at scale.

In Australia, we train the ADF Maritime Officers in a simulated environment at HMAS Watson's Bay, leveraging our MT&S capability alongside the established expertise of our broader defense teams. And through our joint venture, VIVO, we maintain 27,000 military family homes and more than 20,000 defense buildings across the U.K., a vital part of the personnel experience and family ecosystems of the military. All of this reflects, I believe, the strength of our personnel services platform that we've built, a platform that is increasingly cross geography, increasingly tech-enabled and increasingly central to the defense strategies of our customers around the world. And this platform of capability allows us to take our end-to-end offering to customers internationally.

Turning now to Justice & Immigration, a sector where Serco brings deep operational expertise and a scale of delivery that is critical to government in the U.K., Europe, Australia and New Zealand. Across the countries where we do operate our Immigration business, we support and accommodate over 100,000 asylum seekers and refugees, reflecting the breadth of complexity of demand in which we help governments manage. That demand is driven by long-term global pressures, sustained migration flows, rising complexity in case management and the need for safe, high-quality and efficiently run detention facilities. While policy decisions can cause short-term fluctuations in migration volumes, the underlying demand signals remain strong. Border crossings remain a challenge and governments need agile, experienced operators as they seek innovation across both immigration and justice services.

Our position across the criminal justice system is equally strong. Our unique role gives us a comprehensive understanding of the current and future likely challenges. This year, we operationalized additional prison capacity in the U.K., helping to alleviate pressures across the custodial estate. We also now monitor 28,000 individuals in the community on behalf of the Ministry of Justice in the U.K., which is a scheme that has proven to reduce reoffending by around 20%. So in a sector where trust and safety and performance matter profoundly, our operational track record positions us well.

One of Serco's real strengths is our ability to operate an international platform of best practice, taking what works well in one part of the world and applying it elsewhere to lift performance, efficiency and outcomes across our global operations. A good example of our -- a good example of this is our prisoner escorting contract by moving expertise from the U.K. to help our colleagues in AsPac win the Justice Transport Services contract in Victoria, Australia, demonstrating how our capabilities can be deployed internationally.

More broadly, our end-to-end role across justice from courts and secure transport to custody and prison management to electronic monitoring in the community gives us a system-wide insight that a few other providers can match. That perspective enables us to transfer proven operating models across geographies with confidence. The same platform approach applies in Immigration.

Across Europe and the U.K., our teams have built deep capability in complex case management, safeguarding vulnerable people and running high-performing detention facilities. These learnings now shape how we design and deliver services globally, creating the consistency that customers expect across borders. The platform approach combines people, processes and technology developed in one geography, strengthened with lessons from another and deployed wherever needed, giving us the scale and assurance our government customers rely on to evolve their systems of management.

Moving on to Citizen Services. Demand is often driven by budget pressures, the need to modernize infrastructure, digital integration and rising public expectations. Delivering services directly to the citizens remains an important part of our strategy. Its breadth gives us the agility to respond to shifting government investment priorities and to direct our capability towards the areas of greatest demand. Across this sector, we deliver directly services that touch millions of people's lives every day. We support people navigating complex welfare and employment systems, helping long-term unemployed individuals back into work.

We also run high assurance citizen operations, including helping people access much needed health insurance in the United States, delivering essential services with speed, accuracy and compassion. So while Citizen Services can be considered to be broad by nature, I consider that, that breadth and diversity is a strength. It enables us to adapt quickly, respond to evolving customer needs and bring our capabilities to the areas where we can add the greatest value.

As we look across the Citizen Services portfolio, the defining strength of our ability is to blend delivered impact with technology-enabled efficiency. In North America, our work for the Centers for Medicaid and Medicare Services shows what this looks like at scale. For more than a decade, we've operated that business, and we've now deployed advanced automation and digital tooling to improve the quality and speed of the essential services, managing around 10 million customer notices a year, embedding AI technologies and completing complex case management 3x faster with compound efficiency of more than 500%. And in the U.K., we're applying the same innovation and those services that we depend on to help people through the Restart program.

That employment program, we've piloted our technology to equip job coaches with new AI-enabled case management tools. It's reduced administration time by around 75%, improved case note quality by nearly 20% and most importantly, allowed our people to provide human-centered support to help the people back into sustainable employment. That combination of people who deliver with care, expertise, which is coupled with technology that accelerates important and impactful outcomes is what makes our model distinctive. It's how we help governments deliver better outcomes at lower cost and how we will continue to transform essential public services that millions of citizens depend on.

So bringing that together, the market dynamics across our sectors remain compelling. Structural demand is intensifying, driven by geopolitics and Defence postures, fiscal pressures and the need for innovation, and those forces show no sign of easing. Against that backdrop, Serco's platform is well aligned to our customers' priorities. On the whole, we operate at scale in mission-critical services that governments rely on, which provides resilience and underpins long-term opportunity. We've sharpened our focus on the geographies and sectors where demand is strongest and where our capabilities are most differentiated. And that gives me confidence that Serco is well positioned to capture the growth opportunities in the years ahead.

So to conclude, let me just reiterate my key messages. Our 2025 performance was strong and leaves us well positioned to deliver against our '26 guidance. We're advancing the organization to achieve our goals and doing so with the same rigor that has underpinned our success over the past 5 years. That discipline across growth, competitiveness and operational excellence is what will continue to drive our performance in '26 and beyond.

We're prioritizing our investment in key growth markets and doubling down on the sectors where our differentiated capabilities and technical depth align with the strong structural drivers. So we're advancing the systems and leadership needed to scale our business for success, building a stronger executive team and aligning our leaders around a growth and performance culture. This gives me confidence in our ability to maintain well-governed momentum, confidence that we are well placed as ever to seize on the opportunities ahead and confident that Serco will deliver as an agile, well-governed business able to course correct when needed and to deploy the best talent to drive better outcomes for our customers, our colleagues and our shareholders.

And I think we'll now move to Q&A.

Arthur, do you want to go first?

Arthur Truslove from Citi. So 3 for me, if I may. So the first one, are you able to just talk about the notable contract implementation costs? So what were the sort of big ones in '25 versus '24? And then what are you expecting in '26 to just sort of get a feel for what the impact of that will be going forward and indeed last year?

Second question on competition. So I just wondered sort of how the competitive landscape, particularly in the U.K. is evolving, especially in the context of better margins? And if you could sort of comment on how that's evolved in the last few years as well, that would also be interesting.

And then finally, on U.K. migration, I guess, migration more broadly. I guess my question really is, we've all seen these sort of large centers being suggested. What do you -- how do you think the model potentially evolves? I know it's a difficult question in terms of what happens with migration and kind of what are the sort of best and worst case scenarios for you?

Arthur, thanks for the message. Nigel, do you want to take the cost of mobilization?

Yes.

Shall I start with the competitive landscape?

Yes.

Yes. So in the U.K., we haven't really seen that much of a change in the competitive landscape, probably over a number of years actually. I think the competitive landscape has remained pretty stagnant. I think we've -- typically, when we're -- depending upon what it is, we are bidding in the sector we're bidding in, we typically bid between 5 and 6 competitors dependent upon what the services are that are being procured. So we've not really seen any significant change in that space.

In terms of migration, let me take the conversation more broadly first, which is, migration flow is likely to continue to exacerbate. I've run through the reasons why we think those structural drivers will endure. In terms of your specific point on the U.K., look, we stand really clear side-by-side with the customer. When they ask us to provide good quality, innovative solutions, we -- it's our job to provide those solutions to them. So medium and large sites, we're working with the customer. It's the customer that decides where those medium and large sites are. Our job is to make sure that we can stand those facilities up once the customer has procured them. But I will just make the point again that we've made previously. There is a priority to come out of hotels where our hotels were 50 -- just over 50% less now than where they were 12 to 18 months ago. So this is a program that we have been working with the customer on to achieve their priority.

And then on the contract mobilization costs, we've obviously had a busy year because we've had some big wins. Most of those costs are probably in the U.K. And we've seen probably a protracted mobilization on the electronic monitoring for various reasons. We know that we've got the Armed Forces Recruitment contract that we started earlier this year. So those are the kind of things that are probably higher than we'd ordinarily expect to see, maybe to the tune of about GBP 20 million in the year.

I think what we'll do is, we'll start with David and then we'll go right across that row where all of the questions.

It's David Brockton from Deutsche Bank. Can I just ask 2 just around pipeline, 1 contract pipeline and 2 acquisition pipeline. Within that contract pipeline, are there any opportunities we should be aware of that are capped in terms of size? So any bigger ones in there? And if you could just talk about how you see that evolving over the course of the year as well?

And then secondly, in respect to the acquisition pipeline, can you just give us an update on how that looks given that you've -- I guess, you've only committed to a buyback for H1, so clearly keeping some powder dry there.

Yes. Shall I do acquisitions, Nigel, you do the pipeline? So in terms of acquisitions, we're in a really strong position where we have the optionality that when we look at opportunities that present themselves or we go looking for. We're in a strong financial position from a balance sheet perspective to be able to execute and pull that key part of our capital allocation policy. I'm obviously not going to go into detail in terms of things that we're looking at, at the moment. But it is a liquid market, particularly in the growth sectors that we are looking to grow and in the regions that we're looking to expand our businesses in. And I think we've said previously, the U.S., Europe and the U.K. remain at the top of that list. But that doesn't mean that we preclude anything in other parts of the world as well.

So there are some things in the pipeline that we're looking at. It's clear that we've said in the stock exchange announcement that we'll review the capital allocation policy at the half year again. But I think our track record of returning surplus cash to shareholders if we've got no M&A in the pipeline -- in the foreseeable pipeline is something that we will continue to do as we move forward.

Yes. And then on the pipeline, look, we've got a good mix of new opportunities across our pipeline. And we've got a couple that are at the top end of our range of up to GBP 1 billion where we cap them. One is a training contract in North America, actually in Canada. And the other one is a logistics contract for the U.K. MOD, which we are potentially looking at. Those are both not going to start until -- for some time yet. They're a bit further out.

And then there's a big -- over half of our contract -- over half the pipeline is on contracts that are less than GBP 300 million. So there's a good spread of cover across all the sectors and of various sizes.

Chris Bamberry, Peel Hunt. Three questions, if I may. You're obviously sharpening the focus on Defence, Justice & Immigration and Citizen Services. What does that mean for health and transport?

Secondly, can you talk a little bit more now you're 9 months into MT&S, the positives and the negatives against your original expectations? In particular, can you give us any concrete examples on synergies on the pipeline?

And the final one, when you talked about -- Nigel, about the margin in North America, I mean, parking integration being absent this year, you said that the margin would improve as contracts mature. I guess given the profile of your stuff you're winning, is that more kind of -- is there going to be see much of that in '26 or is it more kind of '27 or further out? So if you keep winning stuff, is it -- is that kind of portfolio effect kind of dilutes that benefit?

Do you want to do the last one first?

Well, I'll do the first. So on margin in North America, yes, you're right, there's GBP 6 million of integration costs. So that's not 40, 50 basis points of the margin. So that gets you back over 10%. When we look at what we're bidding, there's a range of what we're bidding actually. So there's some stuff that's cost plus that tends to be slightly lower margin. There's some stuff at the higher end, which is fixed price and above our average. So I think over time, we'll see broadly -- our profile broadly stays similar. I think we'll get more economies of scale as we continue to grow. And certainly, when we bring -- we brought MT&S on, we've got economies of scale in our fixed costs there as well. So we're leveraging our fixed costs well. I think all those things will contribute to at least keep that margin at 10%.

Thanks, Nigel. So if I just pick up, Chris, your point on Health and Transport. So Health and Transport fall under Citizen Services, particularly because we're delivering services directly to the citizen. We're not actively growing in our Transport business in the majority of the world. We will retain and rebid our contracts that we currently operate in Transport. We think we operate some really good transport businesses, be that our joint venture with Merseyrail or NorthLink Ferries up in the Highlands and the Islands and also some transport businesses in the Middle East and the U.S., but they're quite small.

And then in health, our health FM, which is a soft and hard FM business in -- predominantly in the U.K., we're looking at FM across our horizontals where we deliver FM services. So if an opportunity presents itself for us to go and bid, we will, but we're not actively deploying our growth capital into those lower margin area businesses.

In terms of MT&S, I think we said at the outset, we wanted them to concentrate on the business that they had in their current pipeline that they brought across with them at the time of the acquisition. And then we looked at the second area of the pipeline, which is where can we bring MT&S' capability and our North America capability together in order to go and win and retain contracts with the benefits of both organizations combined. And then we talked about what we call our Horizon 3 pipeline, which is the international opportunities that MT&S and the wider Serco organization can bid collectively on.

In the U.S., we've started to win some new business that was in the pipeline in MT&S, some small deals. The team are just rescrubbing the pipeline for the North America business, and we'll look to move internationally as we get further down the line this year.

So Alex Smith from Berenberg. Just 2 from me. Just one more -- first on the U.S. market following kind of the slowdown or pause late last year and kind of how you're seeing activity kind of restart? Or kind of is there a lag effect of starting again following that kind of like pause or slowdown in activity?

And then second is just on the APAC business. You kind of mentioned some potential cost savings, but also some new contracts coming through. I guess it's still early days post Australian immigration contract, but any update here on outlook for that business would be helpful.

Shall I do the U.S. and you do Asia Pacific?

Yes.

Okay. So in the U.S. again, drawing attention to, we've doubled the size of our pipeline. We had some significant wins towards the end of 2024. Our win rate at the end of the second half of '24 was very good in the U.S. So we had to replenish the pipeline. We've done that. It's now twice the size it was.

In the U.S., in terms of the shutdown, there's been limited impact. We haven't actually seen too much of an impact in the second half of '25 other than some decisions are slightly slower to be made. There's no degradation in what's coming to market. There's no degradation around the timing at which opportunities are being presented to the market.

What is slowing slightly in the system, which all of our U.S. peers have said as well, is the decision -- the amount of people making the decisions is less now because of what -- because of the impact of DOGE and the reduction in the federal government employee numbers. So fundamentally, there are just fewer people making the same amount of decisions, but we're not seeing the number of decisions being reduced. And we probably expect that to continue for a little bit into '26, just as people get back to work and feet under the table.

And then in Asia Pacific, I mean, I largely said this in my presentation, but we set an objective to rightsize the infrastructure of the organization. We've made really good progress on that over the last 2 years. And I think that is under review, but is largely done, but ongoing under review. There's some contracts that were underperforming. We have made progress on those. I think there's still a bit further to go. But the big one is really growth. And we know that the lead time in this business between finding an opportunity, bidding it, winning it, mobilizing it and making it profitable is long, and we have to hold our patience on that. But we do feel encouraged by some of the progress we've made this year.

Our rebid win rate has been strong this year. We've won some stuff. And we feel quite good about some stuff that's coming up in the first half of this year. So there's early signs, but not yet done. I think there's more work to be done. And I think it's really getting that business back to the scale that we need it to be and the margin needs to be -- needs a little bit of patience to win those new pieces of business, but an encouraging start, I would say.

It's Michael Donnelly from Investec. Just one for me, Anthony. We've spoken in the past about the revenue profile of the U.S. naval contracts and that there are some, I think, transactional revenues in there that are dependent on the fleet being in harbor or base ported. If the U.S. fleet is in for a potentially very extended period of operational deployment, can you, first of all, tell us how much of the $1 billion of North American defense revenues would conform to that revenue profile? And then what, if any, offsetting revenue items there might be as a result of such an extended deployment?

Okay. Can I just take the strategic part of your question and Nigel might be able to give you the detail on the specifics. We do generally operate in one part of our Defence business in ship modernization, maintenance, asset engineering, refitting of navigation systems, radars, et cetera. That is generally done in port in the U.S. However, we also operate on behalf of the U.S. military in other parts of the world where their ships are in port, where we see that they have agreements with other countries where asset and engineering activity can take place outside of the U.S. And we also have a number of cleared individuals that can undertake that work in different parts of the world, which run into the hundreds of employees, not into the tens. So if there is a requirement for us to undertake more work outside of the U.S. ports, then we've got experience of doing that, and we're currently doing that at the moment. And if we need to we will continue to grow that.

Ironically, 2025 was one of our best years for that kind of transactional task order work is what we call it around ship modernization. So we've seen good momentum there. We continue to have stuff that we're bidding and is live and we're waiting for decisions on. So I think it's too early for us to call.

Where does it sit in our portfolio? It is of a reasonable size, but it's less than GBP 100 million. And it is cost-plus short-term, cost-plus work, so it's margin tends to be at the lower end. So from a delivering financial targets, I'm probably less worried about that. And it's always something that we've had a little bit of variability in as you look over each of the years. Jane?

Jane Sparrow from JPMorgan. Just a couple of follow-ups on the electronic monitoring and Armed Forces Recruitment contracts in the U.K. On the first one, you said you'd have the extended mobilization period. Can you talk about if that contract is now where you want it to be following that extended period, where it is relative to your original expectations? And on Armed Forces Recruitment, how that is ramping up, if there's sort of been any either pleasant or unpleasant surprises as you've started to mobilize it?

Okay. Well, thanks very much for the question. Shall I lead off and then Nigel can help with any of the finances on electronic monitoring? So electronic monitoring operationally is in a very strong place. Our KPIs for a number of consecutive periods now have been above where our expectations were and where our customers' expectations were in terms of the performance of that contract. We now have -- it's around 1,000 people working on electronic monitoring. They do a superb job every day of the week, making sure that we can work with the customer to monitor the 28,000 people that I said we've currently got in trade.

You will have seen the changes in sentence and legislation may mean that more people will be monitored in the community, which the government have previously communicated. We stand ready to be able to stand up to meet those changes in volumes. There's no issues there as we look through the pipeline for the rest of this year. But I'm exceptionally proud of the position that electronic monitoring is now in operationally and strategically.

In terms of AFR, Armed Forces Recruitment, interestingly, I was down at Army headquarters only 2 weeks ago to have a full day review of the program. So your question, Jane, is quite timely. But look, the Armed Forces Recruitment is probably one of the most complex procurements the MOD have ever procured. It's the first time since the Second World War that the tri-services will be recruited across all branches of the U.K. military. So that is a privilege that we hold dear that we've been entrusted to deliver this through the support of the 8 subcontractors that we've got going.

Everything is going according to plan at the moment. Of course, we were going through each of the milestones, there are hundreds of milestones. There's always going to be 1 or 2 that are moving to the left or to the right. But I came away from that conversation with confidence that the authority and team Serco are working collectively and collaboratively to make sure that we can achieve the mobilization, which is important to note is not until 2027, so we don't become responsible until 2026.

On EMS, anything on the numbers?

Look, we're very clear on what the operational metrics are that we have to improve on, and we track them really closely, and we're making really good progress. And I'd say we are where we expect to be. There's a bit further to go, but I think we've made a lot of the progress that we wanted to make, and we will see a material improvement in 2026 versus what we saw in 2025. Andy?

It's Andy Brooke from RBC. Nigel, you've gone out on a high again on the free cash generation. I think GBP 50 million better than you guided to in December. What sort of drove that? I know we had this very conversation, I think, 12 months ago, but is there any more structural improvement to come, especially on the debtor side?

Yes. So we're improving our free cash flow. We've been 100% focused on our debtors. We've done nothing on our creditors. In fact, if anything, we pay our creditors even more promptly now than we did previously. And over the last 5 years, we've knocked 20 days off our DSO. So that's been worth GBP 250 million of improvement in working capital over 5 years. And we've done that, as I said in the presentation, by just getting more disciplined at getting sales invoices out quickly, accurately, so our customers can sign them off quickly. And once they've done that, that pay us really promptly. So that's good. So we've made progress there.

I have to say I'm handing over to Mark a barrel that's pretty empty on opportunity there. I think we've done a good job, and I'm not sure how much more there is to go.

As far as the year-end is concerned, look, we have some big invoices that are coming at the end of the year. They're going to pay us the last week of December, the first week of Jan. We don't know. We're probably a little bit cautious with that guidance, and we consistently do a bit better than that. So that's the difference between December and what we're saying today.

And while I've got the mic, could I just say on behalf of everyone in the analyst community, a massive thanks. You've been a pleasure to deal with over the last number of years. You've done a phenomenal job helping to turn the company around. Huge congrats on what you've achieved and all the best for the future. And I hope your golf handicap comes down a bit more.

You and me, too.

Any questions on the line?

[Operator Instructions] Our first question comes from the line of Joe Brent with Panmure Liberum.

Just 2 questions from me, please. Firstly, in the outlook statement, you referenced elevated geopolitical tension is likely to remain a feature of the market. Could you just elaborate on how you expect that to impact your business, recognizing it's a fluid situation?

And secondly, I think you talked about Defence revenues being around 40% of the business, which I presume includes MT&S on a sort of pro forma basis. Can you give us the same number from a profit perspective? I expect it to be quite a lot higher than that.

Do you want to do the second one?

Why don't I do the second -- Joe, we're not going to give a specific profit number. I think what we would say is that, the average margin across Defence is above our average margin across the group, and we expect that to continue to improve.

Thanks, Nigel. That's quite a heavy hand you've got on your keyboard there, Joe. But just coming back to your second -- your first question, sorry, in terms of the outlook for geopolitical instability to continue. Look, the world in terms of geopolitics is probably likely to endure in its current form for some time to come. We don't know how long that will be. One thing I think we can be sure of is, through recent events and through events that have been happening for the last 5 to 6 years, you can see that countries around the world are suggesting increasing in defense spending and increases in spending on critical national infrastructure to secure their borders. One of the outcomes of geopolitical uncertainty and instability is greater defense spending.

And the second structural driver are around migration flows. So typically, you would see following instability and geo instability, the migration flows continue to change, move and diversify around the world. So that is the point that we were making in terms of as those structural drivers continue to endure, we stand ready to support our customers in those 3 major sectors that we've spoken about.

So it's meant to be sort of positive for your business, not a negative?

Yes.

I think, Joe, the summary answer to that is yes. I think whenever we've seen an increase in geopolitical instability, you see greater defense spending, you see greater spending in immigration and migration services, et cetera. So the answer to that question is yes.

There are no further questions on the conference line. I will now hand over to the management for closing remarks.

Fantastic. Well, look, just to thank everybody for your time. I know it's been a very busy day of announcement. So thank you all very much for making the effort to come and see us. Reiterate Andy's comments to Nigel. Nigel will be with us for a bit of the road show, and then we will close it there, I think.

Very good.

Thank you all very much.

Thank you.

Have a good and safe day.