Serco said a boost in defence contracts and higher demand for its immigration services across Europe helped offset delays in its North America business, as it reiterated guidance for the year.

The FTSE 250 outsourcing group said revenue for the first six months of the year is expected to rise around three per cent to £2.5bn, while profit will increase to around £155m as margins improve above six per cent.

The market update comes little more than a week after ministers pledged to end “outsourcing by default”, raising concerns across the sector. Reform UK questioned whether Serco should continue to hold government contracts following reports about its immigration work.

Serco’s boss Anthony Kirby said the firm remained well placed to benefit from rising government demand for defence and other critical public services.

“At a time when governments are navigating geopolitical tensions and conflict, our global footprint and sector diversity remains a core strength for Serco, with over half our profits coming from our international business, ensuring financial and operational resilience,” he said.

The company, which pockets more than £1bn annually from UK government contracts, said strong organic growth in the UK and Europe had been driven by defence contract mobilisations and higher-than-expected revenue from immigration-related services.

Although procurement delays in North America have continued into the first half, Serco said its pipeline in the region had expanded further, underpinning confidence in future growth.

Defence offsets political headwinds

Serco left its full year guidance unchanged, continuing to expect revenue of around £5bn and underlying operating profit of approximately £300m, representing a margin of around six per cent – the upper end of its medium term target range.

The company also reported more than £2bn of contract awards and extensions during the first half, increasing its overall bidding pipeline to £12.5bn.

“Our excellent contract retention rates, a strong and growing pipeline, good operational delivery and a robust order book gives us confidence in delivering growth and value for our shareholders in the years to come,” Kirby said.

The FTSE 250 outsourcer also refinanced its revolving credit facility during the period, increasing it from £350m to £400m and extending its maturity to 2031, while reaffirming plans to complete its current £75m share buyback by the end of July.

The trading update is likely to reassure investors after recent pressure on outsourcing companies. Earlier this month, ministers announced new guidance requiring Whitehall departments to consider bringing more public services back in-house before renewing contracts worth more than £1m.

Serco insisted last week that it “does not take political positions” after becoming embroiled in a row over immigration policy, saying it delivers services “as specified by the contracting authority”.

The company, which generated around two-thirds of last year’s contract awards from defence, has increasingly shifted its focus towards military and government services.