Loss of Australian contract hits Serco profits

Serco has been knocked by the failure of its bid to continue running Australia’s immigration centres.
The outsourcing group said it had been unsuccessful in rebidding for a contract to provide immigration detention facilities and detainee services for the Australian government, sending its shares down 11 per cent, or 19p, to 158p.
The FTSE 250 company also said the tax changes announced by Rachel Reeves last week would increase its labour costs by about £20 million a year.
The chancellor increased the rate that employers pay for national insurance contributions from 13.8 per cent to 15 per cent and lowered the earnings threshold for making payments from £9,100 to £5,000. This has prompted a series of warnings from businesses, with BT, Sainsbury’s, Persimmon and others warning that the extra costs could result in job losses and higher prices.
Mark Irwin, Serco’s chief executive, used to lead the group’s Australian division before becoming head of the company’s operations in the UK and Europe in October 2020. Irwin was appointed to replace the longstanding group chief executive Rupert Soames in January last year.
The divisional head for Australia was sacked last year and profits at the unit have more than halved to £23 million owing to “tight labour markets and new business wins [that] did not meet our expectations”.
Serco has been providing immigration services to the Australian government since 2009 and the company said it had submitted “what we believe to be a compelling bid” to remain in post. The contract will now end on December 10 and Serco will then transition the contract to a new operator over six months.
The deal would have contributed revenue and underlying operating profit of £165 million and £18 million respectively in 2025. Serco expects exiting the contract to result in a one-off cash cost of about £20 million.
It said: “As part of general business, we planned for all scenarios related to this rebid. As a result of the outcome we will now proceed with a change programme during the transition period. The programme will reduce the cost base so it is appropriate for the remaining operations and ensure the business is well-positioned for opportunities in the coming years. Asia Pacific remains an important market for Serco.”
The company said its guidance for full-year performance remained in place and its internal consensus figures from analysts predicted revenue of £4.9 billion and underlying operating profit of £282 million.
The company also faced problems in the UK recently when a cyberattack compromised the prisoner escort service that it provides to the Ministry of Justice. Microlise, an Aim-listed provider of tracking software, was targeted by hackers last month in an attack that disabled the tracking devices and panic alarms in Serco’s vans.
Serco said it had put in place mitigation measures in response to the incident and had “continued to provide prisoner escorting services uninterrupted” for the government.