Serco shares sink on tax warning and loss of Australian contracts

serco actions fell on Friday after the outsourcing giant warned of higher labor costs and the loss of a lucrative Australian immigration contract.

The firm said its rejected bid to renew a contract for immigration detention facilities and onshore detainee services was projected to bring it £125 million in revenue and £18 million in underlying operating profits in 2025, about 6 percent of analysts’ forecasts for annual performance.

Serco also said changes to employers’ national insurance rates announced by Chancellor Rachel Reeves in her first budget last week would increase its direct staff costs by around £20m.

From April 2025, employers’ NI rate on wages will rise by 1.2 percentage points to 15 per cent, while the threshold at which businesses will start paying NI will drop from £9,100 to £9,100. 5,000 a year.

Serco said it was “actively exploring ways to offset these costs” but maintained its annual guidance.

This follows similar warnings from other major businesses, with Sainsbury’s claiming the NI tax raid would cost it £140m next year, BT Group saying its costs would rise by £100m and Morrisons setting its respective bill at £75m.

Serco also revealed it had lost a contract to manage onshore immigration detention centers and detainee services on behalf of the Australian government.

Had it kept the contract, the company believes it would have generated around £165m in revenue next year and £18m of underlying operating profits.

Instead, it aims to pursue a “change program” that will reduce costs during the 180-day transition period after the contract expires on December 10.

“We submitted what we believed was a compelling bid that would have delivered continued strong performance to the Australian government, as well as meeting our framework to achieve appropriate margins for the services we provide,” he said.

Serco has operated immigration services in Australia since 2009 alongside several prisons; It currently manages the Clarence Correctional Center and Acacia Prison, the two largest prisons in the country.

In the UK, it looks after five prisons, including resettlement centers HMP Doncaster, Yorkshire; HMP Fosse Way, Leicestershire; and HMP Thameside, south east London.

In addition to prisons, the company has contracts to provide defence, health, leisure, transport and waste management services for the public sector.

During the six months to June, Serco reported that its turnover fell by 3 percent at constant currency levels to £2.4 billion, partly due to the exit of some low-margin contracts in Britain.

Its underlying operating profit also fell 4 per cent to £142 million, which the group attributed to a new health services contract in the United States, immigration volumes in Australia and mobilization costs related to new jobs.

Shares in the Hampshire-based company fell 9.1 points to 161.2p in early afternoon trading, making them the second biggest fallers on the FTSE 250 index behind Vistry Group.