Serco shares fall on Australian contract loss and changes to UK national insurance

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Serco said it would take a combined £38mn hit from a contract loss in Australia and changes to UK employer national insurance, sending the British outsourcing company’s shares down 15 per cent in early morning trading on Friday.

The group, which operates prisons and accommodation for asylum seekers, said it had lost a contract with the Australian government to provide onshore immigration detention facilities and detainee services. The loss would cut revenues by about £165mn and underlying operating profits by about £18mn from next year, it said.

The outsourcer also said changes to employer national insurance contributions in the Labour government’s first Budget last month — which lowered the threshold at which employers start paying NICs and raised their rate from 13.8 to 15 per cent — would increase its direct labour costs by £20mn a year from next April.

It said it was “actively exploring ways to offset these costs”.

Together, the two issues add up to about 13.5 per cent of operating profits expected in 2025, according to consensus forecasts compiled by Serco.

The double hit is a further blow to Serco after UK Home Office ministers began exploratory talks with local government about bringing accommodation for asylum seekers back under direct public control, following criticism of the profits made by Serco and other outsourcers.

The Financial Times previously reported that Home Office ministers had been “shocked” by the profits made by companies including Serco and Mears from multiyear contracts to supply asylum accommodation signed in 2019, and hoped to use break clauses in 2026 either to revise the contracts’ terms or to terminate them.

Serco won asylum contracts worth £1.9bn in 2019, its biggest-ever contracts, and now accommodates more than 30,000 men, women and children in the UK. It said profit margins on its UK and European work had increased from 3.4 per cent in 2022 to 6.8 per cent in the first half of 2024.