Serco Faces Major Setback After Losing £125 Million Australian Contract

On November 8, 2024, Serco, the Hampshire-based outsourcing firm, announced significant challenges that led to a sharp decline in its share price. The company warned of rising labor costs due to a new national insurance tax set to take effect in April 2025, which would increase costs by around £20 million. Additionally, it lost a critical Australian immigration contract that would have contributed £125 million in revenues for 2025. This loss is approximately 6 percent of the firm's projected annual performance. The contract, which involved managing onshore immigration detention facilities and detainee services, was projected to yield £18 million in operating profits next year. Following its unsuccessful bid to renew the contract, Serco aims to implement a 'change programme' to cut costs during the 180-day transition period after the contract's expiration on December 10, 2024. The firm had managed various immigration services and major prisons in Australia since 2009. Despite these setbacks, Serco has indicated it will maintain its annual guidance while trying to offset rising costs and secure other contracts. The broader context points to a growing trend of increased operational expenses affecting several companies, including major retailers like Sainsbury's and BT Group, due to similar tax changes. Overall, Serco is facing a critical moment requiring strategic adjustments to navigate the impact of lost contracts and increased costs amidst a challenging market environment.