The Australian Government’s Department of Home Affairs has informed Serco Group plc (LON:SRP) that it has been unsuccessful in rebidding the contract for the provision of onshore immigration detention facilities and detainee services.
Serco is proud to have provided immigration services as a partner to the Australian Government since October 2009. Our performance levels have been high on the current contract, and we submitted what we believed to be a compelling bid that would have delivered continued strong performance to the Australian government as well as meeting our framework for achieving margins appropriate for the services we deliver. We will now work to ensure a smooth transition of these critical services to the new provider.
The end date of our contract is 10 December 2024, after which there is a transition out period of up to 180 days. If the contract had been retained, we would have expected it to contribute around £165m of revenue in 2025 and £18m of underlying operating profit, which is approximately 6% of analysts’ consensus*. We anticipate one-off end of contract cash costs of around £20m, which have already been provided for, in accordance with our normal accounting policy.
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.
UK national insurance
Tax changes announced by the UK Government in the budget on 30 October will impact our business. We estimate the combination of lowering the earnings threshold at which employers start paying national insurance contributions from £9,100 to £5,000 and increasing the rate from 13.8% to 15.0% will increase our direct labour costs by around £20m per year. The changes will be effective from April 2025 and we are actively exploring ways to offset these costs.
Guidance for 2024 remains unchanged.
*Serco-compiled consensus for 2025 is £4.9bn of revenue and £282m of underlying operating profit. Bloomberg consensus is £4.9bn of revenue and £276m of underlying operating profit as at 6 November 2024.
