Serco sales handed £804m boost from immigration spending

Outsourcing giant Serco saw profits boosted by £804million worth of immigration and justice spending by governments around the world in the first half of the year.

A 90.5 per cent jump in UK and European immigration and justice sales to around £621million helped drive the group’s underlying operating profit 9 per cent higher year-on-year to £148million in the six months to 30 June.

The boom in UK and European demand of this kind offset a 9.2 per cent per cent dip in Asia Pacific as Serco’s total revenues climbed 11 per cent to nearly £2.5billion.

Chief executive of Serco Mark Irwin said the outsourcer was well placed to cash in on ‘high demand from national and local governments to provide accommodation and support services’ in immigration, which it has continued to benefit from in recent years.

Serco is contracted by the Home Office to provide accommodation for asylum seekers, and runs immigrant detention and removal centres such as Gatwick’s Brook House and Tinsley House.

It provides similar services across Europe and Asia Pacific.

In the UK, Serco said an increase in the numbers of ‘service-users’ has led to additional immigration work that is expected to be worth an estimated £280million over approximately a year.

ORS, which it acquired in September 2022 to enter the European immigration services market, ‘has traded ahead of expectations with robust underlying demand due to global migration patterns’, Serco said.

The group also saw a jump in defence revenue, led by UK and Europe and Americas growth, to £737million.

Transport sales were up from £163million to £181million, but heath and citizen services revenues each fell.

The group maintained full-year revenue expectations of ‘at least’ £4.8billion, but provided upgrades to its forecasts for free cash flow and debt.

Mr Irwin said: ‘We are making good progress to deliver profitable growth over the medium term and towards achieving our strategic ambition to be the partner of choice to governments globally.

‘Our results over the last six months are a good measure of that progress with double-digit growth in revenue and profit, backed by excellent cash generation.

‘Our first half outcomes demonstrate the commitment and capabilities of my Serco colleagues, the value of our geographic and sector diversity as well as our agility to respond to demand across our key markets, all in support of our purpose to impact a better future.’

Serco shares were up 1.9 per cent to 158.2p by midday on Thursday. They have lost 15.6 per cent over the last year. 

Analysts at Peel Hunt said: ‘In our opinion the business is well placed to navigate the current macro-economic challenges (strong inflation protection and economic resilience) and to retain the significant Australian immigration contract (extended until December 2024).’

Peel Hunt reiterated its Buy rating with a target price of 217p.