UK outsourcing giants face revenue declines amid rising operational costs
LONDON, UNITED KINGDOM — Two of the largest outsourcing companies in the United Kingdom, Capita and Serco, are set to announce declining revenues in their trading updates this week.
According to analysts, both firms are grappling with sector challenges and rising operational costs, including changes to National Insurance (NI) contributions and the minimum wage.
Serco projects revenue dip despite profit growth
Serco is expected to report a nearly 1% drop in revenues for 2024, totaling £4.83 billion (US$6.13 billion), according to analysts at Shore Capital.
Despite this decline, the company is forecasted to achieve a 10% growth in earnings due to cost-cutting measures and improved efficiencies.
However, the loss of a significant Australian immigration contract last month has cast a shadow over its performance. The contract would have contributed £165 million (US$209 million) in revenues and £18 million (US$22 million) in earnings for 2025.
Shore analyst Christopher Bamberry described the loss as “clearly disappointing” but noted that Serco still has “attractive underlying fundamentals,” including a strong balance sheet.
The company is also bracing for an additional £20 million (US$20 million) in labor costs due to NI and wage increases outlined in the October Budget.
Capita’s revenues decline amid restructuring
Capita is similarly expected to report a revenue decrease for 2024, with projections falling from £2.81 billion (US$3.56 billion) last year to £2.44 billion (US$3.09 billion).
This decline is attributed to the firm’s ongoing disposals program aimed at reducing debt and streamlining operations. In September, Capita sold its Capita One software business to MRI Software as part of this strategy.
While these disposals have helped simplify Capita’s operations, they have also led to reduced revenues and profits. Analysts predict further cost pressures next year, with up to £12 million (US$15 million) in additional expenses stemming from NI changes.
Sector challenges weigh on investor confidence
The broader outsourcing sector in the UK continues to face headwinds as rising costs and contract losses impact profitability. Business confidence across the UK has also fallen to its lowest level in nearly two years as companies contend with inflationary pressures and reduced demand 12.
Investors are expected to closely monitor this week’s updates for signs of resilience from both firms. While Serco’s operational improvements offer some optimism, Capita’s restructuring efforts remain under scrutiny as it navigates a challenging market environment.
As both companies adapt to these pressures, their ability to offset rising costs will be crucial in maintaining shareholder confidence heading into 2025.
