Serco's Defence Sector Expansion Counters Immigration Revenue Decline
Outsourcing giant Serco reported a significant profit increase in 2025, largely driven by substantial government defence contracts that compensated for declining revenue from asylum accommodation services. The London-listed company, which manages diverse government operations from migrant housing to waste collection, saw its pre-tax profit reach £201.5 million with operating profit hitting £246.3 million.
Defence Emerges as Primary Revenue Source
Serco's revenue climbed to £4.9 billion in 2025, with defence contracts representing the largest income stream at £1.7 billion. This marked a notable shift from 2024, when justice and immigration services provided the company's primary revenue at £1.7 billion, which has since decreased to just under £1.6 billion.
Chief Executive Anthony Kirby emphasized the company's strategic position, stating: "Pressures are increasing on governments to do more and better for less – we stand ready to support them in doing just that."
Contract Wins Offset Immigration Decline
New defence sector contracts, including technology platform development for UK forces and recruitment agreements worth over £2 billion across the Royal Navy and armed forces, "more than offset" the reduction in immigration-related income. The company's order intake for 2025 reached £5.5 billion, with 70% of contracts awarded in the UK and Europe.
Additional contract wins with the US Department of War, Dubai Airports, and the Australian Defence Force further strengthened Serco's international portfolio. The company's citizen services division, which includes management of London's Cycle Hire scheme, also contributed to the improved financial performance.
Asylum Hotel Usage Declines Sharply
Government data revealed a 19% year-on-year decrease in asylum seekers housed in hotels, dropping to 31,000 from a peak of over 56,000 in late 2023. These accommodations have drawn criticism for their higher taxpayer costs compared to alternative housing solutions.
Serco, along with providers Clearsprings Ready Homes and Mears, faced scrutiny from government officials regarding profits generated from asylum hotels. A Home Affairs Committee report last year indicated the Home Office had spent over £15 billion on "failed" and "chaotic" asylum hotel arrangements since 2019 through long-term contracts with these three companies.
Financial Outlook and Market Response
Despite the positive profit figures, Serco's share price fell by more than three percent following Thursday's market opening. The company anticipates revenue to remain relatively stable in the coming year while projecting a reduction in net debt to approximately £165 million.
Serco warned that its immigration portfolio would continue to decline, though at a slower rate than initially expected. Income from UK immigration services is projected to decrease by around £100 million. The company maintains additional asylum accommodation through rental property partnerships with landlords.
The outsourcing firm attributed its sustained profitability to diversified gains across multiple sectors beyond hotel services, demonstrating resilience amid shifting government priorities and expenditure patterns.
