Investors in two of the UK’s biggest outsourcing companies will be hoping the firms can provide reason for optimism next week as they face challenges in the sector and higher costs next year.
London-listed firms Capita and Serco are both predicted to point towards dips in sales when they provide trading updates for shareholders next week.
Capita will provide a pre-close trading update on Tuesday December 17, with Serco set to provide a similar update on Thursday December 19.
Both firms have undergone major transformation processes in recent years in the face of significant upheaval in the industry.
On Thursday, Serco is expected to tell shareholders it will report marginally lower revenues for the 2024 financial year.
Analysts at Shore Capital have projected an almost 1% decline in revenues to £4.83 billion for the period.
However, profits are expected to move higher after major efforts to control costs and improve efficiencies.
Serco is expected to deliver roughly 10% earnings growth for the year to December, according to experts at Shore Capital.
But recent efforts to boost profits have been impacted by the loss of its Australian immigration contract last month, which also caused shares to slip in value.
The company told shareholders at the time that if the contract had been retained, it would have provided the group with around £165 million in revenues and £18 million of earnings for 2025.
Shore’s Christopher Bamberry said the loss of contract was “clearly disappointing” but that stock still possesses “attractive underlying fundamentals”, including its strong balance sheet.
This comes as the group prepares to also deal with about £20 million in extra labour costs due to changes to national insurance contributions and the minimum wage from the October Budget.
Investors will therefore be keen to hear how the company will be able to offset the impact of these profits for next year.
Elsewhere, fellow outsourcing firm Capita will reveal how it has performed over the past year in a trading update on Tuesday.
It is also expected to point to a drop in revenues, as a result of its continued disposals programme in order to overhaul its operations. In September, it completed its most recent deal, selling its Capita One software business to MRI Software.
Shore Capital analysts have predicted it will deliver revenues of £2.44 billion for 2024, down from £2.81 billion a year earlier.
Despite reducing revenues, the disposals have achieved their objective of helping the group cut its debts and simplify its operations.
Profits are also expected to dip for the past year after continued pressure from cost increases.
It is also due to face more cost pressure next year, with analysts predicting a knock of up to £12 million due to National Insurance changes.
