Serco is in the business of governments. With administrations changing in its key markets, the contractor is bracing for a rocky year. Yet its chief executive, Mark Irwin, will not be at its helm.
The company said earlier this week that Irwin, 59, was retiring after just two years in the top job at one of the UK’s largest government contractors. Irwin, who in 2023 earned £1.9mn and has a 12-month notice period, will still be paid his salary and pro-rated bonus while continuing to serve as a “strategic adviser”. But he will be replaced from February by Anthony Kirby, head of Serco’s UK and Europe business, which generates the largest chunk of its income.
The reshuffle adds to an already disruptive period for the FTSE 250 company. It follows a historic year for democracy, when more than 1.5bn people globally went to the polls and voted for major regime changes in the national governments that award Serco’s biggest contracts.
“How much uncertainty is out there? A lot,” said Robin Speakman, an analyst at Shore Capital. “Serco does the things that nobody else wants to do, the really challenging things . . . These are areas that have political challenges.”
Donald Trump is set to return to power next week in the US, where Serco has invested heavily in expanding its defence offering, from military consultancy to naval engineering. Just two days after Irwin’s resignation, Serco announced a $247mn contract with the US Army, helping support soldier fitness.
But the incoming president, who has proven highly unpredictable, has also laid out plans to slash state spending, which is expected to hit longtime defence contractors. Tech billionaire Elon Musk has been appointed to co-run a new Department of Government Efficiency, known as Doge, to oversee the plans.
Meanwhile, in Serco’s home market, the UK’s Labour party has returned to government for the first time in 14 years, with a pledge to “bring about the biggest wave of insourcing of public services in a generation”. It is particularly keen to cut the huge amounts spent on private contracts for housing asylum seekers, which have generated tens of millions of pounds for Serco.
Amid this uncertainty, Serco is forecasting a 4 per cent fall in operating profits in 2025. In November, it said UK tax rises and the loss of a key immigration services contract in Australia would hit its business to the tune of £38mn. The announcement prompted an immediate sell off in its shares, which have dropped almost a fifth over the past six months, wiping out gains made since the start of Irwin’s tenure.
This mirrors similar declines in the share prices of leading US defence contractors, as they brace for spending cuts under Trump. In the UK, shares in fellow asylum housing provider Mears have also fallen in recent months.
“US defence services companies’ share prices have been very volatile since [Trump’s] election due to fears that the Doge will particularly focus on them,” said Sash Tusa, a defence analyst at Agency Partners.
“Even if Doge does not follow through totally on Musk’s promises, the US defence budget is flat or down in real terms for the next four to five years […] It is an unattractive defence market.”
Despite this uncertain outlook, Irwin’s resignation after just two years leading Serco surprised both analysts and company insiders. One senior employee said he was only made aware of the decision the day before it was announced.
Another person who knows the company and Irwin described him as “instrumental” to Serco’s growth but also as a “reserved” leader, potentially less well-suited to running the overall business.
By contrast, as the current head of Serco’s UK business, Kirby would probably be “more used to dealing with Labour [and] more involved on a day-to-day basis speaking with the current government”, the person added.
Kirby, a Liverpudlian who started full-time work at 16, is a former workforce director at catering group Compass and joined Serco in 2017.
Nick Davies, a researcher at the Institute for Government, said that at a Labour conference panel in 2023, Kirby appeared “resilient” in the face of calls for “insourcing of everything”.
“He made as good a case as you could make in those circumstances”, arguing “there are things the government should always [control] but there are some things that some private firms are just better at”.
Such political experience could prove valuable following a period of heightened scrutiny of privatised UK public services, particularly during the Covid-19 pandemic and Serco’s role in the country’s troubled test-and-trace programme. Social unrest over the money spent on housing asylum seekers, including in hotels, has also mounted, culminating in last year’s far-right riots.
As well as pledging to end spending on asylum hotels through deals with companies including Serco, which has won accommodation contracts totalling £1.9bn, new ministers are keen to apply break clauses in these contracts, after being “shocked” by the profits made by outsourcers.
Then in October, justice secretary Shabana Mahmood said that the government would fine Serco as it had “failed to make sure that it has enough staff” to electronically tag offenders, after thousands were released early under emergency efforts to ease prison overcrowding. Serco declined to comment on the issue.
The furore came just months after Serco reached a settlement with investors over the market impact of an earlier scandal, about the overcharging for an offender electronic-tagging contract.
In the face of these risks, analysts suggested Serco should pin its hopes on more business with foreign governments, particularly in defence.
David Brockton, an analyst at Deutsche Numis Research, pointed out that Trump had been “increasing pressure on other countries to maintain their NATO commitment”, adding “that is extremely likely to see higher defence spend outside the US”.
Nato’s 31 members have an agreed target to spend 2 per cent of GDP on defence, but Trump has called for this to rise to 5 per cent across the US-led military alliance.
But inside the US, uncertainty overshadows not only the outlook for defence spending but also the future of the Affordable Care Act, which Serco helps deliver by vetting applications for health benefits through a $690mn contract. Trump has sought to undermine the policy, widely known as Obamacare, since his first term.
“What Trump brings forth is going to be critical for the outcome of the year [for Serco],” said Shore Capital’s Speakman.
But “none of us know what Trump is going to bring, really”.
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