Serco cuts profit outlook
Britain's scandal-hit services giant Serco has cut its profits outlook and revealed plans to shrink the group after taking a 1.5 billion pounds ($2.74 billion) impairment charge, sending shares plunging by a third.
Serco said, in a gloomy trading update on Monday, that it had identified likely impairments and other provisions totalling the equivalent of $US2.4 billion ($2.6 billion).
As a result, the company slashed its profits guidance for 2014 and 2015, highlighting the impact of several major contracts where it is facing large losses.
The group cut its 2014 forecast for adjusted operating profit to between 130 million pounds and 140 million pounds, compared with prior guidance of not less than 155 million pounds. It also reduced estimates for 2015.
Serco added it will streamline the group to re-focus on justice and immigration, defence, transport, citizen services and healthcare, while it will look to hive off most of its business outsourcing operations.
To finance the drastic overhaul, Serco will sell 550 million of new shares to existing shareholders in a rights issue in the first quarter of 2015.
The news sent Serco's share price tumbling 30.5 per cent at 220.19 pence in late morning trade on the London stock market.
"The rapid progress we have made in recent weeks ... has brought us to the point that we are able to provide an initial estimate of the impairments, write-downs and onerous contract provisions that are likely to be required at year end," said chief executive Rupert Soames.
"Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future."
Soames took up his post in May after Serco was forced to pay back the British government 68.5 million pounds in 2013 for overcharging on criminal tagging.
Serco added it had made two "strategic mis-steps" which it identified as diversion into non-core areas, and concentration on winning new business.
Serco said it "has failed to manage effectively the fact that over recent years there have been significant advances in public sector contracting, particularly in the UK, with new models that transfer substantially more risk to suppliers".
"As a consequence, we now have a number of contracts which are making large losses, and others which are in sectors where we are sub-scale."
Serco is based in Hampshire, southern England, and employs 100,000 people around the world. It specialises in the provision of services such as running hospitals, prisons, transport links, and support for armed forces.
The group's strategic review remains ongoing and will be presented at its full-year results due in March 2015.
AFP
