Serco’s shares plummet after profit warning

Suzie Neuwirth
SERCO, the outsourcing firm at the centre of a string of investigations over government contracts, saw its bad run continue yesterday when it issued a profit warning for 2013 and 2014, sending its shares down 17 per cent.

Serco blamed “challenging market conditions” and the government contracts debacle for cutting into profits and warned that adjusted operating margin for 2013 “may be slightly down on the 6.4 per cent achieved in 2012”, with next year’s profits lower still.

Last week it emerged that the FTSE 100 company, along with peer G4S, is under investigation by the Serious Fraud Office. The probe centres around the prisoner-monitoring contracts awarded to the firms by the government, amid allegations that they charged for tagging criminals who were either dead, in prison or never tagged in the first place. Serco has said it is cooperating fully with the SFO.

The firms are also awaiting the results of an audit by PwC, commissioned by the Ministry of Justice in May.

“The UK government audits and reviews are ongoing and we remain firmly committed to rebuilding the confidence of our UK government customer,” said Ed Casey, who was appointed acting chief executive after longstanding boss Chris Hyman unexpectedly resigned last month.

In July, the Cabinet Office put all of Serco’s government contracts under review, causing a significant threat to the firm’s future profitability as the government is its biggest customer.

“Today’s disappointing announcement…highlights that Serco’s issues with the UK government are having a much broader effect than we originally anticipated,” said Cantor Fitzgerald.