Serco shares plummet as contractor faces lower profits in wake of government investigation

Serco has warned that profits for 2013 may be lower than expected and earnings for 2014 will be lower than 2013. The company has suffered a sharp fall in its share price of over 10 per cent this morning.

Serco's problems have been magnified due to an investigation launched by the Serious Fraud Office (SFO) into electronic monitoring contracts. An audit revealed that, in a 2005 contract with the UK government, Serco had charged for tagging criminals that had never been tagged, were dead or in gaol. The company says the troubles with the Ministry of Justice have led to "delays in previously anticipated contract awards," for the UK & Europe and Global Services divisions.

Group adjusted operating profit came in at £307m, similar to results seen in 2012 but lower than market consensus of £325m. The outlook for 2014 remains poor with profits expected to be "moderately lower than in 2013".

Acting group chief executive officer, Ed Casey, said:

Whilst we are clearly facing challenges and have experienced tougher conditions in recent months, we have still achieved £3bn of contract awards in the year to date and made further progress in our strategy of creating a broader and more balanced portfolio. The Group's opportunities in the large and growing markets in which we are represented around the world continue to provide good long-term growth potential. The UK Government audits and reviews are ongoing and we remain firmly committed to rebuilding the confidence of our UK Government customer.