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Serco warns on profits and cuts 400 jobs after falling out with government

Derek du Preez | Nov. 18, 2013
The company’s shares closed 17 percent down after a trading statement last Thursday (14 November 2013)

Troubled outsourcer Serco has warned in a trading statement that its operating profits are going to be £18 million below forecasts and that it will be cutting 400 jobs, after falling out with the UK government.

It expects operating profits for 2013 to be in line with 2012's £307 million, which is down from market forecasts of £325 million.

Serco currently faces exclusion from all current and future government contracts and is under investigation by the Serious Fraud Office after allegations that it, along with G4S, overcharged on a Ministry of Justice electronic tagging contract.

The controversy resulted in Serco's chief executive Christopher Hyman stepping down.

In the company's market update this week, acting group CEO Ed Case said Serco is "clearly facing challenges" and has "experienced tougher conditions in recent months".

As a result, Serco said that it will be pursuing 'economies of scale' and will be cutting its UK workforce by 400 roles, which will incur costs of £14 million in 2013. It warned that it will continue to look to drive further efficiencies in 2014.

The company's shares slid some 17 percent yesterday on the news.

Serco has promised the UK government a 'corporate renewal', which will include an overhaul of the management at Serco, a review of internal audit procedures and opening up all their management and accounting information on government contracts, which will be subject to intense scrutiny.

The statement this week indicated that the cost of this renewal is likely to reach £27 million.

However, the company also highlighted that it has secured "important extensions" for services in the UK that include its non-clinical support for Plymouth Hospital Trust, pre-deployment training for the Ministry of Defence and environmental services for Welwyn Hatfield and Breckland Borough Councils.

It said: "We continue to work on other important extensions and rebids such as Northern Rail and the DLR, as well as areas of new contracting opportunities."

 

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