Alistair Osborne

By Alistair Osborne, Business Editor

4:45PM GMT 14 Nov 2013

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The fall-out from Serco’s breakdown in relations with the British Government has intensified, with the embattled outsourcing group axing 400 jobs and warning on profits.


In a trading statement described as “awful” by analysts at Liberum Capital, Serco said it now expected adjusted operating profits this year of a level similar to 2012’s £307m. That compared to consensus forecasts of £325m.


Meanwhile, a “lower level of new contract awards” and £14m of charges for cutting 400 jobs from its 47,000 UK workers would leave 2014 profits “moderately lower than those for 2013”.


Having opened 8.7pc down, the shares kept sliding all day. They closed down 17pc - dropping 84.9 - at a four-year low of 419.1p.


Numis analyst Mike Murphy cut his profits estimates from £285m to £260m pre-tax for this year and from £352m to £280m for 2014.



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Serco has been on the ropes since July when the Ministry of Justice accused it and rival G4S of overcharging for tagging criminals, some of whom were back in prison or dead. As Serco disclosed 10 days ago, that has led to a Serious Fraud Office probe.

Meanwhile, Serco has also been hit by claims it falsified documents on its £285m contract to operate prison vans.

Former chief executive Christopher Hyman quit last month.

Ed Casey, acting chief executive, said the statement “reflected the headwinds we have in our business around the world and issues in the UK. Clearly we have issues with our largest customer, with which we are not in a position to win any new contracts.”

A Cabinet Office inquiry into all of Serco’s UK government contracts – spanning running prisons to being part of a joint-venture operating the nuclear weapons plant near Aldermaston – has effectively barred it from bidding for work from a customer accounting for 25pc of its business.

The Cabinet Office is expected to finish its review late this month or early next.

Mr Casey said the UK Government review had had "no material effect" on Serco's business outside Britain.

However, US government cutbacks have hit operations in America, where contracts include support services for 2m soldiers, and Mr Casey said "we think we will face lower budgets in 2014" due to the effects of sequestration - compulsory budget cuts.

Serco added that recent immigration policy changes on volume-related work for the Australian Department of Immigration and Border Protection, which accounted for £400m in revenues last year, “may decline significantly in 2014”.

Serco said that, since July it had incurred £12m of external adviser and related costs and a further £15m of one-off expenses relating to the businesses under review.

It added that adjusted operating margins for this year may also be "slightly down on the 6.4pc achieved in 2012".

Investec analyst Andrew Gibb said: “The magnitude of today’s downgrades highlights the real pressure on this business. Its ability to win contracts in the UK is severely impeded and margins look to be in reverse”.

Future contracts depend on a “corporate renewal” process ordered by the UK Government.

Serco is seeking a new chief executive from outside the business. Mr Casey, who has led Serco’s Americas division since 2005, said he did not plan to leave on the arrival of a new boss.

"I have been with Serco for eight years and I am committed to the business," he said. "I hope there is a role for me long-term."

Thanks Chris for the post. Much appreciated and helpful. May see what the first hour brings tomorrow and I shall run (if I buy) a tight stop loss!
David

28 April 2014
Serco Group plc (Serco), the international service company, is currently due to announce an Interim Management Statement (IMS) alongside its Annual General Meeting on 8 May 2014. In preparation for this IMS, and the arrival of Rupert Soames as Group Chief Executive on 1 May 2014, Serco is reviewing its performance so far this year, which has been more challenging than expected. It has now become evident in the light of recent performance that we may need to reassess the level of risk implicit in the assumptions underlying our forecasts. This may in turn require a material downward revision to expectations, and for us to review the appropriateness of our financing position. We will, therefore, be consulting with shareholders regarding the possibility of strengthening the balance sheet through an equity placing.

A further announcement will be made as soon as possible this week.

Any followers?



Citigroup Neutral 315.30 610.00 410.00 Downgrades

Cantor Fitzgerald Sell 315.30 365.00 - Reiterates

JP Morgan Cazenove Neutral 315.30 - - Reiterates

"...material downward revision..." to come and a cash call! Not a follower and glad that I have managed to avoid. I reckon a further decline in the sp on the cards.

Half Yearly Results

StockMarketWire.com
Serco (SRP) has slashed its FY adjusted operating profit guidance by £20m to £130m-£140m, and lowered its outlook for 2015. Serco also plans raise £550m via a rights issue, and to write off £1.5bn linked to contract losses.

CEO Rupert Soames commented:

"The rapid progress we have made in recent weeks on the Strategy Review and the Contract & Balance Sheet Reviews 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.

"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.

"As might be expected, the Contract & Balance Sheet Reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts.

"These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015.

"Looking ahead, we have not yet completed our Strategy Review, and we will present it, as planned, at the time of our Full Year Results in March 2015.

"However, the direction is clear: Serco will concentrate on its core as a leading supplier of public services - an international B2G business focused on Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.

"These are businesses which we are really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us. There are a tough couple of years ahead as we make this transition, but it will be worth it."

As part of its warning, Serco noted the following key points:
· Strategy Review: Serco's future to be as an international B2G business. A successful, innovative and market-leading provider of services to Governments. Core sectors: Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.

· The Contract & Balance Sheet Reviews identify likely impairments and further Onerous Contract Provisions totalling around £1.5bn, approximately half of which relates to goodwill and intangible assets.

· Forecast for 2014 Adjusted Operating Profit reduced by approximately £20m to £130-140m (before the impact of the Contract & Balance Sheet Reviews); outlook for 2015 reduced.

· Discussions to be held with lenders to negotiate amendments to the operation of covenants.

· Medium term capital structure target of 1-2x net debt to EBITDA.

· Proposed equity rights issue of up to £550m in the first quarter of 2015; fully underwritten on a standby basis by Bank of America Merrill Lynch and J.P. Morgan Cazenove.

· Programme of disposals of businesses not core to our future strategy underway, including the majority of our private sector BPO business.

Investec Sell 220.25 290.00 - Retains

Liberum Capital Hold 220.25 300.00 210.00 Reiterates

Been under 160 today, I wonder where (if) this one will stop. Anybody trade this? It's a big mover intraday these days...

StockMarketWire.com
Serco Group said its fully underwritten 1-for-1 rights issue of 549,265,547 new shares at 101p each received valid acceptances totalling 520,256,417 shares, or about 94.7%.

Merrill Lynch International and J.P. Morgan Securities will endeavour to procure, on behalf of the underwriters, subscribers for the remaining 29,009,130 new shares.

Should those companies fail, Merrill Lynch International, J.P. Morgan Securities, Barclays Bank, HSBC Bank and Crédit Agricole Corporate and Investment Bank have, as underwriters, agreed to acquire, on a several basis, any remaining new shares.

StockMarketWire.com
Serco Group said FY trading in 2015 is likely to be ahead of previous guidance, with underlying trading profit expected to be about GBP95m.

It added that reported trading profit will likely to be significantly higher than underlying trading profit.

It noted improved operational performance or renegotiation on some loss-making contracts will result in a substantial net release of OCPs and other Contract and Balance Sheet Review items.

Free cash outflow for 2015 will be better than previously anticipated; closing net debt, assuming completion of the offshore BPO disposal in the coming weeks, now expected to be around GBP100m.

Revenue and trading profit will decline further in 2016, reflecting the BPO disposal and net contract attrition. Underlying Trading Profit anticipated to be around £50m; however, the positive developments on onerous contacts contribute to an anticipated improvement in free cash outflow compared to 2015.

Targeted cost savings exceeded in 2015; over £50m of further central support and other overhead savings targeted for 2016.

4th Aug 2016

StockMarketWire.com
Serco has swung to an H1 pretax profit of £58.1m, from a year-earlier loss of £16.0m due mostly to exceptional finance costs of £32.8m. Revenue slipped to £1.5bn, from £1.6bn.

CEO Rupert Soames said the H1 performance was better than we expected.

"Although much of the improvement came from items that will not recur, it reflects the result of a lot of hard work and successful resolution of a number of commercial issues,2 he said in a statement.

"Since our last update in May, our trading performance and cost savings are tracking slightly ahead of plan, and recent foreign exchange movements have increased the value in sterling of our overseas earnings.

"Accordingly, we are increasing our profit guidance for 2016, although it is important to note that our view of the outlook for 2017 is not materially changed, other than adjusting for foreign currency movements.

"Whilst we expect to see potholes on the way, we are making good progress on the implementation of our strategy, underlined by our growing pipeline of new bids.

"We have removed some £550m from our operating costs, and at the same time we have been investing in our infrastructure, processes and capability and have recently rolled out significant improvements in our HR, finance and purchasing systems."