watch this bounce to 400+

bargain at 390p IMHO

Tipped by Zak Mir on UK-Analyst.com

Market update: Serco boosted by pre-tax profits

http://www.whatinvestment.co.uk/trading/markets/market-updates/1606723/market-update-pm-serco-boosted-by-pretax-profits.thtml

HSBC Neutral 665.50 665.50 590.00 670.00 Upgrades

Not nearly as badly hit as GFS on the bad news today.

Harry - SRP are co-operating - GFS are not hence the SFO being called in.

Looks like SRP have now fallen out of grace in line with GFS. Tricky to gauge how much more bad news there is to come before having a punt here.

Barclays comment:
"Serco’s known financial impact is limited: 1) Serco has dropped its rebid for the Monitoring contract, worth c.£10m EBITA (-3% off Datastream consensus 2014E). G4S has not withdrawn its rebid. 2) The magnitude of the over-billing is in the “low tens of millions” ie £10-40m for each company, taken below the line. It implies that Serco been over-billing by c.10%. 3) Serco’s award of the Yorkshire Prisons contract will be delayed until this investigation is complete – that’s £26m of revenue growth, c.£1.5m profit.
The unknowns: 1) The Cabinet Office is now undertaking an independent audit of all Serco and G4S contracts. We wouldn’t expect systemic overcharging of bills, but this does put each contract under a lot of scrutiny. 2) Does this mean Serco/G4s are black-listed? We don’t think this is the case in the medium-term, and indeed the government is allowing Serco to continue all current bids. But we are mindful of parallels with the G4S Olympics contract.
Electronic Monitoring contract handover likely delayed, but Capita stands to win – Capita, G4S and Serco had been short-listed for the contract, which could leave Capita (Equal Weight, 885p target) as the relative winner after this announcement. The timing likely means the current contract runs through the end of the year, by our estimate. But offsetting that, the news reflects poorly on the Public Sector outsourcing model – and likely will heighten debate and uncertainty ahead of the 2015 UK general election, in our view."

JP Morgan Cazenove Overweight 616.50 - - Retains

Westhouse Securities Neutral 616.50 630.00 630.00 Retains

Deutsche Bank Hold 616.50 600.00 630.00 Retains

Serco chief executive stands down after scandal

The chief executive at Serco, a security firm at the centre of an overcharging scandal, has resigned.

Outgoing boss Chris Hyman said the best way for the company to move forward "is for me to step back".

Serco is being investigated by the Serious Fraud Office after claims it had overcharged the government by "tens of millions" of pounds for electronic tags for criminals.

Serco has also announced plans to reorganise the company.

Credit S and Jeffries maintain buy ratings. Target reduced to 560 so plenty of upside to go for.
UBS lowers to hold with a reduced target of 544
The problems at the company are all in the price and there may be a bounce tomorrow (Monday). Friday close 419.70 / 419.90

I shall buy 2000

Any view on this anyone??

Interim Management Statement

14 November 2013 07:00

Serco Group


Challenging market conditions; further progress on strategic positioning

14 November 2013

Serco Group plc (Serco), the international service company, today issues its Interim Management Statement on the Group's performance from 30 June 2013 to date. This also covers the anticipated 2013 outturn relative to expectations, an early 2014 outlook, a summary of contract awards in the period, and an update on the UK Government contract audits and reviews together with the associated one-off costs to date.

Ed Casey, Acting Group CEO, 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."

2013 outturn

Organic revenue growth for the Group is anticipated to be mid-single digit for the year as a whole. As expected, the growth rate has reduced in the second half due primarily to the annualisation effect of previous major contract awards.

In recent months, our relationship with UK Government has been impacted by the issues arising on certain contracts with the Ministry of Justice. This has contributed to our UK & Europe and Global Services divisions experiencing some delays in previously anticipated contract awards, together with a lower level of discretionary spending and ad hoc project work with UK Central Government customers. Similar to the first half, Global Services has also seen an increased level of investment in market development activity, including bidding on some private sector opportunities that have been subject to delay. Additionally, the Americas division experienced some impact during October's US Federal Government shutdown, as well as the general ongoing effect of sequestration.

Expectations had been that the Group's Adjusted operating margin for the year may be slightly down on the 6.4% achieved in 2012. Given the factors described above, there has been some additional pressure on margins. In what remains a relatively wide range of expected outcomes for Group Adjusted operating profit at constant currency, the mid-point would result in a broadly similar outturn to 2012's £307m from ongoing activities. Current market consensus for Adjusted operating profit is approximately £325m. Taking into account recent currency movements, it is estimated that the net adverse impact of such movements would further reduce profits by approximately 1-2%.



2014 outlook

Our early view of prospects for 2014 is developing. At this stage versus the equivalent in previous years, and in part as a consequence of the ongoing issues with our UK Government customer, there has been a lower level of new contract awards to drive organic revenue growth. There is also a greater known impact from attrition, including the ending of our contracts for the Electronic Monitoring service, the management and operation of the UK's National Physical Laboratory and certain US support operations to the US Federal Retirement Thrift Investment Board, the Department of State's National Visa Center and Kentucky Consular Center, and the Department of Veterans Affairs. Revenue is also likely to be impacted by the recent immigration policy changes on the volume-related work we perform to support the Australian Department of Immigration and Border Protection (DIBP), formerly the Australian Department of Immigration and Citizenship (DIAC). Based on the current lower numbers of people in our care, DIBP contract revenues, which have averaged approximately £400m for the last 12 months, may decline significantly in 2014. As a number of these contracts are in higher margin areas due to the complexity of the services, this will also impact the Group's Adjusted operating margin outlook.

Within our UK frontline and BPO operations, in the coming year we are looking to deliver further effectiveness and efficiency, for example through pursuing economies of scale via increased use of our shared service model. Changes that have already begun will see the reduction of around 400 roles from a total UK headcount of approximately 47,000. This will incur exceptional costs of approximately £14m in 2013. The savings generated, before any subsequent reinvestment, indicate a cash payback by the second year. We will continue to look to drive further efficiencies in 2014.

The net impact of the above factors would lead to profits for 2014 being moderately lower than those for 2013. As usual, more detailed guidance on 2014 will be provided at the time of reporting the results for the 2013 financial year.

Contract awards and operational update

At 30 June 2013, Serco had an £18.5bn order book and our pipeline of identified opportunities around the world had a total estimated value of £30bn. Since then, we have been awarded a further £0.9bn of contracts, bringing the total for the year to date to £3bn, comprising signed contracts valued at £2.9bn and preferred bidder appointments valued at £0.1bn. Winning or expanding smaller contracts also plays an important role in our growth and a selection of these is included in today's Contract News Update on www.serco.com. Notable contract developments in the second half of the year to date are highlighted below.

In UK & Europe frontline services, we have secured important extensions for services that include our 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. 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.

In the Americas division, given government budget and funding issues, conditions in the US federal contracting market have been further challenged by the implementation of sequestration and the partial Federal Government shutdown in October. This revenue reduction was offset by the start of important new contracts that are successfully broadening the Americas portfolio, notably our application processing support for US healthcare eligibility and our operations for Virginia's Department of Transportation. Recent awards include additional work under the healthcare processing contract, a Transition Assistance Program for Veterans, and the rebid of our support services for the US intelligence community.

In the AMEAA region, while the number of people in our care for the Australian DIBP has begun to reduce significantly from the peak levels experienced in the summer, the average number in our care in the second half of 2013 is likely to be similar to the comparable period in 2012. We continue to maintain a very strong customer relationship in the operation of this sensitive contract, and will look to develop the opportunity to continue to provide services on behalf of DIBP beyond the original initial contract period which runs to mid-2014. Elsewhere, our operational management of the Fiona Stanley Hospital in Australia begins next month, and awards in the second half include the contract extension for the Dubai Metro, facilities management services in the United Arab Emirates and an extension of our air traffic control services in Iraq.

Global Services, Serco's BPO business, has continued to see progress with additional procurement services for the Anglia Support Partnership and a number of smaller awards including an expansion of telecare services for Hertfordshire County Council and other contact centre services for public and private sector clients.

Update on UK Government contract audits and reviews, and associated one-off costs

As announced in July, Serco has been cooperating fully with the detailed independent forensic audit into the billing practices in respect of our Electronic Monitoring (EM) contract. Additionally, we have undergone separate audits of our other Ministry of Justice (MoJ) contracts and have supported the Cabinet Office's wider review across other major UK Central Government contracts. Serco will also cooperate fully with the Serious Fraud Office's investigation into EM contracts.

As announced by the Government on 28 August, Serco agreed to undertake a process of corporate renewal, with the changes put in place by Serco to be assessed by a committee of Government non-executive directors after a three-month period. Serco established a Committee of the Board with the independent input of Lord Gold to oversee the in-depth programme of cultural and systems review, supported by independent experts, to recommend changes where appropriate and to implement them accordingly. Serco's announcement on 25 October updated on key elements of the programme. At that time, the Government stated they would take full account of all the changes we had announced, and whilst early days, saw our update as a positive move and a step forward. The ongoing financial impact of the corporate renewal programme, including the separation of the UK & Europe division into two and our other actions to strengthen governance and transparency, continues to be evaluated.

The audits, reviews and corporate renewal processes are incurring one-off costs that will be treated as exceptional items in 2013. Since July, there have been external adviser and other directly-related incremental costs that are estimated to amount to approximately £12m. In addition, there are one-off costs and accounting charges of up to £15m identified to date that have arisen within the contracts subject to the audits and reviews. The most significant of these relate to the two main contracts where issues have been raised: Prisoner Escort and Custody Services (PECS), which includes the impact of the previously announced agreement to repay historic profits earned and the related costs of service improvement; and EM, which includes the impact of the required accelerated transition to a new service provider.

As previously stated, we have confirmed that we will also repay any amount agreed to be due on the EM contract. The MoJ have previously expressed that their audit team had calculated that their interpretation of the difference on billing totalled low tens of millions of pounds since the contract commenced in 2005. Any such potential repayment and any other directly-related incremental costs, would be charged as further exceptional items.

Transactions and financial position

Our proactive portfolio management involves an ongoing assessment of our existing operations against their fit to our strategy, taking also into account their expected future levels of performance and returns. On 4 October, Serco announced the sale of our UK occupational health business for £3.5m. The operations had become non-core to the future development of Serco's Health portfolio. In 2012, the business had approximately £15m of revenues and £1m of Adjusted operating profit. The exceptional accounting loss on disposal is expected to be approximately £4m. We also continue to look at potential acquisitions that bring new skills, capabilities, or market access to enhance the portfolio, as well as further disposals of non-core operations.

No other material events, transactions or impacts on the Group's strong financial position have taken place since the 30 June 2013 balance sheet date.

Alistair Osborne

By Alistair Osborne, Business Editor

4:45PM GMT 14 Nov 2013

CommentsComments





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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Bright future: mobile banking apps show the way forward Natwest



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.