Serco gets boost from UK govt but warns on 2014 profits

30th Jan 2014 11:22

Troubled support service group Serco took a step forward on Thursday in its bid to repair its damaged relationship with the UK government following contract problems, but its shares tumbled on a profit warning.Serco said the government had given the thumbs-up to the corporate renewal plan it launched following allegations that the company and rival G4S overcharged for tagging offenders, some of whom were back in prison, overseas or even dead.Those contracts are the subject of a criminal investigation by Britain's Serious Fraud Office.The controversy forced Serco to repay £68.5m to the UK taxpayer and caused it to lose out in November on a potential contract to run three UK prisons.Serco said the Cabinet Office's positive assessment of its renewal plan marked "a significant milestone in a process that has been a major focus of management and has had a near-term negative impact on Serco's pipeline and profitability".Serco runs a range of services in the UK including defence, education and health sites as well as transport such as London's Docklands Light Railway.But its shares tumbled after it blamed currency volatility and lost contracts for a forecast that 2014 profits would fall up to 20% short of the £277m that the market had expected.Serco said it now expected 2013 revenue to fall by a mid-single digit percentage due to lower work won by the group to date, attrition from losing deals such as the tagging contract and its latest assessment of the impact of volume reductions in its Australian immigration detention services deal."It also includes assumptions as to the extent to which we will be successful in securing further rebids and extensions as well as new bid opportunities during the year," Serco said.Serco signalled in November that adverse currency movements in 2013 which continued to weaken during the rest of the year would reduce revenue in 2013 by about £50m and profits by £8m.Shares in the group fell 10.5% to 455.9p at 11.35 in London.PW