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UPDATE 1-UK outsourcer Serco says braced for tough 2014 as profits fall
March 4, 2014 / 8:41 AM / 4 years ago

UPDATE 1-UK outsourcer Serco says braced for tough 2014 as profits fall

* FY adjusted pretax 254.4 mln stg vs f‘cast 257 mln

* Sees fall of as much as 23 pct in adjusted op profit

* Sees adjusted rev of 4.7-4.9 bln at constant currencies

By Neil Maidment

LONDON, March 4 (Reuters) - Embattled British outsourcing group Serco said it was braced for another tough year as it recovers from government contract failures, profit warnings and management exits that pushed 2013 annual profit down 6 percent.

The firm, which on Friday named Aggreko Chief Executive Rupert Soames as its new boss, said on Tuesday yearly adjusted pretax profit fell to 254.4 million pounds ($425 million), slightly below an average analyst forecast of 257 million.

Serco has been rocked by the fallout from issues such as being found to have overcharged the UK government for tagging criminals, which sparked a ban on new work, the exit of CEO Chris Hyman, profit warnings and a steep drop in its shares.

It had already warned in January that profits in 2014 would be lower than 2013 as it counts the cost of restructuring measures designed to win back government trust. It is also dealing with slowing income on a key Australian immigration contract and lower levels of new work.

“Whilst we welcomed Friday’s announcement that Mr Soames would become group CEO ... he will have his work cut out. Serco is in need of serious repair,” analyst Sam Thomas at brokerage Cantor Fitzgerald said.

Serco reiterated 2014 expectations for a 50-100 basis point reduction in its 5.6 percent operating margin and a fall of as much as 23 percent in adjusted operating profit from 285.4 million in 2013. Adjusted revenue will fall from 5.1 billion pounds in 2013 to 4.7-4.9 billion at constant currency rates.

The company, which had a six-month ban on winning new UK government work lifted in January, said its order book was worth 17.1 billion pounds, down 2 billion on a year ago. Its bid pipeline, which includes UK defence and transport deals, was worth 12 billion pounds over the next two years.

Shares in Serco, which employs over 100,000 staff in some 30 countries running services from London’s light railway to air traffic control towers in the United States, were up 0.7 percent to 453 pence at 0810 GMT, still some 35 percent below its price in July when the tagging scandal erupted.

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