LONDON May 1 The grandson of Winston Churchill
delivered his own brand of fighting talk on his first day as
boss of British outsourcer Serco, pledging to reverse
the "severe damage" caused by contract scandals and put "a
spring in the step" of staff.
Serco was rocked last year when it was found to have
overcharged the British government on a contract to tag
criminals - sparking a ban on new government work, the exit of
its long-serving boss Chris Hyman, a drop of almost 1.7 billion
pounds in its market value and a big hit to profits.
Late on Wednesday the firm said a detailed review of
contracts and its work prospects had revealed the extent of the
damage, forcing it to downgrade 2014 profit forecasts for the
third time and launch a share placing to raise cash.
"The reason I joined the company is because I believe the
chances of not being able to produce a good plan is next to
zero," new Chief Executive Rupert Soames said on Thursday, just
eight hours into the job, having joined from power firm Aggreko.
"There is an opportunity that investors will give management
to take a deep breath, do a proper strategy review and come
forward with a plan."
Serco runs services in over 30 countries from prisons and
air traffic control centres to school inspections.
Asked what his priority beyond stabilising the firm in a
home market that makes up half of its 4.8 billion pounds
revenue, Soames - grandson of the famous wartime British prime
minister - said its beleaguered staff needed reinvigorating.
"Events of the last year have caused severe damage to this
business ... A priority is to try and get a spring in the step
of Serco people and make them feel proud again."
The appointment of Soames was widely welcomed, although his
nine-month strategy review, which is set to conclude next March,
illustrates the lengthy road to recovery flagged by analysts.
"I'm sitting here with my satchel, protractor set and a
large pink eraser on my first day at school," said Soames, whose
jovial tone belied the scale of the task ahead.
"I joined the company because I am sure there is a terrific
business here," he said in a call to analysts and investors.
Serco expects 2014 adjusted operating profit will now be "no
less than 170 million pounds", as much as 32 percent below March
guidance of 220-250 million pounds, itself a downgrade. In 2012
operating profit was 315 million pounds.
The company said the drastic fall was due to significant
reduction in margins on renewed contracts, the cost of fixing
underperforming contracts, restructuring, and fewer new business
wins caused by the controversy of the tagging scandal, which
remains under investigation by Britain's Serious Fraud Office.
Soames, who similarly launched a nine-month strategy review
when he became boss of Aggreko over a decade ago that
led to a hugely successful period for the firm, said all parts
of the group would come under scrutiny so it could focus on
growth areas and determine what may no longer be core.
To avoid stretching its debt facilities and to buy himself
time, Soames launched a placing of new shares representing 9.9
percent of its existing stock, which raised 160 million pounds
But analysts said that might not be enough to fund Serco's
"We are not convinced that this will be sufficient given the
downward spiral the company seems to be in," Cantor Fitzgerald
analysts said. "Serco has had a spectacular fall from grace but
we are not convinced that the worst is over for shareholders."
The new profit forecast is dependent on a much improved
second half of the year for Serco, pinned on improvements to
poorly performing contracts, cost savings and new work.
The company said it had a pipeline of new work up for grabs
in 2014 and 2015 worth around 11 billion pounds, comprising of
35 to 40 contracts including local government ferry and rail
work and two large non-defence contracts in North America.
The tagging fiasco - when alongside rival G4S the
firm was found to have charged for monitoring criminals who were
dead, in prison or had not been tagged at all - led to Serco
paying back 68.5 million pounds to the government.
Serco also paid back 2 million pounds for a prisoner
escorting contract scandal after staff were found to have
recorded prisoners as having been delivered ready for court when
in fact they were not.
The laboured turnaround at Serco expected by analysts is
similar to that of G4S, also recovering from the tagging fiasco.
Like Serco, G4S - the world's No.1 security firm - has a new
chief executive, and has spent recent months restructuring vast
parts of the group, raising cash to allow itself time to do so.
In March G4S said it would repay about 109 million pounds to
the government for its part in the tagging scandal.
(Editing by Pravin Char)