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UPDATE 2-Serco to write down the value of some contracts
July 3, 2014 / 6:40 AM / in 3 years

UPDATE 2-Serco to write down the value of some contracts

* Serco reviewing all contracts after 2013 problems

* To take provisions at first half results

* Shares down 0.5 percent (Adds reaction, detail on forecasts and contracts)

By Kate Holton

LONDON, July 3 (Reuters) - British outsourcing firm Serco , forced to raise cash after a collapse in profits, said it expected to write down the value of some of its larger loss-making contracts as part of a review of its business.

The firm, which said it was trading in line with its expectations, noted that the writedowns could hit its previously stated forecasts for the financial year. Shares in the group slipped 0.6 percent by 1104 GMT.

Serco was rocked last year after 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 CEO and a big hit to profits.

It has downgraded 2014 profit forecasts three times since then, launched a share placing to raise cash and is reviewing its contracts, operations and structure.

“Whilst difficulties continue on some contracts, overall our trading and financial position is in line with the expectations on which we updated the market two months ago,” Chief Executive Rupert Soames said.

“There are many challenges ahead, but I am confident that we can build a strong future for the business.”

Serco, Capita and fellow outsourcer G4S grew rapidly over the last two decades as the government outsourced a string of services from running prisons to inspecting schools to save money and improve efficiency.

But the tagging scandal and high-profile mistakes by G4S over a contract to supply security guards for the London Olympic Games sparked greater scrutiny of a sector that is dominated by a small group of big companies.

On Thursday Serco said it expected to write down the value of some of its larger contracts, including one which provides accommodation for asylum seekers in Britain and a clinical healthcare project.

It will give the full details when it reports its half-year results on August 12 but said on Thursday it could take provisions of between 10 million pounds and 15 million pounds for those two contracts.

Serco said its asylum seeker Compass contract, which has been running since late 2012, had incurred a cumulative operating loss of around 15 million pounds to date.

The healthcare contract has already been written down by 18 million pounds and this could be increased at the half year.

Analysts said the trading update was broadly in line with the one given two months ago but noted that Serco would have to perform well in the second half of the year to meet its full year targets.

The company said for the first half of the year it expects to report adjusted revenue of around 2.4 billion pounds, which it said was broadly flat on an organic basis.

It reiterated its forecast, made two months ago, that adjusted operating profit at constant currency would be not less than 170 million pounds for the financial year. ($1 = 0.5877 British Pounds) (Reporting by Kate Holton; Editing by Elaine Hardcastle)

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