Serco slumps on profit downturn
SHARES in Serco dropped nearly 4.5pc yesterday after it predicted profits will almost halve in 2016.
In a trading update the outsourcing giant announced that profit this year would reach £95m – better than the £90m it expected – but that it would fall to £50m in 2016.
Analysts had originally forecast profits of £69m for next year, but Serco said the sale of its offshore call centre BPO and the loss of certain contracts would result in profits taking a hit in the year ahead.
Revenue is predicted to fall by 20pc to £2.8bn, with the sale of the call centre alone reducing revenue by £300m. Shares crashed by more than 13pc in early trading yesterday in response to the profit warning, making Serco one of the biggest fallers in the FTSE 250. By the close, the stock was 5p down at 109.3p.
The company, which made a trading loss in 2014, has had a torrid few years, and was blacklisted for a short time over accusations it defrauded taxpayers.
It is going through a major overhaul after a series of problems with Government contracts, which included overcharging for monitoring criminals and mismanaging an outof-hours health centre in Cornwall.
Last year Rupert Soames was brought in as chief executive to turn Serco’s fortunes around.
The renegotiation of some lossmaking contracts and improved operational performance meant its profits for this year were £5m ahead of expectations.
Soames said: ‘We said that we expected 2016 to be a further challenging year. We still expect this to be the case, caused in part by continued attrition of the contract base, and in part by the BPO disposal.’
Soames said the General Election in May had meant a slowdown of new contracts in the UK for Serco and that any new undertakings would not see money brought in straight away.
‘There is always a slowdown in the awarding of new contracts before an election.
‘There was very little awarded in the six months in front of the election and then everyone was on hold for the comprehensive spending review,’ he said.