Poor trading in the first half of the year has seen Serco’s profits plunge by 59 per cent. A direct result of the company failing to secure new work, falling margins, restructuring costs and loss making contracts.
Operating profit dropped to £50.7 million in the six months to June 30 from £146.3 million in the same period a year ago and the company’s share prices have almost halved in a year.
Former chief executive officer of engineering firm Aggreko, Rupert Soames, who took over as CEO of the Serco Group in May, commented on the losses, he said:
“As expected, trading was poor in the first half. Many challenges remain, and we have a lot of work to do, but I am confident that, in time, we can restore the company’s fortunes.”
In May Serco announced plans to raise £170 million from selling new shares after issuing two profit warnings.
Last year, saw the outsourcing firm hit with a six-month ban on UK government contracts, following a scandal over criminal tagging which claimed the company had been charging for tagging people who were either in jail or deceased. According to Soames the scandal had affected morale within the business and resulted in several senior managers leaving. Numerous new appointments have since been announced to strengthen the company’s leadership team. Angus Cockburn, currently Interim Group CEO at Aggreko, will be joining Serco as chief financial officer in October; Kevin Craven, CEO of Balfour Beatty Services, will join in September as CEO of our UK central government division; Liz Benison, previously VP and general manager of Computer Science Corporation’s UK business, will be joining as CEO of our UK & Europe local & regional government division also in September; and David Eveleigh, general counsel of BT Global Services, will join as Group general counsel and company secretary in November.
Serco’s reputation has been further dented as it struggles to add new work to its books. At the beginning of 2014, the company said it had a pipeline of 40 opportunities for new business, however, eight opportunities have been lost and only two have been won. In July Serco lost out to Keolis-Amey JV to continue running the Docklands Light Railway in London contract. Serco commented:
“We are working on improving win rates and the pipeline itself requires replenishment: over the next two years, the estimated total value of new larger bid opportunities is £8 billion, down from £12 billion six months ago.”
A number of loss making deals have also hit the company hard. A contract to run immigration services in Australia has seen the group’s operating margin tumble from 5.7 per cent a year ago to 2.1 percent, whilst a deal providing housing for asylum seekers forced the company to take a £14 million loss.
A detailed analysis of the company’s contracts was undertaken as part of a review strategy in July, which the company has confirmed could affect its profit expectations for the year.