14th Nov 2013 08:05
LONDON (Alliance News) - Serco Group PLC Thursday warned that it has been hit by the UK government contract issues and the impact of October's US government shutdown, with margins under pressure as contract awards are delayed or lost.
The company cut its full-year profit expectations and warned that profits in 2014 are set to be even lower.
In a trading update, the outsourcing company said it still has a wide range of expectations for its full-year adjusted operating profit at constant currencies, but the mid-point of GBP307 million would be broadly similar to last year and well below current market consensus of about GBP325 million. It warned that 2014 profit is likely to down down on this year.
"At this stage versus the equivalent in previous years, and in part as a consequence of the ongoing issues with our UK Government customer, there has been a lower level of new contract awards to drive organic revenue growth," the company said in its statement.
Serco didn't give any more details of the ongoing investigations into some of its contracts, but said that it has so far identified one-off costs of GBP15 million associated with the contract being reviewed and has paid GBP12 million for things like external advisers.
"Whilst we are clearly facing challenges and have experienced tougher conditions in recent months, we have still achieved GBP3 billion of contract awards in the year to date and made further progress in our strategy of creating a broader and more balanced portfolio," acting Chief Executive Ed Casey said in a statement.
"The UK Government audits and reviews are ongoing and we remain firmly committed to rebuilding the confidence of our UK Government customer," he added.
The government in July placed all the criminal tagging contracts held by Serco and rival G4S PLC under review after an audit showed they had been over-charging, claiming for people who were dead, who had never been to prison, or never tagged in the first place. The UK's Serious Fraud Office has now opened a criminal investigation into the contracts.
The government in August then called in police to examine claims of fraudulent misreporting of data on the company's contract to transport prisoners to court in London and East Anglia.
That led to the departure of former Chief Executive Christopher Hyman, with the company pledging to work with authorities probing the contracts and to undergo internal changes in a bid to rebuild trust with the UK government, one of the company's biggest customers.
The Financial Times Thursday illustrated just how deeply embedded Serco is with the UK Government, reporting that it has seen figures showing the company has over GBP4 billion worth of contracts with the Ministry of Defence alone.
By Steve McGrath; [email protected]; @stevemcgrath1
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