Serco shares have taken a hit after the company announced that its profits are likely to be £20 million less than originally forecast.
The company’s new chief executive, Rupert Soames, said that around £1.5 billion would also have to be written off the business following a strategic review of the company’s activities.
Although the review is ongoing, it has highlighted various impairments and loss-making contracts.
In the UK, Serco currently operates the Northern Rail and Merseyrail franchises in partnership with Abellio. In May, the company was also awarded a 15-year contract to operate the Caledonian Sleeper service.
Soames said it was a “bitter pill”, adding that the company has a couple of “tough” years ahead.
In a bid to address some of these problems, the company is also planning an equity rights issue in early 2015 in which it hopes to raise up to £550 million.
“Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco’s future,” said Soames.
“As might be expected, the Contract & Balance Sheet Reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts. These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015.”
Operating profit for 2014 has been reduced by £20 million to between £130-140 million and the outlook for 2015 has been reduced.
Soames added: “Looking ahead, we have not yet completed our strategy review, and we will present it, as planned, at the time of our full year results in March 2015.
“However, the direction is clear: Serco will concentrate on its core as a leading supplier of public services – an international B2G business focused on justice & immigration, defence, transport, citizen services and healthcare. These are businesses which we are really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us.
“There are a tough couple of years ahead as we make this transition, but it will be worth it.”
Not sure what this all means. Are they saying that things will be bad over the next two years as they’ve won the Caledonian Sleeper contract? If so, then why bid for it?
Also, I do not understand how admitting they’ve not completed their strategy review can be “looking ahead.” That must be an action in the past, surely?