Serco (SRP.L), the outsourcing group is under pressure this morning after releasing a statement to investors detailing a £1.5bln write down of its business and issuing a profit warning. The company says it is planning a writes issue to strengthen its capital.
The company recently carried out a review of its contracts and balance sheet which has uncovered what it deems as “very material impairments”. The company had already released details earlier this year regarding several contracts which are loss making for the company. In particular highlighting a contract with Australian Defence Materiel Organisation for the maintenance of the Royal Australian Navy’s Armidale Class Patrol Boats (ACPB) along with several other smaller UK government contracts.
Serco (SRP.L) has adjusted profit forecast downwards from £155M to £130-140M though this is before the impact of the previously detailed impairments, the company also expects going forward that profit could fall to around £100M in 2015.
Rupert Soames, Group Chief Executive Officer, said: “The rapid progress we have made in recent weeks on the Strategy Review and the Contract & Balance Sheet Reviews has brought us to the point that we are able to provide an initial estimate of the impairments, write-downs and Onerous Contract Provisions that are likely to be required at year end. 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.
“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.
“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.”
Serco (SRP.L) was a heavy faller this morning losing nearly a third of its share price, and is trading at 218.20p by 10am (-31.1%)