Serco shares slump as it says profits to halve in 2016

Long-suffering investors in Serco have been dealt another blow as the outsourcing group said its profits will almost halve in 2016.

The group has had a litany of disasters in the recent past, ranging from charging the UK Government for electronic tagging of prisoners who were dead, to last month’s costly extrication from a contract to service ships for the Australian navy.

Its shares fell by 8.2p, or 7%, to 106.1p.

That is just pennies off the 101p at which it issued new shares in March in what was then a deeply discounted £555 million rights issue.

Just over two years ago the shares were changing hands for more than 550p.

Serco’s chief executive Rupert Soames, who was parachuted in from power generator Aggreko to turn around the company in May 2014, said: “The guidance we gave in November 2014 for 2015 was broadly in line with what we will deliver.

“Sadly the 2016 numbers, which we always knew would be worse, will drop further.

“It’s a bit of a curate’s egg but the good news is cash outflows are going to be less than expected.”

In the short term Serco actually nudged up its forecast for this year’s trading profit from £90 million to £95 million, which Soames said “reflects the fact that we are beginning to make progress and are delivering on our promises”.

But the group then went on to say it now expects trading profits in 2016 to come in at “around £50 million”.

That was considerably less than some analysts had been expecting, with broker Liberum cutting its forecast from its previous £63 million.

Soames said that while there was “much work” to be done in 2016 and 2017 he was pleased by the recent Comprehensive Spending Review.

He said: “UK Government tenders and contracts were delayed by the general election and then the Spending Review.

“But now we have nine new prisons being built, which is right in our sweet spot and a lot of back-office outsourcing to come at the MoD.”