Serco Warns of 2014 Profit Hit on Contract Fraud Investigations

Serco has warned investors that its 2014 profits will be hit following the investigations by the government and City of London police into suspicions of fraud on one of its public sector contracts.

The embattled security group, which lost its Chief Executive Christopher Hyman in October, said the impact of multiple high profile contract problems in Britain and Australia will hit margins.

Analysts initially forecast 2013 operating profits to be flat from the previous year at £307m (€366m, $492m) but Serco said in a statement that its operating margin this year will now be slightly lower than the 6.4%.

Due to its contract problems, it also said 2014 will mean less profit and lower revenues.

Job Cuts and Change of Guard

Serco revealed that it will axe around 400 jobs in its UK and business process outsourcing operations, from a total headcount of 47,000, amid the raft of investigations into its UK government contracts.

In July, the Ministry of Justice said it had seen evidence of misreporting by Serco on its £285m contract to ferry individuals from courts to prisons. It is accused of reporting the delivery of prisoners to and from courts when no such journey had taken place.

"It's become very clear there has been a culture within parts of Serco that has been totally unacceptable, and actions which need to be investigated by the police," said Justice Secretary Chris Grayling at the time.

"We have not seen evidence of systemic malpractice up to board level, but we have been clear with the company - unless it undertakes a rapid process of major change, and becomes completely open with government about the work it is doing for us, then it will not win public contracts in future.

"The taxpayer must know that their money is being properly used."

Serco's CEO ceremoniously resigned around the time of the investigation announcement.

"I have always put the interests of Serco first. At this time, nothing is more important to me than rebuilding the relationship with our UK government customer," said Hyman in a statement announcing his resignation.

"In recent weeks it has become clear to me that the best way for the company to move forward is for me to step back.

"I have been fortunate enough to have had the privilege of working at a great company with extremely talented people. I wish everyone at Serco the very best for the future."