Serco Shares Plunge on Profit Warning Amid Electronic Tagging Scandal

Serco shares were in free-fall after the scandal-struck outsourcing giant issued a big profit warning.

The firm is being investigated by the Serious Fraud Office (SFO) over its electronic tagging contract with the UK's justice ministry. It was accused of charging taxpayers for work that was not carried out.

Profits would be as much as 20% below market expectations for 2013, said Serco. Its share price plunged by more than 15% on the news.

This is because of costs relating to a "corporate renewal" programme to refresh its organisation's culture, structure and processes in the wake of the electronic tagging scandal.

Serco has also been affected by a drop in new work because of a temporary embargo on UK government contracts, which has now been lifted.

"The significant steps we are taking demonstrate our commitment to rebuilding the confidence of our UK government customer and ensuring that the issues that emerged last year will not reoccur," said Ed Casey, Serco's acting chief executive.

"We are pleased that our progress has been recognised by the positive assessment of our corporate renewal plan, and we believe that Serco can now be considered on an equal basis to other suppliers for current bids, rebids and extensions, such as the Northern Rail franchise extension and the Defence Infrastructure Organisation (DIO) opportunity.

"We have been through a very difficult period since July of last year, which has had a major impact on Serco: reducing near-term growth, diverting management focus, and adding costs to strengthen the business. We are now able to assess more clearly the adverse impact that continues into 2014."

In December it agreed to pay back the Ministry of Justice £68.5m on its electronic tagging contract.

The firm lost its chief executive Chris Hyman in October when he quit amid poor first half results and the SFO probe.

"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."

Serco rival G4S is also under investigation by the SFO over its electronic tagging contract with the government.