Serco boss warns more struggles are ahead as profits downgraded

Rupert Soames slashed the company’s profits guidance for this year and next and wrote down the value of the business by £1.5bn. He highlighted the impact of several contracts where Serco is making large losses and areas where the company is sub-scale.

Mr Soames wants to re-focus the company as a provider of justice, immigration, defence and transport services to governments by selling most of its business outsourcing operations.

The plan will be financed by a £550m cash call to investors early next year, on top of the £165m raised in a share placing in the summer.

Shares slumped by a third following the update as Mr Soames warned Serco will have “to get smaller and more focused” in order to get back on track.

He added: “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.”

Mr Soames took the helm in May after a scandal-hit 2013 in which Serco was forced to refund the Government £68.5m for overcharging on criminal tagging and repay £2m of profits from a prisoner escorting contract.

Serco now expects profits of between £130m and £140m this year, against a previous forecast of not less than £155m. It also lowered estimates for next year.

Confronted by slowing growth rates and increased competition in core markets, Mr Soames said Serco had concentrated too much on winning new business and lost focus by diversifying.

Mr Soames, who is the former boss of temporary power firm Aggreko, said Serco’s infrastructure has not kept pace with its growing scale and complexity, leading to the recent issues.

Hampshire-based Serco employs 100,000 people worldwide and provides services as diverse as hospital services, the running of prisons and support for the armed forces.