14 Nov 2013

Fake criminal scandal wipes millions off value of Serco

Millions were wiped off value of Serco today, after the fake criminal scandal and a government freeze on new contracts saw its profit outlook plunge.

Serco, the public services contractor which runs UK government services from swimming lessons in Manchester to our national nuclear weapons programme, has taken a share price hit of 17 per cent after the government temporarily blocked it getting any new contracts.

After announcing depressed profit outlook for 2014 this morning, Serco’s shares plunged, wiping about £400m off the value of the company in one day’s trading.

A third of Serco’s £5.12bn revenue in the past 12 months comes from UK government contracts, according to the FT, so the freeze on new contracts has hit the outsourcer hard.

In July, Serco and fellow outsourcing giant G4S were accused of over-charging the Ministry of Justice for electronic prisoner tagging. According to the Ministry they had continued charged the government for prisoners who had died or come off the programme.

In August, the government announced it was putting a freeze on all new contracts for Serco until it had undergone “corporate renewal”.

The Serious Fraud Office announced it was pursuing the case last week.

The UK government will lift its freeze on new Serco contracts if the outsources can convince them it has successfully undergone the three-month “corporate renewal” by the end of November. Then government officials will assess whether the company is fit to receive new government contracts.

Wednesday was the worst day of share trading for Serco since July 2002, according to Reuters.

Serco has also lost its £47m contract at the National Physical Laboratory in Teddington, which sets the standard for measuring Greenwich Mean Time, length, mass and temperature, but still holds multiple other contracts with the British government, worth £1.8bn according to the FT.