Serco Plunges as Profit Guidance Hurt by Contract Fraud Inquiry

Serco Group Plc (SRP) forecast a decline in profit next year as it grapples with a criminal inquiry into the handling of U.K. government prison contracts, sending its shares to the lowest since August 2009.

Serco forecast full-year operating profit of about 307 million pounds ($492 million), compared with an estimate from analysts, given by the Hook, England-based company, of 325 million pounds. Serco also said it would cut 400 jobs from its 47,000-strong U.K. workforce in an effort to reduce costs.

“In recent months, our relationship with U.K. government has been impacted by the issues arising on certain contracts with the Ministry of Justice,” the company said today in a statement. “Versus the equivalent in previous years, and in part as a consequence of the ongoing issues with our U.K. government customer, there has been a lower level of new contract awards.”

Former Chief Executive Officer Christopher Hyman resigned last month amid an inquiry into claims that Serco overcharged the U.K. government for tagging criminals. Serco generated about 56 percent of its revenue from the U.K. in 2012, according to data compiled by Bloomberg.

Serco shares fell as much as 11.2 percent, the most since August 29, and traded 11 percent lower at 450.5 pence at 8:25 a.m. in London.

To contact the reporter on this story: Natasha Doff in London at ndoff@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net

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