Serco Drops After Saying That 2014 Earnings May Miss Estimates

Serco Group Plc (SRP) fell the most in more than two months after a profit warning eclipsed the company’s announcement that its bids may again be considered on an equal basis with competitors for U.K. government contracts.

Adjusted operating profit for 2014 may be 10 percent to 20 percent less than analysts’ average estimate of 277 million pounds ($457 million) on a constant currency basis, the Hook, England-based company said in a statement. The shares declined as much as 17 percent, the biggest drop since Nov. 14.

Serco, Britain’s largest government outsourcing provider, was barred from consideration for certain government contracts last year after overcharging for electronic tagging of criminals, including some who had died. The company’s plan to strengthen controls and avoid such problems in future has had “a positive assessment” from the Cabinet Office and brings additional costs, according to the statement.

“Serco can now be considered on an equal basis to other suppliers for current bids, rebids and extensions,” Ed Casey, acting chief executive officer, said in the statement. “We are now able to assess more clearly the adverse impact that continues into 2014.”

Serco dropped as much as 85.30 pence to 424.20 pence in London. The shares were down 13 percent at 442.7 pence as of 12:29 p.m.

The company said it anticipates a mid-single-digit percentage organic decline on 2013 revenue after difficulties with government contracts.

The company’s activities range from hospital management to running London’s Docklands Light Railway. Serco said on Dec. 19 that it would repay 68.5 million pounds to the government to settle an inquiry into overcharging that caused the resignation of its CEO and cut about 30 percent from its share price since July.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net

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

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