LONDON (Reuters) - The boss of British outsourcer Serco said he was confident the sweeping changes he was making would restore the fortunes of the firm after a disastrous first half of the year when profits plunged 59 percent.
The company reported lower-then-expected debt and stuck to its 2014 profit forecast - a rare event after three downgrades - but warned the guidance depended on it cutting costs, fixing failing contracts and uncovering no further problems.
Serco's share price has almost halved in a year after it was hit by a six-month ban on new UK government work in July 2013 for overcharging on a tagging contract, while a raft of other deals have hit problems, forcing the firm to raise cash and begin costly reviews and restructuring.
Chief Executive Rupert Soames, a grandson of famous wartime Prime Minister Winston Churchill, joined from Aggreko in May to lead a recovery. He has overhauled management and launched a review of Serco's strategy and contracts.
He said on Tuesday maintained guidance and debt reduction provided some grounds for optimism for the company, which runs services from prisons to air traffic control centres.
"My suspicion is that folk are not going to be hanging out the bunting yet but they are going to be quite pleased to see that after a stage where every Serco announcement was a downgrade, we've maintained guidance," he told Reuters.
"We have a lot of work to do, but I am confident that, in time, we can restore the company's fortunes."
Despite his upbeat message, analysts warned any turnaround would be slow, with those at Jefferies pencilling in a recovery in 2016. Soames will outline his findings of the review at Serco's annual results in March.
The firm's shares rose as much as 9 percent in early trade, before settling up 4 percent at 342p at 0853 GMT.
Analysts responded positively to the debt figure and also the news that Soames' right-hand man in a successful era at Aggreko, Angus Cockburn, will join Serco in October as chief financial officer.
Serco said adjusted operating profit fell to 50.7 million pounds in the six months to June 30, broadly in line with analysts' forecasts, as the firm won less work, saw margins fall, restructured parts of the group and forked out to cover a number of loss-making contracts.
Net debt fell by a better-than-expected 172 million pounds to 559 million, aided by a share sale in April, potentially easing the likelihood of a further equity raise, analysts said.
The firm said it was on course for 2014 adjusted operating profit at constant currency of not less than 170 million pounds, 42 percent lower than in 2013.
LOSS-MAKING DEALS
Serco runs services in 30 countries but makes almost half its revenue in Britain. Its reputation was rocked last year when alongside rival G4S it was found to have charged Britain for monitoring criminals who were dead, in prison or never tagged, sparking the exit of its CEO, a fine and a ban on new work that ended in Jan.
The fiasco dealt a new blow to the outsourcing industry in the country, with G4S' failure in 2012 to provide enough security guards for the London Olympics provoking a public and political backlash and leading to increased scrutiny on the use and performance of outsourcing firms.
Elsewhere, lower profits on some of Serco's biggest contracts, including a deal to run immigration services in Australia, have hit the firm hard, with its group operating margin falling to 2.1 percent from 5.7 percent a year ago.
Other loss-making deals have added to the woe, including one providing asylum seeker accommodation in the UK which forced the firm to take a 14 million loss in the half.
"I am quite surprised by the number of contracts that are either very marginal or losing money and I'm also surprised by how much it is costing us on some of the bigger contracts ... to meet our promises to customers," Soames said.
Serco has also struggled to add new work, losing out on deals to continue running London's Docklands Light Railway and to support Australian forces, meaning that 2015 revenue would be lower than 2014 and any margin improvement would be unlikely.
"The fact that out of the 40 major contract opportunities going into 2014, the group has lost eight and secured just two, highlights its poor win rate. With the value of new larger bids falling to 8 billion pounds from 12 billion six months ago, the turnaround will be slow," Investec analyst Andrew Gibb said.
(Editing by Erica Billingham and Pravin Char)
Culled from Yahoo News.
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