Serco, which operates the Dubai Metro and Tram, suffered a stock rout yesterday after the UK company announced its fourth profits warning of the year and said it planned a rights issue.
The facilities manager that won the 10-year contract to operate the Dubai Metro in 2009 and a Dh105 million contract to run the Dubai Tram last year, said it was cutting its profits forecast for 2014 by £20 million (Dh116.7m) to between £130m and £140m.
It proposed to raise up to £550m from shareholders next year.
Serco said that impairments could total about £1.5 billion.
The news sent Serco’s shares on the London Stock Exchange plummeting by 34 per cent in early trading, falling to 220.2 pence from last Friday’s close of 317.10p by 3pm UAE time. They sank further in the afternoon, and were at 206p by 8pm UAE time. That put their decline for the year at 58.7 per cent.
Serco blamed problems with some government contracts and worse than expected financial results in the second half of the year.
So-called “onerous contracts” included contracts with the UK public bodies such as UK asylum seeker support, the Royal Navy fleet support, prisoner escort and custody services and the National Citizen Service.
Serco said that it was also revising costs related to a contract with the Australian Defence Materiel Organisation.
The company said that it planned to raise £500m by disposing of its environmental and leisure businesses in the UK, Great Southern Rail business in Australia, and the majority of its private sector business process outsourcing business.
“As might be expected, the reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts,” said Rupert Soames, group chief executive.
“These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015,” he added.
“While 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.”
The company added that as part of a comprehensive strategic review it had decided to concentrate on its core business, supplying public services “focused on justice and immigration, defence, transport, citizen services and health care”.
Last year Serco agreed to hand back £68.5m to the UK government after it was accused, along with rival G4S, of billing taxpayers for electronically monitoring prisoners who were either back in prison, overseas or dead.
“Serco has a sensible management team in place with a strong track record, but the question is whether the business is able to be turned round,” said Andrew Gibb, an analyst at specialist bank Investec.
“They say that they are focusing on government work, but the truth is that at the moment the UK government doesn’t seem to be willing to give them any work. All of this is unlikely to have much immediate effect on the Dubai Tram or Dubai Metro because they are some of the company’s profitable contracts and still fit very much into core business.”
lbarnard@thenational.ae
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