Serco shares dive after fraud accusations

Security and outsourcing giant Serco saw up to half a billion pounds wiped off its value today as it faced a freeze on lucrative Government contracts amid a fresh scandal over allegedly fraudulent behaviour.

The group, which runs a vast range of services from prisons to rail services, admitted revenues would be hit and new deals delayed following the latest controversy, which centres on its £285 million prisoner escorting service.

Justice Secretary Chris Grayling said it had become clear there was a culture in parts of Serco that was "totally unacceptable". Shares were down by as much as 17%, reducing the company's value by £500 million, though they later recovered some losses.

Mr Grayling warned that unless there was a "rapid process of major change" the group would not win public contracts in the future.

Serco, which was announcing half-year results, said upcoming bids included tenders to run Ministry of Defence infrastructure and support organisations as well as probation outsourcing and community health services for NHS trusts.

Investors took fright despite seeing adjusted profits before tax rise 11% to £127.1 million on revenues that were up 12% to £2.55 billion. The group said expectations for the full year were unchanged.

The prisoner escorting scandal centred on allegations that Serco employees allegedly recorded inmates as having been delivered ready for court when in fact they were not.

Now the contract, which covers prison transfer services in London and East Anglia, has been put under administrative supervision and the affair referred to police.

Serco has agreed to repay £2 million in profits earned since the deal was renewed in 2011 as well as future earnings.

It comes in the wake of an electronic tagging scandal in July, in which Serco as well as G4S were accused of overcharging the Government for monitoring offenders, prompting Mr Grayling to launch an audit.

Following the tagging revelations, Serco withdrew from bidding for a new generation electronic monitoring service.

The group said in its results announcement that the move would impact on growth in 2014 with the loss of annual revenues of around £50 million.

Elsewhere, it said it was the single remaining bidder for Moorland, Hatfield and Lindholme prisons in South Yorkshire but the award would be delayed pending the Ministry of Justice's review.

But Serco is still eyeing the opening up of probation services to the private sector, which it described as a "significant market development" while it said it was also looking at healthcare opportunities after Government NHS reforms.

The group said the Cabinet Office and spending departments looked "increasingly focused on bringing new opportunities to market", adding: "Serco is well positioned to target future growth opportunities across our markets."

It argues that competitive outsourcing helps the Government achieve savings while improving services although critics have attacked its record.

Recent contract awards include running the Docklands Light Railway in east London, environmental services for Canterbury city council, and pilot training at RAF Cranwell in Lincolnshire.

The FTSE 100 group operates services across the world with more than 50% of revenues coming from UK and Europe. These were up 7% to £1.28 billion for the first half.

Chief executive Christopher Hyman said the interim figures showed a "strong financial performance" and the outlook remained positive. He said Serco was working closely with the Government over the ongoing review of contracts.

"Serco prides itself on being a values-led organisation, delivering essential services that matter to people around the world.

"We will act with integrity to deliver the standards expected of a service business such as ours and will put right any issues that arise from these reviews."

PA