Mt Eden prison contract loss adds to Serco's Asia Pacific earnings nose-dive

Friday 26th February 2016

Multinational outsourcing group Serco saw its Asia-Pacific regional earnings tumble by two-thirds last year as it scaled back a costly contract running Australia's immigration centres and lost the deal to manage Auckland's Mt Eden Correctional Facility remand prison.

Underlying trading profit fell to 11.9 million British pounds in calendar 2015 from 35.5 million pounds a year earlier on a 23 percent drop in revenue to 544.7 million pounds, the Hampshire-based company said in a statement.

The Asia-Pacific division, which provides justice, immigration, defence, health, transport and citizen services in Australia, New Zealand and Hong Kong, posted a profit of 58.8 million pounds from a loss of 201.6 million pounds in 2014 after renegotiating the terms of its Armidale Class patrol boat with the Australian government. That allowed the release of a 63 million pound charge it booked a year earlier when it wrote down the value of the deal.

That improvement was offset by a 16.1 million pound charge on Serco's Hong Kong operations and the Mt Eden contract.

The group said known contract losses and other revenue reductions are expected to have a 50 million pound impact in 2016.

Serco took over the management of the Mt Eden remand prison in 2011 after winning a $300 million, 10-year contract. Footage uploaded to the YouTube streaming video website triggered an investigation into organised fighting among prisoners and access to contraband in the prison, and came at a time when Serco’s contract was up for review. Serco ultimately lost the contract for the remainder of the 10-year period.

In challenging a New Zealand Department of Corrections report into violence at the facility, Serco lawyers indicated there was potential for more litigation.

Still, Serco hasn't been banned from seeking other contracts in New Zealand and continues to manage the Wiri Prison in South Auckland, which the group said helped offset the decline in revenue in 2015.

Serco's annual group loss narrowed to 54.8 million pounds in 2015 from 1.32 billion pounds a year earlier, with underlying earnings ahead of guidance at 96 million pounds.

The London Stock Exchange-listed shares jumped 15 percent to 94.35 pence yesterday after the announcement.

Serco runs outsourced public services around the world in numerous sectors, employing 122,000 people in 30 countries, including Australia's mainland and Christmas Island immigration detention centres to house asylum-seekers and illegal migrants arriving by boat and air.

Its Asia-Pacific division is its second smallest, accounting for about 17 percent of group revenue.

BusinessDesk.co.nz

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