Serco share price falls again as it warns the value of its 'onerous' contracts has fallen

More misery for the perpetually depressed Serco. Difficult not to feel a bit sorry for Rupert Soames.

by Emma Haslett
Last Updated: 10 Nov 2014

Feeling a bit lacklustre as summer sets in? Just take a look at the share price chart of outsourcer Serco over the past year. We guarantee it'll remind you that there are others who are much worse off  (unless, of course, you're a Serco shareholder):

Source: Google Finance

That's a 45% drop, that is. Ouch.

There was never any question Rupert Soames, the company's new CEO, was going to need some of that Churchillian strength he inherited from his granddad - but a trading update posted this morning will test that. In its half-year results the company said it expects to make writedowns on some of its 'larger onerous contracts', like asylum seeker housing and clinical healthcare arms, this year.

Tell us something we didn't know: Soames, who is currently in the middle of a nine-month strategic review of the company's contracts, had previously warned shareholders that 2014 was going to be a bumpy ride. At the end of April, he said full-year profits would probably be more like £170m, rather than the £250m Serco had originally expected.

And the company has also said before that its five-year Compass asylum seeker contract, which it won in 2012, was going to cause problems, suggesting the cost of executing it will probably end up being more than the revenues it makes from it. Apparently, the project is currently making a £15m loss, and that's with another year or so to go.

In another situation, shareholders might react to this kind of warning with more ire, but as it was, shares opened 1.5% lower than last night's closing price, then climbed to 0.5% lower in mid-morning trading. That's probably helped by Soames' calming influence: word is he actually rang Serco's board up and asked for the job. That's the kind of confidence you can't buy.

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