Serco to Write Down Contracts Ahead of Half-Year Results

Scandal-hit outsourcing company Serco said it expects to write down the value of certain of its larger contracts in a bid to balance its books when it reports half-year results next month.

Serco said the write downs will affect its Compass contract, which provides shelter to asylum seekers and a clinical healthcare project, as part of a review of the firm's business. The reductions in value will be factored into the results statement on August 12.

Serco chief executive officer Rupert Soames said: "Whilst difficulties continue on some contracts, overall our trading and financial position is in line with the expectations on which we updated the market two months ago.

Soames added that the company's review strategy is rebuilding trust and confidence with the UK government. It is currently banned from acquiring new government contracts.

In its trading update Serco said it "expects to report adjusted revenue of approximately £2.4bn ($4.1bn, €3bn), which is broadly flat on an organic basis."

It still expects to make adjusted operating profits of at least £170m for the first half of the year, and said it has won more than £2bn of contracts during that time.

The Compass and healthcare contract write downs are expected to be in region of £10m-15m.

Companies will usually attempt to time large write-downs together, so they can "take a bath" in one reporting period with the hope of quickly recovering in the next period.