Mt Eden prison contract loss spurs Serco's Asia Pacific earnings drop

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 in 2015 from £35.5 million a year earlier on a 23% drop in revenue to £544.7 million, 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  from a loss of £201.6 million  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  in 2015 from £1.32 billion  a year earlier, with underlying earnings ahead of guidance at £96 million.

The London Stock Exchange-listed shares jumped 15% to 94.35p  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% of group revenue.

(BusinessDesk)