MENU

Serco Group plc Terminates Loss-Making Contracts

The shares of Serco (LSE: SRP) climbed 1% to 441p during early London trade this morning after the outsourcing giant revealed it will terminate two loss-making contracts following a review of its clinical health division.

The cancelled arrangements relate to Serco’s contracts with NHS Kernow and Braintree Hospital, where predicted patient referrals have not materialised since 2011.

Managing director of Serco’s healthcare business Valerie Michie commented:

“The global healthcare market remains one of our priorities for the future, where Serco is well-placed to deliver quality services that can be delivered sustainably both for our partners and for patients.  The services we deliver in Cornwall and Braintree are no longer core to the future delivery of our healthcare strategy.”

Today’s news comes after yesterday’s revelation that rival Capita will take over Serco’s controversial electronic tagging contract with the UK government.

It’s been a difficult six months for Serco investors, with group chief executive Chris Hyman stepping down in October following accusations that Serco and G4S overcharged the Ministry of Justice for prisoner tagging. The investigation from the Serious Fraud Office is ongoing.

Historically, Serco's contracts gave the company excellent revenue visibility and stability -- but investors would be forgiven for thinking twice about the situation. An alternative industry marked with impressive recurring revenues is the telecoms sector.

In my latest special report, the Motley Fool's "Guide To Investing In Telecoms" I've laid out exactly what you need to look out for to evaluate a business in the sector for yourself.

Just click here to download it for free!

> Mark does not own shares in Serco.