NEW Serco boss Rupert Soames has hired his former right hand man at Aggreko as new chief financial officer, as he attempts to turnaround the struggling business.
Angus Cockburn, currently interim CEO at Aggreko, is to replace the scandal-hit outsourcing group’s long-serving finance director Andrew Jenner. He will be reunited with former Aggreko chief executive Soames, who he worked alongside for 11 years at the FTSE 100 support services company.
His appointment was announced as Serco plunged to a first-half pre-tax loss of £7.3m and reported a 59% fall in operating profits due to falling margins, increased costs associated with loss-making contracts and fewer contract wins.
The company is suffering after a series of botched British government contracts in which it overcharged for providing electronic tagging equipment. Last year, it was accused by the government of charging for tagging people who were either dead or in prison. Serco was forced to pay back £68.5m to the taxpayer and was temporarily suspended from winning new public sector contracts.
Shares in Serco have almost halved since it was hit by the six-month ban on new public sector work in July 2013, resulting in a string of lost contracts, including London’s Docklands Light Railway. The losses forced the company to raise capital and undertake a root and branch review of its business.
“It will take time to heal these wounds and restore self-confidence, and as always, actions will speak louder than words,” Soames said.
In the six months to June 2014, Serco won £2.5bn of new work, such as the Caledonian Sleeper rail franchise and the retention of a series of existing operations, including Northern Rail. However, the company said the value of new awards was low.
“Of our pipeline of around 40 major opportunities at the start of 2014, eight have been lost whilst two have been won,” the report said. “We are working on improving win rates and the pipeline itself requires replenishment: over the next two years the estimated total value of new larger bid opportunities is £8bn, down from £12bn six months ago.”
Revenues fell from £868.2m to £836.2m in the first half of the year and Soames admitted that performance had been poor. However, the company has been supported by steps taken to strengthen its balance sheet via an equity placing of 49.9 million shares that raised £160m.
“The successful placing, together with improved free cash flow generation, has substantially reduced the group’s net debt,” he said. “Many challenges remain, and we have a lot of work to do, but I am confident that, in time, we can restore the company’s fortunes.”
The company is in the midst of a strategy review, which it expects to be completed in time for its full-year results. It has already made a series of changes such as closing its Hong Kong office and restructuring its Africa, Middle East, Asia and Australasia operations.
Soames left Aggreko to take over at Serco in June, one month after the business confirmed Jenner, who was appointed CFO in 2002, was to step down. Jenner will be replaced by Cockburn from October.
Cockburn has served as Aggreko’s interim CEO since April, having previously been CFO since 2000. Prior to joining Aggreko, he served for three years as managing director of Pringle, and for five years as a senior finance executive of PepsiCo.
There has been speculation that the company will tap investors for further funds through a rights issue next year. Cited in the Financial Times, Kean Marden, analyst at US investment bank Jefferies, said:”A better than expected balance sheet diminishes the likelihood of a further equity raise but it will remain an issue due to weak 2015 profit guidance.”
Following the appointment of Cockburn, shares rose 4.5% to 343.8p in morning trading on the London Stock Exchange.
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