Mt Eden jail operator Serco Group's 'darkest hour'

Serco took on a 10-year management contract for Mt Eden Corrections Facility in 2011. Photo / Dean Purcell

UK jail operator faces financial strife but says NZ operations won’t be affected.

The British outsourcing giant that operates Auckland's Mt Eden prison is facing major financial strife, with its boss warning jobs will be slashed and unwanted business divisions sold off as part of an aggressive turnaround strategy.

But Hampshire-based Serco Group says its New Zealand operations, which reported an almost 90 per cent drop in profit last year, will not be affected.

The company's London-listed shares fell by a third this week after the company downgraded profit guidance, announced 1.5 billion ($3 billion) in writedowns related to losses on business contracts and unveiled a plan to raise up to 550 million through a share issue. Serco chief executive Rupert Soames, a grandson of former British Prime Minister Sir Winston Churchill, said the company was facing its "darkest hour", the Daily Mail reported.

Adjusted revenue would fall from the more than 5 billion reported last year to as low as 3 billion in 2016, the company said.

Serco employs 122,000 people in more than 30 countries, operating everything from healthcare facilities to laboratories and air traffic control.

The company was embroiled in a scandal last year after the British Government, its biggest customer, accused the firm of overcharging for the electronic monitoring of people who were either dead or in jail.

The company agreed to repay 68.5 million for the overcharging and was banned from UK Government contracts for six months.

An investigation by Britain's Serious Fraud Office into the overcharging is ongoing.

Serco commenced a 10-year management contract for the Mt Eden Corrections Facility in August 2011. The company, which employs more than 350 people in New Zealand, is also hiring staff for the $300 million, 960-bed Auckland South Corrections Facility, now named Kohuora, which is being built in Wiri.

A Serco New Zealand spokeswoman said the group's underlying business was strong and the firm was focusing on Government work, including justice, and New Zealand was among the countries it was "prioritising".

Rupert Soames says Serco Group - the British firm operating Mt Eden Prison - is facing difficult times.

"While we undoubtedly have challenges to manage in the short term, those challenges are specific to certain contracts, none of which are in New Zealand," she said.

"We must underline that the day-to-day delivery of contracts and services [in New Zealand] will not be affected."

Serco New Zealand reported an almost 90 per cent drop in profit to $37,466, from revenue of $34.1 million, in 2013, according to financial statements lodged with the Companies Office.

Its profit was affected by increases in income tax, administration, wage and utility expenses.

The spokeswoman said the rise in income taxes related to expenses incurred during the bidding for the Kohuora prison contract. Kohuora is being developed by SecureFuture, a consortium of Serco, Fletcher Construction, Spotless and John Laing.

"We are proud of our team in New Zealand and pleased with our performance to date," the Serco spokeswoman said.

Serco Group also told shareholders this week that the financial impact of its "strategic mis-steps" was being offset to some extent by the rapid growth of its profitable contract to run Australia's controversial immigration detention centres.