Rupert Soames may well live to regret referencing Manuel from Fawlty Towers on checking in to his new role at Serco.
The new chief executive hadn’t even unpacked his bags before issuing a profit warning and then mounting his first defence of the company’s beleaguered balance sheet. He will hope it is both the first and the last time that he will emulate the hapless waiter from Barcelona. His jovial tones belied the immense job he has taken on.
Mr Soames, the grandson of Winston Churchill, joins the scandal-hit outsourcer at a dire time: Wednesday’s profit warning was its third in six months; around £1.7bn was wiped off its value last year; and the chief financial officer Andrew Jenner has resigned.
The company is trying to repair both its balance sheet and a tattered image following the loss of a £40m government contract after it charged the taxpayer for tagging dead offenders. Forecasts for profits of £220m to £250m, made just seven weeks ago, have been cut to £170m because of the “undesirable level of risk involved” in achieving this goal. Serco hurriedly issued almost 50 million shares yesterday and raised an emergency fund of £160m to bolster its turnaround.
Mr Soames remained tight-lipped on the substance of his revival plans and said he has embarked on a nine-month review of the business. A central element of the strategy to improve the Boris Bikes and prisons operator will be selling off smaller, non-core arms that do not generate high margins. It was this point that sparked his impression of Andrew Sachs’ most famed character. “In the words of Manuel from Fawlty Towers, ‘I know nothing’,” Mr Soames said when questioned by investors over what Serco’s contract margins could be after his appraisal.
His departure from the helm of the temporary power specialist Aggreko after 11 years came as a surprise. Mr Soames, who faced controversy over his £7.1m pay package at the temporary power specialist in 2012, will be paid £850,000 at Serco plus a £255,000 pension, and he is eligible for a bonus of up to 150 per cent of his salary plus shares worth up to 200 per cent of his wage. The Manuel comment was one of a plethora of jests made by the aristocratic yet down-to-earth Mr Soames in his first performance for an enraptured City audience yesterday.
“I’m sitting here with my satchel, protractor set and a large pink eraser on my first day at school,” he joked. Nevertheless, he is in no doubt that he faces a task of Churchillian proportions, “The fact that I’ve personally been an employee of this business for eight and a half hours does not make me comfortable,” he said of the company’s profit targets. “The reason I joined ... is because I believe the chances of not being able to produce a good plan is next to zero. There is an opportunity that investors will give management to take a deep breath, do a proper strategy review and come forward with a plan.”
The skeleton of that plan appears to be clear. Alongside hiving off non-core business, Mr Soames will be determined to restore Serco’s reputation externally and confidence internally, despite plans to axe 600 jobs. Its own struggles come against a backdrop of an industry dogged by scandals, including G4S’s spectacular failure to deliver security for the London 2012 Olympics.
Robin Speakman, an analyst at the broker Shore Capital, backed him to revive Serco. “We will have to be patient on the details of the strategy but Rupert’s background with Aggreko and also deployment of capital in IT services make him the right man for the job. Some of Serco’s contracts stretch over two decades and he will need to look at some, like Northern Rail, which appear uneconomic in the long term.”
Mr Soames’ effervescent style is in marked contrast to his reserved predecessor, Chris Hyman. “Rupert is a force for good. He is very believable [and] has plenty of personality and confidence, which are vital in such a political business,” said Mr Speakman. “I expect significant management change over the next 18 months. It’s about bringing the confidence back into Serco.”
Cantor Fitzgerald analysts expect seismic change. “Serco has had a spectacular fall from grace, in our view, but we are not convinced that the worst is over for shareholders,” they said. “The new chief executive has barely got his feet under his desk and, as we expected, Andrew Jenner … is stepping down. It is therefore a real possibility in our view that we will see more ‘kitchen sinking’ by the new management team.”
Mr Soames may at least benefit from a settled political agenda. During the nine months he has to shape a new strategy, all eyes will be on the vote over Scottish independence and the forthcoming general election. With most big contracts decided at Cabinet level, he may be hopeful of an easy ride from MPs with their minds elsewhere.
If he can channel his grandfather’s resilience into reviving Serco, he will gain more fans for his wit and leadership. If he fails, he may have to run away to Barcelona to escape the City’s angry Basil Fawltys.
Serco’s setbacks: strife for outsourcer
Transport for London warns Serco that it could face fines on its deal to manage the capital’s bicycle hire scheme.
Serco’s £285m contract to escort prisoners in London and East Anglia is put under administrative supervision over allegations of false records on prisoner delivery.
Chief executive Chris Hyman resigns.
Serco sacked after the Serious Fraud Office found that it had overcharged the Government for electronic tags. The company had been charging for tagging offenders who had either left the country, were in prison or were dead.
Finance boss Andrew Jenner departs after third profit warning in six months.