Two of the UK’s largest private sector outsourcing firms have been busy restructuring their businesses in the last 12 months in a bid to get back in the black. Now, with their restructuring plans well under way, Serco and G4S have reported on their progress to date.

Serco Group plc, the embattled international service company, had braced itself for a tough 2014 as it continues to recover from government contract failures, profit warnings and management exits that led to a 6 percent fall in profits in 2013.

The focus of Serco restructuring

In October last year, Serco announced changes to its company structure in a bid to provide the government with evidence of its ‘corporate renewal programme.’ Following a number of well publicised failures, the company was well of aware of its need to improve its transparency in all dealings with the UK government as a customer.

Serco’s measures to improve its damaged relationship with Whitehall included:

  • The resignation of Christopher Hyman as group chief executive
  • Separating the UK & Europe division into two bodies, with one focused purely on Central Government as a customer
  • A strengthening of contract level governance and transparency

A work in progress

The outsourcer has announced a pre-tax loss of £7.4million for the first half of 2014, inclusive of a one-off restructuring cost of £29.4 million. Progress has also been made in strengthening the giant’s senior management team, with a number of new appointments in key positions.

The newcomers include: Kevin Craven as CEO UK Central Government division; Angus Cockburn as CFO; Liz Benison as CEO UK Europe Local and Regional Government division; and David Eveleigh as Group General Counsel and Company Secretary (as of November).

In response to the figures, Rupert Soames, Group CEO of Serco, said: “As expected, trading was poor in the first half. Profits were in line with our revised expectations, and cash flow and net debt were better.

“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 contrasting fortunes of G4S

While Serco claws itself back slowly from the brink, rival firm G4S has made marked progress in its restructuring efforts, posting pre-tax profits of £85million for the first six months of 2014. This turnaround is all the more remarkable given the £94million loss recorded during the same period last year.

G4S cites its positive performance in emerging markets for the reversal of fortunes, with demand for the group’s services robust in the UK and across Europe, whilst growth has returned to the North American market. This has resulted in new contracts to the value of £1.2billion and a 13.2 percent increase in earnings.

The security giant’s swing back to profit is all the more impressive given the £109million the firm has agreed to repay to be cleared to bid for government contracts. However, despite their early progress, both Serco and G4S are both currently under investigation by the Serious Fraud Office following the overcharging for criminal tagging services last year.

Restructuring Top tips

  • Be clear on what the objective of the restructuring is before you start and keep the objective in mind when the restructuring has been completed.
  • Have a clear plan in place to achieve the objective.
  • If you are restructuring be aware there may be tax and legal ramifications too so take appropriate professional advice beforehand.
  • If you are downsizing do not throw the baby out with the bathwater and ensure you do not lose staff accountability.
  • If you are considering a merger or acquisition always complete a due diligence process – never buy or merge on a whim.

If there is a merger or acquisition check the staff TUPE contingent liabilities.

Please share your experiences of corporate restructuring in the comments section below. Alternatively, get in touch with our friendly team to see how we can help you and your business out of a sticky situation.