Serco agrees amendments for Australian contract

Outsourcing firm Serco Group and the Australian government have reached a deal to amend the terms of a loss-making deal for Armidale Class Patrol Boats.

The amendments mean the deal will now end in 2017, five years earlier than originally scheduled, after the group booked a £136m provision in its full year results for 2014, which reflected expected losses on the deal for its scheduled duration.

The FTSE 250 company, which will now provide maintenance work on a pre-agreed cost recovery basis subject to strict cost caps and audit processes, also booked a £66m charge on the contract related to receivables impairments.

Serco added that while the agreed changes are expected to result in a significantly lower volume of provisions being booked, its trading profit guidance for the full year should not be affected.

"We are pleased to have reached a mutually beneficial agreement with our customer on this matter,” said group chief executive Rupert Soames.

“Today's amendments represent an equitable solution for both parties.”

Serco shares were up 6.59% to 105.90p at 0847 GMT on Monday.