12 Jun 2016

Serco lost $10m after Mt Eden fiasco

4:54 pm on 12 June 2016

Private prison operator Serco lost $10 million last year after being stripped of its contract to run Mt Eden prison.

SERCO

Photo: RNZ

Serco New Zealand lost the contract in last July following allegations of assaults and organised fight clubs.

Accounts filed with the companies office showed the multinational company's New Zealand arm spent more than it earned in the 12 months to the end of December.

Despite revenues of $64m, it costs more than doubled compared to the previous year to $74.9m.

The cost of exiting its contract to run Mt Eden Prison totalled $10.1m, including the $8m fine it had to pay to the Department of Corrections for its failures.

A further $2m was spent on what Serco deemed 'disengagement costs' which it incurred when its contract formally ended in March this year.

The accounts showed Serco owes more debt than its assets were currently worth after having to borrow $13.5m from its British parent to prop up its books.

Serco New Zealand's total liabilities now exceeded its assets by $18.9m.

To reduce its debt Serco's British parent, Serco Group, agreed to increase its share capital in its New Zealand arm by $20m.

Serco Group has also provided a letter of support stating it will enable Serco New Zealand to pay its debts until May 2017 - one year from the signing of the accounts.

In a statement Serco said its latest financial statement included costs incurred as a result of the Department of Corrections 'step in' to manage Mt Eden Corrections Facility in July last year.

"In April this year, Serco and Corrections entered into a disengagement and transition agreement and settlement deed, which included a final payment of $8 million to Corrections," it said.

The company's commitment to New Zealand remained strong, Serco Asia Pacific chief executive Mark Irwin said in the statement.

"All Serco New Zealand profits to date had been reinvested in the New Zealand operations. We remain absolutely committed to serving the people of New Zealand, providing services where we can deliver meaningful economic and social outcomes."

Serco is one year into a 25 year contract to run the country's largest public private partnership at Kohuora Auckland South Corrections Facility in Wiri.

"At Kohuora, we remain focused on doing a great job. We have a highly professional team in place and we have made a solid start," Mr Irwin said.

In 2014, Serco lost $2.6m.

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