27 May 2017

Prison safety concerns after Serco's latest loss

6:19 pm on 27 May 2017

Serco New Zealand lost $10.5 million last year as the consequences of losing its Mt Eden Prison contract continued to bite.

A Serco sign at Mt Eden prison

A Serco sign at Mt Eden prison Photo: RNZ / Diego Opatowski

Accounts filed with the Companies Office show the winding up of the contract that it lost in 2015 cost it a further $3.2m in 2016.

Serco's finances were also hit by lower revenues, higher staff costs and its first income tax bill in three years.

Revenue for the 12 months to the end of December fell 18 percent to $52.1m, while staff costs increased 9 percent to $43.8m.

It also had to pay $4.3m in income tax after receiving tax credits in 2015 and 2014.

An "onerous contract provision" of $3.2m was also provided for to account for the costs incurred in the concluding period of the Mt Eden contract.

A $30m loan from its British parent Serco Group, by way of two separate equity raisings during 2016, "strengthened" the company's finances, Serco New Zealand said in a statement.

This saw 30m new shares in Serco New Zealand being bought by Serco Group for $1 each.

Serco Group also guaranteed financial support for its New Zealand arm until at least the end of 2017.

Serco lost $10.9m in 2015 after it was penalised and stripped from its contract to run Mt Eden Correctional Facility. It lost $2.6m in 2014.

Three years of losses were worrying, Labour Corrections spokesperson Kelvin Davis said.

"It means they're probably going to cut costs and corners when it comes to running the prison ... I've concerns then for staff safety, I've concerns for prisoner safety and the safety of the community."

Serco New Zealand was two years into a 25-year contract to run the Kohuroa Auckland South Corrections Facility in Wiri, which was jointly owned by InfraRed Capital Partners, John Laing Investments and ACC.

Serco Asia Pacific chief executive Mark Irwin said Serco continued to support the government's goals to reduce reoffending and create better outcomes for Māori.

"Our focus across the prison is to achieve the outcomes that we are contracted to deliver on behalf of New Zealanders. Our contract sets clear performance standards, expects us to achieve significant savings for government and holds us accountable if we don't deliver. Our people are part of the communities we serve, and our aim is to make those communities safer, better places."

The prison officers' union says it will be seeking assurance from Serco no jobs will be lost, in light of the financial loss.

The president of the Corrections Association, Alan Whitley, said his concern now was that the company may look at recovering costs by laying off staff.

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