Keith Brown MSP
Minister for Transport & Veterans
The Scottish Parliament
Edinburgh
EH99 1SP
20th August 2014 R2/1/BO
Dear Keith
Review of Caledonian Sleeper Service Franchise award to Serco
I am writing in respect of the increasing concerns reported to me by our members in Scotland on the news that scandal-hit Serco are looking less and less like a viable future employer. When even the market-makers have now downgraded their shares to ‘sell’ from ‘hold’ and slashed the target price to 295p from 360p, it is right that RMT members should be concerned. Little over a year ago shares were trading at £621.50 each. Two days ago Serco has further announced new plans to withdraw from the clinical health services market in the UK after making a multimillion pound loss on its NHS contracts.
Serco itself admits challenges after recording a first-half loss of £7.3 million. That pre-tax loss compared to profits of £106.1 million for the same period last year. Earnings have dropped due to the loss of contracts including its criminal tagging deal - hit by the overcharging controversy - and one-off charges from restructuring and the cost of Government reviews. All this is causing anxiety for RMT members who are fearful for their jobs.
When you said at the end of May, at the time of the award: “The contract secures the future of the Caledonian Sleeper, ensuring it delivers a service fit for the 21st century and that it provides – as it has done for over 100 years – a unique, valued and high-profile overnight service between Scotland and London,” I also said “RMT is deeply concerned that this important and prestigious service has been awarded to Serco, a company with a truly shocking track record in the delivery of public services”.
At the time though it was straight after the end of the government ban on Serco bidding for contracts and the new company Chief Executive Rupert Soames was just in post, having been appointed on the 8th May. Shares in Serco rose sharply on his appointment to lead its turnaround.
That period is now over and significant risks have been shown to exist for existing investors (both operationally and also from a probable £275million - 375million rights issue). It will take Rupert Soames a considerable length of time to stabilise a business that has seen huge staff turnover, and significant contract attrition, before any sort of recovery can be delivered.
That puts the future of this important and iconic rail service for Scotland in serious jeopardy. I would therefore urge you to consider an urgent review of the award of the contract to Serco in light of the above and the difficulties the company will face in the future to deliver.
I believe our members and the Scottish people need that re-assurance as well as the guarantee that the service will continue and be able to improve in the future.
I look forward to receiving your response
Yours sincerely
Mick Cash
Acting General Secretary