Serco unveiled plans to tap investors for £550m worth of new funds on Monday as the scandal-hit operator of prisons, railways and GP services delivered its fourth profit warning in 12 months yesterday and admitted it could breach its banking covenants by the end of the year.
The latest warning from the outsourcing giant knocked more than £500m from its value yesterday as its shares fell 32 per cent to 102.1p.
Serco is now planning a £550m rights issue at the start of next year, after it slashed its profit forecast for this year by £20m to £130m and cut next year’s outlook. The lower profits mean the FTSE 250 firm is set to breach a borrowing covenant, forcing it into talks with lenders. The company is also booking a £1.5bn writedown on loss-making contracts in the UK and Australia.
Serco’s chief executive Rupert Soames, who took over running the firm in May, dismissed criticism that he was “kitchen-sinking” – highlighting negative news so that performance and the share price can only get better. He said: “These very large numbers [of impairments] will come as a bitter pill to all concerned, but they’re better faced up to.”
Serco is still recovering from the fallout from when it overcharged the taxpayer by tens of millions of pounds for tagging criminals who were actually dead or imprisoned.
Mr Soames, who said he will present his Strategy Review in full as planned at the groups’ full year results next March, said Serco was suffering from ministers’ improved ability at driving a bargain. He claimed “the Government has got much more adept at writing contracts and transferring risk to the private sector”. He argued that “talk the Government is soft on contractors is belied immediately when you see our results”.
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He added that the company would focus on public services rather than private contracts and will now focus on justice and immigration, defence, transport, citizen services and healthcare which he said Serco is “really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us.”
He acknowledged: “There are a tough couple of years ahead as we make this transition, but it will be worth it.”
Analysts yesterday warned the situation could still get worse. Andrew Gibb at Investec said: “This might not be the end of the bad news and any turnaround is going to be a long process.”
Mr Gibb added: “Management are talking about a nadir in 2016… [but] until the full details of the [the company’s strategic] review are known and confirmation from the banks and appetite for the proposed rights issue are known, it is very difficult to take a firm view on this stock.”Reuse content