Serco, the embattled outsourcing group, cancelled its next three dividends and announced plans to tap shareholders for £555 million as it admitted that operating losses and contract misjudgments had cost it £1.3 billion.
Shares in the company were marked down 11 per cent to 183¾p as it unveiled a deeply discounted rights issue to pay down its debts and avoid possible bankruptcy.
Serco, which is being investigated by the Serious Fraud Office amid allegations that it charged taxpayers for tagging prisoners who were dead, said it would pay no final dividend for 2014 and would make no payouts this year.
The company raised investor jitters further by saying that it was no longer prepared to stand by its earlier forecast that sales would drop to between £3 billion and £3.5 billion in 2016.
Included in the bottom-line loss of £1.3 billion for 2014 were £632 million of operating losses and £745 million of writedowns to take account of onerous contract provisions and asset impairments. Past misjudgments and excessive optimism on everything from the rust-resistance of boats to the cost of housing asylum seekers led to the company losing hundreds of millions of pounds on contracts.
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“We have got five contracts that have gone very badly wrong,” said Rupert Soames, the chief executive and former boss of Aggreko boss who was parachuted in to sort out the mess last May.
Deloitte, the auditor, qualified the accounts, saying that any failure to go ahead with the rights issue, which requires the approval of shareholders, would give rise to “significant doubt over the group’s ability to continue as a going concern”.
Mr Soames said it had been an extremely difficult year. “However, there is a real sense that, having confessed our sins and in taking the punishment, we are now ready to start on the path to recovery.”
Shareholders are being offered one new share at 101p for each one they hold. The issue is at a 51.1 per cent discount to the closing price on Wednesday and a 34.3 per cent discount to the theoretical ex-rights price. The issue is fully underwritten and will cost the company £27 million in fees.
• Chris Hyman, the former chief executive of Serco who presided over its ill-judged expansion, was paid £12.6 million in his final five years. Mr Hyman, who resigned in October 2013 after allegations of overcharging on contracts to tag offenders, received pay of £3.63 million, £2.65 million, £2.83 million, £2.58 million and £893,000 in the last five financial years. Rupert Soames, his successor, was paid £749,000 last year after waiving a £908,000 bonus.