The embattled outsourcing company Serco has swung to a full-year loss and confirmed it will press ahead with a £555 million rights issue.
Shares in the company plunged more than 15 per cent after it reported an operating loss of £1.3 billion in 2014 and has written off £1.3 billion relating to loss-making contracts and investments.
The loss includes £661 million of exceptional items, driven by impairment of goodwill and other balance sheet operating losses before exceptional items of £656 million, compared to a profit of £236 million a year ago.
Stripping out exceptional items, the company reported an operating loss of £656 million, compared to a £236 million profit a year earlier.
The group is currently undergoing an overhaul after a disastrous period of contract scandals and problems, including overcharging the British government for tagging criminals.
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While Serco maintained its profit guidance for 2015, it scrapped the dividend and added it would not now comment on prospects for 2016 and beyond due to the impact of lost work, loss-making contracts and falling margins.
Rupert Soames, who joined the company from temporary power provider Aggreko in February 2014, said: “2014 has been an extremely difficult year for Serco, and the magnitude of the provisions, impairments and other charges reflects the scale of the challenges we have had to face.
“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. We have all we need: a good plan, strong management to execute it, and, following the successful completion of our proposed rights issue and refinancing, a balance sheet that is an appropriate foundation on which to implement our new strategy.”
The company had already flagged the rights issue to its investors and this morning confirmed the issue price of 101p per new ordinary share, representing a 51.1 per cent discount to the closing price yesterday.
The proceeds of the rights issue will be mainly used to reduce the company’s debt, as well as “continued investment in the business and general corporate purposes”.
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Mr Soames has been charged with turning around Serco, which has been hit with scandal in the past couple of years.
It was recently under investigation by the City of London police over a £285 million prisoner-transfer contract.
The Ministry of Justice and Serco asked police in August 2013 to examine Serco’s transport of prisoners to and from courts across London and East Anglia.
In December the police said it was dropping the investigation has it had found no evidence to support bringing charges against the FTSE 250 company or its staff over allegations that they misleadingly recorded prisoners as ready for court when they were not.
Serco had agreed to repay about £2 million of profits on the contract since 2011 and to give up future profits on the contract running until 2018.
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Concerns over Serco’s handling of the prisoner contract emerged after an audit was launched in the wake of a separate electronic tagging scandal.
Serco agreed to repay £68.5 million to the government last December for tagging criminals who were either dead or in jail and the case was referred to the Serious Fraud Office.
The upheaval battered Serco’s profits and led to the exit of Chris Hyman, the company’s chief executive.
Shares in Serco, which peaked at 683.50p in the summer of 2013, are trading down 15.7 per cent at 174p.