12th Mar 2015 10:34
LONDON (Alliance News) - Shares in embattled outsourcing company Serco Group PLC plunged on Thursday after the company reported a massive pretax loss for 2014, as it booked huge provisions on onerous contracts, reported is first fall in revenue as a listed company, and confirmed it had scrapped its final dividend payout, while also saying it will launch a GBP555 million rights issue at a more than 50% discount.
Shares in Serco were down 15% to 174.5 pence on Thursday, one of the worst performers in the FTSE 250. Shares in the company have fallen 45% in the past six months on the back of a slew of profit warnings.
Serco said its pretax loss for 2014 was GBP1.35 billion, compared to a GBP108.3 million profit a year earlier. The loss was caused by a total of GBP1.31 billion in one-off provisions the company made in the year on asset impairments and other charges.
Revenue also ticked down for the company to GBP3.96 billion from GBP4.28 billion, the first revenue decline the company has seen since listing on the stock market 25 years ago. It signed contracts worth GBP3.1 billion in the year, down from GBP3.5 billion in 2013, though including joint ventures, the value of new contracts rose to GBP3.6 billion from GBP3.5 billion.
Serco is forecasting revenue of GBP3.5 billion for 2015, though it still expects to face challenges from the net attrition of lost contracts and assumptions of reduced volumes from existing deals.
The provisions and loss mean Serco also scrapped its final dividend, meaning its total payout for the year is 3.1 pence from its interim dividend. In 2013, it paid 10.55 pence per share in total dividends.
Serco also launched a previously planned GBP555 million, fully underwritten rights issue to support a refinancing of its existing lending facilities in order to cut its gross debt pile by GBP450 million.
It will issue 549 million shares under the 1-for-1 rights issue at 101 pence per share, a 51% discount to its closing price on Wednesday and a 34% discount to the theoretical ex-rights issue price. It intends to use the proceeds of the deal to reduce it indebtedness.
The GBP555 million fundraising is higher than Serco had originally flagged it would be, having said in a profit warning it issued in November that the rights issue would raise "up to GBP550 million".
"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," Serco Chief Executive Rupert Soames said.
Serco said it has now completed a strategic review of the business and will, in the future, focus on the provision of services to the public sector market. The group said it will focus on five market sectors, comprising Justice & Immigration, Defence, Transport, Citizen Services and Healthcare. The company said it thinks the markets it has chosen to focus on have "compelling long-term structural growth drivers" and that it is well-positioned to benefit from this growth.
"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."
Serco said it has faced "numerous challenges" in the year. The company had to increase costs in order to improve service delivery on some poorly-performing contracts; saw reduced volumes or contract losses on deals with higher-than-average margins and won less new work.
The charges it booked were spread across the business, with lower contract volumes on its Australian Immigration Services deal, the loss of its electronic monitoring contract with the UK government and new contracts being won at lower margins, including its support services deal for the US Affordable Care Act.
The group also won fewer contracts, was hit by contract re-pricing on its deal with Northern Rail and the UK Atomic Weapons Establishment nuclear deterrent programme and saw costs rise as it upgraded service delivery on underperforming contracts, including the COMPASS asylum seeker accommodation scheme and the PECS prisoner escort deal.
By Sam Unsted; [email protected]; @SamUAtAlliance
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