North Sea ferry operator Serco turned to its investors for more cash yesterday after writing off £1.5billion and slashing profit forecasts, sending shares into a slump.
The stock fell nearly 35% to 207.3p, wiping some £600million off Serco’s market value, with some traders concerned it might not be the end of the bad news.
The latest woes for Serco, which will also be running Caledonian sleeper trains between Scotland and London from April after winning a 15-year deal in May, deepen the sense of turmoil at the outsourcer after a string of profit downgrades, contract problems and scandals.
According to rail workers’ union RMT, the Caledonian service faces an uncertainty as Serco tries to plug “massive holes” in its balance sheet.
Serco chief executive Rupert Soames, who joined the firm in May from Scottish temporary power specialist Aggreko, ordered a review of operations after the group unveiled impairments and higher contract losses totalling £1.5billion.
Mr Soames wants to re-focus the company as a provider of services to governments in areas such as justice, immigration, defence and transport, while looking to sell a majority of its business outsourcing operations.
The plan will be financed by a £550million cash call to investors early next year, on top of the £165million raised in a summer share placing.
Cutting the profit outlook for this year and next, Serco said there would be no final dividend for 2014.
“Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco’s future,” the company’s CEO added.
Mr Soames took the helm after a scandal-hit 2013 in which Serco was forced to refund the UK Government £68.5million for overcharging on criminal tagging deals and repay £2million of past profits from a prisoner escorting contract.
In the latest downgrade to 2014 adjusted operating profits guidance, Serco now expects a figure of £130-£140million, against a previous forecast of at least £155million. It also lowered estimates for 2015.
The Hampshire-based company revealed it had begun talks with its lenders to amend terms as its debt levels were now close to the limit agreed with creditors of 3.5-times core earnings.
Mr Soames said: “The next two years are going to be difficult and we expect our revenue to reduce over this period through disposals and exiting loss-making contracts, following which we expect to be able to start growing again.”
RMT general-secretary Mick Cash said: “Serco’s toxic recent history in the delivery of contracts, including failures that have resulted in Serious Fraud Office investigation, render them unfit to run public services and that includes the iconic and important Caledonian Sleeper.
“The profits warnings and share collapse today also raise serious questions about the financial stability of this company as they seek to plug massive holes in their balance sheet.
“This creates uncertainty about jobs and conditions and raises a huge question mark over the whole future of the Scottish sleeper service.”
Serco has run NorthLink Ferries to and from the northern isles since July 2012. Its diverse activities includes services to schools, hospitals, prisons and the military.