LONDON (Reuters) - British outsourcing firm Serco (L:SRP) kicked off a 555 million pound ($831 million) rights issue on Thursday and said it was unlikely to return to growth for another three years, as it reported a spectacular collapse in profits.
The group, undergoing a mass overhaul after a disastrous period of contract problems and scandals that have strained its ties with the British government, posted a 2014 trading loss of 632 million pounds, compared to a 2013 profit of 257 million pounds.
Shares in Serco fell 15 percent in early trade to 175 pence.
Revenues declined for the first time in 25 years as Serco lost contracts, signed fewer new deals and suffered lower margins, while rising costs on a number of loss-making contracts and asset write downs forced a 1.5 billion pounds impairment charge, outlined in November.
"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," said new Chief Executive Rupert Soames, who launched a review of Serco and its 700 contracts last year.
Guidance for 2015 trading profit of 90 million pounds was maintained, although Serco scrapped the dividend.
Soames also told Reuters that it did not expect to see revenue growth over the next three years as improving margins would be offset by asset disposals, expiring contracts and less new work.
Soames' new turnaround plan centres on exiting private sector work and focussing a slimmed down business on government contracts in the UK, U.S, Middle East and Australia, while a more stringent approach to what it bids for will be taken to avoid past mistakes of favouring sales growth over margins.
The company, which had outlined plans for the rights issue in November, said it had also agreed a refinancing with lenders to help reduce debt and was making progress on a number of asset disposals. ($1 = 0.6676 pounds)