Outsourcing firm Serco has announced its intention to raise £550 million by selling new shares through a rights issue.
The company has cut its profit forecast both for the end of the year and through 2015. It expects to write off £1.5 billion due to losses on contracts. It is just the latest in a long line of incidents Serco has had to overcome during the past two years. Serco, along with G4S, has been the subject of government bans and potential public sector restriction.
Serco was accused of overcharging the government on its prisoner tagging contract. The company was said to be tagging people that were either dead or still in jail resulting in a six month ban from bidding for any government deals.
Rupert Soames, who took over as Serco chief executive in May, said: "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."
Earlier in the year, campaigners called for Serco and G4S to be banned from bidding for public sector contractors while they were under investigation for fraud. The prison charity, the Howard League for Penal Reform, wanted a ban imposed on the companies while the Serious Fraud Office continued to subject to an inquiry.
It came after the government had lifted previous its restriction on Serco which prevented it from bidding from its contract. Following this Serco won a new government contract which it started to work on from April.
Following the announcement of the new share scheme, Serco's dropped by 30 per cent to 219.50p in early trading. It has prompted the company to reduce its operating profits for 2014 by £20 million to between £130 million and £140 million.
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