Serco suffers slump in shares

The troubled outsourcing giant also said it expected to write off £1.5billion relating to contract problems and sell off non–core businesses as it warned it was in danger of breaching its banking covenants.

Serco, which is still trying to restore its reputation after it was forced to pay out £68.5million last year over a scandal in which it overcharged the government for tagging criminals, said it was swallowing a "bitter pill" now rather than later.

Its shares plunged 102p to 215p. Chief executive Rupert Soames said: "It is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future."

He said it would take two years to switch the company's focus to provide services for the government in areas like justice, defence and healthcare, and rid itself of its underperforming private sector work. He added: "There are a tough couple of years ahead as we make this transition."

Non–core businesses for the chop include its global BPO arm that runs IT and customer services for privatesector companies. Analysts believe there could be further bad news ahead for Serco. One said: "If you are a big corporate or the government are you going to give someone a contract with that sort of picture hanging over the company?"

Serco's fourth profit warning this year saw it cut its forecast for adjusted operating profit for 2014 by £20million to between £130million and £140million, along with lowering its outlook for 2015.

A review of its contracts concluded that it was likely to write off around £1.5billion, which partly relates to the write–down on loss–making contracts.

The write off means it is likely that the FTSE 250 company is in danger of breaching its banking covenants. To help firm up its finances it is planning a £550million rights issue.

Serco, which also suspended its dividend, said it would meet its bankers to negotiate changes to the terms of its loan facilities.