April 30, 2014 / 7:36 PM / in 3 years

UPDATE 1-Serco to raise cash as profit set to plunge

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By Kate Holton and Neil Maidment

LONDON, April 30 (Reuters) - British outsourcing firm Serco plans to raise 170 million pounds ($287 million) in emergency cash after revealing the full extent of its collapse in profits and the departure of its finance director on Wednesday.

The unscheduled statement, which follows a surprise announcement released late on Monday warning of negative news to come, arrived just hours before the group’s new chief executive Rupert Soames takes over the troubled firm.

With little time to get to grips with the business, Soames, the well-regarded grandson of former British Prime Minister Winston Churchill, will take questions from analysts and investors at 0730 GMT on Thursday.

Serco, which was rocked by a scandal last year in which it was found to have overcharged the British government on a contract to tag criminals, said its 2014 adjusted operating profit would now be no less than 170 million pounds.

That compared with an earlier forecast of 220 to 250 million pounds made as recently as March, which itself was lower than the 277 million pounds analysts had originally expected.

In order to shore up its finances, the company will go ahead with a placing of 9.9 percent of its stock to raise around 170 million pounds.

“The company has bought time with these announcements so the new CEO can decide what he will do with the business and how much money, if any, will be needed to get back to growth and create high quality earnings,” Whitman Howard analyst Stephen Rawlinson said.

The placing is designed to steady the group after the fallout with the government, which resulted in a ban on new government work, the exit of its long-serving boss Chris Hyman, a steep drop in its shares and a big hit to profits.

Serco said on Wednesday the profit cut was due to a raft of factors including less profitable contract renewals, fewer new business wins, the cost of fixing underperforming contracts and a slower pace of recovery from last year’s tagging scandal.

The new forecast is dependent on a much improved second half of the year in which Serco said its performance would be boosted by improved contracts, cost savings and new work.

Overall, the group said organic revenue fell 0.3 percent to 1.2 billion pounds in its first quarter, with margins down heavily.

To add to its woes, the group said Andrew Jenner, finance director since 2002, had advised the board that he planned to step down. He will stay on until a successor is found.

Ed Casey, the acting chief executive until Soames takes over on Thursday, will become chief operating officer and will serve on the board. ($1 = 0.5922 British Pounds) (Reporting by Kate Holton; Editing by Neil Maidment and Sonya Hepinstall)

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