Serco shares tumble after it warns on 2016 revenue and profit

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OUTSOURCING GROUP Serco showed that its revival will be a long process, warning that revenue and trading profit would fall in 2016, due to the sale of a call centre business and some lost contracts, sending its shares down more than 10 per cent.

The company, which made a trading loss in 2014, is going through a major overhaul after a series of problems with government contracts, which included overcharging for monitoring criminals. In March, Serco tapped shareholders for cash and also said it was unlikely to return to sales growth for another three years.

Serco, whose UK division accounts for about half of its business, said it expected revenue of around £2.8bn and underlying trading profit of approximately £50m in 2016.

The sale of an offshore call centre business would reduce 2016 revenue by £300m. It agreed to sell the business to private equity firm Blackstone for £250m in September.

“Management is playing down expectations,” analyst Stephen Rawlinson at brokerage Whitman Howard, said. He has a “buy” rating on the stock.

“The update today is a reminder that the management team is doing a great job but the circumstances are rather more difficult than expected and the recovery will be more prolonged.”

Serco also said underlying trading profit in 2015 was likely to come in at £95m, ahead of its previous guidance of £90m, due to the renegotiation of some loss-making contracts and improved operational performance.

Revenue was estimated in line with its previous guidance of around £3.5bn.