By Li-mei Hoang
LONDON (Reuters) - British outsourcing company Serco (L:SRP) on Monday 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 percent.
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 2.8 billion pounds and underlying trading profit of approximately 50 million pounds in 2016.
The sale of an offshore call centre business would reduce 2016 revenue by 300 million pounds. It agreed to sell the business to private equity firm Blackstone (N:BX) for 250 million pounds in September.
Analysts had expected revenue to come in at 2.9 million pounds next year, according to Thomson Reuters data.
Shares in the company fell by 10 percent in early trading, making it biggest faller in the mid-cap FTSE (FTMC) index. It was 8.3 percent lower at 105 pence by 0911 GMT.
"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 95 million pounds, ahead of its previous guidance of 90 million, due to the renegotiation of some loss-making contracts and improved operational performance.
Revenue was estimated in line with its previous guidance of around 3.5 billion pounds.
"We said that we expected 2016 to be a further challenging year," Chief Executive Rupert Soames said in a statement.
"We still expect this to be the case, caused in part by continued attrition of the contract base, and in part by the BPO (offshore call centre) disposal."
