June 29, 2018 / 6:25 AM / 21 days ago

Serco trims 2018 revenue outlook, shares fall

EDINBURGH (Reuters) - British outsourcer Serco (SRP.L) lowered its revenue forecast on Friday and gave a cautious market outlook, sending shares in the British outsourcing company down more than 7 percent.

A Serco flag is seen flying alongside a Union flag outside Doncaster Prison in northern England in this December 13, 2011 file photograph. REUTERS/Darren Staples/Files

Chief Executive Rupert Soames said market conditions “are less than ideal, particularly in the UK” but noted the company was making progress with its strategy.

Serco provides services to the defence, justice, transport and health sectors in Britain and abroad.

The company lowered its forecast for 2018 revenue to 2.7-2.8 billion pounds ($3.54-$3.67 billion) from 2.8-2.9 billion but kept its profit forecast at 80 million pounds.

Serco said it expects first-half revenue to fall by around 6 percent to about 1.35 billion pounds with an underlying trading profit up 20 percent to 35-40 million pounds.

“The revenue reduction is driven largely by contracts that ended in 2017, whereas the profit increase is driven by transformation savings,” it said.

“There remains a wide range of potential outcomes reflecting the sensitivity of our profits to even small changes in revenues and costs, as well as further movements in currency during the second half,” the company added.

Serco shares fell more than 7 percent before trimming losses to stand at 96.80 pence at 0855 GMT, down 4.1 percent. They have performed broadly in line with the FTSE .FTMC 250 share index in the past 3 months with a gain of 7 percent.

Serco began an overhaul in 2014 which has helped it avert the kind of problems which led to the collapse of rival construction and services provider Carillion (CLLN.L) this year.

The biggest construction bankruptcy in British history has prompted a major rethink of how the UK outsourcing sector operates.

At the same time Britain’s impending exit from the European Union has slowed the pace of business decision-making for all outsourcers leading to serious profitability problems for many.

Soames said strong order intake was expected to continue for the full year, with contract awards expected to exceed 1.5 billion pounds in the first half. Around 80 percent of its order intake is expected to come from operations outside the UK, however, reflecting how the slowdown is affecting its business.

Serco will take on some of Carillion’s contracts, and provided details of facilities contracts it expects to start managing in the coming weeks at six British hospitals.

The contracts are worth around 70 million pounds in annual revenue and an estimated trading profit of 4 million pounds.

Reporting by Elisabeth O'Leary, editing by James Davey and Jason Neely

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