Serco shares jump on turnaround hopes

By Li-mei Hoang

LONDON (Reuters) - Shares in Serco (SRP.L) soared by 11 percent after the British outsourcing firm showed signs its turnaround plan was working, as it posted a trading profit ahead of guidance set out last year and significantly reduced its debt.

The company, making steps to recover from a string of contract problems and scandals, swung to a full-year trading profit of 138 million pounds from a loss of 632 million the previous year.

It reduced its net debt by 605 million pounds to 78 million, as a result of a rights issue of new stock and the disposal of its Indian offshore call centre.

Shares in the company jumped more than 11 percent in early trading, making it one of the biggest gainers in the FTSE 250 index of mid-range stocks (.FTMC).

"Operationally and financially the business seems to outsiders to be doing the right things, the markets remain positive and company now has a strong balance sheet," said Stephen Rawlinson, analyst at brokerage Whitman Howard.

Serco has suffered in recent years following problems with government contracts that included overcharging the British government for monitoring criminals and escalating costs on a deal to provide accommodation to UK asylum seekers.

However the company reiterated expectations for a decline in revenue to 2.8 billion pounds and trading profit around 50 million pounds in 2016, due to several loss-making contracts and the disposal of its offshore call centre.

Revenue for the year ended Dec. 31 fell to 3.5 billion pounds from just under 4 billion a year earlier.

Chief Executive Rupert Soames told Reuters he would focus on improving the efficiency of the business and building up its bid pipeline of new work and would hope to see revenue growth within the next two to four years.

"This is part of a phase of transformation that we see lasting a couple of years until we get into the final phase of our turnaround, which will be growth, which we see coming between 2018-2020."

Further cost reductions of around 700 million pounds were expected in the coming year, Soames said, which would come from businesses it had already disposed of.

(Editing by Susan Fenton and David Holmes)