(Adds background, shares, analyst comment)
LONDON, July 4 (Reuters) - British outsourcing firm Serco , which has been hit by a string of contract problems and profit downgrades, said on Friday it had lost its deal to run London's Docklands Light Railway, in a further blow to the group.
The company said its bid to continue running the 125 million pounds ($212.7 million) a year contract, which it has operated, maintained and marketed since 1997, was unsuccessful.
Serco will hand over the franchise to joint venture Keolis/Amey Rail on December 7. Transport group Stagecoach said it also bid and failed to win the contract.
Shares in Serco opened down over 2 percent before recovering to be 0.7 percent lower at 360 pence by 0720 GMT.
Serco, which also runs prisons and air traffic control services in over 30 countries, said the DLR franchise generated revenue of around 90 million pounds, or 2 percent of revenues in 2013, at a margin that was significantly below the average level the group achieves on its contracts.
"It's another little blow to getting overhead recovery," said Whitman Howard analyst Stephen Rawlinson.
Serco has suffered a series of setbacks in the last year after it was found to have overcharged the British government on a contract to tag criminals - sparking a ban on new government work, the exit of its long-serving boss Chris Hyman and a big hit to profits.
It said on Thursday it expected to write down the value of some its large loss-making contracts as part of a review of its business. ($1 = 0.5877 British Pounds) (Reporting by Li-mei Hoang, Editing by Kate Holton)