Serco upgrades profit guidance as test-and-trace demand persists

Serco has raised profit forecasts by millions of pounds as the outsourcer expects demand for the UK government’s controversial Covid-19 test-and-trace services to last longer than originally anticipated.

The UK-based group, one of the biggest suppliers of outsourced services to governments worldwide, said its underlying trading profit would be about £15m higher at £200m in 2021.

Serco’s shares, which have risen by almost a fifth this year, climbed 4 per cent to 141.26p by mid-morning on Monday in London.

The group, which runs transport and prison services, is one of two companies providing call handlers on the NHS’s contact tracing programme and one of five running testing sites.

The NHS Test and Trace programme was allocated £37bn and set up in May last year as the country began to emerge from the first lockdown.

It was criticised by a House of Commons select committee in March, which said there was “no clear evidence” the programme had made a measurable difference to the progress of the pandemic.

The report criticised ministers for bypassing local authorities and health services and said the government overestimated how many contact tracers would be needed last summer, with only 1 per cent of them used in August.

The government “did not have any flexibility to change the level of tracing staff for the first three months”, as a result of outsourcing contracts with companies such as Serco, the committee said.

The extension to the test-and-trace work caps a strong year for Serco, with all four of its divisions trading in line or ahead of their budgets in the first five months of 2021, the outsourcer said.

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It came as the company announced it had also won more work maintaining about 200 sites and about 19,000 buildings for the Ministry of Defence in a joint venture with energy group Engie.

The contract could be worth £3.4bn over seven years, although it will not have any material impact on the company’s profits this year, the group said.

Earlier this year the company restored the dividend for the first time in seven years, marking a turning point.

It was on the brink of collapse when Rupert Soames took over as chief executive in 2014 after the company was found to have overcharged the government on electronic tagging contracts. Last year Soames received a £4.9m pay package.

The group’s progress is a rare bright spot among Britain’s outsourcers. Carillion collapsed in 2018, Interserve is being broken up, while G4S has been taken over by private equity.

Other government contractors, including Capita and Kier, are also attempting to rebuild after delivering a series of profit warnings.


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