Serco expects 50% jump in profits on back of Covid contracts

The outsourcing company Serco predicts its profits will jump 50% during the first half of the year because of its continued work on Covid-19 contracts for various governments, including the UK’s test-and-trace service.

The firm expects its underlying trading profit for the first six months of 2021 to reach between £120m and £125m, more than 50% higher than a year earlier.

In addition, it forecasts revenues of £2.2bn, almost 20% higher than the same period in 2020, about £340m of which being related to Covid-19.

Serco said it had won record levels of new orders during the period, worth almost £4bn, including large contracts with the Ministry of Defence and the Department for Work and Pensions in the UK, as well as with the Royal Canadian Air Force.

Serco runs large parts of the UK’s largely privatised test-and-trace service, which is labelled NHS test and trace. The firm runs a quarter of Covid-19 testing sites and half the tier 3 contact tracers, who are mostly required to phone the contacts of people who have tested positive.

Serco’s appointment to run parts of the UK’s test-and-trace system has proved controversial and the firm has drawn criticism for the decision to pay £17m in dividends to investors, partly funded by its pandemic profits.

The company’s profit forecast comes only days after it announced it had won a new £322m contract to keep Covid-19 test centres running in England and Northern Ireland for a further 12 months, with an option to extend it for six more.

However, Serco said the value of the contract to operate drive-through and walk-in test centres, as well as mobile testing units, could be significantly lower, depending on demand for testing in the coming months.

Even though the firm expects Covid-19 revenues to drop significantly in the second half of 2021, it is still forecasting higher revenue than in the same period a year earlier.

Serco’s chief executive, Rupert Soames, said the first-half performance had underlined “the trust governments around the world place in us, and our ability to respond at scale and pace to rapidly changing requirements”.

He said the company would take advantage of its strong trading to temporarily increase its investment in its “systems platform, cyber resilience, and business development spend to respond to a strong pipeline of opportunities”.

The outsourcing firm recently upgraded its profit forecast for the full year, saying it anticipated reaching £200m in underlying trading profit for 2021, some £15m higher than originally expected.

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