Serco hikes profit outlook once more as boss prepares to hand over the reins

Outsourcing giant Serco has hiked its profit outlook once again as the group said strong growth had helped more than offset a £480 million slump in Covid-19 contract revenues.

The firm said it is now on track for full-year underlying trading profit of around £235 million, up £5 million on its previous guidance, with turnover set to come in at around £4.5 billion for 2022, slightly above the result for 2021.

Serco – which runs security, transport and immigration contracts – has already previously hiked its profit guidance this year as it has been able to counter falling demand for Covid-19 contracts with a surge in orders elsewhere across the business and cost savings.

Outgoing boss Rupert Soames said: “2022 will turn out much better than we expected at the start of the year as strong growth across the business largely replaced Covid contracts.

“Revenue is expected to be 8% higher and underlying trading profit around 20% better than we anticipated when we first gave guidance in December 2021.

“To deliver this in the midst of such a challenging geo-political and economic backdrop underlines the strength of our business-to-government platform.”

The group’s rosier profit outlook also comes despite the firm handing out £9 million in one-off payments to about 45,000 non-management staff since August to help with the cost-of-living crisis.

It had feared over a sizeable second half hit from the loss of significant revenues from Britain’s test and trace services, with the firm revealing earlier this year that it was in line for a £480 million impact from lower demand for Covid-19 contracts over the current year.

But the group said this has been helped by strong growth and new business, with it expecting order intake to reach at least £4 billion in 2022 and its north American defence business having had a “particularly strong year” for orders.

Serco added that 2023 is set to be in line with forecasts for underlying trading profits to be “similar” to 2022, at around £235 million.

The update marks the last for chief executive Mr Soames – the grandson of Sir Winston Churchill – who is handing over the reins at the end of December to Mark Irwin, a private equity veteran who has been at Serco since 2013.

Mr Soames said: “This is the last trading update I will give as chief executive of a public company, in which capacity I have served for nearly 20 years.

“Throughout that time, I have been privileged to lead teams of outstandingly capable people who are deeply committed to the work that they do and who take responsibility for making a difference.”