Serco set for profits blow as Covid contract work eases back

Outsourcing firm Serco has cautioned over a “significant” hit to sales and profits next year, as its work running the Government’s Covid-19 test-and-trace system is expected to ease back.

The group has been given a big financial boost from Covid-19 related contracts, with underlying trading profits expected to jump 38% to no less than £225 million in 2021, on revenues about 10% higher at £4.4 billion.

However, it is forecasting a “rapid wind-down” of these coronavirus services during the first half of 2022, which it said will “have a significant impact on both revenue and profits in 2022”.

While this will be offset in part by growth in other areas of the business, it said underlying trading profits next year are expected to fall to about £195 million and organic revenues by about 8%, with overall revenues dropping to between £4.1 billion and £4.2 billion.

Rupert Soames, group chief executive of Serco, said: “We are ending 2021 on a high note, having delivered a very strong operational and financial performance, despite all the challenges we faced during the year.

“For all our sakes we hope that 2022 will see sharply reduced need for Government spending on Covid-related services and this will reduce revenues and profits in 2022; however, our strong order intake in 2021 means that we expect to deliver good growth in those parts of our business not involved with Covid-19 services.”

He said demand for government services will remain robust, helping it to “grow our revenues faster than the market, our profits faster than our revenues, and our returns to shareholders faster than profits”.

The group said that as well as the impact of lower Covid-19 revenues, its underlying trading profit will also be reduced by the ending of the Atomic Weapons Establishments and Dubai Metro contracts.

The recently-announced 1.25% increase in national insurance employers’ contributions in the UK will cost it about a further £5 million each year.

But this will be countered by new work secured in 2021, such as the DWP Restart Programme, and the Defence Infrastructure Organisation contracts moving into profitability.