Serco reveals £400m boost from Covid contracts and restarts dividend

The outsourcing giant said the payments come after furlough cash was repaid and a £5 million bonus was shared with frontline workers.

Coronavirus testing
Coronavirus testing

Outsourcing giant Serco will start paying a dividend to shareholders due to soaring profits and a post-Covid outlook that promises future growth, the company announced.

Bosses issued a profits upgrade for 2021 and said now is the time to make the 1.4p-a-share payments to investors – having faced criticism over previous plans for the payouts.

They said previously claimed furlough cash has been repaid, a £5 million bonus was shared among 50,000 frontline workers, while levels of profit from winning Covid-19 contracts was minimal.

Chief executive Rupert Soames said that although underlying trading profit had jumped 36% to £163 million in 2020, only around £2 million came from winning Covid-19 contracts – the rest coming from “normal operations of the business”.

Coronavirus – Wed Feb 17, 2021
Serco enjoyed a boost from winning UK Government Test and Trace contracts. (Andrew Matthews / PA)

Serco added around £400 million to its revenues from Covid-19 services, including operating more than 25% of NHS Test & Trace sites and half the Tier 3 tracing capacity.

Mr Soames added: “Although these contracts are at lower margins than we would normally accept for this type of work, they generated nearly £350 million of revenue, so made a material contribution and helped to reduce the impact of losses in Transport, Health and Leisure.”

Serco’s work in council leisure centres, its Merseyrail joint venture and extra costs incurred from making existing health contracts Covid-secure took a toll of around £35 million, he said.

The company added it expects to benefit more broadly from the pandemic because “Covid-19 has reconnected hundreds of millions of people worldwide with government services and reminded them of the value of well-organised service delivery”.

“This will make government more confident in promoting services to citizens. But the fact is that deficits and levels of government debt have increased to levels not seen outside world war, and governments will be sharply focused on delivering ‘more and better for less’. This is positive for our market.”

Serco also saw its Asylum Seeker (AASC) contract swing to a profit as it won an eight-year deal valued at just over £200 million to manage the Gatwick Immigration Removal Centres.

There was strong demand for immigration services in Australia, including mobilising quarantine hotels in Western Australia, and a US contract with the Federal Emergency Management Agency also saw impressive growth, the company added.

The company said the dividend situation had changed since talk of restarting payments were first floated in April last year.

Mr Soames said previous criticism that government support had been taken at the same time as making payments to shareholders was resolved.

He added: “We have refunded all employment and liquidity support paid to Serco by governments, with the exception of £12 million in the USA, for which there is no mechanism for early repayment, so will be repaid as scheduled in 2021 and 2022.”

On the profits made from government Covid-19 contracts, he said: “Whilst the profits arising from our work on Covid-19 are ephemeral, they do not represent a material proportion of our profits in the year (net, around 1% of underlying trading profit).”

He added that a £5 million bonus had been shared among staff and the company had enough cash to make the dividend payments, concluding: “In the light of these four considerations, the board feels it appropriate to recommend the payment of a final dividend in respect of 2020 of 1.4p per share.”

Revenues for the year hit £3.9 billion, with underlying trading profits of £163 million. Revenues guidance for this year was upgraded from £4.1 billion to £4.2 billion, with underlying trading expected to hit £175 million, compared with previous estimates of £165 million.

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