Test-and-trace work helps Serco pay first dividend for seven years

Serco has restored its dividend for the first time in seven years as it benefits from work running the UK government’s Covid-19 test-and-trace programme.

The group, one of the biggest suppliers of outsourced services to governments worldwide, said it would pay a 1.4p a share dividend after its full-year underlying trading profit rose by over a third to £163m, on revenues that were up a fifth to £3.9bn.

Rupert Soames, chief executive, said the board had “thought carefully” about the decision to restore the dividend “in the light of current circumstances” but that, as the Covid-related work accounted for just 1 per cent of underlying profits, the board felt it was justified.

Serco is one of five companies running Covid-19 testing sites and also provides call handlers on the NHS’s contact tracing programme, both of which came under strain as coronavirus cases climbed. 

The company has already paid a £100-a-person bonus to its 50,000 frontline staff and paid back £3m of furlough money in an attempt to defuse controversy.

Serco said it has paid back all its employment and liquidity support from governments, except for £12m owed in the US, for which there is no early repayment mechanism.

The decision to restore the dividend marks a turning point for Serco, which was on the brink of collapse when Soames took over as chief executive in 2013.

Robin Speakman, analyst at Shore Capital, said that “full health has now been delivered”.

Serco lifted its profit guidance for 2021 by 6 per cent but said it expects revenues and profits to grow at a slower rate than in previous years.

The news came a week after Serco announced that it had bolstered its defence business with the £212m purchase of Whitney, Bradley & Brown, which services the US airforce. Nearly a third of the group’s business is now in North America, with the UK and Europe accounting for 44 per cent of group revenues.

Other government contractors including Capita and Kier are attempting to rebuild after delivering a series of profit warnings. Britain’s outsourcers have struggled in recent years with Carillion collapsing in 2018, and Interserve being broken up after being taken over by creditors in 2019.