Test and Trace winner Serco tempers profit forecasts for 2022

Test and Trace winner Serco tempers profit forecasts for 2022 with Covid business on the decline

  • The outsourcer expects a ‘rapid wind-down’ of Covid-related business 
  • Serco saw 40% profit growth in 2021 and revenue growth of 13% for the year
  • But 2022 revenues are expected to be 6% lower as Covid sales wind down

Serco Group has cautioned it expects to see lower revenue and profits next year, with the outsourcing giant anticipating ‘a rapid wind-down’ of business related to the coronavirus pandemic.

The FTSE 250 group, which runs 25 per cent of testing centres and around half of contract tracing operations in the UK, has been a major beneficiary of Covid-19 with estimated 2021 profits of £225million after having raising guidance three times.

It reflects 40 per cent profit growth over the year, while Serco also expects to deliver 13 per cent growth in revenues to £4.4billion for 2021.

Serco runs 25% of testing centres and around half of contract tracing operations in the UK

While the firm hailed ‘a pipeline of new opportunities’ in the year ahead, it does expect a ‘significant impact’ on both revenue and profits in 2022 from a drop off in Covid-related services supplied to governments in the first half of the year.

However, it does anticipate that ‘a large part’ of this approximately 13 per cent decline to be offset by growth of around 5 per cent in other parts of the business on the back of ‘very strong’ order intake.

Revenue in 2022 is expected to be £4.1billion to £4.2billion, approximately 6 per cent lower than expected sales for 2021. This assumes a 1 per cent contribution from acquisitions and a 1 per cent favourable impact from currency.

Underlying trading profits for 2022 are forecast at around £195million, with the decline also attributed to some non-Covid contracts coming to an end.

The recently announced 1.25 per cent increase in National Insurance employers’ contributions is also expected to cost the firm around £5million on an annualised basis.

However, Serco highlighted positive contributions to sales expected in the year ahead, such as its work with the DWP Restart Programme and the Defence Infrastructure Organisation, which are both moving into profitability, and the ending of its accelerated investment programme

Group boss Rupert Soames 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.’

Serco shares up 1.6 per cent 135.9p, bringing year-to-date performance to 9.9 per cent. It remains 18.8 per cent off its pre-Covid 2020 peak.

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