Serco has restored its dividend for the first time in seven years as it benefits from work including 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 more than a third, to £163m, on revenues that were up a fifth.
Rupert Soames, chief executive, said the board had “thought carefully” about the decision to restore the dividend given the current circumstances but that, as its Covid-related work accounted for just 1 per cent of underlying profits, the board felt it was justified.
Covid-19 related services have added about £400m to Serco’s revenues.
The company is one of five 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. Its work also includes mobilising quarantine hotels in Western Australia.
Serco has already paid a £100-a-person bonus to its 50,000 frontline staff, many of whom provide essential services in prisons, hospitals and railways, in an attempt to defuse criticism.
It has also 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, soon after it was found to have overcharged the government on electronic tagging contracts.
Robin Speakman, analyst at Shore Capital, said the “recovery of the business has been a long process, but full health has now been delivered, in our view.”
Soames has slowed the pace of acquisitions, making just five since 2014, lowered the debt from £800m to £58m and restored the company’s relationship with government. 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.
Serco had been lumbered with lossmaking contracts including one providing housing for asylum seekers, which over the past five years lost about £15m-£20m on average a year. This swung into profit under the new 10-year contract in 2020, Serco said. The company also won an eight-year £200m contract to manage the Gatwick Immigration Removal Centre.
Serco lifted its profit guidance for 2021 by 6 per cent but said it expected revenues and profits to grow at a slower rate than in previous years.
The company’s progress is a rare bright spot among Britain’s outsourcers. Carillion collapsed in 2018, Interserve is being broken up after being taken over by creditors, while G4S is in the process of being taken over by private equity. Other government contractors including Capita and Kier are also attempting to rebuild after delivering a series of profit warnings.