UK's test and trace contracts give outsourcer Serco a boost

By Yadarisa Shabong

(Reuters) - Serco said on Thursday it will hand bonuses to 50,000 of its front-line staff as it expects a big jump in profits this year and further growth in 2021, benefiting from its major role in the test and trace operation in Britain.

The UK's huge outsourcing industry has struggled in recent years with infrastructure-focussed group Carillion collapsing in 2018, followed by a slide into administration for Interserve last year.

But Serco has benefited from being one of the main contractors for the COVID-19 test and trace operation which extends to 200 centres in Britain.

"Now there seems to be a comeback, as evidenced by Serco which is this year forecast to report its third year in a row of profit growth," said AJ Bell investment director Russ Mould.

Serco expects revenue of around 4.1 billion pounds ($5.57 billion) and underlying trading profit of about 165 million pounds in 2021 after lifting its 2020 outlook in October to 3.9 billion pounds revenue and 160-165 million pounds in underlying trading profit - a jump of as much as 37%..

Shares in the mid-cap company, which rose as much as 5.8% in early trade, were 3.3% higher by 1022 GMT.

"In our budgeting process we have come to what we believe are reasonable judgements, but the timing and shape of the return to normality ... is largely unknowable," Chief Executive Rupert Soames said.

As its focus on public sector work has largely sheltered Serco from the health crisis, Serco said 5% of the profits gained from the positive impact of COVID-19 would be used to repay government aid and give bonuses to around 50,000 front-line staff.

In four separate statements on Thursday, Serco also announced a new finance chief, a purchase of a cleaning and maintenance provider and a contract to deliver prison services at Acacia Prison in Australia.

($1 = 0.7364 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Rashmi Aich and Elaine Hardcastle)