Serco ups profit guidance, secures UK defence contracts

Outsourcing giant Serco upped its full-year guidance on Monday, boosted by strong demand for test and trace services, as it announced defence contract wins worth potentially £3.4bn.

The FTSE 250 firm said that Vivo Defence Services, its 50:50 joint venture with French energy firm Engie, had secured the contacts under the Future Defence Infrastructure Services programme to maintain the Ministry of Defence’s built estate across more than 200 sites and 19,000 buildings.

The total core value is estimated to be around £900m over the initial seven-year period. However, Serco added: "There will be significant amounts of additional project work, which will be commissioned as required and, while the future value of these projects is uncertain, the MoD estimates that they are likely to be worth a further £2.5bn over the initial seven-year term."

The blue chip also updated on trading, and said that the strong performance it had seen at the start of the year had continued, with all four of its divisions trading either in line with or ahead of budgets in the first five months of the year.

"In the UK in particular, volumes on both our testing and tracing contacts have continue to be strong and we now think it likely that demand for these services will continue for longer in the second that we previously anticipated," it said.

It is therefore increasing full-year profit guidance for the current year by £15m to around £200m.

The Vivo contract win is not expected to contribute to Serco’s group profits until 2022.