Coronavirus UK: Serco reinstates dividend after earning £350m from Covid contracts

Controversial NHS Test and Trace contractor Serco has today revealed it was paid £350million for Covid contracts last year.

The scandal-hit firm reported a surge in profits in 2020, despite the contact tracing scheme it runs being chaotic and having ‘little impact’.

The outsourcing giant published its financial report for the year today, showing its earnings were up 36 per cent on 2019 to a total of £163million, with £2m from Covid contracts.

Its revenue – total income before expenses – was a staggering £3.9billion, up from £3.2bn the year before.

And the company is doing so well, with work accelerated by the Covid-19 crisis, that it has restarted dividends for the first time since 2014. It will pay shareholders 1.4p per share, currently equal to around one per cent.

The firm — whose chief executive is Sir Winston Churchill’s grandson — is one of the main operators of the Test & Trace scheme, running more than one in four public testing sites and half of contact tracing capacity in some areas.

It was handed testing and tracing contracts worth more than £160million without having to compete with other suppliers, records show, because it was part of a group of pre-approved firms.

But the system it plays a huge role in running has been beset by chaos throughout the pandemic, with call centre staff left without work at times and test centres totally overwhelmed at others.

Dido Harding, the chief of NHS Test & Trace, recently wrote to MPs admitting that the service was having little effect on slowing the spread of Covid. She said it was likely reducing the rate of spread by only two to five per cent, and it wasn’t hitting its own targets laid out in its business plan. 

Serco’s chief executive Rupert Soames said that although underlying trading profit had jumped 36 per cent to £163million in 2020, only around £2m came from winning Covid contracts.

The rest, he said, was money coming in from ‘normal operations of the business’.

Around £350million was added to the company’s revenue from the Covid contracts it got from the Government, though Mr Soames claims this only led to £2m profit. 

He said: ‘Although these contracts are at lower margins than we would normally accept for this type of work, they generated nearly £350million of revenue, so made a material contribution and helped to reduce the impact of losses in transport, health and leisure.’

The company, which operates worldwide, said it expected to profit even more from the Covid crisis.

It said the pandemic had ‘reconnected people with government services’ and ‘reminded them of the value of well-organised service delivery’.

The company said: ‘This will make government more confident in promoting services to citizens. 

‘But the fact is that deficits and levels of government debt have increased to levels not seen outside world war, and governments will be sharply focused on delivering “more and better for less”. This is positive for our market.’

The Test & Trace service – partly, but not entirely, run by Serco – has been beset by problems since it started in the summer of 2020.

Over the warm months call centre handlers were underworked, finding that they were being ‘paid to watch Netflix’ because so few people were testing positive for coronavirus.

And they were angry at IT problems that meant they had to keep repeating training sessions and could not carry out their jobs properly.

Critics said the call centre model of contact tracing was a less effective way of trying to track down people at risk of having coronavirus because it had no connection to local communities, calling instead for councils to be in charge of the system.

Reliance on the centralised model has been wound down since, but not before Serco made tens of millions of pounds out of directly awarded contracts.

Government documents show the firm was given a £108million job to run a call centre in Liverpool for three-and-a-half months in May 2020.  

The firm also runs a large number of testing sites, which have worked well overall but became overwhelmed in September at the very start of the second wave.

As testing capacity was run down to the bone, people found themselves directed to swab centres tens or hundreds of miles away from their homes.

Dido Harding later said nobody had anticipated the level of demand that the testing sites faced, and came under intense scrutiny for not preparing more effectively during the summer when demand was low. 

In a recent letter to MPs on Parliament’s science committee, Baroness Harding admitted that contact tracing reduces the speed of the coronavirus’s spread by a maximum of five per cent and as little as two per cent.

She said in a report to Parliament’s science committee that the act of tracking down people who have been close to Covid-19 cases has only a ‘relatively small’ effect on the R rate of the virus.

The R rate measures how many people each infected person passes the virus on to before they recover. It must stay below 1.0 if an outbreak is to stop growing.

The letter Baroness Harding and colleagues estimated that the UK’s entire test, trace and isolate system would keep the R down by between 18 and 33 per cent in a scenario similar to October 2020, when there were an average of 19,000 cases per day.

It became less effective when the outbreak got bigger in November, December and January, and when the fast-spreading new variant took over, Baroness Harding admitted.

She said: ‘The impact of contact tracing alone reduced the R number by 2-5% (with testing and self-isolation accounting for the remaining 16-28%).’ 

In a report published alongside the letter Test and Trace chiefs said it was unlikely the service would improve on this, saying: ‘The impact of contact tracing is relatively small. 

‘Even with small changes or improvements to the model, it is not expected that the impact of contact tracing will change drastically. 

‘It would remain of the same order of magnitude.’ 

Serco said its dividend situation had changed since talk of restarting payments were first floated in April last year.

Mr Soames said previous criticism that government support had been taken at the same time as making payments to shareholders was resolved.

He added: ‘We have refunded all employment and liquidity support paid to Serco by governments, with the exception of £12million in the USA, for which there is no mechanism for early repayment, so will be repaid as scheduled in 2021 and 2022.’

On the profits made from government Covid-19 contracts, he said: ‘Whilst the profits arising from our work on Covid-19 are ephemeral, they do not represent a material proportion of our profits in the year (net, around 1 per cent of underlying trading profit).’

He added that a £5million bonus had been shared among staff – a £100-each bonus – and the company had enough cash to make the dividend payments, concluding: ‘In the light of these four considerations, the board feels it appropriate to recommend the payment of a final dividend in respect of 2020 of 1.4p per share.’

A Serco spokesperson said: ‘Serco is an international business with 75 per cent of our profits coming from outside the UK. The net impact on Serco’s profits, directly attributable to Covid-19, in 2020 was £2m or 1 per cent.

‘Serco is one of the five companies managing test sites for NHS Test and Trace, operating just over 25 per cent of the total. We are one of the two organisations who provide call handlers to support the medical contract tracers from NHS professionals. 

‘We are not involved in other aspects of Test and Trace and have no wider responsibility. DHSC’s expenditure with Serco is less than 3 per cent of the Test and Trace budget.

‘The Test and Trace system is now performing well with 2.9million people tested and nearly 94 per cent of contacts reached in the latest weekly statistics. It is the largest test and trace system in Europe.’