Outsourcing giant Serco has hiked its full-year profits outlook as stronger-than-expected trading is helping it offset the hit from the end of the Government’s Covid-19 test and trace programme.

The firm said it now expects underlying trading profit of around £225 million this year – up £30 million on previous guidance and “significantly” better than it feared in February.

It had warned over the impact from the end of test and trace – a loss of £220 million worth of revenues in the first half and £260 million in the second half.

We have had a strong start to the year, and it is pleasing to be able to increase reported profit guidance to levels approaching last year’s

Rupert Soames, Serco group chief executive

But the group said it was now set to replace these lost revenues with increased work on immigration contracts and other government programmes worldwide, which it believes will help annual results approach levels seen in 2021.

Rupert Soames, Serco group chief executive, said: “We have had a strong start to the year, and it is pleasing to be able to increase reported profit guidance to levels approaching last year’s.

“To deliver this outcome, we are having to replace with other work some £500 million of revenues and over £60 million of contract profits from the ending of Test & Trace and of the AWE (Atomic Weapons Establishment) contract.

“We are able to do this because customers rely on us to deliver their critical programmes, and this has driven strong order intake over recent years on contracts that are now delivering revenues and profits.”

The firm is now pencilling revenues for the first half of 2022 of just over over £2 billion.

Full-year revenues are expected to reach £4.3 billion to £4.4 billion, in line with the previous year.

Serco had previously forecast 2022 revenues of between £4.1 billion and £4.2 billion.

The group said in the UK and Europe, it expects turnover to drop by around 5% year-on-year to £1 billion, even after the test and trace blow.

It added it was “well protected” against soaring inflation.

“Although it is hard to forecast the precise impact on revenues and costs, the nature of our contractual arrangements with our customers means we do not expect costs to increase faster than revenues,” Serco added.