Outsourcing giant Serco has upgraded its profit guidance as it sees more demand than it previously expected from its contract to run some of the government’s Test and Trace services.

Shares rose 5% after the group said it now saw these services continuing for longer in the second half of the year than it had anticipated.

That together with a strong performance in other parts of the business has helped it bump up guidance for 2021 underlying profits by £15m to £200m.

Serco’s revenues for last year received a £350m boost from its role in Test and Trace – and it was criticised by Labour leader Sir Keir Starmer for paying an annual dividend.

But the company said at the time that the net impact of COVID-19 represented only about 1% of its underlying trading profit.

Chief executive Rupert Soames said in February that “the idea that COVID has been a huge boon to our profits is simply not true”

He also said that the much-criticised Test and Trace programme took “some time to settle down” but was “now working really, really well”.

Last August, the chief executive had said the impact of pandemic on Serco’s profits was a “big fat zero”.

Mr Soames received a pay package for last year totalling £4.9m, slightly down on his 2019 remuneration of £5.2m, as the company’s pre-tax profits rose by 89% to £153m and revenues climbed by 20%, or £636m, to £2.88bn.

The company’s latest trading statement pointed to a positive impact of Test and Trace services on its financial performance for 2021.

Serco said: “The strong performance we saw at the beginning of the year has continued.

“All of our four divisions have traded in-line or ahead of their budgets in the first five months of the year.

“In the UK in particular, volumes on both our Testing and Tracing contracts have continued to be strong and we now think it likely that demand for these services will continue for longer in the second half than we previously anticipated.

“Accordingly, we are increasing our guidance for underlying trading profit in 2021 by £15m, to around £200m.”

Serco, which earned 43% of its revenue in the UK last year, took a key role in the government Test and Trace programme as part of the battle against the virus.

It has operated more than a quarter of the testing sites and half the Tier 3 tracing capacity.

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