50 1GM Saturday October 17 2020 | the times
Business
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Payments of up to £50 million a
month for Covid-19 test-and-trace in
Britain and Australia and increased
revenues from housing asylum
seekers who cannot be repatriated
because of pandemic travel restric-
tions have boosted profits at Serco.
The government services contrac-
tor released an unscheduled third-
quarter trading update yesterday,
telling the City to upgrade their
numbers on the company.
Serco said that revenues for 2020
would come in £200 million higher at
£3.9 billion and profits were expected
to be about £20 million greater, at
between £160 million and £165 mil-
lion. Its coronavirus-related services
for the government are understood to
be on a 4 per cent profit margin.
That, added to news that the
company is considering reinstating
its dividend, sent the shares up by
more than 16 per cent. Serco had been
due to make its first payout in six
years this year but withdrew the pay-
ment because of the pandemic.
In reality the 19½p rise in the stock
to 138p is a reversal of recent losses as
investors fretted over reputational
damage to the company from wide-
spread criticism in Britain of the virus
test-and-trace scheme. In August
Serco shares had recovered to their
pre-pandemic levels, touching 169p,
before sliding back to 116p this week.
Rupert Soames, 61, the chief execu-tive brought in to rescue Serco in 2014
when it was on the brink of collapse,
spoke yesterday about the attacks on
his company’s role in test-and-trace.
“We work for the government.
People who do not like outsourcers
have criticised us,” he said. “We havebroad shoulders and we have to take
that.” Mr Soames added that the role
of outsourcers, private companies
providing public services, had been
“weaponised” by politicians who
wanted to attack the government but
did not want to be seen to criticise the
NHS.
Serco has directly employed or
sub-contracted 4,000 people in
Covid testing at about 125 of the 500
sites set up around the country, and a
further 5,000 people in tracing those
who have tested positive. The short-
comings of the system were not all
Serco’s fault, Mr Soames said.
In a statement the company said:
“The part we play, although impor-
tant, is limited and specific. We are
not involved in other parts of the
process, for instance the design and
management of the overall pro-
gramme, the NHS App, the IT sys-
tems, the booking of tests, the
provision of test kits, the test labora-
tories, delivering test results or the
identification of contacts of people
who have tested positive. We believe
that our operational delivery has
been outstanding and that we have
delivered our obligations.”
Of the £200 million increase in
group revenues Serco expects to
book this year, up to three quarters of
that is related to test-and-trace in the
UK and Australia, with the UK being
the much higher portion, offsetting
falling revenues in Serco’s travel and
transport contracts, such as air traffic
control and Merseyrail trains.Test-and-trace gives Serco profits a boost
Robert Lea Industrial Editor
Revenue from providing test-and-trace services in Britain and Australia should help boost profits at Serco by about £20 million
CHRISTOPHER FURLONG/GETTY IMAGESTalktalk’s handling of its £1.1 billion
takeover approach has come under
scrutiny amid concerns about the
independence of its board and the
interests of minority shareholders.
The FTSE 250 telecoms company
agreed last week to enter into talks
with Toscafund, its second-largest
shareholder, over a preliminary 97p
per share proposal. The approach is
28 per cent lower than a 135p per
share proposals made by Toscafund
last year, which Talktalk rebuffed.
Talktalk’s shares are tightly held
with Sir Charles Dunstone, 55, its
founder, owning 29.86 per cent,
followed by Toscafund, which holds
29.09 per cent. David Ross, a co-
founder of Carphone Warehouse
along with Sir Charles, has 11.16 per
cent. A number of institutional share-
holders have sold out in recent years.
Talktalk was founded in 2003 as
part of the Carphone Warehouse
business and was spun off in 2010. SirThe vast majority of FTSE 100 com-
panies have taken steps to curtail the
pension contributions to senior di-
rectors following pressure from share-
holders, according to analysis.
The Investment Association, the
industry body for fund management
groups, said that 98 per cent of blue-
chip companies it scrutinised have
committed to aligning payouts to
new executives with those received
by the rest of their workforce, or have
already done so.
It issued “red-top” warnings to ten
companies where a sitting boardBlue-chips limit directors’ pension pot
director received at least a quarter of
their base salary in pension contribu-
tions, with no commitment to reduce
this in line with those of other staff.
Ministers welcomed the progress in
curbing “exorbitant” pension funds
after dozens of London’s largest listed
businesses pledged to reduce
executive contributions.
While 14 companies actively low-
ered the pension payment ratio of
existing directors over the past year, a
further 43 committed to do so in
future, the association found.
The association’s 250 members
range from investment firms to pen-
sion funds and the asset managementdivisions of insurance companies,
managing £8.5 trillion in assets.
A number of prominent companies,
including Lloyds Banking Group and
HSBC, have faced anger over pension
arrangements in recent years.
Chris Cummings, chief executive of
the association, said: “Providing di-
rectors with the same pension contri-
butions as the rest of the workforce is
fundamentally an issue of fairness.
“Given the economic difficulties
many people across the UK are facing,
it is only right that the majority of
FTSE 100 companies are now align-
ing their executive pension contribu-
tions with their workforce.”Callum Jones
Talktalk criticised over takeover bid
Charles retook control in 2018 as ex-
ecutive chairman in an effort to re-
vive the company, which had lost its
way and struggled with competition.
Minerva, the proxy shareholder
group, said it had been “concerned for
some time about the governance at
Talktalk”. It added: “If anyone doubts
that underperformance and govern-ance are not related, they haven’t
been looking. Under-priced deals are
a poor form of stewardship.”
Pirc, the proxy shareholder adviser
group, which opposed the re-election
of five directors on independence
grounds this year, said: “These
transactions are an example where
unfettered independence matters.”
Analysts at Berenberg said in anote this week that as Talktalk has
“sought to be reassuring about its
resilience in the face of Covid-19,
holders may question why the board
would proceed with an offer 28 per
cent lower”. The broker added: “We
have previously voiced concerns
about board independence: while six
of Talktalk’s ten board members are
classified as independent, two of
these six started working for Charles
Dunstone’s companies in 1997 and
2000 respectively.”
All shareholders would be offered
the option to either retain their
shares in the new entity or take cash,
with the exception of Sir Charles,
who as a precondition of Toscafund’s
approach would retain his shares.
The Takeover Code governs acqui-
sitions and is designed to ensure all
shareholders are treated equally.
Talktalk said it complies fully with
the principles of corporate govern-
ance and all its directors were
successfully re-elected by sharehold-
ers at its AGM.Alex Ralph
28%
Price difference from initial offer
Source: Talktalk