Serco Group Annual Report 2000

FY2000 Annual Report · Serco Group

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Serco Group plc

Annual Review and Accounts 2000

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Financial highlights
Serco has maintained
its record of consistent
growth in sales and profits.

A message from the Board
As well as expanding our base
of existing contracts, we have
continued to win new contracts
that demonstrate our managerial
and technological capabilities.

AGM notice
AGM notice and
calendar of events

Annual accounts
Accounts information,
including directors and
advisers, corporate
governance, directors’
report, directors’
remuneration and
auditors’ reports.

Business review
An overview of our
progress during the year,
including reports on
business sectors and our
view of the year ahead.

Growing worldwide
A selection of new business
gained in 2000. We continue
to build on our traditional
areas of strength, while
winning more complex
contracts that require both
technological expertise and
advanced management
techniques.

A very
straightforward
business
To every contract we
bring the same proven
management processes
and expertise in managing
change. Serco is a
straightforward business
with excellent growth
prospects.

Empower and enable
Our contract performance
depends on our staff and
managers. We do all we
can to help them excel – by
training, sharing best practice,
harnessing technology and
empowering them through
our uniquely open culture.

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Financial highlights

Turnover†

£967.0m

£807.5m

up 19.7%

2000

1999

Profit before tax – pre FRS 10

highlights

Earnings per share – pre FRS 10

Dividend per share

£37.7m

£31.4m

up 20.0%

6.78p

1.63p

5.63p*

up 20.4%

1.42p*

up 14.4%

Employees at 31 December†

32,500

27,500

up 18.2%

967.0

807.5

687.8

571.6

462.0

368.1

289.3

218.5

175.5

47.3

59.2

125.7

82.2

Turnover† since flotation £m

37.7

31.4

26.4

22.0

18.3

15.2

12.5

9.4

7.7

3.0

3.6

4.3

5.2

Profit before tax – pre FRS 10 – since flotation £m

† including joint ventures
* restated to reflect a share capitalisation of five shares for every one held approved by shareholders on 5 April 2000

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A message from the Board

2000 was another year of strong performance. We maintained our record of consistent growth in sales and profits,
renewed and expanded our base of existing contracts, and applied our managerial and technological capabilities
to win new contracts.

Sales grew 19.7% to £967.0 million. Pre-tax profits rose 20.0% to £37.7 million before goodwill amortisation
(FRS 10). Earnings per share rose 20.4% before FRS 10. Operating cash flow performance remained strong at
£45.5 million. The recommended final dividend of 1.13p per share makes a total of 1.63p for the year – an
increase of 14.4% over 1999.

There were a number of changes to the Serco Board during the year. In March 2000 Gerry Rodgers retired, having
successfully led our Y2K project; we are grateful for his contribution to the business over 30 years. In April
Ralph Hodge CBE joined as our third non-executive director. He is a former chief executive of ICI Chemicals
and Polymers and chaired the committee that created the ISO 9000 quality standard. Gary Sturgess stood down
in December after six years’ valued contribution as a non-executive director, to join the company full-time as
group policy adviser. At the same time, Betsy Bernard joined us as a non-executive director; she was until recently
executive vice president of National Mass Markets, part of Qwest Communications International, and brings us
valuable technology experience – particularly in the North American market.

serco group plc

Successfully maintaining strong growth in the number, size and complexity of our contracts is not simply a matter
of winning bids. We need to secure the necessary depth of management capabilities; share best practice to make the
most of the experience we gain; consolidate our growth by retaining contracts as they come up for renewal; and
earn our place in the communities we serve by showing social and environmental responsibility.

The following pages show the progress we are making in all these areas. Our success depends entirely on the
performance of Serco’s people at all levels – we thank them all for their contribution. We will continue to invest
in them, empower them with the knowledge, skills and technology that enable them to excel, and develop a
pipeline of appropriately skilled managers. The Serco Best Practice Centre is becoming increasingly effective in
identifying excellence and making it accessible to contract managers and their teams worldwide. We are successfully
maintaining our contract renewal rate at over 90%. And, as a growing number of our customers expect evidence
of social and environmental responsibility, we are currently conducting an audit of our performance in these areas.

Serco is growing quickly, but judiciously. We are building organically on a solid foundation of existing contracts;
and the sheer scale of new opportunities available to us around the world means that we can be selective about
where and how we grow. We are maintaining our emphasis on winning contracts that play to our strengths in
management and technology – focusing on sectors such as transport, defence, and the justice, education and
science activities of central and local government, where there are substantial opportunities to add real value.

Our track record of successful Private Finance Initiatives (PFIs) and Public Private Partnerships (PPPs) in the UK
will prove a competitive asset as similar opportunities emerge in the Asia Pacific region and Continental Europe.
We also continue to pursue larger, more complex opportunities in North America, in partnership with major
US corporations.

Our bids for initiatives such as the UK’s National Air Traffic Services PPP, the proposed Atomic Weapons
Establishment PPP and the Future Strategic Tanker Aircraft PFI programme indicate the scale of our ambition
and capabilities. In pursuing opportunities on this scale we will not forget that sustainable long term growth
depends on consistently excellent performance and organic growth across the whole spectrum of our contracts
and businesses: these all continue to have excellent prospects.

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A very straightforward business

AT FIRST SIGHT, SERCO LOOKS BEWILDERINGLY DIVERSE – with over
500 contracts ranging from rail operations to scientific research. In fact, it is
very straightforward. To every project we bring the same things: our expertise

in managing change, and our other proven management processes for devolving responsibility
and delivering continuing performance improvement. These processes are our product.

WE CAN PLAN FOR LONG TERM GROWTH because we can forecast with
relative certainty. Future earnings and cash flows are highly visible. Our contracts
are typically for 5-10 years, and our success in winning renewals means that in
practice they can last for decades. The income is dependable: 90% comes from governments
and international agencies, and the rest from major corporations.

OUR GROWTH PROSPECTS ARE EXCELLENT. While the market continues
to grow rapidly, we have taken care to grow at a measured pace – to avoid
overstretching management or jeopardising our unique culture. And each new

contract brings further opportunities: about a third of our new business comes from our
customers broadening the scope of existing contracts. Our devolved structure helps us to
grow our own managers to match our expansion. As we take on new contracts, we constantly
acquire new talent. We provide a framework of highly developed processes and controls, train
people to use them, then liberate them to run their businesses more entrepreneurially.

ALL SERCO ’S PROCESSES ARE UNDERPINNED BY SHARED BELIEFS
about how to treat customers, staff and the community. We value our people’s
knowledge, ideas and potential to contribute. We give them support and ready

access to anyone who can help with a problem or use an idea. We want them to speak their
minds freely, take responsibility for solving problems, and enjoy their work. In all their dealings
with customers, we encourage them to deliver the spirit of our contracts, not merely the letter.

AS THE ORGANISATION EXPANDS, WE ARE PASSIONATE AB OUT
SHARING IDEAS AND BEST PRACTICE. Constant communication worldwide
helps us understand and manage risks, deliver service improvements ahead of

customer expectations and keep our competitive edge. The Serco Institute develops and refines
our vision of the future. And the Serco Best Practice Centre makes increasing use of internet
and other technologies to help our businesses form networks and share ideas and experience;
so that, as we grow and become still more diverse, Serco will remain in essence a very
straightforward business.

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Empower and enable Our contract performance depends fundamentally
on the individual performance of our staff and managers. So we do all
we can to help them excel – by training, sharing best practice, harnessing
technology and empowering them through our uniquely open culture.

Developing the managers we need

What unites all our diverse activities is our systematic application
of proven management processes and expertise. To maintain our high
growth rate and move into increasingly large and complex contracts,
we must constantly develop managers with the right competencies.
This has always been a Serco priority.

empowering

We believe investment in people returns competitive advantage.
A key role for both the Serco Institute and our Best Practice
Centre is to be vigilant in identifying future needs and innovative
in developing managers to meet them. Technology is helping us
to achieve consistent standards globally: for example, the centre
has developed online self-appraisal software that enables managers
to measure their skills against the requirements of their job.
The software then offers them a choice of suitable training
opportunities, including computer-based training via our intranet.

We are passionate believers in training at all levels: it’s one way
we can empower people to make a real difference. For example,
since taking over a series of service contracts for the Royal Navy
we’ve given training to over 600 staff. In Asia Pacific we have a
growing programme of partnerships with academic institutions
such as the University of Technology Sydney, where we are
pioneering schemes that enable staff to gain vocational, graduate
and postgraduate qualifications through projects related to their
work. This year we are extending the programme to Hong Kong
and Singapore, and introducing a vocational award designed for
team leaders and supervisors.

IDENTIFY
FUTURE MARKET
NEEDS AND
REQUIREMENTS

CREATE
COMPETITIVE
ADVANTAGE

DEVELOPING
THE
MANAGERS
WE NEED

DEVELOP
RELEVANT
SKILLS
BASE

INNOVATE

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Managing change, changing managers: It’s all very well to say
you’re looking for more complex contracts – but where will you find the
skills to manage them? Our UK technology services business created
its own solution – and developed a new university degree in the process.
Three years ago, its change director and colleagues sat down together
to define the competencies the business would need to manage complex
contracts effectively. They put together an innovative personal development
programme for contract and support office managers with potential, to
give them the outlook and skills they’d need in the future. Emma Roycroft,
pictured here at GlaxoSmithKline’s product supply site, is one of the first
15 managers who’ve taken part. Brighton University liked the programme
so much that it has agreed to accredit it – enabling participants to gain
an MA in Change Management. Today, the complex contracts anticipated
three years ago are becoming reality, and managers who’ve participated
in the programme are taking them on with confidence – one, for example,
is the service delivery manager designate for the Highways Agency’s
national Traffic Control Centre PFI. Participants are also finding
new ways to share what they’ve learned – they’ve developed a series
of courses for fellow contract managers on skills such as negotiating
and change management.

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PROMOTES
AND DEVELOPS
SERCO
COMMUNITY
AND
CULTURE

PROMOTES
BEST
PRACTICE

GLOBAL
KNOWLEDGE
SHARING

DEVELOPS
NETWORKS

Using technology to enable our people

CREATES
OPPORTUNITY

As well as giving people the skills they need, we’re also giving them the tools.
Our strength in technology enables us to keep on improving the quality
of our communication, information, methodology and understanding.

enabling

With some 500 contracts worldwide and over 32,500 people, Serco
has a wealth of knowledge and experience. But how can we best use
it? The Serco Best Practice Centre intranet helps our people tap the
group’s distilled expertise on core activities such as bidding and
phasing-in new contracts, and developing and rebidding existing
ones. And the Our World intranet database puts people in touch
with colleagues who can help them, enables them to form networks
of colleagues with common interests, allows them to search banks
of knowledge and opens up job opportunities to the entire workforce
worldwide. In the near future it will draw on our own databases and
a variety of outside sources to bring them a personalised news service.

Technology also enables us to do existing tasks better. Like the
satellite positioning system that tracks our 150 UK rail infrastructure
maintenance vehicles, so that our people can respond faster to urgent
maintenance requests by pinpointing the nearest team with the
necessary skills.

Technology can also create new possibilities. Valuable business initiatives
often start with a chance encounter in a corridor, a casual conversation
or an overheard remark. To promote that human interaction on a
worldwide scale, our Virtual Office project is installing low-cost
teleconference systems that act as ‘windows’ linking communal areas
of our offices in the UK, Asia Pacific and North America for several
hours each day. It’s one more way in which we’re making Serco a real
global community.

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Giving the controllers more control: Every time you fly, you put your
trust in air traffic controllers. You want to know that their knowledge and
skills are right up to the minute. In 56 air traffic control (ATC) towers
across the US, our 300 controllers provide services within the Federal
Aviation Administration (FAA) system. We’re currently working with AMTI,
a leading information services and systems engineering specialist, to
develop a comprehensive Air Traffic Management Information System
that all our ATC staff can use via the internet. This will ensure that they
always have online access to the latest versions of FAA regulations,
corporate manuals and employee handbooks. Staff at all levels will be
able to stay informed and up to date on our performance and to share
best practice with colleagues across the country in the ever-changing
ATC environment. Online bulletin boards will show job vacancies, so that
everyone has the best possible chance to fulfil their potential. And, in
keeping with our open culture, critical portions of the system will also be
available to the FAA – real-time access to data such as traffic movement
and activity reports will help improve our customer’s efficiency as well
as our own.

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ENHANCE
SERVICE
STANDARDS

REALISE
COMMERCIAL
POTENTIAL

ADDED
CONTRACT
VALUE

EXCEED
EXPECTATIONS

ACHIEVE
EFFICIENCY

Using technology to deliver for customers

Technology doesn’t just help us run our own business better. We also apply
our communication and IT skills to achieve greater efficiency, enhance
service standards to meet rising expectations, and create new possibilities.

improving

Developing a new information system for the National Rail Enquiry
Scheme in the UK was a timely move. As well as cutting a third off
the time taken to answer routine enquiries, it also helped the scheme
to cope with an unprecedented tenfold upsurge in enquiries during the
disruptions that followed the Hatfield rail crash. During this period
our new real-time website at www.nationalrail.co.uk handled some
100,000 hits a day.

At the National Physical Laboratory, we’ve created additional
opportunities by working with the DTI in establishing major new
scientific facilities that are unique to the UK. And we’re making
innovative use of the internet by pioneering ways to calibrate scientific
instruments online – giving customers direct access to national standards
and support information without having to move equipment offsite.

Sharing data helps us refine and improve our services. At the Ministry
of Defence Joint Services Command and Staff College, opened in 2000,
we use our bespoke information management system to monitor and
report performance. This has given our staff the tools to monitor their
own teams and take personal responsibility for results. On many of our
integrated transport contracts, we’re using satellite positioning technology
to locate vehicles and give waiting passengers updated information on
when buses or trains are due. This has enabled us to go a step further –
collating information on journey times, passenger numbers and ticketing
types so that we can help our customers refine schedules and services.

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Just phone for a train: The Docklands Light Railway (DLR) in London
has always been associated with advanced technology – and as its
operator, we’re determined to keep applying technology to make life
easier for passengers. For example, it’s nice to know when the next
train’s due to arrive – but wouldn’t it be nicer to know before you got to
the platform? We already have real-time data on train movements, so now
we’re using it to feed information displays in places around the railway.
DAISY, the Docklands Arrivals Information System, enables passengers to
watch out for their next train on plasma screens in the University of East
London, local exhibition centres and the lifts at Canary Wharf. Visit
www.dlr.co.uk and you can see the next three departures from the station
of your choice. There’s even a service for WAP phones which lets
passengers keep tabs on their train while they wrap up a meeting or
finish their coffee. We’re also trialling screens on the trains themselves,
to provide real-time travel information, news and entertainment. This not
only makes life easier for passengers but also gives us another potential
income stream from advertising. Last year developments like these
helped DLR win the national Light Rail Operator of the Year award.

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Running every contract as a business

Our readiness to invest in contracts reveals the way we see them: not as
tasks to be performed to the letter of the contract but as opportunities to
develop them in partnership with our customers. Each contract manager
runs a business which they’re encouraged to nurture and grow. An increasing
number of them have their own ‘board of directors’ including non-executives.

DEVOLVED
STRUCTURE

HIGHLY
ACCOUNTABLE
MANAGERS
AND STAFF

INCREASED
GROWTH

ENTERPRISE
CULTURE

RECOGNISE AND
REWARD

From day one of a contract we’re preparing for the rebid – by raising
service standards and adding value to benefit our customers, we
sharpen our competitive edge. In this way, we often increase the value
of contracts and normally extend their duration by winning repeated
renewals. We are also alert to the opportunities that one well-run
contract provides for winning others.

This entrepreneurial spirit at contract manager level has enabled us
to grow our rail business from a standing start to £150 million a year
in just five years. Our rail property maintenance business now has
almost complete coverage of the UK.

Other acorns-to-oak stories include the small maintenance contract
at the National Physical Laboratory which led to Serco managing
the entire laboratory and its programmes – and extending our
involvement under a PFI contract.

A maintenance contract at an RAF helicopter flying school led to
the PFI project in which we are operating the RAF’s Medium Support
Helicopter Aircrew Training Facility under a contract with CAE worth
over £50 million. In turn, our private finance experience at this facility
and our involvement in establishing the Defence Helicopter Flying
School will add substance to our bids for complex activities such as the
National Air Traffic Services PPP and Future Strategic Tanker Aircraft
PFI. The commercial experience they’ve given us complements our
proven strength as the world’s leading private sector provider of air
traffic services and our ability to handle large-scale, sensitive contracts
such as managing the Atomic Weapons Establishment.

adding value

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Watch this space: The European Space Agency (ESA) has developed
through political evolution as well as technological advances. By responding
flexibly to its changing needs, we have grown our business with ESA from
one person in the early 1970s to over 300 today. We now have eight major
contracts with the Agency and a wide spectrum of smaller projects and
assignments. The key to our success has been a willingness to adapt to
changing political, administrative and legislative requirements while also
keeping pace with fast-moving technology. We are one of only a few
suppliers that can offer ESA a range of capabilities across the board –
including satellite engineering at the ESTEC technical centre in the
Netherlands, launch site support for CNES at the CSG in French Guiana,
satellite control at the ESOC operations centre in Germany, and data
collation and analysis at the ESRIN research establishment in Italy. There
is no room for complacency: the breadth of our activities means that we
rebid a proportion of our contracts every year against stiff competition.
Our experience and success in this field are now attracting interest from
major organisations across Europe in telecoms, meteorology and global
positioning satellites.

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DEVELOP
PARTNERSHIPS

ACHIEVE AND
SHARE COST
SAVINGS

LONG TERM
CUSTOMER
RELATIONS

BUILD TRUST
BE OPEN

Maintaining open relationships with customers

PROVIDE
VALUE

Treating each contract as a business focuses contract managers’ attention
on customer relationships. In our experience, maximising the quality of
relationships delivers a better long term return than any short term focus
on maximising margins.

for our customers

When a contract is up for rebid, the most effective challenge to
competitors is a satisfied customer who can see clearly the value we
deliver. That is one way we maintain a contract renewal rate of over
90% – and why a five-year contract can be the start of a relationship
lasting 10, 20, 30 or even 40 years. We believe in open partnership
relationships with customers – we are comfortable with ‘open book’
contracts, and willing to work in partnership with customers to
achieve and share cost savings.

This approach may not deliver the largest profit in the short term
but it provides a robust business base on which to grow the company.
More and more customers are demanding partner relationships and
we believe that this will become the outsourcing pattern of the future:
our reputation for successful partnerships will stand us in good stead
as we bid for larger contracts and PPP programmes.

In the UK we’ve developed a pioneering initiative with Railtrack -
Partnership in Asset Management. The customer’s managers are based
at our Midlands depots to work alongside our business managers; we
operate joint safety audits, sharing the findings and developing a
common response; and we work with Railtrack on new ideas and
initiatives.

The competitive benefits of our open approach have been clear at
the US Federal Aviation Administration (FAA) since we acquired our
original contract in 1997. By maintaining open books we established
a strong relationship of trust, and when the FAA rebid its contracts
in 2000 it required all tenders to show details of costs and margins.
We bid for six contracts and were awarded three – the most that any
one company could be awarded.

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Open books open doors: The transparency of our relationship with
Winchester City Council in the South of England has helped us extend a
five-year relationship by a further 10 years. Since taking over the council’s
direct labour force in 1995 we have been undertaking over 20 contracts
ranging from refuse collection and building maintenance to transport
hire and highway maintenance. In managing these services to ISO 9002
standards we have always worked in partnership with the council,
maintaining open books, sharing its objectives and developing services
jointly. During the fuel crisis in mid-2000 we pooled our fuel stocks with
the council and shared decisions on priorities for vehicles operated by
both Serco and the council; and when the area was hit by extensive
flooding, the council trusted us to share crucial decisions on priorities
for repairing properties and providing flood defences. We continue to
work with the council to enhance services, value for money and the
quality of our partnership. For example, under the new 10-year contract
awarded in January 2001, we will be teaming-up with both the council
and tenants’ groups to deliver a more seamless and responsive housing
maintenance service.

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Maintaining partnership with the community

Close relationships with customers in governments and international agencies –
some 90% of our business – give us a particular sense of involvement with
the communities we serve. And, for a growing number of our clients, social
awareness is becoming a critical factor in the contract evaluation process.

We have always aimed to be a socially responsible organisation.
Today we are developing initiatives that go beyond conventional
charitable activity and integrate social responsibility into our
operations. In particular, we have a growing number of schemes
to provide jobs and training for disadvantaged people, particularly
the long term unemployed.

and communities

IMPROVED
REPUTATION

STRENGTHENED
BIDDER STATUS

INTEGRATED
SOCIAL
RESPONSIBILITY

ENHANCED
BUSINESS
RELATIONSHIPS

We’re setting up a pilot site at our Q Stores contract in Sydney
which will create traineeships for longer term unemployed people
as a first step towards careers in Serco. We plan to extend the
programme to other sites during the year. In the UK we’ve recruited
all the fireground support staff at our International Fire Training
College on Teesside from government schemes for the long term
unemployed. In the US we’ve been recruiting staff to our San Francisco
parking meters contract under the government Welfare to Work
programme. And on our Huntington, West Virginia Department
of Motor Vehicles contract, many staff have been recruited through
a charity that trains the long term unemployed: contract manager
Betty Belville now sits on its local board.

BETTER STAFF
DEVELOPMENT

Our joint venture prison services company, Premier Custodial Group,
is addressing employment issues from both sides. Dovegate Prison,
opening in July 2001, is working with local groups to create
opportunities for socially excluded people and ethnic minorities;
while Doncaster Prison has won the prestigious Butler Trust
Development Award – which recognises excellence and innovation
in prison work – for a pioneering scheme which prepares inmates
for employment after their release.

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Getting engaged: The company, its staff and the local community
aren’t separate entities. They’re all inextricably interlinked. We do our
best to recognise this by blurring the boundaries between work, home
and neighbourhood. Especially in remote communities like those in North
West Scotland, where we manage Raasay Ranges for the Ministry of Defence.
As you’d expect, both the company and individual staff members support
local organisations and charities. In partnership with our customer we
also give full support to staff who belong to voluntary organisations such
as the fire service, lifeboat crew and mountain rescue team. Our estates
manager is supervising an extension to the village swimming pool, the
IT supervisor advises local schools on computer issues and our senior
managers help local businesses and community organisations. We’ve
installed facilities in customer buildings so that they can be used to
house the lifeboat and, for a time, the fire service. As well as providing
work experience for school students, we offer local residents spare
places on our company training courses, to help them gain relevant
career skills. Our staff value the opportunity to make a real contribution
to the wellbeing of the community – and the more we support our
neighbours, the more we find that our neighbours support us.

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IT interface design and usability
IT interface design and usability
The internet, interactive TV and mobile
The internet, interactive TV and mobile
internet technologies are enabling
internet technologies are enabling
governments and businesses to make
governments and businesses to make
themselves more accessible. But how
themselves more accessible. But how
accessible is the technology in practice?
accessible is the technology in practice?
Our Usability Services business has
Our Usability Services business has
become the UK leader in usability studies
become the UK leader in usability studies
and user interface design, helping clients
and user interface design, helping clients
fulfil the potential of interactive technology.
fulfil the potential of interactive technology.
It started as a small team measuring the
It started as a small team measuring the
user-friendliness of IT systems at the
user-friendliness of IT systems at the
National Physical Laboratory. Today
National Physical Laboratory. Today
we have 15 consultants in the UK, with
we have 15 consultants in the UK, with
facilities in London and Manchester, and
facilities in London and Manchester, and
the team is set to double in size within the
the team is set to double in size within the
next year. Their customers already include
next year. Their customers already include
the BBC and the ITV network, leading UK
the BBC and the ITV network, leading UK
clearing banks, two international mobile
clearing banks, two international mobile
phone operators, supermarket chains
phone operators, supermarket chains
and the Inland Revenue. To meet growing
and the Inland Revenue. To meet growing
international demand for usability
international demand for usability
consultancy we’ve acquired one of the
consultancy we’ve acquired one of the
world’s top three consultancies, The Hiser
world’s top three consultancies, The Hiser
Group. The AUS$6 million acquisition,
Group. The AUS$6 million acquisition,
completed in January 2001, brings us
completed in January 2001, brings us
an internationally recognised team of
an internationally recognised team of
specialists based in Australia. Our global
specialists based in Australia. Our global
capability in this field will enable us to
capability in this field will enable us to
help many more customers use the
help many more customers use the
internet more effectively – particularly as
internet more effectively – particularly as
national and local administrations adopt
national and local administrations adopt
‘e-government’ initiatives to put a growing
‘e-government’ initiatives to put a growing
proportion of their services online.
proportion of their services online.

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Army Training Group Waiouru
Army Training Group Waiouru
In Australasia we’re continuing to strengthen
In Australasia we’re continuing to strengthen
our position as a leading provider of services
our position as a leading provider of services
to the armed forces. In October 2000 we
to the armed forces. In October 2000 we
received a further vote of confidence from
received a further vote of confidence from
the New Zealand Army when Serco was
the New Zealand Army when Serco was
named as preferred service provider for a
named as preferred service provider for a
NZ$60 million contract at its Waiouru facility.
NZ$60 million contract at its Waiouru facility.
Our innovative approach and willingness to
Our innovative approach and willingness to
invest were key factors in the decision. Army
invest were key factors in the decision. Army
Training Group Waiouru is the New Zealand
Training Group Waiouru is the New Zealand
Army’s principal training area. All officers
Army’s principal training area. All officers
and soldiers spend substantial parts of their
and soldiers spend substantial parts of their
careers there – for initial training, professional
careers there – for initial training, professional
development courses or collective training
development courses or collective training
exercises. The six-year contract, with
exercises. The six-year contract, with
scope for extension to 10 years, covers
scope for extension to 10 years, covers
a wide range of logistic support services –
a wide range of logistic support services –
including catering, inventory management,
including catering, inventory management,
ammunition warehousing, transport,
ammunition warehousing, transport,
facilities management, range management,
facilities management, range management,
equipment repair, reprographic, library
equipment repair, reprographic, library
and security services.
and security services.

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Forsmark Nuclear Power Station
Forsmark Nuclear Power Station
We’ve sharply raised our profile in Sweden
We’ve sharply raised our profile in Sweden
by winning one of the country’s largest public
by winning one of the country’s largest public
sector contracts. In 1999 the management
sector contracts. In 1999 the management
of the nuclear power station at Forsmark
of the nuclear power station at Forsmark
decided to outsource a range of technical
decided to outsource a range of technical
services – including decontamination and
services – including decontamination and
related services – as well as building
related services – as well as building
maintenance and operation. Some 25
maintenance and operation. Some 25
companies expressed interest in aspects
companies expressed interest in aspects
of the work, and four consortia were formed
of the work, and four consortia were formed
to bid for a single all-encompassing contract.
to bid for a single all-encompassing contract.
Serco was the only company with the
Serco was the only company with the
breadth of resources to bid for the entire
breadth of resources to bid for the entire
contract without partners. Our proven
contract without partners. Our proven
experience of nuclear and politically
experience of nuclear and politically
sensitive installations helped us win a
sensitive installations helped us win a
contract worth up to SEK450 million in
contract worth up to SEK450 million in
June 2000, and we’ve subsequently added
June 2000, and we’ve subsequently added
responsibility for managing almost 700
responsibility for managing almost 700
residential accommodation units. Since
residential accommodation units. Since
phase-in began we’ve formed a close
phase-in began we’ve formed a close
partnership with the customer, steered
partnership with the customer, steered
by a joint Relationship Committee.
by a joint Relationship Committee.
This year we’ve extended the contract
This year we’ve extended the contract
to include operation of the site’s fire
to include operation of the site’s fire
and rescue services.
and rescue services.

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National Crime Squad
Our new strategic partnership with the
UK’s National Crime Squad (NCS) builds
on long experience of security-related IT
with the Government Communications-
Electronics Security Group. Under this
£65 million, 10-year contract we are
providing strategic consultancy on IT,
communications and crime-related
technologies, seeking best practice from
around the world. We will develop a strategy
for the NCS’s information management and
communications needs and implement a
comprehensive, integrated and highly
secure solution to meet its business
requirement. This complex technical task
will involve providing and supporting a
secure IT infrastructure, data centres,
fixed and mobile communications, secure
storage and tracking of vital evidence,
IT and technology training for NCS staff
and operation of a helpdesk for all NCS
technology services. Key factors in selecting
Serco for this challenging project included
not only our grasp of technology and
security issues but also our partnership
approach and willingness to adopt an open
book relationship.

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Seminole County, Florida
Seminole County, Florida
Serco’s readiness to form mutually
Serco’s readiness to form mutually
beneficial partnerships – with customers
beneficial partnerships – with customers
and fellow suppliers – was a key factor in
and fellow suppliers – was a key factor in
winning an important new contract with
winning an important new contract with
Seminole County, Florida. The contract
Seminole County, Florida. The contract
covers maintenance of almost 1,900
covers maintenance of almost 1,900
vehicles for the fire, police, forestry and
vehicles for the fire, police, forestry and
other county services – ranging from
other county services – ranging from
mowing machines to bulldozers. The
mowing machines to bulldozers. The
county authorities were impressed by our
county authorities were impressed by our
willingness to set a firm price ceiling and
willingness to set a firm price ceiling and
work with them to achieve and share cost
work with them to achieve and share cost
savings. They also liked our partnership
savings. They also liked our partnership
with DMG Maximus, the US industry leader
with DMG Maximus, the US industry leader
in IT consultancy for fleet maintenance.
in IT consultancy for fleet maintenance.
This enabled us to provide a customised
This enabled us to provide a customised
IT package that met their very demanding
IT package that met their very demanding
requirements for performance tracking.
requirements for performance tracking.
We’re expecting our relationship with DMG
We’re expecting our relationship with DMG
Maximus to generate further business for
Maximus to generate further business for
both companies, and our customers at the
both companies, and our customers at the
Washington DC Police have already agreed
Washington DC Police have already agreed
to adopt the same IT system.
to adopt the same IT system.

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Middle East international airports
Middle East international airports
Our aeronautical services business in the
Our aeronautical services business in the
Middle East, Serco-IAL, has over 50 years’
Middle East, Serco-IAL, has over 50 years’
experience of serving the aviation industry
experience of serving the aviation industry
in the Gulf and elsewhere. In the past year
in the Gulf and elsewhere. In the past year
we have successfully renegotiated
we have successfully renegotiated
contracts at three airports – Dubai, Ras
contracts at three airports – Dubai, Ras
Al Khaimah and Sharjah. These contracts
Al Khaimah and Sharjah. These contracts
include provision of air traffic control
include provision of air traffic control
(ATC) services and the maintenance and
(ATC) services and the maintenance and
operation of ATC-related systems. At Ras
operation of ATC-related systems. At Ras
Al Khaimah and Sharjah they also cover
Al Khaimah and Sharjah they also cover
fire and rescue systems and airport security.
fire and rescue systems and airport security.
An important part of our relationship with
An important part of our relationship with
customers on these contracts is our
customers on these contracts is our
commitment to training local staff so that
commitment to training local staff so that
they can manage day to day operations
they can manage day to day operations
to the highest international standards.
to the highest international standards.
In addition to these renewed contracts,
In addition to these renewed contracts,
we also won a new contract to provide
we also won a new contract to provide
consultancy for the specification,
consultancy for the specification,
installation and commissioning of
installation and commissioning of
upgraded navigational aids at Bahrain
upgraded navigational aids at Bahrain
International Airport.
International Airport.

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Business review

Our strong performance in 2000 reflected successes
in all regions. We retained and extended much of our
existing business while winning new contracts – many
of which allow us to demonstrate new levels of
management and technical capability.

In the UK we began four very large contracts: the
Atomic Weapons Establishment (AWE), the Joint
Services Command and Staff College, an infrastructure
maintenance contract for Railtrack and an information
management and communication partnership with
the National Crime Squad.

In continental Europe our German, Italian and
Belgian businesses are making an increasingly
valuable contribution. We won significant contracts
in Sweden, including technical services at the Forsmark
nuclear power station, and from CERN, the European
Organisation for nuclear research in Switzerland. We
also gained important new projects from the European
Space Agency.

In the Middle East we successfully renewed the
aeronautical technical services contracts at Dubai,
Ras Al Khaimah and Sharjah International Airports,
and phased-in a new air traffic management system
in Dubai.

We had a good year in North America. In rebidding
for air traffic control (ATC) contracts from the
Federal Aviation Administration (FAA) we increased
the number of towers we operate, giving us scope for
further expansion. New opportunities have opened up
for our relationship with Lockheed Martin, enabling
us to begin negotiations on a private finance initiative
(PFI) project to provide an astrobiology laboratory.

In Asia Pacific our principal successes were in
defence – in Australia, where we now provide 50%
of all garrison support services, and in New Zealand,
where we continued to win significant contracts.

Public private partnerships (PPPs) and PFIs remain
a significant source of opportunity for us. In the
UK, at the Joint Services Command and Staff College,
where Serco has an operating contract worth more
than £200 million over 27 years, our joint venture
completed the £90 million facility and we recruited
300 staff to operate it. Dovegate Prison, Norfolk and
Norwich Hospital and Wishaw General Hospital are
on schedule for completion this year. We are in
advanced negotiations for the Highways Agency’s
new national Traffic Control Centre PFI.

At AWE we are currently discussing a PPP which would
extend our 10-year contract by a further 15 years and
enable our consortium to raise private finance for a
series of major capital works. We have been included
on the final shortlist of three for the National Air
Traffic Services PPP.

We have successfully completed the first selection
stage for the UK’s Future Strategic Tanker Aircraft
programme; and we are investigating the opportunities
for a similar programme due to be announced in
Australia – the fact that the Australian military are
developing PFI projects augurs well for the spread
of this procurement method and for our own future
growth prospects. We are pursuing our first opportunities
in Japan; and we have formally agreed a joint working
group with Lockheed Martin in the US to identify
further projects beyond our astrobiology laboratory
PFI proposal.

National, regional and local government
Our aim in this market is to maintain
a solid foundation through rebids and

extensions, while winning increasingly critical,
complex projects with existing and new customers.

In the UK we won and successfully began a major
partnership with the National Crime Squad. Under
a 10-year contract, valued at over £65 million, we
will develop its information management and
communications strategy and provide comprehensive
and highly secure technical resources ranging from the
provision of data centres to the storage and tracking
of vital evidence.

Justice has become an increasingly important sector
for us. During the year we successfully rebid a 10-year
contract for management and operation of Doncaster
Prison in Yorkshire. In 2001 we begin operation of
Dovegate Prison in Staffordshire under a PFI contract.

We won our largest Swedish contract to date, for
technical services and facilities management at
Forsmark nuclear power station. This covers a wide
range of activities from decontamination services to
managing almost 700 accommodation units and we
have already broadened its scope.

In Germany we won a further extension of the
contracts we have held since 1984 with the Federal
Employment Office. Under these contracts we provide
further education and retraining for over 1,000 job-
seekers a day at 13 training centres.

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Serco Group plc

In the Netherlands we extended our mainframe
computer support contract with the European
Patent Office. We won our second contract with the
Dutch government, to manage the Housing Ministry’s
telecommunications infrastructure at its three main
sites in The Hague. Our IT contracts with the
European Commission were extended. These cover
primarily PC user support to over 15,000 staff in
some 30 buildings in Brussels and Luxembourg,
and continue to achieve good organic growth.

We began a new contract for CONSOB, the National
Commission that oversees the Italian Stock Exchange
and public companies: we are supporting its entire
IT infrastructure for 450 employees at two offices
in Rome and one in Milan.

We are actively pursuing opportunities in the UK
education market, where we see significant future
growth potential. In December 2000 we acquired
Quality Assurance Associates, which is one of the UK’s
primary providers of school inspection services and
head teacher leadership training. The acquisition, for
£2.6 million, complements our change management
and process improvement expertise and will support
our proposals for partnerships with local education
authorities.

In 1995 we took over the direct labour organisation of
Winchester City Council for five years. The success of
the contract, and the strong partnership we have built
with the council, won us a 10-year renewal beginning
in April 2001.

In the US the outsourcing of state government services
is gathering momentum. We made further progress by
winning the vehicle fleet maintenance contract for
Seminole County in Florida. This includes police and
county vehicles and the firefighting fleet at Sanford
Airport.

In Asia Pacific we renewed our housing management
contract with JTC Corporation in Singapore; and
renewed and extended contracts to maintain nearly 300
parks and open spaces in Manukau City, New Zealand.
In Australia we won a five-year contract employing 60
staff to manage and operate the Transinfo public
transport information service jointly funded by
Queensland Transport, Queensland Rail and Brisbane
City Council.

We are building increasing strength in leisure centre
management. In the UK we won a 10-year contract

to manage the Manchester Aquatics Centre. Built
to host the Commonwealth Games in 2002 and
to provide a community legacy, this is the world’s
most technically advanced pool complex.

We also won a 10-year extension to our management
and operation contract at Tenterden Leisure Centre in
Kent, which will include significant investment in new
facilities. In Aylesbury Vale we won a 10-year extension
to a leisure centre contract, also involving investment
in new facilities; and our customer’s satisfaction with
our performance has led to a second leisure centre
contract. In Sweden we renewed our contract to run the
Linköping Leisure Centre and won a five-year contract
to manage the Umeå Leisure Centre.

Defence Defence is a growing and rapidly
evolving market where customers are
increasingly looking to procure services or

capabilities rather than assets. In the UK alone the
market for defence services is expected to reach £15.1
billion by 2009. We aim to maintain our position as a
major service provider to national defence forces
through contract extensions and rebids, while extending
the depth and geographic spread of our capability.

In October we were named as preferred service provider
for logistical support, facilities management and range
management services to the New Zealand Army’s
principal training area in Waiouru. The six-year contract,
with scope for extension to 10 years, is worth NZ$60
million.

Importantly, we won a seven-year renewal of our contract
at the Defence Procurement Agency headquarters in
Abbey Wood near Bristol. With work services management
added to our previous contract, we will have over 350
people delivering a total corporate support service.

Another valuable renewal was a second one-year
extension to our Royal Navy marine services support
contract at the Portsmouth, Devonport and Clyde
submarine bases, taking the original five-year term to
seven years. This £35 million a year contract involves
operating 140 Ministry of Defence vessels and employs
700 seagoing and shore-based support staff.

We also successfully rebid for a further four years’
consultancy to Germany’s part of a NATO Air Command
and Control System project, and for the management
of the Defence Evaluation and Research Agency
(DERA) Hebrides and Raasay weapons testing ranges
in Scotland.

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Business review

We achieved an important addition to our facilities
management business in Germany by winning the
contract to provide serviced accommodation for
OCCAR, the joint defence procurement body formed
by Germany, the UK, France and Italy.

Significant new UK contracts included spares and
support for the Sonar 2093 system in Sandown Class
minehunters; maintenance and repair support for Sonar
2054 training systems; and a contract from DERA
to crew, operate and maintain its new experimental
research vessel RV Triton – a revolutionary trimaran
that will be used to test the triple hull concept for
future Royal Navy warships.

To broaden our defence engineering skills and enhance
our ability to provide complete solutions, we acquired
Rakmulti in July for £1 million. This is a UK-based
systems integration business specialising in high
bandwidth satellite communications, a growth area
which is particularly important to naval operations
and ‘out of area’ activity for land and air forces.

In January 2001 we delivered the final vessel under
a UK contract to design and build seven passenger
support vessels for the Naval Bases and Supply
Agency. The vessels were built at two UK shipyards.

Air transport Air transport is a major
global growth market and our aim has
been to consolidate our position as the
world’s leading provider of private air traffic control
(ATC) and aviation technical services.

In the US we successfully rebid for our ATC contracts
with the FAA, further increasing the number of towers
under our control from 51 to 56. The contracts are
now worth over US$19 million a year. In the Middle
East we renewed ATC and technical services contracts
at Dubai, Ras Al Khaimah and Sharjah International
Airports; and at Bahrain International Airport we
will manage the installation and commissioning
of upgraded navigational aids. In Europe we further
extended our contracts with Eurocontrol and our
operations at Zavantem Airport in Brussels.

Under a planned PPP, the UK government is selling
a controlling share of the National Air Traffic Services
(NATS) to a strategic partner. NATS is the UK’s ATC
service covering UK airspace and the eastern parts
of the North Atlantic as well as 14 of the country’s
busiest airports. We have been shortlisted for
this partnership.

Rail transport Rail is a large and
technically complex market that is
changing fast as a result of deregulation

worldwide. Our service expertise and in-depth
experience of safety management position us well
for growth in activities as diverse as infrastructure
maintenance, testing and passenger services.

In the UK we phased-in our infrastructure
maintenance contract with Railtrack’s East Midlands
Zone, covering some 1,200 miles of track and
employing about 600 people. We have already been
awarded additional contracts for structures inspection
and property maintenance, and are in discussions to
add track renewals. We also bid successfully for the
property management and maintenance contracts
in Railtrack’s Southern and Anglia Zones, increasing
our business in this field by 250%. Together with the
renewal of our contract for the North West Zone, this
means that we now provide over 60% of Railtrack’s
property maintenance.

Train testing is under way for the Copenhagen
Metro, where we are scheduled to start operating
passenger services in 2002.

Information technology for transport infrastructures
is a significant growth area for us. In the UK we won
the contract to run the Association of Train Operating
Companies’ communication centre, which collects
and distributes rail information from Railtrack and
train operators. At the National Rail Enquiry Scheme
we implemented a new information system and
internet site – in time to assist with a tenfold
increase in enquiries during the prolonged upheaval
that followed the Hatfield rail crash. In Scotland,
the rail operator ScotRail, part of the National
Express Group, extended our information and
telesales contract after we helped to increase
revenues by 50% in two years.

As operator of London's award-winning Docklands
Light Railway (DLR) we have been enhancing the
service by displaying real-time train information in
streets and buildings around stations, on the DLR
website and via WAP mobile phones. We are also
trialling real-time news and information screens in
trains – a UK first. In Australia we introduced email
booking and enquiry facilities for our Ghan, Indian
Pacific and Overland trains, followed by direct internet
booking early in 2001. These services, which rank
among the great train journeys of the world, attract
tourists from all over the globe.

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Serco Group plc

In the UK we began acceptance testing of new non-
tilting trains for Virgin CrossCountry services, under a
new contract with Bombardier Transportation. We also
secured a contract from ALSTOM to undertake certain
aspects of the acceptance testing on the Coradia 1000
Class 180 diesel trains.

Road transport Congestion is a major
issue for cities worldwide – it costs the UK
economy alone over £15 billion a year. The
efficient use of traffic infrastructure has become a major
growth area, and we aim to develop a breadth of capability
across road transport that enables us to support customers
in devising and implementing integrated transport plans.

We are in negotiation with the UK Highways Agency for
a contract to build and operate its national Traffic Control
Centre. This will allow the strategic management of
traffic on England’s core trunk road network, monitor
traffic and journey times, and distribute traffic and
travel information through existing and new media.
We would construct the centre and develop its IT
systems over a 21⁄2-year period, and then operate and
maintain it for a further 71⁄2 years.

In Scotland we bid successfully to expand the scope of
the country’s National Driver Information and Control
System. This integrated traffic management system,
which we have been developing since 1993, is now
one of the world’s largest and most advanced driver
information and control systems.

In New Zealand we have won a three-year contract to
operate and maintain a traffic control centre for the
Auckland motorway system. This contract
complements our existing communications and traffic
control contracts. We successfully rebid our contract
to manage Auckland’s state highway and motorway
network including maintenance, asset management
strategy and traffic planning.

In Hong Kong we won a further six-year contract to
manage the Lion Rock and Airport Road tunnels.
The new contracts – extending a relationship begun
in 1993 – will employ over 200 staff.

Science and technology Governments
around the world are increasingly
concerned to improve the effectiveness

of their science and technology spend through
investment in new equipment and better knowledge
transfer to industry. As a major employer of
scientists, we are looking to extend our presence
in this market.

We successfully phased-in the management and
operation of the UK Atomic Weapons Establishment
(AWE), managing over 4,000 staff through our joint
venture with Lockheed Martin UK Ltd and British
Nuclear Fuels plc. Both the Nuclear Installations
Inspectorate and the Environment Agency have
praised our safety and environmental performance
to date. Our operations have already been extended
to include support for the weapons convoys serving
the AWE – a significant demonstration of our
customer’s confidence in our capability.

We are negotiating a two-year extension to our
contract to manage the National Physical Laboratory
(NPL), where we are currently investing in extensive
new laboratory facilities to replace 50 of the site’s
73 buildings. Another investment to maintain
the NPL’s position among the world’s top three
measurement laboratories is the creation of one of
the world’s largest scientific websites. We continue
to create revenue-generation opportunities, including
a new Knowledge Transfer Centre which is already
producing income of £4 million a year. Current NPL
programmes include a £7 million government project
to promote environmental best practice and a series
of R&D contracts with companies leading the fibre
optic communications revolution.

We further extended our activities with the
European Space Agency by winning two new
contracts at the European Space Research and
Technology Centre in the Netherlands. The first
provides support services in thermal microgravity
instruments, robotics and optics laboratories; the
second is for radiation and quality testing of
satellite components.

The City of Birmingham in England appointed us
to set up a bus tracking and passenger information
system modelled on the satellite-based systems we
have provided in Coventry and Sheffield. These
supply real-time information to operators and
passengers, and givebuses priority at traffic-signalled
junctions.

In partnership with Air Liquide of France and Linde
Kryotechnik of Switzerland we have been selected
by the European organisation for nuclear research,
CERN, to maintain and operate its helium cryogenic
plants, the world’s largest cryogenic installation,
from July 2001. This is the fourth contract we have
secured with CERN.

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Business review

Private sector As businesses focus
their talent and investment on areas of
competitive advantage, they increasingly

seek external management support for non-core
activities. Our experience of managing critical
services for governments positions us well to handle
the outsourcing of ever more complex tasks for the
private sector.

In the US we built on our existing vehicle fleet
maintenance contract with Dayton Power & Light
to win an additional contract to provide mobile
tanker refuelling for its 900-strong vehicle fleet.
We added value to the contract by enhancing our
mobile maintenance service – introducing hand-held
data terminals and a wireless internet management
information system.

We have become Ireland’s leading facilities
management company, benefiting from the country’s
economic growth and the influx of US companies.
In January we began a facilities management contract
with Microsoft, covering a wide range of technical and
non-technical services in the company’s 12 Dublin
premises. These include its European operations and
product localisation centres.

The expertise we gain in the public sector can
often have applications in the commercial sector.
For instance, our defence business has won a contract
to provide engineering support to Global Marine
Systems, the world’s leading submarine cable
maintenance and installation company. The contract
includes operation and maintenance of sub-sea vehicles
for installing fibre optic telecommunication cables.

We have also extended our reach in Northern Ireland
with a two-year facilities management contract for the
Bank of Ireland at its new Belfast operations centre.

Outlook Our markets remain buoyant
and our ability to deliver a full range of
services in a single contract is increasingly

in demand. Our largest markets, in defence and
transport, remain very strong – and we also see
increasing opportunity in new fields such as science,
justice and education. The scale and complexity of
opportunities continue to increase, and this plays
to our strengths in both bidding and implementation.

We are seen as a world leader in private sector solutions
for delivering public services and we expect to be a
significant beneficiary of a worldwide trend towards
PFIs and PPPs. The US has started discussing PPPs in
the space sector, the Australian Department of Defence
is developing a PFI methodology, the state of New South
Wales has released a green paper on PFIs, Japan has
begun inviting PFI tenders, and Germany has initiated
pilot projects in defence. We have formed a Global
Projects team to identify and bid for the very large
and complex opportunities that are beginning to emerge
around the world; and we are forming partnerships and
strategic alliances with major international corporations
where we believe they will enhance our credibility in
this exciting new arena.

The outlook for the future remains bright and we are
confident of maintaining our growth record for the
foreseeable future.

Worldwide developments in e-commerce, internet
application services, interactive television and WAP are
creating exciting prospects for our usability business,
which helps companies to make their technology user-
friendly. In November we opened a new purpose-built
usability laboratory in London. To increase our
international presence in this field we acquired The Hiser
Group in Australia; the AUS$6 million deal, completed in
January 2001, brings us one of the world’s most respected
consultancies in user interface design and usability. We
have recently been asked by the UK government to form
an industry network covering interactive TV issues.

In New Zealand we extended our contract to provide
property maintenance and building services at 4,000
sites for Telecom New Zealand, the country’s largest
business. This contract has grown to include Telecom’s
preventive maintenance programme, and in the past
two years we have earned substantial incentive
payments for achieving cost savings.

In Sweden we built on our existing building maintenance
contract at Stockholm’s Grand Hotel, winning a new
contract to manage a SEK150 million renovation
project. We continue to extend our relationship with
the hotel – this year we have added responsibility for
cleaning and transport support services.

We extended our Welsh facilities management contract
with the stainless steel company AvestaPolarit after
successfully growing the contract since 1992.

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annual accounts

AGM
Notice

Directors,
Secretary
and Advisers

Corporate
Governance
Report

Notes to the
Accounts

Directors’
Report

Consolidated
Statement of
Recognised Gains
and Losses

Consolidated
Cash Flow
Statement

Directors’
Responsibilities

Remuneration
Report

Company
Balance Sheet

Auditors’
Report

Consolidated
Balance Sheet

Statutory
Consolidated
Profit and
Loss account

Proforma
Summary
Consolidated
Profit and
Loss account

R&A 14/2/01 5:24 pm Page 34

Directors, Secretary and Advisers

Executive Chairman

Richard White

Directors

Kevin Beeston
Betsy Bernard*
Ralph Hodge CBE*
Christopher Hyman
Rhidian Jones*
Iestyn Williams

Secretary

Julia Cavanagh

Registered Office

Auditors

Principal Bankers

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex TW16 7HT

Deloitte & Touche
Chartered Accountants
Hill House
1 Little New Street
London EC4A 3TR

Barclays Bank PLC
54 Lombard Street
London EC3P 3AH

Merchant Bankers

Stockbrokers

Solicitors

Registrar

The Royal Bank of Scotland plc
135 Bishopsgate
London
EC2M 3UR

Lazard Brothers & Co. Limited
21 Moorfields
London EC2P 2HT

Cazenove & Co.
12 Tokenhouse Yard
London EC2R 7AN

Allen & Overy
One New Change
London EC4M 9QQ

Lloyds TSB Registrars
The Causeway
Worthing
West Sussex BN99 6DA

*Non-executive

R&A 14/2/01 5:24 pm Page 35

Corporate Governance Report

Introduction

Board Committees

The Board of Serco Group plc (“the Company”) supports the
principles of good governance and code of best practice set out
by the Hampel Committee as appended to the Listing Rules of
the UK Listing Authority (“the Combined Code”). This Report
sets out how the Company applies the Combined Code.

The Board and its Directors

The Board currently comprises seven Directors: Kevin Beeston,
Betsy Bernard, Ralph Hodge, Christopher Hyman, Rhidian
Jones, Richard White, and Iestyn Williams. Their profiles and
roles are set out on page 40.

It is the opinion of the Board that the Non-executive Directors
are independent of management and free from any business or
other relationship which could materially interfere with the
exercise of their independent judgement. The senior
independent Non-executive Director is Rhidian Jones.

The Board is responsible to the shareholders of the Company
and meets regularly to discuss and decide on issues of strategy,
performance and control. There is a formal schedule of
matters specifically reserved to the Board for decision,
including but not limited to, submission of major bids,
material acquisitions and disposals, and corporate objectives.
Information required by Directors on issues concerning the
Company and its subsidiaries (“the Group”) is supplied by
management on a timely basis. In addition, regular
presentations are made to the Board by senior employees on
business performance, health, safety and the environment,
corporate governance and risk management. The adequacy of
this information is regularly reviewed.

All Directors have access to the Company Secretary, who is
responsible for ensuring that Board procedures and applicable
rules and regulations are observed. The Board has established
a procedure whereby Directors, wishing to do so in the
furtherance of their duties, may take independent professional
advice at the Company’s expense.

In accordance with the Company’s Articles of Association, one
third of the Board are required to retire by rotation each year
so that over a three-year period all Directors will have retired
from the Board and faced re-election.

The Board has delegated authority to a number of committees
to deal with matters in accordance with written terms of
reference. The Chairman of each of the Committees provides
a report of any meeting of that Committee at the next Board
Meeting, and the Chairmen of the four standing Committees
are present at the Annual General Meeting to answer
questions from shareholders.

Brief details relating to each of the standing Committees are
set out below:

The Audit Committee

The Audit Committee is comprised of all three Non-executive
Directors and is chaired by Rhidian Jones. The Committee
meets on at least two occasions each year to examine and
consider matters relating to the affairs of the Group. These
matters include examination of the Company’s Annual
Accounts and review of the internal financial control
procedures in place for controlling the Group’s business, as
well as compliance with accounting standards and generally
accepted accounting principles.

In addition, the fees and objectivity of the Company’s auditors
and other external accounting advisers are considered by
members of the Committee.

Detailed presentations to the Committee are made, on
request, but no less than annually, by the Company’s internal
and external auditors. The presence of the Finance Director
and other senior managers from the Group may be requested.

The Remuneration Committee

The Remuneration Committee comprises all three of the
Non-executive Directors and is chaired by Ralph Hodge.
The Committee meets on at least two occasions each year
to examine and consider matters relating to the remuneration
of Executive Directors and their terms and conditions of
service. The recommendations of this Committee, as adopted
by the Board, are set out in the Remuneration Report on pages
42 to 46.

R&A 14/2/01 5:24 pm Page 36

Corporate Governance Report

The Company’s Risk Management Policy formalises the
requirement for all business units to operate appropriate and
effective risk management processes. The Company has a
detailed risk management process which identifies the key
risks facing each business unit. These processes are designed
to support the Group’s strategic direction and business
objectives. Implementation of this approach is based on the
premise that responsibility for risk management rests with line
management and the Company endeavours to ensure that the
appropriate infrastructure, controls, systems, staff, training and
processes are in place. Some of the key management control
processes are set out below:

Sound project management and change implementation
disciplines are applied to all major development projects
including new contract phase-ins, acquisitions, new technology
applications and other major initiatives.

The commitment and capability of all staff is critical for the
effective management of risk. Ongoing training and
development is made available to improve the skills of
managers to ensure the current and future needs of the
business can be met.

Safety management systems in the Company’s aviation, rail,
defence and nuclear businesses have been addressed by the
appointment of safety specialists for each area who report
regularly to the Board and are charged with maintaining and
further developing the very high standards of safety expected in
these industries. Additionally all business units have clearly
detailed health and safety management systems.

The operational risk framework tracks key risk indicators.
These include analysis of business planning, customer
satisfaction, staff turnover and satisfaction levels, occupational
health and safety incidents and error and exception reporting.
The Company maintains insurance cover and ensures that
the policies are reviewed on a regular basis.

Each contract and project produces a risk register which
identifies the key risks, the probability of those risks
occurring, their likely impact and the mitigating actions being
undertaken. Risk data is reviewed and consolidated to produce
business unit risk registers which are reviewed quarterly. The
Group risk register is derived from the business unit analysis
and identifies the key risks facing the Group including certain
risks which are managed directly at a Group level. A review of
the risk register is undertaken at the Board Meeting on a
quarterly basis.

The Training Committee

The Training Committee is comprised of Betsy Bernard,
Ralph Hodge, Christopher Hyman, Rhidian Jones and Iestyn
Williams. The Committee is chaired by Iestyn Williams and
meets at least once a year to examine and consider the training
needs of Directors and senior executives.

During the year, the Committee has reviewed ongoing training
requirements for all Directors, and the Company Secretary.
The Committee has also formalised the Company’s induction
programme for Non-executive Directors to ensure that a
comprehensive familiarisation programme is in place.

The Nomination Committee

The Nomination Committee is comprised of the Executive
Chairman of the Company, together with the three
Non-executive Directors. The Committee, which is chaired
by Richard White, meets as required to examine and consider
proposed appointments to the Board.

The members of the Committee consult with other members
of the Board before submitting their final recommendation for
approval by the whole Board.

The Company and its Shareholders

The Board values dialogue with its institutional and private
shareholders. This year the Board has hosted site visits
for institutional investors to facilitate a deeper understanding
of the operations of the Group. Formal presentations are made
to institutional investors and brokers’ analysts after the release
of the interim and final results, and individual meetings by
request are held during the year.

The principal methods of communication with private
investors are the Interim Statement, the Annual Review and
Accounts, Annual Review and Summary Financial Statement
and the Annual General Meeting.

Additional information about the Company’s heritage,
markets, services and significant announcements is available
on the Company’s web site.

Internal Control and Risk Management

The Board of Directors has overall responsibility for the
system of internal control, including financial, operational
and compliance controls and risk management, to safeguard
shareholders’ investments and the Company’s assets. It is
acknowledged that any system of internal controls is designed
to manage rather than eliminate risk and that even the most
effective system can only provide reasonable and not absolute
assurance against misstatement or loss.

R&A 14/2/01 5:24 pm Page 37

Corporate Governance Report

A full time Risk Director has the responsibility to oversee
and review the internal control and risk policies and
procedures and management framework within the Group.
Each business unit has an audit committee which meets at
least twice a year and focuses on risk and internal controls.
The Risk Director reports to the Board on any material
findings of these meetings.

Significant internal control processes used by the Group are
described below:

Executive Directors agree marketing, sales and financial targets
and budgets with the business units on an annual basis.
Progress against these targets is reviewed at formal quarterly
meetings attended by the business unit management and
senior Company management who act in the capacity of Non-
executive Directors for that unit. This process is replicated at
an individual contract level by the use of “contract boards”.

There is a clearly defined framework for approving all
acquisitions, capital projects and expenditure within the
Group.

Appropriate authorisation procedures are in place for the
review and submission of bid documents to customers, and
contract documents are reviewed at an appropriate level to
ensure the terms and conditions therein are acceptable
to the Group.

During 2000, Grant Thornton and Pannell Kerr Forster
have continued to provide an internal audit function within
the Group. Their programme has been designed to address
internal control and risk management processes and the
recommendations of the Turnbull Report. Their findings
are reported to business units, the Audit Committee and
the Board.

Following publication of Internal Control: Guidance for
Directors on the Combined Code (“the Turnbull Guidance”),
the Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced
by the Group, and that this process has been in place for the
year under review and up to the date of approval of the Annual
Review and Accounts. This process is regularly reviewed by the
Board and is consistent with the Turnbull Guidance.

Going Concern

Following a review of the Group’s financial results and
forecasts, as well as holding discussions with relevant
individuals, the Directors confirm that they are satisfied that
the Group has adequate resources to continue in operational
business for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the
Annual Review and Accounts.

Compliance during 2000

With exception of those matters detailed below the Company
has fully complied with the provisions stated in Section 1 of
the Combined Code.

Number of Non-executive Directors

Provision A.3.1 of the Combined Code recommends that at
least one third of the Board be Non-executive Directors.
Similarly, under Provision D.3.1 of the Combined Code it is
recommended that the Audit Committee should have at least
three Non-executive Directors. Since the appointment of a
third Non-executive Director on 5 April 2000, the Company
has complied with both provisions.

Contractual Notice Periods

The Remuneration Committee and the Board continue to
believe that the nature of the business and the competitive
environment in which the Company operates warrants the
retention of a two-year contractual notice period in Executive
Directors’ service contracts. This departs from the
recommendation set out in Provision B.1.7 of the Combined
Code to reduce contractual notice periods to one year or less.

Approved by the Board of Directors and signed on its behalf:

Julia Cavanagh
Secretary

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT

20 February 2001

R&A 14/2/01 5:24 pm Page 38

Directors’ Report

Annual Review and Accounts

Directors

The Directors of the Company have pleasure in presenting the
Annual Review and Accounts of the Group for the year ended
31 December 2000.

Principal Activities and Business Review

The Company is a holding company, which operates via its
subsidiaries to provide facilities management, systems
engineering services and equity investment management.

The review of the business for the year ended 31 December
2000 can be found in the Business Review on pages 28 to 32.

Share Capital

At an Extraordinary General Meeting held on 5 April 2000,
the shareholders approved a share capitalisation of five
Ordinary Shares for each existing Ordinary Share already held.

This change together with other increases in the issued
Ordinary Share Capital during the period is explained in Note
21 to the Annual Accounts set out on pages 73 and 74.

During the year the Company purchased 2,298,090 Ordinary
Shares to satisfy options granted under employee incentive
schemes. The value of these shares is included within fixed
assets on the Balance Sheet.

The names of the current Directors of the Company are given
on page 34 and their profiles are provided on page 40.

Details of the Directors’ interests in the Share Capital of the
Company are listed below. The Executive Directors’ service
contracts and Non-executive Directors’ letters of appointment
are detailed in the Remuneration Report on page 46.

The following changes have been made to the Board during
the year. On 3 March, Gerry Rodgers retired as an Executive
Director; at the conclusion of the Annual General Meeting on
5 April, Ralph Hodge was appointed as a Non-executive
Director; on 20 December, Betsy Bernard was appointed as a
Non-executive Director and Gary Sturgess resigned as a
Non-executive Director to join the Company as a full time
executive. During the second half of the year Gary Sturgess
provided consultancy services to the Group via his company,
Sturgess Australia.

Excluding Executive Directors’ service contracts, the
Non-executive Directors’ letters of appointment and the
consultancy services disclosed above, there were no other
contracts in which Directors had an interest.

Directors’ Shareholdings

The Directors’ interests in the shares of the Company were
as follows:

1 January 2000

Ordinary Shares of 2p each fully paid
1 January 2000 31 December 2000

Dividends and Transfers to Reserves

An interim dividend of 0.50p (1999 – 0.44p restated as a
result of the share capitalisation detailed above) per Ordinary
Share was paid on 13 October 2000. A final dividend of 1.13p
(1999 – 0.98p restated as detailed above) per Ordinary Share is
being recommended by the Directors for payment on 6 April
2001 as set out in Note 8 to the Accounts on page 62. After
dividends, retained profits of £16,583,000 will be transferred
to reserves.

7,830
K S Beeston
–
B J Bernard
–
R N Hodge
200
C R Hyman
7,750
R H B Jones
R D White
369,502
I M Williams 416,945

restated

46,980
–
–
1,200
46,500
2,217,012
2,501,670

107,140
–
2,010
15,879
46,500
2,217,012
2,501,670

Substantial Shareholdings

As at the close of business on 9 February 2001 (being the
latest practical date prior to the printing of the Directors’
Report), the Company had received notifications of the
following substantial interests representing over 3% of the
issued share capital:

Standard Life Investments Company
FMR Corp. and Fidelity International Limited

3.58%
4.11%

In the case of non-material interests representing 10% or more
of the issued share capital, the Company had received the
following notification:

Merrill Lynch Investment Managers Limited

10.42%

The number of shares as at 1 January 2000 has been restated
to reflect the capitalisation issue on 5 April 2000.

Annual General Meeting

The Fourteenth Annual General Meeting of the Company will
be held at the National Physical Laboratory, Teddington,
Middlesex, TW11 0LW on 29 March 2001 at 10.00am.

The Notice of the Annual General Meeting, together with
relevant notes, is set out on pages 85 and 86. The proxy card
accompanies this report.

R&A 14/2/01 5:24 pm Page 39

Directors’ Report

Employment Policies

The Board is committed to maintaining a working environment
where staff are individually valued and recognised.

Managers are tasked with developing employees’ awareness
of factors affecting the business and matters concerning them
as employees, and noting employees’ views so that they
can be taken into account when making decisions that may
affect them or the business. Regular meetings are held with
employee representatives where trade unions or staff associations
are recognised or where works councils are constituted.

The Board understands its responsibility to encourage and assist
in the employment, training, promotion and personal career
development of all employees without prejudice. The Group
gives proper consideration to applications for employment received
from the disabled and offers employment when suitable
opportunities arise. If employees become disabled during their
service with the Group, wherever practicable, arrangements are
made to continue their employment and training.

The Group encourages employees to be involved in the local
communities in which we operate. Last year our employees
supported local charities and good causes through their own
initiatives.

Participation by staff in the success of the Group is encouraged
by the availability of a world wide share save scheme, and a
share option plan for senior staff which effectively aligns their
interests with those of shareholders by requiring that options
may only be exercised conditional upon performance criteria
being achieved.

Health, Safety and Environmental Policies

The Group recognises and accepts its responsibilities for
health, safety and the environment (“H,S&E”). The Group has
an H,S&E Director who is responsible for the development and
monitoring of policies, procedures and control systems and
reports to the Board via the Chief Executive.

Within the Group there is a dedicated team which provides
advice and support on H,S&E issues. This team operates
closely with the H,S&E Managers within the business units.
Regular H,S&E meetings are held and are attended by business
unit Managing Directors or their nominated representatives.
A Company H,S&E Conference is held annually with
representatives from around the world. In order to maintain a
high level of H,S&E awareness, great emphasis is placed on
training in all related subjects and regular in-house and
external courses are provided for staff at all levels of
the organisation.

To ensure compliance with all relevant legislation and Company
standards in operation throughout the Group there is a
comprehensive audit system. The Group H,S&E team
undertakes regular audits of the Health, Safety and
Environmental Management systems around the Group.
Detailed audit reports are produced, best practice is shared,
corrective action identified if relevant and remedial action
promptly implemented. In addition the business units are
frequently externally audited.

Creditor Payment Policies

The Company requires each of its business units to negotiate
and agree the terms and conditions of payment for the supply
of capital and revenue items just as keenly as they negotiate
prices and other commercial matters. Suppliers are made
aware of the agreed terms and the way in which disputes
are to be settled. Payment is to be made in accordance with
these terms.

The Group’s average creditor payment terms in 2000 were 31
days (1999 – 30 days)(Company – 29 days (1999 – 28 days)).

Charitable and Political Donations

During 2000, the Group made contributions of £103,000
(1999 – £43,000) to charities in the United Kingdom. There
were no political contributions made by the Group.

Auditors

Deloitte & Touche have expressed their willingness to continue
in office as auditors and a resolution to reappoint them will be
proposed at the forthcoming Annual General Meeting.

R&A 14/2/01 5:24 pm Page 40

Directors’ Report

Directors Profiles

Kevin Stanley Beeston FCMA (38)
Chief Executive
Kevin joined Serco in 1985 as a financial analyst and has since
held a number of financial and commercial roles. When the
Group acquired International Aeradio Limited in 1992 he
became its Finance Director and later its Managing Director.
He became Chairman and Chief Executive of Serco International
Limited in 1994 and in 1996 he was appointed Finance
Director of the Group. He was appointed Chief Executive
in April 1999.

Betsy Jane Bernard MBA (45)
Non-executive Director
Betsy was until recently Executive Vice President of National
Mass Markets, part of Qwest Communication International.
She previously worked at AT&T for 18 years. Betsy has a wealth
of commercial experience, an understanding of operating in an
environment of rapidly changing technology and knowledge of
the North American Market.

Ralph Noel Hodge CBE B.Eng (Hons) (66)
Non-executive Director
Ralph is Chairman of the Water Research Council, a
Non-executive Director of British Ceramic Tiles and ORC (Inc)
and a member of the International Board of Faircourt Capital.
He was previously Non-executive Chairman of Enron Europe
Limited and Chief Executive of ICI Chemicals and Polymers.
He is a distinguished Engineer and has recently been awarded
a CBE in recognition of his services to the power generation
and gas industries.

Christopher Rajendran Hyman CA (SA) (37)
Finance Director
Christopher joined Serco in 1994, as Finance Director for
Serco Europe, the division specialising in providing services
to European government agencies. He was appointed Group
Company Secretary with additional responsibility for corporate
finance in 1996. He was appointed Finance Director of the
Group in April 1999.

Rhidian Huw Brynmor Jones MA FCIS FIMgt (57)
Senior Non-executive Director
Rhidian is a partner at solicitors Nabarro Nathanson, where
he is Head of the Corporate Department. He also has first-
hand experience of commerce and industry, having worked
in management for 10 years. He was a Serco Non-executive
Director from 1987 to 1994 and was re-appointed in 1996.
He is also the Non-executive Deputy Chairman of the
Britannia Building Society.

Richard David White BSc (Hons) (51)
Executive Chairman
Richard joined the business in 1970, when it was part of RCA.
He worked in both operations and marketing roles, becoming
Director of Government Services in 1984. After the management
buyout from RCA in 1987 he became the new company’s
Managing Director and subsequently Chief Executive, taking
particular responsibility for developing Serco’s marketing
strategy and operational philosophy. He was appointed
Executive Chairman in April 1999.

Iestyn Milton Williams BA (49)
Executive Director
Iestyn joined RCA in 1978 and became Director of Personnel
six years later. After the management buyout in 1987 he
became Personnel Director of Serco. Since then he has been
involved in building the business in Asia Pacific and later
spent two years as Chairman of Serco North America before
returning to the UK in 1998 to take up his present position.
Over the last two years Iestyn has focussed on leading the
Group’s expansion in Europe.

Approved by the Board of Directors and signed on its behalf:

Julia Cavanagh
Secretary

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT

20 February 2001

R&A 14/2/01 5:24 pm Page 41

Directors’ Responsibilities

Company Law requires the Directors to prepare Accounts and
Notes for each financial year, which give a true and fair view of
the state of affairs of the Company and the Group as at the
end of the financial year and of the profit or loss of the Group
for that period. In preparing those Accounts and Notes the
Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and estimates that are reasonable and

prudent;

• state whether applicable accounting standards have been

followed; and

• prepare the Accounts and Notes on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business.

The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time
the financial position of the Company and the Group and
enable them to ensure that the Accounts and Notes comply
with the Companies Act 1985. They are also responsible for
the Company’s system of internal control, for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.

Approved by the Board of Directors and signed on its behalf:

Julia Cavanagh
Secretary

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT

20 February 2001

R&A 14/2/01 5:24 pm Page 42

Remuneration Report

Introduction

Business and Accountability

This Report details the remuneration policy and actual
remuneration of the Directors of the Company for the year
ended 31 December 2000, as determined by the Remuneration
Committee (“the Committee”) and adopted by the Board. In
preparing this Report consideration has been given to the
provisions set out in Schedule B of the Combined Code.

Composition

The Committee comprises all three Non-executive Directors
and is chaired by Ralph Hodge.

Remuneration Policy

The remuneration policy is set to attract, retain and motivate
senior executives within the Group. When determining policy,
consideration is given to the international nature of the
business, the culture fostered within the Group, the
continuing growth of the Group and the need to provide
competitive and market-related terms and conditions in the
light of changing circumstances.

Executive Directors’ remuneration comprises short-term
rewards such as salary and benefits and long term elements
such as pensions, life assurance and share-based incentives.
It is not the Group policy to pay annual cash bonuses except in
exceptional circumstances. The share-based incentives are
linked to performance criteria and effectively align the interests
of Directors with those of the Company’s shareholders.

The members of the Committee meet on at least two
occasions each year to examine and consider matters relating
to the remuneration of Executive Directors as well as the
terms and conditions of their service with the Company.

The business of the Committee and the remuneration policy
for Executive Directors is determined in accordance with
written terms of reference, as well as taking into consideration
best practice in remuneration policies.

In developing the Company’s remuneration policy, or when
setting an individual Director’s remuneration, the Committee
consults with the Executive Chairman and the Chief Executive.
In addition, the Committee retains firms of external specialists
to advise on market trends and competitive packages.

The conclusions of the Committee meetings are reported to
the Board by the Chairman of the Committee. The Chairman
of the Committee also attends the Company’s Annual General
Meeting and is available to take questions from shareholders
in respect of the matters outlined in this Report.

Executive Directors’ Remuneration

The details of Directors’ short and long term rewards are set
out on pages 43 to 46.

R&A 14/2/01 5:24 pm Page 43

Remuneration Report

1. Salaries and Benefits

The salaries and benefits of the Directors are as follows:

Basic
salary
£

286,458
–
–
244,042
–
57,077
–
329,292
244,042

Fees
£

–
828
20,208
–
26,458
–
22,307
–
–

Other
£

–
–
–
–
–
15,000
86,250
–
–

Total
Remuneration
excluding
pensions
2000
£

Total
Remuneration
excluding
pensions
1999
£

287,536
828
20,208
244,901
26,458
72,077
108,557
331,128
246,315

235,849
–
–
134,842
25,000
207,121
35,101
312,478
214,277

Benefits
£

1,078
–
–
859
–
–
–
1,836
2,273

1,160,911

69,801

101,250

6,046

1,338,008

1,164,668

K S Beeston
B J Bernard
R N Hodge
C R Hyman
R H B Jones
G Rodgers
G L Sturgess
R D White
I M Williams

Total

Notes:
On 3 March 2000 G Rodgers retired as an Executive Director and subsequently retired from the Company. On retirement he received
a one off payment of £15,000 and a contribution of £467,196 was made to his pension fund, as referred to in paragraph 3 note (ii)
of the Remuneration Report. On 5 April 2000, R N Hodge was appointed as a Non-executive Director. On 20 December 2000
B J Bernard was appointed as a Non-executive Director of the Company and G L Sturgess resigned. During the second half of the
year G L Sturgess received £86,250 in relation to consultancy services. G G Gray received a final payment of £18,838 in relation
to additional days worked prior to his retirement.

2. Share-based Incentives

Long-term share-based incentives are awarded to Directors
under the Serco Group plc 1996 Long Term Incentive Scheme
(“the LTIS”) and the Serco Group plc 1998 Executive Option
Plan (“the EOP”).

On 5 April 2000, shareholders approved a resolution to
amend the terms of the LTIS and the EOP for any
subsequent awards made under the schemes.

Awards made under the LTIS, which are structured as options
with a zero exercise price, may be exercised after the third
anniversary of grant. The extent to which an award vests
(and therefore becomes exercisable) is measured by reference
to growth in the Company’s earnings per share before FRS 10
(Accounting for Goodwill and Intangible Assets) (“EPS”) over
the performance period of three financial years.

Prior to this year, the last grant of awards made under the
LTIS was in 1997 with a performance period expiring on
31 December 1999. Growth in EPS for the performance
period exceeded 50% and all of the awards have vested.

For awards made after 5 April 2000 the EPS target growth has
been made more rigorous and full vesting will only occur if
the cumulative EPS growth is at least 64%. Awards will
partially vest where the cumulative EPS growth is at least
35% and will continue to vest on a straight line basis for each
percentage increase in EPS growth over the three year period
until full vesting is achieved at a cumulative growth rate of
64%. Except in exceptional circumstances awards must be
made to employees prior to the commencement of the
performance period to which they relate.

Options granted under the EOP may be exercised after the
third anniversary of grant, dependent upon the achievement
of a financial performance target over three years. If the
compound annual growth in EPS is less than 10% over the
performance period, none of the options may be exercised.
If the compound annual growth in EPS is more than 15%, all
of the options may be exercised. Where compound annual
growth is between 10% and 15%, a proportion of the options
may be exercised.

R&A 14/2/01 5:24 pm Page 44

Remuneration Report

2. Share-based Incentives (continued)

i) Serco Group plc 1996 Long Term Incentive Scheme

The total share options granted under the Long Term Incentive Scheme to Directors are as follows:

Number

of options Granted Exercised
during
the
period

at 1
January
2000

during
the
period

K S Beeston

Add’ Award

3 Yr Award

Add’ Award

3 Yr Award

–

B J Bernard

R N Hodge

15,312

73,440

36,720

–

C R Hyman

3 Yr Award

18,000

3 Yr Award

R H B Jones

–

G Rodgers

3 Yr Award

Add’ Award

3 Yr Award

Add’ Award

–

23,208

59,106

73,440

36,720

R D White

3 Yr Award

124,632

–

15,312

73,440

36,720

38,736

51,885

–

32,868

44,474

–

18,000

–

23,208

59,106

73,440

36,720

124,632

3 Yr Award

–

48,516

51,885

I M Williams

3 Yr Award

156,930

78,462

86,796

43,398

Add’ Award

3 Yr Award

Add’ Award

3 Yr Award

–

32,868

44,474

–

Lapsed
during

Balance
at 31
the December
2000

period

–

38,736

51,885

–

32,868

44,474

–

48,516

51,885

156,930

78,462

86,796

43,398

32,868

44,474

Market
price on
exercise
date
£

4.61

–

Value
realised on

End of
exercise performance
period

Date
of expiry
of option

70,588

01-01-99

01-01-03

338,558

01-01-00

01-01-04

169,279

01-01-99

01-01-04

–

31-12-02

04-04-10

31-12-03

23-11-10

–

4.53

81,540

01-01-00

01-01-04

–

4.83

4.53

–

31-12-02

04-04-10

31-12-03

23-11-10

–

112,095

01-01-99

01-01-03

285,482

01-01-99

01-01-03

354,715

01-01-00

01-01-04

177,358

01-01-99

01-01-04

564,583

01-01-00

01-01-04

–

31-12-02

04-04-10

31-12-03

23-11-10

01-01-99

01-01-03

01-01-99

01-01-03

01-01-00

01-01-04

01-01-99

01-01-04

31-12-02

04-04-10

31-12-03

23-11-10

Exercise
price
£

Nil

The number of options at 1 January 2000 and the market price on exercise have been restated to reflect the capitalisation issue
on 5 April 2000.

The scheme is an unapproved scheme for Inland Revenue purposes.

No awards have been exercised by the Directors since the end of the financial year.

R&A 14/2/01 5:24 pm Page 45

Remuneration Report

ii) Serco Group plc 1998 Executive Option Plan

The total share options granted under the Executive Option Plan to Directors are as follows:

Number

of options Granted Exercised
during

Balance Market price
on exercise

at 1
January
2000

during
the
period

at 31
the December
2000

period

Value
realised
date on exercise
£

K S Beeston

B J Bernard
R N Hodge
C R Hyman

R H B Jones
G Rodgers

R D White

I M Williams

Approved
Unapproved
Unapproved
Unapproved
–
–
Approved
Unapproved
Unapproved
Unapproved
–
Approved
Unapproved
Unapproved
Approved
Unapproved
Unapproved
Unapproved
Approved
Unapproved
Unapproved
Unapproved

13,788
68,922
76,734
–
–
–
13,788
25,290
40,812
–
–
13,788
68,922
76,734
13,788
119,448
123,612
–
13,788
78,990
86,076
–

–
–
–
–
–
–
–
58,764
–
–
–
–
–
–
–
–
–
–
–
49,830
–
–
– 13,788
– 68,922
– 76,734
–
–
–
–
–
–
–
73,572
–
–
–
–
–
–
–
49,830

13,788
68,922
76,734
58,764
–
–
13,788
25,290
40,812
49,830
–
–
–
–
13,788
119,448
123,612
73,572
13,788
78,990
86,076
49,830

–
–
–
–
–
–
–
–
–
–
–
5.30
5.30
5.30
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
43,019
215,037
218,692
–
–
–
–
–
–
–
–

Exercise Date from
which
£ exercisable

price

Date
of expiry
of option

–

–
–

2.18 21-05-01 20-05-08
2.18 21-05-01 20-05-05
2.45 01-04-02 31-03-06
4.26 05-04-03 04-04-07
–
–
2.18 21-05-01 20-05-08
2.18 21-05-01 20-05-05
2.45 01-04-02 31-03-06
4.26 05-04-03 04-04-07
–
2.18 21-05-01 20-05-08
2.18 21-05-01 20-05-05
2.45 01-04-02 31-03-06
2.18 21-05-01 20-05-08
2.18 21-05-01 20-05-05
2.45 01-04-02 31-03-06
4.26 05-04-03 04-04-07
2.18 21-05-01 20-05-08
2.18 21-05-01 20-05-05
2.45 01-04-02 31-03-06
4.26 05-04-03 04-04-07

–

The opening balance and the exercise price on those options granted prior to 5 April 2000 have been restated to reflect the
capitalisation.

The scheme is an approved scheme for Inland Revenue purposes, but has an unapproved schedule. No options have been
exercised by the Directors since the end of the financial year.

R&A 14/2/01 5:24 pm Page 46

Remuneration Report

3. Pension and Life Assurance

The Executive Directors receive pension and life assurance
benefits consistent with those provided by other leading
companies. The details of the defined benefit schemes operated
by the Group are set out in Note 31. In the event of death
in service, each scheme provides for a lump sum payment
as well as a dependants’ pension.

The accrued pension benefits of Executive Directors are
as follows:

Increase in
pension
during
the year
£

12,152
2,272
–
8,807
1,415

Transfer
value of
increase
£

77,362
–
–
99,695
5,829

Total accrued
pension at
year end
£ p.a.

68,895
7,724
86,889
149,352
104,112

K S Beeston
C R Hyman
G Rodgers
R D White
I M Williams

Notes to pension benefits:

i) C R Hyman is to receive an additional benefit from an

arrangement to which the Company contributes 15% of
remuneration in excess of the Permitted Maximum under
the Inland Revenue approved pension scheme.

ii) On his retirement the Company made a contribution
to G Rodgers pension of £467,196. A further payment
of £43,195 is to be made in 2001.

iii) The total accrued pension shown is that which would be
paid annually on retirement, based on service to the end
of this year. The increase in accrued pension during the
year excludes any increase for inflation.

iv) The transfer value of the increase in accrued pension
has been calculated on the basis of actuarial advice in
accordance with Actuarial Guidance Note GN11,
less Directors’ contributions.

v) Members have the option to pay Additional Voluntary

Contributions: neither the contributions nor the resulting
benefits are included in the above table.

vi) Transfer values disclosed do not represent the sum paid
or payable to the individual Director. Instead, they
represent a potential liability of the pension scheme.

Service Contracts and Compensation

Each Executive Director has a service contract with the Company,
and these service contracts will be available for inspection
prior to and after the Company’s Annual General Meeting.

The Company can terminate such service contracts by giving
two years’ notice to an Executive Director. It is the opinion
of the Remuneration Committee and the Board, given the
competitive environment in which the Company operates,
that such notice periods are necessary to retain, recruit and
motivate Executive Directors.

Compensation for early termination of a service contract is
not addressed in the contracts. The Remuneration Committee
considers and determines the level of compensation on a case
by case basis, taking into account the circumstances
surrounding termination and the individual’s responsibility
to mitigate loss.

Non-executive Directors’ Appointment and Fees

The Non-executive Directors of the Company are appointed
for a three year term, and that appointment may be terminated
on three months written notice. Renewal of appointments are
not automatic, and Non-executive Directors are required to
retire and stand for re-election in accordance with the
Company’s Articles of Association.

The Non-executive Directors of the Company have no
personal financial interests in the matters determined by
the Committee, no potential conflicts of interest arising
from cross-directorships and no involvement in the day to
day running of the Group. Gary Sturgess resigned as a
member of the Committee prior to undertaking consultancy
services to the Group via his company Sturgess Australia.

The fees and terms of engagement of Non-executive Directors
are determined and set by the Board.

Approved by the Board of Directors and signed on its behalf:

Julia Cavanagh
Secretary

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT

20 February 2001

R&A 14/2/01 5:24 pm Page 47

Auditors’ Report

Auditors’ Report to the members of Serco Group plc

Basis of audit opinion

We have audited the financial statements on pages 48 to 84,
which have been prepared under the accounting policies set
out on pages 54 and 55.

Respective responsibilities of Directors and Auditors

The Directors are responsible for preparing the Annual Report,
including as described on page 41 preparation of the financial
statements in accordance with applicable United Kingdom law
and accounting standards. Our responsibilities, as independent
auditors, are established by statute, the Auditing Practices
Board, the Listing Rules of the UK Listing Authority and by
our profession’s ethical guidance.

We report to you our opinion as to whether the financial
statements give a true and fair view and are properly prepared
in accordance with the Companies Act 1985. We also report to
you if, in our opinion, the Directors’ Report is not consistent
with the financial statements, if the Company has not kept
proper accounting records, if we have not received all the
information and explanations we require for our audit or if
information specified by law or the Listing Rules regarding
Directors’ remuneration and transactions with the Company
and other members of the Group is not disclosed.

We review whether the Corporate Governance statement
on page 37 reflects the compliance with the seven provisions
of the Combined Code specified for our review by the
UK Listing Authority and we report if it does not. We are not
required to consider whether the Board’s statements on
internal control cover all the risks and controls or form
an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures.

We read the other information contained in the Annual
Accounts, including the Corporate Governance Report, and
consider whether it is consistent with the audited financial
statements. We consider the implications for our report if
we become aware of any apparent misstatements or
material inconsistencies with the financial statements.

We conducted our audit in accordance with United Kingdom
auditing standards issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the
preparation of the financial statements and of whether the
accounting policies are appropriate to the circumstances of the
Company and the Group, consistently applied and adequately
disclosed.

We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial
statements.

Opinion

In our opinion, the financial statements give a true and fair
view of the state of affairs of the Company and the Group as
at 31 December 2000 and of the profit of the Group for the
year then ended and have been properly prepared in accordance
with the Companies Act 1985.

Deloitte & Touche
Chartered Accountants and Registered Auditors

Hill House
1 Little New Street
London
EC4A 3TR

20 February 2001

R&A 14/2/01 5:24 pm Page 48

Proforma Summary Consolidated Profit and Loss Account
For the year ended 31 December 2000

Turnover: Group and share of joint ventures

Less: share of joint ventures

Group turnover

Cost of sales

Gross profit

Administrative expenses excluding goodwill

Share of profits arising from joint ventures - including group joint venture costs

and joint venture interest

Profit before group interest and goodwill

Net group interest

Profit on ordinary activities before taxation – pre amortisation of goodwill

Amortisation of goodwill

Profit on ordinary activities before taxation

Taxation on profit on ordinary activities

Profit on ordinary activities after taxation

Dividends

Note

4,5

2000
£’000

1999
£’000

966,991

807,544

(194,948)

(138,982)

772,043

668,562

(669,361)

(580,586)

102,682

87,976

(74,601)

(58,259)

13,172

4,350

41,253

(3,543)

37,710

(3,681)

34,029

(11,059)

22,970

(6,387)

34,067

(2,643)

31,424

(2,092)

29,332

(9,538)

19,794

(5,593)

Retained profit for the financial year

16,583

14,201

Earnings per Share (“EPS”) of 2p each:

Basic EPS, after amortisation of goodwill

Basic EPS, before amortisation of goodwill

Diluted EPS, after amortisation of goodwill

Diluted EPS, before amortisation of goodwill

*Restated to reflect the capitalisation issue on 5 April 2000.

The basis of preparation of this statement is set out in Note 1.

5.85p

6.78p

5.79p

6.72p

5.09p*

5.63p*

5.06p*

5.60p*

R&A 14/2/01 5:24 pm Page 49

Statutory Consolidated Profit and Loss Account
For the year ended 31 December 2000

2000

2000
Group Joint Ventures
£’000
£’000

2000
Total
£’000

1999
Group
£’000

1999
Joint Ventures
£’000

Note

Restated
1999
Total
£’000

Turnover: Group and share of joint
ventures – continuing operations

Less: share of joint ventures

Group turnover

Cost of sales

Gross profit

Administrative expenses

Amortisation of goodwill

Other administrative expenses

Other operating costs
relating to joint ventures

Operating profit – continuing
operations

Share of operating profit in
joint ventures

Interest receivable

Group

Share of joint ventures

Interest payable and similar charges

Group

Share of joint ventures

Profit on ordinary activities
before taxation

Taxation on profit on
ordinary activities

Profit on ordinary activities
after taxation

Dividends

Retained profit for the financial year

Earnings per Share (“EPS”) of 2p each:

Basic EPS, after amortisation of goodwill

Basic EPS, before amortisation of goodwill

Diluted EPS, after amortisation of goodwill

Diluted EPS, before amortisation of goodwill

*Restated to reflect the capitalisation issue on 5 April 2000.

772,043

194,948

966,991

668,562

138,982

807,544

–

(194,948)

–

(138,982)

772,043

(669,361)

102,682

(78,282)

(3,681)

(74,601)

–

772,043

668,562

(669,361)

(580,586)

102,682

87,976

(78,282)

(60,351)

(3,681)

(2,092)

(74,601)

(58,259)

–

668,562

(580,586)

87,976

(60,351)

(2,092)

(58,259)

–

(7,654)

–

(3,473)

24,400

(7,654)

16,746

27,625

(3,473)

24,152

–

28,876

–

11,121

1,212

–

(4,755)

139

–

139

1,351

1,212

139

(8,189)

(12,944)

–

(8,189)

–

(4,755)

(8,189)

1,517

–

(4,160)

–

(3,377)

–

(3,377)

1,596

1,517

(7,537)

(4,160)

(3,377)

20,857

13,172

34,029

24,982

4,350

29,332

(11,059)

22,970

(6,387)

16,583

5.85p

6.78p

5.79p

6.72p

(9,538)

19,794

(5,593)

14,201

5.09p*

5.63p*

5.06p*

5.60p*

R&A 14/2/01 5:24 pm Page 50

Consolidated Balance Sheet
At 31 December 2000

Fixed assets

Intangible asset

Tangible assets

Investments in joint ventures

Share of gross assets

Share of gross liabilities

Investment in own shares

Current assets

Stocks

Debtors: Amounts due within one year

Debtors: Amounts due after more than one year

Cash at bank and in hand

Creditors: Amounts falling due within one year

Bank loans and overdrafts

Trade creditors

Other creditors including taxation and social security

Accruals and deferred income

Proposed dividend

Net current assets

Total assets less current liabilities

Creditors: Amounts falling due after more than one year

Provisions for liabilities and charges

Net assets

Capital and reserves

Called up share capital

Share premium account

Capital redemption reserve

Profit and loss account

Equity shareholders’ funds

Note

2000
£’000

1999
£’000

68,662

40,269

27,688

66,854

36,508

18,022

305,588

213,872

(277,900)

(195,850)

9,680

–

146,299

121,384

25,942

26,830

158,532

132,412

32,197

80,098

29,488

58,779

296,769

247,509

34,601

56,902

76,630

88,386

4,425

23,592

48,178

53,533

74,970

3,854

260,944

204,127

35,825

43,382

182,124

164,766

47,121

26,078

47,232

25,906

108,925

91,628

7,877

70,121

143

1,307

69,517

143

30,784

20,661

108,925

91,628

These Accounts and Notes were approved by the Board of Directors on 20 February 2001 and signed on behalf of the Board:

Richard White Executive Chairman

Christopher Hyman Finance Director

R&A 14/2/01 5:24 pm Page 51

Company Balance Sheet
At 31 December 2000

Fixed assets

Tangible assets

Investments in subsidiaries

Current assets

Amounts owed by subsidiary companies due within one year

Amounts owed by subsidiary companies due after more than one year

Debtors

Cash at bank and in hand

Creditors: Amounts falling due within one year

Bank loans and overdrafts

Trade creditors

Other creditors including taxation and social security

Accruals and deferred income

Proposed dividend

Net current assets

Total assets less current liabilities

Creditors: Amounts falling due after more than one year

Net assets

Capital and reserves

Called up share capital

Share premium account

Capital redemption reserve

Profit and loss account

Equity shareholders’ funds

Note

2000
£’000

1999
£’000

1,221

30,314

896

27,664

31,535

28,560

822

110,576

7,870

45,273

4,196

93,529

5,038

36,515

164,541

139,278

32,005

11,838

1,317

5,695

7,682

4,425

727

2,332

7,636

3,854

51,124

26,387

113,417

112,891

144,952

141,451

41,420

103,532

100,031

7,877

70,121

143

1,307

69,517

143

25,391

29,064

103,532

100,031

These Accounts and Notes were approved by the Board of Directors on 20 February 2001 and signed on behalf of the Board:

Richard White Executive Chairman

Christopher Hyman Finance Director

R&A 14/2/01 5:24 pm Page 52

Consolidated Cash Flow Statement
For the year ended 31 December 2000

Net cash inflow from operating activities

Dividends received from joint ventures

Returns on investment and servicing of finance

Interest received

Interest paid

Net cash outflow from returns on investments and servicing of finance

Taxation

UK corporation tax paid

Overseas tax paid

Tax paid

Capital expenditure and financial investment

Purchase of tangible fixed assets

Sale of tangible fixed assets

Net long term loans with joint ventures

Net short term cashflows with joint ventures

Purchase of own shares

Net cash outflow from capital expenditure and financial investment

Acquisitions and disposals

Purchase of subsidiary undertakings

Net (overdraft) /cash acquired with subsidiary undertakings

Subscription for shares in joint ventures

Proceeds from disposal of shares in joint ventures

Net cash outflow from acquisitions and disposals

Equity dividends paid

Dividends paid

Net cash outflow from equity dividends paid

Net cash inflow/(outflow) before financing

Financing

Issue of Ordinary Share Capital

Debt due within one year:

Decrease in other loans

Debt due beyond one year:

Increase/(decrease) in other loans

Capital element of finance lease repayments

Net cash outflow from financing

Increase/(decrease) in cash

Balance at 1 January

Balance at 31 December

Note

2000
£’000

1999
£’000

45,534

36,818

7,477

2,156

950

678

(4,755)

(4,160)

(3,805)

(3,482)

(2,856)

(2,797)

(5,467)

(1,812)

(5,653)

(7,279)

(15,332)

(10,637)

862

(5,009)

11,514

(10,000)

395

6,864

(1,249)

–

(17,965)

(4,627)

(4,409)

(26,578)

(73)

(4,963)

1,271

2,504

(2,214)

–

(8,174)

(26,288)

(5,816)

(5,018)

(5,816)

(5,018)

11,598

(7,720)

818

2,348

(28)

(207)

186

(2,264)

(838)

(2,387)

(1,288)

(1,084)

10,310

(8,804)

35,187

43,991

45,497

35,187

R&A 14/2/01 5:24 pm Page 53

Consolidated Statement of Recognised Gains and Losses
For the year ended 31 December 2000

Profit on ordinary activities after taxation

Currency translation differences on foreign currency net investments

Exercise of Share Scheme options

Total recognised gains and losses relating to the year

2000
£’000

22,970

(1,155)

(5,305)

1999
£’000

19,794

1,586

(5,618)

16,510

15,762

R&A 14/2/01 5:24 pm Page 54

Notes to the Accounts
For the year ended 31 December 2000

1. Accounting policies

These Accounts have been prepared in accordance with applicable accounting standards. The statutory profit and loss account for
1999 has been restated to show group and joint venture results separately.

Proforma summary consolidated profit and loss account

To aid in the understanding of the results of the Group and its joint ventures a Proforma Summary Profit and Loss Account has
been included as an alternative presentation. The results are derived directly from the Statutory Profit and Loss Account,
and explanations have been given on the face of the Proforma Summary Profit and Loss Account where appropriate.

The particular accounting policies adopted are described below:

Accounting convention

These Accounts have been prepared under the historical cost convention.

Basis of consolidation

The Group Accounts consolidate the Accounts of the Company, its subsidiaries and joint ventures made up to 31 December of each
year, for the periods they are owned by Serco Group plc.

Depreciation

Depreciation is provided on a straight line basis at rates which, in the opinion of the Directors, reduce the assets to their residual
value over their estimated useful lives.

The principal annual rates used are:
Freehold buildings
Short leasehold building improvements
Machinery
Motor vehicles
Furniture
Office equipment
Leased equipment

Stocks

2.5%
The higher of 10% or rate produced by lease term
15% – 20%
18% – 50%
10%
20% – 33%
The higher of the rate produced by either lease term or useful life

Stocks are stated at the lower of cost and net realisable value. Cost includes an appropriate proportion of direct material and labour.

Long term contracts

Long term contract balances represent costs incurred on specific contracts, net of amounts transferred to cost of sales in respect
of work recorded as turnover by reference to the value of the work carried out to date. No profit is recognised until the contract
has advanced to a stage where the total profit can be assessed with reasonable certainty. Advance payments are included in
creditors to the extent that they exceed the related work in progress.

Deferred taxation

Deferred taxation is provided in full on timing differences relating to pension and other post retirement benefits calculated at the
rates at which it is expected that tax will arise.

Deferred taxation is provided at the anticipated tax rates on timing differences arising from the inclusion of items of income and
expenditure in taxation computations in periods different from those in which they are included in the accounts, to the extent
that it is probable that a liability or asset will crystallise in the future.

Fixed asset investments: Subsidiaries

Investments held as fixed assets are stated at cost less provision for any impairment in value.

R&A 14/2/01 5:24 pm Page 55

Notes to the Accounts
For the year ended 31 December 2000

Fixed asset investments: Joint ventures

In the consolidated accounts, investments in joint ventures are accounted for using the gross equity method of accounting in
accordance with Financial Reporting Standard 9 (“FRS 9”) – Associates and Joint Ventures.

The Group Consolidated Profit and Loss Account includes the Group’s share of joint ventures’ operating profits and interest, and
the attributable taxation. In the Consolidated Balance Sheet, the investments in the joint ventures are shown as the Group’s
share of the net assets of the joint ventures. The share of net assets is split between gross assets and liabilities.

In the Proforma Summary Consolidated Profit and Loss Account operating costs relating to joint ventures have been included
within “Share of profits arising from joint ventures – including group joint venture costs and joint venture interest”.

Fixed asset investment: Own shares

Investment in own shares represents shares in Serco Group plc held by the Serco Group plc 1998 Employee Share Ownership
Trust (“the Trust”). The dividends on these shares have been waived.

The Trust is a discretionary trust for the benefit of the employees and shares are held to satisfy the Group’s liabilities to employees
for share options and long term incentive plans. The net cost to the Group of these schemes is charged to the Profit and Loss
Account over the period to which they relate.

Goodwill

Goodwill arising on acquisitions is capitalised in the Balance Sheet in accordance with Financial Reporting Standard 10 (“FRS
10”) – Goodwill and Intangible Assets. Amortisation of goodwill is provided on a straight line basis over a period of 20 years,
which, in the opinion of the Directors is a period not exceeding the economic useful life of the asset.

Basis of translation of foreign currencies

Transactions of UK companies denominated in foreign currencies are translated into Sterling at the rate ruling at the date of the
transaction. Amounts receivable and payable in foreign currencies at the Balance Sheet date are translated at the rates ruling at
that date and any differences arising are taken to the Profit and Loss Account.

The Accounts of overseas subsidiary companies and associated undertakings are translated into Sterling at the closing rates of
exchange at the Balance Sheet date and the difference arising from the translation of the opening net investment and matched
long term foreign currency borrowings is taken directly to reserves. The Profit and Loss Account is translated using average
exchange rates.

Pension costs: Defined benefit schemes

Retirement benefits to employees of Group companies except in Germany, are funded by contributions from Group companies and
employees. Payments are made to trust funds which are financially separate from the Group in accordance with periodic calculations
by consulting actuaries. The expected cost to the Group of providing defined benefit pensions is charged to the Profit and Loss
Account so as to spread the cost of pensions over the service lives of employees in the schemes, in such a way that the cost
is a substantially level percentage of payroll cost, with experience surpluses and deficits being amortised on a straight line basis.

In Germany retirement benefits to employees are accrued for by Serco GmbH & Co. KG. The expected cost to the company for
providing defined benefit pensions is calculated in accordance with periodic valuations by consulting actuaries.

Turnover

Turnover represents net sales of goods and services to third parties together with investment related income.

Leases

Assets obtained under finance leases are capitalised at their fair value on acquisition and depreciated over the shorter of their estimated
useful lives or lease term. The finance charges are allocated over the period of the lease in proportion to the capital element
outstanding. Rentals on assets under operating leases are charged to the Profit and Loss Account in equal annual amounts.

R&A 14/2/01 5:24 pm Page 56

Notes to the Accounts
For the year ended 31 December 2000

2. Segmental Report

Classes of Business

2000

Turnover

Facilities
Management
£’000

Systems
Engineering
£’000

Investments
£’000

Total
£’000

Total sales: Group and share of joint ventures

830,117

61,214

75,660

966,991

Less: share of joint ventures

(120,271)

(1,184)

(73,493)

(194,948)

Group turnover: sales to third parties

709,846

60,030

2,167

772,043

Profit before taxation

Segment profit before common costs, goodwill,
joint ventures, interest and taxation

Common costs

Amortisation of goodwill

Operating profit

34,326

3,749

949

Share of operating profit in joint ventures

18,175

315

10,386

Net interest: Group

Share of joint ventures

(4,471)

(7)

(3,572)

Group profit before taxation

Net assets

Segment net assets before unallocated assets

76,941

6,282

8,398

Unallocated assets

Total net assets

39,024

(18,597)

(3,681)

16,746

28,876

(3,543)

(8,050)

34,029

91,621

17,304

108,925

R&A 14/2/01 5:24 pm Page 57

Notes to the Accounts
For the year ended 31 December 2000

Classes of Business

1999

Turnover

Facilities
Management
£’000

Systems
Engineering
£’000

Investments
£’000

Total
£’000

Total sales: Group and share of joint ventures

Less: share of joint ventures

713,645

(123,098)

76,323

17,576

807,544

(567)

(15,317)

(138,982)

Group turnover: sales to third parties

590,547

75,756

2,259

668,562

Profit before taxation

Segment profit before common costs, goodwill, joint ventures,
exceptional items, interest and taxation

36,262

5,095

222

Common costs

Amortisation of goodwill

Operating profit

Share of operating profit in joint ventures

5,275

129

5,717

Net interest: Group

Share of joint ventures

(88)

(3,243)

Group profit before taxation

Net assets

Segment net assets before unallocated assets

64,975

6,642

3,365

Unallocated assets

Total net assets

41,579

(15,335)

(2,092)

24,152

11,121

(2,643)

(3,298)

29,332

74,982

16,646

91,628

R&A 14/2/01 5:24 pm Page 58

Notes to the Accounts
For the year ended 31 December 2000

2. Segmental Report (continued)

Geographical Segments

2000

Turnover

Turnover by destination:

United
Kingdom
£’000

Rest of
Europe
£’000

Asia
Pacific
£’000

Other
£’000

Total
£’000

Total sales: Group and share of joint ventures

621,165

112,656

138,967

94,203

966,991

Less: share of joint ventures

(130,379)

(6,204)

(42,095)

(16,270)

(194,948)

Group turnover: sales to third parties

490,786

106,452

96,872

77,933

772,043

Turnover by origin:

Total sales: Group and share of joint ventures

630,241

106,296

138,331

92,123

966,991

Less: share of joint ventures

(130,379)

(6,204)

(42,095)

(16,270)

(194,948)

Group turnover: sales to third parties

499,862

100,092

96,236

75,853

772,043

Profit before taxation

Segment profit before common costs, goodwill,
joint ventures, interest and taxation

Common costs

Amortisation of goodwill

Operating profit

16,476

7,963

8,482

6,103

Share of operating profit in joint ventures

25,523

524

1,316

1,513

Net interest: Group

Share of joint ventures

(8,073)

(10)

–

Group profit before taxation

Net assets

Segment net assets before unallocated assets

49,901

5,568

24,573

11,579

Unallocated assets

Total net assets

39,024

(18,597)

(3,681)

16,746

28,876

(3,543)

(8,050)

34,029

91,621

17,304

108,925

R&A 14/2/01 5:24 pm Page 59

Notes to the Accounts
For the year ended 31 December 2000

Geographical Segments

1999

Turnover

Turnover by destination:

United
Kingdom
£’000

Rest of
Europe
£’000

Asia
Pacific
£’000

Other
£’000

Total
£’000

Total sales: Group and share of joint ventures

Less: share of joint ventures

492,733

(63,727)

86,135

(7,708)

137,442

91,234

807,544

(46,739)

(20,808)

(138,982)

Group turnover: sales to third parties

429,006

78,427

90,703

70,426

668,562

Turnover by origin:

Total sales: Group and share of joint ventures

Less: share of joint ventures

496,137

(63,727)

84,583

(7,708)

137,249

89,575

807,544

(46,739)

(20,808)

(138,982)

Group turnover: sales to third parties

432,410

76,875

90,510

68,767

668,562

Profit before taxation

Segment profit before common costs, goodwill,
joint ventures, interest and taxation

Common costs

Amortisation of goodwill

Operating profit

22,461

6,073

7,544

5,501

Share of operating profit in joint ventures

7,641

687

1,718

1,075

Net interest: Group

Share of joint ventures

(3,269)

(64)

–

Group profit before taxation

Net assets

Segment net assets before unallocated assets

42,925

4,338

19,970

7,749

Unallocated assets

Total net assets

41,579

(15,335)

(2,092)

24,152

11,121

(2,643)

(3,298)

29,332

74,982

16,646

91,628

R&A 14/2/01 5:24 pm Page 60

Notes to the Accounts
For the year ended 31 December 2000

3. Information regarding Directors and employees

a) Directors’ remuneration:

Fees as Directors
Other emoluments

Total remuneration excluding pensions

Refer to the Remuneration Report, sections 1,2 and 3 on pages 43 to 46.
The prior year comparative includes Directors who did not serve in 2000.

b) Employee costs including Directors:

Wages and salaries
Social security costs
Other pension costs (Note 31)
Long Term Incentive Scheme costs

c) Number of persons employed by Serco Group plc and its subsidiaries

Average number of persons employed in the provision of services:
Facilities Management
Systems Engineering
Investments
Non-specific

4. Interest receivable

Short term deposits
Loans to joint ventures

Total Group
Share of joint ventures’ interest

2000
£’000

70
1,268

1,338

1999
£’000

60
1,361

1,421

2000
£’000

1999
£’000

358,707
33,612
17,851
320

323,181
26,675
16,228
332

410,490

366,416

2000
Number

1999
Number

19,031
803
55
167

20,056

18,415
929
26
113

19,483

2000
£’000

606
606

1,212
139

1,351

1999
£’000

560
957

1,517
79

1,596

R&A 14/2/01 5:24 pm Page 61

Notes to the Accounts
For the year ended 31 December 2000

5. Interest payable and similar charges

On liabilities repayable within five years:
Group bank loans and overdrafts
Share of joint ventures’ interest

On liabilities repayable after five years:
Group bank loans and overdrafts
Share of joint ventures’ interest

6. Profit on ordinary activities before taxation

Profit on ordinary activities before taxation is after charging:
Rentals under operating leases:

Land and buildings
Plant and machinery

Depreciation on tangible assets:

Owned
Held under finance leases

Finance lease interest on operational assets
Amortisation of goodwill
Auditors’ remuneration:
Deloitte & Touche
Other auditors

Other fees paid to auditors

7. Taxation on profit on ordinary activities

The taxation charge on the results of the year is made up as follows:
United Kingdom corporation taxation at 30% (1999 average – 301⁄4%) based on the profit for the year
Overseas taxation
Deferred taxation
Adjustment in respect of prior years:

United Kingdom corporation taxation
Overseas taxation
Deferred taxation

Share of joint ventures’ taxation charge

2000
£’000

1,665
10

1,675

3,090
8,179

11,269

12,944

1999
£’000

1,023
70

1,093

3,137
3,307

6,444

7,537

2000
£’000

1999
£’000

10,028
16,640

7,666
15,251

9,788
1,950
357
3,681

397
82
909

2000
£’000

1,646
2,038
(336)

(576)
(274)
157
8,404

11,059

7,537
2,033
381
2,092

371
82
794

1999
£’000

6,334
2,582
(435)

(718)
3
(573)
2,345

9,538

The effective tax charge for the year is higher than the United Kingdom corporation tax rate principally as a result of higher rates of
overseas taxation and disallowed expenditure.

R&A 14/2/01 5:24 pm Page 62

Notes to the Accounts
For the year ended 31 December 2000

8. Dividends

Interim dividend of 0.50p per share on 391,169,280 Ordinary Shares
(1999 – 0.44p* on 389,213,286* Ordinary Shares) of 2p each fully paid
– paid 13 October 2000

Proposed final dividend of 1.13p per share on 391,591,141 Ordinary Shares
(1999 – 0.98p* on 391,975,692* Ordinary Shares) of 2p each fully paid
– proposed payment on 6 April 2001

1999 final dividend of 0.98p* on 658,230 shares issued between
31 December 1999 and 17 March 2000 (record date)

1998 final dividend of 0.85p* on 2,338,584* shares relating to shares issued between
31 December 1998 and 19 March 1999 (record date)

*Restated to reflect the capitalisation issue on 5 April 2000

9. Earnings per Ordinary Share

2000
£’000

1999
£’000

1,956

1,719

4,425

6,381

–

3,854

5,573

–

6,387

5,593

Basic and diluted earnings per Ordinary Share after goodwill have been calculated in accordance with Financial Reporting
Standard 14 – Earnings Per Share. Earnings per share is shown both before and after goodwill to assist in the understanding
of the impact of FRS 10 on the Group Accounts.

The calculation of basic earnings per Ordinary Share after goodwill is based on profits of £22,970,000 for the year ended
31 December 2000 (1999 – £19,794,000) and the weighted average number of 392,825,780 (1999 – 388,711,854*) Ordinary
Shares of 2p each in issue during the year.

The calculation of basic earnings per Ordinary Share before goodwill is based on profits of £26,651,000 (adjusted for the effect
of goodwill amortisation of £3,681,000) for the year ended 31 December 2000 (1999 – £21,886,000 as adjusted for goodwill
amortisation of £2,092,000) and the weighted average number of 392,825,780 (1999 – 388,711,854*) Ordinary Shares of 2p each
in issue during the year.

The calculation of diluted earnings per Ordinary Share after goodwill is based on profits of £22,970,000 for the year ended
31 December 2000 (1999 – £19,794,000) and the weighted average number of 396,763,939 (1999 – 390,953,514*) Ordinary
Shares of 2p each assuming that the options are all exercised.

The calculation of diluted earnings per Ordinary Share before goodwill is based on profits of £26,651,000 (adjusted for the effect
of goodwill amortisation of £3,681,000) for the year ended 31 December 2000 (1999 – £21,886,000 as adjusted for goodwill
amortisation of £2,092,000) and the weighted average number of 396,763,939 (1999 – 390,953,514*) Ordinary Shares of 2p each
assuming that the options are all exercised.

*Restated to reflect the capitalisation issue on 5 April 2000.

R&A 14/2/01 5:24 pm Page 63

Notes to the Accounts
For the year ended 31 December 2000

10. Intangible asset: Goodwill

Cost:
At 1 January 2000
Additions during the year
Adjustments to goodwill capitalised on acquisitions prior to 1 January 2000

At 31 December 2000

Accumulated amortisation:
At 1 January 2000
Charge for the year

At 31 December 2000

Net book value:
At 31 December 2000

At 31 December 1999

11. Tangible assets

Group

Cost:
At 1 January 2000
Subsidiaries acquired
Capital expenditure
Disposals
Foreign exchange differences

At 31 December 2000

Accumulated depreciation:
At 1 January 2000
Subsidiaries acquired
Provided during the year
Disposals
Foreign exchange differences

At 31 December 2000

Net book value:
At 31 December 2000

At 31 December 1999

Group
£’000

69,769
3,278
2,211

75,258

2,915
3,681

6,596

68,662

66,854

Total
£’000

95,318
281
17,392
(7,776)
(1,214)

Freehold
land and
buildings
£’000

Short

Machinery,
leasehold motor vehicles,
furniture and
building
equipment
improvements
£’000
£’000

8,159
–
521
(141)
(20)

8,519

2,008
–
280
(4)
12

2,296

6,223

6,151

6,016
22
2,126
(175)
(40)

81,143
259
14,745
(7,460)
(1,154)

7,949

87,533

104,001

2,503
14
979
(171)
(28)

54,299
173
10,479
(6,426)
(386)

58,810
187
11,738
(6,601)
(402)

3,297

58,139

63,732

4,652

3,513

29,394

26,844

40,269

36,508

The cost of assets held by the Group under finance leases at 31 December 2000 was £11,517,000 (1999 – £10,722,000).
The accumulated depreciation provided for those assets at 31 December 2000 was £6,900,000 (1999 – £6,217,000).

R&A 14/2/01 5:24 pm Page 64

Notes to the Accounts
For the year ended 31 December 2000

11. Tangible assets (continued)

Company

Cost:
At 1 January 2000
Transfers to subsidiary undertakings
Capital expenditure

At 31 December 2000

Accumulated depreciation:
At 1 January 2000
Transfers to subsidiary undertakings
Provided during the year

At 31 December 2000

Net book value:
At 31 December 2000

At 31 December 1999

12. Investments held as fixed assets

a) Shares in subsidiary companies at cost:

At 1 January 2000
Acquisition of Serco QAA Limited

At 31 December 2000

b) Group investments in joint ventures:

At 1 January 2000
Dividends receivable
Acquisitions/disposals
Foreign exchange translation difference
Retained profits

At 31 December 2000

Short

Machinery,
leasehold motor vehicles,
furniture and
building
equipment
improvements
£’000
£’000

360
–
283

643

127
–
73

200

443

233

1,775
(243)
550

2,082

1,112
(102)
294

1,304

778

663

Total
£’000

2,135
(243)
833

2,725

1,239
(102)
367

1,504

1,221

896

Company
£’000

27,664
2,650

30,314

Group
£’000

18,022
(6,768)
3,684
328
12,422

27,688

R&A 14/2/01 5:24 pm Page 65

Notes to the Accounts
For the year ended 31 December 2000

c) Investment in own shares:

At 1 January 2000
Additions
Amortisation

At 31 December 2000

Group
£’000

–
10,000
(320)

9,680

Investment in own shares represents 2,298,090 shares in Serco Group plc held by the Trust. The market value of shares held
by the Trust at 31 December 2000 was £12,237,000.

d) A list of the principal undertakings of Serco Group plc is shown in Note 32. All the subsidiaries of the Group have been

consolidated.

e) At 31 December 2000, Group companies had branches in Abu Dhabi, Antarctica, Ascension Island, Bahrain, Chile, Dubai,

French Guiana, Korea, Ras Al Khaimah, Saudi Arabia, Sharjah and Switzerland.

f) All the subsidiaries of Serco Group plc and the joint venture undertakings are engaged in the provision of services with the

exception of Serco Investments Limited, which manages equity investments.

g) The aggregate of the Group’s share in the assets and liabilities of joint ventures is:

Share of fixed assets
Share of current assets

Share of liabilities due within one year or less
Share of liabilities due after more than one year

Share of net assets

h) Acquisitions:

i) Rakmulti Technology Limited

2000
£’000

1999
£’000

41,144
264,444

40,521
173,351

305,588

213,872

60,107
217,793

31,357
164,493

277,900

195,850

27,688

18,022

All the issued share capital of Rakmulti Technology Limited was acquired by Serco Limited on 1 July 2000, for a cash
consideration of £650,000 and deferred cash consideration of £350,000. Acquisition costs of £154,000 were incurred.
The acquisition has been accounted for by the acquisition method of accounting.

The fair value of assets and liabilities are considered to be the same as the book value.

The goodwill arising on consolidation of £787,000 is being carried forward as an intangible asset and will be amortised
over 20 years.

R&A 14/2/01 5:24 pm Page 66

Notes to the Accounts
For the year ended 31 December 2000

12. Investments held as fixed assets (continued)

h) Acquisitions: (continued)

ii) Serco QAA Limited (formerly Quality Assurance Associates Limited)

All the issued share capital of Quality Assurance Associates Limited was acquired by Serco Group plc on 20 December 2000,
for a cash consideration of £237,000, the issue of 188,346 Serco Group plc shares (equivalent £1,050,000) and deferred
consideration comprising loan stock of £763,000 and shares in Serco Group plc equivalent to £500,000. Acquisition costs
of £100,000 were incurred. The acquisition has been accounted for by the acquisition method of accounting.

The fair value of assets and liabilities are considered to be the same as book value.

The goodwill arising on consolidation of £2,491,000 is being carried forward as an intangible asset and will be amortised
over 20 years.

iii) Subscriptions for shares in joint ventures

During the year the Group made subscriptions and further equity injections in joint ventures all of which have been
accounted for by the gross equity method of accounting. The details of each transaction are as follows:

Further equity injections were made in Defence Management (Holdings) Limited by Serco Investments Limited during
2000 for a total cash amount of £2,689,000.

Further equity injections were made in AWE Management Limited by Serco Limited during 2000 for a total cash amount of
£400,000.

Further equity injections were made in Laser (Teddington) II Limited (formerly Laser (Teddington Holding) Limited) by
Serco Investments Limited during 2000 for a total cash amount of £612,000.

Further equity injections were made in Octagon Healthcare (Holdings) Limited by Serco Investments Limited during 2000,
for a total cash amount of £250,000.

i) Disposals

25.76% of the Ordinary Share Capital of Brands on Show Pty Limited was disposed of on 31 December 2000 for
consideration amounting to £885,000.

10% of the Ordinary Share Capital of National Remote Sensing Centre was disposed of on 15 February 2000 for a total
cash amount of £82,000.

50% of the Ordinary Share Capital of REM Serco AB was disposed of on 31 October 2000 for a total cash amount
of £1,189,000.

j) Deferred consideration paid

On the 15 March 2000, the deferred consideration of £3,368,000 due on the acquisition of the shares in Great Southern
Railways Pty Limited on 1 October 1999 was paid.

During the year the deferred consideration of £1,012,000 due on Brands on Show Pty Limited was paid.

13. Stocks

Service spares
Long term contract balances

2000
£’000

11,529
14,413

25,942

Group

1999
£’000

10,097
16,733

26,830

R&A 14/2/01 5:24 pm Page 67

Notes to the Accounts
For the year ended 31 December 2000

14. Debtors

a) Amounts due within one year:

Amounts recoverable on contracts
Other debtors
Prepayments and accrued income
Amounts owed by joint ventures
Building held for re-sale

b) Amounts due after more than one year:

Amounts recoverable on contracts
Other debtors
Pensions prepayment (Note 31)
Amounts owed by joint ventures

Group

Company

2000
£’000

1999
£’000

121,526
16,317
11,843
3,940
4,906

101,459
7,383
12,096
5,279
6,195

158,532

132,412

2000
£’000

–
7,795
75
–
–

7,870

Group

Company

2000
£’000

1999
£’000

2000
£’000

9,451
3,246
9,212
10,288

32,197

11,437
3,997
8,433
5,621

29,488

–
–
–
–

–

1999
£’000

–
4,919
119
–
–

5,038

1999
£’000

–
–
–
–

–

Total debtors

190,729

161,900

7,870

5,038

Included in amounts recoverable on contracts is an amount of £15,913,000 (1999 – £17,297,000) in respect of items procured
on behalf of customers. This is offset by an amount of £13,499,000 (1999 – £11,366,000) in trade creditors and an amount of
£2,886,000 (1999 – £3,483,000) in accruals.

15. Other creditors including taxation and social security

Obligations under finance leases
Corporation tax
Other taxes and social security costs
Other creditors
Amounts owed to joint ventures
Other loans

Group

Company

2000
£’000

1,852
3,501
24,697
28,838
17,213
529

76,630

1999
£’000

1,764
6,151
19,521
20,201
5,339
557

53,533

2000
£’000

–
–
616
79
5,000
–

5,695

1999
£’000

–
1,874
458
–
–
–

2,332

R&A 14/2/01 5:24 pm Page 68

Notes to the Accounts
For the year ended 31 December 2000

16. Creditors: Amounts falling due after more than one year

a) Amounts falling due after more than one year:

Bank loans and overdrafts
Obligations under finance leases
Other loans

Total loans
Less: amounts included in creditors falling due within one year

Amounts falling due after more than one year

b) Analysis of loan repayments due:

Bank loans and overdrafts:
Within one year or on demand
After five years

Obligations under finance leases:
Within one year or on demand
Between one and two years
Between two and five years
After five years

Other loans:
Within one year or on demand
Between one and two years
Between two and five years
After five years

c) All loans are unsecured.

Group

Company

2000
£’000

1999
£’000

2000
£’000

76,021
4,081
4,001

84,103
36,982

47,121

65,012
4,290
3,843

73,145
25,913

47,232

73,425
–
–

73,425
32,005

41,420

1999
£’000

53,258
–
–

53,258
11,838

41,420

Group

Company

2000
£’000

1999
£’000

2000
£’000

1999
£’000

34,601
41,420

23,592
41,420

32,005
41,420

11,838
41,420

1,852
1,456
713
60

529
257
3,169
46

1,764
1,507
871
148

557
84
3,202
–

–
–
–
–

84,103

73,145

73,425

53,258

d) Finance lease obligations are secured by retention of title to the relevant vehicles and equipment.

17. Treasury policies and risk management

The principal risks arising from the Group’s financing activities are interest rate risk and foreign currency risk. Treasury
operations are conducted within a framework of policies and guidelines authorised and reviewed by the Board.

There has been no change during the year or since the year end to the major financial risks faced by the Group or the Group’s
approach to the management of these risks.

As permitted by Financial Reporting Standard 13 – “Derivatives and other Financial Instruments: Disclosures” short term debtors
and non interest bearing short term creditors have been excluded from the following disclosure other than the currency profile of
monetary assets and liabilities.

The fundamental purpose of interest rate and foreign currency financial instruments entered into is to hedge long term and short
term financial borrowings, the details of which are set out below.

R&A 14/2/01 5:24 pm Page 69

Notes to the Accounts
For the year ended 31 December 2000

Interest rate risk

The Group borrows in the required currencies at both fixed and floating rates of interest. The Group’s exposure to interest rate
fluctuations on its borrowing is managed by using interest rate swaps and forward rate agreements. At the year end after taking
account of interest rate swaps the proportion of the Group’s fixed rate borrowings was 35.2% with the remaining 64.8% at
floating rates.

Foreign currency risk

The Group has a significant investment in overseas subsidiaries. The Group’s policy is not to hedge net assets of overseas
subsidaries since the net assets represent a small proportion of the market value of the Group.

Subsidiaries are required to hedge their material trading transactions (sales and purchases in currencies other than their functional
currency) by using forward contracts. There were no material debtors or creditors as at 31 December 2000 with unmatched
transactional exposure.

Financial assets and liabilities

i) Assets

Other than short term debtors, the Group’s financial assets as at 31 December 2000 and 31 December 1999 were:

31 December 2000

Sterling
£’000

Australian
Dollar
£’000

US Deutsche
Mark
£’000

Dollar
£’000

Various
other
currencies
£’000

Euro
£’000

Total
£’000

Cash and short term deposits

59,813

1,891

4,952

1,952

6,227

5,263

80,098

Note

Long term interest bearing loans to
joint ventures
Other long term debtors

6,576
16,720

3,606
2,306

106
1,888

Total long term assets

23,296

5,912

1,994

–
–

–

–
–

–

–
995

10,288
21,909

995

32,197

31 December 1999

Sterling
£’000

Australian
Dollar
£’000

US Deutsche
Mark
£’000

Dollar
£’000

Cash and short term deposits

31,419

6,267

5,298

7,153

Long term interest bearing loans to
joint ventures
Other long term debtors

5,263
18,636

358
2,639

–
2,256

Total long term assets

23,899

2,997

2,256

–
328

328

Various
other
currencies
£’000

Euro
£’000

Total
£’000

–

–
–

–

8,642

58,779

–
8

5,621
23,867

29,488

Note

The above assets except long term debtors earn interest at relevant national LIBOR equivalents, net of margins.

R&A 14/2/01 5:24 pm Page 70

Notes to the Accounts
For the year ended 31 December 2000

17. Treasury policies and risk management (continued)

ii) Liabilities

After taking into account the interest rate and currency swaps the interest profile of the Group’s financial liabilities
at 31 December 2000 and 31 December 1999 were:

31 December 2000

Sterling
Australian Dollar
US Dollar
Deutsche Mark
Euro

Total (Note 16)

31 December 1999

Sterling
Australian Dollar
US Dollar
Deutsche Mark

Total (Note 16)

Fixed Rate Liabilities

Weighted Weighted average
time for which
rate is fixed
Years

average
interest rate
%

–
–
7.64
–
–

–
–
7
–
–

Fixed rate
liabilities
£’000

–
–
29,585
–
–

Total
liabilities
£’000

Floating rate
liabilities
£’000

5,469
2,047
44,582
16,389
15,616

84,103

5,469
2,047
14,997
16,389
15,616

54,518

29,585

Total
liabilities
£’000

Floating rate
liabilities
£’000

5,080
3,156
53,071
11,838

73,145

5,080
3,156
14,610
11,838

34,684

Fixed rate
liabilities
£’000

–
–
38,461
–

38,461

Fixed Rate Liabilities

Weighted Weighted average
time for which
rate is fixed
Years

average
interest rate
%

–
–
7.45
–

–
–
8
–

The floating rate borrowings bear interest at relevant national LIBOR equivalents, plus margin.

The maturity of the Group’s financial liabilities at 31 December 2000 and 31 December 1999 were:

31 December 2000

Sterling
Australian Dollar
US Dollar
Deutsche Mark
Euro

Total

31 December 1999

Sterling
Australian Dollar
US Dollar
Deutsche Mark

Total

Maturing
within one year
£’000

Maturing
between one
and two years
£’000

Maturing
between two
and five years
£’000

Maturing
after more
than five years
£’000

2,535
894
1,548
16,389
15,616

36,982

558
986
169
–
–

1,713

2,369
167
1,346
–
–

3,882

7
–
41,519
–
–

41,526

Maturing
within one year
£’000

Maturing
between one
and two years
£’000

Maturing
between two
and five years
£’000

Maturing
after more
than five years
£’000

1,333
2,618
10,124
11,838

25,913

894
416
281
–

1,591

2,705
122
1,246
–

4,073

148
–
41,420
–

41,568

Total
£’000

5,469
2,047
44,582
16,389
15,616

84,103

Total
£’000

5,080
3,156
53,071
11,838

73,145

R&A 14/2/01 5:24 pm Page 71

Notes to the Accounts
For the year ended 31 December 2000

iii) Fair Values

The book value and fair value of the Group’s financial assets and liabilities at 31 December 2000 and 31 December 1999 were:

2000

1999

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Unrecognised
gain/(loss)
£’000

Book value
£’000

Fair value
£’000

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Unrecognised
gain
£’000

Book value
£’000

Fair value
£’000

Assets
Cash and short term deposits

Amounts owed by joint ventures
Other long term debtors

Liabilities
Long term borrowings:
Sterling
Australian Dollar
US Dollar

Short term borrowings:
Sterling
Australian Dollar
US Dollar
Deutsche Mark
Euro
Derivatives held to manage the
currency and interest rate profile

80,098

10,288
21,909

32,197

2,934
1,153
43,034

47,121

2,535
894
1,548
16,389
15,616

80,098

10,288
21,909

32,197

2,934
1,153
46,439

50,526

2,535
894
1,548
16,389
15,616

–

–
–

–

–
–
(3,405)

(3,405)

–
–
–
–
–

58,779

5,621
23,867

29,488

3,747
538
42,947

47,232

1,333
2,618
10,124
11,838
–

58,779

5,621
23,867

29,488

3,747
538
41,346

45,631

1,333
2,618
10,124
11,838
–

–

–
–

–

–
–
1,601

1,601

–
–
–
–
–

–

3,231

36,982

40,213

3,231

–

1,215

25,913

27,128

1,215

The fair value of the interest rate swaps, foreign currency contracts and US Dollar denominated long term fixed rate debt, with
a carrying amount of USD70,000,000, have been determined by reference to prices available from the markets on which the
instruments involved are traded.

Gains and losses on hedges

The Group uses interest rate swaps to manage its interest rate profile. Changes in the fair value of instruments used as hedges are
not recognised in the financial statements until the hedged position matures. There were no unrecognised gains or losses brought
forward that were charged to the profit and loss account during the period. There was an unrecognised gain of £3,231,000
(1999 – £1,215,000) on the interest rate swaps as at 31 December 2000, as set out in the previous table. The unrecognised gain is
not expected to be recognised in the Profit and Loss account in the next period.

Borrowing facilities

The Group had facilities of £30,000,000 committed and £108,000,000 uncommitted that were unused as at 31 December 2000.
Committed facilities are renewable every five years and uncommitted facilities annually.

R&A 14/2/01 5:24 pm Page 72

Notes to the Accounts
For the year ended 31 December 2000

18. Provisions for liabilities and charges

Group

Pensions provision
Deferred taxation

19. Deferred taxation

Balance
1 January
2000
£’000

23,309
2,597

25,906

Charged/(credited)
to the profit and
loss account
£’000

Usage
£’000

Foreign
exchange
differences
£’000

Balance
31 December
2000
£’000

(138)
–

(138)

542
(179)

363

116
(169)

(53)

23,829
2,249

26,078

2000
£’000

178
38
2,033

2,249

(546)
(3,341)
(295)

(4,182)

2000
£’000

22,970
(6,387)

16,583
(1,155)
7,174

–
(5,305)

17,297
91,628

108,925

Group

1999
£’000

60
–
2,537

2,597

(420)
(3,342)
(95)

(3,857)

1999
£’000

19,794
(5,593)

14,201
1,586
12,344

(3,078)
(5,618)

19,435
72,193

91,628

The amounts of deferred taxation provided in the accounts are:
Capital allowances in excess of depreciation
Overseas timing differences
Other timing differences

Potential amounts of deferred taxation for which no credit has been taken:
Depreciation in advance of capital allowances
Overseas timing differences
Other timing differences

20. Reconciliation of movements in shareholders’ funds

Profit on ordinary activities after taxation
Dividends

Currency translation differences on foreign currency net investments
New capital subscribed
Issue of shares as deferred consideration for the acquisition of
Docklands Railway Management Limited
Exercise of Share Scheme options

Net increase in shareholders’ funds
Opening shareholders’ funds

Closing shareholders’ funds

R&A 14/2/01 5:24 pm Page 73

Notes to the Accounts
For the year ended 31 December 2000

21. Called up share capital

a) Authorised 550,000,000 (1999 – 100,000,000) Ordinary Shares of 2p each

2000
£’000

11,000

2000
£’000

1999
£’000

2,000

1999
£’000

b) Called up, allotted and fully paid:

393,864,463 (1999 – 65,329,282) Ordinary Shares of 2p each

7,877

1,307

c) At an Extraordinary General Meeting on 5 April 2000 the Authorised Share Capital of the Company was increased from

£2,000,000 to £11,000,000 by the creation of an additional 450,000,000 Ordinary Shares of 2p each. Under a general power
granted to the Directors at the meeting £6,545,399, being part of the sum standing to the credit of the Company’s Share
premium account, was capitalised and 327,269,935 fully paid Ordinary Shares of 2p each were distributed among the
members who were on the register at 7 April 2000 by allotting five fully paid new Ordinary Shares to them for every Ordinary
Share held.

d) Other Ordinary Shares of 2p each allotted in the year:

During the year 1,076,900 Ordinary Shares of 2p each were allotted to the holders of options or their personal representatives.

Of these 124,705 were allotted prior to the capitalisation issue on 5 April 2000, 3,540 were allotted at £13.05, 32,990 at
£4.61, 3,000 at £3.69 and 85,175 at nil value (a further 623,525 Ordinary Shares of 2p each were allotted to the holders
of these shares in the capitalisation issue).

The remaining 952,195 Ordinary Shares of 2p each were allotted after the capitalisation issue, of which 5,880 were allotted
at £4.2542, 4,273 at £3.81, 103,086 at £2.45, 126,222 at £2.175, 72,630 at 76.83 pence, 84,000 at 36.70 pence and 556,104
at nil value.

In addition to the above, 188,346 Ordinary Shares of 2p each were allotted at £5.575 per share on 20 December 2000 as
consideration for the acquisition of Serco QAA Limited (formerly Quality Assurance Associates Limited) (Note 12).

e) Options in respect of Ordinary Shares of 2p each:

ii)

In January 1996, 1,210,392* options in respect of Ordinary Shares of 2p each were granted in accordance with the rules
of the ‘Serco Group plc 1996 Long Term Incentive Scheme’. At 31 December 2000 there remained 235,392* options which
are exercisable at nil value in accordance with the rules of the Scheme.

In January 1997, 1,439,622* options in respect of Ordinary Shares of 2p each were granted in accordance with the rules
of the ‘Serco Group plc 1996 Long Term Incentive Scheme’. At 31 December 2000 there remained 202,194* options which
are exercisable at nil value in accordance with the rules of the Scheme.

iii) 3,341,346* options in respect of Ordinary Shares of 2p each were granted in May and September 1998 in accordance with

the rules of the ‘Serco Group plc 1998 Executive Option Plan’. At 31 December 2000 there remained 2,778,889* options
which are exercisable at a price of £2.175* each and 18,402* at £2.0208* each in accordance with the rules of the Scheme.

iv) On 1 April 1999, 3,461,664* options in respect of Ordinary Shares of 2p each were granted in accordance with the rules

of the ‘Serco Group plc 1998 Executive Option Plan’. At 31 December 2000 there remained 3,102,498* options which are
exercisable at a price of £2.45* each in accordance with the rules of the scheme.

v) On 31 March 2000, 4,511,988* options in respect of Ordinary Shares of 2p each were granted as part of a new Company
Sharesave Scheme, whereby eligible employees were granted options to apply for shares as part of a save-as-you-earn
contract. 4,228,645 options were held by employees on 31 December 2000. The options are exercisable at any time
between 1 May 2003 and 31 October 2003 at a price of £3.81* each provided the requirements of the Scheme have
been met.

R&A 14/2/01 5:24 pm Page 74

Notes to the Accounts
For the year ended 31 December 2000

21. Called up share capital (continued)

vi) On 5 April 2000, 2,524,836* options in respect of Ordinary Shares of 2p each were granted in accordance with the rules

of the ‘Serco Group plc 1998 Executive Option Plan’. At 31 December 2000 there remained 2,504,310* options which are
exercisable at a price of £4.2542* each in accordance with the rules of the Scheme.

vii) On 5 April 2000, 219,900* options in respect of Ordinary Shares of 2p each were granted in accordance with the rules

of the ‘1996 Serco Group plc Long Term Incentive Scheme as amended by the company on 5 April 2000’. At 31 December
2000 no options had been exercised or lapsed. These options are exercisable at nil value in accordance with the rules of the
Scheme.

viii) 37,677 options in respect of Ordinary Shares of 2p each were granted in August and November 2000, in accordance with
the rules of the ‘Serco Group plc 1998 Executive Option Plan’. 26,268 of these options are exercisable at £5.825 and
11,409 at £4.90. No options had been exercised or lapsed at 31 December 2000.

ix) On 24 November 2000, 259,351 options in respect of Ordinary Shares of 2p each were granted in accordance with the
rules of the ‘1996 Serco Group plc Long Term Incentive Scheme as amended by the Company on 5 April 2000’. At 31
December 2000 no options had been exercised or lapsed. These options have been granted in respect of a three year
performance period starting 1 January 2001 and are exercisable at nil value in accordance with the rules of the Scheme.

*Restated to reflect the capitalisation issue on 5 April 2000.

f) The market price of Serco Group plc Ordinary Shares of 2p each as at 31 December 2000 was £5.321⁄2.

After adjusting for the capitalisation issue the market price of these shares ranged from £3.311⁄2 to £6.80 during the year.

22. Share premium account

Balance at 1 January 2000
Capitalisation – issue of new shares
– costs

Acquisition of Serco QAA Limited (formerly Quality Assurance Associates Limited)
Share premium on issue of shares upon exercise of options

Balance at 31 December 2000

23. Profit and loss account

Group
Balance at 1 January 2000
Retained profit transferred to reserves
Foreign exchange translation differences
Exercise of Share Scheme options

Balance at 31 December 2000

£’000

69,517
(6,545)
(54)
1,046
6,157

70,121

£’000

20,661
16,583
(1,155)
(5,305)

30,784

The profit and loss account includes a goodwill charge of £41,578,000 under the accounting policy applicable prior to the
implementation of FRS 10.

R&A 14/2/01 5:24 pm Page 75

Notes to the Accounts
For the year ended 31 December 2000

Company

As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the Parent Company is not presented as
part of these accounts. The consolidated profit for the financial year includes the Parent Company profit of £2,062,000 which
includes dividends of £19,598,000 received from subsidiary companies.

A final ordinary dividend of £4,425,000 is proposed which together with the interim dividend of £1,956,000 and the payment in
relation to the 1999 final dividend caused by the movement in number of shares of £6,000, leaves a loss of £4,325,000 which has
been deducted from reserves brought forward of £29,064,000. This along with a foreign exchange credit of £652,000 results in
reserves carried forward of £25,391,000.

24. Reconciliation of operating profit to net cash inflow from operating activities

Operating profit
Depreciation
Goodwill amortisation
Loss on sale of tangible assets
Decrease/(increase) in stocks
(Increase)/decrease in debtors
Increase/(decrease) in creditors
Increase/(decrease) in provisions

2000
£’000

16,746
11,738
3,681
313
1,094
(25,657)
37,099
520

1999
£’000

24,152
9,570
2,092
695
(9,767)
19,971
(9,447)
(448)

Net cash inflow from operating activities

45,534

36,818

25. Analysis of net debt

Cash at bank and in hand
Overdrafts

Cash net of overdrafts
Bank loans due after more than one year

Cash net of overdrafts and bank loans
Other loans due after more than one year
Other loans due within one year
Finance leases

Balance
1 January
2000
£’000

58,779
(23,592)

35,187
(41,420)

(6,233)
(3,286)
(557)
(4,290)

Cash
flow
£’000

21,319
(11,009)

10,310
–

10,310
(186)
28
2,264

Net debt

(14,366)

12,416

Other
non-cash
changes
£’000

Balance 31
December
2000
£’000

–
–

–
–
–
(2,055)

(2,055)

80,098
(34,601)

45,497
(41,420)

4,077
(3,472)
(529)
(4,081)

(4,005)

R&A 14/2/01 5:24 pm Page 76

Notes to the Accounts
For the year ended 31 December 2000

26. Reconciliation of increase/(decrease) in cash to movement in net debt

Increase/(decrease) in cash
Cash outflow from debt and lease financing

Change in net debt resulting from cash flows
New finance leases

Movement in net debt in the period
Net debt at 1 January

Net debt at 31 December

2000
£’000

10,310
2,106

12,416
(2,055)

10,361
(14,366)

1999
£’000

(8,804)
3,432

(5,372)
(1,367)

(6,739)
(7,627)

(4,005)

(14,366)

27. Major non-cash transactions

During the year the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception
of the leases of £2,055,000 (1999 – £1,367,000).

As part of the acquisition of 100% of the shares in Serco QAA Limited (formerly Quality Assurance Associates Limited), 188,346
Serco Group plc shares (equivalent to £1,050,000) were issued for nil cash consideration.

During the year £5,305,000 (1999 – £5,618,000) has been charged to the profit and loss reserve in respect of shares issued under
Employee Share Scheme Options.

28. Contingent liabilities

The Group has given indemnities to banks totalling £13,707,000 in respect of performance bonds in the normal course of business.
In addition the Group has given indemnities to banks and financial guarantees in respect of a lease security to a subsidiary and
equity contributions to joint ventures of £16,528,000.

29. Capital and other commitments

Capital expenditure contracted but not provided

Group

Company

2000
£’000

1,172

1999
£’000

4,262

2000
£’000

–

During the year ending 31 December 2001 the Group is to make the following payments in respect of operating leases:

1999
£’000

–

Other
£’000

4,116
8,840
1,045

Land and buildings
£’000

1,575
7,405
3,382

12,362

14,001

Leases which expire:
Within one year
Between one and five years
After five years

R&A 14/2/01 5:24 pm Page 77

Notes to the Accounts
For the year ended 31 December 2000

30. Related parties

Directors

The Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts,
Directors’ liability insurance and consultancy services provided by Gary Sturgess as detailed in the Remuneration Report.
Details of the Directors’ remuneration is disclosed in the Remuneration Report.

Joint ventures

The following material transactions took place between the Group and its joint ventures during 2000:

Net loans during the year
Net trading
Royalties and management fees receivable
Dividends receivable

The following receivable balances relating to joint ventures were included in the Group Balance Sheet:

Amounts due within one year:
Loans
Trading balance
Royalties and management fees
Dividends

Amounts due after more than one year:
Loans

The following payable balances relating to joint ventures were included in the Group Balance Sheet:

Amounts payable within one year:
Loans

Details of Group investments in joint ventures and other principal undertakings are given in Note 32.

2000
£’000

8,431
2,848
2,429
6,768

20,476

2000
£’000

196
760
2,984
–

3,940

1999
£’000

12,271
2,635
2,021
2,735

19,662

1999
£’000

1,420
1,725
1,425
709

5,279

10,288

5,621

2000
£’000

1999
£’000

17,213

5,339

R&A 14/2/01 5:24 pm Page 78

Notes to the Accounts
For the year ended 31 December 2000

31. Pension schemes

The net pension charge for the year ended 31 December 2000 was £17,851,000 (1999 – £16,228,000).

The Group paid employer contributions of £3,659,000 (1999 – £3,206,000) into UK defined contribution and foreign state
pension schemes.

The other main Group operated pension schemes were as follows:

a) Serco Pension and Life Assurance Scheme (“SPLAS”)

This is a pre-funded defined benefit scheme.

The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding
on a projected salary basis.

Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last
such review being carried out as at 6 April 1999.

The projected unit method was adopted for the actuarial valuation of the Scheme for accounting purposes. The main actuarial
assumptions used in the valuation for accounting purposes this year were:

Investment yield
Salary growth
Increase in LEL offset
Price inflation
Equity dividend growth
Pension increases (in excess of GMP)

8.0% p.a.
6.0% p.a. (including 0.5% p.a. in respect of promotion)
3.5% p.a. (SPLAS section only)
3.5% p.a.
3.5% p.a.
3.5% p.a. (for Serco Alternative Pension Scheme and Services section)
3.0% p.a. (for SPLAS section accrual after 6/4/97)
0.5% p.a. (for SPLAS section accrual prior to 6/4/97)

The Scheme is assessed to be fully funded on a current funding level basis based on a market value of assets of £145,881,000
at 6 April 1999. Liabilities for this purpose are calculated using the basis for determining individual cash equivalents for active
members and deferred pensioners and by estimating the cost of purchasing annuity policies for pensioners.

The actuarial value of the assets represented 81% of the ongoing liabilities of the Scheme. Variations from the normal cost are
amortised for accounting purposes over a fifteen year period as a constant monetary amount.

Employer pension contributions paid into the Scheme during the year were £8,861,000 (1999 – £7,165,000), of which
£640,000 related to special contributions in respect of a discretionary increase to pensions in payment awarded during the year
(1999 – £448,000).

At 31 December 2000 a prepayment of £1,550,000 (1999 – £684,000) in respect of the Scheme was included in the Balance
Sheet. £7,995,000 was charged to the 2000 Profit and Loss Account, in respect of the Scheme (1999 – £7,376,000).

R&A 14/2/01 5:24 pm Page 79

Notes to the Accounts
For the year ended 31 December 2000

b) The Serco-IAL Pension Scheme

This is a pre-funded defined benefit scheme.

The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding
on a projected salary basis.

Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last
such review being carried out as at 31 March 1998. On the assumptions adopted for accounting purposes and based on a
market value of assets of £97,316,000 at 31 March 1998, the actuarial value of the assets represented 117% of the ongoing
past service liabilities of the Scheme as at that date.

For accounting purposes, the projected unit method has been adopted and the main actuarial assumptions used are:

Investment yield
Salary growth (excluding salary scale)
Equity dividend growth
Pension increases (Part 4 and 6 members)
Pension increases (others)

8.50% p.a.
6.00% p.a.
5.50% p.a.
3.75% p.a.
4.00% p.a.

The past service surplus as at 31 March 1998 is being amortised for accounting purposes over a nine year period as a constant
monetary amount.

No employer pension contributions were paid into the Scheme during the year.

An amount of £87,000 (1999 – £135,000) has been charged to the 2000 Profit and Loss Account in respect of the Scheme and
a prepayment of £7,662,000 (1999 – £7,749,000) has been included in the Balance Sheet as at 31 December 2000.

c) Serco Superannuation Fund

This is a combined defined benefit and contribution scheme which was established in Australia on 1 April 1993 to provide
equivalent benefits for members transferring from the AWA Defence Industries Superannuation Fund, a defined benefit
scheme, and the AWA Group Superannuation Fund (1987), a defined contribution scheme.

Actuarial assessments covering expenses and contributions relating to the defined benefit element of the Scheme are carried
out by independent qualified actuaries with the last such valuation being carried out as at 31 December 1997. The attained age
method was used for the actuarial valuation of the Scheme as at 31 December 1997. This method was chosen to produce a
level employer contribution rate as a proportion of members’ salaries over the expected future working lives of the existing
members, as the defined benefit element of the Scheme was closed to new members with effect from 1 April 1993.

The main actuarial assumptions used in the actuarial valuation for accounting purposes this year were:

Average long term interest rate (net of investment and administration expenses and investment tax)
Average long term allowance for salaries increases

9.5% p.a.
7.0% p.a.

The defined benefit element of the Scheme was assessed to be fully funded on a current funding level based on a market value
of assets of £1,063,830 (A$2,860,000) at 31 December 1997 with a ratio of market value of assets to current funding level
liabilities of 108%.

The actuarial value of assets of the defined benefit element of the Scheme represented 112% of its ongoing liabilities at 31
December 1997. The pension cost calculated under the attained age method will amortise the above surplus over the expected
future working lives of the existing members which have an average value of 14 years.

Employer pension contributions paid into the Scheme and charged to the 2000 Profit and Loss Account during the year were
£2,171,000 (1999 – £1,762,000).

R&A 14/2/01 5:24 pm Page 80

Notes to the Accounts
For the year ended 31 December 2000

31. Pension schemes (continued)

Defined benefit element

Regular cost
Variation cost

Defined contribution element

Total

Defined benefit element

Regular cost
Variation cost

Defined contribution element

Total

d) The NPL Management Limited Pension Scheme

This is a pre-funded defined benefit scheme.

2000
£’000

91
26

117
2,054

2,171

1999
£’000

91
41

132
1,630

1,762

2000
A$’000

238
68

306
5,359

5,665

1999
A$’000

228
103

331
4,086

4,417

The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding on
a projected salary basis.

Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last
such review being carried out as at 6 April 1998.

The projected unit method was adopted for the actuarial valuation of the Scheme. The main actuarial assumptions used in the
valuation for accounting purposes this year were:

Investment return
Salary growth
Price inflation
Equity dividend growth
Pension increases

8.0% p.a.
6.0% p.a. (plus promotional scale)
3.5% p.a.
3.5% p.a.
3.5% p.a.

The Scheme is assessed to be fully funded on a current funding level basis based on a market value of assets of £15,677,000
at 6 April 1998. Liabilities for this purpose are calculated using the basis for determining individual cash equivalents for active
members and deferred pensioners and by estimating the cost of purchasing annuity policies for pensioners.

The actuarial value of the assets represented 72% of the ongoing liabilities of the Scheme. Variations from the normal cost are
amortised for accounting purposes over a fifteen year period as a constant monetary amount. Employer pension contributions
paid into the Scheme during the year were £1,664,000. At 31 December 2000 a provision of £82,000 (1999 – £16,000) in
respect of the Scheme was included in the Balance Sheet. £1,730,000 was charged to the 2000 Profit and Loss Account in
respect of the Scheme (1999 – £1,827,000).

R&A 14/2/01 5:24 pm Page 81

Notes to the Accounts
For the year ended 31 December 2000

e) The Serco Shared Cost Section of the Railways Pension Scheme

The Serco Shared Cost Section of the Scheme was established on 6 January 1997 after the acquisition of Nationwide Fire
Services from the British Railways Board.

This is a pre-funded defined benefit scheme.

The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding on
a projected salary basis.

An initial actuarial valuation was carried out as at 6 January 1997 and the first of the regular valuations was as at 31
December 1998. The attained age method was adopted for the actuarial valuation of the Scheme. The main actuarial
assumptions used in the valuation for accounting purposes were:

Investment yield
Salary growth
Dividend growth
Pension increases

6.75% p.a.
4.50% p.a.
3.75% p.a.
3.00% p.a.

As at 31 December 1998 the actuarial value of the assets represented 133% of the value of the liabilities, after including
reserves for contributions to be paid at the reduced rate of 121⁄2 % (employer 71⁄2%, members 5%) until September 2003 and for
employer matching voluntary contributions to be subsumed within the normal 71⁄2% rate.

Employer pension contributions paid into the Scheme and charged to the 2000 Profit and Loss Account during the year were
£527,000 (1999 – £202,000).

f) Serco Metrolink Pension Scheme

This is a pre-funded defined benefit scheme.

The funding policy is to contribute such variable amounts, on the advice of the actuary, as will achieve 100% funding on a
projected salary basis.

Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last
such review being carried out as at 1 September 1998.

The projected unit method was adopted for the actuarial valuation of the Scheme for accounting purposes. The main actuarial
assumptions used in the valuation for accounting purposes this year were:

Investment yield
Salary growth
Price inflation
Equity dividend growth
Pension increases

8.0% p.a.
6.0% p.a.
3.5% p.a.
3.5% p.a.
3.0% p.a.

The Scheme is assessed to be fully funded on a current funding level basis at 1 September 1998. Liabilities for this purpose are
calculated using the basis for determining individual cash equivalents for active members and deferred pensioners. Pension
liabilities at the valuation date were fully secured with an insurance company and so have been excluded from the valuation.

The actuarial value of the assets represented 90% of the ongoing liabilities of the Scheme. Variations from the normal cost are
amortised for accounting purposes over an eighteen year period as a constant monetary amount.

Employer pension contributions paid into the Scheme during the year 2000 were £218,000 (1999 – £204,000). At 31 December
2000 a provision of £23,000 (1999 – nil) in respect of the Scheme was included in the Balance Sheet. £241,000 (1999 – £204,000)
was charged to the 2000 Profit and Loss Account, in respect of the Scheme.

R&A 14/2/01 5:24 pm Page 82

Notes to the Accounts
For the year ended 31 December 2000

31. Pension schemes (continued)

g) Docklands Light Railway Pension Scheme

Docklands Railway Management Limited became a participating employer in the Scheme on 6 April 1997. The Scheme is a
pre-funded defined benefit scheme, with Docklands Light Railway Limited being the principal employer.

The funding policy is to contribute such variable amounts, on the advice of the Scheme actuary, as will achieve 100% funding
on a projected salary basis.

Actuarial assessments covering expenses and contributions are carried out by independent qualified actuaries, with the last
such review being carried out as at 1 April 1998.

The projected unit method was adopted for the actuarial valuation of the Scheme for accounting purposes. The main actuarial
assumptions used in the valuation for accounting purposes this year were:

Investment yield
Salary growth
Equity dividend growth
Pension increases

8.5% p.a.
6.5% p.a.
5.2% p.a.

4.25% p.a. for Pre 1/4/1989 joiners
4.0% p.a. for Post 1/4/1989 joiners

The Scheme is assessed to be fully funded on a current funding level basis based on a market value of assets of £15,338,000
at 1 April 1998.

The actuarial value of the assets represented 100% of the ongoing liabilities of the Scheme. Variations from the normal cost
are amortised for accounting purposes over the future working lifetime of current active members as a percentage of salaries.

Employer pension contributions paid into the Scheme and charged to the 2000 Profit and Loss Account totalled £921,000
(1999 – £854,000).

h) Serco GmbH & Co. KG Pension arrangement

This is an un-funded defined benefit arrangement.

Actuarial assessments covering liabilities are carried out by independent qualified actuaries, with the last such review being
carried out as at 23 December 1999.

The projected unit method was adopted for the actuarial valuation of the arrangement. The main actuarial assumptions used
in the valuation for accounting purposes this year were:

Investment yield
Salary growth
Price inflation

6.0% p.a.
3.0% p.a.
2.0% p.a.

Employer expenses for the arrangement during the period were £520,000 (1999 – £662,000) and a provision of £23,829,000
(1999 – £23,309,000) has been included in the Balance Sheet as at 31 December 2000.

R&A 14/2/01 5:24 pm Page 83

Notes to the Accounts
For the year ended 31 December 2000

32. List of principal undertakings

The companies listed below are, in the opinion of the Directors, the principal undertakings of Serco Group plc. The percentage of
equity capital directly or indirectly held by Serco Group plc is shown. The companies are incorporated and principally operate in
the countries designated below.

Principal subsidiaries

United Kingdom

Rest of Europe
Belgium
Denmark
France
Germany

Ireland
Italy
Luxembourg
The Netherlands

Sweden

Switzerland

Asia Pacific
Australia

New Zealand

Serco Limited*
Serco Contracting Limited
Serco-Denholm Limited
Serco Europe Limited
Serco-IAL Limited
Serco International Limited
Serco Railtest Limited
Sercoserve Limited
Serco Systems Limited*
Serco Overseas Investments Limited*
Serco Research & Development Limited*
Serco Insurance Co Limited*
NPL Management Limited*
Serco Docklands Limited
(formerly Docklands Railway Management Limited)
Serco Investments Limited*
Community Leisure Management Ltd
Serco Aerospace Limited (formerly FRA Serco Limited)
Rakmulti Technology Limited
Serco QAA Limited (formerly Quality Assurance Associates Limited)*

Serco Belgium S.A.
Metro Service A/S
Serco France Sarl
Serco International GmbH
Serco GmbH & Co. KG
(formerly Elekluft Elektronik und Luftfahrtgeräte GmbH)
Serco Services GmbH
Serco FM GmbH (formerly Serco GmbH)
Serco Services Ireland Limited
Serco s.r.l. (formerly Serco Servizi s.r.l.)
Serco Facilities Management S.A.
Serco Facilities Management BV
Serco International BV
Serco Investments BV
Serco Services AB
Serco Sverige AB (formerly Serco Newsec AB)
Serco Facilities Management S.A.

Serco Group Pty Limited
(formerly Serco Asia Pacific Pty Limited)
Serco Australia Pty Limited
Serco Water (WA) Pty Limited
Great Southern Railways Pty Limited
Serco Group NZ Limited
Serco Viatech Limited

100%
100%
90%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%

100%
67%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%

*directly held by Serco Group plc

R&A 14/2/01 5:24 pm Page 84

Notes to the Accounts
For the year ended 31 December 2000

32. List of principal undertakings (continued)

Principal subsidiaries

Other
Canada

USA

Joint venture undertakings

United Kingdom

Asia Pacific
Australia

New Zealand

Hong Kong

Other
Bahrain
Bermuda
Cyprus
Dubai
Saudi Arabia
Singapore

Turkey
USA

*directly held by Serco Group plc

Serco Facilities Management, Inc.
Serco Aviation Services, Inc.
Serco Group, Inc.
Serco, Inc.
Serco Management Services, Inc. (Delaware)
Barton ATC, Inc.
Serco Management Services, Inc. (Tennessee)
(formerly Barton ATC International, Inc)
JL Associates, Inc.

Premier Prison Services Limited
Kilmarnock Prison (Holdings) Limited
Serco Gulf Engineering Limited
Defence Management (Holdings) Limited
Laser (Teddington) II Limited
(formerly Laser (Teddington Holding) Limited)
Altram (Manchester) Limited
Premier Custodial Group Limited
Lowdham Grange Prison Services Limited
Medomsley Holdings Limited
Pucklechurch Custodial (Holdings) Limited
Moreton Prison (Holdings) Limited
Serco-Denholm Shipping Company Limited
AWE Management Limited
Serco Fleet Services Limited

Defence Maritime Service Pty Limited
InfoDirect Pty Limited
Serco-Gardner Merchant Pty Limited
Serco Project Engineering Ltd
Serco Gardner Merchant NZ
Serco Guardian (FM) Limited

Aeradio Technical Services WLL
BAS-Serco Limited
Serco Kalisperas
International Aeradio (Emirates) LLC
Key Communications Development Co Limited
JBS Singapore Pte Limited
Serco Guthrie Pte Ltd
ESDAS
Baker Serco Wright Patterson

100%
100%
100%
100%
100%
100%

100%
100%

50%
50%
50%
50%

50%
26%
50%
50%
50%
50%
50%
50%
33%
50%

50%
50%
50%
50%
50%
50%

49%
40%
50%
49%
N/A
20%
50%
51%
49%

R&A 14/2/01 5:24 pm Page 85

Notice of Annual General Meeting

Notice is hereby given that the Fourteenth Annual General Meeting of the Company will be held at the National Physical Laboratory,
Teddington, Middlesex, TW11 0LW on 29 March 2001 at 10.00am for the purpose of considering the following resolutions:

To be passed as Ordinary Resolutions

1. To receive and adopt the Annual Review and Accounts and reports of the Directors and Auditors of the Company for the year

ended 31 December 2000.

2. To declare a final dividend of 1.13p per share for the year ended 31 December 2000.

3. To re-elect Kevin Beeston as an Executive Director. (Note 3)

4. To elect Ralph Hodge as a Non-executive Director. (Note 4)

5. To elect Betsy Bernard as a Non-executive Director. (Note 4)

6. To re-appoint Deloitte & Touche as the Company’s auditors and to authorise the Directors to fix the auditors’ remuneration.

(Note 5)

7. To authorise the Directors to allot relevant securities up to a maximum nominal amount of £2,599,614 in accordance with
Article 6 of the Company’s Articles of Association. All previous authorities under s80 of the Companies Act 1985 shall be
revoked. This authority shall expire on the fifth anniversary of the passing of this resolution. (Note 6)

To be passed as Special Resolutions

8. To authorise the Directors to allot equity securities for cash in accordance with Article 7 of the Company’s Articles of Association.
For the purpose of paragraph (b) of that Article, the nominal amount to which this power is limited is £393,881. This authority
shall expire on the fifth anniversary of the passing of this resolution. (Note 7)

9. To authorise the Directors to make market purchases (within the meaning of s163 of the Companies Act 1985) of the Company’s
Ordinary Shares in accordance with Article 11 of the Company’s Articles of Association on such terms and in such manner as
the Directors may from time to time determine, provided that:

a) The maximum number of Ordinary Shares that may be purchased under this authority is 39,388,096;

b) The minimum price which may be paid for an Ordinary Share purchased under this authority is 2p;

c) The maximum price which may be paid for an Ordinary Share purchased under this authority is an amount equal to 5%

above the average of the middle market prices shown in the quotations for Ordinary Shares in the London Stock Exchange
Daily Official List for the five business days immediately proceeding the day on which the Ordinary Share is purchased;

d) This authority will expire at the conclusion of the Company’s next Annual General Meeting or, if earlier, 15 months after the

passing of this Resolution; and

e) A contract, or contracts, to purchase Ordinary Shares entered into by the Company before the expiry of this authority can

be executed, wholly or partly, by the Company after the expiry of this authority. (Note 8)

By order of the Board:

Julia Cavanagh
Secretary

Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT

20 February 2001

R&A 14/2/01 5:24 pm Page 86

Notes to the Notice of Annual General Meeting

1. If your name appears on the Register of Shareholders on 29 March 2001, you will be entitled to attend and vote at the

Fourteenth Annual General Meeting of the Company. If you wish to appoint someone else to attend and vote on your behalf,
you may do so by completing the proxy form and returning it to our Registrars by 10.00am on 27 March 2001. If you change
your mind about your proxy, you may still attend and vote at the meeting. The proxy does not need to be a shareholder
in the Company.

Please bring some form of identification with you to the Annual General Meeting, in case we need to verify that your name
appears on our register of shareholders or proxies.

2. The Register of Directors’ Interests, as well as Directors’ Service Contracts, will be available for inspection during normal

business hours at the Registered Office, Dolphin House, Windmill Road, Sunbury-on-Thames, Middlesex TW16 7HT from
10:00 am on 20 February 2001 to 9:00 am on 29 March 2001. If you wish to view these documents please telephone the
Company Secretarial Department on +44 (0)1932 755900.

The same documents will also be available for inspection for a period of 15 minutes before the commencement and after the
conclusion of the Annual General Meeting on 29 March 2001.

3. Kevin Beeston retires by rotation and submits himself for re-election in accordance with the Company’s Articles of Association.

4. Ralph Hodge and Betsy Bernard retire following their appointment since the last Annual General Meeting and submit

themselves for election in accordance with the Company’s Articles of Association.

5. This appointment will be effective from the conclusion of this Annual General Meeting and remain in effect until the

conclusion of the next Annual General Meeting.

6. This authority is in respect of 33% of the issued share capital of the Company on 9 February 2001 (the latest practical date
before printing this report), and is in accordance with the recommendations of the Association of British Insurers (“ABI”).
It is the Directors’ intention to seek renewal of this authority annually. The Directors have no present intention of exercising
this authority other than to allot shares or grant options pursuant to the Company’s share schemes.

7. This authority is in respect of 5% of the issued share capital of the Company on 9 February 2001 (the latest practical date

before printing this report), and is in accordance with the recommendations of the ABI. It is the Directors’ intention to seek
renewal of this authority annually. The Directors have no present intention of exercising this authority other than to allot
shares or grant options pursuant to the Company’s share schemes.

8. This authority is in respect of 10% of the issued share capital of the Company on 9 February 2001 (the latest practical date

before printing this report), and the power given by this resolution will only be exercised if the Directors are satisfied that any
purchase will increase the Earnings per Share of the Ordinary Share Capital in issue after the purchase and accordingly, that
the purchase is in the interests of shareholders.

R&A 14/2/01 5:25 pm Page 87

calendar of events

29 March

6 April

August

October

Annual
General
Meeting

Proposed
payment of
final
dividend

Announcement
of interim
results

Proposed
payment of
interim
dividend

Artwork and Production: Serco Media and Design

Design: Pocknell Studio Photography: Colin Turner and Neal Wilson Print: CTD

R&A 14/2/01 5:25 pm Page 88

Serco Group plc
Dolphin House
Windmill Road
Sunbury-on-Thames
Middlesex
TW16 7HT
United Kingdom

T: +44 (0)1932 755900
F: +44 (0)1932 755854

A company registered in England and

Wales No. 2048608

www.serco.com

Serco Group Pty Limited
Level 10
90 Arthur Street
North Sydney
NSW 2060
Australia

T: +61 (0)2 9964 9733
F: +61 (0)2 9964 9924

Serco Group, Inc.
20 E Clementon Road
Suite 102 South
Gibbsboro
New Jersey 08026
United States

T: +1 856 346 8800
F: +1 856 346 8463