Serco Group
Annual Report 2012

Bringing service to life

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Annual report and accounts 2012

 
 
 
 
 
 
 
Contents

Section 1 | Overview
01  |  Who we are
02  |  Serco in brief
03  |  Our business
10  |  How we performed – 2012 highlights

Section 2 | Our business
12  |  Our business model
13  |  A values-led business
14  |  Our strategy
16  |  Key performance indicators (KPIs)

Section 3 | Our performance
18  |  Chairman’s Statement
20  |  Chief Executive’s Statement
26  |  Our strategy in action
40  |  Operating Review and growth opportunities
58  |  Finance Review
66  |  Corporate responsibility
78  |  Principal risks and uncertainties

Section 4 | Governance
85  |  Corporate Governance Report
92  |  Directors’ Report
95  |  Directors’ Responsibilities
96  |  Directors’ profiles
98  |  Remuneration Report

Section 5 | Financial statements
115   |   Independent Auditor’s Report
116   |   Consolidated Income Statement
116   |    Consolidated Statement of Comprehensive Income
117   |    Consolidated Statement of Changes in Equity
118   |   Consolidated Balance Sheet
119   |   Consolidated Cash Flow Statement
120   |    Notes to the Consolidated Financial Statements
177   |   Independent Auditor’s Report – Parent Company
178   |   Company Balance Sheet
179   |    Notes to the Company Financial Statements
185   |   Supplementary information
186   |   Directors, Secretary and Advisors
187   |   Shareholder information
189   |   Financial calendar

Our strategy in action can be found on:

p28-29

Transforming  
the back office  
for the Ministry  
of Defence

p38

Protecting the  
eyesight of 
vulnerable  
people

p32-33

Transporting  
the public to  
the London  
Olympics

p36-37

Improving lifeline  
ferry services  
in Scotland

Look for page references or flags for additional 
content throughout the text to help with cross 
referencing. Links are illustrated with the  
following markers:

Cross reference to a page  
with more information

Further information available online

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Section 1 | Overview

Who we are

Serco makes a difference to the lives of millions of people around 
the world.

Our customers are national and local governments and leading 
companies. We have more than 50 years’ experience of helping  
them to achieve their goals.

By focusing on the needs of the people they serve, we enable our 
customers to deliver better outcomes. Our frontline delivery involves 
us in vital areas of public life, including providing safe transport,  
finding sustainable jobs for the long-term unemployed, helping  
patients recover more quickly, improving the local environment, 
rehabilitating offenders, protecting borders and supporting  
the armed forces.

We also manage crucial business processes for both public and private 
sector organisations. This frees them to focus on their core operations, 
while delivering tangible benefits to their customers – from faster 
mortgage approvals to better online shopping.

The long-term drivers of our markets include public service reform, 
developing economies’ investment in services and infrastructure, and 
our customers’ need to deliver the best end-user experience. They want 
a partner who gives them confidence through consistent delivery, who 
can anticipate and adapt to change, and who can understand what they 
want to achieve across their organisation. They value our fresh thinking 
and the collaborative and imaginative way we work. We also look for 
opportunities to leverage our scale to our customers’ advantage.

Serco is a values-led company and our culture and ethos are at  
the heart of everything we do. We give our people responsibility,  
so they can put their ideas into practice and make a real difference.  
Our approach has made us one of the world’s leading service 
companies and our vision is to be the world’s greatest.

Our service ethos means that our customers come back to us  
again and again. These long-term relationships help us to meet  
their changing needs and to do what we do best…

...bringing service to life

Serco Group plc | Annual report and accounts 2012 | 01

  
 
 
 
Section 1 | Overview

Serco in brief

What we offer
Serco improves the quality, reliability and efficiency of services that matter 
to millions of people around the world, by managing people, processes, 
technology and assets. We help our customers focus their precious 
resources on what they do best, confident that they can rely on us to 
do what we do best in the moments that matter.

For the public sector, we deliver essential frontline services to defence, 
transport, justice and health customers in national, state and local 
governments. For the private sector, we handle customer contact and 
business activities for financial, retail, travel and telecoms companies.

Our vision and strategy
Our vision is to be the world’s greatest service company. This is 
a company that:

●● customers see as a hallmark of quality, so they want to be associated 

with us, tell others about us, and talk proudly about what we do for them

●● attracts the best talent in the world, where people can be challenged, 
rewarded and achieve their full potential, in a great culture that is 
respected by our peers

●● communities welcome as a partner, because they know that we care 
and can use our talents and reach to solve the toughest problems  
they face, and

●● investors see as a great share to own, because they trust us to  
deliver growth, excellent earnings visibility and stable cash flows.

Our strategy for achieving this vision has three elements:

1. Building a balanced portfolio: we aim to have a contract portfolio 
that is strong and diverse, and that is appropriately balanced between 
public and private sector customers, frontline and middle/back office 
business process outsourcing (BPO), and developed and developing 
economies. This allows us to select the most attractive growth 
opportunities, including making acquisitions that support our organic 
growth. We also actively manage our portfolio, to ensure it continues  
to fit our strategy and has appropriate levels of performance and returns.

2. Driving improved service and margin: as Serco grows, we will 
increasingly have opportunities to transfer our capabilities around the 
world, so that more of our capabilities are available to more of our 
customers and best practice is fully shared. With this increasing  
scale comes the chance to drive economies, in particular through 
the efficiency of shared services and common processes.

3. Enhancing our people and enabling strategies: our people 
strategy is designed to ensure we have the right people, in the right place, 
at the right time. We also look to have the right systems to support our 
business, and to actively manage our brand and reputation. 

Corporate responsibility (CR) is a fundamental part of the way we work, 
influencing everything from the markets we choose to the way we manage 
and develop our people.

For more on our strategy, see pages 14 to 15. More on our approach 
to CR, including our people strategy and performance, can be found 
on pages 66 to 77

Our track record of success
Serco has a long track record of success. This flows directly from 
delivering the best possible service for our customers, which is 
recognised by others in the many awards we win for service excellence. 
Since we listed in 1988, we have consistently grown our revenue and 
broadened our portfolio, positioning us in faster growth and more 
profitable markets, while limiting the impact, if any, of our markets  
become challenging. At the same time, we have continually looked  
to enhance our efficiency and to invest for the future.

For more on our recent performance, see the Operating Review  
on pages 40 to 57 and the Finance Review on pages 58 to 65

The future
Customers around the world are looking for efficient, high quality  
and innovative service provision, from frontline delivery to back office 
efficiency. This creates opportunities for Serco in new and existing 
markets. Our prospects are supported by the high revenue visibility 
provided by our order book, our pipeline of opportunities and the  
growth potential we see across our markets.

For more on our markets and opportunities, see the Operating 
Review on pages 40 to 57

Docklands Light Railway, London, UK
Docklands Light Railway, London, UK

Transperth passenger information and support 
services, Perth, Australia

NorthLink Ferries, Scotland

02 | Serco Group plc | Annual report and accounts 2012

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Our business

The following pages describe our operations around the world. 
In January 2012, we announced a new divisional structure, which 
created our Global Services division and amalgamated our UK 
and European operations into a single division. More information 
on the reorganisation can be found on pages 23 and 24.

Revenue by division 2012 – ongoing activities

Revenue by division 2011 – ongoing activities

● UK & Europe
● Americas
● AMEAA
● Global Services

● UK & Europe
● Americas
● AMEAA
● Global Services

Revenue by geography 2012 – ongoing activities

Revenue by geography 2011 – ongoing activities

● United Kingdom
● United States
● Other countries 

● United Kingdom
● United States
● Other countries 

For more on the services provided by each of our divisions  
is included in the Operating Review, which begins on page 40

Serco Group plc | Annual report and accounts 2012 | 03

55%15%19%11%56%18%26%51%18%16%15%56%14%30%  
 
 
 
Section 1 | Overview

UK & Europe

2012 revenue – ongoing activities

£2,494m
+2%
2011: £2,434m

Home Affairs
Serco is a leading custodial accommodation provider, operating five adult prisons in England 
and Scotland. These include HMP & YOI Doncaster, which is piloting Payment by Results, 
a key component of the Government’s strategy to reduce re-offending, and HMP Thameside, 
one of the world’s most technologically advanced prisons. We also run a young offender 
institution and a secure training centre. 

We provide prisoner escort and custody services, and electronically monitor defendants  
and offenders subject to home curfew. In partnership with the London Probation Trust,  
we deliver Community Payback, which requires offenders to do unpaid work for the 
community. On behalf of the Home Office we run two immigration removal centres and 
provide technology services for border control and security. We also provide accommodation 
and transport services for asylum applicants in the North West of England, Scotland and 
Northern Ireland.

UK & Europe provides frontline 
services in Home Affairs,  
Health, Transport & Local  
Direct Services, and Defence 
and Science.

For more information on our UK & 
Europe division, see pages 40 to 45

On the Work Programme, Serco and its partners are placing thousands of jobseekers into 
sustainable employment. A Serco-led consortium operates the National Citizen Service, 
enabling 16 and 17-year-olds to develop skills through projects that contribute to society.

Health
Serco delivers GP out-of-hours services in Cornwall, and provides a comprehensive range  
of clinical services at Braintree Community Hospital and in the community in Suffolk.  
We are one of the UK’s leading suppliers of occupational health services and the largest 
independent provider of custodial health services. We are also a major supplier of support 
services to a number of UK hospitals. Our GSTS Pathology joint venture is the UK’s leading 
independent pathology services provider.

Transport & Local Direct Services
We are a key provider of transport services in the UK. With our partner Abellio, we operate 
both Northern Rail, the UK’s largest train franchise, and Merseyrail, the UK’s most punctual 
train operator. In London, we run the Docklands Light Railway, the Barclays Cycle Hire 
scheme and traffic management operations, supporting growth in regular journeys as well 
as major events such as the London Marathon, the Diamond Jubilee and the 2012 Olympic 
Games. We also provide lifeline freight and passenger ferry services to the Northern Isles 
in Scotland.

Serco provides environmental services and manages leisure facilities for local councils, 
community leisure trusts and universities across Britain. Our environmental services include 
refuse collection, recycling, street cleansing and grounds maintenance. Our leisure business 
provides a comprehensive range of health, leisure, fitness, well-being and community 
focused services.

Defence & Science
Serco provides training, engineering and operational support to the Royal Air Force,  
the Army Air Corps and the Royal Navy’s Fleet Air Arm. We also support the Royal Navy’s 
three main UK bases and operate and maintain strategic assets such as secure satellite 
communications, the Defence Academy of the United Kingdom, the Emergency Planning 
College and the UK’s ballistic missile early warning system. 

We provide systems engineering, safety assurance and risk management services,  
and support the essential research carried out at the Defence Science and Technology 
Laboratory (Dstl). Our joint venture with Lockheed Martin and Jacobs Engineering  
manages the Atomic Weapons Establishment, which provides the warheads for the  
UK’s nuclear deterrent.

04 | Serco Group plc | Annual report and accounts 2012

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Serco Group plc | Annual report and accounts 2012 | 05

  
 
 
 
Section 1 | Overview

Americas

2012 revenue

£753m
-13%
2011: £868m

We have a 16-year track record as the largest Network and Information Technology (IT) 
design, engineering and installation contractor and one of the largest systems engineering 
and technical assistance contractors for the US Air Force Space Command, supporting a  
wide range of military satellite systems, missile defence systems, command and control 
systems, and mission essential networks and IT systems worldwide. We install and test 
communications and data networking systems for shore, ship and submarine installations  
for the US Navy and provide logistics support for the Navy’s anti-submarine and undersea 
warfare capabilities. Through advanced economic cost analysis, we are helping the Navy to 
reduce procurement costs. We assist a major intelligence agency to acquire next generation 
IT systems. We are managing base closures for US forces in Afghanistan and upgrading 
communications systems for the Mine Resistant Ambush Protected vehicles, which protect 
soldiers from improvised explosive devices. We designed and installed nuclear materials 
detection systems at over 70 locations in 18 countries as part of the United States’ “second 
line of defence”.

Our Americas business provides 
professional, technology and 
management services focused 
primarily on the US Federal 
Government, including every 
branch of the military, key  
civilian agencies and the 
intelligence community.

Serco has helped more than two million Veterans to start or advance their civilian careers 
through career counselling, employment workshops and job fairs. We provided personnel 
and family support services to over two million military personnel and their families, and 
designed the software and operate the systems, data centres and call centres used by  
over four million federal employees to manage their retirement savings plans. 

In 2012, Serco processed 32 million visa transactions for the Department of State and 
managed more than eight million application case files for the Department of Homeland 
Security. We have helped speed the review of patent applications by automating the 
pre-classification of nearly two million US patents over the past six years.

For more information on our Americas 
division, see pages 46 to 49

Serco manages air traffic control services at 64 towers across the US, ensuring the safe 
transport of nearly nine million commercial aircraft passengers a year, and in 2012 received 
an award for reducing aircraft delays by 98%. In Canada, we provide driver examination  
services at approximately 100 locations across Ontario, and deliver facilities management 
services at the Canadian Armed Forces Base in Goose Bay.

06 | Serco Group plc | Annual report and accounts 2012

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AMEAA

2012 revenue

£883m
+31%
2011: £672m

AMEAA consists of Australasia,  
the Middle East, Asia and Africa, 
where we provide services 
including transport, justice, 
immigration, health, defence  
and other direct services such  
as facilities management.

In Australia, Serco is an intelligent integrator of people, processes, equipment and 
technology for the Australian Defence Force. We recently strengthened our offering by 
acquiring the remaining 50% of DMS Maritime, one of the largest marine services providers 
in Australia. Our work in justice and corrections, focused on reducing reoffending, has been 
recognised by numerous industry and government awards. In health, we draw on Serco’s 
global and regional expertise in providing quality clinical and non-clinical services. We are 
responsible for integrating facilities management and support services for Western Australia’s 
flagship Fiona Stanley Hospital, which will open in 2014. We work with the Australian 
Department of Immigration and Citizenship to run its national network of immigration centres 
and have helped to transform its services. In transport, we offer every facet, from operating 
customer services and processing information to developing and maintaining infrastructure. 
Serco also owns Great Southern Rail, which operates Australia’s iconic trains, the Indian 
Pacific and the Ghan.

In New Zealand, we manage Mt Eden Corrections Facility, which is currently the country’s 
only privately operated prison, and are part of the consortium chosen to build and operate 
a new prison at Wiri, South Auckland, under a public-private partnership.

In Hong Kong, we are a market leader in managing, operating and maintaining road  
tunnels and related tollways infrastructure. The Hong Kong Institute of Facility Management 
gave us an award for excellence for our operation of EcoPark, Hong Kong’s first recycling 
industrial park.

The Middle East is home to some of Serco’s longest standing aviation contracts. We are  
also the region’s largest international player in surface transport. Most notably, we operate 
the Dubai Metro, the world’s longest and most-advanced driverless light rail system.  
Our technology business serves the telecommunications, marine and biomedical sectors, 
and we provide integrated facilities management to the education and commercial sectors. 

For more information on our AMEAA 
division see pages 50 to 53

In India, Serco has signed its first frontline service contract to operate and maintain the  
new Bus Rapid Transit System, in the city of Indore in the state of Madhya Pradesh.

Serco Group plc | Annual report and accounts 2012 | 07

  
 
 
 
Section 1 | Overview

Serco Global  
Services

2012 revenue – ongoing activities

£702m
+41%
2011: £497m

Serco Global Services brings together 
our customer contact, middle and  
back office skills, allowing us to provide 
broad end-to-end business process 
outsourcing (BPO) services to public 
and private sector customers. We are 
among the world’s leading global BPO 
businesses, and the combination of our 
BPO expertise and frontline services 
sets us apart from other providers.

08 | Serco Group plc | Annual report and accounts 2012

Serco Global Services operates in more than 100 locations across 13 countries, and 
employs 60,000 people. We conduct more than 90 million multi-channel interactions  
in 20 languages around the globe every year, as well as 600 million calls and 60 million 
back office transactions. Our widespread presence allows our customers to choose  
the onshore, nearshore or offshore delivery location that best matches their skill and 
cost requirements. 

We offer three lines of service – BPO, consulting and technology services. Our specialist 
teams address customers’ needs across functions including HR, finance and accounting, 
procurement, customer services and consulting. We provide advisory, design and 
delivery expertise in the areas of operations strategy, transformation, programme delivery, 
outsourcing, people performance and selection, change management and research. 
We are also experts in handling large workforce transfers and managing confidential data. 

Our solutions are industry-specific, for customers in Banking & Financial Services, 
Insurance, Retail, Travel, Telecoms, Utilities, Healthcare and the public sector. We build 
customised solutions assisted by industry experts, whether our customer is a bank 
looking to improve the quality of its mortgage portfolio, a city council with a need to 
transform its local services or an airline wanting to reduce its costs.

For more information on our Global 
Services division, see pages 54 to 57

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Serco Group plc | Annual report and accounts 2012 | 09

  
 
 
 
Section 1 | Overview

How we performed – 2012 highlights

Well placed for future growth following excellent achievements in 2012.

Record level of contract wins and excellent 
operational performance
●● £5.8bn of awards (2011: £5.1bn); increase in order book to £19.1bn 

Strategic position further improved through ongoing 
proactive portfolio management
●● Additional capabilities and market access from infill acquisitions such 

(2011: £17.9bn)

as Vertex and DMS Maritime

●● High revenue visibility (92% for 2013, 79% for 2014 and 70% for 2015)

●● Exits from non-core operations reflect our ongoing focus on strategic fit, 

●● Excellent service delivery across existing operations and major new 

contracts progressing well

●● Leading BPO position after full integration of operations and successful 

launch of Global Services division

performance and returns

Strong financial result for the year
●● Total revenue growth of 5.7% to £4.9bn; growth of 6.2% at 

constant currency

Extensive pipeline demonstrates attractive 
growth opportunities
●● Estimated £31bn pipeline reflects growing demand for efficient, 

●● Organic growth of 3.3%, with excellent performances in AMEAA 

high quality and innovative services

(up 22%) and Global Services (up 12%)

●● Adjusted operating profit growth of 9.9% at constant currency; margin 

exciting new opportunities in AMEAA

increase from 6.2% to 6.4%

●● Positive developments opening up more frontline services markets; 

●● Good longer term opportunities in Americas, beyond the current tough 

●● Adjusted earnings per share growth of 7.5% to 42.55p; growth of 8.7% 

US federal contracting environment

at constant currency

●● Excellent growth prospects in the global BPO market with both private 

●● Group free cash flow of £181.2m, with an exceptionally strong 

and public sector customers

conversion rate of profits in the second half

●● Proposed 2012 total dividend of 10.10p, up 20%; increase reflects new 
policy to accelerate dividend growth on the path to a higher payout ratio

Greater exposure to international growth markets 
and sectors
●● Growth prospects further underpinned by entry into new countries, 

services and private sector industries

Confident of further growth and continued resilience 
of the Group
●● Strength of portfolio provides resilience and enhances growth potential
●● Group well positioned following excellent strategic and organisational 

progress in 2012

●● For 2013, expect a modest improvement in organic growth and 

operating margin to be broadly maintained

●● 31% total revenue growth in AMEAA increases region’s exposure 

●● Beyond 2013, planning for continued delivery of strong 

to 18% of the Group’s portfolio

financial performance

●● 40% total revenue growth in our global Business Process Outsourcing 

●● Confidence in outlook and strength of financial position underpin  

(BPO) business increases non-frontline services to 15% of the 
Group’s portfolio

plans for higher dividend payout ratio

●● These achievements, together with a return to organic growth in the UK, 

more than offset US challenges

Notes:

Ongoing activities excludes the financial results of subsidiaries and operations disposed of during the year, being nuclear consulting services, defence-related German operations, education software 
and UK data hosting operations.

Adjusted operating profit is before amortisation of intangibles arising on acquisitions, acquisition-related costs and exceptional items (being profits or losses on disposals of subsidiaries and 
operations, and the one-off payment to establish the charitable foundation), as shown on the face of the Group’s consolidated income statement and the accompanying notes. Adjusted profit  
before tax is also before the exceptional gain arising from the step acquisition accounting for the DMS joint venture in Australia.

Adjusted earnings per share is calculated on the basis of earnings before amortisation of intangibles arising on acquisitions, acquisition-related costs and exceptional items as noted above,  
together with the tax effect of these adjusting items.

Group free cash flow is free cash flow from subsidiaries and dividends received from joint ventures, and is reconciled to movements in cash and cash equivalents in Section 3 of the Finance Review.

Performance at constant currency has been calculated by translating non-Sterling revenue and earnings for the year to 31 December 2012 into Sterling at the average exchange rates for 2011.

The order book reflects the value of future revenues based on all existing signed contracts. It excludes contracts at the preferred bidder stage and excludes the award of new Indefinite Delivery, 
Indefinite Quantity (IDIQ) contract vehicles and Multiple Award Contracts (MACs) where Serco is one of a number of companies able to bid for specific task orders issued under the IDIQ or MAC. 
The value of any task order is recognised within the order book when subsequently won.

The pipeline is the estimated value of all future potential opportunities that are clearly defined and identifiable.

10 | Serco Group plc | Annual report and accounts 2012

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Revenue

Adjusted operating profit

Operating profit

£4,913.0m
+5.7%
2011: £4,646.4m

£314.8m
+8.5%
2011: £290.1m

£287.6m
+8.0%
2011: £266.2m

Adjusted profit before tax

Profit before tax

Adjusted earnings per share

£278.1m
+6.1%

2011: £262.2m

£302.0m*
+26.7%

2011: £238.3m

*  Includes the impact of exceptional items, 

principally the £51.1m non-cash gain arising  
from the step acquisition accounting for the  
DMS joint venture in Australia.

42.55p
+7.5%

2011: 39.59p

Earnings per share

Dividend per share

Group free cash flow

49.94p
+39.9%
2011: 35.70p

10.10p
+20%
2011: 8.40p

£181.2m
+£12.9m
2011: £168.3m

“Serco improves the quality and efficiency of services that matter to 
millions of people around the world, helping our customers to focus their 
precious resources on what they do best. To continue developing our 
business we are providing more support to our existing customers, 
offering more to emerging markets and improving our ability to provide 
more complex services. This has resulted in a strong year for us in 2012 
despite some very real challenges; we won more work than ever, we 
entered new markets, we built more capabilities and we established a 
global BPO business. Our unique breadth and depth leaves us strongly 
positioned to meet the growing demand from around the world for our 
skills and services. This confidence in our business prospects underpins 
our new dividend policy and commitment to a higher payout ratio over 
the coming years.

I am also enormously proud of the achievements of our 120,000 people 
around the world and with their support, in celebration of our 25th 
anniversary, we have launched the Serco Foundation to help charities 
and other organisations make an even bigger impact on some of the 
world’s most critical issues.”

Christopher Hyman, Chief Executive

Serco Group plc | Annual report and accounts 2012 | 11

  
 
 
 
Section 2 | Our business

Our business model

At the heart of our business model is a set of key strengths, which enable us to compete effectively and 
create value for our shareholders and other stakeholders. These competitive advantages derive from our 
broad contract portfolio, our devolved structure and robust management system, our people and values, 
and our focus on delivering the best for our customers.

Our strategy (see page 14) builds on and reinforces these strengths, enabling us to deliver growth and 
value creation into the future.

Customer focus
Delivering excellent service for 
our customers and the public  
is at the heart of our approach. 
It enables us to build long-term 
relationships, which help us to 
grow our contracts and retain 
them at rebid. It also contributes 
to our reputation, helping us to 
win new work and enter new 
markets. We use our 50 years’ 
experience to bring fresh 
perspectives to customers’ 
problems, for example by 
creating new contracting 
or partnership models.

Broad portfolio
Our uniquely broad portfolio is diversified by market and geography. 
This allows us to pick the best opportunities, in whichever market  
or country they occur.

Our breadth also allows us to transfer skills honed in one market  
to other markets around the world, opening up new opportunities.  
And we can bring together unique combinations of skills from across 
the Group, for example by joining our frontline services with our 
BPO capabilities.

Broad 
portfolio

Customer 
focus

Value 
creation

Devolved 
structure

People  
and 
 values

People and values
Serco is a people-based business, so we employ and develop 
excellent people with a strong service ethos. 

We also have a deeply ingrained set of values, which are 
encapsulated in our Governing Principles and our approach to CR. 
Our people embody those values, ensuring they are reflected in  
every decision we take. These values help us to act in the right way,  
so we protect the interests of our stakeholders and Serco.

Devolved structure
By devolving responsibility and 
decision making to the contract 
level, we empower our people 
to deliver excellent service.  
The Serco Management 
System provides a robust 
system of control, to ensure 
these decisions are also in 
Serco’s best interests.

Devolving responsibility also 
makes our business scalable, 
allowing us to successfully 
manage our growing 
contract portfolio.

Our competitive environment
Our business model makes us a strong competitor in our chosen markets.

Competition is necessary for our markets to operate, as it encourages 
customers to put services out to tender, provides a benchmark to ensure 
they are getting best value and drives innovation.

Our business breadth means we have a large number of competitors for 
both public and private sector contracts. These competitors are primarily 
companies but for government contracts they can include public sector 
and voluntary bodies. As we enter new markets, we meet competitors 
who specialise in those areas. While we see effective competitors in  
every market, no organisation competes with us in all of them and only 
a few operate in more than one.

12 | Serco Group plc | Annual report and accounts 2012

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A values-led business

Serco could not succeed without the skill and dedication of our people around the world. They embody 
our culture and our values, which underpin the way we run the Group. Our values, which are encapsulated 
in our Governing Principles, inform every decision we make. They ensure that we deliver the excellent 
service on which our success depends.

The Governing Principles are integral to the Serco Management System (SMS), which is our mandatory 
management framework within which all parts of Serco must operate. Each policy area in the SMS reflects 
one or more of our Governing Principles, which means that working within the SMS ensures we are living 
our values.

Our Governing Principles

1 We foster an entrepreneurial culture
We are passionate about building innovative and 
successful Serco businesses. We succeed by 
encouraging and generating new ideas. We trust our 
people to deliver. We embrace change and, by taking 
measured risks, encourage creative thinking.

2 We enable our people to excel
Our success comes from our commitment and energy  
to go the extra mile. We are responsible to each other 
and can expect support when we need it most. We 
expect our people to achieve more by recognising and 
harnessing the power of individuals. We value people  
for their knowledge, ideas and potential to contribute.

3 We deliver our promises
We do what we say we will do to meet expectations.  
We only promise what we can deliver. If we make 
mistakes we put them right. We are clear about what  
we need to achieve and we expect to make a fair profit.

4 We build trust and respect
We build respect by operating in a safe, socially 
responsible, consistent and honest manner. We never 
compromise on safety and we always operate in an 
ethical and responsible manner. We listen. In doing  
so, we treat others as we would wish to be treated  
ourselves and challenge when we see something  
is wrong. We integrate with our communities.

Serco Group plc | Annual report and accounts 2012 | 13

  
 
 
 
Section 2 | Our business

Our strategy

Setting our strategic direction
We regularly review our strategy to ensure it remains appropriate and 
reflects the opportunities we see ahead of us. This led us to refresh our 
strategy in 2012, resulting in a strategic approach that remains centred 
on organic growth while also emphasising the factors that will support  
that growth – service quality, efficiency, people development and our 
systems and infrastructure.

The starting point for setting our strategy is our corporate plan, which 
defines the Group’s medium-term direction and outlines the opportunities 
and challenges we face in getting there. Our divisions then create 
strategies that enable us to achieve this plan, by taking the actions 
necessary to succeed in their markets. The divisional strategies are  
then aggregated to produce the strategy for the Group as a whole.

Our Group strategy
Serco’s Group strategy has three parts:

Strategy

Building a 
balanced 
portfolio

Driving 
improved 
service 
and margin

Enhancing  
our people  
and enabling  
strategies

14 | Serco Group plc | Annual report and accounts 2012

Description

We aim to have a strong and diverse contract portfolio that is 
appropriately balanced between public and private sector customers, 
frontline and BPO services, and developed and developing economies. 
This reduces our exposure to market fluctuations, enables us to select  
the best opportunities wherever they arise, and allows us to transfer 
expertise from one market to another.

We focus on services and markets where we can develop deep expertise, 
underpinning our growth and allowing us to offer the same services to 
customers around the world. This approach will increasingly enable us  
to apply common processes and drive economies of scale.

To support our organic growth, we make acquisitions that enhance our 
existing business or enable us to enter new markets or geographies.  
Our proactive portfolio management also involves ongoing assessment  
of our contracts for their strategic fit, together with their expected 
performance and returns.

As Serco grows, we look for opportunities to transfer our capabilities 
around the world, so that all of our capabilities are available to all  
of our customers. With this increasing scale comes the chance to  
drive economies, through shared services and common processes.  
We therefore look to share global best practices and maximise the 
efficiency of our operations.

To support our growth, it is essential that we have the right people,  
in the right place, at the right time. Our people strategy aims to develop 
the leadership we will need, to have integrated and engaged people  
who bring service to life, and to make it easier to manage our people  
by continually enhancing our systems and processes.

We also look to have the right information technology to support our 
business, and to actively manage our brand and reputation, which is 
increasingly important as we enter new markets.

 
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A responsible business
Serco is a values-led organisation and corporate responsibility is 
a consistent theme running through our strategy. Acting responsibly 
enables us to be a better, more efficient business and a good corporate 
citizen that benefits society in numerous ways. 

Our approach to responsible business influences everything from the 
markets we choose to the way we manage and develop our people. 
It helps us to deliver excellent service by ensuring we keep our people 
safe and secure, and improves our efficiency by encouraging us to  

reduce our energy and resource use, which at the same time mitigates 
our environmental impact. We also look to engage with our communities, 
which helps our customers achieve their aims and makes us a welcome 
partner in tackling community problems. This directly contributes to our 
ability to win and retain contracts, while striving to contribute positively 
to the communities in which we work. 

For more information on our approach to corporate responsibility  
and our performance, see pages 66 to 77

Key achievements in 2012

Delivered revenue growth of 6%

Nearly half of Group revenue now generated outside the UK and 15% 
from BPO

Continued to win a wide range of contracts in new and existing markets, 
including entering new countries in the Middle East, frontline services 
in India, and new service lines such as community healthcare

Concluded a reorganisation that created our first global business,  
Serco Global Services, and a single UK & Europe division

Acquired Vertex’s UK public sector BPO operations and the outstanding 
50% of DMS Maritime in Australia

Disposed of a number of businesses that were non-core to the Group’s 
development. These were our UK nuclear technical consulting services, 
education software and UK data hosting operations, and the majority  
of our mainly defence-related operations in Germany

Continued to deliver high quality services to customers. Of particular 
note was the performance of our contracts supporting the London 
Olympic Games and major new contracts which started during the year

Achieved an Adjusted operating profit margin of 6.4%, up from 6.2% 
in 2011

Completed a reorganisation which is delivering efficiencies, such as our 
internal shared service centre now operated by Serco Global Services

Evaluated our leaders to ensure the composition of our top 500 leaders 
now properly reflects the international nature of our business

Worked to better understand the link between customer advocacy  
and employee engagement

Undertook our annual global employee survey, giving us important 
insights into how we can improve the working experience at Serco

Completed Serco’s first ever global software implementation, providing 
a range of self-service HR tools for both managers and employees

Serco Group plc | Annual report and accounts 2012 | 15

  
 
 
 
 
 
Section 2 | Our business

Key performance indicators (KPIs)

We use the following KPIs to monitor our performance over time. They are split between financial  
and non-financial measures.

Financial

Revenue (£m)

Adjusted operating profit (£m)

Definition
Revenue represents the amounts due for goods and services we provided 
during the year, and includes our share of revenue from joint ventures,  
net of discounts, VAT and other sales-related taxes.

Definition
Adjusted operating profit is before amortisation of intangibles arising on 
acquisitions, acquisition-related costs and exceptional items (being profits 
or losses on disposals of subsidiaries and operations, and the one-off  
payment to establish the charitable Foundation).

3,970

4,327

4,646

4,913

3,124

290.1

314.8

229.7

258.7

165.2

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Relevance to strategy
Our revenue growth flows directly from successful implementation of all three 
aspects of our strategy – a balanced portfolio of growth opportunities, delivering 
improved service for customers and ensuring we have the right people, systems 
and processes.

Relevance to strategy
Our Adjusted operating profit reflects our ability to win and retain contracts  
with appropriate margins, our success at driving an improved margin through 
efficient operations, and our proactive portfolio management to ensure 
appropriate performance and returns.

Performance
The 5.7% growth in the year represents a good performance against our 
strategic objectives, particularly given the challenging conditions we faced 
in certain markets, most notably the US federal contracting industry.

Performance
The growth of 8.5% represents an increase in margin from 6.2% to 6.4%.

Adjusted earnings per share (EPS) (p)

Group free cash flow (£m)

Definition
Adjusted earnings per share is calculated on the basis of earnings before 
amortisation of intangibles arising on acquisitions, acquisition-related costs 
and exceptional items as noted above, together with the tax effect of these 
adjusting items.

Definition
Group free cash flow is the free cash flow from subsidiaries and dividends 
received from joint ventures.

39.59

42.55

185.8

168.3

181.2

34.69

29.53

22.20

137.3

94.2

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Relevance to strategy
Adjusted EPS reflects our ability to deliver a financial performance that grows 
both our revenue and our Adjusted operating profit margin, together with the 
strength of funding and overall financial position.

Performance
The 7.5% growth demonstrates the delivery of a strong financial result for 2012.

Relevance to strategy
Group free cash flow reflects our ability to drive a financial performance that 
generates the funds to invest in our future growth and strategic development.

Performance
The Group free cash flow for the year represents a continued strong conversion 
of profits into funds to invest in our future.

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Non-financial

Reportable incident rate (per 100,000 employees)

Carbon Emissions Headcount Intensity (tCO2e/1000)

Definition
Reportable incidents include work-related fatalities, major injuries, injuries 
resulting in absences from work of more than three days, work-related diseases 
and near-miss incidents. The rate measures our success in providing a safe 
and secure working environment (excluding joint ventures).

Definition
Serco has started to capture and report environmental data for its global 
operations. As the profile of our business changes, normalising by headcount is a 
more relevant way of setting targets and reporting performance. Moving forward 
we will therefore monitor Carbon Emissions Headcount Intensity (tCO2e/1000).

999

3,489

3,535

3,644

632

665

513

399

2,368

2,028

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Relevance to strategy
Delivering excellent service requires us to operate in the safest way possible. Safety 
also has a direct bearing on the commitment and engagement of our people.

Relevance to strategy
Our carbon dioxide emissions are directly related to our energy use, and hence 
to the efficiency of our operations.

Performance
The 2012 RI rate is a 22% improvement on 2011 at 399, and a 60% improvement 
against 2008. This improvement has been partly driven by the evolving risk 
profile of the Group, with a significant increase in staff numbers in very low  
safety risk environments. The RI rate of our higher risk operations was largely  
flat compared with 2011 at 742, but was below the UK HSE Labour Force  
Survey All Industries benchmark of 750.

Performance
While our overall emissions have increased, the headcount intensity has shown 
an improvement of 14.4%, reflecting business growth and particularly increases 
in staff numbers in office-based environments.

Investment in society (£m)

Each year, we aim to invest 1% of our pre-tax profits into society.  
We do this through cash donations, gifts in kind, employee volunteering and 
management time.

2.53

2.56

2.27

1.77

1.75

2008

2009

2010

2011

2012

Relevance to strategy
Strong community engagement helps us to win and retain contracts, as well 
as directly benefiting the lives of the people we assist.

Performance
We invested £2,560,084 through donations of money, assets and time 
to community projects and charities, representing 1% of our pre-tax profit. 
In addition, to mark Serco’s 25th year as a publicly traded company dedicated 
to service excellence, we have established the Serco Foundation as an 
independent charitable foundation. An exceptional one-off payment of 
£5.0m has been made in the year to establish the charitable foundation. 

Serco Group plc | Annual report and accounts 2012 | 17

  
 
 
 
Section 3 | Our performance

Chairman’s Statement

It was, I suggest, impossible to experience the atmosphere in the Olympic stadium on 11 August 2012, 
up on one’s feet applauding Mo Farah’s amazing 5,000 metre gold medal, and not be proud to be British. 
It was equally impossible not to be proud to be Chairman of Serco given the flawless performance of 
our Docklands Light Railway and Barclays Cycle Hire contracts during the period of the Olympic Games. 
All across the Group – in our Board, executive, management and operations – we felt the weight of the 
responsibility for not only transporting a significant proportion of the spectators to Britain’s most important 
sporting showcase, but for ensuring our other London-based contracts, such as Court Escorting, 
continued to work as expected during this most unusual period. That everything functioned exactly 
as planned is testament to the foresight, capability, commitment and ingenuity of all those involved.

In all parts of Serco, when I visit our contracts I meet people who have 
the same commitment to service, to making a difference through helping 
those with whom they work while at the same time delivering against 
our promises. I have witnessed this ability to reconcile efficiency and 
humanity in such diverse areas as the way our electronic monitoring 
teams deal with new offenders; the way our staff supporting the US 
Veterans Agency interact with returning war-fighters; and the way our 
teams in Australia handle those seeking immigrant entry to the country. 
This ethos is deeply ingrained in Serco and is enshrined in our Governing 
Principles, which set out clearly and succinctly the behaviours by which 
we live.

Our desire to look beyond the confines of the contract and to put 
something back into the communities in which we work, is amply 
evidenced by the amount raised each year by our people for a wide 
variety of charitable causes. In recognition, the Board has decided that 
the most appropriate way to mark Serco’s 25th year as a publicly traded 
company is to establish, with an endowment of £5m, an independent 
charitable foundation with the mission of helping charities be even more 
effective through the application of Serco’s people, skills and capabilities.

business into a shape to be able to better support our customers and 
deliver our strategy over the next five or so years. Serco now has three 
distinct areas of regional focus: UK & Europe; Americas; and AMEAA; 
and one area of sector specialism – our Global Services BPO division. 
This reorganisation equips Serco to increase our exposure to international 
growth markets; builds a significant private, alongside our majority public 
sector customer base; creates an ability to bring together expertise 
across back and middle office, and our historic strength in frontline 
services; and slims us down to a much tighter concentration of functions 
at the centre.

Accompanying this restructuring is the proactive management of our 
portfolio by assessing the strategic fit of particular operations, together 
with their expected future levels of performance and returns. As a 
consequence we disposed of four operations during the year. At the same 
time we took advantage of opportunities to add further scale and depth 
of capability to Global Services through the acquisition of the UK public 
sector BPO operations of Vertex; and strengthened our position as 
a leading defence services provider, as well as increasing our exposure 
to the growing marine services market in Australia, by acquiring the 
remaining 50% of DMS Maritime.

Another of Serco’s four Governing Principles is to foster an entrepreneurial 
culture, in particular, to embrace change and, by taking measured risks, 
encourage fresh thinking. The management team has successfully 
implemented significant change during the past year, restructuring the 

The benefit of this portfolio shift is already starting to evidence itself. 
Over the last two years the proportion of our turnover derived from  
outside the UK has increased to 44%, while the value of our BPO 

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Fiona Stanley Hospital, Perth, Australia

Global Services supporting retail customers, UK

Docklands Light Railway, London, UK

At the forthcoming Annual General Meeting we say goodbye to David 
Richardson. David joined the Board of Serco in June 2003 and has served 
as Chairman of our Audit Committee for the past nine years and as Senior 
Independent Director since 1 January 2011. Turnover in 2003 was £1.6bn, 
compared with £4.9bn in the year just ended, such has been the extent of 
change over the period David has been a Director. I would like to extend 
to him the thanks of the Board for his wise counsel during this journey 
and our best wishes for the future. In David’s place as Audit Chair I am 
delighted to welcome Malcolm Wyman, who joined the Board with effect 
from 1 January 2013. Malcolm has a long and distinguished career having 
retired in 2011 after ten years as Chief Financial Officer of SAB Miller, 
a period of substantial international expansion for the group. He is also 
a non-executive director of Imperial Tobacco and is SID and Audit Chair 
at the Nedbank Group. 

Finally, may I once again thank our shareholders for their continued 
support and for the time they have devoted to maintaining an active 
dialogue with our management and our Board. Given the breadth  
and diversity of our business, we aim to ensure that our shareholders 
understand our objectives and the challenges to their achievement. 
Where relevant, such as on matters relating to remuneration, we seek 
to consult with them at an early stage and take their input into account 
as we develop our thinking. In turn I, and my colleagues on the Board, 
are always available should there be issues they would like to discuss 
in more detail.

Alastair Lyons CBE
Chairman

contracts has risen to 15%. These changes in turn reflect the continued 
excellent revenue growth in AMEAA and the successful launch of Global 
Services, in part offset by the very difficult US environment.

With a large and high growth addressable market, Global Services has 
established itself very strongly with major new wins, for example, in retail 
customer contact, life and pensions transaction processing, and NHS 
shared service centre operations. Through the successful integration 
of related operations over the course of 2012, we have established Serco 
as a leading provider of BPO services, with extensive opportunities in the 
private sector and uniquely positioned to offer integrated services through 
joint bids with our frontline regional divisions.

We see the potential for sustained strong growth in the AMEAA region, 
with real GDP growth alongside a drive by governments to invest in  
social infrastructure, in particular in justice, health and transport. A small 
but significant step was achieved by winning our first frontline services 
contract in India, to operate a dedicated bus corridor in the city of Indore. 
Not only does this provide Serco with a foothold in the rapidly developing 
public transportation sector in India, but it also demonstrates how 
our achievements elsewhere in the world can support our entry into new 
markets. In this case, our management of complex transport systems 
such as the DLR, the Dubai Metro and the Barclays Cycle Hire scheme, 
were particularly relevant. Similarly, earlier in the year Serco was awarded 
the contract to provide and operate the innovative Wiri prison in 
New Zealand, building on our experience in custodial services across 
New Zealand, Australia and the UK.

The UK continues to account for more than half our turnover and, 
whilst we encountered some headwinds in 2012 from contract attrition, 
we continue to view the market outlook as positive. This is supported 
by the underlying economic pressures on government to deliver more 
services for less, and the approach to introducing more competition, 
choice and innovation, as set out in the Public Services White Paper.

The Americas have presented us with the toughest trading conditions, 
with new contract awards being constrained by the inability to agree 
federal government funding. Although this underlying uncertainty remains 
unresolved, the US is still the world’s largest outsourcing and BPO 
market. We are, therefore, confident that having a significant established 
presence will reap dividends for the Group in the future.

Serco Group plc | Annual report and accounts 2012 | 19

  
 
 
Section 3 | Our performance

Chief Executive’s Statement

Overview 
2012 has been a year of significant progress operationally, financially and strategically. With a record level 
of contract wins driving £5.8bn of awards in total, our order book has grown to £19.1bn. Revenue and 
Adjusted operating profit were £4,913m and £314.8m, representing growth at constant currency of 6.2% 
and 9.9% respectively. The breadth of our portfolio has enabled our strength in the AMEAA region and the 
successful launch of our Global Services BPO division to offset challenges in the US federal contracting 
market. We have made further significant strategic progress in positioning our business to deliver strongly 
for the future. The pipeline of identified opportunities has been replenished to stand now at an estimated 
£31bn. We remain, therefore, confident of continued resilience in times of dynamic market conditions 
and of Serco’s overall outlook and attractive future growth prospects.

Record level of contract wins and excellent 
operational performance
In 2012, across our wide portfolio of markets and geographies, we signed 
a record level of contracts valued at £5.6bn and were appointed preferred 
bidder for a further £0.2bn. The total £5.8bn of awards compares with 
£5.1bn in 2011. Our wins included smaller and medium-sized awards 
which are fundamental to our growth, as well as significant rebids, 
extensions, expansions and new contracts. Reflecting the substantial  
level of awards, our order book grew to £19.1bn at 31 December 2012 
(£17.9bn at 31 December 2011).

●● NHS Suffolk community health services (£140m over three years)

●● Next pricing period signed for Atomic Weapons Establishment (AWE) 

management and operation (£1.5bn over five years)

●● Leadership for corporate services (DBS) for the UK Ministry of Defence 

(£36m over four years)

●● US Army base closure support in Afghanistan (US$57m over 

three years)

Notable contract awards, along with approximate total value and contract 
length where appropriate, included:

●● US Navy Automated Digital Network Systems engineering (US$68m 

over five years)

●● Ferry services to the Northern Isles in Scotland (£350m over six years)

●● San Francisco parking services (US$43m over five years)

●● Environmental Services for Wycombe and Chiltern District Councils 

●● US MRAP military vehicle equipment and system upgrades (US$73m 

(£55m over seven years)

over 15 months)

●● UK asylum applicant accommodation and transport services (£175m 

●● Wiri Prison 25-year operating contract in New Zealand (approximately 

over five years)

£15m a year from 2015)

●● Community Payback probation services in London (£38m over 

●● Wandoo Reintegration Facility in Western Australia (A$50m over 

four years)

five years)

●● Delivery of the UK’s National Citizen Service (£70m over two years)

●● Bus operations in city of Indore, India (£13m over six years)

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●● Australian Tax Office contact centre services (£90m over five years)

●● Major BPO contract with leading UK retailer Shop Direct Group  

(£430m over ten years)

●● Contact and support services for AEGON UK (£170m over ten years), 

and

●● Anglia Support Partnership shared services operation for UK health 

sector (£120m over four years).

More details of these and other contract awards can be found in the 
Operating Review, with further information and other smaller and 
medium-sized contract awards during the year described in the contract 
news updates and other announcements available on our website, 
www.serco.com.

Visibility of future earnings remains high due to the signed contracts that 
make up our order book, contracts that we expect to extend and rebid, 
and contracts at the preferred bidder stage which we expect to sign. 
At 31 December 2012, revenue visibility was 92% for 2013, 79% for 2014 
and 70% for 2015.

Across the Group we have maintained excellent service delivery. We were 
particularly proud of our achievements through the 2012 Olympic Games, 
where a number of our contracts were heavily involved. We carried record 
passenger numbers while maintaining exceptional service metrics on 
our transport-related services, most notably the Docklands Light Railway, 
where volumes were substantially ahead of forecasts and there were half 
a million passengers on the busiest day. We have also been delighted 
with service standards through the mobilisation and transition phases for 
major new contracts that commenced across our home affairs, transport, 
health and BPO operations.

Strong financial result for the year
Serco has delivered growth in revenues including further good organic 
growth, increased the operating margin, and maintained a strong cash 
generation profile and financing position. 

Reported Group revenues were £4,913.0m, representing total growth 
of 5.7%. Excluding operations disposed of during the year, revenues 
from ongoing activities were £4,832.2m, with growth at constant currency 
of 8.5%. Within this, organic growth was 3.3% and the contribution from 
acquisitions added 5.2%.

Serco Group plc | Annual report and accounts 2012 | 21

  
 
 
Section 3 | Our performance

Chief Executive’s Statement

Community health services, Suffolk, UK

Defence Business Services, UK

Environmental services, Sandwell, UK

Good organic growth, for the Group as a whole, demonstrated the 
resilience of the portfolio and our successful development in new markets 
and geographies. There was further very strong revenue growth in AMEAA 
– up 22% organically. Global Services, our newly created BPO division, 
saw organic growth of 12%, with underlying growth of over 30% after 
adjusting for the transfer back of the Bradford education contract and 
the government funding cuts to our previous work for the UK Regional 
Development Agencies. Our UK & Europe frontline services division, 
supported by new contract wins, saw a return to organic revenue growth 
of 2%. Growth in these three divisions more than offset the 14% decline 
in organic revenues for the Americas division that resulted from 
the challenging conditions of the US federal outsourcing market. 
Our divisional performance is described fully in the Operating Review.

charitable foundation, is excluded from Adjusted operating profit. There 
was also an exceptional gain of £51.1m arising from the step acquisition 
accounting for the DMS joint venture in Australia. This significantly 
enhances reported profit before tax and earnings per share, but has been 
excluded from our measures of adjusted financial performance in order 
to aid comparability.

Group free cash flow was £181.2m compared with £168.3m in 2011. 
There was an exceptionally strong conversion rate of profits in the second 
half of the year, and dividend distributions from joint ventures were 
£16.3m higher. After the effect of acquisitions and disposals, the payment 
of dividends and other financing movements, total net debt reduced by 
£53m to £581m as at 31 December 2012.

Adjusted operating profit increased 8.5% to £314.8m. Excluding 
operations disposed of during the year, Adjusted operating profit from 
ongoing activities was £309.1m, representing growth at constant currency 
of 13.4% and an increase in the operating margin to 6.4%. Net finance 
costs were £8.8m higher, principally reflecting the incremental cost of 
funding acquisitions. Adjusted profit before tax of £278.1m and Adjusted 
earnings per share of 42.55p grew at constant currency by 7.3% and 
8.7% respectively.

Following successful portfolio management activity, there was a £5.6m 
net exceptional profit on disposals of subsidiaries and operations in the 
year. This, together with the £5.0m one-off payment to establish the 

Our dividend policy in the past has been to increase the total dividend 
each year broadly in line with the increase in underlying earnings. 
Reflecting this, in 2011 we increased the total dividend by 14% to 8.40p, 
which based on 39.59p of Adjusted earnings per share represented 
a payout of 21% and dividend cover of 4.7 times.

The Board is confident in the future growth prospects for the Group  
and of the strong financial position that we have. We therefore intend 
progressively to increase the payout ratio and thereby reduce our 
dividend cover over the next three years. Beyond that point, we anticipate 
a policy of maintaining dividend cover of between 2.5 and 3 times and 
therefore reverting to increasing the total dividend each year broadly 

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in line with the increase in underlying earnings. The Board has proposed 
a final dividend for 2012 of 7.45p per share, bringing the total dividend 
for the year to 10.10p, up 20% compared with the previous year. This 
represents a payout of 24% based on 42.55p of Adjusted earnings per 
share, or dividend cover of 4.2 times. The final dividend will be paid, 
subject to shareholder approval, on 22 May 2013 to shareholders on 
the register on 15 March 2013.

As described in our Operating Review, 2012 has seen greater exposure 
to growth markets following entry into new countries in the Middle East 
as well as new frontline services in India, the provision of new service  
lines such as community healthcare, and breaking into new private sector 
industries such as the UK Life and Pensions segment of the financial 
services market. We also set out for each of our divisions areas of future 
growth opportunity, which we expect to pursue in 2013 and beyond.

Earnings, cash flow, financing and related matters are described fully 
in the Finance Review.

Greater exposure to international growth markets 
and sectors
Governments and companies face an increasing need to improve the 
quality of services to their citizens or customers while contending with 
constrained or reducing budgets. Competition and outsourcing offers 
a solution to this need, where: deep operational expertise can assure 
delivery; a breadth of knowledge and experience can bring fresh thinking; 
and a mixture of front, middle and back office expertise can enable 
transformation. We are already a leading player in our core markets of 
defence, transport, justice and health in the public sectors, and financial 
services, retail, travel and telecoms in the private sector, benefitting from 
the growth in these markets. Our strategy is to widen our exposure to 
emerging markets, where superior growth and margins can be achieved, 
and to deepen our transformational expertise to access larger, more 
complex and higher margin growth opportunities across our core markets.

Our achievements in 2012 supported this strategy, driven in particular by 
excellent performances in our AMEAA and BPO operations. Our AMEAA 
region grew total revenue by 31%, increasing to 18% the region’s share 
of the Group’s portfolio. Meanwhile our Global Services BPO business 
saw 40% total revenue growth, driven by the combination of the 
contribution from acquisitions and a series of very strong contract wins. 
Both the AMEAA region and our BPO operations are expected to account 
for an increasing proportion of the Group’s revenue mix.

The excellent performances in the AMEAA and Global Services divisions, 
together with a return to organic growth in the UK, more than offset 
the performance of our Americas division. This has been impacted 
by extremely tough conditions for the US federal contracting market, 
due to the political challenges of the annual budgeting process and 
reaching agreement on future government funding.

Strategic position further improved through ongoing 
proactive portfolio management
As part of widening our exposure to emerging markets and deepening 
our transformational expertise, the launch of our Global Services division 
in 2012 has been key, adding significant capability in the fast growing, 
higher margin BPO market. The acquisition of Intelenet in 2011 was 
strategically important for Serco’s development, as were other smaller 
infill acquisitions such as The Listening Company in the UK and Excelior 
in Australia. These acquisitions added specific customer contact 
capabilities and geographic reach. During 2012 these have been fully 
integrated with Serco’s own BPO operations, while the acquisition 
of Vertex’s UK public sector BPO operations has provided additional 
expertise and strategic partnerships. The success of bringing together 
our BPO skills and scale in one global division has been reflected in 
contract awards in the year totalling over £1bn and with Serco being 
recognised in independent studies and awards as a new leading force 
in the BPO industry.

Another acquisition in the year was our purchase of the remaining 50% 
stake in DMS Maritime from our joint venture partner. This strengthens 
Serco’s position as a leading defence services provider in Australia and 
in the growing marine services market. While remaining primarily focused 
on organic growth, Serco will continue to look at potential acquisitions 
that similarly bring new skills, capabilities or market access.

Our proactive portfolio management also involves an ongoing 
assessment of our existing operations for strategic fit, together with 
expected future levels of performance and returns. As part of this, 
Serco made four disposals of operations that were non-core to the 
future development of the Group. These were: our Technical Services 
business which provided consulting and project solutions to the UK civil 
and nuclear defence markets; the majority of our mainly defence-related 
operations in Germany; our education software business; and our UK 
data hosting operations. We will continue to serve the energy, defence, 

Serco Group plc | Annual report and accounts 2012 | 23

  
 
 
Section 3 | Our performance

Chief Executive’s Statement

Supporting our BPO customers, Mumbai, India

Parking services, San Francisco, US

Marine Services, Portsmouth, UK

education and IT-enabled BPO markets in other ways, but will focus 
on our long-term contract model to develop the best opportunities  
and a balanced portfolio.

The successful Group reorganisation has also enhanced our strategic 
positioning. Creating the new BPO division as our first global business 
brought together all of Serco’s middle and back office skills and 
capabilities, improving the services we provide to customers and enabling 
better targeting of opportunities around the world in both the private and 
public sectors. The reorganisation has also created a single UK & Europe 
division, supporting better customer relationship management and 
service development, as well as increased internal efficiencies. For 
example, since July 2012, the Global Services division has been operating 
an internal shared service centre for the Group. These organisational 
changes, which led to headcount reductions in management and our  
own back office support functions, have generated in-year savings to 
cover the associated costs.

Extensive pipeline demonstrates attractive 
growth opportunities
A significant number of opportunities were successfully converted to 
contract awards in 2012. Newly identified prospects across our portfolio 
have increased the pipeline value to an estimated £31bn. This increase 
reflects an ongoing demand for efficient, high quality and innovative 
service provision from public and private sector customers around 
the world.

There is a strong pipeline in AMEAA, with many exciting new opportunities 
such as those in the growing health markets in the region and in the 
justice sector. There also remain substantial prospects in: defence 
support, engineering and marine services; transportation markets 
including light rail, road networks and air traffic control; and integrated 
facilities management services to support major infrastructure projects 
in the region.

In the UK, markets continue to show stabilisation and increasing signs 
of improvement. There are further indications of new markets opening up, 
supported by the agenda for public service reform. New opportunities 
include those driven by the growth in commissioning of health services, 
defence organisation strategic partnerships and from competition being 
introduced to numerous areas of the home affairs market such as 
offender rehabilitation.

While the US is expected to remain very challenging in the short term, 
due to government budget and funding issues, we continue to develop 
our business and expect to secure new areas of work in defence 
technology and engineering, logistics and programme support and 
human capital management. Other civilian markets such as transport 
and health will be actively pursued. We therefore see good longer  
term opportunities in the US, as well as strong potential to develop  
our presence in the wider Americas region.

24 | Serco Group plc | Annual report and accounts 2012

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There are strong growth prospects in the global BPO market as well. 
Following significant recent wins in the private sector, further prospects 
are being pursued across a number of vertical markets including life and 
pensions, telecom, retail, travel and utilities. There are also opportunities 
in the UK public sector, including more strategic partnerships with local 
authorities to transform their services, and prospects for future central 
government shared service centres continue to develop.

Serco Foundation established
To mark Serco’s 25th year as a publicly traded company dedicated to 
service excellence, we have established the Serco Foundation as an 
independent charitable foundation with a one-off endowment of £5m. 
The foundation will build partnerships with large charities to make 
donations and also support them in the delivery of their programmes 
through the application of Serco’s people, skills and capabilities.

Confident of further growth and continued resilience
Serco’s portfolio breadth across different markets and economies 
continues to provide resilience while at the same time enhancing our 
growth potential. For example, while conditions remain very difficult and 
uncertain for the US federal outsourcing market, we anticipate further 
improvement in UK markets and strong performances from our AMEAA 
and Global Services BPO operations. The strategic and organisational 
activity in 2012 has also positioned the Group well for future growth.

For 2013, we are forecasting a modest improvement in the rate of  
organic revenue growth. The effect of acquisitions and disposals to date 
is likely to have a broadly neutral impact on total revenue growth. We are 
forecasting our Adjusted operating margin to be broadly maintained at 
the level achieved in 2012.

Net finance costs are anticipated to be approximately £45-50m, including 
the impact from the forthcoming revision to IAS 19. This would represent 
a slight increase on the equivalent 2012 restated net finance cost. 
Reflecting anticipated further incremental working capital investment 
supporting BPO growth, together with lower dividends from joint ventures, 
free cash flow in 2013 may be lower than the level achieved in 2012.

Beyond 2013, we are planning for continued delivery of strong financial 
performance at Serco. Our confidence in continued resilience, the overall 
outlook and future growth prospects for the Group have also been 
reflected in our plans to increase the proportion of our profits paid as 
dividends to our shareholders.

People
We have a clear strategy for managing and developing our people, which 
in turn supports our vision. I am pleased that we made good progress 
against each part of this strategy in 2012. More information on how we 
achieved this can be found on pages 68 and 69.

Serco’s continued growth in 2012 means that we now have more than 
122,000 people delivering services around the world. Our success comes 
from their hard work and commitment to our values. I thank them for their 
contribution to Serco and our customers.

Christopher Hyman CBE
Chief Executive

For more details of these and other contract awards,  
see the Operating Review on pages 40 to 57

For details of some of the many smaller and medium-sized 
contract wins, see our contract news updates at www.serco.com

Serco Group plc | Annual report and accounts 2012 | 25

  
 
 
Section 3 | Our performance

Our strategy in action

We have a clear strategy for achieving our vision. The case studies on the following 
pages show just some of the ways that we put that strategy into action during 2012.

The case studies illustrate a number of the key themes for our business – new markets, new ideas, 
outcomes for citizens and integrating with our communities. Each of these is important for the continued 
development of our business.

Entering new markets helps us to build a balanced portfolio, with our unique breadth and depth positioning 
us to take advantage of attractive growth opportunities. Our customers increasingly want new ideas,  
which are rooted in our world-class expertise and can drive improvements in the quality and efficiency 
of their services. 

Local and national governments face demands from citizens for more and better services within 
constrained budgets, or need to deliver new services to citizens in countries where the size and wealth  
of the population is growing. And the communities around our contracts play a vital role. Our people  
live and work in those communities and we often deliver services directly to local people. Helping our 
communities tackle their pressing issues is therefore part of the way we work. Many of the case studies 
here illustrate more than one of these themes.

 New  
markets 

 New  
ideas 

 Outcomes  
for citizens 

 Integrating  
with our  
communities

More information on our strategy and our achievements  
during the year can be found on pages 14 and 15

26 | Serco Group plc | Annual report and accounts 2012

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Providing high-value 
BPO services to Orbitz

New 
markets 
✔

New 
ideas 

Outcomes 
for citizens 

Integrating with 
our communities 

The acquisition of Intelenet took Serco into new markets around the world. In the US, 
we entered the travel, transportation and hospitality sector for the first time, serving 
major private-sector customers. 

A key example is Orbitz. Orbitz Worldwide is a leading global 
online travel company that uses innovative technology to enable 
leisure and business travellers to research, plan and book a 
broad range of travel products. It has more than eight million 
unique visitors each month and has also become a major player 
in corporate travel.

We provide a range of sophisticated customer service and 
back-office functions, which have helped Orbitz improve 
productivity and sales performance since 2002. Our people  
help Orbitz’s customers to make and manage their bookings.  
We also give consultative support, so they get the best deal on 
their transactions. Back-office work includes ticketing, processing 
exchanges and researching issues for travellers. We also provide 
Orbitz with exclusive support to its corporate travel programme, 
working with Fortune 500 organisations to deliver everything from 
general to executive travel.

Our at-home agent model allows us to recruit anywhere in the US, 
finding people with the specific skills and experience we need. 
The average agent for Orbitz has more than ten years in the 
industry, including former airline and travel agency employees. 
We also provide substantial training, typically running for eight 
weeks or more.

We now have the opportunity to apply these high-value services 
to other customers, within the travel sector and beyond. We do 
this by sharing best practices around our global business, working 
collaboratively to spread our capabilities and make them 
available to all of our customers.

Serco Group plc | Annual report and accounts 2012 | 27

  
 
 
Section 3 | Our performance

Our strategy in action

 Transforming the  
back office for the 
Ministry of Defence

New 
markets 
✔	

New 
ideas 
✔	

Outcomes 
for citizens 

Integrating with 
our communities 

In March 2012, Serco began to operate the Defence Business Services (DBS) contract 
for the UK Ministry of Defence (MoD). DBS plays a vital role in the MoD’s administration, 
including paying the salaries of all of the MoD’s 74,000 civil servants, settling four 
million invoices totalling £26bn each year, and carrying out all the vetting for the MoD 
and its contractors.

DBS is our first pure back-office contract in the UK public sector 
and has some particularly innovative features. In a traditional 
outsourcing arrangement, all the staff and assets transfer to  
us for the life of the contract. At DBS, we provide the leadership 
team while the staff and assets remain with the customer.  
Our team delivers management expertise to DBS through  
the roles of chief executive; chief operating, information and 
people officers; and transformation director.

Since we began to operate the service, DBS has produced 
excellent results. We have met all of the performance measures 
in the contract, while delivering first-year savings of around  
20% to the MoD and coping with a 35% reduction in workforce 
since DBS’s formation. We see significant potential for  
further back-office work in the UK public sector, with DBS 
demonstrating the benefits customers can receive.

This model, known as management insertion, allows for faster 
procurement and gives the customer a broader range of  
options when the initial contract comes to an end. In addition, 
our remuneration is based 100% on the results we achieve –  
a new approach for a UK government contract.

28 | Serco Group plc | Annual report and accounts 2012

 
 
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Serco Group plc | Annual report and accounts 2012 | 29

  
 
 
Section 3 | Our performance

Our strategy in action

A new approach to 
community healthcare

New 
markets 
✔	

New 
ideas 
✔	

Outcomes 
for citizens 
✔	

Integrating with 
our communities 
✔

Serco’s contract with NHS Suffolk is our first to provide community health services. 
It covers community nursing, specialist nursing, community hospitals, speech 
and language therapy, community dentistry, community equipment and specialist 
children’s services.

At the heart of our approach is our unique partnership with 
South Essex Partnership University NHS Foundation Trust, 
which is a leading provider of community and mental health 
services, and Community Dental Services CIC, a staff-owned 
social enterprise. This gives us a powerful combination of 
expertise from the private, public and not-for-profit sectors.

The contract serves over 700,000 Suffolk residents. To ensure 
we took account of their views, we undertook a substantial 
engagement exercise, involving nearly 80 meetings with key 
stakeholders including patients, the public and local doctors. 
Benefits of the service include extending times for routine 
appointments from 8 hours to 12 hours a day, a named care 
lead for each patient, new mobile technology for frontline clinical 
staff and a centralised administration centre – the first of its 

kind in the NHS. The centre, which has just completed a pilot 
phase, is based in Ipswich and employs local people. It gives 
patients, carers and doctors a central point of contact for all 
enquiries, reducing the administrative burden on clinical staff. 

In total, we aim to increase the time clinical staff can spend with 
patients by more than one quarter, giving patients the support 
they need to manage their conditions more effectively and live 
happily and independently in their own homes.

30 | Serco Group plc | Annual report and accounts 2012

 
 
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Serco Group plc | Annual report and accounts 2012 | 31

  
 
 
Section 3 | Our performance

Our strategy in action

Transporting the public 
to the London Olympics

New 
markets 

New 
ideas 
✔	

Outcomes 
for citizens 
✔	

Integrating with 
our communities 

The Docklands Light Railway (DLR) is the UK’s busiest light railway. Serco has  
operated and maintained it since 1997, on behalf of Transport for London (TfL). 

2012 saw the DLR face one of its biggest challenges, as a  
key transport link for the London Olympics – the largest ever 
peacetime event in the UK. We began our preparations in spring 
2011, more than a year before the Games. Our programme plan 
included 11 workstreams with more than 3,500 activities.

We created ten bespoke timetables to run during the Games, 
with three-car trains on all routes. Plans were developed to 
enable 25 stations to be manned around the clock, with staff 
welfare centres strategically located throughout the system. 
New passenger information systems were introduced and a 
24/7 team set up to deal with any operational issues that arose. 

We were at the centre of the Games, servicing the Olympic and 
Paralympic venues at the Olympic Park in Stratford, Greenwich 
Park and the Royal Artillery Barracks in Woolwich, as well as 
being the only direct transport provider to the ExCel Centre 
in Custom House.

In total, our support to the Olympics required temporary staffing 
arrangements consisting of over 900 extra temporary workers. 
Over 45,000 extra staff hours coverage were required through 
Olympic rosters for full time staff. 

The outcome was a great success. The DLR carried 7.2 million 
passengers during the Olympics – more than double the normal 
level – with trains running at an average of 99% for departures 
and reliability. The enhancements we delivered have since 
enabled us to improve our ongoing service to the DLR’s regular 
users, and to sign an extended contract with TfL to operate  
and maintain DLR for another 18 months.

32 | Serco Group plc | Annual report and accounts 2012

	
 
 
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Serco Group plc | Annual report and accounts 2012 | 33

  
 
 
Section 3 | Our performance

Our strategy in action

Building links in a 
remote community

New 
markets 

New 
ideas 

Outcomes 
for citizens 
✔	

Integrating with 
our communities 
✔

Scherger Immigration Detention Centre (SIDC) is in a remote part of Queensland, 
Australia. When the centre opened, local residents were concerned that its employees 
would put pressure on health services and leave less room on flights to the region. 
In addition, negative media coverage of immigration raised fears about SIDC’s clients.

As SIDC’s operator, we recognised the need to build stronger 
community relationships. The centre is based on indigenous 
land and the area has a much higher proportion of indigenous 
people than the national average. Along with the Department 
of Aboriginal & Torres Strait Multicultural Affairs, we therefore 
created an action plan to demonstrate our commitment to 
supporting the needs of Aboriginal people.

Other initiatives included arranging for a team of SIDC’s clients 
to compete in a local cricket tournament. The team was so 
popular that ABC News covered the final match. SIDC clients 
have since helped to renovate the clubhouse and worked 
on other community projects. We also renovated a local park, 

providing somewhere for clients to go during excursions from 
the centre. In addition, we built relationships with Rio Tinto –  
the major local employer – through charity events and 
community projects.

The outcome has been a significant increase in SIDC’s standing 
with local people, helping us to attract new employees and 
improving our ability to care for our clients by opening up local 
amenities to them.

34 | Serco Group plc | Annual report and accounts 2012

	
	
 
 
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Serco Group plc | Annual report and accounts 2012 | 35

  
 
 
Section 3 | Our performance

Our strategy in action

Improving lifeline ferry 
services in Scotland

New 
markets 

New 
ideas 

Outcomes 
for citizens 
✔	

Integrating with 
our communities 
✔

Serco operates NorthLink Ferries on behalf of Transport Scotland, carrying passengers 
and freight between the Shetland and Orkney archipelagos and the Scottish mainland. 
We took over the contract in July 2012 and by the end of the year, the ferries had 
carried over 160,000 passengers and more than 33,000 cars, as well as 130,000 sheep,  
30,000 cattle and 60,000 tonnes of fish food.

The ferries play a vital part in everyday lives, so community 
engagement is key. During the bidding process, we talked 
to local residents and service users to learn what they needed 
and how we might shape an enhanced service. We continue 
to engage, by offering passengers the chance to give feedback 
to customer service teams on board, through Facebook and 
Twitter, and at the ferry terminals. We also attend ZetTrans, 
a forum and alliance of key stakeholders, which looks to ensure 
the transport network is sustainable.

Our engagement has informed the changes we have made. 
These include a £1m shipboard refurbishment programme, 
which increased the number of reclining seats and introduced 
premium services. We have initiated marketing campaigns 
on a new website that offers a wide range of news, timetables, 
special offers and opportunities for interaction and feedback, 

and a visual identity with a local flavour that users can identify 
with. Islanders can also use a resident card to pre-book seats 
at no cost and receive a 20% discount on many onboard 
retail products.

Our approach also supports Transport Scotland’s priorities. 
After a short handover, we moved quickly from transition to 
transformation and delivered refurbishment and restructuring 
seamlessly. We have introduced variable passenger capacity 
and made timetabling and staff rostering more efficient, all while 
achieving savings for our customer. 

36 | Serco Group plc | Annual report and accounts 2012

	
	
 
 
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Serco Group plc | Annual report and accounts 2012 | 37

  
 
 
Section 3 | Our performance

Our strategy in action

 Protecting the eyesight 
of vulnerable people

New 
markets 

New 
ideas 

Outcomes 
for citizens 
✔	

Integrating with 
our communities 
✔

Serco-run Acacia prison in Australia has a restorative justice strategy that enables 
prisoners to give back to society, while learning skills they can use on release.  
The programme has been running for several years and prisoners are now suggesting 
their own projects.

One of these was Clear Vision. With the support of the 
Optometrist Association and Vision West, it allows prisoners 
to refurbish spectacles, which are distributed to underprivileged 
people in Perth and developing countries. This can be life 
changing for the recipients, often helping them to see clearly 
for the first time in years.

Acacia found workshop space for the prisoners to use and the 
first delivery of spectacles to the prison contained 30,000 pairs 
– all of which were saved from landfill. As more prisoners have 
become involved, it has helped them to build confidence and 
boosted their communication and people skills.

Clear Vision now has the chance to make an even greater 
difference. It is collecting and restoring sunglasses, to distribute 
in countries where sun-related eye damage is an immense 
challenge. Large companies have also expressed an interest in 
collecting glasses and Acacia is looking to fund a full workshop. 
The prison has received approximately A$25,000 worth of 
donated ophthalmic equipment for this project, along with the 
services of a professional optometrist to set up the workshop 
and train prisoners to use it.

38 | Serco Group plc | Annual report and accounts 2012

	
	
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Changing lives through 
welfare to work

New 
markets 

New 
ideas 
✔	

Outcomes 
for citizens 
✔

Integrating with 
our communities 

Unemployment can ruin lives but our contracts – under the UK government’s 
Work Programme for long-term unemployed people and Job Deal for ex-offenders – 
help to turn lives around. 

Our model for getting people back into work brings together 
a network of partners to deliver all frontline services, drawing  
on the best national providers from the private, public and 
voluntary sectors, and integrating them with smaller and 
community-based organisations.

In total, we have helped more than 41,000 people into work – 
a rate of over 1,000 each month. Some find employment,  
while others are supported with starting a business.

Anna is just one example. As a single mother, she found  
it hard to balance work and childcare and had been unemployed 
for two years. After she joined the Work Programme, she was 
referred to one of our partners, which provides professional and 
practical business support services to entrepreneurs. 

Anna immediately embraced the opportunity. Her adviser helped 
her with the legalities of self employment and helped her to  
create cash-flow and profit forecasts, based on market research 
data. Anna was able to turn her artistic skills into a business by 
transforming old furniture into attractive one-offs. She now has 
a unit where she sells her work and her adviser provides ongoing 
support, helping Anna with any concerns.

Our contracts deliver successes each day but we are always 
looking for new ideas. For example, we are planning to work  
with the government to apply behavioural science to inform  
the behaviour of long-term unemployed people, to improve  
the number starting and sustaining employment.

Serco Group plc | Annual report and accounts 2012 | 39

  
 
 
	
Section 3 | Our performance

Operating Review and Growth Opportunities

This section is presented according to the four 
divisions, based around our principal markets:

●  UK & Europe
●  Americas
●   AMEAA (Australasia, Middle East,  

Asia and Africa), and

●  Global Services

The section outlines contract awards which are 
significant because of their value or their strategic 
contribution to our business. Further details of 
these, as well as other medium and smaller-sized 
contracts, can be found on our website 
www.serco.com.

UK & Europe

The UK & Europe division includes our frontline services in:  
Home Affairs (encompassing justice-related operations, immigration  
and border security, and welfare); Health; Transport & Local Direct  
Services; and Defence & Science.

Defence Business Services, UK

Environmental services, Sandwell, UK

Prisoner Escort and Custody Services, London, UK

UK & Europe – operating review
Revenue from ongoing activities grew by 2% to £2,494m (2011: £2,434m), 
and represented 51% of Group ongoing revenue (2011: 55%). On an 
organic basis, revenue also grew by 2%. Adjusted operating profit from 
ongoing operations grew by 5% to £172.9m (2011: £165.0m), with the 
margin increasing to 6.9% (2011: 6.8%). Including the impact of disposals, 
reported revenue declined by 1% to £2,561m (2011: £2,595m) and 
Adjusted operating profit was broadly unchanged at £177.8m 
(2011: £177.6m).

The return to organic revenue growth, after a marginal decline in 2011, 
reflected the start of numerous new contracts that also reinforce our  
view of an improving outlook. This more than offset the impact of Serco 
operating fewer contracts in the welfare to work market and ongoing 
government austerity which places pressure on areas of discretionary 
spend with Serco. The margin performance reflected the delivery of 
operational improvements, largely offset by the effect of the start of  
new contracts particularly in the second half of the year. The creation  
of a single UK & Europe division has involved significant organisational 
change during 2012, both to increase our own efficiency and, crucially, 
to support the delivery of better services for our customers. In 2013, there 
will be further activity to drive operational improvements and efficiencies.

Home Affairs
Our operations across the Home Affairs market account for approximately 
20% of UK & Europe revenues.

HMP Thameside, the new prison at Belmarsh West in London, became 
operational in 2012. As one of the most technologically advanced prisons 
in the world, it has, for example, advanced CCTV digital recording and 
monitoring, the latest drug and contraband intervention equipment, 
biometric key vending for staff, and in-cell IT for prisoner education  
and administration. Currently HMP Thameside is a local Category B 
establishment with an operational capacity of 900 convicted and remand 
male prisoners, and the Ministry of Justice has recently announced that  
it will be expanded with the building of a new houseblock.

In the probation services market, which is expected to see substantial 
future development with the introduction of competition to improve 
services and efficiencies, Serco has been awarded the first UK contract. 
In partnership with the London Probation Trust, Serco is operating 
Community Payback, which requires offenders to undertake unpaid work 
for the community. The partnership is providing an integrated service 
to manage the approximate 15,000 offenders who receive non-custodial 
sentences in London every year. The four-year contract is valued in total 
at £38m, with this delivering savings to the taxpayer of over 30%.

40 | Serco Group plc | Annual report and accounts 2012

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Our Payment by Results pilot at HMP & YOI Doncaster is also showing 
that it has real potential to reduce re-offending. Typical of the many 
innovative interventions in place are the Families First Programme,  
which supports prisoners’ relationships with their partners and children, 
and Second Shot Productions, which teaches technical and creative  
skills in filming and graphic design. Both of these programmes won 
prestigious Butler Trust Awards in 2012.

For the UK Border Agency (UKBA), Serco commenced the delivery of the 
COMPASS project, providing accommodation, transport and associated 
services for asylum applicants in the northwest of England and in 
Scotland and Northern Ireland. Full Permit to Operate in both regions 
was awarded at the end of 2012 and Serco is now managing over 6,000 
service users across 2,800 properties.

In the welfare to work market, our Work Programme performance 
continues to rank Serco as one of the leading performers in securing 
successful job outcomes from the referrals made to our services. 
Reflecting our approach and performance in this market, Serco’s 
consortium was awarded a contract to deliver the National Citizen Service 
across six regions in the UK. Expanding our experience of working 
in partnership with the voluntary sector, Serco in association with the 
National Youth Agency, UK Youth, Catch 22 and vInspired, will offer 
16- and 17-year olds from different backgrounds a six-week programme 
to develop life skills through community activities working with charitable 

organisations and business leaders. The estimated combined total value 
of the contracts over the initial two-year period is approximately £70m.

Health
Our operations across Health account for approximately 10% of  
UK & Europe revenues.

A number of significant new health contracts began during 2012. For the 
NHS in Suffolk, Serco commenced operations in October to provide a 
wide range of community health services. These include community 
nursing, specialist nursing, management and operation of community 
hospitals, speech and language therapy, specialist children’s services 
and community equipment services. Serco is working with a range of NHS 
and third sector partners to create a unique model of integrated service 
delivery. The three-year contract has a total value of approximately £140m.

In integrated facilities management (FM) services for the health market, 
Serco began a new contract for the East Kent Hospitals University 
NHS Foundation Trust, delivering services to three acute hospitals, two 
community hospitals and several small clinics in the area. The contract 
has a total value of approximately £140m over a maximum ten-year 
period. For equivalent services at Forth Valley hospital, where Serco has 
implemented a number of innovative technological solutions, we received 
the highest level of recognition in the 2012 Global FM Awards for 
Excellence in Facilities Management.

National Physical Laboratory, London, UK

The Work Programme, Rhyl, UK

Serco Group plc | Annual report and accounts 2012 | 41

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

UK & Europe

GSTS Pathology, London, UK

Northern Rail, UK

Barclays Cycle Hire scheme, London, UK

Elsewhere, we continue to transform the services at Braintree Community 
Hospital, for which Serco became responsible in 2011, and our GSTS 
pathology joint venture is delivering the necessary efficiency 
improvements as it modernises services.

Our other UK rail franchises, Northern Rail and Merseyrail, are also 
supporting growth in passenger numbers and continued strong 
operational metrics. At Northern Rail, our performance has led to  
a further extension of the contract through to 1 April 2014.

Transport & Local Direct Services
Our operations across Transport & Local Direct Services account 
for approximately 40% of UK & Europe revenues.

Our London transport contracts – comprising the Docklands Light  
Railway (DLR), the Barclays Cycle Hire scheme and traffic management 
operations – have all achieved excellent operational performance during 
the year. Serco continues to support growth in regular journeys as well as 
annual events such as the London marathon, and successfully executed 
the significant additional workload involved in the Diamond Jubilee and 
the 2012 Olympic Games. The DLR in particular was a key part of the 
London 2012 Games transport network, with the Stratford International 
Extension, opened last summer, adding four new stations and connecting 
five Games venues. According to Transport for London and the Olympic 
Delivery Authority, during the period of the Olympic Games, the DLR 
carried 7.2 million passengers – up by over 100% on normal levels. 
On the busiest day, the DLR carried a record-breaking 500,000 people. 
Serco was named ‘Light Rail Operator of the Year’ in 2012 and since  
the year-end our DLR contract has been extended to September 2014. 
In July, Barclays Cycle Hire rentals exceeded one million for the first time 
in any month.

In July, Serco began operating a new contract for lifeline freight and 
passenger ferry services to the Northern Isles in Scotland, building on  
our experience of managing and transforming other critical local transport 
services such as Northern Rail and Scatsta Airport on the Shetland 
Islands. Serco also has extensive operations in the international marine 
market, including services for the Royal Navy through which it operates 
more ships under the UK flag than any other company. The new six-year 
contract has a total value of approximately £350m.

In direct services for local authorities, a number of contracts were 
awarded during the year. In April, Serco began providing refuse and 
recycling services for 127,000 households in the London Borough of 
Wandsworth, helping the council to meet Government recycling targets 
and reduce costs such as landfill taxes. The contract is valued at £44m 
over eight years. Serco has been appointed to operate a new joint 
environmental services contract for Wycombe and Chiltern District 
Councils. The integrated services include household waste, recycling 
collections and street cleansing, with the joint contract targeting 
operational efficiencies while increasing recycling rates across both 
districts. The initial seven-year contract is valued at approximately  
£55m. Serco has also successfully rebid its waste and recycling services 

42 | Serco Group plc | Annual report and accounts 2012

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contract and its landscapes and grounds maintenance services contract 
for Canterbury City Council. In our provision of a comprehensive and high 
quality range of health, leisure, fitness, wellbeing and community-focused 
services, Serco secured new contracts with North Down Borough Council, 
Mansfield District Council and Shropshire Council.

Defence & Science
Our operations across Defence & Science account for approximately 
30% of UK & Europe revenues.

In April 2012 Serco began operating a new contract for the MoD to 
provide training and support to the British Army prior to deployment  
on operations overseas. Known as the Contemporary Operating 
Environment Force, and awarded by Army Headquarters, critical 
pre-deployment training includes language, cultural and operational 
environment skills, and the creation of realistic training conditions to 
prepare UK military forces for operations in Afghanistan and other theatres 
of operation around the world. The contract runs to December 2014, 
including an option year, and has a total value of approximately £55m.

Our management and operation of the Atomic Weapons Establishment, 
as part of a joint venture with Lockheed Martin and Jacobs Engineering, 
has been achieving excellent results. The contract is delivering value 
for money for the Ministry of Defence (MoD) whilst achieving excellent 
performance in the quality and timeliness of our programme delivery. 
In recognition of this, arrangements for the next pricing period through 
to 31 March 2018 were successfully concluded. The next five-year  
period will see Serco’s share of revenue expected to remain on average 
at approximately £300m a year, although under the back-end weighted 
agreed incentivisation arrangements, the earnings and margin rate  
in the initial years will be similar to those achieved in the initial years  
of the current pricing period.

Our defence multi-activity contracts at RAF Northolt and RAF Brize  
Norton were expanded in the year. Additional services include IT, vehicle 
maintenance, expanded aircraft handling and the maintenance of two 
aircraft operating out of the Middle East using Sponsored Reserves.  
We successfully rebid our multi-activity contract at RAF Cranwell, home  
to the Royal Air Force College, which selects and trains all new officers 
and aircrew and where we support 3,000 simulator hours and 5,500 flying 
hours per year. The combined total value of the expansions and rebid, 
which have two to three-year terms, is approximately £30m. A new 
contract for RAF Valley, supporting their crucial role in training fast jet 
pilots for both the RAF and the Royal Navy, also became operational 
in the year. 

Waste and recycling services, UK

Multi-activity contract, RAF Brize Norton, UK

NorthLink Ferries, UK

Serco Group plc | Annual report and accounts 2012 | 43

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

UK & Europe

Atomic Weapons Establishment, UK

HMP & YOI Doncaster, UK

Community health services, Suffolk, UK

For Defence Business Services (DBS), Serco was awarded a contract to 
provide an executive leadership team. DBS provides corporate services 
for the MoD such as civilian human resources, finance, information  
and security vetting. Serco is working with DBS staff to transform the 
organisation into a lean and effective shared services centre, building  
on private sector best practice. The contract is valued at around £36m 
over its initial four-year duration.

At the National Physical Laboratory (NPL), which has been managed  
and operated by Serco since 1995, the Centre for Carbon Measurement 
was launched, ensuring the UK is a leading force in climate modelling, 
global carbon markets and green technology. Business and government 
welcomed the project, highlighting its potential to reduce emissions and 
stimulate the economy. The government has, however, announced that 
our current ten-year contract (with an original value totalling approximately 
£500m) will not be extended beyond March 2014, as they will look instead 
at alternative structures for operation, investment and ownership of the 
facilities. Serco is proud of its record at NPL and its contribution to its 
development over the past 17 years.

Serco is overseeing and delivering the Defence Science & Technology 
Laboratory’s (Dstl) Helios programme, which will see the relocation of  
all of Dstl’s activities from Fort Halstead to Porton Down and Portsdown 
West. The programme will help to support Dstl’s future strategic goals, 
protect their capabilities and provide additional cost benefits, building  
on an already strong total facilities management partnership between 
Serco and Dstl.

UK & Europe – growth opportunities
The UK, which accounts for the vast majority of the division’s operations, 
shows signs of increasing activity and good growth potential. Competitive 
outsourcing supports the UK government’s aim of achieving savings while 
improving services and social outcomes. The reform of public services 
provision is an ongoing process, but the Cabinet Office and spending 
departments appear increasingly focused on bringing new opportunities 
to market.

The 2012 reorganisation into a single division places Serco in a better 
position to target future growth opportunities across the wider public 
sector, including where customers are looking for more end-to-end 
services that combine frontline capability with middle and back office 
operations. In such instances, the UK & Europe division, as the 
relationship lead, will draw upon the skills and capabilities of the new 
Global Services division to deliver fully integrated services. We continue 
to strengthen our brand and account relationships at all levels, including 
central government, the devolved authorities in Scotland and London, 
in local government and in public service frontline organisations such 
as the police and NHS.

Home Affairs
As part of opening up to competition existing public sector prison 
operations, Serco was short-listed for two groups consisting of five 
prisons in total. This is in excess of the maximum of four prisons that can 
be won under the competition structure. Serco is therefore pleased to be 
proceeding to the next stage as the single remaining bidder for the South 

44 | Serco Group plc | Annual report and accounts 2012

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Yorkshire group, comprising three HM Prisons (Moorland, Hatfield and 
Lindholme), and looks forward to further developing its bid to produce 
the compelling package of reforms for delivering cost reduction, 
improvements to regimes and a working prisons model in these prisons. 
Serco is also working with its customer to expand HMP Thameside, 
adding capacity under Serco’s more modern and efficient design.

The Ministry of Justice is proposing to open up ancillary and ‘through- 
the-gate’ resettlement services across the whole public sector prison 
estate by spring 2015, rather than further prison-by-prison competitions. 
This includes recommendations to transform offender rehabilitation, 
opening up the approximate £600m per annum probation market to 
competition and rapidly expanding the payment by results approach  
to improve rehabilitation outcomes. This is expected to provide  
significant opportunities for Serco.

The growing use of court fines is also expected to generate opportunities 
for our collection services business, as well as a larger opportunity for  
the overarching management of compliance and enforcement that would 
draw upon skills and capabilities from within the Global Services division. 
Serco is currently in the process of rebidding its electronic monitoring 
contracts in England and Wales, with preferred bidder appointments 
expected later in 2013.

Health
The UK health market is being driven by the impact of fiscal pressure  
and the proposed structural reforms, which require increased introduction 
of competitive forces. In clinical services, we are developing opportunities 
to operate both hospital and community-based services. For example,  
our new innovation partnership with South Warwickshire Foundation  
Trust will seek to use the expertise and skills of both organisations to 
improve the care delivered to patients, while delivering best value.  
This partnership approach will enable the Trust to deliver benefits more 
quickly to patients, building on existing arrangements such as the Anglia 
Support Partnership. Initial discussions between the organisations started 
following a shared vision and interest in working with George Eliot NHS 
Hospital Trust on their plans for the future.

Our frontline health services business has already had success in working 
closely with the Anglia Support Partnership shared services operations, 
led by the Global Services division. This has seen growth by providing 
additional occupational health and counselling services and a separate 
clinical strategic procurement contract. Further growth through this 
strategic partnership framework is being pursued.

Transport & Local Direct Services
Serco’s excellent credentials in transportation systems will support 
selected future growth opportunities in the UK and other countries. 
For example, Serco has signed a cooperation agreement with Strömma 
Tourism & Maritime to make a joint bid to manage and operate the ferry 
services in Stockholm’s archipelago and harbour from 2014. As well as 
transferring skills and capabilities to new markets, we are pursuing further 
existing contract expansion, as has been demonstrated in our support  
of the growth of the Barclays Cycle Hire scheme in London. We will also 
be progressing with the rebid processes for our DLR contract, which runs 
to 14 September 2014, and our Northern Rail contract, which runs to 
1 April 2014, while other potential opportunities may emerge as part 
of governments’ future structuring of transport networks and services.

In local government frontline services, growth in environmental services 
and other areas of integrated facilities management such as leisure 
services are expected to emerge. Reductions in funding and increased 
service demands from citizens are driving more interest in strategic 
partnering, service sharing and personalisation of services.

Defence & Science
The defence market is expected to develop further opportunities for 
support in areas such as infrastructure management, business process 
and whole enterprise outsourcing, and technical and engineering 
services. Serco will also seek similar opportunities in the science market 
and emerging markets for energy management.

Developing from Serco’s operation of Defence Business Services and 
supported by the skills and capabilities of the Global Services division,  
we will be pursuing opportunities for strategic partnerships such as the 
Defence Infrastructure Organisation (DIO). The DIO is responsible for 
managing and maintaining land and property for the MoD in the UK and 
abroad, with the potential for further efficiencies to be achieved across its 
operations. A similar opportunity is for the Defence Equipment & Support 
division, which is currently going through further review as to how a 
competitive process could be run.

Serco has formed a partnership with two other leading nuclear companies, 
CH2M HILL and AREVA, to participate in the Nuclear Decommissioning 
Authority’s competition to oversee management of decommissioning 
activities at 12 UK nuclear sites. The CAS Restoration Partnership brings 
together the unparalleled UK and international expertise of its three 
partners across nuclear operations, site management, decommissioning 
and waste management.

The Department of Health currently spends £12bn per annum on 
community-based services, and this is anticipated to grow given the 
changing nature of care and patient demographics. The Department’s 
national ‘Transforming Community Services’ guidance stipulates that  
all primary care trusts will no longer directly provide community services 
and will instead commission them. Serco therefore anticipates building  
on its Suffolk contract award.

Serco has successfully expanded the scope of existing contract 
relationships to broaden its services. For example, within the scope  
of the original Dstl contract, options can be exercised for additional  
Target Services and in 2012 Serco added the provision of an end-to-end 
procurement service for laboratory assets across Dstl’s three core sites. 
Serco will pursue further contract expansions in the future, to continue 
driving additional value for our defence and science customers.

There is a growing market for enabling services – both in the UK and 
elsewhere around the world – that combine facilities management, 
support services and patient administration to improve service quality  
and productivity in hospitals and other health establishments.

At our GSTS pathology joint venture, the management team has been 
further strengthened in the year with the appointment of an independent 
Chairman. This role is integral in helping GSTS take forward its strategy 
for modernising NHS pathology and implementing its plans to deliver 
growth of the business. GSTS has recently been successful in bidding  
to provide pathology services to the NHS Midlands & East Strategic 
Health Authority cluster.

Serco Group plc | Annual report and accounts 2012 | 45

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

Americas

Our Americas segment provides professional, technology  
and management services focused primarily on the US federal 
government, including every branch of the military, a broad range  
of civilian agencies and the National Intelligence community.  
We also provide services to the Canadian government,  
selected US state governments and municipal governments.

Electronic parking, San Francisco, US

Ship board installation for the US Navy

US Navy logistical support

Americas – operating review
Revenue on a constant currency as well as on an organic basis declined 
by 14%. Revenue on a reported currency basis, given the marginal 
strengthening of the US dollar, fell by 13% to £753m (2011: £868m) and 
represented 16% of Group ongoing revenue (2011: 19%). Adjusted 
operating profit reduced by 24% on a reported currency basis to £55.2m 
(2011: £73.0m), with the margin decreasing to 7.3% (2011: 8.4%).

The US federal contracting market has remained very difficult. The decline 
in revenues reflects challenges that have faced the US government’s 
fiscal 2012 and 2013 annual federal budgeting processes, with a series of 
Continuing Resolutions again being necessary due to political difficulties 
in reaching agreement on budget funding. Both the Department of Defense 
and civilian agencies have been facing cuts, with the threat of these being 
on an automatic basis via a mechanism known as ‘sequestration’. These 
factors have severely disrupted the industry, with government agencies 
further postponing contract award announcements, delaying work under 
existing contracts and cancelling or reducing the scope of many contracts 
and task orders. The Bureau of Economic Analysis reported that, with the 
threat of sequestration looming, in the final quarter of 2012 the Federal 
government’s defence spending was down 22%, the biggest reduction  
for 40 years. Further pressures have included an increase in ‘small 
business set asides’ in Serco’s served markets that restrict our ability to 
be prime contractor in some cases, and the Federal government shifting 
to awarding primarily on a methodology of ‘Lowest Price Technically 
Acceptable’ rather than ‘Best Value’.

Significant cost reduction was undertaken in 2011, allowing margins  
to be held at the time. While cost actions have continued, the challenging 
market conditions have led inevitably to lower margins in 2012, with this 
likely to continue while the difficult and uncertain environment persists.

While revenues have reduced due to the market conditions, new task 
orders, contract awards and rebids continue to be secured in numerous 
areas that are less affected by the general budgetary challenges.

Serco’s US Army Career and Alumni Program (ACAP) contract secured  
two expansions during the year. ACAP services include transition and 
employment assistance counselling for military personnel at 54 ACAP 
locations across the United States, Korea, Italy, Kuwait and Germany. 
Under the program, Serco has served more than 2.3 million active 
personnel, their families and members of the Guard and Reserves for over 
two decades, with this now expanding to extend support to Guard and 
Reserve members who are not able to visit an ACAP Center for services. 
Serco’s second expansion includes the addition of financial planning 
counsellors at ACAP Centers around the world. The two expansions 
over the two remaining option years are valued in total at US$54m.

In the area of mission critical logistical support services, Serco began  
a new contract valued in total at US$57m over a maximum three years. 
This supports the United States Forces Afghanistan (USFOR-A) base 
closure and transition initiative through the coordination of logistics and 
deconstruction of bases throughout Afghanistan. Similar to the services 

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we provided in Iraq, Serco’s Base Closure Assistance Teams (BCATs)  
are assisting military units with the key aspects of redeployment. Serco 
also provides logistics expertise to the US Army under the Logistics  
Civil Augmentation Program (LOGCAP), where we provide programme 
management, cost analysis, logistics planning and administrative services 
around the world in support of the United States and allied forces during 
operations. Additional task orders awarded in the year were valued in 
total at US$12m.

Serco provides a range of other mission-critical engineering and IT 
services to the Department of Defense under the C4ITSR contract vehicle. 
These services include engineering, systems integration, hardware 
procurement, software development, technical support, installation testing 
operations and maintenance. Additional task orders awarded in the year 
were valued in total at US$59m. During the period Serco was also 
officially granted ISO/IEC 20000 certification, which measures our 
approach and capability in delivering world-class IT managed services.

Also for the US Army, we have been awarded a new contract for a full 
range of technical support services to assist in forecasts that reflect the 
changes in the political and military climate. The contract has a total value 
of US$9m over a maximum of five years. Under an IDIQ vehicle with the 
US Navy, Serco has been awarded a US$11m task order for similar work 
to provide forecasting models to support Navy personnel readiness. 
Under the same IDIQ, a further US$4m task order has been awarded 
to provide counsellors in support of wounded Sailors and 
Coast Guardsmen.

Serco was awarded a new production and engineering services contract 
for the US Navy to support Automated Digital Network Systems (ADNS). 
Serco will perform hardware integration and testing to deliver the Navy’s 
newest ADNS configuration on shore, ships and submarines. The contract 
has a total value of US$68m over a maximum of five years.

Serco was awarded a new contract to upgrade Command, Control, 
Communications, Computers, Intelligence, Technology, Surveillance and 
Reconnaissance (C4ITSR) equipment and systems on Mine Resistant 
Ambush Protected (MRAP) vehicles for the US Air Force, US Army, US 
Marine Corp and US Navy. The installation is being carried out on-site 
in Afghanistan, Kuwait and Qatar, enabling immediate deployment  
with Serco also providing in-country maintenance support services.  
The 15-month contract, awarded under the Sea Enterprise IDIQ contract 
vehicle, has a nine-month base period and a six-month option period with 
a total value of US$73m. Serco provided additional services under this 
IDIQ contract vehicle to the US Navy’s Space and Naval Warfare Systems 
Command (SPAWAR), with task orders awarded in the year valued 
at US$19m.

Serco also secured important rebids and extensions for defence and 
security customers. Serco signed a one-year extension valued at 
approximately US$100m for its contract with a US intelligence agency, 
where we provide IT architecture, systems and systems engineering, 
financial management and procurement support, risk management 
performance assessment and reporting. Our contract to support 
undersea surveillance for the US Navy was successfully rebid at  
a total value of US$19m over a maximum of five years.

Beyond our defence and security work, Serco has also rebid and 
extended other important relationships. For the San Francisco Municipal 
Transportation Agency, under a five-year US$43m contract Serco will 
continue to provide a range of parking related services, infrastructure and 
systems support including deploying GPS vehicle tracking technology. 
For Seminole County Florida, Serco has rebid its management and 
maintenance services contract for a 2,200 vehicle and equipment fleet, 
worth US$20m over five years. For the Federal Retirement Thrift 
Investment Board, Serco will continue to support the US government 
retirement plan delivering records management and processing solutions 
in an extension valued at US$26m over a maximum two years. For the US 
Patent and Trademark Office, where Serco will now classify approximately 
1,500 patent applications a day, our contract has been extended and 
expanded, valued in total over three years at US$43m. Serco’s long-
standing work with United States Citizenship and Immigration Services 
has been extended to manage and process an additional two million 
records as a result of an Executive Order issued by President Obama 
in support of Immigration Qualifications, Deferred Action for Childhood 
Arrival. This two-year extension is valued in total at US$25m.

Serco Group plc | Annual report and accounts 2012 | 47

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

Americas

Personnel and family support services  
to the US Army

Air traffic control services, US

Logistical services for the US Navy, Virginia, US

Americas – growth opportunities
The federal contracting market is likely to face continued attrition due 
to the ongoing budget uncertainty and the protracted challenges facing 
Congress in dealing with the growing national debt. The threat of 
sequestration, as originally included in 2011’s debt ceiling deal, was due 
to take effect from 2 January 2013 unless some form of agreement was 
reached by the government on tax and spending issues, but received 
a short-term postponement. Current federal funding is also continuing 
to operate under short-term Continuing Resolutions, which often limit 
commitments to new programs. As a result, the outlook for spending 
on government services remains both unclear and severely challenged. 
Industry studies suggest the total budget addressable by government 
contractors could decline by approximately 10% or more annually  
in 2013 and potentially beyond until the cycle turns.

As is normal for our Americas division, there is a higher frequency of 
rebids than is typical for our operations elsewhere around the world.  
The development of our business will also be shaped by the successful 
outcome of rebids within a challenging market environment. Important 
short-term extensions have been secured as noted, while other  
significant rebids are due over the next 12 months such as Ontario  
Driver Examination Services, the National Visa Center, the Federal 
Retirement Thrift Investment Board and the Department of  
Veteran Affairs.

Serco continues to focus on markets that we expect will receive ongoing 
funding support, and on assisting government customers to achieve 
greater efficiencies and higher productivity with constrained resources. 
Our key areas are: Logistics & Program Management; Communication 
& Information Systems; National Intelligence; Human Capital Management; 
Business Process Outsourcing; and Transportation & Asset Management. 
US government agencies are increasingly using multi-award contract 
vehicles to issue task orders on a rapid-cycle, competitive basis. 
Continuing to qualify for and win business under such IDIQ contract 
vehicles will be a key contributor to Serco’s growth.

In IT services and solutions, Serco is one of 54 awardees on a 
government-wide acquisition contract (GWAC) with a ceiling value  
of US$20bn over a ten-year period. Serco will bid on a range of task 
orders for all federal civilian and Department of Defense agencies that 
require services and solutions including biomedical IT systems, cloud 
computing, cybersecurity, mobility, telecommunications, and data centre 
consolidation. Serco is one of seven recent awards on a new SPAWAR 
Systems Center (SSC) Atlantic Pillar Multiple Award Contract (MAC)  
for Production, Installation and In-Service (PII) support. This MAC  
has a potential ceiling value of US$900m over a maximum of five years, 
and enables Serco to bid on task orders to provide PII support, life-cycle 
logistics, training and large scale integration to deliver engineering, 
equipment and systems support.

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changes to the size and shape of the armed forces. As a result of the  
US government’s Affordable Care Act, we see opportunities to deliver 
solutions supporting patient satisfaction requirements and health 
insurance enrolment initiatives. BPO opportunities with federal and  
other customers will be pursued to deliver enhanced service and more 
cost-effective solutions. We plan to leverage our strong capabilities in 
economic cost analysis and programme management to support the 
Department of Defense’s drive for cost savings. The transportation  
market is expected to provide opportunities for our air traffic control,  
traffic management systems and other transport infrastructure and 
operational management skills and capabilities. We will also continue  
to review markets in both North America and South America for potential 
to transfer more of Serco’s skills and capabilities. 

Serco is also one of eight awards on a new MAC supporting SSC with 
integrated Command and Control (C2) engineering and technical support 
services for command centres. This MAC has a potential ceiling value 
of US$145m over a maximum of three years.

Serco has been awarded a place on the new Consultant, Advisory,  
and Technical Services (CATS) contract vehicle that will provide support 
services to the US Air Force Medical Service (AFMS) at 69 Air Force 
Medical Treatment Facilities in the United States and its territories.  
Serco is among 13 award winners on the IDIQ contract, which is valued  
at US$985m over a five-year period. Serco will compete for task orders  
for Advisory & Assistance Services (A&AS) that will help reduce critical 
workload demands being placed on the AFMS. Services will include 
support in the areas of healthcare administration, executive assistance, 
financial analysis, business process consulting, policy analysis, 
engineering and technical services.

Serco Americas’ pipeline includes numerous further areas of longer  
term opportunity. For our Navy customers, we expect growth through 
modernisation work to extend the service life of the existing fleet.  
The Department of Defense is expected to increase its focus on areas 
such as Intelligence, Surveillance and Reconnaissance (ISR), unmanned 
flight, space and cybersecurity. Human capital management and 
transformation programmes are widening in scope to support future 

Serco Group plc | Annual report and accounts 2012 | 49

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

AMEAA

Our AMEAA segment consists of Australasia, Middle East, Asia and 
Africa, in which we provide a range of frontline services including 
transport, justice, immigration, health, defence and other direct  
services such as facilities management.

Air traffic control services, Baghdad, Iraq

Dubai Metro, Dubai, UAE

Passenger information and support services, 
Perth, Australia

AMEAA – operating review
Revenue on a reported currency basis grew 31% to £883m (2011: £672m), 
and represented 18% of Group ongoing revenue, up from 15% in 2011. 
Revenue on a constant currency basis grew by 30%. Excluding the 
contribution from acquisitions, revenue on an organic basis grew by 22%. 
Adjusted operating profit grew by 25% on a reported currency basis to 
£64.3m (2011: £51.4m), with the margin decreasing to 7.3% (2011: 7.6%).

The very strong organic growth reflects revenue from new contracts 
begun in 2012 and those that had started but were not fully operational 
throughout 2011, as well as the expansion of existing contracts, 
particularly an increase in the amount of work undertaken for the 
Australian Department of Immigration and Citizenship (DIAC). The 
reduction in margin principally reflects the return to a more normal level 
of margin on the DIAC contract.

with both parties working closely to maintain a safe and stable network  
of centres, responding with humanity and respect in the operation  
of this sensitive contract.

A number of other contract awards in Australia generated incremental 
revenues. Serco’s operation of Court Security and Custodial Services 
for the Western Australian Department of Corrective Services was fully 
operational, achieving over 30,000 client movements in the year. A new 
contract valued at A$50m over five years (with potential to extend to 15 
years in total) for the new Wandoo Integration Facility in Western Australia 
became fully operational in November 2012. Serco also expanded the 
scope of its contracts at Acacia Prison in Western Australia and for the 
new South Queensland Correctional Centre, which replaced the previous 
facility at Borallon. In New Zealand, Serco’s operation of the Mount Eden 
Corrections facility in Auckland successfully completed its first full year.

In Immigration Services in Australia, the level of irregular maritime arrivals 
has increased in 2012, leading to a growth in the number of people in  
our care. In response, we successfully managed the opening of new 
detention centres in the Northern Territory and Western Australia. The level 
of our future activity is still likely to fluctuate based on country conditions 
in the Middle East and Asia, where most people in our care originate,  
and the prevailing government policy, speed of visa processing and the 
application of the Australian government’s recent off-shore processing 
legislation. Serco has a very strong customer relationship with DIAC,  

The pre-operational phase of the new-build Fiona Stanley Hospital in 
Perth has continued to see Serco’s involvement grow. Plans are on track 
for the opening in 2014, at which point Serco’s full facilities management 
and support services contract to ensure the smooth running of the whole 
hospital will begin. The first phase of recruiting over 1,000 non-clinical 
staff required to operate the hospital has already begun. In our transport 
operations, Great Southern Rail, in adverse conditions for the Australian 
tourism market, has continued to hold revenue broadly stable through 
additional operating investment. The business was presented with the 

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In the Middle East, service on the Dubai Metro has continued to see  
world class operational standards, with 99.9% of all trains on time and 
the Roads and Transport Authority reporting a record number of Metro 
passengers in 2012, up by 58% on 2011. During the year, Serco also 
added engineering and maintenance responsibilities required to support 
network expansion. Our logistics and base support operations in the 
region for the Australian Defence Force successfully completed their first 
year of operations, whilst our integrated facilities management operations 
in the region have also delivered strong growth.

Service Excellence award at the 2012 Australian Business Awards, while 
The Ghan was voted ‘best luxury rail journey’ worldwide in Luxury Travel 
Magazine for the third year running.

DMS Maritime, our defence and marine services business, has continued 
to show good organic growth. As one of Australia’s largest maritime 
service operators, it has facilities in every major port and a technical 
support network that extends a wide range of engineering and technical 
services across Asia Pacific. DMS Maritime manages, operates and 
maintains over 600 vessels in the region, with commercial, defence and 
government agency customers including the Royal Australian Navy and 
the Australian Customs & Border Protection Service. Towards the end 
of the year, Serco completed the purchase of the remaining 50% equity 
stake in the business from its joint venture partner, P&O Maritime Services.

Serco Group plc | Annual report and accounts 2012 | 51

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

AMEAA

Fiona Stanley Hospital, Perth, Australia

Immigration services, Australia

Dubai Metro, Dubai, UAE

AMEAA – growth opportunities
The AMEAA region has experienced the fastest growth of our portfolio for 
a number of years and we continue to see good opportunities for further 
strong growth. Our existing operations in Australasia, the Middle East and 
India each present prospects. In addition, there is further growth potential 
from expanding into new regions as emerging market governments take 
steps to adopt international best practice in procurement processes, 
to support their social infrastructure improvement programmes.

In the justice sector, we see further opportunities in the operation of 
new-build and existing prisons as governments deal with capacity and 
efficiency challenges. For example, Serco’s consortium signed a contract 
during the year to provide and operate the new Wiri prison in Auckland. 
Under the design, construct, manage and finance contract, Serco will 
manage the new 960-place male prison for 25 years once it becomes 
operational in 2015. The contract will deliver revenues of approximately 
£15m a year. Related services such as court escorting also 
represent opportunities.

In transport, Serco is seeking to leverage its international expertise, 
particularly in urban transportation and metro systems. In India, Serco has 
been awarded its first frontline services contract to operate and maintain 
the new Bus Rapid Transit Services, a dedicated 11.3km bus corridor in 
the city of Indore in central India. Further expanding our services with the 

Dubai Airports Company, Serco will be providing the operations and 
maintenance for the new Automated People Mover at the airport. 
Numerous bidding opportunities throughout the AMEAA region are 
expected to support other road and rail operation and maintenance 
contracts, as well as traffic management systems.

Serco is also a global leader in air navigation, and sees opportunities  
to expand services both within the region and into new geographies.  
For example, in 2012 Serco’s management of Iraqi airspace at Baghdad 
International Airport was expanded to deliver air traffic control services  
at Erbil in Iraqi Kurdistan. Our ability to mobilise highly skilled aviation 
teams quickly is well established, and we are in discussions with a 
number of potential customers seeking a step change in air navigation 
safety, capacity and performance.

Integrated facilities management contracts in the commercial and other 
sectors are expected to grow, particularly given ongoing completion of 
major construction projects in the UAE. Last year’s acquisition of a small 
regional specialist is delivering strong results. Serco has also capitalised 
on its new business development presence in the Kingdom of Saudi 
Arabia. Two new consultancy agreements will provide asset management 
strategies to implement operational efficiency processes for building 
maintenance and infrastructure.

52 | Serco Group plc | Annual report and accounts 2012

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Our defence business in Australia has a strong base from which to 
expand services, including garrison and maritime support, training, 
engineering and maintenance. In the growing marine services market,  
our presence has been strengthened by our full ownership of DMS 
Maritime. Serco will now be well placed to pursue more complex 
opportunities that may emerge from new capability requirements for the 
Australian Defence Force, to be detailed in its forthcoming White Paper 
2013. It will allow Serco to fully leverage DMS Maritime’s defence systems 
integration, supply chain management and through-life support 
capabilities across the maritime, land, systems and ultimately aerospace 
domains. DMS Maritime additionally provides Serco with a platform to 
further expand the breadth of our marine services to the commercial 
maritime market. This includes port infrastructure and related services to 
the resources sector, driven by the ongoing high demand for commodities 
and energy.

In the emerging and rapidly growing health markets in the region, 
governments are increasingly looking to involve private sector provision. 
Across the region, Serco will be pursuing potential opportunities for the 
operation of hospitals and related services, building on the strength of our 
UK operations and the Fiona Stanley Hospital in Australia. For example, 
Serco was also awarded a new support services contract for the Prince  
of Wales Hospital, one of the busiest in Hong Kong with over 1,000 beds 
and complex facilities.

The AMEAA division will also be supported by the Global Services division 
in joint growth opportunities for its customers. Relationships, skills and 
capabilities will be pooled for opportunities such as providing shared 
services to government departments. 

Serco Group plc | Annual report and accounts 2012 | 53

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

Global Services

In 2012, Serco created a new global BPO division, bringing together all 
of Serco’s middle and back office skills and capabilities across customer 
contact, transaction and financial processing, and related consulting 
and technology services. 

Global Services – operating review
The new Global Services division improves the services we provide to 
customers and addresses a wider range of opportunities in both the 
private and public sectors. Customers around the world are increasingly 
looking for end-to-end services that combine frontline capability with 
middle and back office operations, helping them to drive more efficiency 
and better quality services. In addition to seeking specific BPO 
opportunities, the division will also work alongside the regional divisions 
to deliver fully integrated services for their customers. The establishment 
and growth of Serco Global Services, with global annual revenues in 
excess of $1.1 billion, places Serco as a top tier international 
BPO organisation.

Revenue on a reported currency basis grew 40% to £716m (2011: £511m). 
This represented 15% of Group ongoing revenue, up from 11% in 2011. 
Revenue on a constant currency basis grew by 45%. Excluding the 
contribution from acquisitions, principally Intelenet and Vertex, revenue 
on an organic basis grew by 12%. In the previous year there were 
revenues from the Bradford education contract which transferred back 
to the Council in September 2011, and from our Business Link services, 
the majority of which have now closed due to the government funding 
cuts borne by the Regional Development Agencies. Excluding these two 
areas, underlying revenue growth for our new global BPO division has 
been over 30%.

Adjusted operating profit grew by 83% on a reported currency basis to 
£62.1m (2011: £34.0m), with the margin increasing to 8.7% (2011: 6.7%). 
The margin increase was driven principally by the contribution from the 
higher margin Intelenet operations and significant private sector wins.

Over the course of 2012, we concluded the significant programme of 
integrating the acquisitions made in 2011, combining them with Serco’s 
existing strength in IT-enabled service delivery. Tools such as Workforce 
Management have been rolled out, as well as standardising and 
strengthening all management and compliance procedures. Significant 
investment has been made in IT integration, and this will continue to be 
a feature to place the business in the strongest position for future growth. 
In 2013 there will also be further additional investment costs for new 
delivery centres and business development initiatives around the world, 
supporting the strong pipeline of growth opportunities.

In its first full year of Serco ownership, the former Intelenet operations 
have met our expectations as set out at the time of acquisition. Intelenet 
has been a key part of the strong underlying revenue growth for the  
whole of Serco Global Services. As well as incremental revenues already 
achieved, numerous major strategic wins made part way through 2012 
will also support expected strong revenue growth into 2013.

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In July 2012, Serco began operating a new ten-year contract for Shop 
Direct Group, the UK’s leading online and home shopping retailer, valued 
in total at approximately £430m. Serco has taken over responsibility for 
providing all customer contact services across Shop Direct’s brands. The 
partnership will work together to significantly enhance service levels and 
efficiency through investment in the latest technology, such as web chat 
and mobile digital services, which are designed to seamlessly integrate 
online and mobile customer contact management. Our solution combines 
capabilities from the Intelenet and The Listening Company acquisitions, as 
well as the additional scale advantage from Serco’s other BPO operations.

In November 2012, Serco began a new outsourcing partnership to 
provide customer contact and support services for AEGON, the leading 
life and pensions company, marking Serco’s entry into this important 
segment of the financial services market. The initial ten-year contract is 
valued in total at around £170m. Delivering a wide range of services for 
AEGON’s UK-based protection business, Serco is managing all aspects 
of the customer journey from initial underwriting through to claims 
processing, as well as servicing a small number of closed-book policies. 
Serco is responsible for the administration of approximately 500,000 
current and closed-book policies in total.

Many other new private sector BPO operations began during 2012. 
In retail, a £55m ten-year contract with Freemans Grattan Holdings  
sees Serco delivering all aspects of customer contact services, including 
customer enquiries, inbound and outbound sales, credit applications, 
payments, order processing, white mail and e-mail handling. Serco also 
secured new relationships with two of the UK’s most prestigious retailers, 
to provide services including order line and customer management,  
while for a leading European media company Serco is providing frontline 
customer contact, back office and specialist support from an expanded 
service centre in Teltow, near Berlin, Germany. These three contracts, 
which have three to five-year terms, have a total combined value of 
approximately £50m.

Serco was awarded a new contract to provide multi-lingual customer 
contact services for leading European airline easyJet. Serco has 
responsibility for the operation, administration and management of 
easyJet’s multi-channel customer contact, delivered through a blend of 
near-shore and off-shore provision from Poland and India. This initial 
three-year contract has a total value of approximately £18m. Serco also 
began a wide range of customer sales services for British Gas in the UK, 
delivering customer acquisition activities for energy, domestic appliance 
and drain care services in a new three-year contract, valued in total at 
approximately £16m.

Serco Group plc | Annual report and accounts 2012 | 55

 
  
 
Section 3 | Our performance

Operating Review and Growth Opportunities

Global Services

Other new contract awards include: support to a UK general insurance 
provider to reduce their backlog of Financial Services Authority regulated 
complaints; providing 1,800 customer contact employees and multi-
channel services for a large banking and financial services company in 
India; supporting the booking processes for travel and hospitality services 
for an award-winning loyalty program on behalf of a leading US-based 
global online travel company; and establishing off-shore delivery centres 
to provide back office services such as indexing, invoice processing, 
claims adjudication and policy maintenance for a leading UK-based 
healthcare insurance provider.

In the public sector, The Anglia Support Partnership (ASP), which has  
an initial value of £120m over four years, began operating in April 2012. 
This is Serco’s first shared services proposition in the emerging market  
for middle and back office support to the UK health sector. Current 
support services include operational and specialist IT, finance operations, 
employment services, contracts management, procurement, primary  
care support services, occupational health, risk management, catering, 
and estates and property. The framework agreement also permits the 
call-off of additional services and allows other NHS organisations to 
access services.

The Peterborough City Council strategic partnership, which had an initial 
value of £100m over ten years, saw the transfer of the in-house shared 
service centre to Serco in late 2011. Serco is already successfully growing 
this contract, with further services such as procurement being brought 
into scope as part of the Council’s transformation. The Hertfordshire 
County Council operations which commenced in April 2011 have also 
widened their scope, with staff numbers more than doubling and new 
operations such as the Adult Social Care Access Service now being 
provided. Additionally, Serco’s property and IT joint venture with Glasgow 
City Council, known as ACCESS, has seen information, communications  
and technology (ICT) support for the authority’s schools added to 
its responsibilities.

Other strategically important existing relationships were also developed  
in the period. Serco has extended and expanded its relationship with a 
leading telecom provider in India for a further three-year term. Providing 
contact services and transaction support, the contract which began in 
2006 from three delivery centres has expanded to ten today and handles 
an average of 14 million calls and transactions per month. Our expertise 
in this relationship also supported the award of a new contract with 
another leading telecom provider, where five delivery centres will provide 
contact services under this new relationship. These three-year contracts 
on a combined basis have a total value of approximately £60m.

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In the public sector, the Global Services division is working alongside  
the regional divisions to bid and deliver fully integrated solutions for their 
customers. Significant revenue synergies have already been achieved 
where the Group’s combined capabilities are able to transform public 
services, and we expect more to emerge in the future.

In June 2012, Serco acquired Vertex’s UK public sector BPO operations, 
bringing additional expertise and strategic partnerships to support 
expansion into new areas of middle and back office support, and at  
the same time increase Serco’s operational scale. This will help develop 
future opportunities in both the central and local government markets, 
with Vertex bringing significant customer referenceability and specific 
skills in HR and payroll, revenues and benefits, complex case 
management and administration services. Its 3,000 employees  
handle approximately 4.5 million citizen interactions a year.

In the UK, the government has recently set out how it intends to achieve 
efficiencies in shared service centres and has also set out the transaction 
costs involved in providing services for citizens. The Global Services 
division would provide support in bidding for operations such as contact 
centre services, case management, identity verification, transaction 
processing, ICT, human resources and payroll, finance and accounting, 
and any other middle or back office support function that is required.  
For example, for the Ministry of Justice, Global Services is providing 
support to the UK & Europe division for court fines and compliance and 
enforcement, electronic monitoring and prison management. The future 
development of the Ministry of Defence’s DIO opportunity, similar in 
nature to the DBS contract already led by the UK & Europe division, 
would also see Global Services support, as would tenders expected  
for the Home Office in areas such as visa services.

The ASP contract is expected to be a key enabler to growing Serco’s 
combination of health support services and BPO operations. We are 
already seeing growth in areas such as procurement services, and expect 
the framework agreement to support significant further growth. Other 
opportunities in providing business services to NHS organisations are 
also being pursued.

We recently signed a new contract to provide multi-channel contact  
centre services to the Department of Health to cover a range of public 
health programmes. Other central government shared service centre 
opportunities are expected to be developed. For example, the Department 
for Work and Pensions is assessing the case for a shared services centre 
to process claims and payments. There is also the potential to expand  
the scope of support for existing customers such as Job Centre Plus  
and emerging BPO opportunities for other agencies and departments.

Our work with local authorities to transform their services continues 
to show a good pipeline of opportunities. Local authorities are further 
developing their strategies based on a smaller proportion of services that 
they deem to be core, thereby increasing the potential to outsource other 
non-core supporting operations. Existing Serco strategic partnerships 
at Hertfordshire, Glasgow and Peterborough have all demonstrated the 
potential for expansion, and the addition of the Thurrock and Westminster 
contracts previously operated by Vertex adds to our ability to increase  
the scope of services. Research by YouGov supports the view that local 
authorities are looking for further outsourcing, with this increasingly 
focused on transformational change.

Serco successfully renewed its contract with the Australian Tax Office 
(ATO) to provide contact centre services to Australian taxpayers, 
businesses and tax professionals across a diverse range of taxation and 
superannuation-related issues. Serco, in partnership with the ATO and 
other suppliers, is responsible for providing advice and responding to 
enquiries relating to tax numbers, refunds, business activity statements, 
debt management, return submissions and tax information packs. 
The renewed contract has an initial five-year term with a total value of 
approximately £90m. Serco also successfully renewed its contract to 
provide a comprehensive range of customer services for the National Rail 
Enquiries service in the UK. The contract which has been operated by 
Serco and the former Intelenet business since 2004 includes Help Point 
support, customer care, enquiries and complaint handling across a range 
of channels including voice, email and web chat. Responding to changing 
patterns of consumer engagement, this innovative five-year contract is 
valued in total at approximately £10m.

Recognising the substantial amount of new business won during the year, 
Serco was identified as one of the top three global BPO service providers 
by the leading BPO industry analyst firm NelsonHall in its 2012 BPO 
Index. This index measures the performance of leading BPO service 
providers based on the total contract value of wins achieved in 2012. 
Recognising the overall scale of our operations, we were also named 
as one of the top 15 BPO providers within leading technology insights 
and advisory services firm ISG’s TPI Index.

During 2012, our operations have continued to win various accolades 
in the crucial area of employee development. According to NASSCOM’s 
ranking of IT-BPO employers in India, Serco Global Services is now the 
largest pure-play BPO business. Awards in 2012 include recognition 
within ‘Asia’s Best Employer Brand Awards’ and ‘India’s Best Companies 
to Work For’, the latter being for ‘Best Company in Career Growth’.

Global Services – growth opportunities
Serco has built significant capability in the fast growing, higher margin 
BPO market, broadening Serco’s customer and geographic reach.  
This has added scale and depth to provide private and public sector 
customers with a range of end-to-end, integrated business services 
as they seek to reduce costs and improve efficiencies by transforming 
their operations.

Serco’s approach is increasingly recognised for leadership in 
transforming a customer’s operations as opposed to simple ‘lift and shift’ 
solutions. Serco’s bids benefit from our substantial scale and global 
reach, in particular from the ability to provide a blend of on-shore, 
near-shore and off-shore service provision. We are also a clear leader 
in areas such as multi-channel customer contact services. Significant 
contract wins in 2012 such as Shop Direct and AEGON have 
demonstrated these factors and provide excellent short-term growth  
into 2013 as these annualise, but importantly also provide strong 
referenceability for similar work in the future.

We are addressing a large number of private sector opportunities. 
The significant pipeline of prospects continues to be spread across large 
and diverse industry groups: Banking, Financial Services & Insurance; 
Travel, Hospitality & Transportation; Retail, Healthcare, Utilities & 
Manufacturing; and Telecom, Technology, Online Services & Media.

Our geographic reach both for customers and service centre locations has 
expanded to support future growth. This has included new operations in 
Germany, South Africa and Saudi Arabia. The latter, following our first 
centre launch in Dubai in 2011, supports further expansion in the largest 
economy in the Middle East. Global Services also expanded its India-
based Agra facility, further strengthening its dominant position in the Indian 
domestic BPO market. The management team in the Americas region 
has also been strengthened to target significant growth opportunities.

Serco Group plc | Annual report and accounts 2012 | 57

 
  
 
Section 3 | Our performance

Finance Review

Overview 
Our business delivered a strong financial performance in 2012, with revenue growing 5.7% and Adjusted 
operating profit increasing by 8.5% to £314.8m. Excluding currency effects, revenue growth was 6.2% 
(3.3% organic) and Adjusted operating profit growth was 9.9%. Our Adjusted operating margin increased 
by 17 basis points (22 basis points excluding currency effects). Adjusted profit before tax grew by 6.1% 
(7.3% excluding currency effects). Group free cash flow increased by 7.7% to £181.2m, principally as a 
result of the increase in profits and an exceptionally high level of dividends received from joint ventures.

For 2013, we are forecasting a modest improvement in the rate of organic revenue growth. The impact 
of acquisitions and disposals to date is likely to have a broadly neutral impact on total revenue growth. 
We are forecasting our Adjusted operating margin to be broadly maintained at the level achieved in 2012.

1. Income statement
Serco’s income statement for the year is summarised in Figure 1 below. This includes the results of joint ventures which are proportionately 
consolidated. The table shows separately the revenue and Adjusted operating profit of ongoing activities, which exclude the financial results of 
subsidiaries and operations disposed of during the year. Measures of Adjusted operating profit, Adjusted profit before tax and Adjusted earnings  
per share are presented, which are calculated before amortisation of intangibles arising on acquisitions, acquisition-related costs and exceptional  
items (being profit or losses on disposal of subsidiaries and operations, the donation to the Serco Foundation and the gain arising from step  
acquisition accounting on the DMS joint venture).

58 | Serco Group plc | Annual report and accounts 2012

2012 
2012 
Before exceptional items  Exceptional items 
£m 
£m 

Figure 1: Income statement

Year ended 31 December 

Revenue ongoing activities 
Revenue disposed activities 

Total revenue 

Gross profit 
Administrative expenses  

Adjusted operating profit ongoing activities 
Adjusted operating profit disposed activities 

Adjusted operating profit  
Amortisation of intangibles arising on acquisition 
Acquisition-related costs 
Exceptional net profit on disposal of subsidiaries and operations 
Exceptional donation to Serco Foundation 

Operating profit 
Exceptional other gain 
Investment revenue and finance costs 

Profit before tax 
Tax  

Profit for the year 

Effective tax rate 
Adjusted operating margin  
Adjusted profit before tax  
Adjusted earnings per share  
Earnings per share  
Dividend per share 

4,832.2 
80.8 

4,913.0 

743.5 
(428.7) 

309.1 
5.7 

314.8 
(24.1) 
(3.7) 
– 
– 

287.0 
– 
(36.7) 

250.3 
(62.6) 

187.7 

25.0% 
6.4% 
£278.1m 
42.55p 
38.09p 

– 
– 

– 

– 
– 

– 
– 
– 
5.6 
(5.0) 

0.6 
51.1 
– 

51.7 
6.5 

58.2 

– 
– 
11.85p 

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8.1%

5.7%

6.2%
4.5%

11.8%

8.5%

8.0%

26.7%

40.4%

6.1%
7.5%
39.9%
20.2%

2012 
Total 
£m 

4,832.2 
80.8 

4,913.0 

743.5 
(428.7) 

309.1 
5.7 

314.8 
(24.1) 
(3.7) 
5.6 
(5.0) 

287.6 
51.1 
(36.7) 

302.0 
(56.1) 

245.9 

18.6% 
6.4% 
£278.1m 
42.55p 
49.94p 
10.10p 

2011 

£m 

4,471.8 
174.6 

4,646.4 

700.4 
(410.3) 

276.4 
13.7 

290.1 
(20.0) 
(3.9) 
– 
– 

266.2 
– 
(27.9) 

238.3 
(63.1) 

175.2 

26.5% 
6.2% 
£262.2m 
39.59p 
35.70p 
8.40p 

1.1  Revenue
Revenue grew by 5.7% to £4,913.0m (6.2% excluding currency effects). Organic revenue growth, excluding currency effects and acquisitions,  
was 3.3% reflecting the growth of existing contracts and the contribution of new contracts started in 2011 and 2012. 

1.2  Adjusted operating profit
Adjusted operating profit increased by 8.5% to £314.8m, representing an Adjusted operating profit margin of 6.4%. Adjusted operating profit margin 
increased by 17 basis points (22 basis points excluding currency effects). 

Serco Group plc | Annual report and accounts 2012 | 59

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 3 | Our performance

Finance Review

1.3  Reportable segments and ongoing activities
The table below shows the segmental results split between ongoing activities, being the part of the business which will continue into 2013,  
and disposed activities, being the part of the business which contributed to the 2012 and 2011 results but was disposed of during the year.

Figure 2: Reportable segments 

Year ended 31 December 2012 

Segment revenue 
Ongoing activities 
Disposed activities 

Revenue 

Segment Adjusted operating profit 
Ongoing activities 
Disposed activities 

Segment Adjusted operating profit 
Corporate expenses  

Adjusted operating profit 

Year ended 31 December 2011 

Segment revenue 
Ongoing activities 
Disposed activities 

Revenue 

Segment Adjusted operating profit 
Ongoing activities 
Disposed activities 

Segment Adjusted operating profit 
Corporate expenses  

Adjusted operating profit 

UK & Europe 
£m 

Americas 
£m 

AMEAA 
£m 

Global Services 
£m 

2,494.0 
67.1 

2,561.1 

172.9 
4.9 

177.8 

753.4 
– 

753.4 

55.2 
– 

55.2 

883.0 
– 

883.0 

64.3 
– 

64.3 

701.8 
13.7 

715.5 

61.3 
0.8 

62.1 

UK & Europe 
£m 

Americas 
£m 

AMEAA 
£m 

Global Services 
£m 

2,434.1 
161.1 

2,595.2 

165.0 
12.6 

177.6 

868.2 
– 

868.2 

73.0 
– 

73.0 

672.1 
– 

672.1 

51.4 
– 

51.4 

497.4 
13.5 

510.9 

32.9 
1.1 

34.0 

Total 
£m

4,832.2
80.8

4,913.0

353.7
5.7

359.4
(44.6)

314.8

Total 
£m

4,471.8
174.6

4,646.4

322.3
13.7

336.0
(45.9)

290.1

1.4  Acquisition-related costs
These represent incremental costs arising from acquisition activity during the year. The £3.7m of costs principally related to the acquisitions of Vertex 
Public Services Limited (Vertex) and the remaining 50% share of DMS Maritime Pty Limited (DMS) that are described in more detail in Section 4 below. 

1.5  Exceptional net profit on disposal of subsidiaries and operations
The £5.6m exceptional item represents net profit on disposal of the four subsidiaries and operations during the year, which are described in more detail 
in Section 5 below. 

1.6  Exceptional donation to Serco Foundation
To mark Serco’s 25th year as a publicly traded company dedicated to service excellence, we have established the Serco Foundation as an independent 
charitable foundation. An exceptional one-off payment of £5.0m has been made in the year to establish the charitable foundation. 

1.7  Operating profit
Operating profit after exceptional items was £287.6m, an increase of 8.0%. 

60 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
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1.8  Exceptional other gain
The exceptional other gain represents the gain arising from step acquisition accounting of the DMS joint venture. This requires that, before accounting 
for the purchase of the remaining 50%, the original 50% shareholding held at book value in Serco’s accounts is restated to fair value. The revaluation 
of this original 50% is recognised in the consolidated income statement, which resulted in a £51.1m non-cash exceptional gain.

1.9  Investment revenue and finance costs
Investment revenue and finance costs totalled a net cost of £36.7m (2011: £27.9m), an increase of £8.8m. The increase excluding currency effects 
was £9.6m. The principal driver of the cost increase was the full year effect of additional loans raised in the prior year to finance acquisition activity. 

For 2013, net finance costs are anticipated to be approximately £45-50m including the impact from the forthcoming revision to IAS 19; this would 
represent a slight increase on the equivalent 2012 restated net finance cost.

1.10  Tax
The tax charge of £56.1m (2011: £63.1m) represents an effective rate of 18.6% (2011: 26.5%). Excluding exceptional items the effective rate was  
25.0% (2011: 26.5%). Excluding exceptional and other adjusting items, the effective rate was 24.6% (2011: 25.9%). The decrease in the effective  
tax rate is primarily due to changes in the mix of taxable profits and the impact of the reduction in the UK headline tax rate from 26% to 24% on 
1 April 2012.

1.11  Earnings per share (EPS)
Adjusted EPS rose by 7.5% to 42.55p (8.7% excluding currency effects). EPS grew 39.9% to 49.94p while EPS excluding exceptional items grew 
by 6.7% to 38.09p. EPS and Adjusted EPS are calculated on an average share base of 491.2m during the year (2011: 490.5m). 

1.12  Expected impact of changes to accounting standards
In 2013 there will be two significant changes to accounting under International Financial Reporting Standards (‘IFRS’) which will affect Serco’s 2013 
results and require the restatement of 2012 comparative figures. These relate to changes in the joint venture accounting rules (IFRS 11) and to the 
pension accounting rules (IAS 19 revised). 

The change to joint venture accounting rules (IFRS 11) will remove the option for proportional consolidation of joint ventures and require equity 
accounting for joint ventures instead. The estimated effect on the 2012 results for this change would be to reduce statutory reported revenue by 
£852.9m and profit before tax by £15.1m. There is no impact on post tax profits, earnings per share, or net assets from this change. In addition  
to the statutory measures, the 2013 income statement will also disclose revenue and Adjusted operating profit including the proportional share  
of joint venture results, to provide consistency in the presentation of the results.

The change to the pension accounting rules (IAS 19 revised) will principally require pension interest return to be calculated using the value of scheme 
assets multiplied by the discount rate rather than the expected rate of asset return. After accounting for IFRS11, the additional estimated effect on the 
2012 results for this change reduces Adjusted pre tax profits by £6.5m.

2. Dividend
The Board is confident in the future growth prospects for the Group and of the strong financial position that we have. We therefore intend progressively 
to increase the payout ratio and thereby reduce our dividend cover over the next three years. Beyond that point, we anticipate a policy of maintaining 
dividend cover of between 2.5 and 3 times and therefore reverting to increasing the total dividend each year broadly in line with the increase in 
underlying earnings. The Board has proposed a final dividend for 2012 of 7.45p per share, bringing the total dividend for the year to 10.10p, up 20% 
compared with the previous year. This represents a payout of 24% based on 42.55p of Adjusted earnings per share, or dividend cover of 4.2 times. 
The final dividend will be paid, subject to shareholder approval, on 22 May 2013 to shareholders on the register on 15 March 2013.

Serco Group plc | Annual report and accounts 2012 | 61

  
 
 
Section 3 | Our performance

Finance Review

3.	Cash	flow
The Group generated a free cash inflow of £181.2m (2011: £168.3m), with the increase arising principally from the increase in profits and the 
exceptionally high level of dividends received from joint ventures.

For 2013, it is anticipated that there will be further incremental working capital investment to support growth in our BPO business and lower dividends 
from joint ventures, which may result in free cash flow being lower than the level achieved in 2012.

Figure 3 provides cash flow analysis. As in previous years, we have designed the analysis to show the underlying cash performance of the Group –  
the cash flows generated by subsidiaries plus the dividends received from joint ventures. It therefore differs from the consolidated cash flow on page 
119, which proportionately consolidates the cash flows of joint ventures. The adjustment line in Figure 3 reconciles the movement in Group cash to  
the consolidated cash flow.

Figure 3: Cash flow

Year ended 31 December 

Adjusted operating profit excluding joint ventures 
Non cash items 

Adjusted EBITDA excluding joint ventures 
Working capital movement 

Operating cash flow excluding joint ventures 
Interest 
Tax  
Net expenditure on tangible and intangible assets 
Dividends from joint ventures 

Group	free	cash	flow 
Acquisition of subsidiaries net of cash acquired 
Disposal of subsidiaries and operations net of cash disposed 
Acquisition-related costs 
Purchase of own shares and issue proceeds of share capital 
Financing 
Exceptional donation to Serco Foundation 
Special pension contribution 
Dividends paid 

Group net decrease in cash and cash equivalents 
Adjustment to include joint venture cash impacts 

Net decrease in cash and cash equivalents before exchange loss 
Exchange loss 

Net decrease in cash and cash equivalents 

2012 
£m 

237.4 
56.0 

293.4 
(47.6) 

245.8 
(44.7) 
(33.6) 
(66.9) 
80.6 

181.2 
(141.8) 
131.0 
(3.9) 
(10.3) 
(152.0) 
(5.0) 
– 
(41.9) 

(42.7) 
(4.5) 

(47.2) 
(9.0) 

(56.2) 

2011 
£m

208.5
64.2

272.7
(32.3)

240.4
(32.7)
(32.2)
(71.5)
64.3

168.3
(325.3)
–
(3.7)
(6.7)
236.0
–
(40.0)
(37.3)

(8.7)
(15.1)

(23.8)
(0.7)

(24.5)

Notes: 
Adjusted EBITDA excluding joint ventures is earnings before interest, tax, depreciation, intangible amortisation, profit on disposal of subsidiaries and operations, charitable 
donation, other exceptional gains and other non cash items. 
Net expenditure on tangible and intangible assets excludes assets funded under finance lease arrangements. Financing is stated net of directly reimbursed 
capital expenditure.

3.1  Operating cash flow excluding joint ventures
Operating cash flow excluding joint ventures of £245.8m (2011: £240.4m) reflects a conversion of Adjusted EBITDA into cash of 83.8% (2011: 88.2%). 
The increase in working capital movement to £47.6m (2011: £32.3m) principally reflects the timing of transition and mobilisation of new contract awards 
and an increased level of investment in supporting growth of our BPO business.

3.2  Interest
Net interest paid increased to £44.7m (2011: £32.7m), principally reflecting higher average Group recourse net debt following acquisitions during the 
current and prior year.

3.3  Tax
Tax paid was £33.6m (2011: £32.2m). The increase in cash tax is principally as a result of higher overseas taxable profits arising in the year. Cash tax 
remains below the equivalent charge in the income statement principally as a result of the availability of accelerated capital allowances and other 
timing differences.

62 | Serco Group plc | Annual report and accounts 2012

 
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3.4  Net expenditure on tangible and intangible assets
Net expenditure on tangible and intangible assets was £66.9m (2011: £71.5m). The spend principally comprises required contract capital investment. 
This expenditure represents 1.6% of Group revenue excluding joint ventures (2011: 1.9%). The expenditure in 2011 included additional investment 
in SAP systems.

3.5  Dividends from joint ventures
Dividends received from joint ventures totalled £80.6m (2011: £64.3m), reflecting a higher than normal conversion rate of joint ventures’ profit after  
tax into dividends of 125%. We expect the conversion rate to return to a more normal rate of approximately 90% in 2013. 

3.6  Purchase of own shares and issue proceeds of share capital
This represents £16.0m (2011: £24.0m) for the purchase of own shares for the Employee Share Ownership Trust (ESOT) in order to satisfy options 
granted under the Group’s share option schemes, net of cash inflows of £5.7m (2011: £17.3m) relating to proceeds from the issue of share capital 
and exercise of share options.

4. Acquisitions
On 13 April 2012, Serco entered into an agreement to acquire the trade and assets of Anglia Support Partnership (ASP). ASP provides support services 
to the Cambridge and Peterborough NHS Foundation Trust, together with a further five partnering NHS organisations. The initial cash consideration in 
respect of the business combination was £5.2m and deferred consideration of £3.5m was paid in the year. 

On 1 June 2012, Serco acquired 100% of the issued share capital of Priority Properties North West Limited (PPNW). PPNW is a property management 
company specialising in the provision of short and long term housing. The cash cost of the acquisition in the period was £2.7m. In addition, deferred 
consideration of up to £1.1m is payable contingent on financial performance in the period to 31 January 2013. 

On 11 June 2012, Serco acquired 100% of the issued share capital of Vertex Public Services Limited (Vertex), a provider of high quality business 
process outsourcing services to UK local and central government. The cash cost of the acquisition was £55.5m. Vertex brings additional expertise  
and strategic partnerships to support expansion into new areas of middle and back office support . This acquisition considerably increases Serco’s 
market presence and further improves Serco’s position for large scale outsourcing opportunities.

On 16 November 2012, Serco acquired the remaining 50% stake in DMS Maritime Pty Limited from our joint venture partner P&O Maritime Services. 
The transaction strengthens Serco’s position as a leading defence services provider in Australia and in the growing marine services market. The cash 
cost of the acquisition was £69.1m (A$106.3m). DMS was formerly accounted for as a joint venture and following the acquisition of further shares 
it became a wholly owned subsidiary. In accordance with IFRS 3 (Revised 2008) – Business Combinations, which requires that before accounting for 
the purchase of the remaining 50%, the value of the previously held 50% shareholding was restated to fair value on the acquisition date. This resulted 
in a gain of £51.1m being recognised in the income statement. 

£3.7m of acquisition-related costs incurred on the above acquisitions have been expensed to the income statement. The cash flow impact of these 
costs included in the cash flow statement was £3.9m, which includes £0.2m of acquisition-related costs from prior year acquisitions.

A deferred payment of £6.6m has also been made in relation to the prior year acquisition of Serco Listening Company Limited (formerly The Listening 
Company Limited).

5. Disposals
On 29 June 2012, the Group disposed of its Technical Services business which provides consulting and project solutions primarily to the UK civil 
and nuclear defence markets for net consideration of £135.3m. Net assets disposed amounted to £70.3m, giving a gain of £57.6m, after accounting 
for disposal costs of £7.4m.

On 29 June 2012, the Group disposed of its interest in Serco GmbH. The fair value of consideration receivable was £nil. The business provides support 
services for the German air defence radar systems, engineering and administrative support services for the defence sector, as well as training services, 
facilities management, field installation and maintenance services and IT consulting and related services. Net assets disposed amounted to £21.8m, 
giving a loss of £27.7m, after accounting for disposal costs of £5.9m.

On 21 December 2012, the Group agreed to dispose of its UK data hosting operations. There was £nil cash consideration and the net assets disposed 
amounted to £7.8m, giving a loss of £11.5m, after accounting for disposal costs of £3.7m.

On 31 December 2012, the Group disposed of its education software business. There was £6.3m of consideration received and the net assets 
disposed amounted to £17.7m, giving a loss of £12.8m, after accounting for disposal costs of £1.4m.

Serco Group plc | Annual report and accounts 2012 | 63

  
 
 
Section 3 | Our performance

Finance Review

6. Net debt

Figure 4: Net debt

At 31 December 

Group – cash and cash equivalents 
Group – loans  
Group – obligations under finance leases 

Group recourse net debt 
Joint venture – cash and cash equivalents 
Joint venture – loans  
Joint venture – obligations under finance leases 

Total recourse net debt 
Group non recourse debt  

Total net debt 

2012 
£m 

142.8 
(699.5) 
(50.2) 

(606.9) 
55.8 
(3.9) 
(0.6) 

(555.6) 
(25.1) 

(580.7) 

2011 
£m

194.6
(819.4)
(45.0)

(669.8)
60.2
(7.9)
(0.9)

(618.4)
(15.5)

(633.9)

6.1  Group recourse net debt
Group recourse net debt reduced by £62.9m to £606.9m. Sources of funding are described in Section 8 below.

Cash and cash equivalents includes encumbered cash of £7.5m (2011: £5.5m). This is cash relating to customer advance payments.

6.2  Group non recourse debt
The Group’s debt is non recourse if no Group company other than the relevant borrower has an obligation to repay the debt under a guarantee or other 
arrangement. The debt is excluded from all of our credit agreements and other covenant calculations, and therefore has no impact on the Group’s 
ability to borrow. 

Group non recourse debt increased by £9.6m to £25.1m. The increase is mainly due to additional asset financing on the National Physical 
Laboratory contract.

7. Pensions
The Group is a sponsor of a number of defined benefit schemes and defined contribution schemes. At 31 December 2012, the net retirement benefit 
asset included in the balance sheet arising from our defined benefit pension scheme obligations was £14.1m (2011: £16.8m), on a pension scheme 
asset base of £1.9bn. 

Figure 5: Defined benefit pension schemes

At 31 December 

Group schemes – non contract specific  
Contract specific schemes: 
– reimbursable 
– not certain to be reimbursable 

Net retirement benefit liabilities  
Intangible assets arising from rights to operate franchises and contracts  
Reimbursable rights debtor  
Deferred tax liabilities 

Net balance sheet assets 

2012 
£m 

45.6 

(214.7) 
(32.2) 

(201.3) 
6.2 
214.7 
(5.5) 

14.1 

2011 
£m

58.8

(188.7)
(26.5)

(156.4)
6.3
188.7
(21.8)

16.8

The total pension charge included in operating profit for the year ended 31 December 2012, including the proportionate share of joint ventures, 
increased to £112.5m (2011: £112.3m). Within this charge, the Group’s contributions to UK and other defined contribution pension schemes increased 
to £85.1m (2011: £80.4m). The service charge relating to the Group’s defined benefit schemes decreased to £27.4m (2011: £31.9m) principally as a 
result of a £6.1m curtailment gain relating to the disposal of the Technical Services business. This curtailment gain resulted from active members of the 
Serco Pension and Life Assurance Scheme (SPLAS) becoming deferred members, creating a reduction in scheme liabilities. The gain is recognised in 
the income statement within the gain on disposal of the Technical Services business. 

Serco has three main types of scheme which are accounted for as defined benefit pension schemes. Each type has its own accounting treatment under 
IFRS. These are:

●● Non-contract specific – schemes which do not relate to specific contracts or franchises. For these schemes we charge the actuarial gain or loss for 

the year to the consolidated statement of comprehensive income (the SOCI);

●● Reimbursable – schemes where we have a right of full cost reimbursement and therefore include both the pension scheme deficit and offsetting 

reimbursable rights debtor in the balance sheet; and

●● Not certain to be reimbursable – schemes relating to specific contracts or franchises, where the deficit will pass back to the customer or to the next 
contractor at the end of the contract. For these schemes, we charge the actuarial gain or loss on our share of the deficit for the year to the SOCI, 
recognise a recoverable intangible asset on the balance sheet at the start of the contract or franchise and amortise the intangible asset to the income 
statement over the contract or franchise life.

64 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
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Serco has limited commercial risk in relation to the contract specific schemes, due either to the right of cost reimbursement or because the deficit will, 
in general, pass back to the customer or on to the next contractor at the end of the contract. Among our non contract specific schemes, the largest is 
SPLAS. At 31 December 2012, SPLAS had a surplus of £69.7m (2011: surplus of £122.3m). This is calculated under IAS 19 using market-derived rates 
at 31 December 2012. It therefore reflects the effect of the market conditions through the actual investment returns in the year and the impact of an 
increase in inflation assumptions and a decrease in the applicable discount rate. 

The estimated actuarial deficit of SPLAS as at 31 December 2012 was approximately £10.9m (2011: £27.3m). The value calculated in the latest triennial 
review was a deficit of £141m at 6 April 2009. We continue to review the level of benefits and contributions under the scheme in the light of our business 
needs and changes to pension legislation. 

Retirement benefit obligations reduced by £50.5m as a result of the disposal of Serco GmbH. The acquisition of Vertex Public Services Limited included 
the acquisition of £13.4m of net retirement benefit obligations as at 11 June 2012. 

Figure 6 shows the sensitivity of the liabilities of our pension schemes to changes in discount rates and to adjustments in the actuarial assumptions 
for the rate of inflation, members’ salary increases and life expectancies. 

Figure 6: Pension assumption sensitivities 

Discount rate 

Price inflation 

Salary 

Longevity 

Assumption 

4.3% 

3.00% (RPI)  
and 2.20% (CPI) 

3.40% 

Change in 
assumption 

Change in  

liability

+0.5% 
(0.5)% 

+0.5% 
(0.5)% 

+0.5% 
(0.5)% 

(9)%
+10%

+9% 
(8)%

+1%
(1)%

+2% 

21.0–24.6* 

Increase by  
one year

* Post retirement mortality range for male and female, current and future pensioners.

8. Treasury
The Group’s committed bank credit facilities total £730.0m (2011: £726.7m). As at 31 December 2012, £177.6m had been drawn down on bank 
facilities (2011: £241.3m). The bank facility is solely comprised of a £730.0m syndicated revolving credit facility, which matures in March 2017.  
It was signed in March 2012 and replaced all existing committed bank credit facilities.

In addition to the bank credit facility, Serco has US private placements totalling £460.8m which will be repaid between 2013 and 2023. All of the Group’s 
credit facilities detailed above are unsecured.

9. Going concern
The Directors have acknowledged the guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ and ‘An update for 
Directors of Listed Companies: Responding to Increased Country and Currency Risk in Financial Reports’, published by the Financial Reporting Council 
in October 2009 and January 2012 respectively. Whilst the current economic environment remains uncertain, the broad base of our contract portfolio 
and with over 90% of our customers being government bodies, the Group is well placed to manage its business risks successfully and has adequate 
resources to continue in operational existence for the foreseeable future. 

The Group’s revenues are largely derived from long-term contracts with governments. Historically, these contracts have been relatively resilient to 
changes in the general economy. The contract portfolio is diverse and a downturn in any particular market, sector or geography has a more limited 
effect on the Group as a whole. In addition, with an order book of £19.1bn and high visibility of future revenue streams (92% in 2013; 79% in 2014 
and 70% in 2015), the Group is well placed to manage its business risks despite the current uncertain economic climate.

As at 31 December 2012, the Group’s principal financing is through a revolving credit facility and US private placements. The Group has approximately 
£1,191m of committed credit facilities. The headroom on the facilities was approximately £552m as at 31 December 2012. Scheduled repayments 
in 2013 in respect of US private placement maturities are £23.4m in August. The revolving credit facility matures in March 2017 whilst repayments  
of the US private placements occur between 2013 and 2023. The Group fully expects to meet these repayments through operational cash flows.  
Based on the information set out above, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.

Andrew Jenner
Finance Director

Serco Group plc | Annual report and accounts 2012 | 65

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 3 | Our performance

Corporate responsibility

Achieving our vision to be the world’s greatest 
service company requires us to work in the right 
way and to meet our responsibilities to customers, 
the public, our employees, partners and suppliers. 
As a result, corporate responsibility (CR) is part  
of who we are and how we behave.

Further information available online www.serco.com

Our approach to managing our responsibilities  
is summarised below. We also publish  
a CR report each year, which is available  
at www.serco.com/cr2012

Managing corporate responsibility
Our approach to CR has five elements – our people, health and safety,  
the communities we serve, the environment and our marketplace, where 
we carefully manage our relationships with our customers, suppliers and 
other parties.

The Serco Group plc board has ultimate responsibility for our Group 
business strategy and therefore approves the elements that make up  
our Group CR strategy. The Chief Executive is the board sponsor for  
all elements of CR and the board receives formal progress reports 
at every board meeting. 

The Executive Committee is responsible for delivering our Group  
CR objectives. Each element of our CR approach has its own strategy,  
which is developed as follows:

●● the Group Director of Risk and Acquisitions sponsors our health, safety 
and environment (HSE) strategy. This is based on the four divisional 
strategies plus a group perspective, which considers emerging HSE 
risks and the Group’s evolving HSE risk profile. The HSE Oversight 
Group, which is made up of senior corporate function members and 
HSE leads from the four divisions, agrees the HSE strategy before  
it is submitted to the Group Risk Management and Safety Committee 
(GRMSC). The GRMSC reviews the HSE strategy and monitors our 
performance at its quarterly meetings. The chair of the GRMSC reports 
and presents the HSE strategy to the Executive Committee.

●● our Chief of Staff is the Executive Committee sponsor for our community 
strategy. This strategy is developed through a CR Oversight Group.  
The community strategy is then reviewed and monitored by the 
Executive Committee.

●● the Group HR Director sponsors our people strategy, which is 

developed through the HR Directors Forum. The forum is made up of 
divisional HR directors and other senior corporate function members, 
and meets regularly under the Group HR Director’s chairmanship.

●● our approach to the marketplace falls within our overall business 
strategy, for which the Chief of Staff is responsible. The business 
strategy consolidates the divisions’ business strategies into an 
overall Group strategy, as described on pages 14 and 15.

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Each division has a CR strategy, which describes the core themes and 
appropriate targets. This strategy is monitored by the divisional board and 
owned by the division’s CEO. Contracts are responsible for developing 
CR initiatives that are in line with their divisional strategies and appropriate 
to their business and the communities in which they operate. The contract 
director is responsible for delivering these initiatives. Our CR activities 
also reflect the passionate involvement of our people in local causes, 
which often involve them volunteering significant amounts of their own 
time to raise money or provide direct help to causes that matter to them.

Serco Group plc | Annual report and accounts 2012 | 67

  
 
 
Section 3 | Our performance

Corporate responsibility

People
The number of people we employ is continually increasing, so we  
need a clear framework for managing and developing them. 

Our people strategy has three components. We want to:

●● develop leaders who are fit for the future and who will thrive  

as Serco grows

●● employ people who bring service to life, who are fully integrated  

and engaged with Serco and who we can develop to achieve their  
full potential, and

●● make it easier to manage our people by continually enhancing  

our systems and processes.

Developing leaders who are fit for the future
As a devolved and fast-growing organisation, Serco needs capable  
and motivated leaders who have the potential to grow with us. They are 
responsible for managing operations, securing our growth and creating 
the environment in which our people can best serve our customers.

During the year, we undertook a detailed evaluation of the leaders  
who joined us through the 2011 acquisition of Intelenet. This used our 
leadership evaluation tool, which considers the size of a leader’s role  
and its complexity. The output from this exercise allows us to position 
people appropriately in our leadership structure, so we can:

●● include them in succession planning

●● ensure their base and variable pay properly reflects the market, and

●● where appropriate, include them in the Global Management Team, 

which comprises Serco’s top 180 leaders. 

As a result of the evaluation work, the composition of our top 500 leaders 
now properly reflects the international nature of our business.

Serco’s leadership model is known as H³ – Heart, Head and Hands. 
These components describe how great leaders in Serco behave,  
with an emphasis on our Governing Principles and our customers:

●● Heart covers our leaders’ motives and demonstration of our 

Governing Principles

●● Head relates to intellectual and personal capacity

●● Hands covers skills, knowledge and experience

We have used assessment tools based on H3 to create development 
plans for hundreds of leaders across the Group. In 2012, we also used 
those tools, along with our leadership evaluation tool, to ensure we  
had the right leaders in place as we reorganised our UK and European 

businesses from three divisions into one. This was a rigorous process, 
which we ran with the assistance of external consultants.

Our leadership evaluation tool is also important as we enter new 
geographical markets. It gives us a tried and tested method for analysing 
leadership roles in that market and ensuring we can create reward 
packages that will attract and retain the right people for those roles.

Transferring knowledge and skills from one market to another is a  
key part of our business model (see page 12). We therefore need to 
effectively support our leaders as they move around the world. During 
2012, we employed Ernst & Young to help us improve our global mobility 
processes, enabling us to offer first-class support to our people when 
they relocate.

In 2012, we remained committed to developing our Executive and have 
built relationships with a number of leading business schools.

Employing people who bring service to life
We are dependent on the skill and enthusiasm of our people. They enable 
us to deliver great service to our customers and contribute to our reputation 
and ability to grow. 

Employee engagement was a major focus for Serco in 2012, recognising 
that engagement is fundamental to employee wellbeing, the quality of our 
services and our ability to deliver organic growth.

During the year, we worked with Aon Hewitt to better understand the link 
between customer advocacy and employee engagement. This showed 
a strong correlation, with more engaged employees leading directly to 
higher customer satisfaction, which in turn links to contract retention and 
organic growth. We have since produced a set of case studies setting  
out key lessons from contracts with the highest levels of engagement, 
helping us to spread best practices around the business.

We also once again undertook our annual global employee survey,  
called Viewpoint. This gives us important insights into how we can 
improve the working experience at Serco, resulting in greater engagement 
with our people and enhanced service for customers. Results from the 
survey show trends and areas on which to focus. An online tool gives 
materials to cascade and enables managers to prepare action plans  
to drive improvement.

In addition, we continued to support the UK government’s Engage for 
Success taskforce. This is an independent and voluntary group of leaders, 
managers, trade unionists, engagement practitioners and experts, who all 
want to highlight the importance of employee engagement. In November 
2012, the taskforce launched evidence that showed the UK was missing 
out on £26bn of GDP because workers were not actively engaged. The 
group also launched a free-to-use website (www.engageforsuccess.org) 
which contains case studies, tools and techniques for engaging employees.

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Our global Pulse Awards are designed to celebrate the very best  
qualities and achievements of Serco people, our customers and partners. 
The awards are closely linked to our Governing Principles. They recognise 
people who excel at innovation, inspire through their leadership, 
demonstrate outstanding commitment and make an exceptional impact on 
communities, the environment or in areas such as safety and ethics. More 
than 40 individuals and teams will receive an award for their work in 2012.

Making it easier to manage our people
Our aim is to have easy-to-use tools, processes and systems that make 
it easier to manage our growing workforce and deliver even higher levels 
of productivity and service.

We have therefore developed a target operating model for HR, which will 
support our growth. The model gives us common HR processes around 
the world and allows us to centralise important aspects of our HR support, 
while decentralising the tools that our managers need to effectively run 
their teams.

As part of this, we have created a shared service centre in Birmingham, 
UK. This includes a centralised recruitment service, which is already 
delivering savings. One particular achievement has been our use of 
LinkedIn to identify candidates. By building Serco’s presence on the site, 
we now have access to around one million people. 

We have also created a transaction management centre in Delhi, India. 
Our team there ensures that our HR transactions are processed smoothly, 
for example by ensuring that new joiners have access to our systems,  
the right computers or other equipment, and an identity card. The Delhi 
centre consistently achieves high accuracy rates, making an important 
contribution to our HR efficiency.

During 2012, we also completed Serco’s first ever global software 
implementation. MyHR is now live across the business and provides  
a range of self-service tools for both managers and employees. MyHR 
gives managers better visibility and control of their team information,  
the ability to carry out people management activities online, and access 
to reports to support planning and decision making. The system also 
makes HR processes easier for employees, for example by allowing  
them to maintain their personal information or book annual leave online. 

Over the next few years, we will be able to build on the work we have 
done in 2012 to further enhance our HR tools. This could include adding 
learning management systems and performance management, as well  
as allowing individual employees to monitor their compensation and how 
it has changed over time.

Objectives and performance

2012 objective

To make it easier to manage 
people by implementing a single 
HR programme and common 
core processes

To develop leaders who are  
fit for the future by embedding 
the talent review and succession 
planning process across a  
wider proportion of our 
management population

To motivate and engage 
employees to bring service  
to life by linking engagement 
to performance

Ongoing

Result

Achieved

Comment

We successfully introduced our target operating model and completed the first 
phase of implementing MyHR.

Achieved

We incorporated the leaders who joined us as a result of the acquisition of Intelenet.

In early 2012, we undertook a thorough review of our leadership talent, which 
included applying rigorous leadership selection processes. As a result, we are 
prioritising the strengthening of our pipeline of leadership talent through the 
promotion, mobility and acquisition of individuals with skills and experiences 
required to deliver our goals.

We have begun to analyse the link between employee engagement and  
customer advocacy and to communicate the best practices identified to further 
drive engagement. 

2013 objectives
●● To continue to implement MyHR – the single HR programme  

and common core processes – throughout the business

●● To continue to develop leaders who are fit for the future by embedding 

the talent review and success planning process across a wider 
proportion of our management population

●● To improve our overall engagement levels by focusing on the top four 

engagement drivers for each division or function

Serco Group plc | Annual report and accounts 2012 | 69

  
 
 
Section 3 | Our performance

Corporate responsibility

Health and safety
Our aspiration is zero harm. Nothing we do is so urgent or important that 
we cannot do it safely. A strong HSE performance ensures the safety of  
our staff, helps to distinguish us in the market and enhances our reputation.

This means that wherever they work and whatever their role, our people 
must adhere to stringent health and safety procedures. These procedures 
are embedded in the Serco Management System and are the minimum 
standards that must be applied. To maintain these standards, we audit 
ourselves against them, looking for best practices that we can apply  
more widely within our business. We address any inadequate 
performance and put in place new, better practices.

Serco operates in a number of heavily regulated safety-critical areas, 
which places stringent requirements upon us. We have the systems 
in place to deliver these requirements, as reflected in the regulatory 
approvals and licences we operate under. This also means that we have 
regular regulatory oversight. Together, these factors give us a strong 
controls framework for managing our HSE responsibilities.

A key development during the year was the creation of the new UK & 
Europe division, which required us to review the way we manage HSE in 
the region. As a result, we created a Safety, Risk and Compliance (SRC) 
department for the UK & Europe, under the control of a Director of SRC. 

This new department has adopted a regional service model, with three 
teams of SRC professionals supported by subject matter experts covering 
our main safety-critical areas. This follows a proven model deployed by 
one of our former UK divisions and aligns with the UK Health & Safety 
Executive’s new model. The model will help to ensure consistent 
application of best practice across the UK & Europe.

In addition to the reorganisation, we undertook a wide range of initiatives 
during the year to drive continuous improvement and better manage our 
HSE risks. Among the many examples were:

●● detailed audits of businesses and contracts around the world

●● working with regulators in the UK, the United States, the Middle East 

and Australia to develop deeper relationships

●● IOSH training programmes for managers in the Middle East

●● improvements to incident reporting, injury management and  

return-to-work processes in Australia

●● safety meetings, training and an update to the Engineering Business 

Unit safety management system in the Americas.

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Objectives and performance

2012 objective

To achieve a lost time incident 
rate (LTIR) of 796 per 100,000 
employees, a 50% reduction 
against the 2008 baseline

Result

Achieved

To achieve a 40% reduction in 
the staff reportable incident rate 
(RIR) per 100,000 employees 
against the 2008 baseline

Achieved

To establish a baseline of 
near-miss events against  
which performance can 
be tracked

Ongoing

Comment

The LTIR continued to improve in 2012, to 603. This was a reduction of 33% 
compared with 2011 and 24% ahead of our target. This performance was helped 
by the growth in Serco Global Services, which operates in a low risk environment. 

Our performance also reflects our focus on continuous improvement and the 
maturity of our health and safety systems, particularly in our higher risk custodial, 
immigration and transportation business. This is reflected in our LTIR excluding 
Global Services, which improved by 11% in 2012.

The RIR was 399, a reduction of 22% compared with 2011 and a 60% reduction 
since 2008, compared with our target of 40%. As with the LTIR, this benefited  
from the performance of Serco Global Services. Excluding Global Services,  
the RIR was flat year on year. We have a number of ongoing initiatives aimed 
at improving performance.

Given the scale and diversity of our business, capturing near-miss events is 
challenging. All divisions have continued to try to establish consistent reporting 
through ASSURE, our system for capturing and analysing HSE performance data.

2013 objectives
Our previous HSE strategy established our objectives for the period  
2008 to 2012. We have therefore set a new HSE strategy and objectives 
through to 2016. As part of this, we will publish annual targets.  
Our objectives for 2013 are as follows:

●● A Lost Time Incident Rate of 573 per 100,000 employees, representing 

a 5% reduction against the 2012 baseline

●● A Major Reportable Incident Rate per 100,000 employees of 57, 

representing a 15% reduction against the 2012 baseline

●● A Physical Assault Rate of 528 per 100,000 employees, representing 

a 15% reduction against the 2012 baseline

In 2012, the Royal Society for the Prevention of Accidents (RoSPA) 
presented Serco with 26 awards for contracts in the UK & Europe.  
Of particular note was our contract at RAF Fylingdales, which won an 
Order of Distinction for receiving 17 consecutive Gold awards from 
RoSPA. Our Air Surveillance and Control Systems contract and Serco 
Energy received President’s Awards for 11 consecutive Golds, while our 
contract at Norfolk & Norwich University Hospital obtained a Gold Medal 
Award, to recognise six consecutive Golds. The National Physical 
Laboratory won the Research and Development sector award. In addition, 
the British Safety Council presented International Safety Awards to our 
HMP & YOI Doncaster and Prisoner Escort & Custody Services contracts.

We were particularly saddened by the deaths of four of our colleagues 
during the year. A colleague at our environmental services contract in the 
London Borough of Hammersmith and Fulham was fatally injured when 
he tried to prevent a burglary. In Pondicherry, India, two colleagues were 
fatally injured in a road traffic accident when travelling home at the end 
of their shift. In Australia, a colleague also died in a car accident when 
returning from a regional meeting.

Although Serco could not have prevented these incidents, we have  
taken action to try to avoid a recurrence. This includes conflict resolution 
training, the recognition of risk in induction training and special guidance 
on driving and fatigue.

Serco Group plc | Annual report and accounts 2012 | 71

  
 
 
Section 3 | Our performance

Corporate responsibility

Community
Engaging with our communities is fundamental to achieving our vision to 
be the world’s greatest service company (see page 2). Our communities 
are primarily the people who live and work around our contracts but our 
definition extends to include the third-sector organisations we partner 
with, to deliver a number of our contracts.

Our commitment is reflected in our target to reinvest 1% of our pre-tax 
profits into society. Last year, we invested £2,560,084 through donations 
of money, assets and time to community projects and charities, 
representing 1% of our pre-tax profit.

Working with communities contributes directly to our business success. 
It helps to enhance our reputation and build trust with our customers 
and the public, by demonstrating that Serco is a values-led organisation. 
Engaging also gives us a better understanding of communities’ needs, 
which can help us to win bids and to operate existing contracts successfully, 
particularly where we are delivering services directly to the public. 

At the same time, we aim to have a positive and lasting impact on our 
communities, and to be welcomed by them as a partner who can help 
to solve the problems they face. Serco’s devolved structure helps us 
to achieve this. Across the Group, our people engage in many different 
activities, as individuals or as teams. These activities allow them to get 
involved in activities they are passionate about, ranging from local community 
projects to raising money to help international disaster relief efforts. 

Serco celebrates its 25th anniversary as a listed company in 2013. 
To mark this occasion we have set up the Serco Foundation, 
an independent charity.

The Serco Foundation will work with charities and NGOs, within the 
regions where Serco operates, to capitalise on the passion of our people 
to do good and to make donations that will significantly benefit the 
campaigns of the charities it chooses to work with. It will also seek  
to work with large foundations and NGOs to help them consider how 
to improve the delivery outcomes they seek to achieve.

The Foundation will be independent of Serco and will operate on a 
not-for-profit basis. To ensure that the Foundation will have a long-term 
future it will be established with a one-off endowment of £5m from Serco. 
In addition we are planning to make small regular donations to the 
Foundation, comprising cash donations and secondments.

Employability has been an important theme in our community work.  
We were proud to second a senior member of our Group HR team to 
work for the UK government as the CEO and founding partner of Plotr,  
a new, industry-led not-for-profit venture, aimed at inspiring young people 
about their future career and preparing them to be more competitive  
in the labour market. A Serco team also helped the UK government  
to advance its National Citizenship Service programme, by developing  
a well-received online tool to engage with 16 year olds and encourage 
them to improve their skills by taking part in local community projects.

Examples include the AMEAA division’s Walkabout Week. The event, 
which was held across the Asia Pacific region, raised money for Red Dust, 
a charity that supports the health of indigenous communities. Staff raised 
A$47,830 and Serco donated an additional A$40,000. The total amount 
raised exceeded the target by A$17,830. Serco Americas supported the 
American Diabetes Association’s Tour de Cure bike ride, with 38 riders 
raising over $20,000, making them the second highest grossing corporate 
team. Among the many activities undertaken by Serco Global Services’ 
employees were partnering with Swiss Emmaus Leprosy Relief Work 
(India) to create awareness and raise funds for people affected by 
leprosy, and visiting orphanages in Mumbai to donate food, clothes 
and toys.

We also support organisations whose work touches our own, such as  
the Military Child Education Coalition (MCEC) in the US, which helps 
children affected by their parents’ relocation and deployment. As well  
as making donations, we have seconded a senior employee from our 
Americas division, who provides invaluable support to MCEC.

Working with third-sector partners is an important part of our approach  
in a number of markets, including the Work Programme in the UK and  
in our prison contracts. This allows our customers to benefit from the  
expertise of these organisations in their particular fields, while enabling 
the organisations to become involved in government programmes that 
they lack the scale to compete for on their own. Our approach includes 
agreeing a payment mechanism with our third-sector partners, which 
smooths their cash flows and helps to keep them on a stable footing.

Recognising the importance of the third sector, we are represented  
in the working group for a UK government review into leadership and 
skills in the sector, led by Dame Mary Marsh. The review will consider  
how businesses and professionals can share their expertise with charities 
and social enterprises, and recommend ways in which the sector can 
upgrade and maintain its skills to meet the challenges of the future.

Serco’s commitment to its communities and corporate responsibility was 
recognised once again by Business in the Community, which awarded us 
Gold status in its 2012 Corporate Responsibility Index. This is the seventh 
year running that Serco has achieved a Gold award. Equally pleasing was 
the increase in our score, from 90% to 93%.

72 | Serco Group plc | Annual report and accounts 2012

Objectives and performance

2012 objective

To continue to invest 1%  
of pre-tax profits back into 
wider society

Result

Achieved

Comment

We invested £2,560,084 into society, through donations of money, assets and time. 
This represented 1% of our pre-tax profits. In addition, we contributed £5m to the 
Serco Foundation.

To continue to promote the 
theme of employability

Ongoing

Employability has been a key theme for Serco for the past ten years. We focus  
on our own employees, long-term unemployed people and youth employment.

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To continue to develop  
our relationships with 
third-sector partners

Ongoing

In the UK, we are committed to making available 1,000 work placements and  
to working closely with the Prince’s Trust to help young unemployed people gain 
work experience. We recently reached a milestone at Norfolk & Norwich University 
Hospital, where the 100th young person from the Prince’s Trust programmes  
gained work experience through Serco.

In the US, the Serco Scholars programme has continued to help families  
of employees. In 2012, ten scholarships of $5,000 were awarded.

In the Middle East, our technical apprenticeship programme on the Dubai Metro  
is designed to address skill shortages within railway engineering in the region  
and to attract apprentices who are interested in railway engineering as a long 
term career.

We continue to commission work from a range of third-sector providers, including 
the national charities Catch22 and Turning Point in our prison contracts. Third-sector 
organisations also deliver 35% of Serco’s Work Programme contracts and 43% of 
our Job Deal contracts.

In addition, the Serco-led NCS Network consortium has successfully bid to deliver 
the National Citizen Service programme in 2013.

We are also represented in the working group for a UK government review into 
leadership and skills in the third sector.

To promote 
employee volunteering

Ongoing

We encourage volunteering within local communities and organisations. In Australia, 
we have implemented an employee volunteering policy, giving employees up to two 
days a year paid time to volunteer.

To promote payroll giving

Ongoing

Employee giving continues to be a high priority for our businesses across the globe.

2013 objectives
●● To continue to invest 1% of pre-tax profits into wider society

●● To promote and support the Serco Foundation

●● To use the Serco25 campaign to encourage our people  

to raise money for charities

Serco Group plc | Annual report and accounts 2012 | 73

  
 
 
Section 3 | Our performance

Corporate responsibility

●● developing a formal environmental training package and improved 

environmental data capture in Australia

●● assisting Americas contracts with a range of projects including  

fuel storage, Spill Prevention Control and Countermeasure regulations, 
hazardous materials/waste handling, disposal advisory development 
and air quality regulation compliance.

Our environmental efforts are reflected in the recognition we receive. 
In the UK, we were ranked fifth in the Carbon Disclosure Project’s 
FTSE 350 report, with a score of 92%, placing us in the Carbon Disclosure 
Leadership Index. We also achieved a rating of B in the Carbon 
Performance Leadership Index. These indices highlight good practices 
in reporting, governance, risk management, verification and emissions 
reduction activities that drive climate change adaptation and mitigation.

Environment
Serco’s aspiration for zero harm applies as much to the environment  
as it does to health and safety. It makes good business sense to protect 
our reputation and reduce our energy consumption and environmental 
impact. Our environmental policy is also driven by the desire to do what 
is right for the world we live in.

Although Serco’s activities are typically managed at a local level,  
we are united in our strategy of measuring our impact and reducing our 
environmental footprint. This supports many initiatives in our operations 
around the world. We also have contracts that help our customers to 
improve their environmental performance. For example, Serco provides 
environmental services to UK local authorities, which help our customers 
to reduce the volumes of waste sent to landfill sites.

As with our health and safety efforts, our businesses around the world 
undertook a wide range of initiatives to improve their environmental 
performance. The following are just some of the examples:

●● reducing electricity use in our UK prisons by installing LED lighting 

in cells

●● cutting water use in our UK leisure contracts, for example by using 

swimming pool backwashes to irrigate golf courses

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Objectives and performance

2012 objective

To achieve an 18% reduction 
in our UK business’s CO2 
tonnes/£m revenue against 
the 2008 benchmark

Result

Revised

Comment

Historically we have normalised our environmental data by revenue for comparative 
purposes. We do not believe that this continues to be meaningful, given the 
changing risk profile of the business and growth in employee numbers, particularly 
within our BPO business. We have therefore revised this KPI and extended it to  
cover our global footprint so that we normalise on a per head basis. Based on this 
we have shown a 42% improvement in Carbon Emissions Headcount Intensity rate 
(tCO2e per 1,000 employees) since 2008 (2008 = 3,489, 2012 = 2,028).

To retain the Carbon 
Trust Standard

Achieved

We have retained our Carbon Trust Standard

2013 objectives
As part of our updated HSE strategy, we have set the following 
environmental objectives for 2013:

●● Carbon Emissions Headcount Intensity rate of 1,967 tonnes of CO2 
equivalent per 1,000 employees, which represents a 3% reduction

●● Zero environmental prosecutions, fines and enforcement notices  

from our activities

Serco Group plc | Annual report and accounts 2012 | 75

  
 
 
Section 3 | Our performance

Corporate responsibility

Marketplace
Customers
Developing long-term relationships with our customers is central to our 
business. Day-to-day responsibility for meeting our customers’ needs lies 
with our contract directors. Our approach to working with our customers 
is set out in our Governing Principles (see pages 18 and 19), which aim 
to empower our contract directors and ensure that we deliver 
high-quality service.

We maintain relationships at all levels with our customers, so they are 
aware of how we can help them and we can anticipate their changing 
needs and identify opportunities at an early stage. These relationships  
lie with our divisional and Group leaders. 

Our reputation with our existing customers is also vital in winning  
new work. Many factors influence our reputation, including:

Suppliers
Effective procurement helps us to achieve our vision and deliver 
high-quality service to customers. We aim to be professional in all our 
dealings with suppliers and to establish mutually beneficial relationships.

We have a Procurement and Supply Chain function, which is responsible 
for putting this approach into practice. During 2012, we realigned the 
procurement team to reflect the new structure of the business. Each 
division now has its own dedicated procurement business partner 
embedded within the divisional management team. 

Our businesses have many common purchasing needs which we strive 
to fulfil with preferred suppliers, enabling us to achieve better terms and 
conditions and make the most of our scale. We have also bolstered our 
category teams and refocused on specific areas where we can deliver 
significant benefit to our frontline customer service delivery.

●● the quality of our service

●● our values and service ethos

●● our capacity to innovate, and

●● our engagement with our employees and other stakeholders,  

such as local communities.

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Serco works with thousands of small- and medium-sized (SME) suppliers 
and we continue to improve our interaction with them. Our Small Business 
Advisory Body in the UK is made up of representatives of SMEs from 
across the business. The Body guides us on our communications with 
and support to SMEs. In the US, we have a supplier mentor programme 
which provides guidance to small businesses on key matters such as 
growing their businesses and creating budgets. 

We further enhanced our systems in 2012, to upgrade the procurement 
functionality of SAP. This makes the process more efficient for us and  
our suppliers. In particular, it enables suppliers to upload electronic 
catalogues, which can then be accessed through a single portal for  
our people to buy from. These upgraded systems allow us to streamline 
our processes, improve compliance and enable our suppliers to work  
with us in a simple and consistent way.

In the UK, we also signed up to the Prompt Payment Code. Code 
signatories undertake to pay suppliers on time, to give them clear 
guidance (for example on payment procedures and how to make 
complaints) and promote good practice by requesting leading  
suppliers to encourage adoption in their own supply chains.

Joint venture partners
Serco has many joint ventures with commercial partners and customers. 
Strong relationships, based on mutual trust and respect and clarity  
of roles, are essential ingredients if a joint venture is to deliver excellent 
customer service. Our divisional management teams are responsible  
for relationships with our joint venture partners, supported by members  
of the Group Executive Committee and Board as appropriate. This 
includes holding regular strategy and review meetings with our partners.

Strategic partners
We often deliver services as part of a consortium, either as prime 
contractor or as a subcontractor. This allows us to bring together 
companies with the skills to meet the precise requirements of a bid.  
Our values and the open and honest way in which we work also make  
us an attractive partner for voluntary sector organisations, who often  
lack the scale and experience to access major government programmes. 
Responsibility for relationships with our strategic partners lies with the 
relevant contract and divisional management.

Serco Group plc | Annual report and accounts 2012 | 77

  
 
 
Section 3 | Our performance

Principal risks and uncertainties

Serco has a well-established and embedded system of internal control, including financial, operational 
and compliance controls and risk management, designed to safeguard shareholders’ investments, 
our assets and our reputation.

The Board has overall responsibility for our internal control system  
and for reviewing its effectiveness, and has delegated to management  
the implementation of policies on risk and control. 

Risk management is fundamental to how we manage the business; 
it informs decision making and aligns to the organisation’s strategic 
objectives. We have developed robust systems and processes to identify 
and manage the key risks facing each of our businesses and the Group 
as a whole, and all parts of the business have appropriate risk and crisis 
management plans that meet defined policy standards. 

Whilst Divisional Boards review quarterly the risks they face, the Group 
Risk Management and Safety Committee (GRMSC), a formal committee 
of the Executive Committee, meets quarterly to provide governance and 
oversight of risk across the Group. The Board receives a quarterly report 
on the GRMSC’s assessment of the principal risks facing the Group and 
the action being taken by management to mitigate risks that are outside 
of the Group’s risk appetite.

Our risk management policies, systems and processes conform to  
the requirements of the Combined Code and form part of the Serco 
Management System (SMS). 

Such systems and processes, however, can only be designed to mitigate, 
rather than eliminate the risk of failure to achieve business objectives, 
and can only provide reasonable and not absolute assurance, against 
misstatement or loss. The Board confirms that this process has been 
in place for the year under review and up to the date of approval of the 
annual report and accounts.

Our approach to risk within the Serco 
Management System
The SMS sets out policy standards, systems and processes that identify, 
review and report risks at all levels of our business, and in the Group as a 
whole, that impact upon strategic objectives, with the aim of safeguarding 
our shareholders’ investments, our assets and our reputation. At each 
level within our business, risk management processes reflect the nature 
of the activities being undertaken and the business and operational risks 
inherent in them, and therefore the level of control considered necessary 
to protect our interests and those of our stakeholders. 

These controls and processes fall into four main areas: Identification, 
Assessment, Planning and Control and Monitoring, so that we:

●● Identify business objectives that reflect the interests of all stakeholders 

and the risks associated with the achievement of these objectives

●● Regularly assess our exposure to risk, including through the regular 

measurement of key risk indicators

●● Control and reduce risk as far as reasonably practicable or achievable 

through cost-effective risk treatment options, and

●● Identify new risks as they arise and remove those risks that are no 

longer relevant.

Risk identification
In identifying the potential risks associated with the achievement  
of our business objectives, we consider both external factors arising  
from the environment within which we operate, and internal risks arising  
from the nature of our business, its controls and processes, and our 
management decisions.

Once identified, we document risks in Risk Registers which are 
maintained at a contract, programme, Business Unit, Divisional and 
Group level. These Risk Registers change as new risks emerge and 
existing risks diminish, so that the registers reflect the current threats  
to the relevant strategic objectives. We review the Group and Divisional 
Risk Registers at least quarterly and more frequently as required.  
The GRMSC reviews the Group Risk Register quarterly ahead of  
formal review by the Board. 

Risk assessment 
We assess the potential effect of each identified risk on the achievement 
of our business objectives and wider stakeholder interests. To do so,  
we use a risk scoring system based on our assessment of the probability 
of a risk materialising and the impact if it does. This is assessed from 
three perspectives: 

●● The risk’s significance to the achievement of our business objectives

●● The risk’s significance to society, including its impact on public safety 

and the environment, and

●● Our ability to influence, control and mitigate the risk. 

Analysis of our key risks allows us to assess the impact of disruption 
to our business objectives, the probability of this occurring and highlight 
critical areas that require management attention. 

Risk planning and control 
We assign each identified and assessed risk to a risk owner who is 
responsible for controlling, managing, and developing a robust and 
effective plan to reduce or mitigate the risk. Risk owners are required 
to report to the GRMSC or, as appropriate, the Board on specific risks. 
Either may ask for additional information or request an audit to provide 
additional assurance. 

Risk reduction involves taking early management action to remove  
or reduce identified risks before they can affect the bid, programme, 
project or contract. We consider options to eliminate, reduce or control 
the risks as part of the risk identification and analysis process. 

Risk mitigation involves us identifying appropriate measures, including 
contingency plans, to reduce the severity of the impact of the risks, 
should they occur. This includes developing crisis management plans 
in response to risks whose potential impact warrants a specific 
management process. 

The SMS requires every contract to develop a risk management plan 
reflecting assessed risks and supported by appropriate measures  
and contingency plans to mitigate the impact of the risks. 

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Risk monitoring 
Changes in our external environment, internal structures and management 
decisions may all affect the nature and extent of the risks to which the 
Group is exposed.

●● The Chief Information Officer is responsible for ensuring that systems 
and processes are in place to ensure the confidentiality, integrity and 
availability of sensitive information and the associated information 
systems that support our business activities

Our risk monitoring process therefore regularly monitors changes to  
our business and the external environment, to ensure that we have sight 
of and respond appropriately to reduce the impact of emerging risks. 

Managing and mitigating risk 
Our risk management process enables us to understand our operational 
risk profile. Operational risk can never be eliminated; risks are necessary 
to achieve targeted benefits (risk management informs decisions). 
However, while risk is necessary, we minimise the probability and impact 
of threats through the consistent implementation of the SMS, ensuring 
that appropriate infrastructure, controls, systems, staff and processes  
are in place. 

Some of our key management and control techniques defined in the  
SMS are set out below: 

●● Our operating processes fully reflect the principles of clear delegation 

of authority and segregation of duties

●● Our GRMSC meets quarterly to ensure that risks, internal control  
and business assurance are effectively managed and reviewed

●● Comprehensive business review processes ensure we meet customer 

expectations, regulatory requirements and performance criteria, 
including operational effectiveness, investment returns, cash flow 
requirements and profitability

●● We monitor and regularly review key performance indicators.  

These include analysis of business performance and variances  
from plan, occupational health and safety incidents, and error  
and exception reporting

●● Selective recruitment, succession planning and other human resource 
policies and practices ensure that staff skills are aligned with Serco’s 
current and future needs

●● We maintain insurance policies against losses arising from 

circumstances such as damage or destruction of physical assets,  
theft, legal liability for third-party loss and professional advice.  
We review the adequacy of our insurance cover at regular intervals

●● Our Investment and Ethics Committee meets regularly to ensure 
appropriate governance and the management of risk associated  
with larger or higher risk bids, acquisitions, disposals and areas 
of significant capital expenditure

●● We apply robust project management and change implementation 
disciplines to all major projects including new contract transitions, 
acquisitions, new technology applications, change programmes  
and other major initiatives

●● The Directors’ Report describes our approach to health, safety and 
environmental protection. Qualified and experienced staff in each 
business unit provide advice and support on health, safety and 
environmental issues and undertake regular audits

●● We have safety specialists in our aviation, rail, defence, nuclear and 
marine businesses that report to the Board, and maintain and further 
develop the very high standards expected in these industries

●● Our Investment and Ethics Committee has responsibility for the review 
of ethical issues that may arise from our current and future activities

●● The Company Secretary manages a confidential reporting service, 
to which staff can report illegal, dangerous, dishonest or unethical 
activities. This process was enhanced and re-launched at the end 
of 2010

●● We have crisis and business continuity plans in place to manage  

crisis events, both within Divisions and the Group

●● All Divisional CEOs are required to self certify their Division’s 
compliance to the SMS at half and end of year points, and

●● As mandated by the SMS, throughout the business lifecycle of all  
our bids and contracts independent reviews (such as Black Hats  
and Gate Reviews) are required to provide a minimum standard  
of assurance and governance across the business. 

Independent risk function
While line managers are responsible for identifying and managing all risks 
within their risk appetite and tolerance limits, in line with the policies and 
standards set within the SMS, the Group Risk and Programmes team 
(reporting to the Group Director, Risk and Acquisitions) is responsible for 
the development and implementation of risk management policy, strategy 
and governance. In addition to this the team manages the Group risk 
profile and provides risk management oversight, assurance and challenge 
to the business. 

Internal audit
An integral part of risk management is assurance that the controls 
identified to manage risks are operating and effective. Internal audit is 
responsible for reviewing the design and operation of risk management 
processes and controls operated across the Group, providing objective 
assurance around the effectiveness of the Group’s system of 
internal controls.

The Group Head of Internal Audit is responsible for delivery of the internal 
audit programme, ensuring that it is risk based and aligned with the 
overall strategy of the Group. Internal audit is delivered at Group and 
Divisional levels, using a mix of outsourced and in-house resources,  
with each Division holding an Audit and Risk Committee which reviews 
the results of relevant internal audits three times a year. The findings  
of the overall internal audit programme are reported directly to the Group 
Audit Committee. 

In addition to internal audit, many parts of our business are subject 
to other reviews of their controls by third parties, including industry 
regulators, ISO Standards, customers and other external audits.  
This third-party scrutiny significantly increases the scope of  
independent assurance conducted across the Group each year. 

The Board confirms that the actions it considers necessary are being 
taken to remedy the failings and weaknesses which it has determined 
to be significant from its review of the internal controls across the Group. 
The Board confirms that it has not been advised of material weaknesses 
in financial reporting as part of the review of the internal control system.

Serco Group plc | Annual report and accounts 2012 | 79

  
 
 
Section 3 | Our performance

Principal risks and uncertainties

Principal risks 
The Group Risk Register identifies the principal risks facing the business 
as a whole, including those that are managed directly at Group level.  
They are managed through a formal process. 

The Group’s key stakeholders include, but are not limited to, 
shareholders, customers, suppliers, staff, trade unions, government, 
regulators, banks and insurers. The way we operate as a responsible 
company recognises the interests of the community in areas such as 
social, environmental and ethical impact, as described under Corporate 
Responsibility on pages 66 to 77.

The most significant risks relate to our reputation, and to operational  
and financial performance, which are all direct threats to the achievement 
of our strategic objectives. Summarised on the following pages are the 
key risks we have identified that could have a material impact on our 
reputation, our operations or our financial performance. A number of  
our other risks reflect social and ethical issues. 

Group risks and mitigating actions overview

Market risks

We also have material investments in a number of joint ventures, where 
we have joint control over management practices. Our representatives 
within these companies ensure that their processes and procedures for 
identifying and managing risk are appropriate and that internal controls 
exist and are regularly monitored. 

We keep reputational and emerging risks under active review and inform 
the Board of changes. Emerging risks cover longer-term risks that could 
represent a threat to our activities but which are not yet sufficiently defined 
to be included as active risks. 

Risk |		Significant	change	in	political	environment	 

(e.g. government policies, expenditure levels and budgetary constraints)

Description

Impact

Mitigation

As a major proportion of Serco’s customers are governments and governmental 
agencies, a substantial part of the business is dependent on government policies, 
budget priorities and regulatory or political constraints. In particular those 
regarding maintaining and improving public infrastructure, which could have a 
significant impact on the size, scope, timing and duration of contracts and orders 
under them and therefore on the level of business that we may win. As such, 
these businesses are susceptible to changes in government, government policy, 
budget allocations and the political environment, primarily in the UK, Australia  
and the US. Any reduction in such government expenditure and funding could 
result in a suspension, cancellation, termination or non-renewal of contracts. 
Revenues may also be adversely affected by changes to the UK government’s, 
US government’s or Australian government’s policy in respect of outsourcing.

●● Reduction in market opportunities 
●● Changes to terms of existing or 

new contracts 

●● Business strategy 
●● Diverse business across 

geographies and markets 

●● Failure to meet growth or 

●● Dedicated teams regularly monitor 

profit expectations 

the political landscape and 
government activities, reporting 
on government policy changes 
and the political environments 
where we are operating. 
We continue to develop expertise 
and capability in new markets 
and geographies

Risk |	Failure	to	win	a	strategic	or	significant	bid	or	rebid

Description

Impact

Mitigation

Failure to win material bids or renew material contracts could restrict growth 
opportunities for the future or have an adverse impact on Serco’s business, 
financial condition and results of operations. Further, a significant number of 
Serco’s contracts with the UK government, the US government and other public 
sector customers, including renewals and extensions of previous contracts,  
are awarded through formal competitive bidding processes. Competitive bidding 
processes present a number of risks, including substantial cost and management 
time and effort to prepare bids and proposals for contracts that may not be won. 
In addition, there is often a long period between a successful competition tender 
offer and entering into definitive contractual documentation and financial close, 
and in some cases financial close may not occur. 

●● Failure to meet growth or 

profit expectations 

●● Significant financial loss or 

cost overrun 

●● Negative reputational impact, 

potentially resulting in loss of existing 
or new business 

●● Impact on strategic objectives 

●● Business Lifecycle governance 
process embedded in SMS 
●● Governance structure managed 
through Investment and Ethics 
Committee, Programme and 
Project Boards, Divisional and 
Contract Boards 

●● Business strategy and targets 

managed through internal boards 

●● Regular review and monitoring 

of Risk Registers 

●● Gate reviews of bids and formal 

sign-off process

●● Robust bidding and contract 

review process including financial, 
technical and commercial reviews 

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Operational risks

Risk | Any harm to the Group’s reputation could adversely impact business

Description

Impact

Mitigation

The Group is dependent on maintaining its reputation in each jurisdiction in which 
it operates in order to maintain and grow its business. It is exposed to the risk  
that litigation, misconduct, operational failures and negative publicity could harm 
its reputation. In addition, the Group’s reputation could also be adversely affected 
if its services, or the services performed by its subcontractors, do not perform as 
expected. Any harm to its reputation could have a material adverse effect on its 
business, financial condition and results of operations.

●● Failure to meet growth or 

profit expectations

●● Significant financial loss or 

cost overrun

●● Loss of contract revenue related 

to operations and service charges

●● Could impact share price 
●● Inability to attract the human and 

financial capital necessary to grow 
or expand into new markets

●● Damage to reputation resulting in 
loss of existing or new business

●● Impact on strategic objectives

●● Governance structure managed 
through Investment and Ethics 
Committee, Programme and 
Project Boards, and Divisional  
and Contract Boards

●● An effective risk, issues and 
controls structure identifies 
potential reputational impacts 
allowing effective management 
and oversight

●● Customer engagement and 

employee engagement strategies

●● Relationship management  
and communication with 
external stakeholders

Risk |	Failure	of	significant	programmes,	including	operating	within	agreed	fixed	costs

Description

Impact

Mitigation

Serco has a number of complex programmes which it is contracted to deliver for 
the customer. These are often let on a fixed price basis irrespective of the actual 
costs incurred, and therefore if costs exceed the contract ceiling the Group 
may not be able to obtain full reimbursement. Further, some programmes require 
delivery in accordance with specified milestones on agreed dates. Significant 
adverse financial consequences can be imposed where milestones are not met 
or a programme is not delivered on time. The length and complexity of such 
programmes mean that management estimates can be particularly difficult to 
make and could turn out to be inaccurate.

●● Failure to meet growth or 

●● Robust bidding and contract 

profit expectations

●● Significant financial loss or 

cost overrun

●● Loss of contract revenue related 

to operations and service charges
●● Damage to client relations and wider 
reputation resulting in loss of existing 
or new business

●● Impact on strategic objectives

review process including financial, 
technical and commercial reviews

●● Governance structure managed 
through Investment and Ethics 
Committee, Programme and 
Project Boards, and Divisional  
and Contract Boards
●● Robust cost accounting
●● Business strategy and targets
●● Regular review and monitoring 

of Risk Registers

●● Gate reviews and formal 

sign-off process

●● Quality management systems

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Section 3 | Our performance

Principal risks and uncertainties

Operational risks continued

Risk | Major accident or incident

Description

Impact

Mitigation

It is possible that a major catastrophic event, such as a major train derailment  
or air traffic accident, could occur at one of the projects in relation to which Serco 
has provided professional design, construction, engineering or support services. 
Such a catastrophic event could result in the personal injury or death of one 
or more employees of the Group, employees of other subcontractors working  
on the project or members of the public, significant, actionable environmental 
harm, and / or extensive damage to third-party property. In the event that such  
a catastrophic event is found or perceived to be caused by the negligence of 
Serco, it could subject the Group to claims for personal injury, wrongful death, 
or property damage by customers, subcontractors, governments, employees or 
members of the public, which could lead to the payment of extensive damages 
and result in significant adverse publicity and reputational harm. Such adverse 
publicity and reputational harm could lead to a loss of business.

●● Deaths or serious injuries to 
employees or third parties
●● Major environmental damage
●● Severe financial impact (fine  
by regulators, suspension of 
operating licence, compensation, 
clean up, etc.)

●● Loss of business (disqualification 
from future tenders, contract 
termination, etc.)

●● Contract and business external 

accreditations withdrawn

●● Significant media attention and 

future scrutiny

●● Criminal and civil action against  

the Group or individuals

●● Robust management systems 

subject to external and regulatory 
scrutiny and oversight
●● System certification and 

regulatory approval

●● Formal oversight through GRMSC, 
Health, Safety and Environment 
Oversight Group, Divisional and 
internal boards

●● Crisis management and business 

continuity plans in place

●● Insurance
●● A clear and comprehensive HSSE 
Strategy including annual and long 
term objectives, regularly reported 
and governed, drives a proactive 
safety management culture across 
the business

●● Formal assurance structure 

operating within 
defined competencies
●● Staff induction and training
●● Effective Quality Management 
Systems embedded within 
the business

Risk | Major information security loss or breach

Description

Impact

Mitigation

Serco must comply with restrictions on the handling of sensitive information 
(including personal and customer) and provide for secure transmission of such 
information. This is a heightened risk, particularly with respect to government 
contracts, due to the sensitive and confidential nature of government data. 
Despite controls to ensure the confidentiality of such information, Serco may 
breach restrictions or be subject to cyber attacks (e.g. from computer programs 
or hacktivist groups) that may attempt to penetrate its network security and 
misappropriate confidential information. 

●● Loss of service to our customers 
●● Damage to reputation resulting  

in loss of existing or new business 
(disqualification from future tenders, 
contract termination, etc.) 
●● Impact on strategic objectives 
●● Costly to rectify and potential for 
dilution of shareholder returns 

●● Criminal and civil action 
●● Contract and business external 

accreditations withdrawn 

●● Significant media attention and 

future scrutiny 

●● Security and information systems 
policies, systems and embedded 
governance structure 

●● Think Privacy campaign to raise 

staff awareness, provide training, 
promote incident reporting and 
strengthen control processes 

●● Cyber Security Contract 

Risk Assessments
●● Cyber Resilience of 

Enterprise Applications

●● User Management, Multifactor 
Authentication, User Awareness

●● Regular risk reviews 
●● ISO 27000 certification 

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Operational risks continued

Risk | Major IT failure or prolonged loss of critical IT systems

Description

Impact

Mitigation

The IT Strategy is focused on standardising common processes, establishing 
common business systems and enabling ways of working by providing and 
embedding tools that support what we do. Within this the Group has defined 
enterprise applications. These are key information technology-based business 
systems within Serco. They include SAP for Finance, Procurement and Human 
Resources, Payroll, Risk Management, Safety Assurance, email, intranet and 
Nimbus Control for Process Excellence systems. Therefore failings in the systems 
have the potential to seriously impact the management of the business. 

●● Damage to reputation resulting 

in loss of existing or new business 

●● Impact on strategic objectives 
●● Inability to meet contract 

requirements or perform core 
business processes 

●● Information systems policy, 
systems and embedded 
governance structure 
●● Data recovery capability  

designed into systems and 
periodically tested 

●● Cost incurred to rectify and potential 
for dilution of shareholder returns 

●● Design out single points of failure 
●● Server and system performance 

●● Significant media attention and 

monitoring and reporting 

future scrutiny 

●● Capacity management 
●● Data back-up and business 
continuity plans in place 

Governance risks

Risk |	Significant	incident	of	bribery	or	corrupt	practice

Description

Impact

Mitigation

Serco operates in international markets which brings with it inherent risks 
including bribery and corruption, particularly in certain developing nations.  
Serco operates in a number of countries which are recognised as having a  
higher bribery and corruption risk. Increasing legislation significantly increases  
the consequences of bribes and other corrupt practices. 

●● Legal action and fines against 

the Group

●● Debarment from tender lists
●● Damage to reputation resulting 

in loss of existing or new business

●● Significant media attention and 

future scrutiny

●● Policies and systems  
embedded in SMS

●● Code of Conduct
●● Ethics Committee
●● Speak Up process
●● Ethics and compliance 
programme and training

●● Risk assessment
●● Third-party contracts

People risks

Risk | Failure to build depth & capability of leaders ‘Fit for Future’

Description

Impact

Mitigation

The success of the Group depends on the efforts, abilities, experience  
and expertise of the senior management teams and on recruiting, retaining, 
motivating, effectively communicating with and developing highly skilled  
and competent people at all levels of the organisation. There can be intense 
competition for personnel from other companies and organisations and there  
may at any time be shortages in the availability of appropriately skilled people  
at all levels within Serco. Further, the Group cannot guarantee the retention  
of such key executives and technical personnel. The failure of the Group  
to retain and / or recruit additional or substitute senior managers and / or other  
key employees could have a material adverse effect on its business. 

●● Risk of not achieving level  

●● People policies and systems, 

of planned growth

●● Increased cost in recruitment  

activity and time taken to fill roles

●● Instability and loss of 
business continuity

●● Dilution of brand and values
●● Reduced employee engagement 

strategy and targets supported  
by governance structure, including 
Remuneration Committee

●● Succession planning
●● Leadership model
●● Annual external (independent) 

remuneration review

through loss of compelling leadership

●● Strengthen competitors (loss of 

●● Job structure and grading system
●● Talent database and leadership 

leaders to them)

development programme

●● Employment engagement strategy, 

including annual staff survey

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Section 3 | Our performance

Principal risks and uncertainties

Finance risks

Risk | The impairment of goodwill could adversely impact reported results

Description

Impact

Mitigation

Goodwill accounts for just over one-third of Serco Group’s recorded total assets 
as at 31 December 2012. Serco evaluates goodwill for impairment annually 
or more frequently when evidence of potential impairment exists. Any decrease 
in expected cash flows or deterioration in market conditions could require Serco 
to record impairment charges that could have a material impact on the financial 
position and results of operations. 

●● Inability to meet profit expectations 
●● Breach of financial covenants
●● Damage to reputation and 
shareholder confidence 

●● Impact on strategic objectives 

●● Internal board and 

governance structure 

●● Strategic plans 
●● Business plans 
●● Business Lifecycle 

Governance process 

●● Financial review and reporting 

Risk |	Negative	fluctuations	in	foreign	currency	exchange	rates	that	are	not	effectively	hedged

Description

Impact

Mitigation

The international nature of Serco’s business means it is exposed to fluctuations  
in foreign currency exchange rates in relation to various currencies, primarily  
the US Dollar, the Australian Dollar and the Euro, arising from the translation  
of earnings. In addition, some of Serco’s bank debt is denominated in currencies 
other than pound Sterling. 

●● Material effect on the Group’s  
future results of operations and 
financial position

●● The Group hedges short-term 

transaction risks that are material 
in value

●● Management of translational risk 
by the part currency matching 
of borrowings with the net assets 
of overseas subsidiaries

Risk |	Negative	fluctuations	in	interest	rates

Description

Impact

Mitigation

Historically, Serco has financed its operations partly through draw down of 
funding facilities. Adverse movements in interest rates could therefore impact 
profitability and net assets. 

●● Inability to meet profit expectations 

●● Fixed rate debt instruments and 

and associated impact on net assets 

●● Impact on competitiveness 

interest rate derivatives that swap 
floating for fixed rates 

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Corporate Governance Report

Introduction
In managing the affairs of the Group, the Board of Serco Group plc is committed to achieving high standards of corporate governance, integrity and 
business ethics for all its activities around the world. A fundamental part of the Group’s corporate governance is the Business Conduct and Ethics 
Standard that the Group has adopted. 

Throughout 2012 Serco Group plc complied fully with the provisions of the UK Corporate Governance Code issued by the Financial Reporting  
Council (the Code) with the exception of membership of the Audit Committee as explained on page 88 below. The paragraphs below, together  
with the ‘Our performance’ section on pages 18 to 84 and the Remuneration Report on pages 98 to 114, provide details as to how the Company  
has applied the principles and complies with the provisions of the Code. 

The Board of Directors
Board composition
Currently the Board has seven members: the Chairman, two Executive Directors and four Non-Executive Directors. Malcolm Wyman was appointed 
to the Board on 1 January 2013. Leonard V. Broese van Groenou served on the Board during 2012 until his retirement on 14 May 2012. 

David Richardson will be retiring from the Board at the end of the Company’s Annual General Meeting, being held on 15 May 2013 and hence will not 
stand for re-election. As announced on 6 December 2012, Malcolm Wyman will succeed David as Chairman of the Audit Committee. Malcolm will also 
succeed David as Senior Independent Director. 

No individual or group of individuals dominates the Board’s decision-making. The Board considers all of the Non-Executive Directors to be 
independent. In coming to this conclusion the Board has determined that each Director is independent in character and judgement and there 
are no relationships or circumstances which are likely to affect, or could appear to affect, the Directors’ judgements.

Each Director brings a valuable range of experience and expertise to the Board. The profiles of all Directors can be found on pages 96 and 97. 

Diversity
With reference to the report by Lord Davies of Abersoch entitled ‘Women on Boards’, Serco strongly supports the principle of boardroom diversity, of 
which gender is one, but not the only, key aspect. Diversity of thought, experience, and approach are all important and we will always seek to appoint 
on merit against objective criteria, including diversity. The Board aims to achieve an appropriate diversity across all elements of Serco’s management. 
As, over time, we recruit new members we would, therefore, expect to address the issue of diversity in general, and to increase the proportion  
(currently 14%) that women constitute of our plc Board.

The role of the Board
The Board has responsibility for the overall management and performance of the Group, the approval of its long-term objectives and commercial 
strategy and for ensuring that any necessary corrective action is taken promptly. Reporting to the Board, the Governance function is tasked by the 
Group to develop and oversee corporate processes for the identification and management of business risks and the appropriate application of the 
Serco Management System (SMS) and corporate responsibility activities throughout the Group. The ‘Our performance’ section on pages 18 to 84 
details the internal control and risk policies, procedures and management framework adopted by the Group. The Corporate Responsibility Report is 
available online at www.serco.com/cr2012 and illustrates how Serco’s approach to corporate assurance and responsibility translates from the Board 
into everyday working practices. 

Conflicts of interest
The Company’s Articles of Association, as approved by shareholders at the Company’s 2010 annual general meeting, include provisions reflecting 
recommended practice concerning conflicts of interest. The Board has in place procedures for Directors to report any potential or actual conflicts  
to the other members of the Board for their authorisation where appropriate. In deciding whether to authorise a conflict or potential conflict of interest 
only non-interested Directors (i.e. those that have no interest in the matter under consideration) will be able to take the relevant decision; in taking  
such a decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. In addition,  
the Directors may impose conditions or limitations when giving authorisation if they think this is appropriate. 

The process of reviewing conflicts disclosed, and authorisations given, is repeated at least annually. Any conflicts or potential conflicts considered 
by the Board and any authorisations given are recorded in the Board minutes and in a register of directors’ conflicts which is maintained by the 
Company Secretary.

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Section 4 | Governance

Corporate Governance Report

Reserved and delegated authorities
There is a formal schedule of matters reserved to the Board. This schedule, which is reviewed annually, includes approval of:

●● Group strategy 
●● Annual financial and operating plans
●● Major capital expenditure, acquisitions or divestments
●● Annual and half-year financial results
●● Satisfying itself as to the integrity of financial information
●● Dividend policy
●● Ensuring adequate succession planning for the Board and senior management and appointing and removing Directors, the Company Secretary 

and Committee members

●● Treasury policy
●● Review of the effectiveness of the Group’s system of internal control and risk management process
●● Training and development of the Board and the Company Secretary.

Other specific responsibilities are delegated to Board Committees which operate within clearly defined terms of reference. Details of the responsibilities 
delegated to the Committees are given on pages 88 to 90. Each Committee has an appropriate balance of skills, experience, independence and 
knowledge of the Group.

Information flow
Senior executives below Board level attend certain Board meetings at which they make presentations on the results and strategies of their divisional 
units and functional areas of the Group. Board members are given appropriate documents in advance of each Board meeting and each Committee 
meeting, as appropriate. 

Board meetings are scheduled six times a year, four over two days at a time, and two meetings held for one day each. Board meetings are structured 
to allow open discussion of the strategy, trading and financial performance and risk management of the Group. Board and Committee meetings are 
held at varying locations and the opportunity is used to combine the formal business of the Board with site visits and divisional presentations and 
discussions. Additional Board meetings are scheduled as required.

The attendance of individual Directors at Board meetings held during the year is shown in the table on page 87.

Company Secretary and independent advice
The Company Secretary is responsible for advising the Board on all corporate governance matters, ensuring that all Board procedures are followed and 
there are good information flows, together with facilitating induction programmes for newly appointed Directors. All Directors have access to the advice 
and services of the Company Secretary. 

The Board has approved a procedure for Directors to take independent professional advice, if necessary, at the Company’s expense.

Chairman and Chief Executive
The roles of the Chairman and the Chief Executive are separately held and the division of their responsibilities is clearly established, set out in writing, 
and agreed by the Board.

As Chairman, Alastair Lyons is responsible for: 

●● Ensuring the effective operation of the Board, its agenda and processes 
●● Promoting the highest standards of corporate governance and ensuring appropriate communication with shareholders on the Group’s 

overall performance

●● Ensuring appropriate Director training and development takes place
●● Board succession planning.

The Chief Executive, Christopher Hyman, is responsible for: 

●● The formation and implementation of the Group’s global strategy 
●● Delivery of the Group’s business plan
●● Providing motivation and leadership to the operating divisions, chairing the Executive Committee and setting its style and tone
●● Setting the overall policy and direction of Serco’s business operations, investments and other activities within a framework of prudent and effective 

risk management and ensuring that divisions and functions control those risks satisfactorily

●● Providing leadership and representation of the Group with major customers, shareholders and industry organisations.

Senior Independent Director
David Richardson was appointed to the role of Senior Independent Director in January 2011. As part of this role, David is available to shareholders 
if they have any issues or wish to discuss any aspects of the Company’s business without the Executive Directors or Chairman present. Additionally, 
in accordance with the provisions of the Code, David is available to provide a sounding board for the Chairman and to act as an intermediary for 
non-executive directors when necessary. Following David’s retirement from the Board at the end of the Company’s 2013 Annual General Meeting, 
Malcolm Wyman will succeed David as Senior Independent Director with the same role and responsibilities.

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External directorships for Executive Directors
The Board considers that Executive Directors can gain valuable experience and knowledge through appropriate and limited non-executive 
appointments in other listed companies or independent sector organisations. The Board is careful to ensure that any such appointments do not 
compromise the effective management of the Group and that these are approved in advance of any appointments being taken up. Details of the 
fees received by Executive Directors for external appointments can be found in the Remuneration Report on page 103. 

Significant other commitments of the Chairman
Alastair Lyons is non-executive Chairman of Admiral Group plc and of the Towergate Insurance Group, Deputy Chairman of Bovis Homes Group PLC, 
and Senior Independent Director and Audit Committee Chair of Phoenix Group Holdings. 

The Board believes that Alastair holds a balanced portfolio of positions which allow him to perform his duties as Chairman appropriately.

Re-election of Directors
The Company’s Articles of Association stipulate that each Director shall retire (but be eligible for re-election) at the annual general meeting held in the 
third calendar year following the year in which he or she was elected or last re-elected by the Company. Any Directors appointed by the Board since  
the last annual general meeting must stand for re-election at the next annual general meeting. Any Non-Executive Directors, excluding the Chairman, 
who have served for more than nine years will be subject to annual re-election.

Notwithstanding the above, in accordance with provisions contained within the Code, all Directors retired and stood for re-election at the 2012 Annual 
General Meeting and will do so on an annual basis at each Annual General Meeting. Their names are set out in the Notice of Annual General Meeting. 

The Non-Executive Directors 
Independence
All the Non-Executive Directors are independent of management and have no cross-directorships or significant links which could materially interfere 
with the exercise of independent judgement. 

Term of appointment
All Non-Executive Directors are appointed for an initial term of three years. Thereafter, subject to satisfactory performance, they may serve one or two 
additional three-year terms. The terms and conditions of the appointment of the Directors are summarised in the Remuneration Report on pages 98 
and 106 and are available on request from the Company Secretary. 

Meetings of Non-Executive Directors
Non-Executive Directors meet separately (without the Chairman or Executive Directors being present) at least once a year principally to appraise 
the Chairman’s performance. This meeting is chaired by the Senior Independent Director. 

Board meetings and attendance
Board meetings were held on a bi-monthly basis with ad hoc meetings in between as required. The frequency and content of Board meetings are 
reviewed by the Board annually. 

The attendance of the individual Directors at Board and Committee meetings of which they were members during 2012 was as follows:

Executive Director

Alastair Lyons

Christopher Hyman

Andrew Jenner

Leonard V. Broese van Groenou

David Richardson

Angie Risley

Ralph D. Crosby Jr

Board 
(8 meetings)

Audit 
(3 meetings)

Remuneration 
(8 meetings)

Nomination 
(3 meetings)

8

8

8

3(3)

8

8

8

n/a

n/a

n/a

1(1)

3

2(2)

n/a

8

n/a

n/a

5(5)

8

8

n/a

3

3

n/a

n/a

3

3

n/a

Notes:
1. n/a means that the specified Director is not a member of that Committee, although he or she may attend meetings at the invitation of the Chairman of the Committee.
2. Where a number is given in brackets against a Director’s attendance, this is the number of meetings which took place during their tenure.

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Section 4 | Governance

Corporate Governance Report

Board effectiveness
Induction
On joining the Board, Directors are given background information describing the Company and its activities. They receive an induction pack which 
includes information on all the governance processes of the Group, the roles and responsibilities of the Board, Committees and other management 
teams and a range of other appropriate information about the Group, its activities and its advisors. Meetings are also arranged with a range of  
relevant senior managers from across the Group on a structured basis to assist with a Director’s induction. Visits are also arranged, where possible, 
to a number of contracts. An induction programme for Malcolm Wyman, who joined the Board on 1 January 2013, is already underway and includes 
site visits and meetings with senior executives of, and advisers to, the Group. The Chairman continues to undertake an extensive programme 
of contract visits. 

Continued professional development
The Board considers the training needs of the Executive and Non-Executive Directors plus the Company Secretary. All Board members are encouraged 
to attend relevant training courses at the Company’s expense. The development needs of the Directors and the Company Secretary fall within the remit 
of the Chairman who reviews and agrees these individually.

Performance evaluation 
The Group recognises the importance of a comprehensive evaluation process for the Board and the Chairman ensures that comments and 
recommendations are considered carefully and implemented where appropriate to ensure its continued development. 

In 2011, the Board commissioned an external review completed by an independent consultant. The Board intends to comply with the requirements 
of the UK Corporate Governance Code and carry out such an external evaluation at least once every three years. In 2012, an internal evaluation of 
the Board and Committees was undertaken, which consisted of each Director completing a detailed questionnaire, followed by an interview with 
the Chairman. 

A presentation to the Board was given of the results of the evaluation. 

The evaluation concluded that the Board operates effectively under strong leadership from the Chairman and makes good use of the individual 
competencies of the Board’s membership. The Board is felt to have a strong understanding of the views of major investors and stakeholders and 
a good understanding of the markets in which the business operates. Changes to some of the reports presented to the Board in response to previous 
evaluation feedback had been very well received and there is felt to be a good and transparent relationship between Non-Executive Directors and 
senior management. The Board was felt to be effective at managing risk and to have an appropriately conservative attitude to risk whilst equally 
being prepared to take well considered and appropriately evaluated material risk judgements. The Committee structure and effectiveness were also 
highly rated.

It was acknowledged that the profile of the Board would be enhanced through greater diversity, both of expertise in areas such as brand and  
marketing as well as experience of new geographical markets under consideration by the Group. Whilst the Board recognised the importance of well 
developed succession plans, it acknowledged that there should be continued focus on emerging talent as succession to key senior management  
roles. These, along with more administrative recommendations, have been given due consideration by the Board and actions for each have been 
agreed accordingly.

In addition an evaluation of the Chairman’s performance led by the Senior Independent Director (taking into account the views of both the 
Non-Executive and Executive Directors) was carried out during the year. It is considered that the Chairman continues to provide strong leadership of 
the Board, and there is a good level of trust between him and the Chief Executive. The Chairman’s commitment to contract and site visits and the value 
derived from these by the business was also acknowledged. His very well informed view of the Group’s operations also enables him to provide a strong 
sounding board for the Executive Directors. 

Board committees
The Board has delegated authority to a number of permanent Committees to deal with matters in accordance with written terms of reference. The terms 
of reference for all Committees are reviewed on a regular basis by the Board to ensure they are still appropriate and reflect any changes in good 
practice and governance; these are available online at www.serco.com. 

Committees are authorised to obtain outside legal or other independent professional advice if they consider it necessary. 

The Audit Committee and Audit Committee Report
Membership: The Audit Committee consists solely of independent Non-Executive Directors. It is comprised of David Richardson, who Chairs the 
Committee, and Angie Risley, who replaced Leonard V. Broese van Groenou when he retired from the Board and Committees on 14 May 2012. 
Following the sad and untimely passing of Paul Brooks in January 2012, membership of the Committee was reduced below the level required by the 
Code. The Board considered it appropriate to pend increasing membership of the Committee until a new non-executive director, with the right balance 
of skills, is appointed to the Board. The Company Chairman, who is himself a qualified accountant and a listed Audit Committee Chairman, attended 
all meetings in the year and the Board considers that appropriate representation was maintained as a consequence. Malcolm Wyman, who joined the 
Committee on his appointment to the Board on 1 January 2013, will take over as Chairman of the Committee on the retirement of David Richardson 
at the close of the Company’s 2013 Annual General Meeting.

The Chairman of the Committee has recent and relevant experience for this role. The Audit Committee met three times during the year. At the invitation 
of the Committee, the Finance Director, the Group Head of Internal Audit, KPMG LLP (the Group’s internal audit providers), and Deloitte LLP (the 
external auditors) attend meetings. The Committee meets with each of the internal audit providers, external auditors and the Group Head of Internal 
Audit separately at least once a year. All Directors have access to the minutes of the Audit Committee meetings. 

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Responsibilities: The main responsibilities of the Audit Committee are: 

●● To monitor the integrity of the financial statements of the Company, including interim management statements, and any formal announcements 

relating to the Company’s financial performance, reviewing significant financial reporting judgements contained in them

●● To monitor and review the internal audit programme and ensure that the internal audit function is adequately resourced and has appropriate standing 

with the Company 

●● To review management’s and the internal auditors’ reports on the effectiveness of systems for internal financial control, financial reporting and 

risk management

●● To consider the appointment, re-appointment and removal of the external auditors and assess independence and objectivity of the external auditors, 

ensuring that key partners are rotated at appropriate intervals and relevant UK professional and regulatory requirements are taken into account

●● To recommend the audit fee to the Board and pre-approve any fees in respect of non-audit services provided by the external auditors and to ensure 

that the provision of non-audit services does not impair the external auditors’ independence or objectivity

●● To discuss with the external auditors, before the audit commences, the nature and scope of the audit and to review the auditors’ quality control 

procedures and steps taken by the auditors to respond to changes in regulatory and other requirements

●● To oversee the process for selecting the external auditors and make appropriate recommendations through the Board to the shareholders to consider 

at the annual general meeting

●● To review the Company’s procedures for detecting fraud and its systems and controls for the prevention of bribery and receive reports on 

non-compliance.

Additionally, in accordance with the Code, the Committee is responsible for a formal whistle-blowing policy and procedure which applies throughout 
the Group. Responsibility for the operation of this policy has been delegated to the Company Secretary. 

Members of the Audit Committee have received updates on accounting standards and generally accepted accounting practice on a quarterly basis 
as part of the Finance Director’s report to the Board, and also on a half-yearly basis from the external auditors.

During 2012 the Audit Committee discharged fully its responsibilities listed above and, in doing so, considered the following:

●● Corporate Governance Report and statement of Directors’ Responsibilities for inclusion in the 2011 Annual Report and Accounts
●● 2012 Half Year Report and Auditors’ report thereon
●● 2012 external audit fees
●● Review of the whistle-blowing process and significant reports from that process
●● Evaluation of the Audit Committee and the achievement of its Terms of Reference 
●● 2012 internal audit programme and the proposed 2013 programme 
●● The continuing independence of the external auditors.

In considering the Financial Statements for the year ending 31 December 2012, the Committee discussed with the auditors and management all areas 
of risk it identified during both the audit planning process and year end audit. In the Committee’s judgement these areas are usual for a company of 
Serco’s size and business model.

A small, but significant, number of Serco’s contracts are Long Term Contracts for accounting purposes and calculations around Revenue and Profit 
recognition require management judgement. We have considered carefully the judgements made and their impact on all aspects of the financial 
statements. We have had detailed input from management on the forecasts and validity of the estimates made historically and have discussed and 
reviewed these with the auditors at our meetings.

Profit Before Tax (PBT) in 2012 includes an exceptional gain which arises on the step purchase of a former Joint Venture. We have confirmed that the 
accounting for this acquisition is in accordance with the accounting standards.

Goodwill is a significant asset for the Group. It is supported for accounting purposes by management’s cash flow forecasts at agreed cash generating 
unit level. We carefully considered the reasonableness of these forecasts.

Finally, cash accounting, pension provisions, charges for taxation, and accounting for acquisitions and disposals are all major items which we consider 
in detail in order to satisfy ourselves that the financial statements are reasonable. We satisfied ourselves, as required, that Serco is a Going Concern.

Non-audit services: The Committee has reconfirmed its policy on the provision of audit and non-audit services by Deloitte LLP. It determined three 
categories of services: Approved (e.g. audit and related assurance services), Permitted (e.g. tax compliance and due diligence) and Not Permitted 
(e.g. design/implementation of financial information systems and quasi management services). The Committee, the Company, and Deloitte LLP all 
monitor compliance with the policy and review at each meeting the fees earned and the estimates for the year. 

The Committee acknowledges that the Group’s external audit firm will have a significant understanding of the Group’s business and this knowledge 
and experience can be utilised to the Group’s advantage in many areas thus ensuring efficiency in costs to the Group. They also operate to 
professional codes of conduct including the management of conflicts of interest. Accordingly, it considers that the external auditors may be engaged 
for the following non-audit services:

a)  assistance in tax compliance activities (including the preparation of tax returns)
b)  tax advisory services
c)  accountants’ reports for any Stock Exchange purposes
d)  ad hoc reporting on historic financial information for any other purpose and ad hoc accounting advisory services
e)  due diligence activities associated with potential acquisitions or disposals of businesses

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Section 4 | Governance

Corporate Governance Report

f) 

 other corporate finance advisory services required in support of potential transactions or bids including the review of financial models for internal 
consistency and compliance with Group financial accounting policies, and

g)  any other services which are not prohibited and are authorised by the Finance Director or Group Company Secretary.

Where such services are considered to be recurring in nature, approval of the Committee may be sought for the full financial year at the beginning of 
that year. Approval for other permitted non-audit services has to be sought on an ad hoc basis: where no Audit Committee meeting is scheduled within 
an appropriate time frame approval is to be sought from the Chairman of the Committee (or his nominated alternate). The Committee may establish fee 
thresholds for pre-approved services and similar approvals are required for work awarded to accounting firms other than the Company’s auditors where 
fees are expected to exceed pre-approved limits. The Group Company Secretary is nominated by the Audit Committee as the point of review and 
approval for the engagement of non-audit services.

The Group has complied with the policy throughout the year. Where appropriate, non-audit services have been provided by companies other than 
Deloitte LLP to safeguard auditor objectivity and independence. The fees paid to Deloitte LLP for audit, audit-related and non-audit services for 2012 
can be found in note 6 to the Consolidated Financial Statements. The principal areas of engagement of Deloitte LLP for audit-related and non-audit 
services were commissioned in full compliance with the above policy and a formal tender exercise was undertaken where appropriate. The services 
principally related to taxation advice, IT advisory work and due diligence and other corporate finance advisory services. 

Auditor’s independence: The independence, objectivity and effectiveness of the external auditor have been examined by the Committee and 
discussions were held regarding their terms of engagement and remuneration. The Senior Statutory Auditor is Richard Knights who was appointed to 
the role at the beginning of 2011. There are no contractual obligations that restrict the Company’s current choice of external auditor and consideration 
was given to the merits of appointing an alternative external audit firm. Following an assessment of the relative strengths and weaknesses of an 
alternative provider against the continued engagement of the incumbent provider, the Committee recommended to the Board that Deloitte LLP be 
proposed for reappointment at the forthcoming 2013 Annual General Meeting. This recommendation has been accepted and will be proposed to 
shareholders. The Committee further noted the requirement within the FRC’s September 2012 “Guidance on Audit Committees”, applying to the 
Company’s next reporting period, requiring FTSE350 companies to put their external audit services out to tender at least once in every ten years. 

The Nomination Committee
Membership: The Nomination Committee is chaired by Alastair Lyons and throughout 2012 comprised David Richardson, Angie Risley and Christopher 
Hyman. The Committee met three times during 2012. Malcolm Wyman joined the Committee in his appointment to the Board on 1 January 2013.

Responsibilities: Matters considered during the year included succession and contingency planning, Board structure and composition and the 
recruitment of a successor to David Richardson as Chair of Audit. 

The Committee has responsibility for the identification and nomination of candidates to fill Board vacancies as and when they arise, engaging external 
search consultants as and when necessary. Approval of appointment is a responsibility of the Board. 

The Nomination Committee has engaged the Zygos Partnership, an independent external executive search consultancy, for the appointment of new 
Non-Executive Directors. The Board confirms the Zygos Partnership is not connected with the Company in any way. In consultation with the chosen 
search consultants, specifications are drawn up for the roles and attributes that are felt to be essential for the effective performance of any new 
Non-Executive Director, including what would be considered acceptable in terms of time commitment. 

The Remuneration Committee
Details of the Remuneration Committee and its policies together with the Directors’ remuneration, emoluments and interests in the Company’s share 
capital are set out in the Remuneration Report on pages 98 to 114.

Executive Committees
Throughout 2012, an Executive Committee has operated which is chaired by the Chief Executive and comprises eight other members, including the 
Group Finance Director, Regional Chief Executives and other selected Corporate function heads. The Committee has delegated responsibility from 
the Board to ensure the effective direction and control of the business and to deliver the Group’s long-term strategy and goals. The Committee met 
nine times during the year to review the Group’s activities and discuss management and operational issues. Representatives from across the Serco 
business were invited to the meetings, as appropriate, to discuss aspects of their business or give presentations on specific topics. 

Relationship with shareholders
The Company’s relationship with shareholders is given a high priority. The Annual Report and Accounts is available to all shareholders both in hard 
copy and online at www.serco.com. 

We no longer produce a printed report of our half-year results. Instead, a letter summarising those results is issued to shareholders and a copy of the 
full stock exchange announcement is available on request. 

Regular trading updates are published ahead of close periods and before the annual general meeting by press release. In addition, press releases and 
stock exchange announcements are made regarding significant contracts or transactions. All trading announcements are also posted on the Group’s 
website www.serco.com.

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Annual General Meeting
Individual shareholders have the opportunity at the annual general meeting (AGM) to question the Chairman and, through him, the Chairs of the various 
Board Committees and other Directors. Details of the meeting are set out in the notice of AGM which is sent to shareholders and which contains the 
text of the resolutions to be proposed and explanatory notes. Shareholders attending the AGM are invited to vote by means of a poll. A poll reflects the 
number of voting rights exercisable by each member and is considered by the Board to be a more democratic method of voting. Shareholders are 
advised of the total number of votes lodged for each resolution, in the categories “for” and “against” together with the number of “votes withheld”. 
This information is also posted on the Group’s website www.serco.com. 

Institutional investors
The Chief Executive and Finance Director have regular dialogue with institutional investors. The Chairman also each year offers to meet with the 
Company’s largest institutional investors. The Company’s investor relations programme and day-to-day activities are managed by the Head of  
Investor Relations. As part of the role of Senior Independent Director, David Richardson is also available to meet shareholders, should it be required. 

The Board receives an investor relations report on a quarterly basis. This reviews share price movements and valuation, changes in the share register, 
the Company’s recent and planned investor relations activities, communication with shareholders, analyst recommendations and significant news 
from the market and specifically the support services sector. The report ensures that the Board has a clear understanding of the Company’s investor 
relations performance and enables all directors to develop an understanding of the views of major shareholders. 

Group website
The Group website www.serco.com is a primary source of information on the Group. The site includes an area tailored for investors, including 
information such as an archive of all reports, announcements, presentations and webcasts, share price tools, the terms of reference for all Board 
Committees, the Corporate Responsibility Report, and information on voting at the annual general meeting. It also has a link directly to the Company’s 
registrars, allowing shareholders to view their shareholding online and to vote on the resolutions set out in the notice of annual general meeting.

Business conduct
Serco Group operates within a Management System that defines the policies, standards and processes to be applied wherever we operate. Integral to 
this is our policy on Business Conduct and Ethics that applies to all business divisions, operating companies and business units throughout the world. 
This policy outlines the Group’s position on a wide range of ethical and legal issues including conflicts of interest, financial inducements, human rights 
and legal and regulatory compliance. It applies to Directors and to all employees regardless of their position or location. Recognising that ethical 
dilemmas may arise in a growing company the Group has an Ethics Consultation Process that is to be followed to determine the Group’s position 
on particular issues. To support this process an Investment and Ethics Committee, comprising members of the Executive Team with a quorum of  
three and chaired by the Chief of Staff, meets as required. As the leadership of the Company, the Executive Team will make judgements about what  
it considers acceptable. 

Serco’s outsourced Ethics Hotline operated throughout the year, which enabled employees to report any concerns, or report any wrongdoing, that they 
did not feel able to raise with their line manager, human resources colleagues or through other reporting channels. In addition to the Hotline, which is 
available toll-free worldwide in several languages, employees can also make reports via email or the internet. The Company Secretary investigates 
independently any issues raised and reports back to the Audit Committee and, as required, the Board. 

The Group maintains a position of impartiality with respect to party politics. Accordingly, it does not contribute funds to any political party. It does, 
however, contribute to the public debate of policy issues that may affect it in the countries in which it operates. 

Internal control and risk management
Further to the comments above regarding Governance, details of the Group’s internal control and risk management processes are contained in pages 
78 to 84 of the ‘Our performance’ section. The Board confirms that the actions it considers necessary have been taken to remedy any failings and 
weaknesses which it has determined to be significant from its review of the Group’s internal controls and risk management processes.

Going concern
The Directors have acknowledged the guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ and ‘An update 
for Directors of Listed Companies: Responding to increased country and currency risk in financial reports’, published by the Financial Reporting Council 
in October 2009 and January 2012 respectively. This is discussed in the Finance Review starting on page 58.

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

John Hickey
Secretary 
4 March 2013

Serco Group plc | Annual report and accounts 2012 | 91

  
 
 
 
 
 
Section 4 | Governance

Directors’ Report

Annual Report and Accounts
The Directors have pleasure in presenting the Annual Report and Accounts of the Group for the year ended 31 December 2012. Comparative figures 
used in this report are for the year ended 31 December 2011. The Corporate Governance Report set out on pages 85 to 91 forms part of the Statutory 
Directors’ Report.

Activities
Serco Group plc is a holding company which operates via its subsidiaries and its joint ventures to improve services by managing people, processes, 
technology and assets more effectively. Serco supports governments, agencies and companies who seek a trusted partner with a solid track record 
of providing assured service excellence. Our people offer operational, management and consulting expertise in the aviation, BPO, defence, education, 
environmental services, facilities management, health, home affairs, information and communications technology, knowledge services, local 
government, science and nuclear, transport, welfare to work and commercial sectors.

The Chairman’s Statement and the remainder of the ‘Our performance’ section on pages 18 to 84 report on the activities during the year, post balance 
sheet events, and likely future developments. The information in these reports which is required to fulfil the requirements of the Business Review is 
incorporated in this Directors’ Report by reference. 

Share capital
The issued share capital of the Company, together with the details of shares issued during the year is shown in note 32 to the Consolidated 
Financial Statements.

The powers of the Directors to issue or buy back shares are restricted to those approved at the Company’s annual general meeting.

The rules relating to the appointment and replacement of Directors are contained in the Company’s Articles of Association. Changes to the Articles 
of Association must be approved by the shareholders in accordance with the legislation in force from time to time.

Dividends 
An interim dividend of 2.65p (2011: 2.50p) per ordinary share was paid on 19 October 2012. The Directors recommend a final dividend of 7.45p 
(2011: 5.90p) per ordinary share which, if approved by shareholders at the Annual General Meeting, will be paid on 22 May 2013 to those shareholders 
on the register at the close of business on 15 March 2013. 

Interests in voting rights
As at 4 March 2013* the Company had been notified under Rule 5 of the Disclosure Rules and Transparency Rules of the Financial Services Authority of 
the following holdings of voting rights in its shares: 

Invesco Limited 
Capital Research and Management Company 
UBS Investment Bank 
Morstan Nominees Limited 
AXA S.A. 
Fidelity International Limited 
Baillie Gifford & Co 
Newton Investment Management Limited 
BlackRock Inc 
HBOS plc 

Number of shares

(millions) 

% held

60.1 
30.3 
29.1 
25.1 
24.4 
23.9 
24.0 
23.6 
21.8 
20.5 

12.05
6.07
5.90
5.11
4.95
4.93 
4.92
4.85
4.42
4.22 

The Directors are unaware of any restrictions on transfer of securities in the Company or on voting rights. There are also no known agreements  
between holders of the Company’s securities which may result in such restrictions. 

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Directors
The current members of the Board together with biographical details of each Director are set out on pages 96 and 97.

On 6 December 2012, the Company announced the appointment of Malcolm Wyman as a Non-Executive Director of the Company with effect from 
1 January 2013. Malcolm will stand for election at the Company’s AGM on 15 May 2013. 

At the conclusion of the Company’s 2013 AGM David Richardson will retire as a Non-Executive Director of the Company and, accordingly, will not be 
standing for re-election. Malcolm Wyman will take over as Audit Committee Chairman and Senior Independent Director on David’s retirement. All other 
Directors will stand for re-election at the AGM. 

Directors’ interests
With the exception of the Executive Directors’ service contracts and the Non-Executive Directors’ letters of appointment, there are no contracts in which 
any Director has an interest.

Certain change in control conditions are included in the service contracts of Directors which provide compensation or reduction of notice periods  
in the event of a change in control of the Company.

Details of the Directors’ interests in the ordinary shares and options over the ordinary shares of the Company are set out in the Remuneration Report 
on pages 98 to 114.

Annual general meeting
The Annual General Meeting of the Company will be held at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ on 15 May 2013 at 11.00am.

The Notice of Annual General Meeting together with explanatory notes is sent to shareholders with this Annual Report.

Financial risk policies
A summary of the Group’s treasury policies and objectives relating to financial risk management, including exposure to associated risks, is on pages 
153 to 158.

Employment policies
The Board is committed to maintaining a working environment where staff are individually valued and recognised. Group companies and divisions 
operate within a framework of human resources policies, practices and regulations appropriate to their own market sector and country of operation, 
whilst subject to Group-wide principles.

The Group is committed to ensuring equal opportunity, honouring the rights of the individual, and fostering partnership and trust in every working 
relationship. Policies and procedures for recruitment, training and career development promote equality of opportunity regardless of gender, sexual 
orientation, age, marital status, disability, race, religion or other beliefs and ethnic or national origin. 

The Group gives full consideration to applications for employment, career development and promotion received from the disabled and offers 
employment when suitable opportunities arise. If employees become disabled during their service with the Group arrangements are made wherever 
practicable to continue their employment and training.

The Group remains proud of its record of managing employee relations and continues to believe that the structure of individual and collective 
consultation and negotiation is best developed at a local level. 

Over the years, the Group has demonstrated that working with trade unions and creating effective partnerships allows improvements to be delivered 
in business performance as well as in terms and conditions of employment. Where employees choose not to belong to a trade union, employee 
communication forums such as works councils exist to ensure involvement of staff within the business.

Participation by staff in the success of the Group is encouraged by the availability of sharesave schemes, a share option scheme, and long term 
incentive arrangements for senior management, which effectively align their interests with those of shareholders by requiring that performance criteria 
are achieved prior to exercise.

Serco Group plc | Annual report and accounts 2012 | 93

  
 
Section 4 | Governance

Directors’ Report

Corporate responsibility 
The Group maintains a focus on corporate responsibility through a model that is applied across the business focusing on our people, safety, the 
environment and the communities we serve. This model forms an integral part of our Management System and is supported by defined policies  
in all of the areas it covers. These are applied within the context of our policies on Business Conduct and Ethics. Activities are reported quarterly  
as part of our internal assurance reporting process.

Further information on our approach to corporate responsibility and how we have delivered against our commitments is contained in the Corporate 
Responsibility Report which is available online at www.serco.com/cr2012. This site also provides an overview of our approach to corporate 
responsibility, our management system and our policies.

Creditor payment policies
The Group requires each of its business units to negotiate and agree terms and conditions for 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 terms and the way in which disputes are to be settled. Payment is then made in accordance with those terms.

The Group’s average creditor payment terms in 2012 were 26 days (2011: 32 days). 

Donations 
The Group continues to encourage all staff to participate in their local communities and has a process to assess both the value and type of investment 
on a worldwide basis. This measure is based upon the Business in the Community (BiTC) reporting format.

The value of this investment in 2012 at £2,560,084 (2011: £2,532,175) represents 1.02% of the Group’s pre-tax profit before exceptional items. 

During the year neither the Company nor the Group made political donations and they intend to continue with this policy. Within the US business  
there exists a Political Action Committee (PAC), which is funded entirely by employees and their spouses. The Serco PAC and its contributions are 
administered in strict accordance with regulatory requirements. Employee contributions are entirely voluntary and no pressure is placed on employees 
to participate. Under US law, an employee-funded PAC must bear the name of the employing company.

As announced on 20 December 2012, Serco has set out plans to establish the Serco Foundation as an independent charitable foundation to mark 2013 
as Serco’s 25th year as a publicly traded company dedicated to service excellence. Serco has made a one-off endowment of £5m to the Foundation 
and will provide ongoing support for its mission to help charities through the application of Serco’s people, skills and capabilities. The Foundation will 
be independent of Serco and will operate on a not-for-profit basis. 

Financial statements
At the date of this report, as far as each Director is aware, there is no relevant audit information of which the Group’s auditors are unaware. Each Director 
has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and 
to establish that the Group’s auditors are aware of that information.

Auditors
Deloitte LLP 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.

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

John Hickey
Secretary 
4 March 2013

* As at 25 March 2013 the Company had not been notified of any changes or additions to these interests.

94 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
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Directors’ Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the 
group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 
of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 
Reduced Disclosure Framework. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true  
and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. 

In preparing the parent company financial statements, the Directors are required to:

●● Select suitable accounting policies and then apply them consistently;
●● Make judgments and accounting estimates that are reasonable and prudent;
●● State whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed 

and explained in the financial statements; and

●● Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

●● Properly select and apply accounting policies;
●● Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; 
●● Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact 

of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

●● Make an assessment of the company’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and 
disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply 
with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the 
prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. 
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement 
We confirm that to the best of our knowledge:

●● The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, 

financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

●● The management report, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business 
and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal 
risks and uncertainties that they face.

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

John Hickey
Secretary 
4 March 2013 

Serco Group plc | Annual report and accounts 2012 | 95

  
 
 
 
 
 
Section 4 | Governance

Directors’ profiles

Alastair Lyons CBE (59)
Role: Chairman

Appointment: Alastair was appointed a Non-Executive Director of Serco Group plc in March 2010, becoming 
Chairman at the conclusion of the Company’s AGM in May 2010.

Responsibilities: Alastair is responsible for the effective operation of the Board and oversight of corporate 
governance. He is Chair of the Nomination Committee and a member of the Remuneration Committee.

Experience: In his executive career Alastair was Group Finance Director and subsequently Chief Executive  
of the National & Provincial Building Society. When the society was acquired in 1996 by Abbey National he  
joined the Abbey National main Board as Managing Director of its Insurance Division.

In 1997 he became Chief Executive of the pensions specialist NPI where he led its demutualisation and 
acquisition by AMP, subsequent to which he joined NatWest in 1999 as Director of Corporate Projects.

A chartered accountant with an MA in economics from Trinity College Cambridge, Alastair has been a 
non-executive director of, successively, the Department for Work & Pensions and the Department for Transport. 

External appointments: Alastair has been Chairman of Admiral Group plc, the direct motor insurer since 2000. 
In 2008 he was appointed deputy Chairman of Bovis Homes Group PLC, one of the UK’s leading quoted 
house-builders and in March 2010 he was appointed Senior Independent Director and Audit Chair of Phoenix 
Group Holdings the UK’s largest closed life and pension fund consolidator. In February 2011 he was appointed 
Chairman of the Towergate Insurance Group. He was awarded the CBE in the 2001 Queen’s Birthday Honours 
for services to social security.

Christopher Rajendran Hyman CBE (49)
Role: Chief Executive

Appointment: Chris was appointed Chief Executive of Serco Group plc in 2002.

Responsibilities: Chris is responsible for the formation and implementation of the Group’s global strategy, 
as well as the day to day management of the business operations and our relationship with the City and key 
stakeholders. He provides leadership and representation of the Group with major customers, shareholders 
and industry organisations. Chris is a member of the Nomination Committee.

Experience: Chris graduated from Natal University in Durban, South Africa and qualified as a chartered 
accountant, serving with Arthur Andersen and Ernst & Young before joining Serco in 1994 as the European 
Finance Director. He was appointed Group Company Secretary in 1996, Corporate Finance Director in 1997 
and Group Finance Director in April 1999.

External appointments: Chris is chairman of HRH The Prince of Wales’ charity In Kind Direct, and a Trustee of 
the Africa Foundation. Chris is a Trustee Director of the Board for Business in the Community and is Chairman 
of The Prince’s Seeing is Believing Programme. In the 2010 Queen’s Birthday Honours Chris was awarded the 
CBE for services to business and charity.

Andrew Mark Jenner (44)
Role: Finance Director

Appointment: Andrew was appointed Group Finance Director in May 2002.

Responsibilities: Andrew is responsible for the Group’s financial strategy and management including treasury, 
tax, reporting and control. He also has responsibility for our risk management and assurance framework. 
He shares responsibility with the Chief Executive for our relationship with shareholders and the City.

Experience: Andrew, a chartered accountant, joined Serco in 1996 as Group Financial Controller, having 
previously worked for Unilever and Deloitte & Touche LLP. He became Corporate Finance Director with  
additional responsibility for treasury activities in 1999 before joining the Board in 2002.

External appointments: Andrew is a non-executive director of Galliford Try plc, one of the UK’s leading 
construction and house-building groups and is Chairman of its Audit Committee.

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Ralph D. Crosby Jr (65)
Role: Non-Executive Director

Appointment: Ralph joined Serco as a Non-Executive Director in June 2011.

Experience: Ralph was Chairman of EADS North America until his retirement from that position at the end 
of December 2011. He joined EADS in 2002 as Chairman and Chief Executive Officer of EADS North America 
and also served as a member of the EADS global Executive Committee until 2010. Previously, Ralph has held 
numerous positions with Northrop Grumman Corporation, concluding over 20 years of service as President of 
their Integrated Systems Sector. Prior to his industry career, Ralph served as an Officer in the US Army. Ralph  
has an MA in Public Administration from Harvard, an MA in International Relations from the Graduate Institute 
of International Studies, Switzerland, and a BSc from the United States Military Academy at West Point, NY.

External appointments: Ralph is a non-executive director of American Electric Power Co Inc. and Ducommun 
Inc. in the United States.

David Richardson (61)
Role: Senior Independent Director

Appointment: David joined Serco as a Non-Executive Director in June 2003.

Responsibilities: David is Chair of the Audit Committee and a member of the Remuneration and 
Nomination Committees.

Experience: David, a Chartered Accountant, has previously held the position of Finance Director of Whitbread, 
where his roles in a 22 year career have included eight years as Strategy Director. David was instrumental in 
transforming Whitbread from a brewing and pub company into a market leader in hotels, restaurants and leisure 
clubs. David has been Chairman of De Vere Group plc, Forth Ports plc and a non-executive director of Tomkins 
plc, Dairy Crest Group plc and The Restaurant Group plc.

External Appointments: David is Chairman of BBGI (sicav) SA and Four Pillars Hotels Ltd. He is also a director 
of Assura Group Ltd and a member of the Supervisory Board of World Hotels AG.

Angie Risley (54)
Role: Non-Executive Director

Appointment: Angie joined Serco as a Non-Executive Director in April 2011. 

Responsibilities: Angie is Chair of the Remuneration Committee and a member of the Audit and 
Nomination Committees.

Experience: As Group Human Resources Director of J Sainsbury plc, Angie serves on Sainsbury’s Operating 
Board and has responsibility for corporate, retail and logistics HR for 150,000 colleagues.

Previously, Angie was Group Human Resources Director of Lloyds Banking Group plc, serving as a member of 
the Lloyds Banking Group Executive Committee with responsibility for developing group-wide people practices. 
Until May 2007, she was an executive director of Whitbread PLC, having joined the Whitbread Group in 1989. 
She has also been a member of the Low Pay Commission, and a non-executive director of Biffa plc and 
Arriva plc.

External appointments: Angie is Group Human Resources Director of J Sainsbury plc.

Malcolm Wyman (66)
Role: Non-Executive Director

Appointment: Malcolm joined Serco as a Non-Executive Director in January 2013. 

Responsibilities: Malcolm is a member of the Audit, Remuneration and Nomination Committees.

Experience: Malcolm was previously an executive director and the Chief Financial Officer of SABMiller plc, 
until his retirement in July 2011. Malcolm joined SAB in 1986 and joined the board as Group Corporate Finance 
Director in 1990. He was appointed to the board of SABMiller upon its listing on the London Stock Exchange 
in 1999. He was Chief Financial Officer from 2001 until his retirement in July 2011.

External appointments: Malcolm, a chartered accountant, is a non-executive director and Audit Committee 
Chairman of Imperial Tobacco Group PLC, and a non-executive director of Tsogo Sun Holdings Limited 
and Senior Independent Director and Audit Committee Chairman of Nedbank Group Limited in South Africa.

Serco Group plc | Annual report and accounts 2012 | 97

  
 
Section 4 | Governance

Remuneration Report

Dear Shareholder
On behalf of your Board, I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 December 2012.

In presenting my first report to shareholders, I would like to thank my predecessor, Leonard V. Broese van Groenou, for his very valued contribution 
to the Remuneration Committee over his six year tenure.

The Remuneration Committee recognises the importance of the BIS consultation on Executive Remuneration and the need to ensure that companies’ 
remuneration reports include clear information about the link between pay and performance. This year’s report includes additional disclosures on our 
reward and on our remuneration decisions in line with the proposals put forward in the BIS consultation.

This Report is in two parts:

1.   Remuneration policy report setting out all elements of a company’s remuneration policy and key factors that were taken into account in setting 

that policy, and 

2.   Implementation report showing how the policy was implemented, setting out actual payments to directors and details on the link between 

company performance and pay for the financial year covered by the accounts.

As reported in the Operating Review (pages 40 to 57), 2012 has been a year of significant progress operationally, financially and strategically for Serco. 
In addition to a record level of contract wins, the breadth of our portfolio has enabled our strength in the AMEAA region and the successful launch  
of our Global Services BPO division to offset challenges in the US federal contracting market. We have made further significant strategic progress 
in positioning our business to deliver strongly for the future. 

During the year, the Committee reviewed the existing remuneration arrangements and determined that the overall structure and shape of remuneration 
should be retained for 2013 and no changes have therefore been made for the coming year. As part of that process the Committee engaged with  
our larger Shareholders and two key shareholder bodies and we found the process extremely helpful. I would like to personally thank the Shareholders 
for their time, and for their open and transparent dialogue.

The Committee conducted its regular annual review of salaries of the Executive Directors, taking into account the current economic climate, the 
challenges facing the business, their performance and the competitiveness of their remuneration against the UK market. The Committee also has regard 
to the overall pay decisions for employees across the Group as a whole. Against this backdrop, salaries were adjusted in line with our remuneration 
principles to provide market competitive reward opportunities for performance where appropriate. With effect from 1 April 2012, their salaries increased 
by 3% to £750,000 for the Chief Executive and £440,000 for the Finance Director.

On the basis of Serco’s performance in 2012, annual bonus awards of 108.3% and 93.9% have been determined for the Chief Executive and the 
Finance Director. These outcomes reflect the performance achieved in the year against the financial and non-financial targets set. Serco’s financial 
performance for the year is described in more detail in the ‘Our performance’ section starting on page 18. The personal objectives set for each of the 
Directors covered areas such as active portfolio management (with capability driven acquisitions and non-core disposals), widening our exposure 
to emerging markets and the securing of key strategic contracts to deliver long-term performance as well as specific activities around the ongoing 
development and execution of the Group’s strategy.

Awards made in 2010 were subject to two performance measures, EPS growth and relative TSR. Under the 2010 PSP, vesting of 30% of the shares 
are subject to our EPS performance, and under the DBP, 50% of the matching shares are subject to this measure. We are pleased that our EPS 
performance against the three-year measure was compound growth of 12.6% per annum which resulted in 79.5% vesting for the EPS element of the 
2010 PSP and DBP. It is however, disappointing that our TSR performance for the period ended 31 December 2012 relative to the comparator group 
was below median, therefore no shares vested under this element of either the PSP (70%) or the DBP (50%).

The voting outcome at the 14 May 2012 AGM in respect of the Directors’ Remuneration Report for the year ended 31 December 2011 is set out  
on page 110 and reflected very strong Shareholder support of the Company’s remuneration policy, which remains unchanged for 2013.

The Committee continues to be mindful of the views of Shareholders and other stakeholders, and welcomes Shareholder feedback on any aspects 
of Executive remuneration.

Angie Risley
Remuneration Committee Chairman 
4 March 2013

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Remuneration Policy Report
The following report details the remuneration policy and the decisions on remuneration of the Directors of the Group for the year ended 31 December 
2012. In preparing this report, consideration has been given to the disclosure requirements of the UK Corporate Governance Code, the Companies  
Act 2006, Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the draft regulations  
from BIS on the proposed content of the new style Directors’ Remuneration Report that is anticipated to apply to accounting periods ending on  
or after September 2013.

The remuneration policy report is effective for the financial year ending 31 December 2013.

Remuneration policy
Serco’s remuneration policy supports the achievement of the Company’s long-term strategic objectives. Serco’s approach to executive remuneration 
is designed to:

●● Support Serco’s long-term future growth, strategy and values
●● Align the financial interests of executives and shareholders
●● Provide market competitive reward opportunities for performance in line with expectations and deliver significant financial rewards for sustained 

out-performance

●● Enable Serco to recruit and retain the best with the required skills and experience in all our chosen markets
●● Be based on a clear rationale which participants, shareholders and other stakeholders are able to understand and support.

Key elements of remuneration table
The remuneration package for Executive Directors consists of base salary, annual bonus, long-term share-based incentives, pension and other benefits. 
The Group’s policy is to ensure that a significant proportion of the package is related to performance.

Each element of reward and how it will support Serco’s remuneration policy and the Group’s short- and long-term strategic objectives is summarised 
below. Whilst the table is focused on Executive Directors, the following section provides further information of how pay policies are set for the broader 
employee population. 

Element and purpose

Approach and performance measurement

Level

Base salary
●● Help recruit and 
retain executives.

●● Recognise individual’s 

experience, responsibility 
and performance.

●● Pay levels are designed to be competitive and fair and 

reflect the skills and performance of individuals.

CEO: £779,000 
FD: £457,000

●● Base salaries are benchmarked annually and are set 
to ensure that total target remuneration is competitive.
●● Normally reviewed by the Committee annually and fixed 

for 12 months commencing 1 April.

●● The relative pay and employment conditions both within 
the Company and the comparator group are considered 
when determining salaries.

Benefits
●● To provide a competitive level 

of benefits.

●● Benefits are reviewed annually against market practice 

and are designed to be competitive

25 days’ holiday 
per year, car, private 
medical insurance, 
permanent health 
insurance, life cover, 
annual allowance for 
independent financial 
advice, and voluntary 
health checks every 
two years. 

Change 
for 2013

Increase: 3.86%

Increases reflect 
performance 
achieved in the year 
and are in-line with 
our performance 
related approach 
to salaries across 
the Group.

No change

Pension

●● The Executive Directors participated in the Serco Pension 

No change

and Life Assurance Scheme (SPLAS) – defined 
benefits scheme. 

●● Christopher Hyman opted to cease accruing benefits in 

the pension scheme after 1 April 2010 and Andrew Jenner 
after 31 December 2010.

●● Since ceasing to accrue benefits both Executive Directors 
have been in receipt of a cash allowance equal to 33% 
of base salary in lieu of further pension provision. 

●● The Executive Directors remain entitled to lump sum and 

widow’s pension benefits should they die before retirement 
and while still employed by Serco.

Serco Group plc | Annual report and accounts 2012 | 99

  
 
Section 4 | Governance

Remuneration Report

Element and purpose

Approach and performance measurement

Level

Change 
for 2013

●● Maximum bonus 

No change

opportunity: 150% 
of base salary for 
the Chief Executive 
and 130% for the 
Finance Director.
●● On-target bonus: 
75% of base  
salary for the  
Chief Executive  
and 65% for the 
Finance Director. 

Each individual 
investment share is 
matched with two 
shares for maximum 
performance.

No change

No change

Face value on grant of 
200% of base salary 
for the Chief Executive 
and 175% for the 
Finance Director.

Annual Bonus
●● Incentivise executives 
to achieve specific, 
predetermined goals  
during a one-year period.

●● Reward ongoing  

stewardship and contribution 
to core values.

●● Bonus is earned on the basis of achievement of a mix of 
financial and non-financial objectives which are weighted 
80% and 20% respectively.

●● Financial measures are based on Serco Group’s Key 
Performance Indicators (KPIs) and the non-financial 
measures are individually set and are based on key 
strategic objectives.

●● Bonus result is determined by the Committee after  
year end, based on performance against targets.

Deferred Bonus 
Plan (“DBP”)
Incentivise executive to 
achieve superior returns 
for shareholders.

Performance Share 
Plan (“PSP”)
Drive achievement of longer 
term objectives aligned closely 
to shareholders’ interests.

●● Executive Directors can elect to defer, for three financial 
years, up to 50% of their annual bonus by purchasing 
invested shares.

●● If stretching performance targets, measured over three 
years, are met each invested share which could have  
been purchased with the gross equivalent of the amount 
used to purchase invested shares will be matched by 
a maximum of two ‘matching’ shares. 

●● EPS growth is the sole measure to determine the vesting 

of matching shares. 

●● Dividends are reinvested and distributed only in respect 
of shares that vest at the end of the performance period.

●● The Committee has discretion to vary the proportion of 
awards that vest, to ensure that the outcomes are fair 
and appropriate and reflect the underlying financial 
performance of the Group.

●● Awards of nominal cost options/conditional shares made 
annually, with vesting dependent on EPS growth and 
relative TSR (compared to the companies in the FTSE 51 
to 130 (excluding investment trusts)) measured over 
three-year performance period.

●● The two performance measures are independent, 

measured over a three-year performance period and each 
determines 50% of the award.

●● No awards vest for performance below Median/Threshold.
EPS growth:
●● EPS growth is measured on a compound basis. 25%  
of the award will vest for threshold performance rising  
on a straight line basis to 100% for maximum performance.

Relative TSR:
●● Threshold vesting for the relative TSR condition is at 50% 

of the TSR achieved by the comparator group. 

●● Maximum vesting is achieved if the Company’s relative 

TSR ranking is in the upper quartile.

●● Dividends are reinvested and distributed only in respect 
of shares that vest at the end of the performance period.

●● The Committee has discretion to vary the proportion of 

awards that vest, to ensure that the outcomes are fair and 
appropriate reflect the underlying financial performance 
of the Group.

100 | Serco Group plc | Annual report and accounts 2012

Element and purpose

Approach and performance measurement

Level

Fees for non-executive  
directors
Reflect the time commitment and 
responsibilities of the roles.

●● The fees of the Chairman and the Non-Executive Directors, 

which are determined by the Board, are set at a level 
which will attract individuals with the necessary experience 
and ability to make a substantial contribution to the 
Group’s affairs.

●● The Chairman receives no fees in addition to the 

Chairman’s fee.

●● Each committee chairmanship and SID fee are all 

additional to the NEDs’ basic fee.

●● Fees are reviewed on an annual basis, taking into 
consideration market practice and are approved  
by the Board.

●● An allowance is payable for attendance at 

international meetings.

●● No bonuses are paid to Non-Executive Directors. 
●● NEDs are encouraged to hold shares in the Group  
but are not subject to a shareholding requirement.

●● NED fees are not performance related.

Base fee:
Chairman: £270,000

NED base fee: 
£50,000

Additional fees:
SID fee: £10,000 

Chairman of audit 
committee: £12,500

Chairman of 
remuneration 
committee: £10,000

No change to 
NED’s base or 
additional fees

Allowance:
£5,000 for attendance 
at each international  
meeting.

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Change 
for 2013

Chairman’s base 
fee increased by 
3.8% with effect 
from 1 April 2013.

The Chairman’s fee 
increase reflects 
positioning against 
market and the 
contribution made 
in his role.

Remuneration policy for other employees
The remuneration policy described in the previous table applies specifically to executives of the group. The remuneration committee believes that the 
structure of management reward at Serco is also linked to Serco’s strategy and performance. The table below explains how the remuneration policy 
has been cascaded below Executive Directors to achieve alignment of policy across the organisation.

Element

Base salary

Benefits

Pension

Difference in remuneration policy for other employees

●● The same principles and considerations that are applied to Executive Directors are, as far as possible, 

applied to all employees.

●● Serco also has provisions for market aligned benefits for all employees.

●● The Group operates a number of defined benefit schemes and defined contribution schemes.

Annual bonus

●● Approximately 500 members of the Global Leadership Team are eligible for a bonus award under 

The Leadership Team Bonus Scheme.

Deferred Bonus Plan (“DBP”)

●● Members of the Executive Committee are invited to participate in the DBP on the same terms as the 

Executive Directors.

Performance Share Plan (“PSP”)

●● The PSP is awarded to approximately 500 employees in the Global Leadership Team.

Sharesave

●● An all-employee scheme. Options are normally granted at a discount of 10% to the market value and have 

no performance conditions. The Executive Directors do not participate in Sharesave.

Serco Group plc | Annual report and accounts 2012 | 101

  
 
Section 4 | Governance

Remuneration Report

Remuneration scenarios
The charts illustrate the composition and value of the different elements of remuneration that the Executive Directors will receive for below threshold, 
target and maximum corporate performance. The chart indicates that a significant proportion of both target and stretch pay is performance-related. 
For ‘target’ performance – variable pay accounts for two thirds of total pay.

Proportion of remuneration package value delivered through 
fixed and performance-related pay for the CEO (%)

Potential value of the CEO’s 2013 remuneration package (£000)

25%

75%

100

90

80

70

60

50

40

30

20

10

0

28%

11%

28%

8%

25%

32%

24%

24%

5%

16%

6,000

5,000

4,000

3,000

2,000

1,000

0

896

351

876

257

779

257

779

1,558

1,169

1,169

257

779

Below threshold

Target

Maximum

Below threshold

Target

Maximum

● Base Pay
●  Pension
●  Performance-related 

annual bonus

●●Deferred Bonus Plan
●●Performance Share Plan

● Base Pay
●  Pension
●  Performance-related 

annual bonus

●●Deferred Bonus Plan
●●Performance Share Plan

Proportion of remuneration package value delivered through 
fixed and performance-related pay for the FD (%)

Potential value of the FD’s 2013 remuneration package (£000)

100

90

80

70

60

50

40

30

20

10

0

25%

75%

28%

11%

24%

9%

28%

31%

23%

23%

6%

18%

3,000

2,500

2,000

1,500

1,000

500

0

460

178

386

151

457

151

457

800

594

594

151

457

Below threshold

Target

Maximum

Below threshold

Target

Maximum

● Base Pay
●  Pension
●  Performance-related 

annual bonus

●●Deferred Bonus Plan
●●Performance Share Plan

● Base Pay
●  Pension
●  Performance-related 

annual bonus

●●Deferred Bonus Plan
●●Performance Share Plan

Notes:
• Base salary corresponds to 2013 salary for CEO and FD.
• Pension represents 33% salary allowance for CEO and FD.
• Below threshold no incentives vest (bonus and LTI).
•  Bonus pays out 75% and 65% of salary for on target performance for the CEO and FD respectively and 150% and 130% of salary for maximum performance  

for the CEO and FD respectively.

• Deferred bonus provides a match of 1:2 for target performance and 2 matching shares for maximum performance.
• The LTI values reflect target and maximum vesting of the proposed 2013 award. Share price movement has not been incorporated into the above figures.

102 | Serco Group plc | Annual report and accounts 2012

 
 
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Changes in key metrics
The chart below details the percentage change in profit, dividends and overall expenditure on pay compared with the previous financial year.

Serco considers overall expenditure on staff pay in the context of the general finances of the company; this includes the determination of the  
annual salary increase budget, the annual grant of shares and annual bonus funding for the business. 

Change in profit, dividends and overall expenditure on pay  
2012 v 2011 (%)

25

20

15

10

5

0

Operating profit

Dividend

Overall Expenditure
on Staff Pay

‘Operating Profit’ excludes exceptional items, ‘Dividend’, and ‘Overall 
Expenditures on Staff Pay’ shall have the same meaning as used in the 
preparation of the accounts of the Company

Considerations of conditions elsewhere in the group 
When making decisions on executive remuneration, the Remuneration Committee considers the wider economic environment and conditions within 
the Company. In particular the Committee considers pay across the company when reviewing base salaries for Executive Directors.

Individual pay increases that range from zero to amounts in excess of those granted to the Executive Directors were awarded to various employees 
for reasons including performance, promotion, increased scope of role and market position.

Service contracts

Executive Director

Date joined the Company

Date of appointment 
to the Board

Date of contract

Christopher Hyman

30 August 1994

Andrew Jenner

4 November 1996

1 April 1999

3 May 2002

10 June 2009

10 June 2009

Each Executive Director has a rolling service contract and these contracts will be available for inspection prior to the start of and after the Company’s 
annual general meeting. 

The service contracts have a notice period of 12 months. The Company reserves the right to make a payment in lieu of notice. In addition, where 
a Director leaves the Company following a change of control, whether or not he is dismissed or he elects to leave on notice, he will be entitled to  
receive a payment equivalent to up to one year’s remuneration. The service contracts do not provide for termination payments to be made in any  
other circumstances. The Executive Directors are also entitled to a range of benefits which comprise 25 days holiday per year, a car, private medical 
insurance, health cover, annual allowance for independent financial advice and voluntary health checks every two years.

There have been no payments made during the year in relation to compensation for loss of office. 

External appointments
The Board believes that the Group can benefit from its Executive Directors holding appropriate non-executive directorships of companies 
or independent bodies. Such appointments are subject to the approval of the Board. Fees are retained by the Executive Director concerned.

Andrew Jenner served as a non-executive director of Galliford Try plc during the year. Fees payable in the year were £40,000.

No other fee-paying external positions were held by either of the Executive Directors.

Serco Group plc | Annual report and accounts 2012 | 103

  
 
 
Section 4 | Governance

Remuneration Report

Implementation Report – Summary of 2012 remuneration outcomes

The Remuneration Committee
The Committee determines the overall remuneration policy for senior management and the individual remuneration of the Executive Directors. 
This includes base salary, bonus, long-term incentives, pensions, benefits and terms of employment (including those terms on which service 
may be terminated). The Committee also determines the remuneration of the Chairman. 

Terms of reference
The terms of reference of the Committee, a copy of which can be found on the Group’s website, are reviewed annually to ensure that they remain 
appropriate. Details of the Directors’ attendance at the Committee meetings can be found in the Corporate Governance Report on page 87.

Remuneration Committee members and attendees (the Committee met eight times during 2012)

Remuneration Committee members

Position

Angie Risley

Alastair Lyons

David Richardson

Chairman of the Remuneration Committee  
(from 14 May 2012)

Member from 10 May 2011

Member from 2 June 2003

Leonard V. Broese van Groenou

Chairman of the Committee until 14 May 2012

Remuneration Committee attendees 
during the year

Position

Christopher Hyman

Andrew Jenner

Geoff Lloyd

Chief Executive

Finance Director

Group HR Director

Cathy Aldwinckle/Richard Hortop

Group Head of Reward

Comments

Independent

Independent

Independent

Retired from the Board at the conclusion of 
the Company’s 2012 annual general meeting 
on 14 May 2012

Comments

Attends by invitation

Attends by invitation

Attends as an executive responsible for 
advising on the remuneration policy

Attends as an executive responsible for 
advising on the remuneration policy

John Hickey

Company Secretary

Attends as the secretary to the Committee

No person is present during any discussion relating to their own remuneration arrangements.

104 | Serco Group plc | Annual report and accounts 2012

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Advisors to the Remuneration Committee
During the year the Committee has been advised by Towers Watson who were originally appointed by the Committee in May 2008 and 
PricewaterhouseCoopers LLP (“PwC”) who were appointed as independent advisers following a competitive tendering process by the Committee  
in August 2012. Consulting services have also been provided to the Group by the advisors in relation to retirement benefits and pay data,  
accounting and taxation services.

Towers Watson and PwC provided advice throughout the year mainly around the following key executive reward areas:

●● Advice on reviewing the existing PSP
●● Support in shareholder consultation process
●● Benchmarking the Chairman and Non-Executive Director fees
●● Benchmarking Board and Executive Committee total remuneration
●● Support in reviewing the DRR
●● Responding to general and technical reward queries

Both Towers Watson and PwC are members of the Remuneration Consultants’ Group which oversees the voluntary code of conduct in relation 
to executive consulting in the UK. Fees paid to Towers Watson as advisers to the Committee during the year totalled £88,017 and fees paid to 
PwC as advisers to the Committee totalled £212,880.

The Chairman and Non-Executive Directors
The Group’s policy is that the fees of the Chairman and the Non-Executive Directors, which are determined by the Board, are set at a level which will 
attract individuals with the necessary experience and ability to make a substantial contribution to the Group’s affairs.

Non-Executive Directors of the Group are initially appointed for a three-year term, and that appointment may be terminated on three months’ written 
notice. No compensation or other benefits are payable on early termination. The renewal of appointments is not automatic, Non-Executive Directors 
are required to retire and stand for re-election in accordance with the UK Corporate Governance Code and Company’s Articles of Association. 
From 2011 directors are also required to stand for re-election annually in accordance with the UK Corporate Governance Code.

As at 31 December 2012, the Non-Executive Directors of the Group had no personal financial interest in the matters determined by the Board, there are 
no conflicts of interest arising from cross-directorships and no involvement in the day-to-day running of the Group. The Non-Executive Directors do not 
participate in the Group’s incentive or pension schemes, or receive other benefits except as described. 

Serco Group plc | Annual report and accounts 2012 | 105

  
 
Section 4 | Governance

Remuneration Report

Remuneration of Non-Executive Directors
Non-Executive Directors’ remuneration consists of cash fees paid monthly with increments for positions of additional responsibility. In addition, 
reasonable travel and related business expenses are paid. No bonuses are paid to Non-Executive Directors. Non-Executive Directors’ fees are 
not performance related.

Non-Executive Directors are encouraged to hold shares in the Group but are not subject to a shareholding requirement. 

The fees and terms of engagement of Non-Executive Directors are reviewed on an annual basis, taking into consideration market practice and are 
approved by the Board. The standard annual fees payable for the Chairman and Non-Executive Directors during the financial year under review 
are shown in the table below. 

Fees

Date of 
appointment 
to the Board

Date of letter 
of appointment

Base

SID

Audit Committee  
Chairmanship

Remuneration  
Committee  
Chairmanship

Alastair Lyons
Chairman; Member 
of Nomination and 
Remuneration 
Committees

David Richardson
Chairman of  
Audit Committee; 
SID; Member of 
Nomination and 
Remuneration 
Committees

Angie Risley
Chairman of 
Remuneration 
Committee;  
Member of Audit  
and Nomination 
Committees

Ralph D. 
Crosby Jr

Malcolm  
Wyman
Member of Audit, 
Nomination and 
Remuneration 
Committees

16 March 2010

2 June 2003

1 April 2011

30 June 2011

1 January 2013

15 March 2010

29 May 2003

23 March 2011

30 June 2011

26 November 2012

£270,000¹,²

£50,000

£10,000

£12,500

£50,000

£50,000

£50,000

£10,000

£12,500

£10,000

Total fee

£270,000

£72,500

£60,000

£50,000

£72,500

Comments

Assumed role of  
Chair of Remuneration 
Committee with effect 
from 14 May 2012

Will retire from  
the Board at the 
conclusion of the 
Company’s 2013 
annual general 
meeting on 
15 May 2013

Will assume the role 
of Chair of the Audit 
Committee and SID 
on retirement of 
David Richardson

Notes:
1. Fees for the Chairman have increased from £260,000 to £270,000 with effect from 1 April 2013
2. Alastair Lyons’ remuneration consists of cash fees paid monthly. In addition, reasonable travel and related business expenses are paid. No bonuses are payable.
3. £5,000 is payable for travel to international meetings.

106 | Serco Group plc | Annual report and accounts 2012

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Directors’ remuneration
This section has been audited by Deloitte LLP.

Directors’ remuneration for the financial year ended 31 December 2012

Note Remuneration 
£ 

Fees 
£ 

Alastair Lyons 

1,6 

Nil 

257,500 

Christopher Hyman  2,3,4,5,8 

744,500 

Andrew Jenner 

2,3,4,5,8 

436,750 

Leonard V. Broese  
van Groenou 

David Richardson 

Angie Risley 

Ralph D. Crosby Jr 

1,6,7 

1,6 

1,6 

1,6 

Nil 

Nil 

Nil 

Nil 

Nil 

Nil 

30,000 

72,500 

56,666 

50,000 

Total  
estimated  
value of  
non cash 
benefits 
£ 

Sub-total 

Sub-total 
 remuneration  remuneration 
excluding 
pensions 
2011 
£ 

excluding 
pensions 
2012 
£ 

Allowance 
£ 

LTIP value 

Total 
estimated 
‘Single  
figure’ 
vesting  remuneration 
in 2012 year 
in 2012 
£
£ 

Nil 

5,000 

262,500 

255,000 

Nil 

Nil

Bonus 
£ 

Nil 

812,250 

2,989 

319,950  1,879,689  1,916,843 

632,620  2,512,309

412,984 

2,989 

218,894  1,071,617  1,089,008 

324,462  1,396,079

Nil 

Nil 

Nil 

Nil 

Nil 

Nil 

Nil 

Nil 

Nil 

30,000 

65,000 

5,000 

77,500 

77,500 

5,000 

61,666 

42,500 

25,000 

75,000 

45,189 

Nil 

Nil 

Nil 

Nil 

Nil

Nil

Nil

Nil

Total 

  1,181,250 

466,666  1,225,234 

5,978 

578,844  3,457,972  3,491,040 

957,082  3,908,388

Notes:
1. In addition, reasonable travel and related business expenses are paid but are not subject to UK income tax.
2. The value of the non cash benefits relates to private healthcare.
3. The bonuses shown include performance bonuses earned in the period under review, but not paid until the following financial year.
4. Remuneration is shown gross of salary sacrificed under the SMART scheme. See page 99.
5.  The allowances include payments made in lieu of pension, calculated as a percentage of base salary, from which he makes his own pension arrangements and does 
not include the value of accrued pension under the DB scheme – see page 99 for further details, and the provision of a car allowance (fully inclusive of all scheme 
costs including insurance and maintenance).

6. The allowance comprises payment for travel to international meetings.
7. Leonard V. Broese van Groenou retired from the Board at the conclusion of the Company’s 2012 annual general meeting on 14 May 2012.
8. The value of shares vested in the year based on an average market value over the last quarter of the financial year.
9. Prior to the sad and untimely passing of Paul Brooks in January 2012 he received £4,167 in fees.

Variable pay outcomes
Performance-related annual bonus
For 2012, bonus was earned on the basis of achieving a mix of financial and non-financial objectives which were weighted 80% and 20% respectively. 
Payment for target was set at 75% of Chief Executive’s base salary and at 65% of the Finance Director’s base salary. The maximum annual bonus 
opportunity was set 150% of the Chief Executive’s base salary and at 130% of the Finance Director’s base salary. Annual bonuses are not pensionable.

Financial measures were based on Serco Group’s Key Performance Indicators (KPIs) and the non-financial measures were individually set and are 
based on key strategic goals. The three financial measures for 2012 were based on revenue, profit before tax and cash conversion. These measures 
reflect the growth and margin improvement strategies of the business. The standards of performance set are designed to be stretching. The non-
financial goals set for 2012 assessed performance against a number of strategically important objectives for each individual linked to key strategic 
areas such as active portfolio management (with capability driven acquisitions and non-core disposals), widening our exposure to emerging markets 
and the securing of key strategic contracts to deliver long-term performance as well as specific activities around the ongoing development and 
execution of the Group’s strategy.

On the basis of Serco’s performance in 2012, annual awards of 108.3% and 93.9% of salary have been determined for the Chief Executive and 
Finance Director respectively.

Serco Group plc | Annual report and accounts 2012 | 107

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 4 | Governance

Remuneration Report

Performance-related long term incentives
Deferred Bonus Plan (DBP)
Executive Directors can elect to defer, for three financial years, up to 50% of their annual bonus by purchasing invested shares. Under the 2010 DBP, 
50% of the matching shares were subject to EPS growth and 50% subject to relative TSR. In 2012 both the Chief Executive and the Finance Director 
elected to defer 50% of their earned bonus into the DBP. 

For matching awards which completed their performance period on 31 December 2012, achievement against the measure is shown in the table below:

2010 
DBP deferral

CEO – 50%

FD – 50% 

Performance condition

Weight

Achievement

Resulting 
vesting

EPS growth. The range was 9% (threshold) – 
14% (maximum). For threshold performance 
each invested share is matched by half  
a share rising to a match of two shares 
at maximum performance.

Relative TSR. For median performance each 
invested share is matched by half a share  
rising to a match of two shares for upper 
quartile performance.

50%

Compound growth 
12.6%

79.5%

50%

Below median

No shares vest

For performance between median or threshold and upper quartile or maximum, the number of matching shares will be determined on a straight 
line basis.

Performance Share Plan (PSP)
For the awards of nominal cost options that were made in April 2010, vesting was dependent on EPS growth and relative TSR measured over a three-
year performance period. Face value awards on grant were 200% of base salary for the Chief Executive and 175% for the Finance Director.  
For the PSP awards which completed their performance period on 31 December 2012, achievement against the measure is shown in the table below:

2010 
PSP awards 
(% of salary)

CEO – 200%

FD – 175%

Performance condition

Weight

Achievement

Resulting 
vesting

EPS growth. The range was 9% (threshold) – 
14% (maximum). For threshold performance 
25% of the award vests rising on a straight line 
basis to 100% at maximum performance.

30%

Compound growth 
12.6%

79.5%

Relative TSR. For median performance 25%  
of the award vests rising on a straight line basis 
to 100% for upper quartile performance.

70%

Below median

No shares vest

Variable pay awarded during the financial year
Deferred Bonus Plan (DBP)
In 2012 both the Chief Executive and the Finance Director elected to defer 50% of their earned bonus into the DBP. 

For matching share awards made in 2012, EPS growth was the sole performance measure. The range for the three-year performance period was  
set at annual compound EPS growth of 5.5% at threshold to 10.5% at maximum. No matching shares will vest where performance is below threshold. 
For threshold performance, each invested share will be matched by one matching share. For maximum level performance each invested share will 
be matched (on a gross investment basis) by two shares. For performance between threshold and maximum, the number of matching shares will 
be determined on a straight line basis.

The definition of EPS is Adjusted EPS calculated in accordance with IAS 33 “Earnings per Share” and is before amortisation on acquired intangibles, 
acquisition related costs and exceptional items. EPS is also adjusted for any material acquisitions, disposals and currency movements.

The Committee has discretion to vary the proportion of awards that vest under the DBP to ensure that the outcomes are fair and appropriately reflect 
the underlying financial performance of the Group.

108 | Serco Group plc | Annual report and accounts 2012

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Performance Share Plan (PSP)
In 2012 the executive directors received awards equivalent to 200% of salary for the Chief Executive and 175% for the Finance Director.

The shares will normally only vest at the end of a three-year performance period, if the Executive Directors are still in employment with Serco and  
the two performance measures have been met. The measures are EPS growth and relative TSR compared to the companies in the FTSE 51 to 130 
(excluding investment trusts). The two measures are independent and each determines the vesting of half of the award

The structure for vesting is the same for both measures and no shares vest where performance is either below threshold (EPS) or below median (TSR). 

For threshold/median performance 25% of the award will vest rising on a straight line basis to 100% for maximum/upper quartile performance.  
The EPS growth range was set at 5.5%-10.5%.

Total pension entitlement and life assurance
This section has been audited by Deloitte LLP.

The 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 the note on pages 159 to 166. In the event of death in service, 
the Serco Supplementary Death Benefit Scheme provides for a lump sum payment.

The accrued pension benefits of all Directors under the Serco Pension and Life Assurance Scheme, which is a defined benefit scheme, are as follows:

Transfer  
value at  

Change 
Transfer 
in transfer 
Director’s 
value at  contributions  value during 
the year 
for the 
(4) = 
year 
(1)-(2)-(3) 
(3) 
£ 
£ 

 31 December  31 December 
2011 
(2) 
£ 

2012 
(1) 
£ 

Increase 
in accrued 
pension 
during 
the year 
(5) 
£ p.a. 

Increase 
in accrued 
pension 
during the 
year, net 
of inflation 
(6) 
£ p.a. 

Transfer 
value of 
increase 
in accrual 
net of 
inflation 
(7) 
£ 

Accrued 
pension at 
year end 
(8) 
£ p.a.

Christopher Hyman 
Andrew Jenner 

  2,158,373  2,180,757 
  1,132,366  1,184,608 

– 
– 

(22,384) 
(52,242) 

1,245 
2,100 

351 
– 

5,933 
– 

127, 635
79,819

Notes:
a.  

 Christopher Hyman ceased pension accrual on 1 April 2010 and Andrew Jenner on 31 December 2010, both opting to receive a cash alternative equal to 33% of base 
pay (excluding bonuses) in lieu of any further pension provision. Executives remain entitled to lump sum and widow’s pension benefits should he die before retirement 
and whilst employed by Serco.
 The accrued pension shown is that which would be paid annually on retirement, were 31 December 2012 the director’s Normal Retirement Date, based on pensionable 
service to the date of ceasing accrual. 
 The increase in the accrued pension over the year is shown both as a gross increase and net of statutory inflation (see further notes below).
 Transfer values have been calculated in accordance with the Occupational Pension Schemes (Transfer Value) Regulations 1996. The assumptions used for calculating 
transfer values have been reviewed by the Trustees during the year and updated to reflect changes in expectation of inflation and life expectancy.
 CPI increased by 2.2% over the year September 2011 to September 2012, the period used for statutory increases, and by 5.2% for the prior year. Statutory indexation 
restricts pre retirement increases to 5% p.a. over the period of measurement for pension earned prior to 5 April 2009 and to 2.5% p.a. for pension earned after that date, 
and we have used this measure of inflation for calculating the increase in accrued pension net of inflation in (6).
 The accrued pension for Andrew Jenner receives statutory increases and hence the increase net of inflation is zero. The increase in the accrued pension for Christopher 
Hyman allows for an increase in line with RPI to a maximum of 4% p.a. over the period from date of ceasing accrual to April 2012, as agreed when he ceased accrual. 
Statutory increases will be received from April 2013, as agreed following recent changes in legislation.
 The impact of allowing for changes in expectations of inflation and improvement in life expectancy in the transfer value assumptions on their own would result in higher 
transfer values at the beginning and end of the year, shown in (4), includes the effect of both changes in the transfer values assumptions and the effect of fluctuations 
in the transfer value due to factors beyond the control of the Company and the Directors, such as stock market movements.

b. 

c.  
d. 

e.  

f.  

g. 

h.   The 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.

Serco Group plc | Annual report and accounts 2012 | 109

  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 4 | Governance

Remuneration Report

Shareholder context
The Annual General Meeting of Serco Group plc was held on 14 May 2012. In line with recommended practice, a poll was conducted on each 
resolution at the meeting. The results of the poll to approve the Directors’ Remuneration Report for the year ended 31 December 2011 are set out below.

For¹ 

Against 

Votes 

% 

Votes 

351,474,463 

93.72 

235,472,217 

% 

6.28 

Withheld²
Votes

8,299,355

Includes those votes giving the Chairman discretion.

1.  
2.   A “Vote Withheld” is not a vote in law and is not counted in the calculation of the proportion of votes “For” or “Against” a Resolution.
3.   At the meeting date there were 498,248,152 ordinary shares in issue.

Directors’ shareholding
The Committee believes that employee share ownership is an important means to support long-term commitment to the Company and the alignment 
of employee interests with those of shareholders. The ownership requirement for the Executive Directors is two times base salary for the Chief Executive 
and one times base salary for the Finance Director. As shown in the table below both Directors exceed their share ownership requirements.

Executives are required to retain in shares 50% of the net value of any performance shares vesting or options exercised until they satisfy the 
shareholding requirement.

As at 31 December 2012, the Executive Directors’ share ownership against the guidelines were:

Christopher Hyman 
Andrew Jenner 

Ordinary shareholding at  
31 December 2012 (535p) 

Ordinary shareholding at 
31 December 2011 (474p)

No. of shares 

% of salary 

No. of shares 

% of salary

917,024 
364,831 

654% 
444% 

820,197 
310,991 

534%
345%

The table below shows the shareholdings for the Executive Directors and the Non-Executive Directors at the end of 2012.

Alastair Lyons 
Leonard V. Broese van Groenou 
Christopher Hyman 
Andrew Jenner 
David Richardson 
Angie Risley 
Ralph D. Crosby Jr 

Note 
1 

2 
3,4 
3 

Ordinary shares of 2p each  
fully paid at 31 December 2012 
or date of cessation if earlier 

Ordinary shares of 2p each  
fully paid at 1 January 2012

15,000 
5,375 
917,024 
364,831 
15,000 
4,399 
– 

15,000
5,375
820,197
310,991
15,000
4,399
–

Notes:
1. Ordinary shares are beneficial holdings which include the Directors’ personal holdings and those of their spouses and minor children.
2.  Leonard V. Broese van Groenou retired from the Board of Serco Group plc at the conclusion of the Company’s 2012 annual general meeting on 14 May 2012.
3.  122,990 of Christopher Hyman’s and 65,386 of Andrew Jenner’s shares are held in trust on their behalf under the terms of their participation in the Deferred Bonus Plan. 
Provided such shares remain in trust for three years and subject to certain performance conditions, they are also granted an award over matching shares equivalent  
to two times the gross bonus initially used for the share purchase.

4.  Security has been granted to Christopher Hyman’s bank over 85,564 ordinary shares held in his name.
5. As at 25 March 2013 there were no changes to the Director’s interests.

110 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Other Shareholding information
The following pages detail other share movements and share information for 2012.

The information in these tables has been audited by Deloitte LLP.

Serco Group plc Deferred Bonus Plan (DBP)
Conditional rights to receive matching shares over Serco Group plc’s ordinary shares under the DBP held by Directors at 31 December 2012  
were as follows:

Awards held at 
1 January 2012 

Date of award 

Market price 
at award 
(p) 

Granted during 

Awards held at 

the period  31 December 2012  Performance period 

Vesting date

Christopher Hyman 

130,754 

12 Jun 2009 

144,666 

29 Mar 2010 

173,898 

4 Apr 2011 

– 

21 May 2012 

Andrew Jenner 

76,232 

12 Jun 2009 

73,865 

29 Mar 2010 

88,033 

4 Apr 2011 

– 

21 May 2012 

404 

602 

551 

518 

404 

602 

551 

518 

– 

– 

– 

– 

144,666 

173,898 

170,935 

170,935 

– 

– 

– 

– 

73,865 

88,033 

87,010 

87,010 

1 Jan 2009– 
31 Dec 2011
1 Jan 2010– 
31 Dec 2012
1 Jan 2011– 
31 Dec 2013
1 Jan 2012– 
31 Dec 2014

1 Jan 2009– 
31 Dec 2011
1 Jan 2010– 
31 Dec 2012
1 Jan 2011– 
31 Dec 2013
1 Jan 2012– 
31 Dec 2014

12 Jun 2012 

29 Mar 2013 

4 Apr 2014 

21 May 2015 

12 Jun 2012 

29 Mar 2013 

4 Apr 2014 

21 May 2015 

Notes:
1.  The awards shown in the table are the maximum number of shares that can vest under the performance conditions.
2.  The performance conditions attached to the awards are described on page 100.
3.  The performance conditions attached to the awards that vested on 12 June 2012 achieved maximum against the EPS element (50%) of the award resulting in 100% vesting 

and below threshold against the TSR element (50%) resulting in zero vesting.

4.  For awards which completed their performance period on 31 December 2012, our performance against the three-year EPS performance measure was compound growth 
of 12.6% per annum which resulted in 79.5% of the EPS element (50%) of the award vesting. For the TSR element of the matching award, the Group’s TSR performance 
relative to its comparator group was below median and therefore no shares under TSR element (50%) of the matching award vested.

5.  The aggregate of the total theoretical gains on the awards exercised by the Directors during 2012 amounted to £0.6 million. This is calculated be reference to the difference 

between the closing mid-market price of the shares on the date of exercise and the award price, disregarding whether such shares were sold or retained on exercise,  
and is stated before tax. Of the 107,281 awards exercised, 51,298 shares were retained.

Serco Group plc | Annual report and accounts 2012 | 111

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 4 | Governance

Remuneration Report

Serco Group plc Performance Share Plan (PSP)
Conditional rights to Serco Group plc ordinary shares under the PSP held by Directors at 31 December 2012 were as follows:

Awards 
held at 
1 January 
2012 

Date of 
award 

Christopher Hyman 

315,789  22 Jun 2009 

213,750 

6 Apr 2010 

247,568  31 Mar 2011 

Market 
price at 
award 
(p) 

408 

604 

566 

Granted 
during the 
period 

– 

– 

– 

Awards 
held at 31 
December 
2012 

98,206 

213,750 

247,568 

– 

8 Jun 2012 

535 

272,149 

272,149 

Andrew Jenner 

162,790  22 Jun 2009 

110,190 

6 Apr 2010 

127,652  31 Mar 2011 

408 

604 

566 

– 

– 

– 

50,624 

110,190 

127,652 

– 

8 Jun 2012 

535 

139,672 

139,672 

Performance 
period 

Earliest 
vesting date 

Latest  

exercise date

6 Apr 2013 

1 Jan 2009–  22 Jun 2012  21 Jun 2019 
31 Dec 2011
1 Jan 2010– 
31 Dec 2012
1 Jan 2011–  31 Mar 2014  30 Mar 2021 
31 Dec 2013
1 Jan 2012– 
31 Dec 2014

7 Jun 2022 

8 Jun 2015 

5 Apr 2020 

6 Apr 2013 

1 Jan 2009–  22 Jun 2012  21 Jun 2019 
31 Dec 2011
1 Jan 2010– 
31 Dec 2012
1 Jan 2011–  31 Mar 2014  30 Mar 2021 
31 Dec 2013
1 Jan 2012– 
31 Dec 2014

7 Jun 2022 

8 Jun 2015 

5 Apr 2020 

Notes:
1.  Awards take the form of nominal cost options.
2.  Awards made are calculated at a face value on grant of 200% and 175% of base salary for the Chief Executive and Finance Director respectively.
3.  The performance conditions attached to the awards are described in the Policy Report on page 100.
4.  The performance conditions attached to the awards that vested on 22 June 2012 achieved maximum against the EPS element (30%) of the award resulting in 100% vesting 

and below threshold against the TSR element (70%) resulting in zero vesting.

5.  On 31 December 2012 the performance conditions attached to the awards made on 6 April 2010 were satisfied. Our performance against the three-year EPS performance 
measure was compound growth of 12.6% per annum which resulted in 79.5% of the EPS element (30%) of the award vesting. For the TSR element of the matching award, 
the Group’s TSR performance relative to its comparator group was below median and therefore no shares under TSR element (70%) of the matching award vested.

Serco Group plc 2006 Long Term Incentive Plan (LTIP)
The LTIP has been replaced by the PSP. The conditional rights to Serco Group plc ordinary shares under the LTIP held by Directors at 31 December 2012 
were as follows:

Awards 
held at 
1 January 
2012 

Date of 
award 

Christopher Hyman 

84,500  12 Nov 2007 

Andrew Jenner 

52,058  12 Nov 2007 

Market 
price at 
grant 
(p) 

456 

456 

Vested 
during the 
period 

– 

– 

Market 
price on 
vesting 
(p) 

Awards 
held at 31 
December 
2012 

556 

556 

84,500 

52,058 

Performance 
period 

Earliest 
vesting date 

Latest  

exercise date

1 Jan 2008–  31 Dec 2010  11 Nov 2017 
31 Dec 2010
1 Jan 2008–  31 Dec 2010  11 Nov 2017 
31 Dec 2010

Notes:
1. Awards take the form of nominal cost options.
2. Awards made are calculated at 100% of salary at the time of grant.
3.  The TSR performance condition is measured relative to the top 250 companies in the FTSE, as ranked by market capitalisation, excluding those in certain sectors which  

are not comparable with the Group.

4. No awards were granted, exercised or lapsed during the period.
5. The last award under the LTIP was made in November 2007. 

112 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Serco Group plc 1998 and 2005 Executive Option Plan (EOP)
Options over Serco Group plc ordinary shares granted under the EOP and held by Directors at 31 December 2012 were as follows:

Christopher Hyman 

Andrew Jenner 

Awards 
held at 
1 January 
2012 

116,373* 
289,515* 
219,320* 
183,404 
147,492 
120,798 
123,076 

69,824* 
173,709* 
133,178* 
116,885 
88,495 
74,530 
75,824 

Exercised 
during the 
period 

116,373 
– 
– 
– 
– 
– 
– 

69,824 
– 
– 
– 
– 
– 
– 

Awards 
held at 
31 December 
2012 

Market price 
on exercise 
date (p) 

Exercise 
price (p) 

– 
289,515 
219,320 
183,404 
147,492 
120,798 
123,076 

– 
173,709 
133,178 
116,885 
88,495 
74,530 
75,824 

520 
– 
– 
– 
– 
– 
– 

520 
– 
– 
– 
– 
– 
– 

264 
153 
217 
235 
339 
439 
455 

264 
153 
217 
235 
339 
439 
455 

Date from 
which 
exercisable 

3 May 2005 
6 May 2006 
3 Mar 2007 
29 Apr 2008 
5 May 2009 
19 Mar 2010 
27 Feb 2011 

3 May 2005 
6 May 2006 
3 Mar 2007 
29 Apr 2008 
5 May 2009 
19 Mar 2010 
27 Feb 2011 

Date of expiry  

of options

2 May 2012
5 May 2013
2 Mar 2014
28 Apr 2015
4 May 2016
18 Mar 2017
26 Feb 2018

2 May 2012
5 May 2013
2 Mar 2014
28 Apr 2015
4 May 2016
18 Mar 2017
26 Feb 2018

Notes:
1.  The final award to Executive Directors under this plan was made in February 2008.
2.  The awards shown in the table are the maximum number of shares that can vest under the performance conditions.
3.  The extent to which an award will vest is measured by reference to the Group’s Earnings Per Share (EPS) performance relative to the Retail Price Index (RPI) over the 

three-year performance period. Full details of the vesting schedule for these awards can be found in previous reports.

4.  For those options marked with an (*) approximately 14.67% of the options granted under the Plan represent supplementary options, granted for the sole purpose of 

compensating participants for agreeing to bear the Company’s liability to employers’ National Insurance Contributions upon the exercise of the underlying Plan awards. 
These options can only be exercised in conjunction with and to the extent of the underlying option.

5.  No payment was made for the grant of the awards.
6.  Grants of options under the EOP are calculated at 100% of salary at the time of grant. 
7.  The market price of the Company’s ordinary shares at the close of business on 31 December 2012 was 535p and the range during the year to 31 December 2012 

was 483.2p to 602p.

8.  No grants were made during the year.
9.  The aggregate of the total theoretical gains on options exercised by Directors during 2012 amounted to £0.5 million. This is calculated by reference to the difference 
between the closing mid-market price of the shares on the date of exercise and the exercise price of the options, disregarding whether such shares were sold or  
retained on exercise, and is stated before tax. Of the 186,197 options exercised, 148,303 were sold and 37,894 were retained.

Serco Group plc | Annual report and accounts 2012 | 113

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 4 | Governance

Remuneration Report

Five-year total shareholder returns
The chart shows the value, as at 31 December 2012, of a £100 investment in Serco share on 31 December 2007, compared with £100 invested in  
the FTSE 100 on the same date. It has been assumed that all dividends paid have been reinvested. The TSR level shown at 31 December each year 
is the average of the closing daily TSR levels for the 30-day period up to and including that date.

Total shareholder returns (£)

● Serco
● FTSE 100 Index

Share dilution
Awards granted under the Serco Group plc share plans are met either by the issue of new shares or by shares held in trust when awards vest. 
The Committee monitors the number of shares issued under its various share plans and their impact on dilution limits. The relevant dilution limits 
established by the Association of British Insurers in respect of all share plans is 10% in any rolling ten year period and in respect of discretionary share 
plans is 5% in any rolling ten-year period. Based on the Company’s issued share capital at 31 December 2012, our dilution level was 6.67% against  
all share plans and 4.38% against discretionary share plans.

The Group has an employee share ownership trust which is administered by an independent trustee and which holds ordinary shares in the Company 
to meet various obligations under the share plans. In July 2012 a loan of £16 million was made to the Employee Trust in order to finance the purchase 
of shares to satisfy the ongoing liabilities under the Company’s employee share plans.

The Trust held 8,267,992 and 10,174,594 ordinary shares at 1 January 2012 and 31 December 2012 respectively.

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

John Hickey
Secretary 
4 March 2013

114 | Serco Group plc | Annual report and accounts 2012

31 Dec 0731 Dec 0831 Dec 0931 Dec 1031 Dec 1131 Dec 1214013012011010090807060 
 
 
 
 
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Independent Auditor’s Report

We have audited the Group Financial Statements of Serco Group plc for the year ended 31 December 2012 which comprise the Consolidated Income 
Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, 
the Consolidated Cash Flow Statement and the related notes 1 to 40. The financial reporting framework that has been applied in their preparation is 
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work 
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no 
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s 
members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the Group Financial Statements 
and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group Financial Statements in 
accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing 
Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the 
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting 
policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant 
accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-
financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent 
material misstatements or inconsistencies we consider the implications for our report.

Opinion on the Group Financial Statements
In our opinion the Group Financial Statements:

●● give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its profit for the year then ended;
●● have been properly prepared in accordance with IFRSs as adopted by the European Union; and
●● have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with  
the Group Financial Statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

●● certain disclosures of Directors’ remuneration specified by law are not made; or
●● we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

●● the Directors’ statement contained within the Corporate Governance Report in relation to going concern; and
●● the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance 

Code specified for our review; and

●● certain elements of the report to shareholders by the Board on Directors’ remuneration.

Other matter
We have reported separately on the parent Company Financial Statements of Serco Group plc for the year ended 31 December 2012 and on the 
information in the Directors’ Remuneration Report that is described as having been audited. 

Richard Knights (Senior Statutory Auditor)
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor  
London, United Kingdom 
4 March 2013

Serco Group plc | Annual report and accounts 2012 | 115

 
 
Section 5 | Financial statements

Consolidated Income Statement

For the year ended 31 December

Continuing operations 
Revenue 
Cost of sales 

Gross profit 
Administrative expenses 

Adjusted operating profit 

Other expenses – amortisation of intangibles arising on acquisition 
Other expenses – acquisition-related costs 
Exceptional net profit on disposal of subsidiaries and operations 
Exceptional donation to Serco Foundation 

Operating profit 
Investment revenue 
Exceptional other gain 
Finance costs 

Profit before tax 
Tax  

Profit for the year 

Attributable to:
Equity owners of the Company 

Non-controlling interest 

Earnings per share (EPS)
Basic EPS 

Diluted EPS 

Before  
exceptional 
items 
£m 

4,913.0 
(4,169.5) 

743.5 
(428.7) 

314.8 

(24.1) 
(3.7) 
– 
– 

287.0 
12.4 
– 
(49.1) 

250.3 
(62.6) 

187.7 

187.1 

0.6 

2012

Exceptional  
items 
£m 

– 
– 

– 
– 

– 

– 
– 
5.6 
(5.0) 

0.6 
– 
51.1 
– 

51.7 
6.5 

58.2 

58.2 

– 

Total 
£m 

4,913.0 
(4,169.5) 

743.5 
(428.7) 

314.8 

(24.1) 
(3.7) 
5.6 
(5.0) 

287.6 
12.4 
51.1 
(49.1) 

302.0 
(56.1) 

245.9 

245.3 

0.6 

2011 
£m

4,646.4
(3,946.0)

700.4
(410.3)

290.1

(20.0)
(3.9)
–
–

266.2
12.2
–
(40.1)

238.3
(63.1)

175.2

175.1

0.1

38.09p 

37.21p 

11.85p 

11.57p 

49.94p 

48.78p 

35.70p

35.08p

Note 

4 

18 
8 

9 
10 
11 

12 

14 

14 

Adjusted operating profit is stated before net profit on disposals of subsidiaries and operations, the exceptional donation to the Serco Foundation, 
amortisation of intangibles arising on acquisitions and acquisition-related costs.

Consolidated Statement of Comprehensive Income

For the year ended 31 December

Profit for the year 
Other comprehensive income for the year:
Net actuarial loss on defined benefit pension schemes1 
Actuarial gain on reimbursable rights1 
Net exchange loss on translation of foreign operations2 
Fair value loss on cash flow hedges during the year2 
Tax relating to components of other comprehensive income3 
Recycling of cumulative hedging and translation reserve2 

Total comprehensive income for the year 

Attributable to:
Equity owners of the Company 

Non-controlling interest 

Note 

30 
30 

12 

2012 
£m 

245.9 

(201.2) 
110.2 
(17.9) 
(5.5) 
29.9 
– 

161.4 

160.8 

0.6 

2011 
£m

175.2

(51.0)
116.5
(2.2)
(35.7)
(5.9)
0.3

197.2

197.1

0.1

1 Recorded in retirement benefit obligations reserve in the consolidated statement of changes in equity.
2 Recorded in hedging and translation reserve in the consolidated statement of changes in equity.
3  Of the tax charge a credit of £25.4m (2011: debit of £14.7m) was recorded in the retirement benefit obligations reserve and a credit of £4.5m (2011: £8.8m) was recorded 

in the hedging and translation reserve.

116 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Changes in Equity

For the year ended 31 December

Share 

Capital 

  Retirement 
benefit 
premium redemption  Retained  obligations 
reserve 
account 
£m 
£m 

earnings 
£m 

reserve 
£m 

Share- 
based 
payment 
reserve 
£m 

Own 

  Hedging 
and 
shares  translation 
reserve 
reserve 
£m 
£m 

Non- 
Total  controlling  
interest 
£m

equity 
£m 

Share 
capital 
£m 

At 1 January 2011 

9.9 

306.7 

0.1 

568.5 

(142.8) 

58.7 

(27.5) 

67.7 

841.3 

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income for the year 

Shares transferred to  
option holders on  
exercise of share options 

Dividends paid  

Expense in relation to  
share-based payments 

Tax credit in relation to  
share-based payments 

Purchase of own shares  
for Employee Share  
Ownership Trust (ESOT) 

– 

– 

– 

– 

– 

– 

– 

– 

175.1 

50.8 

– 

– 

(28.8) 

197.1 

0.1

16.0 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

(37.3) 

– 

– 

– 

– 

– 

– 

– 

– 

(2.0) 

3.3 

– 

11.2 

(1.8) 

– 

– 

– 

– 

– 

– 

– 

17.3 

–

(37.3) 

(0.1)

11.2 

(1.8) 

– 

(24.0) 

– 

(24.0) 

At 1 January 2012 

9.9 

322.7 

0.1 

706.3 

(92.0) 

66.1 

(48.2) 

38.9 

1,003.8 

Total comprehensive  
income for the year 

Shares transferred to  
option holders on exercise  
of share options 

Dividends paid  

Expense in relation to  
share-based payments 

Tax charge in relation  
to share-based payments 

Purchase of own shares  
for Employee Share  
Ownership Trust (ESOT) 

Change in non-controlling interest 

– 

– 

– 

245.3 

(65.6) 

– 

– 

(18.9) 

160.8 

0.6

5.7 

–

(41.9) 

(0.4)

0.1 

3.8 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

(41.9) 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

(3.6) 

5.4 

– 

12.1 

3.1 

– 

– 

– 

– 

– 

(16.0) 

– 

– 

– 

– 

– 

– 

– 

12.1 

3.1 

(16.0) 

– 

At 31 December 2012 

10.0 

326.5 

0.1 

909.7 

(157.6) 

77.7 

(58.8) 

20.0 

1,127.6 

–

–

–

–

–

–

–

1.1

1.3

Serco Group plc | Annual report and accounts 2012 | 117

 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Consolidated Balance Sheet

At 31 December

Non-current assets
Goodwill 
Other intangible assets 
Property, plant and equipment 
Trade and other receivables 
Retirement benefit assets 
Deferred tax assets 
Derivative financial instruments  

Current assets
Inventories 
Trade and other receivables 
Current tax assets 
Cash and cash equivalents 
Derivative financial instruments 

Total assets 

Current liabilities
Trade and other payables 
Current tax liabilities 
Obligations under finance leases 
Provisions 
Loans 
Derivative financial instruments 

Non-current liabilities
Trade and other payables 
Obligations under finance leases 
Loans 
Derivative financial instruments 
Retirement benefit obligations 
Provisions 
Deferred tax liabilities 

Total liabilities 

Net assets 

Equity
Share capital 
Share premium account 
Capital redemption reserve 
Retained earnings 
Retirement benefit obligations reserve 
Share-based payment reserve 
Own shares reserve 
Hedging and translation reserve 

Equity attributable to owners of the Company 
Non-controlling interest 

Total equity 

Note 

15 
16 
19 
22 
30 
26 
29 

21 
22 

24 
29 

28 

27 
31 
25 
29 

28 
27 
25 
29 
30 
31 
26 

32 
33 

34 
34 
34 
34 

2012 
£m 

1,312.3 
226.9 
190.6 
260.5 
69.7 
43.3 
0.1 

2,103.4 

64.4 
856.1 
21.0 
198.6 
3.6 

1,143.7 

3,247.1 

(883.1) 
(14.0) 
(10.8) 
(11.5) 
(64.6) 
(13.8) 

(997.8) 

(42.5) 
(40.0) 
(665.1) 
(24.5) 
(271.0) 
(46.2) 
(31.1) 

(1,120.4) 

(2,118.2) 

1,128.9 

10.0 
326.5 
0.1 
909.7 
(157.6) 
77.7 
(58.8) 
20.0 

1,127.6 
1.3 

1,128.9 

2011 
£m

1,259.0
184.9
194.8
261.9
122.3
28.2
2.0

2,053.1

58.8
798.6
9.2
254.8
7.6

1,129.0

3,182.1

(804.2)
(17.8)
(10.3)
(10.4)
(206.6)
(12.3)

(1,061.6)

(61.4)
(35.6)
(636.2)
(26.3)
(278.7)
(56.2)
(22.3)

(1,116.7)

(2,178.3)

1,003.8

9.9
322.7
0.1
706.3
(92.0)
66.1
(48.2)
38.9

1,003.8
–

1,003.8

The financial statements were approved by the Board of Directors on 4 March 2013 and signed on its behalf by:

Christopher Hyman  
Chief Executive  

Andrew Jenner
Finance Director

118 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Consolidated Cash Flow Statement

For the year ended 31 December

Net cash inflow from operating activities before special pension contribution 
Special contribution to defined benefit pension schemes 

Net cash inflow from operating activities 

Investing activities
Interest received 
Increase in security deposits 
Proceeds from disposal of property, plant and equipment 
Proceeds from disposal of intangible assets 
Proceeds on disposal of subsidiaries and operations 
Acquisition of subsidiaries, net of cash acquired (excluding acquisition-related costs) 
Purchase of other intangible assets  
Purchase of property, plant and equipment 

Net cash outflow from investing activities 

Financing activities
Interest paid 
Dividends paid 
Non-controlling interest dividends paid 
Cash inflow from matured derivative financial instruments 
Repayment of loans 
Repayment of non recourse loans 
New loan advances 
Capital element of finance lease repayments 
Purchase of own shares for Employee Share Ownership Trust (ESOT) 
Proceeds from issue of share capital and exercise of share options 

Net cash (outflow)/inflow from financing activities 

Net decrease in cash and cash equivalents 
Cash and cash equivalents at beginning of year 
Net exchange loss 

Cash and cash equivalents at end of year 

Note 

35 

18 
17 

13 

24 

2012 
£m 

303.4 
– 

303.4 

3.1 
– 
21.0 
0.1 
131.0 
(141.8) 
(49.9) 
(52.7) 

(89.2) 

(47.4) 
(41.9) 
(0.4) 
– 
(366.6) 
(8.7) 
216.8 
(2.9) 
(16.0) 
5.7 

(261.4) 

(47.2) 
254.8 
(9.0) 

198.6 

2011 
£m

257.0
(40.0)

217.0

3.4
(8.2)
9.2
–
–
(325.3)
(35.2)
(49.7)

(405.8)

(35.8)
(37.3)
(0.1)
4.9
(559.8)
(7.9)
818.4
(10.7)
(24.0)
17.3

165.0

(23.8)
279.3
(0.7)

254.8

Serco Group plc | Annual report and accounts 2012 | 119

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

1. General information

Serco Group plc (the Group) is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office  
is Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UY. 

These consolidated financial statements (the financial statements) are presented in pounds Sterling because this is the currency of the primary 
economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2.

2. Significant accounting policies

Basis of accounting
These financial statements on pages 116 to 176 have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted 
for use in the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The following principal 
accounting policies adopted have been applied consistently in the current and preceding financial year except as stated below.

As discussed in more detail in the Finance Review, these financial statements have been prepared on the going concern basis.

Adoption of new and revised Standards
The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not had any significant impact 
on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements. 

IFRS 1 (amended) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters
The amendments provide guidance for entities preparing financial statements in accordance with IFRS after a period when their functional currency was 
subject to severe hyperinflation. They also remove references to a fixed transition date to eliminate the need for companies adopting IFRSs for the first 
time after 1 January 2004 to restate derecognition transactions that occurred before the date of transition to IFRSs. 

IFRS 7 (amended) Disclosures – Transfers of Financial Assets
These amendments are intended to provide greater transparency around risk exposures of transactions where a financial asset is transferred but the 
transferor retains some level of continuing exposure (referred to as ‘continuing involvement’) in the asset.

IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets
The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will normally be 
through sale. 

IAS 1 (amended) Presentation of Items in Other Comprehensive Income
This amendment increases the required level of disclosure within the statement of comprehensive income.

Improvements to IFRSs 2011
Aside from those items already identified above, the amendments made to standards under the 2011 improvements of IFRS have had no impact  
on the Group.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company, entities controlled by the Company (its subsidiaries) and 
entities jointly controlled by the Company (its joint ventures) up to 31 December each year. Control is achieved where the Company has the power to 
govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries and joint ventures acquired or disposed of during the year are included in the consolidated income statement from the 
effective date of acquisition or up to the effective date of disposal as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries and joint ventures to bring accounting policies into line with those 
used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented within equity 
in the consolidated balance sheet, separately from parent shareholders’ equity.

120 | Serco Group plc | Annual report and accounts 2012

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2. Significant accounting policies (continued)

Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the 
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in 
exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured 
at its acquisition date fair value. Subsequent changes in fair values are adjusted against the cost of acquisition where they qualify as measurement 
period adjustments (which is subject to a maximum of one year). All other subsequent changes in the fair value of contingent consideration classified 
as an asset or liability are accounted for in accordance with the relevant accounting standards. Changes in the fair value of contingent consideration 
classified as equity are not recognised.

The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) Business 
Combinations are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another standard.

Goodwill arising on acquisition is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of the sum of the 
consideration transferred, the amount of any non-controlling interest and the fair value of any previously held equity interest in the acquired entity,  
over the net of the acquisition date amounts of the identifiable assets and liabilities acquired.

If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, 
the amount of any non-controlling interest and the fair value of any previously held equity interest in the acquired entity, the excess is recognised 
immediately in the income statement.

Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets  
and liabilities of a subsidiary, associate or jointly controlled entity, at the date of acquisition. Goodwill is initially recognised as an asset at cost and is 
subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at  
least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. 

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) expected to benefit from the 
synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an 
indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is 
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the 
carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss 
on disposal.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for 
impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any 
subsequent profit or loss on disposal.

Investments in joint ventures
The Group’s investments in joint ventures are reported in the financial statements using the proportionate consolidation method, whereby the Group’s 
share of each of the assets, liabilities, income and expenses of its joint ventures is combined line by line with similar items in the Group’s financial 
statements or reported as separate line items within the Group’s financial statements.

Serco Group plc | Annual report and accounts 2012 | 121

 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

2. Significant accounting policies (continued)

Property, plant and equipment
Assets held for use in the rendering of services, or for administrative purposes, are stated in the balance sheet at cost, net of accumulated depreciation 
and any provision for impairment.

Depreciation is provided on a straight-line basis at rates designed to reduce the assets to their residual value over their estimated useful lives.

The principal annual rates used are:

Freehold buildings 

2.5%

Short-leasehold building improvements 

The higher of 10% or the rate produced by the lease term

Machinery 

Motor vehicles 

Furniture 

Office equipment 

Leased equipment 

15%–20%

10%–50%

10%

20%–33%

 The higher of the rate produced by the lease term or useful life

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount 
of the asset and is recognised in the income statement.

Assets are grouped into classes of similar nature and use and separately disclosed except where this is not material.

Other intangible assets
Customer relationships represent the value of contracts acquired on the acquisition of subsidiaries and are amortised over the average length of the 
related contracts.

Development expenditure is capitalised as an intangible asset only if all of the following conditions are met:
●● an asset is created that can be separately identified, and which the Group intends to use or sell;
●● the finalisation of the asset is technically feasible and the Group has adequate resources to complete its development for use or sale;
●● it is probable that the asset created will generate future economic benefits; and
●● the development cost of the asset can be measured reliably.

Purchased software and development expenditure is amortised over the period in which the Group is expected to benefit. This period is between three 
to eight years, or the length of the contract if longer. Provision is also made for any impairment. All other development expenditure is written off as 
incurred. Assets under the course of construction are not depreciated.

Licences comprise premiums paid for the acquisition of licences, which are amortised on a straight-line basis over the life of the licence.

Franchises represent costs incurred in obtaining franchise rights and franchise goodwill arising on the acquisition of franchises. These are amortised  
on a straight-line basis over the life of the franchise.

Pension related intangibles represent assets arising in relation to the Group’s right to manage and operate contracts where there is a defined benefit 
pension scheme and it is not virtually certain that contributions will be recovered from the customer but where the Group’s obligation to contribute to the 
scheme ends when the contract ends. The intangible assets represent the Group’s share of scheme net liabilities on the date that contracts commence 
and are amortised on a straight-line basis over the life of the contract.

Assets are grouped into classes of similar nature and use and separately disclosed except where this is not material.

122 | Serco Group plc | Annual report and accounts 2012

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2. Significant accounting policies (continued)

Impairment of tangible and intangible assets
Annually, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets 
have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the 
impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable 
amount of the CGU to which the asset belongs. A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely 
independent of the cash flows of other assets or groups of assets. For the purpose of impairment testing, the goodwill acquired in a business 
combination is allocated to cash-generating units that are expected to benefit from the synergies of the combination. 

Recoverable amount is defined as the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows 
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks 
specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced 
to its recoverable amount. An impairment loss is recognised as an expense immediately. Impairment losses recognised in respect of CGUs are 
allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the  
unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed  
at each reporting date for indications that the loss has decreased or no longer exists. Where an impairment loss subsequently reverses, the carrying 
amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not 
exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the 
asset (or CGU) in prior years. A reversal of an impairment loss is recognised as income immediately.

Impairment losses and reversals are included within administrative expenses within the consolidated income statement.

Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts due for goods and services provided in the 
normal course of business, net of discounts, VAT and other sales related taxes.

Revenue is deferred when the Group has received consideration under the terms of a contract in advance of performing the related service or  
delivering the associated goods. Deferred revenue is recognised as revenue in the income statement when the Group has fulfilled the relevant 
contractual commitment.

Revenue recognition: repeat service-based contracts
Revenue on repeat service-based contracts is recognised as services are provided.

Revenue recognition: long-term project-based contracts
The Group has a number of long-term contracts for the provision of complex, project-based services. Where the outcome of such long-term 
project-based contracts can be measured reliably, revenue and costs are recognised by reference to the stage of completion of the contract  
activity at the balance sheet date in accordance with IAS 18 Revenue and IAS 11 Construction Contracts. This is measured by the proportion  
of contract costs incurred for work performed to date compared to the estimated total contract costs. 

Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer, or are virtually 
certain of being received.

Where the outcome of a long-term project-based contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs 
that are probable to be recovered. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Revenue recognition: other
Sales of goods are recognised when goods are delivered and title has passed.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate  
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Serco Group plc | Annual report and accounts 2012 | 123

 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

2. Significant accounting policies (continued)

Bid costs and phase-in costs
All bid costs are expensed through the income statement up to the point where contract award (or full recovery of costs) is virtually certain. Bid costs 
incurred after this point are then capitalised within trade and other receivables. On contract award these bid costs are amortised through the income 
statement over the contract period by reference to the stage of completion of the contract activity at the balance sheet date. Bid costs are only 
capitalised to the extent that it is expected that the related contract will generate sufficient future economic benefits to at least offset the 
amortisation charge.

Phase-in costs directly related to phase-in programmes of contracts are treated as an integral part of contract costs and are recognised on 
a straight-line basis over the life of the contract except where they are specifically reimbursed as part of the terms of the contract when they are 
recognised as revenue.

Segmental information
Segmental information is based on internal reports about components of the Group that are regularly reviewed by the Group’s Chief Operating Decision 
Maker in order to allocate resources to the segments and to assess their performance.

Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context of revenue as a whole. 
Net finance costs are not presented for each operating segment as they are reviewed on a consolidated basis by the Group’s Chief Operating 
Decision Maker. 

Items excluded from segmental results comprise corporate expenses. Specific corporate expenses are allocated to the corresponding segments. 
Segment assets comprise goodwill, other intangible assets, property, plant and equipment, inventories, trade and other receivables (excluding 
corporation tax recoverable) and any retirement benefit assets. Segment liabilities comprise trade and other payables and retirement benefit obligations. 

Inventories
Inventories are stated at the lower of cost and net realisable value and comprise service spares, parts awaiting installation and long-term project-based 
contract balances. Cost comprises direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their 
present location and condition. 

Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  
All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at fair value or, if lower, at the present value of minimum lease payments 
determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.  
Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the 
remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to a qualifying asset,  
in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see below).

Total rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Foreign currencies
Transactions in currencies other than Sterling are recorded at the rates of exchange on the dates of the transactions. At each balance sheet date, 
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. 
Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rate prevailing on the date  
when the fair value was determined. Gains and losses arising on retranslation are included in the net profit or loss for the period, except for exchange 
differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity in the consolidated statement 
of comprehensive income (SOCI).

On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. 
Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised directly 
within equity in the Group’s hedging and translation reserve. Such translation differences are recognised as income or expenses in the period in which 
the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated  
at the closing rate.

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a 
substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are 
substantially ready for their intended use or sale. 

All other borrowing costs are recognised as an expense in the period in which they are incurred.

124 | Serco Group plc | Annual report and accounts 2012

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2. Significant accounting policies (continued)

Retirement benefit costs
Payments to defined contribution pension schemes are charged as an expense as they fall due.

For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial cost method, with actuarial 
valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are 
recognised outside the income statement and are presented in the SOCI.

The current service cost represents the increase in the present value of the scheme liabilities expected to arise from employee service in the 
current period.

Past service cost is recognised immediately to the extent that the benefits are already vested, and is amortised on a straight-line basis over the average 
period until the benefit vests. Gains and losses on curtailments or settlements are recognised in the period in which the curtailment or 
settlement occurs.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for 
unrecognised past service costs, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service 
cost, plus the present value of available refunds and reductions in future contributions to the scheme.

The economic benefit from refunds is only recognised to the extent that the Group has an unconditional right to receive a refund.

To the extent that an economic benefit is available as a reduction in contributions and there is a minimum funding requirement, the economic benefit 
available as a reduction in contributions is calculated at the present value of: 
a)  the estimated future service cost in each year; less 
b)  the estimated minimum funding contributions required in respect of the future accrual and benefits in that year.

Defined benefit obligations arising from contractual obligations
Where the Group takes on a contract and assumes the obligation to contribute variable amounts to the defined benefit pension scheme throughout the 
period of the contract and it is not virtually certain that the contributions will be recovered from the customer, the Group’s share of the defined benefit 
obligation less its share of the pension scheme assets that it will fund over the period of the contract is recognised as a liability at the start of the 
contract with a corresponding amount being recognised as an intangible asset. The intangible asset, which reflects the Group’s right to manage and 
operate the contract, is amortised over the contract period. The Group’s share of the scheme assets and liabilities is calculated by reducing the scheme 
assets and liabilities by a franchise adjustment. The franchise adjustment represents the amount of scheme deficits that will be funded outside the 
contract period. Subsequent actuarial gains and losses in relation to the Group’s share of pension obligations are recognised outside the income 
statement and are presented in the SOCI.

Where the Group takes on a contract and assumes the obligation to contribute variable amounts to the defined benefit pension scheme throughout  
the period of the contract and it is virtually certain that the contributions will be recovered from the customer, the Group’s share of the defined benefit 
obligation less its share of the pension scheme assets are recognised as a liability at the start of the contract with a corresponding amount being 
recognised as a financial asset at fair value, being the fair value of the reimbursable rights. In the consolidated income statement, the expense relating 
to the defined benefit scheme is presented net of the amount recognised for reimbursement. Subsequent actuarial gains and losses in relation to the 
Group’s share of pension obligations are recognised outside the income statement and are presented in the SOCI. The change in fair value of the 
reimbursable rights that is not presented in the income statement is reported in the SOCI.

Multi-employer pension schemes
Multi-employer pension schemes are classified as either a defined contribution pension scheme or a defined benefit pension scheme under the terms 
of the scheme.

When sufficient information is not available to use defined benefit accounting for a multi-employer defined benefit pension scheme, the Group accounts 
for the scheme as if it were a defined contribution scheme.

Serco Group plc | Annual report and accounts 2012 | 125

 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

2. Significant accounting policies (continued)

Tax
The tax expense represents the sum of current tax expense and deferred tax expense.

Current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes 
items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s 
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities 
and their carrying amounts for accounting purposes.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible 
temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available 
against which these items can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of an asset and 
liability in a transaction other than a business combination and, at the time of the transaction, affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures, except where the 
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient 
taxable profits will be available to allow all or part of the asset to be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax 
rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income 
statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when 
they relate to income taxes levied by the same tax authority where the Group intends to settle its current tax assets and liabilities on a net basis.

Research and development costs
Expenditure on research is recognised as an expense in the period in which it is incurred. Development costs are expensed in the period in which the 
costs are incurred unless the criteria for capitalisation is met (see other intangible assets policy).

Share-based payment
The Group makes equity-settled share-based payments to certain employees and operates an HMRC approved Save As You Earn (SAYE) share option 
scheme open to eligible employees which allows the purchase of shares at a discount. These are measured at fair value at the date of grant. The fair 
value is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. SAYE options are 
treated as cancelled when employees cease to contribute to the scheme, resulting in an acceleration of the remainder of the related expense.

Where the fair value of share options requires the use of a valuation model, fair value is measured by use of the Binomial Lattice or Monte Carlo 
Simulation models depending on the type of scheme, as set out in note 37. The expected life used in the models has been adjusted, based on 
management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Where relevant, the value  
of the option has also been adjusted to take account of market conditions applicable to the option.

Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision 
for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect 
all amounts due according to the original terms of the contract. Significant financial difficulties of the debtor, probability that the debtor will enter 
bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that a trade receivable is impaired. The 
amount of the provision is based on management’s best estimate of the recoverable amount. The carrying amount of the asset is reduced through the 
use of an allowance for doubtful debts and the amount of the loss is recognised in the income statement within administrative expenses. When a trade 
receivable is uncollectible, it is written off against the allowance for doubtful debts. Subsequent recoveries of amounts previously written off are credited 
against administrative expenses.

Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and balances with banks and similar institutions, which are readily convertible to known amounts  
of cash and which are subject to insignificant changes in value and have a maturity of three months or less from the date of acquisition. This definition 
is also used for the consolidated cash flow statement.

Dividends
Dividends are recorded in the Group’s consolidated financial statements in the period in which they are declared, appropriately authorised and no 
longer at the discretion of the Company.

126 | Serco Group plc | Annual report and accounts 2012

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2. Significant accounting policies (continued)

Loans
Loans are initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount of loans hedged by derivatives is 
increased by the finance cost in respect of the accounting period and reduced by payments made in the period. Loans which are unhedged are  
stated at amortised cost using the effective interest rate method. Accrued interest is recorded separately from the associated borrowings within 
current liabilities.

Loans are described as non recourse loans and classified as such only if no Group company other than the relevant borrower has an obligation,  
under a guarantee or other arrangement, to repay the debt.

Derivative financial instruments and hedging activities
The Group enters into a variety of derivative financial instruments to manage the exposure to interest rate foreign exchange risk and price risk,  
including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts. Further details of derivative 
financial instruments are given in note 29.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value  
at each balance sheet date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is 
recognised as a financial liability. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective 
as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group 
designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges), hedges  
of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments  
in foreign operations.

A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it  
is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics  
are not closely related to those of the host contracts and these are not measured at fair value through profit or loss. 

Hedge accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign 
exchange risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange  
risk on highly probable forecast transactions and firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its 
risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing 
basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values 
or cash flows of the hedged item. 

Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation reserve in equity are 
detailed in the SOCI and described in note 29. 

Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with  
any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and the 
change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. 

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, 
or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to 
profit or loss from that date. 

Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain  
or loss relating to the ineffective portion is recognised immediately in profit or loss. 

Amounts deferred in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income 
statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset  
or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the 
cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, 
or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the 
forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss 
that was deferred in equity is recognised immediately in profit or loss. 

Serco Group plc | Annual report and accounts 2012 | 127

 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

2. Significant accounting policies (continued)

Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating  
to the effective portion of the hedge is recognised in equity and accumulated in the hedging and translation reserve. The gain or loss relating to the 
ineffective portion is recognised immediately in profit or loss and is included in the ‘net exchange gain/loss on translation of foreign operations’ 
line item. 

Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency translation reserve are 
reclassified to profit or loss in the same way as exchange differences relating to the foreign operations.

Net investments in foreign operations
Exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations are initially recognised in equity  
and accumulated in the hedging and translation reserve and reclassified from equity to profit or loss on disposal of the net investment.

Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to 
settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance 
sheet date.

New standards and interpretations not applied
At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial 
statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

●● IFRS 1  (amended)  Government loans
●● IFRS 7  (amended)  Disclosures – Offsetting Financial Assets and Financial Liabilities
●● IFRS 9   
●● IFRS 10  
●● IFRS 11  
●● IFRS 12  
●● IFRS 13  
●● IAS 19  (revised) 
●● IAS 27  (revised) 
●● IAS 28  (revised) 
●● IAS 32  (amended)  Offsetting Financial Assets and Financial Liabilities
●● Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7)
●● Annual Improvements 2009–2011.

Financial Instruments
Consolidated Financial Statements 
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Employee Benefits
Separate Financial Statements
Investments in Associates and Joint Ventures

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements 
in the period of initial application except as follows:

●● IFRS 9 will impact both the measurement and disclosures of financial instruments;
●● IFRS 11 will require the Group to change from proportionate consolidation of joint arrangements and adopt equity accounting. A restatement of the 
2012 results for these changes reduces statutory reported revenue by £852.9m and profit before tax by £15.1m. There is no impact on post tax 
profits, earnings per share, or net assets from this change;

●● IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures; and
●● IAS 19 (revised) will impact the measurement of the various components representing movements in the defined benefit obligation and associated 
disclosures, but not the Group’s total obligation. It is likely that following the replacement of expected returns on plan assets with a net finance cost  
in the income statement, the profit for the period will be reduced and accordingly other comprehensive income increased.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards and interpretations until a detailed 
review has been completed.

128 | Serco Group plc | Annual report and accounts 2012

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3. Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, which are described in note 2 above, management has made the following judgements  
that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations which are dealt 
with below).

Revenue and profit recognition of long-term project-based contracts
Revenue and profit is recognised for certain long-term project-based contracts based on the stage of completion of the contract activity. This is 
measured by the proportion of costs incurred to estimated whole-life contract costs. 

Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk  
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. 
The value in use calculation involves an estimation of the future cash flows of cash-generating units and also the selection of appropriate discount 
rates, which involves judgement, to calculate present values (see note 15). The carrying value of goodwill is £1,312.3m (2011: £1,259.0m) at the 
balance sheet date.

Retirement benefit obligations
The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates, future returns on assets and future 
contribution rates (see note 30). The value of net retirement benefit obligations at the balance sheet date is £201.3m (2011: £156.4m). Details of the 
impact of changes in assumptions relating to retirement benefit obligations are disclosed in the Finance Review (page 58).

Business combinations
The calculation of fair values associated with business combinations requires the use of judgement in determining the future economic inflows and 
outflows associated with the acquired assets and liabilities. This includes the estimation of contingent deferred consideration and intangibles arising  
on acquisition. As permitted by IFRS 3 (2008), provisional amounts are recognised for acquired net assets during the measurement period where 
complete information about facts and circumstances that existed at the acquisition date is not available at the reporting date.

4. Revenue

An analysis of the Group’s revenue is as follows:

Rendering of services 
Revenue from long-term project-based contracts 

Revenue as disclosed in the consolidated income statement 
Investment revenue (note 9) 
Operating lease income 

Total revenue as defined in IAS 18 

5. Segmental information

2012 
£m 

4,823.0 
90.0 

4,913.0 
12.4 
0.9 

4,926.3 

2011 
£m

4,481.3
165.1

4,646.4
12.2
0.7

4,659.3

Information reported to the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance focuses 
on the categories of customer identified using their respective markets. Details of the different products and services provided by each operating 
segment are included in the Our business and Our performance sections of this report. From 1 April 2012, the Group has reapportioned its business 
into four segments resulting in a restatement of the 2011 segmental information. The Group’s reportable operating segments under IFRS 8 Operating 
Segments are:

Reportable Segments 

Operating Segments

UK & Europe  

Americas 
AMEAA 
Global Services 

  UK and Europe frontline services in areas including home affairs, defence, health, transportation  
and local government direct services; 
  US defence, intelligence and federal civilian agencies operations, and Canadian operations; 
  Frontline contracts in Australasia, Middle East, Asia (including Hong Kong and India) and Africa; and 
Global BPO middle and back office services

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. 

Serco Group plc | Annual report and accounts 2012 | 129

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

5. Segmental information (continued)

The following is an analysis of the Group’s revenue and results by reportable segment in the year ended 31 December 2012. 

Reportable segments

Year ended 31 December 2012 

Revenue  

Result 
Segment Adjusted operating profit 
Amortisation of intangibles arising on acquisition  
Acquisition-related costs 
Exceptional net profit on disposal of subsidiaries and operations 

Segment result 
Exceptional donation to Serco Foundation 
Corporate expenses 

UK &  
Europe 
2012 
£m 

2,561.1 

177.8 
(0.4) 
(0.1) 
31.0 

208.3 

Americas 
2012 
£m 

753.4 

55.2 
(13.7) 
– 
– 

41.5 

AMEAA 
2012 
£m 

883.0 

64.3 
(0.3) 
(1.8) 
– 

62.2 

Global 
Services 
2012 
£m 

Total 
2012 
£m

715.5 

4,913.0

62.1 
(9.7) 
(1.8) 
(25.4) 

25.2 

Operating profit  
Investment revenue 
Exceptional other gain 
Finance costs 

Profit before tax 
Tax  

Profit for the year  

Goodwill and capital expenditure* 
Goodwill additions 

Property, plant and equipment: segments 
Property, plant and equipment: corporate 

Total 

Intangible assets: segments  
Intangible assets: corporate  

Total 

Depreciation and amortisation 
Depreciation: segments 
Depreciation: corporate 

Total 

1.3 

19.8 

– 

0.8 

94.5 

20.9 

66.8 

19.7 

2.4 

1.8 

40.2 

42.0 

23.2 

2.9 

7.6 

17.7 

Amortisation of intangibles arising on acquisition: segments 
Amortisation – other: segments 
Amortisation – other: corporate 

0.4 
3.8 

13.7 
0.8 

0.3 
2.0 

9.7 
11.8 

Total 

Segment assets 
Reportable segment assets 
Corporate assets 

Total segment assets 
Unallocated assets 

Consolidated total assets 

Segment liabilities 
Reportable segment liabilities 
Corporate liabilities 

Total segment liabilities 
Unallocated liabilities 

Consolidated total liabilities 

980.1 

604.3 

476.3 

844.9 

(656.6) 

(93.7) 

(160.7) 

(256.3) 

*Capital expenditure is stated on a cash basis: including acquisitions but excluding finance leases.

Group Adjusted operating profit is £314.8m and comprises segment Adjusted operating profit of £359.4m less Corporate expenses of £44.6m.

130 | Serco Group plc | Annual report and accounts 2012

359.4
(24.1)
(3.7)
5.6

337.2
(5.0)
(44.6)

287.6
12.4
51.1
(49.1)

302.0
(56.1)

245.9

162.6

61.2
1.9

63.1

86.4
9.3

95.7

51.4
–

51.4

24.1
18.4
3.2

45.7

2,905.6
74.9

2,980.5
266.6

3,247.1

(1,167.3)
(29.3)

(1,196.6)
(921.6)

(2,118.2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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5. Segmental information (continued)

Reportable segments

Year ended 31 December 2011 – restated 

Revenue  

Result 
Segment Adjusted operating profit 
Amortisation of intangibles arising on acquisition  
Acquisition-related costs 

Segment result 
Corporate expenses 

Operating profit  
Investment revenue 
Finance costs 

Profit before tax 
Tax  

Profit for the year  

Goodwill and capital expenditure* 
Goodwill additions 

Property, plant and equipment: segments 
Property, plant and equipment: corporate 

Intangible assets: segments  
Intangible assets: corporate  

Total 

Depreciation and amortisation 
Depreciation: segments 
Depreciation: corporate 

Total 

UK &  
Europe 
2011 
£m 

2,595.2 

177.6 
(0.2) 
(0.2) 

177.2 

Americas 
2011 
£m 

868.2 

73.0 
(13.6) 
– 

59.4 

AMEAA 
2011 
£m 

672.1 

51.4 
– 
– 

51.4 

Global 
Services 
2011 
£m 

510.9 

34.0 
(6.2) 
(3.7) 

24.1 

13.0 

23.4 

2.6 

– 

0.6 

1.6 

16.1 

14.2 

328.7 

47.5 

1.1 

57.4 

19.8 

3.4 

7.7 

15.1 

Amortisation of intangibles arising on acquisition: segments 
Amortisation – other: segments 
Amortisation – other: corporate 

0.2 
6.1 

13.6 
1.0 

– 
1.7 

6.2 
0.8 

Total 

Segment assets 
Reportable segment assets 
Corporate assets 

Total segment assets 
Unallocated assets 

Consolidated total assets 

Segment liabilities 
Reportable segment liabilities 
Corporate liabilities 

Total segment liabilities 
Unallocated liabilities 

Consolidated total liabilities 

1,126.6 

660.7 

298.0 

652.5 

(658.8) 

(103.9) 

(128.1) 

(199.5) 

Total 
2011 
£m

4,646.4

336.0
(20.0)
(3.9)

312.1
(45.9)

266.2
12.2
(40.1)

238.3
(63.1)

175.2

357.8

85.7
3.1

88.8

62.7
23.8

86.5

46.0
-

46.0

20.0
9.6
9.9

39.5

2,737.8
142.5

2,880.3
301.8

3,182.1

(1,090.3)
(54.0)

(1,144.3)
(1,034.0)

(2,178.3)

*Capital expenditure is stated on a cash basis: including acquisitions but excluding finance leases.

Group Adjusted operating profit is £290.1m and comprises segment Adjusted operating profit of £336.0m less Corporate expenses of £45.9m.

Serco Group plc | Annual report and accounts 2012 | 131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

5. Segmental information (continued)

Segment assets comprise:
Goodwill 
Other intangible assets 
Property, plant and equipment 
Trade and other receivables – non-current 
Retirement benefit assets 
Inventories 
Trade and other receivables – current 

Total segment assets 
Unallocated assets 

Consolidated total assets 

Segment liabilities comprise:
Trade and other payables – current 
Trade and other payables – non-current 
Retirement benefit obligations 

Total segment liabilities 
Unallocated liabilities 

Consolidated total liabilities 

Geographic information

United Kingdom 
United States 
Australia 
Other countries 

Total 

2012 
£m 

1,312.3 
226.9 
190.6 
260.5 
69.7 
64.4 
856.1 

2,980.5 
266.6 

3,247.1 

2012 
£m 

(883.1) 
(42.5) 
(271.0) 

(1,196.6) 
(921.6) 

(2,118.2) 

Revenue 
2011 
£m 

2,587.3 
802.1 
660.4 
596.6 

4,646.4 

2011 
£m

1,259.0
184.9
194.8
261.9
122.3
58.8
798.6

2,880.3
301.8

3,182.1

2011 
£m

(804.2)
(61.4)
(278.7)

(1,144.3)
(1,034.0)

(2,178.3)

Restated

Non-current  
assets* 
2011 
£m

1,008.8
460.8
61.5
491.8

2,022.9

Revenue 
2012 
£m 

2,731.4 
694.4 
824.8 
662.4 

4,913.0 

Non-current 
assets* 
2012 
£m 

1,012.0 
437.4 
189.4 
421.2 

2,060.0 

*Non-current assets exclude financial instruments and deferred tax assets.

Revenues from external customers are attributed to individual countries on the basis of the location of the customer.

Information about major customers
The Group has two major governmental customers which each represent more than 10% of Group revenues. The customers’ revenues were 
respectively £2,589.1m (2011: £2,470.2m) across UK & Europe and Global Services and £649.7m (2011: £740.2m) within the Americas segment.

132 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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6. Operating profit

Operating profit is stated after charging/(crediting):

Research and development costs 
(Profit)/loss on disposal of property, plant and equipment 
Depreciation and impairment of property, plant and equipment (note 19) 
Amortisation of intangible assets – arising on acquisition (note 16) 
Amortisation of intangible assets – other (note 16) 
Staff costs (note 7) 
Allowance for doubtful debts (credited)/charged to income statement (note 22) 
Net foreign exchange (credit)/charge 
Movement on non-designated hedges and reclassified cash flow hedges 
Operating lease payments 
Operating lease income (note 4) 

2012 
£m 

61.8 
(0.9) 
51.4 
24.1 
21.6 
2,125.5 
(0.8) 
(7.5) 
7.1 
137.0 
(0.9) 

2011 
£m

57.6
0.5
46.0
20.0
19.5
2,010.9
7.2
7.7
(6.6)
130.0
(0.7)

Amounts payable to Deloitte LLP and their associates by the Company and its subsidiary undertakings in respect of audit and non-audit services are 
shown below.

Fees payable to the Company’s Auditor for the audit of the Company’s annual accounts 
Fees payable to the Company’s Auditor and their associates for other services to the Group: 
– audit of the Company’s subsidiaries pursuant to legislation 

Total audit fees 

– Audit-related assurance services 
– Taxation compliance services 
– Other taxation advisory services 
– Other services 

Total non-audit fees 

2012 
£m 

0.9 

0.9 

1.8 

0.1 
0.3 
0.3 
0.4 

1.1 

2011 
£m

0.8

0.6

1.4

0.2
0.2
0.4
0.4

1.2

Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed separately because the 
consolidated financial statements are required to disclose such fees on a consolidated basis.

Details of the Company’s policy on the use of auditors for non-audit services and how the auditor’s independence and objectivity was safeguarded  
are set out in the Corporate Governance Report on pages 89 to 90. No services were provided pursuant to contingent fee arrangements.

Serco Group plc | Annual report and accounts 2012 | 133

 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

7. Staff costs

The average monthly number of employees (including Executive Directors) was:

UK & Europe 
Americas 
AMEAA 
Global Services 
Unallocated 

Total 

2012 

Number 

28,459 
8,854 
9,987 
48,672 
141 

96,113 

Average monthly numbers of employees for joint ventures are included on a proportionately consolidated basis in the table above.

Aggregate remuneration comprised:

Wages and salaries 
Social security costs 
Other pension costs (note 30) 

Share-based payment expense (note 37) 

Total 

8. Exceptional donation to Serco Foundation

Exceptional donation to Serco Foundation 

2012 
£m 

1,854.6 
146.3 
112.5 

2,113.4 
12.1 

2,125.5 

2012 
£m 

5.0 –

2011 
Restated 
Number

28,111
9,260
7,912
31,046
341

76,670

2011 
£m

1,731.1
156.3
112.3

1,999.7
11.2

2,010.9

2011 
£m

To mark Serco’s 25th year as a publicly traded company dedicated to service excellence, we have established the Serco Foundation as an independent 
charitable foundation. An exceptional payment of £5.0m has been made in the year to establish the charitable foundation.

9. Investment revenue

Interest receivable on other loans and deposits 
Net interest receivable on retirement benefit obligations (note 30) 

Total 

10. Exceptional other gain

Gain on step acquisition accounting of joint venture (note 17b) 

2012 
£m 

3.2 
9.2 

12.4 

2012 
£m 

51.1 –

2011 
£m

4.0
8.2

12.2

2011 
£m

On 16 November 2012 Serco acquired the remaining 50% equity stake in DMS, taking its equity ownership to 100%. DMS was formerly accounted  
for as a joint venture and following the acquisition of further shares it became a wholly owned subsidiary. In accordance with IFRS 3 (Revised 2008) 
Business Combinations, before accounting for the purchase of the remaining equity stake, the value of the previously held 50% shareholding was 
restated to fair value on the acquisition date. This resulted in an exceptional gain of £51.1m being recognised in the income statement. 

134 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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11. Finance costs

Interest payable on non recourse loans 
Interest payable on obligations under finance leases 
Interest payable and amortisation of capitalised financing transaction costs on other loans 
Movement in discount on provisions and deferred consideration 

Total 

12. Tax

12 (a) Income tax recognised in the income statement

Current income tax 
Current income tax expense 
Adjustments in respect of prior years 
Deferred tax 
Current year 
Adjustments in respect of prior years 

Before 
exceptional 
items 
2012 
£m 

Exceptional 
items 
2012 
£m 

56.4 
(7.8) 

9.3 
4.7 

62.6 

(5.1) 
– 

(1.4) 
– 

(6.5) 

The tax expense for the year can be reconciled to the profit in the consolidated income statement as follows:

Profit before tax 

Tax calculated at a rate of 24.5% (2011: 26.5%) 

Expenses not deductible for tax purposes 
Unrelieved tax losses  
Effect of the use of unrecognised tax losses 
Unprovided deferred tax 
Impact of changes in statutory tax rates 
Overseas rate differences 
Step acquisition accounting of joint venture 
Disposal of Serco GmbH 
Statutory tax benefits 
Adjustments in respect of prior years 

Tax charge 

Before 
exceptional 
items 
2012 
£m 

250.3 

61.3 

1.6 
3.6 
– 
1.1 
1.4 
3.2 
– 
– 
(6.5) 
(3.1) 

62.6 

Exceptional 
items 
2012 
£m 

51.7 

12.7 

0.7 
– 
– 
– 
– 
– 
(12.5) 
6.8 
(14.2) 
– 

(6.5) 

2012 
£m 

0.9 
2.9 
43.4 
1.9 

49.1 

Total 
2012 
£m 

51.3 
(7.8) 

7.9 
4.7 

56.1 

Total 
2012 
£m 

302.0 

74.0 

2.3 
3.6 
– 
1.1 
1.4 
3.2 
(12.5) –
6.8 –
(20.7) 
(3.1) 

56.1 

2011 
£m

1.0
2.1
35.6
1.4

40.1

2011 
£m

67.0
(5.5)

3.7
(2.1)

63.1

2011 
£m

238.3

63.1

1.5
3.1
(2.6)
2.5
1.9
5.1

(3.9)
(7.6)

63.1

Serco Group plc | Annual report and accounts 2012 | 135

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

12. Tax (continued)

12 (b) Income tax recognised in the SOCI

Current tax
Taken to retirement benefit obligations reserve 
Deferred tax
Relating to cash flow hedges 
Taken to retirement benefit obligations reserve 

2012 
£m 

(7.0) 

(4.5) 
(18.4) 

(29.9) 

2011 
£m

(18.0)

(8.8)
32.7

5.9

The income tax expense for the year is based on the blended UK statutory rate of corporation tax for the period of 24.5% (2011: 26.5%). The impact of 
changes in statutory tax rates relates principally to the reduction of the UK corporation tax rate from 26% to 24% from 1 April 2012, which was enacted 
on 26 March 2012. In addition, the UK corporation tax rate was reduced from 24% to 23% from 1 April 2013, which was enacted on 17 July 2012.  
These changes have resulted in a deferred tax charge arising from the reduction in the balance sheet carrying value of deferred tax assets to reflect  
the anticipated rate of tax at which those assets are expected to reverse. The UK Government has also indicated that it intends to reduce the main tax 
rate down to 21% in April 2014. We estimate that the future rate changes would further reduce the UK deferred tax assets and liabilities recognised  
but the actual impact will be dependent on the deferred tax position at that time.

12 (c) Tax on items taken directly to equity

Current tax
Recorded in share-based payment reserve 
Deferred tax
Recorded in share-based payment reserve 

13. Dividends

Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2011 of 5.9p per share on 490.2 million ordinary shares  
(2011: Final dividend for the year ended 31 December 2010 of 5.15p per share on 488.5 million ordinary shares) 

Interim dividend for the year ended 31 December 2012 of 2.65p per share on 488.2 million ordinary shares  
(2011: Interim dividend for the year ended 31 December 2011 of 2.50p per share on 486.6 million ordinary shares) 

Proposed final dividend for the year ended 31 December 2012 of 7.45p per share on 488.3 million ordinary shares  
(2011: 5.90p on 489.1 million ordinary shares) 

2012 
£m 

(0.6) 

(2.5) 

(3.1) 

2012 
£m 

28.9 

13.0 

41.9 

36.4 

2011 
£m

(0.8)

2.6

1.8

2011 
£m

25.2

12.1

37.3

28.9

The proposed final dividend for 2012 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability  
in these financial statements. A dividend waiver is effective for those shares held on behalf of the Company by its Employee Share Ownership Trust 
(note 34).

136 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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14. Earnings per share

Basic and diluted earnings per ordinary share (EPS) have been calculated in accordance with IAS 33 Earnings per Share. EPS is shown both before 
and after amortisation of intangible assets arising on acquisition (note 16) to assist in the understanding of the underlying performance of the business.

The calculation of the basic and diluted EPS is based on the following data:

Number of shares

Weighted average number of ordinary shares for the purpose of basic EPS 
Effect of dilutive potential ordinary shares: share options 

Weighted average number of ordinary shares for the purpose of diluted EPS 

Earnings per share

Earnings for the purpose of basic EPS being net profit  
attributable to the equity owners of the Company  
Add back: 
Exceptional profit on disposal of subsidiaries,  
net of tax credit of £5.3m (2011: £nil) 
Exceptional donation to Serco Foundation,  
net of tax of £1.2m (2011: £nil) 
Exceptional gain on step acquisition, net of tax of £nil (2011: £nil) 
Amortisation of intangible assets arising on acquisition,  
net of tax of £5.4m (2011: £4.3m) 
Acquisition-related costs, net of tax of £0.5m (2011: £0.5m) 

Adjusted earnings  

Earnings for the purpose of basic EPS 
Effect of dilutive potential ordinary shares 

Diluted EPS 

2012 
Millions 

491.2 
11.7 

502.9 

Earnings 
2011 
£m 

2011 
Millions

490.5
8.6

499.1

Per share 
amount 
2011 
Pence

Earnings  
2012 
£m 

Per share 
amount 
2012 
Pence 

245.3 

49.94 

175.1 

35.70

(10.9) 

3.8 
(51.1) 

18.7 
3.2 

209.0 

245.3 
– 

245.3 

(2.22) 

0.77 –
(10.40) 

3.81 
0.65 

42.55 

49.94 
(1.16) 

48.78 

– 

 –

– 

15.7 
3.4 

194.2 

175.1 
– 

175.1 

–

–

3.20
0.69

39.59

35.70
(0.62)

35.08

At 31 December 2012 options over nil (2011: nil) shares were excluded from the weighted average number of shares used for calculating diluted 
earnings per share because their exercise price was above the average share price for the year and they were, therefore, anti-dilutive.

Serco Group plc | Annual report and accounts 2012 | 137

 
 
 
 
  
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

15. Goodwill

At 1 January 2011 
Additions 
Exchange differences 

At 1 January 2012 
Additions 
Disposals 
Exchange differences 

At 31 December 2012 

£m

899.5
357.8 
1.7

1,259.0
162.6
(86.8)
(22.5)

1,312.3

Goodwill is attributable to the excess of consideration over the fair value of net assets acquired and includes expected synergies, future growth 
prospects, staff knowledge, expertise and customer contacts.

Additions during the year relate to goodwill recognised on four acquisitions. More details of these acquisitions are presented in the Acquisitions note 
(note 17).

The goodwill acquired in business combinations is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that 
business combination. Goodwill has been allocated to CGUs in the following operating segments:

UK & Europe 
Americas 
AMEAA 
Global Services 

At 31 December  

2012 
£m 

280.3 
393.2 
134.3 
504.5 

2011 
Restated 
£m

367.0
411.3
31.3
449.4

1,312.3 

1,259.0

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amount 
of each CGU is based on value in use calculations.

Key assumptions
The value in use calculations use discounted cash flow projections based on financial plans approved by senior management covering a five-year 
period, and include a terminal value based on the projections for the final year of that plan, with a growth rate assumption applied. 

The key assumptions affecting the CGUs within each operating segment are discussed below. 

Short-term growth rates
Short-term revenue growth rates used in each CGU five-year plan are based on internal data regarding the current pipeline of opportunities and 
published industry forecasts for the relevant market. Further discussion of the Group’s order book and pipeline is provided in the Our Business  
and Our Performance sections.

138 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
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15. Goodwill (continued)

Terminal growth rates
The cash flows subsequent to the five-year period are based upon management’s estimate of the growth rates of the sectors in which the CGUs 
operate. Where possible these have been derived with reference to external sources. The range of terminal growth rates applied to the CGUs within 
each operating segment are set out below:

UK & Europe 
Americas 
AMEAA 
Global Services 

2012 

% %

2.5 
2.7 
2.5–3.5 
5.0 

2011 

2.5
3.0
2.5–3.5 
2.5–7.0

These rates do not exceed the average long-term growth rates forecast for the individual market sectors.

Discount rate
Pre-tax discount rates, derived from the Group’s post-tax weighted average cost of capital have been used in discounting the projected cash flows. 
These rates are adjusted for risks specific to the market in which the CGU operates, including but not limited to: geographic and economic risks; 
contract length; and customer type.

The range of pre-tax discount rates applied to the CGUs within each operating segment are disclosed below:

UK & Europe 
Americas 
AMEAA 
Global Services 

2012 

% %

8.0–8.4 
9.0 
9.5 
10.5 

2011 

8.8–9.1
9.9
10.4
9.1–12.2

Sensitivity analysis
Sensitivity analysis has been performed for each key assumption and, except as noted below, the Directors have not identified any reasonably possible 
material changes in the key assumptions that would cause the carrying value of net assets, including goodwill, to exceed the recoverable amount.

Across the identified CGUs an increase in the discount rate of 1% would not cause the operating assets to exceed their recoverable amount in any 
CGU, with the exception of the Americas CGU where a 1% increase in the discount rate would result in an impairment of £30m. Across the identified 
CGUs a decrease in the terminal growth rate of 1% would not cause the operating assets to exceed their recoverable amount in any CGU, with the 
exception of the Americas CGU where a 1% decrease in the terminal growth rate would result in an impairment of £6m. 

Serco Group plc | Annual report and accounts 2012 | 139

 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

16. Other intangible assets

Cost
At 1 January 2012 
Arising on acquisition  
Eliminated on disposal 
Additions 
Disposals 
Reclassification from property, plant and equipment 
Pension scheme franchise adjustment 
Exchange differences 

At 31 December 2012 

Amortisation 
At 1 January 2012 
Arising on acquisition 
Eliminated on disposal 
Charge for the year 
Disposals 
Reclassification from property, plant and equipment 
Exchange differences 

At 31 December 2012 

Net book value 
At 31 December 2012 

Cost
At 1 January 2011  
Arising on acquisition  
Additions 
Disposals 
Reclassification to property, plant and equipment 
Pension scheme franchise adjustment 
Exchange differences 

At 31 December 2011 

Amortisation 
At 1 January 2011 
Charge for the year 
Disposals 
Exchange differences 

At 31 December 2011 

Net book value 
At 31 December 2011 

Acquisition related 

Other

Customer 
relationships 
£m 

Licences 
and 
franchises 
£m 

Software, IT 
and other 
development 
expenditure 
£m 

Pension  
related 
intangibles 
£m 

116.5 
44.7 
– 
– 
(0.4) 
– 
– 
(5.7) 

155.1 

42.1 
– 
– 
16.6 
(0.4) 
(0.3) 
(1.6) 

56.4 

98.7 

74.2 
– 
– 
0.7 
– 
0.9 
– 
(1.6) 

74.2 

61.8 
– 
– 
7.5 
– 
0.5 
(1.6) 

68.2 

170.9 
1.1 
(14.9) 
49.2 
(2.5) 
6.4 
– 
(1.6) 

208.6 

79.1 
0.3 
(10.3) 
19.6 
(2.3) 
6.3 
(0.1) 

92.6 

6.0 

116.0 

26.2 
– 
– 
– 
– 
– 
1.9 
– 

28.1 

19.9 
– 
– 
2.0 
– 
– 
– 

21.9 

6.2 

Acquisition related 

Other

Customer 
relationships 
£m 

Licences 
and 
franchises 
£m 

Software, IT 
and other 
development 
expenditure 
£m 

Pension  
related 
intangibles 
£m 

73.4 
52.0 
– 
(2.5) 
– 
– 
(6.4) 

116.5 

32.7 
12.7 
(2.5) 
(0.8) 

42.1 

74.4 

78.3 
– 
– 
– 
– 
– 
(4.1) 

74.2 

55.5 
7.3 
– 
(1.0) 

61.8 

12.4 

134.5 
3.9 
30.6 
(0.5) 
(0.2) 
– 
2.6 

170.9 

61.9 
17.3 
(0.5) 
0.4 

79.1 

91.8 

26.6 
– 
– 
– 
– 
(0.4) 
– 

26.2 

17.7 
2.2 
– 
– 

19.9 

6.3 

Total 
£m

387.8
45.8
(14.9)
49.9
(2.9)
7.3
1.9
(8.9)

466.0

202.9
0.3
(10.3)
45.7
(2.7)
6.5
(3.3)

239.1

226.9

Total 
£m

312.8
55.9
30.6
(3.0)
(0.2)
(0.4)
(7.9)

387.8

167.8
39.5
(3.0)
(1.4)

202.9

184.9

Included in Software, IT and other development expenditure is an amount of £9.7m (2011: £nil) in respect of leased intangibles.

Customer relationships are amortised over the average length of contracts acquired.

140 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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16. Other intangible assets (continued)

Amortisation of intangibles arising on acquisition consists of amortisation in relation to Customer relationships and Licences and franchises  
and totals £24.1m (2011: £20.0m).

The Group is carrying £116.0m (2011: £91.8m) in relation to Software, IT and other development expenditure which includes assets relating  
to the Group’s SAP finance-related systems of £59.4m (2011: £57.2m). The average amortisation period of these assets has three years  
(2011: four years) remaining. 

The Group is carrying £98.7m (2011: £74.4m) in relation to Customer relationships of which the principal component is £35.8m arising from  
the acquisition of Intelenet in 2011. The remaining average life of the customer relationship intangible assets is approximately seven years  
(2011: seven years).

The value of internally generated intangible assets as at 31 December 2012 was approximately £71.9m (2011: £58.5m).

17. Acquisitions

During the year, the Group completed the following acquisitions which have been accounted for in accordance with IFRS 3 Business  
Combinations (2008).

17 (a) Vertex Public Services Limited 
On 11 June 2012, Serco acquired 100% of the issued share capital of Vertex Public Services Limited (Vertex), a provider of high quality business 
process outsourcing services to UK local and central government. The cash cost of the acquisition was £55.5m. 

Net assets acquired were: 
Goodwill 
Intangible assets 
Property, plant and equipment 
Deferred tax asset 
Trade and other receivables 
Trade and other payables 
Retirement benefit obligations 
Provisions 

Net liabilities acquired 

Goodwill 

Total consideration 

Satisfied by:

Cash 

Total consideration 

Net cash outflow arising on acquisition:

Purchase consideration 

Book 
value 
£m 

23.0 
3.7 
1.2 
– 
28.5 
(23.3) 
(13.4) 
– 

19.7 

Fair value 
adjustments 
£m 

Provisional  
fair value 
£m

(23.0) 
3.7 
(0.6) 
3.8 
(0.7) 
– 
– 
(4.9) 

(21.7) 

–
7.4
0.6
3.8
27.8
(23.3)
(13.4)
(4.9)

(2.0)

57.5

55.5

55.5

55.5

55.5

The provisional fair value of the financial assets acquired includes trade receivables with a fair value of £24.3m and a gross contractual value of £24.4m.

The goodwill of £57.5m arising from the acquisition represents future opportunities in the UK outsourced contact centre services industry. None of the 
goodwill is expected to be deductible for corporate income tax purposes.

£1.0m of acquisition-related costs incurred on the Vertex acquisition have been expensed to the income statement.

Vertex Public Services Limited contributed £64.0m to revenue and £8.4m to the Group’s Adjusted operating profit for the period between the date of 
acquisition and the balance sheet date. If the acquisition of Vertex Public Services Limited had been completed on the first day of the financial year, 
Group Revenue for the period would have been £5,041.0m and the Group’s Adjusted operating profit would have been £331.6m.

Serco Group plc | Annual report and accounts 2012 | 141

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

17. Acquisitions (continued)

17 (b) DMS Maritime Pty Limited
On 16 November 2012, Serco acquired the remaining 50% stake in DMS Maritime Pty Limited from our joint venture partner P&O Maritime Services. 
The transaction strengthens Serco’s position as a leading defence services provider in Australia and in the growing marine services market. The cash 
cost of the acquisition was £69.1m (A$106.3m). DMS was formerly accounted for as a joint venture and following the acquisition of further shares  
it became a wholly owned subsidiary. In accordance with IFRS 3 (Revised) the difference between the fair value of the equity owned prior to the 
acquisition of £55.3m and the book value of the joint venture of £4.2m was recognised in the consolidated income statement, with the gain of  
£51.1m reported in the exceptional other gain line.

Net assets acquired were:
Intangible assets 
Property, plant and equipment 
Inventories 
Trade and other receivables 
Loans 
Bank overdrafts 
Deferred tax liability 
Provisions 

Net assets acquired 

Gain on remeasurement to fair value 

Goodwill  

Total consideration 

Satisfied by:

Cash 

Total consideration 

Net cash outflow arising on acquisition:

Purchase consideration 

Book 
value 
£m 

– 
4.8 
5.5 
10.0 
(14.8) 
(0.4) 
(0.5) 
(0.4) 

4.2 

Fair value 
adjustments 
£m 

Provisional  
fair value 
£m

32.7 
– 
– 
– 
– 
– 
(9.8) 
– 

22.9 

32.7
4.8
5.5
10.0
(14.8)
(0.4)
(10.3)
(0.4)

27.1

(51.1)

93.1

69.1

69.1

69.1

69.1

The provisional fair value of the financial assets acquired includes trade receivables with a fair value of £5.9m and a gross contractual value of £6.0m.

The goodwill of £93.1m arising from the acquisition represents future opportunities in the Australian marine services industry. None of the goodwill is 
expected to be deductible for corporate income tax purposes.

£1.8m of acquisition-related costs incurred on the above acquisitions have been expensed to the income statement. 

The additional stake in DMS Maritime Pty Limited contributed £5.9m to revenue and £1.5m to the Group’s Adjusted operating profit for the period 
between the date of acquisition and the balance sheet date. If the acquisition of DMS Maritime Pty Limited had been completed on the first day of  
the financial year, Group revenue for the period would have been £4,948.8m and the Group’s Adjusted operating profit would have been £321.3m.

142 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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17. Acquisitions (continued)

17 (c) Other Acquisitions
Anglia Support Partnership
On 13 April 2012, Serco entered into an agreement to acquire the trade and assets of Anglia Support Partnership (ASP). ASP provides support services 
to the Cambridge and Peterborough NHS Foundation Trust, together with a further five partnering NHS organisations. The initial cash cost of the 
business combination was £5.2m. In addition, £3.5m of deferred consideration was paid on 30 September 2012. Up to a further £7.2m of deferred 
consideration is payable from 2013 to 2020, contingent on the financial performance of the acquired business. The fair value of this deferred contingent 
consideration is £3.3m. The provisional fair value of net assets acquired totalled £4.0m. £0.8m of acquisition-related costs incurred on this acquisition 
have been expensed to the income statement.

Due to the immaterial nature of this acquisition, full disclosures under IFRS 3 are not presented.

Priority Properties North West Limited
On 1 June 2012, Serco acquired 100% of the issued share capital of Priority Properties North West Limited (PPNW). PPNW is a property management 
company specialising in the provision of short and long term housing. The cash cost of the acquisition in the period was £2.7m. In addition, deferred 
consideration of up to £1.1m is payable contingent on financial performance in the period to 31 January 2013. The fair value of this deferred, contingent 
consideration is £0.5m. The provisional fair value of net assets acquired totalled £1.8m.

£0.1m of acquisition-related costs incurred on this acquisition have been expensed to the income statement.

Due to the immaterial nature of this acquisition, full disclosures under IFRS 3 are not presented.

Other acquisitions (in aggregate):

Net assets acquired were:
Intangible assets 
Property, plant and equipment 
Trade and other receivables 
Cash and cash equivalents 
Trade and other payables 
Tax liabilities 
Provisions 

Net assets acquired 

Goodwill 

Total consideration 

Satisfied by:

Cash 
Contingent consideration arrangement 

Total consideration 

Net cash outflow arising on acquisitions:

Purchase consideration 
Cash and cash equivalents acquired 

Net cash outflow arising on acquisitions 

Book 
value 
£m 

Fair value 
adjustments 
£m 

Provisional  
fair value 
£m

4.3 
1.2 
2.1 
0.8 
(1.2) 
(0.1) 
– 

7.1 

– 
(0.6) 
– 
– 
– 
– 
(0.7) 

(1.3) 

4.3
0.6
2.1
0.8
(1.2)
(0.1)
(0.7)

5.8

9.4

15.2

11.4
3.8

15.2

11.4
(0.8)

10.6

Serco Listening Company Limited (formerly The Listening Company Limited)
During the year, a cash payment of £6.6m was made in respect of deferred contingent consideration payable following the acquisition of The Listening 
Company Limited in 2011.

Serco Group plc | Annual report and accounts 2012 | 143

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

18. Disposals

During the year, the Group generated the following net profit on disposal of subsidiaries and operations:

Gain on disposal of Serco Technical Services  
Loss on disposal of Serco GmbH  
Loss on disposal of UK data hosting operations  
Loss on disposal of education software business 

Net profit on disposal of subsidiaries and operations 

2011 
£m

2012 
£m 

57.6 –
(27.7) –
(11.5) –
(12.8) –

5.6 –

18 (a) Serco Technical Services
On 29 June 2012, the Group disposed of its Technical Services business which provides consulting and project solutions primarily to the UK civil and 
nuclear defence markets, for a consideration of £135.3m. 

The net assets at the date of disposal were:
Goodwill 
Intangible assets 
Property, plant and equipment 
Trade and other receivables 
Cash and cash equivalents 
Trade and other payables 
Deferred tax liabilities 

Net assets disposed 

The profit on disposal is calculated as follows:
Cash consideration 
Less:
Net assets disposed 
Disposal-related costs 

Profit on disposal 

The net cash inflow arising on disposal is as follows: 
Consideration received 
Less:
Cash and cash equivalents disposed  
Disposal-related costs paid during the period 

Net cash inflow on disposal 

£m

64.4
0.8
1.6
13.2
0.6
(5.1)
(5.2)

70.3

£m

135.3

(70.3)
(7.4)

57.6

£m

135.3

(0.6)
(4.9)

129.8

18 (b) Serco GmbH
On 29 June 2012, the Group disposed of its interest in Serco GmbH. The fair value of consideration receivable is £nil. The business provides support 
services for the German air defence radar systems, engineering and administrative support services for the defence sector as well as training services, 
facilities management, field installation and maintenance services, and IT consulting and related services. 

The net assets at the date of disposal were:
Goodwill 
Intangible assets 
Property, plant and equipment 
Deferred tax asset 
Trade and other receivables 
Loans receivable 
Cash and cash equivalents 
Trade and other payables 
Bank overdrafts 
Retirement benefit obligations 
Provisions 

Net assets disposed 

144 | Serco Group plc | Annual report and accounts 2012

£m

22.0
1.2
6.0
5.2
21.4
25.9
0.6
(8.6)
(1.3)
(50.5)
(0.1)

21.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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18. Disposals (continued)

18 (b) Serco GmbH (continued)

The loss on disposal is calculated as follows: 
Net assets disposed  
Disposal-related costs 

Loss on disposal 

The net cash outflow arising on disposal is as follows:
Cash and cash equivalents disposed 
Disposal-related costs paid during the period 

Net cash outflow on disposal 

£m

(21.8)
(5.9)

(27.7)

£m

(0.6)
(2.9)

(3.5)

18 (c) Other disposals
On 21 December 2012, the Group agreed to dispose of its UK data hosting operations. There was £nil cash consideration and the net assets disposed 
amounted to £7.8m, giving a loss of £11.5m, after accounting for disposal costs of £3.7m.

On 31 December 2012, the Group disposed of its education software business. There was £6.3m of consideration received and the net assets 
disposed amounted to £17.7m, giving a loss of £12.8m, after accounting for disposal costs of £1.4m.

The net assets at the date of disposal were:
Goodwill 
Intangible assets 
Property, plant and equipment 
Trade and other receivables 
Cash and cash equivalents 
Trade and other payables 
Finance lease obligations 
Other loans 

Net assets disposed 

The loss on disposal is calculated as follows:
Cash consideration 
Less:
Net assets disposed 
Disposal-related costs 

Loss on disposal 

The net cash inflow arising on disposal is as follows:
Consideration received 
Less: 
Cash and cash equivalents disposed  
Disposal-related costs paid during the period 

Net cash inflow on disposal 

£m

0.4
2.6
11.4
19.1
0.2
(1.9)
(6.2)
(0.1)

25.5

£m

6.3

(25.5)
(5.1)

(24.3)

£m

6.3

(0.2)
(1.4)

4.7

Serco Group plc | Annual report and accounts 2012 | 145

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

19. Property, plant and equipment

Cost
At 1 January 2012 
Additions 
Reclassification from/(to) intangible assets 
Disposals 
Arising on acquisition 
Eliminated on disposal 
Exchange differences 

At 31 December 2012 

Accumulated depreciation and impairment
At 1 January 2012 
Charge for the year 
Reclassification from/(to) intangible assets 
Disposals 
Arising on acquisition 
Eliminated on disposal 
Exchange differences 

At 31 December 2012 

Net book value
At 31 December 2012 

Cost
At 1 January 2011 
Additions 
Reclassifications from intangible assets 
Disposals 
Arising on acquisition 
Exchange differences 

At 31 December 2011 

Accumulated depreciation and impairment
At 1 January 2011 
Charge for the year 
Disposals 
Exchange differences 

At 31 December 2011 

Net book value
At 31 December 2011 

Freehold 
land and 
buildings 
£m 

Short-leasehold 
building 
improvements 
£m 

Machinery,  
motor vehicles, 
furniture and  
equipment 
£m 

7.0 
1.2 
1.5 
(0.6) 
– 
(4.2) 
(0.1) 

4.8 

3.7 
0.3 
0.2 
(0.1) 
– 
(2.2) 
– 

1.9 

59.0 
5.0 
8.3 
(1.9) 
1.4 
(8.2) 
(1.7) 

61.9 

27.1 
8.8 
3.4 
(1.1) 
1.3 
(5.3) 
(0.8) 

33.4 

339.6 
79.4 
(17.1) 
(44.9) 
22.4 
(42.2) 
(6.1) 

331.1 

180.0 
42.3 
(10.1) 
(26.1) 
16.5 
(27.5) 
(3.2) 

171.9 

Total 
£m

405.6
85.6
(7.3)
(47.4)
23.8
(54.6)
(7.9)

397.8

210.8
51.4
(6.5)
(27.3)
17.8
(35.0)
(4.0)

207.2

2.9 

28.5 

159.2 

190.6

Freehold 
land and 
buildings 
£m 

Short-leasehold 
building 
improvements 
£m 

Machinery, 
motor vehicles, 
furniture and  
equipment 
£m 

7.2 
– 
– 
– 
– 
(0.2) 

7.0 

3.5 
0.3 
– 
(0.1) 

3.7 

50.8 
7.1 
– 
(5.4) 
7.2 
(0.7) 

59.0 

26.3 
6.2 
(5.3) 
(0.1) 

27.1 

297.7 
72.2 
0.2 
(59.6) 
32.9 
(3.8) 

339.6 

190.5 
39.5 
(50.0) 
– 

180.0 

Total 
£m

355.7
79.3
0.2
(65.0)
40.1
(4.7)

405.6

220.3
46.0
(55.3)
(0.2)

210.8

3.3 

31.9 

159.6 

194.8

The carrying amount of the Group’s Machinery, motor vehicles, furniture and equipment includes an amount of £42.6m (2011: £45.6m) in respect  
of assets held under finance leases.

The carrying amount of the Group’s Short-leasehold building improvements includes an amount of £0.5m (2011: £1.4m) in respect of assets held  
under finance leases.

146 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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20. Joint ventures

The Group’s interests in joint ventures are reported in the consolidated financial statements using the proportionate consolidation method.

The effect of the Group’s joint ventures on the consolidated income statement and consolidated balance sheet is as follows:

Income statement

Revenue 
Expenses 

Operating profit 
Investment revenue 
Finance costs 

Profit before tax 
Tax  

Share of post-tax results of joint ventures 

Operating profit is after allocating £nil (2011: £1.0m) of costs incurred by Group.

Balance sheet

Non-current assets 
Current assets 
Current liabilities 
Non-current liabilities 

Net assets 

21. Inventories

Service spares 
Parts awaiting installation 
Long-term project-based contract balances 

2012 
£m 

852.9 
(775.5) 

77.4 
2.7 
(0.5) 

79.6 
(15.1) 

64.5 

2012 
£m 

237.9 
146.0 
(134.4) 
(238.9) 

10.6 

2012 
£m 

37.6 
13.1 
13.7 

64.4 

2011 
£m

819.3
(737.7)

81.6
2.7
(0.7)

83.6
(20.0)

63.6

2011 
£m

218.4
171.6
(138.9)
(212.5)

38.6

2011 
£m

32.1
10.4
16.3

58.8

Serco Group plc | Annual report and accounts 2012 | 147

 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

22. Trade and other receivables

Trade and other receivables: non-current
Amounts owed by joint venturers 
Amounts recoverable on retirement benefit obligations (note 30a) 
Loans receivable (note 25) 
Security deposits 
Other receivables 

Trade and other receivables: current
Trade receivables 
Other amounts recoverable on contracts 
Prepayments and accrued income 
Loans receivable (note 25) 
Security deposits 
Other receivables 

2012 
£m 

6.6 
214.7 

0.1 –
0.3 
38.8 

260.5 

2012 
£m 

628.8 
69.9 
77.4 

1.1 –
7.8 –

71.1 

856.1 

2011 
£m

5.9
188.7

9.3
58.0

261.9

2011 
£m

609.0
62.0
87.4

40.2

798.6

As at 31 December 2012, trade receivables of £14.0m (2011: £2.9m) were considered to be impaired. Impairments to trade receivables are based  
on specific estimated irrecoverable amounts and provisions on outstanding balances greater than a year old unless there is firm evidence that the 
balance is recoverable. The amount of the provision was £6.2m as of 31 December 2012 (2011: £7.2m) primarily because our customers either have  
a sovereign credit rating being government organisations or are blue chip private sector companies. 

The ageing of trade receivables is as follows:

Neither impaired nor past due 
Not impaired but overdue by less than 30 days 
Not impaired but overdue by between 30 and 60 days 
Not impaired but overdue by more than 60 days 
Impaired 
Allowance for doubtful debts 

Movements on the Group allowance for doubtful debts are as follows:

At 1 January  
(Credited)/charged to income statement  
Utilised 
Exchange differences 

At 31 December 

2012 
£m 

481.9 
85.5 
30.9 
22.7 
14.0 
(6.2) 

628.8 

2012 
£m 

7.2 
(0.8) 
0.1 
(0.3) –

6.2 

2011 
£m

496.8
83.7
15.5
17.3
2.9
(7.2)

609.0

2011 
£m

4.2
7.2
(4.2)

7.2

The maximum exposure to credit risk in relation to trade receivables at the reporting date is the fair value of trade receivables. The Group does not hold 
any collateral as security.

148 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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23. Long-term contracts

Contracts in progress at the balance sheet date:
Amounts due from long-term project-based contract customers included in trade and other receivables 
Amounts due to long-term project-based contract customers included in trade and other payables 

Long-term project-based contract costs incurred plus recognised profits less recognised losses to date 
Less: progress payments 

2012 
£m 

24.0 
(0.9) 

23.1 

685.2 
(662.1) 

23.1 

2011 
£m

39.4
(0.5)

38.9

872.2
(833.3)

38.9

As at 31 December 2012, £nil (2011: £nil) of advances received from customers were included within long-term project-based contract balances.  
As at 31 December 2012, the Group had £1.3m (2011: £0.4m) of contract retentions held by customers.

24. Cash and cash equivalents

Customer advance payments* 
Other cash and short-term deposits 

Total cash and cash equivalents 

Sterling 
2012 
£m 

– 
86.3 

86.3 

Other 
currencies 
2012 
£m 

7.5 
104.8 

112.3 

Total 
2012 
£m 

7.5 
191.1 

198.6 

Sterling 
2011 
£m 

– 
89.6 

89.6 

Other 
currencies 
2011 
£m 

5.5 
159.7 

165.2 

Total 
2011 
£m

5.5
249.3

254.8

*Customer advance payments totalling £7.5m (2011: £5.5m) are encumbered cash balances.

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other 
short-term highly liquid investments with a maturity of three months or less.

Serco Group plc | Annual report and accounts 2012 | 149

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

25. Loans

Loans are repayable as follows:
On demand or within one year 
Between one and two years 
Between two and five years 
After five years 

Less: amount due for  
settlement within one year  
(shown within current liabilities) 

Less: Amounts shown in  
receivables (note 22) 

Amount due for settlement  
after one year 

Non  
recourse 
loans 
2012 
£m 

10.0 
2.4 
7.3 
5.4 

25.1 

Other 
loans 
2012 
£m 

53.5 
37.9 
212.2 
399.8 

703.4 

Total 
2012 
£m 

63.5 
40.3 
219.5 
405.2 

728.5 

Non 
recourse 
loans 
2011 
£m 

7.8 
7.7 
– 
– 

15.5 

Other 
loans 
2011 
£m 

198.8 
147.2 
104.5 
376.8 

827.3 

Total 
2011 
£m

206.6
154.9
104.5
376.8

842.8

(10.0) 

(54.6) 

(64.6) 

(7.8) 

(198.8) 

(206.6)

– 

1.2 

1.2 –

 –

 –

15.1 

650.0 

665.1 

7.7 

628.5 

636.2

The carrying amounts and fair values of the loans are as follows:

Non recourse loans 
Other loans 

Carrying  
amount 
2012 
£m 

25.1 
703.4 

728.5 

Fair 
value 
2012 
£m 

26.6 
723.5 

750.1 

Carrying 
amount 
2011 
£m 

15.5 
827.3 

842.8 

Fair 
value 
2011 
£m

16.1
848.9

865.0

The fair values are based on cash flows discounted using a rate based on the borrowing rate associated with the loan. All loans are held at 
amortised cost.

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26. Deferred tax

Deferred income taxes are calculated in full on temporary differences under the liability method, using local substantively enacted tax rates. 

The gross movement on the deferred income tax account is as follows:

At 1 January – asset 
Income statement charge (note 12) 
Acquisitions/disposals 
Items recognised in equity and in other comprehensive income (note 12) 
Exchange differences 

At 31 December – asset 

The movement in deferred tax assets and liabilities during the year was as follows:

2012 
£m 

(5.9) 
12.6 
6.5 
(25.4) 
– 

(12.2) 

Temporary 
differences 
on assets/ 
intangibles 
£m 

Share-based 
payment and 
employee 
benefits 
£m 

Retirement 
benefit 
schemes 
£m 

Derivative 
financial 
instruments 
£m 

Other 
temporary 
differences 
£m 

At 1 January 2012 
(Credited)/charged to income statement 
Acquisitions/disposals 
Items recognised in equity and  
in other comprehensive income 
Exchange differences 

At 31 December 2012 

25.6 
(3.9) 
4.0 

– 
(2.3) 

23.4 

(23.8) 
4.6 
0.1 

(2.5) 
0.2 

(21.4) 

18.5 
0.7 
2.0 

(18.4) 
0.1 

2.9 

(9.1) 
– 
– 

(4.5) 
– 

(13.6) 

(17.1) 
11.2 
0.4 

– 
2.0 

(3.5) 

The movement in deferred tax assets and liabilities during the previous year was as follows:

Temporary 
differences 
on assets/ 
intangibles 
£m 

Share-based 
payment and 
employee 
benefits 
£m 

Retirement 
benefit 
schemes 
£m 

Derivative 
financial 
instruments 
£m 

Other 
temporary 
differences 
£m 

At 1 January 2011 
(Credited)/charged to income statement 
Acquisitions/disposals 
Items recognised in equity and  
in other comprehensive income 
Exchange differences 

At 31 December 2011 

17.3 
(6.8) 
16.7 

– 
(1.6) 

25.6 

(27.1) 
2.2 
(1.4) 

2.6 
(0.1) 

(23.8) 

(13.5) 
(0.7) 
– 

32.7 
– 

18.5 

(0.3) 
– 
– 

(8.8) 
– 

(9.1) 

0.1 
6.9 
(26.1) 

– 
2.0 

(17.1) 

2011 
£m 

(23.5)
1.6
(10.8)
26.5
0.3

(5.9)

Total 
£m

(5.9)
12.6
6.5

(25.4)
–

(12.2)

Total 
£m

(23.5)
1.6
(10.8)

26.5
0.3

(5.9)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and 
when the deferred income taxes relate to the same fiscal authority. The following is the analysis of the deferred tax balances (after offset) for financial 
reporting purposes:

Deferred tax liabilities 
Deferred tax assets 

2012 
£m 

31.1 
(43.3) 

(12.2) 

2011 
£m

22.3
(28.2)

(5.9)

At the balance sheet date, the Group did not recognise deferred tax assets of £16.5m (2011: £10.2m) which principally relate to unused tax losses 
of £48.4m (2011: £34.9m). Losses of £11.8m (2011: £4.5m) expire within five years, losses of £24.4m (2011: £17.2m) expire within six to ten years 
and losses of £12.2m (2011: £13.2m) may be carried forward indefinitely.

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred  
tax liabilities have not been recognised was £nil (2011: £0.1m). No liability has been recognised in respect of these differences because the Group  
is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the 
foreseeable future. 

Serco Group plc | Annual report and accounts 2012 | 151

 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
10.9 
32.9 
5.2 

49.0 
(3.1) 

45.9 
(10.9) 

35.0 

2012 
£m 

193.9 
167.5 
520.3 

1.4 –

883.1 

2012 
£m 

42.5 

10.3
30.5
5.1

45.9
–

45.9
(10.3)

35.6

2011 
£m

217.7
140.3
446.2

804.2

2011 
£m

61.4

Section 5 | Financial statements

Notes to the Consolidated Financial Statements

27. Obligations under finance leases

Amounts payable under finance leases: 
Within one year 
Between one and five years 
After five years 

Less: future finance charges 

Minimum 
lease payments 
2012 
£m 

Present value 
of minimum 
lease payments 
2012 
£m 

Minimum 
lease payments 
2011 
£m 

Present value  
of minimum  
lease payments  
2011 
£m

12.0 
39.8 
3.3 

55.1 
(4.3) 

50.8 
(12.0) 

38.8 

10.8 
36.8 
3.2 

50.8 
– 

50.8 
(10.8) 

40.0 

Present value of lease obligations 
Less: amount due for settlement within one year (shown under current liabilities) 

Amount due for settlement after one year 

Finance lease obligations are secured by the lessors’ title to the leased assets.

The Directors estimate that the fair value of the Group’s lease obligations approximates their carrying amount.

28. Trade and other payables

Trade and other payables: Current
Trade payables 
Other payables 
Accruals and deferred income 
Amounts owed to joint venturers 

The average credit period taken for trade purchases is 26 days (2011: 31 days).

Trade and other payables: Non-current
Other payables 

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29. Financial risk management

29 (a) Fair value of financial instruments
(i)  Hierarchy of fair value
The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is observable. The levels  
are as follows:

Level 1: derived from unadjusted quoted prices in active markets for identical assets or liabilities; 
Level 2: derived from other observable market data for the assets or liabilities; and 
Level 3: derived from valuation techniques using data that is not based on observable market data.

Based on the above, the derivative financial instruments held by the Group at 31 December 2012, are considered to fall into Level 2. 

The Group held the following financial instruments which fall within the scope of IAS 39 Financial Instruments: Recognition and Measurement  
at 31 December:

Carrying amount  
(measurement basis) 

Comparison 
fair value 

Carrying amount 
(measurement basis) 

Comparison 
fair value

Loans and receivables:
Trade receivables (note 22) 
Loan receivables (note 22) 

Amortised 
Cost 
2012 
£m 

628.8 
1.2 

Derivative financial assets: 
Derivative financial instruments: non-current 
Derivative financial instruments: current 

Financial liabilities at amortised cost: 
Trade payables (note 28) 
Loans (note 25) 

(193.9) 
(729.7) 

Derivative financial liabilities: 
Derivative financial instruments: current 
Derivative financial instruments: non-current 

Fair value 
hierarchy  
– Level 2 
2012 
£m 

0.1 
3.6 

(13.8) 
(24.5) 

Amortised 
Cost 
2011 
£m 

609.0 

2012 
£m 

628.8 

1.2 –

(193.9) 
(751.3) 

(217.7) 
(842.8) 

Fair value 
hierarchy  
– Level 2 
2011 
£m 

 –

2.0 
7.6 

(12.3) 
(26.3) 

2011 
£m

609.0

(217.7)
(865.0)

The Directors estimate that the carrying amounts of trade receivables and trade payables approximate to their fair value.

The fair values of loans are based on cash flows discounted using a rate based on the borrowing rate associated with the loan. All loans are held  
at amortised cost.

The fair values of derivative financial instruments are calculated based on a discounted cash flow analysis using appropriate quoted interest rates  
for the duration of the instruments as noted below:

●● Currency swaps and interest rate swaps are measured at the present value of estimated future cash flows. The present value of foreign currency 

balances are converted at the year end exchange rate;

●● Forward foreign exchange contracts are measured using quoted forward exchange rates matching the maturities of the contracts; and
●● Commodity contracts are measured at the present value of estimated cash flows with reference to quoted forward fuel prices.

Serco Group plc | Annual report and accounts 2012 | 153

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

29. Financial risk management (continued)

29 (a) Fair value of financial instruments (continued)
(ii) Fair value of derivative financial instruments
The fair valuation of derivative financial instruments results in a net liability of £34.6m (2011: £29.0m), comprising non-current assets of £0.1m (2011: 
£2.0m), current assets of £3.6m (2011: £7.6m), current liabilities of £13.8m (2011: £12.3m) and non-current liabilities of £24.5m (2011: £26.3m).

Currency swaps 
Forward foreign exchange contracts 
Interest rate swaps 
Commodity futures contracts 

Currency swaps 
Forward foreign exchange contracts 
Interest rate swaps 
Commodity futures contracts 

Movement in 
fair value of 
cash flow 
hedges 
£m 

(0.9) 
(0.4) 
0.6 
(1.4) 

(2.1) 

Movement in 
fair value of 
cash flow 
hedges 
£m 

(0.2) 
(38.3) 
3.0 
(0.2) 

(35.7) 

Movement in  
fair value of 
non-designated  

hedges  31 December 2012 
£m

£m 

(0.5) 
(2.9) 
(0.1) 
– 

(3.5) 

(0.6)
(34.9)
(0.1)
1.0

(34.6)

Movement in  
fair value of 
non-designated  

hedges  31 December 2011 
£m

£m 

– 
6.9 
– 
– 

6.9 

0.8
(31.6)
(0.6)
2.4

(29.0)

1 January 2012 
£m 

0.8 
(31.6) 
(0.6) 
2.4 

(29.0) 

1 January 2011 
£m 

1.0 
(0.2) 
(3.6) 
2.6 

(0.2) 

29 (b) Financial risk
The Board is ultimately responsible for ensuring that financial and non-financial risks are monitored and managed within acceptable and known 
parameters. The Board delegates authority to the executive team to manage financial risks. The Group’s treasury function acts as a service centre  
and operates within clearly defined guidelines and policies that are approved by the Board. The guidelines and policies define the financial risks to  
be managed, specify the objectives in managing these risks, delegate responsibilities to those managing the risks and establish a control framework  
to regulate treasury activities to minimise operational risk.

29 (c) Liquidity risk
(i) Credit facilities
The Group maintains committed credit facilities to ensure that it has sufficient liquidity to maintain its ongoing operations. As at 31 December, 
the Group’s committed bank credit facilities and corresponding borrowings were as follows:

Syndicated revolving credit facility 

Syndicated revolving credit facility 
Syndicated term loan facility (amortising) 
Syndicated term loan facility (amortising) 
Bilateral revolving credit facility 
Bilateral revolving credit facility 

Currency 

GBP 

Currency 

GBP 
USD 
GBP 
GBP 
EUR 

Amount 
2012 
millions 

730.0 

Amount 
2011 
millions 

400.0 
258.4 
75.0 
75.0 
12.5 

Drawn 
2012 
£m 

177.6 

Drawn 
2011 
£m 

– 
166.3 
75.0 
– 
– 

241.3 

Undrawn 
2012 
£m 

552.4 

Undrawn 
2011 
£m 

400.0 
– 
– 
75.0 
10.4 

485.4 

Total facility 
2012 
£m

730.0

Total facility 
2011 
£m

400.0
166.3
75.0
75.0
10.4

726.7

The £730.0m syndicated revolving credit facility was signed in March 2012 and matures in March 2017. It replaced all existing syndicated and bilateral 
credit facilities.

The banking facilities are unsecured and have financial and non-financial covenants and obligations typical of these arrangements.

In addition to the banking facilities the Group has outstanding US private placements of £460.8m of which £70.2m amortise between 2013 and 2015 
and £390.6m are bullet repayments between 2016 and 2023.

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29. Financial risk management (continued)

29 (c) Liquidity risk (continued)
(ii) Maturity of financial liabilities
The Group’s financial liabilities will be settled on a net basis based on the remaining period at the balance sheet to the contractual maturity date.  
The amounts disclosed below are the contractual undiscounted cash flows based on the earliest date on which the Group can be required to pay.

Trade payables (note 28) 
Obligations under finance leases (note 27) 
Loans (note 25) 
Future loan interest 
Derivative financial liabilities 

At 31 December 2012 

Trade payables (note 28) 
Obligations under finance leases (note 27) 
Loans (note 25) 
Future loan interest 
Derivative financial liabilities 

At 31 December 2011 

On demand  
or within 
one year 
£m 

193.9 
12.0 
64.6 
21.1 
14.6 

306.2 

On demand  
or within 
one year 
£m 

217.7 
10.9 
206.6 
29.4 
12.3 

476.9 

Between one 
and two years 
£m 

Between two 
and five years 
£m 

After 
five years 
£m 

– 
12.5 
40.4 
18.5 
9.9 

81.3 

– 
27.3 
219.5 
62.5 
19.0 

328.3 

Between one 
and two years 
£m 

Between two 
and five years 
£m 

– 
10.6 
154.9 
25.1 
10.7 

201.3 

– 
22.3 
104.5 
54.4 
22.4 

203.6 

– 
3.3 
405.2 
38.0 
– 

446.5 

After 
five years 
£m 

– 
5.2 
376.8 
71.0 
– 

453.0 

Total 
£m

193.9
55.1
729.7
140.1
43.5

1,162.3

Total 
£m

217.7
49.0
842.8
179.9
45.4

1,334.8

The Group’s derivative financial liabilities are settled on both a net and gross basis depending upon the terms of each derivative financial instrument. 
The maturity of the Group’s undiscounted derivative financial liabilities is as follows:

On demand or within one year 
Between one and two years 
Between two and five years 

At 31 December 2012 

On demand or within one year 
Between one and two years 
Between two and five years 

At 31 December 2011 

Cross 
currency 
swaps 
£m 

– 
– 
(0.7) 

(0.7) 

Cross 
currency 
swaps 
£m 

– 
– 
– 

– 

Forward  
foreign 
exchange 
contracts 
£m 

(14.6) 
(9.8) 
(18.3) 

(42.7) 

Forward  
foreign 
exchange 
contracts 
£m 

(11.7) 
(10.7) 
(22.4) 

(44.8) 

Interest  
rate swaps 
£m 

– 
(0.1) 
– 

(0.1) 

Interest  
rate swaps 
£m 

(0.6) 
– 
– 

(0.6) 

Total 
£m

(14.6)
(9.9)
(19.0)

(43.5)

Total 
£m

(12.3)
(10.7)
(22.4)

(45.4)

Serco Group plc | Annual report and accounts 2012 | 155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

29. Financial risk management (continued)

29 (d) Foreign exchange risk
(i) Transactional
It is the Group’s policy to hedge material transactional exposures using forward foreign exchange contracts to fix the functional currency value of 
non-functional currency cash flows. At 31 December 2012, there were no material unhedged non-functional currency monetary assets or liabilities,  
firm commitments or probable forecast transactions. 

(ii) Translational
Where possible the Group will raise external funding to match the currency profile of its foreign operations, and mitigate translation exposure.  
If match funding is not possible then currency derivatives are also used to protect against movements in foreign exchange.

(iii) Hedge accounting
For the purposes of hedge accounting, hedges are classified as either fair value hedges, cash flow hedges or hedges of net investments in foreign 
operations. Page 127 details the Group’s accounting policies in relation to derivatives qualifying for hedge accounting under IAS 39. The hedge 
accounting relationships as at 31 December 2012 were as follows:

Cash flow hedges
At 31 December 2012, the Group held two cross currency swaps designated as cash flow hedges against the 2003 US Dollar private placement. Fixed 
interest cash flows denominated in US Dollars are exchanged for fixed interest cash flows denominated in Sterling. The profile of these cross currency 
swaps held by the Group is as follows:

Maturity 

August 2015 
August 2015 

Notional 
amount 
2012 
USD m 

Receivable USD 
interest rate 
2012 
% 

Payable GBP 
interest rate 
2012 
% 

21.0 
12.0 

5.7 
5.7 

5.7 
5.7 

Notional 
amount 
2011 
USD m 

32.0 
18.3 

Receivable USD 
interest rate 
2011 
% 

Payable GBP 
 interest rate 
2011 
%

5.7 
5.7 

5.7
5.7

The Group also held a number of forward foreign exchange contracts designated as cash flow hedges. The net notional amounts are summarised by 
currency below:

Sterling 
US Dollar 
Euro 
Indian Rupee 
Other 

2012 
£m 

(176.3) 
(47.2) 
9.5 
190.7 
– 

2011 
£m

(235.1)
(131.0)
(0.8)
337.0
10.0

All currency derivatives designated as cash flow hedges are highly effective and as at 31 December 2012 a fair value loss of £33.8m (2011: £35.7m loss) 
has been deferred in the hedging reserve. The net fair value loss recognised on cash flow hedges during the year was £2.1m (2011: £35.7m loss), whilst 
net losses of £10.1m were reclassified to the consolidated income statement. 

(iv) Currency sensitivity
The Group’s currency exposures that result in net currency gains and losses in the income statement and equity arise principally from movement  
in US Dollar and Indian Rupee exchange rates. At 31 December 2012, if both had weakened by 10% against Sterling, with all other variables  
held constant, post-tax profit for the year would have been £0.6m higher (2011: £0.2m lower) and equity would have been £2.0m higher  
(2011: £1.4m higher). 

156 | Serco Group plc | Annual report and accounts 2012

  
 
 
 
 
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29. Financial risk management (continued)

29 (e) Interest rate risk
The Group’s policy is to minimise the impact of interest rate volatility on earnings to provide an appropriate level of certainty to cost of funds.  
Exposure to interest rate risk arises principally on changes to US Dollar and Sterling interest rates.

(i) Interest rate management
An analysis of financial assets and liabilities exposed to interest rate risk is set out below:

Financial assets

Cash and cash equivalents 

198.6 

– 

Floating rate 
2012 
£m 

Fixed rate 
2012 
£m 

Financial liabilities

Non recourse Canadian Dollar loans 
Non recourse Sterling loans 
Sterling loans 
US Dollar loans 
AU Dollar loans 
Other loans 

Floating rate 
2012 
£m 

Fixed rate 
2012 
£m 

– 
– 
100.2 
26.5 
79.8 
36.6 

243.1 

7.5 
17.6 
50.6 
410.9 
– 
– 

486.6 

Weighted 
average fixed 
interest rate 
2012 
% 

Weighted 
average fixed 
interest rate 
2012 
% 

5.27 
3.64 –
5.90 
4.34 

Weighted  
average fixed  
interest rate 
2011 
%

Weighted  
average fixed  
interest rate 
2011 
%

5.27

5.93
3.66

Floating rate 
2011 
£m 

254.8 

Fixed rate 
2011 
£m 

– 

Floating rate 
2011 
£m 

Fixed rate 
2011 
£m 

– 

 –

 105.4 
191.6 
– 
27.5 

324.5 

15.5 

 –

94.2 
408.6 
– 
– 

518.3 

Exposure to interest rate fluctuations is mitigated through the issuance of fixed rate debt and the use of interest rate derivatives. Excluded from the 
above analysis is £50.8m (2011: £45.9m) of amounts payable under finance leases, which are subject to fixed rates of interest. 

(ii) Interest rate swaps
Interest rate swaps outstanding at 31 December 2012 relate to interest rate risk management on debt held locally within the Group. 

Maturity

March 2014 
January 2015 

Maturity

March 2012 
December 2012 
December 2012 
March 2014 
January 2015 

Notional 
Value 
2012 
USD m 

2.1 
3.8 

Notional 
Value 
2011 
USD m 

300.0 
9.1 
0.9 
3.7 
5.0 

Payable USD 
interest rate 
2012 
% 

Receivable USD 
interest rate 
2012 
% 

Receivable JPY 
interest rate 
2012 
%

6.89 
6.30 

– 
3 month USD Libor + 2.0 

3 month JPY Libor + 1.0
–

Payable USD 
interest rate 
2011 
% 

1.83 
4.65 
8.56 
6.89 
6.30 

Receivable USD 
interest rate 
2011 
% 

3 month USD LIBOR 
6 month USD Libor + 1.6 
6 month USD Libor + 6.5 
– 
3 month USD Libor + 2.0 

Receivable JPY 
interest rate 
2011 
%

–
–
–
3 month JPY Libor + 1.0
–

The interest rate swaps were not designated as cash flow hedges. The fair value loss of £0.1m has therefore been recorded in the income statement 
(2011: £2.9m gain). 

(iii) Interest rate sensitivity
A 100 basis point increase in interest rates on the net financial liability position at the balance sheet date, with all other variables held constant,  
would have resulted in a reduction in post-tax profit for the year to 31 December 2012 of £0.4m (2011: £0.5m).

Serco Group plc | Annual report and accounts 2012 | 157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

29. Financial risk management (continued)

29 (f) Price risk 
The Group is exposed to commodity price risk through its joint venture rail operations due to the volatility in the price of fuel. 

The maturity profile of the commodity derivative used by the joint venture to reduce this risk is as follows:

Maturity

January 2013 – September 2013 
September 2013 – March 2014 

Maturity

January 2012 – September 2013 

Notional 
value 
2012 
Million litres 

29.9 
22.3 

Notional 
value 
2011 
Million litres 

64.6 

Payable  
fixed rate 
2012 
p per litre

44.81
48.70

Payable  
fixed rate 
2011 
p per litre

44.81

The commodity derivative is designated as a cash flow hedge and is highly effective. As at 31 December 2012 a fair value gain of £1.0m  
(2011: £2.4m gain) has been deferred in the hedging reserve. This gain is expected to be recognised in the consolidated income statement 
in future periods.

Price risk sensitivity
An increase of US Dollar 0.2 (£0.13) per litre in the price of fuel at the balance sheet date would result in a gain of £3.3m in equity (2011: £4.2m gain). 
The sensitivity to changes in fuel prices resulting from changes in exchange rates is included within the currency sensitivity analysis (see note 29(d)). 

29 (g) Credit risk
The Group’s principal financial assets are cash and cash equivalents and trade and other receivables.

Credit risk is the risk that a counterparty could default on its contractual obligations. In this regard, the Group’s principle exposure is to cash and  
cash equivalents, derivative transactions and trade receivables. 

The Group’s trade receivables credit risk is relatively low given that a high proportion of our customer base are government bodies with strong 
sovereign, or sovereign like, credit ratings. However, where the assessed credit worthiness of a customer, government or non government, falls  
below that considered acceptable, appropriate measures are taken to mitigate against the risk of contractual default using instruments such as 
credit guarantees. 

The Group’s Treasury function only transacts with counterparties that comply with Board policy. The credit risk is measured by way of a counterparty 
credit rating and as a minimum any counterparty must have a long term public rating of ‘Single A’ from any two recognised rating agencies.  
Pre approved limits are set based on a rating matrix and exposures monitored accordingly. The Group also employs the use of set-off rights in 
some agreements.

29 (h) Capital risk 
The Group defines capital as equity, debt capital market issuance, loans and borrowings and cash and cash equivalents. The Group does not have  
any externally imposed requirements for managing capital, other than those imposed by Company Law.

The Board’s objective is to maintain a capital structure that supports the Group’s strategic objectives, including but not limited to reshaping the portfolio 
through mergers, acquisitions and disposals. In doing so the Board seeks to manage funding and liquidity risk, optimise shareholder return and 
maintain an implied investment grade credit position. This strategy is unchanged from the prior year.

The Board reviews and approves at least annually a treasury policy document which covers, inter alia, funding and liquidity risk, capital structure and 
risk management. This policy details targets for committed funding headroom, diversification of committed funding and debt maturity profile.

The Articles of Association of Serco Group plc require that the net borrowings of Serco Group plc and its subsidiary undertakings shall not at any time 
without the previous sanction of an ordinary resolution exceed three and a half times adjusted capital and reserves.

The Group ensures that sufficient funds and distributable reserves are held to allow payments of projected dividends to shareholders and it intends  
to pursue a policy of dividend growth that broadly reflects the increase in underlying earnings of the business. 

158 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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30. Retirement benefit schemes

The Group has accounted for pensions in accordance with IAS 19 Employee Benefits. The Group operates a number of defined benefit schemes  
and defined contribution schemes. The pension charge for the year ended 31 December 2012, including the proportionate share of joint ventures,  
was £112.5m (2011: £112.3m).

30 (a) Defined benefit schemes
The Group operates defined benefit schemes for qualifying employees of its subsidiaries in the UK and Europe. In addition, the Group has interests  
in joint ventures, which operate defined benefit schemes for qualifying employees.

The assets of the funded schemes are held independently of the Group’s assets in separate trustee administered funds. The Group’s major schemes 
are valued by independent actuaries annually using the projected unit credit actuarial cost method. This reflects service rendered by employees to  
the dates of valuation and incorporates actuarial assumptions primarily regarding discount rates used in determining the present value of benefits, 
projected rates of salary growth, and long-term expected rates of return for scheme assets. Discount rates are based on the market yields of 
high-quality corporate bonds in the country concerned. Long-term expected rates of return for scheme assets are based on published brokers’ 
forecasts for each category of scheme assets. Pension assets and liabilities in different defined benefit schemes are not offset unless the Group  
has a legally enforceable right to use the surplus in one scheme to settle obligations in the other scheme and intends to exercise this right.

(i) Balance sheet values
The amounts recognised in the balance sheet are grouped together as follows:

Contract specific – Virtually certain costs reimbursed
The Group has an obligation to contribute to the pension scheme over the term of the contract. At rebid, any deficit or surplus would transfer to the  
next contractor. Throughout the contract, it is virtually certain that the Group will be reimbursed the expenditure required to settle the defined benefit 
obligation. The Group’s share of the defined benefit obligation less its share of the fair value of scheme assets that it will fund over the period of the 
contract, has been recognised as a liability. The Group has recognised the right to reimbursement as a separate asset.

In the income statement, the expense relating to this defined benefit plan has been presented net of the amount recognised for the reimbursement, 
resulting in a nil charge to the income statement.

Contract specific – Not certain costs reimbursed
These are pre-funded defined benefit schemes. The Group has obligations to contribute variable amounts to the pension schemes over the terms of  
the related contracts. At rebid, any deficit or surplus would transfer to the next contractor. The Group has recognised as a liability the defined benefit 
obligation less the fair value of scheme assets that it will fund over the period of the contracts with a corresponding amount recognised as intangible 
assets at the start of the contracts. Subsequent actuarial gains and losses in relation to the Group’s share of the pension obligations have been 
recognised in the SOCI. The intangible assets are amortised over the term of the contracts.

Non contract specific
These consist of a pre-funded defined benefit scheme which does not relate to any specific contract (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) and an unfunded defined benefit scheme, both of 
which do not relate to any specific contract. Any liabilities arising are recognised in full.

Serco Group plc | Annual report and accounts 2012 | 159

 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
(ii) Triennial funding valuation
Among our non contract specific schemes, the largest is the Serco Pension and Life Assurance Scheme (SPLAS). The most recent full actuarial 
valuation of this scheme was undertaken as at 6 April 2009 and resulted in an actuarially assessed deficit of £141m. Following this review, the Group 
agreed with the Trustees to make cash contributions of 30% of members’ pensionable salaries until 2019, plus lump sum payments of £20m, which  
was paid in December 2010 and £40m, which was paid in January 2011. The Group continues to review the level of benefits and contributions under  
the scheme in light of our business needs and changes to pension legislation.

The assets and liabilities of the schemes at 31 December are:

Virtually 
certain costs 
reimbursed 
2012 
£m 

Not 
certain costs 
reimbursed 
2012 
£m 

Non contract 
specific 
2012 
£m 

Total 
2012 
£m

389.6
147.9
1,026.8
48.6
64.6
244.2
22.5

58.9 
11.9 
982.6 
20.9 
0.4 
58.6 
22.5 

1,155.8 
(1,115.3) 

1,944.2
(2,368.8)

40.5 
4.2 
– 
0.9 

45.6 

(24.1) 
69.7 

– 
– 

– 

(424.6)
71.4
151.0
0.9

(201.3)

(271.0)
69.7

6.2
214.7

220.9

Scheme assets at fair value
Equities 
Bonds except LDI 
Liability driven investments (LDI) 
Gilts 
Property 
Cash and other 
Annuity policies 

Fair value of scheme assets 
Present value of scheme liabilities 

Net amount recognised 
Members’ share of deficit 
Franchise adjustment 
Effect of IFRIC 14  

Net retirement benefit (obligation)/asset 

Analysed as:
Retirement benefit obligations 
Retirement benefit assets 

Related assets
Intangible assets (note 16) 
Trade and other receivables (note 22) 

82.3 
44.1 
28.3 
– 
28.4 
100.5 
– 

283.6 
(498.3) 

(214.7) 
– 
– 
– 

(214.7) 

(214.7) 
– 

– 
214.7 

214.7 

248.4 
91.9 
15.9 
27.7 
35.8 
85.1 
– 

504.8 
(755.2) 

(250.4) 
67.2 
151.0 
– 

(32.2) 

(32.2) 
– 

6.2 
– 

6.2 

160 | Serco Group plc | Annual report and accounts 2012

 
 
  
 
 
 
 
 
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Total 
2011 
£m

358.2
95.2
958.6
64.9
55.6
188.7
26.0

30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
The assets and liabilities of the schemes at 31 December are:

Virtually 
certain costs 
reimbursed 
2011 
£m 

Not 
certain costs 
reimbursed 
2011 
£m 

Non contract 
specific 
2011 
£m 

Scheme assets at fair value 
Equities 
Bonds except LDI 
Liability driven investments (LDI) 
Gilts 
Property 
Cash and other 
Annuity policies 

Fair value of scheme assets 
Present value of scheme liabilities 

Net amount recognised 
Members’ share of deficit 
Franchise adjustment 
Effect of IFRIC 14  

Net retirement benefit (obligation)/asset 

Analysed as:
Retirement benefit obligations 
Retirement benefit assets 

Related assets
Intangible assets (note 16) 

Trade and other receivables (note 22) 

84.2 
17.9 
24.0 
30.0 
24.2 
72.3 
– 

252.6 
(441.3) 

(188.7) 
– 
– 
– 

(188.7) 

(188.7) 
– 

– 

188.7 

188.7 

234.9 
71.4 
16.0 
23.0 
28.4 
55.6 
– 

429.3 
(594.9) 

(165.6) 
43.7 
95.4 
– 

(26.5) 

(26.5) 
– 

6.3 

– 

6.3 

39.1 
5.9 
918.6 
11.9 
3.0 
60.8 
26.0 

1,065.3 
(1,001.3) 

1,747.2
(2,037.5)

64.0 
2.2 
– 
(7.4) 

58.8 

(63.5) 
122.3 

– 

– 

– 

(290.3)
45.9
95.4
(7.4)

(156.4)

(278.7)
122.3

6.3

188.7

195.0

Liabilities in relation to unfunded schemes included above amount to £0.2m (2011: £48.4m).

Certain of the Group’s non contract specific schemes have a Liability Driven Investment (LDI) strategy which aims to reduce volatility risk by better 
matching assets to liabilities. The main asset classes that make up the LDI investments are gilts and corporate bonds with inflation and interest swap 
overlays. The assumed expected rate of return is taken to be gilts +0.8% (2011: gilts +0.8%).

In some schemes, employee contributions vary over time to meet a specified proportion of the overall costs, including a proportion of any deficit.  
The liabilities recognised in the balance sheet for these schemes are net of the proportion attributed to employees. In addition, the amounts charged  
to the income statement for these schemes are net of the proportion attributed to employees. The amounts attributed to employees are shown 
separately in the reconciliation of changes in the fair value of scheme assets and liabilities.

Serco Group plc | Annual report and accounts 2012 | 161

 
 
 
 
  
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
The amounts recognised in the financial statements for the year are analysed as follows:

Recognised in the income statement
Current service cost – employer 
Past service cost 
Curtailment gain 
Reimbursed to employer 

Recognised in arriving at operating profit 

Expected return on scheme assets – employer 
Interest on franchise adjustment 
Interest cost on scheme liabilities – employer 
Reimbursed to employer 

Finance income 

Included within the SOCI
Actual return on scheme assets 
Less: expected return on scheme assets 

Other actuarial losses 

Actuarial losses recognised in the SOCI 

Change in IFRIC 14 
Change in franchise adjustment 
Change in members’ share 
Reimbursed to employer 

Actuarial gains on reimbursable rights 

Total pension cost recognised in the SOCI 

Virtually 
certain costs 
reimbursed 
2012 
£m 

Not 
certain costs 
reimbursed 
2012 
£m 

Non contract 
specific 
2012 
£m 

10.7 
– 
– 
(10.7) 

– 

(16.2) 
– 
20.9 
(4.7) 

– 

24.0 
(16.2) 

7.8 
(32.3) 

(24.5) 

– 
– 
– 
24.5 

24.5 

– 

19.4 
0.1 
– 
– 

19.5 

(19.8) 
(4.5) 
21.6 
– 

(2.7) 

35.1 
(26.9) 

8.2 
(89.2) 

(81.0) 

– 
52.9 
22.4 
– 

75.3 

(5.7) 

12.9 
1.1 
(6.1) 
– 

7.9 

(52.8) 
– 
46.3 
– 

(6.5) 

38.0 
(53.9) 

(15.9) 
(79.8) 

(95.7) 

8.3 
– 
2.1 
– 

10.4 

(85.3) 

Total 
2012 
£m

43.0
1.2
(6.1)
(10.7)

27.4

(88.8)
(4.5)
88.8
(4.7)

(9.2)

97.1
(97.0)

0.1
(201.3)

(201.2)

8.3
52.9
24.5
24.5

110.2

(91.0)

162 | Serco Group plc | Annual report and accounts 2012

 
 
  
 
 
 
 
 
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30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)

Recognised in the income statement
Current service cost – employer 
Past service cost 
Curtailment gain 
Settlement gain 
Reimbursed to employer 

Recognised in arriving at operating profit 

Expected return on scheme assets – employer 
Interest on franchise adjustment 
Interest cost on scheme liabilities – employer 
Reimbursed to employer 

Finance income 

Included within the SOCI
Actual (loss)/return on scheme assets 
Less: expected return on scheme assets 

Other actuarial losses 

Actuarial (losses)/gains recognised in the SOCI 

Change in IFRIC 14 
Change in franchise adjustment 
Change in members’ share 
Reimbursed to employer 

Actuarial gains/(losses) on reimbursable rights 

Total pension (cost)/income recognised in the SOCI 

Virtually 
certain costs 
reimbursed 
2011 
£m 

Not 
certain costs 
reimbursed 
2011 
£m 

Non contract 
specific 
2011 
£m 

8.4 
– 
– 
– 
(8.4) 

– 

(17.0) 
– 
20.5 
(3.5) 

– 

(10.2) 
(17.0) 

(27.2) 
(39.7) 

(66.9) 

– 
– 
– 
66.9 

66.9 

– 

16.5 
– 
– 
– 
– 

16.5 

(20.3) 
(2.9) 
20.5 
– 

(2.7) 

5.3 
(27.8) 

(22.5) 
(43.8) 

(66.3) 

– 
38.4 
16.5 
– 

54.9 

(11.4) 

15.5 
0.4 
(0.3) 
(0.2) 
– 

15.4 

(53.6) 
– 
48.1 
– 

(5.5) 

162.8 
(55.0) 

107.8 
(25.6) 

82.2 

(6.2) 
– 
0.9 
– 

(5.3) 

76.9 

Total 
2011 
£m

40.4
0.4
(0.3)
(0.2)
(8.4)

31.9

(90.9)
(2.9)
89.1
(3.5)

(8.2)

157.9
(99.8)

58.1
(109.1)

(51.0)

(6.2)
38.4
17.4
66.9

116.5

65.5

Serco Group plc | Annual report and accounts 2012 | 163

 
 
 
 
  
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
Cumulative actuarial losses recognised since 1 January 2004 are £67.5m (2011: gains of £23.5m).

Changes in the fair value of scheme liabilities are analysed as follows:

At 1 January 2011 
Current service cost – employer 
Current service cost – employee 
Past service costs 
Scheme participants’ contributions 
Interest cost – employer 
Interest cost – employee 
Benefits paid 
Actuarial losses 
Plan curtailments 
Plan settlements 
Exchange differences 

At 1 January 2012 
Current service cost – employer 
Current service cost – employee 
Past service costs 
Scheme participants’ contributions 
Interest cost – employer 
Interest cost – employee 
Benefits paid 
Actuarial losses 
Plan curtailments 
Arising on acquisition of a subsidiary 
Eliminated on disposal of a subsidiary 
Exchange differences 

At 31 December 2012 

Virtually 
certain costs 
reimbursed 
£m 

Not 
certain costs 
reimbursed 
£m 

Non contract 
specific 
£m 

378.2 
8.4 
– 
– 
4.1 
20.5 
– 
(9.6) 
39.7 
– 
– 
– 

441.3 
10.7 
– 
– 
4.3 
20.9 
– 
(11.2) 
32.3 
– 
– 
– 
– 

498.3 

510.4 
16.5 
6.6 
– 
0.6 
20.5 
7.3 
(10.8) 
43.8 
– 
– 
– 

594.9 
19.4 
7.4 
0.1 
0.7 
21.6 
7.4 
(12.1) 
89.2 
– 
26.6 
– 
– 

755.2 

951.5 
15.5 
0.3 
0.4 
0.6 
48.1 
1.1 
(35.9) 
25.6 
(0.3) 
(4.3) 
(1.3) 

1,001.3 
12.9 
0.2 
1.1 
0.6 
46.3 
0.9 
(38.4) 
79.8 
(6.1) 
69.9 
(51.6) 
(1.6) 

1,115.3 

Total 
£m

1,840.1
40.4
6.9
0.4
5.3
89.1
8.4
(56.3)
109.1
(0.3)
(4.3)
(1.3)

2,037.5
43.0
7.6
1.2
5.6
88.8
8.3
(61.7)
201.3
(6.1)
96.5
(51.6)
(1.6)

2,368.8

164 | Serco Group plc | Annual report and accounts 2012

 
 
  
 
 
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30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
Changes in the fair value of scheme assets are analysed as follows:

Virtually 
certain costs 
reimbursed 
£m 

Not 
certain costs 
reimbursed 
£m 

Non contract 
specific 
£m 

At 1 January 2011 
Expected return on scheme assets – employer 
Expected return on scheme assets – employee 
Employer contributions 
Contributions by employees 
Benefits paid 
Actuarial (losses) and gains 
Plan settlements 

At 1 January 2012 
Expected return on scheme assets – employer 
Expected return on scheme assets – employee 
Employer contributions 
Contributions by employees 
Benefits paid 
Actuarial gains and (losses) 
Arising on acquisition of a subsidiary 
Eliminated on disposal of a subsidiary 

At 31 December 2012 

254.8 
17.0 
– 
13.5 
4.1 
(9.6) 
(27.2) 
– 

252.6 
16.2 
– 
13.8 
4.4 
(11.2) 
7.8 
– 
– 

283.6 

403.3 
20.3 
7.5 
25.0 
6.5 
(10.8) 
(22.5) 
– 

429.3 
19.8 
7.1 
23.7 
7.3 
(12.1) 
8.2 
21.5 
– 

504.8 

Employer contributions for non contract specific schemes in 2012 include a £nil (2011: £40.0m) special contribution.

History of experience gains and losses

Experience adjustments arising on scheme assets:
Amount (£m) 
Percentage of the fair value of scheme assets 

Experience adjustments arising on scheme liabilities:
Amount (£m) 
Percentage of the present value of scheme liabilities 

2012 

0.2 
0.0% 

24.3 
1.0% 

2011 

58.1 
3.3% 

5.6 
0.3% 

2010 

52.2 
3.4% 

4.2 
0.2% 

Fair value of scheme assets (£m) 
Present value of scheme liabilities (£m) 

Deficit (£m) 

1,944.2 
(2,368.8) 

(424.6) 

1,747.2 
(2,037.5) 

(290.3) 

1,533.2 
(1,840.1) 

(306.9) 

875.1 
53.6 
1.4 
66.5 
0.9 
(35.9) 
107.8 
(4.1) 

1,065.3 
52.8 
1.1 
29.8 
0.6 
(38.4) 
(15.9) 
61.6 
(1.1) 

1,155.8 

2009 

73.2 
5.4% 

(58.2) 
(3.3)% 

1,356.9 
(1,744.4) 

(387.5) 

Total 
£m

1,533.2
90.9
8.9
105.0
11.5
(56.3)
58.1
(4.1)

1,747.2
88.8
8.2
67.3
12.3
(61.7)
0.1
83.1
(1.1)

1,944.2

2008

(263.7)
(22.1)%

0.1
0.0%

1,194.1
(1,343.4)

(149.3)

The normal contributions expected to be paid during the financial year ending 31 December 2013 are £61.8m (financial year ended  
31 December 2012: £64.9m).

Assumptions in respect of the expected return on scheme assets are based on market expectations of returns over the life of the related obligation.  
Due consideration has been given to current market conditions as at 31 December 2012 in respect to inflation, interest, bond yields and equity 
performance when selecting the expected return on assets assumptions.

The expected yield on bond investments with fixed interest rates is derived from their market value. The yield on equity investments contains an 
additional premium (an ‘equity risk premium’) to compensate investors for the additional anticipated risks of holding this type of investment, when 
compared to bond yields. Management have concluded that an appropriate equity risk premium is 4.6% (2011: 4.6%). 

Serco Group plc | Annual report and accounts 2012 | 165

 
 
 
 
  
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

30. Retirement benefit schemes (continued)

30 (a) Defined benefit schemes (continued)
The overall expected return on assets is calculated as the weighted average of the expected returns for the principal asset categories held by scheme.

Main assumptions:
Rate of salary increases 
Rate of increase in pensions in payment 
Rate of increase in deferred pensions 
Inflation assumption 
Discount rate 
Expected rates of return on scheme assets:

Equities 

  Bonds except LDI 

LDI 
  Gilts 

Property 

  Cash and other 
Annuity policies 

Post-retirement mortality:
  Current pensioners at 65 – male 
  Current pensioners at 65 – female 
Future pensioners at 65  – male 
Future pensioners at 65  – female 

2012 
% 

2011 

 %

3.40 
2.20 (CPI) and 3.00 (RPI) 
2.20 (CPI) and 3.00 (RPI) 
2.20 (CPI) and 3.00 (RPI) 
4.30 

3.30
2.10 (CPI) and 2.90 (RPI)
2.10 (CPI) and 2.90 (RPI)
2.10 (CPI) and 2.90 (RPI)
4.70

7.70 
4.30 
3.90 
3.10 
4.35 
0.50 
4.30 

2012 
Years 

21.0 
23.5 
22.5 
24.6 

7.70
4.70
3.90
3.10
4.35
0.50
4.70

2011 
Years

20.9
23.4
22.5
24.6

30 (b) Defined contribution schemes
The Group paid employer contributions of £71.3m (2011: £66.9m) into UK and other defined contribution schemes, foreign state pension schemes  
and multi-employer schemes, including those of joint ventures.

Pre-funded defined benefit schemes treated as defined contribution
Serco accounts for certain pre-funded defined benefit schemes relating to contracts as defined contribution schemes because the contributions are 
fixed until the end of the current concession and at rebid any surplus or deficit would transfer to the next contractor. Cash contributions are recognised 
as pension costs and no asset or liability is shown on the balance sheet. 

166 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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31. Provisions

At 1 January 2011 
Arising from acquisitions 
Charged to income statement 
Released to income statement 
Utilised during the year 
Unwinding of discount 
Exchange differences 

At 1 January 2012 
Arising from acquisitions 
Derecognised on disposal of subsidiary 
Charged to income statement* 
Released to income statement 
Utilised during the year 
Unwinding of discount 
Exchange differences 

At 31 December 2012 

Analysed as:

Current 
Non-current 

Employee 
related 
£m 

Property 
£m 

Contract 
£m 

Other 
£m 

11.0 
0.4 
4.5 
– 
(1.0) 
– 
0.1 

15.0 
0.6 
(0.1) 
1.4 
(0.8) 
(0.7) 
– 
(0.6) 

14.8 

– 
14.8 

6.6 
3.6 
0.4 
(0.2) 
(1.5) 
0.3 
(0.3) 

8.9 
1.6 
– 
– 
(0.7) 
(1.7) 
0.2 
(0.4) 

7.9 

0.9 
7.0 

8.0 
29.2 
– 
(1.2) 
(7.5) 
0.2 
(2.6) 

26.1 
6.4 
– 
– 
(5.7) 
(11.3) 
0.3 
(0.9) 

14.9 

5.2 
9.7 

14.0 
6.9 
– 
(3.2) 
(0.1) 
– 
(1.0) 

16.6 
0.1 
– 
9.0 
(0.1) 
(4.7) 
– 
(0.8) 

20.1 

5.4 
14.7 

Total 
£m

39.6
40.1
4.9
(4.6)
(10.1)
0.5
(3.8)

66.6
8.7
(0.1)
10.4
(7.3)
(18.4)
0.5
(2.7)

57.7

11.5
46.2

*Included in amounts charged to income statement is an amount of £6.6m relating to businesses disposed in the year.

Employee related provisions relate to long-term service awards and terminal gratuities liabilities which have been accrued and are based on contractual 
entitlement, together with an estimate of the probabilities that employees will stay until retirement and receive all relevant amounts.

Property provisions relate to leased properties which are either underutilised or vacant and where the unavoidable costs associated with the lease 
exceed the economic benefits expected to be required. Management has calculated the provision based on the discounted cash outflows required  
to settle the lease obligations as they fall due over the next ten years. 

Contract provisions primarily relate to Intelenet where, as required under IAS 37, a provision has been taken for a loss making onerous contract. 
Management has used the present value of the estimated future cash outflows required to settle the contract obligations as they fall due over the  
next seven years in determining the provision.

Other provisions are held for legal and other costs that the Group expects to incur over an extended period. These costs are based on past experience 
of similar items and other known factors and represent management’s best estimate of the likely outcome.

Serco Group plc | Annual report and accounts 2012 | 167

 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

32. Share capital

Issued and fully paid:
497,327,070 (2011: 493,220,805) ordinary shares of 2p each at 1 January 
Issued on the exercise of share options 

2012 
£m 

9.9 
0.1 

498,462,508 (2011: 497,327,070) ordinary shares of 2p each at 31 December 

10.0 

The Company has one class of ordinary shares which carry no right to fixed income.

Number 
2012 
Millions 

497.3 
1.2 

498.5 

2011 
£m 

9.9 
– 

9.9 

Number  
2011 
Millions

493.2
4.1

497.3

During the year 1,135,438 (2011: 4,106,265) ordinary shares of 2p each were allotted to the holders of share-based awards or their personal 
representatives using newly listed shares.

33. Share premium account

At 1 January  
Premium on shares issued 

At 31 December  

34. Reserves

2012 
£m 

322.7 
3.8 

326.5 

2011 
£m

306.7
16.0

322.7

34 (a) Retirement benefit obligations reserve
The retirement benefit obligations reserve represents the actuarial gains and losses recognised in respect of annual actuarial valuations for defined 
benefit retirement schemes, the fair value adjustments on reimbursable rights and the related movements in deferred tax balances.

34 (b) Share-based payment reserve
The share-based payment reserve represents credits relating to equity-settled share-based payment transactions and any gain or loss on the exercise 
of share options satisfied by own shares.

34 (c) Own shares reserve
The own shares reserve represents the cost of shares in Serco Group plc purchased in the market and held by the Serco Group plc Employee  
Share Ownership Trust (ESOT) to satisfy options under the Group’s share options schemes. At 31 December 2012, the ESOT held 10,174,594  
(2011: 8,267,992) shares equal to 2.0% of the current allotted share capital (2011: 1.7%). The market value of shares held by the ESOT as at  
31 December 2012 was £54.4m (2011: £39.2m).

34 (d) Hedging and translation reserve
The hedging and translation reserve represents foreign exchange differences arising on translation of the Group’s overseas operations and movements 
relating to cash flow hedges.

168 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
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35. Notes to the consolidated cash flow statement

Reconciliation of operating profit to net cash inflow from operating activities

Operating profit for the year 
Adjustments for:
Share-based payment expense 
Depreciation of property, plant and equipment 
Amortisation and impairment of intangible assets 
Exceptional net profit on disposal of subsidiaries and operations 
(Profit)/loss on disposal of property, plant and equipment 
Movement in provisions 
Other non cash movements 

Operating cash inflow before movements in working capital 
(Increase)/decrease in inventories 
(Increase)/decrease in receivables 
Increase/(decrease) in payables 
Special contribution to defined benefit pension scheme (note 30a) 

Cash generated by operations  
Tax paid 

Net cash inflow from operating activities 

2012 
£m 

287.6 

12.1 
51.4 
45.7 
(5.6) –
(0.9) 
(19.8) 
(2.8) 

367.7 
(1.5) 
(48.7) 
38.6 
– 

356.1 
(52.7) 

303.4 

2011 
£m

266.2

11.2
46.0
39.5

0.5
(9.8)
3.4

357.0
9.2
26.8
(84.5)
(40.0)

268.5
(51.5)

217.0

Additions to fixtures and equipment during the year amounting to £14.4m (2011: £29.6m) were financed by new finance leases.

Analysis of net debt

At 1 January 
2012 
£m 

Cash flow 
£m 

Cash and cash equivalents  254.8 
(15.5) 
Non recourse loans 
Other loans 
(827.3) 
Obligations under  
finance leases 

(45.9) 

(633.9) 

At 1 January 
2011 
£m 

Acquisitions* 

£m 

0.8 
- 
(15.2) 

– 

(14.4) 

Disposals 
£m 

Exchange 
differences 
£m 

Non cash 
movements 
£m 

At 31 December  
2012 
£m

(1.4) 
- 
(24.4) 

6.2 

(19.6) 

(9.0) 
0.1 
27.3 

0.2 

18.6 

– 
– 
– 

(14.2) 

(14.2) 

198.6
(25.1)
(703.4)

(50.8)

(580.7)

(46.6) 
(9.7) 
136.2 

2.9 

82.8 

Cash flow 
£m 

Acquisitions* 
£m 

Disposals 
£m 

Exchange 
differences 
£m 

Non cash 
movements 
£m 

At 31 December  
2011 
£m

Cash and cash equivalents  279.3 
Non recourse loans 
(23.7) 
Other loans 
(490.4) 
Obligations under  
finance leases 

(26.4) 

(261.2) 

(32.2) 
7.9 
(258.6) 

10.7 

(272.2) 

*Acquisitions represent the net cash/(debt) acquired on acquisition 

8.4 
– 
(73.3) 

(0.8) 

(65.7) 

– 
– 
– 

– 

– 

(0.7) 
0.3 
(5.0) 

0.2 

(5.2) 

– 
– 
– 

(29.6) 

(29.6) 

254.8
(15.5)
(827.3)

(45.9)

(633.9)

Serco Group plc | Annual report and accounts 2012 | 169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

36. Capital and other commitments

Capital expenditure contracted but not provided:
– Property, plant and equipment 
– Intangible assets 

2012 
£m 

1.2 
7.7 –

2011 
£m

1.4

Included within the balances above is joint venture capital expenditure contracted but not provided in relation to property, plant and equipment of £0.1m 
(2011: £0.1m).

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,  
which fall due as follows:

Within one year 
Between one and five years 
After five years 

2012 
£m 

110.5 
189.9 
133.7 

434.1 

2011 
£m

137.0
198.3
131.2

466.5

Principal lease commitments are within the UK & Europe segment, with future minimum lease payments totalling £219.6m (2011 restated: £205.3m). 
These leases relate primarily to administrative and operational buildings, track and rolling stock within the train operating companies. The length of the 
leases is concurrent with the period of the franchises and the terms of the leases are fixed during this period.

37. Share-based payment expense

The Group recognised the following expenses related to equity-settled share-based payment transactions:

Executive Option Plan 
Long Term Incentive Scheme and Plan 
Sharesave 
Transformational Share Scheme 
Performance Share Plan 
Deferred Bonus Plan 

2012 
£m 

– 
0.8 
0.2 
0.1 
9.9 
1.1 

12.1 

2011 
£m

0.1
0.9
0.7
0.1
8.5
0.9

11.2

Executive Option Plan (EOP)
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. The options are granted at market value and awards made to eligible employees are based on between 50% and 100%  
of salary as at 31 December prior to grant. If the options remain unexercised after a period of ten years from the date of grant, the options expire. 
Furthermore, options may be forfeited if the eligible employee leaves the Group before the options vest. Details of the movement in all EOP options  
are as follows:

Outstanding at 1 January  
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December  

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

3,389 
– 
(759) 
(158) 

2,472 

2.49 
– –
2.29 
2.22 

2.56 

Number of 
options 
2011 
Thousands 

3,957 

 –
(294) 
(274) 

3,389 

Weighted  
average  
exercise price 
2011 
£

2.63

3.37
3.62

2.49

Of these options 2,471,696 (2011: 3,300,690) were exercisable at the end of the year, with a weighted average exercise price of £2.56 (2011: £2.34).

The options outstanding at 31 December 2012 had a weighted average contractual life of 2.0 years (2011: 2.5 years). 

170 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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37. Share-based payment expense (continued)

Executive Option Plan (EOP) (continued)
The exercise prices for options outstanding at 31 December 2012 ranged from £1.39 to £4.55 (2011: £1.39 to £4.55).

The weighted average share price at the date of exercise approximates to the weighted average share price during the year, which was £5.50  
(2011: £5.34).

The fair value of options granted under the EOP is measured by use of the Binomial Lattice model. The Binomial Lattice model is considered to be  
most appropriate for valuing options granted under this scheme as it allows exercise over a longer period of time between the vesting date and the 
expiry date. 

There were no new options granted under Executive Option Plans during the year.

Long Term Incentive Scheme (LTIS) and Long Term Incentive Plan (LTIP)
Awards made to eligible employees under the above schemes are structured as options with a zero exercise price. The extent to which an award vests 
(and therefore becomes exercisable) is measured by reference to the growth in the Group’s earnings per share (EPS) or total shareholder return (TSR) 
over the performance period or service period conditions.

If the options remain unexercised after a period of ten years from the date of grant, the options expire. Furthermore, options may be forfeited if the 
eligible employee leaves the Group before the options vest. Details of the movement in all LTIS and LTIP options are as follows:

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

2,638 
218 
(247) 
(1,692) 

917 

Nil 
Nil 
Nil 
Nil 

Nil 

Number of 
options 
2011 
Thousands 

3,691 
23 
(411) 
(665) 

2,638 

Weighted  
average  
exercise price 
2011 
£

Nil
Nil
Nil
Nil

Nil

Of these options 521,459 (2011: 2,169,500) were exercisable at the end of the year.

The options outstanding at 31 December 2012 had a weighted average contractual life of 3.9 years (2011: 5.8 years).

There were four grants of LTIP options during the year. The fair value is considered to be their face value less the present value of any dividend 
payments not paid over the vesting period. 

The weighted average fair value of options granted under this scheme in the year is £5.25.

Transformational Share Scheme
Awards made to eligible employees under the Transformational Share Scheme are structured as options with a £nil exercise price and are exercisable 
after the third anniversary of the grant. 

The employee must exercise the options no later than 30 days after the vesting date. Furthermore, if the eligible employee leaves the Group before the 
options vest, the options may be forfeited.

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

Number of 
options 
2011 
Thousands 

Weighted  
average  
exercise price 
2011 
£

86 
– 
(53) 
– 

33 

Nil 
Nil 
Nil 
Nil 

Nil 

119 
– 
(33) 
– 

86 

Nil
Nil
Nil
Nil

Nil

None of these options were exercisable at the end of the year (2011: none).

The options outstanding at 31 December 2012 had a weighted average contractual life of 0.2 years (2011: 0.6 years).

Serco Group plc | Annual report and accounts 2012 | 171

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

37. Share-based payment expense (continued)

Performance Share Plan (PSP)
Under the PSP, eligible employees have been granted options with an exercise price of two pence. Awards vest after the performance period of three 
years and are subject to the achievement of two performance measures. The primary performance measure is TSR and the second performance 
measure is based on EPS growth.

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

7,426 
4,104 
(125) 
(1,321) 

10,084 

Weighted 
average 
exercise price 
2012 
£ 

0.02 
0.02 
0.02 
0.02 

0.02 

Number of 
options 
2011 
Thousands 

3,944 
3,987 
(9) 
(496) 

7,426 

Weighted  
average  
exercise price 
2011 
£

0.02
0.02
0.02
0.02

0.02

148,830 of these options were exercisable at the end of the year (2011: none).

The options outstanding at 31 December 2012 had a weighted average contractual life of 8.5 years (2011: 8.7 years).

In the year, four grants were made with 50% of the options granted subject to TSR performance conditions and 50% subject to EPS growth 
performance conditions.

The options subject to TSR performance conditions were valued using the Monte Carlo Simulation model. The options subject to EPS growth 
performance conditions were deemed to have fair values equal to their face value less the present value of any dividend payments not received  
over the vesting period.

The Monte Carlo Simulation model is considered to be the most appropriate for valuing options granted under schemes where there are changes  
in performance conditions by which the options are measured, such as for the TSR-based awards.

The inputs into the Monte Carlo Simulation model for options granted during the year with TSR performance conditions are:

Weighted average share price 
Weighted average exercise price 
Expected volatility 
Expected life 
Risk free rate 

2012 

540p 
2p 
22.7% 
3 years 
0.3% 

2011

558p
2p
28.1%
3 years
1.8%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected life used 
in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and 
behavioural considerations. 

The assumptions for options granted during the year with EPS growth performance conditions are:

Weighted average share price 
Weighted average exercise price 
Expected volatility 
Expected life 
Risk free rate 

The weighted average fair value of options granted under this scheme in the year is £4.38.

2012 

540p 
2p 
N/A 
3 years 
N/A 

2011

558p
2p
N/A
3 years
N/A

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37. Share-based payment expense (continued)

Deferred Bonus Plan (DBP)
Under the DBP, eligible employees are entitled to use up to 50% of their earned annual bonus to purchase shares in the Group at market price.  
Provided they remain in employment for a specified period, the shares are retained for that period and the two performance measures (which are  
the same as the PSP scheme, being TSR and EPS growth) have been met, the Group will make a matching share award. For shares purchased  
by employees in 2011, the match was on a basis of two times the gross bonus deferred.

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

Number of 
options 
2011 
Thousands 

Weighted  
average  
exercise price 
2011 
£

750 
519 
(107) 
(104) 

1,058 

Nil 
Nil 
Nil 
Nil 

Nil 

426 
324 
– 
– 

750 

Nil
Nil
Nil
Nil

Nil

None of these options were exercisable at the end of the year (2011: none).

The options outstanding at 31 December 2012 had a weighted average contractual life of 1.6 years (2011: 1.5 years).

In the year, one grant was made with 100% of the deferred bonus subject to EPS growth performance conditions. 

The portion subject to EPS growth performance conditions was deemed to have a fair value equal to their face value less the present value of any 
dividend payments not received over the vesting period.

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected life  
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and 
behavioural considerations. 

The assumptions for options granted during the year with EPS growth performance conditions are:

Weighted average share price 
Weighted average exercise price 
Expected volatility 
Expected life 
Risk free rate 

The weighted average fair value of options granted under this scheme in the year is £5.16.

2012 

515p 
Nil 
N/A 
3 years 
N/A 

2011

548p
Nil
N/A
3 years
N/A

Serco Group plc | Annual report and accounts 2012 | 173

 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

37. Share-based payment expense (continued)

Sharesave 2008
The Sharesave 2008 scheme provides for a purchase price equal to the daily average market price on the date of grant less 10%. The options can  
be exercised for a period of six months following their vesting. Details of the movement in Sharesave 2008 options are as follows:

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

1,108 
– 
(807) 
(301) 

– 

4.0 
4.0 
4.0 
4.0 

4.0 

Number of 
options 
2011 
Thousands 

5,479 
– 
(3,981) 
(390) 

1,108 

Weighted  
average  
exercise price 
2011 
£

4.0
4.0
4.0
4.0

4.0

Of these options none (2011: 1,101,183) were exercisable at the end of the year. 

The options outstanding at 31 December 2012 had a weighted average contractual life of nil (2011: 0.2 years). Given that options granted under the 
Sharesave scheme can be exercised at any time after vesting, management consider the Binomial Lattice model to be appropriate to value the options 
granted under this scheme. The Binomial Lattice model allows exercise over a window in time, from vesting date to expiry date and assumes option 
holders make economically rational exercise decisions.

Sharesave 2012
The Sharesave 2012 scheme provides for a purchase price equal to the daily average market price on the date of grant less 10%. The options can be 
exercised for a period of six months following their vesting. Details of the movement in Sharesave 2012 options are as follows:

Outstanding at 1 January 
Granted during the year 
Exercised during the year 
Lapsed during the year 

Outstanding at 31 December 

Number of 
options 
2012 
Thousands 

Weighted 
average 
exercise price 
2012 
£ 

Number of 
options 
2011 
Thousands 

Weighted  
average  
exercise price 
2011 
£

– 
6,074 
– 
(62) 

6,012 

– –
5.14 –
5.14 –
5.14 –

5.14 –

 –
 –
 –
 –

 –

Of these options, none (2011: none) were exercisable at the end of the year. 

The options outstanding at 31 December 2012 had a weighted average contractual life of 3.4 years (2011: nil). Given that options granted under the 
Sharesave plan can be exercised at any time after vesting, management consider the Binomial Lattice model to be appropriate to value the options 
granted under this scheme. The Binomial Lattice model allows exercise over a window in time, from vesting date to expiry date and assumes option 
holders make economically rational exercise decisions.

174 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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38. Related party transactions

Transactions between the Company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation and are  
not disclosed in this note. Transactions between the Group and its joint venture undertakings are disclosed below, with the relevant proportion  
being eliminated on consolidation. 

Trading transactions
During the year, Group companies entered into the following material transactions with joint ventures:

Royalties and management fees receivable 
Dividends receivable 

The following receivable balances relating to joint ventures were included in the consolidated balance sheet:

Current: 
Loans 

Non-current:
Loans 

2012  
£m 

2.3 
80.6 

82.9 

2012  
£m 

1.0 

2012  
£m 

2.6 

2011 
£m

1.5
64.3

65.8

2011 
£m

0.5

2011
£m

3.2

Joint venture receivable and loan amounts outstanding have arisen from transactions undertaken during the general course of trading, are unsecured, 
and will be settled in cash. Interest arising on loans is based on LIBOR, or its equivalent, with an appropriate margin. No guarantee has been given or 
received. No provisions are required for doubtful debts in respect of the amounts owed by the joint ventures.

Remuneration of key management personnel
The Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts and Directors’ 
liability insurance. 

The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related 
Party Disclosures:

Short-term employee benefits 
Post-employment benefits 
Share-based payment expense 

2012  
£m 

9.4 
0.4 
1.8 

11.6 

2011 
£m

8.9
0.6
2.8

12.3

The key management personnel comprise the Executive Directors, Non-Executive Directors and members of the Executive Committee  
(2012: 17 individuals, 2011: 18 individuals).

Serco Group plc | Annual report and accounts 2012 | 175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Consolidated Financial Statements

39. List of principal undertakings

The Company has taken advantage of the exemption under Section 410(2) of the Companies Act 2006 by providing information only in relation  
to undertakings whose results or financial position, in the opinion of the Directors, principally affected the financial statements. 

A complete list of subsidiary and associated undertakings will be attached to the next Serco Group plc annual return to Companies House. 

The percentage of equity capital held directly or indirectly by Serco Group plc is shown. The voting rights are the same as the percentage holding.  
The companies are incorporated and principally operate in the countries stated below. 

Principal subsidiaries 

United Kingdom

AMEAA 
Australia 
India 

North America
USA 

Joint venture undertakings 

United Kingdom

Serco Limited 
NPL Management Limited 

Serco Australia Pty Limited 
Intelenet Global Services Private Limited   

2012 

2011

100% 
100% 

100% 
100% 

100%
100%

100%
100%

Serco Inc.  

100% 

100%

AWE Management Limited 
Northern Rail Holdings Limited 

2012 

33% 
50% 

2011

33%
50%

All joint ventures are accounted for using the proportionate consolidation method. All the subsidiaries of the Group have been consolidated. 

All the principal subsidiaries of Serco Group plc and its joint venture undertakings are engaged in the provision of support services.

40. Contingent liabilities

The Company has guaranteed overdrafts, finance leases, and bonding facilities of its joint ventures up to a maximum value of £27.2m (2011: £8.2m). 
The actual commitment outstanding at 31 December 2012 was £23.2m (2011: £4.8m).

In addition to this, the Company and its subsidiaries have provided performance guarantees and indemnities relating to performance bonds and letters 
of credit issued by its banks on its behalf, in the ordinary course of business. These are not expected to result in any material financial loss.

The Group is aware of claims and potential claims which involve or may involve legal proceedings against the Group. The Directors are of the opinion, 
having regard to legal advice received and the Group’s insurance arrangements, that it is unlikely that these matters will, in aggregate, have a material 
effect on the Group’s financial position.

176 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Audit Report 

on Parent Company Financial Statements prepared under FRS 101

Independent Auditor’s Report to the members of Serco Group plc 
We have audited the parent company financial statements of Serco Group plc for the year ended 31 December 2012 which comprise the Parent 
Company Balance Sheet and the related notes 1 to 16. The financial reporting framework that has been applied in their preparation is applicable  
law and Financial Reporting Standard 101 Reduced Disclosure Framework.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work 
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no 
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s 
members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the parent company financial 
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company 
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to  
comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the 
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting 
policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness  
of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial 
and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of  
any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion the parent company financial statements:

●● give a true and fair view of the state of the company’s affairs as at 31 December 2012;
●● have been properly prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework; and
●● have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

●● the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
●● the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent 

company financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

●● adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches 

not visited by us; or

●● the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting 

records and returns; or

●● certain disclosures of directors’ remuneration specified by law are not made; or
●● we have not received all the information and explanations we require for our audit.

Richard Knights (Senior Statutory Auditor)
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
London, United Kingdom 
4 March 2013

Serco Group plc | Annual report and accounts 2012 | 177

 
 
Section 5 | Financial statements

Company Balance Sheet

At 31 December

Fixed assets
Investments in subsidiaries 

Current assets 
Debtors: amounts due within one year 
Debtors: amounts due after more than one year 
Derivative financial instruments due within one year 
Derivative financial instruments due after more than one year 
Cash at bank and in hand 

Total assets 

Creditors: amounts falling due within one year
Trade and other payables 
Borrowings 
Derivative financial instruments 

Net current assets 

Amounts falling due after more than one year
Borrowings 
Amounts owed to subsidiary companies 
Derivative financial instruments 

Provisions for liabilities 

Total liabilities 

Net Assets 

Capital and reserves
Called up share capital 
Share premium account 
Capital redemption reserve 
Own shares reserve 
Share-based payment reserve 
Hedging and translation reserve 
Profit and loss account 

Total shareholders’ funds 

Note 

 2 

3 
3 
6 
6 

4 
5 
6 

5 

6 

8 
9 

10 
11 
12 
13 

2012 
£m 

811.8 

811.8 

6.0 
1,228.0 
0.7 
– 
5.6 

1,240.3 

2,052.1 

(249.4) 
(106.2) 
(2.6) 

(358.2) 

882.1 

(615.0) 
(385.3) 
(0.6) 

(1,000.9) 

– 

2011 
Restated 
£m 

816.6 

816.6 

4.7 
985.6 
6.4 
0.9 
– 

997.6 

2011  
Originally  
reported 
£m

816.6

816.6

4.7
984.4
6.4
0.9
–

996.4

1,814.2 

1,813.0

(185.4) 
(170.2) 
(4.2) 

(359.8) 

637.8 

(606.7) 
(222.1) 
(0.2) 

(829.0) 

(1.0) 

(185.4)
(170.2)
(4.2)

(359.8)

636.6

(606.7)
(222.1)
(0.2)

(829.0)

(1.0)

(1,359.1) 

(1,189.8) 

(1,189.8)

693.0 

624.4 

623.2

10.0 
326.5 
0.1 
(58.8) 
57.7 
1.9 
355.6 

693.0 

9.9 
322.7 
0.1 
(48.2) 
49.1 
1.9 
288.9 

624.4 

9.9
322.7
0.1
(48.2)
48.0
1.9
288.8

623.2

The financial statements (registered number 2048608) were approved by the Board of Directors on 4 March 2013 and signed on its behalf by:

Christopher Hyman  
Chief Executive  

Andrew Jenner
Finance Director

178 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the Company Financial Statements

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1. Accounting policies

The principal accounting policies adopted are set out below and have been applied consistently throughout the current and preceding year as restated. 

Basis of accounting
The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. 
Accordingly, in the year ended 31 December 2012 the Company has undergone transition from reporting under UK GAAP to FRS 101 as issued by the 
Financial Reporting Council. The financial statements have therefore been prepared in accordance with FRS 101 (Financial Reporting Standard 101) 
‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. This transition is not considered to have had a material effect on the 
financial statements.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based 
payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-flow 
statement, standards not yet effective, impairment of assets and related party transactions.

The financial statements have been prepared on the historical cost basis and on the going concern basis, except for the revaluation of certain financial 
instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. 

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

Share-based payment
The Company issues equity-settled share-based payments to certain employees and operates an HMRC approved Save As You Earn (SAYE) share 
option scheme open to eligible employees which allows the purchase of shares at a discount. These are measured at fair value at the date of grant.  
The fair value is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest.  
SAYE options are treated as cancelled when employees cease to contribute to the scheme, resulting in an acceleration of the remainder of the 
related expense.

Where the fair value of share options requires the use of a valuation model, fair value is measured by use of the Binomial Lattice or Monte Carlo 
Simulation models depending on the type of scheme. The expected life used in the models has been adjusted, based on management’s best estimate, 
for the effects of non-transferability, exercise restrictions, and behavioural considerations. Where relevant, the value of the option has also been 
adjusted to take account of market conditions applicable to the option.

Dividends
Dividends are approved by the Board of Directors, and recorded in the Company’s financial statements in the period in which they are declared, 
appropriately authorised and no longer at the discretion of the Company.

Derivative financial instruments and hedging activities
The Company enters into a variety of derivative financial instruments to manage the exposure to interest rate foreign exchange risk and price risk, 
including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value  
at each balance sheet date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is 
recognised as a financial liability. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective 
as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Company 
designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges), hedges of 
highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in 
foreign operations.

A derivative is presented as a fixed asset or a creditor: falling due after more than one year if the remaining maturity of the instrument is more than  
12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or creditors: amounts 
falling due within one year.

Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics  
are not closely related to those of the host contracts and these are not measured at fair value through profit or loss. 

Hedge accounting
The Company designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign 
exchange risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk  
on highly probable forecast transactions and firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its 
risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing 
basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values 
or cash flows of the hedged item. 

Movements in the hedging and translation reserve in equity are detailed in the SOCI and described in note 12. 

Serco Group plc | Annual report and accounts 2012 | 179

 
 
Section 5 | Financial statements

Notes to the Company Financial Statements

1. Accounting policies (continued)

Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with  
any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and  
the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. 

Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires or is sold, terminated, 
exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk  
is amortised to profit or loss from that date. 

Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain  
or loss relating to the ineffective portion is recognised immediately in profit or loss. 

Amounts deferred in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income 
statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset  
or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of  
the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires or is sold, terminated, 
exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised 
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative  
gain or loss that was deferred in equity is recognised immediately in profit or loss. 

Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating  
to the effective portion of the hedge is recognised in equity and accumulated in the hedging and translation reserve. The gain or loss relating to the 
ineffective portion is recognised immediately in profit or loss and is included in the ‘net exchange gain/loss on translation of foreign operations’ 
line item. 

Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency translation reserve are 
reclassified to profit or loss in the same way as exchange differences relating to the foreign operations.

Net investments in foreign operations
Exchange differences arising on monetary items that form part of the Company’s net investment in foreign operations are initially recognised in equity 
and accumulated in the hedging and translation reserve and reclassified from equity to profit or loss on disposal of the net investment.

Tax
The tax expense represents the sum of current tax expense and deferred tax expense. Current tax expense is based on taxable profit for the year. 
Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible 
in other years and it further excludes items that are never taxable or deductible. Deferred tax is provided, using the liability method, on temporary 
differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible 
temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available 
against which these items can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of an asset and 
liability in a transaction other than a business combination and, at the time of the transaction, affects neither the tax profit nor the accounting profit. 
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures, except where  
the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the 
foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient 
taxable profits will be available to allow all or part of the asset to be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax 
rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income 
statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.

180 | Serco Group plc | Annual report and accounts 2012

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2. Investments held as fixed assets

Shares in subsidiary companies at cost:
At 1 January 2012 
Options over parent’s shares awarded to employees of subsidiaries 
Disposals 

At 31 December 2012 

Shares in subsidiary companies at cost:
At 1 January 2011 
Options over parent’s shares awarded to employees of subsidiaries 
Disposals 

At 31 December 2011 

£m

816.6
7.2
(12.0)

811.8

£m

812.1
7.1
(2.6)

816.6

Full details of the principal subsidiaries of Serco Group plc can be found in note 39 to the Group’s consolidated financial statements. The Company 
directly owns 100% of the ordinary share capital of the following subsidiary.

Name 

Serco Holdings Limited 

3. Debtors

Amounts due within one year
Amounts owed by subsidiary companies 
Corporation tax recoverable 
Other debtors 

Amounts due after more than one year
Amounts owed by subsidiary companies 
Amounts owed by joint ventures 
Other debtors 
Deferred tax asset (note 7) 

4. Trade and other payables

Amounts owed to subsidiary companies 
Trade creditors 
Accruals and deferred income 
Other creditors including taxation and social security 

2012 
£m 

– 
3.6 
2.4 

6.0 

1,212.1 
4.1 
5.9 
5.9 

1,228.0 

1,234.0 

% ownership

100%

2011 
Restated 
£m 

2011 
Originally  
Reported 
£m

0.1 
2.5 
2.1 

4.7 

968.9 
3.3 
8.5 
4.9 

985.6 

990.3 

2012 
£m 

231.5 
0.3 
15.7 
1.9 

249.4 

0.1
2.5
2.1

4.7

968.9
3.3
8.5
3.7

984.4

989.1

2011 
£m

171.4
0.1
12.7
1.2

185.4

Serco Group plc | Annual report and accounts 2012 | 181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Company Financial Statements

5. Borrowings

Loans: 
Less: amounts included in creditors falling due within one year – loans 
Less: amounts included in creditors falling due within one year – bank loans & overdrafts 

Amounts falling due after more than one year 

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

6. Derivative financial instruments

Currency swaps 
Interest rate swaps 
Forward foreign exchange contracts 

Analysed as:
Non-current 
Current 

2012 
£m 

721.2 
(27.0) 
(79.2) 

615.0 

106.2 
23.4 
54.2 
537.4 

721.2 

2011 
£m

776.9
(23.6)
(146.6)

606.7

170.2
126.0
104.3
376.4

776.9

Assets 
2012 
£m 

Liabilities 
2012 
£m 

Assets 
2011 
£m 

Liabilities 
2011 
£m

– 
– 
0.7 

0.7 

– 
0.7 

0.7 

(0.6) 
– 
(2.6) 

(3.2) 

(0.6) 
(2.6) 

(3.2) 

0.9 
– 
6.4 

7.3 

0.9 
6.4 

7.3 

–
(0.6)
(3.8)

(4.4)

(0.2)
(4.2)

(4.4)

The Company holds derivative financial instruments in accordance with the Group’s policy in relation to its financial risk management. Details of the 
disclosures are set out in note 29 of the Group’s consolidated financial statements.

7. Deferred tax asset

Capital allowances in excess of depreciation 
Short-term timing differences 

The movement in the deferred tax asset during the year was as follows:

At 1 January 
Prior year adjustment 

At 1 January restated 
Charged to profit and loss account 
Items taken directly to equity 

At 31 December 

182 | Serco Group plc | Annual report and accounts 2012

2012 
£m 

0.1 
5.8 

5.9 

2012 
£m 

4.9 
– 

4.9 
0.8 
0.2 

5.9 

2011 
Restated 
£m

0.1
4.8

4.9

2011 
£m

2.8
1.6

4.4
1.8
(1.3)

4.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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8. Called up share capital

Issued and fully paid:
497,327,070 (2011: 493,220,805) ordinary shares of 2p each at 1 January 
Issued on the exercise of share options 

2012 
£m 

9.9 
0.1 

498,462,508 (2011: 497,327,070) ordinary shares of 2p each at 31 December 

10.0 

The Company has one class of ordinary shares which carry no right to fixed income.

Number 
2012 
Millions 

497.3 
1.2 

498.5 

2011 
£m 

9.9 
– 

9.9 

Number 
2011
Millions

493.2
4.1

497.3

During the year 1,135,438 (2011: 4,106,265) ordinary shares of 2p each were allotted to the holders of share-based awards or their personal 
representatives using newly listed shares.

9. Share premium account

At 1 January  
Premium on shares issued 

At 31 December  

10. Own shares

2012 
£m 

322.7 
3.8 

326.5 

2011 
£m

306.7
16.0

322.7

The own shares reserve represents the cost of shares in Serco Group plc purchased in the market and held by the Serco Group plc Employee  
Share Ownership Trust (ESOT) to satisfy options under the Group’s share options schemes. At 31 December 2012, the ESOT held 10,174,594  
(2011: 8,267,992) shares equal to 2.0% of the current allotted share capital (2011: 1.7%). The market value of shares held by the ESOT as at  
31 December 2012 was £54.4m (2011: £39.2m).

11. Share-based payment reserve

At 1 January 
Prior year adjustment 

At 1 January restated 
Options over parent’s shares awarded to employees of subsidiaries  
Share-based payment expense 
Share options to holders on exercise 
Tax charge on items taken directly to equity 

At 31 December 

2012 
£m 

49.1 
– 

49.1 
7.2 
4.8 
(3.6) 
0.2 

57.7 

2011 
Restated 
£m 

38.7 
1.5 

40.2 
7.1 
4.2 
(2.0) 
(0.4) 

49.1 

2011 
Originally  
reported 
£m

38.7
–

38.7
7.1
4.2
(2.0)
–

48.0

Details of the share-based payment disclosures are set out in note 37 of the Group’s consolidated financial statements.

Serco Group plc | Annual report and accounts 2012 | 183

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Section 5 | Financial statements

Notes to the Company Financial Statements

12. Hedging and translation reserve

At 1 January  
Fair value (loss)/gain on cash flow hedges during the year  
Tax credit/(charge) on items taken directly to equity 
Net exchange loss on translation of foreign operations 

At 31 December  

13. Profit and loss account

At 1 January 
Profit for the year 
Equity dividends 

At 31 December 

2012 
£m 

1.9 
– 
– 
– 

1.9 

2012 
£m 

288.9 
108.6 
(41.9) 

355.6 

2011 
Restated 
£m 

226.1 
100.1 
(37.3) 

288.9 

2011 
£m

(0.4)
3.3
(0.9)
(0.1)

1.9

2011 
Originally  
Reported 
£m

226.1
100.0
(37.3)

288.8

As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these accounts. 

14. Reconciliation of shareholders’ funds

At 31 December 2011: originally reported 
Estimated profit due to transition to FRS101 
Changes to share-based payment reserve due to transition to FRS101 

At 31 December 2011: restated 

15. Contingent liabilities

£m

623.2
0.1
1.1

624.4

The Company has provided certain financial guarantees and indemnities in respect of the loans, overdraft and bonding facilities, and other financial 
commitments of its subsidiaries. The total commitment outstanding as at 31 December 2012 was £151.0m (2011: £79.7m).

The Company has guaranteed overdrafts, finance leases and bonding facilities of its joint ventures up to a maximum value of £27.2m (2011: £8.2m). 
The actual commitment outstanding at 31 December 2012 was £23.2m (2011: £4.8m).

In addition to this, the Company and its subsidiaries have provided performance guarantees and indemnities relating to performance bonds and letters 
of credit issued by its banks on its behalf, in the ordinary course of business. These are not expected to result in any material financial loss.

16. Related parties

The Directors of Serco Group plc had no material transactions with the Company or its subsidiaries during the year other than service contracts and 
Directors’ liability insurance. Details of the Directors’ remuneration are disclosed in the Remuneration Report for the Group.

The Company is exempt under the terms of FRS 8 Related Party Disclosure, from disclosing related party transactions with entities that are part  
of the Group. Full details of the transactions between Serco Group plc and its related parties can be found in note 38 to the Group’s consolidated 
financial statements.

184 | Serco Group plc | Annual report and accounts 2012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplementary information

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Five-year record

Revenue 
Adjusted operating profit 
Adjusted operating margin 
Profit before tax 

Group free cash flow  
Group recourse net debt 
Total net debt 

Adjusted earnings per share  
Dividend per share 

£m 
£m 
% 
£m 

£m 
£m 
£m 

p 
p 

2012 

4,913 
314.8 
6.41% 
302.0 

181.2 
(606.9) 
(580.7) 

42.55p 
10.10p 

2011 

4,646 
290.1 
6.24% 
238.3 

168.3 
(669.8) 
(633.9) 

39.59p 
8.40p 

2010 

4,327 
258.7 
5.98% 
213.9 

185.8 
(303.6) 
(261.2) 

34.69p 
7.35p 

2009 

3,970 
229.7 
5.79% 
177.1 

137.3 
(387.7) 
(358.5) 

29.53p 
6.25p 

2008

3,124
165.2
5.29%
136.1

94.2
(524.5)
(514.1)

22.20p
5.00p

Serco Group plc | Annual report and accounts 2012 | 185

 
 
 
 
 
Section 5 | Financial statements

Directors, Secretary and Advisors

Chairman
Alastair Lyons CBE

Directors
Ralph D Crosby Jr*
Christopher Hyman CBE
Andrew Jenner
David Richardson*^
Angie Risley*
Malcolm Wyman*

Secretary
John Hickey

*   Non-Executive Director
^  Senior Independent Director

Registered Office
Serco House
16 Bartley Wood Business Park
Bartley Way
Hook
Hampshire
RG27 9UY

Serco Group plc is registered in 
England and Wales, No. 2048608

Auditors
Deloitte LLP
2 New Street Square
London 
EC4A 3BZ

Investment Bankers
UBS Limited
1 Finsbury Avenue
London 
EC2M 2PP

Stockbrokers
J.P. Morgan Cazenove
125 London Wall
London
EC2Y 5AJ

Bank of America Merrill Lynch 
2 King Edward Street
London
EC1A 1HQ

Principal Bankers
HSBC Bank PLC
8 Canada Square
London
E14 5HQ

Solicitors
Linklaters LLP
One Silk Street
London
EC2Y 8HQ

Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

186 | Serco Group plc | Annual report and accounts 2012

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Shareholder information

Group website
Go to www.serco.com to catch up on the current share price, latest news in the investors section and read the Annual Report and Accounts.

Registrars
Administrative enquiries about the holding of Serco Group plc shares and enquiries in relation to the Serco Dividend Reinvestment Plan (DRIP)  
should be directed to:

Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

Tel: 0871 384 2932

There is a text phone available on 0871 384 2255 for shareholders with hearing difficulties.

(Calls cost 8p per minute plus network extras.)

Callers from outside the UK should use +44 (0) 121 415 7047. 

Telephone lines are open 8.30am to 5.30pm Monday to Friday.

Dividend reinvestment plan
You can elect to receive future dividends as shares rather than cash by participating in the DRIP. To register, request further information, or to obtain 
a copy of terms and conditions booklet and mandate form please contact Equiniti on 0871 384 2932. Alternatively, these can be downloaded from 
the website www.shareview.co.uk by choosing the Dividend Reinvestment Plan heading within the Share Dealing section under ‘Products & Services’.

Dividends paid direct to your bank account
●● Avoid the risk of cheques being lost in the post

●● No need to present cheques for payment

●● Dividend credited to your account on payment date

To set up a dividend mandate or change your existing mandated details please register with the Shareview website or contact Equiniti on the number 
provided above.

Global payment services
For overseas shareholders in certain countries, Equiniti offers an Overseas Payment Service by arrangement with Citibank Europe PLC. This service 
offers shareholders the ability to have their dividend converted into their local currency and sent electronically to their local bank account. To sign  
up for this service, please contact Equiniti on 0871 384 2932 (+44 (0) 121 415 7047 if calling from outside the UK). Alternatively you can download 
an application form and terms and conditions from the website www.shareview.co.uk.

Electronic communication
You can register for electronic communications by visiting www.shareview.co.uk; you will need your shareholder reference number to sign up.  
After you have registered you will receive emails alerting you to communications as they become available. 

Serco Group plc | Annual report and accounts 2012 | 187

 
 
Section 5 | Financial statements

Shareholder information

Share dealing
Serco does not endorse any one service for the buying and selling of its shares. However, arrangements have been made with the following 
independent share dealing provider to offer all shareholders competitive charges. 

Alternatively, if shareholders hold a share certificate they can also use any bank, building society or stockbroker offering share dealing facilities. 
Shareholders in any doubt about buying or selling their shares should seek professional financial advice.

Stocktrade
We have arranged a telephone share dealing service with Stocktrade for purchases/sales of Serco Group plc shares. You should call +44 (0)131 240 0414 
between 8.00am and 4.30pm, Monday to Friday and quote Low Co 330. Commission is charged at 0.5% on amounts to £10,000 and 0.2% on the 
excess thereafter, subject to a minimum charge of £17.50. Further details and other dealing options can be found at www.stocktrade.co.uk/serco. 
This service is not available to US residents.

Please note that UK share purchases will be subject to 0.5% stamp duty. 

Shareholder profile
The range and size of ordinary shareholding as at 31 December 2012 is set out below:

Range of shareholdings 

1 – 1,000 
1,001 – 5,000 
5,001 – 10,000 
10,001 – 100,000 
100,001 – 500,000 
500,001 – 1,000,000 
1,000,001 – 10,000,000 
10,000,001 and above 

Total 

Number of 
shareholders 

4,723 
2,956 
457 
494 
163 
49 
65 
10 

8,917 

% 

52.97 
33.15 
5.12 
5.54 
1.83 
0.55 
0.73 
0.11 

Number of 
shares 

1,909,766 
6,174,683 
3,075,408 
14,868,370 
37,266,550 
33,719,786 
172,475,664 
228,972,281 

100 

498,462,508 

%

0.38
1.24
0.62
2.98
7.48
6.76
34.60
45.94

100

188 | Serco Group plc | Annual report and accounts 2012

 
 
 
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Financial calendar

2012 Full Year Results Announcement 
Ex-dividend date for 2012 final dividend 
Record date for 2012 final dividend 
Deadline for DRIP mandates 
AGM and Interim Management Statement 
Payment date for 2012 final dividend 
Pre-close statement 
2013 Half Year Results announcement 
Ex-dividend date for 2013 interim dividend 
Record date for 2013 interim dividend 
Deadline for DRIP mandates 
Payment date for 2013 interim dividend 
Interim Management Statement 
Pre-close statement 

* Provisional and/or subject to shareholder approval

5 March 2013
13 March 2013
15 March 2013
30 April 2013
15 May 2013
*22 May 2013
*28 June 2013
29 August 2013
*4 September 2013
*6 September 2013
*27 September 2013
*18 October 2013
*14 November 2013
*16 December 2013

Printed on Cocoon Silk 50 which is certified 
as an FSC® product manufactured with 50% 
recycled fibres and 50% virgin fibres.

Designed and produced by FTI Consulting  www.fticonsulting.com 
Printed in England by Pureprint Group  www.pureprint.com

Serco Group plc | Annual report and accounts 2012 | 189

 
 
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Serco Group plc
Registered Office:
Serco House, 16 Bartley Wood Business Park
Bartley Way, Hook, Hampshire RG27 9UY

T: +44 (0)1256 745 900
E: generalenquiries@serco.com

www.serco.com