Contents
Our Purpose is to
impact a better
future.
Strategic Report
1-92
1
2
4
6
8
Highlights
At a Glance
Chair’s Statement
Group Chief Executive’s Summary Review
Group Review
We bring together the right people, the
right technology and the right partners to
create innovative solutions that deliver
positive impact and address some of the
most urgent and complex challenges
facing governments globally.
With a primary focus on serving
governments globally, our services are
powered by more than 50,000 colleagues
working across multiple sectors including
defence, space, migration, justice,
healthcare, transport and customer
services. We operate across four regions:
UK & Europe, North America, Asia Pacific
and the Middle East.
20+
Countries
500+
Contracts
50,000+
Colleagues
Photo credit for front cover: © Pete Harmsen/Australian Antarctic Division
13 Divisional Reviews
20 Our Market
22 Our Strategy
24 Our Progress
26
28
32
34
47
Key Performance Indicators
People and Culture
Risk Management
Principal Risks and Uncertainties
Viability Statement
49 Our Impact
70
76
88
TCFD Compliance Statement
Finance Review
Section 172(1) Statement
Corporate Governance
93-144
94 Chair’s Corporate Governance Overview
96 Governance at a Glance
97
Board of Directors
100 Group Executive Committee
101 Corporate Governance
105 Nomination Committee Report
106 Audit Committee Report
112 Risk Committee Report
114 Corporate Responsibility Committee Report
115 Directors’ Remuneration Report
139 Directors’ Report: Other Information
144 Directors’ Responsibility Statement
Financial Statements
145-231
146 Independent Auditor’s Report
155 Consolidated Income Statement
156 Consolidated Statement of Comprehensive Income
157 Consolidated Statement of Changes in Equity
158 Consolidated Balance Sheet
160 Consolidated Cash Flow Statement
161 Notes to the Consolidated Financial Statements
220 Company Balance Sheet
221 Company Statement of Changes in Equity
222 Notes to the Company Financial Statements
226 Appendix: List of subsidiaries and related
undertakings
229 Glossary
230 Shareholder Information
231 Useful Contacts
Strategic Report
Corporate Governance
Financial Statements
Highlights
Revenue
Order book
£4.9bn
2022: £4.5bn
£13.6bn
2022: £14.8bn
Underlying operating profit
Reported operating profit
£249m
2022: £237m
£272m
2022: £217m
Underlying EPS, diluted
Reported EPS, diluted
15.4p
2022: 13.9p
17.9p
2022: 12.8p
Dividend per share
Underlying ROIC
3.41p
2022: 2.86p
21.4%
2022: 20.6%
Free cash flow
Employee engagement
£209m
2022: £159m
71 points
2022: 70 points
Major incident frequency
Lost time incident frequency
0.35 per
1m hours
6.07 per
1m hours
2022: 0.43 per 1m hours
2022: 5.78 per 1m hours
Definitions for each KPI can be found in
the Glossary on page 229
See pages 20 to 25 for more
information on our business
Serco Group plc | Annual Report and Accounts 2023 | 1
Strategic Report
Corporate Governance
Financial Statements
At a Glance
What we do
We bring together the right people, the right technology and the right partners to
create innovative solutions that deliver positive impact.
Our vision is to be the partner of choice to governments globally. Our core capabilities
includes service design and advisory, resourcing, complex programme management,
systems integration, case management, engineering, assets and facilities management.
Underpinned by our unique operating model, Serco drives innovation and supports
customers from service discovery through to delivery.
Our Purpose, Vision, Mission and Values
A refreshed way to describe our why, what and how, underpinned by our deep-rooted values.
See pages 22 to 25 for more information on our strategy
Serco Group plc | Annual Report and Accounts 2023 | 2
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Corporate Governance
Financial Statements
At a Glance continued
Revenue in 2023
Our revenue in 2023 was £4,874m, or £5,347m, if you include our share of joint
ventures and associates.
Our sectors
Our business is focused across five core sectors
8%
Transport
16%
Citizen Services
10%
Health &
Other FM
£1,838m £1,681m
Defence
Justice &
Immigration
£445m
Transport
Revenue by
sector (%)
31%
Justice & Immigration
35%
Defence
£527m
Health &
Other Facilities
Management
£856m
Citizen Services
Our divisions
Serco’s operations are delivered across four geographic regions.
4%
Middle East
North America
£1,363m
UK & Europe
£2,913m
16%
Asia Pacific
Revenue by
division (%)
25%
North America
55%
UK & Europe
(including share of joint ventures and associates)
Middle East
£226m
Asia Pacific
£845m
Serco Group plc | Annual Report and Accounts 2023 | 3
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Corporate Governance
Financial Statements
Chair’s Statement
Serco had another successful year thanks to our
employees, with revenue, profit, cash and returns to
shareholders all increasing. Our strategy continues
to work well and with a sharper focus on operations,
we remain confident about the future.
The Board’s main areas of focus in 2023
were to ensure a successful transition to a
new Group Chief Executive and to
support Management to improve
employee engagement, health and
safety, and improve contract wins rates.
– Mark Irwin became Group Chief Executive on 1 January
2023. The handover from Rupert Soames, his predecessor,
was smooth and Mark has settled well into his role as the
leader of the organisation. He has sharpened the focus on
operational aspects of our business, on health and safety
and is driving performance with more emphasis on
customers, colleagues and capabilities.
– Health and safety has always been extremely important to us
and was a key focus in 2023, following a higher number of
incidents in 2022. This year saw a reduction in both the
severity and number of incidents.
– Employee engagement moved from 70, already a high level,
to 71. We continue to evolve our employee value
proposition and it was pleasing to see the improvement,
especially given the tight labour market conditions and cost-
of-living crisis.
– Contract win rates were good for both rebids and new work
in the year, reversing the dip experienced in the second half
of 2022. This included the strategically important rebid of
our Centers for Medicare & Medicaid Services (CMS) contract in
the US.
Highlights
– Revenue up 7% to £4.9bn, with organic growth of 4%
– Underlying operating profit of £249m, the sixth consecutive
year of growth.
– Free cash flow of £209m, trading cash conversion of 111%,
covenant net debt: EBITDA at the year-end of 0.5x.
– Order intake of £4.6bn.
– Growing returns to shareholders, with recommended
ordinary dividend up 19% year-on-year, a share buyback
of £90m in 2023 and further £140m in 2024.
John Rishton
Chair
Serco Group plc | Annual Report and Accounts 2023 | 4
Strategic Report
Corporate Governance
Financial Statements
Chair’s Statement continued
Our performance
The Company delivered good results in 2023, with revenue,
underlying operating profit and cash all increasing. The
immigration and defence sectors both saw strong demand and
the justice sector also grew. Governments around the world
are facing ever more complex challenges. Serco’s significant
expertise across sectors and geographies gives us a competitive
advantage to support governments to address these challenges.
Acquisitions are an important part of our strategy, and in 2023 we
agreed to buy two businesses, European Homecare (EHC), and
Climatize. EHC, which completed in March 2024, is a leading
private provider of immigration services in Germany. In conjunction
with ORS, the Swiss-based business we acquired in 2022, this
strategic acquisition will create a strong partner for European
governments in immigration services and complement the
support we already provide to government customers in the UK
and Australia. Climatize, which completed in January 2024, is a
small but fast-growing business that operates in the United Arab
Emirates and the Kingdom of Saudi Arabia, offering zero-carbon
advisory and related engineering services. The business will
significantly boost Serco’s sustainability advisory capability in
the Middle East with opportunity to scale this across our
other geographies.
It was also very encouraging to see the success of some of the
acquisitions we have made in recent years. Revenue at ORS in
2023 was more than double the level of 2021, the year before
we acquired it. Bringing together Serco’s capability with ORS’s
European operations enabled the business to scale up in a way
that would not have been possible as a standalone entity. In
the US, we have seen strong order intake in the defence sector
over the last two years, which was made possible by combining
skills from Serco with the NSBU and WBB businesses we
acquired in 2019 and 2021, respectively.
Returns to our shareholders increased again in 2023.
Consistent with our stated capital allocation priorities, we
progressed with our plan of increasing ordinary dividends, as
we continue on our path to reduce dividend cover progressively
towards 3x over the coming years, and returned another £90m
of surplus capital to shareholders through a share buyback.
The Board is recommending a final dividend of 2.27p which
is an increase of 18% year-on-year and has agreed a further
£140m share buyback for 2024.
Strategy
Serco operates in very large, growing markets. The focused
business-to-government (B2G) operating model established
over recent years is delivering competitive advantage and
differentiation, and we believe that this will enable the business
to grow its revenue faster than the market, profit faster than
revenue and to convert that profit into cash. The strategic
framework has delivered strong results in recent years and
remains unchanged. Mark Irwin is bringing a sharper focus to
our operational performance that will seek to make our
business even better in the coming years. Three strategic
enablers - Customers, Colleagues and Capabilities – were
identified and laid out in our 2022 Annual Report. We have
made good early progress on these in 2023. Successful
execution of our strategic priorities should improve contract
delivery for customers and improved efficiency in our operations;
and we believe that the Group is well positioned to deliver our
medium-term growth targets.
diversity and effectiveness, remuneration, financial reporting,
as well as environmental and societal considerations.
We have a dedicated Risk Committee and we detail our approach
to risk on pages 32 to 46. There were no changes to Non-
Executive Directors during the year.
Our Board tries to enhance its effectiveness by being close to
Serco's people and operations. During 2023, I visited our
businesses in North America, the UK, the Middle East and
Australia. In May, we held our Board meeting in Italy where
some of our key European contracts are based. Our European
business has grown significantly over the last few years and this
gave the Board the opportunity to spend time with the European
leadership team and meet employees and customers to discuss
key areas such as immigration and space. Your Non-Executive
Directors (NEDs) also visited contracts, spending time with the
contract teams and customers in our various markets and
participated in our annual regional conferences.
Dame Sue Owen is the Board’s employee representative. We
have a dedicated employee working closely with her and the
wider Group to ensure that the Board understands employee
perspectives and issues. In addition, all NEDs participated in
virtual and face-to-face meetings with employees in each of
our markets to discuss topics that were important to them. We
also have an ‘Ask the Board’ function, where employees are
given the opportunity to anonymously raise issues for our
attention. In a year where many businesses, including ours,
wrestled with the challenges of a tight labour market and a
cost-of-living crisis, I was pleased our vacancy rates reduced
significantly and engagement scores increased to 71.
ESG has always been important to Serco and, as demonstrated
in the Our Impact section on pages 49 to 69, we continue to
adapt and develop our thinking and embed this into our strategy.
We have been clear on our purpose, values and impact on society
for many years. Our customers are governments and frequently
the contracts we enter into have specific measures for areas such
as Social Value and other ESG aspects. With our strong purpose,
mission and vision we believe we are well positioned to deliver
positive outcomes as we focus on our impact and the themes of
People, Place and Planet, all underpinned by strong governance.
More detail on our approach and ESG commitments and
performance is included on pages 49 to 69.
Our Board evaluation during the year was an internal review
and the results were discussed at the December Board
meeting. We took account of last year’s feedback when
deciding the areas to be covered by the Board in 2023. The
evaluation concluded that the Board and its Committees
continued to operate effectively. Further information on this
review process and the outcome are provided on page 104.
Looking ahead
Governments around the world continue to face complex, fast-
moving challenges on multiple fronts. I believe the strategic
positioning of Serco means we are well placed to be a partner
that can deliver sustainable value to governments. If we can be
responsive, agile and demonstrate value, I am confident we
will deliver sustainable and profitable growth, and create value
for all our stakeholders. To finish, on behalf of the entire Board,
let me express our profound appreciation to the hardworking
employees of Serco, and our many partners, for their
incredible commitment and achievements during 2023.
Corporate Governance
One of my most important roles as Chair is to ensure that
Serco has strong governance and risk management. These
responsibilities cover many areas (and are covered in detail in
our Corporate Governance report on page 94), including Board
John Rishton
Chair
1 March 2024
Serco Group plc | Annual Report and Accounts 2023 | 5
Strategic Report
Corporate Governance
Financial Statements
Group Chief Executive’s Summary Review
We are making good progress in building a resilient
international platform for growth in the government
services sector. Our strong results for 2023 reflect
this progress, with another year of growth in revenue
and profit and continued excellent cash generation.
We enhanced our customer relationships and improved our win rates compared to
the prior year, delivered better safety outcomes for our colleagues, and announced
two strategic acquisitions to strengthen our capabilities.
We have entered 2024 with increased execution focus on service excellence to our
customers, effective conversion of a substantial pipeline of opportunities, the safety
and productivity of our colleagues, and progressing the technology-enablement of
our business, all aligned to delivery of our medium-term goals.
Mark Irwin
Group Chief
Executive
Highlights
– Revenue: grew by 7% to £4.9bn, organic revenue growth of 4%.
– Underlying operating profit: increased by 5% to £249m, a
margin of 5.1%. More than 60% of Group underlying operating
profit derived from outside the UK(1).
– Underlying earnings per share: increased by 10% to 15.36p.
– Cash flow: free cash flow very strong at £209m, trading cash
conversion of 111%.
– Adjusted net debt: better than previous guidance at £109m;
covenant leverage at 0.5x EBITDA.
– Order intake: £4.6bn of wins, order book remains strong at
£13.6bn.
– Pipeline: pipeline of potential new work of £10.1bn, +28% since
half year, highest level in a decade.
– Dividend per share: recommended final dividend per share of
2.27p, +18% year on year.
– New £140m share buyback in 2024: continuing to return
capital to shareholders as a result of strong trading and cash
conversion consistent with our capital allocation priorities.
– Updated guidance for 2024: Revenue and underlying operating
profit unchanged, net debt updated to include better 2023
outcome and new share buyback.
Serco Group plc | Annual Report and Accounts 2023 | 6
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Financial Statements
Group Chief Executive’s Summary Review continued
In 2023 we made good progress towards building a resilient
international platform for growth in the government services
sector. We delivered growth in revenue, profit and cash, with
all three financial performance measures ending the year
better than our initial guidance. We have also made good
progress executing our strategy with clarity about our Purpose
- to impact a better future; our Vision – to be the partner of
choice to governments globally; and our Mission - to bring
together the right people, the right technology and the right
partners to support our government customers with solving
some of the most complex problems that they face.
We grew revenue by 7% to £4.9bn, with organic growth of 4%,
acquisitions adding another 4% and a 1% drag from currency.
Underlying operating profit increased by 5% to £249m and our
cash generation was again very strong, with 111% profit to
trading cash conversion.
In North America, which generates close to half our profit,
organic revenue growth was strong. We secured the rebid for
our CMS contract, one of the largest and strategically crucial
contracts in the Group and we strengthened our order book
with excellent rebid success. Within North America, Canada
continues to grow, and we are seeing our focus on global
collaboration bear fruit with success in winning employment
services work in Ontario, as we entered the sector for the first
time by leveraging our longstanding work in the UK.
Our UK business delivered high organic revenue growth,
margin improvement and good conversion rates for new wins
and recompetes. In Europe, the successful integration of ORS,
which is now delivering revenue more than double the level
prior to us acquiring it, has strengthened our position in
immigration services. We have followed that with the
acquisition of European Homecare, a German immigration
services provider which will complement the work we do to
support governments in the UK, Australia and across Europe.
Our Middle East business had a good year. Although profit
reduced slightly, order intake was high as we saw success in
executing our strategy of repositioning Serco for higher
margin growth in the most dynamic markets in the region. The
development of an advisory business has helped us win work
in new segments, such as sustainability services at the Red Sea
Global megaproject and has expanded our presence in the
exciting new giga-cities of Saudi Arabia.
Our Asia Pacific business had a difficult year. Volume-variable
work, which as part of a portfolio we expect to ebb and flow,
reduced in the period, tight labour markets created
operational challenges and new business wins did not meet
our expectations. We took appropriate action, appointing a
new CEO for the business and implementing the necessary
business changes to ensure we are well positioned for future
opportunities in what remains an important market for Serco.
In summary, we are pleased with the full year results for 2023
which were the direct result of the hard work and dedication of
more than 50,000 colleagues across the Group. For that we
remain grateful, as we do for the continued trust of our
customers and the support of our shareholders.
After my first full year as Group Chief Executive, I am confident
that we enter this next stage of Serco’s development with
strong foundations and a strategy aimed at delivering
profitable, sustainable growth aligned to our medium-term
goals. We enter 2024 with the largest pipeline of potential new
work in a decade, a business plan to deliver margin
improvement from a rigorous approach to operational
efficiency, a network of partnerships to support technology
enablement and a robust balance sheet providing good
optionality for capital allocation. We therefore see clear
opportunity to sustain the consistent positive results reported
in recent years.
Mark Irwin
Group Chief Executive
Serco – Impact a better future
1 March 2024
To me, impact is not about one
existential event. It is about a
mindset that says everything we
do matters. How we do it matters,
and the outcomes of what we do
matter; then it is about finding a
way for us to be able to measure
that and be accountable for those
better outcomes by working in
partnership with our clients to
impact a better future.
Serco Group plc | Annual Report and Accounts 2023 | 7
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Financial Statements
Group Review
Strong performance and
positive outlook
Strong performance in 2023, positive outlook for 2024 and medium-term
Year ended 31 December
Revenue(2)
Underlying operating profit(3)
Reported operating profit(3)
Underlying earnings per share (EPS), diluted(4)
Reported EPS (i.e. after non-underlying items), diluted
Dividend per share (recommended)
Free cash flow(5)
Adjusted net debt(6)
Reported net debt(7)
Summary of financial performance
Revenue, underlying operating profit and underlying
earnings per share
Revenue increased by 7%, or £340m, to £4,874m (2022:
£4,534m). Organic revenue growth was 4% (£199m),
acquisitions added 4% (£174m) and currency was a drag of 1%
(£33m). Revenue has increased organically as growth in the
immigration and defence sectors, areas we have invested in
significantly in recent years, more than offset Covid-related
work which concluded in 2022. Were revenue from our joint
ventures to be included, it would add a further 5% to the
Group’s organic revenue growth, as our VIVO Defence
Services work for the UK’s Defence Infrastructure Organisation
continues to experience robust demand.
Underlying operating profit increased by 5% to £249m (2022:
£237m), and growth on a constant currency basis was also 5%.
Ongoing demand for immigration services in the UK and Europe,
operational improvement in our existing portfolio, as well as
the successful ramp up of new business signed in prior years,
more than offset a 7% impact from Covid-related work, as well
as lower volumes in Asia Pacific. Improved margins in the UK &
Europe division broadly offset lower margins in the other regions,
underlining the benefit of our geographic and sectoral diversity,
and the overall resilience this brings to our business.
Reported operating profit increased by 25% to £272m. The
growth rate was greater than for underlying operating profit
because of positive exceptional operating items. Exceptional
operating items of £53.8m resulted from the release of £43.9m
of provisions held for indemnities provided on businesses
disposed of in 2015, predominantly due to the claims period
ending, and £9.9m compensation we received on the early
termination of a contract.
2023
2022
£4,874m
£249m
£272m
15.36p
17.93p
3.41p
£209m
£109m
£4,534m
£237m
£217m
13.92p
12.79p
2.86p
£159m
£204m
£562m
£650m
Change at
reported
currency
Change at
constant
currency
8 %
5 %
7 %
5 %
25 %
10 %
40 %
19 %
31 %
(47) %
(13) %
Diluted underlying earnings per share increased by 10% to
15.36p (2022: 13.92p). The percentage improvement was
higher than the increase in underlying operating profit as a 7%
reduction in the weighted average number of shares, due to
our share buybacks in 2022 and 2023, more than offset higher
net finance costs.
The revenue and underlying operating profit performances are
discussed in more detail in the Divisional Reviews.
Cash flow and net debt
Free cash flow was very strong at £209m. This was 31% better
than the prior year (2022: £159.1m), which itself had been a
particularly good outcome. Trading cash conversion was also
very strong at 111%. High conversion of profit to cash in recent
years has been achieved, in part, by intense focus on the cash
management process. An important element of this has been
increased focus on the timeliness and accuracy of issuing sales
invoices, which enables our customers to pay us on time. In
2023, cash flow benefitted from continued good performance
on working capital, including successful collection of some
older debt, the timing of payments on some large contracts,
contract mobilisation dynamics, and the working capital
unwind of lower work levels in Asia Pacific. Average working
capital days were at attractive levels with debtor days of 16
(2022: 22 days) and creditor days of 20 (2022: 21 days). The
reduction in debtor days reflects the factors mentioned above,
some of which are temporary. Including accrued income and
other unbilled receivables, day sales outstanding for 2023
were 38 days (2022: 48 days). Of all UK supplier invoices, 94%
were paid in under 30 days (2022: 87%) and 98% were paid in
under 60 days (2022: 95%). No working capital financing
facilities were utilised in this or the prior year.
Adjusted net debt was £109m at the end of December. This
was a reduction of £95m (December 2022: £204m) despite
£34m of dividend payments to shareholders and £89m being
spent on our share buyback programme, net of fees.
Serco Group plc | Annual Report and Accounts 2023 | 8
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Financial Statements
Group Review continued
The period end adjusted net debt compares to a daily average
of £232m (2022: £231m) and a peak of £362m (2022: £377m).
The variance reflects free cash flow being generated across the
year, while returns to shareholders – our share buyback and
final dividend – were concentrated in the first half. Receipts
towards the end of the period supported the closing balance
being lower than prior guidance.
Our measure of adjusted net debt excludes lease liabilities,
which aligns closely with the covenants on our financing
facilities. Lease liabilities totalled £454m at the end of
December (2022: £446m), the majority being leases on
housing for asylum seekers under our Asylum Accommodation
and Support Services Contract (AASC). The terms of these
leases do not extend beyond the expected life of the contract
we have with the customer.
At the closing balance sheet date, our leverage for debt
covenant purposes was 0.5x EBITDA (2022: 0.8x). This
compares with the covenant requirement for net debt to be
less than 3.5x EBITDA and our target range of 1-2x.
On 27 February 2024, we issued $150m (£118m) of US Private
Placement loan notes. The notes are equally split into two
series of $75m each with maturities of five and ten years, giving
an average maturity of seven and a half years. The average
interest rate on the new loan notes is fixed at 6.58%, which
compares to a blended rate of 3.97% for the existing notes.
More detailed analysis of earnings, cash flow, financing and
related matters is included in the Divisional Reviews and
Finance Review.
Capital allocation and returns to shareholders
We aim to have a strong balance sheet with our target financial
leverage of 1x to 2x net debt to EBITDA, and, consistent with
this, the Board’s capital allocation priorities are to:
– Invest in the business to support organic growth.
– Increase ordinary dividends to reward shareholders with a
growing and sustainable income stream.
– Selectively invest in strategic acquisitions that add capability,
scale or access to new markets, enhance the Group’s future
potential organic growth and have attractive returns.
– Return any surplus cash to shareholders through share
buybacks or other means.
Our capital allocation framework was actively applied in 2023:
– Invest to support organic growth: significant investment has
been put into business development, which has supported
our healthy pipeline of new opportunities. In the Middle
East, we have invested in developing an advisory capability
and this has generated good new business wins in the year.
We also invested in new pilot programmes to partner with
both start-up and established technology businesses, as well
as academic and research institutions to create a broader
capability ecosystem from which to deliver future growth.
– Increase ordinary dividends: the Board is recommending a
final dividend of 2.27p per share. Following the interim
dividend of 1.14p, this results in a full year dividend of 3.41p,
an increase of 19% compared to 2022, as we continue on
our path to reduce dividend cover progressively towards 3x
over the coming years.
– Invest in acquisitions: we agreed to acquire European
Homecare (EHC), a leading provider of immigration services
in Germany, and we also agreed to acquire Climatize, a
small but fast-growing business that operates in the United
Arab Emirates and the Kingdom of Saudi Arabia offering
‘zero-carbon’ advisory and related engineering services. The
Climatize acquisition completed in January 2024 and EHC
completed in March 2024. We continue to assess other
opportunities that are aligned to our strategy and provide
potential to enhance future organic growth.
– Return surplus cash to shareholders: in 2023 we completed
a £90m share buyback and the Board has agreed that it
intends to buy back a further £140m of the Company’s
shares during 2024. Net debt to EBITDA was 0.5x at the end
of 2023 and the £140m buyback, applied retrospectively,
would take leverage to 1.0x, the low end of our preferred
1-2x range and the level below which we consider capital to
be surplus.
Contract awards, order book, rebids and pipeline
Contract awards
Order intake in 2023 was £4.6bn, a book-to-bill rate of 95%.
Book-to-bill of slightly below 100% reflects a significant
number of bids currently submitted and awaiting decision. Our
win rates in the year improved and have rebounded to the
levels we have delivered on average over recent years,
following a dip in the second half of 2022.
There were around 60 contract awards worth £10m or more
each. As in 2022, North America had the strongest book-to-bill
at 154%, with robust new order intake in Defence and Citizen
Services as well as the strategically important rebid of our
Centers for Medicare & Medicaid Services (CMS) contract.
Our Middle East business showed strong momentum, with full
year book-to-bill of 150%, supported by order intake in the
second half approaching 2x revenue. Around £2.1bn, or 45%,
of the order intake came from North America, £1.9bn, or 41%,
from the UK & Europe, and the Middle East and Asia Pacific
both contributed £0.3bn, or 7%.
Approximately 40% of the order intake value was new business
and 60% was rebids or extensions of existing work. The win
rate by value for new work was approaching 35%, while the win
rate by value for retaining existing work was approximately 90%.
New wins included a £350m five-year contract to deliver
functional health assessments in the south-west of England for
the Department of Work and Pensions to determine disability
benefits and a contract to deliver electronic monitoring
services in England and Wales that is expected to be worth
£200m over its initial six-year term. We also secured a £140m,
five-year contract with the Government of Ontario to assist job
seekers develop their skills and match them to employment
opportunities, and a £78m, nine-year contract with the UK
Home Office to run the Derwentside Immigration Removal
Centre. In the UK, increases in the numbers of service users led
to us securing additional immigration accommodation work
that is expected to generate around £300m of revenue in
2024. We also successfully rebid our CMS contract where we
support eligibility determinations for citizens purchasing health
insurance through the Federal Health Insurance Exchanges.
The estimated total value to Serco, subject to workload
volumes, is approximately $690m (£570m) over its term of just
over four and a half years, if all option periods are exercised.
Other notable retained work in the year included our driver
examination services contract in Ontario, where we secured a
three-year extension worth an estimated £220m, an agreement
with the Australian Defence Force to continue to provide
logistics and a full suite of base services for their locations in
the Middle East, and our force protection work for the US Navy,
with the new five-year contract expected to be worth
approximately £160m.
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Group Review continued
Order book
The order book remains strong at £13.6bn at the end of
December (2022: £14.8bn). The reduction during the year
primarily reflected book-to-bill being slightly below 1.0x. Our
order book definition gives our assessment of the future
revenue expected to be recognised from the remaining
performance obligations on existing contractual arrangements.
This excludes unsigned extension periods, and the order book
would be £2.6bn (2022: £1.9bn) higher if option periods in our
US business, which typically tend to be exercised, were
included. If joint venture work was included this would add a
further £1.9bn (2022: £2.0bn) to our order book.
Rebids
In our portfolio of existing work, we have around 85 contracts
with annual revenue of £5m or more where an extension or
rebid will be required before the end of 2026, with an
aggregate annual revenue of £1.9bn. Contracts that will either
need to be rebid or extended in 2024 have an annual contract
value of around £0.7bn, including our immigration services
work in Australia, which is currently contracted until December
2024. The annual value of rebids is approximately £0.6bn in
both 2025 and in 2026.
New business pipeline
Our measure of pipeline includes only opportunities for new
business that have an estimated annual contract value (ACV) of
at least £10m and which we expect to bid and to be
adjudicated within a rolling 24-month timeframe. We cap the
total contract value (TCV) of individual opportunities at £1bn,
to lessen the impact of single large opportunities. The
definition does not include rebids and extension opportunities,
and in the case of framework, or call-off, contracts such as ‘ID/
IQ’ (Indefinite Delivery/Indefinite Quantity contracts), which are
common in the US, we only take the value of individual task
orders into our pipeline as the customer confirms them. Our
published pipeline is thus a small proportion of the total
universe of opportunities, as many opportunities have annual
revenues less than £10m, are likely to be decided beyond the
next 24 months or are rebids and extensions.
Our pipeline was £10.1bn at the end of December, 20% higher
than the £8.4bn level at the end of 2022, an increase of nearly
30% since the end of June 2023, and is now more than double
its pre-Covid level. The pipeline consists of around 45 bids with
an ACV averaging around £40m and an average contract
length of around six years. The pipeline of opportunities for
new business with an estimated ACV of less than £10m totalled
£2.6bn at the end of December, a 4% increase from the £2.5bn
value at the end of 2022.
Acquisitions
We continue to view acquisitions as an important part of our
strategic toolkit, which, if deployed correctly, can add significant
value to the business. They should therefore supplement and be
capable of delivering new opportunities for organic growth.
Generally speaking, we regard acquisitions as higher risk than
organic growth, so any potential opportunities have to meet our
stringent criteria of being both financially and strategically
compelling. We judge potential acquisitions against three
criteria: do they add new, or strengthen existing, capability? Do
they add scale which we can use to increase efficiency? Do they
bring us access to new and desirable customers and markets?
We also recognise that acquisition opportunities come in
different shapes, sizes and sectors, and a small one can be
strategically important to a region, but not necessarily
significant at Group level. But large or small, the execution of
all acquisitions is centrally managed by Group and follows the
same rigorous process. Equal focus and discipline is applied to
post-acquisition value drivers such as effective integration and
value realisation from synergy and growth.
We announced two acquisitions in 2023:
– In December we agreed to acquire European Homecare
(EHC), for consideration of €40m (£34m). EHC is a leading
private provider of immigration services in Germany. In
conjunction with ORS, the Swiss-based business we acquired
in 2022, this strategic acquisition will create a strong partner
for European governments in immigration services and
complement the support we already provide to government
customers in the UK and Australia. The acquisition has received
competition clearance and completed in March 2024.
– We agreed in December and completed in January 2024,
the acquisition of Climatize, for an initial cash consideration
of AED 9m (£2m) and a contingent consideration of up to
AED 51m (£11m), payable on achieving certain financial
targets. Climatize is a small but fast-growing business that
operates in the United Arab Emirates and Saudi Arabia
offering ‘zero-carbon’ advisory and related engineering
services. The business will significantly boost Serco’s
sustainability advisory capability in the Middle East with
possible scalability to other markets.
We continue to seek out and evaluate new opportunities for
acquisition which fit our criteria, and focus on delivering value
from those acquisitions already executed.
Our market
The market for private sector delivery of government services
is large and growing. Independent research has put low
estimates of Serco's addressable market at around £715bn.
Further growth is predicted as governments around the world
are facing ever more complex challenges.
We believe that the imperative to provide more, and better, for
less will become even more urgent in the years ahead. And to
deliver those objectives governments will need to access the
skills, resources, innovation and agility of a partnership
ecosystem. At the same time, the supply-side is fragmented
and even Serco, as a leading international provider, has only a
small market share. This gives us an opportunity to grow
within, as well as with, the market.
Serco Group plc | Annual Report and Accounts 2023 | 10
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Financial Statements
Group Review continued
Strategy
We embark on the next stage of Serco’s development from a
strong position; our foundations are solid and the strategy is
working as demonstrated by the results delivered over recent
years. Our focus in the period ahead is on the execution of our
strategy to make our business even better and achieve our
medium-term growth goal to grow revenue faster than the
market, profit faster than revenue and convert that profit into cash.
Last year we laid out three strategic enablers, Customers,
Colleagues and Capabilities, where we see opportunity to
create value by driving enhanced execution. We have made
good progress in 2023.
Customers
Our power to drive innovation and support customers from
service discovery through to delivery is underpinned by Serco’s
unique operating model, which features three components:
Impact Pathway, Partnership, and Global data and insights.
Impact Pathway factors in the perspectives of citizens,
communities, customers and operators – to inform service
innovation and deliver measurable improvement in outcomes.
Our highly collaborative approach to Partnership brings our
people together with government, along with network partners
– including start-ups, enterprise level technology companies,
academia and third sector organisations – to design and deliver
end-to-end solutions and learn collectively from our experience.
Finally, we draw on a global pool of data and insights, deep
domain knowledge, and global operating experience to inform
the design of solutions we know will work in the real world.
Bringing these together allows us to support our government
customers with solving some of the most complex problems
they face.
By way of example, we will continue to invest in our advisory-
to-operate business in Saudi Arabia, which has shown early
success and is focussed on supporting the country in its
development of sustainable future cities. With more than 100
advisory colleagues already active on the giga projects during
the planning and construction phases, we are working to build
the trust of our customers to make a long-term contribution to
delivery of the Kingdom’s Vision 2030.
Colleagues
During 2023, our People and Culture function was reorganised
to ensure that it is structured to confront the current and
emerging workforce challenges impacting government service
providers, while continuing our work to progress inclusivity,
equity and diversity. Health, safety, and well-being feature as
priorities in the development of a high-performance culture
and will remain central to strategic decisions that affect our
people including recruitment, development, digital inclusivity
and compensation.
In the past year we have made key appointments to give us a
stronger and more diverse executive team, and taken a data
driven approach to addressing People and Culture challenges
and opportunities. We have effectively resourced successful
mobilisation of key contracts such as the newly built HMP
Fosse Way, and pleasingly saw a reduction in employee
attrition which has created operational challenges for our
business in recent years. And we have proudly welcomed more
than two thousand new colleagues in our growing immigration
business in Europe.
As we press ahead, ongoing execution of our People and
Culture strategy is crucial to our long-term success. Continually
evolving our Employee Value Proposition from its purpose-led
and values-driven foundations to remain relevant, attractive,
and exciting is a key element to that execution.
Colleagues are, and have always been, at the heart of Serco.
Capabilities
We have begun to optimise existing IT platforms and align
investment to business and growth needs such as selectively
piloting AI systems, as outlined opposite. The appointment of a
Chief Data and Technology Officer to the Group’s Executive
Committee will be a critical enabler to the next stage of
developing and delivering our technology roadmap. As we
explore the positive impacts AI can have on our operations, we
are mindful that AI is also enabling an expanded cyber threat
landscape that requires adaptive risk and response
management, and continuous vigilance throughout the
business and into our supply chain. We will continue to invest
in technology pilots as well as strategic partnerships with
technology companies to drive productivity and open new
revenue opportunities.
Artificial intelligence pilot programs
Microsoft Partnership
In December 2023, we signed a strategic memorandum of
understanding with Microsoft UK to drive Serco’s digital
transformation, leverage opportunities for co-innovation and
joint business development. This includes a pilot project to use
Microsoft’s VisionAI products to automatically identify, classify,
and retrieve prisoner property – this will potentially improve
processing time as well as enable the identification of signs of
bullying and potential gang activity. Once this product has
been fully tested, Serco will aim to deploy it for similar use
cases in its prison and immigration estate globally. This is an
example of Serco partnering to impact a better future for our
government customers globally.
AutogenAI
Serco's first technology pilot in 2023 with AutogenAI (a UK-
based start-up) has already resulted in a global partnership
agreement. Initial tests, during the pilot, have shown up to a
very significant time saving when managing and collating
knowledge about Serco’s capabilities worldwide. If deployed
at scale, Serco believes the technology could produce
significant productivity improvements; increase global
collaboration; and lead to more innovative solutions for Serco’s
customers. Serco has already used AutogenAI's technology
over 6,000 times during the pilot phase in the UK & Europe
Division. It will now be deployed globally to support better
knowledge management across the Group.
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Financial Statements
Group Review continued
Guidance for 2024
Our guidance for 2024 is updated from our pre-close trading
statement on 14 December 2023, to reflect the strong cash
performance and share buyback announced on 29 February
2024. We expect revenue in 2024 to be slightly below 2023,
underlying operating profit to grow by around 5% and the
conversion of profit to cash to be consistent with our medium-
term target of at least 80%.
Revenue: We expect revenue to be around £4.8bn, slightly
below the £4.9bn outturn for 2023, with a 3% organic
contraction, a 2% contribution from acquisitions and a 1%
adverse impact of currency. Revenue is expected to be lower
organically due to our CMS contract now being in its new five-
year agreement, the annualisation of our previously
announced exit from certain low-margin contracts, and
contract mix change in immigration, as we support the UK
Government’s efforts to reduce the number of asylum seekers
being accommodated in hotels. These factors will be partially
offset by increased contribution from newer contracts ramping
up, new business and growth in the existing portfolio. EHC, the
leading provider of immigration services in Germany,
completed in March 2024 and is expected to contribute
revenue of around £100m.
Underlying operating profit: Underlying operating profit is
expected to grow by around 5% to £260m, including an
expected currency drag of £4m, with margins increasing by
around 30 basis points. The year will benefit from new
contracts ramping up, operational efficiency improvements
across the existing portfolio and a contribution from
acquisitions. We expect these to more than offset the
mobilisation costs on new work, lower immigration volumes in
the UK and Australia, and CMS operating in its new contract
term. Following our success in winning the Functional
Assessment Services and electronic monitoring contracts in the
UK in the fourth quarter, we expect around £13m of
mobilisation costs relating to these in 2024.
Net finance costs and tax: Net finance costs are expected to
be around £35m. This is more than 2023 due to higher interest
rates, increased volume of lease-related interest and acquisition
spend. The underlying effective tax rate is expected to be around
25%, although this is sensitive to the geographic mix of our profit
and any changes to current corporate tax rates.
Financial position: Free cash flow is again expected to be
strong at around £140m in the year, consistent with our
ongoing expectation of converting at least 80% of profit into
cash. This is below 2023, as this included the benefit of actions
taken to structurally improve our working capital. We expect
adjusted net debt to end the year at around £175m, including
the acquisitions of EHC and Climatize, and the £140m share
buyback announced on 29 February 2024.
2023
Actual
2024
Initial guidance
14 December
2023
New
guidance
Outlook for growth in the medium-term
Our medium-term targets remain unchanged. We expect to
grow revenue at an average of 4-6% a year. Our focus on
productivity and efficiency will help us increase our margins.
At least 80% of our operating profit will be converted into cash.
Notes to financial results summary table and highlights
(1 ) Refers to non-UK underlying operating profit as a proportion of Group
underlying operating profit before corporate costs. Our underlying operating
profit before corporate costs in 2023 was £298.0m.
(2) Revenue is as defined under IFRS, which excludes Serco’s share of revenue
of its joint ventures and associates. Organic revenue growth is the change at
constant currency after adjusting to exclude the impact of relevant
acquisitions or disposals. Change at constant currency is calculated by
translating non-sterling values for the year ended 31 December 2023 into
sterling at the average exchange rates for the prior year.
(3) Underlying operating profit is defined as IFRS Operating Profit excluding
amortisation of intangibles arising on acquisition and exceptional items (and
in the prior year other non-underlying items). Consistent with IFRS, it includes
Serco’s share of profit after interest and tax of its joint ventures and
associates. A reconciliation of underlying operating profit to reported
operating profit is as follows:
Year ended 31 December
£m
Underlying operating profit
Amortisation and impairment of
intangibles arising on acquisition
Exceptional operating items
Other non-underlying items
Reported operating profit
2023
248.7
(30.9)
53.8
—
271.6
2022
237.0
(21.6)
(2.4)
4.2
217.2
(4) Underlying EPS is derived from the underlying operating profit measure
after deducting pre-exceptional net finance costs and related tax effects.
(5) Free cash flow is the net cash flow from operating activities adjusted to
remove the impact of non-underlying cash flows from operating activities,
adding dividends we receive from joint ventures and associates and
deducting net interest, net capital expenditure on tangible and intangible
asset purchases and the purchase of own shares to satisfy share awards.
(6) Adjusted net debt is used by Serco as an additional non-IFRS Alternative
Performance Measure (APM). This measure more closely aligns with the covenant
measure for the Group’s financing facilities than reported net debt because it
excludes all lease liabilities including those recognised under IFRS 16 Leases.
(7) Reported net debt includes all lease liabilities, including those recognised
under IFRS 16 Leases. A reconciliation of adjusted net debt to reported net
debt is as follows:
As at 31 December
£m
Adjusted net debt
Include: all lease liabilities
Reported net debt
2023
108.7
453.7
562.4
2022
203.9
446.0
649.9
(8) The currency rates used for our 2024 outlook, along with their estimated
impact on revenue and underlying operating profit are:
Year ended 31 December
2024 outlook
2023 actual
Average FX rates
US Dollar
1.26
1.93
1.17
1.24
1.87
1.15
2022
actual
1.24
1.78
1.18
Revenue
£4.9bn
~£4.8bn
~£4.8bn
Australian Dollar
Organic sales growth
4%
~(3)%
~(3)%
Euro
Underlying operating profit
£249m
~£260m
~£260m
Net finance costs
Underlying effective tax rate
Free cash flow
Adjusted Net Debt
£25m
23%
£209m
£109m
~£33m
~25%
~£35m
~25%
~£140m
~£140m
~£85m
~£175m
NB: The guidance uses an average GBP:USD exchange rate of 1.26 in 2024,
GBP:AUD of 1.93 and GBP:EUR of 1.17(8). We expect a weighted average number
of shares in 2024 of 1,065m for basic EPS and 1,085m for diluted EPS.
Year-on-year impact
Revenue
Underlying operating profit
£(48)m
£(4)m
£(33)m
£(0)m
£175m
£14m
Reconciliations and further detail of financial performance are included in the
Finance Review on pages 76 to 87. This includes full definitions and
explanations of the purpose and usefulness of each non-IFRS Alternative
Performance Measure (APM) used by the Group.
Serco Group plc | Annual Report and Accounts 2023 | 12
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Financial Statements
Divisional Reviews
Serco’s operations are reported as four regional divisions: North America; UK & Europe (UK&E); the Asia Pacific region; and the
Middle East. Reflecting statutory reporting requirements, Serco’s share of revenue from its joint ventures and associates is not
included in revenue, while Serco’s share of joint ventures and associates’ profit after interest and tax is included in underlying
operating profit.
Year ended 31 December 2023
£m
North
America
UK&E
Asia Pacific
Revenue
Change
Change at constant currency
Organic change at constant currency
Underlying operating profit / (loss)
Margin
Change
1,362.8
2,439.5
+7 %
+8 %
+8 %
138.2
10.1 %
+1 %
+16 %
+16 %
+7 %
120.8
5.0 %
+68 %
845.1
(11) %
(7) %
(7) %
23.7
2.8 %
(58) %
Amortisation of intangibles arising on
acquisition
Exceptional operating items
Other non-underlying items
(16.0)
(3.4)
(11.5)
—
—
9.9
—
—
—
Middle
East
226.4
+8 %
+9 %
+9 %
15.3
6.8 %
(4) %
—
—
—
Reported operating profit / (loss)
122.2
127.3
12.2
15.3
Corporate
costs
Total
—
4,873.8
+7 %
+8 %
+4 %
248.7
5.1 %
+5 %
(49.3)
(1.0) %
+11 %
—
(30.9)
43.9
—
(5.4)
53.8
0.0
271.6
Year ended 31 December 2022
£m
Revenue
North
America
1,269.8
UK&E
Asia Pacific
2,100.2
954.6
Middle
East
209.4
Corporate
costs
Total
—
4,534.0
Underlying operating profit / (loss)
Margin
136.6
10.8 %
72.1
3.4 %
Amortisation of intangibles arising on
acquisition
Exceptional operating items
Other non-underlying items
Reported operating profit / (loss)
(16.5)
(1.2)
0.1
119.0
(1.5)
(1.2)
4.1
73.5
56.9
6.0 %
(3.6)
—
—
16.0
7.6 %
(44.6)
(1.0) %
237.0
5.2 %
—
—
—
—
—
—
(21.6)
(2.4)
4.2
217.2
53.3
16.0
(44.6)
The trading performance and outlook for each Division are described on the following pages. Reconciliations and further detail of
financial performance are included in the Finance Review on pages 76 to 87. This includes full definitions and explanations of the
purpose of each non-IFRS Alternative Performance Measure (APM) used by the Group. The Consolidated Financial Statements and
accompanying notes are on pages 155 to 219. Included in note 2 to the Group’s Consolidated Financial Statements are the Group’s
policies on recognising revenue across the various revenue streams associated with the diverse range of goods and services
discussed within the Divisional Reviews. The various revenue recognition policies are applied to each individual circumstance as
relevant, taking into account the nature of the Group’s obligations under the contract with the customer and the method of
delivering value to the customer in line with the terms of the contract.
Corporate costs
Corporate costs relate to typical central function costs of running the Group, including executive, governance and support functions
such as HR, finance and IT. Where appropriate, these costs are stated after allocation of recharges to operating divisions. The costs
of Group-wide programmes and initiatives are also incurred centrally. Underlying corporate costs increased by £4.7m to £49.3m
(2022: £44.6m). The higher level in 2023 was primarily related to an increase in audit fees and the transition of Group Chief
Executive, as Rupert Soames, who stepped down as Group Chief Executive on 31 December 2022, acted as a strategic adviser to
the Group in 2023 until his retirement in September 2023.
Serco Group plc | Annual Report and Accounts 2023 | 13
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Financial Statements
Divisional Reviews – North America continued
Working at Serco gives me the
opportunity to work on many
important programmes, whether
in support of our national defence
or in support of individual citizens.
For me, impact means that we get
to be part of something bigger
than ourselves and to work on
really important, meaningful
programmes that have an impact
on our citizens and our nations.
Tom Watson
Chief Executive Officer, Serco North America
Revenue
28%
2022: 28%
Underlying operating profit
46%
2022: 49%
Sectors we operate in:
Defence
Transport
Citizen Services
Year ended 31 December
£m
Revenue
Organic change
Acquisitions
Currency
2023
2022
Growth
1,362.8
1,269.8
7 %
8 %
— %
(1) %
(1) %
3%
11%
Underlying operating profit
138.2
136.6
1 %
Organic change
Acquisitions
Currency
Margin
1 %
— %
— %
6%
— %
11%
10.1 % 10.8 % (62)bps
Revenue grew by 7% to £1,363m (2022: £1,270m), with
organic growth of 8% and a 1% adverse translational effect of
currency. The two main sectors for our North America business
are Defence and Citizen Services, and both saw growth in the
period. Our Defence business delivered organic revenue
growth of 8% as the high level of new work secured in 2022
ramped up. Citizen Services also showed good progress with
7% organic revenue growth, driven by higher demand for our
case management services and the start of our new
employment services work in Canada. These contracts with the
Government of Ontario were secured by leveraging the work
we do in the UK for the Department of Work and Pensions.
Underlying operating profit grew by 1% in the year to £138m
(2022: £137m). Currency had a negligible impact, meaning
underlying operating profit on a constant currency basis also
grew by1%. The profit outcome was lower than revenue as
good performance in case management was more than offset
by new contracts being in a lower margin, mobilisation stage,
and some defence IT management work transitioning from its
more profitable installation phase to sustainment operations.
Margins reduced from 10.8% to 10.1% as a result.
Order intake was strong at £2.1bn, around 45% of the total for
the Group and a book-to-bill ratio of 1.5x. Of this, new business
wins were around 25% of the order intake, continuing the
strong momentum of 2022. The largest single new business
win was in Canada. Following on from our success in 2022, we
were again selected by the Government of Ontario to support
part of their Employment Services Transformation program,
which will help unemployed people back into work.
Serco Group plc | Annual Report and Accounts 2023 | 14
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Financial Statements
Divisional Reviews – North America continued
The contract signed this year is expected to be worth around
£140m over five years. It was an active period for rebids and
extensions, and we were pleased to achieve a win rate of
around 95% on these, above our usual 80-90% range. This
included the successful rebid of our Centers for Medicare &
Medicaid Services (CMS) work, which sees us continue to
support eligibility determinations for citizens purchasing health
insurance through the Federal Health Insurance Exchanges.
The new contract started on 1 July 2023 and has an estimated
total value to Serco, subject to workload volumes, of
approximately $690m (£570m), if all option periods are
exercised over its term of just over four and a half years. Other
notable retained work in the year included our driver
examination services contract in Ontario, where we secured a
three-year extension worth an estimated £220m and our force
protection work for the US Navy, with the new five-year
contract expected to be worth approximately £160m.
The pipeline of major new bid opportunities due for decision
within the next 24 months in North America has increased from
£2.5bn at the end of 2022 to £3.2bn at the end of 2023. It is
pleasing to see the pipeline at such a healthy level given the
high order intake in both 2022 and 2023. North America
represents approximately 35% of the total Group pipeline.
Defence makes up the largest proportion of the North
American pipeline, with a broad spread of types of work. There
are also significant opportunities in Citizen Services, where we
have been actively seeking to grow.
Serco Group plc | Annual Report and Accounts 2023 | 15
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Financial Statements
Divisional Reviews – UK & Europe continued
Impact means doing the right
thing all of the time because it's
the right thing to do. Whether it's
positively impacting our
colleagues safety and well-being,
the planet that we have the
privilege of living on; or a positive
outcome for citizens we deliver
services to - any of these drives
me to do the right thing for our
customers, communities and our
colleagues - everyday everywhere.
Anthony Kirby
Chief Executive Officer, Serco UK & Europe
Revenue
50%
2022: 46%
Underlying operating profit
41%
2022: 26%
Sectors we operate in:
Defence
Justice & Immigration
Transport
Health & other
Facilities Management
Citizen Services
Year ended 31 December
£m
Revenue
Organic change
Acquisitions
Currency
Underlying operating profit
Organic change
Acquisitions
Currency
Margin
2023
2022
Growth
2,439.5
2,100.2
16 %
7 %
8 %
1 %
120.8
55 %
12 %
1 %
(5) %
3 %
— %
72.1
(27) %
2 %
— %
68 %
5.0 %
3.4 % 152bps
Revenue increased by 16% to £2,440 (2022: £2,100m), with 7%
organic growth, an 8% contribution from acquisitions and a 1%
favourable translational effect of currency. ORS, the business
we acquired in September 2022 to enter the European
immigration services market, traded ahead of expectations
with robust underlying demand due to global migration
patterns. Covid-related work, which fully concluded in the first
half of 2022, was a drag of £79m, or 4%. This was more than
offset by strong growth for our immigration services in both
the UK and Europe, and good growth in our defence and
justice businesses. We exclude the revenue from our joint
ventures, however, our VIVO Defence Services work for the
Defence Infrastructure Organisation, which when won in 2021
included one of the largest contracts ever secured by Serco,
continued to ramp up. Were revenue from our joint ventures to
be included, it would add a further 10% to organic revenue
growth, as our VIVO work experienced robust demand.
Underlying operating profit increased by 68% to £121m (2022:
£72m). Strong demand for immigration services, the ramp up
of contracts signed in prior years, improved performance
across a range of existing contracts and the ORS acquisition
more than offset the drag from Covid-related work. The year
also benefitted from a £6m one-off settlement of a dispute on a
contract. The margin increased by around 150bps to 5.0%
(2022: 3.4%) because of these factors.
Serco Group plc | Annual Report and Accounts 2023 | 16
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Financial Statements
Divisional Reviews – UK & Europe continued
Underlying operating profit includes the profit contribution of
joint ventures and associates, from which interest and tax have
already been deducted. If the proportional share of revenue
from joint ventures and associates was included and the share
of interest and tax cost was excluded, the overall divisional
margin would have been 4.5% (2022: 3.2%). The joint venture
and associate profit contribution increased to £29m (2022:
£12m) due to our VIVO work continuing to ramp up, Merseyrail
seeing improved performance and the one-off settlement
mentioned above being included.
Order intake was around £1.9bn, a book-to-bill ratio of 0.8x
and around 40% of the total intake for the Group. The low
book-to-bill reflected 2023 being relatively quiet in terms of
rebids and contract award decisions for new work. Our win
rates, having dipped in the second half of 2022, rebounded in
2023. New business represented nearly 60% of the order
intake and our win rate on new work was around 60%. Our win
rate by value on rebids and extensions was more than 95%.
Agreements signed included a £350m five-year contract to
deliver functional health assessments in the south-west of
England for the Department of Work and Pensions to
determine disability benefits, a contract to deliver electronic
monitoring services in England and Wales that is expected to
be worth £200m over its initial six-year term, and a contract
with the UK Home Office to run the Derwentside Immigration
Removal Centre. The new contract has an estimated value of
around £80m over the initial nine-year term. Also in the Justice
& Immigration sector, increases in the numbers of service users
led to us securing additional immigration accommodation work
that is expected to generate around £300m of revenue in 2024.
The pipeline of new opportunities in the UK & Europe
increased by around 30% to £4.8bn (December 2022: £3.7bn),
with significant new opportunities across Justice &
Immigration, Defence and Citizen Services.
Serco Group plc | Annual Report and Accounts 2023 | 17
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Financial Statements
Divisional Reviews – Asia Pacific
Impact is about generating,
shaping and delivering services
and activities that make a
difference. What we do is bigger
than the individual or oneself.
Andrew Head
Chief Executive Officer, Serco Asia Pacific
Revenue
17%
2022: 21%
Underlying operating profit
8%
2022: 20%
Sectors we operate in:
Defence
Justice & Immigration
Transport
Health & other
Facilities Management
Citizen Services
Asia Pacific
Year ended 31 December
£m
Revenue
Organic change
Acquisitions
Currency
Underlying operating profit
Organic change
Acquisitions
Currency
Margin
2023
2022
Growth
845.1
954.6
(11) %
(7) %
— %
(4) %
23.7
(56) %
— %
(2) %
— %
2 %
3 %
56.9
13 %
(6) %
4 %
(58) %
2.8 %
6.0 % (316)bps
Our Asia Pacific business had a difficult year. Volume-variable
work, which as part of a portfolio we expect to ebb and flow,
reduced in the period, tight labour markets created
operational challenges and new business wins did not meet
our expectations. We have appointed a new CEO for the
business, Andrew Head, identified actions and designed what
we believe to be an achievable plan to ensure the business is
well positioned for the opportunities we expect in the coming
years. Asia Pacific remains an important market for Serco.
Revenue reduced by 11% to £845m (2022: £955m). The
business contracted by 7% organically and adverse currency
moves had a 4% impact.
Revenue fell because of lower volume-variable work in parts of
the immigration network, reduced work in facilities
management and a combination of tight labour markets and
some lost work in the Citizen Services sector.
Underlying operating profit reduced by 58% to £24m (2022:
£57m), representing a margin of 2.8% (2022: 6.0%). Profit fell
more than revenue due to a negative mix impact from the
lower immigration volumes, some initial stranded costs on lost
contracts and labour market disruption making it difficult to
recruit enough people to meet customer headcount targets.
Order intake was £0.3bn, continuing a recent record of low win
rates on new work. Our investor pipeline for new business
currently stands at £1.3bn in the year. Defence makes up
around 90% of the pipeline with opportunities also in the
transport and health sectors.
Our immigration services work in Australia, which is contracted
until December 2024, and one of the largest contracts in the
Group, is currently in a competitive rebid process. Serco has
been providing immigration services as a partner to the
Australian Government since October 2009, with our work
having been successfully rebid and extended over this period.
Our performance levels have been high on the current contract
and we believe we have submitted a compelling bid. The final
outcome of the tender process is expected before the end of
the third quarter of 2024.
Serco Group plc | Annual Report and Accounts 2023 | 18
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Financial Statements
Divisional Reviews – Middle East
Impact is about making a
difference and to me where I see
that the most is when I visit our
contracts. Our teams on the
ground are making the biggest
difference to our customers in the
Middle East and bringing the
national visions to life.
Phil Malem
Chief Executive Officer, Serco Middle East
Revenue
5%
2022: 5%
Underlying operating profit
5%
2022: 6%
Sectors we operate in:
Defence
Transport
Health & other
Facilities Management
Citizen Services
Middle East
Year ended 31 December
£m
Revenue
Organic change
Acquisitions
Currency
Underlying operating profit
Organic change
Acquisitions
Currency
Margin
2023
226.4
9 %
— %
(1) %
15.3
(2) %
— %
(2) %
2022
Growth
8 %
(4) %
209.4
(28) %
— %
8 %
16.0
8 %
— %
9 %
6.8 %
7.6 % (88)bps
Revenue grew by 8% to £226m (2022: £209m). The business
grew by 9% organically and currency moves had a 1% adverse
impact. Organic growth was driven by the Citizen Services
sector, where our new advisory business unit is gaining
traction. Underlying operating profit reduced to £15m (2022:
£16m). Profit was negatively impacted by stopping services
with a customer where we had debtor collection issues and by
costs on some health and facilities management work we
exited. These more than offset the higher margins being
achieved on our advisory work. Margins decreased from 7.6%
to 6.8% as a result. Order intake was around £0.3bn, or 7% of
the total for the Group and a book-to-bill ratio of 1.5x. Around
60% of the order intake was new business.
The largest win was a contract to provide Fire Rescue,
Emergency and Ambulatory Services in the NEOM economic
zone in Saudi Arabia, which is estimated to be worth around
£50m over eight years, and we also won a £40m, five-year,
contract with Red Sea Global to act as the managing agent for
their full suite of sustainable mobility services across Saudi
Arabia’s visionary new tourism destination. In addition, we
secured a three-year contract worth approximately £30m to
provide Customer Experience services within Terminal A of the
newly opened Zayed International Airport in Abu Dhabi. Since
the end of our contract to run the Dubai Metro, our Middle East
business has been exploring new potential areas of demand
and has invested in developing an advisory business in the
region. The year saw this begin to pay off with several
agreements being secured to advise customers in the region
as they embark on ambitious new multi-year projects.
We were successful on all our key rebids in the period,
including renewing our agreement with the Australian Defence
Force to continue to provide logistics and a full suite of base
services for their locations in the Middle East, which has an
estimated value of approaching £60m over three years. We
also secured a three-year extension to our contract for the
delivery of integrated facilities and support services at the
United Arab Emirates University in Al Ain, which is expected to
be worth around £50m.
Our pipeline of major new bid opportunities in the Middle East
totals around £0.8bn and includes increasing opportunities in
Defence and potential work in the Citizen Service sector.
Serco Group plc | Annual Report and Accounts 2023 | 19
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Financial Statements
Our Market
Current trends
A large, growing market with high barriers to entry
From technology transformation to continuing conflicts, 2023
has been another year of significant global change. However,
the fundamental features of our business-to-government (B2G)
markets remain the same: large and growing with high barriers
to entry for private providers.
Large
Serco commissioned independent research in 2021 which
estimated our addressable market at around £715bn1. Our B2G
focus gives us a defined market in which we are confident that
there are significant opportunities for us to pursue and grow.
Serco is in the majority of ‘high-spending’ countries - of the 16
countries that make up 77% of procurement spending globally2,
Serco operates in nine – and with an estimated market share in
our existing segments of approximately 1-3%1, the pipeline of
opportunity is significant.
Growing
Macro-trends continue to point towards market growth – the
Organisation for Economic Co-operation and Development
(OECD) described increases in public procurement expenditure
as a share of gross domestic product (GDP) as “significant” over
the last decade or so, with their latest numbers showing it
accounting for 11.8% in 2007 to 12.9% of GDP in 2021 across
OECD countries3.
High barriers to entry
Providing government services to citizens, funded by taxpayers,
is tangibly different, and in many ways more demanding, than
providing services to the private sector or consumers.
Responsibility for public service delivery requires careful
management of politics and the expectations of communities.
Alongside reputational risk, transparency, public procurement
regulations, financial reporting standards, information standards,
and other requirements also tend to be far more complex than
those generally seen in the private sector.
The Four Forces model
Supplying governments requires unique skills and imposes
significant cost and complexity. The combination of these market
characteristics has the effect of creating barriers to entry that are
not apparent at first glance.
Our ingrained public service ethos, as exemplified in our
purpose – ‘to impact a better future’ - means we can help deliver
government services efficiently, but in a way that recognises the
need for public accountability and trust.
The Four Forces model
We have a well-established model which describes the drivers of
demand for our services - the ‘Four Forces’ - which continues to
be relevant and indeed is amplified by recent market forces and
world events.
1. Growing costs: there are growing costs for governments due
to ageing populations and infrastructure.
2. Need to balance: governments continue to need to balance
public income and expenditure as well as reduce debt.
3. Voter intolerance: there is a voter intolerance for higher taxation.
4. Rising expectations: citizens globally have rising
expectations as regards public service quality.
These forces continue to drive fierce pressure on governments
globally to deliver more and better, for less - irrespective of
their ideologies.
Despite significant shifts in our wider operating environment as
a result of technology, conflict and a range of other factors, the
fundamental forces that shape our market remain relevant.
This offers opportunity for Serco to continue to grow with our
unique focus on supporting governments globally as their
partner of choice, enabling us to outperform the competition
in our chosen markets.
1. Market research by Renaissance Strategic Advisors and Oxford Economics commissioned by Serco, as cited in our Capital Markets Day 2021 presentation.
2. How governments spend: Opening up the value of global public procurement. Open Contracting Partnership, 2020.
3.
‘Size of public procurement’. Government at a Glance 2023. OECD, 2023.
Serco Group plc | Annual Report and Accounts 2023 | 20
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Financial Statements
Independent research estimates Serco's addressable
market at around £715 billion1
The Serco Institute’s research, conducted by
independent economists, shows savings of 5-15%
for outsourced services with quality maintained
or improved4
Global public debt at a historic high of US$92
trillion in 20226
Global defence spending reached historic high and
continuing to grow7
Our Market continued
Forward-look: five global themes
for the future
1. Increased cost of public sector debt
The increased cost of public sector debt and significant labour
market pressures have coloured the macroeconomic
environment over the past 12 months. Globally, the outlook is
improving; nonetheless, public sector debt remains at or near
historic highs and administrations continue to face challenges as
they look to balance their books. This drives opportunity for the
private sector to partner with governments to offer ‘more and
better for less’4.
2. Political change
Countries accounting for over 50% of global GDP will hold
significant elections in the next 12 months5 – including the US
Presidential, EU Parliamentary and UK general elections.
Regardless of electoral outcomes, the value of partnering
with the private sector to manage economic pressures, deliver
specialist services and leverage unique expertise, will remain
a key tool for governments.
3. Geopolitics
We equally expect to see continued geopolitical issues, such as
the conflicts in Ukraine and Israel-Gaza, driving increased
government defence spending over the medium term, and over
that period support services for defence, rather than simply
equipment procurement, will likely see increased demand.
Geopolitical uncertainty, amongst other complex factors, is also
expected to influence global migration patterns.
4. Beyond price and capability
Customers globally have also shown a greater focus on matters
beyond price and capability when developing and awarding bids.
Although ESG is a well-established concept, its incorporation into
government procurement has been varied in both pace and
content. However, in all our markets we are seeing it becoming
more formalised and growing in significance in one way or another.
Perhaps the most comprehensive set of ESG procurement
requirements is the Social Value regime in the UK, but equally
we are seeing the increased inclusion of environmental matters
in North American contracts, Indigenous procurement targets in
Australia, and training and employment of Saudi nationals within
the Kingdom of Saudi Arabia. As governments look to leverage
procurement to meet wider environmental and social aims, the
lowest price that is technically acceptable is often just one factor
amongst many when it comes to bids. These developments align
with our commitment to partner for impact.
5. Technology-enabled services
The growing interest in technological development including AI
has driven citizen expectation for technology-enabled public
services as well as a drive for governments to review how
technological advancements can support them in managing the
challenges they face. Governments will look to private providers
to support them with their technology deficits and to understand
how to implement new technologies. Both these factors will
drive growth for the private provider market for public services.
Overall, we believe our strong customer relationships; refined
operating model; robust financial and risk management
approach; and refreshed strategy will see us continue to deliver
a strong performance and meet the demands of the market.
4. Delivering Better Services for the Public: How competition and choice can improve public service delivery in the UK. Serco Institute, 2021.
5.
6.
7.
‘Eight Key Elections to Watch in 2024.’ Brunswick Group, 2023.
‘UN warns of soaring global public debt: a record $92 trillion in 2022.’ United Nations, 2023.
‘World military expenditure reaches new record high as European spending surges.’ Stockholm International Peace Research Institute, 2023.
Serco Group plc | Annual Report and Accounts 2023 | 21
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Our Strategy
Aligning behind
our purpose
Impact for me is about delivering
positive change. It’s how we help
and support our customers to
solve some of toughest
challenges that societies face.
Ruth McGowan
Group Chief Strategy and Growth Officer
This creates the platform from which we will continue to deliver
sustainable and profitable growth and create value for all
our stakeholders.
The core principles of our strategy
have served us well and we will
build on those solid foundations.
We remain focused on B2G services and organised by
geographic Division, allowing us to respond and adapt to the
specific as well as localised needs of the governments that we
serve. Furthermore, our strategic enablers (explored on pages
24 and 25) of customers, colleagues and capabilities continues
to drive focus on how and where we add most value.
Fundamentally, we are building from a strong base with a diverse,
adaptable and resilient portfolio. However, we must continue to
innovate to stay ahead as our operating environment evolves.
This starts with a focus on delivering what matters most to the
customers and citizens we serve. To this end, we have reframed
our strategy, starting with a refreshed Purpose, Vision and
Mission - creating clarity and direction for the whole business.
We are putting our Purpose - to impact a better future - front and
centre. Aligned to this is our refreshed Vision, which defines ‘what’
we are aiming for, and Mission, the ‘how’ we will get there.
Serco Group plc | Annual Report and Accounts 2023 | 22
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Financial Statements
Our Strategy continued
Three goals for the medium term
Our purpose, vision and mission cascade into three medium-
term goals:
Driving delivery
A plan is nothing without execution. This is why we will have a
focus on measuring what matters to drive the delivery of our
strategy. In the short term, this means a renewed focus on six
priority areas which we have identified as the most significant
when it comes to driving value:
These three goals clearly define medium-term ambitions we
believe are stretching but achievable.
The two financial targets will be familiar to stakeholders who
will have seen them in our previous Annual Reports and our
2021 Capital Markets Day; however, we have promoted a
third goal, to drive even more focus on our customers and
their needs.
Underpinning organic growth with strategic M&A
We continue to see M&A as a means to augment our organic
growth, but we remain disciplined and cautious in our approach.
More than £490m of capital has been deployed on acquisitions
between 2018 and 2023, over £395m of which was allocated to the
North American defence market - one of our highest strategic
priorities in a large and liquid market. Most recently, we have
undertaken a number of bolt-on acquisitions in Europe to build
scale and capability.
Transaction
BTP
Date
Region
Sector
Feb 2018
Defence
Carillion Health (Salus)
Jun 2018
Health FM
NSBU
(METS & SCM)
Aug 2019
Defence
FFA
WBB
Clemaco
Sapienza
ORS
Jan 2021
Apr 2021
Jul 2021
Jul 2022
FM
Defence
Defence
Space
Sept 2022
Immigration
This simplified framework gives us Group-wide alignment to
mobilise our execution efforts as well as clarity and unity. A
foundation from which we can work together as a truly global
business, ensuring that we benefit from collaboration and the
sharing of best practice throughout our geographies.
Our approach to M&A will continue to focus on targeted,
strategic acquisitions underpinned by one or more of three
well-established criteria:
– Capability – enhance or add to our offering
– Market Access – reach into new geographies,
sectors or customers
– Scale – create economies of scale
These three criteria act as effective guard-rails to our
overarching approach to M&A, which is of course also
informed by our wider strategy as well as the market
conditions and available assets.
Note: as part of Serco’s 2023 pre-close trading statement, it was confirmed
that we had agreed to purchase European Homecare Group, a leading private
provider of immigration services in Germany, and Climatize, a small but fast-
growing business that operates in the United Arab Emirates and the Kingdom
of Saudi Arabia offering ‘zero-carbon’ advisory and related engineering
services. Both of these acquisitions will be formally concluded in 2024 and are
therefore not included in the above.
Serco Group plc | Annual Report and Accounts 2023 | 23
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Financial Statements
Our Strategy continued
Our Progress
A focus on Customers, Colleagues and Capabilities.
1. Customers
We are working on building stronger and broader
relationships with our customers, allowing us to be involved
earlier and at all stages of their response from discovery
through to design and delivery. We are currently piloting a
new method for supporting governments with solving complex
policy challenges through our ‘Impact Pathway’ which we are
planning to expand from the UK to other regions in 2024.
Our unique methodology, Impact Pathway, embraces human
centred design and systems thinking – factoring in the
perspectives of citizens, communities, operators and
customers – to inform service innovation, optimise efficiency,
shape the service experience, and drive more effective results.
This allows us to support our government customers with
solving some of the most complex policy problems that they
face and draws on Serco’s convening power to bring diverse
perspectives into the solution co-creation process with various
partners from industry, academia, and the voluntary sectors.
We continue to build on the early success of our advisory
business, particularly in the Kingdom of Saudi Arabia, which is
focused on supporting the country in its development of
sustainable future cities. With more than 100 advisory
colleagues already active on the giga projects during the
planning and construction phases, we are working to build the
trust of our customers to contribute to delivery of the
Kingdom’s Vision 2030.
Case Study – Mumuration
In December 2023, we piloted
Mumuration’s (a French start-up) space-
enabled environmental monitoring
dashboard for the Abu Dhabi and Al Jubail
regions in the UAE and Kingdom of Saudi
Arabia respectively. The dashboards were
presented by Serco at COP28 in Dubai -
showcasing Serco’s growing capability in
environmental and sustainability
advisory in the region.
Serco Group plc | Annual Report and Accounts 2023 | 24
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Corporate Governance
Financial Statements
Our Strategy continued
2. Colleagues
3. Capabilities
We continue to evolve our employee value proposition, which
is purpose-led, values-driven and underpinned by a genuine
commitment to diversity, equity and inclusion. In 2023, we saw a
reduction in employee attrition. Elevated attrition has created
operational challenges for our business in recent years and, while
reducing it further is a key focus, it was pleasing to see it moving
in the right direction. We are also constantly exploring new and
better ways to assure the physical and mental health and well-
being of our colleagues. Although there was an improvement in
safety outcomes for serious incidents in 2023, we are working
hard on to improve our Lost Time Incident Frequency Rate, which
is a key measure of management performance.
We have begun to optimise existing IT platforms as well as
selectively piloting AI systems to enhance productivity. As we
explore the positive impacts AI can have on our operations, we
are mindful that AI is also enabling an expanded cyber threat
landscape that requires adaptive risk and response management;
and continuous vigilance throughout the business and into our
supply chain. We will continue to invest in technology pilots as well
as strategic partnerships with technology companies to drive
productivity and open up new revenue opportunities.
Case Study – Synthesia
Case Study – AutogenAI
In July 2023, we launched a one-year
global pilot with the platform
Synthesia, using its text-to-video AI
generation technology to create
internal communications and training
videos. This has included creating a
custom Synthesia avatar of Serco's
Group Chief Executive, Mark Irwin, for
use in internal communications and
converting text-based training content
into more engaging visuals. We have
already created 780 videos using the tool.
Serco's first technology pilot in 2023 with
AutogenAI (a UK-based start-up) has
already resulted in a global partnership
agreement. Initial tests during the pilot
have shown significant time savings when
managing and collating knowledge about
Serco’s capabilities worldwide. If deployed
at scale, Serco believes the technology
could produce significant productivity
improvements; increase global
collaboration; and lead to more innovative
solutions for Serco’s customers. Serco has
already used AutogenAI's technology over
6,000 times during the pilot phase in the
UK & Europe Division. It will now be
deployed globally to support better
knowledge management across the Group.
Serco Group plc | Annual Report and Accounts 2023 | 25
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Corporate Governance
Financial Statements
Key Performance Indicators
We use key performance indicators (KPIs) to monitor
our performance, ensuring that we have a balance and
an appropriate emphasis to both financial and
non-financial aspects.
In recent years, we have also evolved and improved our management information,
including the contract performance monitoring process which tracks KPIs specific to
each customer operation, our monthly management accounts and our Divisional
Performance Review (DPR) processes.
For each KPI, we explain the relevance to our strategy and the performance in 2023. As part of simplifying our profit measures, we
renamed Underlying Trading Profit (UTP) to Underlying Operating Profit (UOP). This is explained in more detail in the Finance
Review. All other KPIs are unchanged and therefore there is comparability and consistency with our focus in the business and the
guidance we issue. The Finance Review provides further detailed definitions and reconciliations of our use of Alternative
Performance Measures (APMs). Information on our carbon emissions that was presented in this section in previous years can be
found within the Our Impact section on pages 49 to 69. ESG performance and disclosure data can also be found on those pages,
as well as in our complete 2023 ESG Databook available on www.serco.com/our-impact. Definitions for each KPI can be found in the
Glossary on page 229.
1. Underlying operating profit (UOP)
2. Underlying earnings per share
(EPS), diluted
3. Free cash flow (FCF)
4. Underlying return on invested
capital (ROIC)
Relevance to strategy
The level of absolute UOP and the
relationship of UOP with revenue – i.e. the
margin we earn on what our customers
pay us – is at the heart of our aspiration to
be profitable and sustainable. We believe
the delivery of strategic success has
potential to support annual revenue
growth of 4-6%, in the medium term, and
trading margins of 5-6%.
Performance
Underlying operating profit increased by
5% to £249m. Ongoing demand for
immigration services in the UK and
Europe, operational improvement in our
existing portfolio, as well as the successful
ramp-up of new business signed in prior
years, more than offset a 7% impact from
Covid-related work as well as lower
volumes in Asia Pacific.
Relevance to strategy
EPS builds on the relevance of UOP, and
further reflects the achievement of being
profitable and sustainable by taking into
account not just our ability to grow
revenue and margin but also the strength
and costs of our financial funding and tax
arrangements. EPS is therefore a measure
of financial return for our shareholders.
Performance
Diluted underlying earnings per share
increased by 10% to 15.4p. The
percentage improvement was higher than
the increase in underlying operating profit
as a 7% reduction in the weighted
average number of shares, due to our
share buybacks in 2022 and 2023, more
than offset higher net finance costs.
Relevance to strategy
FCF is a reflection of the sustainability of
the business, by showing how much of
our effort turns into cash to reinvest back
into the business or to deploy in other
ways. Our philosophy is we should only
win business that generates appropriate
cash returns, and ‘executing well’ includes
appropriate management of our working
capital cash flow cycles.
Relevance to strategy
ROIC measures how efficiently the Group
uses its capital to generate returns from its
assets. To be a sufficiently profitable and
sustainable business, a return must be
achieved that is appropriately above a
cost of capital hurdle reflective of the
typical returns required by our weighting
of equity and debt capital.
Performance
Free cash flow was very strong at £209m,
representing a trading cash conversion of
111%. This has been achieved by an
increased focus on the timeliness and
accuracy of issuing sales invoices, which
enables our customers to pay us on time.
Performance
ROIC increased by 80 basis points to
21.4%. The improvement reflected the
increase in underlying operating profit,
and only a relatively small increase in the
average invested capital.
Serco Group plc | Annual Report and Accounts 2023 | 26
£249m£237m£229m£163m£120m2023202220212020201915.4p13.9p12.6p8.4p6.2p20232022202120202019£209m£159m£190m£135m£62m2023202220212020201921.4%20.6%23.7%19.1%15.4%20232022202120202019 Strategic Report
Corporate Governance
Financial Statements
Key Performance Indicators continued
Relevance to strategy
The pipeline provides a key area of
potential for winning good business and
therefore is a major input to being
profitable and sustainable. The size of the
pipeline and our win-rate on the bids
within it are at the heart of our strategy to
grow the business.
Performance
Our pipeline was £10.1bn at the end of
December, 20% higher than the £8.4bn
level at the end of 2022 and more than
double its pre-Covid level. The pipeline
consists of around 45 bids with an ACV
averaging around £40m and an average
contract length of around six years.
Relevance to strategy
The order book reflects progress with
winning good business, including
retaining existing work and as a store of
future value, it is a key measure to ensure
the Group is profitable and sustainable.
The value of how much is added to the
order book compared to how much
revenue we are billing our customers – the
book-to-bill ratio – is key to achieving
long-term growth.
Relevance to strategy
Our vision of Zero Harm recognises
executing brilliantly and includes striving
to operate in the safest and healthiest way
possible at all times. A positive,
collaborative and open approach to safety
and the continuous drive to improve our
safety culture has a direct bearing on the
commitment and engagement of our
people and our overall performance.
Performance
The order book remains high at £13.6bn
at the end of December. The reduction
during the year primarily reflected book-
to-bill being slightly below 100%. This
amount excludes unsigned extension
periods. Were we to include option
periods in our US business, which typically
tend to be exercised, the order book
would be £2.6bn (2022: £1.9bn) higher.
Performance
Following a focus on reducing major
injuries through 2023, especially those
relating to violence and aggression, and
associated with road risk, we saw a 24%
decrease in incidents compared to 2022
and our 12-month MIFR of 0.35 was a
19% improvement.
Relevance to strategy
Building on MIFR, focusing on reducing
lost time incidents is an additional, more
specific way of striving towards our Zero
Harm vision, by ensuring our people are
safe, healthy and able to thrive. This
supports an open and honest culture of
continuous safety improvement and
incident reduction.
Performance
LTIFR for the year was 6.07. Following a
concerted effort targeting individual
incident reduction with initiatives
including our Every Step Matters and
Situational Awareness themes, we saw a
3% reduction in numbers of lost time
incidents compared to 2022, however,
our frequency rate increased by 5%.
Relevance to strategy
Employee engagement reflects our
aspiration to create ‘a place people are
proud to work’. This is crucial to delivering
outstanding customer service and
achieving our strategic aims.
Performance
Engagement was up one point to a score
of 71 out of 100, a high absolute score
and the first increase since 2020.
Engagement held steady or increased
across all regions, and there were notable
improvements in key areas, including
customer focus and career.
5. Pipeline of larger new
bid opportunities
6. Order book
7. Major incident frequency rate
(MIFR), per 1 million hours worked
8. Lost time incident frequency rate
(LTIFR)
9. Employee engagement
See Glossary on page
229 for KPI definitions
Serco Group plc | Annual Report and Accounts 2023 | 27
£10.1bn£8.4bn£9.9bn£6.4bn£4.9bn20232022202120202019£13.6bn£14.8bn£13.7bn£13.5bn£14.1bn202320222021202020190.350.430.360.410.39202320222021202020196.075.784.174.485.692023202220212020201971 points70 points70 points73 points71 points20232022202120202019 Strategic Report
Corporate Governance
Financial Statements
People and Culture
Our People and Culture
Our continued growth at Serco is testament to our people,
whose hard work and commitment every day makes a
difference throughout the world.
What does impact mean to me?
Creating rewarding jobs in
local communities and helping
employees reach their
potential in Serco.
Gillian Duggan
Group Chief People and Culture Officer
Often working in unique and
challenging environments, our
people are dedicated to helping
some of the most vulnerable
people in our society at times
when their lives are in deep
crisis. Our organisation is
orientated to this purpose and
our challenge is to ensure that
Serco’s promise to its customers
is delivered safely, effectively and
with human compassion.
As the world continues to endure turmoil, we recognise that
this not only impacts the citizens that we support on behalf of
our customers, but also our own people too. 2023 has been a
year in which Serco has continued work on all aspects of its
people-related ambitions, including keeping our people safe,
addressing inequality, creating a more inclusive workplace and
improving overall employee engagement.
As we strive towards improved outcomes in these areas and
others, Serco has acted upon a need to invest in its global
employee value proposition and bring renewed vision and
action to the collective development and support of its people.
In taking that ambition forward, several strategic appointments
were made in the first half of 2023, including the appointment
of Gillian Duggan in a new role of Group Chief People and
Culture Officer on the Group Executive Committee. The focus
of this new role is to develop and drive a high-performance
culture in Serco, ensuring continued alignment with the needs
of its markets, customers and strategic growth objectives, each
central to our evolving ESG story.
Serco Group plc | Annual Report and Accounts 2023 | 28
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Financial Statements
Our people in the workplace
Since the global pandemic and full relaxation of multi-
jurisdictional restrictions, Serco has experienced the common
and significant challenges in recruitment and retention of
people and the collaborative gap brought about through a
lack of face-to-face, human, workplace connection. Serco
recognises that retaining and developing people in their roles
is a positive way to build collaborative engagement among its
people and mitigate the elevated health and safety risks
brought about through higher rates of employee churn.
In the latter part of 2023, employees throughout the
organisation were invited to participate in our annual
engagement survey. We saw a 70% response rate, and overall,
a single-point improvement in our engagement score when
compared to the previous year. Our people were able to
recognise our core values of ‘Care’ and ‘Pride’ in their work and
relate to how these translate into the operational environment
as a high degree of customer care and focus. At the same time,
our people took the opportunity to provide feedback on where
they would like to see greater focus, which was primarily in the
areas of career development and personal growth.
Overall engagement up from 70 to 71
Engagement response rate 70%
People and Culture continued
During 2023, the Group Human Resources function was
reorganised to ensure that it is structured to confront the
market and workforce challenges that are impacting
government service providers today and in the future. In
December, the global HR team came together to discuss and
agree a range of people-orientated priorities to transform
performance and culture in Serco. These priorities have been
endorsed by the Group Executive Committee and will form the
basis of performance-related objectives over the next three years.
The safety of our people
Protecting the health, safety and well-being of our people and
those impacted by what we do is Serco’s number one cultural
and operational priority. Throughout the year, our teams
have conducted a range of proactive initiatives designed to
continuously promote awareness and manage risks. During
2023, the actual number of Lost Time Incidents (LTIs) fell by 3%
compared to 2022. However, our Lost Time Incident Frequency
Rate increased by 5%, remaining above the Group’s threshold
target of 5.14 for the year. Reflecting Serco’s commitment to
continuously strive to improve our safety performance, Group-
level functional leadership for Health and Safety remains
aligned to the strategic priorities of the Group Chief People
and Culture Officer. This is to ensure that health, safety and
well-being feature as priorities in the development of a high-
performance culture, central to strategic decisions that affect
our people, including recruitment, objective setting, performance
management, development, training and compensation.
We approach 2024 with an ambitious vision to reduce the
actual number of LTIs by 50% over the next three years,
irrespective of how much Serco grows in the same period.
To achieve this, we will continue with operationally led
campaigns to focus on the areas where most LTIs occur.
We are already collaborating with other providers in the sector,
and specialists in human behaviour to help bring about the
operational changes that will drive a meaningful reduction to
this real human statistic.
Lost Time Incidents down 3%
LTIFR up from 5.78 to 6.07
Serco Group plc | Annual Report and Accounts 2023 | 29
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People and Culture continued
Improving our performance management
As we head into 2024, Serco is preparing to embark upon
a programme to strengthen a high-performance culture
grounded in its values, starting with clearer objective setting,
a revised competency framework, robust performance
management and a pathway to career development and
growth. This programme builds upon the investment made
during 2023 in which 151 leaders took part in three of our
leading growth programmes – Advanced Leadership, Contract
Manager and Women in Business. As newly-developed leaders,
they will play a pivotal role in how Serco implements its strategy,
influences the workforce and impacts a better future.
Programmes
Advanced Leadership
Contract Manager
Women in Business
Male
39
23
N/A
62
Female
19
5
65
89
As leaders bring their newly-developed skills to our global
operations, they will support the next tier of leaders and
people managers through their development and ensure that
we embed the right behaviours throughout our business to
fully engage, lead and support our people, making the
employment experience one in which our colleagues can
thrive, develop, grow and reach their potential. This is a vital
component in the evolution of our Employee Value Proposition
and will help us attract and retain people, bringing greater
stability to our frontline teams and operational service
environments, which in 2023 suffered far higher levels of
attrition than Serco is comfortable to accept. Whilst there are
many external contributory factors beyond the organisation’s
control, it is in Serco’s interest to ensure that once we recruit a
new colleague, they experience the best of what Serco has to
offer, which is; a place for them, a place to count on and a
place where they can make a difference.
Evolving our culture
There has been considerable emphasis on the strategic work
required to drive people and culture change in 2024, and as
part of that, our global teams have continued in their efforts
and ambitions to become more equal, diverse and inclusive.
With two female Executive appointments this year, Serco’s Group
Executive Committee has increased its female representation.
At 31 December 2023, female representation within our senior
leadership team including Board and Executive management
stood at 34.3%, broadly matching the number of women who
participated in Serco’s Advanced Leadership Programme. This
puts us in a strong position to deliver against a three-year
commitment to see 50% of global leadership roles held by
people from underrepresented groups.
Financial schemes
Building upon the successful launch of MyShareSave in
the UK in 2022, we extended our offering in 2023 to include
colleagues in Australia, Canada, the US and the UAE,
representing approximately 95% of our global workforce.
The invitation to participate in MyShareSave 2023 resulted in a
further 2,066 colleagues participating, representing a global
uptake of 5.4%. The increase in MyShareSave participation
across all job bands is seen as a success in Serco’s continued
efforts to engage its global workforce.
Additionally, the Serco People Fund that launched successfully
in the UK in 2021, was launched in Australia, the US and the
Middle East this year. The People Fund is intended to provide
financial assistance to colleagues who are facing extraordinary
financial challenges. This may include situations such as crises,
poor health, natural disasters, or other times when additional
financial support is needed. Since inception, the fund has paid
out a total of £616,506, with £406,117 paid out in 2023. This is
one of the many ways in which Serco demonstrates that the
well-being and care of our people is always at the heart of
how we operate.
Serco Group plc | Annual Report and Accounts 2023 | 30
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People and Culture continued
Diversity, equality and inclusion
In a bid to gain deeper insights into employee perceptions
relating to diversity and inclusion, revisions were made to our
Viewpoint Survey. The scores relating to the extent that
employees felt a sense of belonging (regardless of age,
gender or ethnicity), and the extent that Serco actively
promotes diversity, scored favourably at 74 and 75
respectively. Perceptions relating to inclusivity and the extent
that employees felt that leaders valued different perspectives,
scored less favourably at 66. This is a clear indication of a need
to go further, which is why a strategic objective has been set to
see people from underrepresented groups particularly those
from ethnically diverse backgrounds, play a more influential
role in how Serco is led globally. To support this ambition,
preparations were being made at the end of the 2023 to
conduct a bespoke leadership culture survey to provide further
insight and inform strategic planning for the organisation.
UK & Europe
In UK & Europe, there has been substantial commitment,
progress and improvement in several areas relating to equality,
diversity and inclusivity. Echoing our achievement of having
secured gold status in the Inclusive Employers Standard, Serco
maintained its commitment to deliver a gender pay gap below
10% by 2023, with 8.11% in 2022 and 8.54% this year. Building
further upon that commitment, we are working to reduce
diversity non-disclosure rates throughout the organisation.
Appreciating the value of bringing inclusive and collaborative
networks together, our Embrace network is in the final shortlist
for top Network Group (ERG) in the UK Ethnicity Awards, and
we also launched two new networks, ‘Serco Veterans & Armed
Forces Community’ and ‘Parents & Carers’.
North America
In North America, Serco launched two new initiatives; ‘Serco
Unlimited’ and ‘Serco Rising’. The intention behind these new
network initiatives is to enable a step change in our ability to
make our workplace and organisation become increasingly
inclusive and diverse. These initiatives do that by raising
awareness, removing barriers and challenging perceptions in
the areas of disability (both visible and non-visible conditions)
and through early careers, specifically to support early-career
talent, as part of a commitment to highlight and celebrate diverse
perspectives at Serco. In the case of Serco Rising, it has helped to
reduced attrition rates in the first twelve months of employment.
Serco in North America also received VETS Indexes 5 Star
Employer for the third year running. The award recognises our
continued commitment to recruiting, hiring, retaining, developing
and supporting veteran employees; military spouses; and others
in the military-connected community. This award builds upon
Serco’s global and ongoing commitment to military veterans.
Middle East
Our operations in the Middle East are going through a period
of change in terms of geography focus and business lines and
establishing a workforce during this transformation poses
several challenges. As the team navigate the pressures of this,
they are simultaneously taking the opportunity to lay the
foundations of an equal, diverse and inclusive workplace
culture. In the region, the size of our national workforce has
almost doubled in the last year, with 58% being women. The
results of the 2023 Viewpoint survey showed favourable results
across these measures, with an increase of 10 points in the
female engagement score, up from 74 to 84.
Asia Pacific
Our Asia Pacific Division has played a leading role in driving
forward Serco’s credibility on matters relating to equality,
diversity and inclusivity and in 2023 broadly achieved its
colleague representation targets across disability, Indigenous,
veterans and women. It proudly accepted recognition from
Reconciliation Australia for the significant progress made over
the last 12 months in Indigenous outcomes, including the
introduction of Sorry Business Leave and establishing an
Indigenous colleague community - Kanyini; and receiving their
endorsement to progress to the second highest level of
Reconciliation Action Planning.
In looking towards 2024, the Asia Pacific team hosted a cross-
business disability workshop with diverse representation
identifying areas of opportunity leading to the development
of 41 initiatives to be driven over the coming year and,
underpinning a new Accessibility Action Plan.
Looking forward
Along with new Executive appointments, the winning of new
business and the loss of others, overall, this has been a year in
which the longer term and more resistant impacts of the pandemic
could be seen and better assessed from a perspective of how
much those impacts continue to challenge the company in
achieving its objectives.
As we press ahead, the role of People and Culture is
substantial. From recruitment and retention, better data,
employee development, equality, diversity, inclusion,
compensation and benefits and our overall Employee Value
Proposition. These things matter because at Serco, we believe
that people are the greatest asset in our business and whilst
2023 has been a year of progress and refreshing our strategy
to reflect our growth ambition, 2024 will be a year of putting
our People and Culture plans into action.
Serco Group plc | Annual Report and Accounts 2023 | 31
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Financial Statements
Risk Management
Serco is exposed to a wide
range of risks that, should they
materialise, could have a
detrimental impact on our
financial performance, reputation
and operational resilience. We take
risk management seriously and
invest significant effort into
identifying and managing risks.
Risk management process
The Board oversees the Group’s risk management and internal
control processes within an Enterprise Risk Management (ERM)
framework, discharging its oversight responsibilities through the
Risk Committee, supported by the Corporate Responsibility
Committee (CRC), and the Group Audit Committee. The Serco Inc.
Audit Committee and our Divisional Leadership teams also play
a critical part in our risk management process. The Board has
monitored and reviewed the effectiveness of risk management
and internal control systems through these Committees and the
processes outlined below.
Our ERM approach endeavours to identify, understand, mitigate
and manage risks that might disrupt our ability to execute our
strategy or deliver against our customer and contractual
commitments, whilst recognising that we cannot capture
and mitigate every potential risk scenario.
Our risk policy, including the risk management life cycle, is
mandated throughout the Group to seek a consistent approach
to identification, analysis, monitoring and reporting of risks and
to provide further assurance that the risk mitigation in place is
sufficiently effective and appropriate.
Risk management operates throughout the year and in all
levels of the business with a ‘bottom up/top down’ approach
emanating from risks identified at contract level and functions
upwards through the Business Units and Divisions. Risks are
formally reported from Divisions into Group on a quarterly basis
focusing on the top 10 Divisional risks, associated controls and
mitigation updates. These reports help inform updates to our
principal risks.
Our principal risks, detailed on page 34, are those risks that we
determine to be the most material when considered against our
strategic ambition (as outlined on page 22) and that can materially
affect the performance, prospects or reputation of our business.
These risks are identified, assessed and monitored as part of our
‘top-down’ approach through discussions at a Divisional level,
Group Executive Committee and at either the Risk Committee,
Audit Committee or CRC depending on the type of risk being
assessed. For each risk, we capture the inherent, residual and
target position as assessed against a standardised set of impact
categories that include financial, reputational, operational and
strategic considerations on a worst-case credible scenario basis.
The likelihood of each risk occurring is then assessed, resulting
in a residual risk position that enables us to score the risk from
minor to severe and rank accordingly.
Each principal risk has both a Subject Matter Expert (SME),
who acts as the lead in overseeing risk updates and driving risk
actions, and a nominated Group Executive Committee sponsor,
(whose role is to advocate and oversee risk ownership), allocated
to it.
A robust assessment of our principal risks and their mitigations
is carried out by the Risk Committee every quarter through the
Director of Enterprise Risk report which provides an update on
each risk and any material changes, as well deep dives into each
Division’s risk profile.
Serco Group plc | Annual Report and Accounts 2023 | 32
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Financial Statements
and opportunities across our ESG landscape, through objective,
AI-driven examination of evidence-based, global data.
The results highlight areas where public service providers in
all markets and geographies where we operate may
experience, achieve, or otherwise cause the most material
impacts. This has been reflected in our impact framework and
provides a foundation for more detailed assessment and
validation of double materiality in the future (see page 51).
– Climate change: Our environmental footprint varies significantly
between our contracts and business units and is dependent
upon the boundary and scope of our environmental reporting.
Across much of our business we work on our customers’
premises and are not in direct control of environmental impacts.
However, regardless of where we operate, we recognise the
need to drive consistent positive environmental behaviours
and performance improvements throughout our operations.
We have chosen not to consider climate risk as a standalone
principal risk and instead consider it as a scenario under several
of our principal risks, including ‘Catastrophic incident’, and have
embedded this more clearly in the narrative of our relevant
principal risks. We will continue to monitor the profile of
climate change matters as part of our ongoing quarterly
risk reviews and it will remain a focus area for development
throughout 2024. Further detail on our approach to
environmental reporting and the Task Force on Climate-
related Financial Disclosures (TCFD) can be found on page 70
and our commitment to climate change as part of our ESG
agenda on pages 49 to 69.
Changes during the year
We continue to drive improvements in our ERM framework.
A key focus throughout 2023 has been on the design and
implementation of our new Governance, Risk and Compliance
tool. The controls module, which supports financial controls testing
was successfully deployed in three of our Divisions with
implementation in North America nearing completion. In
addition, we are in the design stages of implementation of the ERM
module that aims to provide enhanced risk and controls
functionality, transparency, and reporting. The ERM module is
planned for implementation across the Group in 2024.
As indicated in last year’s Annual Report and in response to
the Corporate Governance Reform targets set out by the UK
Government in the document entitled Restoring trust in audit and
corporate governance, we launched the Integrated Assurance
Framework programme (IAF), a global assurance programme
to enhance our risk and assurance framework. This programme
supports the changes recently confirmed by the Financial Reporting
Council (FRC) in relation to internal controls. We are continuing with
the development and implementation of the programme which
aims to deliver, better focused, more consistent and standardised
control environments and reporting capabilities.
Risk Management continued
Each of our principal risks has an appetite statement to determine
the nature and amount of risk that the Group is willing to accept,
which is unchanged from 2022. Risk appetite is set through
discussion with the principal risk Group Executive Committee
Sponsor and SME and ratified by the Risk Committee. The
statements include one of four appetite categories – averse,
cautious, moderate and flexible – that reflect the Board’s
tolerance to each risk. The Board’s risk appetite associated with
each principal risk is shown on page 34.
As part of our ERM approach we have dedicated Compliance
Assurance teams which operate as a second line function
focusing on validation and testing of key controls to augment
annual control self-assessments and biannual compliance
assurance attestation statements. Key controls mapped against
our principal risks, significant local risks, our Serco Management
System and testing plans are reviewed annually by the Group
Compliance Assurance team to identify and respond to any
significant amendments in the control environment. While many
controls are tailored to meet Divisional requirements, there are
consistent themes across our control environment to include;
clear oversight and reporting by Divisional management teams;
robust bid governance processes; a focus on the health, safety
and well-being of our colleagues and service users and the
prioritisation of maintaining integrity and a strong ethics culture.
In addition to the work of our in-house Compliance Assurance
teams, augmented by external partners in certain specialist
areas, we are also subject to significant third line assurance
activities and audits delivered through our in-house Internal
Audit team, external third parties, certification standards and
customer requirements in our varied service lines and business
units. These external reviews include those that support the
range of ISO certifications we manage across the business as
well as independent performance and regulatory reports on
Serco operations.
Emerging risks
We have an annual process to identify and monitor emerging
risks to ensure that adequate steps are being taken to understand
and mitigate new risk themes before they materialise and to
assess any impact on our principal risks. This robust assessment
of emerging risks is completed through individual and group
discussions with our Group Executive Committee members,
via input from our Divisional risk teams and the Risk Committee;
and through the monitoring of internal and external macro
risk trends.
Examples of some of the current emerging risks discussed and
being monitored via our quarterly risk process include continued
political volatility and any associated ideology or significant policy
change, geopolitical disruption, including the conflicts in Ukraine
and Gaza, artificial intelligence and disruptive technology.
Other risk areas
While not considered as emerging risks, we also reviewed our
approach to ESG (including climate change). We continue not to
include ESG or climate change as standalone principal risks but
instead continue to consider these as part of the emerging
risk review.
– ESG: We continue to recognise ESG risks across the business.
As a solutions provider to governments globally, we deliver
on a range of ESG commitments where we can contribute to
delivering public impact. We have recognised our corporate
responsibilities for many years. However, as we have evolved
our strategy and core purpose, we have refreshed our approach
to ESG and are committed to measuring what matters – the
positive impact we make to People, Place, and Planet. We have
conducted a preliminary ‘double materiality’ analysis of risks
Serco Group plc | Annual Report and Accounts 2023 | 33
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Financial Statements
Principal Risks and Uncertainties
Summary of principal risks and uncertainties
Principal risks, as described below, have been reviewed by the
Group Executive Committee and either the Risk Committee,
Corporate Responsibility Committee or Audit Committee and
the Board. The risks are described on the following pages,
together with the relevant strategic business objectives
including: key risk drivers; the Group-wide material controls
which have been put in place to mitigate principal risks; and the
mitigation priorities to improve the effectiveness of the controls.
We have included the residual risk trend indicator for each risk
and a brief commentary to contextualise these trends. Each of
the principal risks is relevant to the achievement of our KPIs as
outlined on page 26 with the strongest links highlighted as part
of the commentary.
Our strategic objectives (outlined on page 22) consider the risks and
opportunities associated with our existing market and services and
did not highlight a need for a material shift in approach.
As outlined in the Group Chief Executive’s Review on page 6 we
are reporting strong financial performance and despite the
macroeconomic volatility of the last 12 months we have not
observed any material manifestation of risk that has caused
significant operational or performance disruption. Our principal
risks therefore remain valid with their definition and scope
remaining largely unchanged. These risks continue to underpin
our business model and mitigation of these risks links directly to
our strategic priorities as described on pages 22 and 23.
Principal risks are considered over the same three-year timeframe
as the Viability Statement set out on page 47, which takes
account of the principal risks in its assessment.
In addition to the principal risks and uncertainties already identified,
there may be other risks, either unknown, or currently believed
to be immaterial, which could evolve to be material. These risks,
whether they materialise individually or simultaneously, could
significantly affect the Group’s business and financial results.
Risk description
Executive sponsor
Failure to
grow profitably
Financial
control failure
Ruth McGowan
Group Chief
Strategy and
Growth Officer
Nigel Crossley
Group Chief
Financial Officer
Major information
security breach or
cyber attack
Mark Irwin
Group Chief
Executive
Contract non-
compliance, non-
performance
or misreporting
Phil Malem
Middle East CEO
Primary risk
category
Strategic
Annual trend as at 31 December
Stable residual risk position reflecting a strong 2023 financial
performance and confidence in the business pipeline and
business plans as we enter 2024.
Risk appetite
Cautious
Financial
Reducing residual risk reflecting level of confidence in
robustness of financial processes and controls.
Averse
Operational Despite recognition that the threat landscape is ever changing
Averse
we retain the residual risk as previously assessed, recognising
significant investment and implementation of strengthened IT
controls and continued focus on good practice controls
execution.
Operational Noting no material incidents, the stable risk trend is driven by
Averse
acknowledgment of the scale and volume of contracts, the
ongoing work to improve our controls and the low level of
both Serco management and customer tolerance for any
significant issues.
Significant failure
of supply chain
Anthony Kirby
UK&E CEO
Operational
Following an increase in residual risk in 2021, the risk remains
elevated largely as a result of external macroeconomic pressures.
Moderate
Failure to act
with integrity
Failure to attract,
engage and retain
key talent
Health, safety and
well-being
Catastrophic
incident
Mark Irwin
Group Chief
Executive
Gillian Duggan
Group Chief
People and
Culture Officer
Gillian Duggan
Group Chief
People and
Culture Officer
Tom Watson
North America
CEO
People
People
People
Hazard
Stable risk trend recognising the ongoing commitment to
maintain high standards of integrity, reflected in this year’s
Viewpoint results, and a low customer tolerance for any issues.
Averse
Recognising the external challenges in the labour market and
existing social and economic pressures, we are facing elevated
attrition rates and therefore see this risk as increasing.
Cautious
The risk remains stable despite the fact that we missed our
LTIFR threshold and we remain focused on the road to zero
harm. Well-being is now inextricably linked within the strategy
and approach to health, safety and well-being risk management.
Averse
A stable residual risk position reflects that, despite strong
controls, the nature of the work we do exposes us to a degree
of ongoing risk of a catastrophic event occurring.
Averse
Material legal and
regulatory
compliance failure
David Eveleigh
Group General
Counsel
Legal and
Compliance
The risk remains stable notwithstanding the continued fast-
moving and complex global legal and regulatory environment
and diverse nature of our business.
Averse
Serco Group plc | Annual Report and Accounts 2023 | 34
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Financial Statements
Principal Risks and Uncertainties continued
Our updated strategy and new purpose, vision and mission are detailed on page 22. Each of our principal risks supports one or
more of the focus areas that drive strategic delivery, namely;
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
Appropriate consideration and management of the principal risks have a direct link to key Executive remuneration as outlined in the
Directors Remuneration Report on page 115.
STRATEGIC RISKS
Failure to grow profitably
Risk Appetite: Cautious
This risk considers the potential impact of failure to win material bids or renew material contracts profitably, or a lack of opportunities
in our chosen markets, restricting revenue growth which may in turn have an adverse impact on Serco’s profitability. Serco takes
reasonable and considered risks to generate profitable growth, aiming to fulfil an ambitious growth plan. Serco’s success is linked
to changes in the economy, political changes/stability in each of our Divisions, our reputation, budget priorities and the attitude of
governments and the wider public to the private sector delivering public services. This could result in decisions not to award
contracts or lead to delays in placing work. Our success is also linked to the competitive landscape, our ability to efficiently deploy
resources to develop and transact proposals and the use of technology to enhance our value proposition while delivering our ESG
commitments. We carried out a comprehensive strategy review in 2023 that concluded that our markets remain robust with
significant revenue opportunity in our chosen markets.
In 2023, we continued to be successful in securing good organic growth. Our immigration work in UK and Europe has continued to
benefit from significant volumes and our marine defence business unit in the US secured critical rebids and extensions. Our Middle East
business secured growth opportunities in the Kingdom of Saudi Arabia, and in the UK we have secured material contracts in Justice,
Immigration and Citizen Services. Win rates overall have recovered from 2022 and we continue to improve our internal bidding and
capture practices, using technology to support our proposal development and solution design. Our contract structures have largely
protected us from inflationary pressures and, while tight employment markets and inflation are easing from 2022, Serco has the
opportunity to improve its cost base efficiency. We continue to be exposed to challenges in our Asia Pacific Division, noting a decline
in our volume-variable work and lower than expected win rates. The 2024 elections in the UK and US could present challenges and
opportunities in terms of delayed decisions and policy shifts and our concentrated exposure to UK Immigration is posing less
predictable risks.
Key risk drivers:
Material controls:
Mitigation priorities:
External factors reducing the
pipeline of opportunities.
– Serco Group and Divisional Strategy
including periodic strategy reviews.
Failure to be competitive.
Inability to meet customer and
solution requirements during
design, implementation
and delivery.
Ineffective business development
leading to lower than expected
win rates.
– Investment Committees, Divisional-level
Business Lifecycle Review Teams (BLRTs).
– Pipeline and Business Development
spend reviews.
– Regular Growth Forum reviews.
– Divisional Performance Reporting process
and tracking key strategy commitments.
– Re-energise pipeline, seeking new
attractive organic expansion.
– Deliberate approach to capability
acquisitions where these complement
our competitiveness.
– Strengthen our customer focus and
interactions to better anticipate and shape
markets and opportunities.
– Continue to improve leveraging of Serco
best practice and innovation and
refinement of bid development processes.
– Continue to adopt a robust bid
qualification process.
– Retain focus on effective management for
major bids.
– Embrace technology to improve bid
effectiveness and solutions.
– Rigorous corporate focus on growth and
associated metrics including win rates and
pipeline conversion.
– Re-energise the growth culture across
the business.
Serco Group plc | Annual Report and Accounts 2023 | 35
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
FINANCIAL RISKS
Financial control failure
Risk Appetite: Averse
Serco operates a number of financial systems and processes and there is an inherent risk that these may fail if appropriate oversight
is not in place. Such failures may result in: an inability to accurately report timely financial results and meet contractual financial
reporting obligations; a risk of error and fraud; poor quality data leading to poor business decisions, or an inability to forecast
accurately; the failure to create a suitable capital structure; and an inability to execute critical financial transactions, leading to
financial instability, potential business losses and negative reputational impact. This risk links directly to our ability to meet the
financial KPIs outlined on page 26. We have an averse appetite for financial control failures and require a robust framework of
financial processes, systems and controls to enable timely and accurate financial reporting and forecasting.
The Group believes that its financial processes and systems have operated effectively throughout the period and any areas of
weakness have been mitigated through additional controls and reviews.
Over the last 12 months, the Group has continued to improve its financial control environment. The Group has continued to deliver its
programme of work to improve the financial controls framework. The objectives of this programme endeavour to meet the changes
to the UK Corporate Governance Code recently confirmed by the Financial Controls Committee (FRC) following the consultation
document issued by the UK Government, entitled ‘Restoring trust in audit and corporate governance’. The Group is conscious of
the impact of this programme and has been mindful of additional costs and administration placed on its operations.
Key risk drivers:
Material controls:
Mitigation priorities:
Not setting the right tone from
the top.
Poor financial processes.
Inadequate financial controls
within the business.
Loss of critical people
and/or systems.
Poorly skilled and resourced
finance teams to address
complex finance standards.
– Group Governance and Finance strategy.
– Board oversight via the Audit Committee.
– Standardised and mandated financial
systems, processes (including forecasting
and reporting) and data structures.
– Governance and review procedures
associated with managing the quality of
services delivered by third-party partners.
– Skilled and adequately trained Finance staff.
– Disaster recovery plans and testing.
– Monthly Divisional performance reviews.
– Dedicated Financial Assurance team.
– Agree future operations for financial
processes operated by third-party suppliers.
– Continue to develop the financial controls
and assurance framework including work
under our Control Framework
Improvement Programme (CFIP).
– Continue to embed effective
financial reporting.
– Continuously improve forecasting and
reporting processes and data analysis.
– Deliver global finance process
improvement and efficiency through
automation and robotics.
– Continue to improve the Group-wide
training curriculum.
– Effectiveness reviews of disaster
recovery plans.
– Ensure talent is retained within the
Finance function.
Serco Group plc | Annual Report and Accounts 2023 | 36
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
OPERATIONAL RISKS
Major information security breach (including cyber attack and data protection)
Risk Appetite: Averse
An information security breach, resulting in the loss or compromise of information (including personal or customer data) or wilful
damage, is a key risk for us. A successful attack or significant control failure may result in regulatory fines, loss of customer or data
subject confidence and follow on civil claims. We operate an averse risk appetite to any major information security breaches and
cyber attacks. We accept that, due to the complicated and diverse nature of our business and the services we provide, we will
continue to face ever evolving threats from both internal scenarios and external threat actors and that there therefore remains an
inherent risk of data loss or loss of service as a result of an incident. We recognise we cannot eradicate this risk and are cognisant
and focused on the importance of reducing our attack vectors and improving our data management processes and controls.
We endeavour to mitigate the likelihood and impact of any breach and carry out prompt remedial actions.
Serco is committed to delivering secure services which protect our own and our customers’ data and as such holds a variety of
externally audited security-related certifications. In most of our jurisdictions, this additionally includes accreditation or assessment
against relevant government security standards. These include the Information Security Management System covering our UK
corporate environment that is certified to ISO 27001, Cyber Essentials Plus in the UK and PCI-DSS globally where required. Our
certifications are generally publicly available on the relevant accreditors’ websites or can be requested from the Company directly.
An ongoing programme of IT investment is maintained to address the changing threat landscape and seeks to ensure we comply
with our own SMS standards and all external standards required to meet our contract obligations. Regular security patching and
operating on supported versions of hardware and software greatly reduces the risk of exploitation or data loss for both Serco and
its clients (any operational exemptions require a full risk assessment and compensating mitigating controls). Serco regularly reviews
how we protect and secure information in our custody. This year, we have commenced the phased deployment globally of Microsoft
Defender’s Extended Detection and Response security tooling.
As custodians that care for personal data held on behalf of our customers, suppliers, business partners, employees and data subjects,
we have adopted a risk-based approach to implement a data protection framework that is integrated into our management system
and our customer requirements. It aims to strengthen our operating culture and to seek to ensure that we operate and continuously
improve our business in a compliant, ethical and responsible way. This year, our data protection programme focused on data privacy
rights through work on data minimisation and retention, handling data subject requests, implementing privacy by design, boosting
transparency, understanding data hosting and technology use, as well as implementing training and awareness programmes.
We have a Data Protection Champion (DPC) network with over 250 DPCs across UK&E and the Middle East who are trained and
supported by the Data Protection Office/Officer.
We continue to invest in our human shield, with data protection and security training material regularly refreshed. Staff training
remains a key mitigant to this risk and comprises mandatory modules that cover a range of areas, including responsibilities when
dealing with personal data and how to identify and respond to issues. All Serco employees, including contractors, must complete
Serco Essentials and pass a test at the end or, alternatively, in the case of many of our sub-contracted staff, their employer must
demonstrate that they provide equivalent security training. Training is further supplemented, where appropriate, to cover specific
points relevant to any particular Contract, Division or Function, together with regular campaigns and awareness tests such as
protecting against phishing threats.
Serco Group plc | Annual Report and Accounts 2023 | 37
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
Material controls:
Mitigation priorities:
– Global Technology Governance Board and
– Perform market appraisals of technology
Key risk drivers:
Non-compliant or
obsolescent systems.
Non-compliance or
misconfiguration with
policies and standards.
Vulnerability of systems
and information.
Unauthorised use of systems.
Inadequate incident monitoring
and response.
Increased regulatory scrutiny.
Human factors leading to
data breach.
Solution Review meetings.
– Serco Management System (SMS) including
detailed guidance on minimum
security controls.
– IT security infrastructure, processes and
controls including isolated backups.
– Privileged Access Management and multi-
factor authentication for our centralised
managed systems.
– External assessments and scenario-based
cyber security testing and incident planning.
– Regular attestation statements on security
controls compliance.
– Third-party supplier cyber assessment
due diligence.
– Data Protection training and
awareness campaigns.
Failure to follow Data Protection
laws and Customer requirements.
Protection Champions network.
– Monitoring Data protection laws and
– Data Protection Officer programme and Data
Poor data mapping
and retention.
Customer requirements.
– One Trust data inventory mapping and data
retention programme.
when bidding for new contracts and review
existing technology at renewal points to
ensure that we maintain our defences as
threats change and develop in sophistication.
– Ongoing continuous strategic
improvement programmes to maintain our
cyber defences (for example the
investment in improved cyber tooling) as
described in the section above.
– Continued routine vigilance and proactive
vulnerability identification coordinated
through our Security Operations Centres.
– Continued use of global key security risk
indicators and regular third-party testing
and best practice configuration reviews.
– Leveraging Cloud adoption to ensure
standardised control mechanisms.
– A focus on behavioural aspects controls.
– Maintaining compliance with government
security standards.
– Ongoing Data Protection training.
– Monitoring the Global changes in law
including international transfer laws and
customer requirements.
– Build a stronger consistent data protection
framework of sharing information
and knowledge.
– Gold IAPP Membership and data
protection champions.
Serco Group plc | Annual Report and Accounts 2023 | 38
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
Contract non-compliance, non-performance or misreporting
Risk Appetite: Averse
With more than 50,000 colleagues delivering services under circa 500 services contracts there is considerable scope for missed
contract obligations or performance thresholds or inaccurately compiled performance reports. In the normal course of service
provision, we do experience failures that are considered minor, such that they are fixable and often allowed for in the contracts
we sign via defined tolerance levels and penalties. These are not the focus of this risk.
This risk is instead concerned with levels of failure that are unacceptable to Serco and its customers, especially deliberate misreporting
of contractual performance or material contracts being taken away from Serco due to non-performance or non-compliance.
We have had no instances of a material failure throughout the past year, but have at times seen near misses, particularly where high
levels of performance-related financial penalties have been incurred. In some instances, this will lead to a rectification plan agreed
with the relevant customer.
Our approach is to continue to strengthen the controls across each stage of the business cycle, including: improving focus on
understanding and clarity of contract commitments at bid stages; a focus on risk and opportunities in the Divisional Performance
Reviews; communication and handover processes when transitioning to live operations; consistent processes for measuring performance
and maintaining clear and agreed contract documentation; and increased focus on enhanced oversight, reporting and assurance.
Underpinning these initiatives, the enhancements to the SMS brings greater clarity to what is expected by each persona throughout
the business cycle. This will bring greater visibility of the controls we do or do not have in place, allowing them to be challenged and
strengthened throughout the year. The IAF programme will seek to further help validate the key controls we rely on.
Key risk drivers:
Material controls:
Mitigation priorities:
Not setting the right tone from
the top.
– Contract Management Application.
– Monthly performance reviews at Contract,
Unclear contract
requirements/obligations.
Human error (deliberate
or unintentional).
Operational delivery or
reporting failures.
Business Unit and Divisional level.
– Business Lifecycle Review Team process.
– Communication of Our Values and Code
of Conduct.
– Speak Up process (Ethicspoint).
– Extensive internal and external assurance
reviews, including independent third-party
reviews and customer oversight processes.
– Strengthen processes related to agreeing
clear contracts, change management,
bid to contract handover and KPI
reporting, more formalised through the
enhanced application of the Serco
Management System.
– Roll-out of Contract Management training
(Global and Divisional).
– Greater visibility of performance through
our contract performance dashboard
‘Gauge’.
– Continued focus on consistent approach to
risk assessment.
– Operational excellence improvement
plans.
– Ongoing ethics, business conduct and
compliance training.
– Improvements to assurance framework and
activities.
Serco Group plc | Annual Report and Accounts 2023 | 39
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
Significant failure of the supply chain
Risk Appetite: Moderate
As a result of a significant failure in Serco’s supply chain to perform to the required standard, Serco may be exposed to risks that
mean it is unable to meet its customer obligations, perform critical business operations or win new business. This could cause a
financial, operational or reputational impact to Serco. Supply chain risk encompasses the following risk exposures: supplier
performance and resilience; cyber/information security and data protection; business integrity and ethics; legal and regulatory
compliance; and health, safety and environment.
Over recent years, we have seen heightened potential for supply chain risk due to the volatility in the external environment through
macroeconomic and geopolitical events, increasing environmental and social regulation and Serco’s increasing reliance on
suppliers through more complex outsourcing and supplier arrangements.
Serco uses thousands of suppliers globally each year and accepts that it is not feasible to monitor and manage the performance of
every supplier. A Supplier Risk Management Framework is being progressively implemented. It applies a risk-based approach to
supplier segmentation across the range of supplier risk exposures and strengthens our controls over minimum standards, due
diligence, contract terms and conditions and supplier management through the supplier life cycle. Serco’s risk tolerance for this risk
remains moderate. The Group-level risk remains elevated given macroeconomic circumstances, considerable continued inflationary
pressures and consequent supply chain challenges and the need to evolve risk controls. Although there continues to be a risk of
disruption in all Divisions, the highest perceived risk continues to be in our UK&E Division.
Major achievements this year have included a comprehensive refresh of our business critical supplier list against a tightened
definition, alongside the development of procedures and guidance on the improved management of business critical suppliers.
Our Supplier Management activities have been strengthened through development of user-friendly guidance and training which
we expect to roll out in 2024.
Key risk drivers:
Material controls:
Mitigation priorities:
Inadequate procurement
standards, operating procedures
and controls.
– SMS Procurement Policy, Standards and
Procedure including Supplier Code
of Conduct.
– Supplier checks (pre-qualification/onboarding).
– Serco standard contracts where possible
including appropriate obligations, Key
Performance Indicators and Service
Level Agreements.
– Supplier Management Programme for most
business-critical suppliers including
performance, contract compliance and
risk management.
– Annual procurement review process of
business-critical suppliers.
Failures or inadequate due
diligence and onboarding when
bringing new suppliers, partners
and sub-contractors into the
business including poor
specification of requirements,
inadequate sourcing and selection
and inadequate contracting.
Inadequate/lack of monitoring –
and management of supplier
performance and risks.
High volume of suppliers/
complexity of supply chain.
– Phased and proportionate implementation
of the Supplier Risk Management
Framework, including supplier triage and
assessment.
– Continued enhancement of the
Procurement and Supply Chain Group
Standard improving clarity and
understanding of policy requirements,
processes, controls and responsibilities.
– Ongoing risk assessment and mitigation
plans incorporating actions to improve
effective implementation of key risk
controls for all material risk-rated business-
critical suppliers.
– Ongoing review of supplier management
programme, aligning to the Supplier Risk
Management Framework, taking a tiered
approach relative to risk. Review tools and
guidance for contract-level supplier
management aligned to needs of
the business.
Serco Group plc | Annual Report and Accounts 2023 | 40
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
PEOPLE RISKS
Failure to act with integrity
Risk Appetite: Averse
We recognise that there is an inherent risk of corrupt, illegal, or dishonest acts by rogue employees, or because of pressure/culture
that impacts the retention and winning of business; colleague engagement and retention; legal action and fines; and investor and
shareholder confidence in Serco. We are committed to operating with integrity and are averse to behaviours and actions that might
compromise this. We recognise that, as a provider of frontline public services, we are subject to public scrutiny and challenge and
that there will be occasions where ‘things go wrong’. In such situations we seek to minimise the impact of any failure, accept
responsibility and take action. We have no tolerance for any significant breach resulting in risk of prosecution, regulatory or
government censure.
Emerging risk considerations include increasing legislation, such as individual country interpretation of the EU Whistleblowing
directive, modern slavery regulations and failure to prevent fraud in the UK. These not only require process changes but also
demand greater transparency in our processes, controls and reporting of performance. Geopolitical tensions impact sanctions and
focus for the governments we serve. Potential pressures which might drive inappropriate behaviour can be caused by inflationary
and economic challenges, increasing mental health risk and higher medium-term levels of colleague attrition.
Our positive journey in establishing an effective ethics and compliance programme has strengthened our controls and oversight. We
continue to clarify the SMS and Group Internal Audit have supported us in a review of our fraud controls. Transparency International
has completed a review of our procedures against bribery. We monitor changes in legislation and refine our policies and processes
to ensure compliance. We completed a review of our Speak Up provider. We are embedding mycode following its launch in 2022 and
have relaunched our supplier code of conduct this year. We continue to refine and refresh training on mycode and specific areas such
as safety, data protection and financial crime.
Key risk drivers:
Material controls:
Mitigation priorities:
Not setting the right tone from
the top.
Weak values and culture.
Increased pressure to deliver.
Ineffective systems and processes.
Weak diligence on where we
work and who we work with.
– Continue to drive leadership ownership and
accountability for a strong ethical culture.
– Roll out the supplier code of conduct.
– Ongoing review of the effectiveness of due
diligence processes for all third parties.
– Deliver a specific speak up campaign to
raise awareness, understanding and
confidence in Speak Up.
– Continue to strengthen Ethics Compliance
resource and competency supported by
robust data dashboards to inform
management decisions.
– Continue to drive a programme of
assurance including focusing on Ethics
Compliance controls.
– Strong, meaningful and understood Values
and required behaviours, which are defined
in mycode, role modelled by leaders and
included in bonus assessments for those that
are eligible.
– Robust governance (Corporate Responsibility
Committee; Group Executive Committee;
Investment Committee; Divisional Executive
Management etc.) exercising oversight of
decisions within delegated authorities.
– Clear policy and procedures, including
financial controls and processes defined
within the SMS, which has been subject to a
comprehensive review and refresh,
supported by mycode.
– Independent Speak Up process supported
by corporate investigations.
– Mandated Serco Essentials training.
– Non Executive Directors only session at the
CRC Committee.
– Second and third line assurance reviews and
third-party audits.
Serco Group plc | Annual Report and Accounts 2023 | 41
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
Failure to attract, engage and retain key talent
Risk Appetite: Cautious
It is our ambition to be regarded as the best-managed company in the sector and, notwithstanding our framework of people
processes, systems and controls, there is a risk that we are unable to attract, engage and retain an appropriately sized, qualified
and competent workforce and management team. The impact of this risk materialising would restrict Serco’s ability to deliver on its
customer obligations, execute its strategy and achieve its business objectives while driving employee pride in the organisation. ESG
is an implicit consideration in this risk and influences the achievement of our Employee Engagement KPI as outlined on page 27. We
have a cautious risk appetite and take a pragmatic approach to the attraction, retention and development of key talent. We ensure
that robust contingency plans are in place for business-critical roles and continually track turnover and vacancy rates.
Post the Covid-19 pandemic, we are experiencing considerable turbulence in recruitment and have had to monitor and adapt more
quickly to mitigate the challenges of bulk recruitment into key service roles. With higher levels of employment market vacancies,
candidates have more options available, which intensifies the need to ensure greater quality of hire. Our recruitment teams have
worked to adapt their approach to the market, and through enhancements to our Employee Value Proposition and use of innovative
technology solutions, we have seen global vacancies fall from a quarter one peak of 6,325, to a quarter four low of 2,180.
Managing attrition globally has become a key issue within the market generally and presents challenges for each of our four Divisions.
The drivers of attrition vary geographically, demographically and contract to contract. Recruitment teams have built closer working
relationships with operations to help withstand volatility and, over the course of 2023, has brought global aggregated rolling
voluntary attrition down by more than four percentage points which equates to approximately 1,300 people.
This risk includes consideration of key person reliance in our leadership and executive teams, including succession planning for our
senior management team and other business-critical roles. Several new senior leadership roles were recruited into Group HR during
2023, including the appointment of a new Group Chief People and Culture Officer. A key aspect of their focus is to build better
leadership capability throughout the organisation and build an elevated level of intrinsic motivation into the organisation’s Employee
Value Proposition. The organisation sees this as the most effective way to mitigate the issues associated with this key risk.
The Board continues to ensure effective succession planning, both for Group Executive Committee and other senior roles noting the
successful Board and Group Executive Committee changes made this year as detailed in the Chair’s Statement on pages 4 and 5.
Key risk drivers:
Material controls:
Mitigation priorities:
Lack of staff development.
Poor talent management and
succession planning.
Low employee engagement.
Unsatisfactory reward framework.
Recruitment failings.
Inability to attract appropriate
new hires.
– Talent Management and Succession processes.
– Leadership capability development.
– Targeted retention arrangements.
– Localised attrition planning.
– Critical Resource Planning.
– Tracking of turnover and vacancy rates.
– Annual Performance Management process.
– Exit interview surveys.
– Annual Viewpoint survey.
– Focus on colleague health and well-being.
– Ensure up-to-date understanding of local
employment markets.
– Continue to monitor channels to access
external talent in chosen markets.
– Ongoing benchmarking activity to ensure
market competitive reward packages to aid
retention of existing employees and
attraction of new talent.
– Continue with detailed review of
succession plans and mitigation strategies
as part of the Talent Review process.
– Ensure ongoing use and analysis of exit
interview survey results.
– Follow up and action on themes identified
as a result of annual people survey.
– Further roll-out of ISO 45003 Psychological
Health and Safety at Work across Divisions.
Serco Group plc | Annual Report and Accounts 2023 | 42
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
Health, safety and well-being
Risk Appetite: Averse
The diversity of services provided by Serco exposes our employees, customers and third parties to a wide range of health, safety
and well-being risks inherent to our operations in both work and public environments. It also includes elements of risks related to
environmental concerns recognising that extreme heat, flooding or other extreme weather events may impact the safety and well-
being of our employees, the employees of our customers and suppliers and those we look after. These may be caused by a process
or control failure or by the wrong behaviour and/or an inadequate safety culture. As responsible employers, we recognise the complexity
of well-being risk and aim to ensure that working for Serco does not impose any additional well-being challenges on our employees.
This is a wide-reaching risk that directly supports the KPI target for Lost Time Incident (LTI) and Major Incident frequency rate as described
on page 27 and other HSE related metrics outlined in the Our Impact section on page 59. We have an averse risk appetite for actions/
failures that would cause loss of life. We cannot eradicate this risk entirely while maintaining operational delivery so we prioritise
prevention of major injuries and threats to well-being while accepting that minor injuries will occur on occasion but are minimised
by training, risk assessment, safe systems of work, operating procedures, PPE, site supervision, audit and inspection, and a positive
safety cultural approach.
Our vision is Zero Harm. We aim to ensure that no one comes to harm because of the work we do. Wherever we work, we are committed
to the prevention of injury and promoting an equitable and positive safety culture in which we foster transparency, honesty and trust in
order to identify root causes and prevent recurrence. Wherever we work, we are committed to the promotion of well-being and the
prevention of ill health, increasing focus on mitigating risks associated with psychological harm and creating a continuously improving
environment where people can thrive. We understand that healthier, happier employees go hand-in-hand with strong business
performance, enhanced productivity, a positive culture and better outcomes for those we serve. In addition to personal injury concerns,
a breach of health and safety regulations or failure to meet our contracted expectations could disrupt our business, have a negative
impact on our reputation and lead to contractual, financial, regulatory and reputational costs.
These broader risks can be labelled as crossover risks due to their potential for impact across several risk areas, from this risk, to
Legal and Regulatory, Compliance, Attraction and Retention of Talent and Catastrophic Incident risks. Our Health, Safety and Well-
being teams continue to support our organisational response across the business through key mitigations, including enhanced risk
assessments, financial well-being support and updated training resources and our well-being ecosystem is strong and well structured.
We continue to engage our people with this work and, through Viewpoint and other consultation and engagement surveys and
interactions, can demonstrate that the controls and mitigations in place are more effective and well received. Notably the LTI
reduction planning and the ISO 45003 accreditation are key markers of our continued focus on risk mitigation in these areas.
As the current societal challenges are predicted to increase, we anticipate that these crossover risks will increase, largely driven by
financial pressures which will disproportionately impact our frontline workforce. Continuing to meet these developing people and
compliance needs and mitigating their impact will be a key challenge for the organisation over the coming months. This includes
recognition of increasing costs associated with workers compensation compliance.
Serco Group plc | Annual Report and Accounts 2023 | 43
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
Key risk drivers:
Material controls:
Mitigation priorities:
Failure of the Serco Safety
Management System.
Insufficient communication of key
issues, risks and changes.
Lack of/out-of-date
task-specific competence.
Human factors impact
on behaviour.
Occupational well-being risks
including psychosocial risks.
Public Health and well-being risks.
Behavioural failures/human error
resulting in injury or incident.
Global economic challenges
manifesting in colleague safety and
well-being issues and incidents.
Future impact of cross-cutting risks
for example Catastrophic Incident,
Legal and Regulatory etc.
Extreme weather events such as
fire and flooding.
– Serco Health, Safety, Environmental and
Well-being (HSEW) Strategies and Safety
Management System (policies and procedures)
underpinned by our Impact framework.
– Safety and well-being training,
communications, and guidance (including
Serco Essentials) and individual development
plans and processes based on role and
operational risk.
– Spontaneous and planned preventative,
maintenance, audit, inspection and
repair programmes.
– Effective incident/near-miss observations
reporting and investigations and effective
use of ASSURE (independent reporting and
compliance system).
– Continue to further embed the Serco Health,
Safety, Environment and Well-being
strategies and Safety Management System
(policies and procedures) and an open,
positive and equitable culture.
– Increase safety observation, Zero Harm
Engagement and Safety Moment activity
across the regions.
– Continue to drive the well-being agenda and
ensure appropriate focus at a corporate
level.
– Continuing first, second and third line
assurance activities and ensuring
understanding of appropriate levels of
ownership, accountability, and responsibility.
– Continuously drive focus in key risk areas and
– A programme of first, second and third
global reduction initiatives.
line assurance.
– Risk assessments and supporting safe
systems of work for activities.
– Further development and maturity of our
approach to ESG and programme of
improvements to meet best practice and
evolving stakeholder expectations.
– Continued review and sharing of lessons
learnt throughout the global organisation.
– Continued oversight and review from the
CRC, Board, Group Executive Committee
and relevant global oversight forums.
Serco Group plc | Annual Report and Accounts 2023 | 44
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
HAZARD RISKS
Catastrophic incident
Risk Appetite: Averse
Given the nature of our business, we are exposed to the risk of an event (incident or accident) occurring as a result of Serco’s actions
or failure to effectively respond to/prepare for an event that results in multiple fatalities, and/or severe property/asset damage/loss
and/or very serious environmental damage. Management of this risk influences, amongst others, the KPI target for Major Incident
Frequency Rate as described on page 27. We are also exposed to the inherent risk of an external catastrophic incident such as a fire,
flood or black swan event. We aim to provide safe services, places to work and to operate a resilient organisation and have an
averse risk appetite for this risk.
Throughout 2023, we have continued to utilise our five-step Catastrophic Risk plan to ensure each Division continues to assess risks
at a contract level. The five-step plan’s purpose is therefore to ensure that relevant material risks have been identified and to assess
and seek to assure mitigations, including insurance cover, are appropriate and have been embedded. We have also tested our
Group Crisis Management plan. The physical risks linked to climate change-related events are now included more explicitly in our
risk management framework as part of the work initiated for TCFD and outlined in more detail on page 73. The former Health, Safety
and Well-being elements of this risk have been moved to the Health, Safety and Well-being principal risk.
Given our average contract length, there tend not to be large fluctuations in this risk. That being said, we are working with some
of our key insurance brokers to leverage climate change impact scenario analyses they have conducted, to see what potential risk
quantification changes they project. This work will allow us to cross reference the insurance limits purchased and ensure that they
remain adequate, given insurance is one of the key mitigants for this risk.
Key risk drivers:
Factors resulting in
unsafe conditions.
Ineffective or inadequate policies,
standards and procedures.
Lack of capability and experience.
Lack of safety cultural alignment.
Insufficient safety
management oversight.
Inadequate planning or response
to a catastrophic event, including
extreme weather or a climate
change-related event.
Inadequate assurance
and performance.
Inadequate insurance cover.
Material controls:
Mitigation priorities:
– Regular reviews of high-risk contracts.
– HSE&W Strategies and Safety Management
System (policies and procedures)
underpinned by our Impact framework.
– Safety training (including Serco Essentials)
and individual development plans and
processes based on role and operational risk.
– Effective incident/near-miss investigations
and effective use of ASSURE (independent
reporting and compliance system).
– Second and third line assurance reviews.
– Business continuity, crisis and incident
emergency response plans and testing.
– Risk transfer via insurance where appropriate.
– Continue to embed updated HSE&W
strategies and a positive and
equitable culture.
– Ongoing work within Divisions to identify
and assess contract-specific risks
and liabilities.
– Continued training in insurance and
contractual risk management.
– Continued optimisation of the insurance
programme and captive structure.
– Review levels and adequacy of
compliance assurance.
– Continuing first, second and third line
assurance activities and ensuring
understanding of appropriate levels of
ownership, accountability, and responsibility.
– Continued focus on maintenance and
testing of robust business continuity,
incident management and disaster
recovery plans across each Division
and function.
Serco Group plc | Annual Report and Accounts 2023 | 45
Strategic Report
Corporate Governance
Financial Statements
Principal Risks and Uncertainties continued
–People––
–Brand––
–Growth––
–Operations––
–Efficiency––
–Technology
LEGAL AND COMPLIANCE RISKS
Material legal and regulatory compliance failure
Risk Appetite: Averse
Serco operates in complex legal and regulatory environments across multiple industries and geographies and there is a risk that the
Company might not comply with all relevant laws and regulations. Failure to comply with laws and regulations may cause significant
loss and damage to the Group and its people including exposure to regulatory prosecution and fines, reputational damage and the
potential loss of licences and authorisations, all of which may prejudice the prospects for future bids. Defending legal proceedings
may be costly and may also divert management attention away from running the business for a prolonged period. Uninsured losses
or financial penalties resulting from any current or threatened legal actions may also have a material adverse effect on the Group.
We are averse to risks which may result in legal and regulatory non-compliance and demand processes that seek to minimise
regulatory and legal action, as well as targeted and selected assurance activity.
We remain subject to a fast-moving and complex global legal and regulatory environment and Serco is subject to investigations and
potential claims which involve legal proceedings. We concluded two key Health and Safety prosecution cases brought by the UK
Health and Safety Executive in 2023 but we continue to be subject to heightened regulatory supervision and challenge in most
Divisions with coronial reviews and investigations ongoing in our Asia Pacific immigration centres.
In addition, various laws and regulations that apply across the business continue to be subject to increased focus and attention,
including anti-bribery and corruption laws, market abuse regulation, data and privacy laws, sanctions and trade compliance,
competition and antitrust, human rights, modern slavery and employment laws.
The management of this risk is a key enabler of Serco’s governance for ESG purposes.
Key risk drivers:
Material controls:
Mitigation priorities:
Lack of governance and oversight.
– Externally appointed legal specialists and
Failure to comply with the SMS
and contractual obligations.
Failure to identify and respond
to material changes in legal
and regulatory requirements,
including fast-moving new and
changing laws.
Lack of awareness by employees
of the legal and regulatory
requirements placed upon them
and the business.
Inadequate provision of systems
and tools.
Legal or regulatory compliance
failure by a third party.
Class action litigation and
increasing regulatory fines.
internal legal team monitoring and horizon
scanning on legal and regulatory obligations
and changes.
– Legal and contract subject matter experts
aligned to functions and operations across
the business supported by mandatory and
bespoke training.
– Investment Committee and Business Lifecycle
Review Team (BLRT) bid process and
governance supported by Trading Principles.
– Third-party due diligence on customers,
suppliers and high risk third parties.
– Targeted compliance and assurance reviews.
– Speak Up process and systems and corporate
investigation case management system.
– Group-led ethics and compliance tools,
frameworks and platforms, including
anti-bribery and corruption.
– SMS policies and procedures.
– Serco Essentials training.
– Strong defence and focus on any legal
proceedings and investigations.
– Maturing legislation tracking and horizon
scanning on key new laws and regulations
across global stakeholder map.
– Greater use of data and trend analysis.
– Embedding risk-based third-party due
diligence including modern slavery and
sanctions risk assessment.
– Continuing development of Serco
Essentials training programmes,
including Code of Conduct training.
– SMS refresh and implementation,
including new governance policy.
– Supplier review and improvements to
various key tools such as Speak Up
and onboarding.
Serco Group plc | Annual Report and Accounts 2023 | 46
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Corporate Governance
Financial Statements
Viability Statement
In accordance with provision 31 of the UK Corporate Governance Code
published by the Financial Reporting Council (FRC) in July 2018 and the
FRC Guidance on Risk Management and Business Reporting, the
Directors have assessed the prospects of the Group over the three-year
period to 31 December 2026.
Three-year term
Whilst the Group operates many long-term contracts, the nature
of the Group’s business relies on continued bidding activity and
contract wins in order to sustain its revenue streams and facilitate
growth. The pipeline of contract opportunities is carefully
managed; however, the outcome of bid submissions is binary
and the Group uses past experience and estimated win rates to
provide short-term budgets against which performance is
measured. As a result of the estimates used in developing the
Group’s forecast, it remains challenging to develop detailed
projections against which the Group’s viability can be assessed.
Therefore, the Directors believe that a three-year period is
appropriate since it reflects the fact that:
– Short term projections can be heavily reliant on successful
bidding opportunities which have a binary outcome.
– The Group has limited visibility of contract bidding
opportunities beyond three years given the lead times which
generally exist before opportunities come to market.
– Approximately 50% (2022: 57%) of the current year revenue
relates to contracts where the contract term potentially comes
to an end within three years.
In line with the annual budgeting process the Group has
prepared an updated five-year business plan to establish
whether it is on target to achieve its long-term strategic goals.
The future cash flows are derived from the latest Board approved
five-year plan, with the key assumptions being revenue growth
which is sensitive to known and unknown pipeline opportunities,
which is common within the industry, win rates for rebids and
new business, margins on existing and new business, and cash
conversion rates, all of which drive short-term growth rates. The
Board approved five-year plan has an element of contingency to
take into consideration potential risks within these assumptions.
Given the nature of the assumptions used in the latter years of the
five-year plan it is appropriate to forecast the future performance
of the business, however, given the assumptions used and the
items noted above, is not of definitive certainty against which
a statement of viability can be assessed against.
Financial forecasts
In assessing the prospects of the Group over the three-year
period, the Directors have also considered the Group’s current
financial position as well as its financial projections in the context
of the Group’s debt facilities and associated covenants. These
financial projections which have been approved by the Board
are based on a bottom-up Budget exercise for 2024 and 2025,
and an extrapolation of key assumptions to 2026 such as local
market growth rates and identified opportunities.
The Group’s covenant net debt balance at 31 December 2023 is
£137.6m. The Group’s base projections indicate that debt
facilities and projected headroom are adequate to support the
Group over the period to 31 December 2026. The Group’s financial
plan has been stress-tested against key sensitivities which could
materialise as a result of the crystallisation of one or a number of the
principal risks, the objective being that the future viability of the
Group is tested against severe but plausible scenarios.
As noted in post balance sheet events within note 37 of the
notes to the financial statements, subsequent to the balance
sheet date the Group issued a further £118m ($150m) of US
Private Placement (USPP) notes which have been included in the
Directors liquidity forecast supporting this assessment.
Funding facilities
At 31 December 2023, the Group’s principal debt facilities
comprised a £350m revolving credit facility maturing in
November 2027 (of which £nil was drawn), and £208.8m of USPP
notes. The principal financial covenant ratios are consistent
across the USPP notes and revolving credit facility and are
outlined on page 85.
During the period of assessment, £91m of the Group’s USPP
notes mature. The long-term forecasts supporting this statement
show that, on the assumption that these are repaid and no
further refinancing occurs after the date of the approval of these
financial statements, there is still sufficient liquidity headroom for
the Group to remain viable.
The Group’s financial position has also been enhanced by its
improved ability to generate Free Cash Flow from its growing
profits and the reduction in cash outflow associated with historic
loss-making contracts.
Risks
The Board and the Risk Committee continue to monitor the
principal risks facing the Group, including those that would
threaten the execution of its strategy, business model, future
performance, solvency and liquidity. The potential outcome,
management and mitigation of those principal risks have been
taken into consideration when modelling sensitivities to assess
the future viability of the Group. The Group’s risk review is set
out on pages 34 to 46 and outlines the Group’s principal risks
and mitigating controls that are in place.
Severe but plausible scenarios
Due to the Group’s long-term contracting nature, the sensitivities
tested include a reduction in the win rates for rebids, extensions
and the pipeline of new opportunities, a reduction in delivering
margin improvements and a potential penalty arising from risks
such as a major information security breach or a material legal
and regulatory compliance failure.
Serco Group plc | Annual Report and Accounts 2023 | 47
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Corporate Governance
Financial Statements
Viability Statement continued
A reverse stress test of the Group’s profit forecast has been
completed using different assumptions of new business and
rebid win rates and the Group’s profit margin. This analysis
shows that the Group can afford to be unsuccessful on 60% of its
target new business and rebid wins combined with a profit
margin 60 basis points below the Group’s forecast, and the
Group will still have sufficient liquidity available throughout the
assessment period, on the assumption that all USPPs are repaid
during the period. May 2024 is the point with the lowest amount
of liquidity headroom using the sensitivities outlined above
against which the forecast has been stress tested.
As context, rebids have a more significant impact on the Group’s
revenue than new business wins, as contracts accounting for
50% of total revenues are expected to be rebid in the next three
years. The Group has won more than 85% of its rebids and
available contract extensions over the last two years by volume,
therefore a reduction of 60% or more to the budgeted win rates
and rebid rates is not considered plausible. While these
sensitivities will change in line with the Group’s order book and
contract performance going forward, including the impact of
new contract wins and losses, the ability for the Group to absorb
sensitivities of this scale within its existing financing
arrangements drove the assumptions below, which the Directors
felt appropriate to disclose in making this viability statement.
The Group will rebid one significant contract in 2024; its
Immigration Services contract in Australia which was retained
when previously rebid and a 12-month extension agreed in
2023. We have modelled a severe but plausible scenario in
which the outcome of the rebid is unsuccessful, with the analysis
demonstrating that the Group would remain viable over the
assessment period.
Mitigations
It is considered unlikely, but not impossible, that the
crystallisation of a single risk would test the future viability of the
Group; however, unsurprisingly, and as with many companies, it
is possible to construct scenarios where either multiple
occurrences of the same risk, or single occurrences of different
significant risks, could put pressure on the Group’s ability to
meet its financial covenants. At this point, the Group would look
to address the issue by exploring a range of options including,
amongst others, a temporary or permanent renegotiation of the
financial covenants, disposals of parts of the Group’s operations
to reduce net debt and/or raising additional capital in the form
of equity, subordinated debt or other such instruments.
Conclusions and assumptions
Subject to these risks and on the basis of the analysis
undertaken, the Directors have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment. In doing so, it is recognised that such future
assessments are subject to a level of uncertainty that increases
further out in time and, therefore, future outcomes cannot be
guaranteed or predicted with certainty. The Directors have made
the following key assumptions in connection with this assessment:
– There is no significant unexpected contract attrition of existing
work that becomes due for extension or rebid over the next
three years;
– There is no significant reduction in scale of existing contract
operations as a result of customer policy or other changes;
– There is no significant deterioration in new bid and rebid win
rates from those anticipated;
– The Group is able to continue the execution of its strategy of
growing revenue and profits; and
– The Group is not subject to any material penalties, claims or
direct and indirect costs and/or debarment from bidding for
new contracts.
Serco Group plc | Annual Report and Accounts 2023 | 48
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Financial Statements
Our Impact
Delivering positive
impact across People,
Place and Planet.
Impact is about really listening to our
customers. It's describing the impact we
have beyond KPIs such as our impact on
the community, our impact on employment
and these can be a real differentiator.
David Eveleigh
Group General Counsel
Societal and global challenges are
increasingly complex. Governments
alone cannot solve the world's most
difficult problems, including climate
change and social dislocation.
Increasingly, partnering and
collaboration between Governments,
the private sector and civic society is
necessary to solve these challenges to
reorient towards a sustainable world.
As a partner of choice to governments globally, we deliver on a
range of Environmental, Social and Governance (ESG)
commitments where we can contribute to delivering positive
impact to:
–
–
–
–
–
governments around the world, by supporting them to
achieve their desired outcomes;
local communities, through economic development;
the planet, by committing to science-based targets, among
other things, for achieving Net Zero emissions by 2050;
our colleagues, through offering a safe and rewarding work
environment; and
our shareholders, by realising financial opportunities.
Serco Group plc | Annual Report and Accounts 2023 | 49
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Corporate Governance
Financial Statements
Our Impact continued
Our purpose is to ‘impact a better future’.
That’s why we are committed to measuring
what matters – the positive impact we
make to People, Place and Planet.
We have recognised our corporate responsibilities for many
years. However, as we have evolved our strategy and purpose,
we have refreshed our approach to ESG - introducing a new way
to measure the positive impacts we make. We will also continue
to be focused on strong governance and transparency, which
are fundamental to managing risk and running our business in a
responsible way.
– Governance: This activity is underpinned by our governance
structures and processes, which ensure that we are the partner
of choice to governments globally.
Our new approach to measuring impact takes our
Environmental, Social and Governance reporting a step further,
giving real substance to our purpose. Our intent is that our
impact measures are aligned to relevant United Nations
Sustainable Development Goals (UN SDGs) given our
government customers are firmly committed to delivering the
UN SDGs.
We recognise that the breadth of the services we deliver and the
various customers we serve means that our operations and ESG
initiatives impact many aspects of the UN SDGs. An overview of
how our impact agenda contributes to the UN SDGs can be
found in Our Impact hub on our website.
However, in recognising our commitment to People, Place and
Planet we have identified some specific UN SDGs which we
believe are important to our business, and are areas we can
impact across all our Divisions. These are:
– People: As a people business, we will focus on SDG 8 to
promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work.
– Place: As a partner of choice to governments globally, we
recognise the importance of SDG 16 to promote peaceful and
inclusive societies for sustainable development, provide
access to justice and build effective, accountable and inclusive
institutions. We also recognise that as a company we can have
a positive impact on the communities we serve, be that
through donations, sponsorship, volunteering or resources.
These activities will be specific to each Serco Division.
– Planet: In line with our commitments to Net Zero by 2050
across Scope 1, 2 and 3 emissions, our focus is on SDG 13 to
take urgent action to combat climate change and its impacts.
Serco Group plc | Annual Report and Accounts 2023 | 50
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Corporate Governance
Financial Statements
Our Impact continued
Initial double materiality assessment
We seek to understand where we can make the biggest
difference to the impact we have as a business through our
colleagues and those we work with ‘People’, the services we
deliver and the communities we work in ‘Place’, and the carbon
and resources we use ‘Planet’. This needs to be delivered
through effective oversight and risk management ‘Governance’.
To help us focus on what matters to us and our stakeholders we
complete a materiality assessment. In our 2022 materiality
assessment (reported in our 2022 Annual Report and Accounts
(page 43)) internal and external stakeholder groups identified a
set of priorities from a comprehensive range of ESG topics
based on multiple international standards. We supplemented
their feedback with evidence-based, global data from our peers
and competitors, regulators and policymakers; and public opinion.
Building on this and recognising future reporting requirements,
we have conducted a preliminary ‘double materiality’ analysis of
risks and opportunities across our ESG landscape, through
objective, AI-driven examination of evidence-based, global data.
In addition to the data sources cited above, we included metrics
from the Sustainability Accounting Standards Board (SASB)
relating to ESG impacts on financial performance.
As with our previous materiality assessment, the results indicate
that all stakeholders inside and outside of Serco are broadly
aligned in what they believe are those elements and their
severity that may impact the delivery of public services for Serco.
As seen in our initial double materiality assessment, the top
three areas are:
– Data privacy and information security (Governance) - Serco
handles significant quantities of information about our
operations, customers, colleagues, business partners and
service users. Much of it is sensitive. We seek to protect Serco
and data subjects against attack resulting in loss of service or a
data breach (see Governance page 58).
– Diversity and inclusion (People) - One of our greatest
strengths is the huge diversity of people that make up the
Serco community. It is a strength because different ways of
thinking give us the wider insight to find new ways of meeting
the needs of those we serve (see People and Culture on page
28 and Our Impact: People page 52).
– Carbon and climate (Planet) - Climate change is a global
emergency. We are committed to addressing the
environmental and climate emergencies and supporting the
Net Zero carbon ambitions of our clients and wider society
(see Our Impact: Planet page 56 and TCFD pages 70 to 75).
While these sit at the top, all the elements are important to our
approach to People, Place and Planet. We will continue to review
and challenge our approach across all elements. However, the
results from the assessment have helped focus our plans. It also
provides a foundation for more detailed assessment and
validation of double materiality in the future and our approach to
measuring our impact.
The following provides a small selection of activities and impacts
in our response to these areas and broader ESG initiatives.
Full details on our performance and plans is available in Our
Impact hub on our website. We also explore the human face of
impact in our 2023 Impact Report that can be downloaded from
Our Impact hub on our website.
Serco Group plc | Annual Report and Accounts 2023 | 51
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Corporate Governance
Financial Statements
Our Impact continued
We measure impact through equitable,
meaningful, and safe employment.
Areas:
Health, safety and well-being; Diversity and inclusion; Human rights; Skills and development;
Culture.
How we have performed
– 2023 Viewpoint engagement survey saw a one-point improvement to 71, generating over 63,000 comments.
– Health and safety and well-being engagement through Viewpoint both remained strong at 77 (our joint second highest scoring
questions in the survey).
– We saw a 3% reduction in numbers of lost time incidents (601); however, our frequency rate is up 5% at 6.07 falling short against
the threshold we had set of 5.14. Of these, 35 (6%) were major injuries (down 24% on 2022) which resulted in a 18.6%
improvement in frequency rate (0.35) better than 2023 threshold (0.41). These incidents resulted in 13,786 days lost, down 5.2%
on 2022; and severity rate of 22.94 (down 2% on 2022) and above our 2023 threshold of 22.06.
– It is with great sadness we report that we lost three colleagues due to fatalities at work. Two due to natural causes and one
resulted from a road traffic accident. None were as a result of workplace safety failings.
– We were subject to two safety prosecutions related to historical events resulting in fines (£2,490k) being paid in 2023. Both
incidents have been subject to full investigation resulting in additional measures put in place to improve health and safety
generally and to reduce the likelihood of re-occurrence.
– Initiatives implemented through divisional safety strategies saw a 40% increase in safety observations and 80% increase in zero
harm engagement initiatives. An area of focus has been on road risk where we are implementing telematics, vehicle-borne
three-point cameras, speed limiters, personal beacons, incapacity spray and de-escalation and defensive driving training.
– Both our physical assault (up 2%) and serious physical assault (up 32%) rates saw increases against 2022, primarily in three of our
more challenging prisons in the UK, falling short against thresholds set for 2023. Analysis suggests this can be attributed to the
nature of intent of the assault as well as the resulting injuries. Levels of spitting, potting and biting have increased significantly
compared to 2022. We continue to monitor the risk of assaults associated with our operations, particularly in justice and
immigration. In order to combat violence and aggression, we have introduced incapacitant spray and conflict resolution training
and are piloting Safe Cell automating observation cell monitoring and facial recognition to improve security and safety.
– We delivered four masters-level research projects in partnership with Sheffield University Business School. One project on
compassion fatigue within detention custody officers has already been built into development work within our immigration
contracts across UK&E and Asia Pacific.
– We introduced a new leadership bulletin targeting diversity, internal promotion and global mobility.
– Since 2021, we have improved female representation within our senior leadership team including Board and Executive
management to 34.3%.
– We established a sponsored partnership with Slave Free Alliance who completed a gap analysis and made suggestions to
improve our solid foundations in managing modern slavery risks which are being actioned.
– We are a founding member of UK Business Services Association 'Modern Slavery Council' and supported the development of a
new national toolkit: 'Tackling Modern Slavery in Facilities Management and Construction'.
– Viewpoint engagement: ‘I never feel under pressure to compromise our ethical standards‘ is up two to 76; and ‘I can report
unethical behaviour or practices without the fear of retaliation’ remains steady at 74.
– We took part in Transparency International UK’s Corporate Anti-Corruption Benchmark. We are pleased with the results,
especially as a first-time participant.
Find out more in Our Impact hub on our website.
What next – our plans include:
– Reinvigorate our Values aligning clearly with our refreshed purpose and continue to monitor our culture through annual and
pulse Viewpoint surveys.
– Increase alignment of Group health, safety and well-being ‘people-focused’ approach to Group health, safety and well-being
principal risk, policies, oversight and assurance activities.
– We approach 2024 with an ambitious vision to reduce the actual number of lost time incidents by 50% over the next three years.
Our safety thresholds, defining the journey and direction for continuous improvement for 2024 are Major Incident Frequency
Rate 0.31; Lost Time Incident Frequency Rate 5.52; Working days lost per worker 0.22; Physical Assault Rate 5.66; and Serious
Physical Assault Rate 0.66.
– Our core safety theme remains situational awareness with a focus on slips, trips and falls, avoidable incidents, road risk, and
violence and aggression.
– By the end of 2026, to achieve at least 6% utilisation of our Employee Assistance Programmes and train 500 well-being allies.
– Drive internal promotions beyond 50% and reduce voluntary turnover by 50% over three years.
– Achieve engagement score of 73 with over 70% response rate in 2024.
Serco Group plc | Annual Report and Accounts 2023 | 52
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Financial Statements
Our Impact continued
Every day our colleagues
positively impact the
delivery of public services.
We strive to employ engaged
colleagues, who reflect local
communities and have
opportunities to develop.
We seek to protect the
safety, dignity and human
rights of colleagues and
everyone we deal with.
<1
50
North America maintained its
Experience Modification Rating
under 1.
(used to gauge past cost of workers’ compensation
claims and the future probability of claim costs)
50 safety videos on high
frequency tasks developed in
Australia.
78%
78% reduction in subcontractor
incidents following 16 contractor
forums in Middle East.
UK & Europe retained CCLA
mental health benchmark Tier 1
status as one of only four in the
UK’s top 100 companies to gain
this ranking and one of only two
to retain it from 2022.
North America was awarded the
VETS Indexes 5 Star Employer
for the third year, and silver as
2023 Military Friendly Employer.
Asia Pacific, in partnership with Soldier
On, introduced a pre-employment
programme for veterans and reservists,
highlighting their value, building skills
and offering support.
In the Middle East, we provide a
comprehensive suite of development
programmes that support the
progression of national employees
throughout their career journey.
814
In the UK, 814 apprentices engaged
with the programme, of which 137
completed in 2023.
Serco Group plc | Annual Report and Accounts 2023 | 53
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Financial Statements
Our Impact continued
We measure impact through the quality of the
public services we deliver and the community
investment that we make.
Areas:
Service impacts; Community impacts; Sustainable procurement.
How we have performed
– We have engaged across the business and made significant progress in developing our processes to consistently measure our
impact through the services we deliver and are identifying those UN SDGs that are relevant to our operations.
– As we become the partner of choice to governments globally, to impact a better future now drives our operations within all our
markets. The following are a few examples of where we are having an impact.
– In Asia Pacific, Clarence Correctional Centre supported the creation of a new book, The Sun Still Shines, written by fathers in
custody at the centre, to support children affected by parental incarceration; our clinical workforce comprises more than 2,500
health professionals and clinical support staff across 45 role types. Each year, in Hong Kong, we clean 1.5 million square metres
of hospital spaces, serve 10.9 million meals, undertake 2.2 million patient movements and respond to 5.1 million switchboard
calls; and we handle more than 100,000 cars daily through the Cross Harbour Tunnel.
– In the Middle East we support over 27,000 university students in the UAE; at the Galleria in Dubai we support around 3m visitors
per month; 32 UAE colleagues helped collect over 10 tonnes of waste at a ‘Clean UAE’ event; and we scaled up our health
checks in KSA and UAE bringing professional testing and consultation to colleagues and client teams including remote sites.
– In North America we support the Federal Emergency Management Agency with environmental disaster recovery services
throughout the United States; we operate and maintain ground-based telescopes monitoring man-made objects in deep space
for the US Space Force. We process, analyse and classify 175,000 patent applications a year. In Texas and Louisiana our Highway
Safety Operations manage over 28k traffic incidents per year, keeping highways safe and regularly saving lives; and in Canada
we administer over 1.2 million road tests and over 2.3 million counter transactions per year.
– In UK&E we helped 29,885 jobseekers into work and pledged £1.4m through apprenticeship levy gifting to 29 small/mid-sized
companies; we care for more than 5,500 prisoners in five adult prisons; we support 38,000 asylum seekers every month; we
recycle 336,000 tonnes of waste each year; we test and monitor 1,984 train axles every year to ensure they are safe when in
public service; and NorthLink Ferries have increased local employment by 29%, providing £11.7 million in gross wages to the
local economy.
– To meet UK Government requirements around delivery of Social Value, we are using the Social Value Portal and the National
Themes Outcomes and Measures (TOMs) Framework to attribute proxy financial values1 for key Social Value activities. The
National TOMs system is underpinned with extensive research and evidence, calculating values from publicly accessible data,
backed by 15 economists and data analysts. To date, 19 contracts have delivered over £43 million proxy value of social impact,
totalling 5.6% Social Value added (Social Value delivered relative to total contract value).
– The Serco Foundation supported 35 charities with grants totalling £184,569.
– The Serco People Fund has helped 270 colleagues with grants totalling £406,117.
– UK&E sponsored the Black Talent awards, held the Black Talent conference in our offices and worked to develop the winners.
– In the UK, SMEs accounted for 33% of our total addressable spend in 2023. In the Middle East, we achieved 38.8% for our In
Country Value Program compared to 37.55% for 2022. In Asia Pacific, we spent 4.67% with indigenous suppliers. In North
America, Serco meets Federal Acquisition Regulations Part 19, providing practicable opportunities to Small Business concerns.
In 2023, Serco exceeded statutory goals for socioeconomic categories including small disadvantaged business, women, veteran,
service-disabled owned small businesses and historically underutilised business zone small businesses.
– We introduced EcoVadis, a provider of sustainability ratings, and have live scorecards on 227 suppliers representing 47% of total
supplier spend. We have set score thresholds to assess our suppliers and encourage those who fall short to achieve our standard.
– To support supplier diversity, we have developed a supplier registration portal which includes supplier diversity characteristics
to identify new and diverse suppliers for consideration.
– We have updated our Supplier Code of Conduct. The new code, available online in over 100 languages, is aligned with our
Sustainability Procurement Charter and supplier onboarding question set.
Find out more in Our Impact hub on our website.
What next – our plans include:
– Continue the UK rollout of the Social Value Portal and look at similar systems for other Divisions.
– Maintain upper quartile performance for on time supplier payments.
– Align our Sustainable Procurement Charter with our revised People, Place and Planet Impact Strategy.
– Monitor compliance with Sustainable Procurement EcoVadis standards, recognising those that achieve or exceed the KPIs set.
– Build on the capability acquired through our acquisition of the Climatize business in the Middle East.
– Further develop programmes and employment of indigenous populations in Middle East, Canada and Australia.
1.
Financial proxy is a reasoned approximation expressed in monetary terms of the benefits created by the activity relating to a particular measure. Proxies are
generalised unit values designed to be robust and conservative, follow best practice for socioeconomic evaluation and analysis and are consistent with key
government guidance documents.
Serco Group plc | Annual Report and Accounts 2023 | 54
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
We deliver public services at
the heart of the communities
we serve, employing local
people, using local
businesses and supporting
fundraising and
volunteering efforts,
strengthening the social and
economic well-being of the
communities we serve.
2030
Middle East Advisory with Purpose
is developing a portfolio of
projects in support of Saudi Vision
2030.
We are leading the launch of
EmployNext, an outcomes-based
employment service for
jobseekers and employers across
the Kingston-Pembroke region of
Ontario, Canada.
Acacia Prison in Australia, in
partnership with BuddyUp
Australia, is supporting ex-
servicemen in their care.
UK Customer Service teams
supporting Peterborough City
Council retained their 'Customer
Service Excellence' accreditation
for the 14th year.
142 colleagues from UAE-Serco/
Mubadala joint venture,
Khadamat Facilities
Management, fully renovated Al-
Mutarid Tolerance School, which
helps disadvantaged families
gain access to quality education.
14
142
160k
50k
1.4m
US colleagues donated c.160,000
particulate masks to the Hawaiian
Way Fund in support of the Maui
wildfire recovery efforts.
We partnered in 2023 with the
Australian Clontarf Foundation,
which works to improve the
prospects of young First Nations
people, including AUD50,000 for
Clontarf Academies.
In the UK, we pledged £1.4 million
through apprenticeship levy
gifting to help 29 SMEs give
opportunities to 162 people to
complete learning programmes.
Serco Group plc | Annual Report and Accounts 2023 | 55
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
We measure impact through reducing carbon
emissions in line with the Science Based Targets
initiative.
Areas:
Net Zero; Resources; Protection
How we have performed
– We have restated our base year Scope 1 and 2 emissions from 38,762 to 34,360 tCO2e for 2022 in accordance with our base
year emissions recalculation policy. Significant changes included carbon intensive contract losses, asset ownership updates, as
well as smaller data, methodology and emission factor updates and errors. Our Scope 1 and 2 emissions for 2023 are 28,027
which is a reduction of 18% versus 2022. Reductions are a consequence of a focus on operational and energy efficiency,
increased proportion of renewable sourced electricity, 27% to 47%, downsizing our property portfolio to account for increased
flexible working, organic decline, increased data quality and ongoing transition to lower emission vehicles where possible.
– Based on the updated Science Based Targets initiative (SBTi) methodology, we have worked with an external partner to review
our targets, resulting in an increase to our near-term Scope 1 and 2 target to 42% by 2030 (previously 34%) and expansion of
our Scope 3 engagement target to include customers and suppliers. Targets have been submitted to SBTi for validation in 2024.
– We have aligned and updated our Net Zero transition planning to the latest UK Government guidance. Increased usage of
renewable sourced electricity, low carbon fuels and vehicles are vital elements of our planning requiring collaboration with
customers and wider stakeholders. Therefore, we have more clearly articulated our assumptions and planned dependencies.
– We continue to support the decarbonisation journeys of our customers and wider society, from installation of a ground source
heat pump, solar panels and wider energy efficiency upgrades at UK leisure centres, to supporting delivery of the European CO2
monitoring satellite mission, measuring the release of carbon dioxide through human activity using satellite data.
– We have been through a procurement exercise to bring a Scope 3 supply chain carbon accounting technology platform on
board in 2024 to gain better precision in carbon measurement, transparency and to identify carbon hotspots.
– Our non-hazardous tonnage has decreased 6% in 2023; however, the diversion from landfill rate has also decreased from 67%
to 65% resulting in a 10% increase in associated tCO2e. This is mainly down to customer waste streams we manage but have no
control over. We are considering separate waste reporting in future. Our IT waste tonnage has increased significantly, however,
fluctuations are expected with the infrequent and cyclical nature of IT equipment life cycle changes. Corresponding carbon
emissions have reduced by 32% due to a larger proportion of equipment being refurbished for reuse rather than recycled. Our
water consumption is up 11% in 2023 versus 2022; again it is not always in our control on customer sites and can fluctuate for
example, on the number of people in our care, therefore we will consider separate reporting in future as per waste reporting.
– We continue to work with suppliers to eliminate single use plastics, maximise our procurement of secondary goods and materials,
use water more efficiently and procure goods and services that comply with appropriate ethical and environmental standards.
– We continue to find ways to lower fleet vehicle emissions, including increasing the availability of lower emissions company cars;
upgrading light commercial vehicles with electric alternatives where possible; and increasing the use of Hydrogenated
Vegetable Oil (HVO) fuel by proactively influencing customers to consider it as an interim fuel ahead of full fleet electrification.
– We have established new partnerships with environmental organisations to support ecosystem restoration and increase
biodiversity, including planting more than 1,000 mangrove trees in the Jebel Ali Marine Reserve in the United Arab Emirates; in
the UK, supporting the Canal and River Trust and Lincolnshire Wildlife Trust on habitat restoration and protection; in Australia,
we are working with One Tree Planted to support reforestation initiatives.
– We continue to deliver a range of services which directly support environmental protection. We support the European Union
(EU) on marine environmental monitoring as well as a host of other earth observation activities. In the Middle East, our Advisory
with Purpose business, is supporting the full suite of sustainable mobility services across The Red Sea, the Kingdom of Saudi
Arabia’s visionary new tourism destination. In Asia Pacific and the UK, we deliver maritime services which support pollution
response, often in high risk areas with designated environmental protection status. In North America, we perform analysis that
supports the US Environmental Protection Agency to complete assessments of contaminated sites and how to manage them.
– We continue to mature our green ambassador network which supports behavioural and cultural change.
Find out more in Our Impact hub on our website.
What next – our plans include:
– Net Zero targets to be validated through the Science Based Targets initiative in 2024, currently anticipated to be:
Near-term targets: reduce absolute Scope 1 and 2 GHG emissions 42% by 2030 from a 2022 base year; 80% of suppliers and
100% of customer (contracts we report upstream leased emissions) by emissions to have science-based targets by 2028.
– Net Zero across Scopes 1, 2 and 3 by 2050.
– Select and implement a Scope 3 supply chain carbon accounting technology platform in 2024.
– Consider reporting customer managed waste and water separately from Serco owned/leased sites in 2024.
– Work with the new Taskforce on Nature-related Financial Disclosures (TNFD) framework in preparation for assessing, reporting
and acting on nature-related dependencies, impacts, risks and opportunities to meet future sustainability reporting standards.
– Explore more air pollution reporting through the Air Pollution Footprint Network.
Serco Group plc | Annual Report and Accounts 2023 | 56
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
We strive to address the
environmental and climate
emergencies, supporting our
customers by reducing
emissions, decarbonising our
services, preventing
pollution and protecting and
enhancing biodiversity and
the natural world which
sustains us.
18%
We reduced Scope 1 and 2
carbon emissions by 18% from
2022.
Listed in Financial Times 2023
Europe’s Climate Leaders.
Recognised as supply chain
engagement leader by CDP.
CDP
Gold standard green tourism
award achieved by our UK
NorthLink Ferries contract.
2,000
Donated over 2,000 plants to
local community gardens from a
display created by our
Melbourne Parks & Gardens
contract team.
37.5
During demobilisation of our
services to Dubai Metro, 37.5kg of
obsolete uniforms were recycled
through our partnership with
Ecyclex.
All electricity sourced in the Middle
East in 2023 was from renewable
sources for the first time as well as
25% of electricity in the United
States.
North America joined forces with
CakeBoxx Technologies to address
‘thermal runaway’ safety issues with
shipping lithium-ion batteries on
ships and aircrafts.
Serco Group plc | Annual Report and Accounts 2023 | 57
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Governance
Our impact framework is embedded in our strategy with regular
Board oversight and scrutiny. The specific elements of our
framework are reviewed through the Corporate Responsibility
Committee. Management oversight is delivered through the
Group Executive Committee. An Executive Sponsor and subject
matter expert are identified for and take a lead on each element
of our framework. A full guide to how we manage our impact
framework and meet ESG responsibilities is available on Our
Impact hub on our website.
Our impact framework is embedded in the Serco Management
System (SMS), our framework of policy statements,
responsibilities and procedures which we refreshed in 2023. All
Divisions submit biannual compliance statements covering
compliance with key SMS policies and contracts complete an
Annual Risk and Controls Self-Assessment. Compliance is further
assured through divisional compliance assurance programmes
and internal audit.
During 2023, we reviewed our internal governance of large bids
improving the collateral used at gate reviews to assess
proposals, so that investment decisions are made based on
better and more focused information. In 2024, we will re-
appraise our operational review process (Gate 8) to better
inform the veracity of bidding assumptions and improve
estimates made in tenders built from lessons learnt in live
operations. We continue to improve our financial controls
environment (see Financial Control Failure risk page 36).
We have implemented the Controls Management module of the
Governance, Risk and Compliance tool covering key financial
controls in UK&E, Middle East and Asia Pacific, helping to
improve process efficiency and effectiveness. The
implementation in North America is planned for 2024. The
design and configuration of the Enterprise Risk Management
(ERM) module is underway with implementation planned in
2024. Supporting our commitment to improve ERM and to
support changes in corporate governance requirements, we are
reviewing our risk and assurance approach.
During 2023, Group Internal Audit (GIA) delivered a full
programme of audits making recommendations to Management
for improvements to risk, governance and controls. The GIA
strategy and approach was reviewed with recommendations to
consider the balance between contract thematic, and functional
audits. The 2024 Internal Audit plan reflects these
recommendations.
GIA completed a Fraud Risk Framework Maturity Assessment,
using a third-party/external benchmark, which found standalone
good practices but recognised a more holistic approach to fraud
risk management and assessment would be beneficial.
Recommendations are being implemented.
We seek to protect the organisation and data subjects against
data breaches (including personal or customer data). In the US,
we have had no significant data breaches, but were impacted by
a cyber attack involving one of our US suppliers. Globally, we
have had four substantiated complaints from data protection
regulators; two in the UK relating to minor data breaches; and
two in Australia which the Australian Information Commissioner
determined were privacy breaches.
In driving data protection our focus has been on ‘back to basics’.
We have a new manager hub to support sharing of best practice
and held a Data Protection Conference and roadshows on data
governance. We seek to monitor changes to data protection
laws globally with enhanced training on changes in laws in
Switzerland and the Kingdom of Saudi Arabia; developed and
deployed specialised data protection training in UK&E;
deployed enhanced training, processes and awareness to
relevant UK groups on subject matter data requests to improve
how we manage customer rights; deployed training and raised
awareness on data inventory and Data Protection Impact
Assessment processes; and introduced a monthly Data
Protection Officer newsletter to foster a culture of organisational
privacy and good data governance.
We completed four global phishing simulation campaigns using
a variety of email templates and sophistication levels. Results
show that those who click on or interact with the simulated
website have remained at expected levels consistent with prior
years. We saw a decrease in the repeat ‘click link’ average in our
simulations compared to 2022. Our reporting rate for credentials
entering phishing simulations dropped slightly below our
threshold in the second half of 2023. While this is likely to be
attributable to the type of simulation, enhanced training and
communications on colleagues reporting all suspicious emails
will be a focus in 2024.
We have substantially completed the roll-out of new enhanced
detection and security vulnerability mitigation tooling for our
endpoint assets that forms the basis of the global security
improvement programme. This will complete in 2024.
Over the coming months, we should complete the transfer of all
legacy SMS documents into a new SMS hierarchy; implement the
Controls Module of the Riskonnect system in North America;
implement the ERM module of Riskonnect in all Divisions and
embed new reporting and risk and assurance approaches; and
enhance our fraud compliance programme based on a 2023
fraud framework review. We aim to maintain our threshold of no
significant data breaches, and 75% phishing simulation reporting
rate. We seek to enhance data protection due diligence in the
supply chain and ongoing monitoring; and enhance security
awareness education and training, addressing any new
techniques being observed and maintaining our global
employee awareness campaigns, live events and more.
Transparency and tracking performance
Our reporting, information and data is designed to meet
regulatory requirements, but also to support internal awareness
and for use by Management to inform decisions and track
progress against our strategy and business plans. For example,
our robust safety data highlights areas for attention which
resulted in deep dives being completed on driving and physical
assaults by the Corporate Responsibility Committee. We also
seek to track the requests for information from analysts and
investors and comments received through direct engagement
with them. This has helped identify data points important to
them, that we need to capture to address their concerns. The
data in our 2023 data book is publicly available through Our
Impact hub on our website. Finally, we recognise broader
stakeholder groups, our customers, partners and suppliers who
are increasingly interested in our ESG performance. For
example, the UK Government’s reporting requirements for Social
Value. The output of our materiality assessment, which has
involved all these stakeholder groups has helped us review our
data and information included in this report and our website. We
have also considered requirements for both Global Reporting
Initiative (GRI) and Sustainable Finance Disclosure Regulations
(SFDR) reporting in formalising our final data set.
The Subject Matter Leads for each element in our impact
framework produce management reports on initiatives, progress
against targets and strategic objectives that are reported to the
Group Executive Committee and Corporate Responsibility
Committee. This narrative and data reporting enables trends to
be identified and analysis against targets to help inform risk
reviews, strategic decisions and remuneration decisions.
Serco Group plc | Annual Report and Accounts 2023 | 58
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Impact performance and data disclosure 2023
Here we share select impact data points covering People, Place and Planet. Statements on data assurance are provided on page 66
Other indicators relating to governance feature elsewhere in this document. A full suite of publicly available impact data points with
notes and commentary is available in our 2023 data book. The data book combines existing ESG reporting requirements with
relevant GRI reporting requirements. The data book is available on Our Impact hub on our website.
The data book is supported by two basis of reporting documents. One covers the scope of our ‘Planet’ indicators; the second covers
the scope of our ‘People’, ‘Place’, and ‘Governance’ indicators. Both set out the reporting approach and criteria we apply to our non-
financial reporting and can be found on Our Impact hub on our website.
We also publish GRI and SFDR Content Indexes to enhance our ESG reporting and transparency and help stakeholders navigate our
disclosures more quickly and easily. These can be found on Our Impact hub on our website.
Trend key: l Positive
l Steady l Negative
o New (no comparison)/non-indicator (statement)
Externally assured: GT = Grant Thornton UK LLP Acc = Accenture (see page 66)
Indicator/Disclosure
People
Safe operations
Units
2022
2023
2022
vs.
2023
Var %
Trend
Externally
Assured
Notes
Colleague engagement: Safety
Avg. score
78
77
Lost Time Incident Frequency Rate (LTIFR)
Per 1m hours
worked
5.78
6.07
Lost Time Incident Severity Rate (LTISR)
Avg. days
23.5
22.94
Major Incident Frequency Rate (MIFR)
Fatalities at work
Fatal Incident Frequency Rate (FIFR)
Physical Assault Frequency Rate (PAFR)
Serious Physical Assault Frequency Rate (SPAFR)
Health and Safety prosecutions
Health and Safety fines paid
Improvement/Enforcement notices
Health and well-being
Colleague engagement: Wellbeing
Absence due to sickness
0.29
-0.56
-0.08
0.02
0.14
0.19
2
-1
-1.3 l
5.0 l
-2.4 l
-18.6 l
200 l
200 l
2.3 l
32.2 l
-2 -100.0 l
- l
- l
5
Per 1m hours
worked
0.43
0.35
Number
1
3
Per 1m hours
worked
Per 1m hours
worked
Per 1m hours
worked
Number
£'000
Number
0.01
0.03
6.12
6.26
0.59
0.78
2
0
0
0
5
2,490 2,490
Avg. score
Avg. days
per emp.
76
7.1
77
1
6.9
-0.2
1.3 l
-2.3 l
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
1
2
Safety and well-being - notes and commentary
1.
In 2023, we sadly saw three fatalities (one fatal road traffic accident, two from natural causes) and whilst none were a result of workplace safety failings, such
cases can have a significant impact on colleagues. Learnings from such events supports our desire to create and maintain an environment where colleagues
are safe, healthy and can thrive.
Fines resulting from prosecutions against Serco in 2022, whilst prosecutions concluded in 2022 and were stated in the 2022 ARA, the sentencing hearings did
not take place until 2023 hence reported this year.
2.
We saw mixed performance in 2023 across safety KPIs. We saw reductions in the number of major injuries incidents, lost time incidents and physical assault
incidents compared to 2022; however, we also saw a significant reduction in the number of hours worked adversely impacting our incident frequency rates, which
meant several of our thresholds were not achieved. The major incident frequency rate, representing the most serious injuries, reduced from 0.43 to 0.35
outperforming our 2023 threshold of 0.41. However, the lost time incident frequency rate increased from 5.78 to 6.07 missing our 2023 threshold of 5.14.
A strong focus on seeking to reduce levels of violence and aggression led to a reduction in the number of physical assault incidents, however, the physical assault
frequency rate increased from 6.12 to 6.26 (threshold 5.41). More serious assaults became more prevalent in 2023 increasing our serious physical assault rate from
0.59 to 0.78 (threshold 0.55).
Serco Group plc | Annual Report and Accounts 2023 | 59
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Indicator/Disclosure
People (continued)
Diversity and inclusion
Units
2022
2023
2022
vs.
2023
Var %
Trend
Externally
Assured
Notes
1
Colleague engagement: All areas
Avg. score
Colleague engagement: Diversity & Inclusion
Avg. score
Age profile – Serco Group plc Board
16-24
25-40
41-54
55-64
64+
Undisclosed
%
%
%
%
%
%
70
73
0
0
71
74
0
0
1
1
—
—
22.0
11.1
-10.9
56.0
55.6
-0.4
22.0
33.3
11.3
0
0
—
1.4 l
1.4 l
— o
— o
-49.5 o
-0.7 o
51.4 o
— o
GT
GT
GT
GT
GT
GT
GT
GT
Number of Board
members Percentage of the Board
Number of senior
positions on the Board
(CEO, CFO, SID and
Chair)
Number in Executive
Management
Percentage of Executive
Management
Board and executive sex/
gender representation
2022
2023
Men
Women
Other Categories
Not Specified / Prefer
not to say
l
4
0
0
5
4
0
0
2022
55.6
44.4
0
0
2023
55.6
44.4
0
0
3
1
0
0
2022
2023
2022
2023
3
1
0
0
2022
vs.
2023
8
1
0
0
7
3
0
0
Var %
Trend
— o
-2.0 l
-3.0 l
-2.5 l
-29.7 o
18.5 o
— o
2022
88.9
11.1
0
0
2023
70.0
30.0
0
0
Externally
Assured
Notes
2
GT
GT
GT
GT
GT
GT
GT
Indicator/Disclosure
Units
2022
2023
Gender diversity - Serco Group all employee
levels - women
Gender diversity - Global Leadership Team -
women
Gender diversity - Global Executive Committee
and direct reports - women
Gender diversity - All other employee levels -
women
Gender diversity - All other employee levels -
women
Gender diversity - All other employee levels -
men
Gender diversity - All other employee levels -
Not disclosed
%
%
%
%
—
42.9
—
34.5
33.8
-0.7
33.3
32.3
-1.0
44.0
42.9
-1.1
Number
26,984
18,958 -8,026
Number
21,222
25,153 3,931
Number
37
37
—
Serco Group plc | Annual Report and Accounts 2023 | 60
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in Executive
Management
Percentage of
Executive
Management
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
7
1
1
0
0
0
6
2
1
0
0
0
77.8
11.1
11.1
0
0
0
66.7
22.2
11.1
0
0
0
4
0
0
0
0
0
3
1
0
0
0
0
7
1
0
0
0
1
8
1
0
1
0
0
77.8
11.1
0
0
0
11.1
70.0
20.0
0
10.0
0
0
Units
2022
2023
2022
vs.
2023
Var %
Trend
Externally
Assured
Notes
Board and executive ethnicity
representation
People (continued)
White British or other White
(including minority-white groups)
Mixed/Multiple Ethnic groups
Asian/Asian British
Black/African/Caribbean/Black
British
Other ethnic group, including
Arab
Not specified/ prefer not to say
Indicator/Disclosure
New hires
Staff turnover
Staff turnover - voluntary
Number
14,920
16,294
1,374
%
%
30.5
23.5
32.8
2.3
23.5
—
53
%
46.9
42.7
-4.2
Redundancies
Number
680
733
Colleagues covered by collective bargaining
agreements
Human rights
Prosecutions for human rights violations (incl.
indigenous, modern slavery, etc.)
Case rate substantiated human rights and
modern slavery Speak Up cases
Skills and development
Colleague engagement: Learning and
Development
Culture, ethics and values
Number
Per 100
employees
Avg. score
Colleague engagement: Ethical Standards
Avg. score
Colleague engagement: Reporting Unethical
Conduct
Speak Up case rate
Speak Up cases reported anonymously
Speak Up cases investigated
Avg. score
Per 100
employees
%
%
0
0
64
74
74
1.18
61.0
97.0
0
0
66
76
74
—
—
2
2
—
1.02
-0.16
61.0
—
95.0
-2.0
Speak Up cases average days to close
Number
45
52.7
7.7
9.2 o
7.5 l
— l
7.8 o
-9.0 l
— o
— o
3.1 l
2.7 l
— l
-13.6 l
— l
-2.1 l
17.1 l
People (continued)
Speak Up cases closed within three months of
case being raised
Speak Up closed case substantiation rate
Substantiated Speak Up cases with corrective
action taken
Substantiated Speak Up cases with disciplinary
action taken
Substantiated Speak Up cases where one or
more individual(s) were dismissed
%
%
%
%
%
86
27
98
32
13
82
22
99
41
19
-4
-5
1
9
6
-4.7 l
-18.5 l
1.0 l
28.1 l
46.2 l
Serco Group plc | Annual Report and Accounts 2023 | 61
3
3
3
4
5
6
7
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
GT
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
People - notes and commentary
1. Gender diversity across Serco at all employee levels is influenced by contract wins and losses.
2.
Serco’s representation of women in senior global leadership roles was 33.8%. This excludes Boards and the Group Executive Committee, which, if included
would increase representation to 34.3%. UK&E has 186 global leadership roles, of which 32% are held by women. As the largest Division, this has a significant
overall effect on representation statistics.
Increase in voluntary staff turnover due to Covid and Services Australia contracts ending. Outflow of colleagues from Government contracts often reduces the
number of colleagues covered by collective bargaining agreements.
3.
4. After an increase during Covid the Speak Up case rate per 100 employees has returned to pre-Covid levels at 1.02.
5. Anonymous reports remain at 61%. To understand employee sentiments on anonymity in reports and get further views on our Speak Up system we have
6.
created an automatic user satisfaction survey for web and phone reporters.
The average days taken to close a Speak Up case has increased in 2023, whilst we monitor closely and try to contain the investigation period to a minimum,
complex or high risk cases do require more extensive investigation involving multiple parties which can impact the average. Comparatively the Median days
to close Speak Up cases sits at 18 days for 2023.
Substantiation rates are down from 27% in 2022, though still on the same level as 2020 and 2021.
7.
8. 2022 Board ethnicity corrected for 'Mixed/Multiple Ethnic Groups'. Board diversity data is at 31 December 2023.
Indicator/Disclosure
Place
Service and community impact
Units
2022
2023
2022
vs. 2023
Var %
Trend
Externally
Assured
Notes
Serco Foundation - grants made
£ Number 220,114 184,569 -35,545
Serco Foundation - charities supported
Number
15
35
20
Serco People Fund - grants made
£ Number 203,504 406,117
202,613
Serco People Fund - colleagues supported
Number
253
270
17
Sustainable Procurement
On time payment
Agent payments
%
83.5
83.6
0.1
£'000
1,666
2,342
676
Lobbying payments
£'000
250
267
17
-16.1 l
133.3 l
99.6 l
6.7 l
0.1 l
40.6 o
6.8 o
GT
GT
GT
GT
GT
GT
GT
1
1
2
2
3
3
Place - notes and commentary
1.
2.
3. We use agents across the Group to provide strategic advice, connect us with other parties and obtain or promote business for Serco. We pay agents either
For more information on the Serco Foundation, go to www.sercofoundation.org
For more information on the Serco People Fund, go to www.sercopeoplefund.org
fixed fees for their time or success fees. We use lobbyists to perform advocacy or interact with Public Officials on behalf of Serco. All agents and lobbyists are
subject to due diligence prior to bring engaged. They operate to an agreed contract in line with local laws, including standard clauses covering a range of
compliance matters, and stating services and fees. Payments are reviewed to ensure compliance with contracts. Arrangements are monitored and periodically
reviewed.
Serco Group plc | Annual Report and Accounts 2023 | 62
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Indicator/Disclosure
Planet
Net Zero
Carbon dioxide equivalent (Scope 1 and 2)
market-based Scope 2 - Total Group
Total UK
Total Rest of World
Carbon dioxide equivalent (Scope 1 and 2)
location-based Scope 2 - Total Group
Total UK
Total Rest of World
Combustion of fuels and operation of
facilities (Scope 1) - Total Group (all fuel
types)
Total UK (all fuel types)
Total Rest of World (all fuel types)
Combustion of fuels and operation of
facilities (Scope 1) - Total Group (all fuel
types)
Total UK (all fuel types)
Total Rest of World (all fuel types)
Scope 2 – Grid electricity purchased/
acquired for own use (market-based) - Total
Group
Total UK
Total Rest of World
Scope 2 – Grid electricity purchased/
acquired for own use (location-based) -
Total Group
Total UK
Total Rest of World
Scope 2 – Grid electricity purchased /
acquired for own use - Total Group
Total UK
Total Rest of World
2022
Restated
(Original)
Units
2023
2022
vs. 2023
Var %
Trend
Externally
Assured
Notes
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
tCO2e
MWH
MWH
MWH
tCO2e
34,360
(38,762)
18,482
(25,829)
15,878
(12,933)
36,200
(40,438)
19,662
(27,029)
16,539
(13,409)
26,566
(31,894)
18,342
(25,688)
8,224
(6,206)
126,969
(145,618)
75,390
(108,387)
51,579
(37,231)
7,793
(6,868)
28,027
-6,333
15,897
-2,585
12,130
-3,748
30,676
-5,524
17,054
-2,608
13,621
-2,918
24,033
-2,533
15,728
-2,614
8,305
81
118,315
-8,654
66,501
-8,889
51,814
235
3,993
-3,800
tCO2e
140 (140)
169
29
tCO2e
tCO2e
tCO2e
tCO2e
MWH
MWH
MWH
7,653
(6,728)
9,634
(8,544)
1,320
(1,340)
8,313
(7,204)
24,953
(21,518)
6,749
(6,853)
18,203
(14,665)
3,824
-3,829
6,643
-2,991
1,326
6
5,317
-2,996
19,103
-5,850
6,243
-506
12,860
-5,343
-18.4 l
-14.0 l
-23.6 l
-15.3 l
-13.3 l
-17.6 l
-9.5 l
-14.3 l
1.0 l
-6.8 l
-11.8 l
0.5 l
-48.8 l
20.7 l
-50.0 l
-31.1 l
0.5 l
-36.0 l
-23.4 l
-7.5 l
-29.4 l
-13.1 l
-9.4 l
-24.1 l
-21.2 l
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
1, 5
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Headcount intensity (Scope 1 and 2) market-
based Scope 2
Headcount intensity (Scope 1 and 2)
location-based Scope 2
tCO2e/FTE 0.61 (0.68)
0.53
-0.08
tCO2e/FTE 0.64 (0.71)
0.58
-0.06
Financial intensity (Scope 1 and 2) market-
based Scope 2
Financial intensity (Scope 1 and 2) location-
based Scope 2
tCO2e/per
£m revenue
tCO2e/per
£m revenue
7.58 (8.55)
5.75
-1.83
7.98 (8.92)
6.29
-1.69
Serco Group plc | Annual Report and Accounts 2023 | 63
Strategic Report
Corporate Governance
Financial Statements
2023
2022
vs. 2023
Var %
Trend
Externally
Assured
Notes
Our Impact continued
Indicator/Disclosure
Planet (continued)
Total Scope 3 (market based)
Total Scope 3 (location based)
Owned / leased road fleet fuel consumption
Specialist marine fuel (Scope 3) - Total
Group
Total UK
Scope 3 purchased goods & services using
hybrid approach - Total Group
Scope 3 Capital goods category - Total
Group
Scope 3 Upstream transport and
distribution - Total Group
Scope 3 purchased goods & services
proportion of Scopes 1 to 3
CDP
Total energy consumption Scope 1 and 2 -
Total Group
Total UK
2022
Restated
(Original)
1,025,291
(968,126)
1,031,904
(97,5321)
22,174
(28,474)
Units
tCO2e
tCO2e
tCO2e
1,168,064 142,773
1,175,102 143,198
19,706
-2,468
tCO2e
111,312
111,235
tCO2e
111,312
111,235
-77
-77
tCO2e
tCO2e
668,252
(687,779)
2,638
(2,638)
811,696 143,444
3,225
587
tCO2e
26,752
26,501
-251
% 63.1 (68.6)
67.9
Score
MWH
MWH
A-
B
151,922
(167,136)
82,139
(115,240)
137,418
-14,504
72,744
-9,395
4.8
-
Electricity consumption, renewable sources
%
27 (32)
47.0
20
Electricity consumption, renewable sources
MWH
Electricity consumption, non-renewable
sources
MWH
6,692
(6,795)
18,261
(14,273)
8,938
2,246
10,165
-8,096
Fuel consumption, renewable sources
%
2.3 (4.8)
1.2
-1.1
Fuel consumption, renewable sources
MWH
Fuel consumption, non-renewable sources
MWH
2,867
(6,912)
124,102
(138,705)
1,431
-1,436
116,884
-7,218
Resources
Total water consumption
Megalitres
895
994
99
Non-hazardous waste generated
Hazardous IT waste generated
Protection
Operations covered by certified ISO 14001
EMS - by revenue
Operations covered by certified ISO 50001
EMS - by revenue
Prosecutions
Fines paid
Enforcement notices
Metric
tonnes
Metric
tonnes
%
%
Number
£’000
Number
11,654
10,988
-666
21.8
54.1
32.3
28 (30)
0.5
0
0
0
28
0.5
0
0
0
0
0
—
—
—
0 l
0 l
— l
— l
— l
13.9 l
13.9 l
-11.1 l
-0.1 l
-0.1 l
21.5 l
22.3 l
-0.9 l
7.6 l
- l
-9.6 l
-11.4 l
74.1 l
33.6 l
-44.3 l
-47.4 l
-50.1 l
-5.8 l
11.1 l
-5.7 l
148.6 l
1
1
1
Acc
Acc
Acc
Acc
Acc
1, 2, 3
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
Acc
2
1, 3
6
1
1
1
1
1
1
1
1
4
4
Planet - notes and commentary
Our reporting year for greenhouse gas (GHG) emissions is one quarter behind our financial year, namely 1 Oct 2022 to 30 Sept 2023.
See our Planet Basis of Reporting Supplement for information on our reporting boundary and methodologies, available on Our Impact hub on our website. We
quantify and report GHG emissions using the financial control approach in line with the World Resources Institute’s Greenhouse Gas Protocol Corporate Accounting
and Reporting Standard. We report all material emission sources for which we consider ourselves responsible and have set our materiality threshold at 5%.
We have recalculated and restated emissions and associated energy data for 2022 to account for structural changes and changes to GHG calculation methodologies,
in line with our base year emissions recalculation policy and best practice to ensure a meaningful and accurate comparison of emissions data over time.
Serco Group plc | Annual Report and Accounts 2023 | 64
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
2022 is the base year for our Net Zero targets which we have submitted to the Science Based Targets initiative for external validation in 2024.
For the first time, we have reported emissions in the Scope 3 reporting category for upstream transport and distribution. These emissions were previously
embedded in our purchased goods and services category data, we have also recalculated and restated these emissions for 2022.
1.
2022 data recalculated and restated in line with our base year emissions recalculation policy and best practice. Significant changes included carbon intensive
contract losses, asset ownership updates, as well as smaller data, methodology and emission factor updates and errors.
2. New reporting category with historic data provided.
3.
For many companies Scope 3 emissions form the majority of emissions with purchased goods and services the most significant. In 2023, we used a hybrid
approach to quantify emissions, the Quantis tool methodology, updated to address for inflation, along with supplier specific sourced Scope 1 and 2 and
upstream Scope 3 emissions where available. In 2024, we are aiming to increase the precision of this reporting category by introducing a carbon accounting
technology partner and will look to restate previous years if possible.
4. All contracts are required to comply with our SMS and environmental requirements, which align with ISO 14001. At many of our contracts we also operate
5.
within customer ISO 14001 certified management systems. A smaller proportion of our contracts have certified ISO 50001 management systems, as only our
more energy-intensive operations benefit from this standard. 2022 figure restated due to inclusion of one contract in error.
In 2023, we achieved an 18% reduction against 2022 with reductions resulting from a focus on operational and energy efficiency, increased proportion of
renewable sourced electricity, 27% to 47%, downsizing our property portfolio to account for increased flexible working, organic decline, increased data
quality and ongoing transition to lower emission vehicles where possible.
6. We are disappointed to have dropped from an A- to a B for our 2023 CDP score and recognise an element of this was down to the change from operational to
financial control approach and the resetting of our base year to 2022 meaning that year-on-year reductions and comparisons in performance were not possible.
Streamlined energy and carbon reporting commentary
We continue to support energy-saving activity across our customers and our own assets. For example, where we deliver facilities management services; we
continue to seek to embed no, low and capital cost energy-saving measures.
In 2023, our UK leisure business supported the installation of a ground source heat pump, solar panels and new equipment to improve circulation at Mansfield
District Council’s leisure sites following the commitment of funding for energy and carbon reduction.
At our NorthLink Ferries contract, best practice initiatives are reviewed and regularly implemented. Our bespoke monitoring systems continue to drive energy and
emission reduction activity whilst also assisting current and future reporting requirements. In 2023, energy efficiency initiatives included operational changes
following monitoring system analysis as well as upgrades such as engine management systems, boiler burner units, fuel pumps and hull cleaning/coatings. We
have prepared the Aberdeen vessels to accept shore power from a renewable energy tariff following the commitment of funding from Caledonian Maritime Assets
Limited (CMAL) and the Port of Aberdeen to install shore power facilities for the two passenger ferries. This initiative is expected to be operational in late 2024 and
removes the need to run oil-fired generators to power the vessels when docked, mitigating around 1,300 tonnes of CO2 equivalent per year, improving air quality
and reducing noise. Preliminary discussions have also been held with relevant stakeholders on alternative low carbon fuels for use later in the life of the vessels; we
will continue to review these options in future.
Indicator/Disclosure
Governance
Data protection and information security
Substantiated complaints received from data
protection regulators
Significant data breaches
Managed risk and effective controls
Prosecutions for corrupt behaviour
Prosecutions for anti-competitive behaviour
Annual SMS self-assessments completed
Annual Compliance Assurance plan delivered
Annual Audit plan delivered
Units
2022
2023
2022
vs.
2023
Var %
Trend
Externally
Assured
Notes
1
Number
Number
Number
Number
3
0
0
0
4
1
0
0
%
%
%
98.9
94.3
99.7
98.1
98
100
1
1
0
0
0.8
3.8
2
33.3 l
0 l
0 l
0 l
0.8 l
4.0 l
2.0 l
GT
GT
GT
GT
GT
GT
GT
Governance – notes and commentary
1. Globally, in 2023, we have had four substantiated complaints from data protection regulators; two in the UK relating to minor data breaches; and two in
Australia which the Australian Information Commissioner determined were privacy breaches.
Serco Group plc | Annual Report and Accounts 2023 | 65
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Assurance statement
The data reported is captured through a range of systems. These are detailed in the introduction tab of the 2023 data book
available on Our Impact hub on our website. We recognise the potential risk to the accuracy and completeness of data that multiple
systems can raise and are seeking where possible to consolidate through single systems.
To provide assurance of the data reported, we engage Grant Thornton UK LLP (GT) to provide independent limited assurance over
selected ‘People’, ‘Place’ and ‘Governance’ KPIs in accordance with ISAE 3000 (Revised) for the year ending 31 December 2023.
Selected assured data points are noted in the 2023 data book. Grant Thornton has issued an unqualified opinion over the KPIs
covered and the full assurance report is available on Our Impact hub on our website.
For our ‘Planet’ data, we engage Accenture (Acc) to provide independent reasonable assurance over our Environmental KPIs in
accordance with ISO 14064-3:2019 for the period 1 October 2022 to 30 September 2023. Accenture's full assurance statement is
available on Our Impact hub on our website.
Non-Financial and Sustainability information statement
We have complied with the requirements of sections 414CA and 414 CB of the Companies Act (as amended by the Companies
(strategic Report) (Climate-related Financial Disclosures) Regulations 2022) through the information in the table below and other
disclosures throughout the Strategic Report.
Non-financial information
Related policy
Principal locations in this Annual Report
Climate change and
sustainability
– Environment policy
– mycode
Environmental matters
– Environment policy
– mycode
Colleagues
– People policy
– mycode
Human rights
Social matters
– Human rights policy
– mycode
– People policy
– mycode
Anti-corruption and anti-
bribery
– Business Conduct and Ethics
policy
– mycode
Our strategy
– Business Conduct and Ethics
policy
– Business Development policy
– Customer and contract policy
– mycode
– Our Impact – Planet – Net Zero
– Our Impact performance data: Planet
– TCFD compliance statement
– Our Impact – Planet
– Our Impact performance data: Planet
– TCFD compliance statement
– Principal risks
– Our policies
– Governance (S414C2A) a
– Risks and impacts (S414C2A) b-f
– Targets & KPIs (S414CA2A) g-h
– Our Impact – People
– Our Impact performance data: People
– Principal risks
– People and Culture
– Our policies
– Our Impact – People – Human rights
– Our Impact performance data: People
– Our policies
– Our Impact – Place
– Our Impact performance data: Place
– Our policies
– Our Impact – People
– Our Impact - Governance
– Our Impact performance data: People
– Principal risks
– Our policies
– Our Strategy
– Our policies
Our market
Non-financial principal
risks
Non-financial key
performance indicators
– Business Development policy
– mycode
– Our Markets
– Our policies
– Risk Management and Insurance
– Principal Risks
policy
– Key Performance Indicators
Corporate Governance
– Governance, Legal and
– Directors Report
Assurance policy
Page
56
63
70
56
63
70
34
67
72, 94, 114
32, 33, 72, 114, 173
74, 75
52
59
34
28
67
52
61
67
54
62
67
52
58
61
34
67
22
67
20
67
34
59
94
Serco Group plc | Annual Report and Accounts 2023 | 66
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Further information is included in the ESG Governance and Oversight section of Our Impact hub on our website. This provides a
guide to how we manage and govern ESG.
An index of all our Impact reports and resources available online, including public third-party reports on Serco operations and an
overview of ESG queries received from investors and analysts can be found in Our Impact hub on our website.
Our policies
How we manage the business is set out in the Serco Management System (SMS). It defines the rules which govern the way we
operate, deliver our strategy and the way we behave. At the heart of the SMS are a set of Group policy statements (detailed below
and available on our website) supported by a set of requirements (available to all colleagues through the Company’s intranet) that
define the minimum, mandatory standards expected of all employees, enabling us to assure good governance and behave
consistently across our business. It is global in application and all Divisional and local management systems are incorporated into it.
The SMS is applied in the context of our Values and endorsed by the Board. We have a clear governance process to authorise our
policies and procedures and any regional or market enhancements to them. We provide mandated training on core elements of the
SMS through annual Serco Essentials training. All colleagues, contractors and third parties are encouraged to report any
circumstances where they believe the SMS, applicable laws, or the standards we have set in mycode are being breached, either
through their manager, human resources or our independent confidential ‘Speak Up’ helpline. Issues raised are promptly and
thoroughly investigated.
Policy
Description
Code of Conduct
‘mycode’
Business Conduct and
Ethics
Business Development
Customer and contract
Data Privacy
‘mycode’ outlines rules, procedures and expected behaviours reflecting our ethical standards and
Values and how to Speak Up should these be breached. All colleagues are provided with a copy when
they join and receive annual training on it. A separate Supplier Code of Conduct applies to all third
parties we do business with. This was updated in 2023. The online versions of both Codes are available
on our website in over 100 different languages through the sites accessibility tool.
We are sensitive to local customs, traditions and cultures. Our policies reflect compliance with local
laws and regulatory requirements including the principles of OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions, UN Convention against Corruption
and Declaration Against Corruption and Bribery in International Commercial Transactions; we seek to
compete fairly and openly; report accurate information; commit to zero tolerance of any form of bribery
or corrupt practices including fraud, money laundering and tax evasion; manage conflicts of interest;
comply with all legitimate restrictions on exports/imports, trade sanctions and boycotts and are
impartial about party politics.
We provide commercial rigour to seek to ensure that we compete successfully for those contracts that
are most valued by our customers and provide a fair return. Governance and due diligence processes,
covering the business life cycle of a contract, determine with whom we are prepared to do business,
how we deliver the contract and how we manage risks. Control is through a series of mandatory
governance gates requiring formal assessment and approval, which includes material legal, ethical and
human rights risks; health, safety and environmental risks; and other salient adverse impact risks from
an ESG perspective.
We seek to deliver services that reflect customers’ business needs, meet our objectives and a collective
responsibility to wider stakeholders and the environment. We strive to be meticulous in delivering what
we have contracted for, and to develop trusted relationships with our customers. In addition to the
management of stakeholder relationships, it addresses the need for accurate and timely reporting and
the regular review of operations so that they continue to deliver customers’ requirements.
We collect, store and process large amounts of personal and customer data and seek to ensure that
such personal data is kept secure, handled with care and in compliance with applicable data protection
and privacy laws. We operate within a set of Data Protection Principles to seek to ensure we process
personal information fairly and lawfully, obtain it only for legitimate purposes, ensure that it is accurate,
kept secure and only held for as long as necessary. We apply local procedures to comply with the
statutory rights of data subjects in relevant jurisdictions.
Serco Group plc | Annual Report and Accounts 2023 | 67
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Policy
Environment
Finance
Governance, Legal and
Assurance
Health, safety and well-
being
Human Rights
People
Description
We define and communicate strategy, management systems, policy and procedures to seek to protect
the environment, prevent pollution, mitigate adverse impacts and continuously improve our
performance. We identify, assess, manage and report on the environmental and climate risks and
opportunities from our activities and services. We seek to address the environmental and climate
emergencies and support the Net Zero carbon ambitions of our clients and wider society. We support
and advise our people to be carbon conscious, resource efficient and to limit their impact on the
environment.
We implement a finance operating model with clearly defined roles and responsibilities which seeks to
ensure we report accurate financial information and comply with relevant laws and regulations. We
operate an annual budgeting and monthly forecasting process to ensure that the Group has visibility
over future performance, can measure progress against financial targets and allocate scarce resources
effectively. Our financial processes are underpinned by strong financial controls and operate an
assurance process which validates the effectiveness and operation of these controls.
Our governance, legal and assurance framework seeks to ensure that the best interests of our
stakeholders are considered, and legal and regulatory obligations are met. We apply a corporate
governance framework comprising appropriate boards, committees and delegated authorities to
effectively direct and control the business. We seek to manage subsidiaries, joint ventures and other
legal entities in accordance with applicable laws and regional regulations. We seek to follow a
governance framework across our business life cycle, from bidding to the operation and eventual
closure of contracts. We implement audit and assurance programmes to monitor the effectiveness of
management systems and controls.
Our policy sets out the requirements to assess and manage health, safety and well-being risks;
encourage the engagement and input of employees and others to identify, control and manage risk,
and meet and, where appropriate and possible, exceed legal and other requirements that apply. It
includes a commitment to promote, support and assess the health and well-being of our people. We
have processes to capture the reporting and investigation of incidents to identify root causes, prevent
recurrence, and to act on investigation findings, ensuring that people are treated fairly. We regularly
review the suitability and effectiveness of our management systems and identify improvements to
enable us to grow a positive, engaged, psychologically safe environment that actively encourages
good health, safety and well-being practices that support our Zero Harm vision.
We seek to assess potential adverse human rights impacts related to our work and use international
human rights standards to guide decision-making. Recruitment to Serco should be fair and free;
colleagues have a contract or agreement in a language they understand; any housing provided is
within defined standards; we seek to not use nor be complicit in, forced or compulsory labour nor
engage in human trafficking or subject individuals to involuntary servitude, debt bondage or slavery.
We respect the rights of children and young workers. We seek not to cause or contribute to torture and
other cruel, inhumane, or degrading treatment or punishment and we take all reasonable steps to
avoid the use of force in relation to those who are in facilities we manage or benefit from services we
provide, and if used, it is proportionate to the threat; appropriate to the situation; and limited to what is
strictly necessary. We seek to consider human rights impacts in our due diligence processes when
considering new business opportunities, partners and suppliers. We have training and guidance for
colleagues to understand red flags and how to consider human rights impacts. We endeavour to
remedy or cooperate in the remediation of any substantiated adverse human rights impacts and have
procedures for modern slavery response and remediation.
We seek to meet legal and regulatory requirements to protect our people and ongoing resource
requirements. We have a set of core values that shape our behaviours. We seek to adhere to local
legislation when working with colleague representative bodies and unions who, where appropriate, are
recognised through local agreements. We are certificated to ISO45003 structuring how we support the
mental health and well-being of colleagues. We monitor engagement through regular Viewpoint
engagement surveys. We are committed to a diverse workforce and to rewarding our colleagues fairly,
offering where possible compelling total reward above minimum local legislative requirements. We
have disciplinary and grievance procedures. We engage contractor and temporary worker colleagues
through Serco-approved agencies who are obligated to comply with relevant local laws and
regulations and are subject to the Serco Supplier Code of Conduct, and other requirements such as
worker access to mechanisms by which to report potential misconduct, such as the Serco Speak Up
system.
Serco Group plc | Annual Report and Accounts 2023 | 68
Strategic Report
Corporate Governance
Financial Statements
Our Impact continued
Policy
Procurement
Quality
Risk Management and
Insurance
Security and IT
Description
We recognise the importance of the relationships we have with our suppliers in achieving our business
goals. These relationships will be mutually beneficial and create value for all parties involved. We have
delegated levels of authority to ensure appropriate control and governance and manage supply chain
risk. We carry out risk-based due diligence checks on relevant suppliers and maintain ongoing
monitoring to ensure maintenance of minimum standards and compliance with our Supplier Code of
Conduct. We source competitively through tenders and make fair, objective and transparent supplier
selection decisions. We endeavour to enter into supplier contracts that are fair and ethical and share
risks appropriately.
Embedded within the delivery of our services and products is a commitment to quality and continuous
improvement. It gives the Company and its customers the confidence that the provision of services and
products will be delivered effectively and consistently to the standards required. We regularly review
the suitability and effectiveness of our management systems which includes independent auditing to
endeavour to ensure that the right people, the right processes and the right technology are all in place
and routinely review and improve our ways of working.
Our risk management approach seeks to safeguard stakeholder interests, Company assets and
reputation whilst supporting informed risk taking that promotes business growth and success. This is
done through a system of internal controls, risk management and internal audit. We manage risks
through a risk management life cycle process. We seek to maintain documented and tested crisis
management, business continuity and incident management plans to ensure we can respond
effectively to an emergency or crisis to minimise impact or disruption to our people and operation. We
maintain appropriate insurance cover in line with our risk appetite and statutory and contractual
obligations.
We seek to protect and preserve our human, information and physical assets and resources from all
threats, whether internal or external, deliberate, or accidental, that might have an adverse impact on
individuals, our customers, our activities and our reputation. We endeavour to have security and
information technology processes and procedures that meet our business objectives and customer
needs, reduce risks and protect the confidentiality, accuracy and availability of information. We seek to
ensure that our third-party supply chain meet and maintain our IT and Security standards. We check
how well the policy is met through independent compliance assurance reviews and audits.
Serco Group plc | Annual Report and Accounts 2023 | 69
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement
Disclosure overview
Here we provide an overview of our ‘Task Force on Climate-related
Financial Disclosures compliance statement 2023’ which is available on
our website and is consistent with all recommendations and
disclosures, having considered the four TCFD recommendations and
the eleven recommended disclosures as well as the 'Guidance for all
sectors’ as set out in section C of ‘Annex: Implementing the
Recommendations of the Task Force on Climate-related Financial
Disclosures’, October 2021.
We have opted to publish a standalone TCFD compliance statement this year, partly due to the size of the document and the level of
detail it contains. We anticipate that our future compliance statements will increasingly need to outline more region specific
disclosures and contextual information to meet growing customer and legislative requirements, rather than solely a consolidated
group view. Furthermore, it is a key document to have located on Our Impact hub on our website, in order to understand our
approach to assessing and managing climate-related risks and opportunities.
Despite opting to provide a standalone document all climate-related financial disclosures consistent with the TCFD
Recommendations and Recommended Disclosures are included here. The table on page 71 outlines the location of disclosures in
this document as well as the location within our ‘Task Force on Climate-related Financial Disclosures compliance statement 2023’.
Serco Group plc | Annual Report and Accounts 2023 | 70
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement continued
Recommendation
Recommended disclosures
Annual Report and Accounts
(a) Describe the Board’s oversight of climate-
related risks and opportunities.
Governance: Disclose the
organisation’s
governance around
climate-related risks and
opportunities.
(b) Describe Management’s role in assessing
and managing climate-related risks and
opportunities.
Fully consistent
Page 72
Corporate Governance section
pages 94 to 104
Corporate Responsibility
Committee Report page 114
Fully consistent
Page 72
Corporate Governance section
pages 94 to 104
Corporate Responsibility
Committee Report page 114
Strategy: Disclose the
actual and potential
impacts of climate-
related risks and
opportunities on the
organisation’s
businesses, strategy, and
financial planning where
such information is
material.
Risk management:
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
Metrics and targets:
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
(a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium and long term.
Fully consistent
Pages 72 and 73
(b) Describe the impact of climate-related
risks and opportunities on the organisation’s
businesses, strategy and financial planning.
Fully consistent
Pages 72 to 75
(c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower scenario.
(a) Describe the organisation’s processes for
identifying and assessing climate-related
risks.
(b) Describe the organisation’s processes for
managing climate-related risks.
(c) Describe how processes for identifying,
assessing and managing climate-related risks
are integrated into the organisation’s overall
risk management.
(a) Disclose the metrics used by the
organisation to assess climate-related risks
and opportunities in line with its strategy and
risk management process.
(b) Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas (GHG)
emissions, and the related risks.
(c) Describe the targets used by the
organisation to manage climate-related risks
and opportunities and performance against
targets.
Critical accounting judgements
climate risk page 173
Fully consistent
Pages 72 to 75
Critical accounting judgements
climate risk page 173
Fully consistent
Risk management section
pages 32 and 33
Pages 72 and 73
Fully consistent
Risk management section
pages 32 and 33
Pages 72 to 75
Fully consistent
Risk management section
pages 32 and 33
Pages 72 to 75
Fully consistent
Pages 72 to 75
Fully consistent
Our Impact section pages
63 to 65
Pages 72 to 75
Fully consistent
Pages 72 to 75
Standalone compliance
statement
Fully consistent
TCFD compliance
statement pages 3 to 8
Fully consistent
TCFD compliance
statement pages 3 to 8
Fully consistent
TCFD compliance
statement pages
8 to 18
Fully consistent
TCFD compliance
statement pages
11 to 18
Fully consistent
TCFD compliance
statement page 17
Fully consistent
TCFD compliance
statement pages 8 to 10
Fully consistent
TCFD compliance
statement pages 4 to 17
Fully consistent
TCFD compliance
statement pages 8 to 10
Fully consistent
TCFD compliance
statement pages
19 to 20
Fully consistent
TCFD compliance
statement pages
19 to 22
Fully consistent
TCFD compliance
statement pages
19 to 23
Serco Group plc | Annual Report and Accounts 2023 | 71
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement continued
Governance
Responsibility for ESG matters is embedded in our corporate governance through the Corporate Responsibility Committee,
providing oversight of TCFD activities which includes the review of our Net Zero strategy, targets, and transition planning.
We have embedded responsibilities and roles for the assessment and management of climate-related risks and opportunities, by
committee, group and wider management function. Further details can be found in our Corporate Governance section on pages 94
to 104 and Corporate Responsibility Committee Report on page 114.
Organisational and reporting structure for climate governance
Risk
We recognise that the climate and wider environmental emergencies present significant risks to society and the planet. As an impact
partner operating across multiple sectors and geographies, the ways in which climate change may impact our own and our
customers’ assets (where we deliver most of our services), supply chains and operations are diverse. We do not currently consider
climate risk as a standalone principal risk, instead we consider it under several of our principal risks. We generally operate in short to
medium-term contract-driven sectors, therefore we do not hold long-term assets which can be as adversely affected by climate and
risks from a valuation perspective, which is a challenge faced by many other sectors.
In considering our climate risks and opportunities we have considered short-term risks to be between 0-3 years in line with how we
assess our principal risks and viability statement. Medium-term risks are between 3-5 years, in line with our medium-term contracts.
Long-term risks are between 5-30 years, in line with some longer-term contracts, our Group Environment Strategy, and the Net Zero
transition plans, visions and commitments of the governments we serve. Severe Risks and Significant Opportunities are our most
material based on our scoring matrix and are considered our principal climate related risks and opportunities. They were identified
using our Group standard risk assessment process and scoring matrix. Global stakeholders reviewed our long list of climate risk and
opportunities, taking into account relevant scenarios, and scored risks as minor, moderate, major or severe or opportunities as
minor, moderate, major or significant.
Strategy
Our risks and opportunities draw upon some of the most recently updated and recognised climate scenarios and models, consistent
with 2˚C and lower, with a focus on 2030 and beyond. As a consequence, our assumptions take into account a medium to longer-
term timeframe. For transitional risks, we used the International Energy Agency’s Global Energy and Climate Model, the Announced
Pledges Scenario (APS) and the Net Zero Emissions (NZE) Scenario. For physical risks, we used the Intergovernmental Panel on
Climate Change (IPCC) shared economic pathway models IPCC SSP 1 – 2.6 (<2 degree) and IPCC 2 – 4.5 (>4 degree). We have
matured our understanding of all risks and opportunities and identified the following severe risks and significant opportunity for
disclosure, summarised in the table on page 73.
Serco Group plc | Annual Report and Accounts 2023 | 72
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement continued
Severe risk
Time period, assumptions, scenarios and potential annual financial impact
Long term: Range of £2.2m (APS scenario) – 3.5m (NZE scenario) direct costs per annum by 2030 based on
forecast Scope 1 and 2 carbon emissions and the level of success in meeting our Net Zero targets. Note
reduction from 2022 due to base year emissions recalculation. We would expect some of these costs to pass
through to customers as outlined for indirect costs below.
Minimum range: Assumes no growth in carbon through additional contract wins and that our 42% reduction
target is met using the APS scenario carbon cost of £109 per tonne by 2030.
Maximum range: Assumes 20% growth in carbon through additional contract wins and that our 42% reduction
target is not met, only 25%, using NZE scenario carbon cost of £113 per tonne by 2030.
Transitional risk:
Carbon pricing
including taxes
and levies
(direct and
indirect)
Net Zero transition costs 2030: We do not expect the direct costs of achieving our Net Zero targets up to 2030
to be significant as we do not expect to fund significant changes to infrastructure or assets given they are largely
owned by our customers or landlords, as such, these are estimated to be c£1-2m per annum and largely relate
to the cost of the climate team within the Group and specialist consultants and technology. The majority is built
into existing budgets and our 5 year plan, which underpins any impairment assessment, for the elements within
our control. In some contracts, we are also dependent on our customers investing in Net Zero infrastructure and
assets to support us in meeting our Net Zero targets. Circa £1.5m of the costs are not currently budgeted and
will be informed by external consultancy support as required and the ability to influence customers to invest. We
are focussed on supporting them in introducing the right partners and the right technologies.
Short to long term: An indicative £5.5m indirect carbon costs per annum is embedded in our current supply
chain (Scope 3 carbon) costs, which is forecast to potentially increase to £60m by 2030 using PwC’s hidden cost
of carbon tool. Current carbon cost is estimated using world bank carbon pricing and PwC model (which uses
data from 2014) and 2030 carbon prices implied by the NZE scenario. Based on a steady state procurement
spend, UK & Europe is estimated to increase by £25m (included within the overall £60m), an element of this is
due to the impact of the EU and UK carbon border adjustment mechanisms (CBAM) which will introduce tariffs
on carbon intensive products which are imported and filter down supply chains. Should these costs materialise,
these are not expected to be fully funded by the Group as some would pass through to our customers through
indexation mechanisms, pricing of new contracts or legislative changes. In order to mitigate this risk, it is vital
that we measure our supply chain carbon more precisely, more fully understand the risks, and work with
suppliers on decarbonisation and future carbon pricing impacts.
Short to medium term: Minimum range £0 assuming our environmental strategy and Net Zero transition
planning ensures that we do not suffer reputational damage/contract losses and our customers invest in
decarbonisation.
Long term: Maximum range >1% of profit before tax = £2.5m per annum by 2030 it is assumed that this will be
more substantive at the top end of the risk if we fail to meet increasing stakeholder expectations on climate.
Long term: Flood and wind impacts causing building and contents damage and causing downtime across 52
sites were modelled for 2030 and 2050 using a climate analytics firm. The output highlighted a substantive level
of financial risk for both the <2 degrees scenario and >4 degrees scenario, however, we have deemed these
amounts not to be decision useful for disclosure for the following reasons:
–
Serco operates a contract-based model and therefore we may no longer be operating at the sites with the
potential to be severely impacted by climate change in 2030 and 2050, long-term modelling is therefore less
insightful.
– Modelled costs suggest that impacts would occur uniformly across all locations at the same time and
–
crucially do not take account of mitigation measures such as business continuity planning or flood defence
infrastructure which would significantly reduce modelled numbers.
Buildings, contents and business interruption insurance would be in place to cover any costs incurred;
noting that, given the critical nature of most of the Group’s services, should business interruption be
continuous or prohibitively high, then we would expect our customer to consider the location of the site and
where services are provided.
We will continue to explore climate analytics support from external advisers and the best approach to disclosing
decision useful financial impacts.
Time period and potential annual financial impact
Minimum range: £22m per annum assumed by 2030 based on modest growth and meeting green taxonomy criteria.
Maximum range: £44m assumed by 2030 based on targeted growth and meeting green taxonomy criteria.
Transitional risk:
Reputation
Physical risk:
Extreme
weather
Significant
opportunity
Net Zero and
sustainability
enabling
services
Serco Group plc | Annual Report and Accounts 2023 | 73
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement continued
Business strategy and resilience to climate risks and opportunities
Considering the above climate risks and opportunities from a business strategy perspective, we are focused on providing the right
people, the right technology and the right partners to create innovative solutions that make a positive impact and address some of
the most urgent and complex challenges facing the modern world. This includes supporting our customers and communities on
climate change and wider environmental emergencies such as nature loss where practicable.
– We will continue to provide services that support government-led policies and for the majority of time we will operate on
customer assets and in the locations the services are required, supporting and aligning with customer-led Net Zero policies,
supply chain and climate resilience approaches.
– Both direct and indirect carbon pricing impacts will be an area of focus. We will seek to measure carbon hotspots with more
precision, engage our supply chain on decarbonisation and further understand future carbon pricing risks and how this will affect
both our customers and Serco.
– Extreme weather events are anticipated to increase under all the scenarios considered and we will continue to work with our value
chain to develop a greater understanding of these risks, as well as chronic physical risks, noting that we have experienced limited
material impacts to date on operations and insurance claims. However, this could change in future and could lead to potential
changes to where properties are leased and the need to increase engagement with customers on climate resilience as impacts
become more material.
– We recognise that we must continue to support customer requirements and challenges where we have influence, bringing focus
and innovation through our service provision and supply chain. Our strategy is already capitalising on the climate-related
opportunities. Our significant opportunity disclosure focusing on Net Zero and sustainability-enabling services details the
potential increased revenue streams and expansion of current and new service lines which we will continue to implement, explore
and assess.
– As an asset light organisation, we do not expect to have issues around redeploying and repurposing existing assets. For example,
the net book value of our owned land and buildings is £1.2m at 31 December 2023. On the majority of our contracts we lease
assets in line with the contract terms and the majority of these expire within five years.
Our critical accounting judgement on climate risk on page 173 sets out how climate impact has been considered within the financial
statements. It does not yet identify significant risks induced by climate change that could negatively and materially affect the Group
over the shorter term. However, Management regularly assesses the impact of climate-related matters. Assumptions will likely
change in the future in response to maturing our understanding of risks and opportunities; forthcoming environmental regulations;
enhanced supply chain measurement and management; climate change impacts; any future sustainability focused acquisitions and
increasing customer Net Zero requirements. These changes, if not anticipated and assessed, could have an impact on the Group’s
future cash flows, financial performance and financial position. In 2023, we have also started to review the requirements of the
Taskforce for Nature-Related Financial Disclosures and related European Sustainability Reporting Standards, noting the need to
assess, report and act on nature-related dependencies, impacts, risks and opportunities.
Metrics and targets
We have set a range of metrics and targets in our Group environmental strategy against our Planet theme. Specific metrics to assess
climate-related risks and opportunities, associated targets and key performance indicators are outlined in the table below.
Metric/KPI category
Unit of
measure
Metric / KPI
Group targets set and/or reported as
KPI?
Example linkage to identified
risks and opportunities
*Green House Gas (GHG)
emissions
Absolute Scope 1, 2 and 3
emissions
Targets set and reported as
key performance indicators,
awaiting external validation of
targets in 2024***
tCO2e
Absolute Scope 1, 2 and 3
emissions (market-based)
–
42% reduction of Scope 1
and 2 emissions (market-
based) by 2030
– Net Zero greenhouse gas
emissions across the value
chain by 2050
Impact of carbon pricing
including taxes and levies
Reputational impact on
stakeholders
GHG emissions
Emissions intensity
tCO2e per
full time
equivalent
(FTE) & £m
revenue
**Climate-related risk
Proportion of real assets
exposed to 1:100 and
1:200 climate-related
hazards
%
Climate-related risk impact
of carbon taxes and levies
£GBP
Scope 1 and 2 emissions
per FTE* & £m revenue
(market-based)
Proportion of sites where
Serco operates with
medium to high risk of
flooding
Climate-related taxes/
levies included in annual
electricity and gas costs
No targets set, reported as key
performance indicator
Impact of carbon pricing
including taxes and levies
No target set, reported as key
performance indicator for sites
selected for modelling, to be
expanded in future with
support from external partners
Increased severity of
extreme weather events
No target set, reported as key
performance indicator
Impact of carbon pricing
including taxes and levies
Serco Group plc | Annual Report and Accounts 2023 | 74
Climate-related
opportunity
Transition to greener fleet
Climate-related
opportunity
ISO Management System
certification
%
%
Climate-related
opportunity
Suppliers / customers with
Science-based targets
%
Strategic Report
Corporate Governance
Financial Statements
Task Force on Climate-related Financial Disclosures (TCFD)
compliance statement continued
Metric/KPI category
Unit of
measure
Metric / KPI
Group targets set and/or reported as
KPI?
Example linkage to identified
risks and opportunities
*Climate-related
opportunity
Transition to renewable
electricity
% &
Megawatt
hour (MWh)
% and MWh of electricity
consumption sourced from
green tariffs and/or energy
attribute certificates
(renewable energy
certificates)
% of vehicles by fuel type
No targets set, reported as key
performance indicator, targets
to be considered in Net Zero
transition planning
Impact of carbon pricing
including taxes and levies
Reputational impact on
stakeholders
No targets set, reported as key
performance indicator, targets
to be considered in Net Zero
transition planning, however
much of this is the decision of
the customer
Impact of carbon pricing
including taxes and levies
Reputational impact on
stakeholders
% of operations covered
by relevant ISO certified
management systems
No targets set, reported as key
performance indicator
Contract risk
% of suppliers/clients by
emissions who have set
science-based targets by
2028
Targets set and % of suppliers
reported as key performance
indicator, awaiting external
validation of targets in 2024***
–
–
80% of suppliers by
emissions
100% of customers by
emissions
Net Zero and
sustainability-enabling
services
Impact of carbon pricing
including taxes and levies
Net Zero and
sustainability-enabling
services
Impact of carbon pricing
including taxes and levies
Climate-related
opportunity
Suppliers rated on
EcoVadis
%
% of addressable spend
No target set, reported as key
performance indicator
*** Independently assured by Accenture
*** We cannot yet report fully on this proportion but can report on 52 sites sampled
*** External validation via the Science Based Targets initiative
See Our Impact pages 56 to 65 for our Planet metrics, KPIs and performance. The full suite of our environmental and climate-related
metrics and KPIs can be viewed on Our Impact hub on our website.
Net Zero transition planning and targets
We have formally committed to Net Zero and are listed on the Science Based Targets initiative (SBTi) website as a company taking
action. We use a financial control reporting boundary and over 2023 we have further refined our Net Zero targets, supported by
external advisors. Our proposed targets which have been submitted to SBTi for validation in 2024 are currently anticipated to be:
– Near-term target: reduce absolute Scope 1 and 2 GHG emissions 42% by 2030 from a 2022 base year.
– Near-term target: 80% of suppliers by emissions will have science-based targets by 2028.
– Near-term target: 100% of customers by emissions will have science-based targets by 2028 (on contracts we report Scope 3
upstream leased emissions).
– Net Zero across Scopes 1, 2 and 3 by 2050.
Serco defines Net Zero as per the SBTi Corporate Net Zero standard (October 2021), which provides companies with a clearly
defined path to reduce emissions in line with the Paris Agreement goal, aligning with our government customers.
Our latest Net Zero transition planning can be found on Our Impact hub on our website and has considered elements of the final
guidance published from the Transition Plan Taskforce which was announced at COP26 to develop the gold standard for transition
plans. In order to meet our Net Zero targets, we are reliant on factors which we do not control but can influence, such as our
customers investing in Net Zero infrastructure and assets on certain contracts, proactive government policy and investment in areas
such as low carbon fuels and EV infrastructure. We have used an internal shadow carbon price range of £20-£25 tCO2e previously to
highlight the opportunity of investing in projects which support nature restoration whilst also providing the benefit of supporting
carbon removals for any unavoidable carbon emissions we will have to meet our Net Zero target in 2050 and beyond (once at least
90% of emissions from Scopes 1 to 3 are reduced).
Serco Group plc | Annual Report and Accounts 2023 | 75
Strategic Report
Corporate Governance
Financial Statements
Finance Review
Highlights
– Revenue up 7% to £4.9bn, with organic growth of 4%.
– Underlying Operating Profit of £249m, the sixth consecutive year of growth.
– Free cash flow of £209m, trading cash conversion of 111%, covenant net debt: EBITDA
at the year-end of 0.50x.
– Order intake of £4.6bn.
– Growing returns to shareholders, with recommended ordinary dividend up 19%, a
share buyback of £90m in 2023 and further £140m in 2024.
Nigel Crossley
Group Chief
Financial
Officer
Serco impacting a better future
means partnering with
Governments to continuously
strive to improve the critical
services they provide to
citizens everywhere.
Serco Group plc | Annual Report and Accounts 2023 | 76
Strategic Report
Corporate Governance
Financial Statements
Finance Review continued
For the year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses
Exceptional operating items
Amortisation and impairment of intangibles
arising on acquisition
Share of results of joint ventures and associates,
net of interest and tax
Operating profit / (loss)
Margin
Net finance costs
Profit before tax
Tax (charge)/credit
Effective tax rate
Profit for the period
Attributable to:
Non
Underlying
items
Reported
Underlying
2023
£m
2023
£m
2022
£m
—
—
—
—
4,873.8
4,534.0
(4,378.3)
(4,044.7)
495.5
489.3
(275.8)
(264.3)
Non
Underlying
items
2022
£m
—
4.2
4.2
—
Reported
2022
£m
4,534.0
(4,040.5)
493.5
(264.3)
Underlying
2023
£m
4,873.8
(4,378.3)
495.5
(275.8)
—
—
53.8
53.8
(30.9)
(30.9)
—
—
(2.4)
(2.4)
(21.6)
(21.6)
29.0
248.7
5.1 %
(24.6)
224.1
(50.8)
22.7 %
173.3
—
29.0
12.0
—
12.0
22.9
—
22.9
6.2
271.6
5.6 %
(24.6)
247.0
(44.6)
237.0
5.2 %
(20.4)
216.6
(47.9)
(19.8)
—
(19.8)
6.1
18.1 %
22.1 %
29.1
202.4
168.7
(13.7)
217.2
4.8 %
(20.4)
196.8
(41.8)
21.2 %
155.0
Equity attributable to owners of the Company
173.3
29.1
202.4
—
—
—
169.1
(0.4)
(13.7)
—
155.4
(0.4)
Non-controlling interest
Earnings per share (EPS)
Basic EPS
Diluted EPS
15.61p
15.36p
18.23p
14.18p
17.93p
13.92p
13.03p
12.79p
Alternative Performance Measures (APMs) and other related definitions
Overview
APMs used by the Group are reviewed below to provide a definition and reconciliation from each non-IFRS APM to its IFRS
equivalent, and to explain the purpose and usefulness of each APM.
In general, APMs are presented externally to meet investors’ requirements for further clarity and transparency of the Group’s
financial performance. The APMs are also used internally in the management of our business performance, budgeting and
forecasting, and for determining Executive Directors’ remuneration and that of other Management throughout the business.
APMs are non-IFRS measures. Where additional revenue is being included in an APM, this reflects revenues presented elsewhere
within the reported financial information, except where amounts are recalculated to reflect constant currency. Where items of
income or expense are being excluded in an APM, these are included elsewhere in our reported financial information as they
represent actual income or expense of the Group, except where amounts are recalculated to reflect constant currency. As a result,
APMs allow investors and other readers to review different kinds of revenue, profits and costs and should not be used in isolation.
Other commentary within this announcement, including the other sections of this Finance Review, as well as the Consolidated Financial
Statements and their accompanying notes, should be referred to in order to fully appreciate all the factors that affect our business. We
strongly encourage readers not to rely on any single financial measure, but to carefully review our reporting in its entirety.
Serco Group plc | Annual Report and Accounts 2023 | 77
Strategic Report
Corporate Governance
Financial Statements
Finance Review continued
Consolidation of profit measures
The Group is simplifying its profit measures by removing Trading Profit and renaming underlying trading profit (UTP) to underlying
operating profit (UOP). The historic UOP presented is consistent with the equivalent reported UTP in that period.
The UTP definition was introduced in 2015 to exclude onerous contract provision (OCP) releases or charges, other Contract and
Balance Sheet Review adjustments, depreciation and amortisation of assets held for sale, and some other one-time items. It was
maintained to ensure there was transparency outside the underlying results of large charges and releases from the portfolio of
onerous contracts recorded in 2014. These definitions are no longer required as the Contract and Balance Sheet Review
Adjustments recorded in 2014 are now at an insignificant level. In the future, no items will be recorded between UTP and Trading
Profit, meaning the additional measure no longer adds any value.
Items excluded from UOP will be the amortisation and impairment of intangibles arising on acquisition and exceptional operating
items (and in the prior year other non-underlying items), which is consistent with the items previously excluded from Trading Profit.
The methodology applied to calculating other APMs has not changed since 31 December 2022.
Alternative revenue measures
For the year ended 31 December
Reported revenue at constant currency1
Foreign exchange differences
Reported revenue at reported currency
2023
£m
4,906.3
(32.5)
4,873.8
2022
£m
4,534.0
—
4,534.0
1
In order to provide a comparable movement on the previous year's results, reported revenue is recalculated by translating non-Sterling values into Sterling
at the average exchange rates for the year ended 31 December 2022.
For the year ended 31 December
Alternative revenue measure at constant currency3
Foreign exchange differences
Alternative revenue measure at reported currency
Impact of relevant acquisitions or disposals
Share of joint venture and associates
Organic
Revenue1
2023
£m
4,663.9
(43.5)
4,620.4
253.4
—
Organic
Revenue1
2022
£m
4,465.1
—
4,465.1
68.9
—
Reported revenue at reported currency
4,873.8
4,534.0
Revenue plus
share of joint
ventures and
associates2
Revenue plus
share of joint
ventures and
associates2
2023
£m
5,379.7
(32.5)
5,347.2
—
(473.4)
4,873.8
2022
£m
4,771.9
—
4,771.9
—
(237.9)
4,534.0
1
2
3
In order to provide a comparable movement which ignores the effect of both acquisitions and disposals, organic revenue at constant currency is
recalculated by excluding the impact of relevant acquisitions or disposals. There are two acquisitions excluded for the calculation of organic revenue in
the year to 31 December 2023 being the acquisitions of OXZ Holdings AG (ORS) and Sapienza Consulting Holdings BV (Sapienza). The prior year figure is
recalculated on a consistent basis to the acquisitions or disposals removed in the current year and therefore may not agree to the organic revenue
previously reported.
The alternative measure includes the share of joint ventures and associates for the benefit of reflecting the overall change in scale of the Group’s ongoing
operations, which is particularly relevant for evaluating Serco’s presence in market sectors such as Defence and Transport. The alternative measure allows
the performance of the joint venture and associate operations themselves, and their impact on the Group as a whole, to be evaluated on measures other
than just the post-tax result.
In order to provide a comparable movement on the previous period’s results, the alternative revenue measures are recalculated by translating non-
Sterling values into Sterling at the average exchange rates for the year ended 31 December 2022.
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Alternative profit measures
For the year ended 31 December
Underlying operating profit at constant currency1
Foreign exchange differences1
Underlying operating profit at reported currency2
Non-underlying items:
Amortisation and impairment of intangibles arising on acquisition3
Exceptional operating items4
Other non-underlying items4
Reported operating profit
2023
£m
248.9
(0.2)
248.7
(30.9)
53.8
—
271.6
2022
£m
237.0
—
237.0
(21.6)
(2.4)
4.2
217.2
1
2
3
4
In order to provide a comparable movement on the previous period’s results, reported UOP is recalculated by translating non-Sterling values into Sterling at
the average exchange rates for the year ended 31 December 2022.
The Group uses an alternative measure, UOP, to make adjustments for items considered material and outside of the normal operating practice of the Group
to be suitable for separate presentation and detailed explanation.
Amortisation and impairment of intangibles arising on acquisitions are excluded, because these charges are based on judgements about the value and
economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice.
Exceptional operating items (and in the prior year other non-underlying items) are those items considered material and outside of the normal operating
practice of the Group to be suitable for separate presentation and detailed explanation. Where items are not material, their inclusion is to ensure they are
treated consistently with prior periods.
Alternative Earnings per share (EPS) measures
For the year ended 31 December
Underlying EPS1
Non-underlying items:
Net impact of non-underlying operating items, non underlying
tax and amortisation and impairment of intangibles arising on
acquisition
2023
basic
pence
15.61
2022
basic
pence
14.18
2023
diluted
pence
15.36
2022
diluted
pence
13.92
(2.02)
(0.97)
(1.99)
(0.95)
Exceptional operating items, net of tax
Reported EPS
4.64
18.23
(0.18)
13.03
4.56
17.93
(0.18)
12.79
1
Reflecting the same adjustments made to operating profit to calculate UOP as described above and including the related tax effects of each adjustment and
any other non-underlying tax adjustments as described in the tax charge section below, an alternative measure of EPS is presented. This aids consistency
with historical results and enables performance to be evaluated before the one-time effects described above.
Alternative cash flow and Net Debt measures
Free cash flow (FCF)
For the year ended 31 December
Free cash flow1
Exclude dividends from joint ventures and associates
Exclude net interest paid
Exclude capitalised finance costs paid
Exclude capital element of lease repayments
Exclude proceeds received from exercise of share options
Exclude purchase of own shares to satisfy share awards
Exclude purchase of intangible and tangible assets net of proceeds from disposal
Net cash inflow from underlying operating activities
Non-underlying cash flows from operating activities
Net cash inflow from operating activities
2023
£m
209.2
(21.1)
26.5
—
124.4
—
22.9
21.9
383.8
9.3
393.1
2022
£m
159.1
(9.1)
22.5
2.6
120.5
(0.1)
15.9
18.7
330.1
(2.9)
327.2
1
Free cash flow is the net cash flow from operating activities adjusted to remove the impact of non-underlying cash flows from operating activities, adding
dividends we receive from joint ventures and associates and deducting net interest, net capital expenditure on tangible and intangible asset purchases and
the purchase of own shares to satisfy share awards.
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Trading cash conversion
For the year ended 31 December
Free cash flow1
Add back:
Tax paid
Non-cash R&D expenditure
Net interest paid
Capitalised finance costs paid
Trading cash flow
Underlying operating profit
Trading cash conversion1
2023
£m
209.2
41.1
0.4
26.5
—
277.2
248.7
111%
2022
£m
159.1
44.2
0.4
22.5
2.6
228.8
237.0
97%
1
In order to calculate an appropriate cash conversion metric equivalent to UOP, trading cash flow is derived from FCF by excluding capitalised finance costs,
interest, non-cash R&D expenditure and tax items. Trading cash conversion therefore provides a measure of the efficiency of the business in terms of
converting profit into cash before taking account of the impact of capitalised finance costs, interest, non-cash R&D expenditure, tax and non-underlying
items.
Net Debt and Adjusted Net Debt
As at 31 December
Cash and cash equivalents
Loans payable
Lease liabilities
Derivatives relating to Net debt
Net debt1
Add back: Lease liabilities
Adjusted net debt2
2023
£m
94.4
(206.2)
(453.7)
3.1
(562.4)
453.7
(108.7)
2022
£m
57.2
(262.9)
(446.0)
1.8
(649.9)
446.0
(203.9)
1
2
Alternative measures bring together the various funding sources that are included on the Group’s Consolidated Balance Sheet and the accompanying
notes. Net debt is a measure to reflect the net indebtedness of the Group and includes all cash and cash equivalents and any debt or debt-like items,
including any derivatives entered into in order to manage risk exposures on these items. Net debt includes all lease liabilities, whilst adjusted net debt is
derived from net debt by excluding liabilities associated with leases.
The Adjusted net debt measure was introduced because it more closely aligns to the Consolidated Total Net Borrowings measure used for the Group’s debt
covenants, which is prepared under accounting standards applicable prior to the adoption of IFRS 16 Leases. Principally as a result of the Asylum
Accommodation and Support Services Contract (AASC), the Group has entered into a significant number of leases which contain a termination option. The
use of Adjusted net debt removes the volatility that would result from estimations of lease periods and the recognition of liabilities associated with such
leases where the Group has the right to cancel the lease and hence the corresponding obligation. Though the intention is not to exercise the options to
cancel the leases, it is available unlike other debt obligations.
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Return on invested capital (ROIC)
For the year ended 31 December
ROIC excluding right of use assets
Non current assets
Goodwill
Other intangible assets - owned
Property, plant and equipment - owned
Interest in joint ventures
Loans to joint ventures
Contract assets, trade and other receivables
Current assets
Inventory
Loans to joint ventures
Contract assets, trade and other receivables
Total invested capital assets
Current liabilities
Contract liabilities, trade and other payables
Non current liabilities
Contract liabilities, trade and other payables
Total invested capital liabilities
Invested capital1
Two point average of opening and closing invested capital
Underlying operating profit 12 months
Underlying ROIC %2
2023
£m
906.7
115.6
44.3
32.1
—
14.8
24.1
10.0
2022
£m
945.0
158.0
48.1
23.3
10.0
16.1
22.4
—
625.6
1,773.2
719.6
1,942.5
(593.8)
(683.3)
(68.5)
(662.3)
1,110.9
1,163.7
248.7
21.4 %
(42.8)
(726.1)
1,216.4
1,151.8
237.0
20.6 %
1
2
Invested capital excludes right of use assets recognised under IFRS 16 Leases. This is because the Invested capital of the Group are those items within which
resources are, or have been, committed, which is not the case for many leases where termination options exist and commitments for expenditure are in
future years.
ROIC is a measure to assess the efficiency of the resources used by the Group and is a metric used to determine the performance and remuneration of the
Executive Directors. ROIC is calculated based on UOP, using the income statement for the period and a two-point average of the opening and closing
balance sheets. The composition of Invested capital and calculation of ROIC are summarised in the table above.
Overview of financial performance
Revenue
Reported revenue increased by 7.5% in the year to £4,873.8m (2022: £4,534.0m), a 8.2% increase at constant currency. Organic
revenue at constant currency increased by 4.4%. This is in line with the trading update issued on 14 December 2023 where revenue
was expected to be at least £4.8bn for the year ended 31 December 2023.
Revenue including the Group's share of joint ventures has increased by 12.1% in the year to £5,347.2m (2022: £4,771.9m) a 12.7%
increase at constant currency.
Commentary on the revenue performance of the Group is provided in the Chief Executive’s Review and the Divisional Reviews
sections.
Underlying operating profit (UOP)
UOP increased by 4.9% in the year to £248.7m (2022: £237.0m), a 5.0% increase at constant currency. This is marginally higher than
the trading update issued on 14 December 2023 where UOP was expected to be around £245m for the year ended 31 December
2023.
Commentary on the underlying performance of the Group is provided in the Chief Executive’s Review and the Divisional Reviews
sections.
Joint ventures and associates – share of results
In 2023, the most significant joint ventures and associates in terms of scale of operations were Merseyrail Services Holding Company
Limited (Merseyrail) and VIVO Defence Services Limited (VIVO), with dividends received of £21.1m and £nil (2022: £7.3m and £nil),
respectively, and total revenues of £217.0m and £844.9m, respectively (2022: £185.0m and £327.0m). Both revenue and dividends
have increased in Merseyrail as a result of higher passenger volumes and a commercial settlement relating to current and prior
periods. The increase in VIVO’s revenue is due to higher volumes of variable work and additional service contracts awarded to the
joint venture during the year.
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The split of the share of profits in joint ventures and associates, net of interest and tax for the year ended 31 December 2023 was
£29.0m (2022: £12.0m), comprising of profit from Merseyrail £15.9m (2022: £5.3m), VIVO £13.1m (2022: £6.6m) and a profit on
other joint ventures and associates of £nil (2022: profit of £0.1m). Profit has increased as a result of additional variable revenue and
the commercial settlement in Merseyrail.
Whilst the revenues and individual line items are not consolidated in the Group Consolidated Income Statement, summary financial
performance measures for the Group’s proportion of the aggregate of all joint ventures and associates are set out below for
information purposes.
For the year ended 31 December
Revenue
Operating profit
Net finance cost
Income tax charge
Profit after tax
Dividends received from joint ventures and associates
2023
£m
473.4
38.1
(0.2)
(8.9)
29.0
21.1
2022
£m
237.9
14.3
(0.3)
(2.0)
12.0
9.1
Exceptional operating items
Exceptional operating items are items of financial performance that are outside normal operations and are material to the results of
the Group either by virtue of size or nature. These require separate disclosure on the face of the income statement to assist in the
understanding of the performance of the Group. In 2023, the total exceptional credit net of tax was £51.5m (2022: charge of £2.1m).
The Group released provisions held for indemnities provided on disposed businesses totalling £43.9m predominantly due to the
claims period ending. The Group also received £9.9m compensation on the early termination of a contract which, due to the size of
the settlement, has been disclosed as exceptional.
Exceptional tax for the period was a tax charge of £2.3m (2022: credit of £0.3m) which arises on exceptional operating items within
operating profit.
Finance costs and investment revenue
Net finance costs recognised in the income statement were £24.6m (2022: £20.4m), consisting of investment revenue of £7.0m, less
finance costs of £31.6m.
Investment revenue of £7.0m (2022: £4.7m) consists of interest accruing on net retirement benefit assets of £3.1m (2022: £2.7m)
and interest income of £3.9m (2022: £1.9m).
Finance costs of £31.6m (2022: £25.1m) include interest incurred on loans, primarily the US private placement loan notes and the
revolving credit facility of £15.6m (2022: £15.2m) and lease interest expense of £13.1m (2022: £7.9m) as well as other financing
related costs including the impact of foreign exchange on financing activities.
Net interest paid recognised in the cash flow statement was £26.5m (2022: £22.5m), consisting of interest received of £3.9m less
interest paid of £30.4m.
Tax
Underlying tax
The underlying tax charge recognised in the year was £50.8m (2022: £47.9m). The effective tax rate of 22.7% is marginally higher
than in 2022 (22.1%). The increase compared with 2022 is due to smaller credits recognised in 2023 in connection with the
finalisation of tax filings and movement in provisions as part of the regular reassessment of tax exposures across the Group. This has
been offset by the change in mix of where profits have arisen.
The tax rate at 22.7% is slightly lower than the UK standard corporation tax rate of 23.5%. This is mainly due to the impact of the
profits of joint ventures and associates whose post-tax profits are included in the Group’s profit before tax (reducing the rate by
3.0%) together with the reduction in provisions held for uncertain tax positions which reduced the rate by 0.4%. This is partially offset
by the impact of the higher statutory rate of tax on overseas profits (increasing the rate by 0.9%), the impact of unprovided UK
deferred tax in a company that ceased trading in the year (0.5% increase in the rate), the impact of unprovided overseas deferred tax
(increasing the rate by 0.2%), and tax disallowable costs (increase the rate by 0.4%). Other smaller items result in a net increase to
the rate of 0.6%.
Non-underlying tax
A tax credit of £6.2m (2022: £6.1m) arises on non-underlying items which comprises of:
– A tax credit of £8.5m (2022: £5.8m) due to tax deductions associated with the amortisation of intangibles arising on acquisitions.
– A non-underlying exceptional tax charge for the period of £2.3m arising on compensation received for early termination of a
contract. The other exceptional credits, which arise in the UK on the release of the indemnities, are not subject to tax.
Deferred tax assets
At 31 December 2023, the Group has recognised a net deferred tax asset of £184.8m (2022: £190.4m). This consists of a deferred
tax asset of £235.7m (2022: £244.2m) and a deferred tax liability of £50.9m (2022: £53.8m). A £179.9m UK deferred tax asset has
been recognised on the Group’s balance sheet at 31 December 2023 (2022: £186.9m) on the basis that the performance in the
underlying UK business indicates sustained profitability which will enable the accumulated tax losses within the UK to be utilised.
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Taxes paid
Net corporate income tax of £41.1m (2022: £44.2m) was paid during the year, relating to the Group’s operations in Asia Pacific
(£12.3m), North America (£24.1m), UK (£2.7m), Europe (£0.9m) and the Middle East (£1.1m). The payments made in the UK
consisted of £3.6m to HMRC, offset by £0.9m received from the Group’s joint ventures and associates for losses sold to them. The
amount of tax paid, £41.1m, differs slightly from the tax charge in the period, £44.6m, mainly because taxes paid/received from Tax
Authorities can arise in later periods to the associated tax charge/credit. This is particularly the case with regards to movements in
deferred tax, such as on the use of prior year losses, and provisions for uncertain tax positions.
Total tax contribution
The Group’s published tax strategy of paying the appropriate amount of tax as determined by local legislation in the countries in
which it operates means that a variety of taxes are paid across the globe. To increase the transparency of the Group’s tax profile, the
cash taxes that have been paid across its regional markets is shown below.
In total during 2023, Serco globally contributed £914.5m of tax to government in the jurisdictions in which it operates.
Taxes by category
Total of Corporate Income Tax
Total of VAT and similar
Total of People Taxes
Total Other Taxes
Taxes by region
UK & Europe
Asia Pacific
North America
Middle East
Taxes borne
£m
Taxes collected
£m
41.8
11.6
165.9
16.7
236.0
—
277.0
401.2
0.3
678.5
Taxes borne
£m
Taxes collected
£m
126.3
39.4
67.5
2.8
236.0
362.8
176.8
131.3
7.6
678.5
Total
£m
41.8
288.6
567.1
17.0
914.5
Total
£m
489.1
216.2
198.8
10.4
914.5
Corporation tax, which is the only cost to be separately disclosed in our Financial Statements, is only one element of the Group’s tax
contribution. For every £1 of corporate tax paid directly by the Group (tax borne), a further £4.65 is borne in other business taxes.
The largest proportion of these is in connection with employing people.
In addition, for every £1 of tax borne, £2.88 is collected on behalf of national governments (taxes collected). This amount is directly
impacted by the number of people employed and the sales made.
Dividend, share buyback and share count
During the year to 31 December 2023, the Group paid dividends of £33.7m (2022: £30.3m) in respect of the final dividend for the
year ended 31 December 2022 and the interim dividend for the year ended 31 December 2023. As noted in the Chief Executive’s
Review, the Board has decided to declare a final dividend of 2.27p per share in respect of the year ended 31 December 2023
(2022:1.92p per share).
On 28 February 2023, the Group announced its intention to repurchase ordinary shares with a value of up to £90m. The buyback
programme took place between 3 March and 22 June 2023. During this period, the Group repurchased 58,956,118 shares at an
average cost of £1.51 for total cost including fees of £88.8m. All shares held in treasury at 31 December 2022 and those purchased
in 2023 have been cancelled.
The weighted average number of shares for EPS purposes was 1,110.2m for the year ended 31 December 2023 (2022: 1,192.2m)
and diluted weighted average number of shares was 1,128.6m (2022: 1,214.8m). The decrease in the weighted average number of
shares is primarily due to the full year impact of the repurchase of 55,506,704 shares in 2022 and the impact of the repurchase of
58,956,118 shares during 2023 which were all cancelled in year.
Cash flows and net debt
UOP of £248.7m (2022: £237.0m) converts into a trading cash inflow of £277.2m (2022: £228.8m). The increase in trading cash
inflows is mainly due to a £30.0m inflow of working capital compared to an outflow of £24.4m in 2022. The improvement in working
capital is driven by 2023 benefiting from some aged debt collection on ceased contracts and better payment terms being
experienced within our immigration contracts. The Group saw a decrease in the debtor days from 22 days (2022) to 16 days (2023)
and a decrease in creditor days from 21 days (2022) to 20 days (2023) during the year, as the Group continues to ensure its
suppliers are paid on time. Including accrued income and other unbilled receivables, day sales outstanding for 2023 were 37.9 days
(2022: 48.4 days).
The table below shows the cash flow from underlying operating activities and Free Cash Flow (FCF) reconciled to movements in Net
Debt. FCF for the period was an inflow of £209.2m compared to £159.1m in 2022. The movement compared to 2022 is consistent
with the increase in trading cash flow above.
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Finance Review continued
Adjusted net debt decreased by £95.2m in the year to 31 December 2023, a reconciliation of which is provided at the bottom of the
following table. Average Adjusted net debt as calculated on a daily basis for the year ended 31 December 2023 was £232.2m (2022:
£231.0m). Peak Adjusted net debt was £362.2m (2022: £376.8m)
For the year ended 31 December
Underlying operating profit
Less: Share of profit from joint ventures and associates
Movement in provisions
Depreciation, amortisation and impairment of property, plant and equipment and intangible
assets
Depreciation and impairment of right of use assets
Other non-cash movements
Working capital movements
Tax paid
Non-cash R&D expenditure
Net cash inflow from underlying operating activities
Dividends received from joint ventures and associates
Interest received
Interest paid
Capital element of lease repayments
Capitalised finance costs paid
Purchase of intangible and tangible assets net of proceeds from disposals
Purchase of own shares to satisfy share awards
Proceeds received from exercise of share options
Free cash flow
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures and associates
Net increase in debt items on acquisition and disposal of subsidiaries, joint ventures and
associates
Dividends paid to non-controlling interests
Dividends paid to shareholders
Purchase of own shares
Movements on other investment balances
Loans to joint venture
Capitalisation and amortisation of loan costs
Exceptional items
Cash movements on hedging instruments
Foreign exchange gain/(loss) on Adjusted net debt
Movement in Adjusted net debt
Opening Adjusted net debt
Closing Adjusted net debt
Lease liabilities
Closing Net debt
2023
£m
248.7
(29.0)
12.6
25.7
126.1
11.1
30.1
(41.1)
(0.4)
383.8
21.1
3.9
(30.4)
(124.4)
—
(21.9)
(22.9)
—
209.2
(7.5)
—
(1.7)
(33.7)
(88.8)
(0.7)
—
(0.8)
9.2
(1.5)
11.5
95.2
(203.9)
(108.7)
(453.7)
(562.4)
2022
£m
237.0
(12.0)
4.0
33.1
121.7
15.3
(24.4)
(44.2)
(0.4)
330.1
9.1
1.9
(24.4)
(120.5)
(2.6)
(18.7)
(15.9)
0.1
159.1
(19.2)
(6.5)
—
(30.3)
(91.2)
1.6
(10.0)
1.4
(2.9)
(2.7)
(25.2)
(25.9)
(178.0)
(203.9)
(446.0)
(649.9)
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Finance Review continued
Risk management and treasury operations
The Group’s operations expose it to a variety of financial risks that include access to liquidity, the effects of changes in foreign
currency exchange rates, interest rates and credit risk. The Group has a centralised treasury function whose principal role is to seek
to ensure that adequate liquidity is available to meet the Group’s funding requirements as they arise and that the financial risk
arising from the Group’s underlying operations is effectively identified and managed.
Treasury operations are conducted in accordance with policies and procedures approved by the Board which are reviewed
annually. Financial instruments are only used for hedging purposes and speculation is not permitted. A monthly report is provided
to senior management outlining performance against the Treasury Policy.
Liquidity and funding
As at 31 December 2023, the Group had committed funding of £558.8m (at 31 December 2022: £616.4m), comprising £208.8m of
US private placement loan notes, and a £350.0m revolving credit facility which was undrawn. The US private placement loan notes
are repayable in bullet payments between 2024 and 2032. The Group does not engage in any external financing arrangements
associated with either receivables or payables.
During the year ended 31 December 2023 total repayments of debt were £44.5m which related to US private placement loan notes.
The Group’s revolving credit facility provides £350.0m of committed funding for five years from the arrangement date in November
2022. The facility includes an accordion option, providing a further £100.0m of funding (uncommitted and therefore not incurring
any fees) if required without the need for additional documentation. This option has not been included in the Group’s assessment of
available liquidity as approvals are required to access the funding.
Interest rate risk
The Group has a preference for fixed rate debt to reduce the volatility of net finance costs. The Group’s Treasury Policy requires it to
maintain a minimum proportion of fixed rate debt as a proportion of overall Adjusted Net Debt and for this proportion to increase as
the ratio of EBITDA to interest expense falls. As at 31 December 2023, £208.8m of debt was held at fixed rates and Adjusted Net
Debt was £108.7m.
Foreign exchange risk
The Group is subject to currency exposure on the translation to Sterling of its net investments in overseas subsidiaries. The Group
seeks to manage this risk, where appropriate, by borrowing in the same currency as those investments. Group borrowings are
predominantly denominated in Sterling and US Dollars. The Group seeks to manage its currency cash flows to minimise foreign
exchange risk arising on transactions denominated in foreign currencies and uses forward contracts where appropriate to hedge net
currency cash flows.
Credit risk
Cash deposits and in-the-money financial instruments give rise to credit risk on the amounts due from counterparties. The Group
manages this risk by adhering to counterparty exposure limits based on external credit ratings of the relevant counterparty.
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Financial Statements
Finance Review continued
Debt covenants
The principal financial covenant ratios are consistent across the US private placement loan notes and revolving credit facility, with a
maximum Consolidated Total Net Borrowings (CTNB) to covenant EBITDA of 3.5 times and minimum covenant EBITDA to covenant
net finance costs of 3.0 times, tested semi-annually. A reconciliation of the basis of calculation is set out in the table below.
The covenants exclude the impact of IFRS 16 Leases on the Group’s results.
For the year ended 31 December
Operating Profit
Remove: Exceptional items
Remove: Amortisation and impairment of intangibles arising on acquisition
Exclude: Share of joint venture post-tax profits
Include: Dividends from joint ventures
Add back: Net non-exceptional charges/(releases) to OCPs
Add back: Net covenant OCP utilisation
Add back: Depreciation, amortisation and impairment of owned property, plant and equipment
and non acquisition intangible assets
2023
£m
271.6
(53.8)
30.9
(29.0)
21.1
8.2
(3.2)
25.7
2022
£m
217.2
2.4
21.6
(12.0)
9.1
(1.0)
(1.3)
33.1
Add back: Depreciation, amortisation and impairment of property, plant and equipment and non
acquisition intangible assets held under finance leases - in accordance with IAS17 Leases
4.3
4.8
Add back: Foreign exchange on investing and financing arrangements
Add back: Share-based payment expense
Net Other covenant adjustments to EBITDA
Covenant EBITDA
Net finance costs
Exclude: Net interest receivable on retirement benefit obligations
Exclude: Movement in discount on other debtors
Exclude: Foreign exchange on investing and financing arrangements
Add back: Movement in discount on provisions
Other covenant adjustments to net finance costs
Covenant net finance costs
Adjusted Net Debt
Obligations under finance leases - in accordance with IAS17 Leases
Recourse Net Debt
Add back: Disposal vendor loan note, encumbered cash and other adjustments
Covenant adjustment for average FX rates
CTNB
CTNB / covenant EBITDA (not to exceed 3.5x)
Covenant EBITDA / Covenant net finance costs (at least 3.0x)
(0.9)
13.5
(11.5)
276.9
24.6
3.1
—
(0.9)
—
(12.7)
14.1
108.7
17.4
126.1
5.9
5.6
137.6
0.50x
19.6x
0.4
15.6
(1.0)
288.9
20.4
2.7
0.1
0.4
—
(7.5)
16.1
203.9
21.8
225.7
6.9
(8.2)
224.4
0.78x
17.9x
Net assets
At 31 December 2023, the consolidated balance sheet shown on page 158 had net assets of £1,033.7m, a movement of £4.0m from
the closing net asset position of £1,029.7m as at 31 December 2022. Whilst the Group generated total comprehensive income of
£138.5m during the year, returns to shareholders totalled £122.5m through share buybacks and dividend payments.
Key movements since 31 December 2022 on the consolidated balance sheet shown on page 158 include:
— A decrease in goodwill of £38.3m driven predominantly by foreign exchange movements.
— A reduction in other intangible assets of £42.4m due to amortisation of £30.5m, the impairment of customer relationships arising on the
acquisition of £8.1m and a revision to the provisional fair values of intangibles arising on acquisition of ORS of £6.9m.
— A decrease in the net retirement benefit asset of £26.3m primarily in respect of SPLAS; further details are provided in the pensions
section below.
— Provisions have reduced by £38.1m predominately due to the £43.9m exceptional release of provisions previously held for indemnities
given on disposed businesses.
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Finance Review continued
— Cash and cash equivalents have increased by £37.2m. In the period the Group generated cash of £383.8m from underlying operations.
The net repayment of loans was £44.5m and the capital element of lease repayments in the period was £124.4m. Including associated
costs, the spend on shares repurchased during the year totalled £111.7m (£88.8m share buyback and £22.9m to fund employee share
options) and dividends totalling £33.7m have been paid to shareholders.
— Net loan balances have decreased by £56.7m due to the £44.5m repayment of the US Private Placement loan notes.
— The movement in contract assets, trade receivables and other assets, and, contract liabilities, trade payables and other liabilities are as a
result of normal working capital movements.
Acquisitions
On 14 December 2023, Serco agreed to acquire 100% of the share capital of European Homecare (EHC), a specialist provider of
immigration services to public sector customers in Germany. The business will be acquired from Korte-Stiftung for €40m (£34m)
subject to final fair value assessments. Subsequent to the balance sheet date clearance has been obtained from the competition
authority and the acquisition completed on 1 March 2024. Due to the timing of completion and the availability of financial
information, the measurement of the fair value of net assets acquired and any goodwill to be recognised as a result of the acquisition
is in progress.
On 14 December 2023, Serco agreed to acquire 100% of the share capital of Climatize, a small but fast-growing business that
operates in the United Arab Emirates and the Kingdom of Saudi Arabia offering ‘zero-carbon’ advisory and related engineering
services. The acquisition completed on 31 January 2024 for cash consideration of AED 9.0m (£1.9m) and contingent consideration
of up to AED 51.0m (£10.9m), payable on achieving certain financial targets. Due to the timing of completion, the measurement of
the fair value of net assets acquired and any goodwill to be recognised as a result of the acquisition is in progress.
Pensions
During the year there continued to be a high degree of volatility in the pensions market. Discount rates and short-term inflation rates
had been rising since 31 December 2021. Concerns over high global inflation, recession, rising interest rates and sharp rises in
bond yields continued through to the third quarter of 2023 and, as inflation fell and interest rates rose, bond yields fell slightly below
the levels at 31 December 2022.
Despite the volatility, Serco’s pension schemes remain in a strong funding position and have an accounting surplus, before tax, of
£24.5m (2022: £50.8m), on scheme gross assets of £1.1bn (2022: £1.1bn) and gross liabilities of £1.0bn (2022: £1.0bn). The
decrease in the net retirement benefit asset of £26.3m is primarily due to the Group’s largest scheme, Serco Pension and Life
Assurance Scheme (SPLAS), and is as a result of the following:
- Discount rates being lower than prior year resulting in an increase in pension obligation
Actual inflation in 2023 was higher than prior year assumptions resulting in an experience adjustment increasing pension
obligations
-
- Updated mortality assumptions to reflect the latest available actuarial projections resulting in a reduction to pension obligations
- Reductions to long-term RPI inflation assumptions have resulted in a decrease to pension obligations
Based on the 2021 actuarial funding valuation which was finalised in 2022 for SPLAS, the Group has committed to make deficit
recovery payments of £6.6m per year from 2022 to 2030.
On 25 June 2023 the contract for Caledonian Sleepers was transferred back to the Scottish Government which included the transfer
of obligations under the section of the share costs pension scheme under the franchise agreement. In line with the accounting under
IAS 19 the Group held no liability for this scheme on the balance sheet and therefore there is no gain or loss through the income
statement.
The opening net asset position led to a net interest income within net finance costs of £3.1m (2022: £2.7m).
Claim for losses in respect of the 2013 share price reduction
Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the
reduction in Serco’s share price in 2013, as the claim progresses, the Group has continued to assess the merit, likely outcome and
potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any
outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially
given the legal uncertainties in such actions.
Information on other contingent liabilities can be found in note 28 to the Consolidated Financial Statements.
Nigel Crossley
Group Chief Financial Officer
1 March 2024
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Financial Statements
Section 172 (1) Statement
Section 172 (1) of the Companies Act 2006 requires a director of a company to act in the way
that he or she considers, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole. The Directors, both individually and
collectively, believe they have given due regard to the matters set out in section 172 (1) (a-f)
of the Companies Act 2006 in discharging this duty during the year.
A description of how the Directors individually, and the Board collectively, have had regard to those
matters is provided below and forms the Directors’ statement required under section 414CZA of the
Companies Act 2006.
Long-term decision-making
The likely consequences of any decision in the long term (s172 (1) (a) of the Companies Act 2006)
We have been clear on our purpose, values and impact on society for many years. In setting the long-term direction and strategy of
the Company, ESG considerations have always been important to Serco.
Our People
The interests of the Company’s employees (s172 (1) (b) of the Companies Act 2006)
Our people are at the heart of our business and, as a Company, we are the sum of the efforts, energy and values of our people,
who are critical to achieving our mission of bringing together the right people, technology and partners to deliver that positive
impact.
Through our annual Group-wide engagement survey, Viewpoint, and more frequent targeted ‘pulse’ surveying in selected parts of
the business, we know that the majority of our people are happy working at Serco and would recommend Serco as a great place to
work. Each year, our people provide their views on a wide range of topics so we can better understand their perspectives and
experience of working with us. There were 13,878 ‘Tell the Board’ comments submitted this year, a 9% increase on 2022. The
topics mentioned most in the comments included: Compensation, Communication, Well-being and Career Opportunities. The
Board conducts a focused review of the output from the Viewpoint survey every year and, as a result of the responses received for
the 2023 Viewpoint survey, our focus is to:
– further enhance the visibility and accessibility of available job roles and provide additional support and clarity on how to
progress at Serco;
– generate greater excitement about Serco’s future by communicating openly and regularly, through multiple channels, about the
business’ future direction; and
– re-energise our values of Trust, Care, Innovation and Pride to enhance the colleague experience and increase colleague impact.
The Board fully supported the continued implementation and roll-out of the Serco People Fund, which is an independent charity
and embraces Serco’s value of Care. The Fund provides support to current and retired colleagues and their families in times of
need or when facing extraordinary financial challenges. Dame Sue Owen DCB, Designated Non-Executive Director for Employee
Voice, updates the Board on feedback received from our people through engagement activities held throughout the year as part
of the Employee Voice and Colleague ConneXions initiatives and publishes a blog on our global intranet platform, myserco,
sharing responses from the Board to the feedback received.
Other members of the Board, the Group Executive Committee and leadership teams participated in a number of engagement
activities and Serco Inclusion Hub events arranged by our employee networks: Serco Inspire, Serco Unlimited, Serco Embrace and
In@Serco. Reports on the activities of each network are received by the Board through regular People reports and individual Board
members provide feedback following participation in other activities during the year, such as contract visits and conferences, as
well as events in support of our health, safety and ESG agendas (for example, Zero Harm Week and World Environment Day).
During the year, our all-employee savings-linked share option plan (MyShareSave), which was launched in the UK in 2022, was
expanded to include additional territories. MySharesave provides an opportunity for our colleagues to share in the long-term
success of the Company by entering into a savings arrangement with an option to buy shares in the Company.
More information is available as set out below:
– Employee engagement metrics as part of the Key Performance Indicators on page 27.
– The People and Culture section of this Annual Report on pages 28 to 31.
– Directors’ Remuneration Report on pages 115 to 138.
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Financial Statements
Section 172 (1) Statement continued
Our Customers, Suppliers and Others
The need to foster the company’s business relationships with suppliers, customers, and others (s172 (1) (c) of the Companies Act 2006)
As a partner of choice to governments globally, our customers are many and varied, consisting of local, regional and national
governments, other public sector bodies, as well as those who use the services we provide.
Our business is built on our ability to retain existing, and win new, customers. As such, understanding, engaging with, and
responding to customer needs is a critical priority. While the demands vary significantly, at the most basic level our customers seek
to procure from us quality public service delivery, at a price they feel represents good value for money. This requires us to have
both a deep understanding of their sector-specific needs, and the technical and commercial ‘know-how’ to deliver public services
more effectively and efficiently.
In addition, there are significant regional and sector-specific dynamics and concerns that vary significantly and which also change
over time. For example, Social Value is key to central government bids in the UK; nationalisation and In-Country Value is a key
priority for some of our customers in the Middle East; defence customers have been impacted by the war in Ukraine; immigration
customers are coping with huge rises in caseloads; and much more. It is critical that we maintain a detailed appreciation of these
concerns so that we can respond accordingly.
The Group Chief Executive and Group CFO meet directly with different customers across all our regions and the Board meet with
customers during contract visits. The Board met with customers from our UK and European businesses and key representatives
from the Ministry of Defence and UK Cabinet Office were also invited to Board meetings during 2023. The Divisional Performance
Reviews, which are made available to the Board, also contain details on customer issues and engagement.
In his first full year, the new Group Chief Executive has worked with Group and Divisional colleagues to review strategy and growth
across the business. A crucial part of this being our relationship with customers and how we leverage our brand to become the
partner of choice to governments globally.
In 2023, we undertook our annual strategy process involving all parts of the business. Alongside producing a clarified and more
unified approach to our strategy and strategic frameworks, this process focused on driving deliberate growth and focused
execution against our ambitions. As in previous years, this process culminated in several Group Executive Committee sessions as
well as a full day Board Strategy session during which the Board debated current and future requirements at length. Further
information on our strategy, its implementation and next steps is provided on pages 22 and 23.
Our suppliers have an important role to play in Serco being a valued and trusted partner of governments, delivering superb public
services that transform outcomes and make a positive difference to our fellow citizens. We aim to build honest, respectful and
transparent relationships with our suppliers, which have high levels of regulatory compliance and share our ethical standards and
commitment to sustainability throughout the supply chain.
Our suppliers are concerned with the ease of doing business with Serco, responsible business practices, conduct and ethics,
driving innovation, building long-term relationships, fair business terms and receiving prompt payment.
The Group Chief Executive and Group CFO engage directly with key suppliers and, via the Risk Committee and the Corporate
Responsibility Committee, the Board is regularly briefed on operational matters as well as on the management and assessment of
suppliers by Divisional senior management, the Group Director of Enterprise Risk Management; the Group Director of Business
Compliance & Ethics; and the Director of Procurement.
More information is available as set out below:
– Pipeline and Order Book metrics as part of Key Performance Indicators on page 27.
– Divisional Reviews on pages 13 to 19.
– The Our Impact section of this Annual Report on pages 49 to 69 and on our website.
– Principal Risks and Uncertainties on pages 34 to 46 in particular the risks of contract non-compliance, failure to act with integrity
and failure to grow profitably.
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Section 172 (1) Statement continued
Our Communities and Environment
The impact of the company’s operations on the community and the environment (s172 (1) (d) of the Companies Act 2006)
Our communities comprise those living and working in close proximity to our operations; those for whom we provide services on
behalf of our government customers; and those who represent the needs of the communities we operate in, including charities,
independent bodies and local government. Operating among and on behalf of our communities, we strive to maintain a deep
understanding of the complex social challenges that impact them, while recognising our responsibility to contribute to the
sustainability and well-being of society and the economy wherever we operate.
Our communities are primarily concerned with the impact of our operations on society, the economy and the environment and
knowing that we operate and conduct our business as a respectful and responsible neighbour.
We are committed to assessing our risks and opportunities, building climate resilience and limiting the impact of our operations on
the environment, while also making positive contributions through our environment strategy and through the public and
community impact element of our Impact Framework for our customers and stakeholders, including our communities. Our Group
environmental strategy themes of Net Zero carbon and climate, efficient use of natural resources, and environmental protection,
along with our Sustainable Procurement Charter and Impact Framework, are focus areas that have oversight from the Board
through the Corporate Responsibility Committee. As part of the Company’s World Environment Day activities, one of our Non-
Executive Directors joined colleagues in a local Wildlife Trust volunteering event and the Board continues to encourage colleagues
from across the Group to join Serco’s Green Ambassador Network.
We support and contribute to societal objectives, helping address climate and environmental challenges through our services and
by working in partnership with stakeholders on decarbonisation and nature recovery opportunities. We also deliver sustainable
procurement improvements by assessing and collaborating with our supply chain partners and we implement operational
efficiencies to avoid and minimise resource use, supporting the transition to a circular economy. We strive to ensure that our
operations prevent pollution and protect, value and enhance biodiversity and the natural world which sustains us.
Members of the Board had the opportunity to meet with users of the services we provide on behalf of our customers during
contract visits. Further, the work of the Serco Institute and the Serco Foundation informs reports from management as part of the
rolling agenda of matters considered during the year. The Director of Business Compliance and Ethics; Director of Health, Safety
and Well-being; and the Group Head of Environment, Energy and Sustainability provide regular updates on ethics and business
conduct, the Speak Up service and environmental strategy.
More information is available as set out below:
–
–
–
The Our Impact section of this Annual Report on pages 49 to 69 and on our website.
The Serco Foundation website at www.sercofoundation.org
The Serco Institute website at www.sercoinstitute.com
Our Conduct
The desirability of the company maintaining a reputation for high standards of business conduct (s172 (1) (e) of the Companies Act
2006)
Our Values, Code of Conduct, Serco Management System and related policies cover the values and behaviours expected of
employees, the standards to which they must adhere, how we engage with stakeholders and how the Board looks to ensure that
we have robust systems of control and assurance processes, and are designed to drive high standards of business conduct across
the Group.
The Board monitors:
– how our Values are lived through the annual engagement survey, Viewpoint and direct engagement through contract visits;
– development and completion of Serco Essentials, mandated Group training on our Values, mycode and selected areas of the
– Serco Management System; and
– principal Group risks, focusing on the controls to manage and mitigate these risks.
The Board maintains oversight of compliance with Company policies and processes through three lines of defence and the usage
of and items raised through the Company’s confidential reporting service ‘Speak Up’, available to all Serco colleagues, our
suppliers, their personnel and the public. The Board also has oversight of the refresh of Serco’s Management System and, during
the year, approved a refreshed suite of policy statements and new documentation which further clarifies responsibilities and
behaviours at each level of the organisation.
During the year, the Board received updates on the implementation of the refreshed Code of Conduct, mycode, which was
launched at the start of 2022 and received anecdotal comments on its impact.
More information is available as set out below:
– The Our Impact of this Annual Report on pages 49 to 69 and on our website.
– Principal Risks and Uncertainties on pages 34 to 46.
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Section 172 (1) Statement continued
Our Shareholders
The need to act fairly as between members of the company (s172 (1) (f) of the Companies Act 2006)
Engagement with and receiving the support of our shareholders is a key factor in achieving our strategic goals. We seek long-term
relationships based on transparency, honesty and clarity – all of which are critical for building trust.
Our shareholders and debt holders consider a broad range of areas when assessing Serco. These include developments in our
public services markets, the design and execution of our strategy, our operational and financial performance, the impact Serco has
on the communities we serve and the environment in which we operate. Along with the concerns of other stakeholders, these
matters are considered by the Board in their decision-making, as demonstrated throughout this report and in the Decision-making
in practice section of this disclosure.
The Group Chief Executive, Group CFO and other members of senior management meet with shareholders to discuss relevant
developments in the business at our post-results roadshows and programme of investor meetings.
The Executive Directors had a significant number of meetings with shareholders and analysts over the year (more than 100
meetings). We also repeated our annual governance roadshow with the Chair, the Chair of the Remuneration Committee and the
Group General Counsel meeting a number of shareholders. The Chair had nine meetings with shareholders, the Senior
Independent Director had eight meetings with shareholders, and the Chair and a number of the Board members attended the full
year and half year results to meet shareholders and analysts.
The Group Chief Executive, Group CFO and other members of senior management also met regularly with our debt investors,
including lending banks and US private placement note holders and feedback received from this engagement with shareholders,
debt investors analysts and proxy advisers is provided to the Board as part of the rolling agenda of matters to be considered
throughout the year.
The AGM provides the Board with an additional opportunity to communicate with private and institutional investors and this took
place on 27 April 2023 at our offices in Hook.
The Board also engages with stakeholders through news releases and stock exchange announcements on a wide range of matters
including regular trading updates, in addition to the half and full year results reports and accompanying presentations, changes to
the Board, key leadership appointments, material shareholdings, refinancing and corporate transactions, acquisitions, contract
awards and losses and operational updates from across the Group. These news releases and stock exchange announcements
keeps stakeholders informed about developments in the Group.
We will continue to actively engage with our investors, shareholders, analysts and debt investors in the coming year.
More information is available as set out below:
– Key Performance Indicators on page 26 and 27.
– The Our Impact section of this Annual Report on pages 49 to 69 and on our website.
– Details of notifiable interests in the shares of the Company are provided on page 143 of the Directors’ Report.
Decision-making in practice
A summary of how the Board applied the factors listed in section 172 (1)(a) to (f) of the Companies Act 2006 when making principal
decisions during the year is provided below.
Principal Decision
Section 172 considerations
Returning funds to
shareholders: Share
Repurchase Programme 2023
See also:
–
–
Finance Review on pages
76 to 87
Share buyback
announcement (28
February 2023)
Strategy review
See also:
– Our Strategy on pages 22
and 23
– Our Impact on pages
49 to 69
The Company launched another share buyback programme of £90m, the objective of the
programme was to return surplus capital to shareholders in line with the Group’s capital
allocation model. The buyback programme was completed on 22 June 2023 and the
repurchased shares have been cancelled.
The Board considered the share buyback programme to be in line with shareholder expectations
and consistent with the Group’s capital allocation policy. The Company took advice from advisers.
Following the 2023 Strategy Review, the Board approved proposals to refresh the Group’s key
strategic frameworks - including our ESG model and the development of a new Group-wide
vision, mission and purpose. The Board considered that this would ensure that we best reflect the
work of the business externally to stakeholders, whilst also establishing greater understanding
amongst colleagues internally.
The Board also endorsed the update to the Group’s branding (as reflected in this Annual Report
and Accounts) to ensure that our branding reflects the latest market trends and to keep up to
date with accessibility standards.
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Financial Statements
Section 172 (1) Statement continued
Principal Decision
Succession planning
See also:
– Group Executive
Committee news story (31
May 2023)
– Asia Pacific CEO
announcement (25 October
2023)
Contract wins
See also:
– Matters Reserved for the
Board on our website
Section 172 considerations
During the year, the Board endorsed the appointments of Gillian Duggan as Group Chief People
and Culture Officer, Ruth McGowan as Group Chief Strategy and Growth Officer and Andrew
Head as Chief Executive Officer for the Asia Pacific Division. A rigorous selection process was
followed for each appointment, which included internal and external candidates. The following
individual skills were pertinent in making the appointments:
– Gillian Duggan’s depth of experience leading people and operational teams across a range
of industries including aviation, engineering and infrastructure services, design and
manufacturing.
–
Ruth McGowan’s strong commercial acumen, developed through international experience in
consultancy, private equity, FMCG and health businesses.
– Andrew Head’s experience working in both government and private sectors overseeing
several key businesses and leading a number of acquisitions.
The Board concluded that the candidates selected were the most appropriate for each role as the
Group enters the new phase of our strategy to transform Serco from outsourcer to Impact Partner
by promoting impactful, sustainable and equitable solutions for governments, citizens and
society more broadly.
Board approval is required for contract bids where the contract value exceeds a specified value
per year or is of an unusual scope, nature or liability exposure. When assessing bids that meet
this criteria, the Board consider a number of factors including existing knowledge, experience
and capabilities in the sector; strategic ambitions; and, the longer term benefit to the Company’s
shareholders.
– Contract win
During 2023, the Board considered and approved a number of bid submissions including:
announcements (17
October 2023 and 8
November 2023)
Acquisition
See also:
– Acquisition announcement
(14 December 2023)
– Functional Assessment Services in the south-west of England: The Board agreed that, to
deliver these services, the Company could utilise existing knowledge and capabilities the UK
Department for Work and Pensions; partnerships with existing supply chain providers in the
region; and international expertise in this area of work. The Company was awarded the five-year
contract, valued at around £350m (subject to work volumes), to commence in September 2024.
– Electronic monitoring services in England and Wales: The Board considered how the
Company could utilise existing knowledge and capabilities supporting the UK Ministry of
Justice (MOJ), as well as experience serving other governments and the broader justice sector,
to support the MOJ to make a measurable impact to reduce reoffending, support
rehabilitation and keep communities safe. The Company was awarded the contract to
commence in May 2024, valued at around £200m over the initial six-year term; and £275m if
options to extend the contract for a further two years are exercised.
The Board considered a number of acquisitions including European Homecare, a provider of
immigration services in Germany and how it could complement existing operations and
strengthen the Company’s position as a leading partner in immigration services, providing
benefit to shareholders in the longer term.
The Board also considered the Company’s strong track record of providing high standards of
service, underpinned by our commitment to ensuring that service users are treated with care and
respect; and how the expertise and cultural alignment of the workforce could meet the complex
and growing requirements for immigration and asylum seeker support services globally.
The Strategic Report on pages 1 to 92 is approved by the Board of Directors and signed on its behalf by:
Nickesha Graham-Burrell
Group Company Secretary
1 March 2024
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Financial Statements
Corporate Governance
Contents
Directors Report
94 Chair’s Corporate Governance Overview
96 Corporate Governance Compliance Statement
96 Governance at a glance
97
Board of Directors
100 Group Executive Committee
105 Nomination Committee Report
106 Audit Committee Report
112 Risk Committee Report
114 Corporate Responsibility Committee Report
115 Directors’ Remuneration Report
139 Directors’ Report: Other Information
144 Directors’ Responsibility Statement
Serco Group plc | Annual Report and Accounts 2023 | 93
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Corporate Governance
Financial Statements
Chair’s Corporate Governance Overview
This report sets out how Serco is governed and the
key activities of the Board of Directors in promoting
effective governance during 2023. Further
information on how the Company complied with the
UK Corporate Governance Code during 2023 is set
out on the following pages.
Highlights of 2023
– Group Executive Committee succession, with changes
leading to the appointment of the Group Chief People
and Culture Officer, the Group Chief Strategy and
Growth Officer, and the Asia Pacific CEO.
– Continued focus on ESG.
– Completion of the 2023 share buyback programme.
– Strategy review.
Dear Shareholders
I am pleased to present the Corporate Governance Report for
2023. The Board believes that good governance is key to the
long-term success of the Group and is committed to
upholding high standards of governance.
Board leadership and Company purpose
As Chair, I am responsible for providing leadership to ensure
that the Board operates effectively and that Serco has strong
governance which, in recent years, is an area that has received
increased focus from our stakeholders. I continue to be
supported in this by each of the Directors, in particular Lynne
Peacock, our Senior Independent Director. Details of our
Governance structure, along with attendance at Board and
Committee meetings, which include presentations from
Management and third parties, is provided on pages 101 to 102.
Following the 2023 Strategy Review, the Board approved
proposals to refresh the Group’s key strategic frameworks. As
we have moved from recovery to a more stable footing, we are
step-changing the way we think of ourselves – from outsourcer to
Impact Partner and have refreshed and simplified our Purpose,
Vision and Mission to focus our efforts in delivering both financial
and service outcomes. Further information about our strategy is
provided on pages 22 and 23.
Further information on how we are performing against our
strategic objectives can be found on pages 26 and 27. Details
of how we ensure that we operate and deliver our strategic
objectives in a way that is responsible and consistent with the
broader interests of society is summarised on pages 49 to 69
and in our separate Impact Report, which is available on the
Company website.
John Rishton
Chair
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Corporate Governance
Financial Statements
Chairman’s Corporate Governance Overview continued
Engagement
Non-Executive Directors are encouraged to continually
increase their knowledge of the operations of the Company,
our customers, our employees, those who use the services we
provide on behalf of our customers and the communities we
work in. Key customers are also invited to meet with the Board
during the year.
Our commitment to engaging with the wider workforce
continues and Dame Sue Owen DCB, as the Board’s
designated Non-Executive Director for Employee Voice,
supported by our HR team, ensures that the Board
understands employee perspectives and issues. Members of
the Board also participated in the Divisional Leadership
Conferences, providing the opportunity to meet with
Management from across the Group.
I am pleased to report that the overall engagement score from
this year’s Group-wide engagement survey, Viewpoint, was
high at 71 and we received 13,878 ‘Tell the Board’ comments,
which were considered as part of a deep dive undertaken by
the Board on the Viewpoint outputs.
During the year, accompanied by other members of the Board,
I attended a number of meetings with shareholders to discuss
a range of matters, including governance and remuneration.
We value the input received from shareholders, which helps us
to shape our approach to governance and to ensure our
disclosures meet their specific requirements, in addition to
those required by regulation.
Further information about how the Board engaged with
stakeholders and how stakeholder feedback has influenced
Board decisions is set out in the section 172 Statement on
pages 88 to 92.
John Rishton
Chair
1 March 2024
Changes to the Board
As outlined in last year’s report, Mark Irwin commenced his
role as Group Chief Executive on 1 January 2023.
Further information on Mark’s skills and experience are
provided in his biography on page 97 of this Corporate
Governance Report and details of the selection process we
followed and our approach to Board and senior leadership
succession are provided in my Nomination Committee Report
on page 105.
Effectiveness
The Board and its Committees have continued to work well
together over the last year. We continue to have a separate
discussion after each Board meeting with only the Non-
Executive Directors present and to have informal dinners –
attended by all members of the Board and to which members
of senior management are sometimes invited. These additional
opportunities to meet continue to prove productive and
effective. The work of the Board’s Committees during the year
is set out on the following pages.
The annual Board effectiveness review assists the Board in
assessing how the Board and its Committees operate and to
identify areas in which improvements can be made. This year,
the review was undertaken internally and a summary of the
outcome of this review is set out on page 104.
Diversity
We have a strong and diverse Board with over 40% female
representation, a female Senior Independent Director, and an
increasing level of female representation within senior
management, further details of which are set out on page 96.
The Board is committed to ensuring the development of
gender and ethnic diversity within the Company’s senior
management and reviews progress annually. It recognises that
there is more to do, not just at the Board level, but also within
senior management. More information is provided in the
Nomination Committee Report on page 105.
Environmental, Social and Governance
Our commitment to Environmental, Social and Governance
(ESG) continues to be central to the way we operate. The
Corporate Responsibility Committee provides formal oversight
of our Impact Framework and its effective delivery against
agreed objectives and targets. ESG targets are also now
included as a measure within the incentive schemes by way of
an ESG scorecard, which is more fully described in the
Directors’ Remuneration Report on pages 115 to 138. Further
details of the Company’s approach to ESG matters and activity
during the year are provided in the Our Impact section of this
Annual Report on pages 49 to 69 and in our separate Impact
Report, available on our website.
Serco Group plc | Annual Report and Accounts 2023 | 95
Strategic Report
Corporate Governance
Financial Statements
Governance at a Glance
UK Corporate Governance Code 2018 (the Code) Compliance Statement
During 2023, the Company applied all the principles and
complied with all the provisions of the Code. The Corporate
Governance Report and the table on this page illustrates
how we have applied the Code principles and complied with
the provisions.
The Code is available at www.frc.org.uk.
Board Leadership and Company Purpose
Pages 101 to 103
A Board effectiveness and activities
B Purpose, culture and values
C Risk management and controls
D Stakeholder engagement
E Workforce policies and practices
Division of Responsibilities
F Board roles
G Independence
H Time commitment and conflicts of interest
I
Board resources
Composition, Succession and Evaluation
J Appointments and succession plans
K Board composition
L Board performance review
101
101
102
103
103
Pages 101 to 104
103 to 104
104
104
101 to 102
Page 104
104
104
104
Audit, Risk and Internal Control
Pages 107 to 113
M Auditor independence and effectiveness
N Review of Annual Report
111
108
O Risk management and internal control
107 to 110, 113
Remuneration Pages
P Annual Report on Remuneration
Q Determining the Remuneration Policy
R 2023 performance outcomes
Pages 115 to 138
115 to 116, 127
120 to 123
127 to 130, 138
Independence2
78%
Independence
Chair*
Executive Directors
Independent Directors
* The Chair was independent on appointment
1
2
6
Gender2
44%
Female
Further information on Board diversity
considerations is provided in the Nomination
Committee Report on page 105. The Senior
Independent Director is female.
33%
4-7 years
11%
7-9 years
Tenure1
56%
0-3 years
Ethnic Group1
Other than white3
3 of 9
Skills and Experience
Very
Limited
Limited Moderate
Substantial
Very
Substantial
Total
Board Skills Assessment 2023
Environmental (E in ESG)
Social (S in ESG)
Governance (G in ESG) including of PLCs and complex global
groups
Previous and/or current PLC board & committee experience
Financial expertise including banking, financing and audit etc
HR & remuneration in international businesses
Working with governments
Outsourcing contracting
1
Leadership of complex global groups
Management and oversight of group health and safety
arrangements
Risk management, ethics and compliance
People and culture including D&I, employee incentives and
change programme implementation or ongoing oversight etc.
Technology, digital and cyber security
Strategy and M&A of complex global groups
4
3
2
3
3
3
2
1
2
1
1
4
3
1
1
1
1
2
1
2
5
3
1
1
4
2
1
1
5
1
4
5
4
9
9
9
9
9
9
9
9
9
9
9
9
9
9
6
5
4
1
3
4
7
2
7
4
4
1. As at 31 December 2023.
2. As at 31 December 2023 and as at the date of this report.
3. Where White is as defined by the Office of National Statistics Ethnic Group Response Categories for England.
Serco Group plc | Annual Report and Accounts 2023 | 96
Strategic Report
Corporate Governance
Financial Statements
Board of Directors
John Rishton
Chair
Mark Irwin
Group Chief Executive
Nigel Crossley
Group Chief Financial Officer
A
N
RE
C
RI
A
N
RE
C
RI
A
N
RE
C
RI
Appointed to the Board
Appointed to the Board
Appointed to the Board
September 2016 (Chair since April 2021)
January 2023
April 2021
Skills and experience
Skills and experience
Skills and experience
John Rishton has over 40 years’ business
experience gained in a variety of companies,
industries and roles, including nearly 14 years
as a Chief Executive or Chief Financial
Officer.
He has a BA in Economics from Nottingham
University and is a Fellow of the Chartered
Institute of Management Accountants.
Previous roles
Chief Executive of Rolls-Royce Group plc,
Chief Executive and President of the Dutch
international retailer, Royal Ahold NV (and
prior to that, its Chief Financial Officer) and
Chief Financial Officer of British Airways plc.
Non-Executive Director of Associated British
Ports, Allied Domecq and ICA Gruppen AB.
Non-Executive Director and Chair of the
Audit Committee of Unilever plc.
Mark Irwin has extensive international
experience in business and operations
management, holding numerous senior
leadership positions in state-owned, public
and private equity business environments. He
has worked for Serco since 2013.
He has an MBA from Victoria University.
Nigel Crossley is an experienced Chief
Financial Officer with over 30 years’
experience in finance roles in international
organisations. He has worked for Serco since
2014.
He has a BSc in Mathematics from Hull
University.
Previous roles
Previous roles
Leadership roles in several US-based private
equity portfolio businesses, including
Momentive Performance Materials and Nalco
Company as well as China National Bluestar
Group following Blackstone’s investment in
the company. Prior to working in China, Mark
spent eight years in the United States
working for multinational companies
including General Electric (GE), after
commencing with GE in Australia.
Director of Finance and Transformation at
EMI, Group Financial Controller of RHM plc
and various finance roles at Procter &
Gamble.
Current external commitments
None.
Current external commitments
Current external commitments
Chair of Informa plc.
None.
Non-Executive Director of Majid al Futtaim
Properties LLC.
Key to Committee membership
A Audit Committee
RE Remuneration Committee
RI Risk Committee
N Nomination Committee
C Corporate Responsibility Committee
Committee Chair
Serco Group plc | Annual Report and Accounts 2023 | 97
Strategic Report
Corporate Governance
Financial Statements
Board of Directors continued
Lynne Peacock
Kirsty Bashforth
Kru Desai
Senior Independent Director
Independent Non-Executive Director
Independent Non-Executive Director
A
N
RE
C
RI
A
N
RE
C
RI
A
N
RE
C
RI
Appointed to the Board
October 2021
Skills and experience
Kru Desai has over 30 years’ experience of
working with the public and private sector in
leading transformation of public services in
the UK and internationally. She has held
general management and board leadership
roles in sales and operational delivery.
She has an MSc in Politics and Administration
from Birkbeck College, University of London
and an Executive MBA from the University of
Bristol.
Previous roles
Partner, KPMG LLP (UK).
Non-Executive Director and Chair of the
Remuneration Committee of KPMG LLP (UK).
Executive Director and Member of the Group
Management Board of Mouchel Group plc.
Executive Director and Member of the
Management Board of Hedra PLC.
Managing Director of Atos (UK).
Independent Commissioner of the
Geospatial Commission.
Current external commitments
Chair of the Zinc Network.
Vice Chair and Chair of the Audit and Risk
Committee at City, University of London.
Independent Non-Executive Director of Buro
Happold Limited.
Appointed to the Board
July 2017
Skills and experience:
Lynne Peacock has over 30 years’ senior
management experience in a range of roles
including brand development, mergers and
acquisitions, change management and
business transformation.
She has a BA (Hons) in Business Studies.
Previous roles
Non-Executive Chair of Standard Life
Assurance Limited and Non-Executive
Director and a member of the Nomination
and Governance Committee and Audit
Committee of Standard Life Aberdeen plc.
Non-Executive Director and Chair of the
Audit Committee of Scottish Water.
Senior Independent Director, Chair of the
Remuneration Committee and member of
the Audit, Risk and Nomination Committees
of Nationwide Building Society.
Non-Executive Director and a member of the
Audit and Risk, Nominations and
Remuneration Committees of Jardine Lloyd
Thompson Group plc.
Chief Executive of Woolwich plc and National
Australia Bank Limited’s UK businesses.
Current external commitments
Non-Executive Director, Chair of the
Environmental, Social and Governance
Committee and member of the Audit and
Risk, Remuneration and Nomination
Committees of International Distributions
Services plc (trading as Royal Mail).
Senior Independent Director and member of
the Nomination, Remuneration and Risk
Committees of TSB Bank plc.
Deputy Chair of The Royal London Mutual
Society Limited and member of the
Remuneration and Nominations and
Governance Committees.
Chair of the Learning Disability Network
London charity.
Appointed to the Board
September 2017
Skills and experience
Kirsty Bashforth is an experienced executive
and board member within the construction,
services, consumer goods, energy, education
and health industries, with expertise in
change management, safety and risk
management, organisational culture and
leadership.
She has an MA in Economics from the
University of Cambridge and is the author of
‘Culture Shift – a practical guide to managing
organizational culture’.
Previous roles
Non-Executive Director, Chair of the Safety,
Health and Environment Committee and a
member of the Nomination, Remuneration,
Risk Management and Audit Committees of
Kier Group plc.
Chief Business Officer, Non-Executive
Director and Chair of the Remuneration
Committee of Diaverum AB.
Group Head of Organisational Effectiveness
at bp plc and other global roles.
Non-Executive Director, Chair of the
Remuneration & People Committee and a
member of the Audit & Risk and Reputation &
Ethics Committees of GEMS Education.
Governor of Leeds Beckett University and
Ashville College.
Current external commitments
Chief People and Culture Officer of Delinian.
Non-Executive Director, Chair of the
Remuneration Committee and a member of
the Nomination and Environmental and
Social Impact Committees of PZ Cussons plc.
Director of QuayFive Limited.
Director of Northern Superchargers Limited.
Serco Group plc | Annual Report and Accounts 2023 | 98
Strategic Report
Corporate Governance
Financial Statements
Board of Directors continued
Ian El-Mokadem
Tim Lodge
Dame Sue Owen DCB
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
A
N
RE
C
RI
A
N
RE
C
RI
A
N
RE
C
RI
Appointed to the Board
July 2017
Skills and experience:
Ian El-Mokadem is an experienced Chief
Executive Officer with international
experience in business transformation and
acquisitions and disposals.
He has a BSc (Hons) in Economics and
Statistics from University College, London
and an MBA from INSEAD.
Previous roles
Chief Executive Officer of V. Group and
Exova Group plc, Group Managing Director,
UK & Ireland of Compass Group plc and
senior management positions with Centrica
plc and the global management consultancy,
Accenture.
Current external commitments
Chief Executive Officer of RWS Holdings plc.
Director of Roegate Consulting Limited.
Appointed to the Board
February 2021
Skills and experience:
Tim Lodge is a fellow of the Chartered
Institute of Management Accountants and
has a strong finance and accounting
background with over 30 years’ experience in
financial roles within international
organisations, some eight of which were
spent as Chief Financial Officer. He has
considerable experience in leading
significant strategic and operational
transformation and driving commercial
performance.
He has an MA in Classics from the University
of Cambridge.
Previous roles
Chief Financial Officer at Tate & Lyle PLC and
COFCO International and a Non-Executive
Director and Chair of the Audit Committee of
Aryzta AG.
Current external commitments
Non-Executive Director and Chair of the
Audit Committee of SSP Group plc.
Senior Independent Director of Arco Limited.
Director of An African Canvas (UK) Limited.
Chair of the management committee of the
Cordwainers Livery Company.
Trustee of Gambia School Support.
Designated Non-Executive Director for
Employee Voice
Appointed to the Board
August 2020
Skills and experience:
Dame Sue Owen DCB has significant
experience of government and economic
policy, having held senior roles in several
government departments.
She has an MA in Economics from
Cambridge University and an MSc in
Economics from Cardiff University.
Previous roles
Permanent Secretary for the Department for
Digital, Culture, Media and Sport, Diversity
and Inclusion Champion, chair of the Charity
for Civil Servants and senior posts in the
Department for Work and Pensions,
Department for International Development,
Foreign Office and HM Treasury.
Current external commitments
Chair of the Royal Ballet Governors.
Specialist Partner at Flint-Global.
Non-Executive Director of Pantheon
International plc.
Non-Executive Director of Pool Reinsurance
Company Limited and Pool Reinsurance
(Nuclear) Limited.
Non-Executive Director of Methera-Global
Communications.
Trustee of Opera Holland Park.
Supervisory Board member of DAF NV.
Chair of the UK Debt Management Office
Advisory Board.
Key to Committee membership
A Audit Committee
RE Remuneration Committee
RI Risk Committee
N Nomination Committee
C Corporate Responsibility Committee
Committee Chair
Serco Group plc | Annual Report and Accounts 2023 | 99
Strategic Report
Corporate Governance
Financial Statements
Group Executive Committee
Gillian Duggan
Group Chief People and Culture Officer
Joined Serco in May 2023.
Gillian leads our People, Culture, Health, Safety and Well-being Strategy.
Skills and experience
Gillian has a breadth of experience leading people and operational teams across a range of industries including
aviation, engineering and infrastructure services, design and manufacturing.
David Eveleigh
Group General Counsel
Joined Serco in November 2014.
David leads our legal and contractual activities, the Company Secretariat and on ESG, assurance, risk, insurance,
governance, ethics and compliance matters. He is Chair of the Serco People Fund and and the Serco Foundation.
Skills and experience
David is an experienced General Counsel and has extensive experience leading multi-disciplined global teams
across a range of industries including IT, Services and Chemicals.
Andrew Head
Chief Executive Officer, Serco Asia Pacific
Joined Serco in October 2023.
Skills and experience
Andrew has more than 25 years' experience spanning the public and private sector, including listed and
unlisted companies, state government and international consulting organisations.
Anthony Kirby
Chief Executive Officer, Serco UK & Europe
Joined Serco in 2017 and became CEO of the UK & Europe Division in January 2023.
Skills and experience
Anthony has over 20 years’ experience in the industry leading different functions including HR and operations.
Anthony is a Chartered Fellow of the Institute of Personnel and Development and holds Masters Degrees in
both Strategic Human Resources and Employment Law & Industrial Relations.
Phil Malem
Chief Executive Officer, Serco Middle East
Joined Serco in April 2019.
Skills and experience
Phil has over 25 years’ experience across a variety of sectors leading businesses operating within public
services, energy, transport and infrastructure. He has experience in business transformation, with the ability to
reposition and differentiate in line with client and market requirements. He is skilled in leading with purpose,
with a colleague-centric approach.
Ruth McGowan
Group Chief Strategy and Growth Officer
Joined Serco in May 2023.
Ruth is the global lead for Strategy, Growth, Communications and Brand.
Skills and experience
Ruth has extensive experience in scaling global operations, delivering both revenue growth and cost
efficiencies alongside the ability to set a vision, define strategy and execute technology-enabled growth plans.
Tom Watson
Chief Executive Officer, Serco North America
Joined Serco in 2018 and became CEO of the North America Division in 2022.
Skills and experience
Tom has more than 30 years’ experience in supporting and leading command, control, communications,
computers, and intelligence systems programs, management, engineering and technical support, hardware
and software systems development, production and integration, IT systems, management, and business
development efforts. His career also includes six years active duty in the US Navy as an electronics technician.
Serco Group plc | Annual Report and Accounts 2023 | 100
Strategic Report
Corporate Governance
Financial Statements
Corporate Governance
Board Leadership and Company Purpose
The role and structure of the Board
The Board has collective responsibility for the management,
direction and performance of the Company ensuring that due
regard is paid, at all times, to the interests of its stakeholders.
The detailed governance framework ensures that the Board
has the right level of oversight for matters that are material to
the Group. The Group’s delegation of authority provides a
clear direction on decision-making, ensuring that decisions are
taken at the right level of the business by the colleagues best
placed to take them. Each decision taken aligns to our culture
and values and considers the benefits, risks, financial
implications and impact on relevant stakeholders.
The Board, with the support of its Committees, places great
importance on governance across the Group. This supports
the Board when delivering its strategic objectives and meeting
its key performance indicators (KPIs). The Board has overall
responsibility for establishing the Company’s purpose, values
and behaviours. Our culture supports the delivery of the
Company’s strategy and its long-term sustainable success,
while generating value for shareholders. The Board has
ultimate responsibility for ensuring that adequate resources
are available to meet agreed objectives and strategy.
The Board is mindful of the need to create value while taking
account of the wider interests of other stakeholders and, when
taking decisions, balances the impact on suppliers,
communities, the environment, employees and customers with
the objective of securing long-term sustainable growth for
shareholders. New business and the renewal of existing
contracts above an agreed level are considered at Divisional
level and then by the Investment Committee, prior to review by
the Board; this is undertaken having regard to the Company’s
four principal values of Trust, Care, Innovation and Pride, and
the impact on its workforce. The ways in which the interests of
the Company’s stakeholders and the matters set out in section
172 of the Companies Act 2006 have been considered are set
out on pages 88 to 92, including details of the manner in which
engagement with the workforce is achieved.
The Board is conscious of the benefits of aligning culture with
strategy and is further embedding this through our Impact
Framework.
The activities undertaken by the Board during the year are set
out on page 102.
The Board is supported by the activities of its Committees,
which ensure that specific matters receive the right level of
attention and consideration. Members of each Committee are
provided with detailed information to enable them to
discharge their duties and make recommendations to the
Board. Cross-Committee membership provides visibility and
awareness of relevant matters. The Committees are namely,
Nomination, Audit, Risk, Corporate Responsibility and
Remuneration. Each have their own Terms of Reference, which
are reviewed at least annually. Details of each Committee’s
membership and activities during 2023 are set out in their
respective reports on pages 105 to 138. The Board retains
specific powers in relation to the approval of the Serco’s
strategic aims, policies and other matters, which must be
approved by it in line with legislation or the Articles of
Association (Articles). These powers are set out in the Matters
Reserved for the Board which are reviewed at least annually
and are available on our website.
The Group Executive 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 Group Executive Committee is chaired by the
Group Chief Executive and additionally comprises the Group
Chief Financial Officer, the CEOs of North America, UK &
Europe, Asia Pacific and the Middle East; the Group Chief
Strategy and Growth Officer; the Group Chief People and
Culture Officer; and the Group General Counsel.
Further details relating to their experience are included on
page 100.
There are other Management Committees that support the
Group Executive Committees, namely, the Investment
Committee and the Disclosure Committee.
Governance structure
Board of Directors
Audit Committee
Nomination
Committee
Risk Committee
Corporate
Responsibility
Committee
Remuneration
Committee
Investment Committee
Group Executive Committee
Disclosure Committee
Approvals and Allotments
Committee
n Board of Directors n Committee comprised
solely of Board members n Committee comprised of Executive
Directors and other senior management
Directors
The Board currently consists of nine Directors; the Chair, two Executive Directors (being the Group Chief Executive and Group Chief
Financial Officer (CFO)) and six independent Non-Executive Directors (NEDs). The biographies of the Directors can be found on
pages 97 to 99.
Serco Group plc | Annual Report and Accounts 2023 | 101
Strategic Report
Corporate Governance
Financial Statements
Corporate Governance continued
Board meetings and attendance
The Board met eight times during the year. The Board has a
formal meeting schedule with ad hoc meetings called as and
when circumstances require. There is an annual calendar of
agenda items to ensure that all matters are given due
consideration and are reviewed at the appropriate point in the
regulatory and financial cycle.
The table below shows the Directors who served during the
year and their attendance at the Board and Committee
meetings they were eligible to attend in 2023.
The Approvals and Allotments Committee is comprised of the
Executive Directors and Group General Counsel and meet on
an ad hoc basis.
John Rishton (Chair)
Kirsty Bashforth
Nigel Crossley
Kru Desai
Ian El-Mokadem
Mark Irwin
Tim Lodge
Dame Sue Owen
Lynne Peacock
Board
Nomination
Audit
Risk
Responsibility Remuneration
Corporate
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
3/3
3/3
n/a
3/3
3/3
n/a
3/3
3/3
3/3
n/a
n/a
n/a
5/5
5/5
n/a
5/5
n/a
5/5
n/a
5/5
n/a
n/a
5/5
n/a
5/5
5/5
n/a
n/a
4/4
n/a
4/4
n/a
4/4
n/a
4/4
n/a
6/6
6/6
n/a
n/a
n/a
n/a
6/6
n/a
6/6
Each Director is expected to attend all meetings of the Board, any Committees of which they are members, and to devote sufficient
time to Serco’s affairs to fulfil their duties as Directors. All Directors attend the Audit Committee meeting that reviews the year end
results. Where Directors are unable to attend a meeting, they are encouraged to submit any comments on the meeting materials in
advance to the Chair to ensure that their views are recorded and taken into account during the meeting. Private NED-only sessions
are held at the end of each Board meeting. During the year, a joint Audit and Risk Committee meeting was also held, as well as a
session with the Corporate Responsibility Committee focused on Road Safety. These sessions were attended by each member of the
respective Committee.
What did the Board achieve in 2023?
Key Board activities during the year included:
–
–
–
Embedding of the new Group Chief Executive including
receiving regular updates from him at each meeting.
Review of relevant contracts including new bids, rebids and
extensions.
Review of Strategy.
Risk Management and Internal Control
The Board has overall responsibility for risk management and
internal control and formally reviews the findings of the overall
Internal Audit programme. It is supported by the Audit, Risk
and Corporate Responsibility Committees.
The Annual Report and Accounts includes a statement of the
Directors’ responsibilities regarding the financial statements,
including the status of the Company as a going concern, with
an explanation of the Group’s strategy and business model
together with the relevant risks and performance metrics.
A further statement confirms that the Board considers that the
Annual Report and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Group’s position and
performance, business model and strategy.
The Audit Committee report sets out the details of the
Committee’s responsibility for ensuring the integrity of the
financial reporting process and the key matters considered
during the year in respect of its oversight of financial and
business reporting.
The Board, through the Audit and Risk Committees, has carried
out a robust assessment of the emerging and principal risks
facing the Company, including those which would threaten its
business model, future performance, solvency or liquidity.
Further details about these risks and how they are managed
and mitigated are included in this Annual Report and Accounts
together with the Viability Statement, which explains how the
Directors have assessed the prospects of the Company and
concluded that they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment.
The Board determines the Company’s risk appetite and has
established risk management and internal control systems, the
effectiveness of which are reviewed at least annually by the Board.
The Audit Committee annually reviews the external auditor’s
independence, the effectiveness of the external audit,
including consideration of the level of challenge made by the
external auditor, and the provision of non-audit services. It also
reviews and monitors the effectiveness of the Company’s
internal audit arrangements.
Serco’s internal control framework includes financial,
operational, compliance and risk management controls. These
are designed to manage and minimise risks that would
adversely affect services to our customers and to safeguard
shareholders’ investments, our assets, our people, and our
reputation (collectively, business risks).
Internal controls and key processes are defined within the Serco
Management System. To provide management assurance that
these controls are effective, we use a ‘three lines of defence’
compliance assurance model to test business compliance.
The Board confirms that there has been a focus on the three
lines of defence for the year under review and up to the date of
approval of the 2023 Annual Report and Accounts.
In addition to our in-house assurance teams, we are also
subject to significant third line assurance activities and audits
delivered through external third parties appropriate to the
regulatory environment, certification standards and customer
requirements in our varied service lines and business units.
These reviews include those that support the range of ISO
certifications across the business as well as independent
performance and regulatory reports on Serco operations.
Serco Group plc | Annual Report and Accounts 2023 | 102
Strategic Report
Corporate Governance
Financial Statements
Corporate Governance continued
Stakeholder engagement
The Board is committed to enhancing engagement and seeks
to build honest, respectful and transparent relationships with
all of the Company’s stakeholders. As with other large and
complex companies, the Directors fulfil their duties partly
through a governance framework which delegates day-to-day
decision-making to the Executive Directors and, within defined
levels of costs and impact, Divisional leadership teams.
The Company has established ‘Employee Voice’ to ensure
employee engagement and employees can raise concerns
through Speak Up, our global, confidential, ethics helpline.
Regular engagement is sought with major shareholders,
primarily through the Executive Directors, following the
announcement of the full and half year results, and also
through the Chair, who is available to major shareholders, and
the Chair of the Remuneration Committee who consults with
shareholders, as appropriate. The Chair meets shareholders
during the annual governance roadshow and Non-Executive
Directors have the opportunity to meet investors at the full and
half year results. The outcome of such engagement is shared to
ensure that the Board as a whole has a clear understanding of
the views of shareholders.
Full details of how the Board engages with the Serco’s key
stakeholders are included on pages 88 to 92.
Relations with shareholders
The Group Head of Investor Relations maintains regular, open
and transparent dialogue with institutional investors and sell-
side analysts. He has access to the Group Chief Executive and
Group CFO who are available for meetings with shareholders
and frequently attend industry conferences. They also meet
with shareholders to discuss relevant developments in the
business at our post-results roadshows and through our
programme of investor meetings and with our debt investors,
including lending banks and US private placement note
holders. Feedback received from this engagement with
shareholders, debt investors, analysts and proxy advisers is
provided to the Board as part of the rolling agenda of matters
considered throughout the year. The Group Chief Executive
and the Group CFO had more than 100 meetings with
investors in 2023.
We also consult with investors and fund managers to seek their
views and actively engage with proxy advisers and ESG
analysts to provide feedback on specific topics.
Further details can be found in the Section 172 Statement on
pages 88 to 92.
Annual General Meeting
Our AGM will be held on 24 April 2024 at our offices at
Enterprise House, 11 Bartley Wood Business Park, Bartley Way,
Hook, Hampshire RG27 9XB at 11am. The Annual Report and
Accounts and Notice of the AGM will be sent to shareholders
at least 20 working days prior to the date of the meeting.
Shareholders are encouraged to participate in the AGM
process and all resolutions will be proposed and voted on at
the meeting on an individual basis by shareholders or their
proxies. Voting results will be announced and made available
our website. At the 2023 AGM, all resolutions were passed with
at least 86% of votes in favour.
Shareholders may require the Directors to call a general
meeting other than an AGM as provided by the Companies Act
2006. Requests to call a general meeting may be made by
members representing at least 5% of the paid-up capital of the
Company as carries the right of voting at general meetings of
the Company (excluding any paid-up capital held as treasury
shares). A request must state the general nature of the
business to be dealt with at the meeting and may include the
text of a resolution that may properly be moved and is
intended to be moved at the meeting. A request may be in
hard copy form or in electronic form and must be
authenticated by the person or persons making it. A request
may be made in writing to the Group Company Secretary to
the registered office or by sending an email to agm@serco.com.
At any general meeting convened on such request, no
business shall be transacted, except that stated by the
requisition or proposed by the Board.
Workforce policies and practices
The Board is supported by its Committees to ensure that
workforce policies and practices are consistent with the
Company’s core values and support its long-term sustainable
success. The Board monitors and assesses culture to ensure
that it is aligned to Serco’s continued commitment to its
employees. The Board, with the support of its Committees,
approves key policies and practices which impact the
workforce and drive their behaviours. Training is provided to
employees to ensure that the policies are embedded within
the culture. Further details of workforce policies and practices
are included in the People and Culture and Our Impact sections.
Speak Up
Serco has established procedures by which employees may, in
confidence, raise concerns relating to possible improprieties in
matters of financial reporting, financial control or any other
matter. The Audit and Corporate Responsibility Committees
are responsible for monitoring Serco’s whistleblowing
arrangements and regularly report to the Board on their
activities. Further details are provided in the Our Impact section.
Division of Responsibilities
Roles of the Chair and Group Chief Executive
The roles of Chair and Group Chief Executive are distinct and
held by different people. There is a clear division of
responsibilities, which has been agreed by the Board and is
formalised in a schedule of responsibilities for each.
The roles and responsibilities of the Chair, Group Chief
Executive, Senior Independent Director, the Board and its
Committees are clearly defined, documented, approved by the
Board and are available on our website.
Details of the activities of each of these Committees are set out
in their reports elsewhere within this Annual Report.
The Chair, who was independent on his appointment, leads
and is responsible for the operation of the Board. The Group
Chief Executive is responsible for the leadership and
management of the business within the authorities delegated
by the Board. Their respective responsibilities are documented
and regularly reviewed.
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Corporate Governance
Financial Statements
Corporate Governance continued
Balance and independence
The Board comprises six Non-Executive Directors (NEDs), the
Chair and two Executive Directors. All of the NEDs, including
the Chair, have been determined by the Board to be
independent in character and judgement and free from
relationships or circumstances which may affect, or could
appear to affect, the relevant individual’s judgement. The
Board regularly reviews the overall balance of skills,
experience, diversity, independence and knowledge of Board
and Committee members and undertakes an annual review of
the independence of its NEDs. Any NED who does not meet
the independence criteria will not stand for election or re-
election at the AGM.
Non-Executive Directors’ terms of appointment and
time commitment
NEDs are appointed for terms of three years, subject to annual
re-election by shareholders. The initial term may be renewed
up to a maximum of three terms (a total of nine years). The
terms of appointment of NEDs specify the amount of time they
are expected to devote to the business, which is a minimum of
30 days per annum calculated based on the time required to
prepare for and attend Board and Committee meetings, the
AGM, meetings with shareholders and training.
NEDs are also committed to working additional hours as may
be required in exceptional circumstances.
NEDs are required to confirm annually that they continue to have
sufficient time to devote to the role. No Director holds more than
four directorships on the boards of publicly-listed companies.
External directorships
The Company has a policy which allows the Executive Directors
to accept directorships of other quoted companies and to
retain the fees paid, provided that they have obtained the prior
permission of the Chair of the Board. In accordance with the
Code, and to ensure sufficient time is devoted to their
executive role, no Executive Director would be permitted to
take on more than one non-executive directorship in a FTSE
100 company or the chairmanship of such a company.
A review of the NEDs’ external commitments, taking account of
the views of institutional investor bodies, was undertaken from
which it was concluded that each of the Company’s NEDs was
able to dedicate sufficient time to undertake their duties on
behalf of the Company.
Conflicts of interest
Every Director has a duty to avoid a conflict between their
personal interests and those of the Company. The provisions of
Section 175 of the Companies Act 2006 and the Company’s
Articles permit the Board to authorise situations identified by a
Director in which he or she has, or may have, a direct or
indirect interest that conflicts, or may conflict, with the interests
of the Company. The Board undertakes regular reviews of the
external positions and interests held in and arrangements
made with third parties by each Director and, where
appropriate, authorises such conflicts. Notwithstanding the
above, each Director is aware of their duty to notify the Board
should there be any material change to their positions or
interests during the year. Potential and actual conflicts of interest
are considered at Board meetings and, where appropriate, at
Committee meetings. Directors do not participate in Board
discussions or decisions which relate to any matter in which
they have, or may have, a conflict of interest.
Directors’ indemnities
The Company maintains Directors’ and Officers’ liability
insurance. As permitted under the Articles and in accordance
with best practice, deeds of indemnity have been executed
indemnifying each of the Directors and the Group Company
Secretary in respect of their positions as officers of the
Company as a supplement to this insurance cover. The
indemnities, which constitute a qualifying third party indemnity
provision as defined by Section 234 of the Companies Act
2006, remain in force for all current Directors and the Group
Company Secretary.
Board composition and succession
The size and composition of the Board is kept under review by
the Nomination Committee and the Board to ensure that an
appropriate balance of skills and experience are represented.
The Board may appoint a Director, either to fill a vacancy or as
an addition to the existing Board as set out in the Articles; any
amendment to the Articles requires shareholder approval. All
appointments to the Board are made on the recommendation
of the Nomination Committee and are subject to a formal,
rigorous and transparent procedure. Succession plans are also
considered by the Nomination Committee. Appointments and
succession plans are based on merit and objective criteria and,
within this context, promote diversity of gender, social and
ethnic backgrounds, as well as cognitive and personal
strengths. The Nomination Committee Report on page 105
provides further details on the process for appointing Board
Directors, succession planning and diversity.
Board Evaluation
An internal evaluation was undertaken in 2023 (overseen by
the Group Company Secretary) using a questionnaire,
including questions based on the Code. This questionnaire
covered the Board and each of the Board Committees;
respondents included members of the Board and each
Committee along with regular attendees. The evaluation
concluded that the Board and its Committees continued to
operate effectively. It was noted that the Board and individual
Directors continued to address the promotion of the
Company’s contribution to wider society and promoting the
long-term sustainable success of the Company and generating
shareholder value. Similarly, the Board felt that purpose, values
and strategy remained strong, although further work is
required to align culture with the new strategy. It was felt that,
while the Board did have an adequate view and that section
172 requirements were taken into account, there were
opportunities to enhance how the Board could become better
aware of the views of stakeholders and that this could be better
signposted. Workforce policies were also considered,
specifically in terms of attracting and retaining talent and
whether enhancements could be made to support long-term
sustainable success.
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Corporate Governance
Financial Statements
Nomination Committee Report
Training is provided to the Board on a range of governance
and other matters at Board and Committee meetings and in
other forums. Further training is also made available on a
range of subjects, including those undertaken by Executives.
The Company believes that visits by NEDs to the Company’s
contracts, leadership conferences and Management meetings
are important in increasing NEDs’ awareness of the Company’s
operations and their accessibility to the Group’s employees. A
number of such contract visits were undertaken in 2023, some
virtual. In addition, the Board met in Italy for the May Board
and Committee meetings and used the opportunity to spend
time with European management, as well as undertaking a
number of European contract visits and other employee events.
Training is made available to and undertaken by Directors
throughout the year and a record is maintained of the training
undertaken by each Director. A face-to-face training session was
held at the June meeting and access to online seminars and
training was made available to Directors throughout the year
covering areas such as Corporate Governance updates and
upcoming regulatory and legal changes.
Individual training needs are identified as part of the annual
appraisal process and Directors are encouraged to take
advantage of both internally and externally provided
training opportunities.
Diversity
The Board values diversity and has established a Board
Diversity Policy, which is periodically reviewed. The percentage
of women on the Board is currently 44%, exceeding the target
of 40% set by the FTSE Women Leaders Review; the Company
also meets the target set by the Parker Review with three
Directors from an ethnic minority background. In addition, our
Senior Independent Director is female. However, the Board is
aware that it would be beneficial to broaden its diversity in
other respects and this will continue to be a key focus as the
Committee looks to broaden and refresh the Board. We have
included additional data on sex, gender and ethnicity
representation on page 96. Further details relating to senior
management is included within the Our Impact section of the
Annual Report.
Board balance
The Committee regularly reviews the skills, knowledge,
experience and diversity of the Board and its Committees to
ensure that the Board is collectively well placed to meet the
strategic objectives of the Company and the challenges and
opportunities that are likely to arise in meeting these
objectives. Further details of the skills and experience of the
Board that are relevant to the Company is set out on page 96.
This followed a skills assessment undertaken in 2023.
2024 priorities and focus
During 2024, the Committee will oversee NED Succession
Planning and the externally-facilitated Board evaluation.
John Rishton
Chair of the Nomination Committee
1 March 2024
John Rishton
Chair of the Nomination Committee
Nomination Committee members
John Rishton (Chair)
Kirsty Bashforth
Kru Desai
Ian El-Mokadem
Tim Lodge
Dame Sue Owen DCB
Lynne Peacock
Dear Shareholders
Further details on diversity are provided in the Chair’s
Governance Overview on page 95, the Our Impact section of
the Annual Report on pages 60 to 61 and in the standalone
Impact and People Reports available on our website.
Committee responsibilities
The Committee is responsible for leading the process on
appointment of new members of the Board and to ensure that
plans are in place for orderly succession to both the Board and
senior management positions as well as overseeing the
development of a diverse pipeline for succession.
The Committee’s Terms of Reference are available on
our website.
Membership and attendees
The Committee is comprised of Independent Non-Executive
Directors (NEDs). Biographical details for each member of the
Committee are provided on pages 97 to 99. In addition to the
members of the Committee, the Group General Counsel and
the Group Company Secretary attended each meeting. The
Committee met three times during the year. Details of
attendance at meetings are set out on page 102.
Activities of the Committee during 2023
The Committee’s key activities included establishing the new
Group Chief Executive and other members of the Group
Executive Committee, a review of conflicts of interest, NED
tenure and review the Board Diversity Policy.
Appointment, induction and training
The Committee is responsible for ensuring that an appropriate
induction is provided to new Board members. The induction
programme is specifically tailored to the needs of the incoming
Director and includes an overview of the Board’s policies and
procedures, meetings with senior management and contract
site visits.
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Financial Statements
Audit Committee Report
On 16 October 2023, the Government withdrew draft
legislation, which intended to introduce certain requirements
which would have impacted disclosures made by the Group
including the introduction of an annual resilience statement,
distributable profits figure, material fraud statement and
triennial audit and assurance policy statement. However, on 22
January 2024 the Financial Reporting Council (FRC) issued a
revised UK Corporate Governance Code (the Code). The main
substantive addition relevant to the Committee is in relation to
monitoring the risk management and internal control
framework of the Group, and how its effectiveness is assessed;
this element of the Code is effective from 1 January 2026. The
Committee will carefully consider the changes made to the
Code and guidance issued, and determine whether the
Group’s current framework and plans for improvement are
sufficient, or require refinement. The Committee continues to
support the Group’s objective of improving and embedding its
financial controls and assurance framework and extending the
same disciplines to strengthen controls within its contracts.
Additionally, throughout 2024, the Committee will continue to
focus on the critical accounting judgements made, the
effectiveness of the Group’s financial controls and assurance
programme, including activities within its joint ventures given
their increase in scale, and the delivery and effectiveness of the
Group’s Internal Audit function.
After giving due consideration to the mandatory tendering
requirements, the Committee has agreed that it will undertake
a tender process for its External Audit during 2024 in respect
of the financial year commencing 1 January 2025. A resolution
to approve the successful firm will be laid at the Annual
General Meeting in 2025 for shareholder approval.
Tim Lodge
Chair of the Audit Committee
1 March 2024
Tim Lodge
Chair of the Audit Committee
Audit Committee members
Tim Lodge (Chair)
Kru Desai
Ian El-Mokadem
Lynne Peacock
Dear Shareholders
I am pleased to present the Committee’s report for the year
ended 31 December 2023. This review gives an insight into
how the Committee addressed significant issues during the
year, which were reported to the Board as a matter of course,
and how other responsibilities of the Committee were
discharged. The Committee continues to have a fundamental
role to play in reviewing, monitoring and challenging the
effectiveness of the Group’s financial reporting and internal
control processes.
During the year, the Committee undertook a range of finance,
accounting and control related reviews particularly in relation
to specific risks identified within the Group’s operations
through its Internal Audit and Financial Assurance programme.
We recruited and welcomed a new Group Head of Internal
Audit and worked with her on her initial observations on how
further to evolve the function. Following some external audit
process challenges during the 2022 audit, resulting in a delay
in the release of our preliminary results, we dedicated
Committee time to ensure that the root causes of these challenges
were identified and rectified with significant input from both
KPMG LLP and Management.
A joint meeting was also held with the Risk Committee. At this
meeting, the Committee members jointly reviewed the integration
of the Group’s risk and assurance programmes and how the
Group is developing its Enterprise Risk Management framework.
In light of legislation, which was first anticipated following
the UK Government’s White Paper Restoring trust in audit
and corporate governance (March 2021), the Committee
provided close scrutiny and challenge of improvements
made to the Group’s internal control framework and
financial assurance programme.
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Financial Statements
Audit Committee Report continued
Committee responsibilities
The Committee supports the Board in fulfilling its
responsibilities including overseeing the Group’s financial
reporting processes; reviewing, challenging and approving
significant accounting judgements proposed by Management;
assessing the way in which Management ensures and monitors
the adequacy of financial and compliance controls; the
appointment, remuneration, independence and performance
of the Group’s external auditor; and the independence and
performance of the Group’s Internal Audit function.
The Terms of Reference for the Committee are available on
our website.
Membership and attendees
The Committee is comprised of Independent Non-Executive
Directors. Between them, the members of the Committee
bring strong international, service and public sector expertise
and experience which is highly relevant to the Group. Tim
Lodge has served as Chair of the Committee since April 2021
and has recent and relevant financial experience, as required
by the Code. Biographical details for each member of the
Committee are provided on pages 97 to 99.
The Committee met six times during the year which included
the joint meeting with the Risk Committee. The details of
attendance at meetings are set out on page 102.
Committee meetings are held in advance of Board meetings
with the Committee Chair updating the Board directly on the
outcomes of each meeting. In addition to the members of the
Committee, the Group CFO, the Group Financial Controller,
the Group Head of Internal Audit, the Group General Counsel,
the Group Company Secretary, and representatives of the
Group’s external auditor, KPMG, attended and received papers
for each meeting. The Committee allocated time at the end of
each meeting to meet separately without Management present
and invite either the Group Head of Internal Audit or KPMG to
attend for part of this session. The Committee also meets
privately with the Group CFO.
Activities of the Committee during 2023
During the year, the Committee carried out core duties
alongside the work required on significant judgements and
issues. The Committee also received updates, which assisted
members in understanding the framework in place to improve
financial controls and mitigate the specific risks associated with
these aspects of the business. The activities included the
following:
– Reviewing the integrity of the half-year and annual financial
statements and the associated significant financial reporting
judgements and disclosures taking into account liquidity
risk, viability and going concern; and related disclosures in
the Annual Report and Accounts.
– Reviewing the 2023 Viability Statement to ensure that it was
appropriate and balanced in respect of highlighting the risks
the Group is exposed to and the assumptions being made in
assessing its viability; and considering the provisions of the
Code regarding going concern and viability statements
including emerging practice and investor comments.
– Reviewing updates on accounting matters and those related
to financial reporting including the recommendations and
requirements of the Task Force on Climate-related Financial
Disclosures (TCFD) .
– Reviewing the effectiveness of the Group’s financial controls
and financial assurance programme, including a deep dive
into the management of the Financial Control Failure
principal risk and IT assurance, which focused on cyber risk
and availability of systems within the Group.
– Receiving updates from the Risk Committee Chair in respect
of key items discussed within that Committee and assessing
whether they resulted in any additional financial risks which
should be considered by the Committee.
– Reviewing fraud-related matters, if any, raised through the
Speak Up process overseen by the Corporate Responsibility
Committee.
– Providing oversight on the Group’s tax strategy, including
how provisions for uncertain tax positions are derived, the
status of tax audits being undertaken, the Group’s position in
relation to historic tax losses and associated recognition of a
deferred tax asset; and the intention to comply with both the
letter and spirit of tax legislation in all jurisdictions within
which the Group operates.
– Reviewing the effectiveness and independence of the
Group’s Internal Audit function.
– Maintaining the Group’s relationship with the external
auditor, including assessing the audit plan and monitoring
both independence and effectiveness.
– Post-acquisition reviews of Whitney, Bradley & Brown, Inc.
and Facilities First Australia Holdings Pty Limited in 2021.
Performance review
The Committee’s effectiveness was reviewed as part of the
Board’s annual performance evaluation. The findings from the
review were largely positive with it being noted that the
Committee is sufficiently informed of the risks identified by the
internal and external auditors and that the Committee review
of key judgements is rigorous. The level of information
received at the Committee is considered to be sufficient with
appropriate opportunity to challenge both Management and
the external auditors. Areas of improvement centred around
the external audit process, particularly given the challenges in
completing the audit on time for the 31 December 2022
financial statements.
Internal control environment
The Committee is responsible for monitoring the Group’s
internal control environment and assessing its effectiveness. To
facilitate this assessment, the Committee receives regular
updates on internal controls and in forming an opinion on
effectiveness it also considers the requirement to make
relevant recommendations to the Board.
The Group has both a Financial Assurance function and an
Internal Audit function, with both making regular contributions
to meetings of the Committee. The findings of Financial
Assurance are assessed, and guidance is given to direct their
work. Similarly, Internal Audit reports are received by the
Committee on a regular basis and if it is deemed relevant, the
management teams from central functions, Divisions and
individual business units are invited to the meeting to discuss
the findings arising from Internal Audit reviews. The
Committee also has responsibility for reviewing and approving
the annual Internal Audit programme of work and assessing
both the adequacy of resources of the Internal Audit function
and the scope of the Internal Audit programme.
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Corporate Governance
Financial Statements
Audit Committee Report continued
Financial control risk is monitored through one of the Group’s
Principal Risks, ‘financial control failure’. The Committee
reviewed this risk during 2023 and focused in particular on:
– Management’s review of the output and adequacy of the
Group’s financial assurance programme, with a focus to
deliver better assurance through system controls and data
analytics;
– Management’s ongoing programme to improve internal
controls; and
– review of Management’s Key Risk Indicators associated with
the risk and the strength of mitigating controls and actions to
improve their effectiveness.
Following review and challenge, the Committee believes that,
to the best of its knowledge, the financial control framework
and the monitoring of this framework has worked effectively
during the year, and that in cases of non-compliance, the
Group has not been exposed to critical, severe or significant
risk. The Committee was encouraged to note that where
weaknesses in the financial control framework had been
identified, they were being addressed.
Financial reporting
One of the Committee’s core responsibilities is to ensure that
the information presented in the Group’s financial statements,
including the preliminary results announcement, Annual
Report and Accounts and half-year financial results, when taken
as a whole, is fair, balanced and understandable and contains
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy. To
arrive at this conclusion and to form a basis upon which to
make a recommendation to the Board, the following was
considered:
– the effectiveness of the disclosure controls and procedures
designed to ensure that the Annual Report and Accounts
complies with all relevant legal and regulatory requirements;
– comprehensive reviews by different levels of management,
including SMEs;
– the process designed to ensure the external auditor is aware
of all ‘relevant audit information’, as required by Sections
418 and 419 of the Companies Act 2006;
– the management representation letter to the external
auditor; and
– the findings and opinions of the external auditor.
Management is also in the process of reviewing the risk and
assurance framework across the Group and their proposal was
discussed at a joint Audit and Risk Committee meeting held
during the year. The objective of the project is to seek to ensure
efficiency, completeness and consistency of the three lines of
defence; and to ensure that material risks and controls have
adequate oversight to evidence their effectiveness and operation.
Internal Audit
Internal audit is an independent assurance function that
impartially appraises the Group’s governance, risk
management and control activities. Internal audit assists
Management, the Committee and the Board in discharging
their respective duties relating to maintaining an adequate and
effective system of internal control and risk management; and
safeguarding the assets, activities and interests of the Group.
The role and mandate of Internal Audit is set out in the Internal
Audit Charter, which is reviewed and approved annually to
ensure that it remains appropriate to the needs of the Group.
The Group Head of Internal Audit reports functionally to the
Committee Chair. In North America, there is a local Internal
Audit team to comply with the Special Security Agreement and
maintain independence. The North America internal audit
team reports functionally to the Serco Inc. Audit Committee,
which is chaired by the Group CFO of Serco Group plc.
Internal Audit uses co-source providers to supplement and
enhance in-house skills and resources, particularly in specialist
areas such as IT and cyber security. The Group Head of Internal
Audit meets with the Committee without Management present
during the year.
The Internal Audit Plan is risk-based and includes contracts,
processes, functions and specific risks. The Committee,
together with the Risk Committee, considers the alignment of
the annual Internal Audit Plan with the key risks of the business.
The Committee approves the internal audit plan annually.
The Committee receives periodic updates relating to the
execution of the annual plan and considers the material
findings and trends arising from Internal Audit’s work as well as
the progress of Management’s response in relation to those
findings. In 2023, internal audits were performed over general
business controls relating to contract operations; business
support functions, change programmes, financial controls,
information security and technology operations.
Financial assurance
The Group aims to have a strong and well-monitored control
environment that minimises financial risk and, as part of the
Committee’s responsibilities, it reviews the effectiveness of
systems for internal financial control and financial reporting.
Where relevant, the Committee also works with the Risk
Committee to consider financial risk management and the
Corporate Responsibility Committee to the extent that matters
such as fraud are reported through the Speak Up process.
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Financial Statements
Audit Committee Report continued
Significant accounting issues and areas of financial judgements
Management is required to exercise judgement in a number of areas when preparing the Group Company accounts. The
Committee focuses on any significant areas of judgement that may materially impact the Group’s and Company’s reported results
and assesses and challenges, if necessary, whether these judgements are reasonable and appropriate. The Committee also reviews
the clarity and transparency of the related disclosures. The significant accounting issues and areas of judgement considered by the
Committee during the year, and how these were addressed, are as follows:
Significant accounting issues and areas of
financial judgement
How these were addressed by the Committee
Contract performance, including Onerous Contract Provisions (OCPs)
The measurement of OCPs is
underpinned by assumptions
regarding the future operational
performance of a contract and
possibly the outcome of commercial
discussions all of which may involve
significant judgement by
Management. The Committee
considers whether an OCP exists at
each reporting period end.
Goodwill Impairment
The Group has goodwill arising from
acquisitions allocated across four cash
generating units (CGUs). The
Committee evaluate the recoverability
of this goodwill formally at the end of
each financial year and consider
whether impairment indicators exist at
the half year.
Defined Benefit Pension Schemes
The Group’s defined benefit pension
schemes include a number of
significant estimates and judgements,
principal amongst which are the
identification of obligations arising
from contracts with customers, the
assumptions underpinning the
liabilities and the valuation of assets
without market observable prices.
The Committee continues to focus on the potential for existing loss-making contracts to
become onerous as well as assessing the risk of an onerous position materialising from a
portfolio of contracts across the Group. The Committee agreed that the view formed by
Management regarding each individually material potential OCP, as well as the
aggregate view, which includes management’s assessment of portfolio risk, was
reasonable. The Committee was satisfied that the work undertaken by Management to
monitor existing contracts and identify contracts where a new OCP may be required, and
associated allocation of central costs, was sufficiently robust.
The goodwill impairment test as at 31 December 2023 used anticipated future cash flows,
discount rates and terminal values, which are key areas of judgement. The Committee
challenged Management on the discount rates and terminal values used in the review,
noting that they had been sourced by a third-party expert, and ensured that the
underlying cash flows were consistent with those included in Board-approved forecasts.
The Committee reviewed the resulting disclosures proposed by Management, particularly
in respect of Asia Pacific, where the headroom is lowest and where the Committee had
given particular consideration to the impact of upcoming bids in the context of recent
history, and found them to be transparent, appropriate and in compliance with applicable
financial reporting requirements. The Committee concluded that the carrying value of
goodwill could be supported and that no impairment was required.
The Committee has considered the process undertaken by Management to finalise key
assumptions underlying the valuation of defined benefit obligations and processes
associated with identifying the obligations arising. The Committee is satisfied that the
assumptions used remain appropriate. In forming their opinion on the judgements
applied to valuing liabilities, the Committee considered how those judgements
compared to observable benchmarks in the market; and advice has been taken from
independent actuaries on the ongoing appropriateness of assumptions used. The
Committee is satisfied that the processes followed are appropriate and that the
conclusions reached and calculations performed are appropriately balanced.
The Committee has also reviewed the assumptions used in the valuation of scheme assets
in light of the market volatility which has continued into 2023, although to a lesser extent
than 2022. The Committee is satisfied that the valuations included within these financial
statements are reasonable and reflect the best estimate of the schemes’ assets and
liabilities, and that the disclosures are appropriate.
The trustees of the Group’s largest pension scheme (Serco Pension and Life Assurance
Scheme) use Liability Driven Investments to hedge the scheme’s exposure to inflation and
interest rate risk. The Committee has considered whether this structure commits the
Group to funding requirements in addition to those committed under the previous
actuarial valuation and have concluded that there are no committed funding
requirements under the current schedule of payments.
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Financial Statements
Audit Committee Report continued
Viability and Going Concern
The Group has assessed its ongoing viability and the
appropriateness of using the going concern assumption in
preparing its financial results. In making these statements,
Management use the Group’s anticipated future cash flows and
undertake a range of sensitivities to identify any plausible
situations which could put pressure on the Group’s viability or
ability to continue as a going concern. The going concern
assessment is prepared twice each year.
In challenging Management’s assessment in respect of the
viability and going concern statements, which were based on
anticipated future cash flows agreed by the Board as part of
the Group’s budgeting process, the Committee focused on the
Group’s headroom within its financial covenants and the
liquidity available in the Group. The Committee considered the
likely severity of key risks crystallising over the period of
assessment including potential reductions in the Group’s
forecast win rates, reductions in profit margins, the current
inflationary pressures being experienced within the economies
in which the Group operates and Management’s assessment of
the shareholder claim seeking damages for alleged losses
following the reduction of Serco’s share price in 2013.
The Committee concurred that, whilst in severe scenarios the
ability of the Group to stay within its agreed headroom may be
put under pressure, the Group remains viable and key
assumptions supporting this assessment are disclosed within
the viability statement on pages 47 and 48 . The Committee
also agreed that the going concern basis of accounting is
appropriate and this assessment is disclosed within the going
concern statement on pages 161 and 162. Both the proposed
viability and going concern statements were endorsed by the
Committee for recommendation to the Board. In respect of the
shareholder claim referred to above, the Committee concurred
with Management’s assessment that any outcome is subject to
a number of significant uncertainties and no provision is
required, and disclosure as a contingent liability at the year-
end was appropriate. See note 28 to the financial statements.
Use of Alternative Performance Measures (APMs) and
Exceptional Items
The Group’s performance measures continue to include some
metrics which are not defined or specified under IFRS.
The Committee reviewed Management’s proposal in
simplifying its profit measures by removing Trading Profit and
renaming Underlying Trading Profit to Underlying Operating
Profit, with historic Underlying Operating Profit being
consistent with the equivalent reported Underlying Trading
Profit in prior periods. The Group also uses the term
Exceptional Items (and in the prior year other non-underlying
items) to meet the requirements of IAS1 a section of which
requires the nature and amount of material items of income
and expense to be disclosed separately.
The Committee concurred that the simplification of profit
measures was appropriate given the nature of the business
compared to when the definitions of Underlying Trading Profit
and Trading Profit were required.
The Committee has agreed with Management that Underlying
Operating Profit is a reasonable basis on which to compare the
relative performance of the business year-on-year. The
Committee, following challenge of each individual item,
agreed with Management’s classification of items as
Exceptional and requiring separate disclosure, although these
are less judgmental than in prior periods.
After review of the disclosure of APMs in the 2023 Half Year
results and the 2023 Annual Report, the Committee concluded
that the descriptions for each individual APM used were clear
and meaningful, and that the relationship between them and
the nearest relevant statutory IFRS measure was clearly
explained and supported. The Committee was also satisfied
with the controls Management has put in place to identify
Exceptional Items and to ensure that costs which should be
recorded within Underlying Operating Profit are not
inappropriately classified as Exceptional Items. As a result, the
use of APMs and Exceptional Items in the 2023 Half Year
results and the 2023 Annual Report was recommended to the
Board for approval.
External auditor
The Committee manages the relationship with the Group’s
external auditor on behalf of the Board and is responsible for
making recommendations on the reappointment of the
external auditor, determining their independence from the
Group and its Management and agreeing the scope and fee
for the audit. The Committee proposes that KPMG LLP be re-
appointed as external auditor of the Group at the next AGM in
April 2024.
Following a tender process undertaken in 2016, KPMG was
appointed by the Board in 2017 as the Group’s external
auditor for the 2016 audit and has served as the Group’s
auditor for eight years. In accordance with the Revised Ethical
Standard 2019, the Group has followed the practice of rotating
the audit engagement partner at least every five years, with
Juliette Lowes completing her first year-end having replaced
John Luke in 2023.
In respect of the audit scope and materiality, the Committee
reviewed the audit strategy as presented by KPMG and found
it to be comprehensive and focused on the key risks within the
Group. The Committee did not require any further areas of
focus to be considered with respect to key judgements and
estimates but did request enhanced reporting on the audit
plan and timeline given the delayed audit completion in
respect of the 31 December 2022 financial statements.
Significant activities were undertaken by KPMG and
Management immediately following the delayed preliminary
results announcement and the Committee was presented with
the outcome in June 2023. The review highlighted five broad
themes including enhancing the quality and phasing of risk
assessment and planning procedures, increasing transparency
of audit requirements and deepening collaboration particularly
in a remote audit environment.
A detailed audit plan was subsequently presented to the
Committee in July 2023 with commitments on how the
improvements would be implemented and milestones and
dependencies clearly outlined. The Committee agreed that the
audit plan sufficiently addressed the challenges identified
during the 2022 audit. Nevertheless, given the increased
regulatory scrutiny on the audit profession, it was agreed with
Management and the external auditor that the 2023 year-end
reporting timeline would be extended by seven days to allow
more time to finalise audit documentation. Throughout the
year, both Management and the external auditor provided
updates to the Committee on the progress of the audit as well
as the delivery of the improvement initiatives.
The Committee reviewed the external auditor’s engagement
letter and determined the remuneration of the external auditor
in accordance with the authority given to it by shareholders.
The Independent Auditor’s Report to shareholders is set out on
pages 146 to 154.
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Financial Statements
Audit Committee Report continued
External auditor effectiveness and quality
The Committee evaluates the effectiveness of the external
audit annually, using feedback obtained from Committee
members and Management. The performance of the external
auditor is assessed against a range of criteria including calibre
of the audit team, knowledge of the Group, and the quality of
planning, review, testing, feedback and reporting. The
feedback received was reviewed by Management and
reported to the Committee.
After taking these reports into consideration, the Committee
concluded that the auditor demonstrated appropriate
qualifications and expertise, remained independent of the
Group, and had appropriate focus on the key issues within the
Group. The feedback also confirmed that the audit process
demonstrated professional integrity and objectivity, was
effective, and that there was adequate scepticism and
challenge on the key judgements adopted by Management,
particularly those relating to contracts at risk of becoming
onerous. The external auditors continued to challenge the level
of prudence adopted in contract judgements, which were
deemed to be balanced overall. However, those judgements
which were slightly cautious or optimistic were highlighted to
the Committee for consideration. No judgements were
reported to be outside the auditor’s acceptable range.
An area highlighted within the feedback and during
Committee meetings was the efficiency, project management,
delivery timetable and visibility of internal reviews within
KPMG, which required significant improvement. As noted
above, this has been the focus of management during 2023
with improvements identified and actioned.
Audit tender
In accordance with the Statutory Audit Services for Large
Companies Market Investigation Order 2014 (the Market
Investigation Order), the Group intends to undertake a tender
process in 2024 for its external audit for the year beginning 1
January 2025, and therefore would comply with the
requirement to be on or before 10 years since the previous
tender. Audit quality remains the top priority of the Committee,
and therefore it has been agreed that a tender process should
be brought forward in light of the significant annual fee
increases imposed by the current external auditor and the
delivery of the audit timetable in the prior year. The core audit
and half-year review fee of £2.4m in respect of the year ended
31 December 2021 increased to £4.0m and £5.8m for the years
ended 31 December 2022 and 31 December 2023, respectively.
The Committee challenged the auditor on the rationale for the
level of fee increases since 2021 above and beyond the costs
associated with newly acquired or formed entities and the
underlying inflation within the economies in which the Group
operates. The Committee noted that the fee increase is largely
as a result of a higher compliance burden on all auditors from
new auditing standards and additional regulatory pressure,
and benchmarked fee increases against other listed companies
of similar size. The Committee believes that it is in the best interest
of the Group’s shareholders to market test the audit mandate
to ensure that quality is delivered at the best possible value.
The timetable has been developed to ensure that there is
sufficient time to fully prepare and assume responsibility for a
complex and international audit across the Group should there
be a change of audit firm.
Independence and non-audit services
The Committee limits the non-audit work undertaken by the
external auditor and monitors the non-audit fees paid during
the year. For the financial year ended 31 December 2023, the
non-audit fees paid to KPMG LLP were £135k (2022: £32k)
excluding the half-year review. The non-audit services relate to
Agreed Upon Procedures required to be performed under
certain customer contracts and the audit of special purpose
financial statements. The fee for the half-year review, which is
designated an audit-related assurance service, increased from
£150k in 2022 to £440k in 2023 due to a realignment of
KPMG’s fees between services.
An analysis of fees paid in respect of audit and non-audit
services provided by the external auditor for the past two years
is disclosed on page 183. The Committee regularly reviews the
nature of non-audit work performed by the external auditor
and the volume of that work. Focus is given to ensuring that
engagement for non-audit services does not: (i) create a
conflict of interest; (ii) place the auditor in a position to audit
their own work; (iii) result in the auditor acting as a manager
or employee; or (iv) put the auditor in the role of advocate
for the Group.
Having undertaken a review of the non-audit services provided
during the year, the Committee is satisfied that these services
were provided efficiently by the external auditor as a result of
their existing knowledge of the business and did not prejudice
their independence or objectivity.
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Financial Statements
Risk Committee Report
The Committee has continued to oversee a programme of
work to refine our Serco Management System (SMS) and the
continued drive to deliver both improved consistency of
approach and resource models across the Group. The
programme has refocused the SMS to a role-based view and
work is ongoing to ensure detailed operating procedures are
clearly documented and accessible to all relevant employees.
Following a review by the Group Executive Committee,
including consideration of external and emerging risk trends, it
was agreed that there were no material changes required to
our principal risks.
Our treatment of Environmental, Social and Governance (ESG)
risks, including climate change risks, were also reviewed, and
we maintain our position that we do not see these as new
principal risks. This does not, however, undermine our
commitment to our ESG or climate-related objectives,
described in further detail on pages 56 and 57; we continue to
recognise the importance of these objectives to our business
and stakeholders. Monitoring of our ESG strategy, including
climate change, is led by the Corporate Responsibility
Committee, which along with the Audit Committee, supports
our approach to the TCFD reporting requirements. More detail
on this area can be found on page 71.
Similarly, we have chosen not to consider the current political
and geopolitical volatility as a standalone principal risk and
instead consider it as having direct and indirect impacts across
several of our principal risks, most notably Failure to Grow,
Integrity, Supply Chain and Health, Safety and Well-being.
We have made some changes to the Executive sponsors of
several of our principal risks to reflect changes in the Group
Executive Committee. The Executive sponsor for each risk can
been seen against each principal risk on page 34.
Ian El-Mokadem
Chair of the Risk Committee
1 March 2024
Ian El-Mokadem
Chair of the Risk Committee
Risk Committee members
Ian El-Mokadem (Chair)
Kirsty Bashforth
Tim Lodge
Dame Sue Owen DCB
Dear Shareholders
Throughout 2023, the Committee has continued to oversee
the Group’s efforts to enhance its risk management capability
and the way that the Enterprise Risk Management (ERM)
Framework has been embedded across the Group. We have
continued to review the Group’s risk profile on a quarterly
basis holding focused discussions around our principal risks
and their mitigations.
Our approach to overseeing the effectiveness of the Group’s
risk management framework and internal controls and
maintaining oversight of our principal risks has remained
broadly consistent with previous years.
There has been continued focus on supporting the Group ERM
function to drive process improvements and endorse
developments towards a more integrated ERM methodology.
We are preparing for compliance with the changes relating to
Provision 29 over Internal Controls recently confirmed by the
FRC, scheduled for implementation in 2026. We continue to
take a proactive approach to enhancing our system of
articulation and assessment of our material risks and controls
under the Integrated Assurance Framework (IAF) programme.
The programme includes driving further standardisation of
risks and controls from contracts upwards, including Business
Unit, Functional and Divisional risks that will support
anticipated attestation and reporting requirements. Our
existing Governance, Risk and Compliance (GRC) tool will be
replaced to better support the reporting process.
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Financial Statements
Risk Committee Report continued
Committee’s responsibilities
The Committee advises the Board on the Group’s overall risk
appetite, tolerance and strategy, taking account of the current
and prospective geopolitical and financial environments.
The Committee’s Terms of Reference are available on
our website.
Membership and attendees
The Committee is comprised of independent Non-Executive
Directors; there were no changes made during the year.
Biographical details for each member of the Committee are
provided on pages 97 to 99. The Committee met five times
during the year. In addition, a combined Audit and Risk
Committee meeting was held to provide holistic oversight of
assurance activities and to maintain oversight of the
programme of work underway to further mature our approach
to assurance. Details of attendance at meetings are set out on
page 102.
Committee meetings are held in advance of Board meetings,
with the Committee Chair updating the Board directly on the
outcomes of each meeting. Meetings of the Committee are
attended by the Group Chief Executive, Group General
Counsel, Assistant Company Secretary, Group Director of ERM
and the Group Head of Internal Audit. The Chair of the Board
also attended every meeting.
Each Divisional Head of Compliance is also invited to attend a
private session with the Committee, without management
present, providing an opportunity for open discussion and for
any concerns or issues to be raised.
Activities of the Committee during 2023
During the year, the Committee’s key activities included:
–
receiving updates regarding the Group’s principal risks,
detailing key changes and trends. These included
undertaking in-depth reviews (deep dives) of the following
risks: Major Information Security Breach; Catastrophic
incident, Significant Failure of Supply Chain, Failure to
Attract, Recruit and Retain Key Talent and Contract Non-
Compliance, Non-performance and Misreporting. The
Principal Risks of Failure to Act with Integrity and Health,
Safety and Well-being were reviewed by our Corporate
Responsibility Committee; the principal risk of Financial
Control Failure was reviewed by our Audit Committee; and
Failure to Grow Profitably and additional sessions on Major
Information Security breach were reviewed by the Board;
– maintaining focus on oversight of our response to the UK
Corporate Governance Code changes and implementation
of the GRC tool as part of the IAF programme, which builds
on work previously delivered through the Group-wide ERM
Capability Assessment;
–
–
–
–
–
considering internal and emerging risks and themes. These
discussions included treatment of ESG, climate change,
political volatility, IT infrastructure failure and geopolitical
uncertainty;
receiving updates on all Divisional risk management
processes including alignment of their risks to the Group
principal risks and progress with implementing
improvement opportunities identified in the Group-wide
ERM capability assessment;
overseeing the compliance assurance programme
including monitoring key findings and process
improvements to the self-assessment process and the
review and refresh of the SMS;
challenging and supporting the Group Director of ERM to
improve, enhance and embed the risk management
framework; and
reviewing the Committee’s Annual Performance.
2024 priorities and focus
– Maintain focus on undertaking detailed deep dive reviews
into the Group’s principal risks and continue to maintain a
more flexible approach to include deep dives into specific
risk themes and emerging risks delivered by functional
leaders and/or subject matter experts from across the
Group.
– Maintain focus on the progress of mitigation actions and
their effectiveness, the updates to our ERM approach and
the review and refresh of supporting policies, standards,
and reporting.
– Working closely with the Audit Committee, focus on
completion of changes required for compliance with the
relevant changes to the UK Corporate Governance Code.
– Continue monitoring governance of our Group-wide
compliance assurance activity, including increasing
oversight of the three lines of defence and how they
interrelate and work effectively.
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Corporate Responsibility Committee Report
Committee responsibilities
The Corporate Responsibility Committee is responsible for
assisting the Board in providing independent oversight and
guidance of the Company’s ESG approach and, based on this
agreed framework, considering related strategies, policies and
practices on how the Company conducts its business, through
its values of Trust, Care, Innovation and Pride. The Committee’s
Terms of Reference are available on our website.
Membership and attendees
The Committee comprises both Executive and Non-Executive
Directors. Biographical details for each member of the Committee
are provided on pages 97 to 99. The Committee met four
times during the year. Details of attendance at meetings are set
out on page 102. Committee meetings are held in advance of
Board meetings, with the Committee Chair updating the Board
directly on the outcomes of each meeting. Meetings of the
Committee are usually attended by the Group General Counsel,
Assistant Company Secretary, Group Chief People and Culture
Officer and the Group Director of Business Compliance and
Ethics. Each Divisional Head of Ethics and Compliance is also
invited to attend a private session with the Committee, without
Management present, providing an opportunity for open
discussion and for any concerns or issues to be raised.
Activities of the Committee during 2023
During the year, the Committee’s key activities included:
–
In-depth reviews (deep dives) on governance, strategy,
performance and challenges in priority areas to ensure
appropriate focus, control and rigour throughout the
Group, including:
–
–
–
–
–
–
the Group principal risk, ‘Health, Safety and Well-being’;
colleague psychological health and safety; and safety
culture in specific business areas (justice, road risk);
cultural resilience, linkage to delivery of strategy and
the behavioural impact of change; and cultural
integration of acquisitions;
the Group principal risk, 'Failure to act with integrity';
and human rights and modern slavery;
climate and environmental matters and targets - current
status and future approach; and review of the TCFD
compliance statement on climate risks and opportunities;
colleague diversity, equity and inclusion; and
colleague engagement, including the Company's
annual engagement survey results; and
supplier management and sustainable procurement.
– Ongoing quarterly oversight of the effective delivery of the
Group Ethics and Compliance strategy (including the
Speak Up process) and the Group strategies for Health,
Safety, Environment and Well-being.
Scrutiny of how ESG is embedded and evolving in each
Division – reviewing regional ESG maturity with Divisional
ESG Leads and CEOs – and in other business settings,
including use of agents and business development, as well
as stakeholder feedback on the Serco approach to ESG.
–
2024 priorities and focus
– Ongoing oversight of culture refresh and embedding to
underpin its purpose as an Impact partner and delivery of
its growth strategy.
– Continued focus on operational safety with contract and
–
thematic deep dives (joint ventures, training etc.).
Embedding Our Impact Framework and measures aligned
with our purpose to enable growth, including progress
towards our people, place and planet targets.
– Diversity of talent to support future growth.
Kirsty Bashforth
Chair of the Corporate Responsibility Committee
Corporate Responsibility Committee members
Kirsty Bashforth (Chair)
Kru Desai
Dame Sue Owen
Mark Irwin
Dear Shareholders
Serco’s vitality today owes much to how deeply embedded
and resilient its culture of Care, Innovation, Trust and Pride sits
within its core. Alongside operational processes, the Company
values and what it means to work for Serco, run through
interactions across all stakeholder groups.
There is always more to do, not least on health, safety and well-
being, where there is a continuous commitment on day-to-day
ownership, learning and improving skills to address emerging
issues. Serco's wider ESG credentials continue to deepen, and
the updated strategy focused on Impact, further embeds ESG
factors as part of operational resilience, building partnerships
and impact across customer value chains. The Committee
continues to cultivate this focus on social impact and value
creation as well as risk management and compliance, where
we intentionally partner with the Risk Committee on specific
topics that require complementary focus.
The ecosystem of public need continues to rapidly evolve for
individuals and governments, whether that is cost of living,
climate events or increasing migration. In 2023, the Committee
conducted its agenda with this changing backdrop in mind
and has continued its sharp focus on operational safety culture,
oversight on the strategy and plans to deliver the
environmental agenda and goals, colleague well-being with a
specific focus on psychological safety and the impact of
change events on the wider operating culture.
As an Impact Partner to the world’s governments, cultural
stability and vitality, along with ESG factors, are key underpins
of Serco’s success. The Committee looks forward to working
with leadership in the year ahead to continue progress towards
value creation for all.
Kirsty Bashforth
Chair of the Corporate Responsibility Committee
1 March 2024
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Directors’ Remuneration Report
Context of remuneration decisions
The Remuneration Committee continues to consider and value
the views and experience of all stakeholders when making
remuneration decisions. In particular, we remain cognisant of the
ongoing cost of living challenges facing many in society, and
within the Serco workforce, and are pleased to support the
initiatives taken by Management for our people (more details of
which can be found on page 119).
2023 performance-linked variable pay
In considering the variable pay outcomes, the Committee seeks
to ensure that all payments are appropriate against the
backdrop of the overall performance of the Company, the
experience of all stakeholders and the context of the wider
economic environment. Assurances are sought from the Audit
Committee (with regards to financial performance) as well as
from the Risk and Corporate Responsibility Committees (which,
in particular, provide broader feedback on the performance
against and management of the principal risks), where required
to support our decisions.
2023 Annual bonus
The Executive Directors’ 2023 bonus awards have been
determined based on a combination of financial measures (70%
weighting; being 40% Trading Profit and 30% FCF), an ESG
scorecard (15%) and personal objectives (15%).
Taking into account performance against the targets set,
including the individual performance of the Executive Directors,
it was determined that the 2023 bonus award will be 74.0% of
maximum for both the Group Chief Executive and Group Chief
Financial Officer (Group CFO) respectively. Further details can
be found on pages 127 to 129. The overall performance of the
Company in 2023 has been good and the Committee is satisfied
that the bonuses are a true and fair reflection of the underlying
performance of both the Company and the Executive Directors.
2021 LTIP
As reported, the Company’s performance has been consistently
strong over recent years, and this is reflected in the performance
outcomes against the three-year performance targets set for the
2021 LTIP awards. The Committee is satisfied that the overall
vesting outcome of 93.15% of the maximum opportunity
appropriately reflects the overall performance of the Company
over this period. Full details of the performance achieved, and
vesting outcome, can be found on pages 129 and 130.
Policy review
In preparation for the presentation of the Policy for shareholder
approval at the 2024 AGM, the Committee undertook a thorough
review of the current Policy during 2023, taking into account the
refocus of our business and refreshed corporate strategy. The
Committee is also mindful of the need to attract and retain
executives of the right calibre to provide clear leadership and
successfully deliver long-term stakeholder value, address evolving
investor expectations and the need to ensure fairness and equity in
our pay practices throughout our organisation.
The Committee determined that the current Policy, which received
high levels of support in 2021, continues to be appropriate and
therefore the only change is to rebalance the weighting of
financial:strategic measures in the LTIP to align to those applied for
the bonus (with a minimum weighting for financial measures of
70%, with the balance to comprise strategic measures). The
Committee also gave careful consideration to the implementation
of the Policy in 2024 and in particular to the appropriate
performance metrics to apply to the 2024 bonus and LTIP.
Lynne Peacock
Chair of the Remuneration Committee
Remuneration Committee members
Lynne Peacock (Chair)
Kirsty Bashforth
Tim Lodge
John Rishton
Dear Shareholders
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report (the Report) for Serco Group plc for the
year ended 31 December 2023. In this Report we are presenting,
for shareholder approval at the 2024 AGM, a revised
Remuneration Policy. Additionally, we set out how our
Remuneration Policy has been implemented in 2023, and how
we will apply it for 2024.
2023 – a successful year of change
Mark Irwin became Group Chief Executive on 1 January, taking
over from Rupert Soames who stepped down at the end of 2022.
The transition to our new Group Chief Executive has been
smooth and since then the Company has refreshed its strategy,
sharpening the focus of the business on those aspects critical to
our long term, sustainable growth – customers, capabilities and
colleagues – particularly around health and safety.
Environmental, Social and Governance (ESG) matters have
always been central to our business, with those matters which
are most important to our organisation forming part of our
remuneration practices (initially through personal objectives,
and since 2021 with formal ‘ESG’ scorecards within both our
bonus and Long Term Incentive Plan (LTIP)). Our ESG strategy
has been updated to ensure absolute alignment with our
purpose to impact a better future. We continue to evolve our
Impact strategy, challenging ourselves to continue to do more
and better across the three key areas of People, Planet and
Place. Further details on our wider Impact strategy can be found
on pages 49 to 69 of this annual report.
As set out in the Board Chair’s statement, and the rest of this
annual report, the Company delivered good results in 2023;
revenue was up 7% with organic growth of 4%, Underlying
Operating Profit was up for the sixth consecutive year at £249m
and our Order intake was £4.6bn. Free cash flow (FCF) was also
up at £209m and we again increased our returns to shareholders
with our ordinary dividend up 19% and a share buyback in 2023
of £90m.
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Financial Statements
Directors’ Remuneration Report continued
As mentioned elsewhere in this annual report, the Board
regularly engage with Serco’s workforce through a number of
channels, receiving feedback on general pay and conditions,
and invite comment on remuneration matters from all
colleagues.
Concluding comments
On behalf of my colleagues on the Committee, I wish to thank all
our shareholders for their ongoing support. The Committee
believes that the Policy decisions implemented in 2023, and our
proposals for 2024 onwards, will continue to ensure that the
Executive Directors are fairly rewarded for delivery against the
strategic goals of the Company, while ensuring that recognition
is also given to appropriate management of all Company risks
and performance, even where these are not an explicit measure
in an incentive award. Together, these ensure that our
remuneration framework supports all colleagues to continue to
deliver the critical services to governments, impacting a better
future for us all. I hope you will all support the resolution to vote
for the revised Policy and this Report at the forthcoming AGM.
Lynne Peacock
Chair of the Remuneration Committee
1 March 2024
On this matter, the Committee is grateful to our shareholders
who engaged with us during the consultation process for their
invaluable feedback, which has been reflected in our approach
for 2024.
Implementation of Policy in 2024
Base salaries
The Committee reviewed the base salaries for the Executive
Directors and determined that both should receive an increase
of 3% in 2024. This is below that which will apply to the wider
workforce (with 2024 budgeted increases across our UK
workforce ranging, on average, from 3.5% to in excess of 9%,
with 47% of our lowest paid colleagues to receive a 9.79%
increase aligned to increases in the National Living Wage).
2024 Annual bonus
The Committee determined that the same overall framework of
performance targets and weightings should be retained for the
2024 bonus award. However, reflecting the changes made in
2023 to report on Underlying Operating Profit, this profit
measure will now apply for bonus purposes without adjustment,
other than for truly exceptional items. The ESG scorecard has
been updated from that applicable to 2023 to reflect our
increased focus on two critical in-year areas: health and safety in
our operations (which remains a key risk for our business), and
colleague retention. In particular, like all businesses operating in
the current labour market environment, Serco has challenges
around colleague attrition which, as noted on page 34, is a
significant risk for us.
2024 LTIP
The performance framework for the 2024 LTIP has been revised
from prior years to reflect an increased focus on longer-term
sustainable growth. The 2024 LTIP will vest subject to aggregate
EPS (25% weighting), average ROIC (25%) and relative TSR
(20%), together with two growth measures aligned to our
medium-term growth goals (total of 20% weighting split
between the Book-to-Bill ratio and Organic Revenue Growth),
and an ESG scorecard (10%) focused on sustained colleague
engagement and, building on our previous environmental
measures, specific Scope 1 and 2 carbon reduction targets
aligned to our longer-term Net Zero ambition. Full details of
the performance measures for the 2024 LTIP can be found on
page 133.
Stakeholder engagement
We have continued our programme of shareholder dialogue
and we thank those who took the time to consider and respond
with their feedback on our Policy and its proposed
implementation for 2024. That feedback was taken on board by
the Committee and, in particular, helped shape our approach to
performance measurement for 2024. We wish this to continue as
we welcome your input and are always prepared to listen and
take on board suggestions that help the Company continue to
grow and develop its services. In addition to direct engagement
with shareholders, our Investor Relations team is in regular
contact with our shareholders and shares any feedback or
queries on remuneration throughout the year so that we can
maintain an ongoing dialogue.
This Report has been prepared in accordance with the requirements of the Companies Act 2006 and the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended) (the Regulations). The Report also meets the relevant requirements of the Listing Rules of the
Financial Conduct Authority and describes how the Board has complied with the principles and provisions of the UK Corporate Governance Code relating
to remuneration matters.
Serco Group plc | Annual Report and Accounts 2023 | 116
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Financial Statements
Directors’ Remuneration Report continued
Overview of Remuneration 2023 – What did we pay our Executive Directors for 2023
Single figure remuneration at a glance
Annual Bonus Outcomes
Outcomes (% of element achieved)
40%
30%
15%
15%
71%
71%
100% 33%
100% 33%
70%
70%
Trading Profit
(40% weighting)
Free cash flow
(30% weighting)
ESG (15% weighting)
Personal Objectives
(15% weighting)
Not Achieved
2023 bonus earned
Mark Irwin
74.0%
of which
22.8%
of total maximum
is subject to deferral
2021 LTIP outcome
Nigel Crossley
74.0%
of total maximum
of which
12.9%
is subject to deferral
Executive Director shareholdings (% of base salary)
Mark Irwin has exceeded his shareholding requirement.
However, as a relatively new appointment, at 31 December 2023
Nigel Crossley is working towards his requirement.
1.0%
30%
Vesting Outcome
93.15%
of maximum
The Policy applied for the year ended 31 December 2023 was consistent with
the Policy approved by shareholders at the AGM on 21 April 2021. The
Committee has not deviated from the approved 2021 Policy in respect of any
payments made during 2023.
Total spend on pay
£2,194.2m (2.5% on 2022)
2022 - £2,140.2m
Dividends & share buyback
£122.5m (1% on 2022)
2022 - £121.3m
Average increase for UK colleagues
6.43%
2022 - 4.50%
The dividend per share and overall expenditure on wages and salaries have the same meaning as in the notes to the Company Financial Statements.
Serco Group plc | Annual Report and Accounts 2023 | 117
1,938,8081,781,135Base SalaryPension AllowanceTaxable BenefitsBonusShare AwardsMark IrwinNigel Crossley0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0001,800,0002,000,0009.2%9.0%25.0%25.0%25.0%5.8%AchievedNot Achieved (against maximum for that measure)ESGOrder BookROICEPSRelative TSR303%139%1%200%Owned outright (% of salary)Net under award(not subject to performance) (% of salary) Mark Irwin – 2023Nigel Crossley – 2023Shareholding guideline 200% of salary0%100%200%300%Max opportunity(% bonus)Mark IrwinNigel Crossley Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Implementation of Remuneration Policy 2024 – How will our Executive Directors be paid in 2024
Remuneration in 2024 will align to the proposed 2024 Remuneration Policy as set out from page 120.
Fixed pay
Group Chief
Executive salary
Group CFO salary
General increase
for all colleagues
Executive Directors’ pension contributions
aligned to the wider UK workforce
£824,000
3% increase on 2023
£494,400
3% increase on 2023
3.5%
8.0% salary
Variable Pay aligned to Business Strategy
Six priority areas
Our Impact
Annual Bonus
Long-Term Incentive Plan
Link to strategic priorities
Element
Link to strategic priorities
Element
Underlying Operating
Profit
Free Cash Flow
ESG
Personal objectives
% of base salary
Mark Irwin
Nigel Crossley
Maximum
On-target
175 %
87.5 %
155 %
77.5 %
Bonuses in excess of 100% of salary are subject to
mandatory deferral into shares for three years.
Aggregate EPS
Average ROIC
Relative TSR
Growth
ESG
% of base salary
Mark Irwin
Nigel Crossley
Maximum
On-target
200 %
100 %
175 %
87.5 %
On vesting, shares received (after payment of tax) are
subject to a further post-vest holding period until the fifth
anniversary of grant.
Malus and clawback provisions apply to the deferred bonus and LTIP share awards during the three-year period prior to vesting and
within five years of grant respectively. Clawback provisions apply to the annual bonus.
Alignment with shareholders
In employment
Minimum shareholding of 200% of salary.
Post-employment
Retain 100% of the in-employment shareholding guideline for the first year post-employment; and 50% of
the in-employment shareholding guideline for the second year post-employment.
Serco Group plc | Annual Report and Accounts 2023 | 118
40%30%15%15%Underlying Operating ProfitFree Cash FlowESGPersonal objectives25%25%20%20%10%Aggregate EPSAverage ROICRelative TSRGrowthESG
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Wider remuneration at Serco
The principles of colleague-centred, fair and impactful total reward
Our reward principles, which apply to all colleagues, are that reward should be fair, competitive and aligned to the sectors and
markets from which we draw our talent, while ensuring that we are appropriately managing the cost of our workforce which, as a
people business, is our biggest operating cost.
How our approach to reward is implemented throughout our organisation
The Committee believes that the structure of the Executive Directors’ reward at Serco should be linked to Serco’s strategy and
performance, and that reward throughout the whole organisation should follow the same philosophy and underlying principles. The
table below provides an overview of how the Policy cascades throughout the organisation.
Element
Base salary
Benefits
Pension
Salary levels throughout the Group, as far as possible, are set using the same principles applicable to the
Executive Directors. Salaries are reviewed annually, subject to engagement with employee representatives/
unions, where appropriate. Unless exceptional circumstances apply, salary increases for Executive Directors
are normally no more than the average increase of the wider workforce.
Benefits, aligned to local market practice including well-being support, are provided for all employees.
Colleagues in our main operating countries (US, Canada, UK, UAE and Australia) are able to participate in
MyShareSave (our all-employee Sharesave Scheme).
The Group operates a large number of different pension/retirement benefit arrangements globally,
including cash allowance alternatives, where appropriate, in line with local market practice.
Annual bonus
Approximately 1,400 colleagues, including members of the Global Leadership Team, are invited annually
to participate in the Serco Bonus Plan.
Long-term incentive
Long-term incentive awards are granted annually to approximately 200 colleagues in the Global Leadership
Team.
Supporting our people
We have more than 50,000 colleagues across our operations and each individual is critical to our ability to impact a better future for
the service users we support through our contracts. The well-being of our people is therefore of utmost importance to us as an
organisation. Various targeted and whole-workforce actions have been taken by the Company to support colleagues throughout
these difficult times. These vary across our Divisions in response to regional pressures and in 2023 included:
Whole-workforce initiatives
Global coverage of the Serco People Fund.1
Targeted initiatives
Increased pay review budget for the normal cycle.
Expansion of MyShareSave2 to approximately 95% of our global workforce.
Additional off-cycle targeted pay increases.
Continued benefits including discounts on everyday spend, wellness offerings,
improved support under the Employee Assistance Programme, improved
financial education and well-being support.
1.
The Serco People Fund provides financial support for current and former Serco colleagues and their close family in a range of situations, including hardship or
personal crisis and when help is required for health, well-being or recovery. Coverage was expanded in 2023 to all our colleagues in the US, Middle East and
Australia in addition to those in UK.
2. MyShareSave is our all-employee savings-linked share plan. In 2023, this benefit was extended to colleagues in the US, Canada, UAE and Australia, in addition
to those in the UK.
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Directors’ Remuneration Report continued
2024 Remuneration Policy
Our proposed 2024 Directors’ Remuneration Policy is set out here. This will be subject to a binding shareholder vote at the 2024
Annual General Meeting and, if approved, will take effect from the conclusion of that meeting.
Considerations when determining our Remuneration Policy
Serco’s Remuneration Policy was reviewed to ensure that it continued to support the achievement of the Group’s long-term strategic
objectives. Our 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 executives with the required skills and experience in all our chosen markets; and
– be based on a clear rationale which participants, shareholders and other stakeholders are able to understand and support.
Consideration of employment conditions across the Group
When setting remuneration for Executive Directors and approving the reward decisions for members of the Group Executive
Committee, the Committee considers contextual information about pay and conditions within the Group; ensuring that any
decisions made on executive pay are appropriate in the context of the approach for the wider workforce, and that the views of our
colleagues, as key stakeholders, are taken into account. To support this, information on pay policies and practices for the workforce
is presented to the Committee at least twice each year, and is available at all times for reference. This includes a review of the
workforce demographics including diversity and the UK Gender Pay Gap.
The Committee and the Board also engage with the wider workforce throughout the year on remuneration and wider working
conditions, including engagement on executive remuneration, through various mechanisms, including Colleague ConneXions – our
approach for amplifying the voice of our people; our annual employee engagement survey (which includes a question about how
colleagues feel about their pay and benefits); and exchanging their views directly with the Board through various in-person and
virtual meetings and site visits. Dame Sue Owen is the Board’s employee representative and works closely with the Company to
ensure that the Board understands employee perspectives and issues.
Consideration of shareholder views
As set out in the Chair’s letter, we have consulted with our largest shareholders and received support and helpful comments which
have been taken into consideration in shaping the Policy presented here. The Committee believe it is important to continue to
maintain effective channels of communication with our shareholders. The Committee takes the views of shareholders very seriously
and these views have been influential in shaping the Policy and our remuneration practices.
Following an extensive review, the Committee determined that the 2021 Policy continues to work well, delivering against each
objective, and was appropriately aligned to our refreshed strategy. Therefore only one change is proposed in the 2024 Policy to
rebalance the ratio of financial:strategic measures within the performance framework for the long-term incentive, with the ratio to be
no less than 70% financial (was 75%) and no more than 30% strategic (was 25%) going forward. This rebalance is to ensure an
appropriate weighting on key strategic goals over the longer term and aligns with the weightings applicable to the annual bonus.
The full 2024 Remuneration Policy for Executive Directors is set out below. No changes are proposed to any other element of the
2021 Policy and no changes have been made to the Policy applicable to Non-Executive Directors.
Alignment of our remuneration with the principles of the UK Corporate Governance Code:
Clarity
– Our remuneration framework is designed to support the financial and strategic objectives of the Company,
aligning the interests of Executive Directors with our shareholders.
– The Committee regularly engages with executives, shareholders and their representative bodies in order to
explain the approach to executive pay.
Simplicity
– The remuneration for Executive Directors is comprised of distinct elements, each with a clearly defined
purpose, structure and strategic alignment.
Risk
– The Committee ensures that there is an appropriate mix of fixed and variable pay.
– Financial and non-financial performance measures are appropriately balanced and clearly aligned to
Company strategy and performance.
– Alignment to long-term shareholder interests is achieved through a post-vest holding period, shareholding
requirements and mandatory bonus deferral.
– Malus and clawback provisions apply to incentives as set out in the Policy.
Predictability
– The pay opportunities under each element are set out in the remuneration report.
Proportionality
– The Committee ensures that there is a clear alignment between remuneration, Company performance and
Company strategy.
Alignment to
culture
– Incentive pay outcomes are determined taking into consideration the wider performance of the Company,
and the Committee retains overarching discretion to adjust formulaic outcomes for incentives to ensure award
payouts are appropriate.
– When considering performance, the Committee considers behaviours and actions against Serco’s Values of
Trust, Care, Innovation and Pride.
– ESG measures aligned to the Company’s ESG commitments are incorporated into incentives.
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Features of the 2024 Executive Director Remuneration Policy
The Policy table for Executive Directors below sets out how each element of the 2024 Policy aligns with, and supports, our strategic
objectives.
Base salary
Purpose and link to strategy
To recognise an individual’s experience, responsibility and performance of the role, and by providing
the basis for a competitive remuneration package; to help recruit and retain executives of the necessary
calibre to execute Serco’s strategic objectives.
Policy change
No change
Opportunity and operation
Salaries are normally reviewed annually, and any changes are usually effective from 1 April. Salary reviews take account of the
individual’s performance and contribution to the Company during the year as well as positioning against the market.
Any increases proposed will be with reference to the typical level of increase awarded to other colleagues in the jurisdiction in
which the Executive Director is based. Higher increases may be made in exceptional circumstances, for example, where there has
been a significant change in role size or complexity, which has resulted in the salary falling below a market competitive level given
the enhanced responsibilities of the role. Full rationale would be disclosed in the relevant DRR.
In some circumstances an Executive Director may start on a lower salary than is market typical, with higher phased increases
applying depending on performance in role and individual ability.
Benefits
Purpose and link to strategy
Policy change
To provide a competitive level of benefits to enable the recruitment and retention of Executive Directors
No change
Opportunity and operation
The maximum opportunity for benefits is defined by the nature of the benefits and the cost of providing them. As the cost of
providing such benefits varies based on market rates and other factors, there is no formal maximum monetary value.
A range of benefits may be provided to Executive Directors, including (but not limited to) company car or car allowance, private
medical insurance, permanent healthcare insurance, life cover, annual allowance for independent financial advice, relocation
benefits and voluntary health checks.
Directors may also be eligible to participate in any all-employee share plans, with participation on the same basis as other
employees, up to HMRC-approved limits (where relevant).
Pension
Purpose and link to strategy
To provide pension-related benefits to encourage Executive Directors to build savings for retirement,
supporting the recruitment and retention of Executive Directors.
Policy change
No change
Opportunity and operation
Executive Directors may participate in the Group defined contribution pension plan (or overseas Serco pension plan, as
appropriate).
The maximum contribution or cash allowance (or mix of both) for current Executive Directors will be aligned with the pension
opportunity available to the wider workforce in the relevant jurisdiction in which the Executive is based. For a UK based Executive
Director, the maximum Company contribution (or cash payment in lieu) is 8% of salary.
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Annual bonus
Purpose and link to strategy
To incentivise Executive Directors to achieve specific, strategically-aligned annual targets and
objectives, and to reward ongoing stewardship and contribution to core values. Bonus deferral
provides alignment with shareholder interests.
Policy change
No change
Opportunity and operation
Maximum bonus opportunity is 175% of salary for Group Chief Executive and 155% of salary for other Executive Directors.
Bonus awards are based on the achievement of specific targets over the year and are paid after the end of the financial year to
which they relate. Any bonus earned over 100% of salary is deferred into shares, typically vesting after three years.
The Committee may decide to pay the entire bonus in cash in certain exceptional circumstances. Dividend equivalents may accrue
during the vesting period on the deferred bonus shares (in the form of cash or shares).
Malus and clawback provisions apply.
Performance framework
At the start of each performance year, the Committee reviews and sets objectives against key financial measures and strategic
objectives aligned to the Group’s overall strategy, annual business plan and priorities for the year, and the weighting for each
measure.
At least 70% of the total bonus will be based on the achievement against financial measures with the remainder based on strategic
and personal objectives which may include ESG objectives.
Bonus awards are at the Committee’s discretion. The Committee may override the formulaic bonus outcome within the limits of the
plan where it believes that the outcome is not reflective of wider performance, or affordability of the bonus, to ensure fairness to
both shareholders and participants.
Awards are typically on a straight-line basis from 0% for threshold performance to 50% at target, and to 100% at maximum
performance.
Long-term incentive – Serco Group Long Term Incentive Plan (LTIP)
Purpose and link to strategy
To recognise delivery of the Group’s longer-term strategy and value creation and align the long-term
interests of the Executive Directors with the Group’s shareholders.
Policy change
Change in the
performance framework
to at least 70% (from
75%) weighting on
financial measures, and
up to 30% (from 25%)
weighting on non-
financial/strategic
measures.
Opportunity and operation
Maximum annual award of up to 200% of base salary for the Group Chief Executive and 175% for other Executive Directors.
Share awards subject to performance conditions are normally granted annually, typically vesting on the third anniversary of their
grant. A post-vesting holding period applies, usually ending on the fifth anniversary of grant. During this time, the shares must be
retained but are not subject to forfeiture provisions. Shares may be sold in order to satisfy tax or other liabilities as a result of the
vesting of the award.
At the discretion of the Committee, awards may be converted to a cash equivalent based on the value of the shares at the vesting
date (in cases where due to local law it is not possible to deliver shares), or subject to net settlement.
Dividend equivalents may accrue during the vesting period (in the form of cash or shares).
Malus and clawback provisions apply.
Performance framework
At least 70% of the vesting of LTIP awards will be dependent on financial performance, with up to 30% of the vesting based on the
achievement of strategic measures aligned with the Company’s strategic plan, which may include ESG objectives. The Committee
(with input from the Audit and Risk Committees as appropriate) considers Serco’s underlying performance and external market
reference points, as well as performance against the specific targets set in determining the overall outcome of the LTIP awards. The
Committee retains discretion to determine the appropriate level of vesting.
The maximum vesting for threshold performance is 25% of the total award, and 100% vesting for maximum performance.
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Shareholding guidelines
Purpose and link to strategy
To support long-term commitment to the Company and the alignment of Executive Directors’ interests
with those of shareholders.
Policy change
No change
Operation
Executive Directors are required to build up and maintain holdings in Serco Group plc as follows:
In-employment guideline
The in-employment shareholding guideline is 200% of salary. Executive Directors are required to retain, in shares, at least 50% of
the net value of any performance shares vesting or options exercised until they satisfy the shareholding guideline.
Post-employment guideline
Reflecting the nature of Serco’s business, the post-employment guideline is equal to 100% of the in-employment guideline (or
actual shareholding on cessation if lower) for the first 12 months, and 50% of the in-employment guideline (or actual shareholding
on cessation if lower) for the second 12 months.
Unvested awards that are subject to performance conditions are not considered in determining an Executive Director’s
shareholding for these purposes. Share price is measured as at end of the relevant financial year, or at the date of cessation as
applicable.
Remuneration Policy for the Board Chair and Non-Executive Directors
Base fees
Purpose and link to strategy
To attract Non-Executive Directors with the necessary experience and ability to make a substantial
contribution to the Group’s affairs.
Opportunity and operation
Policy change
No change
The Board Chair and Non-Executive Directors receive a base fee to reflect their role and responsibilities. Fees are typically
reviewed on an annual basis against a relevant peer group, taking into consideration market practice, anticipated responsibility
and time commitment involved. The fees of the Board Chair are determined and approved by the Remuneration Committee
(excluding that individual) and fees of the Non-Executive Directors are determined and approved by the Board (excluding the
Non-Executive Directors).
Non-Executive Directors may also receive additional fees in respect of additional responsibilities, such as membership or chair of a
Board Committee.
Current fee levels are shown on page 134.
Benefits and expenses
Purpose and link to strategy
Policy change
To cover the cost of reasonable expenses in connection with carrying out the duties of the role.
No change
Opportunity and operation
An allowance may be paid to Non-Executive Directors for attendance at meetings outside their country of residence where such
meetings involve inter-continental travel. The maximum travel allowance is £5,000 per occasion requiring intercontinental travel.
In addition, all reasonable travel and business-related expenses incurred in connection with carrying out their duties are reimbursed.
Non-Executive Directors are not entitled to receive incentives or pension contributions. Non-Executive Directors are encouraged to
hold shares in the Group but are not subject to shareholding guidelines.
Malus and clawback
Malus and clawback provisions apply to awards under the annual bonus and long-term incentive which enable the Committee, at its
discretion, to reduce, cancel or recover some or all of the awards granted to Executive Directors in certain circumstances. These
include (but are not limited to) a material misstatement of the Group’s audited financial results; material or misleading results
announcements prior to vesting; a clear and material contravention of Serco’s Codes of Practice or Values; a serious failure of risk
management; or an event that leads to serious reputational damage or corporate failure. Clawback may be invoked in the most
serious of these circumstances and must be implemented within five years of the grant of the relevant long-term incentive or
deferred bonus share award; and within two years in respect of a bonus award paid in cash.
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Use of discretion
The Committee will operate the annual bonus plan and LTIP according to their respective rules and the Listing Rules, where
applicable. The Committee retains discretion, consistent with market practice, in a number of areas with regard to the operation and
administration of these plans. These include, but are not limited to the timing of grant and vehicle of an award. Discretion may also
be exercised, in line with the rules, when dealing with a change of control or restructuring of the Group, or in respect of adjustments
as required in certain circumstances (for example, rights issues, corporate restructuring events and special dividends).
In relation to the long-term incentive and bonus, the Committee retains the ability, in exceptional circumstances, to change
performance measures, targets and/or the relative weighting of performance measures part-way through a performance period if
there is a significant event (such as a major transaction or, in the case of the bonus only, a transition in role) which causes the
Committee to believe the original performance conditions are no longer appropriate.
In exercising this discretion, the Committee will determine that the original conditions are no longer appropriate, and the
amendment is required so that the conditions achieve their original purpose and are not materially less difficult to satisfy. In
exceptional circumstances, the Committee also has discretion to vary the proportion of bonus or LTIP that pay out, to ensure that the
outcomes are fair and appropriate and reflect the underlying financial performance of the Group. Any use of the above discretions
would, where relevant, be explained in the remuneration report.
Approach to recruitment remuneration
Our approach to recruitment remuneration follows our overarching remuneration principles – that is that we seek to offer a package
that is sufficient to attract, retain and motivate while aiming to pay no more than is necessary. We take into account that, as a complex
global business, Serco operates in diverse markets and geographies and many of its competitors for talent are outside the UK.
The remuneration package for a new Executive Director is aligned to the elements set out in the summary Policy table on pages 121
to 123. Base salary is set by the Committee taking into account all factors it considers relevant, including the Executive Director’s
experience and calibre, current total remuneration, levels of remuneration for companies in the Committee’s chosen peer group,
and the remuneration required to attract the best candidate for Serco. The Committee will seek to ensure that the arrangement is in
the best interests of the Company and its shareholders without paying more than is necessary. Newly-promoted colleagues, or
recruits to roles on the Board may on occasion have their salaries set below the targeted policy level while they become established
in their role. In such cases, salary increases may be higher than inflation or the wider workforce increase until the targeted market
positioning is achieved.
The recruitment policy also includes the additional provision of benefits in kind, pensions and other allowances such as relocation,
education and tax equalisation in line with Serco policies as may be required in order to achieve a successful recruitment. The policy
for recruitment also includes benefits that are either not significant in value or are required by legislation.
As summarised below, the Policy provides for a maximum combined total incentive under the bonus and long-term incentive of
375% of salary in any one year (normally comprising of a maximum opportunity of 175% of salary under the annual bonus, and 200%
of salary under the LTIP).
This is the maximum level of incentives, excluding any to compensate for entitlements forfeited, that will apply to new recruits.
Different performance conditions may apply for new recruits from those set out in the Policy, depending on the particular
circumstances at the time (which could, for example, include the appointment of an interim Executive Director).
Where it is necessary to compensate a candidate for entitlements and/or unvested incentive awards from an existing employer that
are forfeited, the Committee will seek to match the quantum, structure and timeframe of the award with that of the awards forfeited.
In determining the form and quantum of replacement awards, the Committee will consider whether existing awards are still subject
to performance requirements, and the extent to which those are likely to be met, with the aim of providing an opportunity of broadly
equivalent value. The principle will be to seek to replace awards that remain significantly at risk for performance at the candidate’s
current employer with awards subject to performance at Serco, and to seek to make any other replacement awards in the form of
Serco shares, subject to appropriate vesting or holding requirements. Any compensation for awards forfeited is not taken into
account in determining the maximum incentive award level.
Where a new Executive Director is an internal promote, the Committee has discretion to allow the new Executive Director to
continue to benefit from participation in existing incentive plans, or benefit entitlements that were in place prior to appointment to
the Board. The policy on the recruitment of new Non-Executive Directors is to apply the same remuneration elements as for the
existing Non-Executive Directors.
The Committee will include in future remuneration reports details of the implementation of the recruitment policy in respect of any
such recruitment to the Board.
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Service contracts and loss of office payments
The policy for service contracts for new Directors is shown in the table below. Under this policy, the Committee may at any time, with
the agreement of a Director, alter aspects of their existing contracts so that they are in line with the policy for new Directors. Copies
of the Executive Directors’ service contracts and the Chair and Non-Executive Directors’ letters of appointment are available for
inspection at the Company’s registered office. Service contracts outline the components of remuneration paid to the individual but
do not prescribe how remuneration levels may be adjusted from year to year.
The date of appointment for each Director is shown in the table on page 126.
Provision for Executive
Directors
Notice period
Detailed terms
– 12 months’ notice from the Company
– 12 months’ notice from the Director
Termination payment
– Payment in lieu of notice comprising
◦
◦
◦
Base salary
Pension allowance
Selected benefit
– All of the above would be paid in instalments in accordance with the Executive Director’s contractual
payment schedule, subject to an obligation on the part of the Director to mitigate their loss.
Payments will either reduce or cease completely, in the event that the Executive Director gains new
employment/remuneration.
– In the event of a compromise or severance agreement, the Committee may make payments it
considers reasonable in settlement of potential legal claims. It may include in such payments,
reasonable reimbursement of professional fees incurred by the Executive Director in connection with
such agreements and reasonable payments in respect of restrictive undertakings.
– The Committee may agree that if an Executive Director steps down from the Board, then for a
transitional period, notice (including payment in lieu of notice) would continue to be based on the
equivalent of up to 12 months based on their rate of salary and benefits while a Director, payable in
instalments and subject to mitigation.
– The reimbursement of repatriation costs or fees for professional or outplacement advice may also be
included in the termination package, as deemed reasonable by the Committee.
– No payment unless employed on date of payment of bonus except for ‘good leavers’.
– ‘Good leavers’ are entitled to a bonus pro-rated to the period of service during the year, subject to
the outcome of the performance metrics and paid at the usual time unless in exceptional
circumstances (for example, in the case of death of the Executive Director) when the Committee may
determine to make the payment early.
– The Committee has discretion to reduce the entitlement of a ‘good leaver’ in line with performance
and the circumstances of the termination.
– Unvested deferred bonus share awards will lapse on cessation of employment except for ‘good
leavers’. For good leavers, the shares will usually be released on the normal vesting date, however,
the Committee has discretion to determine early vesting of the deferred share awards in exceptional
circumstances (for example, in the case of death of the Executive Director).
Treatment of annual
bonus on termination1
– Malus and clawback provisions continue to apply.
Treatment on termination
of unvested awards
granted under the LTIP1
– All awards lapse except for ‘good leavers’ for whom vesting is pro-rated on a time basis, unless the
Committee determines otherwise, and is dependent on the achieved performance over the
performance period. Awards typically vest on the normal vesting date although the Committee
retains discretion to accelerate the vesting in exceptional circumstances.
– The Committee has the discretion to vary the level of vesting to reflect individual performance, and
may, depending on the circumstances of the departure, allow some awards to vest while lapsing
others.
– On cessation, the holding period (from vest to the fifth anniversary of grant) will typically apply unless
the Committee determines otherwise.
– Malus and clawback provisions continue to apply.
– As set out in the Policy table on page 123, post-employment shareholding requirements apply for
two years following the cessation of employment of an Executive Director.
Post-employment
shareholding
requirement
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Directors’ Remuneration Report continued
Change of control
– Where the Executive Director leaves the Company following a change of control, whether or not they
are dismissed or they elect to leave on notice, they will be entitled to receive a payment equivalent to
up to one year’s remuneration.
– Bonuses will typically be paid on a pro-rata basis measured on performance up to the date of change
of control.
– Unvested LTIP awards and unvested share awards in respect of deferred annual bonus are to vest
pro-rata for time and performance up to the date of the change of control with Committee discretion
to treat otherwise. For existing Executive Directors, the unvested share awards in respect of deferred
annual bonus will vest without time pro-rating.
Exercise of discretion
– Intended only to be used to prevent an outcome that is not consistent with performance. The
Committee’s determination will take into account the particular circumstances of the Executive
Director’s departure and the recent performance of the Company.
1. Good leavers are defined as leavers due to ill-health, injury or disability, death, redundancy, retirement, change of control (as defined in the relevant plan
rules) and other circumstances at the Committee’s discretion (to the extent that they allow ‘good leaver’ treatment for particular awards).
Provision for NEDs
Detailed terms
Letters of appointment
– Appointed for initial three-year term.
– Appointment may be terminated on three months’ written notice.
– No compensation or other benefits are payable on early termination.
Dates of Directors’ service contracts/letters of appointment
Directors who served on the Board during the financial year ended 31 December 2023:
Director
John Rishton
Mark Irwin
Nigel Crossley
Kirsty Bashforth
Kru Desai
Tim Lodge
Ian El-Mokadem
Dame Sue Owen
Lynne Peacock
Date of appointment to the Board
13 September 2016
1 January 2023
21 April 2021
15 September 2017
21 October 2021
21 February 2021
1 July 2017
3 August 2020
1 July 2017
Each Director is subject to election at the first AGM following their appointment and re-election at each subsequent AGM.
Illustration of remuneration opportunity for 2024
The following charts illustrate the value that may be delivered to Executive Directors in 2024 under the Policy.
41%
17%
34%
33%
29%
38%
36%
30%
23%
19%
100%
100%
31%
28%
41%
39%
35%
26%
16%
33%
29%
22%
Fixed elements
Annual variable
Multiple period variable
Value attributable to share
price appreciation
Serco Group plc | Annual Report and Accounts 2023 | 126
Mark Irwin (£'000s)£935£2,482£4,027£4,851MinimumTargetMaximumMaximum (including share price appreciation)£0£1,000£2,000£3,000£4,000£5,000£6,000Nigel Crossley (£'000s)£575£1,392£2,207£2,640MinimumTargetMaximumMaximum (including share price appreciation)£0£1,000£2,000£3,000£4,000£5,000£6,000 Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
The scenarios in the above graphs are defined as follows:
– Fixed elements of remuneration:
◦
◦
◦
Base salary as applicable from 1 April 2024.
Estimated value of benefits to be provided in 2024 in line with the Policy.
Pension contribution/cash supplement equal to 8% for Mark Irwin and Nigel Crossley in line with the Policy
applicable in 2024.
– Annual bonus and LTIP participation as set out in the Policy table. In all cases, target performance results in delivery of 50% of
maximum opportunity. The LTIP values reflect the ‘face value’ at grant of shares that could be received for target and maximum
performance. The LTIP value under the maximum scenario is also shown assuming 50% share price appreciation over the
performance period.
Annual Report on Remuneration
Single total figure of remuneration – Executive Directors (audited)
The following table shows a single total figure of remuneration in respect of qualifying services in 2023 for each Executive Director,
together with comparative figures for 2022. Details of Non-Executive Directors’ fees are set out in the next section.
Mark Irwin1
Nigel Crossley1
All figures in £
Salary
Taxable benefits2
Pension3
Total Fixed Remuneration
Bonus
Long-Term Incentives4
Total Variable Remuneration
Total
2023
800,000
38,177
64,000
902,177
1,036,631
N/A
1,036,631
1,938,808
2022
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2023
480,000
56,259
38,400
574,659
550,896
655,580
1,206,476
1,781,135
2022
436,450
34,313
34,916
505,679
535,750
202,677
738,427
1,244,106
1. Mark Irwin and Nigel Crossley were appointed to the Board on 1 January 2023 and 21 April 2021 respectively. Mark’s 2021 LTIP award, for which the
2.
3.
4.
performance period ended in 2023, was granted fully in respect of his previously held role within Serco. This is therefore excluded from the figures above as it
was not awarded in respect of qualifying services.
The taxable benefits relate to the provision of independent financial advice and tax support, as appropriate; a car or car allowance (fully inclusive of all scheme
costs including insurance and maintenance), healthcare and private medical assessments, as well as taxable business expenses. Where Serco settles the
income tax and social security liability in respect of benefits provided, the value of the benefit has been grossed up at the individual’s marginal tax rate.
The pension amounts comprise payments made in lieu of pension, calculated as a percentage of base salary, from which the Executive Directors make their
own pension arrangements.
This is the estimated or actual value of LTIP awards for which the performance period ended in the year including dividend equivalents. The quantum
attributable to share price appreciation is £45,061. The Committee believes that the share price movement appropriately reflects the broader performance of
the Company and, therefore, did not make any discretionary adjustments to the vesting of these awards on this basis. Further details are provided on page
130. The LTIP value reported for Nigel in respect of 2022 has been restated to reflect the actual share price at the relevant vest date for the award (being his
2020 LTIP award, which was granted in respect of his previous role prior to his appointment to the Board, and which vested on 6 April 2023: £1.5229).
Variable pay outcome (audited information)
Performance-related annual bonus
In line with the Policy, the 2023 target and maximum annual bonus opportunities were 87.5% and 175% of salary respectively for
Mark Irwin (Group Chief Executive) and 77.5% and 155% of salary respectively for Nigel Crossley (Group CFO). Overall outcomes
against the 2023 bonus are summarised on page 128.
Performance targets and achievement against them
The table on page 128 sets out the performance targets for 2023 as well as achievement against these.
The 2023 ESG scorecard focused on two key areas with the emphasis (two-thirds of this element) placed on the first area:
– Health and safety within our operations through improvements in the Lost Time Injury Frequency Rate (LTIFR); and
– maintaining a high level of colleague engagement as measured through our annual Group employee engagement score.
The performance measured against each component of the scorecard, and the overall performance outcome determined by the
Committee in considering the overall ESG performance, is set out in the table on page 128. The Committee noted that the LTIFR for
2023 was 6.07, above the 5.14 required for payout, although the absolute number of incidents had reduced from 619 to 601 and
the number of working days lost fell by 5%. Whilst improvements were seen in a number of regions, further progress was needed in
order to hit the stretching targets set. Given how important health and safety is for Serco, the performance against this component
of the scorecard has been reflected in the overall outcome against the ESG scorecard.
Serco Group plc | Annual Report and Accounts 2023 | 127
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Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Performance measure and relative weighting
Trading Profit1 (40%)
Free Cash Flow1 (30%)
ESG scorecard (15%)
LTIFR
Global colleague engagement score2
Individual Objectives (15%)
Mark Irwin
Nigel Crossley
Overall bonus (% max)
Mark Irwin
Nigel Crossley
Threshold
Target
(£m)
£234.2
£120.7
Target
(£m)
£242.4
£143.8
5.14
70
Maximum
target
(£m)
£257.6
£166.8
71
Actual
performance
(£m)
£248.9
£209.5
6.07
71
Achievement
against measure
(% maximum
opportunity for
this measure)
71 %
100 %
33 %
70 %
70 %
74 %
74 %
1. Actual performance at constant currency.
2. Group employee engagement score from Employee Voice survey run from 5 to 22 September 2023.
Achievement of individual objectives
Executive Director
Achievements in year
Mark Irwin,
Group Chief
Executive
The Committee considered Mark’s performance against his stated objectives and deemed his overall
performance in 2023 to be strong. In taking up his new role as Group Chief Executive, Mark demonstrated
effective and visible leadership throughout 2023, and over the course of the year delivered strong performance
and financial results, despite post-Covid challenges in our markets globally. Maintaining organisational stability
alongside a number of substantial organisational changes and new executive appointments, is testament to
Mark’s ability to develop and maintain key stakeholder relationships, maintain strong governance, and compel a
new vision for growth, one that will improve safety, engagement and performance outcomes for our people and
customers.
Achievements include:
– Reported total pipeline as at 31 December 2023 was £12,720m (versus investor pipeline of £10.1bn). Both
total reported pipeline and investor pipeline are materially larger than in FY22. New business wins were below
threshold at £1,812m, although total wins were above threshold (but below target) at £4,614m.
– Established KSA advisory. Active support to win and retain key contracts.
– Completed the strategy review which was built from the Divisional level upwards. Established a pathway to
deliver organic growth of 4 to 6% per annum through to 2028.
– Achieved an 18% reduction in Scope 1 and 2 Carbon during 2023.
– Made the transition to Group Chief Executive. Established strong and productive relationship with the Board
Chair and Board. Appointed three new Executive team members.
– New executive appointments made which have increased diversity among the Executive team and faced into
difficult discussions judiciously. Successfully oversaw the reorganisation of the Asia Pacific ELT, including the
appointment of a new Divisional CEO.
– Ethnic representation has improved slightly at Group Executive Committee, minus one level. Global Head of
DEI appointed. New stretching targets set for 2024 to 2026.
– Engagement with the investment community with approximately 100 meetings having taken place. Serco’s
share price rose by 4% over the year.
– Updated Serco Management System implemented and reduced to 14 core interactive modules.
70 %
Achievement
(% maximum
Serco Group plc | Annual Report and Accounts 2023 | 128
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Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Nigel Crossley,
Group CFO
The Committee considered Nigel’s performance against his stated objectives and deemed his overall
performance in 2023 to be strong. Nigel continued to demonstrate effective and visible leadership throughout
2023, in particular supporting the organisation’s transition to a new Group Chief Executive. With growth in
revenues and underlying trading profit, good liquidity and balance sheet strength, Nigel has delivered strong
financial results for the sixth consecutive year. This is despite a range of challenging global and market economic
factors that affect each of Serco’s Divisions. Nigel has maintained effective relationships with internal and external
stakeholders, and maintained the confidence of the wider investment community, essential as Serco embarks
upon a refreshed strategy to deliver growth and improved safety, engagement and performance outcomes for
our people and customers.
Achievements include:
– Reported total pipeline as at 31 December 2023 was £12,720m (versus investor pipeline of £10.1bn). Both
total reported pipeline and investor pipeline are materially larger than in FY22. New business wins were below
threshold at £1,812m, although total wins were above threshold (but below target) at £4,614m.
– Effective support of the transition to a new Group Chief Executive, with both internal and external audience
and with strong delivery of financial results in 2023.
– Continued to build the capability of the Finance function with key senior appointments made at Division and
Group level.
– Completed a refresh of the Internal Audit function and priorities.
– Supported the achievement of the Divisional growth plans with the establishment of KSA advisory. Active
support to win and retain key contracts.
– Key hires made which have increased diversity among the Executive team, and senior finance teams. Strong
and collaborative relationships being established with internal and external stakeholders. Employee
engagement rate in the corporate Finance function was 84.
– Engagement with the investment community with approximately 100 meetings having taken place. Serco’s
share price has grown 4% over the course of 2023.
– Free cash flow of £209m achieved.
– Completion of the strategy review which was built from the divisional level upwards. Established a pathway to
deliver organic growth of 4 to 6% per annum through to 2028.
Achievement
(% maximum
When approving the payments, the Committee considered Serco’s wider business performance during the year as well as the
experience of all our stakeholders. This included the bonus outcomes for our wider employee base which factor in a combination of
Group, Divisional and Business Unit performance to ensure payments are reflective of the overall contribution to Serco’s
performance. In addition, an Underlying Operating Profit (UOP) test applied to ensure affordability. After a full review, the
Committee determined that the formulaic outturn is fair and appropriate with no adjustments needed. The table below sets out the
bonus outturn for 2023 as well as the amount to be deferred.
70 %
2023 Bonus outcome
Bonus amount earned1
Bonus payable as % max (% salary)
Mark Irwin
£1,036,631
Nigel Crossley
£550,896
74.0% (129.6%)
74.0% (114.8%)
Value of bonus to be deferred for three years into Serco shares (% of total bonus)
£236,631 (22.8%)
£70,896 (12.9%)
2021 Long-term incentive Plan (2021 LTIP)
The 2023 single figure is comprised of the 2021 LTIP awards granted on 6 April 2021, which are due to vest on 6 April 2024 subject
to TSR, EPS, ROIC, Order Book (measured as the book-to-bill ratio) and Employee Engagement performance in the three-year
period to 31 December 2023. Careful consideration was given to the overall performance of the Group over the whole performance
period. The Committee is satisfied that the overall vesting outcome is an appropriate reflection of the overall performance of the
Group over the performance period, during which Management successfully continued the journey of growth in Serco’s corporate
strategy. The Committee is satisfied that no adjustment to the vesting outcome is required in respect of windfall gains.
Serco Group plc | Annual Report and Accounts 2023 | 129
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Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
The performance and formulaic vesting outcome for each tranche of the 2021 LTIP is as follows:
Performance condition and relative weighting
Relative TSR1 (25%)
Aggregate EPS2 (25%)
Average pre-tax ROIC2 (25%)
Order Book2 (10%)
ESG scorecard2 (15%)
Overall vesting outcome
Threshold –
25% vesting
Maximum – 100% Performance measured
Vesting
(% of maximum)
Median ranking Upper quartile ranking
Rank 28/155
25.17p
16.5%
N/A
N/A
30.76p
20.2%
105%
39.07p
22.1 %
104 %
See below
See below
100 %
100 %
100 %
90 %
61 %
93.15 %
1.
For the 2021 LTIP, the Company’s TSR performance was assessed relative to the constituents of the FTSE 250, excluding investment trusts, over the three-year
period ending 31 December 2023. The Company’s TSR of 31.8% ranked 28, giving a vesting outcome of 100%.
2. Only the financial performance targets vest at 25% for threshold performance, rising on a straight-line basis to 100% vesting at maximum performance. The
Committee views the Order Book and ESG scorecard targets to be strategically critical to the longer-term success of the Company, and that there should be
no vesting below target performance. The Order Book vesting level for on-target performance (being a book-to-bill ratio of 100%) is 50% of this element,
rising on a straight-line basis to 100% for maximum performance. Further details of the ESG scorecard are below.
ESG scorecard performance
The Committee considered the overall performance of all components of the ESG scorecard in the round in determining an overall
outcome for this element of 61% of maximum.
Scorecard component
Average annual Group employee engagement score over the
three-year performance period (score of 69 for target, and 71 at
maximum).
Improvement in colleague diversity across gender (focusing on
leaders) and ethnicity, to include:
– Gender diversity amongst our leaders to be measured as the
percentage of women holding senior global leadership roles
in 2023 (with a target of 33% and maximum 35%).
– Strategy for addressing ethnic diversity challenges
throughout our organisation, and particularly in management
and senior leadership roles.
Improvement in our understanding, management and
disclosure of Serco’s environmental risks.
Actual performance
70.33
Senior leadership roles held by women in 2023: 34.3%
Good progress has also been made on our diversity, equality
and inclusion approach and strategy with an internal review of
global diversity and inclusion practices completed in 2022.
Further details of progress in 2023 can be found on pages 28 to
31 of this Annual Report.
Completed a review to better understand our climate-related
risks and opportunities, and now disclose these in our Annual
Report. Our ESG scores have shown steady improvement over
the period and we have set stretching carbon reduction targets.
Further details of progress can be found on pages 49 and 75 of
this Annual Report.
2021 LTIP Awards vesting
Nigel Crossley has 458,830 shares under his 2021 LTIP award of which awards over 427,399 shares (plus 6,904 associated dividend
equivalent shares) will vest on 6 April 2024. The total value at vest is estimated at £655,580 based on the three-month (ending 29
December 2023) average closing share price of £1.5095.
Pensions (audited information)
As at 31 December 2023, there were no Executive Directors actively participating, or accruing additional entitlement, in the Serco
Pension and Life Assurance Scheme which is a defined benefits scheme.
Payments for loss of office and to past Directors (audited information)
Angus Cockburn stepped down as Group CFO on 21 April 2021. Rupert Soames stepped down as Group Chief Executive on 31
December 2022. Share awards vested to Rupert and Angus in 2023 are in line with the treatment on cessation of employment as
previously disclosed in our 2022 and 2021 Reports respectively. The awards below vested in the year.
Rupert Soames
Angus Cockburn
Award vesting
2020 LTIP
2020 ESBP
2020 LTIP
2020 ESBP
No. of shares
vesting1
1,235,490
437,967
310,246
181,449
Value vesting
£1,881,567
£664,002
£472,484
£275,095
1.
Shares vesting from the 2020 LTIP awards remain subject to a post-vest holding requirement until the fifth anniversary of grant (6 October 2025).
All ESBP and LTIP awards noted above remain subject to malus and clawback provisions. There were no other payments made to
past Directors in 2023.
Serco Group plc | Annual Report and Accounts 2023 | 130
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Single figure – Non-Executive Directors’ remuneration (audited information)
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.
Fee-bearing Committee
roles held in the year
John Rishton (Chair)
Kirsty Bashforth
Kru Desai
Tim Lodge
Ian El-Mokadem
Dame Sue Owen3
Lynne Peacock (SID)
Total
C R RI
A C
A R RI
A RI
C RI
A R
Board fee (including
Chairmanship fees)
(£)
2023
2022
288,400
280,000
79,130
66,255
79,130
73,980
70,155
88,980
76,494
63,994
76,494
71,494
63,994
86,494
Taxable benefits1
(£)
2023
7,199
5,325
—
365
84
196
841
Total2
(£)
2022
2023
2022
5,865
295,599
285,865
7,292
84,455
—
66,255
588
79,495
—
74,064
235
450
70,351
89,821
83,786
63,994
77,082
71,494
64,229
86,944
746,030
718,964
14,010
14,430
760,040
733,394
A = Audit Committee, C = Corporate Responsibility Committee, R = Remuneration Committee, RI = Risk Committee. Red denotes Chair.
No additional fees were payable for other Board Committee roles in the year.
Taxable benefits in 2022 and 2023 relate to reimbursed taxable travel and subsistence business expenses.
1.
2. Non-Executive Directors do not receive any variable pay so ‘Total’ is total fixed remuneration.
3. As Designated Non-Executive Director for Workforce Engagement, Dame Sue Owen received a fee which was introduced from 1 April 2023, as disclosed in
the 2022 Report and aligned to the fees payable for membership of a committee.
Awards made in 2023
Equity Settled Bonus Plan (ESBP) (audited information)
In line with the approved Policy, in connection with the compulsory deferral of the 2022 bonus in excess of 100% of salary, Nigel
Crossley was granted the following ESBP awards on 28 March 2023 in the form of a conditional share award. ESBP awards granted
in 2023 vest on the third anniversary of grant on 28 March 2026 provided the individual is still in employment with Serco at vest.
Directors
Nigel Crossley
Face value
(£)1
Grant date
Market price at award
(£)2
Number of shares3
97,149
28 March 2023
1.5416
63,018
1. Calculated as the value of the Executive Directors’ 2022 bonus in excess of 100% of salary.
2. Average closing share price on the five trading days immediately prior to the date of grant.
3. Calculated using the average share price used to determine the number of shares awarded.
Pre-vesting malus and post-vesting clawback are applicable to these awards, but no further performance conditions apply.
Serco Group plc | Annual Report and Accounts 2023 | 131
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Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Long Term Incentive Plan (LTIP) (audited information)
In line with the approved 2021 Policy, in 2023, the Group Chief Executive received LTIP awards equivalent to 200% of salary, and the
Group CFO received awards equivalent to 175% of salary. All awards were in the form of conditional share awards and have a
normal vesting date of 6 April 2026. Awards will vest to the extent that the performance conditions have been met, as measured
over the three-year performance period ending 31 December 2025, and provided the individual is still in employment with Serco at
vest.
Performance measure
Weighting of measure
Performance target
Aggregate EPS
25%
Relative TSR
25%
Average ROIC
25%
Order Book
10%
Statutory Earnings Per Share (EPS) before exceptional items (adjusted to reflect tax
paid on a cash basis) of 34.64p (threshold, 25% vesting) to 42.34p (maximum, 100%
vesting), measured as an aggregate over the three-year performance period.
Total Shareholder Return (TSR) of median (threshold, 25% vesting) to upper quartile
(maximum, 100% vesting) when ranked relative to companies in the FTSE 250
(excluding investment trusts), measured over the three-year performance period.
Pre-tax Return on Invested Capital (ROIC) of 18.3% (threshold, 25% vesting) to 22.4%
(maximum, 100% vesting), measured as an average over the three-year performance
period.
Book-to-bill ratio of 100% (target, 50% vesting) to 105% (maximum, 100% vesting),
measured as an average over the three-year performance period.
ESG scorecard
15%
Scorecard made up of three components:
– employee engagement score of 70 for target and 72 for maximum performance
measured via the Serco Employee Engagement Survey as an average across the
three-year performance period;
– colleague diversity improvement assessed against a scorecard of factors including
reviewing progress on activities which support diversity as well as reviewing
qualitative metrics such as the percentage of women and colleagues of diverse
ethnic backgrounds who hold senior global leadership roles; and
– improvement in environmental risks assessment measured by externally issued
environment/climate rate changes.
The structure for vesting of the EPS, TSR and ROIC conditions is straight-line vesting between threshold and target, and target and
maximum, and no shares vest where performance is below threshold. The Committee views the Order Book and ESG targets to be
strategically critical to the longer-term success of the Company and that there should be no vesting below target performance.
Threshold performance of these elements, therefore, delivers a 0% vesting outcome. The vesting level for on-target performance is
50%, with straight-line vesting between target and maximum. This is a more stringent approach than required under the approved
Policy. In determining the extent to which these LTIP awards will vest, the Committee will consider the Group’s underlying
performance (with input from the Audit and Risk Committees, as appropriate) and external market reference points to ensure that
outcomes are fair and reflect the underlying performance of the Group.
Each element of the LTIP award is subject to a post-vesting holding requirement that takes the total term of the LTIP award (i.e.
performance period plus holding period) to a minimum of five years. Pre-vesting malus and post-vesting clawback are also
applicable to these LTIP awards.
Directors
Mark Irwin
Nigel Crossley
Basis of
award
(% salary)
Face
value
(£)
Market price
at award
(£)1
Number
of shares2
Grant date
Percentage
vesting at
threshold
performance3
Performance
period
end date
200% 1,600,00
0
175% 840,000 6 April 2023
6 April 2023
1.5344 1,042,752
18.75%
31 December 2025
1.5344
547,445
18.75%
31 December 2025
Average closing share price on the five trading days immediately prior to the date of grant.
1.
2. Calculated using the average share price used to determine the number of shares awarded.
3.
75% of the awards that are subject to financial performance conditions vest at 25% for threshold performance. 25% of the awards that relate to Order Book
and ESG performance conditions vest at 0% for threshold performance and only begin to vest when at least target performance is achieved.
MyShareSave 2023 (audited information)
In line with the approved Policy, and HMRC’s requirements relating to UK Sharesave, the Executive Directors were invited to
participate in the 2023 scheme on the same terms as all other eligible employees. For 2023, neither Executive Director chose to take
up the invitation to participate. Both Executive Directors are participants in the 2022 scheme.
Deferred bonus plan (DBP) – legacy arrangement (audited information)
In connection with the earlier voluntary deferral of a proportion of his 2022 bonus related to his previous role within Serco, on 6
April 2023 Mark Irwin was granted a conditional share award over 287,844 shares (face value at grant of £442,869.58 based on the
market price at grant of £1.538575) under a legacy arrangement applicable to that previous role. This award will vest on 6 April
2026, subject to EPS performance, continued employment and the continued holding of Investment Shares.
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Financial Statements
Directors’ Remuneration Report continued
Implementation of the Policy in 2024
Executive Directors
Details of the salary increases, pension opportunity and annual bonus and LTIP awards (including a summary of the performance
measures and relative weightings) are provided on page 118.
Details of the performance measures to apply to the 2024 annual bonus and long-term incentive awards
To deliver our strategy we are focused on six core areas which are most significant to driving value: People, Brand, Growth,
Efficiency, Operations and Technology. Our variable pay for 2024 aligns to this through the targets set against a number of these.
The performance measures and relative weightings applicable to the 2024 annual bonus and LTIP are summarised on page 118,
further details are provided below. The Committee takes a robust approach to target setting, informed by internal budget and long-
term plans, analyst forecasts and strategic objectives.
2024 Annual bonus
The performance measures applicable to the 2024 bonus have been determined taking into consideration the key strategic
priorities of Serco over the next 12 months. In particular, the 2024 ESG scorecard metrics recognise the business priorities of care for
our colleagues. Determination of the amount payable under the 2024 annual bonus plan will also take into consideration the wider
performance of the Group as well as the affordability of the bonuses so determined. In determining the 2024 bonus awards, the
Committee will also take into consideration the wider performance of the Group. The final payouts will be adjusted, where
appropriate, to ensure that the outcomes are a fair and reasonable reflection of the performance of the Group.
2024 LTIP
The table below provides details of the performance measures and targets to apply to the 2024 LTIP awards. Targets have been set
taking into account our longer-term business forecasts and strategy, as well as analyst consensus. In each case performance will be
assessed over the three-year period ending 31 December 2026. In determining the final vesting of these awards, the Committee will
also give consideration to the Group’s underlying performance (with input from the Audit and Risk Committees as appropriate) and external
market reference points to ensure that outcomes are fair and reflect the underlying performance of the Group. The final payouts will be
adjusted, where appropriate, to ensure that the outcomes are a fair and reasonable reflection of the performance of the Group.
Performance
measure
Weighting of
measure
Performance target
Aggregate EPS
25%
Average ROIC
25%
Relative TSR
20%
Growth
20%
ESG scorecard
10%
Statutory Earnings Per Share (EPS) before exceptional
items (adjusted to reflect tax paid on a cash basis)
measured as an aggregate over the three-year
performance period.
Pre-tax Return on Invested Capital (ROIC) measured as an
average over the three-year performance period.
Total Shareholder Return (TSR) when ranked relative to
companies in the FTSE 250 (excluding investment trusts),
measured over the three-year performance period.
Book-to-bill ratio of 100% (target, 50% vesting) to 105%
(maximum, 100% vesting), measured as the cumulative
average over the three-year performance period.
Organic Revenue Growth, measured as a three point
average over the three-year performance period.
Average annual Group employee engagement score over
the three-year performance period at or above 72 for on-
target performance.
Reduction in Scope 1 and 2 carbon emissions towards our
longer-term net zero goals. Total reduction of 3,081 tCO2e
for on-target performance, to be measured over the three-
year performance period.
Threshold 25%
vesting1
Maximum 100%
vesting
43.39p
53.03p
22.1 %
27.1 %
Median ranking
Upper quartile
ranking
N/A1
105% or above
4 %
71
6 %
73
Reduction of
1,628 tCO2e
Reduction of
4,331 tCO2e
1. Unless indicated, each tranche vests at 25% for threshold performance, rising on a straight-line basis to 100% vesting at maximum performance. The
Committee views the Book-to-bill target to be strategically critical to the longer-term success of the Company and that there should be no vesting below
target performance. Performance below target will deliver a 0% vesting outcome. The vesting level for on-target performance will be 50%, with straight-line
vesting between target and maximum. This is a more stringent approach than that required under the Policy. The vesting level for on-target performance is
50% of these elements, rising on a straight-line basis to 100% for maximum performance.
Serco Group plc | Annual Report and Accounts 2023 | 133
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Non-Executive Directors
Following the annual review of Non-Executive Director fees, the Committee (in respect of the Board Chair’s fee) and the Board (in
respect of all other Non-Executive Director fees) determined that a 3% increase should apply from 1 April 2024 (this is below that
which will apply to the wider workforce). In line with the approved Policy, the fees to apply in 2024 will be as follows:
Element – Annual Board and Committee fees
Board Chair
Senior Independent Director
Board fees
Base fee to
apply from
1 April 2024
£
Base fee
1 April 2023
£
299,936
291,200
15,450
58,193
15,000
56,498
Chair of a Board Committee (Audit, Corporate Responsibility, Risk or Remuneration)
13,390
13,000
Membership of a Board Committee (Audit, Corporate Responsibility, Risk or
Remuneration)
Designated Non-Executive Director
5,356
5,356
5,200
5,200
Change
£
8,736
450
1,695
390
156
156
No additional fee is payable for the Chair or membership of the Nomination Committee. The Board Chair does not receive any
additional fees for his Committee memberships nor do the Executive Directors where they sit on Board Committees.
Performance graph and table
This graph shows the value as at 31 December 2023, of a £100 investment in Serco on 31 December 2013 compared with £100
invested in the FTSE 250 index on the same date. It has been assumed that all dividends paid have been reinvested. The TSR
performance for the long-term incentives applies over a different period and details of the Company’s performance versus the FTSE
250 relevant to the 2023 single figure can be found on page 130.
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. The Company chose the FTSE 250 index as the comparator for this graph as Serco has been a constituent of that
index throughout the period.
Serco Group plc | Annual Report and Accounts 2023 | 134
SercoFTSE 250 IndexDec 2013Dec 2014Dec 2015Dec 2016Dec 2017Dec 2018Dec 2019Dec 2020Dec 2021Dec 2022Dec 2023050100150200 Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
CEO’s pay in last ten financial years
Year ended 31 December
2014
Ed Casey
2015
2016
2017
2018
2019
2020
2021
2022
2023
Group Chief Executive
Single figure
remuneration (£’000)
Annual bonus outcome
(as % of maximum
opportunity)
LTI vesting outcome (as %
of maximum opportunity)
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Mark
Irwin
1,605
748
71%
2,255
2,217
3,681
5,176
5,201
5,219
4,011
4,377
1939
0%
87%
82%
75%
77%
94%
80%
93%
88%
74 %
0%
100%
24%
91%
73%
71%
99%
89%
90%
N/A
Percentage change in Directors’ remuneration
The table below shows the percentage change in remuneration for all Directors who served during 2023, compared to that for the
average UK employee. The UK employee sub-set of the Company’s global workforce has been chosen as the group which provides
the most appropriate comparator. There are no employees in the Group’s Parent Company. The UK employee population
comprises some 19,000 of the approximately 46,000 individuals Serco employs worldwide. Inflation and local pay practices form a
key driver in the salary and benefits provided in each location, and as the Directors’ pay is set against the UK market (with the
Executive Directors based in the UK), we have chosen employees within the same country. Information will need to be shown for
each Director in the relevant year on a rolling five-year basis. 2023 is the fourth year of disclosure.
Executive Directors
Non-Executive Directors
UK
employees
Mark
Irwin
Nigel
Crossley
John
Rishton
Kirsty
Bashforth
Kru
Desai
Tim
Lodge
Ian El-
Mokadem
Dame Sue
Owen
Lynne
Peacock
2023
Salary/fees1
Benefits2
Bonus3
2022
Salary/fees1
Benefits2
Bonus3
2021
Salary/fees1
Benefits2
Bonus3
2020
Salary/fees1
Benefits2
Bonus3
6.4 %
— %
11 %
4.5%
2 %
(13) %
2.1%
2%
21%
1.9%
(3) %
20%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
10.0 %
3.0 %
64 %
3 %
23 %
N/A
3.4 %
(27) %
N/A
3.5 %
N/A
N/A
47%
26%
1%
467%
102%
194%
435%
38%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
146%
128%
N/A
0%
114%
N/A
0%
2%
(51) %
(81) %
N/A
N/A
0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.4 %
(38) %
N/A
22%
100%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.5 %
N/A
N/A
9.6 %
(17) %
N/A
2.9 %
87 %
N/A
1%
0%
N/A
8%
0%
N/A
4%
0%
N/A
2%
100%
N/A
140%
0%
N/A
N/A
N/A
N/A
7%
1%
N/A
15%
0%
N/A
0%
0%
N/A
1.
2.
3.
The average salary change for UK employees for 2020 represents the average pay increase applied in the corporate annual pay review effective 1 April 2020.
From 2021, the average salary change for UK employees represents the average level salary change recorded over the relevant financial year, excluding role
changes or promotions, to better reflect our wider workforce pay rates, including those parts of our workforce subject to collective bargaining agreements,
customer-set pay structures, or trade union negotiations. Changes in NED fees reflect changes in each individual’s role on the Board and its Committees, in
addition to the April 2023 fee uplift which was disclosed in the 2022 Report.
The nature of taxable benefits provided to all Directors and employees in 2023 remains the same as in prior years.
The bonus element is shown for those employees eligible for such payments. The figures shown here relate to a calculation of the bonus earned, but not yet
paid, related to performance in 2023 compared to the 2022 bonuses paid in March 2023. The Executive Directors’ 2023 bonuses over 100% of salary are
subject to compulsory deferral for three years into shares. NEDs do not receive bonus pay.
Serco Group plc | Annual Report and Accounts 2023 | 135
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
CEO Pay Ratio
The table below shows how pay for the Group Chief Executive compares to our UK colleagues at the 25th, median and 75th percentiles.
25th percentile
Median
75th percentile
2019
(Option B)
2020
(Option B)
2021
(Option B)
2022
(Option B)
2023
(Option B)
UK colleagues’
salary1
UK colleagues’
total pay and
benefits2
1:219
1:190
1:166
1:186
1:149
1:142
1:168
1:139
1:122
1:141
1:129
1:101
1:80
1:60
1:56
£22,934
£24,340
£30,191
£32,208
£32,172
£34,356
1.
2.
Includes salary enhancements such as shift allowances, unsociable hours payments and overtime.
Includes the value of employer pension contributions made to a defined contribution pension arrangement. Each of these representative colleagues
participated in a salary sacrifice pension arrangement.
The Committee believes that the median ratio is consistent with the Company’s pay, reward and progression policies for our UK
colleagues, noting that for 2023 the comparative Group Chief Executive pay figure is relatively suppressed due to the reduced
variable pay component in this first year in role for the Group Chief Executive. As a business, Serco employs a very wide range of
people with different skills, experiences and capabilities, and our colleagues’ pay and benefits reflects this. The remuneration of
Serco’s Group Chief Executive has a significant weighting towards variable pay to align his remuneration with Company
performance. In contrast, due to our workforce profile, all three of our pay ratio reference points represent frontline operational or
administrative staff who are critical to the delivery of the commitments we make under our contracts every day. In line with market
practice for such roles, these colleagues are in receipt of fixed pay only (including pension contributions). The reduction in the Pay
Ratio from 2022 to 2023 is due to the reduced variable pay in 2023 for the Group Chief Executive as this was his first year in role.
LTIP awards granted in respect of qualifying service (from 2023) will not be reflected in the Group Chief Executive’s single figure
until 2025.
Consistent with prior years, we have used our 2023 Gender Pay Gap data to identify employee representatives at each pay quartile
of our UK employee population. Employees were ranked by hourly pay and, where possible, full-time colleagues at the quartile
points fulfilling common roles within the UK employee population were selected as the representatives for comparison. Given our
diverse workforce and large number of UK employees across many contracts and payrolls, this is considered to be the most
appropriate method of identifying employees who are representative of our workforce. The single figures for each representative
employee (all of whom were full-time) were calculated in respect of the financial year to 31 December 2023. The single figures have
been calculated taking into consideration regular salary and allowances (for example, shift allowances), employer pension
contributions, taxable benefits and bonuses following the same approach taken in determining the Group Chief Executive’s single
figure. Significant salary enhancements, such as acting up allowances, which were not received at the date the pay was calculated for
Gender Pay Gap purposes are disregarded from the single figure calculation for the representative employees to avoid over-
inflating the representative pay at the quartile levels. The pay and benefits figures for the employee representatives do not include
any amounts in respect of long-term incentives as these are only available to the most senior members of the Group.
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. Neither Executive Director held any external appointments in the year.
Directors’ shareholding and share interests (audited information)
Current shareholdings are summarised on page 117. Shares are valued for shareholding guideline purposes at the year-end price,
which was £1.621 per share at 29 December 2023 (being the last trading day of the financial year).
Name1
Mark Irwin
Nigel Crossley
Share awards
Share options
Share
ownership
requirements
(% of salary)
Number of shares
owned outright at 31
December 20232
Subject to
performance
conditions3
Not subject to
performance
conditions4
Not subject to
performance
conditions5
Exercised
during the
year6
Total share
interests at 31
December
20237
200%
200%
1,494,270 2,657,338
0
411,711 1,512,994
158,653
4,285
4,285
0 4,155,893
0 2,087,643
1. Nigel Crossley was appointed to the Board as Group CFO on 21 April 2021, Mark Irwin was appointed to the Board as Group Chief Executive on 1 January
2.
3.
4.
2023. It is anticipated that it will take new Executive Directors up to five years from appointment to meet their shareholding commitment.
Includes shares owned by connected persons.
Includes awards made to Mark Irwin and Nigel Crossley under the LTIP. All awards are in the form of conditional share awards.
These are awards made under the ESBP in connection with the compulsory deferral of bonus into shares. Awards are in the form of conditional share awards
and have not yet vested.
5. Options over shares pursuant to participation in MyShareSave. These are options granted under a UK Sharesave plan subject to an exercise price at a
maximum discount of 20% of the share price at grant. There are no unvested share options held which are subject to performance conditions.
There are no share options that are vested but unexercised.
There were no changes in Executive Directors’ interests in the period between 1 January 2024 and the date of this report.
6.
7.
Serco Group plc | Annual Report and Accounts 2023 | 136
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Non-Executive Directors do not participate in any share-based incentives and do not hold any interests in shares other than shares owned
outright. Non-Executive Directors are encouraged to hold shares in the Company but are not subject to a shareholding requirement.
Name
John Rishton
Kirsty Bashforth
Kru Desai
Tim Lodge
Ian El-Mokadem1
Dame Sue Owen
Lynne Peacock
Number of shares owned outright
(including connected persons) at 31
December 20232
43,086
10,000
—
40,000
50,000
10,000
15,000
1.
2.
Jointly held with spouse.
There were no changes in Non-Executive Directors’ interests in the period between 1 January 2024 and the date of this report.
Shareholder dilution
Awards granted under the Company 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 Investment Association 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. Dilution against these 5% and 10% limits is regularly
reviewed. Based on the Company’s issued share capital as at 31 December 2023, the Company had headroom of 1.34% and 6.33%
respectively so our dilution level was within these limits. 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. The
Trust held 9,144,275 and 11,351,967 ordinary shares at 1 January 2023 and 31 December 2023 respectively.
Voting outcomes
At the previous AGMs, votes on remuneration matters were cast as follows:
2022 Annual Report on Remuneration
2021 Remuneration Policy
Year of AGM
2023
2021
For
%
86.41 %
94.55 %
Against
%
Number
withheld1
13.59 %
8,509,213
5.45 %
1,633,113
1. 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.
Committee overview and activities
The Remuneration Committee
All members of the Committee are independent, Non-Executive Directors of the Company, initially appointed for a three-year term.
That appointment may be terminated on three months’ written notice.
The role of the Committee is to determine and recommend to the Board a fair and responsible remuneration framework that aligns
the executive management team to shareholders’ interests and is designed to reward and incentivise them appropriately for their
contribution to Group performance. The Committee’s primary focus is to ensure a clear link between reward and performance. This
means ensuring that the Policy, structure and levels of remuneration for the Executive Directors and other senior executives reinforce
the strategic aims of the business and are appropriate given the market context in which Serco operates and the reward strategy
throughout the rest of the business.
The Committee’s composition, responsibilities and operation comply with the principles of good governance as set out in the UK
Corporate Governance Code, the Listing Rules and the Companies Act 2006. The Terms of Reference for the Committee are
available on the Company’s website.
The Committee met six times during the year. Details of attendance at meetings are set out on page 102. Meetings of the Committee
are normally attended by the Group Chief Executive, the Group Chief People and Culture Officer, the Group Reward Director, the
Group General Counsel, the Group Company Secretary, and representatives of Willis Towers Watson (WTW), the Committee’s
independent external advisers. No person is present during any discussion relating to their own remuneration arrangements.
Serco Group plc | Annual Report and Accounts 2023 | 137
Strategic Report
Corporate Governance
Financial Statements
Directors’ Remuneration Report continued
Summary of the Committee’s activities during 2023
The Committee met six times during the year, one of which was an ad hoc meeting. The table below summarises the key issues that
the Committee considered at each meeting. Remuneration packages for new hires and severance packages for roles subject to the
Committee’s oversight, together with regulatory and market developments were reviewed at each meeting as required. The
Employee Dashboard and key points from the engagement with the workforce are considered at each meeting as appropriate.
Meeting
January
February
June
Key agenda items
Group Executive Committee pay review; 2023 LTIP performance framework; 2023 Executive Director
objectives; review of the 2022 Report commentary and disclosure.
Shareholder consultation update; Employee Dashboard review on policy and workforce demographics;
2022 annual bonus achievement and payouts for Executive Directors and Group Executive Committee
members; 2023 bonus performance framework; 2020 LTIP vesting; 2023 discretionary share award policy.
AGM voting results for the 2022 Remuneration Report; discretionary share awards update; MyShareSave
2023; Kick-off of 2023 Policy review.
September
Consideration of 2024 Policy proposals; interim bonus and LTIP performance update.
November (ad hoc)
Consideration of 2024 Policy proposals.
December
2024 Policy proposals; Executive 2024 pay review; Employee Dashboard review including 2023 UK
Gender Pay Gap and employee feedback on reward; 2023 bonus and 2021 LTIP performance update;
2024 bonus and LTIP proposals.
External advisers
WTW provided advice to the Committee throughout the year. WTW is a member of the Remuneration Consultants’ Group and, as
such, voluntarily operates under the Remuneration Consultants’ Group Code of Conduct. The Committee is satisfied that WTW are
providing robust and professional advice.
The fees in respect of 2023 paid to WTW (excluding VAT) are set out in the table:
Adviser
WTW
Appointed by
Services provided to the Committee
Fees for services provided
to the Committee1
Remuneration
Committee in 2020
Advice on market practice;
governance; reward consultancy
£72,750
Other services provided to the Company2
Reward and benefits consultancy;
provision of benchmark data; DRR review
Fees are determined on a time spent basis.
1.
2. WTW do not, to the Committee’s awareness, have any other connection with the Company or individual Directors.
Lynne Peacock
Chair of the Remuneration Committee
1 March 2024
Serco Group plc | Annual Report and Accounts 2023 | 138
Strategic Report
Corporate Governance
Financial Statements
Directors’ Report: Other Information
Share capital and Rights attaching to shares
The Company had 1,103,545,966 ordinary shares of 2 pence
each in issue as at 31 December 2023. Further details relating
to share capital can be found in note 31.
Without prejudice to any special rights previously conferred on
the holders of any existing shares or class of shares, any share
in the Company may be issued with such rights (including
preferred, deferred or other special rights) or such restrictions,
whether in regard to dividend, voting, return of capital or
otherwise as the Company may from time to time by ordinary
resolution determine (or, in the absence of any such
determination, as the Directors may determine).
The Company is not aware of any agreement between
shareholders that may result in restrictions on the transfer of
securities and/or voting rights.
Authorities to allot and pre-emption rights
The powers of the Directors to issue or buy back shares are
restricted to those approved at the Company’s Annual
General Meeting.
At the Annual General Meeting on 27 April 2023, pursuant to
Section 570 of the Companies Act 2006, shareholders
approved the disapplication of pre-emption rights in
connection with the issue of shares for cash up to 10% of the
existing issued share capital and an additional 10% (only to be
used in connection with an acquisition or specified capital
investment) and in connection with a follow-on offer to existing
shareholders not allocated shares under an issue made
pursuant to either of the authorities. These authorities will
expire at the conclusion of the 2024 Annual General Meeting.
Authority for the purchase of shares
At the Annual General Meeting on 27 April 2023, the Company
was granted authority by shareholders to purchase up to
115,617,039 ordinary shares (10% of the Company’s issued
ordinary share capital). This authority will expire at the conclusion
of the 2024 Annual General Meeting, at which a resolution will
be proposed for its renewal, or, if earlier, 30 June 2024.
As announced on 28 February 2023, the Company undertook
a programme to purchase its own shares with a value of up to
£90 million. During the year, the Company purchased a total of
58,956,118 shares with a nominal value of £1,179,122
(representing 5.34% of the Company’s issued share capital
(excluding those purchased and held in treasury) at a total cost
of £88.8 million. The Company cancelled all shares that were
purchased and held in treasury.
The Board has agreed a further share purchase up to the value
of £140 million which it is intended will be completed in 2024.
Employee share schemes
The details of the Company’s employee share schemes are set
out on page 119 in the Directors’ Remuneration Report and in
the Employee engagement section below.
The Company’s share schemes plan rules contain provisions in
relation to a change of control. Outstanding options and awards
may vest and become exercisable on a change of control of the
Company, in accordance with the rules of the plans.
Results, dividends and dividend waiver
The results for the year are set out in the Statement of
Comprehensive Income on page 156. Our dividend policy for
2024 remains to increase dividends and reduce the payout
ratio of underlying profit after taxation dividend cover to
approximately three over the medium term. The Directors
recommend the payment of a final dividend of 2.27 pence per
share for 2023 (2022: 1.92 pence), making a total ordinary
dividend of 3.41 pence per share (2022: 2.86 pence).
The recommended final dividend is subject to approval at the
AGM on 24 April 2024. The final dividend will be paid on 10
May 2024, with an ex-dividend date of 18 April 2024 and a
record date of 19 April 2024. The Serco Group plc 1998 Share
Ownership Trust, an employee benefit trust, which holds
11,351,967 shares in the Company as at 31 December 2023 in
connection with the operation of the Serco’s share plans, has
lodged standing instructions to waive dividends on shares held
by it that have not been allocated to employees. The total
amount of dividends waived during 2023 was £337,193.
Directors and Directors’ interests
The names of the Directors who served during the year can be
found in the attendance chart on page 102.
Directors’ interests in the shares of the Company are set out
on pages 136 and 137 in the Directors’ Remuneration Report.
None of the Directors had interests in shares of the Company
greater than 0.38% of the ordinary shares in issue. There
have been no changes to Directors’ interests in shares since
31 December 2023.
Branch offices
The Group operates through branches of subsidiary
companies in the following jurisdictions: Dubai, France, Italy,
Qatar, Ras Al Khaimah, Sharjah, and Switzerland.
Significant agreements that take effect, alter or
terminate upon a change of control
Given the business-to-government nature of many of the
services provided by the Company and its subsidiaries, many
agreements contain provisions entitling the other parties to
terminate them in the event of a change of control, including a
takeover of the Company. The following agreements are those
individual agreements which the Company considers to be
significant to the Group as a whole that contain provisions
giving the other party a specific right to terminate if the
Company is subject to a change of control.
There are no agreements between the Company and its
Directors or employees providing for compensation for loss of
office or employment that occurs because of a takeover bid.
No Director had a material interest in any contract of
significance in relation to Serco’s business at any time during
the year or at the date of this report.
Serco Group plc | Annual Report and Accounts 2023 | 139
Strategic Report
Corporate Governance
Financial Statements
Directors’ Report: Other Information continued
Material contracts
Clarence Correctional Centre: On 14 June 2017,
NorthernPathways Project Trust (of which Serco Australia Pty
Limited was a member at the time) entered into a project deed
with the Australian State of New South Wales to design,
construct and operate a new build prison named the New
Grafton Correctional Centre, the name of which has
subsequently been changed to Clarence Correctional Centre.
Also, on 14 June 2017, Serco Australia Pty Limited entered into
an operator sub-contract with NorthernPathways, pursuant to
which Serco was awarded the rights to operate the prison. The
prison entered operations on 1 July 2020, following
acceptance of the completed Clarence Correctional Centre by
the State (Commencement Date). The operator sub-contract
will run for 20 years from the Commencement Date. Both the
project deed and the operator subcontract contain change of
control provisions that provide that any change of control to an
unrelated third-party that has not been approved by the State
of New South Wales would be a major default. A major default
under either the project deed or operator sub-contract, if not
cured, could result in a termination of that contract.
Australian Immigration Services: On 11 December 2014,
Serco Australia Pty Limited entered into a contract with the
Commonwealth of Australia (acting through the Department of
Immigration and Border Protection) for the provision of detention
services at all onshore immigration facilities in Australia. The
contract has an initial five-year term, with two two-year
extension options. The first option was exercised by the client
in late 2019 and the second option was exercised in 2021,with
an original end date December 2023. In November 2022, the
client negotiated two further six month extension periods,
taking the potential end date to December 2024. The client
has since exercised this option and the anticipated end date of
the contract is now December 2024. In the event of a change in
control or ownership of Serco Australia Pty Limited, which in
the reasonable opinion of the Commonwealth adversely
affects the Company’s ability to perform the services, the
contract may be terminated by the Commonwealth.
Subcontract relating to the provision of ADF Health
Services by Bupa Health Services Pty (Bupa) to the
Commonwealth of Australia, Department of Defence
(NGHS Contract): On 4 February 2019, Serco Australia Pty
Limited entered into a Subcontract with Bupa for the provision
of national garrison health services to the Commonwealth of
Australia, Department of Defence. The contract had a services
commencement date of 1 July 2019, with an initial six-year
term. The NGHS Contract includes a change of control
provision that provides that a change of control of the ultimate
holding company, Serco Group plc, requires Bupa’s prior
written consent. If the change is as a result of market
transactions, then Bupa is to be notified as soon as possible
and consent sought after the event. On request, details of the
change and its impact on Serco Australia Pty Limited’s
obligations under the NGHS Contract are to be provided to
Bupa. Bupa may provide consent to the change subject to
conditions. If Bupa does not consent to the change of control,
Bupa may terminate the NGHS Contract for default.
Special Security Agreement: To bid and perform on certain
classified contracts concerning US national security interests,
Serco Inc. was required to mitigate its foreign ownership through
a Special Security Agreement (SSA) among the US Department of
Defense (DoD), Serco Inc., and Serco Group plc. The effective
date of the SSA is 7 October 2019. The DoD may terminate the
SSA in the event of the sale of Serco Inc. to an entity not under
Foreign Ownership, Control or Influence (FOCI).
CMS Eligibility Support Services: In July 2023, Serco Inc.
was awarded a follow-on contract with the United States of
America (acting through the Centers for Medicare and
Medicaid Services (CMS) for the provision of support for the
Exchanges implemented to provide affordable health
insurance and insurance affordability programmes. The
contract has an initial base term of one year, with three options
of one year each, and one final seven-month option. In the
event of a change in control or ownership of Serco Inc., which
in the reasonable opinion of the US Government adversely
affects the Company’s ability to perform the services, the
contract may be terminated by the US Government.
Anti-Terrorism/Force Protection (AT/FP) Ashore
Program Global Sustainment Contract: In February 2021,
Serco Inc. was awarded a contract with the United States of
America (acting through the Naval Facilities Engineering
Systems Command) to provide sustainment services for
electronic anti-terrorism and force protection systems at US
Navy installations around the world. The contract has an initial
base term of five years, with one option for an additional three
years. In the event of a change in control or ownership of Serco
Inc., which in the reasonable opinion of the US Government
adversely affects the Company’s ability to perform the services,
the contract may be terminated by the US Government.
Federal Emergency Management Agency (FEMA)
Recovery Directorate, Public Assistance Division
Technical Assistance Contracts IV (PA TAC IV): In
December 2017, Serco Inc. was awarded an indefinite-
delivery/indefinite-quantity (IDIQ) contract with the United
States of America (acting through the Federal Emergency
Management Agency) to provide professional and non-
professional services, in an advisory and assistance capacity, in
support of FEMA responses to major disasters and
emergencies. With a performance start date of January 2019,
the contract has an initial base term of one year, with four
options of one year each. In the event of a change in control or
ownership of Serco Inc., which in the reasonable opinion of the
US Government adversely affects the Company’s ability to
perform the services, the contract may be terminated by the
US Government.
Asylum Accommodation and Support Services Contract
(AASC): On 8 January 2019, Serco Limited entered into
contracts with the Secretary of State for the Home Department
(acting through its UK Home Office Visas and Immigration
department) for two AASC regions, being the North West of
England and the Midlands & East of England. Under AASC,
Serco is responsible for the provision of properties for initial
and dispersed accommodation requirements, for
transportation to and from properties, and for a range of other
services to support the welfare of asylum seekers. The AASC
contracts became operational on 1 September 2019. The
contracts are for a ten-year term. In the event of a change of
control or ownership of Serco Limited or Serco Group plc,
which in the reasonable opinion of the Authority adversely
affects Serco’s ability to perform the services, the contracts may
be terminated by the Authority.
Agreement relating to the Continued Procurement of
Marine Services (CPMS): On 11 November 2022, Serco
Limited entered into a contract with the Secretary of State for
Defence to continue to provide support services to the Royal
Navy (the CPMS Contract). The CPMS Contract commenced on
17 December 2022 with the current term of the contract
running until 31 March 2025 with an option for the Authority to
extend by a further six months to 30 September 2025.
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Corporate Governance
Financial Statements
Directors’ Report: Other Information continued
In the event of a change of ownership of Serco Limited or
Serco Group plc to what the Authority may consider an
“Unsuitable Third Party” (i.e. a legal person whose activities, in
the reasonable opinion of the Authority, pose a threat to national
security; whose activities are incompatible with operations,
activities, legal duties or other functions of the Authority; or who is
inappropriate because of specific information received by the
Authority from the Crown, the SFO or the CPMS about their
suitability), the contract may be terminated by the Authority.
In the event that there is a change of control of Serco Holdings
Limited without its entire shareholding in the VIVO JV first
being transferred to another member of the Serco Group or if
there is a change of control of Serco Group plc then, unless the
prior approval of the other shareholder in the VIVO JV is given,
the other shareholder in the VIVO JV is entitled to purchase the
VIVO JV shares and loans held by Serco Holdings Limited and
any other member of Serco Group plc at fair market value
determined by an expert.
Concession Agreement relating to the operation of
Merseyrail: Serco Holdings Limited is a 50% shareholder in
Merseyrail Services Holding Company Limited (the Merseyrail
JV Co). Serco Holdings Limited’s joint venture partner and the
other shareholder in the Merseyrail JV Co is Transport UK Group
Limited (following the acquisition of Abellio Transport Group
Limited by its management team and related restructuring).
The Merseyrail JV Co is the concessionaire for the Merseyrail
rail network under a concession agreement dated 23 May
2003 (the Merseyrail Concession Agreement) among
Merseytravel (the passenger transport executive responsible
for co-ordination of public transport in the Liverpool city
region), the Merseyrail JV Co and Merseyrail Electrics 2002
Limited (the Merseyrail Operating Co). The Merseyrail
Operating Co is a wholly-owned subsidiary of the Merseyrail JV
Co. The Merseyrail Concession Agreement expires in July
2028 with an option to extend to July 2033 by agreement of
the parties. In the event there is a change of control of Serco
Holdings Limited or Serco Group plc without the Authority’s
prior consent then the Merseyrail Concession Agreement may
be terminated by the Authority. In addition, there would be a
requirement under the terms of the JV agreement to consider
the representations of Transport UK Group Limited in relation
to the conduct of any such change of control.
Future Defence Infrastructure Services (FDIS) programme:
Serco Holdings Limited is a 50% shareholder in VIVO Defence
Services Limited (the VIVO JV). Serco Holdings Limited’s joint
venture partner and the other shareholder in the VIVO JV is a
UK subsidiary company of EQUANS SAS (EQUANS Holding UK
Limited) which is now part of the Bouygues Group (following its
acquisition of EQUANS from Engie). The VIVO JV performs
facilities management services pursuant to call-off contracts
procured by the UK Defence Infrastructure Organisation(DIO)
part of the UK Ministry of Defence (MoD) under a Crown
Commercial Services Framework Agreement for the provision of
Workplace Services (RM6089) (the CCS Framework) as part of the
Future Defence Infrastructure Services (FDIS) programme. On 14
June 2021, VIVO entered into two call-off contracts (one for the
Central Region and one for the South West Region) for Lot 3
contracts under the CCS Framework for a seven-year term (with
the possibility of extension for further periods of up to three years)
(the Lot 3 Contracts). The Lot 3 Contracts became operational on
1 February 2022. On 24 June 2021, VIVO entered into two
further call-off contracts (one for the South East and one for the
South West Region) for Regional Accommodation Maintenance
Services (RAMS) under Lot 2b for an initial seven-year term
(with the possibility of extension for further periods of up to
three years) (the Lot 2b Contacts). The Lot 2b Contracts
become operational on 1 March 2022. Under the terms of the
CCS Framework, in the event of a change of control of VIVO
without the prior approval of the MoD, the Lot 2b Contracts
and Lot 3 Contracts may be terminated by the MoD. In the
event that there is a change of control of Serco Holdings
Limited, it is required to transfer its entire shareholding in the
VIVO JV to Serco Group plc or another wholly-owned subsidiary
of Serco Group plc prior to such change of control.
Financing facilities
Revolving credit facility: The Company has a £350,000,000
revolving credit facility dated 18 November 2022 with a
syndicate of banks. The facility provides funds for general
corporate and working capital purposes and bonds to support
the Group’s business needs. The facility was undrawn as at 31
December 2023.
The facility agreement provides that, in the event of a change
of control of the Company, each lender may, within a certain
period, call for the prepayment of the amounts owed to it and
cancel its commitments under the facility.
US notes: At 31 December 2023, the Company had notes
outstanding under two US Private Placement Note Purchase
Agreements (the USPP Agreements) dated 13 May 2013 and 8
October 2020 respectively. The total amount of the notes
outstanding under the two USPP Agreements was
US$266,147,840 at 31 December 2023, with their maturities
between May 2024 and October 2032. Subsequent to the
balance sheet date, the Group issued a further
US$150,000,000 of USPP Notes. Further details can be found
in note 37 on page 219. Under the terms of all the USPP
Agreements, if a change of control of the Company occurs, it is
required to offer to prepay the entire principal amount of the
notes together with interest to the prepayment date but
without payment of any make-whole amount.
Annual General Meeting
The 2024 Annual General Meeting (AGM) of the Company
will be held at the Company’s offices at Enterprise House,
11 Bartley Wood Business Park, Bartley Way, Hook, Hampshire
RG27 9XB on Wednesday, 24 April 2024 at 11am. The Notice
of the AGM which sets out the resolutions to be proposed to
the meeting, together with an explanation of each, will be sent
to shareholders.
Employment policies
The Board is committed to maintaining a working environment
where employees 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, while subject to
Group-wide policies and principles.
Diversity
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 diversity, respect for human rights and equality of
opportunity regardless of gender, gender reassignment,
sexual orientation, age, marital status, disability, race, religion
or other beliefs and ethnic or national origin.
Serco Group plc | Annual Report and Accounts 2023 | 141
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Corporate Governance
Financial Statements
Directors’ Report: Other Information continued
The Group promotes diversity and inclusion so that every
employee is able to be successful. The Group gives full
consideration to applications for employment, career
development and promotion from persons of disability,
and offers employment when suitable opportunities arise.
Wherever practicable, adjustments will be made for persons
with a disability to continue with employment and training.
Human rights
We strive to live and manage our business by our Values,
behave with integrity and treat people with respect – within the
bounds of expected individual and corporate behaviour, with
regard for relevant laws and regulatory requirements,
sensitivity to local cultures, and respect for human rights.
We have zero tolerance for any activities that break any law
relating to human rights, either directly or indirectly, anywhere
in the world. Recognising all applicable modern slavery
legislation, we will not engage in any form of human trafficking
or use forced, bonded, illegal or child labour, nor knowingly
work with anyone who does. We consider international human
rights standards as a framework to assess, monitor, mitigate
and remedy any actual or potential adverse human rights
impacts that may affect our business. We provide guidance
and support to our employees to help them identify, manage
and respond to any risk or issue; and maintain confidential
reporting resources for anyone concerned about violations of
our Values, policies or Code of Conduct, while ensuring that
there is no need for them to fear the consequences of doing so.
Our commitment to human rights is defined within our
Business Conduct and Ethics Policy Statement, supporting
standards (including our Group Standard for Human Rights)
and related operating procedures (including our Human
Rights Decision Tree). Our human rights policies are guided
by international human rights principles encompassed in the
International Bill of Human Rights, the International Labour
Organization’s Declaration on Fundamental Principles and Rights
at Work, the United Nations Global Compact and the United
Nations Guiding Principles on Business and Human Rights.
Further information is available in our human rights
supplement on our website.
Employee engagement
The Group is proud of its record of managing employee
relations and believes 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 employment terms and conditions. Where
employees choose not to belong to a trade union, employee
communication forums such as works councils exist to ensure
involvement of employees within the business. The Group has
been proactive in providing employees with information on
matters of concern to them as employees and in taking their
views into account. Effective leadership and line management
are our principal means of engagement and employee feedback
is invited through Viewpoint (our employee engagement survey);
Speak Up (our global ethics helpline and investigation process);
Yammer (our internal social media platform); and Colleague
ConneXions (our approach to amplifying employee voice and
strengthening dialogue between the Board and employees).
These mechanisms ensure that employees’ views are
considered in decision-making and that they have a common
awareness of Group strategy, matters of concern to them and
the financial and economic factors affecting the performance
of the Company.
Participation by employees in the success of the Group is
encouraged by the availability of long-term incentive
arrangements for senior management, which effectively aligns
their interests with those of shareholders by requiring that
Company-level financial performance criteria are achieved as a
condition of vesting.
We have also continued to strengthen our global benefits
offerings and created further opportunities for colleagues to
share in the success of the Company. The Group offers
MyShareSave, which is an all-employee savings-linked share
option plan open to the majority of employees.
MyShareSave allows employees to enter into a savings
commitment of 36 monthly payments for a fixed amount of
between £5 and £150 per month, on completion of which the
options may, subject to leaver provisions, be exercised with the
savings used to buy shares at a discounted option price.
MyShareSave was launched in 2022 and options are granted
annually, with the exercise price set at up to a maximum of 20%
discount of the share price on the date of grant.
Further information is contained in the People section and in
the People Report which is available on our website.
Corporate responsibility
We have been committed to delivering and communicating
our position and performance across environmental, social and
governance (ESG) criteria for many years. We recognise the
deep strategic relevance of all that we do in those areas and
ESG factors are embedded in how we deliver our strategy,
defined and driven through our Impact Framework. Our
framework brings all our strategic ESG priorities together in
one model, structured around our key stakeholder groups. It is
considered in strategy development and firmly embedded in
how we manage our business, driven through the Serco
Management System with appropriate Board and Executive
oversight and dedicated leadership at both Group and
Divisional levels.
Board oversight and scrutiny of environmental, social and
certain governance matters (including anti-corruption and anti-
bribery, human rights, environmental approach, health and
safety and other employee matters) is embedded in our
corporate governance through the Corporate Responsibility
Committee. Oversight and scrutiny of other governance
matters is distributed between all Board Committees, with
certain matters reserved for the Board itself.
Further information can be found in the Our Impact section of
the Strategic Report on pages 49 to 69.
Political donations
Shareholder authority to make aggregate political donations
not exceeding £100,000 was obtained at the AGM on 27 April
2023. During the year, neither the Company nor any of its
subsidiaries made any political donations as defined by the
Companies Act 2006.
Within the US business there exists a Political Action
Committee (PAC), which is funded entirely by employees.
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.
Serco Group plc | Annual Report and Accounts 2023 | 142
Strategic Report
Corporate Governance
Financial Statements
Directors’ Report: Other Information continued
Going Concern and Viability Statement
The Company’s Viability Statement and Going Concern can be
found on pages 47 to 48 and 161 to 162 respectively.
Notifiable interests in share capital
At 31 December 2023, the Company had been notified under
Rule 5 of the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority of the following interests in
voting rights over the issued share capital of the Company:
No. of ordinary
shares
% of issued share
capital
BlackRock, Inc
FIL Limited
Slater Investments
Marathon Asset
Management Limited
101,415,227
72,630,028
60,908,863
56,974,446
9.16
6.58
5.00
5.16
Since 31 December 2023, the Company received the
following notifications:
– On 19 January 2024, FIL Limited notified that it had
reduced its interest to 52,243,203 representing 4.73% of
which 1.18% represents financial instruments with similar
economic effect).
– On 25 January 2024, Slater Investments notified that it had
reduced its interest to 54,352,261 representing 4.93%.
– On 2 February 2024, Marathon Asset Management Limited
notified that it had reduced its interest to 54,372,120
representing 4.93%.
Other information
Likely future developments in the Group are contained in the
Strategic Report on pages 20 to 25.
A summary of the Group’s treasury policies and objectives
relating to financial risk management, including exposure to
associated risks, is set out in note 29 on pages 199 to 204.
Details on how the Company has complied with section 172 of
the Companies Act 2006 can be found throughout the
Strategic and Directors’ Reports and on pages 88 to 92.
Details relating to post-balance sheet events are set out in
note 37 on page 219.
Details relating to underlying operating profit can be found on
page 79.
Approved by the Board of Directors and signed on its behalf by:
Nickesha Graham-Burrell
Group Company Secretary
1 March 2024
Serco Group plc | Annual Report and Accounts 2023 | 143
Strategic Report
Corporate Governance
Financial Statements
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
Parent Company financial statements for each financial year.
Under that law they are required to prepare the Group financial
statements in accordance with UK-adopted international
accounting standards and applicable law and have elected to
prepare the Parent Company financial statements in accordance
with UK accounting standards and applicable law, including FRS
101 Reduced Disclosure Framework.
Under company law, the Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and Parent
Company and of the Group’s profit or loss for that period. In
preparing each of the Group and Parent Company financial
statements, the Directors are required to:
–
select suitable accounting policies and then apply them
consistently;
– make judgements and estimates that are reasonable,
–
–
–
–
relevant, reliable and prudent;
for the Group financial statements, state whether they have
been prepared in accordance with UK-adopted international
accounting standards;
for the Parent Company financial statements, state whether
applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained
in the Parent Company financial statements;
assess the Group and Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern; and
use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to
cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Parent Company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on our
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule
(DTR) 4.1.16R, the financial statements will form part of the
annual financial report prepared under DTR 4.1.17R and 4.1.18R.
The auditor’s report on these financial statements provides no
assurance over whether the annual financial report has been
prepared in accordance with these requirements.
Responsibility statement of the Directors in respect of
the Annual Report and Accounts
We confirm that to the best of our knowledge:
–
–
the financial statements, prepared in accordance with the
applicable set of accounting standards, 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 Strategic Report includes a fair review of the
development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
Each of the persons who is a Director at the date of approval of
this report confirms that:
–
–
so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
they have taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s
auditors are aware of that information.
We consider the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
By order of the Board
1 March 2024
Mark Irwin
Group Chief Executive Group Chief Financial Officer
Nigel Crossley
Serco Group plc | Annual Report and Accounts 2023 | 144
Strategic Report
Corporate Governance
Financial Statements
Financial Statements
Contents
146 Independent Auditor’s Report
155 Consolidated Income Statement
156 Consolidated Statement of Comprehensive Income
157 Consolidated Statement of Changes in Equity
158 Consolidated Balance Sheet
160 Consolidated Cash Flow Statement
161 Notes to the Consolidated Financial Statements
220 Company Balance Sheet
221 Company Statement of Changes in Equity
222 Notes to the Company Financial Statements
226 Appendix: List of subsidiaries and related undertakings
229 Glossary
230 Shareholder Information
231 Useful Contacts
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Corporate Governance
Financial Statements
Independent Auditor’s Report
To the members of Serco Group plc
1 Our opinion is unmodified
We have audited the Group and Parent Company financial statements of Serco Group Plc. (“the Company”) for the year ended 31
December 2023 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the
Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Balance Sheet, Consolidated Cash
Flow Statement and the related notes, including the accounting policies in note 2 for the Group financial statements and the
accounting policies in note 38 for the Company financial statements.
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December
2023 and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
– the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the audit committee.
We were first appointed as auditor by the directors on 27 May 2016. The period of total uninterrupted engagement is for 8 financial
years ended 31 December 2023. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-
audit services prohibited by that standard were provided.
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team.
We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above,
together with our key audit procedures to address those matters and our findings from those procedures in order that the
Company’s members, as a body, may better understand the process by which we arrived at our audit opinion. These matters were
addressed, and our findings are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not
provide a separate opinion on these matters.
Revenue recognition - Revenue £4,873.8m (2022: £4,534.0m), and Contract Assets £296.6m (2022: £345.0m)
Refer to page 109 (Audit Committee Report), pages 163 to 165 (accounting policy), pages 171 to 172 (key sources of estimation
uncertainty), pages 181 to 182 (revenue from contracts with customers note in the financial statements), pages 193 to 194 (contract
assets, trade and other receivables note in the financial statements) and page 198 (provisions note in the financial statements)
The risk
Accounting application
The many and sometimes unique contractual arrangements that underpin the measurement and recognition of revenue by the
group can be complex, particularly in relation to variable revenue, with judgement involved in the assessment of current and future
financial performance. The key judgements impacting the recognition of revenue and resulting operating profit include:
– Interpretations of terms and conditions in relation to the required service obligations in accordance with contractual
arrangements;
– The allocation of revenue and costs to performance obligations where multiple deliverables exist;
– Assessment of stage of completion and cost to complete, where percentage completion accounting is used;
– Consideration of the Group’s performance against contractual obligations and the impact on revenue and costs of delivery; and
– The recognition and recoverability assessments of contract related assets (accruals).
Professional standards require us to make a rebuttable presumption that the fraud risk associated with revenue recognition is a
significant risk. The potential for incentive/pressures on management to achieve bonus targets and/or market consensus increase
the risk of fraudulent revenue recognition. The opportunity is considered to apply to the group’s contracts with customers and we
have identified a fraud risk over revenue recognition.
Serco Group plc | Annual Report and Accounts 2023 | 146
Strategic Report
Corporate Governance
Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
Our response
We performed the tests below rather than seeking to rely on any of the group's controls because the contractual arrangements that
underpin the measurement and recognition of revenue and onerous contract provisions by the group can be complex, with
significant judgement involved in the assessment of current and future financial performance. This meant that detailed testing is
inherently the most effective means of obtaining audit evidence.
Our audit procedures included:
Contracts were selected for substantive audit procedures based on qualitative factors, such as commercial complexity, and
quantitative factors, such as financial significance and profitability, that we considered to be indicative of risk. Our audit testing for
the contracts selected included the following:
Assessing policy application
We inspected each of Serco’s contracts selected for substantive procedures with customers to identify the key contractual terms
relevant to assess the method of revenue recognition to determine whether it was in accordance with the Group’s accounting policy
and relevant accounting standards, including the appropriate recognition of revenue as the performance obligation is satisfied on
service contracts.
Accounting analysis
We inspected and challenged accounting papers prepared by the Group to explain the positions taken in respect of key contract
judgements including contract modifications. We also challenged whether it is highly probable that the variable revenue recognised
will not be reversed in future periods as required by the application of the revenue constraint in accordance with the Group’s
accounting policy and relevant accounting standards.
Tests of details
To assess whether revenue was recognised appropriately in accordance with the Group’s accounting policy and relevant accounting
standards, for each contract selected for substantive procedures:
– we agreed a sample of revenue to documents such as invoices or purchase orders, or customer agreements for the work
performed, as well as cash receipts;
– we inspected a sample of customer contracts to identify any contractual KPI obligations and assessed the contract’s operational
performance against those obligations; and
– we inspected a sample of customer contracts to identify contractual variations and claims and where these arose, obtained
evidence of correspondence with customers and third parties.
In addition, we undertook additional data analytic procedures over the UK & Europe divisional revenue in relation to performance
obligations satisfied over time (which represents 49% of group revenue) in order to identify any unexpected account pairings in
respect of revenue and revenue related transactions. For a selection of these unexpected pairings we obtained audit evidence to
support the postings made and agree them to supporting documentation.
Site visits
– For all divisions the Group Audit team and relevant component teams attended a selection of monthly Divisional and Business
Unit Performance Reviews used to assess business performance by the Group’s management in order to inform our assessment of
operational and financial performance of the contracts; and
– The Group Audit team and each of the component teams performed a selection of physical site visits and enquired with contract
and Business Unit management teams as to matters related to operational and financial performance in order to inform our
assessment of operational and financial performance of the contracts.
For contract related assets being revenue accruals, our procedures included:
Assessing application
We assessed whether contract related assets in the form of revenue accruals had been recognised in accordance with the Group’s
accounting policy and relevant accounting standards.
Our sector experience
We assessed the contractual terms and conditions to identify the key obligations of the contract and compared these with common
industry risk factors to inform our challenge of completeness of forecast costs.
Assessing transparency
We assessed whether the Group’s disclosures in the financial statements provided sufficient detail regarding the revenue and
contract asset (accruals) recognition policies and the key judgements applied
Serco Group plc | Annual Report and Accounts 2023 | 147
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Corporate Governance
Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
Our findings
We found no material misstatements in the group’s application of its revenue and contract asset recognition accounting policies
(2022: no material misstatements).
Recoverability of group goodwill - Goodwill: £906.7m (2022: £945.0m);
Refer to page 109 (Audit Committee Report), pages 166 and 167 (Goodwill accounting policy), page 172 (key sources of estimation
uncertainty relating to impairment of Goodwill), pages 188 to 190 (Goodwill note in the consolidated financial statements).
The risk
The carrying value of Goodwill in the group’s financial statements is significant and at risk of irrecoverability due to the inherent
estimation uncertainty in valuing the recoverable amounts of the Group’s cash generating units.
The estimated recoverable amount of these balances through value in use calculations is subjective due to the inherent uncertainty
involved in forecasting and discounting future cash flows, their key assumptions being discount rates, determining a terminal growth
rate and for Asia Pacific, win rates for new and existing business, and assumptions regarding the Australian Immigration re-bid.
This year, the CGU which was most sensitive to a deterioration in the division’s cash flow projections or an increase in discount rate
was the Asia Pacific CGU (2022: America, Asia Pacific and Middle East CGUs).
As at year end 31 December 2023, the Asia Pacific CGU was estimated to have headroom of £110.0m (2022: £281.0m).
The effect of these matters is that, as part of our risk assessment for audit planning purposes, we determined that the value in use of
the relevant CGUs had a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole, and possibly many times that amount. In conducting our final audit work, we
concluded that reasonably possible changes to the value in use of the UKE, Americas and Middle East CGUs would not be expected
to result in an impairment. The financial statements (Note 17) disclose the sensitivity for goodwill estimated by the Group.
Our response
We performed the tests below rather than seeking to rely on any of the group's controls because the nature of the balances is such
that detailed testing is inherently the most effective means of obtaining audit evidence.
Our audit procedures over goodwill included:
Benchmarking assumptions
With the assistance of our valuation specialists, we challenged the terminal growth rate and discount rate used in the value in use
calculation by comparing the Group’s assumptions to externally derived market data. We challenged the implied cumulative annual
growth rate within the five year forecasts and assessed this against past performance, and the terminal growth rate. We challenged
forecast assumptions around new contract wins or rebids, contract attrition, as well as margin assumptions on existing contracts
through our component teams’ knowledge of the entity and experience of the industry in which it operates.
Historical comparisons
We compared the actual cashflows for the past 5 years to historic forecasts to assess the historical accuracy of forecasts used in
impairment models. Due to the performance of the Asia Pacific business during 2023 we also challenged the directors’ win rates
assumption for the Asia Pacific business by comparing them to recent and longer-term average win rates for both new wins and
rebids.
Sensitivity analysis
We tested the sensitivity of impairment calculations to changes in key underlying assumptions, which were the short term cash-flow
projections, the discount rate and terminal growth rates. We tested the sensitivity of the impairment calculation to changes in key
underlying assumptions for the Asia Pacific CGU, being the projected win probabilities for new business and rebids and on key
contracts (the Australian Immigration contract). We assessed the impact on headroom of the reduced cashflows in what we
considered combined plausible downside scenarios.
Comparing valuations
We considered whether the forecast cash flow assumptions used in the value in use calculation were consistent with the assumptions
used to calculate the expected loss on onerous contract provisions, the recognition of deferred tax assets and the Directors’
assessment of going concern and viability.
We compared the results of discounted cash flows against the Group’s market capitalisation, after adjusting for its net debt to assess
the reasonableness of the value in use calculations.
Assessing transparency
We also evaluated the adequacy of the Group’s disclosures related to the estimation uncertainty, judgements made and
assumptions over the recoverability of goodwill and the level of detail included in the disclosures. We challenged Management on
the range of sensitivities considered to ensure that these reflected the key risks particularly in respect to the Asia Pacific CGU, with
regards to both win rate assumptions being aligned to the longer-term five-year average and the assumptions regarding the
Immigration rebid and timing thereof to ensure overall the disclosure reflects the risks inherent in the valuation of goodwill.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
Our findings:
We found the Group’s assessment that there is no impairment of the carrying amount of Group’s goodwill to be optimistic (2022:
balanced) and the related goodwill disclosures including those addressing the sensitivities considered to be proportionate (2022:
proportionate).
Recoverability of parent’s investment in subsidiary - Investment in Subsidiary £2,052.5m (2022: £2,052.5m)
Refer to page 222 (Investments held as fixed assets note in the Company financial statements) and page 222 (Fixed Asset
Investments accounting policy in the Company financial statements).
The risk
The carrying amount of the parent Company’s investments in subsidiaries represents 79% (2022: 77%) of the Company’s total assets.
Their recoverability is not at a high risk of significant misstatement or subject to significant judgement. However, due to their
materiality in the context of the parent Company financial statements, this is considered to be the area that had the greatest effect
on our overall parent Company audit.
Our response
We performed the tests below rather than seeking to rely on any of the group's controls because the nature of the balances is such
that detailed testing is inherently the most effective means of obtaining audit evidence.
Our audit procedures over the investment in subsidiary included those performed in the Recoverability of group Goodwill KAM
above. Additionally, substantive audit procedures over recoverability of the Parent company’s investment in subsidiary included:
– Comparing the carrying amount of the investment with the subsidiary’s draft balance sheet to identify whether its net assets, being
an approximation of the minimum recoverable amount, are in excess of the carrying amount and assessing whether the
subsidiary’s group has historically been profit-making.
– We compared the carrying amount of the investment to the market capitalisation for the Group (after adjusting for net debt).
Our findings:
We found the Group’s assessment that there is no impairment of parent company’s investment in subsidiary to be balanced (2022:
balanced)
Changes to our Key Audit Matters:
In the prior period we included within our revenue recognition key audit matter a focus on the margin recognition and Group’s
Onerous Contract Provisions (OCP) as in the prior period we determined a significant level of management judgement. However,
we have re-assessed this for our 2023 audit and whilst the margin recognition and OCP remains a significant risk area for our audit it
is not separately identified in our report this year.
In previous periods we have reported our Recoverability of Group Goodwill and Recoverability of Parent’s Investment in Subsidiary
as a single KAM. However, we have presented them separately for our 2023 audit.
3 Our application of materiality and an overview of the scope of our audit
The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement.
Materiality for the Group financial statements as a whole was set at £9m (2022: £9m), determined with reference to a benchmark of
group profit before tax, of which it represents 3.6% (2022: 4.57%).
Materiality for the parent company financial statements as a whole was set at £4.1m (2022: £8.1m), which is the component
materiality for the parent company determined by the group audit engagement team. This is lower than the materiality we would
otherwise have determined with reference to parent company total assets, of which it represents 0.2% (2022: 0.3%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in
individual account balances add up to a material amount across the financial statements as a whole.
Performance materiality was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to £6.75m
(2022: £6.75m) for the group and £3.1m (2022: £6.0m) for the parent company. We applied this percentage in our determination of
performance materiality because we did not identify any factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.45m (2022:
£0.45m), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Scope of our audit
We have performed risk assessment and planning procedures to determine which of the Group’s components are likely to include
risks of material misstatement to the Group financial statements. Of the Group’s 7 (2022: 6) reporting components, we subjected 6
(2022: 5) to full scope audits for Group purposes and 0 (2022: 1) to specific risk-focussed procedures over a number of accounts
such as revenue and onerous contract provision. The latter was not financially significant enough in prior year to require a full scope
audit for group purposes but did present specific individual risks that needed to address in the prior year.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
The components within the scope of our work accounted for the following percentages of the group’s results:
Full scope audits for Group purposes 2023
Full scope audits for Group purposes 2022
Specified risk-focussed audit procedures 2022
Total 2022
Number of
components
Group revenue
Group profit before
tax
Group total assets
6
5
1
6
100 %
95 %
5 %
100 %
100 %
91 %
9 %
100 %
100 %
97 %
3 %
100 %
The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed
above, specifying minimum procedures to perform in the audit of Journals and the information to be reported back. The Group
team determined component materiality levels, which ranged from £3.2m to £7.0m (2022: £3.2m to £7.0m) having regard to the mix
of size and risk profile of the Group across the components. The work on 4 of the 7 components (2022: 4 of the 6 components) was
performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team.
The Group team visited all (2022: all) component locations to assess the audit risk and strategy, and to perform site visits. Video and
telephone conference meetings were also held with these component auditors. These visits and meetings involved explanations of
Group audit instructions, involvement in planning audit procedures, discussing progress updates and emerging findings, reviewing
outcomes of testing performed and discussing audit findings. The Group audit team inspected the audit documentation of the
component audits through various stages of their audits. The Group team also attended component virtual interim and closing
meetings. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work
required by the Group team was then performed by the component auditor, or where neccessary the group auditor.
The Group operates a shared service centre in India, the outputs of which are included in the financial information of the reporting
components it services and therefore it is not a separate reporting component. The shared service centre is subject to specified risk-
focused audit procedures by the group audit team, principally the testing of transaction processing controls.
The Group audit team performed testing of IT Systems and certain controls in the shared service centre on behalf of certain
components and communicated the results of these procedures to component teams, where relevant.
The scope of the audit work performed was predominantly substantive as we only placed limited reliance upon the Group’s internal
control over financial reporting.
4 The impact of climate change on our audit
In planning our audit, we considered the potential impacts of climate change on the Group’s business and its financial statements.
The Group has made a commitment to be Net Zero across Scope 1, 2 and 3 emissions and to support its customers to meeting this
target by 2050. Further information has been provided in the Group’s Strategic Report on page 50. The Group’s climate related
disclosures as recommended by the Task Force on Climate Related Financial Disclosure (TCFD) are included on pages 70 to 75 of
the Annual Report.
As part of our audit, we have made enquiries of the directors to understand the extent of the potential impact of climate change risk
on the Group’s financial statements. We have performed a risk assessment of how climate risks facing the Group and the Group’s
strategy to mitigate these risks may affect the financial statements and our audit. In addition, we also held discussions with our own
climate change professionals to challenge our risk assessment.
Taking into account our risk assessment procedures, the nature and duration of the group’s contracts and on the basis of our risk
assessment we have determined that the climate change risks to the Group’s business and strategy do not have a significant impact
on the 2023 financial statements or our key audit matters. There was therefore no significant impact from climate change on our key
audit matters.
We have also read the climate change related information in the front half of the Annual Report and considered consistency with the
financial statements and our audit knowledge.
5 Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded that the Group’s and the Company’s financial position means that
this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its
business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue
operations over the going concern period. The risks that we considered most likely to adversely affect the Group’s and Company’s
available financial resources and metrics relevant to debt covenants over this period were:
– Significant deterioration of contractual performance impacting on profit margins across the Group;
– Significant deterioration in the Group’s ability to win new contracts and successfully retain existing contracts which are being rebid
(with greater focus this year on the Asia Pacific component); and
– Significant deterioration of cash collection, leading to a build-up of working capital.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
We also considered less predictable but realistic second order impacts, such as the possible impact of major contractual or other
claims which could result in a rapid reduction of available financial resources.
We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going concern period by
assessing the Directors’ sensitivities over the level of available financial resources and covenant thresholds indicated by the Group’s
financial forecasts taking account of severe, but plausible adverse effects that could arise from these risks individually and collectively.
Our procedures also included:
– Critically assessing the cashflow forecasts and the appropriateness of the key assumptions in the base case and downside
scenarios relevant to liquidity and covenant metrics, in particular in relation to profitability of existing contracts, and win rates
assumed for future pipeline, by comparing to the group’s approved budgets, growth and economic forecasts and our knowledge
of the entity and the sector in which it operates.
– Challenging whether the break-points in the Group’s reverse-stress test analysis were not plausible to occur by comparing these
scenarios with the Group’s previous experience, assessing the working capital assumptions by comparing the forecasts to actual
recent experience and existing supplier/customer arrangements.
– Assessing the conversion of past budgets to actual results to assess the ability of the Group to prepare forecasts and budget accurately.
– We inspected the confirmation from the lender of the level of committed financing, and the associated covenant requirements.
– We made inquiries to understand the group’s insurance arrangements in respect of certain items and obtained copies of key
insurance policies to corroborate the assertions made.
We considered whether the going concern disclosure in note 2 to the financial statements gives a full and accurate description of
the Directors’ assessment of going concern, including the identified risks, dependencies, and related sensitivities.
Our conclusions based on this work:
– we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
appropriate;
– we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on the Group’s or Company's ability to continue as a going
concern for the going concern period;
– we have nothing material to add or draw attention to in relation to the directors’ statement in note 2 to the financial statements on
the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for the going concern period, and we found the going concern disclosure in note 2 to be acceptable; and
– the related statement under the Listing Rules set out on pages 161 to 162 is materially consistent with the financial statements and
our audit knowledge.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the
Company will continue in operation.
6 Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
– Enquiring of directors, the audit committee, internal audit, internal legal counsel, external legal counsel and the Group’s Ethics &
Compliance function and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and
detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have
knowledge of any actual, suspected or alleged fraud.
– Reading Board minutes including minutes of board committees such as the audit committee and risk committee.
– Considering remuneration incentive schemes and performance targets for directors and management including the Revenue,
Underlying Operating Profit and Free Cash Flow / Days Sales Outstanding targets for management remuneration.
– Using analytical procedures to identify any unusual or unexpected relationships.
– Using our own forensic specialists to assist us in identifying fraud risks based on discussions of the circumstances of the Group.
This included attending the Risk Assessment and Planning Discussion, with the engagement partner and engagement key team
members, and assisting with designing relevant audit procedures to respond to the identified fraud risks.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the
audit. This included communication from the group to component audit teams of relevant fraud risks identified at the Group level
and request to all component audit teams to report to the Group audit team any instances of fraud that could give rise to a material
misstatement at group.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of
the control environment, we perform procedures to address the risk of management override of controls and the risk of fraudulent
revenue recognition, in particular:
– the risk that variable revenue is inappropriately recognised,
– the risk that Group and component management may be in a position to make inappropriate accounting entries, and
– the risk of bias in accounting estimates and judgements such as assessing whether long-term contracts are onerous, determining
whether provisions for disputes and litigation are adequate and the assumptions and data used when testing for impairment
of goodwill.
We did not identify any additional fraud risks.
In determining the audit procedures, we took into account the results of our evaluation and testing of the operating effectiveness of
some of the Group-wide fraud risk management controls.
We also performed procedures including:
– Identifying journal entries and other adjustments to test for all components and at the Group consolidation level based on risk
criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance
management and those posted to unexpected account combinations.
– Evaluated the business purpose of significant unusual transactions.
– Assessing whether the judgements made in making significant accounting estimates are indicative of a potential bias.
We discussed with the audit committee other matters related to actual or suspected fraud, for which disclosure is not necessary and
considered any implications for our audit.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements
from our general commercial and sector experience and through discussion with the directors and other management (as required
by auditing standards), and from inspection of certain of the Group’s regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the
entity’s procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance
throughout the audit. This included communication from the group audit team to all component audit teams of relevant laws and
regulations identified at the Group level, and a request for component auditors to report to the group audit team any instances of
non-compliance with laws and regulations that could give rise to a material misstatement at group.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting
legislation (including related Companies legislation), distributable profits legislation, pensions legislation and taxation legislation
and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the
loss of the Group’s license to operate. We identified the following areas as those most likely to have such an effect:
– health and safety, given the front-line nature of many of the Group’s operations,
– anti-bribery and corruption, recognising the Governmental nature of many of the Group’s customers,
– employment law, due to the significant number of employees the Group employs,
– Data protection laws, such as the General Data Protection Regulations in Europe due to the number of employees and the
services performed for customers in Europe, and
– Single source procurement regulations in the UK, due to the contracting environment.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the
directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of
operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material
misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance
with all laws and regulations.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
7 We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information as described above:
– we have not identified material misstatements in the strategic report and the directors’ report;
– in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
– in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
– the directors’ confirmation within the Risk Management Report on pages 32 and 33 that they have carried out a robust assessment
of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance,
solvency and liquidity;
– the Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being
managed and mitigated; and
– the directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement, set out on pages 47 to 48 under the Listing Rules.
Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial
statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit.
As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a
guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and
our audit knowledge:
– the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to assess the Group’s position and performance,
business model and strategy;
– the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements, and how these issues were addressed; and
– the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal control
systems.
We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect.
8 We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required 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.
We have nothing to report in these respects.
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Financial Statements
Independent Auditor’s Report continued
To the members of Serco Group plc
9 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 144, the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group
and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using
the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared under Disclosure Guidance
and Transparency Rule 4.1.17R and 4.1.18R. This auditor’s report provides no assurance over whether the annual financial report has
been prepared in accordance with those requirements
10 The purpose of our audit work and to whom we owe our responsibilities
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 and the terms of our engagement by the Company. 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 the further matters we are required
to state to them in accordance with the terms agreed with the Company, 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.
Juliette Lowes (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
1 March 2024
Serco Group plc | Annual Report and Accounts 2023 | 154
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Corporate Governance
Financial Statements
Consolidated Income Statement
For the year ended 31 December 2023
Non
Underlying
items
Underlying
Reported
Underlying
For the year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses
Exceptional operating items
Amortisation and impairment of intangibles
arising on acquisition
Share of results of joint ventures and associates,
net of interest and tax
Non
Underlying
items
2022
£m
—
4.2
4.2
Reported
2022
£m
4,534.0
(4,040.5)
493.5
2023
2023
2023
Note
£m
8 4,873.8
(4,378.3)
495.5
(275.8)
£m
—
—
—
—
£m
4,873.8
(4,378.3)
2022
£m
4,534.0
(4,044.7)
495.5
489.3
(275.8)
(264.3)
—
(264.3)
9
18
—
—
53.8
53.8
(30.9)
(30.9)
—
—
(2.4)
(2.4)
(21.6)
(21.6)
6
29.0
—
29.0
12.0
—
12.0
Operating profit / (loss)
10
248.7
22.9
271.6
237.0
(19.8)
217.2
Investment revenue
Finance costs
Net finance costs
Profit before tax
Tax (charge)/credit
Profit for the period
Attributable to:
12
13
7.0
(31.6)
(24.6)
224.1
14
(50.8)
173.3
—
—
—
22.9
6.2
29.1
7.0
4.7
(31.6)
(25.1)
(24.6)
(20.4)
—
—
—
4.7
(25.1)
(20.4)
247.0
216.6
(19.8)
196.8
(44.6)
(47.9)
6.1
(41.8)
202.4
168.7
(13.7)
155.0
Equity attributable to owners of the Company
173.3
29.1
202.4
169.1
(13.7)
155.4
Non-controlling interest
Earnings per share (EPS)
Basic EPS
Diluted EPS
—
—
—
(0.4)
—
(0.4)
16
16
15.61p
15.36p
18.23p
14.18p
17.93p
13.92p
13.03p
12.79p
The accompanying notes form an integral part of the financial statements.
Serco Group plc | Annual Report and Accounts 2023 | 155
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Corporate Governance
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Profit for the year
Other comprehensive income/(loss) for the period:
Note
2023
£m
202.4
2022
£m
155.0
Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income in joint ventures and associates
Remeasurements of post-employment benefit obligations1
Actuarial loss on reimbursable rights1
Income tax relating to components of other comprehensive income that will not be
reclassified subsequently to profit or loss
6
30
30
14
Items that may be reclassified subsequently to profit or loss:
Net exchange (loss)/gain on translation of foreign operations2
Fair value (loss)/gain on cash flow hedges during the year2
Tax relating to items that may be reclassified2
Total other comprehensive loss for the year
Total comprehensive income for the year
Attributable to:
Equity owners of the Company
Non-controlling interest
1
2
Recorded in retirement benefit obligations reserve in the Consolidated Statement of Changes in Equity.
Recorded in hedging and translation reserve in the Consolidated Statement of Changes in Equity.
The accompanying notes form an integral part of the financial statements.
1.1
(29.1)
(3.0)
6.1
(38.4)
(0.8)
0.2
(63.9)
2.9
(93.8)
(12.3)
27.1
60.2
0.6
(0.1)
(15.4)
138.5
139.6
138.4
0.1
139.8
(0.2)
Serco Group plc | Annual Report and Accounts 2023 | 156
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Corporate Governance
Financial Statements
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Share capital
Share premium
account
Retained
earnings Other Reserves
At 1 January 2022
Total comprehensive income/(loss)
for the year
Dividends paid
Shares purchased and held in own
share reserve
Shares purchased and held in
Treasury
Shares transferred to award holders
on exercise of share awards
Expense in relation to share-based
payments
Tax credit on items taken directly to
equity
£m
24.4
£m
463.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
At 1 January 2023
24.4
463.1
Total comprehensive income/(loss)
for the year
Dividends paid
Shares purchased and held in own
share reserve
Shares purchased and held in
Treasury until cancelled
Cancellation of shares held in
Treasury
Change in non-controlling interests
Expense in relation to share-based
payments
Tax credit on items taken directly to
equity
—
—
—
—
(2.3)
—
—
—
—
—
—
—
—
—
—
—
£m
542.8
158.1
(30.3)
—
—
—
—
—
670.6
203.4
(33.7)
—
—
(180.0)
(1.2)
—
—
Total
shareholders’
equity
£m
1,006.7
139.8
(30.3)
(15.9)
£m
(23.6)
(18.3)
—
(15.9)
(91.2)
(91.2)
0.1
15.6
3.4
0.1
15.6
3.4
(129.9)
1,028.2
(65.0)
—
(22.9)
(88.8)
182.3
—
13.5
0.5
138.4
(33.7)
(22.9)
(88.8)
—
(1.2)
13.5
0.5
Non-controlling
interest
£m
1.7
(0.2)
—
—
—
—
—
—
1.5
0.1
(1.7)
—
—
—
(0.2)
—
—
At 31 December 2023
22.1
463.1
659.1
(110.3)
1,034.0
(0.3)
1. An analysis of other reserves is presented as part of note 33 Reserves.
The accompanying notes form an integral part of the financial statements.
Serco Group plc | Annual Report and Accounts 2023 | 157
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Corporate Governance
Financial Statements
Consolidated Balance Sheet
For the year ended 31 December 2023
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Interests in joint ventures and associates
Loan to joint ventures
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Retirement benefit assets
Current assets
Inventories
Contract assets
Trade and other receivables
Loan to joint ventures
Current tax assets
Cash and cash equivalents
Derivative financial instruments
Total assets
Current liabilities
Contract liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Obligations under leases
Loans
Non-current liabilities
Contract liabilities
Trade and other payables
Derivative financial instruments
Deferred tax liabilities
Provisions
Obligations under leases
Loans
Retirement benefit obligations
Total liabilities
Net assets
Serco Group plc | Annual Report and Accounts 2023 | 158
Note
17
18
19
19
6
6
21
29
15
30
20
21
21
6
22
29
23
23
29
26
24
25
23
23
29
15
26
24
25
30
At 31 December At 31 December
2023
£m
906.7
115.6
44.3
440.9
32.1
—
14.8
—
235.7
37.4
2022
£m
945.0
158.0
48.1
434.2
23.3
10.0
16.1
0.3
244.2
57.0
1,827.5
1,936.2
24.1
296.6
329.0
10.0
23.8
94.4
4.9
22.4
345.0
374.6
—
11.5
57.2
3.3
782.8
2,610.3
814.0
2,750.2
(35.8)
(558.0)
(1.7)
(18.4)
(92.9)
(140.0)
(51.0)
(60.5)
(622.8)
(1.1)
(16.0)
(134.9)
(144.4)
(44.5)
(897.8)
(1,024.2)
(59.3)
(9.2)
(0.2)
(50.9)
(77.4)
(313.7)
(155.2)
(12.9)
(678.8)
(36.3)
(6.5)
—
(53.8)
(73.5)
(301.6)
(218.4)
(6.2)
(696.3)
(1,576.6)
(1,720.5)
1,033.7
1,029.7
Strategic Report
Corporate Governance
Financial Statements
Consolidated Balance Sheet continued
Equity
Share capital
Share premium account
Retained earnings
Other reserves
Equity attributable to owners of the Company
Non-controlling interest
Total equity
Note
31
32
33
At 31 December At 31 December
2023
£m
2022
£m
22.1
463.1
659.1
(110.3)
1,034.0
(0.3)
24.4
463.1
670.6
(129.9)
1,028.2
1.5
1,033.7
1,029.7
The accompanying notes form an integral part of the financial statements.
The financial statements were approved by the Board of Directors on 1 March 2024 and signed on its behalf by:
Mark Irwin
Nigel Crossley
Group Chief Executive
Group Chief Financial Officer
Serco Group plc | Annual Report and Accounts 2023 | 159
Strategic Report
Corporate Governance
Financial Statements
Consolidated Cash Flow Statement
For the year ended 31 December 2023
Net cash inflow from underlying operating activities
Non-underlying items
Net cash inflow from operating activities
Investing activities
Interest received
Dividends received from joint ventures and associates
Loan to pension scheme relating to collateral calls
Repayment from pension scheme of loan relating to collateral calls
Loan to joint venture
Purchase of other intangible assets
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of intangible assets
Proceeds from disposal of subsidiary
Acquisition of subsidiaries, net of cash acquired
Other investing activities
Net cash outflow from investing activities
Financing activities
Interest paid
Capitalised finance costs paid
Advances of loans
Repayments of loans
Capital element of lease repayments
Cash movements on hedging instruments
Dividends paid to shareholders
Dividends paid to non-controlling interests
Purchase of Own Shares for Employee Share Ownership Trust
Own shares repurchased
Proceeds received from exercise of share options
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Net exchange (loss)/gain
Cash and cash equivalents at end of year
The accompanying notes form an integral part of the financial statements.
Note
36
6
18
19
7
25
25
25
25
22
2023
£m
383.8
9.3
393.1
3.9
21.1
—
—
—
(8.8)
(15.9)
1.4
1.3
0.2
(7.7)
(0.9)
(5.4)
(30.4)
—
—
(44.5)
(124.4)
(1.5)
(33.7)
(1.7)
(22.9)
(88.8)
—
(347.9)
39.8
57.2
(2.6)
94.4
2022
£m
330.1
(2.9)
327.2
1.9
9.1
(60.0)
60.0
(10.0)
(7.0)
(12.4)
0.7
—
—
(19.2)
1.6
(35.3)
(24.4)
(2.6)
205.0
(354.3)
(120.5)
(2.7)
(30.3)
—
(15.9)
(91.2)
0.1
(436.8)
(144.9)
198.4
3.7
57.2
Serco Group plc | Annual Report and Accounts 2023 | 160
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements
1. General information
Serco Group plc (the Company) 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 comprise the Company, its subsidiaries and its interest in joint ventures (together referred
to as the Group) and are presented in pounds Sterling because this is the currency of the primary economic environment in which
Serco operates. All amounts have been rounded to the nearest one hundred thousand pounds and foreign operations are included
in accordance with the policies set out in note 2.
2. Material accounting policies
Basis of preparation
The Consolidated Financial Statements on pages 155 to 219 have been prepared in accordance with UK-adopted International
Accounting Standards (IAS), UK-adopted International Financial Reporting Standards (IFRS) and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The financial statements have been prepared on the historical cost basis, except for the following which are measured at fair value:
– certain financial assets and liabilities (including derivative instruments)
– retirement benefit obligations (plan assets and liabilities)
– share-based payments
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The following principal accounting policies adopted have been applied consistently in the current and preceding financial year
except as stated below.
Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company
up to 31 December each year. Control is achieved when the Company:
(i) has power over the investee;
(ii) is exposed, or has rights to variable returns from its involvement with the investee; and
(iii) has the ability to use its power to affect the returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
The results of subsidiaries 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 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 interest represents the portion of profits or losses and net assets in subsidiaries that are not held by the Group and
are presented within equity in the Consolidated Balance Sheet, separate from equity of shareholders of Serco Group plc.
Going concern
In assessing the basis of preparation of the financial statements for the year ended 31 December 2023, the Directors have
considered the principles of the Financial Reporting Council’s ‘Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting, 2014’; particularly in assessing the applicability of the going concern basis, the review period and
disclosures. The period of assessment is considered to be at least 12 months from the date of approval of these financial statements.
At 31 December 2023, the Group’s principal debt facilities comprised a £350.0m revolving credit facility maturing in November
2027 (of which £nil was drawn), and £208.8m of US private placement notes, giving £558.8m of committed credit facilities and
committed headroom of £444.4m, being the undrawn revolving credit facility plus cash of £94.4m. The principal financial covenant
ratios are consistent across the US Private Placement loan notes and revolving credit facility and are outlined on page 85. As at 31
December 2023, the Group’s primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below the Group’s
target range of 1x to 2x at 0.50x.
The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well
as the potential impact of key uncertainties and sensitivities on the Group’s future performance. In making this assessment, the
Directors have considered the Group’s existing debt levels, the committed funding and liquidity positions under its debt covenants,
its ability to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of
mitigating actions that could be used to preserve cash in the business should the need arise.
As noted in post balance sheet events within note 37, subsequent to the balance sheet date the Group issued a further £118m
($150m) of US private placement notes which have been included in the Directors liquidity forecast supporting this assessment.
The basis of the assessment continues to be the Board-approved budget which is prepared annually for the next two-year period
and is based on a bottom-up approach to all of the Group’s existing contracts, potential new contracts and administrative functions.
Owing to the unprecedented levels of inflation driven by geopolitical factors, the Directors have considered the Group’s resilience
to rising costs. Due to the nature of the Group’s operations, almost all of the revenue base has some form of inflationary protection,
whether it be through contractual indexation mechanisms, cost plus billing or being short term in nature. Though the timing of such
protections becoming effective may, in the short term, differ from the impact of cost pressures, it is expected that the current
inflation levels will not have a material impact on the Group’s profitability or cash flow.
Serco Group plc | Annual Report and Accounts 2023 | 161
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
2. Material accounting policies continued
The Directors believe that appropriate sensitivities in assessing the Group’s ability to continue as a going concern are to model
reductions in the Group’s win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group’s
operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group’s
debt covenants and available liquidity provides meaningful analysis of the Group’s ability to continue as a going concern. Based on
the headroom available, the Directors are then able to assess whether the reductions required to breach the Group’s financial
covenants, or exhaust available liquidity, are plausible.
This reverse stress test shows that, even after assuming that the US private placement loan of £51m due to mature during the
assessment period is repaid, and that no additional refinancing occurs after the date of approval of the financial statements, the
Group can afford to be unsuccessful on 80% of its bids and extensions, combined with a profit margin 80 basis points below the
Group’s forecast, and still retain sufficient liquidity to meet all liabilities as they fall due and remain compliant with the Group’s
financial covenants.
In respect of win rates, rebids and extensions have a more significant impact on the Group’s revenue than new business wins during
the assessment period. The Group has won more than 85% of its rebids and extensions and available contract extensions by volume
over the last two years, therefore a reduction of 80% or more to the budgeted bid and extensions rates is not considered plausible.
The Group does not generally bid for contracts at margins below its target range.
In respect of margin reduction, due to the diversified nature of the Group’s portfolio of long-term contracts and the fact that the Group
has met or exceeded its full year guidance for the last five years, a reduction in margin of 80 basis points (bps) versus the Group’s
budget is not considered plausible within the assessment period combined with an 80% reduction in bid and extensions rates.
Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as
they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial
statements on a going concern basis.
Adoption of new and revised standards
No new or amended accounting standards had a material impact on the Group for the 31 December 2023 reporting period. The
following standards were considered.
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17 ‘Insurance Contracts’ and in June 2020 issued
amendments to IFRS 17. Though expected to primarily impact the insurance sector, IFRS 17 applies more widely than contracts
issued by traditional insurance entities.
Management has not identified any contracts or obligations that should be classified as insurance contracts but continues to assess
new contracts and any further interpretations issued. While some contracts transfer insurance risk, this is either not deemed
significant or not a pre-existing risk, therefore will remain accounted for under the existing revenue standard.
The Group has assessed that the standard would impact its captive insurance company as it issues insurance contracts, however,
since the contracts insure other group companies, there is no impact on the Consolidated Financial Statements.
The Group has assessed the impact of its parent company guarantee arrangements on the financial statements of the Group. Parent
company guarantees could meet the IFRS 17 definition of insurance contracts. Management has identified two forms of guarantees
that the Group enters into which captured by IFRS 17 and has concluded no material impact on the Consolidated Financial
Statements, or the individual subsidiaries financial statements based on the following:
– Performance Guarantees are not captured by IFRS 17 as Management has identified no significant insurance risk that exists for the
contracts which contain these guarantees.
– Financial Guarantees meet the definition of an insurance contract under IFRS 17, however, the standard allows companies to
continue to apply the measurement criteria under IFRS 9. The measurement of the guarantees under IFRS 9 continues to be not
material.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The
amendment requires entities to disclose material accounting policies rather than significant accounting policies. Management has
concluded that the amendment does not result in a change to the accounting policies disclosed.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendment clarifies the
difference between a change in accounting estimate from a change in accounting policy. Management has assessed that the change
has no impact on the accounting estimates or accounting policies disclosed.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12)
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12).
The amendment clarified that the initial recognition exemption does not apply to transactions in which both deductible and taxable
temporary differences arise on initial recognition that result in the recognition of equal deferred tax assets and liabilities.
Management has assessed that the change has not had a material impact on net deferred tax position of the Group. A gross up
between deferred tax assets and liabilities of £22.1m was required.
Serco Group plc | Annual Report and Accounts 2023 | 162
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Initial Application of IFRS 17 and IFRS 9 - Comparative Information
In December 2021, the IASB issued Initial Application of IFRS 17 and IFRS 9—Comparative Information (Amendment to IFRS 17). The
amendment is a transition option relating to comparative information about financial assets presented on initial application of IFRS
17. The Group is already applying IFRS 9 and has concluded IFRS 17 has no material impact on the Consolidated Financial
Statements, or the individual subsidiaries financial statements.
International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12)
In May 2023, the IASB issued International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12). The amendment provides
a temporary exception to the requirements regarding deferred tax assets and liabilities related to pillar two income taxes.
Management has assessed that the change has not had a material impact on the Group.
New standards, amendments and interpretations not yet adopted
The following published new accounting standards, amendments to accounting standards and interpretations that are not
mandatory for 31 December 2023 reporting periods, have not been early adopted by the Group. These are effective for annual
reporting periods beginning on or after the date indicated:
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)2
Lease Liability in a Sale and Leaseback Amendments to IFRS 162
Non-current Liabilities with Covenants (Amendments to IAS 1)2
Supplier Finance Arrangements (amendment to IAS 7 and IFRS 7)2
The Effects of Changes in Foreign Exchange Rates for Lack of Exchangeability (amendment to IAS21)2
Effective Date1
1 January 2024
1 January 2024
1 January 2024
1 January 2024
1 January 2025
1.
2.
The effective date is based on the standards, amendments or interpretation issued by the IASB and may still be subject to adoption by the UK Endorsement Board.
The standards, amendments or interpretations are not expected to have a material impact on the Group in the current or future reporting periods.
Consolidation of profit measures
The Group has simplified its profit measures by removing Trading Profit and renaming Underlying Trading Profit (UTP) to Underlying
Operating Profit (UOP). The historic UOP will be the same as the reported UTP.
The UTP definition was introduced in 2015 to exclude onerous contract provision (OCP) releases or charges, other Contract and
Balance Sheet Review adjustments, depreciation and amortisation of assets held for sale, and some other one-time items. It was
maintained to ensure that there was transparency outside the underlying results of large charges and releases from the portfolio of
onerous contracts recorded in 2014. These definitions are no longer required as the Contract and Balance Sheet Adjustments
recorded in 2014 are now at an insignificant level. In the future, no items will be recorded between UTP and Trading Profit, meaning
the additional measure no longer adds any value.
Items excluded from UOP will be the amortisation and impairment of intangibles arising on acquisition and exceptional operating
items (and in the prior year other non-underlying items), which is consistent with the items currently excluded from Trading Profit.
The methodology applied to calculating other APMs has not changed since 31 December 2022.
Changes in accounting policies
There have been no changes to the Group’s accounting policies during the year ended 31 December 2023 except for the change in
accounting policy for alternative profit measures mentioned above.
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing
market participants at the measurement date, regardless of whether that price is directly observable or is estimated using another
valuation technique. There are certain transactions in these Financial Statements which are similar to fair value but are determined
by the treatment set out in their respective standards. These are share-based payment transactions that are within the scope of IFRS
2 Share-Based Payment, leasing transactions that are within the scope of IFRS 16 Leases, the calculation of net realisable value under
IAS 2 Inventories and value in use under IAS 36 Impairment of Assets.
Revenue
The Group recognises revenue based on the principles set out in IFRS 15 Revenue from Contracts with Customers and is recognised
in any period based on the delivery of performance obligations and an assessment of when control is transferred to the customer.
For all contracts, the Group determines whether each arrangement meets the definition of a contract under IFRS 15 and creates
enforceable rights and obligations.
Contracts are combined if they are entered into at or near the same time and one or more of the following criteria are met:
–
They are negotiated as a package with a single commercial objective.
– Consideration receivable in one contract depends on the other contract.
– Goods or services are a single performance obligation.
Serco Group plc | Annual Report and Accounts 2023 | 163
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
2. Material accounting policies continued
For contracts with multiple components, Management applies judgement to consider whether those promised goods and
services are:
–
–
a deliverable (i.e. a good or a service) that is distinct; or
a series of distinct deliverables that are substantially the same and that have the same pattern of transfer to the customer
(transferred over time using the same measure of progress).
At contract inception, the transaction price is the total amount of consideration to which the Group expects to be entitled to
exchange for transferring goods or services to a customer.
Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to
their relative standalone selling prices and recognises revenue when (or as) those performance obligations are satisfied. Where
there is only one performance obligation, no allocation is necessary as the full transaction price is allocated to the single
performance obligation.
Where there is more than one performance obligation, the Group looks at each performance obligation separately to see if there is
an observable price available; however, due to the bespoke nature of the services provided by the Group, there is normally no
observable standalone selling price and the expected cost-plus margin approach is used. All bid models for new contracts are built
up and negotiated with the customers on a cost-plus margin basis and therefore this approach most accurately reflects the
commercial reality and the value of the benefits transferred to the customer.
The Group enters into contracts which contain extension periods where either the customer or both parties can choose to extend
the contract or there is an automatic annual renewal and/or termination clause that could impact the actual duration of the contract.
Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the
contract impacts both the period over which revenue from performance obligations may be recognised and the period over which
contract fulfilment assets and capitalised bid and phase-in costs are expensed.
Further details on revenue recognition for specific contract types is shown below.
Revenue recognition: Repeat service-based contracts
The majority of the Group’s contracts are repeat service-based contracts where value is transferred to the customer over time as the
core services are delivered. Therefore, in most cases revenue will be recognised on the output basis, based on direct measurements
of the value to the customer of the services transferred to date relative to the remaining services under the contract. This is a faithful
depiction of the transfer of services since the service delivered to the customer is unchanged. Where the output method is used, the
Group often uses a method of time elapsed which requires minimal estimation. Certain repeat service-based contracts use output
methods based upon user numbers; service activity levels; or fees collected. Where any price reductions within output-based
contracts are contractual, but the level of service is not decreasing, revenue will be deferred from initial years to subsequent years in
order for revenue to be recognised on a consistent basis.
There are certain contracts where a separate performance obligation has been identified for services where the pattern of delivery
differs to the core services and which are capable of being distinct, such as asset construction or asset maintenance. In these
instances, where the transfer of control is most closely aligned to our efforts in delivering the service, the input method is used to
measure progress and revenue is recognised in direct proportion to costs incurred. In limited circumstances, other methods are
used to measure progress under the input method, including resources consumed, time elapsed or labour hours expended. This is
a faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits
received by the customer from efforts to date.
Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15, allowing revenue to be recognised at the
amount which the Group has the right to invoice, where that amount corresponds directly with the value to the customer of the
Group’s performance completed to date.
Under IFRS 15, unless upfront fees received from customers including transition payments can be clearly attributable to a distinct
service the customer is obtaining, then such payments do not constitute a separate performance obligation and instead are
deferred and spread over the life of the core services.
In general, the timing of satisfaction of performance obligations is consistent with when payment becomes due, other than in
instances where up-front win fees or transition payments are received, where in most instances these are deferred.
Any changes to the enforceable rights and obligations with customers and/or an update to the transaction price will not be
recognised as revenue until there is evidence of customer agreement in line with the Group’s policies.
Revenue recognition: Variable revenue
The Group has a number of contracts where at least an element of the revenue generated is variable in nature. Variability in revenue
recognised can arise from a number of factors, including usage-related volumes, graduated performance against contractual
performance indicators, indexation-linked pricing, profit sharing elements and customer decisions related to the provision of goods
or services. Any variable amounts will only be recognised where it is highly probable that a significant reversal will not occur.
Revenue recognition: Long-term project-based contracts
The Group has a limited number of project-based long-term contracts. Revenue associated with these contracts is recognised at the
point in time when control over the deliverable is passed to the customer.
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Financial Statements
Notes to the Consolidated Financial Statements continued
Revenue recognition: Contract modifications
When a modification to an existing contract is approved, the Group first assesses whether it adds distinct goods or services to the
existing contract that are priced commensurate with the standalone selling prices for those goods or services. If this is the case, then
the modification is accounted for prospectively as a separate contract. If the pricing is not commensurate with the standalone selling
prices for the goods or services and the new goods or services are not distinct from those in the original contract, then this is
considered to form part of the original contract. Pricing is updated for the entirety of the revised contract and any historic
adjustments recorded as a result are recognised as a cumulative adjustment to revenue in the period of the modification. If the
pricing is not commensurate with the standalone selling prices for the goods or services and the new goods or services are distinct
from those in the original contract, then this is considered to represent the termination of the original contract and the creation of a
new contract which is accounted for prospectively from the date of modification.
Revenue recognition: Other
Sales of goods are recognised when goods are delivered and title has passed.
The Group has a limited number of pass-through arrangements in respect of goods or services procured by the Group on behalf of
customers where it assesses whether it is acting as a principal or as an agent. The Group is acting as principal if it is in control of a
good or a service prior to transferring to the customer and gross revenue and costs are recognised. More commonly, the Group is
acting as agent where it is arranging for those goods or services to be provided to the customer without obtaining control, for
example, where the Group is engaged to manage operations for a customer but procures goods or services on behalf of the
customer in order to deliver the operation. When acting as an agent, only the fee or commission is recognised as revenue and the
costs represent only the direct costs of facilitating the transaction.
Interest income is accrued for 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.
The Group has no material exposure to returns or refunds.
Revenue recognition: Contract assets and liabilities
Contract assets are recognised for goods and services for which control has transferred to the customer before the Group has the
right to bill and are reported under accrued income and other unbilled receivables in note 21. Contract assets are reclassified as
receivables when the right to payment becomes unconditional and the Group has billed the customer.
Contract liabilities are recognised when the Group has received advance payment for goods and services that the Group has not
transferred to the customer and are reported under deferred income in note 23.
Where the initial set-up, transition or transformation phase of a long-term contract is not considered to be a distinct performance
obligation and upfront consideration is received, the Group recognises contract liabilities reported under deferred income in note
23. In this case eligible costs (see contract costs policy below) associated with delivering these services are reported under
capitalised mobilisation and phase in costs in note 21.
Government grants
The majority of the Group’s customers are governments. Any income that arises from a contractual agreement for the delivery of
goods or services, or a specific modification to such a contract, is treated as revenue. Income from governments is only considered
to be a government grant if it is not related to the supply of goods or services under a contractual arrangement.
Government grants are recognised where there is reasonable assurance that the grant will be received. Grants that compensate the
Group for expenses incurred are recognised in the income statement as a reduction to the corresponding expenses on a systematic
basis in the periods in which the expenses are recognised. There were no material government grants received during the current or
prior year.
Contract costs
Bid costs are capitalised only when they relate directly to a contract and are incremental to securing the contract. Bid costs are
amortised over the duration of the contract to which they relate in equal annual instalments. Any costs which would have been
incurred whether or not the contract is actually won are not considered to be capitalised bid costs.
Contract costs are charged to the income statement as incurred, including the necessary accrual for costs which have not yet been
invoiced, unless the expense relates to a specific time frame covering future periods.
Contract costs can only be capitalised when the expenditure meets all of the following three criteria and are not within the scope of
another accounting standard, such as inventories, intangible assets, or property, plant and equipment:
–
–
–
The costs relate directly to a contract. These include direct labour, being the salaries and wages of employees providing the
promised services to the customer; direct materials such as supplies used in providing the promised services to a customer; and
other costs that are incurred only because an entity entered into the contract, such as payments to subcontractors.
The costs generate or enhance the resources used in satisfying performance obligations in the future. For initial contract costs
capitalised, such costs only fall into one of the following two categories: the mobilisation of contract staff, being the costs of
moving existing contract staff to other Group locations; or directly incremental costs incurred in meeting contractual obligations
incurred prior to contract delivery, which are required to ensure a proper handover from the previous contractor. Redundancy
costs are never capitalised.
The costs are expected to be recovered, i.e. the contract is expected to be profitable after amortising the capitalised costs.
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Financial Statements
Notes to the Consolidated Financial Statements continued
2. Material accounting policies continued
Operating profit
Operating profit is not a measure defined by IFRS and the Group considers this to include the profits and losses from operations
prior to corporation tax, investment revenue and finance costs.
Foreign currencies
Transactions in currencies other than Sterling are recorded at the rate of exchange on the date of the transaction which is a monthly
average. If exchange rates fluctuate significantly during a period, the use of average rates are reviewed to ensure they are still
appropriate.
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. 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 through 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. On disposal of an operation,
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.
Dividends
Dividend distributions are recognised as a liability in the year in which the dividends are approved by the Company’s shareholders.
Interim dividends are recognised when they are paid; final dividends when authorised in general meetings by shareholders.
Dividend income is recognised on receipt.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition
is measured as 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 acquisition and transition costs for successful acquisitions are material, they are disclosed as exceptional costs
within note 9.
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.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another
standard.
Investments in joint ventures and associates
A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement.
The Group’s investments in joint ventures are incorporated using the equity method of accounting.
Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at
cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or
joint venture. Any excess of the cost of acquisition over the Group’s share of net fair value of the identifiable assets, liabilities and
contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within
the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s
share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after
reassessment, is recognised immediately in profit or loss.
Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at
the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6.
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not
control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using
the equity method of accounting.
Goodwill
Goodwill is measured as the excess of the fair value of purchase consideration over the fair value of the net assets acquired and is
recognised as an intangible asset when control is achieved. Negative goodwill is recognised immediately in the income statement.
Fair value measurements are based on provisional estimates and may be subject to amendment within one year of the acquisition,
resulting in an adjustment to goodwill.
Goodwill itself does not generate independent cash flows and therefore, in order to perform required tests for impairment, it is
allocated at inception to the specific cash generating unit (CGU) or groups of CGUs which are expected to benefit from the
acquisition.
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Financial Statements
Notes to the Consolidated Financial Statements continued
On the disposal of a business which includes all or part of a CGU, any attributable goodwill is included in the determination of the
profit or loss on disposal. Where part of a CGU with goodwill is sold, the attributable amount is calculated based on the future
discounted cash flows leaving the Group as a proportion of the total CGU’s future discounted cash flows.
The fair values associated with material business combinations are valued by external advisers and any amount of consideration
which is contingent in nature is evaluated at the end of each reporting period, based on internal forecasts.
Other intangible assets
Material intangible assets are grouped into classes of similar nature and use and separately disclosed. Other intangible assets are
amortised from the date of completion.
Customer relationships can arise on the acquisition of subsidiaries and represent the incremental value expected to be gained as a
result of existing contracts in the purchased business. These assets are amortised over the average length of the related contracts
which typically ranges between five and fifteen years.
Software and IT represent computer systems and processes used by the Group in order to generate future economic value through
normal business operations. The underlying assets are amortised over the period from which the Group expects to benefit, which is
typically between three to eight years.
Development expenditure is capitalised as an intangible asset only if the conditions below are met, with all research costs and other
development expenditure being expensed when incurred. The period of expected benefit, and therefore period of amortisation, is
typically between three and eight years. The capitalisation criteria are as follows:
–
–
–
–
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.
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. Assets are grouped into classes of a similar nature and use and
separately disclosed except where this is not material.
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%
Leasehold improvements
The higher of 10% or the rate produced by the lease term
Machinery
Vehicles
Furniture
Office equipment
Right of use assets
15% – 20%
10% – 50%
10%
20% – 33%
Equally over the lease term from inception or equally over the remainder of the lease
term from the date of a reassessment of the lease end date
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. Given that there is limited history of material gains or losses
on disposal of fixed assets, the level of judgement involved in determining the depreciation rates is not considered to be significant.
Asset impairment
The Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) at each reporting period, together
with any other assets under the scope of IAS 36 Impairment of Assets, in order to assess whether there is any indication that those
assets have suffered an impairment loss. As the impairment of assets has been identified as both a key source of estimation
uncertainty and a critical accounting judgement, further details around the specific judgements and estimates can be seen in note 3.
If any indication of impairment exists, the recoverable amount of the asset is estimated in order to determine if there is any
impairment loss. Goodwill is assessed for impairment annually, irrespective of whether there are any indicators of impairment.
Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount
of the cash generating unit (CGU) to which the asset belongs.
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 with reference to pre-tax discount rates that reflect the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount is estimated to be less than the carrying amount of the asset, the carrying amount is impaired to its
recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU 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 which led to the impairment has decreased or no longer exists.
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
2. Material accounting policies continued
Where an impairment loss is subsequently reversed, the carrying amount 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 in prior years.
Impairment losses and reversals are recognised immediately within expenses in the income statement unless it is considered to be
an exceptional item when the Group’s criteria are met.
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 statement of
comprehensive income.
Both current and past service costs are the amounts recognised in the income statement, reflecting the expense associated with the
individuals. 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. Gains and losses on curtailments or settlements
are recognised in the income statement 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
reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available
refunds (which is only recognised to the extent that the Group has an unconditional right to receive it) and reductions in future
contributions to the scheme. To the extent that an economic benefit is available as a reduction in future contributions and there is a
minimum funding requirement required of the Group, the economic benefit available as a reduction in contributions is calculated as
the present value of the estimated future service cost in each year, less the estimated minimum funding contributions required in
respect of the future accrual and benefits in that year.
Calculation of the amounts recognised in the Consolidated Financial Statements in respect of defined benefit pension schemes
requires a high level of judgement, as further explained in note 3.
End of contract provisions
Where the Group has a legal or constructive obligation to compensate employees at the end of a contract term and these
employees cannot be relocated within the Group, a provision is recognised to reflect the expected outflow of economic benefits at
the end of the contract. The obligation is reassessed at each reporting date. The amount calculated assumes the tenure of the
employee base, expected turnover, and salary.
Derivative financial instruments and hedging activities
The Group may enter 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. 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 (fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges).
At the inception of the hedge relationship, the Group 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. Both at the inception of
the hedge and on a periodic basis, the Group assesses 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.
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. Derivatives, which mature within 12 months, are presented
as current assets or current liabilities.
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 Statement of Comprehensive Income and described in note 29.
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 accumulated 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.
Hedge accounting is discontinued when the Group de-designates 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.
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements 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 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 is not recognised for:
–
–
–
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Group is
able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the
foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
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 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.
Share-based payment
Where the fair value of share options or shares under award requires the use of a valuation model, fair value is measured by use of
Binomial Lattice, Black-Scholes or Monte Carlo Simulation models depending on the type of scheme, as set out in note 34. 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 or award has also been adjusted to
take account of market conditions applicable to the option or award.
Inventories
Inventories are stated at the lower of cost and net realisable value and comprise service spares, supplies and consumables used in
the rendering of services to our customers. Cost comprises direct materials and, where applicable, direct labour costs that have
been incurred in bringing the inventories to their present location and condition.
Trade receivables
Trade receivables are recognised initially at cost (being the same as fair value) and subsequently at amortised cost less any credit
notes, provision for impairment and expected credit losses, to ensure that amounts recognised represent the recoverable amount.
Determining whether a trade receivable is impaired requires judgement to be applied based on the information available at each
reporting date. A provision for impairment arises where there is evidence that the Group will not be able to collect amounts due for
reasons other than customer default, which is achieved by creating an allowance for doubtful debts recognised in the income
statement within expenses. When a trade receivable is expected to be uncollectible for reasons other than credit-related losses, it is
provided for within the allowance. Subsequent recoveries of amounts previously provided for or written off are credited against
expenses.
The majority of contracts entered into by the Group are with government organisations and therefore historic levels of default are
relatively low and as a result, the risks associated with this judgement are not considered to be significant. An expected credit loss is
recorded where there is evidence that a counterparty is at risk of default due to their credit worthiness. If the loss was material, the
amount would be presented separately in the Consolidated Income Statement, however, the Group’s customer base is
predominantly government or government-backed and as a result, the Group’s expected credit loss at a given point in time across
the entirety of the customer base is typically immaterial.
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, 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.
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
2. Material accounting policies continued
Leases
The Group uses leases in the delivery of a number of contracts and in other centralised functions. Most notably, the Group uses
accommodation leases in the delivery of the Asylum Accommodation and Support Services contract, vehicle leases in the Prisoner
Escorting and Custodial Services contract and to deliver its UK vehicle fleet and support offices, amongst others. Where leases are
utilised in the delivery of contracts, the Group aims to limit the duration of any non-cancellable periods of leases to be no longer
than the duration of the underlying contract. For non-contract related leases, the Group has set policies on lease duration and
purpose to ensure their appropriate use.
On entering into a lease, a lease liability is recorded equal to the value of future lease payments discounted at the appropriate
incremental borrowing rate and, simultaneously, a right of use asset is created representing the right conferred to control the
manner of use of the leased asset. The Group typically uses an appropriate incremental borrowing rate, based on the lease location
and duration, as it typically does not have access to the interest rate implicit in the lease.
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 to the income statement and corresponding
assets are depreciated on a straight-line basis over the lease term.
The lease term is measured as the non-cancellable period of a lease, together with periods covered by an option to extend the lease
if it is reasonably certain that the option will be exercised, and periods covered by an option to terminate the lease if it is reasonably
certain that the option will not be exercised. The lease term is reassessed if an event occurs which causes either the non-cancellable
period to change, or another event occurs which changes the assessment of the likelihood of exercising an option included in the
lease.
All changes to leases are accounted for on a prospective basis from the point at which the change is triggered.
Where, on inception, the term of a lease is less than 12 months or the value of the leased asset is less than £5,000, or both, rentals
payable under the lease are charged to the income statement on a straight-line basis over the term of the relevant lease.
Loans
Loans 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.
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.
Provisions
Provisions are recognised when the Group has an obligation to make a cash outflow as a result of a past event. Provisions are
measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date when settlement is
considered to be likely.
Onerous contract provisions (OCPs) arise when the unavoidable costs of meeting contractual obligations exceed the remuneration
expected to be received. Unavoidable costs include total contract costs together with a rational allocation of shared costs that can
be directly linked to fulfilling contractual obligations, which have been systematically allocated to OCPs on the basis of key cost
drivers except when this is impracticable, where contract revenue is used as a proxy to activity. The provision is calculated as the
lower of the termination costs payable for an early exit and the best estimate of net cost to fulfil the Group’s unavoidable contract
obligations. Where a customer has an option to extend a contract and it is likely that such an extension will be made, the expected
net cost arising during the extension period is included within the calculation. However, where a profit can be reasonably expected
in the extension period, no credit is taken on the basis that such profits are uncertain given the potential for the customer to either
not extend or offer an extension under lower pricing terms. Further details of the judgements can be seen in note 3.
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. When monetary items no longer form part of a hedging relationship, the exchange differences that
arose during the time that the hedge was in place remain in the hedging translation reserve until such time as the net investment is
disposed of.
Dividends payable
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.
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
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 (CODM) in order to allocate resources to the segments and to assess their performance. The CODM is
considered to be the Board of Directors as a body.
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 CODM.
Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible
assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation
tax recoverable) and any retirement benefit assets. Segment liabilities comprise trade and other payables, lease liabilities, provisions
and retirement benefit obligations.
3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, which are described in note 2, Management has made the following
judgements that have the most significant effect on the amounts recognised in the Consolidated Financial Statements. As described
below, many of these areas of judgement also involve a high level of estimation uncertainty.
Key sources of estimation uncertainty
Provisions for onerous contracts
Determining the carrying value of onerous contract provisions requires assumptions and complex judgements to be made about the
future performance of the Group’s contracts. The level of uncertainty in the estimates made, either in determining whether a
provision is required, or in the calculation of a provision booked, is linked to the complexity of the underlying contract and the form
of service delivery. Due to the level of uncertainty and a combination of variables associated with those estimates, there is a
significant risk that there could be a material adjustment to the carrying amounts of onerous contract provisions within the next
financial reporting period. This includes the potential recognition of onerous contract provisions for contracts which Management
has assessed do not require a provision as at 31 December 2023.
Major sources of uncertainty which could result in a material adjustment within the next financial year, are:
–
–
–
–
the ability of the Company to maintain or improve operational performance to ensure costs or performance-related penalties
are in line with expected levels;
volume driven revenue and costs being within the expected ranges;
the outcome of open claims made by or against a customer regarding contractual performance or contractual negotiations
taking place where there is expected to be a positive outcome from the Group’s perspective; and
the ability of suppliers to deliver their contractual obligations on time and on budget.
In the current year, there has been an overall net charge of new and existing OCPs within UOP of £8.2m. Revisions have resulted
from triggering events in the current year, either through changes in contractual positions or changes in circumstances which could
not have been reasonably foreseen at the previous balance sheet date. To mitigate the level of uncertainty in making these
estimates, Management regularly compares actual performance of the contracts against previous forecasts and considers whether
there have been any changes to significant judgements.
The future range of possible outcomes in respect of those assumptions and significant judgements made to determine the carrying
value of onerous contracts could result in either a material increase or decrease in the value of onerous contract provisions in the
next financial year. The extent to which actual results differ from estimates made at the reporting date depends on the combined
outcome and timing of a large number of variables associated with performance across multiple contracts.
The individual provisions are discounted where the impact is assessed to be significant. When used, discount rates are calculated
based on the estimated risk-free rate of interest for the region in which the provision is located and matched against the ageing
profile of the provision.
The Group undertakes a robust assessment at each reporting date to determine whether any individual customer contracts, which
the Group has entered into, are onerous and require a provision to be recognised in accordance with IAS 37 Provisions, Contingent
Liabilities & Contingent Assets. The Group operates a large number of long-term contracts at different phases of their contract life
cycle. Within the Group’s portfolio, there are a small number of contracts where the balance of risks and opportunities indicates that
they might be onerous if transformation initiatives or contract changes are not successful. The Group has concluded that these
contracts do not require an onerous contract provision on an individual basis. Following the individual contract reviews, the Group
has also undertaken a top-down assessment which assumes that, while the contracts may not be onerous on an individual basis, as a
portfolio there is a risk that at least some of the transformation programmes or customer negotiations required to avoid a contract
loss will not be fully successful, and it is more likely than not that one or more of these contracts will be onerous. Therefore, in
considering the Group’s overall onerous contract provision, the Group has made a best estimate of the provision required to take
into consideration this portfolio risk. As a result, the risk of OCPs and the monitoring of individual contracts for indicators remains a
critical estimate for the Group. As at 31 December 2023, the provision recognised in respect of this portfolio of contracts is £8.1m
(2022: £8.1m).
Serco Group plc | Annual Report and Accounts 2023 | 171
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
3. Critical accounting judgements and key sources of estimation uncertainty continued
Onerous contract provisions totalling £8.6m are estimated for individual contracts, based on the specific characteristics of the
contract including possible contract variations, estimates of transaction price such as variable revenues and forecast costs to fulfil
those contracts. As noted above, the Group also holds a balance of £8.1m in respect of the portfolio risk associated with operating a
large number of long-term contracts, giving a total onerous contract provision of £16.7m (see note 26). Management has
considered the nature of the estimate for onerous contract provisions and concluded that it is reasonably possible that outcomes
within the next financial year may be different from Management’s assumptions and could, in aggregate, require a material
adjustment to the onerous contract provision. However, due to the estimation uncertainty across numerous contracts each with
different characteristics, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied, and
Management does not believe that disclosing a potential range of outcomes on a consolidated basis would provide meaningful
information to a reader of the financial statements.
While the focus of the estimate is to determine whether the Group is required to record an onerous contract provision, Management
also inherently assess whether any assets dedicated to the contract are required to be impaired where contracts are forecast to
make sustainable losses in the future. In accordance with IAS 37, the Group will impair assets dedicated to the contract before the
recognition of an onerous contract provision.
Impairment of goodwill
A key area of focus is the impairment testing of goodwill. At each reporting period an assessment is performed in order to
determine whether there are any indicators of impairment, which involves considering the performance of the business and any
significant changes to the markets in which the Group operates. There continues to be headroom across all cash generating units
(CGUs) even when reasonably possible sensitivities are applied except for Asia Pacific as detailed in note 17.
Determining whether goodwill requires an actual impairment involves an estimation of the expected value in use of the asset (or
CGU to which the asset relates). The Group’s CGUs are consistent with its reportable operating segments as outlined in note 4. The
value in use calculation involves an estimation of future cash flows and also the selection of appropriate discount rates and terminal
growth rates, all of which involve considerable judgement. The future cash flows are derived from the latest Board-approved five-
year plan, with the key assumptions being revenue growth which is sensitive to known and unknown pipeline opportunities, which is
common within the industry, win rates for rebids and new business, margins on existing and new business, and cash conversion
rates, all of which drive short-term growth rates. The Board-approved five-year plan has an element of contingency to take into
consideration potential risks within these assumptions.
Discount rates and terminal growth rates are calculated with reference to the specific risks associated with the assets and are based
on advice provided by external experts engaged by Management. The calculation of discount rates is performed based on a risk-
free rate appropriate to the currency of the cash flows related to the CGU being tested, which is subsequently adjusted to factor in
local market risks and risks specific to the Group; cash flow risks are considered within the cash flows and not the discount rate.
During 2022, there was a significant increase in market interest rates and therefore risk free rates in response to rising global
inflation. Whilst rates have fallen in 2023, the discount rates used in the assessment as at 31 December 2023 remain higher than
recent years overall. For the purpose of impairment testing in accordance with IAS36 Impairment of Assets, the Group estimates
pre-tax discount rates based on the post-tax weighted average cost of capital which is used for internal purposes.
There is heightened judgement in the determination of future cash flows of the Asia Pacific CGU as the Division has performed
below expectations as a result of lower variable income on material contracts, a challenging labour market, and lower than expected
win rates for both new business and rebids. In addition, the immigration contract, whilst extended to December 2024, contributes
significantly to the cash flows within the five-year plan, and a loss of this rebid will have a material impact on the Division. Continued
low win rates or the loss of the immigration contract could result in an impairment of the CGU’s goodwill, however, should these
risks materialise then a fundamental restructuring of the Division may be required to improve profitability. This is discussed in more
detail in note 17.
Retirement benefit obligations
Identifying whether the Group has a retirement benefit obligation as a result of contractual arrangements entered into requires a
level of judgement, largely driven by the legal position held between the Group, the customer and the relevant pension scheme.
The Group’s retirement benefit obligations are covered in note 30.
The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates, mortality rates,
inflation rates and future contribution rates.
In accounting for the defined benefit schemes, the Group has applied the principle that the asset recognised for the Serco Pension
and Life Assurance Scheme (SPLAS) and the shared cost section of the Railways Pension Scheme is equal to the full surplus that will
ultimately be available to the Group as a future refund.
No pension assets are invested in the Group’s own financial instruments or property.
Pension assets held by insurance companies including the annuity policies in SPLAS are valued at the equal and opposite of the
defined benefit obligations that they insure.
The SPLAS pension scheme invests into private debt funds which do not have an observable market price and are remeasured to fair
value at each reporting date. The valuation methodology relies upon the net asset value provided by the fund administrator at 30
September adjusted for actual cash flows in the period to 31 December. The Group has undertaken a risk assessment to assess
whether this industry standard valuation methodology remains the Group’s best estimate at 31 December and has concluded that
although there is heightened estimation uncertainty, this methodology provides the most accurate valuation and estimate for
Management.
Serco Group plc | Annual Report and Accounts 2023 | 172
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Critical accounting judgements
Deferred tax
Deferred tax assets are recognised on tax deductible temporary differences to the extent that it is probable that taxable profit will be
available against which they can be utilised. Significant Management judgement is required to determine the amount of the
deferred tax asset that should be recognised, based upon the likely timing, geography and level of future taxable profits.
A £179.9m, UK deferred tax asset is recognised on the Group’s balance sheet at 31 December 2023 (2022: £186.9m). This is
recognised on the basis of a sustained return to profitability of the UK business which will enable future tax deductions and previous
tax losses within the UK to be utilised.
Further details on deferred taxes are disclosed in note 15.
Use of Alternative Performance Measures: Underlying Operating Profit
The Group uses Underlying Operating Profit (UOP) as an alternative measure to reported operating profit by making adjustments
for the following:
– Exceptional items (and in the prior year other non-underlying items): IAS 1 Presentation of Financial Statements requires material
items to be disclosed separately in a way that enables users to assess the quality of a company’s profitability. In practice, these are
commonly referred to as ‘exceptional’ items, but this is not a concept defined by IFRS and therefore there is a level of judgement
involved in arriving at an Alternative Performance Measure which excludes such exceptional items (and in the prior year other
non-underlying items). Management considers exceptional items (and in the prior year other non-underlying items) to be outside
of normal operations and are material to the results of the Group by virtue of their size or nature, and are suitable for separate
presentation and detailed explanation. There is a level of judgement required in determining which items are exceptional (and in
the prior year non-underlying) on a consistent basis and require separate disclosure. Further details can be seen in note 9.
– Amortisation and impairment of intangibles arising on acquisitions: These are excluded, because these charges are based on
judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be
capitalised in normal operating practice.
The consolidated income statement on page 155 and the segmental analysis in note 4 includes a reconciliation of reported
operating profit to UOP. The Group’s Chief Operating Decision Maker (CODM) reviews the segmental analysis during the year.
Climate risk
Risks arising from climate change may have future adverse effects on the Group’s business activities. These risks include:
– major physical risks such as extreme weather events, impacting assets, operations and employee wellbeing;
– major transitional risks including policy and legal changes such as increasing reporting and contractual requirements and
increasing carbon taxes and levies;
technology risks including costs to transition to lower emission options; and
reputational risks such as investor and stakeholder concerns on not transitioning quickly enough to Net Zero.
–
–
As an outsourcing organisation operating across multiple sectors and geographies, the ways in which climate change may impact
the Group’s and its customers’ assets (where the Group delivers the majority of its services), supply chains and operations is diverse.
In preparing the Group financial statements, Management has considered the impact of climate-related matters but has not
identified significant risks induced by climate changes that could negatively and materially affect the Group’s financial statements. In
arriving at this conclusion, Management has considered the areas of the Groups financial statements where climate-related matters
could reasonably impact measurement and disclosure including key estimates and judgements.
When undertaking the Goodwill impairment review, the Group’s latest approved forecast is used to estimate the value in use of its
CGUs. Climate assumptions are built into the contract level budgets to the extent that contractual commitments exist. However,
Management’s current assessment shows that there are no such material contractual obligations. In addition, Group-wide strategic
commitments, such as those made as part of the Net Zero targets and planning, are not material in the short term for inclusion in the
Group’s forecast. The forecast is underpinned by a number of assumptions, and it represents the Group’s best estimate of future
business performance. Management cannot reliably predict how climate changes will impact the forecast particularly in areas such
as carbon levies and the cost of insurance. As such, Management has presented sensitivity analysis to demonstrate the Group’s
ability to withstand changes to the forecast before recording an impairment (see note 17). The forecast used in the goodwill
impairment review is also used in the assessment of deferred tax assets and the Group’s ability to continue as a going concern.
The Group also continuously reviews the property, plant and equipment under its control to identify opportunities to reduce its
carbon impact. Primarily there has been a transition to electric and hybrid vehicles, both in the company car fleet as well as vehicles
required to operate contracts. For example, electric light commercial vehicles are beginning to replace the diesel fleet in certain
geographies. The transition is currently being undertaken where assets are identified as nearing the end of their useful economic life
(UEL) and therefore there has been no revision to the UEL related to motor vehicles.
Other areas considered include retirement benefit obligations, namely the valuation of assets, share-based payments linked to ESG
targets and those critical accounting judgements and sources of estimation uncertainty not noted above.
Management continuously assesses the impact of climate-related matters. Assumptions will likely change in the future in response to
the Group’s understanding of risks and opportunities maturing, forthcoming environmental regulations, climate change impacts,
new commitments taken and increasing customer Net Zero requirements. These changes, if not anticipated and continually
assessed, could have an impact on the Group’s future cash flows, financial performance and financial position.
Serco Group plc | Annual Report and Accounts 2023 | 173
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
3. Critical accounting judgements and key sources of estimation uncertainty continued
Claim for losses in respect of the 2013 share price reduction
Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the
reduction in Serco’s share price in 2013, as the claim progresses, the Group has continued to assess the merit, likely outcome, and
potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any
outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially
given the legal uncertainties in such actions.
4. Segmental information
The Group’s operating segments reflecting the information reported to the Board in 2023 under IFRS 8 Operating Segments are as
set out below:
Reportable operating segments
Sectors
UK & Europe
North America
Asia Pacific
Middle East
Corporate
Services for sectors including Citizen Services, Defence, Health & Other Facilities
Management, Justice & Immigration and Transport delivered to UK Government, UK
devolved authorities and other public sector customers in the UK and Europe
Services for sectors including Citizen Services, Defence and Transport delivered to US
federal and civilian agencies, selected state and municipal governments and the
Canadian Government
Services for sectors including Citizen Services, Defence, Health & Other Facilities
Management, Justice & Immigration and Transport in the Asia Pacific region including
Australia, New Zealand and Hong Kong
Services for sectors including Citizen Services, Defence, Health & Other Facilities
Management and Transport in the Middle East region
Central and head office costs
Each reportable operating segment is focused on a narrow group of customers in a specific geographic region and is run by a local
Management team which reports directly to the Group’s Chief Operating Decision Maker (CODM) on a regular basis. As a result of
this focus, the sectors in each region have similar economic characteristics and are aggregated at the reportable operating segment
level in these financial statements.
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies described in note 2.
Information about major customers
The Group has three major governmental customers which each represent more than 5% of Group revenues in the current year. The
customers’ revenues were £1,863.8m (2022: £1,716.9m) for the UK Government within the UK & Europe segment; £1,167.7m (2022:
£1,109.6m) for the US Government within the North America segment; and £782.8m (2022: £880.5m) for the Australian Government
within the Asia Pacific segment. These customers do not act in a unified way in making purchase decisions, and in general, the
Group engages directly with the various departments of these customers in respect of the services it provides.
Segmental information
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 reportable operating segment as they are reviewed on a
consolidated basis by the CODM.
Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible
assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation
tax recoverable) and any retirement benefit asset. Segment liabilities comprise trade and other payables, lease liabilities, provisions
and retirement benefit obligations.
Serco Group plc | Annual Report and Accounts 2023 | 174
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
The following is an analysis of the Group’s revenue, results, assets and liabilities by reportable operating segment:
Year ended 31 December 2023
Revenue
Result
Underlying operating profit/(loss)1
Amortisation and impairment of
intangibles arising on acquisition
Exceptional operating items2
Operating profit/(loss)
Net finance cost
Profit before tax
Tax (charge)/credit
Tax on exceptional items
Profit for the year
Supplementary Information
Share of profits in joint ventures and
associates, net of interest and tax
Total depreciation and impairment of
plant, property and equipment and
right of use assets
Amortisation and impairment of
intangible assets
UK&E
North America
Asia Pacific
Middle East
Corporate
£m
£m
2,439.5
1,362.8
120.8
(3.4)
9.9
127.3
138.2
(16.0)
—
122.2
£m
845.1
23.7
(11.5)
—
12.2
£m
226.4
£m
—
15.3
(49.3)
—
—
15.3
—
43.9
(5.4)
Total
£m
4,873.8
248.7
(30.9)
53.8
271.6
(24.6)
247.0
(42.3)
(2.3)
202.4
29.0
—
—
—
—
29.0
(99.4)
(20.6)
(10.0)
(2.1)
(11.9)
(144.0)
(1.9)
(0.9)
(1.1)
(0.1)
(3.6)
(7.6)
1
2
Underlying operating profit/(loss) is defined as operating profit/(loss) before exceptional items (and in the prior year other non-underlying items) and
amortisation and impairment of intangible assets arising on acquisition.
Included within exceptional operating items are releases of provisions previously held for indemnities given on disposed businesses of £43.9m and
compensation received on the early termination of a contract of £9.9m. Exceptional items incurred by the Corporate segment are not allocated to other
segments. Such items may represent costs that will benefit the wider business.
Serco Group plc | Annual Report and Accounts 2023 | 175
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
4. Segmental information continued
Year ended 31 December 2022
Revenue
Result
Underlying operating profit/(loss)1
Other non-underlying items2
Amortisation and impairment of
intangibles arising on acquisition
Exceptional operating items3
Operating profit/(loss)
Net finance cost
Profit before tax
Tax (charge)/credit
Tax on exceptional items
Profit for the year
Supplementary Information
Share of profits in joint ventures and
associates, net of interest and tax
Total depreciation and impairment of
plant, property and equipment and
right of use assets
Amortisation and impairment of
intangible assets
UK&E
North America
Asia Pacific
Middle East
Corporate
£m
£m
2,100.2
1,269.8
£m
954.6
£m
209.4
£m
—
Total
£m
4,534.0
72.1
4.1
(1.5)
(1.2)
73.5
136.6
0.1
(16.5)
(1.2)
119.0
56.9
—
(3.6)
—
53.3
16.0
(44.6)
—
—
—
—
—
—
16.0
(44.6)
237.0
4.2
(21.6)
(2.4)
217.2
(20.4)
196.8
(42.1)
0.3
155.0
12.0
—
—
—
—
12.0
(86.4)
(26.7)
(12.6)
(1.9)
(12.9)
(140.5)
(1.3)
(1.0)
(2.1)
(0.1)
(5.6)
(10.1)
1
2
3
Underlying operating profit/(Loss) is defined as operating profit/(loss) before exceptional items (and in the prior year other non-underlying items) and
amortisation and impairment of intangible assets arising on acquisition.
Non-underlying items include the reversal of an impairment in respect of assets which is no longer required due to contractual changes which the Group
has agreed with its customer.
Included within exceptional operating items are total acquisition related costs of £2.4m.
As at 31 December 2023
Segment assets
Interests in joint ventures and
associates
Other segment assets1
Total segment assets
Unallocated assets2
Consolidated total assets
Segment liabilities
Segment liabilities
Unallocated liabilities2
Consolidated total liabilities
Supplementary Information
Additions to non current assets3
Segment non-current assets
Unallocated non-current assets
UK&E
North America
Asia Pacific
Middle East
Corporate
£m
31.8
891.6
923.4
£m
—
897.7
897.7
£m
—
254.5
254.5
£m
0.3
62.4
62.7
£m
—
113.2
113.2
Total
£m
32.1
2,219.4
2,251.5
358.8
2,610.3
(725.1)
(172.0)
(223.5)
(54.1)
(124.7)
(1,299.4)
125.3
677.1
16.7
688.6
8.0
151.9
2.6
13.5
15.7
60.8
(277.2)
(1,576.6)
168.3
1,591.9
235.8
1
2
3
The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension
schemes and corporate intangible assets.
Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans.
Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant and equipment
and right of use assets.
Serco Group plc | Annual Report and Accounts 2023 | 176
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Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
As at 31 December 2022
Segment assets
Interests in joint ventures and
associates
Other segment assets1
Total segment assets
Unallocated assets2
Consolidated total assets
Segment liabilities
Segment liabilities
Unallocated liabilities2
Consolidated total liabilities
Supplementary Information
Additions to non current assets3
Segment non-current assets
Unallocated non-current assets
UK&E
North America
Asia Pacific
Middle East
Corporate
£m
22.9
960.8
983.7
£m
—
948.0
948.0
£m
—
309.6
309.6
£m
0.4
68.7
69.1
£m
—
123.3
123.3
Total
£m
23.3
2,410.4
2,433.7
316.5
2,750.2
(720.2)
(178.3)
(248.1)
(61.1)
(179.0)
(1,386.7)
173.7
701.1
14.5
718.6
7.4
177.1
3.0
14.1
12.1
80.8
(333.8)
(1,720.5)
210.7
1,691.7
244.5
1
2
3
The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension
schemes and corporate intangible assets.
Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans.
Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant and equipment
and right of use assets.
5. List of principal undertakings
The following are considered to be the principal undertakings of the Group as at the year-end:
Principal subsidiaries
United Kingdom
Australia
USA
Serco Limited
Serco Australia Pty Limited
Serco Inc.
Principal joint ventures and associates
United Kingdom
United Kingdom
Merseyrail Services Holding Company Limited
Vivo Defence Services Limited
2023
100 %
100 %
100 %
2023
50 %
50 %
2022
100 %
100 %
100 %
2022
50 %
50 %
A full list of subsidiaries and related undertakings is included in the Appendix on pages 226 to 228 which form part of the financial
statements.
6. Joint ventures and associates
The principal joint ventures, Merseyrail Services Holding Company Limited (Merseyrail) and Vivo Defence Services Limited (VIVO),
were the only equity accounted entities which were material to the Group during the year with dividends received of £21.1m and
£nil (2022: £7.3m and £nil), and total revenues of £217.0m and £844.9m, respectively (2022: £185.0m and £327.0m). Both revenue
and dividends have increased in Merseyrail as a result of higher passenger volumes and a commercial settlement relating to current
and prior periods. The increase in VIVO’s revenue is due to higher volumes of variable work and additional service contracts
awarded to the joint venture during the year.
The split of the share of profits in joint ventures and associates, net of interest and tax for the year ended 31 December 2023 was
£29.0m (2022: £12.0m), comprising of profit from Merseyrail £15.9m (2022: £5.3m), VIVO £13.1m (2022: £6.6m) and a profit on
other joint ventures and associates of £nil (2022: profit of £0.1m). Profit has increased as a result of additional variable revenue and
the commercial settlement in Merseyrail.
Summarised financial information of Merseyrail and VIVO, and an aggregation of the other equity accounted entities in which the
Group has an interest in is as follows:
Serco Group plc | Annual Report and Accounts 2023 | 177
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
6. Joint ventures and associates continued
31 December 2023
Summarised financial information
Year ended 31 December 2023
Revenue
Operating profit/(loss)
Net (finance costs)/investment revenue
Income tax (charge)/credit
Profit/(loss) from operations
Other comprehensive income
Total comprehensive income
Non current assets
Current assets
Current liabilities
Non current liabilities
Net Assets
Merseyrail
(100% of
results)
£m
217.0
41.5
0.3
(10.0)
31.8
2.2
34.0
61.3
48.5
(39.9)
(45.6)
24.3
VIVO
(100% of
results)
£m
844.9
35.3
(1.2)
(7.7)
26.4
—
26.4
8.9
230.9
(186.0)
(14.1)
39.7
Group portion
of material joint
ventures and
associates1
Group portion
of other joint
ventures and
associates1
£m
472.4
38.1
(0.2)
(8.9)
29.0
1.1
30.1
34.3
127.7
(111.5)
(18.7)
31.8
£m
1.0
—
—
—
—
—
—
—
1.5
(1.1)
(0.1)
0.3
Total
£m
473.4
38.1
(0.2)
(8.9)
29.0
1.1
30.1
34.3
129.2
(112.6)
(18.8)
32.1
Portion of Group ownership
Carrying amount of investment
50.0 %
50.0 %
12.2
19.9
31.8
0.3
32.1
1
For Merseyrail and other joint ventures and associates, these are the total results of the entity multiplied by the proportion of Group ownership. For
VIVO, although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of
material joint ventures will not represent exactly 50% of their income and net assets.
Year ended 31 December 2023
Cash and cash equivalents
Current financial liabilities excluding trade and other
payables and provisions
Non-current financial liabilities excluding
intercompany loans, trade and other payables and
provisions
Current joint venture loans liability
Depreciation and amortisation
Interest income
Interest expense
Merseyrail
(100% of
results)
£m
27.2
(13.5)
VIVO
(100% of
results)
Group portion
of material joint
ventures and
associates1
Group portion
of other joint
ventures and
associates1
£m
43.8
(9.5)
£m
35.5
(12.9)
£m
0.4
(0.3)
Total
£m
35.9
(13.2)
(45.4)
(14.1)
(38.6)
(0.1)
(38.7)
—
(9.1)
2.0
(1.7)
(20.0)
(10.0)
(4.0)
0.5
(1.7)
(5.0)
1.3
(1.6)
—
—
—
0.1
(10.0)
(5.0)
1.3
(1.5)
1
For Merseyrail and other joint ventures and associates, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO,
although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material
joint ventures will not represent exactly 50% of their income and net assets.
The Group’s share of liabilities within joint ventures and associates is £131.4m (2022: £90.0m) which include £29.1m of lease
obligations (2022: £5.1m) and £10.0m in joint venture loan liabilities (2022: £10.0m). The balance is trade and other payables which
arise as part of the day-to-day operations carried out by those entities. Other than liabilities associated with leases, the Group has no
material exposure to third party debt or other financing arrangements within any of its joint ventures and associates.
VIVO’s funding requirement is agreed by both shareholders and based on the strategic business plan. At 31 December 2023, the
funding provided was £10.0m from each shareholder. In the future, distributions of net profits will be returned to the Group once
VIVO has sufficient reserves.
Serco Group plc | Annual Report and Accounts 2023 | 178
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
31 December 2022
Summarised financial information
Revenue
Operating profit/(loss)
Net finance costs
Income tax (charge)/credit
Profit from operations
Other comprehensive income
Total comprehensive income/(expense)
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net Assets
Portion of Group ownership
Carrying amount of investment
Merseyrail
(100% of
results)
£m
185.0
12.0
(0.4)
(1.0)
10.6
5.8
16.4
36.1
51.2
(29.6)
(26.5)
31.2
50.0 %
15.6
VIVO
(100% of
results)
£m
327.0
Group portion
of material joint
ventures and
associates1
£m
236.8
17.6
(0.6)
(3.2)
13.8
—
13.8
5.9
129.9
(91.7)
(31.1)
13.0
50.0 %
6.5
14.4
(0.4)
(2.1)
11.9
2.9
14.8
21.0
90.5
(60.6)
(28.6)
22.3
—
22.3
Group portion
of other joint
ventures and
associates1
£m
1.1
(0.1)
0.1
0.1
0.1
—
0.1
0.3
1.5
(0.8)
—
1.0
1.0
Total
£m
237.9
14.3
(0.3)
(2.0)
12.0
2.9
14.9
21.3
92.0
(61.4)
(28.6)
23.3
—
23.3
1.
For Merseyrail and other joint venturess and associates, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO,
although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material joint
ventures will not represent exactly 50% of their income and net assets.
Cash and cash equivalents
Current financial liabilities excluding trade and other
payables and provisions
Non-current financial liabilities excluding trade and
other payables and provisions
Non-current joint venture loan liabilities
Depreciation and amortisation
Interest income
Interest expense
Merseyrail
(100% of
results)
£m
33.2
(7.1)
VIVO
(100% of
results)
£m
18.0
(3.2)
(25.8)
(13.6)
—
(5.0)
0.1
(0.4)
20.0
(1.3)
—
(0.2)
Group portion
of material joint
ventures and
associates1
£m
Group portion
of other
joint venture
arrangements
and associates1
£m
25.6
(5.1)
(18.4)
(10.0)
(3.2)
0.1
(0.3)
0.6
(0.3)
—
—
(0.1)
—
(0.1)
Total
£m
26.2
(5.4)
(18.4)
(10.0)
(3.3)
0.1
(0.4)
1.
For Merseyrail and other joint ventures and associates, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO,
although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material joint
ventures will not represent exactly 50% of their income and net assets.
Serco Group plc | Annual Report and Accounts 2023 | 179
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
7. Acquisitions
No acquisitions were completed during the year. See note 37 for details of acquisitions completed subsequent to the Balance Sheet
date.
During the year, the Group finalised the integration of OXZ Holdings AG (ORS), completed the analysis of balances acquired as part
of the transaction, and made closing net working capital settlements with the vendors. As a result of these activities, the Group
revised the fair values of the acquired assets and liabilities resulting in an increase to goodwill of £3.3m, a reduction in other
intangibles of £6.9m, an increase to the deferred tax asset of £1.3m, and a cash receipt of £2.3m for final working capital
settlements.
Contingent consideration recognised on acquisition of ORS in 2022 was CHF12.8m (£11.2m) and reflected the fair value of the earn-
out and over performance payments based on a range of targets for the full year 2022 EBITDA. The maximum earn-out and over
performance payments were CHF10.0m and CHF4.0m respectively. The final earn-out and over performance payments settled at
CHF 12.3m (£10.2m) which resulted in a change to the fair value of the contingent consideration resulting in a profit of £1.0m
including the impact of foreign currency translation.
During the year the Group finalised the integration of Sapienza Consulting Holdings BV (Sapienza), completed the analysis of
balances acquired as part of the transaction, and made closing net working capital settlements with the vendors. As a result of these
activities, the Group revised the fair values of the acquired assets and liabilities resulting in a decrease of goodwill of £0.2m, an
increase in provisions of £0.4m, a reduction in trade and other payables of £0.4m, and a cash receipt of £0.2m for final working
capital settlements.
The total impact of acquisitions to the Group’s cash flow position in the period was as follows:
Cash received in respect of prior period acquisitions
Settlement of deferred consideration in respect of prior year acquisitions
Net cash outflow in respect of prior year acquisitions
Acquisition related costs
Net cash impact in the year on acquisitions
£m
(2.5)
10.2
7.7
1.3
9.0
The total transaction and implementation costs recognised in exceptional items for the year ended 31 December 2023 was nil (2022
£2.4m).
Serco Group plc | Annual Report and Accounts 2023 | 180
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
8. Revenue from contracts with customers
Revenue
Information regarding the Group’s major customers and a segmental analysis of revenue is provided in note 4.
An analysis of the Group’s revenue from its key market sectors, together with the timing of revenue recognition across the Group’s
revenue from contracts with customers, is as follows:
Year ended 31 December 2023
Key sectors
Defence
Justice & Immigration
Transport
Health & Other Facilities Management
Citizen Services
Timing of revenue recognition
Revenue recognised from performance obligations
satisfied in previous periods
Revenue recognised at a point in time
Products and services transferred over time
Year ended 31 December 2022
Key sectors
Defence
Justice & Immigration
Transport
Health & Other Facilities Management
Citizen Services
Timing of revenue recognition
Revenue recognised from performance obligations
satisfied in previous periods
Revenue recognised at a point in time
UK&E
North America
Asia Pacific
Middle East
£m
£m
£m
£m
355.0
1,329.8
148.7
227.4
378.6
931.9
—
102.5
—
328.4
2,439.5
1,362.8
2.8
42.1
2,394.6
2,439.5
—
—
1,362.8
1,362.8
156.7
351.3
12.2
196.5
128.4
845.1
1.3
11.4
832.4
845.1
30.9
—
71.3
103.2
21.0
226.4
—
—
226.4
226.4
UK&E
North America
Asia Pacific
Middle East
£m
£m
£m
£m
Total
£m
1,474.5
1,681.1
334.7
527.1
856.4
4,873.8
4.1
53.5
4,816.2
4,873.8
Total
£m
315.8
798.9
173.9
264.4
547.2
863.0
—
95.9
—
310.9
2,100.2
1,269.8
5.8
21.9
—
—
147.9
412.9
9.8
225.3
158.7
954.6
0.8
5.5
948.3
954.6
30.5
1,357.2
—
1,211.8
70.0
103.0
349.6
592.7
5.9
1,022.7
209.4
4,534.0
—
—
6.6
27.4
209.4
4,500.0
209.4
4,534.0
Products and services transferred over time
2,072.5
1,269.8
2,100.2
1,269.8
Serco Group plc | Annual Report and Accounts 2023 | 181
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
8. Revenue from contracts with customers continued
Transaction price allocated to remaining performance obligations
The following table shows the transaction price allocated to remaining performance obligations. This represents revenue expected
to be recognised in subsequent periods arising on existing contractual arrangements.
In assessing the future transaction price, the judgements of most relevance are the future term over which the transaction price is
calculated and the estimation of variable revenue to be included.
Where a contract with a customer includes within the term of the committed contract, provisions for price-rebasing or a provision for
market testing, revenue beyond these is included to the extent that there are no indicators which suggest that the contract will not
continue past this point, and it is highly probable that a significant reduction will not occur. Where there is a requirement for the
Group, or a customer, to enter into a new contract, rather than continuing an existing contract, such an extension is not included for
the purposes of calculating future transaction price.
Additionally, the Group has a small subset of contracts that contain a termination for convenience clause, for example, due to
national security considerations, which are assumed by the Group not to be without cause. These contracts are considered to run for
the full intended term for the purpose of calculating the transaction price allocated to remaining performance obligations, other
than instances where the Group believes that termination will occur before the original contract end date.Under the terms of certain
contracts which the Group has with its customers, the Group’s compensation for providing those services is based on volumes or other
drivers of variable activity, such as additional activities awarded under existing contracts. These volumes are not guaranteed, however,
based on historic volumes and the nature of the contracts in operation, such as the provision of asylum seeker accommodation or
passenger transport, Management is able to prepare a sufficiently reliable estimate of the minimum level of variable revenue that is likely to
be earned. As a result, variable revenue is included only to the level at which Management remains confident that a significant reduction will
not occur.
As part of the considerations around variable revenue, Management considers the impact that factors such as contractual performance,
anticipated demand and pricing (including indexation) may have on future revenue recognised. Management also considers whether
there are possible impacts from climate change and other environmental related risks, with certain sectors considered to be more at risk
than others, however, no significant adjustments were identified in relation to the future revenue forecasts of existing contracts.
Within 1 year (2024)
Between 2 – 5 years (2025 – 2028)
5 years and beyond (2029+)
UK&E North America1
Asia Pacific
Middle East
£m
1,950.9
5,239.1
2,131.9
9,321.9
£m
599.1
288.6
57.9
945.6
£m
706.7
988.4
1,113.7
2,808.8
£m
153.9
271.6
101.6
527.1
Total
£m
3,410.6
6,787.7
3,405.1
13,603.4
1. Due to the nature of the contracting environment in the North America Division, the transaction price allocated to remaining performance obligations is
primarily within 1 year and as a result the future years are inherently lower than other segments.
9. Exceptional operating items
Exceptional items are items of financial performance that are outside normal operations and are material to the results of the Group
either by virtue of size or nature. As such, the items set out below require separate disclosure on the face of the income statement to
assist in the understanding of the performance of the Group.
Year ended 31 December
Compensation received on the early termination of contractual services
Release of provisions held for indemnities given on disposed businesses
Costs associated with successful acquisitions
Exceptional operating items
Exceptional tax (charge)/credit
Total exceptional operating items net of tax
2023
£m
9.9
43.9
—
53.8
(2.3)
51.5
2022
£m
—
—
(2.4)
(2.4)
0.3
(2.1)
Serco Group plc | Annual Report and Accounts 2023 | 182
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
10. Operating profit
Operating profit is stated after charging/(crediting):
Year ended 31 December
Research and development costs
Profit on disposal of property, plant and equipment
Loss/(profit) on early termination of leases
(Profit)/loss on disposal of intangible assets
Depreciation and impairment of property, plant and equipment
Depreciation and impairment of right of use assets
Amortisation and impairment of intangible assets – arising on acquisition
Amortisation and impairment of intangible assets
Staff costs (note 11)
Allowance for doubtful debts credited to income statement
Net foreign exchange charge/(gain)
Movement on non-designated hedges and reclassified cashflow hedges
Lease payments recognised through operating profit1
Operating lease income from sub-leases
2023
£m
2.9
(0.6)
0.6
(0.8)
17.9
126.1
30.9
7.8
2022
£m
2.6
(0.5)
(0.2)
0.4
23.0
117.5
21.6
10.1
2,207.7
2,155.8
(0.4)
0.8
(0.2)
3.7
(2.4)
(0.4)
(0.1)
(0.8)
4.2
(1.8)
1.
The lease payments recognised in operating profit are those which have not been recorded in accordance with the permissible exemptions in IFRS 16 Leases
for short-term or low-value leases.
Amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services to the Company’s
Auditor are shown below.
Year ended 31 December
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
– Other non-audit services
Total non-audit fees
2023
£m
3.9
1.5
5.4
0.6
—
0.6
2022
£m
2.6
1.3
3.9
0.1
0.1
0.2
Fees payable to the Company’s Auditor 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 Audit Committee Report on page 111. No services were provided pursuant to contingent fee
arrangements.
11. Staff costs
The average number of persons employed by the Group (including Executive Directors) was:
Year ended 31 December
UK & Europe
North America
Asia Pacific
Middle East
Unallocated1
1. Unallocated includes Group overhead functions.
2023
Number
21,415
9,145
13,017
1,744
884
2022
Number
23,855
8,960
14,024
2,122
999
46,205
49,960
Serco Group plc | Annual Report and Accounts 2023 | 183
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
11. Staff costs continued
The average number of persons employed includes all individuals employed under contracts of service by the Group. This
comprises permanent, part-time, and casual employees and those with fixed term contracts. It excludes self-employed contractors
and other casual workers.
Aggregate remuneration of all employees based on the average number of employees reported above was:
Year ended 31 December
Wages and salaries
Social security costs
Other pension costs (note 30)
Share-based payment expense (note 34)
12. Investment revenue
Year ended 31 December
Interest receivable on loans and deposits
Net interest receivable on retirement benefit obligations (note 30)
Movement in discount on other debtors
13. Finance costs
Year ended 31 December
Interest payable on lease liabilities
Interest payable on loans
Facility fees and other charges
Foreign exchange on financing activities
2023
£m
2022
£m
1,934.2
1,889.1
157.9
102.1
148.3
102.8
2,194.2
2,140.2
13.5
15.6
2,207.7
2,155.8
2023
2022
£m
3.9
3.1
—
7.0
2023
£m
13.1
15.6
2.1
30.8
0.8
31.6
£m
1.9
2.7
0.1
4.7
2022
£m
7.9
15.2
2.4
25.5
(0.4)
25.1
14. Tax
14 (a) Income tax recognised in the income statement
Year ended 31 December
Current income tax
Current income tax charge/(credit)
Adjustments in respect of prior years
Deferred tax
Current year charge/(credit)
Adjustments in respect of prior years
Underlying
Non-underlying
items
Reported
Underlying
Non-underlying
items
Reported
2023
£m
34.0
1.3
16.8
(1.3)
50.8
2023
£m
(1.5)
—
(4.7)
—
(6.2)
2023
£m
32.5
1.3
12.1
(1.3)
44.6
2022
£m
41.8
3.5
7.5
(4.9)
47.9
2022
£m
(4.0)
—
(2.1)
—
(6.1)
2022
£m
37.8
3.5
5.4
(4.9)
41.8
Serco Group plc | Annual Report and Accounts 2023 | 184
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
The tax expense for the year can be reconciled to the profit in the Consolidated Income Statement as follows:
Year ended 31 December
Profit before tax
Tax calculated at a rate of 23.5%
(2022: 19.0%)
Expenses not deductible for tax
purposes1
UK unprovided deferred tax2
Other unprovided deferred tax
Effect of the use of unrecognised tax
losses
Impact of changes in statutory tax
rates on current income tax
Overseas rate differences
Other non-taxable income
Adjustments in respect of prior years3
R&D expenditure credit (RDEC)
Adjustments in respect of equity
accounted investments
Tax charge/(credit)
Underlying
Non-underlying
items
Reported
Underlying
Non-underlying
items
2023
£m
224.1
52.7
3.7
0.2
1.3
—
0.3
1.8
(2.4)
—
—
(6.8)
50.8
2023
£m
22.9
5.3
—
—
—
—
—
(1.2)
(10.3)
—
—
—
(6.2)
2023
£m
247.0
58.0
3.7
0.2
1.3
—
0.3
0.6
(12.7)
—
—
(6.8)
44.6
2022
£m
216.6
41.1
2.0
0.3
2.5
(1.1)
(0.8)
13.0
(5.5)
(1.4)
0.1
(2.3)
47.9
2022
£m
(19.8)
(3.8)
0.2
—
0.1
—
—
(2.6)
—
—
—
—
(6.1)
Reported
2022
£m
196.8
37.3
2.2
0.3
2.6
(1.1)
(0.8)
10.4
(5.5)
(1.4)
0.1
(2.3)
41.8
Relates to costs that are not allowable for tax deduction under local tax law.
1.
2. Arises due to timing differences between when an amount is recognised in the income statement and when the amount is subject to UK tax.
3.
Included within adjustments in respect of prior years for the year ended 31 December 2022, is a credit of £0.9m in relation to the finalisation of the prior year
position on share-based payments and a credit of £0.7m reflecting the utilisation of the R&D expenditure credit, previously written off to deferred tax, against
the 2021 current tax liability.
The corporate income tax expense for the year is based on the UK statutory rate of corporation tax for the period of 23.5% (2022:
19.0%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
14 (b) Income tax recognised in the SOCI
Year ended 31 December
Current tax
Taken to retirement benefit obligations reserve
Deferred tax
Relating to cash flow hedges
Taken to retirement benefit obligations reserve
2023
2022
£m
1.9
0.2
4.2
6.3
£m
2.0
(0.1)
25.1
27.0
Serco Group plc | Annual Report and Accounts 2023 | 185
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
14. Tax continued
14 (c) Tax on items taken directly to equity
Year ended 31 December
Current tax
Recorded in share-based payment reserve
Deferred tax
Recorded in share-based payment reserve
2023
£m
1.0
(0.5)
0.5
2022
£m
2.2
1.2
3.4
15. Deferred tax
Deferred income taxes are calculated in full on temporary differences under the liability method using local substantively enacted
tax rates.
The movement in net deferred tax (assets)/liabilities during the year was as follows:
Year ended 31 December
At 1 January – asset
Income statement charge/(credit)
R&D expenditure credit transferred to current tax
Items recognised in equity and in other comprehensive income
Arising on acquisition
Exchange differences
At 31 December – asset
The movement in deferred tax (assets)/liabilities during the year was as follows:
Temporary
differences
on assets/
intangibles
Temporary
differences
on right of
use assets
Temporary
differences
on lease
liabilities
Share-based
payment and
employee
benefits
Retirement
benefit
schemes
Onerous
contract
provisions
Derivative
financial
instruments
2023
£m
2022
£m
(190.4)
(174.0)
10.8
—
(3.9)
(1.3)
—
0.6
0.7
(26.2)
5.5
3.0
(184.8)
(190.4)
Other
temporary
differences
£m
Tax
losses
£m
Total
£m
(165.6)
(30.1)
(190.4)
—
2.7
—
1 January 2023
IFRS 16
Restatement
At 1 January
(Restated)
Charged/(credited)
to income
statement (note
14a)
Arising on
acquisition of a
subsidiary
Items recognised in
equity and in other
comprehensive
income (notes 14b
and 14c)
Exchange
differences
31 December
2023
£m
—
£m
—
18.6
(22.1)
£m
(38.0)
—
£m
11.2
—
£m
(0.8)
—
£m
0.1
—
£m
32.8
0.8
33.6
18.6
(22.1)
(38.0)
11.2
(0.8)
0.1
(165.6)
(27.4)
(190.4)
(0.4)
(2.4)
3.6
(0.9)
0.1
(0.2)
(1.3)
—
—
—
—
—
—
—
0.5
(4.2)
(2.9)
(0.8)
0.9
1.6
—
—
—
—
—
—
(0.2)
8.0
3.0
10.8
—
—
—
—
(1.3)
(3.9)
—
0.1
1.1
—
29.0
15.4
(17.6)
(36.8)
7.1
(1.0)
(0.1)
(157.5)
(23.3)
(184.8)
Other temporary differences include amounts such as provisions and accruals which, under certain tax laws, are only allowable when
expended.
Serco Group plc | Annual Report and Accounts 2023 | 186
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
The movement in deferred tax (assets)/liabilities during the previous year was as follows:
Retirement
benefit
schemes
Onerous
contract
provisions
Temporary
differences
on assets/
intangibles
Share-based
payment and
employee
benefits
£m
19.9
£m
(34.5)
1.7
(0.5)
—
5.5
—
—
£m
36.2
0.2
—
0.1
—
(1.2)
(25.1)
5.7
32.8
(1.8)
(38.0)
(0.2)
11.2
(0.1)
(0.8)
£m
(0.8)
0.1
—
—
—
Derivative
financial
instruments
£m
—
—
—
—
0.1
—
0.1
Tax
losses
£m
(166.0)
Other
temporary
differences
£m
(28.8)
0.8
(1.7)
—
0.7
(0.1)
—
—
—
Total
£m
(174.0)
0.6
0.7
5.5
(26.2)
(0.3)
(0.3)
3.0
(165.6)
(30.1)
(190.4)
1 January 2022
Credited to income
statement (note
14a)
R&D expenditure
credit transferred to
current tax
Arising on
acquisition of a
subsidiary
Items recognised in
equity and in other
comprehensive
income (notes 14b
and 14c)
Exchange
differences
31 December 2022
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 analysis shows the
deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
2023
£
50.9
(235.7)
(184.8)
2022
£
53.8
(244.2)
(190.4)
As at the balance sheet date, the UK has a potential deferred tax asset of £238.4m (2022: £253.6m) available for offset against future
profits. A UK deferred tax asset has currently been recognised of £179.9m (2022: £186.9m). Recognition has been based on the
improved performance in the underlying UK business indicating a sustained return to profitability which will enable accumulated tax
losses within the UK to be utilised. The return to profitability is as a result of onerous contracts ending and new profitable long-term
contracts being entered into, as well as a significant reduction in exceptional restructuring spend following the strategy review in
2015, which also reduced the level of overhead spend within the UK business. No deferred tax asset has been recognised in respect
of the remaining asset (net £58.5m) as they are more restricted in their use either due to their nature, such as capital losses, or the
period and entity in which they arose, as revenue losses made before April 2017 are more restricted in their use. On 24 May 2021,
legislation which increases the UK tax rate from 19% to 25% from April 2023 was substantively enacted. These measures increase
the Group’s future current tax charge accordingly. The deferred tax balance at 31 December 2023 has been calculated reflecting
the increased rate of 25%.
Outside of the UK, there is a further £20.5m (2022: £39.5m) of deferred tax assets which have not been recognised. £19.8m
(2022: £38.8m) of this relates to revenue losses where current forecasts do not support recognition.
On 9 December 2022, the Ministry of Finance in UAE published tax law under which certain Serco operations in UAE will pay tax
from January 2024. The Group continues to work with local advisers to ascertain the implications on filing requirements and tax
payment, however, current expectations are that the introduction of this new tax will not have a material impact on the Group’s tax
liability.
In October 2021, over 130 countries in the Organisation for Economic Cooperation and Development (OECD) jointly released a
framework to introduce a global minimum tax rate of 15% in order to address concerns about uneven profit distributions and tax
contributions of large multinationals. In July 2023, the UK government enacted legislation to bring this framework into UK law from
January 2024. Work undertaken to date suggests that the introduction of this minimum tax will also not have a material impact on
the Group tax liability. The Group has applied a temporary mandatory relief from deferred tax accounting for the impact of the top-
up tax and accounts for it as a current tax when it is incurred.
Losses of £7.0m (2022: £1.6m) expire within 5 years, losses of £45.7m (2022: £4.1m) expire within 6-10 years, losses of £4.8m (2022:
£11.8m) expire within 20 years and losses of £887.7m (2022: £1,072.6m) may be carried forward indefinitely.
Serco Group plc | Annual Report and Accounts 2023 | 187
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
16. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax attributable to owners of the Company by the weighted average
number of shares in issue after deducting the own shares held by employee share ownership trusts and treasury shares and adding
back vested share options not exercised.
In calculating the diluted earnings per share, unvested share options outstanding have been taken into account where the impact of
these is dilutive.
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: Shares under award
2023
millions
1,110.2
18.4
2022
millions
1,192.2
22.6
Weighted average number of ordinary shares for the purpose of diluted EPS
1,128.6
1,214.8
Earnings per share
Basic EPS
Earnings for the purpose of basic EPS
Effect of dilutive potential ordinary shares
Diluted EPS
17. Goodwill
1 January 2022
Acquisitions
Exchange differences
At 31 December 2022
Acquisitions - revision of provisional fair value estimates
Disposals
Exchange differences
At 31 December 2023
Movements in the balance since the prior year end can be seen as follows:
Earnings
2023
£m
202.4
—
202.4
Per share
amount
2023
pence
18.23
(0.30)
17.93
Cost
£m
1,180.2
20.9
97.8
1,298.9
3.1
(0.1)
(55.1)
1,246.8
Earnings
2022
£m
155.4
—
155.4
Per share
amount
2022
pence
13.03
(0.24)
12.79
Accumulated
impairment
losses Carrying amount
£m
(327.5)
—
(26.4)
(353.9)
—
—
13.8
(340.1)
£m
852.7
20.9
71.4
945.0
3.1
(0.1)
(41.3)
906.7
UK & Europe
North America
Asia Pacific
Middle East
Goodwill
balance 1
January
2023
Acquisitions -
revision of
provisional fair
value estimates
£m
203.8
592.2
137.8
11.2
945.0
£m
3.1
—
—
—
3.1
Exchange
differences
2023
Goodwill
balance 31
December
2023
Headroom on
impairment
analysis
2023
Headroom on
impairment
analysis
2022
£m
(0.3)
(32.7)
(7.6)
(0.7)
(41.3)
£m
206.6
559.5
130.2
10.4
906.7
£m
1,051.1
644.3
110.0
285.5
£m
811.1
360.9
281.0
119.5
2,090.9
1,572.5
Disposals
£m
—
—
—
(0.1)
(0.1)
Included above is the headroom on the cash generating units (CGUs) existing at the year end, which reflects where future
discounted cash flows are greater than the underlying assets and includes all relevant cash flows, including where provisions have
been made for future costs and losses. In all CGUs, there is sufficient headroom available which is consistent with 2022.
Serco Group plc | Annual Report and Accounts 2023 | 188
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
The key quantifiable assumptions applied in the impairment review are set out below:
UK & Europe
North America
Asia Pacific
Middle East
Discount
rate
%
Discount
rate
%
2023
10.2
11.4
12.3
12.0
2022
10.3
12.1
13.4
13.5
Terminal
growth
rates
%
2023
2.0
2.3
2.2
2.5
Terminal
growth
rates
%
2022
2.0
2.3
2.2
1.2
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 reviewed annually with external advisers and are adjusted for risks specific to the market in
which the CGU operates and risks specific to the Group; cash flow risks are considered within cash flows and not the discount rate.
Discount rates used in 2023 have decreased compared with 2022. This is due to a reduction in risk-free rates following significant
market volatility experienced in late 2022 and the adoption of a more relevant risk-free rate for the Middle East CGU in 2023.
Terminal growth rates
The value in use calculation includes a terminal value based on the projections for the fifth year of the five-year plan, with a growth
rate assumption applied which extrapolates the business into perpetuity. The terminal growth rates are based on long-term inflation
rates of the geographic market in which the CGUs operate and therefore do not exceed the average long-term growth rates forecast
for the individual markets. These are provided by external advisers and have not materially changed as compared with 2022.
Short-term growth rates
The annual impairment test is performed immediately prior to the year end, based initially on the Board-approved five-year plan.
Short-term revenue growth rates used in each CGU’s five-year plan are based on internal data regarding our current contracted
position, the pipeline of opportunities and forecast growth for the relevant market.
Short-term profitability and cash conversion is based on our historic experiences and a level of judgement is applied to expected
changes in both. Where businesses have been poor performers, performance improvement has only been assumed where the
Directors have assessed that an achievable plan is in place and all forecasts include cash flows relating to contracts where onerous
contract provisions have been made.
As explained in note 8, Management considers certain sectors in which the Group operates to be more exposed to environmental
risks than others. For example, changes in consumer attitudes to aviation or the use of private vehicles, may have an impact on the
Group’s transport contracts. Currently, no adjustment to existing contracts is required, although Management will continue to
monitor the potential impact of environmental risks.
Sensitivity analysis
Reflecting the assumptions made in the estimation of future cash flows and the selection of appropriate discount rates and terminal
growth rates, a number of plausible scenarios have been considered as part of the overall impairment assessment.
Sensitivity analysis has been performed by applying a 1% movement in discount rates and a 1% movement in terminal growth rates
which are considered to be reasonably possible. Both individually and combined, the impact of these changes in key assumptions
does not lead to an impairment in any CGU (2022: no impairment in any CGU).
A sensitivity analysis has been performed in respect of short-term growth rates within the Board-approved five-year plan. The
sensitivity applied has been to assume no growth to cash flows outside of the two year budget period of the five-year plan. No
impairment results from these changes, even when combined with the additional 1% increase in discount rates and 1% reduction in
terminal growth rates, with the exception of the Asia Pacific CGU (2022: Asia Pacific CGU) for which additional sensitivities have
been performed below. Given the visibility of pipeline available, a no growth scenario is unlikely and would require win and rebid
rates to fall below the five-year averages seen within the business. In order to deliver revenue growth, amongst other things, the
Group continues to invest in bidding activity in order to ensure it remains competitive within the markets in which it operates.
Management has also considered the sensitivity of cash flows in the terminal year for all CGUs and has determined that a reduction
in cash flows of up to 10% in the final year of the plan is reasonably possible. No impairment results from this scenario even when
combined with an additional 1% increase in discount rates and a 1% reduction in terminal growth rates though this is not deemed
reasonably possible. Cash flows in the terminal year would need to reduce by 91% in the Middle East (£32.4m), 32% in Asia Pacific
(£9.8m), 68% in North America (£56.5m) and 79% in UK & Europe (£102.3m), before an impairment would need to be recognised.
Asia Pacific CGU
The risk adjusted Board-approved five-year plan for the Asia Pacific Division supports the headroom held against the CGU. The key
judgements in respect of the divisional plan are as follows:
– Win rates by value improve from the current levels experienced by the Division in 2023 of 2% for new business and 24% for
rebids, to the five-year average which are 15% for new business and 63% for rebids.
– The immigration rebid, for which the tender outcome is expected in the first half of 2024, delivers cash flows beyond 2024.
– There is no significant deterioration within the outsourcing market in the region.
Serco Group plc | Annual Report and Accounts 2023 | 189
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
17. Goodwill continued
Having performed a review of the market, made local management changes and identified areas where the business could be more
efficient, the Directors believe that sufficient opportunities exist to deliver the five-year plan and that win rates can be improved.
Whilst tangible cost savings are expected in the short term, it may take a longer period for an improvement in pipeline and win rates
to be observed. In addition, the Directors believe on balance that the immigration contract is likely to be retained given the Group’s
experience in delivering the existing contract, and the general rebid rates it achieves. However, a loss would impact the Division’s
ability to deliver the five-year plan if no opportunities are secured to replace the cash flows delivered by the contract.
In respect of scenarios within the Asia Pacific CGU:
a. Whilst the base case scenario, which assumes win rates returning to the long-term five-year average outlined above,
results in no impairment, the Directors note that sustained win rates at the level observed over the last year combined with
the inability to identify sufficient credible opportunities could lead to an impairment of the entire goodwill balance of the
CGU. Win rates by value would independently have to reduce to 11% for new business and 46% for rebids over the five-
year period to result in no headroom.
b. An unsuccessful outcome in respect of the immigration rebid could result in an impairment in isolation. However, given
the scale of this contract to the CGU, a fundamental restructuring of the Division may be required to improve profitability
and would mitigate the risk of impairment.
As noted above, win rates not improving, or the loss of the immigration rebid, would require a review of the efficiency of the Asia
Pacific Division and may result in a review of the overhead and support structures in place to ensure that they are appropriate for the
scale of business and opportunities available . Any costs or benefits of restructuring are not included in the five-year cash flows.
18. Other intangible assets
Cost
At 1 January 2023
Acquisitions - revision of provisional fair value estimates
Additions - internal development
Additions - external
Disposals
Exchange differences
At 31 December 2023
Accumulated amortisation and impairment
At 1 January 2023
Impairment charge
Amortisation charge - internal development
Amortisation charge - external
Disposals
Exchange differences
At 31 December 2023
Net book value
At 31 December 2023
Acquisition
related
Other
Customer
relationships
Software and IT
Internally
generated
development
expenditure
£m
£m
£m
219.5
(6.9)
—
—
—
(9.8)
202.8
88.5
8.1
—
22.8
—
(5.2)
114.2
137.5
—
—
5.4
(7.1)
(3.0)
132.8
112.1
0.1
3.3
3.8
(6.5)
(2.6)
110.2
54.4
—
3.4
—
—
(0.2)
57.6
52.8
—
0.6
—
—
(0.2)
53.2
Total
£m
411.4
(6.9)
3.4
5.4
(7.1)
(13.0)
393.2
253.4
8.2
3.9
26.6
(6.5)
(8.0)
277.6
88.6
22.6
4.4
115.6
Serco Group plc | Annual Report and Accounts 2023 | 190
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Cost
At 1 January 2022
Arising on acquisition
Additions - internal development
Additions - external
Disposals
Exchange differences
At 31 December 2022
Accumulated amortisation and impairment
At 1 January 2022
Impairment charge
Amortisation charge - internal development
Amortisation charge - external
Disposals
Exchange differences
At 31 December 2022
Net book value
At 31 December 2022
Acquisition
related
Other
Customer
relationships
£m
Software
£m
176.4
24.9
—
—
—
18.2
219.5
128.8
0.4
0.4
5.8
(2.0)
4.1
137.5
60.3
100.9
—
—
21.6
—
6.6
88.5
0.1
6.4
3.3
(1.6)
3.0
112.1
Internally
generated
development
expenditure
£m
55.8
1.1
0.8
—
(4.2)
0.9
54.4
55.8
—
0.3
—
(4.2)
0.9
52.8
Total
£m
361.0
26.4
1.2
5.8
(6.2)
23.2
411.4
217.0
0.1
6.7
24.9
(5.8)
10.5
253.4
131.0
25.4
1.6
158.0
During the year ended 31 December 2023, the Group has recognised an impairment charge on customer relationships of £8.1m.
The customer relationship arose on acquisition, however, the unexpected loss of key contracts and lack of visible opportunities with
the relevant customer has resulted in an impairment of the intangible asset.
The net book value of internally generated intangible assets as at 31 December 2023 was £4.4m (2022: £1.6m) in development
expenditure and £nil (2022: £1.8m) in software and IT.
Serco Group plc | Annual Report and Accounts 2023 | 191
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
19. Property, plant and equipment and right of use assets
Land & Buildings
Owned
Land & Buildings
Leased
Leasehold
Improvements
Owned
Other Assets
Owned1
Other Assets
Leased1
£m
£m
£m
£m
Cost
At 1 January 2023
Additions
Reclassifications from/to property,
plant & equipment
Disposals
Exchange differences
At 31 December 2023
Accumulated depreciation and
impairment
At 1 January 2023
Charge for the year - impairment
Charge for the year - depreciation
Disposals
Exchange differences
At 31 December 2023
Net book value2
At 31 December 2023
£m
4.3
0.4
—
(0.6)
—
4.1
3.3
0.2
—
(0.6)
—
2.9
673.5
135.7
8.2
(74.4)
(5.9)
737.1
294.2
0.7
107.6
(65.0)
(3.7)
333.8
37.2
1.2
—
(1.1)
(1.4)
35.9
22.8
0.1
3.8
(0.8)
(0.9)
25.0
139.9
14.3
—
(18.7)
(3.4)
132.1
107.2
0.3
13.5
(18.3)
(2.8)
99.9
TOTAL
£m
987.8
164.4
—
132.9
12.8
(8.2)
(49.6)
(144.4)
(0.8)
87.1
78.0
—
17.8
(45.9)
(0.4)
49.5
(11.5)
996.3
505.5
1.3
142.7
(130.6)
(7.8)
511.1
1.2
403.3
10.9
32.2
37.6
485.2
1. Other assets include machinery, vehicles, furniture and equipment.
2.
The net book value is shown on the balance sheet as £44.3m of owned assets in property, plant and equipment and £440.9m of leased assets in right of
use assets.
The additions for leased land and buildings include £0.9m (2022: £0.8m) for dilapidation provisions and £nil (2022: £nil) for non-
cash lease incentives.
Serco Group plc | Annual Report and Accounts 2023 | 192
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Land & Buildings
Owned
Land & Buildings
Leased
Leasehold
Improvements
Owned
Other Assets
Owned1
Other Assets
Leased1
Cost
1 January 2022
Arising on acquisition
Additions
Reclassifications from/to property,
plant & equipment
Disposals
Exchange differences
At 31 December 2022
Accumulated depreciation and
impairment
1 January 2022
Charge for the year - impairment
Charge for the year - depreciation
Reclassifications from/to property,
plant & equipment
Disposals
Exchange differences
At 31 December 2022
Net book value2
At 31 December 2022
£m
4.1
—
—
0.1
—
0.1
4.3
2.8
0.2
0.2
—
—
0.1
3.3
1.0
£m
£m
£m
£m
569.6
4.5
116.2
—
(28.5)
11.7
673.5
204.4
2.0
96.4
—
(15.3)
6.7
294.2
33.7
134.9
132.3
—
2.6
0.5
(1.8)
2.2
37.2
19.0
0.2
4.2
—
(1.8)
1.2
22.8
1.1
9.8
0.6
(11.3)
4.8
139.9
95.4
1.9
16.3
1.1
(11.1)
3.6
107.2
8.6
13.6
(1.2)
(24.3)
3.9
132.9
80.8
(3.8)
22.9
(1.1)
(23.5)
2.7
78.0
TOTAL
£m
874.6
14.2
142.2
—
(65.9)
22.7
987.8
402.4
0.5
140.0
—
(51.7)
14.3
505.5
379.3
14.4
32.7
54.9
482.3
1. Other assets include machinery, vehicles, furniture and equipment.
2.
The net book value is shown on the balance sheet as £48.1m of owned assets in property, plant and equipment and £434.2m of leased assets in right of
use assets.
20. Inventories
Service spares, supplies, consumables and work in progress
21. Contract assets, trade and other receivables
Contract assets: Current
Accrued income and other unbilled receivables
Capitalised bid costs
Capitalised mobilisation and phase in costs
Other contract assets
2023
£m
24.1
2023
£m
287.6
2.1
5.6
1.3
2022
£m
22.4
2022
£m
334.4
2.3
7.3
1.0
296.6
345.0
The Group’s Consolidated Balance Sheet includes capitalised bid and phase-in costs that are realised as a part of the normal
operating cycle of the Group. These assets represent upfront investments in contracts which are recoverable and expected to
provide benefits over the life of those contracts. Bid costs are capitalised only when they relate directly to a contract and are
incremental to securing the contract. Any costs which would have been incurred whether or not the contract is actually won are not
considered to be capitalised bid costs.
Contract costs can only be capitalised when the expenditure meets all three criteria identified in note 2.
Serco Group plc | Annual Report and Accounts 2023 | 193
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
21. Contract assets, trade and other receivables continued
Movements in the period were as follows:
Capitalised other contract assets, bid and phase-in costs
At 1 January
Additions
Amortisation
Exchange differences
At 31 December
2023
£m
10.6
0.8
(2.2)
(0.2)
9.0
Total trade and other receivables held by the Group at 31 December 2023 amount to £343.8m (2022: £390.7m).
Trade and other receivables: Non-current
Prepayments
Other receivables
2023
£m
0.4
14.4
14.8
Other non-current receivables include long-term employee compensation plans, advances and other non-trade receivables.
Trade and other receivables: Current
Trade receivables
Prepayments
Amounts owed by joint ventures and associates
Other receivables
2023
£m
219.1
55.2
1.1
53.6
2022
£m
12.5
0.8
(3.1)
0.4
10.6
2022
£m
1.3
14.8
16.1
2022
£m
266.8
63.8
3.1
40.9
329.0
374.6
Other receivables includes cash transferred to purchase shares for the Employee Share Ownership Trust where the shares are yet to
be received, and advanced deposits to suppliers.
The management of trade receivables is the responsibility of the reportable operating segments, although they report to the Group
on a monthly basis on debtor days, debtor ageing and significant outstanding debts. The average credit period taken by customers
is 16 days (2022: 22 days) and no interest was charged on overdue amounts in the current or prior reporting period.
Each customer has an external credit score which determines the level of credit provided. However, the majority of the Group’s
customers have a sovereign credit rating as a result of being government organisations. Of the trade receivables balance at the end
of the year, £43.5m is due from agencies of the UK Government, the Group’s largest customer (2022: £55.8m); £43.6m from the
Australian Government (2022: £65.5m); £35.7m from the US Government (2022: £33.1m); and £15.2m from the Government of the
United Arab Emirates (2022: £18.3m). There are no other customers who represent more than 5% of the total balance of trade
receivables. The maximum potential exposure to credit risk in relation to trade receivables at the reporting date is equal to their
carrying value. The Group does not hold any collateral as security.
The Group does not have any material impairments associated with expected credit losses due to the sovereign credit rating of most
customers. Further specific impairments to trade receivables are based on estimated irrecoverable amounts and provisions on
outstanding balances greater than 90 days old unless there is firm evidence that the balance is recoverable or is not covered by a
credit note provision in unbilled receivables. The total amount of these impairments for the Group was £2.8m as of 31 December
2023 (2022: £3.3m).
An Expected Credit Loss (ECL) is recognised against contract assets only when it is considered to be material and there is evidence
that the credit worthiness of a counterparty may render balances irrecoverable. The amount of ECL recognised at 31 December
2023 was £nil (2022: £nil).
Ageing of trade receivables
Not due
Overdue by less than 30 days
Overdue by between 30 and 60 days
Overdue by more than 60 days
Allowance for doubtful debts
2023
£m
168.6
31.3
11.0
11.0
(2.8)
2022
£m
202.1
31.8
6.2
30.0
(3.3)
219.1
266.8
Serco Group plc | Annual Report and Accounts 2023 | 194
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Of the total overdue trade receivable balance, 61% (2022: 63%) relates to the Group’s four major governmental customers (being
the governments of the UK, US, Australia and the United Arab Emirates).
Movements on the Group allowance for doubtful debts
At 1 January
Arising on acquisition
Net charges and releases to income statement
Utilised
Exchange differences
At 31 December
2023
£m
3.3
—
(0.4)
—
(0.1)
2.8
Included in the current other receivables balance is a further £1.2m (2022: £1.5m) due from agencies of the UK Government.
22. Cash and cash equivalents
Customer advance payments1
Other cash and short-term deposits2
Total cash and cash equivalents
Sterling Other currencies
2023
£m
—
38.2
38.2
2023
£m
—
56.2
56.2
Total
2023
£m
—
94.4
94.4
Sterling Other currencies
2022
£m
—
3.5
3.5
2022
£m
1.4
52.3
53.7
1. Customer advance payments totalling £nil (2022: £1.4m) are encumbered cash balances.
2.
Restricted cash of £nil (2022: £4.0m) is included within other cash and short term deposits.
2022
£m
4.4
1.3
(0.4)
(2.3)
0.3
3.3
Total
2022
£m
1.4
55.8
57.2
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 from the date of acquisition.
23. Contract liabilities, trade and other payables
Contract liabilities: Current
Deferred income
Contract liabilities: Non-current
Deferred income
2023
£m
35.8
2023
£m
59.3
2022
£m
60.5
2022
£m
36.3
The allocation of deferred income between current and non-current is presented on the basis that the current portion will unwind in
the following 12 months through revenue. There were no material items in the current portion of deferred income in 2022 which did
not unwind during the year.
Total trade and other payables held by the Group at 31 December 2023 amount to £567.2m (2022: £629.3m).
Trade and other payables: Current
Trade payables
Contingent consideration payable
Other payables
Accruals
Other payables include sales and other direct taxes, payroll taxes, salaries and other non-trade payables.
The average credit period taken for trade purchases is 20 days (2022: 21 days).
Trade and other payables: Non-current
Other payables
Serco Group plc | Annual Report and Accounts 2023 | 195
2023
£m
99.3
—
140.0
318.7
558.0
2023
£m
9.2
2022
£m
108.3
11.2
166.2
337.1
622.8
2022
£m
6.5
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
24. Leases
Management estimates that the fair value of the Group’s lease obligations approximates their carrying amount. The Group uses
leases in the delivery of its contractual obligations and the services required to support the delivery of those contracts, including
administrative functions. There are no material future cash outflows relating to leases in place as at 31 December 2023 that are not
reflected in the minimum lease payments disclosed below and the Group does not have any leases to which it is contracted but
which are not yet reflected in the minimum lease payments. Additionally, the Group does not have any material leases where
payments are variable. The Group has a significant number of leases which include either termination or extension options, or both.
Included in amounts payable under leases below are only those amounts which reflect Management’s view of the reasonably certain
lease term in line with current operational requirements.
No lease liability is recognised in respect of leases which have a lease term of less than 12 months in duration at the point of
entering into the lease, or where the purchase price of the underlying right of use asset is less than £5,000.
The total cash outflow for leases, excluding short-term leases and low-value leases, in the year was £137.5m (2022: £128.4m). This is
presented in the Consolidated Cash Flow Statement as £124.4m (2022: £120.5m) relating to the principal element of the lease
liability payments, with the remaining balance of £13.1m (2022: £7.9m) presented within interest paid.
Minimum lease
payments
Minimum lease
payments
Amounts payable under leases
Within one year
Between one and five years
After five years
Less: future finance charges
Present value of lease obligations
Less: amount due for settlement within one year (shown under current liabilities)
Amount due for settlement after one year
2023
£m
149.0
277.1
45.8
471.9
(18.2)
453.7
(140.0)
313.7
The following amounts are included in the Group’s Consolidated Financial Statements in respect of its leases:
Additions to right of use assets
Depreciation charge on right of use assets
Net (impairment)/release of impairment on right of use assets
Net disposal of right of use assets
Net reclassification from right of use assets
Net exchange differences on right of use assets
Carrying amount of right of use assets
Current lease liabilities
Non-current lease liabilities
Capital element of lease repayments
Interest expense on lease liabilities
(Loss)/Profit on early termination of leases
Expenses relating to short term or low value leases
Note
19
19
19
19
19
19
19
24
24
13
10
10
2023
£m
148.5
(125.4)
(0.7)
(13.1)
—
(2.4)
440.9
140.0
313.7
(124.4)
(13.1)
(0.6)
(3.7)
2022
£m
150.6
263.2
51.5
465.3
(19.3)
446.0
(144.4)
301.6
Restated
2022
£m
129.8
(119.3)
1.8
(14.0)
(0.1)
6.2
434.2
144.4
301.6
(120.5)
(7.9)
0.2
(4.2)
Serco Group plc | Annual Report and Accounts 2023 | 196
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
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 in current liabilities)
Amount due for settlement after one year
Total
2023
£m
51.0
38.5
61.9
54.8
206.2
(51.0)
155.2
Total
2022
£m
44.5
54.1
106.3
58.0
262.9
(44.5)
218.4
Included within amounts repayable within one year is £nil (2022: £nil) related to the draw down on the revolving credit facility.
Fair value of loans
Loans
Carrying amount
Fair value Carrying amount
Fair value
2023
£m
206.2
2023
£m
189.2
2022
£m
262.9
2022
£m
241.5
The fair values are based on cash flows discounted using a market rate appropriate to the loan. All loans are held at amortised cost.
Analysis of Net Debt
The analysis below provides a reconciliation between the opening and closing positions in the balance sheet for liabilities arising
from financing activities together with movements in derivatives relating to the items included in Net Debt. There were no changes
in fair value noted in either the current or prior year.
At 1 January
At 31 December
Loans payable
Lease obligations
Liabilities arising from financing
activities
Cash and cash equivalents
Derivatives relating to net debt
Net debt
2023
£m
(262.9)
(446.0)
(708.9)
57.2
1.8
(649.9)
Cash flow
Acquisitions1
Exchange
differences
Non-cash
movements2
£m
44.5
124.4
168.9
39.8
—
208.7
£m
—
—
—
—
—
—
£m
13.1
3.1
16.2
(2.6)
1.3
14.9
£m
(0.9)
(135.2)
2023
£m
(206.2)
(453.7)
(136.1)
(659.9)
—
—
94.4
3.1
(136.1)
(562.4)
1
2
Acquisitions represent the net cash/(debt) acquired on acquisition.
Non-cash movements on loans payable relate to movement in capitalised finance costs in the year. For lease obligations non-cash movements relate to the
net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash termination cost.
At 1 January
At 31 December
Cash flow
Acquisitions1
Exchange
differences
Non-cash
movements2
Loans payable
Lease obligations
Liabilities arising from financing
activities
Cash and cash equivalents
Derivatives relating to net debt
Net debt
2022
£m
(377.0)
(430.3)
(807.3)
198.4
0.6
(608.3)
£m
149.3
120.5
269.8
(151.1)
—
118.7
£m
(6.5)
(13.1)
(19.6)
6.2
—
£m
(30.1)
(8.0)
(38.1)
3.7
1.2
£m
1.4
(115.1)
(113.7)
—
—
2022
£m
(262.9)
(446.0)
(708.9)
57.2
1.8
(13.4)
(33.2)
(113.7)
(649.9)
1
2
Acquisitions represent the net cash/(debt) acquired on acquisition.
Non-cash movements relate to the net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a
cash termination cost.
Serco Group plc | Annual Report and Accounts 2023 | 197
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
26. Provisions
At 1 January 2023
Acquisitions - revision of provisional
fair value estimates
Disposals
Charge capitalised in right of use
assets
Charged to income statement
Released to exceptional items
Released to income statement
Utilised during the year
Exchange differences
At 31 December 2023
Analysed as:
Current
Non-current
Employee
related
Property
Contract
£m
82.5
—
(1.2)
—
18.3
—
(2.1)
(9.2)
(4.4)
83.9
54.0
29.9
83.9
£m
19.6
—
(0.9)
0.9
9.7
—
(1.6)
(4.2)
(0.3)
23.2
5.9
17.3
23.2
£m
11.6
—
—
—
8.8
—
(0.6)
(3.2)
0.1
16.7
10.7
6.0
16.7
Claims
£m
24.2
—
—
—
9.7
—
(3.1)
(5.2)
—
25.6
5.4
20.2
25.6
Other
£m
70.5
0.4
(0.3)
—
7.7
(43.9)
(7.7)
(5.4)
(0.4)
20.9
16.9
4.0
20.9
Total
£m
208.4
0.4
(2.4)
0.9
54.2
(43.9)
(15.1)
(27.2)
(5.0)
170.3
92.9
77.4
170.3
Employee-related provisions include amounts for long-term service awards and terminal gratuity liabilities which have been accrued
and are based on contractual entitlement, together with an estimate of the probabilities that employees will stay until rewards fall
due and receive all relevant amounts. The provisions will be utilised over various periods driven by attrition and demobilisation of
contracts, the timing of which is uncertain. There are also amounts included in relation to restructuring.
The majority of property provisions relate to leased properties and are associated with the requirement to return properties to either
their original condition, or to enact specific improvement activities in advance of exiting the lease. Dilapidations associated with
leased properties are held as a provision until such time as they fall due, with the longest running lease ending in March 2037.
A contract provision is recorded when a contract is deemed to be unprofitable and therefore is considered onerous. The present
value of the estimated future cash outflow required to settle the contract obligations as they fall due over the respective contracts
has been used in determining the provision.
Claims provisions relate to claims made against the Group. These claims are varied in nature, although they typically come from
either the Group’s service users, claimants for vehicle-related incidents or the Group’s employees. While there is some level of
judgement on the amount to be recorded, in almost all instances the variance to the actual claim paid out will not individually be
material, however, the timing of when the claims are reported and settled is less certain as a process needs to be followed prior to
the amounts being paid.
Included within other provisions is £20.9m related to legal and other costs that the Group expects to incur over an extended period,
in respect of past events for which a provision has been recorded, none of which are individually material. The Group released from
other provisions indemnities given on disposed businesses of £43.9m during the year predominantly due to the claims period
ending.
Individual provisions are only discounted where the impact is assessed to be significant. Currently, the effect of discounting is not
material.
27. Capital and other commitments
Capital expenditure contracted but not provided
Property, plant and equipment
Intangible assets
2023
£m
9.3
0.4
2022
£m
5.7
0.2
Serco Group plc | Annual Report and Accounts 2023 | 198
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
28. Contingent liabilities
The Group and its subsidiaries have provided certain guarantees and indemnities in respect of performance and other bonds,
issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 31 December 2023 was
£214.4m (2022: £222.7m).
Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the
reduction in Serco’s share price in 2013. As the claim progresses, the Group has continued to assess the merit, likely outcome and
potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any
outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially
given the legal uncertainties in such actions.
The Group is also aware of other claims and potential claims which involve or may involve legal proceedings against the Group
although the timing of settlement of these claims remains uncertain. 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.
The Group has guaranteed overdrafts, finance leases and bonding facilities of its joint ventures and associates up to a maximum
value of £5.7m (2022: £5.7m). The actual commitment outstanding at 31 December 2023 was £5.7m (2022: £5.7m).
29. Financial risk management
29 (a) Fair value of financial instruments
(i) Fair value hierarchy
The vast majority of financial instruments are held at amortised cost. 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: Inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within
Level 1.
Level 3: Inputs are unobservable inputs for the asset or liability.
Based on the above, the derivative financial instruments held by the Group at 31 December 2023 and the comparison fair values for
loans, are all considered to fall into Level 2, with the exception of contingent consideration which is considered to fall into Level 3.
Market prices are sourced from Bloomberg and third party valuations. The valuation models incorporate various inputs including
foreign exchange spot and forward rates and interest rate curves.
There have been no transfers between levels in the year.
Serco Group plc | Annual Report and Accounts 2023 | 199
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
29. Financial risk management continued
The Group held the following financial instruments which fall within the scope of IFRS 9 Financial Instruments at 31 December:
Financial assets
Financial assets – current
Cash and bank balances1
Derivatives designated as FVTPL
(Level 2)
Forward foreign exchange contracts
Derivative instruments in designated
hedge accounting relationships
(Level 2)
Forward foreign exchange contracts
Receivables
Trade receivables (note 21)1
Amounts owed by joint ventures
and associates (note 21)
Financial assets – non-current
Derivative instruments in designated
hedge accounting relationships
(Level 2)
Forward foreign exchange contracts
Financial liabilities – current2
Derivatives designated as FVTPL
(Level 2)
Forward foreign exchange contracts
Derivative instruments in designated
hedge accounting relationships
(Level 2)
Forward foreign exchange contracts
Financial liabilities at fair value (Level
3)
Contingent consideration (note 23)
Financial liabilities at amortised cost
Trade payables (note 23)1
Loans (note 25)
Financial liabilities – non-current2
Derivative instruments in designated
hedge accounting relationships
(Level 2)
—
—
219.1
1.1
—
—
—
—
(99.3)
(51.0)
Carrying amount
(measurement basis)
Comparison
fair value
Carrying amount
(measurement basis)
Comparison
fair value
Amortised
cost
£m
2023
Fair value
£m
2023
Amortised
cost
£m
2022
£m
2023
Fair value
£m
2022
£m
2022
94.4
—
94.4
57.2
—
57.2
4.8
4.8
0.1
0.1
—
—
3.0
3.0
0.3
0.3
219.1
1.1
266.8
3.1
—
—
266.8
3.1
—
—
—
—
(1.6)
(1.6)
(0.1)
(0.1)
—
—
—
—
(99.3)
(50.7)
—
—
—
—
(108.3)
(44.5)
0.3
0.3
(1.1)
(1.1)
—
—
(11.2)
(11.2)
—
—
—
—
(108.3)
(44.3)
—
(197.2)
Forward foreign exchange contracts
—
(0.2)
(0.2)
—
Financial liabilities at amortised cost
Loans (note 25)
(155.2)
—
(138.5)
(218.4)
1. Management estimate that the carrying amounts of cash, trade receivables and trade payables approximate to their fair value due to the short-term maturity of
2.
these instruments.
In 2022, disclosed within financial liabilities were the amortised cost of lease obligations (non-current £144.4m and current £301.6m) and the fair value of
lease obligations (non-current £143.3m and current £300.5m). These have been removed from this table in the current year as there is no requirement to
disclose these under IFRS 7 or IFRS 13.
Serco Group plc | Annual Report and Accounts 2023 | 200
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
The following table shows the development of financial assets and liabilities categorised as level 3:
Balance at 1 January
Arising on acquisition
Acquisitions - revision of provisional fair value estimates
Cash settlement
Balance at 31 December
Financial
liabilities current
contingent
consideration
Financial
liabilities current
contingent
consideration
2023
£m
(11.2)
—
1.0
10.2
—
2022
£m
—
(12.2)
—
1.0
(11.2)
The fair values of loans and lease obligations are based on cash flows discounted using a rate based on the borrowing rate
associated with the liability.
The fair value of derivatives is calculated using a discounted cash flow approach applying discount factors derived from observable
market data to actual and estimated future cash flows. Credit risk is considered in the calculation of these fair values.
(ii) Fair value of derivative financial instruments
The fair value of derivative financial instruments results in a net asset of £3.0m (2022: £2.5m) comprising non-current assets of £nil
(2022: £0.3), current assets of £4.9m (2022: £3.3m), current liabilities of £1.7m (2022: £1.1m) and non-current liabilities of £0.2m
(2022: £nil).
Forward foreign exchange contracts
Forward foreign exchange contracts
Movement in
fair value
of derivatives
designated
in hedge
accounting
relationships
Movement in
fair value of
derivatives not
designated
in hedge
accounting
relationships
1 January 2023
£m
2.5
£m
(0.8)
£m
1.3
Movement in
fair value
of derivatives
designated
in hedge
accounting
relationships
Movement in
fair value of
derivatives not
designated
in hedge
accounting
relationships
1 January 2022
£m
0.6
£m
0.6
£m
1.3
31 December
2023
£m
3.0
31 December
2022
£m
2.5
The fair value of financial liabilities recognised at fair value through profit and loss is £1.7m (2022: £1.1m) and relates to derivatives
that are not designated in hedge accounting relationships. The fair value of the derivatives and their credit risk adjusted fair value
are not materially different and are approximately equal to the amount contractually payable at maturity due to the short tenure of
the instruments.
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.
Serco Group plc | Annual Report and Accounts 2023 | 201
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
29. Financial risk management continued
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
Currency
Sterling
Currency
Sterling
Amount
2023
£m
350.0
Amount
2022
£m
350.0
Utilised
for bonding
facility
2023
£m
—
Utilised
for bonding
facility
2022
£m
—
Drawn
2023
£m
—
Drawn
2022
£m
—
Total
facility
available
2023
£m
350.0
Total
facility
available
2022
£m
350.0
The Group has available a revolving credit facility with a maximum capacity of £350m and a five year term ending November 2027.
In addition, the facility provides an accordion facility of £100m which is uncommitted. At 31 December 2023, the Group had
£208.8m (2022: £266.4m) of US private placement loan notes which will be repaid as bullet repayments between 2024 and 2032.
(ii) Maturity of financial liabilities
The Group’s financial liabilities will be settled on both a net and a gross basis over the remaining period between the balance sheet
date and 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.
On demand or
within one year
Between one
and two years
Between two
and five years
After
five years
At 31 December 2023
Trade payables (note 23)
Obligations under leases1 (note 24)
Loans2 (note 25)
Future loan interest
Derivatives settled on gross basis:
Outflow
Inflow
£m
99.3
149.0
51.9
6.5
1,094.7
(1,097.9)
303.5
£m
—
119.0
39.2
5.4
0.7
(0.4)
163.9
£m
—
158.1
62.8
10.5
—
—
—
—
1,095.4
(1,098.3)
231.4
106.7
805.5
1
2
The present value of lease obligations is £453.7m after deducting £18.2m of future finance costs.
Loans are stated gross of capitalised finance costs.
On demand or
within one year
Between one
and two years
Between two
and five years
After
five years
At 31 December 2022
Trade payables (note 23)
Obligations under leases1 (note 24)
Loans2 (note 25)
Future loan interest
Derivatives settled on gross basis:
Outflow
Inflow
£m
108.3
150.6
45.4
11.2
1,284.0
(1,286.2)
313.3
£m
—
113.9
54.9
7.3
7.6
(8.1)
175.6
£m
—
149.3
108.0
15.2
8.1
(8.6)
272.0
—
—
1,299.7
(1,302.9)
118.5
879.4
1
2
The present value of lease obligations is £446.1m after deducting £19.2m of future finance costs.
Loans are stated gross of capitalised finance costs.
Gross cash flows in the table above relating to forward foreign exchange contracts total £1,097.9m (inflow) and £1,094.7m (outflow)
on demand or within one year (2022: £1,286.2m (inflow) and £1,284.0m (outflow) on demand or within one year).
Serco Group plc | Annual Report and Accounts 2023 | 202
Total
£m
99.3
471.9
208.8
28.4
Total
£m
108.3
465.3
266.4
42.6
£m
—
45.8
54.9
6.0
£m
—
51.5
58.1
8.9
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements 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 2023, there were no material unhedged non-functional
currency monetary assets or liabilities, firm commitments, or highly probable forecast transactions.
(ii) Translational
Where possible the Group will raise external funding to match the currency profile of its foreign operations, in order to mitigate
translation exposure. If matched funding is not possible, currency derivatives are used to protect against movements in foreign
exchange but are not designated in hedge accounting relationships. These are settled gross and are shown in 29 (c) (ii) maturity of
financial liabilities.
(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. Details of the Group’s accounting policies in relation to derivatives qualifying for hedge
accounting under IFRS 9 Financial Instruments can be seen in note 2.
The Group holds a number of forward foreign exchange contracts designated as cash flow hedges. These derivatives are hedging
highly probable forecast foreign currency trade payments in the UK business. The net notional amounts are summarised by currency
below:
Sterling
US Dollar
Indian Rupee
2023
£m
(15.1)
0.9
14.2
2022
£m
(32.9)
12.7
21.7
All derivatives designated as cash flow hedges are highly effective and as at 31 December 2023, £0.9m net fair value loss (2022:
£0.6m net fair value gain) has been deferred in the hedging reserve. During the year to 31 December 2023, £0.6m of net fair value
loss (2022: £0.9m gain) were transferred to the hedging reserve and £0.2m fair value gain (2022: £0.4m gain) were reclassified to
the Consolidated Income Statement.
(iv) Currency sensitivity
The Group’s currency exposures in respect of monetary items at 31 December 2023 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 rate. The impact of a
10% movement is summarised below:
US Dollar
Euro
Indian Rupee
Pre-tax profits
gain/(loss)
Equity gain/
(loss)
Pre-tax profits
gain/(loss)
Equity gain/
(loss)
2023
£m
(1.0)
—
—
(1.0)
2023
£m
0.1
—
1.4
1.5
2022
£m
(0.1)
(0.1)
—
(0.2)
2022
£m
1.3
—
2.1
3.4
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
Floating rate
Fixed rate
2023
£m
94.4
2023
£m
—
Weighted
average
interest rate
2023
%
4.3
Floating rate
Fixed rate
2022
£m
57.2
2022
£m
—
Weighted
average
interest rate
2022
%
1.2
Serco Group plc | Annual Report and Accounts 2023 | 203
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
29. Financial risk management continued
Financial assets
US Dollar loans
Floating rate
Fixed rate
2023
£m
—
—
2023
£m
208.8
208.8
Weighted
average
interest rate
2023
%
4.0
—
Floating rate
Fixed rate
2022
£m
—
—
2022
£m
266.4
266.4
Weighted
average
interest rate
2022
%
4.2
—
Exposure to interest rate fluctuations is mitigated through the issuance of fixed rate debt. The rates on the US Dollar loans are fixed
for the term of each loan. The loans will be repaid as bullet repayments between 2024 and 2032. Excluded from the above analysis
is £453.7m (2022: £446.0m) of amounts payable under leases, which are subject to fixed rates of interest.
(ii) Interest rate sensitivity
The effect of a 100 basis point increase in Sterling Overnight Index Average (SONIA) rates on the net financial liability position
(excluding leases) at the balance sheet date, with all other variables held constant, would have resulted in a £0.9m increase in pre-
tax profit for the year to 31 December 2023 (2022: increase of £0.6m).
29 (f) Credit risk
The Group’s principal financial assets are cash and cash equivalents, contract assets 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 principal exposure is
to cash and cash equivalents, derivative transactions and trade receivables.
The Group’s contract asset and 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 has not recorded any impairments related to contract assets or trade and other receivables relating to credit risk during
the year ended 31 December 2023 (2022: none).
The Group’s Treasury function primarily transacts with counterparties that comply with Board policy. Where exceptions are
approved due to local requirements, the Group’s exposures are monitored and kept to an immaterial level. The credit risk is
measured by way of a counterparty credit rating 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.
The Group’s policy is to provide guarantees for joint ventures and associates only to the relevant proportion of support provided by
the partners. At 31 December 2023, the Company has issued guarantees in respect of certain joint ventures and associates as per
note 28.
29 (g) Capital risk
Management’s objective is to maintain a capital structure that supports the Group’s strategic objectives. The Group’s target leverage
is 1x-2x net debt to EBITDA which enables execution of the Board’s capital allocation priorities and includes but is not limited to
supporting organic growth, reshaping the portfolio through mergers, acquisitions and disposals, optimising shareholder returns
and maintaining an implied investment grade credit rating. This strategy is unchanged from the prior year.
Management 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 Group plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to shareholders.
The following table summarises the capital of the Group:
Cash and cash equivalents
Loans
Obligations under leases
Equity
Capital
2023
£m
(94.4)
206.2
453.7
1,033.7
1,599.2
2022
£m
(57.2)
262.9
446.0
1,029.7
1,681.4
Serco Group plc | Annual Report and Accounts 2023 | 204
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
30. Retirement benefit schemes
30 (a) Defined benefit schemes
(i) Characteristics and risks
The Group contributes to defined benefit schemes for qualifying employees of its subsidiaries. The schemes in which the Group
participates are categorised as follows:
Non-contract specific schemes
These schemes do not relate to any specific contract and represent 99.6% (2022: 98.5%) of scheme assets and 99.6% (2022: 98.1%)
of scheme liabilities. They consist of eight pre-funded defined benefit schemes and an unfunded defined benefit scheme.
The two UK funded schemes are Serco Pension and Life Assurance Scheme (SPLAS) and a non-contract specific section of the
Railways Pension Scheme (RPS). The funding policy for the UK pre-funded schemes is to contribute amounts which will achieve
100% funding on a projected salary basis based on regular actuarial valuations.
There are three non-UK schemes based in Switzerland and are available for the employees of OXZ Holdings AG (ORS) and its
subsidiaries which are part of a collective foundation. The occupational benefits fund commission defines the contributions which
are shared equally between the employer and the employees.
The Group has obligations in three funded public sector schemes in Australia and there is an unfunded scheme in Germany where
the liabilities arising are recognised in full £0.2m (2022: £0.2m).
Contract specific schemes
These schemes represent 0.4% (2022: 1.5%) of scheme assets and 0.4% (2022: 1.9%) of scheme liabilities. They consist of one pre-
funded defined benefit schemes in the UK and up until 25 June 2023, the Group sponsored a section of the RPS as part of the
Caledonian Sleepers contractual arrangement which was transferred back to the Scottish Government. There was no residual
liability to fund any deficit at the end of the franchise period.
The Group also makes contributions under Admitted Body status for one section of the Local Government Pension Scheme for the
period to the end of the relevant customer contract. The Group is required to pay regular contributions as decided by the respective
scheme actuary and as detailed in each scheme’s schedule of contributions. In addition, the Group may be required to pay some or
all of any deficit (as determined by the respective scheme actuary) that is remaining at the end of the contract.
In respect of Local Government Pension Schemes, as there is a residual liability, the Group recognises a sufficient level of provision
in these financial statements based on the IAS 19 Employee Benefits valuation at the reporting date and contractual obligations.
Joint venture scheme
Under contractual arrangements, the Group’s joint venture Merseyrail Services Holding Company Limited (Merseyrail) sponsors a
section of the RPS, an industry-wide defined benefit scheme, paying contributions in accordance with a Schedule of Contributions.
There is no residual liability to fund any deficit at the end of the franchise period and there is no pension obligation on the balance
sheet of the Group or Merseyrail. The costs associated with the scheme are included in profit from operations for Merseyrail shown
in note 6 and reflected in the share of profits in joint ventures in the income statement and therefore the disclosure in this note do
not include Merseyrail.
Scheme funding
The normal employer contributions expected to be paid during the financial year for all schemes ending 31 December 2023 are
£10.7m (2022: £8.9m).
The assets of funded schemes are held independently of the Group’s assets in separate trustee administered schemes. The trustees
of each pension scheme are required by law to act in the interest of the scheme and of all relevant stakeholders in the scheme. The
trustees of the pension schemes are responsible for the investment policy with regard to the assets of the scheme. The Group’s
schemes are valued by independent actuaries annually using the projected unit credit actuarial cost method for accounting
purposes. This reflects service rendered by employees to the date of valuation and incorporates actuarial assumptions including
discount rates to determine the present value of benefits, inflation assumptions, projected rates of salary growth and life expectancy
of pension plan members. Discount rates are based on the market yields of high-quality corporate bonds in the country concerned.
Pension assets and liabilities in the different defined benefit schemes are not offset.
The schemes typically expose the Group to risks that impact the financial performance and position of the Group and may affect the
amount and timing of future cash flows. The key risks are set out below:
– Investment risk. The schemes hold assets with which to discharge the future liabilities of these schemes. Any decline in the value
of these investments directly impacts on the ability of the schemes to meet its commitments and could require the Group to fund
this shortfall in future years. SPLAS’s investment strategy aims to reduce volatility risk by better matching assets to liabilities and is
based on the actuarial funding basis. 48% of the scheme’s assets are annuity policies, which result in an insurer funding the future
benefit payments to the relevant members and therefore eliminate the risk of changes in the future value of the benefits to the
scheme. The investment strategy outside of the annuity has a benchmark allocation of 45% Liability Driven Investments (LDIs),
40% Buy and Maintain Credit and 15% Private Debt. The main asset classes that make up the LDI investments are gilts and
corporate bonds with inflation and interest swap overlays and are therefore linked to the key drivers of the scheme’s liabilities.
Private debt investments are less volatile to the market conditions and therefore the allocation of these investments were higher
than the scheme’s benchmark at 31 December 2023, with 49% Liability Driven Investments (LDIs), 21% Buy and Maintain Credit
and 30% Private Debt. The Trustees of SPLAS have been working closely with the Group and investment consultants to ensure the
investment objectives of the scheme are maintained.
– Interest risk. The present values of the defined benefit schemes’ liabilities are calculated using a discount rate determined by
reference to high-quality corporate bond yields and therefore a decrease in interest rates will increase the schemes’ liabilities. This
will be partially offset by an increase in the fair value of the schemes’ debt investments.
Serco Group plc | Annual Report and Accounts 2023 | 205
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
30. Retirement benefit schemes continued
– Longevity risk. The present values of the defined benefit schemes’ liabilities are calculated by reference to the best estimate of the
mortality of the schemes’ participants, both during and after their employment. An increase in the life expectancy of the schemes’
participants will increase the schemes’ liabilities.
– Inflation risk. The present values of the defined benefit schemes’ liabilities are calculated to include the effect of inflation on future
purchasing power based on estimations around inflation rates. Higher inflation will trigger larger annual benefits for the members
and an increase in expected future inflation rates will increase the schemes’ liabilities.
– Salary risk. The present values of the defined benefit schemes’ liabilities are calculated by reference to the future salaries of the
schemes’ participants, as such, an increase in the salary of the schemes’ participants will increase the schemes’ liabilities.
Serco Pension and Life Assurance Scheme (SPLAS)
The largest non-contract specific scheme is SPLAS. The most recent full actuarial valuation of this scheme was undertaken as at 5
April 2021 and completed in May 2022. The actuarially assessed deficit for funding purposes at this time was £70.0m. The increase
to the actuarially assessed deficit for funding purposes was as a result of the RPI reform announced by the UK government to take
effect from 2030.
Pension obligations are valued separately for accounting and funding purposes and there is often a material difference between
these valuations. As at 31 December 2023, the estimated actuarial deficit on a funding basis for SPLAS was £23m (2022: £27m)
whereas the accounting valuation resulted in an asset of £30.5m (2022: £47.5m). The primary reason a difference arises is that IAS
19 accounting requires the valuation to be performed on the basis of a best estimate whereas the funding valuation used by the
trustees uses more prudent assumptions.
The schedule of contributions for SPLAS was agreed during 2022, with 44.3% of pensionable salaries for active employees due to be
paid in regular contributions from 1 June 2022. The schedule of contributions also determined that additional shortfall contributions
were required and the Group has committed to make deficit recovery payments of £6.6m per year by 31 March from 2022 to 2030.
An annual assessment of the shortfall is performed and if the scheme is determined to be in a surplus position the shortfall contributions
due by 31 March are deferred to the following year. If the shortfall calculated in the annual assessment is less that than the cumulative
shortfall due to date, the contribution is capped at the shortfall calculation and any excess is carried forward to the next year.
(ii) Events in the year
During the year there continued to be a high degree of volatility in the pensions market. Discount rates and short-term inflation rates
had been rising since 31 December 2021. Concerns over high global inflation, recession, rising interest rates and sharp rises in
bond yields continued through to the third quarter of 2023 and, as inflation fell and interest rates rose, bond yields fell slightly below
the levels at 31 December 2022.
Despite the volatility, Serco’s pension schemes remain in a strong funding position and have an accounting surplus, before tax, the
decrease in the net retirement benefit asset of £26.3m is primarily due to the Group’s largest scheme, Serco Pension and Life
Assurance Scheme (SPLAS), and is as a result of the following:
– Discount rates being lower than prior year resulting in an increase in pension obligation
– Actual inflation in 2023 was higher than prior year assumptions resulting in an experience adjustment increasing pension obligations
– Updated mortality assumptions to reflect the latest available actuarial projections resulting in a reduction to pension obligations
– Reductions to long term RPI inflation assumptions have resulted in a decrease to pension obligations
— Discount rates being lower than prior year resulting in an increase in pension obligation
—
Actual inflation in 2023 was higher than prior year assumptions resulting in an experience adjustment increasing pension
obligations
— Updated mortality assumptions to reflect the latest available actuarial projections resulting in a reduction to pension obligations
— Reductions to long term RPI inflation assumptions have resulted in a decrease to pension obligations
On 25 June 2023, the contract for Caledonian Sleepers was transferred back to the Scottish Government which included the transfer of
obligations under the section of the share costs pension scheme under the franchise agreement. In line with the accounting under IAS
19, the Group held no liability for this scheme on the balance sheet and therefore there is no gain or loss through the income statement.
Serco Group plc | Annual Report and Accounts 2023 | 206
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
(iii) Values recognised in total comprehensive income in the year
The amounts recognised in the Consolidated Financial Statements for the year are analysed as follows:
Recognised in the income statement
Current service cost – employer
Past service cost – employer
Settlement gain recognised
Administrative expenses and taxes
Recognised in arriving at operating profit
Interest income on scheme assets – employer
Interest on franchise adjustment
Interest cost on scheme liabilities – employer
Finance income
Total recognised in the income statement
Included within the SOCI
Actual return on scheme assets
Less: interest income on scheme assets
Net return on scheme assets
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Remeasurements
Change in franchise adjustment
Change in members’ share
Actuarial loss on reimbursable rights
Total recognised in the SOCI
2023
£m
5.3
—
—
2.0
7.3
2022
£m
5.9
0.8
(0.3)
2.4
8.8
(50.4)
(28.3)
—
47.3
(3.1)
4.2
2023
£m
41.4
(50.4)
(9.0)
24.3
(22.7)
(21.7)
(29.1)
(1.8)
(1.2)
(3.0)
(32.1)
(0.2)
25.8
(2.7)
6.1
2022
£m
(539.8)
(28.3)
(568.1)
21.2
530.3
(77.2)
(93.8)
(7.0)
(5.3)
(12.3)
(106.1)
(iv) Balance sheet values
The assets and liabilities of the schemes at 31 December are:
SPLAS1
ORS
RPS
Other Schemes in surplus
Other schemes in deficit
Scheme under Franchise agreement2
Total
Franchise adjustment2
Members’ share of deficit
Net retirement benefit asset3
Fair value of
scheme assets
Present value of
scheme
liabilities
Surplus/(deficit)
Fair value of
scheme assets
Present value of
scheme
liabilities
Surplus/(deficit)
2023
£m
917.0
68.5
66.7
3.8
1.1
—
2023
£m
(886.5)
(80.5)
(60.8)
(2.8)
(2.0)
—
1,057.1
(1,032.6)
2022
£m
925.3
49.8
68.4
3.3
1.0
11.9
2022
£m
(877.8)
(54.9)
(59.7)
(2.5)
(2.1)
(14.9)
1,059.7
(1,011.9)
2023
£m
30.5
(12.0)
5.9
1.0
(0.9)
—
24.5
—
—
24.5
2022
£m
47.5
(5.1)
8.7
0.8
(1.1)
(3.0)
47.8
1.8
1.2
50.8
1
2
3
The SPLAS Trust Deed gives the Group an unconditional right to a refund of surplus assets assuming the gradual settlement of plan liabilities over time until
all members have left the plan. Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as
economic benefits are available to the Group either in the form of future refunds or in the form of possible reductions in future contributions
The franchise adjustment represents the amount of scheme deficit that is expected to be funded outside the contract period and therefore no additional
funding will be required by the Group.
The net retirement benefit asset (before tax) is split in the balance sheet between schemes in surplus totalling £37.4m (2022: £57.0m) reported in retirement
benefit assets and schemes in deficit totalling £12.9m (2022: £6.2m) reported in retirement benefit obligations.
Serco Group plc | Annual Report and Accounts 2023 | 207
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
30. Retirement benefit schemes continued
(v) Pension asset values
The schemes asset values at 31 December are:
Scheme assets at fair value
Equities
Bonds except LDIs
Pooled investment funds
LDIs
Property
Cash and other
Amounts held by insurance companies
Fair value of scheme assets1
2023
£m
31.6
136.5
145.0
235.8
0.3
9.1
2022
£m
45.2
151.4
140.0
217.7
1.3
13.4
498.8
1,057.1
490.7
1,059.7
1
There are no investments in the Group’s own transferable financial instruments held as pension assets. No property pension assets are occupied, or other
pension assets used by the Group.
As required by IAS 19 Employee Benefits, the Group has considered the extent to which the pension plan assets should be classified
in accordance with the fair value hierarchy of IFRS 13 Fair Value Measurement.
– Equity and Bonds all have quoted prices in active markets and are classified as level 1, except for the unitised equity and bond
fund investments in the non-contract specific section of the Railways Pension Scheme which are Level 2 or Level 3 based on the
Net Asset Value provided by the fund administrator.
– Pooled investment funds have no observable market price and the valuation is based on the Net Asset Value provided by the fund
administrator at 30 September adjusted for actual cash flows in the period to 31 December. Therefore, these investments are
classified as level 3.
– LDIs are valued at fair value which is typically the Net Asset Value provided by the fund administrator. The LDIs are comprised of a
mix of Level 1 and Level 2 instruments, including corporate/government bonds priced at their quoted bid price, derivatives made
up of interest rate/inflation swaps and payables in respect of repurchase agreements.
– Amounts held by insurance companies are valued at the equal and opposite of the defined benefit obligations that they insure
and are classified as level 3.
Serco Group plc | Annual Report and Accounts 2023 | 208
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
(vi) Changes in the fair value of scheme assets and liabilities
The table below shows the movements in fair value of scheme assets and liabilities and shows where they are reflected in the
financial statements.
At 1 January
Current service cost – employer
Past service costs – employer
Administration expenses – employer
Plan settlement
Net interest on scheme assets and
liabilities
Total recognised in the income statement
Return of plan assets
Effect of changes in demographic
assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Total recognised in the SOCI
Contributions by employer
Total recognised in the cash flow
statement
Contributions by employees
Current service cost – employees
Net Interest cost – employee
Change in member share
Arising on acquisition
Benefits paid
Insurance premiums for risk benefits
Transfer in of accrued benefits
Transfer out of benefits
Foreign exchange
Other movements
At 31 December
Fair value of
scheme assets
Present value
of scheme
liabilities
2023
£m
2023
£m
1,059.7
(1,011.9)
—
—
(2.0)
—
50.4
48.4
(9.0)
—
—
—
(9.0)
10.5
10.5
5.1
—
0.1
5.2
—
(50.3)
(2.0)
4.1
(12.2)
2.7
(57.7)
(5.3)
—
—
—
(47.3)
(52.6)
—
24.3
(22.7)
(21.7)
(20.1)
—
—
(4.9)
(0.3)
(0.1)
(5.3)
—
50.3
2.0
(4.1)
12.2
(3.1)
57.3
1,057.1
(1,032.6)
Surplus/
(deficit)
Fair value of
scheme assets
Present value
of scheme
liabilities
2022
£m
2022
£m
1,592.9
(1,459.1)
—
—
(2.4)
(8.0)
28.3
17.9
(5.9)
(0.8)
—
8.3
(25.8)
(24.2)
Surplus/
(deficit)
2022
£m
133.8
(5.9)
(0.8)
(2.4)
0.3
2.5
(6.3)
(568.1)
—
(568.1)
—
—
—
(568.1)
19.9
19.9
1.7
—
0.1
1.8
46.7
(52.1)
(0.7)
—
—
1.4
(4.7)
21.2
530.3
(77.2)
474.3
—
—
(1.4)
(0.9)
(0.2)
(2.5)
(51.7)
52.1
0.7
—
—
(1.5)
(0.4)
1,059.7
(1,011.9)
21.2
530.3
(77.2)
(93.8)
19.9
19.9
0.3
(0.9)
(0.1)
(0.7)
(5.0)
—
—
—
—
(0.1)
(5.1)
47.8
2023
£m
47.8
(5.3)
—
(2.0)
—
3.1
(4.2)
(9.0)
24.3
(22.7)
(21.7)
(29.1)
10.5
10.5
0.2
(0.3)
—
(0.1)
—
—
—
—
—
(0.4)
(0.4)
24.5
Serco Group plc | Annual Report and Accounts 2023 | 209
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
30. Retirement benefit schemes continued
Changes in the franchise adjustment
At 1 January
Interest on franchise adjustment – recognised in income statement
Other changes – recognised in the SOCI
At 31 December
2023
£m
1.8
—
(1.8)
—
2022
£m
8.6
0.2
(7.0)
1.8
(vii) Actuarial assumptions: SPLAS
The assumptions set out below are for SPLAS, which reflects 86% of total liabilities and 87% of total assets of the defined benefit
pension scheme in which the Group participates. The significant actuarial assumptions with regards to the determination of the
defined benefit obligation are set out below.
The Group continued to set RPI inflation in line with the market expectation less an inflation risk premium. The inflation risk premium
is 0.3% both at 31 December 2022 and at 31 December 2023.
The average duration of the benefit obligation at the end of the reporting period is 12 years (2022: 12 years).
Significant actuarial assumptions
Discount rate
Rate of salary increases
RPI Inflation
CPI Inflation
Post-retirement mortality1
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 65 – male
Future pensioners at 65 – female
2023
%
4.80
2.85
3.05
2.35
2023
years
20.9
23.6
22.8
25.6
2022
%
5.00
2.85
3.15
2.35
2022
years
21.5
24.1
23.6
26.2
1
The mortality assumptions have been updated to reflect the latest available mortality tables CMI_2022.
Sensitivity analysis for SPLAS is provided below, based on reasonably possible changes of the assumptions occurring at the end of
the reporting period, assuming all other assumptions are held constant. The sensitivities have been derived in the same manner as
the defined benefit obligation as at 31 December 2023 where the defined benefit obligation is estimated using the Projected Unit
Credit method. Under this method each participant’s benefits are attributed to years of service, taking into consideration future
salary increases and the scheme’s benefit allocation formula. Thus, the estimated total pension to which each participant is expected
to become entitled at retirement is broken down into units, each associated with a year of past or future credited service. The
defined benefit obligation as at 31 December 2023 is calculated on the actuarial assumptions agreed as at that date. The
sensitivities are calculated by changing each assumption in turn following the methodology above with all other things held
constant. The change in the defined benefit obligation from updating the single assumption represents the impact of that
assumption on the calculation of the defined benefit obligation.
Serco Group plc | Annual Report and Accounts 2023 | 210
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Increase/(decrease) in defined benefit obligation of SPLAS
Discount rate – 1.0% increase
Discount rate – 1.0% decrease
Inflation – 1.0% increase
Inflation – 1.0% decrease
Rate of salary increase – 1.0% increase
Rate of salary increase – 1.0% decrease
Mortality – one-year age rating
2023
£m
(93.8)
114.1
74.1
(69.1)
1.5
(1.3)
26.6
2022
£m
(93.4)
113.8
68.0
(68.1)
1.6
(1.4)
25.4
Management acknowledges that the method used of presuming that all other assumptions remaining constant has inherent
limitation given that it is more likely for a combination of changes but highlights the value of each individual risk and is therefore a
suitable basis for providing this analysis.
The increase or decrease in the defined benefit obligation in the sensitivity table above would be offset by the corresponding
movement in the scheme’s assets. A 1% change in the long-term gilt yields consistent with the discount rates would result in an
approximate offsetting movement of £90m (2022: £100m) in the scheme’s LDI investment and a 1% change in long term inflation
expectation would result in an approximate offsetting movement of £60m (2022: £70m) in the scheme’s LDI Investment.
(viii) Actuarial assumptions: Other schemes
The other UK based schemes are valued on a consistent basis to SPLAS. The non-UK based schemes use a discount rate ranging
from 1.40%% to 5.72% (2022 2.40% to 5.45%).
Assumptions in respect of the expected return on scheme assets are required when calculating the franchise adjustment for the
contract-specific plans. These assumptions 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 2023 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. The Group applies an equity risk premium of 4.6% (2022: 4.6%).
The overall expected return on assets is calculated as the weighted average of the expected returns for the principal asset
categories held by the scheme.
30 (b) Defined contribution schemes
The Group paid employer contributions of £97.9m (2022: £96.7m) into UK defined contribution schemes, foreign defined
contribution schemes and foreign state pension schemes.
Serco participated in certain pre-funded defined benefit pension arrangements relating to contracts, including participations in
public sector schemes, however, contractual protections are in place allowing actuarial and investment risk to be passed to the end
customer via recoveries for contributions paid.
The nature of these arrangements varies from contract to contract but typically allow for the majority of contributions payable to the
schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit payments payable
to the schemes at the cessation of the contract, such that the Group’s net exposure to actuarial and investment risk is immaterial.
Cash contributions are recognised as pension costs and no asset or liability is shown on the balance sheet.
31. Share capital
Issued and fully paid
1,218,008,788 (2022: 1,218,008,788) ordinary shares of 2p each at 1
January
Cancelled: 114,462,822 (2022: nil) ordinary shares of 2p
1,103,545,966 (2022: 1,218,008,788) ordinary shares of 2p each at
31 December
2023
£m
24.4
(2.3)
22.1
2023
Number
Millions
1,218.0
(114.5)
1,103.5
2022
£m
24.4
—
2022
Number
Millions
1,218.0
—
24.4
1,218.0
During the year 114,462,822 (2022: nil) shares were cancelled.
The Company has one class of ordinary shares which carry no right to fixed income.
Serco Group plc | Annual Report and Accounts 2023 | 211
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
32. Share premium account
At 1 January and 31 December
33. Reserves
33 (a) Movements in other reserves
Retirement
benefit
obligations
reserve
At 1 January 2022
Total comprehensive
(loss)/income for the
year
Shares purchased and
held in own share
reserve
Shares purchased and
held in Treasury
Shares transferred to
award holders on
exercise of share awards
Expense in relation to
share-based payments
Tax credit on items taken
directly to equity
£m
(91.0)
(78.9)
—
—
—
—
—
Share-based
payment
reserve
Own shares
reserve
Treasury
shares
£m
—
—
—
£m
(1.2)
—
(15.9)
—
(91.2)
£m
95.8
—
—
—
(9.3)
9.4
15.6
3.4
—
—
—
—
—
2023
£m
463.1
2022
£m
463.1
Capital
redemption
reserve
Total other
reserves
£m
0.4
0.1
—
—
—
—
—
£m
(23.6)
(18.3)
(15.9)
(91.2)
0.1
15.6
3.4
Hedging
reserve
Translation
reserve
£m
(0.1)
£m
(27.5)
0.4
60.1
—
—
—
—
—
—
—
—
—
—
At 1 January 2023
(169.9)
105.5
(7.7)
(91.2)
0.3
32.6
0.5
(129.9)
Total comprehensive
loss for the year
(26.0)
Shares purchased and
held in own share
reserve
Shares purchased and
held in Treasury
Shares committed to be
purchased and held in
Treasury
Shares transferred to
award holders on
exercise of share awards
Expense in relation to
share-based payments
Tax credit on items taken
directly to equity
—
—
—
—
—
—
—
—
—
—
—
(22.9)
—
—
—
—
(88.8)
180.0
(15.6)
15.6
13.5
0.5
—
—
—
—
—
—
(0.6)
(38.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65.0)
(22.9)
(88.8)
2.3
182.3
—
—
—
—
13.5
0.5
(0.3)
(5.8)
2.8
(110.3)
At 31 December 2023
(195.9)
103.9
(15.0)
33 (b) 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.
33 (c) 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 award schemes satisfied by own shares.
Serco Group plc | Annual Report and Accounts 2023 | 212
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
33 (d) Own shares reserve
The own shares reserve represents the cost of shares in Serco Group plc held by the Serco Group plc Employee Share Ownership
Trust (ESOT) to satisfy awards under the Group’s share plan schemes. At 31 December 2023, the ESOT held 11,351,967 (2022:
9,144,275) shares equal to 1.0% of the current allotted share capital (2022: 0.8%). The market value of shares held by the ESOT as at
31 December 2023 was £18.4m (2022: £14.2m).
33 (e) Treasury shares
The Treasury shares reserve represents amounts paid to repurchase ordinary shares. On 28 February 2023, the Group announced
its intention to repurchase ordinary shares with a value of up to £90m. The buyback programme took place between 3 March and 22
June 2023. During this period, the Group repurchased 58,956,118 shares at an average cost of £1.506 for total cost including fees
of £88.8m. All shares held at 31 December 2022 and those purchased in 2023 have been cancelled.
33 (f) 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.
34. Share-based payment expense
The Group recognised the following expenses related to equity-settled share-based payment transactions:
Long-Term Incentive Plan
Deferred Bonus Plan
Equity Settled Bonus Plan
MyShareSave Plan
2023
£m
10.7
0.9
0.6
1.3
13.5
2022
£m
13.8
1.0
0.6
0.2
15.6
Long-Term Incentive Plan (LTIP)
Under the LTIP, eligible employees have been granted conditional share awards. Awards vest after the performance period of two
to three years and are subject to the achievement of certain performance measures, with the exception of non-performance awards.
These non-performance awards are subject only to continued employment on vesting dates which vary from two to three years after
the grant dates.
On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR),
Return on Invested Capital (ROIC) and measures linked to Strategic Objectives.
Outstanding at 1 January
Granted during the year
Dividend equivalent granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 December
Number of
shares under
award
2023
thousands
30,284
11,305
588
(9,013)
(4,823)
28,341
Weighted
average
exercise price
2023
£
nil
nil
nil
nil
nil
nil
Number of
shares under
award
2022
thousands
31,014
10,543
598
(9,365)
(2,506)
30,284
Weighted
average
exercise price
2022
£
nil
nil
nil
nil
nil
nil
The awards over shares outstanding at 31 December 2023 were all unvested and had a weighted average contractual life of 1.0
years (2022: 1.0 years).
In the year, 13 grants were made, of which 9 were non-performance related. The remaining 4 awards were performance-based
awards, with 75% of the award split equally between Earnings per Share (EPS), Total Shareholder Return (TSR) and Return on
Invested Capital (ROIC) performance conditions, 15% linked to ESG Scorecard Objectives and 10% linked to improvements in order
book. The rewards subject to market-based performance conditions (such as the TSR condition for these awards) were valued using
the Monte Carlo Simulation model. For awards subject only to non-market-based performance conditions (such as the EPS and
ROIC conditions) the Black-Scholes model was used. The Black-Scholes model was also used for the awards made with no
performance conditions attached to them.
The Monte Carlo Simulation model is considered to be the most appropriate for valuing awards granted under schemes where
there are changes in performance conditions by which the awards are measured, such as for the TSR-based awards.
Serco Group plc | Annual Report and Accounts 2023 | 213
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
34. Share-based payment expense continued
The Monte Carlo and Black-Scholes models used the following inputs:
Weighted average share price
Weighted average exercise price
Expected volatility
Average expected life (years)
Risk-free rate
2023
£1.48
nil
35.1 %
2.95
1.58 %
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 weighted average fair value of awards granted under this scheme in the year is £1.37 (2022: £1.43).
Performance Share Plan (PSP)
Under the PSP, eligible employees have been granted options or conditional share awards with an exercise price of two or zero
pence. Awards vest after the performance period of two to three years and are subject to the achievement of certain performance
measures, with the exception of non-performance awards. These non-performance awards are only subject to continued
employment on vesting dates which vary from two to three years after the grant dates.
On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR) and
Return on Invested Capital (ROIC).
If options remain unexercised after a period of ten years from the date of grant, then the options expire.
Outstanding at 1 January
Exercised during the year
Lapsed during the year
Outstanding at 31 December
Number of
options or
shares
under award
Weighted
average
exercise price
2023
thousands
6,455
(2,098)
—
4,357
2023
£
0.02
0.02
nil
0.02
Number of
options or
shares
under award
2022
thousands
9,337
(2,877)
(5)
6,455
Weighted
average
exercise price
2022
£
0.02
0.02
nil
0.02
Of these awards, 4,356,603 (2022: 6,453,743) were exercisable at the end of the year. The awards outstanding at 31 December
2023 had a weighted average contractual life of 2.9 years (2022: 4.5 years).
There were no new awards granted under the Performance Share Plan in the year.
Deferred Bonus Plan (DBP)
Under the DBP, eligible employees are entitled to participate in a voluntary bonus deferral, using up to 50% of their earned annual
bonus to purchase shares in the Group at market price. In connection with this, the Group will make a matching share award, up to a
maximum of two times the gross bonus deferred, which will vest provided they remain in employment for that period, the shares are
retained for that period, and the performance measures have been met.
Outstanding at 1 January
Granted during the year
Dividend equivalent granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 December
Number of
shares
under award
Weighted
average
exercise price
Number of
shares
under award
Weighted
average
exercise price
2023
2023
2022
2022
thousands
2,075
473
40
(613)
(100)
1,875
£
nil
nil
nil
nil
nil
nil
thousands
1,806
741
33
(505)
—
2,075
£
nil
nil
nil
nil
nil
nil
None of these awards were exercisable at the end of the year (2022: nil). The awards outstanding at 31 December 2023 had a
weighted average contractual life of 0.7 years (2022: 1.4 years).
Serco Group plc | Annual Report and Accounts 2023 | 214
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
There were 472,852 new awards granted under the Deferred Bonus Plan in the year, with 100% of the deferred bonus subject to the
same EPS performance conditions as the LTIPs.
The Black-Scholes model used the following inputs:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life (years)
Risk-free rate
2023
£1.52
nil
31.1 %
3.00
3.25 %
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 weighted average fair value of awards granted under this scheme in the year is £1.52 (2022: £1.46).
Equity Settled Bonus Plan (ESBP)
Under the ESBP, eligible employees who are subject to a compulsory bonus deferral are granted share awards equivalent in value to
the gross bonus deferred. The awards vest at the end of the deferral period and the awards are not subject to any performance or
service conditions.
Outstanding at 1 January
Granted during the year
Dividend equivalent granted during the year
Exercised during the year
Outstanding at 31 December
Number of
shares
under award
Weighted
average
exercise price
Number of
shares
under award
Weighted
average
exercise price
2023
thousands
1,443
361
24
(619)
1,209
2023
£
nil
nil
nil
nil
nil
2022
thousands
1,257
476
23
(313)
1,443
2022
£
nil
nil
nil
nil
nil
None of these awards were exercisable at the end of the year (2022: none). The awards outstanding at 31 December 2023 had a
weighted average contractual life of 0.6 years (2022: 0.4 years).
There were 360,760 new awards granted under the Equity Settled Bonus Plan in the year. The awards were valued using the Black-
Scholes model.
The Black-Scholes model used the following inputs:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life (years)
Risk-free rate
2023
1.54
nil
33.4 %
3.00
3.28 %
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 weighted average fair value of awards granted under this scheme in the year is £1.54 (2022: £1.45).
UK and International save as you earn (MyShareSave)
MyShareSave scheme was introduced to UK employees in October 2022. In September 2023 this was extended to employees in
and USA, Canada, United Arab Emirates and Australia. Participating individuals are required to save 36 monthly payments over a
maximum of a 48-month period and thus will have the option to buy shares at a discounted grant price. Participants can withdraw
from the scheme at any time including after the vesting period has ended.
Serco Group plc | Annual Report and Accounts 2023 | 215
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
34. Share-based payment expense continued
Outstanding at 1 January
Granted during the year
Dividend equivalent granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 December
Number of
shares
under award
2023
thousands
5,536
6,306
—
(28)
(908)
10,906
Weighted
average
exercise price
2023
£
1.26
1.25
nil
1.26
1.26
1.25
Number of
shares
under award
2022
thousands
—
5,556
—
—
(20)
5,536
Weighted
average
exercise price
2022
£
nil
1.26
nil
nil
1.26
1.26
Of these awards 72,310 (2022: none) were exercisable at the end of the year. The awards outstanding at 31 December 2023 had a
weighted average contractual life of 3.0 years (2022: 3.4 years).
There were 6,306,439 new awards granted under the UK MyShareSave plan in the year.
The fair value of the options was based on the assumptions for awards granted during the year as follows:
Closing share price
Exercise price
Expected volatility
Dividend yield
Expected life (years)
Risk-free rate
28 September 2023
£1.52
£1.23
33.0 %
2.0 %
3.68
4.8 %
The weighted average estimated fair value of awards granted under this scheme in the year was £0.43 (2022 £0.53).
35. 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 and associates
are disclosed below.
Transactions
During the year, Group companies entered into the following transactions with joint ventures and associates:
Sale of goods and services
Joint ventures
Other
Loan to joint venture
Dividends received – joint ventures
Receivable from consortium for tax – joint ventures
Total
Current
outstanding at
31 December
Non-current
outstanding at
31 December
Transactions
2023
£m
15.4
—
21.1
9.9
46.4
2023
£m
1.1
10.0
—
3.7
14.8
2023
£m
—
—
—
9.4
9.4
Sales of goods and services to joint ventures relates to services provided including administrative and back office activities to VIVO.
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.
Serco Group plc | Annual Report and Accounts 2023 | 216
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
Sale of goods and services
Joint ventures
Other
Loan to joint venture
Loan to pension scheme
Dividends received – joint ventures
Dividends received – associates
Receivable from consortium for tax – joint ventures
Total
Current
outstanding at
31 December
Non-current
outstanding at
31 December
Transactions
2022
£m
10.5
10.0
60.0
7.3
1.8
3.2
92.8
2022
£m
3.1
—
—
—
—
0.9
4.0
2022
£m
—
10.0
—
—
—
3.2
13.2
The Group made a short-term temporary loan of £60.0m to Serco Pension and Life Assurance Scheme (SPLAS) in 2022 in order for
the scheme to be able to liquidate assets to meet collateral calls required to ensure that the LDI hedge was maintained; this loan
was repaid in 2022.
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:
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payment expense
2023
£m
7.7
0.3
0.2
4.1
12.3
2022
£m
8.6
—
—
7.1
15.7
The key Management personnel comprise the Executive Directors, Non-Executive Directors and members of the Group Executive
Committee (2023: 18 individuals, 2022: 17 individuals).
Aggregate Directors’ remuneration
The total amounts for Directors’ remuneration were as follows:
Salaries, fees, bonuses and benefits in kind
Amounts receivable under long-term incentive schemes
Gains on exercise of share awards
2023
2022
£m
3.1
2.5
0.9
6.5
£m
3.4
3.0
2.7
9.1
None of the Directors are members of the Company’s defined benefit or money purchase pension schemes.
Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration
Report on pages 115 to 138.
Serco Group plc | Annual Report and Accounts 2023 | 217
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
36. Notes to the Consolidated Cash Flow statement
Year ended 31 December
Profit before tax
Net finance costs
Operating profit for the year
Adjustments for:
Share of profits in joint ventures and
associates
Share-based payment expense
Impairment of intangible assets
Amortisation of intangible assets
Impairment of property, plant and
equipment
Net impairment/(reversal of
impairment) of right of use assets
Depreciation of property, plant and
equipment
Depreciation of right of use assets
(Profit)/Loss on disposal of intangible
assets
Loss/(profit) on early termination of
leases
Profit on disposal of property, plant
and equipment
Other non-cash movements
Increase/(decrease) in provisions
Total non-cash items
Operating cash inflow/(outflow)
before movements in working capital
(Increase) in inventories
Decrease in receivables
(Increase)/decrease in payables
Movements in working capital
Cash generated by operations
Tax paid
Non-cash R&D expenditure
Net cash inflow/(outflow) from
operating activities
2023
Underlying
£m
2023
Non
underlying
items
£m
224.1
24.6
248.7
(29.0)
13.5
0.1
7.7
0.6
0.7
17.3
125.4
(0.8)
0.6
(0.6)
(1.5)
12.6
146.6
395.3
(2.4)
63.1
(30.7)
30.0
425.3
(41.1)
(0.4)
383.8
22.9
—
22.9
—
—
8.1
22.8
—
—
—
—
—
—
—
—
(44.6)
(13.7)
9.2
0.1
—
—
0.1
9.3
—
—
9.3
2023
Reported
£m
247.0
24.6
271.6
2022
Underlying
£m
216.6
20.4
237.0
(29.0)
(12.0)
13.5
8.2
30.5
0.6
0.7
17.3
125.4
(0.8)
0.6
(0.6)
(1.5)
(32.0)
132.9
404.5
(2.3)
63.1
(30.7)
30.1
434.6
(41.1)
(0.4)
393.1
15.6
0.1
10.0
2.3
2.4
20.7
119.3
0.4
(0.2)
(0.5)
—
4.0
162.1
399.1
(1.5)
1.2
(24.0)
(24.4)
374.7
(44.2)
(0.4)
330.1
2022
Non
underlying
items
£m
(19.8)
(19.8)
2022
Reported
£m
196.8
20.4
217.2
—
—
—
21.6
—
(4.2)
—
—
—
—
—
—
(0.6)
16.8
(3.0)
—
—
0.1
0.1
(2.9)
—
—
(2.9)
(12.0)
15.6
0.1
31.6
2.3
(1.8)
20.7
119.3
0.4
(0.2)
(0.5)
—
3.4
178.9
396.1
(1.5)
1.2
(23.9)
(24.3)
371.8
(44.2)
(0.4)
327.2
Serco Group plc | Annual Report and Accounts 2023 | 218
Strategic Report
Corporate Governance
Financial Statements
Notes to the Consolidated Financial Statements continued
37. Post balance sheet events
Acquisitions
On 14 December 2023, Serco agreed to acquire 100% of the share capital of European Homecare (EHC), a specialist provider of
immigration services to public sector customers in Germany. The business will be acquired from Korte-Stiftung for €40m (£34m)
subject to final fair value assessments. Subsequent to the balance sheet date clearance has been obtained from the competition
authority and the acquisition completed on 1 March 2024. Due to the timing of completion and the availability of financial
information, the measurement of the fair value of net assets acquired and any goodwill to be recognised as a result of the acquisition
is in progress.
On 14 December 2023, Serco agreed to acquire 100% of the share capital of Climatize, a small but fast-growing business that
operates in the United Arab Emirates and the Kingdom of Saudi Arabia offering ‘zero-carbon’ advisory and related engineering
services. The acquisition completed on 31 January 2024 for cash consideration of AED 9.0m (£1.9m) and contingent consideration
of up to AED 51.0m (£10.9m), payable on achieving certain financial targets. Due to the timing of completion, the measurement of
the fair value of net assets acquired and any goodwill to be recognised as a result of the acquisition is in progress.
US Private Placement Loan Notes
On 27 February 2024, Serco Group plc issued $150m (£118m) of US Private Placement loan notes. The notes are equally split into
two series of $75m each with maturities of 5 and 10 years, giving an average maturity of 7.5 years. The average interest rate on the
new loan notes is fixed at 6.58%, which compares to a blended rate of 3.97% for the existing notes.
Serco share buyback
The Group has announced its intention to commence a share buyback of up to £140m. Consistent with the Group’s capital allocation
policy, the objective of the programme is to provide additional returns to shareholders as well as aid the Group in meeting its
medium-term leverage targets. The buyback programme is expected to complete by 31 December 2024 with the shares either held
in treasury or cancelled.
Employee Share Ownership Trust
Subsequent to the year end, the Group’s Employee Share Ownership Trust completed the purchase of 9.3m shares at the cost of
£16.2m. These shares will be held in the own share reserve until they are transferred to award holders on the exercise of share
awards.
Dividends
Subsequent to the year-end, the Board has recommended the payment of a final dividend in respect of the year ended 31
December 2023 of 2.27p. The dividend remains subject to shareholder approval at the Annual General Meeting and therefore no
amounts have been recognised in respect of a dividend in these Consolidated Financial Statements.
Serco Group plc | Annual Report and Accounts 2023 | 219
Strategic Report
Corporate Governance
Financial Statements
Company Balance Sheet
At 31 December
Fixed assets
Right of use assets
Deferred tax 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
Corporation tax asset
Cash at bank and in hand
Total assets
Creditors: amounts falling due within one year
Trade and other payables
Loans
Provisions
Corporation tax liability
Derivative financial instruments
Net current assets
Creditors: amounts falling due after more than one year
Loans
Amounts owed to subsidiary companies
Provisions
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Share-based payment reserve
Treasury shares reserve
Own shares reserve
Total shareholders’ funds
Note
39
46
40
41
41
45
41
42
43
44
45
43
44
47
48
49
50
51
51
2023
£m
0.1
—
2022
£m
0.1
0.7
2,052.5
2,052.6
2,052.5
2,053.3
23.1
449.1
4.9
9.9
45.0
532.0
18.2
555.5
3.0
0.6
21.1
598.4
2,584.6
2,651.7
(140.4)
(155.7)
(51.0)
(8.1)
—
(1.7)
(201.2)
330.8
(44.4)
(50.8)
(0.1)
(1.1)
(252.1)
346.3
(155.2)
(218.4)
(1,043.0)
(1,301.2)
—
(1,198.2)
(1,399.4)
1,185.2
22.1
463.1
2.7
626.0
86.3
—
(15.0)
1,185.2
(1.2)
(1,520.8)
(1,772.9)
878.8
24.4
463.1
0.4
401.8
88.0
(91.2)
(7.7)
878.8
The accompanying notes form an integral part of the financial statements.
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The total
profit for the year was £437.9m (2022: loss £5.0m) and the total comprehensive profit for the year was £437.9m (2022: loss £5.0m).
The financial statements (registered number 02048608) were approved by the Board of Directors on 1 March 2024 and signed on its
behalf by:
Mark Irwin
Nigel Crossley
Group Chief Executive
Group Chief Financial Officer
Serco Group plc | Annual Report and Accounts 2023 | 220
Strategic Report
Corporate Governance
Financial Statements
Company Statement of Changes in Equity
Share
capital
£m
24.4
Share
premium
account
£m
463.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Capital
redemption
reserve
£m
Profit and
loss account
£m
Treasury
shares
£m
0.4
437.1
—
—
—
—
—
—
—
—
(5.0)
(30.3)
—
—
—
—
—
—
—
—
—
(91.2)
—
—
—
—
—
Share-based
payment
reserve
£m
Own shares
reserve
£m
Total
shareholders’
equity
£m
81.1
(1.2)
1,004.9
—
—
—
—
—
—
—
(5.0)
(30.3)
(91.2)
(15.9)
(15.9)
(9.3)
9.4
0.1
10.8
4.8
0.6
—
—
—
10.8
4.8
0.6
At 1 January 2022
Total
comprehensive loss
for the year
Dividends paid
Shares purchased
and held in Treasury
Shares purchased
and held in own
share reserve
Shares transferred
to option holders
on exercise
Awards over
parent’s shares
made to employees
of subsidiaries
Expense in relation
to share-based
payments
Tax charge on items
taken directly to
equity
At 1 January 2023
24.4
463.1
0.4
401.8
(91.2)
88.0
(7.7)
878.8
Total
comprehensive
income for the year
Dividends paid
Shares purchased
and held in own
share reserve
Cancellation of
shares held in
Treasury
Shares purchased
and held in Treasury
until cancelled
Shares transferred
to option holders
on exercise
Awards over
parent’s shares
made to employees
of subsidiaries
Expense in relation
to share-based
payments
Tax credit on items
taken directly to
equity
At 31 December
2023
—
—
—
(2.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
437.9
(33.7)
—
—
—
—
2.3
(180.0)
180.0
—
—
—
—
—
—
—
—
—
—
(88.8)
—
—
—
—
—
—
—
—
—
—
—
—
437.9
(33.7)
(22.9)
(22.9)
—
—
—
(88.8)
(15.6)
15.6
—
7.9
5.6
0.4
—
—
—
7.9
5.6
0.4
86.3
(15.0)
1,185.2
22.1
463.1
2.7
626.0
Serco Group plc | Annual Report and Accounts 2023 | 221
Strategic Report
Corporate Governance
Financial Statements
Notes to the Company Financial Statements
38. Accounting policies
The principal accounting policies adopted are set out below and have been applied consistently throughout the current and
preceding year.
Basis of accounting
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council. These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101). In preparing these financial statements, the Company applies the recognition, measurement and disclosure
requirements of the UK-adopted international financial reporting standards but makes amendments where necessary in order to
comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. 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
goods and services. The principal accounting policies adopted are the same as those set out in note 2 to the Consolidated Financial
Statements, except as noted below.
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for any impairment in value.
39. Right of use assets
Leased vehicles of £0.1m (2022: £0.1m) have been included on the balance sheet following the adoption of IFRS 16 Leases.
40. Investments held as fixed assets
Shares in subsidiary companies at cost
At 1 January 2022
Awards over parent’s shares made to employees of subsidiaries
At 1 January 2023
Awards over parent’s shares made to employees of subsidiaries
At 31 December 2023
There have been no indicators of impairment identified for the investments held as fixed assets.
41. Debtors
Amounts due within one year
Prepayments
Prepaid intercompany interest
Amounts owed by subsidiary companies
Amounts due after more than one year
Amounts owed by subsidiary companies
Amounts owed by joint ventures of Serco Group
The expected credit loss provision against amounts owed by subsidiary companies is immaterial.
42. Trade and other payables
Amounts due within one year
Amounts owed to subsidiary companies
Trade creditors
Accruals and deferred income
Other creditors including taxation and social security
Serco Group plc | Annual Report and Accounts 2023 | 222
£m
2,041.7
10.8
2,052.5
—
2,052.5
2022
£m
12.5
4.9
0.8
18.2
2022
£m
555.5
—
555.5
2022
£m
73.3
57.8
24.5
0.1
2023
£m
15.2
6.7
1.2
23.1
2023
£m
439.1
10.0
449.1
2023
£m
73.3
1.4
46.9
18.8
140.4
155.7
Strategic Report
Corporate Governance
Financial Statements
Notes to the Company Financial Statements continued
43. 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)
Amount due for settlement after one year
44. Provisions
At 1 January 2023
Released to income statement – exceptional
At 31 December 2023
Analysed as:
Current
Non-current
2023
£m
51.0
38.5
61.9
54.8
206.2
(51.0)
155.2
Other
£m
43.9
(43.9)
—
—
—
—
2022
£m
44.4
54.2
106.2
58.0
262.8
(44.4)
218.4
Total
£m
52.0
(43.9)
8.1
8.1
—
8.1
Contract
£m
8.1
—
8.1
8.1
—
8.1
A contract provision is recorded when a contract is deemed to be unprofitable and therefore is considered onerous. The present
value of the estimated future cash outflow required to settle the contract obligations as they fall due over the respective contracts
has been used in determining the provision.
The Company released from other provisions indemnities given on disposed businesses of £43.9m during the year due to the
claims period ending.
45. Derivative financial instruments
Forward foreign exchange contracts
Analysed as:
Current
Assets
2023
£m
4.9
Liabilities
2023
£m
(1.7)
Assets
2022
£m
3.0
Liabilities
2022
£m
(1.1)
4.9
(1.7)
3.0
(1.1)
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.
46. Deferred tax
Tax losses
The movement in the deferred tax asset during the year was as follows:
At 1 January
Credit to profit and loss account
At 31 December
2023
£m
—
—
2023
£m
0.7
(0.7)
—
2022
£m
0.7
0.7
2022
£m
—
0.7
0.7
Serco Group plc | Annual Report and Accounts 2023 | 223
Strategic Report
Corporate Governance
Financial Statements
Notes to the Company Financial Statements continued
46. Deferred tax continued
The deferred tax asset not recognised is as follows:
At 31 December
Temporary differences on assets/intangibles
Share-based payments and employee benefits
Other temporary differences
Tax losses
47. Called up share capital
Issued and fully paid
1,218,008,788 (2022: 1,218,008,788) ordinary shares of 2p each at 1
January
Cancelled: 114,462,822 (2022: nil) ordinary shares of 2p
1,103,545,966 (2022: 1,218,008,788) ordinary shares of 2p each at
31 December
2023
£m
24.4
(2.3)
22.1
Number
2023
millions
1,218.0
(114.5)
1,103.5
2023
£m
0.2
1.5
1.5
51.3
54.5
2022
£m
24.4
—
2022
£m
0.2
2.5
1.8
51.1
55.6
Number
2022
millions
1,218.0
—
24.4
1,218.0
During the year 114,462,822 (2022: nil) shares were cancelled as part of the Serco Share Repurchase Programme (the programme).
The Company has one class of ordinary shares which carry no right to fixed income.
48. Share premium account
At 1 January and at 31 December
49. Profit and loss account
At 1 January
Profit/(loss) for the year
Equity dividends
Cancellation of shares held in Treasury
At 31 December
2023
£m
463.1
2023
£m
401.8
437.9
(33.7)
(180.0)
626.0
2022
£m
463.1
2022
£m
437.1
(5.0)
(30.3)
—
401.8
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. The total profit for the year was £437.9m (2022: loss £5.0m) and the total comprehensive profit for the year was
£437.9m (2022: loss £5.0m).
The Company plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to
shareholders.
During 2015, Serco Group plc as a statutory entity created £519m of reserves from the Rights Issue which was structured to ensure
that these reserves were distributable. As a result of this transaction and consistently positive trading results, the Group has sufficient
distributable reserves to facilitate the payment of distributions by Serco Group plc.
Serco Group plc | Annual Report and Accounts 2023 | 224
Strategic Report
Corporate Governance
Financial Statements
Notes to the Company Financial Statements continued
50. Share-based payment reserve
At 1 January
Awards over parent’s shares made to employees of subsidiaries
Share-based payment charge
Shares transferred to award holders on exercise of share awards
Tax (charge)/credit on items taken directly to equity
At 31 December
2023
£m
88.0
7.9
5.6
(15.6)
0.4
86.3
2022
£m
81.1
10.8
4.8
(9.3)
0.6
88.0
Details of the share-based payment disclosures are set out in note 34 of the Group’s Consolidated Financial Statements.
51. Other reserves
Treasury shares reserve
The Treasury shares reserve represents amounts paid to repurchase ordinary shares. On 28 February 2023, the Group announced
its intention to repurchase ordinary shares with a value of up to £90m. The buyback programme took place between 3 March and 22
June 2023. During this period, the Group repurchased 58,956,118 shares at an average cost of £1.506 for total cost including fees
of £88.8m. All shares held at 31 December 2022 and those purchased in 2023 have been cancelled.
Own share reserve
The own shares reserve represents the cost of shares in Serco Group plc held by the Serco Group plc Employee Share Ownership
Trust (ESOT) to satisfy awards under the Group’s share plan schemes. At 31 December 2023, the ESOT held 11,351,967 (2022:
9,144,275) shares equal to 1.0% of the current allotted share capital (2022: 0.8%). The market value of shares held by the ESOT as at
31 December 2023 was £18.4m (2022: £14.2m).
52. Contingent liabilities
The Company and its subsidiaries have provided certain guarantees and indemnities in respect of performance and other bonds,
issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 31 December 2023 was
£212.7m (2022: £220.9m).
Following the announcement during 2020 that the Company has received a claim seeking damages for alleged losses as a result of
the reduction in Serco’s share price in 2013. As the claim progresses, the Company has continued to assess the merit, likely
outcome and potential impact on the Company of any such litigation that either has been or might potentially be brought against
the Company. Any outcome is subject to a number of significant uncertainties. The Company does not currently assess the merits as
strong, especially given the legal uncertainties in such actions.
The Company is also aware of other claims and potential claims which involve or may involve legal proceedings against the
Company although the timing of settlement of these claims remains uncertain. The Directors are of the opinion, having regard to
legal advice received and the Company’s insurance arrangements, that it is unlikely that these matters will, in aggregate, have a
material effect on the Company’s financial position.
The Company has a guarantee in place with the SPLAS Trustees in respect of any pension contribution obligations that remain
unpaid after 30 days of being due from other Group entities, including the plan sponsor, up to a total of £200m (2022: £200m) less
contributions made by the Group since April 2022. This guarantee runs until 2030 (2022: 2030).
The Company has guaranteed overdrafts, leases, and bonding facilities of its joint ventures and associates up to a maximum value of
£5.7m (2022: £5.7m). The actual commitment outstanding at 31 December 2023 was £5.7m (2022: £5.7m).
53. 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 101 from disclosing related party transactions with entities that are 100% owned by
Serco Group plc.
Serco Group plc | Annual Report and Accounts 2023 | 225
Strategic Report
Corporate Governance
Financial Statements
Appendix: List of subsidiaries
and related undertakings
Serco Group
interest
Registered office address
Company name
ACN 611 392 744 Pty Ltd
AI Recruiting BV
BRTRC Federal Solutions, Inc.
Cardinal Insurance Company Limited
Chimera WBB JV L.L.C.
Clemaco Trading NV
COMPASS SNI Limited
Conflucent Innovations, L.L.C.
Decisive Analytics Corporation
Defence Contractor Management and
Operations Limited
Djurgårdens Färjetrafik AB
DMS Maritime Pty Limited
Innu Serco Inc
Innu Serco Limited Partnership
International Aeradio (Emirates) L.L.C. – Abu
Dhabi
49%
100%
100%
100%
49%
100%
100%
49%
100%
24.5%
50%
100%
49%
49%
49%
International Aeradio (Emirates) L.L.C. – Dubai
49%
JBI Properties Services Company L.L.C.
Joint Integrated Range Solutions L.L.C.
Khadamat Facilities Management L.L.C.
Lift BV
LOGTEC Inc.
Mahani Technical Services, L.L.C.
Mercurius Finance SA
Merseyrail Electrics 2002 Limited
Merseyrail Infraco Limited
49%
49%
49%
100%
100%
49%
100%
50%
50%
Merseyrail Services Holding Company Limited3 50%
Northern Rail Holdings Limited
Northern Rail Limited
ORS Deutschland GmbH
ORS España Servicios Sociales, S.L.
ORS Greece Monoprosopi A.E
ORS Group AG
ORS Italia S.r.l
ORS Service AG
50%
50%
100%
100%
100%
100%
100%
100%
Level 6, 123 Epping Road, Macquarie Park, NSW 2113, Australia
Kapteynstraat 1, 2201 BB Noordwijk, The Netherlands
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Dorey Court, Admiral Park, St Peter Port, GY1 4AT, Guernsey
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United
States
Sint-Sebastiaanstraat 5, 8400 Oostende, Belgium
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
5880 Innovation Drive, Dublin, OH 43016, United States
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Svensksundsvagen 17, 111 49 Stockholm, Sweden
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
P.O. Box 1012, Station C, Happy Valley – Goose Bay, NL, A0P 1C0,
Canada
P.O. Box 1012, Station C, Happy Valley – Goose Bay, NL, A0P 1C0,
Canada
Office No. 503, 5th Floor, Al Muhairy Building, Zayed The First
Street, PO Box 3164 Abu Dhabi, United Arab Emirates
19th Floor, Rolex Tower, Sheikh Zayed Road, PO Box 9197 Dubai,
United Arab Emirates
7th Floor, Al Sila Tower Abu Dhabi Global Market Square, Al
Maryah Island, Abu Dhabi, United Arab Emirates
8337 W. Sunset Road, Suite 250, Las Vegas, NV 89113, United States
The United Arab Emirates University, Al Jamea Street, Al Maqam
District, PO Box 66718 Al Ain, United Arab Emirates
Noordwal 10 III, 2513 EA ‘s-Gravenhage, The Netherlands
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
511 Duckwater Fall Road, Duckwater, NV, 89314, United States
11 Avenue de la Porte-Neuve, L-2227 Luxembourg
Rail House, Lord Nelson Street, Liverpool, Merseyside, L1 1JF,
United Kingdom
Rail House, Lord Nelson Street, Liverpool, Merseyside, L1 1JF,
United Kingdom
St Andrews House, 18 - 20 St. Andrew Street, London, EC4A 3AG,
United Kingdom
St Andrews House, 18 - 20 St. Andrew Street, London, EC4A 3AG,
United Kingdom
St Andrews House, 18 - 20 St. Andrew Street, London, EC4A 3AG,
United Kingdom
Güterhallenstrasse 4, 79106 Freiburg, Germany
Avda Felipe II 1 7 1 ° Madrid 28009-Madrid, Spain
280, Kifisias Ave., Chalandri, Greece
Röschibachstrasse 22, 8037 Zürich, Switzerland
Piazza Annibaliano, 18 CAP 00198 Presso Studio Filippini & Ass, Italy
Röschibachstrasse 22, 8037 Zürich, Switzerland
Serco Group plc | Annual Report and Accounts 2023 | 226
Strategic Report
Corporate Governance
Financial Statements
Appendix: List of subsidiaries
and related undertakings continued
Company name
ORS Service GmbH (Austria)
ORS Slovakia s.r.o
OXZ Holdings AG
Priority Properties North West Limited
Sapienza Consulting BV
Sapienza Consulting France SAS
Sapienza Consulting GmbH
Sapienza Consulting Holding BV
Sapienza Consulting Limited
Sapienza Consulting S.r.l.
Serco (Jersey) Limited
Serco Australia Pty Limited3
Serco Belgium S.A.
Serco Caledonian Sleepers Limited
Serco Canada Inc.
Serco Canada Marine Corporation
Serco Citizen Services Pty Ltd
Serco Corporate Services Limited
Serco Czech Republic s.r.o.
Serco Defence Clothing Pty Ltd
Serco Defence S.A.
Serco Defence Services Pty Ltd
Serco Environmental Services Limited2
Serco Group
interest
Registered office address
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Leopold-Ungar-Platz 2, 1190, Döbling, Wien, Austria
Grösslingova 45, Bratislava, Slovakia
Röschibachstrasse 22, 8037 Zürich, Switzerland
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Kapteynstraat 1, 2201 BB Noordwijk ZH, Netherlands
4 Allée des Cormorans 06150 CANNES LA BOCCA, France
Berliner Allee 65, 64295 Darmstadt, Germany
Rijnstraat 3, 2223 EG Katwijk, The Netherlands
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Piazza Sant’Andrea della Valle, 3 Roma, Italy
26 New Street, St. Helier, JE2 3RA, Jersey
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
1945 Chaussée de Wavre, 1160 Auderghem, Brussels, Belgium
C/O Serco Northlink Ferries Aberdeen Ferry Terminal, Jamieson's
Quay, Aberdeen, United Kingdom, AB11 5NP
37 Carl Hall Rd, North York, ON M3K 2B6, Canada
555 Legget Drive, Suite 400, Tower A, Ottawa, ON, K2K 2X3,
Canada
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Praha City Centre, Klimentska 46, Prague, 110 02, Czech Republic
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
1945 Chaussée de Wavre, 1160 Auderghem, Brussels, Belgium
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Serco Facilities Management Holdings Pty
Limited
Serco Facilities Management Pty Limited
Serco Facilities Management Sub-Holdings Pty
Limited
100%
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
100%
100%
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Ferries (Guernsey) Crewing Limited
100%
Serco Ferries (HR) Limited
Serco Gestion de Negocios S.L.U.
Serco Group (HK) Limited
Serco Group Pty Limited3
Serco Holdings Limited1
Serco Inc.3
Serco International Limited
Serco International S.à r.l
Serco Italia S.p.A.
Serco Leasing Limited2
Serco Leisure Operating Limited
Serco Limited3
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
4th Floor, West Wing, Trafalgar Court, Admiral Park, St Peter Port,
GY1 2JA, Guernsey
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Calle Ayala no 13, 1° derecha, CP-28001, Madrid, Spain
Unit 3103, 31/F, Millennium City 6, 392 Kwun Tong Road, Kwun
Tong, Kowloon, Hong Kong
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
7, rue Robert Stümper, L-2557, Luxembourg
Viale dell’Astronomia no. 13 – 00144 Roma, Italy
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Serco Group plc | Annual Report and Accounts 2023 | 227
Strategic Report
Corporate Governance
Financial Statements
Appendix: List of subsidiaries
and related undertakings continued
Company name
Serco Listening Company Limited
Serco Luxembourg S.A.
Serco Maritime Services NV
Serco MENA Regional Head Quarters LLC
Serco Nederland B.V.
Serco New Zealand (Asset Management
Services) Limited
Serco New Zealand Limited
Serco New Zealand Training Limited
Serco North America (Holdings), Inc.
Serco Nunavut Ltd
Serco Paisa Limited
Serco Pension Trustee Limited
Serco Projects L.L.C.
Serco Regional Services Limited
Serco Safety Services L.L.C.
Serco S.a.r.l.
Serco SAS
Serco Saudi Arabia L.L.C.
Serco Saudi Firefighting LLC
Serco Security Services SASU
Serco Services GmbH
Serco Singapore Pte Limited
Serco Switzerland S.A.
Serco Group
interest
Registered office address
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
50%
100%
49%
100%
100%
100%
100%
100%
95%
100%
100%
100%
100%
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
33 Rue Sainte Zithe, 2763 Luxembourg
Sint-Sebastiaanstraat 5, 8400 Oostende, Belgium
8793 Riyadh Front, Unit S7, King Khalid Int. Airport District, Riyadh
13413-3718, Kingdom of Saudi Arabia
Kapteynstraat 1, 2201 BB Noordwijk ZH, Netherlands
Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland
Central, Auckland, 1010, New Zealand
Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland
Central, Auckland, 1010, New Zealand
Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland
Central, Auckland, 1010, New Zealand
1209 Orange Street, Wilmington, DE 19801, United States
Field Law, House 2436, PO Box 1734, Iqaluit, NU X0A 0H0, Canada
55 Bishopsgate, London, England, EC2N 3AS, United Kingdom
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Office Number 1904, 19th Floor, Serco Projects, The E18hteen,
Alliance Business Center, Doha, PO BOX 23107, Qatar
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
Office No. 2001, Owned by Seddiqi and Sons Investment, Trade
Center 2, Dubai, United Arab Emirates
Bourg en Bresse, Technoparc du pays de Gex, 15 rue Lumiere,
01630 Saint Genis Pouilly, France
Bourg en Bresse, Technoparc du pays de Gex, 15 rue Lumiere,
01630 Saint Genis Pouilly, France
6987 King Abdul Aziz Road, Al Maseef District, Unit No. 31, Riyadh,
12467-2444, Kingdom of Saudi Arabia
Building No 7026, Postal Code 13458 Airport Road, King Khaled
International Airport District, Kingdom of Saudi Arabia
15 Rue Lumière, Technoparc Pays de Gex, 01630 Saint Genis
Pouilly, France
Lise-Meitner-Straße 10, 64293 Darmstadt
38 Beach Road, #29-11 South Beach Tower, Singapore, 189767
62 Route de Frontenex Bis 86, 1208 Geneva, Switzerland
Serco Traffic Camera Services (VIC) Pty Limited 100%
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco-IAL Limited
Serco-IPS Corporation
STJ Administration Pty Limited
TJS Corporate Security WA Pty Limited
TJS Hospitality & Entertainment Pty Ltd
TJS Services (FNQ) Pty Ltd
TJS Services (Newcastle) Pty Ltd
TJS Services (SA) Pty Ltd
TJS Services (Vic) Pty Ltd
TJS Services (WA) Pty Ltd
Vivo Defence Services Limited3
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, United Kingdom
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United
States
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
First Floor, Neon Q10 Quorum Business Park, Benton Lane,
Newcastle Upon Tyne, NE12 8BU, United Kingdom
Whitney, Bradley & Brown, Inc.
100%
12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
1
2
3
Serco Holdings Limited is directly owned by Serco Group plc. All other subsidiaries and associated undertakings are held indirectly via Group companies.
Companies in liquidation or with an active proposal for strike off as at 31 December 2023.
Companies key to the consolidated numbers, all of which are engaged in the provision of support services.
Serco Group plc | Annual Report and Accounts 2023 | 228
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Corporate Governance
Financial Statements
Glossary
Adjusted net debt
Adjusted net debt is used by Serco as an additional non-IFRS
Alternative Performance Measure (APM). This measure more
closely aligns with the covenant measure for the Group’s
financing facilities than reported net debt because it excludes
all lease liabilities including those recognised under IFRS 16
Leases
Colleagues
The number of colleagues is derived from the average number of
persons employed and includes all individuals employed under
contracts of service by the Group as disclosed in note 11 of the
Financial Statements. This comprises permanent, part-time, and
casual employees and those with fixed term contracts. In contrast
with the number of employees disclosed in note 11 of the Financial
Statements, colleagues also includes self-employed contractors,
other casual workers and employees of Trusts. This is because such
colleagues fall within Serco’s duty of care and are within the scope
of a number of our KPIs. Employees of Joint Ventures where Serco
is not the controlling shareholder and sub-contractors, are
excluded.
Employee engagement
We use a specialist third party provider to run Viewpoint, our
global employee engagement survey. The survey covers
employees, excluding our joint ventures, and measures
engagement in two key areas: how happy employees are working
at Serco and their intention to recommend Serco to others. Our
engagement score incorporates all respondents’ perceptions and
shows the overall average view of these two areas when we survey.
Free Cash Flow (FCF)
Free cash flow is the net cash flow from operating activities
adjusted to remove the impact of non-underlying cash flows from
operating activities, adding dividends we receive from joint
ventures and associates and deducting net interest, net capital
expenditure on tangible and intangible asset purchases and the
purchase of own shares to satisfy share awards
Lost Time Incident Frequency Rate (LTIFR)
Lost Time Incidents (LTIs) are incidents when personal injury
accidents at work, or when travelling on company business, cause
an employee to incur one or more working days (or shifts) absence
as a result. LTIs are recorded from the date the incident occurred,
not from when time was lost. The LTIFR is calculated using the total
number of Lost Time Incidents, normalised using the total number
of hours worked in the period. This provides a view on the
frequency of lost time incidents, regardless of movements in staff
numbers, which is comparable across all areas where LTIs are
incurred. Minor revisions can be made to prior reported
performance based on data received post publication date.
Major incident frequency rate (MIFR), per 1 million
hours worked
Major incidents include but are not limited to; any injury requiring
resuscitation or admittance to hospital for more than 24 hours;
fracture other than to fingers, thumbs or toes; dislocation of the
shoulder, hip, knee or spine; amputation; loss of sight (temporary
or permanent); chemical or hot metal burn to the eye or any
penetrating injury to the eye.
The MIFR is calculated using the total number of major incidents,
normalised using the total number of hours worked in the period.
This provides a view on the frequency of major incidents,
regardless of movements in staff numbers, which is comparable
across all areas where major incidents are incurred.
Order book
The order book reflects the estimated value of future revenue
based on all existing signed contracts, excluding Serco’s share of
joint ventures and associates. It excludes contracts at the preferred
bidder stage and excludes the award of new Multiple Award
Contracts (MACs), Indefinite Delivery/Indefinite Quantity (IDIQ)
contracts or framework vehicles, where Serco cannot estimate with
sufficient certainty its expected future value of specific task orders
that may be issued under the IDIQ or MAC; in these situations the
value of any task order is recognised within the order book when
subsequently won. The definition is aligned with IFRS15 disclosures
of the future revenue expected to be recognised from the
remaining performance obligations on existing contractual
arrangements and therefore excludes unsigned extension periods
and option periods in our US business. Order intake is the value of
business which has been won during the year and typically includes
Serco’s share of order intake from its joint ventures and option
periods in our US business.
Pipeline of larger new bid opportunities
Pipeline of larger new bid opportunities reflects the estimated
aggregate value at the end of the reporting period of new bid
opportunities with Annual Contract Value (ACV) greater than £10m
and which we expect to bid and be awarded within a rolling 24-
month timeframe. It does not include re-bids or extensions of
existing business, and the Total Contract Value (TCV) of individual
opportunities is capped at £1bn; also excluded is the potential
value of framework agreements, prevalent in the US in particular
where there are numerous arrangements classed as IDIQ. In this
case only the potential value of any individual task order is
included.
Trading cash conversion
In order to calculate an appropriate cash conversion metric
equivalent to UOP, trading cash flow is derived from FCF by
excluding capitalised finance costs, interest, non-cash R&D
expenditure and tax items. Trading cash conversion therefore
provides a measure of the efficiency of the business in terms of
converting profit into cash before taking account of the impact of
capitalised finance costs, interest, non-cash R&D expenditure, tax
and non-underlying items.
Underlying Earnings Per Share (EPS), diluted
Underlying EPS reflects the Underlying Operating Profit measure
after deducting underlying net finance costs and tax. It takes into
account any non-controlling interests share of the result for the
period, and divides the remaining result that is attributable to the
equity owners of the Company by the weighted average number of
ordinary shares outstanding, including the potential dilutive effect
of share options, in accordance with IFRS. Underlying net finance
costs and tax are used to calculate Underlying EPS to remove the
impact of typical non-recurring or out of period items.
Underlying Operating Profit (UOP)
Underlying Operating Profit is defined as IFRS Operating Profit
excluding amortisation of intangibles arising on acquisition as well
as exceptional items (and in the prior year other non-underlying
items). Consistent with IFRS, it includes Serco’s share of profit after
interest and tax of its joint ventures and associates.
Underlying Return on Invested Capital (ROIC)
ROIC is calculated as UOP for the period divided by the invested
capital balance. Invested capital represents the assets and liabilities
considered to be deployed in delivering the trading performance
of the business. Invested capital assets are: goodwill and other
intangible assets; property, plant and equipment; interests in joint
ventures and associates; contract assets, trade and other
receivables; and inventories. Invested capital liabilities are contract
liabilities, trade and other payables. Invested capital is calculated
as a two-point average of the opening and closing balance sheet
positions.
Serco Group plc | Annual Report and Accounts 2023 | 229
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Corporate Governance
Financial Statements
Dividend
Proposed final dividend
The Directors have recommended payment of a final dividend of
2.27 pence in respect of the year ended 31 December 2023,
subject to approval by shareholders at the Annual General
Meeting.
Key dates
Annual General Meeting 24 April 2024
Ex-dividend date 18 April 2024
Record date 19 April 2024
Payment date 10 May 2024
Dividend payment
Shareholders are encouraged to receive dividends directly to
their bank or building society which saves paper, helping to
minimise our environmental impact and reducing the cost of
printing and delivery. Mandate forms are available at
www.shareview.co.uk
Shareholder Information
Our website
The Company’s website, www.serco.com, provides access to
share price information as well as sections on managing your
shareholding online, corporate governance and other investor
relations information.
Shareholder queries
Our share register is maintained by our Registrar, Equiniti.
Shareholders with queries relating to their shareholding should
contact Equiniti directly using one of the methods listed
opposite.
American Depositary Receipts (ADRs)
Serco has established a sponsored Level I ADR programme.
Serco ADRs are traded on the US over-the-counter market
(SCGPY).
For queries relating to your ADR holding, please contact our
ADR depositary bank, Deutsche Bank Trust Company Americas.
Managing your shares online
Shareholders can manage their holding online by registering to
use our shareholder portal at www.shareview.co.uk. This free
service is provided by our Registrar, giving quick and easy
access to your shareholding.
Electronic communications
We encourage shareholders to consider receiving their
communications electronically which means you receive
information quickly and securely and allows us to communicate
in a more environmentally friendly and cost-effective way. You
can register for this service online using our share portal at
www.shareview.co.uk
Duplicate documents
Some shareholders find that they receive duplicate
documentation due to having more than one account on the
share register. If you think you fall into this group and would like
to combine your accounts, please contact our Registrar, Equiniti.
Changes of address
To avoid missing important correspondence relating to your
shareholding, it is important that you inform our Registrar of your
new address as soon as possible.
Sharegift
If you have a very small shareholding that is uneconomical to
sell, you may want to consider donating it to Sharegift
(Registered Charity no.1052686), a charity that specialises in the
donation of small, unwanted shareholdings to good causes. You
can find out more by visiting www.sharegift.org or by calling +44
(0) 207 930 3737.
Serco Group plc | Annual Report and Accounts 2023 | 230
Strategic Report
Corporate Governance
Financial Statements
Useful Contacts
Serco’s registered office
Serco House
16 Bartley Wood Business Park
Bartley Way
Hook
Hampshire
RG27 9UY
United Kingdom
Telephone:
+44 (0)1256 745 900
Email:
investorcentre@serco.com
Registered in England and Wales No. 02048608
Group General Counsel
David Eveleigh
Group Company Secretary
Nickesha Graham-Burrell
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
Telephone:
0371 384 2932 (from within UK)
+44 (0)121 415 7047 (from outside UK)
Lines are open 8.30am to 5.30pm
Monday to Friday (excluding public
holidays in England and Wales).
www.shareview.co.uk
Website:
Shareholders can securely send queries via the website using the
‘Help’ section.
Legal Disclaimer
This Annual Report and Accounts contains certain statement
which are, or may be deemed to be, ‘forward-looking
statements’. All statements other than statements of historical
fact are forward-looking statements. Generally, words such as
“expect”, “anticipate”, “may”, “could”, “should”, “will”, “aspire”
“aim”, “plan”, “target”, “goal”, “ambition”, “intend” or, in each
case, their negative or other variations or comparable
terminology identify forward- looking statements. By their
nature, these forward-looking statements are subject to a
number of known and unknown risks, uncertainties and
contingencies, and actual results and events could differ
materially from those currently being anticipated as reflected in
such statements. Factors which may cause future outcomes to
differ from those foreseen or implied in forward-looking
statements include, but are not limited to: general economic
conditions and business conditions in Serco’s markets;
contracts awarded to Serco; customers’ acceptance of Serco’s
products and services; operational problems; the actions of
competitors, trading partners, creditors, rating agencies and
others; the success or otherwise of partnering; changes in laws
and governmental regulations; regulatory or legal actions,
including the types of enforcement action pursued and the
nature of remedies sought or imposed; the receipt of relevant
third party and/or regulatory approvals; exchange rate
fluctuations; the development and use of new technology;
changes in public expectations and other changes to business
conditions; wars and acts of terrorism;
ADR depositary bank
Deutsche Bank Trust Company Americas
c/o Equiniti Trust Company LLC
6201 15th Avenue
Brooklyn NY 11219
USA
Telephone:
+1 866 249 2593 (toll-free within USA)
+1 718 921 8124 (from outside USA)
www.adr.db.com
adr@equiniti.com
Website:
Email:
Brokers
JP Morgan
Barclays
Auditor
KPMG LLP
Unsolicited mail and shareholder fraud
Shareholders are advised to be wary of unsolicited mail or
telephone calls offering free advice, to buy shares at a discount
or offering free company reports. For further information on how
shareholders can be protected from investment scams visit www.
fca.org.uk/scamsmart
Notification of major interests in shares (TR1 Forms)
cosec@serco.com
Email:
cyber-attacks; and pandemics, epidemics or natural disasters.
Many of these factors are beyond Serco’s control or influence.
For a description of the principal risks and uncertainties that
may affect Serco’s business, financial performance or results of
operations, please refer to the Principal Risks and Uncertainties
set out in this Annual Report and Accounts. These forward-
looking statements speak only as of the date of this publication.
Past performance should not be taken as an indication or
guarantee of future results and no representation or warranty,
express or implied, is made regarding future performance.
Except as required by any applicable law or regulation
(including under the UK Listing Rules and the Disclosure
Guidance and Transparency Rules of the Financial Conduct
Authority), Serco expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this publication to
reflect any change in Serco’s expectations or any change in
events, conditions or circumstances on which any such
statement is based. Accordingly, undue reliance should not be
placed on any such forward-looking statements. Any
references in this publication to other reports or materials,
including website addresses, are for the reader’s interest only.
Neither the content of Serco’s website nor any website
accessible from hyperlinks from Serco’s website, including any
materials contained or accessible thereon, are incorporated in
or form part of this publication.
Serco Group plc | Annual Report and Accounts 2023 | 231
Strategic Report
Corporate Governance
Financial Statements
Notes
Printed by a carbon neutral company to the EMAS standard and Environmental Management
System certified to ISO 14001. This product is made using recycled materials limiting the
impact on our precious forest resources, helping reduce the need to harvest more trees.
This publication has been manufactured using 100% offshore wind electricity sourced from UK
wind. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for
further use and, on average 99% of any waste associated with this production will be recycled
and the remaining 1% used to generate energy.
This is a certified climate neutral print product for which carbon emissions have been calculated
and offset by supporting recognised carbon offset projects. The carbon offset projects are
audited and certified according to international standards and demonstrably reduce emissions.
The climate neutral label includes a unique ID number specific to this product which can be
tracked at www.climatepartner.com, giving detail of the carbon offsetting process including
information on the emissions volume and the carbon offset project being supported.
Serco Group plc | Annual Report and Accounts 2023 | 232
www.serco.com
Serco Group plc
Serco House
16 Bartley Wood Business Park
Bartley Way, Hook
Hampshire, RG27 9UY
For general enquiries contact
T: +44 (0)1256 745900
E: investorcentre@serco.com