Serco Group plc Annual Report & Accounts 2022
Annual Report
and Accounts
2022
We gain scale, expertise and diversification
by operating internationally across five
sectors and four geographies: Defence,
Justice & Immigration, Transport, Health &
other Facilities Management and Citizen
Services, delivered in the UK and Europe,
North America, Asia Pacific and the
Middle East.
Strategic Report
01–110
01 Highlights
02 At a Glance
04 Chairman’s Statement
06 Our Market
11 Our Management Philosophy
13 Our B2G Platform
15 Chief Executive’s Review
25 Strategic Objectives and Achievements
28 Key Performance Indicators
31 Divisional Reviews
36 ESG
74 Task Force on Climate-related Financial
Disclosures (TCFD) Compliance Statement
83 Finance Review
95 Risk Management
98 Principal Risks and Uncertainties
109 Viability Statement
Corporate Governance
111–176
112 Chairman’s Corporate Governance Overview
114 Governance At a Glance
115 Board of Directors
118 Board and Governance
121 Section 172 (1) Statement
127 Group Risk Committee Report
130 Audit Committee Report
136 Nomination Committee Report
139 Corporate Responsibility Committee Report
142 Remuneration Report
170 Directors’ Report
176 Directors’ Responsibility Statement
Financial Statements
177–264
178 Independent Auditor’s Report
189 Consolidated Income Statement
190 Statement of Comprehensive Income
191 Consolidated Statement of Changes in Equity
192 Consolidated Balance Sheet
193 Consolidated Cash Flow Statement
194 Notes to the Consolidated Financial Statements
250 Company Balance Sheet
251 Company Statement of Changes in Equity
252 Notes to the Company Financial Statements
256 Appendix: List of subsidiaries and
relatedundertakings
260 Compliance with the UK Corporate
GovernanceCode
262 Shareholder Information
263 Useful Contacts
Contents
500+
CONTRACTS
20+
COUNTRIES
50,000+
COLLEAGUES
For more and the latest information
please visit our website at:
www.serco.com
Serco Group plc Annual Report and Accounts 2022
Highlights
See KPIs on
pages 28-30
for definitions
See pages 06-14 for
more information
onour business
Revenue
£4.5bn
2021: £4.4bn
Underlying Trading Profit
£237m
2021: £229m
Underlying EPS, diluted
13.9p
2021: 12.6p
Dividend per share
2.86p
2021: 2.41p
Free cash flow
£159m
2021: £190m
Major incident frequency
0.44 per
1m hours
2021: 0.36 per 1m hours
Order book
£14.8bn
2021: £13.7bn
Reported operating profit
£217m
2021: £216m
Reported EPS, diluted
12.8p
2021: 24.4p
Underlying ROIC
20.6%
2021: 23.7%
Employee engagement
70 points
2021: 70 points
Lost time incident frequency
5.7 per
1mhours
2021: 4.2 per 1m hours
Strategic Report
Financial StatementsCorporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022 01
At a Glance
What we do
£1,502m £443m£1,212m £592m
£1,023m
Defence Transpor t
Justice &
Immigration
Citizen Services
Health
& other Facilities
Management
Serco delivers services to governments and other institutions who serve
the public or protect vital national interests.
Serco’s roots go back to 1929, and in 1988 the Group was listed on the London Stock Exchange.
Now, Serco is a FTSE 250 company managing over 500 contracts worldwide and employing more
than 50,000 people across our operations.
We deliver services through people, supported by effective processes, technology and skilled management. Our customers define
what outcomes or services they need to deliver, and we develop new and more effective ways to deliver them. We provide innovative
solutions to some of the most complex challenges facing governments, bringing our experience, capability and scale to deliver the
service standards, cost efficiencies and policy outcomes governments want. In this way we make a positive difference to the lives of
millions of people around the world, often looking after some of the most vulnerable and disadvantaged in society and helping to
keep nations safe.
Our core sectors
Base and operational
support
Engineering,
management and
information services
Space and
maritimeservices
Defence
Protecting national
and international
security interests
Custodial services
Asylum seeker
accommodation
Immigration detention
services
Detainee transport
andmonitoring
Justice &
Immigration
Safeguarding
those in our care
andbeyond
Rail, ferry and cycle
operations
Road traffic
management
Air traffic control
Transport
Facilitating safe and
efficient movement
of people and goods
Contact centres and
case management
Employment and skills
services
Covid-19-related
services
Environmental services
Leisure services
Citizen Services
Contributing to the
wellbeing of citizens
and communities
Integrated facilities
management
Clinical and non-clinical
support services
Patient administration
and contact
Health & other FM
Enhancing public
sector infrastructure,
patient experience
and care quality
Some key services
Our fundamental role in the functioning of an orderly society
Our business is focused across five core sectors, with revenue in 2022 of £4,534m or £4,772m,
including our share of joint ventures and associates, to reflect our total scale in each sector.
02 Serco Group plc Annual Report and Accounts 2022
Revenue by sector Revenue by Division
Total revenue £4,772m
UK & Europe Americas
Asia Pacific Middle East
Total revenue £4,772m
Citizen Services Defence
Justice & Immigration Health & other FM
Transport
Where we operate
Serco’s operations are across four geographic regions:
Americas
£1,270m
UK & Europe
£2,338m
Middle East
£209m
Asia Pacific
£955m
Revenue in 2022 (including share of joint ventures and associates).
Our business mix
See pages 06-14
for more information
on our business model
Serco’s revenue by sector and geographic division:
Revenue in 2022 (including share of joint ventures and associates).
9%
13%
21%
32%
25%
4%
49%
27%
20%
03
Financial StatementsCorporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Serco has navigated the global
challenges of the last few years
well. This provides a powerful
endorsement of the strategy
and a solid foundation for
future growth.”
John Rishton
Chairman
Introduction
My key areas of focus when I became Chair were growth, succession
and ESG. We have made good progress on all three in 2022.
– On growth, we exceeded our expectations at the start of the
year by offsetting the substantial reduction caused by the
end of Covid-related work.
– On CEO succession, the work we have done over several
years proved invaluable as we were able to appoint an
internal candidate, Mark Irwin, to replace Rupert Soames who
decided to retire after nine successful years as CEO.
– ESG is an area we place great importance on but have, at
times, found difficult to navigate due to divergent views on
the social value of some of the work we do. As we have
frequently said, we work to implement government policy
and believe that we play a critical role in delivering vital
services to society in our various geographies and sectors.
Our role in defence has caused concern for some but,
following Russia’s invasion of Ukraine, I have heard a more
thoughtful discussion about its role and importance. We have
repositioned and strengthened our ESG approach,
messaging and reporting over the year and seen a better
understanding of our ESG credentials with improved scores
from a number of ESG agencies. In 2023, while continuing to
prioritise all aspects of ESG, we will be placing particular
focus on the health and wellbeing of our colleagues.
Our performance
The Company delivered resilient financial results in 2022.
Revenue and Underlying Trading Profit both grew despite our
Covid-19 Test & Trace work coming to an end. Good growth in
other parts of the business helped compensate for the large
negative impact of Covid-related work ending, whichIthink
– Revenue up 2% to £4.5bn,
despite an 11% drag from lower
levels of Covid-19-related work.
– Underlying Trading Profit of
£237m, 22% higher than our
initial guidance.
Chairman’s Statement
is a powerful endorsement of the strategy that has been
implemented over recent years. Earnings Per Share increased
by 11% and the strong cash generation of the business was
demonstrated again, with cash conversion of 97%.
Acquisitions are an important part of our strategy and we
made two during the year. In July we acquired Sapienza, a
leading European provider of services in the space sector. The
acquisition expands our offering and capabilities in the fast-
growing space market, supporting the Group’s growth strategy
of becoming a leading provider of complex managed services
for the space sector. In September we bought ORS, a specialist
provider of immigration services to public sector customers in
Switzerland, Germany, Austria and Italy. The business adds scale
to our European operations and capability to Serco’s position in
immigration services, already one of our core sectors, and one in
which we expect to see growth in the coming years.
Returns to our shareholders were increased significantly in
2022. Consistent with our stated capital allocation priorities, we
progressed with our plan of increasing ordinary dividends and,
in addition, we returned £90m of surplus capital to shareholders
through a share buyback. The Board is recommending a final
dividend of 1.92p which is an increase of 19% and has agreed a
further £90m share buyback for 2023.
Succession
Rupert Soames stepped down from his role as Chief Executive at
the end of December 2022. Serco has been rejuvenated under
his leadership, with the business he leaves unrecognisable from
the one he joined in 2014. Having successfully ensured the
Company survived, Rupert subsequently transformed the internal
operations and culture of the Company, as well as rehabilitating
its customer relationships. This provided a base from which
to grow and over the five years from 2017 the business has
– Free cash flow of £159m, cash
conversion of 97% covenant net
debt: EBITDA at the year-end
of0.8x.
– Order intake of £4.2bn.
– Successful CEO
successionprocess.
– Significantly increased returns
to shareholders, with
recommended ordinary
dividend up 19% and a share
buyback of £90m in 2022 and
further £90m in 2023.
Highlights of 2022
04 Serco Group plc Annual Report and Accounts 2022
increased revenue by a compound average growth rate of 9%
and Underlying Trading Profit by 28%. On behalf of the Board, I
would like to thank Rupert for the exceptional work he has done.
I am delighted that Mark Irwin has been appointed as your
new Chief Executive. Mark was chosen by the Board after a
rigorous selection process that involved both internal and
external candidates. It was clear during our selection process
that Mark’s deep knowledge of Serco in the UK, Europe and Asia
Pacific, as well as his prior experience working in the US and the
tremendous results he has delivered for us in all his roles, make
him the ideal person to lead the Group through its next phase
of growth. Anthony Kirby, our Chief Operating Officer, has been
made CEO UK&E, replacing Mark.
The Board and I would also like to thank David Dacquino who has
led and transformed our North American business since becoming
its Chief Executive in 2017. David retired in September and was
succeeded by Tom Watson, another terrific internal appointment.
That we have been able to fill these three key roles with internal
candidates reflects the strength of the management team that has
been put in place over recent years.
Strategy
In 2021 we undertook a comprehensive review of our markets
and strategy. We estimated the markets in which we operate are
worth around £715bn per year and that they will grow at 2-3% per
year on average in the coming years. It was, and remains, our view
that the focused Business-to-Government (B2G) operating model
established at Serco over recent years is delivering competitive
advantage and differentiation, and should enable the business to
grow its revenue faster than the market, profit faster than revenue
and to convert that profit into cash.
The transition from Rupert to Mark provides an opportunity to
identify ways to make the B2G platform even better in the coming
years. Our strategic framework remains unchanged but there will
be increased focus on three areas; customers, colleagues and
capability. We will look to grow revenues through deep customer
relationships, grow colleague enablement by increasing the value
of their work, and grow margins through the use of technology
and the pursuit of efficiency.
With these value enhancing levers to strengthen our B2G platform
and a strong pipeline of new business opportunities, the Group is
well positioned to deliver our medium-term growth targets.
Corporate Governance
One of my roles as Chair is to ensure that Serco has strong
governance. In recent years this has become an area of intense
focus by all stakeholders and one that I take very seriously.
Governance responsibilities cover many areas (and are covered
in detail in our Corporate Governance Report on page 111),
including Board diversity and effectiveness, remuneration, financial
reporting as well as environmental and societal considerations.
There were no changes to Non-Executive Board members in
theyear.
A focus for the Board during the year was engagement with
Serco’s workforce. Dame Sue Owen is the Board’s employee
representative and worked closely with the Company to ensure
that the Board understands employee perspectives and issues.
All Non-Executive Directors participated in virtual and face-to-
face meetings with employees in each of our markets throughout
the year to discuss contracts and hear about issues that were
important to them. During the year we held one of our Board
meetings in North America at our main office near Washington
DC. This gave the Board the opportunity to meet with our US
Board members, theUSexecutive team and many US employees,
including those from our recent acquisition, WBB. The non-
executives also participated in the annual regional leadership
conferences that provided agreat opportunity to meet the local
teams and visit contracts. In addition, non-executives joined calls
discussing health and safety, diversity and other environmental,
social and governance (ESG) issues, and in our annual employee
engagement survey we include a section called ‘Ask the Board’,
where employees are given the opportunity to raise issues for our
attention. We discuss these topics during Board meetings and
follow up to ensure common or significant matters are addressed.
I was delighted to see that despite all of the challenges brought
about by the pandemic our engagement scores remained high, at
levels comparable with 2019.
ESG has always been important to Serco. We have been clear on
our purpose, values and impact on society for many years. This
year has brought more attention to these areas and the need for
companies to address environmental and societal issues with
more urgency and focus. Our major customers are governments
and frequently the contracts we enter into have specific measures
for ESG. More detail on our ESG commitments and performance
is included on pages 36 to 73.
It would be remiss of me not to mention the significant challenges
that I know many of our employees are facing due to the cost-
of-living crisis. As a Board we have encouraged management
(although they did not really require much encouragement) to
consider carefully how we can provide additional support to our
colleagues. We paid additional one-off payments to all colleagues
across the globe outside management grades of around £6m at
the beginning of 2022 and another £9m in the second half. The
Serco People Fund, which 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, was very active over the year, helping more than 250
people and gave over £200k to people in the UK and Australia.
The Board will continue to discuss and support management in
finding ways to ease the financial challenges many face.
Our Board evaluation during the year was an internal review and
the results were discussed at the December Board meeting. The
conclusions were that that the Board was operating effectively
and should continue to focus its attention on strategy, growth,
ESG and leadership, and talent succession. The year also saw
the expiry of the Deferred Prosecution Agreement (DPA) and
associated undertakings that Serco agreed with the Serious
Fraud Office (SFO) in 2019. The agreement related to issues with
Serco’s Electronic Monitoring contract that were reported in 2013.
The SFO confirmed Serco cooperated fully and has fulfilled all
its obligations agreed as part of the DPA, including reviewing,
improving and enhancing aspects of our Group-wide compliance
programme related to internal controls, compliance policies, and
procedures. This brings to an end the obligations entered into
under the agreement.
Looking ahead
I am optimistic that the worst of Covid is behind us, that inflation
will ease and that a solution will be found to end the conflict in
the Ukraine. The extraordinary volatility and turmoil of the last
few years has undoubtedly created the most difficult business
environment I have ever known. Serco has navigated these
challenges with great skill and huge effort from the entire
workforce. Our teams, our strategy and our culture have been
tested in battle and proven resilient. I am confident that if we
can remain agile and innovative, we will continue to deliver
competitive returns while meeting the needs of our multiple
stakeholders. Finally, and on behalf of the Board, let me express
our profound appreciation to the hardworking employees of
Serco, and our many partners, for their incredible commitment
and achievements during another difficult and challenging year.
John Rishton
Chairman
27 February 2023
05
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Strategic Report
Serco Group plc Annual Report and Accounts 2022
Introduction
Serco’s strong performance and resilience in 2022 is all the more impressive against the
backdrop of the turbulent and profound global changes we have all witnessed. While
Covid-19 left a dramatic and lasting impact in terms of government debt and 'the great
resignation’, two years later the Russian invasion of Ukraine has brought war to Europe,
refugees, food shortages, energy price rises, inflation at levels not seen for a generation
and global disruption of efforts to rebuild post-pandemic. Yet despite this, and despite
our work supporting governments in responding to Covid-19 fading away as expected in
2022, our revenues nonetheless grew at 2% and our margin held steady at 5.2%. We have
performed well.
While the specifics of the macro-economy and its future direction are extremely difficult
to predict at present, our current expectation is that 2023 will see the market return to
more normal patterns of growth and our plan remains to grow our business at about twice
the rate of the market in real terms over the medium term, alongside delivering 5-6%
margins, and strong, sustainable and growing returns to shareholders. The next steps in
our growth journey will focus on strengthening our B2G Platform further and executing
our existing strategy through three key new value drivers: Customers – growing customer
impact and market share; Colleagues – growing the value of colleagues’ work; and
Capabilities – growing margins and efficiency. Together, these will help us to deliver our
expectations to all our stakeholders, and ultimately to impact a better future.
Our Market
Our market
Serco delivers services in partnership with governments and other institutions who serve the public or protect
vital national interests in the UK, continental Europe, North America, Asia Pacific and the Middle East. We
focus on five sectors primarily – Defence, Justice & Immigration, Transport, Health & other Facilities
Management and Citizen Services – however, our Business to Government Platform and the depth and
breadth of our capabilities ensure we are well placed to respond to government needs across a very broad
spectrum of services.
Our sectors and markets
Transport
Facilitating safe and
efficient movement of
people and goods
Citizen Services
Contributing to the
wellbeing of citizens
and communities
Defence
Protecting national and
international security interests
Health & other FM
Enhancing public sector infrastructure,
patient experience and care quality
Justice & Immigration
Safeguarding those in our
care and beyond
06 Serco Group plc Annual Report and Accounts 2022
Government and the private sector – partnering for
publicimpact
Governments have partnered with private companies to deliver
public policy, often in very sensitive areas, for centuries. Where
the line is drawn between public services that are operated by the
state itself, or by its private contractors, varies greatly over time
and across countries.
Governments have two basic responsibilities: to develop policies
which meet the needs and priorities of their citizens; and to ensure
that those policies are delivered effectively and at a cost which
represents value for money. Many of the services that support policy
delivery can be run most effectively and efficiently on behalf of
government by private companies using techniques, management,
technology and processes developed in the private sector.
In summary, partnering with the private sector helps governments
deliver more, and better, for less:
– It allows governments to concentrate on development of
policy and measurement of outcomes.
– Choice brings new ideas and innovation.
– Competition drives public services’ quality up and drives
costdown.
– It brings skills and attributes governments do not
alwayshave.
Serco specifically has two attributes which make it a particularly
effective government partner: a dedicated focus on and deep
understanding of government through our B2G Platform; as well
as our international footprint and access to global best practice.
United Kingdom
Continental Europe
Middle East
Asia Pacific
North America
What the private sector brings to enhance public impact
Risk transfer
Innovation and
technology
Efficiency
and
productivity
Delivery of
social value and
ESG objectives
Focus on
outcomes and
citizens
International
best practice
Lower cost,
better value
Flexibility
and
agility
Accountability,
transparency,
KPIs
07
Financial StatementsCorporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Complex, differing
and constantly
changing government
procurement
regulations
Financial reporting
and transparency;
caps on profitability
and profit sharing
Mandatory and
discretionary pre-
qualification and
exclusion criteria
Social value/ESG
targets inherent in
procurement
Government-specific
cyber security,
national security and
information standards
Hard-to-change and
complex contracts
Oversight, audit and
scrutiny by customer,
politicians and press;
reputational risk
Defence-specific
restrictions; corporate
and individual security
clearances
Research on outsourced services, commissioned by the Serco
Institute, and carried out by Capital Economics, the independent
economic research consultancy, supports the view that private
companies can help governments deliver “more, and better,
forless”:
Unique demands of public service delivery create
barriersto 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. 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 aren’t apparent at
first glance.
It is not controversial to say that efficiency, flexibility and dynamism
are not always core skills of government administration, and Serco
has deep expertise in providing a bridge between the skills and
culture of the private and public sectors. Our ingrained public
service ethos means we can help deliver government services
efficiently, but in a way that recognises the need for public
accountability and trust.
Our Market continued
Some history to note
In the UK in particular, our sector has learned some important
lessons from history.
For nearly 30 years between 1980 and 2010, Serco grew rapidly
as the market for outsourcing public services developed around
the world. Privatisation and outsourcing became popular in
many countries and drove rapid growth of an industry that had
barely existed before. Suppliers became profitable and skilled at
delivering value for all parties from government work.
As the global financial crisis of 2008 took hold, governments
began to urgently seek ways of reducing costs, and the private
sector, representing a significant proportion of government
expenditure, became the object of close government attention.
Then, in 2010 in the UK, the Conservative-Liberal Democrat
Coalition, with an avowed intent of reducing the deficit, demanded
rebates of hundreds of millions of pounds from contractors,
strengthened its commercial teams and procurement practices,
andset about transferring significant amounts of risk to the private
sector. In the US, ‘Lowest Price, Technically Acceptable’ was
increasingly used instead of an approach of overall ‘Best Value’
asa tender evaluation methodology.
In the subsequent years, the UK government services outsourcing
industry was characterised by over-supply, aggressive
behaviour by both government and suppliers, and the ill-
advised transfer of risks that private companies had limited
ways to mitigate or manage. Multiple companies suffered huge
losses on government contracts and, as a consequence, the
UK Government is now faced by a more wary, and less vibrant,
supply chain. An illustration of this is the number of responses the
Government receives from suppliers to its tenders. In 2013, just
4% of public tenders in the UK had only one supplier respond but
by 2020 this had increased to 23%*.
In response, in recent years the UK Government has developed
a series of 'playbooks', with the intention of working back
towards a more balanced and sustainable position which sets
out common best-practice approaches to procurement. Over
time, this is driving value for money for taxpayers, high quality and
reliable services, innovation and improved efficiencies, as well as
fair returns to suppliers, which will in turn ensure that government
again benefits from a vibrant and diverse supply chain. This moving
of the relative power between buyer and seller is common to many
markets as they mature.
* Source: Spend Network
Supplying critical services to governments requires unique skills; imposes significant cost and complexity;
creates barriers to entry:
“ The evidence from areas that have been subject
to competition suggests that it is possible to deliver
servicesmore cost efficiently without damaging
servicequality...”
“ Our analysis on prison management, soft facilities
management in healthcare and air traffic control
suggeststhat potential average savings to the government
of between 5% and 15% from introducing competitive
markets is a relatively conservativeestimate…”
And perhaps most importantly:
“ …the private sector typically delivers services to the
samestandard or better than the publicsector.”
08 Serco Group plc Annual Report and Accounts 2022
Moreover, there has been an increasing focus on the impact we
make not just through our capabilities, but on the communities
we serve. We have seen the ESG agenda become more
prominent, and in the UK ‘social value’ become a mandatory
element of central government procurement.
The years 2020-21 in particular were characterised by the
Covid-19 pandemic which had a profound, but essentially
temporary, impact on the government services market. Across
the whole of government’s response, the private sector was
mobilised to support their efforts.
And finally in 2022, before the turbulence of Covid-19 had
fully faded, the Russian invasion of Ukraine brought world-
wide disruption of the efforts to rebuild after the virus. The
concatenation of these two catastrophes will shape public policy
for years to come. Governments are struggling to squarepromises
to invest in energy transition and to 'build backbetter' with the
realities of materially increased levels of public debt incurred
mitigating the impact of Covid-19; the need to increase defence
expenditure; and inflation, with its outriders of unplanned
increases in debt service and other costs – notably in pay for
public servants. When they look to balance the value equation,
however, we think governments will need more than ever the
innovation, efficiency and skilled operational management the
private sector can bring to the effective delivery of public services.
Drivers of demand
Governments are, and will continue to be, required to deliver
services to their citizens – be it in defence, transport, health,
education or social care – and the essential job of governments
of collecting taxes which they then use to provide services to the
benefit of their citizens is highly unlikely to alter in our lifetimes.
We have developed a model which describes drivers of demand
for our services, which we call the 'Four Forces' and we think the
Four Forces will only have been amplified by recent market forces
and world events and are compounded by the current constraints
on labour markets, technology deficits within governments, and
geopolitical uncertainty.
Of course, the shape, size and form of services will evolve.
However, as a learning organisation, we continue to develop
our offering and these Four Forces give, in our view, a structural
under-pinning to the enduring need for governments to provide
more public services, of higher quality and resilience, for less
money. In short 'more, and better, for less'. As discussed in
more detail above, we believe that to deliver this impact, for
less, governments will need the skills, resources, innovation and
nimbleness of the private sector.
So, on this foundation of rare stability of need is built the market
for the provision of public services by private partners.
The Four Forces
A large and growing market
People ask: how large is the market for the private sector
provision of public services? This is hard to determine with
precision, as the boundaries of the market are very hard to define.
And how do we disentangle the very different definitions of, and
accounting for, expenditure used by the various governments
with whom we deal? The boundaries are also forever moving
as governments take decisions to outsource new services or
insource old ones, and as Serco stretches its large and complex
addressable market into new areas through acquisitions and
building new capabilities.
Over the years, and most recently in December 2021, we
commissioned work to try and size the market in the sectors and
geographies we currently operate in, which are clearly a subset of
the global market. In the latest exercise we used two independent
research firms – Renaissance Strategic Advisers and Oxford
Economics – to estimate market size and growth rates, from
whichwe have formed our own central estimates. We estimated
that total spending by governments on outsourced services in
the markets in which we operate was around £715bn, which we
estimated represents around 65% of the world market, excluding,
for example, China and Russia, and that our market share was
between 1% and 3%, depending on whether we look at segments
we operate in or the market as a whole. And we estimated that
the market will grow at around 2-3% per year in the medium term.
Rather than concentrate on the absolute number, which is likely to
have a significant margin for error, some key conclusions from our
work are:
– The market for private sector delivery of government services
is very large.
– The supply-side is fragmented; as a leading international
supplier, our market share within our existing footprint, at
around 1%, is small, although it is larger in some specific
segments within certain sectors.
– The market is likely to continue to grow, but given our small
market share, there is ample opportunity for us to grow faster
than the market.
Fierce pressure on governments
todeliver more, andbetter,for less
VOTER INTOLERANCE
of higher taxation
NEED TO BALANCE
public income and expenditure,
andreduce debt
GROWING COSTS
healthcare, ageing population
andinfrastructure
RISING EXPECTATIONS
of service quality
LABOUR MARKET
CONSTRAINTS
GEOPOLITICAL
UNCERTAINTY
TECHNOLOGY
DEFICIT
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Financial StatementsCorporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Benefits of sector breadth and geographic reach
Our business is highly diversified, spanning five areas of
government service – Defence, Justice & Immigration, Transport,
Health & other Facilities Management and Citizen Services – and
with substantial operations across North America, UK & Europe,
the Middle East and Asia Pacific. We know of no other company
in our market which offers such a broad range of services
covering front, middle and back-office requirements across
multiple geographies and areas of public service delivery. Most
companies are heavily focused in either a particular sector, or
within a geography, with Serco a rare beast.
Serco is able to transfer insights, skills and processes from one
sector or region to another, with governments globally facing
similar challenges: new approaches to running prisons and
reducing youth re-offending in the UK emanate from Australia;
and our Defence business in the Middle East serves Australian
armed forces with fire services using UK and North American
expertise. This international and interdepartmental sharing of
ideas and best practice is something which governments can often
find hard to achieve and we are therefore well positioned to help
governments anticipate and meet new and unexpected challenges.
We also believe diversifying our exposure to individual governments
and sectors is beneficial and represents a competitive advantage in
an environment in which governments can be capricious: decision-
making processes regularly come to a halt around elections; the
attitude to using private companies can be volatile; and political
priorities can change quickly. As we continue to grow, leveraging
our B2G platform, we will elevate our customer relationships,
increasingly partner with governments to identify challenges, and
broaden our value chain participation so that it stretches from
solution discovery to service delivery.
Agile suppliers with an international footprint and a range of
service offerings can follow demand and shift their focus to where
they can get a fair return for the risk they take on.
Market – summary
To recap, the market for the provision of public services for
private companies is huge (at an estimated £715bn per annum),
diverse, liquid, growing at an estimated 2-3% compound
annual growth rate (CAGR) to 2026 in real terms and is unlikely
todisappear.
Serco’s market share is estimated to be somewhere between
1%and 3% depending on the business segment, and we believe
we can grow revenues twice as fast as the market in real terms to
gainshare.
Since 2018, Serco’s revenues have grown by 60% – a compound
annual growth rate of 12.4%. Underlying Trading Profit over the
same period has grown from £93m to £237m – a compound
annual growth rate of 26%. This illustrates our ability to grow
faster than the market.
Our Market continued
is our estimate of
spend on outsourced
government services in
Serco's regions in 2021
of worldwide* outsourced
government services
spend is to be found
in Serco's target
geographies
is our estimate of Serco's
share of the market,
broadly defined; this
is around 3% for the
segments we currently
address
is our estimate of the
CAGR of outsourced
government services
spending in Serco's
regions to 2026
Four Forces
The Four Forces are only
growing stronger, driving
demand for more, and
better, for less
Public Service
Trends
Tech, data, digital, ESG,
social value, agility, citizen
insight, flexibility, workers'
rights and transparency
all growing in importance
Economic and
Political Volatility
A new federal
government in Australia,
a new Government in
the UK, a war in Europe
and inflation all demand
careful attention
Talent
The 'great resignation'
labour shortages post
Covid-19, rising wages
and the battle for talent
continues to impact
across regions
~£715bn ~65% ~1% ~2-3%
Sources: Renaissance Strategic Advisors, Oxford Economics, Serco
* Does not include China and Russia
10 Serco Group plc Annual Report and Accounts 2022
Our Values
Our Organising Principles
Our Method
A valued and trusted partner of governments, delivering superb public services that transform
outcomes and make a positive difference for our fellow citizens
Flair, agility, innovation
Empowerment
Decentralisation of execution
Winning good business A place people are proud to work
Executing brilliantly Profitable and sustainable
Loose-Tight management
Disciplined entrepreneurialism
Being the best-managed company
inthe sector
Rigour, discipline
Common processes
Centralised intent
Trust Care
Innovation Pride
Our Purpose – what we want to be
Our Longer-Term Deliverables
Employee engagement
70 points or above
Trading margin
5-6%
Revenue growth
4-6%
We have a simple and clear management philosophy, illustrated below, that we apply
across our business. It is designed to provide an approach that will deliver value to
our customers, shareholders, and to the people who work in the business. Our
management philosophy starts with our Values and ends withour deliverables.
Our Management Philosophy
Our Values
The core of our business is people – many thousands of them – delivering public services. It is of central importance to our success that
our colleagues, many of whom are former public servants, and our customers know that we have values appropriate to a company
delivering services paid for by taxpayers to often vulnerable and disadvantaged citizens. Our people care about their work, they know
the work they do is important, and they take pride in doing it well. That’s why, supported by productivity-improving technologies, we
are looking to further enhance the value our colleagues bring, and empower them.
Before our customers will award us sensitive work, they have to trust us. And to win business we have to come up with innovative
solutions which will enable governments to deliver more, and better, for less. This is why our values of Trust, Care, Innovation and Pride are
so important. We are not so naïve as to believe that in a workforce of over 50,000 people there will not be some uncaring bad eggs, and
we can reliably say that around the world, every day, at least one of our employees or subcontractors is not behaving in the right way;
this is one of the reasons why we invest so much time and effort into controls and assurance processes. But the overwhelming majority of
our colleagues are decent, hard-working, committed and want to make a positive difference to those they serve. Inthis,we reflect the
values of our customers, which they calla'public serviceethos', and we call our Values.
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Serco Group plc Annual Report and Accounts 2022
Our organising principles
Our organising principles have to reflect the fact that many of the
things our customers want are contradictory: they want excellent
and resilient services, delivered by highly motivated staff, but
they want them to be low cost; they want local accountability
and flexibility, but they also want strong governance and risk
management. As a management team, we believe in the principle
of subsidiarity: that decisions should be taken by managers
who are as close to the customer as possible. But we are also
conscious of the fact that many of our contracts carry with them
risks that need careful management and supervision. So, we
describe our organising principles with two concepts: ‘loose-
tight’, and ‘disciplined entrepreneurialism’. Neither of these is
our own invention; they are based on the work of, respectively,
Tom Peters and Jim Collins. They describe in subtly different
ways an approach to management which recognises the need
for both local management autonomy and strong governance.
Two quotations from their works give a taste of the type of
organisation we are trying to achieve:
Organisationally we structure ourselves with three types of
function: Divisions, Group and Shared Services. All operational
delivery is executed through four geographic Divisions: UK &
Europe, the Americas, Asia Pacific and the Middle East. Within
their domains, Divisions are responsible for everything involved
in winning and delivering contracts; 98% of our employees work
in these Divisions. A lean Group function provides governance,
strategy, asset allocation, policy-setting and controls and
assurance roles, as well as certain specialist consolidation and
functional roles in Finance, Legal, Risk, ESG, Insurance and HR.
The Group also manages Centres of Excellence (CoEs) which
provide focused expertise and support to the Divisions and
enable sharing of best practice and the development of common
propositions in areas such as Justice & Immigration, Maritime
and Health. Shared Services provide common functional and
operational support in areas such as IT, procurement, HR and
finance to the Divisions.
Our method – the strategic priorities to achieve our
aspiration
The method we use to deliver our strategy and our aspiration to
be the best-managed business in our sector is to concentrate on
doing four things really well:
– winning good business;
– executing brilliantly;
– being a place people are proud to work; and
– being profitable and sustainable.
Our medium-term targets
Between 2018 and 2022, our revenue grew at a compound
annual rate of 12.4% and our Underlying Trading Profit grew at a
compound annual rate of 26%, with our margins improving from
3.3% in 2018 to 5.2% in 2022.
Our medium-term financial targets are that, from the 2022 base,
as laid out in December 2021, we expect:
Our Management Philosophy continued
Intensified inflationary pressures on government expenditure may result in government expenditure on outsourced services growing
faster than expected and while we believed that we could grow our revenues at twice an assumed market rate of 2-3%, were nominal
government expenditure to grow much fasteras a result of inflation, for example 5%, we would not expectto grow our revenues twice
as fast on a nominal basis.
Shareholder returns
to grow faster than
profits
The market will
growat ~2.3%
2-3%
Market
CAGR
Revenue will grow
on average about
twice as fast as the
market
4-6%
Average
revenue growth
Profits to grow faster
than revenues as
margins increase
5-6%
Trading profit
margin
Strong conversion of
profit into cash
>4x 3x
Dividend cover
+share
buybacks
Underpinned and enhanced by value-adding M&A
>80%
Cash
conversion
“Loose-Tight… is the coexistence of central direction
and maximum individual autonomy. …Organisations
that live by the loose-tight principle, are on the one hand
rigidly controlled, yet at the same time allow (indeed insist
on), autonomy, entrepreneurship, and innovation from
theirpeople.”
Tom Peters: In Search of Excellence
“Avoid bureaucracy and hierarchy and instead create a
culture of discipline. When you put two complementary
forces together – a culture of discipline with an ethic of
entrepreneurship – you get a magical alchemy of superior
performance and sustained results.”
Jim Collins: Good to Great
12 Serco Group plc Annual Report and Accounts 2022
Our B2G Platform
Our management philosophy establishes the principles we follow in
running the business. Our Business-to-Government (B2G) platform is our
route to market that allows us to accelerate growth, while assuring quality
and managing risk. It encapsulates the reasons our customers choose us.
Over recent years we have developed a specialist B2G operating platform, which
allows us to deliver a wide range of bespoke government contracts in a way that is
repeatable, efficient, innovative, well-managed and resilient.
Our public service DNA means that we speak the same language
as our customers and this builds trust and the right instincts. In
turn, this brings deep insight, understanding and know-how
about the development and delivery of public services and a
culture and commitment to the delivery of public service that
reflects our customers.
Underpinning all of this is a large and well-invested shared
services platform. Our customers’ objective is to buy more, and
better, for less, yet they often insist on buying contracts as a bespoke
item, and generally standardisation is not necessarily valued.
Theway we square this circle is to consider how contracts are the
same. All our contracts use HR, finance, compliance, assurance,
governance, procurement, IT and cyber security, legal and
commercial, risk management, workforce management, talent
development, and bidding support. And we provide these things
collectively and in common across contracts from an efficient
shared services infrastructure, which means we can bring the
advantages of efficiency and scale to bespoke solutions.
We believe our B2G platform is unique in the industry and gives
us five benefits: Agility, Breadth, Reach, Efficiency and Resilience.
1
Public Service DNA
This relates to our values, culture, reputation with buyers, understanding of government, public service
ethos, demonstrated social responsibility and our transparency and sustainability commitments
+
2
Deep sector expertise,
IP and know-how
This relates to our knowledge of our market and sectors, and the know-how and IP developed
delivering complex contracts in many jurisdictions over 30 years
+
3
Solutions delivered in >20 countries
by large regional businesses
This relates to our global position, scale, depth, expertise and cross-Divisional collaboration, as
well as the strength of our customer relationships
+
4
Supported by efficient shared
services and capabilities
This relates to our HR, finance, assurance, governance, procurement, IT and cyber security, legal
and commercial, risk management and M&A functions and activities, as well as our approach to
workforce management and asset management
= Our B2G Platform
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Our B2G Platform continued
Agility is important, because, as touched upon above,
governments change their mind and the flow of funding, while
in aggregate may stay the same or increase, takes different paths
into the supply chain. We have a well-developed process to
identify and respond to these changing government priorities
and the revenues we have generated from this agility are
astonishing: one example of this is Obamacare – before its
introduction in the United States, we had never done healthcare
eligibility testing, but since winning a role in this programme we
have generated revenues of over £1.45bn.
Our breadth of offerings across a wide range of government
activities is important, as this enables us to tap into multiple
sources of government funding, while international reach gives us
a far wider horizon to scan for new opportunities, and the ability
to focus our resources on the most attractive opportunities across
multiple jurisdictions.
Marry the international reach, with the agility, with the breadth
of services, and Serco has a powerful platform for selling and
delivering services and growing faster than the market.
But we also need to be efficient – no more so than today in our
current macroeconomic environment – and Serco is organised
with common approaches to common services, which allow us,
subject to security restrictions in each country, to share these
services across our businesses.
A key part of resilience relates to risk management. Resilience in
our business comes from two sources: diversification of exposure
by segment and geography – which we have just covered – and
robust risk management. Serco has had experience of risk-gone-
wrong, and when the current management joined the Company
in 2014, there were more than 50 loss-making contracts against
which provisions had to be made.
Inevitably, in a business like Serco, contracts will become loss-
making from time to time, but today we seek to mitigate this
by having a strong bidding process, which has a series of gates
from pre-qualification through go/no-go decisions, customer
shortlisting, confirming bid decisions, approving bids and
through to contract signature. And this process applies to all new
contracts and rebids. Once a contract has been signed it is then
reviewed on a regular basis through the monthly business unit
and Divisional performance reviews.
As we proceed into 2023, and we look to further strengthen
our platform, we have identified three areas in particular
where driving the execution of our strategy can have highest
impact in the coming period. These are: Customers – growing
customer impact and market share; Colleagues – growing the
value of colleagues' work; and Capabilities – growing margins
and efficiency. You can read about these in more detail under
Strategic Objectives and Achievements on page 25.
Summary
Our job is to seek to ensure Serco delivers value to the people
and institutions who have an interest in our success: to our
customers and service-users, by providing high-quality, resilient
and innovative public services; to our shareholders, by providing
sustainable and growing returns on capital; to our lenders,
by providing them with solid and secure credit; and to our
colleagues, by enabling them to develop their skills, reach their
full potential, and have interesting and rewarding careers. Our
management and our B2G platform are designed to deliver
theseobjectives.
Agility
The ability to respond
to changing
government priorities
and develop, mobilise
and deliver solutions
atspeed
We have deep expertise
across the major
areas of government
outsourcing: Defence,
Justice & Immigration,
Citizen Services,
Transport, Health &
other FM
Breadth
Our international
footprint allows us to
access around 65% of
global government
outsourced services
and bring customers
innovation from around
the world
Reach
Our shared services
allow us to invest in
world-class, industrial
scale back-office
systems which provide
standardised and
efficient processes for
delivering contracts
Efficiency Resilience
Our common controls,
governance and risk
management processes
help us manage risk and
assure quality outcomes
across the business
14 Serco Group plc Annual Report and Accounts 2022
Chief Executive’s Review
Strong results from a more diverse
and resilient business, and the
opportunity to make a positive
difference to people, place,and
planet to impact a better future.”
Mark Irwin
Chief Executive Officer
– Revenue: grew by 2% to
£4.5bn, despite Covid-related
revenues reducing by £480m.
Revenue excluding Covid and
currency grew by 11%.
– Underlying Trading Profit:
increased by 4% to £237m, a
margin of 5.2%. Performance of
international portfolio strong;
three-quarters of Group UTP
derived from outside the UK
(7)
.
– Underlying Earnings Per Share:
increased by 11%.
– Reported Earnings Per Share:
prior year included recognition
of £145m UK deferred tax asset.
– Free Cash Flow: above prior
guidance at £159m, Underlying
Trading Profit cash conversion
of 97%.
– Order book: grew by 8% to
£14.8bn.
– Adjusted Net Debt: increased
by only £26m, after £120m
returned to shareholders
through dividends and share
buyback, and acquisition
funding of £26m; covenant
leverage at the year-end of 0.8x
EBITDA, similar to prior year.
– Order intake: at £4.2bn, book
to bill of 93%. New business
pipeline of £8.4bn strong and
slightly up on H1.
– Dividend Per Share:
recommended final dividend
per share of 1.92p, +19% year
on year.
– New £90m share buyback in
2023: continuing to return
capital to shareholders as a
result of strong trading and
cash conversion consistent with
our capital allocation priorities.
– Unchanged revenue and profit
guidance for 2023: Underlying
Trading Profit expected to be
similar to 2022 at around
£235m
(8)
.
– Strategy remains unchanged:
execution focused on three
value drivers; customers,
colleagues and capabilities, to
support growth across all our
divisions.
– Medium-term outlook: short-
term growth profile influenced
by Covid-related work
dropping out and the impact of
rebidding two of our largest
contracts; medium-term
growth targets unchanged at
4-6% revenue growth a year
onaverage.
Highlights of 2022
Year ended 31 December 2022 2021
Change at
reported
currency
Change at
constant
currency
Revenue
(1)
£4,534.0m £4,424.6m 2% (1%)
Underlying Trading Profit (UTP)
(2)
£237.0m £228.9m 4% (3%)
Reported Operating Profit
(2)
£217.2m £216.2m 0%
Underlying Earnings Per Share (EPS), diluted
(3)
13.92p 12.56p 11%
Reported EPS (i.e. after exceptional items), diluted 12.79p 24.43p (48%)
Dividend Per Share (recommended) 2.86p 2.41p 19%
Free Cash Flow
(4)
£159.1m £189.5m (16%)
Adjusted Net Debt
(5)
£203.9m £178.0m 15%
Reported Net Debt
(6)
£649.9m £608.3m 7%
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Serco Group plc Annual Report and Accounts 2022
Chief Executive’s Review continued
Resilient operational and financial performance
against a backdrop of profound global
challenges in 2022 with revenue ex-Covid and
currency up 11%; Guidance for 2023 maintained,
as are medium term growth targets.
I am immensely proud of the achievements of all my Serco
colleagues around the world during 2022 in another year
of profound global challenges as we faced war in Europe;
inflation at levels not seen for a generation; labour shortages;
the lingering effects of Covid, and the manifestation of climate
change bringing risk to lives and livelihoods.
Against this very difficult backdrop Serco has delivered another
year of strong operational and financial performance, growing
revenues and profits despite Covid work coming to an end.
Between 2019 - the last year without any Covid-related work - and
2022, we have increased revenue by 40% and almost doubled
Underlying Trading Profit from £120m to £237m. As well as a
strong and consistent financial performance, we move out of
the Covid period, with a business that has stronger customer
relationships, improved geographic diversity, more resilience,
and greater opportunities focused on impacting a better future
for people, place, and planet.
Order intake in the year of £4.2bn represented a book-to-bill ratio
of 93%. Given the long-term nature of our order book we look at
book-to-bill on an average basis, which over the last five years,
has averaged 112%. The strength of our international portfolio
is highlighted by our North American business which achieved
a book to bill of 157% in the year. This included very strong new
award and rebid rates in our Maritime Engineering Technology
& Sustainment (METS) business unit which is predominantly
composed of the NSBU business we acquired in 2019. Our order
book remains robust at £14.8bn which excludes the £1.5bn of
order book in Vivo, our joint venture with Equans. Our qualified
pipeline of new business stands at £8.4bn, a healthy level.
In response to the surge in inflation during 2022, we increased
colleagues’ pay faster than we had expected to at the beginning
of the year, and we also distributed an additional £9m in
one-off payments to colleagues around the world outside
management grades, recognising the pressure many people,
particularly our frontline colleagues, are under at this time. This
followed a previously announced colleague payment of £6m
made in February and a broader portfolio of support through
our Employee Assistance Program, Financial Wellbeing Hub,
hardshipgrants from the Serco People Fund and Serco MyBenefits
program which offers savings at more than 1,000 retailers.
Our commitment to the safety and wellbeing of colleagues
remains foremost in our efforts to protect and deepen the
relationship between Serco and the people whose dedication
and commitment stand behind our success. Physical safety
measures and mental wellbeing initiatives have been under
constant review to take on new learnings and adapt to operating
environment changes. We have maintained high levels of
employee engagement and strengthening our employee value
proposition has enabled a reduction in vacancies despite tight
global labour markets.
Our results for 2022 continue a track record of strong
performance over recent years which has enabled us to deliver
on all the pillars of our capital allocation strategy: investing in
the business to support growth and efficiency; growing returns
to shareholders by increasing dividends and executing share
buybacks; making value-adding acquisitions.
The business has repeatedly shown that when work draws
to a close on any particular contract – such as Covid work or
AWE – the agility and scale of our B2G platform and strong
customer relationships mean we can replace this with new work
or growth from the existing portfolio. The anticipated changes
in our contract portfolio will require us to continue doing this as
Covid-related work completely drops out and we see the impact
of rebidding two of our largest contracts where profitability is
likely to be lower at the beginning of any new service period. We
have now secured the CMS rebid and continue our preparation
for the Australian immigration services procurement which is
expected in 2023. Although the Group’s growth profile will be
affected in the near term as these factors work their way through,
we expect the rest of the business to continue to grow, and we
have the prospective pipeline to be able to replace over time any
reduction in contribution from contract portfolio changes.
Our expectation remains, as we set out at our Capital Markets
Day in December 2021 and our full year results in February 2022,
that the business will grow revenues at an average of 4-6% a year
over the medium term as governments, more than ever, look to
the innovation, efficiency and skilled operational management
that partnership with Serco can bring to their most pressing
challenges. In this regard, our strategic framework remains
unchanged but with a clear execution focus on three key value
drivers: growing market share through deeper relationships with
customers and a more ambitious and rigorous targeting of the
post-pandemic government services market; growing the value
of work to increase the enablement, retention and advocacy of
colleagues; and growing our margins by more actively embracing
technology to deliver productivity through process automation
and workforce augmentation.
Looking forward we cannot predict the precise nature of the
changes which lie ahead for citizens, communities and the
governments that serve them, but we don’t expect they will
lack challenge or complexity. We therefore believe the need
to partner with our customers and others to deliver a positive
impact has never been clearer, or the opportunity to grow
morecompelling.
As we move to the next stage of our mission to partner with
governments to impact a better future, we remain grateful to our
customers for their trust, to our colleagues for their dedication
and commitment, and to our shareholders for their confidence
and support.
16 Serco Group plc Annual Report and Accounts 2022
Guidance for 2023
Our guidance for 2023 is unchanged from our pre-close trading statement on 15 December 2022, other than net debt, which reflects
the better-than-expected cash performance in 2022 and the new £90m share buyback. We expect the known headwinds from Covid
and some other contracts ending to be compensated by increased contribution from newer contracts ramping up and improvement
across the portfolio. We enter 2023 with good visibility of the value enhancing levers to strengthen our B2G platform and a strong
pipeline of new business opportunities to deliver our medium-term growth targets.
Guidance
2022 2023
Actual
Initial guidance
December 22 New guidance
Revenue £4.5bn At least £4.6bn At least £4.6bn
Organic sales growth (4%) ~0% ~0%
Underlying Trading Profit £237m ~£235m ~£235m
Net finance costs £20m £25m £25m
Underlying effective tax rate 22% 25% 25%
Free Cash Flow £159m ~£120m ~£120m
Adjusted Net Debt £204m ~£130m ~£200m
NB: The guidance uses an average GBP:USD exchange rate of 1.23 in 2023 and GBP:AUD of 1.76, which is based on currency rates as 31 January 2023. New Net Debt
guidance includes the £90m share buyback programme that we expect to complete in 2023. We expect a weighted average number of shares in 2023 of 1,132m
forbasic EPS and 1,153m for diluted EPS, which assumes the share buyback is completed evenly across the remainder of 2023 at a share price of £1.49 (the closing
price on 27 February).
Notes to financial results summary table and highlights:
(1) 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 2022 into sterling at the average
exchange rates for the prior year. Change excluding Covid is calculated by removing Covid-related revenue from the prior and
current years.
(2) Trading Profit is defined as IFRS Operating Profit excluding amortisation of intangibles arising on acquisition as well as exceptional
items. Consistent with IFRS, it includes Serco’s share of profit after interest and tax of its joint ventures and associates. Underlying
Trading Profit additionally excludes Contract & Balance Sheet Review adjustments and other material one-time items. A
reconciliation of Underlying Trading Profit to Trading Profit and Reported Operating Profit is as follows:
Year ended 31 December
£m 2022 2021
Underlying Trading Profit 237.0 228.9
Include: non-underlying items
OCP charges and releases 0.2 1.3
Other Contract and Balance Sheet Review adjustments and one-time items 4.0 3.2
Trading Profit 241.2 233.4
Amortisation of intangibles arising on acquisition (21.6) (16.0)
Operating Profit before exceptional items 219.6 217.4
Operating exceptional items (2.4) (1.2)
Reported Operating Profit 217.2 216.2
(3) Underlying EPS is derived from the Underlying Trading Profit measure after deducting pre-exceptional net finance costs and
related tax effects.
(4) Free Cash Flow is the net cash flow from operating activities before exceptional items as shown on the face of the Group’s
Consolidated Cash Flow Statement, adding dividends we receive from joint ventures and associates, and deducting net interest
and net capital expenditure on tangible and intangible asset purchases.
(5) 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 IFRS16.
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Chief Executive’s Review continued
(6) Reported Net Debt includes all lease liabilities, including those recognised under IFRS16. A reconciliation of Adjusted Net Debt to
Reported Net Debt is as follows:
As at 31 December
£m 2022 2021
Adjusted Net Debt 203.9 178.0
Include: all lease liabilities 446.0 430.3
Reported Net Debt 649.9 608.3
(7) Refers to non-UK Underlying Trading Profit as a proportion of Group Underlying Trading Profit before corporate costs. Our
Underlying Trading Profit before corporate costs in 2022 was £281.6m.
(8) Our outlook for 2023 is based upon currency rates as 31 January 2022. The rates used, along with their estimated impact on
revenue and UTP are:
Year ended 31 December 2023 outlook 2022 actual 2021 actual
Average FX rates:
US Dollar 1.23 1.24 1.38
Australian Dollar 1.76 1.78 1.83
Euro 1.14 1.18 1.16
Year-on-year impact:
Revenue ~£30m £175m (£73m)
UTP ~£3m £14m (£7m)
Reconciliations and further detail of financial performance are included in the Finance Review on pages 83 to 94. This includes full
definitions and explanations of the purpose and usefulness of each non-IFRS Alternative Performance Measure (APM) used by the
Group. The Consolidated Financial Statements and accompanying notes are on pages 189 to 259.
Summary of financial performance
Revenue, Underlying Trading Profit and Underlying Earnings Per Share
Revenue increased by 2%, or £109m, to £4,534m (2021: £4,425m), despite the £480m year-on-year reduction as Covid-19 work came
to an end. Much of this 11% drag was offset by growth in other areas such as case management and immigration services. Organic
revenue growth in the rest of the business offset the Covid-19 drag by 7% and consequently the overall organic revenue decline
was held to 4% (£183m). This decline was more than offset by acquisitions, which contributed 3% (£117m) and favourable currency
movements that added 4% (£175m).
Underlying Trading Profit (UTP) increased by 4%, or £8m, to £237m (2022: £229m). On a constant currency basis, excluding the
£14m benefit from favourable currency movements, UTP decreased by 3%. Reduced Covid-related work and the ending of our AWE
contract in June 2021 together reduced profit by around £65m, or nearly 30% of prior year UTP. Underlining the resilience of our
business, these impacts were offset by strength in our case management work in North America, increased demand for immigration
services, and the positive effect of new work secured in 2021 such as the DWP Restart Programme and the Defence Infrastructure
Organisation (VIVO JV) contracts. The Americas, Asia Pacific and Middle East regions all improved their Underlying Trading Profit
margins, which offset the impact of lower margins in the UK & Europe division, helping our UTP margin remain stable at 5.2%.
Year ended 31 December 2022
£m Americas UK&E AsPac Middle East
Corporate
costs Total
Revenue 1,269.8 2,100.2 954.6 209.4 – 4,534.0
Change +13% (1%) +5% (21%) +2.5%
Change at constant currency +2% (2%) +2% (28%) (1.5%)
Organic change at constant currency (1%) (5%) +0% (28%) (4.4%)
Underlying Trading Profit 136.6 72.1 56.9 16.0 (44.6) 237.0
Margin 10.8% 3.4% 6.0% 7.6% (1.0%) 5.2%
Change +16% (25%) +11% +17% (11%) +3.5%
Onerous contract provision charges & releases 0.1 0.1 – – – 0.2
Other one-time items – 4.0 – – – 4.0
Trading Profit/(Loss) 136.7 76.2 56.9 16.0 (44.6) 241.2
Amortisation of intangibles arising on acquisition (16.5) (1.5) (3.6) – – (21.6)
Operating profit/(loss) before exceptionals 120.2 74.7 53.3 16.0 (44.6) 219.6
18 Serco Group plc Annual Report and Accounts 2022
Diluted Underlying Earnings Per Share increased by 11% to
13.92p (2021: 12.56p). The percentage improvement was higher
than the increase in UTP due to reduced net finance costs, a
2% decrease in the effective tax rate, which benefitted from a
reduction in provisions following a review of tax positions, and a
2% reduction in the weighted average number of shares because
of our share buyback.
The Revenue and Underlying Trading Profit performances are
discussed in more detail in the Divisional Reviews, starting on
page 31.
Cash flow and Net Debt
Free Cash Flow at £159m was lower than the prior year (2021:
£190m), but still represented a 97% Underlying Trading Profit
conversion. The prior year conversion was 112% and included
the benefit of a working capital inflow of £25m, helped by the
successful collection of some older receivables on our Dubai
Metro contract and short payment terms on our Covid-related
work. Average working capital days remained at appropriate
levels for a government contractor with debtor days of 22 (2021:
19 days) and creditor days of 21 (2021: 23 days). Of all UK
supplier invoices, 87% were paid in under 30 days (2021: 89%)
and 95% were paid in under 60 days (2021: 95%). No working
capital financing facilities were utilised in this or the prior year.
Adjusted Net Debt increased by £26m to £204m at 31December
(31 December 2021: £178m). Excluding a £25madverse impact
from foreign exchange movements, Adjusted Net Debt was flat,
while Free Cash Flow was spent largely on the sharebuyback
programme (£91m), dividend payments (£30m) and
acquisitions(£26m).
The period end Adjusted Net Debt compares to a daily average
of £231m (2021: £216m) and a peak of £377m (2021: £346m).
While we typically see a range across the year due to the timing
of working capital flows, dividends, share buyback activity,
acquisition spend and currency fluctuations, it was pleasing to
have similar year-end and average debt levels.
Our measure of Adjusted Net Debt excludes lease liabilities,
which aligns closely with the covenants on our financing
facilities. Lease liabilities totalled £446m at the year-end (2021:
£430m), the majority being leases on housing for asylum seekers
under the AASC contract. The terms of these leases do not
extend beyond the expected life of the contract we have with
thecustomer.
At the closing balance sheet date, our leverage for debt covenant
purposes was 0.8x EBITDA (2021: 0.7x). This compares with the
covenant requirement for net debt to be less than 3.5x EBITDA
and our target range of 1-2x.
More detailed analysis of earnings, cash flow, financing and
related matters is included in the Finance Review.
Return on Invested Capital
Underlying Return on Invested Capital, which is calculated
pre-tax, remained high at 20.6% (2021: 23.7%). The reduction
versus 2021 reflected the prior year benefitting from a relatively
limited increase in the invested capital base. This was due to
strong collections of some older receivables, low working capital
requirements of the Covid-19 related work and because the
goodwill related to the acquisitions of Facilities First and WBB was
in the closing balance sheet but not the opening position.
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 so shareholders are rewarded
with a growing and sustainable income stream.
– Selectively invest in strategic acquisitions that add capability,
scale or access to new markets and have attractive returns.
– Return any surplus cash to shareholders through
sharebuybacks.
We continued to deliver our capital allocation policy in 2022:
– Invest to support organic growth: we have continued to
invest in our colleagues, infrastructure and capabilities.
Increased investment has been put into business
development, which has supported our healthy pipeline of
new opportunities. We continue to invest in our IT systems
and cyber security, and we are further developing our
enterprise workforce solutions. We increased colleagues’ pay
faster than we had expected to at the beginning of the year,
made additional one-off payments and a broader portfolio of
support. We also restarted our Oxford Management Training
programme, which was suspended during Covid, and we
have developed and launched our Women in Leadership
programme in partnership with Saïd Business School.
– Increase ordinary dividends: the Board is recommending a
final dividend of 1.92p per share. Following the interim
dividend of 0.94p, this results in a full year dividend of 2.86p,
an increase of 19% compared to 2021, as we continue on our
path to reduce dividend cover progressively towards 3x over
the coming years.
– Invest in acquisitions: we completed the acquisition of ORS, a
specialist provider of immigration services to public sector
customers in Switzerland, Germany, Austria and Italy, and we
also acquired Sapienza, a European provider of software
services to the space sector. We continue to assess other
opportunities aligned to our strategy.
– Return surplus cash to shareholders: in 2022 we completed a
£90m share buyback and the Board has agreed that it intends
to buy back a further £90m of its shares during 2023.
Contract awards, order book, rebids and pipeline
Contract awards
Order intake in 2022 was £4.2bn, a book-to-bill rate of 93%.
Order intake in the government services sector is lumpy by its
nature and after an extremely strong 2021, book-to-bill dropped
to slightly below 100% in 2022. North America had the strongest
book-to-bill at 157%, with robust new order intake in Defence and
Citizen Services as well as a strong rebid performance in Defence.
Over the five-year period, our aggregate global book-to-bill ratio
has been around 112%. There were around 60 contract awards
worth more than £10m each and 3 with a total contract value of
more than £200m. Around £2.0bn, nearly half, of the order intake
came from the Americas, £1.9bn, or approximately 45%, from the
UK & Europe, with the remainder in Asia Pacific and the Middle East.
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Approximately half of the order intake was constituted by the
value of new business and half was rebids and extensions of
existing work. The win rate by value for new work was around
25% while the win rate by value for retaining existing work was
approximately 60% in the year.
Our North American defence business won the Ship Acquisition
Programme / Project Management (SHAPM) contract from the US
Navy, which we expect to be worth £280m over five years and a
£60m, 2.5-year contract for design, prototype construction and
demonstration of a next generation large, unmanned ship as
part of the No Manning Required Ship (NOMARS) programme.
We were also successful in the rebid of our US Navy SEA21
contract. The new contract is expected to be worth around
£330m over five years and will see us provide technical services
related to international fleet support, surface ship modernisation,
surface ship in-service readiness and surface training systems.
In Canada, we were selected by the Government of Ontario as
part of the province’s Employment Services Transformation (EST)
program. The programme aims to assist job seekers develop
their skills and match them to employment opportunities that
result in meaningful long-term careers, and is expected to be
worth around £110m over five years. In the UK, the largest single
new business award was our contract to manage the new HMP
Fosse Way prison on behalf of the Ministry of Justice, which we
expect to generate revenue of more than £400m over its life.
Also, in our Justice and Immigration sector, significant increases
in the numbers of service-users led to us securing additional
immigration work that is expected to be worth an estimated
£500m over two years. VIVO Defence Services, our joint venture
with Equans, followed on from its success in 2021 by securing
contracts from the UK Defence Infrastructure Organisation (DIO)
to deliver asset and facilities management services to the United
States Visiting Forces (USVF). These have an estimated value to
Serco of around £60m over the initial three-year period. Also in
the UK, we successfully rebid our contract to provide facilities
management services at Norfolk and Norwich University Hospital,
with an estimated value of £130m over five years.
Bids for new work that were unsuccessful in the period included
a contract to deliver vehicle licensing and registration for the
State of Victoria transport department, services as part of the
redevelopment of Frankston Hospital, also in Victoria, and the
contract to provide estate management and other services
to the Ministry of Defence’s Training Estate. In addition, we
withdrew from the competition to build three new Fleet Solid
Support ships for the Royal Navy. Rebids in the UK that were
unsuccessful included Lowdham Grange prison, some work for
the Department of Work and Pensions, and two environmental
services contracts. Included in the above numbers is the
announcement from UK MoD on February 15 2023 on the
outcome of the Skynet 6 procurement, where the Athena
consortium, of which Serco was a member, was unsuccessful.
Order book
The order book increased by 8% from £13.7bn at the start of
the year to £14.8bn at the end of December. 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 £1.9bn (2021:
£1.2bn) 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 £2.0bn (2021: £2.2bn) to
our order book.
Rebids
In our portfolio of existing work, we have around 70 contracts
with annual revenue of £5m or more where an extension or
rebid will be required before the end of 2025, with an aggregate
annual revenue of £1.5bn. Contracts which will either need to
be rebid or extended in 2023 have an annual contract value
of around £0.7bn, which includes our Immigration Services in
Australia, scheduled to end in December 2023. As announced
on 23 February 2023, we have successfully rebid Centers for
Medicare & Medicaid Services in the US with an estimated value
of $690m over a 4 year and 7 month term comprising a one-year
base period and four option periods. The annual value of rebids
reduces to approximately £0.5bn in 2024 and £0.3bn in 2025.
New business pipeline
Our measure of pipeline is probably more narrowly defined than
is common in our industry. It 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
relatively small proportion of the total universe of opportunities,
many of which have annual revenues less than £10m, are likely to be
decided beyond the next 24 months or are rebids andextensions.
Our pipeline was £8.4bn at the end of 2022, a reduction, as
expected, from the record £9.9bn level at the end of 2021 but
still more than 30% higher than the £6.4bn at the end of 2020. It
is pleasing to see the pipeline at such a healthy level given 2021
was a strong year for wins and with several large bids having
exited the pipeline in 2022. The pipeline now consists of over
40 bids with an ACV averaging more than £30m and an average
contract length of around six years. The pipeline of opportunities
for new business that have an estimated ACV of less than £10m
has continued to increase, now totalling £2.5bn. This is around
20% higher than the £2.0bn at the end of 2021 and around 45%
more than at the end of 2020.
Chief Executive’s Review continued
20 Serco Group plc Annual Report and Accounts 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 follow 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 made two acquisitions in 2022:
– In July we acquired Sapienza, a leading European provider of
services in the space sector, for €1m (£1m). The acquisition
expands our offering and capabilities in the fast-growing
space market, supporting the Group’s growth strategy of
becoming a leading provider of complex managed services
for the space sector.
– In September we acquired ORS, a specialist provider of
immigration services to public sector customers in
Switzerland, Germany, Austria and Italy, for CHF40m (£36m).
The business adds scale to our European operations and
access to new immigration markets, already one of our core
sectors, and one in which we expect to see growth in the
coming years.
We will continue to seek out and evaluate new opportunities for
acquisition which fit our criteria, and in the meantime focus on
delivering value from those acquisitions already executed.
Strategy
I have been a member of the Serco Executive Committee since
2014 and part of the team that developed the Group’s strategy,
which was communicated to investors at a Capital Markets Day in
December 2021.
I remain confident our strategy provides the best pathway
to value creation for our customers, our colleagues and our
shareholders, and our performance framework to grow revenue
faster than the market, profit faster than revenue and convert that
profit into cash serves as measure for that. Our focus therefore in
the coming years is the execution of our strategy to achieve our
goal of 4-6% growth at increased margins over the medium term
and to make a positive difference to people, place, and planet to
impact a better future.
Specifically, we see the following key factors supporting our growth:
– Large attractive market. The market for private sector
delivery of government services is large and growing.
Partnering with the private sector to deliver impact allows
governments flexibility in the design of solutions, the efficient
delivery of services and measurement of impact for citizen,
community and country. While noting the market remains
fragmented, and despite being a leading international
provider of services to government, our market share is
estimated to be between 1 and 3% offering significant
opportunity for organic growth.
– Four Forces intensifying. For some time, we have described
how demographic and societal trends, as well as rising
expectations of service quality from citizens drive increased
challenges for governments. At the same time, record levels
of national debt, and resistance to tax increases compounds
those challenges. Furthermore, the impacts of what we call
the Four Forces have become more intense because of the
longer-term consequences of the Covid-19 pandemic and
inflation levels not seen for decades. Geopolitical uncertainty
has shifted to tangible international instability. Structural
challenges in the labour market pose capacity and economic
challenges for governments in similar ways as they do to the
broader economy. As governments confront these complex,
compounding and ever-changing issues, we believe
partnership with the private sector can bring new ideas and
skills governments don’t always have, while delivering
flexibility and value for money.
– B2G focus. Since 2014, Serco has been a focused Business-to-
Government (B2G) service provider. It provides the company
with competitive differentiation and opportunities for growth.
Serco offers capacity, capability and agility that augments
rather than replaces public sector effort. We will continue to
develop our customer base by building on the credibility we
have earned as a service provider to expand participation
across the value chain from advisory to operations, from
designing services to delivering impact.
– Geographic and sectoral diversity. We gain growth
opportunities, scale, expertise, and diversification by
operating across five sectors and four geographies. Our
existing footprint covers around 65% of worldwide
outsourced government services spend. All our regions add
something different to the Group and have an important role
in our future. We will actively manage our portfolio to ensure
we benefit from scale, maintain competitive advantage, and
avoid fragmentation.
– B2G platform. Over recent years we have developed a B2G
operating model that allows us to deliver a wide range of
bespoke government contracts. It enables us to respond
quickly to changing government needs wherever they may be
and provide high quality, customer-centric solutions.
Supporting this is a well-invested range of services and
capabilities that are shared across the Group. In our 2021
Capital Markets Day, we identified areas where we can
improve our B2G platform. Our immediate focus is on
execution of the areas where improvements will deliver the
greatest impact.
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– Culture. Part of the corporate renewal programme that
occurred after 2014 was to assess and reorientate the culture
and ethical framework at Serco. Today Serco is a place where
our shared values of Trust, Care, Innovation and Pride are
lived, and where people are proud to work. We place huge
importance on how we enable our people to make a positive
difference to society at the same time as having robust
controls, risk management processes and governance, and
being transparent and open in dealings with our customers,
suppliers, colleagues, and investors. These foundations are
now part of our corporate DNA and on which we will continue
to build Serco’s future.
– Potential for growth. It is clear to us that we have significant
opportunities to grow share of the existing market, and that
the manifestation of Four Forces in the context of profound
changes that are likely to accelerate from structural labour
market challenges and development and convergence of
technology, provide fertile ground to achieve our growth
objectives. We are therefore confident that the case for our
international B2G strategy holds strong, and our focus on
effective execution of that strategy offers the best way to
realise value for our shareholders.
Three key value drivers
We embark on the next stage of Serco’s development from an
enviable position; our foundations are strong and the strategy
is working as demonstrated by the high growth delivered over
recent years. Following my appointment as CEO, I have the
responsibility to lead the evolution of the existing strategy to
meet our medium-term goals, and the opportunity to create value
by driving execution in areas where we can have the highest
impact. These adaptations will be thoughtful, disciplined and
enacted systematically. We want to invigorate the organisation to
enable us to not only take, but also make opportunities to grow.
In the coming period, we will execute on three value drivers in
particular: Customers, Colleagues and Capabilities.
Customers
We have worked hard in recent years to earn credibility and our
customer relationships are now strong. We will work even harder
in the period ahead to elevate our relationships with customers
and be forensic in our understanding of the existing market, while
remaining agile and flexible to respond to new and emerging
opportunities. The unprecedented scale and complexity of
challenges seen across the world in recent years has intensified
the need for governments to balance cost with quality, resilience,
delivery, security, and sustainability. Over the coming years we
aim to elevate customer relationships so that we can broaden
our participation across their value chain from solution discovery
to service delivery. In our chosen markets, we already have the
broadest touchpoints with government among their strategic
suppliers. We will build stronger partnerships by giving them
long-term, cross-department, non-institutionalised and pragmatic
perspectives and create mutual value by co-creating solutions
to address their challenges drawn from Serco’s experience and
capability around the world.
Our mission is to impact a better future; we can best do that
by evolving from outsourcer to Impact Partner to the world’s
leadinggovernments.
Colleagues
Our commitment to the safety and wellbeing of colleagues
remains foremost in our efforts to protect and deepen the
relationship between Serco and the people whose dedication
and commitment stand behind our success. We will evolve
colleague support which extends across physical and mental
wellness to financial wellbeing. Our Speak Up, Employee
Assistance Program, MyBenefits and Serco People Fund have
served us well in recent years and we will look to continue the
programs while responding pragmatically to economic, social
and environmental factors.
We respect the choice everyone has in relation to where they
work. We will therefore continue to develop our employee
value proposition by building on the purpose-driven and
values led foundations we have, to grow the value of the work
we ask people to do. Renewed emphasis on work process
re-engineering with a technology-first approach will reduce or
eliminate tasks that are manual, inefficient or can be standardised
to support productivity and create capacity to continuously make
our business better. Extending high levels of engagement to
high levels of enablement will allow our colleagues to bring their
commitment to bear in areas of highest social and economic
value for our customers. By growing the value of work to deepen
the relationship between the company and our colleagues,
we hope that they will not only choose to stay but will become
advocates for Serco impacting a better future.
We will support this by re-energising but not changing or
compromising our values of Innovation, Trust, Care and Pride:
– Innovation. Colleagues who embrace our spirit of innovation
will be recognised, empowered, and rewarded by extending
our current performance framework beyond operational
outcomes to include the measurable value they deliver from
innovation.
– Trust. Our teams will be empowered with the information,
support systems, and agency to make us a better business
and to better partner with our customers to deliver positive
impact.
– Care. Our mantra of everyone matters, everyone belongs
harnesses the true power and value of diversity. Further,
colleagues will be supported to explore Serco’s wider
opportunity landscape and identify learning opportunities
that enable their development, while also powering public
service for public good.
– Pride. We will invite our colleagues to be our advocates into
new customer engagements, where they will help to spread
our purpose-driven culture to citizens, with communities and
across countries.
Capabilities
We are going to put significantly more emphasis on technology-
enablement and continuous learning across the work we do,
across the solutions we offer our customers, across our Group.
Chief Executive’s Review continued
22 Serco Group plc Annual Report and Accounts 2022
The acceleration in the development and convergence of
technology is expected to profoundly change the way in which
we work in coming years. It will likely fundamentally influence
the way we define work itself. We have invested in building
robust IT infrastructure and cyber capability in recent years. We
will continue to protect those core elements of our technology
platform while accelerating our capability to fully exploit the
functionality of platforms we have already invested in and raising
our ambition to harness new and emerging technology to help
everyone in the business work safer, be more productive and
grow value.
Scaling artificial intelligence (AI) has potential competitive
advantage and recent developments that have seen AI not only
read and write but also understand information will likely make
AI a key agenda item for both government and industry in the
coming years. Our focus for technology-enablement will not be
the glamour of AI but understanding in a very practical sense
how we can extract value by applying it to decision making and
operations, and then to evolve structure and culture around the
optimisation it may offer.
In the coming years, we will proactively 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.
Market outlook
In 2021 we conducted a detailed market review, which included
using two independent research firms to estimate the size
and growth rates of our markets. We estimated then that total
outsourcing spend by governments on services in the countries
in which we operate (which account for an estimated 65% of
the world market, excluding, for example, Russia and China) is
around £715bn; and that our market share is between 1% and
3%, depending on whether we look at segments we operate
in or the market as a whole. We estimated that the market will
grow at around 2-3% per year in the medium term. Rather than
concentrate on the specific numbers, which are likely to have a
margin for error, the key conclusions from our work were:
– The market for private sector delivery of government services
is very large.
– The supply-side is fragmented; as a leading international
supplier, our market share within our existing footprint is
currently small, and although it is larger in some specific
segments, the opportunity to grow within the market is
significant.
– The market itself is likely to continue to grow and, given our
small market share, there is opportunity for us to grow faster
than the market.
Since we did this market review, the direct impacts of the Covid
pandemic have receded, but new challenges have arisen for all
governments, including inflation and labour shortages. In markets
where labour is in high demand, and governments have been
challenged with the affordability of matching wage adjustments
to inflation, it becomes increasingly hard then to recruit and retain
the people needed to deliver public services.
While inflation may subside, it will likely take government years
to make good on real wages to their employees due to historical
pay conditions potentially lagging the market, compounded
by the recent significant cost of living increases. And it is hard
to see how labour shortages and the demographics of ageing
working populations will not continue to make it extremely hard
for governments to recruit and retain people. We see these
factors – inflation and labour shortage – persisting for some years
and putting a premium on agility, mobilisation at scale, high
productivity, and effective management.
While technological evolution has been ever present in the
design and delivery of services for decades, we believe rapid
acceleration in the development and convergence of technology
will usher in generational change in coming years. Most
governments enter this new era with technology debt and a
history of challenges with digital transformation. The opportunity
for Serco to pair our operator-led responses with the agility and
breadth of a technology partner ecosystem offers a credible
alternative to the emerging needs of citizens and government.
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 the skills,
resources, innovation and agility of a partnership ecosystem. We
are tempted to think that labour cost and shortages may in time
become a potent additional factor to drive growth in our markets.
And how technology debt may manifest in the difference between
what was promised and what is actually delivered in relation
to digital transformation of government services may very well
becomea further force for growth in the model in coming years.
Guidance for 2023
Our initial outlook for 2023 anticipates revenue will increase
slightly and UTP will be similar to 2022. We expect some known
headwinds to be compensated for by increased contribution from
newer contracts ramping up and improvement across the existing
portfolio. We have entered 2023 with a strong pipeline of new
business opportunities.
Revenue: the outturn for revenue will be affected by inflation-
related adjustments on contracts which given macro-economic
volatility, is hard to predict at this point. However, we have
planned on the basis that revenue in 2023 will be at least £4.6bn,
which would be around 2% higher than the £4.5bn in 2022 on a
reported basis and stable organically. We expect the impact of
Covid work and other contracts ending or reducing in size, to be
offset by growth in other parts of the business.
Underlying Trading Profit: UTP is expected to be around £235m,
similar to 2022. The year will benefit from the annualization of
new contracts from 2022, continued ramp up of the VIVO and
Restart contracts, efficiency improvements across the existing
portfolio and the exit from our loss-making Barts Health FM
contract. These should offset the drag from Covid work, known
contract losses, the initial impact of our successful CMS rebid, and
at least £8m of mobilisation costs in the first year of our contract
to run HMP Fosse Way, a new prison in the UK. The inflation
protection in many of our contracts means we would not expect a
material impact from inflation on UTP.
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Net finance costs and tax: Net finance costs are expected to
be around £25m. This is higher than 2022 due to higher lease-
related interest, the currency impact on our dollar-denominated
debt and higher interest rates on the portion of our debt that
is floating. 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 expected to be around
£120m in the year. This is lower than 2022, reflecting the timing
of new contracts, but is consistent with our ongoing expectation
of converting at least 80% of profit into cash. We expect Adjusted
Net Debt to end the year at around £200m.
Returns to shareholders: While it is anticipated earnings will
be broadly stable in 2023, we intend to continue on our path
of increasing dividends to shareholders as part of our policy
of progressively reducing dividend cover towards 3x over
the coming years. In addition, due to continued strong cash
generation and with covenant leverage in December 2022 of 0.8x
EBITDA, below the bottom end of our target leverage of 1-2x net
debt to EBITDA, we plan to buy back shares up to a value £90m in
2023. At a share price of £1.49 (the closing price on 27 February),
the buyback would reduce the share count by around 5%.
Summary and concluding thoughts
At our Capital Markets Day in December 2021, and subsequently
at our full year results in February 2022, we set out our
expectations for the medium-term growth of the business. These
were from a baseline of guidance for 2022 of revenues between
£4.1-4.2bn and Underlying Trading Profit of £195m. Our targets
were for revenues to grow at an average of 4-6% per year, and for
margins to grow to be in the 5-6% range. Our outlook for 2023
has to be seen in the context of having done very much better
already: revenues in 2022 were 9% above the baseline, UTP was
22% higher and margin was 5.2%.
Our results further build on Serco’s track record of delivering
better outcomes for citizens, customers, colleagues and
shareholders. It gives confidence that our strategy of being a
focused provider of services to governments, operating through
our Serco Management Framework, and using our B2G platform
to win and deliver business, continues to create value. At a time
when governments will look to partnerships to solve their most
pressing problems our international platform differentiates
us from our competitors and gives us agility, reach, breadth,
efficiency, and resilience.
We believe these foundations will continue to serve us well over
the coming years. In the immediate period ahead, we will place
renewed focus on growing our market share, growing the value
of colleagues’ work, and growing our margins consistent with our
goals of revenues growing faster than the market, profits growing
faster than revenues, and shareholder returns growing faster than
profits to achieve our medium-term goals.
Importantly we will do this by staying true to our values, assuring
robust governance practices and embedding our commitment
to protect our people and our planet in everything we do, in our
mission to impact a better future.
Mark Irwin
Group Chief Executive
27 February 2023
Serco – and proud of it.
Chief Executive’s Review continued
24 Serco Group plc Annual Report and Accounts 2022
Strategic Objectives and Achievements
Serco has been transformed from a collection of unrelated commercial
and government contracts in 2014 into a focused B2G platform. We see
potential to enhance the business and create further impact and growth.
Serco
2014
– Low employee engagement
– Unfocused commercial/
government portfolio
– Ineffective IT and shared services
– Little international collaboration
– Troubled client relationships
– Significant number of loss-making
contracts
– Weak balance sheet
Serco
2022
– Profitable
– Strong balance sheet
– Strong employee engagement
– Focused international B2G business
– 112% Book to Bill since 2017
– Strong governance and values
– Extensive international cooperation
– Well-invested IT and systems
infrastructure
– Strong client relationships
– Successful M&A
Serco
2026
– The best-managed business in
oursector
– Increased reach and breadth
– Increased scale and greater
efficiency
– World-class shared services platform
– Recognised expertise in application
of data analytics and citizen
experience
– Recognised for practical and
effective approach to ESG
You can see a very brief summary of top-level progress, against our drive to solidify further our B2G platform, and against our formal
‘deliverables’ below.
High-level strategic progress since 2021 - our key deliverables
Key deliverables to 2026 as set out in 2021 Progress since 2021
Key
1 Revenue growth of 4-6% 2% revenue growth in 2022; 10% excluding COVID and currency
2 Margin of 5-6% Margin of 5.2% in 2022
3 Engagement of 70 and increasing
Global engagement score of 70 points in 2022 despite challenging
macroenvironment
High-level strategic progress since 2021 - embedding our B2G platform
Embedding our B2G Platform Progress since 2021
Key
1 Efficiency
Contract margins improving: 10.7% (2021) vs 11.1% (2022). UTP margins above
target of 5-6% in 3 of 4 regions in 2022
2 Reach 58% of revenues and 77% of UTP generated from outside the UK in 2022
3 Agility
UTP growth of 4% in 2022 despite losing 30% of UTP due to AWE and COVID work.
Regions exploring multiple new segments
4 Resilience
Continued progress on governance including SMS revision and Enterprise Risk
Management work. DPA concluded
5 Breadth
Four of our five sectors each contributed more than 10% of Group revenue in 2022.
2022 Divisional strategies show plans to enter 13 new segments
Key
On track Some good progress Behind plan
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Financial StatementsCorporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
i. Forensic understanding of our markets
ii. Target untapped opportunities, leveraging capabilities across regions
iii. Elevate customer relationships from outsourcer to ‘impact partner’
iv. Grow our value chain participation from solution discovery to service delivery
v. Bring our cross-sector and international insight to innovate and enhance outcomes for
citizens, government and society
i. ‘Think safe, work safe, home safe’ to be a reality for every colleague
ii. Continually evolve our employee value proposition to attract and retain the best talent
iii. Re-energise our values to empower
iv. Automate, digitise, and standardise processes to drive productivity
v. Colleagues to be ambassadors for our purpose, enabled through inclusivity, insight,
systems and opportunity
i. Drive culture of continuous learning and innovation
ii. Exploit functionality of existing technology platforms
iii. Data and analytics strategy to enhance decision-making and drive business optimisation
iv. Digital primacy in solution development
v. Exploit ecosystem of technology start-ups and R&D partners to accelerate and
scaleinnovation
As is detailed in the Chief Executive’s Review, as we look to make further progress, we have identified three new areas of focus in
particular where we believe driving the execution of our strategy and improvements to our B2G Platform can have highest impact
in the coming period. These areas are Customers, Colleagues and Capabilities, which together we believe will help us grow our
revenues, grow colleague enablement, and grow our margins. You can see each of these set out in more detail below, and we look
forward to updating on them next year.
1
CUSTOMERS
Growing customer
impact and
market share
2
COLLEAGUES
Growing the value of
colleagues’ work
3
CAPABILITIES
Growing margins
and efficiency
Strategic Objectives and Achievements
continued
26 Serco Group plc Annual Report and Accounts 2022
* in real terms
In summary
Our strategy has worked well and continues to do so. We have a strong track record of delivery to date - since 2018 we have seen
revenue CAGR of 12.4% and Underlying Trading Profit CAGR of 26.3%. Underlying returns on Invested Capital have also increased
from 13.6% (restated) to 20.6%. Looking forward, while the specifics of the macro-economy and its future direction are impossible to
predict with certainty at this time of volatility, our best expectation is that 2023 will see the market return to more normal patterns of
growth. Our plan remains to grow our business at about twice the rate of the market in real terms over the next five years, alongside
delivering 5-6% margins, and strong, sustainable and growing returns to shareholders.
Overall, our strategic outlook is bright...
Our market is attractive and growing
MARKET
OPPORTUNITY
Large, diverse
& growing
market
Governments
facing increasing
challenges
Private sector
partnerships offer
agility, capability
& efficiency
Drive for public
service innovation
e.g. connected
citizens; digital
services
Our business model is delivering
BUSINESS
MODEL
Clear
purpose
Strong culture
& values
Geographic
& sectoral
diversity
Powerful, scalable,
& unique B2G
platform
Strong balance
sheet and cash
generation to
support
investment
Focus on
Customers,
Colleagues &
Capabilities
to drive value
Our medium-term performance outlook remains positive
PERFORMANCE
Consistent
track record
of delivery
Expect revenues
to grow ~4-6%
Expect profits
to grow faster
than revenues;
margins ~5-6%
Expect >80%
conversion of
profit into cash
Expect returns
to shareholders
to grow faster
than profits
27
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2022
2018
2019
2020
2021
£93.1m
£228.9m
£163.1m
£120.2m
£237.0m
2022
2018
2019
2020
2021
5.21p
12.56p
8.43p
6.16p
13.92p
2022
2018
2019
2020
2021
£189.5m
£134.9m
£62.0m
£159.1m
£16.3m
We use Key Performance Indicators (KPIs) to monitor our performance, ensuring 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 definition, relevance to our strategy and the performance in 2022. There are no changes in 2022 to the
existing KPIs presented 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 our ESG Report
on pages 70 to 73. ESG performance and disclosure data can also be found on those pages, as well as in our complete Serco ESG
Databook 2022, which is available on our website.
Definition
Underlying EPS reflects the Underlying
Trading 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.
Relevance to strategy
EPS builds on the relevance of UTP, 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
The 11% increase on 2021 reflects UTP
growth in combination with lower net
finance costs and a reduced underlying
effective tax rate.
Definition
Free Cash Flow is the net cash flow from
operating activities before exceptional
items as shown on the face of the Group’s
Consolidated Cash Flow Statement, adding
dividends we receive from joint ventures
and associates, and deducting net interest
paid and net capital expenditure on
tangible and intangible asset purchases.
Relevance to strategy
FCF is a further reflection on how
‘sustainable’ our profits are, as well as the
sustainability of the overall business, by
showing a measure of how much of our
effort turns into cash to reinvest back into
the business or to deploy in other ways.
Furthermore, ‘winning good business’
should reflect that which generates
appropriate cash returns, and ‘executing
brilliantly’ should include appropriate
management of our working capital cash
flow cycles
Performance
Free Cash Flow was again strong at £159m.
The prior year included the benefit of a
working capital inflow of £25m, helped
by the successful collection of some older
receivables on our Dubai Metro contract
and short payment terms on our Covid-
related work. Underlying Trading Profit
conversion in 2022 was 97% (2021: 112%).
Key Performance Indicators
Definition
Trading Profit is defined as IFRS Operating
Profit excluding amortisation of intangibles
arising on acquisition as well as exceptional
items. Consistent with IFRS, it includes
Serco’s share of profit after interest and
tax of its joint ventures and associates.
Underlying Trading Profit additionally
excludes Contract & Balance Sheet Review
adjustments (principally Onerous Contract
Provision (OCP) releases or charges), and
other material one-time items as set out in
the Finance Review on pages 83 to 94.
Relevance to strategy
The level of absolute UTP and the
relationship of UTP with revenue – i.e. the
margin we earn on what our customers pay
us – is at the heart of our ‘profitable and
sustainable’ business objective, as well as
being an output of ‘winning good business’
and ‘executing brilliantly’. We describe
on page 25 that the delivery of strategic
success has potential to deliver annual
revenue growth of 4-6%, in the medium
term, and trading margins of 5-6%.
Performance
The outcome was a 22% improvement over
the £195m we expected at the start of the
year. The wind down of our Test & Trace
work and the AWE contract ending in June
2021 had a significant negative impact on
UTP. However, this was offset by increased
demand for immigration services in the UK
and Australia, strong trading in our case
management work in North America, the
positive effect of new work secured in 2021,
such as the DWP Restart Programme and
the Defence Infrastructure Organisation
contracts, moving into profitability, and
favourable currency movements.
3. Free Cash Flow (FCF) 2. Underlying Earnings Per Share
(EPS),diluted
1. Underlying Trading Profit (UTP)
28 Serco Group plc Annual Report and Accounts 2022
2022
2018
2019
2020
2021
13.6%
23.7%
19.1%
15.4%
20.6%
2022
2018
2019
2020
2021
£5.3bn
£9.9bn
£6.4bn
£4.9bn
£8.4bn
2022
2018
2019
2020
2021
12.0bn
£13.7bn
£13.5bn
14.1bn
£14.8bn
Definition
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 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’ – Indefinite
Delivery / Indefinite Quantity.
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 of the bids within
it which is an indicator of how successfully
we convert the opportunities within the
pipeline, will be at the heart of our strategy
to grow the business.
Performance
Our pipeline was £8.4bn at the end of
2022, a reduction, as expected, from the
record £9.9bn level at the end of 2021 but
still more than 30% higher than the £6.4bn
at the end of 2020. It is pleasing to see the
pipeline at such a healthy level given 2021
was a strong year for wins and with several
large bids having exited the pipeline in
2022. The pipeline now consists of over 40
bids with an ACV averaging around £30m
and an average contract length of around
six years.
Definition
ROIC is calculated as UTP 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.
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 the
use of equity and debt capital.
Performance
ROIC remained high at 20.6%. The
reduction versus 2021 reflected the prior
year benefitting from a relatively limited
increase in the invested capital base. This
was due to strong collections of some
older receivables, low working capital
requirements of the Covid-19 related work
and because the goodwill related to the
acquisitions of Facilities First and WBB was
in the closing balance sheet but not the
opening position.
Definition
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) or IDIQ contract 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. This
excludes unsigned extension periods, but
the £14.8bn would be £16.7bn if option
periods in our US business were included.
Order intake is the value of business which
has been won during the year and typically
includes a Serco’s share of order intake
from its joint ventures.
Relevance to strategy
The order book reflects progress with
‘winning good business’ including retaining
existing work through extensions or rebids,
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. Order intake provides a
measure of how the business in building its
order book.
Performance
The order book increased by 8% from
£13.7bn at the start of the year to £14.8bn
at the end of December. This excludes
unsigned extension periods and the order
book would be £1.9bn (2021: £1.2bn)
higher if option periods in our US business,
which typically tend to be exercised,
wereincluded.
6. Order book5. Pipeline of larger new bid
opportunities
4. Underlying Return on Invested
Capital (ROIC)
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2018
2019
2020
2021
0.50
0.36
0.41
0.39
0.44
2022
2018
2019
2020
2021
5.30
4.17
4.48
5.69
5.72
2022
2018
2019
2020
2021
67 points
70 points
73 points
71 points
70 points
Definition
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.
Relevance to strategy
Our vision of Zero Harm recognises
that delivering excellent service to our
customers, and therefore executing
brilliantly, requires us to try to operate in the
safest way possible at all times. A positive
approach to safety and the continuous
drive to improve our safety culture also has
a direct bearing on the commitment and
engagement of our people, which is central
to achieving a place people are proud
towork.
Performance
There were over 107 million hours worked
in 2022, 18 million less than in 2021, and
47 major injury incidents were reported.
The resulting frequency rate of 0.44
incidents per 1 million hours worked was
an increase from the 2021 rate of 0.36. The
increase was mainly caused by an increase
in violence and aggression across the
custodial estate.
The Group has a number of ongoing
continuous improvement initiatives,
including contract-based focus on tackling
specific root cause issues, supported by
wider, collaborative Divisional and Group
activities. These were an area of focus in
2022 that will continue in 2023.
Further performance data and details
of initiatives implemented to improve
performance are covered in the ESG
Reporton pages 48 to 49.
Definition
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
areincurred. Minor revisions can be made
to prior reported performance based on
data received post publication date.
Relevance to strategy
Our vision of Zero Harm recognises that
delivering excellent service to our customers
requires us to try to operate in the safest
way possible at all times. A positive
approach to safety and the continuous
drive to improve our safety culture also has
a direct bearing on the commitment and
engagement of ourpeople.
The LTIFR is a more relevant indicator of
safety than the major incident frequency
rate as it captures all lost time issues,
not just those related to a major injury. It
gives us greater insight into the everyday
experience of the broader colleague
population compared to those roles where
major injury is a larger risk and it underpins
our ESG approach.
Performance
Despite considerable focus on reducing
LTIs, the rate increased from 4.17 to 5.72 in
2022, missing our threshold for the year of
4.64. There were four key ways in which the
LTIFR was negatively impacted:
(i) exiting our Test & Trace work, which by its
nature had much lower frequency of LTIs;
(ii) an increase in violence and aggression
across our custodial estate;
(iii) increased road and related accidents
as our driver examination services in
Canada clear the backlog of Covid-
delayed driving examinations, and;
(iv) a broader return to normal working
patterns that raised incident probability,
including more traffic movements,
increased travel and less remote working.
Our LTIFR threshold for 2023 is 5.14, which
appreciates the ever changing size, shape
and risk profile of the business.
Definition
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.
Relevance to strategy
Employee engagement reflects ‘a place
people are proud to work’, which is crucial
to delivering outstanding customer service
and achieving our strategic aims. Under
the new scoring methodology, a score of
70 points or above was our target for 2022,
which aligns with the global cross-sector
benchmark provided by the specialist third
party provider of our survey.
Performance
The 2022 Viewpoint survey was based
on some 30,105 employees responding
anonymously, the highest number the
Group has ever received. We have
sustained high levels of engagement at all
levels measured in the survey and achieved
an overall score of 70. This matches our
2021 result. We consider this result to
be encouraging, given developments in
the year, such as increases in the cost of
living, recruitment challenges, geopolitical
instability following the outbreak of war
in Ukraine, and more. Our employee
engagement has continued to trend
positively over the last few years.
The Viewpoint results are cascaded
throughout the organisation and detailed
plans of activity put in place to focus
on areas highlighted by the detailed
scoring analysis and the comments
raised. In addition to completing the
survey questions, some 56,042 individual
comments were submitted, with 58% of
respondees choosing to do so. This reflects
positively on the culture of openness.
Looking forward, our focus is on achieving
an engagement score of 72 in 2023.
9. Employee engagement8. Lost Time Incident Frequency
Rate(LTIFR)
7. Major incident frequency rate (MIFR),
per 1 million hours worked
Key Performance Indicators continued
30 Serco Group plc Annual Report and Accounts 2022
Divisional Reviews
Serco’s operations are reported as four regional divisions: the Americas;
UK&Europe (UK&E); the Asia Pacific region (AsPac); 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 Trading Profit (UTP). As previously disclosed and
forconsistency with guidance, Serco’s UTP measure excludes contract & balance sheet review
adjustments, which were, in any case, immaterial in the period.
Year ended 31 December 2022
£m Americas UK&E AsPac Middle East Corporate Costs Total
Revenue 1,269.8 2,100.2 954.6 209.4 – 4,534.0
Change +13% (1%) +5% (21%) +2.5%
Change at constant currency +2% (2%) +2% (28%) (1.5%)
Organic change at constant currency (1%) (5%) +0% (28%) (4.4%)
UTP 136.6 72.1 56.9 16.0 (44.6) 237.0
Margin 10.8% 3.4% 6.0% 7.6% (1.0%) 5.2%
Change +16% (25%) +11% +17% (11%) +3.5%
Onerous contract provision charges
&releases 0.1 0.1 – – – 0.2
Other one-time items – 4.0 – – – 4.0
Trading Profit/(Loss) 136.7 76.2 56.9 16.0 (44.6) 241.2
Amortisation of intangibles arising
onacquisition (16.5) (1.5) (3.6)
– –
(21.6)
Operating profit/(loss) before
exceptionals 120.2 74.7 53.3 16.0 (44.6) 219.6
Year ended 31 December 2021
£m Americas UK&E AsPac Middle East Corporate Costs Total
Revenue 1,120.0 2,131.6 908.4 264.6 – 4,424.6
UTP 117.8 96.0 51.3 13.7 (49.9) 228.9
Margin 10.5% 4.5% 5.6% 5.2% (1.1%) 5.2%
Onerous contract provision charges
&releases – 1.3 – – – 1.3
Other one-time items – 2.5 0.7 – – 3.2
Trading Profit/(Loss) 117.8 99.8 52.0 13.7 (49.9) 233.4
Amortisation of intangibles arising
onacquisition (11.7) (0.8) (3.5) – – (16.0)
Operating profit/(loss) before
exceptionals 106.1 99.0 48.5 13.7 (49.9) 217.4
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 83 to 94. 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 189 to 259. 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.
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Underlying Trading Profit (UTP)
£137m
2021: £118m
Group UTP (before Corporate costs)
49%
Group revenue
28%
Revenue
£1,270m
2021: £1,120m
Year ended 31 December
£m 2022 2021 Growth
Revenue 1,269.8 1,120.0 13%
Organic change (1%) 2%
Acquisitions 3% 10%
Currency 11% (7%)
Underlying Trading Profit 136.6 117.8 16%
Organic change 6% 14%
Acquisitions (0%) 11%
Currency 11% (8%)
Margin 10.8% 10.5% 24bps
Revenue grew by 13% to £1,270m (2021: £1,120m), with
an organic decline of 1% more than offset by an acquisition
contribution of 3% and an 11% favourable translational effect
of currency. The acquisition growth came from WBB, a leading
provider of advisory, engineering and technical services to the US
Department of Defense. This acquisition completed at the end of
April 2021 and contributed an additional £32m to revenues in the
year at constant currency. The two main sectors for our Americas
business are Defence and Citizen Services. Excluding WBB, our
Defence business saw a 4% decline in revenue because of reduced
volumes on the CANES Navy fleet IT modernisation programme and
the dampening effect on growth from the delays in the award of new
contracts seen through 2021 and early 2022. Citizen Services saw
modest growth supported by slightly higher demand for our case
management services and recovery in driver examination activities,
which had been negatively impacted by Covid-19.
Underlying Trading Profit increased by 16% to £137m (2021:
£118m). Excluding the favourable currency movement of £13m,
UTP growth at constant currency was 5%. Margins increased from
10.5% to 10.8%, due primarily to better profitability in Defence,
despite lower revenues.
Order intake was strong at £2.0bn, nearly half of the total for
the Group and a book-to-bill ratio of around 1.6x. Of this,
new business wins were around £950m, more than double
the levelin 2021. Wins included important programmes such
as theShip Acquisition Programme/Project Management
(SHAPM)contractfrom the US Navy, under which we will deliver
design, acquisition and programme management to the US
Navy’s submarine build and sustainment programmes; we
expectthiscontract to be worth £280m over five years.
We also won a £130m five-year contract to deliver full acquisition
lifecycle support for the F-35 Joint Strike Fighter program and a
£60m, 2.5-year contract from the Defense Advanced Research
Projects Agency (DARPA) for detail design, prototype construction
and demonstration of a large and highly sophisticated unmanned
ship as part of the No Manning Required Ship (NOMARS)
programme. In Canada we were selected by the Government
of Ontario to support part of their Employment Services
Transformation program, which will help unemployed people
back into work. We estimate this contract will be worth around
£110m over five years. It was an active period for rebids and
extensions, and we were pleased to achieve a win rate of 90%
on these, the top end of our usual 80-90% range. This included
the rebid of our US Navy SEA21 contract, which is expected to
be worth around £330m over five years and will see us provide
technical services related to international fleet support, surface
ship modernisation, surface ship in-service readiness, surface
training systems and inactive ships.
Order intake was particularly strong in our Maritime Engineering,
Technology and Sustainment (METS) business unit, which is
predominantly composed of the NSBU business we acquired
in 2019. Book-to-bill in the unit was more than 400%, with high
win rates in both rebids and new work. After a period of slower
growth as the NSBU business was integrated, the combination
of Serco and NSBU skills is proving powerful and demonstrating
how acquisitions can enhance our growth potential.
In February 2023, we were awarded a contract by the US
Department of Health and Human Services, Centers for Medicare
& Medicaid Services (CMS) to continue to support eligibility
determinations for citizens purchasing health insurance through
the Federal Health Insurance Exchanges. The 4 year and 7-month
contract has a one-year base period and four option periods, and
is due to start on 1 July 2023. The estimated total value to Serco,
subject to workload volumes, is approximately $690 million if all
option periods are exercised.
The pipeline of major new bid opportunities due for decision
within the next 24 months in the Americas increased from £2.2bn
at the end of 2021 to £2.5bn at the end of 2022. It is pleasing to
see the pipeline replenish so well given 2022 was a strong year
for wins. North America represents approximately 30% of the
total Group pipeline. Defence makes up the vast majority of the
Americas pipeline, with a broad spread of types of work, while
Transport represents the remainder.
Divisional Reviews:
Americas
TransportSectors we operate in: Defence Citizen Services
32 Serco Group plc Annual Report and Accounts 2022
Underlying Trading Profit (UTP)
£72.1m
2021: £96m
Group UTP (before Corporate costs)
26%
Group revenue
46%
Revenue
£2,100m
2021: £2,132m
Year ended 31 December
£m 2022 2021 Growth
Revenue 2,100.2 2,131.6 (1%)
Organic change (5%) 20%
Acquisitions 3% 0%
Currency 0% 0%
Underlying Trading Profit 72.1 96.0 (25%)
Organic change (27%) 68%
Acquisitions 2% 1%
Currency (0%) (1%)
Margin 3.4% 4.5% (107bps)
Revenue declined by 1% to £2,100m (2021: £2,132m), with a 5%
organic contraction being partially offset by a 3% contribution
from the acquisitions we made in Europe during the year. The
lower revenue was due to our Covid-19 services coming to
an end part way through the year. In total this was a drag on
revenue of around £480m, or 22%, with the net reduction being
significantly less as we saw growth in other Citizen Services work,
Justice & Immigration, Transport and Defence. We experienced
particularly strong demand for immigration services and, from a
revenue perspective, our contract to provide accommodation for
asylum seekers is now the largest in the Group.
Underlying Trading Profit decreased by 25% to £72m (2021:
£96m), representing a margin of 3.4% (2021: 4.5%). The step
down in profit was due to lower levels of Covid-19 work and the
full year impact of the end of our Atomic Weapons Establishment
contract in June 2021, which together were a drag of around
£65m, or two-thirds of prior year profit, as well as broader market
related challenges such as higher utility costs in our asylum
seeker accommodation and driver shortages impacting our
prisoner escorting work. Much of the profit reduction from these
factors was offset by the growth described above in other Citizen
Services work, Justice & Immigration, Transport and Defence. The
margin reduced by around 107bp compared to 2021 as a result
of the lower Covid work volumes, although it was around 20bp
higher in 2022 than in 2020. Overall, we consider this was a good
outcome in a year with such significant headwinds.
Underlying Trading 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 3.2% (2021: 4.2%). The joint venture and associate
profit contribution increased to £12m (2021: £9m), as the
ramp up of our new VIVO work and improved performance on
Merseyrail more than offset the impact from the cessation of our
Atomic Weapons Establishment contract at the end of June 2021.
Order intake was around £1.9bn, a book-to-bill ratio of 0.9x
and around 45% of the total intake for the Group. New wins
were approximately 65% of the order intake. Agreements
signed included a contract with the UK Ministry of Justice to run
HMP Fosse Way, a new prison in the UK. The new contract has
an estimated value of more than £400m over the initial ten-
year term. Also in the Justice & Immigration sector, significant
increases in the numbers of service-users led to us securing
additional immigration work that is expected to be worth an
estimated £500m over two years. VIVO Defence Services, our
joint venture with Equans, continued its success of 2021, being
awarded four of the five contracts being tendered to deliver asset
and facilities management services to the Defence Infrastructure
Organisation (DIO) at the UK military establishments that host US
Visiting Forces. We estimate the work will have a value of around
£60m over the initial three-year period. We also successfully
rebid our agreement to provide facilities management services at
Norfolk and Norwich University Hospital, with an estimated value
of £130m over five years.
The pipeline of new opportunities in the UK & Europe
remains healthy at £3.7bn (2021: £4.2bn), with significant new
opportunities across Defence, Justice & Immigration, Citizen
Services and Health.
Divisional Reviews:
UK & Europe
Sectors we operate in:
Health &
other FM
Defence Citizen Services Transport Justice & Immigration
33
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Underlying Trading Profit (UTP)
£57m
2021: £51m
Group UTP (before Corporate costs)
20%
Group revenue
21%
Revenue
£955m
2021: £908m
Year ended 31 December
£m 2022 2021 Growth
Revenue 954.6 908.4 5%
Organic change 0% 8%
Acquisitions 2% 15%
Currency 3% 3%
Underlying Trading Profit 56.9 51.3 11%
Organic change 13% 34%
Acquisitions (6%) 20%
Currency 4% 3%
Margin 6.0% 5.6% 31bps
Revenue increased by 5% to £955m (2021: £908m). The
business was stable organically, while acquisitions added 2% and
favourable currency moves a further 3%. Organically, increased
demand for our immigration services was offset by a reduction
in Citizen Services, Health, as some services at Fiona Stanley
Hospital were taken back in-house in the second half of 2021,
andDefence.
Underlying Trading Profit increased by 11% to £57m (2021:
£51m), representing a margin of 6.0% (2021: 5.6%). On a
constant currency basis, UTP increased by 7%. The biggest driver
of the increase was our immigration services work. Our Justice
operations also delivered improved profit, while Defence and
Citizen Services saw lower profitability in the year, with labour
market disruption making it difficult to recruit enough people to
meet customer headcount targets.
Despite an active period of bidding in the year, order intake was
just £0.3bn, 6% of the Group total, as we were unsuccessful in
bids to run driver licensing and vehicle registration at the transport
department in Victoria, and facilities management at Frankston
Hospital. We did however have a success rate approaching 100%
on retaining existing work, including our contract to provide contact
centre services to the Australian Tax Office.
Our pipeline for new business reduced from £2.5bn to £1.4bn in
the year, due to the lost bids mentioned above. Defence makes
up the bulk of the pipeline with opportunities also in the Justice &
Immigration and Citizen Services sectors.
Divisional Reviews:
Asia Pacific
Sectors we operate in:
Health &
other FM
Defence Citizen Services Transport Justice & Immigration
34 Serco Group plc Annual Report and Accounts 2022
Underlying Trading Profit (UTP)
£16m
2021: £14m
Group UTP (before Corporate costs)
6%
Group revenue
5%
Revenue
£209m
2021: £265m
Year ended 31 December
£m 2022 2021 Growth
Revenue 209.4 264.6 (21%)
Organic change (28%) (13%)
Acquisitions 0% 0%
Currency 8% (5%)
Underlying Trading Profit 16.0 13.7 17%
Organic change 8% 1%
Acquisitions 0% 0%
Currency 9% (2%)
Margin 7.6% 5.2% 246bps
Revenue fell by 21% to £209m (2021: £265m). An organic
reduction of 28% was modestly offset by favourable currency
moves adding 8% to revenues. The exit in September 2021 from
our contracts to operate the Dubai Metro and Tram reduced
revenue for the division by around £90m, outweighing growth in
other parts of the Transport sector including Dubai Airport and air
traffic control services in the region.
Despite the sharp revenue contraction, Underlying Trading Profit
increased to £16m (2021: £14m). The low margin nature of the
Dubai Metro contract meant the impact on UTP of the contract
ending was significantly less than on revenue. The favourable
profit outcome was driven by a strong performance in the
Transport sector as well as good cost control in the areas where
we experienced subdued demand. Commercial discussions
related to a debtor in the region are progressing positively.
Margins increased from 5.2% to 7.6% as a result of the changed
mix of work and good cost control.
Order intake was around £0.1bn, or 3% of the total for the
Group, of which approximately 30% was new business. New
business included a £10m, five-year contract to provide a facilities
management managing agent service to Riyadh International
Airport. We successfully rebid our contract to provide air traffic
control services to Dubai Air Navigation Services (dans), the
organisation responsible for Air Traffic Management at airports in
Dubai and the Northern Emirates.
Our pipeline of major new bid opportunities in the Middle East
includes significant opportunities in Citizen Services and potential
work in the Transport and Defence sectors.
Divisional Reviews:
Middle East
Corporate costs
Corporate costs relate to typical central function costs of
runningthe 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 initiativesare also
incurred centrally.
Corporate costs reduced by £5.3m to £44.6m (2021: £49.9m).
The lower level resulted primarily from the contribution made to
the Serco People Fund in 2021 not repeating.
Sectors we operate in:
Health &
other FM
Defence Citizen Services Transport
35
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ESG
With our Values as our foundation, our purpose remains the same, to be a valued and trusted partner
of governments, delivering superb public services that transform outcomes and make a positive
difference for our fellow citizens. Delivery of public services places a responsibility on us to generate
positive human outcomes. It also places us at the heart of the communities we serve, each benefiting
through our investment in local jobs and local businesses, and through fundraising and volunteering
efforts. We deliver this through our people and by unlocking productivity, growth and better services
with a workforce that is cared for, safe, inclusive and whose differences are celebrated. We have
strengthened our environment strategy which includes partnering with governments in their journey
towards net zero, broader environmental protection and efficient use of resources, including procuring
sustainably. As we evolve our approach to ESG we have refreshed our ESG framework. To bring this to
life we have pulled out five themes that emphasise our focus, encapsulate our approach and reflect our
understanding of the interests of our stakeholders."
Mark Irwin
Chief Executive Officer
Our core ESG themes
1. Public services for public impact – the positive human outcomes that are generated by the unique way in which Serco
delivers services – this might be reducing costs and improving outcomes to help maintain national security; safeguarding
society and supporting vulnerable people in their journey through justice or immigration services; providing safe,
sustainable and smart transport solutions; improving patient outcomes through safe, caring and efficient healthcare support
services; making properties and operations more efficient; and through our Citizen Services contracts through which we
build greater wellbeing, resilience and sustainability in society.
ESG framework elements: Respecting human rights; Public and community impact.
2. At the heart of communities – Serco is a global company operating at the heart of the communities we serve. Each of
these communities has a unique character, history and culture. Serco benefits these communities through investment in
local jobs and local businesses, and through fundraising and volunteering efforts. Serco has a proud history of fundraising
and donations to help address the most pressing issues in these communities. In many communities, especially those in isolated
locations, Serco is the economic lifeblood through partnerships with local businesses and the provision of good jobs.
ESG framework elements: Public and community impact; Sustainable procurement and third party relationships; Efficient
use of natural resources.
3. Colleagues as advocates – Serco is only as good as its people. Contented colleagues, with agency to speak up and have
their voices heard, will ultimately deliver more positive impact for the benefit of our customers and citizens. Our people
are critical to the work we do, and we are committed to ensuring our operations are safe and that people get home safely.
Weneed to ensure our colleagues are healthy and we look out for their wellbeing. We seek a diverse workforce as a diversity
of voices and backgrounds sparks a creativity that leads to healthier colleagues and ultimately better public services.
ESG framework elements: Our people, diverse, engaged, healthy; Safe operations.
4. Partnering for net zero – As a leading provider of public services, Serco plays – and will continue to play – a key role in
partnering with governments to help them achieve net zero. But we are much more than a partner to governments in the
journey to net zero. We partner with our supply chain to ensure that high environmental standards are a prerequisite for
any partnership, and then work with supply chain partners to help them achieve their environmental goals. We strive to
ensure our operations prevent pollution, protect, value and enhance biodiversity and the natural world which sustains us
and are committed to driving sustainable procurement improvements and the implementation of operational efficiencies to
minimise resource use, avoid waste and help the transition to a circular economy.
ESG framework elements: Sustainable procurement and third party relationships; Efficient use of resources; Net zero carbon
and climate; Environmental protection.
5. Responsible governance – Responsible governance is the strong foundation which allows Serco to deliver our approach
to ESG. It is about identifying the most salient risks, whether those relate to human rights, environment and economic risk,
cyber and information security risk, contract risk such as misreporting or fraud, or whether we are paying our people correctly and
addressing these through robust assurance, polices, procedures and business models. We operate within a comprehensive
corporate governance framework and approach, with clearly defined responsibilities and accountabilities and maintain internal
control systems supported by internal compliance and assurance controls and risk management processes.
ESG framework elements: Data privacy and information security; Managed risk and effective controls; Total shareholder
returns and engagement.
36 Serco Group plc Annual Report and Accounts 2022
As a provider of complex public services
in more than 20 countries across the
world, weare in the position of being
able to support citizens in need, to help
defend freedoms and to deliver fairness
withinsociety.
We often operate in the heart of the
communities we serve, recognising their unique
character and culture. Serco benefits these
communities through investment in local jobs
and local business, and through fundraising and
volunteering efforts.
We also create value for shareholders by delivering competitive
returns on their capital. For this to be sustainable and for us to grow
we need to operate and behave with integrity, and in a way that is
responsible and consistent with the broader interests of society.
This means empowering our people through a workforce that is
well cared for, safe, inclusive, and whose differences we celebrate.
As a provider of public services for governments, we are expected
to operate and behave in a way that is consistent with their public
policy objectives and that contributes to their ESG commitments.
This means working across a range of activities in areas such as
immigration, justice, defence, health, and citizen services. Often our
role is on the front line, working on behalf of governments to deliver
their policies in the most effective and efficient manner and in the
interests of both taxpayers and service users.
In other words, our opportunity to win good business, deliver
service commitments, enhance the communities we work in, be a
place people are proud to work and, ultimately, be profitable and
sustainable and generate long-term value, depends on how we:
– live our Values and behave with integrity;
– empower our people, recruiting, developing and retaining a
diverse, engaged, high-performing and healthy workforce,
where we respect human rights and offer a safe working
environment for colleagues and those who use our services;
– build sustainable supply chains, partnerships and
relationships with the local communities we sit at the heart of;
– maintain robust risk management processes managed by
effective controls which are assured through compliance
assurance and audit, including the management of data
privacy and information security;
– provide transparent and proactive engagement with
ourshareholders;
– commit to net zero Scope 1, 2 and 3 by 2050, and help
address climate and wider environmental emergencies while
limiting our own environmental impact; and
– deliver sustainable public services that transform outcomes,
make a positive difference for our fellow citizens and build
our position as a valued and trusted partner of governments.
We continue to be committed to our ESG journey, embedding it
as a key pillar in our business strategy. We recognise that there
is more we can do to formalise and enhance ESG measures and
reporting globally to help drive greater transparency. We want
to accelerate the difference made by the Serco Foundation and
Serco People Fund and lead our markets in regional specific
initiatives to address local needs, for example, the delivery of
the UK Government social value agenda, and the employment
of individuals born in the Middle East. And we are committed
to hitting our environmental targets. In recognising the strategic
relevance of this journey, we continue to maintain an ESG
scorecard. This is used to monitor progress by Divisions, the
Executive Committee and Corporate Responsibility Committee.
ESG scorecards are also incorporated into our variable
remuneration (see our Remuneration Report on pages 142 to 169
for more information).
We are proud of the strength and depth of our approach to ESG
that we have built over recent years. The following sections outline
this progress regarding social, environmental and governance
activities. We believe that our focus on these areas has served Serco
and its stakeholders well. However, we also understand that we
cannot be complacent and are realistic that in any company as
large and diverse as ours, someone, somewhere, is likely to be
doing something wrong, whether intentional or not. We therefore
maintain effective governance, remain vigilant and strive for
continuous improvement.
We deliver specific elements of government policy – providing
efficient and economical services and systems that address
complex social challenges and contribute directly to the wellbeing,
resilience and prosperity of whole nations, local communities and
individual citizens. As we describe below, we strive to understand
the challenges that shape our chosen markets and help our
customers address them.
– Defence. Reducing costs and improving outcomes for
modern defence organisations, and thus helping to maintain
national security in a way that is safe and sustainable.
– Justice and Immigration. Safeguarding society and
supporting often vulnerable people in their journeys through
justice and immigration systems. Our prison management
approach helps ex-offenders reintegrate into society and
reduce reoffending. In immigration, we form partnerships with
voluntary organisations to deliver housing and welfare support
and enable successful integration of migrants into society.
– Transport. Safety, satisfaction and smart, sustainable
solutions – putting customers and communities at the heart
ofmodern transport and mobility.
– Health and other Facilities Management. Helping to create
a healthier world – improving patient outcomes through safe,
caring and efficient healthcare and healthcare support services
and in making properties and operations we look after
moreefficient.
– Citizen Services. Building greater wellbeing, resilience and
sustainability into society – serving the everyday needs of
citizens and communities. In the US, we are a key part of
efforts to provide healthcare insurance to low-income
Americans. In our UK Leisure business, we provide sport
andleisure facilities to improve the health of local citizens.
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ESG continued
The needs and expectations of our stakeholders, wider society and
the world around us are key factors in the development of our
public service solutions and broader ESG strategies. We work
hard to keep them front and centre in our thinking through direct
engagement and consultation and through careful consideration
of prevalent thought leadership across the global ESG landscape,
including the United Nations Sustainable Development Goals
(UNSDGs).
Many of our government customers are firmly committed
to delivering the UN SDGs and we are proud that many of
our operations and ESG initiatives have linkage to them.
Wecontribute to the UN SDGs:
– as a public service provider – through the services we provide
to citizens and society, and how we provide them;
– as an employer – through how we attract, select, manage,
develop and look after our colleagues;
– through our commitment to support the net zero carbon
ambitions of our clients and wider society and limit the
environmental impact of our operations; and
– as a participant in global industry, infrastructure and the
wider economy – through how we manage, grow and govern
the business.
More specifically our ESG agenda contributes to thefollowing UN Sustainable Development Goals:
Our contribution
SDG 3 – Good health and wellbeing
Ensure healthy lives and promote
wellbeingfor all atall ages
From the operational management of hospitals to the
optimisation of patient flow, we are committed to delivering
better healthcare and improving patient outcomes. Our
experience reaches across acute, community, primary and private
healthcare, increasingly with voluntary and social care partners.
We facilitate healthcare for people who use the immigration and
prison services we manage. We also recognise that the safety,
health and wellbeing of our people is vital to the success of
our business and that of our colleagues. We are committed to
positively influencing their wellbeing and creating safe working
environments where they have good physical and mental health
and the opportunity to thrive.
SDG 4 – Quality education
Through access to basic skills, education
orvocational programmes and training,
along with recreational orcultural
activitiesand exercise
Across our justice and immigration business we provide
educational and vocational training to help those in our
facilitieshave better opportunities when they leave. We work in
partnership with agencies, specialists and voluntary organisations
to deliver successful quality education. We create employment
opportunities across our organisation through apprentice,
graduate, career and management development schemes to help
improve capability and education.
SDG 8 – Decent work and
economicgrowth
Promote sustained, inclusive and sustainable
economic growth, full and productive
employment and decent work for all
We provide public services, many of which support economic
growth. This includes supporting government employment,
skills, training and business support programmes, as well as
reducing reoffending. We contribute to economic productivity by
investing in people, skills and innovation throughout the business
lifecycle of the contracts we operate, developing a diverse,
high-performing and healthy workforce, where we respect human
rights and offer a physically and psychologically safe working
environment for colleagues and those who use our services.
SDG 9 – Industry, innovation
andinfrastructure
Build resilient infrastructure, promote
inclusive and sustainable industrialisation
and foster innovation
We combine people, processes and technology in order to
deliver public services. Providing government services to citizens,
funded by taxpayers, is different to private sector delivery. Serco
has developed deep expertise in this regard, transforming how
public services are delivered through a public service ethos,
transferable global experience, full service integration, an ability
to test and innovate delivering citizen-centred, outcome-focused
service delivery. In addition to working with our customers we
also contribute to the industries and markets we work in through
our involvement in trade and professional associations.
38 Serco Group plc Annual Report and Accounts 2022
SDG 10 – Reduced inequalities
Reduce inequality within and
amongcountries
We support governments in their tackling of illegal migration,
protecting borders while sensitively managing those going
through the immigration process. We recognise that our business
thrives because of our diverse and talented workforce. We are
committed to listening to our colleagues and creating work
environments where everyone can belong.
SDG 11 – Sustainable cities and
communities
Make cities and human settlements inclusive,
safe, resilient and sustainable
From contact centres and complex case management with the
administration of flagship employment and health programmes
to the operation of local waste management and leisure services,
and utilisation of green energy in some of our facilities with
the largest footprint, we are committed to delivering better
government services to citizens. We build confidence in the
transport network. Whether heavy rail, light rail, ferries, intelligent
transport systems, cycle hire schemes, air navigation services,
or more, we are committed to delivering the best performing
transport systems. We also provide command and control,
data analytics, and surveillance services to law enforcement
agencies. From the operational management of hospitals to the
optimisation of patient flow, we are also committed to delivering
better healthcare and improving patient outcomes.
SDG 13 – Climate action
Take urgent action to combat climate
changeand itsimpacts
We are committed to addressing the environmental and climate
emergencies and supporting the net zero carbon ambitions of our
clients and wider society. We adopt sustainable business practices
to reduce the environmental impacts of the services we deliver, the
products and services we buy and the ways in which we operate.
We provide a complete waste and recycling service on behalf
of local authorities for a growing population. We consult with
residents to understand the environmental improvements that
matter most, and design services that meet their requirements.
Our impact and opportunity to make a positive difference from an
environmental perspective varies in each market and is dependent
on the nature of services we deliver and the level of operational
and financial control we hold at any given contract. Where
we have direct control of environmental impacts, activities are
managed locally. We monitor our performance through CDP and
improved our score in 2022 from a B to a A- rating.
SDG 16 – Peace, justice and
stronginstitutions
Promote peaceful and inclusive societies for
sustainable development, provide access to
justice for all and build effective, accountable
and inclusive institutions at all levels
We provide essential services across the justice system, from the
secure and safe operation of prisons and escorting services, to
managing the reintegration of ex-offenders into society.
Our longstanding experience with armed forces around the world
is broad, covering military base operations, vessel modernisation
and operations, aircraft maintenance, military training and support
services, logistics, and engineering and asset services, among
other services.
Our influence
Our programmes influence these Sustainable Development Goals:
Given these UN Sustainable Development Goals are reflected
across our ESG agenda, our progress against these is outlined in
the update below and in the full ESG report available on www.
serco.com/esg. This includes the support we provide to our
government customers through the delivery of public services,
some of which can be challenging.
39
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ESG continued
Here we summarise our position, approach and progress in delivering our ESG
commitments. There are several sources of additional information that build on
the summary provided which are available at www.serco.com/esg. These include:
ESG resources quick reference guide
An index of all of ESG reports and resources available online,
including public third-party reports on Serco operations and an
overview of ESG queries received from investors and analysts.
www.serco.com/esg/reference
The Serco ESG Report
Our full ESG Report – Public services for public impact –
providing greater detail on our achievements and performance,
including case study examples and additional performance
data. www.serco.com/esg
ESG Data book 2022
Full suite of publicly available ESG data points with notes and
commentary. The Data book combines existing ESG reporting
requirements with relevant GRI reporting requirements.
The information is separated into Environment, Social and
Governance areas.
www.serco.com/esg/reporting
Global Reporting Initiative (GRI) and Sustainable
Finance Disclosure Regulation (SFDR) Content Indexes
We publish GRI and SFDR Content Indexes to enhance our
ESG reporting and transparency and help stakeholders
navigate our disclosures more quickly and easily.
www.serco.com/esg/reporting
Inside ESG at Serco
An online guide to how we manage and govern ESG at Serco
and our ESG priorities.
www.serco.com/esg/inside-esg
ESG in action
A selection of interviews and examples from around the world
of Serco, showcasing how our people are living our Values
and bringing our ESG commitments to life.
www.serco.com/esg/case-studies
The Serco People Report
Interviews and stories about employees from every sector
and region, exploring different aspects of the colleague
experience and how Serco people make a difference every day.
www.serco.com/about/people-report
Environmental basis of reporting supplement
A guide to the scope of the environmental indicators in our
ESG Data Book, setting out the reporting approach and criteria
for the environmental elements in our non-financial reporting.
www.serco.com/esg/environment
Social and governance basis of reporting supplement
A guide to the scope of the social and governance indicators
in our ESG Data Book, setting out the reporting approach and
criteria to non-financial reporting.
www.serco.com/esg/reporting
Modern slavery and human trafficking statement
A guide to our commitment and approach to preventing
modern slavery in our business and supply chain.
www.serco.com/esg/modern-slavery
Human Rights Supplement
An overview of how we manage and mitigate human rights
impacts that we may face through the services we provide.
https://www.serco.com/media/9318/serco-human-rights-
supplement.pdf
Anti-Bribery and Corruption Supplement
An overview of the adequate procedures we have in place to
manage the risk of bribery and corruption.
https://www.serco.com/media/5769/anti-bribery-and-
corruption-supplement.pdf
mycode
Serco’s code of conduct.
https://www.serco.com/mycode
40 Serco Group plc Annual Report and Accounts 2022
Public need and public opinion
Our customers – governments – are entrusted by their citizens to
maintain law and order, and protect their nations from external
threats. This means having strong defence capabilities, justice
systems focused on prisoner rehabilitation and community service,
immigration policies to manage the challenges of increasing
immigration and the delivery of sustainable cities andcommunities.
These activities are often subject to scrutiny by opposition parties,
campaigning organisations and the press. You will frequently
read in the press stories of government incompetence and
maladministration, and of the allegedly cruel and inhumane
consequences of their decisions. Some of this criticism will be
fair, objective and balanced; an awful lot will be partial, biased,
subjective and unfair. That is a fact of life of being a government
in most free countries.
As a supplier of government services, we are engaged by our
customers to help them do some of these hard-edged things.
Ensuring the right culture, transparency and controls are
embedded at every level of the organisation is key. We therefore
have well-established governance and due diligence processes
covering the business life cycle of contracts to determine
with whom we are prepared to do business, how we deliver
the contract and how we manage risks. This considers many
factors, including social and environmental impact. Throughout
this life cycle, we embed robust risk management to monitor
and assess risk and opportunity. The Serco Business Lifecycle
constitutes several stages which follow the maturity of any
business opportunity, controlled through a series of mandatory
governance gates requiring formal assessment and approval by
senior management. Areas of focus include material legal, ethical
and human rights risks; health, safety and environmental risks;
and other salient adverse impact risks from an ESG perspective.
Further information is available at www.serco.com/esg/inside-esg.
Most of our customers are democratically elected governments,
pursuing policies which are legal and publicly acknowledged.
Wetherefore must be suitably cautious and humble when imposing
our own corporate values on those of governments andare reluctant
to second-guess their lawful actions. Reluctantdoes not mean we
don’t, and there have been occasions when we have refused to
do certain types of work for governments, but that is by exception
and, overall, where governments lawfully lead, and we can perform
services in accordance with our Values, we follow, even if this brings
challenge upon us from those who disagree with those policies.
Quite rightly, we too are sometimes subject to scrutiny by
opposition parties, the press and campaigning organisations.
In many cases, this scrutiny is all the fiercer because the idea of
private companies delivering government services is in and of
itself anathema to some people. Therefore, we face a level of
scrutiny around our services which is greater than would be the
case for companies doing business with each other.
In the same way that much of the scrutiny and comment aimed
at governments is often far from impartial, or fair, or based on
facts, so we must accept that we will often be unfairly criticised
in public. For those who analyse our ESG performance it is
important to understand that while public criticism and scrutiny
is an inevitable part of our business it will not always be fair,
objective and balanced. This is part of serving governments even
when they do hard-edged and difficult things. Some ESG analysts
take a binary view: for them, any public criticism of a company
involved in the delivery of hard-edged government policy is an
automatic black mark. It’s in the press, it must be right, no? Well,
no, actually.
We do not shy away from addressing questions and concerns on
our work, whether we are responding to challenges levelled at us
in the media or requests to better understand our approach from
investors and analysts. Our door is open to balanced, fair and
constructive discussion about what we do – such dialogue is of
great value to us, and always welcome.
To help inform, we focus on transparency, publishing more
information on our website, including third party reports on some
ofour more challenging operations, and comments received
through Viewpoint, our annual engagement survey. Below we share
two examples of work for which we have received recent attention.
Serco Immigration: Supporting vulnerable people
through systems designed to manage complex
socialchallenges
Government policies regarding the management of immigrants
and asylum seekers can attract challenge and criticism. This can
transfer by association to the operations in place to deliver those
policies, especially in response to any incident or allegation.
Serco has provided immigration services for more than 15 years,
building on our experience and expertise in delivering other
sensitive public services that focus on supporting vulnerable
people through government systems designed to manage
complex social challenges.
Our role in this sensitive area is to deliver specific elements of
those government policies in the most effective, efficient and
humane manner; working within established policy frameworks
and complex regulatory requirements; bound by the operational
and ethical standards we set for ourselves; underpinned by an
ethos of care, decency, dignity and respect.
We concentrate on working with our customers and non-
governmental specialist partners to mitigate risks. In this, and
per customer requirements, we provide safe, secure, suitable
accommodation and welfare support for individuals and families
transferred into our care, including engagement and education
programmes, recreational activities, and other services to meet
their needs.
We are not involved in the development of immigration policy
and are not involved in adjudication of immigration and
asylumclaims.
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ESG continued
Serco Defence: Delivering critical defence support
services for peacekeeping nations around the world
The maintenance of mission-ready peacekeeping capabilities
is another sensitive area of government policy and public
debate, subject to strong views and critical attention. We feel
this is compatible with our commitment to ESG as you cannot
have a focus on ESG without strong security underpinning
it. This has been shown with the ongoing conflict in Ukraine
which has heightened the ethical value of the often criticised
defenceindustry.
We are proud to offer a wide range of capabilities that help our
defence customers manage diverse technical, social, economic
and environmental challenges – from running marine operations
and base management to the modernisation of ships and
maintenance of aircraft; from the analysis of cyber activity and the
management of satellite systems to the delivery of military training
and leadership programmes; and from armed forces health and
housing services to programmes helping ex-military service
members and their families transition into civilian employment.
In the UK, we provide marine services to the Royal Navy, including
towage, pilot transfer and passenger transfer. Such support
may be required for any naval vessel. In the US, we provide
a wide range of support services for the US naval fleet, and
administrative and advisory services across a broad spectrum
of Department of Defense programmes. While our defence
operations in these regions may have some indirect association
with nuclear deterrents, we do not manufacture, install or
maintain any nuclear weapons, and we hold no contracts that
require the delivery of nuclear weapons, weapons systems, or
weapons systems platforms.
From 2000 to 2021, Serco was involved in the management, day-
to-day operations and maintenance of the UK Atomic Weapons
Establishment (AWE), which itself maintains the UK’s nuclear
warhead arsenal. As of 1 July 2021, AWE plc became an NDPB
(non-departmental public body) wholly-owned by the MOD.
Neither AWE Management Ltd (AWE ML) nor its shareholders,
including Serco, has any ownership interest in AWE plc.
In Australia, Serco has supported the Australian Defence Force
for more than 20 years, with vessel design and operations,
base services for operations overseas, logistics and operational
support, and training and professional development. These
services contribute to regional peacekeeping missions and critical
disaster response activities in the Pacific which are occurring with
increased frequency.
Our work across the Defence industry has led to partnerships with
organisations such as Soldier On, a not-for-profit organisation
that provides fully integrated support services for members
of the Australian Defence Force and their families. Serco
has a dedicated employment programme to support active
and former veterans to have fulfilling careers with us and we
employmanyveterans.
We understand that some may question our involvement in the
defence sector, but we believe it to be appropriate. Delivering
vital defence services for peacekeeping nations is a proud part
of our heritage. Our involvement dates to 1964 and our very
first contract: to help maintain the ballistic missile early warning
system of the UK and US Government at RAF (Royal Air Force)
Fylingdales in the UK, which we still do today.
Today, we are trusted to deliver critical support services and
operate sensitive facilities around the world, helping to maintain
both national and international security in a way that is safe and
sustainable, reducing costs and improving outcomes for modern
defence organisations.
42 Serco Group plc Annual Report and Accounts 2022
Diagram 1 – ESG materiality assessment
Importance to Stakeholders
Relevance to Serco
MODERATE VERY HIGHHIGH
MODERATE VERY HIGHHIGH
1
3
2
14
17
16
15
13
12
11
10
9
8
7
6
5
4
20
19
18
1 Data privacy and
information security
2 Behaving with integrity
3 Safe operations
4 Respecting human
rights
5 Diverse workforce and
inclusive workplace
6 Talent management
andengagement
7 Building sustainable
third-party
relationships
8 Effective governance
and managed risk
9 Healthy, fit and thriving
colleagues
10 Fair competition and
reasonable practice
11 Innovation and
technology
12 Service user needs
andwellbeing
13 Service outcomes and
socialimpact
14 Shareholder returns
and engagement
15 Labour rights and
industrial relations
16 Community
engagement
andinvestment
17 Environmental
protection
18 Resource efficiency
19 External trends, risks
andevents
20 Carbon and climate
Embedding ESG
Staying focused on what matters
ESG is an important element of our ecosystem. We have
recognised our corporate responsibilities for many years,
publishing our first report in 2003. As our government customers
face increasing challenges and need to address mounting
pressure to deliver social value and environmental stewardship
we have evolved our thinking as a trusted provided of public
services. ESG is now a defined element within our Group business
strategy; it sits across several of our principal risks, is reflected
in functional strategies, be that people, safety, environment,
community etc., and has appropriate oversight through an ESG
oversight group and Board oversight through the Corporate
Responsibility Committee.
In shaping our approach to ESG we continue to seek an
understanding of the interests of both internal and external
stakeholders on the ESG elements relevant to our business.
Thishelps inform how we develop our ESG strategy and where
we place our focus. As a provider of public services we provide
people with skills and expertise, supported by systems and
processes to deliver public services that transform outcomes
and make a positive difference for our fellow citizens. We believe
that this means we should place our focus on the social elements
followed by governance and then the environment. This has been
reflected in historical materiality exercises.
Given the rapid and intensive evolution of the public service
and ESG landscapes in the last three years, we felt that the time
was right to re-engage with our key stakeholder groups on the
ESG risks, issues and opportunities that Serco should prioritise
going forward. So in 2022 we completed an engagement and
review process to refresh our materiality assessment to better
align our ESG framework and programme to those topics that are
important to our stakeholders.
We took a proactive approach with our customers, investors,
suppliers and partners by inviting a selection of these
stakeholders to complete a survey seeking their views on the
importance of different topics. We similarly surveyed internal
stakeholder communities including our diversity networks, Serco
Goes Green network and early career programme cohorts,
alongside senior business and functional management.
To enable us to reflect a broad set of external views we engaged
a third party research partner to conduct detailed research into
the materiality of these topics across our peers and competitors,
regulators and policy-makers, and public opinion in the media.
Results indicate that all stakeholders inside and outside of
Serco are broadly aligned in what they believe are the most
critical elements underpinning the sustainable delivery of public
services: workforce, culture and governance. All the elements on
the matrix (Diagram 1) are important to our overall ESG approach.
The assessment has enabled us to recognise the level of
importance different stakeholder groups place on each element,
ranking these on a priority scale in comparison with each other.
We recognise the need to continue to improve our approach to
those elements in the upper right quadrant and will work to raise
the importance and our impact from those in the bottom left. It
serves to help us consider how to improve the visibility of these
activities so that, over time, they will be viewed higher on the
materiality assessment.
Just because an element is lower on the materiality assessment
does not mean that we do not take it seriously. For example, while
environmental protection and carbon and climate are to the left
we are committed to a net zero transition and our environmental
strategy has been a key focus for the year, leading to an increased
score through CDP from B in 2021 to A- in 2022. This process
has helped focus our plans; however, we continue to progress
across all elements in our framework. The results were reviewed
and validated by the Group Executive Committee and Corporate
Responsibility Committee and a final Group analysis was
generated – see our full updated materiality assessment below
(Diagram 1).
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B
e
h
a
v
i
n
g
w
i
t
h
i
n
t
e
g
r
i
t
y
Safe
operations
Respecting
human
rights
Our people
- diverse,
- engaged
- healthy
Sustainable
procurement
and third party
relationships
Total
shareholder
returns and
engagement
Environmental
protection
Net Zero
carbon and
climate
Efficient use
of natural
resources
Managed
risk and
effective
controls
Data privacy
and information
security
Public and
community
impact
S
o
c
i
a
l
E
n
v
i
r
o
n
m
e
n
t
T
r
a
n
s
f
o
r
m
i
n
g
o
u
t
c
o
m
e
s
a
n
d
m
a
k
i
n
g
a
p
o
s
i
t
i
v
e
d
i
f
f
e
r
e
n
c
e
t
o
o
u
r
f
e
l
l
o
w
c
i
t
i
z
e
n
s
S
u
s
t
a
i
n
a
b
l
e
P
u
b
l
i
c
S
e
r
v
i
c
e
s
G
o
v
e
r
n
a
n
c
e
Diagram 2 - ESG framework
ESG continued
ESG framework
ESG has always been core to what Serco does, and we have developed our thinking through its articulation and management as part of
our ongoing performance. Given our evolving thinking and the feedback from our stakeholders we have completed a refresh of our ESG
framework which has been through several iterations from an initial Corporate Responsibility framework back in 2003. Our objective behind
this framework refresh was to reflect stakeholder views, simplify it and create better alignment with business operations and Group principal
risks. The outcome is our updated ESG framework as illustrated in Diagram 2.
The following update on progress and next steps is structured around this revised framework.
44 Serco Group plc Annual Report and Accounts 2022
Our refreshed ESG framework remains aligned with our corporate
purpose. Each ESG element continues to reflect the key pillars
in the Group strategy but now better reflects specific subject
matter area strategies, for example, the environmental elements
now match the three pillars in our environment strategy. Wehave
specifically called out sustainable procurement along with third
party relationships, reflecting the commitments we made in 2021
in our sustainability charter. We have merged the people elements
under a single ‘Our people’ element reflecting the Group's people
strategy. Similarly, we have combined safe operations with duty of
care reflecting our safety strategy which covers both the safety of
colleagues andthose who useourservices.
Recognising the importance of respecting human rights and the
increasing focus on modern slavery we have recognised human
rights as a specific element. We have included data privacy and
information security reflecting its importance to stakeholders and
the current assessed risk.
This simpler framework, clearly aligned to ESG, also aligns more
closely with how we run the business, existing strategies, principal
risks, materiality findings and Company policy. There is clear
executive sponsorship and subject matter expertise in place as
well as robust oversight. Further information is available at
www.serco.com/esg/inside-esg.
Delivering our ESG commitments
We recognise that ESG initiatives are only ever truly effective
when they are embedded into an organisation's strategic outlook.
We believe the revised framework reflects a commitment to
powering public good through developing and delivering public
services that advance the lives of citizens and the communities
we serve and will help us be more effective in driving ESG
engagement across the organisation.
ESG is a complex area and while the ESG Framework
encapsulates all that we do, to bring this to life we have pulled
out five themes (see page 36) that really emphasise our focus
and where we believe there is an opportunity to differentiate
ourselves. These five themes encapsulate how we approach ESG
and are designed to resonate with key stakeholders:
– public services for public impact;
– at the heart of communities;
– colleagues as advocates;
– partnering for net zero; and
– responsible governance.
These are the themes which articulate Serco's unique approach
to ESG and by which we want to be known. They support how
we embed our ESG framework in the activities colleagues deliver
every day and leverage the impact they have in those areas of
ESG that are important to us.
With a robust framework covering all aspects of ESG, supported
by key themes to inspire and focus on priority areas for frontline
colleagues, we have the basis for effective management and
delivery of our ESG commitments. This is supported with clear
sponsorship across Serco’s executive committees of the updated
ESG framework and subject matter expertise, which will continue
to provide robust oversight over our global operations.
45
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ESG continued
Social
We deliver public services that place us at the heart of the communities we serve, employing local people, using local businesses and
supporting fundraising and volunteering efforts. As such, it is important that we employ great people who are engaged, reflect the
communities they serve, are healthy and have opportunities to develop in their chosen field; that we respect and protect the dignity
and human rights of our colleagues and everyone we deal with; that our operations are safe; and that we deliver services that reflect
our customers’ business needs, have a positive impact on the public we serve and support, strengthen and contribute to the social
and economic wellbeing of those communities in which we work.
Elements – Social Our ambition Our milestones
How we have performed
against our milestones
Our people
diverse, engaged, healthy
To have great people who
are engaged, reflect the
communities they serve,
are healthy and have
opportunities todevelop
in their chosenfield.
Engagement
– By end 2023 to have
colleague engagement
greater than 72.
Wellbeing
– By end 2023 to have
trained all people
managers in mental
health awareness.
– By 2026 to have trained
1,000 wellbeing allies.
– Have Divisional
wellbeing strategies in
place by end 2022.
– By end 2022 gain
Group accreditation to
ISO 45003 –
Psychological health
and safety at work.
Diversity
– Deliver a gender pay
gap of less than 10% by
2023.
– By end 2023 have 35%
female representation
among global
leadership team.
– Year-on-year 10%
increase in Colleague
Communities to
support inclusion.
– Achieve gender
balance on leadership
and management
programmes.
Careers and internal
mobility
– Achieve 65% internal
leadership promotion
by end 2023.
– Promote internal
mobility and encourage
our colleagues to find
new opportunities to
develop their careers
and capabilities within
SercoAchieve.
Engagement
– 2022 engagement score
remained at 70 although
there was a 4point increase in
response rate to 72%. This
trend and score is aligned to
other organisational trends
globally, and is viewed as
positive given the current
environment.
Wellbeing
– 7,704 colleagues (including
people managers) trained in
mental health awareness, of
which 1,338 were trained
during 2022.
– 102 wellbeing allies trained
to date.
– Divisional wellbeing
strategies, aligned to Group
approach, in place.
– Gained Group accreditation
to ISO 45003.
Diversity
– 2022 gender pay gap 8.11%.
– 34.5% women in global
leadership in 2022.
– Colleague community at
5512, a 7.9% increase
on2021.
– 133 leaders/managers
participated in our Oxford
Saïd Business School
Programmes with
approximately 40% of these
being female colleagues.
Careers and internal mobility
– 57% internal leadership
promotions.
– 44% of those on the Oxford
Advanced Leadership
Programme were female.
46 Serco Group plc Annual Report and Accounts 2022
Key
Completed On plan Progressing but behind plan
Other achievements Our roadmap 2023
Engagement
– Offered MyShareSave, a three-year savings-related share plan, to UK
colleagues, of which 8.4% enrolled.
– Implemented automated onboarding and exit questionnaires.
– Distributed £9m in one-off payments to all colleagues outside management
grades, recognising the pressure colleagues are under.
Wellbeing
– Our wellbeing engagement score remains one of the highest scoring areas
at76.
– New EAP provision in place across AsPac.
– Achieved CCLA Corporate Mental Health Benchmark Tier 1, top 3 out
of100, Mind Workplace Wellbeing index (UK – Silver award).
– Around 80% of AsPac people managers are now trained in an enhanced
mental health approach, roll-out for other Divisions being scoped for 2023.
– Continued roll-out of wellbeing content – webinars, bitesize videos,
newsletters, ally promotions and awareness activities – to all areas of
thebusiness.
– Developed peer support networks around key topics e.g. parents and carers.
Diversity
– Completed first global diversity survey with 11,537 responses which
indicated that Serco is a largely inclusive and welcoming workplace.
– Serco Veterans, Reservists and Families network and community
established as a Global Advocacy Group.
– In America, Serco has earned the designation VETS Indexes 5 Star
Employer, as part of the 2022 VETS Indexes Employer Awards for a second
year in a row.
– Serco Australia continues its work with Soldier On as a Platinum Pledge
partner and proudly employs 550 veterans and 180 reservists.
– In the Middle East we launched our KSA internship Fursati Programme in
KSA and had the highest number of UAE Fursati students to date across
different contracts in UAE. We also have a significant increase in nationals
across multiple contracts in UAE and KSA.
– Increased ranking to be in top 50 FTSE Women Leaders.
– AsPac named a finalist in Prime Minister’s Veterans’ Employer Awards.
– Serco Europe Recruitment team secured a Women in Tech
ExcellenceAward.
Careers and internal mobility
– Launched Women in Leadership programme with Oxford Saïd
BusinessSchool.
– As a global business with a diverse range of colleagues we had around 800
participating in formal development programmes in 2022.
– In terms of early career programmes, we refreshed our strategy and had in
2022 over 575 new graduates, interns and apprentices. We went to market in
advertising programmes focused on social purpose and contract
management and increased our number of applications across all Divisions.
An example of this is that we received over 1,400 applicants for our UK
graduate programme in 2022. We have a robust internship programme within
the Americas offering over 47 places for early career talent. In addition, we
have 55 graduates across all Divisions and 507 apprentices.
Engagement
– Deliver division and contract action
plansdeveloped from 2022
engagementsurvey.
– Engage with colleagues more regularly
throughout the employee life cycle e.g.
development and progression in
addition to joining and leaving.
– In 2023 launch share plans in Australia,
Canada, US and MiddleEast.
Wellbeing
– Review procured service wellbeing
provision to ensure equitable and
accessible offer.
– Equip people managers with the
capabilities to have better quality,
supportive conversations with
theirteams.
– Focus on psychosocial risk management.
Diversity
– Continue to expand colleague networks
and resource groups to support
underrepresented voices (10%
membership increase year on year).
– Increase representation of females and
ethnic minorities in management and
leadership positions (threshold 35%
female global leaders in 2023).
– Evolve data intelligence to
intersectionality and inclusion
(perceptions and lived experience).
– Build greater People Manager capability
in creating and leading inclusive teams.
Careers and internal mobility
– Future Leaders Programme added to our
Serco Oxford Saïd programme with a
clear focus on developing participants
careers within Serco.
– Develop Custom Design Online Women
in Leadership Programme with a clear
focus on developing women in
leadership and contract management
careers within Serco.
– Continue to embed our early careers
approach with a range of programmes
across all Divisions. Our focus in 2023 will
be developing international rotation for
our 2024 graduate programme. This will
continue to build our internationally
mobile talent.
How we have performed
against our milestones
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Elements – Social Our ambition Our milestones
Respecting human
rights
Protect the human
rights of all those we
employ and others
who use the services
we provide.
– By end 2022 update
guidance on human
rights impact
assessment.
– By end 2022
complete
retrospective high
risk supplier modern
slavery due
diligence.
– By Q1 2023 Serco
aims to develop a
sponsored
partnership with the
charity Slave-Free
Alliance, part of
Hope for Justice.
– New guidance published.
– Due diligence exercise
completed.
– Arrangement with Slave-Free
Alliance in place.
ESG continued
Safe operations
Zero Harm through
vigilance and
initiatives that result
in improvements in
safety-related metrics,
proportionate to
the size, shape and
risk profile of the
business.
– By end 2022 to
havecompleted
global safety
climatesurvey.
– By end 2022 North
America to achieve
below 1.0
Experience
Modification Rating.
– 2022 threshold
reductions:
– 4.64 Lost Time
Incident
Frequency Rate
(LTIFR).
– 0.32 Major
Incident Frequency
Rate (MIFR).
– 18.13 Lost Time
Incident Severity
Rate (LTISR).
– 6.16 Physical
Assault Frequency
Rate (PAFR).
– 0.57 Serious
Physical Assault
Frequency Rate
(SPAFR).
– Completed safety culture survey
asculmination of a five-year
programme. Top 30% against
benchmark companies (better than
benchmark in all areas).
– Reduced Experience
ModificationRating (based on
three-year accident/injury loss history)
to below 1.0 in North America for
thefirst time since 2008.
2022 performance against:
– LTIFR 5.72
– MIFR 0.44
– LTISR 22.8
– PAFR 6.06
– SPAFR 0.58
Reductions in major injuries, lost time
incidents, lost days and assaults were
seen across several areas in the business;
however, performance has been mixed
compared with 2021. Several exceptional
and unpredictable events as well as
third-party related incidents have been
seen in other parts of the business
which has driven a worsening in core
KPI performance when compared to
2021. As a result, we didn’t achieve our
2022 LTIFR threshold of 4.61 (actual
5.72). Despite great efforts, we did not
achieve set thresholds for our other safety
metrics in 2022, with the exception of
our physical assault frequency rate, which
not only achieved the threshold, but also
delivered an 3% improvement on 2021
performance.
How we have performed
against our milestones
48 Serco Group plc Annual Report and Accounts 2022
– Harm/injury reduction plans as part of
divisional safety strategies.
– Focus on initiatives to reduce instances and
outcomes of workplace violence and
aggression.
– Continuing HSE training improvements
focusing on supervisory levels.
– Strengthen collaborative activities managing
and working with contractors.
– Implement a new approach to global lessons
learned/shared.
– North America to maintain Experience
Modification Rating under 1.0.
– 2023 safety thresholds:
– LTIFR 5.14
– MIFR 0.41
– LTISR 22.06
– PAFR 5.41
– SPAFR 0.55
Our roadmap 2023
– Tested refreshed due diligence process for human rights for mergers
and acquisitions with the acquisition of ORS.
– Upgraded screening platform for third parties which includes more
robust human rights checks.
– Achieved 92% in the UK Cabinet Office's annual Modern Slavery
assessment, up from 84% in 2021.
– Investigated two Speak Up cases related to modern slavery, both
unsubstantiated but both vigorously investigated.
– Continued to drive communications, training and discussion across
Divisions on human rights.
– Became founding members of the UK Service and Infrastructure Project
Providers Modern Slavery Council along with UK Cabinet Office and
other strategic service providers to Government.
– In the Middle East we continued to monitor human rights and modern
slavery through supplier assurance and audit activities, including over 50
supplier accommodation inspections, along with continuing education of
local suppliers regarding modern slavery in relation to labour conditions.
– AsPac has continued to deliver modern slavery training including, with
the Executive Leadership Team and Ethics Champions.
– Serco continues to deliver Return and Reintegration Assistance
Program (RRAP) contract operations on behalf of the Australian
Department of Home Affairs (Department) which includes supporting
victims of modern slavery.
– Leverage relationships with
Slave-FreeAlliance.
– Follow up on selected suppliers following
due diligence responses to understand their
management of modern slavery in their
supply chain and take any corrective actions.
– Consider how human rights and modern
slavery due diligence is monitored for those
suppliers not classified as high risk.
– Modern Slavery Oversight Group to continue
to meet monthly.
– Look at how our Values and Integrity network
can leverage their role in raising awareness
on human rights and our modern slavery
programmes.
– Initiated LTI reduction project, pulling in findings from Safety Culture
Survey, Viewpoint, MIND survey, performance and the trends and
interviews with key stakeholders. Identification of the 20% of areas
where 80% of the incidents occur.
– Zero Harm Week 2022 focused on ownership/accountability/
behaviours.
– Our safety video competition had a positive response with over 100
videos received, including from clients and service providers.
– Safety Observation reporting has seen improvements with 43%
increase in reports over 2021.
– Strengthened third party onboarding, management and control of
contractor systems including UK roll-out of SafeContractor tool and the
ongoing success of the Middle East Contractor Forums.
– Received UK Royal Society for the Prevention of Accidents Awards for
Serco Defence National Defence Sector Award for the first time and the
27th consecutive Gold Award and third consecutive Patrons Award for
SSPAR RAF Fylingdales. The Patrons Awards is presented to those
organisations who have achieved a minimum of 25 consecutive Gold
Awards which reflect high standards of safety management.
Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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– By end 2023 have
agreed and reported
against a set of metrics
that define our public
impact.
– By end 2023 have
agreed and reported
against a set of
community impact
metrics reflecting our
work in the
communities we serve.
– By end 2022 roll out the
Serco People fund in
Australia and UAE.
– Potential public impact
metrics identified with
processes being
developed to capture
data.
– Community impact
metrics identified. Data
capture and reporting
methodology under
review.
– Serco People fund
established in Australia
and UAE
Public and community
impact
Make a positive impact on
the public we serve and
those communities we
work in.
ESG continued
Environment
We recognise that environmental sustainability is a critical factor
in the wellbeing of society, and are therefore committed to
doing what we can to address the environmental and climate
emergencies and support the net zero ambitions of our clients
and wider society. We support and contribute to customer
objectives, helping them meet climate and environmental
challenges by reducing our emissions and decarbonising
our services in line with global climate science and net
zero ambitions. We also deliver sustainable procurement
improvements and implement operational efficiencies to avoid
and minimise resource use, supporting the transition to a circular
economy. We strive to ensure our operations prevent pollution
and protect, value and enhance biodiversity and the natural world
which sustains us.
Our impact and opportunity to make a positive difference from
an environmental perspective varies in each market and is
dependent on the nature of services we deliver and the level of
operational control we hold at any given contract.
Elements – Social Our ambition Our milestones
How we have performed
against our milestones
Efficient use of natural
resources
Increase collaboration
and deliver resource
efficiency initiatives with
our value chain to avoid
and reduce resource use,
increase reuse, recycling
and recovery, avoid landfill
and contribute to a more
circular economy.
– By end 2022 to have
appointed a
sustainability ratings
provider to help assess
and manage
environmental
performance of supply
chain.
– By end 2022 increase
the number of resource
efficiency initiatives.
– Expand depth and
breadth of GRI
environmental
reporting to help
measure contribution
to resource efficiency.
– Ecovadis engaged as
sustainability ratings
provider to support
assessment of supply
chain.
– Hazardous IT waste
streams now externally
reported.
– Resource efficiency
initiatives in place
across sectors and
geographies.
– ESG rating agency
questionnaires have
shown improvements in
environmental scores
since 2021.
Elements – Environment Our ambition Our milestones
How we have performed
against our milestones
50 Serco Group plc Annual Report and Accounts 2022
– Launch the Serco People fund in America.
– Capture public and community impact in line
with agreed metrics.
– To strengthen relationships with Serco
colleagues, the Serco Foundation to recruit
two internaltrustees.
– The Serco Institute to create citizen-led policy
solutions to pressing public service issues,
moving the debate on to a broader range of
subject areas and partnering with innovative
thinkers to co-design policy solutions to
publicservices.
– The Serco People fund received 632 applications and supported 253
colleagues and their families through £203.5k financial grants.
– The Serco Foundation donated over £220k in 2022 to over 15 charities.
– The Serco Foundation supported through matched funding with Serco
colleagues humanitarian efforts in Ukraine with £146k.
– The Serco Foundation revised processes to better prioritise
applications from Serco colleagues.
– The Serco Institute published research on micromobility and its
environmental and community impact which was used by UK ministers
to inform a new regulatory approach for the sector. It also published
research in multiple new geographies and languages – for example, in
France and Saudi Arabia.
– The Serco Institute User Experience research was hosted on the UAE
Government Experience Portal and covered in multiple media outlets.
– UK are onboarding a social value portal to standardise social value
measurement and reporting in line with UK Government social
valuecommitments.
Our roadmap 2023Other achievements
How we have performed
against our milestones
– Increased collaborative action with key suppliers to reduce waste and increase
reuse and recycling.
– Our green ambassador network has over 120 initiatives ongoing focusing on
carbon and climate, efficient use of natural resources as well as net zero carbon
and climate and environmental protection.
– Our prison operations within both the UK and Australia deliver various recycling and
reuse programmes as part of our industries activity, including the collection of
unused and redundant Serco uniforms from other contracts for redeployment,
reuse and recycling.
– Northlink Ferries, UK, has significantly reduced the use of single-use plastics.
– Serco Middle East held a one-month challenge for recycling plastic and e-waste at
staff accommodation and support office sites with partner Ecyclex.
– We have implemented water saving measures at our Auckland South
Correctional Facility following a significant drought in 2021, leading to 18%
water savings in 2022
– Implemented water saving measures at client sites in the Middle East, including
smart solar controlled irrigation systems and reuse of fountain water at Universities.
– Palm Monorail in the Middle East recycled 320 train tyres in 2022 as part of our
commitment torecycling.
– The Australian immigration contract, Christmas Island, introduced a waste oil
incinerator to generate energy and reduce waste to landfill.
– Health contracts, UK, were involved in various projects to address waste, including
catering single-use plastics replaced with vegware, where possible, introduction
of washable skull caps for retail catering staff instead of disposable hats, and new
plant-based fully recyclable milk cartons replacing plastic milk bottles.
– Engage key suppliers using
Ecovadis on environmental
performance.
– Collaborate with key suppliers
identified via Ecovadis to capture
and report improvements
delivered via our propositions.
– Prepare for evolving reporting
requirements.
– Complete fleet transition
assessment.
– Grow partnerships with
environmental partners to support
ecosystem restoration and
biodiversity benefits.
– Pursue investment opportunities in
nature-based solutions taking into
account emerging guidance on
voluntary carbon market.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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Net zero carbon and
climate
Achieve net zero Scope
1, 2 and 3 by 2050 and
mature our reporting
on climate risks and
opportunities.
– Improved CDP score to A-
– Financial control boundary
approach now selected,
customer-owned assets where
Serco is not responsible
formaking procurement
decisions on asset upgrade/
replacement removed from
Scope 1 & 2 targets and
movedtoScope 3 reporting.
– 2022 performance and
newbaseline:
– Scope 1 – 31,894 tCO
2
e
– Scope 2 – 6,868 tCO
2
e
(market based)
– Scope 3 – 968,126 tCO
2
e
(market based)
– All scopes – 1,006,888 tCO
2
e
(market based)
In 2022 we have continued to
focus on avoiding and reducing
energy use through operational
efficiencies supported by no,
low and capital cost energy
management initiatives. We have
also increased our renewable
sourced electricity contract
coverage and supported the
feasibility and installation of
on-site renewable generation at
customer sites. We also continue
to transition to less polluting
and carbon intensive fuels
and vehicles and increase the
infrastructure needed forelectric
vehicle charging for colleagues,
customers and service users. We
have enforced our measurement
of supply chain emissions, the
largest proportion of emissions
across our value chain, and have
engaged providers to support
further precision in future. We
have formally committed to
NetZero through the Science
Based Targets Initiative and have
submitted refreshed net zero
targets for validation in 2023.
Ournet zero transition planning
also continues to mature inline
with emerging guidance.
– Reviewed global climate risks
and opportunities, reporting
three substantive risks and one
opportunity, applying future
climate scenarios and disclosing
a range of potential £ impacts.
– Updated and published our
initial climate transition planning
in line with draft UK government
guidance – available on www.
serco.com/esg.
Our ambition
Our milestones
– At least maintain CDP
score at B.
– Previously reported
milestones are being
recalculated having
committed through the
Science Based Targets
Initiative process to
play our part in
achieving net zero by
2050. These targets
are being
independently
validated in 2023.
– By end 2022 to report
climate risks and
opportunities from a
financial perspective
and report as part of
TCFD reporting.
– By end 2022 update
our climate
transitionplan.
How we have performed
against our milestones
ESG continued
Elements – Environment
52 Serco Group plc Annual Report and Accounts 2022
– Our green ambassador network has grown to over 260
ambassadorsglobally.
– Maintained TCFD Oversight Group to ensure focus and oversight.
– TCFD:
– Increased our understanding of climate risks and their financial
impact using globally recognised models and scenarios, taking into
account updated industry guidance and insights.
– Provided more granular information about the effect of climate
change on different business sectors and geographies and balanced
our disclosure of risks with inclusion of significant opportunities.
– Engaged our insurance partners to further understand the effects of
how different global warming scenarios may affect the valuation of
assets and liabilities.
– Strengthened our understanding of supply chain environmental
impacts and associated carbon emissions. Proportion of Scope 3
supply chain emissions now sourced from 23% of overall supply chain
spend, directly from supplier disclosures.
– Our North America real estate sustainability strategy initiated and
supported by JLL Real Estate Services. Outputs include a green leasing
organisational standard, initiatives for priority sites and a strategic
action plan across our estate.
– The Facilities Management business in the Middle East are driving
energy efficiency and decarbonising operations. One initiative at
Khadamat University, in relation to a LED retrofit lighting project,
delivered 1,939 tCO
2
e savings in 2022.
– The London Cycle Hire Scheme contract supported the reduction of
circa 59k tCO
2
e in2022.
– A feasibility study was completed to consider options for renewable
energy generation across our leased premises in Australia.
– The Serco team at the European Space Agency supported earth
observation and monitoring of natural disasters exacerbated by global
warming including vital flood monitoring.
– Mature our reporting on climate risks and
opportunities.
– Externally validate, through the Science
Based Targets Initiative and process our near
and long-term targets, currently anticipated
to be:
– A 34% reduction of Scope 1 and 2
emissions by 2030 against a 2022 baseline.
– Scope 3 – A proportion of our suppliers by
spend to set science-based targets by 2028.
– Net zero by 2050 across Scope 1, 2
and3emissions.
– Update our net zero transition plan to meet
UK government guidance and increase detail
on property and fleet targets up to 2030.
– Global property working group to be
established to support net zero planning
andinitiatives.
– Prepare evolving reporting requirements
which will highlight our global services which
support sustainability, including climate
mitigation and adaption.
– Mature our green ambassador network
andoutputs.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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ESG continued
Environmental
protection
Deliver services and
initiatives which address
wider environmental
emergencies such as
air pollution, water
pollution, biodiversity,
andhabitatloss.
– By end 2022 make a
step change in our
transition to low
emission Company cars.
– By end 2023 make a step
change in our transition
planning to lower
emission fleet vehicles.
– By end 2022 support
projects to protect
andrestore nature,
supporting UN
decadeof ecosystem
restoration.
– By end 2023 establish
new investment
partnerships in support
of our net zero carbon
and environmental
protection.
– By mid 2023 to have
updated and enhanced
environmental
elements in our
management
framework.
– By end 2022 categorise
contracts and services
which support
environmental
sustainability using EU
green taxonomy.
– By end 2022 increase
training, awareness and
resources on
environment to build
organisational green
skills and competence.
– Low emission vehicles in
our UK company car
scheme now make up a
significant proportion of
the scheme, electric
vehicles now account for
18% of the fleet, petrol/
plug-in electric hybrid
20% and hybrid 28%.
– Engaged various
environmental partners on
ecosystem restoration and
biodiversity enhancement
activities.
– Landowners engaged on
peatland code projects in
the UK which would deliver
ecosystem restoration and
carbon benefits; however,
investment not yet made.
– Environment and Climate
policy statement updated
along with Basis of
Environmental reporting.
– Increased number of
environmental training
courses available.
– Increased capability and
competence on
environment across
organisation.
Our ambition
Our milestones
How we have performed
against our milestones
54 Serco Group plc Annual Report and Accounts 2022
– 30% of global revenue covered by ISO 14001, up from 24% in2021.
– Installed EV charge points across a range of UK sites for staff and service users.
– Introduced Serco Europe Goes Green Challenge and planted and assisted
natural regeneration of 12,000 trees in Zambia, Africa with our
partnerWeForest.
– Established partnership with One Tree Planted in Australia. We aim to plant 200
trees by the end 2023.
– Range of initiatives undertaken on client sites to support habitat and green
space creation to allow nature to thrive along with volunteering activities such as
clean up events and tree planting.
– Trees felled in storms at International Fire Training Centre, UK were moved to
wildlife areas to create insect homes to support biodiversity.
– Melbourne Parks and Gardens, Australia, invested £140k in new solar-powered
electric ride-on mowers, reducing carbon emissions and cutting noise pollution
by 50%, the new equipment will deliver savings of more than £25k per year in
reduced fuel and maintenance costs.
– Contracts which support environmental sustainability and also have potential to
be green taxonomy aligned identified as environmental services, cycle hire and
low-carbon transport rail contracts.
– Our green ambassador network has completed 183 initiatives since it
launchedin 2019.
– Fleet transition planning by lease
end date, contract requirements,
vehicle type and geography.
– Grow partnerships with
environmental partners to support
ecosystem restoration and
biodiversity benefits.
– Pursue investment opportunities in
nature-based solutions, taking into
account emerging guidance on
voluntary carbon market.
– Prepare for Taskforce on Nature-
related Financial Disclosure
(TNFD) reporting.
– Prepare for UK version of EU green
taxonomy reporting requirements
which will highlight our global
services which support
sustainability, including pollution
prevention.
– Increased capability and
competence to deliver
environmental sustainability
focused services across
organisation.
– Mature our green ambassador
network and outputs.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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ESG continued
Sustainable
procurement and third
party relationships
We generate benefits to
Serco, society and the
economy, and minimise
environmental impact
through sustainable
procurement.
– By end 2022 to have
appointed
sustainability ratings
provider and identify
initial supplier targets.
– By end 2023 to have
our most material
preferred suppliers
rated 200 material
suppliers.
– By end 2023 to have
agreed wider
sustainability
evaluation factors as
part of our sourcing
governance processes
and developed
sustainability clauses
and KPI metrics for
incorporation into our
standard supplier
contracts.
– By end 2023 to have
identified categories
(atLevel 3) which are
highest carbon
emitting and the
related suppliers, with a
view to targeting these
suppliers to be rated in
2023/24.
– By end 2023 to have
undertaken a market
analysis of emerging
Scope 3 reporting
solutions, with a
resultant business case
and implementation
ofaScope 3 reporting
solution anticipated
by2028.
– By mid 2023 to have
aSupplier Diversity
strategy across three
ofour regions.
– EcoVadis appointed as
our chosen sustainable
ratings provider.
– Business critical highest
spend suppliers,
aligned to our Preferred
Supplier List, have been
identified and are
being rated.
– Work commenced on
identifying wider
sustainability
evaluation factors,
sustainability clauses
and KPI metrics.
– Supplier diversity
strategy drafted and
under review.
Elements – Environment Our ambition Our milestones
How we have performed
against our milestones
56 Serco Group plc Annual Report and Accounts 2022
– We have integrated EcoVadis into our sourcing governance processes.
– We have undertaken human rights and modern slavery due diligence
on those tier 1 suppliers deemed at highest risk of modern slavery.
– We have refreshed our onboarding questions, particularly related to
business ethics and modern slavery, for those suppliers already rated
with EcoVadis.
– Reach our target of having our most material
preferred suppliers rated on EcoVadis by end
2023 with corrective actions assigned to
those suppliers with red or amber ratings.
– Undertake a sustainable procurement
maturity assessment to inform our vision and
medium-term goals and create focus on a
handful of KPI metrics to track progress.
– Undertake a market analysis of Scope 3
reporting solution providers with agreed
recommendations on a business case.
– Further develop key supplier diversity in line
with our local and diverse supplier strategy
and be able to better track and report our
spend with diverse suppliers in line with
ourstrategy.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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ESG continued
Elements - Social
Managed risks and
effective controls
Safeguard stakeholder
interests, including
shareholder investments,
customers, colleagues, our
assets and reputation while
supporting strategic and
business opportunities.
– By July 2022 achieve a
discontinuance of Serco’s
Deferred Prosecution
Agreement.
– By end 2023 implement
Governance Risk and
Compliance (GRC) tool
on controls and
assurance functionality.
– By mid 2023 complete
review of global
insurance broker.
– By end of 2023 to have
refreshed, consistent risk
appetite definitions.
– By June 2022 publish
refreshed Code
ofConduct.
– By mid 2023 publish fully
revised Serco
Management System.
– Speak Up case rate per
100 employees at Navex
global benchmark 1.3.
– By end 2023 implement
arevised approach to
Assurance provision.
– By end 2023 improve
visibility of the status
ofDivisional business
impact assessments
andcontinuity plans.
– Deferred Prosecution
Agreement discontinued.
– Continued focus on
development of our
Enterprise Risk
Management (ERM)
maturity.
– Procurement and detailed
design of first GRC tool
completed.
– RFP stage for global
insurance broker
completed.
– Refreshed principal risks
and annual review of
emerging risks.
– mycode launched with
related communications
and training.
– Revised Serco Management
System policies agreed,
related procedures,
communications and training
being developed toplan.
– Speak up case rate 1.18, up
4% on 2021 but below
Navex Benchmark 1.3.
Investigations led to 442
individual actions, 70% of
which were HR related.
Disciplinary action in 58
substantiated cases and
terminations in 23
substantiatedcases.
– Draft assurance framework
under review with pilot in
UK&E.
– Created a centrally visible
dashboard that standardises
business continuity reporting,
detailing latest updates and
testing status.
Elements – Governance
Governance
Effective governance is an essential part of our public service ethos and the trust our customers have in us to operate with integrity
and in line with our Values. We seek to protect shareholder interests by managing our business in a way that is consistent with the
broader interests of society. We operate within a comprehensive corporate governance framework and approach, with clearly defined
responsibilities and accountabilities and maintain internal control systems supported by internal compliance and assurance controls
and risk management processes. We are committed to collecting, storing, protecting and handling data with care and ensuring we
protect the confidentiality, accuracy and availability of information. We are committed to transparency, maintaining open, meaningful
dialogue with all stakeholders while creating long-term, sustainable value that protects the interests of our owners alongside those of
our colleagues, customers and the communities in which we operate.
Our ambition Our milestones
How we have performed
against our milestones
58 Serco Group plc Annual Report and Accounts 2022
– Implementation of improved consistency of ERM Divisional Structures
supported through common mandated objectives.
– Maintained strong ERM talent through balance of external recruitment
and internal promotion in challenging labour market.
– Compliance framework review completed on Speak Up, conflicts of
interest, gifts and hospitality processes.
– Continued to deliver a programme of work to improve the financial
controls framework to support the expectations from BEIS or the
Financial Reporting Council.
– Improved insurance programme.
– Launched refreshed mycode training as part of Serco Essentials.
– Development and implementation of revised
approach to assurance in preparation for
changes that are anticipated under BEIS
WhitePaper.
– Full implementation of refreshed Serco
Management System.
– Complete review of Speak Up case
management provision.
– Revised Crisis Management approach and
associated training and testing.
– Development and implementation of
refreshedERM training.
– Embed dashboard and use to identify and
address areas where reporting or testing
ofplans need improvement.
– Complete a Group-led crisis
managementexercise.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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ESG continued
Data privacy and
information security
Protect the organisation
and data subjects against
attack resulting in loss of
service or a data breach
(including personal or
customer data).
– By end 2023 establish
consistent reporting of
information security,
cyber and data
protection performance
across the Group.
– By Q1 2023 refresh
mandated data
protection and
information
securitytraining.
– By end 2022 establish a
consistent framework for
sharing information and
knowledge through the
Global Data Protection
Governance group.
– By end 2022 complete
four unannounced global
phishing awareness tests.
– Embedding data
protection in broader
Group risk – ‘Information
Security Breach’.
Established data
protection framework
and aligned on key
metrics to measure
itssuccess.
– Refreshed data
protection and
information security
training through
SercoEssentials,
launching 2023.
– Global Data Protection
Governance group met
quarterly through 2022
to share best practise
and knowledge.
– Completed four
unannounced global
phishing exercises.
Total shareholder
returns and
engagement
Create long-
term, sustainable
shareholdervalue.
Over the medium term we
aim to:
– grow our revenue faster
than our overall market;
– grow profits faster than
revenue as margins
increase; and
– deliver strong conversion
of profit into cash.
Exceeded expectations:
– expected revenue of
£4.2bn–£4.3bn, achieved
£4.5bn;
– expected underlying
Trading Profit of £195m,
achieved £237m; and
– expected free cash
flowof £100m, achieved
£159m.
Our ambition Our milestones
How we have performed
against our milestones
Elements – Governance
60 Serco Group plc Annual Report and Accounts 2022
– Implemented an accountability matrix, using OneTrust tool, based on UK
Information Commissioner's Office requirements which has been
reviewed monthly with UK and Middle East data protection champions.
– Engaged key UK government customers to better understand our role in
managing their data.
– Conducted a mock data breach with 120 data protection champions in
UK&E and Middle East.
– In the Middle East we have appointed 43 data protection champions, all
of whom have been onboarded and trained.
– Became members of the International Association of Privacy
Professionals (IAPP).
– Improved internal collation and sharing of information with employees,
leaders and data protection champions in UK&E, Middle East and
GlobalDPOs.
– In the UK, renewed accreditation against National Cyber Security
Centre’s Cyber Essentials Plus scheme and maintained ISO 27001 after a
successful surveillance visit.
– Have continued to monitor evolving regulatory requirements e.g.
potential Australian law alignment to UK GDPR.
– Complete alignment of data protection in
Information Security Breach group risk
including defined controls and reporting.
– Monitor and reflect expected changes in data
protection laws.
– Further embed our data protection
programme ensuring consistent adoption and
reporting across Divisions.
– Focus on 'going back to basics', 2023
awareness theme, simplifying data protection.
– Monitor risk appetite under increasing external
threats and evolving external environment.
– Investing in our ability to further prevent,
detect, investigate, and respond to advanced
threats against a background of rising
sophistication of modern cyber-attacks.
Since 2017:
– grown revenue by more than 50%;
– Underlying Trading Profit has more than trebled; and
– free cash flow has gone from negative to generating nearly £600m in
the subsequent five years.
– Order intake, which is an indicator of the business’s ability to grow, has
been £24.6bn, a book-to-bill rate of more than 112% and our order book
has increased by 38% from £10.7bn to £14.8bn.
Our outlook for 2023 anticipates:
– revenue will increase slightly to at least £4.6bn;
– Underlying Trading Profit will be similar to 2022
at around £235m; and
– cash generation will again be good with cash
conversion of at least 80%.
We expect some known headwinds to be
compensated for by increased contribution from
newer contracts ramping up and improvement
across the existing portfolio. The pipeline of new
business opportunities is strong.
Our roadmap 2023Other achievements
How we have performed
against our milestones
Key
Completed On plan Progressing but behind plan
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Serco Group plc Annual Report and Accounts 2022
ESG continued
ESG governance, oversight and non-financial information
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 colleague matters) is embedded in our corporate
governance through the standing Corporate Responsibility
Committee of the Board. Oversight and scrutiny of other
governance matters at Serco is distributed between all standing
committees of the Board, with certain matters reserved for the
Board itself.
For more information, see our Corporate Governance Report
(pages 111 to 176), including our Corporate Responsibility
Committee Report (pages 139 to 141).
ESG is recognised as an area of focus in our strategy, ensuring it
receives appropriate oversight from the Executive Committee,
and is therefore embedded within Divisional strategies under the
oversight of Divisional senior management teams.
The elements that make up our ESG framework are firmly
embedded in how we manage our business which is driven
through the Serco Management System (SMS), our framework
of Policy Statements and supporting Operating Procedures.
This has been subject to a full review during 2022. The SMS
suite of 14 policies includes statements summarising our policy
commitments on business conduct and ethics, human rights and
our people, details on which are provided below.
For more information, see our Group Policy Statements and
Inside ESG at Serco, available at www.serco.com and also note
the non-financial information referenced below which addresses
disclosures required under sections 414CA and 414CB of the UK
Companies Act 2006.
Non-financial information Principal locations in this Annual Report Page
Environmental matters ESG
– Environment
– ESG performance and disclosure data: Environment
TCFD statement
50
70
74
Colleagues
Social matters
ESG
– Our commitment to people
– Social
– ESG performance and disclosure data: Social
63
46
65
Human rights
Anti-corruption and anti-bribery
ESG
– Our commitment to business conduct and ethics including anti-bribery and anti-
corruption
– Our commitment to respecting human rights
– Delivering ESG at Serco in 2022: Governance
– ESG performance and disclosure data: Governance
62
63
58
68
Policies ESG governance, oversight and non-financial reporting 62
Our management philosophy Including our Values, organising principles, our method and medium-term targets 11
Business model Our B2G Platform 13
Our market Including our purpose and the factors that drive and shape government policy for the
benefit of society
06
Non-financial principal risks Principal Risks and Uncertainties 98
Non-financial key performance
indicators
Key Performance Indicators 28
Corporate Governance Report Covers individual committee reports, including Corporate Responsibility Committee 111
Our commitment to business conduct and ethics including anti-
bribery and anti-corruption
Our commitment to business conduct and ethics is defined
within our Group Business Conduct and Ethics Policy Statement,
related operating procedures, and relevant sections of mycode
(mycode.serco.com), Serco’s Code of Conduct. These reflect our
values of Trust, Care, Innovation and Pride; provide direction on
compliance with relevant laws and regulatory requirements where
we work; and are sensitive to local customs, traditions and cultures.
Our anti-bribery and corruption policies comply with the principles
of the OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions, United Nations
Convention against Corruption and The United Nations Declaration
Against Corruption and Bribery in International Commercial
Transactions. As a global business, Serco seeks to ensure that its
business, including partners and suppliers, and colleagues comply
with local laws and regulations applicable in the countries in
which it operates, such as the UK Bribery Act, USForeign Corrupt
Practices Act and French Loi Sapin (II). Forfurther information refer
to our Anti-Bribery and Corruption supplement available on
www.serco.com.
62 Serco Group plc Annual Report and Accounts 2022
Our policy is to: operate within defined ethics and compliance
policy standards, strategy, objectives and thresholds based on an
assessment of business integrity and regulatory risks for existing
business operations, new markets, geographies, acquisitions,
bids and rebid opportunities and third parties; compete fairly
and openly; report information that is accurate, consistent, and
timely while avoiding misleading, false, or exaggerated claims;
commit to zero tolerance of any form of bribery or corrupt
practices; be aware of and manage personal or organisational
conflicts of interest; not engage in fraud, misrepresentation,
money laundering or tax evasion; comply with all legitimate
restrictions on exports/imports, trade sanctions and boycotts and
be impartial about party politics. We encourage openness and
honesty and provide independent, confidential and anonymous
ways of sharing concerns of wrongdoing without retaliation.
Our commitment to respecting human rights
Our commitment to human rights is defined within our Group
Human Rights Policy Statement, related operating procedures,
and relevant sections of mycode (mycode.serco.com). This
reflects our commitment to respect and protect the dignity and
human rights of our colleagues and everyone we deal with in
our work. This includes those in our care, who use our services
or work for our business partners or suppliers. To support this
commitment, we use international human rights standards
such as 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
to guide decision-making, constructive engagement and the
assessment and management of adverse human rights impacts.
Our policy is to operate within defined policy standards while
recognising potential adverse human rights impacts related to
our work to prevent or mitigate us causing or contributing to such
impacts. We strive to ensure recruitment to Serco is fair and free
and all colleagues have an employment contract, recruitment
agreement or similar work document in a language they
understand; any housing provided is within defined standards
that consider both host country and international housing and
safety standards; we do not use, and strive not to 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
and protect them from any work that deprives them of their
childhood, their potential, dignity and development. 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 consider the risks of adverse human rights impacts and the
risk of modern slavery in our due diligence processes when
considering new business opportunities, partners and suppliers.
We have training and guidance for colleagues to understand how
to consider human rights impact across the different markets we
operate in and the potential red flags to look out for regarding
modern slavery. 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.
For further information refer to our Human Rights Supplement
and Modern Slavery and Human Trafficking Statement available
on www.serco.com.
Our commitment to our people
Our commitment to our people is defined within our Group
People Policy Statement, related operating procedures and
relevant sections of mycode (mycode.serco.com). It recognises
that our success reflects our people, so being a great business
depends on us having great people. Great people flourish
when they are engaged, inspired and motivated to give their
best. To encourage this we work within a set of core values that
shape our behaviours and develop our culture, shaping it into
one which creates a place where we are all proud to work. This
culture is built on positive engagement through conversations
and consultations achieved through Colleague ConneXions.
Asa Group we are certificated to ISO 45003, structuring how
we support the mental health and wellbeing of colleagues to
ensure they feel psychologically safe, and we monitor engagement
through regular Viewpoint engagement surveys. Our wellbeing
engagement score remains one of the highest scoring areas at 76.
Our policy is to operate within defined standards and procedures
that are fit for purpose, meet legal and regulatory requirements,
and enable us to protect our people, our business and our
ongoing resource requirements. We are committed to ensuring
we have the capabilities, skills and resources to meet current
and future requirements and that we identify and develop
the skills and capabilities of colleagues. We regularly review
colleague experience and develop action plans to improve
engagement. We strive to build a diverse workforce and inclusive
workplace that promotes and supports the health and wellbeing
of our people. We adhere to local legislation when working
with colleague representative bodies and unions who, where
appropriate, will be recognised through local agreements. Where
collective bargaining is in place we consult in a timely manner.
Matters requiring disciplinary action are investigated and dealt
with fairly, giving colleagues the opportunity to respond before
taking formal action and colleagues have access to a procedure
to help deal with grievances.
We are committed to rewarding our colleagues fairly, recognising
experience and performance, with consideration to such factors
as market competitiveness in base salary and benefits, local
legislation regarding fairness and equality, the scope and scale of
roles, and individual performance and potential. Where possible
and appropriate, we strive to offer compelling total reward above
and beyond minimum local legislative requirements.
As with our colleagues, we are committed to fair, legal and ethical
treatment of contractors and temporary workers. This requires
that we engage contractor and temporary worker colleagues
through Serco-approved agencies who comply with relevant
local laws and regulations, successfully complete pre-selection
due diligence and contractual agreements, and are subject
to the Serco Supplier Code of Conduct, ongoing monitoring,
and other requirements such as worker access to mechanisms
by which to report potential agency misconduct, such as the
Serco Speak Up system. In the UK through Serco Workforce
Solutions (www.serco.com/uk/careers/temp-workforce) we
manage our temporary workers, offering enhanced and more
secure temporary employment opportunities, including selected
standard employee benefits such as access to our employee
assistance programme.
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Serco Group plc Annual Report and Accounts 2022
ESG continued
Transparency and tracking performance
While we recognise the importance of providing information
and data to meet regulatory requirements, we also recognise
the need for broader reporting of both our activities and
performance. This is driven by several factors, the main one
being for internal awareness and 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 done on driving and
physical assaults by the Corporate Responsibility Committee.
Secondly, we 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. This has led to
expansion of the number of data points externally reported over
recent years. We have commenced the sharing on our website of
our responses to formal ESG queries received from investors and
analysts and continued doing the same with independent and
publicly available performance and regulatory reports on Serco
operations, for ease of public reference.
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 the data and
information included in this report, our separate ESG report and
website. We have also considered requirements for both GRI and
SFDR reporting in formalising our final data set.
The data reported is captured through a range of systems. These
are detailed in the introduction tab of the ESG Databook 2022
available on www.serco/esg/reporting. 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 we have
this year engaged Grant Thornton to undertake limited assurance
of our Social and Governance ESG KPIs. This work comprised an
initial Readiness Review to gain an understanding of the state
of the Company’s systems, processes and controls in place
that enable an assurance engagement to proceed; followed
by an Assurance Engagement in accordance with International
Standards on Assurance Engagements 3000 (Revised). Carbon
Intelligence, part of Accenture, is used to provide independent
third-party verification of our carbon dioxide equivalent emissions
(CO
2
e) and wider environmental metrics to a reasonable level of
assurance. CO
2
e emissions are in accordance with our chosen
standard ISO 14064-3:2019.
The Subject Matter Leads for each element in the ESG framework
produce management reports on initiatives, progress against
targets and strategic objectives which are supported by new ESG
dashboards and that are reported to the Executive Committee
and Corporate Responsibility Committee. This narrative and data
reporting enables trends and performance against targets to
be identified to help inform risk reviews, strategic decisions and
remuneration decisions.
64 Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Social
Our People – diverse, engaged, healthy
Employee
engagement:
Wellbeing Avg. score – 64 76 76 76 0 0%
Absence due to
sickness
Avg.
Days per
employee 5.6 6.3 6.7 6.6 7.1 0.5 8% ◊ 1
Employee
engagement Avg. score 67 71 73 70 70 0 0% ◊
Employee
engagement: Learning
and Development Avg. score 60 64 66 66 64 -2 -3% 2
New hires Number
13,222 16,921 16,916 18,569 14,920 -3,649 -20% 3
Staff turnover
% 27.3 29.3 23.3 31.5 30.5 -1 -3%
Redundancies
Number 405 402 519 356 680 324 91% 4
Staff turnover –
voluntary % 19.1 19.2 15.9 20.6 23.5 2.9 14% ◊
Employees covered by
collective bargaining
agreements % – – 58.8 59.1 46.9 -12.2 -21% 5
Employee
engagement: Diversity
and inclusion Avg. score 74 79 78 79 73 -6 -8% 6
Age profile – Serco
Group plc Board
16–24
% – – – 0 0 0 –
25–40
% – – – 0 0 0 –
41–54
% – – – 22.2 22.0 -0.2 -1%
55–64
% – – – 44.4 56.0 11.6 26%
65+ % – – – 22.2 22.0 -0.2 -1%
Undisclosed % – – – 11.1 0 -11.1 -100%
ESG performance and data disclosure 2022
Here we share select datapoints from our ESG performance and disclosure data. Other indicators relating to governance feature
elsewhere in this Annual Report.
Additional datapoints can be found in our ESG Report 2022 and the full set of ESG data is available as a standalone Excel file, both of
which are available at www.serco.com/esg.
Positive Steady Negative
New/non-indicator
Trend key:
65
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Serco Group plc Annual Report and Accounts 2022
ESG continued
Board and executive sex/
gender representation
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
2021 2022 2021 2022 2021 2022 2021 2022 2021 2022
Social continued
Men 5 5 55.6 55.6 3 3 8 8 88.9 88.9
Women 4 4 44.4 44.4 1 1 1 1 11.1 11.1
Other categories 0 0 0.0 0.0 0 0 0 0 0.0 0.0
Not specified/Prefer not
to say 0 0 0.0 0.0 0 0 0 0 0.0 0.0
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Gender diversity – Executive
Committee and direct
reports – % women % 31.8 29.4 27.3 26.1 33.3 7.2 28% ◊
Gender diversity – Global
Leadership Team – % women % – – 29.1 32.2 34.5 2.3 7% ◊
Gender diversity – All other
employee levels – % women % 42.4 43.1 43.0 44.7 44.0 -0.7 -2% ◊ 7
Gender diversity - All other
employee levels - Men Number 25,757 27,634 28,156 28,002 26,984 -1,018 -4%
Gender diversity - All other
employee levels - women Number 18,960 20,896 21,238 22,641 21,222 -1,419 -6%
Gender diversity - All other
employee levels - Not
disclosed Number – – – – 37 – –
Board and executive ethnicity
representation
Number of Board members
Percentage of
theBoard
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in executive
management
Percentage
of executive
management
2021 2022 2021 2022 2021 2022 2021 2022 2021 2022
White British or other White
(including minority-white groups) 8 8 88.9 88.9 4 4 7 7 77.8 77.8
Mixed/multiple ethnic groups 0 0 0 0 0 0 1 1 11.1 11.1
Asian/Asian British 1 1 11.1 11.1 0 0 0 0 0 0
Black/African/Caribbean/Black
British 0 0 0 0 0 0 0 0 0 0
Other ethnic group, including Arab 0 0 0 0 0 0 0 0 0 0
Not specified/prefer not to say 0 0 0 0 0 0 1 1 11.1 11.1
Our People – notes and commentary
1. Absence due to sickness – The overall amount of absence days has actually decreased compared to 2021, however, our overall metric has increased as the
headcount has decreased. Some positive identifications in the data (specifically the UK Data): Days off due to mental ill health has reduced by 3,259 days compared
to 2021. Work-related stress illness has fallen by 3,404 days.
2. Employee Engagement: Learning & Development – We use the viewpoint question 'I have good opportunities to learn and grow' and while we have not reported
this figure previously, since 2018 the score has risen from 60 to 64.
3. New hires – While we saw a significant decrease in new hires during 2022, this was to be expected partly due to the reduction in our Covid-19-related contracts,
most notably in the UK with the closure of many testing centres, and in the call operative space in AsPac.
4. Redundancies – The increased level of redundancies in 2022 compared with 2021 is driven by redundancies relating to the exit of Covid-19-related contacts in April 2022.
5. Employees covered by collective bargaining agreements – Estimated figure based on a number of sources. The reduction in 2022 compared with prior years is not
driven by any specific activity, data is taken as a snapshot at the end of the year and given the nature of our business and turnover of contracts this may often be
outside our control.
6. Employee Engagement: Diversity and Inclusion – In 2022, in line with the natural evolution of our overarching D&I strategy, our approach to evaluating the progress
made in the D&I space also shifted, subsequently resulting in a change of approach to our Viewpoint survey question. This shift saw a move from our evaluation
being centred around 'acceptance' to feeling a sense of 'belonging'. The expectation was that the score would drop with this change due to a sense of belonging
being a much more personal and meaningful phrase than 'a feeling of being accepted'.
7. Excludes ORS and Sapienza in Europe as data unavailable at time of reporting.
8. Our Board ethnicity has been reported as per our submission for the Parker Report in October 2022. From January 2023 our Board ethnicity mix is: 77.8% white /
11.1% Mixed ethnic Groups / 11.1% Asian/British Asian.
66 Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Respecting human rights
Prosecutions of human
rights violations (inc.
indigenous) Number 0 0 0 0 0 – –
Percentage of high-risk
suppliers assessed for
modern slavery % – – – – 11.4 – –
Speak Up case rate
– Human rights and
modern slavery
Per 100
employees – – 0 0 0 – –
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Safe operations
Employee
engagement: Safety Avg. score 77 79 79 78 78 0 0%
Lost Time Incident
Frequency Rate
Per 1m hours
worked 5.30 5.69 4.48 4.17 5.72 1.55 37% ◊
Lost Time Incident
Severity Rate Avg. days 27.80 23.38 25.96 22.29 22.80 0.51 2%
Major Incident
Frequency Rate
Per 1m hours
worked 0.50 0.39 0.41 0.36 0.44 0.08 22%
Work-related fatalities
Number 1 0 0 0 1 1 – 1
Fatal Incident
Frequency Rate
Per 1m hours
worked 0.01 0 0 0 0.01 0.01 –
Physical Assault
Frequency Rate
Per 1m hours
worked 13.13 8.09 7.61 6.26 6.06 -0.20 -3% ◊
Serious Physical
Assault Frequency Rate
Per 1m hours
worked 1.32 0.63 0.62 0.57 0.58 0.01 2%
Health and Safety
Prosecutions Number 0 0 0 0 2 2 – 2
Health and Safety
Fines paid £'000 0 0 0 0 0 – –
Improvement/
Enforcement notices Number 1 2 1 2 0 -2 –
Safe operations – notes and commentary
Through 2022 while there were some reductions in major injuries, lost time incidents, lost days and assaults across a number of areas in the business, several
exceptional and unpredictable events as well as third-party related incidents have have seen a worsening in KPI performance when compared to 2021. This has meant
that as a Group we missed the thresholds we had set for most key KPIs. This included our LTIFR which increased from 4.17 to 5.72, missing our 2022 threshold of 4.61. To
put this into context and away from metrics this meant that in 2022, 613 of our colleagues experienced a lost time incident. We do not believe this is acceptable and are
committed to delivering improvement through continuing to drive proactive activities. While comparisons to the 2019 baseline are more favourable, Lost Time Incident
Frequency Rate and Major Incident Frequency Rate have both seen increases. The Serious Physical Assault Frequency Rate has not achieved the intended threshold (6%
reduction where 9% targeted), however the broader Physical Assault Frequency Rate has achieved the desired 25% reduction against 2019 threshold. This is
considered a significant improvement given the challenges seen in parts of the business where assaults are most prominent. Minor revisions can be made to prior
reported performance based on data received post publication date.
Revisions have been made to strategic H&S thresholds considering our performance in 2022 and the changes to the risk profile through contract wins and exists. The
thresholds for 2023 are Lost Time Incident Frequency Rate: 5.14; Lost Time Incident Severity Rate: 22.06; Physical Assault Frequency Rate: 5.41; Serious Physical Assault
Frequency Rate: 0.55. We are however, anticipating an increase in the Major Incident Frequency Rate to 0.41 due to recognised increasing risk in this area.
Notes
1. In December 2022 a member of one of our Motorist Assistance Patrol teams in North America was seriously assaulted while dealing with an abandoned vehicle left
on the highway. Despite best efforts of the emergency services he died of his injuries.
2. The UK Health and Safety Executive brought prosecutions against Serco regarding two unrelated health and safety breaches that happened from 2015 to 2017 in
the PECs Contract and in 2019 in an Environmental Services Contract respectively. Unfortunately, both matters resulted in a fatality. Initial hearings on sentencing
for both prosecutions were held in 2022 with further hearings likely to be concluded in the first half of 2023.
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ESG continued
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Social continued
Public and community impact
Serco Foundation –
grants made £ – – 579,520 201,519 220,114 18,595 9%
Serco People Fund –
seed funding £ – – – 4,000,000 – – –
Serco People Fund –
grants made £ – – – – 203,504 – –
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Governance
Data privacy and information security
Substantiated
complaints received
from data protection
regulators Number – – – 3 3 0 0% 1
Total number of
significant data breaches Number – – – 2 0 -2 – ◊
Data privacy and information security – notes and commentary
Notes
1. Substantiated complaints include: 1. Regulator investigation into detainee complaint from an Immigration Detention Centre after a detainee list was accidentally left
on a coffee table and circulated among detainees. 2. Regulator investigation following a complaint from a Serco employee who believed their personal information
was inappropriately shared. 3. Regulator investigation into Immigration Detention detainee involving an Officer allegedly sharing medical details when not
authorised. Serco were ordered to pay $2,000 to the detainee.
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Effective controls and managed risk
Prosecutions of corrupt
behaviour Number 0 0 0 0 0 0 0%
Prosecutions of anti-
competitive behaviour Number 0 0 0 0 0 0 0%
Speak Up cases
Speak Up case rate Per 100
employees 1.08 0.95 1.29 1.14 1.18 0.04 4% ◊ 1
Speak Up cases reported
anonymously % 35 52 62 59 61 2 3%
Speak Up cases
investigated % 94 92 91 97 97 0 0%
Average days taken to
close Speak Up cases Number 69 60 44 44 45 1 2% 2
Speak Up cases closed
within three months of
case being raised % 75 89 84 86 86 0 0%
Speak Up closed case
substantiation rate % 40 37 24 22 27 5 23% 3
Substantiated Speak
Up cases with corrective
action taken % 98 98 93 98 98 0 0%
Substantiated Speak Up
cases with disciplinary
action taken % 11 42 40 34 32 -2 -6%
68 Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Substantiated Speak
Up cases where one or
more individuals were
dismissed % 6 23 12 14 13 -1 -7%
Annual SMS self-
assessments completed % 95.7 99.7 98.9 98.9 0 0% ◊ 4
Annual Compliance
Assurance plan delivered % 94.3 85.2 95.0 94.3 -0.7 -1% ◊
Annual Audit plan
delivered % 100 94.6 100 98.0 -2.0 -2%
Effective controls and managed risks – notes and commentary
Notes
1. While 2022 saw a drop in overall number of cases (down 83 (11%) on 2021), partly impacted by the end of Test and Trace that had a disproportionately high number
of cases, the normalised case rate is slightly (4%) up on 2021 and nearly 10% up on 2018, so the trend is positive albeit we are short of the Navex benchmark at 1.3.
2. The average time to close cases saw a slight increase by 1 day from 44 days. We take all investigations seriously and strive to close them as soon as possible while
ensuring the integrity of the investigation.
3. There was an increase in substantiation rate which reflects better quality of issues being raised. During 2022 we increased awareness on the purpose of Speak Up,
guiding people to HR if the matter is people related.
4. SMS self-assessment excludes North Americas METS business Unit, assessment not deployed due to technical issues.
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Total shareholder returns and engagement
Employee engagement:
Our Values Avg. score 81 82 69 67 68 1 1%
Employee engagement:
Business Integrity Avg. score 73 75 75 76 74 -2 -3%
Share price performance
% -3 69 -26 14 15 1 7%
Share price
Pence 95.6 161.9 119.5 134.6 155.4 20.8 15%
Underlying diluted
earnings per share Pence 5.21 6.16 8.43 12.56 13.92 1.36 11%
Underlying return on
invested capital % 13.6 15.4 19.1 23.7 20.6 -3.1 -13%
Group order book
£bn 12.0 14.1 13.5 13.7 14.8 1.1 8%
Sustainable procurement
OnTime Payment
% 81.4 83.5 2.1 3% ◊ 1
Agent payments – Total
Group £ – – 1,275 2,223 1,666 -557 -25% ◊
Lobbying payments –
Total Group £ – – 230 274 250 -24 -9% ◊
Sustainable procurement – notes and commentary
1 Online payment excludes any businesses acquired in late 2021 and in 2022 (FAA, ORS and Sapienza) and our Europe business, which moved onto SAP in late
20222. We have also excluded Serco leisure from our reporting as it is considered negligible and is not reported through SAP.
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Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Environment
Net zero carbon and climate Operational control
Financial
control
Carbon dioxide
equivalent (Scope
1+2) market-based
Scope 2 – Total
Group tCO
2
e 257,086 262,996 225,456 208,639 38,762 1
Total UK
tCO
2
e 188,601 189,490 156,814 161,283 25,829 1
Total Rest of world
tCO
2
e 68,485 73,506 68,642 47,356 12,933 1
Carbon dioxide
equivalent (Scope
1+2) location-
based Scope 2 –
Total Group tCO
2
e 259,814 266,894 237,759 218,018 40,438 1
Total UK
tCO
2
e 191,329 193,387 169,117 170,604 27,029 1
Total Rest of world
tCO
2
e 68,485 73,507 68,642 47,414 13,409 1
Combustion of
fuels and operation
of facilities (Scope
1) – Total Group (all
fuel types) tCO
2
e 176,254 181,413 165,259 165,417 31,894 1
UK (all fuel types)
tCO
2
e 170,022 175,681 156,379 159,562 25,688 1
Rest of world (all
fuel types) tCO
2
e 6,233 5,732 8,881 5,855 6,206 1
Gas (Scope 1) –
Total Group tCO
2
e 26,381 26,658 19,931 22,168 1,424 1
UK
tCO
2
e 25,449 25,887 18,787 20,544 919 1
Rest of world
tCO
2
e 932 771 1,145 1,624 505 1
Petrol (Scope 1) –
Total Group tCO
2
e 4,067 3,546 4,283 3,725 4,747 1
UK
tCO
2
e 612 663 487 1,645 1,310 1
Rest of world
tCO
2
e 3,455 2,883 3,796 2,080 3,437 1
Diesel (Scope 1) –
Total Group tCO
2
e 24,633 27,369 28,665 27,824 23,707 1
UK
tCO
2
e 24,237 27,082 27,864 26,793 22,201 1
Rest of world
tCO
2
e 396 287 801 1,031 1,506 1
Burning oil/
Kerosene (Scope
1) – Total Group tCO
2
e 384 1,098 834 928 346 1
UK
tCO
2
e 384 1,098 834 928 346 1
Rest of world
tCO
2
e 0 0 0 0 0 1
LPG/Propane
(Scope 1) – Total
Group tCO
2
e 1,672 2,131 2,063 435 134 1
UK
tCO
2
e 221 339 213 151 134 1
Rest of world
tCO
2
e 1,451 1,792 1,850 284 0 1
Gas Oil (Scope 1) –
Total Group tCO
2
e 2,973 1,899 1,421 1,228 335 1
UK
tCO
2
e 2,973 1,899 1,421 1,228 335 1
Rest of world
tCO
2
e 0 0 0 0 0 1
ESG continued
70 Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Fugitive emissions
(Scope 1) – Total
Group tCO
2
e 263 232 1,005 1,173 1,182
UK
tCO
2
e 263 232 377 336 427
Rest of world
tCO
2
e 0 0 628 837 755
Scope 2 – Grid
electricity
purchased/
acquired for own
use (market-based)
– Total Group tCO
2
e 80,832 81,583 60,197 43,222 6,868 1
UK
tCO
2
e 18,580 13,809 436 1,721 140 1
Rest of world
tCO
2
e 62,252 67,774 59,761 41,501 6,728 1
Scope 2 – Grid
electricity
purchased/
acquired for own
use (location-
based) – Total
Group tCO
2
e 83,560 85,481 72,500 52,601 8,544 1
UK
tCO
2
e 21,308 17,707 12,739 11,042 1,340 1
Rest of world
tCO
2
e 62,252 67,774 59,761 41,559 7,204 1
Headcount
intensity (Scope
1+2) market-based
Scope 2 tCO
2
e/FTE 5.74 5.78 4.53 3.21 0.68 1
Headcount intensity
(Scope 1+2)
location-based
Scope 2 tCO
2
e/FTE 5.80 5.87 4.78 3.35 0.71 1
Financial intensity
(Scope 1+2)
market-based
Scope 2
tCO
2
e/per
£m revenue 90.62 80.97 58.04 47.15 8.55 1
Financial intensity
(Scope 1+2)
location-based
Scope 2
tCO
2
e/per
£m revenue 91.58 82.17 61.20 49.27 8.92 1
Total scope 3
(market based) tCO
2
e – – – – 968,126
Total scope 3
(location based) tCO
2
e 1,288,432 1,030,276 950,247 1,844,900 975,321
Owned/leased
road fleet fuel
consumption tCO
2
e 144,583 149,395 139,959 139,429 28,474 1
Specialist marine
fuel (Scope 3) –
Total Group 115,883 118,480 107,011 107,877 111,312
2
UK
tCO
2
e 115,883 118,480 106,350 107,877 111,312 2
Rest of world
tCO
2
e 0 0 661 0 0 2
Scope 3 purchased
goods & services
and capital goods -
Total Group tCO
2
e 1,258,528 981,237 867,559 1,745,238 690,417 1
71
Financial StatementsCorporate Governance
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Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Environment continued
Scope 3 purchased
goods & services
and capital goods
proportion of
scopes 1 - 3 % 82.9 78.7 78.5 88.9 68.6
4
CDP
Score C C B B A-
4
Total energy
consumption scope
1 & 2 - Total Group
MWh 891,931 918,740 827,475 811,719 167,136
1
UK
MWh 772,007 792,086 693,610 709,939 115,240
1
Rest of world
MWh 119,924 126,654 133,685 101,438 51,896
1
Electricity
consumption,
renewable sources % 0 0 29 32 32
1
Electricity
consumption,
renewable sources MWh 0 0 43,621 41,983 6,795
1
Electricity
consumption, non-
renewable sources MWh 167,375 170,493 108,553 88,593 14,723
1
Fuel consumption,
renewable sources % 0 0 0.4 0.6 4.7
1
Fuel consumption,
renewable sources MWh 0 0 3,007 3,754 6,912
1
Fuel consumption,
non-renewable
sources MWh 724,556 748,247 672,314 677,387 138,705
1
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Efficient use of natural
resources
Total water
consumption Megalitres - - - 861.8 894.9 33.1 4% 5
Non-hazardous
waste generated
Metric
Tonnes - - - 11,049 11,654 605 5%
Hazardous IT waste
generated
Metric
Tonnes 15.3 16.9 8.4 19.2 21.8 2.6 14% 3
ESG continued
72 Serco Group plc Annual Report and Accounts 2022
Indicator/disclosure Units 2018 2019 2020 2021 2022
2021
vs. 2022 Var %
Externally
assured Notes Trend
Environmental protection
Operations covered
by certified ISO
14001 EMS - by
revenue % – – – 24 30 6 25% 6
Operations covered
by certified ISO
50001 EMS - by
revenue % – – – – 0.5 0.5 – 6
Prosecutions
Number 0 0 0 0 0 – –
Fines paid
£’000 0 0 0 0 0 – –
Enforcement notices
Number 0 0 0 0 0 – –
Environment – notes and commentary
– Our reporting year for greenhouse gas (GHG) emissions is one quarter behind our financial year, namely 1 Oct 2021 to 30 Sept 2022.
– See our Environmental Basis of Reporting Supplement for information on our reporting boundary and methodologies, available at www.serco.com/esg/environment
– We quantify and report to ISO 14064-3:2019. In 2022 we moved to a financial control approach to define our reporting boundary, previously reported emissions from
customer-owned assets have moved into our Scope 3 upstream leased reporting category (see page 82). Our refreshed net zero targets will be set against 2022 as
our new baseline as per Science Based Targets Initiative guidance.
– We report all material emission sources for which we consider ourselves responsible and have set our materiality threshold at 5%.
– Our move to a financial control reporting boundary means that many of our metrics are no longer comparable. However this represents progress as our proposed
new net zero targets are less reliant on client asset replacement policy and will be independently validated in 2023 in line with the latest climate science using our new
base year of 2022, aligning with SBTi guidance. Our environmental reporting was further expanded in 2022 to include additional performance metrics.
Net zero and climate
2022 is the new base year for our net zero targets. These are likely to be Scope 1 & 2 (market based) reduction of 34% by 2030 vs 2022 baseline (customer owned assets
are no longer included in this). Target to increase suppliers signed up to science-based targets by 2028. Net zero across Scopes 1–3 by 2050. We have introduced
renewable fuel in the form of biodiesel HVO to our fleet in 2022 in order to transition from fossil fuels. For the first time our entire Scope 1, 2 & 3 emissions have been
externally assured and verified to the ISO 14064-3 standard folllowing improvements made to the measurement of purchased goods and services and capital goods
categories. Furthermore additional environmental KPIs have also been assured by Carbon Intelligence, part of Accenture.
Efficient use of natural resources
We continue to drive resource efficiency throughout our operations and increase our focus and reporting on this pillar. In 2022 we have included hazardous IT waste
stream within our reporting and have backdated to 2018 to support performance analysis despite the nature of this waste stream being infrequent.
Environmental protection
We continue to strive to avoid and reduce pollution and improve our focus on protecting nature throughout our operations as expectations increase on organisations
to understand value chain impacts on biodiversity.
Notes:
1. Previously reported data no longer comparable due to change to financial control reporting boundary.
2. New reporting category but not comparable as previously reported in entirety in Scope 2.
3. New indicator with historic data provided.
4. For many companies Scope 3 emissions form the majority of emissions with purchased goods and services and capital goods categories collectively significant. The
Quantis Scope 3 evaluator tool was developed by the World Resource Institute/World Business Council for Sustainable Development’s GHG Protocol and was
designed as a first-step screening process to encourage the measurement and reporting of value chain GHG emissions. This year we have gained more precision for
these categories by using a hybrid approach, the Quantis methodology updated to address inflation along with supplier specific Scope 1 & 2 and upstream Scope 3
emissions where available.
5. 2021 water consumption restated as previously reported in m
3
.
6. 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 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.
External assurance
We engaged Grant Thornton UK LLP to provide independent limited assurance over selected ‘Social’ and ‘Governance’ KPIs in
accordance with ISAE 3000 (Revised) for the year ending 31st December 2022. KPIs covered are marked with a ◊ above and in our
2022 ESG Report and 2022 ESG Databook. This assurance is specific to the 2022 values and excludes prior year performance or any
targets stated. Grant Thornton has issued an unqualified opinion over the KPIs covered and the full assurance report is available from
www.serco.com/esg/reporting
In regard to environmental data, we again engaged Carbon Intelligence, part of Accenture to provide independent reasonable
assurance over our Environmental KPIs in accordance with ISO 14064-3:2019 for the period 1 October 2021 to 30 September 2022.
KPIs covered are marked with a
above and in our 2022 ESG Report and 2022 ESG Databook. Carbon Intelligence's full assurance
statement is available from www.serco.com/esg/reporting
73
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Serco Group plc Annual Report and Accounts 2022
Task Force on Climate-related
Financial Disclosures (TCFD)
compliancestatement
Here we provide our full TCFD disclosure which is consistent with all recommendations
and disclosures, having considered the four TCFD recommendations and the 11
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.
This year’s disclosures provide more detail on risk and opportunity impacts from both a qualitative
and, importantly, a quantitative perspective, as well as highlighting our refreshed carbon reporting
boundary approach, baseline year and corresponding net zero standard aligned targets and
associated net zero transition planning approach.
Governance section covering all recommended disclosures
The Board has continued to maintain a framework of effective controls which seeks to enable risks (including climate-related risks and
opportunities) to be assessed and managed.
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 net zero strategy, targets and transition planning. The Committee receives
inputs from:
– Group Risk Committee – supporting assessment and management of climate risks;
– Group Audit Committee – supporting assessment of financial impact and where the TCFD report was also reviewed; and
– Group Remuneration Committee – supporting inclusion of climate-related targets in remuneration for our executive-level
incentives in line with good practice for our sector and operations. ESG scorecards are included in our annual bonus and
Long-Term Incentive Plan (LTIP) and are the current mechanism which ensures climate-related performance is assessed; see our
Remuneration Report on pages 142 to 169, for further detail.
Approvals and
Allotment
Corporate
Responsibility
Business Lifecycle
Review Team
Investment
Committee
Audit
Remuneration
Group Risk
Nomination
Board of Directors
Executive Committee
TCFD Steering Group
Divisional Executive
Management Team
Business Unit
Management Team
Contract
Management
Key
Internal governance structure
Supporting committee
structure
Performance reviews and
other operational Business
Lifecycle reviews
Bids, programmes and
other investment decisions
escalated in accordance with
governance thresholds
Environmental
Oversight
Group
TCFD
Working
Group
74 Serco Group plc Annual Report and Accounts 2022
Responsibilities and roles for the assessment and management of climate-related risks and opportunities,
byCommittee, Group and wider management
Governance body/
reporting structure Chair
Climate risk/
opportunities
agenda frequency
Roles and responsibilities related to
climate risk/opportunities
Areas covered, review areas and
material climate risk/opportunities
decisions in 2022 Focus areas for 2023
Serco Group plc
Board
Chairman Annual, updated
through the
Corporate
Responsibility
Committee.
Oversight of climate risks
and opportunities and
input into related Group
strategies. Approval of
Group Environment and
Climate Change Policy
Statement. Approval of Group
environmental strategy and
climate-related targets.
Review and approval of Annual
Report and Accounts including
TCFD elements.
Approval
of updated
environmental
strategy, metrics
and targets.
Corporate
Responsibility
Committee –
reporting to
theBoard
Independent
Non-Executive
Director
Biannual review
of Group
environment
strategy
including
climate-related
risks and
opportunities.
Responsible for assisting
the Board in providing
independent oversight and
guidance of the Company’s
ESG framework, related
strategies, performance,
policies, and practices on
how the Company conducts
its business, through the
lens of how the organisation
lives and breathes its values
of Trust, Care, Innovation
and Pride. Oversight of
environmental strategy and
targets, climate-related risks,
and opportunities.
Oversight of TCFD disclosure
programme and review and
approval of TCFD disclosure
statement.
Review of sustainable
procurement charter progress
which will help to measure
and manage climate risk in the
supply chain.
Review and endorsement of
carbon reporting boundary
change and net zero
targetrefresh.
Oversight over
the integration
of TCFD
requirements
Oversight of
environmental
strategy, metrics
and targets review,
including net zero
transition planning.
Executive
Committee –
reporting to
theBoard
Group Chief
Executive
Officer
Biannual review
of Group
environment
strategy
including
climate-related
risks and
opportunities.
Review and approval of
Group environmental
strategy, climate risks and
opportunities. Executive
Committee members are
responsible for the delivery of
environmental strategy and
flow of information in their
respective areas supported
by Divisional and Group
management functions.
Review of TCFD disclosure
programme.
Approval of carbon reporting
boundary change and net zero
target refresh.
Review of 2023
TCFD disclosures
and environmental
strategy, metrics
and targets.
Review and
approval of net
zero targets,
performance,
implementation
and transitional
planning.
Audit Committee
– reporting to
theBoard
Independent
Non-Executive
Director
Annual review
of climate risk
disclosure.
Review of climate risks and
opportunities and financial
elements.
Review of TCFD disclosure and
financial elements
Review quantitative
elements of 2023
TCFD disclosures
and approve level
of any support
from external
advisors.
Risk Committee
– reporting to
theBoard
Independent
Non-Executive
Director
Biannual review
of principal,
material cross-
cutting and
emerging risks
(including
climate).
Responsible for overseeing
the Company's approach
to the risk management,
compliance, and assurance
framework. Review principal
risks, material cross-cutting
risks and emerging risks
(including climate) and report
these to the Board.
Decision to maintain climate
change as a cross-cutting risk in
relevant principal risks. Extreme
weather events relating to
climate captured in the Group
principal risk, ‘catastrophic risk’.
Review climate
elements in
principal, material
cross-cutting and
emerging risks.
75
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Serco Group plc Annual Report and Accounts 2022
Governance body/
reporting structure Chair
Climate risk/
opportunities
agenda frequency
Roles and responsibilities related to
climate risk/opportunities
Areas covered, review areas and
material climate risk/opportunities
decisions in 2022 Focus areas for 2023
Remuneration
Committee –
reporting to
theBoard
Independent
Non-Executive
Director
Annual agenda
discussion
of elements
within our ESG
scorecards.
Embed performance
against climate and wider
environmental issues within
executive long-term incentive
plan.
Consideration of climate-
related metrics for inclusion
within our ESG scorecards.
Review of climate-
related metric
performance
within our ESG
scorecards.
Investment
Committee –
reporting to
theBoard
Managing
Director, Group
operations
As required. Review, monitor and approve
bids, mergers, acquisitions
and disposals and other
corporate activity and major
capital expenditures.
N/A Climate transition
planning nature
based solutions
investment.
Potential
acquisitions
delivering
sustainable
services.
TCFD steering
group – reporting
to the Board
Committees
Group General
Counsel &
Company
Secretary
Quarterly
meetings.
Multi-functional groups
with the responsibility for
preparing and responding
to TCFD disclosures via
collaboration and input
from internal and external
stakeholders. Organisation of
climate risk and opportunity
workshops and engagement
of internal stakeholders to
input to the climate risk/
opportunities process.
Review of TCFD disclosures
programme and disclosure
statement ahead of submission
to Corporate Responsibility
Committee.
Review of TCFD
disclosure
programme and
2023 statement.
Further embed
climate risks and
opportunities into
business strategy,
planning and
processes.
TCFD working
group – reporting
to the TCFD
steering group
Group Head of
Environment
Energy &
Sustainability/
Group Head
of Financial
Reporting
Regular
meetings during
2022 to manage
and undertake
TCFD reporting
process
supported
by external
advisors.
All aspects of TCFD reporting.
Collaboration with external
advisors on gap analysis, global
climate risks and opportunities
workshops; integration into
overall Group risk framework;
scenario analysis approach; and
disclosure statement.
Lead further
integration of
climate risks and
opportunities into
business strategy,
planning and
processes.
Support climate
risks and
opportunities
review and
prepare 2023
TCFD disclosure
statement.
Environmental
Oversight Group
– reporting to the
CRC Committee
and Executive
Committee
Group Head of
Environment
Energy &
Sustainability
Quarterly
meeting.
Climate
risks and
opportunities
reviewed.
Formulating, reviewing,
and progressing Group
environmental strategy
including climate objectives
and targets. Representation
from Divisional Health,
Safety & Environment (HSE)
leads and wider functions,
collectively supporting the
flow of information to and
from Divisional Executive,
Business Unit and contract
level management teams.
Input to climate risks and
opportunities workshops
and engagement of internal
stakeholders and management
functions.
Input into
climate risks and
opportunities
review and support
the update of
environmental
strategy, metrics
and targets and
transition planning.
In 2022 our Board undertook a corporate update session with an external provider covering TCFD reporting, improving TCFD
disclosure and the increasing expectations from regulators and investors.
Task Force on Climate-related
Financial Disclosures (TCFD)
compliancestatement continued
76 Serco Group plc Annual Report and Accounts 2022
Wider management throughout the organisation also have climate-related roles and responsibilities. For example:
– Health, Safety and Environment teams, with input from our Environmental Oversight Group, are responsible for Group
Environmental strategy.
– Divisional Executive Management Teams support the delivery of net zero initiatives through HSE strategies and sponsorship of
green ambassador networks. We intend to extend these networks in 2023 by establishing net zero Divisional teams to help
deliver net zero targets and associated transition plans.
– Procurement support the measurement of Scope 3 emissions and engagement with key suppliers.
– Risk and insurance support the review of climate risks and opportunities within our ERM framework.
– Finance support the quantification and reporting of climate risks and opportunities and subsequent support on addressing
these from an accounting perspective.
Risk management
Our approach to risk management and details on our principal risks are laid out on pages 98 to 108.
We recognise that the climate and wider environmental emergencies present significant risks to society and the planet. As an
outsourcing organisation 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 is diverse.
We do not currently consider climate risk as a standalone principal risk, instead we embed it as a cross-cutting scenario under several
of our principal risks. Where climate-related risks have been identified at a contract level, they are consolidated into a business unit
assessment and risk register, then consolidated into a Divisional assessment. Principal and emerging risks are then identified at
Group level and managed by our Group Risk Committee. Control measures are outlined in these registers and linked to the Serco
Management System and/or client management systems. Contract and Business Units have targets set, aligned to Divisional and
Group strategy, to address risk.
Following our 2022 risk workshops, we reviewed risks and opportunities which could be material to Serco at the Group level, supported
by scenario analysis. This analysis is summarised in Table 1 which provides a summary of our most substantive climate-related risks and
opportunities. This shows that we do not currently perceive climate risks as substantive to Serco in the short term; however, we recognise
that over the medium and longer term this will change and will require increasing focus in our strategy and financial planning, for
example as supply chain impacts are more fully understood and our current fleet lease terms expire and options to transition to a hybrid
and electric vehicle fleet become more accessible for all vehicle types across our diverse geographies. We generally operate in short to
medium-term contract-driven sectors, on client assets the majority of the time, 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 between nought to three years in line with how
we assess our principal risks and viability statement. Medium-term risks are between three and five years, in line with our medium-term
contracts. Long-term risks are between five and thirty 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. Serco’s standard risk assessment process was
followed and Divisional/functional stakeholders reviewed climate risks and opportunities in 2022 and the results are summarised below.
Risk type Risk sub-type Area Risk/Opportunity scoring Disclosed in Table 1
Physical Risk
Acute
Extreme weather events Severe Yes
Employee wellbeing Major No
Chronic
Precipitation patterns / drought / water shortage
/ temperature increase
Major No
Transition Risk
Policy and Legal
Reporting obligations / contract risk Major No
Product / Service performance Moderate No
Carbon tax and levies Severe Yes
Technology
Cost to transition to lower emission options Major No
Unsuccessful investment Moderate No
Market Reduction of market share Moderate No
Reputation
Stakeholder expectations Severe Yes
Misreporting Major No
Transition
Opportunity
Resource
efficiency
Employee locations Minor No
Building efficiency Major No
Energy efficiency Major No
Energy source Renewable energy focus Moderate No
Market / Service Net Zero and sustainability enabling services Significant Yes
Resilience Upskilling employees Moderate No
77
Financial StatementsCorporate Governance
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Serco Group plc Annual Report and Accounts 2022
Scenario analysis
To understand how the climate risks and opportunities we may face evolve under certain situations and to help us assess and improve
our climate resilience we undertook scenario analysis for both physical and transitional risks in 2021, assisted by an external climate
analytics advisory firm. For this we selected publicly available climate scenarios, including a 2˚C or lower scenario, sourced from the
International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) to help reach plausible outcomes.
Using the latest scenario analysis and sources in 2022 we have matured our understanding of all risks and opportunities and
identified the following severe risks/significant opportunities for disclosure, summarised in Table 1 – Risks and opportunities, along
withtimeframes, mitigations, actions, strategic planning and a range of indicative financial impacts and assumptions.
Table 1 – Risks and opportunities
Severe risk Impact/Description/timeframe/scenarios Mitigation, action taken and strategic planning Financial impact and assumptions
Transitional risk:
Carbon taxes and
levies
We have used the International
Energy Agency's (IEA) medium
to long-term outlooks which use
a scenario approach to examine
future energy trends relying on the
Global Energy and Climate (GEC)
Model (Oct 2022). The GEC Model
is used to explore scenarios, each
of which is built on a different set
of underlying assumptions about
how the energy system might
respond to the current global
energy crisis and evolve thereafter.
– the Announced Pledges
Scenario (APS) – aims to show
to what extent the announced
global government ambitions
and targets, including the most
recent ones, are on the path to
deliver emissions reductions
required to achieve net zero
emissions by 2050.
– The Net Zero Emissions (NZE)
– scenario shows a pathway
for the global energy sector to
achieve net zero CO
2
emissions
by 2050, with advanced
economies reaching net zero
emissions in advance of others.
In both these scenarios increased
carbon pricing mechanisms
are introduced to support the
transition to net zero.
– Monitoring of policy and tax changes
across our operating geographies and
understanding where costs will be borne
by Serco or might be a pass-through
costtocustomers.
– Increasing energy management focus across
all operations.
– Where we control electricity contracts,
we are looking to transition across to
greenenergy tariffs where possible and
purchase renewable energy certificates
where green tariffs are unavailable.
– Support clients/landlords with renewable
generation projects where applicable.
– Reduce and avoid fossil fuel use in
our fleets where and when we can, by
transitioning to biodiesel HVO hybrid and
electric vehicles, noting that some vehicle
classes and operations will be easier
than others in the short term as we await
options around larger vehicles.
– Our sustainable procurement charter will
focus on measuring and managing carbon
within our supply chain.
– We are seeking to initially influence
suppliers to take positive steps toward
measuring carbon and setting net zero
targets through the Science Based Targets
Initiative process to support our net zero
strategy, given purchased goods and
supply chain is our biggest category across
our value chain.
– We are exploring external partners to
support measurement and analysis of
supply chain emissions, complementing
our supplier ratings system through
EcoVadis.
– Range of £2.8–4.1m
based on forecast carbon
emissions under different
control methods and
success in implementing
net zero transition plan and
meetingtargets.
Assumptions:
– A base year amount of
38,762
1
tCO
2
e for Scope 1 &
2 emissions for assets within
the Group’s financial control.
– 34% Scope 1 & 2 carbon
reduction target achieved
by 2030 against the 2022
baseline which is subject to
external validation in 2023.
– Carbon pricing based on APS
and NZE scenario figures for
carbon price.
– Minimum range: No growth
in carbon through additional
contract wins by 2030 and
34% reduction achieved using
carbon cost of £109 tCO
2
e.
– Maximum range: 25% growth
in carbon through additional
contract wins by 2030 and
25% reduction achieved using
carbon cost of £113 tCO
2
e.
Task Force on Climate-related
Financial Disclosures (TCFD)
compliancestatement continued
1 2022 scope 1 & 2 (market based) verified base year emissions.
78 Serco Group plc Annual Report and Accounts 2022
Severe risk Impact/Description/timeframe/scenarios Mitigation, action taken and strategic planning Financial impact and assumptions
Transitional risk:
Reputation
Risk of not meeting stakeholder
expectation on managing climate
risks and opportunities over the
short to medium term.
Under both APS and NZE
scenarios net zero targets could
be construed as not credible if not
independently validated.
Increasing requirements on
strategic suppliers to have net
zero targets from clients in
certaingeographies.
– Serco’s management framework and
strategy on ESG, including externally
validated net zero targets and transition
planning, will seek to ensure we do not
suffer reputational damage in relation to
climate change.
– However, it is assumed that this will be
more substantive at top end of the risk
if we fail to meet increasing stakeholder
expectations on climate.
– Net zero transition plan will include
engagement strategy incorporating
current and future initiatives such as
Sustainable Procurement Charter and
contribution to Industry Groups.
– Minimum range: £0 assumed.
– Maximum range: >10% of
profit before tax = £1.9m p.a.
by 2030.
Assumptions:
– Minimum range, from an
optimistic perspective we
assume that our management
framework and strategy
on ESG, including 2023
anticipated SBTI externally
validated net zero targets and
transition planning will ensure
we do not suffer reputational
damage/suffer contract losses
in relation to climate change.
Physical risk:
Extreme weather
Based on the Intergovernmental
Panel on Climate Change (IPCC)
range of shared economic
pathway models.
– In 2021 we modelled the impact
of climate change using two
climate scenarios on 52 global
sites representing approximately
26% of the Group’s annual
revenue, 31 client sites and 21
leased properties.
– The impact based on the
sample selected indicated
a range of potential annual
cost to the Group based on
lost revenue and damage to
buildings and contents.
– In 2022 we have gained more
in-depth climate risk analysis of
our insurable Australian assets
from our insurance brokers
using scenarios based on
climate models for both acute
and chronic risks.
– There is a high value of assets
at risk under different scenarios,
therefore we will undertake
more detailed quantification in
2023 to validate and disclose
from a global perspective.
– This risk is principally managed through
our catastrophic incident principal risk
and local controls such as heat illness
prevention planning and business
continuity planning.
– Update insurance strategy to get regular
insights from insurers and external advisers
on climate analytics and scenario analysis
will help prioritise and inform site-specific
risks and ensure focus in contract/location-
specific risk registers, environmental
aspect and impact registers and business
continuity planning, taking into account
contractual mitigations where the risk
of damage to assets and infrastructure
and business interruption sits with our
customers or is covered via contractual
protection, such as force majeure clauses
or business interruption insurance.
– To be matured in 2023
with more climate analytics
support from external advisers
to present a global financial
impact range.
79
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Serco Group plc Annual Report and Accounts 2022
Opportunity
Significant opportunity Description/timeframe/scenarios Financial impact, assumptions, strategic planning and actions
Net zero and
sustainability-enabling
services.
The scale of the opportunity
associated with low emission or
sustainable services is difficult to
assess. We have utilised the EU Green
taxonomy criteria to assume which
current contracts/services could be
considered low emission/sustainable
by 2030. This will need to be reviewed
in more depth once the UK taxonomy
is published.
– Minimum range: £11m per annum assumed by 2030.
– Maximum range: £23m assumed by 2030.
– Further developing offerings associated with low emission or
sustainable services is an opportunity which the Group is already
exploring. Developing a more strategic offering is in its early stages;
however, based on services currently provided which align to the
EU Green taxonomy, an increase in just 10% of these services would
add c.0.5% to the Group’s revenue.
– Minimum financial range based on 10% growth by 2030 in current
contracts with potential to be considered sustainable under the
taxonomy criteria.
– Future development of low emission services include exploring
acquisition opportunities captured within the maximum range.
– 2023 launch of Advisory with Purpose Division in Middle East which
will focus on driving ESG goals through sustainability services,
helping empower governments to accelerate their national visions.
Our risks and opportunities draw upon some of the most recently updated and recognised climate scenarios and models, consistent
with 2˚C and lower, and as a consequence our assumptions take into account a medium to longer-term timeframe given that climate-
related issues often manifest themselves over the medium and longer terms. Considering the above climate risks and opportunities
from a business strategy perspective our Business to Government platform approach will not change, 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, working in partnership and aligning with customer-led net zero policies, supply chain and climate resilience
approaches. The physical risks of climate change are anticipated to increase under all the scenarios considered and we will work with
our value chain to develop a greater understanding through further climate analytics in 2023 noting that we have experienced limited
material impacts to date on operations and insurance claims. This could lead to potential changes in where we lease properties and
likely lead to more engagement with clients and insurance partners on climate resilience in future as impacts become more material.
We recognise 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 considering the climate-related opportunities
as highlighted through our refreshed net zero targets (see page 82) and disclosure of net zero and sustainability-enabling services
opportunity in Table 1 (above), which details the potential increased revenue streams and launch of new service lines which we will
continue to explore and assess.
Our climate-related impact narrative included within our financial statements (see pages 177 to 259) 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.
Geographic perspective
Risk type Climate change impacts on geographies and operations – medium to long term
Physical Extreme weather events anticipated to become more frequent and severe under all scenarios:
ASPAC / North America – Heatwaves, wildfires, flooding and storm events.
UK&E – Flooding and heatwaves.
Middle East – Heatwaves, spring flooding, high winds in summer and sandstorms.
There has been limited material impacts to date on operations and limited insurance claims as a consequence of
extreme weather events.
Task Force on Climate-related
Financial Disclosures (TCFD)
compliancestatement continued
80 Serco Group plc Annual Report and Accounts 2022
Risk type Climate change impacts on geographies and operations – medium to long term
Transitional Direct tax and levies impacts anticipated on buildings where we pay utilities under 2030 NZE scenario, in particular:
ASPAC – Corporate offices, Citizen Services and Facilities Management business units.
North America – Corporate real estate.
UK&E – Corporate offices and Citizen Services business unit.
Middle east – Corporate offices and staff accommodation.
Direct tax and levies impacts on our sectors with fleet under 2030 NZE scenario, focus required on transitioning road
fleet from fossil fuel use:
ASPAC – Over 280 vehicles (transition underway )
UK&E – Over 3,500 vehicles (transition underway)
North America – Over 400 vehicles
Middle East – Limited fleet vehicles
All geographies and operations could be impacted through indirect supply chain carbon taxes. Analysis of supply
chain hotspots will be undertaken through EcoVadis ratings and other mechanisms in future to support low carbon
procurement decisions. A fleet transition assessment will be undertaken in 2023 considering regional policy, supply
chain, commercial and operational elements over the medium to long term.
Metrics and targets
We have set a range of metrics and targets in our Group environmental strategy against our themes of net zero Carbon and Climate,
Efficient use of Natural Resources and Environmental Protection. Specific metrics to assess climate-related risks and opportunities are
outlined below:
Metric category
Unit of
measure Metric Group targets set and reported
Example linkage to identified
risks and opportunities
*Green House Gas (GHG)
emissions
Absolute Scope 1, 2 & 3
emissions
tCO
2
e Absolute Scope 1, 2 & 3 emissions
(market based)
Yes, awaiting external
validation in 2023
Impact of carbon taxes
and levies
*GHG emissions
Emissions intensity
tCO
2
e per
full time
equivalent
(FTE) & £m
revenue
Scope 1 & 2 emissions per FTE & £m
revenue (market based)
No, reported as indicator Impact of carbon taxes
and levies
**Climate-related risk
Proportion of real assets
exposed to 1:100 and
1:200 climate-related
hazards*
% Proportion of sites Serco where Serco
operates with medium to high risk
offlooding
No, reported as indicator
for sites selected for
modelling, to be expanded
in 2023 with support from
insurancepartners
Increased severity of
extreme weather events
Climate-related risk
Impact of carbon taxes
and levies
£GBP Climate-related taxes/levies included
in annual electricity and gas costs
No, reported as indicator Impact of carbon taxes
and levies
*Climate-related
opportunity
Transition to renewable
electricity
% &
Megawatt
hour
(MWh)
% and MWh of electricity consumption
sourced from green tariffs and/or
energy attribute certificates
No, reported as indicator,
targets to be considered in
net zero transition planning
Impact of carbon taxes
and levies
Climate-related
opportunity
Transition to greener fleet
% % of vehicles by fuel type No, reported as indicator,
targets to be considered in
net zero transition planning
Impact of carbon taxes
and levies
Climate-related
opportunity
ISO Management System
certification
% % of operations covered by relevant
ISO certified management systems
No, reported as indicator Contract risk
* Independently assured
** We cannot yet report fully on this proportion but can report on a sample of 52 sites. Our intention is to report the Group proportion in our 2023 TCFD
compliancestatement.
The full suite of our environmental and climate-related metrics can be viewed in our ESG metrics table on page 70 to 73 and ESG Data
Book www.serco.com/esg/reporting.
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Serco Group plc Annual Report and Accounts 2022
Scope 1
Direct
Scope 3
Indirect
Scope 3
Indirect
CH
4
N
2
O
HFCs
PFCs
Scope 2
Indirect
Upstream activities Downstream activitiesReporting company
SF
6
CO
2
Relevant, Scope 1 & 2
reporting mandatory
Reported
Relevant, Scope 3
Reported
Relevant, Scope 3
Reported –
needs refined
Scope 3, not relevant
for sector/operations
Not reported
Under the new financial control
approach, customer assets
operated by Serco previously
reported in Scope 1 & 2
have moved into Scope 3
upstream leased category
Purchased goods
and services
Capital
goods
Fuel and energy
related
Transportation
and distribution
Waste from
operations
Employee
commuting
Leased
assets
Company
vehicles
Company
facilities
Transportation
and distribution
Use of sold
products
Processing of
sold products
End-of-life treatment
of sold products
Leased assets Franchises Investments
Electricity, steam,
heating and cooling
for own use
Business
travel
Carbon reporting scopes and reporting categories material to Serco
As committed to in our disclosure for the year 2021 we have reviewed our carbon reporting boundary and have moved to a financial
control approach (see diagram opposite) which enables us to set Scope 1 & 2 net zero targets against assets and activities we control
financially (i.e. Serco has the ability to make decisions on replacing/upgrading assets to meet net zero targets rather than being reliant
on client decisions) while continuing to support our client’s net zero journeys by managing and operating customer-owned assets in
an energy and carbon conscious manner. This change in boundary approach makes comparisons to our previously reported carbon
data (see pages 70 to 73) difficult however this is not as relevant given our net zero target base year is being updated in line with
Science Based Targets Initiative guidance. We believe the change to financial control to be the right approach and will encourage
clients to measure, report, and set targets for their assets and carbon inventory more holistically using the globally recognised GHG
protocol standard and all relevant carbon reporting categories.
We have formally committed to net zero and are listed on the Science Based Targets Initiative (SBTi) website as a company taking
action and are in the process of having our refreshed net zero targets independently validated by SBTi using 2022 as our new base
year, supported by external advisors. Our proposed targets awaiting validation include:
– near-term Scope 1 & 2 reduction circa 34% vs. 2022 baseline by 2030;
– near-term Scope 3 – influencing target on a proportion of our suppliers to set science based targets by 2028; and
– long-term target of 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 clients.
To achieve our near-term Scope 1 & 2 2030 target we will require focus on a limited number of contracts/operating locations to
procure green sourced electricity and transition fleet from fossil fuels as government policies, client requirements and vehicle options
evolve. We do not currently consider these to have material implications in our 2022 financial statements. More detail on our net
zero transition planning can be found on our website https://www.serco.com/esg which has taken into account the draft guidance
published from the UK government transition planning taskforce. Our full transition plan will be published following the issue of the
final guidance, anticipated in Summer 2023. This will be a dynamic plan and will be updated accordingly in line with new guidance
and progress.
Task Force on Climate-related
Financial Disclosures (TCFD)
compliancestatement continued
82 Serco Group plc Annual Report and Accounts 2022
Finance Review
For the year ended
31 December 2022
Underlying
£m
Non-
underlying
items
£m
Trading
£m
Amortisation
and impairment
of intangibles
arising on
acquisition
£m
Statutory pre-
exceptional
£m
Exceptional
items
£m
Statutory
£m
Revenue 4,534.0 – 4,534.0 – 4,534.0 – 4,534.0
Cost of sales (4,044.7) 4.2 (4,040.5) – (4,040.5) – (4,040.5)
Gross profit 489.3 4.2 493.5 – 493.5 – 493.5
Administrative expenses (264.3) – (264.3) – (264.3) – (264.3)
Exceptional operating items – – – – – (2.4) (2.4)
Other expenses – – – (21.6) (21.6) – (21.6)
Share of profits in joint ventures and
associates, net of interest and tax 12.0 – 12.0 – 12.0 – 12.0
Profit before interest and tax 237.0 4.2 241.2 (21.6) 219.6 (2.4) 217.2
Margin 5.2% 5.3% 4.8%
4.8%
Net finance costs (20.4) – (20.4) – (20.4) – (20.4)
Profit before tax 216.6 4.2 220.8 (21.6) 199.2 (2.4) 196.8
Tax charge (47.9) – (47.9) 5.8 (42.1) 0.3 (41.8)
Effective tax rate 22.1% 21.7% 21.1% 21.2%
Profit for the period 168.7 4.2 172.9 (15.8) 157.1 (2.1) 155.0
Minority interest (0.4) – (0.4) – (0.4) – (0.4)
Earnings per share (EPS) –
basic(pence) 14.18 14.54 13.21 13.03
Earnings per share (EPS) –
diluted(pence) 13.92
14.27
12.97 12.79
Revenue of £4,534m grew by 2%, while Underlying
Trading Profit was up by 4% to £237m with Underlying
Trading Profit margin unchanged at 5.2%. Strong Free
Cash Flow of £159m with Adjusted Net Debt of £204m
and covenant leverage below the target range at 0.8x;
Recommend a final dividend of 1.92p and new share
buyback programme of £90m."
Nigel Crossley
Group Chief Financial Officer
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Serco Group plc Annual Report and Accounts 2022
Finance Review continued
For the year ended
31 December 2021
Underlying
£m
Non-
underlying
items
£m
Trading
£m
Amortisation
and impairment
of intangibles
arising on
acquisition
£m
Statutory pre-
exceptional
£m
Exceptional
items
£m
Statutory
£m
Revenue 4,424.6 – 4,424.6 – 4,424.6 – 4,424.6
Cost of sales (3,961.1) 4.5 (3,956.6) – (3,956.6) – (3,956.6)
Gross profit 463.5 4.5 468.0 – 468.0 – 468.0
Administrative expenses (243.3) – (243.3) – (243.3) – (243.3)
Exceptional operating items – – – – – (1.2) (1.2)
Other expenses – – – (16.0) (16.0) – (16.0)
Share of profits in joint ventures
and associates, net of interest and
tax 8.7 – 8.7 – 8.7 – 8.7
Profit before interest and tax 228.9 4.5 233.4 (16.0) 217.4 (1.2) 216.2
Margin 5.2%
5.3%
4.9% 4.9%
Net finance costs (24.0) – (24.0) – (24.0) – (24.0)
Profit before tax 204.9 4.5 209.4 (16.0) 193.4 (1.2) 192.2
Tax (charge)/credit (48.6) 156.2 107.6 4.3 111.9 (0.2) 111.7
Effective tax rate 23.7% (51.4%) (57.9%) (58.1%)
Profit for the period 156.3 160.7 317.0 (11.7) 305.3 (1.4) 303.9
Minority interest – – – – – – –
Earnings per share (EPS) – basic
(pence) 12.78 25.93 24.97
24.86
Earnings per share (EPS) – diluted
(pence) 12.56 25.48 24.54 24.43
Alternative Performance Measures (APMs) and other related definitions
Overview
APMs used by the Group are outlined below along with a definition, reconciliation from each non-IFRS APM to its IFRS equivalent and
an explanation of 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 the Group's 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 profit
or cost are being excluded in an APM, these are included elsewhere in our reported financial information as they represent actual
profits or costs 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
the Strategic Report, 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 the business. Management strongly
encourages readers not to rely on any single financial measure, but to carefully review our reporting in its entirety.
The methodology applied to calculating the APMs has not changed since 31 December 2021.
84 Serco Group plc Annual Report and Accounts 2022
Alternative revenue measures
For the year ended 31 December
2022
£m
2021
£m
Reported revenue at constant currency
1
4,358.8 4,424.6
Foreign exchange differences 175.2 –
Reported revenue at reported currency 4,534.0 4,424.6
1 In order to provide a comparable movement on the previous year’s results, reported revenue is recalculated by translating non-Sterling values for the year ended
31 December 2022 into Sterling at the average exchange rates for the year ended 31 December 2021.
For the year ended 31 December
2022
Organic
revenue
1
£m
2021
Organic
revenue
1
£m
2022
Revenue plus
share of joint
ventures and
associates
2
£m
2021
Revenue plus
share of joint
ventures and
associates
2
£m
Alternative revenue measure at constant currency 4,025.7 4,208.8 4,596.7 4,663.0
Foreign exchange differences 153.4 – 175.2 –
Alternative revenue measure at reported currency 4,179.1 4,208.8 4,771.9 4,663.0
Impact of relevant acquisitions or disposals 354.9 215.8 – –
Share of joint venture and associates – – (237.9) (238.4)
Reported revenue at reported currency 4,534.0 4,424.6 4,534.0 4,424.6
1 In order to provide a comparable movement which removes the effect of both acquisitions and disposals, Organic revenue at constant currency is recalculated by
excluding the impact of any relevant acquisitions or disposals. There are five acquisitions excluded for the calculation of Organic revenue in the year to 31
December 2022 being the acquisitions of Facilities First Australia Holdings Pty Ltd, Whitney, Bradley & Brown, Inc, Mercurius Finance S.A, OXZ Holdings AG and
Sapienza Consulting Holdings BV. The acquisitions of OXZ Holdings AG completed on 1 September 2022 and Sapienza Consulting Holdings BV 12 July 2022,
respectively. The acquisitions of Facilities First Australia Holdings Pty Ltd, Whitney, Bradley & Brown, Inc and Mercurius Finance S.A were completed during 2021.
2 The alternative measure includes the share of revenue from 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.
Alternative profit measures
For the year ended 31 December
2022
£m
2021
£m
Underlying trading profit at constant currency
1
222.6 228.9
Foreign exchange differences 14.4 –
Underlying trading profit at reported currency
2
237.0 228.9
Non-underlying items (excluding exceptional items):
OCP charges and releases
3
0.2 1.3
Other Contract and Balance Sheet Review adjustments and one-time items
4
4.0 3.2
Trading profit
5
241.2 233.4
Amortisation and impairment of intangibles arising on acquisition
6
(21.6) (16.0)
Operating profit before exceptional items 219.6 217.4
Operating exceptional items
7
(2.4) (1.2)
Reported operating profit 217.2 216.2
1. In order to provide a comparable movement on the previous period’s results, reported Underlying Trading Profit (UTP) is recalculated by translating non-Sterling
values for the year ended 31 December 2022 into Sterling at the average exchange rates for the year ended 31 December 2021.
2. The Group uses an alternative measure, UTP, to make adjustments for unusual items that occur and to remove the impact of historical issues. UTP therefore
provides a measure of the underlying performance of the business in the current period.
3. Charges and releases on all Onerous Contract Provisions (OCPs) that arose during the 2014 Contract and Balance Sheet Review are excluded from UTP in the
current and prior periods. Charges associated with the creation of new OCPs identified are included within UTP to the extent that they are not considered
sufficiently material to require separate disclosure on an individual basis.
4. Revisions to accounting estimates and judgements which arose during the 2014 Contract and Balance Sheet Review and other one-time items are separately
reported where the impact of an individual item is material. The item recorded in the current year relates to 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.
5. The Group uses Trading Profit as an alternative measure to Operating Profit, as shown in the Group’s Consolidated Income Statement on page 189. Trading profit is
derived by making the two adjustments outlined below in footnote 6 and 7.
6. 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.
7. Exceptional items, being those 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 as exceptional items is to ensure they are treated consistently with prior periods.
85
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Serco Group plc Annual Report and Accounts 2022
Finance Review continued
Alternative tax measures
For the year ended 31 December
2022
£
2021
£
2022
%
2021
%
Underlying tax charge
1
47.9 48.6 22.1 23.7
Non-underlying items (excluding exceptional items) – (156.2) (0.4) (75.1)
Amortisation and impairment of intangibles arising on acquisition (5.8) (4.3) (0.6) (6.5)
Operating exceptional items (0.3) 0.2 0.1 (0.2)
Reported tax charge/(credit) 41.8 (111.7) 21.2 (58.1)
1 Underlying tax and the corresponding underlying tax rate are used because they remove the impact of typically non-recurring, or out of period, items. Thisgives
better clarity of the tax associated with the Group’s underlying financial performance. The underlying tax rate enables comparison to the previous period’s results.
Alternative Earnings per share (EPS) measures
For the year ended 31 December
2022
basic
pence
2021
basic
pence
2022
diluted
pence
2021
diluted
pence
Underlying EPS
1
14.18 12.78 13.92 12.56
Net impact of non-underlying operating items, non-underlying tax and
amortisation and impairment of intangibles arising on acquisition (0.97) 12.19 (0.95) 11.98
EPS before exceptional items
2
13.21 24.97 12.97 24.54
Impact of exceptional items (0.18) (0.11) (0.18) (0.11)
Reported EPS 13.03 24.86 12.79 24.43
1 Reflecting the same adjustments made to operating profit to calculate UTP 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 unusual or one-time effects described above. The full reconciliation between statutory EPS and
Underlying EPS is provided in the summary income statements on page 84.
2 EPS, as shown on the Group’s Consolidated Income Statement on page 189, includes exceptional items charged or credited to the Income Statement. EPS before
exceptional items aids consistency with historical operating performance.
Alternative cash flow and net debt measures
Free cash flow (FCF)
For the year ended 31 December
2022
£m
2021
£m
Free cash flow
1
159.1 189.5
Exclude dividends from joint ventures and associates (9.1) (13.5)
Exclude net interest paid 22.5 24.3
Exclude capitalised finance costs paid 2.6 0.6
Exclude capital element of lease repayments 120.5 111.3
Exclude proceeds received from exercise of share options (0.1) (0.2)
Exclude purchase of own shares to satisfy share awards 15.9 20.3
Exclude purchase of intangible and tangible assets net of proceeds from disposal 18.7 25.1
Cash flow from operating activities before exceptional items 330.1 357.4
Exceptional operating cash flows (2.9) (7.5)
Cash flow from operating activities 327.2 349.9
1 We present an alternative measure for cash flow to reflect net cash inflow from operating activities before exceptional items, which is the measure shown on the
Consolidated Cash Flow Statement on page 193. This IFRS measure is adjusted to include dividends we receive from joint ventures and associates, net interest
paid, the capital element of lease payments, cash flows on the purchase of own shares to satisfy share awards and net capital expenditure on tangible and
intangible asset purchases.
86 Serco Group plc Annual Report and Accounts 2022
UTP cash conversion
For the year ended 31 December
2022
£m
2021
£m
Free cash flow
1
159.1 189.5
Add back:
Tax paid 44.2 42.1
Non-cash R&D expenditure 0.4 –
Net interest paid 22.5 24.3
Capitalised finance costs paid 2.6 0.6
Trading cash flow 228.8 256.5
Underlying trading profit 237.0 228.9
Underlying trading profit cash conversion
1
97% 112%
1 FCF, as defined above, includes interest and tax cash flows. In order to calculate an appropriate cash conversion metric equivalent to UTP, trading cash flow is
derived from FCF by excluding tax and interest items. UTP 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 interest, tax and exceptional items.
Net debt and Adjusted net debt
As at 31 December
2022
£m
2021
£m
Cash and cash equivalents 57.2 198.4
Loans payable (262.9) (377.0)
Lease liabilities (446.0) (430.3)
Derivatives relating to Net debt 1.8 0.6
Net debt
1
(649.9) (608.3)
Add back: Lease liabilities 446.0 430.3
Adjusted net debt
2
(203.9) (178.0)
1 We present an alternative measure to bring together the various funding sources that are included on the Group’s Consolidated Balance Sheet on page 192 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, while adjusted net debt is
derived from net debt by excluding liabilities associated with leases.
2 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
debtobligations.
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Pre-tax Return on invested capital (ROIC)
2022
£m
2021
£m
ROIC excluding right of use assets
Non-current assets
Goodwill 945.0 852.7
Other intangible assets – owned 158.0 144.0
Property, plant and equipment – owned 48.1 55.5
Interest in joint ventures and associates 23.3 17.6
Loans to joint ventures 10.0 –
Contract assets, trade and other receivables 16.1 16.2
Current assets
Inventory 22.4 19.6
Contract assets, trade and other receivables 719.6 624.7
Total invested capital assets 1,942.5 1,730.3
Current liabilities
Contract liabilities, trade and other payables (683.3) (587.3)
Non-current liabilities
Contract liabilities, trade and other payables (42.8) (55.9)
Total invested capital liabilities (726.1) (643.2)
Invested capital
1
1,216.4 1,087.1
Two-point average of opening and closing Invested capital 1,151.8 967.0
Trading profit, 12 months ended 241.2 233.4
ROIC%
2
20.9% 24.1%
Underlying trading profit, 12 months ended 237.0 228.9
Underlying ROIC%
2
20.6% 23.7%
1 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.
2 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 UTP and Trading Profit, using the Income Statement for the period and a two-point average of the opening and
closing Balance Sheets.
Overview of financial performance
Revenue
Reported revenue increased by 2.5% in the year to £4,534.0m (2021: £4,424.6m), a 1.5% decrease at constant currency. Organic
revenue decline at constant currency was 4.4%. This is in line with the trading update issued on 15 December 2022 where revenue
was expected to be £4.5bn for the year ended 31 December 2022.
Commentary on the revenue performance of the Group is provided in the Chief Executive’s Review and the Divisional
Reviewssections.
Underlying Trading Profit (UTP)
UTP increased by 3.5% in the year to £237.0m (2021: £228.9m), a 2.8% decrease at constant currency. This is in line with the trading
update issued on 15 December 2022 where UTP was expected to be around £235m for the year ended 31 December 2022.
Commentary on the underlying performance of the Group is provided in the Chief Executive’s Review and the Divisional
Reviewssections.
Joint ventures and associates – share of results
In 2022, 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 £7.3m and £nil (2021: £nil and £nil),
respectively, and total revenues of £185.0m and £327.0m, respectively (2021: £161.0m and £nil).
The split of the share of profits in joint ventures and associates, net of interest and tax for the 2022 was £12.0m (2021: £8.7m), with
Merseyrail generating a profit of £5.3m (2021: loss £0.3m), VIVO £6.6m (2021: £nil) and other joint ventures and associates recording
a profit of £0.1m (2021: £9.2m).
The 2021 result included AWE Management Limited (AWEML) where services provided by the Group through AWEML ceased
on 30 June 2021. AWEML generated a profit of £9.2m in 2021. During 2022 a final dividend of £1.8m (2021: £13.5m) was received
fromAWEML.
88 Serco Group plc Annual Report and Accounts 2022
While 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
2022
£m
2021
£m
Revenue 237.9 238.4
Operating profit 14.3 11.5
Net finance cost (0.3) (0.1)
Income tax charge (2.0) (2.7)
Profit after tax 12.0 8.7
Dividends received from joint ventures and associates 9.1 13.5
The change in revenue and profits on the prior year is primarily due to the exit from the AWEML contract. This is offset by Merseyrail
generating a profit in 2022 compared to losses in 2021 as a result of Covid-19 impacted passenger volumes. VIVO operations also
commenced in 2022, resulting in a profit being generated in the current period.
Dividends received reduced due to the exit from the AWEML contract partially offset by Merseyrail paying a dividend following a
return to profitability.
Exceptional 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. These require separate disclosure on the face of the Income Statement to assist in the understanding
of the performance of the Group. In 2022, the total exceptional charge for the year net of tax was £2.1m (2021: £1.4m).
The exceptional charge relates to the successful acquisitions of OXZ Holdings AG (ORS) in 2022 and Whitney, Bradley & Brown, Inc
(WBB) in 2021. The combined transaction and implementation costs incurred during the year ended 31 December 2022 of £2.4m
have been treated as exceptional costs in line with the Group’s accounting policy and the treatment of similar costs during the year
ended 31 December 2021.
Exceptional tax for the period was a tax credit of £0.3m (2021: charge £0.2m) which arises on exceptional items within operating profit.
The tax credit arises in relation to the costs associated with WBB. Costs associated with the acquisition of ORS did not give rise to a tax
credit as they were either treated as capital, and therefore not tax deductible, or augmented non-valued deferred tax.
Finance costs and investment revenue
Net finance costs were £20.4m (2021: £24.0m) and net interest paid was £22.5m (2021: £24.3m).
Investment revenue of £4.7m (2021: £2.4m) consists primarily of interest accruing on net retirement benefit assets of £2.7m
(2021:£1.1m), interest receivable of £1.9m (2021: £0.6m) and dividends received of £nil (2021: £0.6m).
The finance costs of £25.1m (2021: £26.4m) include interest incurred on the US private placement loan notes and the revolving credit
facility of £15.2m (2021: £15.6m), lease interest payable of £7.9m (2021: £7.8m), and other financing-related costs including the
impact of foreign exchange on financing activities.
Tax
Underlying tax
In 2022 we recognised a tax charge of £47.9m (2021: £48.6m) on underlying profits after net finance costs. The effective tax rate
of 22.1% is slightly lower than in 2021 (23.7%). The decrease compared with 2021 is due to a credit recognised in respect of the
prior year on the finalisation of certain matters (reducing the rate by 0.6%), the impact of movements in the Group’s provisions as
part of Management’s regular reassessment of tax exposures across the Group (reducing the rate by 0.5%) and a reduced impact
of overseas profits taxed at a higher rate (reducing the rate by 0.4%). Further, the increase in profits generated by the Group’s joint
ventures, whose post-tax profits are included in the Group’s profit before tax, have reduced the rate by 0.2%. This is partially offset by a
reduction in the Group’s expenses not deductible for tax (0.1%).
The tax rate at 22.1% is slightly higher than the UK standard corporation tax rate of 19%. This is mainly due to the impact of the
higher statutory rate of tax on overseas profits (increasing the rate by 5.6%), and the impact of the movement in unprovided overseas
deferred tax (increasing the rate by 0.9%). This is partially offset by the reduction in provisions held for uncertain tax positions which
reduced the rate by 1.8%. The rate is further reduced by the impact of the profits of our joint ventures and associates whose post-tax
profits are included in the Group’s profit before tax (reducing the rate by 1.1%) and a prior year tax credit that arises due to differences
between estimates made at the previous year end and the final positions for tax (reducing the rate by 0.6%). Other smaller items result
in a net increase to the rate of 0.1%.
Pre-exceptional tax
A tax charge of £42.1m (2021: £111.9m credit) on pre-exceptional profits has been recognised which includes an underlying tax
charge of £47.9m and a tax credit of £5.8m in respect of the amortisation of intangibles arising on acquisitions. The tax charge of
£0.8m in respect of non-underlying items is fully offset by the impact of tax items that are non-underlying themselves, resulting in no
tax charge or credit being disclosed. The £0.8m non-underlying tax credit relates to a reassessment of when the deferred tax assets in
the UK are expected to be utilised.
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Exceptional tax
Analysis of exceptional tax is provided within the exceptional items section above.
Deferred tax assets
At 31 December 2022 there is a net deferred tax asset of £190.4m (2021: £174.0m). This consists of a deferred tax asset of £244.2m
(2021: £214.3m) and a deferred tax liability of £53.8m (2021: £40.3m). A £186.9m UK tax asset has been recognised on the Group’s
balance sheet at 31 December 2022 (2021: £162.8m) 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. The main driver for the increase in the
UK deferred tax asset in the year is the reduction in the deferred tax liability associated with the pension. As the pension surplus has
fallen in the year, the associated deferred tax liability has also fallen, hence leading to the net deferred tax asset increasing.
Taxes paid
Net corporate income tax of £44.2m (2021: £42.1m) was paid during the year, relating to our operations in AsPac (£23.0m), North
America (£16.1m), UK (£2.6m), Europe (£2.1m) and the Middle East (£0.4m). The payments made in the UK consisted of £2.8m to
HMRC, offset by £0.2m received from the Group’s joint ventures and associates for losses sold to them.
The amount of tax paid, £44.2m, differs from the tax charge in the period, £41.8m, 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 and provisions for uncertain tax positions.
Total tax contribution
Our tax strategy of paying the appropriate amount of tax as determined by local legislation in the countries in which we operate,
means that we pay a variety of taxes across the globe. To increase the transparency of our tax profile, we have shown below the cash
taxes that we have paid across our regional markets.
In total during 2022, Serco globally contributed £934.5m of tax to government in the jurisdictions in which we operate.
Taxes by category
Taxes borne
£m
Taxes collected
£m
Total
£m
Total of Corporate Income Tax 44.4 – 44.4
Total of VAT and similar 10.4 276.7 287.1
Total of People Taxes 167.8 419.5 587.3
Total Other Taxes 14.8 0.9 15.7
237.4 697.1 934.5
Taxes by region
Taxes borne
£m
Taxes collected
£m
Total
£m
UK & Europe 127.1 365.6 492.7
AsPac 50.0 195.2 245.2
North America 58.9 130.8 189.7
Middle East 1.4 5.5 6.9
237.4 697.1 934.5
Corporation tax, which is the only cost to be separately disclosed in our Financial Statements, is only one element of our tax
contribution. For every £1 of corporate tax paid directly by the Group (tax borne), we bear a further £4.53 in other business taxes.
Thelargest proportion of these is in connection with employing our people.
In addition, for every £1 of tax that we bear, we collect £2.94 on behalf of national governments (taxes collected). This amount is
directly impacted by the people that we employ and the sales that we make.
Dividends, share buyback and share count
During the year to 31 December 2022, the Group paid dividends of £30.3m (2021: £26.5m) in respect of the final dividend for the
year ended 31 December 2021 and the interim dividend for the year ended 31 December 2022. As noted in the Chief Executive’s
Review, the Board has decided to declare a final dividend of 1.92p per share in respect of the year ended 31 December 2022 (2021:
1.61p per share).
90 Serco Group plc Annual Report and Accounts 2022
On 24 February 2022, the Group announced its intention to repurchase ordinary shares with a value of up to £90m. On 8 March
2022, the Group confirmed that the repurchase would be split over two tranches, with the first tranche of £40m completed during
the period 8 March 2022 to 16 August 2022. The second tranche of £50m was completed during the period 17 August 2022 to 9
December 2022. The total cost including fees was £91.2m and resulted in the repurchase of 55,506,704 shares at an average price of
£1.64. These are held within treasury shares at 31 December 2022.
The Group has announced its intention to commence a further share buyback of up to £90.0m. 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 within 12 months with the shares either
cancelled or held in Treasury.
The weighted average number of shares for EPS purposes was 1,192.2m for the year ended 31 December 2022 (2021: 1,222.6m)
and diluted weighted average number of shares was 1,214.8m (2021: 1,244.0m). The decrease in the weighted average number
of shares is primarily due to the full year impact of the 30,721,849 shares repurchased in 2021 of which 15,371,849 were cancelled
and 15,350,000 were transferred to the Employee Share Option Trust to satisfy share awards, and additionally, the impact ofthe
repurchase of 55,506,704 shares during 2022 now held in treasury.
Cash flows and net debt
UTP of £237.0m (2021: £228.9m) converts into a trading cash inflow of £228.8m (2021: £256.5m). The decrease in trading cash
inflows is mainly due to a £24.4m outflow of working capital compared to an inflow of £25.2m in 2021. The decrease in working
capital is driven by 2021 benefitting from the unwind of working capital in respect of the Dubai Metro contract. The Group saw a
marginal increase in the debtor days from 19 days (2021) to 22 days (2022) and a decrease in creditor days from 23 days (2021)
to21days (2022) during the year, as the Group continues to ensure its suppliers are paid on time.
The table below shows the cash flow from operating activities before exceptional items and Free Cash Flow (FCF) reconciled to
movements in Net Debt. FCF for the period was an inflow of £159.1m compared to £189.5m in 2021. The movement compared
to2021 is consistent with the decrease in trading cash flow above.
Adjusted net debt increased by £25.9m in the year to 31 December 2022, 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 2022 was £231.0m
(2021:£216.1m). Peak Adjusted net debt was £376.8m (2021: £346.3m).
For the year ended 31 December
2022
£m
2021
£m
Operating profit before exceptional items 219.6 217.4
Less: Share of profit from joint ventures and associates (12.0) (8.7)
Movement in provisions 4.0 (7.2)
Depreciation, amortisation and impairment of property, plant and equipment and intangible assets 54.7 47.2
Depreciation and impairment of right of use assets 117.5 109.0
Other non-cash movements 15.3 16.6
Operating cash inflow before movements in working capital, exceptional items, and tax 399.1 374.3
Working capital movements (24.4) 25.2
Tax paid (44.2) (42.1)
Non-cash R&D expenditure (0.4) –
Cash flow from operating activities before exceptional items 330.1 357.4
Dividends received from joint ventures and associates 9.1 13.5
Interest received 1.9 0.6
Interest paid (24.4) (24.9)
Capital element of lease repayments (120.5) (111.3)
Capitalised finance costs paid (2.6) (0.6)
Purchase of intangible and tangible assets net of proceeds from disposals (18.7) (25.1)
Purchase of own shares to satisfy share awards
1
(15.9) (20.3)
Proceeds received from exercise of share options 0.1 0.2
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For the year ended 31 December
2022
£m
2021
£m
Free cash flow 159.1 189.5
Net cash outflow on acquisition and disposal of subsidiaries, joint ventures and associates (19.2) (234.9)
Net increase in debt items on acquisition and disposal of subsidiaries, joint ventures and associates (6.5) (14.3)
Dividends paid to shareholders (30.3) (26.5)
Purchase of own shares
1
(91.2) (20.4)
Movements on other investment balances 1.6 0.6
Loans to joint venture (10.0) –
Exceptional sale of other investments – 13.0
Capitalisation and amortisation of loan costs 1.4 (0.7)
Exceptional items (2.9) (7.5)
Cash movements on hedging instruments (2.7) (16.6)
Foreign exchange loss on Adjusted net debt (25.2) (2.4)
Movement in Adjusted net debt (25.9) (120.2)
Opening Adjusted net debt (178.0) (57.8)
Closing Adjusted net debt (203.9) (178.0)
Lease liabilities (446.0) (430.3)
Closing Net debt (649.9) (608.3)
1 In 2022 the Employee Share Ownership Trust purchased shares directly of £15.9m to satisfy share awards. This purchase is presented separately from the Group’s
£91.2m repurchase of own shares on the Consolidated Cash Flow Statement on page 193. In 2021 the Group repurchased shares at a cost of £40.7m as shown on
the Consolidated Cash Flow Statement on page 193 and subsequently transferred £20.3m to the Employee Share Ownership Trust to satisfy share awards.
Risk management and treasury operations
The Group’s operations expose it to a variety of financial risks that include 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 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 and are reviewed annually.
Financial instruments are only executed 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 2022, the Group had committed funding of £616m (at 31 December 2021: £629m), comprising £266m of US
private placement loan notes and a £350m revolving credit facility (RCF) which was undrawn. The US private placement loan notes
are repayable in bullet payments between 2023 and 2032. The Group does not engage in any external financing arrangements
associated with either receivables or payables.
During the year ended 31 December 2022 total net repayments of debt were £149.3m, which included the repayment of NSBU
acquisition loan (£45.0m), WBB 2021 acquisition loan (£75.0m), USPP debt (£22.6m), and ORS bank debt (£6.7m).
On 18 November 2022, the Group refinanced its RCF increasing its standby liquidity from £250m to £350m. The facility is supported
by 10 banks and has a five-year tenure, maturing in November 2027. As part of the refinancing, an accordion option has been
included, providing a further £100m of funding (uncommitted and therefore not incurring any fees) if required without the need for
additional documentation and agreements. 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
Given the nature of the Group’s business, we have a preference for fixed rate debt to reduce the volatility of net finance costs. Our
Treasury Policy requires us 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 2022, £266.4m of debt was held at fixed
rates and Adjusted Net Debt was £203.9m.
Foreign exchange risk
The Group is subject to currency exposure on the translation to Sterling of its net investments in overseas subsidiaries. The Group
manages this risk, where appropriate, by borrowing in the same currency as those investments. Group borrowings are predominantly
denominated in Sterling and US Dollar. The Group manages its currency flows to minimise foreign exchange risk arising on
transactions denominated in foreign currencies and uses forward contracts where appropriate to hedge net currency flows.
Cash flows and net debt continued
92 Serco Group plc Annual Report and Accounts 2022
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.
Debt covenants
The principal financial covenant ratios are consistent across the 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 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 debt covenants
exclude the impact of IFRS 16 Leases on the Group’s results.
For the year ended 31 December
2022
£m
2021
£m
Operating profit before exceptional items 219.6 217.4
Remove: Amortisation and impairment of intangibles arising on acquisition 21.6 16.0
Trading profit 241.2 233.4
Exclude: Share of joint venture post-tax profits (12.0) (8.7)
Include: Dividends from joint ventures 9.1 13.5
Add back: Net non-exceptional (releases)/charges to OCPs (1.0) 1.3
Add back: Net covenant OCP utilisation (1.3) (0.6)
Add back: Depreciation, amortisation and impairment of owned property, plant and equipment
andnon-acquisition intangible assets 33.1 31.2
Add back: Depreciation, amortisation and impairment of property, plant and equipment and
non-acquisition intangible assets held under finance leases – in accordance with IAS 17 Leases 4.8 5.0
Add back: Foreign exchange on investing and financing arrangements 0.4 (0.6)
Add back: Share-based payment expense 15.6 15.8
Other covenant adjustments to EBITDA (1.0) 6.3
Covenant EBITDA 288.9 296.6
Net finance costs 20.4 24.0
Exclude: Net interest receivable on retirement benefit obligations 2.7 1.1
Exclude: Movement in discount on other debtors 0.1 0.1
Exclude: Other dividends received – 0.6
Exclude: Foreign exchange on investing and financing arrangements 0.4 (0.6)
Other covenant adjustments to net finance costs resulting from IFRS 16 Leases (7.5) (7.3)
Covenant net finance costs 16.1 17.9
Adjusted net debt 203.9 178.0
Obligations under finance leases – in accordance with IAS 17 Leases 21.8 26.5
Recourse net debt 225.7 204.5
Exclude: Disposal vendor loan note, encumbered cash and other adjustments 6.9 2.9
Covenant adjustment for average FX rates (8.2) (5.7)
CTNB 224.4 201.7
CTNB/covenant EBITDA (not to exceed 3.5x) 0.78x 0.68x
Covenant EBITDA/covenant net finance costs (at least 3.0x) 17.9x 16.6x
Acquisitions
On 12 July 2022, the Group acquired 100% of the issued share capital of Sapienza Consulting Holdings BV (Sapienza), a provider
of consulting, talent acquisition and digital solutions to European space and defence institutions for consideration of €3.3m (£2.8m)
in cash, subject to standard working capital and completion adjustments. The acquired net assets included €1.9m (£1.6m) of cash
resulting in a net cash outflow on acquisition of €1.4m (£1.2m). The operating results, assets and liabilities have been recognised
effective 12 July 2022.
Sapienza contributed £6.5m of revenue and £0.3m of operating profit before exceptional items, including an appropriate allocation of
charges for shared support services and fully allocated overheads, to the Group’s results during the year to 31 December 2022.
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On 1 September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS), a specialist provider of
immigration services to public sector customers in Switzerland, Germany, Austria and Italy for consideration of CHF19.2m (£16.9m)
subject to standard working capital and completion adjustments. CHF12.8m (£11.2m) is contingent consideration and the remaining
CHF6.4m (£5.7m) was paid in cash. At the same time, the Group transferred CHF19.2m (£16.9m) to acquire shareholder loans of
ORS and the acquired net assets included CHF5.2m (£4.6m) of cash resulting in a net cash outflow on acquisition of CHF20.4m
(£18.0m). Including the balance of contingent consideration payable the total expected cash outflow for the acquisition, net of
cash acquired, is CHF33.2m (£29.2m). Post completion there was a further cash outflow of CHF7.3m (£6.7m) to settle the bank loan
acquired. Theacquisition included net pension obligation of CHF5.7m (£5.0m). The operating results, assets and liabilities have
beenrecognised effective 1 September 2022.
ORS contributed £62.4m of revenue and £1.6m of operating profit before exceptional items, including an appropriate allocation of
charges for shared support services and fully allocated overheads, to the Group’s results during the year to 31 December 2022.
Net assets
At 31 December 2022, the Consolidated Balance Sheet shown on page 192 had net assets of £1,029.7m, a movement of £21.3m from
the closing net asset position of £1,008.4m as at 31 December 2021.
Key movements since 31 December 2021 on the Consolidated Balance Sheet shown on page 192 include:
– Goodwill increased by £92.3m due to the impact of exchange rates (£71.4m), the acquisitions of ORS (£17.3m) and Sapienza
(£2.1m), and an adjustment to the goodwill in respect of WBB of £1.5m.
– Net retirement benefit assets reduced by £97.4m primarily in respect of SPLAS; further details are provided in the pension
section below.
– The Group generated Free Cash Flow of £159.1m, made payments in respect of acquisitions of £25.7m and undertook dividend
payments and share buybacks of £121.5m. The net repayment of loans was £149.3m which resulted in an overall decrease in cash
and cash equivalents by £141.2m.
– Net bank, bond borrowings and other loans have decreased by £114.1m in the year. This movement is driven by the repayment
of acquisition loans of £126.7m and USPP loans of £22.6m and movements in capitalised finance costs of £1.4m, offset by the
acquisition of ORS’s £6.5m bank loan, and foreign exchange in respect of the USPP loans of £29.9m and ORS loan of £0.2m.
– The increase in contract assets, trade receivables and other assets have largely offset increases in contract liabilities, trade
payables and other liabilities and are as a result of normal working capital movements.
Pensions
During the year there has been a high degree of volatility in the pensions market. Discount rates and short-term inflation rates
have been rising since 31 December 2021 which has resulted in the weighted average durations used for pension schemes
decreasing. Concerns over high global inflation, recession, disruption to supply chains due to the war in Ukraine and rising interest
rates, compounded by the market volatility in September 2022 due to political events resulted in a sharp rise in bond yields and a
subsequent reduction in the value of Liability Driven Investments (LDI), which triggered collateral calls. The Group made a short-term
temporary loan of £60m to the Serco Pension and Life Assurance Scheme (SPLAS) on 28 September 2022 while the scheme liquidated
assets to meet these collateral calls, in order to ensure that the LDI hedge was maintained; this loan was repaid on 3October 2022.
Serco’s pension schemes remain in a strong funding position, and show an accounting surplus, before tax, of £50.8m (31 December
2021: £148.2m) on scheme gross assets of £1.1bn (2021: £1.6bn) and gross liabilities of £1.0bn (2021 £1.5bn). The high degree of
volatility as noted above resulted in a reduction in pension scheme assets particularly investments in bonds, LDIs and amounts held by
insurance companies. There has been a significant reduction in pensions scheme obligations as discount rates have risen but this has
only partially offset the reduction in assets as the liabilities are hedged on an actuarial basis rather than an IAS 19 basis. The decrease
in pension scheme obligations was partially offset by experience adjustments on SPLAS which were primarily due to the impact from
inflation on the current year allowances for deferred valuations and pension increases.
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.
The opening net asset position led to a net interest income within finance costs of £2.7m (2021: £1.1m).
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, 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
27 February 2023
Finance Review continued
94 Serco Group plc Annual Report and Accounts 2022
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 therefore take
riskmanagement extremely seriously and
investsignificant effort into identifying and
managingrisks.
Managing risk
The Board oversees the Company’s risk management and internal
control processes within an Enterprise Risk Management (ERM)
framework, discharging its oversight responsibilities through
the Group Risk Committee (GRC), supported by the Corporate
Responsibility Committee (CRC) and the Audit Committee.
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 is not about eliminating risk but seeks to
identify, understand, mitigate and manage risks that might
disrupt our ability to execute our strategy or deliver against
our customer and contractual commitments. Our key risks are
agreed through an annual review with the Executive Committee
and through quarterly challenge and review at either the GRC,
CRC, Audit Committee or Board supported by Divisional level
quarterly reviews with the Executive Management teams.
Each risk response reflects the nature of the activities being
undertaken and the level of control considered necessary to
protect our interests and those of our stakeholders. In addition
to the operational focus on risk, consideration and assessment
of risk is part of our annual strategic review that helps inform
ourapproach to operating across geographies, jurisdictions
andsectors. Thesediscussions include consideration of
severalofourprincipal risks,most notably Failure to grow.
We have assessed our markets and possible growth over the next
five years as part of our strategy review to ensure it is sustainable
and provides sufficient growth opportunities to meet our ambition
without the need for a material shift in our operating model and
existing markets. A key focus throughout 2022 has been on
the continued development of our ERM maturity to seek the
consistent application of our Group policies and procedures
and process improvement. Thishasfocused on the continued
execution of actions identified in a Group-wide capability
assessment and an internal audit of the risk management process
completed in late 2021. Key actions completed include improved
consistency of ERM organisational structures across the Divisions,
shared objectives, and improvements in ERM integration
in strategy and bid activity. We have faced some resource
challenges within the ERM team across the Group which has
caused some delay to progress; however, as at the end of 2022
we are now operating with all key vacancies filled, noting the
appointment of new Heads of Risk in three of our four Divisions.
As part of the capability assessment, and recognising expected
requirements of the BEIS White Paper, we identified the need
to improve and refresh our approach to Assurance, particularly
regarding the potential future need for a clearly defined Audit
and Assurance Policy, to gain improved visibility of key controls
and clarity as to how assurance is provided over the lines of
defence. To address this we launched a global Assurance review,
which, following a successful pilot in our UK&E Division, we
anticipate being rolled out across the Group through 2023. The
programme to review our Serco Management System (SMS) to
ensure it remains an effective and efficient vehicle to document
and communicate our processes and controls is nearing
completion. This programme has re-categorised key controls
against personas, so that colleagues can much more readily
identify the controls and processes they need to follow. The core
of this work is complete with supporting implementation changes
to local policies and procedures to run into 2023. We have also
invested in a new Governance Risk and Compliance tool in 2022.
CORPORATE RISK REPORTING TOOL
OVERSIGHT AND ACCOUNTING
COMPLIANCE ASSURANCE
Risk Management Life Cycle Process
RISK REPORTING
Reporting of the status of material
risks up through the management
chain to the next organisational
level, to provide assurance
that business risks are being
appropriately managed and
controls in place are effective.
RISK MONITORING
Monitoring mitigation actions and
their impact (so as to improve the
effectiveness of controls and
improve the residual risk rating).
Monitoring changes to our business
and the external environment,
to ensure we have sight of and
respond appropriately to
emerging risks.
RISK MITIGATION
Identifying controls that will
reduce material risks to a target
risk rating aligned with our risk
appetite and implementing
cost-effective mitigation and
contingency actions that improve
the effectiveness of controls.
RISK ANALYSIS
Assessing the level of inherent
and residual risk exposure, based
on an assessment of the probability
of an identified risk materialising,
and the impact if it does, using a
standard risk scoring system, taking
into account the effectiveness of
current controls.
RISK PLANNING
Assigning responsibility for risk
management implementation and
planning the approach.
RISK IDENTIFICATION
Identifying risks associated with
achievement of our business
objectives. Includes potential risks
from external factors arising from
the environment within which we
operate, and internal risks arising
from the nature of our business.
Risk management life cycle
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Initially focused on the design of the controls module, we will
be implementing the new tool in 2023 to support our assurance
activities. July 2022 also saw the successful discontinuance of the
DPA. The SFO confirmed that Serco had cooperated fully and has
fulfilled all of its obligations, including reviewing and enhancing the
Group-wide compliance programme related to internal controls,
compliance policies and procedures.
Risk management process
Our risk policy is set at a Group level with implementation and
execution of that policy owned within each of our Divisions.
The Serco risk management life cycle process is mandated
throughout the Company 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.
We undertake a bottom-up review of risks quarterly, with our
Business Units identifying the main threats to achievement of
their objectives, documenting and analysing their potential
impact, and defining clear actions to reduce the likelihood of
those risks materialising and/or the financial impact if they should
still occur. The Business Unit risks are consolidated and reported
to Divisional leadership teams in a check and challenge capacity
to ensure that risks on the Business Unit risk registers accurately
reflect the concerns of local senior leadership. Once approved,
the Divisional risks are reviewed by the Group ERM team and
help inform the principal risk updates. The Board is updated after
each GRC meeting.
Our principal risks, detailed on page 98, are those risks that we
determine to be the most material when considered against
our strategic ambition (as outlined on page 25) and that can
materially affect the performance, prospects or reputation of our
business. These risks are identified and assessed as part of our
strategic review and through additional discussions at a Divisional
level, Executive Committee and the GRC where internal and
external emerging risk trends are considered. Once identified,
each risk’s inherent, residual and target position is 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 a Subject Matter Expert (SME), who acts
as the lead in overseeing risk updates and driving risk action,
and a nominated Executive Committee sponsor, whose role is to
advocate and oversee risk ownership, allocated to it, supporting
its review and management. A robust assessment of our principal
risks and their mitigations is carried out as part of the GRC
reporting schedule, as well as reviews of topical deep dives
that focus on pertinent risk themes. These deep dives may be
focused on a region, led by the Divisional CEOs or risk leads, or
on functional or business unit areas involving specialists from our
business operations. This risk-focused approach facilitates flexibility
that allows us to be responsive to changes in our risk profile
throughout the year while still maintaining appropriate coverage
of our principal risks and Divisional risk landscapes. Ourprincipal
risks and uncertainties are detailed on page 98.
Each of our principal risks has an appetite statement to determine
the nature and amount of risk that the Group is willing to accept
as well as informing our decision-making. The statements include
one of four appetite categories – averse, cautious, moderate and
flexible – that reflect the Board’s tolerance to each risk.
These statements are aligned to our Values, Code of Conduct
and other ethical requirements to support and drive the right
risk culture within the Group, are set through discussion with the
principal risk Executive Committee Sponsor and SME and ratified
annually by the GRC. The Board’s risk appetite associated with
each principal risk is shown on page 98.
The majority of our principal risks operate under an averse risk
appetite demonstrating we have a close to zero tolerance for
incidents. We appreciate that, by the nature of our operations,
we have inherent risk exposures but we strive to mitigate
them. In the case of our Health, safety and wellbeing principal
risk for example, despite our focus, we unfortunately do still
experience incidents and near misses as the following two case
studiesdemonstrate.
A wellbeing awareness day at one of our Environmental
Services contracts highlighted a risk of significant mental
health issues, including suicidal ideation, and financial
challenges among our colleagues. Our response focused on
provision of one-to-one support and facilitated contact with
appropriate support services, from our EAP and 24/7 nursing
line to local community options. Follow-on support is being
provided, including monthly visits from the local Citizens
Advice, targeted financial support, on-site counselling, and
tailored promotions of Serco support such as the People
Fund. These bespoke initiatives demonstrate collaborative
working across Serco and how this approach can find creative
solutions to meet our colleagues' needs.
This year has seen exceptional activity in the AsPac J&I
business (with unpredicted issues relating to gang violence
and unrest) resulting in a higher than predicted number of
injuries against our people.
Notwithstanding the challenges and in addition to wider,
complementary Group improvement plans, there are several
Divisionally specific opportunities with potential to positively
impact harm reduction in 2023 and beyond, namely:
– establishment of AsPac CEO Safety Committee,
providing a Divisional focal point for critical safety
collaboration and innovation;
– enhancements to HSE leadership with the recruitment of
a newDivisional Head of HSE and supporting HSE
SystemsManager;
– the introduction of new AsPac approach to safety
‘Startwith Care’;
– expansion of the pilot injury ‘Early Intervention
Programme’ which targets better outcomes from
minor-medium levelinjuries;
– continued focus on critical risk activities/inspections and
2023 harm reduction plans, particularly in high-risk/
high-frequency areas; and
– introduction of a specific psychosocial risk
managementframework.
This collaborative Divisional alignment engages with our
people and our partners for better solutions development,
aligns with new legislation changes and strives to provide
better care for our people and ultimately reduce injury.
Risk Management continued
96 Serco Group plc Annual Report and Accounts 2022
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 SMS and testing
plans are reviewed annually 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 wellbeing 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 assurance teams,
augmented by our internal audit 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 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
we manage across the business as well as independent
performance and regulatory reports on Serco operations.
We review the effectiveness of the Risk Committee on an annual
basis. Following an external Board Performance Evaluation
Review in 2021 where no material changes to the Risk Committee
were reported or deemed necessary, our approach this year
is based on feedback obtained via a questionnaire sent to the
Risk Committee members and those who regularly attend the
Committee, including the Group CEO, Group COO and Group ERM
Director. Focus areas for 2023 include further interaction between
Board Committees who oversee individual principal risks and
enhancements to our emerging risk approach.
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 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:
– political volatility and geo-political uncertainty, including the
war in Ukraine, and the impact that could have directly and
indirectly on Serco’s operations;
– pandemic or other material black or grey swan events
response and Serco’s ability to respond/demonstrate
business resilience;
– significant and prolonged IT infrastructure failure
preparedness;
– macroeconomic implications and related cost-of-living
challenges and inflation pressures that may be felt across the
business and by our people; and
– technology risk and its potential implications on our ability to
grow in line with our strategic ambitions.
Other risk areas
While no longer considered as emerging risks, more so as
enduring bodies of work we are committed to, we also reviewed
both ESG and climate change as part of the Emerging risk review.
– ESG: We have a clear objective to address the ESG risks that
are material to us and important to our stakeholders,
recognising their deep strategic relevance. Managing these
risks and taking them seriously is something we have been
doing for many years as they are woven inseparably into our
operational and commercial landscape, our strategy and
governance and how we analyse our performance and
prospects. Our refreshed ESG Framework consolidates our
ESG priorities in one model aligned to our materiality
assessment completed with internal and external stakeholders.
We continue to treat ESG as an embedded consideration
across several of our principal risks rather than a standalone
item at the Group level. More information on our approach to
ESG can be found on page 36.
– 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. Regardless of where we operate,
however, we recognise the need to drive consistent
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 cross-cutting scenario under several of our
principal risks, including Catastrophic incident, and have
embedded this more clearly in the principal risk narrative. 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 2023. Further detail
on our approach to environmental reporting and TCFD can
be found on page 74 and our commitment to climate change
as part of our ESG agenda on page 52.
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Principal Risks and Uncertainties
Changes during the year
Our strategic objectives (outlined on page 25) 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 Chief Executive’s Review on page
15 we are reporting strong financial performance and despite
the macroeconomic volatity 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 described on page 13 and mitigation of the
risks link directly to our four strategic priorities as described in
our management philosophy on page 11. Some changes are
noted that reflect updated thinking and responses to operational
influences. We have broadened the definition and scope of our
Catastrophic incident risk such that it now includes consideration
of our resilience to an external event such as extreme weather
events, pandemic or infrastructure failure. Similarly, we have
updated the definitions of our Failure to grow risk to incorporate
a wide set of causal factors, including failure to continue to focus
on and show progress in relation to ESG matters, digital ambition
and to anticipate and respond appropriately to changing
customer expectations, competitor activity and potential
concentration risk. We also clarified that the Major information
security breach risk includes data privacy and data governance
elements appropriately.
Summary of principal risks and uncertainties
Principal risks, as described below, have been reviewed by the
Executive Committee, GRC and the Board. The risks are described
on the following pages, together with the relevant strategic
business objectives, 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 28 with the strongest links highlighted
as part of the commentary.
Principal risks are considered over the same three-year timeframe
as the Viability Statement set out on page 109, 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 turn out to be material,
the Covid-19 pandemic being a good example. These risks,
whether they materialise individually or simultaneously, could
significantly affect the Group’s business and financial results.
Risk description Executive sponsor
Primary risk
category Annual trend as at 31 December
Risk
appetite
Failure to grow
profitably
Kate Steadman
Group Strategy
Director
Strategic Stable residual risk position reflecting a strong 2022 financial
performance and a robust, qualified, new business pipeline as we enter
2023.
Cautious
Financial
controlfailure
Nigel Crossley
Group FD
Financial Stable residual risk reflecting level of confidence in robustness of
financial processes and controls.
Averse
Major information
security breach or
cyber-attack
Mark Irwin
Group CEO
Operational Following a residual risk increase in 2021 the residual risk has been
reduced back to the original position as a result of significant investment
and implementation of strengthened IT controls.
Averse
Contract non-
compliance,
non-performance
or misreporting
Peter Welling
AsPac CEO
Operational Despite no material incidents, the stable risk trend is driven by
acknowledgment of the scale and volume of contracts and the
ongoing work to improve our controls and the low level of both Serco
management and customer tolerance for any significant issues.
Averse
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
withintegrity
Mark Irwin
Group CEO
People 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
Failure to attract,
engage and
retain key talent
Anthony Kirby
UK&E CEO
People Following an increase in residual risk in 2021 the risk remains elevated
largely to recognise the external challenges in the labour market as an
ongoing outcome of Covid-19 and existing social economic pressures.
Cautious
Health, safety
andwellbeing
Phil Malem
ME CEO
People Introduced as a new risk in 2020 the risk remains stable as despite the
fact that we missed our LTIFR target we remain focused on the road to
zero harm.
Averse
Catastrophic
incident
Tom Watson
NA CEO
Hazard 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 GC
Legal and
Compliance
Following an increase in residual risk in 2020, largely related to Covid-19,
the risk remains elevated reflecting the fast-moving and complex global
legal and regulatory environment and diverse nature of our business.
Averse
98 Serco Group plc Annual Report and Accounts 2022
The method and four priorities we use to deliver our strategy as part of our management philosophy are set out on page 11, namely
Winning good business, Executing brilliantly, A place people are proud to work, and Profitable and sustainable. Each of our principal
risks supports one or more of these priorities with the strongest link shown against each risk using the following icons. Appropriate
consideration and management of the principal risks have a direct link to key Executive remuneration as outlined in the Remuneration
Report on page 142.
STRATEGIC RISKS
Failure to grow profitably
Integral to our Strategy Review process, 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. This risk has a broad and direct link to our ability to meet the financial KPIs described on page 28. We
have a cautious appetite for this risk recognising that we will take reasonable and considered risks to generate profitable growth. Our
business is linked to changes in the economy, fiscal and monetary policy, political stability and leadership, budget priorities, and the
perception and attitude of governments and the wider public to outsourcing, which could result in decisions not to outsource services
or lead to delays in placing work. Our ability to succeed is also linked to the competitive landscape and our ability to efficiently deploy
resources as part of our service offering as well as delivering our ESG commitments and digital strategy ambition. We carried out a
comprehensive strategy review that took the Divisional five-year strategies and rolled these up for a Group view. This work concluded
that our markets remain robust with significant revenue opportunity in our chosen markets and chosen activities.
In 2022, despite the tailing off of Covid-related work, we have been successful in securing good organic growth. In particular our
immigration work in the UK and Australia has benefited from significant volume growth, and our defence marine defence business
units in the US and the UK have secured critical rebids and extensions. We have also secured one of the new wave of UK prisons with
HMP Fosse Way, and won a mandate to manage re-employability services in Canada in a first in the region for Serco. Rebid rates in
the UK have been more challenging with the losses of the DWP Universal Credit Phase 1 and Lowdham Grange Prison contracts and
win rates in AsPac were lower with the loss of the VicRoads bid. Tight employment markets and inflation have continued to increase
operating costs as well as vacancies that have adversely affected some parts of our portfolio. Despite these challenges, our revenues
and Underlying Trading Profit increased by 2.5% and 3.5% respectively. Further detail on our financial performance can be found on
page 83 and summarised in the Chief Executive Review on page 15. We also enter 2023 with a robust and qualified new business
pipeline, suggesting that the near and medium-term risk is stable.
Key risk drivers:
External factors reducing the pipeline
of opportunities.
Failure to be competitive.
Inability to meet customer and
solution requirements during design,
implementation and delivery.
Ineffective business development
leading to lower than expected
winrates.
Material controls:
– Serco Group and Divisional Strategy
including periodic strategy reviews.
– Investment Committees, Divisional level
Business Lifecycle Review Teams (BLRTs)
– Sector-specific Centres of Excellence and
Value Propositions.
– Serco Institute developing thought
leadership and innovation for our markets.
– Business Lifecycle Review Team process.
– Pipeline and Business Development
spendreviews.
– Regular Growth Forum reviews.
– Divisional Performance Reporting process.
Mitigation priorities:
– Review portfolio for new attractive organic
expansionareas.
– Keep focus on business development processes in
UKand
AsPac to improve capture effectiveness.
– Strengthen our customer focus and interactions to better
anticipate and shape markets and opportunities.
– Continue to improve leveraging of Serco best
practiceand innovation and refinement of bid
development processes.
– Continue to adopt a robust bid qualification process.
– Retain focus on effective management for major bids.
– Develop efficient common platforms for service
delivery to support our strategic pillars, in particular
customer intimacy and market shaping.
Profitable and sustainable
Winning good
business
Executing brilliantly
A place people
are proud to work
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FINANCIAL RISKS
Financial control failure
Serco operates complex 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 heightened 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 28. 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 was able to demonstrate that its financial processes and systems were able to operate effectively despite the significant
change to working conditions and reactive nature of the business operations brought about by the pandemic. The financial control
framework is transitioning to the continuous improvement stage.
Over the last 12 months, the Group has continued to improve its financial control environment. While the UK Government’s proposals
outlined in the consultation document issued by the Department of Business, Energy and Industrial Strategy (BEIS) entitled Restoring
Trust in Audit and Corporate Governance has not yet resulted in any formal changes to the expectations or reporting from businesses,
the Group has continued to deliver its programme of work to improve the financial controls framework recognising that the objectives
of this programme, if achieved, should support the objectives set out in the consultation document in respect of financial controls.
The Group is conscious of the impact of this programme and has been mindful of additional costs and administration placed on its
operations before the expectations from BEIS or the Financial Reporting Council are formalised.
Key risk drivers:
Not setting the right tone from
thetop.
Poor financial processes.
Inadequate financial controls
withinthe business.
Loss of critical roles and/or systems.
Poorly skilled and resourced finance
teams to address complex finance
standards.
Material controls:
– 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.
Mitigation priorities:
– Agree future operations for financial processes
operated by third party suppliers.
– Continue to develop the financial controls and
assurance framework including work under our
CFIPprogramme.
– Continue to deliver 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
trainingcurriculum.
– Effectiveness reviews of disaster recovery plans.
– Ensure talent is retained within the finance function.
Principal Risks and Uncertainties continued
100 Serco Group plc Annual Report and Accounts 2022
OPERATIONAL RISKS
Major information security breach (including cyber-attack and data protection)
An information security breach, resulting in the loss or compromise of information (including personal or customer data) or wilful
damage resulting in the loss of service, causing significant reputational damage/financial penalties and loss of customer/data subject
confidence is a key risk for us. We operate an averse risk appetite to any major information security breaches and cyber-attacks.
We accept that due to the nature of the services we provide we face threats from both internal and external factors but will always
endeavour to mitigate the impact of any breach and carry out prompt remedial actions.
We continue to make significant investments in cyber-security, particularly with respect to our servers, endpoints, network and
application security devices (and nowadays including third-party Cloud infrastructure, platforms and software services provided by our
partners). We run planned penetration tests as well as seeking to meet specific security standards in line with customer requirements
as a provider of public services to government. We maintain a continuing programme of upgrading IT to ensure we operate on
supported versions of the hardware and software and risk assess any essential exemptions, standardise services where possible
and so this year are pleased to report that we continue to see a decreasing trend in the number of devices outside centralised
management and monitoring.
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 also includes accreditation or assessment against
government 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.
Serco regularly reviews how we protect and secure information in our custody to ensure we maintain our defences. This year we have
also approved for implementation in 2023 an additional investment in our cybersecurity tooling to assist in maintaining access to
our cloud environment systems while simultaneously improving our ability to prevent, detect, investigate and respond to advanced
threats against the background of the rising sophistication of modern attacks. 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 we operate and continuously improve our business in a compliant, ethical and responsible way.
We continue to invest in staff security training as a key mitigant to this risk. Security training is delivered via our Learning Management
System as part of the broader Serco Essentials framework, and this has been recently refreshed with updated material being launched
from January 2023. Training 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 subcontract 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, together with regular campaigns and awareness tests such as protecting against phishing threats.
Key risk drivers:
Non-compliant or
obsolescentsystems.
Non-compliance or
misconfiguration with policies
and standards.
Vulnerability of systems
andinformation.
Unauthorised use of systems.
Inadequate incident monitoring
andresponse.
Increased regulatory scrutiny.
Human factors leading to
databreach.
Failure to follow Data
Protection laws and Customer
requirements.
Poor data mapping
andretention.
Material controls:
– Enterprise Architecture Boards and
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
awarenesscampaigns.
– Data Protection Officer
programme and Data Protection
Championsnetwork.
– Monitoring Data protection laws and
Customer requirements.
– One Trust data inventory mapping and
data retention programme.
Mitigation priorities:
– Perform market appraisals of technology when bidding new
contracts and review existing technology at renewal points to
ensure 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 to
support mitigation priorities.
– Leveraging Cloud adoption to ensure standardised
controlmechanisms.
– A focus on the behavioural aspects of our employees.
– Maintaining compliance with government security standards.
– Data Protection training through Serco Essentials and
communication through International Data Privacy Day week
using ‘back to basics’ and other global campaigns reflected on
Serco.com/privacy.
– 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 through the Global Data Protection
and Information Security Working Group.
– Gold IAPP Membership and data protection champions.
Profitable and sustainable
Winning good
business
Executing brilliantly
A place people
are proud to work
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Contract non-compliance, non-performance or misreporting
With more than 50,000 employees directly or indirectly 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, these failures are minor, 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 such material failure levels throughout the past year, but have at times seen near misses, particularly
where high levels of performance 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 a near-term focus on:
understanding and clarity of contract commitments at bid stages; 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 review and relaunch of the SMS in 2023 will bring greater clarity to what is expected by each
persona throughout the business cycle. The relaunch 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.
Key risk drivers:
Not setting the right tone from
thetop.
Unclear contract requirements/
obligations.
Human error (deliberate
orunintentional).
Operational delivery or
reportingfailures.
Material controls:
– Contract Management Application.
– Monthly performance reviews at Contract,
Business Unit and Divisional level.
– Business Lifecycle Review team process.
– Communication of Our Values and Code
ofConduct.
– Speak Up process (Ethicspoint).
– Extensive internal and external assurance
reviews, including independent third-party
reviews and customer oversight processes.
Mitigation priorities:
– Strengthen processes related to agreeing
clear contracts, change management, bid to
contract handover and KPI reporting, formalised
through the enhanced application of the
SercoManagementSystem.
– Contract Management training (Global
andDivisional).
– Greater visibility of performance through our
contractperformance dashboard 'Gauge'.
– Continued focus on consistent approach to
riskassessment.
– Operational excellence improvement plans.
– Ongoing ethics, business conduct and
compliancetraining.
– Improvements to assurance framework and activities.
Principal Risks and Uncertainties continued
102 Serco Group plc Annual Report and Accounts 2022
Significant failure of the supply chain
As a result of a significant failure in Serco’s end-to-end supply chain to perform to the required standard, Serco may be exposed to
risks that mean Serco is unable to meet its customer obligations, perform critical business operations or win new business. Serco
uses thousands of suppliers globally each year and we accept that it is not feasible to monitor and manage the performance of
every supplier. This risk also includes risks to Serco from non-business critical suppliers and from the suppliers of our suppliers.
Consequently, we take a proportionate approach to management of these third parties and have a moderate risk appetite for
usingthem.
Over the last year, we have continued to see growing global supply chain risk, not just through increased reliance on suppliers
through subcontracting and complex supplier services, but also volatility in the external environment through macroeconomic and
geopolitical events as well as increasing environmental and social regulation.
To take account of these growing supply chain risks, our newly established Supplier Risk Management Framework, which was
developed over the last year, encompasses the following risk exposures: information security and cyber; data protection; regulatory
and legal; health and safety; environmental; business integrity and ethics, financial; performance and resilience. Each of these risk
exposures has been considered in relation to stages of the supplier life cycle from supplier sourcing, contracting, onboarding,
ongoing monitoring and exit, with gaps identified.
Where the performance of these third parties fall within our criteria of 'severe or major business critical' or where there are suppliers
with material inherent risk against the range of risk exposures in our Supplier Management Framework, we seek to mitigate that
uncertainty by endeavoring to put controls in place at each stage of the supplier life cycle.
Implementation of the Supplier Risk Management Framework is being progressed through a phased Divisional focus. A tiering
approach to identifying the most material risk suppliers is being developed, which will enable better monitoring of the most material
risk suppliers across the range of risk exposures, proportionate to the risks these represent for our business.
The Group-level risk remains elevated given macroeconomic circumstances, continued considerable inflationary pressures and
consequent supply chain challenges for the foreseeable future. Although there is a risk of disruption in all Divisions, the highest
perceived risk is in our UK&E Division where we continue to experience and manage localised challenges.
Key risk drivers:
Inadequate procurement standards,
operating procedures and controls.
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.
Material controls:
– SMS Procurement Policy, Standards and
Procedure including Supplier Code
ofConduct.
– Supplier checks (pre-qualification/
onboarding).
– Serco standard contracts where possible
including appropriate obligations, Key
Performance Indicators and Service
LevelAgreements.
– Supplier Management Programme for
most business-critical suppliers including
performance, contract compliance and
riskmanagement.
– Annual procurement review process of
business-critical suppliers.
Mitigation priorities:
– Phased and proportionate implementation of Supplier
Risk Management Framework, including supplier
triage and assessment.
– Enhance Procurement and Supply Chain Group
Standard improving clarity and understanding of policy
requirements, processes, controls and responsibilities.
– Risk assessment and mitigation plans incorporating
actions to improve effective implementation of key
risk controls for all material risk rated business-
criticalsuppliers.
– Review of supplier management programme, aligning
to 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.
Profitable and sustainable
Winning good
business
Executing brilliantly
A place people
are proud to work
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PEOPLE RISKS
Failure to act with integrity
As a people-based business employing over 50,000 colleagues there is an inherent risk of rogue employees engaging in significant
corrupt or dishonest acts including bribery, fraud, misreporting, cheating or lying. Such behaviour might arise through the actions
of rogue employees or as a result of pressures individuals may feel they are being placed under to deliver financial or operational
performance. Were we to fail to manage this risk it could lead to: the loss of existing business; restrictions on our ability to bid or win
new business and a reduction in our ability to attract high-quality people or partners. It could also impact shareholder, investor and
financial institutions’ confidence in Serco and for these reasons we operate an averse risk appetite to this risk.
After significant work the DPA was closed out successfully with no action being taken by the SFO. That means we have been released
from all associated undertakings. Much of the work completed is about continuous improvement in programmes and processes to
manage this risk and these activities will continue and remain a focus for management attention. While the DPA has ended the impact
of something going wrong remains high and therefore we have not changed the risk rating to recognise that customer tolerance if
found to have been misrepresenting and/or misreporting data at this critical time has the potential for serious reputational impact.
Other emerging factors that could impact this risk include fast changing sanction regulations following recent world events against
which we need to remain vigilant. This places increased importance on due diligence of third parties and our new screening provider
is strengthening our levels of review. We have seen increasing regulation, particularly out of the EU, e.g. Whistleblowing directive and
supplier due diligence including human rights and have also seen more active enforcement by regulatory authorities. Assurance of
compliance controls is in place and remains key. Finally, there is the general economic pressure/cost of living which is hitting everyone
and we recognise this may increase the risk of fraud.
This risk relies not just on clear policies and procedures but also behaviours. That is why our values and purpose sit at the top of
our Management Philosophy described on page 11 and integrity sits at the centre of and underpins our ESG framework. One
achievement this year was the relaunch of our Code of Conduct (mycode.serco.com) which has been designed to be clear and
engaging and a useful tool for all colleagues to understand what the right thing to do is. In addition, we have evolved our mandatory
training for all colleagues and are updating our management modules for 2023, which continue to reinforce our strong tone at the
top, and further developed our ESG framework as outlined on page 36.
Key risk drivers:
Not setting the right tone from
thetop.
Weak values and culture.
Increased pressure to deliver.
Ineffective systems and processes.
Weak diligence on where we work
and who we work with.
Material 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; 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.
– Group-wide Assurance programme.
Mitigation priorities:
– Continue to drive leadership ownership and
accountability for a strong ethical culture.
– Roll out refreshed Ethics Compliance controls and
procedures linked with the refresh of the SMS.
– Embed new due diligence processes for all
thirdparties.
– Complete a review of Speak Up provision and related
processes to improve efficiency and better manage
risk of retaliation.
– 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.
Principal Risks and Uncertainties continued
104 Serco Group plc Annual Report and Accounts 2022
Failure to attract, engage and retain key talent
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 30. 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 regularly track turnover and vacancy rates but recognise that an
element of churn is healthy for any business, meaning that we are not averse to change.
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. It should be noted that, although difficulties in relation to labour markets
continue, the overall downward trajectory of vacancies has continued and by the end of the year had reduced by over 1000 with
our recruitment teams making good progress. The positive trend has been seen across all Divisions with a number of our initiatives
paying off, including our global employer brand refresh, the go-live of new recruitment technology in AsPac, increased utilisation of
recruitment tools and processes and a refresh of our internal and external career websites.
The Board continues to ensure effective succession planning, both for Executive Committee and Group roles noting the successful
Board and Executive Committee changes made this year as detailed in the Chairmans Statement on page 4.
Key risk drivers:
Lack of staff development.
Poor talent management and
succession planning.
Low employee engagement.
Unsatisfactory reward framework.
Recruitment failings.
Inability to attract appropriate new
hires.
Material controls:
– Talent Management and Succession
processes.
– Leadership capability development.
– Targeted retention arrangements.
– Critical Resource Planning.
– Tracking of turnover and vacancy rates.
– Annual Performance Management process.
– Exit interview surveys.
– Annual Viewpoint survey.
– Focus on colleague health and wellbeing.
Mitigation priorities:
– Ensure up-to-date understanding of local
employmentmarkets.
– 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 staff and attraction of new.
– Continue with detailed review of succession plans
and mitigation strategies as part of the Talent
Reviewprocess.
– 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.
Profitable and sustainable
Winning good
business
Executing brilliantly
A place people
are proud to work
105
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Health, safety and wellbeing
The diversity of services provided by Serco exposes our employees, customers and third parties to a wide range of health, safety
and wellbeing 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
wellbeing 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 wellbeing risk and aim to ensure that working for Serco does not impose any additional wellbeing challenges on our
employees. This is a wide-reaching risk that directly supports the KPI target for Lost Time Incident Frequency Rate and Major Incident
frequency rate as described on page 30 and other HSE related metrics outlined in our ESG report on page 67. 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 wellbeing 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 wellbeing
and the prevention of ill health. 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.
While the impacts of the Covid-19 pandemic continue to challenge our people and services, these have largely merged into broader
risk categories related to the wider public health, political and economic climates in which we are operating. The current cost-of-living
challenges, for example, can trace their routes to the pandemic and are now being exacerbated by a number of global drivers, from
the war in Ukraine to political decision-making. 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 risk. As with the pandemic, our Health, Safety and Wellbeing teams continue to support our organisational response across
the business through key mitigations, including enhanced risk assessments, financial wellbeing support and updated training resources.
We continue to engage our people with this work and, through Viewpoint, the Safety Culture Survey and the Mind Workplace
Wellbeing Index, can confidently comment 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 similarly, 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.
Key risk drivers:
Failure of the Serco Safety
Management System.
Insufficient communication of key
issues, risks and changes.
Lack of/out-of-date task-
specificcompetence.
Human factors impact on behaviour.
Occupational wellbeing risks
including psychosocial risks.
Public Health and wellbeing risks.
Behavioural failures/human error
resulting in injury or incident.
Global economic challenges
manifesting in colleague safety and
wellbeing issues and incidents.
Future impact of cross-cutting risks for
example Catastropic Incident, Legal
and Regulatory etc.
Extreme weather events such as fire
and flooding.
Material controls:
– Serco Health, Safety, Environmental
and Wellbeing (HSEW) Strategies and
Safety Management System (policies
andprocedures) underpinned by our
ESGframework.
– Safety and wellbeing training,
communications, and guidance (inc. Serco
Essentials) and individual development
plans and processes based on role and
operational risk.
– Spontaneous and planned preventative,
maintenance, audit, inspection and
repairprogrammes.
– Effective incident/near-miss observations
reporting and investigations and effective
use of ASSURE (independent reporting and
compliance system).
– A programme of first, second and third
lineassurance.
– Risk assessments and supporting safe
systems of work for activities.
Mitigation priorities:
– Continue to embed updated Health, Safety,
Environment and Wellbeing strategies and a positive
and equitable culture.
– Increase safety observation, Zero Harm Engagement
and Safety Moment activity across the regions.
– Drive wellbeing 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.
– Further embed the Serco (Health, Safety,
Environmental and Wellbeing) Strategies and Safety
Management System (policies and procedures).
– 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 CRC, Board and Executive Committee
oversight and review.
Principal Risks and Uncertainties continued
106 Serco Group plc Annual Report and Accounts 2022
HAZARD RISKS
Catastrophic incident
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 the KPI target for Major Incident Frequency Rate as
described on page 30. 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 2022 our five-step plan to ensure each Division continues to assess risks at a contract level to ensure that all relevant
material risks have been identified, to assess and assure mitigations, including insurance cover, are appropriate and have been
embedded. 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 77. The former Health, Safety and Wellbeing
elements of this risk have been moved to the Health, safety and wellbeing 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 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
managementoversight.
Inadequate planning or response
to a catastrophic event, including
extreme weather or a climate change-
relatedevent.
Inadequate assurance
andperformance.
Inadequate insurance cover.
Material controls:
– Regular reviews of high-risk contracts.
– HSEW Strategies and Safety Management
System (policies andprocedures)
underpinned by our ESGframework.
– Safety training (including Serco
Essentials) and individual development
plans and processes based on role and
operationalrisk.
– 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.
Mitigation priorities:
– 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
riskmanagement.
– Review and 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.
– Focus on maintenance and testing of robust business
continuity, incident management and disaster
recovery plans across each Division and function.
Profitable and sustainable
Winning good
business
Executing brilliantly
A place people
are proud to work
107
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LEGAL AND COMPLIANCE RISKS
Material legal and regulatory compliance failure
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. 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, trade compliance, competition and antitrust, human rights and modern slavery.
The management of this risk is a key enabler of Serco’s governance for ESG purposes.
Key risk drivers:
Lack of governance and oversight.
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
andtools.
Legal or regulatory compliance failure
by a third party.
Class action litigation and increasing
regulatory fines.
Material controls:
– Externally appointed legal specialists
and internal legal team monitoring and
horizon scanning on legal and regulatory
obligations and changes.
– Legal and contract subject matter experts
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
TradingPrinciples.
– Third-party due diligence on customers
andsuppliers.
– Targeted compliance and assurancereviews.
– Speak Up process and systems
and corporate investigation case
managementsystem.
– Group led ethics and compliance tools,
frameworks and platforms, including anti-
bribery and corruption.
– Trading principles refresh and
enhancedBLRT and Investment
Committeerequirements.
– Ongoing targeted compliance and
assurance reviews.
– SMS policies and procedures including data
protection and fraud.
– Serco Essentials training.
Mitigation priorities:
– 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
riskassessment.
– 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.
Principal Risks and Uncertainties continued
108 Serco Group plc Annual Report and Accounts 2022
Viability Statement
In accordance with provision 31 of the UK Corporate Governance Code
published by the Financial Reporting Council in July 2018, the Directors
have assessed the prospects of the Group over the three-year period to
31 December 2025.
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 57% (2021: 63%) 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 financials for the last three years of this period are largely
extrapolations of key assumptions used in the budget process.
Given the difficulties of forecasting over a longer time period
it would be inappropriate to draw definitive conclusions on
the future prospects of the Group and challenging to develop
appropriate sensitivities and mitigation strategies. Therefore,
whilst the five-year business plan continues to be developed,
its nature is a strategic goal rather than a shorter term forecast
against which a definitive statement can be made.
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 are based on a bottom-up Budget exercise
for 2023 and 2024, and an extrapolation to 2025 using higher
level assumptions based on local market growth rates and
identified opportunities which has been approved by the Board.
The Group’s covenant net debt balance at 31 December 2022
is £224.4m. The Group’s base projections indicate that debt
facilities and projected headroom are adequate to support
the Group over the period to 31 December 2025. 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
plausiblescenarios.
Funding facilities
At 31 December 2022, the Group’s principal debt facilities
comprised a £350m revolving credit facility refinanced during
2022 over a five-year term (of which £nil was drawn), and £266m
of US private placement notes. The principal financial covenant
ratios are consistent across the private placement loan notes and
revolving credit facility and are outlined on page 92.
During the period of assessment, £142m of the Group’s US
Private Placement (USPP) loan notes mature. The long-term
forecasts supporting this statement assume that if the acquisition
facility is not refinanced and no further debt is raised, 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 Group 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 98 to 108 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 contract non-compliance, major information security
breach or a material legal and regulatory compliance failure.
109
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Strategic Report
Serco Group plc Annual Report and Accounts 2022
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 before the Group has
insufficient liquidity available in April 2025, on the assumption
that all USPPs and other facilities are repaid during the period.
May 2024 is the point with the lowest amount of liquidity
headroom 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 57%
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 two significant contracts in 2023; its
Immigration Services contract in Australia and Center for
Medicare & Medicaid Services (CMS) in the US which were both
retained when previously rebid. We have modelled a severe
but plausible scenario in which the outcome of both of these
rebids are unsuccessful, with the analysis demonstrating that
the Group would remain viable over the assessment period. In
spite of the outcome of these rebids, we will continue to focus
on margin improvement through improved efficiency whilst
focusing business development investment on the most attractive
marketopportunities.
On 23 February 2023 the Group announced that it had been
successful in the rebid of the CMS contract which significantly
mitigates this risk. However the decision may not eliminate the
risk in its entirety as the award could potentially be protested.
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.
Approved by the Board of Directors and signed on its behalf by:
David Eveleigh
Group General Counsel and Company Secretary
27 February 2023
Viability Statement continued
110 Serco Group plc Annual Report and Accounts 2022
Corporate Governance
112 Chairman’s Corporate Governance Overview
114 Governance At a Glance
115 Board of Directors
118 Board and Governance
121 Section 172 (1) Statement
127 Group Risk Committee Report
130 Audit Committee Report
136 Nomination Committee Report
139 Corporate Responsibility Committee Report
142 Remuneration Report
170 Directors’ Report
176 Directors’ Responsibility Statement
Serco Group plc Annual Report and Accounts 2022
Financial Statements
Corporate Governance
Strategic Report
111
Dear Shareholders
I am pleased to present the Corporate Governance Report for
2022. 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 page 119.
Our markets and strategy were comprehensively reviewed during
2021 and, following the 2022 Strategy Review, our view remains
that our strategy and operating model continue to deliver
competitive advantage and differentiation, enabling the business
to grow faster than the overall market. Further information on how
we are performing against our strategic objectives can be found
on pages 25 to 30. 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 36 to 73 and in our separate ESG Report, available on the
Company website, www.serco.com.
Changes to the Board
As announced on 12 September 2022, Rupert Soames confirmed
to the Board his intention to retire from the Company. He stood
down both from his role as Group Chief Executive Officer
and from the Board at the end of December 2022, and was
succeeded by Mark Irwin, who was previously the Chief Executive
Officer of Serco’s UK and Europe Division. Mark was chosen by
the Board after a rigorous selection process that involved both
internal and external candidates. During our selection process it
was clear that Mark’s deep knowledge of Serco in the UK, Europe
and Asia Pacific, as well as his prior experience working in the US
and the tremendous results he has delivered for us in all his roles
make him the ideal person to lead the Group through its next
phase of growth.
On behalf of the Board, I want to pay tribute to Rupert. Serco is
unrecognisable from the business that he joined in 2014. Under
his leadership, the business was stabilised and a clear strategy
developed and executed, which has resulted in the strong and
successful business it is today. Rupert should be really proud
of what he achieved. Further information on Mark’s skills and
experience are provided in his biography on page 115 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 pages 136 to 138.
Chairman’s Corporate
GovernanceOverview
– Group Chief Executive
Officersuccession.
– Executive Committee succession,
with changes to the Americas and
UK and Europe Divisional Chief
Executive Officer roles.
– Growth of the business in Europe,
with a number of acquisitions.
– Increased focus on ESG.
– Completion of the 2022 share
buyback programme.
– Completion of the refinancing.
– Closure and exit of the Deferred
Prosecution Agreement with the
Serious Fraud Office.
– Responding to the cost-of-living
crisis by supporting further
payments to employees and other
initiatives.
This report sets out how Serco is governed
and the key activities of the Board of Directors
in promoting effective governance during
2022. Further information on how the Company
complied with the UK Corporate Governance
Code during 2022 is set out on
pages 260 and 261.”
John Rishton
Chairman
Highlights of 2022
112 Serco Group plc Annual Report and Accounts 2022
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 Boardmeeting with only the Non-
Executive Directors present and to have informal dinners –
attended by all members of the Board and towhich 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 the outcome of this
review and progress against the recommendations from the 2021
externally facilitated review are set out on page 138.
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 outon page 66.
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 in regard to senior
management. More information is provided in the Nomination
Committee Report on pages 136 to 138.
Environment, Social and Governance
Our commitment to Environment, Social and Governance (ESG)
continues to be central to the way we operate. The Corporate
Responsibility Committee provides formal oversight of our ESG
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 142 to 169. Further details of the Company’s approach
to ESG matters and activity during the year are provided in the
ESG section of this Annual Report on pages 36 to 73 and in our
separate ESG Report, available on our website.
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.
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 Group
Colleague Communications Manager, ensures the Board fully
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
(70) and we received 12,697 ‘Tell the Board’ comments, which
were considered as part of a deep dive undertaken by the Board
on the Viewpoint outputs.
As in 2021, accompanied by senior management, I and other
members of the Board attended a number of meetings with
shareholders during the year 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
byregulation.
Further information about how the Board engaged with
stakeholders and how stakeholder feedback has influenced
Board decisions is set out in the s172 Statement on pages 121 to
126.
In addition to our standalone ESG Report, we have published a
separate People Report which is available on our website,
www.serco.com.
John Rishton
Chairman
27 February 2023
113
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Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Independence
78%
Chair
*
1
Executive Directors 2
Independent Directors 6
* The Chair was independent on
appointment.
Independence
2
Female
44%
Gender
2
Further information on Board
diversity considerations is provided
in the Nomination Committee Report
on pages136 to 138. The Senior
Independent Director is female.
Other than
White
~
2 of 9
Ethnic Group
3
Tenure
1
0-3 years
55.5%
Tenure
3
4-7 years
33.3%
Board Skills Assessment 2022
Skills and Experience
Total
Very
Limited Limited Moderate Substantial
Very
Substantial
Environment (E in ESG) 2 5 2 9
Social (S in ESG) 1 2 4 2 9
Governance (G in ESG) including of
PLCs and complex global groups
1 1 1 6 9
Previous and/or current PLC board &
committee experience
1 2 6 9
Financial expertise including banking,
financing and audit etc
1 2 2 4 9
HR & remuneration in international
businesses
1 3 3 2 9
Working with governments 1 1 3 2 2 9
Outsourcing contracting 1 1 1 3 3 9
Leadership of complex global groups 1 8 9
Management and oversight of group
health and safety arrangements
1 5 3 9
Risk management, ethics and
compliance
3 6 9
People and culture including D&I,
employee inventives and change
programme implementation or ongoing
oversight etc.
1 4 4 9
Technology, digital and cyber security 6 3 9
Strategy and M&A of complex global
groups
1 4 4 9
7-9 years
11.1%
0-3 years
44.4%
4-7 years
33.3%
7-9 years
22.2%
Governance At a Glance
Skills and Experience
The UK Corporate Governance Code 2018 (“the Code”)
The Board confirms that, during 2022, the Company has complied with the principles
and provisions of the Code, which is available on Financial Reporting Council website,
www.frc.org.uk, with the exception of provision 38 relating to the alignment of Executive
Director pension contributions with those available to the workforce
4
.
Details on how we have applied the principles set out in the Code can be found
throughout the Directors’ Report. Our full Corporate Governance Statement outlining
our compliance with the Code is available on pages 260 and 261.
1 As at 31 December 2022.
2 As at 31 December 2022 and as at the date of this report.
3 As at the date of this report.
4 As outlined in 2020 and 2021 phased arrangements were in place to reduce the Chief Executive Officers’
pension contributions to be in line with those of the wider workforce by 1 January 2023, in accordance with
Investor Association guidelines. With the decision of Rupert Soames to step down from the Board on
31December 2022, this is no longer an issue in 2023.
* One Director did not disclose their Ethnic GroupResponse Category.
~ Where White is as defined by the Office of National Statistics Ethnic Group Response Categories for England.
Other than
White
~
1 of 9
*
Ethnic Group
1
Undisclosed
*
1 of 9
114 Serco Group plc Annual Report and Accounts 2022
GRA N CR GRA N CRGRA N CR
Mark Irwin
Group Chief Executive Officer
Nigel Crossley
Group Chief Financial Officer
John Rishton
Chairman
Board of Directors
Group Risk Committee
Audit Committee
Corporate Responsibility CommitteeNomination Committee
Remuneration Committee
Key to Committee membership
GR
Committee Chair
A
CN
R
Appointed to the Board
January 2023
Skills and experience
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 an MBA from Victoria University.
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.
Current external commitments
None.
Appointed to the Board
April 2021
Skills and experience
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
Director of Finance and Transformation at EMI,
Group Financial Controller of RHM plc and
various finance roles at Procter & Gamble.
Current external commitments
None.
Appointed to the Board
September 2016 (Chair since April 2021)
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.
Current external commitments
Chair of Informa plc.
Non-Executive Director of Majid al Futtaim
Properties LLC.
115
Financial Statements
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Strategic Report
Serco Group plc Annual Report and Accounts 2022
GRA N CRGR
A N
C
R
GRA N CR
Kirsty Bashforth
Independent Non-Executive Director
Lynne Peacock
Senior Independent Director
Kru Desai
Independent Non-Executive Director
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.
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
Non-Executive Director, Chair of the
Remuneration Committee and a member
of the Nomination and ESG Committees of
PZCussonsplc.
Chief Business Officer of Diaverum AB (stepping
down in March 2023).
Director of QuayFive Limited.
Appointed to the Board
July 2017
Skills and experience:
Lynne Peacock has over 30years’ senior
management experience in a range of roles
including brand development, mergers
and acquisitions, change management and
businesstransformation.
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 Chair of the
Remuneration Committee of TSB Bank plc.
Chair of the charity, Learning Disability
NetworkLondon.
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).
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.
Board of Directors continued
116 Serco Group plc Annual Report and Accounts 2022
GRA N CRGRA N CRGRA N CR
Dame Sue Owen DCB
Independent Non-Executive Director
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
CardiffUniversity.
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.
Tim Lodge
Independent Non-Executive Director
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
ofCambridge.
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.
Ian El-Mokadem
Independent Non-Executive Director
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
anddisposals.
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.
Group Risk Committee
Audit Committee
Corporate Responsibility CommitteeNomination Committee
Remuneration Committee
Key to Committee membership
GR
Committee Chair
A
CN
R
117
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Serco Group plc Annual Report and Accounts 2022
Board and Governance
What the Board has achieved in 2022
The Board, and each of its Committees, maintain a rolling agenda
of matters, including a day-long strategy review which considers
the Group’s strategy, supported by a budget for the following
year and a medium-term financial plan.
During the year, the Board received regular reports and
presentations at its scheduled meetings from the Group Chief
Executive Officer, and updates from the Group Chief Financial
Officer, Group Chief Operating Officer, Group General Counsel
and Company Secretary and other senior management on a
range of matters including: operational matters, bids, business
development pipeline, deep dives from across the Company’s
divisions and its shared services operation as part of the
monitoring of the Group’s operations, financial performance,
budgets, liquidity and tax matters, deep dives into key risks
and summaries of detailed risk reviews undertaken by the
Group Risk Committee, succession planning at Board and
senior management level, people matters (including employee
engagement, workforce diversity and inclusion, gender pay gap,
workforce remuneration, health, safety, and wellbeing), pensions,
investor relations, IT resilience and cyber security, ethics and
compliance, ESG, legal matters and reports from each Committee
Chair on matters discussed by each of theCommittees.
The Board also considered, and as appropriate approved, the full
and half year results, trading updates (including any unscheduled
trading updates), dividend policy and the recommendation
of final and approval of interim dividend payments, material
bid submissions, acquisitions, share buybacks, matters
recommended to it by the Committees, Non-Executive Directors’
fees, the Modern Slavery statement and changes required by
evolvinggovernance.
In addition, during 2022, the Board:
– Undertook detailed reviews of the Centres of Excellence such
as Justice, Health, and Facilities Management and Asset
Management.
– Received presentations on workforce management and
assetmanagement.
– Explored the proposed Space and Maritime strategies.
– Together with the Nomination Committee, working with an
external head-hunter, undertook a rigorous selection process
involving internal and external candidates resulting in the
recommendation of the appointment of Mark Irwin as Group
Chief Executive Officer, Tom Watson as Chief Executive
Officer of the Americas Division and Anthony Kirby as Chief
Executive Officer of the UK and Europe Division. Further
information is provided on page 136.
– Reviewed and approved our refreshed simplified ESG
Framework, creating better alignment with business
operations and Group principal risks. We summarise our
progress and performance in the ESG section of this Annual
Report on pages 36 to 73.
– Attended in person regional Divisional Leadership
Conferences, Colleague Connexion and Inclusion Hub
events, as well as virtual and on-site contract visits. In 2022,
members of the Board engaged in over 25 contract visits and
events (2021: over 30).
– Received regular briefings from Divisional management,
which included details of engagement with Divisional
stakeholders, strategy, performance, local market and
competitor positions, operational and employee matters,
and customer satisfaction and business development levels.
– Received presentations from Brokers in addition to updates
on investors perspective.
– Discussed responses from our people to the ‘Tell the Board’
section of the annual employee engagement survey,
Viewpoint. More details are provided on this on page 63.
– Held unscheduled Board and Committee meetings, as
appropriate, to consider trading updates, bids or
M&Aopportunities.
– Met with Divisional Risk Assurance Managers and Divisional
Ethics and Compliance Managers without Executive Directors
or other senior management present.
Board priorities for 2023
During 2023, the Board will continue to oversee those matters
referred to above with particular focus on:
– Safety.
– The transition of the Group Chief Executive Officer, the Chief
Executive Officer of the Americas Division and the Chief
Executive Officer of the UK and Europe Division.
– Profitable growth and the strategy that supports it.
– Key new bids and the evaluation of strategic
M&Aopportunities.
– Ensuring we continue to listen to key stakeholders.
– The continued assessment of any ongoing impacts of
inflation on the business and our colleagues.
– Supporting governments and their policies to address
ongoing immigration challenges.
– Overseeing the effectiveness of enterprise risk management.
– Evolving our approach to ESG.
The Board was keen to spend more time with the
Americas business in 2022 to better understand the
business and spend time with the management. A
number of key acquisitions such as WBB and METS
had taken place and Tom Watson took up the role of
CEO of the Americas Division on 1 September 2022,
onDaveDacquino’sretirement.
A number of the Board attended the Americas
Management Conference in February 2022. In May 2022,
PLC Board and Committee meetings were held in the
US attended by all of the Board. Additionally while in the
US, the Board carried out detailed reviews of each of the
Americas Business Units and the Americas Division as a
whole, as well as spending time with the Board of Serco
Inc, including the external directors, and the management
of the Americas Division (including the management of
the businesses acquired in the US over the last two years).
Members of the Board also attended Town Halls and local
inclusion events, a female leaders event, met graduates,
carried out site and contract visits, and held meetings
with our customers. The opportunity was also taken by the
Board to spend time reviewing financial controls, internal
audit, assurance, cyber defences and people programmes
across the Americas Division. Further details as a case
study on the broader governance of the wider Serco
groupon how the Americas Serco subsidiary is managed
isset out on page 120.
118 Serco Group plc Annual Report and Accounts 2022
The Board has a comprehensive corporate governance framework, with clearly
defined responsibilities and accountabilities to safeguard long-term shareholder
value and provide an effective platform to realise the Group’s strategy.
Board of Directors
Audit
Committee
Corporate
Responsibility
Committee
Group Risk
Committee
Executive Committee
Approvals and Allotment
Committee
Investment Committee
Nomination
Committee
Remuneration
Committee
Governance structure
Board of Directors
Committee comprised solely of Board members Committee comprised of Executive
Directors and other senior management
The Company’s governance structure is illustrated above. There is a schedule of matters reserved for the Board which is available on the
Company’s website. The Board has delegated certain of its responsibilities to the Audit, Corporate Responsibility, Nomination, Remuneration
and Group Risk Committees, the terms of reference of each of which are also available on the Company’s website. In addition, there is
a Disclosure Committee comprised of Executive Directors and other senior management which meets, as appropriate, to consider the
disclosure of information to meet legal and regulatory obligations under the Market Abuse Regulation.
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 this 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 Board recognises that such delegation needs to be much more than simple financial authorities and
has ensured areas such as risk, ethics, and new sector or country approaches have been captured.
The Executive Committee is chaired by the Group Chief Executive Officer and additionally comprises the Group Chief Financial Officer,
Divisional Chief Executives, the Group Chief Operating Officer
1
, the Group Strategy and Communications Director and the Group General
Counsel and Company Secretary. The 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 Investment Committee comprises the Group Chief Executive Officer, the Group Chief Financial Officer, the Group Chief Operating
Officer
1
, the Group Strategy and Communications Director, the Group General Counsel and Company Secretary and other members of
senior management. It acts on behalf of the Board to review, monitor, and approve bids, mergers, acquisitions and disposals and other
corporate activity within specific authority limits delegated by the Board.
The Approvals and Allotment Committee comprises the Group Chief Executive Officer, the Group Chief Financial Officer and the
Group General Counsel and Company Secretary. This Committee acts on behalf of the Board between Board meetings in respect of
matters delegated to it by the Board and to finalise matters already approved in principle, including the approval of documentation for
shareholders, the declaration of interim and the recommendation of final dividend payments and the allotment of shares.
The table below gives details of attendance at scheduled Board and Committee meetings during 2022. Ad hoc meetings of the Board
and/or its Committees took place during the year to consider matters such as acquisitions, unscheduled trading updates, succession
planning and major bids. During the year, the Audit and Group Risk Committees also held a joint meeting, attended by all members of
each Committee, to consider in detail the Enterprise Risk Management philosophy.
Board Audit
Corporate
Responsibility Group Risk Nomination Remuneration
John Rishton 8/8 – – 1/1 3/3 5/5
Rupert Soames (retired on 31 December 2022) 8/8 – 4/4 – – –
Nigel Crossley 8/8 – – – – –
Kirsty Bashforth 8/8 – 4/4 5/5 3/3 5/5
Kru Desai 8/8 5/5 4/4 – 3/3 –
Ian El-Mokadem 8/8 5/5 – 5/5 3/3 –
Tim Lodge 8/8 5/5 – 5/5 3/3 5/5
Dame Sue Owen 8/8 – 4/4 5/5 3/3 –
Lynne Peacock 8/8 5/5 – – 3/3 5/5
1 The role of the Group Chief Operating Officer is no longer a position on the Executive Committee and Investment Committee as the role was fulfilled by Anthony
Kirby who is now the CEO of the UK and Europe Division.
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Governance in subsidiaries in action
Serco Inc., a North American subsidiary registered in New Jersey, and Serco Group plc are party to a Special Security
Agreement (SSA) with the U.S. Department of Defense (DoD). A SSA enables companies that are considered by the
U.S. Government to be operating under Foreign Ownership, Control and/or Influence (FOCI) to maintain eligibility for
a facility security clearance, which Serco Inc. needs as its business includes the provision of defense-related services
for various agencies of the U.S. Government. A company is deemed to be operating under FOCI whenever a foreign
interest has the power to direct or decide matters affecting the management or operations of that company.
Pursuant to the SSA, Serco Inc. has additional layers of governance to ensure the protection of classified information
and export-controlled information entrusted to it. The SSA restricts unauthorized access to classified information
and other information that is the subject of U.S. export control laws and restricts influence over Serco Inc.’s business
or management in a manner that could result in the compromise of classified information. Responsibility for such
protection sits with the Serco Inc. board of directors and a committee of the Serco Inc. board, the Government Security
Committee, that, in accordance with the SSA, comprises directors appointed from within the Serco Group (‘Inside
Directors’) and independent external directors (‘Outside Directors’). The Board of Serco Inc. and the Government
Security Committee each meet four times per year. Further governance is provided by way of a Compensation
Committee, an Audit Committee and an Ethics Committee which each meet twice per year. Serco Group plc and
Serco Inc. take their responsibility under the SSA very seriously, and Serco Inc. has a strong and open relationship
with the Defence Counterintelligence and Security Agency (DCSA), an agency of the U.S. government that oversees
compliance with the SSA and related national security laws and ensures that the sensitive and classified U.S.
government information entrusted to Serco is properly protected from attacks and vulnerabilities.
The members of Serco Inc.’s board of directors are:
David Dacquino
Chairman of the Board
and Officer Director
Thomas Watson
Chief Executive Officer,
Americas, and Officer
Director
Pamela Drew
Outside Director and former President,
Information Systems Division, Exelis Inc.
Carol Pottenger
Outside Director and
retired Vice Admiral,
USNavy
Rupert Soames
former Serco Group plc
CEO and Inside Director
Nigel Crossley
Serco Group plc Chief
Financial Officer and
Inside Director
Tina Jonas
Outside Director and former Under
Secretary of Defense (Comptroller) for the
U.S. Department of Defense and former
Chief Financial Officer for the Federal
Bureau of Investigations
Board and Governance continued
120 Serco Group plc Annual Report and Accounts 2022
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 s172 (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 purpose, or, as we call it, our mission, is to be a valued and trusted partner of governments, delivering superb public services
that transform outcomes and make a positive difference to our fellow citizens. We gain scale, expertise, and diversification by
operating internationally across five sectors and four geographies: Defence, Justice and Immigration, Transport, Health and other
Facilities Management and Citizen Services, delivered in the UK and Europe, North America, Asia Pacific and the Middle East. Our
Management Philosophy is simple and clear and applied across our business to deliver long-term value to our people, customers,
suppliers, shareholders and other stakeholders.
Further details are referred to elsewhere in this report:
- The Management Philosophy can be found on pages 11 and 12.
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 to be a valued and trusted partner of governments, delivering superb public services that
transform outcomes and make a positive difference to our fellow citizens.
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. The Board conducts a focused review of the output from the Viewpoint survey every year and, as a result
of the responses received to the 2022 Viewpoint survey, we are currently focusing on improving communication, career opportunities
and ways to engage with our colleagues while providing them with multiple channels to share their voice (2021: creating career
opportunities and providing channels for colleagues to feel heard). There were 12,697 ‘Tell the Board’ responses submitted this year
(2021:12,609) and, as in previous years, compensation and recognition are key areas to be prioritised. In addition to this, our people
indicated that they would like the Board to focus on health and wellbeing.
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. This was launched in the UK in 2021 and in Australia, the Middle East and the
US during 2022. 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. Other members of the Board, the Executive Committee and leadership teams participated in a number of
these 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. The Board considered the challenges that many of our employees are facing as a result of the cost-of-living crisis
and the wider impact that this has on our stakeholders. The Company’s response is set out throughout the Annual Report, with more
detailed information in the ESG section of this Annual Report on pages 36 to 73.
During the year, the Company launched an ISAYE scheme in the UK, to be launched internationally where legislation permits. This is a
great opportunity for our people to share in the long-term success of the Company by entering into a savings scheme to buy shares in
the Company.
Further relevant details are referred to elsewhere in this report:
– Employee engagement metrics as part of the Key Performance Indicators on page 30.
– The ESG section of this Annual Report on pages 36 to 73.
– Remuneration Committee Report on pages 142 to 169.
– Our People Report, available on the Company’s website www.serco.com
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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 valued and trusted partner of governments, 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 Officer and Group Chief Financial Officer meet directly with different customers across all our regions and
the Divisional Performance Reviews, which are made available to the Board, also contain details on customer issues and engagement.
With the appointment of our new Group Chief Executive Officer while maintaining our platform strategy we have also decided
that the next steps in our growth journey will focus on three key new value drivers, one of which is ‘Customers’ – growing customer
impact and market share. We therefore expect that our consideration of customers will not only remain, but be increasingly central
to, our strategy going forward
In 2022, as usual we undertook our annual strategy process involving all parts of the business and taking several months. In 2022,
this was focused primarily on driving execution at the Divisional level of the new B2G Platform strategy developed in December
2021. As in previous years this process culminated in several Executive Committee sessions as well as a day-long Board
Strategy Day 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 25-27.
The Serco Institute is a think tank working to help governments develop the next generation of public service solutions for citizens. They
do this through developing research and insight on public services internationally and through trialling innovation in service design.
Updates on the work of the Serco Institute are provided to the Board by the Group Strategy and Communications Director. This
year, the Serco Institute has conducted research, held events and produced research papers, articles and thought pieces on a
number of areas, including:
– Career breaks and the workplace of the future in the report ‘Breaking Point’. Based on simultaneous polling of over 7,000
people across Australia, the UK, the US and the UAE, they looked at people’s attitudes towards issues such as maternity,
paternity and bereavement leave, as well as the barriers people perceive when returning to work following a break.
– How to judge people’s feelings about public services in ‘User Experience in Government Services: The Need for a Unique
Approach’. A comprehensive review of the latest thinking in how to measure user experience and how it applies to services
provided by governments globally. The paper proved particularly popular in the Middle East with the UAE Government
publishing the report on their UX-dedicated research portal.
– Publicly funded active travel solutions, in ‘Micromobility: The future of urban transport?’ Based on new polling data, the
report called for the UK Government and local authorities to consider the wider social, environmental and health benefits of
micromobility schemes – such as e-scooters and bikes – instead of focusing primarily on funding considerations.
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 Officer and Group Chief Financial Officer engage directly with key suppliers and, via the Group 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 Enterprise Risk, the Group Director
Business Compliance and Ethics and the Director of Procurement.
Further details are referred to elsewhere in this report:
– Pipeline and Order Book metrics as part of Key Performance Indicators on page 29.
– Divisional Reviews on pages 31 to 35.
– The ESG section of this Annual Report on pages 36 to 73.
– Principal Risks and Uncertainties on pages 95 to 108 in particular the risks of contract non-compliance, failure to act with
integrity and failure to grow profitably.
– The Serco Institute website at www.sercoinstitute.com.
Section 172 (1) Statement continued
122 Serco Group plc Annual Report and Accounts 2022
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 wellbeing 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 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 ESG
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 ESG Framework focus areas have oversight from the Board through the Corporate Responsibility Committee.
We support and contribute to societal objectives, helping meet climate and environmental challenges through our services and
by decarbonising in line with global climate science. We also deliver sustainable procurement improvements and implement
operational efficiencies to avoid and minimise resource use, supporting the transition to a circular economy. We also strive to ensure
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, Business Compliance & Ethics, Director, Health, Safety and Environment
and the Group Head of Environment, Energy and Sustainability provide regular updates on ethics and business conduct, the Speak
Up service and environmental strategy.
Further details are referred to elsewhere in this report:
– The ESG section of this Annual Report on pages 36 to 73.
– The ESG section of our website at www.serco.com.
– 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.
Further details are referred to elsewhere in this report:
– The ESG section of this Annual Report on pages 36 to 73.
– Principal risks and Uncertainties on pages 98 to 108.
– The ESG section of our website at www.serco.com.
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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 are concerned with a broad range of issues, including our CEO succession, the cost-of-living
crisis, the ongoing war in Ukraine, other operational and financial performance, developments in our markets for public services, the
execution and delivery of our strategy, the sustainability of our business, and the impact Serco has on the communities we serve and
the environment in which we operate.
The Group Chief Executive Officer, Group Chief Financial Officer 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. Our new
Group Chief Executive Officer, Mark Irwin, has already met with many of our investors through his previous roles in the UK and
Europe and Asia Pacific Divisions and will continue to become better acquainted with them in his new role. 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.
The Executive Directors had a significant number of meetings with shareholders and analysts over the year (69 meetings). During
2022, the Chair had 14 meetings with shareholders, the Senior Independent Director had 13 meetings with shareholders, and the
Chair and a number of the Board attended the full year and half year results to meet shareholders and analysts. We also repeated
our annual governance roadshow with the Chairman of the Board, the Chair of the Remuneration Committee, and the Group General
Counsel and Company Secretary meeting a number of shareholders.
The Group Chief Executive Officer, Group Chief Financial Officer 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 2022 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 drive
ad hoc engagement with stakeholders and are available on the Company’s website.
We will continue to actively engage with our investors, shareholders, analysts and debt investors in the coming year.
Further details are referred to elsewhere in this report:
– Key Performance Indicators on pages 28 to 30.
– The ESG section of this Annual Report on pages 36 to 73.
– Details of notifiable interests in the shares of the Company are provided on page 174 of the Directors’ Report.
Section 172 (1) Statement continued
124 Serco Group plc Annual Report and Accounts 2022
Principal decision S172 considerations
Returning funds to shareholders:
Dividends and Share Repurchase
Programme 2022
See also:
– Finance Review on pages 83
to 94
– Capital Markets Day 2021
downloads and recording on
www.serco.com
– 2021 full year results
announcement
(24February2022)
– Share buyback announcement
(8 March 2022)
– Results of AGM
announcement (28 April 2022)
– 2022 half year results
announcement
(4August2022)
In February 2022, the Board recommended the payment of a final dividend in respect of the
year ended 31 December 2021 of 1.61 pence (2020: 1.40 pence), representing dividend
cover of 5.2x, which was unanimously supported by shareholders at the 2022 Annual General
Meeting.
During the year, the Board considered whether to make an interim dividend payment and to
recommend a final Dividend during the year and decided to declare an interim dividend of
0.94 pence (2021: 0.80 pence) in respect of the first half of 2022 and is recommending a final
dividend of 1.92 pence per share in respect of the year ended 31 December 2022, representing
dividend cover of 4.9x. The final dividend will be submitted for approval by shareholders at the
2023 Annual General Meeting.
When the Company resumed paying dividends in respect of 2020, a starting level of cover
of around 4x was targeted but the Board considered that the strong performance on Covid-
related activities had increased cover temporarily and recommended a dividend representing a
higher level of cover than the targeted 4x. As explained at our Capital Markets Day in December
2021, our strong balance sheet, confidence in the outlook and good cash generation, mean
that the Board intend to reduce dividend cover progressively towards 3x over the coming years
and intend to continue to increase dividends to shareholders as part of the Company’s policy of
progressively reducing dividend cover towards 3x over the coming years.
In addition to the dividend payments, in 2022 the Company commenced a further share
buyback programme of £90m. Consistent with the Group’s capital allocation policy, the
objective of the programme was to provide additional returns to shareholders as well as aid the
Group in meeting its medium-term leverage targets. The buyback programme was completed
on 12 December 2022 and the repurchased shares, which are currently held in Treasury, will be
cancelled. The Board has agreed to buy back a further £90m of shares in 2023.
The Board discussed both the dividend and share buyback programme and considered that
this was in line with expectations. Positive feedback had been received from shareholders, as
a key stakeholder, on the Company’s capital allocation model and resulting share buyback
programme and dividend and this feedback was considered in the context of potential
acquisitions and future buybacks and the Company’s overall liquidity. The Company had been
prudent and had also taken advice from advisers.
Succession planning
See also:
– Nomination Committee
report on pages 136 to 138
– North America CEO
announcement (12 July 2022)
– CEO retirement
announcement
(12September2022)
Succession planning forms part of the annual agenda plan for the Nomination Committee and,
during the year, the Board approved the proposed succession plans for the roles of the Group
Chief Executive, the Chief Executive Officer, Americas, and the Chief Executive Officer, UK
and Europe. A rigorous selection process was followed, which included internal and external
candidates, details of which are provided in the Nomination Committee report.
Due to Mark Irwin’s deep knowledge of Serco in the UK, Europe and Asia Pacific, and his
prior experience working in the US, Anthony Kirby’s role in delivering the Group’s strong
performance over recent years, and Tom Watson’s recent experience as SVP, Defence in the
Americas Division and his extensive experience in providing services to the U.S. Federal
Government, the Nomination Committee concluded that the internal candidates selected were
the most appropriate for each role.
The Board considered that these appointments demonstrate to our people the effectiveness of
the approach across the Group to develop talent from within (where appropriate) and provides
our customers and shareholders with assurance that our senior management team has the
knowledge and experience to continue to support them in delivering superb public services to
our fellow citizens, and to continue to execute and deliver our strategy.
Agreement to acquire Sapienza
Group from TP Group plc (UKE)
See also:
– Acquisition announcement
(26 May 2022)
The Board considered how the acquisition would strengthen the Group’s space portfolio and
expand and enhance the offering and capabilities in the space market to existing and new
customers globally, and how it would support the Group’s growth strategy of becoming the
leading European provider of complex managed services for the space sector. The Board
also considered how the acquisition could create learning and development opportunities for
existing teams at Sapienza and across the Group, bringing together expertise and resources for
the benefit of customers, our people and the business.
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.
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Principal decision S172 considerations
Acquisition of ORS, a specialist
provider of immigration services
to public sector customers in
Switzerland, Germany, Austria
and Italy (UKE).
See also:
– Acquisition announcement
(1 September 2022)
The Board considered the strategic rationale and how this acquisition would add scale to
European operations, enabling the Company to work with and support government customers
across Europe who have a continuous and growing requirement for immigration and asylum
seeker support services; provide reach and capability to the Company’s position in immigration
services, which is one of the Company’s core sectors with large operations in the UK and
Australia and through which the Group has deep expertise of providing immigration services
with care and respect.
The Board also considered the cultural alignment of the workforce, cost synergies, integration
costs, and how the acquisition would be received by shareholders.
Contract to continue to provide
marine services for the Royal
Navy (UKE).
See also:
– Contract win announcement
(16 November 2022)
The Board considered how the Company could utilise the decades of experience and expertise
of the team of skilled mariners and engineers working at the sites and upon the Company’s
increasing global maritime presence to innovate for UK customers to support the UK Ministry
of Defence in providing services for the Royal Navy to assist with the movements of Royal
Navy ships in and out of harbour and providing a range of further support services, including
trialling new maritime technology, ferrying passengers, supporting military training exercises,
and the provision and maintenance of buoys and moorings at sites across the UK. The Board
also considered the bid in the context of the Company’s strategy to, in the longer term, provide
benefit to the Company’s shareholders. The Company was awarded a contract with the Royal
Navy, valued at around £200m, that would last for 27 months commencing in December 2022
and followed on directly from the end of the 15-year private finance initiative (PFI) arrangements
for the provision of marine services.
Submission of the final report to
the Serious Fraud Office (SFO)
under the Deferred Prosecution
Agreement (DPA) entered
into in 2019 and concluded in
July2022.
See also:
– The ESG section of this
Annual Report on pages 36 to
73.
– 2022 half year results
announcement
(4August2022)
The Board and its Committees regularly reviewed progress under the Company’s DPA plan to
ensure the Company was acting in accordance with the obligations and undertakings under the
DPA, until submission of the final report in June 2022 which was approved by the Board.
In July 2022, the SFO announced the expiry of the DPA and confirmed that the Company
had cooperated fully with the SFO and had fulfilled all its obligations agreed as part of the
DPA, including reviewing, improving and enhancing aspects of the Group-wide compliance
programme related to internal controls, compliance policies, and procedures.
The Board considered that the improvements and enhancements introduced to comply with the
DPA have helped to enhance the Company’s relationship with its key UK customers, improved
the governance of its suppliers in helping to ensure an ethical supplier base, and demonstrates
the strong values, robust governance and transparency in place across the Group and continue
to oversee management in maintaining these standards.
Payments to front line staff
See also:
– People report on our website,
www.serco.com
– 2022 half year results
announcement
(4August2022)
During the year, the Board considered how the Group could support our people in the face of
the surge in inflation seen during the year. Recognising the pressure many people, particularly
the lower paid, were (and continue to be) under, the Board approved a faster increase in pay
than originally budgeted and during the year the Company distributed an additional £9m in
one-off payments to all colleagues outside management grades.
Increases in pay is one of the reasons why the Board expects additional costs, which in turn
impacts on profits, but the mechanisms in place in many of our contracts will, over time, help
us to mitigate the effects of cost increases, and continue to innovate and improve the public
services provided to our fellow citizens on behalf of our customers and to continue to execute
and deliver our strategy in the longer term.
Section 172 (1) Statement continued
126 Serco Group plc Annual Report and Accounts 2022
Group Risk Committee Report
Group Risk Committee members
Ian El-Mokadem (Chair)
Kirsty Bashforth
Tim Lodge
Dame Sue Owen DCB
Dear Shareholders,
Membership of our Committee has remained stable during
the year with no changes made to its members with the Group
Chairman continuing to attend on a regular basis.
Throughout 2022 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 at Divisional level. We have
continued to review the risk profile on a quarterly basis and,
during these sessions, have held 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 and we have
continuedto:
– conduct “deep dives” with Divisions, considering and
challenging their approach to their material risks to gain a
deeper understanding of the management approach to
risk management generally, as well as reviewing risk
themes delivered by business leads;
– examine and debate detailed updates from principal risk
subject matter experts to gain a deeper understanding of
the current status of risks;
– review divisional risk registers to understand their
alignment with the Group’s principal risks;
– ensure that Divisions have adequate capability to
implement the Group’s Risk Management Framework;
– review the output from the Group Executive Committee’s
annual review of principal and emerging risks;
– maintain oversight of insurance trends and internal
insurance programme updates;
– monitor business continuity progress;
– oversee the Compliance Assurance activities; and
– monitor the commitments under the DPA until its cessation
in July 2022.
There has been continued focus on supporting the Group
ERM function to drive process improvements and endorse
developments towards a more integrated ERM methodology,
particularly in reference to how we define best practice for
Serco and in how Divisions are applying the ERM approach.
The actions identified under a Group-wide ERM capability
assessment have been embedded into Divisional execution
plans and progress has been made in many areas, noting that
some changes continue to be worked on as a longer-term
improvement activity.
The Committee has adopted formal oversight of a programme
of work to refine our Serco Management System and the
continued drive to deliver both improved consistency of
approach and resource models across the Group.
Improvement activity has also been a feature in our
compliance assurance approach, evolving the way we self-
assess controls to a more risk-based maturity model to drive a
richer controls dialogue across the contracts and to increase
value from the exercise.
Following a review by the Executive Committee, including a
review of external and emerging risk trends, it was agreed
that whilst there were no additions to the principal risks we
would add further detail to better articulate the risk scenarios
under Failure to Grow and also broadened the narrative of our
Information Security risk to ensure it is clear that it includes
matters of data governance and data privacy. We also chose
to expand the definition of our approach to the Catastrophic
Incident risk to include our ability to respond to an external
event such as fire, flood or a black swan style event.
Our treatment of both ESG and climate change 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 52 and 53,
and we continue to recognise its importance to our business
and stakeholders. Monitoring of our ESG and environmental
strategy, including climate change, is led by the CRC which
along with the Audit Committee supports our approach to the
TCFD reporting requirements. More detail on this area can be
found on page 74.
Similarly, we have chosen not to consider the current political
and geo-political volatility as a standalone principal risk and
instead consider it having direct and indirect impacts across
several of our principal risks, most notably under the Failure
to Grow, Integrity, Supply Chain and Health, Safety and
Wellbeing.
We have made some changes to the Executive Sponsors of
several our principal risks to reflect changes in the Executive
Committee. The Executive sponsor for each risk can been seen
against each principal risk on page 98.
Ian El-Mokadem
Chair of the Group Risk Committee
27 February 2023
127
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Corporate Governance
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Serco Group plc Annual Report and Accounts 2022
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 macroeconomic and financial environments.
Thekey responsibilities of the Committee are:
– overseeing the effectiveness of the Group’s risk management
framework, including the assessment of all the principal risks
facing the Group, and the action being taken by management
to mitigate risks that are outside of the Group’s risk appetite.
– challenging and advising the Board on the current risk
exposures facing the Group, future risk strategy and reviewing
regular risk management reports which enable the Committee
to consider the process for risk identification and management.
– assessing how key Group risks are controlled and monitored
by management.
– in conjunction with the Audit Committee, reviewing the
Group’s risk assessment processes, and ensuring both
qualitative and quantitative metrics are used to inform the
Board’s decision-making; and
– reviewing the Group’s capability to identify and manage
emerging risks, in conjunction with the other Board
Committees as appropriate.
Membership and attendees
The Committee is comprised solely of independent Non-
Executive Directors. The Board considers that each member of
the Committee is independent within the definition set out in the
UK Corporate Governance Code. Biographical details for each
member of the Committee are provided on pages 115-117. The
Committee met five times during the year, including an additional
meeting where the Risk Committee met with all other members of
the Board present. This additional meeting was a combined Risk
and Audit Committee to provide holistic oversight of assurance
activities across the scope of the two Committees to help ensure
no significant gaps in assurance coverage. Details of attendance
at meetings are set out on page 119. 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 Officer, the Group Chief Operating Officer, the Group
General Counsel and Company Secretary, the Deputy Company
Secretary, the Chairman, the Group Director Enterprise Risk and
the Head of Group Internal Audit.
Activities of the Committee during 2022
During the year the Committee’s key activities included:
– receiving updates regarding the Group’s principal risks,
detailing key changes and trends. These included discussion
on the potential impacts of challenges in the supply of
short-term resourcing, changes to the approach taken to
manage our Supply Chain risk, treatment of catastrophic risk
exposure and updates on governance, risk, and compliance
tooling options.
– considering internal and emerging risks and themes. These
discussions included treatment of ESG, climate change, political
volatility, IT infrastructure failure and geopolitical uncertainty;
– undertaking in-depth reviews (“deep dives”) of the following
risks: Major information security breach; Catastrophic
incident, including a session focused on Maritime related risk;
Material legal and regulatory compliance failure; and
Significant failure of supply chain. The principal risk of Failure
to act with integrity and risks around Health, safety and
wellbeing 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;
– 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 of key findings and process improvements to the
self-assessment process and proposed review of our Serco
Management System;
– continue to meet with the Divisional Heads of Compliance
without management present as an opportunity for a check in
and for any concerns or issues to be raised; and
– ongoing challenge and support of the Group Director
Enterprise Risk to improve, enhance and embed the risk
management framework.
2023 priorities and focus
During 2023, the Committee will maintain its focus on
undertaking detailed deep dive reviews into the Group’s principal
risks in line with our forward agenda. In addition, we will continue
to maintain a more flexible approach to include deep dives into
specific risk themes and emerging risks delivered by functional
leads and/or business unit subject matter experts from across the
Group operations. Meetings with the Divisional teams will also
continue. Committee attention will remain on the progression of
mitigation actions and their effectiveness, the development of
our Enterprise Risk Management approach and the review and
refresh of supporting policies, standards, and reporting.
In addition, we will focus on completion of changes identified
under the ERM process improvement initiative launched in 2021,
as well as working closely with the Audit Committee on any
changes required under the BEIS consultation and any potential
associated regulatory changes. We have commenced a review of
our Assurance framework to drive consistency of approach and
to satisfy ourselves that we target assurance activity in the right
areas aligned to our key risks that we anticipate will form the basis
of the anticipated need for an Audit and Assurance policy. We
will also continue our monitoring of governance of our Group-
wide compliance assurance activity, including greater oversight
of the three lines of defence and how they interrelate and work
effectively. The Committee will continue to retain time at the end
of each meeting to meet separately without management present
and invite one of the Divisional Heads of Compliance Assurance
to attend for part of this session. The Committee will also continue
to meet privately with the Group Director Enterprise Risk.
Serco’s approach to managing business risks and
internalcontrol
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 (“SMS”). To provide management assurance
that these controls are effective, we use a “three lines of defence”
compliance assurance model to test business compliance.
The Executive Committee is responsible for providing oversight,
challenge, and direction across the first and second lines of
defence, including the review of the Group Risk Register and
individual risks as required.
Group Risk Committee Report continued
128 Serco Group plc Annual Report and Accounts 2022
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 in these duties by the
Group Risk, Corporate Responsibility and Audit Committees.
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 2022 Annual Report and Accounts.
First line of defence – Contract Managers, Business and Function
leaders within the Group are responsible for identifying and
managing risks and for implementing associated processes
andcontrols.
We endeavour to ensure that appropriate processes and controls
are in place through the implementation of our SMS and that
suitably trained staff seek to ensure that customer, legal and
regulatory requirements are adhered to. A programme to review
our SMS to ensure it remains an effective and efficient vehicle
to document and communicate our processes and controls is
nearing completion.
In 2021, as part of our commitment to process improvement
we refreshed our approach to our annual SMS self-assessment,
introducing a maturity scale for the key principal and divisional
risks. Following its successful introduction, this year we now
mandate the minimum standards we expect each contract to
achieve with mandated action plans where the requirement is not
initially met. Progress against actions identified through this self-
assessment continues to be monitored by senior management.
We recognise that whilst the SMS controls can provide reasonable
assurance against misstatement or loss, this cannot be absolute.
Second line of defence – The Group Enterprise Risk Function is
responsible for the development and implementation of policies
and standards associated with Risk Management and Compliance
Assurance. It is the custodian of the Group Compliance Assurance
Programme (“CAP”) and the Principal Risk Register, providing
management oversight, assurance, and challenge. Divisional Risk
and Assurance teams also form part of the second line.
The CAP aims to ensure we have a consistent approach to
compliance assurance across all Divisions, with direction provided
by Group around minimum requirements based upon our
principal risks.
Third line of defence – The Group Head of Internal Audit reports
functionally to the Audit Committee Chair and is responsible for
the delivery of the Internal Audit programme.
Internal Audit provides an independent assessment of the design
and operating effectiveness of the Group’s governance, risk
management and control frameworks in place to manage risk.
The Internal Audit team carries out an annual programme of
risk-based audits reporting findings to the Audit Committee.
The audit programme is approved by the Audit Committee. The
in-house Internal Audit function uses the services of two co-
sourced providers to supplement and enhance in-house skills and
resources where required.
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 we
support across the business as well as independent performance
and regulatory reports on Serco operations.
129
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Serco Group plc Annual Report and Accounts 2022
Audit Committee Report
Committee’s responsibilities
The Committee supports the Board in fulfilling its responsibilities
in respect of: 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 the
Group’s website.
Membership and attendees
The Committee is comprised solely of Independent Non-
Executive Directors. The Board considers that each member of
the Committee is independent within the definition set out in the
UK Corporate Governance Code (“the Code”) and that, 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 21 April 2021 having previously been CFO
at Tate & Lyle plc and COFCO International, as well as holding
other non-executive positions. Tim provides assurance to the
Board that recent and relevant financial experience, as required
by the Code, is held within the Committee. Biographical details
for each member of the Committee are provided on pages 115
to 117.
The Committee met six times during the year which included
the joint meeting with the Group Risk Committee. The details of
attendance at meetings are set out on page 127.
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 Chief Financial Officer, the Group Financial
Controller, the Head of Internal Audit, the Group General Counsel
and Company Secretary and representatives of the Group’s
external auditor, KPMG LLP, attended and received papers for
each meeting. The Committee retain time at the end of each
meeting to meet separately without management present and
invite either the Head of Internal Audit or KPMG LLP to attend for
part of this session. The Committee also meets privately with the
Chief Financial Officer.
Performance review
The Audit 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
Audit Committee is sufficiently informed of the risks identified
by the internal and external auditors and that the Committee’s
review of key judgements is rigorous. The level of information
received at the Audit Committee is considered to be sufficient
with appropriate opportunity to challenge both management and
the external auditors. The evaluation also indicated that the Audit
Committee is rigorous in its evaluation of quality for both internal
and external audits.
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 2022. This review gives an insight into
how the Committee addressed significant issues during 2022,
which were reported to the Board as a matter of course, and
how other responsibilities of the Committee were discharged.
The Audit 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 programme, and how the Group’s financial
assurance programme has developed to consider potential
implications associated with the review led by the Department
for Business, Energy and Industrial Strategy (BEIS) into restoring
trust in audit and corporate governance (BEIS Review).
A joint meeting was also held with the Risk Committee
following a suggestion from last year’s Committee
effectiveness review. The objective of this meeting was to
review the integration of the Group’s risk and assurance
programmes and how the Group is developing its Enterprise
Risk Management framework.
Throughout 2023, the Committee will continue to focus on
the critical accounting judgements made, the effectiveness
of the Group’s financial controls and assurance programme
and the delivery and effectiveness of the Group’s Internal
Auditfunction.
Additionally, during 2023, the Committee will continue to
monitor developments from the Financial Reporting Council
and legislative changes made in relation to the BEIS Review,
and the impact the recommendations have on the Group’s
current internal control framework and the audit profession.
Tim Lodge
Chair of the Audit Committee
27 February 2023
130 Serco Group plc Annual Report and Accounts 2022
Activities of the Committee during the year
During the year, the Audit Committee carried out core duties
alongside the work required on significant judgements and
issues. The core activities undertaken during the year included:
– Reviewing the integrity of the half-year and annual financial
statements and the associated significant financial reporting
judgements and disclosures including;
– that the information presented in the Annual Report and
Accounts, when taken as a whole, is fair, balanced and
understandable and contains the information necessary
for shareholders to assess the Group’s position and
performance, business model and strategy;
– 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;
– 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.
– Considering the liquidity risk and the basis for preparing the
half-year and annual financial statements on a going concern
basis, and reviewing the related disclosures in the Annual
Report and Accounts;
– Reviewing the 2022 Viability Statement to ensure that it is
appropriate and balanced in respect of highlighting the risks
the Group is exposed to and the assumptions being made in
assessing its viability;
– Considering the provisions of the Code regarding going
concern and viability statements and reviewing 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) which neither management nor KPMG
believe is a significant risk given the industries in which the
Group operates;
– 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;
– 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 within the Audit Committee;
– Reviewing fraud related matters, if any, raised through
theSpeak Up process overseen by the Corporate
ResponsibilityCommittee;
– Providing oversight to 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;
– Succession-planning within the Internal Audit leadership; and
– Maintaining the Group’s relationship with the external auditor,
including assessing the audit plan and monitoring both
independence and effectiveness.
As well as carrying out the core duties above, the Audit
Committee received the following updates which assisted the
Committee in understanding the framework in place to improve
financial controls and mitigate the specific risks associated with
these aspects of the business:
– Ongoing updates on the Group’s progress to ensure
compliance with the proposals contained within the
consultation document on ‘Restoring trust in audit and
corporate governance’ issued by BEIS in 2021, and the
subsequent position paper released by the FRC in 2022; and
– Reviewing progress against the Group’s Deferred Prosecution
Agreement obligations up to July 2022 after which the
Serious Fraud Office (SFO) announced its expiry.
Internal control environment
The Committee is responsible for monitoring the Group’s internal
control environment and assessing its effectiveness. As part of 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 Audit 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 or individual
business units are invited to the meeting to discuss the findings
arising from Internal Audit reviews. The Audit 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.
Management is also in the process of reviewing the risk and
assurance framework across the Group and their proposal has
been discussed at a joint Risk and Audit Committee meeting
held during the year. The objective of the project is 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.
131
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Internal Audit
Internal Audit acts as a ‘third line of defence’ providing
independent assurance to the Board, the Serco Group plc and
Serco Inc Audit Committees and management, and in particular:
– Provides objective, independent assurance and advice to
management and the Audit Committee on the design and
operating effectiveness of the governance and internal control
processes in place to identify and manage business risks;
– Delivers an annual programme of risk-based internal audits,
reporting findings and recommendations for management
actions to improve governance, risk management and
controls to each Audit Committee meeting; and
– Reviews the annual Internal Audit programme regularly
throughout the year to ensure it remains focused on key
risks,recommending changes to the Audit Committee for
their approval.
Internal Audit gives particular regard to the ongoing evaluation of
the effectiveness of the Group’s financial controls and reporting
processes. Internal Audit (outside of the Americas) is headed by
the Group Head of Internal Audit who reports functionally to the
Chair of the Serco Group plc Audit Committee.
Within the Americas, to ensure compliance with the Special
Security Agreement, there is a local Internal Audit team that reports
functionally to the Serco Inc Audit Committee (which is chaired by
the CFO of Serco Group plc). These arrangements are designed to
ensure that Internal Audit’s independence is maintained.
Further details on the Serco Inc. board and Special Security
Agreement can be found on page 171.
Internal audits may focus on individual contracts, processes,
functions or risk themes and in conjunction with the Group Risk
Committee, the Group Audit Committee considers whether the
Internal Audit programme is aligned to the Group’s key risks. The
Internal Audit function use the services of co-sourced providers
to supplement and enhance in-house skills and resources where
required, particularly in specialist areas such as IT and cyber-security.
The 2022 Internal Audit plan was a balance of work across the
Group’s inherent risks, giving due attention to specific risks and
issues associated with the business. Internal Audit has delivered a
full programme of audits during 2022 making recommendations
to management for improvements to risk, governance and
controls. This work has continued to focus on operational,
commercial and IT risks, including cyber security controls across
various parts of the Group, major projects and significant contract
mobilisations. Audit reports are discussed with the parts of
business they relate to and management actions agreed are
then tracked by Internal Audit for progress. Key themes arising
and progress on management’s mitigating actions have been
included in regular written updates to the Audit Committee.
Financial controls
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 Group 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.
Financial control risk is monitored through one of the Group’s
Principal Risks, ‘financial control failure’. The Committee has
reviewed this risk during 2022 and has 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
dataanalytics;
– Management’s ongoing programme to improve internal
controls whilst considering the proposals contained within
the consultation document issued by BEIS and the position
paper issued by the FRC; 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
also encouraged to note that where weaknesses in the financial
control framework were identified, they were being addressed.
Significant financial judgements
Contract performance, including Onerous Contract
Provisions (OCPs)
The measurement of OCPs requires significant judgement that
the Audit Committee has kept under review, providing challenge
to the assumptions used by management and key judgements
used in assessing the performance of the Group’s contracts.
The Audit 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 across
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.
Audit Committee Report continued
132 Serco Group plc Annual Report and Accounts 2022
Viability and Going Concern
The Group has assessed its ongoing viability and the
appropriateness of using of 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 annually.
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
claimseeking damages for alleged losses following the
reductionof 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 page 109. The Committee
also agreed that the going concern basis of accounting
is appropriate and this assessment is disclosed within the
going concern statement on page 194. Both the proposed
viability and going concern statements were approved by the
Committee for recommendation to the Board. In respect of the
shareholder claim, noted above, the Committee concurred with
management’s assessment that, due to the stage of the matter
and the uncertainties regarding the outcomes, no provision was
required, and disclosure as a contingent liability at the year-end
was appropriate. See note 28 to the financial statements.
Use of Alternative Profit Measures (APMs) and
Exceptional Items
The Group’s performance measures continue to include
some metrics which are not defined or specified under IFRS.
In particular, following its introduction in 2015, management
continued to use Underlying Trading Profit, as a key measure to
review current performance against the prior year by removing
the impact of adjustments to OCPs, material charges and
releases of other items identified during the 2014 Contract &
Balance Sheet Review, together with other significant non-trading
items. The Group also uses the term Exceptional Items to meet
the requirements of IAS1 para 97 which requires the nature
and amount of material items of income and expense to be
disclosedseparately.
The Audit Committee continues to consider the disclosure of
performance measures used by management and whether
they continue to provide meaningful insights into the results
of the Group. The Committee also considers the treatment
of Exceptional Items and whether they are appropriate to be
classified as such.
The Committee has agreed with management that Underlying
Trading Profit continues to be 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.
After review of the disclosure of APMs in the Half Year 2022
results and the 2022 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
Trading Profit are not inappropriately classified as Exceptional
Items. As a result, the use of APMs and Exceptional Items in
the Half Year 2022 results and the 2022 Annual Report was
recommended to the Board for approval.
Consistent with the approach adopted during 2020,
management’s assessment is that the APMs should not be
adjusted to exclude the impact of Covid-19 and that clear
narrative should continue to be used to describe the impact
of Covid-19 on the Group’s results. The Committee concurred
with this approach and management’s view that no APMs
should be adjusted to exclude the impact of Covid-19 on the
Group’smeasures.
Goodwill Impairment
The goodwill impairment test as at 31 December 2022 used
anticipated future cash flows, discount rates and terminal values
which are key areas of judgement, and the Audit Committee has
received key information associated with these. 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 and found them to be transparent, appropriate and
in compliance with applicable financial reporting requirements.
Defined Benefit Pension Schemes
The Group’s defined benefit pensions schemes include a number
of significant estimates and judgements, principal amongst
which are the identification of obligations arising from contracts
with customers and calculation of the financial impact of defined
benefit obligations.
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 the scheme assets in light of the market volatility
in the fourth quarter of 2022. The Committee is satisfied that
the valuations included within these financial statements are
reasonable and reflect the best estimate of the pension asset and
liability, and that the disclosures are appropriate.
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Serco Group plc Annual Report and Accounts 2022
The trustees of the Group’s largest pension scheme (SPLAS)
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 nocommitted funding requirements under the current
scheduleof payments.
External auditor
The Audit Committee manages the relationship with the Group’s
external auditor on behalf of the Board. Following a tender
process undertaken in 2016, KPMG LLP 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 five 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. As a result, following the
2022 audit John Luke will be replaced by Juliette Lowes as
audit partner should KPMG LLP be reappointed as external
auditor at the AGM in April 2023. The Committee undertook a
rigorous selection process to appoint a new audit partner which
included interviews with the Committee Chair and the Group
CFO. Potential successors were challenged on their relevant
industry knowledge, focus on financial controls, and experience
in delivering a robust and efficient audit process. A transition
plan has been agreed to ensure an effective onboarding
process. Juliette Lowes has been invited to attend certain
Committee meetings to allow for sufficient knowledge transfer
but has not been an active participant to comply with partner
rotationrequirements.
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 focussed on the key risks within the
Group. The Committee did not require any further areas of focus
to be considered.
In addition to considering and approving the audit approach and
scope of the audit undertaken by KPMG LLP, the Audit Committee
has responsibility for certain core decisions relating to the
external audit process that include:
– The evaluation of the effectiveness of the external audit
– The fees for the external audit;
– Reviewing reports on audit findings and assessing their
impact on the Group’s internal control environment;
– Considering and approving letters of representation issued
to KPMG LLP;
– Considering the independence of KPMG LLP and their
effectiveness, considering:
– non-audit work undertaken by the external auditor;
– feedback from a survey targeted at various
stakeholders;and
– the Committee’s own assessment.
– Making a recommendation to the Board on the appointment
of the external auditor.
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 theCommittee.
Aftertaking 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 related to contracts at risk of becoming onerous. The
external auditors continued to challenge the level of prudence
adopted in contract judgements which were deemed overall to
be balanced. 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. As part of the evaluation of
the external audit, the Committee considered the latest Audit
Quality Review issued by the FRC, and KPMG LLP’s firm wide
response. As acknowledged by the FRC, KPMG’s individual audit
inspections have significantly improved, with none identified as
requiring significant improvement. Overall, the Committee noted
the improvements being implemented in order to improve audit
quality within the firm.
As reported in 2021, foremost amongst the areas which
required enhancement within the External Audit process
was the balance of work before and after 31 December and
whether contingency could be established in the period after
31 December. The 2022 audit plan presented to the Committee
included commitments on how this would be achieved and with
the collaboration of management, good progress has been made
to deliver on this. However, the balance of testing pre and post
31Decemberremains an area of focus which the Committee
will keep under review, with an increase in the use of technology
amongst other possibilities being explored by the external auditor
andmanagement.
Despite the improvements made to the year-end reporting and
audit process, the Group’s auditors requested additional time to
complete its standard procedures after their internal reviews late
in the audit timetable delayed their audit process. This resulted
in the announcement of the 2022 year end results being delayed
by 5 days. The Audit Committee will review the learnings from the
2022 audit and year end reporting process with its auditors and
incorporate them into the planning for 2023.
The Committee has reviewed the fees charged by KPMG for
the statutory audit process which have increased from a core
audit fee of £2.5m in respect of the year ended 31 December
2021 to an expected £3.6m and £4.7m in respect of the years
ended 31 December 2022 and 31 December 2023, respectively.
The Committee has challenged KPMG on the rationale for the
fee increase which is more than underlying inflation within
the economies in which the Group operates. TheCommittee
has been informed that the fee increase is largely as a result
of additional regulatory pressure placed on all audit firms to
ensure audit quality is maintained and that audit generates a
reasonable commercial return for the firm. The Committee has
also reviewed information which benchmarks the Group audit
fee against comparative companies which indicate that the fee as
a proportion of revenue is reasonable. The Committee will keep
under review the hours taken to complete the audit process and
will challenge the external auditor and management to identify
areas where additional efficiencies can be gained.
Audit Committee Report continued
134 Serco Group plc Annual Report and Accounts 2022
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.
As the Committee considers the relationship with the external
auditors to be working well and the Committee remains satisfied
with the external auditors’ effectiveness, having considered the
continued independence and objectivity of the auditors, the
Committee considers it to be in the best interests of the Group’s
shareholders for KPMG to remain as auditors for the following
financial year, and proposes that KPMG LLP be re-appointed as
axternal auditor of the Group at the next AGM in April 2023. If
so appointed, that they will hold office until the conclusion of
the next general meeting of the Group at which accounts are
laid. Further details are set out in the Notice of Annual General
Meeting which is available on the Group’s website. 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 for its external audit
services before early 2025, and therefore would comply with
the requirement to be on or before 10 years after the previous
competitive tender which took place in 2016 in respect of the 31
December 2016 reporting period, when KPMG replaced Deloitte
as the Group’s external auditors.
The Committee believe this is an appropriate timeframe for
the tender process and is in the best interest of the Group’s
shareholders as it complies with the Market Investigation
Order and allows sufficient continuity in the audit process. The
Committee also believe that more frequent tenders could lead
to higher costs and disruption for the Group without increasing
the level of independence or challenge provided by the external
auditors. The independence of KPMG has been maintained and
confirmed over the period, and the Group will have changed its
lead audit partner three times between tender processes due
to the retirement of Steve Wardell in 2018 and John Luke acting
in the role for the maximum permitted five years; in addition
KPMG have not provided any significant non-audit services
overtheperiod.
The timetable for the external audit tender process will be
designed to permit time to plan for the transition of any non-audit
services, if there is a change of auditor, and to enable any new
auditor to fully prepare to assume responsibility for a complex
and international audit across the Group.
The Independent Auditor’s Report to shareholders is set out on
pages 178 to 188.
Non-audit fees
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 2022,
the non-audit fees paid to KPMG LLP were £32k (2021: £63k)
excluding the half-year review. The non-audit services relate
to Agreed Upon Procedures required to be performed under
certain customer contracts and maintaining data for the SFO
investigation which has since ended.
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 216. 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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Nomination Committee Report
Nomination Committee members
John Rishton (Chair)
Kirsty Bashforth
Kru Desai
Ian El-Mokadem
Tim Lodge
Dame Sue Owen DCB
Lynne Peacock
Dear Shareholders
One of the key focuses this year for the Nomination
Committee has been succession planning. As announced on
12 September 2022, Rupert Soames confirmed to the Board
his intention to retire from the Company. He stood down both
from his role as Group Chief Executive Officer and from the
Board at the end of December 2022, and was succeeded
by Mark Irwin, who was previously the CEO of Serco’s UK &
Europe Division.
In addition to the scheduled Committee meetings, the
Committee and Nigel Crossley, Group Chief Financial Officer,
met numerous times to consider succession planning for the
Group Chief Executive Officer vacancy. A rigorous selection
process was undertaken alongside an external headhunter
with the support of Anthony Kirby in his role as Group
Chief Operating Officer. This process naturally included
consideration of both internal and external candidates.
During this selection process it was clear that Mark’s deep
knowledge of Serco in the UK, Europe and Asia Pacific, as well
as his prior experience working in the US and the tremendous
results he delivered for us in all his roles, made him the ideal
person to lead the Group through its next phase of growth.
Further information on Mark’s skills and experience are
provided in his biography on page 115 of this Corporate
Governance report.
The Committee also considered the succession of other senior
executives and following a selection process, Tom Watsonwas
appointed as Chief Executive Officer (CEO) of Serco’s North
American division, in July 2022, following a rigorous selection
process involving both internal and external candidates.
He succeeded Dave Dacquino, who retired from his full-time
executive role in September 2022 and continues to serve as
Non-Executive Chair of the board of directors of the Serco Inc.,
a North American subsidiary. Tom joined Serco in April 2018
and stepped into the role of CEO of Serco’s North American
division from his position as Senior Vice President responsible
for Serco’s North America Defense business. He brings over
25 years of experience in providing services to the
US Federal Government.
Additionally, Serco announced that Anthony Kirby would move
from his role as Group Chief Operating Officer to become
Chief Executive Officer of Serco’s UK and Europe Division at
the end of December 2022. Anthony joined Serco as Group
HR Director in 2017 and was promoted to Group Chief
Operating Officer in 2020 to lead the development of many
elements of Serco’s Business-to-Government platform and
play a key role in delivering the Group’s strong performance
over recent years.
The Committee is pleased that in each of these cases, the
rigorous selection processes involving external and internal
candidates, ultimately resulted in the selection of internal
candidates from within the Group for appointment. It is
hopefully illustrative of our approach across the Group to
developing talent from within, where appropriate.
Following review of Board composition and taking account
of the changes referred to above, it was concluded that the
Board and its Committees continue to have the appropriate
breadth of skills and experience. The Committee also
reviewed the time commitments for each of the Non-Executive
Directors, including their commitments with other companies.
The Committee concluded that no Non-Executive Director was
considered overboarded and each individual was able to, and
did, provide sufficient time to their commitment to Serco.
During the year, the Committee also reviewed the annual
plan of agenda items to ensure all those matters required to
be addressed by the Committee were fully discussed and
confirmed the renewal of appointments for further terms
of three years for those Non-Executive Directors whose
three-year terms of appointment were due for renewal. The
Committee also undertook a review of the Board Diversity
Policy during the year with a focus on ensuring it progressively
worded and focused and reflected the diverse nature of the
current Board.
The Committee will continue to support the transition of Mark
Irwin, Tom Watson and Anthony Kirby in their new roles in the
year ahead.
John Rishton
Chair of the Nomination Committee
27 February 2023
136 Serco Group plc Annual Report and Accounts 2022
Committee’s responsibilities
The key responsibilities of the Committee are:
– reviewing the size, structure and composition of the Board
and identifying candidates for appointment to the Board as
well as appraising the performance of the Board;
– recommending membership of Board Committees as well as
overseeing annual re-elections;
– undertaking succession planning for Executive Directors and
other senior executives and seeking to ensure that the
leadership needs of the organisation continue to be met;
– seeking to ensure that Board composition is appropriately
diverse including agreeing the Board Diversity Policy and that
Board and Committee evaluations are carried out, including
by any third party evaluators ; and
– reviewing induction and training needs of Directors as well as
time commitments.
The Committee’s Terms of Reference are available on the
Company’s website.
Membership and attendees
The Committee is chaired by the Chair of the Board and is
comprised solely of independent Non-Executive Directors.
The Board considers that each member of the Committee is
independent within the definition set out in the UK Corporate
Governance Code. The Committee met three times over the year
to discuss succession and three times to discuss other matters,
and each of the Board spent time with the key candidates for the
Group CEO role. Details of attendance at meetings is set out on
page 119. Meetings of the Committee are normally attended by
the Group Chief Executive Officer, the Group Chief Operating
Officer
1
, the Group General Counsel and Company Secretary and
the Deputy Company Secretary. Biographical details for each
member of the Committee are provided on pages 115 to 117.
Activities of the Committee during 2022
During the year the Committee’s key activities included:
– Appointment of new CEO
Following a search process led by the Chairman, assisted by
an external recruitment consultant, Russell Reynolds Associates,
with whom the Company has no other connection, and the
Group ChiefOperating Officer, the Committeerecommended
theappointment of Mark Irwin asthe GroupCEO.
– Executive Succession Planning
The Committee reviews succession for key executive roles
annually to ensure plans are in place for both planned and
unintended vacancies, including the identification of suitable
internal candidates and their development requirements,
including their exposure to the Board at Board meetings. The
Committee recommended the appointment of Tom Watson
as CEO of the Americas Division and Anthony Kirby as CEO of
the UK and Europe Division in 2022.
– Developing the Diversity Policy
Serco strongly supports the principle of diversity and values
the benefits that diversity of thought can bring to its Board
and throughout Serco. We believe that a mix of expertise,
experience, skills and backgrounds (including age, ethnicity,
disability, gender, sexual orientation, religion, belief, culture,
education and professional backgrounds) allows Serco to
deliver a great service that is valued by our customers and
meets the needs of those who use the services we provide.
Serco will always seek to appoint Board members and senior
management on merit against objective criteria, including
diversity. In developing the Board Diversity Policy, the
Committee considered the recommendations in the
Hampton-Alexander Review and the Parker Review and
recommended that the Board commit to improving gender
and ethnic diversity on the Board and in the senior
management roles within Serco. The Nomination Committee
reviews and assesses the Board Diversity Policy annually and
recommends any revisions to the Board for approval.
Further details on Diversity are provided in the Chairman’s
Governance Overview on pages 112 and 113, the ESG section
of the Annual Report on pages 36 to 73 and in the standalone
ESG and People Reports available on our website.
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 circulation of the Board’s policies and
procedures, meetings with senior management and contract
sitevisits.
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 executive management.
The Company believes that visits by Non-Executive Directors
to the Company’s contracts, leadership conferences and
management meetings are important in increasing Non-
Executive Directors’ awareness of the Company’s operations
and their accessibility to the Group’s employees. A number of
such contract visits, as detailed in the Governance Overview,
were undertaken in 2022, some virtual. In addition, the Board
met in the US for the May Board and Committee meetings and
used the opportunity to spend time with US management,
including the external directors of Serco Inc as well as
undertaking a number of US contract visits and town hall 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 April meeting and
access to online seminars and training was made available
to Directors throughout the year covering areas such as
ESG, Corporate Governance updates, TCFD 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
trainingopportunities.
Diversity
The Board values diversity and, when recruiting new Board
members, the issue of diversity is addressed by the Committee.
The percentage of women on the Board is currently 44%,
exceeding the target of 33% set by the Hampton-Alexander
review; the Company also meets the target set by the Parker
Review of having at least one director from an ethnic minority
background. In addition our Senior Independent Director is a
woman. 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 66 within the ESG section of the
Annual Report.
1 The role of the Group Chief Operating Officer is no longer a position on the
Executive Committee and Investment Committee as the role was fulfilled by
Anthony Kirby who is now the CEO of the UK and Europe Division.
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Board evaluation
An internal evaluation was undertaken in 2022 using a
questionnaire, including questions based on the UK Corporate
Governance Code. Thisquestionnaire covered the Board and
each of the Board Committees. This evaluation concluded that
the Board and its Committees continued to operate effectively. It
was noted that the Board 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. It was felt that the Board gave sufficient
opportunity to establish purpose, values and strategy, that this
was aligned with the culture of the Company, and that this culture
was promoted, monitored and assessed. It also ensured that
workforce policies were consistent with the Company’s values
and that there was effective engagement with and participation
from shareholders and other stakeholders. It was felt that, while
the Board did have an adequate view and that s172 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
engagement was also considered, specifically whether the Board
regularly reviewed concerns raised by the workforce and whether
there was a culture of openness and debate which it felt there
was. It was felt that the Board and the Committees worked well
together and that each of the Board was encouraged to make an
effective contribution.
Board balance
The Committee regularly reviews of 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 114. This followed a
skills assessment undertaken in 2022.
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 sucha company.
Rupert Soames, who retired as a Director on 31 December
2022, was Senior Independent Director of DS Smith plc until
28 February 2022 and a member of the Audit, Nomination
and Remuneration Committees of DS Smith Plc until
6September2022.
A review of the Non-Executive Directors’ external
commitments,taking account of the views of institutional
investor bodies, was undertaken from which it was concluded
that each of theCompany’s Non-Executive Directors was able
to dedicatesufficient time to undertake their duties on behalf
ofthe Company.
2023 priorities and focus
During 2023, the Committee will oversee the transition of
Mark Irwin as Group Chief Executive Officer, Tom Watson
to Chief Executive Officer of Serco’s Americas Division and
Anthony Kirby to Chief Executive Officer of Serco’s UK and
Europe Division, alongside continuing to evolve its approach
to succession planning for the Board, its Committees and the
widermanagement team, diversity, training and consideration
ofESGmatters.
Nomination Committee Report continued
138 Serco Group plc Annual Report and Accounts 2022
Corporate Responsibility
CommitteeReport
Corporate Responsibility Committee members
Kirsty Bashforth (Chair)
Kru Desai
Dame Sue Owen
Rupert Soames*
Mark Irwin**
Dear Shareholders
The purpose of the Corporate Responsibility Committee in
Serco is to safeguard the organisation’s culture in the service
of fulfilling the company’s role: that of delivering superb
public services that make a positive difference to citizens and
striving to be the best managed company in its sector. Serco’s
approach to matters environmental, social and governance
(“ESG”) is synonymous with that: it flows from the commitment
of its people and the strength of its Values, underpinned by
robust policies, processes and performance metrics, maturing
from one year to the next.
The Committee is encouraged that this is a consistent focus
no matter the macro context or the individual role. Where
Committee members meet Serco colleagues that clarity of
purpose, focus on ESG underpinned by a consistent culture
comes through, whether it be in webinars discussing the
Company’s wellbeing offering, individuals discussing their
everyday work in direct conversation on contract visits,
overseeing the embedding of controls enhanced and
developed under the 2019 Deferred Prosecution Agreement
(“DPA”), or those who have raised a concern through Serco’s
‘Speak Up’ service, without fear, knowing they will be heard.
In fulfilling its role in 2022, the Committee has focused on
thefollowing:
1. Monitoring and testing the health and effectiveness of
Company culture and the systems Serco has implemented
to protect and nourish the culture whilst driving value from
it for all stakeholders. Examples include:
a. Special meeting of the Committee to analyse the results
of Serco’s four-year Safety Culture survey programme.
b. Aligning with management on the continuation
and embedding of governance processes with
respect to ethics and compliance as core to Serco’s
ongoingoperations.
c. Meeting with a Serco colleague to understand their user
experience of the Speak Up system.
d. Continued Colleague ConneXions programme, through
which Non-Executive Directors take part in Inclusion
Hub events with Serco colleagues throughout the year.
2. Supporting the Company to continue to mature the
governance and metrics around its deep-rooted social
credentials. Examples include:
a. Engaged with management in rethinking how Serco
monitors and reports community impact.
b. Supported management to clarify a unified strategy on
local community value generation through charitable
and voluntary endeavours alongside employment and
employability opportunities.
* stood down 31st December 2022
** joined 1st January 2023
3. Helping to drive the further development in the Company’s
maturing ESG governance and disclosure approach.
Examples include:
a. Engaged with management to review the results of the
materiality assessment undertaken with internal and
external stakeholders, considered its impact on Serco’s
areas of focus on ESG and endorsed a refreshed ESG
framework.
b. Engaged with management to develop a new system
of ‘ESG dashboards’ introduced to keep management
and the Board better informed throughout the year on
important dimensions of Company ESG performance
and overall ESG maturity.
c. Agreeing the structure, key messaging and disclosures
around ESG.
The Committee’s role in 2023 and beyond
The Committee will continue working with management
to maintain and build on all Serco has accomplished and
become in the last decade, testing for vulnerability, driving
maturity, always guarding against any complacency. Political,
social, economic and environmental upheaval will continue
to shape the public service landscape for years to come, of
course, as will the ever-expanding, ever-accelerating global
ESG movement in all its guises.
Specifically the Committee’s priorities will be:
– Oversight on cultural resilience through a period of new
senior leadership embedding (Group CEO and UK&E CEO
(both effective January 2023), Americas CEO since
September 2022).
– Supporting management to proactively address potential
impacts of economic and social instability in the post-
Covid era on continued progress towards the “best
managed company in the sector” (specifically wellbeing,
ethics & compliance).
– Assurance on maturity around local community value
generation strategy and the environment strategy (with
specific focus on TCFD, scope and boundary definitions
and customer requirements).
– Deep diving safety assurance on specific topics (JVs, LTIs).
– Further developing and enhancing the Company’s ESG
disclosures and messaging.
After his exceptional tenure as CEO and as an actively robust
and vocal member of the CRC, I would personally like to thank
Rupert Soames for his immense and unparalleled contribution.
We will miss him. Having said that, we are delighted to have
welcomed Mark Irwin onto the committee from January 2023
and look forward to working with him as the cultural oversight
and focus on growing ESG maturity continues.
Kirsty Bashforth
Chair of the Corporate Responsibility Committee
27 February 2023
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Committee responsibilities
The Corporate Responsibility Committee is responsible for
assisting the Board in providing independent oversight and
guidance of the Company’s ESG Framework and, based on this
agreed framework, considering related strategies, policies and
practices on how the Company conducts its business, through the
lens of how the organisation lives and breathes its Values of Trust,
Care, Innovation and Pride.
The Committee’s Terms of Reference are available on the
Company’s 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 115 to 117. The Committee
met four times during the year. Details of attendance at meetings
are set out on page 119.
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
normally attended by the Group General Counsel and Company
Secretary, the Assistant Company Secretary, the Group Chief
Operating Officer and the Group Director, Business Compliance
and Ethics.
Standard annual activities of the Committee
Each year the Committee:
– reviews the Committee Terms of Reference to ensure they
remain appropriately aligned to the purpose of the Committee;
– reviews the Company’s ESG position, approach and framework
to ensure it remains appropriate, embedded in the business
and conducive to the ongoing delivery of the Group strategy;
– reviews the Group approach to ESG reporting, reviews ESG
Key Performance Indicators to track ESG maturity across
Serco, and prepares the Group’s annual ESG Report and
Modern Slavery and Human Trafficking Statement;
– undertakes deep dives into key areas and risks within its remit
to ensure appropriate focus, control and rigour throughout
the Group;
– engages on new business opportunities to ensure consistency
in addressing ESG factors;
– monitors the health and effectiveness of Company culture,
including the impact on it of external trends and events and
organisational change; and
– oversees effective delivery (including strategy and target
setting, and monitoring and reviewing progress and
performance across the Group) of the:
– Group Ethics & Compliance strategy and Speak Up
process, including in-depth review of specific Speak Up
cases; in-depth review of the Group principal risk, ‘Failure
to act with integrity’; and meeting privately with a
Divisional Head of Ethics and Compliance at each
Committee meeting;
– Group Health & Safety strategy, including in-depth review
of specific incidents; and in-depth review of the Group
principal risk, ‘Health, Safety and Wellbeing’;
– Group Environmental strategy, including delivery of the
Company approach to fulfilling the recommendations
ofthe Task Force on Climate-Related Financial
Disclosures(TCFD);
– Group People strategy, including input into the annual
employee engagement survey and in-depth analysis of
survey results, with specific focus on Company culture;
in-depth review of Employee Wellbeing and Diversity and
Inclusion; and the Group Colleague Voice approach,
including ongoing implementation of the Colleague
ConneXions programme;
– Group Sustainable Procurement approach; and
– Group Community Impact approach.
Additional activity undertaken in 2022
– Group ESG governance and disclosure: reviewed refreshed
materiality assessment following engagement with internal
and external stakeholders and endorsed changes to Serco’s
ESG framework; looked at reporting requirements and
standards for ESG to understand what’s coming up, what’s in
place, and where we are now. Approved a new system of ‘ESG
dashboards’ to better inform management and the Board on
key dimensions of Company ESG performance, as well as the
Company’s overall ESG maturity, throughout the year;
endorsed the new Company approach for external assurance
of ESG data published in the Annual Report and Accounts;
endorsed the new Company approach for ESG materiality
assessment; and endorsed relevant KPIs to monitor public
and community impact.
– Group Ethics & Compliance strategy and Speak Up process:
monitored ongoing fulfilment of the Company’s DPA
obligations and approved proposals for ongoing compliance
and continuous improvement following the discontinuance of
the DPA; gathered first-hand feedback on the Serco Speak
Up process by meeting with a user of the service; reviewed
due diligence being carried out in relation to Russian sanctions
on third parties engaged by the Company; and endorsed
plans for the Serco Essentials training programme 2023-2025.
– Group Health & Safety strategy: reviewed the enhanced
controls implemented during 2020-2022 to improve the
mitigation of contractor health, safety and environmental
(“HSE”) risks; reviewed HSE performance, approach and
maturity at Serco Joint Ventures; and held an additional
meeting, also attended by the Chairman of the Board and the
Chair of the Audit Committee, for in-depth review of the
Group Safety Culture survey results and findings.
– Group Environmental strategy: in-depth review of approach
and progress in embedding and maturing the management
and reporting of climate-related risks and opportunities, per
the recommendations of the TCFD; consideration of the
rapidly expanding and evolving external environmental
disclosures landscape and how Serco should respond;
approval of the Company’s updated Net Zero targets and
pathway; and review of the Company carbon offsetting
strategy and progress.
– Group People strategy: working directly with the Group
Colleague ConneXions Lead to support delivery and direct
the evolution of the Colleague ConneXions programme in
2022, including direct engagement between all Non-
Executive Directors and the worldwide Company workforce
through active involvement in colleague events and
management learning programmes as well as 10 virtual/
actual visits with Serco sites in every region;
Corporate Responsibility
CommitteeReport continued
140 Serco Group plc Annual Report and Accounts 2022
– Group Sustainable Procurement approach: review of
sustainable procurement initiatives implemented since
publication of the Company’s Sustainable Procurement
Charter; and review of the external supplier sustainability
ratings landscape.
– Group Community Impact approach: review of performance
indicators to monitor community engagement and impact;
endorsed an approach to monitoring Serco’s public impact
and reviewed potential indicators.
Additional activity planned for 2023
– Group ESG governance and disclosure: monitor the
embedding of the revised ESG framework and performance
through new ESG dashboards and develop and enhance ESG
disclosure and messaging.
– Group Ethics & Compliance strategy and Speak Up process:
monitor compliance with ongoing governance processes
deployed through the DPA; monitor delivery of ethics and
compliance strategy including review of Speak Up provision;
maintain oversight of due diligence and internal processes to
monitor human rights and modern slavery potential impacts.
– Group Health & Safety strategy: monitor development and
deployment of LTI reduction plans and a business focus on
reducing instances of workplace violence and aggression.
– Group Environmental strategy: continue to provide oversight
of the delivery of Serco’s environment strategy with a focus
on the review of near- and long-term targets based on the
Science Based Targets Initiative process.
– Group People strategy: continue to monitor employee
engagement and wellbeing; further engage and support the
evolution of the colleague ConneXions programme.
– Group Sustainable Procurement approach: ongoing review
of progress in the deployment of Serco’s sustainable
procurement charter.
– Group Community Impact approach: monitor the capture
and analysis of data to better understand Serco’s public and
community impact.
141
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report
Remuneration Committee members
Lynne Peacock (Chair)
Kirsty Bashforth
Tim Lodge
John Rishton
Dear Shareholders
On behalf of the Board, I am pleased to share with you the
Directors’ Remuneration Report (the "Report") for Serco Group
plc for the year ended 31 December 2022. In this Report, we
set out how the 2021 Remuneration Policy (the "Policy", full
details of which can be found in our 2020 Report) has been
implemented for 2022, and how we intend to implement the
Policy in 2023. A summary of the Policy can be found towards
the end of this Report.
2022 was the second year of implementation of our revised
Policy which was approved at the 2021 AGM with strong
support from our shareholders. Our Policy included simplified
bonus measures to focus on profitable growth and cash
flow, plus an ESG scorecard (15% weighting) to support our
ambition of being the ‘best managed company in our sector’.
We also introduced an ESG scorecard into the Long-Term
Incentive Plan (LTIP) with components aligned to our long-
term sustainability strategy.
There are no changes proposed to the Policy in 2023.
A year of further strong performance
Despite the end of our Covid-19 work (which had a negative
impact on our revenues) and in the face of a challenging
geo-political and economic environment, the Group’s revenue
and Underlying Trading Profit (UTP) are both up on 2021. Our
focus has remained firmly on the delivery of public services
and, reflecting this, our customers, as they did during the
pandemic, have continued to turn to us as a trusted partner
to support them with the challenges they face. Significant
growth on existing contracts and acquisitions more than
offset the reduction caused by the end of Covid-related work.
Revenue for 2022 is £4.5bn despite the loss of Covid-related
work reducing revenue by £480m. UTP was up on 2021, at
£237m, and 22% higher than our initial guidance in December
2021. Free Cash Flow (FCF) was above prior guidance at
£159m. Returns to shareholders also increased significantly in
2022, with increased ordinary dividends (up by 14%) and the
completion of a £90m share buyback.
While always an area of importance for Serco, we have
repositioned and strengthened our ESG approach, messaging
and reporting throughout 2022 and have seen a better
understanding of our ESG credentials with improved scores
from a number of ESG agencies. We have made good
progress on our ESG journey, with ESG embedded as a key
pillar in our business strategy. Our performance against each
area of our ESG strategic framework is set out in our ESG
section on pages 36 to 73.
Supporting our people
We have more than 50,000 colleagues across our operations
and each individual is critical to our success in making a
difference to the lives of the service users we support through
our contracts. The wellbeing of our people is therefore of
utmost importance to us as an organisation. The Remuneration
Committee (the "Committee") is mindful of the current cost-
of-living challenges facing our colleagues globally and have
been supportive of the various targeted and whole-workforce
actions taken by the Company to support colleagues
throughout this difficult time. These varied across our Divisions
in response to regional pressures and in 2022 included:
Whole-workforce initiatives Targeted initiatives
One-off payments to colleagues outside
management grades (totaling £6m in H1
and a further £9m in H2)
Over £200k of support to colleagues and
their families from the Serco People Fund
1
Launch of MyShareSave
2
Improved benefits offerings including
access to discounts on everyday spend,
wellness offerings, improved EAP support,
improved financial education and
wellbeing support.
Increased pay-
review budget for
the normal cycle.
Additional off-
cycle targeted
payincreases.
Notes
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, wellbeing
or recovery. Support has been provided to colleagues in the UK and
AsPac so far, with roll-out to our other colleagues continuing in 2023.
2 MyShareSave is our new all-employee share plan. This was launched in
the UK with over 8% of eligible colleagues electing to participate in the
savings plan with the option to purchase shares in Serco in three years’
time. During 2023 and beyond, we intend to extend this plan to our other
colleagues around the world, where feasible.
2022 variable pay outcomes linked to the delivery of
our strategic plan
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, where
required, to support our decisions.
2022 Annual bonus
The Executive Directors’ 2022 bonus awards have been
determined based on a combination of financial (70%
weighting; being 40% Trading Profit and 30% FCF), ESG (15%)
and individual objectives (15%). ESG performance is assessed
against a scorecard of measures intended to support the
Company’s ambition of being the ‘best managed company in
our sector’.
Taking into account performance against the targets set,
including the individual performance of the Executive
Directors, it was determined that the 2022 bonus award will
be 88.0% and 87.3% of maximum for the CEO and CFO
respectively. Further details can be found on pages 148 to 151.
As stated elsewhere, the overall performance of the Company
in 2022 has been very strong and the Committee issatisfied
that the bonuses are a true and fair reflection of theunderlying
performance of the Company and the Executive Directors.
142 Serco Group plc Annual Report and Accounts 2022
2020 LTIP
Despite the challenges over the past three years, the Company’s
performance has continued to be strong, resulting in a payout
of 90.18% of the maximum opportunity.
The Committee is satisfied that the overall vesting outcome
is an appropriate reflection of the overall performance of
the Group over this period, during which management
continued to successfully drive the growth phase of our
corporate strategy. Full details of actual performance against
the framework of performance conditions are included in the
Report on page 152.
Change in Group CEO
As previously announced, Rupert Soames stepped down
from the Board and his role as Group CEO on 31 December
2022. He will work his contractual notice period, remaining
an employee of the Group and a member of the US Board,
retiring on 11 September 2023. From 1 January 2023 until
the expiration of his notice period, Rupert will continue to
receive his base salary and contractual benefits. As previously
disclosed, his pension opportunity will reduce from 20% to the
workforce average of 8% of salary with effect from 1 January
2023. As he is no longer an Executive Director, Rupert will
not participate in the Group Executive Annual Bonus Plan in
respect of services during 2023. However, he will be eligible to
receive a bonus in relation to his continued employment after
stepping down as CEO, which will be subject to performance
and pro-rated to the date of cessation of employment. He will
receive no further awards under the LTIP. As Rupert is retiring,
he will be a good leaver in respect of Serco’s incentive plans
(with malus and clawback and holding periods continuing to
apply in line with the Policy and the respective plan rules for
each award). In line with our approved Policy, post-employment
Rupert will be required to continue to hold shares equivalent to
a minimum of 200% of salary until September 2024, and 100%
of salary until September 2025.
Mark Irwin was appointed as Rupert’s successor with effect
from 1 January 2023.
Implementation of the Policy in 2023
Appointment of Mark Irwin
The Committee reviewed the base salary for the CEO taking
into consideration the size and complexity of Serco, and
the experience of Mark for whom this will be his first CEO
role. Mark's base salary was set at a lower level than his
predecessor (who himself received no salary increase since
appointment in 2014). As set out in our announcement, the
Committee determined that Mark will receive a base salary of
£800,000 p.a., with a maximum bonus and LTIP opportunity
for 2023 of 175% and 200% of salary respectively; any bonus
awarded over 100% of salary will be subject to mandatory
deferral into Serco shares. In line with our approved Policy,
Mark’s pension opportunity will align with that of our wider
workforce (8% ofsalary).
Review of remuneration for our current CFO
As we explained at the time of appointment in April 2021,
the base salary and incentive opportunities for Nigel
Crossley were set taking into consideration this was Nigel’s
first Executive Director role. As previously disclosed, Nigel
receiveda workforce aligned salary increase of 2% in 2022.
As signalled in our 2021 Report, we intended to review
his remuneration package as his experience in the role
increased. In light of his successful transition from new in
role to a respected and highly competent CFO, and his
strong performance in the role, the Committee has reviewed
his remuneration package and determined that, with effect
from 1January 2023, his salary should increase to £480,000
p.a. (9% increase) and, in line with the approved Policy,
his maximum annual bonus and LTIP opportunity should
increase to 155% (from 140%) and 175% (from 150%) of
salary respectively. These incentive levels align to those of
his predecessor, Angus Cockburn, although his base salary
remains lower than Angus's.
2023 Annual bonus
The Committee determined that the same framework of
performance targets and weightings should be retained
for the 2023 annual bonus award. Therefore, the financial
measures will remain Trading Profit (40% weighting) and FCF
(30%) weighting, together with an ESG scorecard of measures
supporting our ambition to be the ‘best managed company in
the sector’ (15%) and individual objectives (15%).
2023 LTIP
After consideration, the Committee determined that the
performance framework for the 2023 LTIP should follow that
applied in 2021 and 2022. As such, the 2023 LTIP will vest
subject to aggregate EPS, average ROIC and relative TSR
performance, together with Order Book and ESG performance
over the three years ending 31 December 2025. Full details of
the performance conditions and ESG scorecard applicable to
the 2023 LTIP awards can be found on pages 159 to 160.
Our people and culture
We are fully committed to ensuring 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. While Serco has a unique
and diverse workforce, information on pay policies and practices
for the workforce is presented to the Committee at least twice a
year, and available at all times for reference. 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 and exchanging their
views directly with the Board. 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. Through Colleague ConneXions, our executive pay
policies and practices are shared with the wider workforce, and
colleagues are able to offer any comments or questions on these
through the various feedback mechanisms that are available.
Opportunities to hear from our people include, but are not
limited to, virtual and face-to-face meetings between Non-
Executive Directors and employees in each of our markets
throughout the year; the annual regional conferences, which
provide a great opportunity to meet the local teams and
visit our contracts; ‘all hands’ calls discussing health and
safety, diversity and other ESG issues; an annual meeting
with our global HR and reward leadership teamsto hear about
challenges and how we’re addressing those; and via our annual
employee engagement survey.
143
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
In this survey, we include a section called ‘Ask the Board’,
where employees are given the opportunity to raise issues
for the Board's attention, with comments around pay (both
relating to executive pay and that of the wider workforce)
considered by the Committee.
Diversity and Inclusion (D&I) events and surveys are also
run throughout the year in which Non-Executive Directors
actively participate. These events are conducted virtually with
the option to post comments and questions at any time. Our
D&I networks also have a number of different channels for
colleagues to interact and provide their thoughts such as via
Yammer groups, Safe Space Sessions and Lived Experience
Surveys which are summarised and presented to the CRC.
There is also an ‘Inclusion Hub’ which can be used to express
views. As well as all the information provided in our Annual
Report, Directors’ Remuneration Report, Annual People
Report, CRC Report, pulse and life cycle surveys are carried
out throughout the year where colleagues (when joining and
leaving in particular) are given the opportunity through a
variety of platforms to provide feedback to the Company.
As reported in our 2022 Gender Pay Gap Report (www.serco.
com/esg/gender-pay-gap), our 2022 consolidated UK median
gender pay gap reflects a sustained longer-term downward
trend from 12.9% in 2017 to 8.11% in 2022. Our gender pay
gap is a reflection of our wider talent gap with fewer women
than men in senior leadership roles and fewer women in
specialist and traditionally male dominated roles such as
prison custody officers and engineers. We continue to make
good progress in our priority areas with a focus on improving
diversity in its broadest sense across our whole organisation,
of which gender diversity is just one part.
Feedback from all sources is collated and shared with the
Committee at least twice a year. These measures ensure that
our decisions are fully informed by wider practices.
Stakeholder engagement
We have continued our programme of shareholder dialogue
and we thank all those who take the time to consider
and respond with their feedback on our Policy and its
implementation. 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 are in regular
contact with our shareholders and share any feedback or
queries on remuneration throughout the year so that we
canmaintain an ongoing dialogue.
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 2022 and
our proposals for 2023 will continue to ensure the Executive
Directors are fairly rewarded to deliver against the strategic
goals of the Company and that all our colleagues continue
to deliver the critical services needed to governments and
citizens around the world. I hope you will all support the
resolution to vote for this Report at the forthcoming AGM.
Lynne Peacock
Chair of the Remuneration Committee
27 February 2023
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
relevantrequirements 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.
The Policy was approved for three years at the 2021 AGM held on 21 April 2021 with a ‘for’ vote of 94.55%. A summary of the
approved Policy is available at the end of this Report on pages 162 to 169 for ease of reference. The full Policy can be found
inour2020 Directors’ Remuneration Report which is available on the Company’s website.
There may be circumstances from time to time when the Committee will consider it appropriate to apply some judgement and
exercise discretion within the approved Policy. This ability to apply discretion is highlighted where relevant in the Policy and the
useofdiscretion will always be in the spirit of the Policy.
144 Serco Group plc Annual Report and Accounts 2022
Long-term
incentive
Vests subject to financial and non-
financial performance over a three-
year period. Two-year post-vest
holding period.
Compulsory
bonus deferral
Over 100% of salary mandatorily deferred in
shares for three years.
Up to 100% of salary paid
in cash immediately.
Annual bonus
Base salary
1 2 3Year 4 5
This pay structure will be applied to the Executive Directors in 2023 as follows.
Element
CEO CFO
Mark Irwin Nigel Crossley
Base salary from 1 January 2023
1
£800,000 £480,000
1
Pension
2
8% of salary 8% of salary
Annual bonus Max 175% of salary
On-target 87.5% of salary
Max 155% of salary
On-target 77.5% of salary
Compulsory three-year deferral into Serco shares of bonus over 100% of salary.
Annual bonus measures
3,4
40% Trading Profit 30% Free Cash Flow
15% Personal
objectives
15% ESG scorecard
Long-term incentive (granted under
theLTIP)
Maximum 200% of salary Maximum 175% of salary
LTI measures
4,5
assessed over the
three-year performance period
For 2023, 75% of the award will be based on financial measures (EPS, Relative TSR and ROIC)
and 25% of the award will be based on non-financial measures:
25% EPS 25% ROIC 25% Relative TSR
10% Order
Book
15% ESG
scorecard
Holding requirement Vested LTI shares must be held post-vest until the fifth anniversary of grant (after payment of tax).
Shareholding guideline
6
In-employment
Post-employment
200% of salary 200% of salary
100% of the in-employment shareholding guideline (or actual shareholding if lower) for the
first year post-employment, and 50% of the in-employment shareholding guideline (or actual
shareholding if lower) for the second year post-employment.
Malus and clawback – Malus provisions and clawback provisions apply to LTIP and deferred bonus share awards
during the three-year period prior to vesting and within five years from grant respectively.
– Clawback provisions apply to the annual bonus plan.
Notes:
1. As set out in the Chair's letter, the CEO's salary applies from his appointment on 1 January 2023, and the revised CFO's base salary also applies with effect from
1 January 2023.
2. In line with the approved Policy, the pension opportunity for Mark Irwin, as new CEO, is aligned to that of the workforce.
3. 70% of the bonus will be measured by financial targets. The Committee deems the specific details of the performance targets to be commercially sensitive as they
are intrinsically linked to the forward-looking strategic plans of the business. Full disclosure will be provided in the Annual Report on Remuneration for the year in
which final performance is assessed, provided these details are no longer considered sensitive.
4. In light of the absolute importance of ESG measures to the short and long-term sustainable success of Serco, the Committee has continued to incorporate an ESG
scorecard into both the 2023 annual bonus plan and LTIP. The use of scorecards recognises that ESG is not about a single action being taken, albeit specific
measurable targets will be set for each measure. The measures used in the annual bonus plan are intended to support our ambition of being the 'best managed
company in the sector', while for the LTIP, the ESG scorecard contains measures important to the long-term sustainability of Serco. Further details of the
composition of the 2023 ESG scorecards are set out on pages 159 and 160.
5. The performance targets to apply to the 2023 LTIP awards are set out on pages 159 to 160.
6. Shareholding guidelines applied from the date of the Policy approval at the AGM held on 21 April 2021.
Note: Chart is illustrative and is not to scale. Details of Executive Director remuneration for 2023 may be found below. A summary of the Policy for Executive Directors is
set out for reference on pages 163 to 165.
Implementation of the Policy for 2023 – Executive Directors
The pay structure which will apply in 2023 is summarised as follows:
145
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Annual Report on Remuneration
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.
Chair: Lynne Peacock
Committee Members: Kirsty Bashforth, Tim Lodge, John Rishton
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 seven times during the year. Details of attendance at meetings are set out on page 119. Meetings of the
Committee are normally attended by the Group CEO, the Group Chief Operating Officer, the Group Reward Director, the
Group General Counsel & Company Secretary, the Deputy 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
remunerationarrangements.
Summary of the Committee’s activities during 2022
The Remuneration Committee met seven times during the year. The principal agenda items were as follows:
Agenda item
2021 bonus calculation; 2022 LTIP framework; 2022 Executive Director objectives; review of the 2021 Report commentary
anddisclosure.
Shareholder consultation update; Employee Dashboard review on policy and workforce demographics; 2021 annual bonus
achievement and 2022 bonus performance framework; 2019 LTIP vesting; Executive Director and Executive Committee 2021 annual
incentive awards; ESG scorecards for 2022 annual bonus and 2022 LTIP framework; share award policy and update; Update on
MyShareSave.
AGM voting results for the Policy and the 2021 Report; corporate governance and market practice update; Employee Dashboard and
workforce remuneration update; Employee Voice update; review of approach to engagement with workforce on executive pay; share
awards update; MyShareSave update.
MyShareSave implementation update for launch in UK in 2022
Corporate governance and market practice update; Employee Dashboard and workforce remuneration update; Employee Voice update
including workforce engagement on executive pay; draft outline of the 2022 Report; shares award update; executive shareholding
status; LTIP performance conditions review and range of financial targets; review of progress against 2022 bonus targets and delivery
against individual objectives for Executive Directors; executive annual remuneration review and approach to benchmarking for 2023.
A second meeting was held in September to approve the remuneration arrangements for the new Group CEO, and exit remuneration
arrangements for the outgoing Group CEO, as well as proposals for other Executive Committee remuneration changes and
remuneration for the Group CFO.
Base pay proposals for Executive Directors and Executive Committee members for 2023; update on 2022 bonus projections for
Executive Directors and Executive Committee members; 2023 annual bonus performance framework; shares award update; share grant
policy and LTIP framework for 2023; MyShareSave update; Employee Dashboard and Employee Voice update including feedback on
executive remuneration in relation to provision 41 of the Corporate Governance Code; 2022 Gender Pay Gap analysis and report; 2022
Report; annual Committee programme of work for 2023.
146 Serco Group plc Annual Report and Accounts 2022
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 2022 paid to WTW (excluding VAT) are set out in the table:
Adviser Appointed by
Services provided to the
Committee
Fees for services provided to
the Committee
1
Other services provided to the
Company
WTW Remuneration Committee
in 2020
Advice on market practice;
governance; reward
consultancy
£53,620 Reward and benefits
consultancy; provision
of benchmark data;
DRRreview
Note:
1. Fees are determined on a time spent basis.
The implementation of the Policy for year ended 31 December 2022
The Policy applied for the year ended 31 December 2022 was consistent with the Policy approved by shareholders at the AGM
on21April 2021. The Committee has not deviated from the approved Policy in respect of any payments made during 2022.
Single Figure – Directors’ remuneration (audited information)
Executive Directors’ single figure
The following table shows a single total figure of remuneration in respect of qualifying services in 2022 for each Executive Director,
together with comparative figures for 2021. Details of Non-Executive Directors’ fees are set out in the next section.
All figures in £
Rupert Soames Nigel Crossley
1
2022 2021 2022 2021
Salary 850,000 850,000 436,450 296,144
Taxable benefits
2
48,107 49,195 34,313 17,022
Pension
3
170,000 170,000 34,916 23,803
Total Fixed Remuneration 1,068,107 1,069,195 505,679 336,969
Bonus
4
1,309,000 1,387,094 535,750 387,507
Long-Term Incentives
5, 6
1,999,769 2,138,205 215,413 43,913
Total Variable Remuneration 3,308,769 3,525,299 751,163 431,420
Total 4,376,876 4,594,494 1,256,842 768,389
Notes:
1. Nigel Crossley was appointed to the Board as Chief Financial Officer following the AGM held on 21 April 2021 and hence his single total figure of remuneration for
2021 is pro-rated to reflect his qualifying service as an Executive Director from 21 April 2021 to 31 December 2021 inclusive. His 2019 and 2020 LTIP values are for
the months of qualifying service in the three-year performance periods ending 31 December 2021 and 31 December 2022 respectively.
2. The taxable benefits relate to the provision of independent financial advice, 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 PAYE and NIC liability in respect of
benefits provided, the value of the benefit has been grossed up at the individual’s marginal tax rate. The taxable benefits for 2022 include an individual benefit
value of £25,819 in respect of Rupert Soames’ company car in the year. In connection with their roles, Rupert and Nigel were on the Board of our US company,
which requires them to make tax declarations in the US. They do not receive any additional compensation for these directorships, but the Company provides US tax
support. No costs were paid during 2022 in respect of this support.
3. The pension amount includes payments made in lieu of pension, calculated as a percentage of base salary, from which the Executive Directors make their own
pension arrangements. The pension opportunity for the incumbent Executive Directors was significantly reduced from 30% to 20% of salary from 1 April 2020 and
was applied to Rupert for 2021. On his appointment to CFO, the pension opportunity applied to Nigel was 8% of salary, in line with the level available to most of the
wider workforce. As previously disclosed, Rupert’s pension opportunity was reduced further to 8% with effect from 1 January 2023.
4. Performance bonuses earned in the period under review and paid in the following financial year. For 2022, this figure includes £459,000 (35.1%) of Rupert Soames’
and £97,150 (18.1%) of Nigel Crossley’s 2022 bonuses which will be subject to mandatory deferral into Serco shares for a three-year period at the point the bonuses
are paid in 2023.
5. This is the estimated or actual value of Long-Term Incentives for which the performance period ended in the year including dividend equivalents. The quantum of
the 2022 LTI values for Rupert and Nigel attributable to share price appreciation is £416,608 and £44,877 respectively. Further details are provided on page 152.
6. The Long-Term Incentive values reported for 2021 have been restated to reflect the actual share price at the relevant vest dates for the awards (in respect of the
2019 LTIP Awards which vested on 6 June 2022: £1.8020).
147
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Variable pay outcomes (audited information)
Performance-related annual bonus
For 2022, the Executive Director bonus was based on achieving a mix of financial and non-financial objectives which were weighted
70:30 respectively. The financial measures were Trading Profit (40%) and FCF (30%). The non-financial elements comprised an ESG
scorecard (weighted at 15%) to support the Company’s ambition of being the ‘best managed company in our sector’, with the
remaining 15% weighting attached to individual objectives aligned to the delivery of the Group’s corporate strategy.
In line with the Policy, the 2022 target and maximum annual bonus opportunities for Rupert Soames (CEO) were 87.5% and 175% of
salary respectively. For Nigel Crossley (CFO), the respective target and maximum bonus opportunties under the 2022 annual bonus
were 70% and 140% of salary.
As set out in the Chair’s letter and the business context for 2022, in determining the appropriate awards under the 2022 annual
bonus plan, the Committee took into account the wider impact of what has been another excellent year for both the Company and
itsemployees.
The Committee has also been concerned to ensure fair outcomes for all other employees in the annual bonus plan, with bonus
payments taking into account overall Group and Divisional performance to ensure payments are reflective of the overall contribution
and that no colleague is penalised for factors beyond their control.
Trading Profit of £241.2m was adjusted by the Committee to arrive at a figure for Trading Profit for bonus purposes. Shareholders
were consulted on the principles behind these adjustments in early 2015, and the bonus outcome for 2015 to 2021 reflected these
principles. The purpose of the principles is to ensure that management are measured against their in-year performance and are not
given credit for gains which they have not materially influenced. The Committee has applied these established principles to 2022 in
aconsistent manner, which have historically resulted in both positive and negative adjustments.
The first adjustment made was to put Trading Profit into constant currency so that it was consistent with the targets set at the
beginning of the year. This resulted in a £14.5m decrease. The Committee then considered items to properly reflect management
effort and in-year operational performance. The Committee has concluded that a total of £4.9m should be deducted from Trading
Profit in constant currency to arrive at a calculation of Trading Profit for bonus purposes in 2022. This compares with +£1.9m which
wasadded to Trading Profit in 2021.
All awards under the 2022 annual bonus plan were subject to a UTP affordability test of £192.8m at constant currency rates
(afteradjustment for in-year Onerous Contract Provisions (OCP) items).
After full consideration, the Committee determined that the annual bonus achievement for Executive Directors should not be adjusted
for 2022. The tables below show the achievement determined by the Committee against the financial and non-financial measures,
together with the overall bonus outcome for 2022.
Financial performance
Performance measure
Weighting
for 2022
(% maximum
bonus
opportunity)
Threshold
target
(£m)
Target
(£m)
Maximum
target
(£m)
Actual
performance
1
(£m)
Achievement
against measure
(% maximum
opportunity for
this measure)
Trading Profit 40% £192.8 £199.5 £212.1 £221.9 100%
Free Cash Flow 30% £78.1 £98.8 £119.5 £159.1 100%
Note:
1. At constant currency.
£m 2022 2021 2020 2019 2018 2017 2016
Trading Profit 241.2 233.4 175.7 133.4 116.7 54.0 100.3
Constant currency adjustment (14.4) 6.9 1.3 (4.1) 4.4 (6.8) (5.7)
Trading Profit at constant currency 226.8 240.3 177.0 129.3 121.1 47.2 94.6
Adjustment for bonus purposes (4.9) 1.9 (3.3) (12.6) (15.2) 23.6 (20.9)
Trading Profit for bonus purposes 221.9 242.2 173.7 116.7 105.9 70.8 73.7
Underlying Trading Profit at
constant currency 222.6 235.8 164.5 116.5 97.1 63.4 73.4
148 Serco Group plc Annual Report and Accounts 2022
Non-financial performance
ESG Scorecard
An ESG scorecard was introduced for the first time in the 2021 annual bonus plan (weighting 15%). As in 2021, the scorecard for 2022
focused on three key areas:
– maintain and continue to improve robust governance processes, including ensuring active and ongoing engagement with
stakeholders (to include shareholders, governments and customers, and colleagues) setting out the progress in achieving
strategic objectives (including ESG strategy and approach), as well as operating/financial performance;
– ensure a focus on health and safety within our operations through improvements in the Lost Time Injury Frequency Rate (LTIFR); and
– maintain a high level of colleague engagement as measured through our annual Group employee engagement score.
In its consideration of the governance component, the Committee looked at a number of factors, including:
– active management of stakeholder concerns from shareholder meetings, customer meetings, Cabinet Office reports and other
government reports;
– Board and Executive Committee updates including reactions to regional specific issues such as Social Value in line with UK
government expectations;
– discussion of operational, financial, HR and compliance matters as part of the Divisional Performance Reviews;
– continued transparency to the market and customers measured through feedback to the Company; and
– continued enhancement in assurance, internal controls and compliance (including regulatory compliance).
As part of its assessment of governance, the Committee also included specific actions agreed for Rupert and Nigel relating to the
effective governance in operational and stakeholder relationships. Achievement against the ESG scorecard for the Executive Directors
is shown in the table below:
Performance measure
Weighting
for 2022
(% maximum
bonus
opportunity)
Threshold
target Target
Maximum
target
Actual
performance
Achievement
against measure
(% maximum
opportunity for
this measure)
Lost Time Injury Frequency Rate – 4.64 5.72 0%
Colleague Engagement Score
1
68 72 70 50%
Governance Processes
2
For both Rupert Soames and Nigel
Crossley, actions specifically included
supporting a suitable conclusion to the
Deferred Prosecution Agreement (DPA).
Continued to improve and embed robust governance processes including
ensuring an active and ongoing engagement with stakeholders (to include
shareholders, governments, customers and colleagues) setting out the progress
in achieving strategic objectives including those aligned to our ESG framework,
as well as regular updates on operational and financial performance. Includes
the hosting of investor and analyst events, enabling them to engage with the
wider operational management team. Sharing of broader perspectives on our
sectors and markets such as through the Serco Institute. Further enhancement
of colleague engagement with the Board on all matters, including executive
remuneration. All requirements under the DPA have been successfully
completed without any further comments or conditions.
Overall ESG Scorecard 15% 41.67%
Notes:
1. Group employee engagement score from Employee Voice survey run from 6 to 27 September 2022.
2. Committee decision reached on overview of activity for the year.
Individual objectives
Weighting for 2022 (% maximum opportunity) 15%
Rupert Soames Nigel Crossley
Achievement against measure (% maximum opportunity for this measure) 78.3% 73.3%
149
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Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Rupert Soames – consideration of personal performance in the year
Target Achievements in year
Winning good business
1. Improve Business Development performance to deliver:
a) A reported total pipeline of a minimum of £8,651m,
target of £9,982m and a maximum achievement for
£12,024m or more.
b) New business wins of a minimum of £2,527m, target
of £2,704m and maximum achievement of £3,537m
or more.
c) Total wins, including recompetes and extensions of a
minimum of £4,027m target of £4,603m and maximum
achievement of £5,448m or more.
2. Maintain and improve the relationship with major
government customers.
a. Total reported pipeline for 2022 was £10,966m, which exceeds the target
of £9,982m.
b. New business wins amounted to £2,084m, below the threshold level of
£2,527m.
c. Total wins delivery was £4,082m, above the threshold of £4,027m.
– The strength of relationships built up and maintained with governments
is seen in the strong pipeline for 2022. Despite the economic challenges
in 2022, governments around the world continued to engage and re-
engage the Company to support them.
Executing brilliantly
3. Provide effective support to the Chairman and the Board
in relation to SuccessionPlanning.
4. Continue to build and where necessary invest in Serco’s
Cyber Resilience and Security.
5. Support the adoption of a new carbon reduction/
offsetting program in at least oneDivision.
– Successful appointment of Mark Irwin as CEO in January 2023, to replace
Rupert Soames.
– Regular talent and succession planning reviews of senior leaders
provides a pipeline for critical Executive Committee roles to reduce the
reliance on external appointments. This enabled the successful internal
appointments of both Mark and Tom Watson (CEO Americas) in 2022
following robust recruitment processes involving both internal and
external candidates.
– Continued investment in cyber security tooling and security measures
toprotect Serco’s information and personal data of its employees.
– Launched ‘Serco Goes Green’ programme within every Division with
particular focus on carbon reduction. Planted for sustainable purposes
12,000 trees.
A place people are proud to work
6. Manage the transition of CEO Americas and the change
implications which will flowfrom it.
7. Continue to drive further improvements in the levels of
diversity within the global leadership team (2020 vs. 2022).
– Successful appointment and transition of Tom Watson as CEO Americas
in September 2022, to replace Dave Dacquino, and successful restructure
of the Americas leadership team following the promotion of Tom to CEO.
– Improved gender diversity in the global leadership team, which is 34.5%
women in 2022 (up from 29% in 2020).
Profitable and sustainable
8. Drive further integration of acquisitions (WBB, FFA,
Clemaco) and ensure any further acquisitions are
complementary to the new five-year strategy.
9. Deliver against Financial Targets and City expectations
while maintaining the reputation of Serco in the
investment community.
– Integration of WBB, FFA and Clemaco continued in 2022. Integration of
previous acquisitions progressed to completion, all of which have been
margin accretive. Two bolt-on acquisitions completed in 2022 (Sapienza
and ORS) to complement our existing strategy, expanding our offering in
their respective areas and bring scale to our European business.
– Strong delivery of financial targets in 2022. Substantial investment in
maintaining and developing relationships in the investor community with
issuing of regular trading updates in addition to the required reports of
half and full year results.
– Issuing 205 announcements throughout the year regarding contract
awards, contract losses, changes to the Board, material shareholdings,
refinancing and corporate transactions and share buy-back programme.
– Regular engagement with analysts actively covering Serco and hosting
other events. Inclusion of analyst consensus on the Serco website with
the website regularly updated.
The Committee considered Rupert’s performance against his stated objectives and deemed his overall performance in 2022 to
be very strong, awarding him a personal performance outcome of 78%. Rupert continued to show highly effective and visible
leadership throughout 2022, and over the course of the year delivered another strong year of performance despite the economic and
geopolitical challenges faced by all in 2022, and despite the significant revenue losses as the Covid-related work came to an end. This
was achieved while maintaining the trust built up with our customers, based on the strong foundations of good governance, and while
continuing to ensure the engagement and wellbeing of all colleagues at Serco, all against the backdrop of successfully supporting all
stakeholders (colleagues, shareholders and customers alike) through a change in Group CEO.
150 Serco Group plc Annual Report and Accounts 2022
Nigel Crossley – consideration of personal performance in the year
Target Achievements in year
Winning good business
1. Improve Business Development performance to deliver:
a) A reported total pipeline of a minimum of £8,651m,
target of £9,982m andamaximum achievement of
£12,024m or more.
b) New business wins of a minimum of £2,527m, target
of £2,704m and maximum achievement of £3,537m
or more.
c) Total wins, including recompetes and extensions
of a minimum of £4,027m target of £4,603m and
maximum achievement of £5,448m or more.
a. Total reported pipeline for 2022 was £10,966m, which exceeds the
target of £9,982m.
b. New business wins amounted to £2,084m, below the threshold level of
£2,527m.
c. Total wins delivery was £4,082m, above the threshold of £4,027m.
Executing brilliantly
2. Provide effective support where necessary to the Board
in relation to SuccessionPlanning.
3. Manage the finance organisational changes across
the Group, specifically enablingeffective transitions in
UK&E and AsPac.
– Supports with the regular talent and succession planning reviews of
senior leaders providing a pipeline for critical Executive Committee
roles to reduce the reliance on external appointments. This enabled the
successful internal appointments of both Mark and Tom Watson (CEO
Americas) in 2022 following robust recruitment processes involving
both internal and external candidates.
– Conducted an organisational design and development review as part
of these transitions which, resulted in a number of changes being made
and supported the successful induction of two Divisional CFO’s, one
internal promotion and one external appointment.
A place people are proud to work
4. Conduct an organisational design and capability review
of the finance function as well as Internal Audit.
5. Support further improvements in the levels of diversity
within the global leadership teams (2020 vs. 2022).
– Completed an organisational design and capability review of both the
finance function and Internal Audit with improvements identified and
implementation of these starting in 2022.
– Improved gender diversity in the global leadership team, which is
34.5% women in 2022 (up from 29% in 2020).
Profitable and sustainable
6. Develop plan for additional financing to cover USPP’s
maturing within the period.
7. Deliver against Financial Targets and City expectations
while maintaining the reputation of Serco in the
investment community.
8. Develop and target prospective new shareholders with
a plan for engagement agreed by the Board.
– Successful refinancing of our revolving credit facility for a five-year term
increasing standby liquidity from £250m to £350m completed in 2022
supporting the assurance of adequate liquidity is available to meet the
Group’s funding requirements as they arise.
– Strong delivery of financial targets in 2022. Substantial investment in
maintaining and developing relationships in the investor community
with issuing of regular trading updates in addition to the required
reports of half and full year results.
– Full support to the annual Chairman’s Governance Investor Roadshow
and to full year and half year results presentations and investor events.
– Attendance at investor conferences.
– Completed a shareholder review and developed a new plan to target
prospective shareholders with a particular, but not exhaustive, focus on
North American investors.
The Committee considered Nigel’s performance against his stated objectives and deemed his overall performance in 2022 to be very
strong, awarding him a personal performance outcome of 73%. Nigel had continued to show effective and highly visible leadership
throughout 2022, delivering a strong performance, ensured good levels of liquidity going forward and maintained a strong balance
sheet despite the economic and geopolitical challenges faced in 2022, and the significant revenue losses as the Covid-related work
came to an end. This was achieved while maintaining the trust built up with our customers and the investment community, and while
ensuring the ongoing engagement and wellbeing of all colleagues at Serco, all of which are critical to our longer-term success.
Overall 2022 bonus outcome
Rupert Soames Nigel Crossley
Total bonus payable as % of maximum 88.0% 87.3%
Bonus opportunity as % of salary 175% 140%
Bonus amount achieved as % of salary 154.0% 122.2%
Bonus amount earned
1
£1,309,000 £535,750
Note:
1. Bonuses earned over 100% of salary are subject to mandatory deferral into Serco shares for three years.
151
Financial Statements
Corporate Governance
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Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Long-term incentives
LTIP
The 2022 single figure is comprised of the 2020 LTIP awards granted on 6 October 2020, which are due to vest on 6 April 2023
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 2022. As disclosed in our 2020 Report, the grant of our 2020 LTIP was delayed, enabling us to set
appropriate and meaningful targets during that unprecedented time. These targets were adjusted in 2021 (as disclosed in our 2021
Report) following the acquisition of WBB in order to maintain the level of performance required for vesting as originally intended.
In determining the overall vesting for the 2020 LTIP, the Committee was mindful that the first two years of the performance period
were subject to the impact of Covid-19. 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.
As set out in our 2021 DRR, the 2020 EPS and ROIC target ranges were retrospectively adjusted in 2021 for the WBB acquisition
completed on 27 April 2021. The acquisition resulted in a small increase in EPS with a +1.25p adjustment and a very small dilution in
the Group’s ROIC. The adjustment made to the EPS and ROIC target range for the 2020 LTIP is shown in the table below:
Target Previous target range Adjusted target range Adjustment variance
EPS 20.62p – 25.20p 21.87p – 26.45p + 1.25p
ROIC 16.4% – 20.0% 15.6% – 19.3% - 0.7%
The performance and formulaic vesting outcome for each tranche of the 2020 LTIP is as follows:
Performance condition and relative weighting
Threshold
3
–
25% vesting Maximum – 100% Performance measured
Vesting
(% of maximum)
Relative TSR
1
(28.33%)
Median
ranking
Upper quartile
ranking
Rank 49/159 Between
median and upper quartile 83.9%
Aggregate EPS
2,3
(28.33%) 21.87p 26.45p 33.93p 100%
Average pre-tax ROIC
2,3
(28.33%) 15.6% 19.3% 21.9% 100%
Order Book
3
(7.5%) N/A 105% 100% 50%
Employee Engagement in 2022
3
(7.5%) N/A 72 Engagement score of 70 80%
Overall vesting outcome 90.18%
Notes
1. For the 2020 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 2022. The Company’s TSR of 8.4% ranked between median (at which TSR was -12.3%) and upper quartile (at which TSR was 15.1%),
giving a vesting outcome of 83.9%.
2. The 2020 EPS and ROIC performance targets are the adjusted targets following the WBB acquisition (as set out in our 2021 DRR and summarised above) to ensure
that the targets accurately reflect the true performance of the Group, and that they maintain the performance ‘difficulty’ required for vesting as originally intended.
3. 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 Employee Engagement targets to be strategically critical to the longer-term success of the Company, and that there should
be no vesting below target performance. The vesting level for on-target performance (being a book-to-bill ratio of 100%, or an Employee Engagement score of 67)
is 50% of this element, rising on a straight-line basis to 100% for maximum performance.
Executive Director 2020 LTIP Tranche
No. of shares
awarded
No. of shares
vesting
Dividend
equivalent
shares
Value of
vesting
2
Value attributable
to share price
appreciation
3
Rupert Soames Relative TSR 375,891 315,372 10,277 £527,095 £109,809
EPS 375,891 375,891 12,250 £628,245 £130,881
ROIC 375,891 375,891 12,250 £628,245 £130,881
Order Book 99,500 49,750 1,620 £83,147 £17,322
Employee Engagement 99,500 79,600 2,592 £133,036 £27,715
Nigel Crossley
1
Relative TSR 40,496 33,976 1,104 £56,780 £11,829
EPS 40,496 40,496 1,316 £67,677 £14,099
ROIC 40,496 40,496 1,316 £67,677 £14,099
Order Book 10,720 5,360 172 £8,954 £1,865
Employee Engagement 10,720 8,576 274 £14,325 £2,984
Notes:
1. Nigel Crossley was not a Director at the date of the 2020 LTIP awards on 6 October 2020 but was appointed to the Board as CFO on 21 April 2021. The awards were
granted in respect of his former role, prior to his appointment to the Board. His 2020 LTIP award value is pro-rated for the months of qualifying service in the
three-year performance period ending 31 December 2022.
2. As these awards are still to vest at the time of reporting, the share price used to determine the value of vesting for the 2022 single figure is the Q4 average closing
share price to 31 December 2022 (£1.6186).
3. The value included in the single figure reflects an increase in the share price from that at grant (£1.2814) to the estimate of the share price at vest (based on the 2022
Q4 average share price). 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.
152 Serco Group plc Annual Report and Accounts 2022
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.
Inaddition, reasonable travel and related business expenses are paid. No bonuses are paid to Non-Executive Directors. Non-Executive
Directors’ fees are not performance related.
Non-Executive Directors are encouraged to hold shares in the Company but are not subject to a shareholding requirement.
Fee-bearing
Committee roles
held in the year
Board fee (including Chairmanship fees)
(£)
Taxable benefits
1
(£)
Total
2
(£)
2022 2021 2022 2021 2022 2021
John Rishton
(Chairman) 280,000 222,576 5,865 1,994 285,865 224,570
Kirsty Bashforth C R GR 76,494 75,500 7,292 1,363 83,786 76,863
Kru Desai A C 63,994 11,278 — — 63,994 11,278
Tim Lodge A R GR 76,494 62,525 588 — 77,082 62,525
Ian El-Mokadem A GR 71,494 70,500 — — 71,494 70,500
Dame Sue Owen C GR 63,994 63,000 235 — 64,229 63,000
Lynne Peacock
(SID) A R 86,494 80,955 450 446 86,944 81,401
Total 718,964 586,334 14,430 3,803 733,394 590,137
Notes:
A = Audit Committee, C = Corporate Responsibility Committee, R = Remuneration Committee, GR = Group Risk Committee. Red denotes Chair. No additional fees
were payable for other Board Committee roles in the year.
1. Taxable benefits in 2021 and 2022 relate to reimbursed taxable travel and subsistence business expenses.
2. Non-Executive Directors do not receive any variable pay so ‘Total’ is total fixed remuneration.
Pensions (audited information)
As at 31 December 2022, 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)
Rupert Soames stepped down as Group CEO and as an Executive Director of Serco Group plc on 31 December 2022. From 1 January
2023 Rupert moved into the role of Strategic Adviser to the Group and retains his role on the Board of Serco Inc., with these roles
continuing until the end of his notice period (11 September 2023). This ensures a smooth transitional period for Mark Irwin as the
incoming Group CEO.
Description Details of payment
Salary and benefits – Base salary of £850,000 until 11 September 2023.
– Contractual benefits e.g. company car, life assurance, independent financial advice etc. until 11September
2023.
– Pension cash alternative payment of 8% of salary (£68,000) from 1 January 2023 until 11 September 2023.
Discretionary 2023
annual bonus award
– Rupert will be entitled to receive a pro-rata 2023 bonus subject to performance, payable in March 2024, in
respect of his role as Strategic Adviser to the Group during 2023.
– Award subject to malus and clawback provisions.
Equity Settled Bonus
Plan (ESBP) for bonus
earned above 100%
of salary deferred into
shares and vesting
after three years. These
awards are not subject
to further performance
conditions or pro-rated.
To be treated as ‘good leaver’ in respect of outstanding ESBP awards unvested at the date he ceases
employment. The following awards will vest in full on the normal vesting dates:
– 2020 ESBP award – 437,967 shares vesting on 28 April 2023. To vest in full prior to the end of his
noticeperiod.
– 2021 ESBP award – 251,632 shares vesting on 26 March 2024.
– 2022 ESBP award – 391,455 shares vesting on 28 March 2025.
– 2023 ESBP award to be granted in 2023 in respect of his 2022 bonus, shares to vest in 2026. See note 4 to the
single figure table on page 147.
The total number of shares linked to the award will be increased for any dividend equivalents in connection with
dividends paid during the vesting period.
– Awards subject to malus and clawback provisions.
Holiday entitlement All outstanding holiday entitlement to be taken by the end of the notice period.
153
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Description Details of payment
Share awards – No awards to be made under the Company’s LTIP in 2023.
– Treatment as ‘good leaver’ for awards unvested at the end of the notice period (being awards made under the
2021 and 2022 LTIP). Outstanding unvested LTIP share awards will vest on the normal vesting dates subject to
the satisfaction of the relevant performance conditions and on a time pro-rated basis. A post-vesting holding
period, until the fifth anniversary of grant, will apply.
– 2021 LTIP – 990,770 shares to be retained – vesting date 6 April 2024 – holding period expires 6 April 2026.
– 2022 LTIP – 554,095 shares to be retained – vesting date 6 April 2025 – holding period expires 6 April 2027.
The total number of shares linked to the awards will be increased for any dividend equivalents in connection with
dividends paid during the vesting period.
– Awards subject to malus and clawback provisions.
Angus Cockburn stepped down as Group CFO and as an Executive Director of Serco Group plc at the AGM held on 21 April 2021,
and ceased employment with Serco on 31 December 2021. As set out in our 2021 Report, Angus was treated as a ‘good leaver’ in
respect of his outstanding share awards at cessation. Further to the details previously disclosed, the following vested to him in 2022.
Description Details of payment made in 2022
Equity Settled Bonus
Plan (ESBP)
– 2019 ESBP award – 70,280 shares vested on 26 April 2022 at a share price of £1.5009.
The total number of shares linked to the award was increased for dividend equivalents in connection with
dividends paid during the vesting period.
– Awards remain subject to malus and clawback provisions.
Share awards – 2019 LTIP – in line with the performance outcome as disclosed in the 2021 Report, 525,464 shares vested on 6
June 2022 at a share price of £1.8020 per share. The post-vest holding period expires 6 June 2024. The total
number of shares linked to the award was increased for dividend equivalents in connection with dividends
paid during the vesting period. Full details of the vesting of this award were disclosed in our 2021 Report.
– 2020 LTIP – in line with the performance outcome for the 2020 LTIP as disclosed in this, the 2022 Report,
643,868 shares will vest on 6 April 2023 (actual number of shares may increase due to any further dividend
equivalents prior to vest). The post-vest holding period expires on 6 October 2025.
– Awards remain subject to malus and clawback provisions.
There were no other payments made to past Directors in 2022.
Performance graph and table
This graph shows the value as at 31 December 2022, of a £100 investment in Serco on 31 December 2012 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 2022 single figure can be found on page 152.
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.
0
50
100
150
200
250
300
350
Dec 2022Dec 2021Dec 2020Dec 2019Dec 2018Dec 2017Dec 2016Dec 2015Dec 2014Dec 2013Dec 2012
Serco FTSE 250 Index
154 Serco Group plc Annual Report and Accounts 2022
Percentage change in Directors’ remuneration
The table below shows the percentage change in remuneration for all Directors who served during 2022 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 22,000 of the approximately 50,000 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. 2022 is the third year of disclosure.
UK
employees
Executive Directors Non-Executive Directors
Rupert
Soames
Nigel
Crossley
4
John
Rishton
Kirsty
Bashforth Kru Desai
4
Tim Lodge
4
Ian El-
Mokadem
Dame Sue
Owen
Lynne
Peacock
2022
Salary/fees
1
4.5% 0% 47% 26% 1% 467% 22% 1% 2% 7%
Benefits
2
0% -2% 102% 194% 435% 0% 100% 0% 100% 1%
Bonus
3
-13% -6% 38% N/A N/A N/A N/A N/A N/A N/A
2021
Salary/fees
1
2.1% 0% N/A 146% 0% N/A N/A 8% 140% 15%
Benefits² 2% -8% N/A 128% 114% N/A N/A 0% 0% 0%
Bonus
3
21% 17% N/A N/A N/A N/A N/A N/A N/A N/A
2020
Salary/fees
1
1.9% 0% N/A 0% 2% N/A N/A 4% N/A 0%
Benefits
2
-3% 20% N/A -51% -81% N/A N/A 0% N/A 0%
Bonus
3
20% -15% N/A N/A N/A N/A N/A N/A N/A N/A
Notes:
1. 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
2022 fee uplift which was disclosed in the 2021 Report.
2. The nature of taxable benefits provided to all Directors and employees in 2022 remains the same as in prior years.
3. 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 2022 compared to the 2021 bonuses paid in March 2022. The Executive Directors’ 2022 bonuses over 100% of salary are subject to
compulsory deferral for three years into shares. NEDs do not receive bonus pay.
4. The percentage change in 2022 for Nigel Crossley, Kru Desai and Tim Lodge reflects that their single figures in 2021 were for a partial year of service (with each
Director being appointed during 2021).
CEO’s pay in last ten financial years
Year ended
31December 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Christopher
Hyman Ed Casey
Group CEO Ed Casey
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
Rupert
Soames
CEO single figure
remuneration (£000)
893 1,605
295 748 2,255 2,217 3,681 5,176 5,201 5,219 4,011 4,377
Annual bonus
outcome (as %
of maximum
opportunity)
N/A 71%
74% 0% 87% 82% 75% 77% 94% 80% 93% 88%
LTI vesting outcome
(as % of maximum
opportunity) 0% 0% 100% 24% 91% 73% 71% 99% 89% 90%
155
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
CEO Pay ratio
The table below shows how pay for the CEO compares to our UK colleagues at the 25th, median and 75th percentiles.
Year Percentile Salary
1
Total pay and
benefits
2
Pay Ratio
2022 (Option B) 25th £29,904 £31,117 1:141
Median £32,728 £34,007 1:129
75th £33,154 £43,301 1:101
2021 (Option B) 25th £22,351 £23,816 1:168
Median £26,785 £28,801 1:139
75th £28,675 £32,992 1:122
2020 (Option B) 25th £24,964 £26,611 1:186
Median £30,597 £33,127 1:149
75th £32,486 £34,709 1:142
2019 (Option B) 25th £24,859 £26,066 1:219
Median £27,026 £30,072 1:190
75th £32,429 £34,420 1:166
Notes:
1. Includes salary enhancements such as shift allowances, unsociable hours payments and overtime.
2. 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. As a business, Serco employs a very wide range of people with different skills, experiences and capabilities, and our
reward aims to reflect these differences and be responsive to the needs of our employees. We apply the same reward principles for
all our colleagues, in that reward should be competitive and aligned to the sectors and markets from which we draw our talent. Our
remuneration philosophy throughout the organisation is to compensate employees fairly for their contribution to the business while
ensuring that we are appropriately managing the cost of our workforce which, as a people business, is our biggest operating cost.
The remuneration of Serco’s CEO 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 front-line 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 2021 to 2022 is primarily driven by the change in the distribution of our colleagues across pay levels within Serco. As
shown in the above table, there has been an increase in the salary and total compensation for colleagues across our workforce (seen
in the increase vs. 2021 at the 25th, median and 75th percentiles). While there will always be some changes to the distribution of our
colleagues as contracts move in and out of the organisation, in 2022 this increase is also due to the actions taken by the Company to
support colleagues during the cost-of-living crisis, such as the higher pay increases delivered in 2022.
Consistent with our approach in prior years, we have used our 2022 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 2022. The single figures have
been calculated taking into consideration regular salary and allowances (e.g. shift allowances), employer pension contributions,
taxable benefits and bonuses (which for 2022 included the ex gratia awards made to around 50,000 of our global colleagues to
recognise the pressure many people, particularly the lower paid, are under at this time) following the same approach taken in
determining the CEO’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.
The Gender Pay Gap quartiles vary year on year, reflecting the fluctuation in the size and make-up of our workforce as contracts move
in and out of the organisation and as we respond to the needs of our customers. This impacts the roles captured as representative of
our lower, median and upper quartiles compared to prior years.
156 Serco Group plc Annual Report and Accounts 2022
Relative importance of spend on pay
The table below details the percentage change in dividends and overall expenditure on pay compared with the previous financial year.
2022 vs 2021 2022 2021
Distributions to shareholders (via dividends and share buyback) 81% £121.3m £67.0m
Overall expenditure on wages and salaries 7.8% £2,140.2m £1,984.7m
Dividend per share and overall expenditure on wages and salaries have the same meaning as in the notes to the Company
FinancialStatements.
Awards made in 2022
Equity settled bonus plan (ESBP) (audited information)
In line with the approved Policy, in connection with the compulsory deferral of the 2021 bonus in excess of 100% of salary, Rupert
Soames and Nigel Crossley were granted the following ESBP awards on 28 March 2022 in the form of conditional share awards. ESBP
awards granted in 2022 vest on the third anniversary of grant on 28 March 2025.
Directors
Face value
(£)
1
Grant date
Market price at award
(£)
2
Number of shares
3
Rupert Soames 537,094 28 March 2022 1.3942 385,234
Nigel Crossley 126,850 28 March 2022 1.3942 90,984
Notes:
1. Calculated as the value of the Executive Directors’ 2021 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.
Long term incentive plan (LTIP) (audited information)
In line with the approved Policy, in 2022, the CEO received LTIP awards equivalent to 200% of salary, and the CFO received awards
equivalent to 150% of salary. All awards were in the form of conditional share awards.
The LTIP awards will normally vest on 6 April 2025, following the end of the performance period, if the Executive Directors are still
in employment with Serco and to the extent that the performance conditions have been met, as measured over the three-year
performance period ending 31 December 2024.
Performance measure
Weighting
of measure Performance target
Aggregate EPS 25% Statutory Earnings Per Share (EPS) before exceptional items (adjusted to reflect tax paid on a cash
basis) of 28.41p (threshold, 25% vesting) to 34.72p (maximum, 100% vesting), measured as an
aggregate over the three-year performance period.
Relative TSR 25% 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.
Average ROIC 25% Pre-tax Return on Invested Capital (ROIC) of 17.3% (threshold, 25% vesting) to 21.2% (maximum,
100% vesting), measured as an average over the three-year performance period.
Order Book 10% 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
performanceperiod;
– 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.
157
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
In determining the extent to which these LTIP awards will vest, the Committee will consider the Group’s underlying performance
(withinput from the Group 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
Basis of
award
(% salary)
Face
value
(£) Grant date
Market price
at award
(£)
1
Number
of shares
2
Percentage
vesting at
threshold
performance
3
Performance
period
end date
Rupert Soames 200% 1,700,000 6 April 2022 1.4488 1,173,384 18.75% 31 December 2024
Nigel Crossley 150% 657,900 6 April 2022 1.4488 454,099 18.75% 31 December 2024
Notes:
1. Average closing share price on the five trading days immediately prior to the date of grant.
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 2022 (audited information)
As noted in the Chair’s letter, Serco launched a new all-employee Save As You Earn (SAYE) plan (MyShareSave) in 2022. In line with
the approved Policy, and HMRC's requirements relating to SAYE, the Executive Directors were invited to participate in the 2022
scheme on the same terms as all other eligible employees. In respect of his enrolment in the 2022 scheme, the CFO received a
grant of discounted share options as set out below. These options were granted at a 20% discount (in line with HMRC’s requirements
relating to SAYE plans). The 2022 MyShareSave options will mature from 1 December 2025 following the completion of the associated
36-month savings contract and if the Executive Director is still in Serco employment.
Directors
Face
value
(£)
1
Grant date
Market price for
award
(£)
2
SAYE exercise
price
(£)
3
Number of
shares
4
Nigel Crossley 6,697 28 October 2022 1.5630 1.2600 4,285
Notes:
1. Calculated as the value of the shares under option taking the market price for the options used to determine the exercise price.
2. Mid-market price on the option pricing date, 30 September 2022.
3. Being a 20% discount to the mid-market price on the option pricing date.
4. The number of shares under option based on the total savings under the savings contract and the exercise price.
Implementation of the Policy in 2023
Executive Directors
Salary increases for the year ending 31 December 2023
The base salary for Mark Irwin (CEO) was set by the Committee on appointment at £800,000 p.a. As set out in the Chair's letter,
theCommittee reviewed the base salary for the CFO and determined that with effect from 1 January 2023, this should be increased
to£480,000 p.a.
Pension
The pension opportunities for Mark Irwin and Nigel Crossley were aligned to the wider workforce (8% of salary) from the date of their
appointments as CEO and CFO on 1 January 2023 and 21 April 2021 respectively, and will remain at this level for 2023.
As previously communicated, although no longer an Executive Director in 2023, Rupert Soames’ pension opportunity will be reduced
from 20% to 8% of salary with effect from 1 January 2023. This reduction follows the previous change from 30% to 20% of salary which
took effect 1 April 2020.
Annual bonus and LTIP
The annual bonus and LTIP opportunities for Mark Irwin were set by the Committee on his appointment on 1 January 2023. As set
out in the Chair's letter, the remuneration for the CFO was reviewed in 2022 and the Committee determined that, in line with the
approved Policy, his maximum annual bonus and LTIP opportunity should increase to 155% (from 140%) and 175% (from 150%) of
salary respectively. Details of structure and opportunity under the 2023 annual bonus and LTIP for each Executive Director are set out
on page 145. Further details of the performance framework to apply in 2023 are provided below.
Details of the performance measures to apply to the 2023 annual bonus and long-term incentive awards
Our aspiration is to be the best managed company in our sector. To achieve this, we concentrate on doing four things really well
– winning good business, executing brilliantly, being a place people are proud to work, and being profitable and sustainable. Our
variable pay for 2023 aligns to this through the targets set against a number of our core KPIs, each of which has an important role in
realising this aspiration. TSR aligns variable pay with value created for shareholders. The Committee takes a robust approach to target
setting, informed by internal budget and long-term plans, analyst forecasts and strategic objectives.
158 Serco Group plc Annual Report and Accounts 2022
Recognising the importance of our ESG commitments to both the short- and long-term success of Serco, as was the case in 2021 and
2022, an ESG scorecard for both our annual bonus and LTIP will continue to be incorporated into each incentive. The ESG scorecard
components have been chosen taking into consideration our current maturity across this space, our ability to set and measure
performance that is relevant and meaningful to Serco, and the current strategic priorities as articulated in our Corporate Responsibility
and People Reports. As our ESG strategy continues to evolve over time, and the priorities for Serco change, we would expect the
scorecard components to also change. For 2023, the Committee decided to retain the same framework of ESG scorecard measures as
they continue to be the most appropriate for our strategic direction for 2023.
Determination of the amount payable under the 2023 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 vesting of the 2023 LTIP awards, the
Committee will also take into consideration the wider performance of the Group. The final vesting will be adjusted, where appropriate,
to ensure the outcomes are a fair and reasonable reflection of the performance of the Group.
2023 bonus performance measures
The performance measures to apply to the 2023 annual bonus plan continue the focus on profit growth and cash, as well as to
incorporate a strategically aligned ESG scorecard to support our ambition of being the best managed company in our sector.
The2023 performance measures will be aligned to core KPIs as follows:
Core KPIs
Financial (70%) Non-financial (30%)
40% Trading Profit 15% Personal objectives aligned to the delivery of the
Group’s corporate strategy
30% Free Cash Flow 15% ESG scorecard aligned to being the ‘best managed
company in our sector’
Components of the 2023 annual bonus ESG scorecard (15% weighting)
The 2023 annual bonus ESG scorecard will focus on two key areas:
– ensure a focus on health and safety within our operations; and
– maintain a high level of colleague engagement as measured through our annual Group employee engagement score.
The specific financial targets for the 2023 annual bonus plan are deemed to be commercially sensitive. Full disclosure of the targets
set will be made in the 2023 Report following the end of the current financial year to the extent these are no longer considered
commercially sensitive.
2023 LTIP performance measures
The table below provides details of the performance measures and targets to apply to the 2023 LTIP awards. Targets have been set
taking into account our longer-term business forecasts and strategy, as well as analyst consensus.
Performance
measure
Weighting of
measure Performance target
Threshold 25%
vesting
1
Maximum 100%
vesting
Financial
performance
Relative TSR 25% Total Shareholder Return (TSR) when ranked relative to
companies in the FTSE 250 (excluding investment trusts),
measured over the three-year performance period.
Median
ranking
Upper
quartile
ranking
Average ROIC 25% Pre-tax Return on Invested Capital (ROIC) measured as an
average over the three-year performance period.
18.3% 22.4%
Aggregate EPS 25% 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.
34.64p 42.34p
Non-financial
strategic
performance
Order Book
1
10% 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.
N/A 105% or
above
ESG scorecard 15% The components of the 2023 LTIP ESG scorecard (set
out below) have been selected as being important to the
long-term sustainability of Serco.
N/A See ESG
table
below
Note:
1. 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 targets to be strategically critical to the longer-term success of the Company and that there should be no vesting below
target performance. The vesting level for on-target performance (being a book-to-bill ratio of between 100% to 105%) is 50% of this element, rising on a
straight-line basis to 100% for maximum performance.
159
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Components of the 2023 LTIP ESG scorecard (15% weighting)
Performance measure Performance target
Employee engagement Average annual Group employee engagement score over the three-year performance period at or above 70 for
on-target performance, and at or above 72 for maximum performance.
Improvement in
colleague diversity
Performance will be assessed against a scorecard of factors relating to the improvement in colleague diversity.
This will include reviewing progress on activities which support diversity, such as:
– commitment to diversity charters, where appropriate, such as the UK Race at Work charter, and progress
shown against the commitments made;
– the continued implementation of policies to promote diversity in recruitment and candidate pools;
– wider and better targeted participation in learning and career development; and
– active management of a talent pipeline and progression within the organisation which will, in time, result in
amore diverse leadership cadre.
To track progress, the Committee will also review quantitative metrics such as the percentage of women and
colleagues of diverse ethnic backgrounds holding senior global leadership roles.
Improvement in
our understanding,
management and
disclosure of Serco’s
environmental risks
Demonstrate improvements in environmental performance and management of environmental risks, through
actions taken in line with our environmental strategy and improvements in externally issued environment/
climate change ratings such as CPD Climate Change Scores.
In each case, the performance will be assessed over the three-year period ending 31 December 2025. The structure for vesting of the
EPS, TSR, ROIC and ESG conditions will be straight-line vesting between threshold and target, and between target and maximum, and
no shares will 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 will, therefore, 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. In determining the final
vesting of these awards, the Committee will also give consideration to the Group’s underlying performance (with input from the Group
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.
Non-Executive Directors
Following the annual review of Non-Executive Director fees, the Committee (in respect of the Chairman's fee) and the Board (in
respect of all other Non-Executive Director fees) determined that the Chairman's fee, basic Board fee and additional fees for acting
as Chair of a committee and membership of a committee would be increased by 4% from 1 April 2023 in line with the average
percentage increase awarded to the wider UK workforce. No fee increase will be applied for the role of Senior Independent Director.
In recognition of the significant time and expertise given by the Designated Non-Executive Director for Workforce Engagement, it was
also agreed that a fee be introduced from 1 April 2023 for this role, aligned to the fees payable for membership of a committee. In
line with the approved Policy, the fees to apply in 2023 will be as follows:
Base fee to
apply from
1 April 2023
£
Base fee
1 April 2022
£
Change
£
Element – Annual Board and Committee fees
Chairman 291,200 280,000 11,200
Senior Independent Director 15,000 15,000 0
Board fees 56,498 54,325 2,173
Chairmanship of a Board Committee (Audit, Corporate Responsibility, Group Risk
orRemuneration) 13,000 12,500 500
Membership of a Board Committee (Audit, Corporate Responsibility, Group Risk
orRemuneration) 5,200 5,000 200
Designated Non-Executive Director 5,200 N/A 5,200
No additional fee is payable for the Chair or membership of the Nomination Committee. The Chairman does not receive any
additional fees for his Committee memberships nor do the Executive Directors where they sit on Board Committees.
160 Serco Group plc Annual Report and Accounts 2022
Voting outcomes
At the previous AGMs, votes on remuneration matters were cast as follows:
Year of AGM
For
%
Against
%
Number
withheld
1
2021 Annual Report on Remuneration 2022 85.33% 14.67% 9,760,163
2020 Remuneration Policy 2021 94.55% 5.45% 1,633,113
Note:
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.
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.
Rupert Soames served as Senior Independent Director until 28 February 2022, and a member of the Audit, Nomination and
Remuneration Committees until he retired from the Board of D S Smith on 6 September 2022; in aggregate he received fees in 2022
of £44,162. Nigel Crossley did not hold any external appointments in the year.
Directors’ shareholding and share interests (audited information)
Current shareholdings are summarised in the table below. Shares are valued for shareholding guideline purposes at the year-end
price, which was £1.5540 per share at 30 December 2022 (being the last trading day of the financial year).
Executive Directors
Share awards Share options
Name
Share
ownership
requirements
(% of salary)
1
Number of
shares owned
outright at
31December
2022
2
Value
invested
3
(£)
Subject to
performance
conditions
4
Not subject to
performance
conditions
5
Not subject to
performance
conditions
6
Exercised
during the
year
7
Total share
interests at
31 December
2022
2
Rupert Soames 200% 2,759,287 £2,701,490 3,832,238 1,081,054 0 0 7,672,579
Nigel Crossley 200% 278,721 £404,125 1,196,253 92,452 4,285 0 1,571,711
Notes:
1. Nigel Crossley was appointed to the Board as Group CFO on 21 April 2021. It is anticipated that it will take him up to five years from appointment to meet his
shareholding commitment.
2. Includes shares owned by connected persons. There were no changes in Executive Directors’ interests in the period between 1 January 2023 and the date of
thisreport.
3. Based on the share price at the point of acquisition of each tranche of shares held outright at 31 December 2022 by the Executive Director and/or their
connectedpersons.
4. Includes awards made to Rupert Soames and Nigel Crossley under the LTIP. All awards are in the form of conditional share awards.
5. 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.
6. Options over shares pursuant to participation in MyShareSave. These are options granted under a UK SAYE 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.
7. There are no share options that are vested but unexercised.
Non-Executive Directors
Non-Executive Directors do not participate in any share-based incentives and do not hold any interests in shares other than shares
owned outright.
Name
Number of shares owned outright
(including connected persons) at
31December 2022
1,2
John Rishton 43,086
Kirsty Bashforth 10,000
Kru Desai 0
Tim Lodge 40,000
Ian El-Mokadem 50,000
Dame Sue Owen 10,000
Lynne Peacock 15,000
Notes:
1. Includes shares owned by connected persons. There were no changes in Non-Executive Directors’ interests in the period between 1 January 2023 and the date of
this report.
2. Non-Executive Directors do not have shareholding guidelines and there are no interests in shares held by Non-Executive Directors where the individual does not
own those shares outright.
161
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Corporate Governance
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Remuneration Report continued
Other shareholding information
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 (formerly the ABI) 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 2022,
the Company had headroom of 1.7% and 6.7% 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 11,605,185 and 9,144,275 ordinary shares at 1 January 2022 and 31 December 2022 respectively.
Summary of the approved Remuneration Policy
The Policy took effect following shareholder approval at the 2021 Annual General Meeting (held on 21 April 2021). A summary of the
Policy is provided below. This summary does not replace or override the full approved Policy which is available on our website within
the 2020 Annual Report and Accounts.
Remuneration principles
Serco’s Policy supports the achievement of the Group’s long-term strategic objectives. Serco’s approach to executive remuneration is
designed to:
– support Serco’s long-term future growth, strategy and values;
– align the financial interests of executives and shareholders;
– provide market-competitive reward opportunities for performance in line with expectations and deliver significant financial
rewards for sustained out-performance;
– enable Serco to recruit and retain the best executives with the required skills and experience in all our chosen markets;
– be based on a clear rationale which participants, shareholders and other stakeholders are able to understand and support.
In considering the structure and framework for the Policy, the Committee carefully considered the linkage of remuneration to the
Company’s strategy to ensure that the arrangements support the strategy and promote the long-term sustainable success of Serco.
We approach Executive Directors’ remuneration on a total reward basis to provide the Remuneration Committee with a holistic view
of total remuneration rather than just the competitiveness of the individual elements. Analysis is conducted by looking at each of the
different elements of remuneration (including salary, annual bonus, long-term incentive plan and pension) in this context. This ensures
that in applying the Policy, executive pay is sufficient to achieve the goals of the Policy without paying more than is necessary. The
balance of fixed to variable pay also ensures that significant reward is only delivered for exceptional performance.
This remuneration framework is echoed throughout the organisation with the approach to pay for the wider workforce reflecting these
core principles.
The Policy table for Executive Directors below sets out how each element of the 2021 Policy aligns with, and supports, our
strategicobjectives.
162 Serco Group plc Annual Report and Accounts 2022
Base salary
Purpose 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.
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.
Salary levels are set by reference to the:
– role, performance and experience of the individual;
– wider economic environment;
– compensation of similar roles at companies in an appropriate peer group; and
– salary increases across the Group.
In some circumstances an Executive Director may start on a lower salary than would be competitive in the market, with
aphased increase applying depending on performance in role and individual ability.
Opportunity While there is no prescribed, formulaic maximum, over the Policy period base salaries for Executive Directors will be set
at an appropriate level within the peer group and will normally increase at no more than salary increases made to the
general workforce in the jurisdiction in which the Executive Director is based.
Higher increases may be made in exceptional circumstances. Such cases would include 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 disclosure of the rationale would be included in the relevant Report.
Performance
framework
Review takes account of individual performance and contribution to the Company during the year.
Benefits
Purpose To provide a competitive level of benefits.
Operation A range of benefits may be provided to Executive Directors. These typically include company car or car allowance,
private medical insurance, permanent healthcare insurance, life cover, annual allowance for independent financial advice,
and voluntary health checks.
Where appropriate other benefits may be offered including, but not limited to, relocation benefits.
Directors may also be eligible to participate in any all-employee share plan, such as an SAYE, which may be launched
subject to shareholder approval. Participation will be on the same basis as other employees, up to HMRC approved
limits where relevant.
Benefits are reviewed annually against market practice and are designed to be competitive.
Opportunity 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.
Performance
framework
None
Pension
Purpose To provide pension-related benefits to encourage Executive Directors to build savings for retirement.
Operation Executive Directors may participate in the Group defined contribution pension plan (or overseas Serco pension plan
asappropriate).
Executive Directors may choose to receive some or all their employer pension contribution as a cash allowance to
investas they see fit.
Opportunity The maximum contribution or cash allowance (or mix of both) for current Executive Directors will be aligned with the
contribution available to the wider workforce over a two-step approach as follows:
– from 1 April 2020, 20% of salary; and
– from 1 January 2023, aligned to the workforce rate.
The maximum Company contribution (or cash payment in lieu) for a newly appointed UK based Executive Director will
be aligned with the maximum employer contribution available to the wider UK workforce (currently 8% of salary). For
a newly appointed Executive Director based outside the UK, their maximum pension opportunity will align with that
available to the wider workforce for the jurisdiction in which they are based.
Performance
framework
None
163
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Corporate Governance
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Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
Annual bonus
Purpose To incentivise executives 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.
Operation Bonus awards are based on the achievement of specific targets over the year. The Committee 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 the start of each performance year.
Annual bonuses are paid after the end of the financial year to which they relate. There is compulsory deferral into shares,
typically vesting after three years, of any bonus earned over 100% of salary.
The Committee may decide to pay the entire bonus in cash where the amount to be deferred into shares would, in the
opinion of the Committee, be so small that it is administratively burdensome to apply deferral. Dividend equivalents may
accrue during the vesting period on the shares under the bonus deferral award. These may be delivered in the form of
additional shares or cash to the extent that the award vests.
Malus and clawback provisions apply.
Opportunity Maximum bonus opportunity is 175% of salary for CEO and 155% of salary for other Executive Directors. This represents
the maximum bonus payable for exceptional/’stretch’ performance.
Performance
framework
Performance is measured over each financial year relative to financial, strategic and individual objectives in the year
aligned with the Company’s strategic plan.
Performance measures and weightings are reviewed each year to ensure that they remain appropriate and reinforce the
business strategy. At least 70% of the total bonus will be based on the achievement against financial measures. Up to
30% of the total bonus will be based on strategic and personal objectives which will include ESG objectives.
Bonus awards are at the Committee’s discretion and the Committee will consider the Company’s performance and the
affordability of the bonuses in the round. 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 on a straight-line basis from 0% for threshold performance to 50% at target, and to 100% at
maximumperformance.
Long-term incentive – Serco Group Long Term Incentive Plan (LTIP)
Purpose 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.
Operation LTIP awards consist of share awards subject to performance conditions which are normally granted annually.
Awards normally vest three years from their grant date although in exceptional circumstances, such as but not limited to
where a delay to the grant date is required, the Committee may set a vesting period of less than three years, although
awards will continue to be subject to a performance period of at least three years.
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.
The Committee has discretion to permit a dividend equivalent to accrue during the vesting period. Dividend equivalents
are delivered to participants in the form of additional shares or cash to the extent that the award vests.
Post-tax shares are subject to a post-vesting holding period 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.
Awards made to Executive Directors are subject to malus and clawback provisions.
Opportunity Maximum annual award of up to 200% of base salary for the CEO and 175% for other Executive Directors.
Performance
framework
At least 75% of the vesting of LTIP awards will be dependent on financial performance, with up to 25% of the vesting
based on the achievement of strategic measures aligned with the Company’s strategic plan, which will include ESG
objectives. The Committee has discretion to restrict the vesting against the non-financial measures if, on assessment
of the Company’s performance as a whole (including the financial performance), the formulaic outcome of the non-
financial measures is not reflective of this.
The maximum vesting for threshold performance is 25% of the total award, and 100% vesting for maximum
performance.
The Committee (with input from the Audit and Group 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.
164 Serco Group plc Annual Report and Accounts 2022
Shareholding guidelines
Purpose To support long-term commitment to the Company and the alignment of Executive interests with those of shareholders.
Operation The Committee reviews the shareholding guidelines with the Policy review to ensure the guidelines remain in line with
market and best practice.
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.
Executive Directors are required to retain, in shares, 50% of the net value of any performance shares vesting or options
exercised until they satisfy the shareholding guideline.
Opportunity In-employment guideline
The in-employment shareholding guideline is 200% of salary.
Post-employment guideline
The post-employment guideline is equal to 100% of the in-employment guideline (or actual shareholding on cessation
iflower) for the first 12 months, and 50% of the in-employment guideline (or actual shareholding on cessation if lower)
for the second 12 months.
This guideline applies to shares vesting from the date of the approval of this Policy, to Executive Directors not under
notice at this date.
The Committee has the discretion to increase the shareholding guidelines of the Executive Directors.
Performance
framework
None
Remuneration Policy for the Chairman and Non-Executive Directors
Base fees
Purpose To attract Non-Executive Directors with the necessary experience and ability to make a substantial contribution to the
Group's affairs.
Operation The fees of the Chairman are determined and approved by the Remuneration Committee (excluding the Chair of the
Company) and fees of the Non-Executive Directors are determined and approved by the Board as a whole.
The Chairman and other Non-Executive Directors receive a base fee. Other Non-Executive Directors may also receive
additional fees in respect of additional responsibilities such as membership or chair of a Board Committee.
Fees are typically reviewed on an annual basis against a relevant peer group and taking into consideration
marketpractice.
Opportunity Over the Policy period, base fees for current Non-Executive Directors will be set at an appropriate level within the peer
group and increases will typically be broadly in line with market.
The base fees or fees for specific Non-Executive Directors’ roles may be reviewed at any time based on anticipated
responsibility and time commitment involved.
Current fee levels are shown on page 160.
Performance
framework
Non-Executive Directors fees are not performance related.
Benefits and expenses
Purpose To cover the cost of reasonable expenses in connection with carrying out the duties of the role.
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.
In addition, all reasonable travel and business-related expenses incurred in connection with carrying out their duties
arereimbursed.
Opportunity The maximum travel allowance is £5,000 per occasion requiring intercontinental travel.
Performance
framework
None
Non-Executive Directors are not entitled to receive incentives and pension. Non-Executive Directors are encouraged to hold shares in
the Group but are not subject to a shareholding guideline.
Malus and clawback
Malus and clawback provisions apply to awards under the annual bonus and long-term incentive. Under the Policy, the Committee, at
its discretion, may reduce, cancel or recover some or all of the awards granted to Executive Directors in certain circumstances. Under
the malus and clawback provisions, the Company may reduce or prevent vesting of unvested share awards, or clawback against
vested or paid awards, in circumstances including but not limited to material misstatement of the Group’s audited financial results;
material or misleading results announcement 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 the bonus awards paid in cash.
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Remuneration Report continued
Use of discretion
The Committee will operate the annual bonus plan and LTIP according to their respective rules, as approved by shareholders, and in
accordance with 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 participants;
– the timing of grant of an award;
– the vehicle of an award;
– the size of an award;
– the determination of vesting or bonus payment;
– discretion required when dealing with a change of control or restructuring of the Group;
– determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen;
– adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and
– the annual review of performance measures and weighting, and determining the performance measures for the awards granted
from year to year.
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 awards that vest, 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.
Consideration of employment conditions elsewhere in the Group
When setting remuneration for Executive Directors, the Committee considers contextual information about pay and conditions
within the Group, including salary increases and bonus awards for the wider workforce. The Committee signs off all reward decisions
applicable to the Executive Committee Members. More broadly, the Committee receives regular updates from Management in
relation to employee feedback, and on pay and employment conditions elsewhere in the Group. Further details of how this and the
colleague voice is considered are provided in the Chair’s letter. The Committee believes that the structure of management 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
theorganisation.
Element Cascade of the Executive Director Remuneration Policy
Base salary Salary levels throughout the Group, as far as possible, are set using the same principles applicable to the
Executive Directors. Salary increases for Executive Directors will not normally exceed the average increase of the
wider workforce.
Benefits Market-aligned benefits are provided for all employees.
Pension The Group operates a large number of different pension/retirement benefit arrangements globally, in line
with local market practice. Cash allowance alternatives are offered where applicable, e.g. where pension tax
allowances would otherwise be exceeded.
Annual bonus Approximately 1,400 colleagues, including members of the Global Leadership Team, are annually invited to
participate in the Serco Bonus Plan.
Long-term incentive Annual long-term incentive awards are granted to approximately 250 colleagues in the Global Leadership Team.
All employee share
plan
The Group has launched an all employee share plan, MyShareSave, enabling all colleagues to share in Serco’s
longer-term success.
Consideration of shareholder views
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 our policy and practice.
166 Serco Group plc Annual Report and Accounts 2022
Illustration of remuneration opportunity for 2023
The following charts illustrate the value that may be delivered to Executive Directors in 2023 under the Policy.
Mark Irwin (£’000s) Nigel Crossley (£’000s)
Fixed elements of remuneration Annual variable Multiple period variable Value attributable to share price appreciation
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Minimum Target
Maximum
Maximum
(including share
price appreciation
£913
£2,413
£3,913
£4,713
Minimum Target
Maximum
Maximum
(including share
price appreciation
0
500
1,000
1,500
2,000
2,500
3,000
£558
£1,350
£2,142
£2,562
100%
41% 26% 22%
100% 38% 23%
19%
29%
36% 30%
41% 34%
17%
33%
31%
39%
33%
28%
35%
29%
16%
The scenarios in the above graphs are defined as follows:
– Fixed elements of remuneration:
– Base salary as applicable from 1 January 2023.
– Estimated value of benefits to be provided in 2023 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 2023.
– 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.
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 163
to 165. 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. New promotees or recruits to 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. Any new UK-based Executive
Director would be offered either a pension contribution and/or a pension allowance aligned to the maximum opportunity available
to the wider UK workforce (currently 8% of salary). For a newly appointed Executive Director based outside the UK, their maximum
pension opportunity will align with that available to the wider workforce for the jurisdiction in which they are based.
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.
Element of remuneration Maximum percentage ofsalary
Maximum variable pay: 375%
Normally comprising:
– Annual bonus 175%
– Long-term incentive 200%
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Serco Group plc Annual Report and Accounts 2022
Remuneration Report continued
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 promotion, the Committee has discretion to allow the new Executive Director to
continue to benefit from existing awards granted, 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.
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 Chairman 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 169.
Provision for Executive
Directors Detailed terms
Notice period – 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 benefits
– 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
tomitigation.
– 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.
Treatment of annual
bonus on termination
1
– 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 (e.g. in
the case of death of the executive) 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.
– For new Executive Directors, 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 (e.g. in the case of death of the Executive Director). ‘Bad leaver’ provisions will not apply to the
existing Executive Directors in respect of unvested deferred bonus share awards on cessation of employment
except in the event of termination relating to misstatement of results, misconduct or poor performance.
– Malus and clawback provisions continue to apply.
168 Serco Group plc Annual Report and Accounts 2022
Provision for Executive
Directors Detailed terms
Treatment of unvested
awards granted under
the LTIP
1
– 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 the 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.
Post-employment
shareholding
requirement
– As set out in the Policy table on page 165, post-employment shareholding requirements apply for two years
following the cessation of employment of an Executive Director.
Change of control – Where the Executive Director leaves the Company following a change of control, whether or not he is
dismissed or he elects to leave on notice, he will be entitled to receive a payment equivalent to up to one
year’s remuneration.
– 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 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.
Note:
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’
writtennotice.
– All Non-Executive Directors are subject to annual re-election.
Loss of office policy – No compensation or other benefits are payable on
earlytermination.
Dates of Directors’ service contracts/letters of appointment
Directors who served on the Board during the financial year ended 31 December 2022:
Director Date of appointment to the Board
John Rishton 13 September 2016
Rupert Soames
1
8 May 2014
Nigel Crossley 21 April 2021
Kirsty Bashforth 15 September 2017
Kru Desai 21 October 2021
Tim Lodge 21 February 2021
Ian El-Mokadem 1 July 2017
Dame Sue Owen 3 August 2020
Lynne Peacock 1 July 2017
1. Rupert Soames resigned from the Board on 31 December 2022.
Each Director is subject to election at the first AGM following their appointment and re-election at each subsequent AGM.
169
Financial Statements
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Serco Group plc Annual Report and Accounts 2022
Directors’ Report
Annual Report and Accounts
The Directors present the Annual Report and Accounts of the Group
for the year ended 31 December 2022. Comparative figures used
in this report are for the year ended 31 December 2021 unless
otherwise stated. The Corporate Governance Report, set outon
page 111 to 141 and the Corporate Governance Statement, on
page 260 and 261, form part of the Directors’ Report.
The Chairman’s Statement on pages 4 and 5 and the Chief
Executive’s Review and Divisional Reviews on pages 15 to
35 report on the activities during the year and likely future
developments. The information in these reports, which is required
to fulfil the requirements of the Business Review, is incorporated
in this Directors’ Report by reference.
Articles of Association
The rules relating to the appointment and replacement of Directors
are contained in the Company’s Articles of Association. Changes to
the Articles of Association must be approved by the shareholders
in accordance with the legislation in force from time to time.
Share capital
The issued share capital of the Company, together with the
details of shares issued during the year, is shown in note 31 to
theConsolidated Financial Statements.
The powers of the Directors to issue or buy back shares
are restricted to those approved at the Company’s Annual
GeneralMeeting.
At the Annual General Meeting in April 2022, pursuant to Section
570 of the Companies Act 2006, shareholders approved the issue
of shares for cash up to 5% of the existing issued share capital
and an additional 5% (only to be used in connection with an
acquisition or specified capital investment) in each case without
the application of pre-emption rights. The authority will expire
at the conclusion of the 2023 Annual General Meeting, at which
a revised resolution following the resolution template issued by
the Pre-Emption Group in November 2022 will be proposed for
approval by shareholders, or, if earlier, 30 June 2023.
Rights attaching to shares
Each ordinary share of the Company carries one vote at general
meetings of the Company. There are no restrictions on the transfer
of ordinary shares in the capital of the Company other than certain
restrictions which may from time to time be imposed by law.
The Company is not aware of any agreement between
shareholders that may result in restrictions on the transfer of
securities and/or voting rights.
Authority for the purchase of shares
At the Annual General Meeting in April 2022, the Company was
granted authority by shareholders to purchase up to 121,800,878
ordinary shares (10% of the Company’s issued ordinary share capital
as at 7 March 2022). This authority will expire at the conclusion of
the 2023 Annual General Meeting, at which a resolution will be
proposed for its renewal, or, if earlier, 30 June 2023.
As announced on 24 February 2022, 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 55,506,704 shares with a nominal value of £1,110,135
(representing 4.56% of the Company’s issued share capital
(including those repurchased and held in treasury) on 9 December
2022, the date the repurchase programme was completed) at a
total cost of £91.2 million. The shares purchased are currently held
in treasury and will be cancelled during Q1 2023.
The Board has agreed a further share purchase up to the value of
£90 million which it is intended will be completed in 2023.
Dividends
The Directors recommend that a final dividend of 1.92pence
be paid in respect of the year ended 31 December 2022 (2021:
1.61pence). An interim dividend of 0.94pence per share was paid
during the year (2021:0.8pence).
Subject to approval by shareholders at the Annual General
Meeting to be held on 27 April 2023, the final dividend will be
paid on 9 June 2023 to shareholders on the register at the close
of business on 12 May 2023.
Directors
Details of the current members of the Board, all of whom served
throughout the year, with the exception of Mark Irwin, who was
appointed on 1 January 2023 are set out on pages 115 to 117.
Rupert Soames resigned as a Director with effect from
31December 2022.
Mark Irwin, having been appointed as a Director since the
previous Annual General Meeting, will resign and offer himself
for election at the Annual General Meeting on 27 April 2023 in
accordance with the Articles of Association.
In accordance with the UK Corporate Governance Code, all other
Directors will stand for re-election at the Annual General Meeting.
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 of Association 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.
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’ interests
With the exception of the Executive Directors’ service contracts
and the Non-Executive Directors’ letters of appointment, there are
no contracts in which any Director has an interest.
Details of the Directors’ interests in the ordinary shares and
options over the ordinary shares of the Company as at 31
December 2022 are set out in the Directors’ Remuneration Report
on page 161.
Between 1 January 2023 and the date of this report there were no
changes in the Directors’ interests in ordinary shares and options
over ordinary shares.
170 Serco Group plc Annual Report and Accounts 2022
Directors’ indemnities
The Company maintains Directors‘ and Officers’ liability
insurance. As permitted under the Articles of Association and in
accordance with best practice, deeds of indemnity have been
executed indemnifying each of the Directors and the Company
Secretary of the Company 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 Company
Secretary of the Company.
Branch offices
The Group operates through branches of subsidiary companies
in the following jurisdictions: Abu Dhabi, Afghanistan, Bahrain,
Belgium, Dubai, France, Germany, Iraq, Italy, Luxembourg,
Netherlands, Qatar, Ras Al Khaimah, Saudi Arabia, Sharjah
andSingapore.
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:
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, so the current
term will run until December 2023. 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):
On4 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
Groupplc, requires Bupa’s prior written consent. If the change
isas a result of market transactions, then Bupa is to be notified
assoonas 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: In order to bid and perform on
certain classified contracts involving US national security, Serco
Inc. was required to mitigate its foreign ownership through a
Special Security Agreement (SSA) between the US Government,
Serco Inc. and Serco Group plc. The effective date of the SSA is
7 October 2019. The U.S. Department of Defense may terminate
Serco’s SSA in the event of the sale of the Corporation to a
company or person not under Foreign Ownership, Control or
Influence (FOCI).
CMS Eligibility Support Services: In June 2018, Serco Inc.was
awarded a follow-on contract with the United States of America
(acting through the Centers for Medicare and MedicaidServices
(CMS)) for the provision of support for the Exchangesimplemented
to provide affordable health insurance and insurance affordability
programmes. The contract had an initial base term of one year,
with four options of one year each. Inthe event of a change
in control or ownership of Serco Inc., which in the reasonable
opinion of the U.S. Government adversely affects the Company’s
ability to perform the services, the contract may be terminated by
the U.S. 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 U.S. 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 U.S. Government adversely affects the Company’s
ability to perform the services, the contract may be terminated by
the U.S. 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. The contract had 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 U.S. Government adversely affects the Company’s
ability to perform the services, the contract may be terminated by
the U.S. Government.
171
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Serco Group plc Annual Report and Accounts 2022
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 welfareof asylum seekers. The AASC contracts became
operational on 1 September 2019. The contracts are for a ten-year
term. Intheevent 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 provision of Prisoner Escort and
Custodial Services (Generation 4) (“PECS IV”): On 30 October
2019 Serco Limited entered into a ten-year contract with the
Secretary of State for Justice to provide prisoner escort services
to the South of England. Under the PECS IV contract Serco is
responsible for provision of prisoner escort and custody services,
including the escort and custody of young people in the criminal
justice system. The PECS IV contract became operational on 28
August 2020. In the event of a change of control or ownership of
Serco Limited or Serco Group plc, which the Authority reasonably
believes will negatively affect either Serco’s ability to perform
the services or the Authority’s reputation, the contract may be
terminated by the Authority.
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. 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.
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 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: The Company has notes outstanding under three
US Private Placement Note Purchase Agreements (“the USPP
Agreements”) dated 20 October 2011, 13 May 2013 and
8 October 2020 respectively. The total amount of the notes
outstanding under the three USPP Agreements was $320,753,135
at 31 December 2022, and their maturity is between October
2023 and October 2032. Under the terms of 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.
Share plans
The Company’s plans 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,
inaccordance with the rules of the plans.
Annual General Meeting 2022
The 2022 Annual General Meeting was held on Thursday 28 April
2022 at Enterprise House, 11 Bartley Wood Business Park, Bartley
Way, Hook, Hampshire RG27 9XB.
Annual General Meeting 2023
The 2023 Annual General Meeting 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
Thursday 27 April 2023 at 11.00 am.
Financial risk policies
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 233 to 237.
Employment policies
The Board is committed to maintaining a working environment
where staff are individually valued and recognised. Group
companies and Divisions operate within a framework of human
resources policies, practices and regulations appropriate to their
own market sector and country of operation, while subject to
Group-wide policies and principles.
Directors’ Report continued
172 Serco Group plc Annual Report and Accounts 2022
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, sexual orientation, age, marital
status, disability, race, religion or other beliefs and ethnic or
nationalorigin.
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 of 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, with sensitivity to local
cultures and with 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
adversehuman 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 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 staff 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 on board. 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 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 theCompany.
Participation by staff 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. Shareholders approved the Rules for
an all employee, global share plan which was launched in 2022,
offering our employees an annual opportunity to contribute to
the plan over a three-year term to build affordable savings out of
which they can acquire shares in the Company at the expiry of each
savings contract.
Further information is contained in the People Report which is
available on the Company’s 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 ESG 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 Board’s standing committee,
the Corporate Responsibility Committee. Oversight and scrutiny
of other governance matters is distributed between all standing
committees of the Board, with certain matters reserved for the
Board itself.
Further information can be found in the Strategic Report on
pages 36 to 109.
173
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Political donations
During the year neither the Company nor the Group made
political donations and they intend to continue with this policy.
However, it is possible that certain routine activities may
unintentionally fall within the broad scope of the Companies Act
2006 provisions relating to political donations and expenditure.
As in previous years, a resolution will therefore be proposed
that the authority granted at the Annual General Meeting in
April 2022 regarding political donations be renewed in order to
avoid inadvertent contravention of UK legislation. Details will be
included in the Notice of Annual General Meeting.
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.
Some office space was provided free of charge between August
2021 and November 2022 for the use of the local constituency
MP in our Hook office facility. It was agreed that there would
be no need for Serco to declare any political donation as the
team’s work was not political and the local political party office
was located elsewhere. It was been recorded under Serco’s
Community Investment.
Financial statements
At the date of this report, as far as each Director is aware, there is no
relevant audit information of which the Group’s Auditor is unaware.
Each Director has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of
any relevant audit information and to establish that the Group’s
Auditor is aware of that information.
Auditor
Following a tender process undertaken in 2016, KPMG LLP were
appointed by the Board in 2017 as the Company’s external
auditor for the 2016 audit and have served as the Company’s
auditor for sevenyears.
The Audit Committee has considered the reappointment
of KPMG LLP as auditor and recommended it to the Board.
The Board recommends the reappointment of KPMG LLP to
shareholders at the Annual General Meeting to be held on
Thursday 27 April 2023.
Going concern and Viability Statement
The Company’s Going Concern and Viability Statement can be
found on pages 109 and 110.
Interests in voting rights
At 31 December 2022, the Company had been notified under Rule 5 of the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority (“Rule 5") of the following interests in voting rights over the issued share capital of the Company:
Notifying person
Number of voting rights
attached to shares or
held through financial
instruments
% held at date
of notification Nature of holding
BlackRock Inc. 80,152,202 6.80 Indirect
2,542,081 0.21 Securities lending
36,001,763 3.05 Contract for difference
118,696,046 10.06 Total
FIL Limited 115,866,890 9.94 Indirect
1,400,560 0.12 Contract for difference
117,267,450 10.06 Total
Marathon Asset Management LLP 58,929,884 4.93 Indirect
Majedie Asset Management Limited 59,024,599 4.86 Direct
Slater Investments Limited 59,808,863 4.91% Indirect
1,100,000 0.09% Direct
60,908,863 5.0% Total
Notes:
1. The above interests may have changed since the date of notification to an interest not requiring further notification under Rule 5.
2. On 24 February 2023, Blackrock Inc. notified the Company that its interests in voting rights had decreased to 9.90% (115,288,785 shares).
Directors’ Report continued
174 Serco Group plc Annual Report and Accounts 2022
Index of Directors’ Report disclosures
The information required to be disclosed in the Directors’ Report can be found in this Annual Report on the pages listed below.
Pursuant to Listing Rule 9.8.4C, the information required to be disclosed in the Annual Report under Listing Rule 9.8.4R is marked with
an asterisk (*).
Amendment of the Articles Page 170
Appointment and replacement of Directors Page 170
Board of Directors Pages 115 to 117
Change of control Pages 171 and 172
Community Pages 121 to 126
Corporate Governance Report Pages 111 to 141 and 260 and 261
Corporate responsibility Pages 36 to 73
Directors’ insurance and indemnities Page 171
Directors’ inductions and training Page 137
Directors’ responsibilities statement Page 176
Disclosure of information to Auditor Page 188
Diversity Pages 113, 136 to 138
Dividends Pages 4, 15, 90 and 170
Employee involvement Pages 26, 40, 46, 47,172 and 173
Employees with disabilities Page 173
Financial risk management Pages 231 to 236
Future developments of the business Pages 6 to 14 and 25 to 27
Going concern Pages 109 to 110 and 174
Greenhouse gas emissions Pages 36 to 82
Independent Auditor’s Report Pages 178 to 188
Long-term incentive plans* Pages 142 to 169
Political donations Page 174
Powers for the Company to issue or buy back its shares Page 170
Powers of the Directors Page 260
Restrictions on transfer of securities Page 170
Rights attaching to shares Page 170
Risk management and internal control Pages 95 to 108 and 127 to 129
Share capital Page 170
Significant agreements Pages 171 to 172
Significant related party agreements* Pages 247 and 248
Significant shareholders Page 174
Strategic Report Pages 1 to 110
S172(1) Statement Pages 121 and 126
Viability Statement Pages 109 and 110
Voting rights Page 170
Approved by the Board of Directors and signed on its behalf by:
David Eveleigh
Group General Counsel and Company Secretary
27 February 2023
175
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
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
themconsistently;
– 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 the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
inother jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule
4.1.14R, the financial statements will form part of the annual
financial report prepared using the single electronic reporting
format under the TD ESEF Regulation. The auditor’s report
on these financial statements provides no assurance over the
ESEFformat.
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.
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
Mark Irwin Nigel Crossley
Group Chief Executive Group Chief Financial Officer
27 February 2023 27 February 2023
Directors’ Responsibility Statement
176 Serco Group plc Annual Report and Accounts 2022
Financial Statements
178 Independent Auditor’s Report
189 Consolidated Income Statement
190 Statement of Comprehensive Income
191 Consolidated Statement of Changes in Equity
192 Consolidated Balance Sheet
193 Consolidated Cash Flow Statement
194 Notes to the Consolidated Financial Statements
250 Company Balance Sheet
251 Company Statement of Changes in Equity
252 Notes to the Company Financial Statements
256 Appendix: List of subsidiaries and
related undertakings
260 Compliance with the UK Corporate
GovernanceCode
262 Shareholder Information
263 Useful Contacts
177Serco Group plc Annual Report and Accounts 2022
Financial StatementsCorporate GovernanceStrategic Report
177
Independent Auditor’sReport
To the members of Serco Group plc
1 Our opinion is unmodified
We have audited the financial statements of Serco Group plc (“the Company”) for the year ended 31 December 2022 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 2022 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,
includingFRS 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 the 7
financial years ended 31 December 2022.
We have fulfilled our ethical responsibilities and remain independent of the Group in accordance with UK ethical requirements,
including the FRC Ethical Standard as applied to listed public interest entities.
Apart from the matters noted below, we have not performed any non-audit services during the year ended 31 December 2022 or
subsequently which are prohibited by the FRC Ethical Standard.
During 2023, we identified that certain KPMG member firms had provided preparation of local financial statement services and
foreign language translation services over the period 2017 to 2022. The entities to which the services were provided were not material
to the group and no audit procedures were performed on these entities for the purpose of the group audit. The services, which have
been terminated, were administrative in nature and did not involve any management decision-making or bookkeeping. The work in
each case was undertaken after the group audit opinion was signed by KPMG LLP for each of the impacted financial years and had no
direct or indirect effect on Serco Group plc’s consolidated financial statements.
In our professional judgment, we confirm that based on our assessment of the breach, our integrity and objectivity as auditor has not
been compromised and we believe that an objective, reasonable and informed third party would conclude that the provision of this
service would not impair our integrity or objectivity for any of the impacted financial years. The audit committee have concurred with
this view.
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 and margin recognition
Revenue £4,534.0m (2021: £4,424.6m), Onerous Contract Provisions of £11.6m (2021: £14.2m) and Contract Assets £345.0m
(2021:£319.0m)
Assessment of risk vs. prior year: Unchanged
Refer to page 132 (Audit Committee Report), pages 196 to 197 and 203 (accounting policy), pages 203 to 205 (key sources of
estimation uncertainty), pages 213 to 214 (revenue from contracts with customers note in the financial statements), pages 226 to 227
(contract assets, trade and other receivables note in the financial statements) and pages 230 to 231 (provisions note in the financial
statements).
178 Serco Group plc Annual Report and Accounts 2022
2 Key audit matters: our assessment of risks of material misstatement continued
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
contractualarrangements;
– 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
Subjective estimate
Judgement is required to determine whether a contract is onerous, based upon the estimated future performance of the contract.
Where a contract is determined to be loss-making, an onerous contract provision is required, which requires further judgement in
assessing the level of provision, based on estimated variable income and cost to complete, taking into account contractual obligations
to the end of the contract, extension periods and customer negotiations.
The effect of these matters is that, as part of our risk assessment, we determined that the onerous contract provision has 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 the current year, we have identified that a lower level of judgement is required relating to revenue recognition on the portfolio of
contracts in the Americas division. As a result of the nature of these contracts, the Americas division is not considered a significant
audit risk but remains part of the key audit matter due to the level of resources and efforts of the engagement team required to
perform the related audit procedures.
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 customer contracts 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.
179
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Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Independent Auditor’sReport
To the members of Serco Group plc continued
2 Key audit matters: our assessment of risks of material misstatement continued
Tests of details
To assess whether the revenue recognition was appropriately applied 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 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.
Site visits
– For all divisions we attended a selection of monthly Divisional and Business Unit Performance Reviews used to assess business
performance in order to inform our assessment of operational and financial performance of the contracts; and
– we 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 assess whether indicators of an onerous contract exist.
For contract related assets:
Assessing application
We assessed whether contract related assets had been recognised in accordance with the Group’s accounting policy and relevant
accounting standards.
For onerous and potentially onerous contracts identified through our risk assessment procedures, our procedures to address the
subjective estimate risk included:
Benchmarking assumptions
We compared contract level forecast revenues and costs to the Group’s annual budgets and longer-term forecasts approved by the
directors. We challenged key assumptions made by the Group in preparing these forecasts, including those in relation to revenue
growth and cost reductions, by comparing them to external evidence (for example customer correspondence) where possible, and
assessing against business plans.
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.
Historical comparisons
We compared the contract forecasts to historic and in year performance to assess the historical accuracy of the forecasts.
Tests of details
We compared the allocation of central functional costs to the group’s policy and challenged the underlying assumptions using our
understanding of the contract operations.
We performed an assessment of whether an over/understatement of onerous contract provisions identified through these procedures
was material.
Assessing transparency
We also assessed whether the Group’s disclosures about the estimates and judgements applied reflect the risks related to the
estimation of onerous contracts, and the recognition of revenue and contract assets.
Our findings
We found no material errors in the group’s application of its revenue accounting policy (2021: no material errors). We found the
resulting estimate of onerous contract provision to be balanced (2021: balanced).
Recoverability of group goodwill and of parent’s investment in subsidiary
Group: £945.0m (2021: £852.7m); parent Company: £2,052.5m (2021: £2,041.7m)
180 Serco Group plc Annual Report and Accounts 2022
Assessment of risk vs. prior year: Increased
Refer to page133 (Audit Committee Report), page 199 (Goodwill accounting policy), pages 204 to 205 (key sources of estimation
uncertainty relating to impairment of Goodwill), pages 221 to 222 (Goodwill note in the consolidated financial statements),page 252
(Investments held as fixed assets note in the Company financial statements) and page 252 (Fixed Asset Investments accounting policy
in the Company financial statements),
The risk
Goodwill in the group is significant and at risk of irrecoverability due to estimation uncertainty in valuing the recoverable amounts of
the Group’s cash generating units.
The parent’s investment in subsidiary is not at a high risk of significant misstatement or subject to significant judgement. However, due
to its materiality in the context of the Parent company financial statements, this is considered to be the Key Audit Matter that had the
greatest effect on our overall Parent company audit.
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 as well as determining a terminal growth rate.
This year, the CGUs which were most sensitive to a deterioration in the division’s cash flow projections or an increase in discount rate
were the AsPac CGU, Americas CGU and Middle East CGU (2021: AsPAC and Middle East CGUs). As at year end 31 December 2022,
the AsPac CGU was estimated to have headroom of £281.0m, the Americas CGU has headroom of £360.9m and Middle East has
headroom of £119.5m.
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 Americas and Middle East CGUs would not be expected to
result in a material 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 and investment in subsidiary included:
Benchmarking assumptions: With the assistance of our valuation specialists, we challenged the implied 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 extensions, contract attrition, as well as margin
assumptions on existing contracts.
Historical comparisons
We compared current year actual cash flows to historic forecasts to assess the historical accuracy of the forecasts used in the
impairment models.
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 assessed the impact on headroom with the inclusion of an alpha factor
in the discount rate in order to reflect any country specific and forecasting risks we considered might be present in each division.
We challenged the projected win probabilities (including contract extensions) on key contracts and sensitised the five year cash flow
forecasts by reducing new wins and extensions within the pipeline.
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 assessed whether the Group’s disclosure about the sensitivity of outcomes, particularly in the ASPAC CGU, reflects the risks
inherent in the valuation of goodwill.
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).
181
Financial Statements
Corporate Governance
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Serco Group plc Annual Report and Accounts 2022
Independent Auditor’sReport
To the members of Serco Group plc continued
2 Key audit matters: our assessment of risks of material misstatement continued
Our findings:
We found the Group’s assessment that there is no impairment of the carrying amount of Group’s goodwill and of parent company’s
investment in subsidiary to be balanced (2021: balanced) and the related goodwill sensitivity disclosures to be proportionate
(2021:proportionate).
Changes to our Key Audit Matters:
We continue to perform procedures over deferred tax assets. However, there has been no new recognition of deferred tax assets
during the period and we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not
separately identified in our report this year.
3 Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £9m (2021: £7m), determined with reference to a benchmark of
group profit before tax, of which it represents 4.57% (2021: 3.6%).
Materiality for the parent company financial statements as a whole was set at £8.1m (2021: £6.3m), determined with reference to a
benchmark of parent company total assets, of which it represents 0.3% (2021: 0.2%).
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% (2021: 75%) of materiality for the financial statements as a whole, which equates to £6.75m
(2021: £5.3m) for the group and £6.0m (2021: £4.7m) 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 (2021:
£0.35m), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Scope of our audit
Of the Group’s 6 (2021: 6) reporting components, we subjected 5 (2021: 6) to full scope audits for Group purposes and 1 (2021: 0)
to specified risk-focussed procedures over a number of accounts such as revenue and onerous contract provisions. The latter was not
financially significant enough to require a full scope audit for group purposes this year but did present specific individual risks that
needed to be addressed. In addition, all component teams performed procedures over the underlying forecasted cash flows to assist
the group audit team in performing work over the recoverability of goodwill.
The components within the scope of our work accounted for the following percentages of the group’s results
Number of
components Group revenue
Group profit
before tax Group total assets
Audits for group reporting purposes 5 95% 91% 97%
Specified risk-focussed audit procedures 1 5% 9% 3%
Total 6 100% 100% 100%
Total (2021) 6 100% 100% 100%
The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group team approved component materiality levels, which ranged from £3.2m
to £7.0m (2021: £2.4m to £5.5m) having regard to the mix of size and risk profile of the Group across the components. The work on
4 of the 6 components (2021: 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 (2021: virtual meetings held with all component
auditors) component locations. Video and telephone conference meetings were also held with these component auditors. 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.
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.
We were able to rely upon the Group’s internal control over financial reporting in several areas of our audit, where our controls testing
supported this approach, which enabled us to reduce the scope of our substantive audit work; in the other areas the scope of the
audit work performed was fully substantive.
182 Serco Group plc Annual Report and Accounts 2022
4 The impact of climate change on our audit
In planning our audit, we considered the impacts of climate change on the Group’s business and its financial statements.
The Group has made a commitment to be net zero and to support its clients to meeting this target by 2050. Further information has
been provided in the Group’s Strategic Report on page 36. The Group’s climate related disclosures as recommended by the Task
Force on Climate Related Financial Disclosure (“TCFD”) are included on pages 70 to 73 of the Annual Report.
As part of our audit, we 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 held discussions with our own climate change
professionals to challenge our risk assessment.
The potential impacts of these matters relate to forward looking estimates, which includes cost projections for long-term contracts and
impairment assessments for goodwill. Taking into account our risk assessment procedures, the headroom on goodwill and the nature
and duration of the group’s contracts, we have assessed that there is not a significant risk to balances in the 2022 financial statements
as a result of climate change. There was therefore no impact from climate change on our key audit matters.
We read the disclosure of climate 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
re-bid; and
– Significant deterioration of cash collection, leading to a build-up of working capital.
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 assumptions in 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 directors' track record of budgeting 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.
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5 Going concern continued
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 194 to 195 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,
Trading 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 subject matter experts to assist us in identifying fraud risks based on discussions of the circumstances of
the Group.
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.
Identifying and responding to risks of material misstatement due to fraud continued
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.
184 Serco Group plc Annual Report and Accounts 2022
Independent Auditor’sReport
To the members of Serco Group plc continued
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.
– Assessing significant accounting estimates for bias.
We read the disclosures in the Annual Report related to the Company’s obligations under the Deferred Prosecution Agreement with
the UK Serious Fraud Office and considered consistency with the financial statements and our audit knowledge.
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 Company 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 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 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.
We read the disclosures in the front end related to the Company’s obligations under the Deferred Prosecution Agreement with the UK
Serious Fraud Office and considered consistency with the financial statements and our audit knowledge.
For the claims discussed in note 28 we assessed disclosures against our understanding from legal correspondence.
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6 Fraud and breaches of laws and regulations – ability to detect continued
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.
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:
• 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 Risk management on pages 96 to 97 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 109 to 110 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.
186 Serco Group plc Annual Report and Accounts 2022
Independent Auditor’sReport
To the members of Serco Group plc continued
Disclosures of emerging and principal risks and longer-term viability continued
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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9 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 176, 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 using the single electronic
reporting format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial
report has been prepared in accordance with that format.
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.
John Luke (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London, E14 5GL
27 February 2023
188 Serco Group plc Annual Report and Accounts 2022
Independent Auditor’sReport
To the members of Serco Group plc continued
Consolidated Income Statement
For the year ended 31 December 2022
Note
2022
£m
2021
£m
Revenue 8 4,534.0 4,424.6
Cost of sales (4,040.5 ) (3,956.6 )
Gross profit 493.5 468.0
Administrative expenses (264.3 ) (243.3 )
Exceptional operating items 9 (2.4 ) (1.2 )
Other expenses - amortisation and impairment of intangibles arising on acquisition 18 (21.6 ) (16.0 )
Share of profits in joint ventures and associates, net of interest and tax 6 12.0 8.7
Operating profit 217.2 216.2
Operating profit before exceptional items 219.6 217.4
Investment revenue 12 4.7 2.4
Finance costs 13 (25.1 ) (26.4 )
Total net finance costs (20.4 ) (24.0 )
Profit before tax 196.8 192.2
Profit before tax and exceptional items 199.2 193.4
Tax on profit before exceptional items 14 (42.1 ) 111.9
Exceptional tax 9,14 0.3 (0.2 )
Tax (charge)/credit
(41.8 ) 111.7
Profit for the year 155.0 303.9
Attributable to:
Equity owners of the Company 155.4 303.9
Non-controlling interest (0.4 ) –
Earnings per share (EPS)
Basic EPS 16 13.03 p 24.86 p
Diluted EPS 16 12.79 p 24.43 p
The accompanying notes form an integral part of the financial statements.
189
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Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Note
2022
£m
2021
£m
Profit for the year 155.0 303.9
Other comprehensive (loss)/income for the year:
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of post-employment benefit obligations
1
30 (93.8 ) 66.8
Actuarial loss on reimbursable rights
1
30 (12.3 ) (0.5 )
Income tax relating to components of other comprehensive income/(loss) that will not be
reclassified subsequently to profit or loss 14 27.1 (21.7 )
Share of other comprehensive income in joint ventures and associates 6 2.9 3.3
Items that may be reclassified subsequently to profit or loss:
Net exchange gain/(loss) on translation of foreign operations
2
Fair value gain on cash flow hedges during the year
2
Income statement items reclassified - 0.1
Tax relating to items that may be reclassified
2
14 (0.1 ) 4.0
Total other comprehensive (loss)/income for the year (15.4 ) 40.6
Total comprehensive income for the year 139.6 344.5
Attributable to:
Equity owners of the Company 139.8 344.5
Non-controlling interest (0.2 ) –
1 Recorded in retirement benefit obligations reserve in the Consolidated Statement of Changes in Equity.
2 Recorded in hedging and translation reserve in the Consolidated Statement of Changes in Equity.
The accompanying notes form an integral part of the financial statements.
190 Serco Group plc Annual Report and Accounts 2022
Consolidated Statement of Changes in Equity
Share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Other
reserves
1
£m
Total
shareholders’
equity
£m
Non-
controlling
interest
£m
At 1 January 2021 24.7 463.1 302.4 (76.9 ) 713.3 1.7
Total comprehensive income for the year – – 307.3 37.2 344.5 –
Income statement items reclassified – – – 0.1 0.1 –
Dividends paid – – (26.5 ) – (26.5 ) –
Shares purchased and held in treasury – – – (40.7 ) (40.7 ) –
Cancellation of shares held in treasury (0.3 ) – (20.4 ) 20.7 – –
Shares transferred from treasury to own
shares reserves – – (20.0 ) 20.0 – –
Shares transferred to award holders on
exercise of share awards – – – 0.2 0.2 –
Expense in relation to share based
payments – – – 15.8 15.8 –
At 1 January 2022 24.4 463.1 542.8 (23.6 ) 1,006.7 1.7
Total comprehensive income/(loss) for
the year – – 158.1 (18.3 ) 139.8 (0.2 )
Dividends paid – – (30.3 ) – (30.3 ) –
Shares purchased and held in own
share reserve – – – (15.9 ) (15.9 ) –
Shares purchased and held in treasury – – – (91.2 ) (91.2 ) –
Shares transferred to award holders on
exercise of share awards – – – 0.1 0.1 –
Expense in relation to share based
payments – – – 15.6 15.6 –
Tax credit on items taken directly
to equity – – – 3.4 3.4 –
At 31 December 2022 24.4 463.1 670.6 (129.9 ) 1,028.2 1.5
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.
191
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Consolidated Balance Sheet
Note
At 31 December
2022
£m
At 31 December
2021
£m
Non-current assets
Goodwill 17 945.0 852.7
Other intangible assets 18 158.0 144.0
Property, plant and equipment 19 48.1 55.5
Right of use assets 19 434.2 416.7
Interests in joint ventures and associates 6 23.3 17.6
Loan to joint ventures 6 10.0 –
Contract assets 21 – 2.6
Trade and other receivables 21 16.1 13.6
Derivative financial instruments 29 0.3 –
Deferred tax assets 15 244.2 214.3
Retirement benefit assets 30 57.0 166.2
Current assets
Inventories 20 22.4 19.6
Contract assets 21 345.0 319.0
Trade and other receivables 21 374.6 305.7
Current tax assets 11.5 5.5
Cash and cash equivalents 22 57.2 198.4
Derivative financial instruments 29 3.3 2.6
Total assets 2,750.2 2,734.0
Current liabilities
Contract liabilities 23 (60.5 ) (61.3 )
Trade and other payables 23 (622.8 ) (526.0 )
Derivative financial instruments 29 (1.1 ) (2.0 )
Current tax liabilities (16.0 ) (17.2 )
Provisions 26 (134.9 ) (79.6 )
Lease obligations 24 (144.4 ) (126.3 )
Loans 25 (44.5 ) (64.9 )
(1,024.2 ) (877.3 )
Non-current liabilities
Contract liabilities 23 (36.3 ) (48.6 )
Trade and other payables 23 (6.5 ) (7.3 )
Deferred tax liabilities 15 (53.8 ) (40.3 )
Provisions 26 (73.5 ) (118.0 )
Lease obligations 24 (301.6 ) (304.0 )
Loans 25 (218.4 ) (312.1 )
Retirement benefit obligations 30 (6.2 ) (18.0 )
(696.3 ) (848.3 )
Total liabilities (1,720.5 ) (1,725.6 )
Net assets 1,029.7 1,008.4
Equity
Share capital 31 24.4 24.4
Share premium account 32 463.1 463.1
Retained earnings 670.6 542.8
Other reserves 33 (129.9 ) (23.6 )
Equity attributable to owners of the Company 1,028.2 1,006.7
Non-controlling interest 1.5 1.7
Total equity 1,029.7 1,008.4
The accompanying notes form an integral part of the financial statements.
The financial statements were approved by the Board of Directors on 27 February 2023 and signed on its behalf by:
Mark Irwin Nigel Crossley
Group Chief Executive Officer Group Chief Financial Officer
192 Serco Group plc Annual Report and Accounts 2022
Consolidated Cash Flow Statement
For the year ended 31 December 2022
Note
2022
£m
2021
£m
Net cash inflow from operating activities before exceptional items 330.1 357.4
Exceptional items (2.9 ) (7.5 )
Net cash inflow from operating activities 36 327.2 349.9
Investing activities
Interest received 1.9 0.6
Dividends received from joint ventures and associates 9.1 13.5
Other dividends received – 0.6
Loan to pension scheme relating to collateral calls 30 (60.0 ) –
Repayment from pension scheme of loan relating to collateral calls 30 60.0 –
Loan to joint venture 6 (10.0 ) –
Purchase of other intangible assets 18 (7.0 ) (8.2 )
Purchase of property, plant and equipment 19 (12.4 ) (23.9 )
Proceeds from disposal of property, plant and equipment 0.7 7.0
Acquisition of subsidiaries, net of cash acquired 7 (19.2 ) (234.9 )
Other investing activities 1.6 –
Exceptional sale of other investments – 13.0
Net cash outflow from investing activities (35.3 ) (232.3 )
Financing activities
Interest paid (24.4 ) (24.9 )
Capitalised finance costs paid (2.6 ) (0.6 )
Advances of loans 25 205.0 110.0
Repayments of loans 25 (354.3 ) (139.7 )
Capital element of lease repayments 25 (120.5 ) (111.3 )
Cash movements on hedging instruments (2.7 ) (16.6 )
Dividends paid to shareholders (30.3 ) (26.5 )
Purchase of own shares by the Employee Share Ownership Trust (15.9 ) –
Own shares repurchased (91.2 ) (40.7 )
Proceeds received from exercise of share options 0.1 0.2
Net cash outflow from financing activities (436.8 ) (250.1 )
Net decrease in cash and cash equivalents (144.9 ) (132.5 )
Cash and cash equivalents at beginning of year 198.4 335.7
Net exchange gain/(loss) 25 3.7 (4.8 )
Cash and cash equivalents at end of year 22 57.2 198.4
The accompanying notes form an integral part of the financial statements.
193
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Corporate Governance
Strategic Report
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194 Serco Group plc Annual Report and Accounts 2022
195
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
196
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
197
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
199
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
200
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
208
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
209
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
210
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
211
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
222
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
223
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
225
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
226
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
227
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
228
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
229
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
230
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
235
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
236
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
237
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
238
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
239
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
240
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
243
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
244
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
248
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
249
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Company Balance Sheet
At 31 December Note
2022
£m
2021
£m
Fixed assets
Right of use assets 39 0.1 0.1
Deferred tax assets 46 0.7 –
Investments in subsidiaries 40 2,052.5 2,041.7
2,053.3 2,041.8
Current assets
Debtors: amounts due within one year 41 18.2 3.9
Debtors: amounts due after more than one year 41 555.5 534.2
Derivative financial instruments due within one year 45 3.0 2.6
Corporation tax asset 41 0.6 0.5
Cash at bank and in hand 21.1 138.2
598.4 679.4
Total assets 2,651.7 2,721.2
Creditors: amounts falling due within one year
Trade and other payables 42 (155.7) (80.0)
Loans 43 (44.4) (64.9)
Provisions 44 (50.8) (12.6)
Corporation tax liability (0.1) –
Derivative financial instruments 45 (1.1) (2.0)
(252.1) (159.5)
Net current assets 346.3 519.9
Creditors: amounts falling due after more than one year
Loans 43 (218.4) (312.1)
Amounts owed to subsidiary companies (1,301.2) (1,203.6)
Provisions 44 (1.2) (41.1)
(1,520.8) (1,556.8)
Total liabilities (1,772.9) (1,716.3)
Net assets 878.8 1,004.9
Capital and reserves
Called up share capital 47 24.4 24.4
Share premium account 48 463.1 463.1
Capital redemption reserve 0.4 0.4
Profit and loss account 49 401.8 437.1
Share based payment reserve 50 88.0 81.1
Treasury shares reserve 51 (91.2) –
Own shares reserve 51 (7.7) (1.2)
Total shareholders’ funds 878.8 1,004.9
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
loss for the year was £5.0m (2021: profit £11.0m) and the total comprehensive loss for the year was £5.0m (2021: profit £11.0m).
The financial statements (registered number 02048608) were approved by the Board of Directors on 27 February 2023 and signed on
its behalf by:
Mark Irwin Nigel Crossley
Group Chief Executive Officer Group Chief Financial Officer
250 Serco Group plc Annual Report and Accounts 2022
Company Statement of Changes in Equity
Share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Profit and
loss account
£m
Treasury
shares
£m
Share based
payment
reserve
£m
Own shares
reserve
£m
Total
shareholders’
equity
£m
At 1 January 2021 24.7 463.1 0.1 493.0 – 66.7 (2.1) 1,045.5
Total comprehensive income for
the year – – – 11.0 – – – 11.0
Dividends paid by the Group – – – (26.5) – – – (26.5)
Shares purchased and held in
Treasury – – – – (40.7) – – (40.7)
Cancellation of shares held in
Treasury (0.3) – 0.3 (20.4) 20.4 – (0.3) (0.3)
Shares transferred from treasury
to own shares reserve – – – (20.0) 20.3 – – 0.3
Shares transferred to option
holders on exercise – – – – – (1.0) 1.2 0.2
Awards over parent’s shares made
to employees of subsidiaries – – – – – 9.0 – 9.0
Expense in relation to share
based payments – – – – – 6.8 – 6.8
Tax credit on items taken directly
to equity – – – – – (0.4) – (0.4)
At 1 January 2022 24.4 463.1 0.4 437.1 – 81.1 (1.2) 1,004.9
Total comprehensive loss for the
year – – – (5.0) – – – (5.0)
Dividends paid by the Group – – – (30.3) – – – (30.3)
Shares purchased and held in
Treasury – – – – (91.2) – – (91.2)
Shares purchased and held in
own share reserve – – – – – – (15.9) (15.9)
Shares transferred to option
holders on exercise – – – – – (9.3) 9.4 0.1
Awards over parent’s shares made
to employees of subsidiaries – – – – – 10.8 – 10.8
Expense in relation to share
based payments – – – – – 4.8 – 4.8
Tax charge on items taken directly
to equity – – – – – 0.6 – 0.6
At 31 December 2022 24.4 463.1 0.4 401.8 (91.2) 88.0 (7.7) 878.8
The accompanying notes form an integral part of the financial statements.
251
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Serco Group plc Annual Report and Accounts 2022
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 (2021: £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 £m
At 1 January 2021 2,032.7
Awards over parent’s shares made to employees of subsidiaries 9.0
At 1 January 2022 2,041.7
Awards over parent’s shares made to employees of subsidiaries 10.8
At 31 December 2022 2,052.5
The Company directly owns 100% of the ordinary share capital of the following subsidiaries:
Name % Ownership
Serco Holdings Limited 100%
There have been no indicators of impairments identified for the investments held as fixed assets.
41. Debtors
Amounts due within one year
2022
£m
2021
£m
Prepayments 12.5 0.2
Prepaid intercompany interest 4.9 3.0
Amounts owed by subsidiary companies 0.8 0.7
18.2 3.9
Amounts due after more than one year
2022
£m
2021
£m
Amounts owed by subsidiary companies 555.5 534.2
The expected credit loss provision against amounts owed by subsidiary companies is immaterial.
252 Serco Group plc Annual Report and Accounts 2022
42. Trade and other payables
Amounts due within one year
2022
£m
2021
£m
Amounts owed to subsidiary companies 73.3 64.5
Trade creditors 57.8 0.5
Accruals and deferred income 24.5 13.4
Other creditors including taxation and social security 0.1 1.6
155.7 80.0
43. Loans
2022
£m
2021
£m
Loans are repayable as follows:
On demand or within one year 44.4 64.9
Between one and two years 54.2 40.2
Between two and five years 106.2 160.8
After five years 58.0 111.1
262.8 377.0
Less: amount due for settlement within one year (shown within current liabilities) (44.4) (64.9)
Amount due for settlement after one year 218.4 312.1
44. Provisions
Contract
£m
Other
£m
Total
£m
At 1 January 2022 9.8 43.9 53.7
Released to income statement (0.3) – (0.3)
Released to income statement – exceptional (1.4) – (1.4)
At 31 December 2022 8.1 43.9 52.0
Analysed as:
Current 8.1 42.7 50.8
Non-current – 1.2 1.2
8.1 43.9 52.0
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.
Other provisions are held for indemnities given on disposed businesses and legal and other costs that the Company expects to
incur over an extended period, in respect of past events, for which a provision has been recorded. These costs are based on past
experience of similar items and other known factors and represent Management’s best estimate of the likely outcome and will be
utilised with reference to the specific facts and circumstances. The timing of utilisation is dependent on future events which could
occur within the next 12 months or over a longer period.
45. Derivative financial instruments
Assets
2022
£m
Liabilities
2022
£m
Assets
2021
£m
Liabilities
2021
£m
Forward foreign exchange contracts 3.0 (1.1) 2.6 (2.0)
Analysed as:
Current 3.0 (1.1) 2.6 (2.0)
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.
253
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
46. Deferred tax
2022
£m
2021
£m
Tax losses 0.7 –
0.7 –
The movement in the deferred tax asset during the year was as follows:
2022
£m
2021
£m
At 1 January – –
Credit to profit and loss account 0.7 –
At 31 December 0.7 –
The deferred tax asset not recognised is as follows:
At 31 December
2022
£m
2021
£m
Temporary differences on assets/intangibles 0.2 0.3
Share based payments and employee benefits 2.5 2.4
Other temporary differences 1.8 1.8
Tax losses 51.1 51.5
55.6 56.0
47. Called up share capital
Issued and fully paid
2022
£m
Number
2022
millions
2021
£m
Number
2021
millions
1,218,008,788 (2021: 1,233,380,637) ordinary shares of 2p each
at1January 24.4 1,218.0 24.7 1,233.4
Cancelled: nil (2021: 15,371,849) ordinary shares of 2p – – (0.3) (15.4)
1,218,008,788 (2021: 1,218,008,788) ordinary shares of 2p each
at31 December 24.4 1,218.0 24.4 1,218.0
During the year nil (2021: 15,371,849) 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
2022
£m
2021
£m
At 1 January and at 31 December 463.1 463.1
49. Profit and loss account
2022
£m
2021
£m
At 1 January 437.1 493.0
(Loss)/profit for the year (5.0) 11.0
Equity dividends (30.3) (26.5)
Shares transferred from Treasury to own shares reserve – (20.0)
Cancellation of shares held in Treasury – (20.4)
At 31 December 401.8 437.1
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 loss for the year was £5.0m (2021: profit £11m) and the total comprehensive loss for the year was £5.0m (2021:
profit £11m).
The Company plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to shareholders.
254 Serco Group plc Annual Report and Accounts 2022
Notes to the Company Financial Statements
continued
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, the Group has sufficient distributable reserves to facilitate the
payment of distributions by Serco Group plc.
50. Share based payment reserve
2022
£m
2021
£m
At 1 January 81.1 66.7
Awards over parent’s shares made to employees of subsidiaries 10.8 9.0
Share based payment charge 4.8 6.8
Shares transferred to award holders on exercise of share awards (9.3) (1.0)
Tax credit/(charge) on items taken directly to equity 0.6 (0.4)
At 31 December 88.0 81.1
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 24 February 2022, the Group announced
its intention to repurchase ordinary shares with a value of up to £90m. On 8 March 2022, the Group confirmed that the repurchase
would be split over two tranches, with the first tranche of £40m completed during the period 8 March 2022 to 16 August 2022.
The second tranche of £50m completed during the period 17 August 2022 to 9 December 2022. The total cost including fees was
£91.2m and resulted in the repurchase of 55,506,704 shares at an average price of £1.64. These are held within Treasury shares at
31December2022.
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 2022, the ESOT held 9,144,275
(2021:11,605,185) shares equal to 0.8% of the current allotted share capital (2021: 1.0%). The market value of shares held by the
ESOT as at 31 December 2022 was £14.2m (2021: £15.6m).
52. Contingent liabilities
The Company has guaranteed overdrafts, leases, and bonding facilities of its joint ventures and associates up to a maximum value of
£5.7m (2021: £5.7m). The actual commitment outstanding at 31 December 2022 was £5.7m (2021: £5.7m).
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 2022 was
£220.9m (2021: £243.5m).
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, 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 (2021: £174m) less
contributions made by the Group since April 2022. This guarantee runs until 2030 (2021: 2028).
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
theGroup.
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.
255
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Company name
Serco Group
interest Registered office address
ACN 611 392 744 Pty Ltd 49% Level 6, 123 Epping Road, Macquarie Park, NSW 2113, Australia
Aeradio Technical Services WLL
2/4
49% Headquarters Building, Building # 1605, Road # 5141, Askar # 951,
PO Box 26803 Manama, Kingdom of Bahrain
AI Recruiting BV 100% Kapteynstraat 1, 2201 BB Noordwijk, The Netherlands
BRTRC Federal Solutions, Inc. 100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Cardinal Insurance Company Limited 100% Dorey Court, Admiral Park, St Peter Port, GY1 4AT, Guernsey
Chimera WBB JV L.L.C. 49% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Clemaco Contracting NV 100% Sint-Sebastiaanstraat 5, 8400 Oostende, Belgium
Clemaco Trading NV 100% Sint-Sebastiaanstraat 5, 8400 Oostende, Belgium
COMPASS SNI Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook, Hampshire,
RG279UY, United Kingdom
Conflucent Innovations, L.L.C. 49% 5880 Innovation Drive, Dublin, OH 43016, United States
Decisive Analytics Corporation 100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Defence Contractor Management and
Operations Limited
24.5% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook, Hampshire,
RG279UY, United Kingdom
Djurgardens Farjetrafik AB 50% Svensksundsvagen 17, 111 49 Stockholm, Sweden
DMS Maritime Pty Limited 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Facilities First Australia Holdings PtyLtd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Facilities First Australia Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Facilities First Australia Sub-Holdings Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Hong Kong Parking Limited 40% Room 2601, World Trade Centre, 280 Gloucester Road, Causeway Bay,
Hong Kong
Innu Serco Inc 49% P.O. Box 1012, Station C, Happy Valley – Goose Bay, NL, A0P 1C0, Canada
Innu Serco Limited Partnership 49% P.O. Box 1012, Station C, Happy Valley – Goose Bay, NL, A0P 1C0, Canada
International Aeradio (Emirates) L.L.C. –
Abu Dhabi
49% Office No. 503, 5th Floor, Al Muhairy Building, Zayed The First Street,
PO Box 3164 Abu Dhabi, United Arab Emirates
International Aeradio (Emirates) L.L.C. –
Dubai
49% 19th Floor, Rolex Tower, Sheikh Zayed Road, PO Box 9197 Dubai,
UnitedArabEmirates
JBI Properties Services Company L.L.C. 49% 7th Floor, Al Sila Tower Abu Dhabi Global Market Square,
Al Maryah Island, AbuDhabi, United Arab Emirates
Joint Integrated Range Solutions L.L.C. 49% 8337 W. Sunset Road, Suite 250, Las Vegas, NV 89113, United States
Khadamat Facilities Management L.L.C. 49% The United Arab Emirates University, Al Jamea Street, Al Maqam District,
POBox66718 Al Ain, United Arab Emirates
Lift BV 100% Noordwal 10 III, 2513 EA ‘s-Gravenhage, The Netherlands
LOGTEC Inc. 100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Mahani Technical Services, L.L.C. 49% 511 Duckwater Fall Road, Duckwater, NV, 89314, United States
Mercurius Finance SA 100% 42 rue de la Vallée, L-2661 Luxembourg
Merseyrail Electrics 2002 Limited 50% Rail House, Lord Nelson Street, Liverpool, Merseyside, L1 1JF,
UnitedKingdom
Merseyrail Infraco Limited 50% Rail House, Lord Nelson Street, Liverpool, Merseyside, L1 1JF,
UnitedKingdom
Merseyrail Services Holding CompanyLimited
3
50% 2 New Bailey, 6 Stanley Street, Salford, Greater Manchester, M3 5GS,
UnitedKingdom
Northern Rail Holdings Limited 50% Eversheds House, 70 Great Bridgewater Street, Manchester, Lancashire,
M1 5ES, United Kingdom
Northern Rail Limited 50% Serco House 16 Bartley Wood, Business Park Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
256 Serco Group plc Annual Report and Accounts 2022
Appendix: List of subsidiaries and related
undertakings
Company name
Serco Group
interest Registered office address
ORS Deutschland GmbH 100% Güterhallenstrasse 4, 79106 Freiburg, Germany
ORS España Servicios Sociales, S.L. 100% Avda Felipe II 1 7 1 ° Madrid 28009-Madrid, Spain
ORS Greece Monoprosope A.E 100% 280, Kifisias Ave., Chalandri, Greece
ORS Italia S.r.l 100% Piazza Annibaliano, 18 CAP 00198 Presso Studio Filippini & Ass, Italy
ORS Service AG 100% Röschibachstrasse 22, 8073 Zürich, Switzerland
ORS Service GmbH (Austria) 100% Leopold-Ungar-Platz 2, 1190, Döbling, Wien, Germany
ORS Slovakia s.r.o 15% Grösslingova 45, Bratislava, Slovakia
OXZ Holdings AG 100% Röschibachstrasse 22, 8073 Zürich, Switzerland
Priority Properties North West Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Sapienza Consulting BV 100% Kapteynstraat 1, 2201 BB Noordwijk, The Netherlands
Sapienza Consulting France SAS 100% 4 Allée des Cormorans 06150 CANNES LA BOCCA, France
Sapienza Consulting GmbH 100% Berliner Allee 65, 64295 Darmstadt, Germany
Sapienza Consulting Ltd 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Sapienza Consulting S.r.l. 100% Piazza Sant’Andrea della Valle, 3 Roma, Italy
Serco (Jersey) Limited 100% 26 New Street, St. Helier, JE2 3RA, Jersey
Serco Australia Pty Limited
3
100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Belgium S.A. 100% 1945 Chaussée de Wavre, 1160 Auderghem, Brussels, Belgium
Serco Caledonian Sleepers Limited 100% Basement and Ground Floor Premises, 1-5 Union Street, Inverness,
IV1 1PP, Scotland, United Kingdom
Serco Canada Inc. 100% 330 Bay Street, Suite 400, Toronto, Canada M5H 2S8
Serco Canada Marine Corporation 100% 330 Bay Street, Suite 400, Toronto, Canada M5H 2S8
Serco Citizen Services Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Corporate Services Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Czech Republic s.r.o. 100% Praha City Centre, Klimentska 46, Prague, 110 02, Czech Republic
Serco Defence Clothing Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Defence S.A. 100% 1945 Chaussée de Wavre, 1160 Auderghem, Brussels, Belgium
Serco Defence Services Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Environmental Services Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Ferries (Guernsey) Crewing Limited 100% 4th Floor, West Wing, Trafalgar Court, Admiral Park, St Peter Port,
GY1 2JA, Guernsey
Serco Ferries (HR) Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Geografix Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Gestion de Negocios S.L.U. 100% Calle Ayala no 13, 1° derecha, CP-28001, Madrid, Spain
Serco Group (HK) Limited 100% Unit 3103, 31/F, Millennium City 6, 392 Kwun Tong Road, Kwun Tong,
Kowloon, Hong Kong
Serco Group Pty Limited 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco Holdings Limited
1
100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Inc.
3
100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
Serco International Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
257
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Company name
Serco Group
interest Registered office address
Serco International S.à r.l 100% 7, rue Robert Stümper, L-2557, Luxembourg
Serco Italia S.p.A. 100% Viale della Tecnica 161, 00144, Rome, Italy
Serco Leasing Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Leisure Operating Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Limited
3
100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Listening Company Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Luxembourg S.A. 100% Rue Sainte Zithe, 33, L-2763 Luxembourg
Serco Nederland B.V. 100% Kapteynstraat 1, 2201 BB Noordwijk ZH, Netherlands
Serco New Zealand (Asset Management
Services) Limited
100% Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland Central,
Auckland, 1010, New Zealand
Serco New Zealand Limited 100% Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland Central,
Auckland, 1010, New Zealand
Serco New Zealand Training Limited 100% Level 4, KPMG Centre, 18 Viaduct Harbour Avenue, Auckland Central,
Auckland, 1010, New Zealand
Serco North America (Holdings), Inc. 100% 1209 Orange Street, Wilmington, DE 19801, United States
Serco North America Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG27 9UY, UnitedKingdom
Serco Nunavut Ltd. 49% Field Law, House 2436, PO Box 1734, Iqaluit, NU X0A 0H0, Canada
Serco Paisa Limited 50% Ci Tower, St. George’s Square, New Malden, Surrey, KT3 4TE, United Kingdom
Serco PIK Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Pension Trustee Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Projects L.L.C. 49% Global Business Centre 2, Second Floor, Al Hitmi Village Building,
C-Ring Road, POBox 25422 Doha, State of Qatar
Serco Regional Services Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
Serco Safety Services L.L.C. 49% Hala Business Center, Al Khor Building, Office 201, 202, Baniyas Street,
Al Buteen Area Deira, Dubai
Serco S.a.r.l. 100% 15, rue Lumière 01630 Saint Genis Pouilly, France
Serco SAS 100% 15, rue Lumière 01630 Saint Genis Pouilly, France
Serco Saudi Arabia L.L.C. 100% 6987 King Abdul Aziz Road, Al Maseef District, Unit No. 31, Riyadh,
12467-2444, Kingdom of Saudi Arabia
Serco Saudi Services L.L.C. 60% 6987 King Abdul Aziz Road, Al Maseef District, Unit No. 31, Riyadh,
12467-2444, Kingdom of Saudi Arabia
Serco Security Services SASU 100% 15 Rue Lumière, Technoparc Pays de Gex, 01630 Saint Genis Pouilly, France
Serco Services GmbH 100% Lise-Meitner-Strasse 10, 64293 Darmstadt, Germany
Serco Singapore Pte Limited 100% 38 Beach Road, #29-11 South Beach Tower, Singapore, 189767
Serco Switzerland S.A. 100% 62 Route de Frontenex Bis 86, 1208 Geneva, Switzerland
Serco Traffic Camera Services (VIC) PtyLimited 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Serco-IAL Limited 100% Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook,
Hampshire, RG279UY, United Kingdom
258 Serco Group plc Annual Report and Accounts 2022
Appendix: List of subsidiaries and related
undertakings continued
Company name
Serco Group
interest Registered office address
Serco-IPS Corporation 100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
STJ Administration Pty Limited 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Corporate Security WA Pty Limited 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Hospitality & Entertainment Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Services (FNQ) Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Services (Newcastle) Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Services (SA) Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Services (Vic) Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
TJS Services (WA) Pty Ltd 100% Level 23, 60 Margaret Street, Sydney, NSW 2000, Australia
Vivo Defence Services Limited 50% Shared Services Centre Q3 Office, Quorum Business Park, Benton Lane,
Newcastle-Upon-Tyne, NE12 8EX, United Kingdom
Whitney, Bradley & Brown, Inc. 100% 12930 Worldgate Drive, Suite 600, Herndon, VA 20170, United States
1 Serco Holdings Limited is directly owned by Serco Group plc. All other subsidiaries and associated undertakings are held indirectly via Group companies.
2 Companies in liquidation as at 31 December 2022.
3 Companies key to the consolidated numbers, all of which are engaged in the provision of support services.
4 Companies with a non-controlling interest due to being consolidated in full as a result of considerations over control.
259
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Compliance with the UK
CorporateGovernance Code
This section describes how the Company has complied with the principles and
provisions of the UK Corporate Governance Code (“the Code”) published by the
Financial Reporting Council in July 2018 and which is available at www.frc.org.uk. It
should be read in conjunction with the Corporate Governance Report, set out on
pages 111 to 141, which provides additional details of how the Provisions of the Code
have been applied.
The Company has applied all the principles and complied with all
the provisions of the Code during 2022, except for Provision 38,
an explanation for this is provided below.
1. Board leadership and Company purpose
The Board is collectively responsible to the Company’s
shareholders for promoting the long-term sustainable success
of the Company, generating value for shareholders as a valued
and trusted partner of governments, and delivering public
services that transform outcomes and make a positive difference
for our fellow citizens. It oversees and agrees the Group’s
purpose, values and strategy at its annual strategy review and at
each Board meeting, and ensures that necessary resources are
available, and that the appropriate risk management controls and
processes are in place by regular review of such matters at Board
and Committee meetings.
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 which 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 121 to 126, including
details of the manner in which engagement with the workforce
is achieved. The Board is conscious of the benefits of aligning its
culture with its strategy and is further embedding this through its
ESG Framework.
Regular engagement is sought with major shareholders, primarily
through executive management, following the announcement
of the full and half year results, and also through the Chairman,
who is available to major shareholders, and the Chair of the
Remuneration Committee who consults with shareholders when
appropriate to do so regarding remuneration matters. The
Chairman 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 the Board as a whole
has a clear understanding of the views of shareholders. The
Company has established “Employee Voice” to ensure employee
engagement and employees can raise concerns through the
Company’s ethics hot line, Speak Up.
Potential and actual conflicts of interest are considered at Board
meetings and, where appropriate, at Committee meetings.
2. Division of responsibilities
The roles and responsibilities of the Chairman, Chief Executive,
Senior Independent Director, the Board and its Committees are
clearly defined, documented, approved by the Board and are
available on the Company’s website.
The Chairman, who was independent on his appointment,
leads and is responsible for the operation of the Board.
The Chief Executive is responsible for the leadership and
management of the business within the authorities delegated
by the Board. Their respective responsibilities are documented
andregularlyreviewed.
There are five separate committees of the Board, each of which is
chaired by a different Non-Executive Director as follows:
– Audit Committee: Tim Lodge
– Corporate Responsibility Committee: Kirsty Bashforth
– Group Risk Committee: Ian El-Mokadem
– Nomination Committee: John Rishton
– Remuneration Committee: Lynne Peacock
Details of the activities of each of these committees are set out in
their reports elsewhere within this Annual Report.
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 Non-Executive Directors.
As at the date of this report, with six Non-Executive Directors,
in addition to the Chairman, and two Executive Directors on
the Board, over half of the Board, excluding the Chairman, are
independent Non-Executive Directors.
The Non-Executive Directors approve the objectives of the
Executive Directors annually and assess their performance against
these objectives.
The Chairman meets formally with the Non-Executive Directors
without the Executive Directors present and maintains regular
formal and informal contact with Non-Executive Directors.
In addition, there are opportunities for the Non-Executive
Directors to meet in the absence of the Executive Directors at
Committeemeetings.
The Non-Executive Directors, led by the Senior Independent
Director, meet, without the Chairman present, to appraise
hisperformance.
The time commitment of Non-Executive Directors is defined on
appointment and regularly evaluated. All Non-Executive Directors
are able to devote the time required to undertake their roles,
including the Chairman who chairs two listed companies. No
director holds more than four directorships of public companies.
260 Serco Group plc Annual Report and Accounts 2022
The Directors have access to independent professional advice
at the Company’s expense as well as to the advice and services
of the Company Secretary who advises the Board on corporate
governance matters.
3. Composition, succession and evaluation
The Nomination Committee is chaired by the Company’s
Chairman and comprises solely Non-Executive Directors. It
reviews succession plans for both Board and senior management
positions to ensure appropriate refreshment and, with the
assistance of an external search company, leads the process for
Board appointments and makes recommendations to the Board.
All appointments are made on merit against objective criteria
including the skills, experience and knowledge required for the
Board as a whole and the promotion of diversity of gender and
ethnic and social background.
When seeking to appoint Non-Executive Directors, the services
of a search consultant with appropriate experience within the
sector in which the Company operates are utilised to ensure a
strong and diverse selection of potential candidates meeting the
candidate specification drawn up by the Committee.
All Directors submit themselves for re-election at each Annual
General Meeting.
Following the annual evaluation of the Board and its
Committees, which is externally facilitated every three years, the
recommendations are considered by the Board and implemented
by the Chairman with the assistance of the Company Secretary.
Annual appraisals of Non-Executive Directors, including the
identification of training needs, are undertaken by the Chairman
to ensure continued effective contributions.
4. Audit, risk and internal control
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 Group Risk and Audit 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. At least annually, the Board undertakes a review
oftheireffectiveness.
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
auditarrangements.
5. Remuneration
The Remuneration Committee has delegated responsibility for
determining the policy on Executive Director remuneration,
which it does taking account of workforce remuneration and the
alignment of incentives and rewards with culture.
The Company’s share incentive schemes are designed to
promote long term shareholdings for Executive Directors to
provide alignment with shareholders’ interests.
Although not fully compliant with Provision 38 of the Code during
2022 relating to the alignment of Executive Directors’ pension
contributions with those of the wider workforce in respect of the
Chief Executive Officer, as outlined in 2020 and 2021 phased
arrangements were in place to reduce the incumbent Chief
Executive Officer’s pension contributions to be in line with those
of the wider workforce by 1 January 2023, in accordance with
Investor Association guidelines. Rupert Soames’ pension would
have been fully aligned with the wider workforce by 1 January
2023 but, with Rupert’s decision to step down from the Board
on 31 December 2022, this is no longer an issue in 2023. In
accordance with the requirements of the Code, the pension
opportunity for all Executive Directors’ is aligned to that of the
wider workforce.
Decisions made regarding executive pay are appropriate in
the context of the wider workforce. Details of how we have
engaged with shareholders and the wider workforce, and how
the outcomes from the engagement is considered when making
remuneration decisions is set out in the Directors’ Remuneration
Report on pages 142 to 169.
Full details of how the Company has complied with the principles
and provisions of the Code as they relate to remuneration are
contained in the Directors’ Remuneration Report on pages
142to169.
261
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
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.
Youcanregister 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. Ifyou 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
ofsmall, unwanted shareholdings to good causes. You can find
out more by visiting www.sharegift.org or by calling
+44 (0) 207 930 3737.
Dividend
Proposed final dividend
The Directors have recommended payment of a final dividend
of 1.92 pence in respect of the year ended 31 December 2022,
subject to approval by shareholders at the Annual General
Meeting.
Key dates
Annual General Meeting 27 April 2023
Ex-dividend date 11 May 2023
Record date 12 May 2023
Payment date 9 June 2023
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
262 Serco Group plc Annual Report and Accounts 2022
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. 2048608
Group General Counsel and Company Secretary
David Eveleigh
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)
Website: www.shareview.co.uk
Shareholders can securely send queries via the website usingthe
‘Help’ section.
ADR depositary bank
Deutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn NY 11219
USA
Telephone: +1 866 249 2593 (toll-free within USA)
+1 718 921 8124 (from outside USA)
Website: www.adr.db.com
Email: db@astfinancial.com
Brokers
JP Morgan Cazenove
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/consumers/scams/investment-scams/ share-fraud-and-
boiler-room-scams
Notification of major interests in shares (TR1 Forms)
Email: cosec@serco.com
Legal Disclaimer
This Annual Report and Accounts contains certain statements
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” and similar
expressions 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; 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, 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 is subject to the regulatory requirements of the Financial
Conduct Authority of the United Kingdom
263
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
Notes
264 Serco Group plc Annual Report and Accounts 2022
Serco Group plc Annual Report & Accounts 2022
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