Annual Financial Report

RNS Number : 9789F

Serco Group PLC

12 March 2020

 

Publication of the 2019 Annual Report and Accounts

Serco Group plc (the 'Company')

LEI: 549300PT2CIHYN5GWJ21

The 2019 Annual Report and Accounts has today been published and is available on the Company's website at www.serco.com .

A hard copy version of the 2019 Annual Report and Accounts and the Notice of Annual General Meeting 2020 will be sent to those shareholders who have elected to receive paper communications on or about 19 March 2020. The Notice of Annual General Meeting 2020 will be made available on the Company's website to those shareholders who have not elected to receive paper communications on the same date.

In accordance with Listing Rule 9.6.1R, a copy of the 2019 Annual Report and Accounts will be submitted to the UK Listing Authority and will shortly be available for inspection at the  National Storage Mechanism www.morningstar.co.uk/uk/NSM  

Compliance with Disclosure and Transparency Rule 6.3.5 ('DTR 6.3.5')

The information below, which is extracted from the 2019 Annual Report and Accounts, together with the information included in the Company's full year results announcement published on 26 February 2020, constitute the materials required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2019 Annual Report and Accounts. All page and note references in the extracted information below refer to page and note references in the 2019 Annual Report and Accounts.

David Eveleigh

Group General Counsel and Company Secretary

12 March 2020

Principal Risks and Uncertainties

Summary of principal risks and uncertainties

Principal risks, as described below, have been reviewed by the Executive Committee, the Group Risk Committee and the Board. Each risk is classified as a strategic, financial, operational, people, hazard, or legal and compliance risk. 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, together with a brief commentary to contextualise these trends.

Principal risks are considered over the same three-year timeframe as the Viability Statement set out on page 74, which takes account of the principal risks in its assessment.

We have removed the Failure to deliver expected benefits from transformation risk from our principal risk profile to reflect good progress made and in recognition of the benefits returned to the organisation. In addition, we have included a new people risk acknowledging the value we place on our workforce and the importance of succession planning for business-critical roles on both the Executive Committee and across the business.

Particular focus has been given to the management and oversight of our Health and Safety priorities, currently captured under Catastrophic risk, to ensure that they retain appropriate visibility and priority.

We have also assessed our external and internal environment to anticipate both risks and opportunities and to increase our ability to pre-empt, convert or exploit them. As part of this review we continue to monitor the potential implications of the UK's withdrawal from the European Union ("Brexit") and its impact on Serco.

Reiterating our position outlined in our 2018 Annual Report, we do not believe that Brexit will directly impact Serco to a material extent. This is based on regular assessment and review of our UK and EU contracts, our supply chain, workforce requirements and regulatory obligations. By operating many contracts across diverse geographies outside of Europe, Serco has a natural hedge from material Brexit risks that may arise.

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. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's business and financial results.

Summary of principal risks

Strategic risks	F ai lure t ogrowprofitably	F ai lure t omanageourreputation
Financial risks	Financial controlfailure
Operational risks	M ajorinformationsecurity breach	C ontractnon-compliance, non-performanceormisreporting	F ai lure o f businesscriticalpartner, supplier orsub-contractor
People risks	F ai lure t oactwith integrity	F ai lure t oattract,engageand retainkeytalent
Hazard risks	C atastrophicincident
Legal and compliance risks	M ateriallegalandregulatory compliancefailure

STRATEGIC RISKS

Failure to grow profitably

F ai lure  t o win material bids or renew material contracts profitably, or a lack of opportunities in our chosen markets, will restrict growth and may have an adverse impact on Serco's long-term financial viability.

O ur 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.

M arket conditions continue to be challenging in a number of our sectors and geographies, though our diversity and focus on business development has enabled us to win important re-bids and gain sufficient new business to stabilise our revenue. With a reasonable pipeline of opportunities ahead and our access to a wide variety of markets, we consider this risk to be stable.

Key risk drivers:	Material controls:	Mitigation priorities:
External factors reducing the pipeline of opportunities - political and policy changes in our markets (such as changes in policy about the private provision of public services, changes following elections in federal or state governments, or decisions such as Brexit) may make it more difficult for us to win in some geographies or result in fewer opportunities. Failure to be competitive - lack of appropriate references and value propositions for the markets in which we compete, or an insufficient understanding of our competitive environment may put us at a disadvantage to our competitors. Inability to meet customer and solution requirements during design, implementation and delivery   - executing our bids in an unsatisfactory manner by not understanding the strategic needs of the customer, mispricing bids, developing inefficient or non-innovative solutions and misunderstanding risks, may prevent us from achieving our growth ambitions. Ineffective business development - poor account management, market shaping, proposition development and visibility of pipeline opportunities may affect our ability to set and meet targets for growth as well as drive process improvements.	· Serco Group and Divisional Strategy including annual strategy reviews, ensuring focus on and resource allocation to specific markets and geographies with the greatest growth potential. · Investment Committees. · Serco Management System ("SMS"). · Sector-specific Centres of Excellence ("CoEs") and Value Propositions. · Serco Institute to develop thought leadership and innovation for our markets. · Business Life cycle Review Team ("BLRT") Process. · Pipeline and Business Development ("BD") spend reviews to ensure efficient deployment of resources. · Divisional Performance Reporting ("DPR") process. · Annual Performance Reviews, Talent Reviews and Succession Planning processes.	· Review pipeline opportunities to ensure all market activity is accurately captured and that budgets are allocated accordingly. · Review portfolio for new attractive organic expansion areas. · Continue to improve leveraging of Serco best practice and innovation, as well as refine bid solution processes and SME resources to ensure our propositions remain competitive. · Continue to adopt a robust qualification process so that Business Development resources are focused on the most attractive opportunities. · Continued focus on account management for major bids, as well as re-bids, to ensure existing clients are experiencing good service from Serco and fully understand the value and quality of our services. · Review and consider appropriate inorganic growth opportunities as the market continues to develop.

Failure to manage our reputation

F ai lure  t o manage our reputation will mean that customers will be less likely to give us new business or renew existing business. It will also impact our ability to attract and retain high-quality people and may lead to reduced share price and the related consequences of a reduced valuation of the business.

W e have maintained a continued focus on Operational Excellence and have made a positive contribution to the debate around public sector outsourcing.

Key risk drivers:	Material controls:	Mitigation priorities:
Failure to clearly define what Serco stands for and how we wish to be seen - may result in inconsistent communication and misunderstanding by our key stakeholders. Not understanding our customers' and stakeholders' expectations - may result in a failure to recognise changes in our business environment or our customers' priorities. Insufficient focus on articulating and evidencing the benefits of private provision of public services - may result in an imbalanced public discourse and a misunderstanding of what Serco contributes to customers and service delivery. Failure to manage incidents appropriately - may result in us not responding in a collaborative manner with our customers or not communicating in an open and ethical manner to key stakeholders.	· Serco Values clearly defined and understood. · Group Reputation, Brand and Communication Standard. · Customer and stakeholder relationship, communication and engagement programmes. · Proactive engagement with the media and continual media monitoring. · Media training and understanding of reputational issues for senior management. · Incident management processes and crisis management plans.	· Continual refinement and improvement of existing communication and marketing controls and approaches. · Continued and heightened efforts to explain and evidence the benefits and innovations that Serco brings to the provision of public services. · Serco Institute to trial and publish innovative thinking in public service delivery.

FINANCIAL RISKS

Financial control failure

Financial  control failure may result in: an inability to accurately report timely financial results and meet contractual financial   r e p orting 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 make critical financial transactions, leading to financial instability, potential business losses, and negative reputational impact.

D uring 2019 the new finance operating model within our UK and AsPac Divisions was being embedded, and as a result of progressing through three reporting periods with the transformed model being operational, management believe that the risk of financial control failure has reduced from the higher levels which existed during the transformation phase. Work continues to ensure that the new operating model is sustainable and effective, and the Company is working closely with its third-party service provider to ensure this is the case.

Key risk drivers:	Material controls:	Mitigation priorities:
Not setting the right tone from the top - if we do not set the right tone from the top, we may fail to embed finance policy, processes and controls. Poor financial processes - if processes are poorly designed, then inaccuracies and fraud may occur. Inadequate financial controls within the business - if controls are inadequate, we may fail to provide adequate protection from sabotage of systems, fraud and error. Challenges of new finance operating model - poor service delivery may lead to an unstable financial control environment due to an increased workload on the Serco finance community.	· Group Governance and Finance strategy. · Serco Management System ("SMS") - finance processes and controls. · Standardised reporting, forecasting and financial processes. · Standardised financial systems and data structures. · Skilled and adequately trained finance staff. · Governance and review procedures associated with managing the quality of finance services delivered by the Company's third-party supplier.	· Continue to embed transformed new finance operating model and monitor delivery and risks of outsourced Finance Centre of Excellence. · Continuously improve forecasting and reporting processes and outputs to deliver better insight into contract operations. · Deliver global finance process improvement and efficiency through automation and robotics. · Further embed billing assurance programme. · Ensure talent is retained within the finance function through initiatives such as opportunities for personal development and improved training. · Continuously improve the Company's financial assurance programme.

O P E R A TIONA L RISKS

M a jo r information security breach

A major information security breach resulting in the loss or compromise of sensitive information (including personal or customer) or wilful damage resulting in the loss of service, causing significant reputational damage, financial penalties and loss of customer confidence.

W hi l s t our ongoing mitigation measures continue to deliver clear benefits, the external threats continue to evolve in complexity and sophistication. In addition, the GDPR legislation has introduced unprecedented scrutiny and associated fines in relation to data protection issues. Serco has continued to implement robust internal controls and process improvements resulting in a steady state view of the overall risk.

Key risk drivers:	Material controls:	Mitigation priorities:
Non-compliant systems - if our systems are non-compliant with Serco policies and standards and regulatory requirements for the protection of sensitive information, we are susceptible to breaches and penalties. Non-compliance with policies and standards - if staff do not comply with Serco policies and standards, then they may accidentally release sensitive information to third parties. Vulnerability of systems and information - if we do not identify sensitive information and protect and test the vulnerability of our systems, then we are potentially exposed to a breach. Unauthorised use of systems - if we do not implement effective personnel vetting and access restriction processes and controls, then unauthorised use of our systems may occur. Inadequate incident monitoring and response - if we do not monitor our systems and remediate and repel attacks, then we may fail to minimise the impact of any breach. Increased regulatory scrutiny - if we do not manage our data obligations and educate our workforce then we may be in breach of GDPR.	· Enterprise Architecture Boards & Solution Review meetings. · Serco Management System ("SMS"). · IT security infrastructure, processes and controls. · Privileged User Management and Two Factor Authentication for our centralised managed systems. · External assessments and scenario based cyber security testing. · Third-party due diligence checks for key suppliers. · Active monitoring by our Security Operations Centres and Computer Security Incident Response Team processes. · Standardised HR processes. · Cyber security awareness training part of our Serco Essentials training programme. · Regular Phishing and Executive Committee training exercises.	· Retooling for our Security Operations Centres to maintain effective risk identification. · Continued routine vigilance and proactive vulnerability identification coordinated through our Security Operations Centres. · Continued use of global key security risk indicators to support mitigation priorities. · Leveraging Cloud adoption to ensure standardised control mechanisms.

Contract non-compliance, non-performance or misreporting

Failure to deliver contractual requirements or to meet agreed service performance levels and report against these accurately may lead to significant financial penalties, legal notices, onerous contract provisions or, ultimately, early termination of contracts.

T he reporting structure, the systems and the monthly business performance review which is conducted at contract, Business Unit and Division level across our business provides a rigour that allows senior management visibility of contract performance or compliance issues early.

Key risk drivers:	Material controls:	Mitigation priorities:
Poor understanding of contract obligations - may result in staff failing to acknowledge and act on obligations or a failure to provide adequate resources to deliver against contractual obligations. Poor systems/IT - unreliable or incorrectly configured systems may result in late or incorrect data being produced. Lack of process and controls - poorly documented or poorly communicated processes may lead to deliberate or unintentional misreporting or contract non-compliance. Ineffective assurance and human error - insufficient oversight and assurance of contract performance, could lead to contract non- compliance, non-performance or a misreporting of performance. Poor leadership and culture - if our leaders do not align with our Values and staff feel under pressure to meet challenging operational targets and/or performance indicators, then deliberate misreporting may occur.	· Contract Management Application ("CMA"). · Contract governance including Monthly Contract Reviews, Business Unit reviews and Divisional Performance Reporting ("DPR") process. · Business Life cycle Review Team ("BLRT") process. · Serco Management System ("SMS"). · Leadership Development Programme and Contract Manager training. · Ethics training programme · Communication of Our Values and Code of Conduct. · Speak Up process ("Ethicspoint").	· Continued Contract Management training (Global and Divisional). · Ongoing development and continued exercise to roll out and embed use of contract performance dashboard ("Gauge"). · Continued process improvement activity to drive consistent approach to risk assessment. · Continued execution of divisional operational excellence improvement plans. · More in depth contract KPI reviews. · Ongoing and continued ethics, business conduct and compliance training.

F ailu re of business-critical partner, sub-contractor or supplier

A s  a result of the failure of a business-critical partner, sub-contractor or supplier to deliver and/or perform to the required standard, Serco may be unable to meet its customer obligations or perform critical business operations which could result in a financial, operational or reputational impact on Serco.

A programme for quantifying our supplier exposure and establishing appropriate mitigation actions was initiated with an extensive exercise identifying the business-critical suppliers across all divisions in 2018. This programme has continued to mature through 2019 with delivery of targeted reviews across the business.

Key risk drivers:	Material controls:	Mitigation priorities:
Ineffective procurement and supply chain governance - resulting from non-compliance to standards and lack of consequence management. Identification of significant suppliers - a failure to identify our critical suppliers may result in lack of focused oversight and understanding of the impacts on Serco should they fail to deliver our customer critical services. Limited oversight - resulting in poor sourcing, contracting and monitoring of business-critical business partners, sub-contractors and suppliers as well as the potential for engaging in ineffective or onerous contracts with suppliers or sub-contractors. Lack of resilience in the supply chain - exposing us to potential service provision or financial losses should they have ineffective Business Continuity and Disaster Recovery plans.	· Serco Management System ("SMS") - Procurement policy, standards and procedures. · Sourcing standards and procedures in each region. · Identification and maintenance of business-critical partner, sub-contractor and supplier list. · Contracts with appropriate Key Performance Indicators /Service Level Agreements etc. · Financial and ethical health checks and monitoring in the UK, North America and AsPac.	· Plan to roll out enhanced processes to critical suppliers including contract compliance, risk management and supplier performance management. · Improve auditing of business- critical sub-contractor and supplier business continuity plans. · Ongoing monitoring of impact of Brexit on supply chain and working with the Cabinet Office on risk mitigation and contingency against critical goods and services.

PEOPLE RISKS

F ailu re to act with integrity

Being found to have engaged in a significant corrupt or dishonest act (bribery, fraud, misreporting, cheating and lying) leads to customers being reluctant to do business with such organisations. Such behaviour might arise through the actions of rogue employees or as a result of pressures individuals feel they are being placed under. Such acts might lead to: the loss of existing business; restrictions on our ability to bid or win new business; our ability to attract high-quality people or partners; or may impact shareholder, investor and financial institutions' confidence in Serco.

Building on work in 2018 we have rolled out improved ethics training, strengthened our internal capability through professional qualifications and reinforced our strong tone at the top.

Key risk drivers:	Material controls:	Mitigation priorities:
Failure to communicate - if we do not define and communicate our Values and expected standards adequately, our staff and third parties will fail to understand these, which may result in inappropriate leadership behaviour and low engagement with our values. Our ways of working do not align with our Values - staff or third parties being unaware of and/or not reflecting our Values may result in poor decision-making, unacceptable business conduct, and unethical or illegal behaviour bringing our operations into disrepute. Direct or indirect contribution to human rights abuse - staff either directly or indirectly contributing to human rights (including slavery and forced labour) abuses may result in a breach of laws/regulations.	· Top-level commitment/tone from the top. · Strong, meaningful and understood Values. • Code of Conduct. • Corporate Governance with oversight by the Corporate Responsibility Committee ("CRC"). The CRC has explicit responsibility to oversee how we embed our values across the business. • Delegated Authority Matrix ("DAM"). • Serco Management System ("SMS"). • Financial controls and processes, with segregation of duties for core financial controls. • Gifts and Hospitality process and registers. • Risk management procedures. • Third-party due diligence. • Leadership Academy. • People development and remuneration. • Corporate investigations. • Speak Up process ("Ethicspoint").	• Delivery of the Deferred Prosecution Agreement project plan with oversight from DPA project steering group. • Formal separation of Group HSE from Ethics function. • Implementation of improved divisional ethics and compliance risk management processes. • Further development of Speak Up dashboard and reporting. • Embed use of Conflict of Interest registers. • Refinement of divisional ethics and compliance risk assessments. • Implementation of improved due diligence processes. • Continued refresh of Serco Essentials training. • Evaluate effectiveness of internal culture assessment processes.

F ailu re to attract, engage and retain key talent

It is our ambition to be one of the best managed companies 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. This would restrict Serco's ability to deliver on its customer obligations, execute its strategy and achieve its business objectives whilst driving employee pride in the organisation.

T h is risk  s pec ifically includes consideration of key people reliance in our leadership and executive teams including succession planning for our senior management team and other business critical roles.

Key risk drivers:	Material controls:	Mitigation priorities:
Development - failure to develop leadership and management capability resulting in regretted attrition. Talent & Succession - failure to identify and develop talent and, as a result, talent pools do not support succession planning. Engagement - failure to engage with and listen to staff, particularly those in critical roles. Reward - remuneration packages fail to keep pace with external markets. Recruitment - failure to attract and recruit the right people with appropriate skills and experience leads to early attrition. Attraction - failure to attract suitable and diverse candidates of the right calibre with the required experience/qualifications.	• Talent Management & Succession Processes. • Leadership capability development. • Targeted retention arrangements. • Critical Resource Planning. • Annual Performance Management process. • Exit Interviews. • Viewpoint survey and action plans. • Technology to support recruitment, onboarding and induction. • Structured and targeted training and development processes. • Annual engagement survey to all employees.	• Continued development of detailed succession plans for all identified business critical roles. • Take action on areas of improvement identified in 2019 engagement survey. • Continue to improve understanding of local employment markets. • Complete benchmarking activity to ensure market competitive reward packages. • Continue to monitor channels to access external talent in chosen markets. • Ongoing use and analysis of exit interviews for senior regretted leavers. • Continued use of Colleague Connexions.

HAZARD RISKS

C a t a s t r o p h i c i ncident

A n event (incident or accident) as a result of Serco's actions or failure to effectively respond to an event that results in multiple fatalities, severe property/asset damage/loss or very serious long-term environmental damage.

M anagement of our health, safety and environmental commitments remains a core priority and so whilst the nature of this risk is broad and focuses on a significant event it is important to highlight that it also includes mitigations to secure the safety and wellbeing of every employee, service user and relevant third party and to execute our duty of care obligations.

Each  Division is continuing to assess risks at a contract level to ensure that all relevant material risks have been identified and to assess and assure mitigations, including insurance cover, are appropriate. Contracts considered inherently high risk have been reviewed. Significant work has also been completed in the review of and testing of business continuity plans.

Key risk drivers:	Material controls:	Mitigation priorities:
Factors resulting in unsafe conditions - a lack of identification and assessment of risks, sudden equipment failure or inadequate security may result in poor mitigation of and/or response to a serious event. Ineffective or inadequate policies, standards and procedures - if procedures/systems are not aligned with industry standard or customer expectations, an unacceptable level of safety management may occur. Lack of capability and experience - if resources lack current competency in specialist/regulatory requirements this may result in a serious event. Lack of safety cultural alignment - a safety culture which does not reflect our Values and fails to engage our staff to work safely may result in a serious event. Insufficient safety management oversight - devolved compliance of regulations to sector- specific Subject Matter Experts without appropriate safety management oversight may result in safety management systems which are not fit for purpose. Inadequate response to a catastrophic event - if our contingency plans do not provide an adequate response to an event then escalation of an event or prolonged disruption may occur.	• Serco (Health, Safety and Environmental) HSE Strategy. • Effective and engaged safety culture. • Regular safety communications and maintenance of safety awareness. • Competency-based recruitment programme. • Role description and competency definition. • Serco Essentials training. • Safety training and individual development plans and processes based on role and operational risk. • Access to subject matter expertise. • Safety Management System (policy and procedures). • Planned and preventative inspections, maintenance and repair programmes. • Third-party ethical due diligence process. • Assure - Serco's incident and compliance reporting system. • Incident/Near-miss investigations. • Business Life cycle Review Team ("BLRT") process. • Divisional Performance Reporting ("DPR") process. • Crisis and incident emergency response plans and testing. • Business Continuity plans and testing. • Risk transfer via insurance where appropriate.	• Continue to embed updated health and safety strategy. • Continue to embed 'just' culture. • Deliver 2020 high visibility safety campaign in all divisions. • Maintain divisional safety tours and safety moments. • Formal split of Group HSE from Ethics function and creation of global Head of Health & Wellbeing role to drive wellbeing agenda and to ensure the Safety element of this risk receives appropriate focus at a corporate level. • Continued training in insurance and contractual risk management. • Complete second phase controls review and alignment of insurance. • Review levels and adequacy of compliance assurance.

LEGAL AND COMPLIANCE RISKS

Mate rial legal and regulatory compliance failure

F ai lure  t o comply with laws and regulations may cause significant loss and damage to the Group 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.

V arious 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, Modern Slavery, Trade Compliance and Human Rights.

Key risk drivers:	Material controls:	Mitigation priorities:
Lack of governance and oversight - may result in a failure to identify potential or actual legal or regulatory breaches resulting in a failure to respond appropriately or confirm compliance with legal and regulatory requirements. Failure to comply with the SMS and contractual obligations - may result in compliance failures for Group-wide material legal and regulatory requirements. Failure to identify and respond to material changes in legal and regulatory requirements, including  Brexit - complex and emerging new laws may result in key subject matter experts within the business not remaining up to date and failure to comply with material legal and regulatory obligations. Lack of awareness by employees of the legal and regulatory requirements placed upon them and the business - may result in lack of identification and subsequent compliance to requirements. Inadequate provision of systems and tools - may result in ineffective methods to support the management and reporting of legal and regulatory compliance. Legal or regulatory compliance failure by a third-party supplier/agent/partner - may result in Serco being held responsible for their failure under customer contracts. Class action litigation and increasing regulatory fines - particularly in relation to data privacy, employment/pensions. Compliance with SFO DPA obligations	• Automated alerts on material legal and regulatory obligations and changes. • Legal and contracts experts aligned to various specialist areas across the business. • Investment Committee and Business Life Cycle Review Team ("BLRT") bid process and governance. • Third-party ethical and general due diligence on all suppliers. • Serco Management System ("SMS") including various policies and operating procedures guiding and regulating conduct. • Case management software and analytics. • Legal training. • Serco Essentials training. • External and Internal audits. • Compliance assurance processes and procedures. • Regular reporting to Board and Executive Committee on legal issues and new laws across the Group. • Speak Up process and case management system ("Ethicspoint"). • EU-Exit Working Group reviewing Brexit related risks. • Oxford Saïd Business School Senior Management and Contract Director training on legal and contract issues and best practice. • Group and Divisional Standard Operating Procedures.	• Delivery of Deferred Prosecution Agreement project plan with oversight from DPA project steering group. • Horizon scanning on key potential new laws and regulations, including Brexit. • Greater use of data and trend analysis to inform Key Risk Indicators. • Embedding risk-based third party due diligence. • Improve review of key controls within SMS as the basis for ongoing compliance assurance. • Continuing development of Serco Essentials training programmes. • Continue and improve key contract and compliance assurance reviews on legal compliance.

Related Party Transactions (note 36 to the consolidated financial statements)

Transactions between the Company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint venture undertakings and associates are disclosed below.

T r a n s a c t i ons

D uring the year, Group companies entered into the following transactions with joint ventures and associates :

	T r a n s a c t i on s 2019 £m	C u r re nt o u t s t a n d i n g a t 3 1 Dec em be r2019 £m	No ncurrent outstandingat 31 December2019 £m
S a l eofgoodsandservices
Joint ventures	1.3	0.1	-
Associates	8.4	0.5	-
Other
Dividends received - joint ventures	7.8	-	-
Dividends received - associates	17.6	-	-
Receivable from consortium for tax - joint ventures	4.4	4.8	-
	39.5	5.4	-

Jo int venture receivable and loan amounts outstanding have arisen from transactions undertaken during the general course of trading, are unsecured, and will be settled in cash. Interest arising on loans is based on LIBOR, or its equivalent, with an appropriate margin. No guarantee has been given or received.

	T r a n s a c t i on s 2018 £m		C u r re nt o u t s t a n d i n g a t 3 1 Dec em be r2018 £m		No ncurrent outstandingat 31 December2018 £m
S a l eofgoodsandservices
Joint ventures	0.4	0.1		-
Associates	7.3	0.6		-
Other
Dividends received - joint ventures	9.7	-		-
Dividends received - associates	20.0	-		-
Receivable from consortium for tax - joint ventures	4.8	5.3		-
	42.2	6.0		-

Remuneration of key management personnel

T he Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts and Directors' liability insurance.

T he remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS24 Related Party Disclosures:

			2019 £m	2018 £m
Shor t -termemployeebenefits			8.9	9.5
Share based payment expense			5.3	5.3
			14.2	14.8

T he key management personnel comprise the Executive Directors, Non-Executive Directors and members of the Executive Committee (2019: 17 individuals, 2018: 17 individuals).

Aggregate Directors' Remuneration

T he total amounts for Directors' remuneration in accordance with Schedule 5 to the Accounting Regulations were as follows:

		2019 £m	2018 £m
Sa laries, f e e s ,bonusesandbenefitsinkind		3.9	4.0
A mou n t sreceivableunderlong-termincentiveschemes		3.0	3.1
Gains o n exercise ofshare options		5.1	1.8
		12.0	8.9

None of the Directors are members of the Company's defined benefit pension scheme. One Director is a member of the money purchase scheme.

F urther information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration R e p o r t   on pages 134 to 148.

In finalising the published Annual Report & Accounts, there were two items that required correction from the preliminary results announcement on 26 February 2020, neither of which are considered material. The two changes are:

On Page 24 of the announcement it was stated that £3.8m of impairment of right of use assets was recognised within underlying profit, however this should have read that £3.8m of impairment of right of use assets was recognised outside of underlying profit. This was correctly described in the paragraphs of the announcement that immediately followed, which stated that the impairment of assets created under IFRS16 were recorded within the 2014 Contract & Balance Sheet Review adjustments and one-time items, which is a category of items outside of underlying profit.

On Page 37 of the announcement it was stated that the acquisition of the Naval Systems Business Unit contributed £8.1m of operating profit before exceptional items, however this should have been £7.2m as was correctly referred to on page 53. The difference being that amortisation of intangible assets arising on acquisition of the business had not been included within the £8.1m stated on page 37.

Directors' Responsibility Statement (page 154)

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law, and have elected to prepare the Company financial statements in accordance with UK accounting standards, 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 Company and of their profit or loss for that period.

In preparing each of the Group and Company financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant, reliable and prudent;

· for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the European Union;

· for the Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Company financial statements;

· assess the Group's and 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 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 Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal controls as they determine are 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 Governance Statement that comply with that law and those regulations.

T he 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 in other jurisdictions.

Responsibility statement of the Directors in respect of the Annual Report and Accounts

W e confirm that to the best of our knowledge:

· t he 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

· t he Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

W e 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

Rupert Soames, Group Chief Executive

Angus Cockburn, Group Chief Financial Officer

Forward looking statements:

This announcement contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature.  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; and cyber-attacks.  Many of these factors are beyond Serco's control or influence.  These forward-looking statements speak only as of the date of this announcement and have not been audited or otherwise independently verified.  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 announcement to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such statement is based after the date of this announcement, or to keep current any other information contained in this announcement.  Accordingly, undue reliance should not be placed on the forward-looking statements.

 

END

 

 

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