Final Results

Serco Group PLC
4 March 2002


PART 1

                                Serco Group plc

            Preliminary results for the year ended 31 December 2001


                                                                   2001             2000

Turnover - including joint ventures                           £1,141.2m          £957.9m         Up 19.1%

Profit before tax - pre goodwill amortisation                    £46.4m           £37.7m         Up 22.9%
Earnings per share - pre goodwill amortisation                    8.46p            6.78p         Up 24.8%
Dividend per share                                                1.86p            1.63p         Up 14.1%



-     120 new contracts awarded

-     140 contracts successfully rebid or extended

-     New business won totalling £1.4 billion

-     Order book up from £5.8 billion to £6.2 billion

-     New bid win rate over 70%; rebid retention rate over 90%

-     Strong growth in continental Europe with new awards in Italy, Germany,
      Belgium and Sweden

-     £69.4 million acquisition of AEA Technology's consulting business
      strengthens position in science

-     New education business established with £35 million first-year turnover
      including contracts in Bradford and Walsall

-     Started a 10-year, £160 million PFI contract to design, build and operate
      England's national Traffic Control Centre

-     Preferred bidder status for two 12-year leisure contracts with Manchester
      City Council

-     Major contracts renewed include the National Physical Laboratory,
      Docklands Light Railway and three European Space Agency contracts

-     February 2002 - As part of Paradigm, selected as preferred bidder for
      Skynet 5 - Serco contract  worth £220 million.



Richard White, Executive Chairman, said:


'This represents a very strong performance. We maintained excellent growth in
sales and profits, exceeding the results targeted at the start of the year.



Our forward earnings are highly visible and our margins have continued to grow.
We remain a highly predictable business. We have already secured 82% of our
forecast turnover for 2002 and a significant amount beyond and continue to
anticipate strong growth. And there is no let-up in new prospects: we are
currently evaluating contract opportunities worth a total of some £15 billion.'

                                    - Ends -



The Serco Group plc Annual Review and Accounts 2001 is available from today on
our website at www.serco.com.



Notes to editors

Serco is an international provider of management services to government and
industry. The company covers a wide range of activities, from controlling
satellites and operating computer networks for the European Space Agency, to
managing and operating the Docklands Light Railway where Serco was recently
voted National Rail Operator of the year. The company employs some 34,000 staff
in 36 countries.



For further information please contact Serco Group plc: T: [phone]

Kevin Beeston               - Chief Executive
Ben Woodford                - Corporate Communications Director


A message from the Board



A robust business

Once again Serco maintained excellent growth in sales and profits, exceeding the
results targeted at the start of the year. This performance was no mean
achievement in a year clouded by uncertain economic conditions and the aftermath
of 11 September. It emphasises the robustness of our business model and our
broad spread of long-term contracts with high-quality customers across many
sectors and countries.



A successful year

Turnover rose 19.1% to £1,141.2 million. Pre-tax profits were up 22.9% to £46.4
million before goodwill amortisation and 21.2% to £41.2 million after goodwill
amortisation. Earnings per share rose 24.8% to 8.46p before goodwill and 22.1%
to 7.14p after goodwill. Underlying pre-tax profits grew 21.1% to £45.6 million
before goodwill and exceptional items.



The recommended final dividend of 1.29p per share makes a total for the year of
1.86p - an increase of 14.1% over 2000.



Strong organic growth resulted in 260 new business wins, rebids and contract
extensions - a record number. Together, these increased our order book from £5.8
billion to £6.2 billion at the year-end. While our high-profile bids for new
contracts attract most attention, one of the company's underlying strengths is
the level of additional business that we win routinely each year through
broadening the scope of rebids and extensions to contracts. Together, these
committed future income streams give us the assurance of highly visible revenues
and profits: over 82% of our planned revenue for the year ahead was already
contracted at the beginning of 2002.



While maintaining strong sales growth, we continue to see increasing margins as
returns begin to flow from our investment in private finance initiatives (PFIs).
These will provide an increasing income stream to supplement our revenues from
traditional contracts.



We continue to broaden our business into new areas - notably, in 2001, the
education sector. We established a brand-new £35 million-a-year education
business in the UK, winning major long-term contracts to partner with local
education authorities in Bradford and Walsall. Local authorities are
increasingly willing to develop more sophisticated structures in which we work
with them as partners. For example, we have won a series of leisure management
contracts where the length of the term recognises our commitment to invest in
improved facilities. The largest was in Manchester, where we have been selected
as preferred bidder to improve and operate 10 existing leisure centres as well
as managing the new English Institute of Sport facilities after the 2002
Commonwealth Games.



New contracts started during the year included support services at two new PFI
hospitals: Wishaw General, and Norfolk and Norwich University, where we took
part in the UK's largest-ever transfer of hospital staff and patients. These two
contracts, with terms of seven and 30 years respectively, have a combined annual
turnover of £17 million.



We also began a new UK-wide partnership with the National Crime Squad. Justice
has been a major growth sector for us and we now provide services to 66 UK law
enforcement agencies, positioning us well for future growth.



Traffic management systems installed and operated by Serco cover over 18,300km
of roads worldwide. We will be extending that figure with our 10-year, £160
million contract - started this year - to design, build and operate England's
new national Traffic Control Centre.



We have maintained our strategy of developing and differentiating the business
through international growth. During the year we made particular progress in
continental Europe, where continuing investment brought us new opportunities and
contract awards - notably in Belgium, Germany, Italy and Sweden.



In Italy, for example, following the previous year's contract with the national
commission that oversees the Italian Stock Exchange and public companies, the
regional government of Lombardy awarded us a six-year contract worth € 22
million to manage its IT infrastructure. We now provide desktop PC management in
seven countries - Belgium, France, Germany, Italy, the Netherlands, Spain and
the UK.



In Sweden we won our largest contract to date, worth SEK650 million, with the
country's leading supermarket chain, ICA, providing facilities management for
some 20 logistics centres nationwide.



Our German business won its first contract under the ministry of defence's
outsourcing 'pilot project', worth € 12.5 million, to provide IT training. We
are currently bidding for further contracts under this initiative. We also won a
three-year contract, worth € 6.8 million a year, to provide facilities
management to Asta Medica, a research division of the Degussa Huls chemical
company.



Our businesses in North America and Asia Pacific continue to deliver strong
operational performance, and have identified opportunities in more sophisticated
forms of contracts including PFIs. Notable new business during the year included
a 20-year aviation weather and ground electronics support contract for the NATO
Flying Training in Canada programme, and another contract from BHP Billiton in
Australia, to provide security, medical, fire and emergency response services to
its principal steelworks.



Our expanding contract base represents an increasingly valuable source of
organic growth - providing opportunities to rebid contracts, extend them and
broaden their scope. In the UK, for example, we won important extensions to our
contracts at the National Physical Laboratory (NPL), worth some £100 million
including DTI and commercial income, and Docklands Light Railway, worth £72
million. We are also engaged in discussions with the Ministry of Defence Warship
Support Agency to develop an interim partnering agreement and for the extension
of the Marine Services ports contract by around two years until 2005 in return
for a commitment to rationalise elements of Marine Service activities and reduce
net costs of the outputs.



Internationally, we extended our manpower and support services contract for the
Royal Australian Air Force, and won three significant rebids with the European
Space Agency in Italy.



In 1997 we acquired the passenger rail assets of the Great Southern Railway
(GSR) from the Australian government. Having managed GSR into profitability, we
were able to make a one-off profit of £15.4 million by refinancing its rolling
stock. This transaction has more than recouped our cash investment to date,
while retaining a profitable and growing long-term future income stream. As
stated in our interim report, this exceptional profit from the refinancing
offset the cost of our unsuccessful bid to acquire National Air Traffic Services
in the UK and the completion of our People and Technology investment programme.



We expect further gains to arise in future from refinancing PFI projects when
the construction phase is complete and assets go into service. Our intention is
to identify these to investors ahead of time. Our policy is also to share such
gains with our customers, a principle that is reflected in recent UK government
guidance on this issue.



Acquisitions

Acquisitions enable us to bring our proven management processes quickly to new
sectors or customer groups. Our £2.6 million acquisition of Quality Assurance
Associates in December 2000, for example, helped us to win our Bradford and
Walsall education contracts in 2001.



In August 2001, for a consideration of £69.4 million, we acquired AEA
Technology's consulting business, which provides science and safety based
services to customers such as the UK Ministry of Defence, BNFL, British Energy
and the UK Atomic Energy Authority. It substantially strengthens our position in
science and enlarges our customer base in a field where both corporate and
government clients are increasingly aware of the benefits of outsourcing. We now
employ over 4,800 people in science activities.



The AEA Technology consulting business, renamed Serco Assurance, is performing
well and delivering the expected benefits to our existing customer base and
science activities. For example, the combination of a Serco Assurance software
product with materials science expertise from NPL now enables us to provide a
more complete technical service to gas turbine operators.



We made two smaller acquisitions during the year. In January we acquired The
Hiser Group in Australia for A$6 million and in June we bought Total IT Ltd in
the UK for £1.175 million.



We will continue to make selective acquisitions where they enhance the Group's
capability to address new markets.



People and Technology programme

During the year we completed our three-year People and Technology programme,
involving total expenditure of some £15 million.



Through investment in people, primarily in training, we are strongly placed to
seize the new kinds of opportunities that are emerging, as well as those we see
today. During the year almost 1,800 people received management training through
the Serco Best Practice Centre. We are proud to be the first UK-listed employer
to receive recognition from the Institute of Directors, which means that some
courses may lead to recognised external qualifications, upon successful
completion of an examination.



Through investment in technology we can now work in a more integrated way than
ever before, so that every part of the organisation shares the strengths,
knowledge and experience of the whole group.



As part of the programme we have created Serco Capital, a group that works to
structure the financing and project management we need to bid for larger and
more complex public private partnership (PPP) projects. The team brings together
expertise in financial modelling and structuring, project finance, investment
management and tax in the UK, Australia and the US.



Social and environmental responsibility

As a company that earns most of its living by delivering public services, we
have always taken corporate social responsibility (CSR) very seriously. During
the year we formalised our approach to CSR and piloted it with a number of
contract teams. Now being implemented across the organisation, this will give
direct accountability for CSR to every contract manager and enable us to prove
that we put our values into action. Each contract manager will be encouraged to
nominate a CSR representative and develop a CSR programme. This will involve
applying Serco values and guidelines to compile a comprehensive CSR plan
embracing contract staff, local communities and the environment - supported by
an action plan setting clear and realisable commitments.



This will allow us to report more consistently on CSR, while empowering our
contract teams to set specific targets, engage their own particular stakeholders
and celebrate their achievements.



The Corporate Assurance Group established in 2001 enables us to view CSR in its
broader context. The group advises us on risk management, health, safety,
environmental, quality and CSR throughout the business.



People

We recognise that Serco's success comes from the exceptional dedication of our
people. Their energy, enthusiasm and imagination are the foundation of our
business, adding value to our customers' operations and to the good causes we
support. In our sixth year as a corporate member of Save the Children, we
exceeded our fundraising target of £600,000 by some £20,000.



The aftermath of 11 September made exceptional demands on many of our people -
particularly in our defence and air traffic control operations. We applaud their
commitment.



Board changes

In October Betsy Bernard resigned as a non-executive director to reduce her
external commitments on becoming President and CEO of AT&T's consumer division:
we thank her for her contribution. In her place we welcomed Dr DeAnne Julius
CBE, whose experience spans both public and private sectors. She was a founder
member of the Bank of England's Monetary Policy Committee and is also a
non-executive director of the Bank of England, Lloyds TSB and BP.



As we continue to take on more complex projects and broaden operations into new
business areas around the world, it is our intention to consider a further
non-executive appointment in due course to complement the existing skills and
experience of the current Board team.



Further planned Board changes will take place in 2002. In May, Richard White
will retire after 31 years with the company, most recently as Executive Chairman
and previously as Chief Executive. Richard has been instrumental in defining
Serco's business model and operating philosophy and in positioning the business
for continued growth. The whole Serco family wish him a long and happy
retirement. As in the past the company has planned a succession. Kevin Beeston
will succeed Richard as Executive Chairman, having been Chief Executive for the
past three years and previously Finance Director. Kevin has been with Serco for
17 years and is well known to many of Serco's shareholders.



Christopher Hyman, currently Finance Director, will replace Kevin as Chief
Executive. He has been with Serco for six years, for the past three as Finance
Director, and is also well known to shareholders. Chris will be succeeded as
Finance Director by Andrew Jenner, currently Corporate Finance Director, who has
been with Serco for over five years, having previously worked for Unilever and
Deloitte & Touche.



Competitive strength

We maintained our new bid win rate of over 70%. The key to this success is our
ability to pursue opportunities selectively and apply our distinctive approach
to outsourcing. Rather than simply delivering specified services we seek out
opportunities where we can manage activities to deliver better results. We aim
to identify opportunities at an early stage and to allocate significant resource
to analyse commercial and financial structures and potential operational
improvements. Our focus on what customers would like to get out of a contract -
rather than what they want us to put in - gives us a powerful competitive edge.



We are effective managers of change. We can give our customers not only improved
service but continuing improvement over time. That is how we were able to
maintain our 2001 success rate of over 90% in contract rebids and renewals.



As part of our competitive stance, we encourage customers to work with us in
seeking continuous improvement. To deliver these improvements, we continue to
invest in refining our bidding, phase-in and management processes, aided by the
Serco Institute and Serco Best Practice Centre.



Outlook

We have laid the foundations for continued future growth. Our forward earnings
are highly visible and our margins have continued to grow. We remain a highly
predictable business. Because we have already secured 82% of our forecast
turnover for 2002 and a significant amount beyond, we continue to anticipate
strong growth. And there is no let-up in new prospects: we are currently
evaluating contract opportunities worth a total of some £15 billion.



In a world where the only certainty is change - driven by the rising
expectations of consumers and governments, and by public demand for continuous
improvement in the delivery of public services - Serco is an established leader
in change management. Demand for our management and technical skills continues
to grow as more sophisticated procurement strategies and commitment to PPPs
evolve worldwide.



Over the past three years we have stepped-up our investment in technology and
our management and financial capabilities. Now we plan further enhancement of
our project management and systems integration capability as we build our global
strength in the design and management of service solutions.



Our breadth of customer base and depth of capability are presenting us with ever
increasing opportunities in the UK. Meanwhile, our successes in securing new
contracts in continental Europe, together with encouraging evidence of PPP and
PFI developments in the US and Australia, lead us to maintain our confidence in
Serco's ability to deliver superior levels of growth into the future.



Business review



In 2001 we achieved record levels of organic growth across a range of sectors,
winning significant new business worldwide. Common themes across the business
included growing diversity, increasing applications of technology and larger,
more complex management contracts.



Civil government



Justice

The phase-in of our groundbreaking strategic partnership with the National Crime
Squad (NCS) for England and Wales, which began in September 2000, is progressing
to plan. We have recruited almost 100 staff at six sites for this 10-year
contract worth over £65 million. As well as introducing core services on
schedule we have installed a new helpdesk and training facility, and provided
critical support to form the new National High-Tech Crime Unit, a partnership
between the NCS, the National Criminal Intelligence Service and HM Customs and
Excise.



To help the NCS fight online child pornography we worked with partner Imagis
Technologies to develop a facial recognition system using Imagis' ID-2000
software. This was used in the 'Landmark' operation in November 2001, which led
to arrests and the seizure of computers in 19 countries.



In January 2001 we were asked to intervene at short notice to support a critical
national intelligence system serving 66 police forces and other law enforcement
agencies throughout the UK. After providing necessary remedial work we have now
successfully secured a five-year contract from January 2002.



Since September we have been providing development, maintenance and support
services to the command and control system in a new £7.5 million facility for
the Hampshire Constabulary. The system is capable of handling over 3,000
incidents an hour and supports 63 workstations in the main control room, plus
eight training seats and a further five workstations for strategic command.
Since the system was delivered we have been appointed preferred bidder for a
similar contract to deliver a command and control system for Merseyside Police.



We have maintained and updated radio communications systems for North Yorkshire
Police since 1991 and Thames Valley Police since 1992. During the year we
successfully rebid both contracts, which require 24-hour support.



We work with the majority of UK police forces providing managed services for the
supply, installation and maintenance of Gatsometer enforcement cameras. The
government has announced its intention to allow the police to reinvest speeding
fine revenues into the development and acquisition of new camera technology and
resources. We are well placed to benefit from the expansion of this market and
Lancashire County Council has already appointed us to install up to 250 more
fixed speed enforcement sites over two and a half years. Our continuing
development of the technology, including colour digital and automatic
numberplate recognition systems, will stimulate further growth.



Our technology development unit completed and delivered an upgrade to the secure
telephone system used by government agencies. To meet demand in the justice,
defence and civil communications sectors we also launched a digital telephone
voice encryption system and a computer disk encryption package.



Premier Custodial Group (PCG) is our UK joint venture with Wackenhut Corrections
Corporation. In July it opened HMP Dovegate, a new 800-bed prison and
therapeutic community facility in Staffordshire, under a 25-year private finance
initiative (PFI) contract. Dovegate's 200-bed high-security therapeutic
treatment facility is the first in the UK for 30 years and the only one to be
privately developed and managed.



In September, PCG opened a new immigration centre in Dungavel, Scotland. This
houses up to 150 detainees seeking permission to stay in the UK. It was
completed to a challenging schedule. The centre has a 90-bed adult facility and
a 60-bed family unit. PCG is contracted to manage the centre for five years.



PCG broke more new ground by winning a contract from Staffordshire Police to
provide detention custody assistants. This staff support contract for a police
authority opens up a new market which is expected to increase substantially as
police forces seek to return police officers to operational duties.



The Northern Ireland Court Service awarded us a new three-year contract for
technical facilities management of 25 properties throughout Northern Ireland.
This was the first time these activities have been outsourced to the private
sector.



In Western Australia we extended our Offender Management Facilities contract for
the Department of Justice, which includes maintenance services to prisons and
detention centres in Perth and maintenance of electronic security systems in
regional prisons.



Doncaster prison became the first correctional facility to gain ISO 14001
certification for environmental management systems. It also received the British
Safety Council's Five Star Health & Safety Award and Sword of Honour, both for
the second time. In the US, our fleet maintenance operation for Washington DC's
Metropolitan Police Department won the Blue Seal Award from the National
Institute for Automotive Service Excellence.



Education

In December 2000 we acquired Quality Assurance Associates, a major UK provider
of school inspection and leadership development services, for £2.6 million. By
combining its expertise with our own change management skills we have won two
major new contracts, making us one of the leading operators in a fast-emerging
market: support for UK local education authorities (LEAs). We are strongly
committed to this socially important work, and have already built an education
business with a turnover of £35 million in its first full year.



In Bradford we are providing education services to the local council and schools
under a 10-year contract involving almost 1,200 staff. It is the largest private
sector contract of its kind yet awarded in the UK. We are supporting all
state-maintained schools across the Bradford district and providing additional
help where needed to raise pupils' levels of attainment.



In Walsall we are working in partnership with the LEA to deliver strategic
management and school improvement services; the five-year contract involves
around 100 staff.



We are also exploring new kinds of partnerships with LEAs that engage our skills
and share responsibility for delivering performance improvements. The Department
for Education and Skills (DfES) is encouraging new ways of working between
public and private sectors, and the Serco Institute has been collaborating with
the London Borough of Tower Hamlets in a DfES-funded project to see how the LEA
and schools in the borough might benefit from our management processes.



As well as working with LEAs we also provide training, consultancy and
inspection services to schools. We are a significant supplier of inspection
services for the Office for Standards in Education (Ofsted) and provide
leadership and management training and consultancy services directly to schools.
We are the provider, in conjunction with the Welsh Assembly Government, of the
Leadership Programme for Service Headteachers in Wales.



Health

We are involved with two PFI-built UK hospitals which opened during the year.



The £148 million Wishaw General Hospital in Lanarkshire, which opened on time in
May, has over 600 beds. We are providing support services there for the first
seven years, employing around 350 staff.



The £229 million Norfolk & Norwich University Hospital was handed over to the
National Health Service (NHS) in September, and the transfer of staff and
patients was completed on time in December. It was the largest transfer of staff
and patients to a new NHS facility ever undertaken. As partners in the PFI to
build and operate the 953-bed acute hospital, we are providing facilities
management services for 30 years. This will include procuring support services
through market testing every five years.



An unusual cross-sector initiative helped us win rebids on our wheelchair repair
and maintenance contracts with the NHS in South West London and North West
Surrey. Under the Premier Custodial Group initiative to provide meaningful work
opportunities, inmates at Lowdham Grange prison are refurbishing wheelchairs.
This has enabled us to work with our NHS customers to enhance volume,
reliability and cost control.



Leisure

We are building an increasingly strong position in leisure centre management,
mainly in the UK and Sweden. Serco-run leisure facilities now welcome almost 7.5
million visitors a year.



In Sweden we successfully rebid our Linkoping leisure centre contract and won a
third at Vaxjo, making us the country's largest private sector provider in the
public leisure centre market.



Our strength in the UK was confirmed by the award of preferred bidder status for
two 12-year contracts with Manchester City Council. It is anticipated that these
contracts will commence on 1 April 2002 and involve over 200 people. We will
improve and operate 10 existing leisure centres as well as operating the new
English Institute of Sport facilities after the 2002 Commonwealth Games, which
are being held in Manchester in July. Together with our established contract at
the Manchester Aquatics Centre, this makes us responsible for almost all the
council's indoor leisure centres. It is planned that we will operate the sites
for 10 years, after enhancing them during an interim period of about two years.



We also won a new contract to run the prestigious Basingstoke Aquadrome, a
state-of-the-art leisure complex opening in Spring 2002.



In the autumn we opened a £500,000 extension to the Grand Central Pools complex
that we have run for Stockport Metropolitan Borough Council since 1993. The
extension includes Isospa, Serco's first own-branded health and fitness centre.
In recognition of this investment, the council has extended our contract until
2011.



We gained a similar 10-year extension to our Tenterden leisure centre contract
in return for a planned £500,000 investment programme, and a three-year contract
for a second site. South Northamptonshire District Council awarded us a 15-year
rebid at three sites, where we will invest some £1 million. Aylesbury Vale
District Council extended our contract at the Swan Pool and Leisure Centre for
10 years.



We also negotiated a 20-year management contract from early 2003 for an exciting
new aquatics centre in St Helier, Jersey - part of a comprehensive development
of the island's waterfront.



Our Hopewell Rocks eco-tourism site in New Brunswick, Canada, won the Society of
American Travel Writers Phoenix Award for outstanding conservation and
restoration.



Other public services

In Australia we extended two major contracts with state governments: a
warehousing and distribution contract for the New South Wales Government's Q
Stores and a facilities management contract with the Western Australia
Department of Housing and Works. Together these contracts are worth over A$34
million a year and employ 130 staff.



We maintained our presence in the Australasian water utilities sector with a
series of contract extensions. These included our contract to operate and
maintain the water and wastewater system in the Coliban area of Victoria: over
the initial contract period we successfully consolidated water operations
serving 55 cities, towns and villages. The proven success of this innovative
project has made it an attractive model for other areas. We also extended our
contract with City West Water to operate and maintain water and wastewater
facilities in Melbourne's city centre, inner and western suburbs.



In New Zealand we won a second extension of our contract with Stratford District
Council, covering facilities management of council properties, parks and water,
wastewater and sewage operations. We also extended our contract for cleaning and
maintenance of North Shore City's wastewater treatment plant. Franklin District
Council reappointed us to maintain its stormwater system and 700km of roads. Our
performance for Wellington City Council won us an additional contract to provide
building maintenance services for the city. New Zealand's fire service called us
in to refurbish fire appliances throughout the country. And, after adding a
second contract, we now maintain over 500 parks and open spaces in Manukau City.



In the UK we began a new seven-year professional property and construction
services contract with the London Borough of Richmond. This brought us an
additional 25 specialist staff and complements our existing work for the nearby
boroughs of Merton and Kingston upon Thames.



Drawing on our marine services experience in the defence sector, we won a
10-year contract from the Natural Environment Research Council to operate and
maintain three marine research vessels based in Plymouth.



At the Driver and Vehicle Licensing Agency (DVLA) we won a rebid to run the
Select Marks business, selling personalised vehicle registrations.



The Oil and Pipelines Agency extended our contract to operate and maintain its
2,000km national oil pipeline ring-main system. This feeds aviation fuel to the
UK's major civilian and military airports, including Heathrow, Gatwick and
Stansted. We have held the contract since 1994 in partnership with Gulf
Interstate Engineering of Houston, Texas.



Hertfordshire County Council intends to extend our contract to maintain its
fleet of 650 vehicles and plant until 2004; we also won our three-year rebid
with a possible two-year extension to maintain Watford Borough Council's vehicle
fleet.



We won a new five-year contract with the Scottish Executive to provide cleaning
and associated services at various locations across Scotland, including the
islands of Benbecula and Skye. We also tendered successfully to renew our
contract with the Scottish Executive to provide similar services in Edinburgh.
These bids were awarded as a combined single contract.



Our IT support activities continue to expand: we now provide desktop PC
management to users in Belgium, France, Germany, Italy, the Netherlands and
Spain. In Italy, the regional government of Lombardy awarded us a six-year
contract to outsource its IT infrastructure, including helpdesk, server
administration, technical support to end-users, and the supply and upgrading of
hardware. We are supporting over 3,000 workstations and there is scope to
increase both user numbers and the range of services. Phone and electronics
manufacturer Ericsson extended our contracts to provide all IT support for its
Italian R&D organisation, employing about 1,000 people. And as an approved Lotus
Business Partner we carried out software projects for clients such as CNEL (the
National Committee for Labour Economy), the Italian Ministers Council and ATAC
(the Rome bus company).



In the US, Louisville Gas and Electricity appointed us for five years to manage
its 1,300 vehicle fleet, with a contractual challenge to develop further
outsourcing opportunities within the company. This is our ninth fleet
maintenance contract in the US, where we now maintain over 6,000 vehicles. Among
them are the buses serving over 30 schools in Portsmouth, Virginia: the quality
of our service delivery there has just won us reappointment for a further 10
years.



In Los Angeles we won a rebid to collect revenues from some 41,000 parking
meters. We also won a similar, smaller rebid in Montgomery County. And in San
Francisco we will soon be pioneering the next generation of street parking
technology: we recently signed a contract to install and run a parking
management system with 23,000 smartcard-based 'e-meters'.



We continue to find novel ways of applying Serco technology. In EUR, an area in
Rome where we manage parks and gardens, we used remote sensing to make an
inventory of all the trees and shrubs, and carried out phytopathological
analysis to prepare maintenance plans for future years.



Defence

We are the largest provider of defence outsourcing in the UK and the market
leader in Australian defence support.



After a series of short-term extensions, we gained a three-year extension to our
land ranges test and evaluation support contract with QinetiQ, which operates
the ranges for the UK's Ministry of Defence. The contract - employing 250 staff
at Shoeburyness, Essex and Eskmeals, Cumbria - complements our work at four of
QinetiQ's air and sea ranges.



We successfully rebid our contract with RAF Strike Command to provide
multi-activity support services on Ascension Island for a further five years,
and broadened the scope of the contract. RAF Strike Command also awarded us a
three-year support services contract at its Spadeadam range, which trains
aircrew in electronic warfare countermeasures.



We won a rebid for our support services multi-activity contract at RAF Halton,
known as the 'Gateway to the RAF' for its role in training new recruits. The new
contract is for four years with options to extend for up to three more.



In the past couple of years we have substantially expanded our engineering
support role at Wattisham Station, where we had 13 staff in 1999. During 2001 we
took on responsibility for 7 Air Assault Battalion REME's quality assurance,
aircraft fleet control and vibration analysis cell, also adding another two
depth servicing lines for Lynx aircraft - virtually doubling our staff from 32
to 60.



We are engaged in discussions with the Ministry of Defence Warship Support
Agency to develop an interim partnering agreement and for the extension of the
Marine Services ports contract, by around two years until 2005, in return for a
commitment to rationalise elements of Marine Services activities and reduce net
costs of the outputs. If successful, this would represent an innovative
partnering opportunity. A further opportunity to bid for a longer term
partnering arrangement incorporating the eventual replacement of the bulk of the
Marine Services vessels through a PPP should follow.



At the UK's Atomic Weapons Establishment (AWE), where we and our partners have a
10-year management contract, we are continuing discussions on a 15-year
extension and PPP that will enable us to invest in new facilities. Meanwhile,
investment in a new supercomputer will make AWE one of the world's 10 most
powerful computing sites. Since we began our contract, AWE has received
commendations from the Nuclear Installations Inspectorate, the Environment
Agency and RoSPA - which gave it one of only 16 sector awards, rating it the
country's best company for health and safety in both the public service and
defence sectors.



Our test systems business broadened and extended its contract to develop and
provide systems for testing the avionics on the Royal Navy's new Merlin
helicopter. It also won new contracts to provide computerised verification of
aircraft weapons systems, and to develop a system that automatically monitors
use of communications equipment across Britain for the Radiocommunications
Agency.



In June we bought Total IT Ltd in the UK for £1.175 million. This IT consultancy
and project management company has further expanded the base from which we are
growing our own IT consultancy business.



The German ministry of defence awarded us a new three-year contract to operate
two IT training centres, where our 25 staff will develop and run the courses and
issue qualifications. We also won a contract worth almost € 1.1 million to build
and deliver 29 satellite receiver containers for the German forces. These
installations, in standard-sized shipping containers, will feed TV and radio
programmes into military accommodation and recreation areas. The ever-increasing
mobility of European forces is expected to lead to further orders, and we have
also attracted enquiries from the commercial sector.



In Australia we extended the manpower and personnel services contract under
which we provide some 250 skilled technicians and managers to support the Royal
Australian Air Force at bases across the country.



In New Zealand we have built on our army logistics support contract at Waiouru
by using staff from our team there to carry out building and grounds maintenance
contracts at Waiouru Museum and the Irirangi naval base. The air force extended
our contract for technical services at Ohakea Base and hospitality services at
Woodbourne Base.



We signed a 20-year contract to provide aviation technical services for the NATO
Flying Training in Canada programme. This followed an interim contract we had
held since 1999.



Our environmental services business successfully rebid its contract with the
Department of National Defence for remediation projects in Goose Bay, Labrador.
In 2001 we received an award from the Association of Professional Engineers and
Geoscientists of Newfoundland for this work.



We also received RoSPA Occupational Safety Gold Awards at two of our UK Defence
operations and ISO 9001:2000 accreditation at sites in Australia, Canada, New
Zealand and the UK. In Australia we were only the second company to meet this
new standard.


Transport



Rail transport

As operator of London's Docklands Light Railway (DLR) we were named National
Rail Operator of the Year in 2001, after winning the Best Light Rail/Metro
Operator award in 2000. Managing Director Jim Gates was named Docklands Business
Person of the Year.



Since becoming operator of the DLR in 1997 we have consistently invested in
improving train services and passenger information. Today, both reliability and
customer satisfaction are at record levels. In August we gained a two-year
extension from 2004 until 2006, enabling us to help our client, Docklands Light
Railway Ltd (part of Transport for London) integrate an extension to London City
Airport. Annual passenger numbers have more than doubled to 40 million since
1997 and are expected to reach 60 million by 2006. We now share revenue growth
with the client and will operate without subsidy from April 2004. We are
currently investing £1.6 million in an improved asset management system, depot
capacity for additional rolling stock, and enhanced telecommunications.



After four successful rebids we retained our leadership in property maintenance
for Railtrack. Our contracts for five of Railtrack's seven geographic zones,
plus its Spacia North commercial letting business, represent a combined turnover
of some £38 million, with 340 staff maintaining over 1,850 stations, signal
boxes and other buildings. For this work we have won comprehensive Award of
Assurance certification covering quality, environmental and safety management to
ISO 9000, ISO 14000 and ISO 18001. Manchester Metrolink, which we operate,
opened its first 'secure by design' park and ride facility in June. The
450-space car park not only offers customers easy access from car to tram, but
also provides 24-hour security, full CCTV coverage, bright lighting levels and
disabled car spaces with direct access to the platforms.



In Australia, our wholly-owned Great Southern Railway (GSR) business increased
sales by 21%. Construction began on the new 1,410km Alice Springs to Darwin Rail
Link. When this is complete in 2004, GSR will extend its tourist train service,
The Ghan, all the way to Darwin.



The new Copenhagen Metro opens in October 2002. As operator under a contract
worth DKK541 million a year, we are already testing IT systems, control rooms
and trains. The 11-station, 13.9km Metro will be a fully automatic, driverless
light rail system linking Orestad and Copenhagen Airport to the City of
Copenhagen. It will start with some 160 staff, rising eventually to 300 as
extensions to the system open.



Since winning our contract for the UK's National Rail Enquiry Scheme in 1997, we
have introduced new technology to improve responsiveness and added new services.
In 2001 we extended the original London, East Anglia and South East region
contract and added another, covering the Southern region. This has increased our
call volume by 20% to some 21 million calls a year. Our Cardiff call centre,
which handles these contracts and others for ScotRail and the Association of
Train Operating Companies, achieved ISO 9001 accreditation in 2001.



Respecting and empowering people is fundamental to the way we do business. We
were pleased to see this recognised in a recent article in TSSA Journal, the
magazine for members of the Transport Salaried Staffs' Association. This
commended our Cardiff call centre for its personnel policies - citing staff
involvement in decisions and the centre's family-friendly and flexible working
arrangements. It also praised our balanced recruitment strategy, which embraces
socially excluded groups among the region's ethnic minorities. The article
concurs with Serco's view that 'working to a strong values base can lead to both
business success and a good working environment'.



Our expanding rail testing business increased its support for Railtrack -
doubling its rail grinding capacity, increasing track quality monitoring from
44,000 miles a year to more than 90,000 miles, and working on an important pilot
project to measure track geometry from service trains. We were named preferred
bidder to supply and operate a new high-speed track monitoring service for
Railtrack and won a number of other important contracts, including the testing
of Virgin's new tilting trains and Plasser & Theurer maintenance vehicles.



Road transport

Traffic management systems installed and operated by Serco now cover over
18,300km of roads worldwide.



We have begun a 10-year, £160 million PFI contract with the UK Highways Agency
to design, build and operate its national Traffic Control Centre (TCC). The
contract builds on our existing relationship with the Agency and draws on our
proven international expertise in supplying and operating intelligent road
systems. The TCC will make it possible to view and manage England's strategic
motorways and trunk roads as an integrated network, directing traffic flows to
reduce congestion. As operator, we will distribute traffic and travel
information through existing and new media channels.



As part of the TCC contract we took over from the police the operation of the
Midlands Driver Information System. This network of traffic monitoring equipment
and roadside message signs, which alerts motorists to road problems between
London and the Midlands, will be absorbed into the TCC. We successfully rebid -
for a fourth term - our contract for maintaining communications and traffic
monitoring and control equipment on the motorways in the South West of England.
We have held this Highways Agency contract since 1984.



We renewed our contract to maintain traffic signals and information systems in
London, where we have worked continuously for over 20 years.



In Sweden we commissioned and completed formal takeover of Phase 1 of the
Stockholm Traffic and Travel Information and Management System. This complex
system gives the city's authorities an extensive traffic and travel management
facility; the project has also given us valuable experience which we are
deploying on the TCC project.



In New Zealand we won our third successive contract to operate and maintain the
Christchurch Lyttelton Road Tunnel, which we have run since 1994.



In North America our award-winning performance over the initial contract term
won us renewal of our contract for examination and registration services with
the West Virginia Division of Motor Vehicles.



Air transport

Our air traffic controllers manage 496,216km2 of airspace in five countries. At
many of the Middle East's major international airports we provide air traffic
control (ATC) and engineering maintenance support. This year we won a three-year
renewal of our contract at Abu Dhabi and Al Ain International Airports. This
covers all air traffic services including ATC, aeronautical information and
meteorology. We also extended our ATC, electronic engineering and aeronautical
information contract covering the whole of the United Arab Emirates Flight
Information Region with a staff of over 70.



In North America we again increased the number of ATC towers that we operate for
the US Federal Aviation Administration, from 56 to 58. We extended our contracts
to run the City of Oshawa's airport in Canada and to provide air operations and
maintenance services in Bermuda.



In the UK and Europe we provide a range of airfield technical services including
ATC, associated equipment maintenance, airfield operations and rescue and
firefighting services at 19 sites. During the year we renewed or expanded our
contracts at six of these locations. We also began implementing our aviation
safety management system at all sites, with target completion well ahead of the
Civil Aviation Authority's requirements.



Science and technology

We now employ over 4,800 people in science activities and we continue to extend
our capabilities. We are particularly interested in expanding sectors such as
electronics, biotechnology, energy efficiency and the environment, where there
is greatest potential to increase commercial revenues.



At the UK's National Physical Laboratory (NPL) we secured a two-year extension
to our operating contract and continued to develop the laboratory's business.
The extension will be worth some £100 million to Serco, including revenues from
DTI programmes and commercial contracts. We are also part of a PFI consortium
developing a substantial new laboratory for NPL, to which some 100 staff have
already transferred.



During 2001 NPL launched a number of new initiatives including an internet-based
service that makes calibration simpler, faster and cheaper for industrial
customers. New facilities included a centre providing calibration services vital
for successful radiation treatment of cancer, and improved anechoic chambers for
antenna calibration.



Telecommunications is one of the many sectors in which NPL's work has a major
impact. This year we received a contract to lead a national photonics programme,
which will sustain the UK's leading position in measurement for the
fast-developing optical communications industry. We also undertook important
work to underpin studies of mobile phone safety.



NPL has become a trusted R&D partner for a number of industrial companies such
as Anritsu, the Japanese instrumentation company, with whom we have developed
new standards in fibre optic measurement.



Serco Assurance, the business we acquired from AEA Technology, won over £8
million of new contracts and extensions in its first four months with us. These
included technical and consultancy work on nuclear submarines for the Ministry
of Defence, safety and technical support at nuclear sites and power stations,
and creation of the National Drugs Treatment Monitoring System for the
Department of Health.



We are long-established providers of IT and scientific services to the European
space industry. New contracts won during the year included our first science
study for EUMETSAT, to provide a detailed analysis of performance and product
accuracy of the Gome-2 instrument to be flown on its Metop polar orbiting
weather satellites.



The European Space Agency (ESA) awarded us a contract for atmospheric science
studies. We also won a large number of other contracts for spacecraft
engineering, scientific, IT, project management and support services at ESA
sites in Germany, Holland, Italy and Spain. Projects we are supporting include
Europe's first moon mission, SMART-1, first satellite navigation programme,
Galileosat, and largest satellite, ENVISAT.



Our German business became one of the first companies in Germany to win
accreditation to the new ISO 9001:2000 quality standard.



Private sector

Our work for the private sector consists mainly of facilities management in the
UK, Ireland, mainland Europe and Australasia.



In the UK, GlaxoSmithKline awarded us a two-year extension to our facilities
management contract at its Ware manufacturing site.



Our facilities management business in Ireland continued to grow well. The Boots
Company showed its satisfaction with our performance over the previous four
years by awarding us a three-year rolling contract covering 74 stores throughout
the country. We won a new one-year contract from retailer Champion Sports Group
for 33 retail outlets, and successfully renegotiated our contract with IBM for
the facilities management of its Dublin Technology Campus, involving almost 140
staff.



Sweden's leading supermarket chain, ICA, awarded us a five-year contract
involving over 80 staff to provide facilities management for some 20 logistics
centres throughout Sweden. Worth a total of SEK650 million, this is our largest
contract in Sweden.



In France, we successfully rebid our second-oldest French contract, worth € 1.6
million a year, to provide a further five years' facilities management for
Andra, the national agency for monitoring nuclear waste.



In Belgium, Coca-Cola awarded us a new three-year facilities management contract
for its 28,000m2 office building in Brussels and has already asked us to provide
additional services.



In Germany we won a new three-year facilities management support contract with
Asta Medica, a research division of the Degussa Huls chemical company. Worth €
6.8 million a year, this involved transferring some 40 staff from the company.



We also won a series of contracts to install fibre optic cable: a 40km
telecommunications network in Dusseldorf and Neuss for Metromedia, multimedia
links at the Nurburgring racetrack for WIGE-MIC Media Service, and a 50km
installation for mobile phone companies along part of the new Frankfurt-Cologne
high-speed rail link.



Our growing relationship with BHP Billiton, Australia's largest resource
company, has won us another contract with the company. Based at its main
steelworks site in Port Kembla, this five-year contract to provide security,
medical, fire and emergency response services involves 50 staff. It is an
alliance agreement, requiring technology investment in new access control and
monitoring systems and a substantial culture change programme, in which we share
the benefits of improved service and efficiency.



BHP New Zealand Steel, which extended our building maintenance contract, also
awarded us a certificate of excellence for outstanding safety performance.



We extended two substantial facilities management contracts in New Zealand. One
covers all 4,000 sites owned and leased by Telecom New Zealand. The other covers
seven of the country's premier office sites owned by AMP NZ Office Trust.



In January we acquired The Hiser Group in Australia to strengthen our technology
usability business. The A$6 million deal brought us one of the world's most
respected consultancies in user interface design and usability.



In the past our presence in Bermuda has been confined to air operations and
maintenance services. Our initiative to build commercial business there was
rewarded with a five-year facilities management contract from Bank of
Butterfield, which includes managing all the bank's properties across the
island.


Financial review


Financial performance

2001 was another year of strong performance. We maintained our record of
consistent growth in sales and profit.



Total sales increased 19.1% to £1,141.2 million. This includes a contribution of
£12.1million from Serco Assurance (formerly AEA Technology Nuclear Consulting
Division) which was acquired in September 2001. Turnover excluding Serco
Assurance increased by 17.9%.



Gross margin of £124 million represents a return on sales of 13.6%, up from
13.3% in 2000.



Pre tax profit increased 22.9% to £46.4 million before goodwill amortisation.
Underlying pre tax profit before goodwill amortisation grew 21.1% to £45.6
million.



Underlying profit is stated after adjusting for a contribution of £0.5 million
from Serco Assurance and for the following non-recurring items:



 - £10.2 million cost of the unsuccessful NATS acquisition.


 - £5 million investment to complete our People and Technology programme.


 - £15.4 million profit from refinancing the rolling stock of Great Southern
   Railway.


The tax charge for the year was £13.4 million (2000 - £11.1 million)
representing an effective tax rate of 32.5% (2000 - 32.5%).



The above resulted in a growth in earnings per share before goodwill
amortisation of 24.8% to 8.46p, and by 22.1% to 7.14p after goodwill
amortisation.



Acquisitions

The acquisition of Serco Assurance was completed on 10 September 2001 for £69.4
million. Since acquisition it has performed in line with our expectations and
has been successfully integrated into our science business. Serco Assurance's
pre tax and goodwill profit contribution for 2001 of £0.5 million, is after
financing and phase-in costs.



Goodwill additions during 2001 amounted to £77.6 million of which £72.8 million
related to the acquisition of Serco Assurance. Total goodwill amortised in 2001
was £5.1 million (2000 - £3.7 million). The Group amortises goodwill over 20
years.



Dividends

The proposed final dividend of 1.29p per share gives a cumulative dividend for
2001 of 1.86p, a 14.1% increase on 2000.



Cash

During 2001 there was a net cash outflow of £81.3 million after paying £77.1
million in respect of acquisitions and £10 million on purchasing shares for the
staff share option scheme.



Operating cash flow remained strong in 2001 at £15.5 million which compares to
an operating profit of £12.3 million. Dividends of £9.6 million from joint
ventures have been received during 2001, up from £7.5 million in 2000. Retained
profit from joint ventures for the year ended 31 December 2001 was £12.6
million.



Private finance initiatives (PFIs)

The document 'Our Approach to PFIs' which we issued with our Interim Results and
is available on our website www.serco.com provides a summary of the accounting
for PFIs.



Special Purpose Companies (SPCs) funding is provided by long term loans which
are non-recourse to Serco.



-     Our share of non-recourse debt of joint venture SPCs at the end of 2001 is
£220.6 million. This is included within our share of joint venture liabilities
shown on the balance sheet.



-     Traffic Information Services (TIS) Limited is the only SPC where Serco
owns 100% of the equity. This SPC has the contract to deliver the Traffic
Control Centre contract. A non-recourse loan of £14.1 million to fund the asset,
currently in the course of construction, is included in long term creditors in
the balance sheet.



For 2001 our PFIs, including the associated operating contracts, contributed 11%
of the Group's turnover and 24% of pre tax profit.



Pensions

Financial Reporting Standard (FRS) 17 'Retirement Benefits' was issued in
November 2000 and will replace SSAP24 for accounting periods ending on or after
22 June 2003. For the year ended 2001 we are applying the transitional rules and
disclosures. FRS 17 requires the market value of assets and liabilities to be
calculated for defined benefit schemes and to be included on the balance sheet.
As at 31 December 2001 there is a small net deficit of £3.6 million in relation
to the defined benefit schemes. As the asset base of the schemes is £298
million, this deficit is not regarded as being material to the Group. The
pension charge under FRS 17 for 2001 would not have been materially different to
the SSAP24 pension charge that is included in our 2001 profit and loss account.



Presentation of results

As in the past we have included a pro forma profit and loss account to assist in
analysing the Group's results.



Results for 2000 have been restated to allow effective comparison with the
results for 2001 in two areas. Neither has any impact on the Group's profit or
cash:



-    In accordance with industry practice £9.1 million of joint venture turnover
shown in the 2000 Accounts, representing the finance income element of the
capital repayment from PFIs, has been restated and shown as joint venture
interest receivable.



-          A new segmental analysis has been provided which provides a more
detailed representation of the results of the Group by market sector.



The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2001 or 2000, but is derived
from those accounts.  Statutory accounts for 2000 have been delivered to the
Registrar of Companies and those for 2001 will be delivered following the
Company's Annual General Meeting.  The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under S237(2) or
(3) of the Companies Act 1985.



To aid in the understanding of the results of the Group and its joint ventures a
proforma summary profit and loss account has been included as an alternative
presentation.



Proforma summary consolidated profit and loss account

For the year ended 31 December 2001

                                                                                                     Restated
                                                                                           2001          2000
                                                                           Note           £'000         £'000


Turnover: Group and share of joint ventures                                   2      1,141,203        957,917
Less: share of joint ventures                                                 2       (227,510)      (185,874)

Group turnover - continuing operations                                        2        913,693        772,043
Cost of sales                                                                         (789,686)      (669,361)

Gross profit                                                                           124,007        102,682
Administrative expenses                                                                (87,549)       (74,601)
Exceptional item:  Cost of unsuccessful
NATS acquisition                                                                       (10,187)             -
Exceptional item: GSR refinancing                                                       15,356              -
Share of operating profit in joint ventures -
including group joint venture costs
and joint venture interest                                                               9,820         13,172

Profit before group interest and goodwill                                               51,447         41,253
Net group interest                                                         4, 5         (5,092)        (3,543)

Profit on ordinary activities before
taxation - pre amortisation of goodwill                                                 46,355         37,710
Amortisation of goodwill                                                                (5,123)        (3,681)

Profit on ordinary activities before taxation                                 6         41,232         34,029

Taxation on profit on ordinary activities                                     7        (13,399)       (11,059)

Profit on ordinary activities after taxation                                            27,833         22,970
Dividends                                                                     8         (7,265)        (6,387)
Retained profit for the financial year                                       23         20,568         16,583


The basis of preparation of this statement and the prior year restatement is set
out in Note 1.

Statutory consolidated profit and loss account

For the year ended 31 December 2001

                                                                                                                     
                                                                                                Restated              
                                                            2001                                    2000     Restated 
                                               2001        Joint          2001         2000        Joint         2000 
                                              Group     Ventures         Total        Group     Ventures        Total 
                                  Note       £'000        £'000         £'000         £'000        £'000        £'000 
                                                                                                                      
                                                                                                                      
                                                                                                                      
  Turnover: Group and share of                                                                                        
  joint                                                                                                               
  ventures - continuing              2      913,693      227,510     1,141,203      772,043      185,874      957,917 
  operations                                                                                                          

  Less: share of joint               2           -     (227,510)     (227,510)           -     (185,874)    (185,874) 
  ventures                                                                                                            
                                                                                                                      
                                                                                                                      
                                                                                                                      
  Group turnover                     2      913,693            -       913,693      772,043            -      772,043 

  Cost of sales                           (789,686)            -     (789,686)    (669,361)            -    (669,361) 
                                                                                                                      
                                                                                                                     
  Gross profit                              124,007            -       124,007      102,682            -      102,682 

  Administrative expenses                  (92,672)            -      (92,672)     (78,282)            -     (78,282) 

  Amortisation of goodwill                  (5,123)            -       (5,123)      (3,681)            -      (3,681) 

  Other administrative                     (87,549)            -      (87,549)     (74,601)            -     (74,601) 
  expenses                                                                                                            

  Exceptional item: Cost of                                                                                           
  unsuccessful                                                                                                        
  NATS acquisition                         (10,187)            -      (10,187)            -            -            - 

  Other operating costs                           -      (8,888)       (8,888)            -      (7,654)      (7,654) 
  relating to joint ventures                                                                                          
                                                                                                                      
                                                                                                                      
                                                                                                                     
  Operating profit -                         21,148      (8,888)        12,260       24,400      (7,654)       16,746 
  continuing operations                                                                                               

  Exceptional item: GSR                      15,356            -        15,356            -            -            - 
  refinancing                                                                                                         

  Share of operating profit in                    -       17,374        17,374            -       19,802       19,802 
  joint ventures                                                                                                      

  Interest receivable                4        2,207       17,102        19,309        1,212        9,213       10,425 

  Group                                       2,207            -         2,207        1,212            -        1,212 

  Share of joint ventures                         -       17,102        17,102            -        9,213        9,213 

  Interest payable and similar       5      (7,299)     (15,768)      (23,067)      (4,755)      (8,189)     (12,944) 
  charges                                                                                                             

  Group                                     (7,299)            -       (7,299)      (4,755)            -      (4,755) 

  Share of joint ventures                         -     (15,768)      (15,768)            -      (8,189)      (8,189) 
                                                                                                                      
                                                                                                                      
                                                                                                                     
  Profit on ordinary                 6       31,412        9,820        41,232       20,857      13,172        34,029 
  activities before taxation                                                                                          

  Taxation on profit on              7                                (13,399)                               (11,059) 
  ordinary activities                                                                                                 
                                                                                                                      
                                                                                                                      
  Profit on ordinary                                                    27,833                                 22,970 
  activities after taxation                                                                                           

  Dividends                          8                                 (7,265)                                (6,387) 
                                                                                                                      
                                                                                                                      
                                                                                                                      
  Retained profit for the           23                                  20,568                                 16,583 
  financial year                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
  Earnings per Share ('EPS')         9                                                                                
  of 2p each:                                                                                                         

  Basic EPS, after                                                       7.14p                                  5.85p 
  amortisation of goodwill                                                                                            

  Basic EPS, before                                                      8.46p                                  6.78p 
  amortisation of goodwill                                                                                            

  Diluted EPS, after                                                     7.12p                                  5.79p 
  amortisation of goodwill                                                                                            

  Diluted EPS, before                                                    8.43p                                  6.72p 
  amortisation of goodwill                                                                                            
 
 
The basis of preparation of this statement and the prior year restatement is set 
out in Note 1.

Consolidated balance sheet 
At 31 December 2001 

                                                                                                         
                                                                                       2001         2000 
                                                                          Note        £'000        £'000 
                                                                                                         
                                                                                                         
              Fixed assets                                                                               

              Intangible asset                                              10      141,170       68,662 

              Tangible assets                                               11       48,724       40,269 

              Investments in joint ventures                                 12       30,510       27,688 

              Share of gross assets                                                 322,338      305,588 

              Share of gross liabilities                                          (291,828)    (277,900) 

              Investment in own shares                                      12       18,983        9,680 

                                                                                    239,387      146,299 
                                                                                                         
                                                                                                        
              Current assets                                                                             
              Stocks                                                        13       35,838       25,942 

              Debtors: Amounts due within one year                          14      200,898      158,532 

              Debtors: Amounts due after more than one year                 14       76,105       32,197 

              Cash at bank and in hand                                      17       34,812       80,098 

                                                                                    347,653      296,769 
                                                                                                         
                                                                                                        
                                                                                                         
              Creditors: Amounts falling due within one year                                             

              Bank loans and overdrafts                                     16       70,647       34,601 

              Trade creditors                                                        58,034       56,902 

              Other creditors including taxation and social security        15      100,621       76,630 

              Accruals and deferred income                                          128,629       88,386 

              Proposed dividend                                              8        5,026        4,425 

                                                                                    362,957      260,944 
                                                                                                         
                                                                                   
                                                                                                         
              Net current (liabilities)/assets                                     (15,304)       35,825                
      
                                                                                   
                                                                                                         
              Total assets less current liabilities                                 224,083      182,124                
      
              Creditors: Amounts falling due after more than one year       16       68,570       47,121 

              Provisions for liabilities and charges                        18       25,636       26,078 
                                                                                    
                                                                                                         
              Net assets                                                            129,877      108,925                
                     
                                                                                         
                                                                                                         
              Capital and reserves                                                                       

              Called up share capital                                       21        7,903        7,877 

              Share premium account                                         22       73,656       70,121 

              Capital redemption reserve                                                143          143 

              Profit and loss account                                       23       48,175       30,784 
                                                                            
                                                                                                         
              Equity shareholders' funds                                    20      129,877      108,925                
             
Company Balance Sheet 
At 31 December 2001 

                                                                                                       
                                                                                       2001       2000 
                                                                            Note      £'000      £'000 
                                                                                                       
                                                                                                       
                                                                                                       

                Fixed assets                                                                           

                Tangible assets                                               11      1,682      1,221 

                Investments in subsidiaries                                   12     35,598     30,314 

                                                                                     37,280     31,535 
                                                                                                       
                Current assets                                                                         

                Amounts owed by subsidiary companies due                                               
                within one year                                                           -        822 

                Amounts owed by subsidiary companies due                                               
                after more than one year                                            148,183    110,576 

                Debtors                                                       14     14,820      7,870 

                Cash at bank and in hand                                                  -     45,273 
                                                                                                       
                                                                                                       
                                                                                                     
                                                                                    163,003    164,541 
                                                                                                       
                                                                                                       
                                                                                                       
                Creditors: Amounts falling due within one year                                         
                Bank loans and overdrafts                                     16     30,245     32,005 

                Trade creditors                                                         757      1,317 

                Other creditors including taxation and social security        15      1,077      5,695 

                Accruals and deferred income                                          5,098      7,682 

                Proposed dividend                                              8      5,026      4,425 
                                                                                                       
                                                                                                       
                                                                                     42,203     51,124 
                                                                                                       
                                                                                                       
                Net current assets                                                  120,800    113,417 
                                                                                                       
                                                                                                       
                Total assets less current liabilities                               158,080    144,952 

                Creditors: Amounts falling due after more than one year       16     41,420     41,420 
                                                                                                       
                                                                                                      
                                                                                                       
                Net assets                                                          116,660    103,532 
                                                                                                       
                                                                                                       
                Capital and reserves                                                                   

                Called up share capital                                       21      7,903      7,877 

                Share premium account                                         22     73,656     70,121 

                Capital redemption reserve                                              143        143 

                Profit and loss account                                       23     34,958     25,391 
                                                                                                       
                                                                                                       
                Equity shareholders' funds                                          116,660    103,532 
                                                             
 
 
Consolidated cash flow statement 
For the year ended 31 December 2001 

                                                                                                                
                                                                                               2001        2000 
                                                                                   Note       £'000       £'000 
                                                                                             
                                                                                                       
        Operating profit pre NATS costs                                                      22,447      16,746         
          
        Exceptional item: Cost of unsuccessful NATS acquisition                            (10,187)           -         
                                                                                             
                                                                                                                
        Operating profit                                                                     12,260      16,746         
          
        Depreciation and goodwill amortisation                                               18,283      15,419 

        (Increase)/decrease in working capital                                             (15,059)      13,369 
                                                                                             
                                                                                                                
        Net cash inflow from operating activities before PFI asset expenditure               15,484      45,534         
          
        Expenditure on PFI asset under construction*                                       (13,733)           - 
                                                                                     
                                                                                                                
        Net cash inflow from operating activities after PFI asset expenditure        24       1,751      45,534         
                  
                                                                                                                
        Dividends received from joint ventures                                                9,645       7,477         
         
                                                                                                                
        Returns on investment and servicing of finance                                                          

        Interest received                                                                       578         950 

        Interest paid                                                                       (6,182)     (4,755) 
                                                                                            
                                                                                                                
        Net cash outflow from returns on investments and servicing of finance               (5,604)     (3,805)         
           
                                                                                                                
        Taxation                                                                                                

        UK corporation tax paid                                                             (3,196)     (2,856) 

        Overseas tax paid                                                                   (3,221)     (2,797) 
                                                                                            
                                                                                                                
        Tax paid                                                                            (6,417)     (5,653)         
           
                                                                                                               
                                                                                                                
        Capital expenditure and financial investment                                                            

        Purchase of tangible fixed assets                                                  (17,626)    (15,332) 

        Sale of tangible fixed assets                                                         4,569         862 

        Exceptional item: GSR refinancing                                                    16,343           - 

        Security deposit on PFI asset under construction                                    (6,000)           - 

        Net cashflows with joint ventures                                                   (1,945)       6,505 

        Purchase of own shares                                                              (9,964)    (10,000) 
                                                                                           
                                                                                                                
        Net cash outflow from capital expenditure and financial investment                 (14,623)    (17,965)         
            
                                                                                                                
                                                                                                                
        Acquisitions and disposals                                                                              

        Acquisitions                                                                 12    (77,106)     (4,409) 

        Net cash/(overdraft) acquired with acquisitions                                       3,558        (73) 

        Subscription for shares in joint ventures                                    12        (38)     (4,963) 

        Proceeds from disposal of shares in joint ventures                                        -       1,271 
                                                                                           
                                                                                                                
        Net cash outflow from acquisitions and disposals                                   (73,586)     (8,174)         
            
                                                                                                                
        Equity dividends paid                                                                                   

        Dividends paid                                                                      (6,664)     (5,816) 
                                                                                            
                                                                                                                
        Net cash outflow from equity dividends paid                                         (6,664)     (5,816)         
  
                                                                                                                
        Net cash (outflow)/inflow before financing                                         (95,498)      11,598         
                     
                                                                                                                
                                                                                                                
        Financing                                                                                               

        Issue of Ordinary Share Capital                                                       2,001         818 

        Debt due within one year: Increase/(decrease) in other loans                            100        (28) 

        Debt due beyond one year: Increase in:                                               14,850         186 

        Other loans                                                                             750         186 

        Non recourse debt financing PFI asset*                                               14,100           - 

        Capital element of finance lease repayments                                         (2,785)     (2,264) 
                                                                                             
                                                                                                                
        Net cash inflow/(outflow) from financing                                             14,166     (1,288)         
 
                                                                                                                
        (Decrease)/increase in cash                                                        (81,332)      10,310         
                   
                                                                                                                
        Balance at 1 January                                                                 45,497      35,187         
          
                                                                                                                
        Balance at 31 December                                                             (35,835)      45,497         
            
                                                             
*PFI asset under construction financed by non recourse loan. 
 
Consolidated Statement of Recognised Gains and Losses 
For the year ended 31 December 2001 
 
                                                                                                          
                                                                                         2001        2000 
                                                                                         £'000      £'000 
                                                                                                          
                                                                                                          
                                                                                                          
              Profit on ordinary activities after taxation                              27,833     22,970 
              Currency translation differences on foreign currency net investments     (1,917)    (1,155) 
              Exercise of Share Scheme Options                                         (1,260)    (5,305) 
                                                                                                          
                                                                                                          
              Total recognised gains and losses relating to the year                    24,656     16,510 

Notes to the Accounts for the year ended 31 December 2001 
 
1. Accounting policies 
 
These Accounts have been prepared in accordance with applicable accounting
standards, and the particular accounting policies adopted are detailed below:  

Restatement 

The 2000 Accounts have been restated in respect of joint venture turnover, joint
venture operating profit and joint venture interest costs to recognise the
'finance income' element of the capital repayment on PFIs within interest
receivable.   

The segmental analysis in Notes 2 and 3 has been restated to reflect a different
business split. The new segmental analysis provides a more detailed
representation of the results.    

The creditors analysis in Note 16 has been restated to show the Group's
borrowings from the US Private Placement in other loans instead of bank loans
and overdrafts.   

Proforma summary consolidated profit and loss account 

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

Accounting convention 

These Accounts have been prepared under the historical cost convention.   

Basis of consolidation 

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

Depreciation 

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

                                                                                                         
              Freehold buildings                       2.5%                                              
              Short leasehold building improvements    The higher of 10% or rate produced by lease term  
              Machinery                                15% - 20%                                         
              Motor vehicles                           18% - 50%                                         
              Furniture                                10%                                               
              Office equipment                         20% - 33%                                         
              Leased equipment                         The higher of the rate produced by either lease   
                                                       term or useful life                               
 
Stocks 

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

Long term contracts 

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

Deferred taxation 

Deferred taxation is calculated under the liability method. Deferred taxation is
accounted for in full on timing differences relating to pension and other post
retirement benefits. Taxation deferred or accelerated by reason of other timing
differences is accounted for to the extent that it is probable that a liability
or asset will crystallise in the forseeable future.   

Fixed asset investments: Subsidiaries 

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

Fixed asset investments: Joint ventures 

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

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

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

Fixed asset investment: Own shares 

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

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

Goodwill 

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

Basis of translation of foreign currencies 

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

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

Accounting for PFI Contracts 

During any period of initial asset construction within a Public Private
Partnership (PPP) project (including Private Finance Initiative (PFI) projects)
in which Serco has a majority equity investment, costs incurred as a direct
consequence of financing, designing and constructing the asset are shown as
'assets in the course of construction' within current assets. Where PPP
concession agreements transfer limited risks and rewards associated with
ownership to the contractor, the asset is transferred to debtors as 'amounts
receivable under PPP contracts' on completion of the asset construction.  

Revenues received from the customer are apportioned between capital repayments
and operating revenue. The 'finance income' element of the capital repayment is
shown within interest receivable.   

Pension costs: Defined benefit schemes 

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

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

The Group has adopted the transitional disclosure requirements of FRS 17. For
further information see Note 31.   

Turnover 

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

Leases 

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


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            The company news service from the London Stock Exchange


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