REG - Serco Group PLC - 2015 half year results <Origin Href="QuoteRef">SRP.L</Origin> - Part 2
11/08/2015 07:00
- Part 2: For the preceding part double click ID:nRSK6452Va
Profit Before Exceptional Items is the Group's share of the profit after tax of joint ventures.
The most significant joint ventures are the Atomic Weapons Establishment (AWE) and Northern Rail, both in the Central
Government division. The Group manages AWE in a consortium with Lockheed Martin and Jacobs Engineering Group. In the six
months ended 30 June 2015, the Group's share of revenue was £166.5m (six months ended 30 June 2014: £173.0m) and profit
after tax was £8.0m (six months ended 30 June 2014: £8.9m). Northern Rail is a 50% joint venture with Abellio to operate
the rail franchise that runs until February 2016. In the six months ended 30 June 2015, the Group's share of revenue was
£139.4m (six months ended 30 June 2014: £148.8m) and profit after tax was £2.1m (six months ended 30 June 2014: £1.2m).
While the revenues and individual line items are not consolidated in the Group Income Statement, summary financial
performance measures are set out below for information purposes.
Joint Ventures - Share of Results
Six months ended 30 June 2015 Six months ended 30 June 2014 Year ended 31 December 2014
Revenue 363.9 415.5 798.3
Operating profit 15.9 16.7 37.9
Net finance cost (0.2) (0.2) (0.3)
Tax expense (1.8) (2.7) (7.6)
Profit after tax 13.9 13.8 30.0
Dividends received from joint ventures 15.8 14.7 34.8
Exceptional Items
Exceptional Loss on Disposal of Businesses
The total exceptional loss on disposal of businesses in the six months ended 30 June 2015 was £4.9m (six months ended 30
June 2014: profit of £2.2m). In May 2015, the Group completed the sale of its Great Southern Rail (GSR) business in
Australia for a cash consideration of £2.6m, with a loss on disposal of £4.2m being charged in the six month period to 30
June 2015. The transaction is part of the disposal programme of businesses identified as not being core to Serco's future
strategy, as announced initially in November 2014. In addition, in January 2015, the Group disposed of its National
Physical Laboratory (NPL) business for a consideration of £12.1m, with no gain or loss on disposal. Both these businesses
were classified as held for sale as at 31 December 2014.
In June 2015, the Group also disposed of its Serco India Private Limited business, representing the Group's frontline
public services operations in the Indian transport sector, for a consideration of £1.0m, resulting in a loss on disposal of
£0.7m.
Other Exceptional Operating Items
Exceptional items are non-recurring items of financial performance that are outside normal operations and are material to
the results of the Group either by virtue of size or nature. As such, the items set out below require separate disclosure
on the face of the income statement to assist in the understanding of the underlying performance of the Group.
Six months ended 30 June 2015 Six months ended 30 June 2014 Year ended 31 December 2014
£m £m £m
Costs associated with UK Government review - (5.7) (9.2)
UK frontline clinical health contract provisions - (3.9) (16.1)
Restructuring costs (9.6) (14.5) (32.7)
Provision for settlement relating to DLR pension deficit funding dispute - (7.5) (35.6)
Other provision for legal claims - - (20.1)
Impairment and related charges of Australian rail business - - (37.2)
Impairment of other businesses transferred to assets held for sale (70.1) - (39.2)
Impairment of goodwill - - (466.0)
Total other exceptional items (79.7) (31.6) (656.1)
In the six months ended 30 June 2015, a charge of £9.6m has arisen in relation to the restructuring programme resulting
from the Strategy Review. This includes redundancy payments, provisions and other charges relating to the exit of the UK
private sector BPO business, and external advisory fees and other incremental costs.
In the six months ended 30 June 2015, there was a £70.1m impairment in the carrying value of assets held for sale. This
impairment reflects the latest offers received in the period, together with movements of the assets held for sale since the
prior balance sheet date.
Exceptional Finance Costs
As previously indicated at the time of the rights issue and associated refinancing, as a result of the need to delay the
delivery of the 31 December 2014 covenant test, costs were incurred in the six months ended 30 June 2015 to preserve the
existing finance facilities. In addition, payments were made to the US Private Placement (USPP) Noteholders as a result of
early settlement following the Group refinancing. Total charges of £32.8m have been treated as exceptional items as they
are outside of the normal financing arrangements of the Group and are significant in size.
Other Finance Costs and Investment Income
Investment income of £4.3m (six months ended 30 June 2014: £2.8m) represents interest earned on deposits during the period
of £1.8m and interest accruing on net retirement benefit assets of £2.5m.
Other finance costs of £22.9m (six months ended 30 June 2014: £20.0m) principally relate to interest incurred on the USPP
loans and the Revolving Credit Facility (£15.1m), facility fees and other charges (£3.5m) and the movement in discount on
provisions (£2.9m).
In total, pre-exceptional net finance costs were £18.6m (six months ended 30 June 2014: £17.2m). This was broadly in line
with our assumptions at the start of the year and with our expectation for the full year of approximately £35m.
Taxation
The tax charge on pre-exceptional profit of £41.2m was £15.8m, an effective tax rate of 38%. The principal reasons why the
tax rate is higher than the UK rate of 20.25% is due to higher rates of tax on profits arising in the international
divisions (namely the Americas, Australia and India) and the absence of any deferred tax credit for losses incurred in the
UK (which includes the result of UK divisions, corporate expenses and interest costs). The effective tax rate would have
been 46% if depreciation and amortisation had been charged on assets held for sale during the period.
For the 2015 financial year as a whole, the effective tax rate is anticipated to be 40-45% as a result of the mix of
international profits in the second half of the year. The forecast effective tax rate would otherwise be 50-55% for the
year if depreciation and amortisation were to be charged on assets held for sale.
In the period, a £0.3m credit was also recognised on exceptional losses of £117.4m. There is only a limited tax credit
associated with these exceptional costs, principally because no deferred tax credit has been recognised in respect of
goodwill impairments and UK tax losses.
Net corporate income tax of £7.7m was paid during the period, relating primarily to our operations in Americas (£2.2m),
India (£3.5m), Middle East (£0.6m) and Europe (£1.4m).
Dividend
As indicated in March, the Board is not recommending the payment of an interim dividend. The Board is committed to resuming
dividend payments and adopting a progressive dividend policy when it is prudent to do so. The Directors' decision as to
when to declare a dividend and the amount to be paid will take into account the Group's underlying earnings, cash flows and
financial leverage, together with the requirement to maintain and appropriate level of dividend cover and the market
outlook at the time.
Share Count and EPS
The equity placing conducted in May 2014 and rights issue in April 2015 increased the weighted average number of shares for
EPS purposes to 886.2m (30 June 2014: 632.6m), with the annualising effect of the rights issue expected to further increase
the weighted average number of shares to approximately 990m and 1,100m for 2015 and 2016 respectively.
Earnings Per Share before exceptional items were 2.89p per share; including the impact of exceptional items, there was a
loss of 10.32p per share.
Cash Flow and Movement in Net Debt
The table below shows the operating loss and Free Cash Flow reconciled to movements in net debt. Free Cash Flow is the
cash flow from subsidiaries and dividends received from joint ventures and is stated before exceptional items which are
considered non-recurring in nature. Free Cash Flow for the six months to 30 June 2015 was an outflow of £77.5m compared to
an inflow of £49.7m in the six months to 30 June 2014. This reflected a £30.5m reduction in the Operating cash inflow
(before movements in working capital, exceptional items and tax), a £74.0m year-on-year deterioration in working capital
from the continued normalisation of balances at the end of the statutory period compared to the average for the period, tax
returning to a paid position compared with a net refund received in 2014 and higher purchases of tangible and intangibles
assets of £5.8m.
Cash Flow Six months ended 30 June 2015 £m Six months ended 30 June 2014(restated)£m Year ended 31 December 2014 £m
Operating profit/(loss) (24.8) 28.1 (1,317.3)
Add back: exceptional items 84.6 29.4 661.5
Operating profit/(loss) before exceptional items 59.8 57.5 (655.8)
Less: profit from joint ventures (13.9) (13.8) (30.0)
Non cash movements (7.2) 25.5 772.2
Operating cash inflow before movements in working capital, exceptional items and tax 38.7 69.2 86.4
Working capital movements (71.5) 2.5 17.0
Tax (paid)/repaid (7.7) 4.1 0.6
Non cash R&D expenditure credit (0.3) - (0.5)
Cash flow from operating activities before exceptional items (40.8) 75.8 103.5
Dividends from joint ventures 15.8 14.7 34.8
Interest received 1.6 1.1 2.7
Interest paid (21.2) (18.4) (42.3)
Proceeds from disposal of tangible and intangible assets 0.3 3.9 6.9
Purchase of intangible assets (13.6) (12.3) (20.0)
Purchase of tangible assets (19.6) (15.1) (23.4)
Free Cash Flow (77.5) 49.7 62.2
Acquisition of subsidiaries net of cash acquired (0.2) (5.3) (6.5)
Net proceeds from disposal of subsidiaries and operations (4.3) 6.8 1.9
Net proceeds/(costs) of equity rights issue 530.1 - (4.1)
Proceeds from share placement - 155.8 156.3
Share option proceeds 4.3 2.3 2.3
Acquisition of other investments - - (3.5)
Decrease in security deposits 0.3 - -
Increase in loans to joint ventures (0.9) - -
Capitalisation of loan costs 1.4 - 4.6
Amortisation of capitalised loan costs (1.6) - (1.0)
Impairment of loan receivable 0.2 - (4.6)
Non-recourse loan advances - (2.6) (6.8)
New and acquired finance leases (2.4) (4.5) (13.7)
Disposal of non-recourse loans 24.0 - -
Disposal of finance leases 1.4 - -
Exceptional operating items (41.5) (16.8) (40.4)
Exceptional finance costs (31.3) - -
Dividends paid - (36.4) (53.1)
Foreign exchange (loss)/gain on net debt (10.1) 15.6 (30.4)
Movement in net debt including assets and liabilities held for sale 391.9 164.6 63.2
Assets held for sale movement in net debt (25.1) - 39.5
Net debt at 1 January (642.7) (745.4) (745.4)
Net debt at period end (275.9) (580.8) (642.7)
The table below analyses Trading Cash Flow and provides the associated pre-interest and pre-tax cash flows equivalent to
Trading Profit. This is derived from the cash flow from operating activities excluding tax items and is shown after net
capital expenditure and after dividends received from joint ventures. The percentage conversion of Trading Profit into
Trading Cash Flow is a measure of the efficiency of the business in terms of converting profit into cash before taking
account of the impact of interest, tax and exceptional items.
Trading Cash Flow Six months ended 30 June 2015 £m Six months ended 30 June 2014(restated)£m Year ended 31 December 2014 £m
Cash flow from operating activities before exceptional items (40.8) 75.8 103.5
Less: tax paid/(repaid) 7.7 (4.1) (0.6)
Less: non cash R&D expenditure credit 0.3 - 0.5
Dividends from joint ventures 15.8 14.7 34.8
Proceeds from disposal of tangible and intangible assets 0.3 3.9 6.9
Purchase of intangible assets (13.6) (12.3) (20.0)
Purchase of tangible assets (19.6) (15.1) (23.4)
Trading Cash Flow (49.9) 62.9 101.7
Trading Profit/(Loss) 62.7 63.3 (632.1)
Trading Profit cash conversion n/a 99.4% n/a
Net Debt At 30 June 2015as reported £m At 30 June 2015assets and liabilities held for sale adjustment£m At 30 June 2015including assets and liabilities held for sale£m At 30 June 2014 £m
Cash and cash equivalents 157.1 18.9 176.0 220.8
Loans receivable 0.9 - 0.9 5.5
Other loans (412.4) - (412.4) (722.3)
Obligations under finance leases (21.5) (33.3) (54.8) (63.3)
Recourse net debt (275.9) (14.4) (290.3) (559.3)
Non-recourse debt - - - (21.5)
Net debt (275.9) (14.4) (290.3) (580.8)
At 31 December 2014as reported £m At 31 December 2014assets and liabilities held for sale adjustment£m At 31 December 2014including assets and liabilities held for sale £m
Cash and cash equivalents 180.1 22.4 202.5
Loans receivable 1.0 - 1.0
Other loans (797.3) (0.8) (798.1)
Obligations under finance leases (26.5) (37.1) (63.6)
Recourse net debt (642.7) (15.5) (658.2)
Non-recourse debt - (24.0) (24.0)
Net debt (642.7) (39.5) (682.2)
Rights Issue, Debt Refinancing and Covenants
The Group announced in November 2014 plans for new equity to be raised through a rights issue and for the proceeds to be
used primarily to reduce the Group's indebtedness. This was launched on 12 March 2015 and received shareholder approval on
30 March 2015. The equity rights issue successfully completed in April 2015 raising approximately £555m of gross proceeds
(£530m net after expenses), with trading in new shares commencing on 17 April 2015 and 549,265,547 new shares being
issued.
On 30 April 2015, the Group concluded a refinancing with its lending banks and US PP Noteholders. This included the
reduction of gross indebtedness by £450m. The Group's committed revolving credit facility was reduced in size from £730m
to £480m and the maturity date increased by two years to March 2019. Financial covenants across the Group's funding
arrangements are unchanged, reflecting the strengthening of the Group's balance sheet by the rights issue. Fees and
expenses relating to the repayment of the Group's borrowings and amendments to the existing finance agreements were
approximately £33m, and these included a premium of £25m on the early settlement of US PP notes. These expenses have been
treated as Exceptional Finance Costs in the period.
The compliance certificates for Serco Group plc's borrowing facilities for the year to 31 December 2014 were submitted to
its lenders in May 2015 in accordance with the amended terms of those facilities and these showed the Group complied with
the financial covenants.
For covenant purposes the definition of Consolidated Total Net Borrowings (CTNB) represents Group recourse net debt at the
balance sheet date adjusted to exclude encumbered cash, loan receivable amounts, and also adjusted to reflect the impact of
currency hedges associated with recourse loans. The covenant definition of EBITDA is the twelve month operating profit of
the business before exceptional items, deducting profits from joint ventures and after adding back depreciation, intangible
amortisation, share-based payment charges and dividends received from joint ventures. The covenant test for 31 December
2014 was deferred until 31 May 2015. The covenant definition of EBITDA was amended to exclude the impact of charges arising
from the Contract and Balance Sheet Review whilst CTNB was calculated after the proceeds less underwriting charges from the
equity rights issue. The covenant test for the years ended 31 December 2013 and 2014 and 30 June 2015 are shown below.
At 30June 2015£m At 31 December 2014£m At 31 December 2013£m
Operating (loss)/profit before exceptional items* (653.5) (655.8) 236.0
Less: Joint venture post-tax profits (30.1) (30.0) (47.1)
Add: Dividends from joint ventures 35.9 34.8 51.5
Amortisation of other intangible assets 34.1 38.7 46.1
Depreciation of property, plant and equipment 29.8 41.8 46.3
Impairment of property, plant and equipment 1.6 - -
Share-based payment expense 6.4 5.4 2.9
Other adjustments - - (4.4)
Balance sheet and contract write-downs in 2014 752.1 757.6 -
EBITDA per covenant 176.3 192.5 331.3
Net finance costs 38.1 36.7 37.2
Other adjustments (1.2) 0.2 0.5
Net finance costs per covenant 36.9 36.9 37.7
Recourse net debt (including assets and liabilities held for sale) 290.3 658.2 725.1
Encumbered cash and other items 2.4 - 21.7
Proceeds from rights issue less underwriting charge - (543.7) -
Consolidated Total Net Borrowings (CTNB) 292.7 114.5 746.8
Covenant CTNB/EBITDA (not to exceed 3.5x) 1.66x 0.59x 2.25x
Covenant EBITDA / Net finance costs (at least 3.0x) 4.78x 5.22x 8.79x
* As restated for the six months ended 30 June 2014
Balance Sheet Summary
The balance sheet at 30 June 2015 is summarised below showing the impact of the assets and liabilities held for sale for
each line item. Net assets have increased by £430m to £364m during the period largely due to the funds raised through the
rights issue and a reduction in provisions due to utilisation. Further detail of the movements in provisions is given
below.
At 30 June 2015 Including assets held for sale£m At 30 June 2015 Adjustment for assets held for sale£m At 30 June 2015 As reported£m At 30 June 2014As reported£m At 31 December 2014 Including assets held for sale£m At 31 December 2014 Adjustment for assets held for sale£m At 31 December 2014 As reported£m
Non-current assets
Goodwill 737.4 (206.8) 530.6 1,261.0 820.6 (279.1) 541.5
Other intangible assets 120.4 (24.9) 95.5 177.8 123.8 (5.0) 118.8
Property, plant and equipment 111.5 (74.3) 37.2 169.1 132.9 (94.5) 38.4
Other non-current assets 69.4 (18.6) 50.8 87.4 73.5 (26.8) 46.7
Deferred tax assets 43.3 (10.4) 32.9 57.9 48.4 (11.0) 37.4
Retirement benefit assets 133.8 - 133.8 84.8 143.9 - 143.9
1,215.8 (335.0) 880.8 1,838.0 1,343.1 (416.4) 926.7
Current assets
Inventories 35.5 (1.1) 34.4 53.3 33.9 (2.7) 31.2
Trade and other current assets 678.9 (118.3) 560.6 817.9 623.7 (119.0) 504.7
Current tax 20.1 - 20.1 15.5 20.7 (4.2) 16.5
Cash and cash equivalents 176.0 (18.9) 157.1 220.8 202.5 (22.4) 180.1
910.5 (138.3) 772.2 1,107.5 880.8 (148.3) 732.5
Assets classified as held for sale - 473.3 473.3 - - 564.7 564.7
Total current assets 910.5 335.0 1,245.5 1,107.5 880.8 416.4 1,297.2
Total assets 2,126.3 - 2,126.3 2,945.5 2,223.9 - 2,223.9
Current liabilities
Trade and other current liabilities (660.7) 72.5 (588.2) (730.6) (695.7) 96.1 (599.6)
Current tax liabilities (40.0) 21.9 (18.1) (11.6) (34.4) 21.8 (12.6)
Provisions (164.9) 17.7 (147.2) (39.1) (223.8) 18.1 (205.7)
Obligations under finance leases (17.6) 8.6 (9.0) (15.2) (18.5) 8.9 (9.6)
Loans (34.9) - (34.9) (34.8) (48.4) 4.5 (43.9)
(918.1) 120.7 (797.4) (831.3) (1,020.8) 149.4 (871.4)
Amounts classified as held for sale - (166.1) (166.1) - - (219.9) (219.9)
Total current liabilities (918.1) (45.4) (963.5) (831.3) (1,020.8) (70.5) (1,091.3)
Non-current liabilities
Other non-current liabilities (38.0) 0.5 (37.5) (52.0) (37.3) 7.6 (29.7)
Deferred tax liabilities (13.9) 2.5 (11.4) (37.5) (11.7) 2.5 (9.2)
Provisions (363.0) 17.7 (345.3) (29.2) (384.1) 11.9 (372.2)
Obligations under finance leases (37.2) 24.7 (12.5) (48.1) (45.1) 28.2 (16.9)
Loans (377.5) - (377.5) (709.0) (773.7) 20.3 (753.4)
Retirement benefit obligations (14.5) - (14.5) (9.4) (17.4) - (17.4)
(844.1) 45.4 (798.7) (885.2) (1,269.3) 70.5 (1,198.8)
Total liabilities (1,762.2) - (1,762.2) (1,716.5) (2,290.1) - (2,290.1)
Net assets/(liabilities) 364.1 - 364.1 1,229.0 (66.2) - (66.2)
Provisions
The total of current and non current provisions after removing those related to businesses held for sale have decreased by
£85.4m since 31 December 2014, the majority of which relates to a reduction in contract provisions as a result of the
utilisation of provisions against losses on onerous contracts. Movements in contract provisions before removing those
related to businesses held for sale since the prior year end are as follows:
Exceptional OCPs arising from contract and balance sheet review£m Other OCPs arising from contract and balance sheet review£m Other contract provisions£m At 30 June 2015 including assets held for sale£m Held for sale adjustment£m At 30 June 2015 as reported£m
At 31 December 2014 (audited) (13.7) (433.4) (4.8) (451.9) 21.5 (430.4)
Charged to income statement - (14.2) (0.2) (14.4) - (14.4)
Released to income statement - exceptional - - 0.3 0.3 - 0.3
Released to income statement - other - 6.5 2.8 9.3 - 9.3
Utilised during the year 8.7 60.1 4.6 73.4 (4.7) 68.7
Transferred from trade payables - - (4.6) (4.6) 4.6 -
Assets held for sale - - - - 4.0 4.0
Unwinding of discount - (2.8) - (2.8) - (2.8)
Exchange differences - 9.0 0.1 9.1 (0.2) 8.9
At 30 June 2015 (unaudited) (5.0) (374.8) (1.8) (381.6) 25.2 (356.4)
OCPs arising from the Contract and Balance Sheet Review in 2014 accounted for £447.1m of the 31 December 2014 contract
provisions balance shown above. Although OCPs for individual contracts may fluctuate from year to year, actual results in
the six months to 30 June 2015 have been largely in line with the forecasts previously made. A full assessment of the
forecasts driving the OCPs is being conducted annually as part of the year end budgeting process. However, the judgements
supporting the Contract and Balance Sheet Review items are being assessed every six months (or more frequently if required
due to a change in specific identified circumstances). In the six months ended 30 June 2015 there were six Contract and
Balance Sheet Review OCPs where changes in key assumptions were identified and forecasts were updated. Of the six
contracts where changes were made to previous estimates, four resulted in a combined additional charge to Trading Profit of
£14.2m and two contracts required a combined release of £6.5m resulting in a net charge of £7.7m. All contracts where
OCPs have been recognised will continue to be monitored and a further update will be provided in the Annual Report and
Accounts for the year ended 31 December 2015.
In addition to the net charge of £7.7m impacting Contract Provisions, other adjustments arising from the Contract and
Balance Sheet Review in the period relate to releases of other provisions of £4.9m and accruals of £3.8m where liabilities
have lapsed due to the passage of time. Furthermore, £4.5m of allowances for bad debt were released following the receipt
of payments in respect of old outstanding balances. The overall net benefit to Trading Profit of the Contract and Balance
Sheet Review adjustments was therefore £5.5m in the period.
ROIC
Return on Invested Capital is calculated using the Income Statement for the rolling 12 month period to 30 June 2015 and a
two-point average of the opening balance sheet at 31 December 2014 and the closing Balance Sheet at 30 June 2015. For 31
December 2014, a single point has been used as there has been a significant reduction in net assets reflecting the losses
in the year. The composition of Invested Capital and calculation of ROIC is summarised in the table below. The return
from Trading Profit before the benefit of Contract and Balance Sheet Review adjustments and the exclusion of depreciation
and amortisation on assets held for sale is 11.5%. For the year ended 31 December 2014, the equivalent return from Trading
Profit before the Contract and Balance Sheet Review items was 11.3%.
Invested Capital and ROIC %
At 30 June2015 £m At 31 December 2014 £m
Non-current assets
Goodwill 530.6 541.5
Other intangible assets 95.5 118.8
Property, plant and equipment 37.2 38.4
Interest in joint ventures 1.4 1.6
Trade and other receivables 46.1 38.1
710.8 738.4
Current assets
Inventory 34.4 31.2
Trade and other receivables 557.2 498.8
Assets classified as held for sale 473.3 564.7
1,064.9 1,094.7
Total invested capital assets 1,775.7 1,833.1
Current liabilities
Trade and other payables (573.9) (581.9)
Liabilities classified as held for sale (166.1) (219.9)
Non-current liabilities
Trade and other payables (37.5) (29.7)
Total invested capital liabilities (777.5) (831.5)
Invested capital closing 998.2 1,001.6
Invested capital opening 1,001.6 n/a
Average Invested capital 999.9 1,001.6
Trading loss (12 months) (632.7) (632.1)
ROIC % (63.3%) (63.1%)
At 30 June 2014, ROIC calculation is not provided because of the subsequent significant reduction in net assets in the
second half of 2014 as a result of the Contract and Balance Sheet Review.
Principal risks and uncertainties
The principal risks and uncertainties that could materially affect Serco's results and operations are set out on pages 15
to 20 of the 2014 Annual Report and Accounts and the key headline risks for the remainder of 2015 are restated below. This
summary is not intended, and should not be used, as a substitute for reading the appropriate pages of the Annual Report and
Accounts which include further commentary on the risks and the Group's management of them. Whilst the Group's view of its
principal risks and uncertainties for the remaining six months of the financial year remains substantially unchanged, there
may be additional risks unknown to Serco and other risks, currently believed to be immaterial, which could turn out to be
material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's
business and financial results.
· Contract non-compliance and contract performance
· Failure to win material bids/rebids
· Major information security breach
· SFO Investigation
· Political and economic risk
· Failure to act with integrity
· People
· Delivery of the Group's strategy
· Failure of financial and commercial controls
Responsibility statement
We confirm to the best of our knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;
b) the interim management report includes a fair review of the information required by the DTR 4.2.7R (indication of the
important events during the first six months and description of principal risks and uncertainties for the remaining six
months of the year); and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related
parties' transactions and changes therein).
By order of the Board,
Rupert Soames Angus Cockburn
Group Chief Executive Officer Group Chief Financial Officer
10 August 2015
INDEPENDENT REVIEW REPORT TO SERCO GROUP PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 June 2015 which comprises the condensed income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of equity, condensed consolidated balance sheet, the
condensed consolidated cash flow statement and related notes 1 to 22. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland)
2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state
to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland)
and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
10 August 2015
Financial StatementsCondensed Consolidated Income StatementFor the six months ended 30 June 2015
Six months ended 30 June 2015(unaudited) Six months ended 30 June 2014(restated**)(unaudited) Year ended 31 December 2014(audited)
Note £m £m £m
Revenue
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