REG - Serco Group PLC - Annual Financial Report
08/03/2022 12:30
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220308:nRSH0455Ea&default-theme=true
RNS Number : 0455E Serco Group PLC 08 March 2022
Publication of the 2021 Annual Report and Accounts
Serco Group plc (the 'Company')
LEI: 549300PT2CIHYN5GWJ21
The 2021 Annual Report and Accounts has today been published and is available
on the Company's website at www.serco.com (http://www.serco.com/)
A hard copy version of the 2021 Annual Report and Accounts and the Notice of
the 2022 Annual General Meeting will be sent to those shareholders who have
elected to receive paper communications on or about 21 March 2022. The
Notice of the 2022 Annual General Meeting will be made available on the
Company's website to those shareholders who have not elected to receive paper
communications on the same date.
In accordance with Listing Rule 9.6.1R, a copy of the 2020 Annual Report and
Accounts will be submitted to the UK Listing Authority and will shortly be
available for inspection at the National Storage
Mechanism www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism
(http://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism)
Compliance with Disclosure and Transparency Rule 6.3.5 ('DTR 6.3.5')
The information below, which is extracted from the 2021 Annual Report and
Accounts, together with the information included in the Company's full year
results announcement published on 24 February 2022, constitute the materials
required by DTR 6.3.5 to be communicated to the media in unedited full text
through a Regulatory Information Service. This material is not a substitute
for reading the full 2021 Annual Report and Accounts. All page and note
references in the extracted information below refer to page and note
references in the 2021 Annual Report and Accounts.
David Eveleigh
Group General Counsel and Company Secretary
8 March 2022
Principal Risks and Uncertainties (page 95)
Changes during the year
Our annual strategic review process (outlined on page 24) considers
the risks and opportunities associated with our existing market and
services and as such we do not see the need for a material
shift in
approach. As outlined in the Chief Executive's Review on page 16
we are reporting strong financial performance and we have not
observed any material manifestation of risk that has caused significant
operational or performance disruption even when considering the
disruption of Covid
as described on page 39. As a result, our principal
risks remain valid with their definition and scope remaining largely
unchanged. These risks continue to underpin our business model
described on page 11 and mitigation of
the risks link directly to our four strategic
priorities as described in our management philosophy on page 9. Some
changes are noted that reflect updated thinking and in
response to operational influences.
We have broadened the definition and scope of
our Supply Chain risk to ensure wider coverage of
this complex risk area and to accommodate potential disruptions
as an ongoing impact of Covid. In a similar vein, we
have also broadened the scope of our People risk ensuring that we
consider capability attraction and retention from a wider perspective.
This should enable us to understand and mitigate the impact of
adverse labour market trends on the execution of our people
strategies across the Group in the medium to long term. We have
also retired Failure to Manage our Reputation as a principal risk,
considering it instead a potential impact outcome in the event of one
of our other principal risks materialising and explicitly considering
it as a causal factor under
the Failure to Act with Integrity risk and Failure
to Grow Profitably risk.
Principal risks, as described below, have been reviewed by the
Executive Committee, GRC and the Board. Each risk is classified
as a strategic, financial, operational, people, hazard, or legal and
compliance risk. The risks are described on the following pages,
together with the relevant strategic business objectives, key risk
drivers, the Group-wide material controls which have been put
in place to mitigate principal risks and the mitigation priorities to
improve the effectiveness of the controls. We have included the
residual risk trend indicator for each risk and a brief commentary to
contextualise these trends. Each of
the principal risks is relevant to the achievement of our KPIs
as outlined on page 32 with the strongest
links highlighted as part of the commentary.
Principal risks are considered over the same three-year timeframe as
the Viability Statement set out on page 105, which takes account of
the principal risks in its assessment.
In addition to the principal risks and uncertainties already identified,
there may be other risks, either unknown, or currently believed to
be immaterial, which could turn out to be material, the Covid-19
pandemic being a good example. These risks, whether they
materialise individually or simultaneously, could significantly affect the
Group's business and financial results.
Summary of Principal Risks
The table maps our Principal Risks to risk categories.
Strategic risks Failure to grow profitably
Financial risks Financial control failure
Major information security breach or cyber-attack Contract non-compliance,
Operational risks non-performance or misreporting Significant failure of supply chain
Failure to attract, engage and retain key talent
People risks Failure to act with integrity Health, safety and wellbeing
Hazard risks Catastrophic incident
Material legal and regulatory compliance failure
Legal and compliance risks
The method and four
priorities we use to deliver our strategy as part of
our management philosophy are set out on page 9 namely Winning
good business,
Executing brilliantly, A place people are proud to work, and Profitable and sustainable. Each of
our principal risks supports one or more of
these priorities with the strongest
link shown against each risk. Appropriate consideration and
management of
the principal risks have a direct link to key Executive remuneration as outlined in the Remuneration Report on page 139
STRATEGIC RISKS
Failure to grow profitably (Winning good business / Profitable and
sustainable)
Integral to our Strategy Review process, this risk considers the potential impact of
failure to win material bids or renew material contracts
profitably, or a lack of opportunities in our chosen
markets, restricting revenue growth which may in turn
have an adverse impact on Serco's profitability. This risk
has a broad and direct link to our ability to meet the financial
KPIs described on page 32. We have moderate appetite
for this risk recognising
that we will take reasonable and considered risks to generate
profitable growth. Our business is linked to changes in
the economy, fiscal and monetary policy, political stability and leadership, budget priorities, and the perception and attitude of
governments and the wider
public to outsourcing, which could result in decisions not to outsource services
or lead to delays in placing work. Our ability to
succeed is also linked
to the competitive landscape and our ability to efficiently
deploy resources as part of our service offering. We carried out
a comprehensive strategy review that took the divisional five-year strategies and
rolled these up for a Group view. This work concluded that
our markets remain robust with significant revenue opportunity in our chosen
markets and chosen activities.
In 2021 we have been successful in securing significant new business as well as renewing
several critical contracts. Whilst certain key contracts such as Dubai
Metro and AWE did end
in 2021 they have been offset by new and existing business.
We have also benefited from continuing
demand for Covid-19 related support services such as testing, tracking
and tracing across different geographies. On the other hand, tight
employment markets have led to increased employment costs as well as vacancies that have adversely affected some parts of
our portfolio. Overall, our revenues and Underlying
Trading Profit increased by £539.8m
and £65.8m respectively, however some of these gains are
temporary and expected to level out once pandemic related work recedes. Further detail on our financial performance can be found on
page 77. While the outlook for pandemic related services
is unclear, we enter 2022 with a robust, qualified, new business
pipeline and good win rate momentum, suggesting
that the near and medium-term risk is stable.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
External factors reducing the pipeline of opportunities. - Serco Group and Divisional Strategy including periodic strategy reviews. - Review pipeline opportunities to ensure all market activity is accurately
captured and that budgets are allocated accordingly.
Failure to be competitive. - Investment Committees.
No Change
- Review portfolio for new attractive organic expansion areas.
Inability to meet customer and solution requirements during design, - Sector-specific Centres of Excellence and Value
implementation and delivery.
- Continue to improve leveraging of Serco best practice and innovation and
Propositions. refinement of bid development processes.
Ineffective business development.
- Serco Institute developing thought leadership and innovation for our - Continue to adopt a robust bid qualification process.
markets.
- Retain focus on effective management for major bids.
- Business Lifecycle Review team process.
- Develop efficient common platforms for service delivery.
- Pipeline and Business Development spend reviews.
- Regular Growth Forum reviews.
- Divisional Performance Reporting process.
FINANCIAL RISKS
Financial control failure (Executing brilliantly / A place people are proud
to work / Pofitable and sustainable)
Serco operates complex financial controls systems
and processes and there
is an inherent risk that these may fail. Such failures may result in: an
inability to accurately report timely
financial results and meet contractual
financial reporting obligations; a heightened risk of error and fraud:
poor quality data leading to poor business decisions, or
an inability to forecast accurately; the failure to create a suitable
capital structure; and
an inability to execute critical financial transactions, leading to financial instability, potential business losses, and negative reputational impact.
This risk links directly to our ability to meet the financial
KPIs outlined on page 32. We have an averse appetite for financial control failures and
require a robust framework of
financial processes, systems and controls to enable timely
and accurate financial reporting.
At the start of
the Covid-19 pandemic, it was recognised that the risk of
financial control failure was heightened due to the fast-moving nature
of the business, risk of
absenteeism in both the in-house and outsourced finance organisation
and disruption to core financial processes and
data quality caused by new operating environments resulting from the items noted above and
remote working. The Group mobilised quickly
to ensure that key mitigants were put in place such as: additional assurance procedures; adequate remote working capacity, including within
the Group's outsourced finance teams; monitoring of
working capital; and data capture to understand the impact of
Covid-19 on the Group's financial results. As a result of
the actions taken, the risks which were identified at the start of
the pandemic have not materialised in 2021 and
our core financial processes and controls have continued to operate without significant disruption.
Over the last 12 months, the Group has worked with external advisers
to develop a programme of work with the objective of improving
the financial control environment within
the Group. This is in preparation for anticipated changes following the issuance
of the consultation document by the Department of
Business, Energy and Industrial Strategy ("BEIS") entitled Restoring Trust in Audit and Corporate
Governance. In addition to improving documentation and control standards, the programme also aims to review the operating model
required to implement and sustain the improvements and embed an enhanced controls culture
across the Group. The work performed to date
is not dependent on the outcome of the BEIS
consultation as a no-regrets policy
has been adopted to ensure that any work performed would
be considered best practice
rather than required to support a formal controls attestation, as suggested within
the consultation. As noted
at the Capital Markets Day, the Company's controls, governance and risk management processes help to assure quality outcomes across
the business. These controls operate at both the strategic
and operational levels of the business
and are embedded in our ESG framework
described in detail on page 39.
As noted in the 2020 Annual Report and Accounts, the Group's
European business was subject to a cyber-attack in January 2021. The results
of
the investigation into this attack, produced by both our internal investigations and by our external advisers,
have not identified any
compromise to the financial information used for the 2021 year-end reporting or
to the integrity of financial results from the European Business Unit.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Not setting the right tone from the top. Poor financial processes. - Group Governance and Finance strategy. - Enhance the financial controls and assurance framework.
Inadequate financial controls within the business. - Standardised and mandated financial systems, processes (including - Continue to deliver effective financial reporting.
forecasting and reporting) and data structures.
Loss of critical roles and/or systems.
- Continuously improve forecasting and reporting processes and data analysis. No Change
- Governance and review procedures associated with managing the quality of
Poorly skilled and resourced finance teams to address complex finance services delivered by third party suppliers. - Deliver global finance process improvement and efficiency through automation
standards.
and robotics.
- Skilled and adequately trained finance staff.
- Develop a Group-wide training curriculum.
- Disaster recovery plans and testing.
- Effectiveness reviews of disaster recovery plans.
- Board oversight via the Audit Committee.
- Ensure talent is retained within the finance function.
- Monthly Divisional performance reviews.
- Dedicated Financial Assurance team testing.
OPERATIONAL RISKS
Major information security breach or cyber-attack (Winning good business
/ Executing brilliantly / Profitable and sustainable)
Information security breaches or cyber-attacks
represent a key risk for us. Such incidents
could result in the loss or compromise of sensitive
information (including personal or customer) or
wilful damage resulting in the loss of
service, causing significant reputational damage, financial
penalties and loss of customer confidence.
We operate an averse risk appetite to major information security
breaches and cyber-attacks. We accept that due to the nature of
the services
we provide we face threats from both internal and external factors but will mitigate the impact of
any breach and carry out immediate remedial actions.
As described at our Capital Markets Day, we operate on a business-to-government platform that leverages scale and helps simplify our
processes with a well invested portfolio of
best-in-class software solutions to support our contracts and shared services. We continue to make
significant investments in our cyber-security both at our endpoints and in our core network.
In most of our jurisdictions we test ourselves
against government standards
including CES+ in the UK and we also regularly run penetration tests as well as meeting specific security
standards in line with customer requirements as a provider of
public services to government. We have a continuing programme of
upgrading old desktops and laptops, and the number of
devices outside centralised management and monitoring is decreasing rapidly. We have our
own in-house Security Operations Centre which monitors the networks and manages
our response to cyber threats. The strategy review
showed the benefit of
investing in shared services to produce standardised and efficient processes.
Serco is committed to delivering secure services which protect our own and our customers' data and as such holds a variety of
externally
audited security-related certifications. This includes the Information Security Management System covering
our UK corporate environment that is certified to ISO
27001. We also maintain certification, where specified, against the principal government security/cyber schemes
in the markets we operate. Our
certifications are generally publicly available on the relevant accreditors' websites or
can be requested from the Company directly.
We continue to invest in staff security training as a key mitigant to this risk. Security training is delivered via our Learning Management
System as part of
the broader Serco Essentials framework. Training comprises mandatory
modules that cover a range of areas including
responsibilities when dealing with personal data and how to identify and
respond to issues. All Serco employees, including contractors, must
complete Serco Essentials and pass a test at the end or
alternatively, in the case of subcontract or
staff, their employer must demonstrate
that they provide equivalent security training. Training is further supplemented, where appropriate, to cover specific points relevant to any
particular contract,
together with regular campaigns and awareness tests such as protecting against phishing
threats.
However, the external threat landscape continues to evolve. As evidenced in a cyber-attack in our European business
in January 2021 and recent attacks on our competitors involving
ransomware, our industry is a particular target for extortion, and this, along with the increased
public profile we have had because of
our involvement with government contracts to respond to the Covid-19 pandemic, leads us to conclude
that this risk is increasing.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Non-compliant or obsolescent systems. Non-compliance or misconfiguration - Enterprise Architecture Boards & Solution - Perform market reviews of deployed technology when services are reviewed at
renewal to ensure we maintain our defences as threats change and develop in
with policies and standards. Review meetings. sophistication.
Vulnerability of systems and information. - Serco Management System ("SMS") including detailed guidance on minimum - Ongoing continuous improvement programmes for our Security Operations Increasing Risk
security controls. Centres to maintain effective risk identification.
Unauthorised use of systems.
- IT security infrastructure, processes and controls including isolated - Continued routine vigilance and proactive vulnerability identification
Inadequate incident monitoring and response. backups. coordinated through our Security Operations Centres.
Increased regulatory scrutiny. - Privileged Access Management and multi-factor authentication for our - Continued use of global key security risk indicators and regular third-party
centralised managed systems. testing and best practice configuration reviews to support mitigation
priorities.
- External assessments and scenario based cyber security testing and incident
planning. - Leveraging Cloud adoption to ensure standardised control mechanisms.
- Regular attestation statements on security controls compliance. - A focus on the behavioural aspects of our employees.
- Maintaining government security attestations.
Contract non-compliance, non-performance or misreporting (Winning good
business / Profitable and sustainable)
There is a risk that we fail to deliver contractual requirements or
to meet agreed service performance levels and report against these
accurately. This failure may lead to significant financial penalties, legal notices, onerous contract provisions or, ultimately, early termination
of contracts. We have an averse risk appetite to any possibility of
deliberate misreporting of contractual performance and losing material
contracts due to non-performance or non-compliance.
Governance in bid processes, transition and operations provide the primary means of
managing this risk. The Serco Management System
prescribes a review of contract risk through each of the stages of
the bid lifecycle from prequalification to contract close out, including monthly
performance reviews for all material contracts. As part of
our commitment to ongoing improvement our mitigation priorities for the next year
will focus on strengthening some of
the key control processes and formalising
these in the Serco Management System.
Whilst still in the early stages of
development we will also begin to track Environmental, Social and Governance ("ESG")
impact from our contracts as the maturity of
our reporting increases. Though our individual customer contracts vary on ESG-related commitments, our overall
corporate commitment to ESG targets will permeate through to our contract teams and will form part of
the overall assessment of contract performance and compliance.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Not setting the right tone from the top. Unclear contract requirements/ - Contract Management application. - Strengthen processes related to agreeing clear contracts, change management,
bid to contract handover and KPI reporting, formalised through Serco
obligations. - Monthly performance reviews at Contract, Business Unit and Divisional level. Management System.
Human error (deliberate or unintentional). - Business Lifecycle Review team process. - Contract Management training (Global and No Change
Operational delivery or reporting failures. - Communication of Our Values and Code of Divisional).
Conduct. - Greater visibility of performance through contract performance dashboard
("Gauge").
- Speak Up process ("Ethicspoint").
- Continued focus on consistent approach to risk assessment.
- Extensive internal and external assurance reviews, including independent
third-party reviews and customer oversight processes. - Operational excellence improvement plans.
- Ongoing ethics, business conduct and compliance training.
Significant failure of the supply chain (Executing brilliantly /
Profitable and sustainable)
If there
was a significant failure in Serco's end-to-end supply chain to perform to the required standard, Serco may be exposed
to risks that
mean Serco is unable to meet its customer obligations, perform critical business
operations or win new business. This could cause a financial,
operational or reputational impact to Serco. Supply chain risk is broad; examples include operational performance risk, cyber risk, regulatory/
legal compliance risk, ethical risk, environmental, social or
governance risk. We use thousands of
suppliers globally each year and take a proportionate approach
to management of
these third parties and have a moderate risk appetite for using them.
This year we have expanded this risk to encompass the broader risk to Serco from the supply chain rather than just the risk from the failure
of a business-critical supplier. This new scope considers
the risk to Serco from non-business critical suppliers and from the suppliers of
our
suppliers. This change was prompted by several factors including recognition of
external challenges (e.g. mini umbrella companies) and our
growing maturity in this area. The risk was historically focused largely on operational failure; by amending we have extended the coverage
to ensure the risk covers all significant risk exposures and has a view on emerging risks in the supply chain. We have commenced a review of
Serco's existing Supplier Risk
Management processes, current supplier risk initiatives and key supplier risk exposures to identify any gaps and
create alignment across the Group. The output of
the review will be used to create a Supplier Risk
Management Framework, encompassing
risk exposures from information security/cyber, data protection, business
integrity and social responsibility, regulatory and legal compliance,
external and exceptional risks, supply chain performance, supply chain resilience, financial, environmental, and health, safety and wellbeing.
In 2021, we also launched a Sustainable Procurement Charter which aims to improve our review of
ESG and responsibility matters in our supply chain.
As a result of
Covid-19 and Brexit our third-party suppliers are reporting supply constraints (e.g. resources/logistics) in line with the general
supply chain instability that is being widely reported in the media. There is a risk of
disruption in all divisions, with a higher perceived risk in
the UK where we are experiencing and managing localised challenges. Although our rating for this risk remains constant, the probability is
trending upwards driven by the supply constraints we are seeing in the UK.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Inadequate procurement standards, operating procedures and controls. - SMS Procurement Policy, Standards and Procedure including Supplier Code of - Complete implementation of Supplier Risk Management Framework and commence
Conduct. delivery of resulting roadmap, including supplier triage and assessment.
Failures or inadequate due diligence and onboarding when bringing new
suppliers, partners and sub-contractors into the business including poor - Supplier checks (pre-qualification/ - Enhance Procurement & Supply Chain Group Standard improving clarity and
specification of requirements, inadequate sourcing and selection and
understanding of policy requirements, processes, controls and Increasing Risk
inadequate contracting. on-boarding). responsibilities.
Inadequate / lack of monitoring - and management of supplier performance and - Serco standard contracts including appropriate obligations, Key Performance - Risk assessment and mitigation plans incorporating actions to improve
risks. Indicators and Service Level Agreements. effective implementation of key risk controls for all material risk rated
business-critical suppliers.
High volume of suppliers / complexity of supply chain. - Supplier Management Programme for most business-critical suppliers including
performance. - Expand scope of supplier management programme, taking a tiered approach
relative to risk. Review tools and guidance for contract level supplier
- Biannual Procurement review process of all business-critical suppliers. management for lower risk suppliers.
PEOPLE RISKS
Failure to act with integrity (Winning good business / Executing
brilliantly / A place people are proud to work / Profitable and sustainable)
As a people-based business employing over 50,000 employees there
is an inherent risk of
rogue employees engaging in significant corrupt or
dishonest acts including bribery, fraud, misreporting, cheating or
lying. If this risk occurred it would lead to reputation and brand
damage and customers being reluctant to do business
with us. Such behaviour might arise through the actions of
rogue employees or as a result of
pressures individuals may feel they are being placed under
to deliver financial or
operational performance and might lead to: the loss of
existing business; restrictions on our ability to bid or
win new business;
a reduction in our ability to attract high-quality people or
partners; or
may impact shareholder, investor and financial institutions' confidence
in Serco. We have an averse risk appetite to behaviours and actions that
may compromise our integrity. Our
values and purpose sit at the top of
our Management Framework described on page 9 and integrity sits at
the centre of
and underpins our ESG framework. Whilst we are finding a new balance as the pandemic evolves, we continue to recognise that
Covid-19 has brought additional challenges to many parts of
the business,
and these could lead to an increase in inherent risk. However, we
remain confident in the controls we have in place to manage this, and we rate this risk as stable.
Building on work from 2020 we have rolled out improved ethics training, strengthened our internal capability through professional
qualifications, continued to reinforce our strong tone at the top and further developed our ESG framework as outlined on page 40.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Not setting the right tone from the top. Weak values and culture. - Strong, meaningful and understood Values and required behaviours which are - Deliver our commitments under the DPA.
role modelled by leaders.
Increased pressure to deliver. Ineffective systems and processes.
- Drive greater leadership ownership and accountability for a strong ethical
- Robust governance (Corporate Responsibility Committee; Executive Committee; culture.
Weak diligence on where we work and who we work with. Investment Committee; Divisional Executive Management etc.) exercising
No Change
oversight of decisions within delegated authorities. - Embed Ethics Compliance controls and procedures as an integral part of
business processes.
- Effective policy and procedures including financial controls and processes
defined within the SMS and supported by our Code of Conduct. - Continue to implement effective due diligence processes for all third
parties.
- Independent Speak Up process supported by corporate investigations.
- Continue to strengthen Ethics Compliance resource and competency.
- Strengthen assurance provided by Ethics
Compliance controls.
Failure to attract, engage and retain key talent (Executing brilliantly
/ A place people are proud to work)
It is our ambition to be regarded as the best-managed company in the sector and, notwithstanding our framework of people processes, systems
and controls, there is a risk that we are unable to attract, engage and
retain an appropriately sized, qualified and competent workforce and
management
team. The impact of this risk materialising would restrict Serco's ability to deliver on its customer obligations, execute its strategy
and achieve its business objectives whilst driving employee pride in the organisation.
The ESG framework is an implicit consideration in this
risk and influences the achievement of our Employee Engagement
KPI as outlined on page 34. We have a cautious risk appetite and take
a pragmatic approach
to the attraction, retention and development of key talent.
We ensure that robust contingency plans are in place for
business-critical roles but recognise that an element of churn is healthy for any business meaning
that we are not averse to change.
This risk includes consideration of
key person reliance in our leadership and executive teams including succession planning for our senior
management team and other business-critical roles. It should be noted that there
are difficulties in relation to labour markets, however,
rather than being a problem across our whole business,
we are currently addressing challenges in specific sectors, roles, or
geographies. In response to Covid-19, a great deal of
work has been done to streamline and simplify our approach
to attracting and onboarding new colleagues. Extensive use of
social media to promote recruitment activity and the "speed boarding" global onboarding process has now been
embedded, leading to significant efficiencies in bringing new staff into Serco.
The Group Chief Operating Officer continues to work closely with the Board to develop effective succession planning, both for Executive
Committee and Group roles.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Lack of staff development. - Talent Management & Succession processes. - Ensure up-to-date understanding of local employment markets.
Poor talent management and succession planning. - Leadership capability development. - Continue to monitor channels to access external talent in chosen markets.
Low employee engagement. Unsatisfactory reward framework. Recruitment - Targeted retention arrangements. - Ongoing benchmarking activity to ensure market competitive reward packages Increasing Risk
failings.
to aid retention of existing staff and attraction of new.
- Critical Resource Planning.
Inability to attract appropriate new hires.
- Continue with detailed review of succession plans and mitigation strategies
- Annual Performance Management process. as part of the Talent Review process.
- Exit interviews. - Ensure ongoing use and analysis of exit interviews.
- Annual Viewpoint survey. - Follow up and action on themes identified as a result of annual people
survey.
Health, safety and wellbeing (Executing brilliantly / A place people are
proud to work)
The diversity of services
provided by Serco exposes our employees, customers
and third parties to a wide range of health, safety and
wellbeing risks inherent to our operations in both work and public environments. These may be caused by a process or
control failure or by
the wrong behaviour and/or an inadequate safety culture. As responsible employers we recognise the complexity of
wellbeing risk and aim
to ensure that working for Serco does not impose any additional wellbeing challenges on our employees. This is a wide-reaching risk that
directly supports
the KPI target for Major Incident Frequency Rate and Lost Time Incident Frequency Rate as described on page 34 and HSE
related metrics outlined in our ESG report on page 69. We have an averse risk appetite for actions/failures that would cause loss of
life. We
cannot eradicate H&S risk entirely whilst maintaining operational delivery so we prioritise prevention of
major injuries and threats to wellness
whilst accepting that minor injuries will occur on occasion but are minimised by training, risk
assessment, safe systems of work, operating
procedures, PPE, site supervision and audit & inspection.
Our
vision is zero harm. We aim to ensure that no one comes to harm because of
the work we do. Wherever we work, we are committed to
the prevention of injury and promoting a "just" safety culture
in which we foster transparency, honesty and trust in order to identify root causes
and prevent recurrence. Wherever we work, we are committed to the promotion of
wellbeing and the prevention of ill health. We understand
that healthier, happier employees go hand-in-hand with strong business
performance, enhanced productivity, a far more positive culture and
better outcomes for those we serve.
In addition to personal injury concerns, a breach of
Health and Safety regulations or
failure to meet our contracted expectations could disrupt
our business, have a negative
impact on our reputation and lead to contractual, financial and
regulatory costs.
Much of 2020 had been dominated by the impact of
the Covid-19 pandemic and this has continued into 2021 and will do so into at least 2022.
We have continued our response to the Covid-19 pandemic where we have ensured focus on the protection of
our employees, customers and third parties. Our
Health, Safety & Wellbeing teams continue to support our Covid-19 response across the business,
facilitating key mitigations and supporting the continuing recovery
phase activities, including design and implementation of
Covid-19 site specific risk assessments, remote working risk
assessments, training and the development of
mental health resources. We have also continued to develop and mature
our Diversity and Inclusion network. We recognise that Covid-19 continues to present an ongoing challenge and elevates the position of
this risk on our corporate profile.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Failure of the Serco Safety Management - Serco Health, Safety, Environmental and Wellbeing ("HSEW") Strategies and - Continue to embed updated Health, Safety, Environment and Wellbeing
Safety Management System (policies and procedures inc. Covid-19 Secure and strategies and a positive "just" culture.
System.
specific guidance and policies) underpinned by our ESG framework. - Increase Zero Harm Engagement and Safety
Insufficient communication of key issues, risks and changes.
No Change
- Safety and wellbeing training, communications, and guidance (inc. Serco Moment activity across the regions.
Lack of/out-of-date task specific competence. Essentials) and individual development plans and processes based on role and
operational risk. - Drive wellbeing agenda and ensure appropriate focus at a corporate level.
Human factors impact on behaviour.
- Spontaneous and planned preventative, maintenance, inspection and repair - Continuing 1st, 2nd and 3rd line assurance activities and ensuring
Occupational wellbeing risks including psychosocial risks. programmes. understanding of appropriate levels of ownership, accountability, and
responsibility.
Public Health and wellbeing risks. - Effective incident/near-miss observations reporting and investigations and
effective use of ASSURE (independent reporting and compliance system). - Further embed the Serco (Health, Safety, Environmental and Wellbeing)
Behavioural failures/human error resulting in injury or incident.
Strategies and Safety Management System (policies and procedures inc. Covid-19
- Regular organisation wide and local Covid-19 specific guidance and Secure and specific guidance and policies).
Impact of the Covid-19 pandemic. communication.
- Further development and maturity of our ESG agenda and programme of
improvements to meet best practice and evolving stakeholder expectations.
- Continued review and sharing of lessons learnt throughout the Covid-19
pandemic recovery phases.
HAZARD RISKS
Catastrophic incident (Winning good business / Executing brilliantly / A
place people are proud to work / Profitable and sustainable)
Given the nature of our business we are exposed to the risk of
an event (incident or accident) occurring as a result of
Serco's actions or failure to effectively
respond to/prepare for an event that results in multiple fatalities, and/or severe property/asset damage/loss and/or very serious
environmental damage. Management of
this risk influences the KPI target for Major Incident Frequency Rate as described on page 34.
We aim to provide safe services
and places to work and have an averse risk appetite for this risk.
Each division is continuing to assess risks at a contract level to ensure that all relevant material
risks have been identified and to assess and
assure mitigations, including insurance
cover, are appropriate. Contracts considered inherently high risk are reviewed regularly. The physical
risks linked to climate change related events are now included more
explicitly in our risk management framework as part of
the work initiated for TCFD and outlined in more
detail on page 58. Existing business
continuity and crisis management plans and processes have been used
and served the business
well during the Covid-19 pandemic and, despite a continued hard insurance
market, we have secured extensive insurance
protection as a key mitigant for this risk.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Factors resulting in unsafe conditions. Ineffective or inadequate policies, - Regular reviews of high-risk contracts. - Continue to embed updated HSE&W
standards, and procedures. - Serco Health, Safety, Environmental and Wellbeing ("HSEW") Strategies and strategies and a positive "just" culture.
Safety Management System (policies and procedures) underpinned by our ESG
Lack of capability and experience. Lack of safety cultural alignment. framework. - Ongoing work within divisions to identify and assess contract specific risks No Change
Insufficient safety management
and liabilities.
- Safety training (including Serco Essentials) and individual development
oversight. plans and processes based on role and operational risk. - Continued training in insurance and contractual risk management.
Inadequate planning or response to a catastrophic event, including extreme - Effective incident/near-miss investigations and effective use of ASSURE - Review and optimisation of the insurance programme and captive structure.
weather or a climate change related event. (independent reporting and compliance system).
- Review levels and adequacy of compliance assurance.
- Business continuity, crisis and incident emergency response plans and
testing.
- Risk transfer via insurance where appropriate.
LEGAL AND COMPLIANCE RISKS
Material legal and regulatory compliance failure (Winning good business /
Executing brilliantly / A place people are proud to work / Profitable and
sustainable)
Serco operates in complex legal and regulatory environments across multiple industries and geographies and there is a risk that we might not comply
with all relevant laws and regulations. Failure to comply
with laws and regulations could cause significant loss and damage to the Group and its people
including exposure to regulatory prosecution and fines, reputational damage and the potential loss of licences and authorisations, all of which may
prejudice the prospects for future bids. Defending legal proceedings
may be costly and may also divert management attention away from running
the business for a prolonged period. Uninsured losses or financial penalties resulting from any current or threatened legal actions
may also have a material adverse effect
on the Group. We are averse to risks which may result in legal and regulatory non-compliance and require processes that seek
to minimise regulatory fines and legal action, as well as targeted and selected assurance activity.
The Covid-19 pandemic, post-Brexit regulatory landscape in the UK and changes in many governments where our customers
operate has introduced additional and fast-moving
complexity to the legal compliance
framework and we recognise that this may increase our risk
exposure. In addition, various laws and regulations that apply
across the business
continue to be subject to increased focus and attention,
including Anti-Bribery
and Corruption laws, Market Abuse Regulation, Data and Privacy
laws, Modern Slavery, Trade Compliance, Competition
and Antitrust and Human Rights and Modern Slavery.
Our 2019 Annual Report documented our approach
to the Deferred Prosecution Agreement ("DPA") of one of
the subsidiaries of Serco Group
plc, Serco Geografix Limited ("SGL") entered into with the Serious Fraud Office ("SFO") in July 2019. Throughout 2020 and 2021 we have
continued to implement and monitor delivery of our obligations under
the DPA, including reporting to the SFO in June 2020 and June 2021.
We will continue to focus on the implementation of
our ongoing obligations via our DPA plan with both the Board and GRC providing review
and oversight of progress.
The management of this risk is a key enabler of
Serco's governance for ESG purposes.
Key risk drivers: Material controls: Mitigation priorities: Risk trend:
Lack of governance and oversight. Failure to comply with the SMS and - Externally appointed legal specialists monitoring and advising on legal and - Compliance with DPA obligations.
regulatory obligations and changes.
contractual obligations.
- Automating legislation tracking and horizon scanning on key new laws and
- Legal and contract experts aligned to various specialist areas across the regulations.
Failure to identify and respond to material changes in legal and regulatory business supported by mandatory and bespoke training.
No Change
requirements, including fast-moving
- Greater use of data and trend analysis.
- Investment Committee and Business Lifecycle Review Team ("BLRT") bid process
new laws. and governance. - Embedding risk based third-party due diligence including modern slavery risk
assessment.
Lack of awareness by employees of the legal and regulatory requirements placed - Third-party due diligence on all suppliers.
upon them and the business.
- Continuing development of Serco Essentials training programmes including
- Speak Up process and systems and corporate investigation case management Code of Conduct training.
Inadequate provision of systems and tools. system.
- Continuing to improve key contract and compliance assurance reviews.
Legal or regulatory compliance failure by a third party.
Class action litigation and increasing regulatory fines.
Compliance with SFO DPA obligations.
Related party transactions (Note 35 to the Consolidated Financial
Statements)
Transactions between the Company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the Group and its joint venture undertakings and associates are disclosed below.
Transactions
During the year, Group companies entered into the following transactions with joint ventures and associates:
Current Non-current outstanding outstanding
Transactions at 31 December at 31 December
2021 2021
2021
£m £m
£m
Sale of goods and services
Joint ventures Associates Other 1.6
1.7 -
Dividends received - joint ventures
0.8
Dividends received - associates - -
Receivable from consortium for tax - joint ventures
-
- -
13.5
- -
0.9 0.2
0.8
Total 16.8 1.9
0.8
Joint venture receivable and loan amounts outstanding have arisen from transactions undertaken
during the general course of trading,
are unsecured, and will be settled in cash. No guarantees have been given or received.
Current Non-current outstanding outstanding
Transactions at 31 December at 31 December
2020 2020
2020
£m £m
£m
Sale of goods and services
Joint ventures Associates Other 0.1
Dividends received - joint ventures -
Dividends received - associates 2.3
0.2 -
Receivable from consortium for tax - joint ventures
4.3
- -
15.5
- -
(0.1) 2.0
0.1
Total 22.1 2.2
0.1
As announced on 2 November 2020, the Ministry of
Defence notified the Group that it would be exercising its ability to terminate services
provided by the Group through AWE Management Limited (AWEML) on 30 June 2021.
As announced on 24 June 2021, Vivo Defence Services
Limited (VIVO), a joint venture between Serco Limited and ENGIE SA, has been
awarded contracts to provide repairs and maintenance work for Service Family Accommodation (SFA) by the UK Ministry
of Defence (MOD)
Defence Infrastructure Organisation (DIO). VIVO is not a material
joint venture to the Group in 2021.
Directors' Responsibility Statement (Page 178)
The directors are responsible for preparing the Annual Report and the
Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with UK-adopted international accounting standards and
applicable law and have elected to prepare the parent Company
financial statements in accordance with UK accounting standards and
applicable law, including FRS 101 Reduced Disclosure Framework.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of
the Group's profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the directors are
required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable, relevant,
reliable and prudent;
- for the Group financial statements, state whether they have been
prepared in accordance with UK-adopted international
accounting standards;
- for the parent Company financial statements, state whether
applicable UK accounting standards have been
followed, subject to any material departures disclosed and explained in the
parent Company financial statements;
- assess the Group and parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to
going concern; and
- use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the parent Company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company's
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the directors
in respect of the Annual Report and Accounts
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole; and
- the strategic report includes a fair review of the development
and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
position and performance, business model and strategy.
By order of the board
Rupert Soames
Nigel Crossley
Group Chief Executive
Group Chief Financial Officer
Cautionary statement
This announcement does not constitute or form part of any offer or invitation
to sell, or any solicitation of any offer to purchase any shares or other
securities in Serco nor shall it or any part of it or the fact of its
distribution form the basis of, or be relied on in connection with, any
contract or commitment or investment decisions relating thereto, nor does it
constitute a recommendation regarding the shares or other securities of Serco.
Statements in this announcement reflect the knowledge and information
available at the time of its preparation.
Without prejudice to that, this announcement contains statements which are, or
may be deemed to be, "forward-looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward-looking statements. Generally, words such as "expect", "anticipate",
"may", "could", "should", "will", "aspire", "aim", "plan", "target", "goal",
"ambition", "intend" and similar expressions identify forward
looking-statements. By their nature, these forward-looking statements are
subject to a number of known and unknown risks, uncertainties and
contingencies, and actual results and events could differ materially from
those currently being anticipated as reflected in such statements. Factors
which may cause future outcomes to differ from those foreseen or implied in
forward-looking statements include, but are not limited to: general economic
conditions and business conditions in Serco's markets; contracts awarded to
Serco; customers' acceptance of Serco's products and services; operational
problems; the actions of competitors, trading partners, creditors, rating
agencies and others; the success or otherwise of partnering; changes in laws
and governmental regulations; regulatory or legal actions, including the types
of enforcement action pursued and the nature of remedies sought or imposed;
the receipt of relevant third party and/or regulatory approvals; exchange rate
fluctuations; the development and use of new technology; changes in public
expectations and other changes to business conditions; wars and acts of
terrorism; cyber-attacks; and pandemics, epidemics or natural disasters.
Many of these factors are beyond Serco's control or influence. These
forward-looking statements speak only as of the date of this announcement and
have not been audited or otherwise independently verified. Past performance
should not be taken as an indication or guarantee of future results and no
representation or warranty, express or implied, is made regarding future
performance. Accordingly, undue reliance should not be placed on the
forward-looking statements.
Except as required by any applicable law or regulation, Serco expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward looking statements contained in this announcement,
including to reflect any change in Serco's expectations or any change in
events, conditions or circumstances on which any such statement is based after
the date of this announcement, or to keep current any other information
contained in this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END ACSUPURUWUPPGPRRecent news on Serco
See all newsREG - Serco Group PLC - Block listing Interim Review
AnnouncementREG - Serco Group PLC - Serco completes acquisition of MTS
AnnouncementREG - Serco Group PLC - Serco awarded Maritime Services contracts
AnnouncementREG - Serco Group PLC - Director/PDMR Shareholding
AnnouncementREG - Serco Group PLC - Director/PDMR Shareholding
Announcement