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"fact-337": {
"value": "1. General information Serco Group plc (the Company) is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UY. These Consolidated Financial Statements comprise the Company and its subsidiaries (together referred to as the Group) and are presented in pounds Sterling because this is the currency of the primary economic environment in which Serco operates. All amounts have been rounded to the nearest one hundred thousand pounds and foreign operations are included in accordance with the policies set out in note 2. ",
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"fact-335": {
"value": "1. General information Serco Group plc (the Company) is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is Serco House, 16 Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UY. These Consolidated Financial Statements comprise the Company and its subsidiaries (together referred to as the Group) and are presented in pounds Sterling because this is the currency of the primary economic environment in which Serco operates. All amounts have been rounded to the nearest one hundred thousand pounds and foreign operations are included in accordance with the policies set out in note 2. 2. Significant accounting policies Basis of accounting The Consolidated Financial Statements on pages 189 to 249 have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The following principal accounting policies adopted have been applied consistently in the current and preceding financial year except as stated below. Basis of consolidation The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company up to 31 December each year. Control is achieved when the Company: (i) has power over the investee; (ii) is exposed, or has rights to variable returns from its involvement with the investee; and (iii) has the ability to use its power to affect the returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interest represents the portion of profits or losses and net assets in subsidiaries that are not held by the Group and are presented within equity in the Consolidated Balance Sheet, separate from equity of shareholders of Serco Group plc. Going concern In assessing the basis of preparation of the financial statements for the year ended 31 December 2022, the Directors have considered the principles of the Financial Reporting Council\u2019sGuidance on Risk Management, Internal Control and Related Financial and Busines Reporting 2014; particularly in assessing the applicability of the going concern basis, the review period and disclosures. The period of assessment is considered to be at least 12 months from the date of approval of these financial statements. At 31 December 2022, the Group\u2019s principal debt facilities comprised a \u00a3350m revolving credit facility (of which \u00a3nil was drawn) and \u00a3266m of US private placement notes, giving \u00a3616m of committed credit facilities and committed headroom of \u00a3402m. The principal financial covenant ratios are consistent across the private placement loan notes and revolving credit facility and are outlined on page 93. As at 31 December 2022, the Group\u2019s primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below the Group\u2019s target range of 1x-2x at 0.78x. The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well as the potential impact of key uncertainties and sensitivities on the Group\u2019s future performance. In making this assessment the Directors have considered the Group\u2019s existing debt levels, the committed funding and liquidity positions under its debt covenants, its ability to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of mitigating actions that could be used to preserve cash in the business should the need arise. The basis of the assessment continues to be the Board-approved budget which is prepared annually for the next two-year period and is based on a bottom-up approach to all of the Group\u2019s existing contracts, potential new contracts and administrative functions. Owing to the unprecedented levels of inflation driven by geopolitical factors, the Directors have considered the Group\u2019s resilience to rising costs. Due to the nature of the Group\u2019s operations, almost all of the revenue base has some form of inflationary protection, whether it be through contractual indexation mechanisms, cost plus billing or being short term in nature. Though the timing of such protections becoming effective may, in the short term, differ from the impact of cost pressures, it is expected that the current inflation levels will not have a material impact on the Group\u2019s profitability. The Directors believe that appropriate sensitivities in assessing the Group\u2019s ability to continue as a going concern are to model reductions in the Group\u2019s win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group\u2019s operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group\u2019s debt covenants and available liquidity provides meaningful analysis of the Group\u2019s ability to continue as a going concern. Based on the headroom available, the Directors are then able to assess whether the reductions required to breach the Group\u2019s financial covenants, or exhaust available liquidity, are plausible. Notes to the Consolidated Financial Statements This reverse stress test assumes that the US private placement loan of \u00a345m due to mature during the assessment period is repaid and
no additional refinancing occurs. On this basis the Group can afford to be unsuccessful on 80% of its bids and extensions and suffer a
reduction in profit margin of 80 basis points below the Group\u2019s forecast, while still retaining sufficient liquidity to meet all liabilities as
they fall due and remain compliant with the Group\u2019s financial covenants.
In respect of win rates, rebids and extensions have a more significant impact on the Group\u2019s revenue than new business wins during
the assessment period. The Group has won more than 85% of its rebids and available contract extensions by volume over the last two
years, therefore a reduction of 80% or more to the budgeted bid and extensions rates is not considered plausible. The Group does
not generally bid for contracts at margins below its target range.
In respect to margin reduction, due to the diversified nature of the Group\u2019s portfolio of long-term contracts and the fact that the Group
has met or exceeded its full year guidance for the last five years, a reduction in margin of 80bps versus the Group\u2019s budget is not
considered plausible within the assessment period combined with an 80% reduction in bid and extensions rates.
Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as
they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial
statements on a going concern basis.
Adoption of new and revised standards
There have been no new accounting standards implemented by the Group during the year and no revisions to accounting standards
that have had a material impact on the Group\u2019s Financial Statements.
Reference to the Conceptual Framework (Amendments to IFRS 3)
In May 2020 the International Accounting Standards Board (IASB) issued amendments to IFRS 3
Business Combinations
which
updated a reference in IFRS 3 to the conceptual framework for financial reporting without changing the accounting requirements for
business combinations and therefore had no impact on the Group.
Annual Improvements to IFRS Standards
In May 2020 the IASB issued amendments to IFRS 1
First-time Adoption of IFRS
, IFRS 9,
Financial Instruments
, IAS 41
Agriculture
and
the Illustrative Examples accompanying IFRS 16
Leases
. None of these amendments had a material impact on the Group.
Property, Plant and Equipment: Proceeds before Intended Use
In May 2020 the IASB issued amendments to IAS 16
Property, Plant and Equipment
which prohibit a company from deducting from
the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for
its intended use. Instead, a company will recognise such sales proceeds and related cost in its income statement. The Group has no
material amounts received from selling items produced while the Group is preparing any assets for their intended use.
Onerous Contracts \u2013 Cost of Fulfilling a Contract
In May 2020 the IASB issued amendments to IAS 37
Provisions, Contingent Liabilities and Contingent Assets
to specify which costs
a company includes when assessing whether a contract will be loss-making. The Group\u2019s accounting policy for the costs used in
assessing whether a contract will be loss-making remain compliant with the new specifications set out in the amendment.
New standards, amendments and interpretations not yet adopted
The following accounting standards, amendments to accounting standards and interpretations that are not mandatory for 31
December 2022 reporting periods have not been early adopted by the Group. These are effective for annual reporting periods
beginning on or after the date indicated:
Effective Date
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
1
01 January 2023
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) 01 January 2023
Definition of Accounting Estimates (Amendments to IAS 8) 01 January 2023
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12) 01 January 2023
Initial Application of IFRS 17 and IFRS 9 \u2013 Comparative Information 01 January 2023
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
2
01 January 2024
Lease Liability in a Sale and Leaseback Amendments to IFRS 16
2
01 January 2024
Non-current Liabilities with Covenants (Amendments to IAS 1)
2
01 January 2024
1 Though expected to primarily impact the insurance sector, IFRS 17
Insurance Contracts
will apply more widely than contracts issued by traditional insurance
entities. Management is considering whether any of its contracts and obligations should be classified as insurance contracts and will assess any further
interpretations issued.
2 The effective date is based on the standard or amendment issued by the IASB and are still subject to adoption by the UK Endorsement Board.
The standards, amendments or interpretations listed above are not expected to have a material impact on the Group.
195
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
2. Significant accounting policies continued
Changes in accounting policies
There have been no changes to the Group\u2019s accounting policies during the year ended 31 December 2022.
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing
market participants at the measurement date, regardless of whether that price is directly observable or is estimated using another
valuation technique. There are certain transactions in these financial statements which are similar to fair value but are determined by
the treatment set out in their respective standards. These are share based payment transactions that are within the scope of IFRS 2
Share Based Payment
, leasing transactions that are within the scope of IFRS 16
Leases
, the calculation of net realisable value under
IAS 2
Inventories
and value in use under IAS 36
Impairment of Assets
.
Revenue
The Group recognises revenue based on the principles set out in IFRS 15
Revenue from Contracts with Customers
and is recognised
in any period based on the delivery of performance obligations and an assessment of when control is transferred to the customer.
For all contracts, the Group determines whether each arrangement meets the definition of a contract under IFRS 15 and creates
enforceable rights and obligations.
Contracts are combined if they are entered into at or near the same time and one or more of the following criteria are met:
\u2013 They are negotiated as a package with a single commercial objective.
\u2013 Consideration receivable in one contract depends on the other contract.
\u2013 Goods or services are a single performance obligation.
For contracts with multiple components, Management applies judgement to consider whether those promised goods and
services are:
\u2013 A deliverable (i.e. a good or a service) that is distinct; or
\u2013 A series of distinct deliverables that are substantially the same and that have the same pattern of transfer to the customer
(transferred over time using the same measure of progress).
At contract inception, the transaction price is the total amount of consideration to which the Group expects to be entitled to exchange
for transferring goods or services to a customer.
Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion
to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied.
Where there is only one performance obligation, no allocation is necessary as the full transaction price is allocated to the single
performance obligation.
Where there is more than one performance obligation, the Group looks at each performance obligation separately to see if there is an
observable price available, however due to the bespoke nature of the services provided by the Group there is normally no observable
stand-alone selling price and the expected cost-plus margin approach is used. All bid models for new contracts are built up and
negotiated with the customers on a cost-plus margin basis and therefore this approach most accurately reflects the commercial reality
and the value of the benefits transferred to the customer.
The Group enters into contracts which contain extension periods where either the customer or both parties can choose to extend
the contract or there is an automatic annual renewal and/or termination clauses that could impact the actual duration of the contract.
Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the
contract impacts both the period over which revenue from performance obligations may be recognised and the period over which
contract fulfilment assets and capitalised bid and phase-in costs are expensed.
Further details on revenue recognition for specific contract types is shown below.
Revenue recognition: Repeat service-based contracts
The majority of the Group\u2019s contracts are repeat service-based contracts where value is transferred to the customer over time as the
core services are delivered. Therefore, in most cases revenue will be recognised on the output basis, based on direct measurements
of the value to the customer of the services transferred to date relative to the remaining services under the contract. This is a faithful
depiction of the transfer of services since the service delivered to the customer is unchanged. Where the output method is used,
the Group often uses a method of time elapsed which requires minimal estimation. Certain repeat service-based contracts use
output methods based upon user numbers; service activity levels; or fees collected. Where any price reductions within output-based
contracts are contractual, but the level of service is not decreasing, revenue will be deferred from initial years to subsequent years in
order for revenue to be recognised on a consistent basis.
There are certain contracts where a separate performance obligation has been identified for services where the pattern of delivery
differs to the core services and which are capable of being distinct, such as asset construction or asset maintenance. In these
instances, where the transfer of control is most closely aligned to our efforts in delivering the service, the input method is used to
measure progress and revenue is recognised in direct proportion to costs incurred. In limited circumstances, other methods are
used to measure progress under the input method, including resources consumed, time elapsed or labour hours expended. This is a
faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits received by
the customer from efforts to date.
196
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15, allowing revenue to be recognised at the amount which the Group has the right to invoice, where that amount corresponds directly with the value to the customer of the Group\u2019s performance completed to date. Under IFRS 15, unless upfront fees received from customers including transition payments can be clearly attributable to a distinct service the customer is obtaining, then such payments do not constitute a separate performance obligation and instead are deferred and spread over the life of the core services. In general, the timing of satisfaction of performance obligations is consistent with when payment becomes due, other than in instances where up-front win fees or transition payments are received, where in most instances these are deferred. Any changes to the enforceable rights and obligations with customers and/or an update to the transaction price will not be recognised as revenue until there is evidence of customer agreement in line with the Group\u2019s policies. Revenue recognition: Variable revenue The Group has a number of contracts where at least an element of the revenue generated is variable in nature. Variability in revenue recognised can arise from a number of factors, including usage-related volumes, graduated performance against contractual performance indicators, indexation-linked pricing, profit sharing elements and customer decisions related to the provision of goods or services. Any variable amounts will only be recognised where it is highly probable that a significant reversal will not occur. Revenue recognition: Long-term project-based contracts The Group has a limited number of project-based long-term contracts. Revenue associated with these contracts is recognised at the point in time when control over the deliverable is passed to the customer. Revenue recognition: Contract modifications When a modification to an existing contract is approved, the Group first assesses whether it adds distinct goods or services to the existing contract that are priced commensurate with the stand-alone selling prices for those goods or services. If this is the case, then the modification is accounted for prospectively as a separate contract. If the pricing is not commensurate with the stand-alone selling prices for the goods or services and the new goods or services are not distinct from those in the original contract, then this is considered to form part of the original contract. Pricing is updated for the entirety of the revised contract and any historic adjustments recorded as a result are recognised as a cumulative adjustment to revenue in the period of the modification. If the pricing is not commensurate with the stand-alone selling prices for the goods or services and the new goods or services are distinct from those in the original contract, then this is considered to represent the termination of the original contract and the creation of a new contract which is accounted for prospectively from the date of modification. Revenue recognition: Other Sales of goods are recognised when goods are delivered, and title has passed. The Group has a limited number of pass-through arrangements in respect of goods or services procured by the Group on behalf of customers where it assesses whether it is acting as a principal or as an agent. The Group is acting as principal if it is in control of a good or a service prior to transferring to the customer and gross revenue and costs are recognised. More commonly, the Group is acting as agent where it is arranging for those goods or services to be provided to the customer without obtaining control, for example, where the Group is engaged to manage operations for a customer but procures goods or services on behalf of the customer in order to deliver the operation. When acting as an agent, only the fee or commission is recognised as revenue and the costs represent only the direct costs of facilitating the transaction. Interest income is accrued for on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset\u2019s net carrying amount. The Group has no material exposure to returns or refunds. Government grants The majority of the Group\u2019s customers are governments. Any income that arises from a contractual agreement for the delivery of goods or services, or a specific modification to such a contract, is treated as revenue. Income from governments is only considered to be a government grant if it is not related to the supply of goods or services under a contractual arrangement. Government grants are recognised where there is reasonable assurance that the grant will be received. Grants that compensate the Group for expenses incurred are recognised in the income statement as a reduction to the corresponding expenses on a systematic basis in the periods in which the expenses are recognised. There were no material government grants received during the current or prior year. Contract costs Bid costs are capitalised only when they relate directly to a contract and are incremental to securing the contract. Bid costs are amortised over the duration of the contract to which they relate in equal annual instalments. Any costs which would have been incurred whether or not the contract is actually won are not considered to be capitalised bid costs. Contract costs are charged to the income statement as incurred, including the necessary accrual for costs which have not yet been invoiced, unless the expense relates to a specific time frame covering future periods. 2. Significant accounting policies continued Contract costs can only be capitalised when the expenditure meets all of the following three criteria and are not within the scope of another accounting standard, such as inventories, intangible assets, or property, plant and equipment: \u2013 The costs relate directly to a contract. These include direct labour, being the salaries and wages of employees providing the promised services to the customer; direct materials such as supplies used in providing the promised services to a customer; and other costs that are incurred only because an entity entered into the contract, such as payments to subcontractors. \u2013 The costs generate or enhance the resources used in satisfying performance obligations in the future. For initial contract costs capitalised, such costs only fall into one of the following two categories: the mobilisation of contract staff, being the costs of moving existing contract staff to other Group locations; or directly incremental costs incurred in meeting contractual obligations incurred prior to contract delivery, which are required to ensure a proper handover from the previous contractor. Redundancy costs are never capitalised. \u2013 The costs are expected to be recovered, i.e. the contract is expected to be profitable after amortising the capitalised costs. Operating profit Operating profit is not a measure defined by IFRS and the Group considers this to include the profits and losses from operations prior to corporation tax, interest revenue and finance costs. Foreign currencies Transactions in currencies other than Sterling are recorded at the rates of exchange on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity through the Consolidated Statement of Comprehensive Income (SOCI). On consolidation, the assets and liabilities of the Group\u2019s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised directly within equity in the Group\u2019s hedging and translation reserve. On disposal of an operation, such translation differences are recognised as income or expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group uses a monthly approximation for transactions during the period. If exchange rates fluctuate significantly during a period, the use of approximate rates are reviewed to ensure they are still appropriate. Dividends Dividend distributions are recognised as a liability in the year in which the dividends are approved by the Company\u2019s shareholders. Interim dividends are recognised when they are paid; final dividends when authorised in general meetings by shareholders. Dividend income is recognised on receipt. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured as the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. Where acquisition and transition costs for successful acquisitions are material, they are disclosed as exceptional costs within note 9. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (which is subject to a maximum of one year). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with the relevant accounting standards. The acquiree\u2019s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) Business Combinations are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another standard. Investments in joint ventures and associates A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement. The Group\u2019s investments in joint ventures are incorporated using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group\u2019s share of the profit or loss and other comprehensive income of the associate or joint venture. Any excess of the cost of acquisition over the Group\u2019s share of net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group\u2019s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6. 198 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not
control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using the
equity method of accounting.
Goodwill
Goodwill is measured as the excess of the fair value of purchase consideration over the fair value of the net assets acquired and is
recognised as an intangible asset when control is achieved. Negative goodwill is recognised immediately in the income statement.
Fair value measurements are based on provisional estimates and may be subject to amendment within one year of the acquisition,
resulting in an adjustment to goodwill.
Goodwill itself does not generate independent cash flows and therefore, in order to perform required tests for impairment,
it is allocated at inception to the specific cash generating unit (CGU) or groups of CGUs which are expected to benefit from
the acquisition.
On the disposal of a business which includes all or part of a CGU, any attributable goodwill is included in the determination of
the profit or loss on disposal. Where part of a CGU with goodwill is sold, the attributable amount is calculated based on the future
discounted cash flows leaving the Group as a proportion of the total CGU\u2019s future discounted cash flows.
The fair values associated with material business combinations are valued by external advisers and any amount of consideration which
is contingent in nature is evaluated at the end of each reporting period, based on internal forecasts.
Other intangible assets
Material intangible assets are grouped into classes of similar nature and use and separately disclosed. Other intangible assets are
amortised from the date of completion.
Customer relationships can arise on the acquisition of subsidiaries and represent the incremental value expected to be gained as
a result of existing contracts in the purchased business and identifiable technology-based assets in the purchased business. These
assets are amortised over the average length of the related contracts or estimated useful life of any technology-based assets.
Software and IT represent computer systems and processes used by the Group in order to generate future economic value through
normal business operations. The underlying assets are amortised over the period from which the Group expects to benefit, which is
typically between three to eight years.
Development expenditure is capitalised as an intangible asset only if the conditions below are met, with all research costs and other
development expenditure being expensed when incurred. The period of expected benefit, and therefore period of amortisation, is
typically between three and eight years. The capitalisation criteria are as follows:
\u2013 an asset is created that can be separately identified and which the Group intends to use or sell;
\u2013 the finalisation of the asset is technically feasible and the Group has adequate resources to complete its development for use
or sale;
\u2013 it is probable that the asset created will generate future economic benefits; and
\u2013 the development cost of the asset can be measured reliably.
Property, plant and equipment
Assets held for use in the rendering of services, or for administrative purposes, are stated in the balance sheet at cost, net of
accumulated depreciation and any provision for impairment. Assets are grouped into classes of similar nature and use and separately
disclosed except where this is not material.
Depreciation is provided on a straight-line basis at rates designed to reduce the assets to their residual value over their estimated
useful lives.
The principal annual rates used are:
Freehold buildings 2.5%
Leasehold improvements The higher of 10% or the rate produced by the lease term
Machinery 15% \u2013 20%
Vehicles 10% \u2013 50%
Furniture 10%
Office equipment 20% \u2013 33%
Right of use assets Equally over the lease term from inception or equally over the remainder of the lease term
from the date of a reassessment of the lease end date
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the income statement. Given that there is limited history of material gains or losses
on disposal of fixed assets, the level of judgement involved in determining the depreciation rates is not considered to be significant.
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2. Significant accounting policies continued
Asset impairment
The Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) at each reporting period, together
with any other assets under the scope of IAS 36
Impairment of Assets
, in order to assess whether there is any indication that
those assets have suffered an impairment loss. As the impairment of assets has been identified as both a key source of estimation
uncertainty and a critical accounting judgement, further details around the specific judgements and estimates can be seen in note 3.
If any indication of impairment exists, the recoverable amount of the asset is estimated in order to determine if there is any impairment
loss. Goodwill is assessed for impairment annually, irrespective of whether there are any indicators of impairment. Where the asset
does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash
generating unit (CGU) to which the asset belongs.
Recoverable amount is defined as the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value with reference to pre-tax discount rates that reflect the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
If the recoverable amount is estimated to be less than the carrying amount of the asset, the carrying amount is impaired to its
recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are
assessed at each reporting date for indications that the loss which led to the impairment has decreased or no longer exists. Where an
impairment loss is subsequently reversed, the carrying amount is increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, had no impairment loss been recognised in prior years.
Impairment losses and reversals are recognised immediately within expenses in the income statement unless it is considered to be an
exceptional item when the Group\u2019s criteria are met.
Retirement benefit costs
Payments to defined contribution pension schemes are charged as an expense as they fall due.
For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial cost
method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in
full in the period in which they occur. They are recognised outside the income statement and are presented in the statement of
comprehensive income.
Both current and past service costs are the amounts recognised in the income statement, reflecting the expense associated with the
individuals. Current service cost represents the increase in the present value of the scheme liabilities expected to arise from employee
service in the current period. Past service cost is recognised immediately. Gains and losses on curtailments or settlements are
recognised in the income statement in the period in which the curtailment or settlement occurs.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as
reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds
(which is only recognised to the extent that the Group has an unconditional right to receive it) and reductions in future contributions to
the scheme. To the extent that an economic benefit is available as a reduction in future contributions and there is a minimum funding
requirement required of the Group, the economic benefit available as a reduction in contributions is calculated as the present value
of the estimated future service cost in each year, less the estimated minimum funding contributions required in respect of the future
accrual and benefits in that year.
Calculation of the amounts recognised in the Consolidated Financial Statements in respect of defined benefit pension schemes
requires a high level of judgement, as further explained in note 3.
Defined benefit obligations arising from contractual obligations
Where the Group takes on a contract which has employees in scope for the Railway Pension Scheme, it assumes the obligation to
contribute variable amounts to the defined benefit pension scheme throughout the period of the contract. The Group\u2019s share of the
scheme assets and liabilities is calculated by reducing the scheme assets and liabilities with a franchise adjustment. The franchise
adjustment represents the estimated amount of scheme deficit that will be funded outside the contract period and this results in the
Group having no further obligation once the contract has ceased. Subsequent actuarial gains and losses in relation to the Group\u2019s
share of pension obligations are recognised in the Statement of Comprehensive Income (SOCI).
End of contract provisions
Where the Group has a legal or constructive obligation to compensate employees at the end of a contract term and these employees
cannot be relocated within the Group, a provision is recognised to reflect the expected outflow of economic benefits at the end of
the contract. The obligation is reassessed at each reporting date. The amount calculated assumes the tenure of the employee base,
expected turnover, and salary.
200
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Derivative financial instruments and hedging activities The Group may enter into a variety of derivative financial instruments to manage the exposure to interest rate, foreign exchange risk and price risk, including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts. Further details of derivative financial instruments are given in note 29. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges). At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Both at the inception of the hedge and on a periodic basis, the Group assesses whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Derivatives, which mature within 12 months, are presented as current assets or current liabilities. Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation reserve in equity are detailed in the Statement of Comprehensive Income and described in note 29. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is discontinued when a hedge is no longer effective as a result of a change in risk management strategy, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is realised in the profit or loss account. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income statement as the recognised hedged item. Hedge accounting is discontinued when the Group de-designates the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. Tax The tax expense represents the sum of current tax expense and deferred tax expense. Current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group\u2019s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes. Deferred tax assets are generally recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which these items can be utilised. Deferred tax is not recognised for: \u2013 temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; \u2013 temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and \u2013 taxable temporary differences arising on the initial recognition of goodwill. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised. 201 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 2. Significant accounting policies continued Tax continued Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is recognised in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority where the Group intends to settle its current tax assets and liabilities on a net basis. Share based payment Where the fair value of share options or shares under award requires the use of a valuation model, fair value is measured by use of Binomial Lattice, Black-Scholes or Monte Carlo Simulation models depending on the type of scheme, as set out in note 34. The expected life used in the models has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where relevant, the value of the option or award has also been adjusted to take account of market conditions applicable to the option or award. Inventories Inventories are stated at the lower of cost and net realisable value and comprise service spares, supplies and consumables used in the rendering of services to our customers. Cost comprises direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition. Trade receivables Trade receivables are recognised initially at cost (being the same as fair value) and subsequently at amortised cost less any credit notes, provision for impairment and expected credit losses, to ensure that amounts recognised represent the recoverable amount. Determining whether a trade receivable is impaired requires judgement to be applied based on the information available at each reporting date. A provision for impairment arises where there is evidence that the Group will not be able to collect amounts due for reasons other than customer default, which is achieved by creating an allowance for doubtful debts recognised in the income statement within expenses. When a trade receivable is expected to be uncollectible for reasons other than credit-related losses, it is provided for within the allowance. Subsequent recoveries of amounts previously provided for or written off are credited against expenses. The majority of contracts entered into by the Group are with government organisations and therefore historic levels of default are relatively low and as a result, the risks associated with this judgement are not considered to be significant. An expected credit loss is recorded where there is evidence that a counterparty is at risk of default due to their credit worthiness. If the loss was material, the amount would be presented separately in the Consolidated Income Statement, however the Group\u2019s customer base is predominantly government or government-backed and as a result, the Group\u2019s expected credit loss at a given point in time across the entirety of the customer base is typically immaterial. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and balances with banks and similar institutions which are readily convertible to known amounts of cash, subject to insignificant changes in value and have a maturity of three months or less from the date of acquisition. This definition is also used for the Consolidated Cash Flow Statement. Leases The Group uses leases in the delivery of a number of contracts and in other centralised functions. Most notably, the Group uses accommodation leases in the delivery of the Asylum Accommodation and Support Services contract, vehicle leases in the Prisoner Escorting and Custodial Services contract and to deliver its UK vehicle fleet and support offices, amongst others. Where leases are utilised in the delivery of contracts, the Group aims to limit the duration of any non-cancellable periods of leases to be no longer than the duration of the underlying contract. For non-contract related leases, the Group has set policies on lease duration and purpose to ensure their appropriate use. On entering into a lease, a lease liability is recorded equal to the value of future lease payments discounted at the appropriate incremental borrowing rate and, simultaneously, a right of use asset is created representing the right conferred to control the manner of use of the leased asset. The Group typically uses an appropriate incremental borrowing rate, based on the lease location and duration, as it typically does not have access to the interest rate implicit in the lease. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement and corresponding assets are depreciated on a straight-line basis over the lease term. The lease term is measured as the non-cancellable period of a lease, together with periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised, and periods covered by an option to terminate the lease if it is reasonably certain that the option will not be exercised. The lease term is reassessed if an event occurs which causes either the non-cancellable period to change, or another event occurs which changes the assessment of the likelihood of exercising an option included in the lease. 202 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 All changes to leases are accounted for on a prospective basis from the point at which the change is triggered. Where, on inception, the term of a lease is less than 12 months or the value of the leased asset is less than \u00a35,000, or both, rentals payable under the lease are charged to the income statement on a straight-line basis over the term of the relevant lease. Loans Loans are stated at amortised cost using the effective interest-rate method. Accrued interest is recorded separately from the associated borrowings within current liabilities. Loans are described as non-recourse loans and classified as such only if no Group company other than the relevant borrower has an obligation, under a guarantee or other arrangement, to repay the debt. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred. Provisions Provisions are recognised when the Group has an obligation to make a cash outflow as a result of a past event. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date when settlement is considered to be likely. Onerous contract provisions (OCPs) arise when the unavoidable costs of meeting contractual obligations exceed the remuneration expected to be received. Unavoidable costs include total contract costs together with a rational allocation of shared costs that can be directly linked to fulfilling contractual obligations which have been systematically allocated to OCPs on the basis of key cost drivers except when this is impracticable, where contract revenue is used as a proxy to activity. The provision is calculated as the lower of the termination costs payable for an early exit and the best estimate of net cost to fulfil the Group\u2019s unavoidable contract obligations. Where a customer has an option to extend a contract and it is likely that such an extension will be made, the expected net cost arising during the extension period is included within the calculation. However, where a profit can be reasonably expected in the extension period, no credit is taken on the basis that such profits are uncertain given the potential for the customer to either not extend or offer an extension under lower pricing terms. Further details of the judgements can be seen in note 3. Net investments in foreign operations Exchange differences arising on monetary items that form part of the Group\u2019s net investment in foreign operations are initially recognised in equity and accumulated in the hedging and translation reserve and reclassified from equity to profit or loss on disposal of the net investment. When monetary items no longer form part of a hedging relationship, the exchange differences that arose during the time that the hedge was in place remain in the hedging translation reserve until such time as the net investment is disposed of. Dividends payable Dividends are recorded in the Group\u2019s Consolidated Financial Statements in the period in which they are declared, appropriately authorised and no longer at the discretion of the Company. Segmental information Segmental information is based on internal reports about components of the Group that are regularly reviewed by the Group\u2019s Chief Operating Decision Maker (CODM) in order to allocate resources to the segments and to assess their performance. The CODM is considered to be the Board of Directors as a body. Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context of revenue as a whole. Net finance costs are not presented for each operating segment as they are reviewed on a consolidated basis by the CODM. Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation tax recoverable) and any retirement benefit assets. Segment liabilities comprise trade and other payables, lease liabilities, provisions and retirement benefit obligations. 3. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group\u2019s accounting policies, which are described in note 2 above, Management has made the following judgements that have the most significant effect on the amounts recognised in the Consolidated Financial Statements. As described below, many of these areas of judgement also involve a high level of estimation uncertainty. Key sources of estimation uncertainty Provisions for onerous contracts Determining the carrying value of onerous contract provisions requires assumptions and complex judgements to be made about the future performance of the Group\u2019s contracts. The level of uncertainty in the estimates made, either in determining whether a provision is required, or in the calculation of a provision booked, is linked to the complexity of the underlying contract and the form of service delivery. Due to the level of uncertainty and combination of variables associated with those estimates, there is a significant risk that there could be a material adjustment to the carrying amounts of onerous contract provisions within the next financial reporting period. This includes the potential recognition of onerous contract provisions for contracts which Management has assessed do not require a provision as at 31 December 2022. 203 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 3. Critical accounting judgements and key sources of estimation uncertainty continued Key sources of estimation uncertainty continued Provisions for onerous contracts continued Major sources of uncertainty which could result in a material adjustment within the next financial year, are: \u2013 the ability of the Company to maintain or improve operational performance to ensure costs or performance related penalties are in line with expected levels; \u2013 volume driven revenue and costs being within the expected ranges; \u2013 the outcome of open claims made by or against a customer regarding contractual performance or contractual negotiations taking place where there is expected to be a positive outcome from the Group\u2019s perspective; and \u2013 the ability of suppliers to deliver their contractual obligations on time and on budget. In the current year, there has been an overall net release of new and existing OCPs within Trading Profit of \u00a31.2m. Revisions have resulted from triggering events in the current year, either through changes in contractual positions or changes in circumstances which could not have been reasonably foreseen at the previous balance sheet date. To mitigate the level of uncertainty in making these estimates, Management regularly compares actual performance of the contracts against previous forecasts and considers whether there have been any changes to significant judgements. The future range of possible outcomes in respect of those assumptions and significant judgements made to determine the carrying value of onerous contracts could result in either a material increase or decrease in the value of onerous contract provisions in the next financial year. The extent to which actual results differ from estimates made at the reporting date depends on the combined outcome and timing of a large number of variables associated with performance across multiple contracts. The individual provisions are discounted where the impact is assessed to be significant. When used, discount rates are calculated based on the estimated risk-free rate of interest for the region in which the provision is located and matched against the ageing profile of the provision. The Group undertakes a robust assessment at each reporting date to determine whether any individual customer contracts, which the Group has entered into, are onerous and require a provision to be recognised in accordance with IAS 37 Provisions, Contingent Liabilities & Contingent Assets. The Group operates a large number of long-term contracts at different phases of their contract life cycle. Within the Group\u2019s portfolio, there are a small number of contracts where the balance of risks and opportunities indicates that they might be onerous if transformation initiatives or contract changes are not successful. The Group has concluded that these contracts do not require an onerous contract provision on an individual basis. Following the individual contract reviews, the Group has also undertaken a top-down assessment which assumes that, while the contracts may not be onerous on an individual basis, as a portfolio there is a risk that at least some of the transformation programmes or customer negotiations required to avoid a contract loss will not be fully successful, and it is more likely than not that one or more of these contracts will be onerous. Therefore, in considering the Group\u2019s overall onerous contract provision, the Group has made a best estimate of the provision required to take into consideration this portfolio risk. As a result, the risk of OCPs and the monitoring of individual contracts for indicators remains a critical estimate for the Group. As at 31 December 2022, the provision recognised in respect of this portfolio of contracts is \u00a38.1m (2021: \u00a39.7m). Onerous contract provisions totalling \u00a33.5m are estimated for individual contracts, based on the specific characteristics of the contract including possible contract variations, estimates of transaction price such as variable revenues and forecast costs to fulfil those contracts. As noted above, the Group also holds a balance of \u00a38.1m in respect of the portfolio risk associated with operating a large number of long-term contracts, giving a total onerous contract provision of \u00a311.6m (see note 26). Management has considered the nature of the estimate for onerous contract provisions and concluded that it is reasonably possible that outcomes within the next financial year may be different from Management\u2019s assumptions and could, in aggregate, require a material adjustment to the onerous contract provision. However, due to the estimation uncertainty across numerous contracts each with different characteristics, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied, and Management does not believe that disclosing a potential range of outcomes on a consolidated basis would provide meaningful information to a reader of the financial statements. While the focus of the judgement is to determine whether the Group is required to record an onerous contract provision, Management also inherently assess whether any assets dedicated to the contract are required to be impaired where contracts are forecast to make sustainable losses in the future. In accordance with IAS 37, the Group will impair assets dedicated to the contract before the recognition of an onerous contract provision. Impairment of goodwill A key area of focus for the Group is the recoverability of goodwill. At each reporting period an assessment is performed in order to determine whether there are any indicators of impairment, which involves considering the performance of our business and any significant changes to the markets in which we operate. Determining whether goodwill requires an actual impairment involves an estimation of the expected value in use of the asset (or cash generating unit (CGU) to which the asset relates). The value in use calculation involves an estimation of future cash flows and also the selection of appropriate discount rates and terminal growth rates, all of which involve considerable judgement. The future cash flows are derived from latest approved forecasts, with the key assumptions being revenue growth, margins and cash conversion rates. Known and anticipated impacts of inflation have been included in Management\u2019s forecasts underpinning the cash flows used in assessing the value in use of assets. 204 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 Discount rates and terminal growth rates are calculated with reference to the specific risks associated with the assets and are based on advice provided by external experts. The calculation of discount rates is performed based on a risk-free rate of interest appropriate to the geographic location of the cash flows related to the CGU being tested, which is subsequently adjusted to factor in local market risks and risks specific to the Group. During 2022, there has been a significant increase in market interest rates in response to rising global inflation. As such there has been a corresponding rise in risk-free rates impacting discount rates. For the purpose of impairment testing in accordance with IAS 36 Impairment of Assets, the Group estimates pre-tax discount rates based on the post-tax weighted average cost of capital which is used for internal purposes. Despite the significant rise in discount rates, which is the primary driver for the material reduction in headroom, there continues to be headroom across all CGUs, as detailed in note 17. Sufficient headroom remains even when reasonably possible changes to discount rates and terminal growth rates occur. However, an impairment in the CGU with the lowest headroom as a proportion of its value in use occurs when combining these changes with no growth in the outer period of 2025 to 2027 as detailed in note 17. A high degree of judgement remains in estimating future cash flows, particularly those relating to the terminal year of the value in use calculation. Retirement benefit obligations Identifying whether the Group has a retirement benefit obligation as a result of contractual arrangements entered into requires a level of judgement, largely driven by the legal position held between the Group, the customer and the relevant pension scheme. The Group\u2019s retirement benefit obligations are covered in note 30. The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates, mortality rates, inflation rates and future contribution rates. In accounting for the defined benefit schemes, the Group has applied the principle that the asset recognised for the Serco Pension and Life Assurance Scheme (SPLAS) and the shared cost section of the Railways Pension Scheme is equal to the full surplus that will ultimately be available to the Group as a future refund. No pension assets are invested in the Group\u2019s own financial instruments or property. Pension assets held by insurance companies including the annuity policies in SPLAS are valued at the equal and opposite of the defined benefit obligations that they insure. The SPLAS pension scheme invests into private debt funds which do not have an observable market price and are remeasured to fair value at each reporting date. The valuation methodology relied upon the Net Asset Value provided by the fund administrator at 30 September adjusted for actual cash flows in the period to 31 December. The Group has undertaken a risk assessment to assess whether this industry standard valuation methodology remains the Group\u2019s best estimate at 31 December 2022 following the significant market volatility experienced in the third quarter of the year. The Group has concluded that although there is heightened estimation uncertainty, this methodology provides the most accurate valuation and estimate for Management. Critical accounting judgements Deferred tax Deferred tax assets are recognised on tax deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilised. Significant Management judgement is required to determine the amount of the deferred tax asset that should be recognised, based upon the likely timing, geography and level of future taxable profits. Since a significant portion of the deducible temporary differences relate to historic tax losses, there has been historic evidence that future taxable profits may not be available. A \u00a3186.9m, UK tax asset is recognised on the Group\u2019s balance sheet at 31 December 2022 (2021 \u00a3162.8m) on the basis that structural changes in the underlying UK business indicate a sustained return to profitability which will enable future tax deductions within the UK to be utilised. The return to profitability is as a result of onerous contracts ending, being replaced by profitable long-term contracts as well as a significant reduction in exceptional restructuring spend following the strategy review in 2015, which also reduced the level of overhead spend within the UK business. Further details on deferred taxes are disclosed in note 15. Use of Alternative Performance Measures: Operating profit before exceptional items IAS 1 Presentation of Financial Statements requires material items to be disclosed separately in a way that enables users to assess the quality of a company\u2019s profitability. In practice, these are commonly referred to as \u2018exceptional\u2019 items, but this is not a concept defined by IFRS and therefore there is a level of judgement involved in arriving at an Alternative Performance Measure which excludes such exceptional items. Management considers items which are material and outside of the normal operating practice of the Company to be suitable for separate presentation. There is a level of judgement required in determining which items are exceptional on a consistent basis and require separate disclosure. Further details can be seen in note 9. The segmental analysis in note 4 includes the additional performance measure of Trading Profit on operations which is reconciled to reported operating profit in that note. The Group uses Trading Profit as an alternative measure to reported operating profit by making several adjustments. Firstly, Trading Profit excludes exceptional items, being those Management consider to be outside of normal operations and are material to the results of the Group by virtue of their size or nature, and are suitable for separate presentation and detailed explanation. Secondly, amortisation and impairment of intangibles arising on acquisitions are excluded, because these charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. The Group\u2019s Chief Operating Decision Maker (CODM) reviews the segmental analysis during the year. 205 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 3. Critical accounting judgements and key sources of estimation uncertainty continued Critical accounting judgements continued Climate risk Risks arising from climate change may have future adverse effects on the Group\u2019s business activities. These risks include: \u2013 major physical risks such as extreme weather events, impacting assets, operations and employee wellbeing; \u2013 major transitional risks including policy and legal changes such as increasing reporting and contractual requirements and increasing carbon taxes and levies; \u2013 technology risks including costs to transition to lower emission options; and \u2013 reputational risks such as investor and stakeholder concerns on not transitioning quickly enough to Net Zero. As an outsourcing organisation operating across multiple sectors and geographies, the ways in which climate change may impact the Group\u2019s and its customers\u2019 assets (where the Group delivers the majority of its services), supply chains and operations is diverse. In preparing the Group financial statements Management has considered the impact of climate-related matters but have not identified significant risks induced by climate changes that could negatively and materially affect the Group\u2019s financial statements. In arriving at this conclusion, Management has considered the areas of the Groups financial statements where climate-related matters could reasonably impact measurement and disclosure including key estimates and judgements. When undertaking the Goodwill impairment review, the Group\u2019s latest approved forecast is used to estimate the value in use of its CGUs. Climate assumptions are built into the contract level budgets to the extent that contractual commitments exist. However, Management\u2019s current assessment shows that there are no such material contractual obligations. In addition, Group-wide strategic commitments, such as those made as part of the Net Zero targets and planning, are not material in the short term for inclusion in the Group\u2019s forecast. The forecast is underpinned by a number of assumptions, and it represents the Group\u2019s best estimate of future business performance. Management cannot reliably predict how climate changes will impact the forecast particularly in areas such as carbon levies and the cost of insurance. As such, Management has presented sensitivity analysis to demonstrate the Group\u2019s ability to withstand changes to the forecast before recording an impairment (see note 17). The forecast used in the goodwill impairment review is also used in the assessment of deferred tax assets and the Group\u2019s ability to continue as a going concern. The Group also continuously reviews the property, plant, and equipment under its control to identify opportunities to reduce its carbon impact. Primarily there has been a transition to electric and hybrid vehicles, both in the company car fleet as well as vehicles required to operate contracts. For example, electric light commercial vehicles are beginning to replace the diesel fleet in certain geographies. The transition is currently being undertaken where assets are identified as nearing the end of their useful economic life (UEL) and therefore there has been no revision to the UEL related to motor vehicles. Other areas considered include retirement benefit obligations, namely the valuation of assets, share based payments linked to ESG targets and those critical accounting judgements and sources of estimation uncertainty not noted above (see note 3). Management continuously assesses the impact of climate-related matters. Assumptions will likely change in the future in response to the Group\u2019s understanding of risks and opportunities maturing, forthcoming environmental regulations, climate change impacts, new commitments taken and increasing customer Net Zero requirements. These changes, if not anticipated and continually assessed, could have an impact on the Group\u2019s future cash flows, financial performance, and financial position. Claim for losses in respect of the 2013 share price reduction Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the reduction in Serco\u2019s share price in 2013, the Group has continued to assess the merit, likely outcome, and potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially given the legal uncertainties in such actions. 4. Segmental information The Group\u2019s operating segments reflecting the information reported to the Board in 2022 under IFRS 8 Operating Segments are as set out below: Reportable operating segments Sectors UK & Europe Services for sectors including Citizen Services, Defence, Health & Other Facilities Management, Justice & Immigration and Transport delivered to UK Government, UK devolved authorities and other public sector customers in the UK and Europe Americas Services for sectors including Citizen Services, Defence and Transport delivered to US federal and civilian agencies, selected state and municipal governments and the Canadian Government AsPac Services for sectors including Citizen Services, Defence, Health & Other Facilities Management, Justice & Immigration and Transport in the Asia Pacific region including Australia, New Zealand and Hong Kong Middle East Services for sectors including Citizen Services, Defence, Health & Other Facilities Management and Transport in the Middle East region Corporate Central and head office costs 206 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 Each reportable operating segment is focused on a narrow group of customers in a specific geographic region and is run by a local Management team which reports directly to the Group\u2019s Chief Operating Decision Maker (CODM) on a regular basis. As a result of this focus, the sectors in each region have similar economic characteristics and are aggregated at the reportable operating segment level in these financial statements. The accounting policies of the reportable operating segments are the same as the Group\u2019s accounting policies described in note 2. Information about major customers The Group has three major governmental customers which each represent more than 5% of Group revenues in the current year. The customers\u2019 revenues were \u00a31,716.9m (2021: \u00a31,814.4m) for the UK Government within the UK & Europe segment; \u00a31,109.6m (2021: \u00a3993.0m) for the US Government within the Americas segment; and \u00a3880.5m (2021: \u00a3836.4m) for the Australian Government within the AsPac segment. These customers do not act in a unified way in making purchase decisions, and in general, the Group engages directly with the various departments of these customers in respect of the services it provides. Segmental information Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context of revenue as a whole. Net finance costs are not presented for each reportable operating segment as they are reviewed on a consolidated basis by the CODM. Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation tax recoverable) and any retirement benefit asset. Segment liabilities comprise trade and other payables, lease liabilities, provisions and retirement benefit obligations. The following is an analysis of the Group\u2019s revenue, results, assets and liabilities by reportable operating segment: Year ended 31 December 2022 UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Corporate \u00a3m Total \u00a3m Revenue 2,100.2 1,269.8 954.6 209.4 \u2013 4,534.0 Result Trading profit/(loss) 1 76.2 136.7 56.9 16.0 (44.6) 241.2 Amortisation and impairment of intangibles arising on acquisition (1.5) (16.5) (3.6) \u2013 \u2013 (21.6) Exceptional operating items 2 (1.2) (1.2) \u2013 \u2013 \u2013 (2.4) Operating profit/(loss) 73.5 119.0 53.3 16.0 (44.6) 217.2 Finance cost (20.4) Profit before tax 196.8 Tax charge (42.1) Tax credit on exceptional items 0.3 Profit for the year 155.0 Supplementary information Share of profits in joint ventures and associates, net of interest and tax 12.0 \u2013 \u2013 \u2013 \u2013 12.0 Total depreciation and impairment of plant, property and equipment and right of use assets (86.4) (26.7) (12.6) (1.9) (12.9) (140.5) Amortisation and impairment of other intangible assets (1.3) (1.0) (2.1) (0.1) (5.6) (10.1) 1 Trading Profit/(Loss) is defined as Operating Profit/(Loss) before exceptional items and amortisation and impairment of intangible assets arising on acquisition. 2 Included within exceptional operating items are total acquisition related costs of \u00a32.4m. 207 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 4. Segmental information continued
Segmental information continued
Year ended 31 December 2021
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Corporate
\u00a3m
Total
\u00a3m
Revenue 2,131.6 1,120.0 908.4 264.6 \u2013 4,424.6
Result
Trading profit/(loss)
1
99.8 117.8 52.0 13.7 (49.9) 233.4
Amortisation and impairment of
intangibles arising on acquisition (0.8) (11.7) (3.5) \u2013 \u2013 (16.0)
Exceptional operating items
2
0.4 (4.1) 3.4 \u2013 (0.9) (1.2)
Operating profit/(loss) 99.4 102.0 51.9 13.7 (50.8) 216.2
Finance cost (24.0)
Profit before tax 192.2
Tax credit 111.9
Tax on exceptional items (0.2)
Profit for the year 303.9
Supplementary information
Share of profits in joint ventures and
associates, net of interest and tax 8.7 \u2013 \u2013 \u2013 \u2013 8.7
Total depreciation and impairment of
plant, property and equipment and right
of use assets (77.9) (23.4) (12.5) (5.2) (9.9) (128.9)
Amortisation of other intangible assets (1.2) (0.5) (2.9) (0.1) (6.6) (11.3)
1 Trading Profit/(Loss) is defined as Operating Profit/(Loss) before exceptional items and amortisation and impairment of intangible assets arising on acquisition.
2 Included within exceptional operating items are total acquisition related costs of \u00a34.9m.
As at 31 December 2022
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Corporate
\u00a3m
Total
\u00a3m
Segment assets
Interests in joint ventures and associates 22.9 \u2013 \u2013 0.4 \u2013 23.3
Other segment assets
1
960.8 948.0 309.6 68.7 123.3 2,410.4
Total segment assets 983.7 948.0 309.6 69.1 123.3 2,433.7
Unallocated assets
2
316.5
Consolidated total assets 2,750.2
Segment liabilities
Segment liabilities
1
(720.2) (178.3) (248.1) (61.1) (179.0) (1,386.7)
Unallocated liabilities
2
(333.8)
Consolidated total liabilities (1,720.5)
Supplementary information
Additions to non-current assets
3
173.7 14.5 7.4 3.0 12.1 210.7
Segment non-current assets 701.1 718.6 177.1 14.1 80.8 1,691.7
Unallocated non-current assets 244.5
1 The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension schemes
and corporate intangible assets.
2 Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant & equipment and right
of use assets.
208
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Year ended 31 December 2021
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Corporate
\u00a3m
Total
\u00a3m
Segment assets
Interests in joint ventures and associates 17.1 \u2013 0.1 0.4 \u2013 17.6
Other segment assets
1
782.5 911.6 313.2 60.8 227.5 2,295.6
Total segment assets 799.6 911.6 313.3 61.2 227.5 2,313.2
Unallocated assets
2
420.8
Consolidated total assets 2,734.0
Segment liabilities
Segment liabilities
1
(641.2) (187.7) (224.7) (53.2) (182.3) (1,289.1)
Unallocated liabilities
2
(436.5)
Consolidated total liabilities (1,725.6)
Supplementary information
Additions to non-current assets
3
146.3 227.4 64.6 0.3 20.5 459.1
Segment non-current assets 570.1 700.8 179.0 11.7 207.3 1,668.9
Unallocated non-current assets 214.3
1 The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension schemes
and corporate intangible assets.
2 Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans.
3 Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant & equipment and right
of use assets.
5. List of principal undertakings
The following are considered to be the principal undertakings of the Group as at the year-end:
Principal subsidiaries 2022 2021
United Kingdom Serco Limited 100% 100%
Australia Serco Australia Pty Limited 100% 100%
USA Serco Inc. 100% 100%
Principal joint ventures and associates 2022 2021
United Kingdom Merseyrail Services Holding Company Limited 50% 50%
United Kingdom Vivo Defence Services Limited 50% 50%
A full list of subsidiaries and related undertakings is included in the Appendix on pages 256 to 259 which form part of the
financial statements.
6. Joint ventures and associates
The principal joint ventures Merseyrail Services Holding Company (MSHCL) Limited and Vivo Defence Services Limited (VIVO)
were the only equity accounted entities which were material to the Group during the year. Dividends of \u00a37.3m (2021: \u00a3nil) and \u00a3nil
(2021: \u00a3nil), respectively, were received from these companies in the year. The increased dividends received in respect of MSHCL
were due to returning passenger volumes following reduced travel during the Covid-19 pandemic.
The 2021 result included AWE Management Limited (AWEML). As announced on 2 November 2020, the Ministry of Defence notified
the Group that it would be exercising its option to terminate services provided by the Group through AWEML on 30 June 2021.
During 2022 a final dividend of \u00a31.8m (2021: \u00a313.5m) was received from AWEML. Following the termination of services provided by
the Group through AWEML, it is no longer considered a principal associate and is therefore classified within the Group portion of
other joint ventures and associates in the table below for 2022.
209
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Serco Group plc Annual Report and Accounts 2022
6. Joint ventures and associates continued
Summarised financial information of MSHCL and VIVO, and an aggregation of the other equity accounted entities in which the Group
has an interest in is as follows:
31 December 2022
Summarised financial information
MSHCL
(100% of results)
\u00a3m
VIVO
(100% of results)
\u00a3m
Group portion
of material joint
ventures and
associates
1
\u00a3m
Group portion
of other joint
ventures and
associates
1
\u00a3m
Total
\u00a3m
Revenue 185.0 327.0 236.8 1.1 237.9
Operating profit/(loss) 12.0 17.6 14.4 (0.1) 14.3
Net (finance costs)/investment revenue (0.4) (0.6) (0.4) 0.1 (0.3)
Income tax (charge)/credit (1.0) (3.2) (2.1) 0.1 (2.0)
Profit from operations 10.6 13.8 11.9 0.1 12.0
Other comprehensive income 5.8 \u2013 2.9 \u2013 2.9
Total comprehensive income 16.4 13.8 14.8 0.1 14.9
Non-current assets 36.1 5.9 21.0 0.3 21.3
Current assets 51.2 129.9 90.5 1.5 92.0
Current liabilities (29.6) (91.7) (60.6) (0.8) (61.4)
Non-current liabilities (26.5) (31.1) (28.6) \u2013 (28.6)
Net assets 31.2 13.0 22.3 1.0 23.3
Proportion of Group ownership 50.0% 50.0%
Carrying amount of investment 15.6 6.5 22.3 1.0 23.3
1 For MSHCL, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO, although the equity ownership is 50%, the share of
profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material joint ventures will not represent exactly 50% of their income
and net assets.
MSHCL
(100% of results)
\u00a3m
VIVO
(100% of results)
\u00a3m
Group portion
of material joint
ventures and
associates
1
\u00a3m
Group portion
of other
joint venture
arrangements
and associates
1
\u00a3m
Total
\u00a3m
Cash and cash equivalents 33.2 18.0 25.6 0.6 26.2
Current financial liabilities excluding trade and other
payables and provisions (7.1) (3.2) (5.1) (0.3) (5.4)
Non-current financial liabilities excluding intercompany
loans, trade and other payables and provisions (25.8) (13.6) (18.4) \u2013 (18.4)
Non-current joint venture loans liability \u2013 (20.0) (10.0) \u2013 (10.0)
Depreciation and amortisation (5.0) (1.3) (3.2) (0.1) (3.3)
Interest income 0.1 \u2013 0.1 \u2013 0.1
Interest expense (0.4) (0.2) (0.3) (0.1) (0.4)
1 Total results of the entity multiplied by the respective proportion of Group ownership .
210
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
The Group\u2019s share of liabilities within joint ventures and associates is \u00a390.0m (2021: \u00a321.1m) which include \u00a35.1m of lease obligations
(2021: \u00a33.9m) and \u00a310.0m in joint venture loan liabilities (2021: \u00a3nil). The balance is trade and other payables which arise as part
of the day-to-day operations carried out by those entities. Other than liabilities associated with leases, the Group has no material
exposure to third party debt or other financing arrangements within any of its joint ventures and associates.
VIVO\u2019s funding requirement is agreed by both shareholders and based on the strategic business plan. At 31 December 2022 the
funding provided was \u00a310m from each shareholder. In the future, distributions of net profits will be returned to the Group once VIVO
has sufficient reserves.
31 December 2021
Summarised financial information
AWEML
(100% of results)
\u00a3m
MSHCL
(100% of results)
\u00a3m
Group portion
of material joint
ventures and
associates
1
\u00a3m
Group portion
of other
joint venture
arrangements
and associates
1
\u00a3m
Total
\u00a3m
Revenue 638.7 161.0 237.0 1.4 238.4
Operating profit/(loss) 49.6 (0.8) 11.8 (0.3) 11.5
Net finance costs \u2013 (0.1) (0.1) \u2013 (0.1)
Income tax (charge)/credit (12.0) 0.3 (2.8) 0.1 (2.7)
Profit/(loss) from operations 37.6 (0.6) 8.9 (0.2) 8.7
Other comprehensive income \u2013 6.6 3.3 \u2013 3.3
Total comprehensive income/(expense) 37.6 6.0 12.2 (0.2) 12.0
Non-current assets \u2013 13.9 7.0 0.2 7.2
Current assets 8.5 43.4 23.8 7.7 31.5
Current liabilities (1.7) (23.6) (12.2) (3.9) (16.1)
Non-current liabilities \u2013 (4.0) (2.0) (3.0) (5.0)
Net assets 6.8 29.7 16.6 1.0 17.6
Proportion of Group ownership 24.5% 50.0%
Carrying amount of investment 1.7 14.9 16.6 1.0 17.6
1 Total results of the entity multiplied by the respective proportion of Group ownership.
AWEML
(100% of results)
\u00a3m
MSHCL
(100% of results)
\u00a3m
Group portion
of material joint
ventures and
associates
1
\u00a3m
Group portion
of other
joint venture
arrangements
and associates
1
\u00a3m
Total
\u00a3m
Cash and cash equivalents 8.5 28.9 16.5 4.7 21.2
Current financial liabilities excluding trade and other
payables and provisions (0.3) (5.3) (2.7) \u2013 (2.7)
Non-current financial liabilities excluding trade and
other payables and provisions \u2013 (2.9) (1.5) \u2013 (1.5)
Depreciation and amortisation \u2013 (5.8) (2.9) \u2013 (2.9)
Interest income \u2013 \u2013 \u2013 \u2013 \u2013
Interest expense \u2013 (0.2) (0.1) \u2013 (0.1)
1 Total results of the entity multiplied by the respective proportion of Group ownership.
7. Acquisitions
On 12 July 2022, the Group acquired 100% of the issued share capital of Sapienza Consulting Holdings BV (Sapienza), a provider
of consulting, talent acquisition and digital solutions to European space and defence institutions for consideration of \u20ac3.3m (\u00a32.8m)
in cash, subject to standard working capital and completion adjustments. The acquired net assets included \u20ac1.9m (\u00a31.6m) of cash
resulting in a net cash outflow on acquisition of \u20ac1.4m (\u00a31.2m). The operating results, assets and liabilities have been recognised
effective 12 July 2022.
Sapienza contributed \u00a36.5m of revenue and \u00a30.3m of operating profit before exceptional items, including an appropriate allocation
of charges for shared support services and fully allocated overheads, to the Group\u2019s results during the year to 31 December 2022.
211
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
7. Acquisitions continued On 1 September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS), a specialist provider of immigration services to public sector customers in Switzerland, Germany, Austria and Italy, for consideration of CHF19.2m (\u00a316.9m) subject to standard working capital and completion adjustments. CHF6.4m (\u00a35.7m) was paid in cash and the remaining CHF12.8m (\u00a311.2m) is contingent consideration. At the same time, the Group transferred CHF19.2m (\u00a316.9m) to acquire shareholder loans of ORS. The acquired net assets included CHF5.2m (\u00a34.6m) of cash resulting in a net cash outflow on acquisition of CHF20.4m (\u00a318.0m). Including the balance of contingent consideration payable the total expected cash outflow for the acquisition, net of cash acquired, is CHF33.2m (\u00a329.2m). Post completion there was a further cash outflow of CHF7.4m (\u00a36.7m) to settle the bank loan acquired. The acquisition included net pension obligation of CHF5.7m (\u00a35.0m). The operating results, assets and liabilities have been recognised effective 1 September 2022. ORS contributed \u00a362.4m of revenue and \u00a31.6m of operating profit before exceptional items, including an appropriate allocation of charges for shared support services and fully allocated overheads, to the Group\u2019s results during the year to 31 December 2022. Based on estimates made of the full-year impact of the acquisition of Sapienza and ORS, had the acquisitions taken place on 1 January 2022, Group revenue and operating profit before exceptional items for the period would have increased by approximately \u00a394.3m and \u00a34.5m respectively, taking total Group revenue to \u00a34,628.3m and total Group operating profit before exceptional items to \u00a3224.1m. The provisional fair values of the two acquisitions undertaken during the year and the update to provisional fair values of the prior year acquisition of Whitney, Bradley & Brown, Inc. are summarised below: Update to provisional fair values WBB 1 \u00a3m Provisional fair values Sapienza \u00a3m Provisional fair values ORS \u00a3m Total \u00a3m Goodwill 2 1.5 2.1 17.3 20.9 Other intangible assets (0.7) 1.2 25.9 26.4 Property, plant and equipment - - 1.1 1.1 Right of use assets - 0.4 12.7 13.1 Retirement benefit assets - - 46.7 46.7 Inventories - - 0.6 0.6 Deferred tax asset - - 0.1 0.1 Trade and other receivables (0.3) 2.7 50.3 52.7 Cash and cash equivalents - 1.6 4.6 6.2 Trade and other payables - (4.6) (48.6) (53.2) Provisions (0.4) - - (0.4) Retirement benefit obligations - - (51.7) (51.7) Bank loans - - (6.5) (6.5) Other loans - - (16.9) (16.9) Corporation tax liabilities - - (0.7) (0.7) Deferred tax liabilities (0.1) (0.2) (5.3) (5.6) Lease obligations - (0.4) (12.7) (13.1) Acquisition date fair value of consideration transferred - 2.8 16.9 19.7 Satisfied by: Cash consideration \u2013 2.8 5.7 8.5 Contingent consideration \u2013 \u2013 11.2 11.2 Total consideration \u2013 2.8 16.9 19.7 1 WBB goodwill increased by \u00a31.5m following the completion of the fair value assessment of the acquisition during the measurement period. 2 No goodwill is deductible for tax purposes. The fair values for Sapienza and ORS are prepared on a provisional basis in accordance with IFRS 3. During the measurement period, expected to be 12 months from acquisition date, the Group may amend the fair value. The following items reflect the key consideration in measuring the fair value: \u2013 Goodwill on the acquisitions of Sapienza and ORS represents the premium associated with expanding the Group\u2019s capabilities in the relevant sectors and geographical locations in which the acquired companies operate. \u2013 The acquisition related intangibles represent the fair value of customer relationships which have been valued using our best estimate of forecast cash flows discounted to present value and, in the case of ORS, certain software-related assets and the brand names associated with them. 212 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 The right of use assets and lease obligations are measured as the present value of the remaining lease payments as if the acquired lease was a new lease at the acquisition date. \u2013 The retirement benefit assets and obligations were measured in accordance with IAS 19 at the acquisition date. \u2013 Deferred tax assets and liabilities are measured based on the provisional fair values at the acquisition date. \u2013 The best estimate at acquisition date of trade and other receivables are the gross contractual amounts as there are no cash flows that are not expected to be collected. Contingent consideration recognised on acquisition of ORS was CHF12.8m (\u00a311.2m) and reflects the fair value of the earn-out and overperformance payments based on a range of targets for the full year 2022 EBITDA. The maximum earn-out and overperformance payments are CHF10.0m and CHF4.0m respectively. The contingent consideration is expected to be settled in April 2023. The total impact of acquisitions to the Group\u2019s cash flow position in the period was as follows: \u00a3m Cash consideration in respect of current period acquisitions 8.5 Cash acquired on acquisition of businesses (6.2) Cash to acquire existing debt balances 16.9 Net cash outflow in relation to acquisitions 19.2 Exceptional acquisition related costs 2.4 Net cash impact in the year on acquisitions 21.6 Costs associated with the acquisitions of ORS and the prior year acquisition of Whitney, Bradley & Brown, Inc are shown as exceptional costs in the Consolidated Income Statement. The total transaction and implementation costs recognised in exceptional items for the year ended 31 December 2022 was \u00a32.4m. There were no material costs associated with the acquisition of Sapienza during the year. 8. Revenue from contracts with customers Revenue Information regarding the Group\u2019s major customers and a segmental analysis of revenue is provided in note 4. An analysis of the Group\u2019s revenue from its key market sectors, together with the timing of revenue recognition across the Group\u2019s revenue from contracts with customers, is as follows: Year ended 31 December 2022 UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Total \u00a3m Key sectors Defence 315.8 863.0 147.9 30.5 1,357.2 Justice & Immigration 798.9 - 412.9 - 1,211.8 Transport 173.9 95.9 9.8 70.0 349.6 Health & Other Facilities Management 264.4 - 225.3 103.0 592.7 Citizen Services 547.2 310.9 158.7 5.9 1,022.7 2,100.2 1,269.8 954.6 209.4 4,534.0 Timing of revenue recognition Revenue recognised from performance obligations satisfied in previous periods 5.8 - 0.8 - 6.6 Revenue recognised at a point in time 21.9 - 5.5 - 27.4 Products and services transferred over time 2,072.5 1,269.8 948.3 209.4 4,500.0 2,100.2 1,269.8 954.6 209.4 4,534.0 213 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 8. Revenue from contracts with customers continued Year ended 31 December 2021 (restated 1 ) UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Total \u00a3m Key sectors Defence 280.6 764.6 145.6 31.4 1,222.2 Justice & Immigration 468.9 - 374.2 - 843.1 Transport 149.3 79.9 7.3 135.6 372.1 Health & Other Facilities Management 260.9 - 220.3 94.4 575.6 Citizen Services 971.9 275.5 161.0 3.2 1,411.6 2,131.6 1,120.0 908.4 264.6 4,424.6 Timing of revenue recognition Revenue recognised from performance obligations satisfied in previous periods 2.5 - 6.6 - 9.1 Revenue recognised at a point in time 17.3 - 8.4 - 25.7 Products and services transferred over time 2,111.8 1,120.0 893.4 264.6 4,389.8 2,131.6 1,120.0 908.4 264.6 4,424.6 1 The prior period balances have been restated to ensure consistent application of the sector definitions used for the current period. This follows a review in 2021 of the Group\u2019s sector definitions to align with the strategic objectives of the Group. The change has no impact to the income statement or the balance sheet of the Group. Transaction price allocated to remaining performance obligations The following table shows the transaction price allocated to remaining performance obligations. This represents revenue expected to be recognised in subsequent periods arising on existing contractual arrangements. In assessing the future transaction price, the judgements of most relevance are the future term over which the transaction price is calculated and the estimation of variable revenue to be included. Where a contract with a customer includes within the term of the committed contract provisions for price-rebasing or a provision for market testing, revenue beyond these is included to the extent that there are no indicators which suggest that the contract will not continue past this point, and it is highly probable that a significant reduction will not occur. Where there is a requirement for the Group, or a customer, to enter into to a new contract, rather than continuing an existing contract, such an extension is not included for the purposes of calculating future transaction price. Additionally, the Group has a small subset of contracts that contain a termination for convenience clause, for example due to national security considerations, which are assumed by the Group not to be without cause. These contracts are considered to run for the full intended term for the purpose of calculating the transaction price allocated to remaining performance obligations, other than instances where the Group believes that termination will occur before the original contract end date. Under the terms of certain contracts which the Group has with its customers, the Group\u2019s compensation for providing those services is based on volumes or other drivers of variable activity, such as additional activities awarded under existing contracts. These volumes are not guaranteed, however based on historic volumes and the nature of the contracts in operation, such as the provision of asylum seeker accommodation or passenger transport, Management is able to prepare a sufficiently reliable estimate of the minimum level of variable revenue that is likely to be earned. As a result, variable revenue is included only to the level at which Management remains confident that a significant reduction will not occur. As part of the considerations around variable revenue, Management considers the impact that factors such as contractual performance, anticipated demand and pricing (including indexation) may have on future revenue recognised. Management also considers whether there are possible impacts from climate change and other environmental related risks, with certain sectors considered to be more at risk than others, however no significant adjustments were identified in relation to the future revenue forecasts of existing contracts. UK&E \u00a3m Americas 1 \u00a3m AsPac \u00a3m Middle East \u00a3m Total \u00a3m Within 1 year (2023) 1,878.2 780.0 832.5 165.0 3,655.7 Between 2 \u2013 5 years (2024 \u2013 2027) 5,207.8 256.9 1,209.5 144.1 6,818.3 5 years and beyond (2028+) 2,740.0 135.7 1,339.6 118.4 4,333.7 9,826.0 1,172.6 3,381.6 427.5 14,807.7 1 Due to the nature contracting environment in the Americas division the transaction price allocated to remaining performance obligations is primarily within 1 year and the future years are therefore inherently lower than other segments. 9. Exceptional items Exceptional items are items of financial performance that are outside normal operations and are material to the results of the Group either by virtue of size or nature. As such, the items set out below require separate disclosure on the face of the income statement to 214 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 assist in the understanding of the performance of the Group. For the year ended 31 December 2022 \u00a3m 2021 \u00a3m Restructuring costs \u2013 0.1 Increase in onerous lease provision \u2013 (0.6) Costs associated with successful acquisitions (2.4) (4.9) Profit on sale of investments \u2013 4.2 Exceptional operating items (2.4) (1.2) Exceptional tax 0.3 (0.2) Total exceptional operating items net of tax (2.1) (1.4) The exceptional charge in 2022 relates to the successful acquisitions of OXZ Holdings AG (ORS) in 2022 and Whitney, Bradley & Brown, Inc (WBB) in 2021. The combined transaction and implementation costs incurred during the year ended 31 December 2022 of \u00a32.4m have been treated as exceptional costs in line with the Group\u2019s accounting policy and the treatment of similar costs during the year ended 31 December 2021. Exceptional tax Exceptional tax for the year was a credit of \u00a30.3m (2021: \u00a30.2m charge) which arises on exceptional items within operating profit. The tax credit on exceptional items arises in relation to acquisition and integration costs incurred overseas on the WBB acquisition. Costs associated with the ORS Group acquisition did not give rise to a tax credit as they were either treated as capital, and therefore not tax deductible, or augmented non-valued deferred tax. 10. Operating profit Operating profit is stated after charging/(crediting): Year ended 31 December 2022 \u00a3m 2021 \u00a3m Research and development costs 2.6 1.2 Profit on disposal of property, plant and equipment (0.5) (0.2) Profit on early termination of leases (0.2) (0.6) Loss on disposal of intangible assets 0.4 1.6 Depreciation and impairment of property, plant and equipment 23.0 19.9 Depreciation and impairment of right of use assets 117.5 109.0 Amortisation and impairment of intangible assets \u2013 arising on acquisition 21.6 16.0 Amortisation, write down and impairment of intangible assets \u2013 other 10.1 11.3 Staff costs (note 11) 2,155.8 2,000.5 Allowance for doubtful debts charged to income statement (0.4) 0.4 Net foreign exchange charge (0.1) 0.5 Movement on non-designated hedges and reclassified cash flow hedges (0.8) \u2013 Lease payments recognised through operating profit 1 4.2 2.8 Operating lease income from sub-leases (1.8) (1.5) 1 The lease payments recognised in operating profit are those which have not been recorded in accordance with the permissible exemptions in IFRS 16 Leases for short-term or low-value leases. 215 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 10. Operating profit continued Amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services to the Company\u2019s Auditor are shown below. Year ended 31 December 2022 \u00a3m 2021 \u00a3m Fees payable to the Company\u2019s Auditor for the audit of the Company\u2019s annual accounts 2.6 1.7 Fees payable to the Company\u2019s Auditor and their associates for other services to the Group: \u2013 audit of the Company\u2019s subsidiaries pursuant to legislation 1.3 0.6 Total audit fees 3.9 2.3 \u2013 Audit-related assurance services 0.1 0.1 \u2013 Other non-audit services 0.1 0.1 Total non-audit fees 0.2 0.2 Fees payable to the Company\u2019s Auditor for non-audit services to the Company are not required to be disclosed separately because the Consolidated Financial Statements are required to disclose such fees on a consolidated basis. Details of the Company\u2019s policy on the use of auditors for non-audit services and how the auditor\u2019s independence and objectivity was safeguarded, are set out in the Audit Committee Report on page 135. No services were provided pursuant to contingent fee arrangements. 11. Staff costs The average number of persons employed by the Group (including Executive Directors) was: Year ended 31 December 2022 number 2021 number UK & Europe 23,855 22,377 Americas 8,960 8,693 AsPac 14,024 15,438 Middle East 2,122 3,518 Unallocated 999 858 49,960 50,884 The average number of persons employed includes all individuals employed under contracts of service by the Group. This comprises permanent, part-time, and casual employees and those with fixed term contracts. It excludes self-employed contractors and other casual workers. Aggregate remuneration of all employees based on the average number of employees reported above was: Year ended 31 December 2022 \u00a3m 2021 \u00a3m Wages and salaries 1,889.1 1,759.7 Social security costs 148.3 127.4 Other pension costs (note 30) 102.8 97.6 2,140.2 1,984.7 Share based payment expense (note 34) 15.6 15.8 2,155.8 2,000.5 12. Investment revenue Year ended 31 December 2022 \u00a3m 2021 \u00a3m Interest receivable on other loans and deposits 1.9 0.6 Net interest receivable on retirement benefit obligations (note 30) 2.7 1.1 Other dividends received \u2013 0.6 Movement in discount on other debtors 0.1 0.1 4.7 2.4 216 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 13. Finance costs Year ended 31 December 2022 \u00a3m 2021 \u00a3m Interest payable on lease liabilities 7.9 7.8 Interest payable on other loans 15.2 15.6 Facility fees and other charges 2.4 2.4 25.5 25.8 Foreign exchange on financing activities (0.4) 0.6 25.1 26.4 14. Tax 14 (a) Income tax recognised in the income statement Year ended 31 December Before exceptional items 2022 \u00a3m Exceptional items 2022 \u00a3m Total 2022 \u00a3m Before exceptional items 2021 \u00a3m Exceptional items 2021 \u00a3m Total 2021 \u00a3m Current income tax Current income tax charge/(credit) 38.0 (0.3) 37.7 34.6 0.8 35.4 Adjustments in respect of prior years 3.5 \u2013 3.5 1.3 \u2013 1.3 Deferred tax Current year charge/(credit) 5.5 \u2013 5.5 (146.5) (0.6) (147.1) Adjustments in respect of prior years (4.9) \u2013 (4.9) (1.3) \u2013 (1.3) 42.1 (0.3) 41.8 (111.9) 0.2 (111.7) The tax expense for the year can be reconciled to the profit in the Consolidated Income Statement as follows: Year ended 31 December Before exceptional items 2022 \u00a3m Exceptional items 2022 \u00a3m Total 2022 \u00a3m Before exceptional items 2021 \u00a3m Exceptional items 2021 \u00a3m Total 2021 \u00a3m Profit before tax 199.2 (2.4) 196.8 193.4 (1.2) 192.2 Tax calculated at a rate of 19.00% (2021: 19.00%) 37.8 (0.5) 37.3 36.7 (0.2) 36.5 Expenses not deductible for tax purposes 1 2.0 0.2 2.2 1.8 0.6 2.4 UK unprovided deferred tax 2 0.3 \u2013 0.3 \u2013 \u2013 \u2013 Other unprovided deferred tax 2.5 0.1 2.6 2.2 \u2013 2.2 Effect of the use of unrecognised tax losses (1.1) \u2013 (1.1) (0.4) (0.3) (0.7) Additional recognition of UK deferred tax asset 3 \u2013 \u2013 \u2013 (146.4) \u2013 (146.4) Impact of changes in statutory tax rates on current income tax (0.8) \u2013 (0.8) \u2013 \u2013 \u2013 Overseas rate differences 10.5 (0.1) 10.4 11.2 0.1 11.3 Other non-taxable income (5.5) \u2013 (5.5) (4.6) \u2013 (4.6) Adjustments in respect of prior years 4 (1.4) \u2013 (1.4) \u2013 \u2013 \u2013 R&D expenditure credit (RDEC) 0.1 \u2013 0.1 \u2013 \u2013 \u2013 Impact of revaluing brought forward UK provided deferred tax from 19% to 25% \u2013 \u2013 \u2013 (10.8) \u2013 (10.8) Adjustments in respect of equity accounted investments (2.3) \u2013 (2.3) (1.6) \u2013 (1.6) Tax charge/(credit) 42.1 (0.3) 41.8 (111.9) 0.2 (111.7) 1 Relates to costs that are not allowable for tax deduction under local tax law. 2 Arises due to timing differences between when an amount is recognised in the income statement and when the amount is subject to UK tax. 3 In the prior year, the Group brought onto the balance sheet a previously unrecognised UK deferred tax asset of \u00a3144.8m at 1 January 2021. This asset was revalued during the prior year giving a net adjustment of \u00a3146.4m. 4 Included within adjustments in respect of prior years for the year ended 31 December 2022, is a credit of \u00a30.9m in relation to the finalisation of the prior year position on share based payments and a credit of \u00a30.7m reflecting the utilisation of the R&D expenditure credit, previously written off to deferred tax, against the 2021 current tax liability. The corporate income tax expense for the year is based on the UK statutory rate of corporation tax for the period of 19.00% (2021: 19.00%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 217 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 14. Tax continued 14 (b) Income tax recognised in the SOCI Year ended 31 December 2022 \u00a3m 2021 \u00a3m Current tax Taken to retirement benefit obligations reserve 2.0 0.8 Deferred tax Relating to cash flow hedges (0.1) \u2013 Relating to net investment hedge \u2013 4.0 Taken to retirement benefit obligations reserve 25.1 (22.5) 27.0 (17.7) 14 (c) Tax on items taken directly to equity Year ended 31 December 2022 \u00a3m 2021 \u00a3m Current tax Recorded in share based payment reserve 2.2 (0.7) Deferred tax Recorded in share based payment reserve 1.2 0.7 3.4 \u2013 15. Deferred tax Deferred income taxes are calculated in full on temporary differences under the liability method using local substantively enacted tax rates. The movement in net deferred tax (assets)/liabilities during the year was as follows: 2022 \u00a3m 2021 \u00a3m At 1 January \u2013 asset (174.0) (56.3) Income statement charge/(credit) 0.6 (148.4) R&D expenditure credit transferred to current tax 0.7 \u2013 Items recognised in equity and in other comprehensive income (26.2) 17.8 Arising on acquisition 5.5 9.9 Exchange differences 3.0 3.0 At 31 December \u2013 asset (190.4) (174.0) 218 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 The movement in deferred tax (assets)/liabilities during the year was as follows: Temporary differences on assets/ intangibles \u00a3m Share based payment and employee benefits \u00a3m Retirement benefit schemes \u00a3m Onerous contract provisions \u00a3m Derivative financial instruments \u00a3m Tax losses \u00a3m Other temporary differences \u00a3m Total \u00a3m At 1 January 2022 19.9 (34.5) 36.2 (0.8) \u2013 (166.0) (28.8) (174.0) Charged/(credited) to income statement (note 14a) 1.7 (0.5) 0.2 0.1 \u2013 0.8 (1.7) 0.6 R&D expenditure credit transferred to current tax \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 0.7 0.7 Arising on acquisition of a subsidiary 5.5 \u2013 0.1 \u2013 \u2013 (0.1) \u2013 5.5 Items recognised in equity and in other comprehensive income (notes 14b and 14c) \u2013 (1.2) (25.1) \u2013 0.1 \u2013 \u2013 (26.2) Exchange differences 5.7 (1.8) (0.2) (0.1) \u2013 (0.3) (0.3) 3.0 At 31 December 2022 32.8 (38.0) 11.2 (0.8) 0.1 (165.6) (30.1) (190.4) Other temporary differences include amounts such as provisions and accruals which, under certain tax laws, are only allowable when expended. The movement in deferred tax (assets)/liabilities during the previous year was as follows: Temporary differences on assets/ intangibles \u00a3m Share based payment and employee benefits \u00a3m Retirement benefit schemes \u00a3m Onerous contract provisions \u00a3m Tax losses \u00a3m Other temporary differences \u00a3m Total \u00a3m At 1 January 2021 25.5 (24.7) 14.8 (0.5) (31.1) (40.3) (56.3) Credited to income statement (note 14a) (11.7) (7.6) (0.8) (0.3) (127.3) (0.7) (148.4) Arising on acquisition of a subsidiary. 5.6 (2.4) (0.4) \u2013 (3.3) 10.4 9.9 Items recognised in equity and in other comprehensive income (notes 14b and 14c) \u2013 (0.7) 22.5 \u2013 (4.0) \u2013 17.8 Exchange differences 0.5 0.9 0.1 \u2013 (0.3) 1.8 3.0 At 31 December 2021 19.9 (34.5) 36.2 (0.8) (166.0) (28.8) (174.0) Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following analysis shows the deferred tax balances (after offset) for financial reporting purposes: 2022 \u00a3m 2021 \u00a3m Deferred tax liabilities 53.8 40.3 Deferred tax assets (244.2) (214.3) (190.4) (174.0) 219 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 15. Deferred tax continued As at the balance sheet date, the UK has a potential deferred tax asset of \u00a3253.6m (2021: \u00a3234.3m) available for offset against future profits. A UK deferred tax asset has currently been recognised of \u00a3186.9m (2021: \u00a3162.8m). Recognition has been based on the improved performance in the underlying UK business indicating a sustained return to profitability which will enable accumulated tax losses within the UK to be utilised. The return to profitability is as a result of onerous contracts ending and new profitable long-term contracts being entered into, as well as a significant reduction in exceptional restructuring spend following the strategy review in 2015, which also reduced the level of overhead spend within the UK business. No deferred tax asset has been recognised in respect of the remaining asset (net \u00a366.7m) as they are more restricted in their use either due to their nature, such as capital losses, or the period and entity in which they arose, as revenue losses made before April 2017 are more restricted in their use. On 24 May 2021 legislation which increases the UK tax rate from 19% to 25% from April 2023 was substantively enacted. These measures increase the Group\u2019s future current tax charge accordingly. The deferred tax balance at 31 December 2022 has been calculated reflecting the increased rate of 25% where the balance is expected to be realised after April 2023. Outside of the UK, there is a further \u00a339.5m (2021: \u00a337.5m) of deferred tax assets which have not been recognised. \u00a338.8m (2021: \u00a337.0m) of this relates to revenue losses where current forecasts do not support recognition. On 9 December 2022 the Ministry of Finance in UAE published tax law under which certain Serco operations in UAE will pay tax from January 2024. We are continuing to work with local advisers to ascertain the implications on filing requirements and tax payment, but our current expectation is that the introduction of this new tax will not have a material impact on our Group tax liability. In October 2021 over 130 countries in the Organisation for Economic Cooperation and Development (OECD) jointly released a framework to introduce a global minimum tax rate of 15% in order to address concerns about uneven profit distributions and tax contributions of large multinationals. In June 2022 the UK government published draft legislation to bring this framework into UK law from January 2024. Management is closely monitoring the progress of this legislation, but initial work undertaken to date suggests that the introduction of this minimum tax will also not have a material impact on the Group tax liability. Losses of \u00a31.6m (2021: \u00a31.3m) expire within 5 years, losses of \u00a34.1m (2021: \u00a30.1m) expire within 6\u201310 years, losses of \u00a311.8m (2021: \u00a3nil) expire within 20 years and losses of \u00a31,072.6m (2021 \u00a31,077.4m) may be carried forward indefinitely. 16. Earnings per share Basic and diluted earnings per ordinary share (EPS) have been calculated in accordance with IAS 33 Earnings per Share. The calculation of the basic and diluted EPS is based on the following data: Number of shares 2022 millions 2021 millions Weighted average number of ordinary shares for the purpose of basic EPS 1,192.2 1,222.6 Effect of dilutive potential ordinary shares: Shares under award 22.6 21.4 Weighted average number of ordinary shares for the purpose of diluted EPS 1,214.8 1,244.0 Earnings per share Basic EPS Earnings 2022 \u00a3m Per share amount 2022 pence Earnings 2021 \u00a3m Per share amount 2021 pence Earnings for the purpose of basic EPS 155.4 13.03 303.9 24.86 Effect of dilutive potential ordinary shares \u2013 (0.24) \u2013 (0.43) Diluted EPS 155.4 12.79 303.9 24.43 Basic EPS excluding exceptional items Earnings for the purpose of basic EPS 155.4 13.03 303.9 24.86 Add back exceptional items 2.4 0.21 1.2 0.10 Add back tax on exceptional items (0.3) (0.03) 0.2 0.01 Earnings excluding exceptional items for the purpose of basic EPS 157.5 13.21 305.3 24.97 Effect of dilutive potential ordinary shares \u2013 (0.24) \u2013 (0.43) Excluding exceptional items, diluted 157.5 12.97 305.3 24.54 220 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 17. Goodwill Cost \u00a3m Accumulated impairment losses \u00a3m Carrying amount \u00a3m At 1 January 2021 994.4 (324.8) 669.6 Acquisitions 178.8 \u2013 178.8 Exchange differences 7.0 (2.7) 4.3 At 31 December 2021 1,180.2 (327.5) 852.7 Acquisitions 20.9 \u2013 20.9 Exchange differences 97.8 (26.4) 71.4 At 31 December 2022 1,298.9 (353.9) 945.0 Movements in the balance since the prior year end can be seen as follows: Goodwill balance 1 January 2022 \u00a3m Acquisitions \u00a3m Exchange differences 2022 \u00a3m Goodwill balance 31 December 2022 \u00a3m Headroom on impairment analysis 2022 \u00a3m Headroom on impairment analysis 2021 \u00a3m UK & Europe 183.6 19.4 0.8 203.8 811.1 728.0 Americas 527.8 1.5 62.9 592.2 360.9 415.8 AsPac 131.3 \u2013 6.5 137.8 281.0 380.6 Middle East 10.0 \u2013 1.2 11.2 119.5 103.6 852.7 20.9 71.4 945.0 1,572.5 1,628.0 Included above is the detail of the headroom on the cash generating units (CGUs) existing at the year end, which reflects where future discounted cash flows are greater than the underlying assets and includes all relevant cash flows, including where provisions have been made for future costs and losses. Overall, in all CGUs, there is sufficient headroom available. This is largely consistent with 2021 overall with reductions in Americas and ASPAC, primarily driven by the increase in discount rates as a result of volatility in the spot rates of corporate bonds impacting risk-free rates. The key quantifiable assumptions applied in the impairment review are set out below: Discount rate 2022 % Discount rate 2021 % Terminal growth rates 2022 % Terminal growth rates 2021 % UK & Europe 10.3 9.3 2.0 2.0 Americas 12.1 10.9 2.3 2.4 AsPac 13.4 11.0 2.2 2.2 Middle East 13.5 12.1 1.2 1.3 Discount rate Pre-tax discount rates derived from the Group\u2019s post-tax weighted average cost of capital have been used in discounting the projected cash flows. These rates are reviewed annually with external advisers and are adjusted for risks specific to the market in which the CGU operates. Discount rates used in 2022 have increased compared with 2021. The change can be attributed to the increased geopolitical risks, macroeconomic conditions, such as sharp short-term inflation increases compared to prior expectations, and significant market movements. Historically Management has built an additional level of prudence into the equity risk premium (ERP). During 2020 when significant equity risk had already been factored in by markets due to the pandemic, Management concluded that increasing the equity risk rate was over-prudent. The Group departed from this policy for a year, but Management considered it appropriate to reinstate it for 2021. During 2022, significant equity risk has again been factored in by the markets, and hence Management has followed the same approach as 2020. 221 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 17. Goodwill continued
Terminal growth rates
The calculations include a terminal value based on the projections for the fifth year of the short-term plan, with a growth rate
assumption applied which extrapolates the business into perpetuity. The terminal growth rates are based on long-term inflation rates
of the geographic market in which the CGUs operate and therefore do not exceed the average long-term growth rates forecast for the
individual markets. These are provided by external sources and have not materially changed as compared with 2021.
Short-term growth rates
The annual impairment test is performed immediately prior to the year end, based initially on five-year cash flow forecasts approved
by Management. Short-term revenue growth rates used in each CGU five-year plan are based on internal data regarding our current
contracted position, the pipeline of opportunities and forecast growth for the relevant market.
Short-term profitability and cash conversion is based on our historic experiences and a level of judgement is applied to expected
changes in both. Where businesses have been poor performers in recent history, turnaround has only been assumed where a detailed
and achievable plan is in place and all forecasts include cash flows relating to contracts where onerous contract provisions have
been made.
As explained in note 8, Management considers certain sectors in which the Group operates to be more exposed to environmental
risks than others. For example, changes in consumer attitudes to aviation or the use of private vehicles, may have an impact on the
Group\u2019s transport contracts. Currently, no adjustment to existing contracts is required, although Management will continue to monitor
the potential impact of environmental risks.
Sensitivity analysis
Sensitivity analysis has been performed, applying a 1% movement in discount rates and a 1% movement in terminal growth rates
which are considered to be reasonably possible. Both individually and combined, the impact of these changes in key assumptions
does not lead to an impairment in any CGU.
Performing a sensitivity analysis on short-term growth rates is not a numerical exercise, as growth rates are based on known
opportunities and the likelihood of those opportunities being won and turned into resulting cash flows. However, in order to model
a sensitivity scenario that reflects the judgement associated with short-term growth rates, Management has applied a no growth
model to cash flows outside of the 2-year budget period. No impairment results from this scenario, however, when combined with an
additional 1% increase in discount rates and a 1% reduction in terminal growth rates, an impairment occurs in the CGU with the lowest
headroom as a proportion of its value in use. Management do not consider the combined scenario to be reasonably possible.
Management has also considered the sensitivity of cash flows in the terminal year for all CGUs and has determined that a reduction
in cash flows of up to 10% in the final year of the plan is reasonably possible. No impairment results from this scenario even when
combined with an additional 1% increase in discount rates and a 1% reduction in terminal growth rates though this is not deemed
reasonably possible. Cash flows in the terminal year would need to reduce by 85% in the Middle East (\u00a317.4m), 58% in AsPac
(\u00a329.0m), 50% in the Americas (\u00a335.2m) and 64% in UK and Europe (\u00a381.1m), before an impairment would need to be recognised.
Within the forecast cash flows for the AsPac CGU, there are large opportunities which would have a binary outcome. While the loss
of these would result in an impairment of the goodwill, there is no indication at present given the opportunities available within
the region that an impairment is required. Should the scale of any Division in the Group decline to a level which does not make
it economically viable, it is likely that the Group would review the overhead and support structures in place to ensure they are
appropriate for the scale of business and opportunities available.
Despite the volatility in discount rates experienced during 2022, Management has not revised the range of possible outcomes in its
sensitivity analysis. In arriving at this conclusion, Management has considered the macroeconomic environment and consulted with its
external advisors. It is deemed that the rate of change in interest rates experienced in 2022 is not expected to continue and therefore
the sensitivities above are considered appropriate.
222
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
18. Other intangible assets
Acquisition
related Other
Customer
relationships
\u00a3m
Software
and IT
\u00a3m
Internally
generated
development
expenditure
\u00a3m
Total
\u00a3m
Cost
At 1 January 2022 176.4 128.8 55.8 361.0
Arising on acquisition 24.9 0.4 1.1 26.4
Additions \u2013 internal development \u2013 0.4 0.8 1.2
Additions \u2013 external \u2013 5.8 \u2013 5.8
Disposals \u2013 (2.0) (4.2) (6.2)
Exchange differences 18.2 4.1 0.9 23.2
At 31 December 2022 219.5 137.5 54.4 411.4
Accumulated amortisation and impairment
At 1 January 2022 60.3 100.9 55.8 217.0
Impairment charge \u2013 0.1 \u2013 0.1
Amortisation charge \u2013 internal development \u2013 6.4 0.3 6.7
Amortisation charge \u2013 external 21.6 3.3 \u2013 24.9
Disposals \u2013 (1.6) (4.2) (5.8)
Exchange differences 6.6 3.0 0.9 10.5
At 31 December 2022 88.5 112.1 52.8 253.4
Net book value
At 31 December 2022 131.0 25.4 1.6 158.0
Acquisition
related Other
Customer
relationships
\u00a3m
Software
and IT
\u00a3m
Internally
generated
development
expenditure
\u00a3m
Total
\u00a3m
Cost
At 1 January 2021 95.2 131.9 56.9 284.0
Arising on acquisition 79.3 2.9 \u2013 82.2
Additions \u2013 internal development \u2013 0.2 \u2013 0.2
Additions \u2013 external \u2013 8.0 \u2013 8.0
Disposals (1.2) (12.1) (1.0) (14.3)
Reclassification from property, plant and equipment \u2013 (0.9) \u2013 (0.9)
Exchange differences 3.1 (1.2) (0.1) 1.8
At 31 December 2021 176.4 128.8 55.8 361.0
Accumulated amortisation and impairment
At 1 January 2021 44.8 102.2 56.4 203.4
Amortisation charge \u2013 internal development \u2013 5.0 0.4 5.4
Amortisation charge \u2013 external 16.0 5.9 \u2013 21.9
Disposals (1.2) (10.6) (0.9) (12.7)
Reclassification from property, plant and equipment \u2013 (0.5) \u2013 (0.5)
Exchange differences 0.7 (1.1) (0.1) (0.5)
At 31 December 2021 60.3 100.9 55.8 217.0
Net book value
At 31 December 2021 116.1 27.9 \u2013 144.0
223
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
18. Other intangible assets continued Customer relationships are amortised over the average length of contracts acquired. The Group is carrying \u00a3131.1m (2021: \u00a3116.1m) in relation to customer relationships. Amortisation of intangibles arising on acquisition consists of amortisation in relation to customer relationships and totals \u00a321.6m (2021: \u00a316.0m). The net book value of internally generated intangible assets as at 31 December 2022 was \u00a31.6m (2021: \u00a3nil) in development expenditure and \u00a31.8m (2021: \u00a37.8m) in software and IT. 19. Property, plant and equipment and right of use assets Land and buildings owned \u00a3m Land and buildings leased \u00a3m Leasehold improvements owned \u00a3m Other assets owned 1 \u00a3m Other assets leased 1 \u00a3m Total \u00a3m Cost At 1 January 2022 4.1 569.6 33.7 134.9 132.3 874.6 Arising on acquisition \u2013 4.5 \u2013 1.1 8.6 14.2 Additions \u2013 116.2 2.6 9.8 13.6 142.2 Reclassification between property, plant and equipment categories 0.1 \u2013 0.5 0.6 (1.2) \u2013 Disposals \u2013 (28.5) (1.8) (11.3) (24.3) (65.9) Exchange differences 0.1 11.7 2.2 4.8 3.9 22.7 At 31 December 2022 4.3 673.5 37.2 139.9 132.9 987.8 Accumulated depreciation and impairment At 1 January 2022 2.8 204.4 19.0 95.4 80.8 402.4 Charge for the year \u2013 impairment 0.2 2.0 0.2 1.9 (3.8) 0.5 Charge for the year \u2013 depreciation 0.2 96.4 4.2 16.3 22.9 140.0 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 1.1 (1.1) \u2013 Disposals \u2013 (15.3) (1.8) (11.1) (23.5) (51.7) Exchange differences 0.1 6.7 1.2 3.6 2.7 14.3 At 31 December 2022 3.3 294.2 22.8 107.2 78.0 505.5 Net book value 2 At 31 December 2022 1.0 379.3 14.4 32.7 54.9 482.3 1 Other assets include machinery, vehicles, furniture and equipment. 2 The net book value is shown on the balance sheet as \u00a348.1m of owned assets in property, plant and equipment and \u00a3434.2m of leased assets in right of use assets. The additions for leased land and buildings include \u00a30.8m (2021: \u00a33.1m) for dilapidation provisions and \u00a3nil (2021: \u00a3nil) for non-cash lease incentives. 224 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 Land and
buildings
owned
\u00a3m
Restated
land and
buildings
leased
1
\u00a3m
Leasehold
improvements
owned
\u00a3m
Other
assets
owned
2
\u00a3m
Other
assets
leased
2
\u00a3m
Total
\u00a3m
Cost
At 1 January 2021 4.3 479.5 31.9 133.4 136.4 785.5
Arising on acquisition \u2013 9.0 1.5 2.2 0.9 13.6
Additions 0.3 132.5 2.2 21.4 22.1 178.5
Reclassification between property, plant
and equipment categories \u2013 \u2013 \u2013 8.2 (8.2) \u2013
Reclassifications from other
intangible assets \u2013 \u2013 0.6 0.3 \u2013 0.9
Disposals (0.5) (51.7) (2.4) (29.7) (18.7) (103.0)
Exchange differences \u2013 0.3 (0.1) (0.9) (0.2) (0.9)
At 31 December 2021 4.1 569.6 33.7 134.9 132.3 874.6
Accumulated depreciation and
impairment
At 1 January 2021 2.8 141.6 17.5 95.1 86.8 343.8
Charge for the year \u2013 impairment \u2013 \u2013 \u2013 0.3 \u2013 0.3
Charge for the year \u2013 depreciation 0.2 88.7 3.5 15.9 20.3 128.6
Reclassification between property, plant
and equipment categories \u2013 \u2013 \u2013 8.0 (8.0) \u2013
Reclassifications from other
intangible assets \u2013 \u2013 0.5 \u2013 \u2013 0.5
Disposals (0.1) (26.0) (2.4) (23.3) (18.2) (70.0)
Exchange differences (0.1) 0.1 (0.1) (0.6) (0.1) (0.8)
At 31 December 2021 2.8 204.4 19.0 95.4 80.8 402.4
Net book value
3
At 31 December 2021 1.3 365.2 14.7 39.5 51.5 472.2
1 Additions and disposals have been restated to be consistent with the treatment adopted in 2022. The adjustment ensures that changes in lease terms, which are
agreed before the end of the original lease are treated as a lease modification and not the termination and commencement of a new lease. This change has no
impact on the net book value, cash flow or profit previously reported.
2 Other assets include machinery, vehicles, furniture and equipment.
3 The net book value is shown on the balance sheet as \u00a355.5m of owned assets in property, plant and equipment and \u00a3416.7m of leased assets in right of use assets.
20. Inventories
2022
\u00a3m
2021
\u00a3m
Service spares, supplies, consumables and work in progress 22.4 19.6
225
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
21. Contract assets, trade and other receivables
Contract assets: Non-current
2022
\u00a3m
2021
\u00a3m
Accrued income \u2013 2.6
Contract assets: Current
2022
\u00a3m
2021
\u00a3m
Accrued income and other unbilled receivables 334.4 306.5
Capitalised bid costs 2.3 2.4
Capitalised mobilisation and phase-in costs 7.3 9.8
Other contract assets 1.0 0.3
345.0 319.0
The Group\u2019s Consolidated Balance Sheet includes capitalised bid and phase-in costs that are realised as a part of the normal
operating cycle of the Group. These assets represent upfront investments in contracts which are recoverable and expected to provide
benefits over the life of those contracts. Bid costs are capitalised only when they relate directly to a contract and are incremental to
securing the contract. Any costs which would have been incurred whether or not the contract is actually won are not considered to be
capitalised bid costs.
Contract costs can only be capitalised when the expenditure meets all three criteria identified in note 2.
Movements in the period were as follows:
Capitalised other contract assets, bid and phase-in costs
2022
\u00a3m
2021
\u00a3m
At 1 January 12.5 18.1
Additions 0.8 0.3
Amortisation (3.1) (4.0)
Written off \u2013 (1.5)
Exchange differences 0.4 (0.4)
At 31 December 10.6 12.5
Total trade and other receivables held by the Group at 31 December 2022 amount to \u00a3390.7m (2021: \u00a3321.9m).
Trade and other receivables: Non-current
2022
\u00a3m
2021
\u00a3m
Prepayments 1.3 0.4
Other receivables 14.8 13.2
16.1 13.6
Other non-current receivables include long-term employee compensation plans, advances and other non-trade receivables.
Trade and other receivables: Current
2022
\u00a3m
2021
\u00a3m
Trade receivables 266.8 234.4
Prepayments 63.8 42.9
Amounts owed by joint ventures and associates 3.1 1.7
Other receivables 40.9 26.7
374.6 305.7
Other receivables include purchase of own shares by the Employee Share Ownership Trust, and advanced deposits to suppliers.
The management of trade receivables is the responsibility of the reportable operating segments, although they report to the Group
on a monthly basis on debtor days, debtor ageing and significant outstanding debts. The average credit period taken by customers is
22 days (2021: 19 days) and no interest was charged on overdue amounts in the current or prior reporting period.
226
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Each customer has an external credit score which determines the level of credit provided. However, the majority of our customers
have a sovereign credit rating as a result of being government organisations. Of the trade receivables balance at the end of the
year, \u00a355.8m is due from agencies of the UK Government, the Group\u2019s largest customer (2021: \u00a368.0m); \u00a365.5m from the Australian
Government (2021: \u00a354.7m); \u00a333.1m from the US Government (2021: \u00a337.9m); and \u00a318.3m from the Government of the United Arab
Emirates (2021: \u00a323.8m). There are no other customers who represent more than 5% of the total balance of trade receivables. The
maximum potential exposure to credit risk in relation to trade receivables at the reporting date is equal to their carrying value. The
Group does not hold any collateral as security.
The Group does not have any material impairments associated with expected credit losses due to the sovereign credit rating of
most customers. Further specific impairments to trade receivables are based on estimated irrecoverable amounts and provisions on
outstanding balances greater than a year old unless there is firm evidence that the balance is recoverable. The total amount of these
impairments for the Group was \u00a33.3m as of 31 December 2022 (2021: \u00a34.4m).
An Expected Credit Loss (ECL) is recognised against contract assets only when it is considered to be material and there is evidence
that the credit worthiness of a counterparty may render balances irrecoverable. The amount of ECL recognised at 31 December 2022
was \u00a3nil (2021: \u00a3nil).
Ageing of trade receivables
2022
\u00a3m
2021
\u00a3m
Not due 202.1 191.3
Overdue by less than 30 days 31.8 25.1
Overdue by between 30 and 60 days 6.2 8.2
Overdue by more than 60 days 30.0 14.2
Allowance for doubtful debts (3.3) (4.4)
266.8 234.4
Of the total overdue trade receivable balance, 63% (2021: 92%) relates to the Group\u2019s four major governmental customers (being the
governments of the UK, US, Australia and the United Arab Emirates).
Movements on the Group allowance for doubtful debts
2022
\u00a3m
2021
\u00a3m
At 1 January 4.4 7.0
Arising on acquisition 1.3 1.6
Net charges and releases to income statement (0.4) 0.4
Utilised (2.3) (4.7)
Exchange differences 0.3 0.1
At 31 December 3.3 4.4
Included in the current other receivables balance is a further \u00a31.5m (2021: \u00a30.8m) due from agencies of the UK Government.
22. Cash and cash equivalents
Sterling
2022
\u00a3m
Other currencies
2022
\u00a3m
Total
2022
\u00a3m
Sterling
2021
\u00a3m
Other currencies
2021
\u00a3m
Total
2021
\u00a3m
Customer advance payments
1
\u2013 1.4 1.4 \u2013 0.1 0.1
Other cash and short-term deposits
2
3.5 52.3 55.8 172.9 25.4 198.3
Total cash and cash equivalents 3.5 53.7 57.2 172.9 25.5 198.4
1 Customer advance payments totalling \u00a31.4m (2021: \u00a30.1m) are encumbered cash balances.
2 Included within other cash and short-term deposits is \u00a34.0m (2021: \u00a34.0m) of restricted cash.
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank
and other short-term highly liquid investments with a maturity of three months or less from the date of acquisition.
227
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
23. Contract liabilities, trade and other payables
Contract liabilities: Current
2022
\u00a3m
2021
\u00a3m
Deferred income 60.5 61.3
Contract liabilities: Non-current
2022
\u00a3m
2021
\u00a3m
Deferred income 36.3 48.6
The allocation of deferred income between current and non-current is presented on the basis that the current portion will unwind in
the following 12 months through revenue. There were no material items in the current portion of deferred income in 2021 which did
not unwind during the year.
Total trade and other payables held by the Group at 31 December 2022 amount to \u00a3629.3m (2021: \u00a3533.3m).
Trade and other payables: Current
2022
\u00a3m
2021
\u00a3m
Trade payables 108.3 89.2
Contingent consideration payable 11.2 \u2013
Other payables 166.2 123.7
Accruals 337.1 313.1
622.8 526.0
Other payables include sales and other direct taxes, payroll taxes, salaries and other non-trade payables.
The average credit period taken for trade purchases is 21 days (2021: 23 days).
Trade and other payables: Non-current
2022
\u00a3m
2021
\u00a3m
Other payables 6.5 7.3
24. Leases
Management estimates that the fair value of the Group\u2019s lease obligations approximates their carrying amount. The Group uses
leases in the delivery of its contractual obligations and the services required to support the delivery of those contracts, including
administrative functions. There are no material future cash outflows relating to leases in place as at 31 December 2022 that are not
reflected in the minimum lease payments disclosed below and the Group does not have any leases to which it is contracted but which
are not yet reflected in the minimum lease payments. Additionally, the Group does not have any leases where payments are variable.
The Group has a significant number of leases which include either termination or extension options, or both. Included in amounts
payable under leases below are only those amounts which reflect Management\u2019s view of the reasonably certain lease term in line with
current operational requirements.
No lease liability is recognised in respect of leases which have a lease term of less than 12 months in duration at the point of entering
into the lease, or where the purchase price of the underlying right of use asset is less than \u00a35,000.
The total cash outflow for leases, excluding short-term leases and low-value leases, in the year was \u00a3128.4m (2021: \u00a3119.1m). This is
presented in the Consolidated Cash Flow Statement as \u00a3120.5m (2021: \u00a3111.3m) relating to the principal element of the lease liability
payments, with the remaining balance of \u00a37.9m (2021: \u00a37.8m) presented within interest paid.
Amounts payable under leases
Minimum lease
payments
2022
\u00a3m
Minimum lease
payments
2021
\u00a3m
Within one year 150.6 131.0
Between one and five years 263.2 263.9
After five years 51.5 53.6
465.3 448.5
Less: future finance charges (19.3) (18.2)
Present value of lease obligations 446.0 430.3
Less: amount due for settlement within one year (shown within current liabilities) (144.4) (126.3)
Amount due for settlement after one year 301.6 304.0
228
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
The following amounts are included in the Group\u2019s Consolidated Financial Statements in respect of its leases:
Note
2022
\u00a3m
Restated
1
2021
\u00a3m
Additions to right of use assets 19 129.8 154.6
Depreciation charge on right of use assets 19 (119.3) (109.0)
Net release of impairment on right of use assets 19 1.8 \u2013
Net disposals of right of use assets 19 (14.0) (26.2)
Net reclassifications from right of use assets 19 (0.1) (0.2)
Net exchange differences on right of use assets 19 6.2 0.1
Carrying amount of right of use assets 19 434.2 416.7
Current lease liabilities 24 144.4 126.3
Non-current lease liabilities 24 301.6 304.0
Capital element of lease repayments (120.5) (111.3)
Interest expense on lease liabilities 13 (7.9) (7.8)
Profit on early termination of leases 10 0.2 0.6
Expenses relating to short-term or low-value leases 10 (4.2) (2.8)
1 Additions and disposals have been restated to be consistent with the treatment adopted in 2022. The adjustment ensures that changes in lease terms, which are
agreed before the end of the original lease, are treated as a lease modification and not the termination and commencement of a new lease. This change has no
impact on the net book value, cash flow or profit previously reported.
25. Loans
Total
2022
\u00a3m
Total
2021
\u00a3m
Loans are repayable as follows:
On demand or within one year 44.5 64.9
Between one and two years 54.1 40.2
Between two and five years 106.3 160.8
After five years 58.0 111.1
262.9 377.0
Less: amount due for settlement within one year (shown within current liabilities) (44.5) (64.9)
Amount due for settlement after one year 218.4 312.1
Included within amounts repayable within one year is \u00a3nil (2021: \u00a3nil) related to the draw down on the revolving credit facility.
Carrying
amount
2022
\u00a3m
Fair value
2022
\u00a3m
Carrying
amount
2021
\u00a3m
Fair value
2021
\u00a3m
Loans 262.9 241.5 377.0 389.4
The fair values are based on cash flows discounted using a market rate appropriate to the loan. All loans are held at amortised cost.
229
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
25. Loans continued
Analysis of Net Debt
The analysis below provides a reconciliation between the opening and closing positions in the balance sheet for liabilities arising from
financing activities together with movements in derivatives relating to the items included in Net Debt. There were no changes in fair
value noted in either the current or prior year.
At 1 January
2022
\u00a3m
Cash
flow
\u00a3m
Acquisitions
1
\u00a3m
Exchange
differences
\u00a3m
Non\u2013cash
Movements
2
\u00a3m
At
31 December
2022
\u00a3m
Loans payable (377.0) 149.3 (6.5) (30.1) 1.4 (262.9)
Lease obligations (430.3) 120.5 (13.1) (8.0) (115.1) (446.0)
Liabilities arising from financing activities (807.3) 269.8 (19.6) (38.1) (113.7) (708.9)
Cash and cash equivalents 198.4 (151.1) 6.2 3.7 \u2013 57.2
Derivatives relating to Net Debt 0.6 \u2013 \u2013 1.2 \u2013 1.8
Net Debt (608.3) 118.7 (13.4) (33.2) (113.7) (649.9)
1 Acquisitions represent the net cash/(debt) acquired on acquisition.
2 Non-cash movements on loans payable relate to movement in capitalised finance costs in the year. For lease obligations non-cash movements relate to the net
impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash termination cost.
At 1 January
2021
\u00a3m
Cash
flow
\u00a3m
Acquisitions
1
\u00a3m
Exchange
differences
\u00a3m
Non-cash
Movements
2
\u00a3m
At
31 December
2021
\u00a3m
Loans payable (388.8) 29.7 (14.3) (2.9) (0.7) (377.0)
Lease obligations (402.6) 111.3 (13.8) (0.5) (124.7) (430.3)
Liabilities arising from financing activities (791.4) 141.0 (28.1) (3.4) (125.4) (807.3)
Cash and cash equivalents 335.7 (145.8) 13.3 (4.8) \u2013 198.4
Derivatives relating to Net Debt (4.7) \u2013 \u2013 5.3 \u2013 0.6
Net Debt (460.4) (4.8) (14.8) (2.9) (125.4) (608.3)
1 Acquisitions represent the net cash/(debt) acquired on acquisition.
2 Non-cash movements relate to the net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash
termination cost.
26. Provisions
Employee
related
\u00a3m
Property
\u00a3m
Contract
\u00a3m
Claims
\u00a3m
Other
\u00a3m
Total
\u00a3m
At 1 January 2022 73.8 19.3 14.2 20.1 70.2 197.6
Arising on acquisition \u2013 \u2013 \u2013 \u2013 0.4 0.4
Reclassified between categories \u2013 (1.1) \u2013 \u2013 1.1 -
Transferred from working capital \u2013 0.8 \u2013 \u2013 0.6 1.4
Charged to income statement 13.5 3.0 2.6 8.8 7.7 35.6
Released to income statement (3.2) (0.8) (3.8) \u2013 (3.9) (11.7)
Utilised during the year (6.2) (1.9) (1.4) (4.7) (6.2) (20.4)
Exchange differences 4.6 0.3 \u2013 \u2013 0.6 5.5
At 31 December 2022 82.5 19.6 11.6 24.2 70.5 208.4
Analysed as:
Current 48.3 6.4 9.8 4.9 65.5 134.9
Non-current 34.2 13.2 1.8 19.3 5.0 73.5
82.5 19.6 11.6 24.2 70.5 208.4
Employee-related provisions include amounts for long-term service awards and terminal gratuity liabilities which have been accrued
and are based on contractual entitlement, together with an estimate of the probabilities that employees will stay until rewards fall
due and receive all relevant amounts. There are also amounts included in relation to restructuring. The provisions will be utilised over
various periods driven by local legal or regulatory requirements, the timing of which is uncertain.
230
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
The majority of property provisions relate to leased properties and are associated with the requirement to return properties to either their original condition, or to enact specific improvement activities in advance of exiting the lease. Dilapidations associated with leased properties are held as a provision until such time as they fall due, with the longest running lease ending in January 2037. A contract provision is recorded when a contract is deemed to be unprofitable and therefore is considered onerous. The present value of the estimated future cash outflow required to settle the contract obligations as they fall due over the respective contracts has been used in determining the provision. Claims provisions relate to claims made against the Group. These claims are varied in nature, although they typically come from either the Group\u2019s service users, claimants for vehicle-related incidents or the Group\u2019s employees. While there is some level of judgement on the amount to be recorded, in almost all instances the variance to the actual claim paid out will not individually be material, however the timing of when the claims are reported and settled is less certain as a process needs to be followed prior to the amounts being paid. Included within other provisions is: \u2013 \u00a342.7m related to indemnities provided in respect of a historic business transaction. Within this amount, \u00a336.0m is reserved for potential tax liabilities arising within the disposed company when local tax submissions are reviewed by the relevant authorities which represents Management\u2019s best estimate of the likely outcome based on past experiences and other known factors. Under the indemnity, \u00a336.0m is the Group\u2019s maximum potential exposure to these tax matters. The timing of utilisation is dependent on future events which could occur within the next 12 months, or over a longer period. \u2013 \u00a327.8m related to legal and other costs that the Group expects to incur over an extended period, in respect of past events for which a provision has been recorded, none of which are individually material. Individual provisions are only discounted where the impact is assessed to be significant. Currently, the effect of discounting is not material. 27. Capital and other commitments Capital expenditure contracted but not provided 2022 \u00a3m 2021 \u00a3m Property, plant and equipment 5.7 1.2 Intangible assets 0.2 0.8 28. Contingent liabilities The Group has guaranteed overdrafts, leases, and bonding facilities of its joint ventures and associates up to a maximum value of \u00a35.7m (2021: \u00a35.7m). The actual commitment outstanding at 31 December 2022 was \u00a35.7m (2021: \u00a35.7m). The Group has provided certain guarantees and indemnities in respect of performance and other bonds, issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 31 December 2022 was \u00a3222.7m (2021: \u00a3263.8m). Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the reduction in Serco\u2019s share price in 2013, the Group has continued to assess the merit, likely outcome and potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially given the legal uncertainties in such actions. The Group is also aware of other claims and potential claims which involve or may involve legal proceedings against the Group although the timing of settlement of these claims remains uncertain. Management is of the opinion, having regard to legal advice received and the Group\u2019s insurance arrangements, that it is unlikely that these matters will, in aggregate, have a material effect on the Group\u2019s financial position. 29. Financial risk management 29 (a) Fair value of financial instruments i) Fair value hierarchy The vast majority of financial instruments are held at amortised cost. The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is observable. The levels are as follows: Level 1: Inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within Level 1. Level 3: Inputs are unobservable inputs for the asset or liability. Based on the above, the derivative financial instruments held by the Group at 31 December 2022 and the comparison fair values for loans and leases, are all considered to fall into Level 2. Market prices are sourced from Bloomberg and third party valuations. The valuation models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves. There have been no transfers between levels in the year. 231 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 29. Financial risk management continued 29 (a) Fair value of financial instruments continued i) Fair value hierarchy continued The Group held the following financial instruments which fall within the scope of IFRS 9Financial Instruments at 31 December: Carrying amount (measurement basis) Comparison fair value Carrying amount (measurement basis) Comparison fair value Amortised cost 2022 \u00a3m Fair value 2022 \u00a3m 2022 \u00a3m Amortised cost 2021 \u00a3m Fair value 2021 \u00a3m 2021 \u00a3m Financial assets Financial assets \u2013 current Cash and bank balances 57.2 \u2013 57.2 198.4 \u2013 198.4 Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 3.0 3.0 \u2013 2.6 2.6 Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Receivables Trade receivables (note 21) 266.8 \u2013 266.8 234.4 \u2013 234.4 Amounts owed by joint ventures and associates (note 21) 3.1 \u2013 3.1 1.7 \u2013 1.7 Financial assets \u2013 non-current Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Financial liabilities \u2013 current Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 (1.1) (1.1) \u2013 (2.0) (2.0) Financial liabilities at fair value (Level 3) Contingent consideration (note 23) \u2013 (11.2) (11.2) \u2013 \u2013 \u2013 Financial liabilities at amortised cost Trade payables (note 23) (108.3) \u2013 (108.3) (89.2) \u2013 (89.2) Loans (note 25) (44.5) \u2013 (44.3) (64.9) \u2013 (65.2) Lease obligations (note 24) (144.4) \u2013 (143.3) (126.3) \u2013 (126.3) Financial liabilities \u2013 non-current Financial liabilities at amortised cost Loans (note 25) (218.4) \u2013 (197.2) (312.1) \u2013 (324.2) Lease obligations (note 24) (301.6) \u2013 (300.5) (304.0) \u2013 (304.0) Management estimate that the carrying amounts of cash, trade receivables and trade payables approximate to their fair value due to the short-term maturity of these instruments. The following table shows the development of financial assets and liabilities categorised as level 3: Financial liabilities current contingent consideration 2022 \u00a3m Financial liabilities current contingent consideration 2021 \u00a3m Balance at 1 January \u2013 \u2013 Arising on acquisition (12.2) \u2013 Cash settlement 1.0 \u2013 Balance at 31 December (11.2) \u2013 232 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 The fair values of loans and lease obligations are based on cash flows discounted using a rate based on the borrowing rate associated with the liability. The fair value of derivatives is calculated using a discounted cash flow approach applying discount factors derived from observable market data to actual and estimated future cash flows. Credit risk is considered in the calculation of these fair values. ii) Fair value of derivative financial instruments The fair value of derivative financial instruments results in a net asset of \u00a32.5m (2021: \u00a30.6m) comprising non-current assets of \u00a30.3m (2021: \u00a3nil), current assets of \u00a33.3m (2021: \u00a32.6m), and current liabilities of \u00a31.1m (2021: \u00a32.0m). 1 January 2022 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2022 \u00a3m Forward foreign exchange contracts 0.6 0.6 1.3 2.5 1 January 2021 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2021 \u00a3m Forward foreign exchange contracts (4.9) 0.2 5.3 0.6 The fair value of financial liabilities recognised at fair value through profit and loss is \u00a31.1m (2021: \u00a32.0m) and relates to derivatives that are not designated in hedge accounting relationships. The fair value of the derivatives and their credit risk adjusted fair value are not materially different and are approximately equal to the amount contractually payable at maturity due to the short tenure of the instruments. 29 (b) Financial risk The Board is ultimately responsible for ensuring that financial and non-financial risks are monitored and managed within acceptable and known parameters. The Board delegates authority to the Executive team to manage financial risks. The Group\u2019s Treasury function acts as a service centre and operates within clearly defined guidelines and policies that are approved by the Board. The guidelines and policies define the financial risks to be managed, specify the objectives in managing these risks, delegate responsibilities to those managing the risks and establish a control framework to regulate treasury activities to minimise operational risk. 29 (c) Liquidity risk i) Credit facilities The Group maintains committed credit facilities to ensure that it has sufficient liquidity to maintain its ongoing operations. As at 31 December, the Group\u2019s committed bank credit facilities and corresponding borrowings were as follows: Currency Amount 2022 \u00a3m Drawn 2022 \u00a3m Utilised for bonding facility 2022 \u00a3m Total facility available 2022 \u00a3m Syndicated revolving credit facility Sterling 350.0 \u2013 \u2013 350.0 Currency Amount 2021 \u00a3m Drawn 2021 \u00a3m Utilised for bonding facility 2021 \u00a3m Total facility available 2021 \u00a3m Syndicated revolving credit facility Sterling 250.0 \u2013 \u2013 250.0 Term loan facility Sterling 120.0 120.0 \u2013 \u2013 In November 2022 the Group refinanced its revolving credit facility, with a new deal having a term of five years to November 2027 with a maximum capacity of \u00a3350m, up from the previous facility of \u00a3250m. In addition, the new facility provides an additional accordion facility of \u00a3100m which is uncommitted. The Group has \u00a3266.4m (2021: \u00a3259.2m) of US private placement loan notes which will be repaid as bullet repayments between 2022 and 2032. In September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS) which had CHF6m (\u00a35.4m) uncommitted credit facility which was undrawn at acquisition and through to 31 December 2022. Uncommitted credit facilities can be withdrawn by the bank at any time. 233 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 29. Financial risk management continued 29 (c) Liquidity risk continued ii) Maturity of financial liabilities The Group\u2019s financial liabilities will be settled on both a net and a gross basis over the remaining period between the balance sheet date and the contractual maturity date. The amounts disclosed below are the contractual undiscounted cash flows based on the earliest date on which the Group can be required to pay. At 31 December 2022 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 108.3 \u2013 \u2013 \u2013 108.3 Obligations under leases 1 (note 24) 150.6 113.9 149.3 51.5 465.3 Loans 2 (note 25) 45.4 54.9 108.0 58.1 266.4 Future loan interest 11.2 7.3 15.2 8.9 42.6 Derivatives settled on gross basis: Outflow 1,284.0 7.6 8.1 \u2013 1,299.7 Inflow (1,286.2) (8.1) (8.6) \u2013 (1,302.9) 313.3 175.6 272.0 118.5 879.4 1 The present value of lease obligations is \u00a3446.1m after deducting \u00a319.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. At 31 December 2021 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 89.2 \u2013 \u2013 \u2013 89.2 Obligations under leases (note 24) \u2013 restated 1 131.0 107.1 156.8 53.6 448.5 Loans 2 (note 25) 66.1 40.5 161.2 111.4 379.2 Future loan interest 12.2 11.3 16.3 12.2 52.0 Derivatives settled on gross basis: Outflow 1,427.9 \u2013 \u2013 \u2013 1,427.9 Inflow (1,428.4) \u2013 \u2013 \u2013 (1,428.4) 298.0 158.9 334.3 177.2 968.4 1 The present value of lease obligations is \u00a3430.3m after deducting \u00a318.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. Gross cash flows in the table above relating to forward foreign exchange contracts total \u00a31,286.2m (inflow) and \u00a31,284.0m (outflow) on demand or within one year (2021: \u00a31,428.4m (inflow) and \u00a31,427.9m (outflow) on demand or within one year). 29 (d) Foreign exchange risk i) Transactional It is the Group\u2019s policy to hedge material transactional exposures using forward foreign exchange contracts to fix the functional currency value of non-functional currency cash flows. At 31 December 2022, there were no material unhedged non-functional currency monetary assets or liabilities, firm commitments, or highly probable forecast transactions. ii) Translational Where possible the Group will raise external funding to match the currency profile of its foreign operations, in order to mitigate translation exposure. If matched funding is not possible, currency derivatives may be used to protect against movements in foreign exchange. iii) Hedge accounting For the purposes of hedge accounting, hedges are classified as either fair value hedges, cash flow hedges or hedges of net investments in foreign operations. Details of the Group\u2019s accounting policies in relation to derivatives qualifying for hedge accounting under IFRS 9 Financial Instruments can be seen in note 2. 234 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 The Group holds a number of forward foreign exchange contracts designated as cash flow hedges. These derivatives are hedging
highly probable forecast foreign currency trade payments in the UK business. The net notional amounts are summarised by
currency below:
2022
\u00a3m
2021
\u00a3m
Sterling (32.9) (2.1)
US Dollar 12.7 \u2013
Indian Rupee 21.7 2.2
All derivatives designated as cash flow hedges are highly effective and as at 31 December 2022, \u00a30.6m net fair value gains (2021:
\u00a3nil net fair value gain) has been deferred in the hedging reserve. During the year to 31 December 2022, \u00a30.9m (2021: \u00a30.1m) of
net fair value gains were transferred to the hedging reserve and \u00a30.4m fair value gains (2021: \u00a30.1m gains) were reclassified to the
Consolidated Income Statement.
iv) Currency sensitivity
The Group\u2019s currency exposures in respect of monetary items at 31 December 2022 that result in net currency gains and losses in the
income statement and equity arise principally from movement in US Dollar and Indian Rupee exchange rate. The impact of a 10%
movement is summarised below:
Pre-tax profits
gain/(loss)
2022
\u00a3m
Equity gain/
(loss)
2022
\u00a3m
Pre-tax profits
gain/(loss)
2021
\u00a3m
Equity gain/
(loss)
2021
\u00a3m
US Dollar (0.1) 1.3 \u2013 0.1
Euro (0.1) \u2013 \u2013 \u2013
Indian Rupee \u2013 2.1 \u2013 (0.2)
(0.2) 3.4 \u2013 (0.1)
29 (e) Interest rate risk
The Group\u2019s policy is to minimise the impact of interest rate volatility on earnings to provide an appropriate level of certainty to cost of
funds. Exposure to interest rate risk arises principally on changes to US Dollar and Sterling interest rates.
i) Interest rate management
An analysis of financial assets and liabilities exposed to interest rate risk is set out below:
Financial assets
Floating rate
2022
\u00a3m
Fixed rate
2022
\u00a3m
Weighted
average
interest rate
2022
%
Floating rate
2021
\u00a3m
Fixed rate
2021
\u00a3m
Weighted
average
interest rate
2021
%
Cash and cash equivalents 57.2 \u2013 1.2 198.4 \u2013 \u2013
Financial liabilities
Floating rate
2022
\u00a3m
Fixed rate
2022
\u00a3m
Weighted
average
interest rate
2022
%
Floating rate
2021
\u00a3m
Fixed rate
2021
\u00a3m
Weighted
average
interest rate
2021
%
US Dollar loans \u2013 266.4 4.2 \u2013 259.2 4.3
Other loans \u2013 \u2013 \u2013 120.0 \u2013 1.6
\u2013 266.4 \u2013 120.0 259.2 3.2
Exposure to interest rate fluctuations is mitigated through the issuance of fixed rate debt. The rates on the US Dollar loans are fixed
for the term of each loan. The loans will be repaid as bullet repayments between 2022 and 2032. Excluded from the above analysis is
\u00a3446.0m (2021: \u00a3430.3m) of amounts payable under leases, which are subject to fixed rates of interest.
ii) Interest rate sensitivity
The effect of a 100 basis point increase in SONIA (Sterling Overnight Index Average) rates on the net financial liability position
(excluding leases) at the balance sheet date, with all other variables held constant, would have resulted in a \u00a30.6m increase in pre-tax
profit for the year to 31 December 2022 (2021: increase of \u00a30.8m).
From 1 January 2022, SONIA replaced GBP LIBOR and with all other variables held constant is not expected to have a material impact
on the Group. The floating rate loans mentioned above have been restructured effective 1 January 2022 so that the actual interest
rates used are consistent when using SONIA as a benchmark compared with GBP LIBOR and this results in no change to the risk
strategy going forward.
235
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
29. Financial risk management continued
29 (f) Credit risk
The Group\u2019s principal financial assets are cash and cash equivalents, contract assets and trade and other receivables.
Credit risk is the risk that a counterparty could default on its contractual obligations. In this regard, the Group\u2019s principal exposure is to
cash and cash equivalents, derivative transactions and trade receivables.
The Group\u2019s contract asset and trade receivables credit risk is relatively low given that a high proportion of our customer base are
government bodies with strong sovereign, or sovereign-like, credit ratings. However, where the assessed credit worthiness of a
customer, government or non-government, falls below that considered acceptable, appropriate measures are taken to mitigate
against the risk of contractual default using instruments such as credit guarantees.
The Group has not recorded any impairments related to contract assets or trade and other receivables relating to credit risk during the
year ended 31 December 2022 (2021: none).
The Group\u2019s Treasury function primarily transacts with counterparties that comply with Board policy. Where exceptions are approved
due to local requirements, the Group\u2019s exposures are monitored and kept to an immaterial level. The credit risk is measured by way
of a counterparty credit rating from any two recognised rating agencies. Pre-approved limits are set based on a rating matrix and
exposures monitored accordingly. The Group also employs the use of set-off rights in some agreements.
The Group\u2019s policy is to provide guarantees for joint ventures and associates only to the relevant proportion of support provided by
the partners. At 31 December 2022, the Company has issued guarantees in respect of certain joint ventures and associates as per
note 28.
29 (g) Capital risk
Management\u2019s objective is to maintain a capital structure that supports the Group\u2019s strategic objectives, including but not limited to
reshaping the portfolio through mergers, acquisitions and disposals. In doing so the Board seeks to manage funding and liquidity risk,
optimise shareholder return and maintain an implied investment grade credit position. This strategy is unchanged from the prior year.
Management reviews and approves at least annually a treasury policy document which covers, inter alia, funding and liquidity risk,
capital structure and risk management. This policy details targets for committed funding headroom, diversification of committed
funding and debt maturity profile.
The Group plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to shareholders.
The following table summarises the capital of the Group:
2022
\u00a3m
2021
\u00a3m
Cash and cash equivalents (57.2) (198.4)
Loans 262.9 377.0
Obligations under leases 446.0 430.3
Equity 1,029.7 1,008.4
Capital 1,681.4 1,617.3
30. Retirement benefit schemes
30 (a) Defined benefit schemes
i) Characteristics and risks
The Group contributes to defined benefit schemes for qualifying employees of its subsidiaries. The schemes in which the Group
participates are categorised as follows:
Non-contract specific schemes
These schemes do not relate to any specific contract and represent 98% (2021: 98%) of scheme assets and 98% (2021: 97%) of
scheme liabilities. They consist of six pre-funded defined benefit schemes and an unfunded defined benefit scheme.
The two UK funded schemes are Serco Pension and Life Assurance Scheme (SPLAS) and a non-contract specific section of the Railways
Pension Scheme (RPS). The funding policy for the UK pre-funded schemes is to contribute amounts which will achieve 100% funding
on a projected salary basis based on regular actuarial valuations.
There are three non-UK schemes based in Switzerland and are available for the employees of OXZ Holdings AG and its subsidiaries
which are part of a collective foundation. The occupational benefits fund commission defines the contributions which are shared
equally between the employer and the employees.
The Group also makes contributions to the Public Sector Superannuation Scheme in Australia.
The unfunded scheme is a German scheme and any liabilities arising are recognised in full, with the liabilities in relation to the
unfunded scheme amounting to \u00a30.2m (2021: \u00a30.3m).
236
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Contract specific schemes
These schemes represent 2% (2021: 2%) of scheme assets and 2% (2021: 3%) of scheme liabilities. They consist of two pre-funded
defined benefit schemes in the UK.
Under contractual arrangements the Group sponsors a section of the RPS, an industry-wide defined benefit scheme, paying
contributions in accordance with a Schedule of Contributions. There is no residual liability to fund any deficit at the end of the
franchise period and any costs are shared 60% by the employer and 40% by the members.
The Group also makes contributions under Admitted Body status for one section of the Local Government Pension Scheme for the
period to the end of the relevant customer contract. The Group is required to pay regular contributions as decided by the respective
scheme actuary and as detailed in each scheme\u2019s schedule of contributions. In addition, the Group may be required to pay some or all
of any deficit (as determined by the respective scheme actuary) that is remaining at the end of the contract.
In respect of Local Government Pension Schemes, as there is a residual liability, the Group recognises a sufficient level of provision in
these financial statements based on the IAS 19
Employee Benefits
valuation at the reporting date and contractual obligations.
Joint venture scheme
Under contractual arrangements, the Group\u2019s joint venture Merseyrail Services Holding Company Limited (MSHCL) sponsors a
section of the RPS, an industry-wide defined benefit scheme, paying contributions in accordance with a Schedule of Contributions.
There is no residual liability to fund any deficit at the end of the franchise period and there is no pension obligation on the balance
sheet of the Group or MSHCL. The costs associated with the scheme are included in profit from operations for MSCHL shown in
note 7 and reflected in the share of profits in joint ventures in the income statement and therefore the disclosure in this note do not
include MSHCL.
Scheme funding
The normal contributions expected to be paid during the financial year for all schemes ending 31 December 2023 are \u00a38.9m
(2022: \u00a36.8m).
The assets of funded schemes are held independently of the Group\u2019s assets in separate trustee administered schemes. The trustees
of each pension scheme are required by law to act in the interest of the scheme and of all relevant stakeholders in the scheme. The
trustees of the pension schemes are responsible for the investment policy with regard to the assets of the scheme. The Group\u2019s
schemes are valued by independent actuaries annually using the projected unit credit actuarial cost method for accounting purposes.
This reflects service rendered by employees to the date of valuation and incorporates actuarial assumptions including discount rates
to determine the present value of benefits, inflation assumptions, projected rates of salary growth and life expectancy of pension plan
members. Discount rates are based on the market yields of high-quality corporate bonds in the country concerned. Pension assets
and liabilities in the different defined benefit schemes are not offset.
The schemes typically expose the Group to risks that impact the financial performance and position of the Group and may affect the
amount and timing of future cash flows. The key risks are set out below:
\u2013 Investment risk. The schemes hold assets with which to discharge the future liabilities of these schemes. Any decline in the value
of these investments directly impacts on the ability of the schemes to meet its commitments and could require the Group to
fund this shortfall in future years. SPLAS\u2019s investment strategy aims to reduce volatility risk by better matching assets to liabilities
and is based on the actuarial funding basis. 48% of the scheme\u2019s assets are annuity policies, which result in an insurer funding
the future benefit payments to the relevant members and therefore eliminate the risk of changes in the future value of the
benefits to the scheme. The investment strategy outside of the annuity has a benchmark allocation of 45% Liability Driven
Investments (LDIs), 40% Buy and Maintain Credit and 15% Private Debt. The main asset classes that make up the LDI investments
are gilts and corporate bonds with inflation and interest swap overlays and are therefore linked to the key drivers of the
scheme\u2019s liabilities.
\u2013 Interest risk. The present values of the defined benefit schemes\u2019 liabilities are calculated using a discount rate determined by
reference to high-quality corporate bond yields and therefore a decrease in the bond interest rate will increase the schemes\u2019
liabilities. This will be partially offset by an increase in the return of the schemes\u2019 debt investments.
\u2013 Longevity risk. The present values of the defined benefit schemes\u2019 liabilities are calculated by reference to the best estimate of
the mortality of the schemes\u2019 participants, both during and after their employment. An increase in the life expectancy of the
schemes\u2019 participants will increase the schemes\u2019 liabilities.
\u2013 Inflation risk. The present values of the defined benefit schemes\u2019 liabilities are calculated to include the effect of inflation on
future purchasing power based on estimations around inflation rates. An increase in expected future inflation rates will increase
the schemes\u2019 liabilities.
\u2013 Salary risk. The present values of the defined benefit schemes\u2019 liabilities are calculated by reference to the future salaries of the
schemes\u2019 participants, as such, an increase in the salary of the schemes\u2019 participants will increase the schemes\u2019 liabilities.
Serco Pension and Life Assurance Scheme (SPLAS)
The largest non-contract specific schemes is SPLAS. The most recent full actuarial valuation of this scheme was undertaken as at 5 April
2021 and completed in May 2022. The actuarially assessed deficit for funding purposes was \u00a370.0m. The increase to the actuarially
assessed deficit for funding purposes was as a result of the RPI reform announced by the UK government to take effect from 2030.
237
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
30. Retirement benefit schemes continued
30 (a) Defined benefit schemes continued
i) Characteristics and risks continued
Serco Pension and Life Assurance Scheme (SPLAS) continued
Pension obligations are valued separately for accounting and funding purposes and there is often a material difference between these
valuations. As at 31 December 2022, the estimated actuarial deficit on a funding basis for SPLAS was \u00a327m (2021: \u00a342m) whereas the
accounting valuation resulted in an asset of \u00a347.5m (2021: \u00a3166.2m). The primary reason a difference arises is that pension scheme
accounting requires the valuation to be performed on the basis of a best estimate whereas the funding valuation used by the trustees
makes more prudent assumptions.
The schedule of contributions for SPLAS was agreed during 2022, with 44.3% of pensionable salaries for active employees due to be
paid in regular contributions from 1 June 2022. The schedule of contributions also determined that additional shortfall contributions
were required and the Group has committed to make deficit recovery payments by 31 March of \u00a36.6m per year from 2022 to 2030. An
annual assessment of the shortfall is performed and if the scheme is determined to be in a surplus position the shortfall contributions
due by 31 March are deferred to the following year. If the shortfall calculated in the annual assessment is less that than the cumulative
shortfall due to date the contribution is capped at the shortfall calculation and any excess is carried forward to the next year.
ii) Events in the year
During the year there has been a high degree of volatility in the pensions market. Discount rates and short-term inflation rates have
been rising since 31 December 2021 which has resulted in the weighted average durations used for valuing pension schemes
decreasing. Concerns over high global inflation, recession, disruption to supply chains due to the war in Ukraine and rising interest
rates, compounded by the market volatility in September 2022 due to political events resulted in a sharp rise in bond yields and a
subsequent reduction in the value of LDIs, which triggered collateral calls. The Group made a short-term temporary loan of \u00a360m to
SPLAS on 28 September 2022 while the scheme liquidated assets to meet these collateral calls, in order to ensure that the LDI hedge
was maintained; this loan was repaid on 3 October 2022.
The private debt investments are less volatile to the market conditions and therefore the allocation of investments was outside the
scheme\u2019s benchmark at 31 December 2022, with 46% LDIs, 24% Buy and Maintain Credit and 30% Private Debt. The Trustees of
SPLAS have been working closely with the Group and investment consultants to ensure the investment objectives of the scheme
are maintained.
On 1 September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG. Included in the acquisition was a
net pension obligation of \u00a35.0m relating to three schemes as noted above.
iii) Values recognised in total comprehensive income in the year
The amounts recognised in the Consolidated Financial Statements for the year are analysed as follows:
Recognised in the income statement
2022
\u00a3m
2021
\u00a3m
Current service cost \u2013 employer 5.9 5.1
Past service cost \u2013 employer 0.8 \u2013
Settlement gain recognised (0.3) \u2013
Administrative expenses and taxes 2.4 1.5
Recognised in arriving at operating profit after exceptional items 8.8 6.6
Interest income on scheme assets \u2013 employer (28.3) (22.0)
Interest on franchise adjustment (0.2) (0.1)
Interest cost on scheme liabilities \u2013 employer 25.8 21.0
Finance income (2.7) (1.1)
Total recognised in the income statement 6.1 5.5
Included within the SOCI
2022
\u00a3m
2021
\u00a3m
Actual return on scheme assets (539.8) 42.3
Less: interest income on scheme assets (28.3) (22.0)
Net return on scheme assets (568.1) 20.3
Effect of changes in demographic assumptions 21.2 3.3
Effect of changes in financial assumptions 530.3 19.8
Effect of experience adjustments (77.2) 23.4
Remeasurements (93.8) 66.8
Change in franchise adjustment (7.0) 0.1
Change in members\u2019 share (5.3) (0.6)
Actuarial loss on reimbursable rights (12.3) (0.5)
Total recognised in the SOCI (106.1) 66.3
238
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
iv) Balance sheet values
The assets and liabilities of the schemes at 31 December are:
Fair value of
scheme assets
2022
\u00a3m
Present value of
scheme liabilities
2022
\u00a3m
Surplus/(deficit)
2022
\u00a3m
Fair value of
scheme assets
2021
\u00a3m
Present value of
scheme liabilities
2021
\u00a3m
Surplus/(deficit)
2021
\u00a3m
SPLAS 925.3 (877.8) 47.5 1,489.1 (1,322.9) 166.2
Other Schemes 134.4 (134.1) 0.3 103.8 (136.2) (32.4)
Total 1,059.7 (1,011.9) 47.8 1,592.9 (1,459.1) 133.8
Franchise adjustment
1
1.8 8.6
Members\u2019 share of deficit 1.2 5.8
Net retirement benefit asset
(before tax) 50.8 148.2
Net pension asset 57.0 166.2
Net pension liability (6.2) (18.0)
Net retirement benefit asset
(before tax) 50.8 148.2
Deferred tax (13.9) (36.9)
Net retirement benefit asset (after tax) 36.9 111.3
1 The franchise adjustment represents the amount of scheme deficit that is expected to be funded outside the contract period and therefore no additional funding
will be required by the Group.
The SPLAS Trust Deed gives the Group an unconditional right to a refund of surplus assets, assuming the full settlement of plan
liabilities in the event of a plan wind-up. Pension assets are deemed to be recoverable and there are no adjustments in respect of
minimum funding requirements as economic benefits are available to the Group either in the form of future refunds or, for plans still
open to benefit accrual, in the form of possible reductions in future contributions.
The high degree of volatility as noted above resulted in a reduction in pension scheme assets, particularly investments in bonds, LDIs
and amounts held by insurance companies. There has been significant reduction in pensions scheme obligations as discount rates
have risen but this has only partially offset the reduction in assets as the liabilities are hedged on an actuarial basis rather than an IAS
19 basis. The decrease in pension scheme obligations was partially offset by experience adjustments on SPLAS which were primarily
due to the impact from inflation on the current year allowances for deferred valuations and pension increases.
v) Pension asset values
The schemes asset values at 31 December are:
Scheme assets at fair value
2022
\u00a3m
2021
\u00a3m
Equities 45.2 55.7
Bonds except LDIs 151.4 368.2
Pooled investment funds 140.0 107.6
LDIs 217.7 390.0
Property 1.3 2.2
Cash and other 13.4 6.9
Amounts held by insurance companies 490.7 662.3
Fair value of scheme assets
1
1,059.7 1,592.9
1. There are no investments in the Group\u2019s own transferable financial instruments held as pension assets. No property pension assets are occupied, or other pension
assets used by the Group.
As required by IAS 19
Employee Benefits
, the Group has considered the extent to which the pension plan assets should be classified
in accordance with the fair value hierarchy of IFRS 13
Fair Value Measurement
.
\u2013 Equity and Bonds all have quoted prices in active markets and are classified as level 1.
\u2013 Pooled investment funds have no observable market price and the valuation is based on the Net Asset Value provided by the fund
administrator at 30 September adjusted for actual cash flows in the period to 31 December. Therefore, these investments are
classified as level 3.
\u2013 LDIs are valued at fair value which is typically the Net Asset Value provided by the fund administrator. The LDIs are comprised of a
mix of Level 1 and Level 2 instruments, including corporate/government bonds priced at their quoted bid price, derivatives made
up of interest rate/inflation swaps and payables in respect of repurchase agreements.
\u2013 Amounts held by insurance companies are valued at the equal and opposite of the defined benefit obligations that they insure and
are classified as level 3.
239
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
30. Retirement benefit schemes continued
30 (a) Defined benefit schemes continued
vi) Changes in the fair value of scheme assets and liabilities
The table below shows the movements in fair value of scheme assets and liabilities and shows where they are reflected in the
financial statements.
Fair value of
scheme assets
\u00a3m
Present value of
scheme liabilities
\u00a3m
Surplus/
(deficit)
\u00a3m
At 1 January 2022 1,592.9 (1,459.1) 133.8
Current service cost \u2013 employer \u2013 (5.9) (5.9)
Past service costs \u2013 employer \u2013 (0.8) (0.8)
Administration expenses \u2013 employer (2.4) \u2013 (2.4)
Plan settlement (8.0) 8.3 0.3
Net interest on scheme assets and liabilities 28.3 (25.8) 2.5
Total recognised in the income statement 17.9 (24.2) (6.3)
Return of plan assets (568.1) \u2013 (568.1)
Effect of changes in demographic assumptions \u2013 21.2 21.2
Effect of changes in financial assumptions \u2013 530.3 530.3
Effect of experience adjustments \u2013 (77.2) (77.2)
Total recognised in the SOCI (568.1) 474.3 (93.8)
Contributions by employer 19.9 \u2013 19.9
Total recognised in the cash flow statement 19.9 \u2013 19.9
Contributions by employees 1.7 (1.4) 0.3
Current service cost \u2013 employees \u2013 (0.9) (0.9)
Net Interest cost \u2013 employee 0.1 (0.2) (0.1)
Change in member share 1.8 (2.5) (0.7)
Arising on acquisition 46.7 (51.7) (5.0)
Benefits paid (52.8) 52.8 \u2013
Foreign exchange 1.4 (1.5) (0.1)
Other movements (4.7) (0.4) (5.1)
At 31 December 2022 1,059.7 (1,011.9) 47.8
At 1 January 2021 1,600.5 (1,534.8) 65.7
Current service cost \u2013 employer \u2013 (5.1) (5.1)
Administration expenses \u2013 employer (1.5) \u2013 (1.5)
Net interest on scheme assets and liabilities 22.0 (21.0) 1.0
Total recognised in the income statement 20.5 (26.1) (5.6)
Return of plan assets 20.3 \u2013 20.3
Effect of changes in demographic assumptions \u2013 3.3 3.3
Effect of changes in financial assumptions \u2013 19.8 19.8
Effect of experience adjustments \u2013 23.4 23.4
Total recognised in the SOCI 20.3 46.5 66.8
Contributions by employer 9.0 \u2013 9.0
Total recognised in the cash flow statement 9.0 \u2013 9.0
Contributions by employees 0.6 (0.4) 0.2
Current service cost \u2013 employees \u2013 (0.9) (0.9)
Net Interest cost \u2013 employee 0.1 (0.1) \u2013
Change in member share 0.7 (1.4) (0.7)
Arising on acquisition 1.3 (2.7) (1.4)
Benefits paid (59.3) 59.3 \u2013
Foreign exchange (0.1) 0.1 \u2013
Other movements (58.1) 56.7 (1.4)
At 31 December 2021 1,592.9 (1,459.1) 133.8
240
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
Changes in the franchise adjustment Total \u00a3m At 1 January 2021 8.4 Interest on franchise adjustment \u2013 recognised in income statement 0.1 Other changes \u2013 recognised in the SOCI 0.1 At 1 January 2022 8.6 Interest on franchise adjustment \u2013 recognised in income statement 0.2 Other changes \u2013 recognised in the SOCI (7.0) At 31 December 2022 1.8 vii) Actuarial assumptions: SPLAS The assumptions set out below are for SPLAS, which reflects 87% of total liabilities and 87% of total assets of the defined benefit pension scheme in which the Group participates. The significant actuarial assumptions with regards to the determination of the defined benefit obligation are set out below. The Group continued to set RPI inflation in line with the market expectation less an inflation risk premium. The inflation risk premium is 0.3% both at 31 December 2021 and at 31 December 2022. The average duration of the benefit obligation at the end of the reporting period is 11.5 years (2021: 16.3 years). Significant actuarial assumptions 2022 % 2021 % Discount rate 5.00 1.80 Rate of salary increases 2.85 2.95 RPI Inflation 3.15 3.35 CPI Inflation 2.35 2.45 Post-retirement mortality 1 2022 years 2021 years Current pensioners at 65 \u2013 male 21.5 21.7 Current pensioners at 65 \u2013 female 24.1 24.3 Future pensioners at 65 \u2013 male 23.6 23.9 Future pensioners at 65 \u2013 female 26.2 26.4 1 The mortality assumptions have not been updated to reflect the potential effects of Covid-19 given there remains uncertainty of the Covid-19 impact on long-term mortality rates for pension scheme members. Sensitivity analysis for SPLAS is provided below, based on reasonably possible changes of the assumptions occurring at the end of the reporting period, assuming all other assumptions are held constant. The sensitivities have been derived in the same manner as the defined benefit obligation as at 31 December 2022 where the defined benefit obligation is estimated using the Projected Unit Credit method. Under this method each participant\u2019s benefits are attributed to years of service, taking into consideration future salary increases and the scheme\u2019s benefit allocation formula. Thus, the estimated total pension to which each participant is expected to become entitled at retirement is broken down into units, each associated with a year of past or future credited service. The defined benefit obligation as at 31 December 2022 is calculated on the actuarial assumptions agreed as at that date. The sensitivities are calculated by changing each assumption in turn following the methodology above with all other things held constant. The change in the defined benefit obligation from updating the single assumption represents the impact of that assumption on the calculation of the defined benefit obligation. Due to the increased volatility in the pension market the Group has updated its sensitivity disclosure to reflect a 1% change in the relevant assumption compared to a 0.5% change used in previous years. The prior year comparatives have been restated. 241 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 30. Retirement benefit schemes continued 30 (a) Defined benefit schemes continued vii) Actuarial assumptions: SPLAS continued Increase/(decrease) in defined benefit obligation of SPLAS 2022 \u00a3m Restated 2021 \u00a3m Discount rate \u2013 1.0% increase (93.4) (205.9) Discount rate \u2013 1.0% decrease 113.8 243.8 Inflation \u2013 1.0% increase 68.0 145.7 Inflation \u2013 1.0% decrease (68.1) (157.0) Rate of salary increase \u2013 1.0% increase 1.6 3.3 Rate of salary increase \u2013 1.0% decrease (1.5) (3.3) Mortality \u2013 one-year age rating 25.4 49.7 Management acknowledges that the method used of presuming that all other assumptions remaining constant has inherent limitation given that it is more likely for a combination of changes but highlights the value of each individual risk and is therefore a suitable basis for providing this analysis. The increase or decrease in the defined benefit obligation in the sensitivity table above would be offset by the corresponding movement in the scheme\u2019s assets. A 1% change in the long-term gilt yields consistent with the discount rates would result in an approximate offsetting movement of \u00a3100m (2021: \u00a3180m) in the scheme\u2019s LDI investment and a 1% change in long term inflation expectation would result in an approximate offsetting movement of \u00a370m (2021: \u00a3140m) in the scheme\u2019s LDI Investment. viii) Actuarial assumptions: Other schemes The other UK based schemes are valued on a consistent basis to SPLAS with a discount rate ranging from 4.90% to 5.00%, RPI inflation assumptions of 3.10% to 3.15% and CPI inflation assumptions of 2.30% to 2.35%. The non-UK based schemes use a discount rate ranging from 2.40% to 5.45%. Assumptions in respect of the expected return on scheme assets are required when calculating the franchise adjustment for the contract-specific plans. These assumptions are based on market expectations of returns over the life of the related obligation. Due consideration has been given to current market conditions as at 31 December 2022 in respect to inflation, interest, bond yields and equity performance when selecting the expected return on assets assumptions. The expected yield on bond investments with fixed interest rates is derived from their market value. The yield on equity investments contains an additional premium (an \u2018equity risk premium\u2019) to compensate investors for the additional anticipated risks of holding this type of investment, when compared to bond yields. The Group applies an equity risk premium of 4.6% (2021: 4.6%). The overall expected return on assets is calculated as the weighted average of the expected returns for the principal asset categories held by the scheme. 30 (b) Defined contribution schemes The Group paid employer contributions of \u00a396.7m (2021: \u00a392.1m) into UK defined contribution schemes, foreign defined contribution schemes and foreign state pension schemes. Serco participated in certain pre-funded defined benefit pension arrangements relating to contracts, including participations in public sector schemes, however, contractual protections are in place allowing actuarial and investment risk to be passed to the end customer via recoveries for contributions paid. The nature of these arrangements varies from contract to contract but typically allow for the majority of contributions payable to the schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit payments payable to the schemes at the cessation of the contract, such that the Group's net exposure to actuarial and investment risk is immaterial. Cash contributions are recognised as pension costs and no asset or liability is shown on the balance sheet. 31. Share capital Issued and fully paid 2022 \u00a3m Number 2022 millions 2021 \u00a3m Number 2021 millions 1,218,008,788 (2021: 1,233,380,637) ordinary shares of 2p each at 1 January 24.4 1,218.0 24.7 1,233.4 Cancelled: Nil (2021: 15,371,849) ordinary shares of 2p \u2013 \u2013 (0.3) (15.4) 1,218,008,788 (2021: 1,218,008,788) ordinary shares of 2p each at 31 December 24.4 1,218.0 24.4 1,218.0 During the year no (2021: 15,371,849) shares were cancelled as part of the Serco Share Repurchase Programme (the Programme). The Company has one class of ordinary shares which carry no right to fixed income. 242 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 32. Share premium account
2022
\u00a3m
2021
\u00a3m
At 1 January and 31 December 463.1 463.1
33. Reserves
33 (a) Movements in other reserves
Retirement
benefit
obligations
reserve
\u00a3m
Share based
payment
reserve
\u00a3m
Own shares
reserve
\u00a3m
Treasury
shares
\u00a3m
Hedging
reserve
\u00a3m
Translation
reserve
\u00a3m
Capital
redemption
reserve
\u00a3m
Total other
reserves
\u00a3m
At 1 January 2021 (135.6) 81.0 (2.1) \u2013 (0.4) (19.9) 0.1 (76.9)
Total comprehensive income/
(loss) for the year 44.6 \u2013 \u2013 \u2013 0.2 (7.6) \u2013 37.2
Income statement
items reclassified \u2013 \u2013 \u2013 \u2013 0.1 \u2013 \u2013 0.1
Shares purchased and held
in Treasury \u2013 \u2013 \u2013 (40.7) \u2013 \u2013 \u2013 (40.7)
Cancellation of shares held
in Treasury \u2013 \u2013 \u2013 20.4 \u2013 \u2013 0.3 20.7
Shares transferred from Treasury
to own shares reserves \u2013 \u2013 (0.3) 20.3 \u2013 \u2013 \u2013 20.0
Shares transferred to award
holders on exercise of share
awards \u2013 (1.0) 1.2 \u2013 \u2013 \u2013 \u2013 0.2
Expense in relation to share
based payments \u2013 15.8 \u2013 \u2013 \u2013 \u2013 \u2013 15.8
At 1 January 2022 (91.0) 95.8 (1.2) \u2013 (0.1) (27.5) 0.4 (23.6)
Total comprehensive (loss)/
income for the year (78.9) \u2013 \u2013 \u2013 0.4 60.1 0.1 (18.3)
Shares purchased and held in
own share reserve \u2013 \u2013 (15.9) \u2013 \u2013 \u2013 \u2013 (15.9)
Shares purchased and held
in Treasury \u2013 \u2013 \u2013 (91.2) \u2013 \u2013 \u2013 (91.2)
Shares transferred to award
holders on exercise of
share awards \u2013 (9.3) 9.4 \u2013 \u2013 \u2013 \u2013 0.1
Expense in relation to share
based payments \u2013 15.6 \u2013 \u2013 \u2013 \u2013 \u2013 15.6
Tax credit on items taken directly
to equity \u2013 3.4 \u2013 \u2013 \u2013 \u2013 \u2013 3.4
At 31 December 2022 (169.9) 105.5 (7.7) (91.2) 0.3 32.6 0.5 (129.9)
33 (b) Retirement benefit obligations reserve
The retirement benefit obligations reserve represents the actuarial gains and losses recognised in respect of annual actuarial valuations for
defined benefit retirement schemes, the fair value adjustments on reimbursable rights and the related movements in deferred tax balances.
33 (c) Share based payment reserve
The share based payment reserve represents credits relating to equity-settled share based payment transactions and any gain or loss
on the exercise of share award schemes satisfied by own shares.
33 (d) Own shares reserve
The own shares reserve represents the cost of shares in Serco Group plc held by the Serco Group plc Employee Share Ownership
Trust (ESOT) to satisfy awards under the Group\u2019s share plan schemes. At 31 December 2022, the ESOT held 9,144,275 (2021:
11,605,185) shares equal to 0.8% of the current allotted share capital (2021: 1.0%). The market value of shares held by the ESOT as at
31 December 2022 was \u00a314.2m (2021: \u00a315.6m).
243
Financial Statements
Corporate Governance
Strategic Report
Serco Group plc Annual Report and Accounts 2022
33. Reserves continued
33 (e) Treasury shares
The Treasury shares reserve represents amounts paid to repurchase ordinary shares. On 24 February 2022, the Group announced its
intention to repurchase ordinary shares with a value of up to \u00a390m. On 8 March 2022, the Group confirmed that the repurchase would
be split over two tranches, with the first tranche of \u00a340m completed during the period 8 March 2022 to 16 August 2022. The second
tranche of \u00a350m completed during the period 17 August 2022 to 9 December 2022. The total cost including fees was \u00a391.2m and
resulted in the repurchase of 55,506,704 shares at an average price of \u00a31.64. These are held within Treasury shares at 31 December 2022.
33 (f) Hedging and translation reserve
The hedging and translation reserve represents foreign exchange differences arising on translation of the Group\u2019s overseas operations
and movements relating to cash flow hedges.
34. Share based payment expense
The Group recognised the following expenses related to equity-settled share based payment transactions:
2022
\u00a3m
2021
\u00a3m
Long-Term Incentive Plan 13.8 12.3
Performance Share Plan \u2013 2.0
Deferred Bonus Plan 1.0 1.0
Equity Settled Bonus Plan 0.6 0.5
MyShareSave Plan 0.2 \u2013
15.6 15.8
Long-Term Incentive Plan (LTIP)
Under the LTIP, eligible employees have been granted conditional share awards. Awards vest after the performance period of two
to three years and are subject to the achievement of certain performance measures, with the exception of non-performance awards.
These non-performance awards are subject only to continued employment on vesting dates which vary from two to three years after
the grant dates.
On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR), Return
on Invested Capital (ROIC) and measures linked to Strategic Objectives.
Number of
shares under
award
2022
thousands
Weighted
average
exercise price
2022
\u00a3
Number of
shares under
award
2021
thousands
Weighted
average
exercise price
2021
\u00a3
Outstanding at 1 January 31,014 Nil 22,149 Nil
Granted during the year 10,543 Nil 10,584 Nil
Dividend equivalent granted during the year 598 Nil 512 Nil
Exercised during the year (9,365) Nil (29) Nil
Lapsed during the year (2,506) Nil (2,202) Nil
Outstanding at 31 December 30,284 Nil 31,014 Nil
The awards over shares outstanding at 31 December 2022 were all unvested and had a weighted average contractual life of 1.0 years
(2021: 1.3 years).
In the year, 11 grants were made, of which eight were non-performance related. The remaining three awards were performance-based
awards, with 75% of the award split equally between Earnings per Share (EPS), Total Shareholder Return (TSR) and Return on Invested
Capital (ROIC) performance conditions, 15% linked to ESG Scorecard Objectives and 10% linked to improvements in order book. The
rewards subject to market-based performance conditions (such as the TSR condition for these awards) were valued using the Monte
Carlo Simulation model. For awards subject only to non-market-based performance conditions (such as the EPS and ROIC conditions)
the Black-Scholes model was used. The Black-Scholes model was also used for the awards made with no performance conditions
attached to them.
The Monte Carlo Simulation model is considered to be the most appropriate for valuing awards granted under schemes where there
are changes in performance conditions by which the awards are measured, such as for the TSR-based awards.
The Monte Carlo and Black-Scholes models used the following inputs:
244
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
2022 Weighted average share price \u00a31.48 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3 years Risk-free rate 1.58% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.43 (2021: \u00a31.30). Performance Share Plan (PSP) Under the PSP, eligible employees have been granted options or conditional share awards with an exercise price of two or zero pence. Awards vest after the performance period of two to three years and are subject to the achievement of certain performance measures, with the exception of non-performance awards. These non-performance awards are only subject to continued employment on vesting dates which vary from two to three years after the grant dates. On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR) and Return on Invested Capital (ROIC). If options remain unexercised after a period of ten years from the date of grant, then the options expire. Number of options or shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of options or shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 9,337 0.02 19,091 0.02 Dividend equivalent granted during the year \u2013 Nil 129 0.02 Exercised during the year (2,877) 0.02 (9,787) 0.02 Lapsed during the year (5) Nil (96) 0.02 Outstanding at 31 December 6,455 0.02 9,337 0.02 Of these awards, 6,453,743 (2021: 9,335,825) were exercisable at the end of the year. The awards outstanding at 31 December 2022 had a weighted average contractual life of 4.5 years (2021: 5.5 years). There were no new awards granted under the Performance Share Plan in the year. Deferred Bonus Plan (DBP) Under the DBP, eligible employees are entitled to participate in a voluntary bonus deferral, using up to 50% of their earned annual bonus to purchase shares in the Group at market price. In connection with this, the Group will make a matching share award, up to a maximum of two times the gross bonus deferred, which will vest provided they remain in employment for that period, the shares are retained for that period, and the performance measures have been met. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 1,806 Nil 2,046 Nil Granted during the year 741 Nil 687 Nil Dividend equivalent granted during the year 33 Nil 39 Nil Exercised during the year (505) Nil (966) Nil Outstanding at 31 December 2,075 Nil 1,806 Nil None of these awards were exercisable at the end of the year (2021: nil). The awards outstanding at 31 December 2022 had a weighted average contractual life of 1.4 years (2021: 1.5 years). There were 741,066 new awards granted under the Deferred Bonus Plan in the year, with 100% of the deferred bonus subject to the same EPS performance conditions as the LTIPs. 245 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 34. Share based payment expense continued The Black-Scholes model used the following inputs: 2022 Weighted average share price \u00a31.46 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3.0 years Risk-free rate 1.48% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.46 (2021: \u00a31.41). Equity Settled Bonus Plan (ESBP) Under the ESBP, eligible employees who are subject to a compulsory bonus deferral are granted share awards equivalent in value to the gross bonus deferred. The awards vest at the end of the deferral period and the awards are not subject to any performance or service conditions. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 1,257 Nil 908 Nil Granted during the year 476 Nil 329 Nil Dividend equivalent granted during the year 23 Nil 20 Nil Exercised during the year (313) Nil \u2013 Nil Outstanding at 31 December 1,443 Nil 1,257 Nil None of these awards were exercisable at the end of the year (2021: none). The awards outstanding at 31 December 2022 had a weighted average contractual life of 0.4 years (2021: 1.3 years). There were 476,218 new awards granted under the Equity Settled Bonus Plan in the year. The awards were valued using the Black- Scholes model. The Black-Scholes model used the following inputs: 2022 Weighted average share price \u00a31.45 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3.0 years Risk-free rate 1.48% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.45 (2021: \u00a31.40). 246 Notes to the Consolidated Financial Statements continued Serco Group plc Annual Report and Accounts 2022 UK save as you earn (MyShareSave) MyShareSave scheme was introduced to UK employees in October 2022. Participating individuals are required to save 36 monthly payments over a maximum of a 48-month period and thus will have the option to buy shares at a discounted grant price. Participants can withdraw from the scheme at any time including after the vesting period has ended. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January \u2013 Nil \u2013 Nil Granted during the year 5,556 1.26 \u2013 Nil Dividend equivalent granted during the year \u2013 Nil \u2013 Nil Lapsed during the year (20) 1.26 \u2013 Nil Outstanding at 31 December 5,536 1.26 \u2013 Nil None of these awards were exercisable at the end of the year (2021: none). The awards outstanding at 31 December 2022 had a weighted average contractual life of 3.4 years (2021: n/a). There were 5,555,561 new awards granted under the UK MyShareSave plan in the year. The fair value of the options was based on the assumptions for awards granted during the year as follows: 28 October 2022 Closing share price \u00a31.64 Exercise price \u00a31.26 Expected volatility 34% Dividend yield 2% Expected life 3.59 years Risk-free rate 4% The weighted average estimated fair value of awards granted under this scheme in the year was \u00a30.53. 35. Related party transactions 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: Transactions 2022 \u00a3m Current outstanding at 31 December 2022 \u00a3m Non-current outstanding at 31 December 2022 \u00a3m Sale of goods and services Joint ventures 10.5 3.1 \u2013 Other Loan to joint venture 10.0 \u2013 10.0 Loan to pension scheme 60.0 \u2013 \u2013 Dividends received \u2013 joint ventures 7.3 \u2013 \u2013 Dividends received \u2013 associates 1.8 \u2013 \u2013 Receivable from consortium for tax \u2013 joint ventures 3.2 0.9 3.2 Total 92.8 4.0 13.2 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. The Group made a short-term temporary loan of \u00a360.0m to Serco Pension and Life Assurance Scheme (SPLAS) in September 2022 in order for the scheme to be able to liquidate assets to meet collateral calls required to ensure that the LDI hedge was maintained; this loan was repaid during the year. 247 Financial Statements Corporate Governance Strategic Report Serco Group plc Annual Report and Accounts 2022 35. Related party transactions continued
Transactions
2021
\u00a3m
Current
outstanding at
31 December
2021
\u00a3m
Non-current
outstanding at
31 December
2021
\u00a3m
Sale of goods and services
Joint ventures 1.6 1.7 \u2013
Associates 0.8 \u2013 \u2013
Other
Loan to joint venture \u2013 \u2013 \u2013
Dividends received \u2013 joint ventures \u2013 \u2013 \u2013
Dividends received \u2013 associates 13.5 \u2013 \u2013
Receivable from consortium for tax \u2013 joint ventures 0.9 0.2 0.8
Total 16.8 1.9 0.8
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. During 2022 a final dividend of \u00a31.8m
(2021: \u00a313.5m) was received from AWEML.
As announced on 24 June 2021, Vivo Defence Services Limited (VIVO), a joint venture between the Group and Equans, 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).
Remuneration of key Management personnel
The Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts and
Directors\u2019 liability insurance.
The remuneration of the key Management personnel of the Group is set out below:
2022
\u00a3m
2021
\u00a3m
Short-term employee benefits 8.6 8.5
Share based payment expense 7.1 5.0
15.7 13.5
The key Management personnel comprise the Executive Directors, Non-Executive Directors and members of the Executive Committee
(2022: 17 individuals, 2021: 18 individuals).
Aggregate Directors\u2019 remuneration
The total amounts for Directors\u2019 remuneration were as follows:
2022
\u00a3m
2021
\u00a3m
Salaries, fees, bonuses and benefits in kind 3.4 3.5
Amounts receivable under long-term incentive schemes 3.0 2.8
Gains on exercise of share awards 2.7 3.6
9.1 9.9
None of the Directors are members of the Company\u2019s defined benefit or money purchase pension schemes.
Further information about the remuneration of individual Directors is provided in the audited part of the Directors\u2019 Remuneration
Report on pages 142 to 169.
248
Notes to the Consolidated Financial Statements
continued
Serco Group plc Annual Report and Accounts 2022
36. Notes to the Consolidated Cash Flow statement
Year ended 31 December
2022
Before
exceptional
items
\u00a3m
2022
Exceptional
items
\u00a3m
2022
Total
\u00a3m
2021
Before
exceptional
items
\u00a3m
2021
Exceptional
items
\u00a3m
2021
Total
\u00a3m
Profit before tax 199.2 (2.4) 196.8 193.4 (1.2) 192.2
Net finance costs 20.4 \u2013 20.4 24.0 \u2013 24.0
Operating profit for the year 219.6 (2.4) 217.2 217.4 (1.2) 216.2
Adjustments for:
Share of profits in joint ventures and associates (12.0) \u2013 (12.0) (8.7) \u2013 (8.7)
Share based payment expense 15.6 \u2013 15.6 15.8 \u2013 15.8
Impairment of intangible assets 0.1 \u2013 0.1 \u2013 \u2013 \u2013
Amortisation of intangible assets 31.6 \u2013 31.6 27.3 \u2013 27.3
Impairment of property, plant and equipment 2.3 \u2013 2.3 0.3 \u2013 0.3
Net reversal of impairment of right of use assets (1.8) \u2013 (1.8) \u2013 \u2013 \u2013
Depreciation of property, plant and equipment 20.7 \u2013 20.7 19.6 \u2013 19.6
Depreciation of right of use assets 119.3 \u2013 119.3 109.0 \u2013 109.0
Loss on disposal of intangible assets 0.4 \u2013 0.4 1.6 \u2013 1.6
Profit on early termination of leases (0.2) \u2013 (0.2) (0.6) \u2013 (0.6)
Profit on disposal of property, plant and equipment (0.5) \u2013 (0.5) (0.2) \u2013 (0.2)
Increase/(decrease) in provisions 4.0 (0.6) 3.4 (7.2) (1.5) (8.7)
Total non-cash items 179.5 (0.6) 178.9 156.9 (1.5) 155.4
Operating cash inflow/(outflow) before movements in
working capital 399.1 (3.0) 396.1 374.3 (2.7) 371.6
(Increase)/decrease in inventories (1.5) \u2013 (1.5) 1.7 \u2013 1.7
Decrease in receivables 1.2 \u2013 1.2 25.4 \u2013 25.4
(Increase)/decrease in payables (24.1) 0.1 (24.0) (1.9) (4.8) (6.7)
Movements in working capital (24.4) 0.1 (24.3) 25.2 (4.8) 20.4
Cash generated by operations 374.7 (2.9) 371.8 399.5 (7.5) 392.0
Tax paid (44.2) \u2013 (44.2) (42.1) \u2013 (42.1)
Non-cash R&D expenditure (0.4) \u2013 (0.4) \u2013 \u2013 \u2013
Net cash inflow/(outflow) from operating activities 330.1 (2.9) 327.2 357.4 (7.5) 349.9
37. Post balance sheet events
Dividends
Subsequent to the year-end, the Board has recommended the payment of a final dividend in respect of the year ended 31 December
2022 of 1.92p. The dividend remains subject to shareholder approval at the Annual General Meeting and therefore no amounts have
been recognised in respect of a dividend in these Consolidated Financial Statements.
Employee Share Ownership Trust
Subsequent to the year end, the Group\u2019s Employee Share Ownership Trust completed the purchase of 12m shares at the cost of
\u00a318.7m. These shares will be held in the own share reserve until they are transferred to award holders on the exercise of share awards.
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"value": "2. Significant accounting policies
Basis of accounting
The Consolidated Financial Statements on pages 189 to 249 have been prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical
cost is generally based on the fair value of the consideration given in exchange for goods and services. The following principal
accounting policies adopted have been applied consistently in the current and preceding financial year except as stated below.
Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company
up to 31 December each year. Control is achieved when the Company:
(i) has power over the investee;
(ii) is exposed, or has rights to variable returns from its involvement with the investee; and
(iii) has the ability to use its power to affect the returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the
effective date of acquisition or up to the effective date of disposal as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring accounting policies into line with those used by the Group. All intra-Group transactions,
balances, income and expenses are eliminated on consolidation.
Non-controlling interest represents the portion of profits or losses and net assets in subsidiaries that are not held by the Group and
are presented within equity in the Consolidated Balance Sheet, separate from equity of shareholders of Serco Group plc.
Going concern
In assessing the basis of preparation of the financial statements for the year ended 31 December 2022, the Directors have considered
the principles of the Financial Reporting Council\u2019s
Guidance on Risk Management, Internal Control and Related Financial and Busines s
Reporting 2014
; particularly in assessing the applicability of the going concern basis, the review period and disclosures. The period of
assessment is considered to be at least 12 months from the date of approval of these financial statements.
At 31 December 2022, the Group\u2019s principal debt facilities comprised a \u00a3350m revolving credit facility (of which \u00a3nil was drawn) and
\u00a3266m of US private placement notes, giving \u00a3616m of committed credit facilities and committed headroom of \u00a3402m. The principal
financial covenant ratios are consistent across the private placement loan notes and revolving credit facility and are outlined on page
93. As at 31 December 2022, the Group\u2019s primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below
the Group\u2019s target range of 1x-2x at 0.78x.
The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well as
the potential impact of key uncertainties and sensitivities on the Group\u2019s future performance. In making this assessment the Directors
have considered the Group\u2019s existing debt levels, the committed funding and liquidity positions under its debt covenants, its ability
to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of mitigating
actions that could be used to preserve cash in the business should the need arise.
The basis of the assessment continues to be the Board-approved budget which is prepared annually for the next two-year period and
is based on a bottom-up approach to all of the Group\u2019s existing contracts, potential new contracts and administrative functions.
Owing to the unprecedented levels of inflation driven by geopolitical factors, the Directors have considered the Group\u2019s resilience
to rising costs. Due to the nature of the Group\u2019s operations, almost all of the revenue base has some form of inflationary protection,
whether it be through contractual indexation mechanisms, cost plus billing or being short term in nature. Though the timing of such
protections becoming effective may, in the short term, differ from the impact of cost pressures, it is expected that the current inflation
levels will not have a material impact on the Group\u2019s profitability.
The Directors believe that appropriate sensitivities in assessing the Group\u2019s ability to continue as a going concern are to model
reductions in the Group\u2019s win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group\u2019s
operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group\u2019s
debt covenants and available liquidity provides meaningful analysis of the Group\u2019s ability to continue as a going concern. Based
on the headroom available, the Directors are then able to assess whether the reductions required to breach the Group\u2019s financial
covenants, or exhaust available liquidity, are plausible.
This reverse stress test assumes that the US private placement loan of \u00a345m due to mature during the assessment period is repaid and no additional refinancing occurs. On this basis the Group can afford to be unsuccessful on 80% of its bids and extensions and suffer a reduction in profit margin of 80 basis points below the Group\u2019s forecast, while still retaining sufficient liquidity to meet all liabilities as they fall due and remain compliant with the Group\u2019s financial covenants. In respect of win rates, rebids and extensions have a more significant impact on the Group\u2019s revenue than new business wins during the assessment period. The Group has won more than 85% of its rebids and available contract extensions by volume over the last two years, therefore a reduction of 80% or more to the budgeted bid and extensions rates is not considered plausible. The Group does not generally bid for contracts at margins below its target range. In respect to margin reduction, due to the diversified nature of the Group\u2019s portfolio of long-term contracts and the fact that the Group has met or exceeded its full year guidance for the last five years, a reduction in margin of 80bps versus the Group\u2019s budget is not considered plausible within the assessment period combined with an 80% reduction in bid and extensions rates. Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis. Adoption of new and revised standards There have been no new accounting standards implemented by the Group during the year and no revisions to accounting standards that have had a material impact on the Group\u2019s Financial Statements. Reference to the Conceptual Framework (Amendments to IFRS 3) In May 2020 the International Accounting Standards Board (IASB) issued amendments to IFRS 3 Business Combinations which updated a reference in IFRS 3 to the conceptual framework for financial reporting without changing the accounting requirements for business combinations and therefore had no impact on the Group. Annual Improvements to IFRS Standards In May 2020 the IASB issued amendments to IFRS 1 First-time Adoption of IFRS, IFRS 9, Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases . None of these amendments had a material impact on the Group. Property, Plant and Equipment: Proceeds before Intended Use In May 2020 the IASB issued amendments to IAS 16 Property, Plant and Equipment which prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in its income statement. The Group has no material amounts received from selling items produced while the Group is preparing any assets for their intended use. Onerous Contracts \u2013 Cost of Fulfilling a Contract In May 2020 the IASB issued amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets to specify which costs a company includes when assessing whether a contract will be loss-making. The Group\u2019s accounting policy for the costs used in assessing whether a contract will be loss-making remain compliant with the new specifications set out in the amendment. New standards, amendments and interpretations not yet adopted The following accounting standards, amendments to accounting standards and interpretations that are not mandatory for 31 December 2022 reporting periods have not been early adopted by the Group. These are effective for annual reporting periods beginning on or after the date indicated: Effective Date IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts1 01 January 2023 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) 01 January 2023 Definition of Accounting Estimates (Amendments to IAS 8) 01 January 2023 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12) 01 January 2023 Initial Application of IFRS 17 and IFRS 9 \u2013 Comparative Information 01 January 2023 Classification of Liabilities as Current or Non-current (Amendments to IAS 1)2 01 January 2024 Lease Liability in a Sale and Leaseback Amendments to IFRS 162 01 January 2024 Non-current Liabilities with Covenants (Amendments to IAS 1)2 01 January 2024 1 Though expected to primarily impact the insurance sector, IFRS 17 Insurance Contracts will apply more widely than contracts issued by traditional insurance entities. Management is considering whether any of its contracts and obligations should be classified as insurance contracts and will assess any further interpretations issued. 2 The effective date is based on the standard or amendment issued by the IASB and are still subject to adoption by the UK Endorsement Board. The standards, amendments or interpretations listed above are not expected to have a material impact on the Group. 2. Significant accounting policies continued Changes in accounting policies There have been no changes to the Group\u2019s accounting policies during the year ended 31 December 2022. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date, regardless of whether that price is directly observable or is estimated using another valuation technique. There are certain transactions in these financial statements which are similar to fair value but are determined by the treatment set out in their respective standards. These are share based payment transactions that are within the scope of IFRS 2 Share Based Payment, leasing transactions that are within the scope of IFRS 16 Leases, the calculation of net realisable value under IAS 2 Inventories and value in use under IAS 36 Impairment of Assets. Revenue The Group recognises revenue based on the principles set out in IFRS 15 Revenue from Contracts with Customers and is recognised in any period based on the delivery of performance obligations and an assessment of when control is transferred to the customer. For all contracts, the Group determines whether each arrangement meets the definition of a contract under IFRS 15 and creates enforceable rights and obligations. Contracts are combined if they are entered into at or near the same time and one or more of the following criteria are met: \u2013 They are negotiated as a package with a single commercial objective. \u2013 Consideration receivable in one contract depends on the other contract. \u2013 Goods or services are a single performance obligation. For contracts with multiple components, Management applies judgement to consider whether those promised goods and services are: \u2013 A deliverable (i.e. a good or a service) that is distinct; or \u2013 A series of distinct deliverables that are substantially the same and that have the same pattern of transfer to the customer (transferred over time using the same measure of progress). At contract inception, the transaction price is the total amount of consideration to which the Group expects to be entitled to exchange for transferring goods or services to a customer. Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied. Where there is only one performance obligation, no allocation is necessary as the full transaction price is allocated to the single performance obligation. Where there is more than one performance obligation, the Group looks at each performance obligation separately to see if there is an observable price available, however due to the bespoke nature of the services provided by the Group there is normally no observable stand-alone selling price and the expected cost-plus margin approach is used. All bid models for new contracts are built up and negotiated with the customers on a cost-plus margin basis and therefore this approach most accurately reflects the commercial reality and the value of the benefits transferred to the customer. The Group enters into contracts which contain extension periods where either the customer or both parties can choose to extend the contract or there is an automatic annual renewal and/or termination clauses that could impact the actual duration of the contract. Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the contract impacts both the period over which revenue from performance obligations may be recognised and the period over which contract fulfilment assets and capitalised bid and phase-in costs are expensed. Further details on revenue recognition for specific contract types is shown below. Revenue recognition: Repeat service-based contracts The majority of the Group\u2019s contracts are repeat service-based contracts where value is transferred to the customer over time as the core services are delivered. Therefore, in most cases revenue will be recognised on the output basis, based on direct measurements of the value to the customer of the services transferred to date relative to the remaining services under the contract. This is a faithful depiction of the transfer of services since the service delivered to the customer is unchanged. Where the output method is used, the Group often uses a method of time elapsed which requires minimal estimation. Certain repeat service-based contracts use output methods based upon user numbers; service activity levels; or fees collected. Where any price reductions within output-based contracts are contractual, but the level of service is not decreasing, revenue will be deferred from initial years to subsequent years in order for revenue to be recognised on a consistent basis. There are certain contracts where a separate performance obligation has been identified for services where the pattern of delivery differs to the core services and which are capable of being distinct, such as asset construction or asset maintenance. In these instances, where the transfer of control is most closely aligned to our efforts in delivering the service, the input method is used to measure progress and revenue is recognised in direct proportion to costs incurred. In limited circumstances, other methods are used to measure progress under the input method, including resources consumed, time elapsed or labour hours expended. This is a faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits received by the customer from efforts to date. Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15, allowing revenue to be recognised at the
amount which the Group has the right to invoice, where that amount corresponds directly with the value to the customer of the
Group\u2019s performance completed to date.
Under IFRS 15, unless upfront fees received from customers including transition payments can be clearly attributable to a distinct
service the customer is obtaining, then such payments do not constitute a separate performance obligation and instead are deferred
and spread over the life of the core services.
In general, the timing of satisfaction of performance obligations is consistent with when payment becomes due, other than in
instances where up-front win fees or transition payments are received, where in most instances these are deferred.
Any changes to the enforceable rights and obligations with customers and/or an update to the transaction price will not be
recognised as revenue until there is evidence of customer agreement in line with the Group\u2019s policies.
Revenue recognition: Variable revenue
The Group has a number of contracts where at least an element of the revenue generated is variable in nature. Variability in revenue
recognised can arise from a number of factors, including usage-related volumes, graduated performance against contractual
performance indicators, indexation-linked pricing, profit sharing elements and customer decisions related to the provision of goods or
services. Any variable amounts will only be recognised where it is highly probable that a significant reversal will not occur.
Revenue recognition: Long-term project-based contracts
The Group has a limited number of project-based long-term contracts. Revenue associated with these contracts is recognised at the
point in time when control over the deliverable is passed to the customer.
Revenue recognition: Contract modifications
When a modification to an existing contract is approved, the Group first assesses whether it adds distinct goods or services to the
existing contract that are priced commensurate with the stand-alone selling prices for those goods or services. If this is the case,
then the modification is accounted for prospectively as a separate contract. If the pricing is not commensurate with the stand-alone
selling prices for the goods or services and the new goods or services are not distinct from those in the original contract, then this is
considered to form part of the original contract. Pricing is updated for the entirety of the revised contract and any historic adjustments
recorded as a result are recognised as a cumulative adjustment to revenue in the period of the modification. If the pricing is not
commensurate with the stand-alone selling prices for the goods or services and the new goods or services are distinct from those in
the original contract, then this is considered to represent the termination of the original contract and the creation of a new contract
which is accounted for prospectively from the date of modification.
Revenue recognition: Other
Sales of goods are recognised when goods are delivered, and title has passed.
The Group has a limited number of pass-through arrangements in respect of goods or services procured by the Group on behalf
of customers where it assesses whether it is acting as a principal or as an agent. The Group is acting as principal if it is in control of
a good or a service prior to transferring to the customer and gross revenue and costs are recognised. More commonly, the Group
is acting as agent where it is arranging for those goods or services to be provided to the customer without obtaining control, for
example, where the Group is engaged to manage operations for a customer but procures goods or services on behalf of the
customer in order to deliver the operation. When acting as an agent, only the fee or commission is recognised as revenue and the
costs represent only the direct costs of facilitating the transaction.
Interest income is accrued for on a time basis, by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset\u2019s net
carrying amount.
The Group has no material exposure to returns or refunds.
Government grants
The majority of the Group\u2019s customers are governments. Any income that arises from a contractual agreement for the delivery of
goods or services, or a specific modification to such a contract, is treated as revenue. Income from governments is only considered to
be a government grant if it is not related to the supply of goods or services under a contractual arrangement.
Government grants are recognised where there is reasonable assurance that the grant will be received. Grants that compensate the
Group for expenses incurred are recognised in the income statement as a reduction to the corresponding expenses on a systematic
basis in the periods in which the expenses are recognised. There were no material government grants received during the current or
prior year.
Contract costs
Bid costs are capitalised only when they relate directly to a contract and are incremental to securing the contract. Bid costs are
amortised over the duration of the contract to which they relate in equal annual instalments. Any costs which would have been
incurred whether or not the contract is actually won are not considered to be capitalised bid costs.
Contract costs are charged to the income statement as incurred, including the necessary accrual for costs which have not yet been
invoiced, unless the expense relates to a specific time frame covering future periods.
2. Significant accounting policies continued Contract costs can only be capitalised when the expenditure meets all of the following three criteria and are not within the scope of another accounting standard, such as inventories, intangible assets, or property, plant and equipment: \u2013 The costs relate directly to a contract. These include direct labour, being the salaries and wages of employees providing the promised services to the customer; direct materials such as supplies used in providing the promised services to a customer; and other costs that are incurred only because an entity entered into the contract, such as payments to subcontractors. \u2013 The costs generate or enhance the resources used in satisfying performance obligations in the future. For initial contract costs capitalised, such costs only fall into one of the following two categories: the mobilisation of contract staff, being the costs of moving existing contract staff to other Group locations; or directly incremental costs incurred in meeting contractual obligations incurred prior to contract delivery, which are required to ensure a proper handover from the previous contractor. Redundancy costs are never capitalised. \u2013 The costs are expected to be recovered, i.e. the contract is expected to be profitable after amortising the capitalised costs. Operating profit Operating profit is not a measure defined by IFRS and the Group considers this to include the profits and losses from operations prior to corporation tax, interest revenue and finance costs. Foreign currencies Transactions in currencies other than Sterling are recorded at the rates of exchange on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity through the Consolidated Statement of Comprehensive Income (SOCI). On consolidation, the assets and liabilities of the Group\u2019s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised directly within equity in the Group\u2019s hedging and translation reserve. On disposal of an operation, such translation differences are recognised as income or expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group uses a monthly approximation for transactions during the period. If exchange rates fluctuate significantly during a period, the use of approximate rates are reviewed to ensure they are still appropriate. Dividends Dividend distributions are recognised as a liability in the year in which the dividends are approved by the Company\u2019s shareholders. Interim dividends are recognised when they are paid; final dividends when authorised in general meetings by shareholders. Dividend income is recognised on receipt. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured as the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. Where acquisition and transition costs for successful acquisitions are material, they are disclosed as exceptional costs within note 9. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (which is subject to a maximum of one year). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with the relevant accounting standards. The acquiree\u2019s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) Business Combinations are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another standard. Investments in joint ventures and associates A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement. The Group\u2019s investments in joint ventures are incorporated using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group\u2019s share of the profit or loss and other comprehensive income of the associate or joint venture. Any excess of the cost of acquisition over the Group\u2019s share of net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group\u2019s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using the equity method of accounting. Goodwill Goodwill is measured as the excess of the fair value of purchase consideration over the fair value of the net assets acquired and is recognised as an intangible asset when control is achieved. Negative goodwill is recognised immediately in the income statement. Fair value measurements are based on provisional estimates and may be subject to amendment within one year of the acquisition, resulting in an adjustment to goodwill. Goodwill itself does not generate independent cash flows and therefore, in order to perform required tests for impairment, it is allocated at inception to the specific cash generating unit (CGU) or groups of CGUs which are expected to benefit from the acquisition. On the disposal of a business which includes all or part of a CGU, any attributable goodwill is included in the determination of the profit or loss on disposal. Where part of a CGU with goodwill is sold, the attributable amount is calculated based on the future discounted cash flows leaving the Group as a proportion of the total CGU\u2019s future discounted cash flows. The fair values associated with material business combinations are valued by external advisers and any amount of consideration which is contingent in nature is evaluated at the end of each reporting period, based on internal forecasts. Other intangible assets Material intangible assets are grouped into classes of similar nature and use and separately disclosed. Other intangible assets are amortised from the date of completion. Customer relationships can arise on the acquisition of subsidiaries and represent the incremental value expected to be gained as a result of existing contracts in the purchased business and identifiable technology-based assets in the purchased business. These assets are amortised over the average length of the related contracts or estimated useful life of any technology-based assets. Software and IT represent computer systems and processes used by the Group in order to generate future economic value through normal business operations. The underlying assets are amortised over the period from which the Group expects to benefit, which is typically between three to eight years. Development expenditure is capitalised as an intangible asset only if the conditions below are met, with all research costs and other development expenditure being expensed when incurred. The period of expected benefit, and therefore period of amortisation, is typically between three and eight years. The capitalisation criteria are as follows: \u2013 an asset is created that can be separately identified and which the Group intends to use or sell; \u2013 the finalisation of the asset is technically feasible and the Group has adequate resources to complete its development for use or sale; \u2013 it is probable that the asset created will generate future economic benefits; and \u2013 the development cost of the asset can be measured reliably. Property, plant and equipment Assets held for use in the rendering of services, or for administrative purposes, are stated in the balance sheet at cost, net of accumulated depreciation and any provision for impairment. Assets are grouped into classes of similar nature and use and separately disclosed except where this is not material. Depreciation is provided on a straight-line basis at rates designed to reduce the assets to their residual value over their estimated useful lives. The principal annual rates used are: Freehold buildings 2.5% Leasehold improvements The higher of 10% or the rate produced by the lease term Machinery 15% \u2013 20% Vehicles 10% \u2013 50% Furniture 10% Office equipment 20% \u2013 33% Right of use assets Equally over the lease term from inception or equally over the remainder of the lease term from the date of a reassessment of the lease end date The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Given that there is limited history of material gains or losses on disposal of fixed assets, the level of judgement involved in determining the depreciation rates is not considered to be significant. 2. Significant accounting policies continued Asset impairment The Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) at each reporting period, together with any other assets under the scope of IAS 36 Impairment of Assets, in order to assess whether there is any indication that those assets have suffered an impairment loss. As the impairment of assets has been identified as both a key source of estimation uncertainty and a critical accounting judgement, further details around the specific judgements and estimates can be seen in note 3. If any indication of impairment exists, the recoverable amount of the asset is estimated in order to determine if there is any impairment loss. Goodwill is assessed for impairment annually, irrespective of whether there are any indicators of impairment. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. Recoverable amount is defined as the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value with reference to pre-tax discount rates that reflect the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount is estimated to be less than the carrying amount of the asset, the carrying amount is impaired to its recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for indications that the loss which led to the impairment has decreased or no longer exists. Where an impairment loss is subsequently reversed, the carrying amount is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised in prior years. Impairment losses and reversals are recognised immediately within expenses in the income statement unless it is considered to be an exceptional item when the Group\u2019s criteria are met. Retirement benefit costs Payments to defined contribution pension schemes are charged as an expense as they fall due. For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial cost method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the income statement and are presented in the statement of comprehensive income. Both current and past service costs are the amounts recognised in the income statement, reflecting the expense associated with the individuals. Current service cost represents the increase in the present value of the scheme liabilities expected to arise from employee service in the current period. Past service cost is recognised immediately. Gains and losses on curtailments or settlements are recognised in the income statement in the period in which the curtailment or settlement occurs. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds (which is only recognised to the extent that the Group has an unconditional right to receive it) and reductions in future contributions to the scheme. To the extent that an economic benefit is available as a reduction in future contributions and there is a minimum funding requirement required of the Group, the economic benefit available as a reduction in contributions is calculated as the present value of the estimated future service cost in each year, less the estimated minimum funding contributions required in respect of the future accrual and benefits in that year. Calculation of the amounts recognised in the Consolidated Financial Statements in respect of defined benefit pension schemes requires a high level of judgement, as further explained in note 3. Defined benefit obligations arising from contractual obligations Where the Group takes on a contract which has employees in scope for the Railway Pension Scheme, it assumes the obligation to contribute variable amounts to the defined benefit pension scheme throughout the period of the contract. The Group\u2019s share of the scheme assets and liabilities is calculated by reducing the scheme assets and liabilities with a franchise adjustment. The franchise adjustment represents the estimated amount of scheme deficit that will be funded outside the contract period and this results in the Group having no further obligation once the contract has ceased. Subsequent actuarial gains and losses in relation to the Group\u2019s share of pension obligations are recognised in the Statement of Comprehensive Income (SOCI). End of contract provisions Where the Group has a legal or constructive obligation to compensate employees at the end of a contract term and these employees cannot be relocated within the Group, a provision is recognised to reflect the expected outflow of economic benefits at the end of the contract. The obligation is reassessed at each reporting date. The amount calculated assumes the tenure of the employee base, expected turnover, and salary. Derivative financial instruments and hedging activities
The Group may enter into a variety of derivative financial instruments to manage the exposure to interest rate, foreign exchange risk
and price risk, including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts.
Further details of derivative financial instruments are given in note 29.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature
of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities
(fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges).
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged
item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Both at the inception of
the hedge and on a periodic basis, the Group assesses whether the hedging instrument that is used in a hedging relationship is highly
effective in offsetting changes in fair values or cash flows of the hedged item.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within 12 months. Derivatives, which mature within 12 months, are
presented as current assets or current liabilities.
Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation
reserve in equity are detailed in the Statement of Comprehensive Income and described in note 29.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately,
together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of
the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income
statement relating to the hedged item.
Hedge accounting is discontinued when a hedge is no longer effective as a result of a change in risk management strategy, the
hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The adjustment to the
carrying amount of the hedged item arising from the hedged risk is realised in the profit or loss account.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in
equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity
are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income statement as
the recognised hedged item.
Hedge accounting is discontinued when the Group de-designates the hedging relationship, the hedging instrument expires or is sold,
terminated, exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains
in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.
Tax
The tax expense represents the sum of current tax expense and deferred tax expense.
Current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group\u2019s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for accounting purposes.
Deferred tax assets are generally recognised for all deductible temporary differences, carry forward of unused tax credits and unused
tax losses, to the extent that it is probable that taxable profits will be available against which these items can be utilised.
Deferred tax is not recognised for:
\u2013 temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss;
\u2013 temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Group is
able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the
foreseeable future; and
\u2013 taxable temporary differences arising on the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised.
2. Significant accounting policies continued Tax continued Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is recognised in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority where the Group intends to settle its current tax assets and liabilities on a net basis. Share based payment Where the fair value of share options or shares under award requires the use of a valuation model, fair value is measured by use of Binomial Lattice, Black-Scholes or Monte Carlo Simulation models depending on the type of scheme, as set out in note 34. The expected life used in the models has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where relevant, the value of the option or award has also been adjusted to take account of market conditions applicable to the option or award. Inventories Inventories are stated at the lower of cost and net realisable value and comprise service spares, supplies and consumables used in the rendering of services to our customers. Cost comprises direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition. Trade receivables Trade receivables are recognised initially at cost (being the same as fair value) and subsequently at amortised cost less any credit notes, provision for impairment and expected credit losses, to ensure that amounts recognised represent the recoverable amount. Determining whether a trade receivable is impaired requires judgement to be applied based on the information available at each reporting date. A provision for impairment arises where there is evidence that the Group will not be able to collect amounts due for reasons other than customer default, which is achieved by creating an allowance for doubtful debts recognised in the income statement within expenses. When a trade receivable is expected to be uncollectible for reasons other than credit-related losses, it is provided for within the allowance. Subsequent recoveries of amounts previously provided for or written off are credited against expenses. The majority of contracts entered into by the Group are with government organisations and therefore historic levels of default are relatively low and as a result, the risks associated with this judgement are not considered to be significant. An expected credit loss is recorded where there is evidence that a counterparty is at risk of default due to their credit worthiness. If the loss was material, the amount would be presented separately in the Consolidated Income Statement, however the Group\u2019s customer base is predominantly government or government-backed and as a result, the Group\u2019s expected credit loss at a given point in time across the entirety of the customer base is typically immaterial. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and balances with banks and similar institutions which are readily convertible to known amounts of cash, subject to insignificant changes in value and have a maturity of three months or less from the date of acquisition. This definition is also used for the Consolidated Cash Flow Statement. Leases The Group uses leases in the delivery of a number of contracts and in other centralised functions. Most notably, the Group uses accommodation leases in the delivery of the Asylum Accommodation and Support Services contract, vehicle leases in the Prisoner Escorting and Custodial Services contract and to deliver its UK vehicle fleet and support offices, amongst others. Where leases are utilised in the delivery of contracts, the Group aims to limit the duration of any non-cancellable periods of leases to be no longer than the duration of the underlying contract. For non-contract related leases, the Group has set policies on lease duration and purpose to ensure their appropriate use. On entering into a lease, a lease liability is recorded equal to the value of future lease payments discounted at the appropriate incremental borrowing rate and, simultaneously, a right of use asset is created representing the right conferred to control the manner of use of the leased asset. The Group typically uses an appropriate incremental borrowing rate, based on the lease location and duration, as it typically does not have access to the interest rate implicit in the lease. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement and corresponding assets are depreciated on a straight-line basis over the lease term. The lease term is measured as the non-cancellable period of a lease, together with periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised, and periods covered by an option to terminate the lease if it is reasonably certain that the option will not be exercised. The lease term is reassessed if an event occurs which causes either the non-cancellable period to change, or another event occurs which changes the assessment of the likelihood of exercising an option included in the lease. All changes to leases are accounted for on a prospective basis from the point at which the change is triggered. Where, on inception, the term of a lease is less than 12 months or the value of the leased asset is less than \u00a35,000, or both, rentals payable under the lease are charged to the income statement on a straight-line basis over the term of the relevant lease. Loans Loans are stated at amortised cost using the effective interest-rate method. Accrued interest is recorded separately from the associated borrowings within current liabilities. Loans are described as non-recourse loans and classified as such only if no Group company other than the relevant borrower has an obligation, under a guarantee or other arrangement, to repay the debt. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred. Provisions Provisions are recognised when the Group has an obligation to make a cash outflow as a result of a past event. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date when settlement is considered to be likely. Onerous contract provisions (OCPs) arise when the unavoidable costs of meeting contractual obligations exceed the remuneration expected to be received. Unavoidable costs include total contract costs together with a rational allocation of shared costs that can be directly linked to fulfilling contractual obligations which have been systematically allocated to OCPs on the basis of key cost drivers except when this is impracticable, where contract revenue is used as a proxy to activity. The provision is calculated as the lower of the termination costs payable for an early exit and the best estimate of net cost to fulfil the Group\u2019s unavoidable contract obligations. Where a customer has an option to extend a contract and it is likely that such an extension will be made, the expected net cost arising during the extension period is included within the calculation. However, where a profit can be reasonably expected in the extension period, no credit is taken on the basis that such profits are uncertain given the potential for the customer to either not extend or offer an extension under lower pricing terms. Further details of the judgements can be seen in note 3. Net investments in foreign operations Exchange differences arising on monetary items that form part of the Group\u2019s net investment in foreign operations are initially recognised in equity and accumulated in the hedging and translation reserve and reclassified from equity to profit or loss on disposal of the net investment. When monetary items no longer form part of a hedging relationship, the exchange differences that arose during the time that the hedge was in place remain in the hedging translation reserve until such time as the net investment is disposed of. Dividends payable Dividends are recorded in the Group\u2019s Consolidated Financial Statements in the period in which they are declared, appropriately authorised and no longer at the discretion of the Company. Segmental information Segmental information is based on internal reports about components of the Group that are regularly reviewed by the Group\u2019s Chief Operating Decision Maker (CODM) in order to allocate resources to the segments and to assess their performance. The CODM is considered to be the Board of Directors as a body. Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context of revenue as a whole. Net finance costs are not presented for each operating segment as they are reviewed on a consolidated basis by the CODM. Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation tax recoverable) and any retirement benefit assets. Segment liabilities comprise trade and other payables, lease liabilities, provisions and retirement benefit obligations. 3. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group\u2019s accounting policies, which are described in note 2 above, Management has made the following judgements that have the most significant effect on the amounts recognised in the Consolidated Financial Statements. As described below, many of these areas of judgement also involve a high level of estimation uncertainty. Key sources of estimation uncertainty Provisions for onerous contracts Determining the carrying value of onerous contract provisions requires assumptions and complex judgements to be made about the future performance of the Group\u2019s contracts. The level of uncertainty in the estimates made, either in determining whether a provision is required, or in the calculation of a provision booked, is linked to the complexity of the underlying contract and the form of service delivery. Due to the level of uncertainty and combination of variables associated with those estimates, there is a significant risk that there could be a material adjustment to the carrying amounts of onerous contract provisions within the next financial reporting period. This includes the potential recognition of onerous contract provisions for contracts which Management has assessed do not require a provision as at 31 December 2022. 3. Critical accounting judgements and key sources of estimation uncertainty continued Key sources of estimation uncertainty continued Provisions for onerous contracts continued Major sources of uncertainty which could result in a material adjustment within the next financial year, are: \u2013 the ability of the Company to maintain or improve operational performance to ensure costs or performance related penalties are in line with expected levels; \u2013 volume driven revenue and costs being within the expected ranges; \u2013 the outcome of open claims made by or against a customer regarding contractual performance or contractual negotiations taking place where there is expected to be a positive outcome from the Group\u2019s perspective; and \u2013 the ability of suppliers to deliver their contractual obligations on time and on budget. In the current year, there has been an overall net release of new and existing OCPs within Trading Profit of \u00a31.2m. Revisions have resulted from triggering events in the current year, either through changes in contractual positions or changes in circumstances which could not have been reasonably foreseen at the previous balance sheet date. To mitigate the level of uncertainty in making these estimates, Management regularly compares actual performance of the contracts against previous forecasts and considers whether there have been any changes to significant judgements. The future range of possible outcomes in respect of those assumptions and significant judgements made to determine the carrying value of onerous contracts could result in either a material increase or decrease in the value of onerous contract provisions in the next financial year. The extent to which actual results differ from estimates made at the reporting date depends on the combined outcome and timing of a large number of variables associated with performance across multiple contracts. The individual provisions are discounted where the impact is assessed to be significant. When used, discount rates are calculated based on the estimated risk-free rate of interest for the region in which the provision is located and matched against the ageing profile of the provision. The Group undertakes a robust assessment at each reporting date to determine whether any individual customer contracts, which the Group has entered into, are onerous and require a provision to be recognised in accordance with IAS 37 Provisions, Contingent Liabilities & Contingent Assets. The Group operates a large number of long-term contracts at different phases of their contract life cycle. Within the Group\u2019s portfolio, there are a small number of contracts where the balance of risks and opportunities indicates that they might be onerous if transformation initiatives or contract changes are not successful. The Group has concluded that these contracts do not require an onerous contract provision on an individual basis. Following the individual contract reviews, the Group has also undertaken a top-down assessment which assumes that, while the contracts may not be onerous on an individual basis, as a portfolio there is a risk that at least some of the transformation programmes or customer negotiations required to avoid a contract loss will not be fully successful, and it is more likely than not that one or more of these contracts will be onerous. Therefore, in considering the Group\u2019s overall onerous contract provision, the Group has made a best estimate of the provision required to take into consideration this portfolio risk. As a result, the risk of OCPs and the monitoring of individual contracts for indicators remains a critical estimate for the Group. As at 31 December 2022, the provision recognised in respect of this portfolio of contracts is \u00a38.1m (2021: \u00a39.7m). Onerous contract provisions totalling \u00a33.5m are estimated for individual contracts, based on the specific characteristics of the contract including possible contract variations, estimates of transaction price such as variable revenues and forecast costs to fulfil those contracts. As noted above, the Group also holds a balance of \u00a38.1m in respect of the portfolio risk associated with operating a large number of long-term contracts, giving a total onerous contract provision of \u00a311.6m (see note 26). Management has considered the nature of the estimate for onerous contract provisions and concluded that it is reasonably possible that outcomes within the next financial year may be different from Management\u2019s assumptions and could, in aggregate, require a material adjustment to the onerous contract provision. However, due to the estimation uncertainty across numerous contracts each with different characteristics, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied, and Management does not believe that disclosing a potential range of outcomes on a consolidated basis would provide meaningful information to a reader of the financial statements. While the focus of the judgement is to determine whether the Group is required to record an onerous contract provision, Management also inherently assess whether any assets dedicated to the contract are required to be impaired where contracts are forecast to make sustainable losses in the future. In accordance with IAS 37, the Group will impair assets dedicated to the contract before the recognition of an onerous contract provision. Impairment of goodwill A key area of focus for the Group is the recoverability of goodwill. At each reporting period an assessment is performed in order to determine whether there are any indicators of impairment, which involves considering the performance of our business and any significant changes to the markets in which we operate. Determining whether goodwill requires an actual impairment involves an estimation of the expected value in use of the asset (or cash generating unit (CGU) to which the asset relates). The value in use calculation involves an estimation of future cash flows and also the selection of appropriate discount rates and terminal growth rates, all of which involve considerable judgement. The future cash flows are derived from latest approved forecasts, with the key assumptions being revenue growth, margins and cash conversion rates. Known and anticipated impacts of inflation have been included in Management\u2019s forecasts underpinning the cash flows used in assessing the value in use of assets. ",
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"fact-338": {
"value": "Basis of accounting The Consolidated Financial Statements on pages 189 to 249 have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The following principal accounting policies adopted have been applied consistently in the current and preceding financial year except as stated below. ",
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"value": "Basis of consolidation The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company up to 31 December each year. Control is achieved when the Company: (i) has power over the investee; (ii) is exposed, or has rights to variable returns from its involvement with the investee; and (iii) has the ability to use its power to affect the returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interest represents the portion of profits or losses and net assets in subsidiaries that are not held by the Group and are presented within equity in the Consolidated Balance Sheet, separate from equity of shareholders of Serco Group plc. ",
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},
"fact-340": {
"value": "Going concern In assessing the basis of preparation of the financial statements for the year ended 31 December 2022, the Directors have considered the principles of the Financial Reporting Council\u2019s Guidance on Risk Management, Internal Control and Related Financial and Busines s Reporting 2014; particularly in assessing the applicability of the going concern basis, the review period and disclosures. The period of assessment is considered to be at least 12 months from the date of approval of these financial statements. At 31 December 2022, the Group\u2019s principal debt facilities comprised a \u00a3350m revolving credit facility (of which \u00a3nil was drawn) and \u00a3266m of US private placement notes, giving \u00a3616m of committed credit facilities and committed headroom of \u00a3402m. The principal financial covenant ratios are consistent across the private placement loan notes and revolving credit facility and are outlined on page 93. As at 31 December 2022, the Group\u2019s primary restricting covenant, its leverage ratio, is below the covenant of 3.5x and is below the Group\u2019s target range of 1x-2x at 0.78x. The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts, as well as the potential impact of key uncertainties and sensitivities on the Group\u2019s future performance. In making this assessment the Directors have considered the Group\u2019s existing debt levels, the committed funding and liquidity positions under its debt covenants, its ability to generate cash from trading activities and its working capital requirements. The Directors have also identified a series of mitigating actions that could be used to preserve cash in the business should the need arise. The basis of the assessment continues to be the Board-approved budget which is prepared annually for the next two-year period and is based on a bottom-up approach to all of the Group\u2019s existing contracts, potential new contracts and administrative functions. Owing to the unprecedented levels of inflation driven by geopolitical factors, the Directors have considered the Group\u2019s resilience to rising costs. Due to the nature of the Group\u2019s operations, almost all of the revenue base has some form of inflationary protection, whether it be through contractual indexation mechanisms, cost plus billing or being short term in nature. Though the timing of such protections becoming effective may, in the short term, differ from the impact of cost pressures, it is expected that the current inflation levels will not have a material impact on the Group\u2019s profitability. The Directors believe that appropriate sensitivities in assessing the Group\u2019s ability to continue as a going concern are to model reductions in the Group\u2019s win rates for bids and extensions, and reductions in profit margins. Due to the diversity in the Group\u2019s operations, the Directors believe that a reverse stress test of these sensitivities to assess the headroom available under the Group\u2019s debt covenants and available liquidity provides meaningful analysis of the Group\u2019s ability to continue as a going concern. Based on the headroom available, the Directors are then able to assess whether the reductions required to breach the Group\u2019s financial covenants, or exhaust available liquidity, are plausible. This reverse stress test assumes that the US private placement loan of \u00a345m due to mature during the assessment period is repaid and no additional refinancing occurs. On this basis the Group can afford to be unsuccessful on 80% of its bids and extensions and suffer a reduction in profit margin of 80 basis points below the Group\u2019s forecast, while still retaining sufficient liquidity to meet all liabilities as they fall due and remain compliant with the Group\u2019s financial covenants. In respect of win rates, rebids and extensions have a more significant impact on the Group\u2019s revenue than new business wins during the assessment period. The Group has won more than 85% of its rebids and available contract extensions by volume over the last two years, therefore a reduction of 80% or more to the budgeted bid and extensions rates is not considered plausible. The Group does not generally bid for contracts at margins below its target range. In respect to margin reduction, due to the diversified nature of the Group\u2019s portfolio of long-term contracts and the fact that the Group has met or exceeded its full year guidance for the last five years, a reduction in margin of 80bps versus the Group\u2019s budget is not considered plausible within the assessment period combined with an 80% reduction in bid and extensions rates. Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfGoingConcernExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-341": {
"value": "Adoption of new and revised standards There have been no new accounting standards implemented by the Group during the year and no revisions to accounting standards that have had a material impact on the Group\u2019s Financial Statements. Reference to the Conceptual Framework (Amendments to IFRS 3) In May 2020 the International Accounting Standards Board (IASB) issued amendments to IFRS 3 Business Combinations which updated a reference in IFRS 3 to the conceptual framework for financial reporting without changing the accounting requirements for business combinations and therefore had no impact on the Group. Annual Improvements to IFRS Standards In May 2020 the IASB issued amendments to IFRS 1 First-time Adoption of IFRS, IFRS 9, Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases . None of these amendments had a material impact on the Group. Property, Plant and Equipment: Proceeds before Intended Use In May 2020 the IASB issued amendments to IAS 16 Property, Plant and Equipment which prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in its income statement. The Group has no material amounts received from selling items produced while the Group is preparing any assets for their intended use. Onerous Contracts \u2013 Cost of Fulfilling a Contract In May 2020 the IASB issued amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets to specify which costs a company includes when assessing whether a contract will be loss-making. The Group\u2019s accounting policy for the costs used in assessing whether a contract will be loss-making remain compliant with the new specifications set out in the amendment. New standards, amendments and interpretations not yet adopted The following accounting standards, amendments to accounting standards and interpretations that are not mandatory for 31 December 2022 reporting periods have not been early adopted by the Group. These are effective for annual reporting periods beginning on or after the date indicated: Effective Date IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts1 01 January 2023 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) 01 January 2023 Definition of Accounting Estimates (Amendments to IAS 8) 01 January 2023 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12) 01 January 2023 Initial Application of IFRS 17 and IFRS 9 \u2013 Comparative Information 01 January 2023 Classification of Liabilities as Current or Non-current (Amendments to IAS 1)2 01 January 2024 Lease Liability in a Sale and Leaseback Amendments to IFRS 162 01 January 2024 Non-current Liabilities with Covenants (Amendments to IAS 1)2 01 January 2024 1 Though expected to primarily impact the insurance sector, IFRS 17 Insurance Contracts will apply more widely than contracts issued by traditional insurance entities. Management is considering whether any of its contracts and obligations should be classified as insurance contracts and will assess any further interpretations issued. 2 The effective date is based on the standard or amendment issued by the IASB and are still subject to adoption by the UK Endorsement Board. The standards, amendments or interpretations listed above are not expected to have a material impact on the Group. Changes in accounting policies There have been no changes to the Group\u2019s accounting policies during the year ended 31 December 2022. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-342": {
"value": "Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date, regardless of whether that price is directly observable or is estimated using another valuation technique. There are certain transactions in these financial statements which are similar to fair value but are determined by the treatment set out in their respective standards. These are share based payment transactions that are within the scope of IFRS 2 Share Based Payment, leasing transactions that are within the scope of IFRS 16 Leases, the calculation of net realisable value under IAS 2 Inventories and value in use under IAS 36 Impairment of Assets. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-343": {
"value": "Revenue The Group recognises revenue based on the principles set out in IFRS 15 Revenue from Contracts with Customers and is recognised in any period based on the delivery of performance obligations and an assessment of when control is transferred to the customer. For all contracts, the Group determines whether each arrangement meets the definition of a contract under IFRS 15 and creates enforceable rights and obligations. Contracts are combined if they are entered into at or near the same time and one or more of the following criteria are met: \u2013 They are negotiated as a package with a single commercial objective. \u2013 Consideration receivable in one contract depends on the other contract. \u2013 Goods or services are a single performance obligation. For contracts with multiple components, Management applies judgement to consider whether those promised goods and services are: \u2013 A deliverable (i.e. a good or a service) that is distinct; or \u2013 A series of distinct deliverables that are substantially the same and that have the same pattern of transfer to the customer (transferred over time using the same measure of progress). At contract inception, the transaction price is the total amount of consideration to which the Group expects to be entitled to exchange for transferring goods or services to a customer. Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied. Where there is only one performance obligation, no allocation is necessary as the full transaction price is allocated to the single performance obligation. Where there is more than one performance obligation, the Group looks at each performance obligation separately to see if there is an observable price available, however due to the bespoke nature of the services provided by the Group there is normally no observable stand-alone selling price and the expected cost-plus margin approach is used. All bid models for new contracts are built up and negotiated with the customers on a cost-plus margin basis and therefore this approach most accurately reflects the commercial reality and the value of the benefits transferred to the customer. The Group enters into contracts which contain extension periods where either the customer or both parties can choose to extend the contract or there is an automatic annual renewal and/or termination clauses that could impact the actual duration of the contract. Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the contract impacts both the period over which revenue from performance obligations may be recognised and the period over which contract fulfilment assets and capitalised bid and phase-in costs are expensed. Further details on revenue recognition for specific contract types is shown below. Revenue recognition: Repeat service-based contracts The majority of the Group\u2019s contracts are repeat service-based contracts where value is transferred to the customer over time as the core services are delivered. Therefore, in most cases revenue will be recognised on the output basis, based on direct measurements of the value to the customer of the services transferred to date relative to the remaining services under the contract. This is a faithful depiction of the transfer of services since the service delivered to the customer is unchanged. Where the output method is used, the Group often uses a method of time elapsed which requires minimal estimation. Certain repeat service-based contracts use output methods based upon user numbers; service activity levels; or fees collected. Where any price reductions within output-based contracts are contractual, but the level of service is not decreasing, revenue will be deferred from initial years to subsequent years in order for revenue to be recognised on a consistent basis. There are certain contracts where a separate performance obligation has been identified for services where the pattern of delivery differs to the core services and which are capable of being distinct, such as asset construction or asset maintenance. In these instances, where the transfer of control is most closely aligned to our efforts in delivering the service, the input method is used to measure progress and revenue is recognised in direct proportion to costs incurred. In limited circumstances, other methods are used to measure progress under the input method, including resources consumed, time elapsed or labour hours expended. This is a faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits received by the customer from efforts to date. Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15, allowing revenue to be recognised at the amount which the Group has the right to invoice, where that amount corresponds directly with the value to the customer of the Group\u2019s performance completed to date. Under IFRS 15, unless upfront fees received from customers including transition payments can be clearly attributable to a distinct service the customer is obtaining, then such payments do not constitute a separate performance obligation and instead are deferred and spread over the life of the core services. In general, the timing of satisfaction of performance obligations is consistent with when payment becomes due, other than in instances where up-front win fees or transition payments are received, where in most instances these are deferred. Any changes to the enforceable rights and obligations with customers and/or an update to the transaction price will not be recognised as revenue until there is evidence of customer agreement in line with the Group\u2019s policies. Revenue recognition: Variable revenue The Group has a number of contracts where at least an element of the revenue generated is variable in nature. Variability in revenue recognised can arise from a number of factors, including usage-related volumes, graduated performance against contractual performance indicators, indexation-linked pricing, profit sharing elements and customer decisions related to the provision of goods or services. Any variable amounts will only be recognised where it is highly probable that a significant reversal will not occur. Revenue recognition: Long-term project-based contracts The Group has a limited number of project-based long-term contracts. Revenue associated with these contracts is recognised at the point in time when control over the deliverable is passed to the customer. Revenue recognition: Contract modifications When a modification to an existing contract is approved, the Group first assesses whether it adds distinct goods or services to the existing contract that are priced commensurate with the stand-alone selling prices for those goods or services. If this is the case, then the modification is accounted for prospectively as a separate contract. If the pricing is not commensurate with the stand-alone selling prices for the goods or services and the new goods or services are not distinct from those in the original contract, then this is considered to form part of the original contract. Pricing is updated for the entirety of the revised contract and any historic adjustments recorded as a result are recognised as a cumulative adjustment to revenue in the period of the modification. If the pricing is not commensurate with the stand-alone selling prices for the goods or services and the new goods or services are distinct from those in the original contract, then this is considered to represent the termination of the original contract and the creation of a new contract which is accounted for prospectively from the date of modification. Revenue recognition: Other Sales of goods are recognised when goods are delivered, and title has passed. The Group has a limited number of pass-through arrangements in respect of goods or services procured by the Group on behalf of customers where it assesses whether it is acting as a principal or as an agent. The Group is acting as principal if it is in control of a good or a service prior to transferring to the customer and gross revenue and costs are recognised. More commonly, the Group is acting as agent where it is arranging for those goods or services to be provided to the customer without obtaining control, for example, where the Group is engaged to manage operations for a customer but procures goods or services on behalf of the customer in order to deliver the operation. When acting as an agent, only the fee or commission is recognised as revenue and the costs represent only the direct costs of facilitating the transaction. Interest income is accrued for on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset\u2019s net carrying amount. The Group has no material exposure to returns or refunds. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-344": {
"value": "Government grants The majority of the Group\u2019s customers are governments. Any income that arises from a contractual agreement for the delivery of goods or services, or a specific modification to such a contract, is treated as revenue. Income from governments is only considered to be a government grant if it is not related to the supply of goods or services under a contractual arrangement. Government grants are recognised where there is reasonable assurance that the grant will be received. Grants that compensate the Group for expenses incurred are recognised in the income statement as a reduction to the corresponding expenses on a systematic basis in the periods in which the expenses are recognised. There were no material government grants received during the current or prior year. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForGovernmentGrants",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-345": {
"value": "Contract costs Bid costs are capitalised only when they relate directly to a contract and are incremental to securing the contract. Bid costs are amortised over the duration of the contract to which they relate in equal annual instalments. Any costs which would have been incurred whether or not the contract is actually won are not considered to be capitalised bid costs. Contract costs are charged to the income statement as incurred, including the necessary accrual for costs which have not yet been invoiced, unless the expense relates to a specific time frame covering future periods. Contract costs can only be capitalised when the expenditure meets all of the following three criteria and are not within the scope of another accounting standard, such as inventories, intangible assets, or property, plant and equipment: \u2013 The costs relate directly to a contract. These include direct labour, being the salaries and wages of employees providing the promised services to the customer; direct materials such as supplies used in providing the promised services to a customer; and other costs that are incurred only because an entity entered into the contract, such as payments to subcontractors. \u2013 The costs generate or enhance the resources used in satisfying performance obligations in the future. For initial contract costs capitalised, such costs only fall into one of the following two categories: the mobilisation of contract staff, being the costs of moving existing contract staff to other Group locations; or directly incremental costs incurred in meeting contractual obligations incurred prior to contract delivery, which are required to ensure a proper handover from the previous contractor. Redundancy costs are never capitalised. \u2013 The costs are expected to be recovered, i.e. the contract is expected to be profitable after amortising the capitalised costs. ",
"dimensions": {
"concept": "sercogroupplc:DescriptionOfAccountingPolicyForContractCosts",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-346": {
"value": "Operating profit Operating profit is not a measure defined by IFRS and the Group considers this to include the profits and losses from operations prior to corporation tax, interest revenue and finance costs. ",
"dimensions": {
"concept": "sercogroupplc:DescriptionOfAccountingPolicyForOperatingProfit",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-347": {
"value": "Foreign currencies Transactions in currencies other than Sterling are recorded at the rates of exchange on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity through the Consolidated Statement of Comprehensive Income (SOCI). On consolidation, the assets and liabilities of the Group\u2019s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised directly within equity in the Group\u2019s hedging and translation reserve. On disposal of an operation, such translation differences are recognised as income or expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group uses a monthly approximation for transactions during the period. If exchange rates fluctuate significantly during a period, the use of approximate rates are reviewed to ensure they are still appropriate. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-348": {
"value": "Dividends Dividend distributions are recognised as a liability in the year in which the dividends are approved by the Company\u2019s shareholders. Interim dividends are recognised when they are paid; final dividends when authorised in general meetings by shareholders. Dividend income is recognised on receipt. Dividends payable Dividends are recorded in the Group\u2019s Consolidated Financial Statements in the period in which they are declared, appropriately authorised and no longer at the discretion of the Company. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForDividendsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-349": {
"value": "Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured as the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. Where acquisition and transition costs for successful acquisitions are material, they are disclosed as exceptional costs within note 9. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (which is subject to a maximum of one year). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with the relevant accounting standards. The acquiree\u2019s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) Business Combinations are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another standard. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-350": {
"value": "Investments in joint ventures and associates A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement. The Group\u2019s investments in joint ventures are incorporated using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group\u2019s share of the profit or loss and other comprehensive income of the associate or joint venture. Any excess of the cost of acquisition over the Group\u2019s share of net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group\u2019s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using the equity method of accounting. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-415": {
"value": "Investments in joint ventures and associates A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement. The Group\u2019s investments in joint ventures are incorporated using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group\u2019s share of the profit or loss and other comprehensive income of the associate or joint venture. Any excess of the cost of acquisition over the Group\u2019s share of net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group\u2019s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using the equity method of accounting. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentsInJointVentures",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-404": {
"value": "Investments in joint ventures and associates A joint venture is an arrangement whereby the owning parties have joint control and rights over the net assets of the arrangement. The Group\u2019s investments in joint ventures are incorporated using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group\u2019s share of the profit or loss and other comprehensive income of the associate or joint venture. Any excess of the cost of acquisition over the Group\u2019s share of net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. Goodwill is included within the carrying value amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group\u2019s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Determining whether joint control exists requires a level of judgement based upon specific facts and circumstances which exist at the year-end. Details of the unconsolidated joint ventures are provided in notes 5 and 6. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control. The results and assets and liabilities of associates are also incorporated in these financial statements using the equity method of accounting. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociates",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-406": {
"value": "Goodwill Goodwill is measured as the excess of the fair value of purchase consideration over the fair value of the net assets acquired and is recognised as an intangible asset when control is achieved. Negative goodwill is recognised immediately in the income statement. Fair value measurements are based on provisional estimates and may be subject to amendment within one year of the acquisition, resulting in an adjustment to goodwill. Goodwill itself does not generate independent cash flows and therefore, in order to perform required tests for impairment, it is allocated at inception to the specific cash generating unit (CGU) or groups of CGUs which are expected to benefit from the acquisition. On the disposal of a business which includes all or part of a CGU, any attributable goodwill is included in the determination of the profit or loss on disposal. Where part of a CGU with goodwill is sold, the attributable amount is calculated based on the future discounted cash flows leaving the Group as a proportion of the total CGU\u2019s future discounted cash flows. The fair values associated with material business combinations are valued by external advisers and any amount of consideration which is contingent in nature is evaluated at the end of each reporting period, based on internal forecasts. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForGoodwillExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-351": {
"value": "Goodwill Goodwill is measured as the excess of the fair value of purchase consideration over the fair value of the net assets acquired and is recognised as an intangible asset when control is achieved. Negative goodwill is recognised immediately in the income statement. Fair value measurements are based on provisional estimates and may be subject to amendment within one year of the acquisition, resulting in an adjustment to goodwill. Goodwill itself does not generate independent cash flows and therefore, in order to perform required tests for impairment, it is allocated at inception to the specific cash generating unit (CGU) or groups of CGUs which are expected to benefit from the acquisition. On the disposal of a business which includes all or part of a CGU, any attributable goodwill is included in the determination of the profit or loss on disposal. Where part of a CGU with goodwill is sold, the attributable amount is calculated based on the future discounted cash flows leaving the Group as a proportion of the total CGU\u2019s future discounted cash flows. The fair values associated with material business combinations are valued by external advisers and any amount of consideration which is contingent in nature is evaluated at the end of each reporting period, based on internal forecasts. Other intangible assets Material intangible assets are grouped into classes of similar nature and use and separately disclosed. Other intangible assets are amortised from the date of completion. Customer relationships can arise on the acquisition of subsidiaries and represent the incremental value expected to be gained as a result of existing contracts in the purchased business and identifiable technology-based assets in the purchased business. These assets are amortised over the average length of the related contracts or estimated useful life of any technology-based assets. Software and IT represent computer systems and processes used by the Group in order to generate future economic value through normal business operations. The underlying assets are amortised over the period from which the Group expects to benefit, which is typically between three to eight years. Development expenditure is capitalised as an intangible asset only if the conditions below are met, with all research costs and other development expenditure being expensed when incurred. The period of expected benefit, and therefore period of amortisation, is typically between three and eight years. The capitalisation criteria are as follows: \u2013 an asset is created that can be separately identified and which the Group intends to use or sell; \u2013 the finalisation of the asset is technically feasible and the Group has adequate resources to complete its development for use or sale; \u2013 it is probable that the asset created will generate future economic benefits; and \u2013 the development cost of the asset can be measured reliably. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-405": {
"value": "Other intangible assets Material intangible assets are grouped into classes of similar nature and use and separately disclosed. Other intangible assets are amortised from the date of completion. Customer relationships can arise on the acquisition of subsidiaries and represent the incremental value expected to be gained as a result of existing contracts in the purchased business and identifiable technology-based assets in the purchased business. These assets are amortised over the average length of the related contracts or estimated useful life of any technology-based assets. Software and IT represent computer systems and processes used by the Group in order to generate future economic value through normal business operations. The underlying assets are amortised over the period from which the Group expects to benefit, which is typically between three to eight years. Development expenditure is capitalised as an intangible asset only if the conditions below are met, with all research costs and other development expenditure being expensed when incurred. The period of expected benefit, and therefore period of amortisation, is typically between three and eight years. The capitalisation criteria are as follows: \u2013 an asset is created that can be separately identified and which the Group intends to use or sell; \u2013 the finalisation of the asset is technically feasible and the Group has adequate resources to complete its development for use or sale; \u2013 it is probable that the asset created will generate future economic benefits; and \u2013 the development cost of the asset can be measured reliably. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-352": {
"value": "Property, plant and equipment Assets held for use in the rendering of services, or for administrative purposes, are stated in the balance sheet at cost, net of accumulated depreciation and any provision for impairment. Assets are grouped into classes of similar nature and use and separately disclosed except where this is not material. Depreciation is provided on a straight-line basis at rates designed to reduce the assets to their residual value over their estimated useful lives. The principal annual rates used are: Freehold buildings 2.5% Leasehold improvements The higher of 10% or the rate produced by the lease term Machinery 15% \u2013 20% Vehicles 10% \u2013 50% Furniture 10% Office equipment 20% \u2013 33% Right of use assets Equally over the lease term from inception or equally over the remainder of the lease term from the date of a reassessment of the lease end date The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Given that there is limited history of material gains or losses on disposal of fixed assets, the level of judgement involved in determining the depreciation rates is not considered to be significant. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-356": {
"value": "Asset impairment The Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) at each reporting period, together with any other assets under the scope of IAS 36 Impairment of Assets, in order to assess whether there is any indication that those assets have suffered an impairment loss. As the impairment of assets has been identified as both a key source of estimation uncertainty and a critical accounting judgement, further details around the specific judgements and estimates can be seen in note 3. If any indication of impairment exists, the recoverable amount of the asset is estimated in order to determine if there is any impairment loss. Goodwill is assessed for impairment annually, irrespective of whether there are any indicators of impairment. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. Recoverable amount is defined as the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value with reference to pre-tax discount rates that reflect the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount is estimated to be less than the carrying amount of the asset, the carrying amount is impaired to its recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for indications that the loss which led to the impairment has decreased or no longer exists. Where an impairment loss is subsequently reversed, the carrying amount is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised in prior years. Impairment losses and reversals are recognised immediately within expenses in the income statement unless it is considered to be an exceptional item when the Group\u2019s criteria are met. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-353": {
"value": "Retirement benefit costs Payments to defined contribution pension schemes are charged as an expense as they fall due. For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial cost method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the income statement and are presented in the statement of comprehensive income. Both current and past service costs are the amounts recognised in the income statement, reflecting the expense associated with the individuals. Current service cost represents the increase in the present value of the scheme liabilities expected to arise from employee service in the current period. Past service cost is recognised immediately. Gains and losses on curtailments or settlements are recognised in the income statement in the period in which the curtailment or settlement occurs. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds (which is only recognised to the extent that the Group has an unconditional right to receive it) and reductions in future contributions to the scheme. To the extent that an economic benefit is available as a reduction in future contributions and there is a minimum funding requirement required of the Group, the economic benefit available as a reduction in contributions is calculated as the present value of the estimated future service cost in each year, less the estimated minimum funding contributions required in respect of the future accrual and benefits in that year. Calculation of the amounts recognised in the Consolidated Financial Statements in respect of defined benefit pension schemes requires a high level of judgement, as further explained in note 3. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-354": {
"value": "Defined benefit obligations arising from contractual obligations Where the Group takes on a contract which has employees in scope for the Railway Pension Scheme, it assumes the obligation to contribute variable amounts to the defined benefit pension scheme throughout the period of the contract. The Group\u2019s share of the scheme assets and liabilities is calculated by reducing the scheme assets and liabilities with a franchise adjustment. The franchise adjustment represents the estimated amount of scheme deficit that will be funded outside the contract period and this results in the Group having no further obligation once the contract has ceased. Subsequent actuarial gains and losses in relation to the Group\u2019s share of pension obligations are recognised in the Statement of Comprehensive Income (SOCI). ",
"dimensions": {
"concept": "sercogroupplc:DescriptionOfAccountingPolicyForDefinedBenefitObligationsArisingFromContractualObligations",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-355": {
"value": "End of contract provisions Where the Group has a legal or constructive obligation to compensate employees at the end of a contract term and these employees cannot be relocated within the Group, a provision is recognised to reflect the expected outflow of economic benefits at the end of the contract. The obligation is reassessed at each reporting date. The amount calculated assumes the tenure of the employee base, expected turnover, and salary. ",
"dimensions": {
"concept": "sercogroupplc:DescriptionOfAccountingPolicyForEndOfContractProvisions",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-416": {
"value": "Derivative financial instruments and hedging activities The Group may enter into a variety of derivative financial instruments to manage the exposure to interest rate, foreign exchange risk and price risk, including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts. Further details of derivative financial instruments are given in note 29. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges). At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Both at the inception of the hedge and on a periodic basis, the Group assesses whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Derivatives, which mature within 12 months, are presented as current assets or current liabilities. Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation reserve in equity are detailed in the Statement of Comprehensive Income and described in note 29. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-408": {
"value": "Derivative financial instruments and hedging activities The Group may enter into a variety of derivative financial instruments to manage the exposure to interest rate, foreign exchange risk and price risk, including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts. Further details of derivative financial instruments are given in note 29. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges). At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Both at the inception of the hedge and on a periodic basis, the Group assesses whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Derivatives, which mature within 12 months, are presented as current assets or current liabilities. Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation reserve in equity are detailed in the Statement of Comprehensive Income and described in note 29. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is discontinued when a hedge is no longer effective as a result of a change in risk management strategy, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is realised in the profit or loss account. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income statement as the recognised hedged item. Hedge accounting is discontinued when the Group de-designates the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-358": {
"value": "Derivative financial instruments and hedging activities The Group may enter into a variety of derivative financial instruments to manage the exposure to interest rate, foreign exchange risk and price risk, including currency swaps, foreign exchange forward contracts, interest rate swaps and commodity future contracts. Further details of derivative financial instruments are given in note 29. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges), hedges of highly probable forecast transactions or hedges of firm commitments (cash flow hedges). At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Both at the inception of the hedge and on a periodic basis, the Group assesses whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Derivatives, which mature within 12 months, are presented as current assets or current liabilities. Details of the fair values of the derivative instruments used for hedging purposes and movements in the hedging and translation reserve in equity are detailed in the Statement of Comprehensive Income and described in note 29. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is discontinued when a hedge is no longer effective as a result of a change in risk management strategy, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is realised in the profit or loss account. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line of the income statement as the recognised hedged item. Hedge accounting is discontinued when the Group de-designates the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-407": {
"value": "Tax The tax expense represents the sum of current tax expense and deferred tax expense. Current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group\u2019s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes. Deferred tax assets are generally recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which these items can be utilised. Deferred tax is not recognised for: \u2013 temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; \u2013 temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and \u2013 taxable temporary differences arising on the initial recognition of goodwill. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised. Tax continued Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is recognised in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority where the Group intends to settle its current tax assets and liabilities on a net basis. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-357": {
"value": "Tax The tax expense represents the sum of current tax expense and deferred tax expense. Current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group\u2019s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes. Deferred tax assets are generally recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which these items can be utilised. Deferred tax is not recognised for: \u2013 temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; \u2013 temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and \u2013 taxable temporary differences arising on the initial recognition of goodwill. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised. Tax continued Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is recognised in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority where the Group intends to settle its current tax assets and liabilities on a net basis. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-359": {
"value": "Share based payment Where the fair value of share options or shares under award requires the use of a valuation model, fair value is measured by use of Binomial Lattice, Black-Scholes or Monte Carlo Simulation models depending on the type of scheme, as set out in note 34. The expected life used in the models has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where relevant, the value of the option or award has also been adjusted to take account of market conditions applicable to the option or award. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-360": {
"value": "Inventories Inventories are stated at the lower of cost and net realisable value and comprise service spares, supplies and consumables used in the rendering of services to our customers. Cost comprises direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForMeasuringInventories",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-361": {
"value": "Trade receivables Trade receivables are recognised initially at cost (being the same as fair value) and subsequently at amortised cost less any credit notes, provision for impairment and expected credit losses, to ensure that amounts recognised represent the recoverable amount. Determining whether a trade receivable is impaired requires judgement to be applied based on the information available at each reporting date. A provision for impairment arises where there is evidence that the Group will not be able to collect amounts due for reasons other than customer default, which is achieved by creating an allowance for doubtful debts recognised in the income statement within expenses. When a trade receivable is expected to be uncollectible for reasons other than credit-related losses, it is provided for within the allowance. Subsequent recoveries of amounts previously provided for or written off are credited against expenses. The majority of contracts entered into by the Group are with government organisations and therefore historic levels of default are relatively low and as a result, the risks associated with this judgement are not considered to be significant. An expected credit loss is recorded where there is evidence that a counterparty is at risk of default due to their credit worthiness. If the loss was material, the amount would be presented separately in the Consolidated Income Statement, however the Group\u2019s customer base is predominantly government or government-backed and as a result, the Group\u2019s expected credit loss at a given point in time across the entirety of the customer base is typically immaterial. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForTradeAndOtherReceivablesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-362": {
"value": "Cash and cash equivalents Cash and cash equivalents comprise cash in hand and balances with banks and similar institutions which are readily convertible to known amounts of cash, subject to insignificant changes in value and have a maturity of three months or less from the date of acquisition. This definition is also used for the Consolidated Cash Flow Statement. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-363": {
"value": "Leases The Group uses leases in the delivery of a number of contracts and in other centralised functions. Most notably, the Group uses accommodation leases in the delivery of the Asylum Accommodation and Support Services contract, vehicle leases in the Prisoner Escorting and Custodial Services contract and to deliver its UK vehicle fleet and support offices, amongst others. Where leases are utilised in the delivery of contracts, the Group aims to limit the duration of any non-cancellable periods of leases to be no longer than the duration of the underlying contract. For non-contract related leases, the Group has set policies on lease duration and purpose to ensure their appropriate use. On entering into a lease, a lease liability is recorded equal to the value of future lease payments discounted at the appropriate incremental borrowing rate and, simultaneously, a right of use asset is created representing the right conferred to control the manner of use of the leased asset. The Group typically uses an appropriate incremental borrowing rate, based on the lease location and duration, as it typically does not have access to the interest rate implicit in the lease. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement and corresponding assets are depreciated on a straight-line basis over the lease term. The lease term is measured as the non-cancellable period of a lease, together with periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised, and periods covered by an option to terminate the lease if it is reasonably certain that the option will not be exercised. The lease term is reassessed if an event occurs which causes either the non-cancellable period to change, or another event occurs which changes the assessment of the likelihood of exercising an option included in the lease. All changes to leases are accounted for on a prospective basis from the point at which the change is triggered. Where, on inception, the term of a lease is less than 12 months or the value of the leased asset is less than \u00a35,000, or both, rentals payable under the lease are charged to the income statement on a straight-line basis over the term of the relevant lease. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-369": {
"value": "Loans Loans are stated at amortised cost using the effective interest-rate method. Accrued interest is recorded separately from the associated borrowings within current liabilities. Loans are described as non-recourse loans and classified as such only if no Group company other than the relevant borrower has an obligation, under a guarantee or other arrangement, to repay the debt. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-364": {
"value": "Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingCostsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-365": {
"value": "Provisions Provisions are recognised when the Group has an obligation to make a cash outflow as a result of a past event. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date when settlement is considered to be likely. Onerous contract provisions (OCPs) arise when the unavoidable costs of meeting contractual obligations exceed the remuneration expected to be received. Unavoidable costs include total contract costs together with a rational allocation of shared costs that can be directly linked to fulfilling contractual obligations which have been systematically allocated to OCPs on the basis of key cost drivers except when this is impracticable, where contract revenue is used as a proxy to activity. The provision is calculated as the lower of the termination costs payable for an early exit and the best estimate of net cost to fulfil the Group\u2019s unavoidable contract obligations. Where a customer has an option to extend a contract and it is likely that such an extension will be made, the expected net cost arising during the extension period is included within the calculation. However, where a profit can be reasonably expected in the extension period, no credit is taken on the basis that such profits are uncertain given the potential for the customer to either not extend or offer an extension under lower pricing terms. Further details of the judgements can be seen in note 3. ",
"dimensions": {
"concept": "ifrs-full:DescriptionOfAccountingPolicyForProvisionsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-366": {
"value": "Net investments in foreign operations Exchange differences arising on monetary items that form part of the Group\u2019s net investment in foreign operations are initially recognised in equity and accumulated in the hedging and translation reserve and reclassified from equity to profit or loss on disposal of the net investment. When monetary items no longer form part of a hedging relationship, the exchange differences that arose during the time that the hedge was in place remain in the hedging translation reserve until such time as the net investment is disposed of. ",
"dimensions": {
"concept": "sercogroupplc:DescriptionOfAccountingPolicyForNetInvestmentsInForeignOperations",
"language": "en",
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"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
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},
"fact-367": {
"value": "Segmental information Segmental information is based on internal reports about components of the Group that are regularly reviewed by the Group\u2019s Chief Operating Decision Maker (CODM) in order to allocate resources to the segments and to assess their performance. The CODM is considered to be the Board of Directors as a body. Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context of revenue as a whole. Net finance costs are not presented for each operating segment as they are reviewed on a consolidated basis by the CODM. Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation tax recoverable) and any retirement benefit assets. Segment liabilities comprise trade and other payables, lease liabilities, provisions and retirement benefit obligations. ",
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"fact-368": {
"value": "3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group\u2019s accounting policies, which are described in note 2 above, Management has made the following
judgements that have the most significant effect on the amounts recognised in the Consolidated Financial Statements. As described
below, many of these areas of judgement also involve a high level of estimation uncertainty.
Key sources of estimation uncertainty
Provisions for onerous contracts
Determining the carrying value of onerous contract provisions requires assumptions and complex judgements to be made about the
future performance of the Group\u2019s contracts. The level of uncertainty in the estimates made, either in determining whether a provision
is required, or in the calculation of a provision booked, is linked to the complexity of the underlying contract and the form of service
delivery. Due to the level of uncertainty and combination of variables associated with those estimates, there is a significant risk that
there could be a material adjustment to the carrying amounts of onerous contract provisions within the next financial reporting period.
This includes the potential recognition of onerous contract provisions for contracts which Management has assessed do not require a
provision as at 31 December 2022.
3. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
Provisions for onerous contracts continued
Major sources of uncertainty which could result in a material adjustment within the next financial year, are:
\u2013 the ability of the Company to maintain or improve operational performance to ensure costs or performance related penalties
are in line with expected levels;
\u2013 volume driven revenue and costs being within the expected ranges;
\u2013 the outcome of open claims made by or against a customer regarding contractual performance or contractual negotiations
taking place where there is expected to be a positive outcome from the Group\u2019s perspective; and
\u2013 the ability of suppliers to deliver their contractual obligations on time and on budget.
In the current year, there has been an overall net release of new and existing OCPs within Trading Profit of \u00a31.2m. Revisions have
resulted from triggering events in the current year, either through changes in contractual positions or changes in circumstances which
could not have been reasonably foreseen at the previous balance sheet date. To mitigate the level of uncertainty in making these
estimates, Management regularly compares actual performance of the contracts against previous forecasts and considers whether
there have been any changes to significant judgements.
The future range of possible outcomes in respect of those assumptions and significant judgements made to determine the carrying
value of onerous contracts could result in either a material increase or decrease in the value of onerous contract provisions in the next
financial year. The extent to which actual results differ from estimates made at the reporting date depends on the combined outcome
and timing of a large number of variables associated with performance across multiple contracts.
The individual provisions are discounted where the impact is assessed to be significant. When used, discount rates are calculated
based on the estimated risk-free rate of interest for the region in which the provision is located and matched against the ageing profile
of the provision.
The Group undertakes a robust assessment at each reporting date to determine whether any individual customer contracts, which
the Group has entered into, are onerous and require a provision to be recognised in accordance with IAS 37
Provisions, Contingent
Liabilities & Contingent Assets
. The Group operates a large number of long-term contracts at different phases of their contract life
cycle. Within the Group\u2019s portfolio, there are a small number of contracts where the balance of risks and opportunities indicates
that they might be onerous if transformation initiatives or contract changes are not successful. The Group has concluded that these
contracts do not require an onerous contract provision on an individual basis. Following the individual contract reviews, the Group
has also undertaken a top-down assessment which assumes that, while the contracts may not be onerous on an individual basis,
as a portfolio there is a risk that at least some of the transformation programmes or customer negotiations required to avoid a
contract loss will not be fully successful, and it is more likely than not that one or more of these contracts will be onerous. Therefore,
in considering the Group\u2019s overall onerous contract provision, the Group has made a best estimate of the provision required to take
into consideration this portfolio risk. As a result, the risk of OCPs and the monitoring of individual contracts for indicators remains a
critical estimate for the Group. As at 31 December 2022, the provision recognised in respect of this portfolio of contracts is \u00a38.1m
(2021: \u00a39.7m).
Onerous contract provisions totalling \u00a33.5m are estimated for individual contracts, based on the specific characteristics of the contract
including possible contract variations, estimates of transaction price such as variable revenues and forecast costs to fulfil those
contracts. As noted above, the Group also holds a balance of \u00a38.1m in respect of the portfolio risk associated with operating a large
number of long-term contracts, giving a total onerous contract provision of \u00a311.6m (see note 26). Management has considered the
nature of the estimate for onerous contract provisions and concluded that it is reasonably possible that outcomes within the next
financial year may be different from Management\u2019s assumptions and could, in aggregate, require a material adjustment to the onerous
contract provision. However, due to the estimation uncertainty across numerous contracts each with different characteristics, it is
not practical to provide a quantitative analysis of the aggregated judgements that are applied, and Management does not believe
that disclosing a potential range of outcomes on a consolidated basis would provide meaningful information to a reader of the
financial statements.
While the focus of the judgement is to determine whether the Group is required to record an onerous contract provision,
Management also inherently assess whether any assets dedicated to the contract are required to be impaired where contracts are
forecast to make sustainable losses in the future. In accordance with IAS 37, the Group will impair assets dedicated to the contract
before the recognition of an onerous contract provision.
Impairment of goodwill
A key area of focus for the Group is the recoverability of goodwill. At each reporting period an assessment is performed in order
to determine whether there are any indicators of impairment, which involves considering the performance of our business and any
significant changes to the markets in which we operate.
Determining whether goodwill requires an actual impairment involves an estimation of the expected value in use of the asset (or
cash generating unit (CGU) to which the asset relates). The value in use calculation involves an estimation of future cash flows and
also the selection of appropriate discount rates and terminal growth rates, all of which involve considerable judgement. The future
cash flows are derived from latest approved forecasts, with the key assumptions being revenue growth, margins and cash conversion
rates. Known and anticipated impacts of inflation have been included in Management\u2019s forecasts underpinning the cash flows used in
assessing the value in use of assets.
Discount rates and terminal growth rates are calculated with reference to the specific risks associated with the assets and are based
on advice provided by external experts. The calculation of discount rates is performed based on a risk-free rate of interest appropriate
to the geographic location of the cash flows related to the CGU being tested, which is subsequently adjusted to factor in local market
risks and risks specific to the Group. During 2022, there has been a significant increase in market interest rates in response to rising
global inflation. As such there has been a corresponding rise in risk-free rates impacting discount rates. For the purpose of impairment
testing in accordance with IAS 36
Impairment of Assets
, the Group estimates pre-tax discount rates based on the post-tax weighted
average cost of capital which is used for internal purposes.
Despite the significant rise in discount rates, which is the primary driver for the material reduction in headroom, there continues to be
headroom across all CGUs, as detailed in note 17. Sufficient headroom remains even when reasonably possible changes to discount
rates and terminal growth rates occur. However, an impairment in the CGU with the lowest headroom as a proportion of its value in
use occurs when combining these changes with no growth in the outer period of 2025 to 2027 as detailed in note 17. A high degree
of judgement remains in estimating future cash flows, particularly those relating to the terminal year of the value in use calculation.
Retirement benefit obligations
Identifying whether the Group has a retirement benefit obligation as a result of contractual arrangements entered into requires a
level of judgement, largely driven by the legal position held between the Group, the customer and the relevant pension scheme. The
Group\u2019s retirement benefit obligations are covered in note 30.
The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates, mortality rates,
inflation rates and future contribution rates.
In accounting for the defined benefit schemes, the Group has applied the principle that the asset recognised for the Serco Pension
and Life Assurance Scheme (SPLAS) and the shared cost section of the Railways Pension Scheme is equal to the full surplus that will
ultimately be available to the Group as a future refund.
No pension assets are invested in the Group\u2019s own financial instruments or property.
Pension assets held by insurance companies including the annuity policies in SPLAS are valued at the equal and opposite of the
defined benefit obligations that they insure.
The SPLAS pension scheme invests into private debt funds which do not have an observable market price and are remeasured to
fair value at each reporting date. The valuation methodology relied upon the Net Asset Value provided by the fund administrator at
30 September adjusted for actual cash flows in the period to 31 December. The Group has undertaken a risk assessment to assess
whether this industry standard valuation methodology remains the Group\u2019s best estimate at 31 December 2022 following the
significant market volatility experienced in the third quarter of the year. The Group has concluded that although there is heightened
estimation uncertainty, this methodology provides the most accurate valuation and estimate for Management.
Critical accounting judgements
Deferred tax
Deferred tax assets are recognised on tax deductible temporary differences to the extent that it is probable that taxable profit will be
available against which they can be utilised. Significant Management judgement is required to determine the amount of the deferred
tax asset that should be recognised, based upon the likely timing, geography and level of future taxable profits. Since a significant
portion of the deducible temporary differences relate to historic tax losses, there has been historic evidence that future taxable profits
may not be available.
A \u00a3186.9m, UK tax asset is recognised on the Group\u2019s balance sheet at 31 December 2022 (2021 \u00a3162.8m) on the basis that structural
changes in the underlying UK business indicate a sustained return to profitability which will enable future tax deductions within the UK
to be utilised. The return to profitability is as a result of onerous contracts ending, being replaced by profitable long-term contracts as
well as a significant reduction in exceptional restructuring spend following the strategy review in 2015, which also reduced the level of
overhead spend within the UK business.
Further details on deferred taxes are disclosed in note 15.
Use of Alternative Performance Measures: Operating profit before exceptional items
IAS 1
Presentation of Financial Statements
requires material items to be disclosed separately in a way that enables users to assess the
quality of a company\u2019s profitability. In practice, these are commonly referred to as \u2018exceptional\u2019 items, but this is not a concept defined
by IFRS and therefore there is a level of judgement involved in arriving at an Alternative Performance Measure which excludes such
exceptional items. Management considers items which are material and outside of the normal operating practice of the Company
to be suitable for separate presentation. There is a level of judgement required in determining which items are exceptional on a
consistent basis and require separate disclosure. Further details can be seen in note 9.
The segmental analysis in note 4 includes the additional performance measure of Trading Profit on operations which is reconciled to
reported operating profit in that note. The Group uses Trading Profit as an alternative measure to reported operating profit by making
several adjustments. Firstly, Trading Profit excludes exceptional items, being those Management consider to be outside of normal
operations and are material to the results of the Group by virtue of their size or nature, and are suitable for separate presentation
and detailed explanation. Secondly, amortisation and impairment of intangibles arising on acquisitions are excluded, because
these charges are based on judgements about the value and economic life of assets that, in the case of items such as customer
relationships, would not be capitalised in normal operating practice. The Group\u2019s Chief Operating Decision Maker (CODM) reviews
the segmental analysis during the year.
3. Critical accounting judgements and key sources of estimation uncertainty continued
Critical accounting judgements continued
Climate risk
Risks arising from climate change may have future adverse effects on the Group\u2019s business activities. These risks include:
\u2013 major physical risks such as extreme weather events, impacting assets, operations and employee wellbeing;
\u2013 major transitional risks including policy and legal changes such as increasing reporting and contractual requirements and
increasing carbon taxes and levies;
\u2013 technology risks including costs to transition to lower emission options; and
\u2013 reputational risks such as investor and stakeholder concerns on not transitioning quickly enough to Net Zero.
As an outsourcing organisation operating across multiple sectors and geographies, the ways in which climate change may impact the
Group\u2019s and its customers\u2019 assets (where the Group delivers the majority of its services), supply chains and operations is diverse.
In preparing the Group financial statements Management has considered the impact of climate-related matters but have not identified
significant risks induced by climate changes that could negatively and materially affect the Group\u2019s financial statements. In arriving
at this conclusion, Management has considered the areas of the Groups financial statements where climate-related matters could
reasonably impact measurement and disclosure including key estimates and judgements.
When undertaking the Goodwill impairment review, the Group\u2019s latest approved forecast is used to estimate the value in use of its
CGUs. Climate assumptions are built into the contract level budgets to the extent that contractual commitments exist. However,
Management\u2019s current assessment shows that there are no such material contractual obligations. In addition, Group-wide strategic
commitments, such as those made as part of the Net Zero targets and planning, are not material in the short term for inclusion in
the Group\u2019s forecast. The forecast is underpinned by a number of assumptions, and it represents the Group\u2019s best estimate of future
business performance. Management cannot reliably predict how climate changes will impact the forecast particularly in areas such as
carbon levies and the cost of insurance. As such, Management has presented sensitivity analysis to demonstrate the Group\u2019s ability to
withstand changes to the forecast before recording an impairment (see note 17). The forecast used in the goodwill impairment review
is also used in the assessment of deferred tax assets and the Group\u2019s ability to continue as a going concern.
The Group also continuously reviews the property, plant, and equipment under its control to identify opportunities to reduce its
carbon impact. Primarily there has been a transition to electric and hybrid vehicles, both in the company car fleet as well as vehicles
required to operate contracts. For example, electric light commercial vehicles are beginning to replace the diesel fleet in certain
geographies. The transition is currently being undertaken where assets are identified as nearing the end of their useful economic life
(UEL) and therefore there has been no revision to the UEL related to motor vehicles.
Other areas considered include retirement benefit obligations, namely the valuation of assets, share based payments linked to ESG
targets and those critical accounting judgements and sources of estimation uncertainty not noted above (see note 3).
Management continuously assesses the impact of climate-related matters. Assumptions will likely change in the future in response
to the Group\u2019s understanding of risks and opportunities maturing, forthcoming environmental regulations, climate change impacts,
new commitments taken and increasing customer Net Zero requirements. These changes, if not anticipated and continually assessed,
could have an impact on the Group\u2019s future cash flows, financial performance, and financial position.
Claim for losses in respect of the 2013 share price reduction
Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of
the reduction in Serco\u2019s share price in 2013, the Group has continued to assess the merit, likely outcome, and potential impact on
the Group of any such litigation that either has been or might potentially be brought against the Group. Any outcome is subject to a
number of significant uncertainties. The Group does not currently assess the merits as strong, especially given the legal uncertainties
in such actions.
",
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},
"fact-370": {
"value": "4. Segmental information
The Group\u2019s operating segments reflecting the information reported to the Board in 2022 under IFRS 8
Operating Segment
s are as set
out below:
Reportable operating segments Sectors
UK & Europe Services for sectors including Citizen Services, Defence, Health & Other Facilities Management, Justice
& Immigration and Transport delivered to UK Government, UK devolved authorities and other public
sector customers in the UK and Europe
Americas Services for sectors including Citizen Services, Defence and Transport delivered to US federal and civilian
agencies, selected state and municipal governments and the Canadian Government
AsPac Services for sectors including Citizen Services, Defence, Health & Other Facilities Management, Justice &
Immigration and Transport in the Asia Pacific region including Australia, New Zealand and Hong Kong
Middle East Services for sectors including Citizen Services, Defence, Health & Other Facilities Management and
Transport in the Middle East region
Corporate Central and head office costs
Each reportable operating segment is focused on a narrow group of customers in a specific geographic region and is run by a local
Management team which reports directly to the Group\u2019s Chief Operating Decision Maker (CODM) on a regular basis. As a result of this
focus, the sectors in each region have similar economic characteristics and are aggregated at the reportable operating segment level
in these financial statements.
The accounting policies of the reportable operating segments are the same as the Group\u2019s accounting policies described in note 2.
Information about major customers
The Group has three major governmental customers which each represent more than 5% of Group revenues in the current year.
The customers\u2019 revenues were \u00a31,716.9m (2021: \u00a31,814.4m) for the UK Government within the UK & Europe segment; \u00a31,109.6m
(2021: \u00a3993.0m) for the US Government within the Americas segment; and \u00a3880.5m (2021: \u00a3836.4m) for the Australian Government
within the AsPac segment. These customers do not act in a unified way in making purchase decisions, and in general, the Group
engages directly with the various departments of these customers in respect of the services it provides.
Segmental information
Segmental revenue is analysed on an external basis. Inter-segment revenue is not presented as it is not significant in the context
of revenue as a whole. Net finance costs are not presented for each reportable operating segment as they are reviewed on a
consolidated basis by the CODM.
Specific corporate expenses are allocated to the corresponding segments. Segment assets comprise goodwill, other intangible
assets, property, plant and equipment including right of use assets, inventories, trade and other receivables (excluding corporation tax
recoverable) and any retirement benefit asset. Segment liabilities comprise trade and other payables, lease liabilities, provisions and
retirement benefit obligations.
The following is an analysis of the Group\u2019s revenue, results, assets and liabilities by reportable operating segment:
Year ended 31 December 2022
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Corporate
\u00a3m
Total
\u00a3m
Revenue 2,100.2 1,269.8 954.6 209.4 \u2013 4,534.0
Result
Trading profit/(loss)
1
76.2 136.7 56.9 16.0 (44.6) 241.2
Amortisation and impairment of
intangibles arising on acquisition (1.5) (16.5) (3.6) \u2013 \u2013 (21.6)
Exceptional operating items
2
(1.2) (1.2) \u2013 \u2013 \u2013 (2.4)
Operating profit/(loss) 73.5 119.0 53.3 16.0 (44.6) 217.2
Finance cost (20.4)
Profit before tax 196.8
Tax charge (42.1)
Tax credit on exceptional items 0.3
Profit for the year 155.0
Supplementary information
Share of profits in joint ventures and
associates, net of interest and tax 12.0 \u2013 \u2013 \u2013 \u2013 12.0
Total depreciation and impairment of
plant, property and equipment and right
of use assets (86.4) (26.7) (12.6) (1.9) (12.9) (140.5)
Amortisation and impairment of other
intangible assets (1.3) (1.0) (2.1) (0.1) (5.6) (10.1)
1 Trading Profit/(Loss) is defined as Operating Profit/(Loss) before exceptional items and amortisation and impairment of intangible assets arising on acquisition.
2 Included within exceptional operating items are total acquisition related costs of \u00a32.4m.
4. Segmental information continued Segmental information continued Year ended 31 December 2021 UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Corporate \u00a3m Total \u00a3m Revenue 2,131.6 1,120.0 908.4 264.6 \u2013 4,424.6 Result Trading profit/(loss)1 99.8 117.8 52.0 13.7 (49.9) 233.4 Amortisation and impairment of intangibles arising on acquisition (0.8) (11.7) (3.5) \u2013 \u2013 (16.0) Exceptional operating items2 0.4 (4.1) 3.4 \u2013 (0.9) (1.2) Operating profit/(loss) 99.4 102.0 51.9 13.7 (50.8) 216.2 Finance cost (24.0) Profit before tax 192.2 Tax credit 111.9 Tax on exceptional items (0.2) Profit for the year 303.9 Supplementary information Share of profits in joint ventures and associates, net of interest and tax 8.7 \u2013 \u2013 \u2013 \u2013 8.7 Total depreciation and impairment of plant, property and equipment and right of use assets (77.9) (23.4) (12.5) (5.2) (9.9) (128.9) Amortisation of other intangible assets (1.2) (0.5) (2.9) (0.1) (6.6) (11.3) 1 Trading Profit/(Loss) is defined as Operating Profit/(Loss) before exceptional items and amortisation and impairment of intangible assets arising on acquisition. 2 Included within exceptional operating items are total acquisition related costs of \u00a34.9m. As at 31 December 2022 UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Corporate \u00a3m Total \u00a3m Segment assets Interests in joint ventures and associates 22.9 \u2013 \u2013 0.4 \u2013 23.3 Other segment assets1 960.8 948.0 309.6 68.7 123.3 2,410.4 Total segment assets 983.7 948.0 309.6 69.1 123.3 2,433.7 Unallocated assets2 316.5 Consolidated total assets 2,750.2 Segment liabilities Segment liabilities1 (720.2) (178.3) (248.1) (61.1) (179.0) (1,386.7) Unallocated liabilities2 (333.8) Consolidated total liabilities (1,720.5) Supplementary information Additions to non-current assets3 173.7 14.5 7.4 3.0 12.1 210.7 Segment non-current assets 701.1 718.6 177.1 14.1 80.8 1,691.7 Unallocated non-current assets 244.5 1 The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension schemes and corporate intangible assets. 2 Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans. 3 Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant & equipment and right of use assets. Year ended 31 December 2021 UK&E \u00a3m Americas \u00a3m AsPac \u00a3m Middle East \u00a3m Corporate \u00a3m Total \u00a3m Segment assets Interests in joint ventures and associates 17.1 \u2013 0.1 0.4 \u2013 17.6 Other segment assets1 782.5 911.6 313.2 60.8 227.5 2,295.6 Total segment assets 799.6 911.6 313.3 61.2 227.5 2,313.2 Unallocated assets 2 420.8 Consolidated total assets 2,734.0 Segment liabilities Segment liabilities1 (641.2) (187.7) (224.7) (53.2) (182.3) (1,289.1) Unallocated liabilities2 (436.5) Consolidated total liabilities (1,725.6) Supplementary information Additions to non-current assets 3 146.3 227.4 64.6 0.3 20.5 459.1 Segment non-current assets 570.1 700.8 179.0 11.7 207.3 1,668.9 Unallocated non-current assets 214.3 1 The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group, including defined benefit pension schemes and corporate intangible assets. 2 Unallocated assets and liabilities include deferred tax, cash and cash equivalents, derivative financial instruments and loans. 3 Additions to non-current assets reflects additions and amounts arising on acquisition for goodwill, other intangible assets, property plant & equipment and right of use assets. ",
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"fact-371": {
"value": "5. List of principal undertakings The following are considered to be the principal undertakings of the Group as at the year-end: Principal subsidiaries 2022 2021 United Kingdom Serco Limited 100% 100% Australia Serco Australia Pty Limited 100% 100% USA Serco Inc. 100% 100% Principal joint ventures and associates 2022 2021 United Kingdom Merseyrail Services Holding Company Limited 50% 50% United Kingdom Vivo Defence Services Limited 50% 50% A full list of subsidiaries and related undertakings is included in the Appendix on pages 256 to 259 which form part of the financial statements. ",
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"fact-409": {
"value": "6. Joint ventures and associates The principal joint ventures Merseyrail Services Holding Company (MSHCL) Limited and Vivo Defence Services Limited (VIVO) were the only equity accounted entities which were material to the Group during the year. Dividends of \u00a37.3m (2021: \u00a3nil) and \u00a3nil (2021: \u00a3nil), respectively, were received from these companies in the year. The increased dividends received in respect of MSHCL were due to returning passenger volumes following reduced travel during the Covid-19 pandemic. The 2021 result included AWE Management Limited (AWEML). As announced on 2 November 2020, the Ministry of Defence notified the Group that it would be exercising its option to terminate services provided by the Group through AWEML on 30 June 2021. During 2022 a final dividend of \u00a31.8m (2021: \u00a313.5m) was received from AWEML. Following the termination of services provided by the Group through AWEML, it is no longer considered a principal associate and is therefore classified within the Group portion of other joint ventures and associates in the table below for 2022. 6. Joint ventures and associates continued Summarised financial information of MSHCL and VIVO, and an aggregation of the other equity accounted entities in which the Group has an interest in is as follows: 31 December 2022 Summarised financial information MSHCL (100% of results) \u00a3m VIVO (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint ventures and associates1 \u00a3m Total \u00a3m Revenue 185.0 327.0 236.8 1.1 237.9 Operating profit/(loss) 12.0 17.6 14.4 (0.1) 14.3 Net (finance costs)/investment revenue (0.4) (0.6) (0.4) 0.1 (0.3) Income tax (charge)/credit (1.0) (3.2) (2.1) 0.1 (2.0) Profit from operations 10.6 13.8 11.9 0.1 12.0 Other comprehensive income 5.8 \u2013 2.9 \u2013 2.9 Total comprehensive income 16.4 13.8 14.8 0.1 14.9 Non-current assets 36.1 5.9 21.0 0.3 21.3 Current assets 51.2 129.9 90.5 1.5 92.0 Current liabilities (29.6) (91.7) (60.6) (0.8) (61.4) Non-current liabilities (26.5) (31.1) (28.6) \u2013 (28.6) Net assets 31.2 13.0 22.3 1.0 23.3 Proportion of Group ownership 50.0% 50.0% Carrying amount of investment 15.6 6.5 22.3 1.0 23.3 1 For MSHCL, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO, although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material joint ventures will not represent exactly 50% of their income and net assets. MSHCL (100% of results) \u00a3m VIVO (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Cash and cash equivalents 33.2 18.0 25.6 0.6 26.2 Current financial liabilities excluding trade and other payables and provisions (7.1) (3.2) (5.1) (0.3) (5.4) Non-current financial liabilities excluding intercompany loans, trade and other payables and provisions (25.8) (13.6) (18.4) \u2013 (18.4) Non-current joint venture loans liability \u2013 (20.0) (10.0) \u2013 (10.0) Depreciation and amortisation (5.0) (1.3) (3.2) (0.1) (3.3) Interest income 0.1 \u2013 0.1 \u2013 0.1 Interest expense (0.4) (0.2) (0.3) (0.1) (0.4) 1 Total results of the entity multiplied by the respective proportion of Group ownership . The Group\u2019s share of liabilities within joint ventures and associates is \u00a390.0m (2021: \u00a321.1m) which include \u00a35.1m of lease obligations (2021: \u00a33.9m) and \u00a310.0m in joint venture loan liabilities (2021: \u00a3nil). The balance is trade and other payables which arise as part of the day-to-day operations carried out by those entities. Other than liabilities associated with leases, the Group has no material exposure to third party debt or other financing arrangements within any of its joint ventures and associates. VIVO\u2019s funding requirement is agreed by both shareholders and based on the strategic business plan. At 31 December 2022 the funding provided was \u00a310m from each shareholder. In the future, distributions of net profits will be returned to the Group once VIVO has sufficient reserves. 31 December 2021 Summarised financial information AWEML (100% of results) \u00a3m MSHCL (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Revenue 638.7 161.0 237.0 1.4 238.4 Operating profit/(loss) 49.6 (0.8) 11.8 (0.3) 11.5 Net finance costs \u2013 (0.1) (0.1) \u2013 (0.1) Income tax (charge)/credit (12.0) 0.3 (2.8) 0.1 (2.7) Profit/(loss) from operations 37.6 (0.6) 8.9 (0.2) 8.7 Other comprehensive income \u2013 6.6 3.3 \u2013 3.3 Total comprehensive income/(expense) 37.6 6.0 12.2 (0.2) 12.0 Non-current assets \u2013 13.9 7.0 0.2 7.2 Current assets 8.5 43.4 23.8 7.7 31.5 Current liabilities (1.7) (23.6) (12.2) (3.9) (16.1) Non-current liabilities \u2013 (4.0) (2.0) (3.0) (5.0) Net assets 6.8 29.7 16.6 1.0 17.6 Proportion of Group ownership 24.5% 50.0% Carrying amount of investment 1.7 14.9 16.6 1.0 17.6 1 Total results of the entity multiplied by the respective proportion of Group ownership. AWEML (100% of results) \u00a3m MSHCL (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Cash and cash equivalents 8.5 28.9 16.5 4.7 21.2 Current financial liabilities excluding trade and other payables and provisions (0.3) (5.3) (2.7) \u2013 (2.7) Non-current financial liabilities excluding trade and other payables and provisions \u2013 (2.9) (1.5) \u2013 (1.5) Depreciation and amortisation \u2013 (5.8) (2.9) \u2013 (2.9) Interest income \u2013 \u2013 \u2013 \u2013 \u2013 Interest expense \u2013 (0.2) (0.1) \u2013 (0.1) 1 Total results of the entity multiplied by the respective proportion of Group ownership. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfSignificantInvestmentsInAssociatesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-372": {
"value": "6. Joint ventures and associates The principal joint ventures Merseyrail Services Holding Company (MSHCL) Limited and Vivo Defence Services Limited (VIVO) were the only equity accounted entities which were material to the Group during the year. Dividends of \u00a37.3m (2021: \u00a3nil) and \u00a3nil (2021: \u00a3nil), respectively, were received from these companies in the year. The increased dividends received in respect of MSHCL were due to returning passenger volumes following reduced travel during the Covid-19 pandemic. The 2021 result included AWE Management Limited (AWEML). As announced on 2 November 2020, the Ministry of Defence notified the Group that it would be exercising its option to terminate services provided by the Group through AWEML on 30 June 2021. During 2022 a final dividend of \u00a31.8m (2021: \u00a313.5m) was received from AWEML. Following the termination of services provided by the Group through AWEML, it is no longer considered a principal associate and is therefore classified within the Group portion of other joint ventures and associates in the table below for 2022. 6. Joint ventures and associates continued Summarised financial information of MSHCL and VIVO, and an aggregation of the other equity accounted entities in which the Group has an interest in is as follows: 31 December 2022 Summarised financial information MSHCL (100% of results) \u00a3m VIVO (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint ventures and associates1 \u00a3m Total \u00a3m Revenue 185.0 327.0 236.8 1.1 237.9 Operating profit/(loss) 12.0 17.6 14.4 (0.1) 14.3 Net (finance costs)/investment revenue (0.4) (0.6) (0.4) 0.1 (0.3) Income tax (charge)/credit (1.0) (3.2) (2.1) 0.1 (2.0) Profit from operations 10.6 13.8 11.9 0.1 12.0 Other comprehensive income 5.8 \u2013 2.9 \u2013 2.9 Total comprehensive income 16.4 13.8 14.8 0.1 14.9 Non-current assets 36.1 5.9 21.0 0.3 21.3 Current assets 51.2 129.9 90.5 1.5 92.0 Current liabilities (29.6) (91.7) (60.6) (0.8) (61.4) Non-current liabilities (26.5) (31.1) (28.6) \u2013 (28.6) Net assets 31.2 13.0 22.3 1.0 23.3 Proportion of Group ownership 50.0% 50.0% Carrying amount of investment 15.6 6.5 22.3 1.0 23.3 1 For MSHCL, these are the total results of the entity multiplied by the proportion of Group ownership. For VIVO, although the equity ownership is 50%, the share of profits from contracts operated by VIVO is either 25% or 50%. Therefore the Group portion of material joint ventures will not represent exactly 50% of their income and net assets. MSHCL (100% of results) \u00a3m VIVO (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Cash and cash equivalents 33.2 18.0 25.6 0.6 26.2 Current financial liabilities excluding trade and other payables and provisions (7.1) (3.2) (5.1) (0.3) (5.4) Non-current financial liabilities excluding intercompany loans, trade and other payables and provisions (25.8) (13.6) (18.4) \u2013 (18.4) Non-current joint venture loans liability \u2013 (20.0) (10.0) \u2013 (10.0) Depreciation and amortisation (5.0) (1.3) (3.2) (0.1) (3.3) Interest income 0.1 \u2013 0.1 \u2013 0.1 Interest expense (0.4) (0.2) (0.3) (0.1) (0.4) 1 Total results of the entity multiplied by the respective proportion of Group ownership The Group\u2019s share of liabilities within joint ventures and associates is \u00a390.0m (2021: \u00a321.1m) which include \u00a35.1m of lease obligations (2021: \u00a33.9m) and \u00a310.0m in joint venture loan liabilities (2021: \u00a3nil). The balance is trade and other payables which arise as part of the day-to-day operations carried out by those entities. Other than liabilities associated with leases, the Group has no material exposure to third party debt or other financing arrangements within any of its joint ventures and associates. VIVO\u2019s funding requirement is agreed by both shareholders and based on the strategic business plan. At 31 December 2022 the funding provided was \u00a310m from each shareholder. In the future, distributions of net profits will be returned to the Group once VIVO has sufficient reserves. 31 December 2021 Summarised financial information AWEML (100% of results) \u00a3m MSHCL (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Revenue 638.7 161.0 237.0 1.4 238.4 Operating profit/(loss) 49.6 (0.8) 11.8 (0.3) 11.5 Net finance costs \u2013 (0.1) (0.1) \u2013 (0.1) Income tax (charge)/credit (12.0) 0.3 (2.8) 0.1 (2.7) Profit/(loss) from operations 37.6 (0.6) 8.9 (0.2) 8.7 Other comprehensive income \u2013 6.6 3.3 \u2013 3.3 Total comprehensive income/(expense) 37.6 6.0 12.2 (0.2) 12.0 Non-current assets \u2013 13.9 7.0 0.2 7.2 Current assets 8.5 43.4 23.8 7.7 31.5 Current liabilities (1.7) (23.6) (12.2) (3.9) (16.1) Non-current liabilities \u2013 (4.0) (2.0) (3.0) (5.0) Net assets 6.8 29.7 16.6 1.0 17.6 Proportion of Group ownership 24.5% 50.0% Carrying amount of investment 1.7 14.9 16.6 1.0 17.6 1 Total results of the entity multiplied by the respective proportion of Group ownership. AWEML (100% of results) \u00a3m MSHCL (100% of results) \u00a3m Group portion of material joint ventures and associates 1 \u00a3m Group portion of other joint venture arrangements and associates 1 \u00a3m Total \u00a3m Cash and cash equivalents 8.5 28.9 16.5 4.7 21.2 Current financial liabilities excluding trade and other payables and provisions (0.3) (5.3) (2.7) \u2013 (2.7) Non-current financial liabilities excluding trade and other payables and provisions \u2013 (2.9) (1.5) \u2013 (1.5) Depreciation and amortisation \u2013 (5.8) (2.9) \u2013 (2.9) Interest income \u2013 \u2013 \u2013 \u2013 \u2013 Interest expense \u2013 (0.2) (0.1) \u2013 (0.1) 1 Total results of the entity multiplied by the respective proportion of Group ownership. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfJointVenturesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-373": {
"value": "7. Acquisitions On 12 July 2022, the Group acquired 100% of the issued share capital of Sapienza Consulting Holdings BV (Sapienza), a provider of consulting, talent acquisition and digital solutions to European space and defence institutions for consideration of \u20ac3.3m (\u00a32.8m) in cash, subject to standard working capital and completion adjustments. The acquired net assets included \u20ac1.9m (\u00a31.6m) of cash resulting in a net cash outflow on acquisition of \u20ac1.4m (\u00a31.2m). The operating results, assets and liabilities have been recognised effective 12 July 2022. Sapienza contributed \u00a36.5m of revenue and \u00a30.3m of operating profit before exceptional items, including an appropriate allocation of charges for shared support services and fully allocated overheads, to the Group\u2019s results during the year to 31 December 2022. 7. Acquisitions continued On 1 September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS), a specialist provider of immigration services to public sector customers in Switzerland, Germany, Austria and Italy, for consideration of CHF19.2m (\u00a316.9m) subject to standard working capital and completion adjustments. CHF6.4m (\u00a35.7m) was paid in cash and the remaining CHF12.8m (\u00a311.2m) is contingent consideration. At the same time, the Group transferred CHF19.2m (\u00a316.9m) to acquire shareholder loans of ORS. The acquired net assets included CHF5.2m (\u00a34.6m) of cash resulting in a net cash outflow on acquisition of CHF20.4m (\u00a318.0m). Including the balance of contingent consideration payable the total expected cash outflow for the acquisition, net of cash acquired, is CHF33.2m (\u00a329.2m). Post completion there was a further cash outflow of CHF7.4m (\u00a36.7m) to settle the bank loan acquired. The acquisition included net pension obligation of CHF5.7m (\u00a35.0m). The operating results, assets and liabilities have been recognised effective 1 September 2022. ORS contributed \u00a362.4m of revenue and \u00a31.6m of operating profit before exceptional items, including an appropriate allocation of charges for shared support services and fully allocated overheads, to the Group\u2019s results during the year to 31 December 2022. Based on estimates made of the full-year impact of the acquisition of Sapienza and ORS, had the acquisitions taken place on 1 January 2022, Group revenue and operating profit before exceptional items for the period would have increased by approximately \u00a394.3m and \u00a34.5m respectively, taking total Group revenue to \u00a34,628.3m and total Group operating profit before exceptional items to \u00a3224.1m. The provisional fair values of the two acquisitions undertaken during the year and the update to provisional fair values of the prior year acquisition of Whitney, Bradley & Brown, Inc. are summarised below: Update to provisional fair values WBB 1 \u00a3m Provisional fair values Sapienza \u00a3m Provisional fair values ORS \u00a3m Total \u00a3m Goodwill 2 1.5 2.1 17.3 20.9 Other intangible assets (0.7) 1.2 25.9 26.4 Property, plant and equipment - - 1.1 1.1 Right of use assets - 0.4 12.7 13.1 Retirement benefit assets - - 46.7 46.7 Inventories - - 0.6 0.6 Deferred tax asset - - 0.1 0.1 Trade and other receivables (0.3) 2.7 50.3 52.7 Cash and cash equivalents - 1.6 4.6 6.2 Trade and other payables - (4.6) (48.6) (53.2) Provisions (0.4) - - (0.4) Retirement benefit obligations - - (51.7) (51.7) Bank loans - - (6.5) (6.5) Other loans - - (16.9) (16.9) Corporation tax liabilities - - (0.7) (0.7) Deferred tax liabilities (0.1) (0.2) (5.3) (5.6) Lease obligations - (0.4) (12.7) (13.1) Acquisition date fair value of consideration transferred - 2.8 16.9 19.7 Satisfied by: Cash consideration \u2013 2.8 5.7 8.5 Contingent consideration \u2013 \u2013 11.2 11.2 Total consideration \u2013 2.8 16.9 19.7 1 WBB goodwill increased by \u00a31.5m following the completion of the fair value assessment of the acquisition during the measurement period. 2 No goodwill is deductible for tax purposes. The fair values for Sapienza and ORS are prepared on a provisional basis in accordance with IFRS 3. During the measurement period, expected to be 12 months from acquisition date, the Group may amend the fair value. The following items reflect the key consideration in measuring the fair value: \u2013 Goodwill on the acquisitions of Sapienza and ORS represents the premium associated with expanding the Group\u2019s capabilities in the relevant sectors and geographical locations in which the acquired companies operate. \u2013 The acquisition related intangibles represent the fair value of customer relationships which have been valued using our best estimate of forecast cash flows discounted to present value and, in the case of ORS, certain software-related assets and the brand names associated with them \u2013 The right of use assets and lease obligations are measured as the present value of the remaining lease payments as if the acquired lease was a new lease at the acquisition date. \u2013 The retirement benefit assets and obligations were measured in accordance with IAS 19 at the acquisition date. \u2013 Deferred tax assets and liabilities are measured based on the provisional fair values at the acquisition date. \u2013 The best estimate at acquisition date of trade and other receivables are the gross contractual amounts as there are no cash flows that are not expected to be collected. Contingent consideration recognised on acquisition of ORS was CHF12.8m (\u00a311.2m) and reflects the fair value of the earn-out and overperformance payments based on a range of targets for the full year 2022 EBITDA. The maximum earn-out and overperformance payments are CHF10.0m and CHF4.0m respectively. The contingent consideration is expected to be settled in April 2023. The total impact of acquisitions to the Group\u2019s cash flow position in the period was as follows: \u00a3m Cash consideration in respect of current period acquisitions 8.5 Cash acquired on acquisition of businesses (6.2) Cash to acquire existing debt balances 16.9 Net cash outflow in relation to acquisitions 19.2 Exceptional acquisition related costs 2.4 Net cash impact in the year on acquisitions 21.6 Costs associated with the acquisitions of ORS and the prior year acquisition of Whitney, Bradley & Brown, Inc are shown as exceptional costs in the Consolidated Income Statement. The total transaction and implementation costs recognised in exceptional items for the year ended 31 December 2022 was \u00a32.4m. There were no material costs associated with the acquisition of Sapienza during the year",
"dimensions": {
"concept": "ifrs-full:DisclosureOfBusinessCombinationsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-374": {
"value": "8. Revenue from contracts with customers
Revenue
Information regarding the Group\u2019s major customers and a segmental analysis of revenue is provided in note 4.
An analysis of the Group\u2019s revenue from its key market sectors, together with the timing of revenue recognition across the Group\u2019s
revenue from contracts with customers, is as follows:
Year ended 31 December 2022
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Total
\u00a3m
Key sectors
Defence 315.8 863.0 147.9 30.5 1,357.2
Justice & Immigration 798.9 - 412.9 - 1,211.8
Transport 173.9 95.9 9.8 70.0 349.6
Health & Other Facilities Management 264.4 - 225.3 103.0 592.7
Citizen Services 547.2 310.9 158.7 5.9 1,022.7
2,100.2 1,269.8 954.6 209.4 4,534.0
Timing of revenue recognition
Revenue recognised from performance obligations
satisfied in previous periods 5.8 - 0.8 - 6.6
Revenue recognised at a point in time 21.9 - 5.5 - 27.4
Products and services transferred over time 2,072.5 1,269.8 948.3 209.4 4,500.0
2,100.2 1,269.8 954.6 209.4 4,534.0
8. Revenue from contracts with customers continued
Year ended 31 December 2021 (restated
1
)
UK&E
\u00a3m
Americas
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Total
\u00a3m
Key sectors
Defence 280.6 764.6 145.6 31.4 1,222.2
Justice & Immigration 468.9 - 374.2 - 843.1
Transport 149.3 79.9 7.3 135.6 372.1
Health & Other Facilities Management 260.9 - 220.3 94.4 575.6
Citizen Services 971.9 275.5 161.0 3.2 1,411.6
2,131.6 1,120.0 908.4 264.6 4,424.6
Timing of revenue recognition
Revenue recognised from performance obligations
satisfied in previous periods 2.5 - 6.6 - 9.1
Revenue recognised at a point in time 17.3 - 8.4 - 25.7
Products and services transferred over time 2,111.8 1,120.0 893.4 264.6 4,389.8
2,131.6 1,120.0 908.4 264.6 4,424.6
1 The prior period balances have been restated to ensure consistent application of the sector definitions used for the current period. This follows a review in 2021 of
the Group\u2019s sector definitions to align with the strategic objectives of the Group. The change has no impact to the income statement or the balance sheet of the Group.
Transaction price allocated to remaining performance obligations
The following table shows the transaction price allocated to remaining performance obligations. This represents revenue expected to
be recognised in subsequent periods arising on existing contractual arrangements.
In assessing the future transaction price, the judgements of most relevance are the future term over which the transaction price is
calculated and the estimation of variable revenue to be included.
Where a contract with a customer includes within the term of the committed contract provisions for price-rebasing or a provision
for market testing, revenue beyond these is included to the extent that there are no indicators which suggest that the contract will
not continue past this point, and it is highly probable that a significant reduction will not occur. Where there is a requirement for the
Group, or a customer, to enter into to a new contract, rather than continuing an existing contract, such an extension is not included for
the purposes of calculating future transaction price.
Additionally, the Group has a small subset of contracts that contain a termination for convenience clause, for example due to national
security considerations, which are assumed by the Group not to be without cause. These contracts are considered to run for the
full intended term for the purpose of calculating the transaction price allocated to remaining performance obligations, other than
instances where the Group believes that termination will occur before the original contract end date.
Under the terms of certain contracts which the Group has with its customers, the Group\u2019s compensation for providing those services
is based on volumes or other drivers of variable activity, such as additional activities awarded under existing contracts. These volumes
are not guaranteed, however based on historic volumes and the nature of the contracts in operation, such as the provision of asylum
seeker accommodation or passenger transport, Management is able to prepare a sufficiently reliable estimate of the minimum level
of variable revenue that is likely to be earned. As a result, variable revenue is included only to the level at which Management remains
confident that a significant reduction will not occur.
As part of the considerations around variable revenue, Management considers the impact that factors such as contractual
performance, anticipated demand and pricing (including indexation) may have on future revenue recognised. Management also
considers whether there are possible impacts from climate change and other environmental related risks, with certain sectors
considered to be more at risk than others, however no significant adjustments were identified in relation to the future revenue
forecasts of existing contracts.
UK&E
\u00a3m
Americas
1
\u00a3m
AsPac
\u00a3m
Middle East
\u00a3m
Total
\u00a3m
Within 1 year (2023) 1,878.2 780.0 832.5 165.0 3,655.7
Between 2 \u2013 5 years (2024 \u2013 2027) 5,207.8 256.9 1,209.5 144.1 6,818.3
5 years and beyond (2028+) 2,740.0 135.7 1,339.6 118.4 4,333.7
9,826.0 1,172.6 3,381.6 427.5 14,807.7
1 Due to the nature contracting environment in the Americas division the transaction price allocated to remaining performance obligations is primarily within 1 year
and the future years are therefore inherently lower than other segments.
",
"dimensions": {
"concept": "ifrs-full:DisclosureOfRevenueExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-375": {
"value": "9. Exceptional items
Exceptional items are items of financial performance that are outside normal operations and are material to the results of the Group
either by virtue of size or nature. As such, the items set out below require separate disclosure on the face of the income statement to
assist in the understanding of the performance of the Group.
For the year ended 31 December
2022
\u00a3m
2021
\u00a3m
Restructuring costs \u2013 0.1
Increase in onerous lease provision \u2013 (0.6)
Costs associated with successful acquisitions (2.4) (4.9)
Profit on sale of investments \u2013 4.2
Exceptional operating items (2.4) (1.2)
Exceptional tax 0.3 (0.2)
Total exceptional operating items net of tax (2.1) (1.4)
The exceptional charge in 2022 relates to the successful acquisitions of OXZ Holdings AG (ORS) in 2022 and Whitney, Bradley &
Brown, Inc (WBB) in 2021. The combined transaction and implementation costs incurred during the year ended 31 December 2022 of
\u00a32.4m have been treated as exceptional costs in line with the Group\u2019s accounting policy and the treatment of similar costs during the
year ended 31 December 2021.
Exceptional tax
Exceptional tax for the year was a credit of \u00a30.3m (2021: \u00a30.2m charge) which arises on exceptional items within operating profit.
The tax credit on exceptional items arises in relation to acquisition and integration costs incurred overseas on the WBB acquisition.
Costs associated with the ORS Group acquisition did not give rise to a tax credit as they were either treated as capital, and therefore
not tax deductible, or augmented non-valued deferred tax.
",
"dimensions": {
"concept": "sercogroupplc:DisclosureOfExceptionalIItems",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-376": {
"value": "10. Operating profit Operating profit is stated after charging/(crediting): Year ended 31 December 2022 \u00a3m 2021 \u00a3m Research and development costs 2.6 1.2 Profit on disposal of property, plant and equipment (0.5) (0.2) Profit on early termination of leases (0.2) (0.6) Loss on disposal of intangible assets 0.4 1.6 Depreciation and impairment of property, plant and equipment 23.0 19.9 Depreciation and impairment of right of use assets 117.5 109.0 Amortisation and impairment of intangible assets \u2013 arising on acquisition 21.6 16.0 Amortisation, write down and impairment of intangible assets \u2013 other 10.1 11.3 Staff costs (note 11) 2,155.8 2,000.5 Allowance for doubtful debts charged to income statement (0.4) 0.4 Net foreign exchange charge (0.1) 0.5 Movement on non-designated hedges and reclassified cash flow hedges (0.8) \u2013 Lease payments recognised through operating profit 1 4.2 2.8 Operating lease income from sub-leases (1.8) (1.5) 1 The lease payments recognised in operating profit are those which have not been recorded in accordance with the permissible exemptions in IFRS 16 Leases for short-term or low-value leases. 10. Operating profit continued Amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services to the Company\u2019s Auditor are shown below. Year ended 31 December 2022 \u00a3m 2021 \u00a3m Fees payable to the Company\u2019s Auditor for the audit of the Company\u2019s annual accounts 2.6 1.7 Fees payable to the Company\u2019s Auditor and their associates for other services to the Group: \u2013 audit of the Company\u2019s subsidiaries pursuant to legislation 1.3 0.6 Total audit fees 3.9 2.3 \u2013 Audit-related assurance services 0.1 0.1 \u2013 Other non-audit services 0.1 0.1 Total non-audit fees 0.2 0.2 Fees payable to the Company\u2019s Auditor for non-audit services to the Company are not required to be disclosed separately because the Consolidated Financial Statements are required to disclose such fees on a consolidated basis. Details of the Company\u2019s policy on the use of auditors for non-audit services and how the auditor\u2019s independence and objectivity was safeguarded, are set out in the Audit Committee Report on page 135. No services were provided pursuant to contingent fee arrangements. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfProfitLossFromOperatingActivitiesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-377": {
"value": "11. Staff costs
The average number of persons employed by the Group (including Executive Directors) was:
Year ended 31 December
2022
number
2021
number
UK & Europe 23,855 22,377
Americas 8,960 8,693
AsPac 14,024 15,438
Middle East 2,122 3,518
Unallocated 999 858
49,960 50,884
The average number of persons employed includes all individuals employed under contracts of service by the Group. This comprises
permanent, part-time, and casual employees and those with fixed term contracts. It excludes self-employed contractors and other
casual workers.
Aggregate remuneration of all employees based on the average number of employees reported above was:
Year ended 31 December
2022
\u00a3m
2021
\u00a3m
Wages and salaries 1,889.1 1,759.7
Social security costs 148.3 127.4
Other pension costs (note 30) 102.8 97.6
2,140.2 1,984.7
Share based payment expense (note 34) 15.6 15.8
2,155.8 2,000.5
",
"dimensions": {
"concept": "ifrs-full:DisclosureOfInformationAboutEmployeesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-378": {
"value": "12. Investment revenue Year ended 31 December 2022 \u00a3m 2021 \u00a3m Interest receivable on other loans and deposits 1.9 0.6 Net interest receivable on retirement benefit obligations (note 30) 2.7 1.1 Other dividends received \u2013 0.6 Movement in discount on other debtors 0.1 0.1 4.7 2.4 ",
"dimensions": {
"concept": "sercogroupplc:DisclosureOfInvestmentRevenue",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-379": {
"value": "13. Finance costs Year ended 31 December 2022 \u00a3m 2021 \u00a3m Interest payable on lease liabilities 7.9 7.8 Interest payable on other loans 15.2 15.6 Facility fees and other charges 2.4 2.4 25.5 25.8 Foreign exchange on financing activities (0.4) 0.6 25.1 26.4 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfFinanceCostExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-380": {
"value": "14. Tax
14 (a) Income tax recognised in the income statement
Year ended 31 December
Before
exceptional
items
2022
\u00a3m
Exceptional
items
2022
\u00a3m
Total
2022
\u00a3m
Before
exceptional
items
2021
\u00a3m
Exceptional
items
2021
\u00a3m
Total
2021
\u00a3m
Current income tax
Current income tax charge/(credit) 38.0 (0.3) 37.7 34.6 0.8 35.4
Adjustments in respect of prior years 3.5 \u2013 3.5 1.3 \u2013 1.3
Deferred tax
Current year charge/(credit) 5.5 \u2013 5.5 (146.5) (0.6) (147.1)
Adjustments in respect of prior years (4.9) \u2013 (4.9) (1.3) \u2013 (1.3)
42.1 (0.3) 41.8 (111.9) 0.2 (111.7)
The tax expense for the year can be reconciled to the profit in the Consolidated Income Statement as follows:
Year ended 31 December
Before
exceptional
items
2022
\u00a3m
Exceptional
items
2022
\u00a3m
Total
2022
\u00a3m
Before
exceptional
items
2021
\u00a3m
Exceptional
items
2021
\u00a3m
Total
2021
\u00a3m
Profit before tax 199.2 (2.4) 196.8 193.4 (1.2) 192.2
Tax calculated at a rate of 19.00% (2021: 19.00%) 37.8 (0.5) 37.3 36.7 (0.2) 36.5
Expenses not deductible for tax purposes
1
2.0 0.2 2.2 1.8 0.6 2.4
UK unprovided deferred tax
2
0.3 \u2013 0.3 \u2013 \u2013 \u2013
Other unprovided deferred tax 2.5 0.1 2.6 2.2 \u2013 2.2
Effect of the use of unrecognised tax losses (1.1) \u2013 (1.1) (0.4) (0.3) (0.7)
Additional recognition of UK deferred tax asset
3
\u2013 \u2013 \u2013 (146.4) \u2013 (146.4)
Impact of changes in statutory tax rates on
current income tax (0.8) \u2013 (0.8) \u2013 \u2013 \u2013
Overseas rate differences 10.5 (0.1) 10.4 11.2 0.1 11.3
Other non-taxable income (5.5) \u2013 (5.5) (4.6) \u2013 (4.6)
Adjustments in respect of prior years
4
(1.4) \u2013 (1.4) \u2013 \u2013 \u2013
R&D expenditure credit (RDEC) 0.1 \u2013 0.1 \u2013 \u2013 \u2013
Impact of revaluing brought forward UK
provided deferred tax from 19% to 25% \u2013 \u2013 \u2013 (10.8) \u2013 (10.8)
Adjustments in respect of equity accounted
investments (2.3) \u2013 (2.3) (1.6) \u2013 (1.6)
Tax charge/(credit) 42.1 (0.3) 41.8 (111.9) 0.2 (111.7)
1 Relates to costs that are not allowable for tax deduction under local tax law.
2 Arises due to timing differences between when an amount is recognised in the income statement and when the amount is subject to UK tax.
3 In the prior year, the Group brought onto the balance sheet a previously unrecognised UK deferred tax asset of \u00a3144.8m at 1 January 2021. This asset was revalued
during the prior year giving a net adjustment of \u00a3146.4m.
4 Included within adjustments in respect of prior years for the year ended 31 December 2022, is a credit of \u00a30.9m in relation to the finalisation of the prior year
position on share based payments and a credit of \u00a30.7m reflecting the utilisation of the R&D expenditure credit, previously written off to deferred tax, against the
2021 current tax liability.
The corporate income tax expense for the year is based on the UK statutory rate of corporation tax for the period of 19.00%
(2021: 19.00%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
14. Tax continued 14 (b) Income tax recognised in the SOCI Year ended 31 December 2022 \u00a3m 2021 \u00a3m Current tax Taken to retirement benefit obligations reserve 2.0 0.8 Deferred tax Relating to cash flow hedges (0.1) \u2013 Relating to net investment hedge \u2013 4.0 Taken to retirement benefit obligations reserve 25.1 (22.5) 27.0 (17.7) 14 (c) Tax on items taken directly to equity Year ended 31 December 2022 \u00a3m 2021 \u00a3m Current tax Recorded in share based payment reserve 2.2 (0.7) Deferred tax Recorded in share based payment reserve 1.2 0.7 3.4 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-381": {
"value": "15. Deferred tax
Deferred income taxes are calculated in full on temporary differences under the liability method using local substantively enacted
tax rates.
The movement in net deferred tax (assets)/liabilities during the year was as follows:
2022
\u00a3m
2021
\u00a3m
At 1 January \u2013 asset (174.0) (56.3)
Income statement charge/(credit) 0.6 (148.4)
R&D expenditure credit transferred to current tax 0.7 \u2013
Items recognised in equity and in other comprehensive income (26.2) 17.8
Arising on acquisition 5.5 9.9
Exchange differences 3.0 3.0
At 31 December \u2013 asset (190.4) (174.0)
The movement in deferred tax (assets)/liabilities during the year was as follows:
Temporary
differences
on assets/
intangibles
\u00a3m
Share based
payment and
employee
benefits
\u00a3m
Retirement
benefit
schemes
\u00a3m
Onerous
contract
provisions
\u00a3m
Derivative
financial
instruments
\u00a3m
Tax
losses
\u00a3m
Other
temporary
differences
\u00a3m
Total
\u00a3m
At 1 January 2022 19.9 (34.5) 36.2 (0.8) \u2013 (166.0) (28.8) (174.0)
Charged/(credited) to income
statement (note 14a) 1.7 (0.5) 0.2 0.1 \u2013 0.8 (1.7) 0.6
R&D expenditure credit
transferred to current tax \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 0.7 0.7
Arising on acquisition of
a subsidiary 5.5 \u2013 0.1 \u2013 \u2013 (0.1) \u2013 5.5
Items recognised in equity and
in other comprehensive income
(notes 14b and 14c) \u2013 (1.2) (25.1) \u2013 0.1 \u2013 \u2013 (26.2)
Exchange differences 5.7 (1.8) (0.2) (0.1) \u2013 (0.3) (0.3) 3.0
At 31 December 2022 32.8 (38.0) 11.2 (0.8) 0.1 (165.6) (30.1) (190.4)
Other temporary differences include amounts such as provisions and accruals which, under certain tax laws, are only allowable
when expended.
The movement in deferred tax (assets)/liabilities during the previous year was as follows:
Temporary
differences
on assets/
intangibles
\u00a3m
Share based
payment and
employee
benefits
\u00a3m
Retirement
benefit
schemes
\u00a3m
Onerous
contract
provisions
\u00a3m
Tax
losses
\u00a3m
Other
temporary
differences
\u00a3m
Total
\u00a3m
At 1 January 2021 25.5 (24.7) 14.8 (0.5) (31.1) (40.3) (56.3)
Credited to income statement (note 14a) (11.7) (7.6) (0.8) (0.3) (127.3) (0.7) (148.4)
Arising on acquisition of a subsidiary. 5.6 (2.4) (0.4) \u2013 (3.3) 10.4 9.9
Items recognised in equity and in other
comprehensive income (notes 14b and 14c) \u2013 (0.7) 22.5 \u2013 (4.0) \u2013 17.8
Exchange differences 0.5 0.9 0.1 \u2013 (0.3) 1.8 3.0
At 31 December 2021 19.9 (34.5) 36.2 (0.8) (166.0) (28.8) (174.0)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following analysis shows the deferred tax
balances (after offset) for financial reporting purposes:
2022
\u00a3m
2021
\u00a3m
Deferred tax liabilities 53.8 40.3
Deferred tax assets (244.2) (214.3)
(190.4) (174.0)
15. Deferred tax continued
As at the balance sheet date, the UK has a potential deferred tax asset of \u00a3253.6m (2021: \u00a3234.3m) available for offset against future
profits. A UK deferred tax asset has currently been recognised of \u00a3186.9m (2021: \u00a3162.8m). Recognition has been based on the
improved performance in the underlying UK business indicating a sustained return to profitability which will enable accumulated tax
losses within the UK to be utilised. The return to profitability is as a result of onerous contracts ending and new profitable long-term
contracts being entered into, as well as a significant reduction in exceptional restructuring spend following the strategy review in
2015, which also reduced the level of overhead spend within the UK business. No deferred tax asset has been recognised in respect
of the remaining asset (net \u00a366.7m) as they are more restricted in their use either due to their nature, such as capital losses, or the
period and entity in which they arose, as revenue losses made before April 2017 are more restricted in their use. On 24 May 2021
legislation which increases the UK tax rate from 19% to 25% from April 2023 was substantively enacted. These measures increase
the Group\u2019s future current tax charge accordingly. The deferred tax balance at 31 December 2022 has been calculated reflecting
the increased rate of 25% where the balance is expected to be realised after April 2023.
Outside of the UK, there is a further \u00a339.5m (2021: \u00a337.5m) of deferred tax assets which have not been recognised. \u00a338.8m
(2021: \u00a337.0m) of this relates to revenue losses where current forecasts do not support recognition.
On 9 December 2022 the Ministry of Finance in UAE published tax law under which certain Serco operations in UAE will pay tax from
January 2024. We are continuing to work with local advisers to ascertain the implications on filing requirements and tax payment,
but our current expectation is that the introduction of this new tax will not have a material impact on our Group tax liability.
In October 2021 over 130 countries in the Organisation for Economic Cooperation and Development (OECD) jointly released a
framework to introduce a global minimum tax rate of 15% in order to address concerns about uneven profit distributions and tax
contributions of large multinationals. In June 2022 the UK government published draft legislation to bring this framework into UK law
from January 2024. Management is closely monitoring the progress of this legislation, but initial work undertaken to date suggests
that the introduction of this minimum tax will also not have a material impact on the Group tax liability.
Losses of \u00a31.6m (2021: \u00a31.3m) expire within 5 years, losses of \u00a34.1m (2021: \u00a30.1m) expire within 6\u201310 years, losses of \u00a311.8m
(2021: \u00a3nil) expire within 20 years and losses of \u00a31,072.6m (2021 \u00a31,077.4m) may be carried forward indefinitely.
",
"dimensions": {
"concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-382": {
"value": "16. Earnings per share Basic and diluted earnings per ordinary share (EPS) have been calculated in accordance with IAS 33 Earnings per Share. The calculation of the basic and diluted EPS is based on the following data: Number of shares 2022 millions 2021 millions Weighted average number of ordinary shares for the purpose of basic EPS 1,192.2 1,222.6 Effect of dilutive potential ordinary shares: Shares under award 22.6 21.4 Weighted average number of ordinary shares for the purpose of diluted EPS 1,214.8 1,244.0 Earnings per share Basic EPS Earnings 2022 \u00a3m Per share amount 2022 pence Earnings 2021 \u00a3m Per share amount 2021 pence Earnings for the purpose of basic EPS 155.4 13.03 303.9 24.86 Effect of dilutive potential ordinary shares \u2013 (0.24) \u2013 (0.43) Diluted EPS 155.4 12.79 303.9 24.43 Basic EPS excluding exceptional items Earnings for the purpose of basic EPS 155.4 13.03 303.9 24.86 Add back exceptional items 2.4 0.21 1.2 0.10 Add back tax on exceptional items (0.3) (0.03) 0.2 0.01 Earnings excluding exceptional items for the purpose of basic EPS 157.5 13.21 305.3 24.97 Effect of dilutive potential ordinary shares \u2013 (0.24) \u2013 (0.43) Excluding exceptional items, diluted 157.5 12.97 305.3 24.54 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfEarningsPerShareExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-383": {
"value": "17. Goodwill
Cost
\u00a3m
Accumulated
impairment
losses
\u00a3m
Carrying
amount
\u00a3m
At 1 January 2021 994.4 (324.8) 669.6
Acquisitions 178.8 \u2013 178.8
Exchange differences 7.0 (2.7) 4.3
At 31 December 2021 1,180.2 (327.5) 852.7
Acquisitions 20.9 \u2013 20.9
Exchange differences 97.8 (26.4) 71.4
At 31 December 2022 1,298.9 (353.9) 945.0
Movements in the balance since the prior year end can be seen as follows:
Goodwill
balance
1 January
2022
\u00a3m
Acquisitions
\u00a3m
Exchange
differences
2022
\u00a3m
Goodwill
balance
31 December
2022
\u00a3m
Headroom on
impairment
analysis
2022
\u00a3m
Headroom on
impairment
analysis
2021
\u00a3m
UK & Europe 183.6 19.4 0.8 203.8 811.1 728.0
Americas 527.8 1.5 62.9 592.2 360.9 415.8
AsPac 131.3 \u2013 6.5 137.8 281.0 380.6
Middle East 10.0 \u2013 1.2 11.2 119.5 103.6
852.7 20.9 71.4 945.0 1,572.5 1,628.0
Included above is the detail of the headroom on the cash generating units (CGUs) existing at the year end, which reflects where future
discounted cash flows are greater than the underlying assets and includes all relevant cash flows, including where provisions have
been made for future costs and losses. Overall, in all CGUs, there is sufficient headroom available. This is largely consistent with 2021
overall with reductions in Americas and ASPAC, primarily driven by the increase in discount rates as a result of volatility in the spot
rates of corporate bonds impacting risk-free rates.
The key quantifiable assumptions applied in the impairment review are set out below:
Discount
rate
2022
%
Discount
rate
2021
%
Terminal
growth
rates
2022
%
Terminal
growth
rates
2021
%
UK & Europe 10.3 9.3 2.0 2.0
Americas 12.1 10.9 2.3 2.4
AsPac 13.4 11.0 2.2 2.2
Middle East 13.5 12.1 1.2 1.3
Discount rate
Pre-tax discount rates derived from the Group\u2019s post-tax weighted average cost of capital have been used in discounting the
projected cash flows. These rates are reviewed annually with external advisers and are adjusted for risks specific to the market in which
the CGU operates.
Discount rates used in 2022 have increased compared with 2021. The change can be attributed to the increased geopolitical risks,
macroeconomic conditions, such as sharp short-term inflation increases compared to prior expectations, and significant market
movements. Historically Management has built an additional level of prudence into the equity risk premium (ERP). During 2020
when significant equity risk had already been factored in by markets due to the pandemic, Management concluded that increasing
the equity risk rate was over-prudent. The Group departed from this policy for a year, but Management considered it appropriate
to reinstate it for 2021. During 2022, significant equity risk has again been factored in by the markets, and hence Management has
followed the same approach as 2020.
17. Goodwill continued Terminal growth rates The calculations include a terminal value based on the projections for the fifth year of the short-term plan, with a growth rate assumption applied which extrapolates the business into perpetuity. The terminal growth rates are based on long-term inflation rates of the geographic market in which the CGUs operate and therefore do not exceed the average long-term growth rates forecast for the individual markets. These are provided by external sources and have not materially changed as compared with 2021. Short-term growth rates The annual impairment test is performed immediately prior to the year end, based initially on five-year cash flow forecasts approved by Management. Short-term revenue growth rates used in each CGU five-year plan are based on internal data regarding our current contracted position, the pipeline of opportunities and forecast growth for the relevant market. Short-term profitability and cash conversion is based on our historic experiences and a level of judgement is applied to expected changes in both. Where businesses have been poor performers in recent history, turnaround has only been assumed where a detailed and achievable plan is in place and all forecasts include cash flows relating to contracts where onerous contract provisions have been made. As explained in note 8, Management considers certain sectors in which the Group operates to be more exposed to environmental risks than others. For example, changes in consumer attitudes to aviation or the use of private vehicles, may have an impact on the Group\u2019s transport contracts. Currently, no adjustment to existing contracts is required, although Management will continue to monitor the potential impact of environmental risks. Sensitivity analysis Sensitivity analysis has been performed, applying a 1% movement in discount rates and a 1% movement in terminal growth rates which are considered to be reasonably possible. Both individually and combined, the impact of these changes in key assumptions does not lead to an impairment in any CGU. Performing a sensitivity analysis on short-term growth rates is not a numerical exercise, as growth rates are based on known opportunities and the likelihood of those opportunities being won and turned into resulting cash flows. However, in order to model a sensitivity scenario that reflects the judgement associated with short-term growth rates, Management has applied a no growth model to cash flows outside of the 2-year budget period. No impairment results from this scenario, however, when combined with an additional 1% increase in discount rates and a 1% reduction in terminal growth rates, an impairment occurs in the CGU with the lowest headroom as a proportion of its value in use. Management do not consider the combined scenario to be reasonably possible. Management has also considered the sensitivity of cash flows in the terminal year for all CGUs and has determined that a reduction in cash flows of up to 10% in the final year of the plan is reasonably possible. No impairment results from this scenario even when combined with an additional 1% increase in discount rates and a 1% reduction in terminal growth rates though this is not deemed reasonably possible. Cash flows in the terminal year would need to reduce by 85% in the Middle East (\u00a317.4m), 58% in AsPac (\u00a329.0m), 50% in the Americas (\u00a335.2m) and 64% in UK and Europe (\u00a381.1m), before an impairment would need to be recognised. Within the forecast cash flows for the AsPac CGU, there are large opportunities which would have a binary outcome. While the loss of these would result in an impairment of the goodwill, there is no indication at present given the opportunities available within the region that an impairment is required. Should the scale of any Division in the Group decline to a level which does not make it economically viable, it is likely that the Group would review the overhead and support structures in place to ensure they are appropriate for the scale of business and opportunities available. Despite the volatility in discount rates experienced during 2022, Management has not revised the range of possible outcomes in its sensitivity analysis. In arriving at this conclusion, Management has considered the macroeconomic environment and consulted with its external advisors. It is deemed that the rate of change in interest rates experienced in 2022 is not expected to continue and therefore the sensitivities above are considered appropriate. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfGoodwillExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-384": {
"value": "18. Other intangible assets Acquisition related Other Customer relationships \u00a3m Software and IT \u00a3m Internally generated development expenditure \u00a3m Total \u00a3m Cost At 1 January 2022 176.4 128.8 55.8 361.0 Arising on acquisition 24.9 0.4 1.1 26.4 Additions \u2013 internal development \u2013 0.4 0.8 1.2 Additions \u2013 external \u2013 5.8 \u2013 5.8 Disposals \u2013 (2.0) (4.2) (6.2) Exchange differences 18.2 4.1 0.9 23.2 At 31 December 2022 219.5 137.5 54.4 411.4 Accumulated amortisation and impairment At 1 January 2022 60.3 100.9 55.8 217.0 Impairment charge \u2013 0.1 \u2013 0.1 Amortisation charge \u2013 internal development \u2013 6.4 0.3 6.7 Amortisation charge \u2013 external 21.6 3.3 \u2013 24.9 Disposals \u2013 (1.6) (4.2) (5.8) Exchange differences 6.6 3.0 0.9 10.5 At 31 December 2022 88.5 112.1 52.8 253.4 Net book value At 31 December 2022 131.0 25.4 1.6 158.0 Acquisition related Other Customer relationships \u00a3m Software and IT \u00a3m Internally generated development expenditure \u00a3m Total \u00a3m Cost At 1 January 2021 95.2 131.9 56.9 284.0 Arising on acquisition 79.3 2.9 \u2013 82.2 Additions \u2013 internal development \u2013 0.2 \u2013 0.2 Additions \u2013 external \u2013 8.0 \u2013 8.0 Disposals (1.2) (12.1) (1.0) (14.3) Reclassification from property, plant and equipment \u2013 (0.9) \u2013 (0.9) Exchange differences 3.1 (1.2) (0.1) 1.8 At 31 December 2021 176.4 128.8 55.8 361.0 Accumulated amortisation and impairment At 1 January 2021 44.8 102.2 56.4 203.4 Amortisation charge \u2013 internal development \u2013 5.0 0.4 5.4 Amortisation charge \u2013 external 16.0 5.9 \u2013 21.9 Disposals (1.2) (10.6) (0.9) (12.7) Reclassification from property, plant and equipment \u2013 (0.5) \u2013 (0.5) Exchange differences 0.7 (1.1) (0.1) (0.5) At 31 December 2021 60.3 100.9 55.8 217.0 Net book value At 31 December 2021 116.1 27.9 \u2013 144.0 18. Other intangible assets continued Customer relationships are amortised over the average length of contracts acquired. The Group is carrying \u00a3131.1m (2021: \u00a3116.1m) in relation to customer relationships. Amortisation of intangibles arising on acquisition consists of amortisation in relation to customer relationships and totals \u00a321.6m (2021: \u00a316.0m). The net book value of internally generated intangible assets as at 31 December 2022 was \u00a31.6m (2021: \u00a3nil) in development expenditure and \u00a31.8m (2021: \u00a37.8m) in software and IT. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-385": {
"value": "19. Property, plant and equipment and right of use assets Land and buildings owned \u00a3m Land and buildings leased \u00a3m Leasehold improvements owned \u00a3m Other assets owned 1 \u00a3m Other assets leased 1 \u00a3m Total \u00a3m Cost At 1 January 2022 4.1 569.6 33.7 134.9 132.3 874.6 Arising on acquisition \u2013 4.5 \u2013 1.1 8.6 14.2 Additions \u2013 116.2 2.6 9.8 13.6 142.2 Reclassification between property, plant and equipment categories 0.1 \u2013 0.5 0.6 (1.2) \u2013 Disposals \u2013 (28.5) (1.8) (11.3) (24.3) (65.9) Exchange differences 0.1 11.7 2.2 4.8 3.9 22.7 At 31 December 2022 4.3 673.5 37.2 139.9 132.9 987.8 Accumulated depreciation and impairment At 1 January 2022 2.8 204.4 19.0 95.4 80.8 402.4 Charge for the year \u2013 impairment 0.2 2.0 0.2 1.9 (3.8) 0.5 Charge for the year \u2013 depreciation 0.2 96.4 4.2 16.3 22.9 140.0 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 1.1 (1.1) \u2013 Disposals \u2013 (15.3) (1.8) (11.1) (23.5) (51.7) Exchange differences 0.1 6.7 1.2 3.6 2.7 14.3 At 31 December 2022 3.3 294.2 22.8 107.2 78.0 505.5 Net book value 2 At 31 December 2022 1.0 379.3 14.4 32.7 54.9 482.3 1 Other assets include machinery, vehicles, furniture and equipment. 2 The net book value is shown on the balance sheet as \u00a348.1m of owned assets in property, plant and equipment and \u00a3434.2m of leased assets in right of use assets. The additions for leased land and buildings include \u00a30.8m (2021: \u00a33.1m) for dilapidation provisions and \u00a3nil (2021: \u00a3nil) for non-cash lease incentives. Land and buildings owned \u00a3m Restated land and buildings leased1 \u00a3m Leasehold improvements owned \u00a3m Other assets owned 2 \u00a3m Other assets leased2 \u00a3m Total \u00a3m Cost At 1 January 2021 4.3 479.5 31.9 133.4 136.4 785.5 Arising on acquisition \u2013 9.0 1.5 2.2 0.9 13.6 Additions 0.3 132.5 2.2 21.4 22.1 178.5 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 8.2 (8.2) \u2013 Reclassifications from other intangible assets \u2013 \u2013 0.6 0.3 \u2013 0.9 Disposals (0.5) (51.7) (2.4) (29.7) (18.7) (103.0) Exchange differences \u2013 0.3 (0.1) (0.9) (0.2) (0.9) At 31 December 2021 4.1 569.6 33.7 134.9 132.3 874.6 Accumulated depreciation and impairment At 1 January 2021 2.8 141.6 17.5 95.1 86.8 343.8 Charge for the year \u2013 impairment \u2013 \u2013 \u2013 0.3 \u2013 0.3 Charge for the year \u2013 depreciation 0.2 88.7 3.5 15.9 20.3 128.6 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 8.0 (8.0) \u2013 Reclassifications from other intangible assets \u2013 \u2013 0.5 \u2013 \u2013 0.5 Disposals (0.1) (26.0) (2.4) (23.3) (18.2) (70.0) Exchange differences (0.1) 0.1 (0.1) (0.6) (0.1) (0.8) At 31 December 2021 2.8 204.4 19.0 95.4 80.8 402.4 Net book value3 At 31 December 2021 1.3 365.2 14.7 39.5 51.5 472.2 1 Additions and disposals have been restated to be consistent with the treatment adopted in 2022. The adjustment ensures that changes in lease terms, which are agreed before the end of the original lease are treated as a lease modification and not the termination and commencement of a new lease. This change has no impact on the net book value, cash flow or profit previously reported. 2 Other assets include machinery, vehicles, furniture and equipment. 3 The net book value is shown on the balance sheet as \u00a355.5m of owned assets in property, plant and equipment and \u00a3416.7m of leased assets in right of use assets. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-410": {
"value": "19. Property, plant and equipment and right of use assets Land and buildings owned \u00a3m Land and buildings leased \u00a3m Leasehold improvements owned \u00a3m Other assets owned 1 \u00a3m Other assets leased 1 \u00a3m Total \u00a3m Cost At 1 January 2022 4.1 569.6 33.7 134.9 132.3 874.6 Arising on acquisition \u2013 4.5 \u2013 1.1 8.6 14.2 Additions \u2013 116.2 2.6 9.8 13.6 142.2 Reclassification between property, plant and equipment categories 0.1 \u2013 0.5 0.6 (1.2) \u2013 Disposals \u2013 (28.5) (1.8) (11.3) (24.3) (65.9) Exchange differences 0.1 11.7 2.2 4.8 3.9 22.7 At 31 December 2022 4.3 673.5 37.2 139.9 132.9 987.8 Accumulated depreciation and impairment At 1 January 2022 2.8 204.4 19.0 95.4 80.8 402.4 Charge for the year \u2013 impairment 0.2 2.0 0.2 1.9 (3.8) 0.5 Charge for the year \u2013 depreciation 0.2 96.4 4.2 16.3 22.9 140.0 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 1.1 (1.1) \u2013 Disposals \u2013 (15.3) (1.8) (11.1) (23.5) (51.7) Exchange differences 0.1 6.7 1.2 3.6 2.7 14.3 At 31 December 2022 3.3 294.2 22.8 107.2 78.0 505.5 Net book value 2 At 31 December 2022 1.0 379.3 14.4 32.7 54.9 482.3 1 Other assets include machinery, vehicles, furniture and equipment. 2 The net book value is shown on the balance sheet as \u00a348.1m of owned assets in property, plant and equipment and \u00a3434.2m of leased assets in right of use assets. The additions for leased land and buildings include \u00a30.8m (2021: \u00a33.1m) for dilapidation provisions and \u00a3nil (2021: \u00a3nil) for non-cash lease incentives. Land and buildings owned \u00a3m Restated land and buildings leased1 \u00a3m Leasehold improvements owned \u00a3m Other assets owned 2 \u00a3m Other assets leased2 \u00a3m Total \u00a3m Cost At 1 January 2021 4.3 479.5 31.9 133.4 136.4 785.5 Arising on acquisition \u2013 9.0 1.5 2.2 0.9 13.6 Additions 0.3 132.5 2.2 21.4 22.1 178.5 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 8.2 (8.2) \u2013 Reclassifications from other intangible assets \u2013 \u2013 0.6 0.3 \u2013 0.9 Disposals (0.5) (51.7) (2.4) (29.7) (18.7) (103.0) Exchange differences \u2013 0.3 (0.1) (0.9) (0.2) (0.9) At 31 December 2021 4.1 569.6 33.7 134.9 132.3 874.6 Accumulated depreciation and impairment At 1 January 2021 2.8 141.6 17.5 95.1 86.8 343.8 Charge for the year \u2013 impairment \u2013 \u2013 \u2013 0.3 \u2013 0.3 Charge for the year \u2013 depreciation 0.2 88.7 3.5 15.9 20.3 128.6 Reclassification between property, plant and equipment categories \u2013 \u2013 \u2013 8.0 (8.0) \u2013 Reclassifications from other intangible assets \u2013 \u2013 0.5 \u2013 \u2013 0.5 Disposals (0.1) (26.0) (2.4) (23.3) (18.2) (70.0) Exchange differences (0.1) 0.1 (0.1) (0.6) (0.1) (0.8) At 31 December 2021 2.8 204.4 19.0 95.4 80.8 402.4 Net book value3 At 31 December 2021 1.3 365.2 14.7 39.5 51.5 472.2 1 Additions and disposals have been restated to be consistent with the treatment adopted in 2022. The adjustment ensures that changes in lease terms, which are agreed before the end of the original lease are treated as a lease modification and not the termination and commencement of a new lease. This change has no impact on the net book value, cash flow or profit previously reported. 2 Other assets include machinery, vehicles, furniture and equipment. 3 The net book value is shown on the balance sheet as \u00a355.5m of owned assets in property, plant and equipment and \u00a3416.7m of leased assets in right of use assets. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfQuantitativeInformationAboutRightofuseAssetsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-386": {
"value": "20. Inventories 2022 \u00a3m 2021 \u00a3m Service spares, supplies, consumables and work in progress 22.4 19.6 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfInventoriesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-387": {
"value": "21. Contract assets, trade and other receivables Contract assets: Non-current 2022 \u00a3m 2021 \u00a3m Accrued income \u2013 2.6 Contract assets: Current 2022 \u00a3m 2021 \u00a3m Accrued income and other unbilled receivables 334.4 306.5 Capitalised bid costs 2.3 2.4 Capitalised mobilisation and phase-in costs 7.3 9.8 Other contract assets 1.0 0.3 345.0 319.0 The Group\u2019s Consolidated Balance Sheet includes capitalised bid and phase-in costs that are realised as a part of the normal operating cycle of the Group. These assets represent upfront investments in contracts which are recoverable and expected to provide benefits over the life of those contracts. Bid costs are capitalised only when they relate directly to a contract and are incremental to securing the contract. Any costs which would have been incurred whether or not the contract is actually won are not considered to be capitalised bid costs. Contract costs can only be capitalised when the expenditure meets all three criteria identified in note 2. Movements in the period were as follows: Capitalised other contract assets, bid and phase-in costs 2022 \u00a3m 2021 \u00a3m At 1 January 12.5 18.1 Additions 0.8 0.3 Amortisation (3.1) (4.0) Written off \u2013 (1.5) Exchange differences 0.4 (0.4) At 31 December 10.6 12.5 Total trade and other receivables held by the Group at 31 December 2022 amount to \u00a3390.7m (2021: \u00a3321.9m). Trade and other receivables: Non-current 2022 \u00a3m 2021 \u00a3m Prepayments 1.3 0.4 Other receivables 14.8 13.2 16.1 13.6 Other non-current receivables include long-term employee compensation plans, advances and other non-trade receivables. Trade and other receivables: Current 2022 \u00a3m 2021 \u00a3m Trade receivables 266.8 234.4 Prepayments 63.8 42.9 Amounts owed by joint ventures and associates 3.1 1.7 Other receivables 40.9 26.7 374.6 305.7 Other receivables include purchase of own shares by the Employee Share Ownership Trust, and advanced deposits to suppliers. The management of trade receivables is the responsibility of the reportable operating segments, although they report to the Group on a monthly basis on debtor days, debtor ageing and significant outstanding debts. The average credit period taken by customers is 22 days (2021: 19 days) and no interest was charged on overdue amounts in the current or prior reporting period. Each customer has an external credit score which determines the level of credit provided. However, the majority of our customers have a sovereign credit rating as a result of being government organisations. Of the trade receivables balance at the end of the year, \u00a355.8m is due from agencies of the UK Government, the Group\u2019s largest customer (2021: \u00a368.0m); \u00a365.5m from the Australian Government (2021: \u00a354.7m); \u00a333.1m from the US Government (2021: \u00a337.9m); and \u00a318.3m from the Government of the United Arab Emirates (2021: \u00a323.8m). There are no other customers who represent more than 5% of the total balance of trade receivables. The maximum potential exposure to credit risk in relation to trade receivables at the reporting date is equal to their carrying value. The Group does not hold any collateral as security. The Group does not have any material impairments associated with expected credit losses due to the sovereign credit rating of most customers. Further specific impairments to trade receivables are based on estimated irrecoverable amounts and provisions on outstanding balances greater than a year old unless there is firm evidence that the balance is recoverable. The total amount of these impairments for the Group was \u00a33.3m as of 31 December 2022 (2021: \u00a34.4m). An Expected Credit Loss (ECL) is recognised against contract assets only when it is considered to be material and there is evidence that the credit worthiness of a counterparty may render balances irrecoverable. The amount of ECL recognised at 31 December 2022 was \u00a3nil (2021: \u00a3nil). Ageing of trade receivables 2022 \u00a3m 2021 \u00a3m Not due 202.1 191.3 Overdue by less than 30 days 31.8 25.1 Overdue by between 30 and 60 days 6.2 8.2 Overdue by more than 60 days 30.0 14.2 Allowance for doubtful debts (3.3) (4.4) 266.8 234.4 Of the total overdue trade receivable balance, 63% (2021: 92%) relates to the Group\u2019s four major governmental customers (being the governments of the UK, US, Australia and the United Arab Emirates). Movements on the Group allowance for doubtful debts 2022 \u00a3m 2021 \u00a3m At 1 January 4.4 7.0 Arising on acquisition 1.3 1.6 Net charges and releases to income statement (0.4) 0.4 Utilised (2.3) (4.7) Exchange differences 0.3 0.1 At 31 December 3.3 4.4 Included in the current other receivables balance is a further \u00a31.5m (2021: \u00a30.8m) due from agencies of the UK Government. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-388": {
"value": "22. Cash and cash equivalents Sterling 2022 \u00a3m Other currencies 2022 \u00a3m Total 2022 \u00a3m Sterling 2021 \u00a3m Other currencies 2021 \u00a3m Total 2021 \u00a3m Customer advance payments1 \u2013 1.4 1.4 \u2013 0.1 0.1 Other cash and short-term deposits 2 3.5 52.3 55.8 172.9 25.4 198.3 Total cash and cash equivalents 3.5 53.7 57.2 172.9 25.5 198.4 1 Customer advance payments totalling \u00a31.4m (2021: \u00a30.1m) are encumbered cash balances. 2 Included within other cash and short-term deposits is \u00a34.0m (2021: \u00a34.0m) of restricted cash. Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less from the date of acquisition. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-389": {
"value": "23. Contract liabilities, trade and other payables Contract liabilities: Current 2022 \u00a3m 2021 \u00a3m Deferred income 60.5 61.3 Contract liabilities: Non-current 2022 \u00a3m 2021 \u00a3m Deferred income 36.3 48.6 The allocation of deferred income between current and non-current is presented on the basis that the current portion will unwind in the following 12 months through revenue. There were no material items in the current portion of deferred income in 2021 which did not unwind during the year. Total trade and other payables held by the Group at 31 December 2022 amount to \u00a3629.3m (2021: \u00a3533.3m). Trade and other payables: Current 2022 \u00a3m 2021 \u00a3m Trade payables 108.3 89.2 Contingent consideration payable 11.2 \u2013 Other payables 166.2 123.7 Accruals 337.1 313.1 622.8 526.0 Other payables include sales and other direct taxes, payroll taxes, salaries and other non-trade payables. The average credit period taken for trade purchases is 21 days (2021: 23 days). Trade and other payables: Non-current 2022 \u00a3m 2021 \u00a3m Other payables 6.5 7.3 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-390": {
"value": "24. Leases Management estimates that the fair value of the Group\u2019s lease obligations approximates their carrying amount. The Group uses leases in the delivery of its contractual obligations and the services required to support the delivery of those contracts, including administrative functions. There are no material future cash outflows relating to leases in place as at 31 December 2022 that are not reflected in the minimum lease payments disclosed below and the Group does not have any leases to which it is contracted but which are not yet reflected in the minimum lease payments. Additionally, the Group does not have any leases where payments are variable. The Group has a significant number of leases which include either termination or extension options, or both. Included in amounts payable under leases below are only those amounts which reflect Management\u2019s view of the reasonably certain lease term in line with current operational requirements. No lease liability is recognised in respect of leases which have a lease term of less than 12 months in duration at the point of entering into the lease, or where the purchase price of the underlying right of use asset is less than \u00a35,000. The total cash outflow for leases, excluding short-term leases and low-value leases, in the year was \u00a3128.4m (2021: \u00a3119.1m). This is presented in the Consolidated Cash Flow Statement as \u00a3120.5m (2021: \u00a3111.3m) relating to the principal element of the lease liability payments, with the remaining balance of \u00a37.9m (2021: \u00a37.8m) presented within interest paid. Amounts payable under leases Minimum lease payments 2022 \u00a3m Minimum lease payments 2021 \u00a3m Within one year 150.6 131.0 Between one and five years 263.2 263.9 After five years 51.5 53.6 465.3 448.5 Less: future finance charges (19.3) (18.2) Present value of lease obligations 446.0 430.3 Less: amount due for settlement within one year (shown within current liabilities) (144.4) (126.3) Amount due for settlement after one year 301.6 304.0 The following amounts are included in the Group\u2019s Consolidated Financial Statements in respect of its leases: Note 2022 \u00a3m Restated1 2021 \u00a3m Additions to right of use assets 19 129.8 154.6 Depreciation charge on right of use assets 19 (119.3) (109.0) Net release of impairment on right of use assets 19 1.8 \u2013 Net disposals of right of use assets 19 (14.0) (26.2) Net reclassifications from right of use assets 19 (0.1) (0.2) Net exchange differences on right of use assets 19 6.2 0.1 Carrying amount of right of use assets 19 434.2 416.7 Current lease liabilities 24 144.4 126.3 Non-current lease liabilities 24 301.6 304.0 Capital element of lease repayments (120.5) (111.3) Interest expense on lease liabilities 13 (7.9) (7.8) Profit on early termination of leases 10 0.2 0.6 Expenses relating to short-term or low-value leases 10 (4.2) (2.8) 1 Additions and disposals have been restated to be consistent with the treatment adopted in 2022. The adjustment ensures that changes in lease terms, which are agreed before the end of the original lease, are treated as a lease modification and not the termination and commencement of a new lease. This change has no impact on the net book value, cash flow or profit previously reported. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfLeasesExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-391": {
"value": "25. Loans Total 2022 \u00a3m Total 2021 \u00a3m Loans are repayable as follows: On demand or within one year 44.5 64.9 Between one and two years 54.1 40.2 Between two and five years 106.3 160.8 After five years 58.0 111.1 262.9 377.0 Less: amount due for settlement within one year (shown within current liabilities) (44.5) (64.9) Amount due for settlement after one year 218.4 312.1 Included within amounts repayable within one year is \u00a3nil (2021: \u00a3nil) related to the draw down on the revolving credit facility. Carrying amount 2022 \u00a3m Fair value 2022 \u00a3m Carrying amount 2021 \u00a3m Fair value 2021 \u00a3m Loans 262.9 241.5 377.0 389.4 The fair values are based on cash flows discounted using a market rate appropriate to the loan. All loans are held at amortised cost. 25. Loans continued Analysis of Net Debt The analysis below provides a reconciliation between the opening and closing positions in the balance sheet for liabilities arising from financing activities together with movements in derivatives relating to the items included in Net Debt. There were no changes in fair value noted in either the current or prior year. At 1 January 2022 \u00a3m Cash flow \u00a3m Acquisitions 1 \u00a3m Exchange differences \u00a3m Non\u2013cash Movements2 \u00a3m At 31 December 2022 \u00a3m Loans payable (377.0) 149.3 (6.5) (30.1) 1.4 (262.9) Lease obligations (430.3) 120.5 (13.1) (8.0) (115.1) (446.0) Liabilities arising from financing activities (807.3) 269.8 (19.6) (38.1) (113.7) (708.9) Cash and cash equivalents 198.4 (151.1) 6.2 3.7 \u2013 57.2 Derivatives relating to Net Debt 0.6 \u2013 \u2013 1.2 \u2013 1.8 Net Debt (608.3) 118.7 (13.4) (33.2) (113.7) (649.9) 1 Acquisitions represent the net cash/(debt) acquired on acquisition. 2 Non-cash movements on loans payable relate to movement in capitalised finance costs in the year. For lease obligations non-cash movements relate to the net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash termination cost. At 1 January 2021 \u00a3m Cash flow \u00a3m Acquisitions 1 \u00a3m Exchange differences \u00a3m Non-cash Movements2 \u00a3m At 31 December 2021 \u00a3m Loans payable (388.8) 29.7 (14.3) (2.9) (0.7) (377.0) Lease obligations (402.6) 111.3 (13.8) (0.5) (124.7) (430.3) Liabilities arising from financing activities (791.4) 141.0 (28.1) (3.4) (125.4) (807.3) Cash and cash equivalents 335.7 (145.8) 13.3 (4.8) \u2013 198.4 Derivatives relating to Net Debt (4.7) \u2013 \u2013 5.3 \u2013 0.6 Net Debt (460.4) (4.8) (14.8) (2.9) (125.4) (608.3) 1 Acquisitions represent the net cash/(debt) acquired on acquisition. 2 Non-cash movements relate to the net impact of entering into new leases and exiting certain leases before the end of the lease term without payment of a cash termination cost. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfBorrowingsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-392": {
"value": "26. Provisions Employee related \u00a3m Property \u00a3m Contract \u00a3m Claims \u00a3m Other \u00a3m Total \u00a3m At 1 January 2022 73.8 19.3 14.2 20.1 70.2 197.6 Arising on acquisition \u2013 \u2013 \u2013 \u2013 0.4 0.4 Reclassified between categories \u2013 (1.1) \u2013 \u2013 1.1 - Transferred from working capital \u2013 0.8 \u2013 \u2013 0.6 1.4 Charged to income statement 13.5 3.0 2.6 8.8 7.7 35.6 Released to income statement (3.2) (0.8) (3.8) \u2013 (3.9) (11.7) Utilised during the year (6.2) (1.9) (1.4) (4.7) (6.2) (20.4) Exchange differences 4.6 0.3 \u2013 \u2013 0.6 5.5 At 31 December 2022 82.5 19.6 11.6 24.2 70.5 208.4 Analysed as: Current 48.3 6.4 9.8 4.9 65.5 134.9 Non-current 34.2 13.2 1.8 19.3 5.0 73.5 82.5 19.6 11.6 24.2 70.5 208.4 Employee-related provisions include amounts for long-term service awards and terminal gratuity liabilities which have been accrued and are based on contractual entitlement, together with an estimate of the probabilities that employees will stay until rewards fall due and receive all relevant amounts. There are also amounts included in relation to restructuring. The provisions will be utilised over various periods driven by local legal or regulatory requirements, the timing of which is uncertain. The majority of property provisions relate to leased properties and are associated with the requirement to return properties to either their original condition, or to enact specific improvement activities in advance of exiting the lease. Dilapidations associated with leased properties are held as a provision until such time as they fall due, with the longest running lease ending in January 2037. A contract provision is recorded when a contract is deemed to be unprofitable and therefore is considered onerous. The present value of the estimated future cash outflow required to settle the contract obligations as they fall due over the respective contracts has been used in determining the provision. Claims provisions relate to claims made against the Group. These claims are varied in nature, although they typically come from either the Group\u2019s service users, claimants for vehicle-related incidents or the Group\u2019s employees. While there is some level of judgement on the amount to be recorded, in almost all instances the variance to the actual claim paid out will not individually be material, however the timing of when the claims are reported and settled is less certain as a process needs to be followed prior to the amounts being paid. Included within other provisions is: \u2013 \u00a342.7m related to indemnities provided in respect of a historic business transaction. Within this amount, \u00a336.0m is reserved for potential tax liabilities arising within the disposed company when local tax submissions are reviewed by the relevant authorities which represents Management\u2019s best estimate of the likely outcome based on past experiences and other known factors. Under the indemnity, \u00a336.0m is the Group\u2019s maximum potential exposure to these tax matters. The timing of utilisation is dependent on future events which could occur within the next 12 months, or over a longer period. \u2013 \u00a327.8m related to legal and other costs that the Group expects to incur over an extended period, in respect of past events for which a provision has been recorded, none of which are individually material. Individual provisions are only discounted where the impact is assessed to be significant. Currently, the effect of discounting is not material. ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfProvisionsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-393": {
"value": "27. Capital and other commitments Capital expenditure contracted but not provided 2022 \u00a3m 2021 \u00a3m Property, plant and equipment 5.7 1.2 Intangible assets 0.2 0.8 ",
"dimensions": {
"concept": "ifrs-full:DisclosureOfCommitmentsExplanatory",
"language": "en",
"entity": "scheme:549300PT2CIHYN5GWJ21",
"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
}
},
"fact-394": {
"value": "28. Contingent liabilities The Group has guaranteed overdrafts, leases, and bonding facilities of its joint ventures and associates up to a maximum value of \u00a35.7m (2021: \u00a35.7m). The actual commitment outstanding at 31 December 2022 was \u00a35.7m (2021: \u00a35.7m). The Group has provided certain guarantees and indemnities in respect of performance and other bonds, issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 31 December 2022 was \u00a3222.7m (2021: \u00a3263.8m). Following the announcement during 2020 that the Group has received a claim seeking damages for alleged losses as a result of the reduction in Serco\u2019s share price in 2013, the Group has continued to assess the merit, likely outcome and potential impact on the Group of any such litigation that either has been or might potentially be brought against the Group. Any outcome is subject to a number of significant uncertainties. The Group does not currently assess the merits as strong, especially given the legal uncertainties in such actions. The Group is also aware of other claims and potential claims which involve or may involve legal proceedings against the Group although the timing of settlement of these claims remains uncertain. Management is of the opinion, having regard to legal advice received and the Group\u2019s insurance arrangements, that it is unlikely that these matters will, in aggregate, have a material effect on the Group\u2019s financial position. ",
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"fact-395": {
"value": "29. Financial risk management 29 (a) Fair value of financial instruments i) Fair value hierarchy The vast majority of financial instruments are held at amortised cost. The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is observable. The levels are as follows: Level 1: Inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within Level 1. Level 3: Inputs are unobservable inputs for the asset or liability. Based on the above, the derivative financial instruments held by the Group at 31 December 2022 and the comparison fair values for loans and leases, are all considered to fall into Level 2. Market prices are sourced from Bloomberg and third party valuations. The valuation models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves. There have been no transfers between levels in the year. 29. Financial risk management continued 29 (a) Fair value of financial instruments continued i) Fair value hierarchy continued The Group held the following financial instruments which fall within the scope of IFRS 9 Financial Instruments at 31 December: Carrying amount (measurement basis) Comparison fair value Carrying amount (measurement basis) Comparison fair value Amortised cost 2022 \u00a3m Fair value 2022 \u00a3m 2022 \u00a3m Amortised cost 2021 \u00a3m Fair value 2021 \u00a3m 2021 \u00a3m Financial assets Financial assets \u2013 current Cash and bank balances 57.2 \u2013 57.2 198.4 \u2013 198.4 Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 3.0 3.0 \u2013 2.6 2.6 Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Receivables Trade receivables (note 21) 266.8 \u2013 266.8 234.4 \u2013 234.4 Amounts owed by joint ventures and associates (note 21) 3.1 \u2013 3.1 1.7 \u2013 1.7 Financial assets \u2013 non-current Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Financial liabilities \u2013 current Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 (1.1) (1.1) \u2013 (2.0) (2.0) Financial liabilities at fair value (Level 3) Contingent consideration (note 23) \u2013 (11.2) (11.2) \u2013 \u2013 \u2013 Financial liabilities at amortised cost Trade payables (note 23) (108.3) \u2013 (108.3) (89.2) \u2013 (89.2) Loans (note 25) (44.5) \u2013 (44.3) (64.9) \u2013 (65.2) Lease obligations (note 24) (144.4) \u2013 (143.3) (126.3) \u2013 (126.3) Financial liabilities \u2013 non-current Financial liabilities at amortised cost Loans (note 25) (218.4) \u2013 (197.2) (312.1) \u2013 (324.2) Lease obligations (note 24) (301.6) \u2013 (300.5) (304.0) \u2013 (304.0) Management estimate that the carrying amounts of cash, trade receivables and trade payables approximate to their fair value due to the short-term maturity of these instruments. The following table shows the development of financial assets and liabilities categorised as level 3: Financial liabilities current contingent consideration 2022 \u00a3m Financial liabilities current contingent consideration 2021 \u00a3m Balance at 1 January \u2013 \u2013 Arising on acquisition (12.2) \u2013 Cash settlement 1.0 \u2013 Balance at 31 December (11.2) \u2013 The fair values of loans and lease obligations are based on cash flows discounted using a rate based on the borrowing rate associated with the liability. The fair value of derivatives is calculated using a discounted cash flow approach applying discount factors derived from observable market data to actual and estimated future cash flows. Credit risk is considered in the calculation of these fair values. ii) Fair value of derivative financial instruments The fair value of derivative financial instruments results in a net asset of \u00a32.5m (2021: \u00a30.6m) comprising non-current assets of \u00a30.3m (2021: \u00a3nil), current assets of \u00a33.3m (2021: \u00a32.6m), and current liabilities of \u00a31.1m (2021: \u00a32.0m). 1 January 2022 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2022 \u00a3m Forward foreign exchange contracts 0.6 0.6 1.3 2.5 1 January 2021 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2021 \u00a3m Forward foreign exchange contracts (4.9) 0.2 5.3 0.6 The fair value of financial liabilities recognised at fair value through profit and loss is \u00a31.1m (2021: \u00a32.0m) and relates to derivatives that are not designated in hedge accounting relationships. The fair value of the derivatives and their credit risk adjusted fair value are not materially different and are approximately equal to the amount contractually payable at maturity due to the short tenure of the instruments. 29 (b) Financial risk The Board is ultimately responsible for ensuring that financial and non-financial risks are monitored and managed within acceptable and known parameters. The Board delegates authority to the Executive team to manage financial risks. The Group\u2019s Treasury function acts as a service centre and operates within clearly defined guidelines and policies that are approved by the Board. The guidelines and policies define the financial risks to be managed, specify the objectives in managing these risks, delegate responsibilities to those managing the risks and establish a control framework to regulate treasury activities to minimise operational risk. 29 (c) Liquidity risk i) Credit facilities The Group maintains committed credit facilities to ensure that it has sufficient liquidity to maintain its ongoing operations. As at 31 December, the Group\u2019s committed bank credit facilities and corresponding borrowings were as follows: Currency Amount 2022 \u00a3m Drawn 2022 \u00a3m Utilised for bonding facility 2022 \u00a3m Total facility available 2022 \u00a3m Syndicated revolving credit facility Sterling 350.0 \u2013 \u2013 350.0 Currency Amount 2021 \u00a3m Drawn 2021 \u00a3m Utilised for bonding facility 2021 \u00a3m Total facility available 2021 \u00a3m Syndicated revolving credit facility Sterling 250.0 \u2013 \u2013 250.0 Term loan facility Sterling 120.0 120.0 \u2013 \u2013 In November 2022 the Group refinanced its revolving credit facility, with a new deal having a term of five years to November 2027 with a maximum capacity of \u00a3350m, up from the previous facility of \u00a3250m. In addition, the new facility provides an additional accordion facility of \u00a3100m which is uncommitted. The Group has \u00a3266.4m (2021: \u00a3259.2m) of US private placement loan notes which will be repaid as bullet repayments between 2022 and 2032. In September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS) which had CHF6m (\u00a35.4m) uncommitted credit facility which was undrawn at acquisition and through to 31 December 2022. Uncommitted credit facilities can be withdrawn by the bank at any time. 29. Financial risk management continued 29 (c) Liquidity risk continued ii) Maturity of financial liabilities The Group\u2019s financial liabilities will be settled on both a net and a gross basis over the remaining period between the balance sheet date and the contractual maturity date. The amounts disclosed below are the contractual undiscounted cash flows based on the earliest date on which the Group can be required to pay. At 31 December 2022 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 108.3 \u2013 \u2013 \u2013 108.3 Obligations under leases 1 (note 24) 150.6 113.9 149.3 51.5 465.3 Loans 2 (note 25) 45.4 54.9 108.0 58.1 266.4 Future loan interest 11.2 7.3 15.2 8.9 42.6 Derivatives settled on gross basis: Outflow 1,284.0 7.6 8.1 \u2013 1,299.7 Inflow (1,286.2) (8.1) (8.6) \u2013 (1,302.9) 313.3 175.6 272.0 118.5 879.4 1 The present value of lease obligations is \u00a3446.1m after deducting \u00a319.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. At 31 December 2021 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 89.2 \u2013 \u2013 \u2013 89.2 Obligations under leases (note 24) \u2013 restated 1 131.0 107.1 156.8 53.6 448.5 Loans 2 (note 25) 66.1 40.5 161.2 111.4 379.2 Future loan interest 12.2 11.3 16.3 12.2 52.0 Derivatives settled on gross basis: Outflow 1,427.9 \u2013 \u2013 \u2013 1,427.9 Inflow (1,428.4) \u2013 \u2013 \u2013 (1,428.4) 298.0 158.9 334.3 177.2 968.4 1 The present value of lease obligations is \u00a3430.3m after deducting \u00a318.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. Gross cash flows in the table above relating to forward foreign exchange contracts total \u00a31,286.2m (inflow) and \u00a31,284.0m (outflow) on demand or within one year (2021: \u00a31,428.4m (inflow) and \u00a31,427.9m (outflow) on demand or within one year). 29 (d) Foreign exchange risk i) Transactional It is the Group\u2019s policy to hedge material transactional exposures using forward foreign exchange contracts to fix the functional currency value of non-functional currency cash flows. At 31 December 2022, there were no material unhedged non-functional currency monetary assets or liabilities, firm commitments, or highly probable forecast transactions. ii) Translational Where possible the Group will raise external funding to match the currency profile of its foreign operations, in order to mitigate translation exposure. If matched funding is not possible, currency derivatives may be used to protect against movements in foreign exchange. iii) Hedge accounting For the purposes of hedge accounting, hedges are classified as either fair value hedges, cash flow hedges or hedges of net investments in foreign operations. Details of the Group\u2019s accounting policies in relation to derivatives qualifying for hedge accounting under IFRS 9 Financial Instruments can be seen in note 2. The Group holds a number of forward foreign exchange contracts designated as cash flow hedges. These derivatives are hedging highly probable forecast foreign currency trade payments in the UK business. The net notional amounts are summarised by currency below: 2022 \u00a3m 2021 \u00a3m Sterling (32.9) (2.1) US Dollar 12.7 \u2013 Indian Rupee 21.7 2.2 All derivatives designated as cash flow hedges are highly effective and as at 31 December 2022, \u00a30.6m net fair value gains (2021: \u00a3nil net fair value gain) has been deferred in the hedging reserve. During the year to 31 December 2022, \u00a30.9m (2021: \u00a30.1m) of net fair value gains were transferred to the hedging reserve and \u00a30.4m fair value gains (2021: \u00a30.1m gains) were reclassified to the Consolidated Income Statement. iv) Currency sensitivity The Group\u2019s currency exposures in respect of monetary items at 31 December 2022 that result in net currency gains and losses in the income statement and equity arise principally from movement in US Dollar and Indian Rupee exchange rate. The impact of a 10% movement is summarised below: Pre-tax profits gain/(loss) 2022 \u00a3m Equity gain/ (loss) 2022 \u00a3m Pre-tax profits gain/(loss) 2021 \u00a3m Equity gain/ (loss) 2021 \u00a3m US Dollar (0.1) 1.3 \u2013 0.1 Euro (0.1) \u2013 \u2013 \u2013 Indian Rupee \u2013 2.1 \u2013 (0.2) (0.2) 3.4 \u2013 (0.1) 29 (e) Interest rate risk The Group\u2019s policy is to minimise the impact of interest rate volatility on earnings to provide an appropriate level of certainty to cost of funds. Exposure to interest rate risk arises principally on changes to US Dollar and Sterling interest rates. i) Interest rate management An analysis of financial assets and liabilities exposed to interest rate risk is set out below: Financial assets Floating rate 2022 \u00a3m Fixed rate 2022 \u00a3m Weighted average interest rate 2022 % Floating rate 2021 \u00a3m Fixed rate 2021 \u00a3m Weighted average interest rate 2021 % Cash and cash equivalents 57.2 \u2013 1.2 198.4 \u2013 \u2013 Financial liabilities Floating rate 2022 \u00a3m Fixed rate 2022 \u00a3m Weighted average interest rate 2022 % Floating rate 2021 \u00a3m Fixed rate 2021 \u00a3m Weighted average interest rate 2021 % US Dollar loans \u2013 266.4 4.2 \u2013 259.2 4.3 Other loans \u2013 \u2013 \u2013 120.0 \u2013 1.6 \u2013 266.4 \u2013 120.0 259.2 3.2 Exposure to interest rate fluctuations is mitigated through the issuance of fixed rate debt. The rates on the US Dollar loans are fixed for the term of each loan. The loans will be repaid as bullet repayments between 2022 and 2032. Excluded from the above analysis is \u00a3446.0m (2021: \u00a3430.3m) of amounts payable under leases, which are subject to fixed rates of interest. ii) Interest rate sensitivity The effect of a 100 basis point increase in SONIA (Sterling Overnight Index Average) rates on the net financial liability position (excluding leases) at the balance sheet date, with all other variables held constant, would have resulted in a \u00a30.6m increase in pre-tax profit for the year to 31 December 2022 (2021: increase of \u00a30.8m). From 1 January 2022, SONIA replaced GBP LIBOR and with all other variables held constant is not expected to have a material impact on the Group. The floating rate loans mentioned above have been restructured effective 1 January 2022 so that the actual interest rates used are consistent when using SONIA as a benchmark compared with GBP LIBOR and this results in no change to the risk strategy going forward. 29. Financial risk management continued 29 (f) Credit risk The Group\u2019s principal financial assets are cash and cash equivalents, contract assets and trade and other receivables. Credit risk is the risk that a counterparty could default on its contractual obligations. In this regard, the Group\u2019s principal exposure is to cash and cash equivalents, derivative transactions and trade receivables. The Group\u2019s contract asset and trade receivables credit risk is relatively low given that a high proportion of our customer base are government bodies with strong sovereign, or sovereign-like, credit ratings. However, where the assessed credit worthiness of a customer, government or non-government, falls below that considered acceptable, appropriate measures are taken to mitigate against the risk of contractual default using instruments such as credit guarantees. The Group has not recorded any impairments related to contract assets or trade and other receivables relating to credit risk during the year ended 31 December 2022 (2021: none). The Group\u2019s Treasury function primarily transacts with counterparties that comply with Board policy. Where exceptions are approved due to local requirements, the Group\u2019s exposures are monitored and kept to an immaterial level. The credit risk is measured by way of a counterparty credit rating from any two recognised rating agencies. Pre-approved limits are set based on a rating matrix and exposures monitored accordingly. The Group also employs the use of set-off rights in some agreements. The Group\u2019s policy is to provide guarantees for joint ventures and associates only to the relevant proportion of support provided by the partners. At 31 December 2022, the Company has issued guarantees in respect of certain joint ventures and associates as per note 28. 29 (g) Capital risk Management\u2019s objective is to maintain a capital structure that supports the Group\u2019s strategic objectives, including but not limited to reshaping the portfolio through mergers, acquisitions and disposals. In doing so the Board seeks to manage funding and liquidity risk, optimise shareholder return and maintain an implied investment grade credit position. This strategy is unchanged from the prior year. Management reviews and approves at least annually a treasury policy document which covers, inter alia, funding and liquidity risk, capital structure and risk management. This policy details targets for committed funding headroom, diversification of committed funding and debt maturity profile. The Group plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to shareholders. The following table summarises the capital of the Group: 2022 \u00a3m 2021 \u00a3m Cash and cash equivalents (57.2) (198.4) Loans 262.9 377.0 Obligations under leases 446.0 430.3 Equity 1,029.7 1,008.4 Capital 1,681.4 1,617.3 ",
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"fact-411": {
"value": "29 (a) Fair value of financial instruments i) Fair value hierarchy The vast majority of financial instruments are held at amortised cost. The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is observable. The levels are as follows: Level 1: Inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Inputs that are observable for the asset or liability, either directly or indirectly, other than quoted prices included within Level 1. Level 3: Inputs are unobservable inputs for the asset or liability. Based on the above, the derivative financial instruments held by the Group at 31 December 2022 and the comparison fair values for loans and leases, are all considered to fall into Level 2. Market prices are sourced from Bloomberg and third party valuations. The valuation models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves. There have been no transfers between levels in the year. 29 (a) Fair value of financial instruments continued i) Fair value hierarchy continued The Group held the following financial instruments which fall within the scope of IFRS 9 Financial Instruments at 31 December: Carrying amount (measurement basis) Comparison fair value Carrying amount (measurement basis) Comparison fair value Amortised cost 2022 \u00a3m Fair value 2022 \u00a3m 2022 \u00a3m Amortised cost 2021 \u00a3m Fair value 2021 \u00a3m 2021 \u00a3m Financial assets Financial assets \u2013 current Cash and bank balances 57.2 \u2013 57.2 198.4 \u2013 198.4 Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 3.0 3.0 \u2013 2.6 2.6 Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Receivables Trade receivables (note 21) 266.8 \u2013 266.8 234.4 \u2013 234.4 Amounts owed by joint ventures and associates (note 21) 3.1 \u2013 3.1 1.7 \u2013 1.7 Financial assets \u2013 non-current Derivative instruments in designated hedge accounting relationships (Level 2) Forward foreign exchange contracts \u2013 0.3 0.3 \u2013 \u2013 \u2013 Financial liabilities \u2013 current Derivatives designated as FVTPL (Level 2) Forward foreign exchange contracts \u2013 (1.1) (1.1) \u2013 (2.0) (2.0) Financial liabilities at fair value (Level 3) Contingent consideration (note 23) \u2013 (11.2) (11.2) \u2013 \u2013 \u2013 Financial liabilities at amortised cost Trade payables (note 23) (108.3) \u2013 (108.3) (89.2) \u2013 (89.2) Loans (note 25) (44.5) \u2013 (44.3) (64.9) \u2013 (65.2) Lease obligations (note 24) (144.4) \u2013 (143.3) (126.3) \u2013 (126.3) Financial liabilities \u2013 non-current Financial liabilities at amortised cost Loans (note 25) (218.4) \u2013 (197.2) (312.1) \u2013 (324.2) Lease obligations (note 24) (301.6) \u2013 (300.5) (304.0) \u2013 (304.0) Management estimate that the carrying amounts of cash, trade receivables and trade payables approximate to their fair value due to the short-term maturity of these instruments. The following table shows the development of financial assets and liabilities categorised as level 3: Financial liabilities current contingent consideration 2022 \u00a3m Financial liabilities current contingent consideration 2021 \u00a3m Balance at 1 January \u2013 \u2013 Arising on acquisition (12.2) \u2013 Cash settlement 1.0 \u2013 Balance at 31 December (11.2) \u2013 The fair values of loans and lease obligations are based on cash flows discounted using a rate based on the borrowing rate associated with the liability. The fair value of derivatives is calculated using a discounted cash flow approach applying discount factors derived from observable market data to actual and estimated future cash flows. Credit risk is considered in the calculation of these fair values. ii) Fair value of derivative financial instruments The fair value of derivative financial instruments results in a net asset of \u00a32.5m (2021: \u00a30.6m) comprising non-current assets of \u00a30.3m (2021: \u00a3nil), current assets of \u00a33.3m (2021: \u00a32.6m), and current liabilities of \u00a31.1m (2021: \u00a32.0m). 1 January 2022 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2022 \u00a3m Forward foreign exchange contracts 0.6 0.6 1.3 2.5 1 January 2021 \u00a3m Movement in fair value of derivatives designated in hedge accounting relationships \u00a3m Movement in fair value of derivatives not designated in hedge accounting relationships \u00a3m 31 December 2021 \u00a3m Forward foreign exchange contracts (4.9) 0.2 5.3 0.6 The fair value of financial liabilities recognised at fair value through profit and loss is \u00a31.1m (2021: \u00a32.0m) and relates to derivatives that are not designated in hedge accounting relationships. The fair value of the derivatives and their credit risk adjusted fair value are not materially different and are approximately equal to the amount contractually payable at maturity due to the short tenure of the instruments. ",
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"fact-412": {
"value": "29 (c) Liquidity risk i) Credit facilities The Group maintains committed credit facilities to ensure that it has sufficient liquidity to maintain its ongoing operations. As at 31 December, the Group\u2019s committed bank credit facilities and corresponding borrowings were as follows: Currency Amount 2022 \u00a3m Drawn 2022 \u00a3m Utilised for bonding facility 2022 \u00a3m Total facility available 2022 \u00a3m Syndicated revolving credit facility Sterling 350.0 \u2013 \u2013 350.0 Currency Amount 2021 \u00a3m Drawn 2021 \u00a3m Utilised for bonding facility 2021 \u00a3m Total facility available 2021 \u00a3m Syndicated revolving credit facility Sterling 250.0 \u2013 \u2013 250.0 Term loan facility Sterling 120.0 120.0 \u2013 \u2013 In November 2022 the Group refinanced its revolving credit facility, with a new deal having a term of five years to November 2027 with a maximum capacity of \u00a3350m, up from the previous facility of \u00a3250m. In addition, the new facility provides an additional accordion facility of \u00a3100m which is uncommitted. The Group has \u00a3266.4m (2021: \u00a3259.2m) of US private placement loan notes which will be repaid as bullet repayments between 2022 and 2032. In September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG (ORS) which had CHF6m (\u00a35.4m) uncommitted credit facility which was undrawn at acquisition and through to 31 December 2022. Uncommitted credit facilities can be withdrawn by the bank at any time. 29 (c) Liquidity risk continued ii) Maturity of financial liabilities The Group\u2019s financial liabilities will be settled on both a net and a gross basis over the remaining period between the balance sheet date and the contractual maturity date. The amounts disclosed below are the contractual undiscounted cash flows based on the earliest date on which the Group can be required to pay. At 31 December 2022 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 108.3 \u2013 \u2013 \u2013 108.3 Obligations under leases 1 (note 24) 150.6 113.9 149.3 51.5 465.3 Loans 2 (note 25) 45.4 54.9 108.0 58.1 266.4 Future loan interest 11.2 7.3 15.2 8.9 42.6 Derivatives settled on gross basis: Outflow 1,284.0 7.6 8.1 \u2013 1,299.7 Inflow (1,286.2) (8.1) (8.6) \u2013 (1,302.9) 313.3 175.6 272.0 118.5 879.4 1 The present value of lease obligations is \u00a3446.1m after deducting \u00a319.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. At 31 December 2021 On demand or within one year \u00a3m Between one and two years \u00a3m Between two and five years \u00a3m After five years \u00a3m Total \u00a3m Trade payables (note 23) 89.2 \u2013 \u2013 \u2013 89.2 Obligations under leases (note 24) \u2013 restated 1 131.0 107.1 156.8 53.6 448.5 Loans 2 (note 25) 66.1 40.5 161.2 111.4 379.2 Future loan interest 12.2 11.3 16.3 12.2 52.0 Derivatives settled on gross basis: Outflow 1,427.9 \u2013 \u2013 \u2013 1,427.9 Inflow (1,428.4) \u2013 \u2013 \u2013 (1,428.4) 298.0 158.9 334.3 177.2 968.4 1 The present value of lease obligations is \u00a3430.3m after deducting \u00a318.2m of future finance costs. 2 Loans are stated gross of capitalised finance costs. Gross cash flows in the table above relating to forward foreign exchange contracts total \u00a31,286.2m (inflow) and \u00a31,284.0m (outflow) on demand or within one year (2021: \u00a31,428.4m (inflow) and \u00a31,427.9m (outflow) on demand or within one year). ",
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"fact-414": {
"value": "29 (f) Credit risk The Group\u2019s principal financial assets are cash and cash equivalents, contract assets and trade and other receivables. Credit risk is the risk that a counterparty could default on its contractual obligations. In this regard, the Group\u2019s principal exposure is to cash and cash equivalents, derivative transactions and trade receivables. The Group\u2019s contract asset and trade receivables credit risk is relatively low given that a high proportion of our customer base are government bodies with strong sovereign, or sovereign-like, credit ratings. However, where the assessed credit worthiness of a customer, government or non-government, falls below that considered acceptable, appropriate measures are taken to mitigate against the risk of contractual default using instruments such as credit guarantees. The Group has not recorded any impairments related to contract assets or trade and other receivables relating to credit risk during the year ended 31 December 2022 (2021: none). The Group\u2019s Treasury function primarily transacts with counterparties that comply with Board policy. Where exceptions are approved due to local requirements, the Group\u2019s exposures are monitored and kept to an immaterial level. The credit risk is measured by way of a counterparty credit rating from any two recognised rating agencies. Pre-approved limits are set based on a rating matrix and exposures monitored accordingly. The Group also employs the use of set-off rights in some agreements. The Group\u2019s policy is to provide guarantees for joint ventures and associates only to the relevant proportion of support provided by the partners. At 31 December 2022, the Company has issued guarantees in respect of certain joint ventures and associates as per note 28. ",
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"fact-413": {
"value": "29 (g) Capital risk Management\u2019s objective is to maintain a capital structure that supports the Group\u2019s strategic objectives, including but not limited to reshaping the portfolio through mergers, acquisitions and disposals. In doing so the Board seeks to manage funding and liquidity risk, optimise shareholder return and maintain an implied investment grade credit position. This strategy is unchanged from the prior year. Management reviews and approves at least annually a treasury policy document which covers, inter alia, funding and liquidity risk, capital structure and risk management. This policy details targets for committed funding headroom, diversification of committed funding and debt maturity profile. The Group plans to maintain sufficient funds and distributable reserves to allow payments of projected dividends to shareholders. The following table summarises the capital of the Group: 2022 \u00a3m 2021 \u00a3m Cash and cash equivalents (57.2) (198.4) Loans 262.9 377.0 Obligations under leases 446.0 430.3 Equity 1,029.7 1,008.4 Capital 1,681.4 1,617.3 ",
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"period": "2022-01-01T00:00:00/2023-01-01T00:00:00"
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"fact-396": {
"value": "30. Retirement benefit schemes 30 (a) Defined benefit schemes i) Characteristics and risks The Group contributes to defined benefit schemes for qualifying employees of its subsidiaries. The schemes in which the Group participates are categorised as follows: Non-contract specific schemes These schemes do not relate to any specific contract and represent 98% (2021: 98%) of scheme assets and 98% (2021: 97%) of scheme liabilities. They consist of six pre-funded defined benefit schemes and an unfunded defined benefit scheme. The two UK funded schemes are Serco Pension and Life Assurance Scheme (SPLAS) and a non-contract specific section of the Railways Pension Scheme (RPS). The funding policy for the UK pre-funded schemes is to contribute amounts which will achieve 100% funding on a projected salary basis based on regular actuarial valuations. There are three non-UK schemes based in Switzerland and are available for the employees of OXZ Holdings AG and its subsidiaries which are part of a collective foundation. The occupational benefits fund commission defines the contributions which are shared equally between the employer and the employees. The Group also makes contributions to the Public Sector Superannuation Scheme in Australia. The unfunded scheme is a German scheme and any liabilities arising are recognised in full, with the liabilities in relation to the unfunded scheme amounting to \u00a30.2m (2021: \u00a30.3m). Contract specific schemes These schemes represent 2% (2021: 2%) of scheme assets and 2% (2021: 3%) of scheme liabilities. They consist of two pre-funded defined benefit schemes in the UK. Under contractual arrangements the Group sponsors a section of the RPS, an industry-wide defined benefit scheme, paying contributions in accordance with a Schedule of Contributions. There is no residual liability to fund any deficit at the end of the franchise period and any costs are shared 60% by the employer and 40% by the members. The Group also makes contributions under Admitted Body status for one section of the Local Government Pension Scheme for the period to the end of the relevant customer contract. The Group is required to pay regular contributions as decided by the respective scheme actuary and as detailed in each scheme\u2019s schedule of contributions. In addition, the Group may be required to pay some or all of any deficit (as determined by the respective scheme actuary) that is remaining at the end of the contract. In respect of Local Government Pension Schemes, as there is a residual liability, the Group recognises a sufficient level of provision in these financial statements based on the IAS 19 Employee Benefits valuation at the reporting date and contractual obligations. Joint venture scheme Under contractual arrangements, the Group\u2019s joint venture Merseyrail Services Holding Company Limited (MSHCL) sponsors a section of the RPS, an industry-wide defined benefit scheme, paying contributions in accordance with a Schedule of Contributions. There is no residual liability to fund any deficit at the end of the franchise period and there is no pension obligation on the balance sheet of the Group or MSHCL. The costs associated with the scheme are included in profit from operations for MSCHL shown in note 7 and reflected in the share of profits in joint ventures in the income statement and therefore the disclosure in this note do not include MSHCL. Scheme funding The normal contributions expected to be paid during the financial year for all schemes ending 31 December 2023 are \u00a38.9m (2022: \u00a36.8m). The assets of funded schemes are held independently of the Group\u2019s assets in separate trustee administered schemes. The trustees of each pension scheme are required by law to act in the interest of the scheme and of all relevant stakeholders in the scheme. The trustees of the pension schemes are responsible for the investment policy with regard to the assets of the scheme. The Group\u2019s schemes are valued by independent actuaries annually using the projected unit credit actuarial cost method for accounting purposes. This reflects service rendered by employees to the date of valuation and incorporates actuarial assumptions including discount rates to determine the present value of benefits, inflation assumptions, projected rates of salary growth and life expectancy of pension plan members. Discount rates are based on the market yields of high-quality corporate bonds in the country concerned. Pension assets and liabilities in the different defined benefit schemes are not offset. The schemes typically expose the Group to risks that impact the financial performance and position of the Group and may affect the amount and timing of future cash flows. The key risks are set out below: \u2013 Investment risk. The schemes hold assets with which to discharge the future liabilities of these schemes. Any decline in the value of these investments directly impacts on the ability of the schemes to meet its commitments and could require the Group to fund this shortfall in future years. SPLAS\u2019s investment strategy aims to reduce volatility risk by better matching assets to liabilities and is based on the actuarial funding basis. 48% of the scheme\u2019s assets are annuity policies, which result in an insurer funding the future benefit payments to the relevant members and therefore eliminate the risk of changes in the future value of the benefits to the scheme. The investment strategy outside of the annuity has a benchmark allocation of 45% Liability Driven Investments (LDIs), 40% Buy and Maintain Credit and 15% Private Debt. The main asset classes that make up the LDI investments are gilts and corporate bonds with inflation and interest swap overlays and are therefore linked to the key drivers of the scheme\u2019s liabilities. \u2013 Interest risk. The present values of the defined benefit schemes\u2019 liabilities are calculated using a discount rate determined by reference to high-quality corporate bond yields and therefore a decrease in the bond interest rate will increase the schemes\u2019 liabilities. This will be partially offset by an increase in the return of the schemes\u2019 debt investments. \u2013 Longevity risk. The present values of the defined benefit schemes\u2019 liabilities are calculated by reference to the best estimate of the mortality of the schemes\u2019 participants, both during and after their employment. An increase in the life expectancy of the schemes\u2019 participants will increase the schemes\u2019 liabilities. \u2013 Inflation risk. The present values of the defined benefit schemes\u2019 liabilities are calculated to include the effect of inflation on future purchasing power based on estimations around inflation rates. An increase in expected future inflation rates will increase the schemes\u2019 liabilities. \u2013 Salary risk. The present values of the defined benefit schemes\u2019 liabilities are calculated by reference to the future salaries of the schemes\u2019 participants, as such, an increase in the salary of the schemes\u2019 participants will increase the schemes\u2019 liabilities. Serco Pension and Life Assurance Scheme (SPLAS) The largest non-contract specific schemes is SPLAS. The most recent full actuarial valuation of this scheme was undertaken as at 5 April 2021 and completed in May 2022. The actuarially assessed deficit for funding purposes was \u00a370.0m. The increase to the actuarially assessed deficit for funding purposes was as a result of the RPI reform announced by the UK government to take effect from 2030. 30. Retirement benefit schemes continued 30 (a) Defined benefit schemes continued i) Characteristics and risks continued Serco Pension and Life Assurance Scheme (SPLAS) continued Pension obligations are valued separately for accounting and funding purposes and there is often a material difference between these valuations. As at 31 December 2022, the estimated actuarial deficit on a funding basis for SPLAS was \u00a327m (2021: \u00a342m) whereas the accounting valuation resulted in an asset of \u00a347.5m (2021: \u00a3166.2m). The primary reason a difference arises is that pension scheme accounting requires the valuation to be performed on the basis of a best estimate whereas the funding valuation used by the trustees makes more prudent assumptions. The schedule of contributions for SPLAS was agreed during 2022, with 44.3% of pensionable salaries for active employees due to be paid in regular contributions from 1 June 2022. The schedule of contributions also determined that additional shortfall contributions were required and the Group has committed to make deficit recovery payments by 31 March of \u00a36.6m per year from 2022 to 2030. An annual assessment of the shortfall is performed and if the scheme is determined to be in a surplus position the shortfall contributions due by 31 March are deferred to the following year. If the shortfall calculated in the annual assessment is less that than the cumulative shortfall due to date the contribution is capped at the shortfall calculation and any excess is carried forward to the next year. ii) Events in the year During the year there has been a high degree of volatility in the pensions market. Discount rates and short-term inflation rates have been rising since 31 December 2021 which has resulted in the weighted average durations used for valuing pension schemes decreasing. Concerns over high global inflation, recession, disruption to supply chains due to the war in Ukraine and rising interest rates, compounded by the market volatility in September 2022 due to political events resulted in a sharp rise in bond yields and a subsequent reduction in the value of LDIs, which triggered collateral calls. The Group made a short-term temporary loan of \u00a360m to SPLAS on 28 September 2022 while the scheme liquidated assets to meet these collateral calls, in order to ensure that the LDI hedge was maintained; this loan was repaid on 3 October 2022. The private debt investments are less volatile to the market conditions and therefore the allocation of investments was outside the scheme\u2019s benchmark at 31 December 2022, with 46% LDIs, 24% Buy and Maintain Credit and 30% Private Debt. The Trustees of SPLAS have been working closely with the Group and investment consultants to ensure the investment objectives of the scheme are maintained. On 1 September 2022, the Group acquired 100% of the issued share capital of OXZ Holdings AG. Included in the acquisition was a net pension obligation of \u00a35.0m relating to three schemes as noted above. iii) Values recognised in total comprehensive income in the year The amounts recognised in the Consolidated Financial Statements for the year are analysed as follows: Recognised in the income statement 2022 \u00a3m 2021 \u00a3m Current service cost \u2013 employer 5.9 5.1 Past service cost \u2013 employer 0.8 \u2013 Settlement gain recognised (0.3) \u2013 Administrative expenses and taxes 2.4 1.5 Recognised in arriving at operating profit after exceptional items 8.8 6.6 Interest income on scheme assets \u2013 employer (28.3) (22.0) Interest on franchise adjustment (0.2) (0.1) Interest cost on scheme liabilities \u2013 employer 25.8 21.0 Finance income (2.7) (1.1) Total recognised in the income statement 6.1 5.5 Included within the SOCI 2022 \u00a3m 2021 \u00a3m Actual return on scheme assets (539.8) 42.3 Less: interest income on scheme assets (28.3) (22.0) Net return on scheme assets (568.1) 20.3 Effect of changes in demographic assumptions 21.2 3.3 Effect of changes in financial assumptions 530.3 19.8 Effect of experience adjustments (77.2) 23.4 Remeasurements (93.8) 66.8 Change in franchise adjustment (7.0) 0.1 Change in members\u2019 share (5.3) (0.6) Actuarial loss on reimbursable rights (12.3) (0.5) Total recognised in the SOCI (106.1) 66.3 iv) Balance sheet values The assets and liabilities of the schemes at 31 December are: Fair value of scheme assets 2022 \u00a3m Present value of scheme liabilities 2022 \u00a3m Surplus/(deficit) 2022 \u00a3m Fair value of scheme assets 2021 \u00a3m Present value of scheme liabilities 2021 \u00a3m Surplus/(deficit) 2021 \u00a3m SPLAS 925.3 (877.8) 47.5 1,489.1 (1,322.9) 166.2 Other Schemes 134.4 (134.1) 0.3 103.8 (136.2) (32.4) Total 1,059.7 (1,011.9) 47.8 1,592.9 (1,459.1) 133.8 Franchise adjustment1 1.8 8.6 Members\u2019 share of deficit 1.2 5.8 Net retirement benefit asset (before tax) 50.8 148.2 Net pension asset 57.0 166.2 Net pension liability (6.2) (18.0) Net retirement benefit asset (before tax) 50.8 148.2 Deferred tax (13.9) (36.9) Net retirement benefit asset (after tax) 36.9 111.3 1 The franchise adjustment represents the amount of scheme deficit that is expected to be funded outside the contract period and therefore no additional funding will be required by the Group. The SPLAS Trust Deed gives the Group an unconditional right to a refund of surplus assets, assuming the full settlement of plan liabilities in the event of a plan wind-up. Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as economic benefits are available to the Group either in the form of future refunds or, for plans still open to benefit accrual, in the form of possible reductions in future contributions. The high degree of volatility as noted above resulted in a reduction in pension scheme assets, particularly investments in bonds, LDIs and amounts held by insurance companies. There has been significant reduction in pensions scheme obligations as discount rates have risen but this has only partially offset the reduction in assets as the liabilities are hedged on an actuarial basis rather than an IAS 19 basis. The decrease in pension scheme obligations was partially offset by experience adjustments on SPLAS which were primarily due to the impact from inflation on the current year allowances for deferred valuations and pension increases. v) Pension asset values The schemes asset values at 31 December are: Scheme assets at fair value 2022 \u00a3m 2021 \u00a3m Equities 45.2 55.7 Bonds except LDIs 151.4 368.2 Pooled investment funds 140.0 107.6 LDIs 217.7 390.0 Property 1.3 2.2 Cash and other 13.4 6.9 Amounts held by insurance companies 490.7 662.3 Fair value of scheme assets 1 1,059.7 1,592.9 1. There are no investments in the Group\u2019s own transferable financial instruments held as pension assets. No property pension assets are occupied, or other pension assets used by the Group. As required by IAS 19 Employee Benefits, the Group has considered the extent to which the pension plan assets should be classified in accordance with the fair value hierarchy of IFRS 13 Fair Value Measurement. \u2013 Equity and Bonds all have quoted prices in active markets and are classified as level 1. \u2013 Pooled investment funds have no observable market price and the valuation is based on the Net Asset Value provided by the fund administrator at 30 September adjusted for actual cash flows in the period to 31 December. Therefore, these investments are classified as level 3. \u2013 LDIs are valued at fair value which is typically the Net Asset Value provided by the fund administrator. The LDIs are comprised of a mix of Level 1 and Level 2 instruments, including corporate/government bonds priced at their quoted bid price, derivatives made up of interest rate/inflation swaps and payables in respect of repurchase agreements. \u2013 Amounts held by insurance companies are valued at the equal and opposite of the defined benefit obligations that they insure and are classified as level 3. 30. Retirement benefit schemes continued 30 (a) Defined benefit schemes continued vi) Changes in the fair value of scheme assets and liabilities The table below shows the movements in fair value of scheme assets and liabilities and shows where they are reflected in the financial statements. Fair value of scheme assets \u00a3m Present value of scheme liabilities \u00a3m Surplus/ (deficit) \u00a3m At 1 January 2022 1,592.9 (1,459.1) 133.8 Current service cost \u2013 employer \u2013 (5.9) (5.9) Past service costs \u2013 employer \u2013 (0.8) (0.8) Administration expenses \u2013 employer (2.4) \u2013 (2.4) Plan settlement (8.0) 8.3 0.3 Net interest on scheme assets and liabilities 28.3 (25.8) 2.5 Total recognised in the income statement 17.9 (24.2) (6.3) Return of plan assets (568.1) \u2013 (568.1) Effect of changes in demographic assumptions \u2013 21.2 21.2 Effect of changes in financial assumptions \u2013 530.3 530.3 Effect of experience adjustments \u2013 (77.2) (77.2) Total recognised in the SOCI (568.1) 474.3 (93.8) Contributions by employer 19.9 \u2013 19.9 Total recognised in the cash flow statement 19.9 \u2013 19.9 Contributions by employees 1.7 (1.4) 0.3 Current service cost \u2013 employees \u2013 (0.9) (0.9) Net Interest cost \u2013 employee 0.1 (0.2) (0.1) Change in member share 1.8 (2.5) (0.7) Arising on acquisition 46.7 (51.7) (5.0) Benefits paid (52.8) 52.8 \u2013 Foreign exchange 1.4 (1.5) (0.1) Other movements (4.7) (0.4) (5.1) At 31 December 2022 1,059.7 (1,011.9) 47.8 At 1 January 2021 1,600.5 (1,534.8) 65.7 Current service cost \u2013 employer \u2013 (5.1) (5.1) Administration expenses \u2013 employer (1.5) \u2013 (1.5) Net interest on scheme assets and liabilities 22.0 (21.0) 1.0 Total recognised in the income statement 20.5 (26.1) (5.6) Return of plan assets 20.3 \u2013 20.3 Effect of changes in demographic assumptions \u2013 3.3 3.3 Effect of changes in financial assumptions \u2013 19.8 19.8 Effect of experience adjustments \u2013 23.4 23.4 Total recognised in the SOCI 20.3 46.5 66.8 Contributions by employer 9.0 \u2013 9.0 Total recognised in the cash flow statement 9.0 \u2013 9.0 Contributions by employees 0.6 (0.4) 0.2 Current service cost \u2013 employees \u2013 (0.9) (0.9) Net Interest cost \u2013 employee 0.1 (0.1) \u2013 Change in member share 0.7 (1.4) (0.7) Arising on acquisition 1.3 (2.7) (1.4) Benefits paid (59.3) 59.3 \u2013 Foreign exchange (0.1) 0.1 \u2013 Other movements (58.1) 56.7 (1.4) At 31 December 2021 1,592.9 (1,459.1) 133.8 Changes in the franchise adjustment Total \u00a3m At 1 January 2021 8.4 Interest on franchise adjustment \u2013 recognised in income statement 0.1 Other changes \u2013 recognised in the SOCI 0.1 At 1 January 2022 8.6 Interest on franchise adjustment \u2013 recognised in income statement 0.2 Other changes \u2013 recognised in the SOCI (7.0) At 31 December 2022 1.8 vii) Actuarial assumptions: SPLAS The assumptions set out below are for SPLAS, which reflects 87% of total liabilities and 87% of total assets of the defined benefit pension scheme in which the Group participates. The significant actuarial assumptions with regards to the determination of the defined benefit obligation are set out below. The Group continued to set RPI inflation in line with the market expectation less an inflation risk premium. The inflation risk premium is 0.3% both at 31 December 2021 and at 31 December 2022. The average duration of the benefit obligation at the end of the reporting period is 11.5 years (2021: 16.3 years). Significant actuarial assumptions 2022 % 2021 % Discount rate 5.00 1.80 Rate of salary increases 2.85 2.95 RPI Inflation 3.15 3.35 CPI Inflation 2.35 2.45 Post-retirement mortality 1 2022 years 2021 years Current pensioners at 65 \u2013 male 21.5 21.7 Current pensioners at 65 \u2013 female 24.1 24.3 Future pensioners at 65 \u2013 male 23.6 23.9 Future pensioners at 65 \u2013 female 26.2 26.4 1 The mortality assumptions have not been updated to reflect the potential effects of Covid-19 given there remains uncertainty of the Covid-19 impact on long-term mortality rates for pension scheme members. Sensitivity analysis for SPLAS is provided below, based on reasonably possible changes of the assumptions occurring at the end of the reporting period, assuming all other assumptions are held constant. The sensitivities have been derived in the same manner as the defined benefit obligation as at 31 December 2022 where the defined benefit obligation is estimated using the Projected Unit Credit method. Under this method each participant\u2019s benefits are attributed to years of service, taking into consideration future salary increases and the scheme\u2019s benefit allocation formula. Thus, the estimated total pension to which each participant is expected to become entitled at retirement is broken down into units, each associated with a year of past or future credited service. The defined benefit obligation as at 31 December 2022 is calculated on the actuarial assumptions agreed as at that date. The sensitivities are calculated by changing each assumption in turn following the methodology above with all other things held constant. The change in the defined benefit obligation from updating the single assumption represents the impact of that assumption on the calculation of the defined benefit obligation. Due to the increased volatility in the pension market the Group has updated its sensitivity disclosure to reflect a 1% change in the relevant assumption compared to a 0.5% change used in previous years. The prior year comparatives have been restated. 30. Retirement benefit schemes continued 30 (a) Defined benefit schemes continued vii) Actuarial assumptions: SPLAS continued Increase/(decrease) in defined benefit obligation of SPLAS 2022 \u00a3m Restated 2021 \u00a3m Discount rate \u2013 1.0% increase (93.4) (205.9) Discount rate \u2013 1.0% decrease 113.8 243.8 Inflation \u2013 1.0% increase 68.0 145.7 Inflation \u2013 1.0% decrease (68.1) (157.0) Rate of salary increase \u2013 1.0% increase 1.6 3.3 Rate of salary increase \u2013 1.0% decrease (1.5) (3.3) Mortality \u2013 one-year age rating 25.4 49.7 Management acknowledges that the method used of presuming that all other assumptions remaining constant has inherent limitation given that it is more likely for a combination of changes but highlights the value of each individual risk and is therefore a suitable basis for providing this analysis. The increase or decrease in the defined benefit obligation in the sensitivity table above would be offset by the corresponding movement in the scheme\u2019s assets. A 1% change in the long-term gilt yields consistent with the discount rates would result in an approximate offsetting movement of \u00a3100m (2021: \u00a3180m) in the scheme\u2019s LDI investment and a 1% change in long term inflation expectation would result in an approximate offsetting movement of \u00a370m (2021: \u00a3140m) in the scheme\u2019s LDI Investment. viii) Actuarial assumptions: Other schemes The other UK based schemes are valued on a consistent basis to SPLAS with a discount rate ranging from 4.90% to 5.00%, RPI inflation assumptions of 3.10% to 3.15% and CPI inflation assumptions of 2.30% to 2.35%. The non-UK based schemes use a discount rate ranging from 2.40% to 5.45%. Assumptions in respect of the expected return on scheme assets are required when calculating the franchise adjustment for the contract-specific plans. These assumptions are based on market expectations of returns over the life of the related obligation. Due consideration has been given to current market conditions as at 31 December 2022 in respect to inflation, interest, bond yields and equity performance when selecting the expected return on assets assumptions. The expected yield on bond investments with fixed interest rates is derived from their market value. The yield on equity investments contains an additional premium (an \u2018equity risk premium\u2019) to compensate investors for the additional anticipated risks of holding this type of investment, when compared to bond yields. The Group applies an equity risk premium of 4.6% (2021: 4.6%). The overall expected return on assets is calculated as the weighted average of the expected returns for the principal asset categories held by the scheme. 30 (b) Defined contribution schemes The Group paid employer contributions of \u00a396.7m (2021: \u00a392.1m) into UK defined contribution schemes, foreign defined contribution schemes and foreign state pension schemes. Serco participated in certain pre-funded defined benefit pension arrangements relating to contracts, including participations in public sector schemes, however, contractual protections are in place allowing actuarial and investment risk to be passed to the end customer via recoveries for contributions paid. The nature of these arrangements varies from contract to contract but typically allow for the majority of contributions payable to the schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit payments payable to the schemes at the cessation of the contract, such that the Group's net exposure to actuarial and investment risk is immaterial. Cash contributions are recognised as pension costs and no asset or liability is shown on the balance sheet. ",
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"fact-397": {
"value": "31. Share capital Issued and fully paid 2022 \u00a3m Number 2022 millions 2021 \u00a3m Number 2021 millions 1,218,008,788 (2021: 1,233,380,637) ordinary shares of 2p each at 1 January 24.4 1,218.0 24.7 1,233.4 Cancelled: Nil (2021: 15,371,849) ordinary shares of 2p \u2013 \u2013 (0.3) (15.4) 1,218,008,788 (2021: 1,218,008,788) ordinary shares of 2p each at 31 December 24.4 1,218.0 24.4 1,218.0 During the year no (2021: 15,371,849) shares were cancelled as part of the Serco Share Repurchase Programme (the Programme). The Company has one class of ordinary shares which carry no right to fixed income. ",
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"fact-398": {
"value": "32. Share premium account 2022 \u00a3m 2021 \u00a3m At 1 January and 31 December 463.1 463.1 ",
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"fact-399": {
"value": "33. Reserves 33 (a) Movements in other reserves Retirement benefit obligations reserve \u00a3m Share based payment reserve \u00a3m Own shares reserve \u00a3m Treasury shares \u00a3m Hedging reserve \u00a3m Translation reserve \u00a3m Capital redemption reserve \u00a3m Total other reserves \u00a3m At 1 January 2021 (135.6) 81.0 (2.1) \u2013 (0.4) (19.9) 0.1 (76.9) Total comprehensive income/ (loss) for the year 44.6 \u2013 \u2013 \u2013 0.2 (7.6) \u2013 37.2 Income statement items reclassified \u2013 \u2013 \u2013 \u2013 0.1 \u2013 \u2013 0.1 Shares purchased and held in Treasury \u2013 \u2013 \u2013 (40.7) \u2013 \u2013 \u2013 (40.7) Cancellation of shares held in Treasury \u2013 \u2013 \u2013 20.4 \u2013 \u2013 0.3 20.7 Shares transferred from Treasury to own shares reserves \u2013 \u2013 (0.3) 20.3 \u2013 \u2013 \u2013 20.0 Shares transferred to award holders on exercise of share awards \u2013 (1.0) 1.2 \u2013 \u2013 \u2013 \u2013 0.2 Expense in relation to share based payments \u2013 15.8 \u2013 \u2013 \u2013 \u2013 \u2013 15.8 At 1 January 2022 (91.0) 95.8 (1.2) \u2013 (0.1) (27.5) 0.4 (23.6) Total comprehensive (loss)/ income for the year (78.9) \u2013 \u2013 \u2013 0.4 60.1 0.1 (18.3) Shares purchased and held in own share reserve \u2013 \u2013 (15.9) \u2013 \u2013 \u2013 \u2013 (15.9) Shares purchased and held in Treasury \u2013 \u2013 \u2013 (91.2) \u2013 \u2013 \u2013 (91.2) Shares transferred to award holders on exercise of share awards \u2013 (9.3) 9.4 \u2013 \u2013 \u2013 \u2013 0.1 Expense in relation to share based payments \u2013 15.6 \u2013 \u2013 \u2013 \u2013 \u2013 15.6 Tax credit on items taken directly to equity \u2013 3.4 \u2013 \u2013 \u2013 \u2013 \u2013 3.4 At 31 December 2022 (169.9) 105.5 (7.7) (91.2) 0.3 32.6 0.5 (129.9) 33 (b) Retirement benefit obligations reserve The retirement benefit obligations reserve represents the actuarial gains and losses recognised in respect of annual actuarial valuations for defined benefit retirement schemes, the fair value adjustments on reimbursable rights and the related movements in deferred tax balances. 33 (c) Share based payment reserve The share based payment reserve represents credits relating to equity-settled share based payment transactions and any gain or loss on the exercise of share award schemes satisfied by own shares. 33 (d) Own shares reserve The own shares reserve represents the cost of shares in Serco Group plc held by the Serco Group plc Employee Share Ownership Trust (ESOT) to satisfy awards under the Group\u2019s share plan schemes. At 31 December 2022, the ESOT held 9,144,275 (2021: 11,605,185) shares equal to 0.8% of the current allotted share capital (2021: 1.0%). The market value of shares held by the ESOT as at 31 December 2022 was \u00a314.2m (2021: \u00a315.6m). 33. Reserves continued 33 (e) Treasury shares The Treasury shares reserve represents amounts paid to repurchase ordinary shares. On 24 February 2022, the Group announced its intention to repurchase ordinary shares with a value of up to \u00a390m. On 8 March 2022, the Group confirmed that the repurchase would be split over two tranches, with the first tranche of \u00a340m completed during the period 8 March 2022 to 16 August 2022. The second tranche of \u00a350m completed during the period 17 August 2022 to 9 December 2022. The total cost including fees was \u00a391.2m and resulted in the repurchase of 55,506,704 shares at an average price of \u00a31.64. These are held within Treasury shares at 31 December 2022. 33 (f) Hedging and translation reserve The hedging and translation reserve represents foreign exchange differences arising on translation of the Group\u2019s overseas operations and movements relating to cash flow hedges. ",
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"fact-400": {
"value": "34. Share based payment expense The Group recognised the following expenses related to equity-settled share based payment transactions: 2022 \u00a3m 2021 \u00a3m Long-Term Incentive Plan 13.8 12.3 Performance Share Plan \u2013 2.0 Deferred Bonus Plan 1.0 1.0 Equity Settled Bonus Plan 0.6 0.5 MyShareSave Plan 0.2 \u2013 15.6 15.8 Long-Term Incentive Plan (LTIP) Under the LTIP, eligible employees have been granted conditional share awards. Awards vest after the performance period of two to three years and are subject to the achievement of certain performance measures, with the exception of non-performance awards. These non-performance awards are subject only to continued employment on vesting dates which vary from two to three years after the grant dates. On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR), Return on Invested Capital (ROIC) and measures linked to Strategic Objectives. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 31,014 Nil 22,149 Nil Granted during the year 10,543 Nil 10,584 Nil Dividend equivalent granted during the year 598 Nil 512 Nil Exercised during the year (9,365) Nil (29) Nil Lapsed during the year (2,506) Nil (2,202) Nil Outstanding at 31 December 30,284 Nil 31,014 Nil The awards over shares outstanding at 31 December 2022 were all unvested and had a weighted average contractual life of 1.0 years (2021: 1.3 years). In the year, 11 grants were made, of which eight were non-performance related. The remaining three awards were performance-based awards, with 75% of the award split equally between Earnings per Share (EPS), Total Shareholder Return (TSR) and Return on Invested Capital (ROIC) performance conditions, 15% linked to ESG Scorecard Objectives and 10% linked to improvements in order book. The rewards subject to market-based performance conditions (such as the TSR condition for these awards) were valued using the Monte Carlo Simulation model. For awards subject only to non-market-based performance conditions (such as the EPS and ROIC conditions) the Black-Scholes model was used. The Black-Scholes model was also used for the awards made with no performance conditions attached to them. The Monte Carlo Simulation model is considered to be the most appropriate for valuing awards granted under schemes where there are changes in performance conditions by which the awards are measured, such as for the TSR-based awards. The Monte Carlo and Black-Scholes models used the following inputs: 2022 Weighted average share price \u00a31.48 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3 years Risk-free rate 1.58% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.43 (2021: \u00a31.30). Performance Share Plan (PSP) Under the PSP, eligible employees have been granted options or conditional share awards with an exercise price of two or zero pence. Awards vest after the performance period of two to three years and are subject to the achievement of certain performance measures, with the exception of non-performance awards. These non-performance awards are only subject to continued employment on vesting dates which vary from two to three years after the grant dates. On the performance-related awards, the performance measures are Earnings per Share (EPS), Total Shareholder Return (TSR) and Return on Invested Capital (ROIC). If options remain unexercised after a period of ten years from the date of grant, then the options expire. Number of options or shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of options or shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 9,337 0.02 19,091 0.02 Dividend equivalent granted during the year \u2013 Nil 129 0.02 Exercised during the year (2,877) 0.02 (9,787) 0.02 Lapsed during the year (5) Nil (96) 0.02 Outstanding at 31 December 6,455 0.02 9,337 0.02 Of these awards, 6,453,743 (2021: 9,335,825) were exercisable at the end of the year. The awards outstanding at 31 December 2022 had a weighted average contractual life of 4.5 years (2021: 5.5 years). There were no new awards granted under the Performance Share Plan in the year. Deferred Bonus Plan (DBP) Under the DBP, eligible employees are entitled to participate in a voluntary bonus deferral, using up to 50% of their earned annual bonus to purchase shares in the Group at market price. In connection with this, the Group will make a matching share award, up to a maximum of two times the gross bonus deferred, which will vest provided they remain in employment for that period, the shares are retained for that period, and the performance measures have been met. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 1,806 Nil 2,046 Nil Granted during the year 741 Nil 687 Nil Dividend equivalent granted during the year 33 Nil 39 Nil Exercised during the year (505) Nil (966) Nil Outstanding at 31 December 2,075 Nil 1,806 Nil None of these awards were exercisable at the end of the year (2021: nil). The awards outstanding at 31 December 2022 had a weighted average contractual life of 1.4 years (2021: 1.5 years). There were 741,066 new awards granted under the Deferred Bonus Plan in the year, with 100% of the deferred bonus subject to the same EPS performance conditions as the LTIPs. 34. Share based payment expense continued The Black-Scholes model used the following inputs: 2022 Weighted average share price \u00a31.46 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3.0 years Risk-free rate 1.48% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.46 (2021: \u00a31.41). Equity Settled Bonus Plan (ESBP) Under the ESBP, eligible employees who are subject to a compulsory bonus deferral are granted share awards equivalent in value to the gross bonus deferred. The awards vest at the end of the deferral period and the awards are not subject to any performance or service conditions. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January 1,257 Nil 908 Nil Granted during the year 476 Nil 329 Nil Dividend equivalent granted during the year 23 Nil 20 Nil Exercised during the year (313) Nil \u2013 Nil Outstanding at 31 December 1,443 Nil 1,257 Nil None of these awards were exercisable at the end of the year (2021: none). The awards outstanding at 31 December 2022 had a weighted average contractual life of 0.4 years (2021: 1.3 years). There were 476,218 new awards granted under the Equity Settled Bonus Plan in the year. The awards were valued using the Black- Scholes model. The Black-Scholes model used the following inputs: 2022 Weighted average share price \u00a31.45 Weighted average exercise price Nil Expected volatility 35.1% Expected life 3.0 years Risk-free rate 1.48% Expected volatility was determined by calculating the historical volatility of the Group\u2019s share price over the previous three years. The expected life used in the model has been adjusted, based on Management\u2019s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The weighted average fair value of awards granted under this scheme in the year is \u00a31.45 (2021: \u00a31.40). UK save as you earn (MyShareSave) MyShareSave scheme was introduced to UK employees in October 2022. Participating individuals are required to save 36 monthly payments over a maximum of a 48-month period and thus will have the option to buy shares at a discounted grant price. Participants can withdraw from the scheme at any time including after the vesting period has ended. Number of shares under award 2022 thousands Weighted average exercise price 2022 \u00a3 Number of shares under award 2021 thousands Weighted average exercise price 2021 \u00a3 Outstanding at 1 January \u2013 Nil \u2013 Nil Granted during the year 5,556 1.26 \u2013 Nil Dividend equivalent granted during the year \u2013 Nil \u2013 Nil Lapsed during the year (20) 1.26 \u2013 Nil Outstanding at 31 December 5,536 1.26 \u2013 Nil None of these awards were exercisable at the end of the year (2021: none). The awards outstanding at 31 December 2022 had a weighted average contractual life of 3.4 years (2021: n/a). There were 5,555,561 new awards granted under the UK MyShareSave plan in the year. The fair value of the options was based on the assumptions for awards granted during the year as follows: 28 October 2022 Closing share price \u00a31.64 Exercise price \u00a31.26 Expected volatility 34% Dividend yield 2% Expected life 3.59 years Risk-free rate 4% The weighted average estimated fair value of awards granted under this scheme in the year was \u00a30.53. ",
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"fact-401": {
"value": "35. Related party transactions 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: Transactions 2022 \u00a3m Current outstanding at 31 December 2022 \u00a3m Non-current outstanding at 31 December 2022 \u00a3m Sale of goods and services Joint ventures 10.5 3.1 \u2013 Other Loan to joint venture 10.0 \u2013 10.0 Loan to pension scheme 60.0 \u2013 \u2013 Dividends received \u2013 joint ventures 7.3 \u2013 \u2013 Dividends received \u2013 associates 1.8 \u2013 \u2013 Receivable from consortium for tax \u2013 joint ventures 3.2 0.9 3.2 Total 92.8 4.0 13.2 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. The Group made a short-term temporary loan of \u00a360.0m to Serco Pension and Life Assurance Scheme (SPLAS) in September 2022 in order for the scheme to be able to liquidate assets to meet collateral calls required to ensure that the LDI hedge was maintained; this loan was repaid during the year. 35. Related party transactions continued Transactions 2021 \u00a3m Current outstanding at 31 December 2021 \u00a3m Non-current outstanding at 31 December 2021 \u00a3m Sale of goods and services Joint ventures 1.6 1.7 \u2013 Associates 0.8 \u2013 \u2013 Other Loan to joint venture \u2013 \u2013 \u2013 Dividends received \u2013 joint ventures \u2013 \u2013 \u2013 Dividends received \u2013 associates 13.5 \u2013 \u2013 Receivable from consortium for tax \u2013 joint ventures 0.9 0.2 0.8 Total 16.8 1.9 0.8 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. During 2022 a final dividend of \u00a31.8m (2021: \u00a313.5m) was received from AWEML. As announced on 24 June 2021, Vivo Defence Services Limited (VIVO), a joint venture between the Group and Equans, 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). Remuneration of key Management personnel The Directors of Serco Group plc had no material transactions with the Group during the year other than service contracts and Directors\u2019 liability insurance. The remuneration of the key Management personnel of the Group is set out below: 2022 \u00a3m 2021 \u00a3m Short-term employee benefits 8.6 8.5 Share based payment expense 7.1 5.0 15.7 13.5 The key Management personnel comprise the Executive Directors, Non-Executive Directors and members of the Executive Committee (2022: 17 individuals, 2021: 18 individuals). Aggregate Directors\u2019 remuneration The total amounts for Directors\u2019 remuneration were as follows: 2022 \u00a3m 2021 \u00a3m Salaries, fees, bonuses and benefits in kind 3.4 3.5 Amounts receivable under long-term incentive schemes 3.0 2.8 Gains on exercise of share awards 2.7 3.6 9.1 9.9 None of the Directors are members of the Company\u2019s defined benefit or money purchase pension schemes. Further information about the remuneration of individual Directors is provided in the audited part of the Directors\u2019 Remuneration Report on pages 142 to 169. ",
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"fact-402": {
"value": "36. Notes to the Consolidated Cash Flow statement Year ended 31 December 2022 Before exceptional items \u00a3m 2022 Exceptional items \u00a3m 2022 Total \u00a3m 2021 Before exceptional items \u00a3m 2021 Exceptional items \u00a3m 2021 Total \u00a3m Profit before tax 199.2 (2.4) 196.8 193.4 (1.2) 192.2 Net finance costs 20.4 \u2013 20.4 24.0 \u2013 24.0 Operating profit for the year 219.6 (2.4) 217.2 217.4 (1.2) 216.2 Adjustments for: Share of profits in joint ventures and associates (12.0) \u2013 (12.0) (8.7) \u2013 (8.7) Share based payment expense 15.6 \u2013 15.6 15.8 \u2013 15.8 Impairment of intangible assets 0.1 \u2013 0.1 \u2013 \u2013 \u2013 Amortisation of intangible assets 31.6 \u2013 31.6 27.3 \u2013 27.3 Impairment of property, plant and equipment 2.3 \u2013 2.3 0.3 \u2013 0.3 Net reversal of impairment of right of use assets (1.8) \u2013 (1.8) \u2013 \u2013 \u2013 Depreciation of property, plant and equipment 20.7 \u2013 20.7 19.6 \u2013 19.6 Depreciation of right of use assets 119.3 \u2013 119.3 109.0 \u2013 109.0 Loss on disposal of intangible assets 0.4 \u2013 0.4 1.6 \u2013 1.6 Profit on early termination of leases (0.2) \u2013 (0.2) (0.6) \u2013 (0.6) Profit on disposal of property, plant and equipment (0.5) \u2013 (0.5) (0.2) \u2013 (0.2) Increase/(decrease) in provisions 4.0 (0.6) 3.4 (7.2) (1.5) (8.7) Total non-cash items 179.5 (0.6) 178.9 156.9 (1.5) 155.4 Operating cash inflow/(outflow) before movements in working capital 399.1 (3.0) 396.1 374.3 (2.7) 371.6 (Increase)/decrease in inventories (1.5) \u2013 (1.5) 1.7 \u2013 1.7 Decrease in receivables 1.2 \u2013 1.2 25.4 \u2013 25.4 (Increase)/decrease in payables (24.1) 0.1 (24.0) (1.9) (4.8) (6.7) Movements in working capital (24.4) 0.1 (24.3) 25.2 (4.8) 20.4 Cash generated by operations 374.7 (2.9) 371.8 399.5 (7.5) 392.0 Tax paid (44.2) \u2013 (44.2) (42.1) \u2013 (42.1) Non-cash R&D expenditure (0.4) \u2013 (0.4) \u2013 \u2013 \u2013 Net cash inflow/(outflow) from operating activities 330.1 (2.9) 327.2 357.4 (7.5) 349.9 ",
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"fact-403": {
"value": "37. Post balance sheet events Dividends Subsequent to the year-end, the Board has recommended the payment of a final dividend in respect of the year ended 31 December 2022 of 1.92p. The dividend remains subject to shareholder approval at the Annual General Meeting and therefore no amounts have been recognised in respect of a dividend in these Consolidated Financial Statements. Employee Share Ownership Trust Subsequent to the year end, the Group\u2019s Employee Share Ownership Trust completed the purchase of 12m shares at the cost of \u00a318.7m. These shares will be held in the own share reserve until they are transferred to award holders on the exercise of share awards. ",
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