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Conclusion of UK Government audits and reviews, settlement with UK Government and update on corporate renewal programme

Date: 19 Dec 2013

Serco Group plc (Serco), the international service company, has been notified today by the Ministry of Justice (MoJ) and Cabinet Office that the audits and reviews of Serco's contracts have concluded satisfactorily. The Cabinet Office has today also described Serco's corporate renewal programme as well advanced. The assessment of Serco's Corporate Renewal plan and progress so far is expected to be concluded in January. Serco has reached a full and final settlement with the MoJ of £68.5m in respect of issues arising on the Electronic Monitoring (EM) contract. Serco today also provides an update on other contracting areas with the MoJ.

Serco has cooperated fully with the detailed independent forensic audit of the EM contract, the separate audits of our other MoJ contracts and the Cabinet Office's wider review across our other major UK central government contracts. These audits and reviews have now concluded within the intended timeframe and, beyond the EM and Prisoner Escort & Custody Services (PECS) contracts described in previous disclosures, no further material issues have been raised.

Over the last three months Serco has developed and set in train a comprehensive programme of corporate renewal. Serco's proposals have been assessed externally by an Oversight Group of Government non-executive directors, and independent advisers have been appointed by Government to continue to review Serco's progress against agreed milestones in the plan. The Cabinet Office has confirmed that Serco's programme is well advanced, and that a final opinion on the plan's suitability and Serco's progress is expected in January 2014, following independent assessment of progress to the end of December 2013. Serco's Board believes its proposals are sufficient to restore the confidence of its Government customer, allowing Serco's inclusion for all new and future work with Government.

The settlement of £68.5m with the MoJ reflects the difference in EM contract interpretation regarding billing arrangements since 2005, together with a repayment of an element of past profit earned on the contract, interest and the UK Government's costs of the audits and reviews. The difference in contract interpretation led to instances of daily charges being applied when there was an open Court Order but where no active monitoring was taking place. The settlement is full and final in respect of contractual claims with the proviso that additional payments might be sought in limited circumstances, such as if criminality were to be established. The settlement will be charged as an exceptional item of £64.3m in the 2013 financial results, with the balance reflecting reductions in ongoing EM charges to the MoJ and other 2014 costs agreed to be settled by Serco. The settlement is in addition to Serco's other estimated one-off costs as set out in Interim Management Statement of 14 November and pre-close statement of 19 December 2013.

Serco is also providing an update today on other contracting areas with the MoJ. Firstly, the programme to improve performance on the PECS contract has enabled the MoJ to confirm that Serco will retain this contract. Serco has also advised the MoJ that it has chosen not to bid as a prime contractor for the Transforming Rehabilitation proposals, but will look at opportunities to support others in this development of the probation services market. Serco is also signing today a contract which will expand the capacity of HMP Thameside by around one-third, supporting the MoJ in its programme to modernise the UK prison estate.

Alastair Lyons, non-executive Chairman of Serco, said: "We are very pleased to be making strong progress in further rebuilding the confidence of our UK Government customer. Serco's cooperation with the intensive series of audits and reviews, alongside the significant steps we are taking as part of our renewal programme, demonstrate our commitment to this. The contract issues that were identified should never have happened and we apologise unreservedly for them. We are doing everything in our power to make sure that such issues cannot reoccur anywhere in our business around the world. Our objective is to deliver excellent public services with openness and transparency, and I believe the actions we are taking will support this now more than ever."

Ends

For further information please contact Serco:
Stuart Ford, Head of Investor Relations T +44 (0) 1256 386 227
Marcus De Ville, Head of Media Relations T +44 (0) 1256 386 226
Jonathan Glass/Azhar Khan, Brunswick T +44 (0) 207 404 5959

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Last Updated: 19 Dec 2013