Annual Financial Report

Serco Group plc 2011 Annual Report and Accounts

The following documents have today been posted or otherwise made available to
shareholders:

1. 2011 Annual Report and Accounts

2. Notice of 2012 Annual General Meeting

3. Form of Proxy for the 2012 Annual General Meeting

In accordance with Listing Rule 9.6.1 a copy of each of these documents has
been uploaded to the National Storage Mechanism and will be available for
viewing shortly. The documents are also available on the Company's website at
www.serco.com.

Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR 6.3.5") - Extracts
from the 2011 Annual Report and Accounts

The information below, which is extracted from the 2011 Annual Report and
Accounts, is included solely for the purpose of complying with DTR 6.3.5. It
should be read in conjunction with the Company's Full year results announcement
issued on 28 February 2012 (available at www.serco.com/investors). Together
these constitute the material required by DTR 6.3.5 to be communicated to the
media in unedited full text through a Regulatory Information Service. This
material is not a substitute for reading the full 2011 Annual Report and
Accounts. All page numbers and cross-references in the extracted information
below refer to page numbers in the 2011 Annual Report and Accounts.

For further information please contact Serco:

T [phone]

Stuart Ford, Head of Investor Relations

Marcus De Ville, Head of Media Relations

Directors' responsibilities

Alastair Lyons CBE - Chairman

Christopher Hyman CBE - Chief Executive

Andrew Jenner - Finance Director

Leonard Broese van Groenou - Non-Executive Director

Ralph D Crosby Jr - Non-Executive Director

David Richardson - Non-Executive Director

Angie Risley - Non-Executive Director

We confirm to the best of our knowledge:

1. The financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and

2. The management report, which is incorporated into the directors' report,
includes a fair review of the development and performance of the business and
the position of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties they face.

Principal risks and uncertainties

Serco has a well-established and embedded system of internal control, including
financial, operational and compliance controls and risk management, designed to
safeguard shareholders' investments and our assets and reputation.

The Board has overall responsibility for our internal control system and for
reviewing its effectiveness, and has delegated to management the implementation
of policies on risk and control.

Risk management is fundamental to how we manage the business. We have developed
robust systems and processes to identify and manage the key risks facing each
of our businesses and the Group as a whole, and all parts of the business have
appropriate risk and crisis management plans that meet defined policy
standards.

Whilst divisional boards review quarterly the risks they face, the Group Risk
Management Committee (GRMC), a formal committee of the Executive Committee,
meets quarterly to provide governance and oversight of risk across the Group.
The Board receives a quarterly report on the GRMC's assessment of the principal
risks facing the Group and the action being taken by management to mitigate
risks that are outside of the Group's risk appetite.

Our risk management policies, systems and processes conform to the requirements
of the Combined Code and form part of the Serco Management System (SMS).

Such systems and processes, however, can only be designed to mitigate, rather
than eliminate, the risk of failure to achieve business objectives, and can
only provide reasonable and not absolute assurance, against misstatement or
loss. The Board confirms that this process has been in place for the year under
review and up to the date of approval of the annual report and accounts.

Our approach to risk within the Serco Management System

The SMS sets out policy standards, systems and processes that identify, review
and report risks at all levels of our business and in the Group as a whole with
the aim of safeguarding our shareholders' investments and our assets and
reputation. At each level within our business, risk management processes
reflect the nature of the activities being undertaken and the business and
operational risks inherent in them, and therefore the level of control
considered necessary to protect our interests and those of our stakeholders.

These controls and processes fall into four main areas: Identification,
Assessment, Planning and Control, and Monitoring, so that we:

  * identify business objectives that reflect the interests of all
    stakeholders, and the risks associated with the achievement of these
    objectives
   
  * regularly assess our exposure to risk, including through the regular
    measurement of key risk indicators
   
  * control and reduce risk as far as reasonably practicable or achievable
    through cost-effective risk treatment options
   
  * identify new risks as they arise and remove those risks that are no longer
    relevant.
   
Risk identification

In identifying the potential risks associated with the achievement of our
business objectives, we consider both external factors arising from the
environment within which we operate, and internal risks arising from the nature
of our business, its controls and processes, and our management decisions.

Once identified, we document risks in risk registers, which are maintained at a
contract, business unit, programme, divisional and Group level. These risk
registers change as new risks emerge and existing risks diminish, so that the
registers reflect the current key risks. We review risk registers at least
quarterly and more frequently as required. The GRMC reviews the Group risk
register quarterly ahead of formal review by the Board.

Risk assessment

We assess the potential effect of each identified risk on the achievement of
our business objectives and wider stakeholder interests. To do so, we use a
risk scoring system based on our assessment of the probability of a risk
materialising and the effect if it does. This is assessed from three
perspectives:

  * the risk's significance to the achievement of our business objectives
   
  * the risk's significance to society, including its impact on public safety
    and the environment, and
   
  * our ability to influence, control and mitigate the risk.
   
Analysis of our key risks allows us to assess the probability of disruption to
our business objectives, and highlights critical areas that require management
attention.

Risk planning and control

We assign each identified and assessed risk to a risk owner, who is responsible
for controlling and managing it and developing a robust and effective plan to
reduce or mitigate the risk. Risk owners are required to report to the GRMC or,
as appropriate, the Board on specific risks. Either may ask for additional
information or request an audit to provide additional assurance.

Risk reduction involves taking early management action to remove or reduce
identified risks before they can affect the contract or project. We consider
options to eliminate, reduce or control the risks as part of the risk
identification and analysis process.

Risk mitigation involves us identifying appropriate measures, including
contingency plans, to reduce the severity of the impact of the risks, should
they occur. This includes developing crisis management plans in response to
risks whose potential impact warrants a specific management process.

The SMS requires every contract to develop a risk management plan reflecting
assessed risks and supported by appropriate measures and contingency plans to
mitigate the impact of the risks.

Risk monitoring

Changes in our external environment, internal structures and management
decisions may all affect the nature and extent of the risks to which the Group
is exposed.

Our risk monitoring process therefore regularly monitors changes to our
business and the external environment, to ensure that we respond appropriately
to reduce the impact of emerging risks.

Principal risks

The Group risk register identifies the principal risks facing the business,
including those that are managed directly at Group level. They are managed
through a formal process.

The Group's key stakeholders include, but are not limited to, shareholders,
customers, suppliers, staff, trade unions, government, regulators, banks and
insurers. The way we operate as a responsible company recognises the interests
of the community in areas such as social, environmental and ethical impact, as
described under Corporate Responsibility on pages 66 to 69.

The most significant risks relate to our reputation, and to operational and
financial performance. A number of our risks reflect social, environmental and
ethical issues, but these do not currently represent significant threats to
achieving our strategic objectives.

Summarised on the following pages are the key risks we have identified that
could have a material impact on our reputation, our operations or our financial
performance.

We also have material investments in a number of joint ventures, where we have
joint control over management practices. Our representatives within these
companies ensure that their processes and procedures for identifying and
managing risk are appropriate and that internal controls exist and are
regularly monitored.

We keep reputational and emerging risks under active review and inform the
Board of changes. Emerging risks cover longer-term risks that could represent a
threat to our activities but which are not yet sufficiently defined to be
included as active risks.

Managing and mitigating risk

Our risk management process enables us to understand our operational risk
profile. While operational risk can never be eliminated, we endeavour to
minimise the impact by the consistent implementation of the SMS, ensuring that
appropriate infrastructure, controls, systems, staff and processes are in
place.

Some of our key management and control techniques defined in the SMS are set
out below:

  * our operating processes fully reflect the principles of clear delegation of
    authority and segregation of duties
   
  * our GRMC meets quarterly to ensure that risks, internal control and
    business assurance are effectively managed and reviewed
   
  * comprehensive business review processes ensure we meet customer
    expectations, regulatory requirements, and performance criteria including
    operational effectiveness, investment returns, cash flow requirements and
    profitability
   
  * we monitor and regularly review key performance indicators. These include
    analysis of business performance and variances from plan, occupational
    health and safety incidents, and error and exception reporting
   
  * selective recruitment, succession planning and other human resource
    policies and practices ensure that staff skills are aligned with Serco's
    current and future needs
   
  * we maintain insurance policies against losses arising from circumstances
    such as damage or destruction of physical assets, theft, legal liability
    for third-party loss and professional advice. We review the adequacy of our
    insurance cover at regular intervals
   
  * our Investment Committee meets regularly to ensure appropriate governance
    and the management of risk associated with larger or higher risk bids,
    acquisitions, disposals and areas of significant capital expenditure
   
  * we apply robust project management and change implementation disciplines to
    all major projects including new contract transitions, acquisitions, new
    technology applications, change programmes and other major initiatives
   
  * the Directors' Report describes our approach to health, safety and
    environmental protection. Qualified and experienced staff in each business
    unit provide advice and support on health, safety and environmental issues
    and undertake regular audits
   
  * we have safety specialists in our aviation, rail, defence, nuclear and
    marine businesses who report to the Board and maintain and further develop
    the very high standards expected in these industries
   
  * the Chief Information Officer is responsible for ensuring that systems and
    processes are in place to ensure the confidentiality, integrity and
    availability of sensitive information and the associated information
    systems that support our business activities
   
  * our Ethics Committee has responsibility for the review of ethical issues
    that may arise from our current and future activities
   
  * the Company Secretary manages a confidential reporting service, to which
    staff can report illegal, dangerous, dishonest or unethical activities.
    This process was enhanced and relaunched at the end of 2010
   
  * we have crisis and business continuity plans in place to manage crisis
    events, both within divisions and the Group.
   
Internal audit

An integral part of risk management is assurance that the controls identified
to manage risks are operating and effective.

The Head of Internal Audit is responsible for delivery of the assurance
strategy, ensuring our assurance programme remains aligned to test the key
controls managing the Group's risks. Internal audit is delivered at three
levels across the business:

  * Group internal audit
   
  * functional internal audit, and
   
  * divisional internal audit.
   
The Head of Internal Audit leads the Group internal audit programme, which is
independently delivered by KPMG LLP. Its findings are reported directly to the
Group Audit Committee. In addition to the audits conducted by KPMG, the Head of
Internal Audit supplements the programme by conducting periodic special reviews
as requested by the Serco Group plc Board or Executive Committee.

The functional internal audit programme supplements the Group internal audit
programme. It addresses finance processes and controls, through a centrally
provided audit programme delivered by divisional management on a peer to peer
basis, as well as audit programmes completed by Group functional specialists
covering health, safety and environment, and IT systems and security policy
compliance.

In addition to these programmes, each operating division maintains a divisional
risk register, from which we develop a divisional internal audit programme.
This programme selects a number of contracts for review based on certain key
risks. These reviews are completed through a self-assessment programme focused
on testing the controls which manage and mitigate these key risks. Divisional
audit committees, which track and report on the progress of the divisional
internal audit programme, meet three times a year.

The Head of Internal Audit oversees the internal audit process, as well as
acting as the conduit for sharing best practice and flagging emerging risks to
ensure each part of the business benefits from the wider scale of the Group's
assurance activity.

In addition to internal audit, many parts of our business are subject to other
reviews of their controls by third parties, including industry regulators, ISO
Standards, customers and other external audits. This third-party scrutiny
significantly increases the scope of auditing conducted across the Group each
year.

The Board confirms that the actions it considers necessary are being taken to
remedy the failings and weaknesses which it has determined to be significant
from its review of the internal controls across the Group. The Board confirms
that it has not been advised of material weaknesses in financial reporting as
part of the review of the internal control system.

Market risks

Risk: Significant change in Government policies, expenditure levels and
budgetary constraints

Description/Comment                  Impact               Mitigation   
                                                                       
As a major proportion of Serco's     Reduction in    Business strategy 
customers are governments and        market                            
governmental agencies, a substantial opportunities   Diverse business  
part of the business is dependent on                 across geographies
government policies, budget          Changes to      and markets       
priorities and regulatory or         terms of                          
political constraints, in particular existing or new External Affairs  
those regarding maintaining and      contracts       monitor political 
improving public infrastructure,                     landscape and     
which could have a significant       Failure to meet government        
impact on the size, scope, timing    growth or       activities        
and duration of contracts and orders profit                            
under them and therefore on the      expectations    Business          
level of business that we may win.                   significantly     
As such, these businesses are                        focused on        
susceptible to changes in                            developed markets 
government, government policy,                       with strong and   
budget allocations and the political                 established legal 
environment, primarily in the UK and                 systems providing 
the US. Any reduction in such                        protection to     
government expenditure and funding                   changes in        
could result in a suspension,                        contract terms    
cancellation, termination or                                           
non-renewal of contracts. Revenues                                     
may also be adversely affected by                                      
changes to the UK Government's or US                                   
Government's policy in respect of                                      
outsourcing.                                                           

Risk: Failure to win a strategic or significant bid or rebid

Description/Comment                     Impact            Mitigation           
                                                                               
Failure to win material bids or renew   Failure to meet   Business Lifecycle   
material contracts could restrict       growth or profit  Governance process   
growth opportunities for the future or  expectations      embedded in SMS      
have an adverse impact on Serco's                                              
business, financial condition and       Significant       Governance structure 
results of operations. Further, a       financial loss or managed through      
significant number of Serco's contracts cost overrun      Investment Committee,
with the UK Government, the US                            programme and project
Government and other public sector      Damage to         boards, divisional   
customers, including renewals and       reputation        and contract boards  
extensions of previous contracts, are   resulting in loss                      
awarded through formal competitive      of existing or    Business strategy and
bidding processes. Competitive bidding  new business      targets managed      
processes present a number of risks,                      through internal     
including substantial cost and          Impact on         boards               
management time and effort to prepare   strategic                              
bids and proposals for contracts that   objectives        Regular review and   
may not be won. In addition, there is                     monitoring of risk   
often a long period between a                             registers            
successful competition tender offer and                                        
entering into definitive contractual                      Gate review and      
documentation and financial close, and                    formal sign-off      
in some cases financial close may not                     process              
occur.                                                                         

Operational risks

Risk: Any harm to the Company's reputation could adversely impact business

Description/Comment                 Impact                Mitigation           
                                                                               
The Company is dependent on       Failure to meet       Robust bidding and     
maintaining its reputation in     growth or profit      contract review        
each jurisdiction in which it     expectations          process including      
operates in order to maintain and                       financial, technical   
grow its business. It is exposed  Significant financial and commercial reviews 
to the risk that litigation,      loss or cost overrun                         
misconduct, operational failures                        Governance structure   
and negative publicity could harm Loss of contract      managed through        
its reputation. In addition, the  revenue related to    Investment Committee,  
Company's reputation could also   operations and        programme and project  
be adversely affected if its      service charges       boards and divisional  
services, or the services                               boards                 
performed by its subcontractors,  Inability to attract                         
do not perform as expected. Any   the human and         Business strategy and  
harm to its reputation could have financial capital     targets                
a material adverse effect on its  necessary to grow or                         
business, financial condition and expand into new       Regular review and     
results of operations.            markets               monitoring of risk     
                                                        registers and          
                                  Damage to reputation  operational            
                                  resulting in loss of  performance indicators 
                                  existing or new                              
                                  business              Customer engagement    
                                                        and employee           
                                  Impact on strategic   engagement strategies  
                                  objectives                                   
                                                        Relationship           
                                                        management and         
                                                        communication with     
                                                        external stakeholders  
                                                                               
                                                        Gate review and formal 
                                                        sign-off process       
                                                                               
                                                        Quality management     
                                                        systems                

Risk: Failure of significant programmes, including operating within agreed
fixed costs

Description/Comment                  Impact                  Mitigation        
                                                                               
Serco has a number of complex    Failure to meet growth  Robust bidding and    
programmes which it is           or profit expectations  contract review       
contracted to deliver for the                            process including     
customer. These are often let on Significant financial   financial, technical  
a fixed price basis irrespective loss or cost overrun    and commercial        
of the actual costs incurred,                            reviews               
and therefore if costs exceed    Loss of contract                              
the contract ceiling the Company revenue related to      Governance structure  
may not be able to obtain full   operations and service  managed through       
reimbursement. Further, some     charges                 Investment            
projects require delivery in                             Committee, programme  
accordance with specified        Damage to reputation    and project boards,   
milestones on agreed dates.      resulting in loss of    divisional and        
Significant adverse financial    existing or new         contract boards       
consequences can be imposed      business                                      
where milestones are not met or                          Robust cost           
a project is not delivered on    Impact on strategic     accounting            
time. The length and complexity  objectives                                    
of such projects mean that                               Internal audit        
management estimates can be                                                    
particularly difficult to make                           Business strategy     
and could turn out to be                                 and targets           
inaccurate.                                                                    
                                                         Regular review and    
                                                         monitoring of risk    
                                                         registers             
                                                                               
                                                         Gate review and       
                                                         formal sign-off       
                                                         process               
                                                                               
                                                         Quality management    
                                                         systems               

Risk: Lack of preparedness for the 2012 London Olympics

Description/Comment              Impact              Mitigation                
                                                                               
In summer 2012, London will be   Damage to           Steering Committee        
hosting the 2012 Olympics which  reputation          established several months
will be Britain's `largest       resulting in loss   ago to monitor/track/guide
peacetime logistical exercise'.  of existing or new  risks                     
In a relatively short time       contracts                                     
frame, it is anticipated that                        Programme Office          
over 11 million game spectators  Failure to meet     established to identify   
and almost 300,000 athletes,     customer            and work all risks across 
officials, media and other       performance and     all contracts             
`Games Family' members and       service level                                 
workforce will descend upon the  requirements        Risks have been identified
city. The majority of spectators                     across each contract and  
will take public transport, walk Escalation of cost  are being vetted          
or cycle to the Games and        leading to profit                             
activities. Although Serco are   erosion             Support is being provided 
not providing specific support                       for planning and          
directly to the Olympics, at     Disruption to       implementation where gaps 
least 23 of our current          contract delivery   are identified            
contracts have potential         in the event of a                             
moderate to very high impact.    terrorist attack at Planning and scenario     
The top three contracts with     the Games           testing schedules in place
very high potential impact are:                      in directly impacted      
DLR, London Cycle Hire and                           contracts                 
Traffic Streets.                                                               
                                                     Development of mitigation 
                                                     strategies and contingency
                                                     plans                     

Risk: Failure to deliver operational efficiency

Description/Comment               Impact                    Mitigation         
                                                                               
To deliver our commitments we   Erosion of profit         Business strategy and
must ensure that we have                                  supporting plans     
efficient operations. Our       Impact on competitiveness                      
operational efficiency                                    Internal governance  
programme facilitates delivery  Damage to reputation      structure            
of business transformation,     resulting in loss of                           
operational change and          existing or new business  Business review      
sustainable margin improvement.                                                
Failure to deliver may impact   Failure to meet customer  Internal audit       
our ability to deliver business expectations and business                      
commitments.                    strategy                  LEAN/Continuous      
                                                          Improvement programme
                                                                               
                                                          Quarterly management 
                                                          reporting            

Risk: Major information security breach

Description/Comment             Impact                  Mitigation             
                                                                               
Serco must comply with         Loss of service to our     Security and         
restrictions on the handling   customers                  information systems  
of sensitive information                                  policies, systems    
(including personal and        Damage to reputation       and embedded         
customer) and provide for      resulting in loss of       governance           
secure transmission of such    existing or new business   structure            
information. This is a         (disqualification from                          
heightened risk, particularly  future tenders, contract   Think Privacy        
with respect to government     termination, etc.)         campaign to raise    
contracts, due to the                                     staff awareness,     
sensitive and confidential     Impact on strategic        provide training,    
nature of government data.     objectives                 promote incident     
Despite controls to ensure the                            reporting and        
confidentiality of such        Costly to rectify and      strengthen control   
information, Serco may breach  potential for dilution of  processes            
restrictions or be subject to  shareholder returns                             
attack from computer programs                             User and data        
that attempt to penetrate its  Criminal and civil action  management           
network security and                                      including data       
misappropriate confidential    Contract and business      encryption,          
information.                   external accreditations    information          
                               withdrawn                  classification,      
                                                          identity             
                               Significant media          management, data     
                               attention and future       cleansing and        
                               scrutiny                   access controls      
                                                          (strong              
                                                          authentication,      
                                                          passwords etc.)      
                                                                               
                                                          Regular risk         
                                                          reviews              
                                                                               
                                                          ISO 27000            
                                                          certification        
                                                                               
                                                          Internal and         
                                                          external audit       

Risk: Major IT failure or prolonged loss of critical IT systems

Description/Comment            Impact                   Mitigation             
                                                                               
The IT Strategy is focused on  Damage to reputation     Information systems    
standardising common           resulting in loss of     policy, systems and    
processes, establishing common existing or new business embedded governance    
business systems and enabling                           structure              
ways of working by providing   Impact on strategic                             
and embedding tools that       objectives               Data recovery          
support what we do. Within                              capability designed    
this the Company has defined   Inability to meet        into systems and       
enterprise applications. These contract requirements or periodically tested    
are key information            perform core business                           
technology-based business      processes                Design out single      
systems within Serco. They                              points of failure      
include SAP for Finance,       Costly to rectify and                           
Procurement and Human          potential for dilution   Server and system      
Resources; Payroll, Risk       of shareholder returns   performance monitoring 
Management, Safety Assurance,                           and reporting          
email, intranet and Nimbus     Significant media                               
Control for Process Excellence attention and future     Capacity management    
systems. Failings in the       scrutiny                                        
systems have the potential to                           Data back-up and       
seriously impact the                                    business continuity    
management of the business.                             plans in place         

Governance risks

Risk: Significant incident of bribery or corrupt practice

Description/Comment             Impact                   Mitigation            
                                                                               
Serco operates in international Legal action and fines   Policies and systems  
markets, which brings with it   against the Company      embedded in SMS       
inherent risks including                                                       
bribery and corruption,         Debarment from tender    Code of Conduct       
particularly in certain         lists                                          
developing nations. Serco                                Ethics Committee      
operates in a number of         Damage to reputation                           
countries which are recognised  resulting in loss of     Speak Up process      
as having a higher bribery and  existing or new business                       
corruption risk. Increasing                              Ethics and compliance 
legislation significantly       Significant media        programme and training
increases the consequences of   attention and future                           
bribes and other corrupt        scrutiny                 Risk assessment       
practices. As we expand into                                                   
new services and geographic                              Third-party contracts 
markets that are considered a                                                  
higher risk in the context of                                                  
corrupt practices we must                                                      
ensure our policies and                                                        
procedures are fully and                                                       
effectively applied.                                                           

Risk: Major accident or incident

Description/Comment              Impact                   Mitigation           
                                                                               
It is possible that a major      Deaths or serious        Robust management    
catastrophic event, such as a    injuries to employees or systems subject to   
major train derailment or air    third parties            external, regulatory 
traffic accident, could occur at                          and internal audit   
one of the projects in relation  Major environmental                           
to which Serco has provided      damage                   System certification 
professional design,                                      and regulatory       
construction, engineering or     Severe financial impact  approval             
support services. Such a         (fine by regulators,                          
catastrophic event could result  suspension of operating  Formal oversight     
in the personal injury or death  licence, compensation,   through GRMC, Health,
of one or more employees of the  clean up, etc.)          Safety and           
Company, employees of other                               Environment Oversight
subcontractors working on the    Loss of business         Group, divisional and
project or members of the        (disqualification from   internal boards      
public, significant, actionable  future tenders, contract                      
environmental harm, and/or       termination, etc.)       Crisis management and
extensive damage to third-party                           business continuity  
property. In the event that such Contract and business    plans in place       
a catastrophic event is found or external accreditations                       
perceived to be caused by the    withdrawn                Insurance            
negligence of Serco, it could                                                  
subject the Company to claims    Significant media        Strategy, objectives,
for personal injury, wrongful    attention and future     targets and regular  
death, property damage by        scrutiny                 reporting            
customers, subcontractors,                                                     
governments, employees or        Criminal and civil       Formal assurance     
members of the public, which     action against Company   structure operating  
could lead to the payment of     or individuals           within defined       
extensive damages and result in                           competencies         
significant adverse publicity                                                  
and reputational harm. Such                               Staff induction and  
adverse publicity and                                     training             
reputational harm could lead to                                                
a loss of business.                                                            

Risk: Significant changes in energy and carbon costs and reporting requirements

Description/Comment            Impact                   Mitigation             
                                                                               
We must understand our         Legal action and fines   Environmental policy   
environmental impacts, manage  against the Company      and systems            
them and measure our                                                           
performance to demonstrate     Significant financial    Environment Oversight  
improvement. Fuel poverty is   loss                     Group                  
impacting energy prices. We                                                    
have seen increases in energy  Debarment from tender    Aspects and impacts    
costs and expect these to rise lists                    assessment             
further in the future. We need                                                 
to make sure we are managing   Damage to reputation     ISO 14001              
our consumption to minimise    resulting in loss of                            
the cost and reduce our carbon existing or new business Carbon Trust Standard  
emissions. We also need to                                                     
recognise and respond to       Significant media        Reporting methodology  
increasing legislation and     attention and future     and systems            
reporting requirements.        scrutiny                                        
                                                        Environmental strategy 
                                                        objectives and targets 

Risk: Compliance with complex laws and regulations

Description/Comment            Impact                   Mitigation             
                                                                               
Serco must comply with laws    Substantial monetary     Policies and systems   
and regulations relating to    damages and/or criminal  embedded in SMS        
the formation, administration  violations                                      
and performance of government                           Code of Conduct        
contracts that affect how it   Damage to reputation                            
does business and may impose   resulting in loss of     Risk assessment        
added costs. Further, it is    existing or new business                        
required to obtain                                      Third-party contracts  
environmental and safety       Debarment from tender                           
permits from various           lists                    System certification   
government authorities which                            and regulatory approval
require periodic renewal or    Significant media                               
review of their conditions.    attention and future     Internal board and     
Failure to comply with any of  scrutiny                 governance structure   
these regulations could result                                                 
in civil and criminal                                   Staff induction and    
penalties and administrative                            training               
sanctions, including                                                           
termination of contracts,                               Internal compliance    
forfeiture of profits, harm to                          programmes             
its reputation, suspension of                                                  
payments, fines and suspension                                                 
or debarment from doing                                                        
business with governments.                                                     

People risks

Risk: Failure to attract and retain senior management and other key employees

Description/Comment             Impact                  Mitigation             
                                                                               
The success of the Company     Increased cost in       People policies and     
depends on the efforts,        recruitment activity    systems, strategy and   
abilities, experience and      and time taken to fill  targets supported by    
expertise of the senior        roles                   governance structure,   
management teams and on                                including Remuneration  
recruiting, retaining,         Instability and loss of Committee               
motivating, effectively        business continuity                             
communicating with and                                 Succession planning     
developing highly skilled and  Dilution of brand and                           
competent people at all levels values                  Leadership model        
of the organisation. There can                                                 
be intense competition for     Reduced employee        Annual external         
personnel from other companies engagement through loss (independent)           
and organisations and there    of compelling           remuneration review     
may at any time be shortages   leadership                                      
in the availability of                                 Job structure and       
appropriately skilled people   Strengthen competitors  grading system          
at all levels within Serco.    (loss of leaders to                             
Further, the Company cannot    them)                   Talent database and     
guarantee the retention of                             leadership development  
such key executives and        Impact on business -    programme               
technical personnel. The       risk of not achieving                           
failure of the Company to      level of planned growth Employment engagement   
retain and/or recruit                                  strategy, including     
additional or substitute                               annual staff survey     
senior managers and/or other                                                   
key employees could have a                                                     
material adverse effect on its                                                 
business.                                                                      

Risk: Failure to manage union/industrial relations

Description/Comment               Impact                 Mitigation            
                                                                               
A significant number of        Failure to deliver     Policies and systems     
Serco's employees are members  contractual            embedded in SMS          
of trade unions in the UK and  requirements                                    
a number are members of trade                         Industrial relations     
unions in the US and other     Instability and loss   strategy                 
countries. These include       of business continuity                          
operations where a failure to                         Industrial Relations     
manage relationships may       Dilution of brand and  Working Group            
result in industrial action by values                                          
Serco staff in high-profile                           Stakeholder management   
business operations, i.e.      Reduced employee       of key relationships     
where there will be            engagement                                      
significant reputational                              Annual external          
damage, client or media        Damage to reputation   (independent)            
attention. Some sectors of the resulting in loss of   remuneration review      
business are subject to union  existing or new                                 
recognition agreements. The    business               Job structure and        
Company maintains a number of                         grading system           
relationships with trade       Significant media                               
unions and staff through work  attention and future   Employment engagement    
councils and other bodies.     scrutiny               strategy                 

Finance risks

Risk: The impairment of goodwill could adversely impact reported results

Description/Comment              Impact                  Mitigation            
                                                                               
Goodwill accounts for just over  Inability to meet       Internal board and    
one-third of Serco Group's       profit expectations     governance structure  
recorded total assets as at 31                                                 
December 2011. Serco evaluates   Damage to reputation    Strategic plans       
goodwill for impairment          and shareholder                               
annually, or more frequently     confidence              Business plans        
when evidence of potential                                                     
impairment exists. Any decrease  Impact on strategic     Business Lifecycle    
in expected cash flows or a      objectives              Governance process    
deterioration in market                                                        
conditions could require Serco                           Financial review and  
to record impairment charges                             reporting             
that could have a material                                                     
impact on the financial position                                               
and results of operations.                                                     

Risk: Additional funding requirements for pension schemes

Description/Comment               Impact                 Mitigation            
                                                                               
Serco operates defined benefit    Inability to meet      Obtain actuarial      
pension schemes for qualifying    profit expectations    assessment of scheme  
employees of its subsidiaries in                         liabilities           
the UK and other European         Reduction in cash                            
countries. In addition, we have   availability           Appropriate investment
interests in joint ventures,                             management and        
which operate defined benefit                            independent           
schemes for qualifying employees.                        measurement of asset  
The nature of a defined benefit                          returns               
scheme means that the funding                                                  
levels of the schemes are subject                        Ensure robust         
to factors outside Serco's                               monitoring via HR     
control, including the                                   policy, systems and   
introduction of new legislation,                         governance structure  
which could create or impact a                           including review by   
deficit in the scheme at future                          the Audit and         
actuarial valuations. If the                             Remuneration          
deficit in the scheme increases                          Committees and Board  
at future actuarial valuations,                          of Pension Trustees   
the Group may be required to make                                              
additional cash contributions to                                               
the schemes in the future,                                                     
preventing the use of cash for                                                 
other purposes, which could have                                               
a material impact on the Group's                                               
business, financial condition and                                              
results of operations over the                                                 
long term.                                                                     

Risk: Fluctuations in foreign currency exchange rates that are not effectively
hedged

Description/Comment             Impact                  Mitigation             
                                                                               
The international nature of     Material effect on the  The Group hedges       
Serco's business means it is    Group's future results  short-term transaction 
exposed to fluctuations in      of operations and       risks that are material
foreign currency exchange rates financial position      in value               
in relation to various                                                         
currencies, primarily the US                            Management of          
Dollar, the Australian Dollar                           translational risk by  
and the Euro, arising from the                          the part currency      
translation of earnings. In                             matching of borrowings 
addition, some of Serco's bank                          with the net assets of 
debt is denominated in                                  overseas subsidiaries  
currencies other than pound                                                    
Sterling.                                                                      

Risk: Fluctuations in interest rates

Description/Comment            Impact                  Mitigation              
                                                                               
Historically, Serco has        Inability to meet       Fixed rate debt         
financed its operations partly profit expectations and instruments and interest
through draw down of funding   associated impact on    rate derivatives that   
facilities. Adverse movements  net assets              swap floating for fixed 
in interest rates could                                rates                   
therefore impact profitability Impact on                                       
and net assets.                competitiveness                                 

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
are disclosed below, with the relevant proportion being eliminated on
consolidation.

Trading transactions

During the year, Group companies entered into the following material
transactions with joint ventures:

                                                       2011        2010
                                                                       
                                                         £m          £m
                                                                       
Royalties and management fees receivable                1.5         2.0
                                                                       
Dividends receivable                                   64.3        51.5
                                                                       
                                                       65.8        53.5

The following receivable balances relating to joint ventures were included in
the consolidated balance sheet:

                                                       2011        2010
                                                                       
                                                         £m          £m
                                                                       
Current:                                                               
                                                                       
Loans                                                   0.5         0.1
                                                                       
                                                       2011        2010
                                                                       
                                                         £m          £m
                                                                       
Non-current:                                                           
                                                                       
Loans                                                   3.2         3.5

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. Interest arising on loans is based on LIBOR, or
its equivalent, with an appropriate margin. No guarantee has been given or
received. No provisions are required for doubtful debts in respect of the
amounts owed by the joint ventures.

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' liability
insurance.

The remuneration of the key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24 Related Party
Disclosures:

                                                    2011        2010
                                                                    
                                                      £m          £m
                                                                    
Short-term employee benefits                         8.9         7.5
                                                                    
Post-employment benefits                             0.6         0.8
                                                                    
Share-based payment expense                          2.8         2.8
                                                                    
                                                    12.3        11.1

The key management personnel comprise the Executive Directors, Non-Executive
Directors and members of the Executive Committee (2011: 18 individuals, 2010:
19 individuals).