Serco Group PLC Extension of COMPASS contract (3461R)

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RNS Number : 3461R

Serco Group PLC

08 December 2016

Extension of COMPASS contract for UK asylum seeker support services

8 December 2016

Serco Group plc ('Serco' or 'the Group'), the international service company, confirms that the UK Home Office has exercised an option to extend Serco's COMPASS contracts for asylum seeker support services until 30 September 2019. The contracts originally started in December 2012 and were awarded for five years with an option for the Home Office to extend them for up to a further two years.

Under the COMPASS contracts, Serco is responsible for the provision of accommodation, transport and related support services for asylum seekers in the North West of England and Scotland & Northern Ireland, being two of the six the COMPASS regions. Serco is currently caring for over 15,000 asylum seekers across these two regions.

At the time of our 2014 Contract & Balance Sheet Review, Serco took an Onerous Contract Provision (OCP) against the COMPASS contracts of GBP112m within its results for that year, reflecting the estimate at that time of future operating losses on the contracts. This charge included the expectation that the contracts would be extended, and this assumption has now proved correct. In 2015 and the first half of 2016, utilisation of the OCP was broadly in line with our original expectations.

As part of our normal year-end accounting procedures, we will in the next few weeks be carrying out a re- estimation of future losses based on the latest information, including: updated forecasts of the number of asylum seekers through to the end of the contract; accommodation costs; benefits from improved operational efficiency and the terms of the contract extension. Based on our initial estimates, it is likely that this will result in a reduction in the OCP on the COMPASS contracts, although they will continue to be heavily loss-making.

The reduction in OCP is likely to be offset in part by the liabilities we have assumed as a result of the recent acquisition of our sub-contractor responsible for delivering COMPASS services in Scotland & Northern Ireland, Orchard & Shipman (Glasgow) Ltd. The final value of estimated future losses and assumed liabilities will be calculated and audited over the coming weeks as part of the year-end process, but at this early stage, we estimate that the net reduction in future liabilities will be around GBP20m. The final out-turn will, as always, be highly sensitive to differences between the actual number of asylum seekers in our care and our estimates, together with the cost and availability of suitable accommodation through to the end of the contract.

As we have previously said, we consider and manage the provisions and charges made in 2014 as a portfolio of liabilities, and the actual amounts incurred on individual contracts will increase or decrease as the hundreds of judgements and estimates we made in 2014 are tested against unfolding events. The possible release of OCPs on one particular contract should not therefore be considered as indicative of the overall judgement we will reach across the whole portfolio of liabilities at year-end.

Commenting on the contract extension Julia Rogers, Managing Director of Serco's Immigration Business, said: "Managing the COMPASS contract is challenging, particularly as the number of asylum seekers in our care has doubled since the contract started in 2012. However, we are absolutely committed to providing decent, safe and secure accommodation for all the people in our care and meeting our obligations under this contract."

This announcement contains inside information.

Ends

For further information please contact Serco:

Stuart Ford, Head of Investor Relations: T [phone]

Marcus De Ville, Head of Media Relations: T [phone]

About Serco

Serco is a leading provider of public services. Our customers are governments or others operating in the public sector. We gain scale, expertise and diversification by operating internationally across five sectors and four geographies: Defence, Justice & Immigration, Transport, Health and Citizen Services, delivered in UK & Europe, North America, Asia Pacific and the Middle East.

More information can be found at www.serco.com

Forward looking statements

This announcement contains statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature. All statements other than statements of historical fact are forward looking statements. Generally, words such as "expect", "anticipate", "may", "should", "will", "aspire", "aim", "plan", "target", "goal", "ambition" and similar expressions identify forward looking statements. By their nature, these forward looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Factors which may cause future outcomes to differ from those foreseen or implied in forward looking statements include, but are not limited to: general economic conditions and business conditions in Serco's markets; contracts awarded to Serco; customers' acceptance of Serco's products and services; operational problems; the actions of competitors, trading partners, creditors, rating agencies and others; the success or otherwise of partnering; changes in laws and governmental regulations; regulatory or legal actions, including the types of enforcement action pursued and the nature of remedies sought or imposed; the receipt of relevant third party and/or regulatory approvals; exchange rate fluctuations; the development and use of new technology; changes in public expectations and other changes to business conditions; wars and acts of terrorism; and cyber-attacks. Many of these factors are beyond Serco's control or influence. These forward looking statements speak only as of the date of this announcement and have not been audited or otherwise independently verified. Past performance should not be taken as an indication or guarantee of future results and no representation or warranty, express or implied, is made regarding future performance. Except as required by any applicable law or regulation, Serco expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement to reflect any change in Serco's expectations or any change in events, conditions or circumstances on which any such statement is based after the date of this announcement, or to keep current any other information contained in this announcement. Accordingly, undue reliance should not be placed on the forward looking statements.

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December 08, 2016 07:15 ET (12:15 GMT)