G4S plc
The Manor
Manor Royal
Crawley
West Sussex
RH10 9UN
Telephone: +44 (0)1293 554 400
Email: investor@g4s.com
Registered in England No: 4992207
View our online report at:
http://reports2009.g4s.com
Securing Your World
G4S plc
Annual Report and Accounts 2009
G
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We develop and provide
business processes and services
to help our customers across
a diverse range of sectors –
in areas where managing
security and safety risks
are a key consideration
G4S plays an important role in society. We make
a difference by helping people to operate in a safe
and secure environment where they can thrive and
prosper and we believe that this role can only grow
in importance.
Operating in more than 110 countries and the
world’s second largest private employer, G4S is
the world’s leading security solutions group.
Contents
Overview
G4S in brief
01 Performance overview
02 Chairman’s statement
Governance
40 Board of directors
Business review
04 Chief Executive’s interview
08 Sector profiles
22 Secure solutions
26 Cash solutions
28 Corporate Social Responsibility
32 Financial review
38 Group principal risks
Financial statements
58 Consolidated income statement
42 Executive management team
59 Consolidated statement of
44 Report of the directors
47 Corporate governance statement
50 Directors’ remuneration report
56 Statement of directors’ responsibilities
in respect of the annual report and
the financial statements
57 Independent auditors’ report to the
members of G4S plc
Shareholder information
120 Notice of Annual General Meeting
123 Recommendation and explanatory
notes relating to business to be
conducted at the Annual General
Meeting on 28 May 2010
financial position
60 Consolidated statement of cash flow
62 Consolidated statement of
comprehensive income
63 Consolidated statement of changes
in equity
64 Notes to the consolidated financial
statements
111 Parent company balance sheet
112 Parent company reconciliation
of movements in equity
shareholders’ funds
113 Notes to the parent company
financial statements
128 Group financial record
130 Financial calendar and corporate
addresses
G4S plc
The Manor
Manor Royal
Crawley
West Sussex
RH10 9UN
Telephone: +44 (0)1293 554 400
Email: investor@g4s.com
Registered in England No: 4992207
View our online report at:
http://reports2009.g4s.com
Securing Your World
G4S plc
Annual Report and Accounts 2009
G
4
S
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
0
9
We develop and provide
business processes and services
to help our customers across
a diverse range of sectors –
in areas where managing
security and safety risks
are a key consideration
G4S plays an important role in society. We make
a difference by helping people to operate in a safe
and secure environment where they can thrive and
prosper and we believe that this role can only grow
in importance.
Operating in more than 110 countries and the
world’s second largest private employer, G4S is
the world’s leading security solutions group.
Contents
Overview
G4S in brief
01 Performance overview
02 Chairman’s statement
Governance
40 Board of directors
Business review
04 Chief Executive’s interview
08 Sector profiles
22 Secure solutions
26 Cash solutions
28 Corporate Social Responsibility
32 Financial review
38 Group principal risks
Financial statements
58 Consolidated income statement
42 Executive management team
59 Consolidated statement of
44 Report of the directors
47 Corporate governance statement
50 Directors’ remuneration report
56 Statement of directors’ responsibilities
in respect of the annual report and
the financial statements
57 Independent auditors’ report to the
members of G4S plc
Shareholder information
120 Notice of Annual General Meeting
123 Recommendation and explanatory
notes relating to business to be
conducted at the Annual General
Meeting on 28 May 2010
financial position
60 Consolidated statement of cash flow
62 Consolidated statement of
comprehensive income
63 Consolidated statement of changes
in equity
64 Notes to the consolidated financial
statements
111 Parent company balance sheet
112 Parent company reconciliation
of movements in equity
shareholders’ funds
113 Notes to the parent company
financial statements
128 Group financial record
130 Financial calendar and corporate
addresses
G4S in brief
Who we are
G4S is the world’s leading international security
solutions group which specialises in outsourcing
of business processes and facilities in sectors
where security and safety risks are considered
a strategic threat.
Our people
With more than 595,000 employees, we take great
pride in the important work carried out by our staff
who do everything they can to ensure the security
and safety of our customers and their assets.
(Full-time equivalent employees at year end December 2009)
Our sectors
G4S has a broad range of customers around
the world but our strategic focus is on sectors
where safety and security are key. This sector
expertise and focus will enable us to build
long-term partnerships with customers and
help drive growth across the businesses:
What we do
We are global experts in the assessment and management of
security and safety risks for buildings, infrastructure, materials,
valuables, people and society.
We develop long-term strategic partnerships with customers
in key sectors where we can help them to deliver their own
business objectives – either increasing their revenues, reducing costs,
managing risks, protecting critical assets or improving their service
delivery to the customers they serve.
We do that by understanding the environments in which our
customers operate, the pressures they face and the issues that
matter to them.
By understanding the bigger picture and applying our expertise
and knowledge derived from providing security solutions in diverse
regulatory environments in more than 110 countries around the
world, we turn our customers’ security challenges into opportunities.
In summary
Our goal is to build long-term relationships with our customers
where we can help them to:
p grow their revenues
p manage their costs
p manage their risks or protect their assets
p improve the service they provide to their customers.
Chief Executive’s interview on pages
04-07
208,283
Asia
128,648
Europe
106,311
Africa
52,915
North America
47,495
Latin America
and Caribbean
51,350
Middle East
Our values
G4S aims to act responsibly in how it manages
relationships with customers, communities, employees
and other stakeholders. Our group values describe
what G4S stands for:
Best people
We always take care to employ the best people, develop their
competence, provide opportunity and inspire them to live our values.
Teamwork and collaboration
We collaborate for the benefit of G4S as a whole.
Customer focus
We have close, open relationships with our customers that
generate trust and we work in partnership for the mutual benefit
of our organisations.
Integrity
We can always be trusted to do the right thing.
Expertise
We develop and demonstrate our expertise through our innovative
and leading edge approach to creating and delivering the right solution.
Performance
We challenge ourselves to improve performance year-on-year
to create long-term sustainability.
Each value has a senior executive “champion” within the group
responsible for ensuring that value becomes a key part of how
G4S does business.
Turnover by sector 2009
Major Corporates and Industrials
£1,495m | 21%
Retail
£698m | 10%
Consumers
£268m | 4%
Leisure and Events
£157m | 2%
Ports and Airports
£270m | 4%
Transport and Logistics
£158m | 2%
Selected profiles on pages
08-21
Our regions
G4S has a broad geographic reach giving it a
unique and diverse global geographic footprint:
Turnover by geography 2009
New markets
£1,849m | 26%
Divisional review on pages
22-27
Our segments
Our businesses can be broadly segmented into:
Secure solutions – Government
Protection of critical national infrastructure; care and
justice services, secure facilities and border protection.
Our work in the Government
sector on pages 08-11
Cash solutions
Outsourcing of cash cycle management for central banks,
financial institutions and retailers.
Review for Cash solutions
on pages 26-27
Secure solutions – commercial
Integrated security solutions for commercial customers such
as risk consulting, manned security and security systems.
Review for Secure solutions
on pages 22-25
Group turnover by segment 2009
1
2
3
Secure solutions – commercial
53%
1 New Markets:1
20%
2 UK & North America:
17%
3 Continental Europe:
16%
1 Includes Eastern Europe
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Government
£1,947m | 28%
Financial Institutions
£1,447m | 21%
Energy and Utilities
£569m | 8%
Europe
£3,566m | 51%
North America
£1,594m | 23%
Secure solutions
– Government
28%
Cash solutions
19%
Printed on Cocoon Silk paper. This paper is made from 100% post consumer waste. It has
been certified according to the rules of the Forest Stewardship Council (FSC) and it is
produced at a mill that is certified to the ISO14001 environmental management standards.
The mill uses pulps that are elemental chlorine free (ECF). The inks used are all vegetable
oil based. The printer is ISO14001 and FSC certified and CarbonNeutral®
Designed and produced by Radley Yeldar | www.ry.com
G4S in brief
Who we are
G4S is the world’s leading international security
solutions group which specialises in outsourcing
of business processes and facilities in sectors
where security and safety risks are considered
a strategic threat.
Our people
With more than 595,000 employees, we take great
pride in the important work carried out by our staff
who do everything they can to ensure the security
and safety of our customers and their assets.
(Full-time equivalent employees at year end December 2009)
Our sectors
G4S has a broad range of customers around
the world but our strategic focus is on sectors
where safety and security are key. This sector
expertise and focus will enable us to build
long-term partnerships with customers and
help drive growth across the businesses:
What we do
We are global experts in the assessment and management of
security and safety risks for buildings, infrastructure, materials,
valuables, people and society.
We develop long-term strategic partnerships with customers
in key sectors where we can help them to deliver their own
business objectives – either increasing their revenues, reducing costs,
managing risks, protecting critical assets or improving their service
delivery to the customers they serve.
We do that by understanding the environments in which our
customers operate, the pressures they face and the issues that
matter to them.
By understanding the bigger picture and applying our expertise
and knowledge derived from providing security solutions in diverse
regulatory environments in more than 110 countries around the
world, we turn our customers’ security challenges into opportunities.
In summary
Our goal is to build long-term relationships with our customers
where we can help them to:
p grow their revenues
p manage their costs
p manage their risks or protect their assets
p improve the service they provide to their customers.
Chief Executive’s interview on pages
04-07
208,283
Asia
128,648
Europe
106,311
Africa
52,915
North America
47,495
Latin America
and Caribbean
51,350
Middle East
Our values
G4S aims to act responsibly in how it manages
relationships with customers, communities, employees
and other stakeholders. Our group values describe
what G4S stands for:
Best people
We always take care to employ the best people, develop their
competence, provide opportunity and inspire them to live our values.
Teamwork and collaboration
We collaborate for the benefit of G4S as a whole.
Customer focus
We have close, open relationships with our customers that
generate trust and we work in partnership for the mutual benefit
of our organisations.
Integrity
We can always be trusted to do the right thing.
Expertise
We develop and demonstrate our expertise through our innovative
and leading edge approach to creating and delivering the right solution.
Performance
We challenge ourselves to improve performance year-on-year
to create long-term sustainability.
Each value has a senior executive “champion” within the group
responsible for ensuring that value becomes a key part of how
G4S does business.
Turnover by sector 2009
Major Corporates and Industrials
£1,495m | 21%
Retail
£698m | 10%
Consumers
£268m | 4%
Leisure and Events
£157m | 2%
Ports and Airports
£270m | 4%
Transport and Logistics
£158m | 2%
Selected profiles on pages
08-21
Our regions
G4S has a broad geographic reach giving it a
unique and diverse global geographic footprint:
Turnover by geography 2009
New markets
£1,849m | 26%
Divisional review on pages
22-27
Our segments
Our businesses can be broadly segmented into:
Secure solutions – Government
Protection of critical national infrastructure; care and
justice services, secure facilities and border protection.
Our work in the Government
sector on pages 08-11
Cash solutions
Outsourcing of cash cycle management for central banks,
financial institutions and retailers.
Review for Cash solutions
on pages 26-27
Secure solutions – commercial
Integrated security solutions for commercial customers such
as risk consulting, manned security and security systems.
Review for Secure solutions
on pages 22-25
Group turnover by segment 2009
1
2
3
Secure solutions – commercial
53%
1 New Markets:1
20%
2 UK & North America:
17%
3 Continental Europe:
16%
1 Includes Eastern Europe
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Government
£1,947m | 28%
Financial Institutions
£1,447m | 21%
Energy and Utilities
£569m | 8%
Europe
£3,566m | 51%
North America
£1,594m | 23%
Secure solutions
– Government
28%
Cash solutions
19%
Printed on Cocoon Silk paper. This paper is made from 100% post consumer waste. It has
been certified according to the rules of the Forest Stewardship Council (FSC) and it is
produced at a mill that is certified to the ISO14001 environmental management standards.
The mill uses pulps that are elemental chlorine free (ECF). The inks used are all vegetable
oil based. The printer is ISO14001 and FSC certified and CarbonNeutral®
Designed and produced by Radley Yeldar | www.ry.com
2009 performance overview
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
01
Our investment proposition
G4S has strong market positions in structural growth
markets such as Government, cash solutions and
New Markets. Since its foundation in 2004 it has had
a strong track record of performance and delivery
within a prudent financial structure.
Integrated security solutions
We are able to design and manage security solutions that bring
together our in-house capabilities in project management, risk
consultancy, secure facilities management, physical security, intelligent
systems and high quality security-trained personnel to solve the
security challenges of a broad range of customers across the world.
Unrivalled cash solutions expertise
Understanding and managing the cash cycle of a country is a core
skill of the group. Central banks, commercial banks and retailers
outsource their cash management to G4S as we have the capability
and experience to drive substantial efficiencies in the system whilst
achieving the maximum return for our customers over the long term.
Government partnerships
Government outsourcing is a strong, long-term source of growth as
public sector spending remains under pressure and governments look
to the private sector to provide cost effective solutions. Government
contracts, which currently represent around 28% of group revenues,
tend to be long-term strategic partnerships with recurring income.
Strong new market positions
Our global presence, market positions and experience of working in
less developed markets is unrivalled in almost any industry. It means
that we know what it takes to be successful in these markets and
are well positioned to maximise the structural growth opportunities
as they develop over time. In many cases we are able to drive
that development forward to the benefit of our customers and
our business.
The solutions approach
Each of the individual areas of the business is a driver of value
for the group, but when they come together they truly make a
difference. Exporting our Government expertise into new countries,
leveraging our cash solutions model across New Markets and using
our global risk management and security capabilities to protect
some of the world’s best known brands across international markets,
drives even greater value for our investors.
Financial highlights
Despite a difficult economic
backdrop, G4S delivered another
year of strong performance in 2009,
with good organic growth, margin
improvement and exceeded its
cash conversion target of 85%.
Financial review on page
32
Group KPIs
The key financial performance
indicators for G4S operational
management are PBITA margin,
cash conversion (operating cash
flow as a % of PBITA) and organic
growth. All these indicators
have shown a positive upwards
trend during the past five years.
Other non-financial measures are
specific to particular markets or
individuals and cannot therefore
be amalgamated into group-wide
key performance indicators.
+3.7%
Organic turnover growth
of 3.7%
£7.01 billion
Group turnover up
7.4% to £7,008.6 million
+10%
PBITA up by 10.0% to
£500.3 million
+27%
Operating cash flow
up 27% to £449.9 million,
90% of PBITA
20.2p
Adjusted earnings per
share up 22% to 20.2p
+11.7%
Recommended total
dividend per share
up 11.7% to 7.18p
Organic growth
%
Cash conversion
%
PBITA margin
%
7.0
7.1
9.1
9.5
3.7
88
86
90
85
90
6.6
6.7
7.0
7.0
7.1
2009
2008
2007
2006
2005
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
G4S plc Annual Report and Accounts 2009
02
Chairman’s statement
Turnover*
£m
PBITA*
£m
4,413
4,683
5,358
6,525
7,009
289.8
311.2
371.2
454.8
500.3
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Strong and sustainable
G4S has delivered a robust performance in 2009,
our sixth year of sustained revenue, profit and margin
growth. This has been achieved through our strong
growth in markets such as Government, cash solutions
and New Markets. In what has been a challenging
economic environment, there has been continued
strong focus on cost control and debtor and cash
management. At the same time the management team
has been implementing its strategy both organically and
via capability-adding acquisitions in key sectors to drive
accelerated growth and development in the business.
* 2005 to 2008 at 2009 exchange rates and excluding all businesses disposed of during the period.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
03
Dear shareholder,
It is very pleasing to be able to report another strong performance in what has been a difficult year for so
many businesses. Such results do not happen by chance and I would therefore like to pay tribute to everyone
in the group who has worked so hard to continue to drive our business in the right direction. This has involved
implementing cost-saving measures where necessary, but also in pushing ahead with plans for future growth
and development.
Elsewhere in this report, our chief executive talks about the way the group’s strategy is being delivered. I have
no doubt that our policy of developing solutions for our customers over longer term relationships will allow
us to continue to build on the strong foundations which have been laid throughout the group over the last few
years. Our recent acquisitions, including All Star International, Adesta, Hill & Associates and NSSC, have been
targeted particularly at capability-building in security-related solutions niches, but the integration of earlier
acquisitions such as GSL and ArmorGroup over the last year has helped us to develop a broad spectrum
of solutions which we are able to offer to more of our customers in more of our markets.
The financial outcome of all this effort has been particularly creditable in 2009, with both revenue and margin
increased. Profit before interest, taxation and amortisation increased by 10.0%* to £500.3m whilst turnover
was up 7.4%* to £7,008.6m. Organic growth was 3.7% and the group profit margin increased to 7.1%.
Adjusted earnings per share increased by 22% to 20.2p.
The directors are therefore recommending a final dividend of 4.16p or DKK 0.3408 per share, payable
on 4 June 2010, which, with the interim dividend of 3.02p or DKK 0.2599 per share paid on 30 October
2009, makes a total dividend of 7.18p or DKK 0.6007 per share for the year ended 31 December 2009.
This represents an increase of 11.7% over the total dividend for 2008. The board intends to maintain
a progressive dividend policy in line with the group’s underlying performance.
The developments during the year have not all been purely financial however. In 2009 we published our first
ever Corporate Social Responsibility report. We said that this was just a first step in a continuing journey and I
am pleased to be able to say that the equivalent report this year shows how we are progressing on the issues of
corporate citizenship. These are issues which no responsible company should ignore and our board is increasing
its focus on this area, with one of our non-executive directors, Mark Elliott, chairing a newly formed CSR
Committee whose job it will be to ensure implementation of appropriate policies.
As the world’s second largest private employer, it is also vital that we have strong and open relationships with
our employees and those they choose to represent them, so it is pleasing to report that the implementation
of our ethical employment partnership with UNI is being rolled out in yet more of the countries in which
we operate.
The performance of the board is also a matter about which we have given careful thought. We have conducted
detailed reviews of the manner in which the board and its main committees have functioned and, whilst the
outcome of those reviews has been generally satisfactory, we know we must avoid complacency. We have
therefore increased the interaction between non-executive directors and the group’s businesses and made
some changes to the composition of the board’s committees. We have also decided that we should refresh
the composition of the board itself over the next year or so.
Whilst commenting on the board, I must also mention with great sadness the death in January 2010 of our
former chairman, Jørgen Philip-Sørensen. He was of course much more than simply a former board member.
His family helped create the very notion of a private security industry and Philip himself did an enormous
amount to develop the business which has become G4S. He was also chairman of this company from its
foundation in 2004 until I took over that role when he retired in 2006; but even in retirement he took a close
interest in the group and remained as our President Emeritus. We will miss him.
Looking ahead, there can be no doubt that in many parts of the world in which we operate, the economic
climate will remain difficult for some time to come. Nevertheless, as our strategy continues to be implemented,
we will be able to form more, stronger, longer and more valuable relationships with our customers and I remain
optimistic therefore that the company will continue to perform well in the year ahead.
Alf Duch-Pedersen
Chairman
* To show a fair comparison, constant exchange rates are assumed.
G4S plc Annual Report and Accounts 2009
04
Chief Executive’s interview
Progress and prospects
The underlying performance of the business was
very strong in 2009 demonstrating both the breadth
and international diversity of our business mix.
Looking forward, by leveraging our expertise in
existing markets and broadening our capability into
new, complementary, areas we can drive growth
and deliver continued improvements.
View this interview online at:
http://reports2009.g4s.com
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
05
Strategy
How would you summarise
the group strategy?
We are very clear about our strategy and what we need to do to drive
accelerated growth and development in the business. We must differentiate
ourselves in our markets by using our expertise and geographic presence
to drive outsourcing and to minimise commoditisation of traditional
security services. This will ultimately lead to longer term, recurring
revenue and outsourcing partnerships with customers in key segments.
G4S plays an important role in societies around the world and we will
continue to help our customers improve their security, increase their
revenues, reduce their costs and improve the service that they provide
to their end customers.
We are able to use our developed market cash cycle expertise
and track record to drive changes in policy around the management
and flow of cash in New Markets to encourage central bank and
financial institution outsourcing.
We can demonstrate to governments that the private sector has
a significant role to play in securing the world that we live in and in
delivering services that have historically been under government control.
In most cases, it can be done more efficiently by the private sector
and at reduced cost to the government, and therefore the taxpayer,
at a time when public sector spending is under significant pressure.
We invest in the development of our managers to ensure that
we have the expertise to continue to drive the strategy forward
and ensure high quality succession planning.
We continue to acquire capability-building businesses which bring
sector or market specific expertise to the group and add value
to our service offering and business model.
We can continue to build on our good reputation and excellent brand
to differentiate ourselves from our competitors and build alliances with
key international customers.
By leveraging our existing expertise in specific markets and broadening
our capability into new, complementary areas, we can drive growth
and deliver continued improvements in our business performance.
How well do you think the G4S
strategy is understood by investors?
The market understands us well in terms of the key sectors and
segments of our business which hold the most value.
Perhaps what we need to communicate more clearly is the fact that,
whilst each of those areas are strong in their own right, they are even
better together – as a whole.
Exporting our developed markets government expertise into other
countries, driving the development of cash solutions in New Markets
and developing secure solutions for multi-national customers across
numerous countries are huge opportunities for our business and drive
greater value for our investors.
Performance
How would you sum up the
group performance in 2009?
The underlying performance of the business was very strong in 2009,
particularly given the economic crisis and the impact of exchange rates
on the overall result. Earnings for the year were up 22% on the previous
year and even if you exclude the impact of exchange rate movements,
earnings were up by 12%.
There was definitely a slow-down in organic growth as the economic
downturn took effect. In essence, it removed any opportunities for
inflationary growth due to the global decline in RPI, meaning that price
increasing was almost impossible. However, I am pleased to say that
our volume growth was very strong and ahead of the market.
Our cash generation was also strong and we incurred no significant
bad debts – a real achievement given the state of the global economy
during the year. We controlled capital expenditure well whilst still
investing in areas such as IT, security technology, state-of-the-art
vehicles and premises.
Strategy
Our strategy will lead
to longer term, recurring
revenue and outsourcing
partnerships with customers
in key segments
Performance
The underlying
performance of the
business was very
strong in 2009
Performance
Profits for the year
were up 12% excluding
currency impacts
G4S plc Annual Report and Accounts 2009
06
Chief executive’s interview continued
Which parts of the group performed well?
The real highlights were in the cash solutions businesses,
the New Markets countries and across the government sector –
all areas where we have strong competitive advantage and the
expertise to drive market-leading growth.
Even in businesses which struggled to deliver the financial results that
we expected, they still outperformed their competitors in their own
markets and contributed to the overall success of the group by sharing
expertise and helping to spread best practice across the organisation.
They also worked extremely hard to control the cost base to minimise
the impact on profit margins.
Overall, 2009 was a tough year. However we were able to hit our
short-term performance targets by carefully managing the cost base and
we continued our commitment to the long-term strategy by investing in
strategic, capability-building acquisitions and hiring sector experts to drive
business development in key strategic sectors over the longer term.
Which parts of the group didn’t
perform to your expectations?
There were no specific under-performers. Improvements could be made
in some businesses which did not meet our internal profit margin targets
in places such as Continental Europe, where businesses have been unable
to pass on substantial cost increases such as wage rises mandated by
governments and regulators. We are working hard to make sure this
balance is corrected over time and that margins in these businesses
are in line with our expectations in the future.
Economy
How did the economic crisis
affect the business?
Generally, our business is resilient to economic pressures, but the
depth of the recent crisis is unprecedented in modern times. The global
fall in inflation meant that there was a lack of growth in some developed
markets. The rapid and substantial fall in interest rates had some effect
on the cash outsourcing model in some markets as the drivers to manage
the cash cycle more efficiently became less important to the banking and
retail sectors. Many of our customers were under pressure to reduce the
cost of security significantly, whilst not compromising their security
standards – this is both a challenge and an opportunity for us.
One of the challenges we have, particularly in an economic downturn,
is to manage the trade-off between organic growth, profit margin
percentage and debtor management. We have to accept that there
is a balance to be had and whilst growth for us in 2009 was slower than
the previous year, we did very well on driving profit margins and cash
flow performance.
What measures did you have to take
to minimise the impact of the crisis?
We focused heavily on managing our debtors and driving efficiencies
in the operation and overheads. We implemented pay freezes in
economies where forecast RPI was below 3% and RPI only-based
pay awards elsewhere.
We increased our headroom and our range of funding sources
by issuing a corporate bond of £350m in May 2009. This required
us to put in place a credit rating which we did through Standard and
Poor’s. Our rating is BBB and our headroom at 31 December 2009
was £614.7m, which is a very comfortable level.
How do you think the economic outlook
is going to affect the business performance
in the next 12 months?
We are expecting the challenges of 2009 to continue into 2010.
We hope to be emerging from the recession in terms of GDP growth,
RPI growth and interest rates towards the end of the year, giving us a
springboard into 2011.
We believe that pressure on public sector spending will further drive
the need for governments to outsource specific areas to the private
sector which is an opportunity for us.
Outlook
What is going to be your biggest challenge
or biggest risk in 2010?
A lack of economic improvement – a prolonged period of deflationary
environments with low interest rates could be a risk to the business
performance. Others might be managing the business reputation
against a backdrop of increasing risks such as global terrorism and
balancing the risk and reward of being responsible for outsourced
services in the government sector.
Our biggest challenge is keeping our people motivated and focused
on the long-term strategy delivery despite the ongoing short-term
trading pressures.
Economy
Generally our business
is resilient to economic
pressures but the recent
crisis is unprecedented
in modern times
Economy
We focused on managing
our debtors and driving
operating and overhead
efficiencies
Outlook
Pressure on public
sector spending will drive
government outsourcing –
an opportunity for us
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
07
What targets are you setting for
yourself and the business in 2010?
We are targeting profit growth well ahead of worldwide GDP
growth. Over the longer term we are targeting improvements in
our post tax return on invested capital which we believe is a good,
strategic measurement of performance. As economies improve,
we expect organic growth to return to high single digit levels.
What other developments are in the
plan for 2010?
Some of the areas that we intend to focus on even more in the future
are compliance, ethics, environmental impact and our reputation.
We want to make sure that our policies in these areas are fully
understood throughout the organisation and are put into practice
by our employees around the world. This is particularly true for some
acquisitions – we need to ensure that they live up to G4S standards
very quickly once they have become part of the group.
The G4S strategy is to
focus on sectors where
security and safety
are key considerations
and where we have
significant competitive
differentiation.
The next sections highlight the market opportunities
and G4S capability in some of the key sectors.
We have recently established a Corporate Social Responsibility (CSR)
Committee to focus on these issues, chaired by Mark Elliott, one of our
non-executive directors. The committee will ensure that our CSR strategy
remains an integral part of the group plan and monitor compliance with
our policies across the group.
p
How would you summarise the general
outlook for the group in the mid term?
The economic pressures from last year will continue into 2010 and
we will continue to focus on minimising their impact. We have shown
that we can do this whilst driving the strategy forward – and this will
be an ongoing focus for 2010.
However, we expect good organic growth from continued outsourcing
in key sectors, to leverage our expertise in cash solutions to drive change
in key markets and to utilise our secure solutions approach to take on
more multi-national customers across the world – turning their security
challenges into opportunities.
Whilst the challenges of 2009 will continue into 2010 we are confident
that we have the expertise, the opportunities and management to
perform well in the year ahead.
Nick Buckles
Chief Executive Officer
Outlook
We are targeting profit
growth well ahead of
worldwide GDP growth
in 2010
View sector case studies online at:
http://reports2009.g4s.com
G4S plc Annual Report and Accounts 2009
08
08
Securing the delivery
of government services
and promises – at home
and abroad
G4S plc Annual Report and Accounts 2009
09
Sector profiles
Government
As a trusted partner to governments
worldwide, we secure borders, protect
embassies, rehabilitate offenders and
keep some of the world’s most important
buildings safe and secure.
Customer needs and drivers
Increased outsourcing
A sharper global focus on security in the past decade has led to
government outsourcing across a number of markets. A history
of successful outsourcing within developed markets has bolstered
a belief in competition and confidence in private sector involvement.
Competition raising standards
Governments require high quality operational delivery and evolving
standards within a structure that demonstrates cost effectiveness
to the taxpayer. Outsourcing has allowed competition that has
driven performance up and costs down. It has also enabled
performance benchmarking with the public sector and new ways
of thinking to be introduced to the benefit of both private and
public sector operations.
Scale of opportunities
Government contracts accounted for around 28% of total G4S
revenues in 2009. We anticipate further government outsourcing
opportunities will arise in developed markets as pressure on public
spending intensifies, and government departments seek to manage
their budgets without compromising on service delivery standards
or the integrity of vital front line public services.
Market overview
Strong position
Government contracts provide defensive, long-term relationships
which have traditionally seen double digit growth. Our pedigree
in the government sector within developed markets has honed
our skills in bidding for and managing complex government contracts.
We are now taking our UK and US government expertise into
developing markets. Our geographical footprint, coupled with this
expertise, gives us a unique competitive advantage in this sector,
and we see significant opportunities to drive government
outsourcing in new markets.
Spotlight on justice
In the UK, where currently 89% of prisons are operated by the
public sector, the Government has announced a number of initiatives
this year to increase the share of prisons run by the private sector
such as recommending that new prisons be privately operated and
introducing others to private sector benchmarking. We believe
there are further opportunities within the global justice market as
other countries outsource parts of their justice system to improve
performance and cut costs.
Case study | Government
Mangaung Prison
We helped build innovation into South
Africa’s Mangaung Correctional Centre,
the second largest private prison in the
world. Here we balance the safe and
secure accommodation of nearly 3,000
maximum-security offenders with
our duty for care, rehabilitation and
community outreach.
As part of the design, build and finance
consortium, we ensured the complex
was built to allow “development and
rehabilitation” and community initiatives.
The end result, complete with school,
chapel, education facilities and access to
activities such as agriculture, has created
an environment where the opportunities
for effective long-term rehabilitation are
not limited by size or scope.
G4S plc Annual Report and Accounts 2009
10
10
Sector profiles continued
Government continued
Capabilities
Homeland security
Managing homeland security is a priority for governments around
the world. Effective border protection, from immigration support
to entry point security, is central to this – a field in which G4S has
proven its capabilities across widely differing terrains and cultures.
Foreign affairs
Our global footprint and diversity allows us to work with
governments around the world on a range of security and capability
requirements to ensure they can conduct their foreign affairs
effectively – with the security upon which they rely – to ensure
international relationships can be fostered and flourish.
Defence
We support defence organisations around the world, providing
practical and results-driven solutions for our clients which result in
better protection of their key assets – including people, equipment,
facilities and reputations – alongside cost savings and improved
performance.
Justice
As a leading supplier of security solutions to the justice departments
of governments globally, we manage prisons and rehabilitation
facilities, and further support the justice sector through providing
electronic monitoring of offenders in the community, court and
police services, and immigration services.
Energy and utilities
We have unrivalled experience of protecting critical supply chains
and assets in industries including oil and gas, electricity, water, nuclear
power, renewable energy, chemical supplies and telecommunications.
Emergency services
From effective crisis management to specialist training and
recruitment, we help emergency service providers around the
world respond to changing circumstances and ensure long-term
effectiveness.
Local/state government
G4S is a trusted partner of local and state governments around the
world, enabling them to deliver their services more securely against
a backdrop of diverse and complex security challenges.
Non-government organisations (NGOs)
We have a 20-year pedigree in providing a range of services to
international peace and stability organisations, allowing them to
carry out effective and sustainable stabilisation and post conflict
reconstruction, from humanitarian aid delivery to mine clearance
and disposal.
Case study | Government
Case study | Government
GCHQ
GCHQ is a vital part of Britain’s
intelligence machinery, playing a crucial
role in the defence of the UK. As part of
the consortium responsible for design,
build and management of GCHQ’s
accommodation, G4S has been
entrusted with one of the UK’s most
comprehensive and secure facilities
management contracts.
Around 350 G4S staff deliver a full
service contract including IT, energy and
utility management, logistics, mailroom,
and site, visitor and accommodation
management, to 4,500 workers across
a site the size of 17 football pitches.
Electronic monitoring
G4S is the world’s largest provider
of electronic monitoring services,
monitoring the movements of
35,000 offenders worldwide every
day – 12,000 of them in the UK.
National Audit Office statistics show
that an electronically monitored curfew
is just one fifth of the cost of a prison
term in Britain. As a robust alternative
to custody, curfews not only reduce
pressure on the prison population
but also provide other benefits.
Case study | Government
US Border Patrol
Our ability to deliver a workforce that
possess similar qualifications to the
federal agents, and secure transport
expertise, has allowed us to provide a
flexible service to nine locations across
a 1,993-mile border separating the
US and Mexico.
Our customer benefits from a
government-approved provider using
a high calibre workforce that requires
208 hours of training per employee to
meet the contract’s special requirements.
Our flexible response capability to
scale up or down allows the customer
to release federal enforcement personnel
for other duties.
G4S plc Annual Report and Accounts 2009
11
G4S plc Annual Report and Accounts 2009
12
Optimising the cash cycle and
assuring the customer experience
G4S plc Annual Report and Accounts 2009
13
Sector profiles continued
Financial institutions
As protector of banks’ most precious assets
we help money make the world go around
through efficient cash cycle management
and protection of assets and people across
the globe.
Customer needs and drivers
Strong pedigree
With origins in cash handling going back many decades, our UK
cash solutions expertise has allowed us to develop long-standing
relationships with central and retail banks in the 65 countries in
which we operate our cash management services.
Attuned to customer needs
Our banking customers want to maximise the efficiency of all
their operations, from how hard their cash works for them to how
their buildings and employees are protected. Our banking customers
want partners who can operate their cash cycle at maximum
efficiency, high productivity, and optimum security, so their money
is kept moving around the economy, always available to consumers
and not sat in bank deposits incurring central bank interest charges.
Market overview
Pressures are opportunities
The banking sector in most markets has experienced
unprecedented turmoil in the last year, particularly in the UK,
Europe and US. This has resulted in an increased willingness
by banks to outsource, as pressured banks look to maximise
operations as cost effectively as possible.
Smart technology
Meanwhile the cash cycle is becoming increasingly slick and
sophisticated as product innovations and new technology is
embraced to ensure cash is constantly available to consumers,
and the cost of cash is minimised for banks. This is driving cash
forecasting business opportunities as banks look to their cash
management partner to forecast amounts needed to keep ATMs
working and minimising the amount of notes sat idly in unused
machines. Technological advances are also driving opportunities
in ATM technology, servicing and diagnostics.
Solutions in action
As a result customers are looking at new areas of outsourcing.
We believe this will lead to more opportunities in a number of areas,
from technology solutions to more support of in-branch operations,
where our advance into supporting bank branches will aid the move
of a growing number of banks to create “branches of the future”.
The more developed Western markets hold strong opportunities
for outsourcing, however we see evidence that within emerging
and New Markets, commercial banks are increasing their interest
in outsourcing developments.
Case study | Financial institutions
Nedbank
Nedbank, South Africa’s fourth largest
bank, has trusted G4S for the last
10 years to meet the multiple security
challenges of protecting bank assets
and its employees across its network
in a country with a complex crime
environment. At Nedbank, the G4S
solution encompasses every aspect from
visitor and site safety across 16 sites
housing 4,500 employees, to protecting
senior personnel against threats faced
by international business professionals
as they travel around the world.
Case study | Financial institutions
Case study | Financial institutions
Bank of America
London cash centre
Our technology and financial institutions
expertise allows one of the world’s
largest banks to focus on its 59 million
customers, while we take care of Bank of
America’s security. Our unique approach
for Bank of America has given the US’s
most extensive bank branch network
complete security coverage, incident
reporting and business intelligence across
6,100 locations in 30 states. By combining
the sector knowledge of our security
officers with the latest technology,
we have become an integrated
partner helping our customer drive
its performance up and costs down.
G4S’s London cash centre sets the
industry standard for speed, security and
efficiency in cash cycle management and
in doing so, plays a vital part in keeping
cash flowing around the heart of the UK’s
economy. The development of G4S’s
state-of-the-art cash centre has been an
important addition to the city’s economic
infrastructure. The site handles 72,000
services every month, managing cash
flow through banks, ATMs and retailers
across the city. This allows cash to be
processed on demand to drive maximum
efficiency for customers and maintains
the levels of service reliability required
to ensure the health of the
UK’s cash flow.
G4S plc Annual Report and Accounts 2009
14
Protecting retail assets
and ensuring efficiency
Case study | Retail
Jewelry Television
Our expertise in secure transportation,
and our global logistics capability,
ensures more than five million packages
are delivered to more than 20 countries
from 300 vendors worldwide for the
USA’s largest online and television
channel jewellery retailer. This integrated
partnership with our client has allowed
Jewelry Television to benefit from
improved cost control, total visibility
of the process, less exposure to risk
and shrinkage, and improved security
and customer service.
G4S plc Annual Report and Accounts 2009
15
Sector profiles continued
Retail
We’ve taken the skills that have led us to
be one of the world’s most trusted cash
management outsourcers for banks and
tailored them to protect retailers’ valuables
and help them re-engineer the way they
manage their cash cycle.
Customer needs and drivers
Widening security landscape
Retail customers want high calibre security offerings that deliver
value for money. Traditionally retailers have sought to outsource
protection of their stores, and employees, but now they are looking
to partners who can help them manage their back office processes
and their takings more efficiently too.
Solidity of cash
Cash has existed for five millennia, and remains king in the 21st
century. Globally it is the preferred method of payment among
consumers. According to Retail Banking Research’s “Future of Cash
and Payments” report, 77.5% of Europe’s 388 billion retail payments
in 2008 were made using cash.
Paying at a cost
We estimate the average retailer can spend up to 1.7% of
turnover managing cash. In the fiercely competitive retail sector
where margins are becoming ever tighter and every penny
counts, our retail customers continue to look for ways to minimise
those costs.
Market overview
Smarter solutions
We believe continued competition to increase sales and minimise
costs will drive retailers to further outsource and embrace emerging
technology to increase efficiency, reduce risk, provide accurate sales
data, and ensure retail staff are maximising customer sales rather
than focusing on cash management and logistics.
Revolutionising retail
We believe 2010 will be the start of a decade of innovation in cash
management as new offerings such as our CASH360 product enable
retailers to minimise losses through fraud and theft and improve back
office efficiency, thereby making cash an even more cost-effective
method of payment for businesses to process. With new software
developments we also see opportunities for more improved
real-time cash data to be available to our retail customers, just
as it is for our banking customers.
Case study | Retail
CASH360
Our unique retail cash management
solution CASH360 makes Marks &
Spencer’s cash cycle more efficient,
allowing one of the UK’s most popular
retailers to concentrate on its customers.
CASH360, developed in-house by
G4S with the retail market in mind,
allows us to run retailers’ back office
cash management for optimal efficiency,
security and to minimise potential losses.
Drawing on existing G4S expertise in
secure cash management, technology
solutions and logistics, CASH360 exploits
opportunities for improved accuracy,
security and productivity for retailers
while allowing retailer employees
to focus on serving their customers,
not counting cash.
G4S plc Annual Report and Accounts 2009
16
Protecting crucial supply chains
and critical national assets
G4S plc Annual Report and Accounts 2009
17
Sector profiles continued
Energy and Utilities
We are a vital behind-the-scenes cog of
energy and power providers worldwide,
helping protect vital supplies, keeping
vulnerable energy workforces safe, and
ensuring power businesses run at maximum
efficiency in more ways than one.
Customer needs and drivers
Security in focus
With ever growing pressure on energy providers to secure supplies
for years to come, through investment in new production plants and
protection of vital resources, security has come to the fore in the
energy and utilities sector.
Regulatory business drivers
The market for security across much of the energy market has been
led by regulation, particularly of nuclear power which has been an
area of double-digit profit growth for us.
Combined response
Increased regulation is driving a focus on cost efficiency, robust
asset protection and a focus on intelligence and risk led security
capabilities, together with experience of security provision within
challenging and unpredictable environments.
Scale of challenge
Security challenges within the energy and utilities arena can be diverse
– from protecting the copper and metal contained within electricity
cables to oil or nuclear facility risk assessment and pipeline protection.
Market overview
Global demand
With scepticism over the benefits of emerging alternative energy
sources, and the lack of infrastructure in many continents, the draw
on the world’s oil and gas reserves will continue to grow. The sector
has also been highlighted in a recent Chatham House report as
requiring $6.5tr of investment in exploration and production over
the next 20 years to meet projected demand.
Oil and gas in focus
The Middle East – the world’s largest reservoir for oil reserves – is the
core for future oil production. Middle Eastern countries are currently
responsible for nearly one-third of global oil production. With 60% of
proven world oil reserves and 41% of proven world reserves of natural
gas in the Middle East, we believe our expertise in this area, together
with our global footprint and experience of operating in diverse
geo-political regions, will be a competitive strength.
Alternative energy sources
In developed markets such as the US and UK, there is focus on
nuclear energy as nations look towards what they believe are more
low carbon energy solutions. Here regulation is driving an increased
demand for not only a physical security presence but involvement
in design of new facilities, security systems integration, and partners
with approved regulatory training.
Case study | Energy and Utilities
EDF Energy
Power giant EDF Energy works with us
to look after many of its sites across the
UK, where our response ranges from site
based security officers to deployments
securing assets against metal theft,
protecting against protestor activity,
and providing meter reading.
GENERIC
PHOTOSHOT OF
ELECTRICITY POWER
Case study | Energy and Utilities
Case study | Energy and Utilities
Hoover Dam
The lives and livelihoods of millions
of Americans depend on the Hoover
Dam – a magnificent example of critical
national infrastructure. The Hoover
Dam helps prevent widespread flooding,
provides water to arid states, and its
hydroelectric power generators makes
a significant energy contribution.
With our state-of-the-art Symmetry
Enterprise Security Management System
in operation at the Hoover Dam, all
aspects of its security operations are
controlled and co-ordinated with the
same precision as the dam itself.
South Texas Project
Nuclear Operating
Company
Working closely with our South Texas
Project customer has allowed G4S to
come up with a service that combines
the expertise of our security officers
with technology and risk expertise to
protect a key US nuclear facility during
normal operation and a challenging
expansion project.
The South Texas Project’s trust in our
ability to manage its current security
programme has led us to also provide
developmental security consultancy for
the construction of two adjoining new
reactor facilities, which present difficult
security challenges and compliance with
new defensive requirements.
G4S plc Annual Report and Accounts 2009
18
Ensuring the safety of travellers
and the efficiency of the
international transport system
G4S plc Annual Report and Accounts 2009
19
Sector profiles continued
Ports and Airports
We ensure the safe passage of travellers, crew
and cargo and the efficiency of the international
transport system through a full range of aviation
operations spanning 61 airports and 81 airlines
across 34 countries, and at 20 ports worldwide.
Customer needs and drivers
Terror threat drivers
Compliance with new and emerging security legislation and counter-
terrorism measures is driving customer needs for operators of airports
and ports globally. Customers want optimum security levels, superior
customer service levels and a flexible service that is very cost effective.
Customer pressures
The aviation sector has suffered extensively as a result of the global
economic crisis. Airlines collectively lost around $11bn in 2009, as they
were particularly affected by the 20% drop in business passengers
(source: IATA) who ordinarily provide a substantially higher yield than
economy passengers. This decrease in passenger numbers has led to
reduced capacity which has in turn affected airports.
Market overview
Growth predictions
Global aviation demand predictions suggest the sector will grow
in the next 12 months. Passenger numbers are still increasing in the
Middle East and Chinese domestic markets. Airport infrastructure
is not expected to keep up with passenger growth over the next
ten years, potentially resulting in a shortfall of capacity in the order
of one billion passengers. Airports and airlines will be looking more
to cost-effective, flexible security providers who have consulting
capability, new technology integration expertise and who can
redesign systems and interfaces.
Legislation-led port investment
In the ports sector, compliance with international security standards
and evolving ports legislation is driving customer requirements.
With 480 million containers being moved around the world every
year, container and port facility security is an area of growing focus.
US government legislation on higher security standards for any global
port that wants to export to the US by 2012 is driving substantial
investment in this area.
Scale of opportunities
Key opportunities for the port sector lie with the large international
private port operators, who have collectively committed more than
$25bn of investment in building new green/brown field terminals
globally to expand their portfolios and capacity.
Our response
These international operators collectively manage or own in excess
of 300 port terminals globally. In 90% of cases they outsource their
security requirements, and here we believe our historical development
of security protection of physical locations with integrated systems,
and our unique global footprint, will be a competitive advantage.
Case study | Ports and Airports
Oslo Airport
Last year we saw the safe passage of
18.1m passengers through Oslo Airport,
where our focus on delivering for
our customer has contributed to the
airport being heralded as one of the
most efficient and punctual airports
in Europe by both the Air Transport
Research Society and Association of
European Airlines.
Case study | Ports and Airports
Case study | Ports and Airports
Gothenburg Port
Adesta
Our intelligent security systems ensure
Scandinavia’s largest port, Gothenburg,
is well protected against terrorism and
adheres to global maritime security
laws. With 11,000 arrivals at the port
each year and 43 million tonnes of cargo
traffic, we ensure the port is safe, secure
and working at optimum level within
international maritime security laws.
Our acquisition of US-based Adesta will
help position G4S in the US seaports
market, as well as support our growth
in the chemical security space. Adesta’s
market penetration in US seaports
– together with its expertise in cutting-
edge technology integration – will help
us deliver a solution that integrates
all seaport security related activities.
Adesta’s strengths are viewed as an
attractive and complementary fit to help
us expand our sector presence and build
our technology capabilities.
G4S plc Annual Report and Accounts 2009
G4S plc Annual Report and Accounts 2009
20
20
Creating a safe environment
for recreation and exploration
Case study | Leisure and Events
The Championships, Wimbledon
The Championships, Wimbledon,
is probably one of the most high profile
and prestigious sporting events in the
world and G4S plays a huge role in the
success of the iconic tennis tournament.
G4S provides an event management
solution for The Championships, and
each year preparations begin many
months before the first volley on court.
Case study | Leisure and Events
Africa International Youth
Football Tournament
Our events expertise allowed young
football hopefuls in Sierra Leone to realise
their dream of playing their international
opponents at home, in a country that
has been starved of high class sporting
events due to the perception it is unsafe.
The FC Johansen Football Club staged the
five-day international against eight specially
invited teams from South America, Europe
and Africa, to give people in Sierra Leone
the opportunity to watch high standard
football on their home soil. It also gave
young local players the opportunity
to display and compare their skills
in front of a home crowd
and observers from Europe
and other parts of Africa.
G4S plc Annual Report and Accounts 2009
G4S plc Annual report and accounts 2009
Overview
Business review
Governance
Financial statements
21
21
Sector profiles continued
Leisure and Events
As an experienced partner to flagship
international sporting and music
events, we ensure safety and security
at some of the most exciting events
in the entertainment calendar.
Customer needs and drivers
Customer experience
In the events world, security is inextricably linked to customer
service. Customers are keen to ensure event-goers enjoy a
first class experience within a safe and secure environment.
Business drivers
In a market dictated largely by the appearance fee percentages
paid to performers and participants, customers want a cost-
effective service that does not compromise on the ethics of
safety and security.
Capable partners
They also want a security partner that can demonstrate flexibility,
continued development in customer service, an understanding
of counter terrorism measures, and attention to detail at operational,
tactical and strategic levels.
Leisure pressure
The events industry has previously been shown to be resilient
against recession however current financial constraints have
affected specific sectors such as sports and hospitality.
Live music’s resilience
The live music sector remains buoyant with major outdoor events
retaining strong ticket sales, which in turn generates more detailed
planning needs and higher levels of staffing.
Growth opportunities
Recent successes in Ireland and the Middle East, and other
international collaborations, have shown the potential offered
to G4S by the events industry. Our UK events expertise has been
coupled with regional capabilities to demonstrate our offering,
particularly in new and emerging markets where event security
has traditionally not been an area of focus.
G4S plc Annual Report and Accounts 2009
22
Divisional review
Secure solutions
Profile
The secure solutions business covers a broad range of solutions for both commercial
and government customers. G4S’s secure solutions strategy is to use our risk
management and security expertise to encourage greater outsourcing of commercial
and government facilities where security and safety are strategic issues in areas such
as ports, airports and the oil and gas sector (see pages 16 and 18). This will result in
an increased number of long-term strategic customer partnerships across the group.
Services
G4S provides a wide range
of secure solutions including:
Risk management and consultancy services
Monitoring and response services
Secure facility outsourcing
Management of juvenile and adult custody facilities
Electronic monitoring of offenders
Aviation security services
Secure repatriation of immigration detainees
Fire protection and emergency response
Manned security services
Electronic security systems
Security training services
Project management
KPIs and financial
highlights
During 2009, the secure
solutions business achieved
good organic growth of 3.5%
and margins were up on the
same period last year to 6.8%.
Turnover*
£m
PBITA*
£m
Organic growth*
%
PBITA margin*
%
3,547 3,748 4,229 5,245 5,667
225.6 240.5 279.3 347.8 387.6
8.0
6.9
8.7
8.6
3.5
6.4
6.4
6.6
6.6
6.8
2009
2008
2007
2006
* 2005 to 2008 at 2009 exchange rates and
excluding all businesses disposed of during
the period.
Strategy
2005 2006 2007 2008 2009
2005 2006 2007 2008 2009
2005
2005 2006 2007 2008 2009
Use our expertise and geographic presence to differentiate our business
Drive outsourcing and minimise commoditisation of traditional security services
Offer an integrated security solution to customers
Develop longer term, recurring revenue and outsourcing partnerships in key sectors
Key operational
highlights
Growth achieved across all regions in 2009
Strict cost control and improved business mix helped grow margins from
6.6% in 2008 to 6.8% in 2009
The government sector, the largest of G4S key customer groups, grew 16%
in the UK and 11.5% overall in 2009
New Markets grew strongly at 8.6% and improved margins to 8.2%
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
23
The secure solutions business continued its strong performance with good organic growth of 3.5% and margins improved to 6.8%.
Turnover
£m
2008
2,449.1
1,449.5
1,346.2
5,244.8
(508.8)
2009
2,637.0
1,495.3
1,535.1
5,667.4
–
2009
176.6
84.8
126.2
387.6
–
5,667.4
4,736.0
387.6
PBITA
£m
2008
158.7
83.3
105.8
347.8
(30.9)
316.9
Margins
2008
6.5%
5.7%
7.9%
6.6%
Organic
growth
2009
2.7%
0.0%
8.6%
3.5%
2009
6.7%
5.7%
8.2%
6.8%
Europe*
North America*
New Markets*
Total secure solutions*
Exchange differences
At actual exchange rates
*At constant exchange rates
Europe
Turnover
£m
2008
2009
PBITA
£m
2008
2009
Margins
2008
2009
Organic
growth
2009
UK & Ireland*
1,139.3 942.6
97.3 78.0 8.5% 8.3% 7.4%
Continental Europe* 1,497.7 1,506.5
79.3 80.7 5.3% 5.4% –0.5%
Total Europe*
2,637.0 2,449.1 176.6 158.7 6.7% 6.5% 2.7%
*At constant exchange rates
Organic growth in Europe was 2.7% compared to 8.3% in 2008.
Margins improved to 6.7% helped by a strong performance in the
UK government segment.
UK & Ireland
There was good organic growth of 7.4% in the UK & Ireland and margins
strengthened further to 8.5%. This was despite a serious economic
downturn in Ireland which saw revenues decline more than 14% and
margins decline to less than 2%. Key contract wins in 2009 included an
extension to HMP Parc prison, the renewal of a national meter-reading
contract with a major utility provider, an extension of the Electronic
Monitoring contact for parts of the UK, a new Electronic Monitoring
contract for Northern Ireland and a PFI contract to provide facilities
management services at the Dublin Criminal Courts complex which
opened in November 2009.
UK & Ireland
The UK & Ireland region
grew 7.4% organically in
2009, despite a decline of
more than 14% in Ireland
Continental Europe
Contract retention
in Continental Europe
remained high at
more than 95%
Continental Europe
The Continental Europe region faced the biggest challenges of the
economic downturn as mandatory, above inflation, wage rate increases
were implemented in some countries. However strict cost control,
including significant cost cutting in the Baltics, which saw revenues decline
by 17%, limited the profit impact. Overall organic growth was –0.5% and
margins were slightly below the prior year at 5.3%. The security systems
business, which accounts for around 30% of Continental European
secure solutions revenues, performed well in a very difficult environment
maintaining revenues and margins overall. Strong performers included
the Netherlands due to good performances in the aviation and justice
services sectors, Norway as a result of a positive impact from aviation
and the Statoil contract and Romania as a result of a new contract win
with Petrom.
Contract retention in the region was high at more than 95% and
we believe we have gained market share with our solutions strategy
outperforming single service providers.
“ The UK & Ireland secure
solutions businesses
performed very robustly in
2009, helped by particularly
strong growth in the
Government sector and
despite a serious economic
downturn in Ireland.”
David Taylor-Smith
CEO, G4S Secure Solutions, UK & Ireland
G4S plc Annual Report and Accounts 2009
24
Divisional review continued
Secure solutions continued
North America
Turnover
£m
2008
2009
PBITA
£m
2008
2009
Margins
2008
2009
Organic
growth
2009
North America*
1,495.3 1,449.5
84.8 83.3 5.7% 5.7% 0.0%
*At constant exchange rates
Organic growth in North America was flat. If the loss of a large contract
in the commercial nuclear sector is excluded, organic growth was 2.8%.
Margins were unchanged at 5.7%.
In the United States there was no growth in the commercial sector
due to contract wins and renewals being offset by service reductions
for some customers. Customer retention was excellent at more
than 90%.
New contract awards in 2009 included electronic monitoring
of offenders in the community for Cook County, and secure solutions
contracts with City of Houston, City of Chicago and TD Ameritrade.
Contract renewals and extensions included a secure solutions contract
for Bank of America locations nationwide (see page 13), Merrill Lynch
worldwide, an extension to the protective services contract at the
Savannah River nuclear site for a minimum of five years and protective
and emergency services for NASA at 14 locations across the
United States.
In 2009, the US business made three important strategic acquisitions –
Adesta, which will significantly enhance capability in seaport security
and the chemical and petrochemical industries in North America
and internationally; All Star, which broadens G4S North America’s
US government outsourcing capability and share of the government
sector; and lastly NSSC, which has risk consulting and security solutions
expertise focused on the chemical and nuclear power sectors.
In Canada the organic growth rate of 2.1% was in line with the prior year
and continued cost focus meant that margins were improved. In February
2010, G4S was awarded a contract by the Canada Border Services
Agency to help secure the Canada border.
North America
Customer retention
was excellent at more
than 90%
North America
The US business made
three important strategic
acquisitions – Adesta,
All Star and NSSC
“ In 2009, the G4S North
America secure solutions
business made significant
progress in strategy
implementation, acquiring
niche capability in sectors
such as seaport security,
nuclear power and chemical
industry security and
government outsourcing.
We were also delighted
to renew two of the larger
contracts in the portfolio
with Bank of America
and NASA.”
Grahame Gibson
COO and Regional President, North America
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
25
“ Considering the world
economic situation in 2009,
I believe the region delivered
a good performance achieving
double digit organic growth
and creating over 33,000
new jobs.”
David Hudson
Regional President, North Africa, Middle East
and Southern Asia (NAMESA)
“ We managed to maintain
growth levels and improve
profitability.”
Willem Van de Ven
Regional President, G4S Sub-Saharan Africa
“ G4S Latin America and the
Caribbean had a very strong
year in 2009. Star performers
were Ecuador, Peru, Argentina,
Trinidad and Chile.”
Jeff Morrow
Regional President, Latin America and the Caribbean
New Markets
Organic growth
was excellent at 8.6%
New Markets
Turnover
£m
2008
2009
PBITA
£m
2008
2009
Margins
2008
2009
Organic
growth
2009
Asia*
522.0 455.9
41.1 36.0
7.9% 7.9% 5.6%
Middle East*
424.5 374.1
38.5 31.1
9.1% 8.3% 13.4%
Africa*
305.6 265.9
29.0 23.8
9.5% 9.0% 6.8%
Latin America &
Caribbean*
283.0 250.3
17.6 14.9 6.2% 6.0% 9.4%
Total New Markets* 1,535.1 1,346.2 126.2 105.8 8.2% 7.9% 8.6%
*At constant exchange rates
In New Markets, organic growth was excellent at 8.6% and margins
were higher than the prior year due to improved performance particularly
in Africa and the Middle East. The New Markets businesses have also
benefited from the implementation of the group’s key sector strategy –
focusing on areas such as oil and gas, events and aviation. New contracts
won during 2009 in these sectors included Baghdad International and Qatar
airports, the FIFA Club World Cup tournament in UAE, the Abu Dhabi
and Macau Grand Prix and we are currently mobilising several large
contracts in Papua New Guinea for the oil and gas industry.
Asia
Organic growth in Asia was 5.6% and margins were 7.9%. India, the
largest market in the region, achieved double digit revenue growth and
improved margins. The outlook for the Asia region looks encouraging in
2010, despite the loss of the DIAC (immigration management) contract
in Australia. Macau declined 13% in 2009 but is expected to improve
in 2010 as investment is returning to the casino industry.
Towards the end of the year new security rules were introduced
which will allow foreign ownership of manned security companies in
China. Licences are expected to be issued during the second half
of 2010 and this is a positive development for the medium term.
G4S also acquired Hill & Associates, Asia’s leading risk consultancy firm,
which will provide additional risk consultancy and risk management
capability across the region.
Middle East
In the Middle East, growth continued to be excellent across the region
with improved margins of 9.1%. Qatar and UAE performed particularly
strongly, mainly as a result of the new airport contract in Qatar and
federal wage legislation in UAE.
Africa
Africa performed very strongly with organic growth of 6.8% and margins
of 9.5%. This was helped by strong organic growth in Nigeria, Morocco,
Kenya and the care and justice services business in South Africa and a
continued focus on higher margin work in South Africa secure solutions
which has reduced its contract portfolio by 20%.
Latin America & Caribbean
Overall, the Latin America & Caribbean region has performed well
helped by a number of large contract wins in Argentina, Ecuador and
Peru, giving organic growth of 20.7%, 38.9% and 14.3% respectively.
Overall for one region organic growth was 9.4% and margins were 6.2%.
G4S plc Annual Report and Accounts 2009
26
Divisional review continued
Cash solutions
Profile
The cash solutions business is the management of cash for financial institutions
and retailers. Our deep understanding of the cash cycle ensures that money
is moved safely and efficiently around an economy at a considerable cost saving
to our customers, and allows them to focus on their core businesses.
Services
G4S provides a wide range
of secure logistics including:
Financial institution cash outsourcing
Data and document management services
ATM network management
ATM cash management services
ATM engineering services
Retail cash management solutions – CASH360
Cash logistics
Secure international transportation of cash
and valuables
KPIs and financial
highlights
The cash solutions business
continued its very strong
performance with organic growth
of 4.7% and margins of 11.4%.
Turnover*
£m
PBITA*
£m
Organic growth*
%
PBITA margin*
%
865
935 1,129 1,280 1,341
87.0 95.9 124.2 144.0 152.4
6.2
7.6
10.6 12.5 4.7
10.1 10.3 11.0
11.3 11.4
2009
2008
2007
2006
2005 2006 2007 2008 2009
2005 2006 2007 2008 2009
2005
2005 2006 2007 2008 2009
Play a key role in the management of the cash cycle on behalf of central banks,
commercial banks and retailers, leaving them to focus on their core business
Use our developed market cash cycle expertise and track record to encourage
central bank and financial institution outsourcing in New Markets
Introduce innovative technology such as CASH360 (see page 15)
* 2005 to 2008 at 2009 exchange rates and
excluding all businesses disposed of during
the period.
Divisional strategy
Key operational
highlights
Growth was achieved in all regions
Strict cost control helped cash solutions margins improve to 11.4% from 11.3%
New Markets grew strongly at 12%
The first CASH360 sales have been achieved
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
27
The cash solutions business performed well with organic growth of 4.7% and margins of 11.4%.
Europe*
North America*
New Markets*
Total cash solutions*
Exchange differences
At actual exchange rates
*At constant exchange rates
Turnover
£m
2008
904.8
95.9
279.2
2009
929.2
98.8
313.2
1,341.2
1,279.9
–
(87.4)
1,341.2
1,192.5
PBITA
£m
2008
98.9
0.9
44.2
144.0
(10.4)
133.6
2009
102.0
4.1
46.3
152.4
–
152.4
2009
11.0%
4.1%
14.8%
11.4%
Margins
2008
10.9%
0.9%
15.8%
11.3%
Organic
growth
2009
2.5%
3.3%
12.0%
4.7%
Europe
Organic growth in Europe was 2.5% and was impacted by lower interest
rates, lower inflation and a reduction in some services by customers,
but cost control measures ensured margins improved to 11.0%.
In the UK & Ireland, the cash solutions business performed well with
good organic growth and margins holding firm. The fifth “super branch”
cash management centre in the UK was opened in London in January
2009. SMI, a leading international cash management consultancy
business, was acquired early in 2009 to add to the group’s existing
cash management and consultancy capability. SMI acts as a consultant
to central banks on bank note security and central bank processes.
The first CASH360 sales have been achieved in the UK with a strong
pipeline of pilots.
Elsewhere in Europe, organic growth was affected by a reduction in
transportation and ATM services but continued strong growth was
achieved in Greece, Romania and Latvia.
North America
In North America the business in Canada, stabilised under the new
management team, improving profit margins from 0.9% in 2008 to 4.1%
in 2009. The Canadian cash solutions business also achieved positive
turnover growth for the first time since 2006.
New Markets
Organic growth in New Markets was excellent at 12.0% with margins
lower at 14.8% due to the re-negotiated tolls contract in Colombia and
the impact of some significant robberies in Saudi Arabia. South Africa,
one of the largest new markets for cash solutions, performed very
well amidst challenging market conditions. Excellent growth and strong
margins were achieved in UAE and Malaysia. New cash flow forecasting
software has been introduced in Malaysia which will help customers
reduce the cost of cash.
“ In 2009, the G4S cash solutions
business worked closely
with its retail and financial
institution customers to
provide effective and low cost
cash management solutions
during the economic crisis.
We believe these relationships
and strong market positions
will ensure our continued
growth in the medium and
long term.”
Ken Niven
Divisional President, G4S Cash solutions
“ We had good results from
our Malaysian and Indonesian
cash solutions businesses,
both benefiting from financial
institution outsourcing which
seems to be gaining pace at
the moment.”
Ted Devereux
Regional President, Asia Pacific
Europe
Acquisition of SMl,
a leading international
cash management
consultancy business
North America
The new management
team in Canada have
improved profit margins
from 0.9% to 4.1%
New Markets
Organic growth in
New Markets was
excellent at 12%
G4S plc Annual Report and Accounts 2009
28
Corporate Social Responsibility
Delivering performance through
responsible behaviour
G4S plays an important role in society. We make
a difference by helping people to operate in a safe
and secure environment where they can thrive
and prosper. Our size and scale means we touch
the lives of millions of people across the globe and
we have a duty and desire to ensure the influence
we have makes a positive impact on the people
and communities in which we work.
As one of the world’s largest global employers, we have a responsibility
to ensure that our employees are cared for and are given every
opportunity to develop and flourish as a result of being part of G4S.
Integrity is one of the group’s core values – being a responsible
business partner, employer, customer and supplier is an important
part of our strategy and forms an essential foundation on which we
carry out our business.
Responsible behaviour gives us licence to operate in existing markets
and helps to build our reputation in new ones. To underline the
importance of corporate responsibility we published our first
stand-alone corporate social responsibility report for 2008 and
continued to invest in the systems and processes we need to
strengthen our performance in this area.
We manage four key corporate responsibility issues described in
brief below, in more depth in the rest of this section of the report,
and in greater detail in the 2009 CSR report.
Safeguarding our integrity
How we set expectations and make sure that we attain high
ethical standards.
Securing our workforce
Keeping our people safe is our main priority – but we also need to
ensure that we source the right people for the right roles and that
our people feel listened to and supported in their working lives.
Securing our environment
Reducing resource usage lowers our impact on the environment
and helps us increase the efficiency of our operations.
Securing our communities
We can make our business stronger through investment in stable,
safe communities where our staff live and work.
More in our Corporate Social
Responsibility report 2009
More on Risk on page
38
CSR management
CSR related issues have been a key part of our business philosophy
since the creation of G4S in 2004 as part of our Integrity Value Stream
Working Group – a group set up to ensure compliance with the group’s
ethical performance standards.
In January 2010, we established a CSR Committee, chaired by G4S
non-executive director, Mark Elliott, to ensure that CSR issues remain
at the forefront of the group’s strategy and that we continue to have
a positive impact on people and communities, whilst contributing to
a sustainable future for our business and everyone connected to it.
The CSR Committee meets quarterly and reports into the Audit
Committee in order to ensure that our CSR strategy remains aligned
to issues such as risk management, audit and compliance.
G4S plc
Board
Nominations
Committee
Audit
Committee
Remuneration
Committee
CSR
Committee
Ethical Trading &
Business Practices
Workforce Diversity
& Inclusion
Employment Issues
Health & Safety
Human Rights
Climate Action
Community &
Social Investment
Stakeholder engagement
During 2009 we have developed our communication and engagement
with key stakeholder groups to ensure that our strategy is aligned to their
needs and that as our CSR programmes develop, we seek input and
advice from those around us.
G4S engages with a wide range of stakeholders including:
Customers: The very nature of our work requires us to understand
customers’ business issues and risks, and provide an appropriate solution.
Employees: In 2009, G4S conducted one of the largest ever employee
surveys – receiving responses from 169,000 employees in 107 businesses.
Investors: In 2009, G4S held two group meetings for CSR investors,
including one hosted by Lord Condon, our non-executive deputy
chairman and senior independent director as well as responding to
enquiries from investors and ethical investment advisers.
Industry associations: Many G4S managers and employees play an active
role in industry bodies and associations such as the Ligue Internationale
des Societes de Surveillance, the international association of leading
security companies, and the European Works Council to improve
standards and share best practice.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
29
Policies and standards
Performance and progress in 2009
To ensure good governance, we set group-wide standards in critical
areas such as finance, HR, security and communications, reflecting the
G4S values and business strategy. In order to deal with major cultural
and legal variations around the world we leave space for businesses
to localise their approach to implementing these standards, but without
compromise to the standards themselves.
CSR goals
Our main focus in 2009 has been on ensuring that the KPI measurement
systems we have introduced are embedded in the business and are
providing us with accurate and meaningful data on which we can build
our CSR strategies. This will enable us to set realistic targets in the future
and monitor accurately our progress against them.
Our targets include:
Environment: Introducing carbon reduction measures to enable us to
achieve an annual carbon intensity reduction of 4.5% each year to 2012.
Diversity and inclusion: Aiming for all businesses to have carried out
an assessment of their current position on diversity and inclusion by
the end of 2010.
Diversity and inclusion: Targeting at least 20% female participation in
our high potential management development programmes.
Health and safety: Conducting a complete review of the H&S strategy in
every business by the end of the year.
Employee engagement: Ensuring that all front-line employees have
the opportunity to take part in a feedback survey at least once every
two years.
Audit and compliance: Conducting a full annual on-site internal audit of
each of our major business units and an internal audit at least every three
years for all other businesses.
Community investment: Carrying out an assessment of our current
community investment and impact by the end of the year, with a view
to increasing our investment over time.
Safeguarding our integrity
Business ethics
We believe that having a clear business ethics policy is essential to
reinforce our principles throughout the organisation and help make
them a reality wherever we operate.
The G4S Business Ethics Policy was first introduced over five years
ago, and since then has been continually developed to ensure it remains
current and comprehensive. The 2009 policy is available on the G4S
website and describes the standards that we apply in our dealings
with employees, customers, suppliers, shareholders and governments,
covering topics such as:
p Our approach to being a good corporate citizen, including human
rights, the environment and local communities
p Our standards of business practice, covering issues such as bribery
and corruption, treatment of customers, suppliers and competitors
p Our approach to corporate governance, compliance with the law,
accounting standards and reporting
p Our commitments to our employees, incorporating international
labour standards, health and safety and diversity and inclusion
Each year, we ask all senior leaders in G4S to personally reaffirm
their commitment to the policy, and in 2009, to ensure that the policy
is more broadly understood throughout the organisation, it was
cascaded throughout the business so that every employee could be
made aware of the standards of behaviour that are expected of them
and their colleagues.
The mechanisms used to embed these principles vary according
to local laws and cultures and include practices such as:
p An employee induction programme
p Employee handbooks
p Establishing employee training programmes
p Promotion of local business ethics and conduct policies
p Discussions with employee representatives
p Reinforcement via communication channels such as newsletters
and team briefings
p The appointment of chief compliance officers in some businesses
“ Not only has the company
engaged in constructive
negotiations with labour
organisations, to resolve
disputes and work out
structures to handle labour
rights issues in challenging
environments, but it has also
demonstrated an excellent
approach to investor dialogue
during the process.”
Jakob König, Analyst
GES Investment Services
G4S plc Annual Report and Accounts 2009
30
Corporate social responsibility continued
Compliance
Failure to demonstrate integrity to our wide range of stakeholders
could damage our reputation and impact upon our ability to grow
and develop our business in line with the group strategy, therefore
monitoring compliance with our policy on ethical business practices
is a key part of ensuring we live up to our “integrity” goals.
Sources of information that allow us to monitor compliance
and to support the maintenance of our ethical standards include:
p Internal audit
p Global whistle-blowing facility
p External audit
p Ongoing management reporting, including the G4S risk
management process
The chart below shows the internal audit activity during the last two
years in terms of assignments completed in different areas:
Number of audits
and reviews
2008
2009
102
116
32
36
11
50
Number
of internal
control audits
Number
of financial
reviews
Number of
investigations
and business
support
In 2009, due to extra staffing we were able to increase the number of
internal control audits by 14% and financial reviews by 13% compared
to 2008.
The increase in the number of investigations and business support work
reflects an additional 43 off-site reviews to increase assurance over small
businesses not visited during the year.
Securing our workforce
It is vital in an organisation of the size and complexity of G4S to have
clear standards to ensure that all employees are treated with respect,
dignity and fairness, wherever in the world they work, in line with the
G4S values.
We firmly believe that compliance with these HR standards forms the
basis of a strong relationship with employees based on trust. Such a
relationship is a prerequisite for engaging employees in the business and
gaining their commitment to perform at their best for the benefit of
customers and G4S.
Our HR standards cover issues such as:
p Performance appraisals
p Training, development and succession
p Recruitment, selection and screening
p Health and safety
p Diversity and inclusion
p Transparent and fair procedures for disciplinary matters,
grievances and redundancies
p Reward and recognition
p Labour relations and freedom of association
p Local line and HR managers are responsible for ensuring compliance
with these standards
Safety
The nature of our business means that many G4S employees operate
in hazardous environments where crime or violence present particular
issues for society, and as a result they can become victims of attacks by
third parties. Tragically, 36 G4S employees died in 2009 as a result of
such attacks. While this figure is significantly lower than in 2008, when
54 employees died, we remain committed to investing time, resource
and energy to find new ways to protect our employees as they carry
out their critical roles in society, and setting the benchmark for health
and safety across the industry.
To support our health and safety strategy, we have defined standards
with which all G4S businesses must comply, going substantially beyond
the legal requirements in many parts of the world. These cover areas
such as setting strategy and policy, measuring and reporting on KPIs,
involvement with stakeholders, identifying health and safety risks and
reviewing performance.
This expertise is being further enhanced with the appointment of a
global health and safety adviser from the International Organisation of
Employers to help us ensure that G4S benchmarks well against other
multi-national employers.
Employee engagement
We believe that employee engagement is an important driver of
sustainable business performance as employees who are fully engaged
will do their very best at work and care passionately about delivering
first-rate service for our customers.
To generate strong levels of employee engagement we therefore take
care to create an environment where people feel proud of G4S, feel
valued as individuals, and have the opportunity to undertake work that
they find enjoyable and fulfilling.
This strategy is reinforced by a range of global standards which have
been designed to ensure all businesses work to continually improve levels
of engagement among their employees and help reinforce our position
as a leading global employer.
Engaging our workforce helps create a virtuous circle, with increased
employee motivation and loyalty generating higher levels of productivity
and customer service, which delivers a positive and prolonged impact
on our bottom line, leading in turn to increased job security and more
diverse career opportunities.
We therefore expect all managers to treat each employee as a unique
individual, and encourage our employees to actively engage with G4S
and create an environment where we can work together to look after
our mutual long-term interests.
Employee feedback
To help embed our employee engagement strategy, in 2009 we
undertook our first global employee survey in which we asked our
people around the world how they viewed G4S as an employer. By the
end of the year, over 169,000 employees in 107 businesses had taken the
opportunity to share their view – a response rate of almost 30% and an
excellent result given the significant proportion of remote workers in
G4S. We believe this to be one of the largest global surveys of its kind
and are very proud that our colleagues around the world took the time
to share their views on working with G4S.
59
84
86
78
79
69
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would recommend
G4S to a friend
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Labour relations
2009 saw the global labour relations climate in the group move forward
significantly as the company began to implement its Ethical Employment
Partnership (EEP) with UNI, the global union federation. Signed in late
2008, the EEP is designed to drive improvements in employment
standards across the security industry while helping to ensure that
employee and union rights are respected throughout the group, resulting
in a positive impact on employees, their families and their communities.
Securing our environment
Reducing resource usage lowers our impact on the environment and
helps us increase the efficiency of our operations. We have made
significant progress over the last two years in measuring carbon
emissions and setting carbon intensity reduction targets. We calculate
that during 2009, G4S businesses emitted some 628,000 t/CO2e.
G4S total carbon emissions
split by region
Asia: 12.4%
Middle East: 18.3%
Africa: 12.4%
The Americas: 17.2%
UK & Ireland: 20.5%
Continental Europe: 19.2%
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
31
In March 2009, G4S established a three-year environmental strategy
which can be summarised as follows:
p Systematically measure the carbon emissions of the group for
at least 90% of the business
p Comply with all relevant legislation and codes of conduct
p Seek environmental business opportunities which comply with
the G4S business strategy
p Implement carbon reduction technologies to reduce carbon intensity
measured against our revenue by 4.5% per year from 2010 to 2012
p Develop an organisation to support the G4S Climate Action &
Environmental Policy
p Communicate the G4S Climate Action & Environmental Policy
and Objectives to key stakeholders
Engaging with employees on climate issues
In 2009, G4S launched “The Big Think” to highlight the issues surrounding
climate change and encourage our employees to think about the steps,
however small, that they can take themselves to help limit climate change.
As a major global employer we believe that our staff are critical to the
success of our Climate Action Programme and their individual actions
can result in wide-ranging and effective energy efficiences.
Securing our communities
The group provides funding for four major, long-term community-
based initiatives around the world as part of our commitment to being
a good corporate citizen. These include a children’s home in Shanghai,
a tree-planting programme in Malawi, Gifts 4 Schools in Jamaica
and a school for underprivileged children in Delhi.
In addition, in every country where we operate, we seek to make a
positive impact on the local communities where our staff, customers and
suppliers live and work. Around the world we encourage our businesses
to invest in community projects, whether directly with cash or through
staff volunteering, fundraising and provision of G4S services.
Many of G4S’ specialist business activities deliver immense community
benefits. Our mine action teams remove unexploded ordnance from
former conflict zones across the world, making them safe for farming,
housing and economic development. Staff in our prisons in the UK,
US, Australia and South Africa run programmes dedicated to helping
offenders turn away from a life of crime after release from custody,
benefiting the communities to which they return.
Focusing on children and young people
Different countries across the world face different challenges to
their societies and social wellbeing. With operations in more than
110 countries, we are very aware of the many worthy causes and
projects which deserve our support. Our general strategy is for our
business units to support local programmes and charities which reflect
the issues faced by their local communities. Therefore, G4S provides
funding, volunteers and services to a broad range of organisations in
the communities in which our employees live and work. As well as
directly benefiting the communities concerned, this action improves
our engagement with our staff and deepens our relationships with
our customers.
The majority of our local programmes focus on the health, education,
welfare and support of children and young people, although some
G4S businesses focus on the elderly, the poor and other disadvantaged
or vulnerable groups.
G4S plc Annual Report and Accounts 2009
32
Financial review
Resilient and stable
We ended 2009 with very strong cash generation
equivalent to 90% of PBITA – well ahead of our target
of 85%. Following the £350 million bond placing we
remain in a very robust financial position with financial
headroom of more than £600 million.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
33
Basis of accounting
The financial statements are presented in accordance with applicable
law and International Financial Reporting Standards, as adopted by the
European Union (“adopted IFRSs”). The group’s significant accounting
policies are detailed in note 3 on pages 64 to 69 and those that are most
critical and/or require the greatest level of judgement are discussed
in note 4 on page 70.
Operating results
The overall results are commented upon by the chairman in his
statement and operational trading is discussed in the operating review
on pages 8 to 27. Profit from operations before amortisation of
acquisition-related intangible assets (PBITA) amounted to £500.3m,
an increase of 21% on the £415.0m in 2008 and an increase of 10.0%
at constant exchange rates.
Associates
Included within PBITA is £1.2m (2008: £3.4m) in respect of the group’s
share of profit from associates, principally from the business of Space
Gateway in the US which provides safety services to NASA.
Acquisitions and acquisition-related
intangible assets
Investment in acquisitions in the year amounted to £153.2m.
This comprises a cash outlay of £157.5m, deferred consideration
of £6.2m offset by a £10.5m tax refund relating to earlier years.
This investment generated goodwill of £82.3m and other
acquisition-related intangible assets of £51.9m.
The group undertook several acquisitions in the year, the most significant
of which were Adesta LLC, a leading US systems integrator in the design
and operation of security systems and command and control centres
for government and regulated services acquired on 31 December 2009
for $66m and All Star International, one of the premier facilities
management and base operations support companies providing services
to the US Government, acquired on 23 November 2009 for $59.9m.
Other acquisitions included the purchase of controlling interests in
SecPoint Security Limited, a secure solutions business in Ghana; Sunshine
Youth Services, a juvenile justice business in the US; CL Systems Limited,
a cash solutions business in Greater China; SMI, a cash solutions business
in the UK; NSSC, a US risk consulting business to the nuclear power
industry and the public sector and Hill & Associates, Asia’s leading
provider of specialist risk mitigation consulting services.
The group also completed the minority buy-outs of certain businesses
in New Markets during the year.
The largest acquisition in 2008 was the purchase of the Global Solutions
group (“GSL”), an international leader in the provision of support services
for governments, public authorities and the private sector, based in the
UK, on 12 May 2008.
Other significant acquisitions in the prior year included ArmorGroup,
an international provider of defensive, protective security services,
headquartered in the UK; Touchcom, a security consultancy and design
business in the US; RONCO, an international provider of humanitarian
mine action and ordnance services, specialised security and training,
headquartered in the US; MJM Investigations, a provider of insurance
fraud mitigation and claims services in the US; Rock Steady, providing
event security in the UK; Travel Logistics, a provider of passport and
visa services in the UK; and Progard, the market leader in professional
security services in the Republic of Serbia.
In addition, the group acquired the 49% of its business in Macau that
it did not already own, and completed the purchase of the remaining
minority interest in the multi-service businesses in the Baltic States.
The contribution made by acquisitions to the results of the group during
the year is shown in note 17 on pages 80 to 83.
The charge for the year for the amortisation of acquisition-related
intangible assets other than goodwill amounted to £83.2m. Goodwill
is not amortised. Acquisition-related intangible assets included in the
balance sheet at 31 December 2009 amounted to £2,043.9m goodwill
and £361.2m other.
Investment in acquisitions
in the year amounted to
£153.2 million net
At constant exchange rates
PBITA increased by 10.0%
PBITA increased 21%
to £500.3 million
G4S plc Annual Report and Accounts 2009
34
Financial review continued
Financing items
Finance income was £81.7m and finance costs £196.0m, giving a net
finance cost of £114.3m. Net interest payable on net debt was £89.1m.
This is an increase of 10% over the 2008 cost of £81.0m due principally
to the impact of exchange differences. The group’s average cost of gross
borrowings in 2009 was 4.7% compared to 5.5% in 2008. The cost based
on prevailing interest rates at 31 December 2009 was 4.5% compared to
4.6% at 31 December 2008.
Also included within financing are other net interest costs of £6.2m
(2008: £7.2m), including the unwinding of the discount on put
options over minority interests, and a net cost of £19.0m (2008:
net income of £3.7m) in respect of movements in the group’s net
retirement benefit obligations.
Taxation
The taxation charge of £100.0m provided upon profit from operations
before amortisation of acquisition-related intangible assets, represents
a tax rate of 26%, compared to 27% in 2008. The group believes that
an effective tax rate of around this level is sustainable going forward
as a result of the ongoing rationalisation of the post-merger group legal
structure and the elimination of fiscal inefficiencies. The amortisation of
acquisition-related intangible assets gives rise to the release of the related
proportion of the deferred tax liability established when the assets were
acquired, amounting to £23.3m. Potential tax assets in respect of losses
amounting to £449.7m have not been recognised as their utilisation
is uncertain.
Disposals and discontinued operations
The group disposed of its manned security business in France on
28 February 2009. In addition, during the year the group disposed of
a number of small businesses, including the captive insurance business
in Luxembourg on 23 December 2009, as well as discontinuing the
systems installation business in Slovakia.
During the prior year the group disposed of its secure solutions
businesses in Germany on 15 May 2008 and of its security systems
business in France on 31 July 2008.
The loss attributable to discontinued operations comprises a profit
of £5.6m in respect of post-tax trading of discontinued businesses and
a loss of £12.5m in respect of the disposals made in the current year.
The result from discontinued operations in 2008 comprises a loss
of £11.7m in respect of trading of both the 2008 and the 2009 disposals,
a £12.0m profit in respect of disposals, an impairment of £29.4m in
respect of the carrying value of the group’s manned security business in
France and a £1.6m profit in respect of adjustments to prior year disposals.
The net cash proceeds from business disposals received in 2009
were £8.3m.
The contribution to the turnover and operating profit of the group from
discontinued operations is shown in note 6 on pages 71 to 74 and their
contribution to net profit and cash flows is detailed in note 7 on page 75.
Profit for the year
Profit for the year was £219.2m, compared to £164.9m in 2008.
The increase represents the £85.3m increase in PBITA less the £29.8m
increase in net interest cost, the £15.4m increase in amortisation of
acquisition-related intangible assets, the £6.4m increase in the tax
charge less the £20.6m decrease in loss from discontinued operations.
Minority interests
Profit attributable to minority interests was £16.7m in 2009, slightly
higher than the £13.7m for 2008, reflecting minority partner shares
in the group’s organic and acquisitive growth, less a reduction in minority
shares in net profits consequent upon the group increasing its interests
in certain subsidiaries.
Earnings per share
Basic earnings per share from continuing and discontinued operations
was 14.4p compared to 11.1p for 2008. These earnings are unchanged
when calculated on a fully diluted basis, which allows for the potential
impact of outstanding share options.
Adjusted earnings, as analysed in note 16 on page 79, excludes the
result from discontinued operations, amortisation of acquisition-related
intangible assets and retirement benefit obligations financing items, all net
of tax, and better allows the assessment of operational performance, the
analysis of trends over time, the comparison of different businesses and
the projection of future performance. Adjusted earnings per share was
20.2p, an increase of 22% on 16.6p for 2008.
Dividends
The directors recommend a final dividend of 4.16p (DKK 0.3408)
per share. This represents an increase of 13.0% upon the final dividend
for the year to 31 December 2008 of 3.68p (DKK 0.3052) per share.
The interim dividend was 3.02p (DKK 0.2599) per share and the total
dividend, if approved, will be 7.18p (DKK 0.6007) per share, representing
an increase of 11.7% over the 6.43p (DKK 0.5624) per share total
dividend for 2008.
The proposed dividend cover is 2.8 times (2008: 2.5 times) on adjusted
earnings. The group’s intention is that dividends continue to increase
broadly in line with normalised adjusted earnings.
The tax rate in 2009 was
26% compared to 27%
in 2008
Profit for the year was
£219.2 million compared
to £164.9 million in 2008
The directors recommend
a final dividend of 4.16p,
up 13.0% on 2008
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
35
Cash flow
The primary cash generation focus of group management is on the
percentage of operating profit converted into cash. From 2007, the
group’s target conversion rate was raised from 80% to 85%. Operating
cash flow, as defined for management purposes, was as follows:
The additional retirement benefit payments in 2008 included a
one-off payment of £5.4m in respect of the acquired GSL scheme.
The group’s free cash flow, as defined by management, is analysed
as follows:
PBITA
2009
£m
2008
£m
Operating cash flow
500.3
415.0
Net interest paid
Less share of profit from associates
(1.2)
(3.4)
Tax paid
New finance leases
Free cash flow
PBITA before share of profit from associates
(Group PBITA)
Depreciation and amortisation of intangible assets
other than acquisition-related
(Profit)/loss on disposal of property, plant
and equipment
Movement in working capital and provisions
Net cash flow from capital expenditure
Operating cash flow
499.1
411.6
136.2
116.1
(0.3)
2.1
(15.4)
(15.3)
(169.7)
(161.3)
449.9
353.2
Operating cash flow as a percentage of group PBITA
90%
85%
Free cash flow is reconciled to the total movement in net debt as follows:
Free cash flow
Cash flow from discontinued operations
Additional retirement benefit contributions
2009
£m
275.7
(12.7)
(29.9)
2008
£m
174.1
(27.2)
(32.3)
2009
£m
2008
£m
449.9
353.2
(86.7)
(80.0)
(67.8)
(19.7)
(82.0)
(17.1)
275.7
174.1
Net cash outflow on acquisitions
(153.5)
(629.7)
Capital expenditure relative to the depreciation charge can vary from
year to year due to the timing of asset replacements. It was 125% of
depreciation in 2009, compared to 139% in 2008. Overall operating
cash generation for the year was good, as a result of the maintenance
of financial discipline across the organisation.
Net cash (outflow)/inflow from disposals
Net cash flow from associates
Dividends paid to minority interests
Share issues less share purchases
The management operating cash flow calculation is reconciled to
the net cash from operating activities as disclosed in accordance
with IAS7 Cash Flow Statements as follows:
Dividends paid to equity holders of the parent
Net cash flow from hedging financial instruments
Movement in net debt in the year
(9.5)
2.4
(18.0)
31.1
12.2
(11.9)
(7.1)
268.0
(94.2)
(10.2)
(75.0)
(65.9)
(57.0)
(356.6)
2009
£m
2008
£m
Cash flow from operating activities (IAS 7 definition)
509.2
373.0
Net cash flow from capital expenditure
(169.7)
(161.3)
Add-back cash flow from discontinued operations
Add-back additional retirement benefit contributions
Add-back tax paid
Operating cash flow (G4S definition)
12.7
29.9
67.8
27.2
32.3
82.0
449.9
353.2
Foreign exchange translation adjustments to net debt
(28.7)
(186.2)
Net debt at 1 January
Net debt at 31 December
(1,347.7) (804.9)
(1,433.4) (1,347.7)
Net debt represents the group’s total borrowings less cash, cash
equivalents and liquid investments. The components of net debt
are detailed in note 39 on page 105.
Adjusted EPS was 20.2p,
an increase of 22% on
16.6p for 2008
Operating cash flow was
£449.9 million
Operating cash flow as a
percentage of operating
profit was 90%
G4S plc Annual Report and Accounts 2009
36
Financial review continued
Financing and treasury activities
The group’s treasury function is responsible for ensuring the availability
of cost-effective finance and for managing the group’s financial risk arising
from currency and interest rate volatility and counterparty credit.
Treasury is not a profit centre and is not permitted to speculate in
financial instruments. The treasury department’s policies are set by
the board. Treasury is subject to the controls appropriate to the risks
it manages. These risks are discussed in note 33 on pages 95 to 97.
Financing
The group’s funding position is strong, with sufficient headroom against
available committed facilities and very little debt maturing before 2012.
The group’s primary source of finance is a £1.1bn multi-currency
revolving credit facility provided by a consortium of lending banks
at a margin of 0.225% over Libor and maturing on 28 June 2012.
The group also has US$550m in financing from the private placement
of unsecured senior loan notes on 1 March 2007, maturing at various
dates between 2014 and 2022 and bearing interest at rates between
5.77% and 6.06%. The fixed interest rates payable have been swapped
into floating rates for the term of the notes, at an average margin
of 0.60% over Libor.
On 15 July 2008, the group completed a further $514m and £69m
private placement of unsecured senior loan notes, maturing at various
dates between 2013 and 2020 and bearing interest at rates between
6.09% and 7.56%. The proceeds of the issue were used to reduce
drawings against the revolving credit facility. $265m of the US dollar
receipts have been swapped into sterling for the term of the notes.
On 9 March 2009, the group obtained a BBB credit rating from Standard
& Poor’s. This credit rating supported the group’s inaugural transaction
in the public bond market, a £350m note issued on 13 May 2009 bearing
an interest rate of 7.75% and maturing in 2019.
At 31 December 2009, the group had other short-term committed
facilities of £45m and uncommitted facilities of £515m.
The group’s net debt at 31 December 2009 of £1,433.4m represented a
gearing of 99%. The group headroom at 31 December 2009 was £614.7m.
The group has sufficient capacity to finance current investment plans.
Interest rates
The group’s investments and borrowings at 31 December 2009 were,
with the exception of the issue of private placement notes in July 2008
and public notes in May 2009, at variable rates of interest linked to
Libor and Euribor, with the group’s exposure being predominantly to
interest rate risk in US dollar and euro. The group’s interest risk policy
requires treasury to fix a proportion of this exposure on a sliding scale
utilising interest rate swaps. The maturity of these interest rate swaps
at 31 December 2009 was limited to five years. The market value of
the Loan Note-related pay-variable receive-fixed swaps outstanding
at 31 December 2009, accounted for as fair value hedges, was a gain
of £39.0m. The market value of the pay-fixed receive-variable swaps
and the pay-fixed receive-fixed cross-currency swaps outstanding at
31 December 2009, accounted for as cash flow hedges, was a gain
of £8.7m.
Foreign currency
The group has many overseas subsidiaries and associates denominated
in various currencies. Treasury policy is to manage significant translation
risks in respect of net operating assets using foreign currency
denominated loans, where possible. The group no longer uses foreign
exchange contracts to hedge the residual portion of net assets not
hedged by way of loans. The group believes cash flow should not be put
at risk by these instruments in order to preserve the carrying value of net
assets, given the changed liquidity environment following the global credit
crisis. At 31 December 2009, the group’s US dollar and euro net assets
were approximately 75% and 87% respectively hedged by foreign
currency loans.
Exchange differences on the translation of foreign operations included
in the consolidated statement of comprehensive income amount to a loss
of £64.7m (2008: gain of £100.9m). These differences are net of a £28.7m
loss (2008: £186.2m) on the retranslation of net debt and a £10.2m cash
outflow (2008: £65.9m) from forward exchange contracts.
The market value of forward contracts outstanding at 31 December
2009 was a loss of £0.1m.
The group obtained
a BBB rating from
Standard & Poor’s
in March 2009
The group’s headroom
at 31 December 2009
was £614.7 million
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
37
Corporate governance
The group’s policies regarding risk management and corporate
governance are set out in the Corporate Governance Statement
on pages 47 to 49.
Going concern
The directors are confident that, after making enquiries and on the
basis of current financial projections and available facilities, they have
a reasonable expectation that the group has adequate resources
to continue in operational existence for the foreseeable future. For this
reason they continue to adopt the going concern basis in preparing
the financial statements.
Trevor Dighton
Chief financial officer
Cash management
To assist the efficient management of the group’s interest costs and its
short-term deposits, overdrafts and revolving credit facility drawings,
the group operates a global cash management system. At 31 December
2009, more than 110 group companies participated in the cash pool.
Debit balances of £146.9m and credit balances of £147.5m were held
within the cash pool. The group met the conditions of IFRS allowing
balances within this cash pool to be offset for reporting purposes.
Retirement benefit obligations
The group’s primary defined benefit retirement schemes are those
operated in the UK, but it also operates such schemes in a number
of countries, particularly in Europe and North America. The latest full
actuarial assessments of the UK schemes were carried out at 31 March
2007 in respect of the Group 4 scheme (approximately 8,000 members),
at 5 April 2006 in respect of the Securicor scheme (approximately
20,000 members) and at 31 March 2005 in respect of the GSL scheme
(approximately 2,000 members) acquired during the prior year. These
assessments and those of the group’s other schemes have been updated
to 31 December 2009. The group’s funding shortfall on the valuation
basis specified in IAS19 Employee Benefits was £328m before tax or
£236m after tax (2008: £286m and £206m respectively).
The valuation of gross liabilities increased during 2009 largely due to
a decrease in the appropriate AA corporate bond rate in the UK from
6.3% to 5.7%, and compounded by an increase in inflation from 3.1%
to 3.6% in the UK. However, the value of the assets held in the funds
increased by £143m which helped to partly offset the increase in liabilities
during 2009.
The group believes that the short-term volatility in reported retirement
benefit obligations, in response to movements in asset prices and financial
circumstances, is of limited relevance in the context of liabilities which are
exceptionally long term in nature and furthermore that, over the long
term, investment returns on the retirement benefit scheme assets will be
sufficient to fund retirement benefit obligations. However, in recognition
of the regulatory obligation upon pension fund trustees to address
reported deficits if they arise, the group anticipates that additional cash
contributions will continue to be made at least at a level similar to that
in 2009. The three schemes in the UK have combined under one trustee
body with effect from 1 January 2009 and will all be formally actuarially
assessed at 5 April 2009.
The group’s funding shortfall for its defined benefit retirement schemes
was £236m after tax.
G4S plc Annual Report and Accounts 2009
38
Group principal risks
Our risk assessment and
management process
The group operates around 150 businesses spread
over more than 110 countries and across a range
of product areas. Most of the risks identified below
are market specific and so the diversity of the group’s
operations means any particular issue should have
a limited impact.
The group operates a management structure that
is appropriate to the scale and breadth of its activities,
and the internal audit department operates under
a wide remit to ensure strict adherence to group
authorisation procedures and control standards
as outlined here.
Risk Management Process
Audit Committee overview
Risk Committees
Group
Risks identified
and escalated based
on materiality
Management meetings
Regions
(and clusters)
Company
(and business functions)
Risk reporting system
Risk and potential impact
Price competition
The security industry comprises a number of very competitive markets. In
particular, manned security markets can be fragmented with relatively low
economic barriers to entry and the group competes with a wide variety of
operators of varying sizes. Actions taken by the group’s competitors may place
pressure upon its pricing, margins and profitability.
Major changes in market dynamics
Such changes in dynamics could include new technologies, government legislation
or customer consolidation and could, particularly if rapid or unpredictable, impact
the group’s revenues and profitability.
Security can be a high profile industry. There is a wide and ever-changing variety
of regulations applicable to the group’s businesses across the world, with a recent
development being an increase of restriction of foreign ownership in some
countries. Failure, or an inability, to comply with such regulations may adversely
affect the group’s revenues and profitability.
Cash losses
The group is responsible for the cash held on behalf of its customers. Increases in
the value of cash lost through criminal attack may increase the costs of the
group’s insurance. Were there to be failures in the control and reconciliation
processes surrounding customer cash these could also adversely affect the
group’s profitability.
Onerous contractual obligations
Should the group commit to sales contracts specifying disadvantageous pricing
mechanisms, unachievable service levels or excessive liability, it could impact its
margins and profitability.
Defined benefit pension schemes
A prolonged period of poor asset returns and/or unexpected increases in
longevity could require increases in the current levels of additional cash
contributions to defined benefit pension schemes, which may constrain the
group’s ability to invest in acquisitions or capital expenditure, adversely impacting
its growth and profitability.
Inappropriate sourcing of staff
The group’s greatest asset is its large and committed workforce. However, were
the group to source inappropriate staff, whether as permanent employees,
temporary workers or sub-contractors, the result could be detrimental to the
group’s reputation and could adversely affect the group’s growth and profitability.
Poor operational service delivery
Should the group fail to meet the operational requirements of its customers
it could impact its reputation, contract retention and growth.
Financing
If, due to adverse financial market conditions, insufficient or only very costly
financial funding were available, the group might not be in a position to
implement its strategy or invest in acquisitions or capital expenditure, adversely
impacting its growth and profitability. This includes possible bank bankruptcy, loss
of headroom particularly from movement of exchange rates, unavailability of bank,
bond or other sources of financing and downgrading of the G4S credit rating.
Mitigation
– Group management continually monitors competitor activity to ensure that
– The group will be undertaking a project to refine the customer
the group can react quickly to any competitor actions which would directly
measurement system during early 2010 which should further enhance
affect the group’s results.
competitor analysis.
– All business plans and strategic planning includes competitor and SWOT
analysis and the pricing strategy for contracts is managed through business
unit and regional price approval levels. Significant price reductions require
group capex committee approval.
– The group performs strategic and business planning at group, division,
– The group also monitors local markets and engages with local
region and business unit level to ensure that specific local regulation
governments around the world involving the group legal department
requirements are met. Monthly business unit trading reviews ensure that
where appropriate to ensure adherence to regulatory requirements,
market changes are identified quickly and actions taken to maintain
to identify any restrictions that could adversely impact the group’s
performance and ensure that business objectives continue to be achieved.
activities and take appropriate actions.
– The group has formal systems and policies in place documenting physical
– In addition there is regular reporting of any cash losses/attacks and audits
security procedures and security directives and adheres to a security
of security are performed in branches.
framework to help reduce the risk of cash losses.
– The group also operates captive insurance business units to mitigate against
regional cash reconciliation managers to increase the frequency and profile
the financial risk of losses and attacks.
of cash reconciliations throughout the group.
– Recently the group has implemented a number of actions around recruiting
– All transactions are subject to strict authorisation limits and regular
reconciliations of cash balances are performed for both cash in ATMs
and cash held on customers’ behalf.
– Any new contracts entered into are subject to defined approval process
– The group maintains a contract risk database and management system to
criteria. Standard contracts with standard terms and conditions are used
monitor the ongoing risks involved. The contract management system was
subject to a major upgrade during 2009.
where possible. Non-standard contracts which expose the group to
material risk (e.g. unlimited liability) are subject to risk assessment and
depending on the level of risk exposure are referred for regional and
group legal department review.
– The performance of the group’s pension schemes and deficit funding plans
– The results of these reviews are discussed with the board and appropriate
are reviewed regularly by both the group and the trustees of the schemes
action is taken. Please refer to note 34 to the group accounts for further
taking actuarial and investment advice as necessary.
details of the group’s retirement benefit plans and upcoming valuations.
– The group has standard recruitment policies and procedures in place
– Steps have been taken to further tighten controls and increase independent
to ensure that only appropriate staff are recruited. These include formal
monitoring of business unit compliance with these standards. For 2010
vetting procedures carried out during application with formal sign-off that
onwards a formal business unit compliance review by regional human
the group standards have been met before a new staff member, temporary
resources management has been instigated.
worker or sub-contractor is able to commence work.
– Particular attention is given to acquired businesses to ensure that they meet
the group standards.
– Group-wide operational procedures and standards are in place and
enforced in all business units. There is also a robust supervision structure
which allows management to monitor the progress and delivery of the
group’s contracts and customer relationships.
against liquidity, refinancing and currency/exchange rate risks. Refer to
note 33 to the group accounts for more details.
– The group treasury department monitors and follows policies to mitigate
– The group’s historical main source of funding has been a revolving bank
facility of £1.1bn that is due for renewal in 2012. Recently the group has
sought to diversify its sources of finance by issuing a number of private
placement bonds both in the US and more recently in the UK.
These have spread out the refinancing requirements over the next ten
years to ensure the group has access to sufficient funds to meet its business
and strategic plans.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
39
Risk and potential impact
Price competition
The security industry comprises a number of very competitive markets. In
particular, manned security markets can be fragmented with relatively low
economic barriers to entry and the group competes with a wide variety of
operators of varying sizes. Actions taken by the group’s competitors may place
pressure upon its pricing, margins and profitability.
Major changes in market dynamics
Such changes in dynamics could include new technologies, government legislation
or customer consolidation and could, particularly if rapid or unpredictable, impact
the group’s revenues and profitability.
Security can be a high profile industry. There is a wide and ever-changing variety
of regulations applicable to the group’s businesses across the world, with a recent
development being an increase of restriction of foreign ownership in some
countries. Failure, or an inability, to comply with such regulations may adversely
affect the group’s revenues and profitability.
Cash losses
The group is responsible for the cash held on behalf of its customers. Increases in
the value of cash lost through criminal attack may increase the costs of the
group’s insurance. Were there to be failures in the control and reconciliation
processes surrounding customer cash these could also adversely affect the
group’s profitability.
Onerous contractual obligations
Should the group commit to sales contracts specifying disadvantageous pricing
mechanisms, unachievable service levels or excessive liability, it could impact its
margins and profitability.
Defined benefit pension schemes
A prolonged period of poor asset returns and/or unexpected increases in
longevity could require increases in the current levels of additional cash
contributions to defined benefit pension schemes, which may constrain the
group’s ability to invest in acquisitions or capital expenditure, adversely impacting
its growth and profitability.
Inappropriate sourcing of staff
The group’s greatest asset is its large and committed workforce. However, were
the group to source inappropriate staff, whether as permanent employees,
temporary workers or sub-contractors, the result could be detrimental to the
group’s reputation and could adversely affect the group’s growth and profitability.
Poor operational service delivery
Should the group fail to meet the operational requirements of its customers
it could impact its reputation, contract retention and growth.
Financing
If, due to adverse financial market conditions, insufficient or only very costly
financial funding were available, the group might not be in a position to
implement its strategy or invest in acquisitions or capital expenditure, adversely
impacting its growth and profitability. This includes possible bank bankruptcy, loss
of headroom particularly from movement of exchange rates, unavailability of bank,
bond or other sources of financing and downgrading of the G4S credit rating.
Mitigation
– Group management continually monitors competitor activity to ensure that
the group can react quickly to any competitor actions which would directly
affect the group’s results.
– All business plans and strategic planning includes competitor and SWOT
analysis and the pricing strategy for contracts is managed through business
unit and regional price approval levels. Significant price reductions require
group capex committee approval.
– The group will be undertaking a project to refine the customer
measurement system during early 2010 which should further enhance
competitor analysis.
– The group performs strategic and business planning at group, division,
region and business unit level to ensure that specific local regulation
requirements are met. Monthly business unit trading reviews ensure that
market changes are identified quickly and actions taken to maintain
performance and ensure that business objectives continue to be achieved.
– The group also monitors local markets and engages with local
governments around the world involving the group legal department
where appropriate to ensure adherence to regulatory requirements,
to identify any restrictions that could adversely impact the group’s
activities and take appropriate actions.
– The group has formal systems and policies in place documenting physical
security procedures and security directives and adheres to a security
framework to help reduce the risk of cash losses.
– The group also operates captive insurance business units to mitigate against
the financial risk of losses and attacks.
– In addition there is regular reporting of any cash losses/attacks and audits
of security are performed in branches.
– Recently the group has implemented a number of actions around recruiting
regional cash reconciliation managers to increase the frequency and profile
of cash reconciliations throughout the group.
– All transactions are subject to strict authorisation limits and regular
reconciliations of cash balances are performed for both cash in ATMs
and cash held on customers’ behalf.
– Any new contracts entered into are subject to defined approval process
criteria. Standard contracts with standard terms and conditions are used
where possible. Non-standard contracts which expose the group to
material risk (e.g. unlimited liability) are subject to risk assessment and
depending on the level of risk exposure are referred for regional and
group legal department review.
– The group maintains a contract risk database and management system to
monitor the ongoing risks involved. The contract management system was
subject to a major upgrade during 2009.
– The performance of the group’s pension schemes and deficit funding plans
are reviewed regularly by both the group and the trustees of the schemes
taking actuarial and investment advice as necessary.
– The results of these reviews are discussed with the board and appropriate
action is taken. Please refer to note 34 to the group accounts for further
details of the group’s retirement benefit plans and upcoming valuations.
– The group has standard recruitment policies and procedures in place
– Steps have been taken to further tighten controls and increase independent
to ensure that only appropriate staff are recruited. These include formal
vetting procedures carried out during application with formal sign-off that
the group standards have been met before a new staff member, temporary
worker or sub-contractor is able to commence work.
monitoring of business unit compliance with these standards. For 2010
onwards a formal business unit compliance review by regional human
resources management has been instigated.
– Particular attention is given to acquired businesses to ensure that they meet
the group standards.
– Group-wide operational procedures and standards are in place and
enforced in all business units. There is also a robust supervision structure
which allows management to monitor the progress and delivery of the
group’s contracts and customer relationships.
– The group treasury department monitors and follows policies to mitigate
against liquidity, refinancing and currency/exchange rate risks. Refer to
note 33 to the group accounts for more details.
– The group’s historical main source of funding has been a revolving bank
facility of £1.1bn that is due for renewal in 2012. Recently the group has
sought to diversify its sources of finance by issuing a number of private
placement bonds both in the US and more recently in the UK.
These have spread out the refinancing requirements over the next ten
years to ensure the group has access to sufficient funds to meet its business
and strategic plans.
G4S plc Annual Report and Accounts 2009
40
Board of directors
Alf Duch-Pedersen (63)
1
Chairman
Chairman of the Nomination Committee
Alf was appointed to the board in May 2004 and became its chairman
in June 2006. He is also chairman of the Nomination Committee.
Alf’s career has involved managing multinational companies based in
both Scandinavia and the UK, and covering a range of industries from
manufacturing and financial services to food and food products. He was
president and chief executive of Tryg-Baltica A/S from 1991 to 1997 and
fulfilled the same roles at Danisco A/S from 1997 to 2006. He is now
chairman of the board of Danske Bank A/S.
4
Mark Seligman (54)
Non-executive director
Chairman of the Audit Committee
Member of the Remuneration Committee
Mark was appointed to the board in January 2006 and is the chairman of
the Audit Committee and a member of the Remuneration Committee.
Having qualified as a chartered accountant with Price Waterhouse,
Mark spent 12 years with SG Warburg before joining BZW in 1995.
Then, following the takeover of BZW, he became Head of UK
Investment Banking at CSFB and subsequently deputy chairman of
CSFB Europe. In 2003, he became chairman of UK Investment Banking
for CSFB and in 2005 became a senior advisor to Credit Suisse Europe.
He is an alternate member of the Panel on Takeovers and Mergers,
chairman of the Industrial Development Advisory Board and
a non-executive director of BG Group plc.
Thorleif Krarup (57)
7
Non-executive director
Member of the Audit Committee
Thorleif was appointed to the board in May 2004 and is a member
of the Audit Committee. A former chairman of TDC (Tele Danmark
Corporation) and former group chief executive of Nykredit A/S,
Unibank A/S and Nordea AB, Thorleif is currently chairman of Exiqon
A/S, Sport One Danmark A/S and Nutri Pharma ASA. He is also
deputy chairman of H. Lundbeck A/S, ALK-Abello A/S and LFI A/S
and a director of the Lundbeck Foundation.
1
2
3
4
5
6
7
8
9
G4S plc Annual Report and Accounts 2009
Overview
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Governance
Financial statements
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41
Nick Buckles (49)
2
Chief executive
Mark Elliott (60)
3
Non-executive director
Nick was appointed to the board in May 2004 and was the company’s
deputy chief executive and chief operating officer, before becoming
chief executive in July 2005. Nick joined Securicor in 1985 as a projects
accountant. In 1996, he was appointed managing director of Securicor
Cash Services (UK) and became chief executive of the security division
of Securicor in 1999. He was appointed to the board of Securicor plc
in 2000 and became its chief executive in January 2002. Nick is also
a non-executive director of Arriva plc.
Member of the Remuneration and Nomination Committees
Mark was appointed to the board in September 2006 and is a member
of the Remuneration and Nomination Committees. Based in the USA,
he worked for IBM between 1970 and 2008, having occupied a number
of senior management positions including General Manager, IBM Europe,
Middle East and Africa, where he was responsible for the company’s
operations in more than 110 countries. Mark is now the non-executive
chairman of QinetiQ Group PLC and a non-executive director of Reed
Elsevier PLC and Reed Elsevier Group plc, a member of the supervisory
board of Reed Elsevier NV and chairman of Reed Elsevier’s remuneration
committee. He also serves on the Deans Advisory Council and the
Technology Advisory Council at Indiana University.
Trevor Dighton (60)
5
Chief financial officer
Trevor was appointed to the board in May 2004. An accountant,
he joined Securicor in 1995 after a previous career which included
posts in both the accountancy profession and in industry, including five
years in Papua New Guinea, three years in Zambia and seven years
with BET plc. He joined Securicor’s vehicle services division in 1995,
was appointed finance director of its security division in 1997 and
became its deputy group finance director in 2001. He was appointed
to the board of Securicor plc as group finance director in June 2002.
Trevor became the company’s chief financial officer in July 2004.
Lord Condon (63)
6
Deputy chairman and senior independent director
Chairman of the Remuneration Committee
Member of the Audit and Nomination Committees
Senior independent director
Lord Condon was appointed to the board in May 2004. He became
deputy chairman of the board in September 2006 and is chairman of
the Remuneration Committee, a member of the Audit and Nomination
Committees and the senior independent director. Paul joined the
Metropolitan Police in 1967 and, after holding various senior
appointments in the police force, including a period as Chief Constable
of Kent, he served as Commissioner of the Metropolitan Police between
1993 and 2000. He was created a life peer in 2001 and is an advisor to
international sports governing bodies and a member of the Advisory
Board of Vidient Systems Inc.
Grahame Gibson (57)
8
Chief operating officer
Bo Lerenius (63)
9
Non-executive director
Grahame was appointed to the board in April 2005. He joined
Group 4 in 1983, starting as Finance Director (UK) followed by a
number of senior roles, including Deputy Managing Director (UK),
Vice President (Corporate Strategy), Vice President (Finance and
Administration), Vice President Operations (Central & South Eastern
Europe and UK) and Chief Operating Officer of Group 4 Falck.
In July 2004, he became the group’s divisional president for Americas
& New Markets. Grahame became chief operating officer in July 2005
and is also regional president for North America secure solutions.
Member of the Audit and Remuneration Committees
Bo was appointed to the board in May 2004 and is a member of the
Audit and Remuneration Committees. After a diverse early business
career, he served as chief executive of Ernstromgruppen AB, a Swedish
building materials company, between 1985 and 1992 when he joined
Stena Line AB, where he was chief executive and vice chairman. In 1999,
he became group chief executive of Associated British Ports Holdings plc.
He is now the non-executive chairman of Mouchel Group Plc and a
non-executive director of Land Securities Group plc and Thomas Cook
Group Plc, chairman of the Swedish Chamber of Commerce for the
United Kingdom and a senior advisor to the infrastructure fund of
Swedish venture capital group EQT.
G4S plc Annual Report and Accounts 2009
42
Executive management team
1
2
3
4
Nick Buckles
1
Chief executive officer
Nick has worked in the security industry for 25 years, focusing
throughout this time on the commercial and strategic aspects of
all areas of security services.
After a variety of commercial roles throughout the group, he was
responsible for driving significant profit improvements in many Securicor
businesses throughout the 1990s as a business unit managing director
and divisional chief executive of the security division. He was also
instrumental in the development of Securicor’s security sector focus,
becoming Group Chief Executive in 2002, and in bringing together
Group 4 Falck and Securicor to create the new combined group.
Nick became Chief Executive of G4S in July 2005. Nick is Chairman of
the Ligue Internationale des Sociétés de Surveillance, the international
association of leading security companies.
Trevor Dighton
2
Chief financial officer
Trevor has worked in the security industry for 24 years. After several
years in both the accountancy profession and commerce working in
the finance function and general management, he joined BET in 1986
as finance director of their Security and Communications Division.
Trevor joined Securicor in 1995 and, following a number of years as
finance director of the security division, he was appointed to the board
of Securicor plc in June 2002 as group finance director. He became
chief financial officer of G4S in July 2004.
Trevor is a Fellow of the Chartered Institute of Management Accountants.
Grahame Gibson
3
Chief operating officer and divisional president –
secure solutions
Grahame has been involved in the security industry for 27 years, having
joined Group 4’s UK operating company in 1983 as Finance Director.
Since that time, Grahame has held a number of operational, management
and board positions in the UK, USA, Denmark, the Netherlands
and Austria.
His broad experience of the security industry and management of
businesses across a diverse range of cultures has been invaluable to
the group throughout its development. Grahame joined the board
of G4S in April 2005.
Grahame is a board member of the Ligue Internationale des Sociétés
de Surveillance.
Ken Niven
4
Divisional president – cash solutions
Ken has 14 years’ experience in the security industry, having joined
Securicor in 1996 as operations director of the UK cash services business
where he was later promoted to managing director and was instrumental
in the development of new product areas, including cash centre
outsourcing and establishing Securicor’s independent ATM network.
Ken was appointed to his current role in July 2004 and is responsible
for the group’s cash solutions division, which includes all of the major
cash solutions business units, and for sharing cash solutions best practice
throughout the entire organisation. Ken joined the security industry
following a successful career within the logistics management industry
where he held senior roles at Express Foods, Excel Logistics and
Coca-Cola.
Ken is President of ESTA, the European cash services association,
and is a member of the Chartered Institute of Logistics and Transport.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
43
5
6
Søren Lundsberg-Nielsen
5
Group general counsel
Søren began his career as a lawyer in Denmark and since 1984 he has
had a wide range of legal experience as General Counsel for international
groups in Denmark, Belgium and the US before joining Group 4 Falck
in 2001 as General Counsel. Søren has been involved in a wide range
of successful mergers and acquisitions during his career, including the
acquisition of Wackenhut and the merger of Group 4 Falck and Securicor.
Søren now has overall responsibility for all internal and external legal
services for G4S as well as the group’s insurance programme.
Søren is a member of the Danish Bar and Law Society, a board member
of the Danish Blood Donation Society, member of the Advisory Board
of the Danish UK Chamber of Commerce and author of the book
“Executive Management Contracts”, published in Denmark.
6
Irene Cowden
Group HR director
Irene has spent her career in HR management, specialising in employee
relations, organisational development, talent management and
compensation issues. She has been involved in major change projects
including the cultural and integration aspects of mergers and acquisitions
as well as large scale organisational change involving workforce
restructuring, working in partnership with major trade unions.
Irene has worked in the security industry for 32 years and has held
director level positions at business unit, divisional and corporate level.
She was appointed to the Board of Securicor plc in 2002 as Group
HR Director.
Irene is a member of the Chartered Institute of Personnel and
Development (MCIPD).
G4S plc Annual Report and Accounts 2009
44
Report of the directors for the year ended 31 December 2009
The directors have pleasure in presenting their Annual Report together with the audited financial statements of G4S plc and the consolidated financial
statements of that company and its subsidiaries, associated undertakings and joint ventures (“the group”) for the year ended 31 December 2009.
G4S plc has its primary listing on the London Stock Exchange and a secondary listing on the NASDAQ OMX exchange in Copenhagen.
1 Principal activities of the group
G4S plc is a parent company with subsidiaries, associated undertakings and joint ventures.
The principal activities of the group comprise the provision of secure solutions (including manned security services, care and justice services and
security systems) and cash solutions (including the management and transportation of cash and valuables) as well as the undertaking of other
outsourced business processes in sectors where security and safety risks are considered a strategic threat.
2 Group results
The consolidated result for the year is shown in the consolidated income statement on page 58.
Details of the development and performance of the group’s business during the year, its position at the year end, future developments, principal risks
and uncertainties, prospects of the group and other information which fulfils the requirements of the Business Review are contained on pages 4 to 39
and are incorporated in this report by reference. The Corporate Governance Statement set out on pages 47 to 49 is also incorporated in this report
by reference. The group’s financial risk management objectives and policies in relation to its use of financial instruments, and its exposure to price,
credit, liquidity and cash flow risk, to the extent material, are set out in note 33 to the consolidated financial statements on pages 95 to 97.
3 Dividends
The directors propose the following net dividend for the year:
– Interim dividend of 3.02p (DKK 0.2599) per share paid on 30 October 2009.
– Final dividend of 4.16p (DKK 0.3408) per share payable on 4 June 2010.
Shareholders on the Danish VP register will receive their dividends in Danish kroner. Shareholders who hold their shares through CREST or in
certificated form will receive their dividends in sterling unless they prefer to receive Danish kroner, in which case they should apply in writing to
the Registrars by no later than 5 May 2010.
4 Significant business acquisitions, disposals and developments
In January 2009, Wackenhut Valores SA was disposed of in Panama.
In January 2009, Gottschalk Feuerschutzanlagen GmbH & Co. KG was disposed of in Germany.
In February 2009, G4S disposed of G4S Holdings (France) SAS, the holding company for the group’s French security services businesses.
In February 2009, Secura Monde International Limited and Shiremoor International Engineering Limited were acquired in the UK.
In March 2009, the business and assets of ADT Security Services were acquired in Taiwan.
In April 2009, the business and assets of Sunshine Youth Services were acquired in the US.
In May 2009, the company issued £350m, 7.75% bonds due 13 May 2019.
In June 2009, Archive Solutions Limited was acquired in Kenya.
In June 2009, the business and assets of Pacific Security Alarm were acquired in Guam.
In June 2009, the Fogl Knight group was acquired in Australia.
In September 2009, 83% of Control Systems Argentina SA was acquired.
In November 2009, a number of companies in the Hill & Associates group were acquired, primarily in the Asia Pacific region.
In November 2009, Champions of the West, Inc. (trading as All Star International) was acquired in the US.
In December 2009, Adesta LLC and Adesta LP were acquired in the US.
In December 2009, Nuclear Security Services Corporation was acquired in the US.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
45
5 Capital
The authorised and issued share capital of G4S plc at 31 December 2009 is set out on page 104 (note 37 to the consolidated financial statements).
There were 1,410,568,639 shares in issue as at 12 March 2010.
Information concerning the company’s shares held under option is set out on page 104 (note 37 to the consolidated financial statements).
Resolutions granting the directors power, subject to certain conditions, to allot and make market purchases of the company’s shares will be proposed
at the company’s Annual General Meeting. The resolutions are set out in the Notice of Meeting on pages 120 to 121 and further explanation is
provided on pages 123 to 127. At 31 December 2009 the directors had authority in accordance with a resolution passed at the company’s Annual
General Meeting held on 26 May 2009 to make market purchases of up to 140,000,000 of the company’s shares.
The company does not hold any treasury shares as such. However the 5,543,818 shares held within the G4S Employee Benefit Trust (“the Trust”)
and referred to on page 105 (note 38 to the consolidated financial statements) are accounted for as treasury shares. The Trust has waived its right
to receive dividends in respect of the company’s shares which it held during the period under review.
6 Research and development expenditure
Research in connection with the development of new services and products and the improvement of those currently provided by the group is carried
out continuously. Research and development written off to profit and loss during the year amounted to £5.8m (2008: £3.5m).
7 Payment of suppliers
It is the company’s and the group’s policy to pay suppliers in accordance with the payment terms negotiated with them. Thus, prompt payment
is normally made to those suppliers meeting their obligations. The company and the group do not follow any formal code or standard on
payment practice.
At 31 December 2009 the trade creditors of the company represented 31 days (2008: 26 days) of annual purchases.
At 31 December 2009 the consolidated trade creditors of the group represented 37 days (2008: 40 days) of annual purchases.
8 Employees
In 2009 the first group-wide employee survey was carried out, offering employees the opportunity to provide feedback on their experience of
working for the group. Every employee was asked a number of questions about their involvement, development and engagement with the group,
and more than 169,000 employees responded – almost a third of the total workforce. Around the world, employees responded positively to being
involved in such a constructive process and the overall feedback was very encouraging with four out of five employees who responded saying they
would recommend G4S as an employer to a friend. Having now analysed the feedback in detail, each business is in the process of developing an action
plan to encourage even greater levels of engagement by the time the survey is repeated in 2011.
During the year the company also began rolling out the Ethical Employment Partnership which it entered into at the end of 2008 with UNI, the global
union federation. The agreement is designed to drive improvements in employment standards across the security industry while helping to ensure that
employee and union rights are respected throughout the group, and has already resulted in a positive impact on employees, their families and their
communities. The first phase of implementation covered South Africa and India, involving around a quarter of the group’s employees, and in both
cases the new level of social dialogue has been well received as employees start to see tangible benefits affecting their everyday lives.
Attracting and retaining talented individuals continues to be essential to the success of the group and the diversity of its workforce helps it meet its
customers’ expectations. The overall approach of the group to diversity and inclusion is to ensure that it appoints, promotes and develops employees
in accordance with their talents and aptitudes, regardless of any disability. To encourage loyalty and retain employees’ skills, the group also aims to
retain existing employees who become disabled wherever possible. Further details of the group’s approach to employee engagement and social
dialogue are included in the group’s separate Corporate Social Responsibility Report.
9 Political and charitable contributions
The group remains committed to the support of charities, the community, job creation and training. Charitable contributions by the group during
the year amounted to £311,000 (2008: £313,000). The purposes for which such contributions were made and the amount donated to each purpose
were: child welfare: £117,000; health and medical: £38,000; NGOs: £38,000; poverty relief: £5,500; local communities: £50,500; environment:
£21,000; prisoner welfare: £29,000; and sports: £12,000.
The company and its subsidiaries have made no contributions during the year to political parties carrying on activities, or to candidates seeking
election, within the EU.
One of the company’s subsidiaries in the US has however made contributions totalling $3,000 in aggregate to a number of candidates and organisations
seeking election or carrying on activities in the US.
10 Substantial holdings
The directors have been notified of the following substantial shareholdings at 12 March 2010 of the ordinary shares in the capital of G4S plc:
Skagen Stichting Administratiekantoor
BlackRock, Inc.
Legal & General Group Plc
171,939,961 (12.19%)
91,587,666 (6.49%)
51,880,641 (3.68%)
G4S plc Annual Report and Accounts 2009
46
Report of the directors continued
11 Auditor
A resolution to re-appoint KPMG Audit Plc, chartered accountants, as auditor to the company and for their remuneration to be fixed by the directors
will be submitted to the Annual General Meeting.
12 Directors
The directors, biographical details of whom are contained on pages 40 and 41, held office throughout the year.
The directors retiring by rotation are Alf Duch-Pedersen, Nick Buckles, Lord Condon and Mark Elliott who, being eligible, offer themselves for
re-election. The board believes that they possess experience and expertise relevant to the company’s operations, that they continue to be effective,
that they are committed to the success of the company and that they should be re-elected at the Annual General Meeting.
Of those directors proposed for re-election, Alf Duch-Pedersen, Lord Condon and Mark Elliott do not have contracts of service and Mr Buckles’
contract of service has no unexpired term since it is not for a fixed term.
The contracts of service of the executive directors are terminable at 12 months’ notice. None of the non-executive directors has a contract of service.
The company has executed deeds of indemnity for the benefit of each of the directors in respect of liabilities which may attach to them in their
capacity as directors of the company. These deeds are qualifying third party indemnity provisions as defined by section 234 of the Companies Act
2006 and have been in effect since 3 November 2006. A copy of the form of indemnity is available on the company’s website. In addition, indemnities
have been granted by the company in favour of certain of the directors of certain of the group’s subsidiaries in Germany and the Netherlands.
The company has maintained a directors’ and officers’ liability insurance policy throughout the year under review.
Details of directors’ interests (including their family’s interests) in the share capital of G4S plc and of the directors’ remuneration are set out on
pages 50 to 55.
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant audit
information of which the company’s auditor is unaware and each director has taken all the steps that he ought to have taken as a director to make
himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information.
None of the directors had a material interest in any contract significant to the business of the group during the financial year.
By order of the board
Peter David
Secretary
15 March 2010
The Manor
Manor Royal
Crawley
West Sussex
RH10 9UN
Corporate governance statement
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
47
The board’s statement on the company’s corporate governance performance is based on the Combined Code on Corporate Governance
published in June 2008 (“the Combined Code”) which is available on the Financial Reporting Council’s website (http://www.frc.org.uk/corporate/
combinedcode.cfm).
The Combined Code requires companies to disclose how they apply the code’s main principles, and to confirm that they comply with the code’s
provisions or, where they do not comply, to provide a careful and clear explanation of their non-compliance which aims to illustrate how their actual
practices are consistent with the code’s principles and contribute to good governance.
a Application of Combined Code principles
The board comprises the non-executive chairman (Alf Duch-Pedersen), a non-executive deputy chairman (Lord Condon), four other non-executive
directors, the chief executive (Nick Buckles), the chief financial officer (Trevor Dighton) and the chief operating officer (Grahame Gibson). The board
considers all the non-executive directors to be independent. The senior independent director is Lord Condon.
All continuing directors are subject to election by shareholders at the next Annual General Meeting following their appointment by the board and will
submit themselves for re-election at least every three years.
Membership of the three board committees is as follows:
Audit Committee
Mark Seligman (chairman from May 2009)
Lord Condon (joined November 2009)
Thorleif Krarup (chairman until May 2009)
Bo Lerenius
Remuneration Committee
Lord Condon (chairman)
Mark Elliott
Bo Lerenius
Mark Seligman
Nomination Committee
Alf Duch-Pedersen (chairman)
Lord Condon
Mark Elliott
Mr Seligman, who is the member of the Audit Committee with recent and relevant financial experience, became chairman of the Audit Committee
following the company’s Annual General Meeting on 26 May 2009, taking over that role from Mr Krarup, who remains a member of that committee.
Lord Condon joined the Audit Committee in November 2009. The terms of reference of each of the above committees are available on the
company’s website.
It is intended that the chairmen of the three committees will be available to answer questions at the Annual General Meeting which is an important
opportunity for communication between the board and shareholders, particularly private shareholders. Following each resolution at the Annual
General Meeting, the meeting is informed of the numbers of proxy votes cast and the same information is subsequently published on the
company’s website.
There were nine board meetings during the year ended 31 December 2009. One of the meetings was also an extended, two-day board and strategy
session, at which presentations on the development and implementation of the company’s strategy were made to the board by senior executives.
One of the board meetings was held at a subsidiary company’s offices in the USA to enable the board to have greater interaction with some of the
businesses in one of the group’s main markets. All members attended each of the board meetings except that Mr Dighton and Mr Elliott were each
absent from one meeting and Mr Krarup was absent from two. Non-executive directors also attended meetings and conferences held by various
regions and business units in order to gain a closer understanding of the group.
At each meeting, the board receives reports from the chief executive, the chief financial officer and the company secretary, an HR report which
includes summaries of developments on HR and health and safety matters and an investor relations report which includes analysts’ reviews and any
comments received from major shareholders since the previous board meeting. After meetings of the board committees, the respective committee
chairmen report to the board on the matters considered by each committee. In addition, the board receives monthly management accounts.
There are nine board meetings scheduled for the current year, including a one-day strategy review session.
There is a detailed schedule of matters reserved to the board which was reviewed and revised during the year and is now set out under twelve
separate categories: strategy and management; structure and capital; financial reporting and controls; internal controls; contracts; communication;
board membership and other appointments; remuneration; delegation of authority; corporate governance matters; policies; and other. By way of
example, board approval is required for major investments, including the acquisition or disposal of any business worth more than £5m; any changes
to the group’s long-term objectives and commercial strategy; and the annual operating and capital expenditure budgets.
G4S plc Annual Report and Accounts 2009
48
Corporate governance statement continued
a Application of Combined Code principles continued
Each of the directors has disclosed to the board any situations which apply to them as a result of which they have or may have an interest which
conflicts or may conflict with the interests of the company. In accordance with the company’s articles of association, the board has authorised such
matters. The affected directors did not vote when their own positions were considered. Where the board deemed it appropriate, such authorisation
was given subject to certain conditions. The board reviews such matters on a regular basis.
In the year under review, the Audit and Remuneration Committees both met four times and the Nomination Committee met three times.
All members attended each of the meetings except for Mr Elliott who was absent from one meeting of the Nomination Committee.
The performance of the board and its committees has been evaluated using a questionnaire-based self-assessment process which was introduced
and informed by the external consultancy which conducted an evaluation of the performance of the board and the board’s committees in 2008.
In addition the chairman held individual meetings with each of the directors to discuss their performance and their view of the board as a whole.
Reports generated by this process have been considered by the board, the chairman and by each of the Audit and Remuneration Committees and a
number of actions have been agreed as a means of improving performance. As a result, more presentations will be made to the board by operational
managers, even more board participation in strategy development will be facilitated and the board will give greater direction to the board committees.
The Remuneration Committee concluded that it should provide more explanation of its activities and the Audit Committee is to give greater
guidance on the issues which are to be presented to it.
The chairman held meetings with the non-executive directors without the executives present and a review of the performance of the chairman by
the non-executive directors, without the chairman present, was led by the senior independent director.
The chief executive and the chief financial officer hold regular meetings with individual institutional shareholders to discuss the group’s strategy and
financial performance, although price sensitive information is never divulged at these meetings. It is intended that all the directors will attend the
company’s Annual General Meeting and will be available to answer questions from shareholders.
The Nomination Committee is responsible for making recommendations on board appointments and on maintaining a balance of skills and experience
on the board and its committees. During the year it has carefully considered the skills and experience available on the board and concluded that, whilst
the current blend provides the right array of knowledge and understanding, the time is right to plan for the future needs of the board. External search
consultants have therefore been engaged to assist with the process of refreshing the non-executive element of the board using a description of the
role and capabilities required drawn up by the committee and approved by the board. The board itself has also given careful consideration to the
succession planning process for the group’s senior executive management.
Audit Committee meetings are attended by representatives of the group auditor, the chief financial officer, the group financial controller, the head of
group internal audit and the company secretary. The committee considers the group’s annual and half-yearly financial statements and any questions
raised by the auditor on the financial statements and financial systems. It also reviews, amongst other matters, the group’s financial reporting and
internal auditing processes, whistle blowing arrangements, risk management procedures and internal controls.
The Audit Committee has recommended that the board re-appoints the existing external auditor having reviewed its performance of audit services
for the company, reports on the performance of the firm as a whole, its independence given the non-audit services it provides to the group and its
policy and practice on audit partner rotation, as well as the cost of its services. The committee will keep the matter of the choice of external auditor
under review at regular intervals.
The Audit Committee has established a policy on the provision by the external auditor of non-audit services, so as to ensure that the independence
of the audit is not compromised. Besides the formal audit function, the auditor is permitted to provide consultation and due diligence services related
to mergers and acquisitions, audits of employee benefit plans, reviews of internal accounting and control policies, general advice on financial reporting
standards and corporate tax services. The auditor is prohibited from providing other services without specific permission from the Audit Committee.
The value of non-audit services provided by the auditor must not exceed the fees charged for the statutory audit, save in the event of a major
transformation deal. The auditor has written to the Audit Committee confirming that, in its opinion, it is independent.
The work of the Remuneration Committee is more fully described in the Directors’ Remuneration Report which appears on pages 50 to 55.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
49
b Compliance with provisions of Combined Code
The company complied throughout the year under review with the provisions set out in section 1 of the Combined Code.
c Risk management and internal control
The directors acknowledge their responsibility for the group’s system of internal control and for reviewing its effectiveness. The system is designed
to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against
material misstatement or loss.
The risks associated with the group’s activities are reviewed regularly by the board, which considers major risks and evaluates their impact on the
group. Policies and procedures, which are reviewed and monitored by the head of group internal audit, are in place to deal with any matters which
may be considered by the board to present significant exposure.
The key features of the group’s risk management process, which was in place throughout the year under review and since are:
• A common risk management framework* is used to provide a profile of those risks which may have an impact on the achievement of business
objectives.
• Each significant risk is documented, showing an overview of the risk, how the risk is managed, and any improvement actions. The risk profiles ensure
that internal audit reviews of the adequacy, application and effectiveness of risk management and internal controls are targeted on the key risks.
• Risk management committees have been established at regional, divisional and group level. The regional committees meet at least annually and the
divisional and group committees meet quarterly. A standard agenda covering risk and control issues is considered at each meeting and risk profiles
are reviewed and updated at each meeting.
• Risk and control self-evaluation exercises are undertaken for each operating company, for most companies at least twice a year, and updated risk
profiles are prepared. Similar exercises are undertaken as part of the integration process for all major acquisitions. The results of the company risk
evaluations are assessed by the regional and divisional risk management committees*.
The process, which is reviewed regularly by the board in accordance with the internal control guidance for directors in the Combined Code, is carried
out under the overall supervision of the group risk management committee. This committee, which reports to the Audit Committee, includes both
the chief executive and the chief financial officer.
The Audit Committee undertakes a high level review of risk management and internal control. Both the divisional risk management committees and
the group risk management committee receive internal audit reports and regular reports on risks. They monitor the actions taken to manage risks.
The internal control system includes clearly defined reporting lines and authorisation procedures, a comprehensive budgeting and monthly reporting
system, and written policies and procedures. In addition to a wide range of internal audit reports, senior management also receive assurance from
other sources including security inspections, third party reviews, company financial control reviews, external audit reports, summaries of whistle
blowing activity, and risk and control self-evaluations.
The group has in place robust internal control and risk management systems for financial reporting. The group has a single global consolidation system
which is used for both internal management reporting, budgeting and planning as well as external reporting. The group has a comprehensive budgeting
process with the budget being approved by the board. Forecasts for the year are reported at least quarterly. Actual results at business unit, region and
group level are reported monthly and variances are reviewed. Each business has an internal financial review performed annually by a finance team
from either region or group to check the accuracy of financial reporting and compliance with the group finance manual.
The board has reviewed the group’s risk management and internal control system for the year to 31 December 2009 by considering reports from the
Audit Committee and has taken account of events since 31 December 2009.
By order of the board
Peter David
Secretary
15 March 2010
* Because Wackenhut Services, Inc. (“WSI”) is governed through a proxy agreement under which the group is excluded from access to operational information, it is not subject to the same risk
management process as is applied to other group companies. The board has however satisfied itself as to the adequacy of the internal control processes adopted by WSI.
G4S plc Annual Report and Accounts 2009
50
Directors’ remuneration report at 31 December 2009
This report, prepared on behalf of and approved by the board, provides details of the remuneration of each of the directors and sets out the
company’s remuneration policies for the current financial year and, subject to ongoing review, for subsequent financial years. The report will be
put to the company’s Annual General Meeting for approval by the shareholders.
The Remuneration Committee met four times during the period under review. The members of the committee, all of whom are considered to be
independent, are Lord Condon (chairman), Mark Elliott, Bo Lerenius and Mark Seligman. The committee is responsible for setting all aspects of the
remuneration of the chairman, the executive directors, the three other members of the group executive committee and the company secretary.
It is also responsible for the operation of the company’s share plans. Its terms of reference are available on the company’s website.
During the year, the committee received advice from Towers, Perrin, Forster & Crosby, Inc.1 (“Towers Perrin”) as the committee’s appointed
advisors on executive and senior management remuneration matters. Towers Perrin has also provided a small amount of management remuneration
information to the company during the period under review. Their terms of appointment are available on the company’s website. In addition Alithos
Limited (“Alithos”) has been appointed by the committee to verify the calculation of certain elements of payments due under the company’s
performance share plan. Alithos has not provided any other services to the company during the period under review.
Nick Buckles, chief executive, provided guidance to the committee on remuneration packages for senior executives within the group.
Further guidance was received from the group’s HR director, Irene Cowden. Neither Mr Buckles nor Mrs Cowden participated in discussions
regarding their own remuneration.
Remuneration policy
The policy for the remuneration of the executive directors and the executive management team aims to achieve:
• the ability to attract, retain and motivate high calibre executives;
• a strong link between executive reward and the group’s performance;
• alignment of the interests of the executives and the shareholders; and
• provision of incentive arrangements which focus appropriately on both annual and longer term performance.
In terms of market positioning, the overall objective is to achieve remuneration levels which provide a market competitive base salary with the
opportunity to earn above market norms through the company’s incentive schemes on the delivery of superior performance. A significant proportion
of total remuneration is therefore related to performance, through participation in both short-term and long-term incentive schemes. On average,
the performance-related element of remuneration for executive directors amounts to around 50% of the total package for target performance
and around 65% of the total package for stretch performance. The committee believes that the current balance is appropriate given its desire to
ensure a strong link between performance and remuneration whilst, at the same time, avoiding a system which might incentivise inappropriate
risk-taking. The balance between long- and short-term incentives, and between basic salary and performance-related bonuses, is therefore kept
under close review, but the committee is satisfied that the existing long-term incentive scheme, allied to the claw back processes and minimum
shareholding requirements which have been introduced recently, provide suitable controls and incentives which are designed to avoid rewarding
excessive risk taking or behaviour aimed at short-term, unsustainable, gains.
Target performance
Stretch performance
Long-term incentive
Annual bonus
Base salary
Long-term incentive
Base salary
Annual bonus
The committee is also satisfied that the incentive structure for the board does not raise environmental, social or governance risks by inadvertently
motivating irresponsible behaviour.
Bonus payments do not form part of salary for pension purposes.
1. Towers Perrin and Alithos have each given, and not withdrawn, their written consent to the issue of this document with the inclusion of the reference to their respective names in the form
and content in which they appear. Copies of the consent letters are available for inspection at the company’s registered office.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
51
Elements of remuneration
a Base salary and benefits
The salaries of the executive directors are reviewed with effect from 1 January each year. Interim salary reviews may be carried out following
significant changes in responsibility. The salaries take account of a benchmarking exercise based on similarly sized companies with a significant part of
their business overseas and also reflect responsibility, individual performance, internal relativities and salary and other market information supplied by
Towers Perrin. Benefits include pension arrangements and the provision of a company car (or a cash allowance in lieu of a car), health insurance and
life assurance. As in 2009, the executive directors have again requested that their base salaries are frozen in 2010, to take account of both pay and
employment conditions across the group as well as the current economic circumstances. The committee has acceded to this request, but is conscious
that this decision is not consistent with the company’s stated remuneration policy or the continuing strong performance of the group as a whole.
As a result the committee will continue to monitor the market closely and, when conditions permit, it is the committee’s intention to more closely
align base salaries with its competitive mid-market policy. Once again, as was the case in 2009, the non-executive directors have also asked that their
fee levels are not changed in 2010.
b Performance-related bonus scheme
For the year under review, the executive directors participated in an annual performance-related bonus scheme, payments under which were
dependent on the attainment of defined PBTA (profit before tax and amortisation) targets of the group, adjusted for the effect of any exceptional
items and discontinued operations and using constant exchange rates. The committee believes that PBTA best reflects the various key drivers of
business success within the group. The maximum bonus entitlement for the executive directors is an amount equal to 125% of base salary (150% in
the case of the chief executive). 60% of maximum bonus entitlement was payable on achievement of the budgeted target and the amount of bonus
increased on a straight-line basis up to 100% of maximum bonus entitlement for achievement of a stretch profit target. Any bonus due above 50%
of the individual’s maximum bonus entitlement would be awarded as deferred shares which would not vest for three years. For achievement of a
threshold level of profits which is at least 95% of the budgeted profit target, a bonus payment of 35% of maximum bonus entitlement was due, with
no bonus payable for performance below threshold.
A claw back provision was included in the 2009 annual bonus rules by which any deferred shares awarded and dividends arising therefrom could be
clawed back if the 2009 profit figures are restated materially in line with a recommendation by the Audit Committee within two years of the year end.
The committee has approved the retention of the same rules as described above for the 2010 annual bonus scheme but has extended the claw back
provisions so that they apply to cash payments as well as to deferred shares.
The group performed extremely well in 2009 in what were very difficult economic conditions in many of its key markets. PBTA increased by £78.2m
(£51.7m at 2009 constant exchange rates), exceeding the target of £397.7m, but falling below the maximum full stretch target which was £417.5m;
thus, 35% of the maximum stretch target was achieved. The Remuneration Committee has therefore agreed that the resulting bonus payment will be
at 74% of maximum bonus entitlement.
The PBTA target used for the above scheme is the same as the company’s budgeted PBTA for the corresponding period (assuming constant exchange
rates). The PBTA target allows for adjustments in respect of any material, non-budgeted changes which take place during the year, such as acquisitions,
disposals etc. Thus, for example, should a planned disposal not be completed by the year end, the committee reserves the right to re-insert the
operating profit or loss for the business in question in the actual and budgeted PBTA targets.
c Performance Share Plan (long-term incentive plan)
The Performance Share Plan (“PSP”) was introduced in July 2004. Under the plan, the executive directors and certain other senior executives receive
conditional allocations of the company’s shares which are released to them only on the achievement of demanding performance targets.
The maximum annual award of shares payable under the plan is two and a half times base salary. The annual award approved by the committee for
the year under review is two times base salary for the chief executive, one and a half times base salary for the other executive directors and one times
salary for senior executives below board level. The extent to which allocations of shares under the plan vest is determined, as to two-thirds of the
award, by the company’s normalised earnings per share growth relative to the RPI over a single three-year period and, as to the remaining third of the
award, by the company’s ranking by reference to TSR (total shareholder return; being share price growth plus dividends paid) using a bespoke global
group of 16 support services companies as a comparator group, again over a single three-year period.
In relation to awards made in years prior to 2007, the conditions subject to which allocations of shares vest under this plan differ in a number of
respects: half of any award is determined by the company’s normalised earnings per share growth relative to the RPI over a single three-year period
and the other half of the award by the company’s ranking by reference to TSR using the FTSE 100 constituent companies as at the date of the award
as a comparator group, again over a single three-year period. There is no provision for retesting.
The following targets will continue to apply to two-thirds of awards granted since 2007, with the three-year EPS (earnings per share) period ending
on 31 December in the third year (so for awards made at the beginning of 2009, the period ends on 31 December 2011):
Average annual growth in EPS
Less than RPI + 6% per annum
RPI + 6% per annum (18% over three years)
RPI + 6%–11% per annum
Proportion of allocation vesting
Nil
25%
Pro rata between 25% and 100%
RPI + 11% per annum (33% over three years)
100%
The same targets apply to the first half of awards granted in years prior to 2007.
G4S plc Annual Report and Accounts 2009
52
Directors’ remuneration report continued
c Performance Share Plan (long-term incentive plan) continued
The following targets apply to the remaining one-third of each award granted since 2007:
Ranking of the company against the bespoke comparator group by reference to TSR
Proportion of allocation vesting
Below median
Median
Nil
25%
Between median and upper quartile
Pro rata between 25% and 100%
Upper quartile
100%
The same targets apply to the second half of each award granted in years prior to 2007, but the ranking applied is that of the company against the
FTSE 100 constituent companies as at the date of the award.
In addition, participants in the PSP will receive a further share award with a value equivalent to the dividends which would have been paid in respect
of future PSP awards vesting at the end of the performance period.
In relation to awards made before 2007, there will only be a transfer of shares under the second half if the growth in EPS of the company has
exceeded the growth in RPI by 10% over a performance period of three financial years.
Furthermore, there will only be a transfer of shares under the final third (or second half in respect of awards made before 2007) if the Remuneration
Committee is satisfied that the company’s TSR performance is reflective of the company’s underlying performance.
The Remuneration Committee believes that a combination of earnings per share growth and total shareholder return targets is the most appropriate
performance measure for the performance share plan, as it provides a transparent method of assessing the company’s performance, both in terms of
underlying financial performance and returns to shareholders. The company calculates whether the EPS performance targets have been achieved by
reference to the company’s audited accounts which provide an accessible and objective measure of the company’s earnings per share, whilst TSR
ranking will be determined by Towers Perrin whose findings are verified by Alithos.
Awards will not normally vest where an employee ceases to be employed within the group unless cessation of employment is due to death, injury,
disability, redundancy, retirement or following a change of control of, or sale outside the group of, his or her employing company. In these situations,
vesting will occur in the normal course and the performance targets will need to be satisfied. Only a proportion of the award, based on the time
which has elapsed from the award date to the end of the last complete month in which the employee was employed, will vest in these circumstances
in most cases. The Remuneration Committee does however retain the ability to allow for a greater award to vest if it considers it to be appropriate
in exceptional circumstances.
The company’s current policy is to use market purchased shares to satisfy performance share plan awards.
The Remuneration Committee believes that continued shareholding by executive directors will strengthen the alignment of their interests with
shareholders’ interests. Accordingly, whilst executive directors of the company have previously been expected to retain shares to the value of 30% of
the after-tax gains made on the vesting of performance share plan awards until they have built up a shareholding equivalent to one times base salary,
a formal policy has now been adopted under which, in future, executive directors will be required to retain 50% of after-tax PSP vestings until a total
shareholding equal to 100% of base salary (150% for the chief executive) is achieved.
Following a review of the operation of the PSP by the Remuneration Committee including detailed analysis of the current EPS and TSR targets,
the committee is satisfied that the current EPS and TSR measures and targets remain appropriate for 2010 and that, as in 2009, the committee
will remove the impact of currency movements from the calculation of both EPS and TSR.
Fees, service contracts and letters of appointment
The chairman’s annual fee is £270,000. The annual fee for the non-executive directors, which is set by the chairman and the executive directors, is
£54,100, with a further £44,550 for the role of deputy chairman, £16,700 for the chairmanship of each of the Audit and Remuneration Committees
and £10,000 for the role of senior independent director. No other fees are paid for membership of the board committees. These fees are subject to
periodic review which takes into account comparative fee levels in other groups of a similar size and the anticipated time commitment for the
non-executive directors.
The service contracts of those who served as executive directors during the period are dated as follows:
Nick Buckles
Trevor Dighton
Grahame Gibson
2 June 2004
2 June 2004
6 December 2006
The contracts of Messrs Buckles, Dighton and Gibson are terminable by the company on 12 months’ notice. The contracts are terminable by the
executive directors on 12 months’ notice. There are no liquidated damages provisions for compensation payable upon early termination, but the
company reserves the right to pay salary in lieu of notice. The directors’ contracts do not provide for the payment of a guaranteed bonus in the event
of termination. It is the company’s policy that it should be able to terminate service contracts of executive directors on no more than 12 months’
notice and that payments for termination of contract are restricted to the value of salary and other contractual entitlements for the notice period.
The Remuneration Committee is satisfied that the current arrangements are appropriate and in line with best practice.
The chairman and the other non-executive directors do not have service contracts but letters of appointment. Mr Seligman and Mr Elliott have each
been granted two-year extensions to their initial three-year terms of appointment. Those extensions began respectively on 1 January and 1 September
2009. The other non-executive directors were each granted three-year extensions to their initial letters of appointment, such extensions having begun
on 19 May 2007. All continuing directors are required to stand for re-election by the shareholders at least once every three years.
It is the company’s policy that executive directors may each hold not more than one external non-executive appointment and may retain any
associated fees. Mr Buckles is a non-executive director of Arriva plc for which he received fees of £45,000 in the year ended 31 December 2009.
Neither of the other executive directors currently holds an external non-executive appointment.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
53
Performance graph
The performance graph below shows the total cumulative shareholder return of the company over the five years to the end of December 2009,
based on a hypothetical shareholding worth £100, compared with the return achieved by the FTSE 100 constituent companies over the same period.
The directors believe this to be an appropriate form of broad equity market index against which to base a comparison given the size and geographic
coverage of the company and the fact that the company is itself a member of the FTSE 100. The graph also compares the company’s performance
over the same period with the bespoke group of companies which is used now for comparative total shareholder return purposes in the company’s
performance share plan. (Until 2007, the FTSE 100 constituent companies were used for this purpose). The values attributable to the bespoke
comparator group companies have been weighted in accordance with the market capitalisation of the companies calculated at spot exchange rates
as at each year end.
G4S plc
FTSE 100 Index
Peer group
220
200
180
)
p
(
e
u
a
V
l
160
140
120
100
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
The peer group currently comprises: Atkins WS, Brambles, Brink’s, Bunzl, Capita, Compass, Garda, G4S, Hays, MITIE, Prosegur, Rentokil Initial,
Rexam, Securitas, Serco and Sodexo.
The following information has been audited:
Base salaries and bonuses
Chairman (non-executive)
Alf Duch-Pedersen
Executive directors
Nick Buckles (see notes 1 & 2 below)
Trevor Dighton (see notes 1 & 2 below)
Grahame Gibson (see notes 1, 2, 3 & 4 below)
Other non-executive directors
Lord Condon
Mark Elliott
Thorleif Krarup
Bo Lerenius
Mark Seligman
Sir Malcolm Williamson (retired 30 May 2008)
Total
Notes:
Salary and
Fees
£
Benefits1
(excluding
pension
contribution)
£
Performance
Related
Bonus2
£
2009
Total
£
2008
Total
£
270,000
–
–
270,000
260,000
761,400
475,240
621,904
125,350
54,100
61,058
54,100
63,842
–
49,088
34,452
45,734
845,763
439,882
1,656,251
949,574
557,799
1,225,437
1,417,777
885,873
1,075,972
–
–
–
–
–
–
–
–
–
–
–
–
125,350
54,100
61,058
54,100
63,842
–
117,065
52,265
68,790
52,265
52,265
27,825
2,486,994
129,274
1,843,444
4,459,712
4,010,097
1. Benefits include the cost of providing life insurance which was dealt with previously as part of the cost of pensions. No new benefits have been provided.
2. Any bonus due above 50% of the individual’s maximum bonus entitlement (150% of base salary for Mr Buckles and 125% for Messrs. Dighton and Gibson) will be awarded as deferred
G4S shares. The number of shares which will be awarded will be the amount of bonus in question divided by the average middle market closing price of the company’s ordinary shares over
the three days immediately following the date of the company’s preliminary results announcement: 16 March 2010.
3. The company paid air fares amounting to US$30,170 for flights between the UK and the USA for Mr Gibson’s wife and children. This sum is taxable in the USA and not included in the
figures above.
4. Mr Gibson receives part of his salary in sterling and part in US$. The US$ element has been translated into sterling for the purposes of his salary at the exchange rates prevailing in each
month in which Mr Gibson was paid.
G4S plc Annual Report and Accounts 2009
54
Directors’ remuneration report continued
Base salaries and bonuses continued
The annual base salaries of the executive directors and the annual fees of the non-executive directors at 31 December 2009 were:
Executive directors
Nick Buckles
Trevor Dighton
Grahame Gibson
Non-executive directors
Alf Duch-Pedersen (chairman)
Lord Condon
Mark Elliott
Thorleif Krarup
Bo Lerenius
Mark Seligman
Directors’ share options
Nick Buckles
Trevor Dighton
£761,400
£475,240
£51,887 &
$890,400
£
270,000
125,350
54,100
54,100
54,100
70,800
Option
At 31.12.08
Granted during
2009
Outstanding at
31.12.09
Option price
(p)
A
B
C
D
A
B
C
D
95,000
75,000
55,000
700,000
55,000
40,000
30,000
350,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
164.00
133.75
153.00
108.00
164.00
133.75
153.00
108.00
Option A = Securicor Executive Share Option Scheme, exercisable until December 2009.
Option B = Securicor Executive Share Option Scheme, exercisable until June 2010.
Option C = Securicor Executive Share Option Scheme, exercisable until December 2010.
Option D = Securicor Executive Share Option Scheme, exercisable until December 2011.
The above options, which had been granted over Securicor plc shares, were rolled over into options over G4S plc shares. No further grants of options
under these schemes will be made.
Mr Buckles and Mr Dighton exercised their options over all the shares described above on 11 November 2009 when the market price was 251.80p
per share.
As a result of implementation of the Scheme of Arrangement of Securicor plc in July 2004, the performance conditions for the executive share options
referred to above ceased to apply. This would not occur under the current Performance Share Plan.
Directors’ interests in Performance Share Plan
Nick Buckles
Trevor Dighton
Grahame Gibson
At 31.12.08
1,508,215
825,720
928,600
Shares awarded
conditionally
during year
820,032
383,877
420,298
Date of
award
16.03.09
16.03.09
16.03.09
Market price
at date
of award
188.90p
188.90p
188.90p
Vesting
date
16.03.12
16.03.12
16.03.12
2006
awards
341,085
206,720
241,600
At 31.12.09
1,987,162
1,002,877
1,107,298
The conditions subject to which allocations of shares vest under this plan are described under c Performance Share Plan on pages 51 and 52.
During the year under review the following Performance Share Plan awards vested:
Nick Buckles – 341,085 shares gross (341,085 maximum award; 100% vested; 201,240 shares released after tax and NIC).
Trevor Dighton – 206,720 shares gross (206,720 maximum award; 100% vested; 121,964 shares released after tax and NIC).
Grahame Gibson – 241,600 shares gross (241,600 maximum award; 100% vested; 174,423 shares released after tax and NIC).
The market price at date of award (17 March 2006) was 192.75p per share, the market price at the vesting date (17 March 2009) was 191.70p
per share.
The committee has decided that the EPS portion of the 2007 PSP award, based on EPS growth from 2007 to 2009 inclusive, will vest in March 2010
to the extent that the performance test has been achieved. However, any vested awards will remain subject to risk of forfeiture and will not be
released to particpants until June 2010 as per the original terms of the plan.
To assist with the administration of the plan, the automatic right to the release of vested awards was removed. In future, participants or the company
will be required to request the release of any vested shares from the trustee of the plan.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
55
Directors’ interests in shares of G4S plc (unaudited)
(including awards of deferred shares but excluding shares under option and shares awarded conditionally under the Performance Share Plan,
both as shown above)
Nick Buckles
Lord Condon
Trevor Dighton
Alf Duch-Pedersen
Mark Elliott
Grahame Gibson
Thorleif Krarup
Bo Lerenius
Mark Seligman
At 31.12.09
1,602,194
2,029
1,052,061
128,560
25,000
927,382
3,206
16,000
50,496
At 31.12.08
1,399,773
2,029
920,493
128,560
25,000
763,594
3,206
16,000
50,496
All interests shown above are beneficial.
There have been no changes in the directors’ holdings since 31 December 2009.
As at 31 December 2009, each of Nick Buckles, Trevor Dighton and Grahame Gibson also had a deemed interest in 5,543,818 ordinary shares
held in the G4S Employee Benefit Trust.
Directors’ pension entitlements
For the period under review, both Nick Buckles and Trevor Dighton participated in non-contributory categories of the group’s defined benefit pension
scheme with a normal retirement age of 60. Mr Dighton accrued pension at a rate of 1/30ths and Mr Buckles accrued pension at a rate of 1/52ths of
their final pensionable salaries. Their rates of accrual have not changed in the time since they joined the scheme. An actuarial reduction is applied to
pensions payable before normal retirement age. Pension can continue to accrue at the same rates beyond normal retirement age.
For death before retirement, a capital sum equal to four times pensionable salary is payable, together with a spouse’s pension of 50% of the member’s
prospective pension at the age of 60 plus a return of any contributions paid prior to the admission to the non-contributory category.
For death in retirement, a spouse’s pension of 50% of the member’s pre-commutation pension is payable.
Post-retirement pension increases are payable at the rate of 5% per annum in respect of pension earned up to 31 December 1994 and in line with
the increase in the Retail Prices Index subject to a maximum of 5% per annum in respect of pension earned after that date.
With effect from 6 April 2006, Mr Gibson opted for enhanced protection and receives a salary supplement in lieu of pension of 40% of his basic salary.
Pension entitlements and corresponding transfer values increased as follows during the 12 months ended 31 December 2009 (all figures are in £’000s):
Gross increase
in accrued
pension(1)
Increase in
accrued
pension net
of inflation(2)
Total accrued
pension at
31.12.09(3)
Value of net
increase in
accrual over
period(4)
Total change
in transfer
value during
period(5)
Transfer value
of accrued
pension at
31.12.09(6)
Transfer value
of accrued
pension at
31.12.08(7)
15
18
0
15
18
0
346
99
230
243
426
0
466
494
35
6,255
2,364
3,684
5,789
1,870
3,649
Nick Buckles
Trevor Dighton
Grahame Gibson
Notes
(1) Pension accruals shown are the amounts which would be paid annually on retirement based on service to the end of the year with the exception of Mr Gibson whose accrual ended on
5 April 2006.
(2) Transfer values have been calculated in accordance with the current transfer value basis adopted by the trustees of the G4S Pension Scheme.
(3) The value of net increase (4) represents the incremental value to the director of his service during the year, calculated on the assumption that service terminated at the year end. It is based
on the increase in accrued pension (2) with the exception of Mr Gibson whose accrual ended on 5 April 2006.
(4) The impact of changes in market conditions has been much smaller than in 2008, so the increase in transfer value is mainly due to the increase in the amount of benefit over the year.
(5) Inflation was negative over 2009, but an increase of 0% was assumed in the calculations above.
(6) Mr Gibson receives a salary supplement in lieu of pension of 40% of his base salary.
Lord Condon
Chairman of the Remuneration Committee
15 March 2010
G4S plc Annual Report and Accounts 2009
56 Statement of directors’ responsibilities in respect
of the annual report and the financial statements
For the year ended 31 December 2009
The directors are responsible for preparing the Annual report and the group and parent company financial statements, in accordance with applicable
law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are
required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial
statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the parent company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and
disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements
comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets
of the group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and
Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ Responsibility Statement
Each of the directors, the names of whom are set out on pages 40 and 41 of this annual report confirms that, to the best of his knowledge: the
financial statements in this annual report have been prepared in accordance with the applicable accounting standards and give a true and fair view of
the assets, liabilities, financial position and profit of the company and the group taken as a whole; and the directors’ report, including the Business
Review on pages 4 to 39, includes a fair review of the development and performance of the business and the position of the company and the group
taken as a whole, together with a description of the principal risks and uncertainties that they face.
This statement of directors’ responsibilities was approved by a duly authorised committee of the board of directors on 15 March 2010 and signed on
its behalf by Trevor Dighton, Chief financial officer.
Trevor Dighton
Chief financial officer
15 March 2010
Independent auditors’ report to the members of G4S plc
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
57
We have audited the financial statements of G4S plc for the year ended 31 December 2009 set out on pages 58 to 119. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements
is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and
the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 56, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKP.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2009 and of the
group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial
statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial
statements; and
• the information given in the Corporate Governance Statement set out on pages 47 to 49 with respect to internal control and risk management
systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 56, in relation to going concern; and
• the part of the Corporate Governance Statement on pages 47 to 49 relating to the company’s compliance with the nine provisions of the 2006
Combined Code specified for our review.
Alan Buckle (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
8 Salisbury Square
London
EC4Y 8BB
15 March 2010
G4S plc Annual Report and Accounts 2009
58
Consolidated income statement
For the year ended 31 December 2009
Continuing operations
Revenue
Profit from operations before amortisation of acquisition-related intangible assets
and share of profit from associates
Share of profit from associates
Profit from operations before amortisation of acquisition-related
intangible assets (PBITA)
Amortisation of acquisition-related intangible assets
Profit from operations before interest and taxation (PBIT)
Finance income
Finance costs
Profit before taxation (PBT)
Taxation:
– Before amortisation of acquisition-related intangible assets
– On amortisation of acquisition-related intangible assets
Profit after taxation
Loss from discontinued operations
Profit for the year
Attributable to:
Equity holders of the parent
Minority interests
Profit for the year
Earnings per share attributable to equity shareholders of the parent
For profit from continuing operations:
Basic
Diluted
For profit from continuing and discontinued operations:
Basic
Diluted
Notes
2009
£m
2008
£m
5, 6
7,008.6
5,928.5
6
6, 8
12
13
14
7
16
499.1
1.2
500.3
(83.2)
417.1
81.7
(196.0)
302.8
(100.0)
23.3
(76.7)
226.1
(6.9)
219.2
202.5
16.7
219.2
14.9p
14.9p
14.4p
14.4p
411.6
3.4
415.0
(67.8)
347.2
104.9
(189.4)
262.7
(89.4)
19.1
(70.3)
192.4
(27.5)
164.9
151.2
13.7
164.9
13.2p
13.2p
11.1p
11.1p
Consolidated statement of financial position
At 31 December 2009
ASSETS
Non-current assets
Goodwill
Other acquisition-related intangible assets
Other intangible assets
Property, plant and equipment
Investment in associates
Trade and other receivables
Deferred tax assets
Current assets
Inventories
Investments
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Bank overdrafts
Bank loans
Obligations under finance leases
Trade and other payables
Current tax liabilities
Retirement benefit obligations
Provisions
Liabilities associated with assets classified as held for sale
Non-current liabilities
Bank loans
Loan notes
Obligations under finance leases
Trade and other payables
Retirement benefit obligations
Provisions
Deferred tax liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium and reserves
Equity attributable to equity holders of the parent
Minority interests
Total equity
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
59
Notes
2009
£m
2008
£m
19
19
19
20
22
25
36
23
24
25
28
27
6
28,29
29
30
31
34
35
27
29
29
30
31
34
35
36
6
37
2,043.9
2,079.5
361.2
68.7
546.0
7.2
111.4
178.1
403.1
61.0
528.5
7.4
198.0
155.0
3,316.5
3,432.5
77.8
84.4
1,348.5
307.6
29.1
1,847.4
5,163.9
(37.5)
(145.6)
(23.1)
85.0
92.7
1,375.3
562.1
71.0
2,186.1
5,618.6
(195.1)
(87.9)
(22.1)
(1,105.5)
(1,216.6)
(55.2)
(54.6)
(29.8)
(30.9)
(28.9)
(48.9)
(33.9)
(74.1)
(1,482.2)
(1,707.5)
(516.3)
(1,116.7)
(62.6)
(42.5)
(313.0)
(68.3)
(123.1)
(2,242.5)
(3,724.7)
1,439.2
352.6
1,054.1
1,406.7
32.5
1,439.2
(877.8)
(901.9)
(63.6)
(63.5)
(278.6)
(116.7)
(138.1)
(2,440.2)
(4,147.7)
1,470.9
352.1
1,074.9
1,427.0
43.9
1,470.9
The consolidated financial statements were approved by the board of directors and authorised for issue on 15 March 2010.
They were signed on its behalf by:
Nick Buckles
Director
Trevor Dighton
Director
G4S plc Annual Report and Accounts 2009
60
Consolidated statement of cash flow
For the year ended 31 December 2009
Profit before taxation
Adjustments for:
Finance income
Finance costs
Depreciation of property, plant and equipment
Amortisation of acquisition-related intangible assets
Amortisation of other intangible assets
(Profit)/loss on disposal of property, plant and equipment and intangible assets other than
acquisition related
Share of profit from associates
Equity-settled transactions
Operating cash flow before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase in payables
Decrease in provisions
Decrease in retirement benefit obligations
Net cash flow from operating activities of continuing operations
Net cash used by operating activities of discontinued operations
Cash generated by operations
Tax paid
Net cash flow from operating activities
Investing activities
Interest received
Cash flow from associates
Purchases of property, plant and equipment and intangible assets other than acquisition-related
Proceeds on disposal of property, plant and equipment and intangible assets
other than acquisition-related
Acquisition of subsidiaries
Net cash balances acquired/disposed of
Disposal of subsidiaries
(Purchase)/sale of investments
Own shares purchased
Net cash used in investing activities
Financing activities
Share issues
Dividends paid to minority interests
Dividends paid to equity shareholders of the parent
Proceeds on issue of loan notes
Repayment of revolving credit facilities with proceeds from issue of loan notes
Other net movement in borrowings
Interest paid
Net cash flow from hedging financial instruments
Repayment of obligations under finance leases
Net cash flow from financing activities
Notes
2009
£m
302.8
(81.7)
196.0
121.1
83.2
15.1
(0.3)
(1.2)
7.1
642.1
2.0
1.0
4.6
(25.7)
(32.9)
591.1
(14.1)
577.0
(67.8)
509.2
11.8
2.4
(187.1)
17.4
(157.5)
(12.2)
7.6
(0.9)
(9.9)
2008
£m
262.7
(104.9)
189.4
105.0
67.8
11.1
2.1
(3.4)
5.0
534.8
(7.4)
(44.4)
43.6
(14.2)
(32.3)
480.1
(25.1)
455.0
(82.0)
373.0
17.2
12.2
(174.5)
13.2
(419.4)
19.7
31.1
5.6
(8.8)
(328.4)
(503.7)
2.7
(18.0)
(94.2)
346.8
(346.8)
23.7
(98.5)
(10.2)
(24.2)
(218.7)
276.8
(11.9)
(75.0)
327.0
(327.0)
173.7
(97.2)
(65.9)
(13.5)
187.0
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
61
Notes
39
28
2009
£m
(37.9)
360.7
(32.3)
290.5
2008
£m
56.3
270.7
33.7
360.7
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of the year
Effect of foreign exchange rate fluctuations on cash held
Cash, cash equivalents and bank overdrafts at the end of the year
G4S plc Annual Report and Accounts 2009
62
Consolidated statement of comprehensive income
For the year ended 31 December 2009
Profit for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Change in fair value of net investment hedging financial instruments
Change in fair value of cash flow hedging financial instruments
Actuarial losses on defined retirement benefit schemes
Tax on items taken directly to equity
Other comprehensive income, net of tax
2009
£m
219.2
(93.3)
28.6
(22.6)
(63.1)
21.9
(128.5)
2008
£m
164.9
182.0
(81.1)
36.4
(196.9)
50.3
(9.3)
Total comprehensive income for the year
90.7
155.6
Attributable to:
Equity holders of the parent
Minority interests
Total comprehensive income for the year
74.0
16.7
90.7
141.9
13.7
155.6
Consolidated statement of changes in equity
For the year ended 31 December 2009
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
63
At 1 January 2008
Net recognised income/
(expense) attributable
to equity shareholders
of the parent
Shares issued
Dividends declared
Own shares purchased
Own shares awarded
Equity-settled transactions
At 31 December 2008
At 1 January 2009
Net recognised income/
(expense) attributable
to equity shareholders
of the parent
Shares issued
Dividends declared
Own shares purchased
Own shares awarded
Equity-settled transactions
Share
capital
£m
320.2
–
31.9
–
–
–
–
352.1
352.1
–
0.5
–
–
–
–
Share
premium
£m
11.0
Retained
earnings
£m
317.0
Hedging
reserve
*
£m
(14.4)
Translation
reserve
*
£m
36.0
Merger
reserve
*
£m
426.3
Reserve for
own shares
*
£m
(9.0)
Total
reserves
£m
1,087.1
–
244.9
–
–
–
–
255.9
255.9
–
2.2
–
–
–
–
11.0
–
(75.0)
–
(6.0)
5.0
252.0
252.0
139.4
–
(94.2)
–
(9.5)
7.1
(32.7)
163.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(47.1)
(47.1)
199.6
199.6
426.3
426.3
4.4
(69.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8.8)
6.0
–
(11.8)
(11.8)
–
–
–
(9.9)
9.5
–
141.9
276.8
(75.0)
(8.8)
–
5.0
1,427.0
1,427.0
74.0
2.7
(94.2)
(9.9)
–
7.1
At 31 December 2009
352.6
258.1
294.8
(42.7)
129.8
426.3
(12.2)
1,406.7
*See Note 38
G4S plc Annual Report and Accounts 2009
64
Notes to the consolidated financial statements
1 General information
G4S plc is a company incorporated in the United Kingdom under the Companies Act 1985. The consolidated financial statements incorporate the
financial statements of the company and entities (its subsidiaries) controlled by the company (collectively comprising the group) and the group’s
interest in associates and jointly controlled entities made up to 31 December each year. The nature of the group’s operations and its principal activities
are set out in note 6 and in the Operating and Financial review on pages 4 to 27 and 32 to 37. The group operates throughout the world and in a wide
range of functional currencies, the most significant being the euro, the US dollar and sterling. The group’s financial statements are presented in sterling,
as the group’s primary listing is in the UK. Foreign operations are included in accordance with the policies set out in note 3. The address of the
registered office is given on page 130.
2 Statement of compliance
The consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards adopted for
use in the European Union (adopted IFRSs). The company has elected to prepare its parent company financial statements in accordance with UK
Generally Accepted Accounting Practice (UK GAAP). These are presented on pages 111 to 119.
3 Significant accounting policies
a Basis of preparation
The consolidated financial statements of the group have been prepared under the going concern basis and using the historical cost basis, except for
the revaluation of certain non-current assets and financial instruments. The principal accounting policies adopted are set out below. Judgements made
by the directors in the application of these accounting polices which have a significant effect on the financial statements, and estimates with a significant
risk of material adjustment, are discussed in note 4.
The comparative income statement for the year ended 31 December 2008 has been re-presented for operations qualifying as discontinued during
the current year. Revenue from continuing operations has been reduced by £14.4m and PBT has been reduced by £1.5m compared to the figures
published previously. Further details of discontinued operations are presented within note 7. In addition, the comparative balance sheet as at
31 December 2008 has been restated to reflect the completion during 2009 of the initial accounting in respect of acquisitions made during 2008.
Adjustments made to the provisional calculation of the fair values of assets and liabilities acquired amount to £19.1m, with an equivalent increase
in the reported value of goodwill. The impact of these adjustments on the net assets acquired is presented in note 17.
b Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the group. Control is achieved where the group has the power to govern the financial and operating policies
of an investee entity so as to obtain benefits from its activities, determined either by the group’s ownership percentage, or by the terms of any
shareholder agreement.
On acquisition, the assets and liabilities and contingent liabilities of the acquired business are measured at their fair values at the date of acquisition.
Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency in the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the year
of acquisition. The cost of acquisition includes the present value of consideration payable in respect of put options held by minority shareholders.
The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any
losses applicable to the minority interest in excess of the carrying value of the minority interest are allocated against the interest of the parent, except
to the extent that the minority has both a binding obligation and the ability to make an additional investment to cover the losses.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of control
or up to the effective date of disposal, as appropriate.
Joint ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, in that
strategic financial and operating decisions require the unanimous consent of the parties.
The group’s interest in joint ventures is accounted for using the proportionate consolidation method, whereby the group’s share of the results and
assets and liabilities of a jointly-controlled entity is combined line by line with similar items in the group’s consolidated financial statements.
Associates
An associate is an entity over which the group is in a position to exercise significant influence, but not control or joint control, through participation
in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in the group’s consolidated financial statements using the equity method of
accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the group’s share of the net
assets of the associates, less any impairment in the value of individual investments. Losses of the associates in excess of the group’s interest in those
associates are not recognised.
Transactions eliminated on consolidation
All intra-group transactions, balances, income and expenses are eliminated on consolidation. Where a group company transacts with a joint venture
or associate of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant joint venture or associate.
G4S plc Annual Report and Accounts 2009
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3 Significant accounting policies continued
c Foreign currencies
The financial statements of each of the group’s businesses are prepared in the functional currency applicable to that business. Transactions in
currencies other than the functional currency are translated at the rates of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities which are denominated in other currencies are retranslated at the rates prevailing on that date. Non-monetary
assets and liabilities carried at fair value which are denominated in other currencies are translated at the rates prevailing at the date when the fair value
was determined. Non-monetary items measured at historical cost denominated in other currencies are not retranslated. Gains and losses arising on
retranslation are included in the income statement for the period.
On consolidation, the assets and liabilities of the group’s overseas operations, including goodwill and fair value adjustments arising on their acquisition,
are translated into sterling at exchange rates prevailing on the balance sheet date. Income and expenses are translated into sterling at the average
exchange rates for the period (unless this is not a reasonable approximation of the cumulative effect of the rate prevailing on the transaction dates, in
which case income and expenses are translated at the dates of the transactions). Exchange differences arising are recognised in equity, together with
exchange differences arising on monetary items that are in substance a part of the group’s net investment in foreign operations and on borrowings
and other currency instruments designated as hedges of such investments where and to the extent that the hedges are deemed to be effective.
On disposal translation differences are recognised in the income statement in the period in which the operation is disposed of.
d Derivative financial instruments and hedge accounting
In accordance with its treasury policy, the group only holds or issues derivative financial instruments to manage the group’s exposure to financial risk,
not for trading purposes. Such financial risk includes the interest risk on the group’s variable rate borrowings, the fair value risk on the group’s fixed
rate borrowings, commodity risk in relation to its diesel consumption and foreign exchange risk on transactions, on the translation of the group’s
results and on the translation of the group’s net assets measured in foreign currencies. The group manages these risks through a range of derivative
financial instruments, including interest rate swaps, fixed rate agreements, commodity swaps, commodity options, forward foreign exchange contracts
and currency swaps.
Derivative financial instruments are recognised in the balance sheet as financial assets or liabilities at fair value. Fair value is measured using one of the
valuation techniques based on one of the following valuation hierarchies as set out in IFRS 7 (Amended):
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The gain or loss on re-measurement to fair value is recognised immediately in the income statement, unless the derivatives qualify for hedge
accounting. Where derivatives do qualify for hedge accounting, the treatment of any resultant gain or loss depends on the nature of the item being
hedged as described below.
Fair value hedge
The change in the fair value of both the hedging instrument and the related portion of the hedged item is recognised immediately in the income
statement.
Cash flow hedge
The change in the fair value of the portion of the hedging instrument that is determined to be an effective hedge is recognised in equity and
subsequently recycled to the income statement when the hedged cash flow impacts the income statement. The ineffective portion of the fair value of
the hedging instrument is recognised immediately in the income statement.
Net investment hedge
The change in the fair value of the portion of the hedging instrument that is determined to be an effective hedge is recognised in equity and
subsequently recycled to the income statement when the hedged net investment impacts the income statement. The ineffective portion of the fair
value of the hedging instrument is recognised immediately in the income statement.
e Intangible assets
Goodwill
All business combinations are accounted for by the application of the purchase method. Goodwill arising on consolidation represents the excess of the
cost of acquisition over the group’s interest in the fair value of the identifiable assets and liabilities and contingent liabilities of a subsidiary, associate or
jointly controlled entity at the date of acquisition. Goodwill arising on the acquisition of an additional interest from a minority in a subsidiary represents
the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange. Goodwill is stated at
cost, less any accumulated impairment losses, and is tested annually for impairment or more frequently if there are indications that amounts may be
impaired. In respect of associates, the carrying amount of goodwill is included within the net investment in associates. On disposal of a subsidiary,
associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before transition to IFRS on 1 January 2004 has been retained at the previous UK GAAP amounts, subject to being
tested for impairment at that date. Goodwill written-off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in
determining any subsequent profit or loss on disposal.
G4S plc Annual Report and Accounts 2009
66
Notes to the consolidated financial statements continued
3 Significant accounting policies continued
e Intangible assets continued
Acquisition-related intangible assets
Intangible assets on acquisitions that are either separable or arising from contractual rights are recognised at fair value at the date of acquisition.
Such acquisition-related intangible assets include trademarks, technology, customer contracts and customer relationships. The fair value of acquisition-
related intangible assets is determined by reference to market prices of similar assets, where such information is available, or by the use of appropriate
valuation techniques, including the royalty relief method and the excess earnings method.
Acquisition-related intangible assets are amortised by equal annual instalments over their expected economic life. The directors review acquisition-
related intangible assets on an ongoing basis and, where appropriate, provide for any impairment in value.
The estimated useful lives are as follows:
Trademarks
Customer contracts and customer relationships
Technology
up to a maximum of five years
up to a maximum of ten years
up to a maximum of five years
Other intangible assets – development expenditure
Development expenditure represents expenditure incurred in establishing new services and products of the group. Such expenditure is recognised
as an intangible asset only if the following can be demonstrated: the expenditure creates an identifiable asset, its cost can be measured reliably, it is
probable that it will generate future economic benefits, it is technically and commercially feasible and the group has sufficient resources to complete
development. In all other instances, the cost of such expenditure is taken directly to the income statement.
Capitalised development expenditure is amortised over the period during which the expenditure is expected to be revenue-producing, up to a
maximum of ten years. The directors review the capitalised development expenditure on an ongoing basis and, where appropriate, provide for any
impairment in value.
Research expenditure is written-off in the year in which it is incurred.
Other intangible assets – software
Computer software is capitalised as an intangible asset if such expenditure (both internally generated and externally purchased) creates an identifiable
asset, if its cost can be measured reliably and if it is probable that it will generate future economic benefits. Capitalised computer software is stated at
cost, net of amortisation and any provision for impairment. Amortisation is charged on software so as to write-off the cost of the assets to their
estimated residual values by equal annual instalments over their expected useful economic lives up to a maximum of five years.
f Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and any provision for impairment. Depreciation is provided on all
property, plant and equipment other than freehold land. Depreciation is calculated so as to write-off the cost of the assets to their estimated residual
values by equal annual instalments over their expected useful economic lives as follows:
Freehold and long leasehold buildings
Short leasehold buildings (under 50 years)
Equipment and motor vehicles
up to 2%
over the life of the lease
10%–33.3%
Assets held under finance leases are depreciated over their expected useful economic lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease.
Where significant, the residual values and the useful economic lives of property, plant and equipment are reassessed annually. The directors review the
carrying value of property, plant and equipment on an ongoing basis and, where appropriate, provide for any impairment in value.
g Financial instruments
Financial assets and financial liabilities are recognised when the group becomes a party to the contractual provisions of the instruments.
Trade receivables
Trade receivables do not carry interest and are stated initially at their fair value. The carrying amount of trade receivables is reduced through the use
of an allowance account. The group provides for bad debts based upon an analysis of those that are past due in accordance with local conditions and
past default experience.
PFI assets
Under the terms of a Private Finance Initiative (PFI) or similar project, where the risks and rewards of ownership of an asset remain largely with the
purchaser of the associated services, the group’s interest in the asset is classified as a financial asset and included at its discounted value within trade
and other receivables.
Current asset investments
Current asset investments comprise investments in securities, which are classified as held-for-trading. They are initially recognised at cost, including
transaction costs, and subsequently measured at fair value. Gains and losses arising from changes in fair value are recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the
group’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.
Interest-bearing borrowings
Interest-bearing bank overdrafts, loans and loan notes are recognised at the value of proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are recognised in the income statement on an accrual basis using the
effective interest method.
G4S plc Annual Report and Accounts 2009
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3 Significant accounting policies continued
g Financial instruments continued
Trade payables
Trade payables are not interest-bearing and are stated initially at fair value.
Equity instruments
Equity instruments issued by the group are recorded at the value of proceeds received, net of direct issue costs.
h Inventories
Inventories are valued at the lower of cost and net realisable value. Cost represents expenditure incurred in the ordinary course of business in bringing
inventories to their present condition and location and includes appropriate overheads. Cost is calculated using either the weighted average or the
first-in-first-out method. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal.
Provision is made for obsolete, slow-moving or defective items where appropriate.
i Impairment
The carrying value of the group’s assets, apart from inventories and deferred tax assets, is reviewed on an ongoing basis for any indication of
impairment and, if any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognised in the income statement
whenever the carrying value of an asset or its cash-generating unit exceeds its recoverable amount.
The recoverable amount of an asset is the greater of its net selling price and its value in use, where value in use is assessed as the estimated pre-tax
future cash flows deriving from the asset discounted to their present value using a pre-tax discount rate which reflects current market assessments
of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable
amount is determined with respect to the cash-generating unit to which the asset attaches.
The recoverable amount of goodwill is tested annually through assessing the carrying values of the cash-generating units to which the goodwill
attaches. An impairment loss recognised in respect of a cash-generating unit is allocated first so as to reduce the carrying value of any goodwill
allocated to the cash-generating unit, and then to reduce the carrying value of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of any other asset, an impairment loss is reversed if there has been a change in
the estimates used to determine its recoverable amount. The amount of the reversal is limited such that the asset’s carrying amount does not exceed
that which would have been determined (after depreciation and amortisation) if no impairment loss had been recognised.
j Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs net of any tax
effects, is recognised as a deduction from equity. Where repurchased shares are held by an employee benefit trust, they are classified as treasury
shares and presented as a deduction from equity.
k Employee benefits
Retirement benefit costs
Payments to defined contribution schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes
are dealt with as payments to defined contribution schemes where the group’s obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefits scheme.
For defined benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being
carried out at each balance sheet date. The discount rate used is the yield at the balance sheet date on AA credit rated corporate bonds that have
maturity dates approximating to the terms of the group’s obligations. The expected finance income on assets and the finance cost on liabilities are
recognised in the income statement as components of finance income and finance cost respectively. Actuarial gains and losses are recognised in full
in the period in which they occur and presented outside the income statement in the statement of recognised income and expense.
Past service cost is recognised immediately to the extent that the benefits are already vested. Otherwise it is amortised on a straight-line basis over
the average period until the benefits vest.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for
unrecognised past service cost, reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to unrecognised past
service cost plus the present value of available refunds and reductions in future contributions to the scheme.
Long-term service benefits
The group’s net obligation in respect of long-term service benefits other than retirement benefits represents the present value of the future benefit
that employees have earned at the balance sheet date, less the fair value of scheme assets out of which the obligations are to be settled directly.
Share-based payments
The group issues equity-settled share-based payments to certain employees. The fair value of share-based payments is determined at the date of
grant and expensed, with a corresponding increase in equity, on a straight-line basis over the vesting period, based on the group’s estimate of the
shares that will eventually vest. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that
will eventually vest, save for changes resulting from any market-related performance conditions.
The fair value of share-based payments granted in the form of options is measured by the use of the Black-Scholes valuation technique, adjusted for
future dividend receipts and for any market-related performance conditions.
G4S plc Annual Report and Accounts 2009
68
Notes to the consolidated financial statements continued
3 Significant accounting policies continued
l Provisions
Provisions are recognised when a present legal or constructive obligation exists for a future liability in respect of a past event and where the amount
of the obligation can be estimated reliably. Items within provisions include loss-making contracts, external claims against the group’s captive insurance
businesses, costs of meeting lease requirements on unoccupied properties, costs of replacing assets where there is a present contractual obligation
and restructuring provisions for the costs of a business reorganisation where the plans are sufficiently detailed and where the appropriate
communication to those affected has been undertaken at the balance sheet date.
Where the time value of money is material, provisions are stated at the present value of the expected expenditure using an appropriate discount rate.
m Revenue recognition
Revenue
Revenue represents amounts receivable for goods and services provided in the normal course of business and is measured at the fair value of the
consideration received or receivable, net of discounts, VAT and other sales related taxes. Revenue for manned security and cash solutions products
and for recurring services in security systems products is recognised to reflect the period in which the service is provided. Revenue on security
systems installations is recognised either on completion in respect of product sales, or in accordance with the stage of completion method in respect
of construction contracts.
Construction contracts
Where significant, security system installations with a contract duration in excess of one month are accounted for as construction contracts.
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion
of the contract activity at the balance sheet date. This is normally measured by the proportion that contract costs incurred for work to date bear to
the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims
and incentive payments are included to the extent that it is likely that they will be agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred
that are deemed likely to be recoverable. Contract costs are recognised as expenses as they are incurred. Where it is probable that total contract
costs will exceed total contract revenue, the expected loss is recognised immediately as an expense.
Construction contracts are recognised on the balance sheet at cost plus profit recognised to date, less provision for foreseeable losses and less
progress billings. Balances are not offset.
Government grants
Government grants in respect of items expensed in the income statement are recognised as deductions from the associated expenditure.
Government grants in respect of property, plant and equipment are treated as deferred income and released to the income statement over the lives
of the related assets.
Interest
Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable. This is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Dividends
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
n Borrowing costs
All borrowing costs are recognised in the income statement, except those that are directly attributable to the acquisition, construction or production
of qualifying assets, which are capitalised.
o Profit from operations
Profit from operations is stated after the share of results of associates but before finance income and finance costs. Exceptional items of particular
significance, including restructuring costs, are included within profit from operations but are disclosed separately.
p Income taxes
Tax is recognised in the income statement except to the extent that it relates to items recognised in equity, in which case it is recognised in equity.
The tax expense represents the sum of current tax and deferred tax.
Current tax 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’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that
it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of goodwill in a business combination or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
G4S plc Annual Report and Accounts 2009
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3 Significant accounting policies continued
p Income taxes continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except
where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
The carrying amount of each deferred tax asset 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 recovered.
Deferred tax is measured based on the tax rates that have been enacted or substantively enacted by the end of the reporting period.
q Leasing
Leases are classified as finance leases when the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised at the inception of the lease at their fair value or, if lower, at the present value of the minimum
lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Amounts due from lessees
under finance leases are recorded as receivables at the amount of the group’s net investment in the leases. Lease payments made or received are
apportioned between finance charges or income and the reduction of the lease liability or asset so as to produce a constant rate of interest on the
outstanding balance of the liability or asset.
Rentals payable or receivable under operating leases are charged or credited to income on a straight-line basis over the lease term, as are incentives to
enter into operating leases.
r Segment reporting
An operating segment is a component of the group that engages in business activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the group’s other components. All operating segments’ operating results are reviewed
regularly by the group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete
financial information is available.
s Non-current assets held for sale and discontinued operations
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition. The group must be committed to the sale which should be expected to qualify for recognition as a completed
sale within one year from the date of classification.
A discontinued operation is a component of the group’s business that represents a separate major line of business or geographical area of operations
or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or meets the criteria to be classified as
held for sale.
t Dividends
Dividends are recognised as distributions to equity holders in the period in which they are paid. Dividends proposed or declared but not paid are not
recognised but are disclosed in the notes to the consolidated financial statements.
u Adoption of new and revised accounting standards and interpretations
Standards and interpretation issued by the IASB are only applicable if endorsed by the EU. The Following revisions to the IFRS will be applicable in
future periods, subject to endorsement where applicable.
• Revised IFRS 3 Business Combinations is applicable for 2010. This standards will affect the future accounting for acquisitions. There will be no
retrospective impact.
• Improving Disclosures about Financial Instruments Amendments to IFRS 7 Financial Instruments: Disclosures are applicable for 2010. The Amendments
require enhanced disclosures about fair value measurements and liquidity risk.
• IAS 27 Amendment Cost of an Investment in a Subsidiary, Jointly-Controlled Entity or Associate is applicable for 2010. The standard will affect the future
accounting for transactions with non-controlling interests. There will be no retrospective impact.
• Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items and Amendment to IAS 39 Reclassification of
Financial Assets: Effective Date and Transition applicable for 2010.
• IFRIC 12 Service Concession Arrangements is applicable for 2010. The standard addresses how service concession operators should apply existing
IFRSs to their arrangements.
The group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant
impact on the financial statements
G4S plc Annual Report and Accounts 2009
70
Notes to the consolidated financial statements continued
4 Accounting estimates, judgements and assumptions
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the
application of the group’s accounting policies, which are described in note 3, with respect to the carrying amounts of assets and liabilities at the date of
the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income
and expenses during the reporting period. These judgements, estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, including current and expected economic conditions, and in some cases,
actuarial techniques. Although these judgements, estimates and associated assumptions are based on management’s best knowledge of current events
and circumstances, the actual results may differ.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
The judgements, estimates and assumptions which are of most significance to the group are detailed below:
Valuation of acquired businesses
The initial accounting for an acquisition involves identifying and determining the fair values to be assigned to identifiable assets, liabilities and contingent
liabilities as well as the acquisition cost. In some instances, this initial accounting can only be determined provisionally by the end of the period in
which the acquisition is effected because the fair values and/or the costs are not known with full certainty. In such an event, the initial accounting
can be completed using provisional values with any adjustments to those provisional values being completed within 12 months of the acquisition date.
Additionally, in determining the fair value of acquisition-related intangible assets, in the absence of market prices for similar assets, valuation techniques
are applied. These techniques use a variety of estimates including projected future results and expected future cash flows, discounted using the
weighted average cost of capital relevant to the acquisition. Furthermore, management make an assessment of the useful economic life of acquired
intangible assets upon recognition. Full details of the fair values of assets and liabilities of acquired businesses are presented in note 17.
Assessment of the recoverable amounts in respect of assets tested for impairment
The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications that
amounts may be impaired. The impairment analysis for such assets is based principally upon discounted estimated future cash flows from the use and
eventual disposal of the assets. Such an analysis includes an estimation of the future anticipated results and cash flows, annual growth rates and the
appropriate discount rates. The full methodology and results of the group’s impairment testing is presented in note 19.
Valuation of retirement benefit obligations
The valuation of defined retirement benefit schemes is arrived at using the advice of qualified independent actuaries who use the projected unit
credit method for determining the group’s obligations. This methodology requires the use of a variety of assumptions and estimates, including the
appropriate discount rate, the expected return on scheme assets, mortality assumptions, future service and earnings increases of employees and
inflation. Full details of the group’s retirement benefit obligations, including an analysis of the sensitivity of the calculations to the key assumptions are
presented in note 34.
5 Revenue
An analysis of the group’s revenue is as follows:
Continuing operations
Sale of goods
Rendering of services
Revenue from construction contracts
Revenue from continuing operations as presented in the consolidated income statement
Discontinued operations
Rendering of services
Revenue from construction contracts
Revenue from discontinued operations
Other operating income
Interest income
Net gain in fair value of loan note derivative financial instruments and hedged items
Expected return on defined retirement benefit scheme assets
Total other operating income
Notes
2009
£m
2008
£m
6
6,7
158.0
6,726.8
123.8
7,008.6
34.3
6.4
40.7
12.7
1.0
68.0
81.7
190.2
5,618.9
119.4
5,928.5
223.3
8.0
231.3
18.4
–
86.5
104.9
G4S plc Annual Report and Accounts 2009
Overview
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Financial statements
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71
6 Business and geographical segments
The group operates in two core product areas: secure solutions and cash solutions. The group operates on a worldwide basis and derives a
substantial proportion of its revenue and PBIT from each of the following geographical regions: Europe (comprising the United Kingdom and Ireland,
and Continental Europe), North America and New Markets (comprising the Middle East and Gulf States, Latin America and the Caribbean, Africa
and Asia Pacific).
Secure solutions provides integrated security solutions for commercial customers such as risk consulting, manned security and security systems and the
protection of critical national infrastructure for governments along with care and justice, secure facilities and border protection. Cash solutions
provides the outsourcing of cash cycle management for central banks, financial institutions and retailers.
The segment disclosures are based on the components that the board monitors in making decisions about operating matters. Such components are
identified on the basis of internal reports that the board reviews regularly in allocating resources to segments and in assessing their performance.
This results in a segmental analysis which is similar to that presented previously under IAS 14 (Segmental Reporting).
Segment information is presented below:
Revenue by business segment
Secure solutions
UK and Ireland
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacific
New Markets
Total Secure Solutions
Cash solutions
Europe
North America
New Markets
Total cash solutions
Total revenue
Revenue by geographical market
UK and Ireland*
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacific
New Markets
Total revenue
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
Total
2009
£m
Continuing
operations
2008
£m
Discontinued
operations
2008
£m
1,139.3
1,497.7
2,637.0
1,495.3
424.5
283.0
305.6
522.0
1,535.1
5,667.4
929.2
98.8
313.2
1,341.2
7,008.6
–
33.7
33.7
–
–
–
–
–
–
33.7
0.1
–
6.9
7.0
40.7
1,139.3
1,531.4
2,670.7
1,495.3
424.5
283.0
305.6
522.0
1,535.1
5,701.1
929.3
98.8
320.1
1,348.2
7,049.3
929.9
1,378.6
2,308.5
1,222.3
315.6
229.0
248.6
412.0
1,205.2
4,736.0
859.1
87.0
246.4
1,192.5
5,928.5
–
215.2
215.2
–
–
1.9
–
0.1
2.0
217.2
0.2
–
13.9
14.1
231.3
Total
2009
£m
1,629.3
1,970.7
3,600.0
1,594.1
475.7
326.9
426.7
625.9
1,855.2
7,049.3
Total
2008
£m
929.9
1,593.8
2,523.7
1,222.3
315.6
230.9
248.6
412.1
1,207.2
4,953.2
859.3
87.0
260.3
1,206.6
6,159.8
Total
2008
£m
1,397.7
1,985.3
3,383.0
1,309.3
353.9
272.6
343.6
497.4
1,467.5
6,159.8
*UK and Ireland revenue includes £1,508m relating to the UK (2008: £1,278m).
G4S plc Annual Report and Accounts 2009
72
Notes to the consolidated financial statements continued
6 Business and geographical segments continued
Revenue from internal and external customers by business segment
Secure solutions
Cash solutions
Total revenue
Total gross
segment
revenue
2009
£m
5,709.7
1,348.6
7,058.3
Inter-segment
revenue
2009
£m
(8.6)
(0.4)
(9.0)
External
revenue
2009
£m
5,701.1
1,348.2
7,049.3
Total gross
segment
revenue
2008
£m
4,960.3
1,207.1
6,167.4
Inter-segment
revenue
2008
£m
(7.1)
(0.5)
(7.6)
External
revenue
2008
£m
4,953.2
1,206.6
6,159.8
Inter-segment sales are charged at prevailing market prices.
PBITA by business segment
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
Secure solutions
UK and Ireland
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacific
New Markets
Total secure solutions
Cash solutions
Europe
North America
New Markets
Total cash solutions
Total PBITA before head office costs
Head office costs
Total PBITA
PBITA by geographical market
Europe
North America
New Markets
Total PBITA before head office costs
Head office costs
Total PBITA
97.3
79.3
176.6
84.8
38.5
17.6
29.0
41.1
126.2
387.6
102.0
4.1
46.3
152.4
540.0
(39.7)
500.3
278.6
88.9
172.5
540.0
(39.7)
500.3
–
(10.7)
(10.7)
(1.1)
–
–
–
–
–
(11.8)
(0.1)
–
(1.5)
(1.6)
(13.4)
–
(13.4)
(10.8)
(1.1)
(1.5)
(13.4)
–
(13.4)
Total
2009
£m
97.3
68.6
165.9
83.7
38.5
17.6
29.0
41.1
126.2
375.8
101.9
4.1
44.8
150.8
526.6
(39.7)
486.9
267.8
87.8
171.0
526.6
(39.7)
486.9
Continuing
operations
2008
£m
Discontinued
operations
2008
£m
76.8
74.3
151.1
70.6
26.4
13.8
22.4
32.6
95.2
316.9
94.0
0.8
38.8
133.6
450.5
(35.5)
415.0
245.1
71.4
134.0
450.5
(35.5)
415.0
(0.5)
(8.0)
(8.5)
(1.6)
–
0.2
–
(0.2)
–
(10.1)
(0.1)
–
(0.3)
(0.4)
(10.5)
–
(10.5)
(8.6)
(1.6)
(0.3)
(10.5)
–
(10.5)
Total
2008
£m
76.3
66.3
142.6
69.0
26.4
14.0
22.4
32.4
95.2
306.8
93.9
0.8
38.5
133.2
440.0
(35.5)
404.5
236.5
69.8
133.7
440.0
(35.5)
404.5
G4S plc Annual Report and Accounts 2009
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Financial statements
Shareholder information
73
6 Business and geographical segments continued
Result by business segment
Total PBITA
Amortisation of acquisition-related
intangible assets
Total PBIT
Secure solutions
Cash solutions
Head office costs
Total PBIT
Continuing
operations
2009
£m
500.3
(83.2)
417.1
330.1
126.7
(39.7)
417.1
Discontinued
operations
2009
£m
(13.4)
–
(13.4)
(11.8)
(1.6)
–
(13.4)
Total
2009
£m
486.9
(83.2)
403.7
318.3
125.1
(39.7)
403.7
Continuing
operations
2008
£m
415.0
(67.8)
347.2
271.3
111.4
(35.5)
347.2
Discontinued
operations
2008
£m
(10.5)
–
(10.5)
(10.1)
(0.4)
–
(10.5)
Total
2008
£m
404.5
(67.8)
336.7
261.2
111.0
(35.5)
336.7
Continuing PBIT as stated above is equal to PBIT as disclosed in the income statement. Discontinued PBIT as stated above is analysed in note 7.
Segment assets and liabilities
The following information is analysed by business segment and by the geographical area in which the assets are located:
Total assets
By business segment
Secure solutions
Cash solutions
Head office
Inter-segment trading balances
Total segment operating assets
By geographical segment
UK and Ireland*
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacific
New Markets
Head office
Inter-segment trading balances
Total segment operating assets
Non-operating assets
Total assets
*UK and Ireland operating assets include £1,431m of assets relating to the UK (2008: £1,527m).
2009
£m
2008
£m
3,829.7
653.9
104.6
(98.5)
4,489.7
1,500.8
1,015.4
2,516.2
997.5
166.0
161.7
282.1
360.1
969.9
104.6
(98.5)
4,489.7
674.2
5,163.9
3,992.4
639.3
180.5
(86.6)
4,725.6
1,543.5
1,163.5
2,707.0
956.3
171.4
166.5
261.4
329.8
929.1
219.6
(86.4)
4,725.6
893.0
5,618.6
G4S plc Annual Report and Accounts 2009
74
Notes to the consolidated financial statements continued
6 Business and geographical segments continued
Segment assets and liabilities continued
Total liabilities
By business segment
Secure solutions
Cash solutions
Head office
Inter-segment trading balances
Total segment operating liabilities
Non-operating liabilities
Total liabilities
2009
£m
2008
£m
(1,017.6)
(219.5)
(97.9)
98.5
(1,236.5)
(2,488.2)
(3,724.7)
(1,051.3)
(356.9)
(109.2)
86.6
(1,430.8)
(2,716.9)
(4,147.7)
Non-operating assets and liabilities comprise financial assets and liabilities, taxation assets and liabilities and retirement benefit obligations.
Included within operating and non-operating assets are £2.6m (2008: £64.5m) and £26.5m (2008: £6.5m) respectively relating to assets classified as
held for sale. Included within operating and non-operating liabilities are £10.9m (2008: £58.4m) and £20.0m (2008: £15.7m) respectively relating to
liabilities associated with assets classified as held for sale. Disposal groups are analysed in note 27.
Other information by geographical location
By business segment
Secure solutions
Cash solutions
Head office
Total
By geographical segment
UK and Ireland
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacific
New Markets
Head office
Total
Impairment
losses
recognised
in income
2009
£m
Depreciation
and
amortisation
2009
£m
–
–
–
–
165.2
53.6
0.6
219.4
Capital
additions
2009
£m
247.8
86.0
16.5
350.3
Impairment
losses
recognised
in income
2008
£m
29.4
–
–
29.4
Depreciation
and
amortisation
2008
£m
113.0
70.9
–
183.9
Capital
additions
2009
£m
66.2
66.1
132.3
110.1
8.2
10.7
43.7
42.8
105.4
2.5
350.3
Capital
additions
2008
£m
753.2
109.6
2.5
865.3
Capital
additions
2008
£m
510.0
96.5
606.5
75.3
69.1
23.0
45.3
43.6
181.0
2.5
865.3
G4S plc Annual Report and Accounts 2009
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Financial statements
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75
7 Discontinued operations
Operations qualifying as discontinued in the current period primarily comprise the security services business in France, which principally comprises
Group 4 Securicor SAS, disposed of on 28 February 2009, Group 4 Falck Reinsurance S.A, the captive insurance business in Luxembourg, disposed of
on 23 December 2009 and the systems installation business in Slovakia. Further operations qualifying as discontinued in the prior year also comprised
the security services business in Germany, which principally comprised G4S Sicherheitsdienste GmbH and G4S Sicherheitssysteme GmbH, disposed
of on 15 May 2008.
The results of the discontinued operations which have been included in the consolidated income statement are presented below:
Revenue
Expenses
Operating loss before interest and taxation (PBIT)
Net finance costs
Attributable tax credit
Total operating profit/(loss) for the year
(Loss)/profit on disposal of discontinued operations (note 18)
Goodwill impairment
Adjustment in respect of disposals in the prior year
Net loss attributable to discontinued operations
2009
£m
40.7
(54.1)
(13.4)
(0.3)
19.3
5.6
(12.5)
–
–
(6.9)
2008
£m
231.3
(241.8)
(10.5)
(1.3)
0.1
(11.7)
12.0
(29.4)
1.6
(27.5)
The attributable tax credit relates to the recognition in 2009 of previously unrecognised tax attributes in G4S Government Services Inc., a US
group company.
The 2008 goodwill impairment charge relates to the security services businesses in France, which includes principally Group 4 Securicor SAS, to write
down net assets to their recoverable amount based on the disposal in February 2009.
The 2008 adjustment in respect of disposals in the prior year comprises £0.1m relating to the finalisation of the disposal of Cognisa Transportation, Inc.
and £1.5m to write-off of assets and liabilities relating to the disposal of G4S Cash Services (France) SAS.
The effect of discontinued operations on segment results is disclosed in note 6.
Cash flows from discontinued operations included in the consolidated cash flow statement are as follows:
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
8 Profit from operations before interest and taxation (PBIT)
The income statement can be analysed as follows:
Continuing operations
Revenue
Cost of sales
Gross profit
Administration expenses
Share of profit from associates
PBIT
Included within administration expenses is £83.2m (2008: £67.8m) of amortisation of acquisition-related intangible assets.
Revenue and expenses relating to discontinued operations are disclosed in note 7.
2009
£m
(14.1)
(9.1)
1.3
(21.9)
2009
£m
7,008.6
(5,472.8)
1,535.8
(1,119.9)
1.2
417.1
2008
£m
(25.1)
2.1
6.0
(17.0)
2008
£m
5,928.5
(4,615.7)
1,312.8
(969.0)
3.4
347.2
G4S plc Annual Report and Accounts 2009
76
Notes to the consolidated financial statements continued
9 Profit from operations
Profit from continuing and discontinued operations has been arrived at after charging/(crediting):
Cost of sales
Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
Administration expenses
Amortisation of acquisition-related intangible assets
Amortisation of other intangible assets
Goodwill impairment
Depreciation of property, plant and equipment
(Profit)/loss on disposal of property, plant and equipment and intangible assets other than acquisition-related
Impairment of trade receivables
Litigation settlements
Research and development expenditure
Operating lease rentals payable
Operating sub-lease rentals receivable
Cost of equity-settled transactions
Government grants received as a contribution towards wage costs
Net foreign translation adjustments
10 Auditors’ remuneration
Fees payable to the company’s auditor for the audit of the company’s annual report and accounts
Fees payable to the company’s auditor and its associates for other services:
The audit of the company’s subsidiaries pursuant to legislation
Other services pursuant to legislation
Taxation services
Corporate finance services
Fees payable to other auditors for the audit of the company’s subsidiaries pursuant to legislation
2009
£m
91.9
0.2
83.2
15.1
–
121.1
(0.3)
7.7
0.9
5.8
131.2
(10.3)
7.1
(1.3)
1.6
2009
£m
1.1
4.2
–
0.4
0.6
0.6
2008
£m
83.1
0.2
67.8
11.1
29.4
105.0
2.1
4.5
0.5
3.5
124.3
(6.2)
5.0
(1.5)
2.4
2008
£m
1.0
3.2
0.1
0.3
0.4
0.6
The Corporate governance statement on pages 47 to 49 outlines the company’s established policy for ensuring that audit independence is not
compromised through the provision by the company’s auditor of other services.
G4S plc Annual Report and Accounts 2009
Overview
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Governance
Financial statements
Shareholder information
77
11 Staff costs and employees
The average monthly number of employees, in continuing and discontinued operations, including executive directors was:
2009
Number
2008
Number
By business segment
Secure solutions
Cash solutions
Not allocated, including shared administration and head office
Total average number of employees
By geographical segment
Europe
North America
New Markets
Not allocated, including shared administration and head office
Total average number of employees
Their aggregate remuneration, in continuing and discontinued operations, comprised:
Wages and salaries
Social security costs
Employee benefits
Total staff costs
542,044
50,804
116
592,964
134,224
48,995
409,629
116
592,964
2009
£m
4,059.8
505.1
157.9
4,722.8
Information on directors’ remuneration, share options, long-term incentive plans and pension contributions and entitlements is set out in the
Directors’ remuneration report on pages 50 to 55.
12 Finance income
Interest income on cash, cash equivalents and investments
Other interest income
Expected return on defined retirement benefit scheme assets
Loss arising from change in fair value of derivative financial instruments hedging loan notes
Gain arising from fair value adjustment to the hedged loan note items
Total finance income
13 Finance costs
Interest on bank overdrafts and loans
Interest on loan notes
Interest on obligations under finance leases
Other interest charges
Gain arising from change in fair value of derivative financial instruments hedging loan notes
Loss arising from fair value adjustment to the hedged loan note items
Total group borrowing costs
Finance costs on defined retirement benefit obligations
Total finance costs
2009
£m
11.9
0.8
68.0
(53.2)
54.2
81.7
2009
£m
27.6
66.4
7.0
8.0
–
–
109.0
87.0
196.0
516,647
44,930
299
561,876
129,224
51,918
380,619
115
561,876
2008
£m
3,536.9
467.2
113.3
4,117.4
2008
£m
17.8
0.6
86.5
–
–
104.9
2008
£m
63.3
31.6
3.9
6.6
(78.0)
79.2
106.6
82.8
189.4
Included within interest on bank overdrafts and loans is a debit of £12.3m (2008: £1.5m) relating to cash flow hedges that were transferred from
equity during the year.
G4S plc Annual Report and Accounts 2009
78
Notes to the consolidated financial statements continued
14 Taxation
Current taxation expense/(credit)
UK corporation tax
Overseas tax
Adjustments in respect of prior years:
UK corporation tax
Overseas tax
Total current taxation expense/(credit)
Deferred taxation (credit)/expense
(see note 36)
Current year
Adjustments in respect of prior years
Total deferred taxation (credit)/expense
Total income tax expense/(credit) for
the year
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
19.0
73.2
(2.9)
8.6
97.9
(13.8)
(7.4)
(21.2)
–
(1.1)
–
0.3
(0.8)
(18.5)
–
(18.5)
Total
2009
£m
19.0
72.1
(2.9)
8.9
97.1
(32.3)
(7.4)
(39.7)
76.7
(19.3)
57.4
Continuing
operations
2008
£m
Discontinued
operations
2008
£m
10.5
73.0
(3.8)
(4.0)
75.7
(12.1)
6.7
(5.4)
70.3
–
(0.3)
–
–
(0.3)
0.2
–
0.2
(0.1)
Total
2008
£m
10.5
72.7
(3.8)
(4.0)
75.4
(11.9)
6.7
(5.2)
70.2
UK corporation tax is calculated at 28.0% (2008: 28.5%) of the estimated assessable profits for the period. Taxation is calculated at the corporation
tax rates prevailing in the relevant jurisdictions.
The tax charge for the year can be reconciled to the profit per the income statement as follows:
Profit before taxation
Continuing operations
Discontinued operations
Total profit before taxation
Tax at UK corporation tax rate of 28.0% (2008: 28.5%)
Expenses that are not deductible in determining taxable profit
Tax losses not recognised in the current year
Different tax rates of subsidiaries operating in non-UK jurisdictions
Adjustments for previous years
Total income tax charge
Effective tax rate
2009
£m
302.8
(26.2)
276.6
77.5
9.7
(19.3)
(9.1)
(1.4)
57.4
20.8%
In addition to the income tax expense charged to the income statement, a tax credit of £21.9m (2008: £50.3m) has been recognised in equity.
15 Dividends
Amounts recognised as distributions to equity holders
of the parent in the year
Final dividend for the year ended 31 December 2007
Interim dividend for the six months ended 30 June 2008
Final dividend for the year ended 31 December 2008
Interim dividend for the six months ended 30 June 2009
Pence
per share
DKK
per share
2009
£m
2.85
2.75
3.68
3.02
0.2786
0.2572
0.3052
0.2599
–
–
51.7
42.5
94.2
58.4
Proposed final dividend for the year ended 31 December 2009
4.16
0.3408
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting. If so approved, it will be paid on 4 June 2010 to
shareholders who are on the UK register on 7 May 2010. The exchange rate used to translate it into Danish krone is that at 15 March 2010.
2008
£m
262.7
(27.4)
235.3
67.1
10.1
3.1
(8.9)
(1.2)
70.2
29.9%
2008
£m
36.4
38.6
–
–
75.0
16 Earnings/(loss) per share attributable to equity shareholder of the parent
From continuing and discontinued operations
Earnings
Profit for the year attributable to equity holders of the parent
Effect of dilutive potential ordinary shares (net of tax)
Profit for the purposes of diluted earnings per share
Number of shares (m)
Weighted average number of ordinary shares
Effect of dilutive potential ordinary shares
Weighted average number of ordinary shares for the purposes of diluted earnings/(loss) per share
Earnings per share from continuing and discontinued operations (pence)
Basic
Diluted
From continuing operations
Earnings
Profit for the year attributable to equity holders of the parent
Adjustment to exclude loss/(profit) for the year from discontinued operations (net of tax) (note 7)
Profit from continuing operations
Effect of dilutive potential ordinary shares (net of tax)
Profit from continuing operations for the purpose of diluted earnings per share
Earnings per share from continuing operations (pence)
Basic
Diluted
From discontinued operations
Loss per share from discontinued operations (pence)
Basic
Diluted
From adjusted earnings
Earnings
Profit from continuing operations
Adjustment to exclude net retirement benefit finance income/(cost) (net of tax)
Adjustment to exclude amortisation of acquisition-related intangible assets (net of tax)
Adjusted profit for the year attributable to equity holders of the parent
Weighted average number of ordinary shares (m)
Adjusted earnings per share (pence)
G4S plc Annual Report and Accounts 2009
Overview
Business review
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Financial statements
Shareholder information
79
2009
£m
2008
£m
202.5
–
202.5
1,403.6
0.1
1,403.7
14.4p
14.4p
202.5
6.9
209.4
–
209.4
14.9p
14.9p
(0.5)p
(0.5)p
209.4
13.7
59.9
283.0
1,403.6
20.2p
151.2
0.2
151.4
1,357.7
1.3
1,359.0
11.1p
11.1p
151.2
27.5
178.7
0.2
178.9
13.2p
13.2p
(2.1)p
(2.1)p
178.7
(2.7)
48.7
224.7
1,357.7
16.6p
In the opinion of the directors, the earnings per share figure of most use to shareholders is that which is adjusted. This figure better allows the
assessment of operational performance, the analysis of trends over time, the comparison of different businesses and the projection of future earnings.
The denominators used in all earnings/(loss) per share calculations are those disclosed in respect of continuing and discontinued operations.
G4S plc Annual Report and Accounts 2009
80
Notes to the consolidated financial statements continued
17 Acquisitions
Current year acquisitions
The group undertook a number of acquisitions in the current period. Principal acquisitions in subsidiary undertakings include the purchase of the
entire share capital of SecPoint Security Limited, a security solutions business in Ghana; Sunshine Youth Services, a juvenile justice business in the
US; CL Systems Limited, a cash solutions business in Greater China; SMI, a cash solutions business in the UK; Adesta LLC, a leading US systems
integrator in the design and operation of security systems and command and control centres for Government and Regulated services; All Star
International, one of the premier facilities management and base operations support companies providing services to the US Government; NSSC,
a US risk consulting business in the nuclear power industry and the public sector and Hill & Associates, Asia’s leading provider of specialist risk
mitigation consulting services.
In addition, the group completed the minority buy-outs of certain businesses in New Markets.
A summary of the provisional fair value of net assets acquired by geographical location is presented below:
Provisional fair value of net assets acquired of subsidiary undertakings
Acquisition of minority interests
Total provisional fair value of net assets acquired
Goodwill
Total purchase consideration
Europe
£m
2.0
–
2.0
1.7
3.7
North
America
£m
52.0
(0.8)
51.2
46.1
97.3
New
Markets
£m
7.4
7.8
15.2
37.0
52.2
Total
group
£m
61.4
7.0
68.4
84.8
153.2
The following table sets out the book values of the identifiable assets and liabilities acquired and their provisional fair value to the group in respect of all
acquisitions made in the year:
Book value
£m
Fair value
adjustments
£m
Fair value
£m
Intangible assets
Property, plant and equipment
Investment in associates
Inventories
Trade and other receivables
Deferred tax assets
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Provisions
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Acquisition of minority interests
Goodwill
Total purchase consideration
Satisfied by:
Cash
Transaction costs1
Contingent consideration
Total purchase consideration
1.4
2.9
–
4.5
50.7
0.3
4.8
(33.5)
(0.6)
(0.9)
(0.8)
–
28.8
7.0
50.5
–
–
(0.1)
–
–
–
–
–
–
–
(17.8)
32.6
–
51.9
2.9
–
4.4
50.7
0.3
4.8
(33.5)
(0.6)
(0.9)
(0.8)
(17.8)
61.4
7.0
84.8
153.2
159.3
(6.7)
0.6
153.2
1 Transaction costs are net of £10.5m receivable relating to a refund of tax expenses incurred when Group 4 Securicor plc acquired Securicor plc in 2004.
G4S plc Annual Report and Accounts 2009
Overview
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Financial statements
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81
17 Acquisitions continued
Current year acquisitions continued
Adjustments made to identifiable assets and liabilities on acquisition are to reflect their fair value. These include the recognition of customer-related
intangible assets amounting to £50.5m. The fair values of net assets acquired are provisional and represent estimates following a preliminary valuation
exercise. These estimates may be adjusted to reflect any development in the issues to which they relate.
The goodwill arising on acquisitions can be ascribed to the existence of a skilled, active workforce and the opportunities to obtain new contracts and
develop the business. Neither of these meet the criteria for recognition as intangible assets separable from goodwill. Goodwill arising on acquisition
includes £21.7m arising on the acquisition of minority interests.
From their respective dates of acquisition, the acquired businesses’ contribution to the results of the group for the period was as follows:
Contribution from acquired businesses
SecPoint Security
CL Systems
Secura Monde
Sunshine Youth Services
All Star
Others
Total contribution from acquired businesses
Revenue
£m
3.7
1.3
4.7
9.7
11.2
3.9
34.5
PBITA
£m
1.3
0.5
0.9
0.9
1.1
0.4
5.1
If all the acquisitions had occurred on 1 January 2009 the results of the group for the period would have been as follows:
Group’s results if all acquisitions had occurred on 1 January 2009
Group results for the period
Impact of backdating acquisitions to 1 January 2009
SecPoint Security
CL Systems
Secura Monde
Sunshine Youth Services
All Star
Adesta LLC
NSSC
Hill & Associates
Other
Revenue
£m
7,008.6
PBITA
£m
500.3
3.7
1.3
5.0
16.6
66.0
66.7
15.6
8.7
8.1
1.3
0.5
0.9
1.6
4.4
5.1
2.5
(1.1)
0.8
Profit
£m
0.7
–
0.2
0.9
1.1
0.4
3.3
Profit
£m
219.2
0.7
–
0.2
1.6
2.1
2.3
1.3
(1.0)
0.5
Group result for the period if all acquisitions had occurred on 1 January 2009
7,200.3
516.3
226.3
Prior year acquisitions
The most significant acquisition in subsidiary undertakings in the prior year was the purchase of De Facto 1119 Limited, the holding company of the
Global Solutions group (“GSL”) an international leader in the provision of support services for governments, companies and public authorities, based
in the UK, which was completed on 12 May 2008. Other principal acquisitions in subsidiary undertakings in the prior year include the purchases
of ArmorGroup International plc, an international provider of defensive, protective security services, headquartered in the UK; Touchcom, Inc.,
a security consultancy and design business in the US; RONCO Consulting Corporation, an international provider of humanitarian mine clearance and
ordnance services, specialised security and training, headquartered in the US; MJM Investigations, Inc., a provider of insurance fraud mitigation and
claims services in the US; the Rock Steady group of companies, providing event security in the UK; Travel Logistics Limited, a provider of passport
and visa services in the UK and Progard, a market-leader in professional security services in the Republic of Serbia.
In addition, the group completed the acquisition of a further 35% of Aktsiaselts G4S Baltics, increasing to 100% its holding in this company, the holding
company of the G4S subsidiaries in Estonia, Latvia and Lithuania, which provide both security services and cash services. This transaction was largely
accrued at 31 December 2007 through the recognition of a put option. The group also acquired the 49% of G4S Macau Limitada, a provider of both
security services and cash services that it did not already own.
G4S plc Annual Report and Accounts 2009
82
Notes to the consolidated financial statements continued
17 Acquisitions continued
At 31 December 2008, the fair value adjustments made against net assets acquired were provisional. The initial accounting in respect of acquisitions
made during 2008 has since been finalised. The net assets acquired and goodwill arising in respect of all acquisitions made in the year are as follows:
Book value
£m
Fair value
adjustments
£m
Fair value
£m
Intangible assets
Property, plant and equipment
Investment in associates
Inventories
Trade and other receivables
Deferred tax assets
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Obligations under finance leases
Provisions
Borrowings
Deferred tax liabilities
Net (liabilities)/assets acquired of subsidiary undertakings
Acquisition of minority interests
Goodwill
Total purchase consideration
Satisfied by:
Cash
Transaction costs
Contingent consideration
Total purchase consideration
5.8
45.7
1.4
5.9
140.7
8.9
58.4
(112.9)
(2.7)
(13.5)
2.9
(256.7)
(1.3)
(117.4)
5.3
209.0
(16.5)
–
(1.7)
(4.6)
6.4
1.5
(22.2)
(1.5)
–
(56.2)
–
(60.4)
53.8
0.5
214.8
29.2
1.4
4.2
136.1
15.3
59.9
(135.1)
(4.2)
(13.5)
(53.3)
(256.7)
(61.7)
(63.6)
5.8
427.6
369.8
339.0
19.2
11.6
369.8
Adjustments made to identifiable assets and liabilities on acquisition are to reflect their fair value. These include the recognition of customer-related
intangible assets amounting to £191.4m. On completion of the fair value exercise during 2009, adjustments made to the provisional calculation
amounted to £19.1m, with an equivalent increase in the reported value of goodwill. The comparative balance sheet at 31 December 2008 has been
restated accordingly. The adjustments to the provisional calculation are primarily to recognise an additional £10.9m of customer-related intangible
assets (with a related deferred tax asset of £3.1m) and an additional £25.4m of provisions relating to employee benefits and onerous contracts.
The goodwill arising on acquisitions can be ascribed to the existence of a skilled, active workforce and the opportunities to obtain new contracts and
develop the business. Neither of these meet the criteria for recognition as intangible assets separable from goodwill. Goodwill arising on acquisition
includes £19.6m arising on the acquisition of minority interests.
In the year of acquisition, in aggregate, the acquired businesses contributed £518.6m to revenues, £46.6m to PBITA and £18.0m to profit for the part
year they were under the group’s ownership. If all acquisitions had occurred on 1 January 2008, group revenue would have been £6,203.6m, PBITA
would have been £439.6m and profit for the year would have been £174.0m.
G4S plc Annual Report and Accounts 2009
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17 Acquisitions continued
Acquisition of GSL
The net assets acquired and goodwill in respect of the GSL acquisition made in the prior year are as follows:
Intangible assets
Investment in associates
Property, plant and equipment
Inventories
Trade and other receivables
Deferred tax assets
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Obligations under finance leases
Provisions
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Goodwill
Total purchase consideration
Satisfied by:
Cash
Transaction costs
Total purchase consideration
Post balance sheet acquisitions
Book value
£m
1.9
1.4
18.8
0.6
75.7
4.8
54.7
(84.0)
(1.2)
(12.6)
3.2
(238.8)
(1.9)
(177.4)
Fair value
adjustments
£m
157.6
Fair value
£m
159.5
–
(5.5)
–
(0.5)
(0.3)
–
(5.4)
–
–
(5.9)
–
(44.6)
95.4
1.4
13.3
0.6
75.2
4.5
54.7
(89.4)
(1.2)
(12.6)
(2.7)
(238.8)
(46.5)
(82.0)
258.1
176.1
167.7
8.4
176.1
No acquisitions have been effected between the balance sheet date and the date that the financial statements were authorised for issue.
G4S plc Annual Report and Accounts 2009
84
Notes to the consolidated financial statements continued
18 Disposal of subsidiaries
On 23 December 2009, the group disposed of Group 4 Falck Reinsurance S.A, the captive insurance business in Luxembourg.
On 28 February 2009, the group disposed of the manned security business in France, which includes principally Group 4 Securicor SAS.
On 31 July 2008, the group disposed of the security systems business in France, being G4S Telesurveillance SAS and G4S Technologie SAS.
On 15 May 2008, the group disposed of the secure solutions business in Germany, which principally comprises G4S Sicherheitsdienste GmbH and
G4S Sicherheitssysteme GmbH.
The net assets of operations disposed of were as follows:
Goodwill
Property, plant and equipment and intangible assets other than acquisition-related
Current assets
Liabilities
Net assets of operations disposed
(Loss)/profit on disposal
Total consideration
Satisfied by:
Cash received
Disposal costs
Cash
2009
£m
13.1
3.0
84.0
(79.3)
20.8
(12.5)
8.3
14.5
(6.2)
8.3
2008
£m
20.8
4.3
13.0
(19.0)
19.1
12.0
31.1
31.1
–
31.1
The impact of the disposals, combined with other operations qualifying as discontinued, on the group’s results and cash flows in the current and prior
year is disclosed in note 7.
G4S plc Annual Report and Accounts 2009
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19 Intangible assets
Goodwill
Acquisition-related intangible assets
Other intangible assets
Total
£m
Trademarks
£m
Customer
related
£m
Technology
£m
Development
expenditure
£m
Software
£m
£m
2009
Cost
At 1 January 2009
2,113.4
33.5
Acquisition of businesses
Additions
Disposals
Translation adjustments
84.8
–
(22.2)
(60.9)
At 31 December 2009
2,115.1
Amortisation and
accumulated
impairment losses
At 1 January 2009
Amortisation charge
Disposals
Translation adjustments
At 31 December 2009
Carrying amount
At 1 January 2009
At 31 December 2009
2008
Cost
At 1 January 2008
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2008
Amortisation and
accumulated
impairment losses
At 1 January 2008
Amortisation charge
Disposals
Translation adjustments
At 31 December 2008
Carrying amount
At 1 January 2008
At 31 December 2008
(33.9)
–
8.8
(46.1)
(71.2)
2,079.5
2,043.9
1,357.0
427.6
–
–
328.8
2,113.4
(25.7)
–
–
(8.2)
(33.9)
1,331.3
2,079.5
–
–
–
0.4
33.9
(16.4)
(5.3)
–
(0.2)
(21.9)
17.1
12.0
16.2
16.3
–
–
1.0
33.5
(11.0)
(4.0)
–
(1.4)
(16.4)
5.2
17.1
566.3
51.2
0.2
(0.2)
(16.1)
601.4
(186.8)
(75.2)
0.2
5.1
(256.7)
379.5
344.7
322.2
191.4
2.0
(0.1)
50.8
566.3
(106.7)
(61.2)
–
(18.9)
(186.8)
215.5
379.5
19.4
0.7
–
–
(1.5)
18.6
(12.9)
(2.7)
–
1.5
(14.1)
6.5
4.5
10.7
5.2
–
–
3.5
19.4
(7.2)
(2.6)
–
(3.1)
(12.9)
3.5
6.5
12.4
–
4.9
(0.4)
(0.6)
16.3
(2.9)
(2.7)
0.3
–
(5.3)
9.5
11.0
7.0
–
3.9
–
1.5
12.4
(0.8)
(1.7)
–
(0.4)
(2.9)
6.2
9.5
103.7
2,848.7
–
23.7
(7.6)
1.8
136.7
28.8
(30.4)
(80.5)
118.0
2,903.3
(52.2)
(12.4)
7.1
(2.8)
(60.3)
51.5
57.7
60.5
1.9
19.2
(1.8)
23.9
103.7
(35.4)
(9.4)
1.1
(8.5)
(52.2)
25.1
51.5
(305.1)
(98.3)
16.4
(42.5)
(429.5)
2,543.6
2,473.8
1,773.6
642.4
25.1
(1.9)
409.5
2,848.7
(186.8)
(78.9)
1.1
(40.5)
(305.1)
1,586.8
2,543.6
Included within software is internally generated software with a gross carrying value of £9.1m (2008: £6.7m), and accumulated amortisation of £1.0m
(2008: £0.9m), giving a net book value of £8.1m (2008: £5.8m). During the year, additions amounted to £3.5m (2008: £3.9m) and the amortisation
charge associated to these assets was £1.0m (2008: £0.9m).
G4S plc Annual Report and Accounts 2009
86
Notes to the consolidated financial statements continued
19 Intangible assets continued
Customer-related intangibles comprise the contractual relationship with customers and the customer relationships which meet the criteria for
identification as intangible assets in accordance with IFRS. Customer contracts and relationships recognised upon the acquisition of Securicor plc on
19 July 2004 are considered significant to the group. The carrying amount at 31 December 2009 was £96.4m (2008: £138.6m), and the amortisation
period remaining in respect of these assets is four and a half years.
Goodwill acquired in a business combination is allocated to the cash-generating units (CGUs) which are expected to benefit from that business
combination. The majority of goodwill was generated by the merger of the security services businesses of Group 4 Falck and Securicor in 2004 which
was accounted for as an acquisition of Securicor by Group 4 Falck.
The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications that
amounts may be impaired. The annual impairment test is performed prior to the year end when the budgeting process is finalised and reviewed
post-year end. The group’s impairment test compares the carrying value of each CGU to its recoverable amount. CGUs are identified on a country
level basis including significant business units, as per the group’s detailed management accounts. Under IAS 36 Impairment of Assets, an impairment
is deemed to have occurred where the recoverable amount of a CGU is less than its carrying value.
The recoverable amount of a CGU is determined by its value in use which is derived from discounted cash flow calculations. These calculations include
forecast pre-tax cash flows for a period of five years. The five-year cash flow forecasts are based on the budget for the following year (year one) and
the business plans for years two and three, the results of which are reviewed by the board, and projections for years four and five, all of which reflect
past experience as well as future expected market trends. Budgeted and forecast cash flows are based on management’s assessment of current contract
portfolio, contract wins, contract retention and price increases. Cash flows beyond the five-year forecast period are projected into perpetuity at the
lower of the planned growth rate in year three and the forecast underlying economic growth rate for the economies in which the CGU operates.
Where the planned growth rate in year three exceeds the forecast underlying economic growth rate, the excess is reduced progressively in the
projections for years four and five. Growth rates across the group’s CGUs range from 0% to 15%, and the into-perpetuity growth rates for the
significant CGUs are disclosed in the table below. Future cash flows are discounted at a pre-tax, weighted average cost of capital which for the group
is 8.4% (2008: 11.4%), and the discount rates for the significant CGUs are disclosed in the table below. Pre-tax cash flows are discounted using pre-tax
discount rates derived from calculating the net present value of the post-tax cash flows discounted at post-tax rates. The group rate is adjusted
where appropriate to reflect the different financial risks in each country in which the CGUs operate. Risk-adjusted discount rates applicable to group
entities range from 5.3% in Singapore to 65.9% in Madagascar.
In applying the group’s model, no impairment has been identified and recognised in any of the group’s CGUs for the year ended 31 December 2009
or for the year ended 31 December 2008. Management believe that there is currently no reasonably possible change in the underlying factors used in
the impairment model which would lead to a material impairment of goodwill.
The following CGUs have significant carrying amounts of goodwill:
US secure solutions (manned security)
GSL
UK cash solutions
Netherlands security solutions
UK secure solutions (manned security)
UK secure solutions (justice services)
Estonia secure solutions and cash solutions
Other (all allocated)
Total goodwill
*Growth rate is the long term into-perpetuity growth rate.
Discount rate
2009
Discount rate
2008
7.2%
8.4%
8.4%
7.3%
8.4%
8.4%
13.1%
10.1%
11.4%
11.4%
10.5%
11.4%
11.4%
14.3%
Growth rate*
Growth rate*
2009
2.5%
2.5%
2.5%
3.5%
2.5%
2.5%
4.0%
2008
5.0%
5.3%
5.3%
3.9%
5.3%
5.3%
3.9%
Goodwill
2009
£m
358.9
258.1
240.4
125.7
117.1
95.3
67.4
781.0
2,043.9
Goodwill
2008
£m
388.9
258.1
244.5
136.6
122.8
95.3
73.0
760.3
2,079.5
The key assumptions used in the discounted cash flow calculations relate to the discount rates and underlying economic growth rates for each CGU.
With all other variables being equal, a 1% increase in the group discount rate from 8.4% to 9.4% with equivalent increases to the discount rates in all
countries would result in a goodwill impairment to the group of £4m, with a £3m impairment required to Estonia. A significant increase of 3% in the
group discount rate from 8.4% to 11.4%, and an equivalent increase in all countries, would result in a group impairment of £60m including impairments
of £26m to UK Cash solutions and £11m to Estonia.
A decrease in the underlying growth rate in all countries of 1% would result in a group impairment of £2m, with an impairment of £1m to Estonia.
A decrease of 3% in growth rate would result in a group impairment of £11m including an impairment to Estonia of £8m. These approximations
indicate the sensitivity of the impairment test to changes in the underlying assumptions. However, it is highly unlikely that any variations in the
assumptions would impact on all CGUs at the same time.
G4S plc Annual Report and Accounts 2009
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87
Land and
buildings
£m
Equipment
and vehicles
£m
Total
£m
229.7
0.1
23.3
(15.6)
(10.7)
226.8
(59.2)
(12.9)
10.1
4.5
(57.5)
170.5
169.3
158.5
7.3
36.4
(2.3)
29.8
229.7
(35.6)
(10.6)
1.3
(14.3)
(59.2)
122.9
170.5
861.4
2.8
158.6
(79.1)
(41.1)
902.6
(503.4)
(108.2)
65.5
20.2
1,091.1
2.9
181.9
(94.7)
(51.8)
1,129.4
(562.6)
(121.1)
75.6
24.7
(525.9)
(583.4)
358.0
376.7
630.5
21.9
132.2
(65.4)
142.2
861.4
(350.2)
(94.4)
53.4
(112.2)
(503.4)
280.3
358.0
2009
£m
72.8
87.1
18.6
528.5
546.0
789.0
29.2
168.6
(67.7)
172.0
1,091.1
(385.8)
(105.0)
54.7
(126.5)
(562.6)
403.2
528.5
2008
£m
59.5
68.2
16.6
20 Property plant and equipment
2009
Cost
At 1 January 2009
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2009
Depreciation and accumulated impairment losses
At 1 January 2009
Depreciation charge
Disposals
Translation adjustments
At 31 December 2009
Carrying amount
At 1 January 2009
At 31 December 2009
2008
Cost
At 1 January 2008
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2008
Depreciation and accumulated impairment losses
At 1 January 2008
Depreciation charge
Disposals
Translation adjustments
At 31 December 2008
Carrying amount
At 1 January 2008
At 31 December 2008
The carrying amount of equipment and vehicles includes the following in respect of assets held under finance leases:
Net book value
Accumulated depreciation
Depreciation charge for the year
The rights over leased assets are effectively security for lease liabilities. These rights revert to the lessor in the event of default.
G4S plc Annual Report and Accounts 2009
88
Notes to the consolidated financial statements continued
20 Property, plant and equipment continued
The carrying amount of equipment and vehicles includes the following in respect of assets leased by the group to third parties under operating leases:
Net book value
Accumulated depreciation
Depreciation charge for the year
The net book value of land and buildings comprises:
Freeholds
Long leaseholds (50 years and over)
Short leaseholds (under 50 years)
2009
£m
34.4
72.6
10.2
2009
£m
66.1
21.1
82.1
2008
£m
39.2
74.1
9.4
2008
£m
57.1
9.8
103.6
At 31 December 2009 the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£2.1m (2008: £3.3m).
21 Investment in joint ventures
At the year end the group owned 59% of the equity of Bridgend Custodial Services Ltd and 50% of the equity in STC (Milton Keynes) Ltd. In both
cases, the group jointly shares operational and financial control over the operations and is therefore entitled to a proportionate share of the results of
each, which are consolidated on the basis of the equity shares held. The group’s correctional facilities in South Africa are under a similar arrangement
other than that the group’s holding is 20%.
The results of each of the jointly controlled operations are prepared in accordance with group accounting policies. Amounts proportionately
consolidated into the group’s financial statements are as follows:
Results
Income
Expenses
Profit after tax
Balance sheet
Assets
Non-current assets
Current assets
Liabilities
Current liabilities
Non-current liabilities
Net assets
2009
£m
46.3
(41.9)
4.4
2009
£m
2.5
46.2
48.7
(10.3)
(12.9)
(23.2)
25.5
2008
£m
30.8
(27.4)
3.4
2008
£m
4.0
47.8
51.8
(11.3)
(18.1)
(29.4)
22.4
22 Investment in associates
Total assets
Total liabilities
Net investment in associates
Revenue
Profit for the year
G4S plc Annual Report and Accounts 2009
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89
2009
£m
13.2
(6.0)
7.2
33.6
1.2
2008
£m
11.6
(4.2)
7.4
76.3
3.4
The net investment and results presented above largely relate to Space Gateway Support LLC, in the USA, in which the group holds an investment of
46%. The results of Space Gateway Support LLC are reported in the North America security segment.
23 Inventories
Raw materials
Work in progress
Finished goods including consumables
Total inventories
2009
£m
15.6
10.2
52.0
77.8
2008
£m
23.4
11.5
50.1
85.0
24 Investments
Investments comprise primarily listed securities of £59.0m (2008: £70.2m) held by the group’s wholly-owned captive insurance subsidiaries stated
at their fair values based on quoted market prices. Use of these investments is restricted to the settlement of claims against the group’s captive
insurance subsidiaries.
25 Trade and other receivables
Within current assets
Trade debtors
Allowance for doubtful debts
Amounts owed by associated undertakings
Other debtors (including tax receivable)
Prepayments and accrued income
Amounts due from construction contract customers (see note 26)
Derivative financial instruments at fair value (see note 32)
Total trade and other receivables included within current assets
Within non-current assets
Derivative financial instruments at fair value (see note 32)
Other debtors
Amounts receivable under PFI contracts
Total trade and other receivables included within non-current assets
2009
£m
2008
£m
1,175.8
1,220.5
(65.9)
1.3
115.4
93.4
17.0
11.5
(59.4)
4.4
100.5
89.1
10.6
9.6
1,348.5
1,375.3
57.7
13.6
40.1
111.4
143.6
11.1
43.3
198.0
G4S plc Annual Report and Accounts 2009
90
Notes to the consolidated financial statements continued
25 Trade and other receivables continued
Credit risk on trade receivables
There is limited concentration of credit risk with respect to trade receivables, as the group’s customers are both large in number and dispersed
geographically in over 110 countries. Group companies are required to follow the Group Finance Manual guidelines with respect to assessing the credit
worthiness of potential customers. These guidelines include processes such as obtaining approval for credit limits over a set amount, performing credit
checks and assessments and obtaining additional security where required.
Credit terms vary across the group and can range from 0 to 90 days to reflect the different risks within each country in which the group operates.
There is no group-wide rate of provision, and provision is made for debts that are past due according to local conditions and past default experience.
The movement in the allowance for doubtful debts is as follows:
At 1 January
Amounts written-off during the year
Increase in allowance
At 31 December
2009
£m
(59.4)
7.7
(14.2)
(65.9)
2008
£m
(36.4)
3.8
(26.8)
(59.4)
Included within trade receivables are trade debtors with a carrying amount of £368m (2008: £384m) which are past due at the reporting date
for which no provision has been made as there has not been a significant change in credit quality and the group believes that the amounts are still
recoverable. The group does not hold any collateral over these balances. The proportion of trade debtors at 31 December 2009 that were overdue
for payment was 36% (2008: 36%). The group-wide average age of all trade debtors at year end was 56 days (2008: 68 days).
To reflect the growing nature of the group, the monthly management accounts use the last three months sales of the year to calculate management
trade debtor days. Using this calculation the group-wide average age of trade debtors at year end was 48 days (2008: 49 days at constant exchange rates).
The directors believe the fair value of trade and other receivables, being the present value of future cash flows, approximates to their book value.
Amounts receivable under PFI contracts
Amounts receivable under PFI contracts comprise the group’s proportion of amounts receivable in respect of the Private Finance Initiative (PFI)
projects undertaken by the group’s joint ventures. The group’s interests under PFI contracts primarily consist of the design, construction, financing
and management of HM Prison and Young Offenders Institution Parc in Bridgend, South Wales, for the Home Office; the Oakhill Secure Training
Centre for young people in Milton Keynes for the Youth Justices Board and Bloemfontein Correctional Contracts (Pty) for the Government of South
Africa. The Bridgend contract commenced in January 1996 and expires in December 2022. The Milton Keynes contract commenced in June 2003
and expires in June 2028. The Bloemfontein contract commenced in July 2001 and ends in June 2026. All contracts can be terminated by the customer
either in the event of a severe failure to comply with the contract or voluntarily with six months notice and the payment of appropriate compensation
(90 days for the Bloemfontein contract). The specified assets remain the property of the customers. The group’s joint ventures have the right to
provide services using the specified assets during the life of the contracts. There is currently no obligation to acquire or build further assets and any
such obligation would be agreed with the customers as variations to the contracts. The pricing basis is inflation-indexed.
Amounts receivable under PFI contracts are pledged as security against borrowings of the group.
26 Construction contracts
Contracts in place at the balance sheet date are as follows:
Amounts due from contract customers included in trade and other receivables
Amounts due to contract customers included in trade and other payables
Net balances relating to construction contracts
Contract costs incurred plus recognised profits less recognised losses to date
Less: Progress billings
Net balances relating to construction contracts
2009
£m
17.0
(1.8)
15.2
180.7
(165.5)
15.2
2008
£m
10.6
(2.6)
8.0
23.6
(15.6)
8.0
At 31 December 2009, advances received from customers for contract work amounted to £5.7m (2008: £6.0m). There were no retentions held by
customers for contract work at either balance sheet date. All trade and other receivables arising from construction contracts are due for settlement
within one year.
The directors believe the fair value of amounts due from and to contract customers, being the present value of future cash flows, approximates to
their book value.
G4S plc Annual Report and Accounts 2009
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91
27 Disposal groups classified as held for sale
Disposal groups classified as held for sale as at 31 December 2009 comprise primarily the assets and liabilities associated with the cash solutions
business in Taiwan. At 31 December 2008 disposal groups classified as held for sale also included the assets and liabilities associated with the manned
security services businesses in France, which principally included Group 4 Securicor SAS.
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
ASSETS
Goodwill and acquisition-related intangible assets
Property, plant and equipment and intangible assets other than acquisition-related
Interest in associates
Trade and other receivables
Deferred tax asset
Cash and cash equivalents
Total assets classified as held for sale
LIABILITIES
Bank overdrafts
Bank loans
Trade and other payables
Current tax liabilities
Retirement benefit obligations
Provisions
Total liabilities associated with assets classified as held for sale
Net liabilities of disposal group
2009
£m
–
2.1
–
0.5
–
26.5
29.1
(6.1)
(13.2)
(10.9)
–
(0.7)
–
(30.9)
(1.8)
2008
£m
15.1
4.2
(0.8)
45.2
2.3
5.0
71.0
(11.3)
(1.0)
(58.1)
(2.6)
(0.8)
(0.3)
(74.1)
(3.1)
28 Cash, cash equivalents and bank overdrafts
A reconciliation of cash and cash equivalents reported within the consolidated cash flow statement to amounts reported within the balance sheet is
presented below:
Cash and cash equivalents
Bank overdrafts
Cash, cash equivalents and bank overdrafts included within disposal groups classified as held for sale
Total cash, cash equivalents and bank overdrafts
2009
£m
307.6
(37.5)
20.4
290.5
2008
£m
562.1
(195.1)
(6.3)
360.7
Cash and cash equivalents comprise principally short-term money market deposits, current account balances and group-owned cash held in ATM
machines and at 31 December 2009 bore interest at a weighted average rate of 1.1% (2008: 1.2%). The credit risk on cash and cash equivalents is
limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
The group operates a multi-currency notional pooling cash management system which included over 110 group companies at 31 December 2009.
It is anticipated that the number of participants in the group will continue to grow. In 2009 the group met the conditions of IAS 32 Financial Instruments:
Presentation allowing balances within this cash pool to be offset for reporting purposes. At 31 December 2009 £146.9m of the cash balances and the
equivalent amount of the overdraft balances were offset. Previously balances within this cash pool were reported gross.
Cash and cash equivalents of £20.1m (2008: £33.7m) are held by the group’s wholly-owned captive insurance subsidiaries. Their use is restricted to the
settlement of claims against the group’s captive insurance subsidiaries.
G4S plc Annual Report and Accounts 2009
92
Notes to the consolidated financial statements continued
29 Bank overdrafts, bank loans and loan notes
Bank overdrafts
Bank loans
Loan notes*
Total bank overdrafts, bank loans and loan notes
The borrowings are repayable as follows:
On demand or within one year
In the second year
In the third to fifth years inclusive
After five years
Total bank overdrafts, bank loans and loan notes
Less: Amount due for settlement within 12 months (shown under current liabilities):
– Bank overdrafts
– Bank loans
Amount due for settlement after 12 months
*Loan notes includes £766.7m of private loan notes and £350m of public loan notes.
Analysis of bank overdrafts, bank loans and loan notes by currency:
2009
£m
37.5
661.9
1,116.7
1,816.1
183.1
15.0
604.5
1,013.5
1,816.1
(37.5)
(145.6)
(183.1)
1,633.0
Bank overdrafts
Bank loans
Loan notes
At 31 December 2009
Bank overdrafts
Bank loans
Loan notes
At 31 December 2008
Sterling
£m
15.9
120.9
419.0
555.8
64.0
236.6
69.0
369.6
Euros
£m
9.5
174.0
–
183.5
55.0
351.5
–
406.5
US dollars
£m
Others
£m
–
323.7
697.7
1,021.4
36.2
313.6
832.9
1,182.7
12.1
43.3
–
55.4
39.9
64.0
–
103.9
2008
£m
195.1
965.7
901.9
2,062.7
283.0
10.0
900.8
868.9
2,062.7
(195.1)
(87.9)
(283.0)
1,779.7
Total
£m
37.5
661.9
1,116.7
1,816.1
195.1
965.7
901.9
2,062.7
Of the borrowings in currencies other than sterling, £1,010m (2008: £1,272m) is designated as net investment hedging instruments.
The weighted average interest rates on bank overdrafts, bank loans and loan notes at 31 December 2009 adjusted for hedging were as follows:
Bank overdrafts
Bank loans
Private loan notes
Public loan notes
2009
%
1.4
3.6
4.2
7.8
2008
%
2.2
4.6
6.4
–
The group’s committed bank borrowings comprise two multi-currency revolving credit facilities totalling £1,087m with a maturity date of
June 2012 and a revolving credit facility of £45m maturing March 2010, and the group’s uncommitted facilities amount to £515.6m (2008: £578.0m).
At 31 December 2009, undrawn committed available facilities amounted to £614.7m (2008: £350.4m). Interest on all committed bank borrowing
facilities is at prevailing Libor or Euribor rates, dependent upon the period of drawdown, plus an agreed margin, and re-priced within one year or less.
Borrowing at floating rates exposes the group to cash flow interest rate risk. The management of this risk is discussed in note 33.
The group issued fixed rate loan notes in the US Private Placement market totalling US$550m (£340.6m) on 1 March 2007. The notes mature in
March 2014 ($100m), March 2017 ($200m), March 2019 ($145m) and March 2022 ($105m).
The group issued further fixed rate loan notes in the US Private Placement market totalling US$513.5m (£318.0m) and £69m on 15 July 2008.
The notes mature in July 2013 ($65m), July 2015 ($150m), July 2016 (£25m), July 2018 ($224m) and (£44m), and July 2020 ($74.5m).
The group issued its inaugural public note of £350m using its European Medium Term Note Programme on 13 May 2009. The note matures in May 2019.
The committed bank facilities and the private loan notes are subject to one financial covenant (net debt to EBITDA ratio) and non-compliance with
the covenant may lead to an acceleration of maturity. The group complied with the financial covenant throughout the year to 31 December 2009 and
the year to 31 December 2008. The group has not defaulted on, or breached the terms of, any material loans during the year.
G4S plc Annual Report and Accounts 2009
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93
29 Bank overdrafts, bank loans and loan notes continued
Bank overdrafts, bank loans, the loan notes issued in July 2008 and the loan notes issued in May 2009 are stated at amortised cost. The loan notes
issued in March 2007 are stated at amortised cost recalculated at an effective interest rate current at the balance sheet date as they are part of a fair
value hedge relationship. The directors believe the fair value of the group’s bank overdrafts, bank loans and the loan notes issued in March 2007,
calculated from market prices, approximates to their book value. US$265m (£164.1m) of the loan notes issued in July 2008 have a fair value market
gain of £29.9m.
30 Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
After five years
Less: Future finance charges on finance leases
Present value of lease obligations
Present
value of
minimum
lease
payments
2009
£m
23.1
52.6
10.0
85.7
Present
value of
minimum
lease
payments
2008
£m
22.1
49.3
14.3
85.7
Minimum
lease
payments
2009
£m
Minimum
lease
payments
2008
£m
27.5
60.9
11.2
99.6
(13.9)
85.7
24.0
55.9
16.3
96.2
(10.5)
85.7
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
(23.1)
62.6
(22.1)
63.6
It is the group’s policy to lease certain of its fixtures and equipment under finance leases. The weighted average lease term is eight years. For the
year ended 31 December 2009, the weighted average effective borrowing rate was 7.4% (2008: 7.2%). Interest rates are fixed at the contract date.
All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The directors believe the fair value of the group’s finance lease obligations, being the present value of future cash flows, approximates to their
book value.
The group’s obligations under finance leases are secured by the lessors’ charges over the leased assets.
31 Trade and other payables
Within current liabilities:
Trade creditors
Amounts due to construction contract customers (see note 26)
Amounts owed to associated undertakings
Other taxation and social security costs
Other creditors
Accruals and deferred income
Derivative financial instruments at fair value (see note 32)
Total trade and other payables included within current liabilities
Within non-current liabilities:
Derivative financial instruments at fair value (see note 32)
Other creditors
Total trade and other payables included within non-current liabilities
2009
£m
191.6
1.8
0.6
205.8
398.4
295.4
11.9
2008
£m
197.0
2.6
0.5
182.6
520.0
294.7
19.2
1,105.5
1,216.6
9.5
33.0
42.5
39.1
24.4
63.5
Trade and other payables comprise principally amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade
purchases is 37 days (2008: 40 days). The directors believe the fair value of trade and other payables, being the present value of future cash flows,
approximates to their book value.
Other creditors within non-current liabilities of £33.0m includes £27.5m relating to creditors due between one and two years, and £5.5m relating to
creditors due between two and five years.
G4S plc Annual Report and Accounts 2009
94
Notes to the consolidated financial statements continued
32 Derivative financial instruments
The carrying values of derivative financial instruments at the balance sheet date are presented below:
Forward foreign exchange contracts
Cross currency swaps designated as cash flow hedges
Interest rate swaps designated as cash flow hedges
Interest rate swaps designated as fair value hedges
Commodity swaps
Less: Non-current portion
Current portion
Assets
2009
£m
–
29.9
–
39.1
0.2
69.2
(57.7)
11.5
Assets
2008
£m
–
60.9
–
92.3
–
153.2
(143.6)
9.6
Liabilities
2009
£m
Liabilities
2008
£m
0.1
–
21.2
–
0.1
21.4
(9.5)
11.9
28.6
–
28.6
–
1.1
58.3
(39.1)
19.2
Derivative financial instruments are stated at fair value, measured using techniques consistent with Level 1 of the valuation hierarchy (see note 3(d)).
The source of the market prices is Bloomberg and in addition the third-party relationship counterparty banks. The relevant currency yield curve is
used to forecast the floating rate cash flows anticipated under the instrument which are discounted back to the balance sheet date. This value is
compared to the original transaction value giving a fair value of the instrument at the balance sheet date.
The mark to market valuation of the derivatives has fallen by £47.1m during the year.
The interest rate, cross currency and commodity swaps which qualify as cash flow hedges have the following maturities:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year or greater
Total carrying value of cash flow hedges
Assets
2009
£m
0.2
–
–
7.2
22.7
30.1
Assets
2008
£m
Liabilities
2009
£m
Liabilities
2008
£m
–
–
–
–
60.9
60.9
2.7
5.6
8.0
4.0
1.0
21.3
3.2
4.0
7.8
10.0
4.7
29.7
Projected settlement of cash flows (including accrued interest) associated with derivatives that are cash flow hedges:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year or greater
Total cash flows
Assets
2009
£m
0.6
0.3
0.4
7.7
21.1
30.1
Assets
2008
£m
2.3
1.6
1.6
1.6
54.5
61.6
Liabilities
2009
£m
Liabilities
2008
£m
13.6
6.6
2.2
0.5
0.1
23.0
11.1
10.7
4.9
2.1
1.4
30.2
G4S plc Annual Report and Accounts 2009
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95
33 Financial risk
Capital management
The group’s capital management objective is to ensure that the businesses within it can continue and develop as going concerns whilst returns to
stakeholders are maximised. The group believes that these returns are maximised when the group’s Weighted Average Cost of Capital (WACC)
is minimised and that this is the case when the group broadly has the characteristics of an investment grade BBB rated entity. The group therefore
aims generally to maintain its net debt expressed as a multiple of cash generated from operations broadly within a range corresponding to those
of BBB rated entities. On 9 March 2009 the group obtained a BBB credit rating from Standard & Poor’s.
The group has a range of return on capital targets in respect of potential acquisitions, depending upon their size. Most proposals for “bolt–on”
acquisitions must demonstrate a post-tax return of at least 12% on the capital investment within three years. Medium-sized acquisitions are required
to return a minimum of 10% within this time frame and relatively rare, large, strategic acquisitions a minimum equal to the group’s WACC. The group’s
calculation of its post-tax WACC at 31 December 2009 was 7.6%.
The group monitors the financial performance of acquired businesses during the years following acquisition against the return targets. In addition, the
group monitors the Return on Net Assets (RONA) of all its businesses on a monthly basis. The group regards RONA as a measure of operational
performance and therefore calculates it as EBITA divided by net assets excluding goodwill, tax, dividends payable and retirement benefit obligations.
The group has no current intention to commence a share buy-back plan. The group operates a programme to purchase its own shares on the market
on a regular basis so as to provide a pool of shares from which to satisfy share awards to employees as the awards vest.
The group is not subject to externally-imposed capital requirements and there were no changes in the group’s approach to capital management
during the year.
Liquidity risk
The group mitigates liquidity risk by ensuring there are sufficient undrawn committed facilities available to it. For more details of the group’s bank
overdrafts, bank loans and loan notes see note 29.
The percentage of available, but undrawn committed facilities during the course of the year was as follows:
31 December 2008
31 March 2009
30 June 2009
30 September 2009
31 December 2009
19%
10%
26%
27%
28%
The availability of undrawn committed facilities during early 2009 was impacted by the sharp deterioration in the value of sterling against the US dollar
and euro in late 2008, being currencies in which a significant proportion of drawn facilities is denominated. To reduce re-financing risk, group treasury
obtains finance with a range of maturities and hence minimises the impact of a single material source of finance terminating on a single date.
The group’s committed facilities, restated at hedged rates where applicable, have the following maturity dates:
March 2010
June 2012
July 2013
March 2014
July 2015
July 2016
March 2017
July 2018
March 2019
May 2019
July 2020
March 2022
£45m
£1,087m
£33m
£62m
£76m
£25m
£124m
£177m
£90m
£350m
£46m
£65m
Refinancing risk is further reduced by group treasury opening negotiations to either replace or extend any major facility at least 18 months before its
termination date.
G4S plc Annual Report and Accounts 2009
96
Notes to the consolidated financial statements continued
33 Financial risk continued
Market risk
Currency risk and forward foreign exchange contracts
The group conducts business in many currencies. Transaction risk is limited since, wherever possible, each business operates and conducts its financing
activities in local currency. However, the group presents its consolidated financial statements in sterling and it is in consequence subject to foreign
exchange risk due to the translation of the results and net assets of its foreign subsidiaries. The group hedges a substantial proportion of its exposure
to fluctuations in the translation into sterling of its overseas net assets by holding loans in foreign currencies.
Translation adjustments arising on the translation of foreign currency loans are recognised in equity to match translation adjustments on foreign
currency equity investments as they qualify as net investment hedges.
The group no longer uses foreign exchange contracts to hedge the residual portion of net assets not hedged by way of loans. This foreign exchange
hedging programme was terminated in February 2009. The group believes cash flow should not be put at risk by these instruments in order to
preserve the carrying value of net assets, given the changed liquidity environment post the global credit crisis.
At 31 December 2009, the group’s US dollar and euro net assets were approximately 75% and 87% respectively hedged by foreign currency loans
(2008: US dollar 89%, euro 97%).
Cross currency swaps with a nominal value of £134.2m were arranged to hedge the foreign currency risk on US$265m of the second US Private
Placement notes issued in July 2008, effectively fixing the sterling value of this portion of debt at an exchange rate of 1.9750.
Interest rate risk and interest rate swaps
Borrowing at floating rates as described in note 29 exposes the group to cash flow interest rate risk, which the group manages within policy limits
approved by the directors. Interest rate swaps and, to a limited extent, forward rate agreements are utilised to fix the interest rate on a proportion of
borrowings on a reducing scale over forward periods up to a maximum of five years. At 31 December 2009 the nominal value of such contracts was
£170.3m (in respect of US dollar) (2008: £246.9m) and £217.7m (in respect of euro) (2008: £271.7m), their weighted average interest rate was 5.0%
(US dollar) (2008: 5.0%) and 3.7% (euro) (2008: 3.8 %), and their weighted average period to maturity was two and a quarter years. All the interest
rate hedging instruments are designated and fully effective as cash flow hedges and movements in their fair value have been deferred in equity.
The US Private Placement market is predominantly a fixed rate market, with investors looking for a fixed rate return over the life of the loan notes.
At the time of the first issue in March 2007, the group was comfortable with the proportion of floating rate exposure not hedged by interest rate
swaps and therefore rather than take on a higher proportion of fixed rate debt arranged fixed to floating swaps effectively converting the fixed
coupon on the Private Placement to a floating rate. Following the swaps the resulting average coupon on the US Private Placement is LIBOR + 60bps.
These swaps have been documented as fair value hedges of the US Private Placement fixed interest loan notes, with the movements in their fair value
posted to profit and loss at the same time as the movement in the fair value of the hedged item.
The interest on the US Private Placement notes issued in July 2008 was kept at fixed rate.
The core group borrowings are held in US dollar, euro and sterling. Although the impact of rising interest rates is partly shielded by fixed rate loans
and interest rate swaps which fix a portion of the exposure, some interest rate risk remains. Assuming a 1% increase in interest rates across the yield
curve in each of these currencies and keeping the 31 December 2009 debt position constant throughout 2010, an additional interest charge of £6.4m
would be expected in the 2010 financial year.
Commodity risk and commodity swaps
The group’s principal commodity risk relates to the fluctuating level of diesel prices, particularly affecting its cash solutions businesses. Commodity
swaps and commodity options are used to fix synthetically part of the exposure and reduce the associated cost volatility. Commodity swaps hedging
24 million litres of projected 2010 diesel consumption and 7 million litres of projected 2011 diesel consumption were in place at 31 December 2009.
G4S plc Annual Report and Accounts 2009
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97
33 Financial risk continued
Market risk continued
Counterparty credit risk
The group’s strategy for credit risk management is to set minimum credit ratings for counterparties and monitor these on a regular basis.
For treasury-related transactions, the policy limits the aggregate credit risk assigned to a counterparty. The utilisation of a credit limit is calculated
by applying a weighting to the notional value of each outstanding transaction based on the type and duration of the transaction. The total mark to
market value outstanding with each counterparty is closely monitored. For short-term transactions (under one year), at inception of the transaction,
the financial counterparty must be investment grade rated by either the Standard & Poor’s or Moody’s rating agencies. For long-term transactions,
at inception of the transaction, the financial counterparty must have a minimum rating of A+/A1 from Standard & Poor’s or Moody’s.
Treasury transactions are dealt with the group’s relationship banks, all of which have a strong investment grade rating. At 31 December 2009 the
largest two counterparty exposures related to treasury transactions were £27.6m and £14.1m and were both held with institutions with long-term
Moody’s credit ratings of Aa3. These exposures represent 40% and 20% of the carrying values of derivative financial instruments, with a fair value
gain at the balance sheet date. Both of these banks had significant loans outstanding to G4S plc at 31 December 2009.
The group operates a multi-currency notional pooling cash management system with a wholly-owned subsidiary of a Aa3 rated bank. At year end
credit balances of £147.5m were pooled with debit balances of £146.9m, resulting in a net pool balance of £0.6m. There is legal right of set off under
the pooling agreement.
At an operating level the minimum investment grade rating criteria applies. Exceptionally, where required by local country circumstances,
counterparties with no, or a non-investment grade, rating can be approved as counterparties for a period of up to 12 months. Due to the group’s
global geographical footprint and exposure to multiple industries, there is minimal concentration risk.
34 Retirement benefit obligations
The group operates a wide range of retirement benefit arrangements which are established in accordance with local conditions and practices within
the countries concerned. These include funded defined contribution and funded and unfunded defined benefit schemes.
Defined contribution arrangements
The majority of the retirement benefit arrangements operated by the group are of a defined contribution structure, where the employer contribution
and resulting income statement charge is fixed at a set level or is a set percentage of employees’ pay. Contributions made to defined contribution
schemes and charged to the income statement totalled £109.0m (2008: £95.6m).
In the UK, following the closure of the defined benefit schemes to new entrants, the main scheme for new employees is a contracted-in defined
contribution scheme.
Wackenhut Services, Inc (“WSI”) is the administrator of several defined benefit schemes. WSI is responsible for making periodic cost-reimbursable
deposits to the various defined benefit schemes as determined by independent actuaries. In each instance, the US Department of Energy (“DOE”)
acknowledged within the contract entered between the DOE and WSI its responsibility for all unfunded pension and benefit liabilities. Therefore,
these schemes are accounted for as defined contribution schemes.
In the Netherlands, most employees are members of industry-wide defined benefit schemes which are not valued on an IAS 19 basis as it is not
possible to identify separately the group’s share of the schemes’ assets and liabilities. As a result the schemes are accounted for as defined contribution
schemes. Contributions made to the schemes and charged to the income statement in 2009 totalled £7.8m (2008: £7.3m). The estimated amounts of
contributions expected to be paid to the schemes during the financial year commencing 1 January 2010 in respect of the ongoing accrual of benefits is
approximately £8.0m assuming consistent exchange rates.
Defined benefit arrangements
The group operates a number of defined benefit retirement arrangements where the benefits are based on employees’ length of service. In most
cases these are calculated on the basis of final pensionable pay, other than for the smallest of the three schemes in the UK and one scheme in the
Netherlands where they are based on career average pay. Liabilities under these arrangements are stated at the discounted value of benefits accrued
to date, based upon actuarial advice.
Under unfunded arrangements, the group does not hold the related assets separate from the group. The amount charged to the income statement in
respect of these arrangements in 2009 totalled £2.8m (2008: £2.3m). Under funded arrangements, the assets of defined benefit schemes are held in
separate trustee-administered funds. The pension costs are assessed on the advice of qualified independent actuaries using the projected unit credit
method. The group operates several funded defined retirement benefit schemes. Whilst the group’s primary schemes are in the UK, it also operates
other material schemes in the Netherlands, Ireland, Canada, Israel and Greece.
G4S plc Annual Report and Accounts 2009
98
Notes to the consolidated financial statements continued
34 Retirement benefit obligations continued
Defined benefit arrangements continued
The carrying values of retirement benefit obligations at the balance sheet date are presented below:
UK
Rest of World
Net liability on material funded defined retirement benefit schemes
Unfunded and other funded defined retirement benefit obligations
Less: Amounts included within current liabilities
Included within non-current liabilities
2009
£m
307.1
21.1
328.2
39.4
367.6
(54.6)
313.0
2008
£m
256.2
30.0
286.2
41.3
327.5
(48.9)
278.6
The defined benefit schemes in the UK account for 94% of the net balance sheet liability on material funded defined retirement benefit schemes.
They comprise three arrangements: the pension scheme demerged from the former Group 4 Falck A/S with total membership of approximately
8,000, the Securicor scheme, responsibility for which the group assumed on 20 July 2004 with the acquisition of Securicor plc, with total membership
of approximately 20,000 and the GSL scheme, responsibility for which the group assumed on 12 May 2008 with the acquisition of GSL, with total
membership of approximately 2,000. Regular actuarial assessments of the schemes are carried out, the latest being at 31 March 2007 in respect of the
Group 4 scheme, 5 April 2006 in respect of the Securicor scheme and 31 March 2005 in respect of the GSL scheme. Pension obligations stated in the
balance sheet take account of future service and earnings increases, have been updated to 31 December 2009 and use the valuation methodologies
specified in IAS 19 Employee Benefits. The three schemes in the UK have combined under one trustee body with effect from 1 January 2010 and will
be formally actuarially assessed at 5 April 2010.
At 5 April 2009 the participants of the UK pension schemes can be analysed as follows:
At 5 April 2009
Active participants
Number
Average age
Deferred participants
Number
Average age
Pensioner participants
Number
Average age
Group 4 Falck
Scheme
GSL
Scheme
Securicor
Scheme
618
53.2
4,559
51.3
2,607
68.2
1,311
50.8
537
48.4
208
61.1
1,409
51.9
10,352
50.8
7,878
69.9
Total
3,338
51.7
15,448
50.9
10,693
69.3
The weighted average principal assumptions used for the purposes of the actuarial valuations were as follows:
Key assumptions used at 31 December 2009
Discount rate
Expected return on scheme assets (as at 1 January 2009)
Expected rate of salary increases
Future pension increases (LPI5%)
Inflation
Key assumptions used at 31 December 2008
Discount rate
Expected return on scheme assets (as at 1 January 2008)
Expected rate of salary increases
Future pension increases (LPI5%)
Inflation
UK
Rest of World
5.7%
6.3%
3.6%
3.4%
3.6%
6.3%
6.9%
4.9%
3.1%
3.1%
5.7%
5.8%
2.6%
2.0%
2.0%
5.8%
6.2%
2.9%
2.0%
2.0%
In addition to the above, the group uses appropriate mortality assumptions when calculating the schemes obligations. The mortality tables used for the
schemes in the UK are as follows:
• Current and future pensioners 125% of PMA92 (YOB) Medium Cohort
Male
• Current and future pensioners 115% of PFA92 (YOB) Medium Cohort
Female
G4S plc Annual Report and Accounts 2009
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99
34 Retirement benefit obligations continued
The amounts recognised in the income statement in respect of these defined benefit schemes are as follows:
UK
£m
Rest of World
£m
Amounts recognised in income 2009
Current service cost
Finance cost on defined retirement benefit obligations
Expected return on defines retirement benefit scheme assets
Total amounts recognised in income
Amounts recognised in income 2008
Current service cost
Finance cost on defined retirement benefit obligations
Expected return on defined retirement benefit scheme assets
Total amounts recognised in income
The amounts recognised in income are included within the following categories in the income statement:
Cost of sales
Administration expenses
Finance income
Finance costs
Total
Actuarial gains and losses recognised cumulatively in the statement of comprehensive income are as follows:
At 1 January
Actuarial losses recognised in the year
At 31 December
(9.0)
(80.7)
64.0
(25.7)
(11.8)
(77.8)
82.2
(7.4)
(3.7)
(6.3)
4.0
(6.0)
(3.6)
(5.0)
4.3
(4.3)
2009
£m
(8.7)
(4.0)
68.0
(87.0)
(31.7)
2009
£m
(204.7)
(63.1)
(267.8)
Total
£m
(12.7)
(87.0)
68.0
(31.7)
(15.4)
(82.8)
86.5
(11.7)
2008
£m
(11.1)
(4.3)
86.5
(82.8)
(11.7)
2008
£m
(7.8)
(196.9)
(204.7)
The amounts included in the balance sheet arising from the group’s obligations in respect of its defined benefit schemes are as follows:
UK
£m
Rest of World
£m
Total
£m
2009
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme recognised in the balance sheet
2008
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme recognised in the balance sheet
2007
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme recognised in the balance sheet
2006
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme recognised in the balance sheet
2005
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme recognised in the balance sheet
1,547.3
(1,240.2)
307.1
1,296.3
(1,040.1)
256.2
1,291.3
(1,169.7)
121.6
1,328.8
(1,118.1)
210.7
1,199.3
(1,004.5)
194.8
115.9
(94.8)
21.1
110.8
(80.8)
30.0
84.6
(70.7)
13.9
61.1
(45.4)
15.7
61.1
(39.3)
21.8
1,663.2
(1,335.0)
328.2
1,407.1
(1,120.9)
286.2
1,375.9
(1,240.4)
135.5
1,389.9
(1,163.5)
226.4
1,260.4
(1,043.8)
216.6
G4S plc Annual Report and Accounts 2009
100
Notes to the consolidated financial statements continued
34 Retirement benefit obligations continued
Movements in the present value of defined benefit obligations in the current year and the fair value of scheme assets during the year were as follows:
2009
Obligations
At 1 January 2009
Service cost
Interest cost
Contributions from scheme members
Actuarial gains
Benefits paid
Translation adjustments
At 31 December 2009
Assets
At 1 January 2009
Expected return on scheme assets
Actuarial losses
Actual returns on schedule assets
Contributions from the sponsoring companies
Contributions from scheme members
Benefits paid
Translation adjustments
At 31 December 2009
2008
Obligations
At 1 January 2008
Service cost
Interest cost
Contributions from scheme members
Actuarial gains
Benefits paid
Acquisition of subsidiary undertakings
Translation adjustments
At 31 December 2008
Assets
At 1 January 2008
Expected return on scheme assets
Actuarial losses
Actual return on scheme assets
Contributions from the sponsoring companies
Contributions from scheme members
Benefits paid
Acquisition of subsidiary undertakings
Translation adjustments
At 31 December 2008
UK
£m
Rest of World
£m
Total
£m
1,296.3
110.8
1,407.1
9.0
80.7
5.5
205.1
(49.3)
–
3.7
6.3
3.1
0.5
(4.0)
(4.5)
12.7
87.0
8.6
205.6
(53.3)
(4.5)
1,547.3
115.9
1,663.2
1,040.1
64.0
134.3
198.3
45.6
5.5
(49.3)
–
80.8
4.0
8.2
12.2
5.4
3.1
(4.0)
(2.7)
1,120.9
68.0
142.5
210.5
51.0
8.6
(53.3)
(2.7)
1,240.2
94.8
1,335.0
UK
£m
Rest of World
£m
Total
£m
1,291.3
11.8
77.8
4.6
(129.2)
(45.9)
85.9
–
1,296.3
1,169.7
82.2
(315.1)
(232.9)
47.5
4.6
(45.9)
97.1
–
1,040.1
84.6
3.6
5.0
2.5
(5.6)
(1.5)
–
22.2
110.8
70.7
4.3
(16.6)
(12.3)
5.1
2.5
(1.5)
–
16.3
80.8
1,375.9
15.4
82.8
7.1
(134.8)
(47.4)
85.9
22.2
1,407.1
1,240.4
86.5
(331.7)
(245.2)
52.6
7.1
(47.4)
97.1
16.3
1,120.9
The contribution from sponsoring companies in 2009 included £29.9m (2008: £26.9m) of additional contributions in respect of the deficit in
the schemes.
G4S plc Annual Report and Accounts 2009
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101
34 Retirement benefit obligations continued
The composition of the scheme assets at the balance sheet date is as follows:
UK
Rest of World
Total
2009
Equity instruments
Debt instruments
Property
Other assets
2008
Equity instruments
Debt instruments
Property
Other assets
59%
26%
0%
15%
100%
57%
28%
1%
14%
100%
45%
38%
10%
7%
100%
39%
27%
4%
30%
100%
None of the pension scheme assets are held in the entity’s own financial instruments or in any assets held or used by the entity.
The expected weighted average rates of return on scheme assets for the following year at the balance sheet date are as follows:
2009 (return expected in 2010)
2008 (return expected in 2009)
2007 (return expected in 2008)
UK
Rest of World
6.9%
6.3%
6.9%
5.6%
5.9%
6.2%
57%
27%
1%
15%
100%
56%
28%
1%
15%
100%
Total
6.8%
6.3%
6.9%
The expected rates of return on individual categories of scheme assets are determined with respect to bonds by reference to relevant indices, and
with respect to other assets by reference to relevant indices of the historical return and economic forecasts of future returns relative to inflation in
respect of assets of a similar nature. The overall expected rate of return is the weighted average of the rates on the individual asset categories.
The history of experience adjustments is as follows:
2009
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
2008
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
2007
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
UK
Rest of World
UK Rest of World
9.8
1
(133.2)
11
0.1
–
(315.1)
(30)
5.5
–
(16.6)
(1)
(1.7)
(1)
(8.1)
9
0.5
1
(16.6)
(21)
(3.1)
(4)
(4.6)
(7)
Total
Total
8.1
–
(141.3)
11
0.6
–
(331.7)
(30)
2.4
–
(21.2)
2
G4S plc Annual Report and Accounts 2009
102
Notes to the consolidated financial statements continued
34 Retirement benefit obligations continued
2006
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
2005
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
UK
Rest of World
Total
29.0
2
45.4
4
(17.5)
(1)
99.0
10
0.1
–
2.6
6
1.1
2
2.4
6
29.1
2
48.0
4
(16.4)
(1)
101.4
10
The estimated amounts of contributions expected to be paid to the schemes during the financial year commencing 1 January 2010 in respect of the
ongoing accrual of benefits is approximately £20m and it is anticipated that these will remain at a similar level in the medium term subject to changes
in financial conditions. Additional contributions of at least £30m will also be made in 2010 in respect of the deficit in the schemes.
IAS 19 specifies that pension liabilities should be discounted at appropriate high quality corporate bond rates. The directors consider that it is appropriate
to apply the average of the yields on those AA corporate bonds which most closely approximate to the timescale of the liability profile of the schemes
and have therefore used such a rate, being 5.65%, in respect of the UK schemes at 31 December 2009 (6.3% at 31 December 2008). The effect of a 0.1%
movement in the discount rate applicable in the UK is to alter reported liabilities (before associated deferred tax) by approximately £28m.
Liability calculations are also impacted heavily by the mortality projections included in the actuarial assumptions. The weighted average life expectancy
of a male member of the UK schemes currently aged 65 has been assumed as 20.4 years. The weighted average life expectancy at 65 of a male
currently aged 52 has been assumed as 21.2 years. The directors consider, on actuarial advice, these assumptions to be appropriate to the profile of
the membership of the schemes. The effect of a one-year change in this UK life expectancy assumption is to alter reported liabilities (before associated
deferred tax) by approximately £70m.
Pension obligations in respect of deferred members increase in line with inflation. Increases in salaries and increases in pensions-in-payment generally
move in line with inflation. Inflation is therefore an important assumption in the calculation of defined retirement benefit liabilities. The effect of a 0.1%
movement in the rate of inflation assumption applicable in the UK is to alter reported liabilities (before associated deferred tax) by approximately £16m.
35 Provisions
At 1 January 2009
Additional provision in the year
On acquisition of subsidiary
Utilisation of provision
Unused amounts reversed
Reversals on disposal of a subsidiary
Translation adjustments
At 31 December 2009
Included in current liabilities
Included in non-current liabilities
Employee benefits
Employee
benefits
£m
Restructuring
£m
Claims
reserves
£m
Onerous
contracts
£m
36.0
4.7
–
(8.4)
(8.7)
(1.7)
(3.7)
18.2
5.1
1.8
–
(1.9)
(0.2)
–
(0.7)
4.1
45.2
24.1
0.3
(23.1)
(1.0)
–
(5.6)
39.9
64.3
1.8
0.6
(13.0)
(9.9)
–
(7.9)
35.9
Total
£m
150.6
32.4
0.9
(46.4)
(19.8)
(1.7)
(17.9)
98.1
29.8
68.3
98.1
The provision for employee benefits is in respect of any employee benefits which accrue over the working lives of the employees, typically including
items such as long service awards, termination indemnity schemes and related taxes.
G4S plc Annual Report and Accounts 2009
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103
35 Provisions continued
Restructuring
Restructuring provisions include amounts for redundancy payments, and the costs of closure of activities in acquired businesses and discontinued
operations. Settlement of restructuring provisions is highly probable. The timing is uncertain but is generally likely to be short term.
Claims reserves
The claims reserves are held by the wholly-owned captive insurance subsidiaries in Guernsey and the US which underwrite part of the group’s cash
solutions, general liability, workers’ compensation and auto liability policies. The provisions are subject to regular actuarial review and are adjusted as
appropriate. Settlement of these provisions is highly probable but both the value of the final settlements and their timing is uncertain, dependent upon
the outcome of ongoing processes to determine both liability and quantum in respect of a wide range of claims or possible claims.
Onerous contracts
The onerous contract provision mainly comprises the provision against future liabilities for loss-making contracts, for all properties sub-let at a shortfall,
for the cost of replacing assets where there is a present contractual requirement and for long-term idle, leased properties. The provision is based on
the value of future net cash outflows. Whilst the likelihood of settlement of these obligations is considered probable, there is uncertainty over their
value and duration.
36 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior
reporting periods:
Retirement
benefit
obligations
£m
Intangible
assets
£m
At 1 January 2008
(Charge)/credit to the income statement
Acquisition of subsidiaries
(Credit)/charge to equity
Translation adjustments
At 31 December 2008
At 1 January 2009
(Charge)/credit to the income statement
Acquisition of subsidiaries
Credit to equity
Translation adjustments
Transfers/other
At 31 December 2009
37.1
(7.5)
(4.7)
56.7
–
81.6
81.6
(4.7)
–
17.0
–
(1.7)
92.2
(60.6)
19.1
(59.3)
–
(15.5)
(116.3)
(116.3)
22.8
(17.8)
–
3.0
1.1
Tax
losses
£m
5.1
1.9
–
–
0.6
7.6
7.6
19.6
–
–
–
–
Other
temporary
differences
£m
27.0
(8.1)
17.6
(6.4)
13.9
44.0
44.0
2.0
0.3
–
(4.7)
1.2
42.8
Total
£m
8.6
5.4
(46.4)
50.3
(1.0)
16.9
16.9
39.7
(17.5)
17.0
(1.7)
0.6
55.0
(107.2)
27.2
Certain deferred tax assets and liabilities have been offset where permitted. The following is the analysis of the deferred tax balances (after offset)
for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Total deferred tax position
2009
£m
(123.1)
178.1
55.0
2008
£m
(138.1)
155.0
16.9
At the balance sheet date, the group has unutilised tax losses of approximately £528.1m (2008: £526.8m) potentially available for offset against
future profits. A deferred tax asset of £27.2m (2008: £5.1m) has been recognised in respect of approximately £78.4m (2008: £22.9m) of gross losses.
No deferred tax asset has been recognised in respect of the remaining £449.7m (2008: £503.9m) of gross losses due to the unpredictability of future
profit streams in the relevant jurisdictions and the fact that a significant proportion of such losses remains unaudited by the relevant tax authorities.
Included in unrecognised tax losses are gross losses of £2.7m, £3.3m, £1.8m, £1.6m, £1.2m and £3.3m which will expire in 2010, 2011, 2012, 2013, 2014
and 2015 respectively. Other losses may be carried forward indefinitely.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of non-UK subsidiaries for which
deferred tax liabilities have not been recognised is £1,329m (2008: £2,727m). No liability has been recognised in respect of these gross differences on
the basis that the group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will
not reverse in the foreseeable future.
Temporary differences arising in connection with interests in associates and joint ventures are insignificant.
At the balance sheet date, the group has total unprovided contingent tax liabilities of approximately £nil (2008: £4.0m) relating to unresolved tax
issues in various jurisdictions.
G4S plc Annual Report and Accounts 2009
104
Notes to the consolidated financial statements continued
37 Share capital
G4S plc
At 31 December 2009
At 31 December 2008
Authorised
£
Issued and
fully paid
£
Authorised
£
Issued and
fully paid
£
Ordinary shares of 25p each (2008: 25p each)
587,500,000 352,629,660
500,000,000
352,074,660
Ordinary shares in issue
At 1 January 2008
New shares issued
Shares issued on exercise of options:
Executive Scheme
At 1 January 2009
Shares issued on exercise of options:
Executive scheme
At 31 December 2009
Number
Nominal
value
£m
1,280,710,738
127,000,000
587,901
1,408,298,639
2,220,000
1,410,518,639
320.2
31.8
0.1
352.1
0.5
352.6
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of
the company.
Options over G4S plc shares outstanding at 31 December 2009, rolled over at 19 July 2004 from options previously held over Securicor plc shares,
were as follows:
a Executive share option scheme
Number of options outstanding
2
2
1
1
Number of
ordinary shares
under option
Exercise price
per share
(pence)
45,000
30,000
25,000
50,000
133.75p
153p
85p
91p
Exercise date
2010
2010
2010–2013
2010–2013
The proceeds from shares allotted under this scheme during the year amounted to £2,772,488 (2008: £693,631).
5,543,118 shares are held by an employee benefit trust as detailed in note 38.
G4S plc Annual Report and Accounts 2009
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105
38 Reserves
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow instruments related to the hedged
transactions that have not yet occurred (net of tax).
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well
as from the translation of liabilities that hedge the company’s net investment in foreign operations (net of tax).
Merger reserve
The merger reserve comprises reserves arising upon the merger between the former Group 4 Falck A/S and the former Group 4 Securitas BV in
2000 and the acquisition of Securicor plc by the group in 2004.
Reserve for own shares
An employee benefit trust established by the group held 5,543,818 shares at 31 December 2009 (2008: 5,832,653 shares), to satisfy the vesting of
awards under the performance share plan and performance-related and synergy bonus schemes. During the year 4,437,600 shares were purchased by
the trust, whilst 4,726,435 shares were used to satisfy the vesting of awards under the schemes. At 31 December 2009, the cost of shares held by the
trust was £12,054,145 (2008: £11,715,675), whilst the market value of these shares was £14,447,190 (2008: £11,956,939). Shares held by the trust are
treated as treasury shares, are deducted from equity, do not receive dividends and are excluded from the calculations of earnings per share.
39 Analysis of net debt
A reconciliation of net debt to amounts in the consolidated balance sheet is presented below:
Cash and cash equivalents
Investments
Net cash and overdrafts included within disposal groups classified as held for sale
Net debt (excluding cash and overdrafts) included within disposal groups classified as held for sale
Bank overdrafts
Bank loans
Loan notes
Fair value of loan note derivative financial instruments
Obligations under finance leases
Total net debt
An analysis of movements in net debt in the year is presented below:
(Decrease)/increase in cash, cash equivalents and bank overdrafts per consolidated cash flow statement
Purchase/(sale) of investments
Increase in debt and lease financing
Change in net debt resulting from cash flows
Borrowings acquired with subsidiaries
Net additions to finance leases
Movement in net debt in the year
Translation adjustments
Net debt at the beginning of the year
Net debt at the end of the year
2009
£m
307.6
84.4
20.4
(13.2)
(37.5)
(661.9)
(1,116.7)
69.2
(85.7)
2008
£m
562.1
92.7
(6.3)
(1.0)
(195.1)
(965.7)
(901.9)
153.2
(85.7)
(1,433.4)
(1,347.7)
2009
£m
(37.9)
0.9
0.6
(36.4)
(0.4)
(19.7)
(56.5)
(29.2)
(1,347.7)
(1,433.4)
2008
£m
56.3
(5.6)
(160.2)
(109.5)
(230.0)
(17.1)
(356.6)
(186.2)
(804.9)
(1,347.7)
G4S plc Annual Report and Accounts 2009
106
Notes to the consolidated financial statements continued
40 Contingent liabilities
Contingent liabilities exist in respect of agreements entered into in the normal course of business, none of which are individually or
collectively significant.
Details of unprovided contingent tax liabilities are presented in note 36.
41 Operating lease arrangements
The group as lessee
At the balance sheet date, the group had outstanding commitments under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
Total operating lease commitments
2009
£m
142.7
300.6
197.6
640.9
2008
£m
141.8
306.7
200.6
649.1
The group leases a number of its office properties, vehicles and other operating equipment under operating leases. Property leases are negotiated
over an average term of 17 years, at rates reflective of market rentals. Periodic rent reviews take place to bring lease rentals in line with prevailing
market conditions. Some but not all lease agreements have an option to renew the lease at the end of the lease term. Leased vehicles and other
operating equipment are negotiated over an average lease term of four years.
Certain leased properties have been sub-let by the group. Sub-leases are negotiated on terms consistent with those of the associated property.
The total future minimum sub-lease payments expected to be received by the group from sub-let properties amount to £10.6m (2008: £37.2m).
42 Share-based payments
The group has two types of equity-settled, share-based payment scheme in place: (1) share options previously held by employees over Securicor plc
shares and rolled over to G4S plc shares with the acquisition of that business on 19 July 2004, and (2) conditional allocations of G4S plc shares.
Share options
Share options rolled over from Securicor plc fall under either the Executive Share Option Scheme (ESOS). Options under the ESOS were granted
at market value, vest three or four years following the date of grant (provided that certain non-market performance conditions are met and that the
recipients continue to be employed by the group during the vesting period) and are exercisable up to ten years following the date of grant.
Details of the share options outstanding during the year are as follows:
Outstanding at 1 January
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
Number of
shares under
option
2009
2,370,000
(2,220,000)
150,000
150,000
Weighted
average
exercise
price (pence)
2009
124.28
122.82
115.23
115.23
Number of
shares under
option 2008
2,957,901
(587,901)
2,370,000
2,370,000
Weighted
average
exercise
price (pence)
2008
123.02
117.98
124.28
124.28
The weighted average share price at the date of exercise for share options exercised during the year was 243.95p (2008: 232.94p). All options
outstanding at 31 December 2009 were vested.
No share option expense has been recognised in the income statement during the year as all share options had previously vested (2008: all vested).
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
107
42 Share-based payments continued
Shares allocated conditionally
Shares allocated conditionally fall under either the group’s performance-related bonus scheme or the group’s Performance Share Plan (PSP). Shares
allocated conditionally under the performance-related bonus scheme vest three years following the date of grant provided certain non-market
performance conditions are met. Those allocated under the PSP vest, to the extent that (a) certain non-market performance conditions are met as to
two-thirds of the allocation and (b) certain market performance conditions are met as to the remaining third of the allocation. Vesting occurs after the
third anniversary of the date the shares were allocated conditionally. To the extent that the performance criteria have been met and the shares are
not forfeited, these shares can only be released upon request after the third anniversary but before the tenth anniversary.
The number of shares allocated conditionally is as follows:
Outstanding at 1 January
Allocated during the year
Transferred during the year
Forfeited during the year
Expired during the year
Performance-
related bonus
scheme
2009
Number
PSP
2009
Number
Total
2009
Number
Performance-
related bonus
scheme
2008
Number
PSP
2008
Number
Total
2008
Number
2,257,765
11,861,814
14,119,579
1,981,777
11,460,069
13,441,846
553,382
6,576,223
7,129,605
(1,488,408)
(3,238,023)
(4,726,431)
554,229
(278,241)
4,757,230
5,311,459
(3,091,962)
(3,370,203)
–
–
(201,393)
(201,393)
(36,612)
(36,612)
–
–
(228,180)
(1,035,343)
11,861,814
(228,180)
(1,035,343)
14,119,579
Outstanding at 31 December
1,322,739
14,962,009
16,284,748
2,257,765
The weighted average remaining contractual life of conditional share allocations outstanding at 31 December 2009 was 17 months (2008: 17 months).
The weighted average share price at the date of allocation of shares allocated conditionally during the year was 210.25p (2008: 216.50p) and the
contractual life of all conditional allocations was three years.
Under the PSP, the vesting of two-thirds of the shares allocated conditionally depends upon Total Shareholder Return (a market performance
condition) over the vesting year measured against a comparator group. 25% of the allocation vests upon the group’s Total Shareholder Return
equalling median performance amongst the comparator group. The fair value of the shares allocated subject to this market performance condition
has therefore been reduced by 75%.
Total expenses of £7.1m were recognised in the income statement in the year (2008: £5.0m) in respect of conditional share allocations, the calculation
of which included an estimate of the number of those shares allocated subject to non-market performance conditions that would vest based upon the
probable achievement against the performance conditions.
43 Related party transactions
Transactions and balances with joint ventures and associated undertakings
Transactions between the company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of transactions
between the group and other related parties are disclosed below. All transactions with related parties are entered into in the normal course of
business.
Transactions
Revenue
Balances
Amounts due to related parties
Creditors
Amounts due from related parties
Debtors
Joint ventures
2009
£m
Joint ventures
2008
£m
Associates
2009
£m
Associates
2008
£m
9.4
–
3.9
15.0
–
–
–
1.1
0.6
1.3
0.5
4.4
Revenue includes fees of £6.6m (2008: £9.1m) charged to Bridgend Custodial Services Ltd and fees of £2.8m (2008: £5.9m) charged to STC
(Milton Keynes) Ltd. No expense has been recognised in the year for bad and doubtful debts in respect of amounts owed by related parties.
Details of principal joint ventures and associated undertakings are shown in notes 21 and 22 respectively.
G4S plc Annual Report and Accounts 2009
108
Notes to the consolidated financial statements continued
43 Related party transactions continued
Transactions and balances with joint ventures and associated undertakings continued
The group has a legal interest in a number of joint ventures and joint arrangements, where the economic interest was divested by the Global Solutions
group prior to its acquisition by the group. The significant transactions with these entities are:
White Horse Education Partnership Limited
Integrated Accommodation Services plc
Fazakerley Prison Services Limited
Onley Prison Services Limited
ECD Cookham Wood Limited
ECD Onley Limited
Stratus Integrated Services Limited
UK Court Services (Manchester) Limited
East London Lift Company Limited
Health Improvement Partnership (Wolverhampton City & Walsall) Ltd
Brent, Harrow & Hillingdon LIFT Company Ltd
Bexley, Bromley & Greenwich LIFT Company Ltd
2009
Services/sales to
£m
1.6
42.3
28.4
13.0
5.5
10.9
7.4
1.8
1.2
0.5
0.5
0.4
113.1
Transactions with post-employment benefit schemes
Details of transactions with the group’s post-employment benefit schemes are provided in note 34. Unpaid contributions owed to schemes amounted
to £1.6m at 31 December 2009 (2008: £1.2m).
Remuneration of key management personnel
The group’s key management personnel are deemed to be the non-executive directors and those individuals, including the executive directors, whose
remuneration is determined by the Remuneration Committee. Their remuneration is set out below. Further information about the remuneration of
individual directors included within key management personnel is provided in the audited part of the Directors’ remuneration report on pages 53 to 55.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payment
Total
2009
£
2008
£
5,721,186
5,236,982
504,608
28,631
2,488,363
8,742,788
490,996
31,055
2,735,153
8,494,186
44 Events after the balance sheet date
No significant post-balance sheet events have affected the group since 31 December 2009.
45 Significant investments
The companies listed below are those which were part of the group at 31 December 2009 and which, in the opinion of the directors, significantly
affected the group’s results and net assets during the year. The directors consider that those companies not listed are not significant in relation to the
group as a whole.
The principal activities of the companies listed below are indicated according to the following key:
Secure solutions
Cash solutions
S
C
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
109
45 Significant investments continued
These businesses operate principally in the country in which they are incorporated.
Product segment
Country of
incorporation
Ultimate
ownership
Subsidiary undertakings
G4S Australia (Pty) Limited
G4S Custodial Services (Pty) Limited
G4S Security Services AG
G4S Security Services SA/NV
G4S Cash Services (Belgium) SA/NV
G4S Cash Solutions (Canada) Limited
G4S Security Services (Canada) Limited
Wackenhut de Colombia SA
G4S Security Services A/S
G4S Utility Services (UK) Limited (formerly AccuRead Limited)
G4S Aviation Services (UK) Limited
G4S Cash Centres (UK) Limited
G4S Cash Solutions (UK) Limited
G4S International UK Limited
G4S Care and Justice Services (UK) Limited
G4S Secure Solutions (UK) Limited
G4S Technology Limited
Group 4 Total Security Limited
G4S Integrated Services (UK) Limited
AS G4S Eesti
G4S Security Services Oy
G4S Cash Solutions S.A.
G4S Keszpenzlogisztikai Kft
G4S Security Services (India) Pvt. Limited 1, 5
G4S Cash Services (Ireland) Limited
G4S Security Services (Ireland) Limited
Hashmira Company Limited
G4S Security Services (Kenya) Limited
G4S Security Services SA
Safeguards Securicor Sdn Bhd 2
Group 4 Securicor Cash Services BV
Group 4 Securicor Beheer BV
G4S Security Services AS
G4S Cash Services SRL
al Majal Service Master Co. Limited 5
G4S Cash Services (SA) (Pty) Limited
G4S Security Services (SA) (Pty) Limited
G4S Cash Services (Sverige) AB
G4S Security Services (Sverige) AB
ArmorGroup North America, Inc.
G4S Youth Services LLC
RONCO Consulting Corporation
The Wackenhut Corporation
Wackenhut Services, Inc.
S
S
S
S
C
C
S
S+C
S
S
S
C
C
C
S
S
S
S
S
S+C
S
C
Australia
Australia
Austria
Belgium
Belgium
Canada
Canada
Colombia
Denmark
England
England
England
England
England
England
England
England
England
England
Estonia
Finland
Greece
S+C
Hungary
S
C
S
S
S+C
S+C
S+C
C
S
S+C
C
S
C
S
C
S
S
S
S
S
S
India
Ireland
Ireland
Israel
Kenya
Luxembourg
Malaysia
Netherlands
Netherlands
Norway
Romania
Saudi Arabia
South Africa
South Africa
Sweden
Sweden
USA
USA
USA
USA
USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
40%
100%
100%
91%
100%
100%
100%
100%
100%
100%
100%
49%
50%
74%
100%
100%
100%
100%
100%
100%
100%
G4S plc Annual Report and Accounts 2009
110
Notes to the consolidated financial statements continued
45 Significant investments continued
Joint ventures (see note 21)
Bridgend Custodial Services Limited 3
STC (Milton Keynes) Limited
Bloemfontein Correctional Contracts (Pty) Limited 4
Associated undertakings (see note 22)
Space Gateway Support LLC
Product
segment
Country of
incorporation
Ultimate
ownership
S
S
S
S
England
England
South Africa
USA
59%
50%
20%
46%
1 G4S Security Services (India) Pvt. Limited has a year end of 31 March.
2 Safeguards Securicor Sdn Bhd has a year end of 30 June.
3 Bridgend Custodial Services Limited has a year end of 30 September.
4 Bloemfontein Correctional Contracts (Pty) Limited has a year end of 30 September.
5 By virtue of shareholder agreements, the group has the power to govern the financial and operating policies of G4S Security Services (India) Pvt. Limited and al Majal Service Master, so as to
obtain the benefits from their activities. These are therefore consolidated as full subsidiaries.
Parent company balance sheet
At 31 December 2009
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors – amounts falling due within one year
Bank overdraft (unsecured)
Borrowings (unsecured)
Other creditors
Net current liabilities
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Borrowings (unsecured)
Other creditors
Provisions for liabilities and charges
Net assets
Capital and reserves
Called up share capital
Share premium and reserves
Equity shareholders’ funds
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
111
Governance
Notes
2009
£m
2008
£m
(b)
(c)
(d)
(e)
(f)
(e)
(f)
(i)
37
(j)
9.9
3,140.9
3,150.8
2,615.4
12.2
2,627.6
8.2
2,613.1
2,621.3
3,240.8
9.3
3,250.1
(117.9)
(90.8)
(3,215.5)
(3,424.2)
(122.2)
–
(3,463.6)
(3,585.8)
(796.6)
(335.7)
2,354.2
2,285.6
(1,587.5)
(7.3)
(1,594.8)
(1,547.9)
(15.9)
(1,563.8)
(1.2)
(2.0)
758.2
719.8
352.6
405.6
758.2
352.1
367.7
719.8
The parent company financial statements were approved by the board of directors and authorised for issue on 15 March 2010.
They were signed on its behalf by:
Nick Buckles
Director
Director
Trevor Dighton
G4S plc Annual Report and Accounts 2009
112
Parent company reconciliation of movements in equity shareholders’ funds
For the year ended 31 December 2009
Retained profit for the year
Changes in fair value of hedging derivatives
Shares issued
Dividends declared
Own shares purchased
Equity-settled transactions
Tax on equity movements
Net increase in shareholders’ funds
Opening equity shareholders’ funds
Closing equity shareholders’ funds
2009
£m
128.3
6.1
2.7
(94.2)
(9.9)
7.1
(1.7)
38.4
719.8
758.2
2008
£m
26.4
52.9
276.8
(75.0)
(8.8)
5.0
(14.8)
262.5
457.3
719.8
Notes to the parent company financial statements
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
113
a Significant accounting policies
Basis of preparation
The separate financial statements of the company are presented as required by the Companies Act 2006. They have been prepared under the
historical cost convention except for the revaluation of certain financial instruments and in accordance with applicable United Kingdom Accounting
Standards (UK GAAP).
The financial statements have been prepared on a going concern basis, notwithstanding the company’s net current liabilities, which the directors
believe to be appropriate given the amounts owed are mainly to wholly controlled subsidiaries.
Exemptions
Under section 408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and loss account.
The company has taken advantage of the exemption from preparing a cash flow statement under the terms of FRS 1 Cash Flow Statements.
The cash flows of the company are included within its consolidated financial statements.
The company is also exempt under the terms of the revised FRS 8 Related Party Disclosures from disclosing related party transactions with
wholly-owned subsidiaries within the group.
The consolidated financial statements of the group contain financial instrument disclosures and comply with FRS 29 Financial Instruments: Disclosures.
Consequently the company has taken advantage of certain exemptions in FRS 29 from the requirement to present separate financial instrument
disclosures for the company.
Tangible fixed assets
Tangible fixed assets are stated at cost net of accumulated depreciation and any provision for impairment. Tangible fixed assets are depreciated on a
straight-line basis over their expected economic life. Short leasehold property (under 50 years) is depreciated over the life of the lease. Equipment and
vehicles are depreciated over periods up to a maximum of ten years.
Fixed asset investments
Fixed asset investments, which comprise investments in subsidiary undertakings, are stated at cost and reviewed for impairment if there are indicators
that the carrying value may not be recoverable.
Financial instruments
Financial assets and financial liabilities are recognised when the group becomes a party to the contractual provisions of the instruments.
• External debtors
Debtors do not carry interest and are stated initially at their fair value. The company provides for bad debts based upon an analysis of those that
are past due in accordance with local conditions and past default experience.
• Cash at bank and in hand and bank overdrafts
Cash at bank and in hand and bank overdrafts comprise cash balances and call deposits.
•
Interest-bearing borrowings
Interest-bearing bank overdrafts, loans and loan notes are recognised at the value of proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are recognised in the profit and loss account on an accrual basis
using the effective interest method.
• External creditors
Creditors are not interest-bearing and are stated initially at their fair value.
• Amounts owed to/from subsidiary undertakings
Amounts owed to/from subsidiary undertakings bear interest at prevailing market rates.
• Equity instruments
Equity instruments issued by the company are recorded at the value of proceeds received, net of direct issue costs.
Provisions
Provisions are recognised when the company has a present legal or constructive obligation as a result of past events and a reliable estimate of the
amount can be made.
Derivative financial instruments and hedge accounting
In accordance with its treasury policy, the company only holds or issues derivative financial instruments to manage the group’s exposure to financial
risk, not for trading purposes. Such financial risk includes the interest risk on the group’s variable-rate borrowings, the fair value risk on the group’s
fixed-rate borrowings, commodity risk in relation to its diesel consumption and foreign exchange risk on transactions, on the translation of the
group’s results and on the translation of the group’s net assets measured in foreign currencies. The company manages these risks through a range
of derivative financial instruments, including interest rate swaps, fixed rate agreements, commodity swaps, commodity options, forward foreign
exchange contracts and currency swaps.
Notes to the parent company
financial statements
G4S plc Annual Report and Accounts 2009
114
Notes to the parent company financial statements continued
a Significant accounting policies continued
Derivative financial instruments and hedge accounting continued
Derivative financial instruments are recognised in the balance sheet as financial assets or liabilities at fair value. The gain or loss on remeasurement to
fair value is recognised immediately in the profit and loss account, unless they qualify for hedge accounting. Where derivatives do qualify for hedge
accounting, the treatment of any resultant gain or loss depends on the nature of the item being hedged as described below:
• Fair value hedge
The change in the fair value of both the hedging instrument and the related portion of the hedged item is recognised immediately in the profit
and loss account.
• Cash flow hedge
The change in the fair value of the portion of the hedging instrument that is determined to be an effective hedge is recognised in equity and
subsequently recycled to the profit and loss account when the hedged cash flow impacts the profit and loss account. The ineffective portion of
the fair value of the hedging instrument is recognised immediately in the profit and loss account.
Leases
Annual rentals payable or receivable under operating leases are charged or credited to the profit and loss account on a straight-line basis over the
lease term.
Foreign currencies
The financial statements of the company are presented in sterling, its functional currency. Transactions in currencies other than sterling are translated
at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities which are denominated
in other currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value which are denominated
in other currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items measured at historical
cost denominated in other currencies are not retranslated. Gains and losses arising on retranslation are included in the profit and loss account.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using tax rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is recognised in respect of all material timing differences that have originated, but not reversed, by the balance sheet date. Deferred tax
is measured on a non-discounted basis at tax rates that are expected to apply in the periods in which the timing differences reverse based on tax
rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised where their recovery is considered
more likely than not in that there will be suitable taxable profits from which the future reversal of underlying timing differences can be deducted.
Pensions
The company participates in multi-employer pension schemes in the UK, which provide benefits based on final pensionable pay. The company is
unable to identify its share of the schemes’ assets and liabilities on a consistent and reasonable basis. In accordance with FRS 17 Retirement Benefits,
the company treats the schemes as if they were defined contribution schemes and recognises charges as and when contributions are due to the
scheme. Details of the schemes are included in note 34 to the consolidated financial statements.
Share-based payments
The company grants equity-settled share-based payments to certain employees. The fair value of share-based payments is determined at the date
of grant and expensed, with a corresponding increase in equity on a straight-line basis over the vesting period, based on the company’s estimate
of the shares that will eventually vest. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares
that will eventually vest, save for changes resulting from any market-related performance conditions.
The fair value of share-based payments granted in the form of options is measured by the use of the Black-Scholes valuation technique, adjusted for
future dividend receipts and for any market-related performance conditions. When share options are exercised the resulting entries are to increase
share capital and share premium for the new shares issued.
Dividends
Dividends are recognised as distributions to equity holders in the period in which they are paid. Dividends proposed but not declared are not
recognised but are disclosed in the notes to the consolidated financial statements.
Financial guarantees
The company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the group. The company treats
such contracts as a contingent liability unless and until such time as it becomes probable that the company will be required to make a payment
under the guarantee.
Own shares held by employee benefit trust
Transactions of the company-sponsored employee benefit trust are included in the parent company financial statements. In particular, the trust’s
purchases of shares in the company are debited directly to equity.
b Tangible fixed assets
Cost
At 1 January 2009
Additions at cost
At 31 December 2009
Depreciation
At 1 January 2009
Charge for the year
At 31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
The net book value of land and buildings comprises short leasehold buildings (under 50 years).
c Fixed asset investments
The following are included in the net book value of fixed asset investments:
Subsidiary undertakings
Shares at cost:
At 1 January 2009
Additions
Disposals
At 31 December 2009
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
115
Land and
buildings
£m
Equipment
and vehicles
£m
2.5
0.7
3.2
(1.1)
(0.4)
(1.5)
1.7
1.4
8.3
1.6
9.9
(1.5)
(0.2)
(1.7)
8.2
6.8
Total
£m
10.8
2.3
13.1
(2.6)
(0.6)
(3.2)
9.9
8.2
Total
£m
2,613.1
1,375.7
(847.9)
3,140.9
The increase in carrying value of subsidiary undertakings in the year is mainly due to a reorganisation of the legal structure in respect of some of the
company’s subsidiaries in which transfers were reflected at market values. Full details of significant investments held by the parent company and the
group are detailed in note 45 to the consolidated financial statements.
d Debtors
Amounts owed by group undertakings
Other debtors
Prepayments and accrued income
Derivative financial instruments at fair value
Total debtors
2009
£m
2008
£m
2,489.9
3,001.3
53.5
2.4
69.6
55.2
1.4
182.9
2,615.4
3,240.8
Included within derivative financial instruments at fair value is £57.6m due after more than one year (2008: £143.6m). See note (g) for further details.
Included in other debtors is £7.0m (2008: £nil) with regard to deferred tax comprised as follows:
Accelerated capital allowances
Employee benefits
Changes in fair value of hedging derivatives
Total deferred tax
2009
£m
(0.5)
2.3
5.2
7.0
2008
£m
–
–
–
–
G4S plc Annual Report and Accounts 2009
116
Notes to the parent company financial statements continued
d Debtors continued
The reconciliation of deferred tax balances is as follows:
At 1 January 2009
Charged to profit and loss
Charged to equity in relation to changes in fair value of hedging derivatives
Transferred to current tax
At 31 December 2009
e Borrowings (unsecured)
The unsecured borrowings are in the following currencies:
Sterling
Euro
US dollar
Total unsecured borrowings
The payment profile of the unsecured borrowings is as follows:
Repayable within one year
Repayable within two to five years
Repayable after five years
Total unsecured borrowings
Undrawn committed facilities mature as follows:
Within two to five years
Total undrawn committed facilities
Total
£m
(7.8)
8.2
(1.7)
8.3
7.0
2008
£m
94.0
349.0
1,104.9
1,547.9
2008
£m
–
696.4
851.5
1,547.9
2008
£m
350.4
350.4
2009
£m
506.7
305.6
866.0
1,678.3
2009
£m
90.8
584.1
1,003.4
1,678.3
2009
£m
614.7
614.7
Borrowings consist of £561.6m of floating rate bank loans (2008: £646.0m) and £1,116.7m of fixed rate loan notes (2008: £901.9m). Bank overdrafts,
bank loans, loan notes issued in July 2008 and May 2009 are stated at amortised cost. The loan notes issued in March 2007 are stated at amortised
cost recalculated at an effective interest rate current at the balance sheet date as they are part of a fair value hedge relationship. The directors believe
the fair value of the company’s bank overdrafts, bank loans and the loan notes issued in March 2007, calculated from market prices, approximates to
their book value. US$265m (£164.1m) of the loan notes issued in July 2008 have a fair value market gain of £29.9m. The fair value of the remaining
notes approximates to their book value.
Borrowing at floating rates exposes the company to cash flow interest rate risk. The management of this risk is detailed in note (h).
There were no financial liabilities upon which no interest is paid.
f Other creditors
Amounts falling due within one year:
Trade creditors
Amounts owed to group undertakings
Other taxation and social security costs
Other creditors
Accruals and deferred income
Derivative financial instruments at fair value
Total creditors – amounts falling due within one year
Amounts falling due after more than one year:
Derivative financial instruments at fair value
2009
£m
2008
£m
2.8
3,156.1
2.0
4.6
38.1
11.9
1.1
3,383.8
1.8
12.7
25.6
38.6
3,215.5
3,463.6
7.3
15.9
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
117
2009
£m
–
–
–
–
2008
£m
0.9
(2.9)
9.8
7.8
f Other creditors continued
Included in other creditors is £nil (2008: £7.8m) with regard to deferred tax comprised as follows:
Accelerated capital allowances
Employee benefits
Changes in fair value of hedging derivatives
Total deferred tax
See note (d) for the reconciliation of deferred tax balances.
g Derivative financial instruments
The carrying values of derivative financial instruments at the balance sheet date are presented below:
Forward foreign exchange contracts
Cross currency swaps designated as cash flow hedges
Interest rate swaps designated as cash flow hedges
Interest rate swaps designated as fair value hedges
Commodity swaps
Amounts falling due after more than one year
Amounts falling due within one year
Assets
2009
£m
0.1
29.9
–
39.1
0.5
69.6
(57.6)
12.0
Assets
2008
£m
28.6
60.9
–
92.3
1.1
182.9
(143.6)
39.3
Liabilities
2009
£m
Liabilities
2008
£m
0.1
–
18.6
–
0.5
19.2
(7.3)
11.9
28.6
–
24.8
–
1.1
54.5
(15.9)
38.6
Derivative financial instruments are stated at fair value, based upon market prices where available or otherwise on discounted cash flow valuations.
The mark to market valuation of the derivatives has decreased by £78.0m (2008: increase £130.9m) during the year.
The interest rate, cross currency and commodity swaps which qualify as cash flow hedges have the following maturities:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year or greater
Total carrying value of cash flow hedges
Assets
2009
£m
0.5
–
–
7.2
22.7
30.4
Assets
2008
£m
1.1
–
–
–
60.9
62.0
Projected settlement of cash flows (including accrued interest) associated with derivatives that are cash flow hedges:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year or greater
Total cash flows
Assets
2009
£m
0.8
0.3
0.4
7.9
21.3
30.7
Assets
2008
£m
3.4
1.6
1.6
1.6
54.6
62.8
Liabilities
2009
£m
Liabilities
2008
£m
3.0
5.8
8.0
1.8
0.5
19.1
3.2
4.0
7.8
10.0
0.9
25.9
Liabilities
2009
£m
Liabilities
2008
£m
13.3
6.1
1.6
–
–
21.0
10.6
10.1
4.3
1.4
–
26.4
G4S plc Annual Report and Accounts 2009
118
Notes to the parent company financial statements continued
h Financial risk
Currency risk and forward foreign exchange contracts
The group conducts business in many currencies. The group presents its consolidated financial statements in sterling and it is in consequence subject
to foreign exchange risk due to the translation of the results and net assets of its foreign subsidiaries. The company therefore hedges a substantial
portion of the group’s exposure to fluctuations in the translation into sterling of its overseas net assets by holding loans in foreign currencies.
Translation adjustments arising on the translation of foreign currency loans are recognised in the profit and loss account.
The company no longer uses foreign exchange contracts to hedge the residual portion of net assets not hedged by way of loans. This foreign exchange
hedging program was terminated in February 2009. The company believes cash flow should not be put at risk by these instruments in order to
preserve the carrying value of net assets, given the changed liquidity environment post the global credit crisis.
Cross currency swaps with a nominal value of £134.2m were arranged to hedge the foreign currency risk on US$265m of the US Private Placement
notes issued in July 2008, effectively fixing the sterling value on this portion of debt at an exchange rate of 1.9750.
Interest rate risk and interest rate swaps
Borrowing at floating rates as described in note 29 to the consolidated financial statements exposes the group to cash flow interest rate risk, which
the company manages within policy limits approved by the directors. Interest rate swaps and, to a limited extent, forward rate agreements are utilised
to fix the interest rate on a proportion of borrowings on a reducing scale over forward periods up to a maximum of five years. At 31 December 2009
the nominal value of such contracts was £170.3m (in respect of US dollar) (2008: £246.9m) and £217.7m (in respect of euro) (2008: £271.7m), their
weighted average interest rate was 5.0% (US dollar) (2008: 5.0%) and 3.7% (euro) (2008: 3.8%), and their weighted average period to maturity was
two and a quarter years. All the interest rate hedging instruments are designated and fully effective as cash flow hedges and movements in their fair
value have been deferred in equity.
The US Private Placement market is predominantly a fixed rate market, with investors looking for a fixed rate return over the life of the loan notes.
At the time of the first issue in March 2007, the company was comfortable with the proportion of floating rate exposure not hedged by interest
rate swaps and therefore rather than take on a higher proportion of fixed rate debt arranged fixed to floating swaps effectively converting the fixed
coupon on the Private Placement to a floating rate. Following the swaps the resulting average coupon on the US Private Placement is LIBOR + 60bps.
These swaps have been documented as fair value hedges of the US Private Placement fixed interest loan notes, with the movements in their fair
value posted to profit and loss at the same time as the movement in the fair value of the hedged item.
The interest on the US Private Placement notes issued in July 2008 was kept at fixed rate.
Commodity risk and commodity swaps
The group’s principal commodity risk relates to the fluctuating level of diesel prices, particularly affecting its cash solutions businesses. The company
acts as a market intermediary, arranging commodity swaps and commodity options with its relationship banks with back to back deals on identical
terms with its subsidiaries to fix synthetically part of the exposure and reduce the associated cost volatility.
Counterparty credit risk
The company’s strategy for credit risk management is to set minimum credit ratings for counterparties and monitor these on a regular basis.
For treasury-related transactions, the policy limits the aggregate credit risk assigned to a counterparty. The utilisation of a credit limit is calculated by
applying a weighting to the notional value of each transaction outstanding with each counterparty based on the type and duration of the transaction.
The total mark to market value outstanding with each counterparty is closely monitored. For short-term transactions (under one year), at inception of
the transaction, the financial counterparty must be investment grade rated by either the Standard & Poor’s or Moody’s rating agencies. For long-term
transactions, at inception of the transaction, the financial counterparty must have a minimum rating of A+/A1 from Standard & Poor’s or Moody’s.
Treasury transactions are dealt with the company’s relationship banks, all of which have a strong investment grade rating. At 31 December 2009 the
largest two counterparty exposures related to treasury transactions were £27.6m and £14.1m and both were held with institutions with long-term
Moody’s credit ratings of Aa3. These exposures represent 40% (2008: 40%) and 20% (2008: 24%) of the carrying values of derivative financial
instruments, with a fair value gain at the balance sheet date. Both of these banks had significant loans outstanding to G4S plc at 31 December 2009.
The company participates in the group’s multi-currency notional pooling cash management system with a wholly-owned subsidiary of a Aa3 rated
bank. There is legal right of set off under the pooling agreement.
i Provisions for liabilities and charges
At 1 January 2009
Utilisation of provisions
At 31 December 2009
Onerous
contracts
£m
2.0
(0.8)
1.2
The onerous contracts provision comprises a provision against future liabilities for all properties sub-let at a shortfall and for long-term idle properties.
The provision is based on the value of future net cash outflows relating to rent, rates, service charges and costs of marketing the properties.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
119
Share
premium
£m
255.9
–
–
2.2
–
–
–
–
–
Profit and
loss account
£m
123.6
128.3
6.1
–
(94.2)
–
(9.5)
7.1
(1.7)
Own
shares
£m
(11.8)
–
–
–
–
(9.9)
9.5
–
–
Total
£m
367.7
128.3
6.1
2.2
(94.2)
(9.9)
–
7.1
(1.7)
258.1
159.7
(12.2)
405.6
j Share premium and reserves
At 1 January 2009
Retained profit
Changes in fair value of hedging derivatives
Shares issued
Dividends declared
Own shares purchased
Own shares awarded
Equity-settled transactions
Tax on equity movements
At 31 December 2009
k Operating lease commitments
At the balance sheet date, the company had annual commitments under non-cancellable operating leases, which expire as follows:
Within one year
In the second to fifth years inclusive
After more than five years
Total operating lease commitments
2009
£m
0.1
1.1
0.4
1.6
2008
£m
0.1
0.4
0.8
1.3
l Auditor’s remuneration
Fees paid to KPMG Audit Plc and its associates for non-audit services to the company itself are not disclosed in its individual accounts because the
company’s consolidated financial statements are required to disclose such fees on a consolidated basis.
m Staff costs and employees
The average monthly number of employees of the company during the year was:
Total staff costs, including directors’ emoluments, were as follows:
Wages and salaries
Social security costs
Pension costs
Total staff costs
2009
Number
314
2008
Number
190
2009
£m
37.5
2.8
2.1
42.4
2008
£m
25.6
2.4
1.7
29.7
n Share-based payments
The group has two types of equity-settled, share-based payment schemes in place: (1) share options previously held by employees over Securicor plc
shares and rolled over to G4S plc shares with the acquisition of that business on 19 July 2004, and (2) conditional allocations of G4S plc shares.
Disclosures relevant to the company are presented within note 42 to the consolidated financial statements.
o Related party transactions
Certain disclosures relevant to the company are presented within note 43 to the consolidated financial statements. Company transactions with group
undertakings primarily consist of royalty charges, central service charges, group insurance recharges and loan transactions.
The only material transaction with a non-wholly owned group undertaking during the year was a £36.2m loan repayment from G4S Security Services
(SA) (Pty) Limited with the outstanding loan recoverable balance at 31 December 2009 being £0.2m (2008: £36.4m).
p Contingent liabilities
To help secure cost effective finance facilities for its subsidiaries, the company issues guarantees to some of its finance providers. At 31 December
2009 guarantees totalling £387.3m (2008: £649.5m) were in place in support of such facilities.
The company is included in a group registration for UK VAT purposes and is therefore jointly and severally liable for all other UK group companies’
unpaid debts in this connection. The liability of the UK group registration at 31 December 2009 totalled £12.1m (2008: £25.8m).
G4S plc Annual Report and Accounts 2009
Notice of Annual General Meeting
120
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the contents of this document or the action you should take, you should immediately consult
your stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised pursuant to the
Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in G4S plc, please send this
notice and the accompanying documents to the person through whom the sale or transfer was effected so that it can be
passed on to the purchaser or transferee.
Notice is hereby given that the Annual General Meeting of G4S plc will be held at Ironmongers’ Hall, Barbican, London EC2Y 8AA on Friday, 28 May
2010 at 2.00pm in order to consider and, if thought fit, to pass the following Resolutions:
Resolutions 1 to 9 and 12 will be proposed as ordinary resolutions. Resolutions 10, 11, 13 and 14 will be proposed as special resolutions.
1. To receive the financial statements of the Company for the year ended 31 December 2009 and the reports of the directors and auditor thereon.
2. To receive and approve the Directors’ Remuneration Report contained in the annual report for the year ended 31 December 2009.
3. To confirm and declare dividends.
4. To re-elect Alf Duch-Pedersen, a director (and member of the Nomination Committee) who is retiring by rotation.
5. To re-elect Lord Condon, a director (and member of the Audit, Nomination and Remuneration Committees) who is retiring by rotation.
6. To re-elect Nick Buckles, a director who is retiring by rotation.
7. To re-elect Mark Elliott, a director (and member of the Nomination and Remuneration Committees) who is retiring by rotation.
8. To re-appoint KPMG Audit Plc as auditor of the Company from the conclusion of this meeting until the conclusion of the next general meeting at
which accounts are laid before the shareholders, and to authorise the directors to fix their remuneration.
9. That the directors be and are hereby generally and unconditionally authorised pursuant to and in accordance with section 551 of the Companies
Act 2006 (“the 2006 Act”) to exercise all the powers of the Company to allot shares in the company or grant rights to subscribe for, or convert
any security into, shares in the Company:
(i) up to an aggregate nominal amount of £117,540,000; and
(ii) comprising equity securities (as defined in section 560 of the 2006 Act) up to a further aggregate nominal amount of £117,540,000 provided
that they are offered by way of a rights issue to holders of ordinary shares on the register of members at such record date(s) as the directors
may determine where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly
as may be practicable) to the respective numbers of ordinary shares held or deemed to be held by them on any such record date(s), subject to
such exclusions or other arrangements as the directors may deem necessary or expedient to deal with treasury shares, fractional entitlements,
record dates, shares represented by depositary receipts, legal or practical problems arising under the laws of any territory or the requirements
of any relevant regulatory body or stock exchange or any other matter;
provided that this authority shall expire on the date of the next Annual General Meeting of the Company, save that the Company shall be entitled
to make offers or agreements before the expiry of such authority which would or might require relevant securities to be allotted after such expiry
and the directors shall be entitled to allot relevant securities pursuant to any such offer or agreement as if this authority had not expired; and all
unexpired authorities granted previously to the directors to allot relevant securities under section 80 of the Companies Act 1985 (“the 1985 Act”)
shall cease to have effect at the conclusion of this Annual General Meeting (save to the extent that the same are exercisable pursuant to section
551(7) of the 2006 Act by reason of any offer or agreement made prior to the date of this resolution which would or might require shares to be
allotted or rights to be granted on or after that date).
10. That the directors be and are hereby empowered, pursuant to section 570 of the 2006 Act, subject to the passing of Resolution 9 above, to allot
equity securities (as defined in section 560 of the 2006 Act) for cash pursuant to the authority conferred by Resolution 9 above as if section 561
of the 2006 Act did not apply to any such allotment, provided that this power shall be limited to:
(i) the allotment of equity securities in connection with an offer or issue of equity securities (but in the case of the authority granted under
paragraph (ii) of Resolution 9 above, by way of rights issue only) to or in favour of the holders of shares on the register of members at such
record date(s) as the directors may determine where the equity securities respectively attributable to the interests of the shareholders are
proportionate (as nearly as may be practicable) to the respective numbers of shares held by them on any such record date(s), but subject to
such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements, treasury shares,
record dates, shares represented by depositary receipts, legal or practical problems arising under the laws of any territory or the requirements
of any relevant regulatory body or stock exchange or any other matter; and
(ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities pursuant to the authority granted under Resolution 9(i)
above, up to a maximum nominal amount of £17,630,000;
and shall expire on the expiry of the general authority conferred by Resolution 9 above unless previously renewed, varied or revoked by the
Company in general meeting, save that the company shall be entitled to make offers or agreements before the expiry of such power which would
or might require equity securities to be allotted, or treasury shares to be sold, after such expiry and the directors shall be entitled to allot equity
securities or sell treasury shares pursuant to any such offer or agreement as if the power conferred hereby had not expired.
All previous unutilised authorities under section 95 of the 1985 Act shall cease to have effect at the conclusion of this Annual General Meeting.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
121
11. That the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the 2006 Act, to make market
purchases (within the meaning of section 693(4) of the 2006 Act) of ordinary shares of 25p each in the capital of the Company on such terms and
in such manner as the directors may from time to time determine, provided that:
(i) the maximum number of such shares which may be purchased is 141,000,000;
(ii) the minimum price which may be paid for each such share is 25p (exclusive of all expenses);
(iii) the maximum price which may be paid for each such share is an amount equal to 105% of the average of the middle market quotations for an
ordinary share in the Company as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding
the day on which such share is contracted to be purchased (exclusive of expenses); and
(iv) this authority shall, unless previously revoked or varied, expire at the conclusion of the Annual General Meeting of the Company to be held in
2011 (except in relation to the purchase of such shares the contract for which was entered into before the expiry of this authority and which
might be executed wholly or partly after such expiry).
12. That in accordance with sections 366 and 367 of the 2006 Act, the Company and all companies which are subsidiaries of the Company during the
period when this resolution 12 has effect be and are hereby unconditionally authorised to:
(i) make political donations to political parties or independent election candidates not exceeding £50,000 in total;
(ii) make political donations to political organisations other than political parties not exceeding £50,000 in total; and
(iii) incur political expenditure not exceeding £50,000 in total;
(as such terms are defined in the 2006 Act) during the period beginning with the date of the passing of this resolution and ending on 27 November
2011 or, if sooner. at the conclusion of the Annual General Meeting of the Company to be held in 2011 provided that the authorised sum referred
to in paragraphs (i), (ii) and (iii) above may be comprised of one or more amounts in different currencies which, for the purposes of calculating the
said sum, shall be converted into pounds sterling at the exchange rate published in the London edition of the Financial Times on the date on which
the relevant donation is made or expenditure incurred (or the first business day thereafter) or, if earlier, on the day in which the Company enters
into any contract or undertaking in relation to the same.
13. That, with immediate effect:
(i) the Company’s Articles of Association be amended by deleting all the provisions of the Company’s Memorandum of Association which, by
virtue of section 28 of the 2006 Act, are to be treated as provisions of the Company’s Articles of Association; and
(ii) the Articles of Association produced to the meeting and initialled by the chairman of the meeting for the purposes of identification be adopted
as the Articles of Association of the Company in substitution for, and to the exclusion of, the Company’s existing Articles of Association.
14. That a general meeting of the Company, other than an Annual General Meeting, may be called on not less than 14 clear days’ notice.
By order of the board
Peter David
Secretary
24 March 2010
Notes
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Company No. 4992207
1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting.
A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which
may be used to make such appointment and give proxy instructions accompanies this notice.
2. To be valid, any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at
Capita Registrars, 34 Beckenham Road, Beckenham, Kent BR3 4TU, in each case no later than 2.00pm on 26 May 2010.
3. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraphs 8 and 9 below) will not
prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so.
4. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights
(a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be
appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment
right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of
voting rights.
5. The statement of the rights of shareholders in relation to the appointment of proxies in paragraph 1 above does not apply to Nominated Persons.
The rights described in this paragraph can only be exercised by shareholders of the Company.
6. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may
cast), shareholders must be registered in the Register of Members of the Company at 5.30pm on 26 May 2010 (or, in the event of any adjournment,
on the date which is two working days before the time of the adjourned meeting). Changes to the Register of Members after the relevant deadline
shall be disregarded in determining the rights of any person to attend and vote at the meeting.
7. As at 23 March 2010 (being the last business day prior to the publication of this Notice), the Company’s issued share capital consists of 1,410,568,639
ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 23 March 2010 are 1,410,568,639.
G4S plc Annual Report and Accounts 2009
G4S plc Annual Report and Accounts 2009
122
Notice of Annual General Meeting continued
8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the
procedures described in the CREST Manual (available via www.euroclear.com/CREST). CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
9. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information
required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or
is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the
issuer’s agent (ID RA10) by 2.00pm on 26 May 2010. For this purpose, the time of receipt will be taken to be the time (as determined by the time
stamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST
in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to
the appointee through other means.
10. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does
not make available special procedures in CREST for any particular messages. Normal system timings and limitations will, therefore, apply in relation
to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST
personal member, or sponsored member, or has appointed a voting service provider, to procure that his or her CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST system and timings.
11. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
12. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a
member provided that they do not do so in relation to the same shares.
13. Under section 527 of the Companies Act 2006 members meeting the threshold requirements set out in that section have the right to require the
Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s
report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor
of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437
of the Companies Act 2006. The Company may not require the shareholders requesting any such website publication to pay its expenses in
complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section
527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement
available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been
required under section 527 of the Companies Act 2006 to publish on a website.
14. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the
business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the
meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a
question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
15. A copy of this notice, and other information required by section 311A of the Companies Act 2006, can be found at www.g4s.com.
16. A copy of the current articles of association and the proposed new articles of association that reflect the amendments proposed by Resolution 13
will be available for inspection during normal business hours (Saturdays, Sundays and public holidays excepted) at the offices of G4S plc,
The Manor, Manor Royal, Crawley, West Sussex RH10 9UN up until the close of the meeting. Copies will also be available at the offices of Herbert
Smith LLP, Exchange House, Primrose Street, London EC2A 2HS up until the close of the meeting and on the company’s website at www.g4s.com.
A copy will also be available at Ironmongers’ Hall, Barbican, London EC2Y 8AA from 15 minutes prior to the meeting until its conclusion.
17. Any electronic address or web site address is provided in this Notice of Meeting solely for the purpose stated expressly herein and may not be
used to communicate with the Company other than for such purpose.
Recommendation and explanatory notes relating to business
to be conducted at the Annual General Meeting on 28 May 2010
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
123
The board of G4S plc considers the resolutions set out in the Notice of Annual General Meeting are likely to promote the success of the company
and are in the best interests of the company and its shareholders as a whole. The directors unanimously recommend that you vote in favour of the
resolutions as they intend to do in respect of their own beneficial holdings.
Explanatory notes in relation to certain of the business to be conducted at the AGM are set out below.
1. Authority to allot shares (Resolution 9)
Resolution 9 seeks shareholder approval for the directors to be authorised to allot shares.
At the last AGM of the company held on 26 May 2009, the directors were given authority to allot ordinary shares in the capital of the company up
to a maximum nominal amount of £234,700,000 representing approximately 66% of the company’s then issued ordinary share capital. This authority
expires at the end of this year’s AGM. Of this amount 469,400,000 shares (representing approximately 33% of the company’s issued ordinary share
capital) could only be allotted pursuant to a rights issue.
Resolution 9 will, if passed, renew this authority to allot on broadly the same terms as last year’s resolution but the resolution has been updated to
reflect that authority is being given under section 551 of the Companies Act 2006 (the “2006 Act”) (rather than section 80 of the Companies Act
1985) and to reflect a change in the language used in the 2006 Act. This change does not affect the substance of these resolutions.
The board considers it appropriate that the directors be granted a similar authority to allot shares in the capital of the company up to a maximum nominal
amount of £235,080,000 representing approximately 66% of the company’s issued ordinary share capital as at 23 March 2010 (the latest practicable date
prior to publication of the Notice of Annual General Meeting). Of this amount, 470,160,000 shares (representing approximately 33% of the company’s
issued ordinary share capital) can only be allotted pursuant to a rights issue. The power will last until the conclusion of the next AGM in 2011.
The intention of the directors is to allot shares upon the exercise of options granted over Securicor plc shares and rolled over into options over the
company’s shares. The directors do not have any other present intention of exercising this authority.
As at the date of the Notice of Annual General Meeting the company does not hold any ordinary shares in the capital of the company in treasury.
However, the 5,543,818 shares held within the G4S Employee Benefit Trust and referred to on page 104 (note 37 to the consolidated financial
statements) are accounted for as treasury shares.
2. Disapplication of statutory pre-emption rights (Resolution 10)
Resolution 10 seeks shareholder approval to give the directors authority to allot shares in the capital of the company pursuant to the authority
granted under Resolution 9 above for cash without complying with the pre-emption rights in the 2006 Act in certain circumstances. This authority
will permit the directors to allot:
(a) shares up to a nominal amount of £235,080,000 (representing approximately 66% of the company’s issued share capital) on an offer to existing
shareholders. However unless the shares are allotted pursuant to a rights issue (rather than an open offer), the directors may only allot shares up
to a nominal amount of £117,540,000 (representing approximately 33% of the company’s issued share capital) (in each case subject to any
adjustments, such as for fractional entitlements and overseas shareholders, as the directors see fit); and
(b) shares up to a maximum nominal value of £17,630,000, representing approximately 5% of the issued ordinary share capital of the company as at
25 March 2010 (the latest practicable date prior to publication of the Notice of Annual General Meeting) otherwise than in connection with an
offer to existing shareholders.
As with Resolution 9, the terms of Resolution 10 are broadly the same as last year’s resolution but the resolution has been updated to reflect that it is
being passed pursuant to section 570 of the 2006 Act rather than section 95 of the Companies Act 1985.
The directors confirm their intention to follow the provisions of the Pre-emption Group’s Statement of Principles regarding cumulative usage of
authorities within a rolling three-year period. The Principles provide that companies should not issue shares for cash representing more than 7.5% of
the company’s issued share capital in any rolling three-year period, other than to existing shareholders, without prior consultation with shareholders.
3. Purchase of own shares (Resolution 11)
Resolution 11 seeks to renew the company’s authority to buy back its own ordinary shares in the market as permitted by the 2006 Act. The authority
limits the number of shares that could be purchased to a maximum of 141,000,000 (representing a little less than 10% of the company’s issued
ordinary share capital as at 23 March 2010 (the latest practicable date prior to publication of the Notice of Annual General Meeting)) and sets
minimum and maximum prices. This authority will expire at the conclusion of the company’s AGM in 2011.
The directors have no present intention of exercising the authority to purchase the company’s ordinary shares but will keep the matter under review,
taking into account the financial resources of the company, the company’s share price and future funding opportunities. The authority will be exercised
only if the directors believe that to do so would result in an increase in earnings per share and would be in the interests of shareholders generally.
No shares were purchased pursuant to the equivalent authority granted to the directors at the company’s last AGM.
As at 23 March 2010 (the latest practicable date prior to the publication of the Notice of Annual General Meeting), there were options over 100,000
ordinary shares in the capital of the company representing 0.0071% of the company’s issued ordinary share capital. If the authority to purchase the
company’s ordinary shares was exercised in full, these options would represent 0.0078% of the company’s issued ordinary share capital.
G4S plc Annual Report and Accounts 2009
G4S plc Annual Report and Accounts 2009
Recommendation and explanatory notes relating to business
to be conducted at the Annual General Meeting on 28 May 2010 continued
124
4. Political donations (Resolution 12)
Resolution 12 is designed to deal with the rules on political donations contained in the 2006 Act. Under the rules, political donations to any political
parties, independent election candidates or political organisations or the incurring of political expenditure are prohibited unless authorised by
shareholders in advance. What constitutes a political donation, a political party, a political organisation, or political expenditure is not easy to decide,
as the legislation is capable of wide interpretation. Sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling public duties,
and support for bodies representing the business community in policy review or reform, may fall within this.
Therefore, notwithstanding that the company has not made political donations requiring shareholder authority in the past, and has no intention
either now or in the future of making any such political donation or incurring any such political expenditure in respect of any political party, political
organisation or independent election candidate, the board has decided to put forward Resolution 12. This will allow the company to support the
community and put forward its views to wider business and government interests without running the risk of being in breach of the law. As permitted
under the 2006 Act, Resolution 12 also covers political donations made, or political expenditure incurred, by any subsidiaries of the company.
5. Adoption of new articles of association (Resolution 13)
The company proposes to adopt new articles of association (the “New Articles”) at the 2010 AGM. These incorporate amendments to the
current articles of association to reflect the changes in company law brought about by the 2006 Act, which replaced the Companies Act 1985,
was implemented in stages and was fully in force by 1 October 2009. In addition, the Companies (Shareholders’ Rights) Regulations 2009 (the
“Shareholders’ Rights Regulations”) came into force on 3 August 2009 and amended certain provisions of the 2006 Act relating to certain rights
of shareholders at meetings of the company.
The principal changes in the New Articles relate to electronic communications, shareholder meetings and resolutions, the company’s constitution and
share capital. The New Articles also include some other modernising and clarificatory wording including, where appropriate, tracking the wording of
the new model form articles for public companies contained in Schedule 3 to the Companies (Model Articles) Regulations 2008 (the “model form
articles”) which replace the Table A articles under the Companies Act 1985 on which many of the company’s current articles are based.
Under the 2006 Act all provisions of the company’s memorandum, but most significantly the objects clause, were deemed to form part of the
company’s articles from 1 October 2009 including, in particular, the statement of objects and the statement of authorised share capital. The 2006
Act does not require a company to set out its objects: it provides that, unless the articles state otherwise, a company’s objects will be unrestricted.
The 2006 Act also removes the requirement for a company to place limits on its authorised share capital.
By adopting the New Articles, which do not contain an objects clause or the authorised share capital statement, the company will remove from its
articles these provisions, which would otherwise be deemed to form part of the company’s articles under section 28 of the 2006 Act.
The principal changes to the articles of association can be summarised as follows:
(a) The company’s objects
The 2006 Act significantly reduces the constitutional significance of a company’s memorandum. The provisions governing the operations of the
company are currently set out in both its memorandum of association and its articles of association. Under the 2006 Act, the memorandum no
longer contains an objects clause and simply records the names of the subscribers and the number of shares which each subscriber agreed to
take in the company. Under section 28 of the 2006 Act, the objects clause and all other provisions in the memorandum are treated as
part of the articles with effect from 1 October 2009 but the company can remove these provisions by special resolution. Unless the articles
provide otherwise, the company’s objects will be unrestricted. The company is proposing to remove its objects clause together with all other
provisions of its memorandum which, by virtue of the 2006 Act, are treated as forming part of the company’s articles of association as of
1 October 2009. Resolution 13 confirms the removal of these provisions and adopts the New Articles.
(b) Limited liability (Article 3)
Under the 2006 Act, the memorandum of association also no longer contains a clause stating that the liability of the members of a company
is limited. For existing companies, this statement is automatically treated as having moved into the articles on 1 October 2009. As noted above,
Resolution 13(i) confirms the removal, from the company’s articles of association, of the provisions of the company’s memorandum of association
which are treated as forming part of the company’s articles of association by virtue of section 28 of the 2006 Act, which includes the statement
of limited liability. An explicit statement of the members’ limited liability is therefore included in the New Articles.
(c) Authorised share capital and unissued shares
The 2006 Act abolishes the concept of authorised share capital and, under the 2006 Act, the memorandum of association no longer contains
a statement of the company’s authorised share capital. For existing companies, this statement is deemed to be a provision of the company’s
articles of association setting out the maximum amount of shares that may be allotted by the company. The adoption of the New Articles
by the company will have the effect of removing this provision relating to the maximum amount. Directors will still need to obtain the usual
shareholders’ authorisation in order to allot shares, except in respect of employee share schemes.
References to authorised share capital and to unissued shares have therefore been removed from the New Articles.
(d) Redeemable shares (Article 7)
Under the 2006 Act, the articles of association need not include the terms on which redeemable shares may be redeemed. The directors
may determine the terms, conditions and manner of redemption of redeemable shares provided they are authorised to do so by the articles.
The New Articles contain such authorisation. The company currently has no plans to issue redeemable shares but if it did so the directors
would need shareholders’ authority to issue new shares in the usual way.
(e) Share certificates (Article 15)
The New Articles contain new provisions for the issue of consolidated share certificates, in line with the model form articles.
(f) Transfer of shares (Former Article 41)
The provision which gave the ability to suspend the registration of transfers of shares for periods not exceeding 30 days in any one year has
been removed from the New Articles as there is no ability under the 2006 Act to close the register.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
125
(g) Authority to purchase own shares, consolidate and sub-divide shares, and reduce share capital (Article 44 and Former Articles 52 and 53)
Under the Companies Act 1985, a company required specific authorisations in its articles of association to purchase its own shares, to consolidate
or sub-divide its shares and to reduce its share capital. Under the 2006 Act, public companies do not require specific authorisations in their
articles of association to undertake these actions, but shareholder authority is still required. Amendments have been made to the New Articles
to reflect these changes.
(h) Notice of general meetings (Articles 47 and 53)
The provisions in the New Articles dealing with the convening of general meetings and the length of notice required to convene general
meetings are in line with the relevant provisions of the 2006 Act (as amended by the Shareholders’ Rights Regulations). The Shareholders’
Rights Regulations amended the 2006 Act to require the company to give 21 clear days’ notice of general meetings unless the company has
passed a special resolution reducing the notice period to not less than 14 days and the company offers members an electronic voting facility.
The amendment to Article 53 deals with situations where, because of a postal strike or similar situation beyond the control of the company, a
notice of meeting is not received by a shareholder. The amendment will ensure that such failure does not invalidate proceedings at the meeting
in question.
(i) Adjournments (Article 55)
The Shareholders’ Rights Regulations add a provision to the 2006 Act which requires that, when a general meeting is adjourned due to lack
of quorum, at least ten days’ notice must be given to reconvene the meeting. The New Articles include amendments to the provisions dealing
with notice of adjourned meetings to make them consistent with this new requirement.
(j) Attending and speaking at meetings (Article 58)
Article 58 of the New Articles now provides that the chairman of the meeting may permit non-members or persons who are not entitled
to exercise the rights of members to attend and, at the chairman’s discretion, speak at a general meeting.
(k) Participation in meetings at different places and by electronic means (Articles 59, 60 and 61)
Amendments made to the 2006 Act by the Shareholders’ Rights Regulations specifically provide for the holding and conducting of electronic
meetings. The New Articles include amendments to permit the directors to provide greater scope for members to participate in meetings
of the company even if they are not present in person at the principal place where the meeting is being held. The amendments permit the
directors to allow for members to participate not only by attendance at satellite meeting locations, but also by any other electronic means
of participation.
(l) Removal of chairman’s casting vote (Former Article 82)
Pursuant to changes brought about by the Shareholders’ Rights Regulations, a listed company is no longer permitted to allow the chairman
to have a casting vote in the event of an equality of votes. Accordingly, this provision has been removed in the New Articles.
(m) Voting rights (Article 74)
The Shareholders’ Rights Regulations clarify the various powers of proxies and representatives of corporate members in respect of resolutions
taken on a show of hands. Where a proxy has been duly appointed by one member, he or she has one vote on a show of hands unless he or
she has been appointed by more than one member in which case the proxy has one vote for and one vote against if the proxy has been appointed
by one or more members to vote for the resolution and by one or more other members to vote against the resolution. Where a corporate
member appoints representatives to attend meetings on its behalf, each representative duly appointed by a corporate member has one vote
on a show of hands. If a proxy is instructed by one or more members to vote in one way and is given discretion as to how to vote by one or
more other members (and wishes to use that discretion to vote in the other way) he also has one vote for and one vote against the resolution.
(n) Voting record date (Article 75)
In line with a requirement for listed companies introduced by the Shareholders’ Rights Regulations, the New Articles include a new provision,
which was not previously in the company’s articles of association, dealing with the method for determining which persons are allowed to attend
or vote at a general meeting of the company and how many votes each person may cast. Under this new provision, when convening
a meeting the company may specify a time, not more than 48 hours before the time of the meeting (excluding any part of a day that is not
a working day), by which a person must be entered on the register of members in order to have the right to attend or vote at the meeting.
(o) Validity of proxy votes (Article 79(2))
Following the implementation of the Shareholders’ Rights Regulations, proxies are expressly required to vote in accordance with instructions
given to them by members. The New Articles contain a provision stating that the company is not required to enquire whether a proxy
or corporate representative has voted in accordance with instructions given to him or her and that votes cast by a proxy or corporate
representative will be valid even if he or she has not voted in accordance with his or her instructions.
(p) Receipt of appointments of proxy and termination of proxy authority (Article 83)
The deadlines for receipt of termination of proxy authority have been brought into line with the deadlines for receipt of proxies. Article 83
also permits the directors to specify, in a notice of meeting, that in determining the time for delivery of proxies, no account shall be taken
of non-working days.
(q) Alternate directors (Article 97)
Article 97(c) makes it clear that an alternate is subject to the same restrictions as the director who appointed him.
(r) Borrowing powers (Article 101)
A number of presentational and descriptive amendments have been made to the borrowing powers provision.
(s) Delegation to persons or committees (Article 102)
Under the company’s existing articles of association, the directors may only formally delegate their powers in certain limited ways. Article 102
follows a simplified approach to delegation to modernise the procedure for delegation, allowing the directors to delegate as they decide
appropriate, in line with the approach adopted in the model form articles.
G4S plc Annual Report and Accounts 2009
G4S plc Annual Report and Accounts 2009
Recommendation and explanatory notes relating to business
to be conducted at the Annual General Meeting on 28 May 2010 continued
126
(t) Retirement of directors by rotation (Article 103)
The New Articles have been redrafted in order to make this provision clearer and to ensure (as far as possible) a regular number of retiring
directors each year, with the number to retire being the number nearest to one-third of the board, excluding those directors who are retiring
and seeking re-election for other reasons. Article 103 continues to comply with Combined Code provision A.7.1 which recommends that all
directors should be subject to re-election at intervals of no more than three years.
(u) Directors’ appointments, interests and conflicts of interest (Article 114)
Under the company’s current articles of association, a director may, notwithstanding his or her office as a director of the company, be a
director, officer or employee of any body corporate in which the company is interested – provided that he or she has disclosed to the other
directors the nature and extent of any material interest he or she has.
In the New Articles, this provision has been amended to include provisions relating to confidential information, attendance at board meetings
and availability of board papers to protect a director from being in breach of duty if a conflict of interest or potential conflict of interest arises.
These provisions will only apply where the position giving rise to the potential conflict falls within the situations covered by Article 114.
Article 114 has also been further amended for practical reasons so that, where a director is also a director, officer or employee of a body
corporate in which the company is interested, he shall be deemed to have disclosed the nature and extent of this interest to the directors
as required under this provision.
(v) Procedures regarding board meetings and resolutions in writing (Articles 119 and 124)
The provisions of Article 119 have been amended to make it clear that notice of a board meeting may be given personally, by telephone, in hard
copy or in electronic form. The requirements for giving notice to directors who are not in the United Kingdom have also been clarified. In order to
clarify the procedure for written resolutions of directors, Article 124 has been amended so that, rather than referring to a resolution in writing by
all directors, a resolution in writing will be valid and effectual as if it had been passed at a meeting if executed by all the directors entitled to receive
notice of the meeting and who would have been entitled to vote (and whose vote would have been counted) on a resolution at a meeting.
(w) Permitted interests and voting (Article 125)
Article 125 has been amended to allow a director to vote on a resolution which relates to giving him an indemnity or funding for expenditure
incurred in defending proceedings provided all the other directors have been given or are to be given arrangements on substantially the same
terms. This exception has become a common exception for listed companies to include.
(x) Removal of age limit for directors (Former Article 124)
The provision requiring a director’s age to be disclosed, in a notice of meeting at which that director is to be appointed or reappointed, if that
director has attained the age of 70 years or more, has been removed from the New Articles to reflect the repeal of the previous provisions
regarding directors over 70 from the Companies Act 1985.
(y) Notices and other communications (Articles 82, 148-157)
The 2006 Act enables companies to communicate with their members by electronic communication to a greater extent than previously
permitted. Article 149 will provide the company with a general power to send or supply any notice, document or information to any member
by a variety of methods – in person, by post or in electronic form (such as by email), or by making it available on the company’s website.
In addition to any notice, document or information which is specifically required to be sent or supplied under the 2006 Act, the company
will also be able to send any other document or information to members using this variety of methods.
Article 82 allows the company to permit proxies to be sent or supplied in electronic form and, where the company gives an electronic address
in a form of proxy, shareholders may send the appointment of proxy to that electronic address, subject to any conditions or limitations
specified in the relevant notice of meeting.
The company may ask each member for his or her consent to receive communications from the company via its website. If the member does
not respond to the request for consent within 28 days, the company may take that as consent by the member to receive communications in
this way. If the company sends or supplies any notice, document or information to members by making it available on the company’s website,
it must notify each member who has consented (or is deemed to have consented) to receive documents via the website, either by post or by
email (if the member has specifically agreed to receive communications in electronic form), that the notice, document or information has been
placed on the website. A member who has consented or is deemed to have consented to receive communications via the website can request
a hard copy of any document at any time. Members can also revoke their consent to receive electronic communications at any time.
In relation to joint holders of shares, Article 149(3) provides that the agreement of the first-named holder on the register of members to
accept notices, documents or information electronically or via a website shall be binding on the other joint holders. Article 149(4) permits
the company not to send or supply any notice, document or information to a member whose registered address is not in the United Kingdom
unless that member gives a non-electronic address in the United Kingdom.
Article 149(6) caters for situations where the provision of corporate information in electronic form or via a website may amount to a breach
of securities laws of another jurisdiction. The company may send hard copies if it needs to restrict the circulation of information in certain
circumstances, such as for US securities law reasons.
Article 152 is the article covering service of notice in the event of a postal strike; it has been amended to allow the company in such circumstances
to serve notices only on those members who receive notices via electronic means, provided that, as before, the company also puts an advert in
two national newspapers and sends a confirmatory hard copy notice if the postal service is available again within seven days of the meeting.
Article 156 deals with notices, documents or information sent by the company to a member which have been returned undelivered on
three consecutive occasions. The member will only be entitled to be sent further communications upon provision of a new postal or
electronic address to the company.
Article 157 is included to deal with the validation of documents in electronic form by members where required by the Articles. In the case
of notices of meetings or proxies, any validation requirements must be specified in the notice.
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
127
(z) Making and retention of minutes (Article 130)
Article 130 contains a new provision to the effect that minutes must be retained for at least ten years, reflecting the relevant provision of the
2006 Act. (No minimum retention time was specified previously.)
(aa) The seal (Articles 132 and 133)
Article 132 provides an alternative option (in the absence of specific instructions from the directors) for documents (other than share
certificates) to which the seal is affixed to be signed by one authorised person in the presence of a witness, in addition to either two directors
or a director and the secretary.
6. Period of Notice for Calling General Meetings (Resolution 14)
Resolution 14 is a resolution to allow the company to hold general meetings (other than AGMs) on 14 days’ notice.
Before the introduction of the Shareholders’ Rights Regulations on 3 August 2009, the minimum notice period permitted by the 2006 Act for general
meetings (other than AGMs) was 14 days. One of the amendments made to the 2006 Act by the Regulations was to increase the minimum notice
period for general meetings of listed companies to 21 days, but with an ability for companies to reduce this period back to 14 days (other than for
AGMs) provided that two conditions are met. The first condition is that the company offers a facility for shareholders to vote by electronic means.
This condition is met if the company offers a facility, accessible to all shareholders, to appoint a proxy by means of a website. The second condition is
that there is an annual resolution of shareholders approving the reduction of the minimum notice period from 21 days to 14 days.
The board is therefore proposing Resolution 14 as a special resolution to approve 14 days as the minimum period of notice for all general meetings
of the company other than AGMs. The approval will be effective until the company’s next AGM, when it is intended that the approval be renewed.
The board will consider on a case by case basis whether the use of the flexibility offered by the shorter notice period is merited, taking into account
the circumstances, including whether the business of the meeting is time sensitive.
G4S plc Annual Report and Accounts 2009
G4S plc Annual Report and Accounts 2009
Group financial record
128
Employees
With over 595,000 employees, G4S is the second-largest
private employer in the world. We take great pride in the
important work carried out by our global workforce who do
everything they can to ensure the security and safety of our
customers and their assets.
Employee numbers
000s
306.3
395.8
440.1
507.5
561.9
595.0
+5.9%
in employee numbers
in 2009
26.6%
Annualised labour turnover
rate; down from 27.7% in 2008
2004
2005
2006
2007
2008
2009
Earnings per share
Since 2004 G4S has generated average earnings per share
growth of 16% on a compounded basis.
Earnings per share (as reported)
pence
+22%
EPS in 2009
9.5
11.2
12.1
13.3
16.7
20.2
+16%
EPS CAGR* from 2004
to 2009
+17.9%
Revenues in 2009 (+7.4% on
a constant currency basis)
+17.8%
Revenue CAGR* from 2004
to 2009
Revenue
G4S revenues have grown by an average of 17.8% over the
last five years. The group strategy for enhanced growth has helped
deliver strong underlying organic growth together with capability
adding-acquisitions to help drive growth into the future.
2004
2005
2006
2007
2008
2009
Revenue (as reported)
£m
3,094
4,046
4,037
4,484
5,942
7,009
2004
2005
2006
2007
2008
2009
Profit
Operating profit, defined as profit before interest, tax and
amortisation, has grown by an average of 24.8% over the last five
years. The increase in operating profit has been driven by strong
revenue growth, a strong cost focus and an improving business
mix with our higher growth businesses such as government and
New Markets having higher than the group average margins.
Profit before interest,
tax and amortisation
(as reported)
£m
165.5
255.0
274.4
311.4
416.4
500.3
Revenue from New Markets
Our global presence, market shares and experience of working
in less developed markets is unrivalled in almost any industry.
It means that we know what it takes to be successful in these
markets and are well positioned to maximise the structural
growth opportunities as they develop over time.
2004
2005
2006
2007
2008
2009
Revenue from New Markets
%
13
16
18
22
24
26
G4S plc Annual Report and Accounts 2009
Overview
Business review
Governance
Financial statements
Shareholder information
129
+21%
PBITA in 2009 (+10.0% on
a constant currency basis)
+24.8%
PBITA CAGR* from 2004
to 2009
+14%
Revenue from New Markets
in 2009
+31%
Revenue from New Markets
CAGR* from 2004 to 2009
Actual share performance
Since 2004 the G4S share price has nearly trebled
outperforming the FTSE 100 (see page 53 for detailed
TSR performance and peer group).
2004
2005
2006
2007
2008
2009
)
S
4
G
o
t
d
e
s
a
b
e
r
(
e
c
i
r
p
e
r
a
h
S
300
250
200
150
100
50
0
G4S plc
FTSE 100
+27%
G4S share price in 2009
+18%
G4S share price CAGR*
from 2004 to 2009
* CAGR is compound annual growth rate.
2004 2005 2006 2007 2008 2009
G4S plc Annual Report and Accounts 2009
Financial calendar and corporate addresses
130
For the year ended 31 December 2009
Results announcements
Half-year results – August
Final results – March
Dividend payment
Interim paid – 30 October 2009
Final payable – 4 June 2010
Annual General Meeting
28 May 2010
Registered office
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Telephone +44 (0) 1293 554 400
Registered number
4992207
Registrars and transfer office
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0GA
Telephone: within the UK 0871 664 0300 (calls cost 10p per
minute plus network extras, lines are open 8.30am to 5.30pm
Monday to Friday); from outside the UK +44 20 8639 3399
Fax: +44 (0) 1484 600 911
Email: ssd@capitaregistrars.com
Please note that beneficial owners of shares who have been
nominated by the registered holder of those shares to receive
information rights under section 146 of the Companies Act 2006
are required to direct all communications to the registered
holder of their shares rather than to the company or the
company’s registrar.
Auditor
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London EC4Y 8BB
Stockbrokers
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 2DB
Financial advisors
Greenhill & Co. International LLP
Lansdowne House
57 Berkeley Square
London W1J 6ER
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 2DB
G4S website
www.g4s.com
G4S in brief
Who we are
G4S is the world’s leading international security
solutions group which specialises in outsourcing
of business processes and facilities in sectors
where security and safety risks are considered
a strategic threat.
Our people
With more than 595,000 employees, we take great
pride in the important work carried out by our staff
who do everything they can to ensure the security
and safety of our customers and their assets.
(Full-time equivalent employees at year end December 2009)
Our sectors
G4S has a broad range of customers around
the world but our strategic focus is on sectors
where safety and security are key. This sector
expertise and focus will enable us to build
long-term partnerships with customers and
help drive growth across the businesses:
What we do
We are global experts in the assessment and management of
security and safety risks for buildings, infrastructure, materials,
valuables, people and society.
We develop long-term strategic partnerships with customers
in key sectors where we can help them to deliver their own
business objectives – either increasing their revenues, reducing costs,
managing risks, protecting critical assets or improving their service
delivery to the customers they serve.
We do that by understanding the environments in which our
customers operate, the pressures they face and the issues that
matter to them.
By understanding the bigger picture and applying our expertise
and knowledge derived from providing security solutions in diverse
regulatory environments in more than 110 countries around the
world, we turn our customers’ security challenges into opportunities.
In summary
Our goal is to build long-term relationships with our customers
where we can help them to:
p grow their revenues
p manage their costs
p manage their risks or protect their assets
p improve the service they provide to their customers.
Chief Executive’s interview on pages
04-07
208,283
Asia
128,648
Europe
106,311
Africa
52,915
North America
47,495
Latin America
and Caribbean
51,350
Middle East
Our values
G4S aims to act responsibly in how it manages
relationships with customers, communities, employees
and other stakeholders. Our group values describe
what G4S stands for:
Best people
We always take care to employ the best people, develop their
competence, provide opportunity and inspire them to live our values.
Teamwork and collaboration
We collaborate for the benefit of G4S as a whole.
Customer focus
We have close, open relationships with our customers that
generate trust and we work in partnership for the mutual benefit
of our organisations.
Integrity
We can always be trusted to do the right thing.
Expertise
We develop and demonstrate our expertise through our innovative
and leading edge approach to creating and delivering the right solution.
Performance
We challenge ourselves to improve performance year-on-year
to create long-term sustainability.
Each value has a senior executive “champion” within the group
responsible for ensuring that value becomes a key part of how
G4S does business.
Turnover by sector 2009
Major Corporates and Industrials
£1,495m | 21%
Retail
£698m | 10%
Consumers
£268m | 4%
Leisure and Events
£157m | 2%
Ports and Airports
£270m | 4%
Transport and Logistics
£158m | 2%
Selected profiles on pages
08-21
Our regions
G4S has a broad geographic reach giving it a
unique and diverse global geographic footprint:
Turnover by geography 2009
New markets
£1,849m | 26%
Divisional review on pages
22-27
Our segments
Our businesses can be broadly segmented into:
Secure solutions – Government
Protection of critical national infrastructure; care and
justice services, secure facilities and border protection.
Our work in the Government
sector on pages 08-11
Cash solutions
Outsourcing of cash cycle management for central banks,
financial institutions and retailers.
Review for Cash solutions
on pages 26-27
Secure solutions – commercial
Integrated security solutions for commercial customers such
as risk consulting, manned security and security systems.
Review for Secure solutions
on pages 22-25
Group turnover by segment 2009
1
2
3
Secure solutions – commercial
53%
1 New Markets:1
20%
2 UK & North America:
17%
3 Continental Europe:
16%
1 Includes Eastern Europe
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Turnover by sector 2009
1 Government
£1,947m
2 Financial Institutions
£1,447m
3 Energy and Utilities
£569m
4 Transport and Logistics
£158m
5 Ports and Airports
6 Leisure and Events
£270m
£157m
28%
21%
8%
2%
4%
2%
7 Retail
£698m
10%
8
Major Corporates
and Industrials
9 Consumers
£1,495m
£268m
21%
4%
Government
£1,947m | 28%
Financial Institutions
£1,447m | 21%
Energy and Utilities
£569m | 8%
Europe
£3,566m | 51%
North America
£1,594m | 23%
Secure solutions
– Government
28%
Cash solutions
19%
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G4S plc
The Manor
Manor Royal
Crawley
West Sussex
RH10 9UN
Telephone: +44 (0)1293 554 400
Email: investor@g4s.com
Registered in England No: 4992207
View our online report at:
http://reports2009.g4s.com
Securing Your World
G4S plc
Annual Report and Accounts 2009
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We develop and provide
business processes and services
to help our customers across
a diverse range of sectors –
in areas where managing
security and safety risks
are a key consideration
G4S plays an important role in society. We make
a difference by helping people to operate in a safe
and secure environment where they can thrive and
prosper and we believe that this role can only grow
in importance.
Operating in more than 110 countries and the
world’s second largest private employer, G4S is
the world’s leading security solutions group.
Contents
Overview
G4S in brief
01 Performance overview
02 Chairman’s statement
Governance
40 Board of directors
Business review
04 Chief Executive’s interview
08 Sector profiles
22 Secure solutions
26 Cash solutions
28 Corporate Social Responsibility
32 Financial review
38 Group principal risks
Financial statements
58 Consolidated income statement
42 Executive management team
59 Consolidated statement of
44 Report of the directors
47 Corporate governance statement
50 Directors’ remuneration report
56 Statement of directors’ responsibilities
in respect of the annual report and
the financial statements
57 Independent auditors’ report to the
members of G4S plc
Shareholder information
120 Notice of Annual General Meeting
123 Recommendation and explanatory
notes relating to business to be
conducted at the Annual General
Meeting on 28 May 2010
financial position
60 Consolidated statement of cash flow
62 Consolidated statement of
comprehensive income
63 Consolidated statement of changes
in equity
64 Notes to the consolidated financial
statements
111 Parent company balance sheet
112 Parent company reconciliation
of movements in equity
shareholders’ funds
113 Notes to the parent company
financial statements
128 Group financial record
130 Financial calendar and corporate
addresses