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://reports.g4s.com/2010
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Securing Your World
G4S plc
Annual Report and Accounts 2010
G4S plc Annual Report and Accounts 2010
With operations in more than
125 countries and 625,000
employees, we specialise
in outsourced business
processes and facilities
in sectors where security
and safety risks are considered
a strategic threat.
G4S plays an important role in society. We make a difference by helping
people to operate in safe and secure environments where they can thrive
and prosper and we believe this role can only grow in importance.
G4S is the world’s leading international security solutions group.
Inside this report…
Overview
01
02
Performance overview
Strategy and investment proposition
08 Chairman’s statement
Online report
View our online report and
management interviews at
http://reports.g4s.com/2010
Business review
10 Chief Executive’s interview
14
Strategy delivery
16 Resources
18 Market overview
22
32
Investment proposition case studies
Secure solutions
36 Cash solutions
40 Corporate Social Responsibility
44
Financial review
50 Group principal risks
Performance overview
G4S plc Annual Report and Accounts 2010
01
Financial highlights
Despite a diffi cult economic environment, G4S delivered another year of strong
performance in 2010, with good organic growth and margins maintained at the
same level as the prior year. The group also achieved its cash conversion target
of 85% of PBITA.
of 2.1%
+2.1%Organic turnover growth
+4.2%
PBITA up by 4.2%
to £527 million
Group turnover up 4.1%
to £7.4 billion
£7.4bn
£442mOperating cash fl ow
of £442 million, 85% of PBITA
Adjusted earnings per share
up 7% to 21.6p
21.6p
+7.90p
Recommended total dividend
per share up 10% to 7.90p
Group KPIs
The key fi nancial performance indicators for G4S operational management are
PBITA margin, cash conversion (operating cash fl ow as a % of PBITA) and organic
growth. These indicators have shown a positive trend over the past six years.
Organic growth
%
Cash conversion
%
PBITA margin
%
7.1
9.1
9.5
3.7
2.1
88
90
85
90
85
6.7
7.0
7.0
7.1
7.1
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Non-fi nancial KPIs
Managers across the group are also targeted to achieve additional specifi c company or country
objectives which relate to the business environment in which they operate and the local challenges
that the businesses face. All objectives and targets are focused on driving the business performance
forward and delivering the group’s solutions strategy over the longer term. At a group-wide level,
one of the key elements of the strategy is to ensure that, over time, a signifi cant proportion of the
group’s revenues are derived from what we defi ne as “solutions” type contracts and relationships.
This is measured through an ongoing analysis of our top customers across the globe as outlined on
pages 6 and 7.
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More information
6–7
Governance
52 Board of directors
54 Executive management team
56 Report of the directors
Financial statements
Shareholder information
69 Consolidated income statement
125 Notice of Annual General Meeting
70
71
Consolidated statement of comprehensive income
128
Consolidated statement of fi nancial position
Recommendation and explanatory notes relating
to business to be conducted at the Annual General
Meeting on 19 May 2011
130 Group fi nancial record
132 Financial calendar and corporate addresses
59 Corporate governance statement
72 Consolidated statement of cash fl ow
62 Directors’ remuneration report
67
68
Statement of directors’ responsibilities in respect
of the annual report and the fi nancial statements
Independent auditor’s report to the members
of G4S plc
74
75
Consolidated statement of changes in equity
Notes to the consolidated fi nancial statements
116 Parent company balance sheet
117
Parent company reconciliation of movements
in equity shareholders’ funds
118
Notes to the parent company fi nancial statements
02
G4S plc Annual Report and Accounts 2010
Strategy and investment proposition
We are well placed to continue
driving value for our
stakeholders by maximising
the potential of our business…
Our strategy
Our goal is to be recognised as the global leader
in providing security solutions, to help customers
to achieve their own strategic goals and to deliver
sustainable growth for our business and long-term
shareholder value for our investors through the
following:
k Drive outsourcing
in key markets
Our investment proposition
Integrated security solutions
We are able to design and manage security
solutions that bring together our 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.
k Focus on key sectors where
security is a key consideration
Unrivalled cash
solutions expertise
k Develop long-term
partnerships and deliver
“solutions” to our
customers’ needs which
enhance their strategy
k Transfer skills developed
in more mature markets
into key New Markets
k Acquire additional expertise
to enhance capability
Understanding and managing the cash cycle
of a country is a core skill of the group. Central
banks, commercial banks and retailers outsource
their entire cash management to G4S because
we have the capability and experience to drive
substantial effi ciencies 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 fi ll the gap. Government
contracts, which currently represent around 28%
of group turnover, tend to be long-term,
strategic partnerships with recurring revenues.
Strong New Markets positions
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. In many cases we are able to drive
that development forward to the benefi t of our
customers and our business.
The solutions approach
Each individual area of the business is a driver
of value for the group. But it is when they come
together that they truly make a difference.
Exporting our government expertise to 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, drive even greater value
for our investors.
Investment proposition case studies
The strength of G4S is the diversity of its
geographic and customer base. In these case
studies we have chosen some examples of
the type of work we do for customers to
demonstrate our investment proposition.
22–31
G4S plc Annual Report and Accounts 2010
03
Customer sectors
and relationships
We are global experts in the assessment and
management of security and safety risks for
buildings, infrastructure, materials, valuables
and people.
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 and protecting critical assets or
improving their service delivery to the customers
that they serve.
We do that by understanding the environments
in which our customers operate, the pressures
they face and the things that matter to them.
By applying our expertise and the knowledge
derived from delivering security solutions in
diverse regulatory environments in more than
125 countries, we turn our customers’ security
challenges into opportunities.
Our focus on key markets
and customer sectors
G4S has a broad range of customers around
the world, but our strategic focus is on sectors
where security and safety are key. This sector
expertise enables us to build long-term
partnerships with customers and helps
drive growth across the businesses.
2010
turnover by
Sector
(cid:81) Government
£2,097m
(cid:81) Major Corporates and Industrials £1,836m
(cid:81)(cid:3) Financial Institutions
(cid:81) Retail
(cid:81)(cid:3) Private Energy and Utilities
(cid:81) Ports and Airports
(cid:81) Consumers
(cid:81) Leisure and Tourism
(cid:81) Transport and Logistics
£1,423m
£629m
£506m
£284m
£312m
£180m
£130m
28%
25%
19%
9%
7%
4%
4%
2%
2%
Our broad geographic reach
G4S has a broad geographic reach, giving
it a unique global footprint.
2010
2010
0
2010
turnover by
turnover by
v
turnovver by
turnov
turnov
Region
Regggiongi
Region
(cid:81) Europe
(cid:81) New Markets
(cid:81)(cid:3)North America
£3,508m
£2,107m
£1,782m
47%
29%
24%
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Our segments –
an integrated approach
Secure solutions – non-government
Integrated security solutions for commercial
customers such as risk consulting, manned
security and security systems.
Secure solutions – government
Protection of critical national infrastructure,
care and justice services, secure facilities and
border protection.
Cash solutions
Outsourcing of cash cycle management for
central banks, fi nancial institutions and retailers.
2010
2010
0
20010
turnover by
v
rnovver by
turnov
turnover by
ovv
Segment
Region
Reggiong
(cid:81) Secure solutions –
non-government
(cid:81) Secure solutions –
government
(cid:81)(cid:3)Cash solutions
£3,950m
54%
£2,097m
£1,350m
28%
18%
04
G4S plc Annual Report and Accounts 2010
Strategy and investment proposition
Our key growth drivers
With strong market positions in developed
and developing markets complementing global
outsourcing trends, we believe G4S has a
sustainable growth strategy. The key drivers
of growth for the group can be summarised
as follows:
All services
k Economic environment and GDP growth
k Customer satisfaction and retention
k Competitive environment
k Regulation
k Level of customer relationship
k Innovation
k Company reputation and track record
Cash solutions
k Role and strategy of central banks
k Development phases of the cash cycle
k Increased willingness to outsource
k Product innovation – end-to-end ATM
management, CASH360
k Interest rates
k Crime
Secure solutions – government
k Focus on security
k Propensity to outsource
k Budgetary pressures
Secure solutions – non-government
k Attitude to risk management
k Focus on high growth segments
k Growth of internationally let contracts
from multinationals
k Investment in infrastructure growth in
New Markets
k Impact of technology
k Multi-services or service bundling
All services
Cash solutions
Economic environment
and GDP growth
A favourable economic environment stimulates
demand for our customers’ services and hence
their security requirements. Wages and salaries
are a high proportion of the G4S cost base.
As a result, higher wages due to infl ation usually
result in increased prices for our services.
Role and strategy of central banks
In more developed cash markets, central banks
are more likely to outsource the management
of the cash cycle to commercial banks and to
cash management companies. We use our
experience from some of the most advanced
cash markets in the world, to advise central
banks on developing outsourcing strategies.
Customer satisfaction and retention
Customer satisfaction and account management
are vital for the group. We have a range of
customers from small businesses through to
major multinational companies and our customer
retention rates are strong.
Competitive environment
The security industry can be very fragmented,
particularly in New Markets. Our goal is to
have strong market-leading positions in our
key markets where we can maximise economies
of scale and provide a consistent quality of
service to national and multinational customers
(see pages 14 and 15).
Regulation
We welcome regulation of security markets
as it improves standards and can help drive
growth. Customers turn to high quality
providers who can live up to the requirements
of local legislation and compliance standards.
Level of customer relationship
We measure our customer relationships
based on a number of criteria such as duration
of contract, number of services and pricing
determination. Over time, we aim to increase
the number of strategic partnerships we have
with major customers which bring us longer
term contracts, measured on impact not inputs
and where we are helping them reduce their
costs, manage their risks, increase their revenues
or improve their own customer service.
Our goal is to have a signifi cant proportion
of our customers as strategic partners over
the medium term (see pages 6 and 7).
Innovation
We continuously review the way we do business
to ensure that we maximise our effi ciency, keep
our costs low and improve performance.
Company reputation and track record
As a global company operating in 125 countries
and employing 625,000 staff, we touch the lives
of millions of people. We have a strong track
record of integrity and a long history of serving
our customers well, which has enabled us to be
successful over the longer term.
Development phases of the cash cycle
The cash cycle of a country develops through
different phases over time, from basic cash
transportation services to total outsourcing
of all cash related activities at the most
developed end of the spectrum. There are
more signifi cant opportunities for our business
in cash outsourcing and we are able to use our
experience and expertise to infl uence the rate
at which a market moves through the different
phases of development.
Increased willingness to outsource
Customer attitudes to outsourcing non-core
activities to third parties have changed
dramatically in recent years and we expect
this trend to continue as we demonstrate
the value that G4S can bring to managing the
cash cycle for the benefi t of our customers.
Product innovation – e.g. end-to-end
ATM management and CASH360
Innovation in a cash market helps to drive
growth. Using technology and manpower,
we have developed ways in which internal
customer cash management processes can
be automated and non-core customer facing
services can be outsourced to G4S. Service
developments such as these help banks and
retailers to cut their costs, while increasing
effi ciency and returns on their cash.
Interest rates
Interest rates can infl uence the effi ciency of the
cash cycle. In high interest rate environments,
banks and retailers gain maximum returns on
their cash if the cycle is operating at maximum
effi ciency. In low interest rate environments,
customers are less concerned about cash
sitting idly in ATMs or in branches, which
results in lower cash transportation and
processing volumes.
Crime
Crime levels have an impact on customer
attitudes to handling cash themselves or using
a secure method of cash management. Small
business customers who “walk to bank” can
benefi t from reduced bank charges or increased
speed of credit by avoiding high street bank
branches and paying directly into a larger, more
effi cient processing centre.
G4S plc Annual Report and Accounts 2010
05
Secure solutions –
government
Secure solutions –
non-government
Focus on security
Attitudes to security within governments
can help drive growth for the security industry.
Worldwide, the private sector is playing an
increasing role in protecting government staff
working at missions overseas, supporting the
work of the armed forces and securing sensitive
buildings and assets.
Propensity to outsource
A government’s attitude towards outsourcing
to the private sector can be another key driver
of growth. G4S has valuable skills in many areas
such as prisons, prisoner escorting, electronic
monitoring of offenders, police custody and
the facilities management or security of key
government facilities, both at home and abroad.
Budgetary pressures
When government budgets are under pressure,
governments are more willing to explore ways
of achieving effi ciencies and managing costs
and that often creates additional private
sector participation in government services.
On average, the private sector is said to be at
least 20% cheaper than government delivery
of key services such as prisons.
Attitude to risk management
Attitudes to risk within major organisations
are changing – discussions on the protection
of a company’s assets and people are now
conducted at a senior level and have extended
beyond physical protection into protecting
company reputations. Security is now less of
a commodity and more of an imperative for
businesses to survive. We expect this trend
to continue.
Focus on high growth segments
By ensuring that we are at the cutting edge of
securing complex environments in high growth
segments such as oil and gas and ports and
airports, we can continue to deliver strong
growth across the business.
Growth of internationally let contracts
from multinationals
There is an increasing trend for large
multinational companies to look to a single
provider to secure their assets and protect their
people across their international operations.
Growth in international accounts is expected to
continue (see pages 26, 27, 30 and 31).
Investment in infrastructure growth
in New Markets
Increasing investment in transport, energy,
communications and other forms of
infrastructure is increasing the need for quality
security services across New Markets. G4S has
a unique presence in these markets and is well
placed to benefi t from this continued investment.
Impact of technology
Our ability to supply and integrate manpower
services with technology – not just traditional
security systems, but customer-facing IT
systems which provide enhanced management
information and risk management capability –
gives us a strong competitive advantage.
Multi-service or service bundling
In New Markets, customers are often looking
for “bundled” services incorporating security
with, for example, catering, cleaning, health
& safety and other services. With a long
heritage and a strong brand in New Markets,
we are able to expand the services we
provide for existing contracts as well as
attract new customers.
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06
G4S plc Annual Report and Accounts 2010
Strategy and investment proposition
We are focused on
driving outsourcing
across our key sectors
and our customer base…
Customer relationships
One of the main elements of our strategy is to drive outsourcing across our key sectors and
customer base. In order to achieve this, it is important to have the right level of customer relationship
– customers see G4S as a strategic partner, a solutions provider and an essential part of their own
strategy delivery plans.
We categorise our customers into different groups depending on the complexity of the service
provided and the nature of the relationship. This model shows the four different customer groups
and outlines the characteristics of each of them.
We measure our progress on strategic customer relationship development by analysing various
aspects of the service provided, the contractual terms, the strength and duration of the customer
relationship and the style of purchasing adopted by our customers. Our goal is for a signifi cant
proportion of our customer relationships to be at the strategic level (total process outsourcer
or transformational partner).
In order to assess our progress during 2010, we analysed our relationships with 700 of our larger
customers across 40 countries, representing around 50% of group revenues. The analysis showed
that 55% of the sample were at the strategic level and we estimate this to equate to about 30% of
revenues at a total group level. The results are shown in the pie charts. We will update this analysis
regularly and use it as an ongoing indicator of our performance.
7%
Measuring solutions strategy
Revenues across 40 countries
Analysis of 700 large customers
Commodity buyer
k Single service buyer of manned security,
simple security systems, cash transportation
k Purchasing-driven process
k Short-term contracts
k Price is a key driver
k Lowest barriers to change
Level 1
G4S plc Annual Report and Accounts 2010
07
38%
Measuring solutions strategy
Revenues across 40 countries
Analysis of 700 large customers
55%
Measuring solutions strategy
Revenues across 40 countries
Analysis of 700 large customers
Security services bundler
k Buys several services under separate contracts
k Bundles to gain price/volume advantage
k Purchasing driven with quality of service
(inputs) specifi cation from customer
k Short-term contracts
k Low barriers to change
Total process outsourcer
k Buys a solution to a strategic problem under
Transformational partner
k Buys a solution to transform a business
a single contract measured on outputs
process/problem
k Senior level relationship involved in
buying decision
k Concerned about risk and reputation,
but price still a factor
k Long-term contract
k Diffi cult to change
k Seen as key partner in driving revenue,
controlling cost, customer service or
protecting a critical asset or reputation
k Senior/board or civil servant level relationship
k Long-term output-based contract
k High barriers to change
Level 2
Level 3
Level 4
Ensuring compliance / Reducing losses
Business enhancing
Operate
Analysis and design
Manage
Increasing customer partnership
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08
G4S plc Annual Report and Accounts 2010
Chairman’s statement
2010 was a diffi cult year for many businesses and G4S has not been
immune to the continuing effects of the global downturn. Many of
our customers have had to re-examine the value for money offered
by their service providers. Even governments and public authorities
are constrained in their ability to spend.
In circumstances like these I believe we can be particularly proud that we have
been able to deliver revenue and profi t growth yet again and maintain our
margins. Proud, but not complacent.
In 2010, profi t before interest, taxation and amortisation improved by 4.2%*
to £527m and turnover increased 4.1 %* to £7,397m. The group’s profi t margin
was maintained at 7.1% and adjusted earnings per share were up 7% to 21.6p.
The directors are therefore able to recommend a fi nal dividend of 4.73p or
DKK 0.4082 per share, payable on 3 June 2011. With the interim dividend of
3.17p or DKK 0.2877 per share paid on 15 October 2010, the total dividend
for the year ended 31 December 2010 will be 7.90p or DKK 0.6959 per share.
We have delivered another
strong performance in 2010 –
our sixth year of sustained revenue,
profi t and dividend growth.
* To show a fair comparison,
constant exchange rates are assumed.
G4S plc Annual Report and Accounts 2010
09
Our businesses around the world have worked extremely hard in 2010 to
achieve these results – and I would like to thank every manager and employee
in the group for playing their part. In 2011 we will need to do even more and
we are ready for the challenge that lies ahead. We continue to implement our
strategy of developing solutions for our customers over longer-term relationships
and we have changed our management structure to allow this strategy to develop
and thrive. We also continue to make acquisitions in those security-related solutions
areas which will add to our expertise and in businesses which will broaden our
geographical reach into new and important markets.
As chairman, I do of course have particular responsibility for ensuring that the
board continues to do its part in developing the group’s business and managing
the company in the best interests of its stakeholders. As I mentioned last year,
we planned then to refresh the composition of the board and I am very pleased
to be able to report on how we have done this. Thorleif Krarup, who had
been with the board since the group was founded by the merger between
Group 4 Falck and Securicor in 2004, has retired and we have added two new
non-executive directors: Clare Spottiswoode and Winnie Fok. Whilst good
corporate governance rightly requires change to the make-up of the board to
ensure independence, it is also important to maintain continuity and experience,
particularly if the existing line-up is performing well. I am sorry therefore that we
have lost Thorleif’s experience. In Clare and Winnie though, we have acquired
new and different experience and expertise, and they are already adding to the
breadth of our debates.
For the future, whilst the different parts of the world in which we operate
continue to be affected by the economic downturn in different ways and to
different extents, overall we know that performing well in 2011 will require
just as much effort and innovation as was demonstrated by the group in 2010.
I am confi dent that the strategy we have adopted and the way in which it is
being implemented, will give us the best chance of continuing to deliver value
to all our stakeholders.
Alf Duch-Pedersen
Chairman
Turnover*
£m
PBITA*
£m
Dividend
pence per share
4,747
5,433
6,617
7,105
7,397
315
376
460
506
527
4.21
4.96
6.43
7.18
7.90
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
* 2006 to 2009 at 2010 exchange rates and excluding
all businesses disposed of during the period.
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10
G4S plc Annual Report and Accounts 2010
Chief Executive’s interview
We are looking to the
future – building on progress and
focusing on new opportunities.
G4S is one of just 20 FTSE 100 companies that have delivered consecutive earnings
growth over the past fi ve years. This demonstrates the inherent strength of our
business strategy and market positions. It also means we are well placed
for improved growth as global economies recover.
2010 performance
How would you summarise the
performance of the group in 2010?
In 2010 we achieved our sixth consecutive
year of underlying revenue, profi t and
dividend growth since the group was formed
in 2004, despite the signifi cant economic
uncertainties of the last two years.
We delivered strong organic revenue
growth of 7% in developing markets,
which now account for 29% of the group’s
revenue and 33% of profi ts. We are encouraged
by signs of economic recovery in our larger
developed markets of the US and the UK.
In addition, our “integrated solutions” strategy is
helping us to build market share with major
global customers.
G4S is one of just 20 companies in the FTSE 100
that have continued to deliver earnings
growth year-on-year over the past fi ve
years – a great result against a diffi cult set of
circumstances and we are proud of everyone
in the organisation who has played their part
in enabling us to continue the earnings growth
trend throughout that time.
What changes have you had to make as
a result of the economic pressures of the
last 18 months?
We continually review our key processes to
make sure they are effi cient and that we are not
carrying unnecessary costs – so very little direct
change has taken place as a result of the crisis.
One of the largest costs to the group is pay –
with one of the largest private workforces in the
world, it is a key consideration for us. As a result
of the economic downturn we have awarded
modest pay rises in economies where growth
continues (generally in line with RPI), but
elsewhere, in more challenging countries we
have implemented pay freezes to ensure that
pay remains in line with business performance
and economic growth rates. As growth was
challenging in the year, we had to implement
some workforce reduction programmes in a few
countries. However, overall we’ve increased our
employee numbers by 30,000 during the year.
Unfortunately, we lost a number of contracts
in the year. Some of the losses were the result
of specifi c issues such as US and British troops
withdrawing from Iraq and therefore no longer
needing our support. Others were lost as the
result of a competitive tender process. Losing
contracts is obviously disappointing, but we aim
to learn from such losses to develop our future
bidding capabilities and improve service.
G4S plc Annual Report and Accounts 2010
11
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In the cash solutions division the lowest
interest rates on record for many years in
some countries had a short-term impact on our
ability to grow the cash solutions business at the
historically high levels of the past few years. Low
interest rates remove the imperative for the cash
cycle to operate at maximum effi ciency and this
has impacted our growth. That said, the great
work that our cash experts have done in terms
of managing the costs during the year has meant
that the businesses have still performed very well
despite these issues.
Continuing to keep the workforce motivated
and looking to the future has been challenging during
the year, when everywhere they turn there is talk
of recession and crisis, but I am glad to say that
we have a dedicated and hard working employee
base who have continued to deliver the results
despite this.
Towards the end of 2010, we implemented a
new management structure – not as a result
of the economic crisis, but more with an eye on
the future and making sure we have the right
management operating at the appropriate level
to drive the business forward.
We have created four major regions and one
major division all with a Regional or Divisional CEO
with responsibility for around £1.5bn revenues in
each. Each of the CEOs has created an executive
management team which refl ects the same
structure as the group executive, represented
by key operational and strategic functions.
We have also extended the group
executive team to include the key functional
areas of corporate communications and business
development to ensure that these topics are
given the highest profi le and to input to the
group strategy as it continues to develop.
These changes have provided us with the
opportunity to ensure we have very high quality
management in all of the key positions and, where
necessary, we have brought new people on board.
I’m very excited about the opportunities this
brings both in terms of strategic development
for the business, but also for succession planning
and best practice sharing.
What were the biggest challenges
that you faced in the year?
One of the key challenges was a slight shift in
focus of some of our key customers – naturally in
a time of economic uncertainty, thoughts switch
to short-term issues and cost control, which can
stifl e creativity and longer term strategic thinking.
Some customers are delaying decisions about
the long term, and in particular on outsourcing,
until they feel they have come through the worst
of the current crisis. I have no doubt that this will
be back on the agenda soon, but we have sensed
an overall slowing in customers making strategic
decisions in the last 12 months.
The change of government in the UK market
created some challenges for our UK business
in the year. As part of the Comprehensive
Spending Review, we were tasked with helping
key UK Government departments to achieve
signifi cant savings which would assist in relieving
the UK budget pressures. In November 2010,
we announced that we had reached agreement
on a number of cost saving initiatives with the
UK Government, achieved largely through
specifi cation amendments on existing contracts.
In the longer term, we believe there are a number
of areas where the private sector can deliver
further cost savings to government as a result
of opportunities for more extensive outsourcing
to the private sector.
12
G4S plc Annual Report and Accounts 2010
Chief Executive’s interview
Looking forward
We’ve put a strong
and experienced
management team
in place.
In 2010, four new Regional CEO roles were created
to represent a new geographic continental management
structure that will further underpin the group’s global
strategic development. Three Regional CEO roles have
been fi lled by senior managers and one externally to
broaden the management team. Key senior functional roles
for business development and corporate communications
were also added to the Group Executive team.
Nick Buckles
Group Chief Executive
Trevor Dighton
Chief Financial Offi cer
Søren Lundsbberg-Nielsen
Søren Lundsberg-Nielsen
Group General Counsel
Ken Niven
Divisional CEO – Cash solutions
Debbie McGrath
Group Communications Director
Graham Levinsohn
Group Strategy and
Development Director
What were the highlights in terms
of business performance?
We performed well on all of the key fi nancial
metrics. Organic turnover growth was 2.1%,
operating profi ts were up by more than 4%,
margins were maintained at 7.1% and we achieved
our operating cash fl ow target of 85% of PBITA.
We announced our entry into the Brazilian
market in June 2010, with the acquisition of
Instalarme, a specialist security systems company.
This was closely followed by the further acquisition
of systems integrator, Plantech. Brazil is one of
the largest security markets in the world, with
excellent growth prospects and has been a priority
market for us for some time.
During the year, we have continued to develop
our ability to offer international contracts to
major customers, ensuring high levels of security
for operations across international borders.
Some of our major contract wins include large
international banking groups, technology
organisations and pharmaceutical companies.
At the same time, as part of our strategy
development, we have created a group of
key sector experts, with the ability to spread
expertise and knowledge and to act as a catalyst
to drive business development in key sectors.
This has resulted in strong results, with aviation
sector revenues up by nearly 30%, ports up by
64% and the oil and gas sector growing by 35%
in 2010.
There were some key contract wins during
the year including GSK internationally, Brussels
airport, Baghdad airport, the Swedish Parliament,
Lukoil in Iraq and multiple contracts for our
CASH360 product, to name but a few.
In order to continue to share best practice,
develop our management and continue to plan
for future succession, we created a Strategic
Leadership Network; a group of around
25 senior managers and directors responsible for
a signifi cant proportion of the group’s revenues.
By investing in the development of this group
of leaders, we can drive forward the delivery
of the group’s strategy over the longer term.
Outside of the direct business performance,
we were pleased to be a founder signatory to
an industry-wide International Code of
Conduct (the “Code”) in November 2010,
which sets out principles for security operations
in so-called “complex environments” – areas
experiencing or recovering from disaster or
unrest and where governments and the rule of
law are weak. We hope that the Code will help
to drive up standards across the industry as the
private sector is called upon to provide increased
levels of services to governments and businesses
in diffi cult environments and continues to touch
the lives of millions of people worldwide.
Strategy
What is the current business
strategy for the group and has that
changed in the last 12 months?
There have been no changes to the business
strategy. We still believe there is long-term value
to be derived from creating security solutions
which solve customer problems, using our cash
cycle expertise to drive changes in banking policy,
working closely with governments and leveraging
our strong market positions in developed and
New Markets. We believe that this will drive
outsourcing, reduce commoditisation of security
services and deliver strong results for the group.
G4S plc Annual Report and Accounts 2010
13
Grahame Gibson
Chief Operating Offi cer and
Regional CEO – Americas
Willem van de Ven
Regional CEO – Europe
Irene Cowden
Group HR Director
Dan Ryan
Regional CEO – Asia Middle East
David Taylor-Smith
Regional CEO – UK and Africa
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What progress have you made
on delivering the group strategy
during 2010?
Overall, what pleases me most is that customers
are recognising that G4S can add real
value to their organisation. Our positioning
has moved signifi cantly and many more of our
conversations with customers are taking place
at the boardroom level, and are covering aspects
of risk and reputation rather than basic security
needs. It could partly be a result of the world
we now live in, but I get a strong feeling that
customers are recognising that we can positively
infl uence their own strategy – whether that’s
increasing their own revenue, managing their cost
base, reducing their risk or helping to improve the
service that they provide to their direct customers.
We have also made good progress in key
sectors, with our sector specialists bringing
together group-wide capability and expertise to
enable us to bid for and win key contracts in areas
such as aviation, major events, justice services and
defence – something which wouldn’t have been
possible two to three years ago.
Outlook
What are the short-term priorities
for the group – perhaps for the next
12 to 18 months?
We saw some improvements in the second
half of 2010, but whilst some economies are
making a slow recovery, others such as Ireland
and Romania have slipped further into negative
territory and have proved even more challenging.
Overall, we have continued to grow the
business despite GDP being negative overall –
a strong achievement against the economic
backdrop of the recent past.
So, in 2011, we will continue to drive the
group strategy forward whilst bedding in the
new group structure which will help us to make
faster, better decisions and ensure we continue
to have good controls across the business.
It would be great to win some major
contracts in the fi rst half of 2011 and we have
made an excellent start by being appointed the
offi cial security services provider for the London
2012 Olympic and Paralympic Games. I know our
business development teams are working hard to
ensure that we have a strong contract pipeline
going forward.
We expect to step up our acquisition
activities, with a particular focus on growing
our presence in the fast growing New Markets.
We should spend around £200m in 2011.
What targets are you setting yourself
and your senior management team?
Our targets are unchanged. We expect profi ts to
grow well ahead of worldwide GDP and over the
longer term, will continue to focus on improving
our post tax return on invested capital, a good
measure of strategic performance. We expect
organic growth to return to high single digit levels
as economies improve.
How would you summarise the general
outlook for the group in the mid-term?
The group achieved strong results in 2010, with
businesses performing well across all markets,
service lines and customer segments. We are
confi dent that our strategic plan, which enhances
our ability to meet increasingly sophisticated
customer needs by adding new capabilities and
technologies to our offer, has put the group in a
strong position. It allows us to maintain our longer
term growth momentum as we pursue attractive
global opportunities in our key target sectors.
We will continue to build on our successes and
remain confi dent about the outlook for 2011, when
we expect to deliver an improved organic revenue
growth performance whilst continuing to maintain
our discipline on margins and cash generation.
Nick Buckles
Chief Executive Offi cer
14
G4S plc Annual Report and Accounts 2010
Strategy delivery
We deliver effi cient and
bespoke security solutions
for our customers
Diverse market
and customer expertise
One of the strengths of G4S is its broad
customer and geographic base. We have
thousands of customers ranging from small local
companies to some of the largest governments
and global corporations in the world.
The duration of contracts also varies – from high
profi le annual contracts, to secure sporting or
entertainment events, to 25 year government
contracts for the construction and management
of prisons.
We pride ourselves on focusing on customer
needs and delivering high quality customer
services – this is demonstrated in our customer
retention rates which average above 90%
annually across most regions.
Our goal is to build long-term relationships
with our customers so we can help them to:
k Increase their revenues
k Manage their costs
k Manage their risks and protect their
critical assets
k Improve the service they deliver to
their customers
How we manage our business
At a strategic level, the CEO and CFO monitor
the group’s investments by the two main product
areas of secure solutions and cash solutions,
which have different business models. At an
operational level, our business is managed on
a geographic basis. We have four major regions
and one major division, all with a Regional or
Divisional CEO, each with responsibility for
around £1.5bn revenues.
Each region has a spread of market and cultural
environments – this is a key area of competitive
advantage for the group, especially in New Markets.
The group executive is responsible for ensuring
best practice is shared, setting strategy and policy.
The group has invested in key sector expertise
and business development capability which can
be leveraged across the businesses.
Managing international customers
G4S created its International Accounts Division
(IAD) in 2008 to address the increasing needs of
global companies to ensure the highest standards
of security and safety across operations in
multiple countries.
The IAD team has dedicated resources
around the world and overall responsibility
for administering multinational customer
relationships. Regional directors oversee local
foreign fi eld operations within their respective
region and ensure they are compliant with global
policies and standards as well as local regulations.
This unique programme has enabled the group
to grow its international accounts base and to
win new global contracts in key sectors such
as technology, banking and pharmaceuticals.
Acquiring capability
In the last few years, G4S has made
a number of capability-building
acquisitions in areas such as risk
consultancy, systems integration and
sector expertise in areas such as Oil
and Gas, Utilities and Ports. As a
result, since 2008, G4S has invested
£800m in acquisitions that contribute
signifi cant revenues and profi ts and
will enable the group to generate
future growth. All acquisitions are
required to meet the group’s stringent
return on invested capital targets
and are reviewed on a regular basis.
GSL
Management of critical
infrastructure and
expansion into new
government sectors
and geographies
MJM
New investigations and
compliance skills
Touchcom
Security consultancy,
design and systems
integration
SMI
Creating additional cash
management expertise
focused on central banks
consultancy work
March 2008
RockSteady
Expansion of major
event security and
safety capability
RONCO
Expansion of mine
action capability
ArmorGroup
Additional skill in
protective security
solutions for governments
and multinationals.
New specialist capabilities
– mine action and risk
consulting
G4S plc Annual Report and Accounts 2010
15
Top 10 International Accounts
Division customers
Leveraging expertise
across New Markets
G4S has an unrivalled geographic footprint
which has been developed over many years.
That means its management has extensive
experience of working in sometimes
complex environments, and has a detailed
understanding of how to deliver business
results in these countries.
46%
16%
14%
11%
13%
G4S is able to export its knowledge and
experience gained from more mature markets
into New Markets, particularly in the areas
of product development and outsourcing, which
drives market growth whilst often improving
standards in the industry.
(cid:81) Financial
(cid:81) Oil and Gas
(cid:81)(cid:3)Pharmaceutical
(cid:81) Communication
(cid:81) Technology
Case study
We’re building on strong positions
in growth regions.
During 2010, G4S entered the dynamic Brazilian security
market. Brazil is the fi fth largest security market in the
world with estimated annual revenues of around £4bn.
The market has sustainable growth expectations
supported by excellent economic prospects helped by
vast natural resources and some one-off boosts from the
2014 World Cup and 2016 Olympics.
G4S entered Brazil through the acquisition of two
systems integration companies – Instalarme and Plantech,
both leaders in their areas and with national coverage.
Over the course of the next few years, the group intends
to expand its security offering to include risk consulting
and manned security.
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Hill & Assocs.
Risk consulting
and mitigation
Adesta
Bringing additional
expertise in ports
capability, systems
integration and project
management
Instalarme
Entry into dynamic Brazil
market – leading security
systems business
All Star
Extending secure
facilities management
expertise in high
security government
departments and sectors
SecPoint
Market leader in security
systems in fast-growing
Ghana market
NSSC
Additional consulting
and specialist nuclear
power expertise
Plantech
Leading systems
integration business
in Brazil
January 2011
16
Resources
G4S plc Annual Report and Accounts 2010
We have the optimum
level of resources in place
to ensure we deliver…
Overview
To be able to deliver our strategy and the best
value to customers, we have to ensure we have
the optimum level of resources available to us.
This includes:
k Our people and values
k Technology
k The G4S brand and reputation
k Financial resources
People
We aim to ensure that we recruit the right
people for the right roles and that employees
feel listened to and supported in their
working lives. We do this through focusing on
workforce stability and employee engagement
by means of one of the largest series of global
employee surveys.
We have 625,000 employees and take great
pride in the important work they do to ensure
the security and safety of our customers and
their assets. Keeping our people safe is our main
priority through essential health and safety
standards and training.
We also invest in the development of our
managers to ensure that we have the expertise
to continue to drive the strategy forward
through all levels of the organisation and ensure
high quality succession planning.
625,000*
*Number of employees at year end December 2010
Europe
122,100
North America
54,100
Latin America & Caribbean
51,600
Africa
104,400
G4S plc Annual Report and Accounts 2010
17
Our values
G4S aims to act responsibly in how it manages relationships with customers,
communities, employees and other stakeholders. The 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 benefi t 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 benefi t 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
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Technology expertise
Brand
The most effi cient security solutions for customers
increasingly involve security systems and systems
integration expertise.
G4S technology can be found in a diverse range
of markets including government, education,
fi nance, transportation, healthcare and utilities.
We serve these industries throughout the world,
protecting everything from small offi ces and
schools to large multinational organisations
and high security government facilities.
We design, manufacture, install and maintain
leading edge security solutions to protect our
customers’ staff, assets and premises.
In recent years, G4S has widened its security
systems expertise into New Markets such as
Brazil, with the acquisitions of Instalarme and
Plantech, and South Africa with the acquisition
of Skycom. G4S has also acquired leading security
systems integrators in key sectors such as ports,
energy and critical national infrastructure through
the acquisitions of Adesta and NSSC.
We believe the combined offering of risk
consulting, manpower and technology is a key
differentiator for the group.
G4S was created in 2004, through the merger
of Group 4 and Securicor. Today, just seven years
later, the G4S brand is widely recognised as a
leader in security solutions. This is particularly the
case in our major developed markets and some
key New Markets where we are one of the
few international security companies with a
local presence.
Financial resources
The group continues to have strong cash fl ow
generation, equivalent to 85% of PBITA in 2010
and this is one of the key performance indicators
for G4S management. In addition, the group’s
funding position is strong, with suffi cient
headroom and available committed facilities to
fi nance current investment plans. For more details
of our fi nancial resources, please see the Financial
review on pages 44 to 49.
Financial review
44–49
Middle East
46,900
Asia Pacifi c
245,600
18
G4S plc Annual Report and Accounts 2010
Market overview
Focusing on structural growth
markets and sectors within the
global security market
Key security market trends
Consistency of global approach
The global market
£75bn
The potential global outsourced security market has
been estimated as having annual revenues of c£75bn
Source: Freedonia, Frost
& Sullivan, Turner & Townsend,
G4S analysis
Balance the needs of customers to cut
costs and maintain security
Recent economic trends have put pressure on
the security industry to recognise the needs of
customers to cut costs without increasing risks.
The industry has therefore had to be creative
with its combination of technology and manpower
to remove costs without compromising security
levels or customer service standards.
(cid:81) Industrial
(cid:81) Government
(cid:81)(cid:3)CNI Energy/Utilities
(cid:81) Financial Institutions
(cid:81) Commercial
(cid:81)(cid:3)CNI Ports, Airports/Rail
(cid:81) Retail
By sector
Innovative technology
This has seen security providers turning to
in-house or external technological innovations
such as access control, remote monitoring and
incident capture and response – sometimes
in very remote or geographically challenging
locations – without the overheads of large scale
manpower (see case studies on pages 24 to 31).
23%
20%
15%
15%
12%
10%
5%
The largest outsourced sectors in the global
security market are areas such as government
and critical national infrastructure (CNI) and
these sectors are where G4S has focused
its strategy.
By geography
The developed markets of the US and the UK
are some of the largest security markets in the
world. However, there are some large and
rapidly growing security markets in developing
economies such as Brazil, Iraq and Turkey.
G4S currently derives more than 29% of its
revenues and 33% of its profi ts from these
New Markets. With our recent entry into Brazil,
they are likely to be a growing proportion of
group revenues and profi ts.
Customers are also increasingly looking to the
security industry to provide a consistent approach
to managing their risks worldwide (see case studies
on pages 24 to 31). This has been the case in the
pharmaceutical and chemicals sectors, and is a key
driver of future growth across aviation, ports and
maritime, and oil and gas markets.
Government outsourcing opportunities
Economic pressures will continue to drive
both creativity and future opportunities for
the security industry. In the UK, G4S is one of
20 leading government suppliers being asked
to help rebalance the country’s budget defi cit.
We believe that in the medium-term outsourcing
opportunities will help us demonstrate our
innovation and give us additional long-term
growth potential.
Government outsourcing opportunities are
expected to continue in both developed and
emerging markets as the focus on security threats
increases, and the pressure on public sector and
commercial budgets lead to more outsourcing and
the chance to leverage private sector innovation
(see case studies on pages 22 and 23).
Risk management
Finally, security and risk management have to be
an integral part of corporate strategy in today’s
challenging climate and the security industry
is working with customers to incorporate this
into the customers’ business (see case study
on page 25).
G4S plc Annual Report and Accounts 2010
19
G4S major markets
£100m+
With operations in more than 125 countries, G4S is truly a global security
services provider. The map below shows the size of some of the larger
security markets (in £ revenue per annum) and within those markets the
scale of G4S’s presence.
G4S markets with revenues of more than £100m
G4S markets with revenues of less than £100m
No G4S operations
South/Central Europe
North Europe
UK
£6,000m
Netherlands
£2,000m
Turkey
Poland
Russia
Sweden
Belgium
Denmark
Norway
Finland
Ireland
£1,100m
Romania
£700m
£650m
£500m
£450m
£400m
Austria
Czech
Hungary
Ireland
Greece
£1,500m
£1,000m
£1,000m
£600m
£500m
£500m
£400m
£400m
£400m
Asia Pacifi c
China
Australia
Thailand
Malaysia
Taiwan
Indonesia
£7,000m
£1,300m
£600m
£500m
£400m
£100m
North America
US
Canada
Mexico
£20,000m
£1,500m
£1,000m
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Latin America
Brazil
£4,000m
Argentina
£1,000m
Colombia
Peru
Chile
Venezuela
£750m
£500m
£450m
£250m
Africa
Middle East
South Asia
South Africa
£1,500m
Nigeria
£500m
Iraq
Israel
Afghanistan
Saudi Arabia
£1,000m
India
£650m
Kazakhastan
£400m
£650m
£500m
£400m
20
G4S plc Annual Report and Accounts 2010
Market overview continued
G4S major market positions – secure solutions
G4S has strong secure solutions market positions in most of the countries
in which it operates. The chart below shows G4S geographic presence and
highlights those markets where G4S has a top three market position.
125+
Countries where secure solutions operates
Top 3
Below top 3
Brazil
New market entry in 2010
G4S plc Annual Report and Accounts 2010
21
G4S major market positions – cash solutions
G4S has cash solutions businesses in more than 70 countries
and in the majority of those countries is the market leader.
70+
Countries where cash solutions operates
Number 1
Number 2
Number 3
Below top 3
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G4S plc Annual Report and Accounts 2010
Investment proposition case studies
These case studies show the type of work we do for customers
to demonstrate our investment proposition
Government partnerships
Providing cost
effi cient
front line services
At G4S, we draw on our global experience of working with governments
to secure government buildings and key assets around the world, support the
justice and security strategies of nations and ensure that government personnel
are well prepared to operate in some of the world’s confl ict hotspots.
Developed Markets
UK
G4S is a major supplier to the UK Government
in a number of areas including:
k Construction and management of prisons
k Tagging and monitoring of offenders
in the community
k Facilities services for schools and
healthcare buildings
k Protection of UK embassies and other secure
facilities in the UK and overseas
k Provision of support services to the police
and armed services
The Comprehensive Spending Review conducted
by the UK Government in 2010 called on major
suppliers to help the Government fi nd signifi cant
short-term savings. At the same time, it highlighted
new opportunities where the Government
could outsource to the private sector in the
future, to increase effi ciencies and make
further cost savings.
In the medium term, the group believes there
are a number of areas where the private sector
can deliver further cost savings as a result of more
extensive outsourcing and this will enable G4S
to grow its market share in this area.
k Short-term changes to contract specifi cations
k Short-term opportunities through the
bidding pipeline
k Medium- and long-term opportunities through
more extensive outsourcing
G4S plc Annual Report and Accounts 2010
23
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New Markets
South Africa
On 1 July 2011, Mangaung Correctional
Centre (MCC) celebrates its tenth anniversary.
It will be able to showcase a decade of successful
contribution to the South African correctional
environment, international accolades and
accomplishments, and the economic impact
it has had on the local Mangaung community.
To enhance the safety of the community and
contribute to a safer society after the release
of inmates, G4S invests heavily in the personal
development of offenders. Professional staff,
including social workers, psychologists and
education professionals, deliver various
developmental programmes to address
offending behaviour.
These interventions are also available to the
community and the focus is on creating secure
environments for children to grow up in and
preventing “at risk behaviour”. The school desk
project, run by MCC, has donated 1,119
revamped school desks to disadvantaged schools
in the Mangaung area since its inception in 2006.
Six hundred Grade 11 and 12 learners received
maths and science education in the school
holiday period during the World Cup in 2010,
contributing to improved pass rates in these
subjects, in their fi nal exams.
k High quality care
k Numerous community initiatives
k World-class reputation
k Bidding on four more private prisons
in South Africa
24
G4S plc Annual Report and Accounts 2010
Solutions approach
Leveraging expertise
around the world
Each of our individual areas of expertise is a driver of value for the
group, but together they create a whole solution for a customer. 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.
Developed Markets
Introducing SecureTrax™
to the UK
One of the challenges within the security industry
is the need to manage a large remote workforce,
while ensuring that the contracted tasks are
fulfi lled. G4S North America decided to invest in
technology which would meet our specifi c needs,
report in real time and have an event monitoring
function, thereby increasing the value of our
security personnel in the fi eld. The incident
management analysis helps users identify trends
and implement preventative measures to avoid
potential damage and associated costs.
Learning from the expertise we have developed
in the Americas, SecureTraxTM will be deployed
internationally within G4S during 2011. The
technology was launched in the UK security
market at the end of 2010, and is helping to
improve safety and security as well as saving time
and reducing costs for customers. Pilot markets
within which SecureTraxTM will be deployed
during the fi rst half of 2011 include Europe, Asia,
Australia and the Middle East.
k Monitors remote workforce
k Real time reporting
k Increases value of security personnel in the fi eld
k Analysis of incident management data helps
identify trends and can prevent future incidents
G4S plc Annual Report and Accounts 2010
25
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New Markets
Risk consultancy
G4S Risk Management is a leading provider of risk
mitigation, secure support services and integrated
solutions to governments, international agencies,
small to medium sized businesses and multinational
corporations. We enable organisations to operate
safely and securely, wherever they are in the
world, including those environments that are
complex or sensitive.
Our risk consulting business works with clients
to help them identify, assess and mitigate risks
to their operations. This multi-disciplined team
brings together sector and subject matter
expertise, enabling clients to manage their risk
profi le dynamically. From crisis response in the
Middle East, resilience planning in the UK, through
to early development of risk mitigation strategies
in sub-Saharan Africa, risk consulting allows
clients to take advantage of opportunities
around the world.
Core areas of expertise include geopolitical
intelligence on threats and hazards worldwide,
the development of strategic plans to ensure
effective operational design and complete
project management, risk mitigation, business
continuity and resilience, and crisis management
for customers.
k Risk consulting initiates and maintains
relationships at the most senior levels within
its customers’ organisations
k Early involvement in design and operational
procedures maximises effi ciency and
reduces costs
k Key role in crisis management and ensuring
business continuity for customers
26
G4S plc Annual Report and Accounts 2010
Integrated security solutions
Global bespoke
security solutions
for customers
G4S designs and manages security solutions that bring together our capabilities
including 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.
Developed Markets
GSK
Designing and implementing an integrated
security solution for customers means we help
to solve their security challenges by offering
a bespoke solution for their requirements.
A good example of this is our contract with
GlaxoSmithKline (GSK), one of the world’s
leading research-based pharmaceutical and
healthcare companies. GSK is keen to ensure
the safety of its employees, facilities and valuable
products on a global basis.
In March 2010, G4S was awarded a fi ve-year
international contract by GSK for the provision
of security services. Under the contract, G4S
centrally manages GSK’s security services from
the UK, delivering consistent, co-ordinated and
effi cient operations, training and standards under
a four-part roll-out across GSK’s entire security
portfolio in 79 countries. G4S offers a broad range
of security services to ensure the right security
solution is delivered for each site.
k Bespoke high quality security solution on
a global basis
k Consistency of approach helps develop global
KPIs and data management
k Growth opportunities through
additional services
G4S plc Annual Report and Accounts 2010
27
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New Markets
Protecting critical
national infrastructure
In some developing markets there is a need
to protect mobile telephone masts, particularly
when they are located in remote locations.
Because of their remoteness, the masts have
on-site generators to power them and due to
the value of the diesel that fuels the generators,
are vulnerable to damage and theft. Historically,
most protection has been carried out by manned
security offi cers. This is not ideal because of the
risk to them of potential attack.
Our new service for customers is an integrated
solution of remote monitoring, access control,
deterrent systems and a fast response team. In
addition, we have created a “one-stop” service to
reduce costs to customers by being able to offer
facilities management at the sites too – supplying
fuel and fi rst-level maintenance to the masts.
k Integrated solution – security and
facilities management
k Helps secure critical national infrastructure
in remote locations
28
G4S plc Annual Report and Accounts 2010
Unrivalled cash solutions expertise
Driving effi ciency
in cash management
Understanding and managing the cash cycle of a country is a core skill
of the group. Central banks, commercial banks and retailers outsource their
entire cash management to G4S as we have the capability and experience
to drive substantial effi ciencies in the system whilst achieving the maximum
return for our customers over the long term.
Developed Markets
G4S Cash Solutions UK
With a sustained period of low interest rates
the drive to bank cash as quickly as possible has
reduced signifi cantly within our customer base.
This, combined with an economic downturn,
has led to some retail and banking customers in
the UK rationalising their services. The challenge
in the UK has been to fi nd new ways to bring
effi ciencies to our customers’ operations.
Offering comprehensive outsourcing solutions
and expert cash management technology,
such as the revolutionary CASH360 system
(see page 39), G4S Cash Solutions UK is able
to create effi ciencies for its customers in a
tough economic environment.
With a relatively fi xed cost-base G4S has also
worked pro-actively to reduce its operating
costs through continuous improvement
programmes. These have ranged from improved
staff engagement and enhanced customer
communications to the implementation of
new technology to handle and protect our
customers’ cash.
k Smart collective agreements and engagement
with all staff
k Engaging with customers to work on most
effi cient routes
k Industry leaders in new technology
to reduce attacks
k Continuous improvement programmes
G4S plc Annual Report and Accounts 2010
29
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New Markets
Standard Chartered Bank
Standard Chartered Bank (SCB) celebrated
its 150th anniversary in Hong Kong in 2009, and
G4S has enjoyed a long association with SCB in
the region both as a supplier and as a banking
customer. Replenishing ATMs and collecting from
cash deposit machines are among the services
that G4S has historically provided, alongside
a variety of other suppliers who took care of
maintenance and technical issues. With so many
links in the chain, there was a possibility that
ATMs could be out of order or out of cash for
longer periods than acceptable.
Since mid-2009, SCB has outsourced its entire
cash machine operations to G4S. By giving
G4S responsibility for managing all aspects of
the ATM chain – SCB now has an end-to-end
solution. Within six months this resulted in
improved service levels and therefore improved
customer satisfaction, as well as providing greater
fl exibility in the roll-out of new machines.
k End-to-end integrated solution
k Cost-effective
k Improved service levels and end
customer satisfaction
k Greater fl exibility to roll-out new equipment
30
G4S plc Annual Report and Accounts 2010
Strong New Markets positions
Structural growth
markets
Our global presence, market share 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 structural growth opportunities as they develop over time.
In many cases we are able to drive that development forward to the benefi t
of our customers and our business.
Developed Markets
Agilent
Agilent Technologies, Inc (Agilent) is an analytical
instrument manufacturing company, with
more than 170 locations in nearly 30 countries.
For many years it used more than a dozen
security suppliers around the world to fulfi l its
security requirements. A few years ago, Agilent
decided it was time to move to one provider –
a “one-stop shop” that could provide all security
solutions in all its markets.
The general guidelines Agilent drew up to help
choose a single provider pointed to a company
with strong leadership, deep knowledge,
investigative expertise, technical support for
their worldwide security systems and the ability
to carry out their existing educational and risk
assessment programmes to new levels.
It was based on all these qualities that G4S
was selected and now provides manned security
in 14 countries at 48 sites and systems support
in 26 countries
k G4S chosen as a “one-stop shop” to provide
all security solutions
k Provide a consistent approach across nearly
30 countries
k Provide thought leadership and expertise
G4S plc Annual Report and Accounts 2010
31
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New Markets
United Arab Emirates
G4S in UAE is truly a multinational business,
employing 42 different nationalities, including
11 different nationalities in the management team.
The competitive strength of the group in UAE
is due to the experience and local knowledge
of the management team and their ability to
provide a complete solution to customers.
G4S’s main customers in UAE are government
agencies including embassies, critical national
infrastructure and key sectors such as
telecommunications, aviation, fi nancial institutions
and retail. Many customers expect the most
sophisticated security solutions available.
The UAE business has also experienced strong
growth through new expertise and capabilities
acquired by the group over the last few years.
Examples include specialist events such as
the Grand Prix and risk consultancy through
Hill & Associates, acquired in 2010.
Another key area of competitive advantage
is the quality of G4S’s operational employees
in UAE. Health & safety initiatives, social and
welfare programmes, employee engagement
and mentoring programmes for employees often
many thousands of miles from home, are a key
differentiator for the business, both as an
employer and with customers.
k Strong and experienced management
k Sophisticated security solutions requirements
k Employee welfare and mentoring programmes
are a competitive differentiator
k Strong growth through government agencies
and specialist events
32
G4S plc Annual Report and Accounts 2010
Divisional review
Secure solutions
The secure solutions business provides a broad range of solutions
to both commercial and government customers. G4S secure solutions
uses its 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. This will result
in an increased number of long-term strategic customer partnerships across
the group.
Sectors
Turnover by
Sector
(cid:81) Government
(cid:81) Major Corporates and Industrials
(cid:81)(cid:3)Financial Institutions
(cid:81) Energy and Utilities
(cid:81) Retail
(cid:81)(cid:3)Ports and Airports
(cid:81)(cid:3)Consumers
(cid:81)(cid:3)Transport and Logistics
(cid:81) Leisure and Tourism
34%
29%
8%
8%
7%
5%
5%
2%
2%
Services
G4S provides a range of secure solutions
to customers including:
k Risk management and consultancy services
k Secure facility outsourcing
k Electronic monitoring of offenders
k Manned security services
k Electronic security systems
k Monitoring and response services
k Management of adult and juvenile
custody facilities
k Aviation security services
k Fire protection and emergency response
k Security training services
k Project management
Contracts and relationships
The duration of contracts varies – from high
profi le annual events such as Wimbledon and the
Ryder Cup to 25 year private prison contracts.
However, even when the contract terms are
short, in practise many relationships become
long-term and result in contracts renewed year
after year. This is demonstrated in our customer
retention rates which average above 90% across
most regions.
Strategy
k Use our expertise and geographic presence to differentiate our business
k Drive outsourcing and minimise commoditisation of traditional security services
k Offer an integrated security solution to customers
Key operational highlights
k Strong growth continued in New Markets
k Signs of recovery in some developed markets
k Strict cost control and improved business mix helped grow margins from 6.8% in 2009
to 6.9% in 2010.
KPIs
During 2010, the secure solutions business achieved good organic growth of 2.8% and margins
were up on the same period last year to 6.9%
Turnover*
£m
PBITA*
£m
3,795
4,281
5,312
5,738
6,047
243
282
351
392
419
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Organic growth*
%
PBITA margin*
%
6.9
8.7
8.6
3.5
2.8
6.4
6.6
6.6
6.8
6.9
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
* 2006 to 2009 at 2010 exchange rates and excluding
all businesses disposed of during the period.
G4S plc Annual Report and Accounts 2010
33
Customer needs and drivers for key sectors
2010
2010
20010 0
Government
turnover by
ver
turnovvovenovver by
Revenues by
non
Re
RRegion
Region
Region
(cid:81) UK
(cid:81) US
(cid:81)(cid:3)Rest of World
Government
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 confi dence
in private sector involvement.
9%
10%
9%
Government contracts accounted for around
34% of secure solutions revenues and 28% of
total G4S revenues in 2010 and are split broadly
into three geographic areas – UK, US and Rest
of World.
We anticipate further government outsourcing
opportunities will arise in developed markets
as pressure on public spending intensifi es and
government departments seek to manage
their budgets, without compromising on service
delivery standards or the integrity of vital front
line public services. This expertise, particularly in
Care and Justice Services, can then be exported
into developing markets.
$100bn
of port operators’ investment in building new
green/brown fi eld terminals globally
480m
containers being moved around the world every year.
Container and port facility security is an area of
growing focus
Ports and Airports
We ensure the safe passage of travellers, crew
and cargo and the effi ciency 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
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 to cost-
effective, fl exible security providers who have
consulting capability, new technology integration
expertise and who can redesign systems
and interfaces.
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. Key opportunities for the port
sector lie with the large international private
port operators, who have collectively committed
more than $100bn of investment in building new
green/brown fi eld terminals globally to expand
their portfolios and capacity, including $60bn
announced recently in India.
Oil and Gas
With ever growing pressure on energy providers
to secure supplies for years to come through
investment in new production plants and the
protection of vital resources, security has come
to the fore in the energy and utilities sector.
The market for security across much of the
energy market has been led by regulation,
particularly of nuclear power.
Increased regulation is driving a focus on
cost effi ciency, robust asset protection and
on intelligence and risk-led security capabilities,
together with experience of security provision
within challenging and unpredictable environments.
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.
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G4S plc Annual Report and Accounts 2010
Divisional review
Secure solutions performance
“ We believe our work with the UK
Government on its Comprehensive
Spending Review has delivered
signifi cant cost savings for them and
provided potential further outsourcing
opportunities for G4S.”
David Taylor-Smith
Regional CEO – UK and Africa
Europe
Organic growth in Europe was 0.6% and margins
were slightly higher due to excellent cost control
across the region.
UK & Ireland
There was good organic growth of 3.8% in the
UK & Ireland and margins strengthened further
to 8.7% helped by continued strong performance
of the commercial and government businesses,
and despite revenue and margin reductions
in Ireland.
Key UK Government contract wins in 2010
included a number of major contract extensions
such as:
k taking over the national security contract for
the Department of Works and Pensions which
was mobilised on 1 January 2011
k a further extension of the Electronic Monitoring
contact into 2013
k strong growth in the services we deliver to the
Olympic Delivery Authority
k opening a new large prison wing at HMP Parc
G4S is bidding for a number of UK Government
contracts and has been shortlisted by the
Department for Work and Pensions to bid to
deliver welfare-to-work services in seven out of
the eleven UK regions. We expect the results of
all these bids in 2011. G4S signed a memorandum
of understanding with the UK Government which
will deliver savings to the government largely
through re-designing service provision.
North America
Organic growth in North America was 2.2%
and margins were slightly higher due to a greater
proportion of solutions-based contracts, rigorous
cost control with reduced overtime levels and
lower employee turnover.
In the United States there was higher growth
in the commercial sector during the second half
of the year and the business entered 2011 with
greater organic growth momentum than twelve
months ago. Whilst the outlook for new US
federal government outsourcing contracts in the
short term is quite muted, federal government
stimulus funding continues to drive the G4S
Technology business with the opening 2011
order book well above 2010 levels. Government
at a state and local level will present more
opportunities as the pressure to look for more
effective public service increases and leads to
greater use of the private sector over the
medium term.
Recent contract awards include work in the
chemical, federal and retail sectors and additional
locations for Shell and Cargill. Contracts re-won
include work for a nuclear power station and
county sheriffs’ offi ces. Overall customer ratings
were excellent and further growth opportunities
exist both domestically and internationally with
the existing customer base as well as with
new prospects.
All our recent acquisitions in the US performed
extremely well during 2010 and recorded
growth and fi nancial performance either in line
with or ahead of expectations.
In Canada, the organic growth rate was over 6%
with a number of large contracts starting during
the second half including Shell, GSK, the Canadian
Border Authority, a large fi nancial institution and
Kingston Hospital in Ontario. In addition, with
support from around the group, the Canadian
business is bidding on the opportunity to provide
security solutions across airports in Canada.
“ Whilst the outlook for new US
federal government outsourcing is
muted, federal government stimulus
spending continues to drive the
G4S technology business.”
Grahame Gibson
Chief Operating Offi cer
Regional CEO – Americas
The secure solutions business consolidated its
position as the leading manned security provider
in the UK with organic growth of 6%. Commercial
contracts won include smart meter installation
contracts for four major utility providers,
re-winning a three year contract with Northern
Rail, the UK’s largest train operating company,
a three year contract to provide security services
at Belfast City Airport and G4S continues to
roll-out global security contracts for international
clients such as GSK and Shell.
Trading conditions in Ireland remained challenging
in 2010 but our underlying trading was helped
by prompt management action to address these
issues. G4S was part of the consortium that
delivered the new Dublin Criminal Courts PFI
project ahead of schedule.
Continental Europe
The Continental Europe region performed well
against an extremely diffi cult economic backdrop
in Eastern Europe and we believe we have
continued to gain market share with our solutions
strategy outperforming single service providers.
Overall organic growth was -1.9%, but margins
were slightly above the prior year at 5.4% due to
excellent cost control. Revenues for the security
systems business, which accounts for around
30% of Continental European secure solutions,
declined by 4%. Strong performers included
Norway, helped by the Oslo airport contract,
and Netherlands where G4S recently won the
ProRail contract. In Belgium, G4S was successful
in winning the Brussels airport security contract
for up to fi ve years from February 2011 and
security for the European Commission building
from April 2011. In Sweden, G4S has won the
contract for the Swedish Parliament Administration
from March 2011.
In Israel, G4S is the preferred bidder for a PFI
police training academy which has a 25 year
contract term and G4S has won two immigration
accommodation contracts in Cyprus.
In Eastern Europe, we expect a return to
revenue growth in 2011, especially in markets
such as Kazakhstan and the Baltics, and
increased profi tability after some re-structuring
in the region.
G4S plc Annual Report and Accounts 2010
35
Total
Europe*
North America*
New Markets*
Turnover
TurTurnovnoverer
£m
£m
2009
2009
2010
2010
2,617
2,612
1,676 1,524
1,754 1,602
Total secure solutions*
6,047 5,738
Exchange differences
–
(70)
PBITA
PBIPBITATA
£m
£m
2009
2009
MarMarginginss
Margins Organic growth
OrgOrganianic gc growrowthth
%
%
%
%
2010
2010
2009
2009
2010
2010
6.9% 6.7%
5.7% 5.6%
8.2% 8.2%
6.9% 6.8%
175
86
131
392
(4)
0.6%
2.2%
7.1%
2.8%
2010
2010
180
96
143
419
–
At actual exchange rates
6,047 5,668
419
388
Europe
UK & Ireland*
Continental Europe*
Total Europe*
America
Turnover
Turnover
£m
£m
2009
2009
2010
2010
1,179
1,136
1,438
1,476
2,617
2,612
PBITA
PBITA
£m
£m
2009
2009
Margins
Margins Organic growth
Organic growth
%
%
%
%
2010
2010
2009
2009
2010
2010
97
78
8.7% 8.5%
5.4% 5.3%
175
6.9% 6.7%
3.8%
–1.9%
0.6%
2010
2010
103
77
180
Turnover
Turnover
£m
£m
2009
2009
2010
2010
PBITA
PBITA
£m
£m
2009
2009
2010
2010
Margins
Margins Organic growth
Organic growth
%
%
%
%
2010
2010
2009
2009
2010
2010
North America*
1,676 1,524
96
86
5.7% 5.6%
2.2%
New Markets
Turnover
Turnover
£m
£m
2009
2009
2010
2010
PBITA
PBITA
£m
£m
2009
2009
2010
2010
Margins
Margins Organic growth
Organic growth
%
%
%
%
2010
2010
2009
2009
2010
2010
Asia*
Middle East*
Africa*
Latin America & Caribbean*
600
465
333
356
565
429
313
295
40
44
33
26
44
39
29
19
6.7% 7.8%
9.5%
9.1%
9.9% 9.3%
7.3% 6.4%
Total New Markets*
1,754 1,602
143
131
8.2% 8.2%
3.5%
8.2%
5.8%
14.2%
7.1%
* At constant exchange rates
New Markets
In New Markets, organic growth was excellent
at 7.1% with strong improvements in margins in
most regions.
Organic growth in Asia was 3.5% and margins
were lower due to the loss of the DIAC contract
in Australia, as previously announced. Excluding
Australia, revenues were up 14.5% and margins
were 7.1%, with strong revenue increases in
Papua New Guinea, Pakistan and the
Philippines. India, the largest market in the
region, achieved double-digit revenue growth.
Our risk consulting business Hill & Associates
delivered a very strong performance and will
be leveraging its expertise into the Middle East
in 2011.
In the Middle East, growth continued to be
excellent across the region with improved
margins of 9.5%. Qatar and UAE performed
particularly strongly, mainly as a result of the
new airport contract in Qatar and federal wage
legislation in UAE. In Iraq, as expected, the
work for US forces has come to an end. The US
Embassy contract in Kabul, Afghanistan will
continue beyond 1 January 2011 as a result of
the new incumbent failing to realise the contract
transition. The work will continue for at least the
fi rst four months of 2011 at an improved profi t
contribution.
Africa performed well with organic growth
of 5.8% and margins of 9.9%, helped by strong
performances in Morocco, Uganda,
Botswana and Djibouti and in our Care
and Justice services business in South Africa.
G4S has a unique network of operations in Africa
which provides an excellent platform to support
our global clients working in key sectors such as
oil and gas, ports and mining.
The Latin America & Caribbean region has
performed well as a result of a number of large
contract wins in Argentina, Brazil, Chile,
Colombia, Ecuador, Mexico and Puerto
Rico. Overall for the region, organic growth
was 14.2% and margins were 7.3%.
Case study
Behavioural detection offi cers
Passengers at Heathrow are now being protected by a
new G4S team of undercover offi cers trained to detect
the smallest signs of suspicious behaviour.
Anxiety, a lack of luggage or taking photos can indicate
that someone is a potential high-risk, or they could
simply be a normal passenger – and the new team of
nine Behavioural Detection Offi cers can now help
tell the difference.
Blending seamlessly into the check-in area, the offi cers
use non-intrusive observation and analysis techniques
to identify potential threats, and share intelligence with
uniformed colleagues and the police.
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36
Divisional review
G4S plc Annual Report and Accounts 2010
Cash solutions
The cash solutions business manages cash for fi nancial institutions
and retailers. Our deep understanding of the cash cycle ensures that money
is moved safely and effi ciently around an economy at considerable cost saving to
our customers, and allows them to focus on their core businesses.
Sectors
Turnover by
Sector
(cid:81) Financial Institutions
(cid:81)(cid:3)Retail
(cid:81) Other
71.3%
16.6%
12.1%
Services
G4S provides a wide range of secure
logistics including:
k Financial institution cash outsourcing
k ATM network management
k ATM cash management services
k ATM engineering services
k Retail cash management solutions – CASH360
k Data and document management services
k Cash logistics
k Secure international transportation of cash
and valuables
Contracts/relationships
The duration of contracts vary, with most being
on an annual basis and those contracts requiring
a higher capital intensity such as cash processing
or CASH360 being usually fi ve years’ duration.
However, even when the contract terms are
short, in practice many relationships become
long term, rolling over from one year to the next.
This is demonstrated in our annual customer
retention rates which average above 90% across
most regions.
Strategy
k Play a key role in the management of the cash cycle on behalf of central banks, commercial banks
and retailers, allowing them to focus on their core business
k Use our developed market cash cycle expertise and track record to encourage central bank
and fi nancial institution outsourcing in New Markets
k Continued roll-out of innovative technology such as CASH360 (see page 39)
Key operational highlights
k Continued strong performance in New Markets
k Some service reductions due to low interest rates, lower infl ation and recession
k Strict cost control limited impact on margins
k CASH360 sales gaining momentum
KPIs
During 2010, the cash solutions business performed robustly in an extremely diffi cult economic
environment with organic growth of -1.1%. Margins were 11.0%
Turnover*
£m
PBITA*
£m
935
1,129
1,280
1,341
1,350
96
124
144
152
149
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Organic growth*
%
PBITA margin*
%
7.6
10.6
12.5
4.7
-1.1
10.3
11.0
11.3
11.4
11.0
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
* 2006 to 2009 at 2010 exchange rates and excluding
all businesses disposed of during the period.
G4S plc Annual Report and Accounts 2010
37
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Customer needs and drivers for key sectors
Retail
77.5%
of Europe’s 388 billion retail payments
in 2008 made using cash
1.7%
we estimate the average retailer spends
around 1.7% of turnover managing cash
Cash has existed for fi ve 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.
We estimate the average retailer can spend up
to 1.7% of turnover managing cash. In the fi ercely
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.
Financial institutions
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 more than 70 countries in which
we operate our cash management services.
70+
countries in which we operate
our cash management services
Our banking customers want to maximise
the effi ciency 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
effi ciency, 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.
Other
A portion of our cash solutions work is separate
from the traditional work that is done for
fi nancial institutions and retailers. This specialist
work will vary from country to country, covering
areas such as toll collections, creating wage
packets, through to specialist sporting and
cultural events.
One business that provides a specialised solution
is G4S International (G4Si), which meets the
global demand for safe, reliable transport of
valuable and vulnerable cargo.
G4Si applies its experience and expertise
in secure international transportation across
a range of sectors, including fi nance, mining,
diamonds and jewellery, pharmaceuticals and
government. In each instance, G4Si protects
the reputational and commercial risk its clients
face throughout the transport process for
such commodities as precious metals,
banknotes, credit cards, diamonds and
controlled substances.
38
G4S plc Annual Report and Accounts 2010
Divisional review
Cash solutions performance
Europe
Organic growth in Europe was -2.8% and was
impacted by lower interest rates, lower infl ation
and a reduction in some services by customers,
but cost control measures ensured margins
improved to 11.3%.
In the UK & Ireland, the cash solutions business
performed very robustly despite a 3% revenue
decline. The fi rst CASH360 sales have been
achieved in the UK with companies such as
CenterParcs and Burger King and with a strong
pipeline of pilots. The cash consulting business,
SMI (see page 39), acquired in 2009, continues
to perform well, giving us increased exposure
to central banks around the world. The travel
logistics company TLCS was divested as part of
a portfolio review, resulting in a profi t on disposal
of £8m. This was more than offset by restructuring
costs in the UK, Ireland and Sweden cash
solutions businesses and a signifi cant restructuring
in Romania as a result of a major downsizing of
the contract with the state post offi ce.
Ireland continued to face a particularly
challenging economic environment but the
business has won the provision of cash sourcing
for An Post (post offi ce) pension payments
which will benefi t 2011.
G4S International (see page 37), the international
valuables transportation business, achieved a
particularly strong performance, with organic
growth of 9% and improved margins helped
by higher commodity prices.
Elsewhere in Continental Europe, organic growth
was affected by a reduction in cash transportation
and ATM services but continued strong growth
was achieved in Greece and in Belgium,
where G4S has won a number of banking
contracts.
North America
In North America, the business in Canada
declined due the loss of the Bank of Montreal
contract.
New Markets
Organic growth in New Markets was good
at 4.4% but margins were lower at 12.5% with
both numbers impacted by the previously
announced loss of contracts in South Africa.
Excellent growth and strong margins were
achieved in UAE, Qatar and Malaysia.
Turnover
Turnover
£m
£m
2009
2009
2010
2010
PBITA
PBITA
£m
£m
2009
2009
2010
2010
Margins
Margins Organic growth
Organic growth
%
%
%
%
2010
2010
2009
2009
2010
2010
Europe*
North America
New Markets
891
919
101
100
11.3% 10.9%
106
110
4
5
3.8% 4.5%
353
338
44
49
12.5% 14.5%
Total cash solutions
1,350
1,367
149
154
11.0% 11.3%
–2.8%
–3.6%
4.4%
–1.1%
Exchange differences
–
(26)
–
(2)
At actual exchange rates
1,350
1,341
149
152
* At constant exchange rates
“ Excellent growth and strong
margins were achieved in UAE,
Qatar and Malaysia.”
Dan Ryan
Regional CEO
– Asia Middle East
“ A sustained period of low interest
rates in some countries has had a short
term impact on our ability to grow
the cash solutions business. However
excellent cost control during the year
has meant that the businesses have
still performed very well.”
Ken Niven
Divisional CEO – Cash solutions
Case study
Cash forecasting
CIMB Group, Malaysia’s second largest fi nancial institution
and G4S have pioneered the use of an intelligent cash
management and forecasting system called iCom in the
Southeast Asia region. In a multicultural society such as
Malaysia, there are many religious festivals that attract
hundreds of thousands of devotees and tourists every
year – the iCom system can anticipate the many
fl uctuations which these events cause and match
availability against demand. This not only increases
effi ciency but reduces operating costs too.
G4S plc Annual Report and Accounts 2010
39
Case study
SMI
Secura Monde International (SMI) was acquired by
G4S in 2009 and is widely regarded as the world’s
principal independent technical and commercial
advisory company – specialising in the markets and
technology of banknote paper making, printing and cash
cycle re-engineering. SMI has unique relationships with
central banks around the world based on its expertise
and is working with G4S cash businesses to encourage
retail and central banks to outsource more cash services.
Case study
Cash management
outsourcing in Kenya
G4S has enjoyed a 16-year partnership with Citibank
Kenya, part of Citigroup, the world’s largest fi nancial
services organisation. They work together to provide
innovative ways of meeting the end customer’s needs.
Services include cash-in-transit, ATM management,
wage preparation and distribution, repatriation of foreign
currency to its country of origin and fully-outsourced
cash processing.
Case study
CASH360
CASH360 is a revolution in the way the world’s leading
retailers manage cash. In just over two years, more than
50 retailers in eight countries have begun to use it to
automate their cash handling from the retail point of sale
to the retailer’s bank account. It eliminates opportunities
for robbery, theft and fraud as well as offering immediate
operational effi ciencies.
“ In Continental Europe, organic growth
was affected by a reduction in cash
transportation and ATM services but
continued strong growth was achieved
in Greece and Belgium.”
Willem van de Ven
Regional CEO – Europe
To see interviews with all the Regional and
Divisional CEOs talking about 2010 business
performance and outlook please see
http://reports.g4s.com/2010
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40
G4S plc Annual Report and Accounts 2010
Corporate Social Responsibility
Securing success through
responsible conduct.
As the world’s largest security solutions company, operating in more than
125 countries, we know that we can impact the lives of many, whether they
are employees, customers, investors or members of the general public going
about their daily routines.
It is our responsibility to make sure that the impact we have
is a positive one and that we are contributing to a safer and
more secure society for everyone.
Our CSR Committee has been in place for more
than a year and is helping the organisation to gain
some real traction on key issues affecting the
business, our employees and the communities in
which we operate. The Committee is ensuring
that CSR remains a core element of the group’s
strategy and that G4S businesses around the
world are aligned on our CSR goals.
One of the biggest challenges for the group in
2011 will be to make sure we have adequate
procedures in place to ensure we are compliant
with the UK Bribery Act. It will be a challenge
but we are fully supportive of effective legal
frameworks to ensure that business conducts
itself ethically and honestly.
Over the next few pages we outline some of the
key areas of Corporate Social Responsibility for
the group and summarise the progress we have
made since we last reported 12 months ago.
They are managed within the following four key
areas and more detail can also be found in our
third CSR report .
k Safeguarding our integrity
k Securing our workforce
k Securing our environment
k Securing our communities
In the 2010 CSR report we have highlighted the
contribution that G4S makes not just from an
economic point of view, but also explores how
we interact with groups of individuals facing
hardship in our day-to-day work.
For more information on our full report, visit:
http://reports.g4s.com/2010
Managing our
business responsibly
CSR governance
In January 2010 we established a CSR Committee
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 reports into the Audit
Committee in order to ensure that our CSR
strategy is closely aligned to issues such as risk
management, audit and compliance.
The Committee is chaired by Mark Elliott,
a G4S plc non-executive director, who has
extensive experience of CSR from his 30 years
in international business with global organisations
such as IBM.
Stakeholder engagement
We continue to improve 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.
Taking this proactive approach to raising global
standards has helped build G4S’s reputation with
governments, customers and employees while
ensuring we can deliver a sustainable return for
our investors.
Illustrations of how stakeholder engagement
has shaped our approach can be seen in our
stand alone CSR report.
More information and detailed information
in our CSR Report 2010
G4S plc Annual Report and Accounts 2010
41
CSR benchmarking
In April 2010, we commissioned Corporate
Citizenship, to conduct a benchmark analysis of
G4S CSR activities versus its industry peer group
and best practice. This enabled us to identify
areas for improvement and to ensure that our
CSR strategies develop in line with best practice.
Socially Responsible Investment
In May 2010, we were pleased that GES
Investment Services announced that we had
been removed from its “exclude and engage list”.
GES stated that “over the last two years, G4S
has demonstrated substantial improvements in
its global management of employee relations and
labour rights and engaged constructively on these
and other issues”.
This was followed in December 2010 with the
inclusion of G4S in the Ethibel EXCELLENCE
Investment Register (see www.ethibel.org).
Forum ETHIBEL supports investors in their
search for Socially Responsible Investment
(SRI) products that offer a fair balance between
economic progress, environmental protection,
and social justice.
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“ The establishment of the CSR
Committee has really helped to raise
the profi le of CSR both within the
business and with external stakeholder
groups. We have made signifi cant
progress in some challenging areas
this year and expect that momentum
to continue throughout 2
to continue throughout 2011.”
to continue throughout 2011.”
Mark Elliott
Mark Elliott
Non-executive director and
Non executive director and
Non-executive director and
Chairman of the CSR Committee
Chairman of the CSR Committee
Chairman of the CSR Committee
G4S plc Board
Nomination
Committee
Audit Committee
Remuneration
Committee
CSR Committee
Ethical trading and
business practices
Workforce diversity
and inclusion
Employment issues
Health and safety
Human rights
Climate action
Community and
social investment
42
G4S plc Annual Report and Accounts 2010
Corporate Social Responsibility
Our approach, progress and goals
We have made good progress in the four key
areas of focus for the group during 2010. Below
we explain our approach, summarise some of our
achievements and outline our future CSR priorities.
Safeguarding our integrity
Securing our people
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 infl uence we have
makes a positive impact on the people and
communities in which we work.
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. In our
view, ethical behaviour of corporations should
not be just a reaction to regulation or legal
compliance, but a means of doing business
which gives customers, employees, partners
and communities the confi dence that they
are working with an organisation which is
not prepared to compromise on standards
to achieve its fi nancial objectives.
As one of the world’s largest private global
employers, our approach to people
management has a material impact on our
business and is a key focus for our management.
Our customers rightly expect high levels
of professionalism and commitment from G4S
in all parts of our organisation. They expect
thought leadership and innovation in the design
and delivery of solutions, which will minimise
risk and improve the performance and
reputation of their businesses. They also expect
a consistently high quality of service delivery.
To ensure that our people are fully engaged
and motivated to meet customers’ expectations,
we invest in and involve them so that they
feel engaged and motivated about being part
of G4S. This is the key to sustained business
success. We endeavour to continuously improve
levels of employee engagement, motivation,
expertise and performance and through doing
so achieve increased customer satisfaction
and the continued growth of our business.
Performance in 2010
Performance in 2010
k Established an Anti-Corruption Steering Group to
ensure group-wide ethical compliance and to focus
on the implications of the UK Bribery Act
k Implemented a CSR Checklist for assessing acquisitions
and major investments
k Became a founder signatory to the new International
Code of Conduct for private security providers, which
sets out principles for security operations in so-called
“complex environments”
k Became a signatory to the UN Global Compact the
international standard which promotes socially
responsible business behaviour in the areas of human
rights, labour, environment and anti-corruption
k Implemented Improved Mandatory Security Controls
(based on the ISO standard 27001) across the group
k Increased number of internal audits by 38%
from 102 to 141
k Introduced a group-wide simplifi ed Ethics Code which
can be easily understood by all employees
Focus for 2011
k Risk assessment for UK Bribery Act compliance
k Enhanced audit processes to cover UK Bribery Act
implications
k Ensuring every country has local whistle-blowing
hotline in place
k Implementing and promoting a global whistle-blowing
hotline which is available to all employees
k Continued reduction in work-related accidents and
fatalities from 90 in 2009 to 59 in 2010
k Ethical Employment Partnership continued positively
k 131 Diversity & Inclusion assessments carried out by
businesses representing 92% of the group and action
plans for improvements have been agreed
k Gender diversity of the G4S plc board has increased
with the appointment of two female non-executive
directors in 2010
k Increased the proportion of females in the group talent
pools from 13% in 2009 to 20% in 2010
k Employee retention rates improved, with the voluntary
turnover rate falling from 27% in 2009 to 22% in 2010
Focus for 2011
k Introduce core team of health & safety experts
k Improve health & safety benchmarking
k Continued reduction in health & safety incidents
k Improvement in employee satisfaction and engagement
– survey to take place in 2011
k Improvement in employee retention rates
k Further implementation of Diversity & Inclusion strategy
k Continued positive progress with the implementation
of the Ethical Employment Partnership
k Increase the membership of the Group Leadership
Programme to 75 managers across the group
(currently 53)
G4S has become a
signatory to the UN
Global Compact
Continued reduction
in work-related accidents
and fatalities in work-
related accidents and
facilities from 90 in 2009
to 59 in 2010
More case studies and detailed information
in our CSR report 2010
More case studies and detailed information
in our CSR report 2010
G4S plc Annual Report and Accounts 2010
43
Securing our environment
Securing our communities
The economic and social impact of G4S reaches
well beyond its working environment and
touches the lives of millions of people around
the world. G4S provides funding, volunteers
and services to a broad range of organisations
within the communities in which we live
and work with the majority of our investment
being focused on the health, education, welfare
and support of children and young people
As an organisation that specialises in managing
risk, G4S recognises that the threat to people
and infrastructure from climate change is an
important and ongoing concern for our group,
our customers and our employees.
At G4S we are endeavouring to be the
leader in our industry in measuring, reporting
and reducing the intensity of our greenhouse
gas emissions. We have set ourselves a
series of challenging targets to increase the
sustainability of our operations and reduce
our carbon footprint.
In partnership with our customers, employees
and suppliers, we are investing in energy
effi cient technologies, reducing waste and
encouraging our stakeholders to think about
the environmental impact of their decisions
with the aim of reducing the resource footprint
of our operations.
Performance in 2010
Performance in 2010
k Measured the carbon emissions of businesses
representing 94% of the group
k Achieved overall reduction in carbon intensity of 5.4%
k Developed and expanded a global network
of environmental co-ordinators
k Implemented Greenstone Carbon Management
System across the group to track and analyse
carbon emissions
k Conducted a review of key community projects
across the group carried out during 2010
k Identifi ed 63 separate community investment
programmes with a combined value of £654,000
taking place across the world
k G4S community programmes touched the lives of
22,500 adults and children across 32 countries
k Introduced multiple programmes to reduce carbon
Focus for 2011
k Conduct an annual review of G4S impact
in the community
k Conduct Economic Impact Assessments of G4S
operations in three major countries – South Africa,
India and Chile – additional markets to follow
intensity across the group
Focus for 2011
k Continue to implement carbon reduction strategies
to reduce carbon intensity measured against revenue
by 13% from 2009 to 2012 (averaging 4.5% pa)
k Systematically measure the carbon emissions
of at least 94% of the group
k Introduce a Green Building minimum standard
for new-build or long lease facilities.
k Introduce measurement of waste and water
consumption to our Climate Action Programme
There are two additional areas of special focus
for 2011:
Bribery Act
The UK Bribery Act is expected to come in to
force during 2011. During 2010, the Anti-Corruption
Steering Group has been developing plans for its
implementation during this year. This will include:
k Adapting all current policies to ensure
compliance with the Act
k Communicating the detail and implications
of the Act with employees and other
affected parties
k Developing and implementing training
programmes to ensure all relevant staff are
aware of their obligations
k Establishing an independent, global whistle-
blowing facility for reporting non-compliance
k Conducting a risk assessment of key countries
and business units
k Developing the current audit processes and
content to incorporate additional requirements
of the Act
Human rights
Whilst the group already takes its responsibility
for human rights extremely seriously and we
are clear about our obligations and requirements
at a business unit or service level, we recognise
that it would be benefi cial to have a more systematic,
global approach to human rights due diligence.
During 2011, we will conduct a risk assessment
based on the countries in which we operate
and the services that we provide and develop
a human rights framework and strategy for
implementation across the group.
Achieved overall
reduction in carbon
intensity of 5.4%
G4S community
programmes touched
the lives of 22,500
adults and children
across 32 countries
More case studies and detailed information
in our CSR report 2010
More case studies and detailed information
in our CSR report 2010
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44
G4S plc Annual Report and Accounts 2010
Financial review
We remain highly cash
generative and with the
recent renewal of our £1.1bn
revolving credit facility we remain
in a strong fi nancial position
to help drive future growth.
We have achieved our sixth consecutive year of underlying revenue and profi t
growth since the group was formed in 2004 and we have grown dividends
by 292% over the same period.
Basis of accounting
Associates
The fi nancial statements are presented in
accordance with applicable law and International
Financial Reporting Standards, as adopted by the
European Union (“adopted IFRSs”). The group’s
signifi cant accounting policies are detailed in note
3 on pages 75 to 80 and those that are most
critical and/or require the greatest level of
judgement are discussed in note 4 on page 80.
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 14 to 39. Profi t from operations before
amortisation of acquisition-related intangible
assets and acquisition-related expenses (PBITA)
amounted to £527m, an increase of 5.4% on the
£500m in 2009 and an increase of 4% at constant
exchange rates.
Included within PBITA is £5m (2009: £1m)
in respect of the group’s share of profi t from
associates, principally from the business of
Space Gateway in the US which provides safety
services to NASA and from MW-All Star, also
in the US, which joined the group in 2009 as
part of the acquisition of All Star International.
Acquisitions and acquisition-
related intangible assets
Investment in acquisitions in the year amounted
to £65m. This comprises a cash outlay of
£42m and deferred consideration of £23m.
This investment generated goodwill of £46m
and other acquisition-related intangible assets of
£14m. In addition, the group incurred acquisition
costs of £4m which have been expensed.
The group undertook several acquisitions in
the year, the most signifi cant of which were the
purchase of the controlling interest in SSE Do
Brasil Ltda, the parent company of Instalarme
Soluções Eletrônica Ltda (“Instalarme”), an
electronic software and hardware integration
company in Brazil, Plantech Engenharia e Sistemas
Ltda (“Plantech”), a leading integrator in the
Brazilian security systems market and the entire
share capital of Skycom (Pty) Ltd (“Skycom”),
a market leader in the South African security
systems market.
G4S plc Annual Report and Accounts 2010
45
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Taxation
The taxation charge of £102m provided
upon profi t from operations before amortisation
of acquisition-related intangible assets and
acquisition-related expenses, represents a tax
rate of 24%, compared to 26% in 2009. The cash
tax rate is 20% compared to 17% in 2009.
The group’s target is to further reduce the
effective tax rate in the short-term. This will
be driven by the gradual reduction in UK
corporation tax rates, the ongoing rationalisation
of the group’s legal structure and the elimination
of fi scal ineffi ciencies. 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 £25m.
In addition, the group increased its holding in an
Argentine business.
The group undertook several acquisitions in the
prior year, the most signifi cant 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.
In addition, the group completed the buy-outs
of non-controlling interests in certain businesses
in New Markets during the prior year.
The contribution made by acquisitions to the
results of the group during the year is shown in
note 17 on pages 90 to 92.
The charge for the year for the amortisation
of acquisition-related intangible assets other
than goodwill amounted to £88m. Goodwill
is not amortised. Acquisition-related intangible
assets included in the consolidated statement of
fi nancial position at 31 December 2010 amounted
to £2,147m goodwill and £286m other.
Other acquisitions in the prior year included
the purchase of controlling interests in 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;
SecuraMonde, a cash solutions business in the
UK; 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.
Financing items
Finance income was £98m and fi nance costs
£203m, giving a net fi nance cost of £105m.
Net interest payable on net debt was £96m.
This is an increase of 8% over the 2009 cost
of £89m due principally to the increase in the
group’s average gross debt. The group’s average
cost of gross borrowings in 2010 was 4.8%
compared to 4.7% in 2009. The cost based on
prevailing interest rates at 31 December 2010
was 4.2% compared to 4.5% at 31 December 2009.
Also included within fi nancing are other net
interest costs of £3m (2009: £7m), and a net cost
of £6m (2009: £19m) in respect of movements
in the group’s net retirement benefi t obligations.
46
G4S plc Annual Report and Accounts 2010
Financial review
Disposals and
discontinued operations
The group disposed of its cash solutions business
in Taiwan on 15 July 2010 and of Travel Logistics
Limited, a UK expeditor of travel documents,
on 24 September 2010.
During the prior year the group disposed
of its manned security business in France on
28 February 2009. In addition, during the prior
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.
The total consideration from business disposals
in 2010 was £13m.
The loss from discontinued operations in
2010 of £9m relates to the post-tax trading
of discontinued businesses and costs related to
business disposals made in prior years.
The loss attributable to discontinued operations
in 2009 comprised a profi t of £6m in respect
of post-tax trading of discontinued businesses
and a loss of £13m in respect of the disposals
made in the previous year.
Adjusted earnings, as analysed in note 16 on
page 89, excludes the result from discontinued
operations, amortisation of acquisition-related
intangible assets, acquisition-related costs, and
retirement benefi t obligations fi nancing 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 21.6p, an
increase of 7% on 20.2p for 2009.
Dividends
The directors recommend a fi nal dividend
of 4.73p (DKK 0.4082) per share. This represents
an increase of 14% upon the fi nal dividend
for the year to 31 December 2009 of 4.16p (DKK
0.3408) per share. The interim dividend was 3.17p
(DKK 0.2877) per share and the total dividend,
if approved, will be 7.90p (DKK 0.6959) per share,
representing an increase of 10% over the 7.18p
(DKK 0.5624) per share total dividend for 2009.
The proposed dividend cover is 2.7 times
(2009: 2.8 times) on adjusted earnings.
The group’s intention is that dividends will
continue to increase broadly in line with
normalised adjusted earnings.
The contribution to the turnover and operating
profi t of the group from discontinued operations
is shown in note 6 on pages 81 to 85 and their
contribution to net profi t and cash fl ows is
detailed in note 7 on page 85.
Profi t for the year
Profi t for the year was £245m, compared to
£219m in 2009. The increase represents the
£27m increase in PBITA, the £9m decrease
in net interest cost and the £1m decrease in the
tax charge, less the £5m increase in amortisation
of acquisition-related intangible assets, the £4m
acquisition-related costs and the £2m increase
in loss from discontinued operations.
Non-controlling interests
Profi t attributable to non-controlling interests
was £22m in 2010, an increase on £17m for 2009,
refl ecting non-controlling partner shares in the
group’s organic and acquisitive growth, less a
reduction in non-controlling shares in net profi ts
consequent upon the group increasing its
interests in certain subsidiaries.
Earnings per share
Basic earnings per share from continuing and
discontinued operations was 15.9p compared
to 14.4p for 2009. These earnings are unchanged
when calculated on a fully diluted basis, which
allows for the potential impact of outstanding
share options.
£245m
Profi t for the year 2010
4.73p
Final dividend recommended
by the directors
G4S plc Annual Report and Accounts 2010
47
Cash fl ow
The primary cash generation focus of group management is on the percentage of operating profi t
converted into cash. From 2007, the group’s target conversion rate was raised from 80% to 85%.
Operating cash fl ow, as defi ned for management purposes, was as follows:
PBITA
Less share of profi t from associates
PBITA before share of profi t from associates (Group PBITA)
Depreciation, amortisation and profi t on disposal of non-current assets
Movement in working capital and provisions
Net cash fl ow from capital expenditure
Operating cash fl ow
Operating cash fl ow as a percentage of group PBITA
2010
2010
£m
£m
527
(5)
522
132
(73)
(139)
442
85%
2009
2009
£m
£m
500
(1)
499
136
(15)
(170)
450
90%
Overall operating cash generation for the year was good, as a result of the maintenance of fi nancial
discipline across the organisation.
The management operating cash fl ow calculation is reconciled to the net cash from operating activities
as disclosed in accordance with IAS 7 Cash Flow Statements as follows:
Cash fl ow from operating activities (IAS 7 defi nition)
Net cash fl ow from capital expenditure
Discontinued operations and other items
Add-back additional retirement benefi t contributions
Add-back tax paid
Operating cash fl ow (G4S defi nition)
2010
2010
£m
£m
448
(139)
14
33
86
442
2009
2009
£m
£m
509
(170)
13
30
68
450
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G4S plc Annual Report and Accounts 2010
Financial review
The group’s free cash fl ow, as defi ned by management, is analysed as follows:
Operating cash fl ow
Net interest paid
Tax paid
New fi nance leases
Free cash fl ow
Free cash fl ow is reconciled to the total movement in net debt as follows:
Free cash fl ow
Discontinued operations
Additional retirement benefi t contributions
Net cash outfl ow on acquisitions
Net cash infl ow from disposals
Net cash fl ow from associates
Dividends paid to non-controlling interests
Transactions with non-controlling interests
Share issues less share purchases
Dividends paid to equity holders of the parent
Net cash fl ow from hedging fi nancial instruments
Movement in net debt in the year
Foreign exchange translation adjustments to net debt
Net debt at 1 January
Net debt at 31 December
2010
2010
£m
£m
442
(94)
(86)
(9)
253
253
(5)
(33)
(56)
–
3
(12)
(3)
(10)
(103)
–
34
(27)
2009
2009
£m
£m
450
(87)
(68)
(20)
275
275
(13)
(30)
(153)
(10)
2
(18)
–
(7)
(94)
(10)
(58)
(27)
(1,433)
(1,426)
(1,348)
(1,433)
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 111.
Financing and treasury activities
The group’s treasury function is responsible
for ensuring the availability of cost-effective
fi nance and for managing the group’s fi nancial risk
arising from currency and interest rate volatility
and counterparty credit. Treasury is not a profi t
centre and is not permitted to speculate in
fi nancial 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 101 to 103.
Financing
The group’s funding position is strong, with
suffi cient headroom against available committed
facilities with no debt maturing before 2013.
The group’s primary source of fi nance is
a £1.1bn multicurrency revolving credit facility
provided by a consortium of lending banks
at a margin of 0.80% over LIBOR and maturing
on 10 March 2016.
The group also has $550m in fi nancing 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 fi xed
interest rates payable have been swapped into
fl oating 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 previous 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.
G4S plc Annual Report and Accounts 2010
49
At 31 December 2010 the group had
uncommitted facilities of £575m.
The group’s net debt at 31 December 2010
of £1,426m represented a gearing of 90%.
The group headroom at 31 December 2010
was £552m. The group has suffi cient capacity
to fi nance current investment plans.
Exchange differences on the translation of foreign
operations included in the consolidated statement
of comprehensive income amount to a gain of
£41m (2009: loss of £64m). These differences
are net of a £27m loss (2009: £27m) on the
retranslation of net debt and a £nil cash outfl ow
(2009: £10m) from forward exchange contracts.
Interest rates
The group’s investments and borrowings at
31 December 2010 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 fi x a proportion of this exposure on a sliding
scale utilising interest rate swaps. The maturity
of these interest rate swaps at 31 December 2010
was limited to four years. The market value of
the Loan Note-related pay-variable receive-fi xed
swaps outstanding at 31 December 2010,
accounted for as fair value hedges, was a gain
of £55m. The market value of the pay-fi xed
receive-variable swaps and the pay-fi xed
receive-fi xed cross-currency swaps outstanding
at 31 December 2010, accounted for as
cash fl ow hedges, was a net gain of £23m.
Foreign currency
The group has many overseas subsidiaries
and associates denominated in various different
currencies. Treasury policy is to manage signifi cant
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 fl ow 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 2010, the
group’s US dollar and euro net assets were
approximately 65% and 60% respectively
hedged by foreign currency loans.
Cash management
To assist the effi cient 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 2010, more than
130 group companies participated in the pool.
Debit and credit balances of £230m were
held within the cash pool and were offset for
reporting purposes.
Retirement benefi t obligations
The group’s primary defi ned benefi t retirement
benefi t scheme is in the UK, but it also operates
such schemes in a number of other countries,
particularly in Europe and North America.
The latest full actuarial assessment of the three
sections of the UK scheme was carried out at
5 April 2009. The three sections of the UK
scheme are the Group 4 scheme (approximately
8,000 members), the Securicor scheme
(approximately 20,000 members) and the GSL
scheme (approximately 2,000 members)
acquired in 2008. This assessment and those
of the group’s other schemes have been updated
to 31 December 2010. The group’s funding
shortfall on the valuation basis specifi ed in
IAS19 Employee Benefi ts was £265m before
tax or £191m after tax (2009: £328m and
£236m respectively).
The valuation of gross liabilities has barely
changed during 2010, with a £32m reduction
in liabilities arising from the announcement
by the government that pension increases will
be in line with CPI rather than RPI, accounted
for as a credit to the statement of comprehensive
income, offset by the impact of the unwinding of
the discount on the liabilities.
The net impact of actuarial changes is very small.
The lower discount rate of 5.5% (2009: 5.7%)
and an updating of the mortality assumptions
following from the full actuarial valuation have
increased liabilities. But the lower infl ation
assumption and lower than previously assumed
pay increases during 2010 have decreased
liabilities. Assets have increased in value during
the year, in line with the previous assumption, and
additional company contributions of £33m were
paid into the schemes.
The group believes that, over the very long term
in which retirement benefi ts become payable,
investment returns should eliminate the defi cit
reported in the schemes in respect of past
service liabilities. However, in recognition of the
regulatory obligations upon pension fund trustees
to address reported defi cits, the group has agreed
a new defi cit recovery plan with the trustees
during the year. The new plan will see additional
cash contributions made to the scheme of
approximately £35m in 2011 with modest
annual increments thereafter.
Corporate governance
The group’s policies regarding risk management
and corporate governance are set out in the
Corporate Governance Statement on pages
59 to 61.
Going concern
The directors are confi dent that, after making
enquiries and on the basis of current fi nancial
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 fi nancial statements.
Trevor Dighton
Chief Financial Offi cer
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50
G4S plc Annual Report and Accounts 2010
Group principal risks
Managing risk and limiting the
impact of any issue is a core
skill of G4S
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 profi tability.
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
profi tability. Security can be a high profi le 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 profi tability.
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.
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 profi tability.
Information technology
Cyber attacks and incidents on G4S and client
systems and services, especially around critical
national infrastructure, could result in fi nancial
loss, breach of contract, legal action and
reputational damage.
Mitigation
k 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.
k 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.
Signifi cant price reductions require group capex
committee approval.
k The group performs strategic and business
planning at group, division, region and business
unit level to ensure that specifi c local regulation
requirements are met. Monthly business unit
trading reviews ensure that market changes are
identifi ed quickly and actions taken to maintain
performance and ensure that business
objectives continue to be achieved.
k The group implemented a new customer
measurement process during 2010 which
should further enhance competitor analysis.
k In addition in 2011 the group will be
rolling out a new customer relationship
management system.
k 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.
k The group has formed an anti-corruption
steering group which is working on addressing
the implications of the UK Bribery Act and
similar legislation.
k 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.
k Any new contracts entered into are subject to
a defi ned approval process. Standard contracts
are used where practicable. 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 or group
legal department review.
k The group employs IT specialists at all levels
and has in place mandatory minimum security
controls (relating to 35 specifi c controls).
In addition penetration testing of networks
and systems is performed regularly to ensure
that key systems are robust.
k 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.
G4S plc Annual Report and Accounts 2010
51
Our risk assessment and
management process
The group operates around 160 businesses
spread over more than 125 countries and across
a range of product areas. Most of the risks
identifi ed below are market specifi c 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 and potential impact
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 profi tability.
Defi ned benefi t
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 defi ned benefi t pension
schemes, which may constrain the group’s ability
to invest in acquisitions or capital expenditure,
adversely impacting its growth and profi tability.
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 profi tability.
Financing
If, due to adverse fi nancial market conditions,
insuffi cient or only very costly fi nancial 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 profi tability. This
includes possible bank bankruptcy, loss of
headroom particularly from movement of
exchange rates, unavailability of bank, bond
or other sources of fi nancing and downgrading
of the G4S credit rating.
Risk committees
Management meetings
Group
Regions
(and clusters)
Company
(and business functions)
Risk reporting system
Risks identifi ed
and escalated based
on materiality
Mitigation
k The group has formal systems and policies in
place documenting physical security procedures
and directives and adheres to a security
framework to help reduce the risk of cash
losses.
k The group also operates a captive insurance
business unit to mitigate against the fi nancial
risk of losses and attacks.
k 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.
k In addition there is regular reporting of any
cash losses/attacks and audits of security are
performed in branches.
k The group has in place regional cash
reconciliation managers to increase the focus
on cash reconciliations throughout the group.
k The performance of the group’s pension
k The results of these reviews are discussed
schemes and defi cit funding plans are reviewed
regularly by both the group and the trustees of
the schemes taking actuarial and investment
advice as necessary.
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
benefi t plans and upcoming valuations.
k The group has begun a consultation process
to close the defi ned benefi t scheme to future
accrual which should limit the growth in
future liabilities.
k The group has standard recruitment policies
and procedures in place designed 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.
k There are controls and monitoring, such as
formal compliance reviews by regional human
resources management designed to ensure
business unit compliance with these standards.
k Particular attention is given to acquired
businesses to ensure that they meet the
group standards.
k The group treasury department monitors
and follows policies to mitigate against liquidity,
refi nancing and currency/exchange rate risks.
Refer to note 33 to the group accounts for
more details.
k The group’s historical main source of funding
has been a revolving bank facility of £1.1bn
which was renewed in March 2011 until 2016.
Recently the group has sought to diversify
its sources of fi nance by issuing a number of
private placement bonds in the US and more
recently a public bond in the UK. These have
spread out the refi nancing requirements over
the next ten years to ensure the group has
access to suffi cient funds to meet its business
and strategic plans.
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52
G4S plc Annual Report and Accounts 2010
Board of directors
A board with diverse
skills to manage
the company in the
best interests
of its stakeholders
Alf Duch-Pedersen
Chairman
Alf was appointed to the board in May 2004 and
became chairman of the board 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 fi nancial services to food
and food products.
He was president and chief executive of Tryg-
Baltica A/S from 1991 to 1997 and fulfi lled the
same roles at Danisco A/S from 1997 to 2006.
He has been chairman of the board of Danske
Bank A/S since 2004 (and a member of its
board of directors since 2000) although he has
announced his intention to retire from that post
on 29 March 2011.
Age 64
Lord Condon
Deputy chairman and
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.
Age 64
Age 57
Clare Spottiswoode
Non-executive director
Mark Seligman
Non-executive director
Clare was appointed to the board in June 2010
and is a 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.
A mathematician and economist by training,
Clare’s career has included time at the UK
Treasury, as director general of Ofgas, the UK
gas regulator, and as policyholder advocate for
Norwich Union’s with-profi ts policyholders at
Aviva. In addition she has set up and managed
her own businesses and has considerable
experience in the gas and oil sectors.
Clare is chairman of Gas Strategies Group
Limited, a non-executive director of Tullow
Oil plc, EnergySolutions Inc. and Illika plc and
a member of the Independent Commission
on Banking.
Having qualifi ed 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, a member of
the Regional Growth Fund Advisory Panel and
a non-executive director of BG Group plc.
Age 55
G4S plc Annual Report and Accounts 2010
53
Nick Buckles
Chief executive
Trevor Dighton
Chief fi nancial offi cer
Grahame Gibson
Chief operating offi cer
Nick was appointed to the board in May 2004
and was the company’s deputy chief executive
and chief operating offi cer, 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.
Age 50
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
fi ve 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 fi nance director of its
security division in 1997 and became its deputy
group fi nance director in 2001.
He was appointed to the board of Securicor plc
as group fi nance director in June 2002.
Trevor became the company’s chief fi nancial
offi cer in July 2004.
Grahame was appointed to the board in
April 2005.
He joined Group 4 in 1983, starting as fi nance
director (UK) followed by a number of senior
roles, including deputy managing director (UK),
vice president (corporate strategy), vice president
(fi nance and administration), vice president
operations (central & south eastern Europe and
UK) and chief operating offi cer of Group 4 Falck.
In July 2004, he became the group’s divisional
president for Americas & New Markets.
Grahame became chief operating offi cer in
July 2005.
Age 58
Age 61
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Mark Elliott
Non-executive director
Winnie Kin Wah Fok
Non-executive director
Bo Lerenius
Non-executive director
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 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.
Age 61
Winnie was appointed to the board in October
2010 and is a member of the Audit Committee.
An accountant by training, Winnie’s career has
involved management roles in fi nance, audit and
corporate advisory companies and a wide range
of roles in asset management fi rms investing
with a focus in Asia.
Winnie is an advisor to Husqvarna, a senior
advisor to Investor AB and a non-executive
director of Volvo Car Corporation, AB SKF
and Kemira Oyj.
Age 54
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 Koole Tanktransport BV,
a non-executive director of Land Securities
Group plc and Thomas Cook Group Plc,
honorary vice president of the Swedish Chamber
of Commerce for the United Kingdom and
a senior advisor to the infrastructure fund of
Swedish venture capital group EQT.
Age 64
54
G4S plc Annual Report and Accounts 2010
Executive management team
Nick Buckles
Chief executive offi cer
Trevor Dighton
Chief fi nancial offi cer
Nick has worked in the security industry for
26 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 signifi cant
profi t 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 has worked in the security industry
for 25 years. After several years in both the
accountancy profession and commerce working
in the fi nance function and general management,
he joined BET in 1986 as fi nance director of their
Security and Communications Division.
Trevor joined Securicor in 1995 and, following
a number of years as fi nance director of the
security division, he was appointed to the board
of Securicor plc in June 2002 as group fi nance
director. He became chief fi nancial offi cer of G4S
in July 2004.
Trevor is a Fellow of the Chartered Institute
of Management Accountants.
Grahame Gibson
Chief operating offi cer and
Regional CEO – Americas
Grahame has been involved in the security
industry for 28 years, having joined Group 4’s UK
operating company in 1983 as fi nance 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 plc in April 2005.
Grahame is a board member of the Ligue
Internationale des Societes de Surveillance.
Debbie McGrath
Group Communications director
Debbie is Group Communications Director, heading
the corporate communications team which focuses
on the group’s key audiences – investors, media,
government, employees and customers. Debbie has
a broad range of experience in marketing, corporate
communications, brand development and
implementation, and crisis communications. Prior to
the merger between Group 4 Falck and Securicor,
Debbie was employed in a number of senior
marketing and communications roles within the
Securicor group from 1993 to 2004.
Before joining Securicor, Debbie had also held
marketing positions with ICC Information Group
and Honeywell Bull. Debbie is also chairman of the
CBI South East Regional Council (the representative
body for all CBI member companies based in the
South East of England and the Thames Valley) and a
member of the CBI Chairmen’s Committee which
takes the lead responsibility for setting the CBI’s
position on all policy matters.
Graham Levinsohn
Group Strategy and Development
director
Graham has more than 17 years experience in
the security industry, having joined Securicor Cash
Services in 1994 as general manager – marketing.
Since then, Graham has held a number of
commercial and line management positions in
both the cash and security lines of business.
Graham was responsible for the creation of the
UK Cash Centres outsourcing business in 2001
as managing director, before moving on to
become divisional managing director for G4S
Cash Services UK, and then regional president –
Nordics. He became group strategy &
development director in 2008 and moved
on to the Executive Committee in 2010.
David Taylor-Smith
Regional CEO – UK and Africa
David was appointed as Regional CEO – UK
and Africa in July 2010, having previously been
CEO, G4S UK and Ireland, and divisional
managing director of G4S Justice Services.
He joined the Group in 1998 as managing
director of Hong Kong and a member of the
Asia Pacifi c Board, following a successful earlier
career where he held senior roles with Jardine
Matheson, ORBIS and Operation Raleigh.
Prior to this he was a British army offi cer and
served in Northern Ireland, Germany, England
and in Cyprus with the United Nations.
David is a Fellow of the Royal Geographical
Society. He has sat on the board of several
charities, and currently sits on the board of
WWF-UK. In 2003 he was awarded the MBE
in recognition of his charitable activities overseas.
G4S plc Annual Report and Accounts 2010
55
Søren Lundsberg-Nielsen
Group general counsel
Ken Niven
Divisional CEO – Cash solutions
Irene Cowden
Group HR director
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 member of the advisory board of the
Danish UK Chamber of Commerce and author
of the book “Executive Management Contracts”,
published in Denmark.
Ken has 15 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, Exel 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.
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
33 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).
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Willem van de Ven
Regional CEO – Europe
Willem has served nearly 20 years with G4S and
its corporate predecessors in Holland. He started
out in the former Randstad group where he
became Regional Director. Willem then served
as HR director and managing director of the
Netherlands security company Randon which
was subsequently acquired by Securicor. In April
2003, Willem was appointed as Securicor’s
regional managing director (Africa), becoming the
regional president for G4S Africa (Sub-Sahara)
after the merger in 2004.
In July 2010, Willem was appointed regional
CEO – Europe.
Dan Ryan
Regional CEO – Asia Middle East
Dan joined G4S in August 2010, from global
logistics and transportation company Neptune
Orient Lines (NOL) where he held a number of
senior management positions including regional
president for Greater China for NOL’s APL and
APLL divisions, and regional president for the
Middle East for the APL division and regional
president for Europe for the group’s APL Logistics
division. He was a member of the NOL Group
Executive Team.
He also held various managing director positions
for NOL including Middle East, Hong Kong/South
China and Indonesia and a regional head for
the Middle East a during his 20-year career with
the group.
Dan is also a Charter Member of the Middle East
Logistics/Supply Chain Management Forum, Hong
Kong Liner Shipping Association and the American
Chamber of Commerce – Shanghai.
56
G4S plc Annual Report and Accounts 2010
Report of the directors
For the year ended 31 December 2010
The directors have pleasure in presenting their Annual Report together with the audited fi nancial statements of G4S plc and the consolidated fi nancial
statements of that company and its subsidiaries, associated undertakings and joint ventures (“the group”) for the year ended 31 December 2010.
G4S plc has its primary listing on the London Stock Exchange and a secondary listing on the Copenhagen Stock Exchange.
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 69.
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 and prospects of the group and other information which fulfi ls the requirements of the Business Review are contained on pages 10 to 51
and are incorporated in this report by reference. The Corporate Governance Statement set out on pages 59 to 61 is also incorporated in this report
by reference. The group’s fi nancial risk management objectives and policies in relation to its use of fi nancial instruments, and its exposure to price, credit,
liquidity and cash-fl ow risk, to the extent material, are set out in note 33 to the consolidated fi nancial statements on pages 101 to 103.
3 Dividends
The directors propose the following net dividend for the year:
k Interim dividend of 3.17p (DKK 0.2877) per share paid on 15 October 2010.
k Final dividend of 4.73p (DKK 0.4082) per share payable on 3 June 2011*.
Shareholders on the Danish VP register will receive their dividends in Danish kroner. Shareholders who hold their shares through CREST or in certifi cated
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 4 May 2011.
(* Shareholders on the VP Services register will be paid on 6 June, as 3 June is a public holiday in Denmark.)
4 Signifi cant business acquisitions, disposals and developments
In January 2010, 90% of International Multi Services Limited was acquired in Senegal.
In March 2010, G4S Security Services Ltd was disposed of in Serbia.
In May 2010, 25% of Search Organizacion de Seguridad S.A. was acquired in Argentina taking G4S’s stake to 75%.
In June 2010, SSE Do Brasil Ltda, the parent company of Instalarme Soluções Eletrônica Ltda was acquired in Brazil.
In July 2010, 49% of Falcon Travel was acquired in the UAE.
In July 2010, the business and assets of Western Investigations Pty Ltd were acquired in Australia.
In August 2010, 51% of Plantech Engenheiria E Sistemas S.A. was acquired in Brazil.
In September 2010, Skycom (Pty) Ltd and Impro Distribution and Support (Kzn) (Pty) were acquired in South Africa.
In December 2010, Guernsey Air Conditioning Limited was acquired in Guernsey.
In May 2010, 40% of the G4S business in Kazakhstan was disposed of.
In May 2010, 50% of Activos Compartidos S.A. was disposed of in Argentina.
In September 2010, Travel Logistics Limited was disposed of in the UK.
5 Capital
The authorised and issued share capital of G4S plc at 31 December 2010 is set out on page 110 (note 37 to the consolidated fi nancial statements).
There were 1,410,618,639 shares in issue as at 14 March 2011.
Information concerning the company’s shares held under option is set out on page 110 (note 37 to the consolidated fi nancial 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 125 to 127 and further explanation is provided on pages
128 and 129. At 31 December 2010, the directors had authority in accordance with a resolution passed at the company’s Annual General Meeting held on
28 May 2010 to make market purchases of up to 141,000,000 of the company’s shares.
The company does not hold any treasury shares as such. However, the 5,029,315 shares held within the G4S Employee Benefi t Trust (“the Trust”) and
referred to on page 110 (note 38 to the consolidated fi nancial statement) 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.
G4S plc Annual Report and Accounts 2010
57
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 the income statement during the year amounted to £5m (2009: £6m).
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 2010 the trade creditors of the company represented 28 days (2009: 31 days) of annual purchases.
At 31 December 2010 the consolidated trade creditors of the group represented 33 days (2009: 37 days) of annual purchases.
8 Employees
To ensure that the group’s employees are fully engaged and motivated to meet customers’ expectations, the group invests in and involves them so that they
feel engaged and motivated about being part of G4S. The group endeavours to continuously improve levels of employee engagement, motivation, expertise
and performance and through doing so achieve increased customer satisfaction and the continued growth of the business.
Businesses communicate with their employees through a variety of means such as magazines, meetings, intranets etc., to ensure they are kept abreast of
matters of concern to them, including the performance of the business. Employees are consulted on a regular basis, through their representatives where
appropriate, so that their views can be taken into account when decisions are made which are likely to affect their interests.
This focus on developing the group’s people has continued during the year with the creation of talent pools at all levels of the organisation and the
development of group-wide leadership programmes to support succession planning. To ensure potential employees are attracted from all backgrounds
and to make the best use of their capabilities and potential the group also continues to invest in developing a diverse and inclusive workplace. This includes
appointing, promoting and developing 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. A self assessment tool has been launched to
measure progress and drive future strategy in this area, and the plans developed as a result of the self assessments are now being implemented for 2011.
Another key strand of the group’s people strategy is health and safety, and performance in this area is continually reviewed and challenged by the board,
demonstrating the importance attached to this issue throughout G4S. All businesses are assessed regularly against the group health and safety model and
minimum standards, to ensure their strategy is focused in the appropriate areas and suffi cient progress is being achieved. In 2010 the clearest benefi t of this
rigorous approach to health and safety has been the continuing reduction in work-related fatalities.
The Ethical Employment Partnership entered into with UNI in 2008 has had a positive impact on the business over the last two years, with strong
relationships bringing benefi ts for employees as well as the company. The relationship at a global level between G4S and UNI has continued to develop
positively over this time, and in many developing markets labour relations have also entered new, constructive phases, mirroring the many constructive
relationships enjoyed in our developed markets.
Together, this progress in talent, diversity and inclusion, health and safety and social dialogue have helped increase employee engagement and motivation
across G4S, evidenced by a signifi cant reduction in employee turnover during the year. Further details of the group’s approach in these areas can be found
in the group’s separate CSR 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 company during the
year amounted to £375,000.
Charitable contributions made by the group in the UK, amounted to £63,000. The purposes for which such contributions were made and the amount
donated to each purpose were: child welfare: £20,000; health and medical: £22,000; local communities: £16,000; NGOs: £2,000; poverty relief: £1,000
and sports: £2,000.
In addition, G4S encourages businesses around the group to play their part in engaging with and helping to improve their local communities. In 2010, G4S
completed its fi rst review of its regional and country managed community investment activity around the world. The review took a clear snapshot of G4S
community activity, identifying 110 core community programmes across the globe including amongst others pro bono contributions in goods and services
and projects with local partners providing schooling for underprivileged children. Further details regarding community programmes can be found in the
group’s 2010 CSR report.
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 $18,000 in aggregate to a number of candidates seeking election
and organisations carrying on activities in the US.
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G4S plc Annual Report and Accounts 2010
Report of the directors continued
10 Substantial holdings
The directors have been notifi ed of the following substantial shareholdings at 14 March 2011 in the ordinary capital of G4S plc:
Harris Associates LP
Prudential plc group of companies
BlackRock, Inc
Legal & General Group Plc
85,135,700 (6.04%)
71,384,444 (5.06%)
70,570,646 (5.00%)
56,054,546 (3.97%)
11 Auditor
A resolution to re-appoint KPMG Audit Plc, chartered accountants, as auditor to the company and for their remuneration to be fi xed by the directors will
be submitted to the Annual General Meeting.
12 Directors
The directors, biographical details of whom are contained on pages 52 and 53, held offi ce throughout the year, with the exception of Clare Spottiswoode
who was appointed on 14 June 2010 and Winnie Fok who was appointed on 1 October 2010.
Thorleif Krarup was a director throughout the year and retired from the board on 31 January 2011.
In accordance with the code provisions on re-election of directors in the UK Corporate Governance Code, each of the continuing directors will offer
themselves for re-election (or, in the cases of Clare Spottiswoode and Winnie Fok, election). The board believes that the directors standing for re-election
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.
Ms Spottiswoode and Ms Fok have been appointed to the board since the last Annual General Meeting and so they would, in any event, be required to retire
in accordance with the company’s articles of association. Being eligible, they offer themselves for election. The board believes that Ms Spottiswoode’s wide
experience of both the public and private sectors in many parts of the world and Ms Fok’s extensive business background and intimate knowledge
of the Asian markets will add signifi cant value to the board and therefore recommends that each of them is elected at the Annual General Meeting.
The contracts of service of the executive directors have no unexpired term since they are not for a fi xed term. They 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 benefi t 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 defi ned by section 234 of the Companies Act 2006 and have
been in effect since 3 November 2006 for each of the directors other than Ms Spottiswoode and Ms Fok (whose indemnities have been in effect since
14 June 2010 and 1 October 2010 respectively). Copies of the forms of indemnity are 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 offi cers’ 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 62 to 66.
The directors who held offi ce at the date of approval of this directors’ report confi rm 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 or she ought to have taken as a director to make him
or herself 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 signifi cant to the business of the group during the fi nancial year.
By order of the board
Peter David
Secretary
14 March 2011
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Corporate governance statement
G4S plc Annual Report and Accounts 2010
59
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 confi rm 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), fi ve other non-executive
directors, the chief executive (Nick Buckles), the chief fi nancial offi cer (Trevor Dighton) and the chief operating offi cer (Grahame Gibson). The board
considers all the non-executive directors to be independent. The senior independent director is Lord Condon.
The company’s articles of association require that all continuing directors are subject to election by shareholders at the next Annual General Meeting
following their appointment and that they submit themselves for re-election at least every three years and that at least one third of the directors not
standing for election for the fi rst time stand for re-election at each Annual General Meeting. However, in accordance with the code provision on re-election
of directors in the UK Corporate Governance Code which replaces the Combined Code and will apply to the company’s Annual General Meeting in 2011,
all the directors will stand for election or re-election at that meeting.
Membership of the three board committees is as follows:
Audit Committee
Mark Seligman (chairman)
Lord Condon
Winnie Fok (joined October 2010)
Bo Lerenius
Remuneration Committee
Lord Condon (chairman)
Mark Elliott
Bo Lerenius
Mark Seligman
Clare Spottiswoode (joined June 2010)
Nomination Committee
Alf Duch-Pedersen (chairman)
Lord Condon
Mark Elliott
Mr Seligman is the member of the Audit Committee with recent and relevant fi nancial experience. Thorleif Krarup was a member of the Audit Committee
throughout the year to 31 December 2010 and until his retirement from the board on 31 January 2011. Winnie Fok joined the Audit Committee
on 1 October 2010.
Clare Spottiswoode joined the Remuneration Committee on 14 June 2010.
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 eight board meetings during the year ended 31 December 2010. One of the meetings was also an extended board and strategy session at which
presentations on development and implementation of the company’s strategy were made to the board by senior executives. One of the board meetings was
held in Hong Kong to enable the board to have greater interaction with some of the group’s businesses in Asia. All members attended each of the board
meetings except that Messrs Elliott, Krarup and Seligman were each absent from one meeting and Ms Spottiswoode was absent from two (her inability
to attend such meetings having been advised at the time of her appointment). Some 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 fi nancial offi cer 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 seven board meetings scheduled for the current year, including an extended, two-day, strategy review session.
There is a detailed schedule of matters reserved to the board which is set out under twelve separate categories: strategy and management; structure and
capital; fi nancial 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.
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G4S plc Annual Report and Accounts 2010
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 confl icts
or may confl ict 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 Committee met four times, the Remuneration Committee met six times and the Nomination Committee met twice.
All members attended each of the meetings except that Ms Spottiswoode and Mr Lerenius were each absent from one meeting of the Remuneration
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 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, Remuneration and Nomination Committees and a number of actions have been
agreed as a means of improving performance. As a result, the board will have greater interaction with the group’s businesses and customers, there
will be more detailed feedback to the board from investor contacts and board strategy sessions will be facilitated so as to maximise non-executive director
involvement. The Remuneration Committee concluded that its members should undertake external training courses where appropriate and the Audit
Committee is to benchmark its performance against other companies’ audit committees and recommended best practice.
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 fi nancial offi cer hold regular meetings with individual institutional shareholders to discuss the group’s strategy and fi nancial
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. Last year it considered the skill sets of the existing directors and compared them with what would be the ideal skills and
experience of the board in order to draw up a specifi cation for new non-executive directors. External search consultants were then engaged to seek out
candidates who met these requirements and, as a result, two new board members were appointed. Both the committee and the board itself have given
consideration to the succession planning process for the group’s senior executives.
Audit Committee meetings are attended by representatives of the group auditor, the chief fi nancial offi cer, the group fi nancial controller, the head of
group internal audit and the company secretary. The committee considers the group’s annual and half-yearly fi nancial statements and any questions raised
by the auditor on the fi nancial statements and fi nancial systems. It also reviews, amongst other matters, the group’s fi nancial reporting and internal auditing
processes, whistle-blowing arrangements, risk management procedures and internal controls.
The Audit Committee has recommended that the board reappoints the existing external auditor having reviewed its performance of audit services for
the company, reports on the performance of the fi rm 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 benefi t plans, reviews of internal accounting and control policies, general advice on fi nancial reporting standards and
corporate tax services. The auditor is prohibited from providing other services without specifi c 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 confi rming that, in its opinion, it is independent and that it complies with the Auditing Practices Board
Ethical Standards. The Audit Committee’s existing policy on the provision by the external auditor of non-audit services is to be reviewed in the light of the
Guidance on Audit Committees issued by the Financial Reporting Council published in December 2010. Details of the fees paid to the auditor for audit
services, audit-related services and other non-audit services is provided in note 10 to the consolidated fi nancial statements on page 86.
The work of the Remuneration Committee is more fully described in the Directors’ Remuneration Report which appears on pages 62 to 66.
(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 signifi cant exposure.
G4S plc Annual Report and Accounts 2010
61
(c) Risk management and internal control continued
The key features of the group’s risk management process, which was in place throughout the year under review and since, are:
k A common risk management framework* is used to provide a profi le of those risks which may have an impact on the achievement of business objectives.
k Each signifi cant risk is documented, showing an overview of the risk, how the risk is managed, and any improvement actions. The risk profi les ensure that
internal audit reviews of the adequacy, application and effectiveness of risk management and internal controls are targeted on the key risks.
k Risk management committees have been established at regional, divisional and group level. The regional and divisional committees meet at least annually
and the group committee meets quarterly. A standard agenda covering risk and control issues is considered at each meeting and risk profi les are reviewed
and updated at each meeting.
k Risk and control self-evaluation exercises are undertaken for each operating company, for most companies at least twice a year, and updated risk profi les
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 fi nancial offi cer.
The Audit Committee undertakes a high level review of risk management and internal control. Both the divisional and regional 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 defi ned 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 fi nancial 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 fi nancial 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/division and group
level are reported monthly and variances are reviewed. A programme of business internal fi nancial reviews is performed by a fi nance team from either
region/division or group to check the accuracy of fi nancial reporting and compliance with the group fi nance manual.
The board has reviewed the group’s risk management and internal control system for the year to 31 December 2010 by considering reports from the Audit
Committee and has taken account of events since 31 December 2010.
By order of the board
Peter David
Secretary
14 March 2011
* 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 satisfi ed itself as to the adequacy of the internal control processes adopted by WSI which include a risk review
by an external advisor.
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G4S plc Annual Report and Accounts 2010
Directors’ remuneration report
at 31 December 2010
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 fi nancial year and, subject to ongoing review, for subsequent fi nancial years. The report will be put to the company’s
Annual General Meeting for approval by the shareholders.
The Remuneration Committee met six 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, Mark Seligman and Clare Spottiswoode. Ms Spottiswoode was appointed
to the committee on 14 June 2010. The committee is responsible for setting all aspects of the remuneration of the chairman, the executive directors,
the eight 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 Watson UK Limited1 (“Towers Watson”) as the committee’s appointed advisors on executive
and senior management remuneration matters. Towers Watson has also provided management remuneration information and retirement benefi ts advice
to the company during the period under review. In this regard, the committee is satisfi ed that any potential confl icts are managed appropriately. Their terms
of appointment are available on the company’s website. In addition Alithos Limited1 (“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:
k the ability to attract, retain and motivate high calibre executives;
k a strong link between executive reward and the group’s performance;
k alignment of the interests of the executives and the shareholders; and
k 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 signifi cant 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 satisfi ed that the existing
long-term incentive scheme, allied to the claw back processes and minimum shareholding requirements which were introduced last year, provide suitable
controls and incentives which are designed to avoid rewarding excessive risk taking or behaviour aimed at short term, unsustainable gains. The committee
does not anticipate any change to this policy in 2011.
Target performance
Stretch performance
(cid:81) Base salary
(cid:81)(cid:3)Annual bonus
(cid:81) Long-term incentive
(cid:81) Base salary
(cid:81)(cid:3)Annual bonus
(cid:81) Long-term incentive
The committee is also satisfi ed 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 Watson 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 offi ce.
G4S plc Annual Report and Accounts 2010
63
Elements of remuneration
(a) Base salary and benefi ts
The salaries of the executive directors are reviewed with effect from 1 January each year. Interim salary reviews may be carried out following signifi cant changes
in responsibility. The salaries take account of a benchmarking exercise based on similarly sized companies with a signifi cant part of their business overseas and
also refl ect responsibility, individual performance, internal relativities and salary and other market information supplied by Towers Watson. Benefi ts include
pension arrangements and the provision of a company car (or a cash allowance in lieu of a car), health insurance and life assurance. Base salaries for the
executive directors have trailed competitive mid-market norms for some time and were frozen in 2009 and again in 2010 in view of the wider economic
environment. As indicated in last year’s report, this position was not consistent with the company’s long-standing competitive market remuneration policy.
Having carefully taken into consideration the pay and employment conditions across the group as well as the commercial needs of the business, the committee
has decided to increase base salaries in 2011 for Messrs Buckles, and Dighton to £830,000 and £510,000 respectively and for Mr Gibson to $917,112 and
£53,444. The impact of these changes is to align total remuneration for executive directors more closely with the committee’s overall remuneration policy.
(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 defi ned PBTA (profi t 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 refl ects 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 profi t 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 profi ts which is at least 95% of the budgeted profi t
target, a bonus payment of 35% of maximum bonus entitlement was due, with no bonus payable for performance below threshold. For achievement
between the 95% threshold and on-target performance, the level of bonus payable increases on a straight-line basis.
A claw back provision applies under which any deferred awards under the scheme can be clawed back if the year’s profi t fi gures are restated materially in line
with a recommendation by the Audit Committee within two years of the year end.
The group performed well in 2010 in what were again very diffi cult economic conditions, PBTA increased by £23m (£17m at 2009 constant exchange rates)
exceeding the threshold of £411.9m, but falling below the target which was £433.6m. The committee has therefore agreed that the resulting bonus payment
will be at 52.95% 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 is adjusted for 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 reinsert the operating profi t or loss for the business in
question in the actual and budgeted PBTA targets.
For 2011 only, the maximum bonus entitlement will remain unchanged, although threshold and budgeted target bonus opportunity will be equivalent to 50%
and 75% respectively of maximum bonus entitlement.
(c) Performance Share Plan (long-term incentive plan)
The Performance Share Plan (PSP) was introduced in July 2004. Under the PSP, 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 PSP 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 PSP vest is determined, as to two-thirds of the award, by the company’s
normalised earnings per share (EPS) growth relative to the UK retail prices index (UK 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.
The following targets apply to two-thirds of awards, with the three-year EPS period ending on 31 December in the third year (so for the year under review,
the period ends on 31 December 2012):
Average annual growth in EPS
Less than RPI + 6% per annum
RPI + 6% per annum (18% over three years)
RPI + 6–11% per annum
RPI + 11% per annum (33% over three years)
Proportion of allocation vesting
Nil
25%
Pro-rata between 25% and 100%
100%
In respect of awards made from March 2011 onwards, the infl ation measure applied to EPS will be CPI weighted according to the group’s geographical
revenue sources and the lower end of the range will be plus 4% per annum rather than the existing plus 6% per annum.
The following targets apply to the remaining one third of each award granted:
Ranking of the company against the bespoke comparator group by reference to TSR
Proportion of allocation vesting
Below median
Median
Between median and upper quartile
Upper quartile
Nil
25%
Pro-rata between 25% and 100%
100%
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.
Furthermore, there will only be a transfer of shares under the fi nal third if the Remuneration Committee is satisfi ed that such a transfer is refl ective of the
company’s underlying performance.
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G4S plc Annual Report and Accounts 2010
Directors’ remuneration report continued
Elements of remuneration continued
(c) Performance Share Plan (long-term incentive plan) continued
The committee believes that a combination of EPS growth and TSR 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 fi nancial 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 is determined by Towers Watson whose fi ndings are verifi ed 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 satisfi ed. Such awards would be pro-rated relative to 36 months, based on the number
of months which have elapsed from the award date to the date of leaving, rounded up to the next month. The committee does however retain the ability
to allow for a greater award to vest if it considers it to be appropriate in exceptional circumstances.
Following a review of the vesting conditions by the committee in the year, PSP awards from March 2011 will include an infl ation measure applied to EPS based
on consumer price indices (CPIs) weighted according to the group’s geographical revenue sources rather than UK RPI. The committee believes this approach
more accurately refl ects the global profi le of the group. The EPS range will be international CPI plus 4% per annum to 11% per annum which the committee
believes is required to maintain an appropriate degree of challenge and stretch in the plan in light of the company’s future prospects in a challenging economic
climate. The TSR comparator group will also be expanded to 17 companies in respect of awards made from March 2011 onwards.
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, a formal policy has been adopted under which executive directors are 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.
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 would consider the application of mitigation
obligations in relation to any termination payments. The committee is satisfi ed 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. Ms Spottiswoode’s and Ms Fok’s two-year
terms of appointment began on 14 June 2010 and 1 October 2010 respectively. Mr Elliott and Mr Seligman have each been granted two-year extensions
to their terms of appointment. Those extensions began respectively on 1 September 2009 and 1 January 2011. The other non-executive directors have
each been granted two-year extensions to their letters of appointment, such extensions having begun on 19 May 2010. All continuing directors are required
to stand for re-election by the shareholders at least once every three years, although they have agreed to submit themselves for re-election annually
in accordance with the UK Corporate Governance Code.
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 was a non-executive director of Arriva plc until 27 August 2010 for which he received fees of £52,500 in the year ended 31 December 2010.
Neither of the other executive directors currently holds an external non-executive appointment.
Performance graph
This performance graph shows the total cumulative shareholder return of
the company over the fi ve years to the end of December 2010, 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. 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.
The peer group currently comprises: Atkins, Brambles, Brink’s, Bunzl, Capita,
Compass, Garda, G4S, Hays, MITIE, Prosegur, Rentokil Initial, Rexam,
Securitas, Serco and Sodexo.
G4S plc
FTSE 100 Index
Peer group
220
200
180
)
p
(
e
u
a
V
l
160
140
120
100
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
G4S plc Annual Report and Accounts 2010
65
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
Winnie Fok (appointed 1 October 2010)
Thorleif Krarup
Bo Lerenius
Mark Seligman
Clare Spottiswoode (appointed 14 June 2010)
Total
Notes:
Salary and
Fees
£
Benefi ts
(excluding
pension
contribution)
£
Performance
Related
Bonus1
£
2010
Total
£
2009
Total
£
270,000
–
–
270,000
270,000
761,400
475,240
627,986
125,350
54,100
13,525
54,100
54,100
70,800
29,304
50,034
35,782
57,139
604,742
314,549
415,648
1,416,176
825,571
1,100,773
1,656,251
949,574
1,225,437
–
–
–
–
–
–
–
–
–
–
–
–
–
–
125,350
54,100
13,525
54,100
54,100
70,800
29,304
125,350
54,100
–
61,058
54,100
63,842
–
2,535,905
142,955
1,334,939
4,013,799
4,459,712
1. The benefi ts paid to directors included the provision of a company car or a cash allowance in lieu thereof, private medical insurance, income protection on long-term disability, life assurance, pensions
advice and, in Mr Gibson’s case, certain housing costs.
2. Any bonus due above 50% of the individual’s maximum 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 of the closing prices of the company’s ordinary shares over the three days immediately following the date
of the company’s preliminary results announcement on 15 March 2011.
3. The company paid air fares amounting to US$ 22,592 for fl ights 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 fi gures 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.
The annual base salaries of the executive directors and the annual fees of the non-executive directors at 31 December 2010 were:
Executive directors
Nick Buckles
Trevor Dighton
Grahame Gibson
Non-executive directors
Alf Duch-Pedersen (chairman)
Lord Condon
Mark Elliott
Winnie Fok
Thorleif Krarup (retired 31 January 2011)
Bo Lerenius
Mark Seligman
Clare Spottiswoode
£761,400
£475,240
£51,887 & $890,400
£
270,000
125,350
54,100
54,100
54,100
54,100
70,800
54,100
Directors’ interests in Performance Share Plan
Nick Buckles
Trevor Dighton
Grahame Gibson
At 31.12.09
1,987,612
1,002,877
1,107,298
Shares awarded
conditionally
during year
587,500
275,023
301,117
Date of
award
22.03.10
“
“
Market price
at date
of award
261.90 p
“
“
Vesting
date
22.03.13
“
“
2007
awards
483,250
298,860
336,480
At 31.12.10
2,091,862
979,040
1,071,935
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G4S plc Annual Report and Accounts 2010
Directors’ remuneration report continued
Directors’ interests in Performance Share Plan continued
The conditions subject to which allocations of shares vest under this plan are described under (c) Performance Share Plan on pages 63 and 64.
During the year under review the following performance share plan awards vested:
Nick Buckles – 483,250 shares gross (100% vested; 414,446 shares released after tax and NIC)
Trevor Dighton – 298,860 shares gross (100% vested; 256,309 shares released after tax and NIC)
Grahame Gibson – 336,480 shares gross (100% vested; 259,019 shares released after tax, NIC etc)
The market price at date of award (6 June 2007) was 212.50p per share, Messrs Buckles and Dighton paid the tax liabilities associated with the EPS portion
of their awards in cash at the time of the accelerated vesting of those awards on 23 March 2010 and so did not rely on the sale of part of their award to
fund that liability. The TSR portion of their awards, and all of Mr Gibson’s award, vested on 7 June 2010 and shares were sold to meet PAYE liabilities arising
therefrom. The market prices at these vesting dates (23 March 2010 and 7 June 2010) were 263.20p and 266.50p per share respectively.
Directors’ interests in shares of G4S plc (unaudited)
(including awards of deferred shares but excluding shares awarded conditionally under the performance share plan as shown above)
Nick Buckles
Lord Condon
Trevor Dighton
Alf Duch-Pedersen
Mark Elliott
Winnie Fok
Grahame Gibson
Thorleif Krarup (retired 31 January 2011)
Bo Lerenius
Mark Seligman
Clare Spottiswoode
At 31.12.10
2,083,147
2,029
At 31.12.09
1,602,194
2,029
1,339,558
1,052,061
128,560
25,000
20,000
868,033
3,206
16,000
75,496
–
128,560
25,000
–
927,382
3,206
16,000
50,496
–
All interests shown above are benefi cial.
There have been no changes in the directors’ holdings since 31 December 2010.
As at 31 December 2010, each of Nick Buckles, Trevor Dighton and Grahame Gibson also had a deemed interest in 5,029,315 ordinary shares held
in the G4S Employee Benefi t Trust.
Directors’ pension entitlements
For the period under review, both Nick Buckles and Trevor Dighton participated in non-contributory categories of the group’s defi ned benefi t pension
schemes 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
fi nal 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 2010 (all fi gures are in £’000s):
Gross increase
in accrued
pension(1)
Increase in
accrued pension
net of
infl ation(2)
15
16
–
4
13
–7
Total accrued
pension at
31/12/10(3)
361
115
230
Value of net
increase in
accrual over
period(4)
Total change
in transfer
value during
period(5)
Transfer value
of accrued
pension at
31/12/10(6)
Transfer value
of accrued
pension at
31/12/09(7)
69
305
–125
852
378
357
7,106
2,742
4,041
6,255
2,364
3,684
Nick Buckles
Trevor Dighton
Grahame Gibson
Notes
(i) 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.
(ii) Transfer values have been calculated in accordance with the current transfer value basis adopted by the trustees of the G4S Pension Scheme.
(iii) 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.
(iv) Mr Gibson receives a salary supplement in lieu of pension of 40% of his base salary.
Lord Condon
Chairman of the Remuneration Committee
14 March 2011
Statement of directors’ responsibilities in respect
of the annual report and the fi nancial statements
G4S plc Annual Report and Accounts 2010
67
The directors are responsible for preparing the Annual Report and the group and parent company fi nancial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare group and parent company fi nancial statements for each fi nancial year. Under that law they are required to
prepare the group fi nancial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company
fi nancial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs
of the group and parent company and of their profi t or loss for that period. In preparing each of the group and parent company fi nancial statements, the
directors are required to:
k select suitable accounting policies and then apply them consistently;
k make judgements and estimates that are reasonable and prudent;
k for the group fi nancial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
k for the parent company fi nancial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures
disclosed and explained in the parent company fi nancial statements; and
k prepare the fi nancial 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 suffi cient to show and explain the parent company’s transactions and disclose
with reasonable accuracy at any time the fi nancial position of the parent company and enable them to ensure that its fi nancial 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 fi nancial information included on the company’s website. Legislation in
the UK governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.
Directors’ Responsibility Statement
Each of the directors, the names of whom are set out on pages 52 and 53 of this annual report confi rm that, to the best of his or her knowledge: the fi nancial
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, fi nancial position and profi t of the company and the group taken as a whole; and the directors’ report, including the Business Review on pages 10
to 51, 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 they face.
The statement of directors’ responsibilities was approved by a duly authorised committee of the board of directors on 14 March 2011 and signed on its
behalf by Trevor Dighton, Chief fi nancial offi cer.
Trevor Dighton
Chief fi nancial offi cer
14 March 2011
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68
G4S plc Annual Report and Accounts 2010
Independent auditor’s report to the members
of G4S plc
We have audited the fi nancial statements of G4S plc for the year ended 31 December 2010 set out on pages 69 to 124. The fi nancial reporting framework
that has been applied in the preparation of the group fi nancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the EU. The fi nancial reporting framework that has been applied in the preparation of the parent company fi nancial 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 auditor’s 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 67, the directors are responsible for the preparation of the fi nancial
statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the fi nancial 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 fi nancial statements
A description of the scope of an audit of fi nancial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on fi nancial statements
In our opinion:
k the fi nancial 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 2010 and of the group’s
profi t for the year then ended;
k the group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
k the parent company fi nancial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;
k the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group fi nancial
statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
k the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
k the information given in the Directors’ Report for the fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial 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:
k 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
k the parent company fi nancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
k certain disclosures of directors’ remuneration specifi ed by law are not made; or
k we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
k the directors’ statement, set out on page 67, in relation to going concern; and
k the part of the Corporate Governance Statement on pages 59 to 61 relating to the company’s compliance with the nine provisions of the June 2008
Combined Code specifi ed for our review; and
k certain elements of the report to shareholders by the Board on directors’ remuneration.
A G Cates (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
14 March 2011
Consolidated income statement
For the year ended 31 December 2010
G4S plc Annual Report and Accounts 2010
69
Continuing operations
Revenue
Profi t from operations before amortisation of acquisition-related intangible assets
and share of profi t from associates
Share of profi t from associates
Profi t from operations before amortisation of acquisition-related
intangible assets (PBITA)
Amortisation of acquisition-related intangible assets
Acquisition-related expenses
Profi t from operations before interest and taxation (PBIT)
Finance income
Finance costs
Profi t before taxation (PBT)
Taxation:
– Before amortisation of acquisition-related intangible assets
– On amortisation of acquisition-related intangible assets
– On acquisition-related expenses
Profi t after taxation
Loss from discontinued operations
Profi t for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profi t for the year
Earnings per share attributable to equity shareholders of the parent
For profi t from continuing operations:
Basic and diluted
For profi t from continuing and discontinued operations:
Basic and diluted
Notes
2010
£m
2009
£m
5, 6
7,397
7,009
522
5
527
(88)
(4)
435
98
(203)
330
(102)
25
1
(76)
254
(9)
245
223
22
245
6
6, 8
12
13
14
7
16
499
1
500
(83)
–
417
82
(196)
303
(100)
23
–
(77)
226
(7)
219
202
17
219
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15.9p
14.9p
14.4p
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G4S plc Annual Report and Accounts 2010
Consolidated statement of comprehensive income
For the year ended 31 December 2010
Profi t for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Change in fair value of net investment hedging fi nancial instruments
Change in fair value of cash fl ow hedging fi nancial instruments
Actuarial losses on defi ned retirement benefi t schemes
Tax on items taken directly to equity
Other comprehensive income, net of tax
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income for the year
Note
14
2010
£m
245
41
–
15
15
(11)
60
305
283
22
305
2009
£m
219
(93)
29
(23)
(63)
22
(128)
91
74
17
91
Consolidated statement of fi nancial position
At 31 December 2010
G4S plc Annual Report and Accounts 2010
71
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 classifi ed as held for sale
Total assets
LIABILITIES
Current liabilities
Bank overdrafts
Bank loans
Obligations under fi nance leases
Trade and other payables
Current tax liabilities
Retirement benefi t obligations
Provisions
Liabilities associated with assets classifi ed as held for sale
Non-current liabilities
Bank loans
Loan notes
Obligations under fi nance leases
Trade and other payables
Retirement benefi t obligations
Provisions
Deferred tax liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium and reserves
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
2010
£m
2009
£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
38
2,147
2,049
286
71
580
10
138
161
359
69
546
7
111
178
3,393
3,319
84
82
1,463
351
–
1,980
5,373
(45)
(113)
(21)
(1,208)
(58)
(61)
(33)
–
78
84
1,351
309
29
1,851
5,170
(38)
(146)
(23)
(1,106)
(54)
(55)
(30)
(31)
(1,539)
(1,483)
(574)
(1,153)
(49)
(48)
(245)
(44)
(98)
(2,211)
(3,750)
1,623
353
1,224
1,577
46
1,623
(516)
(1,117)
(63)
(43)
(313)
(73)
(122)
(2,247)
(3,730)
1,440
353
1,054
1,407
33
1,440
The consolidated fi nancial statements were approved by the board of directors and authorised for issue on 14 March 2011.
They were signed on its behalf by:
Nick Buckles
Director
Trevor Dighton
Director
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G4S plc Annual Report and Accounts 2010
Consolidated statement of cash fl ow
For the year ended 31 December 2010
Profi t 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
Acquisition-related expenses
Profi t on disposal of property, plant and equipment and intangible assets other than acquisition-related
Profi t on disposal of subsidiaries
Share of profi t from associates
Equity-settled transactions
Operating cash fl ow before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase in payables
Decrease in provisions
Decrease in retirement benefi t obligations
Net cash fl ow from operating activities of continuing operations
Net cash used by operating activities of discontinued operations
Cash generated by operations
Tax paid
Net cash fl ow from operating activities
Investing activities
Interest received
Cash fl ow 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
Sale/(purchase) of investments
Own shares purchased
Net cash used in investing activities
Financing activities
Share issues
Dividends paid to non-controlling 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
Transactions with non-controlling interests
Interest paid
Net cash fl ow from hedging fi nancial instruments
Repayment of obligations under fi nance leases
Net cash fl ow from fi nancing activities
Notes
2010
£m
330
(98)
203
131
88
17
4
(16)
(8)
(5)
7
653
(2)
(83)
43
(32)
(40)
539
(5)
534
(86)
448
11
3
(179)
40
(59)
7
9
5
(10)
(173)
–
(12)
(103)
–
–
(18)
(3)
(105)
–
(20)
(261)
2009
£m
303
(82)
196
121
83
15
–
–
–
(1)
7
642
2
1
5
(26)
(33)
591
(14)
577
(68)
509
12
2
(187)
17
(128)
(12)
8
(1)
(10)
(299)
3
(18)
(94)
347
(347)
24
(30)
(99)
(10)
(24)
(248)
Consolidated statement of cash fl ow continued
For the year ended 31 December 2010
G4S plc Annual Report and Accounts 2010
73
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of the year
Effect of foreign exchange rate fl uctuations on cash held
Cash, cash equivalents and bank overdrafts at the end of the year
Notes
39
28
2010
£m
14
291
1
306
2009
£m
(38)
361
(32)
291
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G4S plc Annual Report and Accounts 2010
Consolidated statement of changes in equity
For the year ended 31 December 2010
Share
capital
£m
352
Share
premium
£m
256
Retained
earnings
£m
252
Hedging
reserve*
£m
(47)
Translation
reserve*
£m
200
Merger
reserve*
£m
426
Reserve for
own shares*
£m
(12)
–
1
–
–
–
–
353
353
–
–
–
–
–
–
–
2
–
–
–
–
258
258
–
–
–
–
–
–
353
258
140
–
(94)
–
(10)
7
295
295
238
(103)
–
(10)
(7)
7
420
4
–
–
–
–
–
(43)
(43)
11
–
–
–
–
–
(70)
–
–
–
–
–
130
130
34
–
–
–
–
–
–
–
–
–
–
–
426
426
–
–
–
–
–
–
(32)
164
426
–
–
–
(10)
10
–
(12)
(12)
–
–
(10)
10
–
–
(12)
Total
reserves
£m
1,427
74
3
(94)
(10)
–
7
1,407
1,407
283
(103)
(10)
–
(7)
7
1,577
At 1 January 2009
Total comprehensive income
attributable to equity
shareholders of the parent
Shares issued
Dividends declared
Own shares purchased
Own shares awarded
Equity-settled transactions
At 31 December 2009
At 1 January 2010
Total comprehensive income
attributable to equity
shareholders of the parent
Dividends declared
Own shares purchased
Own shares awarded
Transactions with non-
controlling interests
Equity-settled transactions
At 31 December 2010
*See Note 38.
Notes to the consolidated fi nancial statements
G4S plc Annual Report and Accounts 2010
75
1 General information
G4S plc is a company incorporated in the United Kingdom under the Companies Act 1985. The consolidated fi nancial statements incorporate the fi nancial
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
within the Business Review on pages 10 to 39 and 44 to 49. The group operates throughout the world and in a wide range of functional currencies, the most
signifi cant being the euro, the US dollar and sterling. The group’s fi nancial 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 offi ce is given on page 132.
2 Statement of compliance
The consolidated fi nancial 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 fi nancial statements in accordance with UK Generally
Accepted Accounting Practice (UK GAAP). These are presented on pages 116 to 124.
3 Signifi cant accounting policies
(a) Basis of preparation
The consolidated fi nancial 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 fi nancial instruments. The principal accounting policies adopted are set out below. Judgements made by the
directors in the application of these accounting policies which have a signifi cant effect on the fi nancial statements, and estimates with a signifi cant risk of
material adjustment, are discussed in note 4. Further information on the going concern assessment is given in the Financial Review on pages 44 to 49 and
in note 33 on pages 101 to 103.
The comparative consolidated statement of fi nancial position as at 31 December 2009 has been restated to refl ect the completion during 2010 of the initial
accounting in respect of acquisitions made during 2009. Adjustments made to the provisional calculation of the fair values of assets and liabilities acquired
amount to £5m, 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.
The presentation of the consolidated fi nancial statements has been changed to round results to the nearest £1m whereas previously they were rounded to
the nearest £0.1m. This change has required the 2009 fi gures to be restated and as a result there are some immaterial inconsistencies between the restated
rounded 2009 fi gures in the 2010 accounts compared to the same fi gures disclosed to the nearest £0.1m in the 2009 accounts. In addition there may be
immaterial rounding inconsistencies between the notes to the accounts and the primary statements for the 2009 fi gures.
(b) Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the group. Control is achieved where the group has the power to govern the fi nancial and operating policies
of an investee entity so as to obtain benefi ts 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. The cost
of acquisition is measured as the acquisition date fair values of the assets transferred to the vendor and does not include transaction costs. The cost of
acquisition in respect of acquisitions made prior to 1 January 2010 included transaction costs and has not been restated. Any excess of the cost of acquisition
over the fair values of the identifi able net assets acquired is recognised as goodwill. Any defi ciency in the cost of acquisition below the fair values of the
identifi able 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 deferred consideration payable, including that in respect of put options held by non-controlling
shareholders, as estimated at the date of acquisition. For acquisitions prior to 1 January 2010 subsequent changes to the present value of the estimate of
contingent consideration and any difference upon fi nal settlement of such a liability are recognised as adjustments to the cost of acquisition. For acquisitions
after 1 January 2010 such changes are recognised in the income statement. Non-controlling interests are stated at their proportion of the fair values of the
assets and liabilities recognised. Profi ts and losses are applied in the proportion of their respective ownership to the interest of the parent and to the
non-controlling interest.
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,
fi nancial 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 fi nancial statements.
Associates
An associate is an entity over which the group is in a position to exercise signifi cant infl uence, but not control or joint control, through participation in the
fi nancial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in the group’s consolidated fi nancial statements using the equity method of accounting.
Investments in associates are carried in the consolidated statement of fi nancial position 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, profi ts and losses are eliminated to the extent of the group’s interest in the relevant joint venture or associate.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
3 Signifi cant accounting policies continued
(c) Foreign currencies
The fi nancial 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 fi nancial instruments and hedge accounting
In accordance with its treasury policy, the group only holds or issues derivative fi nancial instruments to manage the group’s exposure to fi nancial risk, not for
trading purposes. Such fi nancial risk includes the interest risk on the group’s variable-rate borrowings, the fair value risk on the group’s fi xed-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 fi nancial instruments, including interest
rate swaps, fi xed rate agreements, commodity swaps, commodity options, forward foreign exchange contracts and currency swaps.
Derivative fi nancial instruments are recognised in the consolidated statement of fi nancial position as fi nancial assets or liabilities at fair value. Fair value is
measured using one of the valuation techniques based on one of the three 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 remeasurement 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 fl ow 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 fl ow 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 acquisition method. Goodwill arising on consolidation represents the excess of the
cost of acquisition over the group’s interest in the fair value of the identifi able assets and liabilities and contingent liabilities of a subsidiary, associate or
jointly-controlled entity at the date of acquisition. No goodwill arises on the acquisition of an additional interest from a non-controlling interest in a subsidiary
as this is accounted for as an equity transaction. 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 profi t 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 profi t or loss on disposal.
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 fi ve years
up to a maximum of ten years
up to a maximum of fi ve years
G4S plc Annual Report and Accounts 2010
77
3 Signifi cant accounting policies continued
(e) Intangible assets continued
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 identifi able asset, its cost can be measured reliably, it is probable that it
will generate future economic benefi ts, it is technically and commercially feasible and the group has suffi cient 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 identifi able asset,
if its cost can be measured reliably and if it is probable that it will generate future economic benefi ts. 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 eight 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 50 years
over the life of the lease
one to ten years
Assets held under fi nance 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 signifi cant, the residual values and the useful economic lives of property, plant and equipment are re-assessed 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 fi nancial 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.
Service concession assets
Under the terms of a Private Finance Initiative (PFI) or similar project the risks and rewards of ownership of an asset remain largely with the purchaser of
the associated services. In such cases, the group’s interest in the asset is classifi ed as a fi nancial asset and included at its discounted value within trade and
other receivables, to the extent to which the group has an unconditional right to receive cash from the grantor of the concession for the construction of the
asset. To the extent that the group has the right to charge for the use of such an asset, conditional upon the extent of the use, the group recognises an
intangible asset.
Current asset investments
Current asset investments comprise investments in securities, which are classifi ed 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 fl ow 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.
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 fi rst-in-
fi rst-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.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
3 Signifi cant accounting policies continued
(i) Impairment
The carrying value of the group’s assets, with the exception of 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 fl ows deriving from the asset discounted to their present value using a pre-tax discount rate which refl ects current market assessments of the time value
of money and the risks specifi c to the asset. For an asset that does not generate largely independent cash fl ows, 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 fi rst 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 benefi t trust, they are classifi ed as treasury shares and presented
as a deduction from equity.
(k) Employee benefi ts
Retirement benefi t costs
Payments to defi ned contribution schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefi t schemes are
dealt with as payments to defi ned contribution schemes where the group’s obligations under the schemes are equivalent to those arising in a defi ned
contribution retirement benefi ts scheme.
For defi ned benefi t schemes, the cost of providing benefi ts 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 fi nance income on assets and the fi nance cost on liabilities are recognised in the income
statement as components of fi nance income and fi nance 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 consolidated statement of comprehensive income.
Past service cost is recognised immediately to the extent that the benefi ts are already vested. Otherwise it is amortised on a straight-line basis over the
average period until the benefi ts vest.
Changes to the value of accrued benefi ts arising from government action are accounted for as changes in actuarial assumptions following the guidance issued
by the UK ASB in UITF 48 Accounting implications of the replacement of the Retail Prices Index with the Consumer Prices Index for Retirement Benefi ts.
The retirement benefi t obligation recognised in the consolidated statement of fi nancial position represents the present value of the defi ned benefi t 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 benefi ts
The group’s net obligation in respect of long-term service benefi ts other than retirement benefi ts represents the present value of the future benefi t 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.
(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 onerous 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 suffi ciently 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 refl ect 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.
G4S plc Annual Report and Accounts 2010
79
3 Signifi cant accounting policies continued
(m) Revenue recognition continued
Construction contracts
Where signifi cant, 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 consolidated statement of fi nancial position at cost plus profi t 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 fi nancial asset to that asset’s net carrying amount.
Dividend income
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
(n) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that
asset. Other borrowing costs are recognised as an expense in the income statement.
(o) Profi t from operations
Profi t from operations is stated after the share of results of associates but before fi nance income and fi nance costs. Exceptional items of particular
signifi cance, including restructuring costs, are included within profi t 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 profi t for the year. Taxable profi t differs from net profi t 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
fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, 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 profi ts 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 profi t nor the accounting profi t.
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 suffi cient
taxable profi ts 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 classifi ed as fi nance leases when the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases
are classifi ed as operating leases. This classifi cation can be a matter of fi ne judgement.
Assets held under fi nance 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 consolidated statement of fi nancial position as a fi nance lease obligation. Amounts due from lessees
under fi nance 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 fi nance 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) Operating segments
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 fi nancial information is available.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
3 Signifi cant accounting policies continued
(s) Non-current assets held for sale and discontinued operations
Non-current assets (and disposal groups) classifi ed 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 classifi ed 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 classifi cation.
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 classifi ed as held for sale.
(t) Dividend distribution
Dividends are recognised as distributions to equity holders in the period in which they are paid or approved by the shareholders in general meeting.
(u) Adoption of new and revised accounting standards and interpretations
Standards and interpretations issued by the IASB are only applicable if endorsed by the EU. The following revisions to IFRS will be applicable in future periods,
subject to endorsement where applicable:
k Revised IAS 24 Related Party Disclosures is applicable for 2011. This standard amends the defi nition of related parties and modifi es certain disclosures.
k Amendments to IFRS 7 Financial Instruments: Disclosures are applicable for 2011. The amendments state that qualitative disclosures should be made in the
context of the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from fi nancial instruments.
k Amendments to IFRIC 14 IAS 19 The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their interaction is applicable for 2011. These
amendments remove consequences arising from the treatment of prepayments where there is a minimum funding requirement.
k Amendments to IAS 1 Presentation of Financial Statements are applicable for 2011. The amendments clarify that disaggregation of changes in each
component of equity arising from transactions recognised in other comprehensive income also is required to be presented, but may be presented either
in the statement of changes in equity or in the notes.
The group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a signifi cant
impact on the fi nancial statements.
4 Accounting estimates, judgements and assumptions
The preparation of fi nancial 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 fi nancial statements, the disclosure of contingent assets and liabilities at the date of the fi nancial 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 signifi cance 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 identifi able 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 cost is 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 fl ows, 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 fl ows from the use and eventual disposal
of the assets. Such an analysis includes an estimation of the future anticipated results and cash fl ows, 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 benefi t obligations
The valuation of defi ned retirement benefi t schemes is arrived at using the advice of qualifi ed 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 infl ation. Full details
of the group’s retirement benefi t obligations, including an analysis of the sensitivity of the calculations to the key assumptions are presented in note 34.
G4S plc Annual Report and Accounts 2010
81
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
Sale of goods
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 fi nancial instruments and hedged items
Expected return on defi ned retirement benefi t scheme assets
Total other operating income
Notes
6
6, 7
2010
£m
125
7,064
208
7,397
1
2
–
3
11
–
87
98
2009
£m
158
6,727
124
7,009
–
34
7
41
13
1
68
82
6 Operating segments
The group operates in two core product areas: secure solutions and cash solutions which represent the group’s reportable segments. For each of the
reportable segments, the group’s CEO (the chief operating decision maker) reviews internal management reports on a regular basis. The group operates on
a worldwide basis and derives a substantial proportion of its revenue, PBITA 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 Pacifi c).
Segment information is presented below:
Revenue by reportable segment
Secure solutions
UK and Ireland
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacifi c
New Markets
Total secure solutions
Cash solutions
Europe
North America
New Markets
Total cash solutions
Total revenue
Continuing
operations
2010
£m
Discontinued
operations
2010
£m
1,179
1,438
2,617
1,676
465
356
333
600
1,754
6,047
891
106
353
1,350
7,397
–
1
1
–
–
–
–
–
–
1
–
–
2
2
3
Total
2010
£m
1,179
1,439
2,618
1,676
465
356
333
600
1,754
6,048
891
106
355
1,352
7,400
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
1,139
1,498
2,637
1,495
425
283
306
522
1,536
5,668
929
99
313
1,341
7,009
–
34
34
–
–
–
–
–
–
34
–
–
7
7
41
Total
2009
£m
1,139
1,532
2,671
1,495
425
283
306
522
1,536
5,702
929
99
320
1,348
7,050
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
6 Operating segments continued
Revenue by geographical area
UK and Ireland*
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacifi c
New Markets
Total revenue
Total
2010
£m
1,657
1,852
3,509
1,782
521
412
458
718
2,109
7,400
* UK and Ireland revenue includes £1,548m relating to the UK (2009: £1,508m).
Revenue from internal and external customers by reportable segment
Secure solutions
Cash solutions
Total revenue
Inter-segment sales are charged at prevailing market prices.
Total gross
segment
revenue
2010
£m
6,055
1,353
7,408
Inter-segment
revenue
2010
£m
(7)
(1)
(8)
External
revenue
2010
£m
6,048
1,352
7,400
Total gross
segment
revenue
2009
£m
5,711
1,348
7,059
Inter-segment
revenue
2009
£m
(9)
–
(9)
Total
2009
£m
1,629
1,971
3,600
1,594
476
327
427
626
1,856
7,050
External
revenue
2009
£m
5,702
1,348
7,050
G4S plc Annual Report and Accounts 2010
83
6 Operating segments continued
PBITA by reportable segment
Continuing
operations
2010
£m
Discontinued
operations
2010
£m
Total
2010
£m
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 Pacifi c
New Markets
Total secure solutions
Cash solutions
Europe
North America
New Markets
Total cash solutions
Total PBITA before head offi ce costs
Head offi ce costs
Total PBITA
PBITA by geographical area
Europe
North America
New Markets
Total PBITA before head offi ce costs
Head offi ce costs
Total PBITA
Result by reportable segment
Total PBITA
Amortisation of acquisition-related
intangible assets
Acquisition-related costs
Total PBIT
Secure solutions
Cash solutions
Head offi ce costs
Total PBIT
103
77
180
96
44
26
33
40
143
419
101
4
44
149
568
(41)
527
281
100
187
568
(41)
527
–
(6)
(6)
–
–
–
–
–
–
(6)
–
–
(3)
(3)
(9)
–
(9)
(6)
–
(3)
(9)
–
(9)
Continuing
operations
2010
£m
Discontinued
operations
2010
£m
527
(88)
(4)
435
351
125
(41)
435
(9)
–
–
(9)
(6)
(3)
–
(9)
103
71
174
96
44
26
33
40
143
413
101
4
41
146
559
(41)
518
275
100
184
559
(41)
518
Total
2010
£m
518
(88)
(4)
426
345
122
(41)
426
97
80
177
85
38
18
29
41
126
388
102
4
46
152
540
(40)
500
279
89
172
540
(40)
500
–
(11)
(11)
(1)
–
–
–
–
–
(12)
–
–
(2)
(2)
(14)
–
(14)
(11)
(1)
(2)
(14)
–
(14)
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
500
(83)
–
417
330
127
(40)
417
(14)
–
–
(14)
(12)
(2)
–
(14)
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.
Total
2009
£m
97
69
166
84
38
18
29
41
126
376
102
4
44
150
526
(40)
486
268
88
170
526
(40)
486
Total
2009
£m
486
(83)
–
403
318
125
(40)
403
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
6 Operating segments continued
Segment assets and liabilities
The following information is analysed by reportable segment and by the geographical area in which the assets are located:
Total assets
By reportable segment
Secure solutions
Cash solutions
Head offi ce
Inter-segment trading balances
Total segment operating assets
By geographical area
UK and Ireland*
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacifi c
New Markets
Head offi ce
Inter-segment trading balances
Total segment operating assets
Non-operating assets
Total assets
Total liabilities
By reportable segment
Secure solutions
Cash solutions
Head offi ce
Inter-segment trading balances
Total segment operating liabilities
Non-operating liabilities
Total liabilities
2010
£m
3,428
1,151
207
(133)
4,653
1,516
887
2,403
1,032
204
229
300
411
1,144
207
(133)
4,653
720
5,373
2010
£m
(1,140)
(247)
(26)
133
(1,280)
(2,470)
(3,750)
2009
£m
3,256
1,140
194
(98)
4,492
1,555
923
2,478
972
168
147
276
355
946
194
(98)
4,492
678
5,170
2009
£m
(1,055)
(204)
(57)
98
(1,218)
(2,512)
(3,730)
* UK and Ireland operating assets include £1,418m of assets relating to the UK (2009: £1,439m).
Assets and liabilities relating to 2009 have been re-analysed between reportable segments and geographical areas to be consistent with the groupings used
for revenue and PBITA.
Non-operating assets and liabilities comprise fi nancial assets and liabilities, taxation assets and liabilities and retirement benefi t obligations.
Included within operating and non-operating assets are £nil (2009: £3m) and £nil (2009: £26m) respectively relating to assets classifi ed as held for sale.
Included within operating and non-operating liabilities are £nil (2009: £11m) and £nil (2009: £20m) respectively relating to liabilities associated with assets
classifi ed as held for sale. Disposal groups are analysed in note 27.
G4S plc Annual Report and Accounts 2010
85
6 Operating segments continued
Other information
By reportable segment
Secure solutions
Cash solutions
Head offi ce
Total
By geographical area
UK and Ireland
Continental Europe
Europe
North America
Middle East and Gulf States
Latin America and the Caribbean
Africa
Asia Pacifi c
New Markets
Head offi ce
Total
Depreciation
and
amortisation
2010
£m
148
86
2
236
Capital
additions
2010
£m
202
63
4
269
Depreciation
and
amortisation
2009
£m
165
53
1
219
Capital
additions
2010
£m
50
62
112
48
6
66
11
22
105
4
269
Capital
additions
2009
£m
251
86
16
353
Capital
additions
2009
£m
66
66
132
113
8
11
43
43
105
3
353
7 Discontinued operations
Operations qualifying as discontinued in 2009 comprised the security services business in France, which principally comprised Group 4 Securicor SAS;
the systems installation business in Slovakia; the security services business in Germany, which principally comprised G4S Sicherheitsdienste GmbH and G4S
Sicherheitssysteme GmbH; and the cash solutions business in Taiwan, which was disposed of on 15 July 2010. No further businesses qualifi ed as discontinued
during 2010.
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)
Attributable tax credit
Total operating (loss)/profi t for the year
Loss on disposal of discontinued operations
Net loss attributable to discontinued operations
2010
£m
3
(12)
(9)
–
(9)
–
(9)
2009
£m
41
(55)
(14)
20
6
(13)
(7)
The attributable tax credit in 2009 relates to the recognition of previously unrecognised tax attributes in G4S Government Services Inc., a US group company.
The effect of discontinued operations on segment results is disclosed in note 6.
Cash fl ows from discontinued operations included in the consolidated cash fl ow statement are as follows:
Net cash fl ows from operating activities
Net cash fl ows from investing activities
Net cash fl ows from fi nancing activities
2010
£m
(5)
(1)
(25)
(31)
2009
£m
(14)
(9)
1
(22)
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
8 Profi t from operations before interest and taxation (PBIT)
The income statement can be analysed as follows:
Continuing operations
Revenue
Cost of sales
Gross profi t
Administration expenses
Share of profi t from associates
PBIT
2010
£m
7,397
(5,811)
1,586
(1,156)
5
435
2009
£m
7,009
(5,473)
1,536
(1,120)
1
417
Included within administration expenses is £88m (2009: £83m) of amortisation of acquisition-related intangible assets and £4m (2009: £nil) of
acquisition-related expenses.
Revenue and expenses relating to discontinued operations are disclosed in note 7.
9 Profi t from operations
Profi t 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
Depreciation of property, plant and equipment
Profi t on disposal of property, plant and equipment and intangible assets other than acquisition-related
Profi t on disposal of subsidiaries
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 Auditor’s 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
Corporate fi nance services
Fees payable to other auditors for the audit of the company’s subsidiaries pursuant to legislation
2010
£m
102
1
88
17
131
(16)
(8)
5
1
5
142
(13)
7
(1)
–
2009
£m
92
–
83
15
121
–
–
8
1
6
131
(10)
7
(1)
2
2010
£m
2009
£m
1
5
–
1
1
4
1
1
In addition, the group paid £0.4m (2009: £0.4m) for taxation services.
The Corporate governance statement on pages 59 to 61 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 2010
87
11 Staff costs and employees
The average monthly number of employees, in continuing and discontinued operations, including executive directors was:
By reportable segment
Secure solutions
Cash solutions
Not allocated, including shared administration and head offi ce
Total average number of employees
By geographical area
Europe
North America
New Markets
Not allocated, including shared administration and head offi ce
Total average number of employees
Their aggregate remuneration, in continuing and discontinued operations, comprised:
Wages and salaries
Social security costs
Employee benefi ts
Total staff costs
2010
Number
2009
Number
563,519
52,678
129
542,044
50,804
116
616,326
592,964
124,580
54,599
437,018
129
616,326
2010
£m
4,240
510
152
4,902
129,479
51,177
412,192
116
592,964
2009
£m
4,060
505
158
4,723
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 62 to 66.
12 Finance income
Interest income on cash, cash equivalents and investments
Other interest income
Expected return on defi ned retirement benefi t scheme assets
Loss arising from change in fair value of derivative fi nancial instruments hedging loan notes
Gain arising from fair value adjustment to the hedged loan note items
Total fi nance income
13 Finance costs
Interest on bank overdrafts and loans
Interest on loan notes
Interest on obligations under fi nance leases
Other interest charges
Total group borrowing costs
Finance costs on defi ned retirement benefi t obligations
Total fi nance costs
2010
£m
8
3
87
(16)
16
98
2010
£m
23
75
6
6
110
93
203
2009
£m
12
1
68
(53)
54
82
2009
£m
28
66
7
8
109
87
196
Included within interest on bank overdrafts and loans is a charge of £14m (2009: £12m) relating to cash fl ow hedges that were transferred from equity
during the year.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial 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
Total income tax expense/(credit) for the year
Continuing
operations
2010
£m
Discontinued
operations
2010
£m
Total
2010
£m
Continuing
operations
2009
£m
Discontinued
operations
2009
£m
15
79
–
(8)
86
(11)
1
(10)
76
–
–
–
–
–
–
–
–
–
15
79
–
(8)
86
(11)
1
(10)
76
19
73
(3)
9
98
(14)
(7)
(21)
77
–
(1)
–
–
(1)
(19)
–
(19)
(20)
Total
2009
£m
19
72
(3)
9
97
(33)
(7)
(40)
57
UK corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profi ts for the period. Overseas tax is calculated at the corporation tax rates
prevailing in the relevant jurisdictions.
The tax charge for the year can be reconciled to the profi t per the income statement as follows:
Profi t before taxation
Continuing operations
Discontinued operations
Total profi t before taxation
Tax at UK corporation tax rate of 28% (2009: 28%)
Expenses that are not deductible in determining taxable profi t
Tax losses not recognised in the current year
Different tax rates of subsidiaries operating in non-UK jurisdictions
Movement in deferred tax balance due to reduction in UK rate to 27% from 1 April 2011
Adjustments for previous years
Total income tax charge
Effective tax rate
2010
£m
330
(9)
321
90
6
–
(11)
(2)
(7)
76
24%
The following taxation charge/(credit) has been recognised directly in equity within the consolidated statement of comprehensive income:
Tax relating to components of other comprehensive income
Net investment hedges
Cash fl ow hedges
Defi ned retirement benefi t schemes
Total tax debited/(credited) to other comprehensive income
2010
£m
–
4
7
11
2009
£m
303
(26)
277
77
10
(19)
(9)
–
(2)
57
21%
2009
£m
2
(7)
(17)
(22)
G4S plc Annual Report and Accounts 2010
89
15 Dividends
Amounts recognised as distributions to equity holders of the parent
in the year
Final dividend for the year ended 31 December 2008
Interim dividend for the six months ended 30 June 2009
Final dividend for the year ended 31 December 2009
Interim dividend for the six months ended 30 June 2010
Pence
per share
DKK
per share
3.68
3.02
4.16
3.17
0.3052
0.2599
0.3408
0.2877
Proposed fi nal dividend for the year ended 31 December 2010
4.73
0.4082
2009
£m
52
42
–
–
94
2010
£m
–
–
58
45
103
66
The proposed fi nal dividend is subject to approval by shareholders at the Annual General Meeting. If so approved, it will be paid on 3 June 2011* to shareholders
who are on the UK register on 6 May 2011. The exchange rate used to translate it into Danish krone is that at 14 March 2011.
* Shareholders on the VP Services register will be paid on 6 June, as 3 June is a public holiday in Denmark.
16 Earnings/(loss) per share attributable to equity shareholder of the parent
From continuing and discontinued operations
Earnings
Profi t for the year attributable to equity holders of the parent
Number of shares (m)
Weighted average number of ordinary shares
Earnings per share from continuing and discontinued operations (pence)
Basic and diluted
From continuing operations
Earnings
Profi t for the year attributable to equity holders of the parent
Adjustment to exclude loss for the year from discontinued operations (net of tax) (note 7)
Profi t from continuing operations
Earnings per share from continuing operations (pence)
Basic and diluted
From discontinued operations
Loss per share from discontinued operations (pence)
Basic and diluted
From adjusted earnings
Earnings
Profi t from continuing operations
Adjustment to exclude net retirement benefi t fi nance cost (net of tax)
Adjustment to exclude amortisation of acquisition-related intangible assets (net of tax)
Adjustment to exclude acquisition-related expenses (net of tax)
Adjusted profi t for the year attributable to equity holders of the parent
Weighted average number of ordinary shares (m)
Adjusted earnings per share (pence)
2010
£m
2009
£m
223
202
1,406
1,404
15.9p
14.4p
223
9
232
202
7
209
16.5p
14.9p
(0.6)p
(0.5)p
232
4
64
3
303
1,406
21.6p
209
14
60
–
283
1,404
20.2p
In the opinion of the directors, the earnings per share fi gure of most use to shareholders is that which is adjusted. This fi gure 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.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial 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 SSE Do Brasil Ltda, the parent company of Instalarme Soluções Eletrônica Ltda (“Instalarme”), an electronic software and hardware integration
company in Brazil; a controlling interest in Plantech Engenharia e Sistemas Ltda (“Plantech”), a leading integrator in the Brazilian security systems market;
and the entire share capital of Skycom (Pty) Ltd (“Skycom”), a market leader in the South African security systems market.
The group also increased its holding in an Argentinian business during the year, which has been accounted for in equity.
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
Goodwill
Total purchase consideration
Europe
£m
5
2
7
New
Markets
£m
14
44
58
Total
group
£m
19
46
65
The following table sets out the book values of the identifi able 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
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Provisions
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Goodwill
Total purchase consideration
Satisfi ed by:
Cash
Deferred consideration
Total purchase consideration
Summary of current year acquisition activities
Total purchase consideration relating to current year acquisitions
Additional consideration recognised in the current year relating to acquisitions completed in prior years
Total consideration recognised in the current year
Goodwill recognised on current year acquisitions
Goodwill recognised in the current year relating to acquisitions completed in prior years
Total goodwill recognised in the current year
1
7
3
12
6
(6)
(1)
–
(4)
–
18
13
(2)
–
–
–
(2)
–
(5)
–
(3)
1
14
5
3
12
6
(8)
(1)
(5)
(4)
(3)
19
46
65
42
23
65
65
12
77
46
12
58
Deferred consideration in respect of acquisitions made in 2010 has been recognised at the amount which is expected to be paid in the future, being £27m
discounted to its present value of £23m. The amount of deferred consideration which will be paid is in part dependent upon the future performance of the
acquired businesses. The maximum undiscounted amount of deferred consideration which could be payable is £32m.
Adjustments made to identifi able assets and liabilities on acquisition are to refl ect their fair value. These include the recognition of customer-related
intangible assets amounting to £13m. The fair values of net assets acquired are provisional and represent estimates following a preliminary valuation exercise.
These estimates may be adjusted to refl ect 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, developed expertise and processes 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.
G4S plc Annual Report and Accounts 2010
91
17 Acquisitions continued
From their respective dates of acquisition, the acquired businesses’ contribution to the results of the group for the period was as follows:
Revenue
£m
PBITA
£m
Profi t
£m
Contribution from acquired businesses
Instalarme
Plantech
Western Investigations
Skycom (Pty) Ltd
Others
Total contribution from acquired businesses
12
6
1
1
3
23
1
1
–
–
–
2
PBITA
£m
527
1
2
–
1
1
1
–
–
–
–
1
Profi t
£m
245
1
1
–
1
1
If all the acquisitions had occurred on 1 January 2010 the results of the group for the period would have been as follows:
Group’s results if all acquisitions had occurred on 1 January 2010
Group results for the period
Impact of backdating acquisitions to 1 January 2010
Instalarme
Plantech
Western Investigations
Skycom (Pty) Ltd
Others
Revenue
£m
7,397
8
13
1
5
8
Group result for the period if all acquisitions had occurred on 1 January 2010
7,432
532
249
Prior year acquisitions
Principal acquisitions in subsidiary undertakings in the prior year included 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;
SecuraMonde, 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 buy-outs of the non-controlling interests in certain businesses in New Markets.
At 31 December 2009, the fair value adjustments made against net assets acquired were provisional. The initial accounting in respect of acquisitions made
during 2009 has since been fi nalised. 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
Inventories
Trade and other receivables
Deferred tax assets
Cash and cash equivalents
Trade and other payables
Provisions
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Acquisition of non-controlling interests
Goodwill
Total purchase consideration
Satisfi ed by:
Cash
Transaction costs1
Contingent consideration
Total purchase consideration
1 Transaction costs are net of an £11m refund of tax expenses incurred when G4S plc acquired Securicor plc in 2004.
1
3
4
51
1
5
(34)
(1)
(1)
–
29
7
48
–
–
2
–
1
–
(5)
–
(17)
29
–
49
3
4
53
1
6
(34)
(6)
(1)
(17)
58
7
88
153
159
(7)
1
153
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
17 Acquisitions continued
Adjustments made to identifi able assets and liabilities on acquisition are to refl ect their fair value. These include the recognition of customer-related intangible
assets amounting to £48m.
On completion of the fair value exercise during 2010, adjustments made to the provisional calculation amounted to £5m, with an equivalent increase in the
reported value of goodwill. The comparative consolidated statement of fi nancial position at 31 December 2009 has been restated accordingly.
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 £22m
arising on the acquisition of non-controlling interests.
In the year of acquisition, in aggregate, the acquired businesses contributed £35m to revenues, £5m to PBITA and £3m to profi t for the part year they were
under the group’s ownership. If all acquisitions had occurred on 1 January 2009, group revenue would have been £7.2bn, PBITA would have been £516m and
profi t for the year would have been £227m.
Post balance sheet acquisitions
No signifi cant acquisitions have been effected between the balance sheet date and the date that the fi nancial statements were authorised for issue.
18 Disposal of subsidiaries
On 15 July 2010, the group disposed of the cash solutions business in Taiwan.
On 24 September 2010, the group disposed of Travel Logistics Limited, a UK-based expeditor of travel documents.
On 28 February 2009, the group disposed of the manned security business in France, which includes principally Group 4 Securicor SAS.
On 23 December 2009, the group disposed of Group 4 Falck Reinsurance S.A. the captive insurance business in Luxembourg.
The net assets and profi t/(loss) on disposal of operations disposed of were as follows:
Goodwill
Acquisition-related intangible assets
Property, plant and equipment and intangible assets other than acquisition-related
Current assets
Liabilities
Net assets of operations disposed
Profi t/(loss) on disposal
Total consideration
Satisfi ed by:
Cash received
Deferred receipts
Disposal costs
Total consideration
2010
£m
3
3
–
1
(2)
5
8
13
9
4
–
13
2009
£m
13
–
3
84
(79)
21
(13)
8
14
–
(6)
8
G4S plc Annual Report and Accounts 2010
93
19 Intangible assets
2010
Cost
At 1 January 2010
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2010
Amortisation and accumulated
impairment losses
At 1 January 2010
Amortisation charge
Disposals
Translation adjustments
At 31 December 2010
Carrying amount
At 1 January 2010
At 31 December 2010
2009
Cost
At 1 January 2009
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2009
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
Goodwill
Acquisition-related intangible assets
Other intangible assets
Total
£m
Trademarks
£m
Customer
related
£m
Technology
£m
Development
expenditure
£m
Software
£m
£m
2,120
58
–
(3)
45
2,220
(71)
–
–
(2)
(73)
2,049
2,147
2,113
90
–
(22)
(61)
2,120
(34)
–
9
(46)
(71)
2,079
2,049
34
–
–
–
–
34
(22)
(3)
–
–
(25)
12
9
34
–
–
–
–
34
(17)
(5)
–
–
(22)
17
12
601
14
–
(13)
7
609
(257)
(84)
10
(4)
(335)
344
274
566
49
–
–
(14)
601
(187)
(75)
–
5
(257)
379
344
17
–
–
–
1
18
(14)
(1)
–
–
(15)
3
3
19
–
–
–
(2)
17
(13)
(3)
–
2
(14)
6
3
16
–
6
–
–
22
(5)
(4)
–
–
(9)
11
13
12
–
5
–
(1)
16
(2)
(3)
–
–
(5)
10
11
118
2,906
–
15
1
(2)
72
21
(15)
51
132
3,035
(60)
(13)
(1)
–
(74)
58
58
104
–
24
(8)
(2)
118
(52)
(12)
7
(3)
(60)
52
58
(429)
(105)
9
(6)
(531)
2,477
2,504
2,848
139
29
(30)
(80)
2,906
(305)
(98)
16
(42)
(429)
2,543
2,477
Included within software is internally generated software with a gross carrying value of £12m (2009: £9m), and accumulated amortisation of £1m
(2009: £1m), giving a net book value of £11m (2009: £8m). During the year, additions amounted to £3m (2009: £4m) and the amortisation charge associated
to these assets was £nil (2009: £1m).
Customer-related intangibles comprise the contractual and other relationships with customers which meet the criteria for identifi cation as intangible assets in
accordance with IFRS. Customer contracts and relationships recognised upon the acquisition of Securicor plc on 19 July 2004 are considered signifi cant to the
group. The carrying amount at 31 December 2010 was £72m (2009: £96m), and the amortisation period remaining in respect of these assets is three and a
half years.
Goodwill acquired in a business combination is allocated to the cash-generating units (CGUs) which are expected to benefi t 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 fi nalised and reviewed post-year end.
The group’s impairment test compares the carrying value of each CGU to its recoverable amount. CGUs are identifi ed on a country level basis including
signifi cant 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.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
19 Intangible assets continued
The recoverable amount of a CGU is determined by its value in use which is derived from discounted cash fl ow calculations. These calculations include
forecast pre-tax cash fl ows for a period of fi ve years. The fi ve year cash fl ow 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 fi ve, all of which refl ect past
experience as well as future expected market trends. Budgeted and forecast cash fl ows are based on management’s assessment of current contract
portfolio, contract wins, contract retention and price increases. Cash fl ows beyond the fi ve 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 fi ve. Growth rates across the group’s CGUs range from 0% to 20%, and the into-perpetuity growth rates for the signifi cant CGUs are
disclosed in the table below. Future cash fl ows are discounted at a pre-tax, weighted average cost of capital which for the group is 6.5% (2009: 8.4%), and
the discount rates for the signifi cant CGUs are disclosed in the table below. Pre-tax cash fl ows are discounted using pre-tax discount rates derived from
calculating the net present value of the post-tax cash fl ows discounted at post-tax rates. The group rate is adjusted where appropriate to refl ect the different
fi nancial risks in each country in which the CGUs operate. Risk-adjusted discount rates applicable to group entities range from 4.7% in Singapore to 38.4%
in Zambia.
In applying the group’s model, no impairment has been identifi ed and recognised in any of the group’s CGUs for the year ended 31 December 2010 or
for the year ended 31 December 2009. 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 signifi cant carrying amounts of goodwill:
Discount rate
2010
Discount rate
2009
Growth rate*
2010
Growth rate*
2009
Goodwill
2010
£m
Goodwill
2009
£m
US secure solutions (manned security)
Former GSL business acquired in 2008
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.
6.4%
6.5%
6.5%
6.0%
6.5%
6.5%
7.0%
7.2%
8.4%
8.4%
7.3%
8.4%
8.4%
13.1%
2.5%
2.5%
2.5%
3.3%
2.5%
2.5%
4.0%
2.5%
2.5%
2.5%
3.5%
2.5%
2.5%
4.0%
372
258
239
121
117
95
65
880
2,147
359
258
241
126
117
95
67
786
2,049
The key assumptions used in the discounted cash fl ow 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 6.5% to 7.5% with equivalent increases to the discount rates in all countries would
result in a goodwill impairment to the group of £5m. A signifi cant increase of 3% in the group discount rate from 6.5% to 9.5%, and an equivalent increase in
all countries, would result in a group impairment of £18m.
A decrease in the underlying growth rate in all countries of 1% would result in a group impairment of £3m. A decrease of 3% in growth rate would result in
a group impairment of £12m. 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.
20 Property, plant and equipment
Land and
buildings
£m
Equipment
and vehicles
£m
2010
Cost
At 1 January 2010
Acquisition of businesses
Additions
Disposals
Translation adjustments
At 31 December 2010
Depreciation and accumulated
impairment losses
At 1 January 2010
Depreciation charge
Disposals
Translation adjustments
At 31 December 2010
Carrying amount
At 1 January 2010
At 31 December 2010
227
–
19
(22)
(1)
223
(58)
(15)
10
2
(61)
169
162
Total
£m
1,130
5
171
(84)
30
903
5
152
(62)
31
1,029
1,252
(526)
(116)
50
(19)
(611)
377
418
(584)
(131)
60
(17)
(672)
546
580
G4S plc Annual Report and Accounts 2010
95
20 Property, plant and equipment continued
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
Land and
buildings
£m
Equipment
and vehicles
£m
230
–
23
(16)
(10)
227
(59)
(13)
10
4
(58)
171
169
861
3
159
(79)
(41)
903
(503)
(108)
66
19
(526)
358
377
Total
£m
1,091
3
182
(95)
(51)
1,130
(562)
(121)
76
23
(584)
529
546
During the year management have reassessed the useful economic life of assets within the equipment and vehicles category resulting in the life of certain
items being revised.
The carrying amount of equipment and vehicles includes the following in respect of assets held under fi nance leases:
Net book value
Accumulated depreciation
Depreciation charge for the year
2010
£m
61
102
19
The rights over leased assets are effectively security for lease liabilities. These rights revert to the lessor in the event of default.
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)
2010
£m
33
77
10
2010
£m
66
20
76
2009
£m
73
87
19
2009
£m
34
73
10
2009
£m
66
21
82
At 31 December 2010 the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £2m (2009: £2m).
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
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 fi nancial 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 fi nancial statements are as follows:
Results
Income
Expenses
Profi t after tax
Balance sheet
Assets
Non-current assets
Current assets
Liabilities
Current liabilities
Non-current liabilities
Net assets
22 Investment in associates
Total assets
Total liabilities
Net investment in associates
Revenue
Profi t for the year
2010
£m
55
(52)
3
2010
£m
38
8
46
(10)
(32)
(42)
4
2010
£m
19
(9)
10
79
5
2009
£m
46
(42)
4
2009
£m
43
9
52
(11)
(37)
(48)
4
2009
£m
13
(6)
7
34
1
The net investment and results presented above largely relate to Space Gateway Support LLC and MW-All Star, both in the USA, in which the group holds
investments of 46% and 49% respectively. The results of both associates are reported in the North America security segment.
23 Inventories
Raw materials
Work in progress
Finished goods including consumables
Total inventories
2010
£m
16
13
55
84
2009
£m
16
10
52
78
24 Investments
Investments comprise primarily listed securities of £43m (2009: £59m) 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.
G4S plc Annual Report and Accounts 2010
97
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 fi nancial instruments at fair value (see note 32)
Total trade and other receivables included within current assets
Within non-current assets
Derivative fi nancial instruments at fair value (see note 32)
Other debtors
Amounts receivable under service concession arrangements
Total trade and other receivables included within non-current assets
2010
£m
2009
£m
1,231
1,178
(73)
2
155
105
32
11
(66)
1
115
94
17
12
1,463
1,351
85
17
36
138
58
13
40
111
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 120 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 refl ect 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
2010
£m
(66)
5
(12)
(73)
2009
£m
(59)
8
(15)
(66)
Included within trade receivables are trade debtors with a carrying amount of £393m (2009: £368m) which are past due at the reporting date for which
no provision has been made as there has not been a signifi cant 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 2010 that were overdue for payment was
37% (2009: 36%). The group-wide average age of all trade debtors at year end was 57 days (2009: 56 days).
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 is 49 days (2009: 48 days at constant exchange rates).
The directors believe the fair value of trade and other receivables, being the present value of future cash fl ows, approximates to their book value.
Amounts receivable under service concession arrangements
Amounts receivable under service concession arrangements 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,
fi nancing and management of HM Prison and Young Offenders Institution Parc in Bridgend, South Wales, for the Home Offi ce; 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 (ninety days for the Bloemfontein contract) and the payment of appropriate
compensation. The specifi ed assets remain the property of the customers. The group’s joint ventures have the right to receive payment for the infrastructure
and to provide services using the specifi ed 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 infl ation-indexed.
Amounts receivable under service concession arrangements are pledged as security against borrowings of the group.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
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 (see note 25)
Amounts due to contract customers included in trade and other payables (see note 31)
Net balances relating to construction contracts
Contract costs incurred plus recognised profi ts less recognised losses to date
Less: Progress billings
Net balances relating to construction contracts
2010
£m
32
(7)
25
212
(187)
25
2009
£m
17
(2)
15
181
(166)
15
At 31 December 2010, advances received from customers for contract work amounted to £9m (2009: £6m). 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 fl ows, approximates to their
book value.
27 Disposal groups classifi ed as held for sale
As at 31 December 2010 there were no disposal groups classifi ed as held for sale. Disposal groups classifi ed as held for sale as at 31 December 2009
comprised primarily the assets and liabilities associated with the cash solutions business in Taiwan, sold on 15 July 2010.
The major classes of assets and liabilities comprising the operations classifi ed as held for sale are as follows:
ASSETS
Property, plant and equipment and intangible assets other than acquisition-related
Trade and other receivables
Cash and cash equivalents
Total assets classifi ed as held for sale
LIABILITIES
Bank overdrafts
Bank loans
Trade and other payables
Retirement benefi t obligations
Total liabilities associated with assets classifi ed as held for sale
Net liabilities of disposal group
2010
£m
2009
£m
–
–
–
–
–
–
–
–
–
–
2
1
26
29
(6)
(13)
(11)
(1)
(31)
(2)
28 Cash, cash equivalents and bank overdrafts
A reconciliation of cash and cash equivalents reported within the consolidated cash fl ow statement to amounts reported within the consolidated statement
of fi nancial position is presented below:
Cash and cash equivalents
Bank overdrafts
Cash, cash equivalents and bank overdrafts included within disposal groups classifi ed as held for sale
Total cash, cash equivalents and bank overdrafts
2010
£m
351
(45)
–
306
2009
£m
309
(38)
20
291
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 2010 bore interest at a weighted average rate of 0.9% (2009: 1.1%). 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 130 group companies at 31 December 2010. It is
anticipated that the number of participants in the group will continue to grow. 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 2010 £230m (2009: £147m) of the cash balances and the
equivalent amount of the overdraft balances were offset.
Cash and cash equivalents of £26m (2009: £20m) 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 2010
99
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 fi fth years inclusive
After fi ve 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 £803m of private loan notes and £350m of public loan notes.
Analysis of bank overdrafts, bank loans and loan notes by currency:
2010
£m
45
687
1,153
1,885
158
551
222
954
1,885
(45)
(113)
(158)
1,727
Bank overdrafts
Bank loans
Loan notes
At 31 December 2010
Bank overdrafts
Bank loans
Loan notes
At 31 December 2009
Sterling
£m
Euros
£m
US Dollars
£m
Others
£m
15
258
419
692
16
121
419
556
1
256
–
257
10
174
–
184
–
147
734
881
–
324
698
1,022
29
26
–
55
12
43
–
55
Of the borrowings in currencies other than sterling, £951m (2009: £1,010m) is designated as net investment hedging instruments.
The weighted average interest rates on bank overdrafts, bank loans and loan notes at 31 December 2010 adjusted for hedging were as follows::
Bank overdrafts
Bank loans
Private loan notes
Public loan notes
2010
%
1.5
3.0
4.2
7.8
2009
£m
38
662
1,117
1,817
184
15
604
1,014
1,817
(38)
(146)
(184)
1,633
Total
£m
45
687
1,153
1,885
38
662
1,117
1,817
2009
%
1.4
3.6
4.2
7.8
The group’s committed bank borrowings comprise a multi-currency revolving credit facility totalling £1,100m with a maturity date of March 2016, and
the group’s uncommitted facilities amount to £575m (2009: £516m). At 31 December 2010, undrawn committed available facilities amounted to £552m
(2009: £615m). 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 fl oating rates exposes the group to cash fl ow interest rate risk. The management of this risk is discussed in note 33.
The group issued fi xed rate loan notes in the US Private Placement market totalling US$550m (£341m) 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 fi xed rate loan notes in the US Private Placement market totalling US$514m (£318m) 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 ($75m).
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 fi nancial covenant (net debt to EBITDA ratio) and non-compliance with the
covenant may lead to an acceleration of maturity. The group complied with the fi nancial covenant throughout the year to 31 December 2010 and the year
to 31 December 2009. The group has not defaulted on, or breached the terms of, any material loans during the year.
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 (£169m) of the loan notes issued in July 2008 have a fair value market gain of £39m (2009: £30m).
The fair value of the remaining notes approximates to their book value.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
30 Obligations under fi nance leases
Amounts payable under fi nance leases:
Within one year
In the second to fi fth years inclusive
After fi ve years
Less: Future fi nance charges on fi nance leases
Present value of lease obligations
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
Minimum
lease
payments
2010
£m
Minimum
lease
payments
2009
£m
Present
value of
minimum
lease
payments
2010
£m
Present
value of
minimum
lease
payments
2009
£m
24
52
4
80
(10)
70
28
61
11
100
(14)
86
21
46
3
70
(21)
49
23
53
10
86
(23)
63
It is the group’s policy to lease certain of its fi xtures and equipment under fi nance leases. The weighted average lease term is eight years. For the year ended
31 December 2010, the weighted average effective borrowing rate was 6.8% (2009: 7.4%). Interest rates are fi xed at the contract date. All leases are on a
fi xed repayment basis and no arrangements have been entered into for contingent rental payments.
The directors believe the fair value of the group’s fi nance lease obligations, being the present value of future cash fl ows, approximates to their book value.
The group’s obligations under fi nance 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 fi nancial instruments at fair value (see note 32)
Total trade and other payables included within current liabilities
Within non-current liabilities:
Derivative fi nancial instruments at fair value (see note 32)
Other creditors
Total trade and other payables included within non-current liabilities
2010
£m
196
7
2
208
461
325
9
2009
£m
192
2
1
206
398
295
12
1,208
1,106
7
41
48
10
33
43
Trade and other payables comprise principally amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade
purchases is 33 days (2009: 37 days). The directors believe the fair value of trade and other payables, being the present value of future cash fl ows,
approximates to their book value.
Other creditors of £41m included within non-current liabilities comprises £31m relating to creditors due between one and two years, and £10m relating
to creditors due between two and fi ve years.
32 Derivative fi nancial instruments
The carrying values of derivative fi nancial instruments at the balance sheet date are presented below:
Cross currency swaps designated as cash fl ow hedges
Interest rate swaps designated as cash fl ow hedges
Interest rate swaps designated as fair value hedges
Commodity swaps
Less: Non-current portion
Current portion
Assets
2010
£m
39
–
55
2
96
(85)
11
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
30
–
40
–
70
(58)
12
–
16
–
–
16
(7)
9
–
22
–
–
22
(10)
12
G4S plc Annual Report and Accounts 2010
101
32 Derivative fi nancial instruments continued
Derivative fi nancial 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 fl oating rate cash fl ows 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 risen by £33m during the year.
The interest rate, cross currency and commodity swaps have the following maturities:
Within one year
In the second year
In the third year
In the fourth year
In the fi fth year or greater
Total carrying value
Projected settlement of cash fl ows (including accrued interest) associated with derivatives:
Within one year
In the second year
In the third year
In the fourth year
In the fi fth year or greater
Total cash fl ows
33 Financial risk
Capital management
Assets
2010
£m
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
1
1
10
–
29
41
–
–
–
7
23
30
3
7
4
1
1
16
3
6
8
4
1
22
Assets
2010
£m
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
1
1
9
–
32
43
1
–
–
8
21
30
11
5
1
1
1
19
13
7
2
1
–
23
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, which has been retained.
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 timeframe 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 2010 was 7.4%.
The group monitors the fi nancial 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 benefi t 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 suffi cient 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 2009
31 March 2010
30 June 2010
30 September 2010
31 December 2010
28%
21%
21%
19%
26%
To reduce re-fi nancing risk, group treasury obtains fi nance with a range of maturities and hence minimises the impact of a single material source of fi nance
terminating on a single date.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
33 Financial risk continued
The group’s committed facilities, restated at hedged rates where applicable, have the following maturity dates:
July 2013
March 2014
July 2015
March 2016
July 2016
March 2017
July 2018
March 2019
May 2019
July 2020
March 2022
£33m
£64m
£76m
£1,100m
£25m
£128m
£180m
£93m
£350m
£48m
£67m
Re-fi nancing 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.
On 10 March 2011 the group completed its refi nance of its multi-currency revolving credit facility. The new £1.1bn facility has a margin of 0.80% over LIBOR
and matures in March 2016.
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 fi nancing
activities in local currency. However, the group presents its consolidated fi nancial 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 fl uctuations
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 fl ow 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 2010, the group’s US dollar and euro net assets were approximately 65% and 60% respectively hedged by foreign currency loans
(2009: US dollar 75%, euro 87%).
Cross currency swaps with a nominal value of £134m were arranged to hedge the foreign currency risk on US$265m of the second US Private Placement
notes issued in July 2008, effectively fi xing the sterling value of this portion of debt at an exchange rate of 1.9750.
Interest rate risk and interest rate swaps
Borrowing at fl oating rates as described in note 29 exposes the group to cash fl ow 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 fi x the interest rate on a proportion of borrowings
on a reducing scale over forward periods up to a maximum of fi ve years. At 31 December 2010 the nominal value of such contracts was £134m (in respect
of US dollar) (2009: £170m) and £167m (in respect of euro) (2009: £218m), their weighted average interest rate was 5.0% (US dollar) (2009: 5.0%) and
3.7% (euro) (2009: 3.7 %), and their weighted average period to maturity was one and a half years. All the interest rate hedging instruments are designated
and fully effective as cash fl ow hedges and movements in their fair value have been deferred in equity.
The US Private Placement market is predominantly a fi xed rate market, with investors looking for a fi xed rate return over the life of the loan notes. At the time
of the fi rst issue in March 2007, the group was comfortable with the proportion of fl oating rate exposure not hedged by interest rate swaps and therefore
rather than take on a higher proportion of fi xed rate debt arranged fi xed to fl oating swaps effectively converting the fi xed coupon on the Private Placement
to a fl oating 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 fi xed interest loan notes, with the movements in their fair value posted to profi t 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 and on the GBP Public Bond issued in May 2009 was kept at fi xed rate.
The core group borrowings are held in US dollar, euro and sterling. Although the impact of rising interest rates is partly shielded by fi xed rate loans and interest rate
swaps which fi x 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 2010 debt position constant throughout 2011, an additional interest charge of £8m would be expected in the 2011 fi nancial year.
Commodity risk and commodity swaps
The group’s principal commodity risk relates to the fl uctuating level of diesel prices, particularly affecting its cash solutions businesses. Commodity swaps and
commodity options are used to fi x synthetically part of the exposure and reduce the associated cost volatility. Commodity swaps hedging 18 million litres of
projected 2011 diesel consumption, 15 million litres of projected 2012 diesel consumption, 15 million litres of projected 2013 diesel consumption and 7 million
litres of projected 2014 diesel consumption were in place at 31 December 2010.
Counterparty credit risk
The group’s strategy for treasury 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
fi nancial 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 fi nancial counterparty must have a minimum rating of A+/A1 from Standard & Poor’s or Moody’s.
G4S plc Annual Report and Accounts 2010
103
33 Financial risk continued
Counterparty credit risk continued
Treasury transactions are dealt with the group’s relationship banks, all of which have a strong investment grade rating. At 31 December 2010 the largest two
counterparty exposures related to treasury transactions were £37m and £21m and both were held with institutions with long-term Moody’s credit ratings of
Aa3. These exposures represent 39% and 21% of the carrying values of derivative fi nancial instrument, with a fair value gain at the balance sheet date. Both of
these banks had signifi cant loans outstanding to G4S plc at 31 December 2010.
The group operates a multi-currency notional pooling cash management system with a wholly-owned subsidiary of an Aa3 rated bank. At year end credit
balances of £230m were pooled with debit balances of £236m, resulting in a net pool balance of £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 benefi t obligations
The group operates a wide range of retirement benefi t arrangements which are established in accordance with local conditions and practices within the
countries concerned. These include funded defi ned contribution and funded and unfunded defi ned benefi t schemes.
Defi ned contribution arrangements
The majority of the retirement benefi t arrangements operated by the group are of a defi ned contribution structure, where the employer contribution and
resulting income statement charge is fi xed at a set level or is a set percentage of employees’ pay. Contributions made to defi ned contribution schemes and
charged to the income statement totalled £110m (2009: £109m).
In the UK, following the closure of the defi ned benefi t schemes to new entrants in 2004, the main scheme for new employees is a contracted-in defi ned
contribution scheme.
Wackenhut Services, Inc (“WSI”) is the administrator of several defi ned benefi t schemes. WSI is responsible for making periodic cost-reimbursable deposits
to the various defi ned benefi t 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 benefi t liabilities. Therefore, these schemes are
accounted for as defi ned contribution schemes.
In the Netherlands, most employees are members of industry-wide defi ned benefi t 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 defi ned contribution schemes.
Contributions made to the schemes and charged to the income statement in 2010 totalled £8m (2009: £7m). The estimated amounts of contributions
expected to be paid to the schemes during the fi nancial year commencing 1 January 2011 in respect of the ongoing accrual of benefi ts is approximately
£8m assuming consistent exchange rates.
Defi ned benefi t arrangements
The group operates a number of defi ned benefi t retirement arrangements where the benefi ts are based on employees’ length of service. In most cases
these are calculated on the basis of fi nal pensionable pay, other than for the smallest of the three sections 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 benefi ts 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 2010 totalled £3m (2009: £3m). Under funded arrangements, the assets of defi ned benefi t schemes are held in separate
trustee-administered funds. The pension costs are assessed on the advice of qualifi ed independent actuaries using the projected unit credit method.
The group operates several funded defi ned retirement benefi t schemes. Whilst the group’s primary scheme is in the UK, it also operates other material
schemes in the Netherlands, Canada, Israel and Greece.
The carrying values of retirement benefi t obligations at the balance sheet date are presented below:
UK
Rest of World
Net liability on material funded defi ned retirement benefi t schemes
Unfunded and other funded defi ned retirement benefi t obligations
Less: Amounts included within current liabilities
Included within non-current liabilities
2010
£m
256
9
265
41
306
(61)
245
2009
£m
307
21
328
40
368
(55)
313
The defi ned benefi t scheme in the UK accounts for 97% of the net balance sheet liability on material funded defi ned retirement benefi t schemes. It comprises
three sections: 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.
The three schemes in the UK have combined under one trustee body with effect from 1 January 2010 and the resultant scheme was formally actuarially
assessed at 5 April 2009. Pension obligations stated in the statement of fi nancial position take account of future earnings increases, have been updated to
31 December 2010 and use the valuation methodologies specifi ed in IAS 19 Employee Benefi ts.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
34 Retirement benefi t obligations continued
Since the year end the group has entered into a consultation period with a view to closing the UK scheme to future accrual during 2011 which would limit the
future growth in liabilities. Existing members would retain their benefi ts accrued to-date and would be transferred to a new defi ned contribution scheme for
future pension benefi ts.
During the year the UK Government announced that the minimum rates at which pensions will increase will change from using RPI to CPI. This change
has resulted in a one-off reduction in the liabilities, mainly associated with UK deferred pensioners, by £32m. This has been accounted for as a credit to
reserves in line with the recently announced UITF 48 Accounting implications of the replacement of the Retail Prices Index with the Consumer Prices Index for
Retirement Benefi ts.
As at the latest actuarial valuation, the participants of the UK pension scheme sections 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 2010
Discount rate
Expected return on scheme assets (as at 1 January 2010)
Expected rate of salary increases
Future pension increases (LPI5%)
Infl ation
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%)
Infl ation
UK
Rest of World
5.5%
6.9%
3.6%
3.3%
3.5%
5.7%
6.3%
3.6%
3.4%
3.6%
5.6%
5.6%
2.3%
1.4%
2.1%
5.7%
5.8%
2.6%
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
scheme in the UK are as follows:
k Current and future pensioners. Birth year table S1P[M/F] A base allowing for individual scaling factors based on analysis of mortality experienced, medium
cohort improvement factors with an underpin of 1.0% per annum.
The amounts recognised in the income statement in respect of these defi ned benefi t schemes are as follows:
Amounts recognised in income 2010
Current service cost
Settlement and curtailment gains
Finance cost on defi ned retirement benefi t obligations
Expected return on defi ned retirement benefi t scheme assets
Total amounts recognised in income
Amounts recognised in income 2009
Current service cost
Finance cost on defi ned retirement benefi t obligations
Expected return on defi ned retirement benefi t scheme assets
Total amounts recognised in income
UK
£m
Rest of World
£m
Total
£m
(11)
–
(87)
82
(16)
(9)
(81)
64
(26)
(4)
9
(6)
5
4
(4)
(6)
4
(6)
(15)
9
(93)
87
(12)
(13)
(87)
68
(32)
G4S plc Annual Report and Accounts 2010
105
34 Retirement benefi t obligations continued
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 gains/(losses) recognised in the year
Restriction to defi ned benefi t asset due to the asset ceiling
At 31 December
2010
£m
(10)
4
87
(93)
(12)
2010
£m
(268)
19
(4)
(253)
2009
£m
(9)
(4)
68
(87)
(32)
2009
£m
(205)
(63)
–
(268)
The asset ceiling restriction refl ects an inability to derive economic value from an IAS 19 surplus in a plan in the Netherlands.
The amounts included in the consolidated statement of fi nancial position arising from the group’s obligations in respect of its defi ned benefi t schemes are
as follows:
UK
£m
Rest of World
£m
Total
£m
2010
Present value of defi ned benefi t obligations
Fair value of scheme assets
Restriction to defi ned benefi t asset due to the asset ceiling
Defi cit in scheme
2009
Present value of defi ned benefi t obligations
Fair value of scheme assets
Defi cit in scheme
2008
Present value of defi ned benefi t obligations
Fair value of scheme assets
Defi cit in scheme
2007
Present value of defi ned benefi t obligations
Fair value of scheme assets
Defi cit in scheme
2006
Present value of defi ned benefi t obligations
Fair value of scheme assets
Defi cit in scheme
1,566
(1,310)
–
256
1,547
(1,240)
307
1,296
(1,040)
256
1,291
(1,170)
121
1,329
(1,118)
211
95
(90)
4
9
116
(95)
21
111
(81)
30
85
(71)
14
61
(45)
16
1,661
(1,400)
4
265
1,663
(1,335)
328
1,407
(1,121)
286
1,376
(1,240)
136
1,390
(1,164)
226
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
34 Retirement benefi t obligations continued
Movements in the present value of defi ned benefi t obligations in the current year and the fair value of scheme assets during the year were as follows:
2010
Obligations
At 1 January 2010
Service cost
Interest cost
Contributions from scheme members
Actuarial (gains)/losses
Benefi ts paid
Curtailments
Settlements
Translation adjustments
At 31 December 2010
Assets
At 1 January 2010
Expected return on scheme assets
Actuarial (losses)/gains
Actual returns on schedule assets
Contributions from the sponsoring companies
Contributions from scheme members
Benefi ts paid
Settlements
Translation adjustments
At 31 December 2010
2009
Obligations
At 1 January 2009
Service cost
Interest cost
Contributions from scheme members
Actuarial losses
Benefi ts paid
Translation adjustments
At 31 December 2009
Assets
At 1 January 2009
Expected return on scheme assets
Actuarial gains
Actual return on scheme assets
Contributions from the sponsoring companies
Contributions from scheme members
Benefi ts paid
Translation adjustments
At 31 December 2009
UK
£m
Rest of World
£m
Total
£m
1,547
116
1,663
11
87
5
(26)
(58)
–
–
–
1,566
1,240
82
(4)
78
45
5
(58)
–
–
1,310
4
6
3
6
(2)
(2)
(37)
1
95
95
5
3
8
14
3
(2)
(30)
2
90
15
93
8
(20)
(60)
(2)
(37)
1
1,661
1,335
87
(1)
86
59
8
(60)
(30)
2
1,400
UK
£m
Rest of World
£m
Total
£m
1,296
111
1,407
9
81
5
205
(49)
–
1,547
1,040
64
134
198
46
5
(49)
–
1,240
4
6
3
1
(4)
(5)
116
81
4
9
13
5
3
(4)
(3)
95
13
87
8
206
(53)
(5)
1,663
1,121
68
143
211
51
8
(53)
(3)
1,335
The contribution from sponsoring companies in 2010 included £33m (2009: £30m) of additional contributions in respect of the defi cit in the schemes.
G4S plc Annual Report and Accounts 2010
107
34 Retirement benefi t obligations continued
There was a signifi cant restructuring of the UK assets during the course of 2010 and the fund is now invested in a wider range of assets than previously.
The composition of the scheme assets at the reporting date is as follows:
UK
Rest of World
Total
2010
Equity instruments
Debt instruments
Property
Cash
Other assets
2009
Equity instruments
Debt instruments
Property
Other assets
18%
16%
0%
24%
42%
100%
59%
26%
0%
15%
100%
38%
43%
3%
2%
14%
100%
45%
38%
10%
7%
100%
19%
18%
0%
23%
40%
100%
57%
27%
1%
15%
100%
Other assets in the UK comprised a range of derivatives, private equity holdings, macro-orientated and multi-strategy alternative investments and a credit
portfolio including corporate bond exposure, credit long/short funds and distressed debt investments.
None of the pension scheme assets are held in the entity’s own fi nancial 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:
2010 (return expected in 2011)
2009 (return expected in 2010)
2008 (return expected in 2009)
UK
Rest of World
7.0%
6.9%
6.3%
4.5%
5.6%
5.9%
Total
6.8%
6.8%
6.3%
For the UK, the expected return on assets is based on the return targeted under the new investment strategy. For the rest of the world 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 infl ation 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:
2010
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
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 (%)
UK
Rest of World
Total
(28)
(2)
7
–
10
1
(133)
(11)
–
–
(315)
(30)
(3)
(3)
(4)
(4)
(2)
(1)
(8)
(9)
1
1
(17)
(21)
(31)
(2)
3
–
8
–
(141)
(11)
1
–
(332)
(30)
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
34 Retirement benefi t obligations continued
2007
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets
Amount (£m)
Percentage of scheme assets (%)
2006
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
6
–
(17)
(1)
29
2
45
4
(3)
(4)
(5)
(7)
–
–
3
6
3
–
(22)
(2)
29
2
48
4
The estimated amounts of contributions expected to be paid to the schemes during the fi nancial year commencing 1 January 2011 in respect of the ongoing
accrual of benefi ts should be approximately £10–20m depending on the outcome of the consultation period and whether the UK scheme is closed to future
accrual. Additional contributions of approximately £35m will also be made in 2011 in respect of the defi cit in the schemes.
IAS 19 specifi es 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 profi le of the schemes and have
therefore used such a rate, being 5.5%, in respect of the UK schemes at 31 December 2010 (5.7% at 31 December 2009). 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 £26m.
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 22.1 years. The directors consider, on actuarial advice, these assumptions to be appropriate to the profi le 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 £73m.
Pension obligations in respect of deferred members increase in line with infl ation. Increases in salaries and increases in pensions-in-payment generally move in
line with infl ation. Infl ation is therefore an important assumption in the calculation of defi ned retirement benefi t liabilities. The effect of a 0.1% movement in
the rate of infl ation assumption applicable in the UK is to alter reported liabilities (before associated deferred tax) by approximately £12m.
35 Provisions
At 1 January 2010
Additional provision in the year
On acquisition of subsidiary
Utilisation of provision
Unused amounts reversed
Transfers and reclassifi cations
Translation adjustments
At 31 December 2010
Included in current liabilities
Included in non-current liabilities
Employee benefi ts
Employee
benefi ts
£m
Restructuring
£m
Claims
reserves
£m
Onerous
contracts
£m
18
6
–
(5)
(4)
–
1
16
4
1
–
(1)
(1)
–
–
3
40
26
–
(26)
(3)
4
1
42
41
3
5
(24)
–
(9)
–
16
Total
£m
103
36
5
(56)
(8)
(5)
2
77
33
44
77
The provision for employee benefi ts is in respect of any employee benefi ts which accrue over the working lives of the employees, typically including items
such as long service awards and termination indemnity schemes.
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.
G4S plc Annual Report and Accounts 2010
109
35 Provisions continued
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 fi nal 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 outfl ows. 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:
At 1 January 2009
(Charge)/credit to the income statement
Acquisition of subsidiaries
Credit to equity
Translation adjustments
Transfers/other
At 31 December 2009
At 1 January 2010
(Charge)/credit to the income statement
Acquisition of subsidiaries
Disposal of subsidiaries
(Charge)/credit to equity
Translation adjustments
At 31 December 2010
Retirement
benefi t
obligations
£m
Intangible
assets
£m
Tax losses
£m
Other
temporary
differences
£m
82
(5)
–
17
–
(2)
92
92
(11)
–
–
(7)
1
75
(116)
23
(17)
–
3
1
(106)
(106)
26
(3)
2
–
(3)
(84)
8
20
–
–
–
–
28
28
(2)
–
–
–
1
27
44
2
–
–
(5)
1
42
42
(3)
–
–
5
1
45
Total
£m
18
40
(17)
17
(2)
–
56
56
10
(3)
2
(2)
–
63
Certain deferred tax assets and liabilities have been offset where permitted. The following is the analysis of the deferred tax balances (after offset) for fi nancial
reporting purposes:
Deferred tax liabilities
Deferred tax assets
Total deferred tax position
2010
£m
(98)
161
63
2009
£m
(122)
178
56
At 31 December 2010, the group has unutilised tax losses of approximately £526m (2009: £528m) potentially available for offset against future profi ts.
A deferred tax asset of £27m (2009: £27m) has been recognised in respect of approximately £76m (2009: £78m) of gross losses. No deferred tax asset has
been recognised in respect of the remaining £450m (2009: £450m) of gross losses due to the unpredictability of future profi t streams in the relevant
jurisdictions and the fact that a signifi cant proportion of such losses remains unaudited by the relevant tax authorities. Included in unrecognised tax losses are
gross losses of £5m, £3m, £2m and £1m which will expire in 2011, 2012, 2013 and 2014 respectively. Other losses may be carried forward indefi nitely.
At 31 December 2010, the aggregate amount of temporary differences associated with undistributed earnings of non-UK subsidiaries for which deferred tax
liabilities have not been recognised is £1,445m (2009: £1,329m). 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 insignifi cant.
At 31 December 2010, the group has total unprovided contingent tax liabilities of approximately £8m (2009: £nil) relating to unresolved tax issues in various
jurisdictions.
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G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
37 Share capital
G4S plc
Issued and fully paid ordinary shares of 25p each (2009: 25p each)
Ordinary shares in issue
At 1 January 2009
Shares issued on exercise of options:
Executive Scheme
At 1 January 2010
Shares issued on exercise of options:
Executive Scheme
At 31 December 2010
2010
£
2009
£
352,654,660
352,629,660
Number
Nominal
value £m
1,408,298,639
2,220,000
1,410,518,639
100,000
1,410,618,639
352
1
353
–
353
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.
One option over G4S plc shares remains outstanding at 31 December 2010. This option rolled over at 19 July 2004 from options previously held over
Securicor plc shares. The option is for 50,000 shares with an exercise price of 91p with an exercise date of 2010–2013.
The proceeds from shares allotted under this scheme during the year amounted to £127,338 (2009: £2,772,488).
5,029,315 shares are held by an employee benefi t trust as detailed in note 38.
38 Reserves
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash fl ow 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 fi nancial 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 benefi t trust established by the group held 5,029,315 shares at 31 December 2010 (2009: 5,543,818 shares) to satisfy the vesting of awards
under the performance share plan and performance-related and synergy bonus schemes. During the year 3,882,900 shares were purchased by the trust,
whilst 4,397,403 shares were used to satisfy the vesting of awards under the schemes. At 31 December 2010, the cost of shares held by the trust was
£12,125,010 (2009: £12,054,145), whilst the market value of these shares was £12,804,636 (2009: £14,447,190). 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.
G4S plc Annual Report and Accounts 2010
111
39 Analysis of net debt
A reconciliation of net debt to amounts in the consolidated statement of fi nancial position is presented below:
Cash and cash equivalents
Investments
Net cash and overdrafts included within disposal groups classifi ed as held for sale
Net debt (excluding cash and overdrafts) included within disposal groups classifi ed as held for sale
Bank overdrafts
Bank loans
Loan notes
Fair value of loan note derivative fi nancial instruments
Obligations under fi nance leases
Total net debt
An analysis of movements in net debt in the year is presented below:
Increase in cash, cash equivalents and bank overdrafts per consolidated cash fl ow statement
(Sale)/purchase of investments
Decrease in debt and lease fi nancing
Change in net debt resulting from cash fl ows
Borrowings acquired with subsidiaries
Net additions to fi nance 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
2010
£m
351
82
–
–
(45)
(687)
(1,153)
96
(70)
(1,426)
2010
£m
14
(5)
38
47
(4)
(9)
34
(27)
(1,433)
(1,426)
2009
£m
309
84
20
(13)
(38)
(662)
(1,117)
70
(86)
(1,433)
2009
£m
(38)
1
1
(36)
–
(20)
(56)
(29)
(1,348)
(1,433)
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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 signifi cant.
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 fi fth years inclusive
After fi ve years
Total operating lease commitments
2010
£m
149
335
215
699
2009
£m
143
301
198
642
The group leases a number of its offi ce properties, vehicles and other operating equipment under operating leases. Property leases are negotiated over
an average term of eight years, at rates refl ective 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 £10m (2009: £11m).
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112
G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
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 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 and exercisable at 31 December
Number of
shares under
option
2010
150,000
(100,000)
50,000
Weighted
average
exercise
price (pence)
2010
115.23
127.34
91.00
Number of
shares under
option
2009
2,370,000
(2,220,000)
150,000
Weighted
average
exercise
price (pence)
2009
124.28
122.82
115.23
The weighted average share price at the date of exercise for share options exercised during the year was 266.27p (2009: 243.95p). All options outstanding at
31 December 2010 were vested.
No share option expense has been recognised in the income statement during the year as all share options had previously vested (2009: all vested).
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 after three years, 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
2010
Number
PSP
2010
Number
Total
2010
Number
1,322,739
14,962,009
16,284,748
546,896
5,204,762
5,751,658
Performance-
related bonus
scheme
2009
Number
2,257,765
553,382
PSP
2009
Number
11,861,814
6,576,223
Total
2009
Number
14,119,579
7,129,605
(344,286)
(4,053,117)
(4,397,403)
(1,488,408)
(3,238,023)
(4,726,431)
–
–
(1,177,848)
(1,177,848)
(21,000)
(21,000)
–
–
(201,393)
(36,612)
(201,393)
(36,612)
Outstanding at 31 December
1,525,349
14,914,806
16,440,155
1,322,739
14,962,009
16,284,748
The weighted average remaining contractual life of conditional share allocations outstanding at 31 December 2010 was 15 months (2009: 17 months).
The weighted average share price at the date of allocation of shares allocated conditionally during the year was 259.20p (2009: 210.25p) and the contractual
life of all conditional allocations was three years.
Under the PSP, the vesting of one third of the shares allocated conditionally depends upon Total Shareholder Return (a market performance condition) over
the vesting period 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 to 25%.
Total expenses of £7m were recognised in the income statement in the year (2009: £7m) 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.
G4S plc Annual Report and Accounts 2010
113
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
2010
£m
Joint ventures
2009
£m
Associates
2010
£m
Associates
2009
£m
11
–
5
9
–
4
–
2
2
–
1
1
Revenue includes fees of £8m (2009: £7m) charged to Bridgend Custodial Services Ltd and fees of £3m (2009: £3m) 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.
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 G4S plc. The signifi cant 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
Total
2010
Services/sales to
£m
2009
Services/sales to
£m
2
45
30
12
–
10
7
2
1
–
1
1
2
41
28
13
6
11
7
2
1
1
1
–
111
113
Transactions with post-employment benefi t schemes
Details of transactions with the group’s post-employment benefi t schemes are provided in note 34. Unpaid contributions owed to schemes amounted to
£2m at 31 December 2010 (2009: £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 62 to 66.
Short-term employee benefi ts
Post-employment benefi ts
Other long-term benefi ts
Share-based payment
Total
44 Events after the balance sheet date
No signifi cant post-balance sheet events have affected the group since 31 December 2010.
2010
£
7,730,354
692,188
39,505
3,291,345
11,753,392
2009
£
5,721,186
504,608
28,631
2,488,363
8,742,788
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114
G4S plc Annual Report and Accounts 2010
Notes to the consolidated fi nancial statements continued
45 Signifi cant investments
The companies listed below are those which were part of the group at 31 December 2010 and which, in the opinion of the directors, signifi cantly affected the
group’s results and net assets during the year. The directors consider that those companies not listed are not signifi cant in relation to the group as a whole.
A comprehensive list of all subsidiaries will be disclosed as an appendix to the group’s annual return.
The principal activities of the companies listed below are indicated according to the following key:
Secure solutions
Cash solutions
S
C
These businesses operate principally in the country in which they are incorporated.
Product segment
Country of
incorporation
Ultimate
ownership
Subsidiary undertakings
G4S Soluciones de Seguridad S.A.
G4S Custodial Services (Pty) Limited
G4S Security Services AG
G4S Security Services SA/NV
G4S Cash Solutions (Belgium) SA/NV
Instalarme Indústria e Comércio Ltda
G4S Cash Solutions (Canada) Limited
G4S Secure Solutions (Canada) Limited
G4S Secure Solutions Colombia S.A.
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 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. Limited1, 5
G4S Cash Solutions (Ireland) Limited
G4S Secure Solutions (Ireland) Limited
Hashmira Company Limited
G4S Security Services (Kenya) Limited
G4S Security Services SA
Safeguards Securicor Sdn Bhd2, 5
G4S Cash Solutions BV
Group 4 Securicor Beheer BV
G4S Security Services AS
G4S Cash Solutions SRL
al Majal Service Master Co. Limited5
G4S Secure Solutions (SA) (Pty) Limited
G4S Cash Solutions (Sverige) AB
G4S Security Solutions AB
G4S Technology LLC (formerly Adesta LLC)
ArmorGroup North America, Inc.
G4S Youth Services LLC
RONCO Consulting Corporation
G4S Secure Solutions (USA) Inc.
Wackenhut Services, Inc.
WSI-All Star Facility, LLC
S
S
S
S
C
S
C
S
S+C
S
S
S
C
C
S
S
S
S
S
S+C
S
C
Argentina
Australia
Austria
Belgium
Belgium
Brazil
Canada
Canada
Colombia
Denmark
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
S
C
S
S
S
S
S
S
S
S
India
Ireland
Ireland
Israel
Kenya
Luxembourg
Malaysia
Netherlands
Netherlands
Norway
Romania
Saudi Arabia
South Africa
Sweden
Sweden
USA
USA
USA
USA
USA
USA
USA
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
100%
100%
91%
100%
100%
49%
100%
100%
100%
100%
49%
74%
100%
100%
100%
100%
100%
100%
100%
100%
100%
G4S plc Annual Report and Accounts 2010
115
45 Signifi cant investments continued
Joint ventures (see note 21)
Bridgend Custodial Services Limited3
STC (Milton Keynes) Limited
Bloemfontein Correctional Contracts (Pty) Limited4
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 and other contractual arrangements, the group has the power to govern the fi nancial and operating policies, so as to obtain the benefi ts from the activities of
these companies. These are therefore consolidated as full subsidiaries.
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G4S plc Annual Report and Accounts 2010
Parent company balance sheet
At 31 December 2010
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 assets/(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
Notes
(b)
(c)
(d)
(e)
(f)
(e)
(f)
(i)
37
(j)
2010
£m
12
2,548
2,560
2,067
19
2,086
(198)
(80)
(1,634)
(1,912)
2009
£m
10
3,141
3,151
2,615
12
2,627
(118)
(91)
(3,215)
(3,424)
174
(797)
2,734
2,354
(1,690)
(6)
(1,696)
(1)
1,037
353
684
1,037
(1,588)
(7)
(1,595)
(1)
758
353
405
758
The parent company fi nancial statements were approved by the board of directors and authorised for issue on 14 March 2011.
They were signed on its behalf by:
Nick Buckles
Director
Trevor Dighton
Director
G4S plc Annual Report and Accounts 2010
Parent company reconciliation of movements in equity shareholders’ funds
For the year ended 31 December 2010
Retained profi t 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
2010
£m
382
5
–
(103)
(10)
7
(2)
279
758
1,037
117
2009
£m
128
6
3
(94)
(10)
7
(2)
38
720
758
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G4S plc Annual Report and Accounts 2010
Notes to the parent company fi nancial statements
(a) Signifi cant accounting policies
Basis of preparation
The separate fi nancial 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 fi nancial instruments and in accordance with applicable United Kingdom Accounting Standards (UK GAAP).
The fi nancial statements have been prepared under the going concern basis.
Exemptions
Under section 408 of the Companies Act 2006, the company is exempt from the requirement to present its own profi t and loss account.
The company has taken advantage of the exemption from preparing a cash fl ow statement under the terms of FRS 1 Cash Flow Statements. The cash fl ows
of the company are included within its consolidated fi nancial 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 fi nancial statements of the group contain fi nancial 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 fi nancial instrument disclosures
for the company.
The presentation of the parent company fi nancial statements has been changed to round results to the nearest £1m whereas previously they were rounded
to the nearest £0.1m. This change has required the 2009 fi gures to be restated and as a result there are some immaterial inconsistencies between the
restated rounded 2009 fi gures in the 2010 accounts compared to the same fi gures disclosed to the nearest £0.1m in the 2009 accounts. In addition there
may be immaterial rounding inconsistencies between the notes to the accounts and the primary statements for the 2009 fi gures.
Tangible fi xed assets
Tangible fi xed assets are stated at cost net of accumulated depreciation and any provision for impairment. Tangible fi xed 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 fi nancial 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 profi t 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 fi nancial instruments and hedge accounting
In accordance with its treasury policy, the company only holds or issues derivative fi nancial instruments to manage the group’s exposure to fi nancial risk,
not for trading purposes. Such fi nancial risk includes the interest risk on the group’s variable-rate borrowings, the fair value risk on the group’s fi xed-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 fi nancial instruments,
including interest rate swaps, fi xed rate agreements, commodity swaps, commodity options, forward foreign exchange contracts and currency swaps.
G4S plc Annual Report and Accounts 2010
119
(a) Signifi cant accounting policies continued
Derivative fi nancial instruments and hedge accounting continued
Derivative fi nancial instruments are recognised in the balance sheet as fi nancial assets or liabilities at fair value. The gain or loss on remeasurement to fair
value is recognised immediately in the profi t 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 profi t and loss
account.
• Cash fl ow 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 profi t and loss account when the hedged cash fl ow impacts the profi t and loss account. The ineffective portion of the fair value of the
hedging instrument is recognised immediately in the profi t and loss account.
Leases
Annual rentals payable or receivable under operating leases are charged or credited to the profi t and loss account on a straight-line basis over the lease term.
Foreign currencies
The fi nancial 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 profi t 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 profi ts 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 benefi ts based on fi nal 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 Benefi ts, the company treats
the schemes as if they were defi ned 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 fi nancial 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.
Dividends
Dividends are recognised as distributions to equity holders in the period in which they are paid or approved by the shareholders in general meeting.
Financial guarantees
The company enters into fi nancial 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 benefi t trust
Transactions of the company-sponsored employee benefi t trust are included in the parent company fi nancial statements. In particular, the trust’s purchases
of shares in the company are debited directly to equity.
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G4S plc Annual Report and Accounts 2010
Notes to the parent company fi nancial statements continued
(b) Tangible fi xed assets
Cost
At 1 January 2010
Additions at cost
Disposals at cost
At 31 December 2010
Depreciation
At 1 January 2010
Charge for the year
On disposals
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
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 fi xed asset investments:
Subsidiary undertakings
Shares at cost:
At 1 January 2010
Additions
Impairments
Disposals
At 31 December 2010
Land and
buildings
£m
Equipment
and vehicles
£m
Total
£m
3
–
–
3
(1)
–
–
(1)
2
2
10
3
(1)
12
(2)
(1)
1
(2)
10
8
13
3
(1)
15
(3)
(1)
1
(3)
12
10
Total
£m
3,141
4
(595)
(2)
2,548
The impairment within the carrying value of investments in the year is primarily due to a reduction in the net asset value of certain subsidiary undertakings.
The impairment has been offset by dividend income received from these subsidiary undertakings making the overall impact to the profi t and loss account
£nil. Details of signifi cant investments held by the parent company and the group are set out in note 45 to the consolidated fi nancial statements.
(d) Debtors
Amounts owed by group undertakings
Other debtors
Prepayments and accrued income
Derivative fi nancial instruments at fair value
Total debtors
2010
£m
1,932
36
3
96
2009
£m
2,490
53
2
70
2,067
2,615
Included within derivative fi nancial instruments at fair value is £85m due after more than one year (2009: £58m). See note (g) for further details.
Included in other debtors is £4m (2009: £7m) with regard to deferred tax comprised as follows:
Accelerated capital allowances
Employee benefi ts
Changes in fair value of hedging derivatives
Total deferred tax
2010
£m
(1)
2
3
4
2009
£m
-
2
5
7
G4S plc Annual Report and Accounts 2010
121
(d) Debtors continued
The reconciliation of deferred tax balances is as follows:
At 1 January 2010
Charged to profi t and loss
Charged to equity in relation to changes in fair value of hedging derivatives
At 31 December 2010
(e) Borrowings (unsecured)
The unsecured borrowings are in the following currencies:
Sterling
Euro
US dollar
Total unsecured borrowings
The payment profi le of the unsecured borrowings is as follows:
Repayable within one year
Repayable within two to fi ve years
Repayable after fi ve years
Total unsecured borrowings
Undrawn committed facilities mature as follows:
Within two to fi ve years
Total undrawn committed facilities
Total
£m
7
(1)
(2)
4
2009
£m
507
306
866
1,679
2009
£m
91
584
1,004
1,679
2009
£m
615
615
2010
£m
651
252
867
1,770
2010
£m
80
750
940
1,770
2010
£m
552
552
Borrowings consist of £617m of fl oating rate bank loans (2009: £562m) and £1,153m of fi xed rate loan notes (2009: £1,117m). 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
(£169m) of the loan notes issued in July 2008 have a fair value market gain of £39m (2009: £30m). The fair value of the remaining notes approximates to
their book value.
Borrowing at fl oating rates exposes the company to cash fl ow interest rate risk. The management of this risk is detailed in note (h).
There were no fi nancial 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 fi nancial instruments at fair value
Total creditors – amounts falling due within one year
Amounts falling due after more than one year:
Derivative fi nancial instruments at fair value
2010
£m
4
1,574
2
5
39
10
2009
£m
3
3,156
2
4
38
12
1,634
3,215
6
7
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G4S plc Annual Report and Accounts 2010
Notes to the parent company fi nancial statements continued
(g) Derivative fi nancial instruments
The carrying values of derivative fi nancial instruments at the balance sheet date are presented below:
Cross currency swaps designated as cash fl ow hedges
Interest rate swaps designated as cash fl ow 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
2010
£m
39
–
55
2
96
(85)
11
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
30
–
40
–
70
(58)
12
–
13
–
3
16
(6)
10
–
19
–
–
19
(7)
12
Derivative fi nancial instruments are stated at fair value, based upon market prices where available or otherwise on discounted cash fl ow valuations. The mark
to market valuation of the derivatives has increased by £29m (2009: decrease £78m) during the year.
The interest rate, cross currency and commodity swaps have the following maturities:
Within one year
In the second year
In the third year
In the fourth year
In the fi fth year or greater
Total carrying value
Projected settlement of cash fl ows (including accrued interest) associated with derivatives:
Within one year
In the second year
In the third year
In the fourth year
In the fi fth year or greater
Total cash fl ows
(h) Financial risk
Assets
2010
£m
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
1
1
10
–
29
41
–
–
–
7
23
30
4
8
3
1
–
16
3
6
8
2
–
19
Assets
2010
£m
Assets
2009
£m
Liabilities
2010
£m
Liabilities
2009
£m
1
1
9
–
32
43
1
–
–
8
21
30
12
6
1
–
–
19
13
6
2
–
–
21
Currency risk and forward foreign exchange contracts
The group conducts business in many currencies. The group presents its consolidated fi nancial 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 fl uctuations 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 profi t 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 programme was terminated in February 2009. The company believes cash fl ow 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 £134m were arranged to hedge the foreign currency risk on US$265m of the US Private Placement notes
issued in July 2008, effectively fi xing the sterling value on this portion of debt at an exchange rate of 1.9750.
Interest rate risk and interest rate swaps
Borrowing at fl oating rates as described in note 29 to the consolidated fi nancial statements exposes the group to cash fl ow 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 fi x the
interest rate on a proportion of borrowings on a reducing scale over forward periods up to a maximum of fi ve years. At 31 December 2010 the nominal
value of such contracts was £134m (in respect of US dollar) (2009: £170m) and £167m (in respect of euro) (2009: £218m), their weighted average interest
rate was 5% (US dollar) (2009: 5.0%) and 3.7% (euro) (2009: 3.7 %), and their weighted average period to maturity was one and a half years. All the interest
rate hedging instruments are designated and fully effective as cash fl ow hedges and movements in their fair value have been deferred in equity.
G4S plc Annual Report and Accounts 2010
123
(h) Financial risk continued
Interest rate risk and interest rate swaps continued
The US Private Placement market is predominantly a fi xed rate market, with investors looking for a fi xed rate return over the life of the loan notes. At the
time of the fi rst issue in March 2007, the company was comfortable with the proportion of fl oating rate exposure not hedged by interest rate swaps and
therefore rather than take on a higher proportion of fi xed rate debt arranged fi xed to fl oating swaps effectively converting the fi xed coupon on the Private
Placement to a fl oating 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 fi xed interest loan notes, with the movements in their fair value posted to profi t 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 and on the GBP Public Bond issued in May 2009 was kept at fi xed rate.
Commodity risk and commodity swaps
The group’s principal commodity risk relates to the fl uctuating 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 fi x 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
fi nancial 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 fi nancial 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 2010 the largest
two counterparty exposures related to treasury transactions were £37m and £21m and both were held with institutions with long-term Moody’s credit
ratings of Aa3. These exposures represent 39% (2009: 40%) and 21% (2009: 20%) of the carrying values of derivative fi nancial instruments, with a fair value
gain at the balance sheet date. Both of these banks had signifi cant loans outstanding to G4S plc at 31 December 2010.
The company participates in the group’s multi-currency notional pooling cash management system with a wholly owned subsidiary of an Aa3 rated bank.
There is legal right of set off under the pooling agreement.
(i) Provisions for liabilities and charges
At 1 January and at 31 December 2010
Onerous
contracts
£m
1
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 outfl ows relating to rent, rates, service charges and costs of marketing the properties.
(j) Share premium and reserves
At 1 January 2010
Retained profi t
Changes in fair value of hedging derivatives
Dividends declared
Own shares purchased
Own shares awarded
Equity-settled transactions
Tax on equity movements
At 31 December 2010
Share
premium
£m
258
–
–
–
–
–
–
–
258
Profi t and
loss account
£m
159
382
5
(103)
–
(10)
7
(2)
438
Own
shares
£m
(12)
–
–
–
(10)
10
–
–
(12)
Total
£m
405
382
5
(103)
(10)
–
7
(2)
684
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G4S plc Annual Report and Accounts 2010
Notes to the parent company fi nancial statements continued
(k) Operating lease commitments
At the balance sheet date, the company had annual commitments under non-cancellable operating leases, which expire as follows:
In the second to fi fth years inclusive
After more than fi ve years
Total operating lease commitments
2010
£m
1
1
2
2009
£m
1
1
2
(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 fi nancial statements are required to disclose such fees on a consolidated basis.
(m) Staff costs and employees
2010
Number
2009
Number
The average monthly number of employees of the company during the year was:
319
314
Total staff costs, including directors’ emoluments, were as follows:
Wages and salaries
Social security costs
Pension costs
Total staff costs
2010
£m
41
4
2
47
2009
£m
37
3
2
42
(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 fi nancial statements.
(o) Related party transactions
Certain disclosures relevant to the company are presented within note 43 to the consolidated fi nancial statements. Company transactions with group
undertakings primarily consist of royalty charges, central service charges, group insurance recharges and loan transactions.
There were no material transactions with non-wholly owned group undertakings in 2010 (2009: £36m loan repayment from G4S Security Services (SA)
(Pty) Limited).
(p) Contingent liabilities
To help secure cost effective fi nance facilities for its subsidiaries, the company issues guarantees to some of its fi nance providers. At 31 December 2010
guarantees totalling £421m (2009: £387m) 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 2010 totalled £14m (2009: £12m).
(q) Post Balance Sheet Events
In January 2011, certain investments, assets and liabilities and personnel were transferred from G4S plc to G4S Corporate Services Limited, a wholly-owned
subsidiary of G4S plc. Consideration to date has been settled in cash by G4S Corporate Services Limited, funded through a share capital injection and
intercompany loan from G4S plc. These transactions form part of a wider reorganisation of the UK holding company legal structure which will be completed
in 2011. G4S plc has made a gain to date of approximately £1,100m, however, the full fi nancial effect of the transactions is not yet known.
Notice of Annual General Meeting
G4S plc Annual Report and Accounts 2010
125
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 Thursday, 19 May 2011
at 2.00pm in order to consider and, if thought fi t, to pass the following Resolutions:
Resolutions 1 to 15 and Resolution 18 will be proposed as ordinary resolutions. Resolutions 16, 17, 19 and 20 will be proposed as special resolutions.
1. To receive the fi nancial statements of the company for the year ended 31 December 2010 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 2010.
3. To confi rm and declare dividends.
4. To elect Clare Spottiswoode (member of the Remuneration Committee) as a director.
5. To elect Winnie Kin Wah Fok (member of the Audit Committee) as a director.
6. To re-elect Alf Duch-Pedersen (member of the Nomination Committee) as a director.
7. To re-elect Lord Condon (member of the Audit, Nomination and Remuneration Committees) as a director.
8. To re-elect Nick Buckles as a director.
9. To re-elect Trevor Dighton as a director.
10. To re-elect Grahame Gibson as a director.
11. To re-elect Mark Elliott (member of the Nomination and Remuneration Committees) as a director.
12. To re-elect Bo Lerenius (member of the Audit and Remuneration Committees) as a director.
13. To re-elect Mark Seligman (member of the Audit and Remuneration Committees) as a director.
14. 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 fi x their remuneration.
15. 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 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 £117,550,000; and
(ii) comprising equity securities (as defi ned in section 560 of the Act) up to a further aggregate nominal amount of £117,550,000 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 shares to be allotted after such expiry and the directors shall be
entitled to allot shares pursuant to any such offer or agreement as if this authority had not expired; and all unexercised authorities granted previously to
the directors to allot shares under section 551 of the 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 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).
16. That the directors be and are hereby empowered, pursuant to section 570 of the Act, subject to the passing of Resolution 15 above, to allot equity
securities (as defi ned in section 560 of the Act) for cash pursuant to the authority conferred by Resolution 15 above as if section 561 of the 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 15 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 15(i) above
up to a maximum nominal amount of £17,632,000;
and shall expire on the expiry of the general authority conferred by Resolution 15 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 570 of the Act shall cease to have effect at the conclusion of this Annual General Meeting.
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G4S plc Annual Report and Accounts 2010
Notice of Annual General Meeting continued
17. That the company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act, to make market purchases (within
the meaning of section 693(4) of the 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 141,060,000;
(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 Offi cial List for the fi ve 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 2012
(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).
18. That in accordance with sections 366 and 367 of the Act, the company and all companies which are subsidiaries of the company during the period when
this Resolution 18 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 defi ned in the Act) during the period beginning with the date of the passing of this resolution and ending on 18 November 2012 or,
if sooner, at the conclusion of the Annual General Meeting of the company to be held next year 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 fi rst business day thereafter) or, if earlier, on the day in which the company enters into any contract
or undertaking in relation to the same.
19. That, with immediate effect, the company’s Articles of Association be amended by deleting the words “an annual sum of £750,000” in Article 92(1)
relating to the aggregate annual limit on the fees payable to directors who do not hold executive offi ce and replacing them with the words “an annual sum
of £1,000,000”.
20. 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
23 March 2011
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Company No. 4992207
Notes
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 Annual General
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 17 May 2011.
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 Act 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 these paragraphs 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 17 May 2011 (or, in the event of any adjournment at 5.30pm,
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 or adjourned meeting.
G4S plc Annual Report and Accounts 2010
127
7. As at 22 March 2011 (being the latest practicable date prior to the publication of this Notice) the company’s issued share capital consisted of
1,410,618,639 ordinary shares, carrying one vote each. Therefore, the total voting rights in the company as at 22 March 2011 was 1,410,618,639.
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 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 specifi cations, 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 17 May 2011. 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 message. 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 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 Uncertifi cated 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 Act 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 offi ce
since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Act. 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 Act. Where the company is
required to place a statement on a website under section 527 of the Act, 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 Act 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 confi dential 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 Act, can be found at www.g4s.com
16. Any electronic address or website 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.
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G4S plc Annual Report and Accounts 2010
Recommendation and explanatory notes
relating to business to be conducted at the
Annual General Meeting on 19 May 2011
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 benefi cial holdings.
Explanatory notes in relation to certain of the business to be conducted at the AGM are set out below.
1 Election and re-election of directors (Resolutions 4 to 13)
The company’s articles of association require that directors retire and stand for election at the next AGM of the company following their appointment by the
board. Ms Spottiswoode and Ms Fok are therefore standing for election on this basis. Other board members are required to retire and submit themselves
for re-election every three years and at least one-third of the board is also required to stand for re-election. The board has however decided that it will
adopt the practice required by the UK Corporate Governance Code (which has replaced the Combined Code on Corporate Governance) whereby all
members of the board of directors of FTSE 350 companies will offer themselves for election by the company’s members annually. Accordingly, in keeping
with the board’s aim of following best corporate governance practice, all the continuing directors are standing for election or re-election by the shareholders
at this year’s AGM.
2 Authority to allot shares (Resolution 15)
Resolution 15 seeks shareholder approval for the directors to be authorised to allot shares.
At the last AGM of the company held on 28 May 2010, the directors were given authority to allot ordinary shares in the capital of the company up to a
maximum nominal amount of £235,080,000 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 470,160,000 shares (representing approximately 33% of the company’s then issued ordinary share capital) could
only be allotted pursuant to a rights issue.
Resolution 15 will, if passed, renew this authority to allot on the same terms as last year’s resolution (save that the number of shares in question has increased
slightly). 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 £235,100,000 representing approximately 66% of the company’s issued ordinary share capital as at 22 March 2011 (the latest practicable
date prior to publication of the Notice of Annual General Meeting). Of this amount, 470,200,000 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 2012.
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. As at 22 March 2011, options exist over only 50,000 shares. The directors do not have any other present intention of exercising this
authority. In accordance with best practice, if the directors were to exercise this authority so as to allot shares representing more than one-third of the
current capital of the company, they would all offer themselves for re-election at the following AGM, although, as noted in 1. above, it is the directors’ current
intention to stand for election annually in any event.
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 5,029,315 shares held within the G4S Employee Benefi t Trust and referred to on page 110 (note 37 to the consolidated fi nancial statements)
are accounted for as treasury shares.
3 Disapplication of statutory pre-emption rights (Resolution 16)
Resolution 16 seeks shareholder approval to give the directors authority to allot shares in the capital of the company pursuant to the authority granted under
Resolution 15 for cash without complying with the pre-emption rights in the Act in certain circumstances. This authority will permit the directors to allot:
(a) shares up to a nominal amount of £235,100,000 (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 £117,550,000 (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 fi t); and
(b) shares up to a maximum nominal value of £17,632,000, representing approximately 5% of the issued ordinary share capital of the company as at
22 March 2011 (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 15, the terms of Resolution 16 are the same as last year’s resolution (save that the number of shares in question has increased slightly).
The directors confi rm 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.
4 Purchase of own shares (Resolution 17)
Resolution 17 seeks to renew the company’s authority to buy back its own ordinary shares in the market as permitted by the Act. The authority limits the
number of shares that could be purchased to a maximum of 141,060,000 (representing a little less than 10% of the company’s issued ordinary share capital
as at 22 March 2011 (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 2012.
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 fi nancial 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 22 March 2011 (the latest practicable date prior to the publication of the Notice of Annual General Meeting), there were options over 50,000 ordinary
shares in the capital of the company representing 0.0036% of the company’s issued ordinary share capital. If the authority to purchase the company’s ordinary
shares was exercised in full, these warrants and options would represent 0.0039% of the company’s issued ordinary share capital.
G4S plc Annual Report and Accounts 2010
129
5 Political donations (Resolution 18)
Resolution 18 is designed to deal with the rules on political donations contained in the 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 fulfi lling 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 18, which is the same as the resolution on this subject which was
passed at the company’s AGM held on 28 May 2010. This will allow the company to continue 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 Act, Resolution 18 also covers political
donations made, or political expenditure incurred, by any subsidiaries of the company.
6 Amendment to Article 92 (Resolution 19)
Institutional guidelines state that a company’s articles of association should impose a fi xed limit on the level of directors’ fees, either individually or in aggregate.
Article 92(1) of the company’s Articles of Association currently provides for an annual aggregate limit of £750,000.
Resolution 19 is a resolution to replace the current limit in Article 92(1) of the company’s Articles of Association with an annual aggregate limit of £1,000,000.
The proposed aggregate limit has been calculated by reference to the current number of directors of the company, fees currently paid for the provision of the
chairman’s services and the potential to appoint additional non-executive directors to the board. Under the company’s Articles of Association, the fees to be
paid to directors in respect of the offi ce of director (such fees are distinct from any remuneration which may be paid to directors in respect of executive
employment or other special services to the company) are to be determined by the directors and the proposed amendment should provide the directors
with additional fl exibility in appointing additional board members if this is seen as desirable and in setting levels of remuneration.
7 Period of notice for calling general meetings (Resolution 20)
Resolution 20 is a resolution to allow the company to hold general meetings (other than AGMs) on 14 days’ notice.
Before the introduction of the Companies (Shareholders’ Rights) Regulations 2009 on 3 August 2009, the minimum notice period permitted by the Act for
general meetings (other than AGMs) was 14 days. One of the amendments made to the 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 fi rst 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 20 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 fl exibility offered by the shorter notice period is merited, taking into account the circumstances,
including whether the business of the meeting is time sensitive.
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G4S plc Annual Report and Accounts 2010
Group fi nancial record
Employees
With 625,000 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.
Employees
000s
306
396
440
507
562
595
625
2004
2005
2006
2007
2008
2009 2010
Earnings per share
Since 2004, G4S has generated average adjusted earnings
per share growth of 15% on a compounded basis.
Earnings per share (as reported)
pence
9.5
11.2
12.1
13.3
16.7
20.2 21.6
Revenue
G4S revenues have grown by an average of 16% since
2004. 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 2010
Revenue (as reported)
£m
3,094 4,046 4,037 4,484 5,942
7,009 7,397
2004
2005
2006
2007
2008
2009 2010
+5%in employee numbers
in 2010
22%Annualised labour
turnover rate; down
from 27% in 2009
+7%EPS in 2010
+15%EPS CAGR*
from 2004 to 2010
+4%Revenues in 2010
+16%Revenue CAGR*
from 2004 to 2010
G4S plc Annual Report and Accounts 2010
131
Profi t
Operating profi t, defi ned as profi t before interest, tax
and amortisation, has grown by an average of 21% since
2004. The increase in operating profi t 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
166
255
274
311
416
500
527
+5%PBITA in 2010
+21%PBITA CAGR*
from 2004 to 2010
+9%Revenue from
New Markets in 2010
+28%Revenue from
New Markets CAGR*
from 2004 to 2010
+107%
G4S share price
since 2004
+14%G4S share price CAGR*
from 2004 to 2010
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 2010
Revenue from New Markets
%
13
16
18
22
24
26
29
Share price
From 2004 to the end of 2010, the G4S share price has
increased 107% outperforming the FTSE 100 by 71%
(see page 64 for its comparative TSR performance against
that of the FTSE 100 and our bespoke peer group).
2004
2005
2006
2007
2008
2009 2010
Share price
)
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250
200
150
100
50
0
G4S plc
FTSE 100
2004 2005 2006 2007 2008 2009 2010
* CAGR is compound average growth rate.
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G4S plc Annual Report and Accounts 2010
Financial calendar and corporate addresses
For the year ended 31 December 2010
Auditor
KPMG Audit Plc
15 Canada Square
London E14 5GL
Stockbrokers
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 2DB
RBS Hoare Govett
135 Bishopsgate
London EC2M 3UR
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
Results announcements
Half-year results – August
Final results – March
Dividend payment
Interim paid – 15 October 2010
Final payable – 3 June 2011 (6 June 2011 for
Denmark)
Annual General Meeting
19 May 2011
Registered offi ce
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Telephone +44 (0) 1293 554 400
Registered number
4992207
Registrars and transfer offi ce
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: within the UK 0871 664 0300
(calls cost 10p per minute plus network extras);
from outside the UK +44 20 8639 3399
Fax: +44 (0) 1484 600 911
Email: ssd@capitaregistrars.com
Please note that benefi cial 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.
G4S plc Annual Report and Accounts 2010
With operations in more than
125 countries and 625,000
employees, we specialise
in outsourced business
processes and facilities
in sectors where security
and safety risks are considered
a strategic threat.
G4S plays an important role in society. We make a difference by helping
people to operate in safe and secure environments where they can thrive
and prosper and we believe this role can only grow in importance.
G4S is the world’s leading international security solutions group.
Inside this report…
Overview
01
02
Performance overview
Strategy and investment proposition
08 Chairman’s statement
Online report
View our online report and
management interviews at
http://reports.g4s.com/2010
Business review
10 Chief Executive’s interview
14
Strategy delivery
16 Resources
18 Market overview
22
32
Investment proposition case studies
Secure solutions
36 Cash solutions
40 Corporate Social Responsibility
44
Financial review
50 Group principal risks
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://reports.g4s.com/2010
G
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This report is printed on Cocoon silk 100 which is FSC® certifi ed
and contains 100% recycled waste. Vegetable-based inks were
used throughout and 99% of the dry waste and 95% of the cleaning
solvents associated with this production were recycled. The printer
is a CarbonNeutral® company, has ISO14001 and is registered to
EMAS, the Eco Management and Audit Scheme.
Design and production:
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Securing Your World
G4S plc
Annual Report and Accounts 2010