Securing your world
G4S plc
Annual Report and Accounts 2013
Investing in sustainable,
profi table growth.
In this report
Financial highlights
STRATEGIC REPORT
Financial highlights
Overview
Chairman’s statement
Chief Executive Offi cer’s review
Strategic report overview
G4S at a glance
Market review
Business model
Strategic execution
Key performance indicators
Business review
Risk management
Principal risks
Corporate social responsibility
GOVERNANCE
Board of directors
Executive committee
Corporate governance report
Audit committee report
Directors’ remuneration report
Directors’ report
Directors’ responsibilities
IFC
1
2
4
8
10
12
14
16
26
28
34
36
42
48
50
52
61
64
80
83
95
84
90
94
FINANCIAL STATEMENTS
Chief Financial Offi cer’s review
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of changes
in equity
Consolidated statement of
fi nancial position
Consolidated statement of cash fl ow
Notes to the consolidated
fi nancial statement
Parent company balance sheet
Parent company reconciliation of
movements in equity shareholders’ funds 143
Notes to the parent company
fi nancial statements
98
142
96
97
144
95
UNDERLYING REVENUE
UNDERLYING PBITA1
£7.4bn
(2012: £7.0bn)
£442m
(2012: £430m2)
TOTAL REVENUE
TOTAL PBITA3
£7.4bn
(2012: £7.2bn)
£56m(2012: £364m)
UNDERLYING EPS
TOTAL EPS
14.7p
(2012: 15.8p)
(24.9)p
(2012: 2.9p)
CASH GENERATED BY
CONTINUING OPERATIONS
£460m
(2012: £337m)
DIVIDEND PER SHARE
8.96p
(2012: 8.96p)
A full review of our fi nancial performance is set out in the Chief Financial Offi cer’s review on
pages 84 to 89. EU IFRS fi nancial statements are on pages 94 to 141. The strategic report has
been approved by the board, see page 83.
SHAREHOLDER INFORMATION
Notice of Annual General Meeting
Recommendation and explanatory
notes relating to business to be
conducted at the Annual General
Meeting on 6 June 2013
Group fi nancial record
General information
151
154
158
160
1 To clearly present underlying performance, specifi c items have been excluded and separately disclosed
– see page 86.
2 2012 underlying results are presented at constant exchange rates and have been restated for the adoption of
IAS19 (2011). 2012 PBITA has been re-presented to exclude PBITA from businesses subsequently classifi ed as
discontinued, one off credits, profi ts on disposal and the prior year effect of the review of assets and liabilities
in 2013 – see page 86.
3 Including specifi c items. See page 86 for details.
Overview
Strategic report
A market led strategy to deliver
sustainable shareholder value
G4S is the leading global integrated security company,
specialising in the provision of security products,
services and solutions.
Our strategy is market led. We satisfy our customers’
needs by understanding their strategic objectives and
designing and delivering innovative solutions which
support their goals.
Our aim is to create sustainable shareholder value
through excellence in customer service, operations
and fi nancial management.
See pages 8 to 27 for more information
Annual Report and Accounts 2013 G4S plc 1
Chairman’s statement
Putting strong foundations
in place
John Connolly
Chairman
A YEAR OF CHANGE
2013 was always going to be a year of change. Some board changes
involving executive and non-executive directors had been planned
and the foundations for those changes had been laid in 2012.
Nick Buckles, who had been chief executive of the group since 2005,
stepped down as CEO in May. He was succeeded by Ashley Almanza,
a high quality, respected executive with extensive international business
experience, who became group CEO on 1 June 2013. Mr Almanza had
joined the group earlier in the year as CFO following the retirement of
Trevor Dighton from that role.
In May, the UK Ministry of Justice (“MoJ”) announced concerns in
relation to billing practices on our electronic monitoring contracts in
England and Wales and commenced a review of all MoJ contracts held
by G4S. At the same time, the Cabinet Offi ce initiated a review of all
our major UK Government contracts – the Cross Government Review.
In response to the concerns raised by the MoJ, we appointed an
independent law fi rm and external accountants to look into the matter
on behalf of the board. We also co-operated with the MoJ and Cabinet
Offi ce reviews. Both the MoJ review and the Cabinet Offi ce review
have now been completed and we reached settlement of claims raised
in relation to electronic monitoring and two other contracts in England.
“ This is my second chairman’s statement in a G4S
annual report and it is fair to say that it marks the
completion of a year no less challenging than my
fi rst. 2013 was a year during which the group
underwent a great deal of change, at both board
and senior management level, and also in some
of the ways we conduct our business.”
DIVIDEND PER SHARE
8.96p
(2012: 8.96p)
2 G4S plc Annual Report and Accounts 2013
Strategic report
REVENUE BY BUSINESS SERVICE (%)
9
16
Cash solutions
Secure solutions
Care & Justice services
75
FINANCIAL PERFORMANCE
The group operates in many parts of the world and continues to
provide critical services to thousands of customers to the highest
standards. This underlying strength of the business was refl ected in
the company’s performance for 2013. Underlying revenue growth of
5.8% was underpinned by 16% growth in emerging markets.
Cash generated by continuing operations increased by 36%.
To strengthen the group's fi nancial position, we raised approximately
£343 million net via a placing of new shares in August. Together with a
disposals programme which has, to date, generated £124 million, and
a strong focus on cash fl ow management, this will enable us to reduce
our debt and to invest in sustainable, profi table growth.
We have a clear strategic plan and the board believes that the
business has signifi cant growth opportunities and positive prospects.
The directors therefore propose a fi nal dividend of 5.54p (DKK 0.4954)
per share, payable on 13 June 2014. With an interim dividend of 3.42p
(DKK 0.2972) per share paid on 18 October 2013, the total dividend
for the year will amount to 8.96p per share, the same as for 2012.
On behalf of the board I would like to thank the 618,000 employees
who make up the group for their hard work and dedication in 2013
and their focus on doing what they do well. It is with confi dence that
I look forward to capturing the value in 2014 of all the groundwork
that has been done in 2013.
John Connolly
Chairman
The UK Government is one of the group’s largest customers and so
repairing the relationship and rebuilding our reputation, particularly in
the UK market, has rightly been at the forefront of the work of the
executive team and of the board. This will take time and forms part
of a wider transformation plan launched by the group CEO, which
includes organisational and process changes designed to strengthen
customer focus, governance and contract management and control.
This transformation process is something which the UK Government
has been keen to see, but it is important to stress that it is something
which was already in progress and not just in the UK.
SO WHAT CHANGED IN 2013?
We welcomed fi ve new members to the board during the year.
Three of them are non-executive directors: Adam Crozier and Paul
Spence, who joined the board in January, and Tim Weller, who joined
in April; whilst Bo Lerenius and Lord Condon retired from the board
in June. There were also changes to the executive board members. In
addition to Nick Buckles' departure in May, Trevor Dighton stood down
as CFO at the end of April and left the board in June. Ashley Almanza
joined on 1 May as CFO before taking on the role of chief executive
offi cer from 1 June. Himanshu Raja was appointed CFO in October.
In a fairly short space of time the make-up of the board has changed
signifi cantly, so it has been important to ensure that it retains the right
combination of knowledge of the group as well as expertise which is
relevant to the business. I believe we have a board which is diverse in
composition and well suited to the task; covering a broad spectrum in
terms of professional background, experience, nationality and gender.
As announced previously, we undertook a thorough review of the
group’s risk management function and systems in the fi rst half of 2013.
The Risk Committee reviewed the fi ndings of the review, and
implemented a number of recommendations. The Risk Committee
was constituted as a full board committee in 2013 to strengthen
support to the board in discharging its responsibilities regarding the
maintenance of a framework of effective controls to enable risk to be
assessed and managed. The review process also led to important
changes to the risk function and the implementation of a new risk
management framework described in more detail on pages 36 to 41
of the Strategic Report. In addition, the Risk Committee reviews and
reports to the board on the risk aspects of major developments that
affect the group and major contracts which the group enters into.
As reported in the CEO’s review, we have embarked upon a group-
wide transformation responding to the signifi cant issues identifi ed over
the last 18 months as the new executive team set the business on
track for future profi table growth. This plan has embraced a bottom
up business and strategy review bringing in a wide range of new
senior executives in key roles, restructuring a number of businesses,
a portfolio review of the group’s businesses and a comprehensive
review of fi nancials and fi nancial disciplines. Importantly the board
approved management’s extensive proposals for new processes
and disciplines emphasising our key values around customer focus
and integrity. This part of the transformation along with the above
mentioned emphasis on risk management will contribute to meeting
the requirements of our key UK customer, UK Government, around
corporate renewal.
We have taken on board the lessons we have learned from the
challenges of 2013 and a great deal of effort continues to be focused
on ensuring that we have the right people and the appropriate
systems and processes in place to ensure the group’s long-term success.
I believe we are on the right track.
Annual Report and Accounts 2013 G4S plc 3
Chief Executive Offi cer’s review
Focused on sustainable,
profi table growth
Ashley Almanza
Group Chief Executive Offi cer
“ This has been an extremely challenging year for G4S.
We have taken clear action to address long-standing
issues and have introduced wide-ranging changes
to strengthen our business. We can now look to the
future with increasing confi dence, focusing on the
growing demand for G4S services that underpins
our plans to deliver sustainable, profi table growth.”
A YEAR OF CHANGE
I was delighted to join G4S in May 2013 and to take up the role of
group CEO in June. In my fi rst few months, I travelled around the group,
meeting senior managers and colleagues working in different regions
and at many levels in our organisation and I also had the opportunity
to visit some of our operations and customers. This confi rmed my view
that G4S has considerable unrealised potential.
In order to address that potential in a focused and disciplined way,
we conducted a strategy and business review, evaluating our position
and prospects in each of our key markets around the world. While the
review confi rmed the strength of our global market positions, it also
identifi ed the need for wide ranging changes which, over time, we
expect to transform the group’s ability to deliver sustainable,
profi table growth.
4 G4S plc Annual Report and Accounts 2013
Strategic report
GROUP STRATEGY
G4S is the world’s leading global, integrated security company,
specialising in the provision of security products, services and solutions
to customers across six continents.
Our strategy is market led – everything begins with the customer.
We seek to understand our customers’ strategic and commercial
objectives and from there we design and deliver solutions which
support those objectives. Our aim is simple and clear; it is to create
sustainable shareholder value through the consistent delivery of
excellence in three areas: customer service, operational performance
and fi nancial management.
As noted above, the strategic review we conducted in 2013 identifi ed
the need for wide-ranging changes which we have captured in the
form of a number of strategic priorities. I’m pleased to report that
progress has been made in each of these areas:
Strategic focus and portfolio management
At the start of the year we were operating in more than 125 countries
with several lines of business in each country. By assessing the strategic
fi t, performance and prospects of each of these businesses, we
identifi ed 35 businesses which required action to be taken to realise full
value for shareholders, through turn-around, restructuring or disposal.
As a result, we are actively managing the group’s portfolio, divesting a
number of non-core businesses, and have generated cash proceeds of
£124 million to date. Our work in this area continues and, subject to
value accretive terms being achieved, we may make further disposals.
Organic investment
Our review concluded that we were under-investing in organic
growth and technology and innovation. The group is now investing an
additional £15 to £20 million in 2014 to strengthen sales and business
development capability and to extend our technology and innovation
across the group – both important catalysts for future growth.
Balance sheet fl exibility
Given the scale and quality of our organic growth opportunity and the
level of net debt at the start of the year, we raised £343 million through
the successful placing of 140.9 million new shares.
Capital discipline and Risk management
The group’s capital allocation and contract review processes have been
strengthened to ensure that all investment opportunities compete for
capital in a single ‘pool’ and are evaluated against a stringent set of
economic and risk criteria.
People
Our review identifi ed the need to strengthen our resource and
capability in a number of key areas of the business. Over the past nine
months, we have signifi cantly strengthened our senior management,
with 28 new appointments to the global leadership team.
Group values
Our group values underpin the reputation and long-term value of the
group. We have updated and reinforced awareness and understanding
of our group values to ensure that we conduct our business to the
highest standards. We are enhancing health and safety across the group
by standardising safety management systems and embedding health and
safety objectives in individual performance contracts.
Competitive strengths
Our review concluded that our competitive position needed to be
strengthened in a number of key markets. During the second half of
the year we established major restructuring programmes, with detailed
plans to invest £68 million over 2013 and 2014 and these are now
being implemented. We expect the economic, fi nancial and
performance benefi ts to be realised over the next 12 to 36 months.
Cost leadership
We recognised the growing importance of cost leadership and
following systematic benchmarking we established a number of
effi ciency programmes. These include focus on direct labour effi ciency,
organisational effi ciency, vehicle route planning and telematics, IT
standardisation, procurement and shared services.
Performance management
We re-defi ned our performance measures and incentives, putting in
place measures and performance management processes which focus
on customers’ needs, sustainable profi t and cash fl ow. I believe this
provides clear and strong alignment between management priorities
and shareholder value.
While we still have much to do, I have been enormously encouraged by
the positive engagement from colleagues across the group who have
embraced these changes and demonstrated extraordinary commitment
to our customers and to G4S. I’m grateful for their skill and dedication,
which remain critical to our success.
STRATEGIC EXECUTION
To see in more detail how we plan to deliver our focused
strategy to deliver sustainable, profi table growth please
see pages 8 to 27.
Strategic report
Strategic execution
People and values
AT THE HEART OF OUR STRATEGY
G4S HAS A DEDICATED WORKFORCE OF OVER
618,000 EMPLOYEES AROUND THE WORLD (%)
Africa
Asia & Middle East
Latin America
Europe
North America
UK & Ireland
6
9
19
11
12
43
G4S employees by region as at end Dec 2013.
Our culture is defi ned by our values, beliefs and behaviours.
We seek to embed our values in all aspects of our operations
and they form part of our recruitment, development and
review processes. Managers and employees are encouraged
and expected to behave in line with the group’s values and to
speak up when witnessing behaviour which does not meet
our standards.
OUR GROUP VALUES: SUPPORTING
OUR STRATEGY
Customer focus – We have close, open relationships with
our customers which generate trust and we work in
partnership for the mutual benefi t of our organisations.
Best people – We employ the best people, develop their
competence, provide opportunity and inspire them to live
our values.
Integrity – We can always be trusted to do the right thing.
Expertise – We develop and demonstrate our expertise
through our innovative approach to creating and delivering
the right solution.
Performance – We seek to improve performance year on year
to create long-term sustainability.
Teamwork and collaboration – We collaborate for the benefi t
of our customers and G4S.
Safety fi rst – We prioritise safety management to protect the
health and well-being of our colleagues and those around us.
In 2014, we have introduced a new value to focus specifi cally
on the safety of our colleagues and those around us. This is
supported by a number of key safety initiatives and campaigns
designed to increase awareness of health and safety matters,
learn from best practice and prevent health and safety incidents.
See pages 44 and 45 for further information on health and
safety initiatives.
16 G4S plc Annual Report and Accounts 2013
Annual Report and Accounts 2013 G4S plc 17
WELFARE TO WORK
To date, G4S Welfare to Work has helped 35,077
long-term unemployed people in the UK into jobs.
We estimate this has saved the UK tax payer more
than £120 million per annum. The vast majority
of people that we have assisted had been out of
work for at least nine months, with many having
been out of work for a number of years.
Annual Report and Accounts 2013 G4S plc 5
Chief Executive Offi cer’s review continued
FINANCIAL PERFORMANCE
Demand for our services remained strong in 2013, particularly in
emerging markets where our revenue rose by 16%.
Underlying profi t before interest, tax and amortisation (PBITA) was
£442 million and cash generated by operations increased by 36% to
£460 million, primarily refl ecting improved working capital management
which is described in more detail in the chief fi nancial offi cer’s review.
Our emerging market businesses in Africa, Latin America, Asia and the
Middle East, converted strong revenue growth into very strong profi t
progression and underlying PBITA from these businesses rose by 25%
to £216 million.
Our developed market businesses posted PBITA of £270 million as
our businesses in Europe, UK and Ireland suffered from a weak trading
environment, unsatisfactory service delivery in some areas and an
uncompetitive cost structure. In the US, our sales in technology and
secure solutions were adversely impacted by cuts in Federal
government spending. We have established restructuring programmes
in all of these businesses and, as previously mentioned, made a provision
for £68 million to cover the cost of these programmes.
Having performed an extensive review of our UK Government
contracts we were pleased to conclude a settlement agreement with
the Ministry of Justice (MoJ). Under this agreement we will refund
approximately £96 million for amounts overbilled on three contracts
and will compensate the UK tax payer for £12.5 million costs incurred
by the UK Government. We believe that the settlement, together with
other actions we are taking, will help us to maintain our position as
a strategic supplier to the UK Government.
During the year, we conducted a comprehensive fi nancial review of
our assets and liabilities and major contracts. These reviews, together
with the MoJ settlement and our restructuring programmes, resulted
in a £386 million charge to profi ts during 2013. This contributed to
a net loss of 24.9 pence per share and to a reduction in the book
value of the group's net assets from £1,231 million to £919 million.
Having completed these reviews, we now have a solid baseline against
which we can measure our progress.
The resulting total PBITA for the year was £56 million (2012:
£364 million). Underlying EPS was 14.7p against 15.8p in 2012 and
total loss per share was 24.9p, compared with earnings per share of
2.9p in 2012.
The group’s share placing, cash proceeds from portfolio disposals and
improved operating cash fl ow all helped to offset investment and other
demands on our cash fl ow and we ended the year with net debt of
£1.5 billion compared with £1.8 billion at the start of the year.
HEALTH AND SAFETY
During 2013, fi fty-fi ve colleagues lost their lives in the line of duty,
principally as a result of attacks by third parties and road traffi c
accidents. Their loss is deeply felt by their families and their colleagues
and is a matter of great concern for everyone at G4S. This has caused
us to re-double our efforts to mitigate the risks faced each day by
many of our colleagues. The Group Executive team is leading a
programme to strengthen safety leadership and safety practices
across the group, including:
– Critical country reviews: conducting detailed assessments and
developing mitigation plans in those countries and operations
where we have identifi ed the greatest risks.
– Establishing a new group wide standard for health and safety
management systems.
– Health and safety resource: We made a number of new
appointments across the group and at the beginning of 2014 we
had 110 dedicated health and safety professionals, assisting us to
reduce health and safety risks.
– Safety leadership training and awareness is now mandatory for all
senior managers. In addition, each member of the Group Executive
team (and each of their teams) has specifi c health and safety
performance objectives in 2014.
– In support of our health and safety programme, we have established
a new group value called Safety First.
We work in an inherently hazardous industry and health and safety is
an enduring priority for me and my management team. Our deepest
desire is to see every employee return to his or her family unharmed
at the end of each day and we will always remain committed to
that objective.
CORPORATE SOCIAL RESPONSIBILITY
For more information
see our Corporate Social
Responsibility Report
2013.
Investing in sustainable,
profitable growth.
Securing your world
G4S plc
Corporate Social Responsibility Report 2013
See page 42 for more information
6 G4S plc Annual Report and Accounts 2013
Strategic report
GROUP VALUES
We updated and strengthened our group values, particularly in light of
events surrounding our electronic monitoring contracts with the UK
Ministry of Justice which are being investigated by the Serious Fraud
Offi ce (SFO). We commissioned an independent review of these
contracts by a global law fi rm which has found no evidence of criminal
wrongdoing. We have also cooperated with the SFO to support its
work. With strong sponsorship from the Group Executive team,
we are rolling out a programme in 2014 which is designed to
strengthen understanding of, and compliance with, our group values.
This programme addresses the values described opposite and includes
training for senior managers and specifi c objectives in their 2014
performance contracts.
We developed and launched a new human rights policy and guidance
for managers in 2013. Given the services we provide and the
sometimes challenging environments in which we work, this was
a signifi cant priority for the Group Executive.
Every two years, we conduct a group-wide management and employee
survey. Feedback from our workforce is an important element of our
management process and in 2013, 384,000 colleagues responded to
our global employee survey, providing us with a rich source of
information about the business and our people which we are able to
use in developing our plans and employee engagement programmes.
OUTLOOK
The outlook for the group is positive. There is strong demand for G4S’
services across the world, particularly in emerging markets, and we
have a clear and focused strategy to address this demand.
We have taken clear action to address long-standing issues and have
introduced wide-ranging changes to strengthen our business. We can
now look to the future with increasing confi dence, focusing on the
growing demand for G4S’ services that underpins our plans to deliver
sustainable, profi table growth. That confi dence is refl ected in the board’s
recommendation to maintain the dividend.
Ashley Almanza
Group Chief Executive Offi cer
GROUP VALUES: SUPPORTING
OUR STRATEGY
CUSTOMER FOCUS
We have close, open relationships with our customers
which generate trust and we work in partnership for
the benefi t of our organisations.
BEST PEOPLE
We employ the best people, develop their competence,
provide opportunity and inspire them to live our values.
INTEGRITY
We can always be trusted to do the right thing.
EXPERTISE
We develop and demonstrate our expertise through
our innovative approach to creating and delivering the
right solutions.
PERFORMANCE
We seek to improve performance year on year to create
long-term sustainability.
TEAMWORK AND COLLABORATION
We collaborate for the benefi t of our customers and G4S.
SAFETY FIRST
We prioritise safety management to protect the health and
well-being of our colleagues and those around us.
Annual Report and Accounts 2013 G4S plc 7
Strategic report overview
These pages provide an overview of the Strategic report as approved by the G4S board (see page 83).
STRATEGY
With operations on six continents and 618,000 employees, we are the leading global integrated security company.
Our strategy is market led. We satisfy our customers’ needs by understanding their strategic objectives and designing
and delivering innovative solutions which support their goals.
Details of our strategic execution are set out on pages 16 to 27.
MARKET LED
CUSTOMER FOCUSED
SUSTAINABLE
EXECUTION: PEOPLE, INVESTMENT, EXCELLENCE
PEOPLE AND VALUES
INVESTMENT IN
ORGANIC GROWTH,
CUSTOMER SERVICE
AND OPERATIONAL
EXCELLENCE
LEVERAGING OUR
CAPABILITIES,
TECHNOLOGY
AND BEST PRACTICE
WORLDWIDE
PORTFOLIO AND
PERFORMANCE
MANAGEMENT
DISCIPLINED
FINANCIAL
MANAGEMENT
Strategic execution pages 16 to 27
OUR CUSTOMERS, SERVICES AND MARKETS
% of 2013 revenue by:
REGION
22
19
6
22
21
10
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
BUSINESS SERVICE
CUSTOMERS
9
16
5
24
29
75
Cash solutions
Secure solutions
Care & Justice services
19
8
32
2
8
Government
Financial institutions
Utilities
Transport
Ports & airports
Leisure
Retail
Major
corporates
Consumers
Our strategy is customer focused across a wide range of industries and commercial and government customers. We have a
diverse range of services to meet our customers' requirements and have a broad geographic footprint to meet demand for
security around the world.
G4S at a glance page 10
8 G4S plc Annual Report and Accounts 2013
Strategic report
PERFORMANCE
2013 was a year of consolidation for the group as we dealt with long-standing issues and made wide-ranging changes to strengthen
the group and laid foundations to support sustainable, profi table growth.
FINANCIAL KPIs
UNDERLYING REVENUE
(£bn)
UNDERLYING PBITA1 (£m)
CASH GENERATED BY
CONTINUING OPERATIONS
(£m)
UNDERLYING EPS1,3
(pence per share)
10
8
6
4
2
0
7.0
7.4
4302
442
500
400
300
200
100
0
460
337
600
500
400
300
200
100
0
20
16
12
8
4
0
15.8
14.7
12
13
12
13
12
13
12
13
1 To clearly present underlying performance, specifi c items have been excluded and separately disclosed – see page 86.
2 2012 underlying results are presented at constant exchange rates and have been restated for the adoption of IAS 19 (2011). 2012 PBITA has been
re-presented to exclude PBITA from businesses subsequently classifi ed as discontinued, one-off credits, profi ts on disposal and the prior year effect of
the review of assets and liabilities in 2013 – see page 86.
3 Total loss per share was 24.9p (2012: earnings per share 2.9p) – see page 87 for details.
NON-FINANCIAL KPIs
HR STANDARDS AND KPIs
In 2014, performance contracts for senior managers focus on
fi nancial performance, but also on personal objectives aligned
to areas of focus such as:
– health and safety
– business development
– people and organisation
– values
– operational excellence and
customer service
KPIs page 26/CFO’s review page 84
We believe strong employee relationships help deliver
excellent customer service. To ensure that G4S delivers on its
commitments to employees, businesses are required to report
monthly on key metrics relating to:
– health and safety
– industrial relations
– recruitment and employee retention
CORPORATE RESPONSIBILITY
It is our responsibility to make sure our impact on society
is a positive one. We make a difference by helping people
live and work in safe and secure environments. In 2013, we
improved our risk management and programme assurance
framework to ensure we properly evaluate all areas of how
we do business.
2013 HIGHLIGHTS:
– Materiality review of CSR issues
– Launched human rights framework for all businesses
– Launch of road safety campaign called Driving Force Rules
OUR FOCUS AREAS
2014 PRIORITIES
INTEGRITY
COMMUNITYY
PEOPLE
ENVIRONMENT
BUSINESS ETHICS AND ANTI-CORRUPTION
HEALTH & SAFETY
HUMAN RIGHTS
CSR page 42 or visit www.g4s.com/csr
Annual Report and Accounts 2013 G4S plc 9
G4S at a glance
G4S is the leading global
integrated security company
SECURE SOLUTIONS
The secure solutions business covers a wide range of services, including:
Risk services and consultancy
Security systems
Monitoring and response
Risk management consultancy services including personal protection, training, mine detection and
clearance services
Access control, CCTV, intruder alarms, fi re detection, video analytics and security and building systems
technology integration
Key holding, mobile security patrol and response services and alarm receiving and monitoring facilities
Secure facilities services
Welfare to work programme
Manned security services
Integrated facilities services for entire sites or estates for commercial customers and governments
Assisting long term unemployed people into work
Trained and vetted security offi cers
CARE & JUSTICE SERVICES
Care & justice services is part of secure solutions and offers highly specialised services to central and local governments and government
agencies and authorities:
Juvenile and adult custody
Prisoner escorting
Asylum services
Electronic monitoring
Police services
Management of all aspects of a facility and those held within the facility – similar centres are also used
for the detention of asylum applicants
Transportation of prisoners and asylum applicants between courts, police stations and custody and
asylum centres
Management of housing provision and other services for asylum applicants
Electronic tagging and monitoring of offenders at home or in the community
Back offi ce support functions for police forces, support for front line policing including the provision
of custody suite services and forensic medical services
CASH SOLUTIONS
The cash solutions business covers a wide range of services including:
Outsourcing cash management Managing cash on behalf of fi nancial institutions including cash transportation, high security cash centres,
Cash consulting
ATM management
Retail cash management
International transportation
Cash transportation
counting and reconciling cash, fi tness sorting of notes for use in automated teller machines (ATMs),
counterfeit detection and removal, redistribution of cash to bank branches, ATMs and retail customers
Provision of consultancy services to central banks and commercial banks on overall cash management
strategy, bank note production and security and all aspects of cash cycle effi ciency
Managing ATMs on behalf of banks, retailers and independent ATM providers – including cash forecasting,
cash transportation and reconciliation services, fi rst line maintenance and ATM engineering services
Provision of systems and hardware which provide an automated cash offi ce for retail sites to improve
security of cash, electronic audit trails of takings and a real time view of retail cash balances
Bespoke international transportation and insurance of currency, gems and other valuables
Secure transportation of cash using high security vehicles, fully vetted and trained personnel and
purpose-built technology to transport, protect, count and reconcile cash to customer records
10 G4S plc Annual Report and Accounts 2013
Strategic report
CONTRACTS AND RELATIONSHIPS
G4S has a very diverse contract portfolio. The duration of contracts
varies from annual sporting events to 25-year private prison contracts.
In cash solutions, most contracts are annual, with those contracts
requiring a higher capital intensity being usually fi ve years in duration
or longer.
In practice many relationships become long-term and result in contracts
being renewed year after year.
See page 33 for more information
CUSTOMERS (SECURE SOLUTIONS)
(% of revenue)
6
33
28
10
6
42
2
9
Government*
Financial institutions
Utilities
Transport
Ports & airports
Leisure
Retail
Major
corporates
Consumers
* Including care & justice services.
MARKET AND STRATEGY
G4S is a global provider with a top three
position in around 80 of the 100 manned
security markets in which we operate.
As one of the few global security companies,
our main international competitors in
developed markets tend to be regional and
international companies operating in one
market segment such as security, systems
or facilities. There are also many local
security companies operating in developed
and emerging markets.
We aim to:
– Use our expertise, service delivery and
integration together with our geographic
coverage to differentiate our business
to customers
– Drive outsourcing and enhance the value
of traditional security services through
greater use of technology (see page 25)
Revenue
£5,567m
(2012: £5,314m)
MARKET AND STRATEGY
Care & justice services delivers more than
10% of secure solutions revenue. While the
care & justice services market is concentrated
primarily in the UK, US, Australia and
New Zealand, we see a number of countries
exploring the possibility of outsourcing these
services to the private sector.
The market structure is typically
consolidated on the supply side with
a small number of providers. Larger
companies are usually better equipped
to deliver such highly specialised
services.
Revenue
£653m
(2012: £553m)
MARKET AND STRATEGY
G4S is the market leader or number two in
57 of our 61 secure cash transportation
markets. Our main international competitors
are Loomis and Brink’s in most developed
markets and local companies in emerging
markets. Our cash solutions business is
integrated into our wider organisation
and processes through shared customers,
management structures and systems in
many countries. The market is highly regulated,
often by central banks, and the business
requires complex infrastructure and
signifi cant expertise.
We aim to:
– 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
– Use our developed market cash cycle
expertise and track record to encourage
central bank and fi nancial institution
outsourcing in emerging markets
– Continue the roll-out of innovative
technology such as CASH360™ for
retail customers (see page 25)
Revenue
£1,208m
(2012: £1,157m)
See page 33 for more information
CUSTOMERS (CASH SOLUTIONS)
(% of revenue)
17
20
63
Financial institutions
Retailers
Other
Annual Report and Accounts 2013 G4S plc 11
Market review
The market
opportunity
GLOBAL SECURITY MARKET BY REGION ($m)
According to market research consultancy Freedonia
Inc, global demand for private security services will
increase between 2011 and 2016 by 7.3% annually
to $213 billion. Growth drivers include GDP and
population growth, regulation and crime levels.
100,000
80,000
60,000
40,000
20,000
0
Emerging markets
expected to
represent more than
50%
of the global
market by 2021
ASIA
PACIFIC
NORTH
AMERICA
WESTERN
EUROPE
LATIN
AMERICA
AFRICA &
M/EAST
EASTERN
EUROPE
2006
2011
2016
2021
Source: Freedonia World Security Services report January 2013 excluding residential security.
12 G4S plc Annual Report and Accounts 2013
Strategic report
Our market
positions
We have a truly global business with large
established market positions in developed
markets and outstanding positions in fast
growing emerging markets. Our emerging
market businesses accounted for 37% of
group revenues in 2013 and 44% of profi ts.
NORTH AMERICA
UK & IRELAND
EUROPE
G4S North America is predominantly an
integrated secure solutions business for
commercial customers, with some government
contracts including juvenile detention services
and border protection. It has recently launched
an innovative cash management solution for
retail customers, CASH360™ (see page 25),
and is selling its classifi ed US Government
business. We employ around 54,000 colleagues
in North America.
G4S Revenues Total security market
size in 2011*
18% $44bn
G4S UK & Ireland is the UK’s leading
security provider of cash and secure
solutions with a broad range of expertise
covering specialist event security,
government outsourcing, including care
and justice services, and cash solutions.
The region employs 39,000 people.
G4S Europe has activities in Scandinavia,
Benelux, Southern Europe, Eastern Europe
and Central Asia. It has 67,000 employees
and strong market positions in cash
solutions and around 20% of revenues
are security systems related.
G4S Revenues Total security market
G4S Revenues Total security market
size in 2011*
22% $7bn
size in 2011*
22% $37bn
Developed markets
Emerging markets
No presence
LATIN AMERICA
AFRICA
G4S is a leading integrated cash solutions
and secure solutions provider for
commercial customers across Latin
America and government customers in
Brazil, with Brazil, Colombia and Argentina
being its largest markets in the region
by revenue. We employ around 74,000
colleagues in Latin America.
G4S is the largest provider of integrated security
solutions in the region, with operations in 25
African countries with more than 118,000
employees. We focus on core sectors in the
region, particularly telecommunications, aviation,
mining, oil & gas, embassies and ports as well
as post-confl ict humanitarian work with
government agencies and NGOs.
ASIA MIDDLE EAST
G4S is the leading security provider
in the Asia Middle East region with
operations in 32 countries and
employing 266,000 people. Our largest
countries by revenue are India, Saudi
Arabia and Australia.
G4S Revenues Total security market
G4S Revenues Total security market
G4S Revenues Total security market
size in 2011*
10% $15bn
7%
size in 2011*
$8bn
size in 2011*
21% $39bn
* Source: Freedonia and G4S estimates excluding residential security.
Annual Report and Accounts 2013 G4S plc 13
Business model
Robust business
model
Our business model is market led; everything begins with the
customer. We seek to understand our customers’ strategic
and commercial objectives so that we can design and
deliver security solutions which support them. Our aim is to
create sustainable shareholder value through the consistent
achievement of excellence in three areas: customer service,
operational performance and fi nancial management.
PERFORMANCE
DELIVERY
SOLUTIONS DESIGN
CUSTOMER
UNDERSTANDING
MARKET DEMAND
SCALE & CAPABILITIES
We foster a high performance culture which focuses on service
excellence, operational management and fi nancial performance.
High performance leads to strong customer relationships,
motivated employees and achievement of strategic goals –
critical elements of delivering sustainable, profi table growth.
By analysing customer needs and bringing together our expertise in
market sectors, technology, project management and service delivery
we design solutions which help our customers to manage risks,
improve service, protect people and assets and achieve their own
organisational objectives.
Understanding customer needs is central to our success. This enables
us to align our organisational objectives to those of the customer and
means we can help our customers to be successful. See pages 10 and
11 for our customer segments.
Delivering high service levels across our core services helps us to
deepen customer partnerships over the long-term and creates
opportunities to work with customers to meet their existing and
increasingly complex security needs.
There is strong demand for our core services of secure solutions,
cash solutions and care & justice services across the world. See pages
10 and 11 for our market positions.
With 618,000 dedicated employees and operations in 120 countries,
our ability to deploy skilled staff on a global basis to support local and
international customers is central to our business model. This coverage
means we can share learning and experiences across our markets to
the benefi t of our customers and our business. We work in line with
relevant international standards and strive to achieve consistent high
quality employee engagement, health and safety, training and ethical
business practices across our operations.
Part of the group strategy is
to design and deliver more
sophisticated security solutions for
customers for both secure solutions
and cash solutions. In many of the
countries in which we operate, there
is still great potential to sell more
complex solutions which tend to
have longer contract terms and
higher margins.
G4S CASH SOLUTIONS: UNIQUE BREADTH AND REACH
i
n
g
r
a
m
&
y
t
i
v
e
g
n
o
l
l
y,
t
i
x
e
p
m
o
c
g
n
i
s
a
e
r
c
n
I
Outsourcing services
14
ATM maintenance
33
ATM replenishment
Cash processing
Secure transportation
47
57
61
Number of businesses around the world
14 G4S plc Annual Report and Accounts 2013
Strategic report
Closely aligned to our values
PERFORMANCE
We seek to improve performance year on year
to create long-term sustainability.
EXPERTISE
We develop and demonstrate our expertise through
our innovative approach to creating and delivering
the right solutions.
TEAMWORK &
COLLABORATION
We collaborate for the benefi t of our customers
and G4S.
CUSTOMER FOCUS We have close, open relationships with our
customers which generate trust and we work in
partnership for the benefi t of our organisations.
SAFETY FIRST
INTEGRITY
BEST PEOPLE
We prioritise safety management to protect the
health and well-being of our colleagues and those
around us.
We can always be trusted to do the right thing.
We employ the best people, develop their
competence, provide opportunity and inspire them
to live our values.
G4S SECURE SOLUTIONS: POSITIONED FOR FUTURE DEVELOPMENT
i
n
g
r
a
m
&
y
t
i
v
e
g
n
o
l
l
y,
t
i
x
e
p
m
o
c
g
n
i
s
a
e
r
c
n
I
Risk services
10
15
18
System software/integration
Consultancy services
Monitoring & response
System install & maintenance
Manned security
71
81
100
Number of G4S countries around the world
Annual Report and Accounts 2013 G4S plc 15
Strategic execution
People and values
AT THE HEART OF OUR STRATEGY
G4S HAS A DEDICATED WORKFORCE OF OVER
618,000 EMPLOYEES AROUND THE WORLD (%)
Africa
Asia & Middle East
Latin America
Europe
North America
UK & Ireland
6
9
19
11
12
43
G4S employees by region as at end Dec 2013.
Our culture is defi ned by our values, beliefs and behaviours.
We seek to embed our values in all aspects of our operations
and they form part of our recruitment, development and
review processes. Managers and employees are encouraged
and expected to behave in line with the group’s values and to
speak up when witnessing behaviour which does not meet
our standards.
OUR GROUP VALUES: SUPPORTING
OUR STRATEGY
Customer focus – We have close, open relationships with
our customers which generate trust and we work in
partnership for the benefi t of our organisations.
Best people – We employ the best people, develop their
competence, provide opportunity and inspire them to live
our values.
Integrity – We can always be trusted to do the right thing.
Expertise – We develop and demonstrate our expertise
through our innovative approach to creating and delivering
the right solutions.
Performance – We seek to improve performance year on year
to create long-term sustainability.
Teamwork and collaboration – We collaborate for the benefi t
of our customers and G4S.
Safety fi rst – We prioritise safety management to protect the
health and well-being of our colleagues and those around us.
In 2014, we have introduced a new value to focus specifi cally
on the safety of our colleagues and those around us. This is
supported by a number of key safety initiatives and campaigns
designed to increase awareness of health and safety matters,
learn from best practice and prevent health and safety incidents.
See pages 44 and 45 for further information on health and
safety initiatives.
16 G4S plc Annual Report and Accounts 2013
Strategic report
WELFARE TO WORK
To date, G4S Welfare to Work has helped 35,077
long-term unemployed people in the UK into jobs.
We estimate this has saved the UK tax payer more
than £120 million per annum. The vast majority
of people that we have assisted had been out of
work for at least nine months, with many having
been out of work for a number of years.
Annual Report and Accounts 2013 G4S plc 17
Strategic execution
G4S CASH SOLUTIONS
We are one of the leading cash solutions
companies in the world and are either number
one or two in secure cash transportation in
57 of the 61 countries in which we operate.
For example, across the Asia Middle East region,
we provide customers with a broad range of
services including servicing and replenishing over
38,000 ATM and cash deposit machines.
18 G4S plc Annual Report and Accounts 2013
Strategic report
Investment in customer service,
operational excellence and
organic growth
LARGE, GROWING SALES PIPELINE
We benefi t from structural growth in the demand for our
products and services around the world and that is refl ected in
our sales pipeline, which currently stands at £5 billion per annum.
We are in many more markets than our competitors – typically
with higher emerging market exposure.
We have higher value added services in our portfolio, and there
is potential for us to extend our high value services into more
of our markets. We continue to innovate through the use of
technology and process know-how to create new products
and services. We are investing in improving our sales systems,
customer account management, sales leadership and sales
resource in some of our core markets in order to service
strong market demand.
£2.9bn
Leads and prospects (unrisked)
£1.3bn
Bidding
£0.8bn
Negotiation
As at March 2014.
Annual Report and Accounts 2013 G4S plc 19
Strategic execution
G4S HAS AVIATION OPERATIONS IN
MORE THAN 40 COUNTRIES, FOR OVER
80 AIRLINES AND FOR 120 AIRPORTS
Aviation contracts won in 2013 included Charleroi
airport in Belgium, renewed contracts with British
Airways, and renewal and extension of the Dubai
airport security contract.
20 G4S plc Annual Report and Accounts 2013
Strategic report
Leveraging our capabilities
worldwide
REVENUE BY REGION (%)
22
19
6
22
21
10
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
Growth potential
5%
to 8%
REVENUE FROM KEY SECTORS
(£m)
£1,014m
1,014
821
1,200
1,000
800
600
400
200
0
12
13
We have a truly global business with established market
positions in developed markets and strong positions in rapidly
growing emerging markets. Our emerging markets businesses
account for 37% of group sales today and this proportion is
expected to increase in the future. Overall, we believe that the
scale and quality of the global market opportunity supports
organic growth potential of around 5% to 8% per annum for
the foreseeable future.
We invest in developing security services in sectors where
security and safety are strategically important to customers –
such as ports, mining, oil and gas and aviation. Through our
investment in these sectors we have seen combined revenues
increase over 23% during the year and these have more
than doubled since 2009 to over £1 billion in 2013. We are
now working to further embed this sector expertise
within our regional structure. For more information see
www.g4s.com/sectors
Annual Report and Accounts 2013 G4S plc 21
Strategic execution
Portfolio and performance
management
FORECAST G4S PBITA IN 2016 BY COUNTRY
Cumulative PBITA (%)
100
80
60
40
20
0
62 COUNTRIES
CONTRIBUTE
95% OF 2016 PBITA
1
11
21
31
41
51
61
71
81
91
101
111
Country 2016 PBITA High to Low
Rigorous measurement and monitoring of our performance is
vital to ensuring we are delivering sustainable profi table growth.
During 2013, we conducted a “bottom-up” analysis of all of
our businesses, forecasting their performance out to 2016.
The results showed that 62 countries were expected to
contribute 95% of the total PBITA expected in 2016.
Number
of
businesses
2013
Rev
(£m)
2013
PBITA
(£m)
2013
Margin
(%)
Proceeds
to date
(£m)
November
2013
31 March
2014
35
26
425.6
13.3
214.2
12.3
3.1
5.8
0.0
30.0
Looking at the materiality of contribution (growth, PBITA,
cash generation and turnaround potential), we identifi ed 35
businesses which required action to be taken to realise full value
for shareholders through turn around, restructuring or disposal.
We have made good progress, selling or closing six businesses
and restructuring three during 2013 and early 2014. In the
process, together with the sale of the Canada cash solutions
and Colombia secure archiving businesses we generated net
proceeds of £124 million. We expect further progress will
be made in 2014 with the remaining businesses which are
under review.
By actively managing our business portfolio, we can ensure that
we maintain our strategic focus – deploying our capital and best
people to the best opportunities (see CEO review page 4).
We are also strengthening the link between performance and
reward (see Directors' remuneration report pages 64 to 72).
The group’s budget is set in the context of the longer-term
business plan which supports our strategy. From December
2013, each of our senior managers across the group has a
performance contract which clearly defi nes how he or she
(and his or her team) will contribute to the overall success
of the group.
22 G4S plc Annual Report and Accounts 2013
Strategic report
SHELL
In September 2013, G4S signed a strategic global
framework agreement with Shell International
Limited to provide security solutions to the energy
and petrochemicals company on a call off basis
potentially in more than 30 countries.
The fi ve-year contract, with the option of
a further two years, is one of the group’s largest
global framework contracts.
Annual Report and Accounts 2013 G4S plc 23
Strategic execution
SYMMETRY
Our Symmetry product is an access control
and building management system. It is used
by nearly every major industry and secures
everything from a two-door building to large
corporations spread across the globe. The system
can easily be expanded as a company grows and
includes integrated video, intrusion and threat
level management, workfl ow designs and
intelligent controllers.
24 G4S plc Annual Report and Accounts 2013
Strategic report
Technology & innovation
2013 SECURITY SYSTEMS REVENUE (%)
6
6
10
18
12
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
48
Our technology products and services are focused on the
deployment of customer-facing security systems and software
which is designed to protect customers and their assets and
to provide customers with management information to achieve
their objectives, typically through revenue enhancement, cost
reduction or risk management.
There are areas of technology excellence in parts of G4S
with proven intellectual property. This presents us with the
opportunity to leverage this know-how more widely across
the group including in emerging markets which currently
account for 28% of the group’s systems revenue.
In addition, we develop technology and know-how to ensure
that we deliver our commitments to customers effi ciently.
o l o g y
n
In-store te c h
Cash cycle s
o
ft
C
a
s
h
s
e
c
u
r
i
t
y
CASH360™
CASH 360
Monitoring a n d
maintena n c e
w
a
r
e
t
n
e
m
e
s
g
e
a
vic
n
a
ser
Cash m
CASH360™
CASH360™ is one of our customer-facing technology solutions,
providing an end-to-end cash management solution to G4S’
retail customers. Launched in 2010, it now has around 3,000
customers with more than 5,400 solutions sold across four
continents. South Africa, the Netherlands and Belgium grew
between 34% and 101% in 2013. During 2013, we also launched
CASH360™ in the United States.
Annual Report and Accounts 2013 G4S plc 25
Strategic execution
KEY PERFORMANCE INDICATORS
Disciplined fi nancial management
FINANCIAL KPIs
The group measures its performance on an underlying basis as, in the board’s opinion, this provides the most meaningful analysis
of the group’s performance. The CFO review on pages 84 to 89 sets out the commentary on the total performance for the year.
The group’s fi nancial key performance indicators (KPIs) are revenue growth, operating cash fl ow, PBITA and EPS.
UNDERLYING
REVENUE* (£bn)
UNDERLYING PBITA1 (£m)
CASH GENERATED BY
CONTINUING OPERATIONS
(£m)
4302
442
10
8
6
4
2
0
7.0
7.4
500
400
300
200
100
0
460
337
600
500
400
300
200
100
0
12
13
12
13
12
13
Underlying revenues grew 5.8% to £7.4bn
including the contribution from acquisitions
in 2012 and 2013. G4S revenues grew
4.7%* organically in 2013. Organic growth
was assisted by strong growth in emerging
markets of 14% but partly offset by weak
macroeconomic conditions in Europe (see
page 31). Based on the structural growth
characteristics of our markets and strong
customer demand for our services, we aim
to achieve organic growth of between 5%
and 8% per year in the long-term.
See page 19 for a description of our
investment in organic growth.
* (excluding the Olympics contract).
See pages 84 to 89 for more information
We are focused on delivering sustainable,
profi table growth. PBITA measures how
successful a company is at generating profi t
from its operating activities (before taking
into account interest, tax and amortisation
of acquisition-related intangible assets). In
2013, PBITA grew 2.8% despite challenges
in some developed markets, helped by a
strong performance in emerging markets.
Operating cash fl ow measures how
successful the business is at managing
its operating capital. We are focused on
improving all areas of the operating
cash cycle.
1 To clearly present underlying performance, specifi c items have been excluded and separately disclosed
– see page 86.
2 2012 underlying results are presented at constant exchange rates and have been restated for the
adoption of IAS19 (2011). 2012 PBITA has been re-presented to exclude PBITA from businesses
subsequently classifi ed as discontinued, one-off credits, profi ts on disposal and the prior year effect
of the review of assets and liabilities in 2013 – see page 86.
26 G4S plc Annual Report and Accounts 2013
Strategic report
NON-FINANCIAL KPIs
HR STANDARDS AND KPIs
Managers across the group are also
incentivised to achieve additional objectives
which are agreed on an individual basis and
are usually linked to business plan milestones.
In 2014, performance contracts of senior
managers focus on fi nancial performance,
but also on personal objectives aligned to
the following areas:
We believe that strong employee
relationships help to deliver excellent
customer service. Our businesses are
required to report monthly on key metrics
relating to:
Health and safety
People and organisation
Operational excellence
and customer service
Business development
Values
Health and safety
Industrial relations
Employee retention
Recruitment rates
All objectives and targets are focused on
driving sustainable profi table growth.
See pages 42 to 47 for some of our key CSR
KPIs and our progress against them in 2013.
More detail can also be found in the 2013
G4S CSR report.
UNDERLYING EPS1, 3
(pence per share)
15.8
14.7
20
16
12
8
4
0
12
13
Underlying earnings were £214 million in
2013 (2012: £222 million) down 3.6%. With
the average number of ordinary shares up
3.5% to 1,452 million (2012: 1,403 million)
underlying EPS declined 7% compared to
2012, to 14.7 pence.
3 Total loss per share was 24.9p (2012: earnings
per share 2.9p) – see page 87 for details.
Annual Report and Accounts 2013 G4S plc 27
Business review
2013 Business review G4S is managed through a functional and
geographic organisational structure.
EXECUTIVE COMMITTEE
For more details of the group executive team please see pages 50 and 51.
1
2
3
4
5
6
7
8
9
10
1. Ashley Almanza
Chief Executive Offi cer
2. Eddie Aston
Regional CEO –
UK & Ireland
3. Andy Baker
Regional President –
Africa
4. Irene Cowden
Group HR Director
5. Grahame Gibson
Regional CEO – Americas
(North America and
Latin America)
6. Graham Levinsohn
Regional CEO – Europe
7. Søren Lundsberg-
Nielsen
Group General Counsel
8. Himanshu Raja
Group Chief Financial
Offi cer
9. Dan Ryan
Regional CEO – Asia and
Middle East
10. Debbie Walker
Group Communications
Director
2013 FINANCIAL PERFORMANCE BY REGION
REVENUE (%)
PBITA (%)
22
19
6
22
21
10
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
25
12
8
26
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
10
19
28 G4S plc Annual Report and Accounts 2013
Strategic report
UNDERLYING FINANCIAL PERFORMANCE
The group's segmental analysis of underlying performance is set out below, adjusting for the effect of the review of the carrying value of assets and
liabilities as set out on page 86.
At constant exchange rates
Revenue
£m
PBITA
£m
Africa
Asia Middle East
Latin America
Emerging Markets
Europe
North America
UK & Ireland
Developed Markets
Total Group before
Head offi ce costs
Head offi ce costs
Total Group
20131
486
1,567
717
2,770
1,648
1,358
1,652
4,658
20122 Change %
11.7%
435
17.7%
1,331
16.6%
615
16.3%
2,381
(1.6%)
1,674
0.4%
1,352
2.2%
1,617
0.3%
4,643
7,428
7,024
5.8%
7,428
7,024
5.8%
20131
39
129
48
216
92
56
122
270
486
(44)
442
20122 Change %
30.0%
24.0%
23.1%
24.9%
(14.8%)
(17.6%)
(5.4%)
(11.5%)
30
104
39
173
108
68
129
305
Margins
%
20131
8.0%
8.2%
6.7%
7.8%
5.6%
4.1%
7.4%
5.8%
20122
6.9%
7.8%
6.3%
7.3%
6.5%
5.0%
8.0%
6.6%
478
(48)
430
1.7%
6.5%
6.8%
2.8%
6.0%
6.1%
Organic
growth
7%
18%
11%
14%
(2%)
0%
1%
0%
5%
5%
Footnotes 1 and 2 also apply to pages 30 to 32.
1 To clearly present underlying performance, specifi c items have been excluded and separately disclosed – see page 86.
2 2012 underlying results are presented at constant exchange rates and have been restated for the adoption of IAS19 (2011). 2012 PBITA has been re-presented to exclude
PBITA from businesses subsequently classifi ed as discontinued, one off credits, profi ts on disposal and the prior year effect of the review of assets and liabilities in 2013
– see page 86.
TOTAL FINANCIAL PERFORMANCE
The group’s segmental analysis of statutory results is presented below and is consistent with note 6 of the consolidated fi nancial statements
(page 106). The impact of the review of assets and liabilities and restructuring costs are excluded from both the current year and the prior year
statutory results. The prior year statutory results exclude the impact of the Olympics revenue consistent with the disclosure in note 6.
Revenue
£m
PBITA
£m
At constant exchange rates
Africa
Asia Middle East
Latin America
Emerging Markets
Europe
North America
UK & Ireland
Developed Markets
Total Group before
Head offi ce costs
Head offi ce costs
Total Group at constant
exchange rates
Foreign exchange
Total Group at actual exchange
rates
20133
486
1,567
717
2,770
1,648
1,358
1,652
4,658
20124 Change %
11.7%
435
17.7%
1,331
16.6%
615
16.3%
2,381
(1.6%)
1,674
0.4%
1,352
1.7%
1,625
0.2%
4,651
7,428
7,032
5.6%
7,428
–
7,032
(8)
5.6%
7,428
7,024
5.8%
20133
39
129
48
216
92
56
122
270
486
(44)
442
–
442
20124 Change %
14.7%
22.9%
4.3%
16.8%
(19.3%)
(23.3%)
(15.9%)
(18.7%)
34
105
46
185
114
73
145
332
Margins
%
20133
8.0%
8.2%
6.7%
7.8%
5.6%
4.1%
7.4%
5.8%
20124
7.8%
7.9%
7.5%
7.8%
6.8%
5.4%
8.9%
7.1%
517
(47)
470
–
470
(6.0%)
(6.4%)
6.5%
7.4%
(6.0%)
6.0%
6.7%
(6.0%)
6.0%
6.7%
Organic
growth
7%
18%
11%
14%
(2%)
0%
1%
0%
5%
5%
3 To clearly present underlying performance, specifi c items have been excluded and disclosed separately – refer to page 86 for a reconciliation to total results.
4 2012 results are reported here at constant exchange rates (but reconciled to actual rates), exclude specifi c items but are presented before the impact of the review of
assets and liabilities in 2013.
Annual Report and Accounts 2013 G4S plc 29
Business review continued
All tables show underlying performance at constant exchange rates.
AFRICA
Revenue
£m
PBITA
£m
20131
486
20122 Change %
11.7%
435
20131
39
20122 Change %
30.0%
30
In Africa revenues grew 12% and organic growth was 7%. PBITA
increased 30%, benefi ting from overhead effi ciency and restructuring
programmes.
The acquisition of Deposita in January 2013 and the addition of
CASH360™ devices and ATM engineering services to our cash
solutions business in South Africa have enabled us to sell
comprehensive end-to-end solutions in that market. We are now
positioned as the market leading cash solutions business in South Africa
and are able to deploy this capability into African and other markets.
Across the region, new contracts won include the Port of Tangiers in
Morocco, Anglogold in Ghana, Tenke Mining in DRC, a FM contract
with Rio Tinto and a secure solutions contract with the United Nations
in Southern Sudan.
ASIA MIDDLE EAST
Revenue
£m
PBITA
£m
20131
1,567
20122 Change %
17.7%
1,331
20131
129
20122 Change %
24.0%
104
Revenue growth in Asia Middle East was very strong at 18% and PBITA
increased 24%, refl ecting a greater contribution from our care & justice
services businesses in Australia and New Zealand, improved profi tability
in our risk services businesses in Iraq and Afghanistan and a strong
profi t improvement across the Middle East.
Revenue growth accelerated in the second-half of the year due partly
to a step-up in service volumes at the Manus Island processing centre.
Following the Australian elections held in September 2013 and the
change in government, we were advised that the Manus Island contract
would end in March 2014. We won demining and risk management
contracts to service a number of international oil companies in Iraq
and won or started a number of secure solutions contracts in the
UAE for key customers including the Abu Dhabi Education Council,
Etisalat, Formula 1, the Road Transport Authority and Dubai airport.
The group has strong market positions across Africa and a healthy
product portfolio to support sales in 2014, especially in the areas
of cash management, manned security and technology solutions.
The bidding pipeline in Africa is diverse and includes sectors such as
fi nancial services, mining, embassies and other government agencies,
with increasing numbers of both multi-country and larger scale bids.
The region is continuing its restructuring programme into other parts
of Africa in 2014 and is recruiting additional talent to ensure the region
has the capacity to address the market opportunities.
We began investing in our technology sales and delivery capability in
the Middle East so that we are able to deploy our proven products
and expertise in delivering comprehensive electronic security solutions
to clients. Our business in Saudi Arabia won important contracts in
the banking, ports and real estate sectors. Across the region we are
systematically reviewing organisational structures and business
processes. This review is well advanced in India, the largest country
in the region, and is enabling us to streamline operations, reduce
layers of management and overhead and to invest in sales and
operational capability.
30 G4S plc Annual Report and Accounts 2013
See footnotes on p.29
Strategic report
LATIN AMERICA
Revenue
£m
PBITA
£m
20131
717
20122 Change %
16.6%
615
20131
48
20122 Change %
23.1%
39
Revenue growth in Latin America was 17% and PBITA increased by
23% despite economic challenges in the region, including a slow down
in economic growth in Brazil, with a rigorous price increase programme
to mitigate infl ation and government mandated wage increases.
Following the appointment of a new Regional President, Martin Alvarez,
in October 2013 we have continued to build management capacity
across the region.
EUROPE
Revenue
£m
PBITA
£m
20131
1,648
20122 Change %
(1.6%)
1,674
20131
92
20122 Change %
(14.8%)
108
Our European management team has recently been strengthened
with the appointment of Graham Levinsohn as Regional CEO, with
effect from November 2013.
In Europe revenue declined by 1.6% driven by challenging market
conditions primarily in secure solutions in the Netherlands and in
Eastern Europe, with growth in Western Europe secure solutions
and cash solutions offset by declines in most Eastern European markets.
PBITA was 15% lower, adversely impacted by wage infl ation and by
the closure of 23 prisons and other cost reductions by the Ministry of
Justice in the Netherlands. During 2014 we will be seeking to improve
alignment between salary and price increases in Eastern Europe.
In the fourth quarter, we accelerated our restructuring programme to
reduce our cost structure and strengthen our competitive positions in
a number of key markets. The programme includes the rationalisation
of management and back-offi ce structures and over the course of 2013
and 2014 we plan to invest £23 million in the Netherlands, Belgium,
Greece, Finland and other countries.
The region has early revenue momentum into 2014, with new contract
wins and solid customer retention. Secure solutions contract wins
include contracts for Charleroi airport in Belgium and Google in
Finland, partly offsetting the loss of a Finnish retail customer. In January
2014, we renewed a nine year cash solutions contract with the
Dutch Railways.
In care & justice services, our pipeline is strong and our Austrian
business began a £5 million per annum immigration contract for
15 years in December 2013. We also won an electronic monitoring
contract in Bulgaria and an Agip-Shell security contract in Kazakhstan.
Organic revenue growth was 11% with a number of contract wins
in the ports, car manufacturing, transportation, fi nancial services,
government and extractives sectors in Latin America.
We sold our Colombia secure archiving business for £34 million
in 2013.
Our cash solutions businesses in Europe performed well overall.
A strong performance was achieved in Belgium and in the Netherlands
including a number of new retail contracts and CASH360™ gains
offset by contract losses in the fi rst-half of the year in Finland and the
Baltics. G4S cash solutions supported the smooth introduction of the
Euro in Latvia towards the end of the year. In January 2014, G4S won
the majority of Geldservice Nederland’s (GSN) cash solutions business
in the Netherlands for fi ve years, valued at c€50m per annum. GSN
serves the major banks in the Netherlands and is their provider of
cash counting, handling and logistics, including the maintenance of
cash devices.
Revenues for the security systems business, which accounts for
around 20% of European secure solutions revenues, remained broadly
in line with 2012. Systems contract wins include a maintenance
contract for the European parliament in Luxembourg and a major
systems contract with Lego in Hungary. The region has an increased
focus on security and cash solutions technology, with the aim of
deploying our proven technology solutions from elsewhere in the
group into key European markets.
The region made good progress on its portfolio review, selling its
Slovakian cash solutions business in 2013. The sale of our Norway
business for £29 million was also agreed in 2013 and completed in
January 2014.
We have a diverse European contract pipeline with areas such as
ports, aviation, transportation and healthcare being particularly strong.
Our investment in sales and business development capability is
designed to sustain and strengthen this pipeline over time.
Annual Report and Accounts 2013 G4S plc 31
Business review continued
NORTH AMERICA
Revenue
£m
PBITA
£m
20131
1,358
20122 Change %
0.4%
1,352
20131
56
20122 Change %
(17.6%)
68
Revenues in the North America region grew 0.4% and organic growth
overall was broadly unchanged with 2% growth in US commercial
security and 10% growth in youth services offset by US Federal
sequestration reducing new and additional federal government work
in secure solutions and in the G4S Technology business.
Against a background of uncertain US Government spending,
commercial contract wins remain robust with major contract awards
from Amazon, Bank of New York, Simon Malls, Navistar, Liberty Mutual,
MetLife, Georgia Pacifi c, the Millstone (Dominion) nuclear power
plant in the US and more recently Toronto Hydro, Imperial Oil, and
PTI in Canada.
PBITA for the region was 18% lower, impacted by sales mix, with lower
revenues in the technology businesses (Federal spending impact) and
reduced border patrol volumes. Results in 2012 also benefi ted from
one-off protest protection work for banks. Our US technology business
has been restructured to increase sales in the commercial sector.
UK & IRELAND
Revenue
£m
PBITA
£m
20131
1,652
20122 Change %
2.2%
1,617
20131
122
20122 Change %
(5.4%)
129
We have reorganised the UK & Ireland region into market-facing
business units of cash solutions, secure solutions, central government
solutions, facilities management and outsourced services and we
continued to make a number of new management appointments
to senior line and function roles.
There was revenue growth of 2% in UK & Ireland, with organic growth
of 1%, principally due to good growth in the police outsourcing and
utilities businesses offset by lower revenues in Ireland and the UK cash
solutions business.
PBITA was 5.4% lower due to revenue mix, particularly from lower
revenues in the UK cash solutions business. As discussed previously,
signifi cant restructuring programmes are being implemented in UK
cash solutions, Ireland cash solutions and secure solutions covering
branch networks (Ireland and UK cash solutions), organisational design
and operational labour effi ciency. Overhead headcount was reduced
by more than 5% in the second-half of 2013. The cost of restructuring
is £34 million and is expected to pay back within the next two years.
UK contracts won during 2013 include being selected by the
Department for Work & Pensions (DWP) to manage the Child
Maintenance Options Contact Centre Service, provision of security
at the G8 Summit in June, Pennine Hospital facilities management, and
our fi rst contract to provide secure patient transport services under
a three-year contract with Northumberland, Tyne and Wear NHS
Foundation Trust. Other recent contract awards include Derbyshire
and Nottinghamshire Police Forensic Medical Services and Avon and
Somerset police custody suites.
32 G4S plc Annual Report and Accounts 2013
In the United States we continued to see increasing interest in our
retail cash solutions product, CASH360™, with two small contracts
awarded recently.
The implementation of the Affordable Care Act in the US has been
delayed for large businesses. We do not expect it to have a material
impact on G4S as the majority of our US employee healthcare plans
are already broadly compliant.
Overall, the North American business has a strong contract pipeline
with over £500 million in near-term opportunities across all sectors
and a visible long-term contract pipeline of around £1.2 billion.
Good progress was made in the region on rationalising the portfolio.
We sold our cash solutions business in Canada for £60 million in
January 2014.
Against the backdrop of a highly competitive commercial security
market, we won new contracts with key commercial customers such
as a security contract with Bank of America, a new global framework
agreement with Shell covering 30 countries and we retained our
security contract with British Airways. The UK events security business
successfully supported the UK Police Service of Northern Ireland
(PSNI) at the G8 Summit held at Lough Erne in Northern Ireland in
June, delivering a range of specialised security solutions.
In cash solutions, we retained important contracts with HSBC and
Barclays and have expanded our outsourcing partnership with Lloyds
Banking Group, taking over the management of their Edinburgh cash
processing centre.
We reached full and fi nal settlement with the UK Government on
the electronic monitoring contract and two smaller contracts and have
made signifi cant progress on our programme of corporate renewal
in the UK. The renewal programme is embedded within our overall
corporate programme and is not anticipated to give rise to signifi cant
additional cost.
See footnotes on p.29
Strategic report
SERVICE LINE OPERATING REVIEW
Secure solutions
At constant exchange rates
Revenue
Organic growth
PBITA
Margin %
Emerging markets
£m
20131
2,235
15%
158
7.1%
20122 Change %
1,918
16.5%
8%
119
6.2%
32.8%
0.9%
Developed markets
£m
20131
3,985
0%
213
5.3%
20122 Change %
3,949
0.9%
7%
235
6.0%
(9.4%)
(0.7%)
20131
6,220
5%
371
6.0%
The secure solutions businesses delivered 6% growth in revenue
driven by 17% growth in emerging markets and a solid performance
in developed markets. Trading conditions in some developed markets,
in particular in Europe, remain challenging and we have begun
restructuring these businesses to strengthen business performance in
the medium term. Lower US Federal government spending affected our
secure solutions and systems businesses and our US systems business
has been restructured to increase sales in the commercial sector.
Emerging markets grew strongly across all regions and increased PBITA
33% helped by contract mix, price increases and cost effi ciencies.
Total
%
20122 Change %
5,867
7%
354
6.0%
4.8%
0.0%
6.0%
Cash solutions
At constant exchange rates
Revenue
Organic growth
PBITA
Margin %
Emerging markets
£m
20131
535
12%
58
10.8%
20122 Change %
462
15.8%
8%
54
11.7%
7.4%
(0.9%)
Developed markets
£m
20131
673
(3%)
57
8.5%
20122 Change %
695
(3.2%)
(1%)
70
10.1%
(18.6%)
(1.6%)
Total
%
20122 Change %
1,157
4.4%
3%
124
10.7%
(7.3%)
(1.2%)
20131
1,208
3%
115
9.5%
The cash solutions business grew by 4% with 16% revenue growth in
emerging markets offset by a decline in developed markets, principally
due to a weaker performance in the UK and Ireland cash solutions
businesses. These businesses are being restructured and we expect an
improved performance in 2014.
Emerging markets PBITA grew 7% notwithstanding new dual vendor
policies for major Malaysian banks and price competition in Colombia.
1 To clearly present underlying performance, specifi c items have been excluded and
separately disclosed – see page 86.
2 2012 underlying results are presented at constant exchange rates and have been
restated for the adoption of IAS19 (2011). 2012 PBITA has been re-presented to
exclude PBITA from businesses subsequently classifi ed as discontinued, one-off
credits, profi ts on disposal and the prior year effect of the review of assets and
liabilities in 2013 – see page 86.
Annual Report and Accounts 2013 G4S plc 33
Risk management
Managing risk effectively
Our aim is to deeply embed risk management
disciplines which support effective strategy execution
OUR RISKS
The market sectors in which G4S provides security services present
unique operational and health and safety risks which must be managed
effectively in order to provide value to customers and to protect our
employees. The breadth of countries in which G4S operates, together
with continuing uncertainty of global economic conditions, also presents
fi nancial control and commercial risks similar to those of other
multinational companies.
HOW WE MANAGE OUR RISKS
Our risks are captured in a global risk reporting information system.
These risks are reviewed and updated twice a year by the operating
companies. The Group Executive Committee and Board Risk
Committee review the most signifi cant risks on a regular basis and
the board regularly reviews the overall impact of these major risks
on the group’s activities.
WHAT WE DID IN 2013
As announced by the board in September 2012, G4S started a
thorough review of its risk management processes and systems during
2013 and will continue to make further improvements during 2014.
During the year the company established a Board Risk Committee and
created a separate risk management function for the group, appointing
a group director of risk and programme assurance and a group head of
risk. These responsibilities were previously undertaken by the group
head of internal audit. The new Board Risk Committee appointed
Deloitte to conduct a review of the group’s risk management
processes and then charged the group director of risk and
programme assurance to develop a plan to respond to the fi ndings
and recommendations. During the year, Regional Risk and Audit
Committees were established to be responsible for assessing risk
at a regional level and for monitoring the mitigation of risk and
addressing internal and external audit matters at a regional level.
WHAT WE WILL DO IN 2014
Regional Risk and Audit Committees will meet quarterly, the fi rst
meetings having taken place in January 2014. A new approach to
assessing risks has been defi ned and during 2014 this is being
implemented across the business, supported by an updated risk
management information system. This system will better support the
risk identifi cation, assessment and action tracking process as well as
providing enhanced risk reporting at all levels of the group.
As a service business many of our risks stem from the contract bidding,
mobilisation and service delivery lifecycle. In the fi rst quarter of 2014,
new processes for contract take-on and on-going assurance will be
implemented to give greater scrutiny to the delivery of the group’s
most complex contracts. Based on contract style, complexity and risk
profi le, these processes will ensure that, at all stages throughout the
lifecycle, expert challenge, oversight and approval are given at regional,
group or board level as appropriate.
Our goal in making these changes is to embed more deeply an effective
risk management culture to support strategy execution and to provide
enhanced governance over critical business decisions.
ENTERPRISE RISK MANAGEMENT GOVERNANCE MODEL
Operating
companies
Regional Risk and
Audit Committees
Executive Risk
Committee
Board Risk
Committee
Board Audit
Committee
Board
Our operating
companies identify
and assess the
risks to their
business objectives
and plan
appropriate
mitigating actions.
These are recorded
in our group-wide
risk management
tool.
Risk and Audit
Committees in
each region meet
quarterly to review
regional level risks;
review progress of
mitigating actions;
and to review audit
reports, fi nancial
control status
reports, internal
fi nancial reviews and
balance sheet
integrity and any
accounting
judgements.
The Executive Risk
Committee meets
three times per year
and considers the
group’s principal
residual risks and
the progress of
mitigating actions.
The Board Risk
Committee meets
three times per year
to set the group’s
risk appetite; to
assess the group’s
principal residual
risks; and to assess
progress on the
improvements being
made to enterprise
risk management.
The Board Audit
Committee meets
four times per year
to ensure that the
group’s control
framework is
operating effectively.
The board has
the ultimate
responsibility for
assuring our risk
management
processes. It reviews
our most critical
risks and controls,
either directly or
through its Risk and
Audit Committees.
34 G4S plc Annual Report and Accounts 2013
Strategic report
LINES OF DEFENCE
3rd Line: Internal independent assurance
2nd Line: Control & oversight functions
1st Line: Business operations & support
Executive Risk
Committee
Regional Risk,
Audit & Executive
Committees
EXTERNAL AUDIT
Group Executive
Committee
Board, Audit & Risk
Committees
We employ three lines of defence to control and manage risks across
the group. The responsibility for the fi rst line sits with the managers of
our businesses, whether line management or fi nancial support. The
senior management team within each business is responsible for
implementing and maintaining appropriate controls across their
business to ensure the standards expected by the group, our customers
and other stakeholders are met. The business managers are supported
by oversight functions at both regional and group level including Risk,
Finance and Legal which together make up the second line of defence.
The third line is designed to detect or prevent unexpected outcomes
and comprises the group risk and internal audit functions. Together
these provide independent assurance over the design and operation
of controls. As part of its annual programme of work, the internal
audit function conducts regular reviews of risk management processes
and gives advice and recommendations on how to improve the
control environment.
Our external auditors provide independent oversight of the
entire process.
CONTRACT RISK MANAGEMENT GOVERNANCE MODEL
Bid risk
assessment
Bid approval
Contract
mobilisation
On-going contract
assurance
Group internal audit
Board
Internal audit
conducts audits of
selected contracts.
The board will
undertake
occasional reviews
of the most
signifi cant contracts.
Based on the
commercial scale
and level of risk,
contracts are
subject to regular
on-going scrutiny
at regional or
group level.
Based on fi nancial,
legal, reputational
and operational
risk criteria, the
opportunity is
referred to the
region, group or
board for review
and approval.
Appropriate
challenge is given to
the bid’s customer
value proposition,
commercial terms
and risk mitigation
strategy. The
expected risk
return of the bid
is assessed before
approval is given
or withheld.
Based on the
complexity and
risk profi le of
mobilisation,
appropriate
methodologies
and project
management
resources are
applied. Key
contractual
requirements and
risk mitigation
strategies are
mapped to
accountable
contract managers.
Annual Report and Accounts 2013 G4S plc 35
Principal risks
What are the key risks faced by G4S?
During January 2014 the Regional Risk and Audit
Committees met to agree the regional principal
residual risks. These meetings were facilitated by
group risk management and identifi ed the risks to
each region’s strategic business objectives and to
on-going business operations. The meetings were
informed by the country level risks recorded in the
group’s risk management systems.
Group risk management and the CFO consolidated
these risks and identifi ed common themes and
regional risks which were material to the group.
These group principal residual risks were reviewed
and approved by the Executive Risk Committee and
the Risk Committee of the board.
The potential impact of each risk was assessed on
a 1 to 5 scale against fi ve criteria: strategy, fi nancial,
reputation, service delivery, and health and safety,
with the highest score being the overall impact. The
likelihood of each risk over the next year, or to three
year strategic goals, was also assessed on a 1 to 5
scale. The risks detailed in the following pages are
those which in aggregate scored 3.5 or higher on
both impact and likelihood. Detailed descriptions are
provided of each risk, its movement since last year, its
potential impact and the mitigation strategies being
employed by the group.
Movement since 2012
Risk description
Mitigation
CULTURE & VALUES
There has been a strong
emphasis from the board, the
CEO and the group executive
committee on the importance
of the company’s values
underpinning everything we do.
Progress has been made in this
area, but reinforcing the core
values across a diverse and
globally spread workforce
takes considerable effort.
G4S provides security to people, premises and
valuable assets. In its care & justice services businesses
it also provides services which interact with detainees,
victims of crime, those on state assistance, vulnerable
people and other members of the public. This requires
our staff to conduct themselves with the utmost
integrity. We operate in 120 countries around the
world with a diversity of local and national cultures.
These factors mean that having a strong set of
corporate values that unite the organisation, deeply
embedded in our culture, is of particular importance.
If we fail to behave in accordance with the high
standards that we set ourselves there is a risk that
we will not deliver on our commitment to customers,
and fail to comply with legislation and international
standards. We may also compromise the safety and
security of our employees and the assets or people
that we are protecting.
This can lead to penalties, failure to renew contracts
and ultimately reduced profi tability and damage to our
global brand and reputation.
We have in place high ethical standards and policies
which we expect our staff to observe globally and
these are reinforced through awareness and training
programmes and monitored through audit, whistle-
blowing and trading reviews.
Senior managers’ performance contracts and bonuses
are in part based upon adherence to our values.
During 2013, our new CEO and the executive
team has reiterated the importance of our values
in delivering customer service and sustainable
shareholder value. During 2014 we will be examining
our HR processes to ensure that they fully support
our values; we are refreshing our whistle-blowing
policy; and we will continue to reinforce the group
values at every opportunity. Compliance with the
values is assessed through performance reviews,
trading reviews, business self-assessments and audit.
36 G4S plc Annual Report and Accounts 2013
Strategic report
Increased risk
Reduced risk
No change
Movement since 2012
Risk description
Mitigation
HEALTH & SAFETY
There has been a heightened
focus by the board, the CEO and
the group executive committee
on the importance of health
and safety.
The provision of security services, often in hostile or
dangerous circumstances across such a broad diversity
of countries, presents particular health and safety
challenges. The protection of our staff, people in our
care and third parties, including the public, is of utmost
importance.
The principal health and safety risks are work-related
attacks and road traffi c accidents. In 2013, 55 (2012:
59) employees lost their lives. We are committed to
strengthening our health and safety systems, processes
and cultures.
Fatalities and serious injuries to our staff impact not
only the individuals concerned, but also their families,
loved ones and other dependents.
PEOPLE
G4S’ human resource processes
are well established and effective.
Nevertheless, there will always
be challenges in attracting and
retaining employees.
We are a people business and we take great care
to ensure that we employ the best people to deliver
quality services to our customers. As the largest
employer listed on the London Stock Exchange,
employing 618,000 people worldwide, and the largest
security solutions provider in the world, our customers
choose G4S because of the level of screening, training,
integrity and trustworthiness.
In a global and diverse business such as ours, there
are risks associated with recruiting, robust screening,
motivating, developing and training, as well as
appropriately rewarding and retaining our
critical talent.
Failure to recruit and retain key managers and staff
and to motivate and develop them can impact
service delivery, customer retention and business
management, which in turn can adversely affect our
fi nancial performance.
The Group Executive team is leading a programme
to strengthen safety leadership and safety practices
across the group, including:
– Critical country reviews: conducting detailed
assessments and developing mitigation plans in
those countries and operations where we have
identifi ed the greatest risks.
– Establishing a new group wide standard for health
and safety management systems.
– Health and safety resource: We made a number
of new appointments across the group and at
the beginning of 2014 we had 110 dedicated
health and safety professionals, assisting us to reduce
health and safety risks.
– Safety leadership training and awareness is now
mandatory for all senior managers. In addition, each
member of the Group Executive team (and each
of their teams) has specifi c health and safety
performance objectives in 2014.
– In support of our health and safety programme,
we have established a new group value called
Safety First.
We use rigorous recruitment, selection, screening
and induction processes and standards to ensure that
we employ the best people, with the right values,
for the requisite roles. Standards are set by group
human resources and measured and enforced through
a combination of regular staff surveys, country
self-assessments, monitoring of regional and country
specifi c KPIs and independent audits: all driving
constant improvements in processes.
Attracting and developing the right talent is the key
to our success and we have a process for identifying
high potential employees and putting in place career
development plans to promote them into more senior
positions. We engage our employees through our
PRIDE model:
P
R
I
D
E
rotect their basic needs
espect them as individuals
nvolve them in the business
evelop their skills and potential
ngage them fully
Annual Report and Accounts 2013 G4S plc 37
Principal risks continued
Movement since 2012
Risk description
Mitigation
BRAND/REPUTATION
The nature of the services we
provide means that we are often
in the public eye. However, the
issues which have arisen around
a number of our high profi le
contracts over the last two years
have undermined the company’s
brand and reputation, particularly
as a trustworthy strategic
supplier to the UK Government.
MAJOR CONTRACTS
The company’s strategy is to
provide integrated security
solutions to customers, which
often results in taking on more
complex contracts. The company
is implementing improvements
to bid assessment, programme
management and assurance
and new contract management
processes. These will take time
to bed in.
The company’s brand is well known and associated
with high quality security services around the world.
However, recent events in the UK had an adverse
impact on our reputation, in particular with the UK
Government. Furthermore, as detailed in the chief
executive’s review, our performance under certain
UK electronic monitoring contracts was referred
to the Serious Fraud Offi ce (SFO).
There is a risk that until our reputation is suffi ciently
repaired and the SFO investigation concluded, our
sales pipeline could be impacted. The fi rst key step to
repairing our reputation is rebuilding the confi dence
of the UK Government in G4S as a strategic supplier.
There is a risk that the changes we are implementing
to this end take time to be accepted as suffi cient by
the UK Government.
We continue to cooperate fully with the SFO
investigation. In addition, we have an on-going
programme of corporate renewal. This is supported
by the broader changes being made across the group
to leadership, governance and contract management
and assurance; as well as by the heightened focus on
corporate values and ethics. In order to ensure timely
progress this programme is being monitored directly
by the group executive and the board and being
independently reviewed by a fi rm of accountants
on behalf of the UK Government.
At individual region and country level there is a
strong focus on delivering excellent customer service
in order to protect and enhance our local brand
and reputation.
We are investing in the strengthening of our risk
management, audit and customer service capacity.
The company has tightened the criteria and level of
scrutiny for regional and group level legal review of
complex contracts during the bid cycle.
The group has implemented a standardised
approach to project management for complex
mobilisations in the UK, which will be rolled out
globally during 2014. External project management
resource is utilised in cases when insuffi cient internal
capability is in place. The group is also strengthening
its processes for bid assessment, contract take-on
and on-going contract assurance.
The group has a number of long-term, complex, high
value contracts with multi-national, government or
other strategic customers. The company’s growth
strategy includes a greater focus on higher value,
and more technology-rich services. This will increase
the complexity and individuality of customer
requirements and contracts.
For such contracts there are risks to the group
accepting onerous contractual terms; mobilising
contracts well; transitioning effectively from
mobilisation to on-going contract management;
delivering to contractual requirements; managing
complex billing arrangements; managing contract
change control; and managing sub-contractors.
Failure to ensure effective contract take-on, mobilise
successfully and manage complex contracts
effectively throughout their lifecycles can impact
customer satisfaction, reputation, revenue, cash fl ow,
and profi tability.
38 G4S plc Annual Report and Accounts 2013
Strategic report
Increased risk
Reduced risk
No change
Movement since 2012
Risk description
DELIVERY OF CORE SERVICE LINES
Mitigation
Our commitment to delivering
sustainable growth and
shareholder value is founded
on delivering on our customer
commitments. There is a
continuous focus on this at the
group executive. In addition,
through the investments in the
service excellence centres
and within the regions and
countries, we continued to make
improvements in the processes
and systems in many of our
core businesses over the course
of 2013.
We deliver our core secure solutions services in
100 markets and our core secure cash transportation
services in 61 markets. A number of these businesses
have been acquired over time, resulting in cultural
differences, varying degrees of operational maturity
and a multiplicity of information systems.
This can create risks around core operational service
delivery and supporting functions. Failure to meet
the service delivery requirements of our customers,
because we have not implemented the right solutions
or followed appropriate agreed procedures, can
create risks around cash losses; attacks on our staff,
subcontractors or third parties; and the non-delivery
of the service level agreements and KPIs agreed with
our customers.
Additional risks relate to business resilience, control
systems, and the availability of critical systems, facilities
and people to perform contractually agreed services.
This can lead to fi nancial penalties, and negatively
impact customer retention and goodwill, to the
detriment of fi nancial performance.
LAWS & REGULATIONS
The products and services we
provide are subject to the
ever-changing legal landscape
across the many jurisdictions in
which we operate, requiring
constant monitoring and
change to ensure compliance.
G4S operates in many jurisdictions globally, within
complex and diverse regulatory frameworks.
An additional complexity arises from the extra-
territorial reach of some of the legislation to which
the company is subject.
Risks include increasing litigation and class actions
especially in the United States; bribery and corruption;
obtaining operating licences; complying with local tax
regulations; changes to employment legislation;
complying with human rights legislation; and new or
changed restrictions on foreign ownership. Risk also
arises from new or changing regulations which require
modifi cation of our processes and staff training.
The necessary changes to ensure continued
compliance with applicable laws and regulations, or
not being compliant, have far reaching consequences,
including higher costs from claims and litigation;
inability to operate in certain jurisdictions, either
through direct ownership or joint ventures; loss of
management control; damage to our reputation; and
loss of customer confi dence.
We have developed the G4S Way, which defi nes
best practice processes and standards for all aspects
of service delivery with the aim of improving service
excellence and margin. The G4S Way is being
implemented globally across all our businesses. It sets
out requirements for managing contract take-on
and mobilisation; completion of risk assessments;
management of security assignments at customer
and site levels; and defi nes service delivery KPIs to
measure compliance. Minimum guidelines have been
set for key areas such as control room management;
security offi cer communications; fl eet routing and
scheduling; resource planning and staff rostering;
and escalation procedures for duress/attack/
absence situations.
Recent developments in our secure solutions business
include deployment of our core operating system,
Saturn, to effi ciently match our security offi cer
deployment to customer requirements. In our cash
solutions business we have put in place a dedicated
risk management team to ensure robust risk analysis
and rectifi cation of deviations from our minimum
standards. Our countries are required to have business
continuity and crisis management plans in place and to
test them regularly.
We are also making on-going improvements to
the effi ciency and effectiveness of supporting and
control systems.
Each country in the group puts in place rigorous
compliance policies, standards and controls, including
training, to assure adherence to local laws, regulations
and licence requirements. We review existing policies
in light of changes to legislation and recent case law.
The group has good procedures in place to ensure
that our businesses are complying with anti-bribery
& corruption legislation, including self-assessments; a
training and awareness programme for staff in sensitive
positions; an independent audit of the effectiveness of
our procedures; and confi dential reporting hotlines.
We build positive constructive relationships with
governments and related agencies by engaging in
the legislative process directly and through local trade
associations. Our aim is to support governments to
craft legislation that achieves its aims in relation to our
industry in as effi cient and effective a way as possible.
Annual Report and Accounts 2013 G4S plc 39
Principal risks continued
Movement since 2012
Risk description
Mitigation
GROWTH STRATEGY
The group has placed a greater
emphasis on higher value
solution development and sales,
underpinned by technology. It
will take time to mobilise and
build the right capabilities to
deliver this strategy.
Our growth strategy is to leverage our expertise
to expand our core service lines into more complex,
outsourcing areas which increase long-term customer
partnerships; to focus on organic growth opportunities
with less reliance on acquisitions; and to leverage
our expertise in security systems technology across
key markets.
There are risks that we will fail to optimise our
product mix; fail to build the sales and solutions
capability we need; fail to leverage our existing
expertise and resources into the areas where we
can best achieve organic growth targets; or that
we will under-invest or invest in the wrong areas.
Failing to create higher value solutions that
differentiate us from local competitors could impact
targeted growth in revenues and margins.
We are investing in sales and business development
resources to support growth and to strengthen our
solution selling capability.
We have established a single capital pool for all key
investments and have revised our investment approval
processes to approve only those capital requests
that demonstrate an appropriate balance of risk and
return. This is designed to ensure we make the right
investments to support the strategy. A revised major
bid assessment process has been implemented which
will ensure that the key opportunities which underpin
our growth strategy are properly positioned,
resourced and managed.
Rigorous trading and performance reviews for each
business unit enable us to monitor progress against
our strategic goals on a periodic basis. Our on-going
capability review process will ensure we build the right
skills needed to underpin the delivery of the strategy.
GEO-POLITICAL
Given the wide range of
countries in which the group
operates there will always be
some with a degree of serious
political instability. We take
great care with our operations
in these countries to monitor
the situation closely and
respond appropriately.
We operate in 120 countries across the developed
and developing world, with wide-ranging government
and political systems, differing cultural landscapes, and
varying degrees of rule of law; and within confl ict and
post-confl ict zones.
The risk factors range from political volatility,
revolution, terrorism, military intervention and
insurgency.
The geo-political risks we face impact us in many
ways: the health and safety of our staff and customers;
the continued operation of our businesses; and the
ability to secure our assets and recover our profi ts.
We have a great deal of experience of operating in
a wide range of diffi cult territories. We collaborate
with our local partners and/or agents; conduct
early risk assessments before and during security
assignments; have robust operating procedures; and
work closely with our local and global customers in
managing the risks of operating in such environments.
We have a global process for assessing the geo-
political risks of different countries which determines
the types of customers we will serve and the types
of services we will provide.
40 G4S plc Annual Report and Accounts 2013
Strategic report
Increased risk
Reduced risk
No change
Movement since 2012
Risk description
Mitigation
INFORMATION SECURITY
The sophistication of cyber
hackers increases continuously
and the heightened high profi le
reputation of the group in the
UK in particular make us a
potential target.
CASH LOSSES
Through the work of the service
excellence centres working with
the regions, improvements have
been made to processes and
systems in many of our cash
solutions businesses over the
course of 2013.
G4S has cyber security controls in place to protect
information.
In 2013, we appointed a group head of information
security who has developed a strategy to improve
our information security maturity. This strategy will
be rolled out across the group to reduce the
likelihood of a successful attack and to increase the
ability of G4S to detect and respond to attacks.
G4S has an obligation to safeguard the information
that our customers, partners and employees entrust
to our care.
Given G4S' high profi le, we are at risk of cyber and
physical attack by criminal organisations and individual
hackers. Whilst we do have strong protection in place,
the threat is increasing. If an attempt is successful, our
information systems could be compromised or our
information disclosed.
A successful attack could result in: censure and fi nes
by national governments; loss of confi dence in the
G4S brand and reputation; specifi c loss of trust by
clients, especially those in government and fi nancial
sectors; disruption to service delivery and integrity,
particularly in cash solutions operations.
We have cash solutions businesses spread across
the world responsible for cash held on behalf of our
customers. We provide cash transportation from one
site to another in high security vehicles, a range of
cash management services including secure storage,
counting, reconciliation and sorting of notes for
ATMs, a range of ATM services and secure
international transportation of cash and valuables.
There are inherent risks in this business related
to external attacks, internal theft and poor
cash reconciliation.
Cash losses can have a major impact for our
customers and ourselves in respect of loss of profi t,
increased cost of insurance and health and safety
considerations for our staff and the public.
Our cash solutions service excellence centre (SEC)
works in collaboration with the regions to embed
robust procedures into every cash business to mitigate
cash losses. Innovative security defence products are
in use, ranging from pavement box tracking to vehicle
protection foam and protective pavement boxes.
All cash transactions are subject to strict authorisation
limits and we have very tightly controlled cash
reconciliation procedures to ensure cash is fully
accounted for and controlled and these procedures
are subject to constant monitoring and audits. We also
have a robust process to monitor all cash-related
incidents through a team of security specialists and
we ensure that lessons learned are shared through
the SEC.
Annual Report and Accounts 2013 G4S plc 41
Corporate social responsibility
Why CSR matters to G4S
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 mean we touch the
lives of millions of people across the world 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.
COMMUNITY
– Social & economic impact
– Community investment
INTEGRITY
COMMUNITY
PEOPLE
ENVIRONMENT
– Energy & fuel effi ciency
– Reducing carbon intensity
ENVIRONMENT
*OUR PRIORITY AREAS
INTEGRITY
– Business ethics and
anti-corruption*
– Human rights*
– Risk assessment
– Internal audit
– Whistle-blowing and
reporting
PEOPLE
– Health & safety*
– Diversity & inclusion
– Employee engagement
– Training & development
BUSINESS ETHICS AND
ANTI-CORRUPTION
HEALTH & SAFETY
HUMAN RIGHTS
See our CSR report for more information
42 G4S plc Annual Report and Accounts 2013
Why CSR matters to G4S
CSR is an important differentiator for the group and we fi nd it
increasingly important to customers as part of their process for
evaluating and selecting a service partner – particularly given the
sensitive nature of some of the services which customers require.
Our approach to CSR provides our customers with confi dence that
they are working with an organisation which respects laws and cultures,
has high ethical standards, takes care of its employees and is a reliable
and dependable partner.
Our CSR strategy
Every two years, we conduct a CSR materiality exercise which helps
us to assess the current market environment, business challenges and
most relevant CSR strategies. In 2013, we broadened the scope of this
exercise to include a representative group of external commentators
and stakeholders – seeking opinions from investors, NGOs and
customers, in addition to our internal senior management and board
members. This ensures that our strategies are aligned to stakeholder
needs and the objectives of our business.
The process highlighted three core priority areas for 2014 – business
ethics and anti-corruption, health and safety and human rights.
Whilst these are our three highest priority and most material issues,
we continue to focus on all aspects of CSR.
CSR management
Refl ecting the value we place on CSR and on our reputation, our
CSR Committee has been a full board committee since 2011,
comprising a number of experienced non-executive directors who
meet regularly to discuss CSR related matters. The committee is
chaired by Clare Spottiswoode, a G4S non-executive director who
has been a member of the CSR committee since 2010. Elements of
our CSR strategy such as health and safety and human rights are also
a regular subject for discussion at group executive committee and
board meetings.
Strategic report
Safeguarding
our integrity
Integrity is one of the group’s core values.
Being a responsible business partner,
employer, customer or supplier is an
important part of our strategy and forms an
essential foundation on which we carry out
our business.
WHAT WE ARE DOING
Business ethics
To ensure that our employees understand how they can play their
part in delivering high ethical standards across the group, we continue
to reinforce a group-wide ethics code that sets out how we expect
our employees to behave. The code is supplemented with a business
ethics policy which provides a more detailed summary of the group’s
ethical standards of operation. The code and policy are reviewed each
year, to incorporate evolving legislation
Human rights
We recognise the growing importance of human rights as a material
business issue and believe that G4S can play a positive role in
respecting human rights around the world. Our business can contribute
positively to the realisation of human rights through the range of
services we offer to protect people. We also recognise that we have a
duty to ensure that we are not at risk of violating human rights through
the services we provide, the customers we work with and the suppliers
we use and through the fair and appropriate treatment of our own
employees and others who are in our care.
Increasingly, customers and other key stakeholders are looking to
companies such as G4S to demonstrate specifi c actions and practices
which are aligned to internationally recognised human rights
standards, such as the UN Guiding Principles on Business and Human
Rights (2011), the Voluntary Principles on Security and Human Rights
(2000), and the International Code of Conduct for Private Security
Service Providers (2010). Our human rights framework aims to bring
our existing practices into line with these standards and introduce
new guidelines in areas which are not covered by existing policies
and practices.
Annual Report and Accounts 2013 G4S plc 43
Corporate social responsibility continued
SAFEGUARDING OUR INTEGRITY
How we’re performing
During 2013 we:
– Launched our human rights framework, based on the UN Guiding
Principles on Business & Human Rights, introducing a systematic
approach to human rights due diligence and risk assessment
– Conducted external review of risk management processes and
implemented an action plan to increase group resources and
improve systems and processes
– Established a board Risk Committee and a separate risk management
function for the group
– Updated the risk assessment of the group’s anti-bribery policies
and controls
– Completed 111 on-site internal audits to measure compliance with
G4S standards and controls
– Carried out an external review of internal audit with an action plan
to increase audit staffi ng by 50% and expand its remit
– Enhanced communication of the group’s Safe2Say whistle-blowing
hotline through increased use of employee communications channels
– Improved the categorisation and reporting of issues raised through
whistle-blowing reporting processes
Priorities for 2014
– Reinvigorate group values across all business practices
and programmes
– Update and re-launch business ethics policy and compliance
programme
– Continue to embed human rights risk assessment and due-diligence
into our wider business processes
– Embed improved risk management processes across the group
– Implement governance, risk and compliance systems
– Complete planned increase in internal audit staffi ng and
expanded remit
– Undertake audits of the group’s human rights policy and guidelines
for our high risk countries
– Complete a detailed review of whistle-blowing reporting
arrangements covering the policy, process and systems
– Implement improvements generated by internal audit and group risk
management reviews
44 G4S plc Annual Report and Accounts 2013
Securing our
people
As a service provider, our customers rely
on us to have a motivated and healthy
workforce. Keeping our employees safe,
looking after their interests and treating
them fairly are therefore vital to our
on-going success.
Health and Safety
As one of the world’s largest private employers, working in sectors
where security and safety present a strategic risk, our responsibility
to protect the health, safety and well-being of our employees is one
of our highest priorities.
“It is not acceptable to us that any colleague is injured or killed in the
line of duty.”
Ashley Almanza, CEO.
We continue to focus on health and safety and have introduced a
number of important critical review processes and improvements
to specifi c practices in order to protect our employees in their
workplace. These will continue to be a major area of focus for the
group at every level in 2014.
Employee engagement
Our employee engagement strategy is based on the internally
developed PRIDE model.
P
R
I
D
E
rotect their basic needs
espect them as individuals
nvolve them in the business
evelop their skills and potential
ngage them fully
The strategy has been in place for a number of years and is the basis
for our engagement policies and practices. To ensure that these policies
are working and our employees are able to share their perceptions of
the business and working environment, we conduct a global employee
engagement survey every two years.
Strategic report
How we’re performing
The most prevalent risks to the health and safety of our employees
are from work-related attacks and road traffi c incidents. Although the
total number of work-related fatalities has reduced since 2011, our
aim is to eliminate them altogether.
GENDER DIVERSITY (%)
During 2013, we have:
Board
– Completed three further critical country reviews of health and safety
– Introduced the Driving Force Rules campaign to promote safe
Senior management
driving, piloted in seven countries
9
2
281
30
– Improved incident reporting and investigation process
Total employees
535,930
82,070
– Rolled out succession planning to all key management roles
– Piloted online performance reviews in a number of businesses
0
20
40
60
80
100
– Completed two talent review processes, assessing over
Male
Female
1,300 managers
– Continued extension of cultural awareness training tool
– Partnership working to increase employment opportunities
for disabled people and veterans
– Completed a third global employment survey
WORK-RELATED FATALITIES BY REGION
60
40
20
0
26
21
22
15
10 9
Africa
Asia/
Middle East
Latin
America
2012
2013
59
55
3 4
Europe
3
1
North
America
UK &
Ireland
Total
WORK-RELATED FATALITIES BY CATEGORY
60
40
20
0
59
55
18
17
20
17
21
21
Attack
Non-attack
Road
Total
2012
2013
In 2013, over 380,000 employees shared their views of working for
G4S. This represents a 62% response rate, up from 38% in 2011.
Overall levels of engagement also improved from an average of 80%
to 82%. Encouragingly, the number of favourable responses to questions
related to health and safety showed the most positive increase since
the last survey, although there is clearly a need for substantial further
improvement. The results for the senior leadership survey were also
positive, with 81% of senior managers participating and an overall
favourable score of 83%.
Priorities for 2014
– Establish a new group value called Safety First – to ensure absolute
focus on health and safety in everything we do
– Introduce performance related objectives linked to health and safety
for our global leadership management group
– Roll out induction training for new health and safety practitioners
on G4S policies and practices
– Complete further critical country reviews of health and safety
– Roll out the Driving Force Rules campaign to all businesses
– Continued monitoring of health and safety KPI data
– Launch the revised senior leadership programme
– Implement a new individual based development programme for
people operating at a strategic level
– Development and implementation of the senior management
on-boarding tool
– Extend the use of data captured on the talent management system
– Review opportunities for embedding cultural awareness training
– Increase diversity in talent pools and management population
– Analyse results from the 2013 global employee engagement survey
and continue to implement the actions arising from the survey
– Continue to maintain good union and employee relations at all levels
Annual Report and Accounts 2013 G4S plc 45
2012
316,000
161,000
115,000
23,500
2013
311,100
173,200
128,500
23,900
GHG EMISSIONS
(Based on 94.5% measurement)
Vehicles (inc refrigerants)
Total buildings (inc refrigerants)
Including electricity emissions of
Air travel
TOTAL GHG EMISSIONS
(t/CO2e)
600,000
580,000
560,000
540,000
520,000
500,000
5
2009
2010
2011
2012
2013
CARBON INTENSITY
Tonnes CO2e
per £m turnover
2009
2010
2011
2012
2013
94.4
88.7
83.6
76.0
72.3
Priorities for 2014
– Continue to implement energy effi ciency strategies with the aim
of reducing carbon intensity by at least 4.5% per annum
For further details of our Climate Action Programme, please refer to
our 2013 CSR Report or visit www.g4s.com/cap
Corporate social responsibility continued
Securing our
environment
Our customers and employees demonstrate
increasing concern for environmental issues.
Whilst our environmental impacts are not
signifi cant relative to other businesses of
comparable size, it remains important to
us to be effi cient in the use of resources
and, in doing so, curtail our greenhouse
gas emissions.
What we’re doing
Since 2008 we have used WBCSD* and WRI GHG** protocols to
measure our Scope 1 and 2 emissions – vehicle fl eet, fuel, refrigerants
and electricity usage for G4S businesses over which we have fi nancial
and operational control. In addition we have measured Scope 3
emissions from employee business air travel.
The businesses that reported data in our 2013 GHG measurement
represent 94.5% of the group’s operations, across an 11-month period.
This level of measurement, including each of our main service types,
allows us to calculate reliably the total GHG emissions for 100% of
the group over a period of 12 months.
How we’re performing
The G4S total carbon footprint, extrapolated to 100% of the business
equates to some 559,000 t/CO2e. Since we launched our climate action
strategy in 2009, our carbon intensity has decreased by 23.5% per £m
of revenue – exceeding our stated target of 20%. This reduction
translates to a real reduction of 4.9% in carbon emissions against a
24.4% growth in the business during the same period, much of which
includes carbon emissions from services which our customers have
outsourced to G4S. This is a positive achievement which recognises the
efforts made to increase the energy and fuel effi ciency of our business.
* World Business Council for Sustainable Development.
** World Resources Institute greenhouse gas.
46 G4S plc Annual Report and Accounts 2013
Strategic report
Securing our
communities
We recognise that our ability to provide a
safe and secure environment around the
world depends on the relationships we
have with the communities and people
with whom we work. We are therefore
committed to working with charity and
community partners to tackle issues which
affect local communities, especially relating
to health, education and welfare of young
people. We have a long history of investing
in the communities in which we live and
work and to which we provide services and
we recognise the importance of this role.
What we’re doing
We seek to make a positive impact on the local communities in which
our employees, customers and suppliers live and work. The social and
economic impact reaches well beyond our working environment and
touches the lives of millions around the world.
How we’re performing
We conducted an academic study of the direct and indirect social
and economic impacts of G4S in the UK, demonstrating support of
68,000 jobs across the country and a total gross added value of
£1.95 billion contribution to the UK economy.
Building on the partnerships and investment that we have made in
previous years, in 2013 we:
– launched G4S 4teen legacy community projects in Botswana,
Colombia, Estonia, India, Nigeria, Philippines and Thailand following
the conclusion of the six-year fl agship G4S 4teen programme
– invested almost £2 million in charitable community programmes
and welfare programmes for employees facing health or
fi nancial hardship
Comprising:
– Provision of goods, services and fi nancial investment in more
than 400 community programmes across 76 countries, with a
combined value of almost £1.34 million
– Investment of £647,500 in projects which support the long-term
welfare and development of employees in developing countries
Corporate
Corporate donations of money
Corporate donations of goods
and services
Employee
Employee and third-party donations
facilitated by G4S
Employee volunteering facilitated
by G4S
Employee welfare and development
2013
2012
£931,900
£921,700
£406,500
£459,500
£92,900
£72,000
26,000 hours
£647,500
30,000 hours
£641,000
Priorities for 2014
– Complete the development and launch of new community
programmes across each of our regions
– Continue to build on wider community investment to demonstrate
the impact on the people we strive to support
– Continue to support the welfare and long-term development of
employees facing hardship
– Participate in further academic studies of the direct and indirect
social and economic impacts of G4S within key markets
Annual Report and Accounts 2013 G4S plc 47
Board of directors
1
2
3
4
5
1. JOHN CONNOLLY
Non-executive director
Chairman of the board
Chairman – Nomination and Risk Committees
Joined G4S board: June 2012
Key strengths and experience: Extensive
experience of working in a global business
environment and in sectors of strategic
importance to the group.
Developing the board and its governance of
the group.
A chartered accountant, John spent his career
until May 2011 with global professional services
fi rm Deloitte, was Global Chairman between
2007 and 2011, and prior to that Global
Managing Director between 2003 and 2007.
He was Senior Partner and CEO of the UK
partnership from 1999 until his retirement from
the partnership.
Current external commitments: Chairman of
AMEC plc and of a number of private companies.
Beyond commercial business roles, he is on the
Board of Governors of London Business School
and a member of the CBI President’s Advisory
Council. He is also chairman of the appeal board
for The Centre for Children’s Rare Disease
Research at Great Ormond Street Hospital.
2. ASHLEY ALMANZA
Executive director
Chief executive
Member – Risk Committee
Joined G4S board: May 2013
Key strengths and experience: Extensive board and
executive management experience and strong
track record working across international
borders in complex businesses.
Held a number of senior executive roles at
BG Group from 1993 to 2012, including Chief
Financial Offi cer from 2002 to 2011 and
Executive Vice President from 2009 to 2012.
As Executive Vice President he was accountable
during 2009 and 2010 for the strategic and
operational management of BG Group’s UK,
European and Central Asian businesses. He also
led a consortium of global companies through
complex government negotiations in
Central Asia.
He holds an MBA from London Business School
and was previously Chairman of the Hundred
Group of Finance Directors.
Current external commitments: Non-executive
director of Schroders plc and Noble
Corporation.
3. ADAM CROZIER
Non-executive director
Member – Audit and Nomination Committees
Joined G4S board: January 2013
Key strengths and experience: Wide-ranging
experience of business transformation in a
number of public and private sector organisations
in the media, logistics and retail sectors and
serving FTSE 100 CEO.
Started his career with Mars before joining
the Daily Telegraph followed by Saatchi and
Saatchi, where he became joint chief executive.
He then became chief executive of the Football
Association and was subsequently appointed
chief executive of the Royal Mail Group, where
he oversaw an extensive programme of
modernisation and change to enable the
business to compete in the UK and international
marketplaces. Since April 2010 he has been chief
executive of ITV plc and was a non-executive
director of Debenhams plc until 2012.
Current external commitments: Chief executive
of ITV plc.
4. MARK ELLIOTT
Non-executive director
Senior independent director
Chairman – Remuneration Committee
Member – Nomination Committee
Joined G4S board: September 2006
Key strengths and experience: Extensive
international board and executive experience
having held a number of senior management
positions in IBM, including leadership of IBM’s
operations in Europe, the Middle East and Africa
with responsibility for operations in more than
110 countries.
Has particular involvement with the group’s
businesses in the Americas region.
General Manager IBM Global Solutions;
Managing Director of IBM Europe, Middle East
and Africa; member of the board of IBAX, a
hospital software company jointly owned by
IBM and Baxter Healthcare; chairman of Reed
Elsevier’s remuneration committee; chairman of
the Dean’s Advisory Council of the Kelly School
of Business, Indiana University.
Current external commitments: Non-executive
chairman of QinetiQ Group plc.
5. GRAHAME GIBSON
Executive director
Regional CEO – Americas
Joined G4S board: April 2005
Key strengths and experience: Extensive knowledge
of the group and its predecessor companies in
many different markets and in a number of
executive functions. In addition to his board role,
is also CEO of the Americas region.
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 and south eastern Europe
and UK) and chief operating offi cer of Group
4 Falck A/S. In 2004 he became the company’s
divisional president for Americas and New
Markets and was chief operating offi cer between
2005 and 2012.
Current external commitments: Board member
of the Ligue Internationale des Sociétés de
Surveillance, the international association of
leading security companies.
6. WINNIE KIN WAH FOK
Non-executive director
Member – CSR and Remuneration Committees
Joined G4S board: October 2010
Key strengths and experience: International board
and senior management experience with
extensive knowledge of Asian markets and
strong involvement in Scandinavia.
Takes a particular interest in the group’s
businesses in Asia.
48 G4S plc Annual Report and Accounts 2013
Governance
6
7
8
9
10
11
An auditor by training, was involved in
management positions in fi nance, audit and
corporate advisory work and a wide range of
roles in asset management fi rms investing with
a focus in Asia. Senior partner of EQT and
CEO of EQT Partners Asia Limited; managing
director of CEF New Asia Partners Limited.
Current external commitments: Senior adviser to
Foundation Administration Management Sweden
AB; non-executive director of Volvo Car
Corporation; non-executive director of SEB AB,
Kemira Oyj and HOPU Investments Co Ltd.
7. HIMANSHU RAJA
Executive director
Chief fi nancial offi cer
Member – Risk Committee
Joined G4S board: October 2013
Key strengths and experience: Strong track
record as a fi nancial executive in a global
services business.
Prior to joining G4S, Himanshu was CFO at
Misys, and from 2010 to 2012 he was CFO of
Logica plc. Himanshu worked for more than
10 years at BT Group in a number of divisional
fi nance director roles including Chief Financial
Offi cer of BT Global Services, BT Design, BT
Operate and BT Wholesale. His early career
included fi nance and systems roles at
Worldcom International, UUNET and MFS.
Himanshu is a qualifi ed chartered accountant
and holds an honours degree in law.
Current external commitments: None
8. MARK SELIGMAN
Non-executive director
Deputy chairman
Chairman – Audit Committee
Member – Remuneration Committee
Joined G4S board: January 2006
Qualifi ed as a chartered accountant with Price
Waterhouse. Senior roles at SG Warburg & Co
Ltd and Barclays de Zoete Wedd; Head of UK
Investment Banking at CSFB; Chairman of UK
Investment Banking at Credit Suisse; member of
the Credit Suisse Global Investment Banking
Executive Board and senior adviser to Credit
Suisse Europe.
Current external commitments: Alternate member
of the Panel on Takeovers and Mergers; member
of the Regional Growth Fund Advisory Panel;
non-executive director and audit committee
chairman for BG Group plc; and senior
independent director of Kingfi sher plc.
9. PAUL SPENCE
Non-executive director
Member – Audit, CSR and Risk Committees
Joined G4S board: January 2013
Key strengths and experience: In-depth knowledge
of outsourcing in both the public and private
sectors and extensive international experience
in key developing countries such as India, China
and Brazil.
A graduate of the Wharton School at the
University of Pennsylvania with a degree in
economics and decision sciences; served a
30-year career with Capgemini and its
predecessors. Having started in the US and
become managing partner of mid-Atlantic
information and technology for Ernst & Young,
he went on to gain signifi cant international
experience for 16 years as managing partner
of Ernst & Young Consulting Australia, CEO
of Capgemini Ernst & Young in Asia and CEO
Capgemini Ernst & Young UK. He then spent
eight years serving on Capgemini’s executive
management committee during which time his
roles included deputy group CEO and CEO
of Capgemini Global Outsourcing Services.
Current external commitments: None
Key strengths and experience: Extensive fi nancial
and management experience having worked in
the fi nancial services sector, with a focus on
investment banking. Takes particular interest in
the fi nancial performance of the company,
including its fi nancing and transactional activity.
10. CLARE SPOTTISWOODE
Non-executive director
Chairman – CSR Committee
Member – Remuneration
Joined G4S board: June 2010
Key strengths and experience: Considerable
experience in the public sector, the energy
markets and the fi nancial services sector as
well as setting up and managing her own
businesses. Has particular involvement with the
group’s businesses in the UK and Africa regions.
A mathematician and economist by training,
worked for the UK Treasury, director general of
Ofgas, the UK gas regulator; policyholder
advocate for Norwich Union’s with-profi ts
policyholders at Aviva; non-executive director
of Tullow Oil plc; and a member of the
Independent Commission on Banking and the
Future of Banking Commission.
Current external commitments: Chairman of
Gas Strategies Group, Energetix Group and
Magnox Limited; non-executive director of Ilika
plc, Enquest plc, RBC Europe Limited and BW
Offshore Limited; and independent director
of the Payments Council.
11. TIM WELLER
Non-executive director
Member – Audit and Risk Committees
Joined the G4S Board: April 2013
Key strengths and experience: Signifi cant
experience of the energy and utilities sectors
and serving FTSE 100 CFO.
An accountant by training, joined KPMG in
1985, rising to partnership in 1997 before joining
Granada plc as director of fi nancial control.
Between 2002 and 2010, he gained signifi cant
further experience in the energy and utilities
sectors holding CFO positions with Innogy
(one of the UK’s leading integrated energy
companies at the time), RWE Thames Water
(the world’s third largest water and wastewater
service company) and United Utilities Group
PLC (a UK-based water and wastewater service
company). He was Chief Financial Offi cer of
Cable & Wireless Worldwide plc between 2010
and 2011.
Current external commitments: CFO of Petrofac
Limited, the FTSE100 international oil and gas
service provider and a non-executive director
of the Carbon Trust.
Annual Report and Accounts 2013 G4S plc 49
Executive committee
1
2
3
4
5
OUR EXECUTIVE TEAM
2. EDDIE ASTON, REGIONAL CEO –
4. IRENE COWDEN, GROUP HR DIRECTOR
G4S is managed through a functional and
regional structure.
Our structure enables us to deliver our
strategic objectives, maintain a strong
governance framework, develop integrated
solutions, target key regional markets and
build customer relationships.
1. ASHLEY ALMANZA, CHIEF EXECUTIVE
OFFICER
Ashley joined G4S as Group CFO in May 2013,
and was promoted to Group CEO on 1 June
2013.
Ashley held a number of senior executive roles
at BG Group from 1993 to 2012, including Chief
Financial Offi cer from 2002 to 2011 and
Executive Vice President from 2009 to 2012.
As Executive Vice President he was accountable,
during 2009 and 2010, for the strategic and
operational management of BG Group’s UK,
European and Central Asian businesses which
had combined annual profi ts of around $3 billion.
He also led a consortium of global companies
through complex government negotiations in
Central Asia.
Ashley is a non-executive director of Schroders
plc and Noble Corporation. He holds an MBA
from the London Business School and was
previously Chairman of the Hundred Group
of Finance Directors.
UK & IRELAND
Eddie joined G4S in July 2013 as Group Chief
Operating Offi cer and was appointed Regional
CEO of UK & Ireland in October 2013.
Eddie held a number of senior executive roles
at Deutsche Post DHL, where he worked for 13
years. Most recently he was CEO Global Sectors.
His previous role was CEO Life Sciences and
Public Sector, responsible for strategic and
operational leadership of a multi-billion turnover
business. He also held a variety of managing
director roles at the business.
3. ANDY BAKER, REGIONAL PRESIDENT
– AFRICA
Andy joined G4S as regional president for G4S
Africa in 2012.
He has wide ranging experience of managing and
building sustainable businesses across Africa, with
a strong emphasis on technology and logistics.
He joined G4S from Nashua Group, the second
largest ICT business in South Africa, where he
was Group Chief Executive Offi cer.
Prior to this, he spent four years as Group
Chief Operating Offi cer of Altech, a JSE listed
technology group with revenues of $1.2bn
and operations in 15 countries. He holds an
MBA from Cranfi eld University.
Irene has spent her career in HR management,
specialising in employee relations, organisational
development, talent management, employee
engagement, compensation and health and
safety matters.
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
36 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 Fellow of the Chartered Institute of
Personnel and Development (FCIPD).
5. GRAHAME GIBSON, REGIONAL CEO
– AMERICAS
Grahame has been involved in the security
industry for 31 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.
Grahame has 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 Sociétés de Surveillance.
50 G4S plc Annual Report and Accounts 2013
Governance
6
7
8
9
10
6. GRAHAM LEVINSOHN, REGIONAL CEO
8. HIMANSHU RAJA, GROUP CHIEF
10. DEBBIE WALKER, GROUP
– EUROPE
FINANCIAL OFFICER
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 is also responsible for the
group’s CSR and human rights strategies.
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.
Debbie is also vice 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), having previously served as chairman
for two years.
Graham became Regional CEO – Europe in
November 2013. Graham has more than 20
years’ experience in the security industry, having
joined Securicor Cash Services in 1994 as
general manager – marketing.
Himanshu joined G4S in October 2013 as
Group Chief Financial Offi cer. In addition to
his role as CFO, the following functions also
report to him: service excellence centres, risk
management, group procurement and group IT.
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 and
development director in 2008 and joined the
executive committee in 2010.
Grahame is a fellow of the Chartered Institute
of Marketing and a director of COESS.
7. SØREN LUNDSBERG-NIELSEN, GROUP
GENERAL COUNSEL
Søren began his career as a lawyer in Denmark
and since 1984 he has had a wide range of legal
experience as general counsel for international
groups in Denmark, Belgium and the US before
joining Group 4 Falck in 2001 as Group
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 Group 4 Falck merger with Securicor.
Søren 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.
He joined the group from Misys where, as
CFO, he was responsible for fi nance, legal and
commercial, facilities and procurement.
Prior to Misys, Himanshu was CFO of Logica plc
where he led the sale process that resulted in
the company being acquired by CGI of Canada.
Himanshu also held senior executive positions
at BT Group where he worked for more than 10
years in a number of divisional fi nance director
roles, including Chief Financial Offi cer of BT
Global Services, BT Design, BT Operate and
BT Wholesale.
His early career included fi nance and systems
roles at Worldcom International, UUNET and
MFS Limited.
Himanshu qualifi ed as a chartered accountant
with Arthur Andersen and holds a law degree.
9. DAN RYAN, REGIONAL CEO – ASIA AND
MIDDLE EAST
Dan joined G4S in August 2010, from global
logistics and transportation company Neptune
Orient Lines (NOL), where he was a member
of the group executive team and held a number
of senior management positions including
regional president roles for Greater China, Middle
East and Europe during his 20-year career there.
In his last position with the group, Dan led the
project to review, redesign and transform NOL’s
organisation across all its Americas divisions.
Dan is a charter member of the Middle East
Logistics/Supply Chain Management Forum,
Hong Kong Liner Shipping Association and the
American Chamber of Commerce – Shanghai.
He holds an MBA from the University of
Notre Dame in Indiana and a B.S. Finance,
from California State University, Sacramento.
Annual Report and Accounts 2013 G4S plc 51
Corporate governance report
GOVERNANCE: CHAIRMAN’S LETTER
John Connolly
Chairman
DEAR SHAREHOLDER,
G4S is committed to achieving and maintaining the highest standards
of corporate governance, as we believe that these are the necessary
foundations on which the long-term success of the group is built. Trust,
integrity and transparency are at the heart of what we do. My role is
to lead the board and ensure that it has the appropriate balance of
skills, experience, independence and knowledge of the company to
ensure its effectiveness.
As explained in my chairman’s statement on pages 2 and 3, 2013
has been a year of strong focus on board composition and in ensuring
we have the right senior management team in place. I am pleased to
report that the range of backgrounds, skills and experience of the new
members of the board is already producing results. A strong emphasis
was placed on ensuring that they have suffi cient knowledge of the
company and the environment and conditions in which we operate.
Details of inductions and professional development are found below.
The role of the board is to challenge constructively and help develop
the group’s strategy. The board took part in the thorough review of
the strategy, which the new chief executive offi cer, Ashley Almanza,
developed during the summer and which resulted in the adoption of
the strategy for delivering the company’s objectives which is described
in the Strategic Report.
2013 also saw us embark on a thorough review of our risk
management framework, which has led to a number of changes aimed
at strengthening and enhancing internal controls and processes for
identifying, reporting and managing risk. The board, through its newly
created Risk Committee, oversaw the process.
The purpose of the corporate governance report which follows is to
give an understanding of the corporate governance framework and
arrangements we have in place. It is also to explain how the group as
a whole and the board in particular have complied with the principles
of the UK Corporate Governance Codes, published in May 2010 and
September 2012 (the “Code”).
John Connolly
Chairman
31 March 2014
52 G4S plc Annual Report and Accounts 2013
OUR GOVERNANCE FRAMEWORK
The board sits at the top of the company’s governance framework,
setting broad strategic targets, monitoring progress, approving
proposed actions and ensuring appropriate controls are in place and
operating effectively.
Management decisions, development of strategies and policies and
implementation of board decisions fall to the executive committee.
Regional management teams have responsibility for businesses within
their regions and are tasked with implementing policies and controls
at business levels, as well as ensuring they meet agreed fi nancial goals.
The presence of a majority of independent non-executive directors on
the board ensures objectivity, challenge and debate. It is the primary
responsibility of the board to provide effective leadership for the group
and this is done by, amongst other things, ensuring that decision making
is conducted throughout the group within a strong internal control
framework – and by setting values and standards.
There is a detailed schedule of matters reserved to the board under
12 separate categories: strategy and management; structure and capital;
fi nancial reporting and controls; risk and internal controls; contracts;
communication; board membership and other appointments;
remuneration; delegation of authority; corporate governance matters;
policies; and other matters such as settling material litigation and
approving levels of insurance. By way of example, board approval is
required for: unbudgeted capital projects of more than £10m; entering
into a sales contract where annual revenue is to be more than £50m;
any changes to the group’s long-term objectives and commercial
strategy; and the annual operating and capital expenditure budgets.
The schedule of matters reserved to the board was reviewed and
updated during the course of the year.
The board fulfi ls a number of its most important functions through
its committees. The work of these committees is described below in
this report.
The terms of reference of the committees are available on the
company’s website. www.g4s.com
BOARD BALANCE
Board composition
As at the date of this report, the board comprises 11 members: the
non-executive chairman (John Connolly), seven other non-executive
directors and three executive directors. The board considers all the
non-executive directors to be independent.
The names of the directors serving as at 31 December 2013 and
their biographical details are set out on pages 48 and 49. All directors
served throughout the year under review, except as noted below:
– Tim Weller – appointed as non-executive director on 1 April 2013
– Ashley Almanza – appointed as director and chief fi nancial offi cer
on 1 May 2013 and then as chief executive offi cer on 1 June 2013
– Nick Buckles stepped down from the board on 31 May 2013
– Lord Condon, Trevor Dighton and Bo Lerenius retired from the
board at the conclusion of the company’s AGM on 6 June 2013
– Himanshu Raja – appointed as director and chief fi nancial offi cer
on 7 October 2013
Mark Seligman will have served on the board for nine years by the end
of this year and will stand down from the board after the company’s
AGM in 2015. Mark has served as Audit Committee chairman since
May 2009 and has been a member of that committee since January
2006. As part of the board’s succession plan therefore, Mark will stand
Governance
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
The board’s statement on the company’s corporate
governance performance is based on the Code, which is
available on the Financial Reporting Council’s website (https://
www.frc.org.uk/Our-Work/Codes-Standards/Corporate-
governance/UK-Corporate-Governance-Code-Code.aspx).
The Listing Rules require companies to disclose how they
apply the Code’s main principles and report how they have
done so. The Code recognises that alternatives to following
its provisions may be justifi ed in particular circumstances if
good governance can be achieved by other means, provided
the reasons are explained clearly and carefully. In such cases,
companies must also illustrate how their actual practices are
consistent with the principle in question and contribute to
good governance.
The company complied throughout the year under review
with the provisions of the Code. The Corporate governance
report, together with the Audit committee report and the
Directors’ remuneration report, describe how the board has
applied these provisions.
down as a member of the committee at the end of this year and as
chairman of the Audit Committee after the 2014 AGM, when the role
will be taken on by Tim Weller. Both Mark and Tim are the members of
the Audit Committee with recent and relevant fi nancial experience, and
Tim is a serving FTSE 100 CFO. Tim will therefore lead the external
audit tender process which will be undertaken by the Audit Committee
later this year (see page 63).
Induction and professional development
A tailored induction is provided to new non-executive directors joining
the board. This includes spending time with the executive directors
and other senior executives to understand the business, its structure
and people as well as the company’s strategy and fi nancial performance.
In March 2013, Messrs Crozier, Spence and Weller met the group’s
regional CEOs who each presented an overview of their region.
This was followed by a question and answer session also attended by
the chief executive offi cer and the chief fi nancial offi cer. Visits to key
locations within the group are also arranged. New directors are given
the opportunity to visit businesses so they can learn about the
group’s operations.
In February 2013, John Connolly, Mark Elliott and Paul Spence attended
the North American regional management conference in Miami. Prior
to the conference, as part of his induction, Mr Spence attended a
session with the Americas regional management team, who provided
an overview of the businesses in the region, as well as the opportunities
and challenges there.
The induction also provides details of the group’s governance policies
and structure and includes a summary of the risks facing the group.
Meeting regional and country staff continues throughout a director’s
time on the board, as does continuing professional development,
usually in areas where the director has specifi c committee responsibility.
GOVERNANCE STRUCTURE
BOARD
RISK
COMMITTEE
AUDIT
COMMITTEE
CSR
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
RISK
MANAGEMENT
FUNCTION
GROUP
INTERNAL
AUDIT
COMPANY
SECRETARIAT
GROUP
EXECUTIVE
COMMITTEE
GROUP
INVESTMENT
COMMITTEE
EXECUTIVE RISK
COMMITTEE
REGIONAL
RISK & AUDIT
COMMITTEES
Annual Report and Accounts 2013 G4S plc 53
Corporate governance report continued
Board performance review
In 2013, the performance of the board and its committees was
evaluated using a questionnaire-based self-assessment process which
was then interpreted and reported on by the external consultancy
(Lintstock Limited) which conducted an externally facilitated evaluation
of the board and its committees’ performance in 2011. Reports
generated by this process related to the board, the chairman and each
of the Audit, Remuneration, Nomination and CSR committees. Lintstock
has no connection with the company other than evaluating the board
and its committees’ performance.
Following consideration of the report on the board’s performance, the
board has agreed a set of primary objectives for its work in 2014, which
will include:
– regular reviews of businesses within each region including the group’s
risk services business
– scrutinising the group’s technology strategy
– focusing on succession planning
– increased understanding of the group’s competitors
– increased focus on effectiveness of internal controls environment
– analysis of employee and customer satisfaction.
In addition, the reports considered the performance of the chairman
and each board member and were used to inform the discussion
about the chairman’s performance, which was conducted by the
senior independent director without the chairman being present.
The chairman has also conducted discussions with individual directors
which, amongst other things, allowed the chairman to review directors’
training and development needs.
The chairman also held regular meetings with the non-executive
directors without the executives being present.
Succession
The Nomination Committee, led by the chairman, is responsible for
the recruitment of all new members of the board and the board
as a whole discusses succession planning for the board and senior
executives.
Director re-election
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, all
the continuing directors will stand for re-election every year.
Confl icts authorisation
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.
RELATIONS WITH SHAREHOLDERS
The company actively seeks to engage with shareholders and, during
2013, senior management had extensive contact via one on one
meetings, group meetings and telephone conference calls with
shareholders representing more than 80% of the share register
across over 200 institutions.
In November, the chief executive and chief fi nancial offi cer presented
to institutional investors at the group’s annual capital markets update
which is video webcast and available on the group’s website. Additional
results meetings are held for the preliminary and half-yearly results
announcements and conference calls are arranged for the interim
management statements.
The chairman has engaged with major shareholders over senior
management changes and other broader governance issues.
The previous and current chairs of the CSR Committee, Mark Elliott
and Clare Spottiswoode, and relevant senior executives met with a
group of socially responsible investors in September 2013, updating
them on the group’s corporate responsibility programme. Mark Elliott,
in his capacity as chair of the Remuneration Committee, along with
senior human resources executives, held a detailed consultation process
with the company’s largest shareholders on proposals for a new
long-term incentive plan.
It is intended that all the directors will attend, and be available to
answer questions at, the company’s annual general meeting which is
an important opportunity for communication between the board
and shareholders, particularly private shareholders. At the annual
general meeting, the meeting is informed of the numbers of proxy
votes cast and the same information is published subsequently on
the company’s website.
BOARD MEETINGS AND INFORMATION FLOW
Seven scheduled board meetings were held during the year ended
31 December 2013 and there were a further seven additional
unscheduled board meetings. These additional meetings were mostly
called at short notice and it was not always possible for all directors
to attend. Three of the Remuneration Committee meetings were
unscheduled.
One of the scheduled board meetings was an extended two-day
board and strategy session covering presentations on development
and implementation of the company’s strategy. The board debated the
company’s strategy and business plans and the company’s strategy was
reviewed again by the board at a subsequent meeting. Prior to each
meeting, comprehensive board papers are circulated to the directors
addressing not only the regular agenda items on which the executives
will report, but also details of any areas requiring approval or decisions
such as signifi cant transactions or events or important market issues.
At each meeting, the board then receives reports from the chairman,
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, in
months where there is no board meeting scheduled, the board receives
trading and fi nancial updates, investor relations and HR reports.
There are seven board meetings scheduled for the current year,
including a two-day board and strategy meeting.
54 G4S plc Annual Report and Accounts 2013
Governance
Meeting attendance in 2013
Executive directors
Ashley Almanza
(CEO)(1)
Himanshu Raja
(CFO)(2)
Nick Buckles (CEO)(3)
Trevor Dighton
(CFO)(4)
Grahame Gibson
(Regional CEO
– Americas)
Non-executive directors
John Connolly
(chairman)
Mark Seligman
(deputy chairman)
Lord Condon (senior
independent
director)(4)
Mark Elliott (senior
independent director)
(5)
Adam Crozier
Winnie Fok
Bo Lerenius(4)
Paul Spence
Clare Spottiswoode
Tim Weller(6)
Board
scheduled
Board
unscheduled
Nomination
Committee
CSR
Committee
Risk
Committee
Audit
Committee
Remuneration
Committee
4 of 4
2 of 2
3 of 3
4 of 4
7 of 7
2 of 2
2 of 3
2 of 3
7 of 7
5 of 7
7 of 7
7 of 7
7 of 7
6 of 7
4 of 4
3 of 3
7 of 7
6 of 7
7 of 7
4 of 4
7 of 7
7 of 7
5 of 5
6 of 7
6 of 7
6 of 7
3 of 3
6 of 7
6 of 7
7 of 7
1 of 1
1 of 1
2 of 2
1 of 1
4 of 4
6 of 6
2 of 2
2 of 2
2 of 2
4 of 4
2 of 2
2 of 2
4 of 4
3 of 4
2 of 2
4 of 4
3 of 3
0 of 1
1 of 1
3 of 3
6 of 6
6 of 6
5 of 6
1 Ashley Almanza was appointed to the board on 1 May 2013.
2 Himanshu Raja was appointed to the board on 7 October 2013.
3 Nick Buckles stepped down from the board on 31 May 2013.
4 Trevor Dighton, Lord Condon and Bo Lerenius stepped down from
the board on 6 June 2013.
5 Mark Elliott took over from Lord Condon as senior independent
director on 7 June 2013.
6 Tim Weller was appointed to the board on 1 April 2013.
FAIR, BALANCED AND UNDERSTANDABLE
ASSESSMENT
In relation to compliance with the Code, the board has given
consideration to whether the annual report and accounts, taken
as a whole, is fair, balanced and understandable.
The preparation of the annual report and accounts is coordinated
by the fi nance, investor relations and company secretariat teams with
group-wide support and input from other areas of the business.
Comprehensive reviews were undertaken at regular intervals
throughout the process by senior management and other contributing
personnel within the group. The statement required to be given by
the directors by Code provision C.1.1 can be found on page 83.
RISK MANAGEMENT AND INTERNAL CONTROL
The directors acknowledge their responsibility for the group’s system
of risk management and internal control and for reviewing its
effectiveness each year.
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.
Enterprise-wide policies and procedures, which are reviewed and
monitored by the group director of risk and programme assurance,
are in place to identify the key risks faced by each business unit and to
put in place appropriate remediation strategies for any risks determined
to exceed the group’s risk appetite. The most material risks are elevated
to the board which evaluates their impact on the group’s activities and
reviews any matters which may be considered by the board to present
signifi cant exposure.
The group’s key risks are summarised in the Strategy section –
Managing risk effectively and Our principal risks in detail on pages 34
to 41.
The key features of the group’s risk management process, which was
in place throughout the year under review, are:
– Senior executives in each business unit and region use a common
risk management framework* to provide a profi le of those
risks which may have an impact on the achievement of their
business objectives
– Each signifi cant risk is documented in the group’s risk management
system, showing an overview of the risk, its owner, how the risk
is managed, and any improvement actions. Risk appetite/tolerance
is considered in the context of the residual (after controls and
mitigation) risk with a particular focus on “High” net risks. To
be categorised as “High”, a risk must meet at least one of the
following criteria:
Annual Report and Accounts 2013 G4S plc 55
Corporate governance report continued
– major impact on the achievement of the business strategy
– Defi ning a more precise group risk appetite.
– serious damage to business reputation
– severe business disruption
– impact of > 5% on operating profi t or assets
– Implementing a new risk management software tool with
improved mitigation action tracking capabilities and improved
management information and reporting.
– Rolling-out new approaches to and policies on risk across the
– The risk profi les ensure that internal audit reviews of the adequacy,
group.
application and effectiveness of risk management and internal
controls are targeted on the key risks.
– Risk management committees have been established at regional
and group level.
– 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
risk management committees*.
– Both the regional committees and the group executive risk
committee receive internal audit reports and regular reports on risks.
They monitor the actions taken to manage risks.
The process is carried out under the overall supervision of the group
executive risk committee, which comprises the group chief fi nancial
offi cer, the group general counsel, the group communications director
and the group human resources director. The group executive risk
committee reports to the group executive and to the Risk Committee
of the board. The process outlined above is reviewed regularly by the
board through its Risk Committee to ensure its robustness and
suitability to meet the group’s needs.
In 2013, a new board Risk Committee was constituted. This committee
approved a plan for the improvement of the group’s risk management
policies and procedures to be led by the group director of risk and
programme assurance. Under this plan the following progress has
been made:
– Revised terms of reference have been agreed for regional risk and
audit committees and the executive risk committee. The reporting
arrangements and inter-relationships between these governance
bodies and the Audit Committee have been clarifi ed.
– Regional risk managers with revised, standardised, role descriptions
have been appointed in each region as well as in the global risk
services and consulting business.
– A new group risk universe providing greater structure to the
classifi cation of the group’s risk was developed.
– A new methodology for identifying and assessing risks has
been created.
– An interim risk management tool, incorporating the risk universe
and new methodology was put into place to capture risk at regional
and group level.
– In January 2014, the regional risk and audit committees all held risk
workshops to identify and assess the principal regional residual risks
afresh. These risks were recorded in the interim risk management
tool and provided the basis for identifying and assessing the group’s
principal residual risks presented in this annual report. Mitigation
action plans are being refreshed for all regional and group
residual risks.
– During 2014, the risk management improvement programme
will focus on:
– Defi ning a new overall risk management approach and revised
risk policy.
– Implementation of enhanced contract approval and contract
management processes.
Further information about the Risk Committee, its remit, work during
2013 and its plans for 2014 can be found on pages 34 to 41.
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 receives assurance from other sources including
security inspections, third-party reviews, company fi nancial control
reviews, external audit reports, summaries of whistle-blowing activity,
fraud reports 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 internal management reporting,
budgeting and planning as well as external reporting. The group has
a comprehensive budgeting process with the budget being approved
by the board. Forecasts for the year are reported at least quarterly.
Actual results at business unit, region and group level are reported
monthly and variances are reviewed. A programme of business internal
fi nancial reviews is performed by a fi nance team from either region
or group to check the accuracy of fi nancial reporting and compliance
with the group fi nance manual.
The Audit Committee undertakes a high level review of risk
management and internal control each year. As well as the above
processes and sources of assurance, the Audit Committee also
considers the following year end reporting in conducting this review:
– Summary of 2013 internal audit work, including an update on all
open audits with a defi cient rating, analysis of results by region,
common audit fi ndings and areas identifi ed for improvement in
internal controls
– Summary of 2013 internal fi nancial reviews, including
signifi cant accounting or fi nancial control issues and common
concerns identifi ed
– Overview of year-end fi nancial control status reports completed
by all businesses confi rming adherence to group standards, with
any exceptions reported
– A broad overview of the general risk management and internal
control systems in place during the year
– Year-end group risk profi le
– Review of risk management processes and of the group’s principal
residual risks by the board Risk Committee
– External audit year-end reporting on fi nancial controls
and accounting.
The Audit Committee has confi rmed that it is satisfi ed that the group’s
risk management and internal control processes and procedures are
appropriate. The board has reviewed the group’s risk management
and internal control system for the year ended 31 December 2013
by considering reports from the Audit Committee and the Risk
Committee and has taken account of events since 31 December 2013.
* Because G4S Government Solutions, Inc. (“GSI”) 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 GSI, which include
a risk review by an external adviser.
56 G4S plc Annual Report and Accounts 2013
THE NOMINATION COMMITTEE
John Connolly
Nomination Committee Chairman
“ There have been signifi cant changes to the
board during the year. The Nomination
Committee was engaged in selecting and
appointing two new executive directors.
In any appointment recommended to
the board, the Nomination Committee
continues to ensure that board membership
represents the wide range of skills and
experience required.”
John Connolly
MEMBERSHIP IN 2013
The members of the Nomination Committee are John Connolly
(chairman), Adam Crozier and Mark Elliott. On 24 January Lord
Condon left the committee and Adam Crozier joined.
ROLE
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.
Succession planning for the board is a matter which is devolved
primarily to the Nomination Committee, although the committee’s
deliberations are reported to and debated by the full board. The
board itself also regularly reviews more general succession planning
for the senior management of the group.
KEY ACTIVITIES DURING 2013
Following an evaluation of the board committee memberships of the
non-executive directors, proposals for changes were implemented in
January 2013. Further details of these changes can be found in the
relevant section relating to each committee.
Governance
NEW APPOINTMENTS
In 2013, three new non-executive directors were appointed to the
board during the year, having been selected and announced in 2012
through a process led by the Nomination Committee which was
assisted by the external executive search consultant, Zygos Partnership.
Through a process led by the Nomination Committee which was
assisted by the external executive search consultant, Inzito, Ashley
Almanza was appointed as CFO on 1 May 2013. At the end of 2012,
the board initiated a succession planning process to search for a new
CFO. The chairman of the Nomination Committee led the process.
Inzito, which was provided with a detailed brief for the role, undertook
a thorough search. The list of potential candidates selected by Inzito
was considered by the Nomination Committee, which carried out the
review having regard to the balance of skills, experience and diversity
on the board. Candidates who were shortlisted were all interviewed
by the CEO and a smaller number also met with the chairman of
the Nomination Committee and other non-executive directors. This
process led to the Nomination Committee recommending to the
board the appointment of Mr Almanza as the new CFO. The board
accepted the recommendation, which resulted in the appointment of
Mr Almanza on 1 May 2013.
At the time of looking for a replacement for Mr Buckles, with Inzito’s
assistance, the board considered the skills and experience of a range
of potential external candidates as well as those of Mr Almanza.
After careful review, the board concluded that Mr Almanza’s wealth
of experience gained from working across international borders
in complex businesses as well as his experience of strategic and
operational management would enable him to provide strong strategic
and operational leadership to the group. The board therefore approved
Mr Almanza’s appointment as CEO.
The Nomination Committee then instigated the selection process for
a new CFO to replace Mr Almanza. Mr Almanza and the group human
resources director interviewed a number of candidates, some of whom
had been seen before, including Himanshu Raja. With Inzito’s assistance,
a list of candidates was produced, a number of whom were interviewed
by the CEO and by the chairmen of the Nomination Committee and
the Audit Committee. The Nomination Committee recommended to
the board the appointment of Mr Raja, and he was appointed as CFO
on 7 October 2013.
Inzito and Zygos Partnership each provided recruitment consultancy
services to the Nomination Committee and neither has any other
connection with the company.
DIVERSITY
With operations in 120 countries, G4S operates in very diverse
communities and businesses. Diversity covers many aspects such
as gender, race, religion and language as well as background and
experience. Our workforce refl ects this diversity. The board recognises
that the group needs to continue to promote diversity in order to
create an organisation that attracts, supports and promotes the
broadest range of talent. This allows individuals to reach their full
potential but also to provide the best service to our customers.
Diversity is a consideration that forms part of any new recruitment
for and appointment to the board. Although appointments will continue
to be made on merit, the Nomination Committee and the board
recognise that the board performs better when it includes members
from varying backgrounds, experiences and perspectives. Diversity will
therefore continue to be a key consideration when contemplating the
composition and refreshing of the board and senior management,
although the board has no specifi c targets in relation to diversity
including gender.
Annual Report and Accounts 2013 G4S plc 57
Corporate governance report continued
THE CSR COMMITTEE
Clare Spottiswoode
CSR Committee Chair
“ Corporate social responsibility remains
at the heart of G4S’ business strategy and
operations. I was delighted to become chair
of the CSR Committee in June 2013, taking
over from my predecessor Mark Elliott.
Although CSR matters considered by the
committee are wide ranging, a signifi cant
area of focus for the group and the CSR
Committee is to ensure the health and
safety of our colleagues around the world.
Sadly, 55 of them lost their lives in 2013.
This has been and remains a key concern
for the committee. Whilst any employee
fatality is unacceptable, we are making good
progress in implementing our health and
safety campaigns and strategies, which
include signifi cant work around road safety,
to reduce the number of injuries and
fatalities across our global workforce.
In addition, Safety First has been introduced
as a new value for the group and
performance-related objectives, which focus
on health and safety awareness and role
modelling, have also been implemented.
This work continues in 2014.”
Clare Spottiswoode
MEMBERSHIP IN 2013
The members of the CSR Committee are Clare Spottiswoode (chair),
Winnie Fok and Paul Spence. Bo Lerenius retired from the board and
left the committee following the company’s annual general meeting on
6 June 2013. On the same date, Mark Elliott left the committee and
Ms Spottiswoode became the committee’s chair.
CSR Committee meetings are attended by the group communications
director and the group human resources director and, from February
2014 onwards, also by Grahame Gibson, one of the executive
directors of the board.
ROLE
The CSR Committee is responsible for reviewing and monitoring
the group’s CSR strategy. This includes developing policies on various
CSR-related matters for consideration by the board, reviewing the
activities of the executives who are responsible for CSR matters and
monitoring performance of the group against its policies and any
associated targets. It also takes responsibility for the company’s CSR
report.
The company’s separate CSR report for 2013 provides more detail on
the group’s CSR strategy and the progress it has made during the year.
A brief summary of some of the issues which that report addresses is
set out on pages 42 to 47.
KEY ACTIVITIES DURING 2013
During the year, the committee reviewed the content of the company’s
2013 CSR report and the results of the CSR materiality exercise
undertaken during the year.
The committee also oversaw the group’s implementation of a number
of initiatives to improve health and safety for the group’s employees.
With regard to road safety specifi cally, which remains a strong area
of focus, initiatives included the “Driving Force Rules” campaign, which
was piloted in seven countries. In addition, the committee oversaw the
introduction of enhanced incident reporting and investigation processes
and the collection of “lost time incident” data.
Early in the year, the committee oversaw the launch of human rights
and policy guidelines throughout the group and will monitor their
effectiveness.
The committee reviewed the effectiveness of communication of the
group’s whistle-blowing hotlines, following which the promotion of
these hotlines was improved.
Mark Elliott, the previous chair of the CSR Committee, and Clare
Spottiswoode, the current chair, led a meeting with a group of socially
responsible investors in September 2013 to provide an update on the
group’s corporate responsibility programme.
58 G4S plc Annual Report and Accounts 2013
THE RISK COMMITTEE
John Connolly
Risk Committee Chairman
“ Over the past year we have begun an
in-depth review of our risk management
processes. A new Risk Committee, chaired
by me, was created in 2013. The Risk
Committee is tasked with overseeing this
review and the implementation of agreed
changes. A specifi c group risk management
function, separate from internal audit, has
also been created. In September 2013,
Alastair James was appointed as group
director of risk and programme assurance
to lead the new function. I am confi dent
that these actions will signifi cantly improve
management of the group’s risks.”
John Connolly
Governance
MEMBERSHIP IN 2013
The members of the Risk Committee are John Connolly (chairman),
Ashley Almanza, Himanshu Raja, Paul Spence and Tim Weller.
Other regular attendees include the group general counsel, the head of
internal audit and the group director of risk and programme assurance.
ROLE
The Risk Committee advises the board on the group’s overall risk
appetite, develops the group’s risk management strategy, advises the
board on risk exposures, reviews the level of risk within the group and
assesses the effectiveness of the group’s risk management systems.
The committee’s composition ensures that a broad-ranging set of skills
and experience come together to take a fresh look at how the group
manages risk in the business.
KEY ACTIVITIES DURING 2013
The board decided last year that it would establish a distinct Risk
Committee to oversee a comprehensive review of the group’s
enterprise risk management processes. It also decided that the
company would implement more fully the best practice “three lines
of defence” model for risk management, by separating responsibility
for risk management from the group internal audit function.
A thorough review of the effectiveness of the group’s risk management
processes was commissioned and carried out by Deloitte. The review
took place in July and August 2013. The Risk Committee met in
September 2013 to receive Deloitte’s report, discuss the results and
agree a plan of action designed to reinforce the group’s risk
management approach.
The conclusion of the Deloitte report was that, while the group has in
place a basically sound risk management process, there were a number
of areas where improvements could be made. A plan was therefore
developed to take forward Deloitte’s recommendations through 2014.
The terms of reference of the Risk Committee were fi nalised and
agreed by the board.
During the year, a sub-committee of the Risk Committee met on fi ve
occasions to review major contract bids, the risk associated with them
and mitigation plans.
IN 2014
In March, the Risk Committee reviewed the residual risks identifi ed
by each of the regional risk and audit committees. The residual risks
were identifi ed as a result of the consolidation of the risks identifi ed
by these regional committees following a revised methodology rolled
out towards the end of 2013. Further details of the principal risks and
uncertainties facing the business are set out on pages 34 to 41.
The Risk Committee plans to meet at least twice more in 2014 to
carry out the following activities:
– review progress on the improvement of the risk management
approach
– review the group’s residual risk exposure and the progress of
mitigation action plans
– review new and emerging risks.
The Risk Committee will consider all signifi cant risks to the group,
not only fi nancial risks. The Risk Committee’s role is to support the
Audit Committee and the board in discharging their responsibilities in
respect of the monitoring, reviewing and reporting of internal control
and risk management.
Annual Report and Accounts 2013 G4S plc 59
Corporate governance report continued
THE AUDIT COMMITTEE
Membership in 2013
The members of the Audit Committee are Mark Seligman (chairman),
Adam Crozier, Paul Spence and Tim Weller. On 24 January 2013,
Adam Crozier and Paul Spence became members of the committee
and Lord Condon and Ms Fok left. Tim Weller joined the committee
upon his appointment to the board on 1 April and Mr Lerenius left
upon his retirement following the company’s annual general meeting
on 6 June 2013.
The committee members were selected for their breadth of
commercial and fi nancial expertise, necessary to fulfi l the Committee’s
responsibilities. Each member of the Audit Committee brings signifi cant
and relevant fi nancial experience gained at senior management level.
Their skills and experience are set out on pages 48 and 49. The Audit
Committee’s chairman, Mr Seligman, and Mr Weller, are considered by
the board to be the members of the Audit Committee with recent and
relevant fi nancial experience.
Mark Seligman has served as Audit Committee chairman since May
2009 and has been a member of the committee since January 2006.
As part of the board’s succession plan, Mark will stand down as
chairman of the Audit Committee after the 2014 AGM, when the
role will be taken on by Tim Weller. Mark will remain a member of
the committee until the end of this year.
Audit Committee meetings are attended by the chief fi nancial
offi cer, the group fi nancial controller, the head of group internal audit,
the company secretary and representatives of the group auditor.
The chairman of the board and the chief executive also attend
meetings from time to time with the agreement of the chairman
of the committee.
The role and work of the Audit Committee is described more fully
in the Audit Committee report set out on pages 61 to 63.
THE REMUNERATION COMMITTEE
Membership in 2013
The members of the Remuneration Committee are Mark Elliott
(chairman), Winnie Fok, Mark Seligman and Clare Spottiswoode.
Remuneration Committee meetings are attended by the group HR
director, the director of compensation and benefi ts, representatives
of the committee’s adviser and the company secretary. The chief
executive offi cer also attends from time to time to provide information
and guidance to the committee on remuneration packages for senior
executives within the group. The work of the Remuneration Committee
is more fully described in the Directors’ remuneration report, which
appears on pages 64 to 79 of the annual report.
Role
The Remuneration Committee is responsible for all elements of the
remuneration of the executive directors and the chairman of the board
and monitors the levels and structure of remuneration for the senior
management team.
The chairman of the Remuneration Committee attends the company’s
annual general meeting to respond to any questions from shareholders
relating to the Remuneration Committee’s activities.
60 G4S plc Annual Report and Accounts 2013
AUDIT COMMITTEE REPORT
Mark Seligman
Chairman of the Audit Committee
DEAR SHAREHOLDER,
2013 saw the appointment of fi rst Ashley Almanza, then Stuart Curl
(on an acting basis) and subsequently Himanshu Raja as chief fi nancial
offi cer after Trevor Dighton stepped down from that position at the
end of April. Starting in May, a thorough review of the group’s balance
sheet was undertaken and work began on a process of change to
strengthen signifi cantly the group’s fi nancial capabilities. This process
was fully supported by the committee, which reviewed and discussed
the outcomes with executive management and the rest of the board.
During the course of the year, the Audit Committee devoted
signifi cant time to reviewing the integrity and quality of the group’s
fi nancial reporting. The Audit Committee reviewed and assessed the
half-year and full-year exercises relating to the carrying value of the
group’s assets and liabilities, the effectiveness of the internal control
environment and the effectiveness of both the internal audit function
and the external auditor. Together, these actions increased our
understanding of the overall control environment, and resulted in a
number of decisions intended to further strengthen controls. The Audit
Committee concluded that the annual report and accounts was fair,
balanced and understandable, and reported this to the board.
At the end of 2014 I will have served on the board for nine years and
I will retire from the board at the 2015 AGM. Tim Weller will become
chairman of the committee in my place after this year’s AGM, thereby
allowing Tim to assume leadership of the external audit tender process
described below.
Mark Seligman
Chairman of the Audit Committee
31 March 2014
ROLE
The committee’s tasks include:
– reviewing the group’s fi nancial results announcements and fi nancial
statements and monitoring compliance with relevant statutory and
listing requirements
– overseeing the relationship with the external auditor, including
discussing with them the nature, scope and fees for their work
and making recommendations to the board in relation to the
appointment, reappointment and removal of the external auditor
– monitoring and reviewing the effectiveness and resourcing of the
group internal auditing function
– reviewing the group’s whistle-blowing arrangements
Governance
– testing the effectiveness of the risk management procedures
(through reviewing and considering reports from the
Risk Committee)
– reviewing the effectiveness of internal controls
– advising the board on whether the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the company’s
performance, business model and strategy
– reporting to the board on how it has discharged its responsibilities
MAIN ACTIVITIES OF THE AUDIT COMMITTEE
DURING THE YEAR
The committee:
– reviewed the company’s annual report, half-yearly results and
preliminary announcement
– reviewed and approved the 2013 external audit plan and received
regular reports from the external auditor
– reviewed and approved the external auditor’s fees, including fees for
non-audit services
– recommended to the board the re-tendering of the annual external
audit process as set out on page 63
– considered the effectiveness of the group’s internal controls over
fi nancial reporting
– reviewed and approved the internal audit resources and annual audit
plan and received regular reports from internal audit on the results
of their work
– reviewed provisioning for potential tax liabilities
– reviewed the committee’s terms of reference
– reviewed whistle-blowing reports and actions taken
– carried out an externally facilitated self-assessment of
its performance
– considered the signifi cant issues below.
SIGNIFICANT ISSUES CONSIDERED BY THE AUDIT
COMMITTEE
The primary areas of judgement considered by the committee in
relation to the 2013 fi nancial statements, and how these were
addressed, were:
Presentation of the income statement
In order to provide a better understanding of the underlying
performance of the business, for the half-yearly and full-year results,
management presented a view of the underlying results of the
group, with separate disclosure of restructuring charges and other
specifi c items.
The committee discussed the rationale with management and with
the external auditor and concluded that separate presentation of
restructuring charges and other specifi c items provides users of the
group’s fi nancial statements with added clarity and transparency, and
therefore facilitates a clearer assessment of the group’s performance
over time. The committee confi rmed that appropriate accounting
policies, controls and guidance on the constituents for specifi c items
were in place and would be applied robustly in future years.
Annual Report and Accounts 2013 G4S plc 61
Audit Committee report continued
Risk of management override of internal controls
The group operates in a large number of diverse locations and has
a decentralised management structure, with a signifi cant number of
local fi nancial systems and processes which could potentially lead
to management override of internal controls in the absence of
group oversight.
The committee assessed the overall control environment of the group,
reviewed and approved the group internal audit plan for the year as
well as internal audit reports provided, interviewed senior management,
and reviewed other controls including whistle-blowing arrangements.
The committee also examined signifi cant accounting estimates and
judgements and the supporting documentation for evidence of fraud
or bias that may represent a risk of material misstatement, and satisfi ed
itself that the risk of management override of internal controls is
not material.
Review of the carrying value of assets and liabilities
Following the appointment of Ashley Almanza as chief fi nancial offi cer
in May 2013 and subsequently as chief executive offi cer in June 2013,
a balance sheet review was undertaken of the carrying value of
the group’s assets and liabilities in advance of the half-year results.
Following the appointment of Himanshu Raja as chief fi nancial offi cer in
October 2013, a further and more detailed exercise was carried out.
The committee had extensive discussions with both management and
with the external auditor, which was asked to include the balance sheet
review as part of the audit’s scope and report to the committee.
Note 8 to the fi nancial statements provides the details of the assets
that have been written down as a result of this exercise. In fi nalising the
year-end results, the committee scrutinised the proposed adjustments
and received assurance from management and the external auditor
that the review was comprehensive and complete and that the revised
estimates took account of current circumstances. The committee was
satisfi ed that the adjustments made were balanced and reasonable.
Review of contracts
The group delivers outsourcing services that can be complex in nature
and may be governed by unique contractual arrangements. There is a
risk that revenue from these contracts is not recognised in accordance
with contractual entitlements and therefore provisions may be
required for refunds due to inaccurate billing and revenue recognition.
During the year, the group was subject to a number of inquiries in
relation to the accuracy of billing and services provided on some
specifi c UK Government contracts, most notably the investigation into
the electronic monitoring contracts where the Ministry of Justice
alleged the group had overcharged for certain aspects of the services.
Subsequent to year-end, a settlement was reached with the UK
Government which is in line with the provision made at the year-end.
During the second half of the year, management undertook a review of
163 contracts across the group. The committee tested management on
the underlying principles and application of provisions relating to the
contract portfolio review and was satisfi ed that the judgements made
were balanced and reasonable.
Compliance with foreign ownership rules and consolidation
of subsidiaries
The group has a diverse set of complex ownership structures, which
are sometimes based upon local laws and regulations relating to foreign
ownership. In some instances the group operates through local
structures with limited direct share ownership of the business but
exercises control through shareholder agreements. Forthcoming
changes to the rules on consolidation require different judgements in
deciding whether or not to consolidate the underlying business or to
treat the operation as a joint venture, an associate or an investment,
as appropriate. During the year, management carried out an extensive
exercise to review whether the group is in compliance with local
foreign ownership rules and whether or not the group holds suffi cient
control and infl uence to support consolidation in the group results. This
was a major area of focus in the external audit plan and the work was
reviewed by the external auditor and by the committee.
As a result of this review, the committee was satisfi ed that the basis of
consolidation and joint venture accounting was appropriate for the year.
The committee also considered a report on the impact of adopting
IFRS 10, 11 and 12 which came into force on 1 January 2014 and
approved the enhanced disclosures relating to IFRS 10, 11 and 12 as
set out in note 3(v) on page 103.
Carrying value of goodwill
The total value of the group’s goodwill as at 31 December 2013 is
£2bn and it relates to a signifi cant number of acquisitions made.
The estimation of the recoverable amount of goodwill supported
by the group’s cash generating units requires signifi cant judgement
primarily in relation to the achievability of long-term business plans
and macroeconomic assumptions underlying the valuation process.
The committee addressed these matters through receiving reports
from management outlining the basis for the assumptions used, and
was satisfi ed with the carrying value of goodwill. In addition, this matter
is a prime area of external audit focus.
Going concern
The committee considered the group’s strategy and the principal risks
and uncertainties, reviewed the liquidity position of the group taking
into account the signifi cant undrawn but committed facilities available,
and reviewed compliance with and availability of headroom in relation
to covenants. In addition, the committee considered the group’s cash
fl ow forecast for the next 12 months, considered a number of stress
test scenarios to assess the robustness of this forecast.
The committee was satisfi ed that the cash fl ow forecast, taking into
account reasonably possible risk sensitivities and the group’s current
funding and facilities, alongside the group’s funding strategy; show that
the group will continue to operate for the forseeable future. In addition,
the committee has reviewed the relevant disclosures made in the
statement of directors’ responsibilities on page 83. The committee
has recommended to the board the adoption of the going concern
statement for inclusion in the annual report and accounts.
Discontinued operations
The group often has business disposals underway at any reporting date.
There is a risk that any such businesses may not meet the group’s
accounting policy for presentation as discontinued at the balance sheet
date, either because they are not a separate major line of business
or because there is uncertainty as to the likelihood of achieving the
sale or the realisable value on disposal. The latter requires a level of
judgement due to the range of potential sale prices. The committee
reviewed the classifi cation of all discontinued businesses and, following
discussions with management and with the external auditor, was
satisfi ed that the likelihood of sale was highly probable and that the
carrying value was reasonable based on market multiples and on
expectations arising from negotiations with potential buyers.
Taxation
The group operates in many tax jurisdictions, including countries
where tax legislation is not always applied consistently and under some
complex contractual circumstances where the responsibility for tax
arising is not always clear.
The committee received reports from management and the external
auditor on such issues, challenging them with assistance from external
legal and other advisers, and is satisfi ed as to the judgements made.
The committee also evaluated the adequacy of the group’s disclosures
about the tax provisions and contingencies at notes 14 and 35 and the
level of estimation due to uncertainty in the tax provisions at note 4.
62 G4S plc Annual Report and Accounts 2013
INTERNAL AUDIT REVIEW
The Institute of Internal Auditors suggests that internal audit functions
are subject to an external assessment at least every fi ve years. The last
review of the group’s internal audit function was carried out in 2009,
and updated in 2011. In May 2013, the committee commissioned an
independent review of the group’s internal audit function. After a
selection process which involved proposals from fi ve fi rms, Deloitte
scored highest and was selected to carry out the review.
Deloitte’s report was considered by the committee in December 2013.
The report found that the existing internal audit function was well
organised and diligent, but that there were areas for improvement.
Deloitte recommended the strengthening of the internal audit function
and more emphasis on auditing the “third line of defence” activities.
Deloitte also concluded that, although the group’s internal fi nancial
review process was well designed, it could benefi t from being carried
out by fi nance staff, with internal audit reviewing the outcome.
The committee accepted Deloitte’s fi ndings, and adopted a number of
changes including signifi cantly increasing the resources available to the
internal audit function over the course of 2014. This will enable an
increase in the amount of time available for on-site audits and the
insourcing of testing of internal controls in the UK and of IT auditing.
Internal audit’s effectiveness will be further enhanced by the
strengthening of regional and country fi nance functions.
EXTERNAL AUDITOR
The committee considers the reappointment of the external auditor,
including the rotation of the audit partner, each year and also assesses
their independence on an on-going basis. The external auditor is
required to rotate the audit partner responsible for the group audit
every fi ve years. The current lead audit partner has been in place for
two years. The external auditor KPMG Audit Plc was fi rst appointed
in 2005.
So as to ensure that the independence of the audit is not
compromised, during the year the committee reviewed its policy on
the provision of non-audit services. Besides its formal audit function,
the external 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 and general advice on fi nancial reporting standards. Where the
fees for such services are signifi cant, prior approval of the committee is
required. The external auditor is also prohibited from providing other
services without specifi c permission from the committee. The provision
of any non-audit services by the external auditor must in any event
comply with the requirements in that regard of the Auditing Practices
Board. The committee has reviewed this policy and agreed that it
will be amended to allow the external auditor to undertake certain
controls testing activities and any other services with the committee’s
approval which would not diminish the auditor’s independence.
The external auditor has written to the committee confi rming that,
in its opinion, it is independent. The committee discussed the levels of
materiality used by the external auditor as set out in the report on
page 92 and satisfi ed itself these were appropriate. The committee
approved the fees paid to the external auditor, noting that the external
audit is a complex exercise involving over 1,000 KPMG personnel.
Details of the fees paid for audit services and non-audit services can
be found in note 10 to the fi nancial statements.
Effectiveness of the external auditor
A combination of formal and informal processes is used in the
assessment of the effectiveness of the external audit process.
Regular feedback is sought and received by management from the
businesses within the scope of the external audit. At the conclusion
of the year-end audit, this is fed back to the committee by the group
Governance
fi nancial controller where appropriate. In addition, the committee has
considered the results of an internal questionnaire about the external
auditor completed by management and members of the committee.
The questionnaire included questions relating to the quality, planning,
execution and communication of the external audit programme.
The committee also reviewed the fi ndings of the Financial Reporting
Council’s report on its audit quality inspection of KPMG published in
May 2013. Since the assessment of the external audit concluded that
the external audit remains effective and the external auditor remains
independent, the committee recommended to the board that KPMG
should be re-appointed as the group’s auditor for 2014. The board
accepted this recommendation and has proposed a resolution (set
out on page 151) to shareholders for the re-appointment of KPMG.
The committee also considered whether to tender the external audit.
EXTERNAL AUDIT TENDER
KPMG has been the group’s external auditor since 2005. As part of
the committee’s review of the objectivity and effectiveness of the audit
process, a detailed assessment was undertaken in 2013 as to whether
the group should consider putting the external audit engagement out
to tender. The committee concluded it was appropriate to undertake
a full tender process for external audit services.
The committee has therefore approved a tender process (outlined
below) which will be carried out during 2014. In the event that KPMG
is unsuccessful, the board will appoint a successor with effect from the
conclusion of the 2014 audit, and shareholders will be invited to
confi rm this appointment at the AGM in 2015. If KPMG is successful,
shareholders will have the opportunity to re-appoint the fi rm as the
group’s external auditor at the AGM in 2015.
EXTERNAL AUDIT TENDER
Tender process
– A request for a proposal will be sent to each of the global
audit fi rms in the second quarter of 2014.
– A tender evaluation team will be appointed comprising senior
representatives from fi nance, group internal audit, group
treasury, group legal and group tax.
– Following a review and evaluation of submissions and
interviews by the tender team, a shortlist of prospective fi rms
will be agreed by the committee and those selected will be
invited to present to the committee.
– Members of the board and management will attend to
assist the committee in developing a recommendation for
the board. The committee will make the recommendation
to the board.
Criteria
Detailed criteria for evaluation will be developed so as to
incorporate key aspects of the Financial Reporting Council’s
Audit Quality Framework.
Appropriate weighting will be given to:
– organisation, capability and service delivery – including
fully integrated global coverage, industry experience,
in-depth appreciation of the group’s risk environment
and technical expertise
– audit quality – including quality assurance and compliance
procedures, commitment to innovation and value-add, audit
methodology, partner rotation and succession planning
– audit approach – including audit planning and scope,
materiality and risk focus, and
– team capability and fi t – including experience, continuity,
culture, team structure and supervision.
Annual Report and Accounts 2013 G4S plc 63
Directors’ remuneration report
THE REMUNERATION COMMITTEE
Mark Elliott
Chairman of the Remuneration Committee
DEAR SHAREHOLDER,
In what has been a year of great change for the group, the
Remuneration Committee has dealt with both the activities that
occur in the normal course of events and those driven by changes
in leadership and regulation.
COMMITTEE OPERATIONS
As announced in last year’s report, Lord Condon retired from the
board at the AGM held on 6 June 2013 and thus I assumed the role
of chairman of the committee. In addition, Winnie Fok joined the
committee in January 2013.
As is best practice, the committee performed a formal review of its
performance by collecting feedback from committee members and
those associated with committee proceedings. In summary, the review
found that the committee performed well but that we have the
opportunity to improve in a few key areas such as greater involvement
in the operation of incentives schemes across the group and in
engagement with all of our stakeholders. We developed plans to
enhance our performance and will monitor our improvement in
those areas as part of this review.
In addition, we regularly review our terms of reference to determine
if they continue to refl ect best practice. We have recommended to the
board minor updates to refl ect our intent to more closely monitor
variable pay plans across the organisation’s top 220 senior managers.
Our terms of reference continue to be available on our website.
The committee executed a formal review of its advisers in September
and saw presentations and terms from three fi rms. We selected
Deloitte to become our new advisers effective from October 2013.
2014 REMUNERATION
The committee had two strategic issues to manage during the year.
The development of a remuneration policy for approval by our
shareholders and the creation of a new long-term incentive plan given
the impending expiry of the plan approved in 2004. The policy is
presented on pages 65 to 72 of this report. The proposed Long Term
Incentive Plan (LTIP) is presented on pages 66 and 67 as well as
page 78 of this report and a summary of its rules is contained in
the Appendix to the Explanatory Notes to the AGM notice on
pages 156 and 157.
While the policy will not formally take effect until approved by the
shareholders at the AGM on 5 June 2014, we intend to operate within
that policy beginning immediately.
The committee consulted with 15 of the company’s largest
shareholders and a number of key shareholder representative bodies
in the development of both the policy and the LTIP. In particular the
new LTIP was altered to refl ect:
– a desire for greater transparency in the way EPS is calculated
– a change in our TSR comparator group
– a desire to alter the metrics so that EPS is balanced with TSR and
a third metric aligned with our strategy. We selected a cash fl ow
metric which aligns with our strategic intent to reduce debt and
to invest in organic growth
– an increase in the shareholding requirement for executive directors.
We believe the result is a plan which is better aligned with our strategy
and with shareholder interests.
The committee believes the proposed policy and plan outlined in this
report will allow us to attract and retain top talent for executive roles
and will incentivise behaviour and performance aligned with
our strategy and shareholder interest.
As part of the annual salary review process, the committee determined
that the CEO’s salary would be increased to £890,000 with effect from
1 January 2014. Salaries for other executive directors were unchanged.
An illustration of the effect of our remuneration policy during 2014 can
be found on page 71 of the following report.
PAY DURING 2013
The committee was involved in approving the terms agreed with
Messrs Buckles and Dighton upon their departure during the year
and the employment terms for their replacements. The terms agreed
with Messrs Buckles and Dighton simply refl ected their contractual
entitlements. There were no additional payments nor was there any
accelerated vesting of outstanding awards. Further details are set out
on page 76 of the report.
In recruiting new executives the committee considered a number of
factors (including external market practice, internal relativities, individual
experience, expertise and the requirements of the role). In the case
of Ashley Almanza he was fi rst recruited as the chief fi nancial offi cer
from 1 May 2013 and was awarded a salary commensurate with the
position and variable compensation and benefi ts as refl ected in our
policy. When he was promoted to chief executive in June 2013, his
base salary, benefi ts and variable compensation were increased
to refl ect his additional responsibility. No further payments were
committed or made.
64 G4S plc Annual Report and Accounts 2013
Governance
OUR REMUNERATION POLICY
The committee reviews the company’s remuneration policy for
directors regularly to ensure that it remains aligned with the company’s
strategic objectives, in line with best practice and suitable to attract and
retain high calibre individuals whilst rewarding performance fairly.
When reviewing and setting the policy, the committee takes account
of the overall approach and structure of employee reward across the
group, pay decisions for the wider workforce as well as the results of
relevant benchmarking data. It is the committee’s intention that pay
should also refl ect responsibility attached to the role fulfi lled, individual
performance and other relevant market information. Shareholders are
consulted from time to time on the remuneration policy, for example
where a signifi cant change to the policy is proposed.
When setting the policy, the committee is mindful of the need to have
a remuneration framework which not only provides the ability to
attract and retain high calibre executives but also motivates executives
and rewards the delivery of superior performance. The strong link
between executive reward and the group’s performance; alignment of
the interests of the executives and the shareholders; and provision of
incentive arrangements which focus appropriately on both annual
and longer-term performance are at the heart of the policy. Overall,
the committee remains intent on achieving remuneration levels which
provide a market competitive base salary with the opportunity through
the company’s incentive schemes to achieve earnings commensurate
with the delivery of superior performance.
The policy on remuneration of directors is set out on pages 66
to 72 and a separate resolution to approve this will be put to the
shareholders at the company’s annual general meeting on 5 June 2014.
Following Ashley’s promotion to chief executive offi cer, Himanshu Raja
was recruited as chief fi nancial offi cer. His base pay is equal to that paid
to Ashley Almanza whilst he was chief fi nancial offi cer.
The directors’ service contracts are available for inspection by
shareholders.
No bonuses were paid to executive directors in March 2013 for the
year 2012. Having reviewed performance for 2013, Grahame Gibson,
Regional CEO – Americas was awarded a bonus of £103,000 and
the committee used some discretion to determine that bonuses
of £648,000 and £234,375 will be paid to Ashley Almanza and
Himanshu Raja respectively, in recognition of their signifi cant business
achievements since joining the group.
In Ashley Almanza’s case, he assumed the role of CEO in a time of
great uncertainty. The board asked him to focus on identifying root
causes of issues that had led to our profi t warning in May and to
prioritise the correction of those issues in a sustainable manner. We
asked him to stay equally balanced on delivering quality underlying
operating results that would set the foundation for sustainable growth
going forward. Given his assumption of the CFO role in May and then
the CEO role in June, the committee concluded that the underlying
PBITA of £442 million, as presented in the results, was “at target” for
the fi nancial portion of his bonus. For the portion of his bonus based
on non-fi nancial objectives, the committee, and indeed the whole
board, was highly satisfi ed with the rate and pace of progress and the
committee therefore awarded him the maximum quantum. The bonus
was prorated to refl ect his nine months of employment by the group
which resulted in the £648,000 payment.
In Himanshu Raja’s case, given he did not join until October, the
committee concluded that his prorated bonus would be awarded
based on a set of non-fi nancial objectives that again addressed the
immediate need to deal with underlying fi nancial and risk management
processes in a manner that would correct root cause issues uncovered
during 2013. Again the board and the committee were highly satisfi ed
with the signifi cant progress he made in three months. Therefore we
judged his performance to deserve a maximum prorated bonus of
£234,375.
In accordance with the plan rules a portion of these bonus payments
will be deferred for three years and paid in shares.
In Grahame Gibson’s case, there was no payment for the fi nancial
portion of his bonus, since his fi nancial targets were not achieved.
However, he met a number of his non-fi nancial objectives in relation
to talent management, succession planning, portfolio management and
in preparing our US businesses for the introduction of the Affordable
Care Act. Therefore, Grahame was awarded a bonus of £103,000
payable in cash.
More information can be found on the committee’s deliberations of
these bonuses on page 73 of the report.
Executive directors are also eligible for long-term incentive awards
although there was no vesting in relation to the awards made in
2010 and 2011 which would have vested in March 2013 and
March 2014 respectively.
We hope that you fi nd this year’s remuneration report informative
and that we will enjoy your support on all of the remuneration-related
votes at the 2014 AGM.
Mark Elliott
Chairman of the Remuneration Committee
31 March 2014
Annual Report and Accounts 2013 G4S plc 65
Directors’ remuneration report continued
FUTURE POLICY TABLE
This remuneration policy will be effective from the day after the 2014 AGM.
Remuneration policy for executive directors
Purpose and link
to strategy
BASE PAY
Base pay is set at competitive
levels in order to recruit and
retain high calibre executives
with the skills required in
order to manage a company
of the size and global
footprint of G4S.
The level of pay will refl ect a
number of factors including
individual experience,
expertise and role.
BENEFITS
As with base salary, a suitable
range of benefi ts is made
available in order to recruit
and retain high calibre
executives.
ANNUAL BONUS
Rewards the achievement of
annual fi nancial and strategic
business targets and delivery
of personal objectives.
Deferred element
encourages long-term
shareholding and discourages
excessive risk taking.
Operation
Reviewed annually and fi xed for 12 months commencing 1 January. Interim salary reviews may be carried out following signifi cant changes in role,
scope or responsibility or at any other time at the committee’s discretion.
The fi nal salary decision may also be infl uenced by role, experience, individual and company performance, internal relativities and increases for
group employees.
Executives are entitled to a number of benefi ts comprising paid holiday, healthcare for themselves and their family and life insurance of up to four times
base salary, car allowance, business-related transport, limited fi nancial advice from time to time, expatriate benefi ts where relevant. A relocation
allowance refl ecting reasonable costs actually incurred will be paid. Other benefi ts may be granted at the discretion of the Remuneration Committee.
Reasonable business expenses in line with G4S expenses policy (e.g. travel accommodation and subsistence) will be reimbursed and in some instances
the associated tax will be borne by the company.
Awarded annually based on performance in the year. Targets are set annually and relate to the group and/or the business managed by the executive.
Bonus outcome is determined by the committee after the year end, based on annual performance against targets.
Bonuses are paid in cash, but executives are required to defer any bonus payable in excess of 50% of their maximum bonus entitlement into shares.
Deferral is for a minimum period of three years. Dividends or equivalents accrue during the deferral period on deferred shares.
Bonuses are not pensionable.
LONG TERM INCENTIVE PLAN (NEW)
Incentivises executives to
achieve the company’s
long-term fi nancial goals
as well as focus on value
creation, whilst aligning the
interests of executives with
those of shareholders.
Executive directors are granted awards on an annual basis, which vest over a period of at least three years subject to continued service and
the achievement of a number of (currently three) key performance measures.
The Remuneration Committee reviews the quantum of awards to be made to each executive each year to ensure that they remain appropriate.
Dividends or equivalents accrue during the vesting period on awards that vest.
The award is settled by the transfer of market-purchased shares to the executive directors.
All the released shares (after tax) must be retained until the minimum shareholder requirement is met. Currently, the minimum shareholding
requirement is 200% of base salary for the CEO and 150% for the other executive directors.
RETIREMENT BENEFITS
As with base salary and other
benefi ts, making available a
suitable retirement benefi ts
package aids the recruitment
and retention of high calibre
executives, allowing such
executives to provide for
their retirement.
G4S operates a defi ned contribution group-wide personal pension plan in the UK in which executives may participate. Alternatively, G4S may provide
a cash allowance in lieu of a contribution into such plan.
The current executive directors receive cash allowances. The CEO receives 25% of base pay as a cash allowance; the CFO receives 20% of base pay
and the other executive director receives 40% of base pay, refl ecting his historic participation in a defi ned benefi ts plan which has been closed.
The level of award is kept under review by the committee and is intended to be broadly market comparable for the roles.
66 G4S plc Annual Report and Accounts 2013
Governance
Maximum opportunity
Performance measures and clawback
None, although individual performance may have a bearing on salary increases.
Actual base pay for each executive director is disclosed each year in the
Directors’ remuneration report.
In determining salary increases, the committee considers market salary
levels including those of appropriate comparator companies.
Ordinarily, annual salary increases would be no more than the average annual
increases across the group. However, in exceptional circumstances a higher
level of increases may be awarded, for example:
• following a signifi cant change to the nature or scale of the business; or
• following a signifi cant change to the nature or scope of the role; or
• for a new appointment, where the base pay may initially be set below the
market level and increased over time, as experience develops and with
reference to the individual’s performance in the fi rst few years in the role.
Where exceptional increases are made we will fully disclose and explain the
rationale for such increases.
Maximum benefi ts per director per annum:
None.
• holidays – 30 days
• car allowance – £20,000
• business-related local transport – £40,000
• for fi nancial advice, expatriate benefi ts and relocation expenses, the expense
will refl ect the cost of the provision of benefi ts from time to time but will be
kept under review by the committee
• other benefi ts granted at the discretion of the committee up to 3% of base
pay per annum per director
• reasonable business expenses which are reimbursed are not subject to a
maximum, since these are not a benefi t to the director.
Any allowance in relation to relocation will provide for the reimbursement
of reasonable costs incurred.
Maximum opportunity of 150% of base pay per annum for the CEO and
the CFO.
125% of base pay per annum for any other executive director.
Maximum opportunity of 250% of base pay per annum for the CEO.
Maximum opportunity of 200% of base pay per annum for the other
executive directors.
Typically, executive directors’ bonus measures are weighted so that:
• between 70% and 85% of the bonus is based on achievement of challenging fi nancial performance
measures (e.g. profi t before tax and amortisation, organic growth, cash fl ow measures, etc.),
with each measure operating independently of the others; and
• the remainder is linked to personal and/or non-fi nancial measures, which are strategic
or operational in nature.
Each year, the committee may use its discretion to vary the exact number of measures as well
as their relative weightings, and this will be disclosed in the annual remuneration report.
As a result of the number of factors taken into account in determining bonus, there is no minimum
pay-out level. For illustrative purposes, in the event that only threshold has been achieved, pay-out
would be 35% of maximum, rising to full pay-out should achievement of a stretch performance level
be achieved for all measures assuming the non-fi nancial performance measures were satisfi ed.
The deferred element of the bonus is not subject to any further performance measures but is
subject to claw-back in certain circumstances. The non-deferred part of the bonus, which is settled
in cash, is also subject to claw-back (see separate section below on page 68).
Awards vest based on performance over a period of at least three fi nancial years commencing
with the fi nancial year in which the award is made.
Performance will be measured based on a combination of earnings per share growth, total
shareholder return against a comparator group and average operating cash fl ow. For awards made in
2014, these will be in the proportion of 40%, 30% and 30% respectively. However, the committee
retains the fl exibility to amend these proportions, provided that no single measure will be a
signifi cantly greater proportion than the others.
At threshold, 25% of the relevant portion vests. This increases on a straight-line basis up to 100%
for performance in line with maximum. Targets are set out on page 78.
Awards are subject to claw-back in certain circumstances (see separate section below on page 68).
Maximum opportunity of up to 25% of base pay for the CEO and 20% for
the other executive directors save that 40% of base pay per annum is payable
to Grahame Gibson.
None
Annual Report and Accounts 2013 G4S plc 67
Directors’ remuneration report continued
Remuneration policy for non-executive directors
Purpose
CHAIRMAN’S FEE
To attract and retain a high calibre chairman by offering
a market competitive fee, which also refl ects the
responsibilities and time commitment. There are no
performance-related elements.
Operation
Maximum opportunity
The chairman’s fee is disclosed each year in the
Director’s remuneration report. The fees are reviewed
annually by the committee. The annual fee is an all-
inclusive consolidated amount. The committee retains
the discretion to review the chairman’s fee at any other
time if appropriate.
The chairman’s fee are reviewed against those of other
companies of a similar size.
Ordinarily, any increase of the chairman’s fee would be in
line with increases for similar roles in other companies
Fees payable to the chairman and other non-executive
directors in aggregate per annum shall not exceed the
maximum specifi ed in the company’s articles of association
for the relevant year.
Ordinarily, any increase of the non-executive directors’ fees
would be in line with other increases for similar roles in
other companies.
Fees payable to non-executive directors (including the
chairman) in aggregate per annum shall not exceed the
maximum specifi ed in the company’s articles of association
for the relevant year.
NON-EXECUTIVE DIRECTORS’ FEES (EXCLUDING THE CHAIRMAN)
To attract and retain high calibre non-executive directors
(NEDs) by offering market competitive fees which
should refl ect the responsibilities and time commitment.
There are no performance related elements.
NED fees including any additional fee for any additional
role listed below are disclosed each year in the
remuneration report.
With the exception of the chairman, the fees for NEDs
are structured by composition build-up consisting of:
• a base fee
• an additional fee for chairing a committee
• an additional fee for the role of deputy chairman
• an additional fee for the role of senior
independent director
The non-executive director component fees are reviewed
annually by the executive directors. The board retains
the discretion to review the NED fees at other times,
as appropriate, to refl ect any changes in responsibilities
or commitment.
The basic fee covers committee membership and each
NED is expected to participate in one or more board
committees. All the fees are reviewed against those of
other companies of a similar size.
Reasonable business expenses in line with G4S expenses
policy (e.g. travel accommodation and subsistence) will be
reimbursed and in some instances the associated tax will
be borne by the company.
Reasonable business expenses which are reimbursed are
not subject to a maximum, since these are not a benefi t
to the director.
Benefi ts and expenses will refl ect the actual cost of
the provision.
BENEFITS
Benefi ts may be provided from time to time in
connection with the chairman and other NEDs
performing their roles, such as business travel,
subsistence and entertainment, accommodation
and professional fees for tax and social security
compliance, and other ancillary benefi ts.
Notes to the future policy table
1. Performance measures
Annual Bonus Plan – The actual performance measures and targets
are set by the Remuneration Committee at the beginning of each year.
The performance measures used for our annual bonus plan have been
selected to refl ect the group’s key performance indicators. The
committee aims to ensure that the measures appropriately encourage
the executive directors to focus on the company’s strategic annual
priorities, whilst the targets are set to be stretching but achievable.
The aim is to strike an appropriate balance between incentivising annual
fi nancial and strategic business targets, and each executive director’s key
role specifi c objectives for the year.
Long Term Incentive Plan – In choosing the performance measures for
the proposed new Long Term Incentive Plan, the committee aims to
fi nd a balance of measures which refl ect the company’s long-term
fi nancial goals as well as incentivise executives to create sustainable,
long-term value for shareholders.
Legacy plans – The committee reserves the right to make any
remuneration payments including payments for loss of offi ce
notwithstanding that they are not in line with the policy set out above
where the terms of the payment were agreed (i) before the policy
came into effect or (ii) at a time when the relevant individual was not
a director of the company and, in the opinion of the committee, the
payment was not in consideration for the individual becoming a
director of the company. For these purposes, payments may include
the committee satisfying awards of variable remuneration. In cases
where all or a part of the variable remuneration award was in the
form of shares, the payment terms are those agreed at the time the
award was granted.
68 G4S plc Annual Report and Accounts 2013
In particular, awards made under the previous Performance Share Plan
will continue to vest in accordance with the rules of that plan and to
the extent that the relevant performance tests are met. Details of the
vesting of the awards will be published in the annual remuneration
report each year.
The non-executive directors do not participate in any incentive
schemes nor do they receive any benefi ts other than those referred
to in the above table.
2. Changes in period
During 2013, a new CEO and CFO were appointed. No changes
were made to the remuneration policy in effect during the previous
year and the new CEO and CFO were recruited in line with the
existing remuneration framework. Without the infl uence of the historic
participation in a defi ned benefi t scheme, the new hires were recruited
on a lower pension cash allowance than the previous CEO and CFO.
3. Malus and claw-back mechanisms
Since 2010, any cash and/or shares awarded under the annual bonus
plans and the current Performance Share Plan may be subject to
claw-back. The proposed new Long Term Incentive Plan and the current
annual bonus plan may be subject to malus or claw-back from the
executive director concerned if the Remuneration Committee so
determines and, in the case of misstatement of accounts, where the
Audit Committee concurs. The time period in which the claw-back can
be operated depends on the reason for the overpayment. Please see
the explanatory table on page 69.
Governance
Material misstatement of group
fi nancial accounts
Misconduct
Fraud
Annual Bonus Plan (including deferred elements)
2013 Plan
up to 2 years after the
payment of the cash
element (regardless
of the reason)
2014 Plan
up to 2 years after the
payment of the cash
element
LTIP
Proposed new LTIP
up to 2 years
after vesting
Current PSP rules
up to 2 years after
vesting (except where
due to fraud or reckless
behaviour when it shall
be 6 years after
vesting)
up to 6 years after
the payment of the
cash element
unlimited
up to 6 years
after vesting
unlimited
The amount to be clawed back directly from the executive director will
be the overpaid amount, but the Remuneration Committee retains the
discretion to claw-back the “net” (i.e. post-tax) amount of the award
received by the executive director.
PRINCIPLES AND APPROACH TO RECRUITMENT AND
INTERNAL PROMOTION OF DIRECTORS
When hiring a new executive director, or promoting to the board from
within the group, the committee will offer a package that is suffi cient
to retain and motivate and, if relevant, attract the right talent whilst
at all times aiming to pay no more than is necessary. Ordinarily,
remuneration for a new executive director will be in line with the
policy set out in the table above. However, discretion may be required
for exceptional circumstances such as dealing with remuneration
relinquished in a previous job. The maximum level of on-going variable
pay that may be awarded to new executive directors on recruitment
or on promotion to the board shall be limited to 400% of base salary
as set out in the policy table above (calculated at the date of grant,
excluding any buy-out awards – see below). Remuneration and any
buy-out arrangements will be announced as far as possible at the time
a new executive director or chairman is appointed, or in the following
Directors’ remuneration report.
When determining the remuneration of a newly-appointed
executive director, the Remuneration Committee will apply the
following principles:
– The on-going remuneration package to be designed in accordance
with the policy table above
– New executive directors will participate in the Annual Bonus
Scheme and Long Term Incentive Plan on a similar basis to existing
executive directors
– The Remuneration Committee shall have discretion to grant
one-off cash or share-based awards to executive directors where
it determines that such an award is necessary to secure the
recruitment of that executive director and where it is in the best
interests of the company to do so. Such awards would only be made
as compensation for remuneration relinquished under a previous
employment (i.e. buy-out arrangements) and would be intended to
mirror forfeited awards as far as possible by refl ecting the value,
nature, time horizons and performance measures attached. In such
circumstances, the company will disclose a full explanation of the
detail and rationale for such one-off award
– In certain circumstances, it may be necessary to buy out long notice
periods of previous employment
– With regard to internal promotions, any commitments made before
promotion and unconnected with the individual’s promotion may
continue to be honoured even if they would not otherwise be
consistent with the policy prevailing when the commitment is fulfi lled
– For external and internal appointments, the Remuneration
Committee may agree that the company will meet certain relocation
expenses (including legal fees), as set out in the policy table
– In determining the approach for all relevant elements, the
Remuneration Committee will consider a number of factors,
including (but not limited to) external market practice, current
arrangements for existing executive directors and other
internal relativities.
SERVICE CONTRACTS
Shareholders are entitled to inspect copies of executive directors’
service contracts at the company’s head offi ce and annually at
the AGM.
Executive directors’ service contracts all have the following features:
– Contracts are drafted in line with best practice at the time the
executive directors were appointed
– Terminable on 12 months’ notice by either party.
Specifi c provisions for Ashley Almanza and Himanshu Raja’s contracts
(dated 2013) that are not in Grahame Gibson’s contract (dated
2006) include:
– Following board approval, Ashley Almanza is allowed to hold two
external non-executive appointments (he is currently a non-
executive director of Noble Corporation and of Schroders plc)
and retain the fees paid directly to him for the appointments.
Himanshu Raja is allowed to hold one external non-executive
appointment and retain any fees paid directly to him for the
appointment. Grahame Gibson’s contract does not specifi cally
deal with NED positions, which will therefore be subject solely
to board discretion.
– Mitigation obligations on termination payments are explicitly included
in the 2013 contracts. Notice payments for Ashley Almanza are
payable monthly and those for Himanshu Raja are payable in two
six monthly instalments payable in advance.
There are no express mitigation provisions in Grahame Gibson’s
contract.
Non-executive directors’ letters of appointment:
– Appointment is subject to the provisions of the articles of
association of the company, as amended from time to time regarding
appointment, retirement, fees, expenses, disqualifi cation and removal
of directors
– All continuing non-executive 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 2012 UK Corporate
Governance Code
– Initial period of appointment is two years
– All reasonably incurred expenses will be met
– Fees are normally reviewed annually.
LOSS OF OFFICE PAYMENT
The duration of the notice period in each of the executive directors’
contracts is 12 months.
The Remuneration Committee would consider the application of
mitigation obligations in relation to any termination payments where
such provisions exist in the executive director’s contract.
The contracts do not provide for the payment of a guaranteed bonus
in the event of termination. Directors (other than Himanshu Raja) will
not be eligible for bonus accrual during any period of garden leave.
In the case of Himanshu Raja, his contract provides for such accrual
although any level of payment would depend on the discretion of the
Remuneration Committee.
Annual Report and Accounts 2013 G4S plc 69
Directors’ remuneration report continued
The value of the termination payment would cover the balance of any salary and associated benefi ts payments due to be paid for the remaining
notice period, the value of which will be determined by the Remuneration Committee. The Remuneration Committee would also retain the
discretion to make appropriate payments necessary to fi nalise any settlement agreement, but in exercising such discretion the Remuneration
Committee will remain mindful to ensure that there is no reward for failure.
The fees for outplacement services and reasonable legal fees in connection with advice on a settlement agreement may be met by the company.
The table below illustrates how each component of pay would be calculated under different circumstances:
Plan
Annual bonus (cash element)
Automatic “good leaver”
categories
All leavers other than
voluntary resignation and
summary dismissal
Annual bonus (deferred share element)
• Injury, disability or ill health
Performance Share Plan (current)
Long Term Incentive Plan (new)
• Redundancy
• Retirement
• Death
• Termination without cause
• Change of control or sale
of employing company
or business
• Any other circumstances
at the discretion of the
Remuneration Committee
• Injury, disability or ill health
• Redundancy
• Retirement
• Death
• Change of control or sale
of employing company
or business
• Any other circumstances,
provided that the
Remuneration Committee
considers there are
exceptional circumstances
• Injury, disability or ill health
• Retirement
• Redundancy
• Death
• Change of control or sale
of employing company
or business
• Any other circumstances
at the discretion of the
Remuneration Committee
Treatment for other leavers
Bonus opportunity will lapse.
Deferred share awards
shall lapse.
Treatment for good leavers
Executive directors may receive
a bonus to be paid on the
normal payment date and in
accordance with the agreed
performance measures but
reduced pro-rata to refl ect the
time employed.
Deferred shares may be
released if the executive
director ceases employment
prior to the third anniversary
as a result of one of the good
leaver reasons.
Awards will lapse.
Awards will vest on the relevant
vesting date on a time-
apportioned basis, unless the
Remuneration Committee
determines otherwise, and
subject to the achievement of
the performance measures.
Awards will lapse.
Awards will vest on the relevant
vesting date on a time-
apportioned basis, unless the
Remuneration Committee
determines otherwise, and
subject to the achievement of
performance measures at the
relevant vesting date.
The vesting date for such
awards will normally be the
original vesting date, unless
otherwise determined by the
Remuneration Committee.
As directors may leave employment for a wide range of reasons, the
Remuneration Committee retains discretion to approve payments
where the reason for leaving does not fall precisely within the
prescribed “good leaver” category. The committee will take account of
the director’s performance in offi ce and the circumstances of their exit.
The committee will seek to balance the interests of shareholders, the
departing director and the remaining directors. Any awards subject to
performance conditions would be assessed at the end of the relevant
period and be subject to time apportionment.
CORPORATE ACTION
If the company is subject to a change in control, the current
Performance Share Plan and the proposed new Long Term Incentive
Plan provide that awards will vest subject to the performance targets
having been satisfi ed up to the date of the change of control and, unless
the committee determines otherwise, time pro-rating. On a variation of
share capital, other reorganisation of the company, or a demerger of a
substantial part of the group’s business, the committee may make such
adjustment to awards as it may determine to be appropriate.
70 G4S plc Annual Report and Accounts 2013
Governance
Illustrations of application of remuneration policy
ASHLEY ALMANZA
HIMANSHU RAJA
GRAHAME GIBSON
£’000
5,000
4,000
3,000
2,000
1,000
0
£4,754
47%
28%
£2,551
22%
31%
47%
25%
£1,194
100%
Minimum
On-target
performance
Maximum
performance
£’000
5,000
4,000
3,000
2,000
1,000
0
£3,036
41%
31%
28%
£1,724
18%
33%
49%
On-target
performance
Maximum
performance
£849
100%
Minimum
£’000
5,000
4,000
3,000
2,000
1,000
0
£3,084
41%
26%
33%
£1,805
18%
27%
56%
On-target
performance
Maximum
performance
£1,005
100%
Minimum
Fixed pay
Annual bonus
Long-term incentive
Fixed pay
Annual bonus
Long-term incentive
Fixed pay
Annual bonus
Long-term incentive
Base pay as at
1 January 2014
Benefi ts
Pension
Total fi xed pay
CEO
£890,000
£81,408
£222,500
£1,193,908
Regional CEO
– Americas
CFO
£625,000
£98,716
£125,000
£848,716
£639,483*
£110,152
£255,793
£1,005,428
* The base pay for the Regional CEO – Americas is calculated using average exchange rates over 2013.
The benefi ts fi gures include taxable business expenses and the associated tax and NIC payable by the company.
The bar charts above set out the effect of the executive directors’ remuneration policy as it will apply in 2014 and based on the assumptions
set out below:
Fixed pay
Minimum
On-target
Consists of total fi xed pay including base salary, benefi ts and retirement benefi ts
Maximum
• Base salary – salary effective as at 1 January 2014
• Benefi ts – amount received by each executive director in 2013 including business expenses
classifi ed by HMRC as benefi ts but which the company does not consider to be benefi ts in
the ordinary sense
• Retirement benefi ts – 25% of salary for Ashley Almanza, 20% of salary for Himanshu Raja
and 40% for Grahame Gibson
Annual bonus
No payout
Long-term incentives
No vesting
60% of the maximum payout
(i.e. 90% of salary for Ashley
Almanza and Himanshu Raja
and 75% of salary for
Grahame Gibson)
25% vesting under the LTIP
(i.e. 62.5% of salary for Ashley
Almanza and 50% of salary
for Himanshu Raja and
Grahame Gibson)
100% of the maximum payout
(i.e. 150% of salary for Ashley
Almanza and Himanshu Raja
and 125% of salary for
Grahame Gibson)
100% of the maximum payout
(i.e. 250% of salary for Ashley
Almanza and 200% of salary
for Himanshu Raja and
Grahame Gibson)
Annual Report and Accounts 2013 G4S plc 71
Directors’ remuneration report continued
STATEMENTS OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP
The structure of the executive directors’ pay policy is generally in line with the policy for remuneration of the senior management within the
group, though the levels of award will be different. The performance measures that apply in the variable element of the remuneration will refl ect
the relevant areas of responsibilities. There may be one-off awards for retaining scarce and critical individuals below board level.
Remuneration of employees globally will depend on local regulation and practice, taking any collective bargaining agreements into account,
where they exist.
Elements of remuneration
Fixed
Variable
Benefi ts
Availability
Base salaries
Pensions
Annual bonus
Long-term incentive plan
Car or car allowance
Protection insurance
Private Healthcare
Available to all employees worldwide
Available to most employees in developed markets
Available to all senior managers worldwide
Available to some senior managers worldwide
Available to all senior managers worldwide
Available to most employees in developed markets
Available to all senior managers and above worldwide
Across the group the company seeks to pay competitively, taking
into account external benchmarking and internal moderation at
each level to ensure that remuneration is in line with market practice.
When determining base salary increases for executive directors, the
Remuneration Committee pays particular attention to the data at
senior manager level.
At G4S, the Remuneration Committee does not normally consult
directly with employees as part of the usual process of determining the
remuneration policy and pay decisions for executive directors and has
not therefore done so in setting this remuneration policy. However,
employee surveys are carried out biennially to determine employees’
views of their own pay and benefi ts, as well as those of colleagues
in general.
STATEMENT OF CONSIDERATION OF
SHAREHOLDER VIEWS
We are committed to consulting with our top shareholders on key
remuneration issues and we would usually seek to consult prior to
any major change in policy or practice. This helps us to understand any
potential concerns our shareholders may have, and take any views on
board. In 2013 and early 2014, we consulted with some of our largest
shareholders and certain shareholders’ representative bodies in respect
of the proposed new LTIP and the directors’ remuneration policy.
Details of the consultation are provided in the Chairman’s statement
section of this report.
Furthermore, our Remuneration Committee chairman will be available
to answer any questions and listen to the views of our shareholders at
the forthcoming annual general meeting.
ANNUAL REPORT ON REMUNERATION
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED INFORMATION)
Executive directors
The following table shows a single total fi gure of remuneration in respect of qualifying services for the 2013 fi nancial year for each executive
director, together with the comparative fi gures for 2012. Aggregate executive directors’ emoluments are shown in the fi nal column of the table.
Base pay
£
Benefi ts
£
Annual Bonus
£
PSP
£
Pension related benefi ts
£
Total
£
2013
600,000
345,833
221,000
639,483
156,250
2012
n/a
830,000
510,000
630,286
n/a
2013
61,056
30,095
55,471
110,152
24,679
2012
n/a
23,551
31,749
37,223
n/a
2013
648,000
0
0
103,000
234,375
2012
n/a
0
0
0
n/a
2013
n/a
0
0
0
n/a
2012
n/a
0
0
0
n/a
2013
150,000
138,333
88,400
255,793
31,250
2012
n/a
332,000
204,000
252,114
n/a
2013
1,459,056
514,261
364,871
1,108,428
446,554
2012
n/a
1,185,551
745,749
919,623
n/a
Ashley Almanza
Nick Buckles
Trevor Dighton
Grahame Gibson
Himanshu Raja
Notes:
1 The information relates to the part years during which they have served as executive directors:
a. For Ashley Almanza, this includes the period from 1 April 2013 when he commenced employment and when he was Group CFO from 1 May 2013 (during which time
his base pay was £625,000 per annum) prior to his appointment as Group CEO from 1 June 2013 (when his base pay increased to £850,000 per annum).
b. For Trevor Dighton, this includes the period when he was an executive director, to the AGM held on 6 June 2013. Payments made after that date are shown on
page 76.
c. For Nick Buckles, this is up to 31 May 2013. Payments made after that date are shown on page 76.
d. For Himanshu Raja, this was from his appointment date on 7 October 2013 and this includes the period from 1 October 2013.
2 Benefi ts include car allowance, business-related travel, healthcare, disability and life assurance. In 2013 for Grahame Gibson, the benefi ts value includes a total value of
£42,290 relating to fl ights for him and his family between the UK and US. Benefi t values include the costs of overnight accommodation and meals which HMRC treats as
a taxable benefi t and on which the company will pay tax in due course, although it does not consider such expenses to be benefi ts in the ordinary sense. The grossed-up
amounts are £18,914 for Ashley Almanza, £8,471 for Himanshu Raja, £18,479 for Nick Buckles, £28,695 for Grahame Gibson and £35,218 for Trevor Dighton. Benefi t
values also include business-related local travel costs of £22,528 and £10,224 for Mr Almanza and Mr Raja respectively who bear the tax themselves.
3 The benefi t values for 2012 are those from the 2012 annual report. They do not include estimates of the value of staff entertainment, taxable travel costs and the
associated taxes met by the company but these are not expected to be signifi cant.
4 In relation to the PSP, where the performance measures are substantially complete by the end of a particular year, the value of any award will be reported in the column
for that year.
5 Any bonus due above 50% of the individual’s maximum bonus entitlement is awarded as deferred shares which vest after a period of three years.
72 G4S plc Annual Report and Accounts 2013
Governance
The following table shows a single total fi gure of remuneration in respect of qualifying services for the 2013 fi nancial year for each non-executive
director, together with the comparative fi gures for 2012. Aggregate non-executive directors’ emoluments are shown in the last row of the table.
John Connolly
Lord Condon
Adam Crozier
Mark Elliott
Winnie Fok
Bo Lerenius
Mark Seligman
Paul Spence
Clare Spottiswoode
Tim Weller
TOTAL
Base fee
SID
Chair of Committee
2013
348,000
24,540
56,800
56,800
56,800
24,540
56,800
56,800
56,800
42,600
2012
195,412
56,800
n/a
56,800
56,800
56,800
56,800
n/a
56,800
n/a
2013
n/a
4,537
n/a
5,896
n/a
n/a
n/a
n/a
n/a
n/a
2012
n/a
10,500
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2013
n/a
7,582
n/a
17,550
n/a
n/a
17,550
n/a
9,855
n/a
2012
n/a
17,550
n/a
17,550
n/a
n/a
17,550
n/a
n/a
n/a
Deputy Chair
2013
n/a
n/a
n/a
2012
n/a
n/a
n/a
n/a
n/a
n/a
46,800
n/a
n/a
n/a
n/a
n/a
n/a
46,800
n/a
n/a
n/a
Benefi ts
2013
564
4,026
528
12,445
36,307
14,050
2,556
45,530
872
417
2012
300
9,700
n/a
12,400
36,300
33,700
2,600
n/a
900
n/a
Total
2013
348,564
40,685
57,328
92,691
93,107
38,590
123,706
102,330
67,527
43,017
1,007,545
Total
2012
195,741
94,512
n/a
86,795
93,107
90,520
123,706
n/a
57,672
n/a
742,053
Notes: The above fees were pro-rated where the appointments or retirements were part way through the year.
1 John Connolly was appointed in June 2012.
2 Lord Condon and Bo Lerenius retired on 6 June 2013.
3 Mark Elliott was appointed as chair of the Remuneration Committee and senior independent director on 6 June 2013.
4 Clare Spottiswoode was appointed as Chair of the Corporate Social Responsibility Committee on 6 June 2013.
5 Adam Crozier and Paul Spence were appointed on 1 January 2013.
6 Tim Weller was appointed on 1 April 2013.
7 Benefi t values include the costs of travel, overnight accommodation and meals which HMRC treats as a taxable benefi t, and on which the company will pay tax in due
course, although it does not consider such expenses to be benefi ts in the ordinary sense.
8 The only benefi ts paid for non-executive directors in 2012 were business expenses which HMRC treats as a taxable benefi t. Such expenses were not required to be
disclosed in 2012 and so they were not recorded separately for each director. Therefore the benefi ts fi gures listed for 2012 are estimated and based upon 2013 data.
Ashley Almanza received £113,000 from Schroders plc and a fee of $33,000 as well as shares valued at $285,000 from Noble Corporation for his non-executive
directorships referred to on page 48 and retained such remuneration. Mr Almanza uses his annual leave entitlement for Noble Corporation board meetings.
FURTHER NOTES TO THE SINGLE TOTAL FIGURE OF REMUNERATION TABLES
Executive directors’ base pay
Ashley Almanza’s base pay in 2013 as group CEO was £850,000
per annum.
Himanshu Raja’s base pay as group CFO was £625,000 per annum.
Grahame Gibson’s base pay was last increased in January 2011. He
receives part of his salary in sterling and part in US$. The US$ element
has been converted into sterling for the purposes of reporting, at the
exchange rates prevailing in each month in which Grahame Gibson
was paid.
2013 Annual bonus
In previous years, the annual performance-related bonus scheme
was dependent on profi t. However, during the fi nancial year ending
31 December 2013, the annual bonus scheme rules were amended to
include two other fi nancial measures, organic growth and cash
generation. The organic growth target which is measured against the
budgeted percentage increase constituted 20% of maximum bonus.
Cash generation measured against a cash conversion target was 15%
with profi t measured by achievement against budget being 35%.
Non-fi nancial strategic objectives linked to the delivery of the business
plan were also introduced. These measures were personal objectives
with 15% of maximum bonus attributable to strategic objectives taken
from the business plan and a further 15% linked to objectives relating
to the organisation such as people, CSR, risk, values etc. Each of the
measures operated independently of the others.
The maximum bonus entitlement for the chief fi nancial offi cer
increased from 125% to 150% of base pay, while the maximum bonus
entitlement for the chief executive (150% of base pay) and other
executive directors (125% of base pay) remained unchanged; however,
the maximum pay-out is only reached when the relevant stretch
targets are achieved.
Bonuses are paid in cash up to 50% of their maximum entitlement.
Where the bonus amount is in excess of 50% of the maximum
bonus entitlement, the amount which exceeds 50% will be delivered
in the form of a deferred share award which vests after a period of
three years.
Payments approved by the committee under the 2013 bonus scheme
were as follows:
For Ashley Almanza, given that he assumed the CEO role in a time
of great uncertainty in June, the board asked him to focus on the
achievement of high quality underlying profi t for the portion of his
bonus relating to the fi nancial measures. In view of the part-year for
which Ashley was CEO, we judged his delivery of £442 million of
underlying operating profi t against a budget of £439 million to be “on
target”. For the portion of his bonus relating to non-fi nancial measures,
the board asked Ashley to complete a thorough assessment of the root
causes for our performance issues and to develop and implement the
changes required for long-term success. The committee and the board
noted in particular the following performance in concluding that
Ashley has earned a maximum entitlement on the non-fi nancial
element of his bonus:
– Balance sheet – an equity placement in nine days and the
aggressive management of cash-fl ow allowed us to reduce debt by
£269 million and to improve our net debt to EBITDA ratio to 2.6x.
The identifi cation of underperforming assets with plans to fi x or
dispose delivered £124 million of proceeds with more to follow.
– Risk management – developed a new risk and assurance organisation
and recruited professional staff to develop and implement new
contract management processes.
– Customer engagement – personally led the work to understand
delivery and billing issues with our UK MoJ contract. Ashley
personally interacted with the UK Government to understand
concerns and to develop a corporate renewal programme
which when fully implemented will regain the trust of this
important customer.
This renewal programme sets the highest ethical standards and
commitment to customer service as the standard behaviour
expected throughout the organisation.
– Leadership – recruited new leaders for regional roles and a high
calibre CFO to lead the transformation of the fi nance organisation
and its process and procedures.
Annual Report and Accounts 2013 G4S plc 73
Directors’ remuneration report continued
These scores lead to the following calculated bonus:
Based on his average base pay, Ashley’s maximum potential bonus
for a full year’s service would have been £1,200,000 in the event of
achievement of a stretch target, 30% of which would be attributable
to non-fi nancial objectives and the remainder to fi nancial objectives.
The payment was prorated to take account of the different levels in
base pay and the period for which he was employed, namely nine
months. £270,000 was therefore paid in respect of non-fi nancial
objectives and £378,000 for the “on target” fi nancial achievement.
In accordance with the bonus plan rules, 30.55% of the bonus paid
will be awarded as shares, deferred for three years.
The board is satisfi ed that Ashley has made very signifi cant progress
in establishing a foundation for long-term sustainable growth of
quality earnings.
Himanshu Raja did not join the group until October. Himanshu’s
objectives included strengthening the group’s audit and risk
management functions, reviewing and applying balanced accounting
judgements to the group’s assets and liabilities and assessing prior
year underlying performance, undertaking a fi nancial review of the
group’s large contracts portfolio, developing and implementing a
successful 2014 budget process and supporting the CEO with the
group’s transformation programme. The committee noted that
excellent progress was made against each of these objectives and
therefore awarded Himanshu a maximum prorated bonus of £234,375.
Based on his base pay for a full year’s service, Himanshu’s maximum
potential bonus would have been £937,500. The payment was prorated
to take account of the period for which he was employed, namely three
months. In accordance with the bonus plan rules, half of the bonus will
be paid in shares, deferred for three years.
For Grahame Gibson, the payment of a bonus under the fi nancial
portion of the annual bonus scheme was dependant on the attainment
of three fi nancial objectives relating to the Americas region (PBITA,
cash conversion and working capital reduction). Since the threshold
targets for these objectives were not met, no bonus is payable under
the fi nancial portion. For the portion of his bonus relating to non-
fi nancial measures, Grahame was set a number of strategic objectives
linked to the delivery of the Americas region’s business plan such as
portfolio management and progress on operational and fi nancial
effi ciencies, as well as a number relating to the organisation such as
succession planning and progress on health and safety. Having met
a number of his non-fi nancial objectives, Grahame was awarded a
bonus of £103,000 (paid as $147,717 and £8,608.10), which represents
16.11% of his maximum bonus entitlement.
PERFORMANCE SHARE PLAN (PSP)
The PSP values shown in the 2013 and 2012 columns of the single fi gure table relate to the PSP awards made in March 2011 and March 2010,
for the three-year EPS performance periods ended on 31 December 2013 and 31 December 2012 respectively. The performance measures and
targets for these PSP awards are set out below:
Two-thirds of each award (2010 and 2011)
One-third of each award (2010 and 2011)
Average annual growth in
EPS – Period ending on
31 December in the third year
Less than global CPI + 4% pa
Global CPI + 4% pa (12% over
3 years)
Global CPI + 4 to 12% pa
Proportion of allocation
vesting
Nil
25%
Ranking against the bespoke
comparator group by
reference to TSR
Below median
Median
Proportion of allocation
vesting
Nil
25%
Pro-rata between 25%
and 100%
Between median and
upper quartile
Pro-rata between 25%
and 100%
Greater than global CPI +
12% pa (33% over 3 years)
100%
Upper quartile
100%
The table below illustrates the company’s performance against the
2010 PSP award targets and the resulting payout, shown in the 2012
column of the single fi gure table:
The table below illustrates the company’s performance against the
2011 PSP award targets and the resulting payout, shown in the 2013
column of the single fi gure table:
Average annual growth in EPS
Relative TSR
Total vesting
Performance
Increase of
2.65% pa
Ranked
between
9th and 10th
in peer group
Vesting (% of
element)
0%
Average annual growth in EPS
0%
0% of
maximum
Relative TSR
Total vesting
Performance
Fall of
10.8% pa
Ranked
between
15th and 16th
in peer group
Vesting (% of
element)
0%
0%
0% of
maximum
74 G4S plc Annual Report and Accounts 2013
Governance
TOTAL PENSION ENTITLEMENTS (AUDITED INFORMATION)
Neither Ashley Almanza nor Himanshu Raja is a member of the company’s pension plan, which is a defi ned contribution group personal
pension plan available to all UK employees. Instead they receive cash allowances of 25% and 20% of their base pay, respectively.
Nick Buckles, Trevor Dighton and Grahame Gibson have ceased accruing pensions under the company’s defi ned benefi t scheme.
A salary supplement in lieu of pension of 40% of basic salary was paid. Their pension transfer values in the defi ned benefi ts scheme
(all fi gures are in £’000s) are shown in the table below.
Nick Buckles
Trevor Dighton
Grahame Gibson
Notes:
Pension input
amount 2013
0
0
0
Pension input
amount 2012
0
0
0
Total accrued
annual pension
at 31/12/13
0
161.7
21.7
Total accrued
annual pension
at 31/12/12
411.6
148.0
20.0
Date accrual
ceased
5/7/2011
6/4/2011
6/4/2006
Normal
retirement date
1/2/2021
30/7/2009
17/1/2013
1 Nick Buckles transferred out the value of his G4S pension benefi ts on 15 December 2013. The transfer value was calculated using the same actuarial basis as that used by
the Trustees of the Pension Scheme for all members.
2 In 2011, Grahame Gibson transferred the majority of his pension benefi ts to a private pension arrangement leaving a residual pension of £20K pa payable from age 60.
Grahame Gibson has passed normal retirement date and the accrued pension shown includes the application of a late retirement factor.
3 Trevor Dighton has passed normal retirement date and the accrued pension shown for both 2012 and 2013 include the application of a late retirement factor.
4 The earliest date when entitlement to a pension arises without consent and without actuarial reduction is age 60 (the normal retirement date). There are no additional
benefi ts available on early retirement before the normal retirement date.
SCHEME INTERESTS AWARDED DURING THE FINANCIAL YEAR (AUDITED INFORMATION)
Awards have been granted each year under the company’s Performance Share Plan (PSP), generally in March, after the announcement of the
company’s results. PSP awards were made or deemed to be made to the executive directors in March 2013, save for the additional award for
Ashley Almanza on his appointment as CEO, in accordance with the company’s normal grant policy, as shown in the table below:
Number of
shares (see
notes below
for details)
777,367
Face value
(£)
2,151,426
692,2823
2,074,998
340,3024
1,019,997
357,611
1,071,878
347,531
1,041,654
Award type
Conditional
shares
Conditional
shares
Conditional
shares
Conditional
shares
Conditional
shares
Performance
condition
50% TSR /
50% EPS
50% TSR /
50% EPS
50% TSR /
50% EPS
50% TSR /
50% EPS
50% TSR /
50% EPS
EPS
Performance
period
01/01/2013
– 31/12/2015
01/01/2013
– 31/12/2015
01/01/2013
– 31/12/2015
01/01/2013
– 31/12/2015
01/01/2013
– 31/12/2015
TSR
Performance
period
As per note 1
below
19/03/2013
– 19/03/2016
19/03/2013
– 19/03/2016
19/03/2013
– 19/03/2016
19/03/2013
– 19/03/2016
% vesting at
threshold
25%
25%
25%
25%
25%
Director
Ashley Almanza
Nick Buckles
Trevor Dighton
Grahame Gibson
Himanshu Raja
Notes:
1 Ashley Almanza was granted an award over 417,037 shares on his appointment as CFO. This award had a face value of £1,250,000 based on a share price of 299.733p.
On 21 May 2013, a further conditional share award over 360,330 shares was made when his appointment as CEO was announced. This award had a face value of
£901,426 based on a share price of 250.167p. The total number of shares awarded was calculated on a pro-rated basis. The EPS performance criteria are the same
for both awards but the TSR reference periods are different as they relate to the dates of grant.
2 Himanshu Raja was granted an award over 347,531 shares on his appointment as CFO. This award had a face value of £1,041,654 based on a share price of 299.733p.
The award is calculated on a pro-rated basis based on 30 complete months (between the appointment date and vesting date) relative to three years.
3 Nick Buckles’ award has been reduced on a time pro-rated basis to 57,690 shares to refl ect the period from the date of grant to 31 May 2013, when he ceased to be
an executive director.
4 Trevor Dighton’s award will be reduced on a time pro-rated basis to 160,698 shares to refl ect the period from date of grant to 30 July 2014, when he will cease to be
an employee.
PSP awards granted in 2013 have the following performance measures and targets:
Half of each 2013 PSP award
Proportion of
allocation vesting
Average annual growth in
EPS period ending on
31 December in the third year
Less than global CPI + 4% pa
Global CPI + 4% pa
(11% over 3 years)
Global CPI + 4 to 11% pa
Nil
25%
Half of each 2013 PSP award
Ranking against the bespoke
comparator group by
reference to TSR
Below median
Median
Proportion of allocation
vesting
Nil
25%
Pro-rata between 25%
and 100%
Between median and
upper quartile
Pro-rata between 25%
and 100%
Greater than global CPI +
11% pa (33% over 3 years)
100%
Upper quartile
100%
Annual Report and Accounts 2013 G4S plc 75
Directors’ remuneration report continued
STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTEREST (AUDITED INFORMATION)
The executive directors are required to build up a minimum shareholding in G4S, as explained in the remuneration policy. Shares are valued for
these purposes at the year-end price, which was 262.5p per share at 31 December 2013.
Number of shares owned outright
Share ownership
requirements
(% of salary)
200%
150%
100%
150%
150%
2013
100,000
1,832,0503
825,0903
0
651,682
Ashley Almanza
Nick Buckles
Trevor Dighton
Himanshu Raja
Grahame Gibson
Notes:
Share ownership
requirements met?
2012
Number of
deferred shares
held as at
31/12/2013
Total shares under
PSP awards subject
to performance4
Shares vested
(but unexercised)
PSP awards
n/a
1,832,050
1,225,090
n/a
704,685
No
Yes
Yes
No
Yes
0
0
145,161
0
7,526
777,367
795,633
683,143
347,531
963,036
0
0
55,291
0
0
1 Deferred share awards and PSP awards do not include the further shares with a value equivalent to the dividends which would have been paid in respect of shares
received. The number of shares is gross and will be subject to tax when they are released.
2 In addition to the above, each of the directors has a deemed interest in the total number of shares held by the company’s employee benefi t trust. As at 31 December
2013, the trustee of the employee benefi t trust held 6,934,564 shares (7,589,853 in 2012).
3 Number of shares owned outright shown as at 31 December 2013, except for Messrs Buckles and Dighton for whom they are shown as at 31 May 2013 and 6 June 2013
respectively. At 31 May 2013, Nick Buckles held 370, 568 deferred shares.
4 Shares under PSP awards include awards on a time pro-rated basis for Messrs Buckles and Dighton.
5 Includes any shares owned by connected persons.
6 On 12 March 2014, Himanshu Raja purchased 50,000 shares in the company. There have been no changes in the interest of each of the other directors between
31 December 2013 and the date of this report.
7 The table does not include the deferred shares which will be awarded to Ashley Almanza and Himanshu Raja in respect of the portion of their bonus which exceeds 50%
of their respective maximum bonus entitlement.
There are no requirements for the non-executive directors or
former directors to hold shares once they have left the company.
The shareholdings for non-executive directors are shown below.
John Connolly
Lord Condon1
Adam Crozier
Mark Elliott
Winnie Fok
Bo Lerenius2
Mark Seligman
Paul Spence
Clare Spottiswoode
Tim Weller
As at
31.12.2012
100,000
2,029
n/a
25,000
20,000
16,000
75,496
n/a
0
n/a
As at
31.12.2013
100,000
n/a
0
25,000
20,000
n/a
75,496
10,000
4,681
37,570
1 Interests for Lord Condon shown as at 6 June 2013.
2 Interests for Bo Lerenius shown as at 6 June 2013.
PAYMENTS TO PAST DIRECTORS
(AUDITED INFORMATION)
No payments have been made to former directors of the company
during the fi nancial year ended 31 December 2013 other than
those payments set out in the payments for loss of offi ce section.
PAYMENTS FOR LOSS OF OFFICE
(AUDITED INFORMATION)
Nick Buckles
Nick Buckles was entitled under the terms of his contract to payment
for a 12 month notice period, comprising the following elements:
– Base pay of £69,167 per month
– Car allowance of £1,667 per month
– Cash allowance in lieu of pension of £27,666 per month
The total payment made for his 12 month notice period was
£1,182,000 and was paid subject to the normal withholding of payroll
taxes. The monthly payments were made up to and including August.
In September, the balance of the payments relating to the 12 months’
notice was paid.
Nick Buckles did not receive any bonus payment, nor did he receive
any award under the PSP, for the duration of his 12-month notice
period. His unvested awards under the PSP were reduced on a time
pro-rated based on the period from the dates of grant to 31 May 2013.
The company paid for the cost of outplacement advice and services,
which was £48,000.
Non-cash benefi ts, including medical insurance of £1,892 and a gift
(valued at £12,890 exclusive of associated taxes) in recognition of his
long service were also provided to Mr Buckles.
Trevor Dighton
Trevor Dighton remained an employee after he stepped down from
the board at the conclusion of the 2013 AGM. The terms of his
employment between 7 June 2013 and 30 July 2013 were in respect of
contractual service performed and equalled his normal monthly salary.
Trevor Dighton was served notice on 24 July 2013 in accordance with
his contract of employment pursuant to which he will cease to be an
employee on 30 July 2014. Trevor Dighton is entitled under the terms
of his contract to payment comprising the following until his departure
on 30 July 2014:
– Base pay of £42,500 per month
– Car allowance of £1,333.33 per month from 1 September 2013
following the return of his company car
– Cash allowance in lieu of pension of £17,000 per month.
The total payment made for the period from 1 August 2013 to 31
December 2013 was £302,833.
The total payment due to be made for the period 1 January to 30 July
2014 is anticipated to be £425,833.
Mr Dighton has not received any bonus in respect of the year under
review. His unvested awards under the PSP will be pro-rated to
30 July 2014.
76 G4S plc Annual Report and Accounts 2013
Governance
PERFORMANCE GRAPH AND TABLE
The line graph below shows the eight-year annual Total Shareholder Return (TSR) performance against the FTSE 100 index. 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.
2006 – 2013 TOTAL SHAREHOLDER RETURN
300
250
200
150
100
50
0
06
07
08
09
10
11
12
13
G4S
FTSE 100 index
CEO’S PAY IN LAST EIGHT FINANCIAL YEARS
Year
Incumbent
CEO’s total fi gure of annual
remuneration(£’000)1
Bonus % of maximum awarded
PSP % of maximum vesting
Notes:
2006
Nick
Buckles
2007
Nick
Buckles
2008
Nick
Buckles
2009
Nick
Buckles
2010
Nick
Buckles
2011
Nick
Buckles
2012
Nick
Buckles
2013
Nick
Buckles
2013
Ashley
Almanza
1,908
76%
63%
2,269
95%
75%
2,376
83%
100%
3,248
74%
100%
2,823
53%
58%
1,542
0%
14%
1,186
0%
0%
514
0%
0%
1,459
72%
n/a
1 Nick Buckles stepped down as CEO on 31 May 2013 and Ashley Almanza took over as CEO from 1 June.
2 After July 2011, the CEO’s total single fi gure of annual remuneration included payment in lieu of pension. This was 40% of base pay for Nick Buckles and is 25% of base
pay for Ashley Almanza. Prior to July 2011, a notional sum equal to 40% of relevant base pay has been included. The value of shares that vested in the relevant year under
the PSP (or a notional value in the case of shares vested but unexercised) have been included in the prior year’s CEO’s total fi gures since that is the most relevant year
for measurement of performance.
3 Prior to 2013, the CEO’s total single fi gures did not include taxable expenses.
PERCENTAGE CHANGE IN CEO’S REMUNERATION
The table below shows how the percentage change in the CEO’s salary,
benefi ts and bonus between 2012 and 2013 compares with the
percentage change in the average of each of those components of pay
for a selected group of G4S employees. The Remuneration Committee
has chosen all employees in the UK as the group which should provide
the most appropriate comparator.
Percentage change in remuneration between
2012 and 2013
Benefi ts Annual bonus
See note 2
Salary
1.4%
0.1%
8.2%
9.7%
See note 3
CEO
Average increase for
all other UK
employees
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below illustrates the relative importance of spend on pay
compared with other disbursements from profi t.
Disbursements
Dividends paid
Total employee
costs
2013
£130m
2012
£120m
Change
8.3%
£5,441m
£5,452m
-0.2%
1 There were no share buy-backs effected in either year.
1 The CEO’s benefi ts for 2013 were calculated on a like for like basis and
therefore do not include taxable business expenses and grossed up tax and
NIC payable thereon. In future years, the comparison will include such taxable
business expenses and the baseline cost for 2013 will be £84,820.
2 There was no bonus paid to the CEO in 2012.
3 Information on bonuses is not available for all other UK employees.
G4S employs more than 618,000 employees globally. Infl ation is a key
driver of general increases in salary and the structure of the benefi ts
provided is often driven by the local market practice. Hence, as the
CEO is based in the UK, employees in the same country rather than
all employees within the group have been chosen as the comparator.
Annual Report and Accounts 2013 G4S plc 77
Directors’ remuneration report continued
STATEMENT OF IMPLEMENTATION OF
REMUNERATION POLICY IN 2014
Our Remuneration Policy for directors as set out on pages 66 to 72
will, if approved, take effect following the 2014 AGM and will then be
implemented on the basis set out in this report. Some elements of pay
for executive directors, forming a signifi cant proportion of the total
reward available, are subject to the achievement of performance
conditions.
Base pay
The committee agreed to freeze base pay for executive directors in
2009 and 2010 and again in 2012 and 2013, in view of the economic
circumstances and the pay and employment conditions across the
group. For 2014 at the annual pay review, it was decided to increase
Mr Almanza’s base pay by just under 5% whilst no change was made
to the base pay of the other two executive directors.
Annual Bonus Scheme
The annual bonus for the fi nancial year ending 31 December 2014
will be consistent with the policy detailed in the remuneration policy
section of this report in terms of the maximum bonus opportunity,
deferral and claw-back provisions. The committee selects for each
executive director, from a range of fi nancial and non-fi nancial measures
which support the group’s key strategic objectives. The range of
fi nancial measures includes group profi t, organic growth and operating
cash fl ow. The non-fi nancial measures are based on the core values
and include the following key areas:
– Health & safety
– Customer service and retention
– People and organisation
– Operational excellence
– Business development
– Values
Between 70% and 85% of the bonus will be based on fi nancial
measures and the balance will be based on non-fi nancial measures.
Details of the performance measures and targets are commercially
sensitive. They will be disclosed in the 2014 report when they are
no longer commercially sensitive.
Performance Share Plan
Awards will be granted under a new LTIP, subject to shareholder
approval at the 2014 AGM.
Details of the new LTIP are as set out in the summary of the scheme
on pages 156 and 157.
The Remuneration Committee considers that a combination of
earnings per share growth, total shareholder return and cumulative
cash fl ow targets are the most appropriate performance measures
for 2014 awards, as they provide a transparent method of assessing
the company’s performance, both in terms of underlying fi nancial
performance and returns to shareholders.
PERFORMANCE MEASURES FOR LONG TERM INCENTIVES TO BE AWARDED IN 2014
40% of each award granted
30% of each award granted
30% of each award granted
Average annual growth
in EPS – Period ending
on 31 December in
the third year
Less than 5% pa
5% pa (15% over
3 years)
+5 to 12% pa
Greater than +12% pa
(36% over 3 years)
Proportion of
allocation vesting
Nil
25%
Pro-rata between 25%
and 100%
Ranking against the
bespoke comparator
group by reference
to TSR
Below median
Proportion of
allocation vesting
Nil
Average operating
cash fl ow
<105%
Proportion of
allocation vesting
Nil
Median
Between median and
upper quartile
25%
Pro-rata between 25%
and 100%
105%
Between 105%
and 125%
25%
Pro-rata between 25%
and 100%
100%
Upper quartile
100%
125%
100%
The company’s current policy is to use market purchased shares to
satisfy performance share plan awards. The new plan will continue to
do the same.
Participants in the LTIP will receive a further share award with a value
equivalent to the dividends which would have been paid in respect of
future LTIP award vesting at the end of the performance period.
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.
Adjustments to the EPS will be made in respect of:
– Constant exchange rates – which will be normalised to the rates in
the base year
– Acquisition – earnings will be added to the EPS base at the level
used in the acquisition business case
– Disposal – earnings will be removed from the EPS base at the
business plan rate
– Share buy back – the company will only execute buy-backs if the
investment is economically accretive and it is in the interest of
the company. The adjusted EPS for the purposes of calculating
performance against the LTIP target shall be further adjusted by
(a) Increasing the average number of shares in issue during the
performance year by the number of shares bought back during
the past three years
(b) Decreasing the net interest cost in the performance year in
respect of the interest charge on the cash cost of any share buy
backs during the past three years. Interest will be calculated at
the group’s average costs of funds for the year.
The Remuneration Committee will apply discretion in the event of
impairment, if the impairment is not a result of management failure,
then it does not impact the payout.
The Remuneration Committee may alter the terms of the EPS measure
if it feels that it is no longer a fair measure and is no longer incentivising.
Operating cash fl ow is a measure taken before capital expenditure
and investments to ensure that management is not incentivised to
under-invest in growth opportunities. Operating cash fl ow is expressed
as EBITDA +/- working capital and provisions movement as a
percentage of EBITA. Average operating cash fl ow is the average
over three years.
TSR ranking will be verifi ed externally.
Non-executive directors’ remuneration
The fees payable to the non-executive directors are set by the
executive directors and the chairman. The fees payable to the
non-executive chairman are set by the Remuneration Committee.
In both cases, fees are reviewed mid-year.
78 G4S plc Annual Report and Accounts 2013
Governance
ADVISERS TO THE REMUNERATION COMMITTEE
For the period to October 2013, the Remuneration Committee
received advice from Towers Watson Limited as the committee’s
appointed adviser on executive and senior management remuneration
matters. After a tendering process, the Remuneration Committee
appointed Deloitte as its independent adviser on 17 October 2013.
Towers Watson has also provided and will continue to provide
management remuneration information in respect of senior
management below the level of the group executive committee.
The Remuneration Committee has satisfi ed itself as to the
independence of Deloitte. Deloitte is a member of the Remuneration
Consultants Group and as such, voluntarily operates under the code
of conduct in the UK.
Adviser
Towers Watson
Services provided to Rem Co
Advice on executive remuneration and
pay benchmarking
Deloitte
Advice on executive remuneration
Alithos
TSR – vesting indications for in-fl ight plans
and verifying the TSR vesting percentage and advice
on potential peer group constituents
Herbert Smith Freehills LLP (HSF) provided legal advice to the
company throughout the year, including in relation to the operation
of the company’s incentive arrangements and on executive directors’
service agreements. This advice was available to be considered by the
Remuneration Committee. HSF has also advised the Remuneration
Committee on compliance with the new regulations relating to
directors’ remuneration.
The CEO (Nick Buckles to 31 May 2013 and from 1 June 2013,
Ashley Almanza) provided guidance to the Remuneration Committee
on remuneration packages for senior executives within the group.
Further guidance was received from the group’s HR director, Irene
Cowden, and the director of compensation and benefi ts Sok Wah Lee.
Neither the CEO nor the HR director participated in discussions
regarding their own remuneration.
The Remuneration Committee is satisfi ed that the advice it received
during the year was objective and independent based on the
experience of its members generally.
The table below sets out the members of the Remuneration
Committee who were present during any consideration of directors’
remuneration, and shows the number of meetings attended by
each director:
Name
Lord Condon
Mark Elliott
Winnie Fok
Mark Seligman
Clare Spottiswoode
Number of meetings attended
3/3
6/6
6/6
6/6
5/6
Other services provided to company
Provision of market remuneration data for senior
management and collation of pension data for
accounting purposes
Employment tax advice on expatriate and share
plans along with corporate tax advice and other
consulting services provided by different parts of
Deloitte.
None
Fees
£51,000
£23,250
£10,500
STATEMENT OF VOTING AT GENERAL MEETING
An ordinary resolution to receive and approve the Directors’
Remuneration report contained in the annual report for the year
ended 31 December 2012 was passed at the company’s annual
general meeting which took place on 6 June 2013, with 78.4% of the
votes in favour and 21.58% against. 28,733,156 votes were withheld.
It is believed that many of the votes against and abstentions were
prompted by a recommendation from one of the proxy adviser fi rms
which expressed concern about an increase in the PSP allocations in
2013. The then chairman of the Remuneration Committee and his
successor have consulted widely with key shareholders and shareholder
representatives to explain the rationale for the policy adopted in 2013
and that proposed for the future.
Following his appointment as chairman of the Remuneration
Committee, Mark Elliott has also undertaken an extensive process
of consultation with major shareholders on the proposed new LTIP.
Mark Elliott
Chairman of the Remuneration Committee
31 March 2014
Annual Report and Accounts 2013 G4S plc 79
Directors’ report
For the year ended 31 December 2013
– In January 2014, G4S Cash Solutions (Canada) Limited was
This is the report of the directors of the board of G4S plc for the year
ended 31 December 2013.
1. THE COMPANY
G4S plc is a parent company with subsidiaries, associated undertakings
and joint ventures in numerous jurisdictions. G4S plc has its primary
listing on the London Stock Exchange and a secondary listing on the
NASDAQ OMX exchange in Copenhagen.
2. REPORTING OBLIGATIONS
In compliance with relevant listing rules and in particular DTR4.1.5.R
and DTR4.1.8R, the annual report contains the consolidated result for
the year, shown in the consolidated income statement on page 94,
a management statement contained in the Strategic Report and in the
Directors’ report and responsibility statements on pages 80 to 83.
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 a management
report are contained on pages 4 to 7 of the Strategic Report and
are incorporated by reference in this Report of the Directors. The
Corporate Governance report, the Audit Committee report, the
Directors’ Remuneration report set out on pages 64 to 79 and the
Chief Financial Offi cer’s review on pages 84 to 89 are 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 32 to the consolidated fi nancial statements
on pages 124 to 127 which is also incorporated by reference in the
Report of the Directors.
3. DIVIDENDS
The directors propose the following net dividend for the year:
– Interim dividend of 3.42p (DKK 0.2972) per share paid on
18 October 2013
– Final dividend of 5.54p (0.4954DKK ) per share payable on
13 June 2014
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 2 May 2014.
4. SIGNIFICANT BUSINESS ACQUISITIONS, DISPOSALS
AND DEVELOPMENTS
– In January 2013, Deposita Systems (Pty) was acquired in South Africa
– In February 2013, a settlement agreement was entered into with
LOCOG in the UK in relation to the Olympics contract
– In August 2013, G4S plc completed a placing of shares which
resulted in the issue of 140,925,797 new ordinary shares of 25
pence each at a price of 247 pence per placing share raising gross
proceeds of approximately £348.1 million
– In September 2013, G4S Secure Data Solutions Colombia S.A.S
and G4S Document Delivery S.A.S were disposed of in Colombia
disposed of in Canada
– In January 2014, G4S Holdings (Norway) AS was disposed of in
Norway
– In March 2014, a settlement agreement was entered into with the
Ministry of Justice in the UK in relation to contracts for electronic
monitoring services provided between 2005 and 2013 and two
facilities management contracts.
5. CAPITAL
Following the issue on 28 August 2013 of 140,925,797 new ordinary
shares in the company’s capital (the “Placing”), representing
approximately 9.99 per cent of the company’s issued share capital prior
to the Placing, the issued share capital of G4S plc at 31 December
2013 consisted of 1,551,594,436 ordinary shares of 25 pence each.
The number of shares in issue as at 31 March 2014 remains unchanged.
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 151 and 152 and further
explanation is provided on pages 154 to 157. At 31 December 2013
the directors had authority in accordance with a resolution passed at
the company’s annual general meeting held on 6 June 2013 to make
market purchases of up to 141,066,000 of the company’s shares.
The company does not hold any treasury shares as such. However, the
6,934,564 shares held within the G4S Employee Benefi t Trust (“the
Trust”) and referred to on page 137 (note 37 to the consolidated
fi nancial statements) are accounted for as treasury shares. The Trust
has waived its right to receive dividends in respect of the company’s
shares which it held during the period under review.
6. SIGNIFICANT AGREEMENTS
The company is party to a GBP1,100,000,000 multi-currency revolving
credit facility agreement which requires prompt notifi cation of a change
of control event following which funds committed but unutilised could
be cancelled and repayment of outstanding commitments would need
to be made within 45 days.
The company entered into two US Private Placement Note Purchase
Agreements (the “USPP Agreements”), on 1 March 2007 and 15 July
2008 respectively. The fi rst USPP Agreement is for USD 550,000,000
and series A-D senior notes mature between 1 March 2014 and 1
March 2022. The second USPP Agreement is for USD 513,500,000
and GBP 69,000,000 and series B-F senior notes representing USD
448,500,000 and GBP 69,000,000 remain outstanding and will mature
between 15 July 2015 and 15 July 2020. Under the terms of both USPP
Agreements, the company is required to offer the note holders to
purchase the notes at par value together with interest thereon upon
a change of control.
Under the terms of the GBP 2,000,000,000 Euro Medium Term Note
Programme under which the company issued three tranches of
Medium Term Notes (MTNs) to various institutions on 13 May 2009
(GBP 350,000,000), 2 May 2012 (Euro 600,000,000) and 6 December
2012 (Euro 500,000,000), In the event of a change of control, a put
option comes into force, according to which holders of any MTN
may require the company to redeem the MTNs at par if the MTNs
carry a sub-investment grade in the period immediately prior to the
change of control, or in certain circumstances where the MTNs are
downgraded to sub-investment as a result of the change of control.
80 G4S plc Annual Report and Accounts 2013
Governance
10. POLITICAL DONATIONS
Each year shareholders of the company have passed a resolution, on
a precautionary basis, to allow the company and its subsidiaries to
make political donations to political organisations or incur political
expenditure not exceeding £50,000. However, the board confi rms that
the group’s policy is not to make any fi nancial contribution to political
parties and that 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, or anywhere else in
the world.
11. GREENHOUSE GAS EMISSIONS
Our customers and employees demonstrate increasing concern for
environmental issues. Whilst our environmental impact is not signifi cant
relative to other businesses of comparable size, it remains important
to us to be effi cient in the use of resources and, in doing so, to curtail,
where possible, our greenhouse gas emissions. We are required to
state the annual quantity of emissions in tonnes of carbon dioxide
equivalent from activities for which the group is responsible, including
the combustion of fuel and the operation of any facility. Details of our
emissions for 2013 and information about the group’s actions to reduce
them are set out on page 46 and form part of the Directors’ report.
For further details of our Climate Action Programme and the
methodology used, please refer to our 2013 CSR report or visit
www.g4s.com/cap
12. SUBSTANTIAL HOLDINGS
The company had been notifi ed under DTR 5 of the following interests
in the ordinary capital of G4S plc:
As at 31.12.2013
Invesco
Cevian Capital II G.P Limited
Tweedy, Brown Company LLC
William H Gates III
250,071,735(16.11%)
72,142,365 (5.11%)*
71,420,862 (5.06%)*
45,224,081 (3.2%)*
These fi gures represent the number of shares and percentage held as at the date
of notifi cation to the company.
* Notifi cations received prior to the increase in the company’s share capital on
28 August 2013. These percentages were therefore based on the lower number
of shares in issue at that time.
Between 1.1.2014 and 31.3.2014
Prudential plc group of companies
82,292,546 (5.30%)
13. 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.
7. 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 profi t and loss during the year amounted to £5 million (2012:
£5 million).
8. EMPLOYEES
High levels of employee engagement are crucial to the success of our
business. Making our people feel valued and able to contribute fully in
their roles helps ensure they can deliver excellent customer service and
in turn improves business performance.
To measure levels of engagement the company conducts regular
employee surveys across the organisation. The latest survey, conducted
in 2013, was the most comprehensive to date, with over 62% (380,000)
of employees responding. To encourage employees to participate, the
survey was offered both online and in a paper version in 31 languages.
The questions in the survey were based around the employment
engagement model, or PRIDE, and asked employees to rate the extent
to which the company takes steps to protect, respect, involve, develop
and engage them. The responses to these questions showed positive
improvements, with 82% of employees responding favourably
compared to 80% when the last employee survey was conducted in
2011. Having shared the survey results, businesses in each country are
now implementing the action plans they have developed to address
areas identifi ed for improvement.
We value the constructive relationships we have with unions globally,
regionally and locally. With over a third of our employees covered by
collective agreements, unions provide additional opportunities for
sharing information with employees on the company’s performance
and consulting them on decisions likely to affect their interests.
Protecting our people is a key challenge especially where they work in
roles and environments where the risk of harm is high. As the reduction
in work-related fatalities indicates, we have made some progress in
2013, but there is much more to be done. In 2014 the increased
resources, improved processes and leadership commitment to health
and safety will ensure more progress is made.
With employees in six continents and 120 countries, the diversity of
ideas and thinking available to the business is a competitive advantage
and one we seek to safeguard by having employment policies and
procedures that do not discriminate. Creating an inclusive workplace
where everyone can fl ourish regardless of their background is often an
important factor that infl uences people’s decision to join, to stay and to
recommend the company to others. Offering the same opportunities
for training, development and promotion and making reasonable
adjustments to support new employees or people who have become
disabled during the course of their employment with G4S is just one
example of how we strive to create an inclusive environment.
9. FINANCIAL INSTRUMENTS
Details of the fi nancial risk management objectives and policies of the
group and exposure to interest risk, credit risk, liquidity risk and foreign
exchange risk are given in note 32 to the consolidated fi nancial
statements.
Annual Report and Accounts 2013 G4S plc 81
Directors’ report continued
14. DIRECTORS
The directors, biographical details of whom are contained on pages
48 and 49, held offi ce throughout the year with the exception of
Tim Weller who was appointed to the board on 1 April 2013, Ashley
Almanza, who was appointed to the board on 1 May 2013, and
Himanshu Raja who was appointed to the board on 7 October 2013.
Nick Buckles stepped down from the board on 31 May 2013 and
Trevor Dighton, Bo Lerenius and Lord Condon retired on 6 June 2013.
In accordance with the code provisions on re-election of directors
in the UK Corporate Governance Code 2012, each of the directors
continuing in offi ce will offer themselves for re-election (or, in the case
of Himanshu Raja, 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.
Mr Raja has been appointed to the board since the last annual general
meeting and so he would, in any event, be required to retire in
accordance with the company’s articles of association. Being eligible, he
offers himself for election. The board believes that Mr Raja’s extensive
experience of leading fi nancial discipline in large and complex global
organisations, strong track record of streamlining fi nancial reporting
systems and processes to improve controls and visibility of business
performance and building strong relationships with the investor
community, adds signifi cant value to the board and therefore
recommends that he 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 Mark Elliott, Mark Seligman and Grahame Gibson, 14 June 2010
for Ms Spottiswoode, 1 October 2010 for Ms Fok, 8 June 2012 for
Mr Connolly, 1 January 2013 for Messrs Spence and Crozier, 1 April
2013 for Mr Weller, 1 May 2013 for Mr Almanza and 7 October 2013
for Mr Raja. 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 the UK, 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 the interests of their connected
persons) in the share capital of G4S plc and of the directors’
remuneration are set out on pages 64 to 79.
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
Company Secretary
31 March 2014
82 G4S plc Annual Report and Accounts 2013
Directors’ responsibilities
Governance
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE ANNUAL REPORT AND THE
FINANCIAL STATEMENTS
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.
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:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– for the group fi nancial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the EU;
– 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
– 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 Strategic Report, 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 48
and 49 of this annual report, confi rms 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 management report required by DTR4.1.8R (contained in the
Strategic Report and the Directors’ report) 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 Strategic Report from the inside front cover to page 47 and pages
84 to 89 includes information on the group structure, the performance
of the business and the principal risks and uncertainties it faces. The
fi nancial statements on pages 94 to 150 include information on the
group and the company’s fi nancial results, fi nancial outlook, cash fl ow
and net debt and balance sheet positions. Notes 23, 27, 28, 31 and 32
to the consolidated fi nancial statements include information on the
group’s investments, cash and cash equivalents, borrowings, derivatives,
fi nancial risk management objectives, hedging policies and exposure to
interest, foreign exchange, credit, liquidity and market risks. In addition
to the above, the directors have considered the group’s cash fl ow
forecasts for the next 12 months. The directors are satisfi ed that
these cash fl ow forecasts, taking into account reasonably possible risk
sensitivities associated with them and the group’s current funding and
facilities and its funding strategy, show that the group will continue to
operate for the foreseeable future.
Accordingly, the directors have a reasonable expectation that the group
and company will continue to operate within the level of available
funding for the foreseeable future and it is therefore appropriate to
adopt the going concern basis in preparing the fi nancial statements.
The directors consider that the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the company’s performance,
business model and strategy.
The statement of directors’ responsibilities and the Strategic Report
was approved by a duly authorised committee of the board of
directors on 31 March 2014 and signed on its behalf by Himanshu
Raja, chief fi nancial offi cer.
31 March 2014
Annual Report and Accounts 2013 G4S plc 83
Chief Financial Offi cer’s review
A solid underlying
performance
This section presents a summary of our fi nancial
performance, providing commentary on the group’s
underlying and reported results. During the year, the
group took the opportunity to enhance its results
presentation by separately disclosing the underlying
business performance from restructuring and other
specifi c items.
Himanshu Raja
Chief Financial Offi cer
We also carried out a global fi nancial review of 163 contracts with
annualised revenues of around £2bn which together with the
settlement for the UK Electronic Monitoring contracts and two
smaller contracts resulted in a £136m charge.
The balance sheet and contract reviews, together with the settlement
with the MoJ and our restructuring programmes, resulted in a £386m
charge to profi ts in 2013 and contributed to a decrease in net assets,
which fell to £919m (2012: £1,231m).
The resulting total PBITA for the year was £56m (2012: £364m).
Cash fl ow from continuing operations improved by 36% to £460m.
The group has previously highlighted its focus on cash and free cash
fl ow, and this remains a key target in 2014.
During the year, we also strengthened the fi nancial position of the
group. The group raised £343m from a 9.99% share placing in August
and has taken a disciplined approach to managing the portfolio of G4S
businesses. We disposed of our Colombia secure archiving business.
Together, these steps helped to reduce net debt to £1,533m as at
31 December 2013. This has also improved the group’s net debt
to EBITDA ratio to 2.6x. Since the end of the year, we have also
completed the divestment of businesses in Norway and Canada,
raising net proceeds of £89m.
Underlying EPS was 14.7p against 15.8p in 2012 and total loss per
share was 24.9p, compared with earnings per share of 2.9p in 2012.
The group has declared a fi nal dividend of 5.54p (2012: 5.54p), making
the total dividend for the year 8.96p (2012: 8.96p).
“ Our strong market positions and focus on
operational excellence, operating cost reduction
and cash fl ow generation, provide a platform for
sustainable growth in profi t and cash fl ow in the
medium term.”
INTRODUCTION
The continued opportunities we see in our emerging and developed
markets are mirrored in the fi nancial results. The group’s underlying
revenue increased by 5.8%. Emerging markets grew by 16% and now
represent 37% of the group’s total revenue and 44% of the group’s
underlying PBITA. In our developed markets, revenue overall was fl at
on 2012, with growth of 2% in the UK & Ireland, no change in North
America and Europe down 2%.
Underlying PBITA was £442m1, an increase on £430m2 in 2012,
refl ecting solid progress during the year. In the fourth quarter, we
accelerated the restructuring of some of our businesses which, together
with the actions taken in the fi rst-half, resulted in a restructuring
charge of £68m for the full year. This will help to improve the market
competitiveness of those businesses and improve profi tability, with
paybacks generally in the range of 12-36 months.
In terms of specifi c items, we undertook an extensive review of the
balance sheet to assess the carrying value of the group’s assets and
liabilities. This resulted in a total specifi c items charge of £182m to
PBITA and a £46m charge to goodwill impairment. The balance sheet
at 31 December 2013 is therefore on a more balanced footing.
84 G4S plc Annual Report and Accounts 2013
Financial statements
Strengthening our capability
The group has grown rapidly, both organically and through acquisition,
resulting in considerable variation in fi nancial capability, operational
systems and processes across the world, including manual processes.
include programmes on direct labour effi ciency, organisational effi ciency,
vehicle route planning, telematics, IT standardisation and procurement.
Over time this will drive operational improvement and reduce costs at
the same time.
We are committed to maintaining disciplined fi nancial management.
We have begun a process of change to signifi cantly strengthen our
fi nance capability by bringing in people with experience of operating
in a global fi nance organisation. We are also moving to regional shared
service centres which will further strengthen the control environment
and bring greater consistency to our fi nance operations, whilst at the
same time reducing costs. The shared service centres will act as a
platform to bring further activities into shared service environments
to get the benefi ts of scale in being part of a large global organisation.
On the operational front, we are committed to standardising certain
operational processes and procedures across the business. These
Outlook
Demand for the group’s services and products remains robust, as
refl ected in 5.8% revenue growth and the potential in the global sales
pipeline of £5 billion. (see page 19).
Our focus in 2014 is to continue to invest in organic growth and
operational capacity and for the on-going and accelerated restructuring
of a number of our businesses to begin to deliver benefi ts in 2014.
In the medium term we expect the group to deliver attractive revenue
growth and we expect that operational actions across a wide range
of areas will underpin our plans to deliver sustainable growth in profi t
and cash fl ow in the medium term.
BASIS OF PREPARATION
The following discussion and analysis is based on, and should be read
in conjunction with, the consolidated fi nancial statements, including the
related notes, that form part of this annual report. The consolidated
fi nancial statements have been prepared in accordance with IFRS
as issued by the IASB and as adopted by the EU. A reconciliation of
non-EU IFRS prior period results is set out on page 86.
GROUP FINANCIAL PERFORMANCE
Summary Income Statement
Revenue
PBITA (pre-restructuring)
Restructuring
PBITA
Amortisation of intangible assets
Goodwill impairment
Acquisition related expenses
Profi t on disposal of assets and subsidiaries
PBIT
Net fi nance expenses
PBT
Tax
PAT
Loss from discontinued operations
Profi t/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profi t/(loss) for the year
Earnings per share: Basic and diluted
Underlying
results
2013
£m
7,428
442
–
442
–
–
–
–
442
(128)
314
(75)
239
–
239
214
25
239
14.7p
Specifi c
items
2013
£m
(318)
(68)
(386)
(72)
(46)
(4)
24
(484)
–
(484)
19
(465)
(116)
(581)
(576)
(5)
(581)
Total
2013
£m
7,428
124
(68)
56
(72)
(46)
(4)
24
(42)
(128)
(170)
(56)
(226)
(116)
(342)
(362)
20
(342)
(24.9p)
Underlying
results
20122
£m
7,024
430
–
430
–
–
–
–
430
(117)
313
(69)
244
–
244
222
22
244
15.8p
Refer to footnotes on page 89
Annual Report and Accounts 2013 G4S plc 85
Chief Financial Offi cer’s review continued
Prior year reconciliation from total to underlying results
Prior year results have been re-presented to clearly show the impact
of net charges arising from the balance sheet review of assets and
liabilities performed in 2013 (more details are given in note 3),
restructuring costs and the Olympics contract. The group considers
that this presentation provides readers with a clearer understanding
of comparative underlying performance and trends. A reconciliation
of reported statutory results to underlying results is set out below.
The £40m prior year impact of the review of assets and liabilities
in 2013 relates mainly to a write-down of receivables and
obsolescent inventory.
December 2012
Revenue
£m
PBITA
£m
Total results as reported in the
income statement
Foreign exchange
Total results as reported at current
exchange rates
Exclude impact of Olympics contract
Add back: restructuring costs
Less: One-off credits
2012 results at current rates
Impairment of fi xed assets
Current asset write-downs
Impairment of receivables
Creditors, claims and provisions
Total prior year impact of review
of assets and liabilities in 2013
Underlying 2012 results at
current rates
7,228
8
7,236
(204)
–
–
7,032
–
–
(8)
–
(8)
7,024
364
–
364
88
42
(24)
470
(3)
(4)
(28)
(5)
(40)
430
Revenue
Organic growth was 4.7%. Contributions from acquisitions in South
Africa and Indonesia in 2013 and a current year benefi t from
acquisitions in Brazil in 2012 helped the group’s underlying revenue
increase by 5.8%. Emerging markets grew by 16% and now represent
37% of the group’s total revenue (2012: 34%). In our developed
markets, revenue overall was fl at on 2012, with 2% growth in the UK,
no change in North America and Europe down 2%.
Gross margin
Revenue
Cost of sales
Gross profi t
Gross margin (%)
2013
£m
7,428
(5,941)
1,487
20.0%
2012
£m
7,024
(5,563)
1,461
20.8%
Underlying gross margin declined by 80 basis points to 20.0%
(2012: 20.8%) for the year ended 31 December 2013. Developed
markets declined 120 basis points to 18.8% (2012: 20.0%) mainly as
a result of challenging economic conditions in the UK and Europe
and the impact of Federal spending cuts affecting both our secure
solutions and technologies businesses in the US. Emerging markets
gross margins were broadly in line at 22.1% (2012: 22.4%), the decline
was in Africa with margins effectively maintained in Latin America and
Asia Middle East.
Underlying revenue in the prior year excludes specifi c items.
Underlying cost of sales in both years excludes specifi c items as
described in note 8 on page 108.
PBITA
Group underlying PBITA was £442m1, an increase of 2.8% on the
prior year (2012: £430m)2. Emerging markets generated 44% of PBITA
(2012: 36%). See the Business review on pages 28 to 33.
The underlying PBITA margin was 6.0% (2012: 6.1%).
Specifi c items
Specifi c items have been excluded from the underlying results to
provide a clear comparison of the underlying trading performance
of the group. Those items are set out below:
Contracts review
Review of assets and liabilities
Impairment of fi xed assets
Current asset write-downs
Impairment of receivables
Creditors, claims and provisions
Total review of assets and
liabilities
Subtotal
Restructuring
Total specifi c items
As at 30
June
2013
£m
–
Since 30
June
2013
£m
136
As at 31
December
2013
£m
136
23
17
52
40
132
132
4
136
3
17
7
23
50
186
64
250
26
34
59
63
182
318
68
386
Contracts review
A global fi nancial review of 163 contracts with annualised revenues
of around £2bn, which together with the settlement for the UK
Electronic Monitoring contracts and two smaller contracts resulted
in a £136m charge.
Review of assets and liabilities
A review of the group’s assets and liabilities was initiated in the fi rst
half of 2013, resulting in a PBITA charge of £132m. This was extended
to cover all legal entities during the second half of the year. Completion
of this review resulted in a further charge of £50m, bringing the
full-year charge to PBITA of £182m. The total charge related principally
to impairment of fi xed assets, inventory obsolescence, write down
of receivables and the recognition of employer related liabilities.
The group’s balance sheet is therefore on a more balanced footing
as at 31 December 2013.
Restructuring
Following the strategic review over the summer, we identifi ed
opportunities to signifi cantly enhance the competitiveness of some
of our businesses and to reduce overheads, specifi cally in the UK &
Ireland and in certain European operations, resulting in £35m of
restructuring programmes announced in August 2013.
Acceleration of the restructuring programme in the fourth quarter,
primarily in the Netherlands, Belgium and Finland, resulted in additional
charges of £33m.
Amortisation and impairment
Acquisition-related intangible assets included in the balance sheet at
31 December 2013 consisted of £1,966m goodwill, £137m customer-
related intangible assets and £4m other intangible assets.
The charge for the year for the amortisation of acquisition-related
intangible assets other than goodwill amounted to £72m (2012: £84m).
Goodwill is not amortised, but it is tested for impairment annually. As a
result of the group’s impairment test for the year ended 31 December
2013, the group incurred an impairment charge of £46m to continuing
operations (mainly relating to the technology business in Brazil; see
note 19 on page 117 for details) and a further £80m to discontinued
operations (relating to the US Government Solutions business; see
note 7 on page 108 for details).
86 G4S plc Annual Report and Accounts 2013
Financial statements
Non-controlling interests
Profi t attributable to non-controlling interests was £20m in 2013, a
slight decrease on £22m for 2012, mainly due to the partners’ share
of specifi c charges in the year.
Loss for the year
The group made a loss of £342m (2012: profi t of £62m) for the
year after specifi c items, interest, tax, amortisation and the results of
discontinued operations.
Earnings per share (EPS)
Underlying1 earnings per share
20122
at constant
exchange
rates
£m
244
(22)
20122
at actual
exchange
rates
£m
244
(22)
222
1,403
15.8p
222
1,403
15.8p
2013
£m
239
(25)
214
1,452
14.7p
Total3 (loss)/earnings per share
2012
at constant
exchange
rates
£m
62
(22)
2012
at actual
exchange
rates
£m
62
(22)
40
1,403
2.9p
40
1,403
2.9p
2013
£m
(342)
(20)
(362)
1,452
(24.9)p
Profi t for the year
Non-controlling interests
Adjusted profi t attributable
to shareholders
Average number of
shares (m)
EPS (p)
Los/(profi t) for the year
Non-controlling interests
Adjusted (loss)/profi t
attributable to shareholders
Average number of
shares (m)
EPS (p)
Underlying earnings per share was 14.7p compared to 15.8p in the
prior year. Total loss per share was 24.9p (2012: earnings per share
2.9p). These are based on a weighted average number of shares in
issue of 1,452 million (2012: 1,403 million).
A reconciliation of the total and underlying EPS is provided in
note 16. Underlying earnings, as analysed in note 16 on page 112,
excludes the result from discontinued operations, amortisation and
impairment of acquisition-related intangible assets, acquisition-related
costs and non-underlying items, all net of tax. This better allows the
assessment of operational performance, the analysis of trends over
time, the comparison of different businesses and the projection of
future performance.
Net fi nance expense
Net interest payable on net debt was £108m. This is a net increase
of 2.9% over the prior year cost of £105m, principally due to the
increase in the group’s average gross debt in the fi rst-half of the year.
The pension interest charge was £20m (2012: £15m), resulting in total
net fi nance costs of £128m (2012: £120m).
The group’s average cost of gross borrowings in 2013, net of interest
rate hedging, was 4.1%, compared to 4.3% in 2012. The cost based on
prevailing interest rates at 31 December 2013 was 3.7%, compared to
3.9% at 31 December 2012.
Taxation
The underlying taxation charge of £75m represents an effective tax
rate of 24%, an increase from 22% in 2012. The cash tax rate is
18% compared to 23% in 2012.
The group’s target is to maintain the effective tax rate in the short
term. 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 £21m
(2012: £25m).
Disposals and discontinued operations
In August 2013, the group sold its Colombian secure archiving business
for £34m and its cash business in Slovakia for £1m. In January 2014
the group completed the sale of its cash solutions business in Canada
and its remaining business in Norway for total proceeds of £89m.
The cash solutions business in Canada, the business in Norway and the
US Government Solutions business were classifi ed as held for sale as
at 31 December 2013 and therefore their results have been included
within discontinued operations in the income statement.
The classifi ed US Government Solutions business continues to be
classifi ed within discontinued operations as at 31 December 2013 as
it was held for sale at that date. Due to the restrictions on US
Government spend during the year, the sale process has been
extended but the group is confi dent a sale will be fi nalised in 2014.
During the prior year the group disposed of its cash solutions business
in Sweden in February 2012, its businesses in Poland in September
2012, its justice services businesses in the United States and Canada
in April 2012 and its security solutions business in Pakistan in
October 2012.
The total loss from discontinued operations of £116m (2012: £56m)
includes a post-tax trading loss of £11m, restructuring costs of £2m
and an impairment charge of £103m, of which £80m relates to
goodwill impairment in the US Government Solutions business.
The contribution to the turnover and operating profi t of the group
from discontinued operations is shown in note 6 on page 106 and
their contribution to net profi t and cash fl ows is detailed in note 7
on page 108.
Consolidation of subsidiaries
The group has a diverse set of complex ownership structures, often
driven by local laws and regulations relating to foreign ownership.
As set out in note 3 and on pages 103 to 104, the group has not
adopted early the new consolidation standards, IFRS 10 ‘Consolidated
Financial Statements’ and IFRS 11 ‘Joint Arrangements’. Had the group
applied IFRS 10 and IFRS 11, revenue would have been £317m lower
(2012: £277m lower) and PBITA would have been £32m lower at
£410 (2012: £27m lower at £443m). As shown on page 104, profi t
to equity holders would have been unchanged.
Refer to footnotes on page 89
Annual Report and Accounts 2013 G4S plc 87
Chief Financial Offi cer’s review continued
Cash fl ow
A reconciliation of net cash generated by continuing operations to
movement in net debt is presented below:
Net debt maturity
The group’s funding position is strong, with committed but undrawn
facilities of £965m and with no signifi cant debt maturing before 2016.
PBITA
Non-cash movements
Depreciation
Amortisation of other intangible assets
Write down of fi xed assets
Increase/(decrease) in provisions
Working capital and pensions
Working capital
Pensions
Cash fl ow from continuing operations
Cash from discontinued operations
Net cash generated by operations:
Investment in the business
Investment in capital expenditure and
non-current assets
New fi nance leases
Disposal proceeds
Acquisitions
Net investment in the business
Net cash fl ow after investing in the business
Other (uses)/sources of funds
Net fi nancing
Tax
Dividends
Share capital
Other
Net sources/(uses) of funds
Net cash fl ow after investment, fi nancing
and tax
Net debt at beginning of period
Foreign exchange
Net debt at end of period
2013
£m
56
118
24
24
189
87
(38)
460
28
488
(199)
(12)
35
(35)
(211)
277
(110)
(88)
(154)
343
16
7
2012
£m
364
117
22
–
(5)
(124)
(37)
337
35
372
(137)
(21)
19
(87)
(226)
146
(111)
(85)
(139)
–
3
(332)
284
(1,802)
(15)
(1,533)
(186)
(1,616)
–
(1,802)
Cash generated from continuing operations was £460m (2012: £337m)
resulting from improved working capital management and the receipt
of £76m relating to the Olympics contract, offset by approximately
£60m of payments which were deferred from December 2012 to
January 2013 and from £27m of receivables withheld as at the year-end
in relation to the UK electronic monitoring contracts.
Net investment in the business was £211m (2012: £226m). The main
areas of investment have been in vehicles and plant and equipment,
together with investment in new contracts and also includes £35m on
acquisitions, mainly in the fi rst-half of 2013, with a number of smaller
cash solutions acquisitions in South Africa and Indonesia.
Tax paid was £88m (2012: £85m), interest paid was £110m (2012:
£111m) and group shareholder dividend payments were £130m
(2012: £120m).
Net cash fl ow was £284m (2012: outfl ow of £186m) resulting in an
improved net debt of £1,533m.
Net debt
The net debt position as at 31 December 2013 was £1,533m (2012:
£1,802m) resulting in a net debt to EBITDA ratio of 2.6x. The decrease
of £269m is principally attributable to the improvement in net cash
fl ow after investing in the business and the proceeds of the share
placing, offset by interest, tax and dividend payments.
COMMITTED FUNDING –
MATURITY PROFILE (£m) at 31 December 2013*
1200
1000
800
600
400
200
0
135
965
495 409
121 174
350
88
45
63
2017
2018
2019
2020
2021
2022
60
76
2014
2015
25
2016
USPP
Bond
RCF
RCF drawn
* Exchange rates at 31 December 2013 or hedged rates where applicable.
The group’s primary sources of bank fi nance are a £1.1bn multi-
currency revolving credit facility provided by a consortium of lending
banks at a margin of 1.30% over LIBOR and maturing 10 March 2016.
The group also has US $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 US $514m and £69m
private placement of unsecured senior loan notes. $449m and £69m
remain outstanding, maturing at various dates between 2015 and 2020
and bearing interest at rates between 6.43% and 7.56%. US $200m of
the loan note proceeds have been swapped into £101m fi xed rate
sterling for the term of the notes.
On 13 May 2009, the group issued a £350m note bearing an interest
rate of 7.75% and maturing in 2019.
On 2 May 2012, the group issued a Euro 600m note bearing an interest
rate of 2.875% and maturing in 2017. €325m was swapped into £266m
fi xed rate sterling and the interest rate on €90m was swapped to a
fl oating rate linked to six month EURIBOR.
On 6 December 2012, the group issued a €500m note bearing an
interest rate of 2.625% and maturing in 2018. €350m was swapped
into £284m fi xed rate sterling and the interest rate on €120m was
swapped to a fl oating rate linked to six month EURIBOR.
The group’s net debt at 31 December 2013 was £1,533m. The group’s
committed but unutilised facilities at 31 December 2013 were £965m.
The group has suffi cient capacity to fi nance its normal funding and
current investment plans.
Credit rating
The group’s credit rating was revised by Standard & Poor’s from
BBB- (Negative) to BBB- (Stable) on 4 September 2013.
Dividend
The directors recommend a fi nal dividend of 5.54p (DKK 0.4954)
per share, unchanged from 2012. The interim dividend was 3.42p
(DKK 0.2972) per share and the total dividend, if approved, will be
8.96p (DKK 0.7926)per share, unchanged from 2012.
The proposed dividend cover is 1.6 times (2012: 2.4 times) on adjusted
earnings. The board’s intention is that dividends will increase broadly in
line with underlying earnings over the medium term.
88 G4S plc Annual Report and Accounts 2013
OTHER INFORMATION
Pensions
As at 31 December 2013 the defi ned benefi t pension obligation on the
balance sheet was £504m (2012: £471m), or £405m net of tax (2012:
£367m) of which £472m (2012: £436m) related to material funded
defi ned benefi t schemes. The most signifi cant pension scheme is in the
UK and accounts for 95% (2012: 95%) of the total material scheme
obligation. The scheme has approximately 30,000 members and further
details of the make up of the scheme are given in note 33 on page 129.
Defi ned benefi t obligation – UK scheme
Scheme assets
Obligation
Total UK obligation
2013
£m
1,564
(2,013)
(449)
2012
£m
1,474
(1,886)
(412)
Movement
£m
90
(127)
37
The movement in the UK scheme was as a result of scheme obligations
increasing by £127m partly offset by an increase of £90m in the value
of scheme assets arising from contributions paid to the scheme during
the year and an increase in underlying asset values. The increase in the
obligation is mainly due to actuarial losses incurred in the year resulting
from discount rates decreasing to 4.4% (2012: 4.5%), infl ation rates
increasing to 3.4% (2012: 3.0%) and a change in demographic
assumptions during the year.
The group made payments of £38m (2012: £37m) into the scheme
during the year. Following the recent triennial valuation, the group
agreed with the Trustees to increase next year’s annual defi cit recovery
payment to £42m and extended the term of these payments from
2022 to 2024. The next triennial valuation is in 2015.
Due to the nature and materiality of the group’s pension schemes
certain risks exist as detailed further in note 33 on page 130.
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 it 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 32 on pages 124 to 127.
To assist the effi cient management of the group’s interest costs, the
group operates a multi-currency notional pooling cash management
system with a wholly owned subsidiary of an A+ rated bank. At
year-end, credit balances of £425m were pooled with debit balances of
£422m, resulting in a net pool credit balance of £3m. There is legal right
of set off under the pooling agreement and an overdraft facility of £3m.
Interest rate risks and interest rate swaps
The group’s investments and borrowings at 31 December 2013 were
at a mix of fi xed rates of interest and fl oating rates of interest linked
to LIBOR and EURIBOR.
The private placement notes in March 2007 and July 2008 and the
public notes in May 2009, May 2012 and December 2012 were all
issued at fi xed rates, whilst the group’s investments and bank
borrowings were all at variable rates of interest linked to LIBOR
and EURIBOR.
Financial statements
The group’s interest risk policy requires treasury to fi x a proportion of
its interest exposure on a sliding scale in US dollars, sterling and euro,
using the natural mix of fi xed and fl oating interest rates emanating
from the bond and bank markets and by utilising interest rate and
cross currency swaps. The proceeds of the private placement notes
issued in March 2007 and part of the public notes issued in May 2012
and December 2012 were swapped to fl oating interest rates and
accounted for as fair value hedges, with a net gain at 31 December
2013 of £45m. 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 2013, accounted for as cash fl ow hedges, was a net
gain of £40m.
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 and its consolidated
net debt/EBITDA ratio by holding 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.
At 31 December 2013, the group’s US dollar and euro net assets were
approximately 59% and 82% respectively, hedged by foreign currency
loans. As at 31 December 2013, net debt held in US dollar and euro
and in those currencies offi cially pegged to these two currencies
equated broadly to a ratio of 2 times the EBITDA generated from
these currencies.
If year-end 31 December 2013 exchange rates were used for 2013,
underlying PBITA would have been £422m, a reduction from £442m
due to a strengthening of the relative value of sterling.
Exchange differences on the translation of foreign operations included
in the consolidated statement of comprehensive income amount to a
loss of £109m (2012: £95m).
Corporate governance
The group’s policies regarding risk management and corporate
governance are set out in the Corporate governance report on
pages 52 to 60.
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.
Himanshu Raja
Chief Financial Offi cer
1 To clearly present underlying performance, specifi c items have been excluded and
disclosed separately – see page 86.
2 2012 underlying results are presented at constant exchange rates and have been
restated for the adoption of IAS19 (2011). 2012 PBITA has been re-presented to
exclude PBITA from businesses subsequently classifi ed as discontinued, one off
credits, profi ts on disposal and the prior year effect of the review of assets and
liabilities in 2013 – see page 86.
3 Including specifi c items. See page 86 for details.
Annual Report and Accounts 2013 G4S plc 89
Independent auditor’s report to the members of G4S plc only
OPINIONS AND CONCLUSIONS ARISING FROM OUR AUDIT
1. OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED
We have audited the fi nancial statements of G4S plc for the year ended 31 December 2013 set out on pages 94 to 150. In our opinion:
– 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 2013
and of the group’s loss for the year then ended;
– the group fi nancial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
– the parent company fi nancial statements have been properly prepared in accordance with UK Accounting Standards; and
– 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.
2. OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
In arriving at our audit opinion above on the fi nancial statements the risks of material misstatement that had the greatest effect on our audit
were as follows:
Presentation of the income statement
Refer to page 61 (Audit Committee Report), page 98 (accounting policy) and page 108 (fi nancial disclosures).
The risk – In order to give better understanding of the underlying performance of the business, management have presented a view of the
underlying results of the group, with separate disclosure of specifi c items. There is a risk that items included within ‘restructuring’ and ‘specifi c
items’ are not in accordance with clearly disclosed group accounting policies and therefore the ‘underlying’ result is misstated. There is a related
presentation risk concerning discontinued operations and held for sale assets and liabilities which are further considered below.
Our response – In this area our audit procedures included, inter alia, providing detailed instructions to all in-scope audit teams on the defi nitions
of items that can be included within these income statement categories to assist them in their assessment of specifi c items identifi ed in their
components. We considered and challenged the work of the group fi nance team in reviewing with the regional and local fi nance teams the basis
of any specifi c items. In doing so we critically assessed their accuracy and presentation of specifi c items taking into account their policy, considered
the appropriateness, by reference to accounting standards, of the individual items presented within these categories and therefore excluded from
‘underlying results’ at both the local and group levels.
We have also considered the adequacy of the group’s disclosures about the items included within ‘restructuring’ and ‘specifi c items’ in notes 8
(specifi c items) and 34 (restructuring) and the related accounting policies for these categories on page 98 and on page 101.
Risk of management override of internal controls
Refer to page 62 (Audit Committee Report).
The risk – The de-centralised structure of the group and the manual nature of many accounting entries means there is a higher risk of management
override of fi nancial controls. There is also a risk of management bias within judgements and estimates including those related to the other risks
discussed in this report. The application of management override or biased judgements could be infl uenced by targets on which bonuses are paid
which could be signifi cant to the relevant individuals. This risk affects all areas of the fi nancial statements.
Our response – In this area our audit procedures included, among others, extending the scope of our audit to include businesses where we see
a risk of management bias or override of controls (see below). We also mandated certain key audit procedures be performed by all in-scope audit
teams to assist in the identifi cation of management override of fi nancial controls within the local books and records. We tested the reconciliations
from the group consolidation package to the local books and records for 84% of the group including for those businesses out of scope for the
group audit, performed testing on manual journals within all in-scope businesses, performed testing on the group consolidation system, identifying
and testing signifi cant unusual transactions and assessing indications of management bias in judgements and estimates. This work was performed
with assistance from our Forensic Accounting specialists.
90 G4S plc Annual Report and Accounts 2013
Financial statements
Revenue recognition particularly on UK Government contracts and related provisions
Refer to page 62 (Audit Committee Report), page 102 (accounting policy) and page 134 (fi nancial disclosures).
The risk – The group delivers outsourcing services that can be complex in nature and may be governed by unique and complex contractual
arrangements. In these circumstances there is a heightened risk of inaccurate billing and revenue recognition. In particular the group was subject
to a number of inquiries in relation to the accuracy of billing and services provided on certain of its UK Government contracts. There was an
investigation into an electronic monitoring contract where the Ministry of Justice alleged the group has overcharged for certain aspects of the
services. There was a risk that revenue recognition on these contracts is not in accordance with contractual entitlements and therefore provisions
may be required for refunds due (e.g. to the UK Government) or costs of termination. There was further a risk that the provisions for refunds are
not appropriately disclosed and presented.
Our response – In this area our audit procedures included, among others, reviewing the sales process on complex and signifi cant contracts
in order to critically assess controls over process risks which might lead to revenue recognition issues, and comparing the contractual terms
of the relevant agreements to the accounting treatment adopted. We made inquiries with contract managers and reviewed customer
correspondence to identify, investigate and evaluate any areas of dispute or subjectivity within contracts and related billing, meeting with the
company’s legal advisors to discuss their advice on any areas of interpretation within the contract. We also considered the recovery of signifi cant
overdue receivables including seeking external evidence of likely recovery, taking into account the ageing of receivables and comparing any
provision to recovery levels post year end.
We inspected correspondence with the Government and its appointed advisers. Based on those inquiries we recalculated the quantum of
potential exposures and critically assessed the judgements made by management as to the provision made for the settlement of any and all claims
arising from these contracts.
Full and fi nal settlement in respect of the Ministry of Justice claims was reached in March 2014. We have evaluated the adequacy of the group’s
disclosures about the UK Government settlement and amounts recognised within the fi nancial statements as revenue and provisions.
Compliance with foreign ownership rules and consolidation of subsidiaries
Refer to page 62 (Audit Committee Report), page 98 and 105 (accounting policy) and pages 140 and 141 (fi nancial disclosures).
The risk – The group is required to comply with sometimes complex or imprecise foreign ownership rules in the countries in which it operates.
There is a risk that the rules may be interpreted in different ways. In some instances the group operates through local structures with limited
direct share ownership of the business but exercising control through shareholder agreements. These structures can mean there is a higher
level of judgement required in deciding whether or not to consolidate the underlying business or treat the operation as a joint venture/
associate/investment.
Our response – In this area our audit procedures included, inter alia, understanding the structure of local businesses and evaluating whether they
are in compliance with local foreign ownership rules involving local lawyers where applicable. We also challenge the Directors’ conclusions on
whether or not consolidation was appropriate by comparing the rights bestowed by share ownership and all related ownership and management
agreements to the requirements set out in the relevant accounting standards.
We have also evaluated the adequacy of the group’s disclosures about the degree of judgement as to which businesses can be consolidated
in note 4 and the reasons for consolidating those businesses with less than 50% ownership in note 3 and note 43.
Recoverable value of goodwill and other intangible assets
Refer to page 62 (Audit Committee Report), page 100 (accounting policy) and page 115 (fi nancial disclosures).
The risk – The group has £2.2 billion of goodwill and other intangible assets. Although the majority of this relates to business units where the
carrying value is exceeded by the calculated Value In Use by a signifi cant margin, in the current economic environment there is a risk of impairment
related to particular business units within the group. The estimation of the recoverable amount of cash generating units requires signifi cant
judgement in relation to the appropriate discount rates, growth rates, terminal values, forecast cashfl ows and, where the fair value less costs
to sell approach is used, the appropriate fair value multiple.
Our response – In this area our audit procedures included, among others, challenging the forecast earnings and cash fl ows over the fi ve year
forecast period, for example by comparison to historic results and budgets and by seeking explanations for any assumed trends and growth rates.
We also challenged the discount rates and terminal values and, where a fair value less costs to sell approach is used, challenged the multiples
employed. Where possible we compared the group’s assumptions to externally derived data. Our valuations specialists assisted in the evaluation
of the more subjective and material cash generating units. We challenged the group’s sensitivities to help us assess whether the key assumptions
and drivers considered are correctly identifi ed. We compared the group’s aggregate recoverable amount to its market capitalisation.
We have also assessed the adequacy of the group’s disclosures on goodwill impairments (see note 19) and considered whether the sensitivity
analysis provided properly refl ects the risks inherent within the estimate of the recoverable amount of goodwill.
Annual Report and Accounts 2013 G4S plc 91
Independent auditor’s report to the members of G4S plc only continued
Discontinued operations and held for sale assets and liabilities
Refer to page 62 (Audit Committee Report), page 103 (accounting policy) and pages 108 and 121 (fi nancial disclosures).
The risk – The group often has business disposals underway at any reporting date. Given the judgement involved, there is a risk that any such
businesses may not meet the accounting standard’s criteria for presentation as discontinued at the balance sheet date as either they are not
a separate major line of business, the Directors are not committed to the sale and that sale is not highly probable, or the business has not
been exited.
The results of discontinued businesses are presented below profi t before tax on the face of the income statement and therefore any profi ts/losses
from discontinued businesses are not included within underlying PBITA being the group’s own key fi nancial KPI. Were the group to incorrectly
classify a loss making business as discontinued a higher underlying PBITA would result.
For the US Government Solutions business, which is presented as held for sale, the calculation of the fair value less costs to sell is subject
to judgement due to a range of potential sales prices and assumptions around the method and quantum of recovery of working capital balances.
This subjectivity creates a risk around the determination of an appropriate fair value for the business and therefore the appropriate
impairment recognised.
Our response – In this area our audit procedures included, amongst others, using our knowledge of the business to perform an assessment
of whether the businesses constitute separate major lines of business or geographical areas of operations. We also obtained and evaluated
evidence to critically challenge the level of the Directors’ commitment to sell the businesses classifi ed as held for sale and to critically challenge
the probability of those sales at the balance sheet date. We sought external evidence of likely sales prices and compared these to the net book
value of the held for sale assets and liabilities to assess whether any further impairment was required. For those businesses being wound down
and therefore being classifi ed as discontinued on the basis that the business has been exited, we sought external evidence that the group
is no longer operating that business.
We have also considered the adequacy of the group’s disclosures about discontinued operations and held for sale assets in notes 7 and 26.
Taxation exposures and provisions
Refer to page 63 (Audit Committee Report), page 102 (accounting policy) and page 111 (fi nancial disclosures).
The risk – The group is required to make estimates of tax provisions in jurisdictions and/or circumstances where the application of the tax rules
is complex, uncertain and in some cases inconsistent.
Our response – Our audit procedures included, consideration of each signifi cant exposure on a case by case basis taking into account our
understanding of the facts, any specifi c advice the group has received, past experience and any relevant observations of our tax specialists.
Using this information we conducted a critical review of the group’s judgement as to the provision required. We have also evaluated the adequacy
of the group’s disclosures about the tax provisions and contingencies in note 14 and the level of estimation uncertainty in the tax provisions
in note 3(r).
3. OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The materiality for the group fi nancial statements as a whole was set at £10m. This has been determined with reference to a benchmark of group
loss before tax, adjusted for non-recurring items including ‘restructuring costs’, ‘specifi c items’ and ‘goodwill impairment’, which we consider to be
one of the principal considerations for members of the company in assessing the fi nancial performance of the group. Materiality represents 4.9%
of group profi t before tax adjusted for these items and 4.4% of group profi t before tax from continuing operations as disclosed on the face of the
income statement.
We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identifi ed through our audit with a value in
excess of £0.5m for errors impacting profi t and in excess of £4m for balance sheet only misclassifi cations, in addition to other audit misstatements
below that threshold that we believe warranted reporting on qualitative grounds.
Audits for group reporting purposes were performed by component auditors at the key reporting components in 42 countries. In addition,
specifi ed audit procedures were performed by component auditors in a further 42 countries. These group procedures covered:
Audit for group reporting purposes
Specifi c audit procedures
Not covered
Group revenue
81%
13%
6%
The audits undertaken for group reporting purposes at the key reporting components of the group were all performed to materiality levels set by,
or agreed with, the group audit team. These materiality levels were set individually for each component and ranged from £0.02m to £5m.
Detailed audit instructions were sent to all the auditors in these locations. These instructions covered the signifi cant audit areas that should be
covered by these audits (which included the relevant risks of material misstatement detailed above) and set out the information required to
be reported back to the group audit team. The group audit team visited the following locations: the Philippines, Ireland, South Africa, Botswana,
Peru, Brazil, Saudi Arabia, India, Belgium, Finland, Denmark and the United Kingdom. Telephone meetings were also held with the auditors of 25
signifi cant countries as part of the planning process and a further 22 high risk countries as part of the audit close out process.
The remaining 6% of revenue includes no components which individually represent more than 0.4% of revenue.
92 G4S plc Annual Report and Accounts 2013
Financial statements
4. OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED
In our opinion:
– the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the Strategic Report and the Directors’ Report for the fi nancial year for which the fi nancial statements are prepared
is consistent with the fi nancial statements.
5. WE HAVE NOTHING TO REPORT IN RESPECT OF THE MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identifi ed
other information in the annual report that contains a material inconsistency with either that knowledge or the fi nancial statements, a material
misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
– we have identifi ed material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider
that the annual report and fi nancial statements taken as a whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess the group’s performance, business model and strategy; or
– the Audit Committee Report does not appropriately address matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
– the parent company 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
– certain disclosures of directors’ remuneration specifi ed by law are not made; or
– we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
– the directors’ statement, set out on page 83, in relation to going concern; and
– the part of the Corporate Governance Statement on page 53 in the Chairman’s letter relating to the company’s compliance
with the nine provisions of the 2010 UK Corporate Governance Code specifi ed for our review.
We have nothing to report in respect of the above responsibilities.
SCOPE OF REPORT AND RESPONSIBILITIES
As explained more fully in the Directors’ Responsibilities Statement set out on page 83, 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. A description of the scope of an audit of fi nancial statements
is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s
members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to provide an
understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
John Luke (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
31 March 2014
Annual Report and Accounts 2013 G4S plc 93
Consolidated income statement
For the year ended 31 December 2013
Continuing operations
Revenue
Operating profi t before interest, tax, amortisation, specifi c items and restructuring
Specifi c items
Restructuring costs
Operating profi t before interest, tax and amortisation (PBITA)
Amortisation of acquisition-related intangible assets
Goodwill impairment
Acquisition-related expenses
Profi t on disposal of assets and subsidiaries
Operating (loss)/profi t before interest and taxation (PBIT)
Finance income
Finance costs
Operating (loss)/profi t before taxation (PBT)
Taxation
(Loss)/profi t after taxation
Loss from discontinued operations
(Loss)/profi t for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profi t for the year
Earnings per share attributable to equity shareholders of the parent
From (loss)/profi t from continuing operations:
Basic and diluted
From (loss)/profi t from continuing and discontinued operations:
Basic and diluted
* Restated – see notes 3(a) and 3(v).
Notes
5, 6
6
8
8
6, 8
12
13
14
7
16
Total
2013
£m
7,428
442
(318)
(68)
56
(72)
(46)
(4)
24
(42)
15
(143)
(170)
(56)
(226)
(116)
(342)
(362)
20
(342)
(16.9)p
(24.9)p
Total
2012*
£m
7,228
470
(64)
(42)
364
(84)
–
(7)
5
278
12
(132)
158
(40)
118
(56)
62
40
22
62
6.8p
2.9p
94 G4S plc Annual Report and Accounts 2013
Consolidated statement of comprehensive income
For the year ended 31 December 2013
(Loss)/profi t for the year
Other comprehensive income
Items that will never be reclassifi ed to profi t or loss:
Actuarial losses on defi ned retirement benefi t schemes
Tax on items that will never be reclassifi ed to profi t or loss
Items that are or may be reclassifi ed to profi t or loss:
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
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
* Restated – see note 3 (v).
Consolidated statement of changes in equity
For the year ended 31 December 2013
At 1 January 2013
Total comprehensive income
attributable to equity shareholders
of the parent
Shares issued
Dividends declared
Own shares awarded
Transactions with
non-controlling interests
At 31 December 2013
At 1 January 2012
Total comprehensive income
attributable to equity shareholders
of the parent
Dividends declared
Own shares purchased
Own shares awarded
Transactions with
non-controlling interests
At 31 December 2012
* See note 37.
Share
capital
£m
353
–
35
–
–
–
388
353
–
–
–
–
–
353
Attributable to equity holders of the parent
Other
reserves*
£m
422
Share
premium
£m
258
Retained
earnings
£m
143
–
–
–
–
–
258
258
–
–
–
–
–
258
(422)
–
(130)
(2)
(4)
(415)
389
(126)
(120)
–
(2)
2
143
(96)
308
–
2
–
636
494
(68)
–
(6)
2
–
422
Notes
14
14
Financial statements
2013
£m
(342)
(60)
(1)
(61)
(109)
25
(8)
(4)
(96)
(157)
(499)
(518)
19
(499)
2012*
£m
62
(167)
30
(137)
(95)
(4)
(6)
5
(100)
(237)
(175)
(194)
19
(175)
Total
£m
1,176
(518)
343
(130)
–
(4)
867
1,494
(194)
(120)
(6)
–
2
1,176
NCI
reserve
£m
55
Total
equity
£m
1,231
19
–
(24)
–
2
52
50
19
(18)
–
–
4
55
(499)
343
(154)
–
(2)
919
1,544
(175)
(138)
(6)
–
6
1,231
Annual Report and Accounts 2013 G4S plc 95
Consolidated statement of fi nancial position
At 31 December 2013
ASSETS
Non-current assets
Goodwill
Other acquisition-related intangible assets
Other intangible assets
Property, plant and equipment
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
Loan notes
Obligations under fi nance leases
Trade and other payables
Current tax liabilities
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
19
19
19
20
24
35
22
23
24
27
26
6
27, 28
28
28
29
30
34
26
28
28
29
30
33
34
35
6
36
2013
£m
1,966
141
77
490
130
184
2,988
117
39
1,394
594
220
2,364
5,352
(22)
(27)
(61)
(21)
(1,172)
(48)
(200)
(133)
(1,684)
(169)
(1,921)
(31)
(13)
(504)
(64)
(47)
(2,749)
2012
£m
2,108
204
87
512
132
179
3,222
128
56
1,506
469
229
2,388
5,610
(17)
(18)
(40)
(18)
(1,193)
(41)
(29)
(52)
(1,408)
(327)
(1,999)
(43)
(18)
(471)
(45)
(68)
(2,971)
(4,433)
(4,379)
919
1,231
388
479
867
52
919
353
823
1,176
55
1,231
The consolidated fi nancial statements were approved by the board of directors and authorised for issue on 31 March 2014.
They were signed on its behalf by:
Ashley Almanza
Director
Himanshu Raja
Director
96 G4S plc Annual Report and Accounts 2013
Notes
Consolidated statement of cash fl ow
For the year ended 31 December 2013
(Loss)/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
Goodwill impairment
Acquisition-related costs
Impairment of other assets
Increase/(decrease) in provisions
Additional pension contributions
Profi t on disposal of fi xed assets and subsidiaries
Operating cash fl ow before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase in payables
Net cash fl ow from operating activities of continuing operations
Net cash fl ow from 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 non-current assets
Proceeds on disposal of property, plant and equipment
and intangible assets other than acquisition-related
Acquisition of subsidiaries
Net cash and overdraft balances acquired
Disposal of subsidiaries
Sale of investments
Net cash used in investing activities
Financing activities
Share issues
Dividends paid to minority interests
Own shares purchased
Dividends paid to equity shareholders of the parent
Other net movement in borrowings
Movement in customer cash balances
Transactions with non-controlling interests
Interest paid
Repayment of obligations under fi nance leases
Net cash fl ow from fi nancing activities
Net increase in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of the year
Effect of foreign exchange rate fl uctuations on cash held
Cash, cash equivalents and bank overdrafts at the end of the year
38
27
Financial statements
2013
£m
(170)
(15)
143
118
72
24
46
4
24
189
(38)
(24)
373
5
40
42
460
28
488
(88)
400
22
(6)
(210)
11
(23)
(8)
35
16
(163)
343
(24)
–
(130)
(165)
24
(2)
(132)
(9)
(95)
142
472
(27)
587
2012
£m
158
(12)
132
117
84
22
–
7
–
(5)
(37)
(5)
461
(14)
(116)
6
337
35
372
(85)
287
6
3
(160)
23
(101)
15
19
–
(195)
–
(19)
(6)
(120)
324
–
6
(117)
(22)
46
138
370
(36)
472
Annual Report and Accounts 2013 G4S plc 97
Notes to the consolidated fi nancial statements
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 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. The address of the registered offi ce is given on page 160.
2. STATEMENT OF COMPLIANCE
The consolidated fi nancial statements of the group have been prepared in accordance with International Financial Reporting Standards adopted
by 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 142 to 150.
3. SIGNIFICANT 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. 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. Further information on the going concern assessment is given in note 32 on pages 124 to 127.
In preparing the fi nancial statements the notes to the accounts have been presented with regard to the principles set out in the Financial Reporting
Council’s publication ‘Cutting Clutter’ to make the fi nancial statements easier to follow and more intuitive to provide readers with a clearer
understanding of the fi nancial performance of the group.
The comparative income statement for the year ended 31 December 2012 has been re-presented for operations qualifying as discontinued during
the current year. Revenue from continuing operations has been reduced by £273m and PBT has decreased by £7m compared to the fi gures
published previously. Further details of discontinued operations are presented within note 7. In addition, the comparative consolidated statement
of fi nancial position as at 31 December 2012 has been restated to refl ect the completion during 2013 of the initial accounting in respect of
acquisitions made during 2012. Adjustments made to the provisional calculation of the fair values of assets and liabilities acquired amount to £15m,
with an equivalent decrease in the reported value of goodwill. The impact of these adjustments on the net assets acquired is presented in note 17.
(b) Changes in presentation of the income statement
During the year the group has enhanced its presentation of business performance by separately disclosing ‘underlying results’. Underlying results
exclude specifi c items and for the prior year re-present the effect of one-off credits relating to fair value and other provision releases.
The group’s income statement and segmental analysis note separately identify results before specifi c items. Specifi c items are those that in
management’s judgement need to be disclosed separately by virtue of their size, nature or incidence. In determining whether an event or
transaction is specifi c, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.
Specifi c items include items relating to acquisitions and disposals including amortisation and impairment of acquisition-related intangible assets,
discontinued operations, restructuring costs and impairments and other one-off items such as the review of the carrying value of assets and
liabilities performed in 2013 or the impact of the Olympics contract in the prior year.
This is consistent with the way that fi nancial performance is measured by management and reported to the Board and assists in providing
a meaningful analysis of the underlying results of the group. The directors believe that presentation of the group’s results in this way is relevant
to an understanding of the group’s fi nancial performance, as specifi c items are identifi ed by virtue of their size, nature or incidence. Any reversal
arising from a recovery of previously impaired assets will also fl ow through specifi c items such that the underlying results refl ect the ongoing
recurring results of the business.
Specifi c items may not be comparable to similarly titled measures used by other companies.
Specifi c items for the current and prior years are disclosed in note 8.
(c) 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. In the case of certain investments detailed analysis of the different contracts in place is required, together with a level
of judgement, to ascertain whether there is control under the defi nition of IAS 27 ‘Separate Financial Statements’ (see note 4).
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 value of the assets transferred as consideration to the vendor and does not
include transaction costs. 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.
98 G4S plc Annual Report and Accounts 2013
Financial statements
The cost of acquisition includes the present value of deferred and contingent 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 with respect to contingent
consideration and in other comprehensive income with respect to put options. 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.
(d) 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 other comprehensive income, 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.
(e) 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.
The gain or loss on re-measurement to fair value is recognised immediately in the income statement, unless the derivatives qualify for hedge
accounting. Where derivatives do qualify for hedge accounting, the treatment of any resultant gain or loss depends on the nature of the item
being hedged as described below.
Fair value hedge
The change in the fair value of both the hedging instrument and the related portion of the hedged item is recognised immediately in the
income statement.
Cash fl ow and net investment hedges
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 or 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.
Annual Report and Accounts 2013 G4S plc 99
Notes to the consolidated fi nancial statements continued
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) 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. 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.
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 and technology
Customer contracts and customer relationships
up to a maximum of fi ve years
up to a maximum of ten years
Other intangible assets
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.
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.
(g) 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
2 to 10 years
Assets held under fi nance leases are depreciated over the shorter of the expected useful economic life and 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.
(h) 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 a bad debt 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.
100 G4S plc Annual Report and Accounts 2013
Financial statements
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and that 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 statement of cash fl ow.
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.
(i) 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.
(j) 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.
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.
(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.
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 the calculation
is limited to unrecognised past service cost plus the present value of available refunds and reductions in future contributions to the scheme.
For defi ned benefi t plans, the cost charged to the income statement consists of current service cost, net interest cost, and past service cost.
The fi nance element of the pension charge is shown in fi nance expense and the remaining service cost element is charged as a component
of employee costs in the income statement. Actuarial gains and losses and other remeasurement gains and losses are recognised immediately
in full through the statement of comprehensive income.
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 and contingent liabilities
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. The amount recognised as a provision is the group’s best estimate of the cost of settlement
at the end of the reporting period.
In respect of claims and litigation, the group provides for anticipated costs where an outfl ow of resources is considered probable and a reasonable
estimate can be made of the likely outcome. For all risks, the ultimate liability may vary from the amounts provided and will be dependent upon
the eventual outcome of any settlement. Management exercise judgement in measuring the exposures to contingent liabilities (see note 34)
through assessing the likelihood that a potential claim or liability will arise and in quantifying the possible range of fi nancial outcomes.
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) Restructuring provision
A restructuring provision is recognised when the group has developed a detailed formal plan for the restructuring and has raised a valid
expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those
affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are
those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
Annual Report and Accounts 2013 G4S plc 101
Notes to the consolidated fi nancial statements continued
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) 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.
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 measured either by the proportion that contract costs incurred for work to
date bear to the estimated total contract costs or by the proportion that the sales value of work completed to date bears to the total sales value.
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 in the income statement.
Construction contracts are recognised in 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.
(o) Pre-contract costs
Pre-contract costs in respect of major outsourcing contracts incurred after the point at which the group achieves preferred bidder status
(at which point it is considered probable that the contract will be obtained) are capitalised and expensed over the life of the contract subject to
recoverability criteria. Costs incurred prior to this point are expensed as incurred. Capitalised costs are expensed immediately in the event that
preferred bidder status is not followed by the award of the contract.
(p) Onerous contracts
Onerous contract provisions are recognised for losses on contracts where the forecast costs of fulfi lling the contract throughout the contract
period exceed the forecast income receivable. Management plans to recover the position on loss-making contracts require a level of judgement
and are only taken into account in the calculation of the onerous contract provision when implementation has commenced and tangible evidence
exists of benefi ts being delivered. The provision is calculated based on discounted cash fl ows to the end of the contract.
In-year losses from onerous contracts will continue to be reported in underlying earnings as they are incurred, whilst provisions for future losses
on onerous contract provisions will be charged and unwound through specifi c items.
Vacant property provisions are recognised when the group has committed to a course of action that will result in the property becoming vacant.
The provision is calculated based on discounted cash fl ows to the end of the lease taking into account expected future sub-lease income.
(q) 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’s net carrying amount. Borrowing costs are
recognised as an expense in the income statement.
(r) 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
or other comprehensive income. 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.
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.
Tax liabilities or refunds may differ from those anticipated due to changes in tax legislation, differing interpretation of tax legislation and
uncertainties surrounding the application of tax legislation. In situations where uncertainty exists, provision is made for contingent tax liabilities
and assets on the basis of management judgement following consideration of the available relevant information.
102 G4S plc Annual Report and Accounts 2013
Financial statements
(s) 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.
On occasion this classifi cation requires a level of judgement. All other leases are classifi ed as operating leases.
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.
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.
(t) 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.
(u) 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.
(v) Adoption of new and revised accounting standards and interpretations
In the year ended 31 December 2013, the group adopted the following new standards and amendments:
– As a result of the amendment to IAS 19 (2011), the group has changed its accounting policy with respect to the basis for determining the
income or expense related to its post-employment defi ned benefi t plans.
The amendment makes changes to the recognition, measurement and disclosure of the defi ned benefi t expense, in particular requiring that
the return on investment assets recognised in the income statement be calculated at the same interest rate as that used for calculating the
fi nance cost on the obligations, and to the disclosures of employee benefi ts.
Pensions interest has therefore been restated for the change in calculation of the net pension interest charge, resulting in an additional £14m
interest cost for the year ended 31 December 2013 and £7m additional interest cost for the year ended 31 December 2012.
The amendments also require that the group re-allocates pension administration costs from its previous classifi cation within fi nance income
through other comprehensive income (OCI) to disclosing it within PBITA. Current year and prior year PBITA has reduced by £3m as a result
of this restatement.
– As a result of the amendments to IAS 1 ‘Presentation of Financial Statements’, the group has modifi ed the presentation of items of
comprehensive income in its condensed consolidated statement of comprehensive income, to present separately items that would be
reclassifi ed to profi t or loss in the future from those that would never be reclassifi ed. Comparative income has also been re-presented
accordingly. The adoption of the amendment to IAS 1 has no impact on the recognised assets, liabilities and comprehensive income of the group.
– The group also adopted IFRS 13 ‘Fair Value Measurement’ during the year. This has not resulted in any signifi cant impact on the group’s results
for the year ended 31 December 2013 or the year ended 31 December 2012.
The group has not adopted early any standard, amendment or interpretation. A number of new standards, amendments to standards and
interpretations have been announced but are not yet effective for the year ended 31 December 2013. Those that are expected to have an impact
on the group accounts are detailed below:
– IFRS 10 (2011) ‘Consolidated Financial Statements’, which replaces parts of IAS 27 ‘Consolidated and Separate Financial Statements’ and all
of SIC-12 ‘Consolidation – Special Purpose Entities’, introduces a new control model that focuses on whether the group has power over an
investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns.
This differs from the previous approach where one of the main criteria used to consolidate was to have the power to govern the fi nancial
and operating policies of the entity. Apart from certain exceptions within the Asia Middle East region (including certain business in Kuwait,
Saudi Arabia and Qatar) it is expected that under the terms of the existing shareholder agreements the remainder of the group’s principal
subsidiaries (see note 43) will continue to be consolidated upon adoption of IFRS 10 (2011). Those entities which do not meet the IFRS 10
(2011) criteria to be consolidated will be accounted for generally as joint ventures under the new IFRS 11 ‘Joint Arrangements’.
– IFRS 11 ‘Joint Arrangements’ replaces IAS 31 ‘Interests in Joint Ventures’ and SIC-13 ‘Jointly Controlled Entities – Non-monetary Contributions
by Vendors’ and removes the option to account for jointly controlled entities using the proportionate consolidation method. Instead all jointly
controlled entities will be accounted for using the equity method of accounting, similar to that used to account for associates under the current
standards. As the group currently applies the proportionate method of accounting to its jointly controlled entities this will impact the group’s
consolidated income statement and consolidated statement of fi nancial position.
Annual Report and Accounts 2013 G4S plc 103
Notes to the consolidated fi nancial statements continued
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Had the group applied IFRS 10 (2011) and IFRS 11 to its accounts for the year ended 31 December 2013 and 31 December 2012 it would have
had the following estimated impact on the group’s consolidated income statement, statement of fi nancial position and statement of cash fl ow.
Year ended 31 December 2013
Adjustments
£m
As reported
£m
New basis
£m
Year ended 31 December 2012
As reported
£m
Adjustments
£m
New basis
£m
Income statement
Revenue
PBITA before specifi c items
PBT*
Tax*
PAT*
Non-controlling interests*
Profi t to equity holders*
Statement of fi nancial position
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Non-controlling interests
Statement of cash fl ow
Net cash fl ow from operating activities
Net cash fl ow from investing activities
Net cash fl ow from fi nancing activities
Net increase/(decrease) in cash
7,428
442
314
(75)
239
(25)
214
2,988
2,364
5,352
(1,684)
(2,749)
(4,433)
919
52
400
(163)
(95)
142
(317)
(32)
(27)
2
(25)
25
–
18
(167)
(149)
74
48
122
(27)
(27)
(42)
30
3
(9)
7,111
410
287
(73)
214
–
214
3,006
2,197
5,203
(1,610)
(2,701)
(4,311)
892
25
358
(133)
(92)
133
7,024
470
353
(83)
270
(22)
248
3,222
2,388
5,610
(1,408)
(2,971)
(4,379)
1,231
55
287
(195)
46
138
(277)
(27)
(15)
–
(15)
15
–
18
(147)
(129)
80
18
98
(31)
(31)
(41)
14
25
(2)
6,747
443
338
(83)
255
(7)
248
3,240
2,241
5,481
(1,328)
(2,953)
(4,281)
1,200
24
246
(181)
71
136
* Excluding specifi c items, amortisation of acquisition-related intangible assets, goodwill impairment, acquisition-related expenses and profi t on disposal of assets and
subsidiaries. 2012 results also exclude the impact of the Olympics contract.
– IFRS 12 ‘Disclosure of Interest in Other Entities’ is a new and comprehensive standard on disclosure requirements for all forms of interest
in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The standard includes
disclosure requirements for entities within the scope of IFRS 10 (2011) and IFRS 11.
– IFRS 10 (2011), IFRS 11 and IFRS 12 together form a suite of standards that are effective from 1 January 2013. However they have been
endorsed by the EU to be applied from 1 January 2014. The group will therefore adopt all three standards for its fi nancial statements for the
year ended 31 December 2014.
4. ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
The preparation of fi nancial statements in conformity with adopted IFRSs 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 in preparing the group’s 2013 accounts are detailed below:
Review of the carrying value of assets and liabilities
In 2013 the group carried out a review of the carrying value of its assets and liabilities as at 31 December 2012, taking into account any changes in
facts or circumstances since that date. The purpose of this review was to ensure that the fi nancial statements were presented in a more balanced
way. This exercise required a level of judgement and in many cases taking a more balanced judgement based on the group’s current understanding
of circumstances surrounding each issue. The results of the review are presented within ‘specifi c items’ given the one-off nature of the review
performed and are disclosed in note 8.
104 G4S plc Annual Report and Accounts 2013
Financial statements
Contract portfolio review
The group delivers outsourcing services that in some circumstances can be complex in nature and may be governed by unique contractual
arrangements. There is a risk that revenue recognition on these contracts is not in accordance with contractual entitlements and therefore
provisions may be required to be recognised within ‘contract provisions’ (see note 34). Estimates and judgements are therefore required
to determine the appropriate level of provisioning applied to these contracts.
Compliance with foreign ownership rules and consolidation of subsidiaries
The group has a diverse set of complex ownership structures, which are sometimes driven by local laws and regulations relating to foreign
ownership. In some instances the group operates through local structures with limited direct share ownership of the business but exercises control
through shareholder agreements. In determining whether some group entities qualify for consolidation under IAS 27 ‘Separate Financial
Statements’, professional and legal advice is sought and a level of judgement is required. Consolidation of any of these entities would be at risk if
the group’s ability to enforce its rights of control were successfully challenged. Furthermore, as set out in note 3(v), following the adoption of IFRS
10 ‘Consolidated Financial Statements’ in 2014, the group expects to cease to consolidate some of these entities and will equity account for them.
Carrying value of goodwill
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 the estimation of future results, cash fl ows, annual growth rates and discount rates.
Judgement is required in relation to the achievability of the long-term business plan and macroeconomic assumptions underlying the valuation
process. In certain circumstances, where market prices can be ascertained (for example through recent transactions), fair value less costs to sell
is used as a basis for the recoverable amount. This involves judgements and estimates to apply reasonable valuations techniques and to estimate
future selling costs. The full methodology and results of the group’s impairment testing is presented in note 19.
Discontinued operations
The group normally has business disposals underway at any reporting date. There is a risk that any such businesses may not meet the accounting
standard’s criteria for presentation as discontinued at the balance sheet date either because they are not a separate major line of business
or there is uncertainty as to the likelihood of achieving the sale or the realisable value on disposal (see note 7). The latter requires a level
of judgement due to the range of potential sale prices.
Taxation
The group operates in many tax jurisdictions including countries where the tax legislation is not consistently applied and under some complex
contractual circumstances where the responsibility for tax arising is not always clear. Management are required to apply judgements and estimates
to determine the appropriate amount of tax to provide for and any required disclosure around contingent tax liabilities at each period end.
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 33.
5. REVENUE
An analysis of the group’s revenue, as defi ned by IAS 18 ‘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
Total other operating income
Total revenue as defi ned by IAS 18
Notes
6
6,7
2013
£m
165
7,064
199
7,428
1
609
12
622
15
15
2012
£m
154
6,853
221
7,228
1
808
2
811
12
12
8,065
8,051
Annual Report and Accounts 2013 G4S plc 105
Notes to the consolidated fi nancial statements continued
6. OPERATING SEGMENTS
The group operates on a worldwide basis and derives a substantial proportion of its revenue, PBITA and PBIT from each of the following
six geographic regions: Africa, Asia Middle East, Latin America, Europe, North America and UK & Ireland. For each of the reportable segments,
the group executive committee (the chief operating decision maker) reviews internal management reports on a regular basis. This presentation
has been re-aligned during the year to more closely refl ect internal management reporting which is based on geographical regions.
Segment information is presented below:
Revenue by reportable segment
and geographical area
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
Total revenue before Olympics
Olympics revenue
Total revenue
Revenue from internal and external
customers by product
Secure solutions
Cash solutions
Total revenue
Continuing
operations
2013
£m
486
1,567
717
1,648
1,358
1,652
7,428
–
7,428
Total gross
segment
revenue
2013
£m
6,735
1,325
8,060
Discontinued
operations
2013
£m
8
5
–
164
445
–
622
–
622
Total
2013
£m
494
1,572
717
1,812
1,803
1,652
8,050
–
8,050
Inter-segment
revenue
2013
£m
(8)
(2)
(10)
External
revenue
2013
£m
6,727
1,323
8,050
Continuing
operations
2012
£m
465
1,353
644
1,604
1,338
1,620
7,024
204
7,228
Total gross
segment
revenue
2012
£m
6,737
1,307
8,044
Inter-segment sales are charged at prevailing market prices. Refer to note 7 for details on discontinued operations.
PBITA by reportable segment and
geographical area
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
PBITA before head offi ce costs
Head offi ce costs
PBITA before specifi c items
Specifi c items:
Contracts review
Review of assets and liabilities
Sub total
One-off credits
Olympics
Restructuring costs
Total specifi c items
Total PBITA
Goodwill impairment
Amortisation of acquisition-related
intangible assets
Acquisition-related expenses
Profi t on disposal of assets and subsidiaries
Total PBIT
Continuing
operations
2013
£m
39
129
48
92
56
122
486
(44)
442
Discontinued
operations
2013
£m
(5)
3
–
(8)
15
–
5
–
5
(136)
(182)
(318)
–
–
(68)
(386)
56
(46)
(72)
(4)
24
(42)
–
(23)
(23)
–
–
(2)
(25)
(20)
(80)
(4)
–
–
(104)
Total
2013
£m
34
132
48
84
71
122
491
(44)
447
(136)
(205)
(341)
–
–
(70)
(411)
36
(126)
(76)
(4)
24
(146)
Continuing
operations
2012
£m
35
108
48
108
73
145
517
(47)
470
–
–
–
24
(88)
(42)
(106)
364
–
(84)
(7)
5
278
Discontinued
operations
2012
£m
15
73
1
184
538
–
811
–
811
Inter-segment
revenue
2012
£m
(5)
–
(5)
Discontinued
operations
2012
£m
2
1
–
(2)
11
–
12
–
12
–
–
–
–
–
(8)
(8)
4
(35)
(5)
–
–
(36)
Total
2012
£m
480
1,426
645
1,788
1,876
1,620
7,835
204
8,039
External
revenue
2012
£m
6,732
1,307
8,039
Total
2012
£m
37
109
48
106
84
145
529
(47)
482
–
–
–
24
(88)
(50)
(114)
368
(35)
(89)
(7)
5
242
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.
106 G4S plc Annual Report and Accounts 2013
Financial statements
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 and liabilities
By reportable segment and geographical area
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
Inter-segment trading balances
Total segment assets and liabilities
Head offi ce
Total operating assets and liabilities
Non-operating assets and liabilities
Total assets and liabilities
Total
assets
2013
£m
240
736
345
880
818
1,397
(192)
4,224
115
4,339
1,013
5,352
Total
assets
2012
£m
250
762
425
888
964
1,480
(218)
4,551
140
4,691
919
5,610
Total
liabilities
2013
£m
Total
liabilities
2012
£m
(76)
(247)
(104)
(360)
(184)
(493)
192
(1,272)
(86)
(1,358)
(3,075)
(4,433)
(73)
(215)
(105)
(348)
(205)
(357)
218
(1,085)
(65)
(1,150)
(3,229)
(4,379)
Included within operating and non-operating assets are £179m (2012: £183m) and £41m (2012: £46m) respectively relating to disposal groups
classifi ed as held for sale. Included within operating and non-operating liabilities are £93m (2012: £36m) and £40m (2012: £16m) respectively
relating to liabilities associated with disposal groups classifi ed as held for sale. Disposal groups are analysed in note 26.
Non-current operating assets
By reportable segment and geographical area
Africa
North America
Latin America
Asia Middle East
Europe
UK & Ireland
Total segment assets
Head offi ce
Total non-current operating assets
Non-operating assets
Less: Non-current assets held for sale
Total non-current assets
2013
£m
136
409
223
530
505
1,027
2,830
46
2,876
214
(102)
2,988
2012
£m
152
431
297
521
598
1,059
3,058
56
3,114
202
(94)
3,222
Non-operating assets and liabilities comprise fi nancial assets and liabilities, taxation assets and liabilities and retirement benefi t obligations.
Other information
By reportable segment
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
Head offi ce
Total
Impairment
losses
recognised
in income
2013
£m
12
5
–
14
105
7
7
150
Depreciation
and
amortisation
2013
£m
14
34
21
41
29
86
2
227
Impairment
losses
recognised
in income
2012
£m
–
–
–
–
35
–
–
35
Depreciation
and
amortisation
2012
£m
15
34
19
48
35
87
2
240
Capital
additions
2013
£m
27
40
14
47
11
65
3
207
Capital
additions
2012
£m
16
32
98
50
11
56
5
268
Annual Report and Accounts 2013 G4S plc 107
Notes to the consolidated fi nancial statements continued
7. DISCONTINUED OPERATIONS
Operations qualifying as discontinued in 2012 mainly comprised the cash and secure solutions businesses in Pakistan, which were disposed
of in October 2012, the justice business in the United States of America, which was disposed of in April 2012, and the group’s classifi ed
US Government Solutions business.
The classifi ed US Government Solutions business is still included within discontinued operations as at 31 December 2013 as it was held for sale
at that date. Due to circumstances beyond the group’s control, mainly relating to the impact on market sentiment arising out of political uncertainty
culminating with the US Government shutdown in early October 2013, the sale process has been extended and has now taken over 12 months
since the previous year end. The sale process has progressed to a stage of negotiation with potential buyers and the group is confi dent a sale
will be agreed in 2014.
Operations qualifying as discontinued in 2013 also included the group’s cash business in Canada and the group’s remaining business in Norway,
both of which were sold in January 2014.
The results of the discontinued operations are presented below:
Revenue
Expenses
Underlying PBITA
Review of assets and liabilities
Restructuring costs
Total PBITA
Impairment of goodwill and other assets to net recoverable amount
Amortisation of acquisition-related intangible assets
Operating loss before interest and taxation (PBIT)
Net fi nance costs
Attributable tax (charge)/credit
Total operating loss for the year
Loss on disposal of discontinued operations
Net loss attributable to discontinued operations
2013
£m
622
(617)
5
(23)
(2)
(20)
(80)
(4)
(104)
(1)
(8)
(113)
(3)
(116)
2012
£m
811
(799)
12
–
(8)
4
(35)
(5)
(36)
(6)
6
(36)
(20)
(56)
The effect of discontinued operations on segment results is disclosed in note 6.
The impairment of goodwill and other assets in 2013 and 2012 relates to the US Government Solutions business and reduces the carrying value
of its net assets down to their recoverable amount.
Cash fl ows from discontinued operations included in the consolidated cash fl ow statement are as follows:
Net cash fl ows from operating activities (after tax)
Net cash fl ows from investing activities
Net cash fl ows from fi nancing activities
8. PROFIT FROM OPERATIONS BEFORE INTEREST AND TAXATION (PBIT)
The income statement can be analysed as follows:
Continuing operations
Revenue
Cost of sales
Gross profi t
Administration expenses
PBIT
2013
£m
30
(18)
19
31
2013
£m
7,428
(6,066)
1,362
(1,404)
(42)
2012
£m
35
(1)
(6)
28
2012
£m
7,228
(5,812)
1,416
(1,138)
278
Cost of sales includes a charge resulting from the group’s review of assets and liabilities of £98m (2012: £nil) and a provision for the review
of contracts of £27m (2012: £nil). Cost of sales in 2012 included a £70m net loss relating to the Olympics contract.
Administration expenses include £72m of amortisation of acquisition-related intangible assets (2012: £84m), £4m of acquisition-related expenses
(2012: £7m) and are net of a £24m profi t recognised on the disposal of the group’s secure archiving business in Colombia (2012: £5m profi t
on disposal of assets and subsidiaries).
Administration expenses also include a £46m charge relating to goodwill impairment made at the half year (2012: £nil), a charge resulting
from the group’s review of assets and liabilities of £84m (2012: £nil), a provision for the settlement on the UK Electronic Monitoring contract and
two smaller contracts of £109m (2012: £nil) and restructuring costs of £68m (2012: £42m). Further details of specifi c items are given below.
Administration expenses in 2012 included £24m of one-off credits relating to fair value and other provision releases and a charge of £18m for
sponsorship and other costs relating to the Olympics contract.
108 G4S plc Annual Report and Accounts 2013
Financial statements
Specifi c items
Specifi c items have been excluded from underlying results to provide a clear comparison of the underlying trading performance of the group.
These items are set out below:
Contracts review
Review of assets and liabilities
Impairment of fi xed assets
Current asset write-downs
Impairment of receivables
Creditors, claims and provisions
Total review of assets and liabilities
Subtotal
Restructuring
Total specifi c items
As at
30 June
2013
£m
–
Since
30 June
2013
£m
136
As at
31 December
2013
£m
136
23
17
52
40
132
132
4
136
3
17
7
23
50
186
64
250
26
34
59
63
182
318
68
386
Contracts review
A global fi nancial review of 163 contracts, including UK Electronic Monitoring and other contracts, with annualised revenues of around £2bn
resulted in a £136m charge. For more details of the UK Electronic Monitoring settlement please see note 34 on page 135.
Review of assets and liabilities
A review of the group’s assets and liabilities applying more balanced judgements was initiated in the fi rst half of 2013, resulting in a PBITA charge
of £132m. This was extended to cover all legal entities during the second half of the year. Completion of this review resulted in a further charge of
£50m, bringing the full-year charge to PBITA of £182m. The total charge related principally to impairment of fi xed assets, inventory obsolescence,
write down of receivables and the recognition of employee related liabilities.
Restructuring costs
Restructuring charges of £68m (2012: £42m) were incurred during the year. These include £35m in respect of restructuring programmes in the UK
& Ireland, Finland and other European businesses. Acceleration of the restructuring programme in the fourth quarter, primarily in the Netherlands,
Belgium and in North America, resulted in additional charges of £33m.
9. PROFIT FROM OPERATIONS
Profi t from continuing and discontinued operations has been arrived at after charging/(crediting):
Continuing
2013
£m
Discontinued
2013
£m
Notes
Total
2013
£m
Continuing
2012
£m
Discontinued
2012
£m
Total
2012
£m
Cost of sales
Cost of inventories recognised as an expense
Net loss on Olympics contract
Contracts review
Review of assets and liabilities
Administration expenses
Acquisition-related expenses
Sponsorship and other costs on Olympics
contract
Restructuring costs
Amortisation of acquisition-related
intangible assets
Goodwill impairment
Contracts review
Review of assets and liabilities
One-off credits
Amortisation of other intangible assets
Depreciation of property, plant and equipment
Profi t on disposal of property,
plant and equipment
(Profi t)/loss on disposal of subsidiaries
Impairment of trade receivables
Litigation settlements
Research and development expenditure
Operating lease rentals payable
Operating sub-lease rentals receivable
8
8
8
8
8
19
8
8
18
108
–
27
98
4
–
68
72
46
109
84
–
24
118
–
(24)
20
1
5
135
(16)
5
–
–
–
–
–
2
4
80
–
23
–
2
7
–
3
–
–
–
5
–
113
–
27
98
4
–
70
76
126
109
107
–
26
125
–
(21)
20
1
5
140
(16)
84
70
–
–
7
18
42
84
–
–
–
(24)
22
117
(3)
(2)
28
1
5
126
(14)
6
–
–
–
–
–
8
5
35
–
–
–
2
10
–
20
–
–
–
5
–
90
70
–
–
7
18
50
89
35
–
–
(24)
24
127
(3)
18
28
1
5
131
(14)
Annual Report and Accounts 2013 G4S plc 109
Notes to the consolidated fi nancial statements continued
10. AUDITORS’ REMUNERATION
Fees payable to the company’s auditor for the audit of the company’s annual report and accounts
Fees payable to the company’s auditor and its associates for other services:
The audit of the company’s subsidiaries pursuant to legislation
All other services*
* Other services includes the provision of tax and non-audit advisory services.
2013
£m
1
6
1
2012
£m
1
5
1
The Corporate Governance Report on pages 52 to 60 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.
11. STAFF COSTS AND EMPLOYEES
The average monthly number of employees, in continuing and discontinued operations, including executive directors was:
By reportable segment and geographical area
Africa
Asia Middle East
Latin America
Europe
North America
UK & Ireland
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
2013
Number
2012
Number
113,964
262,818
75,118
72,152
60,238
44,672
173
629,135
2013
£m
4,665
561
215
5,441
112,347
277,028
67,190
82,333
59,062
50,168
126
648,254
2012
£m
4,689
552
211
5,452
Information on directors’ remuneration, long-term incentive plans, pension contributions and entitlements is set out in the Directors’ Remuneration
Report on pages 64 to 79.
12. FINANCE INCOME
Interest income on cash, cash equivalents and investments
Other interest income
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
Net interest receivable on loan note related derivatives
Interest on obligations under fi nance leases
Other interest charges
Total group borrowing costs
Net fi nance costs on defi ned retirement benefi t obligations
Total fi nance costs
2013
£m
14
1
(28)
28
15
2013
£m
26
100
(12)
4
5
123
20
143
2012
£m
11
1
(6)
6
12
2012
£m
35
83
(10)
3
6
117
15
132
Included within interest on bank overdrafts and loans is a charge of £6m (2012: £6m) relating to cash fl ow hedges that were transferred from
equity during the year.
110 G4S plc Annual Report and Accounts 2013
Financial statements
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 35)
Current year
Adjustments in respect of prior years
Total deferred taxation (credit)/expense
Total income tax expense/(credit)
for the year
Continuing
operations
2013
£m
Discontinued
operations
2013
£m
Total
2013
£m
Continuing
operations
2012
£m
Discontinued
operations
2012
£m
12
58
1
21
92
(23)
(13)
(36)
56
–
(4)
–
9
5
(2)
5
3
8
12
54
1
30
97
(25)
(8)
(33)
64
4
72
(3)
(1)
72
(26)
(6)
(32)
40
–
(2)
–
–
(2)
–
(4)
(4)
(6)
UK corporation tax is calculated at 23.3% (2012: 24.5%) 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:
(Loss)/profi t before taxation
Continuing operations
Discontinued operations
Total (loss)/profi t before taxation
Tax at UK corporation tax rate of 23.3% (2012: 24.5%)
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 20% from 1 April 2015
Adjustments for previous years
Total income tax charge
2013
£m
(170)
(108)
(278)
(65)
46
44
13
3
23
64
Total
2012
£m
4
70
(3)
(1)
70
(26)
(10)
(36)
34
2012
£m
158
(62)
96
24
9
8
8
(1)
(14)
34
Effective tax rate
(23)%
35%
The following taxation charge/(credit) has been recognised directly in equity within the statement of comprehensive income:
Tax relating to components of other comprehensive income
Actuarial losses on defi ned retirement benefi t schemes
Change in fair value of cash fl ow and net investment hedging fi nancial instruments
Other
Total tax debited/(credited) to other comprehensive income
2013
£m
1
3
1
5
2012
£m
(30)
(3)
(2)
(35)
Annual Report and Accounts 2013 G4S plc 111
Notes to the consolidated fi nancial statements continued
15. DIVIDENDS
Amounts recognised as distributions to equity holders
of the parent in the year
Final dividend for the year ended 31 December 2011
Interim dividend for the six months ended 30 June 2012
Final dividend for the year ended 31 December 2012
Interim dividend for the six months ended 30 June 2013
Pence
per share
DKK
per share
2013
£m
2012
£m
5.11
3.42
5.54
3.42
0.4544
0.3220
0.4730
0.2972
72
48
–
–
120
–
–
78
52
130
86
Proposed fi nal dividend for the year ended 31 December 2013
5.54
0.4954
The proposed fi nal dividend is subject to approval by shareholders at the Annual General Meeting. If so approved, it will be paid on 13 June 2014
to shareholders who are on the UK register on 2 May 2014. The exchange rate used to translate it into Danish krone is that at 11 March 2014.
16. EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO EQUITY SHAREHOLDER OF THE PARENT
From continuing and discontinued operations
(Loss)/profi t for the year attributable to equity holders of the parent
Weighted average number of ordinary shares (m) (see note below)
(Loss)/earnings per share from continuing and discontinued operations (pence)
Basic and diluted
From continuing operations
(Loss)/earnings
(Loss)/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)
(Loss)/profi t from continuing operations
(Loss)/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
(Loss)/profi t from continuing operations
Adjustments for:
Amortisation of acquisition-related intangible assets
Goodwill impairment
Acquisition-related expenses
Profi t on disposal of assets and subsidiaries
Contracts review
Other specifi c items
Restructuring
Tax on specifi c items
Non-controlling interests’ share of specifi c items
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)
112 G4S plc Annual Report and Accounts 2013
Note
2013
£m
2012
£m
(362)
40
1,452
1,403
(24.9)p
2.9p
7
(362)
116
(246)
40
56
96
(16.9)p
6.8p
(8.0)p
(4.0)p
(246)
72
46
4
(24)
136
182
68
(19)
(5)
214
1,452
14.7p
96
84
–
7
(5)
–
67
42
(43)
–
248
1,403
17.7p
Financial statements
Adjusted earnings per share
In the opinion of the directors the earnings per share fi gure of most use to shareholders is the adjusted earnings per share. 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.
Share placing
In August 2013 the group completed a 9.99% share placing which resulted in the weighted average number of shares for the year increasing
to 1,452 million.
17. ACQUISITIONS
Current year acquisitions
The group undertook a number of business combinations in the current year including the acquisition of Deposita, a cash solutions business
in South Africa.
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
1
6
Emerging
Markets
£m
9
3
12
The following table sets out the provisional fair value to the group in respect of all acquisitions made in the year:
Intangible assets
Property, plant and equipment
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Goodwill
Total purchase consideration (paid in cash)
Total
group
£m
14
4
18
Fair value
£m
15
2
2
4
3
1
(6)
(4)
(3)
14
4
18
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 £12m. 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. None of these meet the criteria for recognition as intangible assets separable
from goodwill. No goodwill acquired in the year is expected to be deductible for tax purposes.
From their respective dates of acquisition, the acquired businesses contributed £28m to revenues, £4m 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 2013, group revenue would have been £7,434m,
underlying PBITA would have been £443m and total loss for the year would have been £341m.
Annual Report and Accounts 2013 G4S plc 113
Notes to the consolidated fi nancial statements continued
17. ACQUISITIONS (CONTINUED)
Prior year acquisitions
Principal acquisitions in subsidiary undertakings in the prior year included the purchase of a 100% interest in Vanguarda Segurança e Vigilância Ltda
‘Vanguarda’, a security personnel, security systems and monitoring services provider in Brazil.
At 31 December 2012, the fair value adjustments made against net assets acquired were provisional. The initial accounting in respect of acquisitions
made during 2012 has since been fi nalised. This resulted in fair value adjustments to acquired trade debtors (increase of £9m), trade creditors
(decrease of £3m) and provisions (decrease of £3m) with a resulting £15m decrease in the value of goodwill.
The net assets acquired and goodwill arising in respect of all acquisitions made in 2012 are as follows:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Borrowings
Deferred tax liabilities
Net assets acquired of subsidiary undertakings
Goodwill
Total purchase consideration
Fair value
£m
31
1
16
17
(19)
(4)
(1)
(9)
32
61
93
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 £31m.
In the year of acquisition, in aggregate, the acquired businesses contributed £39m to revenues, £4m to PBITA and £1m to profi t for the part year
they were under the group’s ownership. If all acquisitions had occurred on 1 January 2012, group revenue would have been £7,264m, underlying
PBITA would have been £472m and total profi t for the year would have been £64m.
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
During the current year the group disposed of its data solutions business in Colombia and its cash business in Slovakia. Since the year end the
group has disposed of its business in Norway (for proceeds of £29m) and its cash solutions business in Canada (for proceeds of £60m). In the
prior year the group disposed of its cash solutions business in Sweden, a justice services business in the United States of America, its security
systems business in the Netherlands and its businesses in Poland and Pakistan.
The net assets and profi t on disposal of operations disposed of were as follows:
Goodwill
Property, plant and equipment and intangible assets other than acquisition-related
Current assets
Liabilities
Net assets of operations disposed
Profi t/(loss) on disposal
Total consideration
Satisfi ed by:
Cash received
Disposal costs
Total consideration
2013
£m
–
8
11
(5)
14
21
35
35
–
35
2012
£m
10
18
26
(17)
37
(18)
19
25
(6)
19
114 G4S plc Annual Report and Accounts 2013
Financial statements
Acquisition-related intangible assets
Goodwill
£m
Trademarks
£m
Customer
related
£m
Technology
£m
Other
intangibles
£m
2,170
4
–
–
(45)
(66)
2,063
(62)
–
(46)
–
–
11
(97)
2,108
1,966
2,275
61
–
(5)
(88)
(73)
2,170
(70)
–
(35)
1
35
7
(62)
2,205
2,108
33
–
–
–
(1)
–
32
(30)
(2)
–
–
1
–
(31)
3
1
34
–
–
(1)
–
–
33
(28)
(3)
–
1
–
–
(30)
6
3
675
12
–
–
(18)
(12)
657
(475)
(73)
–
–
17
11
(520)
200
137
673
31
–
(2)
(14)
(13)
675
(412)
(85)
–
2
11
9
(475)
261
200
6
3
–
–
–
–
9
(5)
(1)
–
–
–
–
(6)
1
3
19
–
–
(12)
–
(1)
6
(17)
(1)
–
12
–
1
(5)
2
1
199
–
27
(5)
(14)
(7)
200
(112)
(26)
–
4
8
3
(123)
87
77
185
–
25
(10)
–
(1)
199
(98)
(24)
–
6
–
4
(112)
87
87
Total
£m
3,083
19
27
(5)
(78)
(85)
2,961
(684)
(102)
(46)
4
26
25
(777)
2,399
2,184
3,186
92
25
(30)
(102)
(88)
3,083
(625)
(113)
(35)
22
46
21
(684)
2,561
2,399
19. INTANGIBLE ASSETS
2013
Cost
At 1 January 2013
Acquisition of businesses
Additions
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2013
Amortisation and accumulated
impairment losses
At 1 January 2013
Amortisation charge
Impairment charge
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2013
Carrying amount
At 1 January 2013
At 31 December 2013
2012
Cost
At 1 January 2012
Acquisition of businesses
Additions
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2012
Amortisation and accumulated
impairment losses
At 1 January 2012
Amortisation charge
Impairment charge
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2012
Carrying amount
At 1 January 2012
At 31 December 2012
Annual Report and Accounts 2013 G4S plc 115
Notes to the consolidated fi nancial statements continued
19. INTANGIBLE ASSETS (CONTINUED)
Goodwill allocation
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 the group’s 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.
Goodwill impairment testing
The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications
that any of these assets 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 with 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.
The recoverable amount of a CGU is generally determined by its value in use which is derived from discounted cash fl ow calculations. The key
inputs to the calculations are described below. In certain circumstances, where market prices can be ascertained (for example through recent
transactions), fair value less costs to sell is used as a basis for the recoverable amount.
Forecast cash fl ows
All operating countries in the group are required to submit a budget for the next fi nancial year (for the current year test this is for the year
ended 31 December 2014) and their strategic plan forecasts for the following two years (in this case the years ended 31 December 2015
and 31 December 2016).
The revenue fi gures submitted as part of this exercise are used to derive a growth rate for the discounted cash fl ow calculation (see the growth
rate table below). The group applies a 10% forecast risk to reduce revenue forecasts in each year to refl ect the uncertainties inherent in estimating
future revenue streams.
Forecast cash fl ows are adjusted from year 4 onwards by applying a growth rate as detailed in the growth rate section, and discounted using
specifi c risk-adjusted discount rates as described in the discount rate section.
Growth Rate
Growth rates are determined from the budgeted and forecast revenue in years 1-3 and then projected using the lower of the forecast growth
rate and the country’s nominal growth rate (per the IMF) to a terminal growth rate in year 15 of 1% for developed markets or 3% for emerging
markets. This is detailed in the table below:
Growth
assumptions
Input
Year 1
Budget*
Year 2
Forecast*
Year 3
Forecast*
Example
8%
7%
6%
* Budgets and forecasts are reviewed by the group Board.
Year 4
Projected – to
year 5 at lower
of forecast or
country growth
5%
Year 5
Projected –to
year 5 at lower
of forecast or
country growth
4%
Year 6 to 15
Projected to
year 15
‘terminal growth’
Terminal value
Estimate of residual
growth: developed
1%; emerging 3%
4% to 1%
over 10 years
1%
In the above example, budgeted year 1 growth rate is 8%, forecast growth in year 2 is 7% and in year 3 is 6%. The country growth rate is 4%
so the growth rate is reduced each year to reach 4% at year 5. From year 6 the growth rate is then reduced over the next ten years to provide
a terminal value growth of 1% (the example is based on a developed market CGU).
Discount rate
Discount rates are calculated for each CGU based on the relevant local risk-free rate adjusted for that CGU’s specifi c risk-adjusted equity risk
premium. For the impairment test performed for the year ended 31 December 2013 the group has revised the calculation of the discount rates
applied to certain CGU’s. This revision adjusts for the current low-interest rate environment by increasing abnormally low discount rates. Details
of how the other key discount rate inputs are derived are given below:
Input
Risk free rate
UK equity risk premium
Operating country
equity risk premium
Leveraged beta
Tax rate
Debt margin
Weighted average
cost of capital
How determined
The risk free rate is generally obtained from the applicable government’s 10 year gilt/bond
rates. Where these are unavailable the group uses the closest available information
(eg shorter term gilt rates).
The equity risk premium is determined for the UK by analysing a variety of sources including
economic studies carried out by Barclays Capital and others.
Specifi c local equity risk premiums are based on the UK risk premium adjusted for specifi c
economic and fi nancial risks. The sources for these adjustments are the Institutional Investor
Magazine and the IMF website as well as other studies by independent economists.
Beta is a risk adjustment applied to the discount rate to refl ect the risk of the group’s
operating companies relative to the market as a whole. The group’s beta is obtained from
independent market studies and is adjusted for the appropriate leverage of the group.
Local tax rates are applied to each CGU to calculate pre-tax cost of equity.
The group applies a margin to the cost of debt for each CGU, with a higher margin applied
to those CGUs operating in higher risk environments. These margins range from 1.5%
in less risky CGUs (for example in the UK) to 5-6% in more risky CGUs (eg 5.5% in Yemen).
The weighted average cost of capital is calculated by weighting the cost of equity and the
cost of debt by the applicable debt:equity ratio at the year end.
31 Dec 2013
2.83% in UK
5.0% in UK
0.8 for the
group
23% in UK
1.5% in UK
8.6% in UK
116 G4S plc Annual Report and Accounts 2013
The table below sets out the discount rates and growth rates used for the group’s signifi cant countries:
South Africa
Brazil
Canada**
United States of America
Hong Kong
Malaysia
Estonia
Israel
Netherlands
United Kingdom
Other (all allocated)
Total goodwill
Discount rate
2013
16.0%
18.4%
8.2%
9.0%
9.2%
10.4%
9.2%
10.4%
8.9%
8.6%
Discount rate
2012
14.0%
14.8%
6.9%
7.4%
5.4%
8.6%
7.4%
9.4%
7.0%
7.1%
Growth rate*
2013
8.5%
8.0%
4.0%
5.3%
7.5%
7.4%
6.2%
1.0%
3.1%
4.3%
Growth rate*
2012
9.0%
8.7%
2.8%
5.2%
7.3%
7.5%
3.6%
2.0%
3.6%
2.8%
Financial statements
Goodwill
2013
£m
30
98
8
384
38
40
63
36
150
710
409
1,966
Goodwill
2012
£m
36
142
51
395
39
43
61
34
146
706
455
2,108
* Lower of country growth rate per IMF and implied year 3 business forecast growth rate.
** £45m of goodwill in respect of the cash solutions business in Canada was reclassifi ed as held for sale in 2013.
Within the UK, the most signifi cant CGUs and their goodwill carrying values are UK Care and Justice (£247m), UK Cash Solutions (£205m)
and UK Secure Solutions (£102m). Within the USA, the most signifi cant CGU is US Commercial Security Solutions with goodwill of £302m.
Impairment
During the year ended 31 December 2013 impairment charges totalling £46m were recorded in respect of the group’s goodwill,
in the following countries:
Democratic Republic of Congo
Malawi
Nigeria
Brazil
Ireland
Other impaired
Non-impaired
Total
Goodwill
pre-
impairment
8
3
9
122
17
7
1,846
2,012
Impairment
(4)
(2)
(4)
(24)
(5)
(7)
–
(46)
Goodwill
post-
impairment Growth rate* Discount rate
42.7%
50.0%
25.6%
18.4%
10.1%
11.4%
10.6%
13.6%
8.0%
4.2%
4
1
5
98
12
–
1,846
1,966
* Lower of country growth rate per IMF and implied year 3 business forecast growth rate.
The impairment charge in Brazil was driven by losses incurred in the fi rst half of the year in the technology business and a general downturn in
trading. The impairment in Ireland was as a result of the economic challenges in the country and the specifi c situation of the group’s cash business.
Certain CGUs in Africa were impaired as a result of worsening economic and political circumstances in those countries.
Sensitivity to key assumptions
The key assumptions used in the discounted cash fl ow calculations relate to the discount rates and growth rates used. The table below shows the
additional impairment that would arise from an increase in discount rates by 1% and 3% (with all other variables being equal, for example taking
the UK base rate from 8.6% to 9.6% and 11.6%) or a decrease in growth rates by 1% and 3% (with all other variables being equal, for example
taking the UK growth rate from 4.3% to 3.3% and 1.3%) for the group in total and for each of its signifi cant countries.
South Africa
Brazil
Canada
United States of America
Hong Kong
Malaysia
Estonia
Israel
Netherlands
United Kingdom
Other (all allocated)
Total
Goodwill
2013
£m
30
98
8
396
38
40
63
36
150
710
397
1,966
Base
discount
rate
2013
16.0%
18.4%
8.2%
9.0%
9.2%
10.4%
9.2%
10.4%
8.9%
8.6%
Additional impairment
1% increase
2013
£m
–
6
–
–
–
–
7
–
11
–
2
26
3% increase
2013
£m
–
16
–
–
–
–
22
–
28
47
9
122
Base
growth
rate*
2013
8.5%
8.0%
4.0%
5.3%
7.5%
7.4%
6.2%
1.0%
3.1%
4.3%
Additional impairment
1% decrease
2013
£m
–
4
–
–
–
–
6
–
6
–
1
17
3% decrease
2013
£m
–
12
–
–
–
–
18
–
15
22
6
73
* Lower of country growth rate per IMF and implied year 3 business forecast growth rate.
Annual Report and Accounts 2013 G4S plc 117
Notes to the consolidated fi nancial statements continued
20. PROPERTY PLANT AND EQUIPMENT
2013
Cost
At 1 January 2013
Acquisition of businesses
Additions
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2013
Depreciation and accumulated impairment losses
At 1 January 2013
Depreciation charge
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2013
Carrying amount
At 1 January 2013
At 31 December 2013
2012
Cost
At 1 January 2012
Acquisition of businesses
Additions
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2012
Depreciation and accumulated impairment losses
At 1 January 2012
Depreciation charge
Disposals
Reclassifi ed as held for sale
Translation adjustments
At 31 December 2012
Carrying amount
At 1 January 2012
At 31 December 2012
Land and
buildings
£m
Equipment
and vehicles
£m
240
–
21
(10)
(5)
(2)
244
(77)
(15)
8
4
1
(79)
163
165
222
–
24
(3)
(2)
(1)
240
(67)
(15)
4
1
–
(77)
155
163
983
2
138
(63)
(35)
(29)
996
(634)
(110)
47
22
4
(671)
349
325
1,012
1
126
(89)
(15)
(52)
983
(636)
(112)
65
10
39
(634)
376
349
Total
£m
1,223
2
159
(73)
(40)
(31)
1,240
(711)
(125)
55
26
5
(750)
512
490
1,234
1
150
(92)
(17)
(53)
1,223
(703)
(127)
69
11
39
(711)
531
512
The net book value of equipment and vehicles held under fi nance leases was £52m (2012: £57m). Accumulated depreciation on these assets
was £124m (2012: £116m) and the depreciation charge for the year was £17m (2012: £19m).
The rights over fi nance leased assets are effectively security for lease liabilities. These rights revert to the lessor in the event of default.
The net book value of equipment and vehicles includes £26m (2012: £34m) of assets leased by the group to third parties under operating leases.
Accumulated depreciation on these assets was £97m (2012: £91m) and the depreciation charge for the year was £7m (2012: £9m).
The net book value of land and buildings comprises freeholds of £73m (2012: £71m), long leaseholds of £20m (2012: £20m) and short leaseholds
of £72m (2012: £72m).
118 G4S plc Annual Report and Accounts 2013
Financial statements
21. INVESTMENT IN JOINT VENTURES
At the year end the group owned 59% of the equity of Bridgend Custodial Services Ltd. The group jointly shares operational and fi nancial control
over the operations and is therefore entitled to a proportionate share of its results, 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%. During the year the
group acquired a 50% share of the equity of Policity Limited, to construct and run a police training academy facility in Israel, which also operates
under a similar arrangement.
The results of each of the jointly controlled operations are prepared in accordance with group accounting policies. The way the group accounts
for joint ventures will change in 2014 with the adoption of IFRS 11 ‘Joint Arrangements’, as explained in note 3(v). In particular, the group will no
longer account for joint ventures using the proportionate method and will instead apply the equity method.
Amounts proportionately consolidated into the group’s fi nancial statements are as follows:
Results
Revenue
Expenses
Profi t after tax
Balance sheet
Assets
Non-current assets
Current assets
Liabilities
Current liabilities
Non-current liabilities
Net assets
22. INVENTORIES
Raw materials
Work in progress
Finished goods including consumables
Total inventories
2013
£m
43
(39)
4
2013
£m
22
24
(9)
(32)
5
2013
£m
14
14
89
117
2012
£m
36
(32)
4
2012
£m
16
6
(10)
(7)
5
2012
£m
16
16
96
128
23. INVESTMENTS
Investments comprise primarily listed securities of £29m (2012: £40m) held by the group’s wholly-owned captive insurance subsidiaries. These are
stated at their fair values based on quoted market prices consistent with level 1 of the valuation hierarchy. Use of these investments is restricted
to the settlement of claims against the group’s captive insurance subsidiaries.
24. TRADE AND OTHER RECEIVABLES
Within current assets
Trade debtors
Allowance for doubtful debts
Other debtors (including tax receivable)
Prepayments and accrued income
Amounts due from construction contract customers
Derivative fi nancial instruments at fair value
Total trade and other receivables included within current assets
Within non-current assets
Derivative fi nancial instruments at fair value
Other debtors*
Total trade and other receivables included within non-current assets
Notes
25
31
31
2013
£m
1,159
(39)
154
82
23
15
1,394
74
56
130
2012
£m
1,243
(46)
173
88
22
26
1,506
81
51
132
* Other debtors include amounts receivable under service concession arrangements of £22m (2012: £13m) which are pledged as security against borrowings
of the group.
Annual Report and Accounts 2013 G4S plc 119
Notes to the consolidated fi nancial statements continued
24. TRADE AND OTHER RECEIVABLES (CONTINUED)
Credit risk on trade receivables
There is limited concentration of credit risk with respect to trade receivables, as the group’s customers are both large in number and dispersed
geographically in 120 countries. The group’s largest customer is the UK Government which comprises approximately 13% (2012:10%) of the total
trade debtor balance as at 31 December 2013. 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
The ageing of trade debtors, net of allowance for doubtful debts, is as follows:
Not yet due
1-30 days overdue
31-60 days overdue
61-90 days overdue
91-180 days overdue
181-365 days overdue
Over 365 days overdue
Net trade debtors
2013
£m
(46)
20
(13)
(39)
2013
£m
887
132
27
28
38
6
2
1,120
2012
£m
(67)
28
(7)
(46)
2012
£m
890
161
70
29
26
7
14
1,197
Included within ‘not yet due’ in the prior year is £75m relating to the Olympics contract settlement.
No additional provision has been made on the above amounts 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 2013 that were overdue for payment was 21% (2012: 26%). The group-wide average age of all trade debtors at year end
was 54 days (2012: 60 days).
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.
25. CONSTRUCTION CONTRACTS
Amounts due from contract customers included in trade and other receivables
Amounts due to contract customers included in trade and other payables
Net balances relating to construction contracts
Contract costs incurred plus recognised profi ts less recognised losses to date
Less: progress billings
Net balances relating to construction contracts
Notes
24
30
2013
£m
23
(2)
21
287
(266)
21
2012
£m
22
(2)
20
311
(291)
20
At 31 December 2013, advances received from customers for contract work amounted to £4m (2012: £4m). 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.
120 G4S plc Annual Report and Accounts 2013
Financial statements
26. DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE
At 31 December 2013, disposal groups classifi ed as held for sale primarily comprised the assets and liabilities associated with the classifi ed
Government Solutions business in the United States of America (see note 7), the group’s business in Norway which was sold in January 2014
and the cash solutions business in Canada which was also sold in January 2014. A further impairment charge of £80m has been applied to
goodwill and other assets in the US Government Solutions business during the year.
At 31 December 2012, disposal groups classifi ed as held for sale primarily comprised the assets and liabilities associated with the classifi ed
Government Solutions business in the United States of America, which were subject to a £35m impairment charge to goodwill in the prior year
to write down their assets to their estimated recoverable value.
The major classes of assets and liabilities comprising the operations classifi ed as held for sale are as follows:
ASSETS
Goodwill
Acquisition-related intangible assets
Property, plant and equipment and intangible assets other than acquisition-related
Interest in associates
Trade and other receivables (non-current)
Deferred tax asset
Trading investments
Inventories
Trade and other receivables (current)
Cash and cash equivalents
Total assets classifi ed as held for sale
LIABILITIES
Bank loans
Trade and other payables
Retirement benefi t obligations
Deferred tax liability
Total liabilities associated with assets classifi ed as held for sale
Net assets of disposal group
2013
£m
2012
£m
45
1
20
12
10
14
12
2
89
15
220
(19)
(93)
(17)
(4)
(133)
87
53
3
6
5
12
15
11
–
104
20
229
(1)
(36)
(13)
(2)
(52)
177
27. 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
2013
£m
594
(22)
15
587
2012
£m
469
(17)
20
472
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 2013 bore interest at a weighted average rate of 0.7% (2012: 0.5%). The credit risk on cash and cash equivalents
is limited because wherever possible and in accordance with Group Treasury policy, the cash is placed with bank counterparties that hold
investment grade credit ratings assigned by international credit-rating agencies.
The group operates a multi-currency notional pooling cash management system which included over 140 group companies at 31 December 2013.
It is expected 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 2013 £422m (2012: £360m) of the
cash balances and the equivalent amount of the overdraft balances were offset.
Cash and cash equivalents of £39m (2012: £27m) 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.
Annual Report and Accounts 2013 G4S plc 121
Notes to the consolidated fi nancial statements continued
28. 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
– Loan notes
Amount due for settlement after 12 months
* Loan notes includes £716m (2012: £794m) of private loan notes and £1,266m (2012: £1,245m) of public loan notes.
Analysis of bank overdrafts, bank loans and loan notes by currency:
Bank overdrafts
Bank loans
Loan notes
At 31 December 2013
Bank overdrafts
Bank loans
Loan notes
At 31 December 2012
Sterling
£m
1
–
419
420
6
137
419
562
Euro
£m
8
37
915
960
1
73
895
969
US Dollar
£m
6
80
648
734
7
99
725
831
2013
£m
22
196
1,982
2,200
110
96
1,392
602
2,200
(22)
(27)
(61)
(110)
2,090
Other
£m
7
79
–
86
3
36
–
39
2012
£m
17
345
2,039
2,401
75
86
1,059
1,181
2,401
(17)
(18)
(40)
(75)
2,326
Total
£m
22
196
1,982
2,200
17
345
2,039
2,401
Of the borrowings in currencies other than sterling, £1,014m (2012: £1,078m) is designated as a net investment hedge.
The weighted average interest rates on bank overdrafts, bank loans and loan notes at 31 December 2013 adjusted for hedging were as follows:
Bank overdrafts
Bank loans
Private loan notes
Public loan notes
2013
%
1.1
3.5
4.2
4.3
2012
%
1.5
3.5
4.5
4.2
The group’s committed bank borrowings comprise a £1,100m multi-currency revolving credit facility with a maturity date of March 2016.
At 31 December 2013, undrawn committed available facilities amounted to £965m (2012: £856m). 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 32.
The group issued fi xed rate loan notes in the US Private Placement market totalling US$550m (£332m) 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 (£310m) and £69m on 15 July 2008.
$65m notes matured and were repaid on 15 July 2013, with the remaining notes maturing in 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.
During 2012 the group issued two further public notes, a €600m note issued in May 2012 maturing May 2017 and a €500m note
issued in December 2012 maturing December 2018.
122 G4S plc Annual Report and Accounts 2013
Financial statements
The committed bank facilities and the private loan notes are subject to one fi nancial covenant (net debt to EBITDA ratio where EBITDA
is calculated as underlying group PBITA plus depreciation and amortisation) 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 2013 and the year to 31 December 2012.
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, the loan notes issued in May 2009, €510m of the loan notes issued in May 2012
and €380m of the loan notes issued in December 2012 are stated at amortised cost. The loan notes issued in March 2007, €90m of the loan notes
issued in May 2012 and €120m of the loan notes issued in December 2012 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.
US$200m (£121m) of the loan notes issued in July 2008 have a fair value market gain of £21m (2012: £31m) resulting from the cross currency
swaps fi xing the sterling value of this portion of the loan notes at an exchange rate of 1.975.
€325m (£270m) of the loan notes issued in May 2012 have a fair value market gain of £5m (2012: loss £5m) partly resulting from the cross
currency swaps fi xing the sterling value of this portion of the loan notes at an exchange rate of 1.222 and partly resulting from the cross currency
swaps fi xing the sterling and euro interest rates.
€350m (£291m) of the loan notes issued in December 2012 have a fair value market gain of £16m (2012: £2m) partly resulting from the cross
currency swaps fi xing the sterling value of this portion of the loan notes at an exchange rate of 1.233 and partly resulting from the cross currency
swaps fi xing the sterling and euro interest rates.
29. OBLIGATIONS UNDER FINANCE 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
2013
£m
Minimum
lease
payments
2012
£m
23
31
3
57
(5)
52
20
42
4
66
(5)
61
Present
Value of
minimum
lease
payments
2013
£m
21
28
3
52
Present
value of
minimum
lease
payments
2012
£m
18
40
3
61
(21)
31
(18)
43
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 2013, the weighted average effective borrowing rate was 4.8% (2012: 4.9%). 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 group’s obligations under fi nance leases are secured by the lessors’ charges over the leased assets.
30. TRADE AND OTHER PAYABLES
Within current liabilities:
Trade creditors
Amounts due to construction contract customers
Amounts owed to associated undertakings
Other taxation and social security costs
Holiday pay accruals
Other creditors
Accruals and deferred income
Derivative fi nancial instruments at fair value
Total trade and other payables included within current liabilities
Within non-current liabilities:
Derivative fi nancial instruments at fair value
Other creditors
Total trade and other payables included within non-current liabilities
Notes
25
31
31
2013
£m
223
2
2
200
336
95
312
2
1,172
2
11
13
2012
£m
232
2
2
228
356
74
294
5
1,193
6
12
18
Trade and other payables comprise principally amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 43 days (2012: 42 days).
Annual Report and Accounts 2013 G4S plc 123
Notes to the consolidated fi nancial statements continued
31. DERIVATIVE FINANCIAL 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
2013
£m
42
–
46
1
89
(74)
15
Assets
2012
£m
32
–
73
2
107
(81)
26
Liabilities
2013
£m
–
2
1
1
4
(2)
2
Liabilities
2012
£m
5
6
–
–
11
(6)
5
Derivative fi nancial instruments are stated at fair value, measured using techniques consistent with Level 2 of the valuation hierarchy (inputs other
than quoted prices in active markets that are observable for the asset and liability, either directly or indirectly). 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 fallen by £11m during the year.
The interest rate, cross currency and commodity swaps treated as cash fl ow hedges 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
Assets
2013
£m
1
16
–
5
21
43
Assets
2012
£m
9
–
17
–
8
34
Liabilities
2013
£m
1
–
2
–
–
3
The projected settlement of cash fl ows (including accrued interest) associated with derivatives treated as cash fl ow hedges:
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
Assets
2013
£m
1
16
–
11
26
54
Assets
2012
£m
7
3
–
17
17
44
Liabilities
2013
£m
6
4
4
–
–
14
Liabilities
2012
£m
1
2
–
3
5
11
Liabilities
2012
£m
7
6
5
4
–
22
32. FINANCIAL RISK
Capital management
On 28 August 2013 the group raised equity capital amounting to £348m before costs. The net proceeds of £343m were used to reduce debt
that was drawn on the group’s £1.1bn bank facility.
In May 2013, Standard & Poor’s downgraded the group’s long term credit rating to BBB- Negative. However, following the equity capital raising
the group’s rating was revised to BBB- Stable in September 2013. The group intends to continue to manage its capital structure so that it retains
an investment grade rating.
The group’s policy is to maintain a net debt to EBITDA ratio to below 2.5 times. At the end of 2013 the ratio was 2.6 times, before £89m
of divestment proceeds received in January 2014. It is expected the ratio will be within the target range in 2014.
The group is currently well fi nanced with £965m available and undrawn facilities from its committed £1.1bn bank facility. It has no signifi cant
maturity until March 2016 and has a medium to long term debt maturity profi le. The group can access fi nance from the debt capital markets
and the bank market. Borrowings are principally in sterling, US dollars and euros refl ecting the geographies of signifi cant operational assets
and profi ts.
124 G4S plc Annual Report and Accounts 2013
Financial statements
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 28.
The percentage of available, but undrawn committed facilities during the course of the year was as follows:
31 December 2012
31 March 2013
30 June 2013
30 September 2013
31 December 2013
28%
25%
25%
32%
32%
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.
Re-fi nancing risk is further reduced by group treasury opening negotiations to either replace or extend any major medium term facility at least
12 months before its termination date.
Maturity profi le of loans and borrowings
The contractual maturities of fi nancial assets and liabilities, together with the carrying amounts in the statement of fi nancial position, including
interest payments, estimated based on expectations at the reporting date, are shown below:
31 December 2013
Investments
Derivative fi nancial instruments (interest rate swaps)
Financial assets designated at fair value
through profi t or loss
Derivative fi nancial instruments (commodity swaps)
Derivative fi nancial instruments
(cross currency swaps)
Financial assets designated as cash fl ow hedges
Net trade receivables
Cash and cash equivalents
Other fi nancial assets
Loans and receivables
Loan notes
(issued March 2007, 5.77%-6.06%, maturing 2014-22)
Derivative fi nancial instruments (interest rate swaps)
Financial liabilities designated as fair value hedges
Derivative fi nancial instruments (interest rate swaps)
Derivative fi nancial instruments (commodity swaps)
Financial liabilities designated as cash fl ow hedges
Loan notes
(issued July 2008, 6.09%-7.56%, maturing 2015-20)
Loan notes
(issued May 2009, 7.75%, maturing 2019)
Loan notes
(issued May 2012, 2.875%, maturing 2017)*
Loan notes
(issued December 2012, 2.625%, maturing 2018)*
Bank loans
Overdrafts
Finance lease liabilities
Trade payables
Other liabilities
Financial liabilities measured at amortised cost
Notes
23
31
31
31
24
27
24
28
31
31
31
28
28
28
28
28
28
29
30
30
Carrying
Amount
39
46
Fair Value
39
46
Total
contractual
cash fl ows
39
53
Within
1 year
39
16
2-5 years
–
35
Over
5 years
–
2
85
1
42
43
1,120
594
22
1,736
(377)
(1)
(378)
(2)
(1)
(3)
(340)
(350)
(500)
(415)
(196)
(22)
(52)
(223)
(11)
(2,109)
85
1
42
43
1,120
594
22
1,736
(377)
(1)
(378)
(2)
(1)
(3)
(381)
(376)
(508)
(410)
(196)
(22)
(52)
(223)
(11)
(2,179)
92
1
42
43
1,120
594
22
1,736
(420)
(1)
(421)
(3)
(1)
(4)
(418)
(513)
(556)
(471)
(196)
(22)
(52)
(223)
(11)
(2,462)
55
1
(3)
(2)
1,120
594
–
1,714
(78)
1
(77)
(2)
–
(2)
(23)
(27)
(14)
(11)
(27)
(22)
(21)
(223)
–
(368)
35
–
45
45
–
–
22
22
(175)
(2)
(177)
(1)
(1)
(2)
(344)
(109)
(542)
(460)
(169)
–
(28)
–
(11)
(1,663)
2
–
–
–
–
–
–
–
(167)
–
(167)
–
–
–
(51)
(377)
–
–
–
–
(3)
–
–
(431)
* €90m (£75m) of May 2012 loan notes and €120m (£100m) of December 2012 loan notes are recorded at fair value through profi t or loss.
Annual Report and Accounts 2013 G4S plc 125
Notes to the consolidated fi nancial statements continued
32. FINANCIAL RISK
31 December 2012
Investments
Derivative fi nancial instruments (interest rate swaps)
Financial assets designated at fair value through
profi t or loss
Derivative fi nancial instruments (commodity swaps)
Derivative fi nancial instruments
(cross currency swaps)
Financial assets designated as cash fl ow hedges
Net trade receivables
Cash and cash equivalents
Other fi nancial assets
Loans and receivables
Loan notes
(issued March 2007, 5.77%-6.06%,
maturing 2014-22)
Financial liabilities designated as fair value hedge
Derivative fi nancial instruments (interest rate swaps)
Derivative fi nancial instruments
(cross-currency swaps)
Financial liabilities designated as cash fl ow hedges
Loan notes
(issued July 2008, 6.09%-7.56%,
maturing 2013-20)
Loan notes
(issued May 2009, 7.75%, maturing 2019)
Loan notes
(issued May 2012, 2.875%, maturing 2017)*
Loan notes
(issued December 2012, 2.625%, maturing 2018)*
Bank loans
Overdrafts
Finance lease liabilities
Trade payables
Other liabilities
Financial liabilities measured at amortised cost
Notes
23
31
31
31
24
27
24
28
31
31
28
28
28
28
28
28
29
30
30
Carrying
Amount
56
73
Fair Value
56
73
Total
contractual
cash fl ows
56
81
129
129
137
2
32
34
1,197
469
13
1,679
(409)
(409)
(6)
(5)
(11)
(385)
(350)
(489)
(406)
(345)
(17)
(61)
(232)
(12)
(2,297)
2
32
34
1,192
469
13
1,674
(409)
(409)
(6)
(5)
(11)
(354)
(350)
(507)
(409)
(345)
(17)
(61)
(232)
(12)
(2,287)
2
32
34
1,192
469
13
1,674
(448)
(448)
(6)
(5)
(11)
(514)
(540)
(557)
(469)
(345)
(17)
(61)
(232)
(12)
(2,747)
Within
1 year
56
18
2-5 years
–
52
Over
5 years
–
11
74
2
6
8
1,192
469
–
1,661
(20)
(20)
(3)
(2)
(5)
(66)
(27)
(14)
(11)
(18)
(17)
(18)
(232)
–
(403)
52
–
12
12
–
–
13
13
11
–
14
14
–
–
–
–
(249)
(249)
(179)
(179)
(3)
(3)
(6)
(198)
(109)
(543)
(42)
(327)
–
(40)
–
(12)
(1,271)
–
–
–
(250)
(404)
–
(416)
–
–
(3)
–
–
(1,073)
The gross cash fl ows disclosed in the tables above represent the contractual undiscounted cash fl ows relating to derivative fi nancial liabilities
held for risk management purposes and which are usually not closed out before contractual maturity. The disclosure shows net cash fl ow amount
for derivatives that are net cash-settled and gross cash infl ow and outfl ow amounts for derivatives that have simultaneous gross cash settlement –
e.g. forward exchange contracts.
* €90m (£73m) of May 2012 loan notes and €120m (£97m) of December 2012 loan notes are recorded at fair value through profi t or loss.
126 G4S plc Annual Report and Accounts 2013
Financial statements
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.
At 31 December 2013, the group’s US dollar and euro net assets were approximately 82% and 59% respectively hedged by foreign currency
loans (2012: US dollar 85%, euro 60%).
Cross currency swaps with a nominal value of £101m are in place hedging the foreign currency risk on US$200m 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.
Cross currency swaps with a nominal value of £266m were arranged to hedge the foreign currency risk on €325m of the euro public notes issued
in May 2012, effectively fi xing the sterling value of this portion of debt at an exchange rate of 1.2217.
Cross currency swaps with a nominal value of £284m were arranged to hedge the foreign currency risk on €350m of the euro public notes issued
in December 2012, effectively fi xing the sterling value of this portion of debt at an exchange rate of 1.2332.
Assuming a 1% appreciation of sterling against the US dollar and the euro, the fair value net gain on the cross currency swaps which hedge part
of the currency loan notes would be expected to fall by £7m.
Interest rate risk and interest rate swaps
Borrowing at fl oating rates as described in note 28 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 2013 the nominal value of such contracts
was £97m (in respect of US dollar) (2012: £98m) and £37m (in respect of euro) (2012: £73m); their weighted average interest rate was 1.3%
(US dollar) (2012: 1.3%) and 2.8% (euro) (2012: 3.2 %), and their weighted average period to maturity was two 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 wanting 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, the sterling public notes issued in May 2009, 510m of the euro public notes
issued in May 2012 and 380m of the euro public notes issued in December 2012 was kept at fi xed rate.
All three public notes have a coupon step up of 1.25% which is triggered should the credit rating of G4S plc fall below investment grade.
The core group borrowings are held in US dollar, euro and sterling. Although the impact of rising interest rates is largely shielded by fi xed rate
loans and interest rate swaps which provide certainty on the vast majority of the exposure, some interest rate risk remains. A 1% increase
in interest rates across the yield curve in each of these currencies with the 31 December 2013 debt position constant throughout 2014,
would lead to an expectation of an additional interest charge of £8m in the 2014 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 41 million litres of projected 2014 diesel consumption, 27 million litres of projected 2015 diesel consumption and 9 million litres of
projected 2016 diesel consumption were in place at 31 December 2013.
Counterparty credit risk
The group’s strategy for credit risk management is to set minimum credit ratings for counterparties and monitor these on a regular basis.
For treasury-related transactions, the policy limits the aggregate credit risk assigned to a counterparty. The utilisation of a credit limit is calculated
by applying a weighting to the notional value of each 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 also closely monitored against policy limits assigned to each
counterparty. 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 BBB+/Baa1 from Standard & Poor’s or Moody’s.
Treasury transactions are dealt with the group’s relationship banks, all of which have a strong investment grade rating. At 31 December 2013
the largest two counterparty exposures related to treasury transactions were £29m and £28m and both were held with institutions with a long
term Standard & Poor’s credit rating of A and A- respectively. These exposures represent 13% and 12% of the carrying values of the treasury
transactions, with a fair value gain at the balance sheet date. Both of these banks had signifi cant loan commitments outstanding to G4S plc
at 31 December 2013.
The group operates a multi-currency notional pooling cash management system with a wholly owned subsidiary of an A+ rated bank. At year end
credit balances of £425m were pooled with debit balances of £422m, resulting in a net pool credit balance of £3m. There is legal right of set off
under the pooling agreement and an overdraft facility of £3m.
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.
Annual Report and Accounts 2013 G4S plc 127
Notes to the consolidated fi nancial statements continued
33. RETIREMENT BENEFIT 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, multi-employer 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 £99m (2012: £107m).
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.
G4S Government Solutions, Inc. is the administrator of several defi ned benefi t schemes. G4S Government Solutions, Inc. 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 G4S Government Solutions, Inc. its responsibility
for all unfunded pension and benefi t liabilities. Therefore, these schemes are accounted for as defi ned contribution schemes.
Multi-employer arrangement
In the Netherlands, most of the employees are members of the Security Industry Wide Pension Fund (IWPF). This is a career-average defi ned
benefi t plan. Pensionable salary is subject to a cap, and minus an offset that refl ects social security levels. Withdrawal from the scheme is only
possible under certain strict conditions determined by Dutch law and by the pension fund board of the IWPF.
The plan is funded by a premium that is set by the IWPF board in line with the fi nancing rules that state that the premium should cover the
cost of the annual accrual of pension benefi ts. Historically, the premium has been 30% of pensionable salaries and the employer pays 60%
of this premium and the employees the remaining 40%.
The fi nancing rules specify that an employer is not obliged to pay any further premiums in respect of previously accrued benefi ts. This means
that in case of insuffi cient funding, the benefi ts of participants could, in theory, be reduced. The current solvency ratio is 116.6% (October 2013).
The required solvency ratio according to Dutch law is 122% (as at 31 December 2012). Should a surplus appear within the scheme the board
will decide if a reduction in premium is possible although this would only be possible at much higher solvency levels.
Premiums paid to the scheme by the group and charged to the income statement in 2013 totalled £8m (2012: £8m). The estimated amounts
of contributions expected to be paid to the schemes during the fi nancial year commencing 1 January 2014 in respect of the on-going accrual
of benefi ts is approximately £8m. The premium that the IWPF received in 2013 is not yet available; in 2012 this amounted to €60m of which
approximately €8m was paid by the group. The total number of employees in the scheme is approximately 22,000 at the end of 2012. The number
of employees working for the group is approximately 5,600 as at 31 October 2013.
The scheme is not accounted for as a defi ned benefi t scheme under IAS 19 ‘Employee Benefi ts’ as it is not possible to identify the group’s share of
the scheme’s assets and liabilities. As a result, and in line with general practice for such schemes, the scheme is accounted for as if it were a defi ned
contribution scheme under IAS 19.
Defi ned benefi t arrangements
The group operates several funded defi ned retirement benefi t schemes where the benefi ts are based on employees’ length of service. Whilst
the group’s primary scheme is in the UK, it also operates other material schemes in the Netherlands and Canada and other less material plans
elsewhere. Under funded arrangements, the assets of defi ned benefi t schemes are held in separate trustee-administered funds or similar
structures in the countries concerned.
There are also various less material unfunded arrangements; for these the group does not hold related assets separate from the group.
The amounts recognised in income are included within the following categories in the income statement:
Amounts recognised in income
Cost of sales
Administration expenses
Net fi nance costs
Total for all defi ned benefi t schemes
2013
£m
(5)
(2)
(20)
(27)
2012
£m
(5)
(3)
(15)
(23)
128 G4S plc Annual Report and Accounts 2013
The Defi ned Benefi t Obligation (DBO), Assets and balance sheet provisions for defi ned benefi t schemes are as follows:
2013
UK
Netherlands
Other
Total for material funded defi ned benefi t schemes
Total provision for unfunded and other funded defi ned benefi t schemes
Total provision for all defi ned benefi t schemes
2012
UK
Canada*
Netherlands
Other
Total for material funded defi ned benefi t schemes
Total provision for unfunded and other funded defi ned benefi t schemes
Total provision for all defi ned benefi t schemes
DBO
£m
(2,011)
(111)
(10)
(2,132)
DBO
£m
(1,886)
(34)
(96)
(9)
(2,025)
Financial statements
Assets
£m
1,562
88
10
1,660
Assets
£m
1,474
28
79
8
1,589
Provision
£m
(449)
(23)
–
(472)
(32)
(504)
Provision
£m
(412)
(6)
(17)
(1)
(436)
(35)
(471)
* Liabilities and assets for the Canadian scheme were transferred to ‘held for sale’ as at 30 June 2013 and the sale of the sponsoring business was completed on
17 January 2014.
UK Defi ned Benefi t Scheme
The defi ned benefi t scheme in the UK accounts for 95% of the net balance sheet liability for material funded defi ned retirement benefi t schemes.
It comprises three sections: the Group 4 section which is the pension scheme demerged from the former Group 4 Falck A/S; the Securicor section,
responsibility for which the group assumed on 20 July 2004 with the acquisition of Securicor plc, and the GSL section, responsibility for which the
group assumed on 12 May 2008 with the acquisition of GSL.
The UK scheme is closed to future accrual apart from some sub-sections of the GSL section, and for most members defi nes the pension based on
fi nal salary. The GSL section has historically remained open to provide a facility to accept former public-sector employees who join G4S through
outsourcings. In the Group 4 and Securicor sections, members retain their link to fi nal salary where appropriate on their benefi ts accrued up to
closure in 2011.
As at the latest actuarial funding valuation, the participants of the UK pension scheme sections can be analysed as follows:
At 5 April 2012
Active participants
– Number
– Average age
Deferred participants
– Number
– Average age
Pensioner participants
– Number
– Average age
Group 4
section
GSL
section
Securicor
section
–
N/A
4,390
51.5
3,024
69.9
808
47.1
1,318
50.0
581
63.6
–
N/A
9,973
51.3
8,891
71.2
Total
808
47.1
15,681
51.2
12,496
70.5
There is a mix of fi xed and infl ation-dependent pension increases (in payment and deferment) which vary from member to member according
to their membership history and the section of the scheme.
The discounted weighted average duration of the accrued liabilities of the sections are respectively 17 years (Group 4 section), 18 years
(GSL section) and 18 years (Securicor section).
The scheme is set up under UK law and governed by a Trustee company which is responsible for the scheme’s investments, administration
and management. The Board of the Trustee Company is comprised of an independent chairman and further independent, group and scheme
membership representatives.
The current schedule of defi cit recovery contributions provides for a contribution of approximately £42m during 2014. In addition, the company
has pledged a share of any material disposal proceeds to the pension scheme (to be shared in the same proportion as the pension scheme defi cit
bears to overall group indebtedness) and has agreed that additional contributions would be made in the event that the average annual dividend
payment to ordinary shareholders over the three fi nancial years 2013, 2014, 2015 exceeds a certain threshold or in the event that the company
makes a signifi cant special dividend payment, (or equivalent capital return), to its ordinary shareholders over the same period.
A funding valuation is carried out for the scheme’s Trustee every three years by an independent fi rm of actuaries. Depending on the outcome of
that valuation a schedule of future contributions is negotiated; the group has guaranteed any contributions due from its subsidiaries. The most
recent valuation had an effective date of 5 April 2012.
Annual Report and Accounts 2013 G4S plc 129
Notes to the consolidated fi nancial statements continued
33. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
Other material Defi ned Benefi t Schemes
Apart from the multi-employer scheme referred to above, the group operates two material pension schemes in the Netherlands which apply
to different employee populations; they are known as the Securicor Staff and Cash Solutions schemes. Both schemes defi ne pensions in terms
of average career pay, are open to new entrants and are funded in accordance with Dutch requirements.
Pension increases in the Securicor Staff scheme are conditional on the funding level and so are only required if there is a funding surplus.
The Securicor scheme has a risk sharing arrangement whereby members pay 50% of the cost of the scheme but the group has opted to record
100% of the defi cit as a company liability due to uncertainties as to the practicalities of applying the scheme’s provisions in this respect; for example
in 2012 benefi ts were reduced rather than increasing members’ contributions.
The Cash Solutions scheme is required to provide benefi ts at least equivalent to the industry-wide multi-employer scheme, and in particular
pension increases in payment and deferment, as well as revaluation of active members’ rights in the Cash Solutions scheme have to follow the
multi-employer scheme (which also applies a conditional approach). The Cash Solutions scheme is insured, so longevity risk on the base level of
insured pension (that is before increases) is carried by the insurer, and any bonuses from the insurer’s returns may defray the cost of pension
increases. Accordingly, there is a counterparty risk against the insurer.
The other material scheme is in Canada; it is a fi nal salary scheme that is closed to new entrants, other than to hourly-paid members in a few
specifi c locations. Most of the benefi ts are not subject to indexation in payment. The scheme is funded in accordance with Canadian requirements.
The sponsoring business is held for sale as at 31 December 2013. It was sold on 17 January 2014 and the entire liabilities and assets of the scheme
are now the responsibility of the purchaser.
The discounted weighted average duration of the accrued liabilities of the schemes are respectively 28 years (Netherlands Securicor Staff),
28 years (Netherlands Cash Solutions) and 18 years (Canada).
Expected Contributions
The estimated amounts of contributions expected to be paid to the material schemes during the fi nancial year commencing 1 January 2014 in
respect of the ongoing accrual of benefi ts are approximately £9m (split £6m UK, £3m Netherlands) and it is anticipated that these will remain at
a similar level in the medium term subject to changes in fi nancial conditions. Additional contributions of approximately £42m will also be made in
2014 in respect of the defi cit in the UK schemes.
Principal Risks
The group’s pension schemes create a number of risk exposures. Annual increases on benefi ts are, to a varying extent from scheme to scheme,
dependent on infl ation so the main uncertainties affecting the level of benefi ts payable are future infl ation levels (including the impact of infl ation
on future salary increases) and the actual longevity of the membership. Benefi ts payable will also be infl uenced by a range of other factors
including member decisions on matters such as when to retire and the possibility to draw benefi ts in different forms.
A key risk is that additional contributions are required if the investment returns fall short of those anticipated when setting the contributions
to the pension plans. For the UK funding valuation those assumed investment returns (for funding valuations) are set based on fi xed margins
over the LIBOR swap curve. The management of the pension fund assets has been delegated to an asset manager which manages the assets
against a liability benchmark. The key parameters of this mandate can be summarised as follows:
– An asset mix which is managed dynamically over time rather than a set strategic allocation
– Interest rate and infl ation risk is managed with the benchmark of hedging 100% of these risks as a percentage of the asset value through
the use of debt instruments (government bonds) and derivatives
– Currency risk is managed with the objective of hedging at least 70% of the overseas currency exposure in the portfolio through the use
of forward foreign currency contracts
All pension schemes are regulated by the relevant jurisdictions. These include extensive legislation and regulatory mechanisms that are subject
to change and may impact G4S’ pension schemes.
Regarding fi nancial reporting measures, the IAS 19 liability measurement (DBO) and the service cost are sensitive to the actuarial assumptions
made on a range of demographic and fi nancial matters that are used to project the expected benefi t payments, the most important of these
assumptions being about future infl ation and salary growth levels and the assumptions made about life expectation. The DBO and service cost
are also very sensitive to the IAS 19 discount rate, which determines the discounted value of the projected benefi t payments. The discount rate
depends on market yields on high-quality corporate bonds. Investment strategies are set with funding rather than IAS 19 considerations in mind
and do not seek to provide a specifi c hedge against the IAS 19 measurement of liabilities. As a result the difference between the market value
of the assets and the IAS 19 liabilities may be volatile.
130 G4S plc Annual Report and Accounts 2013
Financial statements
Assumptions and sensitivities
The weighted average principal assumptions used for the purposes of the actuarial valuations were as follows:
Key assumptions used at 31 December 2013
Discount rate
Expected rate of salary increases
Pension increases in payment (for the UK, at RPI* with a limit of 5% p.a.)
Infl ation
Key assumptions used at 31 December 2012
Discount rate
Expected rate of salary increases
Pension increases in payment (for the UK, at RPI with a limit of 5% p.a.)
Infl ation
* The CPI assumption used for the UK valuation in 2013 was 2.4%.
UK
Canada
Netherlands
4.4%
3.5%
3.2%
3.4%
4.5%
3.1%
2.9%
3.0%
5.0%
3.0%
1.4%
2.3%
4.5%
3.0%
1.4%
2.3%
3.7%
2.0%
1.4%
2.0%
3.7%
2.0%
1.0%
2.0%
IAS 19 specifi es that pension liabilities should be discounted at appropriate high-quality corporate bond rates. The group considers that
it is appropriate to consider AA-rated corporate bonds as high quality and therefore have used discount rates based on yields on such bonds
corresponding to the liability profi le of the schemes.
The effect of a movement in the discount rate applicable in the UK alters reported liabilities (before associated deferred tax adjustments)
by approximately the amounts shown in the table below:
Sensitivity analysis
Discount rate assumption being 0.5% higher
Discount rate assumption being 0.5% lower
Increase/(decrease) in the
DBO of the UK Scheme
2013
£m
(163)
181
The effect of a movement in RPI infl ation applicable in the UK alters reported liabilities (before associated deferred tax adjustments)
by approximately the amounts shown in the table below:
Sensitivity analysis
Infl ation assumption being 0.5% higher
Infl ation assumption being 0.5% lower
Increase/(decrease) in the
DBO of the UK Scheme
2013
£m
79
(70)
The above sensitivities allow for infl ation-dependent assumptions such as salary growth and relevant pension increases to vary corresponding
to the infl ation assumption variation. Due to the caps and fl oors on pension increases a certain movement in the infl ation assumption will not
generally result in the same movement in the pension increase assumption.
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: Birth year table S1P[M/F]A Base with future improvements in line with CMI_2013 Core projections, based
on a long term improvement rate of 1.25% p.a. and allowing for individual scaling factors based on the majority analysis carried out as part
of the last funding valuation.
The resulting assumed life expectancy of a male member of the UK schemes currently aged 65 is between 21 and 22 years, depending on the
section of the plan. The assumed life expectancy at 65 of a male currently aged 52 is between 22 and 23 years. At those ages, the assumed life
expectancy for a female member is between 2 and 3 years higher than for a male member.
The effect of a one year change in this UK life expectancy assumption is to alter reported liabilities (before associated deferred tax adjustments)
by approximately £88m.
The selection of these movements to illustrate the sensitivity of the DBO to key assumptions should not be interpreted as the group expressing
any specifi c view of the probability of such movements happening.
Annual Report and Accounts 2013 G4S plc 131
Notes to the consolidated fi nancial statements continued
33. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
The amounts recognised on the balance sheet in respect of these defi ned benefi t schemes and the various components of income,
OCI and cashfl ow are as follows:
2013
Amounts recognised on the balance sheet at beginning of the period
DBO
£m
(2,025)
Assets
£m
1,589
Total
£m
(436)
Amounts recognised in income
Current service cost
Settlements and past service costs
Interest on obligations and assets
Administration costs paid from plan assets
Transfers in
Total amounts recognised in income
Remeasurements
Actuarial loss – change in fi nancial assumptions
Actuarial loss – change in demographic assumptions
Actuarial loss – experience
Return on assets in excess of interest
Remeasurement effects recognised in OCI
Cash
Employer contributions
Employee contributions
Benefi ts paid from plan assets
Net cash
Other
Exchange rates
Transfer of Canada scheme to held for sale
(9)
1
(90)
–
(11)
(109)
(80)
(22)
(4)
–
(106)
–
(4)
79
75
2
31
–
–
70
(2)
14
82
–
–
–
46
46
49
4
(79)
(26)
1
(32)
(9)
1
(20)
(2)
3
(27)
(80)
(22)
(4)
46
(60)
49
–
–
49
3
(1)
Amounts recognised on the balance sheet at end of the period
(2,132)
1,660
(472)
In 2011 G4S won the managed prisons bid in respect of HMP Birmingham and relevant employees have accrued benefi ts in the GSL section
since 1 October 2011. New employees had the option to transfer accrued pension rights. This occurred as at 1 March 2013 and the effect
of this transfer has been presented in the ‘Transfers in’ line of the above breakdown.
132 G4S plc Annual Report and Accounts 2013
Financial statements
2012
Amounts recognised on the balance sheet at beginning of the period
DBO
£m
(1,825)
Assets
£m
1,539
Asset Ceiling
£m
(9)
Amounts recognised in income
Current service cost
Settlements and past service costs
Interest on obligations and assets
Administration costs paid from plan assets
Total amounts recognised in income
Remeasurements
Actuarial loss – change in fi nancial assumptions
Actuarial gain – experience
Return on assets in excess of interest
Change in effect of asset ceiling in excess of interest
Remeasurement effects recognised in OCI
Cash
Employer contributions
Employee contributions
Benefi ts paid from plan assets
Net cash
Other
Exchange rates
(7)
2
(89)
–
(94)
(179)
1
–
–
(178)
–
(4)
73
69
3
–
–
75
(3)
72
–
–
1
–
1
47
4
(73)
(22)
(1)
Amounts recognised on the balance sheet at end of the period
(2,025)
1,589
–
–
(1)
–
(1)
–
–
–
10
10
–
–
–
–
–
–
Total
£m
(295)
(7)
2
(15)
(3)
(23)
(179)
1
1
10
(167)
47
–
–
47
2
(436)
The asset ceiling restriction at the beginning of 2012 refl ects an inability to derive economic value from an IAS 19 surplus in a scheme in the
Netherlands; by 31 December 2012 the scheme was in defi cit and no restriction was necessary, and this was still the case at 31 December 2013.
The contribution from sponsoring companies in 2013 included £38m (2012: £37m) of additional contributions in respect of the defi cit in the
UK schemes.
Annual Report and Accounts 2013 G4S plc 133
Notes to the consolidated fi nancial statements continued
33. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
The composition of the scheme assets at the reporting date is as follows:
2013
Equity
Bonds
Other
Total
2012
Equity
Bonds
Other
Total
Total
£m
438
107
1,105
1,650
Netherlands
£m
25
44
19
88
Total
£m
252
373
956
1,581
Canada
£m
16
10
2
28
Netherlands
£m
22
38
19
79
A more detailed split of assets of the UK scheme at 31 December 2013 is presented in the table below:
Equity
Private equity
Government bonds
Credit
Property
Macro-oriented
Multi-strategy
Derivatives
Cash and cash equivalents
UK
£m
413
63
1,086
1,562
UK
£m
214
325
935
1,474
2013
£m
367
46
63
274
42
296
48
15
411
1,562
Within the UK pension fund, the Equity, Credit, Macro-orientated and Multi-strategy sub-categories consist of pooled vehicles investing
predominantly in assets with quoted prices in active markets. All government bonds are issued by the UK government and have quoted prices
in active markets. Other UK investments are predominantly not quoted.
Derivatives include a range of interest rate and infl ation linked swaps, forward currency contracts, equity index total return swaps, equity options,
and futures. Investing in interest rate and infl ation linked swaps is designed to mitigate the impact of future changes in interest rates and infl ation.
None of the pension scheme assets are held in the group’s own fi nancial instruments or in any assets held or used by the group.
134 G4S plc Annual Report and Accounts 2013
Financial statements
34. PROVISIONS AND CONTINGENT LIABILITIES
At 1 January 2013
Additional provision in the year
Utilisation of provision
Transfers and reclassifi cations
Translation adjustments
At 31 December 2013
Included in current liabilities
Included in non-current liabilities
Employee
benefi ts
£m
14
21
(6)
–
2
31
Restructuring
£m
3
68
(35)
–
(3)
33
Claims
reserves
£m
46
27
(17)
–
1
57
Contract
provisions
£m
11
136
(2)
(2)
–
143
Total
£m
74
252
(60)
(2)
–
264
200
64
264
Employee benefi ts
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.
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.
Restructuring
Restructuring provisions include amounts for redundancy payments, and the costs of closure of activities in acquired businesses and discontinued
operations. Settlement of restructuring provisions is highly probable. The timing is uncertain but is generally likely to be short term.
Claims reserves
The claims reserves are held by the wholly-owned captive insurance subsidiaries in Guernsey and the US which underwrite part of the
group’s cash solutions, general liability, workers’ compensation and auto liability policies. The provisions are subject to regular actuarial review
and are adjusted as appropriate. Settlement of these provisions is highly probable but both the value of the 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.
Contract provisions
Contract provisions include provisions for onerous contracts including 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.
Provisions relating to revenue recognition are also included in this category. 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.
On 12 March 2014 the group announced that it had reached agreement with the UK Ministry of Justice (MoJ) on a settlement in respect
of claims arising in relation to Electronic Monitoring services provided between 2005 and 2013. The agreement also concluded outstanding
matters relating to two UK facilities management contracts.
The total settlement amount was £109m and the group has provided for this amount within contract provisions as at 31 December 2013.
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 35.
Annual Report and Accounts 2013 G4S plc 135
Notes to the consolidated fi nancial statements continued
35. 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 2013
(Charge)/credit to the income statement
Acquisition of subsidiaries
Charge to equity
Translation adjustments
Transfers/other
At 31 December 2013
At 1 January 2012
Credit to the income statement
Acquisition of subsidiaries
Credit to equity
Transfers/other
At 31 December 2012
Retirement
benefi t
obligations
£m
104
(5)
–
–
–
–
99
76
3
–
25
–
104
Intangible
assets
£m
(61)
20
(3)
–
2
–
(42)
(79)
27
(9)
–
–
(61)
Tax losses
£m
28
2
–
–
–
–
30
23
5
–
–
–
28
Other
temporary
differences
£m
53
16
2
(4)
(4)
(3)
60
45
1
–
3
4
53
Total
£m
124
33
(1)
(4)
(2)
(3)
147
65
36
(9)
28
4
124
Certain deferred tax assets and liabilities have been offset where permitted. The following is the analysis of the deferred tax balances (after offset):
Deferred tax liabilities
Deferred tax assets
Net deferred tax asset included in held for sale
Total deferred tax position
2013
£m
(47)
184
10
147
2012
£m
(68)
179
13
124
At 31 December 2013, the group had unutilised tax losses of approximately £705m (2012: £485m) potentially available for offset against future
profi ts. A deferred tax asset of £30m (2012: £28m) has been recognised in respect of approximately £120m (2012: £106m) of gross losses.
No deferred tax asset has been recognised in respect of the remaining £585m (2012: £379m) 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 £15m which will expire between 2014 and 2023. Other losses may be carried
forward indefi nitely.
At 31 December 2013, the aggregate amount of temporary differences associated with undistributed earnings of non-UK subsidiaries for which
deferred tax liabilities have not been recognised is £1,220m (2012: £1,378m). 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.
At 31 December 2013, the group had total unprovided contingent tax liabilities of approximately £58m (2012: £5m) relating to unresolved tax
issues in various jurisdictions.
136 G4S plc Annual Report and Accounts 2013
36. SHARE CAPITAL
G4S plc
Issued and fully paid ordinary shares of 25p each
Ordinary shares in issue
At 1 January 2013
New shares issued for cash
At 31 December 2013
Financial statements
2013
£
387,898,609
2012
£
352,667,160
2013 Number
1,410,668,639
140,925,797
1,551,594,436
2012 Number
1,410,668,639
–
1,410,668,639
In August 2013 the group issued140,925,797 ordinary shares as a result of the 9.99% placing. The group received gross proceeds of £348m
and paid related costs of £5m.
37. OTHER RESERVES
At 1 January 2013
Total comprehensive income attributable
to equity shareholders of parent
Shares issued
Own shares awarded
At 31 December 2013
At 1 January 2012
Total comprehensive income attributable
to equity shareholders of parent
Own shares purchased
Own shares awarded
At 31 December 2012
Other reserves include:
Hedging
reserve
£m
(34)
Translation
reserve
£m
50
Merger
reserve
£m
426
Reserve for
own shares
£m
(20)
Total other
reserves
£m
422
13
–
–
(21)
(26)
(8)
–
–
(34)
(109)
–
–
(59)
110
(60)
–
–
50
–
308
–
734
426
–
–
–
426
–
–
2
(18)
(16)
–
(6)
2
(20)
(96)
308
2
636
494
(68)
(6)
2
422
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. In 2013 the £308m addition to the merger reserve resulted from the group’s
9.99% share placing in August 2013.
Reserve for own shares
An employee benefi t trust established by the group held 6,934,564 shares at 31 December 2013 (2012: 7,589,853 shares) to satisfy the vesting
of awards under the performance share plan and performance-related schemes. During the year no shares were purchased by the trust, whilst
655,289 shares were used to satisfy the vesting of awards under the schemes. At 31 December 2013, the cost of shares held by the trust was
£18,460,753 (2012: £20,207,798), whilst the market value of these shares was £18,203,231 (2012: £19,470,928). 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.
Annual Report and Accounts 2013 G4S plc 137
Notes to the consolidated fi nancial statements continued
38. 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 of investments
Movement 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
2013
£m
594
39
15
(17)
(22)
(196)
(1,982)
88
(52)
(1,533)
2013
£m
142
(16)
174
300
(4)
(12)
284
(15)
(1,802)
(1,533)
39. OPERATING LEASE ARRANGEMENTS
The group as lessee
As at 31 December 2013, 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
2013
£m
134
290
214
638
2012
£m
469
56
20
10
(17)
(345)
(2,039)
105
(61)
(1,802)
2012
£m
138
–
(302)
(164)
(1)
(21)
(186)
–
(1,616)
(1,802)
2012
£m
133
315
181
629
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 £12m (2012: £10m).
138 G4S plc Annual Report and Accounts 2013
Financial statements
40. SHARE BASED PAYMENTS
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 and (b) certain market performance conditions are met. The proportion of the allocation of awards to these
criteria is described in the remuneration report. 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
Outstanding at 31 December
Performance-
related bonus
scheme
2013
Number
812,200
58,026
(494,492)
–
–
375,734
PSP
2013
Number
15,589,225
7,385,392
(161,948)
(2,546,129)
(4,232,718)
16,033,822
Total
2013
Number
16,401,425
7,443,418
(656,440)
(2,546,129)
(4,232,718)
16,409,556
Performance-
related bonus
scheme
2012
Number
1,068,455
40,652
(296,907)
–
–
812,200
PSP
2012
Number
16,102,450
5,859,439
(613,518)
(727,959)
(5,031,187)
15,589,225
Total
2012
Number
17,170,905
5,900,091
(910,425)
(727,959)
(5,031,187)
16,401,425
The weighted average remaining contractual life of conditional share allocations outstanding at 31 December 2013 was 16 months (2012: 16
months). The weighted average share price at the date of allocation of shares allocated conditionally during the year was 291.7p (2012: 277.1p)
and the contractual life of all conditional allocations was three years.
Under the PSP, the vesting of half (2012: half) of the shares allocated conditionally depends upon Total Shareholder Return (a market performance
condition) over the performance 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 by 75%.
The income statement is charged with an estimate for the vesting of shares conditionally awarded subject to non-market performance conditions.
The charge for 2013 was £nil (2012: £nil).
Annual Report and Accounts 2013 G4S plc 139
Notes to the consolidated fi nancial statements continued
41. 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 with joint ventures included revenue recorded of £28m (2012: £30m). Amounts due to related parties include £2m (2012: £1m)
to joint ventures and £2m (2012: £2m) to associates. Amounts due from related parties include £4m (2012: £4m) from joint ventures and £1m
(2012: £2m) from associates.
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 are shown in note 21.
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 in 2008. Transactions with these entities during the year comprised:
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
Total
Services/
sales to
2013
£m
2
39
33
14
12
13
8
2
1
124
Services/
sales to
2012
£m
2
44
34
14
13
13
7
2
1
130
Transactions with post-employment benefi t schemes
Details of transactions with the group’s post-employment benefi t schemes are provided in note 33. Unpaid contributions owed to schemes
amounted to £0.5m at 31 December 2013 (2012: £0.5m).
Transactions with other related parties
In the normal course of the group’s business the group provides services to and receives services from certain non-controlling interests
on an arm’s length basis.
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 64 to 79.
Short-term employee benefi ts
Post-employment benefi ts
Other long-term benefi ts
Share-based payment
Total
2013
£
10,887,469
217,937
56,682
931,197
12,093,285
2012
£
7,253,734
104,212
41,819
132,289
7,532,054
42. EVENTS AFTER THE BALANCE SHEET DATE
In January 2014, the group sold its cash solutions business in Canada and its remaining business in Norway for total proceeds of £89m.
No other signifi cant post-balance sheet events have affected the group since 31 December 2013.
43. SIGNIFICANT INVESTMENTS
The companies listed below are those which were part of the group at 31 December 2013 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.
140 G4S plc Annual Report and Accounts 2013
Financial statements
Product
segment
Country of
incorporation
Ultimate
ownership
S
S
S
S
S
C
S
S
C
S
S
S+C
S
S
S
C
C
S
S
S
S
S
S+C
S
C
S
S
S
S
S+C
S+C
S+C
S+C
C
S
S
S+C
S+C
S
S+C
C
S
S
S
S+C
S
S
S
S
S
S
S
S
S
Argentina
Australia
Australia
Austria
Belgium
Belgium
Brazil
Brazil
Canada
Canada
Chile
Colombia
Denmark
England
England
England
England
England
England
England
England
England
Estonia
Finland
Hungary
India
Ireland
Israel
Israel
Kenya
Kuwait
Luxembourg
Malaysia
Netherlands
Netherlands
Norway
Peru
Qatar
Saudi Arabia
Saudi Arabia
South Africa
South Africa
Sweden
Thailand
UAE
USA
USA
USA
USA
USA
England
South Africa
Israel
USA
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
100%
92%
92%
100%
49%
100%
49%
100%
100%
100%
100%
0%
49%
0%
75%
74%
100%
100%
49%
100%
100%
100%
100%
100%
59%
20%
46%
46%
Subsidiary undertakings
G4S Soluciones de Seguridad S.A.
G4S Australia Pty Limited
G4S Custodial Services Pty Limited
G4S Secure Solutions AG (Austria)
G4S Secure Solutions SA/NV
G4S Cash Solutions (Belgium) NV
G4S Interativa Service Ltda
Vanguarda Segurança e Vigilância Ltda
G4S Cash Solutions (Canada) Limited
G4S Secure Solutions (Canada) Limited
G4S Security Services Regiones S.A.
G4S Secure Solutions Colombia S.A.
G4S Security Services A/S
G4S Aviation Services (UK) Limited
G4S Care and Justice Services (UK) Limited
G4S Cash Centres (UK) Limited
G4S Cash Solutions (UK) Limited
G4S Integrated Services (UK) Limited
G4S Risk Management Limited
G4S Secure Solutions (UK) Limited
G4S Security Services (UK) Limited
G4S Utility and Outsourcing Service (UK) Limited
AS G4S Baltics
G4S Security Services Oy
G4S Keszpenzlogisztikai Kft
G4S Secure Solutions (India) Pvt. Limited1, 5
G4S Secure Solutions (Ire) Limited
G4S Secure Solutions (Israel) Limited
G4S Security Technologies (Israel) Limited
G4S Kenya Limited
Al Mulla Security Services Co. WLL5
G4S Security Solutions S.A.R.L
Safeguards G4S Sdn Bhd2, 5
G4S Cash Solutions BV
G4S Beheer BV
G4S Secure Solutions AS
G4S Peru S.A.C.
G4S Qatar SPC5
al Majal Service Master Co. Limited5
Mohammed Bin Abdoud Al Amoudi Co. for Civilian Security Services Partnership (Almajal)5
G4S Cash Solutions (SA) (Pty) Limited
G4S Secure Solutions (SA) (Pty) Limited
G4S Secure Solutions AB
G4S Secure Solutions (Thailand) Limited
Group 4 Securicor Security Services UAE (LLC) G4S5
G4S Government Solutions, Inc.
G4S Integrated Services, Inc.
G4S Secure Solutions (USA) Inc.
G4S Technology LLC
G4S Youth Services LLC
Joint ventures (see note 21)
Bridgend Custodial Services Limited3
Bloemfontein Correctional Contracts (Pty) Limited4
Policity Limited
Associated undertakings
Space Gateway Support LLC
1 G4S Secure Solutions (India) Pvt. Limited has a year end of 31 March.
2 Safeguards G4S 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, options, pre-emption rights 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.
Annual Report and Accounts 2013 G4S plc 141
Parent company balance sheet
At 31 December 2013
Fixed assets
Intangible 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
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Borrowings(unsecured)
Other creditors
Net assets
Capital and reserves
Called up share capital
Share premium and reserves
Equity shareholders’ funds
Notes
(b)
(c)
(d)
(e)
(f)
(e)
(f)
36
(i)
2013
£m
11
3,055
3,066
2,992
56
3,048
(5)
(61)
(2,856)
(2,922)
126
3,192
(1,040)
–
(1,040)
2,152
388
1,764
2,152
2012
£m
16
3,051
3,067
2,930
9
2,939
(9)
(40)
(2,851)
(2,900)
39
3,106
(1,174)
(2)
(1,176)
1,930
353
1,577
1,930
The parent company fi nancial statements were approved by the board of directors and authorised for issue on 31 March 2014.
They were signed on its behalf by:
Ashley Almanza
Director
Himanshu Raja
Director
142 G4S plc Annual Report and Accounts 2013
Parent company reconciliation of movements in equity shareholders’ funds
For the year ended 31 December 2013
Retained profi t for the year
Changes in fair value of hedging derivatives
Shares issued
Dividends declared
Own shares purchased
Tax on equity movements
Net increase/(decrease) in shareholders’ funds
Opening equity shareholders’ funds
Closing equity shareholders’ funds
Financial statements
2013
£m
15
(8)
343
(130)
–
2
222
1,930
2,152
2012
£m
24
(6)
–
(120)
(6)
2
(106)
2,036
1,930
Annual Report and Accounts 2013 G4S plc 143
Notes to the parent company fi nancial statements
(A) SIGNIFICANT 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.
Intangible fi xed assets
Intangible fi xed assets are stated at cost net of accumulated amortisation and any provision for impairment. Intangible fi xed assets are amortised
on a straight-line basis over their expected economic life. Software is amortised over periods up to a maximum of eight years.
Fixed asset investments
Fixed asset investments, which comprise investments in subsidiary undertakings, are stated at cost less amounts written off.
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.
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, commodity swaps, commodity options, forward foreign exchange contracts and
currency swaps.
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.
144 G4S plc Annual Report and Accounts 2013
Financial statements
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 33 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.
Developments expected in future accounting periods
The new UK fi nancial reporting framework which comes into effect for accounting periods beginning on or after 1 January 2015 consists of three
new standards; FRS 100 ‘Application of Financial Reporting Standards’ sets out the application of fi nancial reporting requirements in the UK and
Republic of Ireland, FRS 101 ‘Reduced Disclosure Framework’ outlines the reduced disclosure framework available for use by qualifying entities
choosing to report under IFRS and FRS 102 ‘The Financial Reporting Standard Applicable in the UK and Republic of Ireland’ is the new ‘UK GAAP’
which replaces all previous SSAPs and FRSs in one standard. A full analysis is currently being undertaken to identify the most appropriate option.
Dividends
Dividends are recognised as distributions to equity holders in the period in which they are paid. Dividends proposed but not declared are not
recognised but are disclosed in the notes to the consolidated fi nancial statements.
Financial guarantees
The company enters into fi nancial guarantee contracts to guarantee the indebtedness of other companies within the group. The company
considers these to be insurance arrangements and accounts for them as such. The company therefore 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.
Annual Report and Accounts 2013 G4S plc 145
Notes to the parent company fi nancial statements continued
(B) INTANGIBLE FIXED ASSETS
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
Amortisation
At 1 January 2013
Amortisation charge
Disposals
At 31 December 2013
Net book value
At 1 January 2013
At 31 December 2013
(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 2013
Additions
Impairments
At 31 December 2013
Software
£m
17
3
(7)
13
(1)
(2)
1
(2)
16
11
Total
£m
3,051
13
(9)
3,055
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.
Full details of signifi cant investments held by the parent company and the group are detailed in note 43 to the consolidated fi nancial statements.
(D) DEBTORS
Amounts owed by group undertakings
Other debtors
Derivative fi nancial instruments at fair value
Total debtors
2013
£m
2,918
8
66
2,992
2012
£m
2,828
–
102
2,930
Included within derivative fi nancial instruments at fair value is £52m due after more than one year (2012: £77m). See note (g) for further details.
Included in other debtors is £1m (2012: £nil) with regard to deferred tax comprised as follows:
Changes in fair value of hedging derivatives
Total deferred tax
The reconciliation of deferred tax balances is as follows:
At 1 January 2013
Charged to equity in relation to changes in fair value of hedging derivatives
At 31 December 2013
2013
£m
1
1
2012
£m
–
–
Total
£m
–
1
1
146 G4S plc Annual Report and Accounts 2013
(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
Financial statements
2013
£m
419
37
645
1,101
2013
£m
61
469
571
1,101
2013
£m
965
965
2012
£m
419
73
722
1,214
2012
£m
40
402
772
1,214
2012
£m
856
856
Borrowings consist of £37m of fl oating rate bank loans (2012: £73m) and £1,064m of fi xed rate loan notes (2012: £1,144m). 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$200m (£121m) of the loan notes issued in July 2008 have a fair value market gain of £21m (2012: £31m). 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:
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
2013
£m
2,821
4
1
29
1
2,856
2012
£m
2,817
1
–
31
2
2,851
–
2
Annual Report and Accounts 2013 G4S plc 147
Notes to the parent company fi nancial statements continued
(G) DERIVATIVE FINANCIAL 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: Amounts falling due after more than one year
Amounts falling due within one year
Assets
2013
£m
21
–
45
–
66
(52)
14
Assets
2012
£m
31
–
70
1
102
(77)
25
Liabilities
2013
£m
–
1
–
–
1
–
1
Liabilities
2012
£m
–
3
–
1
4
(2)
2
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 decreased by £33m (2012: decrease £12m) during the year.
The interest rate, cross currency and commodity swaps treated as cash fl ow hedges 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
Assets
2013
£m
–
15
–
–
6
21
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
Assets
2013
£m
–
16
–
–
5
21
Assets
2012
£m
9
–
–
17
6
32
Assets
2012
£m
7
2
–
17
6
32
Liabilities
2013
£m
1
–
–
–
–
1
Liabilities
2013
£m
1
–
–
–
–
1
Liabilities
2012
£m
2
2
–
–
–
4
Liabilities
2012
£m
2
2
–
–
–
4
148 G4S plc Annual Report and Accounts 2013
Financial statements
(H) FINANCIAL RISK
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 as a consequence is
subject to foreign exchange risk due to the translation of the results and net assets of its foreign subsidiaries. The company together with G4S
International Finance plc 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.
Cross currency swaps with a nominal value of £101m were arranged to hedge the foreign currency risk on US$200m of the second 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.
Assuming a 1% appreciation of sterling against the US dollar, the fair value net gain on the cross currency swaps which hedge part of the currency
loan notes would be expected to fall by £1m.
Interest rate risk and interest rate swaps
Borrowing at fl oating rates as described in note 28 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 2013 the nominal value of such contracts was £nil (in respect of US dollar) (2012: £nil) and £37m (in respect of euro) (2012: £73m),
their weighted average interest rate was nil% (US dollar) (2012: nil%) and 2.8% (euro) (2012: 3.2%), and their weighted average period to maturity
was twelve months. 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 quantity of interest rate swaps outstanding in the company is expected to continue to decline as Treasury
activity is increasingly conducted by G4S International Finance plc.
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 sterling Public Bond issued in May 2009 was kept at fi xed rate.
The core company borrowings are held in US dollar, euro and sterling. Although the impact of rising interest rates is largely shielded by fi xed rate
loans and interest rate swaps which fi x a portion of the exposure, some interest rate risk remains. A 1% increase in interest rates across the yield
curve in each of these currencies with the 31 December 2013 debt position constant throughout 2014, would lead to an expectation of an
additional interest charge of £3m in the 2014 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. 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 against policy limits assigned to each
counterparty. 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 BBB+/Baa1 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 2013
the largest two counterparty exposures relating to treasury transactions were £28m and £20m and both were held with institutions with
long-term Standard & Poor’s credit ratings of A- and A respectively. These exposures represent 42% (2012: 37%) and 30% (2012: 29%) 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 loan
commitments outstanding to G4S plc at 31 December 2013.
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.
Annual Report and Accounts 2013 G4S plc 149
Notes to the parent company fi nancial statements continued
(I) SHARE PREMIUM AND RESERVES
At 1 January 2013
Retained profi t
Changes in fair value of hedging derivatives
Shares issued
Dividends declared
Own shares awarded
Tax on equity movements
At 31 December 2013
Share
premium
£m
258
–
–
–
–
–
–
258
Merger
reserve
£m
–
–
–
308
–
–
–
308
Profi t and
loss account
£m
1,339
15
(8)
–
(130)
(2)
2
1,216
Own
shares
£m
(20)
–
–
–
–
2
–
(18)
Total
£m
1,577
15
(8)
308
(130)
–
2
1,764
In 2013 the £308m addition to the merger reserve resulted from the group’s 9.99% share placement in August 2013.
(J) 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.
(K) SHARE-BASED PAYMENTS
The group has one type of equity-settled, share-based payment scheme in place being the conditional allocations of G4S plc shares. An employee
benefi t trust established by the group holds shares to satisfy the vesting of conditional allocation awards. Reserve for own share disclosures
relevant to the company are presented within note 37 to the consolidated fi nancial statements. Share-based payments disclosures relevant to the
company are presented within note 40 to the consolidated fi nancial statements.
(L) RELATED PARTY TRANSACTIONS
Certain disclosures relevant to the company are presented within note 41 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 2013 (2012: none).
(M) 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
2013 guarantees totalling £479m (2012: £493m) were in place in support of such facilities.
The company also guarantees the debt obligations of G4S International Finance plc. At 31 December 2013 contingent liabilities of £1,012m (2012:
£1,061m) were outstanding in support of such debt obligations.
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 2013 totalled £17m (2012: £19m).
150 G4S plc Annual Report and Accounts 2013
Notice of Annual General Meeting
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 under the Financial
Services and Markets Act 2000 if you are resident in the United
Kingdom or, if not, from another appropriately authorised
independent fi nancial adviser. 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 The Platinum Suite, ExCeL London, One Western
Gateway, Royal Victoria Dock, London E16 1XL on Thursday, 5 June
2014 at 2.00 pm in order to consider and, if thought fi t, to pass the
following Resolutions:
Resolutions 1 to 19 and Resolution 22 will be proposed as ordinary
resolutions. Resolutions 20, 21 and 23 will be proposed as special
resolutions.
REPORT AND ACCOUNTS
1. To receive the fi nancial statements of the company for the year
ended 31 December 2013 and the reports of the directors and
auditor thereon.
REMUNERATION
2. To approve the Directors’ Remuneration Policy as set out in the
Directors’ remuneration report in the company’s annual report and
accounts for the year ended 31 December 2013.
3. To approve the Directors’ remuneration report, other than the
part containing the Director’s Remuneration Policy, as set out in
the company’s annual report and accounts for the year ended
31 December 2013.
4. That the rules of the G4S Long Term Incentive Plan (“LTIP”), in
the form produced at the Annual General Meeting and initialled
by the chairman of the meeting for the purposes of identifi cation
(a summary of which is set out in the appendix to the explanatory
notes to this Notice of Meeting) be and are hereby approved;
and that the directors be and are hereby authorised to:
(a) adopt the LTIP and to do all such other acts and things as they
may consider appropriate to implement the LTIP; and
(b) establish further plans based on the LTIP but modifi ed to take
account of local tax, exchange control or securities laws in overseas
territories, provided that any shares made available under such
further plans are treated as counting against the limits on individual
or overall participation in the LTIP.
DIVIDEND
5. To declare a fi nal dividend for the year ended 31 December 2013
of 5.54p (DKK 0.4954) for each ordinary share in the capital of
the company.
DIRECTORS
6. To elect Himanshu Raja as a director.
7. To re-elect Ashley Almanza as a director.
8. To re-elect John Connolly as a director.
9. To re-elect Adam Crozier as a director.
10. To re-elect Mark Elliott as a director
11. To re-elect Winnie Kin Wah Fok as a director.
12. To re-elect Grahame Gibson as a director.
13. To re-elect Mark Seligman as a director.
14. To re-elect Paul Spence as a director.
15. To re-elect Clare Spottiswoode as a director
16. To re-elect Tim Weller as a director.
AUDITOR
17. To re-appoint KPMG Audit Plc as auditor of the company to hold
offi ce until the conclusion of the next Annual General Meeting of
the company.
18. To authorise the directors to determine the remuneration of
the auditor.
DIRECTORS’ AUTHORITY TO ALLOT
19. 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 £129,299,000; and
(ii) comprising equity securities (as defi ned in section 560 of the
Act) up to a further aggregate nominal amount of £129,299,000
provided that they are offered by way of a rights issue to holders
of ordinary shares on the register of members at such record
date(s) as the directors may determine where the equity
securities respectively attributable to the interests of the
ordinary shareholders are proportionate (as nearly as may be
practicable) to the respective numbers of ordinary shares held
or deemed to be held by them on any such record date(s),
subject to such exclusions or other arrangements as the
directors may deem necessary or expedient to deal with
treasury shares, fractional entitlements, record dates, shares
represented by depositary receipts, legal or practical problems
arising under the laws of any territory or the requirements
of any relevant regulatory body or stock exchange or any
other matter;
provided that this authority shall expire on the date of the next
Annual General Meeting of the company, save that the company
shall be entitled to make offers or agreements before the expiry of
such authority which would or might require relevant securities to
be allotted after such expiry and the directors shall be entitled to
allot relevant securities pursuant to any such offer or agreement
as if this authority had not expired; and all unexpired authorities
granted previously to the directors to allot relevant securities under
section 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).
20. That the directors be and are hereby empowered, pursuant to
section 570 of the Act, subject to the passing of Resolution 19
above, to allot equity securities (as defi ned in section 560 of the
Act) for cash pursuant to the authority conferred by Resolution 19
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 19 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 19(i) above up to an maximum nominal
amount of £19,394,000;
Annual Report and Accounts 2013 G4S plc 151
Notice of Annual General Meeting continued
and shall expire on the expiry of the authority conferred by Resolution
19 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.
AUTHORITY TO PURCHASE OWN SHARES
21. 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 155,159,000;
(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 2015 (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).
AUTHORITY TO MAKE POLITICAL DONATIONS
22. 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 20 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 at the conclusion
of the next Annual General Meeting of the company 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.
NOTICE PERIOD FOR GENERAL MEETINGS OTHER
THAN AGMS
23. 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
Company Secretary
31 March 2014
152 G4S plc Annual Report and Accounts 2013
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Company No. 4992207
Notes
1. Shareholders are entitled to appoint a proxy to exercise all or any
of their rights to attend and to speak and vote on their behalf at
the meeting. A shareholder may appoint more than one proxy in
relation to the Annual General Meeting provided that each proxy
is appointed to exercise the rights attached to a different share or
shares held by that shareholder. A proxy need not be a shareholder
of the company. A proxy form which may be used to make such
appointment and give proxy instructions accompanies this notice.
2. Details of how to appoint a proxy are set out in the notes to
the enclosed proxy form. In order to be valid an appointment of
proxy must be returned with any power of attorney or any other
authority under which it is executed, by one of the following
methods: in hard copy form by post to Capita Asset Services, PXS 1,
34 Beckenham Road, Beckenham, Kent BR3 4ZF; in hard copy form
to that address by courier or by hand during usual business hours;
or, in the case of CREST members, by utilising the CREST electronic
proxy appointment service as described in paragraphs 8 and 9
below. In each case the form of proxy must be received by the
company no later than 2.00pm on 3 June 2014. To change your
proxy instructions you may return a new proxy appointment
using the method set out above. The deadline for receipt of proxy
appointments also applies in relation to amended instructions.
Persons listed on the VP Securities register should follow the
instructions on their Voting Request Form.
3. The return of a completed proxy form, other such instrument
or any CREST Proxy Instruction 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 5.30 pm on 3 June 2014
(or, in the event of any adjournment, on the date which is two
working days before the time of the adjourned meeting). Changes
to the Register of Members after the relevant deadline shall be
disregarded in determining the rights of any person to attend and
vote at the meeting.
7. As at 28 March 2014 (being the latest practicable date prior to
the publication of this Notice) the company’s issued share capital
consisted of 1,551,594,436 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the company as at 28 March
2014 was 1,551,594,436.
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.
15. Any shareholder 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.
16. Under sections 338 and 338A of the Act, members meeting the
threshold requirements in those sections have the right to require
the company (i) to give, to members of the company entitled to
receive notice of the meeting, notice of a resolution which those
members intend to move (and which may properly be moved) at
the meeting; and/or (ii) to include in the business to be dealt with
at the meeting any matter (other than a proposed resolution)
which may properly be included in the business at the meeting.
A resolution may properly be moved, or a matter properly included
in the business, unless (a) (in the case of a resolution only) it would,
if passed, be ineffective (whether by reason of any inconsistency
with any enactment of the company’s constitution or otherwise);
(b) it is defamatory of any person; or (c) it is frivolous or vexatious.
A request made pursuant to this right may be in hard copy or
electronic form, must identify the resolution of which notice is to
be given or the matter to be included in the business, must be
authenticated by the person(s) making it and must be received
by the company not later than 23 April 2014, being the date six clear
weeks before the meeting, and (in the case of a matter to be
included in the business only) must be accompanied by a statement
setting out the grounds for the request.
17. A copy of this notice, and other information required by section
311A of the Act, can be found at www.g4s.com
18. The rules of the new G4S Long Term Incentive Plan (see Resolution
4 above, paragraph 2 of the explanatory notes below and the
summary of the rules set out in the appendix to the explanatory
notes below) will be available for inspection during normal business
hours (Saturdays, Sundays and public holidays excepted) at the
offi ces of Herbert Smith Freehills LLP, Exchange House, Primrose
Street, London EC2A 2EG and will be available at the place of the
meeting from 15 minutes before the start of the meeting until
its conclusion.
19. Any electronic address or web site address is provided in this
Notice of Meeting solely for the purpose stated expressly herein
and may not be used to communicate with the company other than
for such purpose. Notwithstanding any telephone number,
fax number or email address that appears on this document or
elsewhere, neither the company nor Capita Asset Services will
accept voting instructions received via media other than post or
by CREST Proxy Instruction in accordance with the notes above.
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 2.00 pm on 3 June 2014. 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. Voting on all Resolutions will be conducted by way of a poll rather
than a show of hands. This is a more transparent method of voting
as shareholders’ votes are to be counted according to the number
of shares held. As soon as practicable following the Annual General
Meeting, the results of the voting at the meeting and the numbers of
proxy votes cast for and against and the number of votes actively
withheld in respect of each of the Resolutions will be announced via
a Regulatory Information Service and also placed on the company’s
website: www.g4s.com.
13. Any corporation which is a shareholder can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a shareholder provided that they do not do so in relation
to the same shares.
14. 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.
Annual Report and Accounts 2013 G4S plc 153
Recommendation and explanatory notes relating to business to be conducted at the
Annual General Meeting on 5 June 2014
The board of G4S plc considers that 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 the business to be conducted at the
Annual General Meeting are set out below.
1. FINANCIAL STATEMENTS OF THE COMPANY
(RESOLUTION 1)
The chairman will present the fi nancial statements of the company for
the year ended 31 December 2013 and the reports of the directors
and auditor thereon to the Annual General Meeting.
2. REMUNERATION (RESOLUTIONS 2 TO 4)
Changes made to the Companies Act 2006 (the “Act”) have resulted
in new requirements this year both for the content of the Directors’
remuneration report (the “Report”) and its approval. Accordingly the
Report, which is set out on pages 64 to 79, contains:
– A statement by Mark Elliott, chairman of the company’s
Remuneration Committee;
– The directors’ remuneration policy in relation to future payments to
the directors and former directors; and
– The annual implementation report on remuneration, which sets out
payments made in the fi nancial year ending 31 December 2013.
The policy part of the Report, which sets out the company’s forward
looking policy on directors’ remuneration (including the approach to
exit payments to directors), is subject to a binding shareholder vote by
ordinary resolution at least every three years. The statement by the
Remuneration Committee chairman and the annual implementation
report on remuneration will, as in the past, be put to an annual advisory
shareholder vote by ordinary resolution.
Resolution 2 is therefore the ordinary resolution to approve the
directors’ remuneration policy which is set out within the Report on
pages 66 to 72. As noted on page 64, the directors’ remuneration
policy will commence on 6 June 2014. Payments will continue to be
made to directors and former directors (in their capacity as directors)
in accordance with existing contractual arrangements until this date.
Once the directors’ remuneration policy commences, all payments by
the company to the directors and any former directors must be made
in accordance with the policy (unless the payment is separately
approved by shareholder resolution).
If the directors’ remuneration policy is approved and remains
unchanged, it will be valid for up to three fi nancial years without a new
shareholder approval. If the company wishes to change the policy, it will
need to put the revised policy to a vote again before it can implement
the new policy.
If the directors’ remuneration policy is not approved, the company will,
if and to the extent permitted by the Act, continue to make payments
to directors in accordance with existing contractual arrangements
and will seek shareholder approval for a revised policy as soon as
practicable.
Resolution 3 is the resolution to approve the directors’ remuneration
report, other than the part containing the directors’ remuneration
policy. This is an advisory resolution and does not affect the future
remuneration paid to any director.
Resolution 4 relates to the Long Term Incentive Plan (“LTIP”) which
the company proposes to introduce to replace the Performance Share
Plan which was adopted by the Board in July 2004 and will expire in
July 2014. In order to ensure executives continue to be incentivised to
deliver the group’s strategy over the longer term, the Remuneration
Committee has concluded that a replacement long term incentive plan
should be introduced and, having consulted widely, has set revised
performance measures, including the introduction of average operating
cash fl ow as a third measure. The principal terms of the LTIP are set
out in the appendix to these explanatory notes on pages 156 and 157.
This ordinary resolution seeks shareholder approval of the LTIP.
The full rules will be available for inspection during the hours and
at the locations set out in note 18 to the Notice of Meeting.
3. FINAL DIVIDEND (RESOLUTION 5)
A fi nal dividend of 5.54p (DKK 0.4954) per ordinary share for the
year ended 31 December 2013 is recommended for payment by the
directors. If the recommended fi nal dividend is approved, it will be paid
on Friday 13 June 2014 to all ordinary shareholders who were on the
register of members at the close of business on 2 May 2014.
4. ELECTION AND RE-ELECTION OF DIRECTORS
(RESOLUTIONS 6 TO 16)
Resolution 6 deals with the election of Mr Raja as a director as he was
appointed since the company’s last Annual General Meeting and, in
accordance with the company’s articles of association, he will retire
and stand for election.
Resolutions 7 to 16 deal with the re-election of the other directors in
accordance with the requirements of the UK Corporate Governance
Code which provides for all directors of FTSE 350 companies to be
subject to re-election by shareholders every year.
Biographies of each of the directors seeking election or re-election
are set out on pages 48 and 49. The board has confi rmed following a
performance review that all directors standing for re-election continue
to perform effectively and demonstrate commitment to their roles.
5. REAPPOINTMENT OF AUDITOR AND AUDITOR’S
REMUNERATION (RESOLUTIONS 17 AND 18)
Resolution 17 relates to the reappointment of KPMG Audit Plc as the
company’s auditor to hold offi ce until the next Annual General Meeting
of the company.
Resolution 18 authorises the directors to set the auditor’s
remuneration.
6. AUTHORITY TO ALLOT SHARES (RESOLUTION 19)
Resolution 19 seeks shareholder approval for the directors to be
authorised to allot shares.
At the last Annual General Meeting of the company held on 6 June
2013, the directors were given authority to allot ordinary shares in
the capital of the company up to a maximum nominal amount of
£235,110,000. This authority expires at the end of this year’s Annual
General Meeting. Of this amount 470,220,000 shares could only be
allotted pursuant to a rights issue.
Resolution 19 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). The board considers it appropriate that the
directors be granted the same authority to allot shares in the capital
of the company up to a maximum nominal amount of £258,598,000
representing a little under two thirds of the company’s issued ordinary
share capital as at 28 March 2014 (the latest practicable date prior to
publication of the Notice of Annual General Meeting). Of this amount,
517,196,000 shares (representing a little under one third of the
company’s issued ordinary share capital) can only be allotted pursuant
to a rights issue. The authority will last until the conclusion of the next
Annual General Meeting in 2015.
The directors do not have any 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 Annual General Meeting,
although it is the directors’ current intention to stand for election
annually in any event in accordance with the requirements of the UK
Corporate Governance Code.
154 G4S plc Annual Report and Accounts 2013
9. POLITICAL DONATIONS (RESOLUTION 22)
Resolution 22 deals with the rules on political donations contained in
the Act. Under these 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 20, which is the same
as the resolution on this subject which was passed at the company’s
Annual General Meeting held on 6 June 2013. This will allow the
company to support the community and put forward its views to wider
business and government interests without running the risk of being in
breach of the law. This authority will cover the period from the date
Resolution 20 is passed until the conclusion of the next Annual General
Meeting of the company. As permitted under the Act, Resolution 22
also covers political donations made, or political expenditure incurred,
by any subsidiaries of the company.
10. PERIOD OF NOTICE FOR CALLING GENERAL
MEETINGS (RESOLUTION 23)
Resolution 23 is a resolution to allow the company to hold general
meetings (other than Annual General Meetings) on 14 days’ notice.
The minimum notice period permitted by the Act for general meetings
(other than Annual General Meetings) is 21 days. However the Act
allows companies to reduce this period back to 14 days (other than for
Annual General Meetings) 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 23 as a special resolution
to approve 14 days as the minimum period of notice for all general
meetings of the company other than Annual General Meetings. The
approval will be effective until the company’s next Annual General
Meeting, 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, and will balance that against the need for
shareholders to consider their voting decisions, particularly where the
proposals concerned are complex and may require more time for
proper evaluation.
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 6,934,564 shares held within the G4S Employee
Benefi t Trust and referred to on page 137 (note 37 to the consolidated
fi nancial statements) are accounted for as treasury shares.
7. DISAPPLICATION OF STATUTORY PRE-EMPTION
RIGHTS (RESOLUTION 20)
Resolution 20 seeks shareholder approval to give the directors
authority to allot shares in the capital of the company pursuant to the
authority granted under Resolution 19 for cash without complying with
the pre-emption rights in the Companies Act 2006 (the “Act”) in
certain circumstances. This authority will permit the directors to allot:
(a) shares up to a nominal amount of £258,598,000 (representing a
little under two thirds 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
£129,299,000 (representing a little under one third 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 £19,394,000,
representing approximately 5% of the issued ordinary share capital
of the company as at 28 March 2014 (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 19, the terms of Resolution 20 are the same as
last year’s resolution (save that the number of shares in question
has increased).
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 relevant company’s issued share capital in any
rolling three-year period, other than to existing shareholders, without
prior consultation with shareholders.
The authority contained in Resolution 20 will expire upon the expiry of
the general authority conferred by Resolution 19 (i.e. at the end of the
next Annual General Meeting of the company).
8. PURCHASE OF OWN SHARES (RESOLUTION 21)
Resolution 21 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 155,159,000 (representing a little less than 10% of the
company’s issued ordinary share capital as at 28 March 2014 (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 Annual General Meeting
in 2015.
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
Annual General Meeting.
As at 28 March 2014 (the latest practicable date prior to the
publication of the Notice of Annual General Meeting), there were
no options over the ordinary shares in the capital of the company.
Annual Report and Accounts 2013 G4S plc 155
Recommendation and explanatory notes relating to business to be conducted at the
Annual General Meeting on 5 June 2014 continued
APPENDIX
SUMMARY OF THE G4S LONG TERM INCENTIVE PLAN
(THE “LTIP”)
Administration
Awards will be granted, and the LTIP will be administered, by the board,
or a duly authorised committee of the board. Awards for executive
directors will be determined and administered by the Remuneration
Committee (and references to the board shall mean the Remuneration
Committee in respect of such awards).
Eligibility
Awards may be granted to any of the employees of the company or its
subsidiaries, including the executive directors.
Form of awards
Under the LTIP, awards will take the form of either:
– a conditional right to receive shares which will be automatically
transferred to the award holder following vesting (a ‘’Conditional
Award’’); or
– an interest in shares which will be held on behalf of the award holder
until vesting (a “Forfeitable Share Award’’). The award holder will not
be entitled to call for or otherwise deal in the shares subject to a
Forfeitable Share Award prior to vesting.
Timing of grant of awards
Awards under the LTIP may, save in exceptional circumstances, only be
granted within a period of 42 days (i) commencing on the date of the
adoption of the LTIP or (ii) following the date of announcement by
the company of its interim or fi nal results (or as soon as practicable
thereafter if the company is restricted from being able to grant awards
during such period).
Awards under the LTIP may not be granted more than ten years
after the rules are approved by shareholders of the company in
general meeting.
Non-Transferable and Non-Pensionable
Awards are non-transferable and do not form part of pensionable
earnings.
Dividend equivalents
Award holders may receive an additional payment (or shares of
equivalent value) equal to the dividends during the vesting period
which would have been paid on the number of shares that vest. Award
holders shall not be, unless the board determines otherwise, entitled to
receive any dividends paid in respect of shares subject to a Forfeitable
Share Award.
Individual limit
The maximum market value of the shares over which an employee
may be granted an award under the LTIP in any calendar year shall not
exceed an amount equal to 250 per cent. of the employee’s gross
annual basic salary at that time.
Plan Limits
Shares may be newly issued, transferred from treasury or market
purchased for the purposes of the LTIP.
The number of shares subject to outstanding options or awards
granted within the previous 10 years and the number of shares issued
for the purpose of options and awards granted within the previous
10 years shall not exceed 10 per cent. of the company’s ordinary share
capital in issue immediately prior to the proposed date of grant under
all employees’ share schemes adopted by the company.
The number of shares subject to outstanding options or awards
granted within the previous 10 years and the number of shares issued
for the purpose of options and awards granted within the previous 10
years shall not exceed fi ve per cent. of the company’s ordinary share
capital in issue immediately prior to the proposed date of grant under
all discretionary employees’ share schemes adopted by the company.
These limits do not include rights to shares which have been released,
lapsed or otherwise become incapable of exercise or vesting. Any
option or award which the board has determined will only be satisfi ed
with existing shares (or which is granted on such terms), will not be
subject to or counted in calculating the above limits. Treasury shares will
count as new issue shares for the purpose of these limits for so long as
institutional investor bodies consider that they should be so counted.
Performance conditions
The board will determine the performance conditions which will apply
to awards and which will be measured, ordinarily, over a period of
not less than three years (or such shorter period as the board may
determine to be appropriate on the recruitment of an employee).
There will be no provision for re-testing. The board may alter the
performance conditions if events happen after the date of grant that
cause the board to consider that any element of the performance
condition is no longer a fair measure of the company’s performance,
provided that the revised target is not considered to be materially less
challenging in the circumstances. Performance conditions proposed for
executive directors are outlined in the company’s remuneration policy,
and will be set out in the annual report on directors’ remuneration.
Vesting
Awards will normally only vest three years after the date of grant (or
such earlier date as the board may determine to be appropriate on
the recruitment of an employee), while the award holder remains in
offi ce or employment with the group, and to the extent that relevant
performance conditions have been met.
For those awards that are to be granted in June 2014, the board has
determined that any such awards will be treated as if they were granted
in March 2014 (both in respect of the vesting period and the share
price that is to be used to calculate the number of shares over which
an award can be granted) in order to bring these awards in line
with the company’s usual grant cycle. This is because the board
has historically granted allocations under the company’s existing
Performance Share Plan in March each year, but as noted in paragraph
2 of the Explanatory Notes on page 154, the Performance Share Plan
will shortly be expiring and therefore new awards will be granted under
the LTIP. As the LTIP will not be adopted by the board until after it has
been approved by shareholders at the Annual General Meeting, awards
under the LTIP cannot be granted until June 2014 at the earliest.
If the board so determines, an award may be satisfi ed in whole or
in part by a cash payment as an alternative to the issue or transfer
of shares.
Leavers
An award will normally lapse where the award holder ceases to hold
offi ce or employment with the group. Awards will not lapse on death
or where the cessation of offi ce or employment with the group is due
to injury, disability, ill-health, redundancy, retirement, the transfer of the
award holder’s employment in connection with a business sale, the
company with which the award holder holds offi ce or employment
ceasing to be a member of the group, or any other reason if the board
so determines (a “Good Leaver’’).
Where an award holder ceases employment for a Good Leaver reason,
the award will continue and vest on its normal vesting date. However,
the board may determine that the award will instead vest on or at any
time following the date of cessation. On the death of a participant, an
award shall immediately vest.
156 G4S plc Annual Report and Accounts 2013
Corporate actions
In the event of a change of control, awards will normally vest. In the
event of the passing of a resolution for the voluntary winding-up of the
company, awards will vest. In the event of a demerger of a substantial
part of the group’s business, a special dividend or a similar event
affecting the value of the shares to a material extent, awards may be
adjusted as set out below or the board may allow awards to vest.
Where the corporate action forms part of an internal re-organisation,
unless the board determines otherwise, an award shall not vest, and
instead will be rolled-over into an award over shares in the new
controlling company of equivalent value.
Extent of vesting
Awards will only vest (including for leavers or on a corporate action) to
the extent that the relevant performance conditions have been satisfi ed.
Where an award vests prior to the normal vesting date, the board
will assess performance using such information as it determines to
be appropriate.
Where, prior to the normal vesting date, an award holder ceases
employment for a Good Leaver reason or there is a corporate action,
the number of shares in respect of which an award vests will, unless
the board determines otherwise, be pro-rated on the basis of the
number of whole months which have elapsed from grant to the date
of cessation or the corporate action (as applicable).
Variation of capital
The number of shares subject to awards may be adjusted, in such
manner as the board may determine, following any variation of share
capital of the company, a demerger of a substantial part of the group’s
business, a special dividend or a similar event affecting the value of
shares to a material extent.
Alterations
The board may amend the LTIP rules as it considers appropriate,
subject to any relevant legislation, provided that no modifi cation may
be made which confers any additional advantage on participants
relating to eligibility, plan limits, the basis of individual entitlement, the
price payable for the acquisition of shares and the provisions for the
adjustment of awards without prior shareholder approval, except
in relation to performance conditions or minor amendments to
benefi t the administration of the LTIP, to take account of a change in
legislation, or to obtain or maintain favourable tax exchange control
or regulatory treatment for participants or the company (or other
group companies).
Clawback
The board may apply clawback where at any time before or within two
years of vesting it determines that the fi nancial results of the company
were misstated, an error was made in any calculation or in assessing
performance, which resulted in the number of shares in respect of
which the award was granted or vested being more than it should have
been. The board may also apply a claw-back where the award holder
has been dismissed for misconduct.
A clawback may be satisfi ed in a number of ways, including by reducing
the amount of any future bonus, by reducing the vesting of any
subsisting or future options or awards (other than tax-advantaged
options or awards), by reducing the number of shares under any vested
but unexercised option and/or by either one or both of a requirement
to make a cash payment or transfer of shares to the company.
The clawback provisions will not apply following the occurrence of a
takeover or similar corporate event.
Overseas plans
The LTIP contains provisions which permit the board to establish
further plans for the benefi t of overseas employees based on the LTIP
but modifi ed as necessary or desirable to take account of overseas tax,
exchange control or securities laws. Any new shares issued under
such plans would count towards the individual and overall plan limits
outlined above.
Annual Report and Accounts 2013 G4S plc 157
Group fi nancial record
G4S plc was formed in 2004 from the merger of the security business of Group 4 Falck and Securicor.
Since that time, the group has delivered robust shareholder returns and its fi ve year fi nancial performance is
shown by the following fi nancial record:
UNDERLYING TURNOVER AT CONSTANT
EXCHANGE RATES
G4S revenues have grown consistently during the last fi ve years.
REVENUE*
£7.4bn
* At 2013 exchange rates and adjusted for discontinued operations.
Re-presented for specifi c items including profi t or loss on disposals
consistent with the 2013 presentation.
UNDERLYING PBITA AT CONSTANT
EXCHANGE RATES
Operating profi t, defi ned as profi t before interest, tax and amortisation
and excluding specifi c items, declined 6% to £442m (2012: £470m).
Adjusting for the prior year impact of the review of assets and liabilities
in 2013, underlying operating profi t grew 2.8% to £442m (2012:
£430m), with strong growth in profi ts from emerging markets of 25%.
PBITA*
£442m
* At 2013 exchange rates and adjusted for discontinued operations.
Re-presented for specifi c items including profi t or loss on disposals
consistent with the 2013 presentation.
(£m)
8,000
6,000
5,973
6,148
6,503
7,024
7,428
4,000
2,000
0
(£m)
500
400
300
200
100
0
09
10
11
12
13
428
415
424
470
430
442
09
10
11
12
13
DIVIDEND
In the fi ve years since 2009, G4S has delivered average
dividend per share growth of 5.7%.
(pence per share)
Pence per share
8.96p
10
8
6
4
2
0
7.90
8.53
7.18
8.96
8.96
09
10
11
12
13
158 G4S plc Annual Report and Accounts 2013
CASH GENERATED BY CONTINUING OPERATIONS
(£m)
£460m
CONTINUED GROWTH IN REVENUE
FROM EMERGING MARKETS
The group has a strong and growing emerging markets business
and they form a growing part of revenues and profi ts.
+16%
revenue growth from emerging markets in 2013
SHARE PRICE
From the merger in July 2004 to the end of 2013, the G4S share
price has increased 113% outperforming the FTSE 100 by 58%
(see page 77 for its comparative TSR performance against that
of the FTSE 100).
+113%
+8.4%
share price increase
since 2004
G4S share price CAGR*
from 2004 to 2013
* CAGR is compound average
growth rate.
522
473
460
406
337
600
400
200
0
09
10
11
12
13
GROUP REVENUE
(%)
30
31
33
34
37
40
30
20
10
0
09
10
11
12
13
2004 – 2013 SHARE PRICE PERFORMANCE (p)
300
250
200
150
100
50
0
Jul
04
Dec
04
Dec
05
Dec
06
Dec
07
Dec
08
Dec
09
Dec
10
Dec
11
Dec
12
Dec
13
G4S
FTSE 100 index rebased
EMPLOYEE NUMBERS
(as at 31 December)
618,000
700,000
600,000
500,000
400,000
618,000
607,000
618,000
586,000
561,000
09
10
11
12
13
Annual Report and Accounts 2013 G4S plc 159
General information
FINANCIAL CALENDAR
Results announcements
Half-year results – August
Final results – March
Dividend payment
Interim paid – 18 October 2013
Final payable – 13 June 2014
Annual General Meeting
5 June 2014
CORPORATE ADDRESSES
Registered offi ce
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
Telephone +44 (0) 1293 554 400
Registered number
4992207
Auditor
KPMG Audit Plc
15 Canada Square
London E14 5GL
Stockbrokers
J.P. Morgan Cazenove
125 London Wall
London EC2Y 5AJ
Citigroup Global Markets Limited
Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
Financial advisors
J.P. Morgan Cazenove
125 London Wall
London EC2Y 5AJ
Barclays Capital
5 The North Colonnade
Canary Wharf
London E14 4BB
G4S website
www.g4s.com
160 G4S plc Annual Report and Accounts 2013
GENERAL SHAREHOLDER
INFORMATION
Registrars and transfer offi ce
All enquiries relating to the administration of
shareholdings should be directed to:
Capita Asset Services
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: shareholderenquiries@capita.co.uk
Secure share portal:
www.capitashareportal.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.
Capita share portal
The share portal is an online facility provided
by the company’s registrars, Capita Asset
Services, for shareholders to manage their
holding securely online reducing the need for
paperwork. By registering for a free portal
account, shareholders are able to access a
range of online facilities 24 hours a day
including those described below.
View account holding details
Allows shareholders to access their personal
account, shareholding balance, share
transaction history, indicative share valuation
and dividend payment history. It also enables
shareholders to buy and sell shares.
Change of address, bank mandates,
downloadable forms
Allows shareholders to update their postal
address and complete, change or delete bank
mandate instructions for dividends. A wide
range of shareholder information, including
downloadable forms such as stock transfer
forms, is also available.
Dedicated helpline
Capita Asset Services also has a helpline to
help users with all aspects of the service.
Telephone (from the UK): 0871 664 0391
Calls cost 10p per minute plus network extras,
lines are open 8.30am to 5.30pm Monday to
Friday)
Telephone
(outside the UK): +44 (0) 20 8639 3367
Email: shareportal @capita.co.uk
FIND OUT MORE ONLINE
Visit www.g4s.com
www.g4s.com
G4S plc
The Manor
Manor Royal
Crawley
West Sussex
RH10 9UN
United Kingdom
Telephone: +44 (0) 20 8770 7000
Email: investor@g4s.com
Registered in England No. 4992207
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chemicals are recycled for further use and, on average 99%
of any waste associated with this production will be recycled.
This document is printed on Cocoon 50 Silk; a paper containing
50% recycled fi bre from genuine waste paper and 50% virgin fi bre
sourced from well-managed, responsible, FSC® certifi ed forests.
Designed and produced by Black Sun Plc.