20 April 2009
G4S PLC
Annual Financial Report
In accordance with DTR 6.3.5 (2) (b), G4S plc makes the following
announcement:
1. MANAGEMENT REPORT
CEO Review
An interview with Nick Buckles
Q: How would you summarise the performance of the group in 2008?
A: We had a very strong year in 2008 with organic turnover growth
of 9.5%, operating profits up 23%, profit margins maintained at 7%
and earnings per share increasing by 26% to 16.7 pence. Those results
were driven by good performances across all of our geographic
regions, service lines and customer segments.
On top of that, we made significant progress on implementing the
group strategy and integrated some fairly substantial acquisitions on
schedule and in line with the expected costs.
I'm really proud of our achievements last year and the fact that the
strong performance was widespread - across the whole company - is a
credit to everyone who is part of G4S.
Q: What were the most important strategic issues that required the
focus of the senior management during that time?
A: In order to make sure that the group is able to deliver the
growth strategy and to facilitate succession planning, we had to
implement some structural, organisational changes. These will enable
us to focus on key customer segments and share best practice across
the group.
Whilst in our business model, the structure is based primarily on
country-level accountability, we had to overlay customer segment and
service line expertise to make sure that we are in the right shape to
achieve our goals in the future. In order to do that we needed to
make sure that the relevant group values, such as teamwork and
collaboration, were fully embedded in the organisation for this
matrix-style structure to be successful.
Embedding the values, creating the right structure and making sure we
had the right expertise in the right places, was a challenge, but we
know it will benefit the organisation in the long run and it was
worth taking the time to get it right.
Q: Which parts of the business were the star-performers in 2008?
A: One of the key aspects of our strategy in 2008 was to acquire
capability-building businesses across the group. Seeking the right
businesses, completing the deals and integrating the different
organisations (culturally and operationally) without negatively
impacting the business performance was a key achievement in a number
of markets and, in my opinion, is now a core strength of the group.
The integration of GSL was primarily in the UK, but also in Australia
and South Africa. The acquired ArmorGroup operations spanned around
20 of G4S's existing markets and also enabled the group to enter four
new countries. There were various acquisitions across the African
continent which required complex integration management and a number
of smaller deals across Europe.
Operationally, I would say that Romania was a star performer last
year - the business took on an enormous contract start-up in the cash
management market, growing from zero to more than 650 operational
vehicles in just two years. Mobilising a contract of that size
successfully is a great achievement.
The cash solutions businesses as a whole deserve a mention - driving
superior margins unrivalled in the industry whilst delivering
strategic and operational benefits for our cash management customers.
Cash management is a core area of expertise within the group and we
are proud of our achievements.
At the same time our US business has really embraced the group
strategy and is now more closely aligned to the G4S culture, brand
and ideals. After years of success as a quality manned security
organisation, G4S Wackenhut has recently won substantial contracts
based on the use of newly developed integrated manpower and
technology solutions - significantly transforming the product offer
in the US.
So overall, we have a lot to be proud of.
Q: Which parts of the business didn't perform to your expectations
in 2008?
A: I wouldn't say that any businesses didn't perform to our
expectations, but there are a still a handful of countries which are
failing to meet our minimum margin targets. They continue to
implement business improvement action plans and we are confident that
they will soon be brought in line.
Q: What impact has the economic downturn had on the performance of
the group in 2008?
A: G4S is not immune from an economic downturn, but it tends not to
have a huge impact on our business. We are resilient to economic
pressure for a number of reasons.
A large proportion of our business is in complex, long term
outsourcing contracts (many in the government sector) which are
unlikely to be those that come under pressure during difficult
periods of the economic cycle. Particularly those contracts in areas
such as the justice sector, border control or military support
services are not likely to face cuts in times of economic
uncertainty. In fact, outsourcing tends to increase in times of
difficulty as customers seek greater efficiencies and look for ways
to reduce costs.
Consumers turn to cash in tough times. It allows them to budget more
effectively and avoid unnecessary interest charges which they would
pay on a credit card. We do our very best to make sure this demand is
catered for efficiently and that the public can get access to their
cash where and when they need it - this means that cash needs to move
around an economy as efficiently as possible and ATM cash needs to be
managed appropriately to cater for the changes in demand.
Generally, our broad geographic exposure provides some protection
from economic pressure with no over-reliance on a single country or
economy. In some countries, where we compete with local competitors
which are going out of business as a result of the current state of
the economy, we are in a position to pick up additional contracts as
customers require confidence in the long-term sustainability of the
service and that their security partner can deliver.
Of course, we constantly keep our own cost base and the efficiency of
the operation under review. As a service business, a large proportion
of our investment is in people - in times of economic difficulty it
does become easier to recruit good quality people and to retain
existing employees for longer.
Overall, I would say that whilst there are challenges for us in
recessionary times, our business model, international presence and
contract base means that we are more resilient that most.
Q: How are you expecting the current economic situation to affect
the business in the next two years?
A: Of course, we can't predict how the global economy will turn out
- the likely length and depth of the recession is a major point of
debate and views differ greatly.
However, for all of the reasons I have already described, I think
that we will be able to ride the storm more positively than most.
We will focus on building customer relationships and increasing
customer partnerships and we are monitoring and managing our debtor
base very carefully to make sure that we deal with any issues that
arise before they can impact the business.
Q: What was the best decision you made in 2008?
A: The GSL and ArmorGroup acquisitions are probably the highlights
- they have helped to transform the organisation in so many ways and
add capability and expertise in areas which will really help us
develop and drive growth in the future.
Q: What would you have done differently in 2008 with hindsight?
A: There are always ways to improve the business performance, but I
can't really say that there are any major things that we should have
done differently. We had a good year and moved forward enormously interms of building capability and confidence for the future.
Q: What drives growth in your business?
A: The growth drivers differ across our two main service lines.
In cash solutions, the primary driver of growth is the maturity of
the cash cycle and the role of the central bank. In the most mature
markets, the central banks have given responsibility for managing the
cash cycle to the commercial banks which, in turn, pass that
responsibility onto cash solutions providers such as G4S. In these
markets outsourcing of almost the entire cycle is common and provides
a way for the banks to focus on their core business and for G4S to
apply its expertise to the management of the flow of cash around the
economy. We can take responsibility for the entire cycle including
cash management, cash forecasting, ATM network management and so on.
Our challenge is to encourage less developed markets to move through
these phases of development to a fully-outsourced model.
The structure of the market is also a key growth driver. In less
developed cash markets, the central banks and commercial banks retain
a high number of cash processing locations which means the market can
be very fragmented with hundreds and sometimes thousands of
cash-in-transit providers. In cash management, economies of scale and
density of customers are key to providing the most efficient service
and to facilitating the outsourcing of non-essential banking services
by the banks.
G4S expertise and competitive differentiation in the cash management
sector also helps us to grow. Within the group, we have some of the
world's most experienced cash management experts with strong track
records. We have developed our expertise in this area over a number
of years and can demonstrate true benefits to customers looking to
outsource their cash management processes whilst needing to feel
secure in the knowledge that their business is in safe hands.
Underlying all of those major issues is the consumer demand for cash
The demise of cash has been predicted for over 25 years and yet it is
still very popular with consumers - it is free at the point of use,
it is anonymous and it provides the best means of managing a budget,
particularly in tough economic environments. Consumers also want
access to their cash 24 hours a day, which drives the need for ATM
networks to be delivering that convenience to consumers across the
world.
In secure solutions the key driver is the propensity for government
and commercial customers to outsource to the private sector. There
are many reasons why this might take place - in the government
sector, resources such as the military and police are constantly
under pressure to focus on their core role and to outsource any
aspects of their operation which are not delivering front line
benefits. The private sector has shown that it can be successful in
delivering a quality service in these areas and provide cost-savings
at the same time.
In the non-government sector, the focus is largely on reducing risk
and driving quality whilst managing cost so the organisation can
focus on its core business - for example, retailers need to focus on
selling goods, airlines have to move passengers around the world
efficiently and sporting venues need to maximise the experience for
their paying audience. Managing the risk aspects of these sectors is
the core business and expertise of organisations such as G4S.
We focus very hard on increasing customer partnerships across our
business and demonstrating the expertise and value that G4S can bring
to a customer. This means that we become an integral part of their
business and a significant contributor to their business success.
Underlying this, there is always the issue of crime and risk. Whilst
it is difficult to quantify how increases in crime and risk directly
impact security spend, what is apparent is that it is usually
accompanied by an increased focus on the associated business issues.
Risk management is increasingly a topic for board level discussion
and decisions are taken at a higher level within our customer
organisations than they would have been ten or maybe even just five
years ago. It's important to us to build relationships at this level.
Across all service lines we continue to acquire businesses which
contribute to growth. We made a large number of acquisitions in 2008
- some to add scale to the group, but the majority to provide
additional capability and expertise to drive outsourcing
opportunities. In the future, capability-building acquisitions will
continue to be a focus for the group although we will also consider
acquisitions which give us access to a particular geography or a
market sector which we don't already have.
Q: What are the biggest risks to that growth being achieved in
2009?
A: No company can ignore the state of the global economy right now.
We believe that we have the ability to ride the economic storm and
should be well-placed to drive superior growth once global economies
get back on track, but with so much uncertainty around, we can't be
complacent about it.
Q: What will be the biggest challenge to the group in 2009?
A: The biggest challenge will be keeping everyone motivated,
positive and driving forward in a year of economic stress.
We have a great business and really good people who have delivered
good results time after time. We need to make sure that we have got
the right culture across the organisation and that everyone believes
in, and lives up to the group values. We can't be everywhere
supervising everything and we need to trust our people to do what
they do best - take the group strategy and culture and make it work
for them in their local market.
Q: How is the shape of the business likely to change or develop in
the future?
A: We are committed to the multi-service model - it works well for
us, particularly in new markets where customer relationships are
developed across multiple service lines.
Our unique geographic footprint isn't likely to change fundamentally
although we would always consider acquisitions which give us access
to markets or sectors where we don't currently have a presence. We
will certainly seek acquisitions which bring additional expertise or
capability to the group.
We will focus on developing customer partnerships across the board
and in key sectors. We would expect our government business to
continue to become a larger proportion of group revenues over time.
Q: How would you summarise the mid-term outlook for the business?
A: We achieved very strong results in 2008 and made significant
progress in implementing the group strategy, supplemented by some key
capability-building acquisitions.
Against the backdrop of economic uncertainty in 2009, we continue to
focus on building customer relationships, retaining and growing
existing business, winning new business, improving productivity,
controlling costs and differentiating G4S with new service lines.
So, whilst there are some challenges for our business in recessionary
times, we do expect to perform strongly in the year ahead.
Nick Buckles
Chief Executive
SECURE SOLUTIONS
G4S PROVIDES A WIDE RANGE OF SECURITY SOLUTIONS INCLUDING RISK
CONSULTANCY, SECURE FACILITY OUTSOURCING, MANNED SECURITY, SECURITY
SYSTEMS, LANDMINE CLEARANCE, TRAINING AND RESPONSE SERVICES. IN THE
CARE AND JUSTICE SERVICE AREAS, G4S DESIGNS, BUILDS AND MANAGES
JUVENILE AND ADULT CUSTODY FACILITIES, ELECTRONICALLY MONITORS
OFFENDERS AND MANAGES IMMIGRATION DETENTION FACILITIES.
In 2008, the secure solutions business continued its strong
performance with good organic growth of 8.6% and margins maintained
at 6.7%.
+----------------------------------------------------------------------------+
|* At constant|Turnover |PBITA |Margins |Organic | | | |
|-------------+----------+---------+---------+---------+------+------+-------|
|exchange |£m |£m | |Growth | | | |
|rates | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+-------|
| |2008 |2007 |2008 |2007 |2008 |2007 |2008 |
|-------------+----------+---------+---------+---------+------+------+-------|
|Europe* |2,319.5 |1,849.6 |151.7 |120.2 |6.5% |6.5% |8.3% |
|-------------+----------+---------+---------+---------+------+------+-------|
|North |1,222.3 |1,125.1 |70.6 |66.3 |5.8% |5.9% |3.6% |
|America* | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+-------|
|New Markets* |1,200.1 |842.1 |96.2 |68.0 |8.0% |8.1% |16.1% |
|-------------+----------+---------+---------+---------+------+------+-------|
|Total secure |4,741.9 |3,816.8 |318.5 |254.5 |6.7% |6.7% |8.6% |
|solutions* | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+-------|
|Exchange |- |(313.0) |- |(19.7) | | | |
|differences | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+-------|
|At actual |4,741.9 |3,503.8 |318.5 |234.8 | | | |
|exchange | | | | | | | |
|rates | | | | | | | |
+----------------------------------------------------------------------------+
Organic growth in Europe was 8.3% compared to 6.5% in 2007. Margins
were unchanged at 6.5%.
Europe
+---------------------------------------------------------------------------+
|At constant |Turnover |PBITA |Margins |Organic | | | |
|-------------+----------+---------+---------+---------+------+------+------|
|exchange |£m |£m | |Growth | | | |
|rates | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+------|
| |2008 |2007 |2008 |2007 |2008 |2007 |2008 |
|-------------+----------+---------+---------+---------+------+------+------|
|UK & Ireland |929.9 |598.2 |76.8 |48.7 |8.3% |8.1% |7.6% |
|-------------+----------+---------+---------+---------+------+------+------|
|Continental |1,389.6 |1,251.4 |74.9 |71.5 |5.4% |5.7% |8.6% |
|Europe | | | | | | | |
|-------------+----------+---------+---------+---------+------+------+------|
|Total Europe |2,319.5 |1,849.6 |151.7 |120.2 |6.5% |6.5% |8.3% |
+---------------------------------------------------------------------------+
There was good organic growth of 7.6% in the UK & Ireland compared to
6.0% in the same period last year. Margins strengthened further to
8.3%. Customer retention rates in the security business were high at
around 95%. The care and justice, events, defence training and secure
facilities management businesses all recorded strong growth and good
margins. A number of new services were launched in the year including
Gurkha services, lone worker protection and a vacant property
protection service.
A number of acquisitions were made in the region aimed at increasing
the expertise of the group in key sectors in line with the group
strategy. The acquisition and integration of GSL, ArmorGroup and Rock
Steady have all progressed well, adding expertise and delivering
synergies ahead of expectations. Key contract wins include Brook
House immigration detention centre, facilities management services
for South Warwickshire and North West London Primary Care Trusts, the
Olympic Delivery Authority, the Ministry of Defence and the first
offender monitoring contract in Northern Ireland.
In Continental Europe, organic growth was 8.6% and margins were
slightly below the prior year at 5.4% due mainly to a challenging
environment in aviation security as a result of lower passenger
numbers, the start up of the Oslo airport contract and lower
installation growth in the smaller security systems businesses. Cost
reduction measures are being implemented in these markets. Security
systems is a relatively small part of the G4S portfolio and contracts
are concentrated in Continental Europe. Overall contract retention in
the region was high at over 95% with key contracts such as those for
the European Parliament (Belgium and Luxembourg) and Schiphol airport
being renewed in 2008.
Lithuania and Luxembourg had a strong year in all customer segments
and Austria delivered good results assisted by completion of some
systems projects, the Euro 2008 football championships and other
major events. In Greece, the business won four new regional airports
contracts and the Athens Metro contract in 2008, which contributed to
excellent growth and helped improve margins.
In Romania, the business achieved excellent growth and margins,
largely as a result of the outsourcing of a wide range of
security-related services by the Romanian post office and the
critical mass that this has created across the country. In the
Baltics, growth slowed but margins were robust.
Norway achieved excellent organic growth of over 40% assisted by the
Oslo airport contract which began early in the year. Finland had a
good year and in Sweden, the business is now trading profitably under
the new management team and following some good contract wins in
2007. There was good growth and solid margins in Denmark, aided by
security systems growth across all segments and strong growth in
manned security.
North America
+------------------------------------------------------------------------+
|At |Turnover |PBITA |Margins |Organic | | | |
|constant | | | | | | | |
|----------+----------+---------+---------+---------+------+------+------|
|exchange |£m |£m | |Growth | | | |
|rates | | | | | | | |
|----------+----------+---------+---------+---------+------+------+------|
| |2008 |2007 |2008 |2007 |2008 |2007 |2008 |
|----------+----------+---------+---------+---------+------+------+------|
|North |1,222.3 |1,125.1 |70.6 |66.3 |5.8% |5.9% |3.6% |
|America | | | | | | | |
+------------------------------------------------------------------------+
Organic growth in North America was 3.6% and, excluding the US
commercial nuclear sector which lost a large contract, organic growth
was 7.0%. Margins were slightly lower at 5.8% as expected due to
start up costs on some new contracts and contract renewals.
In the United States the commercial business was broadly flat.
However excluding the commercial nuclear business, organic growth was
5%. The government business achieved organic growth of 11%, with the
immigration and border control contract performing strongly.
New contract awards included those for the Department of Energy at
its Hanford Site and commercial nuclear power sites for companies
such as FPL and an international contract with Agilent. Contract
renewals and extensions included Chrysler and Bank of America.
In Canada there was good organic growth and margins improved as a
result of a programme to exit low yielding contracts and focus on
higher margin businesses.
New Markets
+------------------------------------------------------------------------+
|At constant |Turnover|PBITA|Margins|Organic| | | |
|-------------------------+--------+-----+-------+-------+----+----+-----|
|exchange rates |£m |£m | |Growth | | | |
|-------------------------+--------+-----+-------+-------+----+----+-----|
| |2008 |2007 |2008 |2007 |2008|2007|2008 |
|-------------------------+--------+-----+-------+-------+----+----+-----|
|Asia |412.0 |285.8|32.6 |24.1 |7.9%|8.4%|15.6%|
|-------------------------+--------+-----+-------+-------+----+----+-----|
|Middle East |315.6 |191.2|26.4 |15.3 |8.4%|8.0%|21.6%|
|-------------------------+--------+-----+-------+-------+----+----+-----|
|Africa |248.6 |191.8|22.4 |17.0 |9.0%|8.9%|10.8%|
|-------------------------+--------+-----+-------+-------+----+----+-----|
|Latin America & Caribbean|223.9 |173.3|14.8 |11.6 |6.6%|6.7%|16.5%|
|-------------------------+--------+-----+-------+-------+----+----+-----|
|Total New Markets |1,200.1 |842.1|96.2 |68.0 |8.0%|8.1%|16.1%|
+------------------------------------------------------------------------+
In New Markets, organic growth was excellent at 16.1% and margins
were maintained at around 8%.
Organic growth in Asia was 15.6% and margins were 7.9%. Margins in
Asia were slightly down due to the lower margin Australian prison
contracts which were acquired with GSL. India continued to deliver
excellent growth of over 20% and strong margin improvement.
Thailand also performed well with organic growth of over 20% with
improved margins and won a major contract with SCB at the end of
2008. In Malaysia, organic growth was 10% due to improved operational
performance and a significant increase in the number of ATMs and CDMs
serviced.
In Hong Kong, the business grew slightly despite a challenging
competitive environment and margins were maintained. In Macau, growth
slowed but was still above 15% and margins remained strong. The Papua
New Guinea business performed very well in its first year of
operation.
In the Middle East, organic growth was impressive at 21.6% and
margins were at 8.4%, driven by good performance in facilities
management and improvement in the margins achieved in Iraq.
In UAE, organic growth was 18% and G4S has been granted contracts for
a secure training centre and rehabilitation services in Abu Dhabi.
Qatar achieved organic growth of 80% from mainly the education,
military and energy sectors.
In Africa, organic growth was 10.8% and margins improved to 9.0%.
Kenya performed very well with growth of 14% and continued strong
profitability. Morocco had strong growth assisted by new contracts in
the oil and banking sectors. In South Africa, growth continued but
margins were lower due to a number of underperforming contracts and
new management has been installed.
Elsewhere in Africa, DRC, Malawi, Mozambique, Nigeria, Namibia and
Zambia all performed well with healthy organic growth and a
significant increase in scale from the ArmorGroup acquisition in many
of these markets.
In the Latin America & Caribbean region, organic growth was 16.5% and
margins were 6.6%. The region has experienced a slight slow-down in
economic growth and some smaller competitors in countries such as
Peru and Ecuador have exited the market, which is currently providing
an opportunity for the group as the labour market tightness has
reduced.
Argentina continued to perform well with organic growth over 30% and
improved margins helped by an improved business mix.
In Chile, improving margins were assisted by the acquisition of the
largest marine security solution company and some higher margin
mining contracts. Peru grew more than 20% helped by new regulation
which favours professional security companies and margins improved
due to new technology related contracts.
The various businesses within Colombia performed well in comparison
to 2007 but overall results were impacted by the renegotiated tolls
contract, as expected.
CASH SOLUTIONS
THE CASH SOLUTIONS DIVISION PROVIDES A WIDE RANGE OF SERVICES FOCUSED
ON THE TRANSPORTATION, STORAGE AND MANAGEMENT OF CASH AND VALUABLES
ON BEHALF OF BANKS, RETAILERS AND OTHER MAJOR CUSTOMERS.
Services provided to customers include transport and storage of cash
and valuables, retail cash office management, outsourced cash centre
management, ATM cash replenishment, maintenance and network
management.
In 2008, the cash solutions business continued its very strong first
half performance with organic growth of 12.5% and margins of 11.1%.
Organic growth in Europe was excellent at 12%, with margins
maintained at around 10.9%, despite investment in the Cash 360 retail
solution.
In the UK & Ireland, the cash solutions business performed well with
good organic growth and firm margins. The fifth "super branch" cash
management centre in the UK was officially opened in London in
January 2009.
There was slower growth but strong margins in the Netherlands as a
result of excellent operational controls. The implementation of the
Swedbank ATM management contract contributed to substantial revenue
growth and improved margins in Sweden.
In Belgium there was good growth in ATMs and cash management, largely
from expanding existing customer contracts. In Hungary and the
Baltics there was high revenue growth and excellent margins.
+------------------------------------------------------------------------------+
|* At constant|Turnover |PBITA |Margins |Organic | | | |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|exchange |£m |£m | |Growth | | | |
|rates | | | | | | | |
|-------------+----------+---------+---------+---------+-------+-------+-------|
| |2008 |2007 |2008 |2007 |2008 |2007 |2008 |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|Europe* |859.1 |759.9 |94.0 |83.4 |10.9% |11.0% |12.0% |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|North |87.0 |85.4 |0.8 |0.6 |0.9% |0.7% |1.9% |
|America* | | | | | | | |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|New Markets* |254.9 |206.3 |38.6 |31.2 |15.1% |15.1% |18.6% |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|Total Cash |1,201.0 |1,051.6 |133.4 |115.2 |11.1% |11.0% |12.5% |
|Solutions* | | | | | | | |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|Exchange |- |(71.9) |- |(8.2) | | | |
|differences | | | | | | | |
|-------------+----------+---------+---------+---------+-------+-------+-------|
|At actual |1,201.0 |979.7 |133.4 |107.0 | | | |
|exchange | | | | | | | |
|rates | | | | | | | |
+------------------------------------------------------------------------------+
The implementation of the post office outsourcing contract in Romania
has continued to drive extremely high growth and margin improvements
as expected.
In North America, the business in Canada stabilised under the new
management team and experienced positive growth for the first time
since 2006. We expect continued improvement in 2009.
Organic growth in New Markets was excellent at 18.6%, with margins
remaining at 15.1%. There were very good results across Asia, the
Middle East and Africa. In Latin America, results were affected by
the renegotiated Colombia tolls contract as expected. Margins in
Colombia remain strong and the other cash solutions businesses in the
region performed well.
Cash outsourcing opportunities are beginning to develop in Malaysia,
Indonesia and the Philippines as financial institutions and central
banks are focusing on their core services and seeking to drive
efficiencies in the cash cycle. At the end of 2008, a banking
hardware, maintenance and software interface business was acquired to
support services in the Hong Kong and China markets.
In the UAE, the business has extended its cash management offer into
credit card management and distribution services. India was awarded
the contract for distribution of the new national ID cards. In
Thailand, new state-of-the-art cash centres have allowed the business
to expand rapidly.
In South Africa the business is performing well with good growth,
particularly in the ATM sector, and very strong margins.
There was high organic growth in Kenya as a result of further
outsourcing in the financial services sector. The introduction of new
technology has provided the business with a unique competitive
advantage in the market.
FINANCIAL REVIEW
Basis of accounting The financial statements are presented in
accordance with applicable law and International Financial Reporting
Standards, as adopted by the European Union ("adopted IFRSs").
Operating results The operational trading is discussed in the
operating review on pages 2 to 11. Profit from operations before
amortisation of acquisition-related intangible assets (PBITA)
amounted to £416.4m, an increase of 34% on the £311.4m in 2007 and an
increase of 23% at constant exchange rates.
Associates Included within PBITA is £3.4m (2007: £3.0m) in respect of
the group's share of profit from associates, principally from the
business of Space Gateway in the US which provides safety services to
NASA. Cash flow from associates was £12.2m, compared to £1.0m in
2007.
Acquisitions and acquisition-related intangible assets Investment in
acquisitions in the year (excluding acquired net debt of £210.3m)
amounted to £369.8m, of which £358.2m was a cash outflow and £11.6m
deferred consideration. This investment generated goodwill of £408.5m
and other acquisition-related intangible assets of £202.0m.
The largest acquisition in the year was the purchase of the Global
Solutions group ("GSL"), an international leader in the provision of
support services for governments, public authorities and the private
sector, based in the UK, on 12 May for total consideration of
£176.1m.
Other significant acquisitions included ArmorGroup, an international
provider of defensive, protective security services, head-quartered
in the UK; Touchcom, a security consultancy and design business in
the US; RONCO, an international provider of humanitarian mine action
and ordnance services, specialised security and training,
head-quartered in the US; MJM Investigations, a provider of insurance
fraud mitigation and claims services in the US; Rock Steady,
providing event security in the UK; Travel Logistics, a provider of
passport and visa services in the UK; and Progard, the market leader
in professional security services in the Republic of Serbia. In
addition, the group acquired the 49% of its business in Macau that it
did not already own, completed in March the purchase of a further 25%
of its multi-service businesses in the Baltic States and, in
December, acquired the final 10% of these businesses.
Larger acquisitions in 2007 included the purchase of controlling
interests in Fidelity Cash Management in South Africa and the
business of al Majal Facilities Management in Saudi Arabia; the
purchase of RIG, a police recruitment business in the UK; and the
recognition of put options that increased to 90% the group's interest
in the multi-service businesses in the Baltic states.
The contribution made by acquisitions to the results of the group
during the year is shown in note 5 on pages 30 to 32.
The charge for the year for the amortisation of acquisition-related
intangible assets other than goodwill amounted to £67.8m. Goodwill is
not amortised. Acquisition-related intangible assets included in the
balance sheet at 31 December 2008 amounted to £2,060.4m goodwill and
£392.2m other.
Financing items Finance income was £104.9m and finance costs £189.3m,
giving a net finance cost of £84.4m. Net interest payable on net debt
was £81.2m. This is an increase of 41% over the 2007 cost of £57.4m
due principally to the increase in the group's average gross debt.
The group's average cost of gross borrowings in 2008 was 5.5%
compared to 5.7% in 2007. The cost based on prevailing interest rates
at 31 December 2008 was 4.6% compared to 5.7% at 31 December 2007.
Also included within financing are other net interest costs of £6.9m
(2007: £1.3m), including the unwinding of the discount on put options
over minority interests, and a net income of £3.7m (2007: £5.0m) in
respect of movements in the group's net retirement benefit
obligations.
Taxation The taxation charge of £89.3m provided upon profit from
operations before amortisation of acquisition-related intangible
assets less net interest, represents a tax rate of 26.9%, compared to
27.5% in 2007. The group believes that an effective tax rate of
around this level is sustainable going forward as a result of the
ongoing rationalisation of the post-merger group legal structure and
the elimination of fiscal inefficiencies. The amortisation of
acquisition-related intangible assets gives rise to the release of
the related proportion of the deferred tax liability established when
the assets were acquired, amounting to £19.1m. Potential tax assets
in respect of losses amounting to £503.9m have not been recognised as
their utilisation is uncertain.
Disposals and discontinued operations The group disposed of its
secure solutions businesses in Germany on 15 May 2008 and of its
security systems business in France on 31 July 2008. The group's
disposal of its manned security business in France was in progress at
31 December 2008 and completed on 28 February 2009. In addition,
during the year the group disposed of a number of small businesses,
including the cash services business in Guatemala.
On 2 July 2007, the group disposed of its cash services business in
France and during that year disposed of a number of small businesses,
mainly in Latin America.
The loss attributable to discontinued operations comprises a loss of
£13.3m in respect of post-tax trading of discontinued businesses, a
profit of £12.0m in respect of the disposals made in the current
year, an impairment of £29.4m in respect of the carrying value of the
group's manned security business in France and a profit of £1.6m in
respect of adjustments to prior year disposals. The result from
discontinued operations in 2007 comprises a loss of £11.5m in respect
of trading of both the 2007 and the 2008 disposals, a £9.1m profit in
respect of disposals and a £2.9m profit in respect of adjustments to
prior year disposals.
The net cash proceeds from business disposals received in 2008 were
£31.1m, including £27.0m in respect of the secure solutions
businesses in Germany.
Profit for the year Profit for the year was £164.9m, compared to
£160.6m in 2007. The increase represents the £105.0m increase in
PBITA less the £30.7m increase in net interest cost, the £26.2m
increase in amortisation of acquisition-related intangible assets,
the £14.2m increase in the tax charge and the £29.6m increase in loss
from discontinued operations.
Minority interests Profit attributable to minority interests was
£13.7m in 2008, slightly higher than the £13.4m for 2007, reflecting
minority partner shares in the group's organic and acquisitive
growth, less a reduction in minority shares in net profits consequent
upon the group increasing its interests in certain subsidiaries.
Earnings per share Basic earnings per share from continuing and
discontinued operations was 11.1p compared to 11.5p for 2007. These
earnings are unchanged when calculated on a fully diluted basis,
which allows for the potential impact of outstanding share options.
Adjusted earnings, as analysed in note 10 on page 34, excludes the
result from discontinued operations, amortisation of
acquisition-related intangible assets and retirement benefit
obligations financing items, all net of tax, and better allows the
assessment of operational performance, the analysis of trends over
time, the comparison of different businesses and the projection of
future performance. Adjusted earnings per share was 16.7p, an
increase of 26% on 13.3p for 2007.
Dividends The directors recommend a final dividend of 3.68p (DKK
0.3052) per share. This represents an increase of 29% upon the final
dividend for the year to 31 December 2007 of 2.85p (DKK 0.2786) per
share. The interim dividend was 2.75p (DKK 0.2572) per share and the
total dividend, if approved, will be 6.43p (DKK 0.5624) per share,
representing an increase of 30% over the 4.96p (DKK 0.5105) per share
total dividend for 2007.
The proposed dividend cover is 2.5 times (2007: 2.7 times) on
adjusted earnings. The group has, in accordance with stated
intentions, been reducing its dividend cover to the 2.5 times level
over a period of several years. The group's intention is that
dividends in future increase broadly in line with normalised adjusted
earnings.
Cash flow The primary cash generation focus of group management is on
the percentage of operating profit converted into cash. From 2007,
the group's target conversion rate was raised from 80% to 85%.
Operating cash flow, as defined for management purposes, was as
follows:
+-------------------------------------------------------------------+
| | 2008 | 2007 |
|-----------------------------------------------+---------+---------|
| | £m | £m |
|-----------------------------------------------+---------+---------|
| PBITA | 416.4 | 311.4 |
|-----------------------------------------------+---------+---------|
| Less share of profit from associates | (3.4) | (3.0) |
|-----------------------------------------------+---------+---------|
| PBITA before share of profit from associates | 413.0 | 308.4 |
| (Group PBITA) | | |
|-----------------------------------------------+---------+---------|
| Depreciation and amortisation of intangible | 116.1 | 99.6 |
| assets other than acquisition-related | | |
|-----------------------------------------------+---------+---------|
| Loss (profit) on disposal of property, plant | 2.1 | (14.4) |
| and equipment | | |
|-----------------------------------------------+---------+---------|
| Movement in working capital and provisions | (16.7) | (8.2) |
|-----------------------------------------------+---------+---------|
| Net cash flow from capital expenditure | (161.3) | (109.0) |
|-----------------------------------------------+---------+---------|
| Operating cash flow | 353.2 | 276.4 |
|-----------------------------------------------+---------+---------|
| Operating cash flow as a percentage of group | 86% | 90% |
| PBITA | | |
+-------------------------------------------------------------------+
Working capital was largely unchanged in both 2008 and 2007 due to a
programme of billing and collection process improvements that is
being rolled out across the group offsetting the impact of the
group's organic growth. Capital expenditure relative to the
depreciation charge can vary from year to year due to the timing of
asset replacements. It was 138% of depreciation in 2008, compared to
109% in 2007. Overall operating cash generation for the year was
good, as a result of the maintenance of financial discipline across
the organisation.
The management operating cash flow calculation is reconciled to the
net cash from operating activities as disclosed in accordance with
IAS7 Cash Flow Statements as follows:
+-------------------------------------------------------------------+
| | 2008 | 2007 |
|-----------------------------------------------+---------+---------|
| | £m | £m |
|-----------------------------------------------+---------+---------|
| Cash flow from operating activities (IAS7 | 373.0 | 291.3 |
| definition) | | |
|-----------------------------------------------+---------+---------|
| Net cash flow from capital expenditure | (161.3) | (109.0) |
|-----------------------------------------------+---------+---------|
| Add-back cash flow from discontinued | 27.2 | 1.8 |
| operations | | |
|-----------------------------------------------+---------+---------|
| Add-back additional retirement benefit | 32.3 | 26.1 |
| contributions | | |
|-----------------------------------------------+---------+---------|
| Add-back tax paid | 82.0 | 66.2 |
|-----------------------------------------------+---------+---------|
| Operating cash flow (G4S definition) | 353.2 | 276.4 |
+-------------------------------------------------------------------+
The additional retirement benefit contributions in 2008 included a
one-off payment of £5.4m in respect of the acquired GSL schemes.
The group's free cash flow, as defined by management, is analysed as
follows:
+---------------------------------------+
| | 2008 | 2007 |
|---------------------+--------+--------|
| | £m | £m |
|---------------------+--------+--------|
| Operating cash flow | 353.2 | 276.4 |
|---------------------+--------+--------|
| Net interest paid | (80.0) | (55.0) |
|---------------------+--------+--------|
| Tax paid | (82.0) | (66.2) |
|---------------------+--------+--------|
| New finance leases | (17.1) | (10.3) |
|---------------------+--------+--------|
| Free cash flow | 174.1 | 144.9 |
+---------------------------------------+
Free cash flow is reconciled to the total movement in net debt as
follows:
+-------------------------------------------------------------------+
| | 2008 | 2007 |
|---------------------------------------------+-----------+---------|
| | £m | £m |
|---------------------------------------------+-----------+---------|
| Free cash flow | 174.1 | 144.9 |
|---------------------------------------------+-----------+---------|
| Cash flow from discontinued operations | (27.2) | (1.8) |
|---------------------------------------------+-----------+---------|
| Additional retirement benefit contributions | (32.3) | (26.1) |
|---------------------------------------------+-----------+---------|
| Net cash outflow on acquisitions | (629.7) | (162.9) |
|---------------------------------------------+-----------+---------|
| Net cash inflow from disposals | 31.1 | 7.9 |
|---------------------------------------------+-----------+---------|
| Net cash flow from associates | 12.2 | 1.0 |
|---------------------------------------------+-----------+---------|
| Dividends paid to minority interests | (11.9) | (3.8) |
|---------------------------------------------+-----------+---------|
| Loan to minority interests | - | (13.3) |
|---------------------------------------------+-----------+---------|
| Share issues less share purchases | 268.0 | (2.2) |
|---------------------------------------------+-----------+---------|
| Dividends paid to equity holders of the | (75.0) | (59.3) |
| parent | | |
|---------------------------------------------+-----------+---------|
| Net cash flow from hedging financial | (65.9) | (4.3) |
| instruments | | |
|---------------------------------------------+-----------+---------|
| Movement in net debt in the year | (356.6) | (119.9) |
|---------------------------------------------+-----------+---------|
| Foreign exchange translation adjustments to | (186.2) | (12.2) |
| net debt | | |
|---------------------------------------------+-----------+---------|
| Net debt at 1 January | (804.9) | (672.8) |
|---------------------------------------------+-----------+---------|
| Net debt at 31 December | (1,347.7) | (804.9) |
+-------------------------------------------------------------------+
Net debt represents the group's total borrowings less cash, cash
equivalents and liquid investments. The components of net debt are
detailed in note 15 on page 35.
Share capital On 13 May 2008, the group completed a placing of 127m
ordinary shares of 25p at a price of 222p per share. Gross proceeds
were £281.9m and issue costs £5.9m.
Financing and treasury activities The group's treasury function is
responsible for ensuring the availability of cost-effective finance
and for managing the group's financial risk arising from currency and
interest rate volatility and counterparty credit. Treasury is not a
profit centre and is not permitted to speculate in financial
instruments. The treasury department's policies are set by the board.
Treasury is subject to the controls appropriate to the risks it
manages.
Financing The group's funding position is strong, with sufficient
headroom against available committed facilities and very little debt
maturing before 2012.
The group's primary source of finance is a £1.1bn multicurrency
revolving credit facility provided by a consortium of lending banks
at a margin of 0.225% over Libor and maturing on 28 June 2012.
The group also has US $550m in financing from the private placement
of unsecured senior loan notes on 1 March 2007, maturing at various
dates between 2014 and 2022 and bearing interest at rates between
5.77% and 6.06%. The fixed interest rates payable have been swapped
into floating rates for the term of the notes, at an average margin
of 0.60% over Libor.
Between 7 March and 15 July 2008 the group had available committed
facilities amounting to £350m at an initial margin of 0.35% over
Libor. The purpose of these facilities was to provide the group with
headroom whilst the group assessed options in the capital markets.
On 15 July 2008, the group completed a further $514m and £69m private
placement of unsecured senior loan notes, maturing at various dates
between 2013 and 2020 and bearing interest at rates between 6.09% and
7.56%. The proceeds of the issue were used to reduce drawings against
the revolving credit facility. $265m of the US dollar receipts have
been swapped into sterling for the term of the notes.
The group has other short-term committed facilities of £45m and
uncommitted facilities of £578m.
The group's net debt at 31 December 2008 of £1,347.7m represented a
gearing of 92%. The group headroom at 31 December 2008 was £350m. The
group has sufficient capacity to finance current investment plans.
On 9 March 2009, the group obtained a BBB credit rating from Standard& Poor's, which provides the group with further flexibility as
regards future funding.
Interest rates The group's investments and borrowings at 31 December
2008 were, with the exception of the issue of private placement notes
in July 2008, at variable rates of interest linked to Libor and
Euribor, with the group's exposure being predominantly to interest
rate risk in US dollar and euro. The group's interest risk policy
requires treasury to fix a proportion of this exposure on a sliding
scale utilising interest rate swaps. The maturity of these interest
rate swaps at 31 December 2008 was limited to five years. The market
value of the Loan Note-related pay-variable receive-fixed swaps
outstanding at 31 December 2008, accounted for as fair value hedges,
was a gain of £92.3m. The market value of the pay-fixed
receive-variable swaps and the pay-fixed receive-fixed cross-currency
swaps outstanding at 31 December 2008, accounted for as cash flow
hedges, was a gain of £32.3m.
Foreign currency The group has many overseas subsidiaries and
associates denominated in various different currencies. Treasury
policy is to manage significant translation risks in respect of net
operating assets and income denominated in foreign currencies. The
methods adopted are to use borrowings denominated in foreign currency
supplemented by forward foreign exchange contracts.
During 2008 both the US dollar and euro appreciated significantly
against sterling. The average rate for the dollar during 2008 was
$1.86=£1 compared to $2.00=£1 for 2007. The rate at 31 December 2008
was $1.44=£1 compared to $1.99=£1 at 31 December 2007. This variance
has impacted the group's dollar-denominated assets and assets
denominated in New Market currencies that follow the dollar. The
average rate for the euro during 2008 was €1.26=£1 compared to
€1.46=£1 for 2007. The rate at 31 December 2008 was €1.03=£1 compared
to €1.36=£1 at 31 December 2007. This variance has impacted the
group's euro-denominated assets and assets denominated in European
currencies that follow the euro.
Exchange differences on the translation of foreign operations
included in the statement of recognised income and expense amount to
a gain of £100.9m (2007: gain of £18.4m). These differences are net
of a £186.2m loss (2007: £12.2m loss) on the retranslation of net
debt and a £65.9m cash outflow (2007: £4.3m outflow) from forward
exchange contracts.
The market value of forward contracts outstanding at 31 December 2008
was a loss of £28.6m.
Cash management To assist the efficient management of the group's
interest costs and its short-term deposits, overdrafts and revolving
credit facility drawings, the group operates a global cash management
system. At 31 December 2008, 90 group companies participated in the
pool. Debit balances of £128.4m and credit balances of £131.0m were
held within the cash pool. IFRS does not permit the netting off of
these balances, which are therefore disclosed gross within current
assets and current liabilities.
Retirement benefit obligations The group's primary defined benefit
retirement benefit schemes are those operated in the UK, but it also
operates such schemes in a number of countries, particularly in
Europe and North America. The latest full actuarial assessments of
the UK schemes were carried out at 31 March 2007 in respect of the
Group 4 scheme (approximately 8,000 members), at 5 April 2006 in
respect of the Securicor scheme (approximately 20,000 members) and at
31 March 2005 in respect of the GSL scheme (approximately 2,000
members) acquired during the year. These assessments and those of the
group's other schemes have been updated to 31 December 2008,
including the review of longevity assumptions. The group's funding
shortfall on the valuation basis specified in IAS19 Employee Benefits
was £286m before tax or £206m after tax (2007: £136m and £98m
respectively).
The valuation of gross liabilities decreased during 2008 largely due
to an increase in the appropriate AA corporate bond rate in the UK
from 5.8% to 6.3%, partially offset by an increase in expected
longevity. However, the value of the assets held in the funds
decreased by £245m during 2008.
The group believes that the short-term volatility in reported
retirement benefit obligations, in response to movements in asset
prices and financial circumstances, is of limited relevance in the
context of liabilities which are exceptionally long-term in nature
and furthermore that, over the long term, investment returns on the
retirement benefit scheme assets will be sufficient to fund
retirement benefit obligations. However, in recognition of the
regulatory obligation upon pension fund trustees to address reported
deficits if they arise, the group anticipates that additional cash
contributions will continue to be made at least at a level similar to
that in 2008. The three schemes in the UK have combined under one
trustee body with effect from 1 January 2009 and will all be formally
actuarially assessed at 5 April 2009.
Going concern The directors are confident that, after making
enquiries and on the basis of current financial projections and
available facilities, they have a reasonable expectation that the
group has adequate resources to continue in operational existence for
the foreseeable future. For this reason they continue to adopt the
going concern basis in preparing the financial statements.
Risks All businesses are subject to risk and many individual risks
are macro-economic or social and common across many businesses. Many
risks are to a greater or lesser extent controllable, but some are
not controllable. Through its internal risk management process, the
group identifies business-specific risks. It classifies the key risks
as those which could materially damage the group's strategy,
reputation, business, profitability or assets and these risks are
listed below. This list is in no particular order and is not an
exhaustive list of all potential risks. Some risks may be unknown and
it may transpire that others currently considered immaterial become
material.
1. Price competition
The security industry comprises a number of very competitive markets.
In particular, manned security markets can be fragmented with
relatively low economic barriers to entry and the group competes with
a wide variety of operators of varying sizes. Actions taken by the
group's competitors may place pressure upon its pricing, margins and
profitability.
2. Major changes in market dynamics
Such changes in dynamics could include new technologies, government
legislation or customer consolidation and could, particularly if
rapid or unpredictable, impact the group's revenues and profitability
or the carrying value of goodwill and other assets.
3. Cash losses
The group is responsible for the cash held on behalf of its
customers. Increases in the value of cash lost through criminal
attack may increase the costs of the group's insurance. Were there to
be failures in the control and reconciliation processes in respect to
customer cash these could also adversely affect the group's
profitability.
4. Onerous contractual obligations
Should the group commit to sales contracts specifying disadvantageous
pricing mechanisms, unachievable service levels or excessive
liability it could impact its margins and profitability.
5. Inappropriate sourcing of staff
The group's greatest asset is its large and committed work force.
However, were the group to source inappropriate staff, whether it be
as permanent employees, temporary workers or sub-contractors, the
result could be detrimental to the group's reputation and could
adversely affect the group's growth and profitability.
6. Poor operational service delivery
Should the group fail to meet the operational requirements of its
customers it could impact its reputation, contract retention and
growth.
7. Financing
If due to adverse financial market conditions insufficient or only
very costly financial funding were available, the group might not be
in a position to implement its strategy as it plans to do or invest
in acquisitions or capital expenditure, adversely impacting its
growth and profitability.
8. Defined benefit pension schemes
A prolonged period of poor asset returns and/or unexpected increases
in longevity could require increases in the current levels of
additional cash contributions to defined benefit pension schemes,
which may constrain the group's ability to invest in acquisitions or
capital expenditure, adversely impacting its growth and
profitability.
9. Regulatory requirements
Security can be a high-profile industry. There is a wide and
ever-changing variety of regulations applicable to the group's
businesses across the world. Failure to comply with such regulations
may adversely affect the group's revenues and profitability.
The group has a robust risk assessment and control process in place
to identify and mitigate the controllable risks faced by the
organisation. Mitigation measures include:
1. The group's diversity
The group operates around 150 businesses across over 110 countries
and across a range of product areas. Most of the risks detailed above
are market-specific and, therefore, any particular issue should only
impact part of the group's operations.
2. Management structure
The group operates a management structure that is appropriate to the
scale and breadth of its activities. Business performance and
strategies are reviewed continuously by regional, divisional and
group management. Potential issues requiring management attention are
therefore identified and there is a wide range of expertise available
throughout the organisation, which is utilised as necessary to
address these issues.
3. Authorisation procedures
The group has clear authorisation limits and procedures which are
cascaded throughout the organisation. For example, a contract
approval process is in place, under which certain contracts are
reviewed by the group's legal department.
4. Group standards
Each of the group's businesses applies the systems and procedures
appropriate to its size and complexity. However, the group requires
that these conform to group standards in respect of matters such as
operational and financial controls, recruitment and vetting,
financial reporting, contract risk management, business continuity
planning and project management techniques. Further standards,
including those in respect of IT systems, are applied on a divisional
or regional basis.
5. Internal audit
The Internal Audit department operates under a wide remit, which
includes ensuring adherence to group authorisation procedures and
control standards. A separate dedicated cash audit function monitors
compliance with the group's standards on cash management and
reconciliation.
6. Diversified sources of finance
The group's treasury department monitors the group's financing
requirements and extends its sources of finance as necessary. For
example, during the last two years the group has raised around $1.1bn
of funding in the form of long-term loan notes from the US private
placement market.
7. Market engagement
Most of the risks to which the group is exposed are market risks. So
as to better understand and influence the market, the group is
committed to a policy of proactive engagement across its geographic
range, with customers, industry associations, government regulators
and employee representatives.
Trevor Dighton
Chief Financial Officer
OUR PEOPLE
Core aims and standards - G4S has defined a number of core standards
and processes to ensure that employees are treated with respect,
fairness and dignity at work in line with the G4S values. These
standards and processes cover issues such as:> handling of disciplinary matters and grievances> performance appraisals> identification of training needs> recruitment and selection processes> health and safety> employee representation and communication
Ethical employment goals - Our Business Ethics Policy sets out the
group's core standards in relation to our employees, for example by
supporting the principles of international standards such as the ILO
Declaration on Fundamental Principles and Rights at Work. With
significant G4S operations in many developing markets, real
commitment to these international standards is essential.
Investing in the workforce - We place great focus on attracting and
retaining the right talent at all levels, to ensure the continued
success of the organisation.
Our international spread requires great strength and depth in
management to allow us to continue operating and growing throughout
diverse markets. In addition to our award winning international
leadership development programme, we are investing in regional and
country level employee development programmes around the world.
At front line level too, we continue to invest in practical training
programmes to help refine the skills and capability of our service
delivery staff. Through the commitment of our international training
community, we share best practice, training materials and approaches
around the world, ensuring that our employees benefit from the most
appropriate training to enable them to deliver a great service to our
customers and to create a pipeline of talent moving through the
organisation.
Diversity - This is already a source of strength for the group and
one that gives us a key competitive advantage. With such a diverse
workforce, we are better placed to understand the needs of our
customers and identify opportunities for innovation and improvement.
OUR EMPLOYEES ARE THE PUBLIC FACE OF G4S AND WE RECOGNISE AND RESPECT
THE VALUE THEY ADD TO THE BUSINESS BY DELIVERING EXCELLENT SERVICE
DAY AFTER DAY.
CORPORATE CITIZENSHIP
Background As a major global organisation, we play a significant role
in the lives of hundreds of thousands of people - both directly
through employment and indirectly through our involvement in the
communities in which our employees live and work.
We take that role very seriously and encourage all of our businesses
to actively raise standards and invest in the communities in which
they operate. At a group level, we also invest in programmes which
contribute positively to the community and environment and we set
international standards and policies to which our businesses must
operate.
Business Ethics G4S is committed to operating to the highest levels
of business ethics throughout its operations.
We have an extensive business ethics policy which describes the
company's minimum expected standards in a wide range of areas such
as:> human rights> bribery and corruption> compliance with the law> accounting standards> ILO Declaration on Fundamental Principles and Rights at Work> health & safety> whistle-blowing and complaints
This policy is communicated to managers throughout the group and, on
an annual basis, they are required to declare individually their
personal commitment by endorsing the policy and confirming compliance
within their own area of responsibility.
Strict adherence to the principles of the business ethics policy is
required of all group employees. Compliance with the policy is
monitored through our internal and external audit functions and
through the group's whistle-blowing facilities.
The risk-based three year group audit plan ensures that all
businesses across 110 countries, including those in small and remote
locations, receive at least one visit during the three year audit
cycle. We take our responsibilities in this area very seriously and
take swift and robust action against any non-compliance.
Environment - G4S recognises that its business activities have a
direct and indirect impact on the natural environment and is
committed to proactively managing these impacts in a responsible
manner.
The G4S Environmental Policy and the G4S Climate Action Programme
were launched in 2008. The policy outlines the key commitments from
G4S to protect and preserve the environment for future generations
and the programme will ensure everyone is encouraged to contribute to
protecting and preserving the environment. The Climate Action Board
meets monthly to review progress on the programme and reports
directly to the group chief executive and provides a written
statement to the group management board on a quarterly basis.
More information on the G4S Business Ethics Policy, corporate
responsibility and related data and case studies will be available in
the G4S Corporate Responsibility Report 2008
* ACROSS 585,000 EMPLOYEES, 50 DIFFERENT NATIONAL LANGUAGES ARE
SPOKEN. One in three of our employees works in North Africa and
the Middle East, one in six in Africa and one in eleven in Latin
America.
* EMPLOYEE FEEDBACK INITIATIVE LAUNCHED IN 2008. From 2008 all G4S
countries will undertake an employee survey at least once every
two years.
* G4S EMITS AN AVERAGE OF 90T CO2e EMISSIONS PER £1M OF REVENUE.
During 2009/10 the G4S Climate Action Programme co-ordinators
will identify and implement opportunities for reducing our carbon
emissions and share best practice.
2. RESPONSIBILITY STATEMENT
The company's annual report and accounts for the year ended 31
December 2008 contains the responsibility statement set out below:
Each of the directors who held office at the date of approval of this
directors' report, further confirms that, to the best of his
knowledge: the financial statements in this annual report have been
prepared in accordance with the applicable accounting standards and
give a true and fair view of the assets, liabilities, financial
position and profit of the company and the group taken as whole; and
this directors' report, including the Operating and Financial Review
on pages 8 to 25, includes a fair review of the development and
performance of the business and the position of the company and the
group taken as a whole, together with a description of the principal
risks and uncertainties that they face.
3. CONDENSED FINANCIAL STATEMENTS
For the year ended 31 December 2008
Consolidated income statement
For the year ended 31 December 2008
2008 2007
Notes £m £m
Continuing operations
Revenue 2 5,942.9 4,483.5
Profit from operations before amortisation of
acquisition-related intangible assets and share
of
profit from associates 413.0 308.4
Share of profit from associates 3.4 3.0
Profit from operations before amortisation of
acquisition-related intangible assets (PBITA) 2 416.4 311.4
Amortisation of acquisition-related intangible
assets (67.8) (41.6)
Profit from operations before interest and
taxation (PBIT) 2, 3 348.6 269.8
Finance income 6 104.9 92.6
Finance costs 7 (189.3) (146.3)
Profit before taxation (PBT) 264.2 216.1
Taxation:
- Before amortisation of acquisition-related
intangible assets (89.3) (70.9)
- On amortisation of acquisition-related
intangible assets 19.1 14.9
8 (70.2) (56.0)
194.0
Profit after taxation 160.1
(Loss)/profit from discontinued operations 4 (29.1) 0.5
Profit for the year 164.9 160.6
Attributable to:
Equity holders of the parent 151.2 147.2
Minority interests 13.7 13.4
Profit for the year 164.9 160.6
Earnings per share attributable to equity
shareholders of the parent 10
For profit from continuing operations:
Basic 13.3p 11.5p
Diluted 13.3p 11.5p
For profit from continuing and discontinued
operations:
Basic 11.1p 11.5p
Diluted 11.1p 11.5p
Dividends declared and proposed in respect of
the year 9
Interim dividend of 2.75p per 38.7 27.3
share (2007: 2.11p)
Final dividend of 3.68p per share 51.8 36.3
(2007: 2.85p)
Total dividend of 6.43p per share 90.5 63.6
(2007: 4.96p)
Consolidated balance sheet
At 31 December 2008
2008 2007
Notes £m £m
ASSETS
Non-current assets
Goodwill 2,060.4 1,331.3
Other acquisition-related intangible assets 392.2 224.2
Other intangible assets 61.0 31.3
Property, plant and equipment 528.6 403.2
Investment in associates 7.4 10.2
Trade and other receivables 198.0 69.4
Deferred tax assets 155.0 84.5
3,402.6 2,154.1
Current assets
Inventories 85.5 58.2
Investments 92.7 73.2
Trade and other receivables 1,362.8 887.1
Cash and cash equivalents 562.1 382.1
Assets classified as held for sale 11 71.0 130.9
2,174.1 1,531.5
Total assets 5,576.7 3,685.6
LIABILITIES
Current liabilities
Bank overdrafts (195.1) (110.7)
Bank loans (87.9) (80.6)
Obligations under finance leases (22.1) (16.2)
Trade and other payables (1,216.1) (852.1)
Current tax liabilities (16.2) (18.4)
Retirement benefit obligations (48.9) (47.3)
Provisions (33.9) (23.6)
Liabilities associated with assets
classified as held for sale 11 (74.1) (78.3)
(1,694.3) (1,227.2)
Non-current liabilities
Bank loans (877.8) (729.1)
Loan notes (901.9) (290.4)
Obligations under finance leases (63.6) (46.0)
Trade and other payables (63.5) (38.7)
Retirement benefit obligations (278.6) (120.1)
Provisions (91.3) (38.2)
Deferred tax liabilities (135.0) (75.9)
(2,411.7) (1,338.4)
Total liabilities (4,106.0) (2,565.6)
Net assets 1,470.7 1,120.0
EQUITY
Share capital 352.1 320.2
Share premium and reserves 1,074.9 766.9
Equity attributable to equity holders of
the parent 12 1,427.0 1,087.1
Minority interests 43.7 32.9
Total equity 1,470.7 1,120.0
Consolidated cash flow statement
For the year ended 31 December 2008
2008 2007
Notes £m £m
Profit before taxation 264.2 216.1
(Loss)/profit before taxation from discontinued
operations (29.1) 0.4
Adjustments for:
Finance income (104.9) (92.6)
Finance costs 189.3 146.3
Finance costs attributable to discontinued
operations 1.4 3.3
Depreciation of property, plant and equipment 105.0 91.1
Amortisation of acquisition-related intangible
assets 67.8 41.6
Amortisation of other intangible assets 11.1 8.5
Loss/(profit) on disposal of property, plant
and equipment and intangible assets other
than
acquisition-related 2.1 (14.4)
Loss/(profit) on disposal of discontinued
operations 15.8 (12.0)
Share of profit from associates (3.4) (3.0)
Equity-settled transactions 5.0 4.1
Operating cash flow before movements in working
capital 524.3 389.4
Decrease/(increase) in inventories (7.4) (9.6)
Increase in receivables (40.3) (69.7)
Increase in payables 29.3 84.1
Decrease in provisions (50.9) (36.7)
Cash generated by operations 455.0 357.5
Tax paid (82.0) (66.2)
Net cash flow from operating activities 373.0 291.3
Investing activities
Interest received 17.2 24.9
Cash flow from associates 12.2 1.0
Purchases of property, plant and equipment and
intangible assets other than
acquisition-related (174.5) (134.5)
Proceeds on disposal of property, plant and
equipment and intangible assets other than
acquisition-related 13.2 25.5
Acquisition of subsidiaries (419.4) (151.6)
Net cash balances acquired 19.7 11.6
Disposal of subsidiaries 31.1 7.9
Sale/(purchase) of investments 5.6 (0.3)
Own shares purchased (8.8) (3.1)
Net cash used in investing activities (503.7) (218.6)
Financing activities
Share issues 276.8 0.9
Dividends paid to minority interests (11.9) (3.8)
Loan to minority interests - (13.3)
Dividends paid to equity shareholders of the
parent (75.0) (59.3)
Proceeds on issue of loan notes 327.0 280.6
Repayment of revolving credit facilities with
proceeds from issue of loan notes (327.0) (280.6)
Other net movement in borrowings 173.7 140.4
Interest paid (97.2) (79.9)
Net cash flow from hedging financial
instruments (65.9) (4.3)
Repayment of obligations under finance leases (13.5) (4.6)
Net cash flow from financing activities 187.0 (23.9)
Net increase in cash, cash equivalents and bank
overdrafts 13 56.3 48.8
Cash, cash equivalents and bank overdrafts at
the beginning of the year 270.7 210.0
Effect of foreign exchange rate fluctuations on
cash held 33.7 11.9
Cash, cash equivalents and bank overdrafts at
the end of the year 360.7 270.7
Consolidated statement of recognised income and expense
For the year ended 31 December 2008
2008 2007
£m £m
Exchange differences on translation of foreign
operations 182.0 37.4
Change in fair value of net investment hedging
financial instruments (81.1) (19.0)
Change in fair value of cash flow hedging financial
instruments 36.4 (7.0)
Actuarial (losses)/gains on defined retirement
benefit schemes (196.9) 64.7
Tax on items taken directly to equity 50.3 (14.0)
Net (expense)/income recognised directly in equity (9.3) 62.1
Profit for the year 164.9 160.6
Net recognised income 155.6 222.7
Attributable to:
Equity holders of the parent 141.9 209.3
Minority interests 13.7 13.4
Net recognised income 155.6 222.7
Notes to the condensed financial statements
1) Basis of preparation and accounting policies
The primary statements and selected notes in these condensed
financial statements do not constitute the company's financial
statements within the meaning of Section 240 of the Companies Act
1985 for the years ending 31 December 2008 or 2007. The notes
included in these condensed financial statements are in some cases
summaries of those included in the statutory accounts. Statutory
accounts for the year ended 31 December 2008 have been filed with the
Registrar of Companies. The auditor's report on those accounts was
unqualified and did not contain any statement under Section 237 of
the Companies Act 1985.
These condensed financial statements for the year ended 31 December
2008 has been prepared by the directors, based upon the result and
position which have been reported in the statutory accounts. The
statutory accounts have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("Adopted IFRS"). Details of the accounting policies
that have been applied in the statutory accounts are set out in the
2008 Annual Report and Accounts. IFRIC 14 IAS19 - The limit on a
defined benefit asset, minimum funding requirements and their
interaction has been endorsed during the year and is effective for
accounting periods commencing 1 January 2009. This has not resulted
in a material impact to the financial statements.
The comparative income statement for the year ended 31 December 2007
has been re-presented for operations qualifying as discontinued
during the current year. Revenue from continuing operations has been
reduced by £6.9m and PBT has been reduced by £0.7m compared to the
figures published previously. In addition, the comparative balance
sheet as at 31 December 2007 has been restated to reflect the
completion during 2008 of the initial accounting in respect of
acquisitions made during 2007. Adjustments made to the provisional
calculation of the fair values of assets and liabilities acquired
amount to £1.1m, with an equivalent decrease in the reported value of
goodwill.
2) Segmental analysis
The group operates in two core product areas: secure solutions and
cash solutions. The group operates on a worldwide basis and derives
a substantial proportion of its revenue and PBIT from each of the
following geographical regions: Europe (comprising the United Kingdom
and Ireland, and Continental Europe), North America, and New Markets
(comprising the Middle East and Gulf States, Latin America and the
Caribbean, Africa, and Asia Pacific).
The current management structure of the group is a combination of
product area and geography, within which the larger businesses
generally report by product area. The group's primary segmentation is
therefore by business segment and its secondary segmentation is by
geography.
Segment information for continuing operations is presented below:
Segment revenue
Revenue by business segment 2008 2007
£m £m
Secure Solutions
UK and Ireland 929.9 593.0
Continental Europe 1,389.6 1,078.3
Europe 2,319.5 1,671.3
North America 1,222.3 1,043.8
Middle East and Gulf States 315.6 177.9
Latin America and the Caribbean 223.9 158.0
Africa 248.6 183.9
Asia Pacific 412.0 268.9
New Markets 1,200.1 788.7
Total Secure Solutions 4,741.9 3,503.8
Cash Solutions
Europe 859.1 706.3
North America 87.0 78.0
New Markets 254.9 195.4
Total Cash Solutions 1,201.0 979.7
Total revenue 5,942.9 4,483.5
Notes to the condensed financial statements (continued)
2) Segmental analysis (continued)
Revenue by geographical market 2008 2007
£m £m
Europe 3,178.6 2,377.6
North America 1,309.3 1,121.8
New Markets 1,455.0 984.1
Total revenue 5,942.9 4,483.5
PBITA by business segment 2008 2007
£m £m
Secure Solutions
UK and Ireland 76.8 48.4
Continental Europe 74.9 61.5
Europe 151.7 109.9
North America 70.6 61.5
Middle East and Gulf States 26.4 14.2
Latin America and the Caribbean 14.8 10.3
Africa 22.4 16.0
Asia Pacific 32.6 22.9
New Markets 96.2 63.4
Total Secure Solutions 318.5 234.8
Cash Solutions
Europe 94.0 77.4
North America 0.8 0.6
New Markets 38.6 29.0
Total Cash Solutions 133.4 107.0
Total PBITA before head office costs 451.9 341.8
Head office costs (35.5) (30.4)
Total PBITA 416.4 311.4
PBITA by geographical market
Europe 245.7 187.3
North America 71.4 62.1
New Markets 134.8 92.4
Total PBITA before head office costs 451.9 341.8
Head office costs (35.5) (30.4)
Total PBITA 416.4 311.4
Result by business segment 2008 2007
£m £m
Total PBITA 416.4 311.4
Amortisation of acquisition-related intangible assets (67.8) (41.6)
Total PBIT 348.6 269.8
Secure Solutions 271.5 215.4
Cash Solutions 112.6 84.8
Head office costs (35.5) (30.4)
Total PBIT 348.6 269.8
Notes to the condensed financial statements (continued)
3) Profit from operations before interest and taxation (PBIT)
The income statement can be analysed as follows:
Continuing operations 2008 2007
£m £m
Revenue 5,942.9 4,483.5
Cost of sales (4,627.9) (3,479.2)
Gross profit 1,315.0 1,004.3
Administration expenses (969.8) (737.5)
Share of profit from associates 3.4 3.0
PBIT 348.6 269.8
Included within administration expenses is the amortisation charge
for acquisition-related intangible assets.
4) Discontinued operations
Operations qualifying as discontinued in the current year primarily
comprise the security services businesses in France, which
principally includes Group 4 Securicor SAS, disposed of on 28
February 2009; and the security services businesses in Germany, which
principally include G4S Sicherheitsdienste GmbH and G4S
Sicherheitssysteme GmbH, Berlin, disposed of on 15 May 2008.
Operations qualifying as discontinued in the prior year primarily
comprise: G4S Cash Services (France) SAS, disposed of on 2 July 2007;
as well as the security services businesses in France, which
principally include Group 4 Securicor SAS; and the security services
businesses in Germany, which principally include G4S
Sicherheitsdienste GmbH and G4S Sicherheitssysteme GmbH, Berlin,
which were in the process of being disposed of as at 31 December
2007.
5) Acquisitions
Current year acquisitions
The most significant acquisition in subsidiary undertakings in the
period was the purchase of De Facto 1119 Limited, the holding company
of the Global Solutions group ("GSL") an international leader in the
provision of support services for governments, companies and public
authorities, based in the UK, which was completed on 12 May 2008.
Other principal acquisitions in subsidiary undertakings in the period
include the purchases of ArmorGroup International plc, an
international provider of defensive, protective security services,
head-quartered in the UK; Touchcom, Inc., a security consultancy and
design business in the US; RONCO Consulting Corporation, an
international provider of humanitarian mine action and ordnance
services, specialised security and training, head-quartered in the
US; MJM Investigations, Inc., a provider of insurance fraud
mitigation and claims services in the US; the Rock Steady group of
companies, providing event security in the UK; Travel Logistics
Limited, a provider of passport and visa services in the UK and
Progard, a market leader in professional security services in the
Republic of Serbia.
In addition, the group completed the acquisition of a further 35% of
Aktsiaselts G4S Baltics, increasing to 100% its holding in this
company, the holding company of the G4S subsidiaries in Estonia,
Latvia and Lithuania, which provide both security services and cash
services. This transaction was largely accrued at 31 December 2007
through the recognition of a put option. The group also acquired the
49% of G4S Macau Limitada, a provider of both security services and
cash services that it did not already own.
A summary of the provisional fair value of net assets acquired by
geographical location is presented below:
North New Total
Europe America Markets group
£m £m £m £m
Provisional fair value of net
(liabilities)/assets acquired of
subsidiary
undertakings (81.0) 21.3 15.0 (44.7)
Acquisition of minority interests 0.3 - 5.7 6.0
Total provisional fair value of net
(liabilities)/assets acquired (80.7) 21.3 20.7 (38.7)
Goodwill 304.4 34.0 70.1 408.5
Total purchase consideration 223.7 55.3 90.8 369.8
Notes to the condensed financial statements (continued)
The following table sets out the book values of the identifiable
assets and liabilities acquired and their provisional fair value to
the group in respect of all acquisitions made in the year:
Fair value
Book value adjustments Fair value
£m £m £m
Intangible assets 5.8 198.1 203.9
Property, plant and equipment 45.6 (16.3) 29.3
Investment in associates 1.4 - 1.4
Inventories 5.5 (0.8) 4.7
Trade and other receivables 140.0 (4.2) 135.8
Deferred tax assets 8.9 6.4 15.3
Cash and cash equivalents 58.4 1.5 59.9
Trade and other payables (112.4) (22.2) (134.6)
Current tax liabilities (2.7) (1.0) (3.7)
Obligations under finance leases (13.5) - (13.5)
Provisions 2.9 (30.8) (27.9)
Borrowings (256.7) - (256.7)
Deferred tax liabilities (1.3) (57.3) (58.6)
Net assets acquired of subsidiary
undertakings (118.1) 73.4 (44.7)
5.3
Acquisition of minority interests 8 0.7 6.0
Goodwill 408.5
Total purchase consideration 369.8
Satisfied by:
Cash 339.0
Transaction costs 19.2
Contingent consideration 11.6
Total purchase consideration 369.8
Adjustments made to identifiable assets and liabilities on
acquisition are to reflect their fair value. These include the
recognition of customer-related intangible assets amounting to
£180.5m. The fair values of net assets acquired are provisional and
represent estimates following a preliminary valuation exercise. These
estimates may be adjusted to reflect any development in the issues to
which they relate.
The goodwill arising on acquisitions can be ascribed to the existence
of a skilled, active workforce and the opportunities to obtain new
contracts and develop the business. Neither of these meet the
criteria for recognition as intangible assets separable from
goodwill. Goodwill arising on acquisition includes £19.1m arising on
the acquisition of minority interests.
From their respective dates of acquisition, the acquired businesses'
contribution to the results of the group for the period was as
follows:
Contribution from acquired businesses Revenue PBITA Profit
£m £m £m
GSL 316.9 30.0 11.0
ArmorGroup 111.2 6.0 2.4
Touchcom 4.8 (0.2) (0.4)
RONCO 34.5 5.0 2.6
MJM 14.8 0.9 0.3
Rock Steady 10.5 1.0 0.3
Travel Logistics 7.7 1.3 0.7
Progard 8.2 1.2 0.6
Others 10.0 1.4 0.5
Total contribution from acquired businesses 518.6 46.6 18.0
Notes to the condensed financial statements (continued)
If all the acquisitions had occurred on 1 January 2008 the results of
the group for the period would have been as follows:
Group's results if all acquisitions had Revenue PBITA
occurred on 1 January 2008 Profit
£m £m £m
Group results for the period 5,942.9 416.4 164.9
Impact of backdating acquisitions to 1 January
2008
GSL 158.5 15.0 5.6
ArmorGroup 55.6 3.0 1.2
Touchcom 3.4 (0.1) (0.3)
RONCO 17.3 2.5 1.3
MJM 4.9 0.3 0.1
Rock Steady 3.5 0.3 0.1
Travel Logistics 1.5 0.3 0.2
Progard 8.2 1.2 0.6
Others 7.8 0.7 0.3
Group result for the period if all 6,203.6 439.6
acquisitions had occurred on 1 January 2008 174.0
Acquisition of GSL
The separately identifiable assets and liabilities of GSL as at the
acquisition date are presented in the table below.
Fair value
Book value adjustments Fair value
£m £m £m
Intangible assets 1.9 146.7 148.6
Investment in associates 1.4 - 1.4
Property, plant and equipment 18.8 (5.5) 13.3
Inventories 0.6 -
Trade and other receivables 75.2 (0.5)
Deferred tax assets 4.5 (0.3)
Cash and cash equivalents 54.7 - 54.7
Trade and other payables (84.0) (5.4) (89.4)
Current tax liabilities (1.2) - (1.2)
Obligations under finance leases (12.6) - (12.6)
Provisions 3.2 3.9 7.1
Borrowings (238.8) - (238.8)
Deferred tax liabilities
(1.9) (41.5) (43.4)
Minority interests - - -
Net assets acquired of subsidiary
undertakings (177.4) 97.4 (80.0)
Goodwill 256.1
Total purchase consideration 176.1
Satisfied by:
Cash 167.7
Transaction costs 8.4
Total purchase consideration 176.1
Prior year acquisitions
The purchase consideration and provisional fair values of
acquisitions made during the financial year to 31December 2007 and
their contribution to the group's results for the year are set out in
the group's Annual Report and Accounts 2007. Adjustments made during
the year to 31 December 2008 to the provisional calculation of the
fair values of assets and liabilities acquired and the consideration
payable during the year to 31 December 2008 amount to £1.1m, with an
equivalent decrease in the reported value of goodwill.
Post balance sheet acquisitions
A number of acquisitions were effected after the balance sheet date,
but before the financial statements were authorised for issue, none
of which were individually material. In aggregate, the acquisitions,
primarily within Europe, Asia Pacific and Africa, were satisfied by
total consideration of £26.5m.
It is considered impractical to disclose any further information in
relation to acquisitions effected after the balance sheet date
because the preliminary assessment of the fair value of assets and
liabilities acquired is in progress.
Notes to the condensed financial statements (continued)
6) Finance income
2008 2007
£m £m
Interest income on cash, cash equivalents and investments 17.8 12.4
Other interest income 0.6 2.9
Expected return on defined retirement benefit scheme
assets 86.5 77.3
Total finance income 104.9 92.6
7) Finance costs
2008 2007
£m £m
Interest on bank overdrafts, loans and loan notes 95.1 66.5
Interest on obligations under finance leases 3.9 3.3
Other interest charges 7.5 4.2
Total group borrowing costs 106.5 74.0
Finance costs on defined retirement benefit obligations 82.8 72.3
Total finance costs 189.3 146.3
8) Taxation
2008 2007
£m £m
Current taxation expense (75.6) (59.8)
Deferred taxation credit 5.4 3.8
Total income tax expense for the year (70.2) (56.0)
The total income tax expense for the year includes amounts
attributable to the UK of £7.6m (2007: £8.4m).
9) Dividends
Pence DKK 2008 2007
per share per share £m £m
Amounts recognised as distributions to
equity holders of the
parent in the year
Final dividend for the year ended 31
December 2006 2.52 0.2766 - 32.0
Interim dividend for the six months
ended 30 June 2007 2.11 0.2319 - 27.3
Final dividend for the year ended 31
December 2007 2.85 0.2786 36.4 -
Interim dividend for the six months
ended 30 June 2008 2.75 0.2572 38.6 -
75.0 59.3
Proposed final dividend for the year
ended 31 December 2008 3.68 0.3052 51.8
The proposed final dividend is subject to approval by shareholders at
the Annual General Meeting. If so approved, it will be paid on 5 June
2009 to shareholders who are on the register on 1 May 2009. The
exchange rate used to translate it into Danish kroner is that at 9
March 2009.
Notes to the condensed financial statements (continued)
10) Earnings/(loss) per share attributable to equity shareholders of
the parent
2008 2007
£m £m
From continuing and discontinued operations
Earnings
Profit for the year attributable to equity holders of
the parent 151.2 147.2
Effect of dilutive potential ordinary shares (net of
tax) 0.2 0.2
Profit for the purposes of diluted earnings per share 151.4 147.4
Number of shares (m)
Weighted average number of ordinary shares 1,357.7 1,275.2
Effect of dilutive potential ordinary shares 1.3 1.5
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 1,359.0 1,276.7
Earnings per share from continuing and discontinued
operations (pence)
Basic 11.1p 11.5p
Diluted 11.1p 11.5p
From continuing operations
Earnings
Profit for the year attributable to equity holders of
the parent 151.2 147.2
Adjustment to exclude loss/(profit) for the year from
discontinued operations (net of tax) 29.1 (0.5)
Profit from continuing operations 180.3 146.7
Effect of dilutive potential ordinary shares (net of
tax) 0.2 0.2
Profit from continuing operations for the purpose of
diluted earnings per share 180.5 146.9
Earnings per share from continuing operations (pence)
Basic 13.3p 11.5p
Diluted 13.3p 11.5p
From discontinued operations
Loss per share from discontinued operations (pence)
Basic (2.2)p -
Diluted (2.2)p -
From adjusted earnings
Earnings
Profit from continuing operations 180.3 146.7
Adjustment to exclude net retirement benefit finance
income (net of tax) (2.7) (3.6)
Adjustment to exclude amortisation of
acquisition-related intangible assets (net of tax) 48.7 26.7
Adjusted profit for the year attributable to equity
holders of the parent 226.3 169.8
Weighted average number of ordinary shares (m) 1,357.7 1,275.2
Adjusted earnings per share (pence) 16.7p 13.3p
In the opinion of the directors the earnings per share figure of most
use to shareholders is that which is adjusted. This figure better
allows the assessment of operational performance, the analysis of
trends over time, the comparison of different businesses and the
projection of future earnings.
11) Disposal groups classified as held for sale
Disposal groups classified as held for sale as at 31 December 2008
primarily comprise the assets and liabilities associated with the
manned guarding business in France, which principally includes Group
4 Securicor SAS. This sale was completed on 28 February 2009.
Notes to the condensed financial statements (continued)
12) Summary reconciliation of equity attributable to equity holders
of the parent
Share Share
Capital Reserves Total capital Reserves Total
2008 2008 2008 2007 2007 2007
£m £m £m £m £m £m
At beginning of
year 320.2 766.9 1,087.1 320.0 615.2 935.2
Net recognised
income attributable
to equity
shareholders of the
parent - 141.9 141.9 - 209.3 209.3
Shares issued 31.9 244.9 276.8 0.2 0.7 0.9
Dividends declared - (75.0) (75.0) - (59.3) (59.3)
Own shares
purchased - (8.8) (8.8) - (3.1) (3.1)
Equity-settled
transactions - 5.0 5.0 - 4.1 4.1
At end of year 352.1 1,074.9 1,427.0 320.2 766.9 1,087.1
On 13 May 2008 the group completed a placing of £127m ordinary shares
of 25p at a price of 222p per share. Gross proceeds were £281.9m and
issue costs £5.1m. The placing enabled the group to reduce
borrowings incurred with its expenditure on acquisitions during the
period and increased its capacity to make further acquisitions.
13) Related party transactions
No related party transactions have taken place during the period
which have materially affected the financial position or the
performance of the group during the period. The nature and amounts
of related party transactions during the year are reported in the
group's Annual Report and Accounts 2008.
14) Events after the balance sheet date
A number of acquisitions were effected after the balance sheet date,
but before the financial statements were authorised for issue,
details of which are provided within note 5.
15) Analysis of net debt
A reconciliation of net debt to amounts in the consolidated balance
sheet is presented below:
2008 2007 £m £m
Cash and cash equivalents 562.1 382.1
Investments 92.7 73.2
Net cash and overdrafts included within disposal
groups classified as held for sale (6.3) (0.7)
Net debt (excluding cash and overdrafts) included
within disposal groups classified as held for sale (1.0) (0.8)
Bank overdrafts (195.1) (110.7)
Bank loans (965.7) (809.7)
Loan notes (901.9) (290.4)
Fair value of loan note derivative financial
instruments 153.2 14.3
Obligations under finance leases (85.7) (62.2)
Total net debt (1,347.7) (804.9)
Notes to the condensed financial statements (continued)
An analysis of movements in net debt in the year is presented below:
2008 2007
£m £m
Increase in cash, cash equivalents and bank
overdrafts per consolidated cash flow
statement 56.3 48.8
Sale/(purchase) of investments (5.6) 0.3
Increase in debt and lease financing (160.2) (135.8)
Change in net debt resulting from cash flows (109.5) (86.7)
Borrowings acquired with subsidiaries (230.0) (22.9)
Net additions to finance leases (17.1) (10.3)
Movement in net debt in the year (356.6) (119.9)
Translation adjustments (186.2) (12.2)
Net debt at the beginning of the year (804.9) (672.8)
Net debt at the end of the year (1,347.7) (804.9)
For further enquiries, please contact:
Helen Parris - Director of Investor +44 (0) 1293 554400
Relations
Media enquiries:
Kevin Smith - Citigate Dewe Rogerson +44 (0) 7973 672649
Notes to Editors:
G4S is the world's leading international security solutions group,
which specialises in outsourced business processes in sectors where
security and safety risks are considered a strategic threat.
G4S is the largest employer quoted on the London Stock Exchange and
has a secondary stock exchange listing in Copenhagen. G4S has
operations in over 110 countries and over 585,000 employees. For
more information on G4S, visit www.g4s.com.
G4S's full annual report and accounts for the year ended 31 December
2008 is published today and is available on the company's website:
www.g4s.com.
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Annual Financial Report
| Source: G4S plc