G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Notes to the consolidated financial statements continued 19 Intangible assets continued Customer-related intangibles comprise the contractual and other relationships with customers which meet the criteria for identification as intangible assets in accordance with IFRS. Customer contracts and relationships recognised upon the acquisition of Securicor plc on 19 July 2004 are considered significant to the group. The carrying amount at 31 December 2011 was £47m (2010: £72m), and the amortisation period remaining in respect of these assets is two and a half years. Goodwill acquired in a business combination is allocated to the cash-generating units (CGUs) which are expected to benefit from that business combination. The majority of goodwill was generated by the merger of the security services businesses of Group 4 Falck and Securicor in 2004 which was accounted for as an acquisition of Securicor by Group 4 Falck. The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications that amounts may be impaired. The annual impairment test is performed prior to the year end when the budgeting process is finalised and reviewed post year end. The group’s impairment test compares the carrying value of each CGU to its recoverable amount. CGUs are identified on a country level basis including significant business units, as per the group’s detailed management accounts. Under IAS 36 Impairment of Assets, an impairment is deemed to have occurred where the recoverable amount of a CGU is less than its carrying value. The recoverable amount of a CGU is determined by its value in use which is derived from discounted cash flow calculations. These calculations include forecast pre-tax cash flows for a period of five years. The five year cash flow forecasts are based on the budget for the following year (year one) and the business plans for years two and three, the results of which are reviewed by the board, and projections for years four and five, all of which reflect past experience as well as future expected market trends. Budgeted and forecast cash flows are based on management’s assessment of current contract portfolio, contract wins, contract retention and price increases. Cash flows beyond the five year forecast period are projected into perpetuity at the lower of the planned growth rate in year three and the forecast underlying economic growth rate for the economies in which the CGU operates. Where the planned growth rate in year three exceeds the forecast underlying economic growth rate, the excess is reduced progressively in the projections for years four and five. Into-perpetuity growth rates across the group’s CGUs range from 0% to 25%, and the rates for the significant CGUs are disclosed in the table below. Future cash flows are discounted at a pre-tax, weighted average cost of capital which for the group is 6.1% (2010: 6.5%), and the discount rates for the significant CGUs are disclosed in the table below. Pre-tax cash flows are discounted using pre-tax discount rates derived from calculating the net present value of the post-tax cash flows discounted at post-tax rates. The group rate is adjusted where appropriate to reflect the different financial risks in each country in which the CGUs operate. Risk-adjusted discount rates applicable to group entities range from 4.5% in Singapore to 63.6% in Guinea. In applying the group’s model in 2011, the group has impaired the goodwill relating to its businesses in Greece by £13m. The current challenging economic circumstances in the country have resulted in a discount rate of 16% being applied to the relevant cash flows. The remaining goodwill relating to Greece is £14m and given the ongoing economic and political uncertainty in the country there remains a risk of further impairment. Each increase in the discount rate appropriate to our businesses in Greece of 1% would result in an additional impairment of approximately £1m, all other factors being equal. No impairment has been identified and recognised in any of the group’s other CGUs for the year ended 31 December 2011 or for the year ended 31 December 2010. Management believe that there is currently no reasonably possible change in the underlying factors used in the impairment model for its CGUs, apart from Greece, which would lead to a material impairment of goodwill. The following CGUs have significant carrying amounts of goodwill: Discount rate 2011 Discount rate 2010 Growth rate* 2011 Growth rate* 2010 Goodwill 2011 £m Goodwill 2010 £m US secure solutions (manned security) 6.0% 6.4% 2.0% 2.5% 375 372 Former GSL business acquired in 2008 6.1% 6.5% 2.5% 2.5% 258 258 UK cash solutions 6.1% 6.5% 2.5% 2.5% 239 239 Netherlands secure solutions 6.0% 6.0% 2.5% 3.3% 118 121 UK secure solutions (manned security) 6.1% 6.5% 2.5% 2.5% 117 117 UK secure solutions (justice services) 6.1% 6.5% 2.5% 2.5% 95 95 Estonia secure solutions and cash solutions 7.4% 7.0% 5.0% 4.0% 63 65 Other (all allocated) 931 892 Total goodwill 2,196 2,159 *Growth rate is the long term into-perpetuity growth rate. The key assumptions used in the discounted cash flow calculations relate to the discount rates and underlying economic growth rates for each CGU. With all other variables being equal, a 1% increase in the group discount rate from 6.5% to 7.5% with equivalent increases to the discount rates in all countries would result in a goodwill impairment to the group of £3m. A significant increase of 3% in the group discount rate from 6.5% to 9.5%, and an equivalent increase in all countries, would result in a group impairment of £26m. A decrease in the underlying growth rate in all countries of 1% would result in a group impairment of £2m. A decrease of 3% in growth rate would result in a group impairment of £11m. These approximations indicate the sensitivity of the impairment test to changes in the underlying assumptions. However, it is highly unlikely that any variations in the assumptions would impact on all CGUs at the same time. 98 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information 20 Property plant and equipment Land and buildings £m Equipment and vehicles £m 2011 Cost At 1 January 2011 223 1,025 1,248 Acquisition of businesses 1 7 8 Additions 16 128 144 Disposals (9) (97) (106) Reclassification – (21) (21) Reclassified as held for sale (6) (21) (27) Translation adjustments (3) (8) (11) At 31 December 2011 222 1,013 1,235 Depreciation and accumulated impairment losses At 1 January 2011 (61) (611) (672) Depreciation charge (16) (115) (131) Disposals 6 80 86 Reclassification – 3 3 Reclassified as held for sale 2 15 17 Translation adjustments 2 (8) (6) At 31 December 2011 (67) (636) (703) Carrying amount At 1 January 2011 162 414 576 At 31 December 2011 155 377 532 2010 Cost At 1 January 2010 227 903 1,130 Acquisition of businesses – 1 1 Additions 19 152 171 Disposals (22) (62) (84) Translation adjustments (1) 31 30 At 31 December 2010 223 1,025 1,248 Depreciation and accumulated impairment losses At 1 January 2010 (58) (526) (584) Depreciation charge (15) (116) (131) Disposals 10 50 60 Translation adjustments 2 (19) (17) At 31 December 2010 (61) (611) (672) Carrying amount At 1 January 2010 169 377 546 At 31 December 2010 162 414 576 Total £m G4S plc Annual Report and Accounts 2011 99
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G4S Annual Report and Accounts 2011

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