G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Notes to the consolidated financial statements continued 30 Obligations under finance leases Minimum lease payments 2011 £m Minimum lease payments 2010 £m Present value of minimum lease payments 2011 £m Present value of minimum lease payments 2010 £m Amounts payable under finance leases: Within one year 18 24 16 21 In the second to fifth years inclusive 51 52 46 46 After five years 2 4 2 3 71 80 64 70 Less: Future finance charges on finance leases (7) (10) Present value of lease obligations 64 70 Less: Amount due for settlement within 12 months (shown under current liabilities) (16) (21) Amount due for settlement after 12 months 48 49 It is the group’s policy to lease certain of its fixtures and equipment under finance leases. The weighted average lease term is eight years. For the year ended 31 December 2011, the weighted average effective borrowing rate was 5.5% (2010: 6.8%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The directors believe the fair value of the group’s finance lease obligations, being the present value of future cash flows, approximates to their book value. The group’s obligations under finance leases are secured by the lessors’ charges over the leased assets. 31 Trade and other payables Within current liabilities: Trade creditors 238 198 Amounts due to construction contract customers (see note 26) 5 7 Amounts owed to associated undertakings 2 2 Other taxation and social security costs 231 208 Other creditors 435 461 Accruals and deferred income 328 325 Derivative financial instruments at fair value (see note 32) 5 9 Total trade and other payables included within current liabilities 1,244 1,210 Within non-current liabilities: Derivative financial instruments at fair value (see note 32) 4 7 Other creditors 15 41 Total trade and other payables included within non-current liabilities 19 48 2011 £m 2010 £m Trade and other payables comprise principally amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 39 days (2010: 33 days). The directors believe the fair value of trade and other payables, being the present value of future cash flows, approximates to their book value. Other creditors of £15m included within non-current liabilities comprises £7m relating to creditors due between one and two years, and £8m relating to creditors due between two and five years. 106 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information 32 Derivative financial instruments The carrying values of derivative financial instruments at the balance sheet date are presented below: Assets 2011 £m Assets 2010 £m Liabilities 2011 £m Cross currency swaps designated as cash flow hedges 40 39 – – Interest rate swaps designated as cash flow hedges – – 9 16 Interest rate swaps designated as fair value hedges 77 55 – – Commodity swaps 3 2 – – Liabilities 2010 £m 120 96 9 16 Less: Non-current portion (106) (85) (4) (7) Current portion 14 11 5 9 Derivative financial instruments are stated at fair value, measured using techniques consistent with Level 1 of the valuation hierarchy (see Note 3(d)). The source of the market prices is Bloomberg and in addition the third party relationship counterparty banks. The relevant currency yield curve is used to forecast the floating rate cash flows anticipated under the instrument which are discounted back to the balance sheet date. This value is compared to the original transaction value giving a fair value of the instrument at the balance sheet date. The mark to market valuation of the derivatives has risen by £30m during the year. The interest rate, cross currency and commodity swaps treated as cash flow hedges have the following maturities: Assets 2011 £m Assets 2010 £m Liabilities 2011 £m Within one year 2 1 3 3 In the second year 10 1 2 7 In the third year – 10 2 4 In the fourth year 23 – 1 1 In the fifth year or greater 8 29 1 1 Total carrying value 43 41 9 16 Liabilities 2010 £m Projected settlement of cash flows (including accrued interest) associated with derivatives: Assets 2011 £m Assets 2010 £m Liabilities 2011 £m Within one year 2 1 7 11 In the second year 10 1 2 5 In the third year – 9 2 1 In the fourth year 24 – – 1 In the fifth year or greater 9 32 1 1 Total cash flows 45 43 12 19 Liabilities 2010 £m 33 Financial risk Capital management The group’s capital management objective is to ensure that the businesses within it can continue and develop as going concerns whilst returns to stakeholders are maximised. The group believes that these returns are maximised when the group’s Weighted Average Cost of Capital (WACC) is minimised and that this is the case when the group has the characteristics of an investment grade BBB rated entity. The group therefore aims generally to maintain its net debt expressed as a multiple of cash generated from operations broadly within a range corresponding to those of BBB rated entities. On 9 March 2009 the group obtained a BBB stable credit rating from Standard & Poor’s, which has been retained. The group has a range of return on capital targets in respect of potential acquisitions, depending upon their size. Most proposals for “bolt-on” acquisitions must demonstrate a post-tax return of at least 12.5% on the capital investment within three years. Medium-sized acquisitions are required to return a minimum of 10% within this timeframe and relatively rare, large, strategic acquisitions a minimum equal to the group’s WACC. The group’s calculation of its post-tax WACC at 31 December 2011 was 7.3%. The group monitors the financial performance of acquired businesses during the years following acquisition against the return targets. In addition, the group monitors the Return on Net Assets (RONA) of all its businesses on a monthly basis. The group regards RONA as a measure of operational performance and therefore calculates it as EBITA divided by net assets excluding goodwill, tax, dividends payable and retirement benefit obligations. The group has no current intention to commence a share buy-back plan. The group operates a programme to purchase its own shares on the market on a regular basis so as to provide a pool of shares from which to satisfy share awards to employees as the awards vest. The group is not subject to externally-imposed capital requirements and there were no changes in the group’s approach to capital management during the year. G4S plc Annual Report and Accounts 2011 107
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G4S Annual Report and Accounts 2011

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