G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Strategic review Marketplace Chief Executive’s interview Looking ahead with confidence In 2011, we achieved our seventh consecutive year of underlying revenue, PBITA and dividend growth. The key highlights of the year were the significant level of contract wins in developed markets in the second half of the year and the continued strong growth in developing markets. We are confident in the future and expect to continue our track record of growth whilst maintaining our discipline on margins and cash generation. 2011 Performance How would you sum up 2011 in terms of trading performance? It is clear that the economic environment continued to toughen during 2011, becoming increasingly challenging in the second and third quarters of the year. Despite this, we have continued to drive the business forward and have achieved our seventh consecutive year of underlying revenue, PBITA and dividend growth. Group revenues were up by 4.7% on the prior year and organic growth increased from 2.1% in 2010 to 4.5% in 2011. There was organic growth of 9% in developing markets, which now make up 30% of the group’s revenue. Low interest rates continue to be the dominating factor in holding back the growth rates in our cash solutions businesses and we continue to focus on keeping the cost base under control so that we are able to maintain operating margins. In our secure solutions businesses, we maintained our operating margins at around 7% in 2011, despite the continuing economic challenges. Of course, one of the biggest events of year was our proposed acquisition of ISS, the integrated facilities services company. We were disappointed not to have completed the transaction which would have transformed the global facilities services market for years to come. 08 G4S plc Annual Report and Accounts 2011 What were the main highlights of the year? The key highlight was the level of contract wins in developed markets in the second half of the year which made up for the disappointment of the loss of contracts for Detention & Escorting and Court Services in the UK in the first half. In the UK, we were successful in winning a substantial number of public sector contracts in areas such as welfare-to-work services for the Department for Work and Pensions and two major outsourced prisons – HMP Birmingham (transferred to G4S in October 2011) and HMP Oakwood (due to open in April 2012). We were also successful in winning an outsourcing contract for Lincolnshire Police to provide a range of services from HR to finance, and from custody services to fleet management, and a substantial contract for the Ministry of Justice to provide integrated facilities services to over 340 court, tribunal and administration buildings in the Midlands, Wales and the North of England. In continental Europe, there were significant contract wins including the Brussels airport security contract which commenced in February 2011 and security for the European Commission building from April 2011. In cash solutions, we experienced growth of more than 30% in Belgium following a competitor exiting the market. We won a large aviation security contract with the Canadian Air Transport Security Authority covering 20 Canadian airports in the Pacific region, including Vancouver International, which commenced in November 2011 and began providing security solutions for a major motor vehicle manufacturer at over 80 locations across the US, including their global headquarters in Detroit.
Governance Financial statements Shareholder information With these contract wins, we have mobilised a number of large and complex contracts with very good customer feedback and no major mishaps – project management is a core skill of the group and I am very grateful to those who have ensured that these mobilisations have gone smoothly. At the same time, we have ramped up our delivery of security for the London 2012 Olympic and Paralympic Games as we have taken on increasing responsibility for the various Games-time venues and implemented a substantial recruitment, screening and training programme to ensure that we have the right level of resources and expertise to secure the Games in 2012. Due to the contract wins and strong growth in developing markets, we have increased our global workforce from 625,000 in 2010 to over 657,000 in 2011. What were the biggest challenges in 2011 and with the benefit of hindsight, what might you have done differently? We would have approached the proposed ISS acquisition differently if we had the opportunity to go back in time. We genuinely believed that we had flagged our transformational acquisition options to the market, but it seems that our approach had not been received clearly. The growth of integrated facilities services, particularly in developing markets and some key developed markets led us to believe that the deal would be truly transformational, not just for G4S, but for the entire market, and would be welcomed by investors – particularly as the financial returns were so strong. With hindsight, we under-estimated the severe impact of the recessionary market environment on sentiment, and investor appetite for large transactions. We stuck rigidly to the rules and best practice regarding communications on M&A, but it was difficult to clearly understand diverse investor views on the deal and it became clear that, with such a complex transaction, investors needed more that the usual 24–48 hours to consider its merits fully. We’ve learned some valuable lessons from the process and I think the market has too. Elsewhere, whilst we have had strong performances across a range of businesses, there have been challenges along the way in 2011. Managing debtors and collecting cash from customers has continued to be a challenge – our teams across the businesses have done a great job to ensure that we reach our cash flow target, but it has been difficult – particularly in some specific areas such as the US Government, where the value of contracts is large and the potential size of the debt would have a big impact on our cash flow performance. In cash solutions, low interest rates and tough economic conditions mean that banks and retailers in some cases are focused on resolving their own trading issues and business challenges and not taking on new ideas and concepts such as outsourcing. This will change in time, but it means we really have to focus on the long-term relationships with key customers in key sectors and not lose faith despite any recent short-term lack of progress. Turnover* £m PBITA* £m 4,484 5,929 7,009 7,181 7,522 2007 2008 2009 2010 2011 312 Adjusted EPS* pence Dividend pence 415 500 520 531 2007 2008 2009 2010 2011 13.3 4.96 16.7 6.43 2007 2008 2009 2010 2011 *2010 and 2011 at 2011 exchange rates and adjusted for divested and discontinued businesses. 2007-2009 as reported. 20.2 2007 2008 2009 2010 2011 7.18 21.6 7.90 22.8 8.53 G4S plc Annual Report and Accounts 2011 09
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