G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Strategic review Marketplace Chief Executive’s statement continued From the second half of 2011 onwards, the group has been active in mobilising a number of major new contracts around the world. Mobilisation statistics Contracts Sites People From Belgium cash solutions An extra 19,000 services per month 220 January 2011 Brussels Airport 1 850 February 2011 HMP Birmingham, UK 1 550 October 2011 CATSA, Canada 20 1,400 November 2011 Ministry of Justice, UK 340 800 February 2012 Lincolnshire Police, UK 106 540 Summer 2012 Major motor manufacturer, USA 80 1,600 January 2012 HMP Oakwood, UK 1 450 April 2012 In specific higher-risk countries such as Iraq and Afghanistan, we have seen challenges of a different kind. In Iraq, the withdrawal of the US military means that our operations have been reduced significantly. The revenue from this work will be replaced in the medium term with business in the oil and gas sector, but there is a short-term impact on our performance. In Afghanistan, there is increasing negativity towards foreign companies working in the country and an increasingly challenging environment for the welfare of our employees, so we have taken the decision to exit our business there. Strategy Is there going to be a change of strategy or focus in 2012? Not at all – security remains core to our global strategy – it is the market which we know best and where we have proved we can deliver strong performances across a number of customer sectors. We will take advantage of trends for integrated facilities services in countries where the market has already developed that way and the approach has been proven to be successful. In large new markets, we will look at ways to expand beyond security where the market opportunity is great and where there is significant growth potential – for example in markets such as Brazil, India and China. We will continue to focus on bidding for larger contracts and outsourcing services where we can take responsibility for an increasing range of outsourced services, have longer-term contracts where we can help customers to reduce risk, improve financial performance, protect critical assets, improve customer service or protect reputations. What does that mean in terms of acquisitions or divestments? We will consider acquiring facilities services businesses in the UK and US, but will be focusing the majority of our acquisition efforts in developing markets, where we can either improve our market share or where an acquisition will start to drive outsourcing in key sectors. Developing markets currently account for 30% of group revenues and we expect this to grow to 50% in the longer term. We will also be more active on our divestment strategy, particularly where a service line or business is not in line with the group’s core strategy, where a business is unable to reach our internal margin targets under our ownership or where an alternative parent could add or drive more value from a business. We expect to spend around £200m each year on acquisitions. We will also keep transformational options under review whilst continuing to assess shareholder appetite for such acquisitions. 10 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information Targets and challenges How are you making sure the business is fit to handle the ongoing economic uncertainty? We constantly keep our structure and costs under review and, at a group level, we have recently made some changes to our regional structure. Until the end of 2011, we had managed our larger, more complex cash solutions businesses under a separate structure to ensure that we could share best practice, develop new service lines, maximise efficiencies and ensure a common approach to security and safety. The cash solutions team did a great job in ensuring these standards were in place and we decided in the fourth quarter of last year that the time was right to integrate the cash solutions businesses into our existing regional structure and to remove the separate divisional structure. This year we are creating a number of global service excellence centres to work with G4S country operations to focus on operational efficiency, service standards, development of technology to support service delivery, and share best practice across our main service lines – cash solutions, secure solutions and justice services. We have a number of procurement projects underway to ensure that we are getting value for money from our key suppliers across the group and are continually reviewing the cost base at every level to ensure that we are operating as efficiently as possible. What are the short-term priorities for 2012? Are you setting any specific goals? There are a number of significant contracts which we must mobilise in 2012 and we must maintain our track record of success in this area. We have to keep the cost base under constant review and we will have an increased focus on managing debtors and generating cash – it was a challenge in 2011 so we need to make sure we remain focused on continuing to improve our cash flow performance into 2012. We are aiming to increase the proportion of our business coming from larger, more complex bids where we have already demonstrated that we can be successful and deliver value for our customers. Overall, we expect to continue our seven-year trend of good organic growth, controlling margins, investing cash in quality acquisitions which add value to the business and targeting double digit EPS growth each year. How would you summarise the outlook for the group? Despite ongoing economic uncertainty and some of our key resources being focused on the proposed ISS acquisition in 2011, the business has performed well and has good trading momentum which we expect to continue. With a large number of contracts being mobilised in the first half of the year, we would expect the operating margin to be lower in the first six months of the year compared to the same period in 2011, but to recover for the full year 2012. We have had some significant contract wins in the last year which demonstrate the outsourcing model, particularly in the public sector in the UK, is delivering real benefit to the group. We expect these outsourcing trends to continue and will focus on bidding and winning an increasing proportion of larger, more complex contracts. 2012 will of course be a year of mobilisation across a broad range of complex contracts and delivery of the security for the London 2012 Olympic and Paralympic Games – we are very excited about the Games coming to the UK and will do everything we can to make sure they are safe and secure. Integrated facilities services is growing faster than single service supply markets, but the security market is still growing well in its own right – this gives us confidence for the future and we expect to continue our track record of growth, whilst continuing to maintain our discipline on margins and cash generation. Nick Buckles Chief executive officer G4S plc Annual Report and Accounts 2011 11
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