G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Performance Divisional review continued Secure solutions Case study CATSA Aviation is a key sector for G4S and during 2011, G4S won various aviation contracts in Europe, the Middle East and North America. The largest was for 20 airports in the Pacific region of Canada, including Vancouver International Airport which started in November. As Canada’s gateway to Asia, airports in the Pacific region play a significant role in commerce and tourism. G4S will help protect the public by securing critical elements of the air transportation system, including passenger, hold baggage and non-passenger screening at Canadian airports. The five-year contract (with an option to extend for up to an additional five years) is valued at more than CAD$400m over the initial five-year term. Case study HMP Birmingham, UK During 2011, G4S took over management of HMP Birmingham, a category “B” prison located near the centre of Birmingham in the UK. HMP Birmingham is the first public sector prison to be privatised and the transfer by the mobilisation team went very well. The prison holds 1,450 remand and sentenced adult men. G4S has a “Working Prisons : Working People” programme throughout the prisons it manages, believing these prisons should provide rehabilitation. The programme helps provide an opportunity for rehabilitation for people who are ready and willing to work, and develops ties with the business community. 30 G4S plc Annual Report and Accounts 2011 Market growth drivers Government A sharper global focus on security in the past decade has led to government outsourcing across a number of markets. A history of successful outsourcing within developed markets has bolstered a belief in competition and confidence in private sector involvement. Government contracts accounted for around 32% of secure solutions revenue and 27% of total G4S revenue in 2011 and are split broadly into three geographic areas – UK, US and Rest of World. We anticipate further government outsourcing opportunities will arise in developed markets as pressure on public spending intensifies and government departments seek to manage their budgets, without compromising on service delivery standards or the integrity of vital front line public services. This expertise, particularly in justice services, can then be exported into developing markets. Ports and airports We ensure the safe passage of travellers, crew and cargo and the efficiency of the international transport system through a full range of aviation operations spanning over 100 airports and more than 80 airlines in more than 40 countries and at 20 ports worldwide. Airport infrastructure is not expected to keep up with passenger growth over the next ten years, potentially resulting in a shortfall of capacity in the order of one billion passengers. Airports and airlines will be looking to cost-effective, flexible security providers who have consulting capability and new technology integration expertise and who can redesign systems and interfaces. In the ports sector, compliance with international security standards and evolving ports legislation is driving customer requirements. With 480 million containers being moved around the world every year, container and port facility security is an area of growing focus. Key opportunities for the port sector lie with the large international private/government port operators, who have collectively committed more than $180bn of investment in building new green/brown field terminals globally to expand their portfolios and capacity, including $60bn proposed for India and $40bn across the Middle East. Energy, oil and gas With ever growing pressure on energy providers to secure supplies for years to come through investment in new production plants and the protection of vital resources, security has come to the fore in the energy and utilities sector. The market for security across much of the energy market has been led by regulation, particularly of nuclear power. Increased regulation is driving a focus on cost efficiency, robust asset protection and on intelligence and risk-led security capabilities, together with experience of security provision within challenging and unpredictable environments. Security challenges within the energy and utilities arena can be diverse – from protecting the copper contained within electricity cables to oil or nuclear facility risk assessment and pipeline protection.
Governance Financial statements Shareholder information Performance Europe Organic growth in Europe was 4% and margins at 7.3% were higher than the previous year, due mainly to the turnaround of the business in Ireland. With a large number of contracts being mobilised in the UK in the first half of 2012 we would expect the margin in the first six months to be lower compared to the same period in 2011, but to recover for the full year 2012. UK and Ireland There was good organic growth of 5% in the UK and Ireland and margins improved as a result of the continued strong performance of the UK commercial and government businesses, and improved performance in Ireland. The improvement in the UK business performance was a result of a number of major government contract wins and extensions such as: uu Taking over the national security contract for the Department for Work and Pensions which was mobilised on 1 January 2011 uu Strong growth in the level of services provided for the London 2012 Olympic and Paralympic Games. G4S commenced its security operations for The London Organising Committee of the Olympic and Paralympic Games (LOCOG) in March 2011 and will provide security services at the majority of the Olympic and Paralympic venues across the country, as well as at many non-competition venues and at LOCOG’s test events, in the build up to and during the Games over the coming year uu uu uu Delivery of welfare-to-work services in three UK regions – this contract, which was mobilised on 1 June 2011, has performed in line with expectations Two public to private prisons – HMP Birmingham (transferred successfully to G4S In October 2011) and the new HMP Oakwood (underway to open in April 2012) Facilities services contracts at City Hospitals Sunderland and Liverpool Women’s Hospital During 2011, G4S was also successful in winning a number of significant government outsourcing contracts such as: uu Integrated facilities services for the Ministry of Justice for more than 340 court buildings across the Midlands, Wales and the North of England from 1 February 2012 for five years uu uu uu The provision of transport and accommodation for asylum applicants for the UK Border Agency in two regions – the Midlands and the East of England and the North East, Yorkshire and Humberside Prisoner escorting services for the Scottish Prison Service which was mobilised on 10 January 2012 Outsourcing services for Lincolnshire police – the first contract of its kind to be awarded by a British Police Authority; it includes a framework agreement for ten other police forces – this commences in May 2012 The pipeline of UK government outsourcing opportunities remains strong, particularly in areas such as prisons, police, health and the Department for Work and Pensions. The UK commercial business grew strongly and contracts won included a number of significant smart meter installation contracts for the major utility providers and insurance claims investigations for Aviva. Major contract extensions included manned security for RBS and Virgin Atlantic and G4S became preferred bidder for its first large commercial facilities services contract in the UK, for General Dynamics’ UK sites. G4S recently completed the acquisition of Chubb Emergency Response, one of the UK’s leading key holding and response services, covering over 7,000 customers across 22,000 locations via a network of 28 dedicated offices and 247 employees. The acquisition significantly strengthens the strategic development plans of G4S’s existing monitoring and response capability. Trading conditions in Ireland remained challenging in 2011 but underlying trading was helped by a cost reduction plan. G4S Ireland broadened its expertise into areas such as safety, security systems, alarm monitoring and patrol and response through two acquisitions in 2011. Continental Europe The Continental Europe region performed well against an uncertain economic backdrop and has continued to gain market share with its solutions strategy outperforming single service providers. Overall organic growth was 3% as a result of price increases in some markets and a revised contract mix which improved margins to 5.5%. Revenue for the security systems business, which accounts for around 25% of Continental European secure solutions revenue, was flat. The group divested its home alarms business in Norway. There were some notable strong performances in the region – in Belgium with the winning of the Brussels airport security contract for up to five years from February 2011 and security for the European Commission building from April 2011. In Sweden, G4S won the contract for the Swedish Parliament Administration from March 2011 and Volvo from April 2012 for three years. In Greece, G4S was awarded the US Embassy contract in Athens. The secure solutions business was affected by the impact of the economic crisis, which was partly offset by a strong performance in cash solutions (see page 37). In Israel, G4S is the preferred bidder for a PFI police training academy which will have a 25-year contract term and two immigration accommodation contracts started in Cyprus in March and April. Following significant revenue reductions in 2010, organic growth in most Eastern European markets is stabilising to a low single-digit level. G4S plc Annual Report and Accounts 2011 31
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