G4S Annual Report and Accounts 2011

Overview Strategic review Performance
Performance
Financial review
Financial review
Basis of accounting
The financial statements are presented in accordance with applicable law
and International Financial Reporting Standards, as adopted by the European
Union (“adopted IFRSs”). The group’s significant accounting policies are
detailed in note 3 on pages 78 to 83 and those that are most critical and/or
require the greatest level of judgement are discussed in note 4 on page 84.
Operating results
The overall results are commented upon by the chairman in his
statement and operational trading is discussed in the operating review on
pages 12 to 37. Profit from operations before amortisation and impairment
of acquisition-related intangible assets, aborted acquisition and legal
settlement costs and acquisition-related expenses (PBITA) amounted
to £531m, just ahead of the £530m in 2010 and an increase of 2%
at constant exchange rates.
Associates
Included within PBITA is £3m (2010: £5m) in respect of the group’s share
of profit from associates, principally from the business of Space Gateway in
the US which provides safety services to NASA as well as from MW-All Star,
also in the US, which provides facilities services.
Acquisitions and acquisition-related
intangible assets
Investment in acquisitions in the year amounted to £137m. This comprises
a cash outlay of £130m and deferred consideration of £7m. This investment
generated goodwill of £85m and other acquisition-related intangible assets
of £66m. In addition, the group incurred acquisition costs of £2m which
have been expensed.
The group undertook several acquisitions in the year, the most significant
of which were the purchase of the entire share capital of Munt Centrale
B.V., a coin management service company based in the Netherlands,
The Cotswold Group Limited, the UK’s market leader in surveillance,
fraud analytics, intelligence and investigations services and a facilities
services business in Brazil.
The group also acquired the offender monitoring technology operations
of Guidance Limited and certain contracts from Chubb, both in the UK.
In addition, the group purchased the remaining non-controlling interest
in its security business in Turkey.
The group undertook several acquisitions in the prior year, the most
significant of which were the purchase of the controlling interest in SSE Do
Brasil Ltda, the parent company of Instalarme Soluções Eletrônica Ltda
(“Instalarme”), an electronic software and hardware integration company
in Brazil, Plantech Engenharia e Sistemas Ltda (“Plantech”), a leading
integrator in the Brazilian security systems market and the entire share
capital of Skycom (Pty) Ltd (“Skycom”), a market leader in the South African
security systems market.
In addition, during 2010 the group increased its holding in an Argentine
business.
The contribution made by acquisitions to the results of the group during
the year is shown in note 17 on pages 93 to 95.
During the year the group incurred £55m of aborted acquisition and legal
settlement costs. The aborted acquisition costs related to the proposed
acquisition of ISS A/S which was terminated on 1 November 2011 and
included debt underwriting fees, financing and hedging costs.
The charge for the year for the amortisation of acquisition-related intangible
assets other than goodwill amounted to £86m. Goodwill is not amortised
however, as a result of the group’s goodwill impairment exercise, an
impairment charge of £13m was made to the goodwill relating to the group’s
businesses in Greece. See note 19 for further information. Acquisition-related
intangible assets included in the balance sheet at 31 December 2011
amounted to £2,196m goodwill and £264m other.
Financing items
Finance income was £111m and finance costs £207m, giving a net finance
cost of £96m. Net interest payable on net debt was £99m. This is an
increase of 5% over the 2010 cost of £94m due principally to the increase in
the group’s average gross debt. The group’s average cost of gross borrowings
in 2011 was 4.9% compared to 4.8% in 2010. The cost based on prevailing
interest rates at 31 December 2011 was 3.8% compared to 4.2% at
31 December 2010.
Also included within financing are other net interest costs of £nil (2010:
£3m), and a net income of £3m (2010: net cost of £6m) in respect of
movements in the group’s net retirement benefit obligations.
Taxation
The taxation charge of £95m provided upon profit from operations before
amortisation of acquisition-related intangible assets and acquisition-related
expenses, represents an effective tax rate of 22%, compared to 24% in 2010.
The cash tax rate is 18.5% compared to 20% in 2010.
The group’s target is to maintain the effective tax rate. This will be supported
by the gradual reduction in UK corporation tax rates, the ongoing
rationalisation of the group legal structure and the elimination of fiscal
inefficiencies. The amortisation of acquisition-related intangible assets gives
rise to the release of the related proportion of the deferred tax liability
established when the assets were acquired, amounting to £25m.
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G4S plc
Annual Report and Accounts 2011