G4S Annual Report and Accounts 2011

Governance Financial statements Shareholder information
Interest rates
The group’s investments and borrowings at 31 December 2011 were, with
the exception of the issue of private placement notes in July 2008 and public
notes in May 2009, at variable rates of interest linked to LIBOR and Euribor,
with the group’s exposure being predominantly to interest rate risk in sterling.
The group’s interest risk policy requires treasury to fix a proportion of this
exposure on a sliding scale utilising interest rate swaps. The maturity of
these interest rate swaps at 31 December 2010 was limited to five years.
The market value of the Loan Note-related pay-variable receive-fixed swaps
outstanding at 31 December 2011, accounted for as fair value hedges, was
a gain of £77m. The market value of the pay-fixed receive-variable swaps
and the pay-fixed receive-fixed cross-currency swaps outstanding at
31 December 2011, accounted for as cash flow hedges, was a net gain
of £40m.
Foreign currency
The group has many overseas subsidiaries and associates denominated in
various different currencies. Treasury policy is to manage significant translation
risks in respect of net operating assets using foreign currency denominated
loans, where possible. The group does not use foreign exchange contracts
to hedge the residual portion of net assets not hedged by way of loans.
The group believes cash flow should not be put at risk by these instruments
in order to preserve the carrying value of net assets. At 31 December 2011,
the group’s US dollar and euro net assets were approximately 75% and 50%
respectively hedged by foreign currency loans.
Exchange differences on the translation of foreign operations included in the
consolidated statement of comprehensive income amount to a loss of £65m
(2010: gain of £41m). These differences are net of a £29m loss (2010: £27m)
on the retranslation of net debt.
Cash management
To assist the efficient management of the group’s interest costs and its
short-term deposits, overdrafts and revolving credit facility drawings, the
group operates a global cash management system. At 31 December 2011,
more than 140 group companies participated in the pool. Debit and credit
balances of £303m were held within the cash pool and were offset for
reporting purposes.
Retirement benefit obligations
The group’s primary defined benefit retirement benefit scheme operates
in the UK, but it also operates such schemes in a number of other countries,
particularly in Europe and North America. The latest full actuarial assessment
of the three sections of the UK scheme was carried out at 5 April 2009.
The three sections of the UK scheme are the Group 4 scheme
(approximately 8,000 members), the Securicor scheme (approximately
20,000 members) and the GSL scheme (approximately 2,000 members)
acquired in 2008. This assessment and those of the group’s other schemes
have been updated to 31 December 2011. The group’s funding shortfall
on the valuation basis specified in IAS19 Employee Benefits was £295m
before tax or £212m after tax (2010: £265m and £191m respectively).
The net pension obligation has increased by £30m since 31 December 2010
due mainly to a net actuarial loss as a result of the decrease in the discount
rate used in the UK from 5.5% to 5.0%, although this was offset partly by
a decrease in inflation assumptions. Additional company contributions
of £40m were paid into the schemes.
The group believes that, over the very long term in which retirement benefits
become payable, investment returns should eliminate the deficit reported in
the schemes in respect of past service liabilities. However, in recognition of
the regulatory obligations upon pension fund trustees to address reported
deficits, the group’s deficit recovery plan will see additional cash contributions
made to the UK scheme of approximately £35m in 2012 with modest annual
increments thereafter.
During the year the group has closed the UK scheme to future accrual which
will limit the future growth in liabilities. Existing members retain their benefits
accrued to-date and have been offered the opportunity to transfer to a new
defined contribution scheme for future pension benefits.
Corporate governance
The group’s policies regarding risk management and corporate governance
are set out in the Corporate governance statement on pages 57 to 61.
Going concern
The directors are confident that, after making enquiries and on the basis
of current financial projections and available facilities, they have a reasonable
expectation that the group has adequate resources to continue in operational
existence for the foreseeable future. For this reason they continue to adopt
the going concern basis in preparing the financial statements.
Trevor Dighton
Chief financial officer
G4S plc
Annual Report and Accounts 2011
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