G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Notes to the consolidated financial statements continued 4 Accounting estimates, judgements and assumptions The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of the group’s accounting policies, which are described in note 3, with respect to the carrying amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These judgements, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, including current and expected economic conditions, and in some cases, actuarial techniques. Although these judgements, estimates and associated assumptions are based on management’s best knowledge of current events and circumstances, the actual results may differ. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The judgements, estimates and assumptions which are of most significance to the group are detailed below: Valuation of acquired businesses The initial accounting for an acquisition involves identifying and determining the fair values to be assigned to identifiable assets, liabilities and contingent liabilities as well as the acquisition cost. In some instances, this initial accounting can only be determined provisionally by the end of the period in which the acquisition is effected because the fair values and/or the cost is not known with full certainty. In such an event, the initial accounting can be completed using provisional values with any adjustments to those provisional values being completed within 12 months of the acquisition date. Additionally, in determining the fair value of acquisition-related intangible assets, in the absence of market prices for similar assets, valuation techniques are applied. These techniques use a variety of estimates including projected future results and expected future cash flows, discounted using the weighted average cost of capital relevant to the acquisition. Furthermore, management make an assessment of the useful economic life of acquired intangible assets upon recognition. Full details of the fair values of assets and liabilities of acquired businesses are presented in note 17. Assessment of the recoverable amounts in respect of assets tested for impairment The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications that amounts may be impaired. The impairment analysis for such assets is based principally upon discounted estimated future cash flows from the use and eventual disposal of the assets. Such an analysis includes estimation of future results, cash flows, any annual growth rates and judgement as to the appropriate discount rates. The full methodology and results of the group’s impairment testing is presented in note 19. Valuation of retirement benefit obligations The valuation of defined retirement benefit schemes is arrived at using the advice of qualified independent actuaries who use the projected unit credit method for determining the group’s obligations. This methodology requires the use of a variety of assumptions and estimates, including the appropriate discount rate, the expected return on scheme assets, mortality assumptions, future service and earnings increases of employees and inflation. Full details of the group’s retirement benefit obligations, including an analysis of the sensitivity of the calculations to the key assumptions are presented in note 34. 5 Revenue An analysis of the group’s revenue is as follows: Notes Continuing operations Sale of goods 218 125 Rendering of services 7,080 6,925 Revenue from construction contracts 224 208 Revenue from continuing operations as presented in the consolidated income statement 6 7,522 7,258 2011 £m 2010 £m Discontinued operations Sale of goods 3 1 Rendering of services 120 141 Revenue from construction contracts 3 – Revenue from discontinued operations 6, 7 126 142 Other operating income Interest income 18 11 Expected return on defined retirement benefit scheme assets 93 87 Total other operating income 111 98 84 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information 6 Operating segments The group operates in two core product areas: secure solutions and cash solutions which represent the group’s reportable segments. For each of the reportable segments, the group’s CEO (the chief operating decision maker) reviews internal management reports on a regular basis. The group operates on a worldwide basis and derives a substantial proportion of its revenue, PBITA and PBIT from each of the following geographical regions: Europe (comprising the United Kingdom and Ireland, and Continental Europe), North America, and Developing markets (comprising the Middle East and Gulf States, Latin America and the Caribbean, Africa, and Asia Pacific). Segment information is presented below: Revenue by reportable segment Continuing operations 2011 £m Discontinued operations 2011 £m Total 2011 £m Continuing operations 2010 £m Discontinued operations 2010 £m Secure solutions UK and Ireland 1,252 – 1,252 1,179 – 1,179 Continental Europe 1,475 29 1,504 1,404 35 1,439 Europe 2,727 29 2,756 2,583 35 2,618 North America 1,652 – 1,652 1,676 – 1,676 Middle East and Gulf States 410 32 442 426 39 465 Latin America and the Caribbean 427 4 431 351 5 356 Africa 348 1 349 332 1 333 Asia Pacific 657 – 657 600 – 600 Developing markets 1,842 37 1,879 1,709 45 1,754 Total Secure Solutions 6,221 66 6,287 5,968 80 6,048 Cash solutions Europe 817 60 877 831 60 891 North America 106 – 106 106 – 106 Developing markets 378 – 378 353 2 355 Total Cash solutions 1,301 60 1,361 1,290 62 1,352 Total revenue 7,522 126 7,648 7,258 142 7,400 Total 2010 £m Revenue by geographical area UK and Ireland* 1,708 1,657 Continental Europe 1,925 1,852 Europe 3,633 3,509 North America 1,758 1,782 Middle East and Gulf States 504 521 Latin America and the Caribbean 489 412 Africa 474 458 Asia Pacific 790 718 Developing markets 2,257 2,109 Total revenue 7,648 7,400 Total 2011 £m Total 2010 £m Revenue from internal and external customers by reportable segment Total gross segment revenue 2011 £m Inter-segment revenue 2011 £m External revenue 2011 £m Total gross segment revenue 2010 £m Inter-segment revenue 2010 £m Secure solutions 6,296 (9) 6,287 6,055 (7) 6,048 Cash solutions 1,361 – 1,361 1,353 (1) 1,352 Total revenue 7,657 (9) 7,648 7,408 (8) 7,400 Inter-segment sales are charged at prevailing market prices. *UK and Ireland revenue includes £1,591m relating to the UK (2010: £1,548m). External revenue 2010 £m G4S plc Annual Report and Accounts 2011 85
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