Comparative information
On 19 July 2004, the security businesses of the former Group 4 Falck A/S (“Group 4”) combined with Securicor plc (“Securicor”) to become Group 4 Securicor plc. As explained in note 1 to the financial statements on page 56, the combination between Group 4 and Securicor is accounted for as an acquisition of the latter by the former. The reported statutory comparative results of the group for the year ended 31 December 2004 therefore include the full year of trading of Group 4 and the trading of Securicor from the date of acquisition.

Also presented, on pages 48 and 49, is pro forma financial information in respect of turnover, profit before interest, taxation, amortisation of acquisition-related intangible assets and exceptional items (PBITA) and operating cash flow information for which the comparatives shown are those for the combined businesses now comprising the group for the full year to 31 December 2004. This pro forma comparative financial information, which is unaudited, has been compiled to provide guidance for investors and analysts.

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 14 to 23.

Exceptional item
The exceptional item in the year, excluded from the group’s calculation of adjusted earnings per share, amounted to £22.2m and related to post-acquisition restructuring costs. Included within this is a cost of £4.0m incurred in the reorganisation of the cash services business in Germany.

Acquisitions and acquisition-related intangible assets
Cash outflow on acquisitions amounted to £69.7m, including £51.9m on acquisitions made during the year, which generated goodwill of £32.6m and other acquisition-related intangible assets of £11.9m. The contribution made by acquisitions to the results of the group during the year is shown in note 16 on page 73.

The charge for the year for the amortisation of acquisition-related intangible assets other than goodwill amounted to £33.8m. Goodwill is not amortised. Acquisition-related intangible assets included in the balance sheet at 31 December 2005 amounted to £1,172.7m goodwill and £241.4m other.

Disposals and discontinued operations
Disposals in the year generated a net cash inflow of £42.1m and a net loss of £6.9m.

The European Commission required the disposal of three businesses as a condition for their approval of the combination between Group 4 and Securicor. The disposals of Group 4’s cash services operation in Scotland and Securicor’s operations in Luxembourg were completed in March 2005. The disposal of Group 4’s manned security operations in the Netherlands (with the exception of aviation security activities, which have been retained) was completed in November 2005. During the disposal process the group only had restricted control over these operations and in consequence their results have not been consolidated from 20 July 2004.

The other principal disposal during the year was the sale of the manned security business of Cognisa in the US in August 2005.

The contribution to the turnover and operating profit of the group from discontinued operations is shown in note 5 on pages 64 to 66 and their contribution to net profit, including the net loss on disposal, is detailed in note 6 on page 68.

IFRS
As a group operating across the world, we welcome moves towards the harmonisation of accounting standards, including the adoption of International Financial Reporting Standards (IFRS) by the European Union. These are our first financial statements to be prepared in accordance with IFRS. The restatement of the 2004 comparatives under IFRS, including a reconciliation to the financial statements for 2004 prepared according to UK Generally Accepted Accounting Practice (GAAP) as in force at the time, was published in September 2005 and the disclosures required by IFRS 1are represented in note 43 on pages 100 to 103.

An explanation of the differences between UK GAAP applicable in 2004 and IFRS applicable in 2005 that impact the group is given within note 43. The most significant of these differences are the cessation of goodwill amortisation; the recognition of a wider range of acquisition-related intangible assets, other than goodwill, which are subject to amortisation; the recognition of pension funding balances; the recognition of an expense in respect of the fair value of share-based payments; the proportionate consolidation of joint ventures; the recognition of certain financial instruments at fair value; the recognition of deferred tax on certain temporary differences, in particular the intangible assets recognised upon acquisitions, which would not generate deferred tax under UK GAAP; and the recognition of proposed dividends as liabilities only when they have been declared.

The restatement under IFRS of the previously reported results for 2004 resulted in a reduction of £2.4m in PBITA on the pro forma basis for the combined group, a reduction of £1.7m in PBITA on the statutory basis, a reduction in the loss for the year of £29.5m and a reduction in net assets of £8.1m.

Taxation
The taxation charge of £67.1m provided upon profit from operations before exceptional items and amortisation of acquisition-related intangible assets represents a tax rate of 31.4%. Tax relief has been provided against exceptional items and acquisition-related intangible assets totalling £9.1m. In addition, a tax charge of £1.8m has been included within the results from discontinued operations. Potential tax assets in respect of losses of £123.0m have not been recognised as their utilisation is uncertain and/or long-term.

Cash flow
Cash flow in the year to 31 December 2005 was in line with the group's target following two years of strong cash generation. Operating cash flow, after capital expenditure, as disclosed on page 48 was £198.0m (2004: £213.1m), representing a PBITA cash conversion rate of 63% for the first half, 93% for the second half and 80% for the full year (2004: 100%). The increase in working capital during the year of £45.0m was mainly due to the growth in turnover.

The net cash from operating activities of £174.5m disclosed in accordance with IAS7 Cash Flow Statements on page 54 is before capital expenditure of £89.8m, and after cash spend on one-off items of £38.0m, tax paid of £53.0m and a cash outflow on other items not included in the operating cash flow disclosed on page 48 amounting to £22.3m.

Net cash outflow from acquisitions and disposals of businesses amounted to £24.6m.

Increase in net debt in the year resulting from cash flows was £21.4m and the total increase in net debt, after allowing for finance leases, borrowings acquired on acquisition of subsidiaries and translation adjustments, was £70.9m.

Financing and treasury activities
The group’s treasury function is responsible for ensuring the availability of cost-effective finance and for managing the group’s financial risk arising from currency and interest rate volatility and counterparty credit. Treasury is not a profit centre and is not permitted to speculate in financial instruments. The treasury department's policies are set by the board. Treasury is subject to the controls appropriate to the risks it manages.

Financing
On 28 June 2005 the group concluded the refinancing of a £1bn multicurrency revolving credit facility with a new margin of 0.225% which is a reduction of 0.15%. Maturity was also extended as the facility is for five years with options, exercisable by the lending banks, to potentially extend the term to seven years. The group has other available facilities of £347m.

At 31 December 2005 net debt of £657.3m represented a gearing of 68%. The group has sufficient capacity to finance growth, which will be enhanced by future cash generation.

Interest rates
The group’s investments and borrowings, including those negotiated after 31 December 2005, are at variable rates of interest linked to LIBOR and Euribor. The group predominantly has exposure to interest rate risk in US Dollar and Euro. The interest risk policy requires treasury to fix a proportion of net debt on a sliding scale, with a maximum of 80% short term debt held at fixed rates, reducing to a maximum of 20% of medium term debt held at fixed rates. The maturity of interest rate swaps is limited to five years. The market value of swaps outstanding at 31 December 2005 was £0.3m.

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 and income denominated in foreign currencies. The methods adopted are to use borrowings denominated in foreign currency supplemented by forward foreign exchange contracts. The market value of forward contracts outstanding at 31 December 2005 was a £6.2m liability.

Cash management
To increase the efficient management of the group’s interest costs and its short term deposits, overdrafts and revolving credit facility drawings, the group introduced a global cash management system in December 2005, full implementation of which was completed by the end of March 2006.

Dividends
The directors recommend a final dividend of 2.24p per share. This represents an increase of 21% upon the final dividend for the year to 31 December 2004. The final dividend, taken with the interim dividend of 1.30p per share, makes a total dividend of 3.54p per share for 2005, representing an increase of 31% over the total dividend for 2004 to former shareholders of Securicor plc. To former shareholders of Group 4 Falck A/S, the total dividend for 2005 represents an increase of 91% over the dividend for 2004.

In proposing this final dividend, the board considered both the appropriate level of dividend cover and the future strategy and prospective earnings of the group. Dividend cover on adjusted profit in the current year is 3.1 times. The group intends to increase dividends so as to reduce dividend cover to around 2.5 times over the medium term.

“The directors recommend a final dividend of 2.24p per share. This represents an increase of 21% upon the final dividend for the year to 31 December 2004.”

Corporate governance
The group’s policies regarding risk management and corporate governance are set out in the Corporate Governance Statement on pages 37 to 39.

Pensions
The group's primary funded defined benefit pension schemes are those operated in the UK, but it also operates such schemes in the Netherlands, Ireland and Canada. The latest full triennial actuarial assessments of the UK schemes were carried out at 31 March 2005 in respect of the Group 4 scheme and at 31 March 2003 in respect of the Securicor scheme. These assessments and those of the group's other schemes have been updated to 31 December 2005, including the review of longevity assumptions. The group's funding shortfall on the valuation basis specified in IAS19 Employee Benefits was £217m before tax or £152m after tax (2004: £220m and £154m respectively).

Although the value of the assets in the funds has increased by £166m since 2004, this was counteracted by a reduction in bond rates, which are used to discount liabilities for IAS19 purposes, and by the impact of an increase in projected longevity. We believe that, over the very long term in which pension liabilities become payable, improved investment returns should eliminate the deficit in the schemes in respect of past service liabilities. However, in recognition of the currently reported deficits, an additional cash contribution of £23.5m before tax is being made to the UK schemes in the year commencing 1 January 2006.

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